[ 6450

- 01 -P]

DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE- 2011

- BT

- STD

- 0011 ]

RIN: 1904

– AC06

Energy Conservation Program: Energy Conservation Standards for Residential

Furnaces and Residential Central Air Conditioners and Heat Pumps

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

ACTION: Direct final rule.

SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as amended,

prescribes energy conservation standards for various consumer products and certain

commercial and industrial equipment, including residential furnaces and residential

central air conditioners and heat pumps. EPCA also requires the U.S. Department of

Energy (DOE) to determine whether more-stringent, amended standards for these

products would be technologically feasible and economically justified, and would save a

significant amount of energy. In this direct final rule, DOE adopts amended energy

conservation standards for residential furnaces and for residential central air conditioners

and heat pumps. A notice of proposed rulemaking that proposes identical energy

efficiency standards is published elsewhere in today’s Federal Register . If DOE receives

1adverse comment and determines that such comment may provide a reasonable basis for

withdrawing the direct final rule, this final rule will be withdrawn, and DOE will proceed

with the proposed rule.

DATES: The direct final rule is effective on [INSERT DATE 120 DAYS FROM

DATE OF PUBLICATION IN THE FEDERAL REGISTER] unless adverse

comment is received by [INSERT DATE THAT IS 110 DAYS FROM

PUBLICATION IN THE FEDERAL REGISTER] . If adverse comments are received

that DOE determines may provide a reasonable basis for withdrawal of the direct final

rule, a timely withdrawal of this rule will be published in the Federal Register . If no such

adverse comments are received, compliance with the standards in this final rule will be

required on May 1, 2013 for non-weatherized gas furnaces, mobile home gas furnaces,

and non-weatherized oil furnaces; and January 1, 2015 for weatherized gas furnaces and

all central air conditioner and heat pump product classes.

ADDRESSES: Any comments submitted must identify the direct final rule for Energy

Conservation Standards for Residential Furnaces, Central Air Conditioners, and Heat

Pumps, and provide the docket number EERE-2011- BT -STD-0011 and/or regulatory

information number (RIN) 1904-AC06. Comments may be submitted using any of the

following methods:

1. Federal eRulemaking Portal : http://www.regulations.gov . Follow the

instructions for submitting comments.

22. E-mail : ResFurnaceAC-2011-Std-0011@ee.doe.gov . Include Docket Numbers

EERE-2011- BT -STD-0011 and/or RIN number 1904 -AC06 in the subject line of

the message.

3. Mail : Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies

Program, Mailstop EE-2J, 1000 Independence Avenue, SW., Washington, DC,

20585 -0121. If possible, please submit all items on a CD, in which case it is not

necessary to include printed copies.

4. Hand Delivery/Courier : Ms. Brenda Edwards, U.S. Department of Energy,

Building Technologies Program, 950 L’Enfant Plaza, SW ., Suite 600,

Washington, DC, 20 024

. Telephone: (202) 586-2945. If possible, please submit

all items on a CD, in which case it is not necessary to include printed copies.

No telefacsimilies will be accepted. For detailed instructions on submitting

comments and additional information on the rulemaking process, see section VII

of this document (Public Participation).

Docket : The docket is available for review at www.regulations.g ov , including

Federal Register notices, framework documents, public meeting attendee lists and

transcripts, comments, and other supporting documents/materials. All documents in the

docket are listed in the 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.

3A link to the docket web page can be found at: [This web page will contain a link

to the docket for this notice on the regulations.gov site.] The www.regulations.gov web

page contains simple instructions on how to access all documents, including public

comments, in the docket. See section VII for further information on how to submit

comments through www.regulations.gov

.

For further information on how to submit or review public comments, or view

hard copies of the docket in the Resource Room, contact Ms. Brenda Edwards at (202)

586 -2945 or by email: Brenda.Edwards@ee.doe.gov

.

FOR FURTHER INFORMATION CONTACT:

Mr. Mohammed Khan (furnaces) or Mr. Wesley Anderson (central air

conditioners and heat pumps), U.S. Department of Energy, Office of Energy Efficiency

and Renewable Energy, Building Technologies Program, EE-2J, 1000 Independence

Avenue, SW., Washington, DC, 20585- 0121 . Telephone: (202) 586 -7892 or (202) 586­

7335. E -mail: Mohammed.Khan@ee.doe.gov or Wes.Anderson@ee.doe.gov

.

Mr. Eric Stas or Ms. Jennifer Tiedeman

, U.S. Department of Energy, Office of the

General Counsel, GC-71, 1000 Independence Avenue, SW., Washington, DC, 20585­

0121. Telephone: (202) 586

- 9507 or (202) 287-6111 . E -mail: Eric.Stas@hq.doe.gov or
Jennifer.Tiedeman@hq.doe.gov

.

SUPPLEMENTARY INFORMATION:

4Table of Contents

I. Summary of the Direct Final Rule A. The Energy Conservation Standard Levels B. Benefits and Costs to Consum ers C. Impact on Manufacturers D. National Benefits E. Conclusion II. Introduction A. Authority B. Background 1. Current Standards

a. Furnaces b. Central Air Conditioners and Heat Pumps 2. History of Standards Rulemaking for Residential Furnaces, Central Air Conditioners, and Heat Pumps

a. Furnaces b. Central Air Conditioners and Heat Pumps III. General Discussion A. Combined Rulemaking B. Consensus Agreement 1. Background 2. Recommendations

a. Regions b. Standard Levels

c. Compliance Dates 3. Comments on Consensus Agreement C. Compliance Dates

a. Consensus Agreement Compliance Dates b. Shift from Peak Season

c. Standby Mode and Off Mode Compliance Dates D. Regional Standards 1. Furnace Regions for Analysis 2. Central Air Conditioner and Heat Pump Regions for Analysis 3. Impacts on Market Participants and Enforcement Issues

a. Impacts on Additional Market Participants b. Enforcement Issues E. Standby Mode and Off Mode 1. Furnaces

a. Standby Mode and Off Mode for Weatherized Gas and Weatherized OilFired Furnaces b. Standby Mode and Off Mode for Electric Furnaces

c. Standby Mode and Off Mode for Mobile Home Oil-Fired Furnaces 2. Central Air Conditioners and Heat Pumps

a. Off Mode for Space-Constrained Air Conditioners and Heat Pumps F. Test Procedures

51. Furnaces

a. AFUE Test Method Comment Discussion b. Standby Mode and Off Mode 2. Central Air Conditioners and Heat Pumps

a. Proposed Test Procedure Amendments G. Technological Feasibility 1. General 2. Maximum Technologically Feasible Levels

a. Weatherized Gas Furnace Max-Tech Efficiency Level b. Space-Constrained Central Air Conditioner and Heat Pump Max-Tech Efficiency Levels H. Energy Savings 1. Determination of Savings 2. Significance of Savings I. Economic Justification 1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers b. Life-Cycle Costs

c. Energy Savings d. Lessening of Utility or Performance of Products

e. Impact of Any Lessening of Competition f. Need of the Nation to Conserve Energy
g. Other Factors 2. Rebuttable Presumption IV. Methodology and Discussion A. Market and Technology Assessment 1. General 2. Products Included in this Rulemaking

a. Furnaces b. Central Air Conditioners and Heat Pumps 3. Product Classes

a. Furnaces b. Central Air Conditioners and Heat Pumps 4. Technologies That Do Not Impact Rated Efficiency B. Screening Analysis 1. Furnaces

a. Screened-Out Technology Options 2. Central Air Conditioners and Heat Pumps 3. Standby Mode and Off Mode 4. Technologies Considered C. Engineering Analysis 1. Cost Assessment Methodology

a. Teardown Analysis b. Cost Model

c. Manufacturing Production Cost d. Cost-Efficiency Relationship

6e. Manufacturer Markup f. Shipping Costs
g. Manufacturer Interviews 2. Representative Products

a. Furnaces b. Central Air Conditioners and Heat Pumps 3. Efficiency Levels

a. Furnaces b. Central Air Conditioners and Heat Pumps 4. Results 5. Scaling to Additional Capacities

a. Furnaces b. Central Air Conditioners and Heat Pumps 6. Heat Pump SEER/HSPF Relationships 7. Standby Mode and Off Mode Analysis

a. Identification and Characterization of Standby Mode and Off Mode Components b. Baseline Model

c. Cost-Power Consumption Results D. Markup Analysis E. Energy Use Analysis 1. Central Air Conditioners and Heat Pumps 2. Furnaces 3. Standby Mode and Off Mode

a. Central Air Conditioners and Heat Pumps b. Furnaces F. Life-Cycle Cost and Payback Period Analyses 1. Product Cost 2. Installation Cost

a. Central Air Conditioners and Heat Pumps b. Furnaces 3. Annual Energy Consumption 4. Energy Prices 5. Energy Price Projections 6. Maintenance and Repair Costs

a. Central Air Conditioners and Heat Pumps b. Furnaces 7. Product Lifetime 8. Discount Rates 9. Compliance Date of Amended Standards 10. Base-Case Efficiency Distribution

a. Energy Efficiency b. Standby Mode and Off Mode Power 11. Inputs to Payback Period Analysis 12. Rebuttable Presumption Payback Period G. National Impact Analysis

– National Energy Savings and Net Present Value

71. Shipments

a. Impact of Potential Standards on Shipments 2. Forecasted Efficiency in the Base Case and Standards Cases 3. Installed Cost per Unit 4. National Energy Savings 5. Net Present Value of Consumer Benefit 6. Benefits from Effects of Standards on Energy Prices H. Consumer Subgroup Analysis I. Manufacturer Impact Analysis 1. Overview

a. Phase 1: Industry Profile b. Phase 2: Industry Cash Flow Analysis

c. Phase 3: Sub-Group Impact Analysis 2. GRIM Analysis

a. GRIM Key Inputs b. Markup Scenarios 3. Manufacturer Interviews

a. Consensus Agreement b. Potential for Significant Changes to Manufacturing Facilities

c. Increase in Product Repair and Migration to Alternative Products d. HFC Phase-Out Legislation

e. Physical Constraints f. Supply Chain Constraints J. Employment Impact Analysis K. Utility Impact Analysis L. Environmental Assessment M. Monetizing Carbon Dioxide and Other Emissions Impacts 1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions b. Social Cost of Carbon Values Used in Past Regulatory Analyses

c. Current Approach and Key Assumptions 2. Valuation of Other Emissions Reductions V. Analytical Results A. Trial Standard Levels 1. TSLs for Energy Efficiency 2. TSLs for Standby Mode and Off Mode Power B. Economic Justification and Energy Savings 1. Economic Impacts on Individual Consumers

a. Life-Cycle Cost and Payback Period b. Consumer Subgroup Analysis

c. Rebuttable Presumption Payback 2. Economic Impacts on Manufacture rs

a. Industry Cash-Flow Analysis Results b. Impacts on Employment

c. Impacts on Manufacturing Capacity d. Impacts on Sub-Groups of Small Manufacturers

8e. Cumulative Regulatory Burden 3. National Impact Analysis

a. Significance of Energy Savings b. Net Present Value of Consumer Costs and Benefits

c. Indirect Impacts on Employment 4. Impact on Utility or Performance of Products 5. Impact of Any Lessening of Competition 6. Need of the Nation to Conserve Energy 7. Other Factors C. Conclusion 1. Benefits and Burdens of TSLs Considered for Furnace, Central Air

Conditioner, and Heat Pump Energy Efficiency 2. Benefits and Burdens of TSLs Considered for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power 3. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency 4. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power 5. Certification Requirements VI. Procedural Issues and Regulatory Review A. Review Under Executive Order 12866 and 13563 B. Review Under the Regulatory Flexibility Act 1. Description and Estimated Number of Small Entities Regulated 2. Description and Estimate of Compliance Requirements

a. Central Air Conditioning and Heat Pumps b. Residential Furnaces 3. Duplication, Overlap, and Conflict With Other Rules and Regulations 4. Significant Alternatives to the Rule C. Review Under the Paperwork Reduction Act of 1995 D. Review Under the National Environmental Policy Act of 1969 E. Review under Executive Order 13132 F. Review Under Executive Order 12988 G. Review Under the Unfunded Mandates Reform Act of 1995 H. Review Under the Treasury and General Government Appropriations Act, 1999 I. Review Under Executive Order 12630 J. Review Under the Treasury and General Government Appropriations Act, 2001 K. Review Under Executive Order 13211 L. Review Under the Information Quality Bulletin for Peer Review M. Congressional Notification VII. Public Participation A. Submission of Comments VIII. Approval of the Office of the Secretary

9I. Summary of the Direct Final Rule

A. The Energy Conservation Standard Levels

Title III, Part B 1 of the Energy Policy and Conservation Act of 1975 (EPCA or the

Act), Pub. L. 94-163 (42 U.S.C. 6291-6309, as codified), established the Energy

Conservation Program for Consumer Products Other Than Automobiles. Pursuant to

EPCA, any new or amended energy conservation standard that DOE prescribes for

certain products, such as the residential furnaces (furnaces) and residential central air

conditioners and central air conditioning heat pumps (air conditioners and heat pumps) 2

that are the subject of this rulemaking, shall be designed to “achieve the maximum

improvement in energy efficiency . . . which the Secretary determines is technologically

feasible and economically justified.” (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or
amended standard must “result in significant conservation of energy.” (42 U.S.C.

6295(o)(3)(B)) In accordance with these and other statutory provisions discussed in this

notice, DOE adopts amended energy conservation standards for furnaces and central air

conditioners and heat pumps. The standards for energy efficiency are shown in Table I.1,

and the standards for standby mode and off mode 3 are shown in Table I.2

. These

standards apply to all products listed in Table I.1 and manufactured in, or imported into,

the United States on or after May 1, 2013, for non-weatherized gas and oil-fired furnaces

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

10and mobile home gas furnaces, and on or after January 1, 2015, for weatherized furnaces

and central air conditioners and heat pumps.

11Table I.1 Amended Energy Conservation Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency Residential Furnaces* Product Class National Standards Northern Region** Standard s Non

- weatherized gas AFUE = 80% AFUE = 90% Mobile home gas AFUE = 80% AFUE = 90% Non

- weatherized oil

- fired AFUE = 83% AFUE = 83% Weatherized gas AFUE = 81% AFUE = 81% Mobile home oil

- fired ‡‡ AFUE = 75% AFUE = 75% Weatherized oil

- fired ‡‡ AFUE = 78% AFUE = 78% Electric ‡‡ AFUE = 78% AFUE = 78% Central Air Conditioners and Heat Pumps † Product Class National Standard s Southeastern Region †† Standard s Southwestern Region ‡ Standards

Split

- system air conditioners SEER = 13 SEER = 14 SEER = 14 EER = 12.2 (for units with a rated cooling capacity less than 45,000 Btu/h) EER = 11.7 (for units with a rated cooling capacity equal to or greater than 45,000 Btu/h) Split

- system heat pumps SEER = 14 HSPF = 8.2 SEER = 14 HSPF = 8.2 SEER = 14 HSPF = 8.2 Single

- package air conditioners ‡‡ SEER = 14 SEER = 14 SEER = 14 EER = 11.0 Single

- package heat pumps SEER = 14 HSPF = 8.0 SEER = 14 HSPF = 8.0 SEER = 14 HSPF = 8.0 Small

- duct, high

- velocity systems SEER = 13 HSPF = 7.7 SEER = 13 HSPF = 7.7 SEER = 13 HSPF = 7.7 Space

- constrained products

– air conditioners ‡‡ SEER = 12 SEER = 12 SEER = 12

Space

- constrained products

– heat pumps ‡‡ SEER = 12 HSPF = 7.4 SEER = 12 HSPF = 7.4 SEER = 12 HSPF = 7.4
* AFUE is annual fuel utilization efficiency. ** The Northern region for furnaces contains the following States: Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. † SEER is Seasonal Energy Efficiency Ratio; EER is Energy Efficiency Ratio; HSPF is Heating Seasonal Performance Factor; and Btu/h is British thermal units per hour. †† The Southeastern region for central air conditioners and heat pumps contains the following States: Alabama, , Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia. ‡ The Southwestern region for central air conditioners and heat pumps contains the States of Arizona, California, Nevada, and New Mexico. ‡‡ DOE is not amending energy conservation standards for these product classes in this rule.

12Table I.2 Amended Energy Conservation Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode* Residential Furnaces* * Product Class Standby Mode and Off Mode Standard Levels Non

- weatherized gas P W,SB = 10 watts P W,OFF = 10 watts Mobile home gas P W,SB = 10 watts P W,OFF = 10 watts Non

- weatherized oil

- fired P W,SB = 11 watts P W,OFF = 11 watts Mobile home oil

- fired P W,SB = 11 watts P W,OFF = 11 watts Electric P W,SB = 10 watts P W,OFF = 10 watts Central Air Conditioners and Heat Pumps †† Product Class Off Mode Standard Levels † † Split

- system air conditioners P W,OFF = 3 0 watts Split

- system heat pumps P W,OFF = 33 watts Single

- package air conditioners P W,OFF = 3 0 watts Single

- package heat pumps P W,OFF = 33watts Small

- duct, high

- velocity systems P W,OFF = 3 0 watts Space

- constrained air conditioners P W,OFF = 3 0 watts Space

- constrained heat pumps P W,OFF = 33 watts

* P W,SB is standby mode electrical power consumption, and P W,OFF is off mode electrical power consumption. For furnaces, DOE is proposing to change the nomenclature for the standby mode and off mode power consumption metrics for furnaces from those in the furnace and boiler test procedure final rule published on October 20, 2010. 75 FR 64621. DOE is renaming the P SB and P OFF metrics as P W,SB and P W,OFF , respectively. However, the substance of these metrics remains unchanged. ** Standby mode and off mode energy consumption for weatherized gas and oil-fired furnaces is regulated as a part of single-package air conditioners and heat pumps, as discussed in section III.E.1. † P W,OFF is off mode electrical power consumption for central air conditioners and heat pumps. †† DOE is not adopting a separate standby mode standard level for central air conditioners and heat pumps, because standby mode power consumption for these products is already regulated by SEER and HSPF.

B. Benefits and Costs to Consumers

The projected economic impacts of today’s standards on individual consumers are

generally positive. For the standards on energy efficiency, the estimated average lifecycle cost (LCC) 4 savings for consumers are $1 55 for non-weatherized gas furnaces in

4 The LCC is the total consumer expense over the life of a product, consisting of purchase and installation costs plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating

13the northern region, $4 19 for mobile home gas furnaces in the northern region, and $ 15

for non-weatherized oil-fired furnaces at a national level. ( Today’s standards on energy

efficiency would have no impact for consumers of non-weatherized gas furnaces and

mobile home gas furnaces in the southern region.) The estimated LCC savings for

consumers are $ 93 and $ 10 7 for split system air conditioners (coil only) in the hot-humid

and hot-dry regions, 5 respectively; $ 89 and $ 101 for split system air conditioners (blower

coil) in the hot-humid and hot-dry regions, respectively; $ 1 02 and $ 1 75 for split system

heat pumps in the hot-humid and hot-dry regions, respectively, and $ 4 for the rest of the

country; $ 37 for single package air conditioners in the entire country; and $ 104 for single

package heat pumps in the entire country. 6 For small-duct, high-velocity systems, no

consumers would be impacted by today’s standards. Deleted: 96
Deleted: 93

Deleted: 1 10

Deleted: 19 3

Deleted: 10

Deleted: 75 and $ 61

Deleted: hot

- humid and hot

- dry regions, respectively, and

- $ 85 for the rest of the

Deleted: 8 7 and $1 64 Deleted: 9 8

Deleted: 100 Comment [A1]: Footnote recommended by OIRA.

Deleted: hot

- humid and hot

- dry regions, respectively, and

- $ 26 for the rest of the

For today’s national standards on standby mode and off mode power, the

estimated average LCC savings for consumers are $2 for non-weatherized gas furnaces,

$0 for mobile home gas furnaces and electric furnaces, $1 for non-weatherized oil-fired

furnaces, $ 84 for split system air conditioners (coil only), $ 40 for split system air

conditioners (blower coil), $9 for split system heat pumps, $41 for single package air

conditioners, $9 for single package heat pumps and $37 for small-duct, high-velocity

(SDHV) systems.

costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product.
5 Throughout this notice, t he terms “hot

- humid” and “hot

- dry” are used interchangeably with the terms “southeastern” and “southwestern,” respectively, when referring to the two southern regions for central air conditioners and heat pumps.
6 For single-package air conditioners and single-package heat pumps, DOE has analyzed the regional standards on a national basis because the standard would be identical in each region. Additionally, given the low level of shipments of these products, DOE determined that an analysis of regional standards would not produce significant differences in comparison to a single national standard.

14C. Impact on Manufacturers

The industry net present value (INPV) is the sum of the discounted cash flows to

the industry from the base year through the end of the analysis period (2010 through

2045). Using a real discount rate of 8.0 percent, DOE estimates that the INPV for

manufacturers of furnaces, central air conditioners, and heat pumps in the base case

(without amended standards) is $8.50 billion in 2009$. For today’s standards on energy

efficiency

, DOE expects that manufacturers may lose 5.6 to 10.6 percent of their INPV,

or approximately $0. 48 billion to $0.90 billion. For today’s standards on standby mode

and off mode power, DOE expects that manufacturers may lose up to 2.9 percent of their

INPV, or approximately $0.25 billion.

D. National Benefits

DOE’s analyses indicate that today’s standards for energy efficiency and standby

mode and off mode power would save a significant amount of energy

– an estimated 3. 36

to 4. 38 quads of cumulative energy in 2013

– 2045 for furnaces and in 2015-2045 for

central air conditioners and heat pumps. 7 This amount is comprised of savings of 3. 20 to

4. 22 quads for today’s st andards on energy efficiency and 0.16 quads for today’s

standards on standby mode and off mode power. The total amount is approximately onefifth of the amount of total energy used annually by the U.S. residential sector. In

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

15addition, DOE expects the energy savings from today’s standards to eliminate the need

for approximately 3. 80 to 3.92 gigawatts (GW) of generating capacity by 2045.

The cumulative national net present value (NPV) of total consumer costs and

savings of today’s standards for products shipped in 2013

– 2045 for furnaces and in 2015­

2045 for central air conditioners and heat pumps, in 2009$, ranges from $4. 30 billion to

$4. 58 billion (at a 7-percent discount rate) to $15. 9 billion to $18. 7 billion (at a 3-percent

discount rate). 8 Th is NPV is the estimated total value of future operating-cost savings

during the analysis period, minus the estimated increased product costs (including

installation), discounted to 2011.

In addition, today’s standards would have significant environmental benefits. The

energy savings would result in cumulative greenhouse gas emission reductions of 11 3

million to 143 million metric tons (Mt) 9 of carbon dioxide (CO 2 ) in 2013

– 2045 for

furnaces and in 2015-2045 for central air conditioners and heat pumps. During this

period, today’s standards would also result in emissions reductions of 97 to 124 thousand

tons of nitrogen oxides (NO X ) and 0. 143 to 0. 169 ton of mercury (Hg). 10 DOE estimates

the present monetary value of the total CO 2 emissions reductions is between $0. 5 74

billion and $11.8 billion, expressed in 2009$ and discounted to 2011 using a range of

8 DOE uses discount rates of 7 and 3 percent based on guidance from the Office of Management and Budget (OMB Circular A-4, section E (Sept. 17, 2003)). See section IV.G of this notice for further information.
9 A metric ton is equivalent to 1.1 short tons. Results for NO X and Hg are presented in short tons.
10 DOE calculates emissions reductions relative to the most recent version of the Annual Energy Outlook ( AEO ) Reference case forecast. As noted in section 15.2.4 of TSD chapter 15, this forecast accounts for regulatory emissions reductions through 2008, including the Clean Air Interstate Rule (CAIR, 70 FR 25162 (May 12, 2005)), but not the Clean Air Mercury Rule (CAMR, 70 FR 28606 (May 18, 2005)). Subsequent regulations, including the currently proposed CAIR replacement rule, the Clean Air Transport Rule (75 FR 45210 (Aug. 2, 2010)), do not appear in the forecast. Deleted: 23

Deleted: 51

Deleted: 8

Deleted: 6

Deleted: 114

Deleted: 573

16discount rates (see notes to Table I.3). DOE also estimates the present monetary value of

the NO X emissions reductions, expressed in 2009$ and discounted to 2011, is between

$12. 7 million and $169 million at a 7-percent discount rate, and between $30.7 million

and $ 403 million at a 3-percent discount rate. 11 Deleted: 6

Deleted: 402

The benefits and costs of today’s standards can also be expressed in terms of

annualized values. The annualized monetary values are the sum of: (1) the annualized

national economic value, expressed in 2009$ , of the benefits from operating products that

meet t oday’s standards (consisting primarily of operating cost savings from using less

energy, minus increases in equipment purchase costs, which is another way of

representing consumer NPV), and (2) the monetary value of the benefits of emission

reductions, including CO 2 emission reductions. 12 The value of the CO 2 reductions,

otherwise known as the Social Cost of Carbon (SCC), is calculated using a range of

values per metric ton of CO 2 developed by a recent interagency process. The monetary

costs and benefits of cumulative emissions reductions are reported in 2009$ to permit

comparisons with the other costs and benefits in the same dollar units. The derivation of

the SCC values is discussed in further detail in section IV.M.

11 DOE is aware of multiple agency efforts to determine the appropriate range of values used in evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to await further guidance regarding consistent valuation and reporting of Hg emissions before it once again monetizes Hg emissions reductions in its rulemakings.
12 DOE used a two-step calculation process to convert the time-series of costs and benefits into annualized values. First, DOE calculated a present value in 2011, the year used for discounting the NPV of total consumer costs and savings, for the time-series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO 2 reductions

. For the latter, DOE used a range of discount rates, as shown in Table I.3. From the present value, DOE then calculated the fixed annual payment over a 32 -year period, starting in 2011 that yields the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time-series of cost and benefits from which the annualized values were determined would be a steady stream of payments.

17Although combining the values of operating savings and CO 2 emission reductions

provides a useful perspective, two issues should be considered. First, the national

operating savings are domestic U.S. consumer monetary savings that occur as a result of

market transactions, whereas the value of CO 2 reductions is based on a global value.

Second, the assessments of operating cost savings and CO 2 savings are performed with

different methods that use quite different time frames for analysis. The national operating

cost savings is measured for the lifetime of products shipped in 2013

– 2045 for furnaces

and 2015-2045 for central air conditioners and heat pumps. The SCC values, on the other

hand, reflect the present value of future climate-related impacts resulting from the

emission of one metric ton of carbon dioxide in each year. These impacts continue well

beyond 2100.

Estimates of annualized benefits and costs of today’s standards for furnace,

central air conditioner, and heat pump energy efficiency are shown in Table I.3

. The

results under the primary estimate are as follows. Using a 7-percent discount rate for

consumer impacts and the SCC series that has a value of $22.1/ton in 2010 (in 2009$ ),

the cost of the standards in today’s rule is $ 527 million to $ 773 million per year in

increased equipment costs, while the annualized benefits are $ 8 37 million to $ 1106

million per year in reduced equipment operating costs, $ 140 million to $178 million in

CO 2 reductions, and $ 5. 3 million to $6.9 million in reduced NO X emissions. In this case

, Deleted: 533

Deleted: 780

Deleted: 839

Deleted: 1107

the net benefit amounts to $ 4 56 million to $ 5 17 million per year. DOE also calculated Deleted: 451

Deleted: 512 annualized net benefits using a range of potential electricity and equipment price trend

18forecasts. Given the range of modeled price trends, the range of net benefits in this case is

from $ 295 million to $6 23 million per year. The low estimate in Table I.3 corresponds to

a scenario with a low electricity price trend and a constant real price trend for equipment

, while the high estimate reflects a high electricity price trend and a strong declining real

price trend for equipment.

Using a 3-percent discount rate for consumer impacts and the SCC series that ha s

a value of $22.1/ton in 2010 (in 2009$ ), the cost of the standards in today’s rule is $ 5 66

million to $ 825 million per year in increased equipment costs, while the benefits are Comment [A2]: Change recommended by OIRA.

Deleted: 573

Deleted: 832

$ 1289 million to $ 1686 million per year in reduced operating costs, $ 140 million to $178

million in CO 2 reductions, and $ 7. 9 million to $10.2 million in reduced NO X emissions.

In this case, the net benefit amounts to $ 8 71 million to $ 1049 million per year. DOE also

calculated annualized net benefits using a range of potential electricity and equipment

price trend forecasts. Given the range of modeled price trends, the range of net benefits in

this case is from $6 01 million to $1,260 million per year. The low estimate correspond s
to a scenario with a low electricity price trend and a constant real price trend for

equipment, while the high estimate reflects a high electricity price trend and a strong

declining real price trend for equipment

. Deleted: 1290

Deleted: 1687

Deleted: 865 million to $ 1043 million per year

Comment [A3]: Change recommended by OIRA.

19Formatted Table

... Deleted: 839

... 37 to 1, 107

... Deleted: 722

... 23 to 955

... Deleted: 958

... 55 to 1, 261

...

Deleted: 290

... 89 to 1, 687

... Deleted: 081

... 83 to 1, 416

... Table I.3 Annualized Benefits and Costs of Standards for Furnace and Central Air

20 Conditioner and Heat Pump Energy Efficiency (TSL 4)*

Discount Rate Primary Estimate** Low Estimate** High Estimate**

Monetized (million 2009$/year)
Benefits

Operating Cost Savings 7% 837 to 1, 106 723 to 959 955 to 1, 258
3% 1, 289 to 1, 686 1, 083 to 1, 422 1, 493 to 1, 948
CO 2 Reduction at $4. 9 /t † 5% 34 to 43 34 to 43 34 to 43
CO 2 Reduction at $2 2.1 /t † 3% 140 to 178 141 to 178 140 to 178
CO 2 Reduction at $3 6.3 /t † 2.5% 224 to 284 225 to 285 224 to 284
CO 2 Reduction at $6 7.1 /t † 3% 427 to 541 428 to 543 427 to 541

NO X Reduction at $2,519/t on † 7% 5.3 to 6.9 5.3 to 7.0 5.3 to 6.9
3% 7.9 to 10.2 7.9 to 10. 3 7.9 to 10.2

Total †† 7% plus CO 2 range 876 to 1, 653 762 to 1, 509 994 to 1, 805

7% 983 to 1, 290 869 to 1, 144 1, 100 to 1, 442
3% 1, 437 to 1, 874 1, 232 to 1, 611 1, 641 to 2, 136 3% plus CO 2 range 1, 330 to 2, 237 1, 125 to 1, 975 1, 535 to 2, 499

Costs

Incremental Product Costs 7% 527 to 773 574 to 840 555 to 819
3% 566 to 825 630 to 916 599 to 876
Net Benefits/Costs

Total †† 7% plus CO 2 range 349 to 880 188 to 669 438 to 986

7% 456 to 517 295 to 305 545 to 623
3% 871 to 1, 049 601 to 695 1, 042 to 1, 260 3% plus CO 2 range 764 to 1, 412 494 to 1, 059 935 to 1, 623

* The benefits and costs are calculated for products shipped in 2013 -2045 for the furnace standards and in 2015 -2045 for the central air conditioner and heat pump standards. Deleted: 496

... 93 to 1, 951

... Deleted: 33

... 4 to 42

... Deleted: 33

... 4 to 42

... Deleted: 33

... 4 to 42

... Deleted: 140

Deleted: 224

... 25 to 284

... Deleted: 540

Deleted: 427

... 28 to 540

... Deleted: 540

Deleted: 6.9
Deleted: 2

Deleted: 877

... 76 to 1, 655

... Deleted: 760

... 62 to 1, 502

... Deleted: 996

... 94 to 1, 808

... Deleted: 984

... 83 to 1, 292

... Deleted: 867

... 69 to 1, 140

... Deleted: 103

... 00 to 1, 445

... Deleted: 438

... 37 to 1, 875

... Deleted: 229

... 32 to 1, 604

... Deleted: 644

... 41 to 2, 139

... Deleted: 331

... 30 to 2, 238

... Deleted: 122

... 25 to 1, 967

... Deleted: 538

... 35 to 2, 502

...

Formatted Table

... Deleted: 533

... 27 to 780

... Deleted: 496

... 74 to 722

... Deleted: 572

... 55 to 839

...

Deleted: 573

... 66 to 832

... Deleted: 528

... 30 to 764

... Deleted: 619

... 99 to 901

...

Formatted Table

... Deleted: 344

... 49 to 875

... Deleted: 265

... 88 to 781

... Deleted: 424

... 38 to 968

... Deleted: 451

... 56 to 512

... Deleted: 371

... 95 to 418

... Deleted: 531

... 45 to 606

...

Deleted: 865

... 71 to 1, 043

... Deleted: 701

... 01 to 840

... Deleted: 025

... 42 to 1, 239

... Deleted: 758

... 64 to 1, 406

... Deleted: 594

... 94 to 1, 203

... Deleted: 919

... 35 to 1, 601

...**The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the Low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the High estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1. Comment [A4]: Change recommended by OIRA.
† The CO 2 values represent global monetized values (in 2009$) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3- pe rcent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3-percent discount rate. The value for NO X (in 2009$) is the average of the low and high values used i n DOE’s analysis.

†† Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate, which is $22.1/ton in 2010 (in 2009 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

Estimates of annualized benefits and costs of today’s standards for furnace,

central air conditioner, and heat pump standby mode and off mode power are shown in

Table I.4

. The results under the primary estimate are as follows. Using a 7-percent

discount rate and the SCC value of $22.1/ton in 2010 (in 2009$), the cost of the standards

in today’s rule is $ 16.4 million per year in increased equipment costs, while the

annualized benefits are $46.5 million per year in reduced equipment operating costs,

$12.4 million in CO 2 reductions, and $0.4 million in reduced NO X emissions. In this case

, the net benefit amounts to $42.8 million per year. Using a 3-percent discount rate and the

SCC value of $22.10/ton in 2010 (in 2009 $), the cost of the standards in today’s rule is

$19.1 million per year in increased equipment costs, while the benefits are $79.3 million

per year in reduced operating costs, $12.4 million in CO 2 reductions, and $ 0.6 million in

reduced NO X emissions. In this case, the net benefit amounts to $73.2 million per year.

21Table I.4 Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode (TSL 2)*

Discount Rate Primary Estimate** Low Estimate** High Estimate**

Monetized (million 2009$/year)
Benefits

Operating Cost Savings 7% 46.5 40.4 52.8
3% 79.3 67.9 90.8
CO 2 Reduction at $4. 9 /t † 5% 2.9 2.9 2.9
CO 2 Reduction at $2 2.1 /t † 3% 12.4 12.4 12.4
CO 2 Reduction at $3 6.3 /t † 2.5% 19.9 19.9 19.9
CO 2 Reduction at $6 7.1 /t † 3% 37.6 37.6 37.6

NO X Reduction at $2,519/t on † 7% 0.4 0.4 0.4
3% 0.6 0.6 0.6

Total †† 7% plus CO 2 range 49.7 to 84.5 43.6 to 78.4 56.1 to 90.8

7% 59.2 53.1 65.5
3% 92.3 80.9 103.8 3% plus CO 2 range 82.8 to 117.5 71.4 to 106.2 94.3 to 129.1

Costs

Incremental Product Costs 7% 16.4 15.2 17.7
3% 19.1 17.6 20.6
Net Benefits/Costs

Total †† 7% plus CO 2 range 33.3 to 68.1 28.5 to 63.2 38.4 to 73.1

7% 42.8 38.0 47.9
3% 73.2 63.3 83.2 3% plus CO 2 range 63.7 to 98.4 53.8 to 88.5 73.7 to 108.5

* The benefits and costs are calculated for products shipped in 2013 -2045 for the furnace standards and in 2015 -2045 for the central air conditioner and heat pump standards.

22**The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1. Comment [A5]: Change recommended by OIRA.
† The CO 2 values represent global monetized values (in 2009$) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3-percent discount rate. The value for NO X (in 2009$) is the average of the low and high values used in DOE’s analysis.

†† Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate, which is $22.1/ton in 2010 (in 2009 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

E. Conclusion

Based on the analyses culminating in this rule, DOE has concluded that the

benefits of today’s standards (energy savings, positive NPV of consumer benefits,

consumer LCC savings, and emission reductions) would outweigh the burdens (loss of

INPV for manufacturers and LCC increases for some consumers). DOE has concluded

that today’s standards represent the maximum improvement in energy efficiency that is

technologically feasible and economically justified, and would result in the significant

conservation of energy. DOE further notes that products achieving these standard levels

are already commercially available for all of the product classes covered by today’s

proposal.

II. Introduction

The following sections briefly discuss the statutory authority underlying today’s

direct final rule, as well as some of the relevant historical background related to the

23establishment of standards for residential furnaces and residential central air conditioners

and heat pumps.

A. Authority

Title III, Part B of the Energy Policy and Conservation Act of 1975 (EPCA or the

Act), Pub. L. 94-163 (42 U.S.C. 6291-6309, as codified) established the Energy

Conservation Program for Consumer Products Other Than Automobiles, 13 a program
covering most major household appliances (collectively referred to as “covered

products”), which includes the types of residential central air conditioners and heat

pumps and furnaces that are the subject of this rulemaking. (42 U.S.C. 6292(a)(3) and

(5)) EPCA prescribed energy conservation standards for central air conditioners and heat

pumps and directed DOE to conduct two cycles of rulemakings to determine whether to

amend these standards. (42 U.S.C. 6295(d)(1)-(3)) The statute also prescribed standards

for furnaces, except for “small” furnaces ( i.e. , those units with an input capacity less than

45,000 British thermal units per hour (Btu/h)), for which EPCA directed DOE to

prescribe standards. (42 U.S.C. 6295(f)(1)-(2)) Finally, EPCA directed DOE to conduct

rulemakings to determine whether to amend the standards for furnaces. (42 U.S.C.

6295(f)(4)(A)-(C)) As explained in further detail in section II.B , “Background,” this

rulemaking represents the second round of amendments to both the central air

conditioner/heat pump and the furnaces standards, under the authority of 42 U.S.C.

6295(d)(3)(B) and (f)(4)(C), respectively.

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

24DOE notes that this rulemaking is one of the required agency actions in two court

orders. First, pursuant to the consolidated Consent Decree in State of New York, et al. v.

Bodman et al., 05 Civ. 7807 (LAP), and Natural Resources Defense Council, et al. v.

Bodman, et al., 05 Civ. 7808 (LAP), DOE is required to complete a final rule for

amended energy conservation standards for residential central air conditioners and heat

pumps that must be sent to the Federal Register by June 30, 2011. Second, pursuant to

the Voluntary Remand in State of New York, et al. v. Department of Energy, et al. , 08

­

0311 -ag(L); 08 -0312-ag(con), DOE agreed to complete a final rule to consider

amendments to the energy conservation standards for residential furnaces which it

anticipated would be sent to the Federal Register by May 1, 2011.

DOE further notes that under 42 U.S.C. 6295(m), the agency must periodically

review its already established energy conservation standards for a covered product. Under

this requirement, the next review that DOE would need to conduct must occur no later

than six years from the issuance of a final rule establishing or amending a standard for a

covered product.

Pursuant to EPCA , DOE’s energy conservation program for covered products

consists essentially of four parts: (1) testing; (2) labeling; (3) the establishment of Federal

energy conservation standards; and (4) certification and enforcement procedures. The

Federal Trade Commission (FTC) is primarily responsible for labeling, and DOE

implements the remainder of the program. Subject to certain criteria and conditions,

DOE is required to develop test procedures to measure the energy efficiency, energy use,

25or estimated annual operating cost of each covered product. (42 U.S.C. 6293)

Manufacturers of covered products must use the prescribed DOE test procedure as the

basis for certifying to DOE that their products comply with the applicable energy

conservation standards adopted under EPCA and when making representations to the

public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and

6295(s)) Similarly, DOE must use these test procedures to determine whether the

products comply with standards adopted pursuant to EPCA. Id . The DOE test

procedures for central air conditioners and heat pumps, and for furnaces, appear at title 10

of the Code of Federal Regulations (CFR) part 430, subpart B, appendices M and N,

respectively.

DOE must follow specific statutory criteria for prescribing amended standards for

covered products. As indicated above, any amended standard for a covered product must

be designed to achieve the maximum improvement in energy efficiency that is

technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A))

Furthermore, DOE may not adopt any standard that would not result in the significant

conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a

standard: (1) for certain products, including both furnaces and central air conditioners

and heat pumps, if no test procedure has been established for the product, or (2) if DOE

determines by rule that the proposed standard is not technologically feasible or

economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a standard is

economically justified, DOE must determine whether the benefits of the standard exceed

its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after

26receiving comments on the proposed standard, and by considering, to the greatest extent

practicable, the following seven factors:

1. The economic impact of the standard on manufacturers and consumers of the

products subject to the standard;

2. The savings in operating costs throughout the estimated average life of the

covered products in the type (or class) compared to any increase in the price, initial

charges, or maintenance expenses for the covered products that are likely to result from

the imposition of the standard;

3. The total projected amount of energy, or as applicable, water, savings likely to

result directly from the imposition of the standard;

4. Any lessening of the utility or the performance of the covered products likely to

result from the imposition of the standard;

5. The impact of any lessening of competition, as determined in writing by the

Attorney General, that is likely to result from the imposition of the standard;

6. The need for national energy and water conservation; and

7. Other factors the Secretary of Energy (the Secretary) considers relevant. (42

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

– (VII))

The Energy Independence and Security Act of 2007 (EISA 2007; Pub. L. 110­

140) amended EPCA, in relevant part, to grant DOE authority to issue a final rule

(hereinafter referred to as a “direct final rule”) establishing an energy conservation

standard on receipt of a statement submitted jointly by interested persons that are fairly Deleted: EPCA allows DOE

27representative of relevant points of view (including representatives of manufacturers of

covered products, States, and efficiency advocates ), as determined by the Secretary, that

contains recommendations with respect to an energy or water conservation standard that

are in accordance with the provisions of 42 U.S.C. 6295(o). A notice of proposed

rulemaking (NOPR) that proposes an identical energy efficiency standard must be

published simultaneously with the final rule , and DOE must provide a public comment

period of at least 110 days on this proposal. 42 U.S.C. 6295(p)(4). Not later than 120

days after issuance of the direct final rule, if one or more adverse comments or an

alternative joint recommendation are received relating to the direct final rule, the

Secretary must determine whether the comments or alternative recommendation may

provide a reasonable basis for withdrawal under 42 U.S.C. 6295(o) or other applicable

law. I f the Secretary makes such a determination, DOE must withdraw the direct final

rule and proceed with the simultaneously

- published NOPR. DOE must publish in the Deleted: )

Deleted: . 42 U.S.C. 6295(p)(4).

Deleted: DOE

Deleted: DOE

Deleted: notice of proposed rulemaking.

Federal Register the reason why the direct final rule was withdrawn. Id

.

The Consent Decree in State of New York, et al. v. Bodman et al., described

above, defines a “final rule” to have the same meaning as in 42 U.S.C. 6295(p)(4) and

defines “final action” as a final d ecision by DOE. As this direct final rule is issued under

authority at 42 U.S.C. 6295(p)(4) and constitutes a final decision by DOE which becomes

legally effective 120 days after issuance, absent an adverse comment that leads the

Secretary to withdraw the direct final rule, DOE asserts that issuance of this direct final

rule on or before the date required by the court constitutes compliance with the Consent

Decree in State of New York, et al. v. Bodman et al

.

28EPCA, as codified, also contains what is kn own as an “anti

- backsliding”

provision, which prevents the Secretary from prescribing any amended standard that

either increases the maximum allowable energy use or decreases the minimum required

energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may

not prescribe an amended or new standard if interested persons have established by a

preponderance of the evidence that the standard is likely to result in the unavailability in

the United States of any covered product type (or class) of performance characteristics

(including reliability), features, sizes, capacities, and volumes that are substantially the

same as those generally available in the United States. (42 U.S.C. 6295(o)(4))

Further, EPCA, as codified, establishes a rebuttable presumption that a standard is

economically justified if the Secretary finds that the additional cost to the consumer of

purchasing a product complying with an energy conservation standard level will be less

than three times the value of the energy savings during the first year that the consumer

will receive as a result of the standard, as calculated under the applicable test procedure.

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

Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when promulgating a

st andard for a type or class of covered product that has two or more subcategories. DOE

must specify a different standard level than that which applies generally to such type or

class of products “for any group of covered products which have the same functio n or
intended use, if . . . products within such group – (A) consume a different kind of energy

29from that consumed by other covered products within such type (or class); or (B) have a

capacity or other performance-related feature which other products within such type (or

class) do not have and such feature justifies a higher or lower standard” than applies or

will apply to the other products within that type or class. Id . In determining whether a

performance-related feature justifies a different standard for a group of products, DOE

must “consider such factors as the utility to the consumer of such a feature” and other

factors DOE deems appropriate. Id . Any rule prescribing such a standard must include an

explanation of the basis on which such higher or lower level was established. (42 U.S.C.

6295(q)(2))

Under 42 U.S.C. 6295(o)(6), which was added by section 306(a) of the Energy

Independence and Security Act of 2007 (EISA 2007; Pub. L. 110-140), DOE may

consider the establishment of regional standards for furnaces (except boilers) and for

central air conditioners and heat pumps. Specifically, in addition to a base national

standard for a product, DOE may establish for furnaces a single more-restrictive regional

standard, and for central air conditioners and heat pumps, DOE may establish one or two

more-restrictive regional standards. (42 U.S.C. 6295(o)(6)(B)) The regions must include

only contiguous States (with the exception of Alaska and Hawaii, which may be included

in regions with which they are not contiguous), and each State may be placed in only one

region ( i.e. , an entire State cannot simultaneously be placed in two regions, nor can it be

divided between two regions). (42 U.S.C. 6295(o)(6)(C)) Further, DOE can establish the

additional regional standards only: (1) where doing so would produce significant energy

savings in comparison to a single national standard, (2) if the regional standards are

30economically justified, and (3) after considering the impact of these standards on

consumers, manufacturers, and other market participants, including product distributors,

dealers, contractors, and installers. (42 U.S.C. 6295(o)(6)(D))

Federal energy conservation requirements generally supersede State laws or

regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C.

6297(a)

– (c)) DOE may, however, grant waivers of Federal preemption for particular

State laws or regulations, in accordance with the procedures and other provisions set forth

under 42 U.S.C. 6297(d).

Finally, pursuant to the amendments contained in section 310(3) of EISA 2007,

any final rule for new or amended energy conservation standards promulgated after July

1, 2010 are required to address standby mode and off mode energy use. (42 U.S.C.

6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that

date, it must, if justified by the criteria for adoption of standards under 42 U.S.C.

6295(o), incorporate standby mode and off mode energy use into the standard, if feasible,

or, if that is not feasible, adopt a separate standard for such energy use for that product.

(42 U.S.C. 6295(gg)(3)(A)- (B)) DOE’s current energy conservation standards for

furnaces are expressed in terms of minimum annual fuel utilization efficiencies (AFUE),

and, for central air conditioners and heat pumps, they are expressed in terms of minimum

seasonal energy efficiency ratios (SEER) for the cooling mode and heating seasonal

performance factors (HSPF) for the heating mode.

31DOE’s current test procedures for furnaces have been updated to address standby

mode and off mode energy use. 75 FR 64621 (Oct. 20, 2010). DOE is in the process of

amending its test procedures for central air conditioners and heat pumps to address

standby mode and off mode energy use. 75 FR 31224 (June 2, 2010). In this rulemaking,

DOE is adopting provisions to comprehensively address such energy use. In addition,

DOE is amending the test procedure for furnaces and boilers to specify that furnaces

manufactured on or after May 1, 2013 ( i.e. , the compliance date of the standard) will be

required to be tested for standby mode and off mode energy consumption for purposes of

certifying compliance with the standard. As noted above, for central air conditioners and

heat pumps, DOE is currently in the process of amending the test procedures.

Accordingly, DOE is including language to specify that off mode testing does not need to

be performed until the compliance date for the applicable off mode energy conservation

standards resulting from this rule

.

DOE has also reviewed this regulation pursuant to Executive Order 13563, issued

on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 is supplemental to and

explicitly reaffirms the principles, structures, and definitions governing regulatory review

established in Executive Order 12866. To the extent permitted by law, agencies are

required by Executive Order 13563 to : (1) propose or adopt a regulation only upon a

reasoned determination that its benefits justify its costs (recognizing that some benefits

and costs are difficult to quantify); (2) tailor regulations to impose the least burden on

society, consistent with obtaining regulatory objectives, taking into account, among other

things, and to the extent practicable, the costs of cumulative regulations; (3) select, in

32choosing among alternative regulatory approaches, those approaches that maximize net

benefits (including potential economic, environmental, public health and safety, and other

advantages; distributive impacts; and equity); (4) to the extent feasible, specify

performance objectives, rather than specifying the behavior or manner of compliance that

regulated entities must adopt; and (5) identify and assess available alternatives to direct

regulation, including providing economic incentives to encourage the desired behavior,

such as user fees or marketable permits, or providing information upon which choices can

be made by the public.

We emphasize as well that Executive Order 13563 requires agencies “ to use the

best available techniques to quantify anticipated present and future benefits and costs as

accurately as possible.” In its guidance, the Office of Information and Regulatory Affairs

has emphasized that su ch techniques may include “identifying changing future

compliance costs that might result from technological innovation or anticipated

behavioral changes.” For the reasons stated in the preamble, DOE believes that today’s

direct final rule is consistent with these principles, including that, to the extent permitted

by law, agencies adopt a regulation only upon a reasoned determination that its benefits

justify its costs and select, in choosing among alternative regulatory approaches, those

approaches that maximize net benefits. Consistent with EO 13563, and the range of

impacts analyzed in this rulemaking, the energy efficiency standard adopted herein by

DOE achieves maximum net benefits.

33 Comment [A6]: Change recommended by OIRA.B. Background

1. Current Standards

a. Furnaces

EPCA established the energy conservation standards that apply to most residential

furnaces currently being manufactured, consisting of a minimum AFUE of 75 percent for

mobile home furnaces and a minimum AFUE of 78 percent for all other furnaces, except

“small” gas furnaces (th ose having an input rate of less than 45,000 Btu per hour), for

which DOE was directed to prescribe a separate standard

. (42 U.S.C. 6295(f)(1)-(2); 10

CFR 430.32(e)(1)(i)) The standard for mobile home furnaces has applied to products

manufactured for sale in the United States, or imported into the United States, since

September 1, 1990, and the standard for most other furnaces has applied to products

manufactured or imported since January 1, 1992. Id . On November 17, 1989, DOE

published a final rule in the Federal Register adopting the current standard for “small”

gas furnaces, which consists of a minimum AFUE of 78 percent that has applied to

products manufactured or imported since January 1, 1992. 54 FR 47916.

Pursuant to EPCA, DOE was required to conduct further rulemaking to consider

amended energy conservation standards for furnaces. (42 U.S.C. 6295(f)(4)) For

furnaces manufactured or imported on or after November 19, 2015, DOE published a

final rule in the Federal Register on November 19, 2007 (the November 2007 Rule) that

revised these standards for most furnaces, but left them in place for two product classes

( i.e.

, mobile home oil-fired furnaces and weatherized oil-fired furnaces)

. 72 FR 65136.

This rule completed the first of the two rulemakings required under 42 U.S.C.

346295(f)(4)(B)-(C) to consider amending the standards for furnaces. The energy

conservation standards in the November 2007 Rule consist of a minimum AFUE level for

ea ch of the six classes of furnaces (10 CFR 430.32(e)(1)(ii)) and are set forth in Table

II.1 below.

Table II .1 Energy Conservation Standards for Residential Furnaces Manufactured On or After November 19, 2015 P roduct Class AFUE (percent) Non

- weatherized Gas Furnaces 80 Weatherized Gas Furnaces 81 Mobile Home Oil

- Fired Furnaces 75 Non

- weatherized Oil

- Fired Furnaces 82 Weatherized Oil

- Fired Furnaces 78

b. Central Air Conditioners and Heat Pumps

Congress initially prescribed statutory standard levels for residential central air

conditioners and heat pumps. (42 U.S.C. 6295(d)(1)-(2)) DOE was required to

subsequently conduct two rounds of rulemaking to consider amended standards for these

products. (42 U.S.C. 6295(d)(3)) In a final rule published in the Federal Register on
August 17, 2004 (the August 2004 Rule), DOE prescribed the current Federal energy

conservation standards for central air conditioners and heat pumps manufactured or

imported on or after January 23, 2006. 69 FR 50997. This rule completed the first of the

two rulemakings required under 42 U.S.C. 6295(d)(3)(A) to consider amending the

standards for these products

. The standards consist of a minimum SEER for each class of

air conditioner and a minimum SEER and HSPF for each class of heat pump (10 CFR

430.32(c)(2) ). These standards are set forth in Table II.2 below.

35Table II .2 Energy Conservation Standards for Central Air Conditioners and Heat Pumps Manufactured On or After January 23, 2006 Product Class SEER HSPF Split

- System Air Conditioners 13

- Split

- System Heat Pumps 13 7.7 Single

- Package Air Conditioners 13

- Single

- Package Heat Pumps 13 7.7 Through

- the

- wall Air Conditioners and Heat Pumps – Split System* 10.9 7.1

Though

- the

- wall Air Conditioners and Heat Pumps – Single Package* 10.6 7.0

Small

- Duct, High

- Velocity Systems 14 13 7.7 Space

- Constrained Products – Air Conditioners 12

- Space

- Constrained Products – Heat Pumps 12 7.4 *As defined in 10 CFR 430.2, this product class applies to products manufactured prior to January 23, 2010.

2. History of Standards Rulemaking for Residential Furnaces, Central Air Conditioners,

and Heat Pumps

a. Furnaces

Amendments to EPCA in the National Appliance Energy Conservation Act of

1987 (NAECA; Pub. L. 100- 12) established EPCA’s original energy conservation

standards for furnaces, which are still in force, consisting of the minimum AFUE levels

described above for mobile home furnaces and for all other furnaces except “small” gas

furnaces. (42 U.S.C. 6295(f)(1)-(2)) Pursuant to 42 U.S.C. 6295(f)(1)(B), in November

1989 , DOE adopted a mandatory minimum AFUE level f or “small” furnaces. 54 FR

4 7916 (Nov. 17, 1989)

. DOE was required to conduct two more cycles of rulemakings to

determine whether to amend all of the standards for furnaces. (42 U.S.C. 6295(f)(4)(B)­

(C)) As discussed above, the November 2007 Rule complet ed the first cycle of required

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

.

36rulemaking to consider amendment of the standards for furnaces under 42 U.S.C.

6295(f)(4)(B).

Following DOE’s adoption of the November 2007 Rule, however, several parties

jointly sued DOE in the United States Court of Appeals for the Second Circuit to

invalidate the rule. Petition for Review, State of New York, et al. v. Department of

Energy, et al. , Nos. 08-0311-ag(L); 08-0312-ag(con) (2d Cir. filed Jan. 17, 2008). The

petitioners asserted that the standards for residential furnaces promulgated in the

November 2007 Rule did not reflect the “maximum improvement in energy efficiency”

that “is technologically feasible and economically justified,” as required under 42 U .S.C.

6295(o)(2)(A). On April 16, 2009, DOE filed with the Court a motion for voluntary

remand that the petitioners did not oppose. The motion did not state that the November

2007 Rule would be vacated, but indicated that DOE would revisit its initial conclusions

outlined in the November 2007 Rule in a subsequent rulemaking action. Motion for

Voluntary Remand, State of New York, et al. v. Department of Energy, et al. , supra. The

Court granted the voluntary remand on April 21, 2009. State of New York, et a l. v.
Department of Energy, et al., supra, (order granting motion). Under the remand

agreement, DOE anticipated that it would issue a revised final rule amending the energy

conservation standards for furnaces by May 1, 2011. 15 DOE also agreed that the final rule

would address both regional standards for furnaces, as well as the effects of alternate

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

37standards on natural gas prices. Subsequently, the furnaces rulemaking was combined

with the central air conditioners and heat pumps rulemaking because of the functional

and analytical interplay of these types of products (see section III.A for more details).

The petitioners and DOE agreed that the final rule for furnaces should be issued on June

30, 2011, to coincide with the date by which the central air conditioner and heat pump

rulemaking is required to be issued.

DOE initiated the portion of this rulemaking that concerns furnaces on March 11,

2010, by publishing on the DOE website its “Energy Conservation Standards for

Residential Furnaces Rulemaking Analysis Plan” ( furnaces RAP). (T he furnaces RAP is

available at:

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_r

ulemaking_analysis.html .) The furnaces RAP set forth the product classes DOE planned

to analyze for purposes of amending the energy conservation standards for furnaces, and,

as set forth below, the approach DOE would use to evaluate such amended standards.

DOE also published a notice of public meeting (NOPM) announcing the availability of

the RAP and a public meeting to discuss and receive comments on the subjects in that

document, and requesting written comment on these subjects. 75 FR 12144 (March 15

, 2010) (the March 2010 NOPM). In this notice, DOE stated its interest in receiving views

concerning other relevant issues that participants believe would affect energy

conservation standards for furnaces or that DOE should address. Id . at 12147- 48

.

38The RAP provided an overview of the activities DOE planned to undertake in

developing amended energy conservation standards for furnaces. It included discussion

of : (1) a consensus agreement 16 that recommended particular standards for DOE

adoption for furnaces and central air conditioners/heat pumps; (2) DOE’s consideration

of whether to conduct a single rulemaking to address standards either for these two

products or for these products and fur nace fans, and (3) DOE’s intention to develop

regional standards for furnaces. In addition, the RAP described the analytical framework

that DOE planned to use in any rulemaking that considered amended standards for

furnaces, including a detailed description of the methodology, the analytical tools, the

analyses DOE would perform, and the relationships among these analyses. DOE also

summarized in detail all of these points in the March 2010 NOPM, including the nature

and function of the analyses DOE would perform. Id . at 12146- 47 . The se analyses are as

follows :

• A market and technology assessment to address the scope of this rulemaking,

identify the potential classes for furnaces, characterize the market for this product, and

review techniques and approaches for improving its efficiency;

• A screening analysis to review technology options to improve the efficiency of

furnaces, and weigh these options against DOE’s four prescribed screening criteria;

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

.

39• An engineering analysis to estimate the manufacturer selling prices (MSPs)

associated with more energy-efficient furnaces;

• An energy use analysis to estimate the annual energy use of furnaces;

• A markups analysis to convert estimated MSPs derived from the engineering

analysis to consumer prices;

• A life-cycle cost analysis to calculate, for individual consumers, the discounted

savings in operating costs throughout the estimated average life of the product, compared

to any increase in installed costs likely to result directly from the imposition of a given

standard;

• A payback period (PBP) analysis to estimate the amount of time it takes

individual consumers to recover the higher purchase price expense of more energyefficient products through lower operating costs;

• A shipments analysis to estimate shipments of furnaces over the time period

examined in the analysis, for use in performing the national impact analysis (NIA);

40• A national impact analysis to assess the national and regional energy savings,

and the national and regional net present value of total consumer costs and savings,

expected to result from specific, potential energy conservation standards for furnaces;

• A manufacturer impact analysis to evaluate the effects on manufacturers of new

efficiency standards.

• A utility impact analysis to estimate specific effects of standards for furnaces on

the utility industry;

• An employment impacts analysis to assess the indirect impacts of standards on

employment in the national economy;

• An environmental impact analysis to quantify and consider the environmental

effects of amended standards for furnaces; and

• A regulatory impact analysis to address the potential for non-regulatory

approaches to supplant or augment standards to improve the efficiency of furnaces.

The public meeting announced in the March 2010 NOPM took place on March

31, 2010 at DOE headquarters in Washington, D.C. At this meeting, DOE presented the

methodologies it intends to use and the analyses it intends to perform to consider

amended energy conservation standards for furnaces. Interested parties that participated

41in the public meeting discussed a variety of topics, but focused on the following issues:

(1) the consensus agreement; (2) the scope of coverage for the rulemaking; (3) a
combined rulemaking; (4) regional standards and their enforcement; (5) test procedure

and rating metrics; (6) product classes; (7) efficiency levels and representative products

analyzed in the engineering analysis; (8) installation, repair, and maintenance costs; and

(9) product and fuel switching. The comments received since publication of the March

2010 NOPM, including those received at the March 2010 public meeting, have

contributed to DOE’s resolution of the issues in this rulemaking. This direct final rule

quotes and/or summarizes these comments, and responds to all the issues they raised. (A

parenthetical reference at the end of a quotation or paraphrase provides the location of the

item in the public record.)

b. Central Air Conditioners and Heat Pumps

As with furnaces, NAECA included amendments to EPCA that established

EPCA’s original energy conservation standards for central air conditioners and heat

pumps, consisting of two minimum SEER levels for air conditioners and for heat pumps

when operating in the cooling mode and two minimum HSPF levels for heat pumps when

operating in the heating mode. (42 U.S.C. 6295(d)(1)-(2)) One of the SEER levels and

one of the HSPF levels applied to split systems, and the other SEER and HSPF levels

applied to single package systems. Ea ch “split system” consists of an outdoor unit and an

indoor unit which are ‘‘split’’ from each other and connected via refrigerant tubing. The

outdoor unit has a compressor, heat exchanger coil, fan, and fan motor. The indoor unit

has a heat exchanger coil and a blower fan unless it resides within a furnace, in which

42case the furnace contains the blower fan for air circulation. In “single package systems,”

all the components that comprise a split system, including the air circulation components,

are in a single cabinet that resides outdoors. In both types of systems, conditioned air is

conveyed to the home via ducts.

EPCA, as amended, also requires DOE to conduct two cycles of rulemakings to

determine whether to amend the energy conservation standards for central air

conditioners and heat pumps. (42 U.S.C. 6295(d)(3)) Pursuant to 42 U.S.C.

6295(d)(3)(A), on January 22, 2001, DOE published a final rule in the Federal Register

that adopted amended standards for split system air conditioners and heat pumps an d

single package air conditioners and heat pumps. 66 FR 7170 (the January 2001 Rule).

However, shortly after publication of the January 2001 Rule, DOE postponed the

effective date of the rule from February 21, 2001 to April 23, 2001 in response to

Preside nt Bush’s Regulatory Review Plan , and in order to reconsider the amended

standards it contained. 66 FR 8745 (Feb. 2, 2001). While reviewing the amended

standards, DOE further postponed the effective date pending the outcome of a petition

submitted by the Air Conditioning and Refrigeration Institute. 66 FR 20191 (April 20,

20 01). DOE subsequently withdrew the 2001 final rule and published another final rule

which adopted revisions of these amended standards, as well as new amended standards

for the product classes for which the January 2001 Rule had not prescribed standards. 67

FR 36368 (May 23, 2002) (the May 2002 Rule). The Natural Resources Defense Council

(NRDC), along with other public interest groups and several State Attorneys General

filed suit in the U.S. Court of Appeals for the Second Circuit, challenging DOE’s

43withdrawal of the January 2001 final rule and promulgation of the May 2002 final rule.

On January 13, 2004, the U.S. Court of Appeals for the Second Circuit invalidated the

May 2002 Rule’s revisions of the standards adopted in the January 2001 Rule , because

the May 2002 final rule had lower amended standards than the January 2001 Rule and,

th us, violated 42 U.S.C. 6295(o)(1) ( i.e. , the “anti

- backsliding clause”)

. Natural

Resources Defense Council v. Abraham , 355 F.3d 179 (2d Cir. 2004). However, the

Court’s decision did not affect the standards DOE adopted in the May 2002 Rule for

products not covered by the standards in the January 2001 Rule. To be consistent with the

court’s ruling , DOE published the August 2004 Rule, which established the standards

currently applicable to central air conditioners and heat pumps. 69 FR 50997 (August 17,

2004). As stated above, this rule completed the first cycle of rulemaking for revised

standards for central air conditioners and heat pumps under 42 U.S.C. 6295(d)(3)(A), and

these standards took effect on January 23, 2006. Id

.

DOE initiated the current rulemaking on June 2, 2008, by publishing on its

website its “Rulemaking Framework for Residential Central Air Conditioners and Heat

Pumps.” (A PDF of the framework document is available at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_n

ew_rulemaking.html .) DOE also published a notice announcing the availability of the

framework document and a public meeting on the document, and requesting public

comment on the matters raised in the document. 73 FR 32243 (June 6, 2008). The

framework document described the procedural and analytical approaches that DOE

anticipated using to evaluate energy conservation standards for central air conditioners

44and heat pumps and identified various issues to be resolved in conducting this

rulemaking.

DOE held the public meeting on June 12, 2008, in which it: (1) presented the

contents of the framework document; (2) described the analyses it planned to conduct

during the rulemaking; (3) sought comments from interested parties on these subjects;

and (4) in general, sought to inform interested parties about, and facilitate their

involvement in, the rulemaking. Interested parties discussed the following major issues at

the public meeting: (1) the scope of coverage for the rulemaking; (2) product classes; (3)

test procedure modifications; (4) effects on cost and system efficiency of phasing out

certain refrigerants due to climate and energy legislation such as the Waxman-Markey

bill (H.R. 2454) ; (5) regulation of standby mode and off mode energy consumption; and

(6) regional standards. At the meeting and during the comment period on the framework

document, DOE received many comments that helped it identify and resolve issues

pertaining to central air conditioners and heat pumps relevant to this rulemaking.

DOE then gathered additional information and performed preliminary analyses to

help develop potential energy conservation standards for these products. This process

culminated in DOE’s announcement of another public meeting to discuss and receive

comments on the following matters: (1) the product classes DOE planned to analyze; (2)

the analytical framework, models, and tools that DOE was using to evaluate standards;

(3) the results of the preliminary analyses performed by DOE; and (4) potential standard

levels that DOE could consider. 75 FR 143 68 (Mar ch 25, 2010) (the March 2010 Notice).

45DOE also invited written comments on these subjects and announced the availability on

its website of a preliminary technical support document (preliminary TSD) it had

prepared to inform interested parties and enable them to provide comments. Id . (The

preliminary TSD is available at:

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_n

ew_rulemaking.html ) Finally, DOE stated its interest in receiving views concerning other

relevant issues that participants believed would affect energy conservation standards for

central air conditioners and heat pumps, or that DOE should address in this direct final

rule. Id . at 14372.

The preliminary TSD provided an overview of the activities DOE undertook to

develop standards for central air conditioners and heat pumps and discussed the

comments DOE received in response to the framework document. Similar to the RAP for

furnaces, it also addressed the consensus agreement that recommended particular

standards for DOE adoption for furnaces and central air conditioners/heat pumps, and it

addressed DOE’s consideration of whether to conduct a single rulemaking to address

standards either for these two products or for these products and furnace fans. The

preliminary TSD also described the analytical framework that DOE used (and continues

to use) in considering standards for central air conditioners and heat pumps, including a

description of the methodology, the analytical tools, and the relationships between the

various analyses that are part of this rulemaking. The preliminary TSD presented and

described in detail each analysis that DOE had performed for these products up to that

point, including descriptions of inputs, sources, methodologies, and results, and it

46includ ed DOE’s evaluation of potential regional standards for cent ral air conditioners and

heat pumps. These analyses were as follows:

• A market and technology assessment addressed the scope of this rulemaking,

identified the potential classes for central air conditioners and heat pumps, characterized

the markets for these products, and reviewed techniques and approaches for improving

their efficiency;

• A screening analysis reviewed technology options to improve the efficiency of

central air conditioners and heat pumps, and weighed these options against DOE’s four

prescribed screening criteria;

• An engineering analysis estimated the manufacturer selling prices (MSPs)

associated with more energy-efficient central air conditioners and heat pumps;

• An energy use analysis estimated the annual energy use of central air

conditioners and heat pumps;

• A markups analysis converted estimated MSPs derived from the engineering

analysis to consumer prices;

• A life-cycle cost analysis calculated, for individual consumers, the discounted

savings in operating costs throughout the estimated average life of central air conditioners

47and heat pumps, compared to any increase in installed costs likely to result directly from

the imposition of a given standard;

• A payback period analysis estimated the amount of time it takes individual

consumers to recover the higher purchase price expense of more energy-efficient

products through lower operating costs;

• A shipments analysis estimated shipments of central air conditioners and heat

pumps over the time period examined in the analysis

, and was used in performing the

national impact analysis;

• A national impact analysis assessed the national and regional energy savings,

and the national and regional net present value of total consumer costs and savings,

expected to result from specific, potential energy conservation standards for central air

conditioners and heat pumps; and

• A preliminary manufacturer impact analysis took the initial steps in evaluating

the effects on manufacturers of amended efficiency standards.

In the March 2010 Notice, DOE addressed the consensus agreement, regional

standards, and the possibility of a combined rulemaking. DOE also summarized in detail

in the notice the nature and function of the following analyses: (1) engineering analysis;

48(2) energy use analysis; (3) markups to determine installed prices; (4) LCC and PBP

analyses; and (5) national impact analysis. 75 FR 14368, 14370-71 (March 25, 2010).

The public meeting announced in the March 2010 Notice took place on May 5,

2010 at DOE headquarters in Washington, D.C. At this meeting, DOE presented the

methodologies and results of the analyses set forth in the preliminary TSD. Interested

parties that participated in the public meeting discussed a variety of topics, but centered

on the following issues: (1) the consensus agreement; (2) a combined rulemaking with

furnaces and furnace fans; (3) efficiency metrics; (4) technology options; (5) product

classes; (6) installation, maintenance, and repair costs; (7) markups and distributions

chains; (8) central air conditioner and heat pumps shipments; and (9) electricity prices.

The comments received since publication of the March 2010 Notice, including those

received at the May 2010 public meeting, have contributed to DOE’s resolution of the

issues in this rulemaking as they pertain to central air conditioners and heat pumps. This

direct final rule responds to the issues raised by the commenters. (A parenthetical

reference at the end of a quotation or paraphrase provides the location of the item in the

public record.)

III. General Discussion

A. Combined Rulemaking

As discussed in section II.B.2, DOE had been conducting or planning separate

standards rulemakings for three interrelated products: (1) central air conditioners and heat

pumps; (2) gas furnaces; and (3) furnace fans. Rather than analyze each set of products

49separately, DOE considered combining the analyses to examine how the interaction

between the three products impacts the cost to consumers and the energy savings

resulting from potential amended standards. In both its RAP regarding energy

conservation standards for residential furnaces and preliminary analysis for residential

central air conditioners and heat pumps, DOE specifically invited comment from

interested parties related to the potential for combining the rulemakings regarding energy

conservation standards for residential central air conditioners and heat pumps, residential

furnaces, and furnace fans.

NRDC commented that it supports accelerating the furnace fan rulemaking to

coincide with the rulemakings for furnaces and central air conditioners, because a

combined rulemaking would potentially provide analytical simplification and is

consistent with the President’s request that DOE meet all statutory deadlines and

accelerate those with large potential energy savings. (FUR: NRDC, No.1.3.020 at pp. 9­

10 ) 17 The California investor-owned utilities (CA IOUs, i.e. , Pacific Gas & Electric,

Southern California Gas Company, San Diego Gas and Electric, and Southern California

Edison) also supported a combined rulemaking, arguing that this approach would allow

DOE to more accurately analyze the energy-efficiency impacts of various standards

options. The CA IOUs also stated that a combined rulemaking would reduce redundant

workload for DOE and minimize the number of public meetings. (FUR: CA IOUs,

No.1.3.017 at p. 2) Proctor Engineering Group (Proctor) stated support for combining

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

50the furnace, furnace fan, and central air conditioner and heat pump rulemakings because

the three products work together. Proctor asserted that the standards need to be

integrated together and that the analysis should be integrated as well. (FUR: Proctor,

Public Meeting Transcript, No. 1.2.006 at p. 29) In written comments, Proctor elaborated

that DOE could improve current standards by promulgating standards that recognize the

interdependence of furnaces, air conditioners, heat pumps, and air handler fans within the

average U.S. household and that are consistent such that they can be properly integrated

within a system to produce results that are representative of a system typically found in a

home in the United States of America. (FUR, Proctor, FDMS No. 0002 at p. 2)

The American Council for an Energy Efficient Economy (ACEEE), Heating Airconditioning & Refrigeration Distributors International (HARDI), Ingersoll Rand,

Southern Company (Southern), Edison Electric Institute (EEI), and Lennox supported a

combined rulemaking of furnaces and central air conditioners and heat pumps, but did not

support a combined rulemaking that also covers furnace fans. (FUR: ACEEE, No.1.3.009

at p. 4; HARDI, No.1.3.016 at pp. 2, 5-6; Ingersoll Rand, No.1.3.006 at p. 1; Lennox,

No.1.3.018 at p. 2) (CAC: ACEEE, No. 72 at p. 2; HARDI, No. 56 at p. 2; Lennox No.

65 at p. 2; Ingersoll Rand, No. 66 at p. 8; Southern, No. 73 at p.2; EEI, No. 75 at p. 4)

HARDI commented that there would not be time for a thorough analysis of furnace fans

if that rulemaking is accelerated to include it with furnaces and central air conditioners

and heat pumps. (FUR: HARDI, No.1.3.016 at pp. 2, 5-6) Ingersoll Rand concurred,

further stating that furnace fan efficiency is a complex topic that needs to be handled

separately. (FUR: Ingersoll Rand, No.1.3.006 at p. 1) (CAC: Ingersoll Rand, No. 66 at p.

518) Lennox stated that the furnace fan rulemaking will be more complicated than typical

DOE proceedings, and valuable information can be obtained by conducting the furnace

and central air conditioner and heat pump rulemakings in advance of the fan rulemaking.

Additionally, Lennox stated that the furnace fan rulemaking should not be rushed by

accelerating the schedule by a year and a half. (FUR: Lennox, No.1.3.018 at p. 2) (CAC:

Lennox, No. 65 at p. 2)

The Appliance Standards Awareness Project (ASAP) submitted a joint comment

on behalf of ACEEE, the Air-conditioning, Heating and Refrigeration Institute (AHRI)

, Alliance to Save Energy (ASE), ASAP, California Energy Commission (CEC)

, National

Consumer Law Center (NCLC) (on behalf of low-income clients), NRDC, Northeast

Energy Efficiency Partnerships (NEEP), and Northwest Power and Conservation Council

(NPCC) . Collectively, these organizations are referred to as “Joint Stakeholders,” when

referencing this comment. The Joint Stakeholders stated that rules for furnaces and air

conditioners can be completed much earlier than a final rule for furnace fans, especially if

the furnace and air conditioner rules are based on the consensus agreement. (FUR: Joint

Stakeholders, No.1.3.012 at p. 3) Similarly, AHRI supported a separate rulemaking for

furnace fans, but it stated that it would agree to a combined central air conditioners and

heat pumps and furnaces rulemaking, if the consensus agreement is adopted by DOE in a

direct final rule or through an expedited normal rulemaking. In the event that DOE

decides not to adopt the consensus agreement, AHRI recommended separate rulemakings

for all three product s, and explicitly stated that the furnace fan rulemaking should not be

combined with either of the other two products under any circumstances because AHRI

52believes that shortening the furnace fan rulemaking is unreasonable given that DOE has

no prior experience with furnace fans. AHRI stated that more time is needed to fully

analyze the electrical energy consumed by furnace fans in order to establish appropriate

energy conservation standards for those products. (FUR: AHRI, No.1.3.008 at p. 3)

(CAC: AHRI, No. 67 at p. 3) Rheem recommend ed that DOE should conduct a separate

rulemaking for furnace fans and should on ly combine the rulemakings for furnaces and

central air conditioners and heat pumps if DOE adopts the consensus agreement. Rheem

stated that much study and analysis is needed to determine the appropriate energy

conservation standards for furnace fans, and that shortening the timeframe is

unreasonable and not imperative. (FUR: Rheem, No.1.3.022 at pp. 2-3) The American

Public Power Association (APPA) commented that it supports an "across the board"

rulemaking that creates an "even playing field" for residential space heating technologies

( e.g. , heat pumps and furnaces) so as to avoid a less competitive market that would cause

market distortions and non-rational purchasing behavior. (FUR: APPA, No.1.3.011 at p.

4)

The Air Conditioning Contractors of America (ACCA) stated there is no added

benefit in combining the rulemakings for furnaces, residential central air conditioners and

heat pumps, and furnaces fans. (FUR: ACCA, No.1.3.007 at p. 3) The American Public

Gas Association (APGA) commented that it does not support combining the furnace,

central air conditioner, and furnace fan rulemakings. (FUR: APGA, No.1.3.004 at p. 2)

53DOE agrees with the comments supporting a combined rulemaking for central air

conditioners, heat pumps, and furnaces because these product s are linked as part of the

complete heating, ventilation, and air-conditioning (HVAC) system for a home. A

residential HVAC system often includes a central air conditioner, a furnace, and a

furnace fan, or in some instances a heat pump, a furnace, and a furnace fan. Further, all of

the major manufacturers of these products produce central air conditioners, heat pumps,

and furnaces and use the same distribution network for these products. Combining the

analyses for these products simplified the analyses and allow ed for the analyses to

accurately account for the relations between the different systems.

However, DOE also believes there are merits to the comments suggesting that

DOE should not attempt to combine furnace fans with the furnace and central air

conditioner and heat pump rulemaking. While previous rulemakings have been conducted

to regulate central air conditioners and heat pumps and furnaces, furnace fans are not

currently regulated. DOE recognizes that the analyses required to develop a test

procedure and to determine appropriate energy conservation standards for furnaces fans

are complex and will be extensive. Therefore, DOE has determined that the furnace fan

analysis cannot be accelerated such that it could be completed in the shortened timeframe

that would be necessary for a combined rule that would also include furnace fans, while

still generating valid and reliable results

. Additionally, DOE believes that the furnace fan

rulemaking would benefit from insights gained during the combined rulemaking of

central air conditioners and heat pumps and furnaces. Therefore, DOE has decided to

combine only the central air conditioner and heat pump and furnace rulemakings into a

54single combined rulemaking. The furnace fan rulemaking will continue as a separate

rulemaking, and DOE will publish a final rule to establish energy conservation standards

for furnace fans by December 31, 2013, as required by 42 U.S.C. 6295(f)(4)(D).

B. Consensus Agreement

1. Background

On January 15, 2010, AHRI, ACEEE, ASE, ASAP, NRDC, and NEEP submitted

a joint comment to DOE ’s residential furnaces and central air conditioners and heat

pumps rulemakings recommending adoption of a package of minimum energy

conservation standards for residential central air conditioners, heat pumps, and furnaces

, as well as associated compliance dates for such standards, which represents a negotiated

agreement among a variety of interested stakeholders including manufacturers and

environmental and efficiency advocates. (FUR: Joint Comment, No. 1.3.001; CAC: Joint

Comment, No. 47) More specifically, the original agreement was completed on October

13, 2009, and had 15 signatories, including AHRI, ACEEE, ASE, NRDC, ASAP, NEEP,

NPCC, CEC, Bard Manufacturing Company Inc., Carrier Residential and Light

Commercial Systems, Goodman Global Inc., Lennox Residential, Mitsubishi Electric &

Electronics USA, National Comfort Products, and Trane Residential. Numerous

interested parties, including signatories of the consensus agreement as well as other

parties, expressed support for DOE adoption of the consensus agreement in both oral and

written comments on the furnaces and central air conditioners rulemakings, which are

described in further detail in section III.B.3. In both the furnace RAP and the central air

conditioner and heat pump preliminary analysis, DOE requested comment on all aspects

55of the consensus agreement, including the regional divisions, recommended standard

levels, and the suggested compliance dates.

After careful consideration of the joint comment containing a consensus

recommendation for amended energy conservation standards for residential central air

conditioners, heat pumps, and furnaces, the Secretary has determined that this

“ Consensus A greement” has been submitted by interested persons who are fairly

representative of relevant points of view on this matter. Congress provided some

guidance within the statute itself by specifying that representatives of manufacturers of

covered products, States, and efficiency advocates are relevant parties to any consensus

recommendation. (42 U.S.C. 6295(p)(4)(A)) As delineated above, the Consensus

Agreement was signed and submitted by a broad cross-section of the manufacturers who

produce the subject products, their trade associations, and environmental and energyefficiency advocacy organizations. Although States were not signatories to the

Consensus Agreement, they did not express any opposition to it

. Moreover, DOE does

not read the statute as requiring absolute agreement among all interested parties before

the Department may proceed with issuance of a direct final rule. By explicit language of

the statute, the Secretary has discretion to determine when a joint recommendation for an

energy or water conservation standard has met the requirement for representativeness

(i.e. , “as determined by the Secretary”). Accordingly, DOE will consider each consensus

recommendation on a case- by -case basis to determine whether the submission has been

made by interested persons fairly representative of relevant points of view.

56Pursuant to 42 U.S.C. 6295(p)(4), the Secretary must also determine whether a

jointly-submitted recommendation for an energy or water conservation standard is in

accordance with 42 U.S.C. 6295(o) or 42 U.S.C. 6313(a)(6)(B), as applicable. This

determination is exactly the type of analysis which DOE conducts whenever it considers

potential energy conservation standards pursuant to EPCA. DOE applies the same

principles to any consensus recommendations it may receive to satisfy its statutory

obligation to ensure that any energy conservation standard that it adopts achieves the

maximum improvement in energy efficiency that is technologically feasible and

economically justified and will result in significant conservation of energy, Upon review,

the Secretary determined that the Consensus Agreement submitted in the instant

rulemaking comports with the standard-setting criteria set forth under 42 U.S.C. 6295(o).

Accordingly, the consensus agreement levels were included as TSL 4 in today’s rule, the

details of which are discussed at relevant places throughout this document.

In sum, as the relevant criteria under 42 U.S.C. 6295(p)(4) have been satisfied, the

Secretary has determined that it is appropriate to adopt amended energy conservation

standards for residential central air conditioners, heat pumps, and furnaces through this

direct final rule

As required by the same statutory provision, DOE is also simultaneously

publishing a NOPR which proposes the identical standard levels contained in this direct

final rule with a 11 0-day public comment period. (While DOE typically provides a

comment period of 60 days on proposed standards, in this case DOE provides a comment

period of the same length as the comment period on the direct final rule.) DOE will

57consider whether any comment received during this comment period is sufficiently

“adverse” as to provide a reasonable basis for withdrawal of the direct final rule and

continuation of this rulemaking under the NOPR.. Typical of other rulemakings, it is the

substance, rather than the quantity, of comments that will ultimately determine whether a

direct final rule will be withdrawn. To this end, the substance of any adverse comment(s)

received will be weighed against the anticipated benefits of the Consensus Agreement

and the likelihood that further consideration of the comment(s) would change the results

of the rulemaking. DOE notes that to the extent an adverse comment had been previously

raised and addressed in the rulemaking proceeding, such a submission will not typically

provide a basis for withdrawal of a direct final rule.

2. Recommendations

a. Regions

The consensus agreement divides the nation into three regions for residential

central air conditioners and heat pumps, and two regions for residential furnaces based on

the population-weighted number of heating degree days (HDD) of each State and

recommends a different minimum standard level for products installed in each region

. For these products generally, States with 5,000 HDD or more are considered as part of

the northern region, while States with less than 5,000 HDD are considered part of the

southern region, and these regions (and the States that compose them) are discussed

further in section III.D. For residential central air conditioners and heat pumps, the

consensus agreement establishes a third region – the “southwest” region – comprised of

California, Arizona, New Mexico, and Nevada. For furnaces, the southwest region States

58are included in the southern region. For residential central air conditioners and heat

pumps , the States in the northern region would be subject to the “National standard”

under 42 U.S.C. 6295(o)(6)(B)(i) , w hile regional standards would apply for States in the

two southern regions ( i.e.

, the hot-dry region and hot-humid region). For furnaces, the

States in the southern region would be subject to the “National standard” under 42 U.S.C.

6295(o)(6)(B)(i), while the States in the northern region would be required to meet a

more-stringent regional standard. DOE received numerous comments from interested

parties regarding the regional definitions for the analysis, some of which were related to

the regions recommended in the consensus agreement. These comments are discussed in

detail in section III.D , “Regional St andards. ”

b. Standard Levels

The minimum energy conservation standards for furnaces and central air

conditioners and heat pumps recommended by the consensus agreement are contained in

Table III .1 and Table III .2. (CAC: Joint Comment, No. 47 at p. 2) The consensus

agreement recommends amended AFUE standards for all furnace product classes that are

being considered in this rulemaking for amended mi ni mum AFUE energy conservation

standards. However, the agreement does not contain recommendations for amended

SEER and HSPF standards for the space-constrained or small-duct, high-velocity

(SDHV) product classes of central air conditioners and heat pumps, which are also

included in this rulemaking. Additionally, the consensus agreement does not contain

recommendations for energy conservation standards for standby mode and off mode

59energy consumption, which DOE is required to consider in this rulemaking pursuant to

42 U.S.C. 6295(gg)(3).

For central air conditioners , t he consensus agreement recommends that DOE

adopt dual metrics ( i.e

. , SEER and EER) for the hot-dry region. Generally, DOE notes

that EPCA’s definition of “efficiency descriptor” at 42 U.S.C 6291(22) specifies that the

efficiency descriptor for both central air conditioners and heat pumps shall be SEER.

Accordingly, DOE used SEER as the sole metric for analyzing most of the TSLs

considered for today’s direct final rule

. However, DOE believes that the language at 42

U.S.C 6295(p)(4) provides DOE some measure of discretion when considering

recommended standards in a consensus agreement, if the Secretary determines that the

recommended standards are in accordance with 42 U.S.C. 6295(o)

.

Table III .1 Consensus Agreement Recommended Minimum Energy Conservation Standards for Residential Furnaces

System Type Recommended AFUE Requirement for States

with ≥ 5,000 HDD * % Recommended AFUE Requirement for States with < 5,000 HDD * * % Non

- weatherized Gas Furnaces † 90 80 Non

- weatherized Oil Furnaces 83 83 Gas

- Packs (weatherized furnace) 81 81
* These States include: Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

* * These States include: Alabama, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, New Mexico, Nevada, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. † Non-weatherized gas furnaces also include mobile home furnaces.

Table III .2 Consensus Agreement Recommended Minimum Energy Conservation Standards for Residential Central Air Conditioners and Heat Pumps System Recommended Recommended Recommended

60Type SEER/HSPF Requirements for Northern “Rest of Country” Region * SEER/HSPF Requirements for Southeast “Hot

Humid” Region * * SEER/HSPF Requirements for Southwest “Hot

- Dry” Region †

Split AC 13 SEER 14 SEER 14 SEER/12.2 EER <45,000 Btu/h 14 SEER/11.7EER

> 45,000 Btu/h Split HP 14 SEER/8.2HSPF 14 SEER/8.2 HSPF 14 SEER/8.2 HSPF Packaged AC 14 SEER 14 SEER 14 SEER/11.0 EER Packaged HP 14 SEER/8.0 HSPF 14 SEER/8.0 HSPF 14 SEER/8.0 HSPF Space Constrained AC and HP and SDHV No standard recommended No standard recommended No standard recommended

* These States include: Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. ** These States include: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. † These States include: Arizona, California, New Mexico, and Nevada.

c. Compliance Dates

The compliance dates specified in the consensus agreement are May 1, 2013, for

non -weatherized furnaces and January 1, 2015, for weatherized furnaces ( i.e. , “gas

packs”) and central air conditioners and heat pumps. These dates are at least eighteen

months earlier than the compliance dates for these products as determined under 42

U.S.C. 6295(d)(3)(B) and (f)(4)(C)

. DOE received several comments from interested

parties regarding its consideration of the compliance dates specified by the consensus

agreement, as well as comments about the compliance dates under EPCA. A full

discussion of comments related to the compliance dates for energy conservation

61standards for furnaces and central air conditioners and heat pumps is contained in section

III.C.

3. Comments on Consensus Agreement

In its RAP for residential furnaces and the preliminary analysis for residential

central air conditioners and heat pumps, DOE specifically invited comment from

interested parties on the consensus agreement. In particular, DOE was interested in

comments relating to the recommended AFUE, SEER, and HSPF requirements, the

recommended regional divisions, and the recommended compliance dates for amended

standards. As noted above, comments on the regional divisions are discussed in section

III.D

. Additionally, DOE discusses compliance dates and the related comments in section

III.C

. DOE received numerous other comments regarding whether interested parties

support or do not support the consensus agreement, whether DOE should adopt the

consensus agreement as a direct final rule, and additional concerns interested parties have

about the agreement. These comments are discussed in the paragraphs below.

Many commenters expressed support for the adoption of the consensus

agreement. ACEEE stated it is the best available route to the maximum savings that are

technologically feasible and economically justified. (FUR: ACEEE, No.1.3.009 at p. 1)

(CAC: ACEEE, No. 72 at p. 1) NRDC requested that DOE move expeditiously to adopt

the levels and dates presented by the agreement. (FUR: NRDC, No.1.3.020 at pp. 1-2)

NEEP expressed support for the standard levels and procedural improvements in the

consensus agreement and urged DOE to implement the recommendations through a direct

62final rule. (FUR: NEEP, No.1.3.021 at p. 1) ASAP stated its strong support for adoption

of the consensus agreement, and encouraged DOE to adopt the consensus agreement as a

direct final rule. (FUR: ASAP, Public Meeting Transcript, No. 1.2.006 at pp. 38-39)

AHRI stated that the agreement has several benefits including: (1) an accelerated

compliance date of May 2013; (2) acceleration of the next rulemaking iteration; (3) a
significant amount of energy savings; (4) economic savings to consumers; and (5) the

fac t that it would allow DOE to focus its resources on completing other rulemakings

involving new or amended energy conservation standards. In the event that DOE cannot

promulgate a direct final rule, AHRI recommended that DOE adopt the agreement in an

expedited rulemaking process. (FUR: AHRI, No.1.3.008 at pp. 1-3) (CAC: AHRI, No. 67

at pp. 1-2) Carrier stated that DOE should adopt the consensus agreement, because it

includes a comprehensive, harmonized approach for new regional efficiency standards

that could be implemented in an accelerated fashion. (FUR: Carrier, No.1.3.013 at p. 2)

(CAC: Carrier, No. 60 at p. 1) Ingersoll Rand and EEI echoed these comments. (FUR:

Ingersoll Rand, No.1.3.006 at p. 1) (CAC: Ingersoll Rand, No. 66 at p. 1; EEI, No. 75 at

p. 2 ) Southern initially stated at the furnaces public meeting that DOE should issue a

NOPR and have a comment period rather than go directly to a final rule because many

stakeholder groups were left out of the consensus agreement process. (FUR: Southern,

Public Meeting Transcript, No. 1.2.006 at pp. 258-59) However, in its later comments on

the central air conditioners and heat pumps rulemaking, Southern clarified its position,

recommending that DOE accept the consensus agreement and, proceed with a direct final

rule on central air conditioners, heat pumps, and furnace standards, if the necessary minor

63statutory revisions ( e.g. , changes to building codes) are approved by Congress. (CAC:

Southern, No. 73 at p. 1)

Lennox and NPCC supported the adoption of the consensus agreement in full,

including the AFUE standards, recommended regional divisions, and recommended

compliance dates. Lennox supported DOE’s use of a direct final rule to adopt the

agreement or, as an alternative, use of the standard rulemaking process in an expedited

fashion. (FUR: Lennox, No.1.3.018 at p. 1) (CAC: Lennox, No. 65 at pp.1-2 ) (CAC:

NPCC, No. 74 at p.1) Ingersoll Rand commented that DOE should adopt the consensus

agreement because it would allow DOE to focus its resources on the furnace fan rule and

on development of regional standards. (CAC: Ingersoll Rand, No. 66 at p. 1) Rheem

asserted that Congress authorized DOE to issue direct final rules upon receipt of joint

stakeholder proposals and that the agreement satisfies the criteria of the law and the

Process Improvement Rule. 18 However, Rheem stated that if DOE cannot issue a direct

final rule, Rheem would recommend that DOE adopt the agreement in an expedited

rulemaking process. (FUR: Rheem, No.1.3.022 at pp. 1-2) (CAC: Rheem, No. 71 at p.2 )

Daikin expressed support for the consensus agreement, provided that the SEER level for

new construction is raised to 15 SEER on January 1, 2013 and to 18 SEER on January 1,

2016. (CAC: Daikin, No. 63 at p.2)

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

64The Joint Stakeholders expressed support for the agreement and encouraged DOE

to expedite the adoption of the agreement through either a direct final rule or through the

standard rulemaking process. The Joint Stakeholders cit ed many of the previously

menti on ed benefits and added that the consensus agreement would enable States to

incorporate more-stringent appliance efficiency standards into their building codes, which

are limited by Federal appliance efficiency standards. The Joint Stakeholders stated that

DOE should address the issues of standby mode and off mode energy consumption for

residential furnaces and standards for furnace fans in separate rulemakings without

impeding the adoption of the consensus agreement in a final rule in the current

rulemaking. (FUR: Joint Stakeholders, No.1.3.012 at pp. 1-4)

APPA stated that it is in favor of the consensus agreement because it provides a

high degree of regulatory certainty for manufacturers and utilities, and increases the

minimum efficiency of gas and oil furnaces, products for which energy conservation

standards have not been updated since 1992. APPA argu ed that DOE has the authority to

adopt the consensus agreement in a direct final rule. (FUR: APPA, No.1.3.011 at pp. 2-3)

EEI expressed support for the consensus agreement for many of the reasons outlined

above, adding that the consensus agreement would have the added benefit of increasing

standards for furnaces at nearly the same time as the efficiency standards for residential

boilers are increasing. (FUR: EEI, No.1.3.015 at p. 2) CA IOUs supported the consensus

agreement as a balanced package that would achieve significant energy, economic, and

environmental benefits, while providing regulatory certainty. They urged DOE to adopt

as efficiently as possible the regulatory aspects of the agreement, either through a direct

6 5final rule or the normal rulemaking process. However, the CA IOUs recognized that not

all stakeholders supported the consensus agreement, and encouraged DOE to choose a

rulemaking path that will produce a robust, defensible, and enforceable final standard.

(FUR: CA IOUs, No.1.3.017 at p. 1)

On behalf of Texas Client Services Center, Massachusetts Union of Public

Housing Tenants, Texas Ratepayers Organization to Save Energy (collectively referred to

hereafter as Low Income Groups), the National Consumer Law Center encouraged DOE

to accept and implement the recommendations contained in the Joint Comment as soon as

possible. The Low Income Groups are particularly interested in having DOE adopt the

standards for furnaces, heat pumps, and central air conditioners included in the consensus

agreement, along with the associated effective dates and regional boundaries. (FUR: Low

Income Groups, No.1.3.019 at pp. 5-6)

In contrast to the above viewpoints, some commenters expressed opposition to, or

reservations about, adoption of the consensus agreement

. The American Gas Association

( AGA ) stated that DOE should not adopt the consensus agreement and should continue

refining the November 2007 Rule. AGA strongly recommended that DOE should not

issue a direct final rule requiring a 90 -percent AFUE minimum efficiency for furnaces in

the northern States and should, instead, proceed with an analysis of the technological

feasibility and economic justification of the proposal, consistent with governing statutory

requirements. It added that the signatories of the agreement do not represent consumer

interests in the affected States, and that DOE needs to more fully account for potential

66consumer impacts. (FUR: AGA, No.1.3.010 at p. 2) In the public meeting, AGA

expressed concerns about replacing a non-condensing furnace with a condensing furnace

due to potential problems with venting systems. (FUR: AGA, Public Meeting Transcript,

No. 1.2.006 at pp. 40-41) APGA expressed similar comments, further stating that DOE

should consider non-regulatory mechanisms to encourage market transformation to

condensing non-weatherized furnaces, including through building codes. (FUR: APGA,

No.1.3.004 at pp. 3-4) The National Propane Gas Association (NPGA) also opposed

requiring 90-percent AFUE furnaces in northern States, because of concerns related to

venting issues in replacement installations (particularly when a furnace that has a

common vent with a water heater is being replaced)

. (FUR: NPGA, No.1.3.005 at p. 4)

HARDI stated that it supports the consensus agreement only to the extent that

DOE is confident it can justify increases to residential HVAC minimum efficiency

standards and regionalization of standards. HARDI is not convinced such justification is

possible given its experiences since the last amendments to the central air conditioners

and heat pumps standards in 2006. (FUR: HARDI, No.1.3.016 at p. 4) (CAC: HARDI,

No. 56 at p. 4) HARDI believes DOE will have difficulty justifying a higher heating

standard in a northern region that includes both North Dakota and Kentucky, which have

vastly different heating demands. HARDI also stated that a southeastern regional

standard that applies to both Florida and Maryland, or a southwestern regional standard

that includes cities with significantly different climates appears to significantly threaten

consumer choice and product availability. (FUR: HARDI, No.1.3.016 at p. 5) HARDI is

also concerned that: (1) the standards in the consensus agreement will encourage utilities

67to exit the energy-efficiency business as it pertains to HVAC systems, because they might

no longer see value in providing an incentive for 95-percent AFUE premium furnaces if a

standard is set at 90-percent AFUE; and (2) the loss of such incentives would make

purchases of higher-than-minimum-efficiency furnaces highly unlikely. (FUR: HARDI,

No.1.3.016 at p. 8)

ACCA expressed concern over the requirement for condensing furnaces in the

northern region, noting that the cost of replacing a non-condensing furnace with a

condensing furnace (which might require venting retrofit measures) could be prohibitive

in some cases. (FUR: ACCA, No.1.3.007 at pp. 2-3)

DOE also received comments that, while not specifically addressing the

consensus agreement, concern the standard-level recommendations for central air

conditioners and heat pumps. Specifically, Southern remarked that standards should have

equal cooling efficiency requirements for central air conditioners and heat pumps, and

Ingersoll Rand, Rheem, and EEI provided similar statements. (CAC: Southern, No. 73 at

p. 3) (CAC: Ingersoll Rand, No. 66 at p. 1) (CAC: EEI, No. 75 at p. 5) (CAC: Rheem,

No. 76 at p. 2)

In considering the proposed standard levels in the consensus agreement, DOE

reviewed 42 U.S.C. 6295(p)(4)(C), which states that if DOE issues a direct final rule (as

suggested by the signatories to the consensus agreement) and receives any adverse public

comments within 120 days of publication of the rule, then DOE would be forced to

68withdraw the final rule. Interested parties have already submitted comments expressing

opposition to the consensus agreement, which indicates there is a possibility that DOE

may receive adverse comments to the adoption of the consensus agreement as part of this

direct final rule.

DOE recognizes the substantial effort and analysis that resulted in the consensus

agreement and analyzed it as a separate TSL, in conjunction with other TSLs for this

direct final rule

. As described above, the interested parties opposing the consensus

agreement were primarily concerned with the requirement that non-weatherized gas

furnaces and mobile home furnaces in the northern region achieve a minimum of 90­

percent AFUE. In its analysis for today’s direct final rule, DOE addressed the issues

raised by the parties with respect to replacement installations of 90-percent AFUE nonweatherized gas furnaces or mobile home furnaces. DOE believes that, although in some

instances it may be costly, consumers can replace non-condensing furnace with

condensing furnaces in virtually all installations.

As suggested by AGA, DOE performed an analysis of the technological

feasibility and economic justification of the consensus agreement recommendations

, consistent with statutory requirements in EPCA. DOE fully considered all costs of

replacing non-condensing furnaces with condensing furnaces in the northern region

. DOE’s results indicate that some consumers would be negatively impacted by a northern

region standard at 90-percent AFUE for non -weatherized gas furnaces or mobile home

furnaces, but that on balance, the benefits of such a standard would outweigh the costs.

69Section V.C of this notice discusses the results of DOE’s analyses and the weighting of

benefits and burdens when considering the consensus agreement standard levels and

compliance dates ( i.e.

, TSL 4).

C. Compliance Dates

EPCA establishes a lead time between the publication of amended energy

conservation standards and the date by which manufacturers must comply with the

amended standards for both furnaces and central air conditioners and heat pumps. For

furnaces, EPCA dictates an eight-year period between the rulemaking publication date

and compliance date for the first round of amended residential furnace standards, and a

five-year period for the second round of amended residential furnace standards. (42

U.S.C. 6295(f)(4)(B)-(C)) DOE has concluded that the remand agreement for furnaces

do es not vacate the November 2007 Rule for furnaces and boilers. Therefore, the

November 2007 Rule completed the first round of rulemaking for amended energy

conservation standards for furnac es , thereby satisfying the requirements of 42 U.S.C.

6295 (f)(4)(B). As a result, the current rulemaking constitutes the second round of

rulemaking for amended energy conservation standards for furnaces, as required under 42

U.S.C. 6295(f)(4)(C), a provision which prescribes a five-year period between the

standard’s publication date and compliance date. For central air conditioners and heat

pumps, the statutory provision at 42 U.S.C. 6295(d)(3)(B) establishes a similar five-year

time period between the sta ndard’s publication date and compliance date.

Therefore, in its analysis of amended energy conservation standards for furnaces

and central air conditioners and heat pumps, DOE used a five-year lead time between the

70publication of the standard and the compliance date for all TSLs, except for the TSL

which analyzed the consensus agreement. Because the accelerated compliance dates were

a negotiated aspect of the consensus agreement which amounts to an important benefit

, DOE used the accelerated compliance dates when analyzing the consensus agreement

TSL. (See section V.A for a description of the TSLs considered for this direct final rule .)

In response to the RAP for furnaces and the preliminary analysis for central air

conditioners and heat pumps, DOE received comments from interested parties regarding

the required lead time between the publication of amended energy conservation standards

and the date by which manufacturers must comply with the amended standards. These

comments are discussed in the section immediately below.

a. Consensus Agreement Compliance Dates

Several interested parties commented on the issue of the compliance dates for

amended energy conservation standards for furnaces and central air conditioners and heat

pumps in the context of the dates specified in the consensus agreement. AHRI argued that

DOE has the authority to adopt the accelerated standards compliance dates in the

consensus agreement whether DOE proceeds via a conventional rulemaking process or

via direct final rule. AHRI asserted that 42 U.S.C. 6295(p)(4) , “Direct final rules,” which

delineates procedures for when DOE receives a joint recommendation for amended

standards by interested parties that are fairly representative of relevant points of view

(including manufacturers, States, and efficiency advocates), trumps 42 U.S.C. 6295(m)

, “Amendment of standards,” which contains specific provisions pertaining to compliance

71dates and lead time. Further, AHRI commented that DOE has itself previously

recognized that in circumstances where the manufacturers who must comply with a

standard support acceleration of the compliance date of the standard, DOE has the

flexibility to adopt the earlier compliance date ( see 67 FR 36368, 36394 (May 23, 2002)

and 69 FR 50997, 50998 (August 17, 2004)). (FUR: AHRI, No.1.3.008 at pp. 3-4) (CAC:

AHRI, No. 67 at pp. 3-4) NRDC and Rheem expressed similar views . ( FUR: NRDC,

No.1.3.020 at p. 2; Rheem, No.1.3.022 at p. 3) (CAC: Rheem, No. 71 at p. 3) However,

AHRI further clarified its position that if DOE decides in a final rule to adopt levels that

are different from those in the consensus agreement, then AHRI would maintain that the

compliance date (for furnaces) specified by the law would be eight years after publication

of the final rule . ( FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at p. 126)

EarthJustice asserted that DOE must either adopt the compliance dates specified

in the consensus agreement, or adopt an expedited compliance deadline of its own design.

EarthJustice asserted tha t the provisions of EPCA relevant here do not require an eightyear lead time for furnaces, but instead require a hard-date deadline, which has passed

. Therefore, EarthJustice believes DOE has discretion in setting a compliance date.

EarthJustice added that there is no basis to the argument that maintaining an eight-year

lead time is necessary to ease manufacturers' compliance burdens since manufacturers

have indicated via the consensus agreement that they can meet the levels in the consensus

agreement in a much shorter timeframe than eight years. (FUR: EarthJustice, No.1.3.014

at pp. 2- 4)

72Similarly, ACEEE stated that DOE should seriously consider adopting the

compliance dates in the consensus agreement because the compliance dates in the statute

are intended to provide manufacturers time to reengineer their products and production

facilities, but in this case, manufacturers have agreed to the compliance dates specified in

the consensus agreement. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp.

11 2-113) ACEEE acknowledged that while having the same compliance dates for all

products is desirable for implementation and enforcement purposes, limited engineering

resources led to different compliance dates for non-weatherized gas and weatherized gas

furnaces in the consensus agreement (of 2013 and 2015, respectively). (FUR: ACEEE,

Public Meeting Transcript, No. 1.2.006 at pp. 109-110)

EEI suggested that if DOE rejects the consensus agreement, DOE should establish

a compliance date for all covered furnaces that is no later than November 19, 2015 ( i.e.

, the compliance date for the standards promulgated in the November 2007 Rule). This

date is shortly before the compliance date for the new efficiency standards for heat pumps

in June 2016, and according to EEI, it would avoid potential market distortions for space

heating equipment that might result from increasing efficiency standards for one product

type but not for a competing product. (FUR: EEI, No.1.3.015 at p. 4) (CAC: EEI, No. 75

at p. 4) APPA reiterated EEI’s comments on these points. (FUR: APPA, No.1.3.011 at

pp. 3- 4)

After careful consideration of these comments, DOE has concluded that it is

bound by EPCA in terms of setting the lead time between the publication of amended

73energy conservation standards and the date by which manufacturers must comply with

those amended standards. DOE has consistently interpreted the statutory time period

between publication of a final rule and the compliance date for amended standards to

reflect Congress’s determ ination as to adequate lead time for manufacturers to retool their

operations to ensure that the product in question meets the new or amended standards

, even in those instances where the statutory deadline has passed. However, DOE agrees

with AHRI, Rheem, and NRDC that in circumstances where the manufacturers who must

comply with the standard support acceleration of the compliance date of the standard

(such as in the case of the consensus agreement where compliance dates were an integral

part of the agreement), DOE has some flexibility in establishing the compliance dates for

amended energy conservation standards. For the other levels, DOE believes the statutory

provisions pertaining to lead time should continue to govern, particularly for levels more

stringent than the consensus agreement ( i.e. , levels to which manufacturers never agreed,

particularly on an accelerated basis). Therefore, as noted in the preceding section, DOE

has determined that for all TSLs analyzed – except for the consensus agreement TSL –
DOE is bound by the lead time requirements in EPCA when determining compliance

dates. For those other TSLs, the analysis accounts for a five-year lead time between the

publication of the final rule for furnaces and central air conditioners and heat pumps and

the date by which manufacturers would have to comply with the amended standard.

However, for the consensus agreement TSL, DOE ’s analyses utilized the compliance

dates specified in the consensus agreement.

74b. Shift from Peak Season

Several interested parties noted that if DOE follows a typical rulemaking schedule

and publish es a final rule on June 30, 2011, then the compliance date (June 2016) would

fall during the peak of the air conditioner shipment season in 2016. Interested parties

expressed concern that a compliance date during peak season could potentially lead to

costly disruptions in the distribution chain, as well as consumer confusion. HARDI,

Southern, ACEEE, and Ingersoll Rand stated that the compliance date should not be set

during the peak cooling season. (CAC: HARDI, No. 70 at p.2; ACEEE, No. 72 at p. 3;

SCS, No. 73 at p. 2; Ingersoll Rand, No. 66 at p. 3). HARDI, ACEEE, and Southern went

further and recommended that January 1 be used as the compliance date instead for

central air conditioners and heat pumps. (CAC: HARDI, No. 70 at p.2; ACEEE, No. 72

at p. 3 ; S CS , No. 73 at p. 2) EEI also noted that if compliance dates are moved for central

air conditioners and heat pumps, then the compliance dates for furnaces should be moved

as well to avoid the same issue for the heating season. (CAC: EEI, No. 75 at p.3)

As discussed above in this section, DOE believes that the applicable statutory

provisions ( i.e. , 42 U.S.C. 6295(f)(4)(C) for furnaces and 42 U.S.C. 6295(d)(3)(B) for

central air conditioners and heat pumps) necessitate a five-year time period between the

final rule publication date and the compliance date. The only exception would be in the

case of the adoption of the consensus agreement, because of the importance of

accelerated compliance dates to the energy savings provided by this agreement. If DOE

adopts any standards besides those in the consensus agreement

, DOE believes that it is

constrained by EPCA and does not have the authority to shift the compliance dates away

75from the peak cooling season (either earlier or later). However, this constraint does not

prevent manufacturers from voluntarily comply ing at an earlier non-peak season date to

ease the transition to amended energy conservation standards.

c. Standby Mode and Off Mode Compliance Dates

EPCA, as amended, does direct DOE to incorporate standby mode and off mode

energy consumption into a single amended or new standard, if feasible. (42 U.S.C.

6295(gg)(3)(A)) Under such a circumstance where standby mode and off mode energy

consumption is integrated into the existing regulatory metric, the standby mode and off

mode standards would have the same compliance dates as the amended or new active

mode standards. Therefore, DOE believes that, when feasible, the compliance dates for

standby mode and off mode should be the same as the compliance dates for amended

active mode energy conservation standards. Although DOE has determined that it is

technically infeasible to integrate the standby mode and off mode energy consumption

into a single standard for furnaces and central air conditioners/heat pumps, DOE believes

it is still sensible to keep the timeline for compliance with standby mode and off mode

standards the same so that manufacturers of furnaces, central air conditioners, and heat

pumps can bring all of their compliance-related modifications forward at the same time.

DOE further believes that this approach would provide adequate lead time for

manufacturers to make the changes necessary to comply with the standby mode and off

mode standards

. As a result, DOE is adopting standby mode and off mode standards with

compliance dates that match the compliance dates for amended AFUE, SEER, and HSPF

minimum energy conservation standards.

76D. Regional Standards

As described in section II.A, EISA 2007 amended EPCA to allow for the

establishment of a single more-restrictive regional standard in addition to the base

national standard for furnaces, and up to two more-restrictive regional standards in

addition to the base national standard for residential central air conditioners and heat

pumps. (42 U.S.C. 6295(o)(6)(B)) The regions must include only contiguous States (with

the exception of Alaska and Hawaii, which can be included in regions with which they

are not contiguous), and each State may be placed in only one region ( i.e. , a State cannot

be divided among or otherwise included in two regions). (42 U.S.C. 6295(o)(6)(C))

Further, EPCA mandates that a regional standard must produce significant energy

savings in comparison to a single national standard, and provides that DOE must

determine that the additional standards are economically justified and consider the impact

of the additional regional standards on consumers, manufacturers, and other market

participants, including product distributors, dealers, contractors, and installers. (42 U.S.C.

6295(o)(6)(D)) For this rulemaking, DOE has considered the above-delineated impacts of

regional standards in addition to national standards for both furnaces and central air

conditioners and heat pumps

.

For single-package air conditioners and single-package heat pumps, DOE has Deleted: because the analyses indicate that regional standards will provide additional positive impacts

. (See chapter 10 of the direct final rule TSD.)

Deleted: Accordingly

analyzed the standards on a national basis where the standard would be effectively the

same in each region. For consistency with the consensus agreement and ease of

77presentation, DOE specifies the requirements of the standard by region, but for all

practical purposes the standard is a national one. DOE evaluated whether regional

standards with different requirements in certain regions satisfied the statutory criteria for

regional standards. Given the low level of shipments of these products, DOE determined

that enforcement of regionally distinct standards would be difficult for these product

categories. DOE believes that it is likely that given a less stringent requirement in some

regions there would be leakage effects (i.e. installers purchasing product in less stringent

regions and shipping them to regions with more stringent requirements). Such leakage

effects would decrease the energy savings of regionally distinct standards requirements

relative to a national standard with the same stringency in each region. DOE has

therefore determined that regional standards would not produce significant energy

savings in comparison to a single national standard for these products. DOE made a

similar determination for oil-fired furnaces.

Where appropriate , DOE has addressed the potential impacts from regional Comment [A7]: Change recommended by OIRA.

standards in the relevant direct final rule analyses, including the mark-ups to determine

product price, the LCC and payback period analysis, the national impact analysis (NIA),

and the manufacturer impact analysis (MIA). DOE’s approach for addressing regional

standards is included in the methodology section corresponding to each individual

analysis, in section IV of this notice. For certain phases of the analysis, additional

regional analysis is not required. For example, technologies for improving product

efficiency generally do not vary by region, and thus, DOE did not perform any additional

regional analysis for the technology assessment and screening analysis. Similarly, DOE

did not examine the impacts of having two regions in the engineering analysis, since the

78technologies and manufacturer processes are the same under both a national and regional

standard.

1. Furnace Regions for Analysis

To evaluate regional standards for residential furnaces, in the RAP, DOE stated its

intention to use the regions shown in Table III .3 and Figure III .1

. The allocation of

individual States to the regions is similar to the evaluation methodology DOE used in

exploring regional standards in the November 2007 R ule , although DOE ultimately

decided that it could not adopt such an approach because it lacked statutory authority, a

situation which changed with enactment of EISA 2007

. The allocation considered in the

November 2007 Rule was largely based on whether a State’s annual heating HDD

average is above or below 5,000. 72 FR 65136, 65146-47 (Nov. 19, 2007). This level

offers a rough threshold point at which space heating demands are significant enough to

require longer operation of heating systems, which provides a basis for utilization of

higher-efficiency systems. In the RAP, DOE proposed two changes from the November

2007 Rule methodology to establish regions for furnaces. The first was moving Nevada

from the Northern region to the Southern region, and the second was moving West

Virginia from the Southern region to the Northern region. These changes better reflect the

climate characteristics of these two States – West Virginia has on average more than

5,000 HDD, and Nevada’s major population areas have fewer than 5,000 HDD. DOE

notes that the changes resulted in a regional allocation of States that is the same as the

regions defined in the consensus agreement.

79Table III .3 Regions for Analysis of Furnace Standards
Northern Region States (Rest of Country) Southern Region States Alaska Pennsylvania Alabama Colorado Rhode Island Arizona Connecticut South Dakota Arkansas Idaho Utah California Illinois Vermont Delaware Indiana Washington Dist rict of Columbia Iowa West Virginia Florida Kansas Wisconsin Georgia Maine Wyoming Hawaii Massachusetts Kentucky Michigan Louisiana Minnesota Maryland Missouri Mississippi Montana Nevada Nebraska New Mexico New Hampshire North Carolina New Jersey Oklahoma New York South Carolina North Dakota Tennessee Ohio Texas Oregon Virginia

Figure III .1 Map of the Regions for the Analysis of Furnace Standards

80Commenting on the furnaces RAP, Ingersoll Rand stated that the regions

proposed for the regional analysis are appropriate. (FUR: Ingersoll Rand, No.1.3.006 at p.

1) Lennox expressed a similar view, noting that the regional definitions outlined in the

furnaces RAP are consistent with the consensus agreement. (FUR: Lennox, No.1.3.018 at

p. 2) NCLC commented that the Low Income Groups support the regions defined as

north and south in the agreement. (FUR: NCLC, No.1.3.019 at p. 6) HARDI stated that

the 5,000 HDD demarcation makes the most sense. (FUR: HARDI, No.1.3.016 at p. 5)

ACEEE expressed a similar view, but added that if the consensus agreement is not

adopted, DOE needs to examine the economics and other impacts of high-efficiency

furnaces at other possible regional boundaries, such as 4,500 and 4,000 HDD . ( FUR:

ACEEE, No.1.3.009 at p. 4) ASAP expressed support for the regions proposed for the

furnaces regional analysis and stated that having consistent regional borders for furnaces

and central air conditioners is important to help reduce issues associated with

implementing and enforcing regional standards. (FUR: ASAP, Public Meeting Transcript,

No. 1.2.006 at pp. 64- 65) APPA stated that if DOE rejects the climate zones specified in

the consensus agreement, DOE should modify its definition of the northern region in such

a way that, in effect, it would include “southwestern” States, such as Arizona, Nevada,

and New Mexico, in the northern region, because the majority of these States have a

climate that is similar to some other States that DOE has classified in the northern region.

(FUR: APPA, No.1.3.011 at p. 3) EEI stated that DOE should consider establishing

California, Nevada, Arizona, and New Mexico as northern States for purposes of regional

standards, in order to be more consistent with DOE’s classification of northern States,

81and to avoid leaving energy savings on the table when establishing new heating

efficiency standards. (FUR: EEI, No.1.3.015 at pp. 3-4)

After evaluating these comments, DOE has concluded that using a 5,000 HDD

threshold as the basis for assigning States to northern or southern regions, as proposed in

the furnaces RAP, is appropriate. DOE does not believe that the States mentioned by

AP PA and EEI should be classified as northern States for the analysis of furnaces

. On

average, these States have significantly lower heating loads than the other States that

DOE has classified as northern States. Therefore, for the direct final rule analysis of

furnaces, DOE used the regions as defined in Table III .3 and Figure III .1. Regarding

ACEEE’s suggestion that DOE consider additional analysis u sing other possible regional

boundaries if the consensus agreement is not adopted, because DOE is adopting standards

consistent with the consensus agreement in today’s rule, DOE does not see a compelling

reason to conduct such analyses

. DOE notes that the 5,000 HDD threshold is supported

by most of the interested parties

, including ACEEE. DOE further notes that the 5,000

HDD threshold would provide benefits in terms of minimizing the difference between the

regional boundaries for central air conditioners/heat pumps and furnaces. Harmonizing

boundaries, to the extent possible, may also facilitate subsequent compliance and

enforcement efforts.

2. Central Air Conditioner and Heat Pump Regions for Analysis

To evaluate regional standards for residential central air conditioners and heat

pumps in the preliminary analysis, DOE used the regions listed in Table III .4 and Figure

82III.2. For cooling equipment performance, the annual number of operating hours and

relative humidity during those operating hours are the most important regional variations.

DOE established two regions ( i.e.

, a “hot

- dry” region and a “hot

- humid” region ) in the

south based upon these factors, in addition to a “rest of country” region ( i.e. , northern

region)

, composed of the remaining States. The southern limit of the northern region was

approximately based on whether a State’s annual HDD average was above or below

4,500 HDD, and the division between the hot-humid and hot-dry regions was determined

from analysis of typical meteorological year (TMY3) weather data. 19 TMY3 weather

data are sets of typical hourly values of solar radiation and meteorological elements

developed for a one-year span for selected locations based on long-term historical data.

The selection of regions for the preliminary analysis was discussed in detail in Appendix

7C of the preliminary TSD.

Table III .4 Preliminary Analysis Proposed Regions for Central Air Conditioner and Heat Pump Standards North ern Region States (Rest of Country) South ern Region States (Hot

- Humid) Southwest ern Region States

(Hot

- Dry) Alaska Nebraska Alabama Arizona Colorado New Hampshire Arkansas California Connecticut New Jersey Florida Nevada Delaware New York Georgia New Mexico District of Columbia North Dakota Hawaii Idaho Ohio Louisiana Illinois Oregon Mississippi Indiana Pennsylvania North Carolina Iowa Rhode Island Oklahoma Kansas South Dakota South Carolina Kentucky Utah Tennessee Maine Vermont Texas Maryland Virginia

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

83Massachusetts Washington Michigan West Virginia Minnesota Wisconsin Missouri Wyoming Montana

Figure III .2 Map of Preliminary Analysis Proposed Regions for Central Air Conditioner and Heat Pump Standards

In response to DOE’s request for comment on the regions used in the preliminary

analysis for central air conditioners and heat pumps, several stakeholders submitted

comments. HARDI, Southern, and Ingersoll Rand stated that the regions defined in the

consensus agreement should be used instead of those in Table III .4

. This suggested

change would necessitate moving Delaware, the District of Columbia, Maryland,

Kentucky, and Virginia into the southern hot-humid region. (CAC: HARDI, No. 56 at p.

4; Ingersoll Rand, No. 66 at p.4; Southern, Public Meeting Transcript at p. 33; HARDI,

No. 56 at p. 4) Southern also remarked that the regional boundaries for central air

84conditioners and heat pumps and furnaces should be the same to avoid unnecessary

complexity for manufacturers and public confusion. (CAC: Southern, No. 73 at p. 2)

ACEEE expressed views similar to those of HARDI, Southern, and Ingersoll Rand and

further warned that the confusion and complexity associated with differing regional

boundaries could lead to inadvertent non-compliance. (CAC: ACEEE, No. 72 at p. 3)

Conversely, EEI commented that Nevada should be moved to the “rest of country” region

for heating efficiency requirements and the hot-dry region for cooling efficiency

requirements because 90 percent of the State is located in climate zone 5, as specified in

Figure 2 of 10 CFR 430, subpart B, appendix M . (CAC: EEI, No. 75 at p.3)

In response to these comments, DOE agrees that a unified regional allocation of

States for both central air conditioners and heat pumps and furnaces would provide key

benefits. As mentioned in section III.A, similar manufacturers produce these products and

use the same distribution network. Using the same regional allocation of States, as

compared to the “rest of country” national standard, would be easier for manufacturers

and distributors to implement and would also help to minimize consumer confusion.

Additionally, regional standards may shift enforcement from the manufacturer to the

point of sale or place of installation, and a single boundary between regions would reduce

the motivation for non-compliance as well as simplify the overall enforcement of regional

standards. Of course, there would be some differentiation, given that there is only one

regional standard for furnaces, but two regional standards for central air conditioners and

heat pumps. Nevertheless, DOE believes that there would still be benefits with

harmonizing the States included in the northern region across these products.

85To this end, DOE agrees with the comments recommending use of the regions in

the consensus agreement for central air conditioners and heat pumps and furnaces. Doing

so would also align the boundary of the northern region for the central air conditioners

and furnaces. The regions selected for the direct final rule analyses for central air

conditioners and heat pumps are shown in Table III .5 and Figure III .3

.

Table III .5 Regions for Analysis of Central Air Conditioner and Heat Pump Standards North ern Region States (Rest of Country) Southeast ern Region States (Hot

- Humid)* Southwest ern Region States

(Hot

- Dry)* Alaska New York Alabama Arizona Colorado North Dakota Arkansas California Connecticut Ohio Delaware Nevada Idaho Oregon District of Columbia New Mexico

Illinois Pennsylvania Florida Indiana Rhode Island Georgia Iowa South Dakota Hawaii Kansas Utah Kentucky Maine Vermont Louisiana Massachusetts Washington Maryland Michigan West Virginia Mississippi Minnesota Wisconsin North Carolina Missouri Wyoming Oklahoma Montana South Carolina Nebraska Tennessee New Hampshire Texas New Jersey Virginia *The combined southeastern and southwestern regions for central air conditioners and heat pumps correspond to the southern region for furnaces.

86Figure III .3 Map of the Regions for the Analysis of Central Air Conditioners and Heat Pumps

3. Impacts on Market Participants and Enforcement Issues

As described in section II.A of this notice, DOE is required to evaluate the impact

of introducing regional standards on consumers, manufacturers, and other market

participants, including product distributors, dealers, contractors, and installers. (42 U.S.C.

6295(o)(6)(D)) Chapter 17 of the preliminary TSD for central air conditioners and heat

pumps details DOE's preliminary analysis on the potential impacts of regional standards

on market participants other than manufacturers and consumers for residential central air

conditioners and heat pumps and residential furnaces. (However, impacts on

manufacturers and consumers we re fully addressed in a manner consistent with any other

energy conservation standards rulemaking.) The analysis focuses on the unique burdens

associated with introducing differentiated energy conservation standards based on

geography. The analysis does not incorporate the impact of more-stringent energy

conservation standards on market participants, only the impact of multiple geographic

87standards, because the impacts of more-stringent standards would occur regardless of

whether differentiated regional standards are promulgated.

a. Impacts on Additional Market Participants

Chapter 17 of the preliminary TSD beg an by identifying the primary market

participants, identified as distributors, contractors, and general contractors. It described

their basic business models and assesses how additional regional standards may impact

those models. The chapter then investigated potential non-enforcement impacts on

distributors, contractors, and general contractors. Finally, the chapter provided two

qu antitative analyses looking at the key changes that distributors may face as a result of

regional standards: (1) a distributor inventory impact analysis, and (2) a distributor

markup impact analysis.

HARDI voiced concern about DOE’s preliminary distributor inventory impact

analysis, citing its belief that distributors located within border regions would have to

carry two lines of stock. As a result, HARDI predicts at least a 5-percent stock increase

for these distributors. (CAC: HARDI, No. 56 at p.7) In response, DOE ’s inventory

analysis does assume that distributors located along border regions will need to carry two

lines of stock, as indicated by HARDI, and, thus, requires some additional safety stock.

In the absence of additional data supporting more or less severe inventory impacts, for

the direct final rule, DOE has not revised its estimate of a 2-percent inventory impact for

the reference case. However, the impacts of inventory changes ranging from 0 percent to

8810 percent are considered in Chapter 17 of the direct final rule TSD as a sensitivity

analysis.

Regarding the inventory change analysis, ACEEE stated that distributors located

al on g a border region may find it more cost-effective to stock fewer product models and

meet customer demand by shipping the next higher-efficiency model at the same price as

the lower-efficiency model under regional standards. (FUR: ACEEE, No.1.2.006 at

p.103) ACEEE suggested that this hypothetical substitution effect would reduce the

additional inventory necessary for distributors to meet customer demand under regional

standards. Based on interviews with distributors and DOE’s understanding of the HVAC

industry, DOE considers such a scenario unlikely. Such a substitution would remove

upsell opportunities for distributors and potentially commoditize higher-margin products.

Furthermore, not having the units desired by some contractors may jeopardize

relationships with at least some customers. DOE does not expect such a strategy to be

the lowest-cost option for distributors along the border region.

HARDI contested the four shipment scenarios detailed in the distribution

inventory impact analysis discussed in chapter 17 of the preliminary TSD

. Citing the

experience following the change in central air conditioner energy conservation standards

from 10 SEER to 13 SEER in 2006, HARDI asserted that an impact of increasing

standards is a decrease in shipments due to substitution effects. (FUR: HARDI, No.

1.3.016 at p.7) In chapter 17 of the TSD, DOE analyzed the impact of differentiated

regional standards rather than the impacts of higher standards. The analysis is intended

89to model changes in distributor inventory resulting from bimodal product demand, and

not the impacts resulting from higher standards. However, DOE notes that the impacts of

higher standards on replacement rates and product orders for the industry are accounted

for and modeled in DOE’s shipments analysis conducted for this direct final rule. A

reduction in product replacement is reflected in the NIA and in the industry net present

value analysis presented in the MIA.

Additional comments were received regarding the analysis of distributor markup

impact analysis. These comments are addressed in markups portion of this document in

section IV.D.

b. Enforcement Issues

Although the preliminary TSD for central air conditioners and heat pumps did not

analyze enforcement issues, it did discuss potential enforcement impacts on market

participants in chapter 17, section 17.4, of the preliminary TSD

. In addition, in section

II.A of the RAP for furnaces, DOE described a number of enforcement options and

requested data on how, if at all, the enforcement options would increase compliance or

other costs.

Multiple manufacturers and trade associations commented on enforcement issues

discussed in either the preliminary TSD for central air conditioners and heat pumps or the

RAP for furnaces

. ACCA, AHRI, and HARDI all emphasized the need for strong

enforcement to ensure fair competition in the marketplace and to mitigate risk of diluting

90intended energy savings. (FUR: ACCA, No. 1.3.007 at p.2) (CAC: AHRI, No. 67 at p. 4 ;
HARDI, No. 70 at p.2) HARDI emphasized the complexity of enforcing regional

standards and ex plained that their members ( i.e. , the industry’s distributors ) are not

equipped to bear the burden of ensuring that product installations are occurring within the

boundaries of regional standards. (FUR: HARDI, No. 1.3.016 at pp. 4-7) Manufacturers,

including Lennox, Rheem, and Ingersoll Rand; trade groups, including ACCA, AGA,

ARI, EEI, and HARDI; advocacy groups, including ACEEE, NCLC, and NRDC; and

utilities, including Pacific Gas and Electric, Southern California Gas Company, San

Diego Gas and Electric, and Southern California Edison, all commented on the

effectiveness, viability, and complexity of various enforcement mechanisms. (FUR:

Lennox, No. 1.3.018 at pp.2-4; Rheem, Public Meeting Transcript No. 1.2.006 at p.80;

AGA, No. 1.3.010 at pp .2 -3; EEI, No. 1.3.015 at p.4; ACEEE, No.1.3.009 at pp.4-5;

NCLC, 1.3.019 at p.9; NRDC, No. 1.3.020 at pp.7-8 ) (CAC: Ingersoll Rand, No. 66 at

pp.7-8; ACCA, No. 7 at p. 3; HARDI, No. 56 at p.6; PG&E, No. 17 at pp. 3-4)

DOE recognizes the challenges of regional standards enforcement and continues

to investigate the most effective means of meeting those challenges. DOE will

incorporate all feedback into the enforcement rulemaking it will conduct within 90 days

of the issuance of this direct final rule establishing regional standards, as required by 42

U.S.C. 6295(o)(6)(G)(ii).

91E. Standby Mode and Off Mode

As noted in section II.A of this direct final rule

, any final rule for amended or new

energy conservation standards that is published on or after July 1, 2010 must address

standby mode and off mode energy use. (42 U.S.C. 6295(gg)) As a result, DOE has

analyzed and is regulat ing the standby mode and off mode electrical energy consumption

for furnaces and off mode energy consumption for central air conditioners and heat

pumps. These provisions are addressed in further detail immediately below.

1. Furnaces

AFUE, the statutory metric for furnaces, does not incorporate standby mode or off

mode use of electricity, although it already fully address es use in these modes of fossil

fuels by gas and oil-fired furnaces. In the October 2010 test procedure final rule for

furnaces, DOE determined that incorporating standby mode and off mode electricity

consumption into a single standard for residential furnaces is not feasible. 75 FR 64621,

64626

- 27 (Oct. 20, 2010). DOE concluded that a metric that integrates standby mode

and off mode electricity consumption into AFUE is not technically feasible, because the

standby mode and off mode energy usage, when measured, is essentially lost in practical

terms due to rounding conventions for certifying furnace compliance with Federal energy

conservation standards. Id . Therefore, in this notice, DOE is adopting amended furnace

standards that are AFUE levels, which exclude standby mode and off mode electricity

use, and DOE is also adopting separate standards that are maximum wattage (W) levels

to address the standby mode and off mode electrical energy use of furnaces

. DOE also

presents corresponding TSLs for energy consumption in standby mode and off mode

.

92DOE has decided to use a maximum wattage requirement to regulate standby mode and

off mode for furnaces. DOE believes using an annualized metric could add unnecessary

complexities, such as trying to estimate an assumed number of hours that a furnace

typically spends in standby mode. Instead

, DOE believes that a maximum wattage

standard is the most straightforward metric for regulating standby mode and off mode

energy consumption of furnaces and will result in the least amount of industry and

consumer confusion.

DOE is using the metrics just described – AFUE and W – in the amended energy

conservation standards it adopts in this rulemaking for furnaces. This approach satisfies

the mandate of 42 U.S.C. 6295(gg) that amended standards address standby mode and off

mode energy use. The various analyses performed by DOE to evaluate minimum

standards for standby mode and off mode electrical energy consumption for furnaces are

discussed further in section IV .E of this direct final rule.

a. Standby Mode and Off Mode for Weatherized Gas and Weatherized Oil-Fired

Furnaces

DOE did not find any weatherized furnaces (both gas and oil-fired) available on

the market that are not sold as part of a single package air condi tioner or a “dual fuel”

single package heat pump and furnace system. In this direct final rule, DOE is adopting

new energy conservation standards for the maximum allowable average off mode power

consumption (P W,OFF ) for single package air conditioners and single package heat pumps

to account for the power consumed in off mode, and DOE has already determined that the

93existing test procedures for central air conditioners and heat pumps account for standby

mode power consumption within the SEER rating. DOE notes that the proposed test

procedure provisions for measuring off mode power consumption of central air

conditioners and heat pumps and the existing test procedure provisions for calculating

SEER do not provide instructions for disconnecting certain components ( e.g. , igniter, gas

valve) that are only used for furnace operation in single package units. As a result, DOE

believes that because weatherized furnaces on the market are manufactured and sold as

part of single package air conditioners and heat pumps, and because all standby mode and

off mode energy consumption for single package air conditioners and heat pumps i s
accounted for by P W,OFF and SEER, there is no need to adopt separate standby mode and

off mode standards for weatherized gas or weatherized oil-fired furnaces.

b. Standby Mode and Off Mode for Electric Furnaces

As discussed in detail in section IV.A.2.a of this direct final rule, DOE believes

that any improvements to electric furnaces to improve the AFUE of these products would

have a de minimis energy-savings potential because the efficiency of electric furnaces

already approaches 100-percent AFUE. However, DOE notes that the AFUE rating for

electric furnaces does not include the electrical power used in standby mode and off

mode. As a result, DOE performed an analysis of potential standby mode and off mode

energy conservation standards for electric furnaces, and is adopting standards for these

products in this direct final rule. The approach for analyzing standby mode and off mode

energy conservation standards for electric furnaces is described throughout section IV of

this direct final rule.

94c. Standby Mode and Off Mode for Mobile Home Oil-Fired Furnaces

DOE is not considering amended AFUE standards for mobile home oil-fired

furnaces due to a de minimis potential for energy savings, as discussed in detail in section

IV.A.2.a of this notice. However, in order to satisfy the statutory provision in EPCA for

establishing standby mode and off mode standards, and to keep a level playing field for

all products, DOE examined potential standby mode and off mode standards for mobile

home oil-fired furnaces.

To analyze potential standby mode and off mode standards for mobile home oilfired furnaces, DOE examined specification sheets and manufacturer literature to identify

components that are present and would consume standby power ( e.g. , transformer,

burner). DOE determined that these components in mobile home oil-fired furnaces are

largely the same as the standby mode and off mode energy-consuming components found

in non-weatherized oil-fired furnaces. Therefore, DOE estimated that a mobile home oilfired furnace would have the same standby mode and off mode energy consumption as a

non -weatherized oil-fired furnace, and it did not conduct separate analysis for this

product. Accordingly, DOE is adopting standards for non-weatherized oil-fired furnaces

and mobile home oil- fired furnaces at the same level in today’s direct final rule

. The

standby mode and off mode analysis for non-weatherized oil-fired furnaces (which is also

applicable to mobile home oil-fired furnaces) is discussed throughout section IV of this

direct final rule.

952. Central Air Conditioners and Heat Pumps

For ce ntral air conditioners and heat pumps, the standby mode is in effect when

the system is on but the compressor is not running ( i.e.

, when the system is not actively

heating or cooling but the compressor is primed to be activated by the thermostat)

. Thus,

the standby mode for central air conditioners functions during the cooling season and for

heat pumps during both the cooling and heating seasons. Correspondingly, the off mode

generally occurs for air conditioners during all non-cooling seasons and for heat pumps

during the “shoulder seasons” ( i.e. , fall and spring) when consumers neither heat nor cool

their homes. The SEER and HSPF metrics already account for standby mode but not off

mode energy use, because off mode energy use occurs outside of the seasons to which

these descriptors apply. However, incorporation of off mode into these descriptors would

mean that they would no longer be seasonal descriptors. Thus, because EPCA requires

use of these descriptors for central air conditioners and heat pumps ( se e 42 U.S.C.

6291(22) and 6295(d)), it would not be feasible for DOE to incorporate off mode energy

use into a single set of standards for both central air conditioners and heat pumps.

Additionally, DOE has concluded that a metric that integrates off mode electricity

consumption into SEER is not technically feasible because the off mode energy usage is

significantly lower than active mode operation and, when measured, it is essentially lost

in practical terms due to the fact that manufacturers’ ratings of SE ER are typically

presented to consumers with one or zero decimal places. Therefore, in this notice, DOE is

adopting for central air conditioners and heat pumps standards that are SEER and HSPF

levels (which exclude off mode energy use) , a nd DOE is al s o adopting separate standards

that are maximum wattage (W) levels to address the off mode energy use of central air

96conditioners and heat pumps

. DOE also presents corresponding TSLs for energy

consumption in off mode

. DOE has determined that a wattage requirement is

appropriate, because it avoids unnecessary complexities and assumptions that may be

created by using an annualized metric. The use of a wattage requirement is consistent

with the approach used to regulate standby mode and off mode energy consumption in

furnaces.

DOE is using the metrics just described – SEER, HSPF, and W – in the amended

energy conservation standards it adopts in this rulemaking for central air conditioners and

heat pumps. This approach satisfies the mandate of 42 U.S.C. 6295(gg) that amended

standards address standby mode and off mode energy use. The various analyses

performed by DOE to evaluate minimum standards for off mode electrical energy

consumption for central air conditioners and heat pumps are discussed further throughout

section IV of this direct final rule.

a. Off Mode for Space-Constrained Air Conditioners and Heat Pumps

As discussed in section III.G.2.b, DOE d ec id ed not to amend the existing SEER

or HSPF standards for the space-constrained product classes of central air conditioners

and heat pumps, because the existing standard is both the baseline and max-tech

efficiency level. However, DOE analyzed these products to determine appropriate off

mode energy conservation standards. Based on teardowns and manufacturer literature,

DOE determined that the space-constrained product classes have the same components

contributing to off mode power consumption as split-system air conditioners and heat

97pumps. Consequently, DOE assumed that the off mode power consumption for the spaceconstrained products classes is the same as for the split-system product classes, and DOE

believes that the off mode analysis for the split-system product classes is representative

of the space-constrained products. Therefore, DOE adopted its engineering analysis of off

mode energy consumption for split-system air conditioners and heat pumps for use in its

engineering analysis of the off mode electrical energy consumption of space-constrained

air conditioners and heat pumps. As with all other product classes, the off mode analysis

for space-constrained products is described in further detail throughout section IV of this

direct final rule.

F. Test Procedures

As noted above, DOE’s current test procedures for central air conditioners and

heat pumps, and for furnaces, appear at 10 CFR part 430, subpart B, appendices M and

N, respectively. Moreover, EPCA, as amended by EISA 2007, requires DOE to amend its

test procedures for all covered products, including those for furnaces and central air

conditioners and heat pumps, to include measurement of standby mode and off mode

energy consumption, except where current test procedures already fully address such

energy consumption. (42 U.S.C. 6295(gg)(2)) Because test procedure rulemakings were

ongoing to address this statutory mandate regarding standby mode and off mode energy

consumption during the course of the current standards rulemaking, a number of test

procedure issues were raised in this rulemaking, particularly in terms of how test

procedure amendments could impact standard levels. The following discussion addresses

98these comments and explains developments related to amended test procedures for

residential furnaces, central air conditioners, and heat pumps.

1. Furnaces

DOE’s existing test procedure for gas and oil-fired furnaces accounted for fossil

fuel consumption in the active, standby, and off modes, and for electrical consumption in

the active mode (although active mode electrical consumption is not included in the

AFUE rating for gas and oil-fired products). For el ectric furnaces, DOE’s existing test

procedure accounted for active mode electrical energy consumption. However, the test

procedures for gas, oil-fired, and electric furnaces did not address standby mode and off

mode electrical energy consumption. Therefore, DOE issued a NOPR in which it

proposed modifications to its existing furnace test procedures to include the measurement

of standby mode and off mode electricity use. 74 FR 36959 (July 27, 2009) (hereafter

referred to as the “ July 2009 test procedure NOP R”) . DOE held a public meeting at DOE

headquarters in Washington, D.C. on August 18, 2009, to receive oral comments on the

July 2009 test procedure NOPR. DOE also sought and received written comments from

interested parties.

Subsequent to the July 2009 test procedure NOPR, DOE issued a supplemental

notice of proposed rulemaking (SNOPR) for the purpose of adding an integrated metric

that incorporates standby mode and off mode energy consumption into the statutorilyidentified efficiency descriptor, AFUE. The SNOPR was published in the Federal

Register on April 5, 2010. 75 FR 17075. In response to the April 2010 test procedure

99SNOPR, DOE received a number of comments that opposed both the need for an

integrated metric and the possibility of regulating by such a metric. In sum, these

comments suggested that DOE misinterpreted the statute in terms of requiring the

integration of standby mode and off mode energy consumption into the AFUE metric.

Commenters further suggested that regulating by an integrated metric would be counter

to the intent of EISA 2007; instead, these commenters urged DOE to regulate standby

mode and off mode for these products by using a separate standard, as contemplated by

EISA 2007, in situations where an integrated metric would not be technically feasible

. DOE also received similar comments regarding incorporating standby mode and off

mode electrical consumption into AFUE in response to the RAP for residential furnaces,

which are summarized below. In addition, DOE received comments relating to the

AFUE test procedure in general ( i.e. , not specifically about the incorporation of standby

mode and off mode electrical energy consumption into AFUE), which are also discussed

in the sections that follow.

After considering the comments in response the April 2010 test procedure

SNOPR and RAP (discussed below), DOE published a final rule in the Federal Register

on October 20, 2010 that amended the test procedures for furnaces and boilers to address

standby mode and off mode energy use of these products. 75 FR 64621. In light of the

comments on the April 2010 test procedure SNOPR and RAP, DOE reconsidered the

feasibility of an integrated AFUE metric in the final rule and abandoned its proposal in

the April 2010 test procedure SNOPR that would have integrated the standby mode and

off mode electrical energy consumption into the existing AFUE test metric. Accordingly,

100the final rule amended the test procedure for residential furnaces and boilers to include

provisions for separately measuring standby mode and off mode. Id . at 64626-27.

a. AFUE Test Method Comment Discussion

In response to the RAP for residential furnaces, DOE received several comments

related to DOE’s test procedure for determin ing the AFUE of residential furnaces.

ACEEE commented that AFUE is an imperfect metric, because for weatherized

furnaces, 20 a unit operating at part load ( i.e. , at a reduced input capacity less than the full

capacity) might deliver the same comfort as it would at full load, but using less energy

( i.e. , more efficiently). However, since weatherized furnaces must be kept noncondensing during peak load operation, ACEEE stated that the AFUE metric may not

reflect the efficiency benefit from part load operation. (FUR: ACEEE, Public Meeting

Transcript, No. 1.2.006 at p. 159) Ingersoll Rand stated that weatherized furnaces have

to be non-condensing regardless of whether the furnace is running at a lower input or at

the peak input [because these units are not designed to handle corrosive condensate]

. (FUR: Ingersoll Rand, Public Meeting Transcript, No. 1.2.006 at pp. 159-160) In

response, DOE believes that two-stage and modulating furnaces meet heating load

requirements more precisely by operating at a reduced input rate for an extended period

of burner on-time, which might deliver the same comfort using less energy as ACEEE

asserts. However, DOE also notes that due to issues with condensate freezing in

weatherized gas furnaces, products that are currently on the market are typically designed

so that they will not condense during part-load or full-load operation, as Ingersoll Rand

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

101states. Even if a weatherized furnace were designed with materials and components to

handle the corrosive condensate, if that condensate freezes while being drained, it will

have a significant adverse impact the performance and reliability of the unit. DOE notes

that DOE’s existing AFUE test procedure contains provisions for two-stage and

modulating operation in furnaces, and DOE believes these provisions are adequate for

rating the performance of weatherized furnaces. It may be possible for DOE to consider

revisiting the provisions for testing the AFUE of two-stage and modulating weatherized

furnaces in a future test procedures rulemaking.

Proctor stated that in California, non -weatherized furnaces are installed in attics,

which get hot in the summer and cold in the winter. As a result, AFUE may not properly

represent what happens in the field, because jacket losses ( i.e. , heat losses through the

outer covering of the furnace) may not be accounted for in the AFUE test procedure for

non -weatherized furnaces. (FUR: Proctor, Public Meeting Transcript, No. 1.2.006 at pp.

163 -64) In contras t, Ingersoll Rand commented that the AFUE test for non-weatherized

furnaces does measure jacket losses, because these furnaces are tested as isolated

combustion systems (meaning they are assumed to be installed indoors, but outside of the

conditioned space, such as in a garage or unheated basement) with an assumed 45 degree

ambient temperature. Ingersoll Rand noted that jacket losses in non-weatherized furnaces

are accounted for and multiplied by 1.7 in the AFUE calculation. Ingersoll Rand further

stated th at weatherized furnaces have a 3.3 multiplier for jacket losses, which accounts

for the effects of wind, rain, and other factors affecting the performance of an outdoor

furnace. (FUR: Ingersoll Rand, Public Meeting Transcript, No. 1.2.006 at p. 164) In

102re sponse, DOE agrees with Ingersoll Rand, and notes that the DOE test procedure

requires jacket losses to be adjusted by a 1.7 multiplier and a 3.3 multiplier for all nonweatherized furnaces and weatherized furnaces, respectively, in order to account for

ja cket losses that may occur in the field.

Proctor also remarked that the current standards (which are set in terms of AFUE)

are unrepresentative of actual system performance in the home and produce contrary

results, by assigning efficiency ratings which are not representative of ratings achieved in

the field. Proctor stated that in certain rare situations, the current rating system is such

that products’ tested efficiency ratings may be reversed in comparison to their actual field

performance ( i.e. , a product with a higher AFUE rating may actually perform less

efficiently than a product with a lower AFUE rating in certain situations). (FUR: Proctor,

FDMS No. 0002 at p. 2) The energy efficiency ratings for furnaces are developed using

DOE’s test procedure and sampling plans at the point of manufacture. For residential

furnaces, DOE believes that requiring certification at the point of manufacture is the best

way to capture the energy use information and variability of the installations that can be

experienced in the field. Given the expense of performing tests on the products and the

breadth of the installation network for these products, testing and certification based on

field installations could be significantly more difficult. DOE believes that its test

methods represent product performance in the field; however, DOE agrees with Proctor

in that many factors experienced in the field can alter the performance of the furnace

( e.g. , installation location, external static pressure)

. Consequently, DOE’s analysis takes

103into account many of the variations experienced in the field on the energy use of the

product in the life-cycle cost analysis.

Proctor argued that heating performance and heating fan performance are rated at

external static pressures that are a function of furnace heating capacity and are

significantly lower than those found in typical residential duct systems, resulting in the

furnace blower moving less air or having higher watt draw, or both, when installed.

Proctor claimed that these effects reduce the field efficiency of the furnace and that the

type of fan motor believed by consumers and HVAC contractors to be the highest

efficiency model performs significantly worse at typical field static pressures than at the

rating condition. (FUR: Proctor, FDMS No. 0002 at p. 3) The current DOE test procedure

assumes a given value for the external static pressure. While DOE acknowledges that the

external static pressure of an HVAC system is, in part, a function of the ductwork, DOE

believes variations in external static pressures experienced in the field that impact the

effi ciency of the furnace fan are outside the scope of coverage of this rulemaking. This

issue will be considered in DOE’s separate rulemaking for furnace fans. Additionally,

DOE acknowledges that the blower motor responds to the differences in external static

pressure between the ductwork in the field and the pressure specified by the DOE test

procedure by increasing or decreasing power draw as needed to maintain consistent

airflow. However, the DOE test procedure to calculate AFUE does not account for the

type or performance of the blower, and therefore, the rated AFUE is not impacted by the

blower power draw. As noted above, there is a separate rulemaking under way to

address the efficiency of furnace fans. DOE is also developing a test procedure for

104furnace fans in a separate rulemaking, in which DOE will examine the appropriate

external static pressure at which to rate the air handling performance of the furnace.

Proctor also commented that the furnace heating performance and air handling

performance should be rated separately because some furnace components are related to

heating, while others are related to moving household air. Further, Proctor stated that the

furnace rating standard should include the energy use of heating-related components,

such as the igniter, while components that are not directly related to heating should be

included in the air handling rating. (FUR: Proctor, FDMS No. 0002 at p. 4) In response,

DOE first notes that this rulemaking to examine amending the minimum AFUE standards

addresses the heating performance of furnaces, and the air handling performance will be

addressed separately in a furnace fans rulemaking, as Proctor recommends. In response to

Proctor’s assertion that the furnace heating performance standard should include t he use

of heating-related components such as the igniter, DOE notes that it is required under 42

U.S.C. 6291(22) to use AFUE as the rating metric for the fuel performance of furnaces.

DOE incorporates by reference the definition in section 3 of ANSI/ASHRAE 103-1993

of “ annual fuel utilization efficiency ” as “the ratio of annual output energy to annual

input energy, which includes any non-heating-season pilot input loss and, for gas or oilfired furnaces or boilers, does not include electric energy.” 10 CFR 430 subpart B,

appendix N, section 2. 0. Under this definition, which captures how efficiently the fuel is

converted to useful heat, electrical components such as electronic ignition and the blower

motor are outside of the AFUE rating metric coverage. Components in the blower

105assembly will be covered in DOE’s current energy conservation standards rulemaking for

residential furnace fans.

b. Standby Mode and Off Mode

As noted above, DOE received numerous comments from interested parties

regarding the approach to regulating standby mode and off mode energy consumption

proposed in the furnaces RAP. In particular, the comments received pertained to the

metric that would be adopted for such regulation.

ACEEE, the CA IOUs, EEI, HARDI, Lennox, AHRI, NRDC, APPA, Ingersoll

Rand, and the Joint Stakeholders opposed the proposal to integrate standby mode and off

mode electrical power into a new metric and instead supported a separate metric for

regulating standby mode and off mode electrical energy consumption in furnaces. (FUR:

ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 130-131; ACEEE, No. 1.3.009 at

pp. 1-2; CA IOUs, No. 1.3.017 at p. 3; EEI, No. 1.3.015 at pp. 4-5; HARDI, No. 1.3.016

at p. 8; Lennox, No. 1.3.018 at p. 3; NRDC, No. 1.3.020 at p. 7; APPA, No. 1.3.011 at p.

4; AHRI, Public Meeting Transcript, No. 1.2.006 at pp. 132 -133; Ingersoll Rand, No.

1.3.006 at p. 2; Joint Stakeholders, No. 1.3.012 at pp. 3-4) EEI qualified its support for a

separate descriptor for standby mode and off mode electrical energy consumption, stating

that it supports a separate descriptor for standby mode and off mode efficiency as long as

furnaces would be required to provide information about standby mode and off mode

fossil fuel consumption as well. EEI asserted that if DOE looks at electric energy

attributable to standby mode, it should also look at fossil fuel energy consumption

106attributable to standby mode just as rigorously. (FUR: EEI, No. 1.3.015 at pp. 4-5) In

response, DOE notes that in the final rule for residential furnaces and boilers test

procedures, published in the Federal Register on October 20, 2010

, DOE concluded that

the AFUE metric comprehensively accounts for fossil fuel energy consumption over a

full-year cycle, thereby satisfying the fossil fuel portion of the EISA 2007 requirement to

regulate standby mode and off mode energy consumption. 75 FR 64621. Lennox

supported the use of the E SO value that DOE proposed in the July 27, 2009 test

procedures NOPR (74 FR 36959) as the metric for setting standby mode and off mode

standards. (FUR: Lennox, No. 1.3.018 at p. 3) In today’s direct final rule, DOE is using

the standby mode and off mode power consumption metrics (P W,SB and P W,OFF , respectively ), as defined in the October 2010 test procedure final rule 21 (74 FR 64621,

64632 (Oct. 20, 2010)), as the test metric for regulating standby mode and off mode

power consumption. As noted in section III.E of today’s notice , DOE believes this metric

will provide a more straightforward approach for comparing the standby mode and off

mode energy consumption of furnaces, because it does not include assumptions related to

the amount of time spent in standby mode or off mode, as an annual metric, such as E SO , would require.

ACEEE, EEI, HARDI, and Lennox stated that DOE should not use an integrated

AFUE metric (one which includes standby mode and off mode electrical energy

consumption, along with active mode energy consumption) to regulate standby mode and

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

107off mode electrical energy consumption because doing so would require rerating existing

furnaces, which could cause existing ratings to decrease and could lead to confusion in

the marketplace. (FUR: ACEEE, No. 1.3.009 at pp. 1-2; EEI, Public Meeting Transcript,

No. 1.2.006 at pp. 134-135; EEI, No. 1.3.015 at pp. 4-5; HARDI, Public Meeting

Transcript, No. 1.2.006 at p. 138; HARDI, No. 1.3.016 at p. 8; Lennox, No. 1.3.018 at p.

3) Further, AHRI noted that every program that provides incentives for people to buy

more-efficient furnaces would have to change its descriptor to avoid widespread

confusion in the marketplace, and therefore, AHRI argued that combining metrics is not

feasible. (FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at pp. 136-137) Ingersoll

Rand added that adoption of an integrated metric would lead to confusion in the

marketplace by making higher-capacity furnaces appear more efficient, because standby

power is not a function of heating capacity. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)

DOE believes these points are valid. Ultimately

, in the test procedure rulemaking, DOE

concluded in the final rule that it would not be technically feasible to integrate standby

mode and off mode electrical energy consumption into AFUE , because “ the standby

mode and off mode energy usage, when measured, is essentially lost in practical terms

due to the fact that manufacturers’ ratings of AFUE are presented to the nearest whole

number. ” 75 FR 64621, 64627 (Oct. 20, 2010)

. For further details on DOE ’s reasoning

for not integrating standby mode and off mode electrical energy consumption into AFUE

, please consult the October 2010 test procedure final rule. Id . at 64626

- 27

.

ACEEE, NRDC, APPA, and the Joint Stakeholders observed that, due to the

rounding provisions specified for the AFUE descriptor, standby mode and off mode

108electrical energy consumption would effectively be lost in an integrated metric. More

specifically, these parties reasoned that the magnitude of active mode fuel consumption

would obscure the standb y mode and off mode electrical energy consumption, thereby

providing manufacturers with little or no incentive to reduce standby energy

consumption. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 130-131;

ACEEE, No. 1.3.009 at pp. 1-2; NRDC, No. 1.3.020 at p. 7; APPA, No. 1.3.011 at p. 4;

Joint Stakeholders, No. 1.3.012 at pp. 3-4) The CA IOUs further asserted that it is not

feasible from a testing and enforcement perspective to regulate standby mode and off

mode electrical energy consumption wh en it may be less than the rounding error of the

regulated metric, and suggested that DOE would need to regulate an integrated AFUE

metric to a hundredth of a percent in order to accurately capture differences in standby

mode and off mode energy use. (FUR: CA IOUs, No. 1.3.017 at p. 3) Additionally,

according to Ingersoll Rand, the homeowner would not be able to determine how much

power is used in standby mode, and an integrated metric would be unlikely to focus

furnace redesigns on providing actual reduction in electrical power usage, because the

standby power usage could be masked with small improvements in heating efficiency.

(FUR: Ingersoll Rand, No. 1.3.006 at p. 2) DOE considered these observations to be

valid points, and they played a role in the De partment’s decision to abandon an integrated

AFUE metric in favor of a separate descriptor for standby mode and off mode electrical

energy consumption. Again, f or further details on DOE test procedures for measuring

standby mode and off mode energy consumption, please consult the October 2010 test

procedure final rule. 75 FR 64621 (Oct. 20, 2010).

1092. Central Air Conditioners and Heat Pumps

DOE has determined that its existing test procedures for central air conditioners

and heat pumps address energy use in standby mode, but not in off mode. As explained

above in section II.B, off mode occurs for air conditioners during the non-cooling seasons

and for heat pumps during the “shoulder seasons” ( i.e. , fall and spring). Therefore, in a

test procedure NOPR published in the Federal Register on June 2, 2010, DOE proposed

to modify to its existing test procedures for central air conditioners and heat pumps by

adding provisions to determine off mode energy use. 75 FR 31224 (hereafter referred to

as “ the June 2010 test procedure NOPR”). In the June 2010 test procedure NOPR, DOE

also proposed to alter its existing test procedures by adopting: (1) new testing and

calculation methods relevant to regional standards for these products, specifically SEER

Hot-Dry; (2) a limited number of other new testing methods; (3) a new calculation for the

determination of sensible heat ratio, 22 which could be used to assess the dehumidification

performance of an air conditioner or heat pump; and (4) modifications and clarifications

of certain calculations, testing methods, test conditions and other provisions currently in

the test procedure. Id. Similar to off mode for furnaces, DOE concluded that it would not

be technically feasible to integrate off mode electrical energy consumption into SEER or

HSPF, because SEER and HSPF are seasonal descriptors, not annualized descriptors, and

the off mode energy usage, when measured, is essentially lost in practical terms due to

the fact that it is a very small portion of overall electrical energy consumption. DOE held

a public meeting on June 11, 2010 at DOE headquarters in Washington, D.C., to receive

22 “Sensible heat ratio” is the relative contribution of an air conditioner or heat pump wh ich reduces the dry bulb temperature of the ambient air to the cooling output which reduces the moisture content of the ambient air.

110oral comments on its proposal, and it also sought and received numerous written

comments.

Given the interrelated and tandem nature of these two rulemaking proceedings,

during the public meeting for the preliminary TSD and in subsequent written comments,

interested parties also commented on the revision of the central air conditioner and heat

pump test procedure. Several comments were related to standby mode and off mode

energy consumption. ACEEE commented that DOE must determine whether any

products use crankcase heaters and whether such use is standby mode or off mode

. (CAC: ACEEE, No. 72 at p. 3) In response, DOE believes that off mode power exists for

central air conditioners and heat pumps in the form of controls, certain types of fan

motors, and refrigerant crankcase heaters, so DOE work ed to develop appropriate

standards for off mode power for each class of equipment based on how the components

t hat contribute to a unit’s off mode power consumption are treated in the test procedure.

Ingersoll Rand and EEI commented that a standard for off mode energy consumption is

not needed, because the existing ratings (SEER and HSPF) already account for off mode

power. (CAC: Ingersoll Rand, No. 66 at p. 8; CAC: EEI, No. 75 at p. 3) DOE agrees that

SEER and HSPF already account for off mode and standby mode energy consumption of

an air conditioning system during the cooling season and, for heat pumps, during th e
heating season. However, the energy consumed by an air conditioner during the heating

and shoulder seasons, while the unit sits idle but powered, is not currently accounted for

within the DOE test procedure. Similarly, the energy consumed by a heat pump during

111the shoulder season, while the unit sits idle but powered, is not currently accounted for

within the DOE test procedure.

A number of interested parties commented during the public meeting that DOE

should use the combination of SEER and energy efficiency ratio (EER) rather than SEER

Hot-Dry as a metric for hot-dry climates because EER is more indicative of performance

than SEER Hot-Dry and also more straightforward to calculate and understand . ( CAC:

ACEEE, Public Meeting Transcript at pp. 93, 95, 103 ; CAC: AHRI, Public Meeting

Transcript at p. 94; CAC: PGE, Public Meeting Transcript at p. 97; CAC: Southern

, Public Meeting Transcript at p. 100; CAC: Rheem, No. 76 at p. 6) EEI expressed concern

that incorporating a SEER Hot-Dry metric would significantly change the results of the

preliminary TSD because a new efficiency metric would result in different energy and

cost savings to the consumer . ( CAC: EEI, No. 75 at p. 5) DOE agrees that using a SEER

Hot-Dry metric is unnecessary because the combination of SEER and EER is more

representative of system performance. As discussed in section III.B.2, DOE has

determined that it can consider dual metrics ( i.e. , SEER and EER) when considering

recommendations arising out of a consensus agreement. For its analysis of potential

standards apart from those recommended in the consensus agreement, DOE chose not to

use the SEER Hot-Dry metric, which it had been considering, to characterize equipment

performance in the hot-dry region, because DOE did not have sufficient information on

how product costs and overall system performance might change if a SEER Hot-Dry

metric were used. Therefore, DOE continued to use the current SEER rating metric for

analysis of those potential amended standards.

112a. Proposed Test Procedure Amendments

As mentioned above, DOE proposed amendments to its test procedure for central

air conditioners and heat pumps to measure off mode power consumption during the

heating and shoulder seasons for central air conditioners and the shoulder season for heat

pumps. 75 FR 31224, 31238 -39 (June 2, 2010)

. For central air conditioners and heat

pumps, these changes included a measurement of the off mode power consumption

during the shoulder season, P 1 , in watts. For central air conditioners only, the test

procedure also provides a method to measure the off mode power consumption during the

heating season, P 2 , also in watts. Id. at 31269. P 2 does not apply to heat pumps, because

heat pumps are used during both the heating and cooling seasons, and, therefore, off

mode power consumption only occurs during the shoulder seasons.

However, the June 2010 test procedure NOPR did not contain an off mode metric

which combined P 1 and P 2
. In general, issues concerning test procedure provisions for

standby mode and off mode power consumption are being addressed in a separate

SNOPR for the Residential CAC test procedure. However, in that SNOPR

, DOE is

proposing the following off mode metric

, P W,OFF , to regulate off mode power

consumption for central air conditioners and heat pumps. P W,OFF is calculated for air

conditioners using an equation involving P 1 and P 2 based on the national average relative

lengths of each season ( 739 hours for P 1 and 5,216 hours for P 2 ). For heat pumps, P W,OFF
equals P 1 because the heat pump is in active mode during the heating season. The

equations used to calculate P W,OFF are as follows:

113For air conditioners: P W,OFF = 0.124*P 1 + 0.876*P 2

For heat pumps: P W,OFF = P 1

As noted above, these equations were not included in the June 2010 test procedure

NOPR, but are being addressed in an SNOPR.

G. Technological Feasibility

1. General

In each standards rulemaking, DOE conducts a screening analysis, which it bases

on information it has gathered on all current technology options and prototype designs

that could improve the efficiency of the products or equipment that are the subject of the

rulemaking. As the first step in such analysis, DOE develops a list of design options for

consideration i n consultation with manufacturers, design engineers, and other interested

parties. DOE then determines which of these means for improving efficiency are

technologically feasible. DOE considers a design option to be technologically feasible if

it is in use by the relevant industry or if research has progressed to the development of a

working prototype. “Technologies incorporated in commercial products or in working

prototypes will be considered technologically feasible.” 10 CFR 430, subpart C, appendix

A, section 4(a)(4)(i). Further, although DOE does consider technologies that are

proprietary, it will not consider efficiency levels that can only be reached through the use

114of proprietary technologies ( i.e. , a unique pathway), which could allow a single

manufacturer to monopolize the market.

Once DOE has determined that particular design options are technologically

feasible, it further evaluates each of these design options in light of the following

additional screening criteria: (1) practicability to manufacture, install, or service; (2)

adverse impacts on product utility or availability; and (3) adverse impacts on health or

safety. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)-(iv). Section IV.B of

this notice discuss es the results of the screening analyses for furnaces and central air

conditioners and heat pumps. Specifically, it presents the designs DOE considered, those

it screened out, and those that are the basis for the TSLs in this rulemaking. For further

details on the screening analysis for this rulemaking, see chapter 4 of the direct final rule

TSD.

2. Maximum Technologically Feasible Levels

When DOE proposes to adopt (or not adopt) an amended or new energy

conservation standard for a type or class of covered product, it must “determine the

maximum improvement in energy efficiency or maximum reduction in energy use that is

technologically feasible” for such product. (42 U.S.C. 6295(p)(1)) Accordingly, DOE

determined the m aximum technologically feasible (“max

- tech”) improvements in energy

efficiency for furnaces and central air conditioners and heat pumps in the engineering

analysis using the design parameters that passed the screening analysis and that lead to

115the creation of the most efficient products available. (See chapter 5 of the direct final rule

TSD .)

The max-tech efficiency levels are set forth in TSL 7 for residential furnaces and

again in TSL 7 for central air conditioners and heat pumps and represent the mos t

efficient products available on the market in the given product class. Products at the maxtech efficiency levels for both furnaces and central air conditioners and heat pumps are

either currently offered for sale or have previously been offered for sale. However, no

products at higher efficiencies are available or have been in the past, and DOE is not

aware of any working prototype designs that would allow manufacturers to achieve

higher efficiencies. For central air conditioners and heat pumps, the max-tech levels are

listed at various cooling capacities within the each product class, because they vary

depending on the cooling capacity of the product. Table III .6 and Table III .7 list the

max-tech levels that DOE determined for the products that are the subjects of this

rulemaking.

Table III .6 Max-Tech AFUE Levels Considered in the Furnaces Analyses Product Class Max

- Tech AFUE Level % Non

- weatherized Gas 9 8 Mobile Home Gas 9 6 Non

- weatherized Oil

- Fired 97 Weatherized Gas 81

116Table III .7 Max-Tech SEER and HSPF Levels Considered in the Central Air Conditioner and Heat Pump Analyses

Product Class Cooling Capacity Max

- Tech Efficiency

Level

Split Systems Air Conditioners Blower

- Coil* 2 Ton 24.5 SEER 3 Ton 22 SEER 5 Ton 18 SEER
Air Conditioners

Coil

- Only * 2 Ton 18 SEER 3 Ton 17 SEER 5 Ton 16 SEER

Heat Pumps 2 Ton 22 SEER 3 Ton 21 SEER 5 Ton 18 SEER Single

Package Systems Air Conditioners 3 Ton 16.6 SEER

Heat Pumps 3 Ton 16.4 SEER

Niche Products SDHV 3 Ton 14.3 SEER Space

Constrained Air

Conditioners 2.5 Ton 12 SEER

Space

Constrained Heat Pumps 2.5 Ton 12 SEER

* Although analyzed separately, DOE is setting the same standard level for split-system blower-coil air conditioners and split-system coil-only air conditioners. DOE analyzed these products separately for greater accuracy in its analyses, but is adopting the same standard level. The difference between the twotypes of split-system air conditioners is that a blower-coil unit is matched with an indoor fan, while a coilonly unit is not. The rating method for a coil-only unit uses a default fan power consumption (limiting the SEER that can be achieved), while a blower-coil unit uses the measured fan power consumption of its matched indoor fan. For additional discussion of DOE’ s treatment of blower-coil and coil-only products

, see section IV.A.3.b of this direct final rule.

For the weatherized gas furnace product class and the space-constrained central

air conditioner and heat pumps product classes, the max-tech levels identified are the

same level as the existing minimum standards for each respective product. The max-tech

le vels for these products are further discussed in the subsections immediately below.

117a. Weatherized Gas Furnace Max-Tech Efficiency Level

For the RAP, DOE examined the efficiencies of weatherized gas furnaces

available on the market and determined that 81- pe rcent AFUE is the highest efficiency

available for weatherized gas furnaces. In the RAP, DOE proposed to analyze several

efficiency levels for weatherized gas furnaces, including an 81-percent max-tech level,

and received feedback from several interested parties, described below.

ACEEE suggested that DOE should use a condensing furnace at 90-percent

AFUE for the max-tech level for weatherized gas furnaces, because limited numbers of

commercial packaged units are available with condensing gas sections, and this

technology may be feasible for use with condensate drains to the house interior. (FUR:

ACEEE, No. 1.3.009 at p. 6) In contrast, Lennox stated that it supports the 81 -percent

AFUE max-tech efficiency levels shown for weatherized gas furnace furnaces only for

the purposes of undertaking required analysis; Lennox does not support DOE’s setting

max-tech as the minimum required efficiency level in a standard, and stated that DOE

should avoid doing so. (FUR: Lennox, No. 1.3.018 at p. 3)

During the screening analysis (see section IV.B of this direct final rule), DOE

considered technologies to improve the AFUE of weatherized gas furnaces, but

determined that no weatherized gas furnace technologies satisfied all four screening

criteria. As a result, 81-percent AFUE is the maximum technologically feasible efficiency

level for these products. At efficiencies above 81-percent AFUE, the potential for the

formation of condensate increases, causing concerns about condensate freezing in

118weatherized furnaces, which are installed outdoors. When condensate freezes, the

performance of the unit is impacted, and failure rates increase, while reliability decreases.

As suggested by ACEEE, DOE examined a condensing design for weatherized gas

furnaces. In researching weatherized gas furnace designs currently on the market as well

as prototype designs, DOE did not discover any designs that have been or are currently

being used in commercially-available designs or working prototypes for residential

condensing weatherized gas furnaces. Therefore, DOE is not aware of any designs that

have reliably overcome issues associated with condensate freezing in weatherized gas

furnaces, and this direct final rule does not include efficiency levels where condensate

formation is possible for this product class. However, DOE recognizes that if the issues

associated with condensate freezing in weatherized gas furnaces can be reliably

overcome, there may be potential for developing products at condensing efficiency levels

in the future.

The minimum energy conservation standard for weatherized gas furnaces that was

promulgated by the November 2007 Rule is 81-percent AFUE. 72 FR 65136, 65169

(Nov. 19, 2007); 10 CFR 430.32(e)(1)(ii). Because DOE has concluded that the

November 2007 Rule was not vacated by the remand agreement, 81-perecent AFUE was

used as the baseline for this rulemaking. As a result, DOE has determined that 81-percent

AFUE is both the baseline and max-tech level for weatherized gas furnaces. DOE

concluded that there is no need to perform additional analyses for these products, since

the de facto minimum standard will be 81-percent AFUE.

11 9b. Space-Constrained Central Air Conditioner and Heat Pump Max-Tech

Efficiency Levels

In conducting its analyses, DOE determined that the max-tech levels for both the

space-constrained air conditioner and heat pump product classes are 12 SEER, which is

equivalent to the baseline level. DOE has concluded that unique factors may prevent

through-the-wall products from realizing the full potential of energy saving design

options available to other product classes. Typically, increased condenser coil surface

area is the most cost-effective energy saving measure available for air conditioners and

heat pumps. However, manufacturers of space-constrained products are limited in their

ability to implement this option by the apparent constraints upon coil size inherently

present in this product class, and some manufacturers have expressed concern that the

available condenser coil surface area may have already been maximized in order to reach

the 10.9 SEER standard, which was set forth in the previous rulemaking for through-thewall products. 69 FR 50997, 51001 (August 17, 2004)

. Similarly, manufacturers have

claimed that the number of coil rows has also been maximized to the point at which the

addition of further rows would not provide a noticeable improvement in performance

. Other coil improvements, such as micro-channel tubing 23 , were proven technologically

infeasible during research and development testing because manufacturers have been

unable to solve defrosting issues, calling into question the technological feasibility of this

technology option for all types of heat pumps. If coil improvements are insufficient to

increase product efficiency, through-the-wall manufacturers must explore more-costly

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

120design options, such as high-efficiency compressors and fan motors and controls.

According to certain manufacturers, higher-efficiency compressors were incorporated

into products on the market to meet the 10.9 SEER standard, and variable speed fan

motors and advanced controls were incorporated into product designs when the throughthe-wall product class expired and those products were required to meet the 12 SEER

standard as part of the space-constrained product classes. The expiration of this product

class and inclusion of the through-the-wall units in the space-constrained product class is

discussed in greater detail in section IV.A.3.b. The implementation of these technologies

to meet the 12 SEER requirement of the space-constrained product class suggests that

manufacturers have few, if any, technology options left to improve efficiency level

beyond 12 SEER.

DOE conducted teardowns and further market research to confirm this hypothesis

and found the space-constrained max-tech efficiency level to be 12 SEER for both the

space-constrained air conditioner and heat pump product classes. This level matches the

baseline, and therefore, DOE would be unable to raise the energy conservation standards.

Therefore, DOE concluded that there is no need to perform additional analyses for these

products, since the de facto minimum standard will be 12 SEER. However, during its

investigation, DOE found that space-constrained products have the potential to achieve

hi gher off mode efficiency levels, and, therefore, considered these products in the off

mode analysis, which is discussed in section III.E.2.a

.

121H. Energy Savings

1. Determination of Savings

DOE used its N IA spreadsheet to estimate energy savings from amended

standards for residential furnaces and central air conditioners and heat pumps

. (The N IA

spreadsheet model is described in section IV.G of this notice and chapter 10 of the direct

final rule TSD.) For most of the considered TSLs, DOE forecast ed cumulative energy

savings beginning in the year in which compliance with amended standards would be

required, and ending 30 years afterward. For TSL 4, which matches the recommendations

in the consensus agreement, DOE forecasted the energy savings from 2015 through 2045

for central air conditioners and heat pumps, and from 2013 through 2045 for furnaces. 24

DOE quantified the energy savings attributable to each TSL as the difference in energy

consumption between the standards case and the base case. The base case represents the

forecast of energy consumption in the absence of new or amended mandatory efficiency

standards, and considers market demand for more-efficient produc ts

.

The N IA spreadsheet model calculates the energy savings in “ site energy, ” which

is the energy directly consumed by products at the locations where they are used

. DOE

reports national energy savings on an annual basis in terms of the source (primary)

energy savings, which is the savings in the energy that is used to generate and transmit

energy to th e site

. To convert site energy to source energy, DOE derived annual

conversion factors from the model used to prepare the Energy Information

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

122Administration ’s (EIA) Annual Energy Outlook 2010 ( AEO2010 ), which presents longterm projections of energy supply, demand, and prices. 25

2. Significance of Savings

As noted above, under 42 U.S.C. 6295(o)(3)(B), EPCA prohibits DOE from

adopting a standard for a covered product if such standard would not result in

“significant” energy savings. While the term “significant” is not defined in the Act, the

U.S. Court of Appeals for the D.C. Circuit, in Natural Resources Defense Council v.

Herrington , 768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended

“significant” energy savings in this context to be savings that were not “genuinely

trivial.” The energy savings for all of the TSLs considered in this rulemaking are

nontrivial, and, therefore, DOE considers them “significant” within the meaning of 42

U.S.C. 6295(o)(3)(B).

I. Economic Justification

1. Specific Criteria

As discussed in section II.B, EPCA provides seven factors to be evaluated in

determining whether a potential energy conservation standard is economically justified.

(42 U.S.C. 6295(o)(2)(B)(i) ) The following sections generally discuss how DOE i s
addressing each of those seven factors in this rulemaking. For further details and the

results of DOE’s analyses pertaining to economic justificat ion, see sections IV and V of

today’s notice

.

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

.

123a. Economic Impact on Manufacturers and Consumers

In determining the impacts of a new or amended standard on manufacturers, DOE

first determines the quantitative impacts using an annual cash-flow approach

. This

includes both a short-term assessment (b ased on the cost and capital requirements

associated with new or amended standards during the period between the announcement

of a regulation and when the regulation comes into effect ) and a long-term assessment

(based on the costs and margin impacts over the 30-year analysis period)

. The impacts

analyzed include INPV (which values the industry on the basis of expected future cash

flows), cash flows by year, changes in revenue and income, and other measures of

impact, as appropriate. Second, DOE analyzes and reports the impacts on different types

of manufacturers, paying particular attention to impacts on small manufacturers. Third,

DOE considers the impact of standards on domestic manufacturer employment and

manufacturing capacity, as well as the potential for standards to result in plant closures

and loss of capital investment. Finally, DOE takes into account cumulative impacts of

different DOE regulations and other regulatory requirements on manufacturers.

For individual consumers, measures of economic impact include the changes in

LCC and the PBP associated with new or amended standards

. The LCC, which is also

separately specified as one of the seven factors to be considered in determining the

economic justification for a new or amended standard (42 U.S.C. 6295(o)(2)(B)(i)(II)), is

discussed in the following section. For consumers in the aggregate, DOE also calculates

the net present value from a national perspective of the economic impacts on consumers

over the forecast period used in a particular rulemaking.

124b. Life-Cycle Costs

The LCC is the sum of the purchase price of a product (including the cost of its

installation) and the operating expense (including energy and maintenance and repair

expenditures) discounted over the lifetime of the product

. The LCC savings for the

considered efficiency levels are calculated relative to a base case that reflects likely

trends in the absence of amended standards. The LCC analysis requires a variety of

inputs, such as product prices, product energy consumption, energy prices, maintenance

and repair costs

, product lifetime, and consumer discount rates. DOE assumes in its

analysis that consumers purchase the product in the year in which compliance with the

amended standard is required.

To account for uncertainty and variability in specific inputs, such as product

lifetime and discount rate, DOE uses a distribution of values with probabilities attached

to each value. A distinct advantage of this approach is that DOE can identify the

percentage of consumers estimated to achieve LCC savings or experiencing an LCC

increase, in addition to the average LCC savings associated with a particular standard

level

. In addition to identifying ranges of impacts, DOE evaluates the LCC impacts of

potential standards on identifiable subgroups of consumers that may be

disproportionately affected by an amended national standard.

125c. Energy Savings

While significant conservation of energy is a separate statutory requirement for

imposing an energy conservation standard, the Act requires DOE, in determining the

economic justification of a standard, to consider the total projected energy savings that

are expected to result directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) DOE

uses the N IA spreadsheet results in its consideration of total projected savings.

d. Lessening of Utility or Performance of Products

In establishing classes of products, and in evaluating design options and the

impact of potential standard levels, DOE seeks to develop standards that would not lessen

the utility or performance of the products under consideration. None of the TSLs

presented in today’s direct final rule would reduce the utility or performance of the

products consider ed in the rulemaking

. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) During the

screening analysis, DOE eliminated from consideration any technology that would

adversely impact con sumer utility. For the results of DOE’s analyses related to the

potential impact of amended standards on product utility and performance, see section

direct final rule TSD.

e. Impact of Any Lessening of Competition

EPCA directs DOE to consider any lessening of competition that is likely to result

from standards. Specifically, it directs the U.S. Attorney General (Attorney General) to

determine in writing the impact, if any, of any lessening of competition likely to result

from a proposed standard and to transmit such determination to the Secretary, not later

126than 60 days after the publication of a proposed rule, together with an analysis of the

nature and extent of such impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii)) DOE is

simultaneously publishing a NOPR containing energy conservation standards identical to

those set forth in today’s direct final rule and has transmitted a copy of today’s direct

final rule and the accompanying TSD to the Attorney General, requesting that the U.S.

Department of Justice (DOJ) provide its determination on this issue. DOE will consider

DOJ’s comments on the rule in determining whether to proceed with the direct final rule.

DOE will also publish and respond to the DOJ ’s comments in the Federal Register in a

separate notice.

f. Need of the Nation to Conserve Energy

Another factor which DOE must consider in determining whether a new or

amended standard is economically justified is the need for national energy and water

conservation. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from new or

amended standards ar e likely to provide improvements to the security and reliability of

the Nation’s energy system . R eductions in the demand for electricity may also result in

reduced costs for maintaining the reliability of the Nation’s electricity system

. DOE

conducts a utility impact analysis to estimate how new or amended standards may affect

the Nation’s needed power generation capacity

.

Energy savings from today’s standards are also likely to result in environmental

benefits in the form of reduced emissions of air pollutants and greenhouse gases

associated with energy production ( i.e. , from power plants), and through reduced use of

127fossil fuels at the homes where gas and oil furnaces are used. DOE reports the

environmental effects from today’s standards, as well as from each TSL it considered for

furnaces and central air conditioners and heat pumps, in the environmental assessment

contained in chapter 15 in the direct final rule TSD. DOE also reports estimates of the

economic value of emissions reductions resulting from the considered TSLs.

g. Other Factors

The Act allows the Secretary, in determining whether a standard is economically

justified, to consider any other factors that the Secretary deems to be relevant. (42 U.S.C.

6295(o)(2)(B)(i)(VII)) In developing the standards set forth in this notice, DOE has also

considered the comments submitted by interested parties, including the recommendations

in the consensus agreement, which DOE believes provides a reasoned statement by

interested persons that are fairly representative of relevant points of view (including

representatives of manufacturers of covered products, States, and efficiency advocates)

and contains recommendations with respect to energy conservation standards that are in

accordance with 42 U.S.C. 6295(o). DOE has encouraged the submission of consensus

agreements as a way to get diverse stakeholders together, to develop an independent and

probative analysis useful in DOE standard setting, and to expedite the rulemaking

process. In the present case, one outcome of the consensus agreement was a

recommendation to accelerate the compliance dates for these products, which would have

the effect of producing additional energy savings at an earlier date. DOE also believes

that standard levels recommended in the consensus agreement may increase the

likelihood for regulatory compliance, while decreasing the risk of litigation.

1282. Rebuttable Presumption

As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA provides for a rebuttable

presumption that an energy conservation standard is economically justified if the

additional cost to the consumer of a product that meets the standard level is less than

three times the value of the first-year energy (and, as applicable, water) savings resulting

from the standard, as calculated under the applicable DOE test procedure

. DOE’s LCC

and PBP analyses generate values that calculate the payback period for consumers of

potential new and amended energy conservation standards. These analyses include, but

are not limited to, the three-year payback period contemplated under the rebuttable

presumption test. However, DOE routinely conducts a full economic analysis that

considers the full range of impacts to the consumer, manufacturer, Nation, and

environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis

serve as the basis for DOE to evaluate the economic justification for a potential standard

level definitively (thereby supporting or rebutting the results of any preliminary

determination of economic justification). The rebuttable presumption payback calculation

is discussed in section IV.F.12 of this direct final rule and chapter 8 of the direct final

rule TSD.

129IV. Methodology and Discussion

DOE used two spreadsheet tools, which are available onlin e, 26 to estimate the

impact of all the considered standard levels, including today’s standards. The first

spreadsheet calculates LCCs and payback periods of potential amended energy

conservation standards. The second provides shipments forecasts and then calculates

national energy savings and net present value impacts of potential energy conservation

standards. The Department also assessed manufacturer impacts, largely through use of

the Government Regulatory Impact Model (GRIM), which is an industry cash-flow

model that is described in detail in section IV.I.

Additionally, DOE estimated the impacts on utilities and the environment of

potential amended energy efficiency standards for furnaces and central air conditioners

and heat pumps. DOE used a version of EI A’s National Energy Modeling System

(NEMS) for the utility and environmental analyses. The NEMS model simulates the

energy sector of the U.S. economy. EIA uses NEMS to prepare its Annual Energy

Outlook . For more information on NEMS, refer to The National Energy Modeling

System: An Overview , DOE/EIA

– 0581 (98) (Feb. 1998) (available at:

http://tonto.eia.doe.gov/FTPROOT/forecasting/058198.pdf ).

The version of NEMS used for appliance standards analysis is called NEMS-BT,

which is based on the AEO version but with minor modifications. 27 NEMS-BT offers a

26 http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers.html and http://www1.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.html
27 EIA approves the use of the name “NEMS” to describe only an AEO version of the model without any modification to code or data. Because the present analysis entails some minor code modifications (to allow

130sophisticated picture of the effect of standards, because it accounts for the interactions

between the various energy supply and demand sectors and the economy as a whole.

A. Market and Technology Assessment

1. General

When beginning an energy conservation standards rulemaking, DOE develops

information that provides an overall picture of the market for the products concerned,

including the purpose of the products, the industry structure, and market characteristics.

This activity includes both quantitative and qualitative assessments based primarily on

publicly-available information ( e.g. , manufacturer specification sheets, industry

publications, an d data from trade organization websites, such as AHRI at

http://www.ahrinet.org/ ). The subjects addressed in the market and technology

assessment for this rulemaking include: (1) quantities and types of products sold and

offered for sale; (2) retail market trends; (3) products covered by the rulemaking; (4)

product classes; (5) manufacturers; (6) regulatory requirements and non-regulatory

programs (such as rebate programs and tax credits); and (7) technologies that could

improve the energy efficiency of the products under examination. See chapter 3 of the

direct final rule TSD for further discussion of the market and technology assessment.

2. Products Included in this Rulemaking

This subsection addresses the scope of coverage for this energy conservation

standards rulemaking for furnaces, central air conditioners, and heat pumps. It will also

modeling of the impact of energy conservation standards on the appropriate energy end uses) and uses the model under various policy scenarios that deviate from AEO assumptions, the name “NEMS

- BT” refers to the model as used here. (“BT” stands for DOE’s Building Technologies Program.)

131address whether EPCA covers certain other products and authorizes DOE to adopt

standards for them.

a. Furnaces

EPCA defines a re sidential “furnace” as a product that: (1) either uses only single

phase electric current, or uses single-phase electric current or direct current (DC) in

conjunction with natural gas, propane, or home heating oil; (2) is designed to be the

principal heating source for the living space of a residence; (3) is not contained within the

same cabinet with a central air conditioner whose rated cooling capacity is above 65,000

Btu per hour; (4) is an electric central furnace, electric boiler, forced- air central furnace,

gravity central furnace, or low pressure steam or hot water boiler; and (5) has a heat input

rate of less than 300,000 Btu per hour for electric boilers and low pressure steam or hot

water boilers and less than 225,000 Btu per hour for forced-air central furnaces, gravity

central furnaces, and electric central furnaces. (42 U.S.C. 6291(23)) This definition

covers the following types of products: (1) gas furnaces (non-weatherized and

weatherized); (2) oil-fired furnaces (non-weatherized and weatherized); (3) mobile home

furnaces (gas and oil-fired); (4) electric resistance furnaces; (5) hot water boilers (gas and

oil-fired); (6) steam boilers (gas and oil-fired); and (7) combination space/water heating

appliances (water-heater/fancoil combination units and boiler/tankless coil combination

units).

Residential boilers are outside the scope of this rulemaking. EISA 2007 included

amendments to EPCA that established amended standards for these boilers (42 U.S.C.

1326295(f)(3)), and DOE subsequently incorporated these standards into its regulations at 10

CFR 430.32(e)(2)(ii). 73 FR 43611 (July 28, 2008). Compliance with the new statutory

boilers standards is required for covered products manufactured or imported on or after

September 1, 2012. As discussed in section II.B.2.a above, under the voluntary remand,

DOE agreed to undertake analyses to determine whether it should establish regional

energy conservation standards for residential furnaces. As part of this analysis, DOE

agreed to consider the effect of alternate standards on natural gas prices. The current

rulemaking for furnaces is the second amended energy conservation standards

rulemaking which is being conducted pursuant to authority under 42 U.S.C.

6295(f)(4)(C) and (o)(6). Given the relatively recent enactment of statutorily-prescribed

boiler standards in EISA 2007, DOE has decided to consider amended energy

conservation standards for boilers under 42 U.S.C. 6295(f)(4)(C) in a future rulemaking.

For furnaces, this rulemaking covers the same products as those covered by the

November 2007 Rule, consisting of the following types of furnaces: (1) non-weatherized

gas; (2) weatherized gas; (3) mobile home gas; and (4) non-weatherized oil-fired.

However, DOE did not perform an AFUE analysis for weatherized gas furnaces because

the November 2007 Rule promulgated standards at the max-tech AFUE level. As

described in section III.G, DOE has concluded that 81-percent AFUE is still the max-tech

efficiency achievable for weatherized gas furnaces. Therefore, because EPCA’s anti

backsliding clause would not allow DOE to consider adoption of a minimum standard

below 81-percent AFUE, and because there are no viable efficiency levels above 81­

percent AFUE, DOE did not perform an AFUE analysis for weatherized gas furnaces.

133Although DOE did not consider amended AFUE standards for electric furnaces,

mobile home oil-fired furnaces, and weatherized oil-fired furnaces in this rulemaking for

the reasons discussed in the following sections, DOE did consider standby mode and off

mode standards for these products. Additionally, DOE did not analyze energy

conservation standards for combination space/water heating appliances for reasons

discussed below.

(i) Mobile Home Oil-Fired and Weatherized Oil-Fired Furnaces

DOE is not proposing amended AFUE standards for mobile home oil-fired

furnaces and weatherized oil-fired furnaces because DOE understands that only a very

small number of these products are shipped (as these products combine to make up less

than one percent of all furnace models in the AHRI directory) and that the few models

that are shipped exceed the currently applicable standards ( i.e. , 75 -percent AFUE for

mobile home oil-fired furnaces and 78-percent AFUE for weatherized oil-fired furnaces).

As a result, DOE believes that promulgating higher standards for these products would

result in de minimis energy savings. DOE initially made these determinations in the

proposed rule leading to the development of the November 2007 Rule (71 FR 59204,

59214 (Oct. 6, 2006)), and based on a more recent review of products on the market and

feedback from manufacturers, DOE believes the market for all of these furnaces has not

changed. DOE initially made this proposal in the RAP and did not receive any related

comments.

134(ii) Electric Furnaces

EPCA initially prescribed standards at 78- percent AFUE for “furnaces,” which

did not exclude electric furnaces. (42 U.S.C. 6295(f)(1)) The definition of a “furnace” in

EPC A (42 U.S.C. 6291(23)) explici tly includes “electric furnaces

, ” and, therefore, the

78 -percent AFUE standard set by EPCA applies to electric furnaces. In the November

2007 final rul e, DOE stated that it was not adopting amended standards for electric

furna ces . 72 FR 65136, 65154 (Nov. 19, 2007)

. However, when outlining the minimum

AFUE requirements for the other furnace product classes, DOE did not restate the

requirement for electric furnaces that was originally established by EPCA. To clarify the

existing standards for electric furnaces

, DOE is reaffirming the 78-percent minimum

AFUE level for electric furnaces that was originally established by EPCA in t oday’s

direct final rule

. As noted previously

, DOE is not adopting amended AFUE standards for

electric furnaces because it understands that their efficiency already approaches 100­

percent AFUE. The AFUE ratings for electric furnace products currently on the market

range from 96-percent (for outdoor units due to jacket losses) to 100-percent, and as

discussed below, the test procedures for these products effectively limit them from

having AFUE ratings any lower than this. Therefore, for the reasons explained below,

DOE believes that any improvements to electric furnaces would have a de minimis

ener gy -savings potential and did not consider amending the AFUE standards for these

products. (However, as noted in section III.E.1.b of this direct final rule, DOE analyzed

new energy conservation standards for standby mode and off mode energy consumption

of these products.)

135The test procedure for residential furnaces specifies that AFUE for electric

furnaces is calculated as 100 percent minus jacket losses, and gives the option of

assigning jacket losses equal to 1 percent. 28 The AFUE is calculated in this manner

because the electric heating elements convert all of the electrical input energy into heat

energy, and the only losses at the point of operation are through the jacket. The jacket

losses are then multiplied by a factor of 1.7 for indoor furnaces (which must be tested as

isolated combustion systems) and 3.3 for outdoor furnaces, and subtracted from 100

percent to get the AFUE rating

. Therefore, the lowest possible AFUE rating for an

electric furnace , according to DOE’s test procedure and assuming a default value of 1

percent jacket losses, is 98.3 percent AFUE for non-weatherized (indoor) electric

furnaces and 96.7 percent AFUE for weatherized (outdoor) electric furnaces. Further, a
significant portion of electric furnaces are installed in the conditioned space, and any heat

lost through the jacket in such installations would contribute to the heated space,

effectively making the electric furnace completely efficient at the point of use.

The jacket losses of furnaces currently on the market are low, as jacket losses are

already assumed by the test procedure to be a default of 1 percent, and it is unlikely that

further improvements will have much impact on efficiency. Because reducing jacket

losses are the only means for improving the efficiency of these products as rated by

DOE’s test procedure , they have an extremely limited potential for additional energy

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

136savings. Any efficiency levels analyzed would be very unlikely to result in significant

energy savings.

In response to DOE’s planned app roach for considering amended AFUE

standards for electric furnaces, which was outlined in the RAP, DOE received several

comments.

NRDC stated that DOE should include electric furnaces in the scope of this

rulemaking because these products represent a low-cost option that could grow in market

penetration as the efficiency (and as a result, cost) of competing products that provide the

exact same consumer utility ( i.e. , heat pumps, which in most cases have electric furnaces

as back up and would use the same duct system) may potentially increase with upcoming

standards. Further, NRDC stated that unless the energy savings potential of amended

standards for electric furnaces is less than 0.032 quads (an amount deemed significant by

DOE in the packaged terminal air conditioners (PTACs) rulemaking 29 ), DOE should

include them in the scope of this rulemaking. (FUR: NRDC, No. 1.3.020 at pp. 8)

ACEEE recommended including electric furnaces and requiring a minimum AFUE of

greater than 100-percent for all ducted electric furnaces, given the substantial energy

losses in transmission from source to site. (FUR: ACEEE, No. 1.3.009 at p. 3-4) AGA

stated that excluding electric furnaces from consideration in the rulemaking is

counterproductive to reducing energy consumption, so the commenter urged DOE to look

at the number of electric furnaces on the market and to use that number in a comparative

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

137analysis to determine the potential impact of inclusion of such products in this

rulemaking. (FUR: AGA, Public Meeting Transcript, No. 1.2.006 at p. 42)

Conversely, EEI stated that it supports the scope of the current rulemaking and

agreed with DOE’s conclusions in the RAP regarding electric resistance furnaces and

boilers. (FUR: EEI, No. 1.3.015 at p. 3) The American Public Power Association (APPA)

commented that if DOE decides to reject the use of the consensus agreement and proceed

with a rulemaking, APPA would support the scope as outlined by DOE. More

specifically, APPA supported the finding that the rulemaking should not cover electric

resistance furnaces because their efficiency is already very high. (FUR: APPA, No.

1.3.011 at p. 3)

In response, DOE notes that it cannot promulgate a standard that would lead to

the elimination of any product class. (42 U.S.C. 6295(o)(4)) Because it is currently

impossible for manufacturers to achieve an AFUE standard of greater than 100 percent

for electric furnaces, and because such a standard would effectively eliminate electric

furnaces from the market, DOE does not believe ACEEE’s suggestion is a valid

opportunity for energy savings under EPCA. Additionally, as noted above, DOE

reviewed the market for electric furnaces and determined that because the efficiency of

these products approaches 100-percent AFUE, the energy-savings potential is de

minimis . As a result, DOE does not believe there is reason to consider amended standards

for electric furnaces in this rulemaking.

138EarthJustice stated that DOE has the statutory authority to consider heat pump

technology as a design option to improve the efficiency of electric furnaces. EarthJustice

asserted that because heat pumps use the same kind of energy and provide the same

functionality as electric resistance furnaces, there is no basis for treating the products

differently, and separate standards for these products are inconsistent with EPCA's

mandate to save energy. Further, EarthJustice stated that the definition of a “furnace” is

broad enough to cover heat pumps even though they are already defined under 42 U.S.C.

6291(24) and argued that a heat pump meets all of the requirements of the furnace

definition. (FUR: EarthJustice, No. 1.3.014 at pp. 3-6) Similarly, NRDC stated that

electric furnaces should be added to the heat pump product class and be required to

achieve the same performance. NRDC suggested rating both types of products using the

same metric – testing the furnaces for HSPF if possible, or exploring an AFUE rating for

a heat pump. (FUR: NRDC, No. 1.3.020 at pp. 8- 9)

DOE notes that EPCA defines a “furnace” as “an electric central furnace, e lectric

boiler, forced-air central furnace, gravity central furnace, or low pressure steam or hot

water boiler.” (42 U.S.C. 6291(23)(C)) Further, DOE’s definitions in the Code of Federal

Regulations define an “electric central furnace” as “a furnace design ed to supply heat

through a system of ducts with air as the heating medium, in which heat is generated by

one or more electric resistance heating elements and the heated air is circulated by means

of a fan or blower.” 10 CFR 430.2. Separately, EPCA define s a “heat pump” as a

product that (1) consists of one or more assemblies; (2) is powered by single phase

electric current; (3) is rated below 65,000 Btu per hour; (4) utilizes an indoor

139conditioning coil, compressors, and refrigerant- to -outdoor-air heat exchanger to provide

air heating; and (5) may also provide air cooling, dehumidifying, humidifying circulating,

and air cleaning. (42 U.S.C. 6291(24)) DOE believes that the definition of “heat pump”

in EPCA does not include electric furnaces, because electric furnaces do not meet all of

the criteria of the “heat pump” definition (such as utilizing a compressor and refrigerant).

(42 U.S.C. 6291(24)(D)) Further, DOE believes that because “heat pumps” are defined

separately by EPCA, they are not included under the definition of a “furnace” under 42

U.S.C. 6291(23)(C), which states that a furnace is an electric central furnace, electric

boiler, forced-air central furnace, gravity central furnace, or low pressure steam or hot

water boiler. Because an electric cent ral furnace utilizes heat “generated by one or more

electric resistance elements,” a heat pump would not be covered under the definition of

an “electric central furnace.” Once heat pump technology is added to an electric furnace,

the product would no longer generate heat using an electric resistance element, but

instead would use a refrigerant- to -outdoor-air heat exchanger to provide air heating. Such

a change in the mechanism for generating heat would exclude the product from being

covered as a furnace (a s it would no longer be an “electric furnace” under the definition

of a “ furnace ” in 42 U.S.C. 6291(23)(C))), and would instead cause it to be classified it as

a heat pump, under EPCA’s definitions. Therefore, DOE has concluded that it will not

consider heat pump technology as a design option for electric furnaces in the analysis.

(iii) Combination Space/Water Heating Appliances

DOE excluded combination space/water heating appliances from consideration in

this rulemaking, as was done in the NOPR leading to the November 2007 Rule for

140furnaces and boilers. 69 FR 45420, 45429 (July 29, 2004). An adequate test procedure

does not exist that would allow DOE to set standards for these products.

ACEEE urged DOE to develop a test method and energy conservation standard

for combination hot water/space heating units. (FUR: ACEEE, No. 1.3.009 at p. 3) EEI

stated that if combination space/water heating appliances obtain greater market share,

then DOE should create a test procedure and efficiency standards in a future rulemaking

because they are a competitive product. (FUR: EEI, No. 1.3.015 at p.3)

DOE has not yet initiated a test procedure rulemaking to establish a test procedure

for combination space/water heating appliances. DOE believes that doing so as a part of

this rulemaking would cause delays that could prevent DOE from issuing amended

standards for residential furnaces and central air conditioners and heat pumps in a timely

manner, and thus, may reduce energy savings to the Nation from amended standards (if

the compliance date must be delayed). Therefore, DOE may consider a test procedure and

energy conservation standards for combination space/water heating appliances in future

rulemakings, but will not do so as a part of this rulemaking for residential furnaces and

central air conditioners and heat pumps.

b. Central Air Conditioners and Heat Pumps

EPCA defines a residential “central air conditioner” as a product, other than a

packaged terminal air conditioner, which is: (1) powered by single-phase electric current,

(2) air cooled, (3) rated below 65,000 Btu per hour, (4) not contained within the same

141cabinet as a furnace the rated capacity of which is above 225,000 Btu per hour, and (5) a

heat pump or a cooling only unit. (42 U.S.C. 6291(21)) Furthermore, EPCA defines a

“heat pump” as a product, other than a packaged terminal heat pump, which : (1) consists

of one or more assemblies, (2) is powered by single-phase electric current, (3) is rated

below 65,000 Btu per hour, (4) uses an indoor conditioning coil, compressors, and

refrigerant- to -outdoor air heat exchanger to provide air heating, and (5) may also provide

air cooling, dehumidifying, humidifying circulating, and air cleaning. (42 U.S.C. 6291

(24))

For this rulemaking, DOE is evaluating amended energy conservation standards

for the products covered by DOE’s current standards for central air conditioners and heat

pumps, specified at 10 CFR 430.32(c)(2), which DOE adopted in the August 2004 Rule.

These products consist of: (1) split-system air conditioners; (2) split-system heat pumps;

(3) single package air conditioners; (4) single package heat pumps; (5) small-duct highvelocity (SDHV) air conditioners and heat pumps; (6) space-constrained air conditioners;

and (7) space-constrained heat pumps. The August 2004 Rule also prescribed standards

for through-the-wall air conditioners and heat pumps, but those products are now

considered space-constrained products because the through-the-wall product class

expired on January 23, 2010. 69 FR 51001.

(i) Evaporative Coolers

In response to the preliminary analysis, ACEEE indicated that DOE should

consider evaporative pre-cooled air conditioner condensers ( i.e. , the evaporative pre142cooler is an add-on to a conventional condenser) as a technology that could improve the

efficiency of air conditioners. (CAC: ACEEE, No. 72 at p. 4) As a result of this input,

DOE reexamined its treatment of evaporative coolers both as stand-alone products and as

add-ons to air conditioners. Evaporative coolers, also sometimes referred to as swamp

coolers, can be used as stand-alone residential cooling systems. This type of system is

generally found in hot, dry regions such as the southwestern United States. Evaporative

coolers operate by passing dry outdoor air over a water-saturated medium, which cools

the air as the water evaporates. The cooled air is then directed into the home by a

circulating fan. As mentioned above, EPCA defines a residential “central air

conditioner,” in part, as “air -cooled. ” (42 U.S.C. 6291(21)) Because residential

evaporative coolers are “evaporatively

- cooled” (instead of “air

- cooled”), DOE has

determined that they do not meet this definition and are, therefore, outside the scope of

this rulemaking.

In some instances, however, evaporative coolers can be added on to air

conditioners, and the combined system is referred to as an evaporative pre-cooled air

conditioner. In this application, the add-on evaporative cooler functions in the same

manner as the stand-alone system, except that its output air is blown over the air

conditioner condenser coils, instead of directly into the conditioned space. The increased

temperature gradient between the condenser coil and the air improves heat transfer and

increases the efficiency of the condenser coil. DOE is unaware of either any evaporative

pre-cooled central air conditioning systems offered as a complete package by any air

conditioner manufacturer, or of any prototype of such a system. Consequently, without

143cost or performance data, DOE cannot give this combined system full consideration in

the analysis. Therefore, the assumed cost of meeting each TSL is based on other

technologies, which may be more or less costly than evaporative pre-cooling.

3. Product Classes

In evaluating and establishing energy conservation standards, DOE generally

divides covered products into classes by the type of energy used, or by capacity or other

performance-related feature that justifies a different standard for products having such

feature. (42 U.S.C. 6295(q)) In deciding whether a feature justifies a different standard,

DOE must consider factors such as the utility of the feature to users. Id . DOE normally

establishes different energy conservation standards for different product classes based on

these criteria.

a. Furnaces

The existing Federal energy conservation standards for residential furnaces are

codified at 10 CFR 430.32(e)(1)(i). The November 2007 Rule amended energy

conservation standards for residential furnaces and established six residential furnace

product classes. 72 FR 65136, 65169 (Nov. 19, 2007). In the furnaces RAP, DOE stated

that it intends to maintain these product classes. Ingersoll Rand commented that the

planned product classes seem appropriate. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)

Lennox stated that it supports DOE’s planned product classes to the extent they mirror

those in the consensus agreement. (FUR: Lennox, No. 1.3.018 at p. 3)

144For today’s direct final rule, DOE reviewed the market for residential furnaces,

and determined that it is appropriate to consider the same six product classes established

for the November 2007 Rule for this analysis. In addition, DOE also consider ed electric

furnaces for standby mode and off mode standards only. Therefore, the furnace product

classes are:

Non-weatherized gas;

Weatherized gas;

Mobile home gas;

Mobile home oil-fired;

Non-weatherized oil-fired ;

Weatherized oil-fired; and

Electric.

As stated in section IV.A.2.a above, DOE only performed an AFUE analysis for

non -weatherized gas, mobile home gas, and non-weatherized oil-fired furnaces.

Additionally, DOE conducted a standby mode and off mode analysis for non-weatherized

gas, mobile home gas, non-weatherized oil-fired (including mobile home oil-fired), and

electric furnaces. D OE did not perform a standby mode and off mode analysis for

weatherized gas and weatherized oil-fired furnaces, as discussed in section III.E.1.a.

In response to the RAP for furnaces, DOE received several comments related to

setting different standards for new construction and replacement installations for

furnaces. AGA recommended that DOE should adopt a condensing standard at 90­

145percent AFUE for new construction, but allow non-condensing 80-percent furnaces to be

installed in replacement applications. (FUR: AGA, Public Meeting Transcript, No.

1.2.006 at p. 41) NEEP stated that it does not support limiting a revised standard to new

construction, because approximately 70 percent of furnace sales are into the replacement

market, and such a limitation would undermine too much of the amended standard’s

projected energy savings. (FUR: NEEP, No. 1.3.021 at p. 3) ACEEE stated that the

expected life of a house is roughly 100 years, and that exempting existing houses from a

standard sets a precedent for the following rounds of rulemakings. Further, ACEEE stated

that at some point, DOE would have to set standards that force consumers to retrofit their

homes to accommodate more-efficient products, and the cost to do this will not go down

with time. Therefore, ACEEE reasoned that the sooner this is done, the longer the

benefits will be recognized in an existing house. (FUR: ACEEE, Public Meeting

Transcript, No. 1.2.006 at pp. 51-52)

EEI stated strong opposition to setting new efficiency standards for new

construction for only gas heating products (and not other types of heating products). EEI

asserted that if new efficiency standards for gas furnaces are to only apply to new

construction, then new efficiency standards for all other competitive products covered by

DOE should also apply only to new construction. EEI stated that otherwise, standards in

each product class should apply to both new construction and retrofit situations to

maximize energy savings and economies of scale (as has been done in the past). (FUR:

EEI, No. 1.3.015 at p. 3)

146In response, DOE notes that setting different standards for products intended for

replacement installations and products intended for new construction would effectively

create separate product classes for each of these types of products. As stated above,

EPCA directs DOE to divide covered products into classes based on the type of energy

used, capacity, or other performance-related feature that justifies a different standard for

products having such feature. (42 U.S.C. 6295(q)) DOE does not believe that the

intended installation type ( i.e. , new construction or replacement) falls under any of the

qualifications listed above. As a result, DOE has determined that it does not have the

authority to establish differentiated standards for product installed in new construction

and products installed in replacement of an existing unit. Therefore, DOE did not

consider such standards for this direct final rule.

b. Central Air Conditioners and Heat Pumps

The existing Federal energy conservation standards for residential central air

conditioners and heat pumps went into effect on January 23, 2006. 69 FR 50997 (Aug.

17, 2004). At 10 CFR 430.32(c)(2), there is a list of the nine product classes of

residential central air conditioners and heat pumps and their corresponding energy

conservation standards. However, because the through-the-wall air conditioner and heat

pump product classes expired on January 23, 2010, DOE examined only seven product

classes for this residential central air conditioner and heat pump rulemaking. 69 FR

50997, 51001 (Aug. 17, 2004). The seven product classes DOE examined are:

Split-system air conditioners;

Split-system heat pumps;

147Single-package air conditioners;

Single-package heat pumps;

Small-duct, high-velocity systems;

Space-constrained air conditioners; and

Space-constrained heat pumps.

The subsections below provide additional detail and discussion of stakeholder

comments relating to these seven product classes.

(i) Expiration of Through-the-Wall Product Class

Through-the-wall systems were established as a separate product class, and were

required by the August 2004 Rule to meet a 10.9 SEER standard. As previously

mentioned, when the through-the-wall product class was created, DOE included a

provision that the product class would expire on January 23, 2010, after which time units

in the through-the-wall product class could be considered part of the space-constrained

product class. 69 FR 50997, 50998 (August 17, 2004). In the August 2004 Rule, DOE

also established a separate product class for space-constrained systems, requiring them to

meet a 12 SEER standard. For this direct final rule, because the through- the -wall product

class has expired, DOE reclassified through-the-wall products. The product class

assignment of any product depends o n that product’s characteristics, but DOE believes

that most (if not all) of the historically-characterized “through -the- wall” products would

now be assigned to one of the space-constrained product classes. As a result, DOE

considered through-the-wall products to be part of the space-constrained product class for Deleted:

.

148its analyses. In addition, DOE is updating the footnote to the table in 10 CFR

430.32(c)(2) to clarify the classification of through-the-wall products

.

In the preliminary analysis, DOE sought feedback on this classification and

potential market shifts which may result from considering the former through-the-wall

products to be space-constrained products. Ingersoll Rand commented that replacement

units of all types have to contend with the space constraints of the existing installation,

and the intended benefit of minimum efficiency standards would be severely diminished

if special treatment of the space-constrained products is continued. (CAC: Ingersoll

Rand, No. 66 at p. 2)

Federal law does not allow DOE to promulgate efficiency standards that would

result in the unavailability in the United States in any covered product type (or class) of

performance characteristics (including reliability), features, sizes, capacities, and volumes

that are substantially the same as those currently on the market. (42 U.S.C. 6295(o)(4))

The space-constrained product class acts as a safe harbor for product types available

before 2001 whose efficiency is limited by physical dimensions that are rigidly

constrained by the intended application. DOE believes that through-the-wall equipment

intended for replacement applications can meet the definition of space-constrained

products because they must fit into a pre-existing hole in the wall, and a larger throught he -wall unit would trigger a considerable increase in the installation cost to

accommodate the larger unit. On the other hand, while split system and single package air

conditioners and heat pumps have certain size limitations mainly associated with

149installation and consumer preferences, these units typically have a component installed

outdoors. Because part of the unit is outdoors, there is more flexibility to allow for

increases in the overall unit size. This greater flexibility with regard to product siz e
provides these products with an advantage in achieving an increased efficiency because a

larger coil can be used. Because physical size constraints for through-the-wall products

continue to exist, DOE determined that continuation of the space-constrained product

class is warranted.

(ii) Large-Tonnage Products

For the preliminary analysis of conventional central air conditioner and heat pump

product classes, DOE selected 36,000 Btu/hour ( i.e

. , three-tons) as the representative

capacity for analysis because units at this capacity are ubiquitous across manufacturers,

have high sales volumes, and span a relatively large range of efficiencies. However,

large-tonnage products ( i.e. , products with cooling capacities of approximately five tons)

have additional constraints that three-ton products do not have, such as added installation

costs and space requirements, which could potentially lead to different incremental costs

between efficiency levels for three-ton units as compared to larger-capacity units. In its

preliminary analysis, DOE determined that these incremental cost differences between

three-ton units and large-tonnage units were not large enough to necessitate a largetonnage product class, but sought comment on the treatment of larger-tonnage products in

the analysis.

150Ingersoll Rand stated that in the past there have not been sufficient differences to

justify a separate large-tonnage product class. However, when considering the EER

metric, Ingersoll Rand asserted that the marketability, serviceability, and installation cost

differences are substantial enough to warrant a separate product class. (CAC: Ingersoll

Rand, No. 66 at p. 2) Rheem noted that achieving higher efficiency in large-tonnage

products is more difficult because of size limitations in the coils and the air handler, and

that there are other issues such as additional refrigerant charge and handling issues

associated with the larger size. (CAC: Rheem, No. 76 at p. 3)

For this direct final rule, DOE only considered an EER minimum conservation

standard for the consensus agreement TSL (see section V.A for more details about the

TSLs analyzed). The consensus agreement TSL has separate EER levels for largetonnage products to account for the unique characteristics of those products that lead to

increased costs. DOE believes that the impacts of unit size on EER are enough to justify a

separate product class for large tonnage units, but does not believe these impacts on

SEER are enough to justify a separate product class. Therefore, DOE believes a large

tonnage product class is applicable for the consensus agreement TSL due to the EER

standard. Because DOE is not considering minimum EER standards for the other TSLs,

DOE did not establish a separate product class for large-tonnage products for other TSLs

. However, DOE has determined that the differences among products with different

cooling capacities are substantial enough to justify an expansion of the engineering

analysis to two, three, and five tons for split systems. See section IV.C.5.b of today’s

151direct final rule for further information on DOE’s approach to scaling the analysis at the

representative cooling capacity to additional cooling capacities.

(iii) Blower-Coil and Coil-Only Designation for Split System Air Conditioners

In replacement applications for split-system air conditioners, consumers are

presented with two options: (1) replace a portion of their system, or (2) replace the entire

system. For the first option, if a consumer has a furnace installed, and a portion of the air

conditioning system ( i.e. , condensing unit or evaporator coil) fails, the consumer may

choose to only replace the air conditioning portion of the system. This scenario involves

the replacement of a condensing unit and an evaporator coil used with the existing blower

fan in the furnace. In these applications, manufacturers are constrained by the efficiency

of the fan in the installed furnace, and they only have the ability to modify the

condensing unit or evaporator coil to achieve the desired efficiency. These systems are

referred to as “coil

- only” systems and are tested and rated using the combination of a

specific condensing unit and evaporator coil with a default indoor fan energy

consumption specified in the DOE test procedure. Because the default indoor fan energy

consumption value specified in the test procedure is not for a high-efficiency furnace fan,

these types of units are limited in the SEER levels that they can achieve.

For the second option, if a consumer’s entire system is repl aced or installed as one

complete system (as in new construction), the consumer has the ability to select a

combination of indoor and outdoor units that can achieve any efficiency within the

commercially-available range of efficiencies for split-system air conditioners because the

indoor fan efficiency no longer limits the achievable SEER. Because the systems are sold

152as specific combinations of indoor and outdoor units, manufacturers have the ability to

modify all portions of the system ( i.e. , condensing unit, evaporator coil, and indoor fan

blower) to achieve the desired efficiency. These systems are referred to as “blower

- coil”

systems and are tested and rated using the combination of a specific condensing unit,

evaporator coil, and indoor fan blower. Because manufacturers have the option to

improve the efficiency of the indoor blower fan in blower-coil systems, the costefficiency relationship is inherently different than for coil-only systems. Both types of

systems are prevalent in the marketplace, and for the preliminary analysis, DOE

characterized split-system air conditioners with separate cost-efficiency curves for

blower-coil and coil-only systems within a single product class.

In response to DOE’s request for comment on establishing a single produc t class

for blower-coil and coil-only systems, Ingersoll Rand noted that the distinction between

coil-only and blower-coil systems is artificial because all systems have some means for

moving indoor air, even when rated coil-only. (CAC: Ingersoll Rand, No. 66 at p. 5) In

this direct final rule, DOE is not establishing separate product classes for coil-only and

blower-coil split system air conditioners, and, therefore, DOE continued to analyze them

separately within the split system air conditioner product class for the direct final rule

analysis.

(iv) “Dual

- Fuel” Systems

In the preliminary analysis, DOE found that the majority of split-system heat

pumps are sold as a matched set of indoor and outdoor units for both the new

153construction and replacement markets. However, DOE recognized that in some instances

heat pumps are used in conjunction with gas or oil- fired furnaces, providing a “dual

- fuel”

heating capability. Consequently, DOE sought input on the characterization of the heat

pump replacement market and whether installations of matched sets of indoor and

outdoor products should be the basis for DOE’s analysis for all heat pumps.

Ingersoll Rand commented that DOE should consider installations of matched sets

of indoor and outdoor products for all hea t pumps, and that the few heat pumps in “dual

fuel” systems are found primarily in the northern region of the United States. (CAC:

Ingersoll Rand, No. 66 at 6) Rheem supported this statement and stated that heat pump

installations should be considered as matched sets. (CAC: Rheem, No. 76 at p. 8) In

response, DOE believes the large majority of heat pump shipments consists of matched

sets ( i.e. , pairing an outdoor and indoor unit) and has assumed that all heat pumps are

installed with matched indoor air handlers for purposes of the direct final rule analyses

.

4. Technologies That Do Not Impact Rated Efficiency

As part of the market and technology assessment performed for the direct final

rule analysis, DOE developed a comprehensive list of technologies that would be

expected to improve the energy efficiency of furnaces and central air conditioners and

heat pumps, including those that do not impact the efficiency as rated by AFUE (for

furnaces), SEER (for central air conditioners and heat pumps), and HSPF (for heat

pumps). For example, certain technologies have the potential to reduce the electrical

energy consumption of furnaces, but the AFUE metric does not capture the electrical

154energy use, and, therefore, such technologies would not be used to improve AFUE.

Chapter 3 of the direct final rule TSD contains a detailed description of each technology

that DOE identified. Although DOE identified a complete list of technologies that

improve efficiency, DOE only considered in its analysis technologies that would impact

the efficiency rating of the appliance as tested under the applicable DOE test procedure.

Therefore, DOE excluded several technologies from the analysis during the technology

assessment because they do not improve the rated efficiency of furnaces or central air

conditioners and heat pumps. Technologies that DOE determined have an impact on the

rated efficiency were carried through to the screening analysis and are discussed in

section IV.B, which also contains the technologies that were considered as part of the

standby mode and off mode analyses.

In response to DOE’s preliminary analysis for central air conditioners and heat

pumps, ACEEE remarked that DOE eliminated technologies that save energy in realworld conditions or would require an additional performance metric, but do not improve

the SEER or HSPF rating according to the current DOE test procedure. ACEEE stated

that as a result, DOE screened out many important technologies in the central air

conditioners and heat pumps preliminary analysis. (CAC: ACEEE, No. 72 at p. 4)

Similarly, during the public meeting to discuss the furnaces RAP, ACEEE commented

that the initial screening-out of technologies based on their impact on AFUE, as opposed

to end- use efficiency, is unnecessarily restrictive to DOE’s consideration of options.

(FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at p. 149)

155A product’s efficiency rating under the applicable Federal test procedure

determines whether it meets a particular minimum efficiency standard. An individual

technology is relevant in the rulemaking process only to the extent that the technology

has the potential to raise the efficiency rating of a product as measured under the test

procedure. Therefore, DOE removes from consideration technologies that have no

impact on a product's rating. Major changes to the DOE test procedures would be

required to update the test procedures to include provisions that account for the impact of

certain technologies on product efficiency, which would significantly delay the standards

rulemaking such that DOE would not be able to meet its deadline of June 30, 2011, for

publishing the final rule for these products. However, potential changes in the test

procedures could be considered during the next round of test procedure rulemakings for

these products. DOE believes that such delays may reduce energy savings to the Nation

from amended standards (if the compliance date must be delayed). Therefore, in this

rulemaking, DOE will continue to exclude technologies that do not improve the energy

efficiency ratings of residential furnaces and central air conditioners and heat pumps, as

tested by the applicable DOE test procedures.

For residential furnaces, DOE has determined that the following technologies

would not impact AFUE as it is rated using the DOE test procedure: (1) infrared burners;

(2) positive shut-off valves for oil burner nozzles; (3) improved blower efficiency; and

(4) micro combined heat and power. DOE did not analyze these technologies further

because the technology either does not improve AFUE or there are insufficient data

available to demonstrate an AFUE benefit of the technology.

156For central air conditioners and heat pumps, DOE has determined that the

following technologies would not impact the SEER and HSPF as calculated using the

DOE test procedure: (1) condenser fan motor controllers; (2) liquid-suction heat

exchangers; and (3) heat pump defrost mechanisms. DOE did not analyze these

technologies further because the technology either does not increase the SEER or HSPF

ratings, or there are insufficient data available to demonstrate a SEER or HSPF benefit of

the technology.

In response to the technology assessment performed for the preliminary analysis,

DOE received feedback from several interested parties. ACEEE noted that in the

preliminary analysis, DOE excluded advanced defrost controls for heat pumps that can

save significant amounts of energy at low relative humidity outdoors. (CAC: ACEEE,

No. 72 at p. 4) Regarding solar-assist products, EEI stated that this technology has no

influence on units in terms of cooling efficiency as measured by SEER or EER. (CAC:

EEI, No. 75 at p. 5) Ingersoll Rand commented that solar-assist technology should be

excluded because it does not improve the operating efficiency of the refrigeration cycle.

(CAC: Ingersoll Rand, No. 66 at p. 9) Southern remarked that there would need to be

significant changes made to the test procedure to measure the solar-assist contribution.

Additionally, a solar-assist component could potentially be used to qualify a unit at a

minimum SEER level and then removed later, resulting in unit operation at levels below

the minimum standard. (CAC: Southern, No. 73 at p. 3) Rheem commented that

technological feasibility of high-volume manufacture, installation, and servicing of both

157solar-assist and three-stage heat pumps has not been established (CAC: Rheem, No. 76 at

p. 11) Regarding three-stage heat pumps, Ingersoll Rand stated that the HSPF values for

these products are not higher than conventional single-stage systems, because compressor

capacity is not the only limiting factor on low-temperature heating capacity. (CAC:

Ingersoll Rand, No. 66 at p. 9)

In response to these comments, DOE reassessed its preliminary views on the

technologies in question. DOE revisited its conclusion regarding advanced defros t

controls in the preliminary analysis, and found that advanced defrost controls can

increase the HSPF of heat pumps according to the DOE test procedure. Accordingly,

DOE has considered advanced defrost controls in the analyses for the direct final rule.

Regarding solar-assist technology, DOE has determined that this technology has

no impact on SEER or HSPF using the DOE test procedure, and, therefore, DOE did not

consider it as a technology option for the screening and engineering analyses. Similarly,

th ree -stage heat pumps appear to have no impact on SEER or HSPF using the DOE test

procedure, and therefore, DOE decided not to consider it as a technology option for

analysis.

B. Screening Analysis

DOE uses the following four screening criteria to determine which design options

are suitable for further consideration in a standards rulemaking:

1581. Technological feasibility . DOE will consider technologies incorporated in

commercial products or in working prototypes to be technologically feasible.

2. Practicability to manufacture, install, and service . If mass production and

reliable installation and servicing of a technology in commercial products could be

achieved on the scale necessary to serve the relevant market at the time the standard

comes into effect, then DOE will consider that technology practicable to manufacture,

install, and service.

3. Adverse impacts on product utility or product availability . If DOE determines a

technology would have significant adverse impact on the utility of the product to

significant subgroups of consumers, or would result in the unavailability of any covered

product type with performance characteristics (including reliability), features, sizes,

capacities, and volumes that are substantially the same as products generally available in

the United States at the time, it will not consider this technology further.

4. Adverse impacts on health or safety . If DOE determines that a technology will

have significant adverse impacts on health or safety, it will not consider this technology

further.

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

159In response to the screening criteria outlined in the furnace RAP, ACEEE argued

that, although it is inappropriate to preclude from initial consideration technologies that

are not widely used in the U.S., it may be appropriate to eliminate them in the screening

analysis after adequate consideration if DOE finds the labor force to be insufficient to

adequately manufacture, sell, and service products on the scale necessary to serve the

relevant market by the compliance date of the amended standard. (FUR: ACEEE, Public

Meeting Transcript, No. 1.2.006 at pp. 148-151) ACEEE also commented that DOE

should screen in technology options that are not used in the United States, but that are

used internationally. (FUR: ACEEE, No. 1.3.009 at p.2)

In response, DOE considers a complete list of technology options in the market

and technology assessment, including those used on the international market, and then

examines each technology that impacts the rated efficiency to determine if the four

screening criteria are met. International technology options are treated no differently than

those that are domestic and must meet all four screening criteria, including practicability

to manufacture, install, and service on the scale necessary to serve the U.S. market by the

compliance date. If DOE determines that a technology option does not meet all of the

relevant criteria, it will eliminate that technology option from further consideration

.

1. Furnaces

DOE identified the following technology options that could improve the AFUE

rating of residential furnaces: (1) condensing secondary heat exchanger for nonweatherized furnaces; (2) heat exchanger improvements for non-weatherized furnaces;

160(3 ) condensing and near-condensing technologies for weatherized gas furnaces; (4) twostage or modulating combustion; (5) pulse combustion; (6) low NO X premix burners; (7)

burner derating; (8) insulation improvements; (9) off-cycle dampers; (10) concentric

venting; (11) low-pressure, air-atomized oil burner; (12) high-static oil burner; and (13)

delayed-action oil pump solenoid valve.

In response to DOE’s request for comments on technologies in the furnaces RAP,

Ingersoll Rand commented that all of the technology options that are technologically

feasible and economically justified for furnaces are already incorporated by

manufacturers into their current products, and that there are no new efficiency-benefitting

technologies on the horizon. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)

DOE notes that a large amount of research regarding technology options for

improving the efficiency of furnaces has already been conducted by industry and others.

However, DOE’s initial list of technology options identified in th e market and technology

assessment includes all technology options that could improve rated efficiency, without

regard to technological feasibility or economic justification (a matter considered in other

downstream analyses). Each technology option is reviewed during the screening analysis

according to the four screening criteria. If a prototype or other technology option is

“screened in,” DOE further considers it in the engineering analysis regardless of whether

it is already widely used in the market.

161a. Screened-Out Technology Options

DOE excluded six of the technologies listed above from consideration in this

rulemaking based on one or more of the four screening criteria. The technology options

that DOE “screened out” include: (1) condensing and near -condensing technologies for

weatherized gas furnaces; (2) pulse combustion; (3) low NO X premix burners; (4) burner

derating; (5) advanced forms of insulation; and (6) low-pressure, air-atomized oil burner.

The following discussion explains DOE’s rationale fo r screening out these technologies.

Due to lack of evidence of technological feasibility, DOE screened out:

condensing and near-condensing technologies for weatherized furnaces; low NO x premix

burners; advanced forms of insulation (including foam insulation, vacuum insulation

panels, gas-filled panels, aerogel insulation, and evacuated panels); and low-pressure, airatomizing oil burners. To the best of DOE’s knowledge, none of these technologies have

been successfully demonstrated in the design of a commercially-available furnace model

or a working prototype. Therefore, they were eliminated from further consideration.

Pulse combustion was screened out due to concerns about adverse impacts on

safety. Although products with this technology are generally safe, discussions with

manufacturers indicated that the same or similar efficiencies could be achieved using

other technologies that do not operate with positive pressure in the heat exchanger. In

pulse combustion systems, the positive pressure in the heat exchanger could cause

hazardous combustion products ( e.g. , carbon monoxide) to leak into the home if fatigue

caused the heat exchanger to breach. DOE concluded that the efficiency-related benefits

162of these products in terms of AFUE do not outweigh the possible adverse impacts on

health or safety, especially given that manufacturers already achieve high efficiencies

without the use of pulse combustion.

Finally, burner derating ( i.e., reducing the burner firing rate) lessens heat output

from the furnace. As such, burner derating was eliminated from further consideration due

to its significant adverse impacts on product utility to the consumer.

For more detail regarding each technology option and the screening process, see

chapters 3 and 4 of the TSD accompanying today’s notice.

2. Central Air Conditioners and Heat Pumps

DOE identified the following technologies that could improve the SEER and/or

HSPF efficiency ratings of central air conditioners and heat pumps: (1) higher-efficiency

compressors; (2) higher-efficiency fan motors; (3) higher-efficiency fan blades; (4)

improvements to baseline coils; (5) micro-channel heat exchangers; (6) flat-tube heat

exchangers; (7) heat pump defrost controls; (8) inverter technology; and (9) highefficiency expansion valves.

After eliminating those technologies which did not increase the SEER or HSPF

ratings (as described in section IV.A.4), DOE subjected the remaining technologies listed

above to the four screening criteria. DOE determined that each of the technologies listed

163above passed all four of the screening criteria, and thus, DOE considered those

technologies further in the downstream analyses.

In response to the central air conditioner and heat pump preliminary analysis,

DOE received comments from interested parties suggesting the inclusion of inverterdriven components as a technology option in the analysis. Daikin noted that inverter

technology can substantially increase the energy efficiency of central air conditioners and

should be considered as a technology option. (CAC: Daikin, No. 63 at p. 2) Further,

Daikin also commented that inverter technology is in widespread use outside of the

United States, which demonstrates that it is not cost-prohibitive, and the technology is not

proprietary. (CAC: Daikin, No. 63 at p. 4) Northwest Power and Conservation Council

(NPCC) remarked that inverter technology is already used domestically in ductless minisplits, and the technology is applicable to both conventional split system and packaged

central air conditioners and heat pumps. (CAC: NPCC, No. 74 at 5)

After considering these comments, DOE believes that inverter technology is a

non -proprietary method of improving the SEER and HSPF ratings of central air

conditioners and heat pumps. Accordingly, DOE included inverter technology as a

technology option in its analysis.

In response to DOE’s request for comment on the preliminary screening analysis,

ACEEE questioned DOE ’s decision to screen out several important technologies,

including modulating compressors and condenser fans. (CAC: ACEEE, No. 72 at p. 4)

164However, DOE believes that the higher-efficiency fan motors and higher-efficiency

compressors technology options encompass the technologies that ACEEE identified.

Therefore, DOE did not identify those technologies as separate technologies in the

preliminary analysis, but both modulating compressors and modulating condenser fans

were considered in the engineering analysis.

3. Standby Mode and Off Mode

As discussed above, DOE is required by EPCA, as amended by EISA 2007, to

amend its test procedures for furnaces and central air conditioners and heat pumps in

order to address standby mode and off mode energy consumption of these products. (42

U.S.C. 6295(gg)(2)) As explained in the October 20, 2010 test procedure final rule for

furnaces and boilers, DOE determined that it was not technically feasible to set an

integrated metric encompassing active mode, standby mode, and off mode, so the

Department adopted a separate metric to address standby mode and off mode energy

consumption. 75 FR 64621, 64626-27. Accordingly, DOE conducted a separate screening

analysis for standby mode and off mode technologies. DOE identified the following

technology options that could improve the standby mode and off mode efficiency rating

of residential furnaces: (1) switching mode power supplies; (2) toroidal transformers; and

(3) a relay that disconnects power to the blower’s electronically -commutated motor

(ECM) while in standby mode.

DOE identified the following technology options that could improve the off mode

efficiency rating of central air conditioners and heat pumps: (1) thermostatically165controlled crankcase heaters; (2) toroidal transformers; (3) self-regulating ( i.e

. , variable

resistance) crankcase heaters; (4) compressor covers and (5) a relay that disconnects

power to the ECM blower while in off mode.

After applying the four screening criteria to these technology options for furnaces

and central air conditioners and heat pumps, DOE screened out the technology option of

a control relay for disconnecting power to the ECM blower because of the potential for

adverse impacts to product utility for all product classes. DOE believes that such a design

would cause failure rates of blower motors to increase significantly, which would

severely degrade reliability and consumer utility of the product. Furthermore, DOE is not

aware of any commercially-available models or working prototypes of an ECM that

completely depowers between uses, making the design option technologically infeasible

in the context of this rulemaking. The remaining two design options for furnaces were

screened in and carried forward in the analyses. For central air conditioners and heat

pumps, the remaining four design options were screened in and were considered in the

downstream analyses.

4. Technologies Considered

Based upon the totality of the available information, DOE has concluded that: (1)

all of the efficiency levels discussed in today’s notice are technologically feasible; (2)

products at these efficiency levels could be manufactured, installed, and serviced on a

scale needed to serve the relevant markets; (3) these efficiency levels would not force

manufacturers to use technologies that would adversely affect product utility or

166availability; and (4) these efficiency levels would not adversely affect consumer health or

safety. Thus, the efficiency levels that DOE analyzed and discuss es in this notice are all

achievable through technology options that were “screened in” during the screening

analysis.

C. Engineering Analysis

The engineering analysis develops cost-efficiency relationships to determine the

manufacturing costs of achieving increased efficiency. DOE has identified the following

three methodologies to generate the manufacturing costs needed for the engineering

analysis: (1) the design-option approach, which provides the incremental costs of adding

to a baseline model design options that will improve its efficiency; (2) the efficiencylevel approach, which provides the relative costs of achieving increases in energy

efficiency levels, without regard to the particular design options used to achieve such

increases; and (3) the cost-assessment (or reverse engineering) approach, which provides

“bot tom- up” manufacturing cost assessments for achieving various levels of increased

efficiency, based on detailed data as to costs for parts and material, labor,

shipping/packaging, and investment for models that operate at particular efficiency

levels.

The Department conducted the engineering analyses for this rulemaking using a

combination of the efficiency level and cost-assessment approaches for analysis of the

minimum AFUE standards for furnaces and minimum SEER and HSPF standards for

central air conditioners and heat pumps. More specifically, DOE identified efficiency

167levels for analysis, and then used the cost-assessment approach to determine the

manufacturing costs at those levels. For analyzing standby mode and off mode electrical

energy consumption standards, DOE used the design-option approach to develop the

cost-efficiency relationship, as explained in greater detail in section IV.C.7. Additional

details of the engineering analysis are in chapter 5 in the direct final rule TSD.

1. Cost Assessment Methodology

At the start of the engineering analysis, DOE identified the energy efficiency

levels associated with residential furnaces and central air conditioners and heat pumps on

the market, as determined in the market assessment. DOE also identified the technologies

and features that are typically incorporated into products at the baseline level and at the

various energy efficiency levels analyzed above the baseline. Next, DOE selected

products for the physical teardown analysis having characteristics of typical products on

the market at the representative input capacity for furnaces and representative cooling

capacity for central air conditioners and heat pumps. DOE gathered information from

performing a physical teardown analysis (see section IV.C.1.a) to create detailed bills of

materials that included all components and processes used to manufacture the products.

DOE used the bills of materials (BOMs) from the teardowns as an input to a cost model,

which was used to calculate the manufacturing production cost (MPC) for products at

various efficiency levels spanning the full range of efficiencies from the baseline to the

maximum technology available. For the central air conditioners and heat pumps, DOE

reexamined and revised its cost assessment performed for the preliminary analysis based

on additional teardowns and in response to comments received on the preliminary

168analysis. Additionally, DOE decided to expand the analyses for split system air

conditioners to include capacities beyond the representative capacities, as described in

section IV.C.5.

During the development of the engineering analysis for the direct final rule, DOE

held interviews with manufacturers to gain insight into the heating, ventilation, and air

conditioning (HVAC) industry, and to request feedback on the engineering analysis and

assumptions that DOE used. DOE used the information gathered from these interviews,

along with the information obtained through the teardown analysis and public comments,

to refine the assumptions and data in the cost model. Next, DOE derived manufacturer

markups using publicly-available furnace and central air conditioner and heat pump

industry financial data, in conjunction with manufacturers’ feedback. The markups were

used to convert the MPCs into manufacturer selling prices (MSPs). Further information

on comments received and the analytical methodology is presented in the subsections

below. For additional detail, see chapter 5 of the direct final rule TSD.

a. Teardown Analysis

To assemble BOMs and to calculate the manufacturing costs of the different

components in residential furnaces and central air conditioners and heat pumps, DOE

disassembled multiple units of each product into their base components and estimated the

materials, processes, and labor required for the manufacture of each individual

component, a process referred to as a “physical teardown.” Using the data gathered from

the physical teardowns, DOE characterized each component according to its weight,

169dimensions, material, quantity, and the manufacturing processes used to fabricate and

assemble it.

DOE also used a supplementary method, called a “virtual teardown,” which

examines published manufacturer catalogs and supplementary component data to

estimate the major physical differences between a product that was physically

disassembled and a similar product that was not. For supplementary virtual teardowns,

DOE gathered product data such as dimensions, weight, and design features from

publicly-available information, such as manufacturer catalogs. DOE also obtained

information and data not typically found in catalogs and brochures, such as fan motor

details, gas manifold specifications, or assembly details, from the physical teardowns of a

similar product or through estimates based on industry knowledge. The teardown

analysis included over 40 physical and virtual teardowns of furnaces for the direct final

rule analysis, 31 physical and virtual teardowns of central air conditioners and heat

pumps during the preliminary analysis, and one additional central air conditioner and heat

pump teardown for the direct final rule analysis. The additional teardowns performed for

the direct final rule analysis allowed DOE to further refine the assumptions used to

develop the MPCs.

The teardown analysis allowed DOE to identify the technologies that

manufacturers typically incorporate into their products, along with the efficiency levels

associated with each technology or combination of technologies. The end result of each

teardown is a structured BOM, which DOE developed for each of the physical and virtual

170teardowns. The BOMs incorporate all materials, components, and fasteners, classified as

either raw materials or purchased parts and assemblies, and characterize the materials and

components by weight, manufacturing processes used, dimensions, material, and

quantity. The BOMs from the teardown analysis were then used as inputs to the cost

model to calculate the MPC for each product that was torn down. The MPCs resulting

from the teardowns were then used to develop an industry average MPC for each product

class analyzed. See chapter 5 of the direct final rule TSD for more details on the

teardown analysis.

b. Cost Model

The cost model is a spreadsheet that converts the materials and components in the

BOMs into dollar values based on the price of materials, average labor rates associated

with manufacturing and assembling, and the cost of overhead and depreciation, as

determined based on manufacturer interviews and DOE expertise. To convert the

information in the BOMs to dollar values, DOE collected information on labor rates,

tooling costs, raw material prices, and other factors. For purchased parts, the cost model

estimates the purchase price based on volume-variable price quotations and detailed

discussions with manufacturers and component suppliers. For fabricated parts, the prices

of raw metal materials ( e.g. , tube, sheet metal) are estimated on the basis of 5-year

averages (from 2005 to 2010). The cost of transforming the intermediate materials into

finished parts is estimated based on current industry pricing. For the central air

conditioners and heat pumps analysis, DOE updated all of the labor rates, tooling costs,

raw material prices, the costs of resins, and the purchased parts costs used in the

171preliminary analysis when developing costs for the direct final rule analysis. For

furnaces, there was no preliminary analysis, and DOE used the updated rates and costs

described in the preceding sentence when conducting the direct final rule analysis.

Chapter 5 of the direct final rule TSD describes DOE’s cost model and definitions,

assumptions, data sources, and estimates.

Ingersoll Rand commented on the material prices collected for use in the cost

model, noting that due to the volatility and overall increasing trend of material prices, 5­

year average material prices will potentially be an underestimation of current material

prices, which could lead to significant errors. (FUR: Ingersoll Rand, No. 1.3.006 at p. 5)

DOE acknowledges Ingersoll Rand’s concerns about the material costs used in the

engineering analysis because a large portion of the manufacturer production cost can

typically be attributed to raw materials, the price of which can fluctuate greatly from year

to year. However, DOE uses a 5-year span to attempt to normalize the fluctuating prices

experienced in the metal commodities markets and screen out temporary dips or spikes.

DOE believes a 5-year span is the longest span that would still provide appropriate

weighting to current prices experienced in the market. DOE updates the 5-year span for

metal prices based on a review of updated commodity pricing data, which point to

continued increases. Consequently, DOE calculated a new 5-year average materials price

using the U.S. Department of Labor’s Bureau of Lab or Statistics (BLS) Producer Price

Indices (PPIs) 30 for various raw metal materials from 2005 to 2010 for use in this

rulemaking. The updated material prices incorporate the changes within each material

30 For more information, visit the BLS website at http://www.bls.gov/ppi/

.

172industry and account for inflation. DOE also used BLS PPI data to update current market

pricing for other input materials such as plastic resins and purchased parts. Finally, DOE

adjusted all averages to 2009$ using the gross domestic product (GDP) implicit price

deflator. 31 See chapter 5 of the direct final rule TSD for additional details.

c. Manufacturing Production Cost

Once the cost estimates for all the components in each teardown unit were

finalized, DOE totaled the cost of materials, labor, and direct overhead used to

manufacture a product in order to calculate the manufacturer production cost. The total

cost of the product was broken down into two main costs: (1) the full manufacturer

production cost, referred to as MPC; and (2) the non-production cost, which includes

selling, general, and administration (SG&A) costs; the cost of research and development;

and interest from borrowing for operations or capital expenditures. DOE estimated the

MPC at each efficiency level considered for each product class, from the baseline through

the max-tech. After incorporating all of the assumptions into the cost model, DOE

calculated the percentages attributable to each element of total production cost ( i.e.

, materials, labor, depreciation, and overhead). These percentages are used to validate the

assumptions by comparing them to manufacturers’ actual financial data published in

annual reports, along with feedback obtained from manufacturers during interviews. DOE

uses these production cost percentages in the MIA (see section IV.I).

31 The GDP implicit price deflator is an economic metric that accounts for inflation by converting output measured at current prices into constant-dollar GDP. For more information, visit the Bureau of Economic Analysis website at www.bea.gov

.

173DOE revised the cost model assumptions used for the central air conditioner and

heat pumps preliminary analysis based on additional teardown analysis, updated pricing,

and additional manufacturer feedback, which resulted in refined MPCs and production

cost percentages. For furnaces, DOE made cost model assumptions based on teardown

analysis, publicly-available information, and manufacturer feedback. DOE calculated the

average product cost percentages by product type ( i.e. , furnace, central air conditioner,

heat pump) as well as by product class ( e.g. , non-weatherized gas furnace, split-system

air conditioner) due to the large variations in production volumes, fabrication and

assembly costs, and other assumptions that affect the calculation of the product’s total

MPC. Chapter 5 of the direct final rule TSD presents DOE’s estimates of the MPCs for

this rulemaking, along with the different percentages attributable to each element of the

production costs that comprise the total product MPC.

d. Cost-Efficiency Relationship

The result of the engineering analysis is a cost-efficiency relationship. DOE

created a separate relationship for each input capacity analyzed for each residential

furnace product class examined for this direct final rule. DOE also created 12 costefficiency curves representing the cost-efficiency relationship for each central air

conditioner and heat pump product class (except for the space-constrained product

classes), as well as products having different capacities within the split air conditioner

and split heat pump product classes. A cost-efficiency relationship was not developed for

the space constrained product classes because the max-tech efficiency level is the same as

the baseline efficiency level.

174In order to develop the cost-efficiency relationships for furnaces and central air

conditioners and heat pumps, DOE examined the cost differential to move from one

efficiency level to the next for each manufacturer. DOE used the results of teardowns on

a market share weighted-average basis to determine the industry average cost increase to

move from one efficiency level to the next. Additional details on how DOE developed

the cost-efficiency relationships and related results are available in the chapter 5 of the

direct final rule TSD. Chapter 5 of the direct final rule TSD also presents these costefficiency curves in the form of energy efficiency versus MPC. Cost-efficiency curves

relating HSPF to MPC can be created by using the relationship between SEER and HSPF

that DOE derived (see section IV.C.6).

The results indicate that, for both furnaces and central air conditioners/heat

pumps, cost-efficiency relationships are nonlinear. In other words, as efficiency

increases, manufacturing becomes more difficult and more costly. For furnaces, a large

cost increase is evident between n on -condensing and condensing efficiency levels due to

the requirement for a secondary heat exchanger, and another large increase is evident at

the max-tech efficiency level which employs continuously-modulating operation. For

central air conditioners and heat pumps, large increases in cost are evident at efficiency

levels requiring high-efficiency compressors and fan motors.

In response to the furnace RAP, ACEEE stated at the public meeting that DOE’s

depiction of the cost-efficiency relationship is a static one that does not reflect the time175variability of the MPCs subsequent to adoption of amended energy conservation

standards. The commenter argued that DOE’s depiction does not reflect the consistent

decline in the cost of manufactured products relative to the consumer price index (CPI).

ACEEE requested that DOE complement the static cost-efficiency depiction with a more

thorough retrospective analysis. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006

at p. 153) In response, HARDI cautioned that a time-variable analysis of the costefficiency relationship could neglect the effect on the marketplace of peak price points

that result from adoption and implementation of amended AFUE standards. (FUR:

HARDI, Public Meeting Transcript, No. 1.2.006 at p. 155) In other words, HARDI

believes that such an analysis suggested by ACEEE would not account for the peak prices

that occur shortly after a new standard is implemented.

In response, DOE notes that trends in the CPI reflect changes in consumer price

that arise from a host of factors, including a change in market mix, market structure,

profitability and manufacturing cost (including labor, capital, and energy costs), the cost

of raw materials, and technological change. Historical averages of some of these factors

are already used in DOE’s analysis. A more sophisticated projection of consumer price

depends on the availability of credible, publicly-vetted tools for making such projections,

as well as an expectation that such tools will enhance the robustness, accuracy, or

usefulness of the analysis. Such a tool does not currently exist, and DOE is not

convinced that development of such a tool would significantly benefit energy

conservation standard rulemakings, when it is already possible to conduct a

straightforward calculation of the effect of different product cost assumptions on

176consumer payback. In the absence of a suitable tool, DOE believes that holding current

manufacturing costs steady into the future provides the best balance between analytical

transparency, credibility, and expected accuracy.

DOE’s decision not to perform a historical analysis of the cost -efficiency

relationship allays HARDI’s concern that a retrospective analysis would ignore one -time

peak price points that would create the most significant burden on the marketplace.

e. Manufacturer Markup

To account for manufacturers’ non -production costs and profit margin, DOE

applies a non-production cost multiplier (the manufacturer markup) to the full MPC. The

resulting manufacturer selling price (MSP) is the price at which the manufacturer can

recover all production and non-production costs and earn a profit. To meet new or

amended energy conservation standards, manufacturers often introduce design changes to

their product lines that result in increased manufacturer production costs. Depending on

the competitive environment for these particular products, some or all of the increased

production costs may be passed from manufacturers to retailers and eventually to

customers in the form of higher purchase prices. As production costs increase,

manufacturers typically incur additional overhead. The MSP should be high enough to

recover the full cost of the product ( i.e.

, full production and non-production costs) and

yield a profit. The manufacturer markup has an important bearing on profitability. A high

markup under a standards scenario suggests manufacturers can readily pass along the

increased variable costs and some of the capital and product conversion costs (the one177time expenditures) to consumers. A low markup suggests that manufacturers will not be

able to recover as much of the necessary investment in plant and equipment.

To calculate the manufacturer markups, DOE used 10-K reports submitted to the

U.S. Securities and Exchange Commission (SEC) by the six publicly-owned HVAC

companies. (SEC 10-K reports can be found using the search database available at:

http://www.sec.gov/edgar/searchedgar/webusers.htm .) The financial figures necessary

for calculating the manufacturer markup are net sales, costs of sales, and gross profit. For

furnaces, DOE averaged the financial figures spanning the years 2004 to 2008 in order to

calculate the markups. For central air conditioners and heat pumps, DOE updated the

financial figures used in the preliminary analysis (which spanned 2003 to 2007) by using

10 -K reports spanning from 2004 to 2008. To calculate the average gross profit margin

for the periods analyzed for each firm, DOE summed the gross profit for all of the

aforementioned years and then divided the result by the sum of the net sales for those

years. DOE presented the calculated markups to manufacturers during the interviews for

the direct final rule (see section IV.C.1.g). DOE considered the feedback from

manufacturers in order to supplement the calculated markup and refined the markup to

better reflect the residential furnace and central air conditioner and heat pump markets.

DOE developed the manufacturer markup by weighting the feedback from manufacturers

on a market share basis, since manufacturers with larger market shares more significantly

affect the market average. DOE used a constant markup to reflect the MSPs of both the

baseline products and higher-efficiency products. DOE used this approach because

amended standards may transform high-efficiency products, which currently are

178considered premium products, into baselines. See chapter 5 of the direct final rule TSD

for more details about the manufacturer markup calculation.

In response to the markup calculation methodology outlined in the furnaces RAP,

and to the markup multiplier of 1.32 used in the central air conditioner and heat pump

preliminary analysis, Ingersoll Rand argued that DOE has consistently underestimated

manufacturer markup in past rulemakings. According to Ingersoll Rand, DOE has a

tendency to underestimate unapplied labor that is involved in a wide range of support

activities that are not associated with production, including research and development,

engineering, field service, marketing, training, human resources, finance, legal, and

business management. (FUR: Ingersoll Rand, No. 1.3.006 at p. 6; CAC: Ingersoll Rand,

No. 66 at p. 5)

In response, DOE’s manufacturer markups include all non -production costs (with

the exception of shipping, which is calculated separately as described below) and profit.

As noted above, as part of the process for developing manufacturer markups, DOE

solicits manufacturer feedback during MIA interviews and incorporates that feedback on

a market-share weighted average basis to refine the markups that are derived from

financial data. Although DOE recognizes that the manufacturer markup will vary from

one manufacturer to another, DOE believes this process allows for the development of a

manufacturer markup that reflects the typical manufacturer markup in the industry. As a

result, for the direct final rule analysis, DOE modified the markups for central air

conditioners and heat pumps based upon additional manufacturer input. The markup

179used in the direct final rule analysis for split system air conditioners and heat pumps was

1.30, while the markup for packaged systems was 1.28. For SDHV systems, the markup

remained 1.32. Because no additional data were provided to support a change, DOE

developed a markup for furnaces for the direct final rule based on the methodology

outlined in the furnaces RAP.

f. Shipping Costs

Manufacturers of HVAC products typically pay for freight to the first step in the

distribution chain. Freight is not a manufacturing cost, but because it is a substantial cost

incurred by the manufacturer, DOE is accounting for shipping costs of furnaces and

central air conditioners and heat pumps separately from the other non-production costs

that comprise the manufacturer markup. To calculate MSP for furnaces and central air

conditioners and heat pumps, DOE multiplied the MPC determined from the cost model

by the manufacturer markup and added shipping costs. More specifically, DOE

calculated shipping costs based on use of a typical 53-foot straight frame trailer with a

storage volume of 4,240 cubic feet.

In the central air conditioners and heat pumps preliminary analysis, shipping costs

were preliminarily determined on a weight basis at $0.20 per pound, based on quotes

from freight shipping services. However, ACEEE suggested that shipping costs would be

more accurately estimated if calculations were based on product volume, rather than

weight. (CAC: ACEEE, No. 72 at p.7)

180DOE reexamined of the physical attributes of the products ( e.g. , the outer

shipping dimensions, the shipping weight) and consulted with manufacturers regarding

their shipping practices, and as a result of this additional inquiry, DOE determined that

manufacturers were likely to “cube

- out” a truck ( i.e. , run out of space inside the truck)

before reaching the maximum weight capacity for the truckload. Therefore, the limiting

factor for transporting these products would be the size of the products rather than their

weight. Accordingly, as noted above, DOE revised its methodology for the direct final

rule in terms of shipping costs by determining a product’s shipping cost as a function of

its volume for both central air conditioners and heat pumps and residential furnaces. To

do so, DOE first calculated the cost per cubic foot of space on a trailer, based on a cost of

$2,500 per shipping load and the standard dimensions of a 53-foot trailer. DOE examined

the average sizes of products in each product class at each efficiency and capacity

combination analyzed. DOE then estimated the shipping costs by multiplying the

product volume by the cost per cubic foot of space on the trailer. For central air

conditioners and heat pumps, where product size greatly depends on efficiency, DOE

calculated a separate volumetric cost for each efficiency level. However, furnaces, which

typically do not vary in size based on efficiency, had the same shipping cost across the

range of efficiencies for a given capacity. In determining volumetric shipping costs, DOE

also revised its estimates based on manufacturer feedback regarding product mix on each

trailer, packing efficiency, and methods and equipment used to load the trailers. Chapter

5 of the direct final rule TSD contains additional details about DOE’s shipping cost

assumptions and DOE’s shipping cost estimates.

181g. Manufacturer Interviews

Throughout the rulemaking process, DOE has sought and continues to seek

feedback and insight from interested parties that would improve the information used in

its analyses. DOE interviewed manufacturers as a part of the direct final rule

manufacturer impact analysis (see section IV.I.4). During the interviews, DOE sought

feedback on all aspects of its analyses for residential furnaces and central air conditioners

and heat pumps. For the engineering analysis, DOE discussed the analytical assumptions

and estimates, cost model, and cost-efficiency curves with HVAC manufacturers. DOE

considered all the information manufacturers provided when refining the cost model and

assumptions. However, DOE incorporated equipment and manufacturing process figures

into the analysis as averages in order to avoid disclosing sensitive information about

individual manufactur ers’ products or manufacturing processes. More details about the

manufacturer interviews are contained in chapter 12 of the direct final rule TSD.

2. Representative Products

a. Furnaces

DOE based its engineering analysis on teardown analysis of a representativ e
sample of products from the furnace market. DOE selected units for teardown that have

characteristics that are representative of most furnaces available on today’s market. In the

rulemaking analysis plan, DOE identified several characteristics common to baseline

furnaces in each product class, including a representative capacity for analysis, and

focused the teardown selection for furnaces on products that exhibited those

182representative characteristics. (However, DOE also scaled its analysis to products outside

the representative capacity, as described in section IV.C.5.)

DOE received several comments about the representative input capacity proposed

in the furnaces RAP. AHRI remarked that each manufacturer offers their products in

different input capacities, and, as such, DOE should not lock its analysis into discrete

input capacities. (FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at pp. 176-177)

Likewise, Ingersoll Rand cautioned against comparing dissimilar products (with respect

to number of burners and heat exchangers) chosen simply because their input capacities

are close. Instead, the commenter suggested surveying the furnace market across

efficiencies and capacities to characterize the number of heat exchangers and burners for

each capacity and efficiency. Then, based on the results of this survey, DOE should select

teardown units and determine the limits of interpolation. Ingersoll Rand further suggested

that the sample selection should include products from a broad cross-section of

manufacturers, concentrating on those with market shares greater than 10 percent, a

representative spread of installation configurations, and a bias towards the most common

heating and cooling air flow capacities. (FUR: Ingersoll Rand, Public Meeting Transcript,

No. 1.2.006 at pp. 156-157; FUR: Ingersoll Rand, No. 1.3.006 at p. 4) ACEEE stated that

many furnaces with the same input capacities are shipped with differing blower motor

power and fan diameter, considerations to which DOE should be sensitive in its analysis.

(FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at p. 178)

183In response, for its direct final rule analysis, DOE attempted to compare similar

furnace products made by a broad cross-section of manufacturers when choosing models

for teardowns. DOE included factors such as blower characteristics and the number of

burners and heat exchangers when choosing models for teardown. DOE modified the

representative characteristics to include an airflow rate of 1,200 cubic feet per minute for

a typical furnace (which corresponds to the three-ton representative capacity for central

air conditioners and heat pumps). In addition, DOE recognizes that manufacturers may

offer products at varying input capacities, and as a result, DOE did not restrict its analysis

to discrete representative input capacities, but rather considered all models that were

capable of satisfying a similar heating load. While DOE focused its analysis for furnaces

around the representative 80,000 Btu/h input capacity, DOE also considered other units at

input capacities near the representative capacity for manufacturers that do not

manufacture products at the representative capacity.

DOE also received feedback from Ingersoll Rand that two of the input capacities

identified in the RAP to represent the furnace market are not common in the market. The

company suggested that input capacities of 80,000 Btu/h and 90,000 Btu/h are more

appropriate than 75,000 Btu/h for non-weatherized gas furnaces and weatherized gas

furnaces, respectively. (FUR: Ingersoll Rand, No. 1.3.006 at p. 2)

DOE reexamined the availability of input capacities on the furnace market and

determined that 80,000 Btu/h is a very common and representative input capacity for

non -weatherized gas furnaces. Thus, for the direct final rule analysis, DOE considered

18480,000 Btu/h as the representative capacity for non-weatherized gas furnaces. As

described in section III.G, DOE did not perform an analysis for weatherized gas furnaces.

In the furnaces RAP, DOE proposed retaining the representative characteristics

identified in the 2007 rulemaking, including the baseline efficiency of 78-percent

AFUE. 32 Ingersoll Rand commented that a baseline non-weatherized gas furnace would

have the following characteristics: 80-percent AFUE; 80,000 Btu/h input capacity;

induced draft; single-stage burner; permanent split capacitor (PSC) motor-driven, directdrive, forward curved blower, sized for use with a three-ton air conditioner; multi-poise

configuration; builder model; and hot surface igniter. (FUR: Ingersoll Rand, No. 1.3.006

at p. 3)

After reviewing the current furnaces market, DOE agrees that the baseline

characteristics identified by Ingersoll Rand are representative of many furnaces on the

market. Although it is true that the majority of furnaces are manufactured and shipped as

multi-poise units, the specific configuration in which the unit operates is determined by

the configuration in the field. Therefore, DOE based its analysis on furnaces that could be

installed in the representative configuration, whether multi-poise or not, and used the

AFUE rating associated with the representative configuration.

32 In the furnaces RAP, DOE took the position that the baseline for non-weatherized gas furnaces was 78­ percent AFUE, which is the current energy conservation standard for non-weatherized gas furnaces. However, DOE subsequently determined that because the November 2007 Rule was not vacated by the remand agreement, it will use 80-percent AFUE as the baseline for the direct final rule analyses in order to

avo id violating the “anti

- backsliding provision” in 42 U.S.C. 6295(o)(1).

185With respect to the standby mode energy use analysis, Lennox cautioned that

DOE should not exclude “premium” controls and features that that do not improve AFUE

from its analysis, as these features could increase the standby power consumption of the

furnace. (FUR: Lennox, Public Meeting Transcript, No. 1.2.006 at pp. 164-165; FUR:

Lennox, No. 1.3.018 at p.4)

For the direct final rule analysis, DOE performed a large number of furnace

teardowns, including some teardowns on products with premium features that consume

electricity in standby mode and off mode. Although the products with premium features

were included for the standby mode and off mode analysis, DOE did not include these

premium (non-AFUE efficiency related) features in its engineering analysis for analyzing

amended AFUE standards, as they could distort DOE’s estimates of MPC at each

efficiency level.

Accordingly, the baseline furnace characteristics that DOE used in the direct final

rule analysis are presented in Table IV .1.

186Table IV .1 Characteristics of Representative Residential Furnaces Non

Weatherized Gas Furnaces Mobile Home Gas Furnaces Non

Weatherized Oil

Fired Furnaces Input Capacity Btu/h 80,000 80,000 105,000 Configuration Upflow Downflow Upflow Heat Exchanger Type Clamshell or Tubular Clamshell or Tubular Drum

Ignition Type Hot Surface Hot Surface Intermittent Ignition Draft Induced Induced Forced Blower Size 1200 cfm 1200 cfm 1200 cfm

Transformer 40 VA Laminated Core 40 VA Laminated Core 40 VA Laminated Core Power Supply Type Linear Linear Linear

b. Central Air Conditioners and Heat Pumps

DOE reviewed all of the product classes of residential central air conditioners and

heat pumps and chose units for analysis that represent a cross-section of the residential

central air conditioning and heat pump market within each product type. For the

conventional split system and single package central air conditioner and heat pump

product classes, as well as for the SDHV product classes, DOE selected 36,000 Btu/h

(three t ons of cooling capacity) as the representative capacity for analysis because units at

this capacity are common across manufacturers, with high sales volumes spanning a

relatively large range of efficiencies.

DOE acknowledges that manufacturers tend to optimize residential central air

conditioner and heat pump split systems around the three-ton capacity. Therefore, DOE

expanded the engineering analysis to include additional cooling capacities for split

187system central air conditioners and heat pumps based upon the analysis at the

representative capacity. (See section IV.C.5.b for further information about the scaling of

the engineering analysis to different cooling capacities.)

In the preliminary analysis, DOE was unaware of any suitable alternative

refrigerant which could be used as a replacement for R410a, and therefore, considered

R410a to be the only available refrigerant option. During manufacturer interviews, the

viability of HFO-1234YF as an alternative was discussed. However, manufacturer

feedback indicated that this refrigerant is still in the early phases of development and is a

more likely replacement for R134a in automotive applications than R410a in central air

conditioners and heat pumps. This conclusion leads to questions about the technological

feasibility of HFO-1234YF as a replacement. Further, because it is still in development,

the requirements for large scale production of this refrigerant and the ability to service

units charged with it on a national scale are undetermined.

DOE received comments regarding the need for analysis on alternative

refrigerants because of a possible hydrofluorocarbon (HFC) refrigerant cap and

subsequent phase-out, which would force the industry to find a replacement refrigerant

for R410a. Carrier did not mention specific climate policies but commented generally

that there are climate policies which are going to restrict the use of HFC. However,

higher SEER equipment requires more refrigerant charge, and, thus, it is critical to

understand the impact on cost of refrigerant for this rulemaking. (CAC: Public Meeting

Transcript at p. 152) Emerson noted that the cost of the additional refrigerant could be

188much higher than what is paid today due to a possible leverage effect from a potential

“cap -and- trade” regime. 33 (CAC: Public Meeting Transcript at p. 153) DOE does not

conduct analyses based on potential legislation because doing so would be highly

speculative, and the lack of a suitable alternative refrigerant adds another speculative

layer of uncertainty. Therefore, DOE decided not to alter its analyses and did not consider

alternative refrigerants in the direct final rule analyses.

DOE did not receive any comments on the other representative characteristics

chosen for the baseline unit for preliminary analysis and continued to use the same

representative traits for the direct final rule. These characteristics of a typical baseline

unit are:

36,000 Btu/h cooling capacity;

Rifled copper tubes;

Lanced aluminum fins;

Single-speed, single-capacity compressor;

Single-speed permanent split capacitor (PSC) fan and blower motor;

Expansion orifice; and

R410a refrigerant.

3. Efficiency Levels

For each of the representative products, DOE analyzed multiple efficiency levels

and estimated manufacturer production costs at each efficiency level. The following

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

189subsections provide a description of the full range of efficiency levels DOE analyzed for

each product class, from the baseline efficiency level to the maximum technologically

feasible (max-tech) efficiency level.

For each product class, DOE selected baseline units as reference points, against

which DOE measured changes resulting from potential amended energy conservation

standards. Generally, the baseline unit in each product class: (1) represents the basic

characteristics of equipment in that class; (2) just meets current Federal energy

conservation standards, if any; and (3) provides basic consumer utility.

DOE conducted a survey of the residential furnace and central air conditioner and

heat pump markets to determine what types of products are available to consumers and to

identify the efficiency levels corresponding to the greatest number of models. Then, DOE

established intermediate energy efficiency levels for each of the product classes that are

representative of efficiencies that are typically available on the market. DOE reviewed

AHRI’s product certification directory, manufacturer catalogs, and other publicly

available literature to determine which efficiency levels are the most prevalent for each

representative product class.

DOE also determined the maximum improvement in energy efficiency that is

technologically feasible (max-tech) for furnaces and central air conditioners and heat

pumps, as required under 42 U.S.C. 6295(p)(1). For the representative product within a

given product class, DOE could not identify any working products or prototypes at higher

190efficiency levels that were currently available beyond the identified max-tech level at the

time the analysis was performed.

a. Furnaces

(i) Baseline Efficiency Level

As discussed above, the energy conservation standards for residential furnaces are

codified at 10 CFR 430.32(e)(1)(i), which sets forth the existing standard levels for

residential furnaces, as well as the amended minimum standards codified at 10 CFR

430.32(e)(1)(ii), which were set by the November 2007 Rule (72 FR 65136 (Nov. 19,

2007)), which will require compliance starting on November 19, 2015. At the time of

publication of the furnaces RAP, DOE believed that its voluntary remand of the

November 2007 Rule in response to a joint lawsuit voided the furnace standards set forth

by that rule. Under this interpretation, DOE proposed setting the baseline for the current

analysis at 78-percent AFUE for non-weatherized gas furnaces, weatherized gas furnaces,

and oil-fired furnaces, and at 75-percent AFUE for mobile home gas furnaces. 34

However, since the publication of the furnaces RAP, DOE has reevaluated its

interpretation of the effect of the voluntary remand and determined that because the

November 2007 Rule was not vacated, the standards promulgated in that rule will still

require compliance for products manufactured on or after November 19, 2015. Due to

EPCA’s anti -backsliding clause (42 U.S.C. 6295(o)(1)), DOE cannot set minimum

standards below the levels promulgated in the November 2007 Rule. As a result, DOE

considered the levels set in the November 2007 Rule to represent the baseline efficiency

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

.

191in each product class for the direct final rule analysis. Therefore, the baseline levels for

the direct final rule analysis were set at 80 -percent AFUE for non-weatherized gas

furnaces and mobile home furnaces, 81-percent AFUE for weatherized gas furnaces, and

82 -percent AFUE for non-weatherized oil furnaces. (Note that, as described in section

III.G.2.a, DOE did not perform an analysis for weatherized gas furnaces, because the

standards adopted for this product are already set at the max-tech level.)

(ii) Max-Tech Efficiency Level

The “max

- tech” efficiency levels are the maximum technologically feasible

efficiency levels possible for each product class. As required under 42 U.S.C. 6295(p)(1),

DOE determined the max-tech efficiency level for each residential furnace product class.

DOE has identified the max-tech efficiency levels as being the highest efficiencies on the

market at the representative capacities. In the furnaces RAP, for purposes of its analyses,

DOE proposed using max-tech efficiency levels of 97.7-percent AFUE for nonweatherized gas furnaces, 95.5-percent AFUE for mobile home furnaces, and 97-percent

AFUE for oil-fired furnaces. In addition, DOE proposed to use 81-percent AFUE as the

max-tech for weatherized gas furnaces in the furnaces RAP, which DOE used for the

direct final rule analysis. Consequently, no analysis was needed for weatherized gas

furnaces because the standard was already set at the max-tech level, as discussed further

in section III.G.2.a.

DOE received several comments related to the max-tech levels proposed in the

furnaces RAP. Ingersoll Rand stated that the max-tech level for non-weatherized gas

192furnaces should be 98-percent AFUE. (FUR: Ingersoll Rand, No. 1.3.006 at p. 3) Lennox

stated support for DOE’s proposed max -tech levels for the non-weatherized gas furnace

and mobile home gas furnace product classes for the purpose of undertaking the required

analysis, although Lennox noted that it does not believe that DOE should establish

minimum efficiency standards at max-tech levels. (FUR: Lennox, No. 1.3.018 at p. 3)

In response, DOE notes that the AFUE requirements for furnaces established in

EPCA are specified as whole number percentages. Additionally, in previous rulemakings

to amend standards for furnaces, DOE has specified amended minimum standards in

terms of the nearest whole percentage point. To remain consistent with the original

standards in EPCA, DOE rounded the efficiency levels being analyzed in today’s direct

final rule (including max-tech AFUE) to the nearest whole percentages. For nonweatherized gas furnaces and mobile home furnaces, this results in max-tech levels of 98­

percent and 96-percent AFUE, respectively. DOE also notes that the DOE residential

furnaces test procedure currently provides instructions for rounding annual operating cost

and estimated regional annual operating cost to the nearest dollar per year. 10 CFR

430.23(n)(1); 10 CFR 430.23(n)(3). However, the test procedure does not provide

instructions for rounding AFUE. This lack of specificity for rounding may lead to

uncertainty in terms of how to complete calculations using the reported metrics or to

discrepancies among results generated by test laboratories for the same product. Overall,

DOE is concerned that unless the applicable portion of DOE’s furnace test procedures are

modified, there may be difficulties associated with ascertaining, certifying, and reporting

compliance with the existing standards. Therefore, to remedy this situation, DOE is

193adding instructions to 10 CFR 430.23(n)(2) requiring that AFUE be rounded to the

nearest whole percentage point.

Additionally, EEI stated that DOE should analyze gas-fired air source heat pumps

with coefficient of performance (COP) ratings above 1.2 as a maximum technology

option for gas furnaces. (FUR: EEI, No. 1.3.015 at p. 5) In response, DOE reexamined

the definition of a “gas furnace.” DOE notes that EPCA defines a “furnace,” in part, as

“an electric central furnace, electric boiler, forced -air central furnace, gravity central

furnace, or low pr essure steam or hot water boiler.” (42 U.S.C. 6291(23)(C)) DOE’s

definitions in the CFR further clarify the definition of a “forced

- air central furnace,”

defining that term as a product in which “[t]he heat generated by the combustion of gas or

oil is transferred to the air within a casing by conduction through heat exchange surfaces

.

. . . ” 10 CFR 430.2. DOE notes that products using gas -fired air source heat pump

technology do not use the heat generated by the combustion of gas or oil to heat the

ci rculation air, as required under DOE’s definitions. Therefore, DOE has concluded that

products using this technology are outside the scope of this rulemaking because they do

not meet the definition of a “furnace,” as defined by DOE.

Regarding oil-fired f urnaces, Lennox stated that it does not agree with DOE’s

max-tech level, which it believes is unrealistic. Lennox asserted that although condensing

oil-fired furnaces do exist in the market, they comprise a very small minority and are,

therefore, not representative of the market and should not be considered in the

rulemaking. Instead, Lennox urged DOE to consider oil-fired furnaces with AFUE values

194between 85-percent and 87-percent as the true max-tech level for oil-fired furnaces.

(FUR: Lennox, No. 1.3.018 at p. 3)

While DOE does not believe that condensing oil-fired furnaces are representative

of the market, their existence and commercial availability are evidence of technological

feasibility. DOE believes that this technology warrants consideration in the analysis, and,

therefore, the condensing level was retained for the oil-fired furnace product class.

(iii) Efficiency Levels for Analysis

For each residential furnace product class, DOE analyzed both the baseline and

max-tech efficiency levels, as well as several intermediate efficiency levels. In the

furnaces RAP, DOE identified the intermediate efficiency levels that it proposed to

include in the analysis, based on the most common efficiencies on the market. These

levels are shown in Table IV .2.

195Table IV .2 Efficiency Levels Considered in the RAP for the Residential Furnaces Analysis Product Class Efficiency Level (AFUE) 78% 80% 90% Non

- weatherized Gas 92% 93% 95% 97.7% 75% 80%

Mobile Home 90% 92% 93% 95.5% 78% 80%

Oil

- Fired Non

- weatherized 83% 84% 85% 97%

For non-weatherized gas furnaces, Ingersoll Rand suggested performing

teardowns at 90-percent, 95-percent, and 98-percent AFUE with interpolation to span the

range of intermediate values. (FUR: Ingersoll Rand, No. 1.3.006 at p. 4) ACEEE

suggested adding a level at 81-percent AFUE, substituting 94-percent for 93-percent

AFUE if there are more models available, and keeping an efficiency level at 95-percent,

which is the current tax credit level. (FUR: ACEEE, No. 1.3.009 at p. 6)

In response to these comments, DOE reexamined the market and reduced the

efficiency levels for analysis to the most common efficiencies on the furnace market.

DOE determined that there are very few products currently on the market at 81-percent

AFUE. Because shipments are so low, DOE determined that 81-percent AFUE did not

196warrant consideration in the analysis. DOE also examined the prevalence of 93-percent

and 94-percent AFUE products on the market, and determined that 93-percent AFUE

models are more common. However, upon further consideration, DOE believes 92­

percent AFUE models are the most commonly shipped units in this range. Therefore,

DOE analyzed only 92-percent AFUE instead of 93-percent or 94-percent AFUE. DOE

kept the level at 95-percent AFUE for the direct final rule analysis, as was recommended

by interested parties. Rather than performing teardowns at only 90-percent , 95 -percent , and 98-percent AFUE, as Ingersoll Rand suggested, DOE performed teardowns at every

efficiency level analyzed to provide greater accuracy in the analysis.

The baseline, max-tech, and intermediate efficiency levels for each furnace

product class analyzed are presented in Table IV .3. As noted above and discussed in

section III.G.2.a, weatherized gas furnaces were not analyzed, and as a result, the table

shows efficiency levels for only non-weatherized gas, mobile home, and non-weatherized

oil furnaces.

Table IV .3 Efficiency Levels Analyzed for Residential Furnaces Product Class Efficiency Level (AFUE) 80% 90% Non

- weatherized Gas 92% 95% 98% 80%

Mobile Home 90% 92% 96% 82% Oil

- Fired Non

- weatherized 83% 84%

19785% 97%

b. Central Air Conditioners and Heat Pumps

DOE selected baseline efficiency levels as reference points for all of the product

classes of central air conditioners and heat pumps and compared these baselines to

projected changes resulting from potential amended energy conservation standards.

Products at the baseline efficiency in each product class represent products with the

common characteristics of equipment in that class that just meet current Federal energy

conservation standards, while still providing basic consumer utility.

For each of the representative products, DOE analyzed multiple efficiency levels

and estimated manufacturer production costs at each efficiency level. Table IV .4 and

Table IV .5 provide the full efficiency level range that DOE analyzed from the baseline

efficiency level to the max-tech efficiency level for each product class. The highest

efficiency level in each of the seven product classes was identified through a review of

products listed in AHRI-certified directories, manufacturer catalogs, and other publiclyavailable documents.

Table IV .4 Split-System SEER Values by Efficiency Level* Split AC Split HP 2 Ton 3 Ton 5 Ton 2 Ton 3 Ton 5 Ton Efficiency Level 1

- Baseline 13 13 13 13 13 13 Efficiency Level 2 13.5 13.5 13.5 13.5 13.5 13.5 Efficiency Level 3 14 14 14 14 14 14 Efficiency Level 4 14.5 14.5 14.5 14.5 14.5 14.5 Efficiency Level 5 15 15 15 15 15 15

198Efficiency Level 6 15.5 15.5 15.5 15.5 15.5 15.5 Efficiency Level 7 16 16 16 16 16 16 Efficiency Level 8 16.5 16.5 16.5 16.5 16.5 16.5 Efficiency Level 9 17 17 17 17 17 17 Efficiency Level 10 18 18 1 8 18 18 1 8 Efficiency Level 11 19 19 19 19 Efficiency Level 12 20 20 20 20 Efficiency Level 13 21 21 21 2 1 Efficiency Level 14 22 2 2 2 2 Efficiency Level 15 23 Efficiency Level 16 24.5
Max

- Tech Efficiency Level * * 24.5 22 18 22 21 18 * The efficiency levels were analyzed independent of one another for each product class and are not linked as they are when considered in the downstream analyses as trial standard levels. The table depicts various levels for different product classes as part of the same efficiency level for convenience only, and not because the levels were analyzed together across product classes for the engineering analysis. Therefore, certain product classes have more or less efficiency levels depending on the number of levels analyzed for the given product class. **This level is a summary of all of the max-tech efficiency levels for each product class and capacity, which corresponds to the highest efficiency level analyzed.

Table IV .5 Single-Package and Niche Product SEER Values by Efficiency Level*

Single Pkg AC Single Pkg HP SDHV Efficiency Level 1

- Baseline 13 13 13 Efficiency Level 2 13.5 13.5 13.5 Efficiency Level 3 14 14 14 Efficiency Level 4 14.5 14.5 14

. 3 Efficiency Level 5 15 15 Efficiency Level 6 15.5 15.5 Efficiency Level 7 16 16 Efficiency Level 8 16.5 16

. 4 Efficiency Level 9 16. 6 Max

- Tech Efficiency Level * * 16. 6 16 .4 14 .3
* The efficiency levels were analyzed independent of one another for each product class and are not linked

as they are when considered in the downstream analyses as trial standard levels. The table depicts various levels for different product classes as part of the same efficiency level for convenience only, and not because the levels were analyzed together across product classes for the engineering analysis. Therefore, certain product classes have more or less efficiency levels depending on the number of levels analyzed for the given product class. **This level is a summary of all of the max-tech efficiency levels for each product class and capacity, which corresponds to the highest efficiency level analyzed.

199In the preliminary analysis of split system air conditioners and heat pumps, DOE

1only examined products at the representative three-ton capacity. For the direct final rule

, DOE performed additional analyses for two- ton and five-ton products. Therefore, the

efficiency levels analyzed for split system products were expanded to include the relevant

efficiency levels at the additional cooling capacities. For single package central air

conditioners and heat pumps, as well as SDHV systems, the efficiency levels did not

change from the preliminary analysis.

For space-constrained products, AHRI certification directory listings and

manufacturer catalogs only contain units rated at a single efficiency level. DOE defined

the baseline for space-constrained products as the efficiency specified by the current

Federal energy conservation standards ( i.e. , 12 SEER). This SEER value is the same as

the max-tech SEER value iden tified in DOE’s analysis. Therefore, DOE did not conduct

further analysis on the space-constrained products because the energy conservation

standards for these two product classes are already set at the max-tech level and cannot

be amended to provide additional savings. For additional details, see section III.G of this

direct final rule

.

4. Results

Using the manufacturer markup and shipping costs, DOE calculated estimated

manufacturer selling prices of the representative furnaces and central air conditioners and

heat pumps from the manufacturer production costs developed using the cost model.

Chapter 5 of the TSD accompanying today’s notice provides a full list of manufacturer

200production costs and manufacturer selling prices at each efficiency level for each product

class and capacity analyzed, for both furnaces and central air conditioners and heat

pumps. Chapter 5 of the TSD also contains the estimated cost to implement each design

option that DOE analyzed for reducing the standby mode and off mode energy

co nsumption of furnaces and off mode energy consumption of central air conditioners

and heat pumps.

5. Scaling to Additional Capacities

DOE developed MPCs for the analysis of additional input capacities for furnaces

and cooling capacities for residential central air conditioners and heat pumps by

performing virtual teardowns of products at input capacities and cooling capacities other

than the representative capacities. DOE developed a cost model for each virtual teardown

product based on physical teardowns of representative units with a range of nominal

capacities and from multiple manufacturers. Whenever possible, DOE maintained the

same product line that was used for the physical teardown of the representative products

to allow for a direct comparison of models at representative capacities and models at

higher and lower capacities. For furnaces, the cost model accounts for changes in the size

of components that would scale with input capacity ( e.g. , heat exchanger size), while

components that typically do not change based on input capacity ( e.g. , gas valves,

thermostats, controls) were assumed to remain largely the same across the different input

capacities. Similarly, for central air conditioners and heat pumps, the cost model accounts

for changes in the size of components that would scale with input capacity ( e.g. , coil size,

compressor), while components that typically do not change based on input capacity

201( e.g. , expansion valves, electronic controls) were assumed to remain largely the same

across the different input capacities. DOE estimated the changes in material and labor

costs that occur at capacities higher and lower than the representative capacities based on

observations made during teardowns and professional experience. Performing physical

teardowns of models outside of the representative capacities allowed DOE to accurately

model certain characteristics that are not identifiable in manufacturer literature.

a. Furnaces

DOE recognizes that there is a large variation in the input capacity ratings of

residential furnaces beyond the representative input capacity, which causes large

discrepancies in manufacturer production costs. To account for this variation, DOE

analyzed additional common input capacities (as determined during the market

assessment) for the largest class of residential furnaces ( i.e. , non -weatherized gas

furnaces). DOE performed physical teardowns of several non-weatherized gas furnaces

above and below the representative input capacity to gather the necessary data to

accurately scale the results from the representative input capacity to other input

capacities. Performing teardowns of models outside of the representative capacity

allowed DOE to accurately model certain characteristics that are not identifiable in

manufacturer literature. In the furnaces RAP, DOE set forth its plans to analyze models

at input capacities of 50,000 Btu/h and 125,000 Btu/h in addition to the models at the

representative input capacity.

In comments, Ingersoll Rand stated that the additional input capacities which

DOE planned to analyze are not very common, and instead, the company suggested that

202DOE should analyze units at 40,000 Btu/h and 120,000 Btu/h, as the AHRI furnace

directory lists a much greater number of models at these capacities. (FUR: Ingersoll

Ra nd, No. 1.3.006 at p. 5) ACEEE, too, favored 40,000 Btu/h for analysis, because it

argued that the smaller input capacity is more appropriate for the heating loads of

modest-sized houses. (FUR: ACEEE, No. 1.3.009 at pp. 6-7) At the upper bounds of

capacity, Ingersoll Rand also commented that there are not many condensing furnaces

above 120,000 Btu/h input capacity. (FUR: Ingersoll Rand, Public Meeting Transcript,

No. 1.2.006 at p. 178) AHRI again advised DOE not to lock into discrete capacities in its

analysis of the low and high ends of the capacity range. (FUR: AHRI, Public Meeting

Transcript, No. 1.2.006 at pp. 176-177)

In response to these comments, DOE reevaluated the distribution of capacities on

the furnace market and determined that the majority of non -weatherized gas furnace

models on the market are offered in 20,000 Btu/h increments between 40,000 Btu/h and

120,000 Btu/h, with the bulk of models at 60,000, 80,000, 100,000 and 120,000 Btu/h.

Therefore, DOE scaled its analysis for non-weatherized gas furnaces (using virtual

teardowns in conjunction with physical teardowns) to 60,000 Btu/h, 100,000 Btu/h, and

120,000 Btu/h, in addition to the analysis that was performed for the representative input

capacity of 80,000 Btu/h. DOE selected these three additional input capacities to align

them with the number of additional cooling capacities being analyzed for the central air

conditioners analysis. DOE believes that 60,000 Btu/h is more representative of the lower

end of the capacity range than 40,000 Btu/h, which is the minimum specified input

capacity that meets DOE’s definition.

203The results of DOE’s analysis for the additional input capacities are presented in

chapter 5 of the direct final rule TSD. Chapter 5 also contains additional details about the

calculation of MPCs for input capacities outside of the representative capacity.

b. Central Air Conditioners and Heat Pumps

To account for the variation in the rated cooling capacities of split system

residential central air conditioners and heat pumps, and differences in both usage patterns

and first cost to consumers of split system air conditioners and heat pumps larger or

smaller than the representative capacity, DOE developed MPCs for central air

conditioners and heat pumps at two- ton and five-ton cooling capacities, in addition to

MPCs for the representative three-ton units.

To develop the MPCs for the analysis of two- ton and five-ton units, DOE used its

cost model based on teardowns of representative units from multiple manufacturers. DOE

modified the cost model for the representative capacity ( i.e. , three-tons) to account for

changes in the size of central air conditioner and heat pump components that would scale

with cooling capacity ( e.g. , evaporator and condenser coils, outer cabinet, packaging).

DOE accurately modeled certain other characteristics ( e.g. , compressor, fan motor, fan

blades) using information contained in manufacturer literature.

204The results of DOE’s analysis for the additional cooling capacities are presented

in chapter 5 of th e direct final rule TSD along with details about the calculation of central

air conditioner and heat pump MPCs.

6. Heat Pump SEER/HSPF Relationships

For heat pumps, energy conservation standards must establish minimum values

for HSPF in addition to SEER. In previous rulemakings (see section 4.8.1 of the 2001

final rule TSD available at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/ac_central_1000_

r.html ), analyses performed in terms of SEER were used as the basis for determining

HSPF standards, and DOE has continued that approach for the current analysis.

Consequently, DOE investigated the relationship between SEER and HSPF in the

preliminary analysis, and reexamined that relationship for the direct final rule analysis.

As a first step in examining the relationship, DOE plotted the median HSPF values for

units that met or exceeded the existing standard of 7.7 HSPF for each product class and

cooling capacity analyzed at half-SEER increments up to 16 SEER, and one-SEER

increments from 16 SEER up to the max-tech level. For the preliminary analysis, DOE

tentatively proposed using a SEER-HSPF relationship consisting of two separate lin ear
sections, which roughly followed the median HSPF at each SEER. One trend line was

developed for SEER values ranging from 13 to 16, and a separate second trend line was

developed for SEER values above 16 SEER level. DOE proposed to use these two

different trends because a substantial increase in the median HSPF was evident for units

with cooling efficiencies greater than 16 SEER, which would be more accurately

205reflected through the use of two lines. DOE proposed to use the same relationship for

single package units as well. Niche product relationships were not developed because

these products were not fully analyzed in the preliminary analysis.

Based on updates to unit listings in the AHRI directory 35 as of June 2010, DOE

has reexamined and updated the S EER -HSPF relationship for the direct final rule

analysis. When DOE plotted the median HSPF values for the various SEER increments

using 2010 version of the AHRI directory as opposed to a 2008 version which was used

in the preliminary analysis, the more recent data exhibited a more gradual increase in the

HSPF trend at SEER values over 16 SEER. As a result, DOE trended the data set of

median values using a single linear relationship. DOE believes that this approach, which

follows the median more closely than the relationship developed for the preliminary

analysis, is more representative of the SEER-HSPF relationship illustrated by heat pumps

currently available in the market. Additionally, while examining the relationship for

different product classes and capacity sizes, DOE determined that the differences in

HSPF values across product classes were substantial enough to warrant separate SEERHSPF relationships for each product class and each cooling capacity analyzed. See

chapter 5 of the TSD accompanying toda y’s notice for the specific HSPF values

considered at given SEER levels based on the SEER-HSPF relationship developed for

this direct final rule.

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

.

2067. Standby Mode and Off Mode Analysis

As mentioned in section III.C, DOE is required by EPCA, as amended, to address

standby mode and off mode energy consumption when developing amended energy

conservation standards for furnaces and central air conditioners and heat pumps. (42

U.S.C. 6295(gg)) DOE adopted a design-option approach for its standby mode and off

mo de engineering analysis for both furnaces and central air conditioners/heat pumps,

which allowed DOE to calculate the incremental costs of adding specific design options

to a baseline model. DOE decided on this approach because sufficient data do not exist to

execute an efficiency-level analysis, and DOE is not aware of any manufacturers that

currently rate or publish data on the standby mode energy consumption of their products.

Unlike standby mode and off mode fossil-fuel consumption for furnaces which i s
accounted for by AFUE for gas and oil-fired furnaces, standby mode and off mode

electricity consumption for furnaces (including for electric furnaces) is not currently

regulated. Similarly, although SEER and HSPF account for the standby mode electricity

consumption of central air conditioners and furnaces, off mode electricity consumption is

currently unregulated. Because of this, DOE believes manufacturers generally do not

invest in research and development (R&D) to design products with reduced standby

mode and off mode electrical energy consumption. Therefore, DOE determined that there

is no basis for comparison of efficiency levels among products in terms of standby mode

and off mode energy consumption. The design-option approach, by contrast, allowed

DOE to examine potential designs for reducing the standby mode and off mode power

consumption of residential furnaces and the off mode energy consumption of central air

conditioners and heat pumps. Standby mode energy consumption for central air

207conditioners and heat pumps is already accounted for in the SEER and HSPF metrics. As

discussed in section III.E of this direct final rule, DOE analyzed new, separate standards

for standby mode and off mode energy consumption using separate metrics, because it is

no t technologically feasible to integrate standby mode and off mode into the existing

metrics for these products ; standby mode and off mode power consumption is orders of

magnitude less than active mode power consumption, so in most cases, any effects would

likely be lost because AFUE is reported to the nearest whole number for these products

.

a. Identification and Characterization of Standby Mode and Off Mode

Components

Using the design-option approach, DOE identified components that contribute to

standby mode and off mode energy consumption in the teardown-generated BOMs used

for analyzing amended AFUE and SEER standards. For furnaces, DOE performed

measurements of standby mode and off mode electrical energy consumption of each

product before it was torn down in accordance with the test procedures specified in

DOE’s July 2009 furnaces test procedure NOPR (whose approach was subsequently

adopted in a final rule published in the Federal Register on October 20, 2010 (75 FR

64621)). 74 FR 36959 (July 27, 2009). In addition, DOE performed testing on

individual components that DOE believes consume most of the standby energy ( e.g. , transformer, ECM blower motor). DOE aggregated these measurements to characterize

and estimate the electrical energy use of each component operating in standby mode or

off mode, as well as the standby mode and off mode consumption of the entire product.

During manufacturer interviews, manufacturers provided feedback on these data, which

208DOE used to update its estimates. DOE also estimated the costs of individual components

and designs capable of being used to reduce standby mode and off mode power

consumption based on volume-variable price quotations and detailed discussions with

manufacturers and component suppliers, and DOE received feedback from manufacturers

which was used to refine the estimates.

For electric furnaces, DOE analyzed the expected standby mode and off mode

power consumption of an electric furnace in comparison to the standby mode and off

mode power consumption of a non-weatherized gas furnace. For non-weatherized gas

furnaces, DOE found that for the baseline standby mode and off mode design, the

components that primarily contribute to standby mode and off mode power consumption

are the control transformer, an ECM fan motor (which was assumed present for the

baseline standby mode and off mode design), and the control board power supply, which

were estimated to use a total of nine watts on average. Additionally, furnaces with more

complex controls and features (which are included in the baseline for the standby mode

and off mode analysis since they are the highest-power consuming designs), DOE found

that additional standby mode and off mode power requirements could be up to 2 watts,

for a total of 11 watts of standby mode and off mode power consumption.

To estimate the likely standby mode and off mode power consumption of electric

furnaces, DOE compared wiring diagrams, control schematics, and images of control

boards of gas and electric furnaces. DOE found that electric furnaces commonly use a

40VA transformer that is very similar to those found in non-weatherized gas furnaces.

209Hence, DOE expects the power consumption associated with these transformers is the

same. A DOE review of electric furnaces suggests that other components are also the

same as (or very similar to) those used in non-weatherized gas furnaces, such as ECM

blower motors, which suggests similar standby consumption for these components also.

Finally, DOE examined the control boards, their power supplies, and the electrical

systems of both electric and gas furnaces to examine potential differences in standby

mode and off mode power consumption. DOE found that control boards for both electric

and non-weatherized gas furnaces typically share many common features, such as linear

and/or zener-style power supplies, relays, and microchip controllers. Additionally, both

furnace types need a wiring harness and some sensors for safety and control. The two

key differences are that electric furnace control boards tend to be simpler (no flame

ignition/supervision, staging, and other combustion safety controls needed) and that

electric furnace control boards use relays and/or sequencers that have higher capacity

ratings than the relays typically found in gas furnaces. Sequencers are used to turn the

electric furnace heating elements on incrementally to limit inrush currents and prevent

nuisance trips of circuit breakers. DOE estimates that the additional standby power

associated with the use of larger relays and/or sequencers of electric furnaces is balanced

by the lack of need for controls/components for combustion initiation and control on gas

furnaces.

As a result

, DOE believes the evidence suggests that an electric furnace has a

standby mode and off mode electrical consumption that is similar that of non-weatherized

gas furnaces in similar models. Further, DOE believes the design options that were

210identified for reducing the standby mode and off mode power consumption of gas

furnaces ( i.e. , a switching mode power supply and a toroidal transformer) will have the

same impact on the standby mode and off mode power consumption of electric furnaces.

For central air conditioners and heat pumps, DOE measured off mode electrical

energy consumption of units with and without crankcase heaters and with various

crankcase heater control strategies in accordance with the test procedures specified in the

DOE test procedure NOPR for central air conditioners and heat pumps. 75 FR 31224,

31260 (June 2, 2010). As was done for furnaces, DOE aggregated these measurements,

in conjunction with nominal power ratings, to characterize the electrical energy use of

each component operating in off mode. During manufacturer interviews, manufacturers

provided feedback on these data, which DOE used to update its estimates. DOE also

estimated the costs of individual components based on the same approach as furnaces and

received feedback from manufacturers which was used to further refine these cost

estimates.

b. Baseline Model

As noted above, the design-option approach that DOE is using for the standby

mode and off mode energy conservation standards engineering analysis calculates the

incremental costs for products with standby mode or off mode energy consumption levels

above a baseline model in each standby mode and off mode product class covered in this

rulemaking. Because standby mode and off mode electrical energy consumption of

residential furnaces and central air conditioners and heat pumps is currently unregulated,

211DOE began by defining and identifying baseline components from the representative

furnace teardowns that consumed the most electricity during standby mode and off mode

operation. Baseline components were then “assembled” to model the electrical system of

a furnace or central air conditioner or heat pump with the maximum system standby

mode or off mode electrical energy consumption from DOE’s representative test data.

The baseline model defines the energy consumption and cost of the most energyconsumptive product on the market today ( i.e. , units with the highest standby mode and

off mode electricity consumption) operating in standby mode or off mode. See chapter 5

of the direct final rule TSD for baseline model specifications.

ACEEE stated that it expects the average furnace to have a standby power

consumption of 8 watts or about 50 kilowatt-hours per year based on a 2003 study by the

Wisconsin Energy Center. 36 (FUR: ACEEE, No. 1.3.009 at p. 11) As noted above, DOE

tested furnaces in standby mode using the procedure proposed in the July 2009 furnaces

test procedure NOPR and later adopted in the October 2010 test procedure final rule.

N one of the furnaces tested were equipped with a “seasonal off switch,” and as a result,

DOE did not have any reason to expect a difference in standby mode and off mode power

consumption, as the terms are defined in the test procedure. 37 A s specified in the October

2010 test procedure final rule, DOE assumed that standby mode and off mode power

consumption were equal, as the test procedure directs for units that do not have an

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

212expected difference between standby mode and off mode power consumption

. 10 CFR

Part 430, subpart B, appendix N, section 8.6.2. DOE’s testing resulted in a range of

values, both above and below 8 watts. Additional discussion of t he results of DOE’s

furnace testing is in chapter 5 of the direct final rule TSD.

c. Cost-Power Consumption Results

The results of the engineering analysis are reported as cost-power consumption

data (or “curves”) in the form of power (in watt s) versus MPC (in dollars). For furnaces,

DOE developed two different data sets for standby mode and off mode: one to use for the

non

- weatherized gas, mobile home gas (DOE’s testing showed that the standby mode and

off mode power consuming components are the same in mobile home gas furnaces as

non -weatherized gas furnaces), and electric furnace product classes, and one to use for

non -weatherized and mobile home oil-fired furnace product class es . For central air

conditioners and heat pumps, DOE developed six off mode data sets: four for air

conditioners and two for heat pumps. The data sets were produced based on units with

ECM fan motors, because they will have a slightly higher off mode power consumption

due to the fact that ECM fan motors have some controls integrated into them.

The methodology for developing the cost-power consumption curves started with

determining the energy use of baseline products and their full cost of production. For

furnaces and central air conditioners and heat pumps, the baseline products contained the

highest energy-consuming components, which included an ECM blower motor (rather

than a PSC) when applicable. Above the baseline, DOE implemented design options

213based on cost-effectiveness. Design options were implemented until all available

technologies were employed ( i.e. , at a max-tech level). For furnaces and central air

conditioners and heat pumps, the design options are not all mutually exclusive, and,

therefore, systems could incorporate multiple design options simultaneously.

After considering several potential designs to improve standby mode efficiency

for furnaces, DOE ultimately examined two designs in addition to the baseline that

passed the screening analysis (see chapter 4 of the direct final rule TSD for details). DOE

first considered the use of a switch mode power supply instead of a linear power supply.

DOE also considered the use of a toroidal transformer in addition to a switch mode power

supply to further reduce standby mode and off mode energy consumption of a furnace.

The power consumption levels analyzed for furnaces are shown in Table IV .6 below.

Table IV .6 Standby Mode and Off Mode Power Consumption Levels for Furnaces Non

– weatherized Gas , Electric, and Mobile Home Gas Furnace Standby Power Consumption (W) Non

- weatherized Oil

- fired and Mobile Home Oil

Fired Furnace Standby

Power Consumption (W) Baseline 11 12 Efficiency

Level 1 10 1 1 Efficiency

Level 2 9 10

Although DOE’s test results for furnaces showed that the standby mode and off

mode consumption could be reduced below efficiency level 2 by eliminating certain

features ( e.g. , replacing an ECM blower motor with a PSC motor), DOE did not consider

214these as potential design options, because the elimination of such features and

components would result in a reduction of consumer utility. In its analysis, DOE only

considered designs that could be implemented with no noticeable impacts on the

performance and utility of the unit.

For central air conditioners, DOE examined three designs ( i.e. , thermostaticallycontrolled fixed-resistance crankcase heaters, thermostatically-controlled variableresistance crankcase heaters with compressor covers, and thermostatically-controlled

variable-resistance crankcase heaters with compressor covers and a toroidal transformer)

in addition to the baseline for split-system blower coil and packaged air conditioners

equipped with crankcase heaters. DOE only examined two designs ( i.e.

,thermostatically-controlled fixed-resistance crankcase heaters and thermostaticallycontrolled variable-resistance crankcase heaters with compressor covers) in addition to

the baseline for coil-only air conditioners, because the transformer is contained in the

furnace or air handler and is not a component of a coil-only system. DOE believes that

the crankcase heater is the only source of off mode power consumption for the c oil -only

systems, and consequently, a coil-only split-system air conditioner will have no off mode

power consumption without a crankcase heater unless it has an ECM motor in the

condensing unit.

For heat pumps, DOE found during testing that heat pumps achieved a lower

power consumption during the off mode period through the use of crankcase heaters with

a control strategy based on outdoor ambient temperature, as opposed to compressor shell

215temperature. However, using this control strategy prevents a heat pump from achieving

any additional energy savings with a compressor cover, because while a cover helps the

compressor shell retain heat, it has no effect on the outdoor ambient temperature sensor.

Additionally, DOE found that the fixed-resistance and variable-resistance crankcase

heaters had similar test results in terms of energy consumption and believes that

manufacturers will choose the fixed-resistance heaters because they are more costeffective. Therefore, DOE did not include compressor covers as a design option for heat

pumps because there is no benefit from them without the variable-resistance crankcase

heaters and only considered thermostatically-controlled crankcase heaters and toroidal

transformers.

DOE also found during testing that the crankcase heater accounts for the vast

majority of off mode power consumption for air conditioners and heat pumps. However,

not every unit has a crankcase heater and, to accurately reflect this in the analyses, DOE

de termined separate efficiency levels within each product class for units with and without

a crankcase heater. Because two of the design options are only relevant with crankcase

heaters, the only possible improvement to units without crankcase heaters is the toroidal

transformer. Table IV .7 through Table IV .9 contain the off mode efficiency levels for

central air conditioners and heat pumps.

Table IV .7. Split-System (Blower Coil), Packaged, and Space-Constrained Air Conditioner Off Mode Power Consumption Power Consumption with an ECM Motor and Crankcase Heater

(W) Power Consumption with an ECM Motor and No Crankcase Heate r

(W) Baseline 48 11

216Efficiency Level 1 36 10 Efficiency Level 2 30 Efficiency Level 3 29

Table IV .8. Split-System (Coil-Only) Air Conditioner Off Mode Power Consumption Power Consumption with an ECM Motor and Crankcase Heater

(W) Power Consumption with an ECM Motor and No Crankcase Heater

(W) Baseline 37 3 Efficiency Level 1 25 Efficiency Level 2 19

Table IV .9. Split-System, Packaged, and Space-Constrained Heat Pump Off Mode Power Consumption Power Consumption with an ECM Motor and Crankcase Heater

(W) Power Consumption with an ECM Motor and No Crankcase Heater

(W) Baseline 51 14 Efficiency Level 1 33 13 Efficiency Level 2 32

For furnaces, the standby mode and off mode electrical energy consumption (in

watts) of each design option was estimated based on test measurements performed on

furnace electrical components, industry knowledge, and feedback from manufacturers

during manufacturer interviews. For central air conditioners and heat pumps, the off

mode energy consumption of each system design was calculated based on test

measurements performed according to the off mode test procedure for central air

conditioners and heat pumps that was proposed in the June 2010 test procedure NOPR

(75 FR 31224 (June 2, 2010)), and information gathered during manufacturer interviews.

See chapter 5 in the direct final rule TSD for additional detail on the engineering analyses

217and for complete cost-power consumption results for standby mode and off mode

operation.

D. Markup Analysis

The markup analysis develops appropriate markups in the product distribution

chain to convert the estimates of manufacturer selling price derived in the engineering

analysis to consumer prices. At each step in the distribution channel, companies mark up

the price of the product to cover business costs and profit margin. After establishing

appropriate distribution channels, DOE relied on economic data from the U.S. Census

Bureau and industry sources to estimate how prices are marked up as the products pass

from the manufacturer to the consumer.

In the central air conditioners and heat pumps preliminary TSD, DOE determined

two typical distribution channels for central air conditioners and heat pumps

-- one for

replacement products, and one for products installed in new homes. DOE then estimated

the markups associated with the main parties in the distribution channels. For

replacement products, these are distributors and mechanical contractors. For products

installed in new homes, these are distributors, mechanical contractors, and general

contractors (builders).

DOE based the distributor and mechanical contractor markups on company

income statement data; 38 DOE based the general contractor markups on U.S. Census

38 Heating, Air-conditioning & Refrigeration Distribution International (HARDI) 2010 Profit Report; Air Conditioning Contractors of America (ACCA) Financial Analysis (2005). Deleted: Airconditioning

218Bureau data 39 for the residential building construction industry. For distributors and

contractors, DOE developed separate markups for baseline products (baseline markups)

and for the incremental cost of more-efficient products (incremental markups). Thus, for

these actors, the estimated total markup for more-efficient products is a blend of a

baseline markup on the cost of a baseline product and an incremental markup on the

incremental cost. No comments were received on the distribution markups contained in

the preliminary TSD for central air conditioners and heat pumps, and DOE retained the

approach used in the preliminary analysis for today’s direct final rule.

In the furnaces RAP, DOE stated its intention to determine typical markups in the

furnace distribution chain using publicly-available corporate and industry data,

particularly Economic Census data from the U.S. Census Bureau 40 and input from

industry trade associations such as HARDI. It described a similar approach for furnaces

to estimate baseline and incremental markups as was used in the preliminary analysis for

central air conditioners and heat pumps.

Commenting on the furnaces RAP, HARDI stated that distributors do not

categorize costs into labor-scaling and non-labor-scaling costs, and it recommended that

DOE should not use this approach when projecting distributor impacts. HARDI

recommended that DOE should use the markups approach taken in chapter 17 of the TSD

for central air conditioners and heat pumps. (FUR: HARDI, No. 1.3.016 at p. 9)

39 2007 Economics Census; available at: ht tp://factfinder.census.gov/servlet/EconSectorServlet?caller=dataset&sv_name=*&_SectorId=23&ds_nam e=EC0700A1&_lang=en&_ts=309198552580

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

­ 238220).

219In response, DOE notes that the analysis described in chapter 17 of the TSD for

central air conditioners and heat pumps only used baseline markups because its purpose

was to estimate the impacts of regional standards and not to estimate the incremental

costs of higher-efficiency products for the LCC and PBP analysis. To derive incremental

markups for the LCC and PBP analysis, DOE distinguishes between costs that change

when the distributor’s cost for the appliances it sells changes due to standards and those

that do not change. DOE agrees that the categorization of costs as non-labor-scaling and

labor-scaling mentioned in the furnaces RAP may not be appropriate terminology.

Accordingly, for the direct final rule, DOE refers to these two categories as variant and

invariant costs.

Chapter 6 of the direct final rule TSD provides additional details on the markup

analysis.

E. Energy Use Analysis

DOE’s analysis of the energy use of furnaces and central air cond itioners and heat

pumps estimated the energy use of these products in the field ( i.e. , as they are actually

used by consumers). The energy use analysis provided the basis for other follow-on

analyses that DOE performed, particularly assessments of the energy savings and the

savings in consumer operating costs that could result from DOE’s adoption of potential

amended standard levels. In contrast to the DOE test procedure, which provides

standardized results that can serve as the basis for comparing the performance of different

220appliances used under the same conditions, the energy use analysis seeks to capture the

range of operating conditions for furnaces and central air conditioners and heat pumps in

U.S. homes and buildings.

In the central air conditioners and heat pumps preliminary TSD, to determine the

field energy use of products that would meet possible amended standard levels, DOE

used data from the EIA’s 2005 Residential Energy Consumption Survey (RECS), which

was the most recent such survey availab le at the time of DOE’s analysis. 41 RECS is a

national sample survey of housing units that collects statistical information on the

consumption of and expenditures for energy in housing units along with data on energyrelated characteristics of the housing units and occupants. The sample is selected to be

representative of the population of occupied housing units in the U.S. RECS provides

sufficient information to establish the type (product class) of furnace, central air

conditioner, or heat pump used in each housing unit. As a result, DOE was able to

develop discrete samples for each of the considered product classes. DOE uses these

samples not only to establish each product’s annual energy use, but also as the basis for

conducting the LCC and PBP analysis. DOE described a similar approach for furnaces in

the RAP.

Commenting on the furnaces RAP, Lennox stated that DOE should use more

recent data for the energy consumption of furnaces than those in the 2005 RECS. Lennox

asserted that using the 2005 RECS will overstate the savings associated with higher

efficiency levels, because the market share of high-efficiency furnaces has increased

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

.

221since the time of the survey. (FUR: Lennox, No. 1.3.018 at p. 4) Ingersoll Rand made a

similar point. (FUR: Ingersoll Rand, No. 1.3.006 at pp. 7-8) In response, DOE notes that

the increase in the market share of high-efficiency furnaces since 2005 does not result in

overstated savings because, as described below, DOE uses information on the furnace in

the RECS housing units only to estimate the heating load of each sample building ( i.e.

, the amount of heat needed to maintain comfort). Since the heating load is a characteristic

of the dwelling and not the heating equipment, DOE’s estimate of annual energy use of

baseline and higher-efficiency furnaces (and the difference, which is the energy savings)

is not affected if some households have acquired new, more-efficient furnaces since the

time of the 2005 RECS.

Details on how DOE used RECS to determine the annual energy use of residential

furnaces and central air conditioners and heat pumps are provided below. A more detailed

description of DOE’s energy use analysis is contained in chapter 7 of the direct final rule

TSD.

1. Central Air Conditioners and Heat Pumps

In the central air conditioners and heat pumps preliminary TSD, DOE determined

the annual energy use of central air conditioners and heat pumps at various efficiency

levels using a nationally representative set of housing units that were selected from EIA’ s
2005 RECS. DOE began with the reported annual electric energy consumption for space

cooling and space heating for each household in the sample. DOE then adjusted the

222RECS household energy use data, which reflect climate conditions in 2005, to reflect

normal (30-year average) climate conditions.

DOE used the reported cooling equipment vintage ( i.e ., the year in which it was

manufactured) to establish the cooling efficiency (SEER) and corresponding heating

efficiency (HSPF) of the household’s air condition er or heat pump. DOE estimated the

energy consumption for each sample household at the baseline and higher efficiency

levels using the 2005 RECS-reported cooling energy use multiplied by the ratio of the

SEER of each efficiency level to the SEER of the hou sehold’s equipment. Similarly,

DOE calculated the heating energy use for each household in the sample using the 2005

RECS-reported heating energy use multiplied by the ratio of the HSPF of each efficiency

level to the HSPF of the household’s equipment.

DOE also estimated the energy consumption for central air conditioners and heat

pumps shipped to commercial buildings, which DOE estimated at 7 percent of the

market, using a model of a small office building, DOE’s EnergyPlus building energy

simulation software, 42 and weather data for 237 locations around the U.S. Four

efficiency levels, starting with a baseline SEER 13 level, were modeled and the energy

use at intermediate efficiency levels was estimated by interpolation between these four

levels. Details of the energy analysis methodology are described in chapter 7 of the TSD.

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

.

223 42Commenting on the preliminary TSD, several commenters suggested that DOE

use computer simulation models for the residential energy use estimates as well. (CAC:

CA IOUs, No. 69 at p. 3; SCS, Public Meeting Transcript at p. 74) Commenters stated

that using simulations is likely to be more accurate. (CAC: ACEEE, No. 72 at p. 6;

NPCC, No. 74 at p. 3) Commenters noted that that RECS 2005 does not distinguish

between heating and cooling used in the same 24-hour period (CAC: CA IOUs, No. 69 at

p. 3), and that heat pump usage estimated using RECS data may be less accurate due to

the small sample size, particularly when examining RECS statistics at the Census

division level. (CAC: SCS, No. 73 at p. 3; NPCC, No. 74 at p. 2; ACEEE, No. 72 at p. 6)

A commenter also noted that using RECS does not allow DOE to control for external

system effects such as duct anomalies. (CAC: ACEEE, No. 72 at p. 6) More specifically

with respect to heat pumps, NPCC commented that the approach used in the preliminary

analysis assumed that improvements in efficiency result in comparable percentage

savings across differing regions. NPCC noted that because HSPF is climate dependent, a

simulation or bin temperature approach should be used to get at the right answer. (CAC:

NPCC, No. 74 at p. 2; NPCC, Public Meeting Transcript at p. 44) NPCC also stated that

presuming DOE moves to a simulation of the heat pump for the residential analysis, it

should use a heat pump performance curve that reflects inverter-driven compressors

because they perform quite differently at lower temperatures relative to the standard

rating points that are now available. (CAC: NPCC, Public Meeting Transcript. at p. 70)

Rheem commented that the proportional changes in SEER will reflect proportional

changes in cooling energy use across climates, assuming similar characteristics for the

underlying equipment design, but noted that SEER alone may not portray an accurate

224difference in relative energy consumption for disparate climates if the underlying systems

have different characteristics such as two-stage compressors or variable-speed fans.

(CAC: Rheem, No 76 at p. 6)

In response to these comments, DOE is aware that RECS observations for heat

pumps are limited when analyzing geographic subsets at the Census division levels

identified by commenters, but points out that it relies on larger regions with more

observations for its regional or national analysis of heat pumps. In response to the

comment that DOE does not distinguish between heating and cooling in a 24-hour period,

DOE believes that this comment may be relevant to the energy analysis for heat pumps,

but that its importance is overshadowed by the much larger concern of achieving

household energy consumption estimates that are reflective of the variability in

residential homes of different vintages and building characteristics, which is difficult to

capture in modeling. With regard to controlling for duct anomalies, DOE points out that a

simulation may allow DOE to presume some duct performance or, through a sensitivity

study, understand how the assumptions for a duct system can impact the energy results,

but in fact would not necessarily yield more accurate estimates of energy consumption

than an analysis that is based on more empirical energy use data.

In response to the concern regarding the climate sensitivity of HSPF and the

overall heating performance of heat pumps, DOE agrees that its approach to estimating

energy savings should take into account how the heating HSPF would vary as a function

of climate. DOE examined several strategies for doing this and relied for the direct final

225rule on an approach that estimates the change in seasonal heating efficiency for heat

pumps based on equations developed from building simulation analysis across the U.S. 43

DOE also examined other possible methods, including alternative simulation approaches,

and discusses these in chapter 7 of the direct final rule TSD. For the direct final rule

, however, DOE did not rely on separate simulations for residential buildings to estimate

the underlying energy use at different efficiency levels, due to the concerns mentioned

above, and, thus, did not include heating performance curves for inverter-driven heat

pump systems. DO E acknowledges that certain inverter-driven heat pumps, primarily

found in mini-split systems, have increased heating capacity at low temperature (relative

to the nominal 47 °F heating capacity) compared with non-inverter systems. DOE also

acknowledges that this difference has potential heating energy benefits over the course of

the year that, while captured in the HSPF rating, may differ depending on climate.

DOE also received a number of comments on the commercial analysis, which

relied on the use of energy simulations. ACEEE commented that in the commercial

energy analysis, it appreciated that DOE used realistic values for the total static pressure

in the building modeling, but it was not confident that the motor efficiencies or combined

efficiencies are realistic for residential equipment at these higher static pressures. (CAC:

ACEEE, Public Meeting Transcript at p. 69) In addition, ACEEE stated that it believes

that there should be some empirical data to underlie the assumption that constant air

circulation is the predominant mode of operation in small commercial buildings that

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

226utilize residential equipment. NPCC echoed this point, adding that it had not seen

controls that provided switching between this mode and heating/cooling modes of

operation. (CAC: NPCC, No. 74 at p. 5) NPCC also suggested that DOE use the most

recent weather data in its analysis and provided an analysis of differences in TMY2 and

TMY3 weather data for the northwest. 44 (CAC: NPCC, No. 74 at p. 4)

DOE was not able to identify a specific source of information regarding the use of

continuous air circulation for residential (single-phase) heat pumps in commercial

buildings, but notes that a California study of 215 small air conditioners in commercial

buildings found intermittent (cycling) ventilation operation during the occupied period in

38 percent of cases examined. 45 DOE also notes that a programmable residential

thermostat that is set in a continuous-circulation fan mode will still shift into a cooling or

heating mode on a call for cooling or heat. However, in recognition that intermittent

ventilation is common in small buildings, DOE modified its simulation model to have 40

percent (two out of five) of the HVAC zones operate in intermittent-circulation mode

during the occupied period. DOE maintained the fan power assumptions from the

preliminary TSD. DOE acknowledges that higher fan static pressure may result in motor

efficiency deviating from the values used, but it may also result in the actual air flow

differing in the field, depending on both the type and size of motor used and on

installation practices. DOE also notes that there may be variation in cooling and heating

44 The TMY2 data are based on examination of weather data from 1961-1990 for 239 locations. See: National Renewable Energy Laboratory, User's manual for TMY2s (Typical meteorological years derived from the 1961-1990 national solar radiation database) ( 1995 ).
45 Jacobs, P. Small HVAC Problems and Potential Savings Reports . 2003. California Energy Commission, Sacramento, California. Report No. CEC- 500

- 03 -082-A-25. Available at: http://www.energy.ca.gov/pier/project_reports/500- 03 -082.html

.

227efficiency when air flow rates deviate from nominal values. DOE has not attempted to

systematically explore these variations in the commercial modeling. DOE has at this

point not updated its commercial simulations to use TMY3 weather data but will consider

doing so for the final rule. DOE believes that the impact of this change would be minimal

with regard to the overall analysis. In the data provided by NPCC, the overall change for

comparable TMY2 and TMY3 locations was on the order of a five percent reduction in

heating degree days and no clear change in cooling degree days.

DOE received multiple comments on the SEER-EER relationship that was used in

the commercial modeling. Commenters expressed concern that the relationship that was

used in the preliminary analysis did not reflect the correct relationship between SEER

and EER. Several commenters stated that the Wassmer-Brandemuehl 46 curve used in the

preliminary analysis suggested a nearly linear relationship between SEER and EER, but

that their review of the data in the AHRI directory suggested that this is not accurate.

(CAC: CA IOUs, No. 69 at pp. 3-4; PG&E, Public Meeting Transcript at pp.63, 72;

Ingersoll Rand, Public Meeting Transcript at p. 63; EEI, No. 75at p. 5) ACEEE suggested

that the curve should include two lines, reflecting the slopes of this relationship for

single-speed versus step-modulating compressors. (CAC: ACEEE, Public Meeting

Transcript at p. 57; ACEEE, No. 72 at p. 4) ASAP noted that the relationship between

SEER and EER may become clearer when set by a standard, and that the market migrates

to the lowest-cost compliance path, although single-stage equipment will provide a

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

.

228different EER at a 16 SEER than will two-stage equipment. (CAC: ASAP, Public

Meeting Transcript at p. 64)

EEI and NPCC reported concerns that the nearly linear relationship between EER

and SEER would result in the analysis showing better apparent economic benefit than

what might actually occur due to differences between estimated versus actual impacts on

peak demand and calculated marginal price. EEI suggested that DOE should use AHRI ’s

published EER values in the simulations. (CAC: EEI, Public Meeting Transcript at pp.

61, 104; EEI, No. 75 at p. 5; NPCC, Public Meeting Transcript at p. 130) Southern also

agreed that a curve based on EER values representative of the current AHRI database

should be used instead of the relationship used in the preliminary TSD, and further

suggested that the SEER 16 and max-tech efficiency levels should be modeled as dualspeed or variable-speed equipment. (CAC: SCS, No. 73 at p. 4; SCS, Public Meeting

Transcript at p. 60) PG&E commented that, based on their review of the equipment

market, there is a decrease in EER at very high SEER. They emphasized that the impact

of this relationship on peak performance is an important issue for utilities and is a reason

why they are emphatic about not using SEER as the only efficiency metric in hot, dry

regions. (CAC: PG&E, Public Meeting Transcript at p. 72)

In response to the above concerns, DOE modified its commercial simulations to

use EER values that reflect the median values taken from the most recent AHRI database

for the selected SEER levels that were simulated. In addition, 16 SEER and higher

efficiency levels were modeled as two-stage equipment. Additional changes to the

229commercial modeling included the incorporation of new equipment performance curves

from a 3-ton split system air conditioner that DOE believes to be more representative of

residential central air conditioners and heat pumps.

DOE also received several comments suggesting that northern region heat pumps

should not be sized based on cooling loads. (CAC: CA IOUs, No. 69 at p. 4; NPCC, No.

74 at p. 4) At the public meeting, ACEEE asked if sizing based on cooling loads for

northern climates is a recommended practice that one would find in an ACCA manual.

(CAC: ACEEE, Public Meeting Transcript at p. 55) Southern also questioned the sizing

based on cooling loads for northern climates. (CAC: SCS, Public Meeting Transcript at p.

50)

DOE understands that, in the Northwest, utilities encourage sizing heat pumps

based on the maximum of either the cooling load or the heating load at an ambient

temperature between 30 °F and 35 °F, and that such sizing is one component of many

Northwest heat pump rebate programs. DOE reviewed the current ACCA manual for

sizing of equipment ( Manual S ), 47 which clearly states that sizing of heat pumps should

be based on cooling loads. However, Manual S allows installers some additional

flexibility by suggesting that they can consider sizing heat pumps up to 25 percent larger

if the building balance point ( i.e. , where sensible heating loads equal compressor heating

capacity) is relatively high. The manual specifically caveats this by pointing out that the

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

230additional capacity may not translate into significant reduction in heating costs and may

not justify the cost of a larger unit.

In a 2005 study of installation practices of heat pumps in the Northwest provided

by NPCC, 48 the residential heat pump installations that were examined were undersized

compared to the heating load in most of the locations examined except the sites in eastern

Washington, which had higher cooling design temperatures and would be expected to

have relatively comparable heating and cooling loads. (CAC: NPCC, No. 74, attachment

2 at p. 65) Sixty percent of the contractors consulted in the study reported that cooling

sizing was the principle factor in equipment selection. The study also noted that, given

the observed equipment sizes in the study, it would appear that a 30-percent increase in

capacity would be required in order to be able to meet the design heating load at a 30 °F

outside temperature, particularly given the drop in capacity of heat pumps at lower

temperatures. Given the additional cost for larger equipment (estimated at $1,000 in the

study) and Northwest utility rates, the study noted that consumers may be making an

economic decision to not invest in the larger equipment (and therefore to not meet the

30°F heating load) at the expense of greater energy savings with the larger heat pump.

With respect to commercial buildings, DOE expects that for most new small

commercial buildings in the northern U.S., cooling design loads used for sizing will

typically be larger than heating design loads at 30-35°F due to internal gain assumptions.

However, DOE notes that variation in both ventilation and internal gain assumptions used

48 Baylon, D., et al

., “ Analysis of Heat Pump Installation Practices and Performance, Final Report ” ( 2005 ) (Available at: www.neea.org/research/reports/169.pdf ).

231in sizing in the small commercial building market will result in variation in relative

design cooling and 30-35°F heating loads among buildings. DOE also notes that to the

extent that continuous circulation is used in commercial buildings, fan energy use and

corresponding cooling impact for larger equipment will have an offsetting factor on

heating energy savings from larger heat pump sizing. DOE has not passed judgment on

the economic or energy value of sizing for heating loads in commercial buildings, but, for

the reasons cited above, DOE did not modify the sizing methods for the commercial

modeling for the direct final rule.

2. Furnaces

In the furnaces RAP, DOE stated its intention to use RECS data to estimate the

annual energy consumption of residential furnaces used in existing homes, and further

described its planned method for determining the range of annual energy use of

residential furnaces at various efficiency levels.

For the direct final rule analysis, DOE followed the method described in the

furnaces RAP. In addition to using the 2005 RECS data to estimate the annual energy

consumption of residential furnaces used in existing homes, DOE estimated the furnace

energy efficiencies in existing homes, again based primarily on data from the 2005

RECS. To estimate the annual energy consumption of furnaces meeting higher efficiency

levels, DOE calculated the house heating load based on the RECS estimates of the annual

energy consumption of the furnace for each household. For each household with a

furnace, RECS estimated the equipment’s annual energy consumption from the

232household’s utility bills using conditional demand analysis. DOE estimated the house

heating load by reference to the existing furnace’s characteristics, specifically its capacity

and efficiency (AFUE), as well as by the heat generated from the electrical components.

The AFUE was determined using the furnace vintage from 2005 RECS and data on the

market share of condensing furnaces published by AHRI. 49

DOE then used the house heating load to calculate the burner operating hours,

which is needed to calculate the fuel consumption and electricity consumption using

section C of the current version of the American Society of Heating, Refrigerating and

Air-Conditioning Engineers (ASHRAE) test procedure SPC 103- 2007, “Method of

Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and

Boilers.” To calculate blower electri city consumption, DOE accounted for field data

from several sources (as described in chapter 8 of the direct final rule TSD) on static

pressures of duct systems, as well as airflow curves for furnace blowers from

manufacturer literature.

To account for the effect of annual weather variations, the 2005 RECS household

energy consumption values were adjusted based on 30-year average HDD data for the

specific Census division or the large State location. 50 In addition, DOE made adjustments

to the house heating load to reflect the expectation that housing units in the year in which

compliance with the amended standards is required will have a somewhat different

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

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

233heating load than the housing units in the 2005 RECS. The adjustment considers

projected improvements in building thermal efficiency (due to improvement in home

insulation and other thermal efficiency practices) and projected increases in the square

footages of houses between 2005 and the compliance date of today’s standards.

Commenting on the furnaces RAP, Ingersoll Rand stated that in using furnace

capacity to estimate energy consumption, DOE needs to account for the fact that furnaces

are often over-sized to maintain comfort under extreme conditions. (FUR: Ingersoll

Rand, No. 1.3.006 at p. 10) In respons e, DOE’s approach does account for the over

sizing of furnace capacity, since the furnace capacity assignment is a function of

historical shipments by furnace capacity, which reflects actual practice, as well as heating

square footage and the outdoor design temperature for heating ( i.e. , the temperature that

is exceeded by the 30-year minimum average temperature 2.5 percent of the time).

In the furnaces RAP, DOE described its plans to consider the potential for a

“rebound effect” in its analysis of furnac e energy use. A rebound effect could occur when

a piece of equipment that is more efficient is used more intensively, so that the expected

energy savings from the efficiency improvement may not fully materialize. DOE stated

that the rebound effect for residential space heating appears to be highly variable, ranging

from 10 to 30 percent. A rebound effect of 10 percent implies that 90 percent of the

expected energy savings from more efficient equipment will actually occur.

234DOE received comments about applying a rebound effect associated with higherefficiency furnaces. ACEEE referred to a 1993 study by Nadel that suggests the rebound

effect should be about one percent. 51 (FUR: ACEEE, No. 1.3.009 at p. 7) Based upon its

experience, Southern stated that the rebound effect should not exceed 5 percent. (FUR:

Southern, No. 1.2.006 at p. 189) Lennox expressed concern with DOE's value for the

rebound effect. (FUR: Lennox, No. 1.3.018 at p. 4) Ingersoll Rand stated that a

significant rebound effect is unlikely, because it implies that consumers are currently

tolerating discomfort with existing furnaces. (FUR: Ingersoll Rand, No. 1.3.006 at p. 10)

In response, DOE examined a recently-published review of empirical estimates of

the rebound effect. 52 The authors evaluated 12 quasi-experimental studies of household

heating that provide mean estimates of temperature take-back ( i.e ., the increase in indoor

temperature in the period after improvement in efficiency) in the range from 0.14 ◦ C to

1.6 ◦ C. They also reviewed nine econometric studies of household heating, each of which

includes elasticity estimates that may be used as a proxy for the direct rebound effect.

The authors conclude that “the econometric evidence broadly supports the conclusions of

the quasi-experimental studies, suggesting a mean value for the direct rebound effect for

household heating of around 20%.” 53 Based on the above review, DOE incorporated a

rebound effect of 20 percent for furnaces in the direct final rule analysis. The above-cited

review found far fewer studies that quantified a direct rebound effect for household air

conditioning. Two studies of household cooling identified in the review provide estimates

51 S. Nadel, “The tak e- back effect: fact or fiction?” Proceedings of the 1993 Energy Program Evaluation Conference, Chicago, IL, pp. 556- 566.
52 S. Sorrell, J. Dimitropoulos, and M. Sommerville, “Empirical estimates of the direct rebound effect: a review,” Energy Policy 37(2009) pp. 1356

– 71.
53 Id . at p. 1363.

235of the rebound effects that are roughly comparable to those for household heating ( i.e

. , 1 –
26 percent). 54 Therefore, to maintain consistency in its analysis, DOE also used a rebound

effect of 20 percent for central air conditioners and heat pumps.

3. Standby Mode and Off Mode

a. Central Air Conditioners and Heat Pumps

DOE established annual off mode energy consumption estimates for each off

mode technology option identified in the engineering analysis for air conditioners and for

heat pumps. DOE estimated annual off mode energy consumption for air conditioners

based on the shoulder season off mode power consumption and heating season off mode

power consumption multiplied by the representative shoulder season rating hours (739

hours) and heating season rating hours (5216 hours) established in the test procedure.

DOE estimated annual energy consumption for heat pumps based only on the shoulder

season off mode power consumption multiplied by the representative shoulder season

rating hours (739 hours) established in the test procedure because heat pumps operate in

active mode during the heating season. These seasonal hours are calculated to be

consistent with the rating hours used in the SEER and HSPF ratings for air conditioners

and heat pumps.

DOE is considering national standards for off mode energy consumption, but does

not intend to set regional standards for off mode energy consumption. DOE recognizes

54 Dubin, J.A., Miedema, A.K., Chandran, R.V., 1986. Price effects of energy-efficient technologies

— a study of residential demand for heating and cooling. Rand Journal of Economics 17(3), 310

– 25. Hausman, J.A., 1979. Individual discount rates and the purchase and utilization of energy-using durables. Bell Journal of Economics 10(1), 33

– 54.

236that there will be some variation in off mode hours depending on location and individual

household usage, but believes that the defined off mode hours in the test procedure will

represent a reasonable basis for calculation of energy savings from off mode energy

conservation standards. In the case of heat pumps, the off mode period includes the

shoulder period between the heating and cooling season. It is fairly constant across most

of the U.S. and, on average, is close to the test procedure rating value for the DOE

climate zones. In the case of air conditioners, the off mode period includes all noncooling-season hours, so there is more variation across the nation. However, for the

majority of the U.S. population, the off mode period is close to the test procedure rating

value.

DOE does not include in the off mode period the time during the cooling season

when a unit cycles off, because energy use during this period is captured in the seasonal

SEER rating of the equipment. Similarly, DOE does not include in the off mode period

the time during the heating season when a heat pump cycles off, because energy use

during this period is captured in the seasonal HSPF rating of the equipment. To avoid

double counting the benefits of design options which reduce energy consumption when

equipment cycles off, DOE has defined the off mode time period for the energy analysis

to be consistent with the operating periods used for the SEER and HSPF ratings

The component that uses the most power during off mode is the crankcase heater,

but it is not found in all products. DOE established annual off mode energy use estimates

237for air conditioners and heat pumps using each considered off mode technology option

for units with and without crankcase heaters.

DOE was not able to identify a data source establishing the fraction of central air

conditioner or heat pump products in the U.S. market that would be tested with crankcase

heaters or would be expected to have crankcase heaters installed in the field. However, a

2004 study of the Australian market estimated that one in six central air conditioners in

that market utilized crankcase heaters. 55 Given that the need to provide for compressor

protection for central air conditioners is driven by similar refrigerant migration concerns

during cool weather, DOE estimated that the use of crankcase heaters in Australia was

roughly similar to that in the U.S. at that time. DOE estimated that changes in compressor

technology since 2004, in particular market growth in the use of scroll compressors, have

likely reduced the fraction of the central air conditioner market with crankcase heaters.

Based on the above considerations, for the direct final rule analysis, DOE assumed that

10 percent of central air conditioners within each air conditioner product class would

utilize crankcase heaters. Discussion during manufacturer interviews and review of

product literature suggest that crankcase heaters are most commonly used in heat pumps,

which must be able to cycle on in cold weather. DOE assumed that two-thirds of heat

pumps would utilize crankcase heaters in each heat pump product class.

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

238Because the technology options examined do not impact blower energy

consumption in off mode, DOE determined that energy savings from equipment utilizing

ECM or PSC blower motors would be identical for each off mode technology option.

See chapter 7 in the direct final rule TSD for additional detail on the energy

analysis and results for central air conditioner and heat pump off mode operation.

b. Furnaces

As described in section IV.C.7, DOE analyzed two efficiency levels that reflect

the design options for furnaces with ECM blower motors. The energy use calculations

account only for the portion of the market with ECM blower motors, because the power

use of furnaces with PCS motors is already below the power limits being considered for

standby mode and off mode power, and, thus, would be unaffected by standards.

To project the market share of furnaces with ECM blower motors, for nonweatherized gas furnaces DOE relied on market research data from studies conducted in

56 57 Vancouver, Canada and the State of Oregon. From these data, DOE estimated that

non -weatherized gas furnaces with ECMs comprise approximately 29 percent of the

market. For oil-fired, mobile home gas, and electric furnaces, DOE estimated that

furnaces with ECMs comprise 10 percent of the market.

56 Hood, Innes, “High Efficiency Furnace Blower Motors Market Baseline Assessment” (March 31, 2004) (Available at: http://www.cee1.org/eval/db_pdf/416.pdf )

. 57 Habart, Jack, “Natural Gas Furnace Market Assessment” (August 2005) (Available at: http://www.cee1.org/eval/db_pdf/434.pdf )

.

239DOE calculated furnace standby mode and off mode electricity consumption by

multiplying the power consumption at each efficiency level by the number of standby

mode and off mode hours. To calculate the annual number of standby mode and off mode

hours for each sample household, DOE subtracted the estimated burner operating hour s
(calculated as described in section IV.E.2) from the total hours in a year (8,760).

Commenting on the furnaces RAP, Ingersoll Rand stated that standby mode and

off mode power should not be included in DOE’s calculation of furnace energy

consumption during the cooling season, when the furnace may provide power for a

central air conditioner. (Ingersoll Rand, No. 1.3.006 at p. 9) In response, DOE would

clarify that for homes that have both a furnace and a split central air conditioner, during

the cooling season, the furnace blower controls operate in standby mode and off mode in

conjunction with the air conditioner, but such energy consumption is not accounted for in

the energy use calculation for the air conditioner. Therefore, DOE included this energy

us e in the calculation of furnace standby mode and off mode energy use.

See chapter 7 in the direct final rule TSD for additional detail on the energy

analysis and results for furnace standby mode and off mode operation.

F. Life-Cycle Cost and Payback Period Analyses

DOE conducts LCC and PBP analyses to evaluate the economic impacts on

individual consumers of potential energy conservation standards for furnaces and central

air conditioners and heat pumps. The LCC is the total consumer expense over the

240expected life of a product, consisting of purchase and installation costs plus operating

costs (expenses for energy use, maintenance, and repair). To compute the operating costs,

DOE discounted future operating costs to the time of purchase and summed them over

the expected lifetime of the product. The PBP is the estimated amount of time (in years)

it takes consumers to recover the increased purchase cost (including installation) of a

more-efficient product through lower operating costs. DOE calculates the PBP by

dividing the change in purchase cost (normally higher) due to a more-stringent standard

by the change in average annual operating cost (normally lower) that results from the

standard.

For any given efficiency or energy use level, DOE measures the PBP and the

change in LCC relative to an estimate of the base-case appliance efficiency or energy use

levels. The base-case estimate reflects the market in the absence of new or amended

mandatory energy conservation standards, including the market for products that exceed

the current energy conservation standards.

For each considered efficiency level in each product class, DOE calculated the

LCC and PBP for a nationally-representative set of housing units. As discussed in section

IV.E, DOE developed household samples from the 2005 RECS. For each sampled

household, DOE determined the energy consumption for the furnace, central air

conditioner, or heat pump and the appropriate energy prices in the area where the

household is located. By developing a representative sample of households, the analysis

241captured the variability in energy consumption and energy prices associated with the use

of residential furnaces, central air conditioners, and heat pumps.

Inputs to the calculation of total installed cost include the cost of the product —
which includes manufacturer costs, markups, and sales taxes

— and installation costs.

Inputs to the calculation of operating expenses include annual energy consumption,

energy prices and price projections, repair and maintenance costs, expected product

lifetimes, discount rates, and the year in which compliance with new or amended

standards is required. DOE created distributions of values for some inputs to account for

their uncertainty and variability. Specifically, DOE used probability distributions to

characterize product lifetime, discount rates, and sales taxes.

The computer model DOE uses to calculate the LCC and PBP, which incorporates

Crystal Ball (a commercially-available software program), relies on a Monte Carlo

simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo

simulations randomly sample input values from the probability distributions and furnace

and central air conditioner and heat pump user samples. The model calculated the LCC

and PBP for products at each efficiency level for 10,000 housing units per simulation run.

Details of the LCC spreadsheet model, and of all the inputs to the LCC and PBP analyses,

are contained in TSD chapter 8 and its appendices.

Table IV

. 10 and Table IV

. 11 summarize the inputs and methods DOE used for

the LCC and PBP calculations for furnaces and central air conditioners and heat pumps,

242respectively. For central air conditioners and heat pumps, the table provides the data and

approach DOE used for the preliminary TSD and the changes made for today’s direct

final rule. For furnaces, DOE has not conducted a preliminary analysis, so there are no

changes to describe. The subsections that follow discuss the initial inputs and the changes

DOE made to them.

243Table IV

. 10 Summary of Inputs and Methods for the LCC and PBP Analysis for Furnaces* Inputs Direct Final Rule

Installed Product Cost s Product Cost Derived by multiplying manufacturer cost by manufacturer and retailer markups and sales tax, as appropriate. Used experience curve fits to develop a price scaling index to forecast product costs

. Installation Cost Derived from RS Means data for 2010, the furnace installation model developed for the November 2007 Rule, and consultant reports.

Operating Costs Annual Energy Use Used household sample from 2005 RECS data. Energy Prices Natural Gas: Based on EIA’s Natural Gas Monthly data for 2009. Electricity: Based on EIA’s Form 861 data for 2008. LPG and Oil: Based on data from EIA’s State Energy Data System (SEDS) 2008. Variability: Separate energy prices determined for 13 geographic areas. Energy Price Trends Forecasted using AEO2010 data at the Census division level.

Repair and Maintenance Costs Costs for annual maintenance derived using data from a proprietary consumer survey. Repair costs based on Consumer Reports data on frequency of repair for gas furnaces in 2000

- 06, and estimate that an average repair has a parts cost equivalent to one

- fourth of the equipment cost.

Present Value of Operating C ost Savings Product Lifetime Estimated using survey results from RECS (1990, 1993, 1997, 2001, 2005) and the U.S. Census American Housing Survey (2005, 2007), along with historic data on appliance shipments. Variability: characterized using Weibull probab ility distributions. Discount Rates Approach involves identifying all possible debt or asset classes that might be used to purchase the considered appliances, or might be affected indirectly. Primary data source was the Federal Reserve Board’s Survey of Consumer Finances for 1989, 1992, 1995, 1998, 2001, 2004 and 2007. Compliance Date of Standard 2016

.

* References for the data sources mentioned in this table are provided in the sections following the table or in chapter 8 of the direct final rule TSD.

244Table IV

. 11 Summary of Inputs and Methods for the LCC and PBP Analysis for Central Air Conditioners and Heat Pumps* Inputs Preliminary TSD Changes for the Direct Final Rule

Installed Product Costs Product Cost Derived by multiplying manufacturer cost by manufacturer and retailer markups and sales tax, as appropriate. Incremental retail markup changed as described in section IV.D. Additional multi

- speed fan kit cost added for coil only air conditioners at 15 SEER and above. Used experience curve fits to develop a price scaling index to forecast product costs

. Installation Cost National average cost of installation derived from RS Means data for 2008, adjusted for regional labor price differences. Does not change with efficiency level or equipment size. Derived from RS Means data for 2009. Does not change with efficiency level or equipment size.

Operating Costs Annual Energy Use Residential: Derived using household sample from 2005 RECS data and reported energy use for space heating and cooling. Commercial: Derived using whole building simulations. No change in approach.

Energy Prices Electricity: Marginal and average prices based on residential and commercial electricity tariffs for 90 electric utilities in the Lawrence Berkeley National Lab Tariff Analysis Project database. Commercial prices incorporate demand and time of use rates

c alculated based on hourly electricity consumption. No change in approach.

Energy Price Trends Forecasted using the April 2009 update to Annual Energy Outlook 2009 ( AEO2009)

. Forecasts updated using AEO2010 f orecasts at the Census division level.

Repair and Maintenance Costs Repair and maintenance costs calculated for 3

- ton (36,000 Btu/hr) units. Varies with efficiency level of equipment. Repair costs calculated for 3

- ton (36,000 Btu/hr) units. Varies with efficiency level and size of equipment (2

- ton, 3

- ton, or 5

- ton). Preventative maintenance cost assumed to not vary with efficiency or size of equipment.

245Present Value of Operating Cost Savings Product Lifetime Estimated using survey results from RECS (1990, 1993, 1997, 2001, 2005) and the U.S. Census American Housing Survey (2005, 2007), along with historic data on appliance shipments. Variability: characterized using Weibull probability distributions. No change.

Discount Rates Approach involves identifying all possible debt or asset classes t hat might be used to purchase the considered appliances, or might be affected indirectly. Primary data source was the Federal Reserve Board’s Survey of Consumer Finances for 1989, 1992, 1995, 1998, 2001, 2004 and 2007. For commercial installations used

we ighted average cost of capital derived from Value

- Line listed firms at Damodaran Online website for 2008. No change to residential rates. Commercial discount rates updated to 2009, using Damodaran Online for January 2010 and revised values for risk

- free ra tes and market risk factor.

Compliance Date of New Standard 2016. No change.

* References for the data sources mentioned in this table are provided in the sections following the table or in chapter 8 of the direct final rule TSD.

As discussed in section IV.E, DOE is taking into account the rebound effect

associated with more-efficient residential furnaces, central air conditioners, and heat

pumps. The take-back in energy consumption associated with the rebound effect provides

consumers with increased value ( e.g. , enhanced comfort associated with a cooler or

warmer indoor environment). The net impact on consumers is the sum of the change in

the cost of owning the space-conditioning equipment ( i.e.

, life-cycle cost) and the

increased value of the more comfortable indoor environment. DOE believes that, if it

were able to monetize the increased value to consumers of the rebound effect, this value

would be similar in value to the foregone energy savings. Thus, for this standards

246rulemaking, DOE assumes that this value is equivalent to the monetary value of the

energy savings that would have occurred without the rebound effect. Therefore, the

economic impacts on consumers with or without the rebound effect, as measured in the

LCC analysis, are the same.

1. Product Cost

To calculate the consumer product cost at each considered efficiency level, DOE

multiplied the manufacturer costs developed in the engineering analysis by the supplychain markups described above (along with applicable average sales taxes). For

wholesalers and contractors, DOE used different markups for baseline products and

higher-efficiency products, because DOE applies an incremental markup to the cost

increase associated with higher-efficiency products.

During the direct final rule analysis, DOE determined that split-system coil-only

air conditioners rated at or above 15 SEER often have two stages of cooling capacity.

Realizing the full efficiency of the product would require a fan that can operate at

multiple speeds. DOE included a cost for a “multi

- speed fan kit” that could be used to

adapt the existing furnace fan for two-speed cooling operation. DOE estimated the kit

cost to the consumer at $798 on a national average basis. DOE applied this cost to half of

the split system, coil-only installations at 15 SEER, and all of the installations at 15.5

SEER.

24 7On February 22, 2011, DOE published a Notice of Data Availability (NODA, 76

FR 9696) stating that DOE may consider improving regulatory analysis by addressing

equipment price trends. Consistent with the NODA, DOE sought to apply the experience

curve approach to this rulemaking. To do so, DOE used historical shipments data

together with historical producer price indices (PPI) for unitary air conditioners and

warm-air furnace equipment. DOE recognizes the limitations of PPI as a proxy for

manufacturing costs because it represents wholesale price. 58 However, the agency

determined that even with this limitation, the use of PPI may offer some directional ly

correct information related to the experience curve approach. DOE believes that the PPI

data may indicate long-term declining real price trends for both products. Thus, DOE

used experience curve fits to develop price scaling indices to forecast product costs for

this rulemaking.

DOE also considered the public comments that were received in response to the

NODA and refined its experience curve trend forecasting estimates. Many commenters

were supportive of DOE moving from an assumption-based equipment price trend

forecasting method to a data-driven methodology for forecasting price trends. Other

commenters were skeptical that DOE could accurately forecast price trends given the

many variables and factors that can complicate both the estimation and the interpretation

of the numerical price trend results and the relationship between price and cost. DOE

evaluated these concerns and determined that retaining the assumption-based approach is

consistent when there are data gaps with the historical data for the products covered in

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

.

248this rule. As a result, DOE is presenting a range of estimates reflecting both the

assumption-based approach and the experience curve approach.

DOE also performed an initial evaluation of the possibility of other factors

complicating the estimation of the long-term price trend, and developed a range of

potential price trend values that w as consistent with the available data and justified by the

amount of data that was available to DOE at this time

. DOE recognizes that its price

trend forecasting methods are likely to be modified as more data and information

becomes available to enhance the statistical certainty of the trend estimate and the

completeness of the model. Additional data should enable an improved evaluation of the

potential impacts of more of the factors that can influence equipment price trends over

time.

To evaluate the impact of the uncertainty of the price trend estimates, DOE

performed price trend sensitivity calculations in the national impact analysis to examine

the dependence of the analysis results on different analytical assumptions. DOE also

included a constant real price trend assumption

. DOE found that for the selected standard

levels the benefits outweighed the burdens under all scenarios.

A more detailed discussion of DOE’s development of price scaling indices is

provided in appendix 8-J of the direct final rule TSD.

249 Comment [A8]: Change recommended by OIRA.2. Installation Cost

Installation cost includes labor, overhead, and any miscellaneous materials and

parts needed to install the equipment.

a. Central Air Conditioners and Heat Pumps

In its central air conditioners and heat pumps preliminary analysis, DOE

calculated average installation costs for each class of equipment based on installation

costs found in RS Means

. 59 In the preliminary analysis, installation costs were assumed

constant across efficiency levels, based on reported practices of installers in a limited

telephone survey.

Commenting on the above approach, Carrier suggested that DOE further explore

the variation in installation costs by efficiency level, because when an installation project

changes from one-man to a two-man job because of the size of the unit, this change will

impact contractor installation costs. (CAC: Carrier, Public Meeting Transcript at p. 140)

For the direct final rule analysis, DOE conducted some additional interviews with

mechanical contractor/installers and learned that while some contractors use one-man

crews for SEER 13 installations, generally two-man crews are dispatched. If extra labor

is required beyond a two-man crew to move heavy components, additional laborers are

brought to the site for the few minutes they are needed, resulting in minimal (less than

$15) labor cost increase. Further, installation contractors reported that while installation

costs vary due to specific differences among installation sites, they do not generally vary

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

250by efficiency level. Larger equipment is needed to move some of the larger 5-ton units,

but investments in such equipment generally have been made already. Installation labor

costs differ by less than 20 percent between 2-ton or 3-ton units and the larger 5

– ton

units. The primary reason for the difference in installation cost is not related to the greater

weight of 5-ton systems, but rather to the greater effort required to install larger duct

systems and longer refrigeration line sets, which are not within the scope of the

rulemaking. Therefore, DOE concluded that installation cost for central air conditioners

and heat pumps generally does not increase with the efficiency or the size of equipment,

so it retained the approach used in the preliminary analysis. DOE did include additional

installation costs of $161 for the multi-speed fan kit used for split system coil-only air

conditioners with ratings at 15 SEER and above.

b. Furnaces

In the furnaces RAP, DOE stated that it will: (1) estimate installation costs at each

considered efficiency level using a variety of sources, including RS Means , manufacturer

literature, and information from expert consultants; (2) account for regional differences in

labor costs; and (3) estimate specific installation costs for each sample household based

on building characteristics set forth in the 2005 RECS.

DOE received a number of comments concerning installation costs when a noncondensing furnace is replaced with a condensing furnace. AGA and APGA stated that

DOE should consider important differences in classes of consumers, particularly northern

consumers having to replace a non-condensing furnace with a condensing furnace. (FUR:

251AGA, No.1.3.010 at p. 4; APGA, No.1.3.004 at p. 4) APGA and NPGA stated that DOE

must consider venting issues and other considerations unique to the replacement market.

(FUR: APGA, No.1.3.004 at p. 4; NPGA, No.1.3.005 at p. 3)

Several parties provided comments regarding the need for venting system

modification when replacing a non-condensing furnace with a condensing gas furnace.

Several comments referred to the venting considerations when installation of a

condensing furnace no longer permits common venting with the pre-existing gas water

heater. Ingersoll Rand stated that when a non-condensing furnace is replaced with a

condensing furnace, the rework of gas appliance venting will add considerable cost;

according to the commenter, it will have to include the cost of a dedicated vent for the

condensing furnace, plus reworking the venting for a water heater, which was most likely

on a common vent that will now be too large for the water heater. (FUR: Ingersoll Rand,

No. 1.3.006 at p. 12) AGA, APGA, and NPGA made similar comments. (FUR: AGA,

No. 1.3.010 at pp. 3 - 4; AGA, No. 1.2.006 at p. 41; APGA, No. 1.3.004 at p. 4; NPGA,

No. 1.3.005 at p. 3) AGA added that DOE must also consider consumer and installer

behaviors that favor inadequate venting system attention aimed at reducing installation

costs; AGA cautioned that such practices may represent code violations, as well as threats

to consumer safety from carbon monoxide poisoning, due to improper venting or venting

system failure. (FUR: AGA, No. 1.3.010 at p. 3) HARDI stated that there are significant

portions of existing gas furnace installations that could not use a condensing furnace

without performing major renovations to the building. (FUR: HARDI, No. 1.3.016 at p.

3) ACCA stated that in a recent ACCA member survey, a majority of respondents said

252that 15-30 percent of furnace retrofits in the north would only accommodate noncondensing furnaces due to vent path issues or concerns about freezing condensate.

(FUR: ACCA, No. 1.3.007 at pp. 3

– 4)

In contrast to some of the above comments, AHRI and Rheem stated that the

venting issues resulting from the “orphaned” gas water heater can be resolved through

power venting and new venting systems. (FUR: AHRI, No. 1.3.008 at p. 4; Rheem,

No.1.3.022 at p. 4)

In response to these comments, for the direct final rule analysis, DOE conducted a

detailed analysis of installation costs when a non-condensing gas furnace is replaced with

a condensing gas furnace, with particular attention to venting issues in replacement

applications. DOE gave separate consideration to the cost of installing a condensing gas

furnace in new homes. As part of its analysis, DOE used information in the 2005 RECS

to estimate the location of the furnace in each of the sample homes.

First, DOE estimated basic installation costs that are applicable to both

replacement and new home applications. These costs, which apply to both condensing

and non-condensing gas furnaces, include putting in place and setting up the furnace, gas

piping, ductwork, electrical hookup, permit and removal/disposal fees, and where

applicable, additional labor hours for an attic installation.

253For replacement applications, DOE then included a number of additional costs

(“adders”) for a fraction of the sample households. For non -condensing gas furnaces,

these additional costs included updating flue vent connectors, vent resizing, and chimney

relining. For condensing gas furnaces, DOE included new adders for flue venting (PVC),

combustion air venting (PVC), concealing vent pipes, addressing an orphaned water

heater (by updating flue vent connectors, vent resizing, or chimney relining), and

condensate removal. Freeze protection is accounted for in the cost of condensate removal.

Table IV

. 12 shows the fraction of installations impacted and the average cost for each of

the adders. The estimate of the fraction of installations impacted was based on the

furnace location (primarily derived from information in the 2005 RECS) and a number of

other sources that are described in chapter 8 of the direct final rule TSD. The costs were

based on 2010 RS Means . Chapter 8 of the direct final rule TSD describes in detail how

DOE estimated the cost for each installation item.

Table IV

. 12 Additional Installation Costs for Non-Weatherized Gas Furnaces in Replacement Applications

Installation Cost Adder Replacement Installations Impacted Average Cost ( 2009$)

Non

- Condensing Furnaces Updating Flue Vent Connectors 7% $211

Vent Resizing 1% $591 Chimney Relining 16% $591

Condensing Furnaces New Flue Venting (PVC) 100% $308 Combustion Air Venting (PVC) 60% $301

Concealing Vent Pipes 5% $290 Orphaned Water Heater 24% $447 Condensate Removal 100% $49

254DOE also included installation adders for fractions of new home applications. For

non -condensing gas furnaces, a new flue vent (metal) is the only adder. For condensing

gas furnaces, the adders include new flue venting (PVC), combustion air venting (PVC),

accounting for a commonly-vented water heater, and condensate items. Table IV

. 13

shows the estimated fraction of new home installations impacted and the average cost for

each of the adders. For details, see chapter 8 of the direct final rule TSD.

Table IV

. 13 Additional Installation Costs for Non-Weatherized Gas Furnaces in New Home Applications

Installati on Cost Adder New Construction Installations Impacted Average Cost (2009$)

Non

- Condensing Furnaces New Flue Vent (Metal) 100% $818

Condensing Furnaces New Flue Venting (PVC) 100% $249 Combustion Air Venting (PVC) 60% $240

Accounting for Commonly Vented WH 50% $402

Condensate Removal 100% $7

Several parties provided comments regarding special considerations for installing

condensing gas furnaces in manufactured homes. AGA, AGPA, and NPGA stated that

replacement installation costs need to consider either: (1) freeze protection from

condensate in the furnace as well as in the condensate handling system; or (2) altering the

closet insulation system to put the furnace within the thermal boundary of the

255manufactured home. (FUR: AGA, No. 1.3.010 at p. 5; APGA, No. 1.3.004 at p. 4;

NPGA, No. 1.3.005 at p. 4) ACEEE stated that furnace manufacturers signed the

consensus agreement and, therefore, foresaw no problems with use of their condensing

products in manufactured housing. ACEEE added that applicable codes require that

furnaces in manufactured housing be installed in separate cabinets with outdoor air

supply, which makes retrofitting with a condensing furnace relatively easy. (FUR:

ACEEE, No. 1.3.009 at p. 8)

For the direct final rule analysis, DOE included basic installation costs for

manufactured home gas furnaces similar to those described above for non-weatherized

gas furnaces. DOE also included costs for venting and condensate removal. Freeze

protection is accounted for in the cost of condensate removal. In addition, DOE

considered the cost of dealing with space constraints that could be encountered when a

condensing furnace is installed.

For oil-fired furnaces, DOE included basic installation costs similar to those

described above for non-weatherized gas furnaces. DOE also included costs for venting

(including stainless steel vent for some installations at 83-85 percent AFUE) and

condensate removal. In addition, DOE assumed that condensing furnaces require two

additional labor hours to tune up the combustion system. For further details on

insta llation costs for both manufactured home gas furnaces and oil-fired furnaces, see

chapter 8 of the direct final rule TSD.

2563. Annual Energy Consumption

For each sample household, DOE determined the energy consumption for a

furnace, central air conditioner, or heat pump at different efficiency levels using the

approach described above in section IV.E.

4. Energy Prices

In its central air conditioners and heat pumps preliminary analysis, DOE

developed marginal electricity prices to express the value of electricity cost savings from

more-efficient central air conditioners and heat pumps. The marginal electricity price for

a given consumer is the cost of the next increment of electricity use on his or her utility

bill, and is the correct estimate of the value of savings that a consumer would see in the

real world.

DOE developed residential marginal electricity prices from tariffs collected in

2008 from a representative sample of electric utilities throughout the United States. DOE

collected data for over 150 residential tariffs from a sample of about 90 electric utilities.

As described earlier, DOE developed samples of households using central air

conditioners and heat pumps from the 2005 RECS. The location of each household can

be identified within broad geographic regions ( e.g. , Census Divisions). DOE developed a

weighted-average marginal electricity price for each household from all the possible

utility tariffs that could be assigned to that household. DOE also developed commercial

marginal electricity prices from tariffs for those commercial building applications that

use residential central air conditioners and heat pumps. As with the residential household

257sample, DOE developed a weighted-average marginal electricity price for each

commercial building from the utility tariffs that could possibly be assigned to that

building. For further details, see chapter 8 of the direct final rule TSD.

Commenting on the central air conditioners and heat pumps preliminary TSD, the

Joint Comment stated that the current impact analysis does not account for timedependent valuation (TDV) of electricity, 60 which is expected to change significantly by

2015 due to smart grid technology. (CAC: CA IOUs, No. 69 at p. 5) PG&E stated that

time- of -use (TOU) tariffs are going to be present and important with respect to the impact

of the standards on these products. (CAC: PG&E, Public Meeting Transcript at p. 113)

In response, DOE determined in its preliminary analysis that many utilities in the

U.S. offer optional time- of -use (TOU) tariffs that generally charge consumers more for

electricity during peak periods, when it presumably costs the utility more to provide

electrical service, in exchange for lower rates at other times. To determine the effect of

TOU pricing structures on residential consumers, DOE collected data on TOU tariffs for

those utilities in its sample that offered optional TOU tariffs. DOE found that

approximately 50 percent of customers in the sample were offered TOU tariffs. Coupling

hourly energy savings derived from typical residential household and central air

conditioner/heat pump load profiles with TOU tariffs, DOE was able to derive TOUbased marginal electricity prices. These data show that, currently, there is no significant

difference (on average less than 2 percent) between TOU and default tariffs for the

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

258electricity costs used in the LCC and PBP analysis.

The consensus agreement includes EER standards in addition to SEER

requirements in the hot-dry region for split-system and single-package central air

conditioners. Efficiency requirements that would improve the EER of a ce ntral air

conditioner in the hot-dry region are believed to improve the performance of the

equipment at peak conditions when the equipment is operating at its full capacity.

Because the TOU tariffs in hot-dry climates are likely to yield higher electricity prices

during peak conditions, DOE placed renewed focus on deriving TOU-based marginal

prices for the hot-dry region. DOE also investigated the impact of TDV of electricity in

the hot-dry region, given that the most populous State in the region (California) has used

TDV of electricity to evaluate efficiency measures in updates to its building code

standards. TOU-based and TDV-based marginal prices are not significantly different

from the marginal prices derived from default tariffs. Therefore, DOE determined that

they would not have a significant effect on the economic justification of more-stringent

efficiency standards. Appendix 8-D of the direct final rule TSD describes the analysis

that compares marginal prices developed from TOU tariffs and TDV of electricity with

marginal prices developed from non-TOU tariffs.

For commercial-sector prices, the existing tariff structures that DOE has used in it

analysis of electricity prices already account for the effect that an end use, such as central

air conditioning, has on marginal electricity prices. Because utilities bill their commercial

customers with demand charges ( i.e ., charges on power demand expressed in $/kW) in

259addition to energy charges, the resulting marginal prices reflect the contribution that air

conditioning has on peak demand.

In the furnaces RAP, DOE stated that it will derive average monthly energy prices

using recent EIA data for each of 13 geographic areas, consisting of the nine U.S. Census

divisions, with four large States (New York, Florida, Texas, and California) treated

separately, to establish appropriate energy prices for each sample household. It added that

in contrast to the situation with residential air conditioner and heat pumps, for which the

appliance’s load primarily occurs during utility peak periods during the summer,

electricity consumption of furnaces is not concentrated during peak periods, so DOE did

not see a compelling reason to use marginal electricity prices.

Commenting on the furnaces RAP, Ingersoll Rand stated that DOE’s intention to

use average, not marginal, energy prices for the furnace LCC analysis is reasonable and

avoids much unnecessary complexity. Ingersoll Rand further stated that, to improv e
accuracy, DOE should use State-level energy prices rather than prices determined

according to Census division. (FUR: Ingersoll Rand, No. 1.3.006 at p. 11) In response,

DOE agrees that average energy prices are appropriate for the furnace LCC analysis fo r
the reason described above. DOE does not use State-level energy prices in its analyses,

because the location of each sample household in the 2005 RECS dataset can be

identified only within broad geographic regions. Thus, it would not be possible to make

use of State-level energy prices in the LCC and PBP analysis. Accordingly, for the direct

final rule analysis of furnaces, DOE derived average energy prices for the 13 geographic

260areas mentioned above. For Census divisions containing one of these large States, DOE

calculated the regional average excluding the data for the large State.

DOE calculated average residential electricity prices for each of the 13

geographic areas using data from EIA’s Form EIA

- 861 Database (based on “Annual

Electric Power Indu stry Report”). 61 DOE calculated an average annual regional

residential price by: (1) estimating an average residential price for each utility (by

dividing the residential revenues by residential kilowatt-hour sales); and (2) weighting

each utility by the number of residential consumers it served in that region. The direct

final rule analysis used the data available for 2008.

DOE calculated average residential natural gas prices for each of the 13

geographic areas using data from EIA’s “Natural Gas Monthly.” 62 DOE calculated

average annual regional residential prices by: (1) estimating an average residential price

for each State; and (2) weighting each State by the number of residential consumers. The

direct final rule analysis used the data for 2009.

DOE estimated average residential liquefied petroleum gas (LPG) and oil prices

for each of the 13 geographic areas based on data from EIA’s State Energy Data System

(SEDS) 2008. 63

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

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

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

261For each of the above energy forms, DOE disaggregated the annual energy prices

into monthly prices using factors that relate historical prices for each month to the

average annual prices.

5. Energy Price Projections

To estimate energy prices in future years for the central air conditioners and heat

pumps preliminary TSD, DOE multiplied the average marginal electricity prices in each

of the 13 geographic areas by the forecast of annual average residential or commercial

electricity price changes in the Reference Case 64 derived from AEO2009 . In the furnaces

RAP, DOE stated its intention to use projections of national average natural gas, LPG,

electricity, and fuel oil prices for residential consumers to estimate future energy prices,

and to use the most recent available edition of the AEO

.

Commenting on the furnaces RAP, Ingersoll Rand stated that using nationalaverage price changes to forecast future energy prices may distort the regional results.

(FUR: Ingersoll Rand, No. 1.3.006 at p. 9) In response, DOE agrees that using regional

energy price forecasts is appropriate for the analysis in t his rulemaking. For today’s rule,

for central air conditioners and heat pumps as well as furnaces, DOE developed

electricity price forecasts for the considered geographic areas using the forecasts by

Census division for residential and commercial heating and cooling end uses from

AEO2010. To estimate the electricity price trend after 2035 (the end year in AEO2010

projections) and through 2060, DOE assumed that prices would rise at the average annual

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

262rate of change from 2020 to 2035 forecasted in AEO2010 . To estimate the trends in

natural gas, LPG, and fuel oil prices after 2035 and through 2060, DOE assumed that

prices would rise at the average annual rate of change from 2020 to 2035 forecasted in

AEO2010 . DOE intends to update its energy price forecasts for the final rule based on

the latest available AEO

.

6. Maintenance and Repair Costs

Repair costs are associated with repairing or replacing components that have

failed in the appliance, whereas maintenance costs are associated with maintaining the

proper operation of the equipment.

a. Central Air Conditioners and Heat Pumps

In its central air conditioners and heat pumps preliminary analysis, DOE used RS

Means and industry literature to obtain estimates of average repair costs and preventative

maintenance costs. Both costs were scaled proportionately with equipment price for

higher-efficiency equipment. DOE did not receive any significant comments on its

procedure or findings. However, after further review, DOE determined that the actual

functions carried out as part of annual preventative maintenance (such as coil cleaning or

checking of system pressures) are tasks that are not affected by the cost of the equipment

and, thus, would not be more expensive as efficiency increased. Therefore, for the direct

final rule, maintenance costs were held constant as efficiency increased.

263b. Furnaces

In the furnaces RAP, DOE stated that it will: (1) estimate maintenance and repair

costs at each considered efficiency level using a variety of sources, including RS Means

, manufacturer literature, and information from expert consultants; and (2) account for

regional differences in labor costs. DOE did not receive any significant comments on this

topic.

For the direct final rule, DOE estimated costs for annual maintenance using data

from a proprietary consumer survey 65 on the frequency with which owners of different

types of furnaces perform maintenance. For condensing oil furnaces, the high quantity of

sulfur in the fuel results in frequent cleaning of the secondary heat exchanger, and DOE

accounted for this cost.

DOE estimated that about three percent of furnaces are repaired annually based on

Consumer Reports data on frequency of repair for gas furnaces installed between 2000

and 2006. 66 DOE assumed that an average repair has a parts cost equivalent to one-fourth

of the equipment cost, marked up by a factor of two, and requires 1.5 hours of labor.

7. Product Lifetime

In the central air conditioners and heat pumps preliminary analysis, DOE

conducted an analysis of actual product lifetime in the field using a combination of

65 Decision Analysts, "2008 American Home Comfort Study" (2009).
66 Consumer Reports, "Brand Repair History: Gas furnaces" (Jan. 2008) (Available at:http://www.consumerreports.org/cro/appliances/heating-cooling-and-air/gas-furnaces/furnaces-repairhistory-205/overview/index.htm ).

264shipments data, responses in RECS on the age of household central air conditioner and

heat pump pr oducts, and total installed stock data in the U.S. Census’ s American Housing

Survey (AHS). 67 DOE used RECS data from surveys conducted in 1990, 1993, 1997,

2001, and 2005. DOE used AHS data from surveys conducted every other year from

1991 to 2007. By combining the results of RECS and AHS with the known history of

appliance shipments, DOE estimated the percentage of central air conditioner and heat

pump products of a given age still in operation. This analysis yielded distributions with a

mean life of 19 years for central air conditioners and 16.3 years for heat pumps.

Commenting on the central air conditioners and heat pumps preliminary TSD,

Southern stated that the impact of the hydrochlorofluorocarbon (HCFC) R22 refrigerant

phase-out on equipment lifetimes needs to be considered. (CAC: SCS, No. 73 at p. 4)

By way of background, effective January 1, 2010, the Montreal Protocol requires the U.S.

to reduce its consumption of HCFCs by 75 percent below the U.S. baseline cap. As of

January 1, 2010, HVAC system manufacturers may only produce or import HCFC-22 to

service existing equipment. Virgin HCFC-22 may not be used in new equipment. As a

result, HVAC system manufacturers may not produce new air conditioners and heat

pumps containing HCFC-22. The timeline for the phase-out of HCFC-22 in new

equipment has been known since the mid-1990s. Since that time, the industry has

sponsored considerable research into the development of refrigerant alternatives with

zero ozone depletion potential, and they eventually settled on R-410a as a replacement.

Manufacturers have been producing products that utilize R-410a for the past decade in

anticipation of the 2010 phase-out date. DOE concluded that given the lead time

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

.

265accorded to the industry, and the fact that these products are widely distributed in the

market, products manufactured with R-410a provide the same level of utility and

performance, including product lifetime, as equipment utilizing HCFC- 22.

In the furnaces RAP, DOE stated its intention to use an approach based on an

analysis of furnace lifetimes in the field using a combination of shipments data, the stock

of furnaces, RECS data on the age of the furnaces in the surveyed homes, and AHS data

on the total installed furnace stock. The same survey years were utilized to determine

furnace lifetimes as were used for central air conditioners and heat pumps. Commenting

on the furnaces RAP, Ingersoll Rand requested that DOE review and refine its lifetime

estimate for gas furnaces, because the often-cited 18-year to 20-year lifetime may be

unrealistically long. Instead, Ingersoll Rand stated that the mean population life

expectancy for furnaces is probably in the range of 15-20 years. (FUR: Ingersoll Rand,

No. 1.3.006 at pp. 8 & 10)

For the direct final rule analysis, DOE derived probability distributions ranging

from minimum to maximum lifetime for the products considered in this rulemaking. For

central air conditioners and heat pumps, DOE used the same approach as it did in the

preliminary analysis. For furnaces, it used the approach described in the RAP. The mean

lifetimes estimated for the direct final rule are 23.6 years for non-weatherized gas

furnaces, 18.7 years for mobile home gas furnaces, and 29.7 years for oil-fired furnaces.

Regarding the comment by Ingersoll Rand, DOE believes that the method DOE used is

reasonable because it relies on data from the field on furnace lifetimes. DOE was not able

266to substantiate the validity of the life expectancy mentioned by Ingersoll Rand, because

the commenter did not provide any corroborating data in its comment.

Chapter 8 of the direct final rule TSD provides further details on the methodology

and sources DOE used to develop product lifetimes.

8. Discount Rates

In the calculation of LCC, DOE applies discount rates to estimate the present

value of future operating costs.

In its central air conditioners and heat pumps preliminary analysis, to establish

consumer (residential) discount rates for the LCC analysis, DOE identified all debt or

asset classes that might be used to purchase major appliances or that might be affected

indirectly. It estimated the average percentage shares of the various debt or asset classes

for the average U.S. household using data from the Federal Reserve Board’s Survey of

Consumer Finances (SCF) for a number of years. 68 Using the SCF and other sources,

DOE then developed a distribution of rates for each type of debt and asset to represent the

rates that may apply in the year in which amended standards would take effect. For the

purchase of products for new homes, which are included in the sales price of the home,

DOE uses finance costs based on a distribution of mortgage rates. DOE assigned each

sample household a specific discount rate drawn from the distributions.

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

267In the central air conditioners and heat pumps preliminary analysis, DOE

developed commercial discount rates based on the weighted average cost of capital

(WACC) calculated for commercial businesses expected to occupy small commercial

buildings. For the commercial cost of capital data, DOE relied on financial data found in

the Damodaran Online website as of January 2009 (since updated to January 2010). In

the furnaces RAP, DOE stated its intention to use the same approach for furnaces as it

used in the central air conditioners and heat pumps preliminary analysis.

DOE did not receive any significant comments on consumer discount rates.

Therefore, for the direct final rule, DOE used the same approach as it used in the central

air conditioners and heat pumps preliminary analysis, with minor modifications to the

estimation of risk-free rates and risk premiums that are needed to calculate WACC. See

chapter 8 in the direct final rule TSD for further details on the development of discount

rates for the LCC analysis.

9. Compliance Date of Amended Standards

In the context of EPCA, the compliance date is the future date when parties

subject to a new or amended standard must meet its applicable requirements. DOE

calculates the LCC and PBP for each of the considered efficiency levels as if consumers

would purchase new products in the year compliance with the standard is required.

For the reasons discussed in section III.C, DOE determined that for all TSLs

analyzed – except for the consensus agreement TSL – DOE is bound to calculate

268compliance dates in accordance with EPCA. For those TSLs, the analysis accounts for a

five-year lead time between the publication of the final rule for furnaces and central air

conditioners and heat pumps and the date by which manufacturers must comply with the

amended standard.

A final rule for the products that are the subject of this rulemaking is scheduled to

be completed by June 30, 2011. Thus, for most of the TSLs analyzed, compliance with

amended standards for furnaces and central air conditioners and heat pumps would be

required in 2016. Accordingly, for purposes of the LCC and PBP analysis, DOE used

2016 as the year compliance with the amended standards is required.

10. Base-Case Efficiency Distribution

To accurately estimate the share of consumers that would be affected by a

standard at a particular efficiency level, DOE estimates the distribution of product

efficiencies that consumers would purchase under the base case ( i.e. , the case without

new or amended energy efficiency standards) in the year compliance with the standard is

required. DOE refers to this distribution of product efficiencies as a base-case efficiency

distribution. DOE develops base-case efficiency distributions for each of the considered

product classes.

a. Energy Efficiency

In the central air conditioners and heat pumps preliminary analysis, DOE assumed

that the base-case efficiency distributions in 2016 would be the same as in 2008.

269Southern commented that it is not reasonable to assume efficiencies are going to stay

frozen from 2008 to 2016, as there has been a huge increase in utility incentive programs

for higher-efficiency units. Southern stated that there will be some increase in the

shipment-weighted efficiency between 2008 and 2016. (CAC: SCS, Public Meeting

Transcript at p. 196) HARDI commented that DOE must incorporate the role that energy

efficiency incentive programs play in the sale and installation of higher-efficiency units.

(CAC: HARDI, No. 70 at p. 1)

In the furnaces RAP, DOE stated that its development of base-case efficiency

distributions will use available data on recent market trends in furnace efficiency and will

take into account the potential impacts of the ENERGY STAR program and other

policies that may affect the demand for more-efficient furnaces. Commenting on the

furnaces RAP, several parties stated that DOE should consider the extent to which

incentives and other market forces are expanding the market for high-efficiency furnaces

even without new standards. (FUR: AGA, No. 1.3.010 at p. 2 & pp. 5

– 6; APGA, No.

1.3.004 at p. 4; and HARDI, No. 1.2.006 at pp. 168

– 70)

For the direct final rule analysis, DOE considered incentives and other market

forces that have increased the sales of high-efficiency furnaces and central air

conditioners and heat pumps to estimate base-case efficiency distributions for the

considered products. DOE started with data provided by AHRI on historical shipments

for each product class. For non-weatherized gas furnaces, the historical shipments data

were further specified by region and type of furnace ( i.e. , non-condensing or condensing).

270DOE then used data on the distribution of models in AHRI’s Directory of Certified

Product Performance: Furnaces (October 2010) 69 to disaggregate shipments among

condensing efficiency levels for 2009. For central air conditioners and heat pumps, the

historical shipments data were accompanied with annual shipment-weighted efficiency

data by product class. DOE then used data from the Air-Conditioning, Heating, and

Refrigeration (ACHR) News 70 to disaggregate shipments among efficiency levels for

2008.

DOE forecasted the non-weatherized gas furnace and central air conditioner and

heat pump efficiency distributions to 2011 based on the average growth in efficiency

from 2006 to 200 9. The historical efficiency data from AHRI indicate a rapid growth in

average equipment efficiency, based in large part on the availability of Federal tax credits

for the purchase of high-efficiency products. The Federal tax credits expire on December

31, 2011

. After the expiration, DOE believes that the demand for high-efficiency

products is likely to decline somewhat initially, but it assumed that the average efficiency

will then increase at the historic rate seen in the decade prior to availability of the Federal

tax credits . For further information on DOE’s estimation of the base-case efficiency

distributions for non -weatherized gas furnaces and central air conditioners and heat

pumps, see chapter 8 of the direct final rule TSD.

Table IV

. 14 shows the estimated base-case efficiency distributions in 2016 for

non -weatherized gas furnaces. Table IV

. 15 shows the estimated base-case efficiency

69 See: http://www.ahridirectory.org/

. 70 ACHR News, “Higher SEERs got popular” (Dec. 24, 2007) (Available at: http://www.achrnews.com/Articles/Web_Exclusive/BNP_GUID_9-5-2006_A_10000000000000222513 ).

271distributions in 2016 for the four primary central air conditioner and heat pump product

classes. DOE was unable to develop unique efficiency distributions by region, as data

were not provided by AHRI on a regional basis. Therefore, DOE assumed that the

efficiency distributions are the same in each region.

Table IV

. 14 Base-Case Efficiency Distribution in 2016 for Non-Weatherized Gas Furnaces Efficiency North South National

AFUE Market share in percent

80% 29.1 75.6 48.1 90% 13.7 4.7 10.0 92% 33.6 11.6 24.6 95% 23.0 7.9 16.9 98% 0.6 0.2 0.4

Table IV

. 15 Base-Case Efficiency Distribution in 2016 for Central Air Conditioners and Heat Pumps Efficiency Split CAC Split HP Single

Package CAC Single

Package HP SEER Market share in percent

13.0 24.0 13.0 62.7 32.1 13.5 47.0 40.0 20.0 32.0 14.0 4.0 10.0 14.3 28.9 14.5 7.3 13.0 2.0 5.0 15.0 5.8 11.5 1.0 2.0 15.5 2.0 3.5 0.0 0.0 16.0 7.0 5.0 0.0 0.0 16.5 0.5 2.0 0.0 0.0 17.0 1.0 1.5 0.0 0.0 18.0 0.7 0.5 0.0 0.0 19.0 0.3 0.0 0.0 0.0 20.0 0.2 0.0 0.0 0.0 21.0 0.2 0.0 0.0 0.0 22.0 0.1 0.0 0.0 0.0

272For mobile home gas furnaces and oil-fired furnaces, DOE used data in the AHRI

furnace models directory and manufacturer input to estimate current efficiency

distributions. Because there is little indication of a trend in efficiency for these products,

DOE assumed that the efficiency distributions in 2016 will be the same as in the current

market (see Table IV

. 16 ).

Table IV

. 16 Base-Case Efficiency Distribution in 2016 for Mobile Home Gas Furnaces and Oil-Fired Furnaces Mobile Home Furnaces Oil

- fired Furnaces Efficiency National Efficiency National

AFUE Market share in percent AFUE Market share in percent 80% 90 82% 42 90% 2 83% 20 92% 4 84% 6 96% 4 85% 32 97% 1

b. Standby Mode and Off Mode Power

DOE also estimated base-case efficiency distributions for furnace standby mode

and off mode power. As discussed in section IV.C.7.c, DOE considered efficiency levels

only for furnaces with ECM motors. Baseline products contain the highest energyconsuming components, which include an ECM blower motor (rather than a PSC).

Although DOE’s test results for furnaces showed that the standby mode and off mode

consumption could be reduced by eliminating certain features ( e.g. , replacing an ECM

blower motor with a PSC motor), DOE did not consider these reductions because the

elimination of such features and components would result in a reduction of consumer

utility. (The ECM motor maintains constant airflow volume and is suited for two-speed

273equipment, which allows the consumer to maintain better comfort.) In its analysis, DOE

only considered efficiency levels that could be implemented with no noticeable impacts

on the performance and utility of the unit. As shown in Table IV

. 17 through Table IV

. 19

,

DOE estimated that all of the affected market would be at the baseline level in 2016.

Table IV

. 17 Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Non-Weatherized Gas Furnaces and Electric Furnaces Efficiency

Level Motor Type Standby/Off

- Mode Watts Market Share in percent* Baseline ECM 11.0 100 1 ECM 9.8 0 2 ECM 9.0 0 * Refers to share of furnaces with ECM motor.

Table IV

. 18 Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Oil-Fired Furnaces Efficiency

Level Motor Type Standby/Off

- Mode Watts Market Share in percent* Baseline ECM 12.0 100 1 ECM 10.8 0 2 ECM 10.0 0 * Refers to share of furnaces with ECM motor.

Table IV

. 19 Standby Mode and Off Mode Base-Case Efficiency Distribution in 2016 for Mobile Home Gas Furnaces Efficiency

Level Motor Type Standby/Off

- Mode Watts Market Share in percent* Baseline ECM 11.0 100 1 ECM 9.8 0 2 ECM 9.0 0 * Refers to share of furnaces with ECM motor.

DOE also estimated base-case efficiency distributions for central air conditioner

and heat pump off mode power. As discussed in section IV.C.7.c, DOE considered

efficiency levels only for air conditioning and heat pump equipment with crankcase

heaters. DOE found that crankcase heaters account for the vast majority of off mode

274power consumption for air conditioners and heat pumps. However, not every unit has a

crankcase heater and, to accurately reflect this in the analyses, DOE determined separate

efficiency levels within each product class for units with and without a crankcase heater.

Although DOE’s test results for central air conditioners and heat pumps showed that the

standby mode and off mode consumption could be reduced eliminating certain features

(such as the crankcase heater), DOE did not consider such measures because the

elimination of the features and components would result in a reduction of consumer

utility. 71 In its analysis, DOE only considered designs that could be implemented with no

noticeable impacts on the performance and utility of the unit.

As shown in Table IV

. 20 , for split-system air conditioners, DOE estimated that 60

percent of the affected market would be at the baseline level, 30 percent at efficiency

level 1, and 10 percent at efficiency level 2 in 2016. Because off mode power

consumption is a function of system type ( i.e. , blower-coil or coil-only), the market share

is further disaggregated by system type for each efficiency level. As a result of this

further disaggregation, two different off mode power consumption levels are reported at

each efficiency level.

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

275Table IV

. 20 Off Mode Base-Case Efficiency Distribution in 2016 for Split-System Central Air Conditioners

Efficiency

Level AC Type Off

- Mode Watts Market Share of Affected Market in percent*

by Efficiency Level by Efficiency Level and AC Type

Baseline Blower

- Coil 48 60 6 Coil

- Only 40 54

1 Blower

- Coil 36 30 1 Coil

- Only 28 9

2 Blower

- Coil 30 10 3 Coil

- Only 22 27

3 Blower

- Coil 29 0 0 Coil

- Only NA 0 * Refers to share of air conditioners with crankcase heaters.

As shown in Table IV

. 21 , for single-package air conditioners, DOE estimated that

60 percent of the affected market would be at the baseline level, 30 percent at efficiency

level 1, and 10 percent at efficiency level 2 in 2016. For split-system and single-package

heat pumps (Table IV

. 22 ), DOE estimated that 50 percent of the affected market would

be at the baseline level and 50 percent at efficiency level 1 in 2016. The off mode power

consumption levels associated with ECM-equipped systems set the wattage limitations

for each of the efficiency levels considered. Of further note, in the case of efficiency level

3 for single-package air conditioners and efficiency level 2 for heat pumps, only the

fraction of the market equipped with ECMs is impacted. Single-package air conditioners

with PSC motors that comply with the off mode power requirements in efficiency level 2

already meet the requirements in efficiency level 3. For heat pumps, units with PSC

motors that comply with the off mode power requirements in efficiency level 1 already

meet the requirements in efficiency level 2.

276Table IV

. 21 Off Mode Base-Case Efficiency Distribution in 2016 for Single-Package Central Air Conditioners

Efficiency Level Off

- Mode Watts Market Share of Affected Market in percent* Baseline 48 60 1 36 30 2 30 10 3** 29 0 * Refers to fraction of central air conditioners with crankcase heaters. ** Impacts only that fraction of the market with ECMs; market with PSC motors meeting efficiency level 2 already meet efficiency level 3 off mode power requirements.

Table IV

. 22 Off Mode Base-Case Efficiency Distribution in 2016 for Split-System and Single-Package Heat Pumps

Efficiency Level Off

- Mode Watts Market Share of Affected Market in percent* Baseline 50 50 1 33 50 2** 32 0 * Refers to fraction of heat pumps with crankcase heaters. ** Impacts only that fraction of the market with ECMs; market with PSC motors meeting efficiency level 1 already meet efficiency level 2 off mode power requirements.

For further information on DOE ’s estimate of base -case efficiency distributions

, see chapter 8 of the direct final rule TSD.

11. Inputs to Payback Period Analysis

The payback period is the amount of time it takes the consumer to recover the

additional installed cost of more-efficient products, compared to baseline products,

through energy cost savings. The simple payback period does not account for changes in

operating expense over time or the time value of money. Payback periods are expressed

in years. Payback periods that exceed the life of the product mean that the increase in

total installed cost is not recovered in reduced operating expenses.

277The inputs to the PBP calculation are the total installed cost of the equipment to

the customer for each efficiency level and the average annual operating expenditures for

each efficiency level. The PBP calculation uses the same inputs as the LCC analysis,

except that disc ount rates are not needed. The results of DOE’s PBP analysis are

presented in section V.B.1.

12. Rebuttable Presumption Payback Period

As noted above, EPCA, as amended, establishes a rebuttable presumption that a

standard is economically justified if the Secretary finds that the additional cost to the

consumer of purchasing a product complying with an energy conservation standard level

will be less than three times the value of the energy (and, as applicable, water) savings

during the first year that the consumer will receive as a result of the standard, as

calculated under the test procedure in place for that standard. (42 U.S.C.

6295(o)(2)(B)(iii)) For each considered efficiency level, DOE determined the value of

the first year’s energy savings by calculati ng the quantity of those savings in accordance

with the applicable DOE test procedure, and multiplying that amount by the average

energy price forecast for the year in which compliance with the amended standard would

be required. The results of DOE’s analy sis are presented in section V.B.1.

G. National Impact Analysis

– National Energy Savings and Net Present Value

The national impact analysis (NIA) assesses the national energy savings (NES)

and the national net present value (NPV) of total consumer costs and savings that would

be expected to result from new or amended standards at specific efficiency levels.

278(“Consumer” in this context refers to users of the product being regulated.) DOE

calculates the NES and NPV based on projections of annual appliance shipments, along

with the annual energy consumption and total installed cost data from the energy use and

LCC analyses.

For most of the TSLs considered in the present analysis, DOE forecasted the

energy savings from 2016 through 2045, and it calculated product costs, operating cost

savings, and NPV of consumer benefits for products sold from 2016 through 2045. For

TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted

the energy savings from 2015 through 2045 for central air conditioners and heat pumps,

and from 2013 through 2045 for furnaces. 72 For TSL 4, it calculated product costs,

operating cost savings, and NPV of consumer benefits for products sold in these periods.

DOE evaluates the impacts of new or amended standards by comparing base-case

projections with standards-case projections. The base-case projections characterize

energy use and consumer costs for each product class in the absence of new or amended

energy conservation standards. DOE compares these projections with projections

characterizing the market for each product class if DOE adopted new or amended

standards at specific energy efficiency levels ( i.e. , the TSLs or standards cases) for that

class. For the base-case forecast, DOE considers historical trends in efficiency and

various forces that are likely to affect the mix of efficiencies over time. For the standards

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

279cases, DOE also considers how a given standard would likely affect the market shares of

products with efficiencies greater than the standard.

To make the analysis more accessible and transparent to all interested parties,

DOE makes publicly available a spreadsheet model (in Excel format) to calculate the

energy savings and the national consumer costs and savings from each TSL. The TSD

and other documentation that DOE provides during the rulemaking explain the models

and how to use them, and interested parties can review DOE’s analyses and also change

various input values within the spreadsheet. The NIA spreadsheet model uses typical

values as inputs (as opposed to probability distributions).

For the current analysis, the NIA used projections of energy prices and housing

starts from the AEO2010 Reference case. In addition, DOE analyzed scenarios that used

inputs from the AEO2010 High Economic Growth and Low Economic Growth cases.

These cases have higher and lower energy price trends compared to the Reference case,

as well as higher and lower housing starts, respectively, which result in higher and lower

appliance shipments to new homes. NIA results based on these cases are presented in

appendix 10-A of the direct final rule TSD.

Table IV

. 23 summarizes the inputs and methodology DOE used for the NIA

analysis for the central air conditioners and heat pumps preliminary analysis and the

changes to the analyses for today’s rule. For the direct final rule analysis, DOE used the

same basic methodology for furnaces as it used for central air conditioners and heat

280pumps. Discussion of these inputs and methods follows the table. See chapter 10 of the

direct final rule TSD for further details.

281Table IV

. 23 Summary of Inputs and Methods for the National Impact Analysis Inputs Preliminary TSD Changes for the Direct Final

Rule

Shipments Annual shipments from shipments model. No change.

Compliance Date of Standard 2016. * No change.

Base

- Case Forecasted Efficiencies Based on historical SWEF* * growth rates from 1992 to 2005

. No change in basic approach; modified efficiency distributions based on new information from AHRI; historical SWEF growth rates from 1993 to 2002 (CAC and HP) or 2005 (Furnaces) used to forecast efficiencies. Standards

- Ca se Forecasted Efficiencies Used a “roll

- up” scenario to establish the distribution of efficiencies in the compliance year; forecasted efficiencies based on historical SWEF growth rates from 1992 to 2005 (same as base case). Modified efficiency distributio ns based on new information. Retained “roll

- up” scenario. Forecasted efficiencies based on maintaining constant per

- unit total installed costs relative to base

case. Annual Energy Consumption per Unit Annual weighted

- average values as a function of SWEF. No change.

Total Installed Cost per Unit Annual weighted

- average values as a function of SWEF. Incorporated learning rate to forecast product prices

. Annual Energy Cost per Unit Annual weighted

- average values as a function of the annual energy consumption per unit and energy prices. No change.

Repair and Maintenance Cost per Unit Annual values as a function of efficiency level. No change.

Energy Prices AEO2009 forecasts (to 2035) and extrapolation through 2043. Updated using AEO2010 forecasts. Energy Site

- to

Source Conversion Factor Varies yearly and is generated by NEMS

- BT. No change.

Discount Rate Three and seven percent real. No change. Present Year Fut ure expenses are discounted to 2010. Future expenses are discounted to 2011, when the final rule will be published. Deleted: No change.

* The compliance date used for TSL 4 is 2013 for furnaces and 2015 for central air conditioners and heat
pumps.
* * Shipments-Weighted Energy Factor

2821. Shipments

The shipments portion of the NIA spreadsheet is a model that uses historical data

as a basis for projecting future shipments of the products that are the subjects of this

rulemaking. In DOE’s shipments models, shipments of products are driven by

replacement of the existing stock of installed products, new home or building

construction, and existing households or buildings that do not already own the product

(referred to hereafter as “new owners”). Central air conditioners and heat pumps are used

in some co mmercial buildings as well as for residen ces

. Based on industry input, DOE

estimated that 7 percent of central air conditioner and heat pump shipments are to

commercial applications, and accounted for these shipments in the shipments model.

The shipments model takes an accounting approach, tracking market shares of

each product class and the vintage of units in the existing stock. Stock accounting uses

product shipments as inputs to estimate the age distribution of in-service product stocks

for all relevant years. The age distribution of in-service product stocks is a key input to

NES and NPV calculations because operating costs for any year depend on the age

distribution of the stock. DOE used historical product shipments to assist in calibrating

the shipments model.

For the central air conditioners and heat pumps preliminary analysis, AHRI

provided historical shipments data for each of the four primary product classes

— splitsystem air conditioners, single-package air conditioners, split-system heat pumps, and

single-package heat pumps. AHRI also provided regional shipments data for each

283product class for two years

— 2008 and 2009. The limited regional shipments data, in

combination with calibration of the resulting product stock saturations to the values

specified by past RECS surveys and U.S. Census Bureau American Housing Survey

(AHS) data, allowed DOE to develop historical residential shipments disaggregated by

region. Commercial shipments were allocated regionally based on the percentage

allocations determined for residential shipments.

In the furnaces RAP, DOE stated its intention to: (1) develop base-case shipments

forecasts for each of the four Census regions that, in turn, could be aggregated to produce

regional or national forecasts; and (2) to project shipments of residential furnaces by

primarily accounting for sales to the replacement market and new homes.

For the direct final rule analysis, DOE’s base -case shipments forecasts used the

same approach for central air conditioners and heat pumps as was used in the preliminary

analysis, and used the approach described in the RAP for furnaces. For details on the

shipments analysis, see chapter 9 of the direct final rule TSD.

a. Impact of Potential Standards on Shipments

For the central air conditioners and heat pumps preliminary analysis, to estimate

the impact that potential standards would have on product shipments, DOE analyzed the

impact that purchase price, operating costs, and household income have had on historical

central air conditioner and heat pump shipments. From this analysis, DOE derived a

relative price elasticity that estimates shipments impacts as a function of the increase in

284purchase price, operating cost savings, and household income. Although the correlation

among historical shipments and the above three parameters is not strong, there is enough

evidence to suggest a connection. Of the three parameters, purchase price has the most

significant impact on product shipments (an increase in product purchase price will lead

to a decrease in product shipments). DOE only considered shipments decreases in the

replacement and new owner markets. 73 In the case of the replacement market, DOE

assumed that any drop in shipments would be caused by consumers deciding to repair

rather than replace their products. DOE estimated that the extended repair would last 6

years, after which time the products would be replaced.

Commenting on the central air conditioners and heat pumps preliminary TSD,

HARDI expressed concern that increases in the minimum efficiency required of

residential central air conditioner units could lead to increased repair of legacy units,

which would impact sales of new units. (CAC: HARDI, No. 56 at p. 3) Ingersoll Rand

expressed a similar view, arguing that such a trend was noticeable after the

implementation of the 13-SEER central air conditioner standard. (CAC: Ingersoll Rand,

No. 66 at p. 3)

In the furnaces RAP, DOE stated its intention to develop standards-case forecasts

that reflect the projected impacts of potential standards on product shipments. In the

planned approach, the magnitude of the difference between the standards-case and basecase shipment forecasts depends on the estimated purchase price increase, as well as the

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

285operating cost savings caused by the considered energy conservation standard, relative to

household income.

Commenting on the furnaces RAP, several parties stated that DOE should

consider that high installed costs resulting from amended energy conservation standards

might cause some consumers to repair their existing furnaces instead of replacing them

with higher-efficiency units. Specifically, AGA stated that DOE has not considered the

likelihood of repair over replacement of existing furnaces, particularly where replacement

of non-condensing furnaces with condensing furnaces has potentially high venting system

upgrade costs. (FUR: AGA, No. 1.3.010 at p. 2) Carrier stated that the economic burden

of a 90-percent AFUE standard may lead some consumers in some areas not to replace a

furnace that they might otherwise replace. (FUR: Carrier, No. 1.2.006 at p. 207) APGA

made the same point, adding that the installation cost adders ( i.e. , costs over and above

typical costs) of furnaces at 90-percent AFUE and above could even lead to the need for

replacement of heat exchangers. (FUR: APGA, No. 1.3.004 at p. 3) Ingersoll Rand stated

that preservation of the existing HVAC system is a very real prospect if the price for

increased efficiency is not deemed warranted by the consumer. It added that if amended

standards would require a condensing furnace with an ECM blower in a climate where

consumers do not feel the added expense is warranted, they will be disposed to extend the

life of the existing furnace, even to the point of replacing a heat exchanger and burners if

that is necessary. (FUR: Ingersoll Rand, No. 1.3.006 at p. 12) AGA and APGA stated that

DOE particularly needs to consider the likelihood of higher rates of repair over

replacement in manufactured housing, where owners may have limited ability to afford a

286condensing furnace as a replacement. (FUR: AGA, No. 1.3.010 at p. 5; APGA, No.

1.3.004 at p. 4) HARDI stated that increases in minimum efficiency standards for HVAC

systems could encourage repair of existing systems in need of replacement, which could

risk the health and safety of homeowners. (FUR: HARDI, No. 1.3.016 at p. 3)

DOE agrees that amended standards that result in considerably higher installed

costs could lead some consumers to repair their existing furnace, central air conditioner,

or heat pump instead of replacing it with a new, higher-efficiency unit. However, DOE is

not aware of a satisfactory approach for estimating the extent of this phenomenon. There

exists considerable uncertainty regarding the metric that consumers might use to make

the decision to repair rather than replace their HVAC equipment. In addition, there are a

variety of potential repair possibilities, each having different costs and impacts on

extending equipment lifetime, and DOE has no way to estimate which types of repair

wo uld be most likely. Thus, DOE was not able to explicitly model the extent to which

consumers might repair their existing furnace (or central air conditioner or heat pump)

instead of replacing it with a higher-efficiency unit. Instead, for the direct final rule

analysis, DOE used the same approach as in the central air conditioners and heat pumps

preliminary TSD to estimate the impact that standards may have on shipments of central

air conditioners, heat pumps, and also furnaces. That is, DOE applied a relative price

elasticity that estimates shipments impacts as a function of the increase in purchase price,

operating cost savings, and household income. Application of this elasticity parameter

likely captures some of the effects of “extended repair” by some c onsumers. Although the

elasticity parameter was estimated using data on historical central air conditioner and heat

287pump shipments, DOE believes that it is reasonable to apply it to the case of furnaces as

well, given the broad similarities in the markets for residential central air conditioning

and heating equipment.

Regarding the expressed concern that repair of existing systems in need of

replacement could risk the health and safety of homeowners

, DOE notes that contractors

have a legal responsibility to perform repairs according to the requirements of applicable

codes. Further, issues about sub-standard repair practices could as well arise in the

absence of amended standards.

Because home builders are sensitive to the cost of HVAC equipment, a standard

level that significantly increases purchase price may induce some builders to switch to a

different heating system than they would have otherwise installed. Such an amended

standard level may also induce some home owners to replace their existing furnace at the

end of its useful life with a different type of heating product, although in this case,

switching may incur additional costs to accommodate the different product. The decision

to switch is also affected by the prices of the energy sources for competing equipment.

For the central air conditioners and heat pumps preliminary analysis, DOE used the

relative price elasticity described above to account for any equipment switching that may

result from standards requiring higher-efficiency products. That is, equipment switching

was implicitly included in the response to higher equipment prices that is modeled using

the elasticity parameter. In the furnaces RAP, DOE stated its intention to account for fuel

288and equipment switching that may result from amended standards requiring higherefficiency furnaces.

Commenting on the furnaces RAP, some parties stated that a standard requirin g
condensing furnaces could cause some consumers to switch from gas furnaces to electric

resistance heating systems. (FUR: AGA, No. 1.3.010 at p. 6; APGA, No. 1.3.004 at p. 3;

NPGA, No. 1.3.005 at p. 3) NPGA stated that in existing homes with central air

conditioning and gas furnaces, switching to a heat pump represents a feasible option.

(FUR: NPGA, No. 1.3.005 at p. 3) AGA and APGA also stated that a standard requiring

condensing furnaces could cause some consumers with hybrid heat pump/furnace-backup

heating systems to switch to all-electric heat pump systems. (AGA, No. 1.3.010 at p. 7;

APGA, No. 1.3.004 at p. 3)

Several parties regarded fuel switching as unlikely for a variety of reasons.

ACEEE stated that the barriers to fuel switching in the retrofit market are high enough

that few cases will be encountered. As an example, it stated that switching from a heat

pump to a gas furnace is prohibitively expensive if gas service is not already available at

the curb or in the house. With respect to fuel switching in new construction, ACEEE

stated that it expects builders to seek favorable terms for installing gas heat and water

heat rather than switch to electric heating. (FUR: ACEEE, No.1.3.009 at pp. 7-8) NEEP

stated they found no reason consumers would switch from gas-fueled to either oil-fueled

or electric technologies in response to standards. (NEEP, No. 1.3.021 at pp. 2

– 3) HARD I

stated that a change in efficiency standards is unlikely to spur fuel switching, which more

289commonly is driven by energy costs. (HARDI, No. 1.3.016 at p. 10) Ingersoll Rand stated

that consumers tend to heat with gas if it is available. It added that retail gas suppliers can

be expected, on the whole, to maintain gas prices at a level to discourage switching in

existing homes, and with new construction, to strive to remain competitive in areas they

wish to serve. (FUR: Ingersoll Rand, No. 1.3.006 at p. 14)

For the direct final rule, DOE did not explicitly quantify the potential for fuel

switching from gas furnaces to electric heating equipment, based upon the following

reasoning. DOE conducted a thorough review of the 2005 RECS to assess the type of

space-heating system utilized by consumers as a function of house heating load. Gas

furnaces are primarily utilized in households with high heating loads, while electric space

heating systems are almost exclusively used in households with low heating loads.

Generally, this is because the operating costs of electric space heating systems are

relatively high due to the price of electricity, so using an electric system in a cold climate

is significantly more expensive than using a gas furnace. Based on the above finding,

DOE inferred that consumers with high heating loads would be unlikely to switch to

electric space heating systems as a result of amended standards. In addition, for a

household with a gas furnace to switch to electric space heating, a separate circuit up to

30 -amps would need to be installed at a cost of approximately $300 to power the electric

resistance heater within an electric furnace or heat pump system. 74 On average, the

electrical circuit cost is approximately 60 percent of the added installation cost of a more

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

290expensive venting system required for high-efficiency, condensing furnaces, further

diminishing the likelihood of a consumer switching from gas to electric heating.

As briefly described above, for the direct final rule, DOE conducted an analysis of

the potential for equipment switching between a split system heat pump and the

combination of a split system central air conditioner and electric furnace. To estimate the

likelihood of equipment switching between these two systems, DOE utilized proprietary

data from Decision Analysts, 75 which identified for a representative sample of consumers

their willingness to purchase more-efficient space-conditioning systems. From these data,

DOE deduced the payback period that consumers would expect for a more-expensive but

more-efficient product. For each pairing of split heat pump and split air conditioner

efficiency levels, DOE applied the payback period criterion to estimate the fraction of

consumers who would be expected to switch to the other type of equipment. For example,

when comparing a 15 SEER split system heat pump and a combination of a 14 SEER

split air conditioner and an electric furnace, DOE calculated the payback period of the

more-efficient split system heat pump relative to the less-expensive combination of split

air conditioner and electric furnace. If the resulting payback period for the split system

heat pump exceeded the expected payback period deduced from the Decision Analysts’

data, DOE forecasted that the consumer would switch to the combination of split air

conditioner and electric furnace. For every possible pairing of split system heat pump and

split system air conditioner efficiencies, DOE calculated the fraction of consumers who

would be expected to switch from one type of split system to the other. The fraction of

75 Decision Analysts, "2008 American Home Comfort Study" (2009).

291consumers switching was in turn used by DOE to forecast split system heat pump and

split system air conditioner shipments in specific standards cases, as well as the increase

in electric furnace shipments. Including the latter in accounting for the impacts of

equipment switching is important for proper determination of national energy savings and

national economic impacts.

Because measures to limit standby mode and off mode power consumption have a

very small impact on equipment total installed cost, and thereby would have a minimal

effect on consumer purchase decisions, DOE did not analyze the impact to central air

conditioner, heat pumps, and furnace shipments due to potential standards limiting

standby mode and off mode power consumption. In other words, DOE estimated that

base-case product shipments would be unaffected by standards to limit standby mode and

off mode power consumption.

For details on DOE’s analysis of the impacts of standards on shipme nts, see

chapter 9 of the direct final rule TSD. For details on DOE’s analysis of equipment and

fuel switching, see appendix 9-A of the direct final rule TSD.

2. Forecasted Efficiency in the Base Case and Standards Cases

A key component of the NIA is the trend in energy efficiency forecasted for the

base case (without new or amended standards) and each of the standards cases. Section

IV.F.10 describes how DOE developed a base-case energy efficiency distribution (which

yields a shipment-weighted average efficiency (SWEF)) for each of the considered

product classes for the compliance year used in the LCC analysis (2016). To forecast

292base-case efficiencies over the entire forecast period for the direct final rule, DOE

extrapolated from the historical trends in efficiency, as described below.

For central air conditioners and heat pumps, DOE reviewed historical SWEF data

from 1990 to 2009 provided by AHRI. The historical data, which encompassed years

when new standards for central air conditioners and heat pumps required compliance

(1992 and 2006), specified SWEFs for each of the four primary central air conditioner

and heat pump product classes. DOE considered only the 1993 to 2002 time period to

forecast SWEF growth rates in order to factor out: (1) any lingering effects on equipment

SWEFs from industry efforts to comply with the 1992 standards; (2) any anticipatory

efforts by the industry to comply with the 2006 standards that DOE issued in 2001; and

(3) the effects of recent Federal tax credits to promote the purchase of high-efficiency

central air conditioners and heat pumps. From 1993 to 2002, central air conditioner and

heat pump efficiency increased, on average, by 0.5 to 0.7 SEER, depending on product

class, which is an efficiency growth rate of approximately 0.06 to 0.07 SEER per year.

For non-weatherized gas furnaces, DOE was provided historical data from 1990

to 2009 by AHRI, detailing the market shares of non-condensing (80 percent AFUE and

less) and condensing (90 percent AFUE and greater) equipment. 76 Similar to its approach

for central air conditioners and heat pumps, DOE used only the data from 1993 to 2002 to

factor out the lingering effects of new furnace standards that required compliance in 1992

as well as the effects of market-pull programs, including recent Federal tax credits, to

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

293promote the purchase of high-efficiency condensing furnaces. From 1993 to 2002, nonweatherized gas furnace efficiency increased, on average, by 0.5 AFUE and 1.5 AFUE

percentage points in the southern and northern U.S., respectively, which implies

efficiency growth rates of approximately 0.05 and 0.17 AFUE percentage points per year.

DOE used the above growth rates for central air conditioners and heat pumps and

furnaces to forecast base-case SWEFs over the forecast period. Due to the lack of

historical efficiency data for mobile home and oil-fired furnaces, DOE estimated that

product efficiency distributions would remain the same throughout the forecast period.

To estimate efficiency trends in the standards cases, DOE has used “roll

- up”

and/or “shift” scenarios in its standards rulemakings. Under the “roll

- up” scenario, DOE

assumes: (1) product efficiencies in the base case that do not meet the standard level

und er consideration would “roll

- up” to meet the new standard level; and (2) product

efficiencies above the standard level under consideration would not be affected. Under

the “shift” scenario, DOE retains the pattern of the base -case efficiency distribution but

reorients the distribution at and above the potential new minimum energy conservation

standard.

In the central air conditioners and heat pumps preliminary TSD, DOE concluded

that amended standards will cause baseline models to roll up to the standard efficiency

level in the year of compliance, but that some fraction of shipments will remain above the

minimum. DOE calculated the SWEFs from the resulting efficiency distribution. In the

294years following the year of compliance, DOE estimated that SWEFs will continue to

grow at the rate observed between 1992 and 2005 until the max-tech efficiency level is

attained, at which point the SWEF was held constant.

Commenting on the furnaces RAP, NRDC and ASAP stated that market

penetration in standards cases will resemble the shift scenario more than the roll- up
scenario. (FUR: NRDC, No. 1.3.020 at p. 10; ASAP, No. 1.2.006 at p. 216) NRDC added

that the existence of successful Federal tax incentives for furnaces with 95 percent AFUE

indicates that sales of these units are likely to continue to increase. (FUR: NRDC, No.

1.3.020 at p. 11) In contrast, HARDI commented that roll-up and shift scenarios are

unlikely under an amended energy conservation standard, and stated that an increase in

minimum efficiency standards for furnaces or central air conditioners and heat pumps is

likely to negatively impact the other energy efficiency programs that have been vital to

achieving the growing penetration of higher-efficiency HVAC systems. (FUR: HARDI,

No.1.3.016 at p. 3) ACEEE stated there is no strong reason to choose a roll-up scenario

instead of a shift scenario based on the available evidence, and ACEEE encouraged DOE

to consider both scenarios, premised on the likelihood of the continuation of incentives if

there is a 90- pe rcent AFUE furnace efficiency standard for the north. (FUR: ACEEE,

No.1.3.009 at p. 8) The California IOUs also supported the use of both the roll-up and

shift scenarios. (FUR: CA IOUs, No. 1.3.017 at p. 5)

In response, DOE again reviewed the historical efficiency data for central air

conditioners and heat pumps and furnaces from AHRI. It did not find any evidence to

295support a shift in the efficiency distribution in the year of compliance with amended

standards. Therefore, for the direct final rule analysis, DOE decided to continue to utilize

the roll-up scenario for central air conditioners and heat pumps in order to forecast the

impact of standards for the year of compliance. DOE applied the roll-up scenario to

furnaces as well. However, DOE agrees with the suggestion by some of the commenters

that the efficiency distribution will shift after compliance with amended standards is

required. DOE captured this expected market change in its forecast of efficiency in the

standards cases, as described below.

To forecast standards-case SWEFs after the year of compliance, rather than use

the same efficiency growth rate as the base case, DOE developed growth trends for each

candidate standard level that reflect the likelihood that the consumer willingness to pay

for an increment of efficiency will be the same in the base case and the standards case

. I n
revising its analysis, DOE found that the cost of a relatively small efficiency

improvement over the most common product in the standards case is much higher than in

the base case. Therefore, assuming the same efficiency increment in the base case and

standards case would imply that the consumer willingness to pay for an increment of

efficiency would dramatically increase under standards without the addition of any

incentives or information. This is a phenomenon that DOE has not observed in any of its

efficiency market analysis or modeling investigations. Therefore, for the direct final rule

, DOE developed an approach in which the growth rate slows over time in response to the

increasing incremental cost of efficiency improvements. DOE assumed that the rate of

adoption of more-efficient products under a standards case occurs at a rate which ensures Deleted: fact that as efficiency increases, it becomes mor e expensive for most efficiency levels (in terms of equipment cost) to maintain a constant growth rate.

Deleted: . To do so,

296that the average total installed cost difference between the standards case and base case

over the entire forecast period is constant.

DOE modified the general approach for split-system coil-only air conditioner

replacement units at 15 SEER and above, for which many consumers would incur a very

large additional cost (an average of $ 959 ) to install a furnace fan kit (as explained in

section IV.F.1). DOE believes that for much of the market, this cost would constrain

demand for split-system coil-only air conditioner replacement units at 15 SEER and Deleted: made an exception to

Deleted: above

Deleted: for

above . Thus, in analyzing standards cases below 15 SEER

, as well as the base case, DOE

forecast that the market shares of units at 15 SEER and above would remain at the 2016 Deleted: , so it assumed that the market share will not grow for these units for the

Deleted:

.

level.

For split-system coil-only air conditioner replacement units, DOE also analyzed a

sensitivity case that reflects a more sophisticated model of efficiency market shares than

the reference case analysis. In this case, there is a gradual shift of efficiency in the base

case, with the rate of shift dependent on the price difference between an efficiency

market share and the next highest efficiency market share. DOE calibrated the parameters

of this model to the observed historical shift rate without tax incentives. The result of thi s
model is that while there is more market shifting over the long term forecast to the very

high efficiency levels, there is slower market shifting at the lower efficiency levels earlier

in the forecast period. In analyzing standards cases below 15 SEER, DOE forecast that

the market shares of units at 15 SEER and above would be no greater than the base case.

297The results of this sensitivity in terms of the consumer NPV are presented in section

V.B.3.a. More discussion along with detailed results from the sensitivity calculation are
provided in appendix 10-D of the TSD.

For single package air conditioners and heat pumps, DOE observes that the

market conditions are somewhat distinct from split system air conditioners as more than

90 percent of the single package market is comprised of low efficiency products of 13 to

14 SEER. In addition, DOE observes that higher efficiency single-package systems are

more expensive relative to the lower efficiency models compared to the general cost

structure for split system units. This indicates that efficiency trends for single-package

systems are likely to be smaller than those for split systems. Nonetheless, DOE modeled

the efficiency trends for single-package units the same as it modeled the trends for

blower-coil split systems. While DOE believes that this approach is conservative, DOE

did not have the data available to calibrate a more precise forecast of efficiency trends for

this product class. An overestimate of the efficiency trend will likely lead to an

overestimate of equipment costs resulting from a standard for these products. As a result,

net consumer benefits from a standard are likely to be higher the DOE estimate provided

in this notice.

In the case of standby mode and off mode power consumption, DOE used a rollup scenario to forecast the impact of potential standards for the year of compliance. Due

to the lack of historical information on standby mode and off mode power consumption

in central air conditioners, heat pumps, and furnace equipment, DOE estimated that Comment [A9]: Changes recommended by OIRA.

298efficiency distributions of standby mode and off mode power consumption would remain

the same until 2045.

For further details about the forecasted efficiency distributions, see chapter 10 of

the direct final rule TSD.

3. Installed Cost Per Unit

In the preliminary analysis, DOE assumed that the manufacturer costs and retail

prices of products meeting various efficiency levels remain fixed, in real terms, after

200 9 (the year for which the engineering analysis estimated costs) and throughout the

period of the analysis. As discussed in section IV.F.1, examination of historical price data

for certain appliances and equipment that have been subject to energy conservation

standards indicates that the assumption of constant real prices and costs may, in many

cases, over-estimate long-term appliance and equipment price trends.

On February 22, 2011, DOE published a Notice of Data Availability (NODA, 76

FR 9696) stating that DOE may consider improving regulatory analysis by addressing

equipment price trends. Consistent with the NODA, DOE used historical producer price

indices (PPI) for room air conditioners and household laundry equipment as a proxy for

price data. DOE does not have price data for this equipment. DOE believes that PPI

might shed some directional ly -correct light on the price trend, recognizing that PPI is not

a good proxy for price information because it incorporates shipment information, among

other reasons. DOE found a long-term declining real price trend for both products. DOE

299used experience curve fits to forecast a price scaling index to forecast product costs into

the future for this rulemaking. DOE also considered the public comments that were

received in response to the NODA and refined the evaluation of its experience curve

trend forecasting estimates. Many commenters were supportive of DOE moving from an

assumption-based equipment price trend forecasting method to a data-driven

methodology for forecasting price trends. Other commenters were skeptical that DOE

could accurately forecast price trends given the many variables and factors that can

complicate both the estimation and the interpretation of the numerical price trend results

and the relationship between price and cost. DOE evaluated these concerns and

determined that retaining the assumption-based approach of a constant real price trend is

consistent with the NODA when data gaps are sufficient. DOE presents the estimates

based on a constant real price trend as a reasonable upper bound on the future equipment

price trend. DOE also performed an initial evaluation of the possibility of other factors

complicating the estimation of the long-term price trend, and developed a range of

potential price trend values that were consistent with the available data and justified by

the amount of data that was available to DOE at this time. DOE recognizes that its price

trend forecasting methods are likely to be modified as more data and information

becomes available to enhance the rigor and robustness of the trend estimate and the

completeness of the model. Additional data should enable an improved evaluation of the

potential impacts of more of the factors that can influence equipment price trends over

time.

300To evaluate the impact of the uncertainty of the price trend estimates, DOE

performed price trend sensitivity calculations in the national impact analysis to examine

the dependence of the analysis results on different analytical assumptions. DOE also

included a constant real price trend assumption as an upper bound on the forecast price

trend. DOE found that for the selected standard levels the benefits outweighed the

burdens under all scenarios.

A more detailed discussion of price trend modeling and calculations is provided in

Appendix 8-J of the TSD.

4. National Energy Savings

For each year in the forecast period, DOE calculates the NES for each considered

standard level by multiplying the stock of equipment affected by the energy conservation

standards by the per-unit annual energy savings. As discussed in section IV.E, DOE

incorporated the rebound effect utilized in the energy use analysis into its calculation of

national energy savings.

To estimate the national energy savings expected from amended appliance

standards, DOE used a multiplicative factor to convert site energy consumption (at the

ho me or commercial building) into primary or source energy consumption (the energy

required to convert and deliver the site energy). These conversion factors account for the

energy used at power plants to generate electricity and losses in transmission and

distribution, as well as for natural gas losses from pipeline leakage and energy used for Comment [A10]: Changes recommended by OIRA.

301pumping. For electricity, the conversion factors vary over time due to changes in

generation sources ( i.e. , the power plant types projected to provide electricity to the

country) projected in AEO2010 . The factors that DOE developed are marginal values,

which represent the response of the electricity sector to an incremental decrease in

consumption associated with potential appliance standards.

In the central air conditioners and heat pumps preliminary analysis, DOE used

annual site- to -source conversion factors based on the version of NEMS that corresponds

to AEO2009 . For today’s direct final rule, DOE updated its conversion factors based on

the NEMS that corresponds to AEO2010 , which provides energy forecasts through 2035.

For 2036-2045, DOE used conversion factors that remain constant at the 2035 values.

Section 1802 of the Energy Policy Act of 2005 (EPACT 2005) directed DOE to

contract a study with the National Academy of Science (NAS) to examine whether the

goals of energy efficiency standards are best served by measurement of energy

consumed, and efficiency improvements, at the actual point- of -use or through the use of

the full-fuel-cycle, beginning at the source of energy production (Pub. L. No. 109-58

(Aug. 8, 2005)). NAS appointed a committee on “Point

- of -Use and Full-Fuel-Cycle

Measurement Approaches to Energy Efficiency Standards” to conduct the study, which

was completed in May 2009. The NAS committee defined “ full-fuel-cycle energy

consumption” as including, in addition to site energy use, the following: (1) energy

consumed in the extraction, processing, and transport of primary fuels such as coal, oil,

302and natural gas; (2) energy losses in thermal combustion in power generation plants; and

(3) energy losses in transmission and distribution to homes and commercial buildings. 77

In evaluating the merits of using point- of -use and full-fuel-cycle measures, the

NAS committee noted that DOE currently uses what the committee referred to as

“extended site” energy consumption to assess the impact of energy use on the economy,

energy security, and environmental quality. The extended site measure of energy

consumption includes the energy consumed during the generation, transmission, and

distribution of electricity but, unlike the full-fuel-cycle measure, does not include the

energy consumed in extracting, processing, and transporting primary fuels. A majority of

the NAS committee concluded that extended site energy consumption understates the

total energy consumed to make an appliance operational at the site. As a result, the NAS

committee recommended that DOE consider shifting its analytical approach over time to

use a full-fuel-cycle measure of energy consumption when assessing national and

environmental impacts, especially with respect to the calculation of greenhouse gas

emissions. The NAS committee also recommended that DOE provide more

comprehensive information to the public through labels and other means, such as an

en hanced website. For those appliances that use multiple fuels ( e.g. , water heaters), the

NAS committee indicated that measuring full-fuel-cycle energy consumption would

provide a more complete picture of energy consumed and permit comparisons across

many different appliances, as well as an improved assessment of impacts.

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

303In response to the NAS recommendations, DOE published in the Federal Register

, on August 20, 2010, a Notice of Proposed Policy proposing to incorporate a full-fuel

cycle analysis into the methods it uses to estimate the likely impacts of energy

conservation standards on energy use and emissions. 75 FR 51423. Specifically, DOE

proposed to use full-fuel-cycle (FFC) measures of energy and GHG emissions, rather

than the primary (extended site) energy measures it currently uses. Additionally, DOE

proposed to work collaboratively with the Federal Trade Commission (FTC) to make

FFC energy and GHG emissions data available to the public so as to enable consumers to

make cross-class comparisons. On October 7, 2010, DOE held an informal public

meeting at DOE headquarters in Washington, DC to discuss and receive comments on its

planned approach. The Notice of Proposed Policy, a transcript of the public meeting, and

all public comments received by DOE are available at:

http://www.regulations.gov/search/Regs/home.html#docketDetail?R=EERE-2010- BT

NOA -0028

. DOE intends to develop a final policy statement on these subjects and then

take steps to begin implementing that policy in rulemakings and other activities that are

undertaken during 2011.

5. Net Present Value of Consumer Benefit

The inputs for determining the NPV of the total costs and benefits experienced by

consumers of the considered appliances are: (1) total annual installed cost; (2) total

annual savings in operating costs; and (3) a discount factor. DOE calculates net savings

each year as the difference between the base case and each standards case in total savings

304in operating costs and total increases in installed costs. DOE calculates operating cost

savings over the life of each product shipped in the forecast period.

DOE multiplies the net savings in future years by a discount factor to determine

their present value. For the central air conditioners and heat pumps preliminary analysis

and today’s direct final rule, DOE estimated the NPV of appliance consumer benefits

using both a 3-percent and a 7-percent real discount rate. DOE uses these discount rates

in accordance with guidance provided by the Office of Management and Budget (OMB)

to Federal agencies on the development of regulatory analysis. 78 The 7-percent real value

is an estimate of the average before-tax rate of return to private capital in the U.S.

economy. The 3- percent real value represents the “societal rate of time preference,”

which is the rate at which society discounts future consumption flows to their present

value. The discount rates for the determination of NPV are in contrast to the discount

rates used in the LCC analysis, which are designed to reflect a consumer’s perspective

As noted above, DOE is accounting for the rebound effect associated with moreefficient furnaces, central air conditioners, and heat pumps in its determination of

national energy savings. As previously discussed in section IV.F, because the rebound

effect provides consumers with increased value ( i.e. , a more comfortable environment),

DOE believes that, if it were able to monetize the increased value to consumers added by

the rebound effect, this value would be similar in value to the foregone energy savings.

For this standards rulemaking, DOE estimates that this value is equivalent to the

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

305monetary value of the energy savings that would have occurred without the rebound

effect. Therefore, DOE concluded that the economic impacts on consumers with or

without the rebound effect, as measured in the NPV, are the same.

6. Benefits from Effects of Standards on Energy Prices

In the furnaces RAP, DOE described its plans to use NEMS-BT to analyze the

impact on natural gas prices resulting from amended standards on furnaces, and the

associated benefits for all natural gas consumers in all sectors of the economy.

Commenting on the RAP, EarthJustice stated that DOE must consider standards’

economic benefit to the nation through reductions in natural gas prices resulting from gas

furnace efficiency improvements. (FUR: EarthJustice, No. 1.3.014 at p. 7) In contrast,

Ingersoll Rand stated that standards may bring gas users no cost savings, and that DOE

should not incorporate any potential savings into its considerations. (FUR: Ingersoll

Rand, No. 1.3.006 at p. 13)

For the direct final rule analysis, DOE used NEMS-BT to model the impact of the

natural gas savings associated with possible standards on natural gas prices. The response

of price observed in the NEMS-BT output changes over the forecast period based on the

model’s dynamics of natural gas supply and demand. For each year, DOE calculated the

nominal savings in total natural gas expenditures by multiplying the estimated annual

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

gas consumption projected in AEO2010 , adjusted for the estimated natural gas savings

associated with each TSL. DOE then calculated the NPV of the savings in natural gas

306expenditures for 2016-2045 (or 2013-2045 for TSL 4), using 3-percent and 7-percent

discount rates for each scenario.

Although amended standards for furnaces may yield benefits to all consumers

associated with reductions in natural gas prices, DOE retains the position (recently set

forth in the final rule for residential heating products (75 FR 20112, 20175 (April 16,

2010)) that it should not place a heavy emphasis on this factor in its consideration of the

economic justification of standards. EPCA specifically directs DOE to consider the

economic impact of an amended standard on manufacturers and consumers of the

products subject to the standard. (42 U.S.C. 6295(o)(2)(B)(i)(I)) While it is true that

EPCA directs DOE to consider other factors the Secretary considers relevant, in so doing,

DOE takes under advisement the guidance provided by OMB on the development of

regulatory analysis. Specifically, Circular A- 4 states, “You shou ld not include transfers in

the estimates of the benefits and costs of a regulation.” 79 When gas prices drop in

response to lower demand and lower output of existing natural gas production capacity,

consumers benefit but producers suffer. In economic terms, the situation represents a

benefits transfer to consumers (whose expenditures fall) from producers (whose revenue

falls equally). On the other hand, when gas prices decrease because extraction costs

decline, however, consumers and producers both benefit, and the change in natural gas

prices represents a net gain to society. Consumers benefit from the lower prices, and

producers, whose revenues and costs both fall, are no worse off. DOE is continuing to

investigate the extent to which a change in natural gas prices projected to result from

79 OMB Circul ar A

- 4, section E, “Identifying and Measuring Benefits and Costs” (Sept. 17, 2003), p.38. (Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html ).

307potential standards represents a net gain to society. At this time, however, it is not able to

reasonably determine the extent of transfers associated with a decrease in gas prices

resulting from appliance standards.

Reduction in electricity consumption associated with amended standards for

central air conditioners and heat pumps could reduce the electricity prices charged to

consumers in all sectors of the economy and thereby reduce total electricity expenditures.

In chapter 2 of the central air conditioners and heat pumps preliminary TSD, DOE

explained that, because the electric power industry is a complex mix of fuel and

equipment suppliers, electricity producers, and distributors, and because it has a varied

institutional structure, DOE did not plan to estimate the value of potentially-reduced

electricity costs for all consumers associated with amended standards for central air

conditioners and heat pumps.

Commenting on the preliminary TSD, NPCC stated that the economic benefits of

the reduced need for new power plants should be estimated using the NEMS-BT forecast.

(FUR: NPCC, No. 74 at p. 6) ACEEE made a similar point. (ACEEE, No. 72 at p. 7)

For the direct final rule, DOE used NEMS-BT to assess the impacts of the

re duced need for new electric power plants and infrastructure projected to result from

amended standards. In NEMS-BT, changes in power generation infrastructure affect

utility revenue requirements, which in turn affect electricity prices. DOE estimated the

impact on electricity prices associated with each considered TSL. Although the aggregate

308benefits for electricity users are potentially large, there may be negative effects on some

of the actors involved in the electricity supply chain, particularly power plant providers

and fuel suppliers. Because there is uncertainty about the extent to which the benefits for

electricity users from reduced electricity prices would be a transfer from actors involved

in the electricity supply chain to electricity consumers, DOE has concluded that, at

present, it should not place a heavy emphasis on this factor in its consideration of the

economic justification of new or amended standards. DOE is continuing to investigate the

extent to which electricity price changes projected to result from amended standards

represent a net gain to society.

H. Consumer Subgroup Analysis

In analyzing the potential impacts of new or amended standards on consumers,

DOE evaluates the impacts on identifiable subgroups of consumers that may be

disproportionately affected by a national standard. DOE evaluates impacts on particular

subgroups of consumers primarily by analyzing the LCC impacts and PBP for those

particular consumers from alternative standard levels.

In the central air conditioners and heat pumps preliminary TSD, DOE stated that

it will evaluate impacts on consumer subgroups, especially low-income and smallbusiness consumers. For the direct final rule, DOE also analyzed a consumer subgroup

consisting of households occupied solely by senior citizens (senior-only households) for

national standards. However, in the 2005 RECS sample used for the subgroup analysis,

the number of low-income and senior-only households with a central air conditioner was

309too small to produce reliable results at the regional level, and the number of low-income

and senior-only households with a heat pump was too small to produce reliable results at

either the national or the regional level. Accordingly, DOE performed the analysis for

these subgroups only at the national level and only for air conditioners.

During the development of the preliminary TSD, it was thought that an analysis

could be done of small businesses. However, DOE was not able to locate information on

the energy use or economic characteristics of commercial users of residential air

conditioning units in commercial buildings, so no analysis was done of a small business

subgroup.

In the furnaces RAP, DOE stated its intention to evaluate impacts of amended

furnace standards on low-income and senior-only households, because the potential

higher first cost of products that meet amended standards may lead to negative impacts

for these particular groups

. In response to the furnaces RAP, DOE received comments

about which subgroups should be included in the consumer subgroup analysis. AGA and

APGA stated that DOE should analyze the new construction and replacement markets

separately for the subgroup analysis. (FUR: AGA, No. 1.3.010 at pp. 3-4; APGA, No.

1.3.004 at p. 4) Southern stated that DOE should consider multi-family housing units and

dwellings that require significant venting system work to accommodate a new furnace.

(FUR: Southern, No. 1.2.006 at pp. 227

– 28) Ingersoll Rand stated that DOE should

consider landlords and tenants as subgroups for the analysis. (FUR: Ingersoll Rand, No.

3101.3.006 at p. 15) NPGA stated that owners of manufactured homes should be considered

as a subgroup. (FUR: NPGA, No. 1.3.005 at p. 4)

For the direct final rule analysis, DOE evaluated the impacts of the considered

energy efficiency standard levels for non-weatherized gas furnaces on low-income

consumers and senior citizens ( i.e ., senior-only households). DOE did not analyze these

subgroups for mobile home gas furnaces or oil-fired furnaces because of the small sample

sizes in the 2005 RECS database. In response to comments, for non-weatherized gas

furnaces, DOE analyzed the impacts for three other subgroups: (1) multi-family housing

units; (2) new homes; and (3) replacement applications.

DOE did not consider dwellings that require significant venting system work to

accommodate a new furnace as a subgroup, because there is no way to define

“significant” venting system work that would not be arbitrary. DOE did not consider

landlords and tenants as subgroups because DOE’s LCC and payback period calculation

method implicitly assumes that either the landlord purchases an appliance and also pays

its energy costs, or in those cases where the tenant pays the energy costs, the landlord

purchases an appliance and passes on the expense in the rent. If a landlord passes on the

expense in the rent, which is the more common situation, he or she is not a “consumer” in

the context of DOE’s methodology, so landlords are not a meaningful consumer

subgroup. DOE does not consider tenants (renters) as a consumer subgroup because: (1)

DOE is not able to evaluate the pace at which the incremental purchase cost of a covered

311product is passed on in the rent, and (2) not all tenants pay the energy costs for their

dwelling.

DOE did not consider owners of manufactured homes as a subgroup because the

impacts of potential amended standards on these consumers are addressed in the LCC and

PBP analysis of mobile home gas furnaces.

DOE did not perform a subgroup analysis for the standby mode and off mode

efficiency levels. The standby mode and off mode LCC analysis relied on the test

procedure to assess energy savings for the off mode efficiency levels, and, thus, energy

savings are not different for population subgroups. In addition, the analysis was done

with national average energy prices and national average markups for residential and

commercial users, and thus, these inputs would not vary for the subgroups. The

information sources for the other parameters affecting LCC ( e.g. , repair and maintenance

cost) also did not differ by subgroup.

Results of the subgroup analysis are presented in sec tion V.B.1.b of today’s direct

final rule

. For further information, consult chapter 11 of the direct final rule TSD, which

describes the consumer subgroup analysis and its results.

312I. Manufacturer Impact Analysis

1. Overview

DOE performed a manufacturer impact analysis (MIA) to estimate the financial

impact of amended energy conservation standards on manufacturers of residential

furnaces and central air conditioners and heat pumps, and to calculate the impact of such

standards on direct employment and manufacturing capacity. The MIA has both

quantitative and qualitative aspects. The quantitative component of the MIA primarily

relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow

model customized for this rulemaking. The key GRIM inputs are data on the industry

cost structure, product costs, shipments, and assumptions about markups and conversion

expenditures. The key output is the industry net present value (INPV). Different sets of

assumptions (markup scenarios) will produce different results. The qualitative component

of the MIA addresses factors such as product characteristics, industry and market trends,

and includes an assessment of the impacts of standards on sub-groups of manufacturers.

Chapter 12 of the direct final rule TSD describes the complete MIA.

DOE conducted the MIA for this rulemaking in three phases. In Phase 1,

“Industry Profile,” DOE prepared an industry characterization. In Phase 2, “Industry

Cash Flow,” DOE focused on the financial aspects of the industry as a whole. In this

phase, DOE used the publicly-available information gathered in Phase 1 to prepare an

industry cash flow analysis using the GRIM model. DOE adapted the GRIM structure

specifically to analyze the impact of new and amended standards on manufacturers of

residential furnace and central air conditioner and heat pump products. In Phase 3, “Sub

313Group Impact Analysis,” the Department conducted structured, detailed interviews with a

representative cross-section of manufacturers that represent approximately 75 percent of

furnace and central air conditioning sales. During these interviews, DOE discussed

engineering, manufacturing, procurement, and financial topics specific to each company,

and obtained each manufacturer’s view of the industry as a whole. The interviews

provided valuable information that the Department used to evaluate the impacts of

potential amended standards on manufacturers’ cash flows, manufacturing capacities, and

employment levels. Each of these phases is discussed in further detail below.

a. Phase 1: Industry Profile

In Phase 1 of the MIA, DOE prepared a profile of the residential furnace and

central air conditioner and heat pump industry based on the Market and Technology

Assessment (MTA) prepared for this rulemaking. Before initiating detailed impact

studies, DOE collected information on the present and past structure and market

characteristics of the industry. This information included market share, product

shipments, markups, and cost structure for various manufacturers. The industry profile

includes: (1) detail on the overall market and product characteristics; (2) estimated

manufacturer market shares; (3) financial parameters such as net plant, property, and

equipment ( i.e. , after accounting for depreciation), SG&A expenses, cost of goods sold,

etc .; and (4) trends in the residential furnace and central air conditioner and heat pump

industry, including the number of firms, technology, sourcing decisions, and pricing.

314The industry profile included a top-down cost analysis of residential furnace and

central air conditioner and heat pump manufacturers that DOE used to derive preliminary

financial inputs for the GRIM ( e.g., revenues; SG&A expenses; research and

development (R&D) expenses; and tax rates). DOE also used public sources of

information to further calibrate its initial characterization of the industry, including

company SEC 10 –K filings, Moody’s company data reports, corporate annual reports, the

U.S. Census Bure au’s 2008 Economic Census, and Dun & Bradstreet reports.

b. Phase 2: Industry Cash Flow Analysis

Phase 2 of the MIA focused on the financial impacts of the potential amended

energy conservation standards on the industry as a whole. New or more-stringent energy

conservation standards can affect manufacturer cash flow in three distinct ways: (1) by

creating a need for increased investment; (2) by raising production costs per unit; and (3)

by altering revenue due to higher per-unit prices and possible changes in sales volumes.

To quantify these impacts, in Phase 2, DOE used the GRIM to perform a cash-flow

analysis of the residential furnace and central air conditioner and heat pump industry. In

performing this analysis, DOE used the financial values determined during Phase 1,

which were updated based on industry feedback and additional research, and the

shipment projections used in the NIA. The GRIM modeled both impacts from energy

efficiency standards (standards based on SEER, HSPF, and AFUE ratings) and impacts

from standby mode and off mode standards (standards based on standby mode and off

mode wattage). The GRIM results from the two standards were evaluated independent of

one another.

315c. Phase 3: Sub-Group Impact Analysis

In Phase 3, DOE conducted interviews with manufacturers and refined its

preliminary cash flow analysis. Many of the manufacturers interviewed also participated

in interviews for the engineering analysis. As indicated above, the MIA interviews

broadened the discussion from primarily technology-related issues to include financerelated topics. One key objective for DOE was to obtain feedback from the industry on

the assumptions used in the GRIM and to isolate key issues and concerns. See section

IV.I.3 for a description of the key issues manufacturers raised during the interviews.

Using average-cost assumptions to develop an industry cash-flow estimate may

not adequately assess differential impacts of new or amended standards among

manufacturer sub-groups. For example, small manufacturers, niche players, or

manufacturers exhibiting a cost structure that largely differs from the industry average

could be more negatively affected. Thus, during Phase 3, DOE used the results of the

industry characterization analysis in Phase 1 to evaluate how groups of manufacturers

could be differentially affected by potential standards, and to group manufacturers that

exhibited similar production and cost structure characteristics. The manufacturer

interviews provided additional, valuable information on manufacturer subgroups.

DOE investigated whether small business manufacturers should be analyzed as a

manufacturer subgroup. During its research, DOE identified multiple companies that

manufacture products covered by this rulemaking and qualify as a small business under

316the applicable Small Business Administration (SBA) definition. The SBA defines a

“small business” as having 750 employees or less for NAICS 333415, “Air -Conditioning

and Warm Air Heating Equipment and Commercial and Industrial Refrigeration

Equipment Manufacturing.” As a result of this inquiry, DOE decided to analyze small

business manufacturers as a separate subgroup in this direct final rule. The small

businesses were further sub-divided by product class to understand the impacts of the

rulemaking on those entities. The small business subgroup is discussed in chapter 12 of

the direct final rule TSD and in section VI.B.1 of today’s notice.

2. GRIM Analysis

As discussed previously, DOE uses the GRIM to quantify the changes in cash

flow that result in a higher or lower industry value due to amended standards. The GRIM

uses a discounted cash-flow analysis that incorporates manufacturer costs, markups,

shipments, and industry financial information as inputs. The GRIM models changes in

costs, distribution of shipments, investments, and manufacturer margins that could result

from amended energy conservation standards. The GRIM spreadsheet uses the inputs to

arrive at a series of annual cash flows, beginning in 2010 (the base year of the analysis)

and continuing to 2045 (the last year of the analysis period)

. DOE calculated INPVs by

summing the stream of annual discounted cash flows during these periods.

The GRIM calculates cash flows using standard accounting principles and

compares changes in INPV between the base case and each TSL (the standards case). The

difference in INPV between the base case and standards case represents the financial

317impact of the amended standard on manufacturers. The GRIM results are shown in

section V.B.2. Additional details about the GRIM can be found in chapter 12 of the direct

final rule TSD.

DOE typically presents its estimates of industry impacts by grouping the major

product classes served by the same manufacturers. In the residential HVAC industry,

split-system air conditioning, split-system heat pumps, single-package air conditioning,

single-package heat pumps, and non-weatherized gas furnaces make up 95 percent of

total shipments, according to the NIA shipment model for 2010. These five product

classes are considered to be “conventional” products. Manufacturers that compete in the

marketplace for conventional products generally produce products in all five

conventional product classes.

Additionally, consumer selection of conventional products is often

interdependent. As discussed in section IV.G.1 of the NIA methodology, the shipments

forecasts that are an input to the GRIM incorporate product switching among the splitsystem air conditioning, split-system heat pumps, and non-weatherized gas furnaces

product classes. To better capture the impacts of this rulemaking on industry, DOE

aggregates results for split-system air conditioning, split-system heat pumps, singlepackage air conditioning, single-package heat pumps, and non-weatherized gas furnaces

into a single “conventional” product grouping.

318In section V.B.2.d pertaining to the MIA analysis, DOE discusses impacts on

subgroups of manufacturers that produce niche products. Niche products, which serve

much smaller segments of the market with unique needs, are produced by different

manufacturers and include niche furnace products and niche central air conditioning and

heat pumps products. Niche furnace products include weatherized gas furnaces, oil

furnaces, and mobile home furnaces. Niche central air conditioning and heat pump

products consist of the space-constrained and the small-duct, high-velocity (SDHV)

product classes.

For the weatherized gas furnaces product class and the space-constrained product

class, the current energy efficiency standard was determined to be equal to the max-tech

effi ciency level in the engineering analysis. Based on DOE’s screening analysis,

teardown analysis, and market research, DOE determined it would be unable to raise the

energy efficiency standards on these products due to the state of technology and the

design constraints inherent to these products. Therefore, DOE concluded that there is no

need to perform an additional analysis for these products given that the current standard

already meets the max-tech efficiency. For these product classes, no manufacturer impact

analysis for energy efficiency standards was performed.

For the small-duct, high-velocity product class, limited information was available

for this market niche. DOE had insufficient information to build a shipments forecast

model, and thus, did not perform a quantitative analysis using the GRIM for this product

319class. However, DOE did conduct interviews with manufacturers of this product class and

has performed a qualitative analysis of the impacts on manufacturers of SDHV products.

For consideration of standby mode and off mode regulations, DOE modeled the

impacts of the design options for reducing electricity usage discussed in section IV.C.7

pertaining to the engineering analysis. The GRIM analysis incorporates the additional

MPC cost of standby mode and off mode features and the resulting impacts on markups.

Due to the small cost of standby mode and off mode components relative to the

overall cost of a furnace, central air conditioner, or heat pump, DOE assumes that

standards regarding standby mode and off mode features alone will not impact product

shipment numbers. Additionally, DOE does not believe the incremental cost of standby

mode and off mode features will have a differentiated impact on manufacturers of

different product classes. DOE models the impact of standby mode and off mode for the

industry as a whole.

The GRIM results for standby mode and off mode standards include the electric

furnace product class. Based on product catalogue information, DOE concluded that the

major manufacturers of conventional products are also the major manufacturers of

electric furnaces.

The space-constrained and SDHV product classes were not analyzed in the GRIM

for energy efficiency standards. As a result, quantitative numbers are also not available

320for the GRIM analyzing standby mode and off mode standards. However, the standby

mode and off mode design options considered for space-constrained and SDHV products

are identical to the design options for split-systems air conditioning and heat pump

products. DOE expects the standby mode and off mode impacts on space-constrained and

SDHV products to be of the same order of magnitude as the impacts on split-system air

conditioning and heat pump products.

a. GRIM Key Inputs

i. Manufacturer Production Costs

Manufacturing a higher-efficiency product is typically more expensive than

manufacturing a baseline product due to the use of more complex components and

higher-cost raw materials. The changes in the manufacturer production cost (MPC) of the

analyzed products can affect revenues, gross margins, and cash flow of the industry,

making these product cost data key GRIM inputs for DOE’s analysis.

In the MIA, DOE used the MPCs for each considered efficiency level calculated

in the engineering analysis, as described in section IV.C.1 pertaining to the engineering

analysis and further detailed in chapter 5 of the direct final rule TSD. In addition, DOE

used information from its teardown analysis, described in section IV.C.1, to disaggregat e
the MPCs into material, labor, and overhead costs. To calculate the MPCs for products

above the baseline, DOE added the incremental material, labor, and overhead costs from

the engineering cost-efficiency curves to the baseline MPCs. These cost breakdowns and

product mark-ups were validated with manufacturers during manufacturer interviews.

321ii. Base-Case Shipments Forecast

The GRIM estimates manufacturer revenues based on total unit shipment

forecasts and the distribution of shipments by product class and efficiency level. Changes

in the efficiency mix at each potential standard level affect manufacturer finances. For

this analysis, the GRIM uses the NIA shipments forecasts from 2010, the base year for

the MIA analysis, to 2045, the last year of the analysis period. In the shipments analysis,

DOE estimates the distribution of efficiencies in the base case for all product classes. See

section IV.G.1, above, for additional details.

iii. Shipment Forecasts

The GRIM used shipments figures developed in the NIA for residential furnace

and central air conditioner and heat pump products. To determine efficiency distributions

for the standards case, DOE used a “roll

- up + market shift” scenario. DOE assumed that

product efficiencies in the base case that did not meet the standard under consideration

would “roll up” to meet the new standard in the standard year, when compliance with

amended standards is required. DOE further assumed that revised standards would result

in a market shift such that market shares of products with efficiencies better than the

standard would gradually increase because “market

- pull” programs, such as ENERGY

STAR, would continue to promote efficient appliances after amended standards are

introduced.

322The shipment forecasts account for possible product switching that may occur

among split-system air conditioning, split-system heat pumps, non-weatherized gas

furnaces, and electric furnaces. The product switching calculations incorporate

considerations of consumer climate zones, existing equipment, equipment costs, and

installation costs. In the MIA results discussion in section V.B.2, the presentation of

INPV and the MIA analysis of conventional products incorporate the impacts of product

switching. See section IV.G.1 of this direct final rule and chapter 10 of the direct final

rule TSD for more information on the standards-case shipment scenario.

iv. Product and Capital Conversion Costs

New or amended energy conservation standards will cause manufacturers to incur

one-time conversion costs to bring their production facilities and product designs into

compliance. DOE evaluated the level of conversion-related capital expenditures needed

to comply with each considered efficiency level in each product class. For the purpose of

the MIA, DOE classified these conversion costs into two major groups: (1) product

conversion costs, and (2) capital conversion costs. Product conversion costs are one-time

investments in research, development, testing, and marketing, focused on making product

designs comply with the new energy conservation standard. Capital conversion costs are

one-time investments in property, plant, and equipment to adapt or change existing

production facilities so that new equipment designs can be fabricated and assembled.

DOE assessed the product conversion costs at each considered standard level by

integrating data from multiple sources. Those R&D expenditures, and other components

323of product conversion cost, were validated through manufacturer interviews. DOE

considered feedback from multiple manufacturers at each level. Manufacturer numbers

were averaged using market share weighting of each company to provide a number that

better reflects the industry as a whole.

DOE also evaluated the level of capital conversion expenditures manufacturers

would incur to comply with energy conservation standards. DOE used the manufacturer

interviews to gather data on the level of capital investment required at each possible

efficiency level. Manufacturer values were aggregated and scaled using market share

weighting to better reflect the industry. Additionally, DOE validated manufacturer

comments through estimates of capital expenditure requirements derived from the

product teardown analysis and engineering model described in section IV.C.1.

In general, DOE assumes that all conversion-related investments occur between

the announcement year and the standards compliance year. For evaluation of the TSL

corresponding to the consensus agreement, DOE used the accelerated timeframes to

reflect the compliance dates recommended in the agreement. The GRIM models all

furnace conversion costs occurring during the period between 2011 and 2013 for the TSL

corresponding to the consensus agreement. Similarly, DOE assumed all central air

conditioner and heat pump conversion costs would occur between 2011 and 2015 for the

TSL corresponding to the consensus agreement.

324For standby mode and off mode, DOE did not receive quantitative feedback

during MIA interviews on the conversion costs associated with standby mode and off

mode features. Based on the design options from the engineering analysis, DOE assumed

that the standby mode and off mode capital conversion costs would be small relative to

the capital conversion cost for meeting energy efficiency standards. However, DOE did

incorporate product conversion costs for R&D, testing, and revision of marketing

materials. The product conversion costs were based on product testing cost quotations

and on market information about the number of platforms and product families for each

manufacturer.

The investment figures used in the GRIM can be found in section V.B.2.a of

today’s notice. For additional information on the estimated product conversion and

capital conversion costs, see chapter 12 of the TSD.

b. Markup Scenarios

As discussed above, manufacturer selling prices (MSPs) include direct

manufacturing production costs ( i.e.

, labor, material, and overhead estimated in DOE’s

MPCs) and all non-production costs ( i.e

., SG&A, R&D, and interest), along with profit.

To calculate the MSPs in the GRIM, DOE applied markups to the MPCs estimated in the

engineering analysis for each product class and efficiency level. Modifying these

markups in the standards case yields different sets of impacts on manufacturers. For the

MIA, DOE modeled three standards-case markup scenarios to represent the uncertainty

regarding the potential impacts on prices and profitability for manufacturers following

325the implementation of amended energy conservation standards: (1) a tiered markup

scenario, (2) a preservation of earnings before interest and taxes (EBIT), and (3) a

preservation of gross margin percentage. These scenarios lead to different markups

values which, when applied to the inputted MPCs, result in varying revenue and cash

flow impacts. The first and second scenarios were determined to best represent the

impacts of potential energy efficiency standards on industry mark ups. The second and

third scenarios were used to model potential standby mode and off mode standards,

because pricing tiers would not likely be impacted by standby mode and off mode

standards.

Under the “preservation of gross margin percentage” scenario, DOE applied a

single uniform “gross margin percentage” markup across all efficiency levels. As

production costs increase with efficiency, this scenario implies that the absolute dollar

markup will increase as well. DOE assumed the non-production cost markup

— which

includes SG&A expenses, R&D expenses, interest, and profit

— stays constant at the basecase percentage even as the standards-case efficiency increases. This markup is consistent

with the one DOE assumed in the base case for the GRIM. Manufacturers noted in

interviews that it is optimistic to assume that as their production costs increase in

response to an amended energy conservation standard, they would be able to maintain the

same gross margin percentage markup. Therefore, DOE assumed that this scenario

represents a high bound to industry profitability under an energy conservation standard.

326The tiered markup scenario models the situation in which manufacturers set

markups based on three tiers of products. The tiers described by manufacturers in MIA

interviews were defined as “good, better, best,” or “value, standard, premium.” The high

volume “value” product lines typically have fewer features, lower efficiency, and lower

markups, while “premium” product lines typically have more features, higher efficiency,

and higher markups. In the standards case, the tiered markups scenario considers the

situation in which the breadth of a manufacturer’s portfolio of products shrinks and

amended standards “demote” higher -tier products to lower tiers. As a result, higherefficiency products that previously commanded “standard” and “premium” mark -ups are
assigned “value” and “standard” marku ps, respectively.

In the preservation of earnings before interest and taxes (EBIT) scenario, the

manufacturer markups are set so that EBIT one year after the compliance date of the

amended energy conservation standards is the same as in the base case. Under this

scenario, as the cost of production and the cost of sales go up, manufacturers are

generally required to reduce their markups to a level that maintains base-case operating

profit. The implicit assumption behind this markup scenario is that the industry can only

maintain its operating profit in absolute dollars after the amended standards. Operating

margin in percentage terms is squeezed (reduced) between the base case and standards

case.

During the March 2010 public meeting for residential furnaces and the May 2010

public meeting for central air conditioners and heat pumps and in the written comments

327for those public meetings, there were no comments on the assumptions of the preliminary

MIA.

3. Manufacturer Interviews

As part of the MIA interviews, DOE discussed potential impacts of standards with

five of the seven leading manufacturers of residential furnaces, central air conditioners,

and heat pumps. 80 DOE also interviewed six niche product manufacturers.

In the interviews, DOE asked manufacturers to describe their major concerns

about this rulemaking. The following sections discuss manufacturers’ concerns about the

most significant issues they identified.

a. Consensus Agreement

All manufacturers interviewed either strongly supported or were amenable to the

consensus agreement that was recommended and signed by a number of manufacturers,

advocacy organizations, and trade groups. Most interviewees were signatories and urged

the Department to act as quickly as possible to adopt the consensus agreement.

Manufacturers indicated that the consensus agreement provides regulatory certainty,

manageable conversion costs, and accelerated compliance dates that provide energy

savings earlier than would otherwise be achieved. Due to the tight timelines outlined in

the agreement, manufacturers stated their desire for DOE to adopt the agreement as soon

as possible in order to have sufficient time to meet the agreement’s energy conservation

standards and associated compliance dates.

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

328b. Potential for Significant Changes to Manufacturing Facilities

During interviews, several manufacturers indicated that central air conditioning

and heat pump conversion costs are not linear, but would step up dramatically at various

efficiency levels. In general, manufacturers were concerned that a national baseline

energy conservation standard above 14 SEER for split-system air condition ers and splitsystem heat pumps would require extensive and costly product line redesigns. At various

higher efficiency levels, system designs would have to incorporate additional or more

complex technologies, including two-stage compressors, ECM fan motors, and larger

heater exchangers. Therefore, to reach higher levels, units would have to increase in size,

necessitating larger cabinet sizes and the purchase of new equipment and tooling. Several

large manufacturers indicated that offshore production or completely new production

facilities would be considered above 14 SEER due to the scope of changes required to

meet an amended standard. Manufacturer estimates for the total investment required to

meet national standards in the 14.5 to 16 SEER range varied widely, often depending on

the current state of each manufacturer’s production lines and whether a completely new

production facility was required.

c. Increase in Product Repair and Migration to Alternative Products

Several manufacturers stated that the higher cost of more-efficient systems

resulting from amended energy conservation standards would need to be passed on to

consumers, absorbed by manufacturers, or some combination of both. If manufacturers

were to attempt to pass on higher costs, the industry is concerned higher prices would

329result in consumers pursing lower-cost, less-efficient alternatives. In addition,

manufacturers believe that consumers, facing higher first costs, would be more likely to

repair older, less-efficient heating and cooling systems rather than replace those units

with new, more-efficient models. Similarly, manufacturers expressed concern that

consumers would be more likely to switch to lower up-front cost, lower-efficiency

technologies such as room air conditioners and electric space heaters. Manufacturers

agreed that these alternatives would reduce energy savings and reduce energy conserved.

As evidence, manufacturers cited market trends following the 2006 compliance

date of the 200 4 central air conditioners and heat pump energy conservation rulemaking.

69 FR 50997 (Aug. 14, 2004)

. Since 2006, manufacturers have noted a decline in central

air conditioner and heat pump sales coupled with an increase in room air conditioner

sales and an increase in orders for repair components. In general, the manufacturers are

concerned that the decline in shipments from 2006 to 2010 will continue, and that a

revised energy conservation standard will exacerbate the decline in unitary air

conditioner shipments.

d. HFC Phase-Out Legislation

Manufacturers expressed strong concerns about legislation proposed in Congress

that would phase out HFC refrigerants, including R-410A and R-134a. Any phase-out

would require extensive redesign of all central air conditioners and heat pump products to

make use of an alternative refrigerant. Manufacturers asserted that there is no clear

replacement for HFC refrigerants today. Without a clear replacement, the manufacturers

330stated that any phase-out would create a period of uncertainty as the industry identifies

suitable alternatives and then redesigns products around the replacement. It is unclear

what efficiency levels could be achieved at reasonable cost without HFC refrigerants.

Manufacturers observed that past phase-outs generally have led to more-expensive and

less-efficient refrigerant replacements. Additionally, manufacturers stated that alternative

refrigerants may require substantially larger systems to achieve the same levels of

performance.

e. Physical Constraints

Multiple manufacturers expressed concern that an increase in appliance efficiency

standards would leave older homes, and multi-family homes in particular, with few costeffective options for replacing their cooling systems. As the efficiency of air conditioning

increases, the physical sizes of the units also increase. Manufacturers are concerned

because central air conditioner and heat pump units are already so large that they can be

difficult to fit into some end-user homes. Attic entry ways, basement doors, and

condensing unit pads all present physical constraints when replacing an air conditioner

with a larger, more-efficient system. Multifamily homes are particularly restricted due to

the limited space in utility closets and due to the limited options for renovation. These

physical constraints lead to higher installation costs, which may encourage customers to

repair existing systems rather than replace them.

331f. Supply Chain Constraints

Some manufacturers expressed concern about the impact of more-stringent

standards on their supply chain. Changes in energy conservation standards could affect

the competitive positioning and dominance of component suppliers. One manufacturer

cited the example of the 2001 central air conditioner rulemaking (66 FR 7170 (Jan. 22,

2001 )), after which one of two critical compressor suppliers nearly went bankrupt

(because the change in standards led most manufacturers to choose design options that

favored the technology of one supplier over the other). According to the manufacturer,

having the industry rely on a single supplier for critical components, even just a few, puts

the entire industry at risk.

Additionally, manufacturers stated that more-stringent energy conservation

standards would increase the demand for some key components over current levels.

Given that most manufacturers rely on the same set of suppliers, amended standards

could result in long lead times for obtaining critical components, such as high-efficiency

compressors, ECM motors, modulating gas valves, advanced control systems, and new

production tooling.

J. Employment Impact Analysis

DOE considers employment impacts in the domestic economy as one factor in

selecting a standard. Employment impacts consist of both direct and indirect impacts.

Direct employment impacts are any changes in the number of employees of

manufacturers of the appliance products which are the subject of this rulemaking, their

332suppliers, and related service firms. Indirect employment impacts are changes in national

employment that occur due to the shift in expenditures and capital investment caused by

the purchase and operation of more-efficient appliances. The MIA addresses the direct

employment impacts that concern manufacturers of furnaces, central air conditioners, and

heat pumps. The employment impact analysis addresses the indirect employment

impacts.

Indirect employment impacts from standards consist of the net jobs created or

eliminated in the national economy, other than in the manufacturing sector being

regulated, due to: (1) reduced spending by end users on energy; (2) reduced spending on

new energy supply by the utility industry; (3) increased spending on new products to

which the new standards apply; and (4) the effects of those three factors throughout the

economy. DOE expects the net monetary savings from amended energy conservation

standards to be redirected to other forms of economic activity. DOE also expects these

shifts in spending and economic activity to affect the demand for labor in the short term,

as explained below.

One method for assessing the possible effects on the demand for labor of such

shifts in economic activity is to compare sectoral employment statistics developed by the

Labor Department’s BLS. 81 The BLS regularly publishes its estimates of the number of

jobs per million dollars of economic activity in different sectors of the economy, as well

81 Data on industry employment, hours, labor compensation, value of production, and the implicit price deflator for output for these industries are available upon request by calling the Division of Industry Productivity Studies (202- 691 -5618) or by sending a request by e-mail to dipsweb@bls.gov . (Available at: http://www.bls.gov/news.release/prin1.nr0.htm .)

333as the jobs created elsewhere in the economy by this same economic activity. Data from

BLS indicate that expenditures in the utility sector generally create fewer jobs (both

directly and indirectly) than expenditures in other sectors of the economy. There are

many reasons for these differences, including wage differences and the fact that the utility

sector is more capital-intensive and less labor-intensive than other sectors. 82

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 laborintensive sectors ( e.g. , the retail and service sectors). Thus, based on the BLS data alone,

the Department believes net national employment will increase due to shifts in economic

activity resulting from amended standards for furnaces, central air conditioners, and heat

pumps.

For the standards considered in today’s direct final rule, DOE estimated indirect

national employment impacts using an input/output model of the U.S. economy called

Impact of Sector Energy Technologies (ImSET). ImSET is a spreadsheet model of the

U.S. economy that focuses on 187 sectors most relevant to industrial, commercial, and

residential building energy use. 83 ImSET is a special purpose version of the “U.S.

82 See Bureau of Economic Analysis, Regional Multipliers: A User Handbook for the Regional InputOutput Modeling System (RIMS II), U.S. Department of Commerce (1992).
83 M.J. Scott, O.V. Livingston, J.M. Roop, R.W. Schultz, and P.J. Balducci, ImSET 3.1: Impact of Sector Energy Technologies; Model Description and User’s Guide (2009) (Available at: http://www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf ).

334Benchmark National Input- Output” (I– O) model, 84 which has been designed to estimat e
the national employment and income effects of energy-saving technologies. The ImSET

software includes a computer-based I

– O model with structural coefficients to characterize

economic flows among the 187 sectors. ImSET’s national economic I– O structure is

based on a 2002 U.S. benchmark table, specially aggregated to the 187 sectors. DOE

estimated changes in expenditures using the NIA spreadsheet. Using ImSET, DOE then

estimated the net national, indirect employment impacts by sector of potential amended

ef

ficiency standards for furnaces, central air conditioners, and heat pumps.

No comments were received on the preliminary TSD for central air conditioners

and heat pumps or the furnaces RAP concerning the employment impacts analysis. For

more details on the employment impact analysis, see chapter 13 of the direct final rule

TSD.

K. Utility Impact Analysis

The utility impact analysis estimates several important effects on the utility

industry that would result from the adoption of new or amended energy conservation

standards. For the direct final rule analysis, DOE used the NEMS-BT model to generate

forecasts of electricity and natural gas consumption, electricity generation by plant type,

and electric generating capacity by plant type, that would result from each considered

TSL. DOE obtained the energy savings inputs associated with efficiency improvements

to the subject products from the NIA. DOE conducts the utility impact analysis as a

84 R.L. Stewart, J.B. Stone, and M.L. Streitwieser. U.S. Benchmark Input-Output Accounts, 2002. Survey of Current Business

, October 2007. (Available at http://www.bea.gov/scb/pdf/2007/10%20October/1007_benchmark_io.pdf )

335scenario that departs from the latest AEO Reference case. For this di rect final rule, the

estimated impacts of amended energy conservation standards are the differences between

values forecasted by NEMS

– BT and the values in the AEO2010 Reference case (which

does not contemplate amended standards).

As part of the utility impact analysis, DOE used NEMS-BT to assess the impacts

on natural gas prices of the reduced demand for natural gas projected to result from the

considered standards. DOE also used NEMS-BT to assess the impacts on electricity

prices of the reduced need for new electric power plants and infrastructure projected to

result from the considered standards. In NEMS-BT, changes in power generation

infrastructure affect utility revenue, which in turn affects electricity prices. DOE

estimated the change in electricity prices projected to result over time from each

considered TSL. The benefits associated with the impacts of today’s standards on energy

prices are discussed in section IV.G.5.

For more details on the utility impact analysis, see chapter 14 of the direct final

rule TSD.

L. Environmental Assessment

Pursuant to the National Environmental Policy Act of 1969 and the requirements

of 42 U.S.C. 6295(o)(2)(B)(i)(VI), DOE has prepared an environmental assessment (EA)

of the impacts of the potential standards for residential furnaces, central air conditioners,

336and heat pumps in today’s rule, which it has included as chapter 15 of the direct final rule

TSD.

In the EA, DOE estimated the reduction in power sector emissions of CO 2 , NO X , and Hg using the NEMS

– BT computer model. In the EA, NEMS

– BT is run similarly to

the AEO NEMS, except that furnace, central air conditioner, and heat pump energy use is

reduced by the amount of energy saved (by fuel type) due to each TSL. The inputs of

na tional energy savings come from the NIA spreadsheet model, while the output is the

forecasted physical emissions. The net benefit of each TSL in today’s rule is the

difference between the forecasted emissions estimated by NEMS

– BT at each TSL and

the AEO 2 010 Reference Case. NEMS

– BT tracks CO 2 emissions using a detailed module

that provides results with broad coverage of all sectors and inclusion of interactive

effects. Because the on-site operation of non-electric heating products requires use of

fossil fuels and results in emissions of CO 2 , NO X, and sulfur dioxide (SO 2 ), DOE also

accounted for the reduction in these emissions due to potential amended standards at the

sites where these appliances are used. For today’s direct final rule, DOE used NEMS-BT

based on AEO 2010 . For the final rule, DOE intends to revise the emissions analysis

using the most current version of NEMS- BT

.

DOE determined that SO 2 emissions from affected fossil-fuel-fired combustion

devices (also known as Electric Generating Units (EGUs)) are subject to nationwide and

regional emissions cap-and-trade programs that create uncertainty about the potential

amended standards’ impact on SO 2 emissions. Title IV of the Clean Air Act, 42 U.S.C.

3377401

- 7671q

, sets an annual emissions cap on SO 2 for all affected EGUs in the 48

contiguous States and the District of Columbia (DC). SO 2 emissions from 28 eastern

States and DC are also limited under the Clean Air Interstate Rule (CAIR

, 70 FR 25162

(May 12, 2005)), which crea te d an allowance-based trading program. Although CAIR has

been remanded to the EPA by the U.S. Court of Appeals for the District of Columbia (DC

Circuit), see North Carolina v. EPA , 550 F.3d 1176 (DC Cir. 2008), it remains in effect

temporarily, consistent with the D.C. Circuit’s earlier opinion in North Carolina v. EPA

, 531 F.3d 896 (DC Cir. 2008). On July 6, 2010, EPA issued the Transport Rule proposal

, a replacement for CAIR, which would limit emissions from EGUs in 32 States,

potentially through the interstate trading of allowances, among other options. 75 FR

45210 (Aug. 2, 2010).

The attainment of the emissions caps is flexible among EGUs and is enforced

through the use of emissions allowances and tradable permits. Under existing EPA

regulations, and under the Transport Rule if it is finalized, any excess SO 2 emission

allowances resulting from the lower electricity demand caused by the imposition of an

efficiency standard could be used to permit offsetting increases in SO 2 emissions by any

regulated EGU. However, if the amended standard resulted in a permanent increase in the

quantity of unused emission allowances, there would be an overall reduction in SO 2
emissions from the standards. While there remains some uncertainty about the ultimate

effects of efficiency standards on SO 2 emissions covered by the existing cap and trade

system, the NEMS-BT modeling system that DOE uses to forecast emissions reductions

338currently indicates that no physical reductions in power sector emissions would occur for

SO 2
.

A cap on NO X emissions, affecting electric generating units in the CAIR region,

means that energy conservation standards may have little or no physical effect on NO X
emissions in the 28 eastern States and the D.C. covered by CAIR, or any States covered

by the proposed Transport Rule if the Transport Rule is finalized. The standards would

,
however, reduce NO X emissions in those 22 States not affected by the CAIR. As a result,

DOE used NEMS

– BT to forecast emission reductions from the standards considered for

today’s direct final rule.

Similar to emissions of SO 2 and NO X , future emissions of Hg would have been

subject to emissions caps. In May 2005, EPA issued the Clean Air Mercury Rule

(CAMR). 70 FR 28606 (May 18, 2005). CAMR would have permanently capped

emissions of mercury for new and existing coal-fired power plants in all States by 2010.

However, on February 8, 2008, the DC Circuit issued its decision in New Jersey v.

Environmental Protection Agency , 517 F.3d 574 (DC Cir. 2008), in which it vacated

CAMR. EPA has decided to develop emissions standards for power plants under Section

112 of the Clean Air Act, consistent with the DC Circuit’s opinion on the CAMR. See

http://www.epa.gov/air/mercuryrule/pdfs/certpetition_withdrawal.pdf . Pending EPA's

forthcoming revisions to the rule, DOE is excluding CAMR from its environmental

assessment. In the absence of CAMR, a DOE standard would likely reduce Hg emissions,

and DOE is us in g NEMS-BT to estimate these emission reductions. However, DOE

339continues to review the impact of rules that reduce energy consumption on Hg emissions,

and may revise its assessment of Hg emission reductions in future rulemakings.

The operation of non-electric heating products requires use of fossil fuels and

results in emissions of CO 2 , NO X , and SO 2 at the sites where these appliances are used.

NEMS-BT provides no means for estimating such emissions. DOE calculated the effect

of potential standards in today ’s rule on the above site emissions based on emissions

factors that are described in chapter 15 of the direct final rule TSD.

Commenting on the furnaces RAP, EEI stated that DOE should include the

environmental impacts of furnace production, especially if higher standards involve more

equipment being manufactured in and transported from other countries. (FUR: EEI, No.

1.3.015 at p. 6) APPA made a similar point. (FUR: APPA, No. 1.3.011 at p. 5)

In response, DOE notes that the inputs to the EA for national energy savings

come from the NIA. In the NIA, DOE only accounts for primary energy savings

associated with considered standards. In so doing, EPCA directs DOE to consider (when

determining whether a standard is economically justified) “the total projected amount of

energy . . . savings likely to result directly from the imposition of the standard.” (42

U.S.C. 6295(o)(2)(B)(i)(III)) DOE interprets the phrase “directly from the imposition of

the standard” to include energy used in the generation, transmiss ion, and distribution of

fuels used by appliances. In addition, DOE is evaluating the full-fuel-cycle measure,

which includes the energy consumed in extracting, processing, and transporting primary

340fuels (see section IV.G.3). Both DOE’s current accounting of primary energy savings and

the full-fuel-cycle measure are directly linked to the energy used by appliances. In

contrast, energy used in manufacturing and transporting appliances is a step removed

from the energy used by appliances. Thus, DOE did not consider such energy use in

either the NIA or the EA.

EEI commented that DOE’s environmental assessment should consider the

standards’ effect on emissions associated with the extraction, refining, and transport of oil

and natural gas. (FUR: EEI, No. 1.3.015 at p. 7) As noted in chapter 15 of the TSD, DOE

developed only qualitative estimates of effects on upstream fuel-cycle emissions because

NEMS-BT does a thorough accounting only of emissions at the power plant due to

downstream energy consumption. In other words, NEMS-BT does not account for

upstream emissions. Therefore, the environmental assessment for today’s rule did not

estimate effects on upstream emissions associated with oil and natural gas. As discussed

in section IV.G.3, however, DOE is in the process of developing an approach that will

allow it to estimate full-fuel-cycle energy use associated with products covered by energy

conservation standards.

M. Monetizing Carbon Dioxide and Other Emissions Impacts

As part of the development of t oday’s rule, DOE considered the estimated

monetary benefits likely to result from the reduced emissions of CO 2 and NO X that are

expected to result from each of the TSLs considered. In order to make this calculation

similar to the calculation of the NPV of consumer benefit, DOE considered the reduced

emissions expected to result over the lifetime of products shipped in the forecast period

341for each TSL. This section summarizes the basis for the monetary values used for each of

these emissions and presents the benefits estimates considered.

For today’s direct final rule, DOE relied on a set of values for the social cost of

carbon (SCC) that was developed an interagency process. A summary of the basis for

these values is provided below, and a more detailed description of the methodologies

used is provided as in chapter 16 of the direct final rule TSD.

1. Social Cost of Carbon

Under section 1(b) of Executive Order 12866, “Regulatory Plann ing and

Review,” 58 FR 51735 (Oct. 4, 1993), agencies must, to the extent permitted by law,

“assess both the costs and the benefits of the intended regulation and, recognizing that

some costs and benefits are difficult to quantify, propose or adopt a regulation only upon

a reasoned determination that the benefits of the intended regulation justify its costs.” The

purpose of the SCC estimates presented here is to allow agencies to incorporate the

monetized social benefits of reducing CO 2 emissions into cost-benefit analyses of

regulatory actions that have small, or “marginal,” impacts on cumulative global

emissions. The estimates are presented with an acknowledgement of the many

uncertainties involved and with a clear understanding that they should be updated over

time to reflect increasing knowledge of the science and economics of climate impacts.

As part of the interagency process that developed these SCC estimates, technical

experts from numerous agencies met on a regular basis to consider public comments

,

342explore the technical literature in relevant fields, and discuss key model inputs and

assumptions. The main objective of this process was to develop a range of SCC values

using a defensible set of input assumptions grounded in the existing scientific and

economic literatures. In this way, key uncertainties and model differences transparently

and consistently inform the range of SCC estimates used in the rulemaking process.

a. Monetizing Carbon Dioxide Emissions

The SCC is an estimate of the monetized damages associated with an incremental

increase in carbon emissions in a given year. It is intended to include (but is not limited

to) changes in net agricultural productivity, human health, property damages from

increased flood risk, and the value of ecosystem services. Estimates of the SCC are

provided in dollars per metric ton of carbon dioxide.

When attempting to assess the incremental economic impacts of carbon dioxide

emissions, the analyst faces a number of serious challenges. A recent report from the

National Research Council 85 points out that any assessment will suffer from uncertainty,

speculation, and lack of information about: (1) future emissions of greenhouse gases; (2)

the effects of past and future emissions on the climate system; (3) the impact of changes

in climate on the physical and biological environment; and (4) the translation of these

environmental impacts into economic damages. As a result, any effort to quantify and

monetize the harms associated with climate change will raise serious questions of

science, economics, and ethics and should be viewed as provisional.

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

343Despite the serious limits of both quantification and monetization, SCC estimates

can be useful in estimating the social benefits of reducing carbon dioxide emissions.

Consistent with the directive in Executive Order 12866 quoted above, the purpose of the

SCC estimates presented here is to make it possible for agencies to incorporate the social

benefits from reducing carbon dioxide emissions into cost-benefit analyses of regulatory

actions that have small, or “marginal,” impacts on cumulative global emissions. Most

Federal regulatory actions can be expected to have marginal impacts on global emissions.

For such policies, the agency can estimate the benefits from reduced (or costs

from increased) emissions in any future year by multiplying the change in emissions in

that year by the SCC value appropriate for that year. The net present value of the benefits

can then be calculated by multiplying each of these future benefits by an appropriate

discount factor and summing across all affected years. This approach assumes that the

marginal damages from increased emissions are constant for small departures from the

baseline emissions path, an approximation that is reasonable for policies that have effects

on emissions that are small relative to cumulative global carbon dioxide emissions. For

policies that have a large (non-marginal) impact on global cumulative emissions, there is

a separate question of whether the SCC is an appropriate tool for calculating the benefits

of reduced emissions. DOE does not attempt to answer that question here.

At the time of the preparation of this notice, the most recent interagency estimates

of the potential global benefits resulting from reduced CO 2 emissions in 2010, expressed

344in 2009$, were $4.9, $22.1, $36.3, and $67.1 per metric ton avoided. For emission

reductions that occur in later years, these values grow in real terms over time.

Additionally, the interagency group determined that a range of values from 7 percent to

23 percent should be used to adjust the global SCC to calculate domestic effects, 86

although preference is given to consideration of the global benefits of reducing CO 2

emissions.

It is important to emphasize that the interagency process is committed to updating

these estimates as the science and economic understanding of climate change and its

impacts on society improves over time. Specifically, the interagency group has set a

preliminary goal of revisiting the SCC values within two years or at such time as

substantially updated models become available, and to continue to support research in

this area. In the meantime, the interagency group will continue to explore the issues

raised by this analysis and consider public comments as part of the ongoing interagency

process.

b. Social Cost of Carbon Values Used in Past Regulatory Analyses

To date, economic analyses for Federal regulations have used a wide range of

values to estimate the benefits associated with reducing carbon dioxide emissions. In the

final model year 2011 CAFE rule, the Department of Transportation (DOT) used both a

“domestic” SCC value of $2 per ton of CO 2 and a “global” SCC value of $33 per ton of

CO 2 for 2007 emission reductions (in 2007 dollars), increasing both values at 2.4 percent

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

345per year. 87 See Average Fuel Economy Standards Passenger Cars and Light Trucks

Model Year 2011 , 74 FR 14196 (March 30, 2009) (Final Rule); Final Environmental

Impact Statement Corporate Average Fuel Economy Standards, Passenger Cars and Light

Trucks, Model Years 2011-2015 at 3-90 (Oct. 2008) (Available at:

http://www.nhtsa.gov/fuel-economy ). It also included a sensitivity analysis at $80 per

ton of CO 2 . A domestic SCC value is meant to reflect the value of damages in the United

States resulting from a unit change in carbon dioxide emissions, while a global SCC

value is meant to reflect the value of damages worldwide.

A 2008 regulation proposed by DOT assumed a domestic SCC value of $7 per ton

of CO 2 (in 2006 dollars) for 2011 emission reductions (with a range of $0-$14 for

sensitivity analysis), also increasing at 2.4 percent per year. See Average Fuel Economy

Standards, Passenger Cars and Light Trucks, Model Years 2011- 2015 , 73 FR 24352

(May 2, 2008) (Proposed Rule); Draft Environmental Impact Statement Corporate

Average Fuel Economy Standards, Passenger Cars and Light Trucks, Model Years 2011­

2015 at 3- 58 (June 2008) (Available at: http://www.nhtsa.gov/fuel-economy ). A

regulation for packaged terminal air conditioners and packaged terminal heat pumps

finalized by DOE in October of 2008 used a domestic SCC range of $0 to $20 per ton

CO 2 for 2007 emission reductions (in 2007 dollars). 73 FR 58772, 58814 (Oct. 7, 2008).

In addition, EPA’s 2008 Advance Notice of Proposed Rulemaking for Greenhouse Gases

identified what it described as “very preliminary” SCC estimates subject to revision. See

Regulating Greenhouse Gas Emissions Under the Clean Air Act , 73 FR 44354 (July 30,

2008) (Advance Notice of Proposed Rulemaking). EPA’s global mean values were $68

87 Throughout this sect ion, the term “tons of CO 2 “ refers to metric tons.

346and $40 per ton CO 2 for discount rates of approximately 2 percent and 3 percent,

respectively (in 2006 dollars for 2007 emissions). Se e id. at 44416.

In 2009, an interagency process was initiated to offer a preliminary assessment of

how best to quantify the benefits from reducing carbon dioxide emissions. To ensure

consistency in how benefits are evaluated across agencies, the Administration sought to

develop a transparent and defensible method, specifically designed for the rulemaking

process, to quantify avoided climate change damages from reduced CO 2 emissions. The

interagency group did not undertake any original analysis. Instead, it combined SCC

estimates from the existing literature to use as interim values until a more comprehensive

analysis could be conducted. The outcome of the preliminary assessment by the

interagency group was a set of five interim values: global SCC estimates for 2007 (in

2006 dollars) of $55, $33, $19, $10, and $5 per ton of CO 2
.

These interim values represent the first sustained interagency effort within the

U.S. government to develop an SCC for use in regulatory analysis. The results of this

preliminary effort were presented in several proposed and final rules and were offered for

public comment in connection with proposed rules, including the joint EPA-DOT fuel

economy and CO 2 tailpipe emission proposed rules. See CAFE Rule for Passenger Cars

and Light Trucks Draft EIS and Final EIS, cited above.

347c. Current Approach and Key Assumptions

Since the release of the interim values, the interagency group reconvened on a

regular basis to generate improved SCC estimates, which were considered in the

evaluation of t oday’s rule. Specifically, the group considered public comments and

further explored the technical literature in relevant fields. The interagency group relied on

three integrated assessment models (IAMs) commonly used to estimate the SCC: the

FUND, DICE, and PAGE models. 88 These models are frequently cited in the peerreviewed literature and were used in the last assessment of the Intergovernmental Panel

on Climate Change. Each model wa s given equal weight in the SCC values that were

developed

.

Each model takes a slightly different approach to model how changes in

emissions result in changes in economic damages. A key objective of the interagency

process was to enable a consistent exploration of the three models while respecting the

different approaches to quantifying damages taken by the key modelers in the field. An

extensive review of the literature was conducted to select three sets of input parameters

for these models: (1) climate sensitivity; (2) socio-economic and emissions trajectories;

and (3) discount rates. A probability distribution for climate sensitivity was specified as

an input into all three models. In addition, the interagency group used a range of

scenarios for the socio-economic parameters and a range of values for the discount rate.

Al l other model features were left unchanged, relying on the model developers’ best

estimates and judgments.

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

348The interagency group selected four SCC values for use in regulatory analyses.

Three values are based on the average SCC from three integrated assessment models, at

discount rates of 2.5, 3, and 5 percent. The fourth value, which represents the 95 th

percentile SCC estimate across all three models at a 3-percent discount rate, is included

to represent higher-than-expected impacts from temperature change further out in the

tails of the SCC distribution. For emissions (or emission reductions) that occur in later

years, these values grow in real terms over time, as depicted in Table IV

. 24

.

Table IV

. 24 Social Cost of CO 2 , 2010

– 2050 (in 2007 dollars per metric ton) Discount Rate 5% Avg 3% 2.5% Avg Avg 3% 95th
2010 2015
2020 2025
2030 2035
2040 2045 2050 4.7 5.7
6.8 8.2
9.7 11.2
12.7
14.2 15.7 21.4 23.8 26.3 29.6 32.8 36.0 39.2
42.1 44.9 35.1 38.4
41.7 45.9 50.0 54.2 58.4
61.7 65.0 64.9 72.8 80.7 90.4 100.0 109.7 119.3
127.8 136.2

It is important to recognize that a number of key uncertainties remain, and that

current SCC estimates should be treated as provisional and revisable since they will

evolve with improved scientific and economic understanding. The interagency group also

rec ognizes that the existing models are imperfect and incomplete. The National Research

Council report mentioned above points out that there is tension between the goal of

producing quantified estimates of the economic damages from an incremental ton of

349carbon and the limits of existing efforts to model these effects. There are a number of

concerns and problems that should be addressed by the research community, including

research programs housed in many of the agencies participating in the interagency

process to estimate the SCC.

The U.S. Government intends to periodically review and reconsider estimates of

the SCC used for cost-benefit analyses to reflect increasing knowledge of the science and

economics of climate impacts, as well as improvements in modeling. In this context,

statements recognizing the limitations of the analysis and calling for further research take

on exceptional significance. The interagency group offers the new SCC values with all

due humility about the uncertainties embedded in them and with a sincere promise to

continue work to improve them.

In summary, in considering the potential global benefits resulting from reduced

CO 2 emissions, DOE used the most recent values identified by the interagency process,

adjusted to 2009$ using the GD P price deflator values for 2008 and 2009. For each of

the four cases specified, the values used for emissions in 2010 were $4.9, $22.1, $36.3,

and $67.1 per metric ton avoided (values expressed in 2009$). To monetize the CO 2
emissions reductions expected to result from amended standards for furnaces, central air

conditioners, and heat pumps, DOE used the values identified in Table A1 in the “Social

Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866,” wh ich is

reprinted as appendix 16 A of the direct final rule TSD, appropriately adjusted to 2009$. 89

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

350To calculate a present value of the stream of monetary values, DOE discounted the values

in each of the four cases using the specific discount rate that had been used to obtain the

SCC values in each case.

2. Valuation of Other Emissions Reductions

DOE investigated the potential monetary benefit of reduced NO X emissions from

the TSLs it considered. As noted above, new or amended energy conservation standards

would reduce NO X emissions in those 22 States that are not affected by the CAIR, in

addition to the reduction in site NO X emissions nationwide. DOE estimated the

monetized value of NO X emissions reductions resulting from each of the TSLs

considered for today’s direct final rule based on environmental damage estimates from

the literature. Available estimates suggest a very wide range of monetary values, ranging

from $370 per ton to $3,800 per ton of NO X from stationary sources, measured in 2001$

(equivalent to a range of $447 to $4,591 per ton in 2009$). 90 In accordance with OMB

guidance, DOE conducted two calculations of the monetary benefits derived using eac h

of the economic values used for NO X , one using a real discount rate of 3 percent and

another using a real discount rate of 7 percent. 91

DOE is aware of multiple agency efforts to determine the appropriate range of

values used in evaluating the potential economic benefits of reduced Hg emissions. DOE

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

351has decided to await further guidance regarding consistent valuation and reporting of Hg

emissions before it once again monetizes Hg emissions reductions in its rulemakings.

Commenting on the central air conditioners and heat pumps preliminary TSD,

Southern stated that the incremental climate change from a rulemaking is too uncertain to

be included in the decision-making for energy conservation standard levels, and the

benefits of reduced carbon emissions should not be included. (CAC: SCS, No. 73 at p. 2)

Commenting on the furnaces RAP, several parties provided comments regarding the

economic valuation of CO 2 emissions. EEI objected to using the global value for the

social cost of carbon because the re st of DOE’s analyses use domestic values. (FUR: EEI,

No. 1.3.015 at pp. 8

– 9) APPA recommended that DOE use a set of hyperbolic discount

rates for the value of CO 2 . It also stated that the wide range of values for the SCC could

adversely impact the calculation of benefits from amended energy conservation

standards, and that DOE should consider the value of carbon reduction separately from

the NIA analysis. (FUR: APPA, No. 1.3.011 at p. 5)

DOE acknowledges that the economic value of future CO 2 emissions reductions is

uncertain, and for this reason, it uses a wide range of potential values, and a range of

discount rates, as described above. DOE further notes that the estimated monetary

benefits of reduced CO 2 emissions are only one factor among many that DOE considers

in evaluating the economic justification of potential standard levels.

352As to whether DOE should consider the value of carbon reduction separately from

the NIA, the NIA assesses the national energy savings and the national net present value

of total consumer costs and savings expected to result from standards at specific

efficiency levels. Thus, DOE does not aggregate the estimated economic benefits of

avoided CO 2 emissions (and other emissions) into the NIA. However, it does believe that

the NPV of the monetized benefits associated with emissions reductions can be viewed as

a complement to the NPV of the consumer savings expected to result from new or

amended energy conservation standards. Therefore, in section V of this notice, DOE

presents the NPV values that result from adding the estimates of the potential economic

benefits resulting from reduced CO 2 and NO X emissions in each of four valuation

scenarios to the NPV of consumer savings calculated for each TSL considered in this

rulemaking.

Commenting on the furnaces RAP, EEI stated that utilities have embedded the

cost of complying with existing environmental legislation in the price for electricity and

that DOE must not double-count the benefits of reduced emissions related to standards.

(FUR: EEI, No. 1.3.015 at p. 6) In response, DOE calculates emissions reductions

associated with potential standards relative to an AEO Reference case that includes the

costs of complying with existing environmental legislation. The AEO Reference case

still has emissions, of course, which are reduced in the case of standards. The reduction in

emissions avoids impacts on human health or other damages, and DOE’s monetization of

emissions reductions seeks to quantify the value of those avoided damages.

353V. Analytical Results

The following section addresses the results from DOE’s analyses with respect to

potential energy conservation standards for the products examined as part of this

rulemaking. It addresses the trial standard levels examined by DOE, the projected

impacts of each of these levels if adopted as energy conservation standards for furnaces,

central air conditioners, and heat pumps, and the standards levels that DOE is adopting in

today’s direct final rule. Additional details regarding the analyses conducted by DOE are

contained in the publicly-available direct final rule TSD supporting this notice.

A. Trial Standard Levels

DOE analyzed the benefits and burdens of a number of TSLs for the furnaces,

central air conditioners, and heat pumps that are the subject of today’s rule. A description

of each TSL DOE analyzed is provided below. DOE attempted to limit the number of

TSLs considered for the direct final rule by excluding efficiency levels that do not exhibit

significantly different economic and/or engineering characteristics from the efficiency

levels already selected as TSLs. While DOE only presents the results for those efficiency

levels in TSL combinations in today’s direct final rule, DOE presents the results for all

efficiency levels that it analyzed in the direct final rule TSD.

1. TSLs for Energy Efficiency 92

Table V.1 presents the TSLs and the corresponding product class efficiency levels

that DOE considered for furnace, central air conditioner, and heat pump energy

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

354efficiency. Eight product classes are specified in Table V.1 : (1) split-system central air

conditioners (SAC); (2) split-system heat pumps (SHP); (3) single-package central air

conditioners (PAC); (4) single-package heat pumps (PHP); (5) SDHV systems; (6) non

weatherized gas furnaces (NWGF); (7) oil furnaces (OF); and (8) mobile home gas

furnaces (MHF).

TSL 7 consists of the max-tech efficiency levels. For split-system central air

conditioners and heat pumps, max- te ch levels vary by capacity (tonnage) and, in the case

of air conditioners, the type of unit ( i.e. , coil-only or blower-coil). Specifically, for splitsystem central air conditioners, the max-tech level specified in Table V.1of 22 SEER

pertains only to 3-ton blower-coil units. The max- tech levels for the other tonnages and

unit types are: 24.5 SEER for 2-ton, blower-coil; 18 SEER for 5-ton, blower-coil and 2­

ton, coil-only; 17 SEER for 3-ton, coil-only; and 16 SEER for 5-ton, coil-only. For splitsystem heat pumps, the max-tech level specified in Table V.1 of 21 SEER / 9.9 HSPF

pertains only to 3-ton units. The max-tech levels for the other tonnages are: 22 SEER /

9.9 HSPF for 2-ton; and 17 SEER / 9.0 HSPF for 5-ton.

TSL 6 consists of a cooling efficiency level of 15 SEER for all central air

conditioner and heat pump product classes with the exception of specifying a cooling

efficiency level of 14 SEER for split- system central air conditioners in the “rest of

country” region ( i.e. , the North) and SDHV systems. For furnaces, TSL 6 consists of

efficiency levels for each product class which are one level below the max-tech level.

355TSL 5 consists of cooling efficiency levels for each central air conditioner and

heat pump product class which are one level below the efficiencies in TSL 6. This

corresponds to a cooling efficiency level of 14 SEER for all product classes with the

exception of specifying a cooling efficiency at the baseline level (13 SEER) for splitsystem central air conditioners in the “rest of country” region ( i.e. , the North) and SDHV

systems. For furnaces, TSL 5 consists of the same efficiency levels as TSL 6 ( i.e. , each

product class has an efficiency level which is one level below the max-tech level).

TSL 4 consists of the efficiency levels included in the consensus agreement,

including accelerated compliance dates ( i.e. , by 3 years for furnaces and 1.5 years for

central air conditioners and heat pumps) and requirements for a second metric (EER)

applicable to split-system air conditioners and packaged air conditioners in the hot-dry

region. For SDHV systems, TSL 4 consists of the baseline efficiency level.

TSL 3 consists of the same efficiency levels as specified in TSL 4, except with a

lead time for compliance of five years after the final rule publication, and no EER

requirements for split system air conditioners and packaged air conditioners in the hotdry region. TSL 2 consists of the efficiency levels within each region that correspond to

those products which currently have the largest market share. TSL 1 refers to a single

national standard and consists of the efficiency levels in each product class with the

largest market share. For SDHV systems, TSLs 1, 2, and 3 consist of the baseline

efficiency level.

356Table V.1. Trial Standard Levels for Central Air Conditioners, Heat Pumps, and Furnaces (Energy Efficiency) SAC SHP PAC PHP SDHV NWGF OF MHF TSL Region Applicable SEER SEER/HSPF SEER SEER/HSPF SEER/HSPF AFUE AFUE AFUE

7 Rest of Country* 22** 21 / 9.9 † 16.5 16.5 / 9.0 14.5 / 8.6 98% 97% 96% North (Furnace) 98% 96% Hot Humid (CAC

- HP) 22** 21 / 9.9 † 16.5 16.5 / 9.0 14.5 / 8.6 Hot Dry (CAC

- HP) 22** 21 / 9.9 † 16.5 16.5 / 9.0 14.5 / 8.6

6 Rest of Country* 14 15 / 8.5 15 15 / 8.4 14 / 8.5 80% 85% 80% North (Furnace) 95% 96% Hot Humid (CAC

- HP) 15 15 / 8.5 15 15 / 8.4 14 / 8.5 Hot Dry (CAC

- HP) 15 15 / 8.5 15 15 / 8.4 14 / 8.5

5 Rest of Country* 13 14 / 8.2 14 14 / 8.0 13 / 7.7 80% 85% 80% North (Furnace) 95% 96% Hot Humid (CAC

- HP) 14 14 / 8.2 14 14 / 8.0 13 / 7.7 Hot Dry (CAC

- HP) 14 14 / 8.2 14 14 / 8.0 13 / 7.7

4 † † Rest of Country* 13 14 / 8.2 14 14 / 8.0 13 / 7.7 80% 83% 80% North (Furnace) 90% 90% Hot Humid (CAC

- HP) 14 14 / 8.2 14 14 / 8.0 13 / 7.7

Hot Dry (CAC

- HP) 14 / 12.2 & 11.7 EER 14 / 8.2 14 / 11 EER 14 / 8.0 13 / 7.7

3 Rest of Country* 13 14 / 8.2 14 14 / 8.0 13 / 7.7 80% 8 3 % 80% North (Furnace) 90 % 90 % Hot Humid (CAC

- HP) 14 14 / 8.2 14 14 / 8.0 13 / 7.7 Hot Dry (CAC

- HP) 14 14 / 8.2 14 14 / 8.0 13 / 7.7

2 Rest of Country* 13.5 13.5 / 8.1 13 13 / 7.7 13 / 7.7 80% 8 2 % 80% North (Furnace) 9 2 % 8 0% Hot Humid (CAC

- HP) 13.5 ‡ 13.5 / 8.1 ‡ 13 ‡ 13 / 7.7 ‡ 13 / 7.7 Hot Dry (CAC

- HP) 13.5 ‡ 13.5 / 8.1 ‡ 13 ‡ 13 / 7.7 ‡ 13 / 7.7
1 Nation 13.5 13.5 / 8.1 13 13 / 7.7 13 / 7.7 80% 82% 80%

* The values presented under “Rest of Country” are the national standards, but they effectively apply to those States not subje ct to regional standards. Rest of Country refers to the Northern region for SAC, SHP and SDHV and to the Southern region for NWGF and MHF. For PAC, PHP and OF, the value refers to the entire Nation. ** Max-tech of 22 SEER pertains to 3-ton blower-coil units only, which is the most common cooling capacity of products on the market. Max-tech efficiencies vary by tonnage and type. See chapter 5 of the direct final rule TSD or section III.G.2 of this direct final rule for more information on the max-tech efficiency levels. † Max- tech of 21 SEER / 9.9 HSPF pertains to 3-ton units only, which is the most common cooling capacity of products on the market. Max-tech efficiencies vary by tonnage. See chapter 5 of the direct final rule TSD or section III.G.2 of this direct final rule for more information on the max-tech efficiency levels. †† Compliance date is 1/1/2015 for central air conditioners and heat pumps and 5/1/2013 for furnaces. For the Hot Dry region, TSL 4 has separate EER levels for SAC of 12.2 and 11.7 based on capacity (see section II I.B.2). ‡ Largest market share unknown; assumed to be equal to the market share for entire Nation.

3572. TSLs for Standby Mode and Off Mode Power

Table V.2 presents the TSLs and the corresponding product class efficiency levels

(expressed in watts) that DOE considered for furnace, central air conditioner, and heat

pump standby mode and off mode power consumption. For the central air conditioner

product classes, DOE considered three efficiency levels, while for the heat pump and

furnace product classes, two efficiency levels were considered.

TSL 3 consists of the max-tech efficiency levels. For the central air conditioner

product classes, the max-tech level is efficiency level 3, which specifies a maximum off

mode power consumption of 29 watts. (For split-system central air conditioners, only

blower-coil systems equipped with ECMs would be affected; the other system types are

already below this level.) For the heat pump and furnace product classes, the max-tech

level is efficiency level 2, which specifies a maximum standby mode and off mode power

consumption of 9 watts for gas and electric furnaces and 10 watts for oil furnaces, and a

maximum off mode power consumption of 32 watts for heat pumps.

TSL 2 represents the efficiency level from each product class that is just below

the max-tech efficiency level. TSL 2 consists of efficiency level 2 for the central air

conditioner product classes, which specifies a maximum off mode power consumption of

30 watts.

. (For split-system central air conditioners, only blower-coil systems equipped

with ECMs would be affected; the other system types are already below this level. ) For

the heat pump and furnace product classes, TSL 2 consists of efficiency level 1, which

specifies a maximum standby mode and off mode power consumption of 10 watts for gas

358and electric furnaces and 11 watts for oil furnaces, and a maximum off mode power

consumption of 33 watts for heat pumps

.

TSL 1 consists of efficiency level 1 for all product classes. TSL 1 consists of

efficiency level 1 for the central air conditioner product classes, which specifies a

maximum off mode power consumption of 36 watts. For the heat pump and furnace

product classes, it consists of efficiency level 1, which specifies a maximum standby

mode and off mode power consumption of 10 watts for gas and electric furnaces and 11

watts for oil furnaces, and a maximum off mode power consumption of 33 watts for heat

pumps. Because the heat pump and furnace product classes have only two considered

efficiency levels, TSL 1 for these classes is no different than TSL 2.

Coil-only systems at efficiency level 1 would comply with off mode power

requirements set at either efficiency levels 2 or 3 based on the blower-coil market. Of

further note, in the case of efficiency level 3, only the fraction of the blower-coil market

equipped with ECMs is impacted. Blower-coil systems with PSC motors and coil-only

systems equipped with either ECMs or PSC motors that comply with the off mode power

requirements in efficiency level 2 already meet the requirements in efficiency level 3.

359Table V.2. Trial Standard Levels for Central Air Conditioners, Heat Pumps, and Furnaces (Standby Mode and Off Mode Power) TSL SAC SHP PAC PHP SDHV SCAC * SCHP * NWGF OF MHF EF Efficiency Level (Watts) 3 29 32 29 32 29 29 32 9 10 9 9
2 30 33 30 33 30 30 33 10 11 10 10
1 36 33 36 33 36 36 33 10 11 10 10 *SCAC = Space-Constrained Air Conditioner; SCHP = Space-Constrained Heat Pump; and EF = electric furnace.

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers

a. Life-Cycle Cost and Payback Period

Consumers affected by new or amended standards usually experience higher

purchase prices and lower operating costs. DOE evaluates these impacts on individual

consumers by calculating changes in life-cycle costs (LCC) and the payback period

(PBP) associated with potential standard levels. Using the approach described in section

IV.F, DOE calculated the LCC impacts and PBPs for the efficiency levels considered in

this rulemaking. For each product class, DOE’s analysis provided several outputs for

each efficiency level. For energy efficiency, these results are reported for central air

conditioners and heat pumps in Table V.3 through Table V.8, and for furnaces in Table

V.9 through Table V. 11

. For standby mode and off mode, these results are reported for

central air conditioners and heat pumps in Table V. 12 , and for furnaces in Table V. 13

. Each table includes the average total LCC and the average LCC savings, as well as the

fraction of product consumers for which the LCC will either decrease (net benefit), or

increase (net cost), or exhibit no change (no impact) relative to the product purchased in

the base case. The last output in the tables is the median PBP for the consumer

purchasing a design that complies with each TSL.

360The results for each TSL are relative to the energy efficiency distribution in the

base case (no amended standards). The average LCC savings and payback period

presented in the tables were calculated only for those consumers that would be affected

by a standard at a specific efficiency level. At some lower efficiency levels, n o
consumers would be impacted by a potential standard, because the products they would

purchase in the base case are as efficient, or more efficient, than the specific efficiency

level. In the cases where no consumers would be impacted, calculation of LCC savings

or payback period is not applicable.

DOE based the LCC and PBP analyses on energy consumption under conditions

of actual product use, whereas it based the rebuttable presumption PBP test on

consumption under conditions prescribed by the DOE test procedure, as required by

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

In its regional analysis, DOE used the same technology designs to describe the

baseline and other considered efficiency levels in each region. However, the total

installed cost varies among regions because the installation cost varies by region (due to

labor cost differences), and in addition, there is some variation in the equipment price due

to differences in the overall markup (including sales tax) among regions.

(i) Central Air Conditioners and Heat Pumps

361a

a

a Median (years) Period Payback

100 Table V.3. LCC and PBP Results for Split-System Air Conditioners (Coil-Only)

Trial Standard

Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ )

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience Net Cost No Impact Net Benefit Nation Baseline 2, 026 4,872 6,898 n/a 0 100 0 n/ 1 13.5 2, 074

1, 5, 7, 5, 7, 5, n/a

7, 5

34 5, 7, 46 (

n/ 4,

8 8,

49 10 (

71

n/ 6, 8, 5, 8, 5, 8, 5, 9, ( 5, 9, (1,

2, 3, 5, 2, 3, 5, ( 2, 3, ( 3, 7, (1, 4,770 6,844 55 11 75 14 9.1 Hot

- Humid Baseline 834 649 484 n/a 0 100 0 2 13.5 1,880 514 393 86 7 75 18 .6 3,4,5 14 1,934 393 326 93 26 27 46 7 .2

6 15 2,515 188 702 303 ) 73 16 12 .4 7 18* 3,365 923 288 797 ) 90 0 10 .6 Hot

- Dry Baseline 2,582 134 716 n/a 0 100 0 2 13.5 2,642 977 619 104 10 75 14 .0 3,4,5 14 2,713 837 550 107 37 27 36 .3

6 15 3,510 598 108 468 ) 75 16 9 .0 7 18* 4,673 288 960 182 ) 91 0 9 .2 North (Rest of Country) 3,4 5 Baseline 127 476 603 n/a 0 100 0

2 13.5 175 434 609 8 ) 17 75 8 23.1
6 14 231 401 5,633 26 ) 56 27 16 33.1 7 18* 753 3,360 113 343 ) 99 0 1 .0 Deleted: 117

Deleted: 5,116

Deleted: 7,232

Deleted: 165

Deleted: 5,003

Deleted: 7,168

Deleted: 63

Deleted: 13
Deleted: 10

Deleted: 835

Deleted: 632

Deleted: 467

Deleted: 497

Deleted: 377

Deleted: 93

Deleted: 377

Deleted: 310

Deleted: 98

Deleted: 47

Deleted: 173

Deleted: 688

Deleted: 298

Deleted: 72

Deleted: 909

Deleted: 274

Deleted: 794

Deleted: 89

Deleted: 11

Deleted: 156
Deleted: 739

Deleted: 999
Deleted: 641

Deleted: 91

Deleted: 11

Deleted: 858

Deleted: 571

Deleted: 100

Deleted: 619

Deleted: 129

Deleted: 477

Deleted: 10

Deleted: 307

Deleted: 980

Deleted: 189

Deleted: 126

Deleted: 478

Deleted: 604

Deleted: 174

Deleted: 436

Deleted: 610
Deleted: 4

Deleted: 20 * Varies by size of equipment: 2-ton units are 18 SEER; 3-ton units are 17 SEER; and 5-ton units are 16 SEER. Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

362a

a

a

363 Table V.4. LCC and PBP Results for Split-System Air Conditioners (Blower-Coil)

Trial Standard

Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience

Median Net Cost No Impact Net Benefit

Nation

Baseline 3, 015 4,869 7,884 n/a 0 100 0 n/

1 13.5 3, 078 4,762 7,840 46 9 82 9 11 .4

Hot

- Humid

Baseline 2,774 5, 640 8, 413 n/a 0 100 0 n/

2 13.5 2, 833 5, 500 8, 333 77 6 82 12 7.2
3, 4, 5 14 2, 894 5, 371 8, 265 89 21 45 34 7.9

6 15 3, 015 5, 139 8, 154 177 25 37 39 8 .4

7 24.5* 4,069 4, 298 8, 367 ( 130 ) 70 1 29 20.8

Hot

- Dry

Baseline 3, 825 6, 171 9,995 n/a 0 100 0 n/

2 13.5 3, 903 6, 009 9, 912 90 9 82 10 9.5
3, 4, 5 14 3, 984 5, 860 9, 844 101 28 45 27 10.7

6 15 4, 142 5, 592 9, 734 196 33 37 31 10.8

7 24.5* 5,559 4, 606 10, 166 ( 311 ) 76 1 23 30 .6 North (Rest of Country)
3, 4, 5 Baseline 3, 110 3, 468 6, 577 n/a 0 100 0 n/a

2 13.5 3,172 3, 422 6, 594 ( 18 ) 14 82 4 26.1

6 14 3,236 3, 381 6, 617 ( 30 ) 43 45 12 27.5

7 24.5* 4,410 3,193 7,603 ( 903 ) 96 1 3 100 .0 *Varies by size of equipment: 2-ton units are 24.5 SEER; 3-ton units are 22 SEER; and 5-ton units are 18 SEER. Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated. Deleted: 123

Deleted: 5,124

Deleted: 8,247

Deleted: 186

Deleted: 5,008

Deleted: 8,194

Deleted: 53

Deleted: 10
Deleted: 626

Deleted: 400

Deleted: 834

Deleted: 486

Deleted: 320

Deleted: 85

Deleted: 13

Deleted: 6
Deleted: 895

Deleted: 358

Deleted: 253

Deleted: 96
Deleted: 20

Deleted: 35

Deleted: 8

Deleted: 016

Deleted: 127

Deleted: 142

Deleted: 188

Deleted: 24

Deleted: 288
Deleted: 357

Deleted: 118

Deleted: 21

Deleted: 824

Deleted: 193

Deleted: 10,017

Deleted: 902

Deleted: 031

Deleted: 933

Deleted: 76
Deleted: 9
Deleted: 10

Deleted: 983

Deleted: 881

Deleted: 864

Deleted: 93

Deleted: 26

Deleted: 11

Deleted: 141

Deleted: 612

Deleted: 753
Deleted: 184

Deleted: 30a

a

a

364 Table V.5. LCC and PBP Results for Split-System Heat Pumps

Trial Standard Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience

Median Net Cost No Impact Net Benefit

Nation

Baseline 2,934 6,882 9,816 n/a 0 100 0 n/

1 13.5 2,999 6,743 9,742 71 5 86 9 6 .6

Hot

- Humid

Baseline 2, 804 6,943 9,747 n/a 0 100 0 n/

2 13.5 2, 867 6,791 9,658 82 4 86 10 6 .1
3, 4, 5 14 2,932 6, 644 9, 576 102 17 45 38 6 .0

6 15 3, 114 6, 383 9, 496 137 29 23 48 7 .2

7 22* 3,983 5, 513 9, 496 103 60 0 40 12 .6

Hot

- Dry

Baseline 3, 808 9, 221 13, 029 n/a 0 100 0 n/

2 13.5 3,890 8,987 12,877 148 4 86 11 4 .5
3, 4, 5 14 3,973 8,763 12,735 175 15 45 40 4 .8

6 15 4, 212 8, 348 12, 560 274 25 23 52 5 .4

7 22* 5, 387 6,894 12, 280 477 51 0 49 9 .4 North (Rest of Country)

Baseline 3, 065 5,927 8,993 n/a 0 100 0 n/a

2 13.5 3, 129 5,861 8,990 5 9 86 5 13.2
3, 4, 5 14 3, 193 5,792 8,986 4 35 45 20 13.3

6 15 3, 380 5,693 9, 073 ( 89 ) 58 23 19 20.1

7 22* 4, 262 5, 362 9, 624 ( 604 ) 87 0 13 32.7 * Varies by size of equipment: 2-ton units are 22 SEER; 3-ton units are 21 SEER; and 5-ton units are 18 SEER. Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated. Deleted: 3,237

Deleted: 7,755

Deleted: 10,992

Deleted: 3,305

Deleted: 7,595

Deleted: 10,900

Deleted: 98

Deleted: 87
Deleted: 8

Deleted: 921

Deleted: 7,219

Deleted: 10,140

Deleted: 987

Deleted: 7,062

Deleted: 10,048

Deleted: 97
Deleted: 87

Deleted: 9
Deleted: 3,053

Deleted: 908

Deleted: 960

Deleted: 110

Deleted: 15

Deleted: 47

Deleted: 192

Deleted: 633

Deleted: 824

Deleted: 199

Deleted: 24
Deleted: 24

Deleted: 52

Deleted: 4,0 62

Deleted: 683

Deleted: 744

Deleted: 221

Deleted: 57

Deleted: 43

Deleted: 954

Deleted: 587

Deleted: 541

Deleted: 4,038

Deleted: 9,342

Deleted: 13,381

Deleted: 164

Deleted: 3

Deleted: 87

Deleted: 10

Deleted: 4,123

Deleted: 9,107

Deleted: 13,230
Deleted: 193

Deleted: 12a Table V.6. LCC and PBP Results for Single-Package Air Conditioners

Trial Standard

Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience

Median Net Cost No Impact Net Benefit

Nation

1 , 2 Baseline 13 3, 040 5, 303 8, 343 n/a 0 100 0 n/

3, 4, 5 14 3, 223 5,077 8,301 37 50 17 33 15.1

6 15 3, 492 4,908 8,400 ( 68 ) 72 1 27 24.2

7 16.5 4,064 4,760 8,825 ( 492 ) 84 0 16 46.3

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated. Deleted: 063

Deleted: 099

Deleted: 162

Deleted: ¶
Hot

- Humid

... Deleted: 174

Deleted: 3,380

Deleted: 6,554

Deleted: (85)

Deleted: 71

Deleted: 12

Deleted: 49

Deleted: 427

Deleted: 3,340

Deleted: 6,767
Deleted: 282

Deleted: 92

Deleted: 7
Deleted: 100

Deleted: 3,967
Deleted: 3,357

Deleted: 7,324

Deleted: 836

Deleted: 97
Deleted: 3

Deleted: 100

365a Table V.7. LCC and PBP Results for Single-Package Heat Pumps

Trial Standard

Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience

Median Net Cost No Impact Net Benefit

Nation

1

, 2 Baseline 3, 623 7, 834 11, 457 n/a 0 100 0 n/
3, 4, 5 14 3, 828 7,463 11,291 104 29 36 35 8.4

6 15 4,163 7,182 11,345 15 63 2 35 13.6

7 16.5 4, 866 6, 856 11,722 ( 363 ) 79 0 21 20.7

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated. Deleted: 642

Deleted: 827

Deleted: 469

Deleted: ¶
Hot

- Humid

... Deleted: 500

Deleted: 6,940

Deleted: 10,440

Deleted: 87

Deleted: 30

Deleted: 34

Deleted: 9
Deleted: 6

... Deleted: 5,200

Deleted: 8,750

Deleted: 13,950

Deleted: 89

Deleted: 58

Deleted: 40

Deleted: 11
Deleted: 7

... Deleted: 720

Deleted: 012

Deleted: 10,732

Deleted: 794

Deleted: 95

Deleted: 5

Deleted: 68

366a

a Table V.8. LCC and PBP Results for Small-Diameter High Velocity (SDHV) Air Conditioners

Trial Standard

Level Efficiency Level SEER Life

- Cycle Cost ( 2009$) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Consumers that Experience

Median Net Cost No Impact Net Benefit

Nation

1 Baseline 13 4,915 4,853 9,768 n/a 0 100 0 n/a

Hot

- Humid

2

- 5 Baseline 13 4,610 5, 643 10, 253 n/a 0 100 0 n/

6 14 4,883 5, 385 10, 268 ( 14 ) 68 0 32 17 .8

7 14.5 5,029 5, 250 10, 279 ( 25 ) 67 0 33 17.3

Hot

- Dry

2

- 5 Baseline 13 6,302 6, 105 12, 407 n/a 0 100 0 n/

6 14 6,665 5, 807 12, 472 ( 65 ) 74 0 26 26.1

7 14.5 6,859 5, 654 12, 513 ( 106 ) 74 0 26 23.3 North (Rest of Country)

2

- 5 Baseline 13 4,919 3, 447 8, 367 n/a 0 100 0 n/a

6 14 5,198 3, 370 8, 568 ( 202 ) 95 0 5 74.3

7 14.5 5,347 3, 313 8, 660 ( 294 ) 92 0 8 74.7

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

(ii) Furnaces Deleted: 5,058

Deleted: 5,145

Deleted: 10,203

Deleted: 697
Deleted: 307

Deleted: 431

Deleted: 314
Deleted: 7
Deleted: 66
Deleted: 34

Deleted: 317

Deleted: 345

Deleted: 38

Deleted: 69
Deleted: 31

Deleted: 18

Deleted: 217

Deleted: 519

Deleted: 904

Deleted: 569

Deleted: 49

Deleted: 24

Deleted: 768

Deleted: 627

Deleted: 107

Deleted: 75

Deleted: 25

Deleted: 26
Deleted: 395

Deleted: 314

Deleted: 317

Deleted: 515

Deleted: 201

Deleted: 94

Deleted: 6
Deleted: 77
Deleted: 286

Deleted: 634

Deleted: 320

Deleted: 95

Deleted: 5

Deleted: 88

367Table V.9. LCC and PBP Results for Non-Weatherized Gas Furnaces

Trial Standard

Level Efficiency Level AFUE Life

- Cycle Cost ( 2009$ ) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings 2009$ % of Households that Experience

Median Net Cost No Impact Net Benefit

Nation

1 Baseline 80% 1,786 9,551 11,337 n/a 0 100 0 n/a South (Rest of Country)

2

- 6 Baseline 80% 1,614 6,566 8,180 n/a 0 100 0 n/a

7 98% 2,661 5,624 8,286 (181) 72.3 0.2 27.4 28.9

North

3 ,4 90% 2,474 10,409 12,883 155 10.0 71.4 18.6 10.1

2 92% 2,536 10,206 12,742 215 10.9 56.5 32.6 7.7
5,6 95% 2,685 9,916 12,601 323 22.8 22.9 54.3 9.4

7 98% 2,943 9,784 12,727 198 58.7 0.6 40.7 17.1

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

368Table V. 10 . LCC and PBP Results for Mobile Home Gas Furnaces

Trial Standard

Level Efficiency Level AFUE Life

- Cycle Cost ( 2009$ ) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Households that Experience

Median Net Cost No Impact Net Benefit

Nation

1 Baseline 80% 1,432 11,749 13,181 n/a 0 100 0 n/a South (Rest of Country)

2

- 6 Baseline 80% 1,340 11,453 12,793 n/a 0 100 0 n/a

7 96% 2,415 9,780 12,194 391 51.0 3.8 45.2 13.0

North

2 Baseline 80% 1,488 13,060 14,548 n/a 0 100 0 n/a

3 ,4 90% 2,112 11,974 14,086 419 43.6 9.7 46.7 10.7

5

- 7 96% 2,611 11,301 13,912 585 46.2 7.7 46.1 11.5

369Table V. 11 . LCC and PBP Results for Oil-fired Furnaces

Trial Standard

Level Efficiency Level AFUE Life

- Cycle Cost ( 2009$ ) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Households that Experience

Median Net Cost No Impact Net Benefit

Nation
1, 2 Baseline 82% 3,008 30,287 33,295 n/a 0 100 0 n/a

3

, 4 83% 3,157 29,946 33,103 15 9.9 58.3 31.8 1.0
5,6 85% 3,622 29,287 32,909 (18) 34.6 33.0 32.4 19.8

7 97% 4,810 27,809 32,619 272 51.0 0.9 48.1 18.2

(iii) Results for Standby Mode and Off Mode

Table V. 12 and Table V. 13 present the LCC and PBP results for the standby

mode and off mode power efficiency levels considered for central air conditioners/heat

pumps and furnaces, respectively.

370Table V. 12 . LCC and PBP Results for Central Air Conditioner and Heat Pump Standby Mode and Off Mode Power

Tr ial Standard

Level Efficiency Level Life

- Cycle Cost ( 2009$ ) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Households that Experience

Median Net Cost No Impact Net Benefit Split

- System Air Conditioners (Blower

- Coil)

Baseline 1 7 105 12 2 n/a 0 100 0 n/a

1 1 2 7 96 11 4 8 4 0 94 6 1

2 2 2 3 93 11 5 40 3 91 6 6

3 3 2 3 92 11 6 35 3 91 6 7 Split

- System Air Conditioners (Coil

- Only)

Baseline 1 27 2 7 n/a 0 100 0 n/a

1

, 2, 3 1 1 18 19 8 4 0 94 6 1 Split

- System Heat Pumps

Baseline 19 31 5 0 n/a 0 100 0 n/a
1, 2 1 2 3 21 4 4 9 0 67 33 4

3 2 26 21 47 ( 1 ) 1 9 57 2 4 5 Single

- Package Air Conditioners

Baseline 1 7 105 12 2 n/a 0 100 0 n/a

1 1 17 96 114 84 0 94 6 1

2 2 23 93 115 41 3 91 6 6

3 3 23 92 116 36 3 91 6 7 Single

- Package Heat Pumps

Baseline 2 0 31 5 1 n/a 0 100 0 n/a
1, 2 1 2 4 21 4 5 9 0 66 34 4

3 2 27 21 49 ( 1 ) 1 9 5 7 24 5

Small

- Duct High

- Velocity Air Conditioners

Baseline 18 10 7 12 4 n/a 0 100 0 n/a

1 1 18 98 11 6 84 0 94 6 1

2 2 2 4 9 4 1 17 3 7 3 91 6 7

3 3 2 4 9 4 118 32 3 91 6 7

371Space

- Constrained Air Conditioners

Baseline 17 10 7 12 3 n/a 0 100 0 n/a

1 1 17 98 11 5 84 0 94 6 1

2 2 2 3 9 4 1 17 42 3 91 6 6

3 3 2 3 9 4 117 37 3 91 6 7 Space

- Constrained Heat Pumps

Baseline 19 31 5 0 n/a 0 100 0 n/a
1, 2 1 2 3 21 4 4 9 0 67 33 4

3 2 26 21 47 ( 1 ) 1 9 5 8 23 5

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

372Table V. 13

. LCC and PBP Results for Furnace Standby Mode and Off Mode Power

Trial Standard

Level Efficiency Level Life

- Cycle Cost ( 2009$ ) Life

- Cycle Cost Savings ( 2009$ ) Payback Period (years)

Installed

Cost Discounted Operating Cost LCC Average Savings % of Households that Experience

Median Net Cost No Impact Net Benefit

Non

- weatherized Gas Furnaces

Baseline 0 133 133 n/a 0 100 0 n/a
1, 2 1 3 128 132 2 9.2 72.4 18.4 10.7

3 2 8 125 133 (0) 16.8 72.4 10.8 16.1

Mobile Home Furnaces

Baseline 0 103 103 n/a 0 100 0 n/a
1, 2 1 1 102 103 (0) 5.7 90.6 3.8 11.9

3 2 4 101 104 (1) 7.7 90.6 1.8 17.9

Oil

- fired Furnaces

Baseline 0 180 180 n/a 0 100 0 n/a
1, 2 1 1 178 179 1 1.4 90.6 8.0 7.9

3 2 3 177 179 1 3.8 90.6 5.7 11.9

Electric Furnaces

Baseline 0 111 111 n/a 0 100 0 n/a
1, 2 1 1 110 111 0 4.3 89.9 5.1 10.3

3 2 3 109 111 (1) 6.9 89.9 2.5 15.5

Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

373b. Consumer Subgroup Analysis 93

(i) Central Air Conditioners and Heat Pumps

As described in section IV.H, for central air conditioners and heat pumps, DOE

determined the impact of the considered energy efficiency TSLs on low-income

households and senior-only households. For low-income and senior-only households, the

sample sizes from 2005 RECS were very small ( i.e. , less than 1 percent of the entire

sample) at the regional level for central air conditioners and even at the national level for

heat pumps, so DOE only performed the subgroup analysis at the national level for air

conditioners.

Table V. 14 and Table V. 15 present key results for split-system coil-only and

blower-coil air conditioners, respectively. The analysis for low-income and senior-only

households did not show substantially different impacts for these subgroups in

comparison with the general population. See chapter 11 of the direct final rule TSD for

further details.

Table V. 14

. Split-System Air Conditioners (Coil-Only): Comparison of Impacts for Consumer Subgroups and All Households, Nation

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

SEER LCC Savings ( 2009$ ) Median Payback Period Years Senior Low Income All Senior Low Income All

1, 2 13.5 21 33 55 13 12 9 3, 4, 5 13 0 0 0 n/a n/a n/a

6 14 9 24 51 18 17 12 7 18* (1, 212 ) (1, 150 ) (1, 046 ) 100+ 100+ 100+ Formatted Table Deleted: 23

Deleted: 37
Deleted: 63

Deleted: 13

Deleted: 10

Deleted: 14

Deleted: 32

Deleted: 63

Deleted: 17

Deleted: 235

Deleted: 164

Deleted: 036

374* Varies by size of equipment: 2-ton units are 18 SEER; 3-ton units are 17 SEER; and 5-ton units are 16 SEER. Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

Table V. 15 . S plit-System Air Conditioners (Blower-Coil): Comparison of Impacts for Consumer Subgroups and All Households, Nation

Deleted: 14

Deleted: 27

Deleted: 53

Deleted: 10 TSL Efficiency Level SEER LCC Savings ( 2009$ ) Median Payback Period Years Senior Low Income All Senior Low Income All

1, 2 13.5 11 25 46 15 15 11 3, 4, 5 13 0 0 0 n/a n/a n/a

6 14 7 22 49 17 16 13 7 24.5* ( 696 ) ( 630 ) ( 421 ) 68 62 41 * Varies by size of equipment: 2-ton units are 24.5 SEER; 3-ton units are 22 SEER; and 5-ton units are 18 SEER. Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

(ii) Furnaces

As described in section IV.H, for furnaces, DOE evaluated the impacts of the

considered energy efficiency standard levels on low-income consumers and senior

citizens ( i.e. , senior-only households). In addition, DOE analyzed the impacts for three

other subgroups: (1) multi-family housing units; (2) new homes; and (3) replacement

applications. DOE only presents the results for the Northern region in this section

because, with the exception of TSL 7, there are no consumers impacted by national

standards at the considered TSLs. At TSL 7, the impacts of national standards on the

considered subgroups are approximately the same as the impacts of the standard for the

Northern region.

Table V. 16 compares the impacts of the TSLs for the Northern region for nonweatherized gas furnaces for low-income, senior-only, and multi-family households with Deleted: 29

Deleted: 58

Deleted: 17

Deleted: 685

Deleted: 616

Deleted: 361

Deleted: 67
Deleted: 60

Deleted: 40

37 5those for all households. The senior and low-income households show somewhat higher

LCC savings from more-efficient furnaces than the general population. In contrast, the

multi-family households show lower LCC savings due to generally higher installation

costs and lower heating energy use.

Table V. 17 compares the impacts of the TSLs for the Northern region for nonweatherized gas furnaces for new home and replacement subgroups with those for all

households. The households in new homes show significantly higher LCC savings

because their average installation costs are lower, while the households in replacement

applications show lower, but still positive, LCC savings compared to the general

population. The latter result is primarily due to the high installation costs in some

replacement applications. See chapter 11 of the direct final rule TSD for further details.

Table V. 16

. Non-Weatherized Gas Furnaces: Comparison of Impacts for SeniorOnly, Low-Income, and Multi-Family Consumer Subgroups and All Households (North) TSL Efficiency LCC Savings Median Payback Period Level ( 2009$ ) Years AFUE Senior Low Income Multi

Family All Senior Low Income Multi

Family All

2, 4 90% 201 175 63 155 8.4 9.4 13.9 10.1

3 92% 273 242 104 215 6.6 7.2 9.8 7.7 5, 6 95% 410 367 176 323 8.3 8.5 11.3 9.4

7 98% 307 229 (26) 198 14.8 16.5 23.2 17.1 Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

Table V. 17

. Non-Weatherized Gas Furnaces: Comparison of Impacts for Replacement and New Home Consumer Subgroups and All Households (North) TSL Efficiency Level AFUE LCC Savings ( 2009$ ) Median Payback Period Years Replacement New Home All Replacement New Home All

3762, 4 90% 90 343 155 12.9 2.5 10.1 3 92% 151 404 215 9.0 5.1 7.7 5, 6 95% 262 502 323 9.7 8.8 9.4

7 98% 158 315 198 16.9 17.9 17.1

c. Rebuttable Presumption Payback

As discussed above, EPCA provides a rebuttable presumption that an energy

conservation standard is economically justified if the increased purchase cost for a

product that meets the standard is less than three times the value of the first-year energy

(and, as applicable, water) savings resulting from the amended standard. (42 U.S.C.

6295(o)(2)(B)(iii)) In calculating a rebuttable presumption payback period for the

considered standard levels, DOE used discrete values based on the applicable DOE test

procedures rather than distributions for input values, and it based the energy use

calculation on the DOE test procedures for furnaces and central air conditioners and heat

pumps, as required by statute. Id

. As a result, DOE calculated a single rebuttable

presumption payback value, and not a distribution of payback periods, for each

considered efficiency level.

For central air conditioner and heat pump energy efficiency, only single-package

heat pumps at the 13.5 SEER level meet the less-than-three-year criteria. Rebuttable

paybacks calculated for standby mode and off mode TSL 1 for the split system, singlepackage, small-duct high-velocity, and space-constrained air conditioners also meet the

less-than-three-year criteria. None of the furnace energy efficiency levels meet the lessthan-three-year criteria. The rebuttable presumption payback values for each considered

efficiency level and product class are presented in chapter 8 of the direct final rule TSD.

377While DOE examined the rebuttable presumption criterion, it considered whether

the standard levels considered for today’s dir ect final rule are economically justified

through a more detailed analysis of the economic impacts of these levels, including those

to the consumer, manufacturer, Nation, and environment, as required under 42 U.S.C.

6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE to definitively

evaluate the economic justification for a potential standard level (thereby supporting or

rebutting the results of any preliminary determination of economic justification).

2. Economic Impacts on Manufacturers

DOE performed a manufacturer impact analysis (MIA) to estimate the impact of

amended energy conservation standards on manufacturers of residential furnaces, central

air conditioners, and heat pumps. The section below describes the expected impacts on

manufacturers at each considered energy efficiency TSL (trial standard levels based on

SEER, HSPF, and AFUE ratings) and each considered standby mode and off mode TSL

(trial standard levels based on standby mode and off mode wattage). Chapter 12 of the

TSD explains the analysis in further detail. A summary of the energy efficiency TSLs can

be found in Table V.1, and a summary of standby mode and off mode TSLs can be found

in Table V.2.

a. Industry Cash-Flow Analysis Results

Table V. 18 through Table V. 22 depict the financial impacts on manufacturers and

the conversion costs DOE estimates manufacturers could incur at each TSL. The

378financial impacts on manufacturers are represented by changes in industry net present

value (INPV). DOE presents the results by grouping product classes that are commonly

produced by the same manufacturers.

Results for the energy efficiency standards for furnaces and central air

conditioners and heat pumps are grouped as conventional products and niche products.

These product groupings were analyzed under two markup scenarios: (1) the preservation

of earnings before income and taxes (EBIT) scenario; and (2) the tiered markup scenario.

As discussed in section IV.I.1 of the Methodology and Discussion section of this

document, DOE considered the preservation of EBIT scenario to model manufacturer

concerns about the inability to maintain their margins as manufacturing production costs

increase to reach more-stringent efficiency levels. In this scenario, while manufacturers

make the necessary investments required to convert their facilities to produce amended

standards-compliant equipment, operating profit does not change in absolute dollars and

decreases as a percentage of revenue.

DOE also considered the tiered markup scenario. The tiered markup scenario

models the situation in which manufacturers maintain, when possible, three tiers of

product markups. The tiers described by manufacturers in MIA interviews were defined

as “good, better, best” or “value, standard, premium.” In the standards case, the tiered

markups scenario considers the situation in which the breadth of a manufacturer’s

portfolio of products shrinks and amended standards effectively “demote” higher -tier

products to lower tiers. As a result, higher-efficiency products that previously

379commanded “standard” and “premium” mark

- ups are assigned “value” and “standard”

markups, respectively. Typically, a significant fraction of the market will seek the lowestco st unit available for purchase, particularly in the new construction market.

Manufacturers expect this phenomenon, in the standards case, to drive price competition

at the new minimum efficiency and foster efforts to convert what was previously a

“better” product into the new baseline “good” product. This scenario, therefore, reflects

one of the industry’s key concerns regarding this effect of product commoditization at

higher efficiency levels.

Standby mode and off mode standards results are presented for the industry as a

whole, without groupings. Due to the small incremental cost of standby mode and off

mode components relative to the overall cost of furnaces, central air conditioners, and

heat pumps, DOE has concluded that standby mode and off mode features would not

have a differentiated impact on different manufacturers or different product classes. The

impacts of standby mode and off mode features were analyzed for two markup scenarios:

(1) a preservation of gross margin percentage scenario; and (2) a preservation of EBIT

scenario. The preservation of gross margin percentage scenario assumes that

manufacturers will maintain a constant gross margin percentage even as product costs

increase in the standards case. This scenario represents an upper bound to manufacturer

profitability after energy conservation standards are amended. In contrast, the

preservation of EBIT scenario assumes manufacturers will not be able to maintain the

base case gross margin level. Rather, as production costs go up, manufacturers will only

be able to maintain the same operating profit

— in absolute dollars

— reducing gross

380margin as a percentage of revenue. In other words, as products get more expensive to

produce, manufacturers are not able to make as much profit per unit on a percentage

basis.

Each of the modeled scenarios results in a unique set of cash flows and

corresponding industry value at each TSL. In the following discussion, the INPV results

refer to the difference in industry value between the base case and each standards case

that result from the sum of discounted cash flows from the base year 2010 through 2045,

the end of the analysis period. To provide perspective on the short-run cash flow impact,

DOE includes in the discussion of the results a comparison of free cash flow between the

base case and the standards case at each TSL in the year before amended standards take

effect.

(i) Cash-Flow Analysis Results for Conventional Products

Table V. 18 and Table V. 19 show the MIA results for each TSL using the markup

scenarios described above for conventional residential furnace, central air conditioner,

and heat pump products. This “conventional products” grouping includes the following

product classes: (1) split-system air conditioning; (2) split-system heat pumps; (3) singlepackage air conditioning; (4) single-package heat pumps; and (5) non-weatherized gas

furnaces.

381Table V. 18 Manufacturer Impact Analysis for Conventional Products Under the Preservation of EBIT Scenario Units Base Case Trial Standard Level 1 2 3 4 5 6 7

INPV 2009$ millions 8,347 8,354 7,847 7,936 7,893 7,857 7,685 6,855

Change in INPV 2009$ millions n/a 8 (500) (411) (454) (490) (662) (1,492)
(%) n/a 0.1 (6.0) (4.9) (5.4) (5.9) (7.9) (17.9) Product Conversion Costs 2009$ millions n/a 0.0 5 12 12 25 127 279

Capital Conversion Costs 2009$ millions n/a 0.0 15 16 16 52 158 532

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

Table V. 19 . Manufacturer Impact Analysis for Conventional Products Under the Tiered Markups Scenario Units Base Case Trial Standard Level 1 2 3 4 5 6 7

INPV 2009$ millions 8,347 8,379 8,021 7,638 7,475 7,467 6,509 4,578

Change in INPV 2009$ millions n/a 33 (326) (709) (871) (879) (1,837) (3,768)
(%) n/a 0.4 (3.9) (8.5) (10.4) (10.5) (22.0) (45.1) Product Conversion Costs 2009$ millions n/a 0.0 5 12 12 25 127 279 Capital Conversion Costs 2009$ millions n/a 0.0 15 16 16 52 158 532

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

Sales of split-system air conditioners make up more than 60 percent of residential

central cooling shipments, and non-weatherized gas furnaces make up more than 80

percent of the residential furnace shipments, respectively. These two product classes are

th e largest drivers of INPV in the conventional product grouping. In the base case, the

382conventional products industry is estimated to have an INPV value of $8,347 million

(2009$).

TSL 1 represents the efficiency levels for the conventional product classes that

have the largest market share today. At TSL 1, DOE estimates impacts on INPV to be

small, but positive

. INPV impacts range from $33 million to $8 million, or a change in

INPV of 0.4 percent to 0.1 percent. At this considered level, industry free cash flow 94 is

estimated to remain steady at $511 million for both the base case and standards case in

the year before the TSL 1 compliance date (2015).

At TSL 1, the impacts on the industry are minor because manufacturers already

ship products at TSL 1 efficiencies in high volumes. Eighty-one percent of all

conventional HVAC products shipped today meet or exceed the TSL 1 standards.

Additionally, an increase in standards from 13 SEER to 13.5 SEER for split-system air

conditioning and heat pumps is expected to require no significant conversion costs. As a

result, INPV remains mostly stable at this considered standard level.

TSL 2 has a higher standard for non-weatherized gas furnaces than TSL 1. This

results in a greater negative impact on INPV. TSL requires non-weatherized gas furnaces

to meet a 92-percent AFUE minimum efficiency in the North. DOE estimates TSL 2

impacts on INPV to range from -$326 million to -$500 million, or a change in INPV of ­

3.9 percent to -6.0 percent. At this level, industry free cash flow is estimated to decrease

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

383by approximately 5.3 percent to $484 million, compared to the base-case value of $511

million, in the year 2015.

At TSL 2, for the non-weatherized gas furnace standard, manufacturers may incur

elevated conversion costs as they redesign a 92-percent AFUE furnace product to meet

the requirements of the builder market and adjust their product families accordingly in

the North. At 92-percent AFUE, these furnaces would require a secondary heat

exchanger, and, when compared to a 90-percent AFUE design, the heat exchangers

would need to be sized up. DOE estimates that at this level, non-weatherized gas furnace

conversion costs total approximately $20 million for the industry. These conversion

costs, along with changes in shipments due to standards, account for much of the drop in

INPV from TSL 1 to TSL 2.

TSL 3 incorporates regional standards for split-system air conditioning and

furnace products. Compared to the baseline, TSL 3 proposes a higher air conditioning

and heat pump standard in the South (14 SEER minimum) and a higher furnace standard

in the North (90-percent AFUE minimum). At TSL 3, DOE estimates impacts on INPV

to range from -$411 million to -$709 million, or a change in INPV of -4.9 percent to - 8. 5

percent. At this considered level, industry free cash flow is estimated to decrease by

approximately 5.8 percent to $481 million, compared to the base-case value of $ 511

million, in the year leading up to the year in which compliance with considered energy

conservation standards would be required (2015).

384Both markup scenarios in the GRIM for the energy efficiency standards at TSL 3

assume that a commoditization of 14 SEER air conditioning units in the South would put

downward pressure on margins for 14 SEER units sold in all regions. Similarly, the 90­

percent AFUE standard for non-weatherized gas furnaces in the North would negatively

affect margins for non-weatherized gas furnace units sold in all regions. This impact on

markups is more severe in the tiered scenario, because the change in the standard also

compresses markups on higher-AFUE products, which are effectively demoted in the

“good, better, best” sales model. As a result, INPV decreases by 8. 5 percent in the tiered

markup scenario, compared to 4.9 percent in the preservation of EBIT scenario.

TSL 4 represents the consensus agreement level and incorporates accelerated

compliance dates. The standards are set at the same level as TSL 3, except that TSL 4

also includes EER standards for central air conditioners in the hot-dry region. In addition

, the furnace standards are modeled to take effect in 2013, and the air conditioning and

heat pump standards are modeled to take effect in 2015, instead of the 2016 compliance

dates used in TSL 3. At TSL 4, DOE estimates impacts on INPV to range -$454 million

to - $871 million, or a change in INPV of -5.4 percent to -10.4 percent. At this level,

industry free cash flow is estimated to decrease by approximately 9.6 percent to $462

million, compared to the base-case value of $ 511 million, in the year 2015.

To comply with the earlier compliance dates, manufacturers must make earlier

investments in product conversions, which negatively affect INPV because of

discounting effects. Additionally, the accelerated schedule for amended standards leads to

385earlier commoditization of residential furnace, central air conditioner, and heat pump

products. As a result, the INPV value is slightly more negative in TSL 4 than in TSL 3

for both the preservation of EBIT scenario and the tiered markups scenario.

TSL 5 includes higher furnace standards than TSL 4. N on -weatherized gas

furnace standards would increase to 95-percent AFUE. Additionally, TSL 5 lacks the

accelerated compliance dates associated with TSL 4. All HVAC standards in TSL 5

wo uld require compliance in 2016. At TSL 5, DOE estimates impacts on INPV to range

from -$490 million to -$879 million, or a change in INPV of -5.9 percent to -10.5

percent. At this considered level, industry free cash flow is estimated to decrease by

approximately 9.7 percent to $461 million, compared to the base-case value of $511

million, in the year 2015.

At 95-percent AFUE, non-weatherized gas furnace efficiency would be one

efficiency level below max-tech. To comply with such a standard, manufacturers would

need to increase heat exchanger size up to the physical constraints of the furnace

cabinets. Furnace manufacturers would need to upgrade their 95-percent AFUE

production lines to meet demand. Additionally, manufacturers expect this efficiency level

would require significant R&D costs to redesign and convert a premium, feature-loaded

product into a basic value-line product, which would be demanded by the builder market.

As a result, industry conversion costs could grow from $28 million at TSL 4 to $77

million at TSL 5. INPV becomes slightly more negative from TSL 4 to TSL 5.

386TSL 6 elevates the standard for air conditioning and heat pumps over TSL 5 while

maintaining the same standards for all furnace product classes. TSL 6 is the most

aggressive regional standard considered in this rulemaking (although TSL 7 has more

stringent standards, the standards in TSL 7 are national rather than regional). At TSL 6,

DOE estimates impacts on INPV to range from -$662 million to -$1837 million, or a

change in INPV of -7.9 percent to -22.0 percent. At this considered level, industry free

cash flow is estimated to decrease by approximately 24.7 percent to $385 million,

compared to the base-case value of $511 million, in the year 2015.

In the base case, 73 percent of split-system air conditioning shipments in the

North are below 14 SEER, and 84 percent of split-system air conditioning shipments in

the South are below 15 SEER. Increasing the minimum efficiency to 14 SEER in the

North and 15 SEER in the South requires significantly more capital expenditure from

manufacturers. At TSL 6, manufacturers would need to redesign their highest-volume

product lines in both the South and the North. There are multiple design paths that

manufacturer could take; however, the changes will likely involve the addition of twostage compressors, the enlargement of heat exchangers, the application of moresophisticated controls, the incorporation of microchannel technology, or some

combination of these options. Some manufacturers indicated that new production

facilities would be necessary at this potential standard level.

387TSL 7 represents the max-tech efficiency level for all product classes. At TSL 7,

DOE estimates impacts on INPV to range from -$1,492 million to -$3,768 million, or a

change in INPV of - 17. 9 percent to -45.1 percent. At this considered level, industry free

cash flow is estimated to decrease by approximately 65.9 percent to $174 million,

compared to the base-case value of $511 million, in the year 2015.

At TSL 7, the industry incurs significant R&D costs and loses the ability to

differentiate products based on efficiency. For central air conditioning systems,

manufacturers would likely have to move to add a second compressor, incorporate

inverter technology, or make their product significantly larger. For furnaces,

manufacturers would likely have to incorporate burner modulation technology, which

would include adding modulating gas valves, variable speed inducer fans, and moresophisticated controls. These potential standard levels would require much higher R&D

and product design expenditures by manufacturers. It could be difficult for all major

manufacturers to justify the investments necessary to reach max-tech. A few

manufacturers indicated that building a new facility would create less business disruption

risk than attempting to completely redesign and upgrade existing facilities. Additionally,

some manufacturers noted that lower labor rates in Mexico and other countries abroad

may entice them to move their production facilities outside of the U.S. There was general

agreement that the high conversion costs and more expensive components required in

TSL 7 could also make foreign-based technologies, which have traditionally been more

expensive, more attractive in the domestic market.

388(ii) Ca sh -Flow Analysis Results for Niche Furnace Products

Table V. 20 and Table V. 21 show the MIA results for each TSL using the markup

scenarios described above for niche furnace products. The niche furnace grouping

includes the mobile home and oil furnace product classes. In the base case, annual mobile

home furnace shipments total approximately 120,000 units/year, while annual oil furnace

shipments total approximately 80 ,000 units/year for 2010.

Table V. 20 . Manufacturer Impact Analysis for Niche Furnace Products Under the Preservation of EBIT Scenario Units Base Case Trial Standard Level 1 2 3 4 5 6 7

INPV 2009$ millions 149 149 151 132 125 131 131 109

Change in INPV 2009$ millions n/a 0 2 (17) (24) (18) (18) (40)

(%) n/a 0.0 1.2 (11.6) (16.4) (12.1) (12.1) (26.7) Product Conversion Costs 2009$ millions n/a 0.0 0 4 4 8 8 16

Capital Conversion Costs 2009$ millions n/a 0.0 0 11 11 17 17 35

Total Investment Required 2009$ millions n/a 0.0 0 15 15 24 24 51

Parentheses indicate negative (-) values.

Table V. 21 . Manufacturer Impact Analysis for Niche Furnace Products Under the Tiered Markup Scenario Units Base Case Trial Standard Level 1 2 3 4 5 6 7

INPV 2009$ millions 149 149 151 129 120 114 114 94

Change in INPV 2009$ millions n/a (0) 2 (20) (29) (36) (36) (55)
(%) n/a (0.0) 1.4 (13.5) (19.6) (23.8) (23.8) (36.7)

389Product Conversion Costs 2009$ millions n/a 0.0 0 4 4 8 8 16

Capital Conversion Costs 2009$ millions n/a 0.0 0 11 11 17 17 35

Total Investment Required 2009$ millions n/a 0.0 0 15 15 24 24 51

Parentheses indicate negative (-) values.

At TSL 1 and TSL 2, the standards-case efficiency remains at the baseline level

for both mobile home furnaces and oil furnaces. There are no conversion costs, and the

INPV varies very little from the baseline value.

At TSL 3, the oil furnace standard in creases to 83 -percent AFUE, while the

mobile home furnace standard increases to 90-percent AFUE in the North. At TSL 3,

DOE estimates impacts on INPV to range from -$17 million to -$20 million, or a change

in INPV of -11.6 percent to -13.5 percent. At this level, industry free cash flow is

estimated to decrease by approximately 54.0 percent to $5.1 million, compared to the

base-case value of $11.0 million, in the year 2015.

TSL 3 would require the addition of a secondary heat exchanger for mobile home

furnace products sold in the North. As a result, mobile home furnace manufacturers could

incur conversion costs for redesigns and tooling. Oil furnace manufacturers would likely

need to increase the surface area of heat exchangers. DOE estimates conversion costs for

the entire industry to meet the TSL 3 to be $ 15 million.

390TSL 4 represents the consensus agreement level and incorporates accelerated

compliance dates. The mobile home furnace standard and the oil furnace standard do not

vary from TSL 3. DOE estimates impacts on INPV to range from -$24 million to -$29

million, or a change in INPV of -16.4 percent to -19.6 percent. At this level, industry free

cash flow is estimated to decrease by approximately 11.5 percent to $9.8 million,

compared to the base-case value of $11.0 million, in the year 2015.

The accelerated compliance dates of TSL 4 lead to earlier investments by

manufacturers. The production line changes necessary to produce secondary heat

exchangers for mobile home furnace products and larger heat exchanges for oil furnaces

would need to occur before the standards year 2013. Manufacturers could incur

conversion costs for redesigns and additional tooling totaling $ 15 million. There is a

decrease in INPV in TSL 4, as compared to TSL 3, due to the earlier commoditization

impacts of the accelerated compliance dates. In TSL 4, INPV decreases 4.8 percent to

6.1 percent lower than in TSL 3.

TSL 5 and TSL 6 represent an increase in standards for mobile home furnaces and

oil furnaces above the level set in TSL 1 through TSL 4. The standard in the North for

mobile home furnaces increases to 96-percent AFUE, and the national standard for oil

furnaces increases to 85-percent AFUE. TSL 5 and TSL 6 require compliance in 2016.

DOE estimates impacts on INPV to range from -$18 million to -$36 million, or a change

in INPV of -12.1 percent to -23.8 percent. At this level, industry free cash flow is

391estimated to decrease by approximately 86.0 percent to $1.6 million, compared to the

base-case value of $11 million, in the year 2015.

TSL 5 and TSL 6 would raise the standard in the North for mobile home furnaces

to the max-tech level ( i.e. , 96 -percent AFUE). At this level, all mobile home furnaces in

the North would be required to be condensing. This change would drive the increase in

conversion cost, as manufacturers work on condensing furnace designs that function

within the physical dimension and price constraints of the mobile home market. Mobile

home furnace manufacturers would no longer be able to differentiate products based on

efficiency. In interviews, manufacturers noted that the loss of product differentiation

would lead to increased focus on cost competitiveness. Given the size of the mobile home

furnace market (approximately 120,000 units per year) and manufacturer feedback that

the mobile home market is highly price sensitive, a number of manufacturers could

choose to exit the market rather than compete at this efficiency level. Additionally, TSL 5

and TSL 6 would increase the standard for oil furnaces to 85-percent AFUE. To reach

this level, manufacturers would continue to increase the surface area of heat exchangers,

incurring additional production costs and higher raw material costs. Conversion costs for

TSL 5 and TSL 6 are $ 24 million. At this cost, it is possible that some oil furnace

manufacturers would exit the business.

TSL 7 raises the standard for oil furnaces and mobile home furnaces to max-tech.

DOE estimates impacts on INPV to range -$40 million to -$55 million, or a change in

INPV of -26.7 percent to -36.7 pe rcent. At this considered level, industry free cash flow

392is estimated to decrease by approximately 193 percent to -$9.2 million, compared to the

base-case value of $11 million, in the year 2015.

TSL 7 sets a national standard for oil furnaces at the max-tech level ( i.e. , 97­

percent AFUE). This efficiency level would require the development of condensing oil

furnaces as the baseline product. DOE was only able to identify one domestic

manufacturer offering a condensing oil furnace. The development of cost-effective,

reliable, and durable oil furnace products would require significant capital expenditures

by a majority of the industry. It is unclear how many manufacturers would make the

product conversion investment to compete in a market that supplies fewer than 80,000

units/year and, according to most manufacturers, is shrinking. However, given the limited

size of the oil furnace market and the market’s declining shipments, it could be expected

that a number of manufacturers would choose to leave the market rather than compete at

this efficiency level. DOE expects a similar effect in the mobile home furnace market.

(iii) Cash-Flow Analysis Results for Standby Mode and Off Mode Standards

Table V. 22 . Standby Mode and Off Mode Impacts for Furnace, Central Air Conditioning, and Heat Pump Products Under the Preservation of Gross Margin Percentage Scenario

Units Base Case Standby Mode and Off Mode TSL 1 2 3

INPV 2009$ millions 8,711 8,715 8,716 8,734

Change in INPV 2009$ millions n/a 4 5 23
(%) n/a 0.05 0.06 0.26 Product Conversion Costs 2009$ millions n/a 2.77 2.77 2.77
Capital Conversion Costs 2009$ millions n/a 0 0 0

393Total Investment Required 2009$ millions n/a 2.77 2.77 2.77

Table V. 23 . Standby Mode and Off Mode Impacts for Furnace, Central Air Conditioning, and Heat Pump Products Under the Preservation of EBIT scenario

Units Base Case Standby Mode and Off Mode TSL 1 2 3

INPV 2009$ millions 8,711 8,458 8,457 8,456

Change in INPV 2009$millions n/a (253) (253) (255)
(%) n/a (2.91) (2.91) (2.93) Product Conversion Costs 2009$ millions n/a 2.77 2.77 2.77
Capital Conversion Costs 2009$ millions n/a 0 0 0

Total Investment Required 2009$ millions n/a 2.77 2.77 2.77

Parentheses indicate negative (-) values.

The preservation of gross margin percentage and preservation of EBIT markup

scenarios for the standby mode and off mode analysis provide similar results. DOE

estimates impacts on INPV to range from $23 million to -$ 255 million, or a change in

INPV of 0.26 percent to -2.93 percent. These results include the impacts of conversion

costs, estimated at $2.8 million for the industry. DOE estimated total conversion costs to

be similar at all three standby mode and off mode TSLs, because the levels of R&D,

testing, and compliance expenditures do not vary dramatically. Furthermore, DOE did not

identify significant changes to manufacturer product ion processes that would result from

standby mode and off mode standards. In general, the range of potential impacts resulting

from the standby mode and off mode standards is small when compared to the range of

potential impacts resulting from the energy efficiency standards.

394b. Impacts on Employment

DOE quantitatively assessed the impacts of amended energy conservation

standards on domestic employment. DOE used the GRIM to estimate the domestic labor

expenditures and number of domestic production workers in the base case and at each

energy efficiency TSL from 2010 to 2045. DOE used statistical data from the U.S.

Census Bureau’s 2008 Economic Census

, 95 the results of the engineering analysis, and

interviews with manufacturers to determine the inputs necessary to calculate industrywide labor expenditures and domestic employment levels. Labor expenditures resulting

from the manufacture of products are a function of the labor intensity of the product, the

sales volume, and an assumption that wages remain fixed in real terms over time.

In the GRIM, DOE used the labor content of each product and the manufacturing

production costs from the engineering analysis to estimate the annual labor expenditures

in the industry. DOE used Census data and interviews with manufacturers to estimate the

portion of the total labor expenditures that is attributable to U.S. ( i.e. , domestic) labor.

The production worker estimates in this section only cover employment up to the

line-supervisor level for functions involved in fabricating and assembling a product

within a manufacturer facility. Workers performing services that are closely associated

with production operations, such as material handing with a forklift, are also included as

production labor. DOE’s estimates only account for production w orkers who manufacture

the specific products covered by this rulemaking. For example, even though a

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

395manufacturer may also produce hearth products, a worker on a hearth product line would

not be included with the estimate of the number of residential furnace workers.

Impact on employment results are based on analysis of energy efficiency

standards. For standby mode and off mode, the technology options considered in the

engineering analysis result in component swaps, which do not add significant product

complexity. While some product development effort will be required, DOE does not

expect the standby mode and off mode standard to meaningfully affect the amount of

labor required in production. Therefore, the standby and off mode would not result in

significant changes to employment calculations based on the energy efficiency TSLs.

The employment impacts shown in Table V. 24 represent the potential production

employment that could result following the adoption of amended energy conservation

standards. The upper end of the results in the table estimates the maximum change in the

number of production workers after amended energy conservation standards must be met.

The upper end of the results assumes that manufacturers would continue to produce the

same scope of covered products in the same production facilities, or in new or expanded

facilities located in the United States. The upper end of the range, therefore, assumes that

domestic production does not shift to lower-labor-cost countries. Because there is a real

risk of manufacturers evaluating sourcing decisions in response to amended energy

conservation standards, the lower end of the range of employment results in Table V. 24

includes the estimated total number of U.S. production workers in the industry who could

lose their jobs if all existing production were moved outside of the U.S. Finally, it is

396noted that the employment impacts shown are independent of the employment impacts to

the broader U.S. economy, which are documented in chapter 13 of the direct final rule

TSD.

Using the GRIM, DOE estimates that in the absence of amended energy

conservation standards, there would be 16,902 domestic production workers involved in

manufacturing residential furnaces, central air conditioners, and heat pumps in 2016.

Using 2008 Census Bureau data and interviews with manufacturers, DOE estimates that

approximately 89 percent of products sold in the United States are manufactured

domestically. Table V. 24 shows the range of the impacts of potential amended energy

conservation standards on U.S. production workers in the residential furnace, central air

conditioner, and heat pump market. The table accounts for both conventional products

and niche furnace products.

Table V. 24 . Potential Changes in the Total Number of Residential Furnace, Central Air Conditioner, and Heat Pump Production Workers in 2016 Trial Standard Level
Base Case 1 2 3 4 5 6 7

Total Number of Domestic Production Workers in 2016 16,90 2 16,998 17,242 17,48 5 17,746 17,940 17,998 18,102
(without facilities moving offshore) Potential 96

­ 340

­ 583

­ 844

­ 1038

­ 1096

­ 1200

­ Changes in n/a (16,902 (16,902 (16,90 (16,902 (16,902 (16,902 (16,902 Domestic ) ) 2) ) ) ) )

397Production Workers in 2016* *DOE presents a range of potential employment impacts. Parentheses indicate negative (-) values.

Based on the GRIM analysis, DOE estimates that there would be positive

employment impacts among conventional residential furnace, central air conditioner, and

heat pump manufacturers at the upper bound of the employment estimates. This effect

occurs because the required labor content increases per product at higher efficiency

levels, and the analysis assumes manufacturers do not alter the current mix of domestic

and international production. DOE believes the assumption for the employment scenarios

become less realistic at the most stringent TSLs when complete technology changes

would likely require the development of new manufacturing plants.

c. Impacts on Manufacturing Capacity

(i) Conventional Furnaces, Central Air Conditioners, and Heat Pumps

Most manufacturers currently have excess production capacity, reflected in part

by the substantial decline in shipments since the height of the housing boom in 2005.

Manufacturers did not express major capacity-related concerns at the efficiency levels

included at TSL 1, 2, and 3. Additionally, manufacturers did not express concerns about

the production capacity at TSL 4, which includes accelerated compliance dates arising

out of the consensus agreement. All major manufacturers that were interviewed agreed

that the timelines in TSL 4 could be met and that no capacity shortages were likely to

occur.

398At TSL 5, the standard levels for all central air conditioners and heat pumps

product classes would be the same as at TSL 4, so DOE does not anticipate capacity

impacts for these products. For non-weatherized gas furnaces, TSL 5 would be more

challenging for manufacturers because of the 95-percent AFUE standard in the North (as

opposed to the 90-percent AFUE standard in the North in TSL 4). However, because the

regional standard in the South is set at the baseline efficiency, manufacturers would not

have to redesign all production lines. Additionally, TSL 5 allows for an additional 3 years

beyond TSL 4’s consensus timeline for manufacturers to ramp up production capabilit ies.

Therefore, DOE does not believe there would be any impact on manufacturing capacity

from TSL 1 to TSL 5.

At the efficiency levels included in TSL 6 and TSL 7, manufacturers were

concerned that the changes in technology could impose production capacity constraints in

the near to medium term. At TSL 6, the higher energy conservation standard would

increase industry demand for some key components and tooling over current levels. All

major manufacturers would seek to increase their purchasing volumes of high-efficiency

compressors, ECM motors, and production tooling during the same timeframe. Given that

the industry relies on a limited number of suppliers for these parts, some manufacturers

expressed concern that a bottleneck in the supply chain could create production

constraints.

At TSL 7, the major domestic manufacturers of split-system air conditioners and

heat pumps would likely need to redesign all of their existing products to incorporate

399more-efficient technologies for residential applications. If manufacturers chose not to or

could not afford to develop new technologies, they would likely need to significantly

enlarge the products’ exchangers, which in turn would require a redesign of their

production lines to accommodate significantly larger units or to add a second compressor.

This increased demand for components and production tooling could lead to short-term

constraints on production. Manufacturers would face similar concerns with nonweatherized gas furnaces. Manufacturers would have to redesign all product lines to

incorporate burner modulation technology, which would include adding modulating gas

valves, variable-speed inducer fans, and more-sophisticated controls. The coinciding

demand for modulating gas valves and variable-speed inducer fans from seven major

manufacturers could potentially create supply chain constraints.

In summary, production capacity implications for the conventional product

classes would be most severe at TSL 6 and TSL 7.

(ii) Niche Furnace Products

According to the manufacturers of oil furnace and mobile home furnace products,

amended energy conservation standards should not significantly affect production

capacity, except at the max-tech levels (where condensing operation would be required).

According to manufacturers interviewed, these capacity-related concerns are focused on

the technical feasibility of increasing oil furnace efficiency to condensing levels. Most

manufacturers have not found a design that reliably delivers performance above 95­

percent AFUE. Some manufacturers indicated that they would not be able to produce

400products at the condensing level until the sulfur content of heating oil was regulated and

substantially lowered in key markets.

d. Impacts on Sub-Groups of Small Manufacturers

As discussed in section IV.I.1, using average cost assumptions to develop an

industry cash-flow estimate is not adequate for assessing differential impacts among

manufacturer subgroups. Small manufacturers, niche equipment manufacturers, and

manufacturers exhibiting a cost structure substantially different from the industry average

could be affected disproportionately. DOE used the results of the industry

characterization to group manufacturers exhibiting similar characteristics. Consequently,

DOE identified two sub- gr oups for analysis: (1) small manufacturers and (2) SDHV

manufacturers.

(i) Small Manufacturers Sub-Group

DOE evaluated the impact of amended energy conservation standards on small

manufacturers, specifically ones defined as “small businesses” by the U.S. Small

Business Administration (SBA) . The SBA defines a “small business” as having 750

employees or less for NAICS 333415, “Air -Conditioning and Warm Air Heating

Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing.”

Based on this definition, DOE identified four niche central air conditioner and heat pump

manufacturers and five niche furnace manufacturers that are classified as small

businesses. DOE describes the differential impacts on these small businesses in today’s

notice at section VI.B, Review Under the Regulatory Flexibility Act.

401Section VI.B concludes that larger manufacturers could have a competitive

advantage in multiple niche product markets due to their size and ability to access capital.

Additionally, in some market segments, larger manufacturers have significantly higher

production volumes over which to spread costs. The Department can not certify today’s

rule would not have a significant economic impact on a substantial number of small

ma nufacturers. However, DOE has carefully considered these potential impacts and has

sought to mitigate any such impacts in today’s rule . For a complete discussion of the

impacts on small businesses, see chapter 12 of the direct final rule TSD.

(ii) Small-Duct, High-Velocity Manufacturers Sub-Group

Small-duct, high-velocity systems serve a niche within the residential air

conditioning market. A SDHV system consists of a non-conventional indoor unit and air

distribution system (produced by the SDHV manufacturer) mated to a conventional

outdoor unit (produced by split-system manufacturers). These SDHV systems typically

make use of flexible ducting and operate at a higher static pressure than conventional air

conditioning systems. This product class makes up less than 0.5 percent of central air

conditioning shipments. DOE estimates the total market size to be less than 30,000 units

per year.

SDHV systems are primarily installed in existing structures that do not have air

conditioning duct work. In this application, SDHV systems are often a more costeffective solution for centralized cooling because conventional systems may require

402substantial installation and retrofit costs to install ducting. The SDHV system delivers

conditioned air via small diameter flexible tubing, which requires less space than

conventional ductwork. SDHV systems are often paired with hydronic heat, radiant heat,

and ground temperature heat pump systems. Historically, approximately 80 percent of

shipments have been for the retrofit market, and 20 percent of shipments have been for

the new construction market.

DOE has identified three manufacturers of SDHV systems that serve the U.S.

market. The two domestic manufacturers, Unico Systems and SpacePak, serve the

majority of the market. SpacePak is a subsidiary of MesTek Inc., a U.S. holding company

with over 30 specialty manufacturing brands. Unico is a small business, as defined by the

SBA.

DOE’s analysis of AHRI Directory product listings indicates that the primary

difference between SDHV products rated at 11 SEER and SDHV products rated above 11

SEER is the paired condensing unit. The indoor unit, which is the component designed

and manufactured by SpacePak and Unico, does not change as the AHRI-certified

efficiency increases. SpacePak and Unico are reaching higher efficiencies by pairing their

products with larger condensing units, which are produced by conventional air

conditioning and heat pump manufacturers.

According to SDHV manufacturers, the small size of the SDHV industry limits

influence on key suppliers. As a result, SDHV manufacturers must choose from stock fan

403motors, compressors, and products that are optimized for other applications and

industries. The selection of available components limits the technology options available

to SDHV manufacturers, thereby constraining the manufacturers’ ability to achieve

efficiencies above 11 SEER through improved product design. Interviewed SDHV

manufacturers indicated that they are near max-tech for the SDHV indoor unit with

today’s standards and available components.

In 2004, both Unico and SpacePak petitioned DOE’s Office of Hearings and

Appeals (OHA) for exception relief from the 13 SEER energy efficiency standard found

at 10 CFR 430.32(c)(2), with which compliance was required for products manufactured

on or after January 23, 2006. OHA granted both petitions on October 14, 2004. 96

Accordingly, the manufacturers were authorized to produce equipment that performed at

11 SEER / 6.8 HSPF and above. In their 2004 application for exc ep tion relief, SpacePak

and Unico both indicated that a 13 SEER standard would create significant hardships for

the SDHV industry. SpacePak wrote in its application for exception relief that an absence

of relief would lead to “the loss of all sales within the Unites States.” As part of the 2004

OHA Decision and Order (case #TEE-0010), Lennox International filed comments

stating that “it agrees these [SDHV] products would be unfairly burdened by...the 13

SEER/7.7 HSPF minimum level.”

Since 2004, SDHV manufacturers have been able to reach efficiencies of 13

SEER, but the vast majority of products listed in the AHRI Directory are below 13 SEER

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

404(see chapter 3 of the direct final rule TSD for a distribution of SDHV systems by

efficiency level). This improved efficiency is primarily the result of pairing their products

with higher-efficiency outdoor units produced by other manufacturers. One manufacturer

has incorporated variable-speed technology to improve product efficiency. However,

overall, SDHV manufacturer still face many of the same challenges they faced in 2004

and have limited options for further improving the efficiency of the air handling unit,

which is the only component designed and produced by SDHV manufacturers. As a

result, higher standards would force SDHV manufactures to pair their products with more

expensive, higher-efficiency outdoor units to provide performance that meets energy

conservation standards. TSL 1 through TSL 5 would require only the baseline efficiency

level (13 SEER), while TSL 6 and TSL 7 would increase the level to 14 SEER and 14.5

SEER, respectively. DOE believes the increases represented by TSL 6 and TSL 7 would

significantly adversely impact the financial standing of SDHV manufacturers. As

discussed in their 2004 application for ex ception relief, such an increase would likely

significantly depress shipments because it would require additional controls and a much

more expensive outdoor unit. As a result manufacturers would be forced to spread fixed

costs over a lower volume and wo uld be less able to pass on the higher incremental costs.

Manufacturers would face increasingly difficult decisions regarding the investment of

resources toward what would likely be a much smaller market.

e. Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers,

the combined effects of several impending regulations may have serious consequences

405for some manufacturers, groups of manufacturers, or an entire industry. Assessing the

impact of a single regulation may overlook this cumulative regulatory burden. In addition

to DOE energy conservation standards, other regulations can significantly affect

manufacturers’ financial operations. Multiple regulations affecting the same

manufacturer can strain profits and can lead companies to abandon product lines or

markets with lower expected future returns than competing products. For these reasons,

DOE conducts an analysis of cumulative regulatory burden as part of its rulemakings

pertaining to appliance efficiency.

During previous stages of this rulemaking, DOE identified a number of

requirements, in addition to amended energy conservation standards for furnaces, central

air conditioners, and heat pumps, that manufacturers of these products will face for

products they manufacture within three years prior to and three years after the anticipated

compliance date of the amended standards. These requirements included DOE’s amended

energy conservation standards for other products produced by the manufacturers covered

under this rulemaking. Amended energy conservation standards coming into effect during

the analysis period that are expected to affect at least a subset of the manufacturers

include the rulemakings for residential boilers, packaged terminal air

conditioners/packaged terminal heat pumps, furnace fans, room air conditioners, and

residential water heaters. DOE discusses these requirements in greater detail in chapter

12 of the direct final rule TSD.

406The most common regulatory burden concern raised by manufacturers during

interviews was the potential phase-down of HFCs. While no phase-down is currently

required, air conditioning and heat pump manufacturers raised these concerns because of

HFC phase-down language in proposed legislation, such as H.R. 2454, the American

Clean Energy and Security Act of 2009 . Manufacturers cited concerns that a phase-down

of HFC refrigerants could negatively impact product efficiency, product functionality,

and manufacturing processes for central air conditioners and heat pumps. Additionally,

there is the potential for significant conversion costs as well as higher on-going costs for

production.

Furnace manufacturers also cited concerns about the cumulative burden

associated with low NO X and ultra-low NO X standards adopted in the South Coast Air

Quality Management District (SCAQMD) and other air quality districts of California for

mobile home furnaces, weatherized gas furnaces, and non-weatherized gas furnaces. 97

Manufacturers stated that these standards will require R&D resources, which may be

limited due to conversion costs associated with Federal standards.

Several manufacturers indicated that Canada has programs in place that regulate

products covered in this rulemaking. DOE research indicates that Natural Resources

Canada (NRCan) regulates residential furnaces, central air conditioners and heat pumps,

and furnace fans. 98

97 California Air Resources Board, South Coast AQMD List of Current Rules (2010) (Available at: http://www.arb.ca.gov/drdb/sc/cur.htm ) (last accessed September 2010).
98 Natural Resources Canada, Canada's Energy Efficiency Regulations (2009) (Available at: http://oee.nrcan.gc.ca/regulations/guide.cfm ) (last accessed October 2010 ).

407DOE discusses these and other requirements, and includes the full details of the

cumulative regulatory burden, in chapter 12 of the direct final rule TSD.

3. National Impact Analysis

This section presents DOE’s estimates of the national energy savings and the

NPV of consumer benefits that would result from each of the TSLs considered as

potential amended furnace, central air conditioner, and heat pump energy efficiency

standards, as well as from each of the TSLs considered as potential standards for standby

mode and off mode.

In estimating national energy savings and the NPV of consumer benefits, for

TSLs 2, 3, and 4, DOE calculated a range of results that reflect alternative assumptions

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

respond to a standard at 90-percent or 92-percent AFUE. DOE believes that the response

of the market to a standard at either of these efficiency levels is sufficiently uncertain that

it is reasonable to use a range to represent the expected impacts. The low end of the range

reflects the approach to forecasting standards-case efficiency distributions described in

section IV.G.2. With this approach, the part of the market that was below the amended

standard level rolls up to the amended standard level in the year of compliance, and some

fraction of shipments remains above the minimum. The high end of the range reflects the

po ssibility that, under an amended standard that requires a minimum AFUE of 90 percent

or 92 percent, the entire market will shift to 95 percent because the additional installed

408cost, relative to 90-percent or 92-percent AFUE, is minimal. In both cases, the approach

to forecasting the change in efficiency in the years after the year of compliance is the

same.

a. Significance of Energy Savings

To estimate the energy savings attributable to potential standards for furnaces,

central air conditioners, and heat pumps, DOE compared the energy consumption of these

products under the base case to their anticipated energy consumption under each TSL. As

discussed in section IV.E, the results account for a rebound effect of 20 percent for

furnaces, central air conditioners, and heat pumps ( i.e. , 20 percent of the total savings

from higher product efficiency are “taken back” by consumers through more intensive

use of the product).

Table V. 25 presents DOE’s forecasts of the national energy savings for each TSL

considered for energy efficiency, and Table V. 26 presents DOE’s forecasts of the

national energy savings for each TSL considered for standby mode and off mode power.

The savings were calculated using the approach described in section IV.G. Chapter 10 of

the direct final rule TSD presents tables that also show the magnitude of the energy

savings if the savings are discounted at rates of 7 percent and 3 percent. Discounted

energy savings represent a policy perspective in which energy savings realized farther in

the future are less significant than energy savings realized in the nearer term.

Table V. 25 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative National Energy Savings for Energy Efficiency TSLs for 2016- 2045

409Trial Standard Level Quads 1 0. 18 2 2.32 to 2.91 3 2. 97 to 3. 84 4* 3. 20 to 4. 22 5 3. 89 6 5. 91 7 19. 18 Deleted: 167

Deleted: 96

Deleted: 92

Deleted: 24

* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the energy savings from 2015 through 2045 for central air conditioners and heat pumps, and from 2013 through 2045 for furnaces.

Table V. 26 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative Deleted:

. National Energy Savings for Standby Mode and Off Mode Power TSLs for 2016

- 2045 Trial Standard Level Quads 1 0.15 3 2 0. 16 3 0.186

DOE also conducted a sensitivity analysis that reflects alternate assumptions

regarding the market demand for split-system coil- only air conditioner replacement units

at 15 SEER and above in the standards cases (see section IV.G.2 for details). Table V.27

shows the NES results for this sensitivity analysis.

Table V

. 27 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative National Energy Savings for Energy Efficiency TSLs for 2016-2045 (Alternate Assumptions for Split-system Coil-only Air Conditioner Replacement Market) Trial Standard Level Quads 1 0. 20 2 2.34 to 2.93 3 2.91 to 3. 78 4* 3. 14 to 4. 16 5 3. 83 6 5. 69 7 19.0 1

410* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the energy savings from 2015 through 2045 for central air conditioners and heat pumps, and from 2013 through 2045 for furnaces.

b. Net Present Value of Consumer Costs and Benefits

DOE estimated the cumulative NPV to the Nation of the total costs and savings

for consumers that would result from particular standard levels for furnaces, central air

conditioners, and heat pumps. In accordance with the OMB’s guidelines on regulatory

analysis, 99 DOE calculated NPV using both a 7-percent and a 3-percent real discount rate.

The 7-percent rate is an estimate of the average before-tax rate of return to private capital

in the U.S. economy, and reflects the returns to real estate and small business capital as

well as corporate capital. DOE used this discount rate to approximate the opportunity cost

of capital in the private sector, since recent OMB analysis has found the average rate of

return to capital to be near this rate. In addition, DOE used the 3-percent rate to capture

the potential effects of standards on private consumption ( e.g. , through higher prices for

products and the purchase of reduced amounts of energy). This rate represents the rate at

which society discounts future consumption flows to their present value. This rate can be

approximated by the real rate of return on long-term government debt, which has

averaged about 3 percent on a pre-tax basis for the last 30 years.

Table V. 28 shows the consumer NPV for each considered energy efficiency TSL

for furnaces, central air conditioners, and heat pumps, using both a 7-percent and a 3­

percent discount rate, and Table V. 29 shows the consumer NPV results for each TSL

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

. Comment [A11]: Changes recommended by OIRA.

411DOE considered for standby mode and off mode power. For all TSLs except TSL 4 (the

level corresponding to the consensus agreement), the impacts cover the lifetime of

products purchased in 2016-2045; for TSL 4, the impacts cover the lifetime of products

purchased in 2013

– 2045 for furnaces and in 2015-2045 for central air conditioners and

heat pumps. See chapter 10 of the direct final rule TSD for more detailed NPV results.

Table V. 28 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative Net Present Value of Consumer Benefits for Energy Efficiency TSLs for Products Shipped in 2016- 2045 Trial Standard Level 3

- percent Discount Rate 7

- percent Discount Rate Billion 2009$ 1 0. 76 0. 23 2 10. 6 1 to 11. 5 6 2. 60 to 2. 41 3 13. 35 to 15. 29 3. 36 to 3. 36 4* 14. 73 to 17. 55 3. 93 to 4. 21 5 15. 69 3. 47 6 8.18 ( 2. 56 ) 7 ( 45.12 ) ( 44. 9 8 ) * For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015 -2045 for central air conditioners and heat pumps, and in 2013

­ 2045 for furnaces. Parentheses indicate negative (-) values.

Table V. 29 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative Net Present Value of Consumer Benefits for Standby Mode and Off Mode Power TSLs for Products Shipped in 2016

- 2045 Trial Standard Level 3

- percent Discount Rate 7

- percent Discount Rate Billion 2009$ 1 1.14 0.371 2 1.18 0. 373 3 1.01 0.235 Deleted: 62

Deleted: 16

Deleted: 64

Deleted: 58

Deleted: 42

Deleted: 61

Deleted: 24

Deleted: 18

Deleted: 301

Deleted: 304

Deleted: 62

Deleted: 44

Deleted: 86
Deleted: 14

Deleted: 58

Deleted: 41

Deleted: 7.45

Deleted: 99
Deleted: 4 4.51

Deleted: 9 0

Deleted:

. Parentheses indicate negative (-) values.

DOE also conducted a sensitivity analysis that reflects alternate assumptions

regarding the market demand for split-system coil- only air conditioner replacement units

412at 15 SEER and above in the standards cases (see section IV.G.2 for details). Table V.30

shows the consumer NPV results for this sensitivity analysis.

Table V

. 30 Furnaces, Central Air Conditioners, and Heat Pumps: Cumulative Net Present Value of Consumer Benefits for Energy Efficiency TSLs for Products Shipped in 2016-2045 (Alternate Assumptions for Split-system Coil-only Air Conditioner Replacement Market) Trial Standard Level 3

- percent Dis count Rate 7

- percent Discount Rate Billion 2009$ 1 0. 87 0. 26 2 10.7 1 to 11.6 5 2. 63 to 2. 45 3 14. 32 to 16. 27 3.74 to 3.75 4* 15.71 to 18. 53 4. 31 to 4. 59 5 16.66 3.85 6 10.36 ( 1.68 ) 7 (38. 87 ) (42. 47 )
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015 -2045 for central air conditioners and heat pumps, and in 2013

­ 2045 for furnaces. Parentheses indicate negative (-) values.

DOE also investigated the impact of different learning rates on the NPV for the

seven energy efficiency TSLs. The NPV results presented in Table V.28 are based on

learning rates of 18.1 percent for central air conditioners and heat pumps, and 30.6

percent for furnaces, both of which are referred to as the “default” learning rates. DOE

considered three learning rate sensitivities: (1) a “high learning” rate; (2) a “low learning”

rate; and (3) a “no learning” rate. The “high learning”’ rates are 20.5 percent for central

air conditioners and heat pumps and 33.3 percent for furnaces. The “low learning” rates

are 11.5 percent for central air conditioners and heat pumps and 19.2 percent for

furnaces. The “no learning” rate sensitivity assumes constant rea l prices over the entire

forecast period. Refer to appendix 8-J of the TSD for details on the development of the

above learning rates.

413Table V. 31 provides the annualized NPV of consumer benefits at a 7-percent

discount rate, combined with the annualized present value of monetized benefits from

CO 2 and NO X emissions reductions, for each of the energy efficiency TSLs for the

“default” learning rate and the three sen sitivity cases. (DOE’s method for annualization is

described in section V.C.3 of this notice.) Table V.32 provides the same combined

annualized NPVs using a 3-percent discount rate. (Section V.B.6 below provides a

complete description and summary of the monetized benefits from CO 2 and NO X
emissions reductions.) For details on the se results, see appendix 10-C of the direct final

rule TSD.

Table V

. 31 Furnaces, Central Air Conditioners, and Heat Pumps: Annualized Net Present Value of Consumer Benefits (7 -percent Discount Rate) and Annualized Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions ** for Energy Efficiency TSLs for Products Shipped in 2016- 2045 Learning Rate (LR) Trial Standard

Level Default: LR CAC

- HP = 18.1% LR FURN = 30.6% High Sensitivity: LR CAC

- HP = 20.5% LR FURN = 33.3% Low Sensitivity: LR CAC

- HP = 11.5% LR FURN = 19.2% No Learning: LR = 0% (constant real prices) Billion 2009$ 1 0.0 36 0.03 7 0.0 34 0.02 8 2 0. 304 to 0. 287 0. 309 to 0. 294 0.2 85 to 0.2 58 0. 242 to 0. 195 3 0.4 14 to 0.4 37 0.4 21 to 0.4 48 0. 389 to 0. 4 00 0.3 28 to 0.3 12 4* 0.4 56 to 0.5 17 0.4 64 to 0.5 28 0.4 30 to 0.4 79 0.3 66 to 0. 387 5 0.4 51 0.4 62 0.4 14 0.3 26 6 0. 075 0. 1 06 (0.016) (0. 266 ) 7 (2.49 7 ) (2.3 6 0) (2.8 90 ) ( 3.998 )
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015 -2045 for central air conditioners and heat pumps, and in 2013

­ 2045 for furnaces. Parentheses indicate negative (-) values. ** The economic benefits from reduced CO 2 emissions were calculated using a SCC value of $22.1/metric ton in 2010 (in 2009$) for CO 2 , increasing at 3% per year, and a discount rate of 3%. The economic benefits from reduced NO X emissions were calculated using a value of $2,519/ton (in 2009$), which is the average of the low and high values used in DOE’s analysis, and a 7-percent discount rate.

414Table V

. 32 Furnaces, Central Air Conditioners, and Heat Pumps: Annualized Net Present Value of Consumer Benefits (3 -percent Discount Rate) and Annualized Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions ** for Energy Efficiency TSLs for Products Shipped in 2016- 2045 Learning Rate (LR) Trial Standard

Level Default: LR CAC

- HP = 18.1% LR FURN = 30.6% High Sensitivity: LR CAC

- HP = 20.5% LR FURN = 33.3% Low Sensitivity: LR CAC

- HP = 11.5% LR FURN = 19.2% No Learning: LR = 0% (constant real prices) Billion 2009$ 1 0.0 57 0.05 8 0.0 55 0.04 8 2 0.6 39 to 0.68 5 0.64 6 to 0.69 4 0.61 1 to 0.64 4 0.55 3 to 0.5 59 3 0.8 27 to 0.9 50 0.8 37 to 0.9 64 0. 793 to 0. 898 0.7 11 to 0. 782 4* 0.8 71 to 1.0 49 0. 8 80 to 1.0 62 0.8 36 to 0.998 0.7 55 to 0. 882 5 0.9 76 0.990 0.9 24 0. 8 07 6 0. 7 04 0. 7 45 0. 580 0. 255 7 (1.1 5 2 ) ( 0.972 ) (1. 673 ) (3.09 4 )
* For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the consumer benefits for products sold in 2015 -2045 for central air conditioners and heat pumps, and in 2013

­ 2045 for furnaces. Parentheses indicate negative (-) values. ** The economic benefits from reduced CO 2 emissions were calculated using a SCC value of $22.1/metric ton in 2010 (in 2009$) for CO 2 , increasing at 3% per year, and a discount rate of 3%. The economic benefits from reduced NO X emissions were calculated using a value of $2,519/ton (in 2009$), which is the average of the low and high values used in DOE’s analysis, and a 3-percent discount rate. Comment [A12]: Changes recommended by OIRA.

c. Indirect Impacts on Employment

DOE develops estimates of the indirect employment impacts of potential

standards on the economy in general. As discussed above, DOE expects amended energy

conservation standards for furnaces, central air conditioners, and heat pumps to reduce

energy bills for consumers of these products, and the resulting net savings to be

redirected to other forms of economic activity. These expected shifts in spending and

economic activity could affect the demand for labor. As described in section IV.J, to

estimate these effects, DOE used an input/output model of the U.S. economy. Table V. 33

presents the estimated net indirect employment impacts in 2025 and 2045 for the energy

efficiency TSLs that DOE considered in this rulemaking. Table V. 34 shows the indirect

415employment impacts of the standby mode and off mode TSLs. Chapter 13 of the direct

final rule TSD presents more detailed results.

Table V. 33 Net Increase in Jobs from Indirect Employment Effects Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs Trial Standard Level Jo bs in 2025 Jobs in 2045 1 1

, 0 0 0 500 2 3,000 2

, 7 0 0 3 5

, 4 0 0 6
, 1 0 0 4 6,00 0 6 ,300 5 6 ,400 6
, 3 00 6 1 6,000 18

, 5 0 0 7 60,200 8 1

, 4 0 0

Table V. 34 Net Increase in Jobs from Indirect Employment Effects Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs Trial Standard Level Jobs in 2025 Jobs in 2045 1 3 2 0 800 2 350 860 3 420 1,020

The input/output model suggests that today’s standards would be likely to

increase the net demand for labor in the economy. However, the gains would most likely

be very small relative to total national employment. Moreover, neither the BLS data nor

the input/output model DOE uses includes the quality or wage level of the jobs.

Therefore, DOE has concluded that today’s standards are likely to produce employment

benefits sufficient to fully offset any adverse impacts on employment in the

manufacturing industry for the furnaces, central air conditioners, and heat pumps that are
the subjects of this rulemaking.

4164. Impact on Utility or Performance of Products

As presented in section III.D.1.d of this notice, DOE concluded that none of the

TSLs considered in this notice would reduce the utility or performance of the products

under consideration in this rulemaking. Furthermore, manufacturers of these products

currently offer furnaces, central air conditioners, and heat pumps that meet or exceed

today’s standards. (42 U.S.C. 6295(o)(2)(B)(i)(IV))

5. Impact of Any Lessening of Competition

DOE has also considered any lessening of competition that is likely to result from

amended standards. The Attorney General determines the impact, if any, of any lessening

of competition likely to result from a proposed standard, and transmits such

determination in writing to the Secretary, together with an analysis of the nature and

extent of such impact. (42 U.S.C. 6295(o)(2)(B)(i)(V) and (ii))

DOE is publishing a NOPR containing energy conservation standards identical to

those set forth in today’s direct final rule and has transmitted a copy of today’s direct

final rule and the accompanying TSD to the Attorney General, requesting that the DOJ

provide its determination on this issue. DOE will consider DOJ’s comments on the rule in

determining whether to proceed with the direct final rule

. DOE will also publish and

respond to DOJ’s comments in the Federal Register in a separate notice.

4176. Need of the Nation to Conserve Energy

An improvement in the energy efficiency of the products subject to today’s direct

final rule is likely to improve the security of the Nation’s energy system by reducing

overall demand for energy. Reduced electricity demand may also improve the reliability

of the electricity system. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) As a measure of this reduced

demand

, Table V. 35 and Table V. 36 present the estimated reduction in generating

capacity in 2045 for the TSLs that DOE considered in this rulemaking for energy

efficiency and standby mode and off mode power, respectively.

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

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

Energy savings from amended standards for furnaces, central air conditioners, and

heat pumps could also produce environmental benefits in the form of reduced emissions

418of air pollutants and greenhouse gases associated with electricity production, and also

reduced site emissions. Table V. 37 provides DOE’s estimate of cumulative CO 2 , NO X , and Hg emissions reductions that would be expected to result from each of the TSLs

considered in this rulemaking for energy efficiency standards, and Table V. 38 provides

the results for each of the TSLs considered for standby mode and off mode power

standards. In the environmental assessment (chapter 15 in the direct final rule TSD),

DOE reports annual CO 2 , NO X , and Hg emissions reductions for each considered TSL.

As discussed in section 2 emissions reductions

from power plants, because there is uncertainty about the effect of energy conservation

standards on the overall level of SO 2 emissions in the United States due to SO 2 emissions

caps. DOE also did not include NO X emissions reduction from power plants in States

subject to CAIR because an amended energy conservation standard would not affect the

overall level of NO X emissions in those States due to the emissions caps mandated by

CAIR.

Table V. 37 Cumulative Emissions Reduction for 2016-2045 Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs Trial Standard Level CO 2 million metric tons NO X thousand tons Hg
tons 1 15.2 12.3 0. 022 2 62.8 to 61. 2 55.5 to 56.7 0. 011 to ( 0. 012) 3 9 7. 1 to 11 3 8 3. 1 to 9 8. 5 0. 086 to 0. 059 4 * 10 5 to 13 4 90. 1 to 11 7 0. 0 97 to 0. 0 71 5 11 6 102 0. 059 6 200 16 8 0. 270 7 77 2 640 1.160 * For TSL 4, which matches the recommendations in the consensus agreement, DOE forecasted the Deleted: 14.3

Deleted: 11.56

Deleted: 3

Deleted: 0

Deleted: 0
Deleted: 4

Deleted: 0

Deleted: 773 emissions reductions from 2015 through 2045 for central air conditioners and heat pumps, and from 2013 through 2045 for furnaces. Parentheses indicate a negative value.

419Table V. 38 Cumulative Emissions Reduction for 2016- 2045 Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs Trial Standard Level CO 2 million metric tons NO X thousand tons Hg
tons 1 8.23 6.60 0.056 2 8.73 7.00 0.072 3 10.1 8.11 0.079

DOE also estimated monetary benefits likely to result from the reduced emissions

of CO 2 and NO X that DOE estimated for each of the TSLs considered for furnaces,

central air conditioners, and heat pumps. In order to make this calculation similar to the

calculation of the NPV of consumer benefit, DOE considered the reduced emissions

expected to result over the lifetime of products shipped in the forecast period for each

TSL.

As discussed in section IV.M, a Federal interagency group selected four SCC

values for use in regulatory analyses, which DOE used in the direct final rule analysis.

The four SCC values (expressed in 200 9$) are $4.9/ton (the average value from a

distribution that uses a 5-percent discount rate), $22.1/ton (the average value from a

distribution that uses a 3-percent discount rate), $36.3/ton (the average value from a

distribution that uses a 2.5-percent discount rate), and $67.1/ton (the 95 th -percentile value

from a distribution that uses a 3-percent discount rate). These values correspond to the

value of CO 2 emission reductions in 2010; the values for later years are higher due to

increasing damages as the magnitude of climate change increases. For each of the four

420cases, DOE calculated a present value of the stream of annual values using the same

discount rate as was used in the studies upon which the dollar-per-ton values are based.

Table V. 39 presents the global values of CO 2 emissions reductions at each TSL

considered for energy efficiency. As explained in section IV.M.1, DOE calculated

domestic values as a range from 7 percent to 23 percent of the global values, and these

results are presented in Table V. 40

. Table V. 41 and Table V. 42 present similar results for

the TSLs considered for standby mode and off mode power.

421e

ate

422 Table V. 39 Estimates of Global Present Value of CO 2 Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs

TSL Million 2009$

5% discount rate, average* 3% discount

rate, average* 2.5% discount rate,

average* 3% discount rate, 95 th percentile*

1 6 5 3 32 5 62 1013

2 328 to 320 1805 to 1757 310 5 to 302 1 549 0 to 534 4

3 4 96 to 5 77 2 711 to 3 149 4 657 to 5 409 8 249 to 9 581

4 5 30 to 6 72 2 860 to 3 622 4 902 to 6 204 8 705 to 11025 5 5 96 3 253 5 586 9 897
6 9 87 5 326 9123 16209
7 3926 21391 36723 65087 * Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC over time.

Table V. 40 Estimates of Domestic Present Value of CO 2 Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs

TSL Million 2009$
5% discount rate, average* 3% discount rate, average* 2.5% discount rate, average* 3% discount rate, 95 th percentile* 1 4. 6 to 1 5.0 2 3.2 to 7 6.4 3 9.3 to 12 9 70.9 to 2 33 2 2 2.4 to 75.4 12 3 to 415 21 1 to 714 3 7 4 to 1263 3 3 4 .7 to 13 3 1 90 to 7 24 3 2 6 to 12 44 5 77 to 2 204 4 3 7

. 1 to 15 5 200 to 8 33 3 43 to 1 427 609 to 2 536 5 4 1. 7 to 13 7 22 8 to 7 48 3 91 to 12 85 6 91 to 22 69
6 6 9. 1 to 2 27 3 73 to 1 225 6 39 to 2 0 98 1 135 to 3 728
7 275 to 90 3 149 7 to 492 0 257 1 to 84 46 45 56 to 149 70

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC over time. Deleted: 61

Deleted: 312

Deleted: 528

Deleted: 951

Deleted: 1806

Deleted: 3106

... 10 5 to 3022

... Deleted: 5493

... 49 0 to 5346

...

Deleted: 576 Deleted: 2708

... 711 to 3146

...

Deleted: 4652

... 657 to 5404

... Deleted: 8239

... 249 to 9573

...

Deleted: 529 Deleted: 2857

... 860 to 3619

...

Deleted: 4896

... 902 to 6199

... Deleted: 8696

... 705 to 11016

... Deleted: 595

Deleted: 3250

Deleted: 5582

Deleted: 9888

Deleted: 988

Deleted: 5331

Deleted: 9132

Deleted: 16224

Deleted: 3929

Deleted: 21409

Deleted: 36756

Deleted: 65144 Moved (insertion) [1]

... Comment [A13]: Change recommended by

... Moved down [2]: * Columns are labeled by th

... Deleted: Values presented in the table incorpor

... Deleted: 27

... to 14.03

... Deleted: 21.8

... 3.2 to 71.8

... Deleted: 37.0

... 9.3 to 121

... Deleted: 66.6

... 0.9 to 219

... Deleted: 132

Deleted: 1243

Deleted: 2202

Deleted: 0

Deleted: 832

Deleted: 1426

Deleted: 2534

Deleted: 6
Deleted: 227

... 2 8 to 747

... Deleted: 1284

Deleted: 692

... 91 to 2274

... Deleted: 2

Deleted: 1226
Deleted: 2100

Deleted: 1136

... 135 to 3731

... Deleted: 904

Deleted: 1499

... 49 7 to 4924

...

...

...

... Moved (insertion) [2]

...

...Table V. 41 Estimates of Global Present Value of CO 2 Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs

TSL Million 2009$

5% discount rate, average* 3% discount

rate, average* 2.5% discount rate,

average* 3% discount rate, 95 th percentile*

1 41.7 228 392 694
2 44.3 242 417 738 3 51.7 283 487 862
* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC over time.

Table V. 42 Estimates of Domestic Present Value of CO 2 Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs

TSL Million 2009$
5% discount rate, average* 3% discount rate, average* 2.5% discount rate, average* 3% discount rate, 95 th percentile* 1 2.92 to 9.59 16.0 to 52.4 27.4 to 90.2 48.6 to 159.6 2 3.10 to 10.2 16.9 to 55.7 29.2 to 95.9 51.7 to 169.7 3 3.62 to 11.9 19.8 to 65.1 34.1 to 112.0 60.3 to 198.3 * Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the distribution. Values presented in the table incorporate the escalation of the SCC over time.

DOE is well aware that scientific and economic knowledge about the contribution

of CO 2 and other GHG emissions to changes in the future global climate and the potential

resulting damages to the world economy continues to evolve rapidly. Thus, any value

placed in this rulemaking on reducing CO 2 emissions is subject to change. DOE, together

with other Federal agencies, will continue to review various methodologies for estimating

the monetary value of reductions in CO 2 and other GHG emissions. This ongoing review

will consider any comments on this subject that are part of the public record for this and

423other rulemakings, as well as other methodological assumptions and issues. However,

consistent with DOE’s legal obligations, and taking into account the uncertainty involved

with this particular issue, DOE has included in this notice the most recent values and

analyses resulting from the ongoing interagency review process.

DOE also estimated a range for the cumulative monetary value of the economic

benefits associated with NO X emissions reductions anticipated to result from amended

standards for furnaces, central air conditioners, and heat pumps. The dollar-per-ton

values that DOE used are discussed in section IV.M. Table V. 43 presents the cumulative

present values for each TSL considered for energy efficiency, calculated using 7-percent

and 3-percent discount rates. Table V. 44 presents similar results for the TSLs considered

for standby mode and off mode power.

Table V. 43 Estimates of Present Value of NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs

TSL 3% discount rate million 2009$ 7% discount rate million 2009$
1 3. 4 to 3 5.3 1. 7 to 1 7.0
2 17.9 to 18 8 6.8 to 7 2 .3 3 2 6. 4 to 3 22 10. 3 to 12 6 4 2 8.5 to 3 80 11. 9 to 1 60 5 3 2.3 to 3 32 12. 7 to 1 31
6 5 2.2 to 5 36 2 1.2 to 2 1 8
7 203 to 208 2 79.8 to 82 0 Deleted: 22

Deleted: 33.1

Deleted: 5

Deleted: 15.9

Deleted: 3

Deleted: 379

Deleted: 8

Deleted: 130

Deleted: 537

Deleted: 2083

Deleted: 821

424Table V. 44 Estimates of Present Value of NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs

TSL 3% discount rate million 2009$ 7% discount rate million 2009$
1 2.07 to 21.3 0.793 to 8.15
2 2.20 to 22.6 0.841 to 8.65 3 2.56 to 26.3 0.975 to 10.0

The NPV of the monetized benefits associated with emissions reductions can be

viewed as a complement to the NPV of the consumer savings calculated for each TSL

considered in this rulemaking. Table V. 45 shows an example of the calculation of the

combined NPV, including benefits from emissions reductions for the case of TSL 4 for

furnaces, central air conditioners, and heat pumps. Table V. 46 and Table V. 47 present the

NPV values that result from adding the estimates of the potential economic benefits

resulting from reduced CO 2 and NO X emissions in each of four valuation scenarios to the

NPV of consumer savings calculated for each TSL considered for energy efficiency, at

both a 7-percent and a 3-percent discount rate. The CO 2 values used in the columns of

each table correspond to the four scenarios for the valuation of CO 2 emission reductions

presented in section IV.M. Table V. 48 and Table V. 49 present similar results for the

TSLs considered for standby mode and off mode power.

425Table V. 45 Adding Net Present Value of Consumer Savings to Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions Under TSL 4 for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency

Category Present Value billion 2009$ Discount Rate

Benefits
Operating Cost Savings 10. 6 to 1 4.0 7% 2 6.3 to 3 4.4 3% CO 2 Reduction Monetized Value (at $ 4. 9 /Metric Ton)* 0. 5 30 5%

CO 2 Reduction Monetized Value (at $ 2 2.1 /Metric Ton)* 2. 860 3%

CO 2 Reduction Monetized Value (at $ 3 6.3 /Metric Ton)* 4. 902 2.5%

CO 2 Reduction Monetized Value (at $ 6 7.1 /Metric Ton)* 8. 705 3%

NO X Reduction Monetized Value (at $2,519/Ton)* 0.06 7 7%

0.1 61 3%

Total Monetary Benefits ** 13. 5 to 16. 9 7%
2 9.3 to 3 7. 4 3%
Costs

Incremental Installed Costs 6. 7 to 9. 8 7% 1 1. 5 to 1 6.8 3%

Net Benefits/Costs

Including CO 2 and NO X ** 6. 8 to 7. 1 7% 17. 8 to 20. 6 3% Deleted: 529

Deleted: 857

Deleted: 896

Deleted: 696

Deleted: 3

Deleted: 75

Deleted: 86
Deleted: 7
Deleted: 17.0

Deleted: 78

Deleted: 85

Deleted: 64 * These values represent global values (in 2009$) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9, $22.1, and $36.3 per ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3-percent discount rate. See section IV.M for details. The value for NO X (in 2009$) is the average of the low and high values used in DOE’s analysis. ** Total Monetary Benefits and Net Benefits/Costs for both the 3% and 7% cases utilize the central estimate of social cost of CO 2 emissions calculated at a 3% discount rate, which is equal to $22.1/ton in 2010 (in 2009 $). Deleted: 12. 26

426Table V. 46 Results of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs

TSL Consumer NPV at 7% Discount Rate added to:

SCC Value of $ 4. 9 /metric ton CO 2 * and Low Value for NO X **

billion 2009$ SCC Value of $2 2. 1/metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $3 6.3 /metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $6 7.1 /metric ton CO 2 * and High Value for NO X **

billion 2009$
1 0. 29 0. 57 0. 80 1. 2 6
2 2. 9 3 to 2. 7 4 4. 4 4 to 4. 2 1 5. 7 4 to 5. 4 7 8. 1 6 to 7. 83 79
3 3. 87 to 3. 95 6. 13 to 6. 58 8

. 08 to 8. 84 11. 7 to 13. 1
4 4. 4 7 to 4. 90 6. 85 to 7. 92 8. 89 to 10. 5 12. 8 to 15. 4
5 4. 08 6. 80 9. 13 13. 5
6 ( 1. 55 ) 2. 89 6. 69 13. 9
7 ( 4 1 .0 ) ( 2 3.1 ) ( 7.81 ) 2 0

. 9 Deleted: 220

Deleted: 478

Deleted: 693

Deleted: 12

Deleted: 94
Deleted: 75

Deleted: 45

Deleted: 22

Deleted: 75

Deleted: 48

Deleted: 17

Deleted: 84

Deleted: 81

Deleted: 89

Deleted: 07

Deleted: 52

Deleted: 01

Deleted: 78

Deleted: 6
Deleted: 0

Deleted: 40

Deleted: 83

Deleted: 78

Deleted: 85

Deleted: 82

Deleted: 4
Deleted: 7
Deleted: 3

Deleted: 02

Deleted: 73

Deleted: 06

Deleted: 4

Deleted: 98

Deleted: 46

Deleted: 26

Deleted: 5

Deleted: 40

Deleted: 22.2

Deleted: 6.83

Deleted: 21 * These label values represent the global SCC of CO 2 in 2010, in 2009$. The values have been calculated with scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values. ** Low Value corresponds to $447 per ton of NO X emissions. Medium Value corresponds to $2,519 per ton of NO X emissions. High Value corresponds to $4,591 per ton of NO X emissions. Parentheses indicate negative (-) values.

427Table V. 47 Results of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs

TSL Consumer NPV at 3% Discount Rate added to:

SCC Value of $ 4. 9 /metric ton CO 2 * and Low Value for NO X **

billion 2009$ SCC Value of $2 2. 1/metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $3 6.3 /metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $6 7.1 /metric ton CO 2 * and High Value for NO X **

billion 2009$
1 0. 8 3 1.12 1. 3 3 1. 79
2 11.0 to 1 1.9 12.5 to 13.4 13.8 to 14. 6 16. 2 to 17. 0
3 1 3. 9 to 1 5. 9 16. 2 to 18. 6 18. 1 to 2 0.8 21. 7 to 25. 0
4 15. 3 to 18. 2 1 7. 8 to 21. 4 19.7 to 2 2 .8 23. 6 to 28. 7
5 16. 3 19. 1 21. 4 25. 7
6 9.2 13. 8 17.4 24. 6
7 ( 4 1.1 ) ( 22.6 ) ( 8.0 ) 2 0.8

TSL Consumer NPV at 7% Discount Rate added to:

SCC Value of $ 4. 9 /metric ton CO 2 * and Low Value for NO X **

billion 2009$ SCC Value of $2 2. 1/metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $3 6.3 /metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $6 7.1 /metric ton CO 2 * and High Value for NO X **

billion 2009$
1 0.413 0.603 0.767 1.072
2 0.418 0.620 0.794 1.119
3 0.288 0.524 0.728 1.107 Deleted: 690

Deleted: 0.955

Deleted: 17

Deleted: 61

Deleted: 7
Deleted: 3

Deleted: 1

Deleted: 8

Deleted: 8

Deleted: 1

Deleted: 5

Deleted: 0

Deleted: 8

Deleted: 1

Deleted: 2

Deleted: 1

Deleted: 6
Deleted: 3
Deleted: 23

Deleted: 8

Deleted: 2

Deleted: 0

Deleted: 3

Deleted: 8

Deleted: 8.49

Deleted: 1

Deleted: 16.9

Deleted: 2

Deleted: 38.6

Deleted: 20.2

Deleted: 4.86

Deleted: 24.5 * The label values represent the global SCC of CO 2 in 2010, in 200 9$. The values have been calculated with scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values. ** Low Value corresponds to $447 per ton of NO X emissions. Medium Value corresponds to $2,519 per ton of NO X emissions. High Value corresponds to $4,591 per ton of NO X emissions. Parentheses indicate negative (-) values.

Table V. 48 Results of Adding Net Present Value of Consumer Savings (at 7% Discount Rate) to Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs

* The label values represent the global SCC of CO 2 in 2010, in 200 9$. The values have been calculated with scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values. ** Low Value corresponds to $447 per ton of NO X emissions. Medium Value corresponds to $2,519 per ton of NO X emissions. High Value corresponds to $4,591 per ton of NO X emissions.

428Table V. 49 Results of Adding Net Present Value of Consumer Savings (at 3% Discount Rate) to Present Value of Monetized Benefits from CO 2 and NO X Emissions Reductions Under Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs

TSL Consumer NPV at 3% Discount Rate added to:

SCC Value of $ 4. 9 /metric ton CO 2 * and Low Value for NO X **

billion 2009$ SCC Value of $2 2. 1/metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $3 6.3 /metric ton CO 2 * and Medium Value for NO X **

billion 2009$ SCC Value of $6 7.1 /metric ton CO 2 * and High Value for NO X **

billion 2009$
1 1.182 1.378 1.542 1.854
2 1.226 1.434 1.608 1.939
3 1.069 1.312 1.516 1.903 * The label values represent the global SCC of CO 2 in 2010, in 2009$ . The values have been calculated with scenario-consistent discount rates. See section IV.M for a discussion of the derivation of these values. ** Low Value corresponds to $447 per ton of NO X emissions. Medium Value corresponds to $2,519 per ton of NO X emissions. High Value corresponds to $4,591 per ton of NO X emissions.

Although adding the value of consumer savings to the values of emission

reductions provides a valuable perspective, two issues should be considered. First, the

national operating savings are domestic U.S. consumer monetary savings that occur as a

result of market transactions, while the value of CO 2 reductions is based on a global

value. Second, the assessments of operating cost savings and CO 2 savings are performed

with different methods that use quite different time frames for analysis. The national

operating cost savings is measured for the lifetime of products shipped in the 30-year

period after the compliance date. The SCC values, on the other hand, reflect the present

value of future climate-related impacts resulting from the emission of one ton of carbon

dioxide in each year. These impacts go well beyond 2100.

7. Other Factors

The Secretary, in determining whether a proposed standard is economically

justified, may consider any other factors that he deems to be relevant. (42 U.S.C.

4296295(o)(2)(B)(i)(VI)) In developing the proposals set forth in this notice, DOE has also

considered the comments submitted by interested parties, including the recommendations

in the consensus agreement, which DOE believes provides a reasoned statement by

interested persons that are fairly representative of relevant points of view (including

representatives of manufacturers of covered products, States, and efficiency advocates)

and contains recommendations with respect to an energy conservation standard that are in

accordance with 42 U.S.C. 6295(o). Moreover, DOE has encouraged the submission of

consensus agreements as a way to get diverse stakeholders together, to develop an

independent and probative analysis useful in DOE standard setting, and to expedite the

rulemaking process. In the present case, one outcome of the consensus agreement was a

recommendation to accelerate the compliance dates for these products, which would have

the effect of producing additional energy savings at an earlier date. DOE also believes

that standard levels recommended in the consensus agreement may increase the

likelihood for regulatory compliance, while decreasing the risk of litigation.

C. Conclusion

When considering standards, the new or amended energy conservation standard

that DOE adopts for any type (or class) of covered product shall be designed to achieve

the maximum improvement in energy efficiency that the Secretary determines is

technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) In

determining whether a standard is economically justified, the Secretary must determine

whether the benefits of the standard exceed its burdens to the greatest extent practicable,

in light of the seven statutory factors discussed previously. (42 U.S.C. 6295(o)(2)(B)(i))

430The new or amended standard must also “result in significant conservation of energy.”

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

For today’s direct final rule, DOE considered the impacts of standards at each

TSL, beginning with the maximum technologically feasible level, to determine whether

that level was economically justified. Where the max-tech level was not justified, DOE

then considered the next most efficient level and undertook the same evaluation until it

reached the highest efficiency level that is both technologically feasible and economically

justified and saves a significant amount of energy.

To aid the reader as DOE discusses the benefits and/or burdens of each TSL,

tables present a summary of the results of DOE’s quantitative analysis for each TSL. In

addition to the quantitative results presented in the tables, DOE also considers other

burdens and benefits that affect economic justification. These include the impacts on

identifiable subgroups of consumers, such as low-income households and seniors, who

may be disproportionately affected by an amended national standard. Section V.B.1

presents the estimated impacts of each TSL for these subgroups.

DOE also notes that the economics literature provides a wide-ranging discussion

of how consumers trade off upfront costs and energy savings in the absence of

government intervention. Much of this literature attempts to explain why consumers

appear to undervalue energy efficiency improvements. This undervaluation suggests that

regulation that promotes energy efficiency can produce significant net private gains (as

431well as producing social gains by, for example, reducing pollution). There is evidence

that consumers undervalue future energy savings as a result of: (1) a lack of information,

(2) a lack of sufficient salience of the long-term or aggregate benefits, (3) a lack of

sufficient savings to warrant delaying or altering purchases ( e.g. , an inefficient ventilation

fan in a new building or the delayed replacement of a water pump), ( 4 ) excessive focus

on the short term , in the form of inconsistent weighting of future energy cost savings

relative to available returns on other investments, ( 5 ) computational or other difficulties

associated with the evaluation of relevant tradeoffs, and ( 6 ) a divergence in incentives

( e.g. , renter versus owner; builder versus purchaser). Other literature indicates that with

less than perfect foresight and a high degree of uncertainty about the future, consumers

may trade off these types of investments at a higher than expected rate between current

consumption and uncertain future energy cost savings.

In its current regulatory analysis, potential changes in the benefits and costs of a

regulation due to changes in consumer purchase decisions are included in two ways.

First, if consumers forego a purchase of a product in the standards case, this decreases

sales for product manufacturers and the cost to manufacturers is included in the MIA

. Second, DOE accounts for energy savings attributable only to products actually used by

consumers in the standards case; if a regulatory option decreases the number of products

used by consumers, this decreases the potential energy savings from an energy

conservation standard. DOE provides detailed estimates of shipments and changes in the

volume of product purchases under standards in chapter 9 of the TSD. However, DOE’s

current analysis does not explicitly control for heterogeneity in consumer preferences, Deleted: 3) inconsistent ( e.g. ,

Deleted:

­ Deleted: )

Deleted: 4

Deleted: 5

Deleted: While DOE is not prepared at present to provide a fuller quantifiable framework for this discussion at this time, DOE seeks comments on how to assess these possibilities.

432preferences across subcategories of products or specific features, or consumer price

sensitivity variation according to household income (Reiss and White 2004).

While DOE is not prepared at present to provide a fuller quantifiable framework

for estimating the benefits and costs of changes in consumer purchase decisions due to an

energy conservation standard, DOE seeks comments on how to more fully assess the

potential impact of energy conservation standards on consumer choice and how to

quantify this impact in its regulatory analysis in future rulemakings.

1. Benefits and Burdens of TSLs Considered for Furnace, Central Air Conditioner, and

Heat Pump Energy Efficiency

Table V. 50 through Table V.54 present summaries of the quantitative impacts

estimated for each TSL for furnace, central air conditioner, and heat pump energy

efficiency. The efficiency levels contained in each TSL are described in section V.A. Comment [A15]: Changes recommended by OIRA.

4337 18

2

3 to 09

to 208 2

o

1 .4 Table V. 50 Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: National Impacts Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL National Energy Savings (quads) 0. 18 2.32 to 2.91 2. 97 to 3. 84 3. 20 to 4. 22 3. 89 5. 91 19.

NPV of Consumer Benefits (2009$ billion) 3% discount rate 0. 76 10. 6 1 to 11. 5 6 13. 35 to 15. 29 14. 73 to 17. 55 15. 69 8.18 ( 45.12 ) 7% discount rate 0. 23 2. 60 to 2. 4 1 3. 36 to 3. 36 3. 93 to 4. 21 3. 47 ( 2. 56 ) ( 44. 9 8 ) Cumulative Emissions Reduction CO 2 (million metric tons) 1 5.2 62.8 to 61. 2 9 71.1 to 11 3 10 5 to 13 4 11 6 200 77 NO X (thousand tons) 1 2.3 55.5 to 56.7 8 3. 1 to 9 8. 5 90. 1 to 11 7 102 16 8 640
Hg (tons) 0. 022 0. 011 to (0.012) 0.086 to 0.059 0.097 to 0.071 0. 059 0.27 0 1.160

Value of Emissions Reduction s

CO 2 (2009$ billion)* 0. 06 5 to 1.013 0. 32 0 to 5. 49 0.4 96 to 9. 58 0. 5 30 to 1 1. 03 0. 5 96 to 9. 90 0. 9 87 to 1 6. 21 3.9 65.

NO X – 3% discount rate (2009$ million) 3. 4 to 3 5.3 17.9 to 188 2 6. 4 to 3 22 2 8.5 to 3 80 3 2.3 to 3 32 5 2.2 to 5 36 203 NO X – 7% discount rate (2009$ million) 1. 7 to 1 7.0 6.8 to 72.3 10. 3 to 12 6 11. 9 to 1 60 12. 7 to 1 31 2 1.2 to 21 8 79.8 to 82 0 Generation Capacity Reduction ( GW ) ** 0.397 0.646 to 1.12 3.61 to 3.53 3.81 to 3.69 3.56 10.5 35.6 Employment Impacts Changes in Domestic Production

Workers in 2016 (thousands) 0.1 to (16.9) 0.3 to (16.9) 0.6 to (16.9) 0.8 to (16.9) 1 to (16.9) 1.1 to (16.9) 1.2 t (16.9) Indirect Domestic Jobs (thousands) ** 0.5 2.7 6.1 6.3 6. 3 18.5 8 Deleted: 167

Deleted: 96
Deleted: 92

Deleted: 24

Deleted: 62 Deleted: 64

... 1 to 11. 58

... Deleted: 24

... 5 to 15. 18
Deleted: 62

... 3 to 17. 44

Deleted: 58

Deleted: 7.45

Deleted: 4 4.51

Deleted: 16 Deleted: 42

... 0 to 2. 61

Deleted: 301

... 6 to 3. 304

Deleted: 86

... 3 to 4. 14

Deleted: 41

Deleted: 99
Deleted: 9 0

Deleted: 14.3

Deleted: 3 Deleted: 97.0

Deleted: 773

Deleted: 11.56 Deleted: 0

... to 9 8. 4

Deleted: 0

Deleted: 061

... 6 5 to 0.951

Deleted: 328 ...

...

...

...

...

...

... Parentheses indicate negative (

- ) values. * Range of the value of CO 2 reductions is based on estimates of the global benefit of reduced CO 2 e missions. ** Changes in 2045.

Deleted: 57 Deleted: 529

... 30 to 1 1. 02

... Deleted: 595

... 96 to 9. 89

... Deleted: 988

... 87 to 1 6. 22

...

Deleted: 14

Deleted: 22

... to 33.1

... Deleted: 3

Deleted: 379

Deleted: 537

Deleted: 2083

Deleted: 5

... to 15.9

... Deleted: 8

Deleted: 130

Deleted: 821

434SL 7

to 3820)

0 ) to 45.0)

SL 7

1 98 1 81)

585 391 2 72

7 97

, 1 8 2 )

903 ) 130 ) 311 )

477 ) )

294 ) ( 25 ) 10 6 )

1 7.1 28.9

11. 5 Table V. 51 . Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: Manufacturer Impacts Deleted: 63

Deleted: 4

Deleted: 25

Deleted: 340

Deleted: 9 3

Deleted: 98

Deleted: 9 8 Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 T Manufacturer Impacts Change in Industry NPV (2009$ million) 8 to 33 ( 324 ) to ( 498 ) (428) to (729) (478) to (900) (508) to (915) (680) to (1873) (1530) ( Industry NPV (% change) 0.4 to 0.1 (3.8) to (5.9) (5.0) to (8.6) (5.6) to (10.6) (6.0) to (10.8) (8.0) to (22.0) (18. ( Deleted: 9 8

Deleted: 298

Deleted: 7 94

Deleted: 9 1

Deleted: 100

Deleted: 100

Deleted: 100

Category TSL 1* TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 T Mean LCC Savings** (2009$) Non

- Weatherized Gas Furnaces n/a North 215 155 1 55 323 323 South n/a n/a n/a n/a n/a ( Mobile Home Gas Furnaces n/a North n/a 419 4 19 585 585 South n/a n/a n/a n/a n/a Oil

- Fired Furnaces n/a n/a 1 5 15 (18) (18) Split

- System Air Conditioners (coil

- only) 55 Rest of Country ( 8 ) n/a n/a n/a ( 2 6 ) (1

, 343 )
Hot

- Humid 86 93 9 3 9 3 ( 303 ) ( )
Hot

- Dry 104 107 107 107 ( 468 ) (1 Split

- Sy stem Air Conditioners (blower

- c oil) 46 Rest of Country ( 18 ) n/a n/a n/a ( 30 ) (
Hot

- Humid 77 89 89 89 1 77 (
Hot

- Dry 90 101 101 101 1 96 ( Split

- System Heat Pumps 71 Rest of Country 5 4 4 4 ( 89 ) ( 604 )
Hot

- Humid 82 1 02 1 02 1 02 1 37 103
Hot

- Dry 148 175 1 75 1 75 274 Single

- Package Air Conditioners n/a n/a 37 37 37 (68) (492 Single

- Package Heat Pumps n/a n/a 104 104 104 15 (363 SDHV Air Conditioners n/a Rest of Country n/a n/a n/a n/a ( 2 0 2 ) (
Hot

- Humid n/a n/a n/a n/a ( 14 )
Hot

- Dry n/a n/a n/a n/a ( 65 ) ( Median Payback Period (years) Non

- Weatherized Gas Furnaces n/a North 7.7 10.1 10. 1 9.4 9.4 South n/a n/a n/a n/a n/a Mobile Home Gas Furnaces n/a North n/a 10.7 10.7 11. 5 11. 5 Deleted: 15

Deleted: 29

Deleted: 899

Deleted: 8 5

Deleted: 96
Deleted: 96
Deleted: 96
Deleted: 1 88

Deleted: 118

Deleted: 76
Deleted: 93

Deleted: 93
Deleted: 93

Deleted: 1 84

Deleted: 323

Deleted: 98

Deleted: 6
Deleted: 10

Deleted: 10

Deleted: 10

Deleted: 2 4

Deleted: 511

Deleted: 97
Deleted: 1 10

Deleted: 1 10

Deleted: 1 10

Deleted: 1 99
Deleted: 2 21

Deleted: 164

Deleted: 19 3 Parentheses indicate negative (

- ) values.

Table V. 52

. Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: Consumer LCC Savings and Payback Period Deleted: 477

Deleted: 1 89

Deleted: 53

Deleted: 19 3

Deleted: 19 3

Deleted: 3 7 1
Deleted: 665

Deleted: Rest of Country

...

... 435100 4 7

100 2 1

1 3 9 46 21

75 Category TSL 1* TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 South n/a n/a n/a n/a n/a 13 Oil

- Fired Furnaces n/a n/a 1.0 1.0 19. 8 19. 8 18. 2 Split

- System Air Conditioners (coil

- only) 9 Rest of Country 2 3 n/a n/a n/a 3 3
Hot

- Humid 6 7 7 7 3 4
Hot

- Dry 8 10 10 10 49 71 Split

- System Air Conditioners (blower

coil) 1 1
Rest of Country 2 6 n/a n/a n/a 28
Hot

- Humid 7 8 8 8 8
Hot

- Dry 10 1 1 1 1 1 1 11 3 1 Split

- System Heat Pumps 7 Rest of Country 1 3 1 3 1 3 1 3 20 33
Hot

- Humid 6 6 6 6 7
Hot

- Dry 5 5 5 5 5 Single

- Package Air Conditioners n/a n/a 15 15 15 24 Single

- Package Heat Pumps n/a n/a 8 8 8 14 SDHV Air Conditioners n/a Rest of Country n/a n/a n/a n/a 7 4
Hot

- Humid n/a n/a n/a n/a 1 8 1 7
Hot

- Dry n/a n/a n/a n/a 2 6 2 3 Deleted: 1 0

Deleted: 20

Deleted: 3 4

Deleted: 5

Deleted: 46

Deleted: 23

Deleted: 6
Deleted: 3 0

Deleted: 6
Deleted: 1 2

Deleted: 1 2

Deleted: 1 2

Deleted: 1 2
Deleted: 17

Deleted: 2 8

Deleted: 1 2

Deleted: 4

Deleted: 4

Deleted: 4

Deleted: 4

Deleted: Rest of Country

... Deleted: Rest of Country

... Deleted: 77
Deleted: 88

Deleted: 1 7
Deleted: 18

Deleted: 2 4

Deleted: 2 6 * TSL 1 does not include regional standards. ** Calculation of LCC savings or payback period is not applicable (n/a) in some cases because no consumers are impacted at some of the TSLs. A negative value (indicated by parentheses) means an increase in LCC by the amount indicated.

436... SL 7

9 9

90 0 1 0

91

9 6 1 3

7 0

7 6 1 2 3

1 3

60 0 4 0

49

84 0 16 Deleted: 13

Deleted: 89

Deleted: 11

Deleted: 10

Deleted: 9 5

Deleted: 5

Deleted: 4 Table V. 53 . Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: Distribution of Consumer LCC Impacts (Central Air Conditioners and Heat Pumps) Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 T Deleted: 20 Distribution of Consumer LCC Impacts Split

- System Air Conditioners (coil

- only)

Rest of Country Net Cost (%) 1 1 * 17 0 0 0 57 No Impact (%) 75 * 75 100 100 100 27 0 Net Benefit (%) 1 4 * 8 0 0 0 1 6 1
Hot

- Humid Net Cost (%) 7 26 26 26 72 No Impact (%) 75 27 27 27 16 Net Benefit (%) 18 47 47 47 12
Hot

- Dry Net Cost (%) 11 37 37 37 75 No Impact (%) 75 27 27 27 16 0 Net Benefit (%) 14 36 36 36 10 9 Split

- System Air Conditioners (blower

- coil) Rest of Country Net Cost (%) 9 * 14 0 0 0 43 No Impact (%) 82* 82 100 100 100 45 Net Benefit (%) 9 * 4 0 0 0 12
Hot

- Humid Net Cost (%) 6 2 1 2 1 2 1 24 No Impact (%) 82 45 45 45 37 1 Net Benefit (%) 1 2 3 4 3 4 3 4 39 2 9
Hot

- Dry Net Cost (%) 9 28 28 28 3 3 No Impact (%) 82 45 45 45 37 Net Benefit (%) 9 2 7 2 7 2 7 30 Split

- System Heat Pumps Rest of Country Net Cost (%) 5 * 9 3 5 3 5 3 5 5 8 8 7 No Impact (%) 8 6 * 8 6 4 5 4 5 4 5 2 3 0 Net Benefit (%) 9 * 5 2 0 2 0 2 0 19
Hot

- Humid
Net Cost (%) 4 1 7 1 7 1 7 2 9 No Impact (%) 8 6 4 5 4 5 4 5 2 3 Net Benefit (%) 10 3 8 3 8 3 8 48
Hot

- Dry Net Cost (%) 4 1 5 1 5 1 5 25 51 No Impact (%) 8 6 4 5 4 5 4 5 2 3 0 Net Benefit (%) 1 1 4 0 4 0 4 0 5 2 Single

- Package Air Conditioners (Nation) Net Cost (%) 0* 0 50 50 50 72 No Impact (%) 100* 100 17 17 17 1 Net Benefit (%) 0* 0 33 33 33 27 Deleted: 20

Deleted: 13

Deleted: 35

Deleted: 35

Deleted: 35

Deleted: 26

Deleted: 26

Deleted: 26

Deleted: 8

Deleted: 32

Deleted: 32

Deleted: 32

Deleted: 55

Deleted: 8 6
Deleted: 8 7
Deleted: 87

Deleted: 47

Deleted: 47

Deleted: 47

Deleted: 24
Deleted: 8

Deleted: 21

Deleted: 21

Deleted: 21

Deleted: 21

Deleted: 1 4

Deleted: 1 5

Deleted: 1 5

Deleted: 1 5

Deleted: 24

Deleted: 5 7
Deleted: 87

Deleted: 47

Deleted: 47

Deleted: 47

Deleted: 24

Deleted: 9
Deleted: 52 Deleted: 20

Deleted: 4 3

Deleted: 3

Deleted: 1 2
Deleted: 1 2

Deleted: 1 2 43779 0 21

0 8

67 0 33

0 2 6 Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7

Single

- Package Heat Pumps (Nation) Net Cost (%) 0 * 0 29 29 29 63 No Impact (%) 100 * 100 36 36 36 2 Net Benefit (%) 0 * 0 35 35 35 35 SDHV Air Conditioners Rest of Country Net Cost (%) 0* 0 0 0 0 9 5 9 2 No Impact (%) 100* 100 100 100 100 0 Net Benefit (%) 0* 0 0 0 0 5
Hot

- Humid Net Cost (%) 0 0 0 0 68 No Impact (%) 100 100 100 100 0 Net Benefit (%) 0 0 0 0 3 2
Hot

- Dry Net Cost (%) 0 0 0 0 7 4 7 4 No Impact (%) 100 100 100 100 0 Net Benefit (%) 0 0 0 0 2 6 Deleted:

... Deleted: 46

Deleted: 46

Deleted: 46

Deleted: 86

Deleted: 9 5

Deleted: 1 8

Deleted: 1 8

Deleted: 1 8

Deleted: 12

Deleted: 5

Deleted: Hot

- Humid

Deleted: 9 4
Deleted: 9 5 ...

Deleted: 6
Deleted: 5

Deleted: 66
Deleted: 69
Deleted: 3 4

Deleted: 31

Deleted: 7 5

Deleted: 2 5 Rest of Country

* Results refer to Nation for TSL 1.

438Table V. 54 Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency TSLs: Distribution of Consumer LCC Impacts (Furnaces) Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 Distribution of Consumer LCC Impacts Non

- Weatherized Gas Furnaces

North Net Cost (%) 0* 11 10 10 2 3 2 3 59 No Impact (%) 100* 56 71 7 1 2 3 2 3 1
Net Benefit (%) 0* 33 19 1 9 5 4 5 4 41 South Net Cost (%) 0 0 0 0 0 7 2 No Impact (%) 100 100 100 100 100 0 Net Benefit (%) 0 0 0 0 0 2 7 Mobile Home Gas Furnaces

North Net Cost (%) 0* 0 4 4 4 4 4 6 4 6 4 6 No Impact (%) 100* 100 10 10 8 8 8 Net Benefit (%) 0* 0 47 47 4 6 4 6 4 6 South Net Cost (%) 0 0 0 0 0 5 1 No Impact (%) 100 100 100 100 100 4 Net Benefit (%) 0 0 0 0 0 4 5 Oil

- Fired F urnaces (Nation) Net Cost (%) 0 0 10 10 3 5 3 5 51 No Impact (%) 100 100 58 58 33 33 1 Net Benefit (%) 0 0 32 32 33 33 48 * Results refer to Nation for TSL 1.

DOE first considered TSL 7, which represents the max-tech efficiency levels.

TSL 7 would save 19. 18 quads of energy, an amount DOE considers significant. Under

TSL 7, the NPV of consumer benefit would be -$44. 98 billion, using a discount rate of 7

percent, and -$ 45.12 billion, using a discount rate of 3 percent. Deleted: 24

Deleted: 9 0

Deleted: 4 4.51

The cumulative emissions reductions at TSL 7 are 77 2 Mt of CO 2 , 640 thousand

tons of NO X , and 1.160 ton of Hg. The estimated monetary value of the cumulative CO 2
emissions reductions at TSL 7 ranges from $3.93 billion to $65.1 billion. Total generating

capacity in 2045 is estimated to decrease by 35.6 GW under TSL 7. Deleted: 773

439At TSL 7, the average LCC impact is a savings (LCC decrease) of $1 98 for nonweatherized gas furnaces in the northern region and a cost (LCC increase) of $181 in the

southern region; a savings of $ 585 for mobile home gas furnaces in the northern region

and a savings of $ 391 in the southern region; and a savings of $2 72 for oil-fired furnaces.

For split-system air conditioners (coil-only), the average consumer LCC impact is

a cost of $1, 34 3 in the rest of country, a cost of $ 797 in the hot-humid region, and a cost

of $1, 182 in the hot-dry region. For split-system air conditioners (blower-coil), the Deleted: 34 0

Deleted: 7 94

Deleted: 1 89

Deleted: 899

Deleted: 118
Deleted: 323

Deleted: 511
Deleted: 2 21

Deleted: 665 average LCC impact is a cost of $ 903 in the rest of country, a cost of $ 1 30 in the hothumid region, and a cost of $ 3 11 in the hot-dry region. For split-system heat pumps, the

average LCC impact is a cost of $ 604 in the rest of country, a savings of $ 103 in the hothumid region, and a savings of $ 477 in the hot-dry region. For single-package air

conditioners, the average LCC impact is a cost of $ 492 . For single-package heat pumps,

the average LCC impact is a cost of $ 363

. For SDHV air conditioners, the average LCC

impact is a cost of $ 294 in the rest of country, a cost of $ 25 in the hot-humid region, and

a cost of $ 106 in the hot-dry region. Deleted: 8 36 in the rest of country, a cost of $ 341 in the hot

- humid region, and a cost of $ 541 in the hot

- dry region

Deleted: 794 in the rest of country, a cost of $ 364 in the hot

- humid region, and a cost of $ 294 in the hot

- dry region.

Deleted: 3 20

Deleted: 38

Deleted: 1 07

At TSL 7, the median payback period for non-weatherized gas furnaces is 17.1

years in the northern region and 28.9 years in the southern region; 11.5 years for mobile

home gas furnaces in the northern region and 13 years in the southern region; and 18.2

years for oil-fired furnaces.

440For split-system air conditioners (coil-only), the median payback period is 100

years in the rest of country, 47 years in the hot-humid region, and 71 years in the hot-dry

region. For split-system air conditioners (blower-coil), the median payback period is 100 Deleted: 46

years in the rest of country, 21 years in the hot-humid region, and 31 years in the hot-dry

region. For split-system heat pumps, the median payback period is 33 years in the rest of

country, 13 years in the hot-humid region, and 9 years in the hot-dry region. For singlepackage air conditioners, the median payback period is 46 years

. For single-package heat

pumps, the median payback period is 21 years . For SDHV air conditioners, the median

payback period is 75 years in the rest of country, 17 years in the hot-humid region, and

23 years in the hot-dry region. Deleted: 3 0

Deleted: 2 8

Deleted: 1 2

Deleted: 100 years in the rest of country, 31 years in the hot

- humid region, and

Deleted: in the hot

- dry region.

Deleted: 68 years in the rest of country, 2 2 years in the hot

- humid region, and 17 years in the hot

- dry region

Deleted: 88

Deleted: 18

Deleted: 2 6

At TSL 7, the fraction of consumers experiencing an LCC benefit is 41 percent

for non-weatherized gas furnaces in the northern region and 27 percent in the southern

region; 46 percent for mobile home gas furnaces in the northern region and 45 percent in

th e southern region; and 48 percent for oil-fired furnaces.

For split-system air conditioners (coil-only), the fraction of consumers

experiencing an LCC benefit at TSL 7 is 1 percent in the rest of country, 10 percent in the

hot-humid region, and 9 percent in the hot-dry region. For split-system air conditioners

(blower-coil), the fraction of consumers experiencing an LCC benefit is 3 percent in the

rest of country, 29 percent in the hot-humid region, and 23 percent in the hot-dry region.

For split-system heat pumps, the fraction of consumers experiencing an LCC benefit is 13

percent in the rest of country, 40 percent in the hot-humid region, and 49 percent in the Deleted: 1 1

Deleted: 4

Deleted: 1 4

Deleted: 4 3

Deleted: 5 3

441hot-dry region. For single-package air conditioners, the fraction of consumers

experiencing an LCC benefit is 16 percent

. For single-package heat pumps, the fraction

of consumers experiencing an LCC benefit is 21 percent . For SDHV air conditioners, the

fraction of consumers experiencing an LCC benefit is 8 percent in the rest of country, 33

percent in the hot-humid region, and 26 percent in the hot-dry region. Deleted: 3

Deleted: in the rest of country, 20 percent in the hot

- humid region, and 1 7 percent in the hot

- dry region.

Deleted: 5 percent in the rest of c ountry, 20 percent in the hot

- humid region, and 26 percent in the hot

- dry region

Deleted: 5

Deleted: 31

Deleted: 2 5
At TSL 7, the fraction of consumers experiencing an LCC cost is 59 percent for

non -weatherized gas furnaces in the northern region and 72 percent in the southern

region; 46 percent for mobile home gas furnaces in the northern region and 51 percent in

the southern region; and 51 percent for oil-fired furnaces.

For split-system air conditioners (coil-only), the fraction of consumers

experiencing an LCC cost is 99 percent in the rest of country, 90 percent in the hot-humi d

region, and 91 percent in the hot-dry region. For split-system air conditioners (blowercoil), the fraction of consumers experiencing an LCC cost is 96 percent in the rest of

country, 70 percent in the hot-humid region, and 76 percent in the hot-dry region. For Deleted: 89

Deleted: 9 5

split-system heat pumps, the fraction of consumers experiencing an LCC cost is 87

percent in the rest of country, 60 percent in the hot-humid region, and 51 percent in the

hot-dry region. For single-package air conditioners, the fraction of consumers

experiencing an LCC cost is 84 percent

. For single-package heat pumps, the fraction of

consumers experiencing an LCC cost is 79 percent . For SDHV air conditioners, the

fraction of consumers experiencing an LCC cost is 92 percent in the rest of country, 67

percent in the hot-humid region, and 74 percent in the hot-dry region. Deleted: 8 6

Deleted: 5 7
Deleted: 4 7

Deleted: 9 7
Deleted: in the rest of country, 8 0 percent in the hot

- humid region, and 8 3 percent in the hot

- dry region.

Deleted: 9 5 percent in the rest of country, 8 0 percent in the hot

- humid region, and 74 percent in the hot

- dry region

Deleted: 9 5

Deleted: 69
Deleted: 7 5

442At TSL 7, the projected change in INPV ranges from a decrease of $1,530 million

to a decrease of $3,8 20 million. At TSL 7, DOE recognizes the risk of large negative

impacts if manu facturers’ expectations concerning reduced profit margins are realized. If

the high end of the range of impacts is reached as DOE expects, TSL 7 could result in a

net loss of 45.0 percent in INPV to furnace, central air conditioner, and heat pump

manufacturers.

The Secretary concludes that at TSL 7 for furnace, central air conditioner, and

heat pump energy efficiency, the benefits of energy savings, generating capacity

reductions, emission reductions, and the estimated monetary value of the CO 2 emissions

reductions would be outweighed by the negative NPV of consumer benefits, the

economic burden on a significant fraction of consumers due to the large increases in

product cost, and the capital conversion costs and profit margin impacts that could result

in a very large reduction in INPV for the manufacturers. Consequently, the Secretary has

concluded that TSL 7 is not economically justified.

DOE then considered TSL 6. TSL 6 would save 5. 91 quads of energy, an amount

DOE considers significant. Under TSL 6, the NPV of consumer benefit would be -$ 2. 56

billion, using a discount rate of 7 percent, and $ 8.18 billion, using a discount rate of 3

percent. Deleted: 92

Deleted: 99

Deleted: 7.45

443The cumulative emissions reductions at TSL 6 are 200 Mt of CO 2 , 16 8 thousand

tons of NO X , and 0.270 ton of Hg. The estimated monetary value of the cumulative CO 2
emissions reductions at TSL 6 ranges from $0. 9 87 billion to $16.2 billion. Total

generating capacity in 2045 is estimated to decrease by 10.5 GW under TSL 6.

At TSL 6, the average LCC impact is a savings (LCC decrease) of $ 323 for nonweatherized gas furnaces in the northern region and not applicable in the south, a savings

of $ 585 for mobile home gas furnaces in the northern region and not applicable in the

south, and a cost of $18 for oil-fired furnaces.

For split-system air conditioners (coil-only), the average LCC impact is a cost of Deleted: 988

$ 26 in the rest of country, a cost of $ 303 in the hot-humid region, and a cost of $ 4 68 in

the hot-dry region. For split-system air conditioners (blower-coil), the average LCC

impact is a cost of $ 30 in the rest of country, a savings of $ 1 77 in the hot-humid region,

and a savings of $ 1 96 in the hot-dry region. For split-system heat pumps, the average

LCC impact is a cost of $ 89 in the rest of country, a savings of $ 1 37 in the hot-humid

region, and a savings of $ 274 in the hot-dry region. For single-package air conditioners,

the average LCC impact is a cost of $ 68 . For single-package heat pumps the average

LCC impact is a savings of $15 . For SDHV air conditioners, the average LCC impact is a

cost of $ 202 in the rest of country, a cost of $ 14 in the hot-humid region, and a cost of

$ 65 in the hot-dry region. Deleted: 25
Deleted: 298

Deleted: 477

Deleted: 29

Deleted: 1 88

Deleted: 1 84

Deleted: 2 4

Deleted: 1 99
Deleted: 3 7 1

Deleted: 282 in the rest of country, a savings of $ 7 in the hot

- humid re gion, and a cost of $ 52 in the hot

dry region

Deleted: cost of $2 16 in the rest of country, a cost of $ 3 in the hot

- humid region, and a savings of $ 89 in the hot

- dry region

Deleted: 2 01

Deleted: 7
Deleted: 49

444At TSL 6, the median payback period is 9.4 years for non-weatherized gas

furnaces in the northern region and not applicable in the south; 11.5 years for mobile

home gas furnaces in the northern region and not applicable in the south; and 19.8 years

for oil-fired furnaces.

For split-system air conditioners (coil-only), the median payback period is 33

years in the rest of country, 34 years in the hot-humid region, and 49 years in the hot-dry

region. For split-system air conditioners (blower-coil), the median payback period is 28

years in the rest of country, 8 ye ars in the hot-humid region, and 11 years in the hot-dry

region. For split-system heat pumps, the median payback period is 20 years in the rest of

country, 7 years in the hot-humid region, and 5 years in the hot-dry region. For singlepackage air conditioners, the median payback period is 24 years. For single-package heat

pumps, the median payback period is 14 years. For SDHV air conditioners, the median

payback period is 74 years in the rest of country, 18 years in the hot-humid region, and

26 years in the hot-dry region. Deleted: 1 7
Deleted: 2 4

At TSL 6, the fraction of consumers experiencing an LCC benefit is 54 percent

for non-weatherized gas furnaces in the northern region and 0 percent in the south; 46

percent for mobile home gas furnaces in the northern region and 0 percent in the south;

and 33 percent for oil-fired furnaces.

For split-system air conditioners (coil-only), the fraction of consumers

experiencing an LCC benefit is 16 percent in the rest of country, 12 percent in the hot445 Deleted: 3 4

Deleted: 17

Deleted: 100 years in the rest of country, 17 years in the hot

- humid region, and 25 years in the hot

- dry region.

Deleted: 34 years in the rest of country,

Deleted: in the hot

- humid region, and 1 1 years in the hot

- dry region

Deleted: 77humid region, and 9 percent in the hot-dry region. For split-system air conditioners Deleted: 10

(blower-coil), the fraction of consumers experiencing an LCC benefit is 12 percent in the

rest of country, 39 percent in the hot-humid region, and 31 percent in the hot-dry region.

For split-system heat pumps, the fraction of consumers experiencing an LCC benefit is 19

percent in the rest of country, 48 percent in the hot-humid region, and 52 percent in the

hot-dry region. For single-package air conditioners, the fraction of consumers

experiencing an LCC benefit is 27 percent

. For single-package heat pumps, the fraction

of consumers experiencing an LCC benefit is 35 percent . For SDHV air conditioners, the

fraction of consumers experiencing an LCC benefit is 5 percent in the rest of country, 32

percent in the hot-humid region, and 26 percent in the hot-dry region.

At TSL 6, the fraction of consumers experiencing an LCC cost is 23 percent for

non -weatherized gas furnaces in the northern region and 0 percent in the south; 46

percent for mobile home gas furnaces in the northern region and 0 percent in the south;

and 35 percent for oil-fired furnaces.

For split-system air conditioners (coil-only), the fraction of consumers

experiencing an LCC cost is 56 percent in the rest of country, 73 percent in the hot-humid

region, and 75 percent in the hot-dry region. For split-system air conditioners (blowercoil), the fraction of consumers experiencing an LCC cost is 43 percent in the rest of

country, 25 percent in the hot-humid region, and 33 percent in the hot-dry region. For

split-system heat pumps, the fraction of consumers experiencing an LCC cost is 58

percent in the rest of country, 29 percent in the hot-humid region, and 25 percent in the Deleted: 30

Deleted: 21

Deleted: humid region, and 5 8 percent in the hot

Deleted: 7
Deleted: in the rest of country, 3 4 percent in the hot

- humid region, and 2 6 percent in the hot

- dry region.

Deleted: 12 percent in the rest of country, 33 perc ent in the hot

- humid region, and 40 percent in the hot

- dry region

Deleted: 6
Deleted: 3 4

Deleted: 5 7
Deleted: 72

Deleted: 24

Deleted: 55

Deleted: 24

Deleted: 1 8

446hot-dry region. For single-package air conditioners, the fraction of consumers

experiencing an LCC cost is 72 percent

. For single-package heat pumps, the fraction of

consumers experiencing an LCC cost is 63 percent . For SDHV air conditioners, the

fraction of consumers experiencing an LCC cost is 95 percent in the rest of country, 68

percent in the hot-humid region, and 74 percent in the hot-dry region.

Deleted: 66

At TSL 6, the projected change in INPV ranges from a decrease of $ 680 million

to a decrease of $1, 873 million. At TSL 6, DOE recognizes the risk of negative impacts if

manufacturers’ expectations concerning reduced profit margins are realized. If the high

end of the range of impacts is reached as DOE expects, TSL 6 could result in a net loss of

22.0 percent in INPV to furnace, central air conditioner, and heat pump manufacturers.

The Secretary concludes that at TSL 6 for furnace and central air conditioner and

heat pump energy efficiency, the benefits of energy savings, generating capacity

reductions, emission reductions, and the estimated monetary value of the CO 2 emissions

reductions would be outweighed by the negative NPV of consumer benefits, the

economic burden on a significant fraction of consumers due to the increases in installed

product cost, and the capital conversion costs and profit margin impacts that could result

in a very large reduction in INPV for the manufacturers. Consequently, the Secretary has

concluded that TSL 6 is not economically justified.

As discussed above, DOE calculated a range of results for national energy savings

and NPV of consumer benefit under TSL 4. Because the range of results for TSL 4

447 Deleted: 92

Deleted: in the rest of country, 65 percent in the hot

- humid region, and 7 3 percent in the hot

- dry region.

Deleted: 86 percent in the rest of country, 65 percent in the hot

- humid region, and 58 percent in the hot

- dry region

Deleted: 9 4overlaps with the results for TSL 5, and because TSLs 4 and 5 are similar in many

aspects, DOE discusses the benefits and burdens of TSLs 4 and 5 together below.

TSL 5 would save 3. 98 quads of energy, an amount DOE considers significant. Deleted: 89

TSL 4 would save 3. 20 to 4. 22 quads of energy, an amount DOE considers significant.

Under TSL 5, the NPV of consumer benefit would be $ 3. 47 billion, using a discount rate

of 7 percent, and $1 5. 69 billion, using a discount rate of 3 percent. Under TSL 4, the

NPV of consumer benefit would be $ 3. 93 billion to $ 4. 21 billion, using a discount rate of

7 percent, and $1 4. 73 billion to $17. 55 billion, using a discount rate of 3 percent. Deleted: 41

Deleted: 58

Deleted: 86

Deleted: 14

Deleted: 6
Deleted: 4

The cumulative emissions reductions at TSL 5 are 11 6 Mt of CO 2 , 102 thousand

tons of NO X , and 0. 059 ton of Hg. The cumulative emissions reductions at TSL 4 are 10 5

to 13 4 Mt of CO 2 , 90. 1 to 11 7 thousand tons of NO X , and 0.097 to 0. 071 ton of Hg. The

estimated monetary value of the cumulative CO 2 emissions reductions at TSL 5 ranges

from $0. 5 96 billion to $ 9. 90 billion. The estimated monetary value of the cumulative CO 2
emissions reductions at TSL 4 ranges from $0. 5 30 billion to $11.0 billion. Total

generating capacity in 2045 is estimated to decrease by 3.56 GW under TSL 5, and by

3.81 to 3.69 GW under TSL 4.

At TSL 5, the average LCC impact is a savings (LCC decrease) of $ 323 for nonwe atherized gas furnaces in the northern region and not applicable in the south; a savings

of $ 585 for mobile home gas furnaces in the northern region and not applicable in the

south; and a cost of $18 for oil-fired furnaces. At TSL 4, the average LCC impact is a Deleted: 0

Deleted: 595

Deleted: 89

Deleted: 529

448savings of $1 55 for non-weatherized gas furnaces in the northern region and not

applicable in the south, a savings of $4 19 for mobile home gas furnaces in the northern

region and not applicable in the south, and a savings of $ 15 for oil-fired furnace s.

For central air conditioners and heat pumps, the average LCC impacts for TSL 5

and TSL 4 are the same. For split-system air conditioners (coil-only), the average LCC

impact is not applicable in the rest of country, but is a savings of $ 93 in the hot-humid

region, and a savings of $ 10 7 in the hot-dry region. For split-system air conditioners Deleted: 9 8

Deleted: 100

(blower-coil), the average LCC impact is not applicable in the rest of country, but is a

savings of $ 89 in the hot-humid region, and a savings of $ 101 in the hot-dry region. For

split-system heat pumps, the average LCC impact is a savings of $ 4 in the rest of country,

a savings of $ 1 02 in the hot-humid region, and a savings of $ 1 75 in the hot-dry region.

For single-package air conditioners, the average LCC impact is a cost of $ 37 . For singlepackage heat pumps, the average LCC impact is a cost of $ 104 . For SDHV air

conditioners, the average LCC impact is not applicable for all regions.

At TSL 5, the median payback period is 9.4 years for non-weatherized gas

furnaces in the northern region and not applicable in the south, 11.5 years for mobile

home gas furnaces in the northern region and not applicable in the south, and 19.8 years

for oil-fired furnaces. At TSL 4, the median payback period is 10.1 years for nonweatherized gas furnaces in the northern region and not applicable in the south, 10.7

years for mobile home gas furnaces in the northern region and not applicable in the south,

and 1.0 year for oil-fired furnaces. Deleted: 96
Deleted: 93
Deleted: 10

Deleted: 1 1 0
Deleted: 19 3

Deleted: 85 in the rest of country, a savings of $ 75 in the hot

- humid region, and a savings of $ 61 in the hot

- dry region

Deleted: 26 in the rest of country, a savings of $8 7 in the hot

- humid region, and a savings of $1 64 in the hot

- dry region

449For central air conditioners and heat pumps, the median payback periods for TSL

5 and TSL 4 are the same. For split-system air conditioners (coil-only), the median

payback period is not applicable in the rest of country, 7 years in the hot-humid region,

and 10 years in the hot-dry region. For split-system air conditioners (blower-coil), the

median payback period is not applicable in the rest of country, 8 years in the hot-humid

region, and 11 years in the hot-dry region. For split-system heat pumps, the median

payback period is 13 years in the rest of country, 6 years in the hot-humid region, and 5

years in the hot-dry region. For single-package air conditioners, the median payback

period is 15 years. For single-package heat pumps, the median payback period is 8 years

. Deleted: 1 2

Deleted: 4

Deleted: 49

Deleted: in the rest of country, 1 1 years in the hot

humid region, and 1 6 years in the hot

- dry region For SDHV air conditioners, the median payback period is not applicable in all regions.
Deleted: 1 8 years in the rest of country, 9 years in the hot

- humid region, and 7 years in the hot

- dry region
At TSL 5, the fraction of consumers experiencing an LCC benefit is 54 percent

for non-weatherized gas furnaces in the northern region and 0 percent in the south, 46

percent for mobile home gas furnaces in the northern region and 0 percent in the south,

and 33 percent for oil-fired furnaces. At TSL 4, the fraction of consumers experiencing

an LCC benefit is 19 percent for non-weatherized gas furnaces in the northern region and

0 percent in the south, 47 percent for mobile home gas furnaces in the northern region

and 0 percent in the south, and 32 percent for oil-fired furnaces.

For central air conditioners and heat pumps, at TSL 5 and at TSL 4, the fraction of

consumers experiencing an LCC benefit is the same. For split-system air conditioners

(coil-only), the fraction of consumers experiencing an LCC benefit is 0 percent in the rest

450Deleted: 47 of country, 46 percent in the hot-humid region, and 36 percent in the hot-dry region. For

split-system air conditioners (blower-coil), the fraction of consumers experiencing an

LCC benefit is 0 percent in the rest of country, 34 percent in the hot-humid region, and

27 percent in the hot-dry region. For split-system heat pumps, the fraction of consumers

experiencing an LCC benefit is 20 percent in the rest of country, 38 percent in the hothumid region, and 40 percent in the hot-dry region. For single-package air conditioners,

the fraction of consumers experiencing an LCC benefit is 33 percent

. For single-package

heat pumps, the fraction of consumers experiencing an LCC benefit is 35 percent . For

SDHV air conditioners, no consumers experience an LCC benefit in any of the regions.

At TSL 5, the fraction of consumers experiencing an LCC cost is 23 percent for

non -weatherized gas furnaces in the northern region and 0 percent in the south, 46

percent for mobile home gas furnaces in the northern region and 0 percent in the south,

and 35 percent for oil-fired furnaces. At TSL 4, the fraction of consumers experiencing

an LCC cost is 10 percent for non-weatherized gas furnaces in the northern region and 0

percent in the south, 44 percent for mobile home gas furnaces in the northern region and

0 percent in the south, and 10 percent for oil-fired furnaces.

For central air conditioners and heat pumps, at TSL 5 and at TSL 4, the fraction of

consumers experiencing an LCC cost is the same. For split-system air conditioners (coilonly), the fraction of consumers experiencing an LCC cost is 0 percent in the rest of

country, 26 percent in the hot-humid region, and 37 percent in the hot-dry region. For

split-system air conditioners (blower-coil), the fraction of consumers experiencing an Deleted: 35

Deleted: 2 6

Deleted: 21

Deleted: 4 1

Deleted: 12

Deleted: in the rest of country, 41 percent in the hot

- humid region, and 32 percent in the hot

- dry region.

Deleted: 1 8 percent in the rest of country, 34 percent in the ho t

- humid region, and 38 percent in the hot

- dry region

451LCC cost is 0 percent in the rest of country, 21 percent in the hot-humid region, and 28

percent in the hot-dry region. For split-system heat pumps, the fraction of consumers

experiencing an LCC cost is 35 percent in the rest of country, 17 percent in the hot-humid

region, and 15 percent in the hot- dr y region. For single-package air conditioners, the

fraction of consumers experiencing an LCC cost is 37 percent

. For single-package heat

pumps, the fraction of consumers experiencing an LCC cost is 29 percent . For SDHV air

conditioners, no consumers experience an LCC cost in any of the regions.

At TSL 5, the projected change in INPV ranges from a decrease of $508 million

to a decrease of $ 915 million. At TSL 5, DOE recognizes the risk of negative impacts if

manufacturers’ expectations concerning reduced profit margins are realized. If the high

end of the range of impacts is reached as DOE expects, TSL 5 could result in a net loss of

10.8 percent in INPV to furnace, central air conditioner, and heat pump manufacturers.

At TSL 4, the projected change in INPV ranges from a net loss of $ 478 million to a net

loss of $ 900 million. At TSL 4, DOE recognizes the risk of negative impacts if

manufacturers’ expectations concerning reduced profit margins are realized. If the high

end of the range of impacts is reached as DOE expects, TSL 4 could result in a net loss of

10.6 percent in INPV to furnace, central air conditioner, and heat pump manufacturers.

The Secretary concludes that at TSL 5 for furnace and central air conditioner and

heat pump energy efficiency, the benefits of energy savings, positive NPV of consumer

benefits, generating capacity reductions, emission reductions, and the estimated monetary

value of the CO 2 emissions reductions are outweighed by the economic burden on some Deleted: 20

Deleted: 32

Deleted: humid region, and 12 percent in the hot

Deleted: 71

Deleted: in the rest of country, 4 1 percent in the hot

- humid region, and 51 percent in the hot

- dry region.

Deleted: 46 percent in the rest of country, 30 percent in the hot

- humid region, and 2 6 percent in the hot

- dry region

452consumers due to large increases in installed cost, and the capital conversion costs and

profit margin impacts that could result in a large reduction in INPV for the

manufacturers. Consequently, the Secretary has concluded that TSL 5 is not

economically justified.

The Secretary concludes that at TSL 4 for furnace and central air conditioner and

heat pump energy efficiency, the benefits of energy savings, positive NPV of consumer

benefits, generating capacity reductions, emission reductions, and the estimated monetary

value of the CO 2 emissions reductions would outweigh the economic burden on some

consumers due to increases in installed cost, and the capital conversion costs and profit

margin impacts that could result in a moderate reduction in INPV for the manufacturers.

TSL 4 may yield greater cumulative energy savings than TSL 5, and also a higher NPV

of consumer benefits at both 3-percent and 7-percent discount rates.

In addition, the efficiency levels in TSL 4 correspond to the recommended levels

in the consensus agreement, which DOE believes sets forth a statement by interested

persons that are fairly representative of relevant points of view (including representatives

of manufacturers of covered products, States, and efficiency advocates) and contains

recommendations with respect to an energy conservation standard that are in accordance

with 42 U.S.C. 6295(o). Moreover, DOE has encouraged the submission of consensus

agreements as a way to get diverse stakeholders together, to develop an independent and

probative analysis useful in DOE standard setting, and to expedite the rulemaking

process. In the present case, one outcome of the consensus agreement was a

453recommendation to accelerate the compliance dates for these products, which would have

the effect of producing additional energy savings at an earlier date. DOE also believes

that standard levels recommended in the consensus agreement may increase the

likelihood for regulatory compliance, while decreasing the risk of litigation.

After considering the analysis, comments to the furnaces RAP and the preliminary

TSD for central air conditioners and heat pumps, and the benefits and burdens of TSL 4,

the Secretary has concluded that this trial standard level offers the maximum

improvement in efficiency that is technologically feasible and economically justified, and

wi ll result in significant conservation of energy. Therefore, DOE today adopts TSL 4 for

furnaces and central air conditioners and heat pumps. Today’s amended energy

conservation standards for furnaces, central air conditioners, and heat pumps, expressed

in terms of minimum energy efficiency, are shown in Table V. 55

.

454Table V. 55 Amended Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency Residential Furnaces* Product Class National Standards Northern Region** Standard s Non

- weatherized gas AFUE = 80% AFUE = 90% Mobile home gas AFUE = 80% AFUE = 90% Non

- weatherized oil

- fired AFUE = 83% AFUE = 83% Weatherized gas AFUE = 81% AFUE = 81% Mobile home oil

- fired ‡‡ AFUE = 75% AFUE = 75% Weatherized oil

- fired ‡‡ AFUE = 78% AFUE = 78% Electric ‡‡ AFUE = 78% AFUE = 78% Central Air Conditioners and Heat Pumps † Product Class National Standard s Southeastern Region †† Standard s Southwestern Region ‡ Standards Split

- system air conditioners SEER = 13 SEER = 14 SEER = 14 EER = 12.2 (for units with a rated cooling capacity less than 45,000 Btu/h) EER = 11.7 (for units with a rated cooling capacity equal to or greater than 45,000 Btu/h) Split

- system heat pumps SEER = 14 HSPF = 8.2 SEER = 14 HSPF = 8.2 SEER = 14 HSPF = 8.2 Single

- package air conditioners ‡‡ SEER = 14 SEER = 14 SEER = 14 EER = 11.0 Single

- package heat pumps SEER = 14 HSPF = 8.0 SEER = 14 HSPF = 8.0 SEER = 14 HSPF = 8.0 Small

- duct, high

- velocity systems SEER = 13 HSPF = 7.7 SEER = 13 HSPF = 7.7 SEER = 13 HSPF = 7.7 Space

- constrained products

– air conditioners ‡‡ SEER = 12 SEER = 12 SEER = 12

Space

- constrained products

– heat pumps ‡‡ SEER = 12 HSPF = 7.4 SEER = 12 HSPF = 7.4 SEER = 12 HSPF = 7.4
* AFUE is Annual Fuel Utilization Efficiency. ** The Northern region for furnaces contains the following States: Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. † SEER is Seasonal Energy Efficiency Ratio; EER is Energy Efficiency Ratio; HSPF is Heating Seasonal Performance Factor; and Btu/h is British Thermal Units per hour. †† The Southeastern region for central air conditioners and heat pumps contains the following States: Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia. ‡ The Southwestern region for central air conditioners and heat pumps contains the States of Arizona, California, Nevada, and New Mexico. DOE is not amending energy conservation standards for these product classes in this direct final rule.

4552. Benefits and Burdens of TSLs Considered for Furnace, Central Air Conditioner, and

Heat Pump Standby Mode and Off Mode Power

Table V. 56 through Table V. 58 present a summary of the quantitative impacts

estimated for each TSL considered for furnace, central air conditioner, and heat pump

standby mode and off mode power. The efficiency levels contained in each TSL are

described in section V.A.

Table V. 56 Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs: National Impacts Category TSL 1 TSL 2 T SL 3 National Energy Savings (quads) 0.153 0.16 0.186 NPV of Consumer Benefits (2009$ billion) 3% discount rate 1.14 1.18 1.01 7% discount rate 0.371 0.373 0.235 Cumulative Emissions Reduction CO 2 (million metric tons) 8.23 8.73 10.1 NO X (thousand tons) 6.60 7.00 8.11 Hg (ton) 0.056 0.072 0.079 Value of Emissions Reduction s CO 2 (2009$ million)* 41.7 to 694 44.3 to 738 51.7 to 862 NO X – 3% discount rate (2009$ million) 2.07 to 21.3 2.20 to 22.6 2.56 to 26.3

NO X – 7% discount rate (2009$ million) 0.793 to 8.15 0.841 to 8.65 0.975 to 10.0

Generation Capacity Reduction ( GW ) ** 0.103 0.11 0 0.127 Employment Impacts Total Potential Change in Domestic Production Workers in 2016 (thousands) negligible negligible negligible

Indirect Domestic Jobs (thousands)** 0.8 0.86 1.02 Parentheses indicate negative (-) values. * Range of the value of CO 2 reductions is based on estimates of the global benefit of reduced CO 2 emissions. ** Changes in 2045.

456Table V. 57 Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs: Manufacturer and Consumer Impacts Category TSL 1 TSL 2 TSL 3 Manufacturer Impacts Change in Industry NPV (2009$ million) 4 to (253) 5 to (253) 23 to (255) Industry NPV (% change) .05 to (2.91) .06 to (2.91) 0.26 to (2.93) Consumer Mean LCC Savings* (2009$) Non

- Weatherized Gas Furnaces 2 2 0 Mobile Home Gas Furnaces 0 0 ( 1 ) Oil

- Fired Furnaces 1 1 1 Electric Furnaces 0 0 (1) Split

- System Air Conditioners (coil

- only) 8 4 84 84 Split

- System Air Conditioners (blower

- coil) 8 4 40 35 Split

- System Heat Pumps 9 9 ( 1 ) Single

- Package Air Conditioners 8 4 4 1 3 6 Single

- Package Heat Pumps 9 9 ( 1 ) SDHV Air Conditioners 8 4 3 7 32 Space

- Constrained Air Conditioners 84 42 37 Space

- Constrained Heat Pumps 9 9 ( 1 ) Consumer Median PBP (years) Non

- Weatherized Gas Furnaces 11 11 16 Mobile Home Gas Furnaces 12 12 18 Oil

- Fired Furnaces 8 8 12 Electric Furnaces 10 10 16 Split

- System Air Conditioners (coil

- only) 1 1 1 Split

- System Air Conditioners (blower

- coil) 1 6 7 Split

- System Heat Pumps 4 4 5 Single

- Package Air Conditioners 1 6 7 Single

- Package Heat Pumps 4 4 5 SDHV Air Conditioners 1 7 7 Space

- Constrained Air Conditioners 1 6 7 Space

- Constrained Heat Pumps 4 4 5
* Parentheses indicate negative (-) values. For LCCs, a negative value means an increase in LCC by the amount indicated.

457Table V. 58 Summary of Results for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power TSLs: Distribution of Consumer Impacts Category TSL 1 TSL 2 TSL 3 Distribution of Consumer LCC Impacts Non

- Weatherized Gas Furnaces Net Cost (%) 9 9 17 No Impact (%) 7 2 7 2 7 2 Net Benefit (%) 1 8 1 8 11 Mobile Home Gas Furnaces Net Cost (%) 6 6 8 No Impact (%) 91 91 91 Net Benefit (%) 4 4 2 Oil

- Fired Furnaces Net Cost (%) 1 1 4 No Impact (%) 91 91 91 Net Benefit (%) 8 8 6 Electric Furnaces Net Cost (%) 4 4 7 No Impact (%) 90 90 90 Net Benefit (%) 5 5 3 Split

- System Air Conditioners (coil

- only) Net Cost (%) 0 0 0 No Impact (%) 94 9 4 9 4 Net Benefit (%) 6 6 6 Split

- System Air Conditioners (blower

- coil) Net Cost (%) 0 3 3 No Impact (%) 94 91 91 Net Benefit (%) 6 6 6 Split

- System Heat Pumps Net Cost (%) 0 0 1 9 No Impact (%) 67 67 57 Net Benefit (%) 33 33 2 4 Single

- Package Air Conditioners Net Cost (%) 0 3 3 No Impact (%) 94 91 91 Net Benefit (%) 6 6 6 Single

- Package Heat Pumps Net Cost (%) 0 0 1 9 No Impact (%) 66 66 5 7 Net Benefit (%) 34 34 24 SDHV Air Conditioners Net Cost (%) 0 3 3 No Impact (%) 94 91 91 Net Benefit (%) 6 6 6 Space

- Constrained Air Conditioners Net Cost (%) 0 3 3 No Impact (%) 94 91 91 Net Benefit (%) 6 6 6

458Space

- Constrained Heat Pumps Net Cost (%) 0 0 1 9 No Impact (%) 67 67 5 8 Net Benefit (%) 33 33 23 Values in the table are rounded off, and, thus, sums may not equal 100 percent in all cases.

DOE first considered TSL 3, which represents the max-tech efficiency levels.

TSL 3 would save 0. 186 quads of energy, an amount DOE considers significant. Under

TSL 3, the NPV of consumer benefit would be $0. 235 billion, using a discount rate of 7

percent, and $1.01 billion, using a discount rate of 3 percent.

The cumulative emissions reductions at TSL 3 are 10.1 Mt of CO 2 , 8.11 thousand

tons of NO X , and 0.079 ton of Hg. The estimated monetary value of the cumulative CO 2
emissions reductions at TSL 3 ranges from $51.7 million to $862 million. Total

generating capacity in 2045 is estimated to decrease by 0. 127 GW under TSL 3.

At TSL 3, the average LCC impact is a cost (LCC increase) of $0 for nonweatherized gas furnaces, a cost of $1 for mobile home gas furnaces, a savings of $1 for

oil-fired furnaces

, and a cost of $1 for electric furnaces. For split-system air conditioners

(coil-only), the average LCC impact is a savings (LCC decrease) of $ 84 . For split-system

air conditioners (blower-coil), the average LCC impact is a savings of $ 35 . For splitsystem heat pumps, the average LCC impact is a cost of $1. For single-package air

conditioners, the average LCC impact is a savings of $36. For single-package heat

pumps, the average LCC impact is a cost of $1. For SDHV air conditioners, the average

LCC impact is a savings of $ 32

. For space-constrained air conditioners, the average LCC

459impact is a savings of $37. For space-constrained heat pumps, the average LCC impact is

a cost of $1.

At TSL 3, the median payback period is 16 years for non-weatherized gas

furnaces; 18 years for mobile home gas furnaces; 12 years for oil-fired furnaces ; and 16

years for electric furnaces. For split-system air conditioners (coil-only), the median

payback period is 1 year. For split-system air conditioners (blower-coil), the median

payback period is 7 years. For split-system heat pumps, the median payback period is 5

years. For single-package air conditioners, the median payback period is 7 years. For

single-package heat pumps, the median payback period is 5 years. For SDHV air

conditioners, the median payback period is 7 years. For space-constrained air

conditioners, the median payback period is 7 years. For space-constrained heat pumps,

the median payback period is 5 years.

At TSL 3, the fraction of consumers experiencing an LCC benefit is 11 percent

for non-weatherized gas furnaces, 2 percent for mobile home gas furnaces, 6 percent for

oil-fired furnaces

, and 3 percent for electric furnaces. For split-system air conditioners

(coil-only), the fraction of consumers experiencing an LCC benefit is 6 percent. For splitsystem air conditioners (blower-coil), the fraction of consumers experiencing an LCC

benefit is 6 percent. For split-system heat pumps, the fraction of consumers experiencing

an LCC benefit is 24 percent. For single-package air conditioners, the fraction of

consumers experiencing an LCC benefit is 6 percent. For single-package heat pumps, the

fraction of consumers experiencing an LCC benefit is 24 percent. For SDHV air

460conditioners, the fraction of consumers experiencing an LCC benefit is 6 percent. For

space-constrained air conditioners, the fraction of consumers experiencing an LCC

benefit is 6 percent. For space-constrained heat pumps, the fraction of consumers

experiencing an LCC benefit is 23 percent.

At TSL 3, the fraction of consumers experiencing an LCC cost is 17 percent for

non -weatherized gas furnaces, 8 percent for mobile home gas furnaces, 4 percent for oilfired furnaces

, and 7 percent for electric furnaces. For split-system air conditioners (coilonly), the fraction of consumers experiencing an LCC cost is 0 percent. For split-system

air conditioners (blower-coil), the fraction of consumers experiencing an LCC cost is 3

percent. For split-system heat pumps, the fraction of consumers experiencing an LCC

cost is 19 percent. For single-package air conditioners, the fraction of consumers

experiencing an LCC cost is 3 percent. For single-package heat pumps, the fraction of

consumers experiencing an LCC cost is 19 percent. For SDHV air conditioners, the

fraction of consumers experiencing an LCC cost is 3 percent. For space-constrained air

conditioners, the fraction of consumers experiencing an LCC cost is 3 percent. For spaceconstrained heat pumps, the fraction of consumers experiencing an LCC cost is 19

percent.

At TSL 3, the projected change in INPV ranges from an increase of $ 23 million to

a decrease of $ 255 million

. The model anticipates impacts on INPV to range from 0.26

percent to -2.93 percent. In general, the cost of standby mode and off mode features is not

461expected to significantly affect manufacturer profit margins for furnace, central air

conditioner, and heat pump products.

The Secretary concludes that at TSL 3 for furnace and central air conditioner and

heat pump standby mode and off mode power, the benefits of energy savings, positive

NPV of consumer benefits at 3-percent discount rate, generating capacity reductions,

emission reductions, and the estimated monetary value of the CO 2 emissions reductions

would be outweighed by the negative NPV of consumer benefits at 7 percent and the

economic burden on some consumers due to the increases in product cost. Of the

consumers of furnaces and heat pumps who would be impacted, many more would be

burdened by standards at TSL 3 than would benefit. Consequently, the Secretary has

concluded that TSL 3 is not economically justified.

DOE then considered TSL 2. TSL 2 would save 0. 16 quads of energy, an amount

DOE considers significant. Under TSL 2, the NPV of consumer benefit would be $0.373

billion, using a discount rate of 7 percent, and $1.18 billion, using a discount rate of 3

percent.

The cumulative emissions reductions at TSL 2 are 8.73 Mt of CO 2 , 7.00 thousand

tons of NO X , and 0.072 tons of Hg. The estimated monetary value of the cumulative CO 2
emissions reductions at TSL 2 ranges from $44.3 million to $738 million. Total

generating capacity in 2045 is estimated to decrease by 0.11 GW under TSL 2.

462At TSL 2, the average LCC impact is a savings (LCC decrease) of $2 for nonweatherized gas furnaces, a savings of $0 for mobile home gas furnaces, a savings of $1

for oil-fired furnaces

, and a savings of $0 for electric furnaces. For split-system air

conditioners (coil-only), the average LCC impact is a savings of $ 84 . For split-system air

conditioners (blower-coil), the average LCC impact is a savings of $ 40 . For split-system

heat pumps, the average LCC impact is a savings of $9. For single-package air

conditioners, the average LCC impact is a savings of $ 41 . For single-package heat

pumps, the average LCC impact is a savings of $9. For SDHV air conditioners, the

average LCC impact is a savings of $37

. For space-constrained air conditioners, the

average LCC impact is a savings of $42. For sp ace -constrained heat pumps, the average

LCC impact is a savings of $9.

At TSL 2, the median payback period is 11 years for non-weatherized gas

furnaces; 12 years for mobile home gas furnaces; 8 years for oil-fired furnaces ; and 10

years for electric furnaces. For split-system air conditioners (coil-only), the median

payback period is 1 year. For split-system air conditioners (blower-coil), the median

payback period is 6 years. For split-system heat pumps, the median payback period is 4

years. For single-package air conditioners, the median payback period is 6 years. For

single-package heat pumps, the median payback period is 4 years. For SDHV air

conditioners, the median payback period is 7 years. For space-constrained air

conditioners, the median payback period is 6 years. For space-constrained heat pumps,

the median payback period is 4 years.

463At TSL 2, the fraction of consumers experiencing an LCC benefit is 18 percent

for non-weatherized gas furnaces, 4 percent for mobile home gas furnaces, 8 percent for

oil-fired furnaces

, and 5 percent for electric furnaces

. For split-system air conditioners

(coil-only), the fraction of consumers experiencing an LCC benefit is 6 percent. For

split-system air conditioners (blower-coil), the fraction of consumers experiencing an

LCC benefit is 6 percent. For split-system heat pumps, the fraction of consumers

experiencing an LCC benefit is 33 percent. For single-package air conditioners, the

fraction of consumers experiencing an LCC benefit is 6 percent. For single-package heat

pumps, the fraction of consumers experiencing an LCC benefit is 34 percent. For SDHV

air conditioners, the fraction of consumers experiencing an LCC benefit is 6 percent. For

space-constrained air conditioners, the fraction of consumers experiencing an LCC

benefit is 6 percent. For space-constrained heat pumps, the fraction of consumers

experiencing an LCC benefit is 33 percent.

At TSL 2, the fraction of consumers experiencing an LCC cost is 9 percent for

non -weatherized gas furnaces, 6 percent for mobile home gas furnaces, 1 percent for oilfired furnaces

, and 4 percent for electric furnaces. For split system air conditioners (coilonly), the fraction of consumers experiencing an LCC cost is 0 percent. For split-system

air conditioners (blower-coil), the fraction of consumers experiencing an LCC cost is 3

percent. For split-system heat pumps, the fraction of consumers experiencing an LCC

cost is 0 percent. For single-package air conditioners, the fraction of consumers

experiencing an LCC cost is 3 percent. For single-package heat pumps, the fraction of

464consumers experiencing an LCC cost is 0 percent. For SDHV air conditioners, the

fraction of consumers experiencing an LCC cost is 3 percent. For space-constrained air

conditioners, the fraction of consumers experiencing an LCC cost is 3 percent. For spaceconstrained heat pumps, the fraction of consumers experiencing an LCC cost is 0 percent.

At TSL 2, the projected change in INPV ranges from an increase of $5 million to

a decrease of $ 253 million. The modeled impacts on INPV range from 0. 06 percent to ­

2.91 percent. In general, the incremental cost of standby mode and off mode features are

not expected to significantly affect INPV for the furnace, central air conditioner, and heat

pump industry at this level.

The Secretary concludes that at TSL 2 for furnace, central air conditioner, and

heat pump standby mode and off mode power, the benefits of energy savings, positive

NPV of consumer benefits at both 7-percent and 3-percent discount rates, generating

capacity reductions, emission reductions, and the estimated monetary value of the CO 2
emissions reductions would outweigh the economic burden on a small fraction of

consumers due to the increases in product cost. With the exception of consumers of

mobile home gas furnaces (whose mean LCC impact is zero), the majority of the

consumers that would be affected by standards at TSL 2 would see an LCC benefit.

Consequently, the Secretary has concluded that TSL 2 is economically justified.

After considering the analysis and the benefits and burdens of TSL 2, the

Secretary has concluded that this trial standard level offers the maximum improvement in

465energy efficiency that is technologically feasible and economically justified, and will

result in the significant conservation of energy. Therefore, DOE today adopts TSL 2 for

furnace, central air conditioner, and heat pump standby mode and off mode. Today’s

amended energy conservation standards for standby mode and off mode, expressed as

maximum power in watts, are shown in Table V. 59

.

Table V. 59 Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode* Residential Furnaces* * Product Class Standby Mode and Off Mode Standard Levels Non

- Weatherized Gas P W,SB = 10 watts P W,OFF = 10 watts Mobile Home Gas P W,SB = 10 watts P W,OFF = 10 watts Non

- Weatherized Oil

- Fired P W,SB = 11 watts P W,OFF = 11 watts Mobile Home Oil

- Fired P W,SB = 11 watts P W,OFF = 11 watts Electric P W,SB = 10 watts P W,OFF = 10 watts Central Air Conditioners and Heat Pumps † Product Class Off Mode Standard Levels † † Split

- system air conditioners P W,OFF = 3 0 watts Split

- system heat pumps P W,OFF = 33 watts Single

- package air conditioners P W,OFF = 3 0 watts Single

- package heat pumps P W,OFF = 33watts Small

- duct, high

- velocity systems P W,OFF = 3 0 watts Space

- constrained air conditioners P W,OFF = 3 0 watts Space

- constrained heat pumps P W,OFF = 33 watts

466* P W,SB is standby mode electrical power consumption, and P W,OFF is off mode electrical power consumption for furnaces. ** Standby mode and off mode energy consumption for weatherized gas and oil-fired furnaces is regulated as a part of single-package air conditioners and heat pumps, as discussed in section III.E.1. † P W,OFF is off mode electrical power consumption for central air conditioners and heat pumps. †† DOE is not adopting a separate standby mode standard level for central air conditioners and heat pumps, because standby mode power consumption for these products is already regulated by SEER and HSPF.

3. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and

Heat Pump Energy Efficiency

The benefits and costs of today’s standards can also be expressed in terms of

annualized values over the analysis period. The annualized monetary values are the sum

of: (1) the annualized national economic value (expressed in 2009$) of the benefits from

operating products that meet the standards (consisting primarily of operating cost savings

from using less energy, minus increases in equipment purchase costs, which is another

way of representing consumer NPV); and (2) the monetary value of the benefits of

emission reductions, including CO 2 emission reductions. 100 The value of the CO 2
reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using a

range of values per metric ton of CO 2 developed by a recent Federal interagency process.

The monetary costs and benefits of cumulative emissions reductions are reported in

2009$ to permit comparisons with the other costs and benefits in the same dollar units.

100 DOE used a two-step calculation process to convert the time-series of costs and benefits into annualized values. First, DOE calculated a present value in 2011, the year used for discounting the NPV of total consumer costs and savings, for the time-series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO 2 reductions

. For the latter, DOE used a range of discount rates, as shown in Table I.3. From the present value, DOE then calculated the fixed annual payment over a 32 -year period, starting in 2011 that yields the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time-series of cost and benefits from which the annualized values were determined would be a steady stream of payments.

467Although combining the values of operating savings and CO 2 reductions provides

a useful perspective, two issues should be considered. First, the national operating

savings are domestic U.S. consumer monetary savings that occur as a result of market

transactions, while the value of CO 2 reductions is based on a global value. Second, the

assessments of operating cost savings and CO 2 savings are performed with different

methods that use quite different time frames for analysis. The national operating cost

savings is measured for the lifetime of products shipped in 2013

– 2045 for furnaces and

2015 -2045 for central air conditioners and heat pumps. The SCC values, on the other

hand, reflect the present value of future climate-related impacts resulting from the

emission of one metric ton of carbon dioxide in each year. These impacts continue well

beyond 2100.

Estimates of annualized benefits and costs of today’s standards for furnace,

central air conditioner, and heat pump energy efficiency are shown in Table V. 60

. The

results under the primary estimate are as follows. Using a 7-percent discount rate and the

SCC value of $22.1/ton in 2010 (in 2009$), the cost of the energy efficiency standards in

today’s direct final rule is $ 527 million to $ 773 million per year in increased equipment

installed costs, while the annualized benefits are $ 8 37 million to $ 1106 million per year

in reduced equipment operating costs, $1 40 million to $ 17 8 million in CO 2 reductions,

and $ 5. 3 million to $ 6. 9 million in reduced NO X emissions. In this case, the net benefit Deleted: 533

Deleted: 780

Deleted: 839

Deleted: 1107

amounts to $ 4 56 million to $5 17 million per year. DOE also calculated annualized net Deleted: 451 million to $ 512 million per year.

benefits using a range of potential electricity and equipment price trend forecasts. Given

the range of modeled price trends, the range of net benefits using a 7-percent discount

468rate is from $ 295 million to $6 23 million per year. The low estimate corresponds to a

scenario with a low electricity price trend and a constant real price trend for equipment.

Using a 3-percent discount rate and the SCC value of $22.1/metric ton in 2010 (in

200 9$), the cost of the energy ef ficiency standards in today’s direct final rule is $ 5 66

million to $ 825 million per year in increased equipment installed costs, while the benefits

are $ 1289 million to $ 1686 million per year in reduced operating costs, $1 40 million to

$ 17 8 million in CO 2 reductions, and $ 7. 9 million to $10.2 million in reduced NO X
emissions. In this case, the net benefit amounts to $ 8 71 million to $ 1049 million per year.

DOE also calculated annualized net benefits using a range of potential electricity and

equipment price trend forecasts. Given the range of modeled price trends, the range of net

benefits using a 3-percent discount rate is from $6 01 million to $1,260 million per year.

The low estimate corresponds to a scenario with a low electricity price trend and a

constant real price trend for equipment

. Comment [A16]: Change recommended by OIRA.

Deleted: 573

Deleted: 832

Deleted: 1290

Deleted: 1687

Deleted: 865 million to $ 1043 million per year

Comment [A17]: Change recommended by OIRA.

469470 Table V. 60 Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency (TSL 4)

Discount Rate Primary Estimate* Low Estimate* High Estimate*

Monetized (million 2009$/year)
Benefits

Operating Cost Savings 7% 837 to 1, 106 723 to 959 955 to 1, 258
3% 1, 289 to 1, 686 1, 083 to 1, 422 1, 493 to 1, 948
CO 2 Reduction at $4. 9 /t** 5% 34 to 43 34 to 43 34 to 43
CO 2 Reduction at $2 2.1 /t** 3% 140 to 178 141 to 178 140 to 178
CO 2 Reduction at $3 6.3 /t** 2.5% 224 to 284 225 to 285 224 to 284
CO 2 Reduction at $6 7.1 /t** 3% 427 to 541 428 to 543 427 to 541

NO X Reduction at $2,519/t on ** 7% 5.3 to 6.9 5.3 to 7.0 5.3 to 6.9
3% 7.9 to 10.2 7.9 to 10. 3 7.9 to 10.2

Total† 7% plus CO 2 range 876 to 1, 653 762 to 1, 509 994 to 1, 805

7% 983 to 1, 290 869 to 1, 144 1, 100 to 1, 442
3% 1, 437 to 1, 874 1, 232 to 1, 611 1, 641 to 2, 136 3% plus CO 2 range 1, 330 to 2, 237 1, 125 to 1, 975 1, 535 to 2, 499

Costs

Incremental Product Costs 7% 527 to 773 574 to 840 555 to 819
3% 566 to 825 630 to 916 599 to 876
Net Benefits/Costs

Total† 7% plus CO 2 range 349 to 880 188 to 669 438 to 986

7% 456 to 517 295 to 305 545 to 623
3% 871 to 1, 049 601 to 695 1, 042 to 1, 260 3% plus CO 2 range 764 to 1, 412 494 to 1, 059 935 to 1, 623

* The benefits and costs are calculated for products shipped in 2013 -2045 for the furnace standards and in 2015 -2045 for the central air conditioner and heat pump standards. Formatted Table

... Deleted: 839

... 37 to 1, 107

... Deleted: 722

... 23 to 955

... Deleted: 958

... 55 to 1, 261

...

Deleted: 290

... 89 to 1, 687

... Deleted: 081

... 83 to 1, 416

... Deleted: 496

... 93 to 1, 951

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... 4 to 42

... Deleted: 33

... 4 to 42

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... 4 to 42

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... 25 to 284

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Deleted: 427

... 28 to 540

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Deleted: 2

Deleted: 877

... 76 to 1, 655

... Deleted: 760

... 62 to 1, 502

... Deleted: 996

... 94 to 1, 808

... Deleted: 984

... 83 to 1, 292

... Deleted: 867

... 69 to 1, 140

... Deleted: 103

... 00 to 1, 445

... Deleted: 438

... 37 to 1, 875

... Deleted: 229

... 32 to 1, 604

... Deleted: 644

... 41 to 2, 139

... Deleted: 331

... 30 to 2, 238

... Deleted: 122

... 25 to 1, 967

... Deleted: 538

... 35 to 2, 502

...

Formatted Table

... Deleted: 533

... 27 to 780

... Deleted: 496

... 74 to 722

... Deleted: 572

... 55 to 839

...

Deleted: 573

... 66 to 832

... Deleted: 528

... 30 to 764

... Deleted: 619

... 99 to 901

...

Formatted Table

... Deleted: 344

... 49 to 875

... Deleted: 265

... 88 to 781

... Deleted: 424

... 38 to 968

... Deleted: 451

... 56 to 512

... Deleted: 371

... 95 to 418

... Deleted: 531

... 45 to 606

...

Deleted: 865

... 71 to 1, 043

... Deleted: 701

... 01 to 840

... Deleted: 025

... 42 to 1, 239

... Deleted: 758

... 64 to 1, 406

... Deleted: 594

... 94 to 1, 203

... Deleted: 919

... 35 to 1, 601

... Deleted: * Comment [A18]: Change recommended by

...**The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.

† The CO 2 values represent global monetized values (in 2009$) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3-percent discount rate. The value for NO X (in 2009$) is the average of the low and high values used in DOE’s analysis.

†† Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate, which is $22.1/ton in 2010 (in 2009 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

4. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and

Heat Pump Standby Mode and Off Mode Power

As explained in detail above, the benefits and c osts of today’s standards for

standby mode and off mode power can also be expressed in terms of annualized values.

The annualized monetary values are the sum of: (1) the annualized national economic

value (expressed in 2009$) of the benefits from operating products that meet the

standards (consisting primarily of operating cost savings from using less energy, minus

increases in equipment purchase costs, which is another way of representing consumer

NPV); and (2) the monetary value of the benefits of emission reductions, including CO 2

emission reductions.

Estimates of annualized benefits and costs of today’s standards for furnace,

central air conditioner, and heat pump standby mode and off mode power are shown in Comment [A19]: Change recommended by OIRA.

471Table V. 61

. The results under the primary estimate are as follows. Using a 7-percent

discount rate and the SCC value of $2 2.1/ton in 2010 (in 2009$), the cost of the standby

mode and off mode standards in today’s direct final rule is $16.4 million per year in

increased equipment costs, while the annualized benefits are $46.5 million per year in

reduced equipment operating costs, $12.4 million in CO 2 reductions, and $ 0.4 million in

reduced NO X emissions. In this case, the net benefit amounts to $42.8 million per year.

Using a 3-percent discount rate and the SCC value of $2 2.1/ton in 2010 (in 2009$), the

cost of the standby mode and off mode standards in today’s direct final rule is $19.1

million per year in increased equipment costs, while the benefits are $79.3 million per

year in reduced operating costs, $12.4 million in CO 2 reductions, and $0.6 million in

reduced NO X emissions. In this case, the net benefit amounts to $73.2 million per year.

472Table V. 61 Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power (TSL 2)

Discount Rate Primary Estimate* Low Estimate* High Estimate*

Monetized (million 2009$/year)
Benefits

Operating Cost Savings 7% 46.5 40.4 52.8
3% 79.3 67.9 90.8
CO 2 Reduction at $ 4. 9 /t** 5% 2.9 2.9 2.9
CO 2 Reduction at $ 2 2.1 /t** 3% 12.4 12.4 12.4
CO 2 Reduction at $ 3 6.3 /t** 2.5% 19.9 19.9 19.9
CO 2 Reduction at $ 6 7.1 /t** 3% 37.6 37.6 37.6

NO X Reduction at $2,519/t on ** 7% 0.4 0.4 0.4
3% 0.6 0.6 0.6

Total† 7% plus CO 2 range 49.7 to 84.5 43.6 to 78.4 56.1 to 90.8

7% 59.2 53.1 65.5
3% 92.3 80.9 103.8 3% plus CO 2 range 82.8 to 117.5 71.4 to 106.2 94.3 to 129.1

Costs

Incremental Product Costs 7% 16.4 15.2 17.7
3% 19.1 17.6 20.6
Net Benefits/Costs

Total† 7% plus CO 2 range 33.3 to 68.1 28.5 to 63.2 38.4 to 73.1

7% 42.8 38.0 47.9
3% 73.2 63.3 83.2 3% plus CO 2 range 63.7 to 98.4 53.8 to 88.5 73.7 to 108.5

Deleted: * * The benefits and costs are calculated for products shipped in 2013 -2045 for the furnace standards and in 2015 -2045 for the central air conditioner and heat pump standards.

473** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the AEO2010 Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.

† The CO 2 values represent global monetized values (in 2009$) of the social cost of CO 2 emissions in 2010 under several scenarios. The values of $ 4. 9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95 th percentile of the SCC distribution calculated using a 3-percent discount rate. The value for NO X (in 2009$) is the average of the low and high values used in DOE’s ana lysis.

†† Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate, which is $22.1/ton in 2010 (in 2009 $). In the rows labeled as “7% plus CO 2 range” and “3% plus CO 2 range,” the operating cost and NO X benefits are calculated using the labeled discount rate, and those values are added to the full range of CO 2 values.

5. Certification Requirements

In today’s direct final rule, in addition to proposing amended energy conservation

standards for the existing AFUE levels (for furnaces) and SEER and HSPF levels (for

central air conditioners and heat pumps), DOE is setting new requirements for standby

mode and off mode energy consumption for residential furnaces and off mode energy

consumption for central air conditioners and heat pumps. Additionally, DOE is adopting

new requirements for EER for States in the hot-dry, southwestern region for central air

conditioners. Because standby mode and off mode for furnaces, off mode for central ai r
conditioners and heat pumps, and EER for central air conditioners have not previously

been regulated, DOE does not currently require certification for these metrics. DOE

notes, however, that determining compliance with the standards in today’s direct final

rule will likely require manufacturers to certify these ratings ( i.e. , P W,OFF and P W,SB for

furnaces, P W,OFF for central air conditioners and heat pumps, and EER for central air

conditioners sold in the southwestern region (Arizona, California, Nevada, and New

Mexico)). DOE has decided that it will address these certification requirements in a Comment [A20]: Change recommended by OIRA.

Deleted: **

474separate certification and enforcement rulemaking, or in a rulemaking to determine the

enforcement mechanism for regional standards.

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866 and 13563 Comment [A21]: Change recommended by OIRA. Section 1(b)(1) of Executive Order 12866, “Regulatory Planning and Review,” 58

FR 51735 (Oct. 4, 1993), requires each agency to identify the problem that it intends to

address, including, where applicable, the failures of private markets or public institutions

that warrant new agency action, as well as to assess the significance of that problem. The

problems that today’s standards address are as follows:

(1) There is a lack of consumer information and/or information processing capability

about energy efficiency opportunities in the furnace, central air conditioner, and

heat pump market.

(2) There is asymmetric information (one party to a transaction has more and better

information than the other) and/or high transactions costs (costs of gathering

information and effecting exchanges of goods and services).

(3) There are external benefits resulting from improved energy efficiency of

furnaces, central air conditioners, and heat pumps that are not captured by the

users of such equipment. These benefits include externalities related to

environmental protection and energy security that are not reflected in energy

prices, such as reduced emissions of greenhouse gases.

In addition, DOE has determined that today’s regulatory action is an

475“economically significant regulatory action” under section 3(f)(1) of Executive Order

12866. Accordingly, section 6(a)(3) of the Executive Order requires that DOE prepare a

re gulatory impact analysis (RIA) on today’s rule and that the Office of Information and

Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) review this

rule. DOE presented to OIRA for review the draft rule and other documents prepared for

this rulemaking, including the RIA, and has included these documents in the rulemaking

record. The assessments prepared pursuant to Executive Order 12866 can be found in the

technical support document for this rulemaking. They are available for public review in

the Resource Room of DOE’s Building Technologies Program, 950 L’Enfant Plaza, SW.,

Suite 600, Washington, DC 20024, (202) 586-2945, between 9:00 a.m. and 4:00 p.m.,

Monday through Friday, except Federal holidays.

DOE has also reviewed this regulation pursuant to Executive Order 13563, issued

on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 is supplemental to and

explicitly reaffirms the principles, structures, and definitions governing regulatory review

established in Executive Order 12866. To the extent permitted by law, agencies are

required by Executive Order 13563 to : (1) propose or adopt a regulation only upon a

reasoned determination that its benefits justify its costs (recognizing that some benefits

and costs are difficult to quantify); (2) tailor regulations to impose the least burden on

society, consistent with obtaining regulatory objectives, taking into account, among other

things, and to the extent practicable, the costs of cumulative regulations; (3) select, in

choosing among alternative regulatory approaches, those approaches that maximize net

benefits (including potential economic, environmental, public health and safety, and other

476advantages; distributive impacts; and equity); (4) to the extent feasible, specify

performance objectives, rather than specifying the behavior or manner of compliance that

regulated entities must adopt; and (5) identify and assess available alternatives to direct

regulation, including providing economic incentives to encourage the desired behavior,

such as user fees or marketable permits, or providing information upon which choices can

be made by the public.

We emphasize as well that Executive Order 13563 requires agencies “ to use the

best available techniques to quantify anticipated present and future benefits and costs as

accurately as possible.” In its guidance, the Office of Information and Regulatory Affairs

has emphasized that such techniques may include “identifying changing future

compliance costs that might result from technological innovation or anticipated

behavioral changes.” For the reasons stated in the preamble, DOE believes that today’s

direct final rule is consistent with these principles, including that, to the extent permitted

by law, agencies adopt a regulation only upon a reasoned determination that its benefits

justify its costs and select, in choosing among alternative regulatory approaches, those

approaches that maximize net benefits.

B. Review Under the Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires preparation of

a final regulatory flexibility analysis (FRFA) for any rule that by law must be

proposed for public comment, unless the agency certifies that the rule, if

promulgated, will not have a significant economic impact on a substantial number Comment [A22]: Change recommended by OIRA.

477of small entities. As required by Executive Order 13272, “Proper Consideration of

Small Entities in Agency Rulemaking” 67 FR 53461 (August 16, 2002), DOE

published procedures and policies on February 19, 2003, to ensure that the potential

impacts of its rules on small entities are properly considered during the rulemaking

process. 68 FR 7990. DOE has made its procedures and policies available on the

Office of the General Counsel’s website ( www.gc.doe.gov )

.

DOE reviewed the standard levels considered in today’s direct final rule

under the provisions of the Regulatory Flexibility Act and the procedures and

policies published on February 19, 2003. 68 FR 7990. As a result of this review,

DOE prepared a F RFA in support of today’s standards, which DOE will transmit to

the Chief Counsel for Advocacy of the SBA for review under 5 U.S.C 605(b). As

presented and discussed below, the FRFA describes potential impacts on small

residential furnace, central air conditioner, and heat pump manufacturers associated

with today’s direct final rule and discusses alternatives that could minimize these

impacts. A description of the reasons why DOE is adopting the standards in today’s

rule and the objectives of and legal basis for the rule are set forth elsewhere in the

preamble and not repeated here.

1. Description and Estimated Number of Small Entities Regulated

For the manufacturers of residential furnaces, central air conditioners, and

heat pumps, the Small Business Administration (SBA) has set a size threshold,

which defines those entities classified as “small businesses” for the purposes of the

478statute. DOE used the SBA’s small business size stan dards to determine whether

any small entities would be subject to the requirements of the rule. 65 FR 30836,

30848 (May 15, 2000), as amended at 65 FR 53533, 53544 (Sept. 5, 2000) and

codified at 13 CFR part 121. The size standards are listed by North American

Industry Classification System (NAICS) code and industry description and are

available at:

http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf

.pdf. Residential furnace and central air conditioning (including heat pumps)

man ufacturing is classified under NAICS 333415, “Air -Conditioning and Warm Air

Heating Equipment and Commercial and Industrial Refrigeration Equipment

Manufacturing.” The SBA sets a threshold of 750 employees or less for an entity to

be considered as a small business for this category.

During its market survey, DOE used all available public information to

identify potential small manufacturers. DOE’s research involved industry trade

association membership directories (including AHRI), public databases ( e.g. , AHRI

101 102 Directory , the SBA Database ), individual company websites, and market

103 104 research tools ( e.g. , Dunn and Bradstreet reports and Hoovers reports ) to create

a list of companies that manufacture or sell products covered by this rulemaking.

DOE also asked stakeholders and industry representatives if they were aware of any

other small manufacturers during manufacturer interviews and at DOE public

101 See http://www.ahridirectory.org/ahriDirectory/pages/home.aspx

. 102 See http://dsbs.sba.gov/dsbs/search/dsp_dsbs.cfm

. 103 See http://www.dnb.com/
104 See http://www.hoovers.com/

.

479meetings. DOE reviewed publicly-available data and contacted select companies on

its list, as necessary, to determine whether they met the SBA’s definition of a small

business manufacturer of covered residential furnaces, central air conditioners, and

heat pumps. DOE screened out companies that do not offer products covered by this

rulemaking, do not meet the definition of a “small business,” or are foreign owned

and operated.

For central air conditioners, DOE initially identified 89 distinct brands sold

in the U.S. Out of these 89 brands, DOE determined that 18 brands are managed by

small businesses. While identifying the parent companies of the 18 brands, DOE

determined that only four companies are domestic small business manufacturers of

central air conditioning products. Three of these small businesses produce spaceconstrained products and one produces small-duct, high-velocity products. None of

the small businesses produced split-system air conditioning, split-system heat

pumps, single-package air conditioning, or single-package heat pump products,

which together make up 99 percent of industry air conditioner and heat pump

shipments.

For residential furnaces, DOE initially identified at least 90 distinct brands

sold in the U.S. Out of these 90 brands, DOE determined that 14 were managed by

small businesses. When identifying the parent companies of the 14 brands, DOE

determined that only five companies are domestic small business manufacturers of

furnace products. All five small businesses manufacture oil furnaces as their

480primary product line. One of the small businesses also produces mobile home

furnaces as a secondary product offering. DOE did not identify any small

manufacturers producing non-weatherized gas furnaces or weatherized gas furnaces,

which together make up over 95 percent of residential furnace shipments. DOE also

did not identify any small manufacturers of electric furnaces affected by this

rulemaking.

Next, DOE contacted all of the identified small business manufacturers

listed in the AHRI directory to request an interview about the possible impacts of

amended energy conservation standards on small manufacturers. Not all

manufacturers responded to interview requests; however, DOE did interview three

small furnace manufacturers and two small central air conditioning and heat pump

manufacturers. From these discussions, DOE determined the expected impacts of

the rule on affected small entities.

2. Description and Estimate of Compliance Requirements

After examining structure of the central air conditioner and heat pump and

furnace market, DOE determined it necessary to examine impacts on small

manufacturers in two broad categories: (1) manufacturers of central air conditioners

and heat pumps and (2) manufacturers of furnaces.

481a. Central Air Conditioning and Heat Pumps

As discussed above, no small manufacturers for split-system air

conditioning, split-system heat pump, single-package air conditioning, or singlepackage heat pump products were identified. DOE identified four domestic small

business manufacturers of central air conditioner and heat pump products. All four

small businesses manufacture niche products; three produce space-constrained

products, and one produces SDHV products.

With regard to the space-constrained market, the three small business

manufacturers identified by DOE make up the vast majority of shipments of these

products in the United States. DOE did not identify any competing large

manufacturers in this niche market. Supporting this finding, no large manufacturers

listed through-the-wall, or space-constrained, products in the AHRI directory.

According to manufacturer interviews, no manufacturers have entered or exited the

space-constrained market in the past decade. Furthermore, based on the screening

analysis, teardown analysis, and market research, DOE has determined that the

current energy conservation standard applicable to these products is equal to the

max-tech efficiency level. In other words, DOE has determined it is unable to raise

the energy conservation standards applicable to space-constrained products due to

the state of technology and the design constraints inherent to these products.

Therefore, because the efficiency level to which these three small manufacturers are

subject will not change, DOE does not anticipate that the rule would adversely

482affect the small businesses manufacturing space-constrained air conditioning

products.

With respect to SDHV products, DOE identified one company as a small

domestic manufacturer. The company’s primary competitors are a small

manufacturer based in Canada and a domestic manufacturer that does not qualify as

a small business due to its parent company’s size. These three manufacturers

account for the vast majority of the SDHV market in the U.S., which makes up less

than 1 percent of the overall domestic central air conditioning and heat pumps

market.

The current energy conservation standard for SDHV is 13 SEER. In today’s

notice, DOE is not amending that level. Therefore, because the efficiency level to

which the manufacturers are subject will not change, DOE does not anticipate that

the standard level would adversely affect the manufacturers of SDHV products.

It should be noted that this rulemaking adopts a separate standard for the

SDHV product class. As a result, exception relief granted in 2004 under the

condition that “ exception relief will remain in effect until such time as the agency

modifies the general energy efficiency standard for central air conditioners and

establishes a different standard for SDHV systems that comports with the EPCA 105 ”

will expire. Large and small SDHV manufacturers operating under exception relief

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

483will be required to either comply with the standard or re-apply for exception relief

ahead of the compliance date.

b. Residential Furnaces

DOE identified five domestic small business manufacturers of residential

furnace products. All five produce oil furnaces as their primary product line. Oil

furnaces make up less than 3 percent of residential furnace shipments. One of the

small businesses also produces mobile home furnaces as a secondary product line.

No additional small manufacturers of mobile home furnaces were identified.

The five small business manufacturers of residential furnace products

account for 22 percent of the 1,207 active oil furnace product listings in the AHRI

Directory (data based on information available from the AHRI Directory in

September 2010). Ninety-nine percent of the small oil furnace manufacturer product

listings were above the base standard of 78-percent AFUE. Seventy-seven percent

of the small oil furnace manufacturer product listings had efficiencies equal to or

above 83-percent AFUE, the efficiency level for oil furnaces adopted in today’s

notice. All small business manufacturers of residential furnace products have

product lines that meet the efficiency level adopted in today’s notice.

In interviews, several small manufacturers noted that the majority of their

businesses’ sales are above 83 -percent AFUE today. According to interviews, the

small manufacturers focus on marketing their brands as premium products in the

484replacement market, while the major manufacturers tend to sell their products at

lower cost and lower efficiency. For this reason, a higher standard is unlikely to

require investments in research and development by small manufacturers to catch

up to larger manufacturers in terms of technology development. However, in

interviews, small oil furnace manufacturers did indicate some concern if the energy

conservation standard were to be raised to 85 percent, which is the efficiency level

just below max-tech, or above. At these efficiency levels, according to

manufacturers, the installation costs for oil furnaces could significantly increase due

to the need for chimney liners, which are necessary to manage the acidic condensate

that results from the high sulfur content of domestic heating oil. Small oil furnace

manufacturers expressed concern that the additional installation costs of a chimney

liner would deter home owners from purchasing new oil furnaces and accelerate the

contraction of an already-shrinking oil furnace market. Additionally, small

manufacturers were concerned that a high standard would leave little opportunity to

differentiate their oil furnaces as premium products through higher efficiencies. If

the amended standards were sufficiently stringent as to leave little room for small

manufacturers to offer higher-efficiency products, it would become more difficult to

for them to justify their premium positioning in the marketplace. However,

manufacturers indicated that the change in the efficiency level corresponding to that

ad opted by today’s notice would not significantly alter that premium pricing

dynamic.

485For oil furnaces, the majority of both small business product lines and sales

are at efficiencies equal to or above 83-percent AFUE. Oil furnace manufacturers

do not expect to face significant conversion costs to reach the adopted level. Based

on manufacturer feedback, DOE estimated that a typical small oil furnace

manufacturer would need to invest $250,000 to cover conversion costs, including

both capital and product conversion costs such as investments in production lines,

R&D and engineering resources, and product testing, to meet the standard.

However, any relatively fixed costs associated with R&D, marketing, and testing

necessitated by today’s direct final rule would have to be spread over lower

volumes, on average, as compared to larger manufacturers. DOE believes this

disproportionate adverse impact on small manufacturers is somewhat mitigated by

an industry trend toward large manufacturers outsourcing their oil furnace

production to small manufacturers, which has increased the sales of both domestic

and Canadian small manufacturers. Interviewed small manufacturers indicated that

larger manufacturers are becoming less willing to allocate resources to the shrinking

oil furnace market, yet still want to maintain a presence in this portion of the market

in order to offer a full product line. In turn, market share in oil furnace production is

shifting to small manufacturers. For all of the foregoing reasons, DOE does not

believe today’s direct final rule jeopardizes the viability of the small oil furnace

manufacturers.

As noted above, DOE identified one small manufacturer of mobile home

furnaces. This manufacturer primarily produces and sells oil furnaces, but it also

486produces mobile home furnaces as a secondary product offering. The standard

promulgated in today’s notice would require 90 -percent AFUE in the North and 80­

percent AFUE in the South. DOE believes the adopted standard level would be

unlikely to cause the small manufacturer to incur significant conversion costs

because their current product offering already meets it, as illustrated by the listings

in the AHRI directory.

In multiple niche product classes, larger manufacturers could have a

competitive advantage due to their size and ability to access capital that may not be

available to small businesses. Additionally, in some market segments, larger

businesses have larger production volumes over which to spread costs.

3. Duplication, Overlap, and Conflict With Other Rules and Regulations

DOE is not aware of any rules or regulations that duplicate, overlap, or

conflict with the rule being promulgated today.

4. Significant Alternatives to the Rule

The discussion above analyzes impacts on small businesses that would result

from DOE’s rule . In addition to the other TSLs being considered, the direct final

rule TSD includes a regulatory impact analysis (RIA). For re sidential furnaces,

central air conditioners, and heat pumps, the RIA discusses the following policy

alternatives: (1) n o change in standard; (2) consumer rebates; (3) consumer tax

credits; (4) manufacturer tax credits; and (5) early replacement. While these

487alternatives may mitigate to some varying extent the economic impacts on small

entities compared to the amended standards, DOE determined that the energy

savings of these regulatory alternatives are at least 10 times smaller than those that

would be expected to result from adoption of the amended standard levels. Thus,

DOE rejected these alternatives and is adopting the amended standards set forth in

this rulemaking. (See chapter 16 of the direct final rule TSD for further detail on the

policy alternatives DOE considered.)

C. Review Under the Paperwork Reduction Act of 1995

Manufacturers of residential furnaces, central air conditioners, and heat pumps

must certify to DOE that their product s comply with any applicable energy conservation

standard. In certifying compliance, manufacturers must test their products according to

the DOE test procedures for furnaces, central air conditioners, and heat pumps, as

applicable, including any amendments adopted for th ose particular test procedures. DOE

has proposed regulations for the certification and recordkeeping requirements for all

covered consumer products and commercial equipment, including residential furnaces,

central air conditioners, and heat pumps. 75 FR 56796 (Sept. 16, 2010). The collectionof

-information requirement for the certification and recordkeeping is subject to review

and approval by OMB under the Paperwork Reduction Act (PRA). (44 U.S.C. 3501 et

seq. ) This requirement has been submitted to OMB for approval. Public reporting burden

for the certification is estimated to average 20 hours per response, including the time for

488reviewing instructions, searching existing data sources, gathering and maintaining the

data needed, and completing and reviewing the collection of information.

Notwithstanding any other provision of the law, no person is required to respond

to, nor shall any person be subject to a penalty for failure to comply with, a collection of

information subject to the requirements of the PRA, unless that collection of information

displays a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

DOE has prepared an environmental assessment (EA) of the impacts of the direct

final rule pursuant to the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et

seq .), the regulations of the Council on Environmental Quality (40 CFR parts 1500 –
1508), and DOE’s regulations for compliance with the National Environmental Policy

Act of 1969 (10 CFR part 1021). This assessment includes an examination of the

potential effects of emission reductions likely to result from the rule in the context of

global climate change, as well as other types of environmental impacts. The EA has been

incorporated into the direct final rule TSD as chapter 15.

E. Review under Executive Order 13 132

Executive Order 13132, “ Federalism, ” 64 FR 43255 (Aug. 10, 1999) imposes

certain requirements on Federal agencies formulating and implementing policies or

regulations that preempt State law or that have Federalism implications. The Executive

Order requires agencies to examine the constitutional and statutory authority supporting

489any action that would limit the policymaking discretion of the States and to carefully

assess the necessity for such actions. The Executive Order also requires agencies to have

an accountable process to ensure meaningful and timely input by State and local officials

in the development of regulatory policies that have Federalism implications. On March

14, 2000, DOE published a statement of policy describing the intergovernmental

consultation process it will follow in the development of such regulations. 65 FR 13735.

EPCA governs and prescribes Federal preemption of State regulations as to energy

conservation for the products that are the subject of today’s direct final rule. States can

petition DOE for exemption from such preemption to the extent, and based on criteria, set

forth in EPCA. (42 U.S.C. 6297) No further action is required by Executive Order

13132.

F. Review Under Executive Order 12988

With respect to the review of existing regulations and the promulgation of new

regulations, section 3(a) of Executive Order 12988, “ Civil Justice Reform, ” imposes on

Federal agencies the general duty to adhere to the following requirements: (1) eliminate

drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3)

provide a clear legal standard for affected conduct rather than a general standard and

promote simplification and burden reduction. 61 FR 4729 (Feb. 7, 1996). Section 3(b)

of Executive Order 12988 specifically requires that Executive agencies make every

reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect,

if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides

a clear legal standard for affected conduct while promoting simplification and burden

490reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms;

and (6) addresses other important issues affecting clarity and general draftsmanship under

any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988

requires Executive agencies to review regulations in light of applicable standards in

section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to

meet one or more of them. DOE has completed the required review and determined that,

to the extent permitted by law, this direct final rule meets the relevant standards of

Executive Order 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) requires each

Federal agency to assess the effects of Federal regulatory actions on State, local, and

Tribal governments and the private sector. Pub. L. 104 -4, sec. 201 (codified at 2 U.S.C.

1531 ). For a regulatory action likely to result in a rule that may cause the expenditure by

State, local, and Tribal governments, in the aggregate, or by the private sector of $100

million or more in any one year (adjusted annually for inflation), section 202 of UMRA

requires a Federal agency to publish a written statement that estimates the resulting costs,

benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA

also requires a Federal agency to develop an effective process to permit timely input by

elected officers of State, local, and Tribal governments on a “significant

intergovernmental mandate,” and requires an agency plan for giving notice and

opportunity for timely input to potentially affected small governments before establishing

any requirements that might significantly or uniquely affect small governments. On

491March 18, 1997, DOE published a statement of policy on its process for

intergovernmental consultation under UMRA. 62 FR 12820 . DOE’s policy statement is

also available at http:/ / www.gc.doe.gov

.

Although today’s rule does not contain a Federal intergovernmental mandate, it

may impose expenditures of $100 million or more on the private sector. Specifically, the

final rule could impose expenditures of $100 million or more. Such expenditures may

include: (1) investment in research and development and in capital expenditures by

furnace, central air conditioner, and heat pump manufacturers in the years between the

final rule and the compliance date for the new standards, and (2) incremental additional

expenditures by consumers to purchase higher-efficiency furnace, central air conditioner,

and heat pump products, starting at the compliance date for the applicable standard

.

Section 202 of UMRA authorizes a Federal agency to respond to the content

requirements of UMRA in any other statement or analysis that accompanies the rule. 2

U.S.C. 1532(c). The content requirements of section 202(b) of UMRA relevant to a

private sector mandate substantially overlap the economic analysis requirements that

apply under section 325(o) of EPCA and Executive Order 12866. The

SUPPLEMENTARY INFORMATION section of the direct final rule and the

“Regulatory Impact Analysis” section of the TSD for this direct final rule respond to

those requirements.

492Under section 205 of UMRA, the Department is obligated to identify and consider

a reasonable number of regulatory alternatives before promulgating a rule for which a

written statement under section 202 is required. 2 U.S.C. 1535(a). DOE is required to

select from those alternatives the most cost-effective and least burdensome alternative

that achieves the objectives of the rule unless DOE publishes an explanation for doing

otherwise, or the selection of such an alternative is inconsistent with law. As required by

42 U.S.C. 6295(d), (f) and (o), today’s rule would establish amended energy conservation

standards for residential furnaces, central air conditioners, and heat pumps that are

designed to achieve the maximum improvement in energy efficiency that DOE has

determined to be both technologically feasible and economically justified. A full

discussion of the alternatives considered by DOE is presented in the “Regulatory Impact

Analysis” chapter of the TSD for today’s direct final rule.

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

Section 654 of the Treasury and General Government Appropriations Act, 1999

(Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment

for any rule that may affect family well-being. This rule would not have any impact on

the autonomy or integrity of the family as an institution. Accordingly, DOE has

concluded that it is not necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

DOE has determined, under Executive Order 12630, “Governmental Actions and

Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (Mar . 18,

4931988), that this regulation would not result in any takings which might require

compensation under the Fifth Amendment to the U.S. Constitution.

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

Section 515 of the Treasury and General Government Appropriations Act, 2001

(44 U.S.C. 3516, note) provides for Federal agencies to review most disseminations of

information to the public under guidelines established by each agency pursuant to general

guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 (Feb . 22,

2002), and DOE’s guidelines were published at 67 FR 62446 (Oct . 7, 2002). DOE has

reviewed today’s notice under the OMB and DOE guidelines and has concluded that it is

consistent with applicable policies in those guidelines.

K. Review Under Executive Order 13211

Executive Order 13211, “Actions Concerning Regulations That Significantly

Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires

Fe deral agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects

for any significant energy action. A “significant energy action” is defined as any action

by an agency that promulgates or is expected to lead to promulgation of a final rule, and

that: (1) is a significant regulatory action under Executive Order 12866, or any successor

order; and (2) is likely to have a significant adverse effect on the supply, distribution, or

use of energy, or (3) is designated by the Administrator of OIRA as a significant energy

action. For any significant energy action, the agency must give a detailed statement of

any adverse effects on energy supply, distribution, or use should the proposal be

494implemented, and of reasonable alternatives to the action and their expected benefits on

energy supply, distribution, and use.

DOE has concluded that today’s regulatory action, which sets forth energy

conservation standards for furnaces, central air conditioners, and heat pumps, is not a

significant energy action because the amended standards are not likely to have a

significant adverse effect on the supply, distribution, or use of energy, nor has it been

designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a

Statement of Energy Effects on the direct final rule.

L. Review Under the Information Quality Bulletin for Peer Review

On December 16, 2004, OMB, in consultation with the Office of Science and

Technology Policy (OSTP), issued its Final Information Quality Bulletin for Peer Review

(the Bulletin). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain

scientific information shall be peer reviewed by qualified specialists before it is

disseminated by the Federal Government, including influential scientific information

related to agency regulatory actions. The purpose of the bulletin is to enhance the quality

and credibility of the Government’s scientific information. Under the Bulletin, the energy

conse rvation 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 o r
private sector decisions.” Id. at 2667.

495In response to OMB’s Bulletin, DOE conducted formal in -progress peer reviews

of the energy conservation standards development process and analyses and has prepared

a Peer Review Report pertaining to the energy conservation standards rulemaking

analyses. Generation of this report involved a rigorous, formal, and documented

evaluation using objective criteria and qualified and independent reviewers to make a

judgment as to the technical/scientific/business merit, the actual or anticipated results,

and the productivity and management effectiveness of programs and/or projects. The

“Energy Conservation Standards Rulemaking Peer Review Report” dated February 2007

has been disseminated and is available at the following Web site:

http://www1.eere.energy.gov/buildings/appliance_standards/peer_review.html

.

M. Congressional Notification

As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of

this rule prior to its effective date. The report will state that it has been determined that

the rule is a “major rule” as defined by 5 U.S.C. 804(2). DOE also will submit the

supporting analyses to the Comptroller General in the U.S. Government Accountability

Office (GAO) and make them available to each House of Congress.

VII. Public Participation

A. Submission of Comments

DOE will accept comments, data, and information regarding this direct final rule

no later than the date provided in the DATES section at the beginning of this direct final

496rule. Interested parties may submit comments, data, and other information using any of

the methods described in the ADDRESSES section at the beginning of this notice.

Submitting comments via regulations.gov . The regulations.gov web page will

require you to provide your name and contact information. Your contact information will

be viewable to DOE Building Technologies staff only. Your contact information will not

be publicly viewable except for your first and last names, organization name (if any), and

submitter representative name (if any). If your comment is not processed properly

because of technical difficulties, DOE will use this information to contact you. If DOE

cannot read your comment due to technical difficulties and cannot contact you for

clarification, DOE may not be able to consider your comment.

However, your contact information will be publicly viewable if you include it in

the comment itself or in any documents attached to your comment. Any information that

you do not want to be publicly viewable should not be included in your comment, nor in

any document attached to your comment. Otherwise, persons viewing comments will see

only first and last names, organization names, correspondence containing comments, and

any documents submitted with the comments.

Do not submit to regulations.gov information for which disclosure is restricted by

statute, such as trade secrets and commercial or financial information (hereinafter

referred to as Confidential Business Information (CBI)). Comments submitted through

regulations.gov cannot be claimed as CBI. Comments received through the website will

497waive any CBI claims for the information submitted. For information on submitting CBI,

see the Confidential Business Information section below.

DOE processes submissions made through regulations.gov before posting.

Normally, comments will be posted within a few days of being submitted. However, if

large volumes of comments are being processed simultaneously, your comment may not

be viewable for up to several weeks. Please keep the comment tracking number that

regulations.gov provides after you have successfully uploaded your comment.

Submitting comments via email, hand delivery/courier, or mail . Comments and

documents submitted via email, hand delivery, or mail also will be posted to

regulations.gov . If you do not want your personal contact information to be publicly

viewable, do not include it in your comment or any accompanying documents. Instead,

provide your contact information in a cover letter. Include your first and last names,

email address, telephone number, and optional mailing address. The cover letter will not

be publicly viewable as long as it does not include any comments

Include contact information each time you submit comments, data, documents,

and other information to DOE. Email submissions are preferred. If you submit via mail or

hand delivery/courier, please provide all items on a CD, if feasible. It is not necessary to

submit printed copies. No facsimiles (faxes) will be accepted.

498Comments, data, and other information submitted to DOE electronically should

be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII)

file format. Provide documents that are not secured, that are written in English, and that

are free of any defects or viruses. Documents should not contain special characters or any

form of encryption and, if possible, they should carry the electronic signature of the

author.

Campaign form letters . Please submit campaign form letters by the originating

organization in batches of between 50 to 500 form letters per PDF or as one form letter

with a list of supporters’ names compiled into one or more PDFs. This reduces comment

processing and posting time.

Confidential business information . According to 10 CFR 1004.11, any person

submitting information that he or she believes to be confidential and exempt by law from

public disclosure should submit via email, postal mail, or hand delivery/courier two wellmarked copies: one copy of the document marked confidential including all the

information believed to be confidential, and one copy of the document marked nonconfidential with the information believed to be confidential deleted. Submit these

documents via email or on a CD, if feasible. DOE will make its own determination about

the confidential status of the information and treat it according to its determination.

Factors of interest to DOE when evaluating requests to treat submitted

information as confidential include: (1) A description of the items; (2) whether and why

499such items are customarily treated as confidential within the industry; (3) whether the

information is generally known by or available from other sources; (4) whether the

information has previously been made available to others without obligation concerning

its confidentiality; (5) an explanation of the competitive injury to the submitting person

which would result from public disclosure; (6) when such information might lose its

confidential character due to the passage of time; and (7) why disclosure of the

information would be contrary to the public interest.

It is DOE’s policy that all comments may be included in the public docket,

without change and as received, including any personal information provided in the

comments (except information deemed to be exempt from public disclosure).

VIII. Approval of the Office of the Secretary

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

List of Subjects in 10 CFR Part 430

Administrative practice and procedure, Confidential business information, Energy

conservation, Household appliances, Imports, Intergovernmental relations, Reporting and

recordkeeping requirements, and Small businesses

.

Issued in Washington, DC, on

500________________________________ Henry Kelly Acting Assistant Secretary Energy Efficiency and Renewable Energy

501For the reasons set forth in the preamble, DOE amends part 430 of chapter II

, subchapter D, of title 10 of the Code of Federal Regulations, to read as set forth below:

PART 430 - ENERGY CONSERVATION PROGRAM FOR CONSUMER

PRODUCTS

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

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

2. Section 430.23 is amended by:

a. Redesignating paragraphs (m)(4), (m)(5), and (n)(5) as paragraphs (m)(5),

(m)(6), and (n)(6), respectively;

b. Adding new paragraphs (m)(4) and (n)(5); and

c. Revising paragraph (n)(2).

The additions and revision read as follows:

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

* * * * *

(m) Central air conditioners and heat pumps . * * *

* * * * *

(4) The average off mode power consumption for central air conditioners and central air

conditioning heat pumps shall be determined according to appendix M of this subpart.

Round the average off mode power consumption to the nearest watt.

* * * * *

502(n) Furnaces . * * *

* * * * *

(2) The annual fuel utilization efficiency for furnaces, expressed in percent, is the ratio of

the annual fuel output of useful energy delivered to the heated space to the annual fuel

energy input to the furnace determined according to section 10.1 of appendix N of this

subpart for gas and oil furnaces and determined in accordance with section 11.1 of the

American National Standards Institute/American Society of Heating, Refrigerating, and

Air-Conditioning Engineers (ANSI/ASHRAE) Standard 103-1993 (incorporated by

reference, see §430.3) for electric furnaces. Round the annual fuel utilization efficiency

to the nearest whole percentage point.

* * * * *

(5) The average standby mode and off mode electrical power consumption for furnaces

shall be determined according to section 8.6 of appendix N of this subpart. Round the

average standby mode and off mode electrical power consumption to the nearest watt.

* * * * *

3. Appendix M to subpart B of part 430 is amended by adding a note after the heading

that reads as follows:

Appendix M to Subpart B of Part 430

— Uniform Test Method for Measuring the

Ene rgy Consumption of Central Air Conditioners and Heat Pumps

Note: The procedures and calculations that refer to off mode energy consumption ( i.e.,

sections 3.13 and 4.2.8 of this appendix M) need not be performed to determine

50 3compliance with energy conservation standards for central air conditioners and heat

pumps at this time. However, any representation related to standby mode and off mode

energy consumption of these products made after corresponding revisions to the central

air conditioners and heat pumps test procedure must be based upon results generated

under this test procedure, consistent with the requirements of 42 U.S.C. 6293(c)(2). For

residential central air conditioners and heat pumps manufactured on or after January 1,

2015, compliance with the applicable provisions of this test procedure is required in order

to determine compliance with energy conservation standards.

* * * * *

4. Appendix N to subpart B of part 430 is amended by:

a. Remov ing all references to “P OFF ” and adding in their place “P W,OFF ” in

sections 8.6.2, 9.0, and 10.9;

b. Removing all references to “P SB ” and adding in their place “P W,SB ” in sections

8.6.1, 8.6.2, 9.0, and 10.9; and

c. Revising the note after the heading.

The revision reads as follows:

Appendix N to Subpart B of Part 430

— Uniform Test Method for Measuring the

Ene rgy Consumption of Furnaces and Boilers

Note: The procedures and calculations that refer to off mode energy consumption ( i.e.,

sections 8.6 and 10.9 of this appendix N) need not be performed to determine compliance

with energy conservation standards for furnaces and boilers at this time. However, any

representation related to standby mode and off mode energy consumption of these

504products made after April 18, 2011 must be based upon results generated under this test

procedure, consistent with the requirements of 42 U.S.C. 6293(c)(2). For furnaces

manufactured on or after May 1, 2013, compliance with the applicable provisions of this

test procedure is required in order to determine compliance with energy conservation

standards. For boilers, the statute requires that after July 1, 2010, any adopted energy

conservation standard shall address standby mode and off mode energy consumption for

these products, and upon the compliance date for such standards, compliance with the

applicable provisions of this test procedure will be required.

* * * * *

5

. Section 430.32 is amended by:

a. Adding in paragraph (c)(2) the words “and before January 1, 2015,” after

“2006,”;

b. Revising the note to the table in paragraph (c)(2);

c. Adding new paragraphs (c)(3), (c)(4), (c)(5), (c)(6), (e)(1)(iii), and (e)(1)(iv); Deleted: Adding new paragraphs (c)(3), (c)(4), (c)(5), (c)(6), (e)(1)(iii), and (e)(1)( iv); and

Deleted: c.

and

d. Revising paragraphs (e)(1)(i) and (e)(1)(ii).

The additions and revisions read as follows:

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

* * * * *

(c) Central air conditioners and heat pumps . * * *

* * * * *

505(2) Central air conditioners and central air conditioning heat pumps manufactured on or

after January 23, 2006, and before January 1, 2015, shall have Seasonal Energy

Efficiency Ratio and Heating Seasonal Performance Factor no less than:

Product c lass Seasonal energy efficiency Heating seasonal ratio (SEER) performance factor (HSPF) (i) Split

- system air 13 conditioners (ii)Split

- system heat pumps 1 3 7.7 (iii) Single

- package air 1 3 conditioners (iv) Single

- package heat 1 3 7.7 pumps (v)(A) Through

- the

- wall air 10.9 7.1 conditioners and heat
pumps

- split system 1 (v)(B) Through

- the

- wall air 10.6 7.0 conditioners and heat
pumps

- single package 1 (v i ) Small

- duct, high

­ 1 3 7.7 velocity systems (vi i )(A) Space

- constrained 12 products – air conditioners (vi i )(B) Space

- constrained 12 7.4 products – heat pumps

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

(3) Central air conditioners and central air conditioning heat pumps manufactured on or

after January 1, 2015, shall have a Seasonal Energy Efficiency Ratio and Heating

Seasonal Performance Factor not less than: Moved (insertion) [3]

Product c lass 1 Seasonal energy efficiency ratio (SEER) Heating seasonal performance factor (HSPF) (i) Split

- system air conditioners 13

(ii)Split

- system heat pumps 14 8.2

506(iii) Single

- package air 14 conditioners (iv) Single

- package heat 14 8.0
pumps (v) Small

- duct, high

­ 13 7.7 velocity systems (vi)(A) Space

- constrained 12 products – air conditioners

(v i )(B) Space

- constrained 12 7.4 products – heat pumps Moved up [3]: (vi i )(B) Space

- constrained products – heat pumps

Deleted:

– ¶

1 The “t hrough-the-wall air conditioners and heat pump – split system” and “through -the-wall air conditioner and heat pump – single package” product classes only applied to products manufactured prior Deleted: class

Deleted: certain to January 23, 2010. Products manufactured as of that date must be assigned to one of the remaining product classes listed in this table. The product class assignment depends on the product’s characteristics. Product class definitions can be found in 10 CFR 430.2 and 10 CFR part 430, subpart B, appendix M. DOE believes that most, if not all, of the historically- characterized “ through-the-wall ” products will be assigned to one of the space- constrained product classes.

(4) In addition to meeting the applicable requirements in paragraph (c)(3) of this section,

products in product class (i) of that paragraph (i.e., split-system air conditioners) that are Deleted: Any such product, when
Deleted: after

Deleted:

, falls into

Deleted: class a particular

Deleted: is part of

Deleted: the

Deleted: are in

Deleted: classes of “Space

Deleted: products.” manufactured on or after January 1, 2015, and installed in the States of Alabama,

Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland,

Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, or Virginia,

or in the District of Columbia, shall have a Seasonal Energy Efficiency Ratio not less

than 14.

(5) In addition to meeting the applicable requirements in paragraphs (c)(3) of this section,

products in product classes (i) and (iii) of paragraph (c)(3) ( i.e. , split-system air

conditioners and single-package air conditioners) that are manufactured on or after

January 1, 2015, and installed in the States of Arizona, California, Nevada, or New

Mexico shall have a Seasonal Energy Efficiency Ratio not less than 14 and have an

Energy Efficiency Ratio (at a standard rating of 95 °F dry bulb outdoor temperature) not

less than the following:

507Product c lass Energy e fficiency r atio (EER) (i) Split

- system rated cooling capacity less than 45,000 Btu/hr 12.2

(ii) Split

- system rated cooling capacity equal to or greater than 45,000 Btu/hr 11.7

(iii) Single

- pa ckage systems 11. 0

(6) Central air conditioners and central air conditioning heat pumps manufactured on or

after January 1, 2015, shall have an average off mode electrical power consumption not

more than the following:

Product Class Average off mode power consumption P W,OFF (watts) (i) Split

- system a ir conditioners 3 0 (ii) Split

- system heat pumps 33 (ii i ) Single

- package air conditioners 3 0 (iv) Single

- package heat pumps 33 ( v ) Small

- duct, high

- velocity systems 3 0 (vi) Space

- constrained air conditioners 3 0 (vii) Space

- constrained heat pumps 33

* * * * *

(e) Furnaces and boilers.

(1) Furnaces

. (i) The Annual Fuel Utilization Efficiency (AFUE) of residential furnaces shall not be

less than the following for non-weatherized furnaces manufactured before May 1, 2013,

and weatherized furnaces manufactured before January 1, 2015:

508Product class AFUE (percent) 1 (A) Furnaces (excluding classes noted below) 78

(B) Mobile Home furnaces 75 (C) Small furnaces (other than those designed solely for installation in mobile homes) having an input rate of less than 45,000 Btu/hr (1) Weatherized (outdoor) 78 (2) Non

- weatherized (indoor) 78
1 Annual Fuel Utilization Efficiency, as determined in §430.23(n)(2) of this part.

(ii) The AFUE of residential non-weatherized furnaces manufactured on or after May 1,

2013, and weatherized gas and oil-fired furnaces manufactured on or after January 1,

2015 shall be not less than the following:

Product c lass AFUE (percent) 1 (A) Non

- weatherized g as furnaces (not including mobile home furnaces) 80

(B) Mobile Home gas furnaces 80 ( C ) Non

- weatherized o il

- fired furnaces (not including mobile home furnaces) 83

(D) Mobile H ome oil

- fired furnaces 75 (E) Weatherized gas furnaces 81 (F) Weatherized oil

- fired f urnaces 78 (G) Electric furnaces 78
1 Annual Fuel Utilization Efficiency, as determined in §430.23(n)(2) of this part.

(iii) In addition to meeting the applicable requirements in paragraph (e)(1)(ii) of this

section, products in product classes (A) and (B) of that paragraph ( i.e.

, residential nonweatherized gas furnaces (including mobile home furnaces)) that are manufactured on or

after May 1, 2013, and installed in the States of Alaska, Colorado, Connecticut, Idaho,

Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri,

Montana, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio,

509Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington, West

Virginia, Wisconsin, and Wyoming, shall have an AFUE not less than 90 percent.

(iv) Furnaces manufactured on or after May 1, 2013, shall have an electrical standby

mode power consumption (P W, SB ) and electrical off mode power consumption (P W,OFF )

not more than the following:

Product class Maximum s tandby mode electrical power consumption , P W, SB (watts) Maximum off mode electrical power consumption, P W, OFF (watts) (A) Non

- weatherized gas furnaces (including mobile home furnaces) 10 10

(B) Non

- weatherized oil

fired furnaces (including mobile home furnace s) 11 11

(C) Electric furnaces 10 10

* * * * *

510