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Printable Version 

Residential Furnaces 

Notice of Public 

Meeting Describing 

the Rulemaking 

Analysis Plan 

This page presents information 

on the Notice of Public Meeting 

(NOPM) and Rulemaking Analysis 

Plan developed as part of the 

current energy conservation 

standards rulemaking for 

residential furnaces. 

The U.S. Department of Energy 

(DOE) is required to publish a 

final rule amending energy 

conservation standards for 

residential furnaces no later than 

May 1, 2011. DOE is publishing 

this notice of public meeting 

(NOPM) to announce: (1) the 

availability of the Rulemaking 

Analysis Plan (RAP) document, 

which details the analytical 

framework, models, and tools 

that DOE will use for the 

purposes of amending energy 

conservation standards for 

residential furnaces; and (2) an 

informal public meeting to solicit 

feedback from interested parties 

on the proposals outlined in the 

RAP. 

DOE's comment period for the 

NOPM and Residential Furnaces 

Rulemaking Analysis Plan is open 

until 12:00 am EDT April 14, 

2010. 

Some of the following documents 

EERE Information Center 

Programs and Offices 

Appliances and Commercial Equipment Standards: Residential Furnaces Notice of Public... Page 1 of 4

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_ru... 3/25/2010

EE-2009-BT-STD-0022 DOC ID 1.2.001
are available as Adobe Acrobat 

PDFs. Download Adobe Reader. 

z Energy Conservation 

Standards for Residential 

Furnaces: Notice of Public 

Meeting and Availability of 

the Rulemaking Analysis 

Plan, Federal Register, 75 

FR 12144, March 15, 2010 

(PDF 78 KB) 

z Rulemaking Analysis 

Plan (PDF 757 KB) 

z Chapter 17 of the 

preliminary analysis 

Technical Support 

Document for central air 

conditioners and heat 

pumps details the regional 

standards impacts on 

market participants for 

residential furnaces and 

residential central air 

conditioners and heat 

pumps. (PDF 2.3 MB) 

z Public Meeting 

In the RAP, DOE specifically 

requests comments about a 

consensus agreement for 

residential central air conditioner, 

heat pump, and furnace 

standards. This agreement was 

submitted as a joint comment to 

DOE by the Air-Conditioning, 

Heating, and Refrigeration 

Institute, American Council for an 

Energy-Efficient Economy, 

Alliance to Save Energy, 

Appliance Standards Awareness 

Project, Natural Resources 

Defense Council, and Northeast 

Energy Efficiency Partnerships. 

The consensus agreement is 

available for review below. 

z Consensus Agreement: 

Joint Stakeholders 

Comments on Energy 

Conservation Standards for 

Residential Central Air 

Conditioners Heat Pumps 

and Residential Furnaces 

(PDF 408 KB) 

Appliances and Commercial Equipment Standards: Residential Furnaces Notice of Public... Page 2 of 4

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_ru... 3/25/2010

EE-2009-BT-STD-0022 DOC ID 1.2.001
How to Submit 

Comments 

All comments submitted must 

identify the Residential Furnaces 

Rulemaking, the docket number, 

and regulatory information 

number (RIN). 

z Energy Conservation 

Standard Rulemaking for 

Residential Furnaces: 

Docket Number EE-2009-

BT-STD-0022 and 

Regulatory Information 

Number (RIN) 1904–

AC06. 

Comments may be submitted 

using any of the following 

methods: 

z Federal eRulemaking 

Portal: 

http://www.regulations.gov

Follow the instructions for 

submitting comments. 

z E-mail: 

Energy conservation 

standard rule: ResFurnaces-2009-STD0022@ee.doe.gov. 

Please be sure to include 

docket number EE-2009-

BT-STD-0022 and RIN 

1904–AC06 in the subject 

line of the message. 

z Postal Mail: 

Ms. Brenda Edwards 

U.S. Department of Energy 

Building Technologies 

Program 

Public Meeting for 

Residential Furnaces, EE2009-BT-STD-0022 

1000 Independence 

Avenue, SW 

Mailstop EE-2J 

Washington, DC 20585-

0121 

Telephone: (202) 586-

2945 

Appliances and Commercial Equipment Standards: Residential Furnaces Notice of Public... Page 3 of 4

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_ru... 3/25/2010

EE-2009-BT-STD-0022 DOC ID 1.2.001
Building Technologies Program Home | EERE Home | U.S. Department of Energy

Webmaster | Web Site Policies | Security & Privacy | USA.gov 

Content Last Updated: 03/19/2010 

Please submit one signed 

paper original. 

z Hand Delivery/Courier: 

Ms. Brenda Edwards 

U.S. Department of Energy 

Building Technologies 

Program 

950 L'Enfant Plaza SW, 6th 

Floor 

Washington, DC 20024 

Telephone: (202) 586-

2945 

Please submit one signed 

paper original. 

Contact Information 

Mohammed Khan

Project Manager for Residential 

Furnaces 

(202) 586-7892 

Printable Version 

Appliances and Commercial Equipment Standards: Residential Furnaces Notice of Public... Page 4 of 4

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_ru... 3/25/2010

EE-2009-BT-STD-0022 DOC ID 1.2.001
Energy Conservation Standards 

for Residential Furnaces 

Rulemaking Analysis Plan 

RIN: 1904-AC06 

U.S. Department of Energy 

Office of Energy Efficiency and Renewable Energy 

Building Technologies Program 

March 11, 2010 

EE-2009-BT-STD-0022 DOC ID 1.2.001
RULEMAKING ANALYSIS PLAN 

FOR RESIDENTIAL FURNACES
 

Table of Contents 

I. Overview of the Rulemaking Analysis Plan.................................................................................2
 

A. Authority............................................................................................................................. 3
 

1. General............................................................................................................................ 3
 

2. Regional Standards ......................................................................................................... 5
 

3. Standby and Off Mode Energy Consumption................................................................. 6
 

B. Consensus Agreement ........................................................................................................ 7
 

C. Combined Rulemaking Approach ...................................................................................... 9
 

II. Rulemaking Analyses Overview and Proposed Methodology..................................................10
 

A. Regional Analysis............................................................................................................. 10
 

1. General Approach ......................................................................................................... 10
 

2. Regional Standards Enforcement.................................................................................. 13
 

B. Test Procedures................................................................................................................. 15
 

1. Annual Fuel Utilization Efficiency............................................................................... 15
 

2. Standby and Off Mode Energy Consumption............................................................... 16
 

C. Market and Technology Assessment ................................................................................ 20
 

1. Scope of Coverage ........................................................................................................ 20
 

2. Product Classes ............................................................................................................. 22
 

3. Market Assessment ....................................................................................................... 23
 

4. Technology Assessment................................................................................................ 24
 

D. Screening Analysis ........................................................................................................... 25 
 

E. Engineering Analysis........................................................................................................ 27
 

1. Overview and Approach ............................................................................................... 27
 

2. Representative Furnace Characteristics ........................................................................ 29
 

3. Baseline Units ............................................................................................................... 30 
 

4. Max-Tech Efficiency Level .......................................................................................... 31
 

5. Efficiency Levels for Analysis...................................................................................... 32
 

6. Teardown Analysis ....................................................................................................... 34
 

7. Manufacturer Selling Price ........................................................................................... 40
 

F. Markups to Determine Product Price................................................................................ 41
 

1. Description of Market Participants and Distribution Channels .................................... 41
 

2. Markup Estimation Using Financial Statements and Regression Analysis.................. 42
 

3. Potential Impacts of Regional Efficiency Standards in the Distribution Channels ...... 46
 

G. Energy Use Analysis ........................................................................................................ 48
 

1. Overview of Energy Use Analysis................................................................................ 48
 

2. Estimating Annual Energy Consumption of Furnaces.................................................. 49
 

H. Life-Cycle Cost and Payback Period Analyses ................................................................ 51
 

1. Overview....................................................................................................................... 51
 

2. Energy Prices ................................................................................................................ 54 
 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
3. Consumer Discount Rates............................................................................................. 55
 

4. Installation Costs and Maintenance and Repair Costs.................................................. 56
 

5. Product Lifetime ........................................................................................................... 56
 

6. Energy Efficiency in the Base Case.............................................................................. 57
 

I. Shipments Analysis............................................................................................................ 58
 

1. Base-Case Forecast ....................................................................................................... 58
 

2. Standards Impacts on Product Shipments (Standards-Case Forecast).......................... 60
 

J. National Impact Analysis................................................................................................... 62
 

1. Inputs to NES and NPV Analyses ................................................................................ 62
 

2. National Energy Savings............................................................................................... 64
 

3. Net Present Value of Consumer Benefit....................................................................... 65
 

4. Other National Impacts................................................................................................. 67
 

K. Life-Cycle Cost Subgroup Analysis................................................................................. 68
 

L. Manufacturer Impact Analysis.......................................................................................... 69
 

M. Utility Impact Analysis.................................................................................................... 71
 

N. Employment Impacts Analysis......................................................................................... 72
 

O. Environmental Impact Analysis ....................................................................................... 73
 

1. Carbon Dioxide (Power Plant Emissions) .................................................................... 73
 

2. Sulfur Dioxide (Power Plant Emissions) ...................................................................... 74
 

3. Nitrogen Oxides (Power Plant Emissions) ................................................................... 75
 

4. Mercury (Power Plant Emissions) ................................................................................ 76
 

5. Particulate Matter (Power Plant Emissions) ................................................................. 77
 

6. Site Emissions............................................................................................................... 78 
 

7. Monetization of Emissions Reduction Benefits............................................................ 78
 

P. Regulatory Impact Analysis.............................................................................................. 81
 

III. Issues on Which DOE Seeks Comment...................................................................................81
 

I. Overview of the Rulemaking Analysis Plan 

The purpose of the rulemaking analysis plan (RAP) is to describe the detailed analytical 

approaches DOE anticipates using to evaluate potential amended energy conservation standards 

for residential furnaces. The RAP is intended to inform interested parties of the analytical 

methods, data sources, and key assumptions DOE plans to use in its NOPR analyses. The RAP is 

the starting point for developing energy conservation standards and is not a definitive statement 

on any issue to be determined in the rulemaking. DOE will analyze each product class of 

residential furnaces to determine whether amended energy conservation standards are 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
 

technologically feasible, economically justified, and would result in significant energy savings. 

DOE will maintain information about this rulemaking on its website at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers.html. 

A. Authority 

1. General 

Title III of the Energy Policy and Conservation Act (EPCA) sets forth a variety of 

provisions designed to improve energy efficiency. Part A1

 of Title III (42 U.S.C. 6291-6309) 

establishes the Energy Conservation Program for Consumer Products Other Than Automobiles. 

The program covers consumer products and certain commercial equipment (referred to hereafter 

as "covered products”), including the residential furnaces that are subject to this rulemaking. (42 

U.S.C. 6292 (a)(5)) EPCA prescribed the initial energy conservation standards for residential 

furnaces. (42 U.S.C. 6295(f)(1)-(2)) The statute further provides DOE with the authority to 

conduct rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(f)(4)) 

EPCA provides criteria for prescribing amended standards for covered products. 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, EPCA precludes DOE from adopting any standard that would not 

result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) EPCA also provides that, 

in deciding whether a standard is economically justified, DOE must determine whether the 

1

 This part was originally titled Part B. It was redesignated Part A in the United States Code for editorial reasons. 

3 

EE-2009-BT-STD-0022 DOC ID 1.2.001
benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must do so after 

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

practicable, the following seven factors: 

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

subject to the standard; 

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

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

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

imposition of the standard; 

3.	 the total projected amount of energy (or, as applicable, water) savings likely to result 

directly from the imposition of the standard; 

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

from the imposition of the standard; 

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

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

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

7. other factors the Secretary considers relevant. 

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

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EE-2009-BT-STD-0022 DOC ID 1.2.001
2. Regional Standards 

a. General 

Section 306(a) of the Energy Independence and Security Act of 2007 (EISA 2007; Pub. 

L. 110-140) amended EPCA to allow DOE to consider the establishment of separate regional 

standards for furnaces. (42 U.S.C. 6295(o)(6)(A)) Specifically, EPCA allows for the 

establishment of a single more-restrictive regional standard in addition to the base national 

standard. (42 U.S.C. 6295(o)(6)(B)) EPCA stipulates that the regions must include only 

contiguous states (with the exception of Alaska and Hawaii, which can be included in regions 

that they are not contiguous with), and that each state may be placed in only one region (i.e., a 

state cannot be divided among two regions). (42 U.S.C. 6295(o)(6)(C)) 

EPCA mandates that a regional standard produce significant energy savings in 

comparison to a single national standard. Further, EPCA 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 will consider the impacts of regional standards in addition to national 

standards. Section II.A.1 of this document gives an overview of DOE’s proposed methodology 

for analyzing impacts of a regional standard for furnaces, and additional detail about DOE’s 

proposed approach is provided throughout this document in the applicable sections and 

subsections. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
b. Regional Standards Enforcement 

EPCA requires that DOE initiate a rulemaking to allow for the enforcement of regional 

standards not later than 90 days after the issuance of a final rule that sets regional standards. 

EPCA also states that “not later than 15 months after the date of the issuance of a final rule that 

establishes a regional standard for a product, the Secretary shall promulgate a final rule covering 

enforcement of regional standards for the product.” Further, EPCA states that “any rules 

regarding enforcement of a regional standard shall clearly specify which entities are legally 

responsible for compliance with the standards and for making any required information or 

labeling disclosures.” (42 U.S.C. 6295(o)(6)(G)) At this time, DOE considers EPCA’s 

enforcement requirements as separate from this furnaces standards rulemaking, and as such, 

DOE plans to address the enforcement requirements in a separate rulemaking. See section II.A.2 

of this document for details about the enforcement of regional standards. 

3. Standby and Off Mode Energy Consumption 

Section 310(3) of EISA 2007 amended EPCA to require that any new or amended energy 

conservation standard adopted after July 1, 2010 address standby mode and off mode energy use 

pursuant to 42 U.S.C. 6295(o). (42 U.S.C. 6295(gg)) Specifically, when DOE adopts new or 

amended standards for certain covered products after July 1, 2010, the final rule must, if justified 

by the criteria for adoption of standards in section 325(o) of EPCA, incorporate standby mode 

and off mode energy use into a single standard if feasible, or otherwise adopt a separate standard 

for such energy use for that product. (42 U.S.C. 6295(gg)(3)) Because the final rule for this 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
 

rulemaking is scheduled for issuance after July 1, 2010, DOE plans to address the standby mode 

and off mode energy use in this rulemaking. 

In a NOPR published on July 27, 2009 (Energy Conservation Program for Consumer 

Products: Test Procedures for Residential Furnaces and Boilers), DOE proposed modifications to 

the existing furnace test procedures to include the measurement of standby and off mode 

electrical use. 74 FR 36959. See DOE’s residential furnaces and boilers test procedures webpage 

for more information.2 For the furnaces energy conservation standards rulemaking that is the 

subject of today’s RAP, DOE intends to develop an analysis to consider new standards for 

standby and off mode electrical consumption to meet the requirements of EPCA as outlined in 

the paragraph above. For more details about DOE’s approach to considering standards for 

standby and off mode electrical consumption of residential furnaces, see section II.B.2 of this 

document. 

B. Consensus Agreement 

On January 15, 2010, the Air-Conditioning, Heating and Refrigeration Institute (AHRI), 

American Council for an Energy Efficient Economy (ACEEE), Alliance to Save Energy (ASE), 

Appliance Standards Awareness Project (ASAP), Natural Resources Defense Council (NRDC), 

and Northeast Energy Efficiency Partnerships (NEEP) submitted a joint comment to DOE 

recommending minimum energy conservation standards for residential central air conditioners, 

heat pumps, and furnaces. The original agreement was completed on October 13, 2009 and had 

2

 Available at: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnace_boiler_tp_nopr_mtg.html. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
15 signatories, including AHRI, ACEEE, ASE, NRDC, ASAP, NEEP, Northwest Power and 

Conservation Council (NPCC), California Energy Commission (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. The recommended minimum energy conservation standards for furnaces are 

shown in Table I.1. 

The consensus agreement recommends standards that divide the nation into three regions 

for residential central air conditioners and two regions for residential furnaces based on the 

population-weighted number of heating degree days (HDD) of each state. States with 5000 HDD 

or more are considered as part of the northern region, while states with less than 5000 HDD are 

considered part of the southern region. For residential central air conditioners, the consensus 

agreement establishes a third region – the “southwest” region – comprised of California, 

Arizona, New Mexico, and Nevada. For furnaces, the southwest region states are included in the 

southern region. The compliance date specified in the agreement is May 1, 2013 for nonweatherized furnaces and January 1, 2015 for weatherized furnaces. 

Table I.1 Consensus Agreement Proposed Minimum Energy Conservation Standards for 

Residential Furnaces 

System Type Proposed AFUE 

Requirement for States 

with ≥ 5000 HDD 

% 

Proposed AFUE Requirement 

for States with < 5000 HDD* 

% 

Non-weatherized Gas Furnaces 90 80 

Non-weatherized Oil Furnaces 83 83 

Gas-Packs (weatherized furnace) 81 81 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
* These states include Arizona, California, New Mexico, and Nevada, which were separated into the “southwest” 

region for residential central air conditioners. 

DOE invites comment from interested parties regarding the consensus agreement. In 

particular, DOE is interested in comments relating to the proposed AFUE requirements, the 

proposed regional divisions, and the proposed compliance dates for residential furnace standards. 

This is identified as issue 1 in section III of this document, “Issues for Which DOE Seeks 

Comment.” 

C. Combined Rulemaking Approach 

DOE is currently pursuing or planning separate standards rulemakings for three 

interrelated products: (1) central air conditioners and heat pumps; (2) gas furnaces; and (3) 

furnace fans. DOE is required by a Court-ordered consent decree to publish a final rule 

addressing the energy conservation standards for residential central air conditioners and heat 

pumps by June 30, 2011. A final rule published by DOE in November 2007 amending the 

minimum energy conservation standards for gas furnaces was remanded by the Courts to DOE 

under the mandate that DOE publish a new final rule by May 1, 2011. EISA 2007 amended 

EPCA to require that DOE publish a final rule establishing energy conservation standards for 

“the electricity used for purposes of circulating air through duct work” (i.e., the electrical energy 

consumed by furnace fans) by January 1, 2013. (42 U.S.C. 6295(f)(4)(D)) 

Rather than analyze each set of products separately, DOE is considering combining the 

analyses to examine how the interaction between the three products impacts the cost to 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
consumers, the energy savings resulting from potential amended standards, and other factors 

DOE is required to consider. If DOE conducts such an analysis and the results indicate that a 

combined approach yields additional savings beyond what can be achieved by considering each 

product separately, DOE may decide to pursue a combined standards rulemaking that addresses 

all three products, or two of the three products (i.e., central air conditioners and heat pumps and 

residential furnaces), simultaneously. If such a combined rulemaking is pursued, DOE would be 

required to publish the combined final rule by May 1, 2011 to comply with the conditions of the 

remand agreement for residential furnaces. DOE is seeking comment from interested parties 

relating to a combined rulemaking regarding energy conservation standards for residential 

central air conditioners and heat pumps, residential furnaces, and furnace fans. This is identified 

as issue 2 in section III, “Issues for Which DOE Seeks Comment.” 

II. Rulemaking Analyses Overview and Proposed Methodology 

A. Regional Analysis 

1. General Approach 

As described in section II.A.2 of this document, EISA 2007 amended EPCA to give DOE 

the authority to consider setting a regional standard level in addition to the national base standard 

level for furnaces. (42 U.S.C. 6295(o)(6)(A)) As a result, DOE is planning to assess the impacts 

of a regional standard in this furnace rulemaking. DOE intends to address the potential impacts 

from regional standards on the relevant NOPR analyses, including the mark-ups to determine 

product price, the life-cycle cost (LCC), the manufacturer impact analysis (MIA), and the 

national impact analysis (NIA). DOE’s proposed approach for addressing regional standards is 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
included in the methodology section corresponding to each individual analysis, below. For more 

information about DOE’s approach to developing regional standards, see sections II.G, II.H, II.I, 

II.J, and II.L of this document, where DOE’s approach is described in additional detail. 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 is 

not performing any additional regional analysis for the technology assessment and screening 

analysis. Similarly, DOE will not examine the impacts of having two regions in the engineering 

analysis, since the technologies and manufacturer processes are the same under both a national 

and regional standard. 

To evaluate regional standards for residential furnaces, DOE proposes to use the regions 

shown in Table II.1 below. The allocation of individual States to the regions is similar to the 

methodology DOE used in its evaluation of regional standards in the November 2007 final rule. 

The allocation used in the November 2007 final rule was approximately based on whether a 

State’s annual heating degree-days (HDD) average is above or below 5,000 HDD. 72 FR 65136, 

65146-65147 (November 19, 2007). This level roughly provides a 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. 

DOE is considering two changes from the November 2007 final rule methodology to 

establish regions. The first is moving Nevada from the Northern region to the Southern region 

and the second is moving West Virginia from the Southern region to the Northern region. This 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
change reflects the climate characteristics of these two states – West Virginia has on average 

more than 5000 HDD and Nevada’s major population areas have fewer than 5000 HDD. The 

considered changes would result in regional definitions that are the same as the regions defined 

in the consensus agreement. DOE is seeking comment from interested parties about the regions 

proposed in Table II.1. This is identified as issue 3 in section III of this RAP, “Issues on Which 

DOE Seeks Comment.” 

Table II.1 Proposed Regions for Regional Analysis in the Current Furnace Rulemaking 

Northern Region States Southern Region States 

Alaska Alabama 

Colorado Arizona 

Connecticut Arkansas 

Idaho California 

Illinois Delaware 

Indiana Dist. of Columbia 

Iowa Florida 

Kansas Georgia 

Maine Hawaii 

Massachusetts Kentucky 

Michigan Louisiana 

Minnesota Maryland 

Missouri Mississippi 

Montana Nevada 

Nebraska New Mexico 

New Hampshire North Carolina 

New Jersey Oklahoma 

New York South Carolina 

North Dakota Tennessee 

Ohio Texas 

Oregon Virginia 

Pennsylvania 

Rhode Island 

South Dakota 

Utah 

Vermont 

Washington 

West Virginia 

Wisconsin 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
Wyoming 

2. Regional Standards Enforcement 

DOE has not yet determined the enforcement mechanism for regional standards; 

however, DOE believes that an effective enforcement plan will likely be composed of multiple 

enforcement mechanisms. Among mechanisms DOE is considering are: 

1.	 appropriate modifications to appliance labels to indicate in which regions of the country 

specific products are allowed to be installed; 

2.	 requirements that marketing literature for systems clearly indicate in which regions a 

product could be legally installed; 

3.	 encouraging state and local entities to adopt these regional standards in building codes 

and to provide reference to the required minimum efficiencies in required mechanical or 

electrical permits; 

4.	 encouraging states who have regional appliance standards to adopt and codify the 

appropriate regional standards enacted by DOE; 

5.	 providing that installations that don’t meet regional standards could result in installers 

being subject to fines for each occurrence; 

6.	 requirements to certify compliance of installations through warranty registration or other 

registration means; 

7.	 an informational program so that consumers are made aware of any regional standards, 

what to look for in purchasing products, and what implications there would be for 

improper installation; and 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
8. competitively driven enforcement where manufacturers/distributors/contractors report 

other manufacturers/distributors/contractors whose actions result in installations not in 

compliance with Federal standards. 

Certain goals of any enforcement plan would be that it not unduly regulate interstate 

commerce or otherwise constrain where a product may be manufactured or through which states 

a product can be transported and that it not place undue financial burden on consumers, 

manufacturers, contractors, distributors, dealers or installers. While DOE believes that much of 

the liability for proper installation will inevitably lie with the installer, it also believes that 

manufacturers and distributors can play a role in enforcement through labeling and possibly 

providing data, such as ongoing statistics, regarding non-complying products sold for final 

installation in a given region. 

For the NOPR, as part of its analysis of regional impacts on distributors, dealers, 

contractors, and installers, DOE will analyze California’s Title 24 requirements and other extant 

state-level standards and consider the issues that have developed concerning their enforcement. 

DOE will also seek industry input on the viability of the above enforcement mechanisms, other 

mechanisms DOE should consider, and the extent to which these mechanisms would result in 

additional financial burdens to consumers, manufacturers, contractors, distributors, dealers, and 

installers. DOE will consider all comments related to enforcement of regional standards 

submitted before the issuance of an enforcement plan rulemaking. DOE specifically seeks data 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
 

on how, if at all, the enforcement options listed above would increase compliance or other costs. 

This is identified as issue 4 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

EPCA also gave DOE the authority to consider regional standards for residential central 

air conditioners and heat pumps. Chapter 17 of the residential central air conditioners 

preliminary TSD details doe's preliminary analysis on the potential impacts of regional standards 

on market participants other than manufacturers and consumers for residential air conditioners 

and heat pumps and residential furnaces. This chapter identifies the primary market participants, 

including distributors, contractors and general contractors, describes their basic business models 

and assesses how additional regional standards may impact those models. For more information 

on the regional standards analysis for both rulemakings, please see chapter 17 of the residential 

central air conditioner preliminary TSD, located on DOE’s website at 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/central_ac_hp.html 

B. Test Procedures 

1. Annual Fuel Utilization Efficiency 

EPCA defines the energy-efficiency descriptor for residential furnaces as AFUE. (42 U.S. 

C. 6291(22)(A)) AFUE is determined using test procedures prescribed pursuant to EPCA and 

based on the assumptions that: (1) all weatherized warm air furnaces are located outdoors, and 

(2) warm air furnaces that are not weatherized are located indoors, with all combustion and 

ventilation air being admitted through grills or ducts from the outdoors that do not communicate 

with air in the conditioned space. (42 U.S.C. 6291(22)(A)-(B)) DOE’s test procedures are 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
codified at 10 CFR part 430, Subpart B, App. N. The current test procedure for residential 

furnaces accounts for the fuel consumption in active mode, standby mode, and off mode, and the 

electrical consumption in active mode. The current test procedure does not capture the standby 

and off mode electrical energy consumption. 

2. Standby and Off Mode Energy Consumption 

a. EISA 2007 Requirements 

Section 310(3) of EISA 2007 amended EPCA to require that when DOE adopts new or 

amended standards for certain covered products after July 1, 2010, the final rule must, if justified 

by the criteria for adoption of standards in section 325(o) of EPCA, incorporate standby mode 

and off mode energy use into a single standard if feasible, or otherwise adopt a separate standard 

for such energy use for that product. (42 U.S.C. 6295(gg)(3)) Because the final rule for this 

rulemaking is scheduled for issuance after July 1, 2010, DOE plans to address the standby mode 

and off mode energy use in this rulemaking. 

b. Incorporation of Standby and Off Mode Electrical Energy Consumption into the 

DOE Test Procedure for Residential Furnaces 

In active mode, standby mode and off mode, residential furnaces can consume both 

electricity and fossil fuel. As stated previously, DOE must account for standby mode and off 

mode consumption of both types of energy in the residential furnaces final rule. In a NOPR 

published on July 27, 2009 (Energy Conservation Program for Consumer Products: Test 

Procedures for Residential Furnaces and Boilers), DOE tentatively concluded that the existing 

test procedures for residential furnaces and boilers already fully account for and integrate 

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standby mode and off mode fossil fuel energy consumption for gas-fired and oil-fired furnaces. 

In addition, DOE proposed modifications to the existing furnace test procedures (10 CFR Part 

430 Subpart B Appendix N) to include the measurement of standby and off mode electrical 

energy use of residential furnaces and boilers. 74 FR 36959 (July 27, 2009). 

DOE stated in the July 2009 NOPR that its existing AFUE test procedure, together with 

clarifying definitions of ‘‘active mode’’ and ‘‘standby mode,’’ provides a complete accounting 

of fossil fuel energy consumption during the entire heating season, because the test procedure’s 

on-cycle and off-cycle are essentially identical in meaning to EISA 2007’s ‘‘active mode’’ and 

‘‘standby mode,’’ respectively. 74 FR 36962. AFUE also accounts for the non-heating season 

fossil fuel energy consumption (e.g., pilot light non-heating energy consumption). Non-heating 

season directly relates to the EISA 2007 definition of ‘‘off mode.’’ Accordingly, DOE 

tentatively concluded in the July 2009 NOPR that the AFUE provides a full accounting of active, 

standby and off mode fossil fuel energy consumption pursuant to EISA 2007. 74 FR 36963. 

To include the measurement of standby and off mode electrical energy use, DOE 

proposed in the July 2009 NOPR to incorporate into the existing DOE test procedures for 

residential furnaces and boilers the International Electrotechnical Commission’s (IEC) Standard 

62301, Household electrical appliances—Measurement of standby power (First Edition 2005– 

06), as well as language to clarify application of this standard. 74 FR 36970. DOE also proposed 

to add definitions of standby mode and off mode for furnaces in section 2.0 of the current DOE 

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test procedure. Id. These amendments, if finalized, would add new methods to determine annual 

energy consumption associated with standby mode and off mode electrical use. 

DOE intends to use the test procedures and definitions outlined in the July 2009 NOPR in 

the furnace standards rulemaking to develop energy conservation standards for the standby mode 

and off mode energy consumption for residential furnaces pursuant to EPCA section 325(o). 

c. Metric for Standby and Off Mode Electrical Power Consumption 

 As mentioned previously, section 325(gg)(3)(A)(2) of EPCA mandates that “any final 

rule establishing or revising a standard for a covered product, adopted after July 1, 2010, shall 

incorporate standby mode and off mode energy use into a single amended or new standard, 

pursuant to subsection (o), if feasible.” If not feasible, the Secretary shall prescribe within the 

final rule a separate standard for standby mode and off mode energy consumption, if justified 

under subsection (o). (42 U.S.C. 6295(gg)(3)(B) For residential furnaces, EISA 2007 requires 

that DOE modify the existing efficiency metric (i.e., AFUE) to incorporate the standby and off 

mode electrical energy use into a single standard unless DOE determines it is not feasible. 

DOE has determined that incorporating standby and off mode energy consumption into a 

single standard for residential furnaces based on an amended AFUE efficiency metric is 

technically feasible. Therefore, pursuant to EISA 2007, DOE will develop a new, integrated 

annual fuel utilization efficiency metric, AFUEI. AFUEI will be a function of the active, standby, 

and off mode fossil fuel energy consumption and the standby and off mode electrical energy 

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consumption measurements attained using the DOE test procedure, and will serve as the 

efficiency descriptor for the energy conservation standards prescribed in this rulemaking. A 

detailed description of the integration of standby and off mode energy consumption into AFUEI 

will be described during the test procedure rulemaking process for residential furnaces and 

boilers, which is described on the DOE website: 

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_boilers.html 

As part of the test procedure rulemaking, interested parties can submit comments on the 

methodology used by DOE to incorporate standby and off mode electrical energy consumption 

into AFUEI. 

d. Methodology for Investigating Standby and Off Mode Electrical Power 

Consumption 

DOE will follow the DOE test procedure, as proposed, to measure the standby mode and 

off mode power consumption rates, PSB and POFF, respectively, for each furnace it tests. 

Specifically, to measure the standby mode electrical demand, PSB, DOE will execute the IEC 

Standard 62301 as proposed in the July 2009 NOPR. Although the proposals in the July 2009 

NOPR have provisions for those furnaces that have a seasonal off switch, DOE believes it is 

reasonable to assume that most consumers are unlikely to set their furnaces to the off mode. 

Hence, DOE is assuming that furnaces will be consuming electricity at their respective standby 

rates during all non-active mode hours, and, accordingly, POFF should be assumed to be 

equivalent to PSB. DOE requests comment on the validity of this assumption, which is identified 

as issue 5 in section III, “Issues on Which DOE Seeks Comment.” As part of this activity, DOE 

intends to test over 40 furnace models. The units selected for testing will be common and widely 

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available, come from multiple manufacturers, span the range of commercially-available 

efficiencies, and include a variety of features, such as the control components associated with 

single-stage or modulating burners and permanent split capacitor blower motor or electronically 

commutated blower motor. 

The AFUEI standards will be based on the test data, as well as data from the AHRI 

database and manufacturer specification sheets and any other pertinent data the DOE might 

receive. DOE seeks comment on all aspects of this approach to setting standards based on AFUEI 

to account for furnace standby and off mode energy consumption. This is identified as issue 6 in 

section III of this RAP, “Issues on Which DOE Seeks Comment.” 

C. Market and Technology Assessment 

1. Scope of Coverage 

EPCA defines a residential “furnace” as a product that (1) either utilizes only singlephase electric current, or utilizes single-phase electric current or DC current 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. 

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6291(23)) This definition covers several different types of products, including: (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). 

DOE is excluding combination space/water heating appliances from consideration in this 

rulemaking, as was done in the November 2007 final rule. DOE excluded these products from 

the November 2007 final rule because an adequate test procedure did not exist that would allow 

DOE to set minimum standards for these products. 71 FR 59204, 59214 (October 6, 2006). DOE 

will not consider such products as part of this rulemaking because DOE has not adopted a test 

procedure for combination appliances. 

 DOE also is not considering amending standards for any residential boiler product 

classes. Standards for residential boilers were recently amended by section 303(3) of EISA 2007 

and incorporated into EPCA. (42 U.S.C. 6295(f)(3)) As a result of the EISA 2007 standards for 

residential boilers, DOE issued a technical amendment final rule that codified those standards in 

the code of federal regulations (CFR) at 10 CFR part 430.32(e)(2)(ii). 73 FR 43611, July 28, 

2008. DOE considers the recently revised standards set by EISA 2007 as addressing the 

requirements of the remand for residential boilers, and thus is only considering residential 

furnaces in this rulemaking. 

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For residential furnaces, DOE is maintaining the same scope of coverage as the 

November 2007 rulemaking, which includes four product classes of furnaces (non-weatherized 

gas, weatherized gas, mobile home gas, and oil-fired non-weatherized). DOE is not considering 

amended standards for mobile home oil-fired furnaces and weatherized oil-fired furnaces 

because there are very few shipments of these products. DOE initially made this determination 

for the November 2007 final rule, and the market for mobile home oil furnaces and oil-fired 

weatherized furnaces has not changed. 71 FR 59204, 59214 (October 6, 2006). 

2. Product Classes 

DOE intends to separate residential furnaces into distinct product classes for this 

rulemaking. EPCA specifies the criteria for product class separation, as described in section 

II.A.1, which include: (1) the type of energy consumed; (2) capacity; or (3) other performancerelated features, considering the utility to the consumer and other factors deemed appropriate by 

the Secretary that would justify the establishment of a separate energy conservation standard. (42 

U.S.C. 6295(q)) 

Because the current residential furnaces market is not significantly different as compared 

to the market that existed for the November 2007 residential furnaces rulemaking in terms of the 

types of products available, DOE plans to continue the use of the product classes established for 

residential furnaces, which were developed during the previous rulemaking (i.e., those 

established for the November 2007 furnaces and boilers final rule). The November 2007 final 

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rule divided products by fuel type (gas versus oil-fired) and by efficiency related features, such 

as whether they were weatherized (i.e., intended for outdoor installation) or non-weatherized 

(i.e., intended for indoor installation). The November 2007 final rule also considered gas-fired 

mobile home furnaces as a separate product class due to the unique constraints (related to size 

and venting) that are placed on those products. Therefore, the product classes that DOE plans to 

consider in this rulemaking are: non-weatherized gas furnaces, weatherized gas furnaces, gasfired mobile home furnaces, and non-weatherized oil-fired furnaces. DOE is seeking comment 

on its planned product classes for this rulemaking. This is identified as issue 7 in section III of 

this RAP, “Issues on Which DOE Seeks Comment.” The current energy conservation standards 

for these products are codified at 10 CFR 430.32(e)(1)(i), and are also listed in Table II.3 of this 

RAP. 

3. Market Assessment 

As part of the market assessment, DOE will qualitatively and quantitatively characterize 

the structure of the furnaces market. DOE will identify and characterize the manufacturers of 

furnaces, estimate market shares and trends in the market, and address regulatory and nonregulatory initiatives impacting the market that are intended to improve the energy efficiency or 

reduce the energy consumption of residential furnaces. 

The market assessment phase allows DOE to gather data that will assist in identifying 

important issues later in the rulemaking, such as potential small business impacts, competitive 

disruptions, and other factors that may arise from enacting standards. For example, DOE will use 

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historical product shipments and prices as an indicator of future shipments and prices. Market 

structure data will be particularly useful for assessing competitive impacts as part of the 

manufacturer impact analysis. This phase also allows DOE to start identifying technologies 

commonly used for improving efficiency by reviewing product literature, industry publications, 

and company websites. 

DOE understands that there are considerable data available on manufacturers, market 

shares, and other information. Such data are essential to the development of technologically 

feasible, economically justified energy conservation standards. Interested parties are encouraged 

to submit any available, applicable data to DOE. DOE expects that feedback from interested 

parties, such as the Air Conditioning, Heating and Refrigeration Institute (AHRI, which is the 

trade association for manufacturers of furnaces), manufacturers, utilities, organizations 

promoting appliance energy efficiency, and other interested parties will play an important role in 

providing market information, including information on manufacturers, market shares, and 

trends in the market. 

4. Technology Assessment 

Typically, DOE uses information about existing and past technology options and 

prototype designs as input for identifying the technologies manufacturers could use to meet or 

exceed energy conservation standards. Based on the technologies considered in the previous 

rulemaking for residential furnaces and in consultation with interested parties, DOE intends to 

develop a complete list of technologies that should be considered in the analysis. Initially, this 

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list will include all those technologies considered to be technologically feasible and will serve to 

establish the maximum technologically feasible (max-tech) design. DOE intends to consider only 

technologies that will improve the AFUE as measured by DOE’s test procedure for residential 

furnaces in 10 CFR part 430, Subpart B, App. N, because these technologies would be the 

technologies manufacturers would most likely implement as a result of amended energy 

conservation standards. DOE will develop a list of technologies based on both technologies 

considered for the November 2007 final rule and feedback from interested parties. DOE is 

seeking comment on the technologies that should be considered for improving the energyefficiency of residential furnaces. This is identified as issue 8 in section III of this RAP, “Issues 

on Which DOE Seeks Comment.” 

D. Screening Analysis 

The purpose of the screening analysis is to screen out technologies that will not be 

considered further in the analysis. These “screened out” technologies will not be considered as 

possible methods of improving the efficiency of residential furnaces. Following development of 

the initial list of technologies (during the market and technology assessment), DOE will review 

and evaluate each technology based on the following four criteria, as specified by 10 CFR part 

430, subpart C, appendix A, 4(a)(4) and 5(b): 

1.	 Technological feasibility. DOE will consider technologies incorporated in commercial 

products or in working prototypes to be technologically feasible. 

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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 or equipment utility to consumers or availability. If DOE 

determines a technology would have a 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. 

DOE’s reasoning for eliminating any technologies from consideration during the 

screening analysis will be documented and published as part of the NOPR, and will be available 

for review and comment by interested parties. 

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E. Engineering Analysis 

1. Overview and Approach 

The engineering analysis estimates the cost-efficiency relationship, which is the cost of 

products at various levels of increased energy efficiency above the baseline efficiency (i.e., the 

minimum efficiency required by energy conservation standards). This relationship shows the 

changes in manufacturing costs that result from achieving increased efficiency and serves as the 

basis for the subsequent cost-benefit calculations in terms of individual consumers, 

manufacturers, and the Nation. In determining the cost-efficiency relationship, DOE will 

estimate the increase in manufacturer cost associated with the efficiencies available on the 

market and technologies that manufacturers could use to increase the efficiency of the covered 

products above the baseline efficiency (i.e., the minimum efficiency allowed by energy 

conservation standards). 

Residential furnace manufacturers structure their product lines around efficiency (this is 

particularly true for non-weatherized gas furnaces where manufacturers typically offer lower 

efficiency non-condensing products as well as high efficiency condensing products) and sell 

significant volumes of higher-efficiency products (i.e., condensing furnaces) to certain areas. 

Because of these market characteristics, it possible to determine the cost-efficiency relationship 

for residential furnaces largely by examining actual products in the marketplace instead of 

estimating the cost and performance of individual design options using theoretical models. 

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In the past, DOE has identified the following three methodologies to generate the 

manufacturing costs needed for the engineering analysis: (1) the design-option approach, which 

provides the incremental costs of adding to a baseline model design options that will improve its 

efficiency; (2) the efficiency-level approach, which provides the relative costs of achieving 

increases in energy efficiency levels, without regard to the particular design options used to 

achieve such increases; and (3) the cost-assessment (or reverse-engineering) approach, which 

allows for “bottom-up” manufacturing cost assessments for achieving various levels of increased 

efficiency, based on detailed data as to costs for parts and material, labor, shipping/packaging, 

and investment for models that operate at particular efficiency levels. 

DOE plans to conduct the engineering analysis for the residential furnaces NOPR by 

using a combination of the efficiency level approach and the cost assessment approach. The 

efficiency level approach will be used to identify the incremental improvements in efficiency 

that are achievable for each product, and the cost-assessment approach will be used to develop 

the manufacturing cost at each efficiency level. DOE will identify the most common residential 

furnace efficiencies during the market assessment and will determine the corresponding 

distinguishing technology features associated with those efficiency levels. After identifying the 

most common products that represent a cross section of the market, DOE plans to gather 

additional information through the reverse-engineering of existing products, product information 

from manufacturer catalogs, and discussions with residential furnace manufacturers. 

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Subsequently, DOE will generate a bill of materials (BOM) by disassembling multiple 

manufacturers’ products that span a range of efficiency levels for each of the four product 

classes. The BOMs will describe the product in detail, including all manufacturing steps required 

to make and/or assemble each part. DOE will use the BOMs to develop a cost model that will 

convert the BOMs and efficiency levels into manufacturer production costs (MPCs). By applying 

derived manufacturer markups to the MPCs, DOE will calculate the manufacturer selling prices 

(MSPs) and construct industry cost-efficiency curves. DOE’s proposed approach for the 

engineering analysis is described in further detail in the sections that follow. 

2. Representative Furnace Characteristics 

For this analysis, DOE plans to examine furnaces that have characteristics that are 

representative of most furnaces currently available on the market. In the analysis for the 

November 2007 final rule, DOE identified several characteristics common to baseline furnaces. 

DOE began its investigation with the representative characteristics identified in the 2007 

rulemaking. However, DOE’s preliminary research has shown that a few product characteristics 

have changed. Common furnace characteristics for each product class are shown in Table II.2. 

DOE seeks comment from interested parties about the most commonly incorporated 

characteristics of residential furnaces. This is identified as issue 9 in section III of this RAP, 

“Issues on Which DOE Seeks Comment.” 

Table II.2 Characteristics of Representative Residential Furnaces 

Product Class 

Input 

Capacity 

Btu/h 

Configuration Heat Exchanger 

Type Ignition Draft 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
NonWeatherized 

Gas Furnaces 

75,000 Upflow Clamshell/Tubular Hot 

Surface Induced 

Weatherized 

Gas Furnaces 75,000 Horizontal Clamshell/Tubular Hot Surface Induced 

Mobile Home 

Gas Furnaces 80,000 Downflow Clamshell/Tubular Hot Surface Natural 

NonWeatherized 

Oil Furnaces 

105,000 Upflow Drum Intermittent 

Ignition Forced 

3. Baseline Units 

DOE will select a baseline model as a reference point for each product class, against 

which it can estimate changes manufacturers will likely implement to improve efficiency 

performance as the result of more stringent energy conservation standards. The baseline model in 

each product class represents the typical characteristics of minimally efficient products in that 

class. DOE will use the baseline models in the engineering analysis, and the LCC and payback 

period (PBP) analyses. To determine energy savings and changes in MSP, DOE will compare 

each higher-efficiency level against the baseline efficiency in each product class. DOE will select 

a baseline model for each product class that just meets current energy conservation standards for 

that class. 

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 (see Table 

II.3). DOE will consider the current Federal standard levels to represent the baseline efficiency in 

each product class (i.e., the levels shown in Table II.3). The minimum standard levels are 

specified in terms of AFUE. 

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DOE seeks comment on what is the industries’ typical baseline design for residential 

furnaces that are currently on the market in each product class. This is identified as issue 10 in 

section III of this RAP, “Issues on Which DOE Seeks Comment.” 

Table II.3 Existing Residential Furnace Standards 

Product Class Minimum AFUE Rating 

% 

Furnaces (excluding the other furnace classes 

listed) 

78 

Mobile Home Furnaces 75 

Weatherized Small Furnaces (input capacity < 

45,000 Btu/h) 

78 

Non-weatherized Small Furnaces (input capacity 

< 45,000 Btu/h) 

78 

4. Max-Tech Efficiency Level 

The “max-tech” efficiency levels are the maximum technologically feasible efficiency 

levels possible for each product class. As required by 325(o) of EPCA, DOE will determine the 

max-tech efficiency level for each residential furnace product class. (42 U.S.C. 6295(o)) DOE 

has tentatively identified the max-tech efficiency levels as being the highest efficiencies on the 

market at the representative capacities. Table II.4 shows the max-tech efficiency levels for the 

representative capacities in each product class that DOE plans to consider in the NOPR analysis. 

DOE is seeking comment from interested parties on these efficiency levels. In particular, DOE is 

seeking any data or information regarding prototype designs that may be capable of allowing 

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furnaces to achieve AFUE values above those identified in Table II.4. This is identified as issue 

11 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

Table II.4 Max-tech Efficiency Levels 

Product Class Max-tech AFUE 

% 

Non-weatherized Gas 97.5 

Weatherized Gas 81 

Mobile Home Gas 95.5 

Non-weatherized Oil-fired 97 

5. Efficiency Levels for Analysis 

For each residential furnace product class, DOE intends to analyze both the baseline and 

max-tech efficiency level, as well as several efficiency levels between those levels. DOE will 

choose efficiency levels between the baseline and max tech levels for each product class that are 

the most commonly available efficiencies on the market as determined in the market assessment. 

The efficiency levels DOE plans to analyze for each product class are shown in Table II.5 

through Table II.8. DOE requests comment about the proposed efficiency levels for analysis for 

each product class. Specifically, DOE seeks information about any additional efficiencies or 

technologies that should be analyzed that may not be captured in the efficiency levels DOE is 

proposing. Additionally, DOE is requesting comments about whether any of the efficiencies 

proposed for the analysis will capture the same or very similar technologies, and thus be 

repetitive of one another, in which case DOE may not need to analyze both efficiency levels. 

This is identified as issue 12 in section III of this RAP, “Issues on Which DOE Seeks 

Comment.” 

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Table II.5 Efficiency Levels for Analysis for Non-weatherized Gas Furnaces 

Efficiency Level AFUE 

% 

0 – Baseline 78 

1 80 

2 90 

3 92 

4 93 

5 95 

6 – Max-tech 97.7 

Table II.6 Efficiency Levels for Analysis for Weatherized Gas Furnaces 

Efficiency Level AFUE 

% 

0 – Baseline 78 

1 79 

2 80 

3 – Max-tech 81 

Table II.7 Efficiency Levels for Analysis for Mobile Home Furnaces 

Efficiency Level AFUE 

% 

0 – Baseline 75 

1 80 

2 90 

3 92 

4 93 

5 – Max-tech 95.5 

Table II.8 Efficiency Levels for Analysis for Non-weatherized Oil-fired Furnaces 

Efficiency Level AFUE 

% 

0 – Baseline 78 

1 80 

2 83 

3 84 

4 85 

5 – Max-tech 97 

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6. Teardown Analysis 

The term “teardown analysis” describes DOE’s process of estimating the manufacturer 

production costs of products through reverse-engineering (i.e., physically disassembling the 

products and examining existing product designs). The availability of a large number of 

residential furnaces across a wide range of efficiencies will allow DOE to consider the 

technologies most commonly used by manufacturers to improve the energy-efficiency of their 

products. The teardown analysis approach allows DOE to accurately estimate the manufacturers’ 

cost of production. DOE will purchase and disassemble furnaces across a range of efficiencies in 

each product class, and characterize each furnace component according to its weight, 

dimensions, material, quantity, and the manufacturing processes used to fabricate and assemble 

it. The result of each teardown will be a detailed BOM that DOE will use as an input to the cost 

model. 

A supplementary method to the “physical teardown” is a “virtual teardown,” which uses 

published manufacturer catalogs and supplementary component data to estimate the physical 

differences between a product that was physically disassembled and a similar product that was 

not. DOE may perform “virtual teardowns” of products that differ from a physical teardown unit 

in ways that are easily identifiable and quantifiable in manufacturer literature. 

For the teardown analysis DOE plans to include 43 “physical teardowns” and may 

include additional “virtual teardowns,” as needed to supplement the analysis of residential 

furnaces. 

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a. Selection of Units 

In the process of selecting units for teardowns, DOE intends to identify and select 

representative units across the entire range of efficiencies that are currently available to 

consumers. To the extent possible, all major efficiency levels and technologies will be captured 

in the selection of models for teardown analysis. Each product class will be considered 

separately. 

Teardown units must be representative of the product class, and as such the input 

capacities of the teardown units will be chosen as close as possible to the representative input 

capacity and characteristics for each respective product class (see section II.E.2). DOE will also 

require that teardown units are manufactured in considerable volume, are commonly available, 

and have the most popular features. 

In addition to the criteria specified in the paragraph above, DOE also adopted more 

specific criteria to guide the selection process. In order to understand incremental manufacturing 

costs in improving efficiency, products chosen for teardowns should be from the same 

manufacturer and product series to the extent possible. This minimizes the cost effects of nonefficiency-related design differences between models. The manufacturers that are chosen will 

have large market shares of the particular product class. An exception to this criterion may be 

made for the highest efficiency product (or max-tech product) in each product class because it 

will be chosen for teardown analysis irrespective of manufacturer. DOE will also attempt to 

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minimize the differences in non-efficiency-related features across the range of efficiency levels 

for products in the same product class. The selections will minimize the occurrence of nonefficiency-related premium features, which could over-inflate the incremental manufacturing 

cost of achieving higher-efficiency levels. 

Because the large majority of residential furnace shipments fall into the non-weatherized 

gas product class, DOE will focus heavily on non-weatherized gas-fired furnaces. As a result, 

DOE plans to select units for teardown that will include approximately 25 non-weatherized gasfired furnaces, 4 weatherized gas-fired furnaces, 6 mobile home gas-fired furnaces, and 8 nonweatherized oil-fired furnaces. The models for teardown that DOE plans to select are described 

in more detail below. DOE invites comment from interested parties about the teardown selection 

criteria. This is identified as issue 13 in section III of this RAP, “Issues on Which DOE Seeks 

Comment.” 

i. Non-Weatherized Gas Furnaces 

As mentioned above, non-weatherized gas-fired furnaces represent the vast majority of 

the furnace market. Therefore, DOE’s teardown analysis will include 25 models that are 

representative of the efficiency levels and technology options available for these types of 

furnaces on the market. Residential furnace manufacturers typically offer products in two distinct 

efficiency ranges: non-condensing (i.e., efficiencies between 78-percent and 82-percent AFUE) 

which make up approximately 57 percent of the market, based on the distribution of models in 

the AHRI residential furnace directory, and condensing (i.e., at or above 90-percent AFUE) 

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which make up approximately 43 percent of the residential furnace market, based on the 

distribution of models in the August 2009 AHRI residential furnace directory. Whenever 

possible, DOE will select the least efficient and the most efficient units in the given efficiency 

range. DOE plans to select seven units for teardown analysis in the non-condensing range (at or 

near 80-percent AFUE) and 18 in the condensing range (ranging from 90-percent to 97.7-percent 

AFUE). 

Some manufacturers produce products with very basic design and construction 

differences that do not appear to have a significant impact on the overall efficiency of the 

furnaces. To examine the potential effects of common design differences (such as tubular versus 

clamshell heat exchangers) on MPC at different efficiencies, DOE will select products from 

different manufacturers that contain different design approaches. This will allow DOE to develop 

the manufacturing production costs for both design approaches. DOE can then use a marketshare weighted-average cost of the designs to develop an overall industry cost-efficiency 

relationship. 

ii. Weatherized Gas Furnaces 

According to the certified ratings in the August 2009 AHRI directory, manufacturers of 

weatherized gas-fired furnaces offer products between 78-percent and 81-percent AFUE. DOE 

plans to select four representative units to analyze across the entire range of available 

efficiencies. The selected units will span the full efficiency range available at the representative 

input capacity for this product class. 

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Manufacturers typically sell weatherized furnaces as “packaged” units, meaning the unit 

includes both a furnace and an air conditioner together in a single package. Contractors typically 

install packaged units outside of a residence. The weatherized gas furnace units that DOE will 

select for the teardown analysis are paired with air conditioners at a three-ton capacity, which is 

the representative cooling capacity for residential central air conditioners. 

iii. Mobile Home Gas Furnaces 

Mobile home gas-fired furnace manufacturers offer products at the representative input 

capacity at several efficiency levels spanning a range from 80-percent to 95.5-percent AFUE. 

DOE intends to select six units for the teardown analysis across the range of efficiencies. 

iv. Non-weatherized Oil-fired Furnaces 

Manufacturers of non-weatherized oil-fired furnaces typically offer products between 78-

percent and 97-percent AFUE. At or near the representative input capacity, available AFUEs 

range from 78.8 percent to 97 percent. DOE plans to perform a teardown analysis on eight units, 

spanning the available efficiency range. 

b. Scaling to Other Input Capacities 

DOE recognizes that there is a large variation in the input capacity rating of residential 

furnaces beyond the representative input capacity, which causes large variations in manufacturer 

production costs. To account for this variation, DOE plans to analyze additional common input 

38 

EE-2009-BT-STD-0022 DOC ID 1.2.001
capacities (as determined by the market assessment) for the largest class of residential furnaces, 

non-weatherized gas furnaces. DOE will perform 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 will allow DOE to 

accurately model certain characteristics that are not identifiable in manufacturer literature. DOE 

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. DOE seeks comment on the appropriateness of the 

additional input capacities that will be analyzed. This is identified as issue 14 in section III of 

this RAP, “Issues on Which DOE Seeks Comment.” 

c. Cost Model 

The end result of each teardown will be a structured BOM. DOE will develop structured 

BOMs for each of the physical and virtual teardowns. The BOMs will 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. DOE will create a Microsoft Excel spreadsheet (i.e., the Cost 

Model) that converts the materials and components in the BOMs into dollar values based on the 

price of materials, labor rates associated with manufacturing and assembling, and the cost of 

overhead and depreciation. Thus, this spreadsheet will model the cost for a manufacturer to 

produce a residential furnace. To convert the information in the BOMs to dollar values for the 

NOPR analysis, DOE will collect information on labor rates, tooling costs, raw material prices, 

39 

EE-2009-BT-STD-0022 DOC ID 1.2.001
and other factors. For purchased parts, the cost model will estimate 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) will be 

estimated based on 5-year average prices. The cost of transforming the intermediate materials 

into finished parts will be estimated based on industry pricing at the time of the analysis. 

7. Manufacturer Selling Price 

DOE plans to apply a non-production cost multiplier (i.e., a manufacturer markup) to the 

full MPC to account for corporate non-production costs and profit. The resulting manufacturer 

selling price (MSP) is the price at which the manufacturer can recover all production and nonproduction 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. 

For the residential furnaces NOPR, DOE plans to estimate the manufacturer markup from 

publicly available financial information (e.g., Securities and Exchange Commission (SEC) 10-K 

reports). Then, DOE intends to apply the calculated manufacturer markup to the MPC to derive 

the MSP. 

40 

EE-2009-BT-STD-0022 DOC ID 1.2.001
In the analysis for the November 2007 final rule, DOE used a manufacturer markup of 

1.26, which resulted from a combination of DOE’s analysis of SEC 10-K reports and an effort to 

be consistent with the central air conditioner rulemaking (for more information see chapter 5 of 

the November 2007 final rule TSD). DOE invites comment from interested parties about whether 

the manufacturer markup used in the previous analysis is still applicable for this analysis. This is 

identified as issue 15 in section III of this NOPM, “Issues on Which DOE Seeks Comment.” 

F. Markups to Determine Product Price 

The LCC and PBP analyses require among their inputs: (1) the price consumers pay for 

baseline products, and (2) the incremental prices consumers would pay to purchase more 

efficient products that meet a given energy conservation standard. DOE uses distribution chain 

markups to convert the manufacturer selling price from the engineering analysis to consumer 

prices. 

1. Description of Market Participants and Distribution Channels 

Before developing markups, DOE must first define all market participants and identify 

distribution channels. Generally, the furnace distribution chain includes six market participants: 

(1) distributors; (2) dealers; (3) general contractors; (4) mechanical contractors; (5) installers; 

and (6) builders. Based on comments regarding the similarities of market participants, DOE will 

consider three distinct categories of market participants: “distributors,” “mechanical 

contractors,” and “general contractors.” The category of “mechanical contractors” includes 

dealers and installers. The category of “general contractors” also includes builders. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
Distributors receive shipments from manufacturers and resell the products at a markup to 

contractors. No other participant in the channel carries significant inventory, so distributors 

absorb imbalances between manufacturer supply and consumer demand. 

Most contractors compete at the local level and the majority of them are small businesses. 

Many contractors carry products made by more than one manufacturer. Contractors interface 

with the end-user: installing new furnace systems to their specifications as well as inspecting, 

servicing, or repairing the existing system. In the residential furnace market, contractors sell 

products as part of an installation package and do not list retail product prices separately from 

installation cost. Furthermore, differences in local markets, weather conditions, and many other 

factors can affect the price contractors charge for furnaces. 

Most residential furnaces pass through the following distribution channel: the original 

equipment manufacturer (OEM) assembles the system and sells it to a distributor; the distributor 

sells the unit to a contractor; the contractor sells the unit to the final end-user and performs the 

installation. After installation, the contractor performs all service on the system, including 

inspection, maintenance, and repair. 

2. Markup Estimation Using Financial Statements and Regression Analysis 

DOE will determine typical markups in the distribution chain using publicly-available 

corporate and industry data. DOE will rely on Economic Census data from the United States 

42 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

Census Bureau3

 and input from industry trade associations such as the Heating, AirConditioning, and Refrigeration Distributors International (HARDI) to define how furnaces are 

marked up from the manufacturer to the consumer. 

Along the distribution chain, companies mark up the price of products to cover their 

business costs and profit margin. In financial statements, gross margin is the effective markup on 

a company's cost of goods sold (CGS). It includes all corporate overhead costs; sales, general 

and administration costs; research and development, interest expenses; depreciation and taxes; 

and profits. For sales of a product to contribute positively to company cash flow, its markup must 

be greater than the corporate gross margin less the company's operating profit margin. 

To estimate markups, DOE categorizes expenses into two categories: labor-scaling costs 

(LSC), which are fixed labor and occupancy expenses that increase in proportion to the amount 

of labor required to produce or sell the product; and non-labor-scaling costs (NLSC), which are 

variable operating costs that do not scale with labor and vary in proportion to CGS. Together, 

LSC and NLSC represent the gross margin. 

DOE develops baseline and incremental markups to transform the manufacturer selling 

price into a consumer product price. DOE uses the baseline markups, which cover all of a 

distributor or contractor’s costs, to determine the sales price of baseline models. DOE considers 

3

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

43 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

 

baseline models to be products sold without new energy conservation standards. DOE calculates 

the baseline markup (MUBASE) using the following equation: 

MU BASE  CGS 

 GMCGS  CGS 

CGS 

 ( LSC  NLSC) 

Where: 

MUBASE = Baseline markup, CGS =Cost of goods sold, GM =Gross margin, LSC =Labor-scaling 

costs, and NLSC =Non-labor-scaling costs. 

Incremental markups are coefficients that relate the change in the manufacturer sales 

price of higher-efficiency models to the change in the final sales price. Incremental markups 

cover only those costs that scale with a change in the manufacturer’s sales price (i.e., NLSC). 

DOE considers higher-efficiency models to be products sold under market conditions with new 

or amended standards. It calculates the incremental markup (MUINCR) using the following 

equation: 

CGS  NLSC MU INCR  CGS 

Where: 

MUINCR = Incremental markup, CGS =Cost of goods sold, and NLSC =Non-labor-scaling costs. 

Because detailed financial data is not available for general and mechanical contractors, 

DOE relies on an alternative method of markup estimation. Using U.S. Economic Census data on 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
 

 

 

the value of construction, cost of materials, payroll costs, and cost of subcontracted work, DOE 

calculates the baseline markup for contractors using the following equation: 

VCONSTRUCT MU BASE  Pay  MatCost  SubCost 

Where: 

MUBASE  Baseline contractor markup, VCONSTRUCT  Value of construction, Pay  Payroll, 

MatCost  Cost of materials, and SubCost  Cost of subcontracted work. 

DOE estimates the incremental contractor markup using regression analysis of per firm 

revenue on per firm cost of goods sold and payroll, estimating the coefficients for the equation: 

Ri  CGSi  Payi 

Where: 

Ri = Revenue of firm i, CGSi Cost of goods sold of firm i, and, Payi  Payroll of firm i. 

The coefficient  is an estimate of the incremental builder markup. 

The overall markups will include an average multiplier to account for any sales tax 

applied at the last stage of the distribution channel. The State Tax Clearinghouse4

 is an Internet 

source that DOE intends to use to calculate applicable sales taxes. 

4

 Sales Tax Clearinghouse, Inc., State sales tax rates along with combined average city and county rates. Available 

at: http://thestc.com/STrates.stm. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
3. Potential Impacts of Regional Efficiency Standards in the Distribution Channels 

Market participants in the residential furnace distribution chain are often represented by 

the same trade associations as those in the central air conditioning and heat pump distribution 

chain. For the current central air conditioner and heat pump standards rulemaking, DOE 

conducted limited interviews with distributors and contractors, and sought comment regarding 

the potential impacts of regional standards as they relate to these products. Commenters noted 

that distributors and contractors of central air conditioner and heat pumps also service furnaces 

and face very similar issues with respect to regional standards. 

The distributors were concerned that possible disparities between the regional boundaries 

for standards and existing distribution boundaries may prove problematic. Distributors stated that 

regional standards may be defined based on geographic boundaries composed of state lines, 

which are usually different than the boundaries of markets for heating and cooling products. 

Additionally, distributors were concerned about the possible impact of regional standards on the 

efficiency of the distribution chain, and ultimately, their ability to control costs. National and 

regional distributors stated that they would face decreases in their economies of scale, which 

currently affect products that can be stocked and sold nationwide. They stated that if certain 

products could not be sold throughout the entire country, then the cost of those products in the 

regions where they could be sold would be driven up. They added that distributors that service 

areas that overlap borders between regions would be particularly affected, as their costs would 

increase due to the more complex and diverse inventories. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
Based on the above interviews and its own preliminary market assessment, DOE believes 

there are two main ways in which regional standards could impact furnace distributors and 

contractors. First, because some distributors close to borders of regions may sell products in 

more than one region, complying with standards that differ across regions may cause these 

distributors to carry a different mix of inventory to fill orders in each region. The inventory 

management costs could increase or the overall investment in inventory could increase. Second, 

EISA 2007 allows for regional standards to be enforced at the installation level, in addition to the 

existing enforcement of national efficiency standards at the manufacturer level. As a 

consequence, there likely would be new compliance costs for distributors and contractors, 

involving at a minimum additional record-keeping and reporting. 

Based on its current assessment of the market, DOE believes that any additional costs 

that regional standards may impose on furnace distributors and contractors would be reflected by 

a change in the markups used by these entities. In its analysis of regional standards, DOE plans 

to estimate changes in markups based on an assessment of (1) the inventory that would likely be 

carried in various geographic areas (South, North, and border areas), and (2) the potential costs 

of enforcement requirements. 

DOE seeks further comment regarding the potential impact of regional standards on 

furnace distributors, contractors, and other installers, such as individual homeowners. DOE also 

seeks comment on how, if at all, impacts of regional standards on furnace distributors and 

contractors will be different than those in the central air conditioner and heat pump market. In 

47 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

 

addition, DOE is seeking market data that will assist in the identification and analysis of the 

impacts of regional standards on furnace distributors and contractors. This is identified as issue 

16 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

G. Energy Use Analysis 

1. Overview of Energy Use Analysis 

The purpose of the energy use analysis is to determine the annual energy consumption of 

residential furnaces in representative U.S. homes and to assess the energy-savings potential of 

increased product efficiencies. DOE will estimate the annual energy consumption of residential 

furnaces at specified energy efficiency levels across a range of climate zones. The annual energy 

consumption includes use of natural gas or oil for heat production as well as use of electricity for 

the blower and auxiliary components. The annual energy consumption of residential furnaces 

will be used in subsequent analyses, including the LCC, PBP, and National Impact Analyses. 

In its rulemaking for residential furnaces that ended in 2007, DOE used data from the 

Energy Information Administration’s (EIA) Residential Energy Consumption Survey (RECS)5

 to 

determine the energy consumption of households using the covered products. Specifically, DOE 

used the 2005 version of the RECS, which was the most current survey available at that time. 

DOE will use data from the 2005 RECS for the current rulemaking as well, because it is still the 

most recent available survey. The 2005 RECS is based on a sample of 4,382 households 

statistically selected to represent 111 million housing units in the United States. RECS data are 

5

 See http://www.eia.doe.gov/emeu/. 

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EE-2009-BT-STD-0022 DOC ID 1.2.001
available for the four Census regions, the nine Census divisions, and the four most populous 

States: California, Florida, New York, and Texas. 

RECS survey data provide information on the age of the products, as well as associated 

energy use in residential housing units in the United States. The survey includes information on 

the physical characteristics of housing units, demographic characteristics of households, heating 

and cooling products used, fuels used, energy consumption and expenditures, and other data on 

residential characteristics. 

From RECS, DOE will develop household samples for each product class. Details on 

how DOE will use RECS to determine the annual energy consumption of residential furnaces are 

provided below. DOE plans to use the household samples not only to establish each product’s 

annual energy consumption, but also as the basis for conducting the LCC and PBP analysis (see 

section 8). 

2. Estimating Annual Energy Consumption of Furnaces 

As indicated above, DOE intends to use the RECS data to estimate the annual energy 

consumption of residential furnaces used in existing homes. Furnace energy efficiencies in 

existing homes will be based primarily on data from the 2005 RECS as well. To estimate the 

annual energy consumption of furnaces meeting higher efficiency levels, DOE will calculate 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 estimates the product’s 

49 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

 

annual energy consumption from the household’s utility bills using conditional demand analysis. 

DOE will estimate 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 will be determined using the furnace vintage6

 from RECS and 

data on the market share of condensing furnaces published by AHRI.7 

DOE will then use the house heating load to calculate the burner operating hours, which 

is needed to calculate the fuel consumption and electricity consumption using the current version 

of the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 

test procedure SPC 103-2007 section C. To calculate blower electricity consumption, DOE plans 

to take into account field data 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 will be adjusted based on 30-year average heating degree-day (HDD) data 

for the specific Census Division or the large State location. In addition, DOE will make 

adjustments to the house heating load based on information indicating that housing units in the 

year in which compliance with the amended standards is expected to be required will have a 

somewhat different heating load than the housing units in the RECS 2005. The adjustment 

considers projected improvements in building thermal efficiency (due to improvement in home 

insulation and other thermal efficiency practices) and increases in house floor area between 2005 

6

 The term “vintage” refers to the year of installation of the product in question. 

7

 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 

EE-2009-BT-STD-0022 DOC ID 1.2.001
and the effective date of the standards. DOE will apply this adjustment to both the replacement 

and new construction market using data from EIA’s AEO 2010 residential sector forecast as well 

as data from RECS 2005 and American Housing Survey (AHS 2009). 

DOE seeks stakeholder input on the planned approach of using RECS data for 

determining the energy consumption of residential furnaces in residential buildings. This is 

identified as issue 17 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

DOE also plans to consider the “rebound effect” in its determination of annual energy 

consumption. A rebound effect occurs when a product that is made more efficient is used more 

intensively, so that the expected energy savings from the efficiency improvement may not fully 

materialize. Based on limited research, the rebound effect for residential space heating appears to 

be highly variable, ranging from 10 to 30 percent (i.e., 70 to 90 percent of the expected energy 

savings from more efficient products will actually occur). DOE seeks comments on the rebound 

effect that may be associated with more efficient residential furnaces. This is identified as issue 

18 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

H. Life-Cycle Cost and Payback Period Analyses 

1. Overview 

Energy conservation standards affect products’ operating expenses—usually decreasing 

them—and consumer prices for the products—usually increasing them. DOE analyzes the effect 

of amended standards on consumers by evaluating changes in the LCC of owning and operating 

51 

EE-2009-BT-STD-0022 DOC ID 1.2.001
the product, as well as the payback period of higher-efficiency products. To evaluate changes in 

LCC, DOE used the manufacturer costs derived in the engineering analysis, along with the 

energy costs derived from the energy use characterization. The LCC and PBP analyses consider 

the same efficiency levels developed in the engineering analysis. Inputs to the LCC calculation 

include the installed cost of a product to the consumer (consumer purchase price plus installation 

cost), operating expenses (energy expenses and maintenance costs), the lifetime of the unit, and a 

discount rate. 

Because the installed cost of a product typically increases while operating cost typically 

decreases in response to new standards, there is a time in the life of products having higher-thanbaseline efficiency when the net operating-cost benefit (in dollars) since the time of purchase is 

equal to the incremental first cost of purchasing the higher-efficiency product. The length of time 

required for the appliance to reach this cost-equivalence point is known as the payback period. 

DOE considers both LCC and PBP to determine the impacts of potential energy 

conservation standards on consumers of the covered products. However, because calculation of 

LCC uses a discount rate (that depends on consumers’ cost of financing) and takes into account 

changing energy prices over time, it is considered by DOE to be a better indicator of the 

economic impacts of standards on consumers. 

DOE will perform the LCC and PBP analyses using a spreadsheet model combined with 

Crystal Ball (a commercially available software add-on program to Microsoft Excel to conduct 

52 

EE-2009-BT-STD-0022 DOC ID 1.2.001
stochastic analysis using Monte Carlo simulation and probability distributions) to account for 

uncertainty and variability among the input variables. Each Monte Carlo simulation will consist 

of 10,000 LCC and PBP calculations. The models will perform each calculation using input 

values that are either sampled from probability distributions and household samples or 

characterized with single point values. The analysis results will be a distribution of 10,000 data 

points showing the range of LCC savings and PBPs for a given efficiency level relative to the 

base case efficiency forecast. For any sensitivity analyses it conducts, DOE will account for 

correlations that may exist between inputs. 

As discussed in section II.G.2, DOE intends to take into account the rebound effect 

associated with more efficient residential furnaces. The take-back in energy consumption 

associated with the rebound effect provides consumers with increased value (e.g., a cooler or 

warmer indoor environment). The net impact on consumers is thus the sum of the change in the 

cost of owning the space-conditioning products (i.e., life-cycle cost) and the increased value for 

the more comfortable indoor 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. Thus, for this standards rulemaking, DOE plans to assume 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. 

53 

EE-2009-BT-STD-0022 DOC ID 1.2.001
DOE will conduct the LCC and PBP analysis using appropriate values for product life, 

product retail price, regional energy prices, and discount rates. The following sections discuss the 

methodologies DOE plans to use to develop several of the inputs to the LCC and PBP analysis, 

including: (1) energy prices; (2) discount rates; (3) maintenance, repair, and installation costs; 

and (4) product lifetime. The other inputs to the LCC and PBP analysis—namely, manufacturer 

costs, annual energy consumption, and markups for the determination of consumer retail 

prices—have been discussed previously. 

2. Energy Prices 

Energy prices are used to calculate the annual energy cost savings at different efficiency 

levels. DOE will derive average monthly energy prices using recent EIA data for each of the 

Census divisions and large States to establish appropriate energy prices for each sample 

household. 

In contrast to the situation with residential air conditioner and heat pumps, for which the 

appliance’s load primarily occurs during utility "on peak" periods during the summer, electricity 

consumption of furnaces is not concentrated during peak periods. Therefore, DOE does not see a 

compelling reason to use marginal electricity prices. 

DOE will use projections of national average natural gas, LPG, electricity and fuel oil 

prices to residential consumers to estimate future energy prices. DOE will use the most recent 

54 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

 

available edition of EIA’s Annual Energy Outlook (AEO) as the default source of projections for 

future energy prices. 

3. Consumer Discount Rates 

The calculation of LCC requires the use of an appropriate discount rate to determine the 

present value of operating expenses during the product lifetime. The discount rate used in the 

LCC analysis represents the rate from an individual consumer’s perspective.8 

For consumers of residential furnaces, DOE plans to use the same approach that it relied 

on to develop discount rates for the November 2007 residential furnaces and boilers standards 

rulemaking (i.e., deriving the discount rates from estimates of the “finance cost” to purchase 

residential products). The finance cost can be interpreted as: (1) the financial cost of any debt 

incurred to purchase products (principally interest charges on debt), or (2) the opportunity cost of 

any equity used to purchase products (principally interest earnings on household equity). Much 

of the data DOE uses to determine the cost of debt and equity comes from the Federal Reserve 

Board’s triennial Survey of Consumer Finances.

9

 DOE seeks comment on the planned approach 

for estimating discount rates for consumers of residential furnaces. This is identified as issue 19 

in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

8

 The consumer discount rate is in contrast to the discount rates used in the national impact analysis, which are 

intended to represent the rate of return of capital in the U.S. economy as well as the societal rate of return on private 

consumption. Refer to section 10.3 for additional information. 

9

 Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html. 

55 

EE-2009-BT-STD-0022 DOC ID 1.2.001
4. Installation Costs and Maintenance and Repair Costs 

DOE will evaluate how installation costs and maintenance and repair costs change with 

increased efficiency for the residential furnaces covered in this rulemaking. DOE will estimate 

installation costs and maintenance and repair costs at each considered efficiency level using a 

variety of sources, including RS Means, manufacturer literature, and information from expert 

consultants. DOE will account for regional differences in labor costs. Installation costs will be 

calculated individually for each household based on RECS household characteristics. DOE seeks 

comment on appropriate methods and data sources for assessing changes in installation costs and 

maintenance and repair costs for more efficient residential furnaces. This is identified as issue 20 

in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

5. Product Lifetime 

Product lifetime is the age at which a residential furnace is retired from service. In the 

prior standards rulemaking, DOE used information from various literature sources, such as 

Appliance Magazine, handbooks published by the American Society of Heating, Refrigerating, 

and Air-Conditioning Engineers (ASHRAE) and input from manufacturers and other 

stakeholders to determine a range for the lifetime of residential furnaces. For this rulemaking, 

DOE plans to use an approach that more accurately accounts for furnace lifetimes in the field. It 

is based on an analysis of lifetime in the field using a combination of shipments data, the stock of 

furnaces, and RECS data on the age of the furnaces in the homes. The data will allow DOE to 

estimate a survival function, which also provides an average and a median appliance lifetime. 

DOE seeks comments on the methodology to determine the lifetimes for residential furnaces, as 

56 

EE-2009-BT-STD-0022 DOC ID 1.2.001
well as on lifetime differences among non-weatherized, weatherized and mobile home gas 

furnaces, and oil-fired furnaces. This is identified as issue 21 in section III of this RAP, “Issues 

on Which DOE Seeks Comment.” 

6. Energy Efficiency in the Base Case 

To estimate the share of consumers that would be affected by a standard at a particular 

efficiency level, DOE’s LCC and PBP analysis will consider the projected distribution (i.e., 

market shares) of product efficiencies that consumers will purchase in the first compliance year 

under the base case (i.e., the case without amended energy efficiency standards). The projection 

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 (such as consumer rebate programs or State tax credits to 

consumers that encourage the purchase of more efficient products, and manufacturer tax credits 

that encourage the production of more efficient products). 

DOE plans to develop separate base case efficiency distributions for each Census division 

and large State. DOE seeks comments on the appropriate distribution of energy efficiencies for 

residential furnaces in the absence of amended energy conservation standards. This is identified 

as issue 22 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

57 

EE-2009-BT-STD-0022 DOC ID 1.2.001
I. Shipments Analysis 

Shipment forecasts are required to calculate the national impacts of standards and future 

manufacturer cash flows. DOE will develop shipment forecasts based on an analysis of key 

market drivers for residential furnaces. 

1. Base-Case Forecast 

To evaluate the impacts of standards, DOE will develop a base-case forecast against 

which to compare forecasts for higher efficiency levels. (The latter are also referred to as 

standards-case forecasts). DOE designs the base-case forecast to depict what would be 

anticipated to happen to energy consumption and costs over time if DOE does not adopt new 

energy conservation standards for the products covered under this rulemaking. In determining 

base-case shipments, DOE plans to calibrate its shipments model against historical shipments. 

DOE will also consider the distribution of efficiencies in the absence of new standards and how 

that mix might change over time. 

For furnaces, DOE plans to develop base-case forecasts for each of the four Census 

Regions that, in turn, can be aggregated to produce regional or national forecasts. DOE plans to 

project shipments of residential furnaces by primarily accounting for sales to two market 

segments: (1) the replacement market and (2) new construction. 

To forecast replacement shipments, DOE will develop the product’s retirement function 

from the lifetime estimated in the LCC and PBP analyses and apply it to the existing furnaces in 

58 

EE-2009-BT-STD-0022 DOC ID 1.2.001
 

the housing stock. The existing stock of furnaces will be tracked by vintage and will be 

developed from historical shipments data dating back to the late 1970s. To establish historical 

shipments by product class, DOE plans to rely on public sources including Appliance 

Magazine10 and the AHRI’s Industry Statistical Profile.

11 DOE also requests regional data from 

the industry so that the national shipments data can be disaggregated into the four Census 

Regions. 

After the historical shipments data have been compiled, DOE plans to validate the 

existing product stock developed from the historical shipments data and the estimated lifetime 

with data on product saturations in the housing stock. Saturations at the Census Region level are 

provided by the Census Bureau’s American Housing Survey (AHS).

12 The base case forecast 

assumes that consumers replace a furnace with the same type of product. 

To forecast shipments to the new construction market, DOE plans to utilize estimates of 

forecasted new housing construction and saturation rates of various furnace types in new 

housing). DOE plans to rely on the latest available edition of EIA’s AEO for forecasts of new 

residential construction. New housing saturation rates are provided by the U.S. Census Bureau’s 

Characteristics of New Housing.

13 In projecting future new housing saturation rates of residential 

furnaces, DOE will consider expected trends in builder and consumer preferences, including 

competition from other space heating products (e.g., electric heat pumps, direct heating 

10 Available at: http://www.appliancemagazine.com/. 11 Available at: http://www.ari.org/Content/EquipmentStatistics_118.aspx. 12 See http://www.census.gov/hhes/www/housing/ahs/ahs.html. 13 Available at: http://www.census.gov/const/www/charindex.html. 

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equipment and combination heating systems). Both EIA’s residential construction forecasts and 

the Census Bureau’s historical product saturation rates are broken down by Census Region (i.e., 

Northeast, Midwest, South, and West), thereby allowing DOE to estimate regional new 

construction shipments. 

In addition to the new construction and replacement market segments, DOE plans to 

consider the market segment consisting of existing households that do not already own a furnace 

who would purchase it. In the case of furnaces, this would primarily refer to homes built without 

central heating in which a furnace is later installed. DOE plans to use this market segment to 

calibrate the base-case historical forecasts (i.e., backcasts) to historical shipments. In order to 

reduce the discrepancy between the backcasts and historical shipments, DOE plans to derive a 

historical rate of product adoption for the non-centrally-heated market. DOE plans to project 

future adoption rates by considering the historical trend as well as market saturation effects. 

DOE seeks historical shipments data, including shipment-weighted AFUE, for each of 

the following product classes: (1) Non-weatherized gas furnaces; (2) Weatherized gas furnaces; 

(3) Oil-fired furnaces; (4) Mobile home gas furnaces. Within each product class, DOE also 

requests shipments data, including shipment-weighted AFUE, disaggregated regionally by 

Census Region. 

2. Standards Impacts on Product Shipments (Standards-Case Forecast) 

For each product class, DOE will develop standards-case forecasts that reflect the 

projected impacts of standards on product shipments. Standards-case forecasts take into account 

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the estimated increase in purchase price and the decrease in operating costs caused by standards. 

The magnitude of the difference between the standards-case and base-case shipment forecasts 

depends on the estimated purchase price increase, as well as the operating cost savings caused by 

the energy conservation standard, relative to household income. Because the purchase price tends 

to have a larger impact than operating cost on product purchase decisions, standards-case 

forecasts typically show a drop in product shipments relative to the base case. 

DOE also plans to account for fuel and product switching that may result from standards 

requiring higher-efficiency furnaces. Because home builders are sensitive to first costs, a 

standard level that significantly increases the purchase price may induce some builders to switch 

to a different heating system. Such a standard level may also induce some home owners to 

replace their existing furnace with a different 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 products (i.e., the prices of natural gas 

and electricity). DOE’s analysis will account for the key factors expected to influence fuel and 

product switching that may result from standards requiring higher-efficiency furnaces. DOE will 

take into consideration factors from the rulemaking on heat pumps that may influence fuel 

switching from furnaces, in particular the potential installed costs of heat pumps, which compete 

with furnaces in some markets. 

As part of its preliminary manufacturer impact analysis, DOE seeks input from 

manufacturers on the potential impact of amended energy conservation standards on residential 

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furnace shipments, including impacts on shipments that may result from fuel switching. DOE 

also seeks input from other parties on the potential impact of standards on product shipments. 

This is identified as issue 23 in section III of this RAP, “Issues on Which DOE Seeks 

Comment.” 

J. National Impact Analysis 

The national impact analysis assesses the aggregate impacts at the national level of 

potential energy conservation standards for each of the considered products, as measured by the 

net present value (NPV) of total consumer economic impacts and the national energy savings 

(NES). DOE determines the NPV and NES for the efficiency levels considered for each of the 

product classes analyzed. To make the analysis more accessible and transparent to all interested 

parties, DOE prepares a MS Excel spreadsheet model to forecast NES and the national consumer 

economic costs and savings resulting from new standards. The spreadsheet model uses typical 

values as inputs (as opposed to probability distributions). To assess the effect of input 

uncertainty on NES and NPV results, DOE may conduct sensitivity analyses by running 

scenarios on specific input variables. 

1. Inputs to NES and NPV Analyses 

Analyzing impacts of amended energy conservation standards for residential furnaces 

requires a comparison of projected U.S. energy consumption with and without new or amended 

energy conservation standards. The forecasts contain projections of annual appliance shipments, 

the annual energy consumption of new appliances, and the purchase price of new appliances. 

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A key component of DOE’s NIA analysis is the energy efficiencies forecasted over time 

for the base case (without new standards) and each of the standards cases. The forecasted 

efficiencies represent the annual shipment-weighted energy efficiency of the products under 

consideration over the forecast period (i.e., from the assumed compliance date of a new standard 

to 30 years after compliance is required). 

Section II.I.1 described how DOE plans to develop a base-case energy efficiency 

distribution (which yields a shipment-weighted average efficiency) for each of the furnace 

product classes for the first year of the forecast period. To forecast base-case efficiencies over 

the entire forecast period, DOE intends to extrapolate from the historical trends to the extent that 

is reasonable. DOE seeks comments on the appropriate assumptions to use regarding long-run 

changes in furnace energy efficiency independent of amended energy conservation standards. 

This is identified as issue 24 in section III of this RAP, “Issues on Which DOE Seeks 

Comment.” 

To develop shipment-weighted efficiencies for the various standards cases, DOE will 

utilize the efficiency market share data for each product class. Once DOE establishes the 

shipment-weighted efficiency for the assumed compliance date of the standard, it plans to 

estimate future shipment-weighted efficiencies using the same rate of forecasted efficiency 

growth as in the base-case efficiency trend. 

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To estimate the impact that standards may have in the year compliance becomes required, 

DOE has used “roll-up” and/or “shift” scenarios in its standards rulemakings. Under the “rollup” scenario, DOE assumes: (1) product efficiencies in the base case that do not meet the 

standard level under 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 new minimum energy conservation standard. DOE will 

evaluate whether one of these approaches is more reasonable for furnaces, or whether it would be 

preferable to use both scenarios in its calculation of national impacts. DOE seeks comments on 

the use of the “roll-up” and “shift” efficiency scenarios to characterize the impact that potential 

standards will have on the product efficiency distributions. This is identified as issue 25 in 

section III of this RAP, “Issues on Which DOE Seeks Comment.” 

2. National Energy Savings 

DOE will calculate national energy consumption for each year in the forecast period. 

DOE will calculate national energy consumption by fuel type for the base case and each 

standards case analyzed. DOE plans to perform this calculation through the use of a spreadsheet 

model that multiplies the stock of products (which is determined by the shipments forecasts) by 

unit energy savings, accounting for the stock of products affected by the energy conservation 

standards. In response to comments by stakeholders who asked for a simple, transparent model, 

DOE has developed National Impact Analysis (NIA) spreadsheet models to forecast energy 

savings from standards at different efficiency levels. 

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As previously discussed, DOE intends to take into account the rebound effect associated 

with more efficient residential furnaces. DOE will incorporate the rebound effect utilized in the 

energy use analysis into its calculation of national energy savings. 

To estimate the primary energy savings resulting from fuel and/or electricity savings at 

building sites, DOE will develop site-to-source factors based on forecasts in AEO2009. 

3. Net Present Value of Consumer Benefit 

The inputs for determining net present value (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; (3) a discount factor; (4) present value of costs; and (5) 

present value of savings. DOE calculates net savings each year as the difference between the 

base case and each standards case in total savings in operating costs and total increases in 

installed costs. DOE calculates savings over the life of each product. DOE calculates NPV as the 

difference between the present value of operating cost savings and the present value of total 

installed costs. 

DOE calculates increases in total installed costs as the product of the difference in total 

installed cost between the base case and a standards case. DOE expresses savings in operating 

costs as decreases associated with the lower energy consumption of products bought in the 

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standards case compared to the base case. Total savings in operating costs are the product of 

savings per unit and the number of units of each vintage that survive in a given year. 

According to U.S. Office of Management and Budget (OMB) guidelines for Federal 

agencies, DOE will conduct two NPV calculations, one using a real discount rate of 3 percent 

and another using a real discount rate of 7 percent (OMB, Circular A-4: Regulatory Analysis. 

2003).14 The discount rates for the determination of NPV are in contrast to the discount rates 

used in the LCC analysis, which are designed to reflect a consumer’s perspective. The 7-percent 

real value is an estimate of the average before-tax rate of return to private capital in the U.S. 

economy. The 3-percent real value represents the “societal rate of time preference,” which is the 

rate at which society discounts future consumption flows to their present value. 

As noted above, DOE intends to take into account the rebound effect associated with 

more efficient residential furnaces in its determination of national energy savings. As previously 

discussed, because the rebound effect provides consumers with increased value (i.e., a more 

comfortable environment), DOE believes that, if it were able to monetize the increased value to 

consumers added by the rebound effect, this value would be similar in value to the foregone 

energy savings. For this standards rulemaking, DOE estimates that this value is equivalent to the 

monetary value of the energy savings that would have occurred without the rebound effect. 

Therefore, the economic impacts on consumers with or without the rebound effect, as measured 

in the NPV, are the same. 

14 Available at: http://www.whitehouse.gov/omb/memoranda/m03-21.html. 

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4. Other National Impacts 

To evaluate potentially important indirect effects of energy conservation standards on 

energy users in general, DOE plans 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. DOE plans to use a variant of the EIA’s National Energy Modeling 

System (NEMS), called NEMS-BT (BT refers to DOE’s Building Technologies Program), to 

estimate the annual changes in natural gas prices that would result from a decrease in natural gas 

demand due to furnace standards.15 NEMS is a large, multi-sectoral, partial-equilibrium model of 

the U.S. energy sector that EIA has developed over several years, primarily for the purpose of 

preparing the AEO. NEMS produces a widely-recognized energy forecast for the United States 

through 2030 and is available in the public domain. 

DOE will calculate the nominal savings in total natural gas expenditures in each year by 

multiplying the estimated annual change in the average end-user natural gas price by the annual 

total U.S. natural gas consumption associated with standards-case scenarios. DOE will then 

calculate the NPV of the savings in natural gas expenditures over the forecast period using 3- and 

7-percent discount rates for each scenario. 

15 For more information on NEMS, please refer to the U.S. Department of Energy, Energy Information 

Administration documentation. A useful summary is National Energy Modeling System: An Overview 2000, 

DOE/EIA-0581(March 2000) and is available at: http://tonto.eia.doe.gov/ftproot/forecasting/05812000.pdf. EIA 

approves use of the name NEMS to describe only an official version of the model without any modification to code 

or data. Because this analysis entails some minor code modifications and the model is run under various policy 

scenarios that are variations on EIA assumptions, DOE refers to the model by the name NEMS-BT. 

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Regarding impacts of furnace standards on electricity prices, DOE investigated the 

possibility of estimating the impact of specific standard levels on electricity prices in its 

rulemaking for general service fluorescent lamps and incadescent reflector lamps.16 Whereas 

natural gas markets exhibit a fairly simple chain of agents from producers to consumers, the 

power industry is a complex mix of fuel suppliers, producers and distributors. While the 

distribution of electricity is regulated everywhere, its institutional structure varies, and upstream 

components are more complicated, with generation priced using different methods across the 

country. For these and other reasons, accurate modeling of the response of electricity prices to a 

decrease in residential-sector demand due to standards is problematic. Thus, DOE does not plan 

to estimate the value of potentially reduced electricity costs for all consumers associated with 

revised standards for residential furnaces. However, it acknowledges that there is likely to be 

some positive economic benefit from reduced electricity demand. 

K. Life-Cycle Cost Subgroup Analysis 

The LCC consumer subgroup analysis evaluates economic impacts on selected groups of 

consumers who might be adversely affected by a change in the energy conservation standards for 

the considered products. DOE evaluates impacts on particular subgroups of consumers primarily 

by analyzing the LCC impacts and PBP for those particular consumers. For the furnace 

rulemaking, DOE intends to evaluate impacts of standards on low-income and senior-only 

households because the potential higher first cost of products that meet new standards may lead 

to negative impacts for these particular groups. DOE seeks input regarding which consumer 

16 U.S. Department of Energy-Office of Energy Efficiency and Renewable Energy, Energy Conservation Program: 

Energy Conservation Standards for General Service Fluorescent Lamps and Incandescent Reflector Lamps; 

Proposed Rule. Federal Register, 2009. 74(69): pp. 16920-16968. 

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subgroups it should consider in this rulemaking. This is identified as issue 26 in section III of this 

RAP, “Issues on Which DOE Seeks Comment.” 

In comparing potential impacts on the different consumer subgroups, DOE will evaluate 

variations in energy prices, energy use, and installation costs that might affect the impacts of a 

standard on the consumer subgroups. In evaluating variations in energy use, DOE will take into 

account how the climate associated with the consumer’s geographic location impacts the energy 

consumption of the product. 

L. Manufacturer Impact Analysis 

The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the 

likely impacts of amended energy conservation standards on manufacturers of residential 

furnaces. During the NOPR stage of analysis, DOE will analyze and consider a wide range of 

quantitative and qualitative industry impacts that may occur due to amended energy conservation 

standards. DOE will identify and analyze these impacts through industry research, public 

comments, and interviews with manufacturers and other interested parties. Other sources of 

information will include reports published by industry groups, trade journals, the U.S. Census 

Bureau, and SEC 10-K filings. 

Initially, DOE will conduct a profile of the furnace manufacturer industry by gathering 

pertinent qualitative and quantitative financial and market information, including industry cost 

structures, employment metrics, and competitive behavior. Next, DOE will conduct detailed 

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interviews with residential furnace manufacturers to gain insight into the potential impact of 

amended standards on sales, direct employment, capital assets, and industry competitiveness. 

DOE will use the information gathered in the industry profile to shape an interview guide that 

will be distributed to manufacturers prior to these interviews. The guide will facilitate the 

discussion of production costs; shipment projections; product mix; conversion costs; markups; 

assessment of the impact on competition, manufacturing capacity, and other relevant topics 

raised by stakeholders. Because standards may have differential impacts on groups of 

manufacturers with different cost structures or business models, DOE will also identify and 

characterize any such subgroups during interviews. 

DOE is aware that amended standards may require additional investment, raise 

production costs, and affect revenue through higher prices and, possibly, lower shipments. To 

quantify these impacts on manufacturers, DOE will calculate standards-induced changes in 

industry and subgroup cash flows using the Government Regulatory Impact Model (GRIM). This 

will enable DOE to derive a base case and standards case industry net present value. The inputs 

to the GRIM will include financial information, manufacturing costs, shipment forecasts, and 

price forecasts developed in other analyses. Lastly, based on the information gathered during 

interviews and other research, DOE will assess impacts on competition, manufacturing capacity, 

employment, and regulatory burden. 

DOE plans to evaluate any differential impacts regional standards may have on 

manufacturers within the framework of its normal MIA process, described above. DOE will 

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tailor its MIA interview guides to include questions exploring the quantitative and qualitative 

impacts of regional standards on manufacturers. Potential impacts could include additional 

compliance, inventory, or marketing costs associated with the promulgation of regional 

standards. Such impacts will be captured in DOE’s GRIM analysis. 

To the extent appropriate, DOE may evaluate subgroups of manufacturers that are 

differentially impacted by regional standards. One possible subgroup, for example, may be 

manufacturers that own their own distribution networks. DOE will include any differential 

financial impacts that it determines are appropriate in its GRIM analyses. DOE seeks further 

comment regarding the potential impact of regional standards on manufacturers of furnaces. In 

addition, DOE seeks market data that will assist in the identification and analysis of the impacts 

of regional standards on manufacturers. This is identified as issue 27 in section III of this RAP, 

“Issues on Which DOE Seeks Comment.” 

M. Utility Impact Analysis 

To estimate the effects of energy conservation standards for residential furnaces on the 

utility industry, DOE plans to use NEMS-BT (see discussion in section J.4). The utility impact 

analysis is a comparison between the NEMS-BT model results for the base case (the most recent 

AEO reference case) and standards cases. The utility impact analysis reports the changes in 

installed capacity and generation that result from each standard level by plant type. DOE will 

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model the impacts from amended energy conservation standards using NEMS-BT to generate 

forecasts that deviate from the AEO reference case.17 

N. Employment Impacts Analysis 

The imposition of standards can affect employment both directly and indirectly. Direct 

employment impacts are changes in the number of employees at the plants that produce the 

covered product, along with the affiliated distribution and service companies, resulting from the 

standards. DOE will evaluate direct employment impacts in the manufacturer impact analysis. 

Indirect employment impacts may result from expenditures shifting between goods (the 

substitution effect) and changes in income and overall expenditure levels (the income effect) that 

occur due to the standards. DOE defines indirect employment impacts from standards as net jobs 

eliminated or created in the general economy as a result of increased spending driven by 

increased product prices and reduced spending on energy. 

The indirect employment impacts will be investigated in the employment impact analysis 

using the Pacific Northwest National Laboratory’s “Impact of Sector Energy Technologies” 

(ImSET) model. The ImSET model was developed for DOE’s Office of Planning, Budget, and 

Analysis, and estimates the employment and income effects of energy-saving technologies in 

buildings, industry, and transportation. In comparison with simple economic multiplier 

approaches, ImSET allows for more complete and automated analysis of the economic impacts 

17 Several descriptions of NEMS-BT models from previous rulemakings, including residential furnaces and boilers, 

can be found on DOE’s website at: 

http://www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/fb_fr_tsd/chapter_13.pdf. 

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of energy conservation investments. DOE requests comments on its approach to assessing 

employment impacts of standards on the products covered under this rulemaking. This is 

identified as issue 28 in section III of this RAP, “Issues on Which DOE Seeks Comment.” 

O. Environmental Impact Analysis 

The intent of the environmental assessment is to fulfill requirements to properly quantify 

and consider the environmental effects of amended energy conservation standards for furnaces. 

The primary environmental effects of energy conservation standards for residential furnaces 

would be lower emissions resulting from reduced fossil fuel consumption at building sites. There 

may also be reduced power plant emissions resulting from reduced consumption of electricity. 

DOE will assess power plant emissions by using NEMS-BT to provide key inputs to its analysis. 

The portion of the environmental assessment that will be produced by NEMS-BT considers 

carbon dioxide (CO2), nitrogen oxides (NOX), and mercury (Hg). The environmental assessment 

also considers impacts on SO2 emissions. 

After a brief discussion of general methodology, this section will address each of the 

relevant emissions. This section then explains how DOE plans to monetize the benefits 

associated with emissions reductions. 

1. Carbon Dioxide (Power Plant Emissions) 

In the absence of any regulation of power plant emissions of CO2, a DOE standard is 

likely to result in reductions of these emissions. The CO2 emission reductions likely to result 

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from a standard will be estimated using NEMS-BT and national energy savings estimates drawn 

from the NIA spreadsheet model. The net benefit of the standard is the difference between 

emissions estimated by NEMS-BT at each standard level considered and the AEO Reference 

Case. NEMS-BT tracks CO2 emissions using a detailed module that provides results with broad 

coverage of all sectors and inclusion of interactive effects. 

2. Sulfur Dioxide (Power Plant Emissions) 

NEMS-BT reports emissions of SO2 from power generation. However, DOE has 

preliminarily determined that SO2 emissions from affected Electric Generating Units (EGUs) are 

subject to nationwide and regional emissions cap and trading programs that are likely to 

eliminate the standards’ impact on SO2 emissions. Title IV of the Clean Air Act sets an annual 

emissions cap on SO2 for all affected EGUs. SO2 emissions from 28 eastern States and the 

District of Columbia (DC) are also limited under the Clean Air Interstate Rule (CAIR). 70 FR 

25162 (May 12, 2005)) CAIR creates an allowance-based trading program that will gradually 

replace the Title IV program in those States and DC. (The recent legal history surrounding CAIR 

is discussed below.) 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, any excess SO2 emission allowances resulting from the lower electricity demand 

caused by the imposition of an efficiency standard could be used to permit offsetting increases in 

SO2 emissions by any regulated EGU. However, if the standard resulted in a permanent increase 

in the quantity of unused emission allowances, there would be an overall reduction in SO2 

emissions from the standards. While there remains some uncertainty about the ultimate effects of 

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efficiency standards on SO2 emissions covered by the existing cap and trade system, the NEMSBT modeling system that DOE plans to use to forecast emissions reductions currently indicates 

that no physical reductions in power sector emissions would occur for SO2. 

Even if there is no significant reduction in the overall emissions of SO2 that results from 

the standard, there may still be some economic benefit from reduced demand for SO2 emission 

allowances that is not fully reflected in the cost savings experienced by individual consumers. 

Electricity savings that decrease the overall demand for SO2 emissions allowances could lower 

allowance prices and thereby result in some economic benefits for all electricity consumers, not 

just those that reduced their electricity use as a result of an efficiency standard. DOE does not 

plan to monetize this particular benefit because the effect on the SO2 allowance price from any 

single energy conservation standard is likely to be small and highly uncertain. 

3. Nitrogen Oxides (Power Plant Emissions) 

NEMS-BT has an algorithm for estimating NOx emissions from power generation. The 

impact of these emissions, however, will be affected by the CAIR, which the Environmental 

Protection Agency (EPA) issued on May 12, 2005. CAIR will permanently cap emissions of NOx 

in 28 eastern states and the District of Columbia. 70 FR 25162 (May 12, 2005). 

Much like SO2 emissions, a cap on NOX emissions means that the amended standards 

may have little or no physical effect on these emissions in the 28 eastern States and the DC 

covered by CAIR. Although CAIR has been remanded to the EPA by the DC Circuit, it will 

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remain in effect until it is replaced by a rule consistent with the Court’s July 11, 2008, opinion in 

North Carolina v. EPA. 531 F.3d 896 (DC Cir. 2008); see also North Carolina v. EPA, 550 F.3d 

1176 (DC Cir. 2008). Because all States covered by CAIR opted to reduce NOX emissions 

through participation in cap-and-trade programs for electric generating units, emissions from 

these sources are capped across the CAIR region. 

Standards may produce an environmental-related economic benefit in the form of lower 

prices for emissions allowance credits. As with SO2 allowance prices, however, DOE does not 

plan to monetize this particular benefit because the effect on the NOX allowance price from any 

single energy conservation standard is likely small and highly uncertain. 

DOE plans to use NEMS-BT to estimate the emissions reductions from possible 

standards in the 22 States where emissions are not capped. 

4. Mercury (Power Plant Emissions) 

Similar to emissions of SO2 and NOX, future emissions of Hg would have been subject to 

emissions caps. In May 2005, EPA issued the Clean Air Mercury Rule (CAMR). 70 FR 28606 

(May 18, 2005). CAMR would have permanently capped 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, in which the DC 

Circuit, among other actions, vacated the CAMR. 517 F.3d 574 (DC Cir. 2008). EPA has 

decided to develop emissions standards for power plants under the Clean Air Act (section 112), 

consistent with the DC Circuit’s opinion on the CAMR. See 

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http://www.epa.gov/air/mercuryrule/pdfs/certpetition_withdrawal.pdf. Pending EPA's 

forthcoming revisions to the rule, DOE is excluding the CAMR from its Environmental 

Analysis. In the absence of CAMR, a DOE standard would likely reduce Hg emissions, and DOE 

plans to use NEMS-BT to estimate these emission reductions. 

5. Particulate Matter (Power Plant Emissions) 

DOE acknowledges that particulate matter (PM) impacts are of concern due to human 

exposures that can impact health. But impacts of PM emissions reduction are much more 

difficult to estimate than other emissions reductions due to the complex interactions between 

PM, other power plant emissions, meteorology, and atmospheric chemistry that impact human 

exposure to particulates. Human exposure to PM usually occurs at a significant distance from the 

power plants that are emitting particulates and particulate precursors. When power plant 

emissions travel this distance, they undergo highly complex atmospheric chemical reactions. 

Although the EPA does keep inventories of direct PM emissions of power plants, in its source 

attribution reviews, the EPA does not separate direct PM emissions from power plants from the 

sulfate particulates indirectly produced through complex atmospheric chemical reactions. The 

great majority of PM emissions from power plants are of these secondary particles (secondary 

sulfates). Thus, it is not useful to examine how the amended standard impacts direct PM 

emissions independent of indirect PM production and atmospheric dynamics. Therefore, DOE is 

not planning to assess the impact of these standards on particulate emissions. Further, even the 

cumulative impact of PM emissions from power plants and indirect emissions of pollutants from 

other sources is unlikely to be significant. 

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6. Site Emissions 

The operation of the furnaces considered in this rulemaking requires use of fossil fuels and 

results in emissions of CO2, SO2, and NOX (but not Hg) at the sites where these appliances are 

used. NEMS–BT provides no means for estimating such emissions. DOE will calculate the effect 

of the proposed standards on the above site emissions based on emissions factors derived from 

the literature. 

7. Monetization of Emissions Reduction Benefits 

For those emissions for which real emission reductions are anticipated (CO2, Hg, and 

NOX for 22 states), ranges of estimated economic values based on environmental damage studies 

of varying quality and applicability are available. DOE plans on reporting estimates of monetary 

benefits derived using these values and plans to consider these benefits in weighing the costs and 

benefits of each of the standard levels considered. In accordance with U.S. Office of 

Management and Budget (OMB) guidance, DOE will conduct two calculations of the monetary 

benefits of emissions reductions, one using a real discount rate of 3 percent and another using a 

real discount rate of 7 percent.18 

In order to estimate the monetary value of benefits resulting from reduced emissions of 

CO2 emissions, DOE intends to use the most current Social Cost of Carbon (SCC) values 

18 OMB, Circular A-4: Regulatory Analysis (Sept. 17, 2003). 

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developed and/or agreed to by interagency reviews. The SCC is intended to be a monetary 

measure of the incremental damage resulting from greenhouse gas (GHG) emissions, including, 

but not limited to, net agricultural productivity loss, human health effects, property damage from 

sea level rise, and changes in ecosystem services. Any effort to quantify and to monetize the 

harms associated with climate change will raise serious questions of science, economics, and 

ethics. But with full regard for the limits of both quantification and monetization, the SCC can be 

used to provide estimates of the social benefits of reductions in GHG emissions. 

At the time of this notice, the most recent interagency estimates of the potential global 

benefits resulting from reduced CO2 emissions were $5, $10, $20, $34 and $56 per metric ton, 

and the estimate of the potential domestic benefits was approximately $1 per metric ton. All of 

these unit values represent emissions that are valued in 2008$ for emissions that occur in 2007. 

For emissions (or emission reductions) that occur in later years, these values are escalated in real 

terms by 3 percent per year, then discounted to the present using real discount rates of 7 percent 

and 3 percent. 

DOE recognizes that scientific and economic knowledge continues to evolve rapidly as to 

the contribution of CO2 and other GHG to changes in the future global climate and the potential 

resulting economic and other damages. Thus, these values are subject to change. 

DOE also intends to estimate the potential monetary benefit of reduced NOx and Hg 

emissions resulting from the standard levels it considers. For NOx emissions, available estimates 

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suggest a very wide range of monetary values, ranging from $370 per ton to $3,800 per ton of 

NOx from stationary sources, measured in 2001$ (equivalent to a range of $442 to $4,540 per 

ton in 2008$). Refer to the OMB, 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,” for additional information. 

For Hg emissions reductions, DOE has previously determined that the impact of mercury 

emissions from power plants on humans is considered highly uncertain. However, DOE 

identified two estimates of the environmental damage of mercury based on two estimates of the 

adverse impact of childhood exposure to methyl mercury on intelligence quotient (IQ) for 

American children, and subsequent loss of lifetime economic productivity resulting from these 

IQ losses. The high-end estimate is based on an estimate of the current aggregate cost of the loss 

of IQ in American children that results from exposure to mercury of U.S. power plant origin 

($1.3 billion per year in year 2000$), which works out to $33.3 million per ton emitted per year 

(2008$). Refer to L. Trasande et al., “Applying Cost Analyses to Drive Policy that Protects 

Children,” 1076 Ann. N.Y. Acad. Sci. 911 (2006) for additional information. The low-end 

estimate is $0.66 million per ton emitted (in 2004$) or $0.745 million per ton in 2008$. DOE 

derived this estimate from a published evaluation of mercury control using different methods and 

assumptions from the first study but also based on the present value of the lifetime earnings of 

children exposed. See Ted Gayer and Robert Hahn, “Designing Environmental Policy: Lessons 

from the Regulation of Mercury Emissions,” Regulatory Analysis 05–01, American Enterprise 

Institute-Brookings Joint Center for Regulatory Studies, Washington, DC (2004). A version of 

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this paper was published in the Journal of Regulatory Economics in 2006. The estimate was 

derived by back-calculating the annual benefits per ton from the net present value of benefits 

reported in the study. 

P. Regulatory Impact Analysis 

In the NOPR and final rule stages of this rulemaking, DOE will prepare a regulatory 

impact analysis, which addresses the potential for non-regulatory approaches to supplant or 

augment energy conservation standards to improve the efficiency of residential furnaces on the 

market. DOE recognizes that voluntary or other non-regulatory efforts by manufacturers, 

utilities, and other interested parties can result in substantial efficiency improvements. DOE 

intends to analyze the likely effects of non-regulatory initiatives on product energy use, 

consumer utility, and LCCs. DOE will attempt to base its assessment on the actual impacts of 

any such initiatives to date, but will also consider information presented regarding the impacts 

that any existing initiative might have in the future. 

DOE will prepare and submit to OMB for review the assessment of costs and benefits 

required under section 6(a)(3) of Executive Order 12866, “Regulatory Planning and Review,” 58 

FR at 51735 (October 4, 1993). 

III. Issues on Which DOE Seeks Comment 

DOE is particularly interested in receiving comments and views of interested parties 

concerning the following issues: 

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1. The consensus agreement. 

2.	 A combined rulemaking regarding energy conservation standards for residential 

central air conditioners and heat pumps, residential furnaces, and furnace fans. 

3.	 DOE’s proposed regional definitions for the analysis of regional standards. 

4.	 The viability of the regional standard enforcement mechanisms presented in this 

document, other mechanisms DOE should consider, and the extent to which these 

mechanisms would result in additional financial burdens to consumers, 

manufacturers, contractors, distributors, dealers, and installers. DOE specifically 

seeks data on how, if at all, the enforcement options listed above would increase 

compliance or other costs. 

5.	 The assumption that most consumers are unlikely to set their furnaces to the off 

mode. 

6.	 DOE’s approach to setting standards using integrated annual fuel utilization, 

AFUEI which account for furnace standby and off mode energy consumption. 

7.	 DOE’s planned product classes for this rulemaking. 

8.	 Technologies that should be considered during the technology assessment and 

screening analysis that can be used to improve the energy-efficiency of residential 

furnaces. 

9.	 The representative characteristics DOE has identified for each of the four product 

classes. 

10. Typical characteristics of the baseline designs for residential furnaces that are 

currently on the market in each product class. 

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11. The max-tech efficiency levels identified for the analyses, including information 

regarding prototype designs that may be capable of allowing furnaces to achieve 

AFUE values above those identified in this document. 

12. The proposed efficiency levels for analysis for each product class, including 

information about any additional efficiencies or technologies that should be 

analyzed that may not be captured in the efficiency levels proposed by DOE. 

Additionally, DOE is requesting comments about whether any of the efficiencies 

proposed for analysis will capture the same or very similar technologies, and thus 

be repetitive of one another, in which case DOE may not need to analyze both 

efficiency levels. 

13. The criteria DOE plans to use to select units for teardown analysis. 

14. The appropriateness of the additional input capacities being analyzed outside of 

the representative input capacity for non-weatherized gas furnaces (50 kBtu/h and 

125 kBtu/h). 

15. Whether the manufacturer markup used in the previous analysis (1.26) is still 

applicable for the current residential furnace market. 

16. The potential impact of regional standards on furnace distributors and contractors, 

including how (if at all) impacts of regional standards on furnace distributors and 

contractors will be different than those in the central air conditioner and heat 

pump market. In addition, DOE is seeking market data that will assist in the 

identification and analysis of the impacts of regional standards on furnace 

distributors and contractors. 

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17. DOE’s planned approach of using RECS data for determining the energy 

consumption of residential furnaces in residential buildings. 

18. The rebound effect that may be associated with more efficient residential 

furnaces. 

19. DOE’s planned approach for estimating discount rates for consumers of 

residential furnaces. 

20. The appropriate methods and data sources for assessing changes in installation 

costs and maintenance and repair costs for more efficient residential furnaces. 

21. The methodology to determine the lifetimes for residential furnaces, as well as 

lifetime differences among non-weatherized, weatherized and mobile home gas 

furnaces, and oil-fired furnaces. 

22. The appropriate distribution of energy efficiencies for residential furnaces in the 

absence of amended energy conservation standards. 

23. The potential impacts of standards on product shipments, including impacts 

related to fuel switching. 

24. The appropriate assumptions to use regarding long-term changes in furnace 

energy efficiency independent of amended energy conservation standards. 

25. The use of the “roll-up” and “shift” efficiency scenarios to characterize the impact 

that potential standards will have on the product efficiency distributions. 

26. Residential furnace consumer subgroups that should be considered in this 

rulemaking. 

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27. Market data or information that will assist in the identification and analysis of the 

impacts of regional standards on manufacturers. 

28. DOE’s planned approach for assessing employment impacts of standards that will 

result from this rulemaking. 

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