Friday, 

April 16, 2010 

Part III 

Department of 

Energy 

10 CFR Part 430 

Energy Conservation Program: Energy 

Conservation Standards for Residential 

Water Heaters, Direct Heating Equipment, 

and Pool Heaters; Final Rule 


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20112 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

DEPARTMENT OF ENERGY 

10 CFR Part 430 

[Docket Number EE–2006–BT–STD–0129] 

RIN 1904–AA90 

Energy Conservation Program: Energy 

Conservation Standards for 

Residential Water Heaters, Direct 

Heating Equipment, and Pool Heaters 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Final rule. 

SUMMARY: The U.S. Department of 

Energy (DOE) is amending the existing 

energy conservation standards for 

residential water heaters (other than 

tabletop and electric instantaneous 

models), gas-fired direct heating 

equipment, and gas-fired pool heaters. It 

has determined that the amended 

energy conservation standards for these 

products would result in significant 

conservation of energy, and are 

technologically feasible and 

economically justified. 

DATES: The effective date of this rule is 

June 15, 2010. Compliance with the 

amended standards established for 

residential water heaters in today’s final 

rule is required starting on April 16, 

2015, and compliance with the 

standards established for DHE and pool 

heaters is required starting on April 16, 

2013. 

ADDRESSES: For access to the docket to 

read background documents, the 

technical support document, transcripts 

of the public meetings in this 

proceeding, or comments received, visit 

the U.S. Department of Energy, Resource 

Room of the Building Technologies 

Program, 950 L’Enfant Plaza, SW., 6th 

Floor, Washington, DC 20024, (202) 

586–2945, between 9 a.m. and 4 p.m., 

Monday through Friday, except Federal 

holidays. Please call Ms. Brenda 

Edwards at the above telephone number 

for additional information regarding 

visiting the Resource Room. You may 

also obtain copies of certain previous 

rulemaking documents in this 

proceeding (i.e., framework document, 

notice of public meeting and 

announcement of a preliminary 

technical support document (TSD), 

notice of proposed rulemaking), draft 

analyses, public meeting materials, and 

related test procedure documents from 

the Office of Energy Efficiency and 

Renewable Energy’s Web site at: http:// 

www1.eere.energy.gov/buildings/

appliance_standards/residential/

waterheaters.html. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Mohammed Khan, U.S. Department of 

Energy, Energy Efficiency and 

Renewable Energy, Building 

Technologies Program, EE–2J, 1000 

Independence Avenue, SW., 

Washington, DC 20585–0121. 

Telephone: (202) 586–7892. E-mail: 

Mohammed.Khan@ee.doe.gov. 

Mr. Eric Stas, U.S. Department of 

Energy, Office of the General Counsel, 

GC–71, 1000 Independence Avenue, 

SW., Washington, DC 20585–0121. 

Telephone: (202) 586–9507. E-mail: 

Eric.Stas@hq.doe.gov. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Summary of the Final Rule and Its Benefits 

A. The Energy Conservation Standard 

Levels 

B. Benefits and Costs to Purchasers of the 

Three Heating Products 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

C. Impact on Manufacturers 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

D. National Benefits 

E. Conclusion 

II. Introduction 

A. Authority 

B. Background 

1. Current Standards 

2. History of Standards Rulemaking for the 

Three Heating Products 

III. General Discussion 

A. Test Procedures 

B. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

C. Energy Savings 

D. Economic Justification 

1. Specific Criteria 

a. Economic Impact on Consumers and 

Manufacturers 

b. Life-Cycle Costs 

c. Energy Savings 

d. Lessening of Utility or Performance of 

Products 

e. Impact of Any Lessening of Competition 

f. Need of the Nation To Conserve Energy 

g. Other Factors 

2. Rebuttable Presumption 

IV. Methodology and Discussion of 

Comments on Methodology 

A. Market and Technology Assessment 

1. DOE’s Determinations as to the Inclusion 

of Products in This Rulemaking 

a. Whether Certain Products Are Covered 

Under the Act 

b. Covered Products Not Included in This 

Rulemaking 

2. Product Classes 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

B. Screening Analysis 

1. Comments on the Screening Analysis 

2. Heat Pump Water Heater and 

Condensing Gas-Fired Storage Water 

Heater Discussion 

a. Condensing Gas-Fired Water Heaters 

b. Heat Pump Water Heaters 

C. Engineering Analysis 

1. Representative Products for Analysis 

2. Efficiency Levels Analyzed 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

3. Cost Assessment Methodology 

a. Manufacturer Production Cost 

b. Manufacturer Selling Price 

4. Engineering Analysis Results 

5. Scaling to Additional Rated Storage 

Capacities 

6. Water Heater Energy Efficiency 

Equations 

D. Markups To Determine Product Price 

E. Energy Use Characterization 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

F. Life-Cycle Cost and Payback Period 

Analyses 

1. Product Price 

2. Installation Cost 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

3. Annual Energy Use 

4. Energy Prices 

5. Energy Price Trend 

6. Repair and Maintenance Costs 

7. Product Lifetime 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

8. Discount Rates 

9. Compliance Date 

10. Product Energy Efficiency in the Base 

Case 

11. Inputs to Payback Period Analysis 

G. National Impact Analysis—National 

Energy Savings and Net Present Value 

Analysis 

1. General 

2. Shipments 

a. Water Heaters 

b. Direct Heating Equipment 

c. Pool Heaters 

d. Impact of Standards on Shipments 

3. Base-Case and Standards-Case Efficiency 

Distributions 

4. National Energy Savings 

a. Annual Unit Energy Consumption 

b. Site-to-Source Energy Conversion 

5. Consumer Net Present Value 

a. Increased Total Installed Costs and 

Operating Cost Savings 

b. Discount Rates 

H. Consumer Subgroup Analysis 

I. Manufacturer Impact Analysis 

1. Water Heater Conversion Costs 

2. Manufacturer Markups and Markup 

Scenarios 

3. Pool Heater Conversion Costs 

4. Employment 

5. Access to Capital 

J. Employment Impact Analysis 

K. Utility Impact Analysis 

1. Effects of Standards on Energy Prices 

and Associated Benefits 

L. Environmental Assessment 

M. Monetizing Carbon Dioxide and Other 

Emissions Impacts 


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1. Social Cost of Carbon 

a. Monetizing Carbon Dioxide Emissions 

b. Social Cost of Carbon Values Used in 

Past Regulatory Analyses 

c. Approach and Key Assumptions 

2. Monetary Values of Non-Carbon 

Emissions 

V. Discussion of Other Comments 

A. Trial Standard Levels and Proposed 

Standards 

1. Water Heaters 

2. Direct Heating Equipment 

3. Pool Heaters 

B. Compliance Date of Amended Standards 

VI. Analytical Results and Conclusions 

A. Trial Standard Levels 

1. Water Heaters 

2. Direct Heating Equipment 

3. Gas-Fired Pool Heaters 

B. Significance of Energy Savings 

C. Economic Justification 

1. Economic Impact on Consumers 

a. Life-Cycle Costs and Payback Period 

b. Consumer Subgroup Analysis 

c. Rebuttable Presumption Payback 

2. Economic Impact on Manufacturers 

a. Cash-Flow Analysis Results for Water 

Heaters 

b. Cash-Flow Analysis Results for Direct 

Heating Equipment 

c. Cash-Flow Analysis Results for Pool 

Heaters 

d. Impacts on Employment 

e. Impacts on Manufacturing Capacity 

f. Cumulative Regulatory Burden 

g. Impacts on Manufacturers That Are 

Small Businesses 

3. National Net Present Value of Consumer 

Costs and Benefits and National 

Employment Impacts 

4. Impact on Utility or Performance of 

Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation To Conserve Energy 

7. Other Factors 

D. Conclusion 

1. Overview 

2. Water Heaters 

3. Direct Heating Equipment 

4. Pool Heaters 

VII. Procedural Issues and Regulatory Review 

A. Review Under Executive Order 12866 

B. Review Under the Regulatory Flexibility 

Act 

C. Review Under the Paperwork Reduction 

Act of 1995 

D. Review Under the National 

Environmental Policy Act of 1969 

E. Review Under Executive Order 13132 

F. Review Under Executive Order 12988 

G. Review Under the Unfunded Mandates 

Reform Act of 1995 

H. Review Under the Treasury and General 

Government Appropriations Act, 1999 

I. Review Under Executive Order 12630 

J. Review Under the Treasury and General 

Government Appropriations Act, 2001 

K. Review Under Executive Order 13211 

L. Review Under the Information Quality 

Bulletin for Peer Review 

M. Congressional Notification 

VIII. Approval of the Office of the Secretary 

I. Summary of the Final Rule and Its 

Benefits 

A. The Energy Conservation Standard 

Levels 

The Energy Policy and Conservation 

Act, as amended (42 U.S.C. 6291 et seq.; 

EPCA or the Act), provides that any new 

or amended energy conservation 

standard the Department of Energy 

(DOE) prescribes for covered consumer 

products, including residential water 

heaters, direct heating equipment 

(DHE), and pool heaters (collectively 

referred to in this document as the 

‘‘three heating products’’) must be 

designed to ‘‘achieve the maximum 

improvement in energy efficiency * * * 

which the Secretary [of Energy] 

determines is technologically feasible 

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

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

amended standard must ‘‘result in 

significant conservation of energy.’’ (42 

U.S.C. 6295(o)(3)(B)) The standards in 

today’s final rule, which apply to 

certain types of the three heating 

products, satisfy these requirements. 

Table I.1 shows the standard levels 

DOE is adopting today. These standards 

will apply to the types of the three 

heating products listed in the table and 

manufactured for sale in the United 

States, or imported into the United 

States, on or after April 16, 2015 in the 

case of water heaters, or on or after 

April 15, 2013 in the case of direct 

heating equipment and pool heaters. 

TABLE I.1—AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT HEATING

EQUIPMENT, AND POOL HEATERS

Product class Standard level 

Residential water heaters* 

Gas-fired Storage ................. For tanks with a Rated Storage Volume at or below 55 

gallons: 

EF = 0.675¥(0.0015 × Rated Storage Volume in gallons).

For tanks with a Rated Storage Volume above 55 gallons: 

EF = 0.8012¥(0.00078 × Rated Storage Volume in 

gallons). 

Electric Storage .................... For tanks with a Rated Storage Volume at or below 55 

gallons: 

EF = 0.960¥(0.0003 × Rated Storage Volume in gallons).

For tanks with a Rated Storage Volume above 55 gallons: 

EF = 2.057¥(0.00113 × Rated Storage Volume in gallons) . 

Oil-fired Storage ................... EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

Gas-fired Instantaneous ....... EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

Product class Standard level 

Direct heating equipment** 

Gas wall fan type up to 42,000 Btu/h ............................................................................................................................. AFUE = 75% 

Gas wall fan type over 42,000 Btu/h .............................................................................................................................. AFUE = 76% 

Gas wall gravity type up to 27,000 Btu/h ....................................................................................................................... AFUE = 65% 

Gas wall gravity type over 27,000 Btu/h up to 46,000 Btu/h ......................................................................................... AFUE = 66% 

Gas wall gravity type over 46,000 Btu/h ........................................................................................................................ AFUE = 67% 

Gas floor up to 37,000 Btu/h .......................................................................................................................................... AFUE = 57% 

Gas floor over 37,000 Btu/h ........................................................................................................................................... AFUE = 58% 

Gas room up to 20,000 Btu/h ......................................................................................................................................... AFUE = 61% 

Gas room over 20,000 Btu/h up to 27,000 Btu/h ........................................................................................................... AFUE = 66% 

Gas room over 27,000 Btu/h up to 46,000 Btu/h ........................................................................................................... AFUE = 67% 

Gas room over 46,000 Btu/h .......................................................................................................................................... AFUE = 68% 

Gas hearth up to 20,000 Btu/h ....................................................................................................................................... AFUE = 61% 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h .................................................................................................. AFUE = 66% 


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20114 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

Product class Standard level 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h .................................................................................................. AFUE = 67% 

Gas hearth over 46,000 Btu/h ........................................................................................................................................ AFUE = 68% 

Pool heaters 

Gas-fired ......................................................................................................................................................................... Thermal Efficiency = 82% 

* EF is the ‘‘energy factor,’’ and the ‘‘Rated Storage Volume’’ equals the water storage capacity of a water heater (in gallons), as specified by 

the manufacturer. 

** Btu/h is ‘‘British thermal units per hour,’’ and AFUE is ‘‘Annual Fuel Utilization Efficiency.’’ 

B. Benefits and Costs to Purchasers of 

the Three Heating Products 

1. Water Heaters 

Table I.2 presents the implications of 

today’s standards for consumers of 

residential water heaters. The economic 

impacts of the standards on consumers, 

as measured by the average life-cycle 

cost (LCC) savings, are positive, even 

though the standards may increase some 

initial costs. For example, a typical gas 

storage water heater has an average 

installed price of $1,079 and average 

lifetime operating costs (discounted) of 

$2,473. To meet the amended standards, 

DOE estimates that the average installed 

price of such equipment will increase 

by $120, which will be offset by savings 

of $143 in average lifetime operating 

costs (discounted). 

TABLE I.2—IMPLICATIONS OF STANDARDS FOR PURCHASERS OF RESIDENTIAL WATER HEATERS

Product class Energy conservation standard 

EF * 

Average baseline installed 

price** 

$ 

Average installed price 

increase 

$ 

Average lifecycle cost 

savings*** 

$ 

Median payback period 

years 

Gas-Fired Storage Water Heater ...... 0.62 (40 gallons) .............................. $1,072 $92 $6 2.0 

0.76 (56 gallons) .............................. 1,261 805 77 9.8 

Weighted .......................................... 1,079 120 18 2.3 

Electric Storage Water Heater .......... 0.95 (50 gallons) .............................. 554 140 10 6.9 

2.0 (56 gallons) ................................ 729 974 626 6.0 

Weighted .......................................... 569 213 64 6.8 

Oil-Fired Storage Water Heater ........ 0.62 (32 gallons) .............................. 1,974 67 295 0.5 

Gas-Fired Instantaneous Water 

Heater.

0.82 (0 gallons) ................................ 1,779 601 6 14.8 

* The values are for the representative storage volumes (40 gallons for gas-fired storage water heaters, 50 gallons for electric storage water 

heaters, 32 gallons for oil-fired storage water heaters, and 0 gallons for gas-fired instantaneous water heaters). The standard level is represented 

by an energy-efficiency equation, which specifies an EF level over the entire storage volume range. 

** For a baseline model. 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of owning and operating the product due 

to the standard. This value represents the net benefit (or cost) of a more-efficient product after considering both the increased installed price and 

the lifetime operating cost savings. 

2. Direct Heating Equipment 

Table I.3 presents the implications of 

today’s standards for consumers of 

direct heating equipment. The economic 

impacts of the standards on consumers, 

as measured by the average LCC savings, 

are positive, even though the standards 

may increase some initial costs. For 

example, a typical gas wall fan DHE has 

an average installed price of $1,832 and 

average lifetime operating costs 

(discounted) of $5,544. To meet the 

amended standards, DOE estimates that 

the average installed price of such 

equipment will increase by $81, which 

will be more than offset by savings of 

$249 in average lifetime operating costs 

(discounted). 

TABLE I.3—IMPLICATIONS OF STANDARDS FOR PURCHASERS OF DIRECT HEATING EQUIPMENT AT THE REPRESENTATIVE

RATED INPUT CAPACITY RANGE

Product class 

Energy conservation 

standard* 

AFUE (%) 

Average baseline installed 

price** 

$ 

Average installed price 

increase 

$ 

Average lifecycle cost 

savings*** 

$ 

Median payback period 

Years 

Gas Wall Fan ....................................................................... 76 $1,832 $81 $102 3.2 

Gas Wall Gravity .................................................................. 66 1,433 61 21 7.5 

Gas Floor ............................................................................. 58 2,209 54 13 10.7 

Gas Room ............................................................................ 67 1,208 83 60 4.5 

Gas Hearth ........................................................................... 67 1,603 82 112 0.0 

* The values are for the representative input capacity ranges (>42,000 Btu/h for wall fan, >27,000 Btu/h and ≤46,000 Btu/h for wall gravity, 

>37,000 Btu/h for floor, >27,000 Btu/h and ≤46,000 Btu/h for room, and >27,000 Btu/h and ≤46,000 Btu/h for hearth). The standard levels vary 

by input capacity range. 

** For a baseline model. 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of owning and operating the product due 

to the standard. This value represents the net benefit (or cost) of a more-efficient product after considering both the increased installed price and 

the lifetime operating cost savings. 


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3. Pool Heaters 

Table I.4 presents the implications of 

today’s standards for consumers of pool 

heaters. The economic impacts of the 

standards on consumers, as measured 

by the average LCC savings, are positive, 

even though the standards may increase 

some initial costs. For example, a 

typical pool heater has an average 

installed price of $3,240 and average 

lifetime operating costs (discounted) of 

$5,099. To meet the amended standards, 

DOE estimates that the average installed 

price of such equipment will increase 

by $103, which will be offset by savings 

of $226 in average lifetime operating 

costs (discounted). 

TABLE I.4—IMPLICATIONS OF STANDARDS FOR PURCHASERS OF POOL HEATERS AT 250,000 Btu/h 

Product class 

Energy conservation 

standard* 

Thermal Efficiency (%) 

Average baseline installed 

price** 

$ 

Average installed price 

increase 

$ 

Average lifecycle cost 

savings*** 

$ 

Median payback period 

Years 

Gas-fired .............................................................................. 82 $3,240 $103 $22 8.6 

* The values are for the representative input capacity of 250,000 Btu/h. 

** For a baseline model. 

*** The average life-cycle cost savings refers to the average savings in the discounted life-cycle costs of owning and operating the product due 

to the standard. This value represents the net benefit (or cost) of a more-efficient product after considering both the increased installed price and 

the lifetime operating cost savings. 

C. Impact on Manufacturers 

1. Water Heaters 

Using a real corporate discount rate of 

8.9 percent for gas-fired and electric 

storage water heaters, 7.6 percent for oilfired storage water heaters, and 9.5 

percent for gas-fired instantaneous 

water heaters, which DOE calculated by 

examining the financial statements of 

residential water heater manufacturers, 

DOE estimates the industry net present 

value (INPV) of the manufacturing 

industry to be $880 million for gas-fired 

and electric storage water heaters, $9 

million for oil-fired storage water 

heaters, and $648 million for gas-fired 

instantaneous water heaters (all figures 

in 2009$). DOE expects the impact of 

the standards on the INPV of 

manufacturers of gas-fired and electric 

storage water heaters to range from a 

loss of 2.9 percent to a loss of 13.9 

percent (a loss of $25.9 million to a loss 

of $122.6 million). DOE expects the 

impact of the standards on the INPV of 

manufacturers of oil-fired storage water 

heaters to range from a loss of 2.0 

percent to a loss of 4.2 percent (a loss 

of $0.2 million to a loss of $0.4 million). 

DOE expects the impact of the standards 

on the INPV of manufacturers of gasfired instantaneous water heaters to 

range from an increase of 0.4 percent to 

a loss of 0.2 percent (an increase of $2.3 

million to a loss of $1.2 million). Based 

on DOE’s interviews with the major 

manufacturers of residential water 

heaters, DOE expects minimal plant 

closings or loss of employment as a 

result of the standards. At the amended 

standard level, DOE does not expect 

significant impacts on competition in 

the overall water heater market. For gasfired and electric storage water heaters, 

DOE believes there are primarily three 

major manufacturers who have 

established market positions. In 

addition, DOE believes there is another 

major appliance manufacturer with 

significant resources that has recently 

announced intentions to scale its efforts 

in the water heating market. For oilfired storage water heaters and gas-fired 

instantaneous water heaters, DOE 

believes the standards-case market can 

at least sustain the base-case level of 

competition. 

2. Direct Heating Equipment 

Using a real corporate discount rate of 

8.5 percent, which DOE calculated by 

examining the financial statements of 

direct heating equipment 

manufacturers, DOE estimates the INPV 

of the manufacturing industry to be $17 

million for traditional direct heating 

equipment and $77 million for hearth 

direct heating equipment (both figures 

in 2009$). DOE expects the impact of 

the standards on the INPV of 

manufacturers of traditional direct 

heating equipment to range from a loss 

of 7.2 percent to a loss of 23.6 percent 

(a loss of $1.2 million to a loss of $3.9 

million). DOE expects the impact of the 

standards on the INPV of manufacturers 

of hearth direct heating equipment to 

range from a loss of 0.3 percent to a loss 

of 1.2 percent (a loss of $0.2 million to 

a loss of $0.9 million). Based on DOE’s 

interviews with the major 

manufacturers of both traditional and 

hearth direct heating equipment, DOE 

expects minimal plant closings or loss 

of employment as a result of the 

standards. DOE believes the impact of 

the amended standards on competition 

in the traditional and hearth DHE 

market will not be significant because 

small manufacturers will be able to 

upgrade enough product lines to meet 

the standard, which in combination 

with product lines that currently meet 

the standard, will enable them to remain 

viable competitors. 

3. Pool Heaters 

Using a real corporate discount rate of 

7.4 percent, which DOE calculated by 

examining the financial statements of 

pool heater manufacturers, DOE 

estimates the INPV of the manufacturing 

industry to be $49 million for gas-fired 

pool heaters (figures in 2009$). DOE 

expects the impact of the standards on 

the INPV of manufacturers of gas-fired 

pool heaters to range from an increase 

of 0.5 percent to a loss of 1.7 percent (an 

increase of $0.3 million to a loss of $0.8 

million). Based on DOE’s interviews 

with the major manufacturers of pool 

heaters, DOE expects minimal plant 

closings or loss of employment as a 

result of the standards. DOE does not 

believe there will be any lessening of 

competition in the pool heater market as 

a result of the standards established by 

today’s final rule, because all of the 

manufacturers already offer at least one 

product line that meets or exceeds the 

standard level promulgated by today’s 

final rule. 

D. National Benefits 

DOE estimates the standards will save 

approximately 2.81 quads (quadrillion 

or 1015) British thermal units (Btu) of 

energy over a 30-year period: 2.58 quads 

for residential water heaters during 

2015–2045, and 0.21 and 0.02 quads for 

DHE and pool heaters, respectively, 

during 2013–2043. The total of 2.81 

quads is equivalent to all the energy 

consumed by nearly 15 million 

American households in a single year. 

By 2045, DOE expects the energy 

savings from today’s standards to 

eliminate the need for approximately 

three new 250 MW power plants. 

These energy savings will result in 

cumulative greenhouse gas emission 


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reductions of approximately 164 million 

tons (Mt) of carbon dioxide (CO2), or an 

amount equal to that produced by 

approximately 46 million cars every 

year. Additionally, the standards will 

help alleviate air pollution by resulting 

in cumulative emissions reductions of 

approximately 125 kilotons (kt) for 

nitrogen oxides (NOX) and 0.54 tons for 

power plant mercury (Hg). 

The estimated monetary value of the 

cumulative CO2 emissions reductions, 

based on a range of values from a recent 

interagency process, is $560 to $8,725 

million. The estimated monetary value 

of the cumulative CO2 emissions 

reductions, based on the central value 

from the interagency process, is $2,861 

million. The estimated net present 

monetary value of the other emissions 

reductions (discounted to 2010 using a 

7-percent discount rate and expressed in 

2009$) is $12.2 to 125 million for NOX. 

At a 3-percent discount rate, the 

estimated net present value of these 

emissions reductions is $27.2 to 284 

million for NOX. 

The national NPV of consumer benefit 

of today’s standards is $1.98 billion 

using a 7-percent discount rate and 

$10.11 billion using a 3-percent 

discount rate, cumulative from 2013 to 

2043 for DHE and pool heaters, and 

from 2015 to 2045 for water heaters, in 

2009$. This is the estimated present 

value of future operating cost savings 

minus the estimated increased costs of 

purchasing and installing the three 

types of heating products, discounted to 

2010. 

The benefits and costs of today’s rule 

can also be expressed in terms of 

annualized values from 2013 to 2043 for 

DHE and pool heaters, and from 2015 to 

2045 for water heaters. Estimates of 

annualized values for the three types of 

heating products are shown in Table I.5, 

Table I.6, and Table I.7. The annualized 

monetary benefits are the sum of the 

annualized national economic value of 

operating cost savings (energy, 

maintenance, and repair), expressed in 

2009$, plus the monetary value of the 

benefits of CO2 and NOX emission 

reductions. For the value of CO2

emission reductions, DOE uses the 

global Social Cost of Carbon (SCC) 

calculated using the average value 

derived using a 3-percent discount rate 

(equivalent to $21.40 per metric ton of 

CO2 emitted in 2010, in 2007$). This 

value is a central value from a recent 

interagency process. The derivation of 

this value is discussed in section IV.M. 

The monetary benefits of cumulative 

emissions reductions are reported in 

2009$ so that they can be compared 

with the other costs and benefits in the 

same dollar units. 

Although the above consideration of 

benefits provides a valuable perspective, 

please note the following: (1) The 

national operating cost savings are 

domestic U.S. consumer monetary 

savings found in market transactions, 

while the value of CO2 reductions is 

based on a global value. Also, note that 

the central value is only one of four SCC 

developed by the interagency 

workgroup. Other marginal SCC values 

for 2010 are $4.70, $35.10, and $64.90 

per metric ton (2007$ for emissions in 

2010), which reflect different discount 

rates and, for the highest value, the 

possibility of higher-than-expected 

impacts further out in the tails of the 

SCC distribution. (2) The assessments of 

operating cost savings and CO2 savings 

are performed with different computer 

models, leading to different time frames 

for analysis. The national operating cost 

savings is measured for the lifetime of 

heating products shipped in the period 

2013–2043 (for DHE and pool heaters) 

or 2015–2045 (for water heaters). The 

value of CO2, on the other hand, reflects 

the present value of all future climaterelated impacts (out to 2300) due to 

emitting a ton of carbon dioxide in each 

year of the forecast period. 

Using a 7-percent discount rate and 

the central SCC value, the combined 

cost of the standards adopted in today’s 

final rule for heating products is $1,285 

million per year in increased equipment 

and installation costs, while the 

annualized benefits are $1,500 million 

per year in reduced equipment 

operating costs, $169 million in CO2

reductions, and $7.7 million in reduced 

NOX emissions. At a 7-percent discount 

rate, the net benefit amounts to $391 

million per year. Using a 3-percent 

discount rate and the central SCC value, 

the cost of the standards adopted in 

today’s rule is $1,249 million per year 

in increased equipment and installation 

costs, while the benefits of today’s 

standards are $1,843 million per year in 

reduced operating costs, $169 million in 

CO2 reductions, and $9.2 million in 

reduced NOX emissions. At a 3-percent 

discount rate, the net benefit amounts to 

$771 million per year. 

TABLE I.5—ANNUALIZED BENEFITS AND COSTS FOR WATER HEATERS (TSL 5) 

Category 

Primary estimate 

(AEO reference 

case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. rate 

Period covered (2015– 

2045) 

Benefits 

Energy Annualized Monetized 

(millions$/year).

1407.0 1275.5 1537.5 2009 7% 30 

1729.6 1556.1 1902.9 2009 3% 30 

CO2 Monetized Value (at $4.7/Metric Ton, millions$/year)*.43.5 43.5 43.5 2009 5% 30 

CO2 Monetized Value (at $21.4/ 

Metric Ton, millions$/year)*.

158.6 158.6 158.6 2009 3% 30 

CO2 Monetized Value (at $35.1/ 

Metric Ton, millions$/year)*.

245.7 245.7 245.7 2009 2.5% 30 

CO2 Monetized Value (at $64.9/ 

Metric Ton, millions$/year)*.

483.8 483.8 483.8 2009 3% 30 

NOx Monetized Value (at $2,437/ 

Metric Ton, millions$/year).

7.0 7.0 7.0 2009 7% 30 

8.5 8.5 8.5 2009 3% 30 

Total Monetary Benefits (millions$/ 

year)**.

1457.5–1897.8 1326–1766.3 1588–2028.3 2009 7% range 30 

1572.7 1441.1 1703.2 2009 7% ........................

1896.7 1723.2 2070.0 2009 3% ........................


jlentini on DSKJ8SOYB1PROD with RULES2
Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20117 

TABLE I.5—ANNUALIZED BENEFITS AND COSTS FOR WATER HEATERS (TSL 5)—Continued 

Category 

Primary estimate 

(AEO reference 

case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. rate 

Period covered (2015– 

2045) 

1781.5–2221.8 1608–2048.3 1954.9–2395.2 2009 3% range 30 

Costs 

Annualized Monetized (millions$/ 

year).

1250.3 1184.5 1321.6 2009 7% 30 

1216.6 1145.7 1295.6 2009 3% 30 

Net Benefits/Costs 

Annualized Monetized, including 

CO2 Benefits (million$/year)**.

207.2–647.5 141.5–581.8 266.4–706.7 2009 7% range 30 

322.4 256.6 381.5 2009 7% 30 

680.1 577.5 774.4 2009 3% 30 

565–1005.3 462.3–902.6 659.3–1099.6 2009 3% range 30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, 

$21.4, and $35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of 

$64.9 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate (averaged across three Integrated Assessment Models (IAMs)), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as 

‘‘7% Range’’ and ‘‘3% Range’’ calculate consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2

values with the $4.7/ton value at the low end, and the $64.9/ton value at the high end. 

TABLE I.6—ANNUALIZED BENEFITS AND COSTS FOR DIRECT HEATING EQUIPMENT

[TSL 2] 

Category 

Primary estimate 

(AEO reference 

case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. rate 

Period 

covered 

(2013–2043) 

Benefits 

Energy Annualized Monetized 

(millions$/year).

82.2 78.8 84.6 2009 7% 30 

100.6 96.3 103.6 2009 3% 30 

CO2 Monetized Value (at $4.7/Metric Ton, millions$/year)*.2.5 2.5 2.5 2009 5% 30 

CO2 Monetized Value (at $21.4/ 

Metric Ton, millions$/year)*.

9.2 9.2 9.2 2009 3% 30 

CO2 Monetized Value (at $35.1/ 

Metric Ton, millions$/year)*.

14.3 14.3 14.3 2009 2.5% 30 

CO2 Monetized Value (at $64.9/ 

Metric Ton, millions$/year)*.

28.1 28.1 28.1 2009 3% 30 

NOX Monetized Value (at $2,437/ 

Metric Ton, millions$/year).

0.6 0.6 0.6 2009 7% 30 

0.6 0.6 0.6 2009 3% 30 

Total Monetary Benefits (millions$/ 

year)**.

85.2–110.8 81.8–107.4 87.7–113.2 2009 7% range 30 

91.9 88.5 94.4 2009 7% ........................

110.4 106.2 113.4 2009 3% ........................

103.7–129.3 99.5–125 106.7–132.3 2009 3% range 30 

Costs 

Annualized Monetized (millions$/ 

year).

27.7 27.7 27.7 2009 7% 30 

26.0 26.0 26.0 2009 3% 30 

Net Benefits/Costs 

Annualized Monetized, including 

CO2 Benefits (millions$/year)**.

57.6–83.1 54.1–79.7 60–85.6 2009 7% range 30 

64.3 60.8 66.7 2009 7% 30 

84.4 80.1 87.4 2009 3% 30 


jlentini on DSKJ8SOYB1PROD with RULES2
20118 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

TABLE I.6—ANNUALIZED BENEFITS AND COSTS FOR DIRECT HEATING EQUIPMENT—Continued 

[TSL 2] 

Category 

Primary estimate 

(AEO reference 

case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. rate 

Period 

covered 

(2013–2043) 

77.7–103.2 73.4–99 80.7–106.3 2009 3% range 30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, 

$21.4, and $35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of 

$64.9 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ‘‘7% Range’’ and ‘‘3% Range’’ calculate consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 

TABLE I.7—ANNUALIZED BENEFITS AND COSTS FOR POOL HEATERS

[TSL 2] 

Category 

Primary 

estimate (AEO 

reference case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. rate 

Period 

covered 

(2013–2043) 

Benefits 

Energy Annualized Monetized 

(millions$/year).

10.6 10.1 10.9 2009 7% 30 

12.5 12.0 12.9 2009 3% 30 

CO2 Monetized Value (at $4.7/Metric Ton, millions$/year)*.0.2 0.2 0.2 2009 5% 30 

CO2 Monetized Value (at $21.4/ 

Metric Ton, millions$/year)*.

0.8 0.8 0.8 2009 3% 30 

CO2 Monetized Value (at $35.1/ 

Metric Ton, millions$/year)*.

1.3 1.3 1.3 2009 2.5% 30 

CO2 Monetized Value (at $64.9/ 

Metric Ton, millions$/year)*.

2.4 2.4 2.4 2009 3% 30 

NOX Monetized Value (at $2,437/ 

Metric Ton, millions$/year).

0.1 0.1 0.1 2009 7% 30 

0.1 0.1 0.1 2009 3% 30 

Total Monetary Benefits (millions$/ 

year)**.

10.8–13 10.4–12.6 11.1–13.3 2009 7% range 30 

11.4 11.0 11.7 2009 7% ........................

13.4 12.8 13.7 2009 3% ........................

12.8–15 12.3–14.4 13.2–15.3 2009 3% range 30 

Costs 

Annualized Monetized (millions$/ 

year).

6.9 6.9 6.9 2009 7% 30 

6.7 6.7 6.7 2009 3% 30 

Net Benefits/Costs 

Annualized Monetized, including 

CO2 Benefits (millions$/year)**.

3.9–6.1 3.4–5.6 4.2–6.4 2009 7% range 30 

4.5 4.0 4.8 2009 7% 30 

6.7 6.2 7.1 2009 3% 30 

6.1–8.3 5.6–7.8 6.5–8.7 2009 3% range 30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, 

$21.4, and $35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of 

$64.9 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ‘‘7% Range’’ and ‘‘3% Range’’ calculate consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 


jlentini on DSKJ8SOYB1PROD with RULES2
Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20119 

TABLE I.8—SUM OF ANNUALIZED BENEFITS AND COSTS FOR HEATING PRODUCTS STANDARDS

Category 

Primary estimate 

(AEO reference 

case) 

Low estimate 

(low energy price 

case) 

High estimate 

(high energy 

price case) 

Units 

Year dollars Disc. 

rate 

Period covered 

Benefits 

Energy Annualized Monetized 

(millions$/year).

1499.8 1364.4 1633.0 2009 7% 30 

1842.7 1664.4 2019.4 2009 3% 30 

CO2 Monetized Value (at $4.7/Metric Ton, millions$/year)*.46.2 46.2 46.2 2009 5% 30 

CO2 Monetized Value (at $21.4/ 

Metric Ton, millions$/year)*.

168.6 168.6 168.6 2009 3% 30 

CO2 Monetized Value (at $35.1/ 

Metric Ton, millions$/year)*.

261.3 261.3 261.3 2009 2.5% 30 

CO2 Monetized Value (at $64.9/ 

Metric Ton, millions$/year)*.

514.2 514.2 514.2 2009 3% 30 

NOX Monetized Value (at $2,437/ 

Metric Ton, millions$/year).

7.6 7.6 7.6 2009 7% 30 

9.2 9.2 9.2 2009 3% 30 

Total Monetary Benefits (millions$/ 

year)**.

1553.5–2021.6 1418.2–1886.3 1686.8–2154.8 2009 7% range 30 

1676.0 1540.6 1809.2 2009 7% ........................

2020.5 1842.2 2197.2 2009 3% ........................

1898–2366.1 1719.8–2187.7 2074.8–2542.8 2009 3% range 30 

Costs 

Annualized Monetized ....................

(millions$/year) ...............................

1284.9 1219.1 1356.3 2009 7% 30 

1249.3 1178.4 1328.3 2009 3% 30 

Annualized Monetized, including 

CO2 Benefits (millions$/year)**.

268.7–736.7 199–667.1 330.6–798.7 2009 7% range 30 

391.1 321.5 453.0 2009 7% 30 

771.2 663.8 868.9 2009 3% 30 

648.8–1116.8 541.3–1009.4 746.5–1214.6 2009 3% range 30 

* These values represent global values (in 2009$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, 

$21.4, and $35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of 

$64.9 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2009$). The rows labeled as ‘‘7% Range’’ and ‘‘3% Range’’ calculate consumer and NOX cases with the labeled discount rate but add these values to the full range of CO2 values with the $4.7/ton value at 

the low end, and the $64.9/ton value at the high end. 

E. Conclusion 

Based upon the analysis culminating 

in this final rule, DOE has concluded 

that the benefits (energy savings, 

consumer LCC savings, positive national 

NPV, and emissions reductions) to the 

Nation of today’s amended standards 

outweigh their costs (a potential loss of 

manufacturer INPV and consumer LCC 

increases for some users of the three 

heating products). Table 1.9 below 

summarizes total annualized monetized 

benefits and costs for these energy 

conservation standards. Today’s 

standards also represent the maximum 

improvement in energy efficiency that is 

technologically feasible and 

economically justified, and will result 

in significant energy savings for all three 

types of the heating products. At 

present, residential water heaters, DHE, 

and pool heaters that meet the new 

standard levels are either commercially 

available or available as prototypes. 

TABLE I.9—SUMMARY ANNUALIZED MONETIZED BENEFITS AND COSTS

Category ($million/year) Discount rate 

Benefits* 

1676.0 7% 

2020.5 3% 

Costs 

1284.9 7% 

1249.3 3% 

Net Benefits/Costs* 

391.1 7% 

771.2 3% 

*Annualized Monetized, including monetized CO2 and NOX benefits. 


jlentini on DSKJ8SOYB1PROD with RULES2
20120 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

1This part was originally titled Part B. It was 

redesignated Part A in the United States Code for 

editorial reasons. 

II. Introduction 

A. Authority 

Title III of EPCA sets forth a variety 

of provisions designed to improve 

energy efficiency. Part A1 of Title III (42 

U.S.C. 6291–6309) provides for the 

Energy Conservation Program for 

Consumer Products Other Than 

Automobiles. The program covers 

consumer products and certain 

commercial products (all of which are 

referred to hereafter as ‘‘covered 

products’’), including the three heating 

products that are the subject of this 

rulemaking. (42 U.S.C. 6292(a)(4), (9), 

(11)) DOE publishes today’s final rule 

pursuant to Part A of Title III, which 

also provides for test procedures, 

labeling, and energy conservation 

standards for the three heating products 

and certain other types of products, and 

authorizes DOE to require information 

and reports from manufacturers. The 

test procedures for water heaters, vented 

DHE, and pool heaters appear at Title 10 

of the Code of Federal Regulations (CFR) 

part 430, subpart B, appendices E, O, 

and P, respectively. 

EPCA prescribes specific energy 

conservation standards for the three 

heating products. (42 U.S.C. 6295(e)(1)– 

(3)) The statute further directs DOE to 

conduct two cycles of rulemakings to 

determine whether to amend these 

standards. (42 U.S.C. 6295(e)(4)) This 

rulemaking represents the second round 

of amendments to the water heater 

standards, and the first round of 

amendments to the DHE and pool heater 

standards. The notice of proposed 

rulemaking (NOPR) in this proceeding 

(the December 2009 NOPR; 74 FR 

65852, 65858–59, 65866 (Dec. 11, 2009), 

and section II.B.2 below, provide 

additional detail on the nature and 

statutory history of the requirements for 

the three types of heating products. 

EPCA also provides criteria for 

prescribing amended standards for 

covered products generally, including 

the three heating products. As indicated 

above, any such amended standard 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)) Additionally, EPCA 

provides specific prohibitions on 

prescribing such standards. DOE may 

not prescribe an amended standard for 

any of the three heating products for 

which it has not established a test 

procedure. (42 U.S.C. 6295(o)(3)(A)) 

Further, DOE may not prescribe a 

standard if DOE determines by rule that 

such standard would not result in 

‘‘significant conservation of energy,’’ or 

‘‘is not technologically feasible or 

economically justified.’’ (42 U.S.C. 

6295(o)(3)(B)) 

EPCA also provides that in deciding 

whether a standard is economically 

justified for covered products, DOE 

must, after receiving comments on the 

proposed standard, determine whether 

the benefits of the standard exceed its 

burdens by considering, to the greatest 

extent practicable, the following seven 

factors: 

1. The economic impact of the 

standard on manufacturers and 

consumers of the products subject to the 

standard; 

2. The savings in operating costs 

throughout the estimated average life of 

the covered products in the type (or 

class) compared to any increase in the 

price, initial charges, or maintenance 

expenses for the covered products that 

are likely to result from the imposition 

of the standard; 

3. The total projected amount of 

energy (or, as applicable, water) savings 

likely to result directly from the 

imposition of the standard; 

4. Any lessening of the utility or the 

performance of the covered products 

likely to result from the imposition of 

the standard; 

5. The impact of any lessening of 

competition, as determined in writing 

by the Attorney General, that is likely to 

result from the imposition of the 

standard; 

6. The need for national energy and 

water conservation; and 

7. Other factors the Secretary of 

Energy (Secretary) considers relevant. 

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

In addition, EPCA, as amended, 

establishes a rebuttable presumption 

that any standard for covered products 

is economically justified if the Secretary 

finds that ‘‘the additional cost to the 

consumer of purchasing a product 

complying with an energy conservation 

standard level will be less than three 

times the value of the energy (and as 

applicable, water) savings during the 

first year that the consumer will receive 

as a result of the standard,’’ as calculated 

under the test procedure in place for 

that standard. (42 U.S.C. 

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

EPCA also contains what is 

commonly known as an ‘‘antibacksliding’’ provision. (42 U.S.C. 

6295(o)(1)) This provision mandates 

that the Secretary not prescribe any 

amended standard that either increases 

the maximum allowable energy use or 

decreases the minimum required energy 

efficiency of a covered product. EPCA 

further provides that the Secretary may 

not prescribe an amended standard if 

interested persons have established by a 

preponderance of the evidence that the 

standard is likely to result in the 

unavailability in the United States of 

any product type (or class) with 

performance characteristics (including 

reliability), features, sizes, capacities, 

and volumes that are substantially the 

same as those generally available in the 

United States at the time of the 

Secretary’s finding. (42 U.S.C. 

6295(o)(4)) 

Under 42 U.S.C. 6295(q)(1), EPCA 

specifies requirements applicable to 

promulgating standards for any type or 

class of covered product that has two or 

more subcategories. Under this 

provision, DOE must specify a different 

standard level than that which applies 

generally to such type or class of 

product for any group of products 

‘‘which have the same function or 

intended use, if * * * products within 

such group—(A) consume a different 

kind of energy from that consumed by 

other covered products within such type 

(or class); or (B) have a capacity or other 

performance-related feature which other 

products within such type (or class) do 

not have and such feature justifies a 

higher or lower standard’’ than applies 

or will apply to the other products. (42 

U.S.C. 6295(q)(1)) In determining 

whether a performance-related feature 

justifies such a different standard for a 

group of products, DOE must consider 

‘‘such factors as the utility to the 

consumer of such a feature’’ and other 

factors DOE deems appropriate. Id. Any 

rule prescribing such a standard must 

include an explanation of the basis on 

which DOE established such higher or 

lower level. (42 U.S.C. 6295(q)(2)) 

Section 310(3) of the Energy 

Independence and Security Act of 2007 

(EISA 2007; Pub. L. 110–140) amended 

EPCA to prospectively require that 

energy conservation standards address 

standby mode and off mode energy use. 

Specifically, when DOE adopts new or 

amended standards for a covered 

product 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 DOE is adopting today’s final 

rule before July 2010, this requirement 

does not apply in this rulemaking, and 

DOE has not specifically addressed 

standby mode or off mode energy use 

here. DOE is currently working on a test 

procedure rulemaking to address the 

measurement of standby mode and off 


jlentini on DSKJ8SOYB1PROD with RULES2
Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20121 

mode energy consumption for the three 

types of heating products that are the 

subject of this rulemaking. 

Finally, Federal energy conservation 

requirements for covered products 

generally supersede State laws or 

regulations concerning energy 

conservation testing, labeling, and 

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

can, however, grant waivers of Federal 

preemption for particular State laws or 

regulations, in accordance with the 

procedures and other provisions of 

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

6297(d)) 

B. Background 

1. Current Standards 

On January 17, 2001, DOE published 

a final rule prescribing the current 

Federal energy conservation standards 

for residential water heaters 

manufactured on or after January 20, 

2004, which set minimum energy 

factors (EFs) that vary based on the 

storage volume of the water heater, the 

type of energy it uses (i.e., gas, oil, or 

electricity), and whether it is a storage, 

instantaneous, or tabletop model. 66 FR 

4474; 10 CFR 430.32(d). EPCA 

prescribes the Federal energy 

conservation standards for DHE and 

pool heaters. For DHE, these consist of 

minimum annual fuel utilization 

efficiency (AFUE) levels, each of which 

applies to a type of unit (i.e., wall fan, 

wall gravity, floor, or room) and heating 

capacity range. (42 U.S.C. 6295(e)(3)); 10 

CFR 430.32(i). For pool heaters, the 

Federal energy conservation standard 

prescribed by EPCA includes a single 

minimum thermal efficiency level. (42 

U.S.C. 6295(e)(2)); 10 CFR 430.32(k). 

Table II.1, Table II.2, and Table II.3 

present the current Federal energy 

conservation standards for residential 

water heaters, DHE, and pool heaters, 

respectively. The water heater 

standards, set forth in 10 CFR 430.32(d), 

consist of minimum energy factors (EF) 

that vary based on the rated storage 

volume of the water heater, the type of 

energy it uses (i.e., gas, oil, or 

electricity), and whether it is a storage, 

instantaneous, or tabletop model. The 

DHE standards, set forth in 42 U.S.C. 

6295(e)(3) and 10 CFR 430.32(i), consist 

of minimum annual fuel utilization 

efficiency (AFUE) levels, each of which 

applies to a particular type of gas-fired 

product (i.e., wall fan, wall gravity, 

floor, room) and input heating capacity 

range. (Although electric DHE are 

available, no Federal energy 

conservation standards exist for these 

products, and today’s final rule contains 

no such standards. For a more detailed 

discussion of DHE coverage under 

EPCA, see 74 FR 65852, 65866 (Dec. 11, 

2009) (the December 2009 NOPR)). The 

pool heater standards, set forth at 42 

U.S.C. 6295(e)(2) and 10 CFR 430.32(k), 

consist of a thermal efficiency level. 

(Similar to the situation with DHE, this 

standard applies only to gas-fired 

products. Although electric pool heaters 

are available, no Federal energy 

conservation standards currently exist 

for other pool heaters, and today’s final 

rule contains no such standard. For a 

more detailed discussion of pool heater 

coverage, see 74 FR 65852, 65866–67 

(Dec. 11, 2009).) 

TABLE II.1—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS

Product class Energy factor as of January 20, 2004 

Gas-Fired Storage Water Heater ............................................................. EF = 0.67—(0.0019 × Rated Storage Volume in gallons) 

Oil-Fired Storage Water Heater ............................................................... EF = 0.59—(0.0019 × Rated Storage Volume in gallons) 

Electric Storage Water Heater ................................................................. EF = 0.97—(0.00132 × Rated Storage Volume in gallons) 

Tabletop Water Heater ............................................................................. EF = 0.93—(0.00132 × Rated Storage Volume in gallons) 

Gas-Fired Instantaneous Water Heater ................................................... EF = 0.62—(0.0019 × Rated Storage Volume in gallons) 

Instantaneous Electric Water Heater ....................................................... EF = 0.93—(0.00132 × Rated Storage Volume in gallons) 

TABLE II.2—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR DIRECT HEATING EQUIPMENT

Direct heating equipment design type Product class 

Btu/h 

Annual fuel utilization efficiency, 

as of Jan. 1, 

1990 

% 

Gas Wall Fan ........................................... Up to 42,000 .............................................................................................................. 73 

Over 42,000 ............................................................................................................... 74 

Gas Wall Gravity ..................................... Up to 10,000 .............................................................................................................. 59 

Over 10,000 and up to 12,000 .................................................................................. 60 

Over 12,000 and up to 15,000 .................................................................................. 61 

Over 15,000 and up to 19,000 .................................................................................. 62 

Over 19,000 and up to 27,000 .................................................................................. 63 

Over 27,000 and up to 46,000 .................................................................................. 64 

Over 46,000 ............................................................................................................... 65 

Gas Floor ................................................. Up to 37,000 .............................................................................................................. 56 

Over 37,000 ............................................................................................................... 57 

Gas Room ............................................... Up to 18,000 .............................................................................................................. 57 

Over 18,000 and up to 20,000 .................................................................................. 58 

Over 20,000 and up to 27,000 .................................................................................. 63 

Over 27,000 and up to 46,000 .................................................................................. 64 

Over 46,000 ............................................................................................................... 65 

TABLE II.3—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR POOL HEATERS

Product class Thermal efficiency as of January 1, 1990 

Gas-Fired Pool Heater ............................................................................. Thermal Efficiency = 78% 


jlentini on DSKJ8SOYB1PROD with RULES2
20122 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

2. History of Standards Rulemaking for 

the Three Heating Products 

Prior to being amended in 1987, EPCA 

included water heaters and home 

heating equipment as covered products. 

The amendments to EPCA effected by 

the National Appliance Energy 

Conservation Act of 1987 (NAECA; Pub. 

L. 100–12) included replacing the term 

‘‘home heating equipment’’ with ‘‘direct 

heating equipment,’’ adding pool heaters 

as a covered product, establishing 

standards for the three heating products, 

and requiring that DOE determine 

whether these standards should be 

amended. (42 U.S.C. 6295(e)(1)–(4)) As 

indicated above, DOE amended the 

statutorily-prescribed standards for 

water heaters in 2001 (66 FR 4474 (Jan. 

17, 2001)), but has not amended the 

statutory standards for DHE or pool 

heaters. 

DOE commenced this rulemaking on 

September 27, 2006, by publishing on 

its Web site its ‘‘Rulemaking Framework 

for Residential Water Heaters, Direct 

Heating Equipment, and Pool Heaters.’’ 

(A PDF of the framework document is 

available at http://www.eere.energy.gov/ 

buildings/appliance_standards/ 

residential/pdfs/heating_equipment 

framework_092706.pdf.) DOE also 

published a notice announcing the 

availability of the framework document 

and a public meeting and requesting 

comments on the matters raised in the 

document. 71 FR 67825 (Nov. 24, 2006). 

The framework document described the 

procedural and analytical approaches 

that DOE anticipated using to evaluate 

potential energy conservation standards 

for the three heating products and 

identified various issues to be resolved 

in conducting the rulemaking. DOE held 

the framework document public 

meeting on January 16, 2009. 

On January 5, 2009, having 

considered these comments, gathered 

additional information, and performed 

preliminary analyses as to standards for 

the three heating products, DOE 

announced an informal public meeting 

and the availability on its Web site of a 

preliminary technical support document 

(preliminary TSD). 74 FR 1643 (Jan. 13, 

2009). The preliminary TSD is available 

at: http://www1.eere.energy.gov/

buildings/appliance_standards/ 

residential/

water_pool_heaters_prelim_tsd.html. 

The preliminary TSD discussed the 

comments DOE had received at the 

framework stage of this rulemaking and 

described the actions DOE had taken, 

the analytical framework DOE was 

using, and the content and results of 

DOE’s preliminary analyses. Id. at 1644, 

1645. DOE convened the public meeting 

to discuss and receive comments on: (1) 

These subjects, (2) DOE’s proposed 

product classes, (3) potential standard 

levels that DOE might consider, and (4) 

other issues participants believed were 

relevant to the rulemaking. Id. at 1643, 

1646. DOE also invited written 

comments on these matters. The public 

meeting took place on February 9, 2009. 

Many interested parties participated, 

and submitted written comments during 

the comment period. 

On December 11, 2009, DOE 

published a NOPR to consider 

amending the existing residential water 

heater, direct heating equipment, and 

pool heater energy conservation 

standards. 74 FR 65852. Shortly after, 

DOE also published on its Web site the 

complete TSD for the proposed rule, 

which incorporated the completed 

analyses DOE conducted and technical 

documentation for each analysis. The 

TSD included the LCC spreadsheet, the 

national impact analysis spreadsheet, 

and the manufacturer impact analysis 

(MIA) spreadsheet—all of which are 

available at: http://

www1.eere.energy.gov/buildings/ 

appliance_standards/residential/

water_pool_heaters_nopr.html. In the 

December 2009 NOPR, DOE proposed 

amended energy conservation standards 

for the three heating products as 

follows: 

TABLE II.4—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS, DIRECT

HEATING EQUIPMENT, AND POOL HEATERS

Product Class Proposed Standard Level 

Residential Water Heaters* 

Gas-fired Storage .................................................................................... For tanks with a Rated Storage 

Volume at or below 60 gallons: 

EF = 0.675 ¥ (0.0012 × Rated 

Storage Volume in gallons).

For tanks with a Rated Storage 

Volume above 60 gallons: 

EF = 0.717 ¥ (0.0019 × Rated 

Storage Volume in gallons). 

Electric Storage ....................................................................................... For tanks with a Rated Storage 

Volume at or below 80 gallons: 

EF = 0.96 ¥ (0.0003 × Rated 

Storage Volume in gallons).

For tanks with a Rated Storage 

Volume above 80 gallons: 

EF = 1.088 ¥ (0.0019 × Rated 

Storage Volume in gallons). 

Oil-fired Storage ...................................................................................... EF = 0.68 ¥ (0.0019 × Rated Storage Volume in gallons). 

Gas-fired Instantaneous .......................................................................... EF = 0.82 ¥ (0.0019 × Rated Storage Volume in gallons). 

Direct Heating Equipment ** 

Product Class Proposed Standard Level 

Gas wall fan type up to 42,000 Btu/h ............................................................................................................................ AFUE = 76%. 

Gas wall fan type over 42,000 Btu/h ............................................................................................................................. AFUE = 77%. 

Gas wall gravity type up to 27,000 Btu/h ...................................................................................................................... AFUE = 70%. 

Gas wall gravity type over 27,000 Btu/h up to 46,000 Btu/h ........................................................................................ AFUE = 71%. 

Gas wall gravity type over 46,000 Btu/h ....................................................................................................................... AFUE = 72%. 

Gas floor up to 37,000 Btu/h ......................................................................................................................................... AFUE = 57%. 

Gas floor over 37,000 Btu/h .......................................................................................................................................... AFUE = 58%. 

Gas room up to 20,000 Btu/h ........................................................................................................................................ AFUE = 62%. 

Gas room over 20,000 Btu/h up to 27,000 Btu/h .......................................................................................................... AFUE = 67%. 

Gas room over 27,000 Btu/h up to 46,000 Btu/h .......................................................................................................... AFUE = 68%. 

Gas room over 46,000 Btu/h ......................................................................................................................................... AFUE = 69%. 


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Gas hearth up to 20,000 Btu/h ...................................................................................................................................... AFUE = 61%. 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h ................................................................................................. AFUE = 66%. 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h ................................................................................................. AFUE = 67%. 

Gas hearth over 46,000 Btu/h ....................................................................................................................................... AFUE = 68%. 

Pool Heaters 

Product Class Proposed Standard Level 

Gas-fired ........................................................................................................................................................................ Thermal Efficiency = 84%. 

* EF is the ‘‘energy factor,’’ and the ‘‘Rated Storage Volume’’ equals the water storage capacity of a water heater (in gallons), as specified by 

the manufacturer. 

** Btu/h is ‘‘British thermal units per hour,’’ and AFUE is ‘‘Annual Fuel Utilization Efficiency.’’ 

In the December 2009 NOPR, DOE 

identified 24 specific issues on which it 

was particularly interested in receiving 

the comments and views of interested 

parties. 74 FR 65852, 65994–95 (Dec. 11, 

2009). In addition, DOE also specifically 

requested comments and data that 

would allow DOE to further bring clarity 

to the issues surrounding heat pump 

water heaters and condensing water 

heaters, and determine how the issues 

discussed in the December 2009 NOPR 

could be adequately addressed prior to 

the compliance date of an amended 

national energy conservation standard 

for water heaters that would effectively 

require the use of such technology. 74 

FR 65852, 65966–67 (Dec. 11, 2009). 

DOE also held a public meeting in 

Washington, DC, on January 7, 2010, to 

hear oral comments on and solicit 

information on the issues just 

mentioned and any other matters 

relevant to the proposed rule. Finally, 

DOE received many written comments 

on these and other issues in response to 

the December 2009 NOPR, which are 

further presented and addressed 

throughout today’s notice. The 

December 2009 NOPR included 

additional, detailed background 

information on the history of this 

rulemaking. See 74 FR at 65852, 65859– 

60 (Dec. 11, 2009). 

III. General Discussion 

A. Test Procedures 

As noted above, DOE’s test 

procedures for residential water heaters, 

vented DHE, and pool heaters are set 

forth at 10 CFR part 430, subpart B, 

appendices E, O, and P, respectively. 

These test procedures are currently used 

to determine whether the three heating 

products comply with applicable energy 

conservation standards and as a basis 

for manufacturers’ representations as to 

the energy efficiency of these products. 

During this rulemaking, interested 

parties have asserted that the residential 

water heater test procedure does not: (1) 

Reflect actual use of these water heaters 

by consumers; (2) permit accurate (i.e., 

consistent and repeatable) measurement 

of the efficiencies of electric resistance 

water heaters that have an EF of 0.95 EF 

and above; or (3) include all of the costeffective efficiency measures available 

for water heaters. 74 FR 65852, 65860– 

61 (Dec. 11, 2009). 

As to the first point, DOE believes the 

test procedure does reflect actual use of 

water heaters. It employs a hot water 

draw model, and data that incorporate 

correction factors that account for actual 

use of water heaters in U.S. homes. 74 

FR 65852, 65860 (Dec. 11, 2009). As to 

the second point, concerning accuracy 

of the test procedure, DOE explains in 

the December 2009 NOPR that 

manufacturer certification of several 

electric resistance water heaters with 

EFs of 0.95, as well as DOE testing of 

such models, demonstrate that the DOE 

test procedure can accurately measure 

the efficiencies of units at that level that 

use conventional, electric resistance 

technologies. 74 FR 65852, 65680–81 

(Dec. 11, 2009). As the December 2009 

NOPR also indicates, units with 

efficiencies significantly above that 

level must use advanced technologies, 

for which the test procedure also 

permits accurate measurement of EF 

levels. 74 FR 65852, 65681 (Dec. 11, 

2009). Thus, because today’s standards 

for electric water heaters have two 

substantially different tiers—for 

capacities at or below 55 gallons, 

minimum EF levels equivalent to 0.95 at 

the representative storage capacity, and 

for larger capacities substantially higher 

minimum EF levels—DOE confirms that 

the existing test procedure will 

accurately determine the efficiencies of 

both models using conventional 

technologies to meet the lower tier and 

models that will have to use advanced 

technologies to meet the higher tier. 

Finally, the only specific cost-effective 

efficiency measure that commenters 

cited as being absent from DOE’s water 

heater test procedure is insulation on 

the tank bottom. 74 FR 65852, 65861 

(Dec. 11, 2009). To the contrary, 

however, the test procedure addresses 

and gives credit for inclusion of such 

insulation in water heaters. 10 CFR part 

430, subpart B, appendix E, section 5. 

Although DOE recognizes that the test 

procedure does not reflect certain recent 

advances in energy saving technology, it 

is aware of no evidence that such 

technologies actually do or would result 

in significant, cost-effective energy 

savings under normal operating 

conditions for water heaters. Hence, 

omission of these technologies from the 

test procedure does not affect the 

efficiency levels considered in this 

rulemaking. DOE received no comments 

on this issue at the NOPR stage. Thus, 

DOE continues to believe, as stated in 

the December 2009 NOPR, that the 

appropriate time to address such 

omission is during the next revision of 

the test procedure. 

As to the DHE and pool heater test 

procedures, in the December 2009 

NOPR, DOE proposed that its test 

procedures for vented DHE be applied 

to establish the efficiencies of vented 

gas hearth DHE. 74 FR 65852, 65861 

(Dec. 11, 2009). DOE received no 

comments from interested parties 

raising any concern in this rulemaking 

about application of the DOE test 

procedures for vented DHE to other 

types of this product. In addition, DOE 

received no comments regarding 

application of its test procedures for 

pool heaters. 

EPCA, as amended by EISA 2007, 

requires DOE to amend the test 

procedures for the three types of heating 

products to include provisions for 

measurement of the products’ standby 

mode and off mode energy 

consumption. (42 U.S.C. 

6295(gg)(2)(B)(v)) DOE is actively 

working on a separate rulemaking to 

amend its test procedures for the three 

types of heating products to incorporate 

these measurements of standby mode 

and off mode energy consumption in the 

future. 

B. Technological Feasibility 

1. General 

As stated above, any standard that 

DOE establishes for any of the three 

heating products must be 

technologically feasible. (42 U.S.C. 

6295(o)(2)(A) and (3)(B)) DOE considers 

a design or technology option to be 

technologically feasible if it is in use by 

the respective industry or if research has 

progressed to the development of a 


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working prototype. ‘‘Technologies 

incorporated in commercial products or 

in working prototypes will be 

considered technologically feasible.’’ 10 

CFR part 430, subpart C, appendix A, 

section 4(a)(4)(i). Once DOE has 

determined that particular technology 

options are technologically feasible, it 

evaluates each technology option in 

light of the following additional 

screening criteria: (1) Practicability to 

manufacture, install, or service; (2) 

adverse impacts on product utility or 

availability; and (3) adverse impacts on 

health or safety. 

This final rule considers the same 

technology options as those evaluated in 

the December 2009 NOPR. (See chapter 

3 and 4 of the TSD accompanying this 

notice.) All of these technologies have 

been used or are in use in commerciallyavailable products, or exist in working 

prototypes. Also, these technologies all 

incorporate materials and components 

that are commercially available in 

today’s supply markets for the products 

covered by this final rule. DOE received 

several comments on the technology 

options considered in the rulemaking 

and the preliminary conclusions drawn 

by applying the four screening criteria 

to them. A detailed discussion of the 

comment and response can be found in 

section IV.B. Therefore, DOE 

determined that all of the efficiency 

levels evaluated in this notice are 

technologically feasible. 

2. Maximum Technologically Feasible 

Levels 

As required by 42 U.S.C. 6295(p)(1), 

in developing the December 2009 

NOPR, DOE identified the efficiency 

levels that would achieve the maximum 

improvements in energy efficiency that 

are technologically feasible (max-tech 

levels) for the three heating products. 74 

FR 65852, 65861–62 (Dec. 11, 2009). 

(See chapter 5 of the TSD.) Except for 

the levels for electric and gas-fired 

storage water heaters and gas wall 

gravity DHE, DOE received no 

comments on the December 2009 

proposed rule to lead DOE to consider 

changes to these levels. Therefore, for 

today’s final rule, the max-tech levels 

for all classes of the three heating 

products, except for the electric and gasfired water heaters and gas wall gravity 

DHE, are the max-tech levels identified 

in the December 2009 NOPR. 

The max-tech levels considered for 

today’s rule are provided in Table III.1. 

See section IV.C.2 for additional details 

of the max-tech efficiency levels and 

discussion of related comments from 

interested parties on the December 2009 

NOPR. 

TABLE III.1—MAX-TECH EFFICIENCY LEVELS FOR THE RESIDENTIAL HEATING PRODUCTS RULEMAKING FOR THE

REPRESENTATIVE PRODUCTS

Product class Representative product Max-Tech efficiency level 

Residential Water Heaters 

Gas-Fired Storage Water Heater ..................................... Rated Storage Volume = 40 Gallons .............................. EF = 0.77. 

Electric Storage Water Heater ......................................... Rated Storage Volume = 50 Gallons .............................. EF = 2.35. 

Oil-Fired Storage Water Heater ....................................... Rated Storage Volume = 32 Gallons .............................. EF = 0.68. 

Gas-Fired Instantaneous Water Heater ........................... Rated Storage Volume = 0 Gallons, Rated Input Capacity = 199,999 Btu/h.EF = 0.95. 

Direct Heating Equipment 

Gas Wall Fan Type .......................................................... Rated Input Capacity = Over 42,000 Btu/h ..................... AFUE = 80%. 

Gas Wall Gravity Type ..................................................... Rated Input Capacity = Over 27,000 Btu/h and up to 

46,000 Btu/h.

AFUE = 70%. 

Gas Floor Type ................................................................ Rated Input Capacity = Over 37,000 Btu/h ..................... AFUE = 58%. 

Gas Room Type ............................................................... Rated Input Capacity = Over 27,000 Btu/h and up to 

46,000 Btu/h.

AFUE = 83%. 

Gas Hearth Type .............................................................. Rated Input Capacity = Over 27,000 Btu/h and up to

46,000 Btu/h.

AFUE = 93%. 

Pool Heaters 

Gas-Fired .......................................................................... Rated Input Capacity = 250,000 Btu/h ............................ Thermal Efficiency = 95%. 

C. Energy Savings 

DOE forecasted energy savings over a 

30-year analysis period in its national 

impact analysis (NIA) through the use of 

an NIA spreadsheet tool, as discussed in 

the December 2009 NOPR. 74 FR 65862, 

65908–14, 65954 (Dec. 11, 2009). 

One of the criteria that governs DOE’s 

adoption of standards for covered 

products is that the standard must result 

in ‘‘significant conservation of energy.’’ 

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

does not define the term ‘‘significant,’’ 

the U.S. Court of Appeals for the District 

of Columbia Circuit, in Natural 

Resources Defense Council v. 

Herrington, 768 F.2d 1355, 1373 (DC 

Cir. 1985), indicated that Congress 

intended ‘‘significant’’ energy savings in 

this context to be savings that were not 

‘‘genuinely trivial.’’ DOE’s estimates of 

the energy savings for energy 

conservation standards at each of the 

TSLs considered for today’s rule 

indicate that the energy savings each 

would achieve are nontrivial. Therefore, 

DOE considers these savings 

‘‘significant’’ within the meaning of 

Section 325 of EPCA. 

D. Economic Justification 

The following section discusses how 

DOE has addressed each of the seven 

factors that it uses to determine if 

energy conservation standards are 

economically justified. The comments 

DOE received on specific analyses and 

DOE’s response to those comments are 

summarized and presented throughout 

section IV. 

1. Specific Criteria 

As noted earlier, EPCA provides 

seven factors to evaluate in determining 

whether an energy conservation 

standard for covered products is 

economically justified. (42 U.S.C. 

6295(o)(2)(B)(i)) The following sections 

summarize how DOE has addressed 

each of those seven factors in evaluating 

efficiency standards for the three 

heating products. 


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2 ‘‘DOJ, No. 99 at pp. 1–2’’ refers to: (1) To a 

statement that was submitted by the U.S. 

Department of Justice. It was recorded in the 

Resource Room of the Building Technologies 

Program in the docket under ‘‘Energy Conservation 

Program: Energy Conservation Standards for 

Residential Water Heaters, Direct Heating 

Equipment, and Pool Heaters,’’ Docket Number 

EERE–2006–BT–STD–0129, as comment number 

99; and (2) a passage that appears on pages 1 

through 2 of that statement. 

a. Economic Impact on Consumers and 

Manufacturers 

As required by EPCA, DOE 

considered the economic impact of 

potential standards on consumers and 

manufacturers of the three heating 

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

For consumers, DOE measured the 

economic impact as the change in 

installed cost and life-cycle operating 

costs (i.e., the change in LCC). (See 

section IV.F and VI.C.1.a, and chapter 8 

of the final rule TSD.) DOE investigated 

the impacts on manufacturers through 

the manufacturer impact analysis (MIA). 

(See sections IV.I and VI.C.2 of today’s 

final rule, and chapter 12 of the final 

rule TSD.) The economic impact on 

consumers and manufacturers is 

discussed in detail in the December 

2009 NOPR. 74 FR 65852, 65862–63, 

65897–908, 65915–22, 65932–54, 

65984–92 (Dec. 11, 2009). 

b. Life-Cycle Costs 

As required by EPCA, DOE 

considered the life-cycle costs of the 

three heating products. (42 U.S.C. 

6295(o)(2)(B)(i)(II)) LCC is discussed at 

length in the December 2009 NOPR. 74 

FR 65852, 65863, 65897–908, 65915, 

65932–35 (Dec. 11, 2009). DOE 

calculated the sum of the purchase price 

(including associated installation costs) 

and the operating expense (including 

energy, maintenance, and repair 

expenditures), discounted over the 

lifetime of the equipment, to estimate 

the range in LCC benefits that 

consumers would expect to achieve due 

to standards. 

c. Energy Savings 

Although significant conservation of 

energy is a separate statutory 

requirement for imposing an energy 

conservation standard, EPCA also 

requires DOE, in determining the 

economic justification of a proposed 

standard, to consider the total projected 

energy savings that are expected to 

result directly from the standard. (42 

U.S.C. 6295(o)(2)(B)(i)(III)) As in the 

December 2009 NOPR, for today’s final 

rule, DOE used the NIA spreadsheet 

results in its consideration of total 

projected savings that are directly 

attributable to the standard levels DOE 

considered. 74 FR 65852, 65862, 65908– 

14, 65954 (Dec. 11, 2009). 

d. Lessening of Utility or Performance of 

Products 

In selecting today’s standard levels, 

DOE did not consider trial standard 

levels for the three heating products that 

would lessen the utility or performance 

of such products. (42 U.S.C. 

6295(o)(2)(B)(i)(IV)). As explained in the 

December 2009 NOPR, DOE determined 

that none of the trial standard levels 

under considerations would reduce the 

utility or performance of the products 

subject to this rulemaking. 74 FR 65852, 

65863, 65956 (Dec. 11, 2009). 

e. Impact of Any Lessening of 

Competition 

DOE considers any lessening of 

competition that is likely to result from 

standards. Accordingly, as discussed in 

the December 2009 NOPR (74 FR 65852, 

65863, 65956 (Dec. 11, 2009)), DOE 

requested that the Attorney General 

transmit to the Secretary, not later than 

60 days after publication of the 

proposed rule, a written determination 

of the impact, if any, of any lessening 

of competition likely to result from the 

standards proposed in the December 

2009 NOPR, together with an analysis of 

the nature and extent of such impact. 

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

To assist the Attorney General in 

making such a determination, DOE 

provided the U.S. Department of Justice 

(DOJ) with copies of the December 2009 

proposed rule and the NOPR TSD for 

review. The Attorney General’s 

determination is discussed in section 

VI.C.5 below, and is reprinted at the end 

of this rule. DOJ did not believe the 

standards proposed in the December 

2009 NOPR for water heaters and pool 

heaters would likely lead to a lessening 

of competition. However, DOJ was 

concerned about the potential of the 

proposed standards to impact 

competition in the traditional DHE 

categories if no more than one or two 

DHE manufacturers chose to continue to 

produce products in any one of the 

categories. DOJ requested that DOE 

consider the potential impact on 

competition in determining the final 

standards for these categories. (DOJ, No. 

99 at pp. 1–2) 2 DOJ’s comment and 

DOE’s response are further described in 

section VI.C.5. 

f. Need of the Nation To Conserve 

Energy 

In considering standards for the three 

heating products, the Secretary must 

consider the need of the Nation to 

conserve energy. (42 U.S.C. 

6295(o)(2)(B)(i)(VI)) The Secretary 

recognizes that energy conservation 

benefits the Nation in several important 

ways. The non-monetary benefits of 

standards are likely to be reflected in 

improvements to the security and 

reliability of the Nation’s energy system. 

Today’s standards will also result in 

environmental benefits. As discussed in 

detail in the December 2009 NOPR (74 

FR 65852, 65863, 65923–29, 65956–61 

(Dec. 11, 2009)) and in sections IV.K, 

IV.L, and IV.M, DOE has considered 

these factors in considering whether to 

adopt standards for the three heating 

products, primarily through its utility 

impact analysis, environmental 

assessment, and monetization of 

anticipated emissions reductions. 

g. Other Factors 

EPCA directs the Secretary of Energy, 

in determining whether a standard is 

economically justified, to consider any 

other factors that the Secretary deems to 

be relevant. (42 U.S.C. 

6295(o)(2)(B)(i)(VII)) In adopting today’s 

standards, the Secretary considered the 

potential impact of standards on certain 

identifiable groups of consumers who 

might be disproportionately impacted 

by any national energy conservation 

standard level. For certain water heaters 

and DHE, DOE considered the impacts 

of standards on low-income households 

and senior-only households, and of 

these water heaters, DOE also 

considered the impacts of standards on 

households in multi-family housing and 

in manufactured homes. 74 FR 65852, 

65863, 65934–35, 65961–62 (Dec. 11, 

2009). 

In addition, DOE considered the 

uncertainties associated with whether, 

in order to adequately serve the water 

heater market: (1) Manufacturers could 

ramp up production of heat pump water 

heaters; (2) heat pump component 

manufacturers could increase 

production; and (3) enough servicers 

and installers of water heaters could be 

retrained. 74 FR 65852, 65863–64, 

65877–78, 65962, 65965–66 (Dec. 11, 

2009). Lastly, DOE considered the issues 

identified in the December 2009 NOPR 

surrounding the product division used 

in the two-slope energy-efficiency 

equations, promulgation of different 

standards for a subset of products, the 

heat pump water heater market, as well 

as the condensing water heater market. 

74 FR 65852, 65966–67 (Dec. 11, 2009). 

These issues are addressed as presented 

below in section VI.D.2. 

2. Rebuttable Presumption 

As set forth in 42 U.S.C. 

6295(o)(2)(B)(iii), EPCA states that there 

is a rebuttable presumption that an 

energy conservation standard is 

economically justified if the increased 


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3The NEMS model simulates the energy sector of 

the U.S. economy. EIA uses NEMS to prepare its 

AEO, a widely-known energy forecast for the 

United States. The EIA approves the use of the 

name NEMS to describe only an AEO version of the 

model without any modification to code or data. 

For more information on NEMS, refer to The 

National Energy Modeling System: An Overview 

1998. DOE/EIA–0581 (98) (Feb. 1998) (available at: 

http://tonto.eia.doe.gov/FTPROOT/forecasting/ 

058198.pdf). The version of NEMS used for 

appliance standards analysis is called NEMS–BT. 

Because the present analysis entails some minor 

code modifications and runs the model under 

various policy scenarios that deviate from AEO 

assumptions, the name ‘‘NEMS–BT’’ refers to the 

model as used here. (‘‘BT’’ stands for DOE’s Building 

Technologies Program.) NEMS–BT offers a 

sophisticated picture of the effect of standards 

because it accounts for the interactions between the 

various energy supply and demand sectors and the 

economy as a whole. 

installed cost for a product that meets 

the standard is less than three times the 

value of the first-year energy (and, as 

applicable, water) savings resulting from 

the standard, as calculated under the 

applicable DOE test procedure. DOE’s 

LCC and payback period (PBP) analyses 

generate values that calculate the 

payback period for consumers of 

potential energy conservation standards, 

which include, but are not limited to, 

the payback period contemplated under 

the rebuttable presumption test 

described above. However, DOE 

routinely conducts a full economic 

analysis that considers the full range of 

impacts, including those to the 

consumer, manufacturer, Nation, and 

environment, as required under 42 

U.S.C. 6295(o)(2)(B)(i). The results of 

this analysis serve as the basis for DOE 

to definitively evaluate the economic 

justification for a potential standard 

level (thereby supporting or rebutting 

the results of any preliminary 

determination of economic 

justification). The results of DOE’s PBP 

analysis can be found in sections 

VI.C.1.a and VI.C.1.c. 

IV. Methodology and Discussion of 

Comments on Methodology 

DOE used several analytical tools that 

it developed previously and adapted for 

use in this rulemaking. One is a 

spreadsheet that calculates LCC and 

PBP. Another tool calculates national 

energy savings and national NPV that 

would result from the adoption of 

energy conservation standards. DOE 

also used the Government Regulatory 

Impact Model (GRIM), along with other 

methods, in its MIA to determine the 

impacts on manufacturers of standards 

for the three heating products. Finally, 

DOE developed an approach using the 

Energy Information Administration’s 

(EIA) National Energy Modeling 

System 3 (NEMS) to estimate the 

impacts of such standards on utilities 

and the environment. Chapters 3 

through 16 of the TSD and the 

December 2009 NOPR discuss each of 

these analytical tools in detail. 74 FR 

65852, 65897–919, 65923–29 (Dec. 11, 

2009). 

As a basis for this final rule, DOE has 

continued to use the spreadsheets and 

approaches explained in the December 

2009 NOPR. DOE used the same general 

methodology as applied in the 

December 2009 NOPR, but revised some 

of the assumptions and inputs for the 

final rule in response to stakeholder 

comments. The following sections 

discuss these comments and revisions. 

A. Market and Technology Assessment 

When beginning an energy 

conservation standards rulemaking, 

DOE develops information that provides 

an overall picture of the market for the 

products concerned, including the 

purpose of the products, the industry 

structure, and market characteristics. 

This activity includes both quantitative 

and qualitative assessments based 

primarily on publicly-available 

information. DOE presented its market 

and technology assessment for this 

rulemaking in the December 2009 NOPR 

and chapter 3 of the NOPR TSD. 74 FR 

65852, 65864–72 (Dec. 11, 2009). The 

assessment included product 

definitions, delineation of the products 

included in the rulemaking, product 

classes, manufacturers, quantities and 

types of products offered for sale, retail 

market trends, and regulatory and nonregulatory initiative programs. As 

discussed below, commenters raised a 

variety of issues related to the market 

and technology assessment, to which 

DOE responds in the following sections. 

1. DOE’s Determinations as to the 

Inclusion of Products in This 

Rulemaking 

a. Whether Certain Products Are 

Covered Under the Act 

i. Solar-Powered Water Heaters and Pool 

Heaters 

As fully explained in the December 

2009 NOPR, DOE has concluded that it 

presently lacks authority to prescribe 

standards for these products because 

EPCA currently covers only water 

heaters and pool heaters that use 

electricity or fossil fuels, and because 

any energy conservation standard 

currently adopted under EPCA for these 

two products must address or be based 

on the quantity of these fuels, but not 

solar power, that the product consumes. 

74 FR 65852, 65864 (Dec. 11, 2009). In 

addition, DOE currently lacks authority 

to adopt standards for solar-powered 

water heaters because EPCA’s definition 

of ‘‘water heater’’ includes only products 

that use ‘‘oil, gas, or electricity to heat 

potable water.’’ (42 U.S.C. 6291(27); 10 

CFR 430.2) Because DOE did not receive 

additional feedback from interested 

parties, DOE did not change its position 

on solar-powered water heaters and 

pool heaters as presented in the 

December 2009 NOPR and summarized 

above. 

ii. Add-On Heat Pump Water Heaters 

DOE did not propose in the December 

2009 NOPR to adopt standards for a 

residential product that is commonly 

known as an add-on heat pump water 

heater. This product typically is 

marketed and used as an add-on 

component to a separately 

manufactured, fully-functioning electric 

storage water heater. The add-on device, 

by itself, is not capable of heating water 

and lacks much of the equipment 

necessary to operate as a water heater. 

DOE has concluded, therefore, that the 

device does not meet EPCA’s definition 

of a ‘‘water heater’’ and currently is not 

a covered product. 74 FR 65852, 65865 

(Dec. 11, 2009). 

In response to DOE’s preliminary 

conclusions set forth in the December 

2009 NOPR regarding add-on heat pump 

water heaters, the American Council for 

an Energy Efficient Economy (ACEEE) 

stated that add-on heat pump water 

heaters should not have been excluded 

from the rulemaking. (ACEEE, No. 79 at 

p. 5) According to the commenter, the 

December 2009 NOPR language used to 

exclude them could as readily be used 

to exclude split system air conditioners 

as add-ins to furnace systems, since they 

are not fully functional without the 

furnace’s air handler. ACEEE argued 

that add-on heat pump water heaters 

could provide an important opportunity 

for cost-effective resistive unit retrofits, 

and standards are required to help 

exclude low-performance units that will 

not meet consumer needs. Otherwise, 

ACEEE asserted that there is danger that 

failures of low-performance add-on 

units will damage the reputation of the 

integral heat pump water heater product 

class, as it is not clear that consumers 

will easily differentiate the two product 

subclasses. 

In response, DOE does not agree with 

ACEEE’s comparison of add-on heat 

pump water heaters to central air 

conditioning and heating systems. 

Unlike components in a split airconditioning system, add-on heat pump 

water heaters are paired to an electric 

storage water heater which is fully 

functional when it leaves the 

manufacturing facility. Components in a 

split air-conditioning system do not 

work independently until paired 


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together in the field. As DOE previously 

stated, the add-on device, by itself, is 

not capable of heating water and lacks 

much of the equipment necessary to 

operate as a water heater. DOE is not 

swayed by the commenter’s speculative 

assertions regarding the future 

performance of add-on heat pump water 

heaters. Accordingly, DOE has 

concluded that an add-on heat pump 

water heater does not meet EPCA’s 

definition of a ‘‘water heater’’ and 

currently is not a covered product. 

iii. Gas-Fired Instantaneous Water 

Heaters With Inputs Above and Below 

Certain Levels 

During this rulemaking, DOE 

considered whether to evaluate for 

standards gas-fired instantaneous water 

heaters with inputs greater than 200,000 

Btu/h or less than 50,000 Btu/h. DOE 

determined that the former do not meet 

EPCA’s definition of a ‘‘water heater,’’ 

given the specific portions of the 

definition pertaining to ‘‘instantaneous 

type units.’’ (42 U.S.C. 6291(27)(B)) As 

to the latter, DOE determined that 

manufacturers are not currently 

producing any gas-fired instantaneous 

water heaters with an input capacity 

less than 50,000 Btu/h. Therefore, DOE 

did not propose standards for products 

with an input capacity above 200,000 

Btu/h or below 50,000 Btu/h. 74 FR 

65852, 65865 (Dec. 11, 2009). DOE did 

not receive any comments on this issue 

at the NOPR stage, so the above 

approach has been retained for this final 

rule, and accordingly, no standards are 

being adopted for gas-fired 

instantaneous water heaters with inputs 

greater than 200,000 Btu/h or less than 

50,000 Btu/h. 

iv. Residential Pool Heaters With Input 

Capacities Above Certain Levels and 

Coverage of Spa Heaters 

At the framework stage of this 

rulemaking, DOE considered excluding 

pool heaters with an input capacity 

greater than 1 million Btu/h, and 

commenters suggested that DOE should 

exclude products with an input capacity 

greater than 400,000 Btu/h. The 

rulemaking covers pool heaters that 

meet EPCA’s definitions of ‘‘pool heater’’ 

(which provides no capacity limitation) 

and of ‘‘consumer product.’’ (42 U.S.C. 

6291(25); 42 U.S.C. 6291(1)). DOE 

tentatively concluded that these 

provisions, and standards adopted 

under them, would apply to any pool 

heater distributed to any significant 

extent as a consumer product for 

residential use, regardless of input 

capacity. In addition, DOE tentatively 

concluded that pool heaters marketed as 

commercial equipment, which contain 

additional design modifications related 

to safety requirements for commercial 

installation, would not be covered by 

such standards. Therefore, DOE did not 

propose to limit application of the 

standards developed in this rulemaking 

to pool heaters with an input capacity 

below a specified level. 74 FR 65852, 

65865 (Dec. 11, 2009). 

In response to this position in the 

December 2009 NOPR, DOE received 

three comments urging DOE to establish 

an input capacity limit for residential 

pool heaters. 

Zodiac Pool Systems (Zodiac) asserted 

that DOE should consider setting 

different minimum efficiency levels for 

pool heaters with input ratings of up to 

400,000 British thermal units per hour 

(Btu/h) and for those with input ratings 

above 400,000 Btu/h. Zodiac stated its 

belief that there may be some benefits to 

be gained if what Zodiac referred to as 

‘‘commercial’’ pool heaters (i.e., those 

units rated above 400,000 Btu/h input) 

required a higher minimum efficiency 

level than that for ‘‘residential’’ pool 

heaters (i.e., those units rated up to 

400,000 Btu/h input). According to the 

commenter, commercial-type units are 

operated longer and in general, 

continuously, thereby increasing the 

potential payback in efficiency and 

energy savings over the life of the 

product. (Zodiac, No. 68 at p. 2) 

Lochinvar asserted that DOE should 

limit the input capacity for residential 

pool heaters to 400,000 Btu/h and that 

DOE should add an additional 

classification for commercial pool 

heaters above 400,000 Btu/h. According 

to the commenter, practically all of the 

residential pool heaters sold today have 

pool heater inputs of 400,000 Btu/h and 

below. Lochinvar stated that residential 

pool heater sales by pool heater 

manufacturers do not include pumps. 

Residential pool heaters are designed to 

accept a wide range of water flows to 

meet the customers’ demands because 

the residential market is mature with a 

wide variety of pool distribution 

accessories (e.g., pumps that mate with 

water filtration systems, water 

temperature controls, and valving 

components). Therefore, pumps are not 

supplied because this is a variable that 

cannot be anticipated by the pool heater 

manufacturer. Thus, for efficiency rating 

purposes, pool heater thermal 

efficiency, as calculated by DOE’s test 

procedure, does not include the pump 

energy. In contrast, Lochinvar pointed 

out that commercial pool heater 

applications require much higher 

volumes of water to be circulated in a 

primary pool loop that incorporates 

large filtration systems and pool water 

conditioning and monitoring 

equipment. Commercial pool heaters are 

designed to tap off of the primary pool 

loop and, via means of a separate pump, 

circulate pool water through the 

commercial pool heater to be heated and 

then delivered back to the pool loop. 

The ratio of water flow through 

commercial pool loop systems to that 

flowing through the pool heater is 

anywhere from 5 to 15 times. In these 

applications, commercial pool heater 

sales always provide or specify 

matching pumps to ensure sufficient 

water flow through the heat exchanger. 

Accordingly, the contribution of pump 

energy is included in the industry 

commercial pool heater test procedure 

and combustion efficiency metric. 

(Lochinvar, No. 56.6 at p. 2) 

AHRI recommended that 

consideration be given in the future to 

creating separate subclasses to 

distinguish between commercial and 

residential pool heaters from a market 

perspective. Comments have previously 

been provided noting the major 

differences between pool heaters for 

commercial applications versus 

residential applications, specifically in 

terms of construction, control schemes, 

and how they go to market. (AHRI, No. 

91 at p. 10) 

As DOE discussed in the December 

2009 NOPR, EPCA places no capacity 

limit on the pool heaters it covers in 

terms of its definition of ‘‘pool heater.’’ 

(42 U.S.C. 6291(25)) Furthermore, EPCA 

covers pool heaters as a ‘‘consumer 

product,’’ (42 U.S.C. 6291(2), 

6292(a)(11)) and defines ‘‘consumer 

product,’’ in part, as an article that ‘‘to 

any significant extent, is distributed in 

commerce for personal use or 

consumption by individuals.’’ (42 U.S.C. 

6291(1)) These provisions establish that 

EPCA, and standards adopted under it, 

apply to any pool heater distributed to 

any significant extent as a consumer 

product for residential use, regardless of 

input capacity. In light of the above and 

based upon the distinct differences 

articulated by commenters between the 

residential and commercial pool heater 

markets and products, DOE has 

concluded that further delineation by 

adding an input capacity limit is not 

necessary. Specifically, pool heaters 

marketed as commercial equipment, 

which contain additional design 

modifications related to safety 

requirements for installation in 

commercial buildings, are not covered 

by this standard. This would include 

pool heating systems that are designed 

to meet a high volume flow and are 

matched with a pump from the point of 

manufacture to accommodate the needs 

of commercial facilities. DOE believes 

manufacturers can distinguish those 


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units from pool heaters distributed to 

any significant extent as a consumer 

product for residential use, regardless of 

input capacity. 

As to spa heaters, the EPCA definition 

for ‘‘pool heater’’ clearly encompasses 

them. (42 U.S.C. 6291(25)) Therefore, in 

the December 2009 NOPR, DOE 

tentatively concluded that they are 

covered by EPCA, and included them in 

this rulemaking. Furthermore, DOE 

tentatively concluded that because spa 

heaters and pool heaters perform similar 

functions, include similar features, and 

lack performance or operating features 

that would cause them to have 

inherently different energy efficiencies, 

a separate product class for such units 

is not warranted. 74 FR 65852, 65865– 

66 (Dec. 11, 2009). DOE did not receive 

any comments in response to its 

proposed treatment of spa heaters in the 

December 2009 NOPR. Consequently, 

DOE has concluded that spa heaters are 

included within EPCA under the 

definition of ‘‘pool heater’’ and do not 

warrant a separate product class. 

v. Vented Hearth Products 

The following two paragraphs 

summarize DOE’s reasons, explained in 

greater detail in the December 2009 

NOPR for concluding that EPCA covers 

vented hearth products and for 

including them in this rulemaking. 74 

FR 65852, 65866 (Dec. 11, 2009). 

When EPCA was amended to include 

energy conservation standards for 

‘‘direct heating equipment,’’ that term 

replaced the term ‘‘home heating 

equipment’’ in the Act. However, EPCA 

has never defined either of these terms. 

Instead, DOE regulations define ‘‘home 

heating equipment,’’ stating that the 

term includes ‘‘vented home heating 

equipment.’’ 10 CFR 430.2. These 

definitions inform the meaning of 

‘‘direct heating equipment,’’ but, to 

provide clarity in the future, in today’s 

rule DOE is incorporating into its 

regulations a definition of this term that 

is identical to the existing definition of 

‘‘home heating equipment.’’ 

Vented hearth products include gasfired products such as fireplaces, 

fireplace inserts, stoves, and log sets 

that typically include aesthetic features 

and that provide space heating. DOE has 

concluded that such products meet its 

definition of ‘‘vented home heating 

equipment,’’ because they are designed 

to furnish warmed air to the living space 

of a residence. DOE has also concluded, 

therefore, that they are covered products 

under EPCA and are properly classified 

as DHE. Accordingly, DOE proposed 

and today is adopting standards for 

vented hearth products. 

In the December 2009 NOPR, DOE 

also pointed out that vented hearth 

products would be subject to the same 

product testing and certification 

requirements that currently apply to 

DHE. 74 FR 65852, 65866 (Dec. 11, 

2009). In order to help manufacturers 

determine more easily whether their 

vented hearth direct heating equipment 

is covered under DOE’s regulations, 

DOE proposed to adopt the following 

definition of ‘‘vented hearth heater’’: 

Vented hearth heater means a vented, 

freestanding, recessed, zero clearance 

fireplace heater, a gas fireplace insert or a 

gas-stove, which simulates a solid fuel 

fireplace and is designed to furnish warm air, 

without ducts to the space in which it is 

installed. 

74 FR 65852, 65867–68 (Dec. 11, 2009). 

The Air-Conditioning, Heating, and 

Refrigerating Institute (AHRI), the 

Hearth, Patio, and Barbeque Association 

(HPBA), and Empire Comfort Systems 

(Empire) do not support DOE’s 

proposed definition ‘‘vented hearth 

heater’’ as presented above and in the 

December 2009 NOPR. However, these 

three interested parties do support 

DOE’s decision to establish vented gas 

fireplace heaters as a separate type of 

direct heating equipment. AHRI, HPBA, 

and Empire urged DOE to use the 

definition of ‘‘vented gas fireplace 

heater’’ as presented in the American 

National Standards Institute (ANSI) 

Standard Z21.88, Vented Gas Fireplace 

Heaters, so as to directly connect it to 

this safety standard. By law, 

manufacturers are required to list and 

label these types of appliances to 

approved safety standards such as ANSI 

Z21.88. By using this safety standard 

reference, the interested parties argued 

that DOE and others would be able to 

distinguish vented gas fireplace heaters 

from decorative gas appliances certified 

to ANSI Z21.50, Vented Gas Fireplaces, 

and ANSI Z21.60, Decorative Gas 

Appliances for Installation in Solid-Fuel 

Burning Fireplaces, thereby eliminating 

a significant opportunity for confusion 

in the marketplace after the new energy 

conservation standards take effect. The 

interested parties argued that when the 

National Appliance Energy 

Conservation Act was being developed, 

it was recognized that there were 

decorative gas appliances that were 

marketed based on the aesthetic appeal 

of a simulated solid fuel fireplace or 

stove. The interested parties asserted 

that those same products are available 

in the marketplace today and need to be 

excluded from inclusion in this 

rulemaking in a proactive manner, 

preferably by using the consensus safety 

standard designation in the definition 

and adding an explanatory note to the 

definition stating that ANSI Z21.50 and 

ANSI Z21.60 appliances are not vented 

gas fireplace heaters. The interested 

parties suggested the following 

definition of ‘‘vented gas fireplace 

heater’’: 

Vented Gas Fireplace Heater. A vented 

appliance which simulates a solid fuel 

fireplace and furnishes warm air, with or 

without duct connections, to the space in 

which it is installed. A vented gas fireplace 

heater is such that it may be controlled by 

an automatic thermostat. The circulation of 

heated room air may be by gravity or 

mechanical means. A vented gas fireplace 

heater may be freestanding, recessed, zero 

clearance, or a gas fireplace insert. 

(AHRI, No. 91 at pp. 13–14; HPBA, No. 

75 at p. 1; Empire, No. 100 at p. 3; 

AHRI, Public Meeting Transcript, No. 

57.4 at pp. 48–49; HPBA, Public 

Meeting Transcript, No. 57.4 at pp. 42 

and 51; and Empire, Public Meeting 

Transcript, No. 57.4 at pp. 50) 

ACEEE also suggested that it would be 

reasonable for DOE to not set efficiency 

regulations for purely decorative 

products with an output capacity less 

than or equal to 6,000 Btu/h. However, 

ACEEE asserted that an upper limit is 

necessary to prevent subterfuge and 

confusion with actual heating 

appliances. (ACEEE, No. 79 at p. 6) 

DOE agrees with the interested parties 

that further modification to the 

definition of ‘‘vented hearth heater’’ is 

necessary to provide clear guidance to 

the industry regarding which products 

are covered under DOE’s regulations. 

DOE’s definition of ‘‘vented home 

heating equipment’’ limits the coverage 

of vented home heating equipment to 

include only those units ‘‘designed to 

furnish warmed air to the living space 

of a residence.’’ 10 CFR 430.2. DOE 

notes that it is often difficult to 

determine the intended purpose of 

fireplace product currently sold. Units 

designed to furnish warmed air to the 

living space and purely decorative units 

often share very similar external 

appearances, unit construction, and 

input capacities. Some interested parties 

suggested DOE use the ANSI safety 

standards to distinguish coverage in the 

marketplace. DOE does not believe that 

using ANSI safety standards would be a 

suitable solution to this problem since 

many of those products classified as 

‘‘decorative fireplaces’’ under the ANSI 

safety standards are very similar in 

construction to fireplace heaters and 

provide warm air to the residence. 

DOE notes that the primary difference 

between the two types of hearth 

products is that decorative units are 

intended only to provide the ambiance 

and aesthetic utility associated with a 


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solid fuel (e.g., wood-burning) fireplace 

with little or no heat output to the living 

space, while heating hearth products are 

intended to provide heat to the living 

space along with the aesthetic utility. 

Heating-type products are often shipped 

with additional accessories that 

decorative products do not have, such 

as thermostats to control the heat output 

and blowers that distribute hot air to the 

room. DOE research suggests that this 

additional equipment is typically 

optional and hence not very useful to 

distinguish between heaters and 

decorative units. 

After carefully considering the public 

comments and conducting additional 

research, DOE believes implementing a 

maximum input capacity limit will 

likely result in a clear distinguishable 

way for DOE, manufacturers, and 

consumers to identify which products 

provide ‘‘warmed air to the residence,’’ 

as compared with those designed purely 

for aesthetic purposes. Because of the 

nature of hearth products (i.e., the 

presence of a flame), all hearth products 

create heat and nearly all of the hearth 

products provide some amount of that 

heat, however small that may be, to the 

surrounding living space. 

Unlike fireplace heaters, decorative 

hearth products provide a unique 

utility, specifically offering the 

ambiance and aesthetic appeal provided 

by the flame without adding significant 

heat to the conditioned space. By way 

of explanation, some consumers that 

wish to purchase purely decorative 

hearth products live in warmer climates 

where any additional heat provided to 

the residence would be undesirable. 

However, these consumers still want the 

aesthetic appeal provided by the flame. 

As the efficiency of the vented hearth 

product is increased, the more useful 

heat is provided to the space. So in 

response to comments, DOE is adopting 

an approach that would maintain the 

utility and availability of decorative 

hearth products. 

In order to determine whether a 

maximum input capacity limit is a good 

indicator of intended use, DOE 

reviewed the market for vented hearth 

products, including those products 

marketed as heaters and decorative 

appliances. DOE research identified 

products marketed for heating and 

decorative purposes offered across the 

entire range of input capacities. Many of 

the units produced solely for decorative 

purposes come with the capability to 

vary the input capacity in order to 

change the magnitude of the flame. 

Since manufacturers provide 

consumers, installers, and contractor 

with a means to change the input 

capacity of the unit to better match 

consumers’ aesthetic desires and 

heating needs, DOE believes input 

capacity is indicative of the type of 

intended use of the vented hearth 

heater. 

DOE believes that consumers desiring 

a purely decorative unit will chose to 

buy units which minimize the heat 

furnished to their living space, thereby 

reducing the impacts on the cooling 

loads of their house for those living in 

warmer climates. DOE contacted several 

contractors in warmer climates, where 

decorative appeal is presumably the 

consumers’ top priority. From these 

discussions and further review of the 

product literature, DOE found that many 

hearth products allow the input 

capacity to be modulated via the gas 

valve. In warmer climates, contractors 

frequently suggest to their customer to 

turn down the gas supply to minimize 

the amount of heat radiated and 

convected to the air within the 

residence. Some installation companies 

even offer optional venting products 

and dampers, which attempt to direct 

the heat to other parts of the residence 

or outdoors. Even though decorative 

hearth products are offered with a large 

range of input capacities, DOE research 

hence suggests that the input rating is 

typically significantly reduced for 

applications in conditions in which the 

flames are purely ornamental to 

minimize heat provided to the 

residence. This is shown by the 

variability in the input ratings offered 

for a given model as described in 

manufacturer catalog data, which can be 

field-adjusted based on the amount of 

heat desired within the residence. 

DOE believes that hearth products 

intended for decorative purposes 

provide a specific aesthetic utility that 

consumers value. In its analysis, DOE 

considered the value of this aesthetic 

quality and the additional heat load that 

such systems produce. DOE believes 

that a maximum input capacity of 9,000 

Btu/h is an appropriate cut-off for 

decorative appliances since existing 

hearth-type DHE units featuring 

adjustable input capacities operate at or 

below this input capacity limit. DOE 

chose 9,000 Btu/h because other gas 

appliances found in a house, which may 

have unintended heating loads, such as 

a burner on a gas-cook top, are also 

found at this input capacity. By 

allowing manufacturers the option of 

producing vented hearth heaters that are 

excluded from the standards amended 

in today’s final rule, DOE is preserving 

the ability of manufacturers to continue 

selling decorative units, consumers can 

continue to enjoy them, and unintended 

heat loads are limited to no more than 

1⁄2 of a ton of heating capacity per 

decorative unit. DOE research suggests 

that manufacturers can comply 

relatively inexpensively with the 

coverage established by the ‘‘vented 

hearth heater’’ definition by reducing 

the maximum input capacity of the gas 

delivery system through the use of a 

restrictor plate, modifying the gas valve, 

or altering the flame orifice. All of these 

options are currently available or 

utilized within the industry today. DOE 

believes the most likely solution that 

will be used by hearth manufacturers to 

meet DOE’s restriction on input capacity 

would be to use a restrictor plate 

because it is the most inexpensive. A 

restrictor plate would ensure that 

limitations were placed upon the gas 

line such that the maximum input 

capacity of the fireplace is less than 

9,000 Btu/h. DOE notes that all vented 

hearth heaters which manufacturers 

produce to be purely decorative units 

must be designed so that the consumer 

cannot override this 9,000 Btu/h 

maximum input capacity limit in the 

field. 

DOE chose to include a maximum 

input capacity limitation, instead of an 

output capacity limit as ACEEE 

suggested, because a very inefficient 

unit could have a very high input 

capacity and use a lot of energy, while 

meeting DOE’s limitation on output 

capacity. 

DOE realizes its amended definition 

of ‘‘vented hearth heater’’ will include 

all types of hearth units with maximum 

input capacities above the specified 

limit, including all products that are 

currently referred to as fireplace heaters 

and some products that are currently 

deemed as decorative within the 

marketplace. DOE also notes that this 

maximum input capacity corresponds to 

the output capacity suggested by 

ACEEE, assuming the unit is about twothirds efficient, which is an efficiency 

that is comparable to the standard level 

being adopted today for vented gas 

hearth heaters. Therefore, DOE is 

modifying the ‘‘vented hearth heater’’ 

definition to include a maximum input 

capacity limit of 9,000 Btu/h for purely 

decorative units. 

AHRI, HBPA, and Empire asserted 

that DOE should amend its definition of 

‘‘vented hearth heater’’ to include duct 

connections. While duct connections 

were excluded from the original ‘‘direct 

heating equipment’’ definition, the 

interested parties stated that this 

exclusion is unnecessary for vented gas 

fireplace heaters because they are 

allowed to have duct connections by 

design. The interested parties argued 

that there is no reason for DOE to 

exclude these currently-available 

appliances merely based upon the 


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presence of ducting, particularly given 

that the limiting definition of ‘‘vented 

home heating equipment’’ was written 

before the products were introduced. 

(AHRI, No. 91 at pp. 13–14; HPBA, No. 

75 at pp. 1–2; Empire, No. 100 at p. 3) 

DOE agrees with these interested 

parties and is extending coverage to 

both ducted and ductless vented hearth 

heater products. DOE believes this 

modification will provide equal 

treatment to similar products offered on 

the market today. DOE’s research 

confirmed that some vented hearth 

heater models have the ability to 

connect to ducts and distribute the heat 

furnished to the space throughout the 

house. In order to include both ducted 

and ductless vented hearth products, 

DOE is amending the definitions of 

‘‘vented hearth heater’’ and ‘‘vented 

home heating equipment’’ for inclusion 

at 10 CFR 430.2. Lastly, DOE is making 

a number of editorial changes to the 

definition of ‘‘vented hearth heater’’ 

proposed in the December 2009 NOPR, 

in order to make the definition easier to 

read. As adopted, these definitions read 

as follows: 

Vented hearth heater means a vented 

appliance which simulates a solid fuel 

fireplace and is designed to furnish 

warm air, with or without duct 

connections, to the space in which it is 

installed. The circulation of heated 

room air may be by gravity or 

mechanical means. A vented hearth 

heater may be freestanding, recessed, 

zero clearance, or a gas fireplace insert 

or stove. Those heaters with a maximum 

input capacity less than or equal to 

9,000 British thermal units per hour 

(Btu/h), as measured using DOE’s test 

procedure for vented home heating 

equipment (10 CFR part 430, subpart B, 

appendix O), are considered purely 

decorative and are excluded from DOE’s 

regulations. 

DOE is also amending its definition of 

‘‘vented home heating equipment or 

vented heater’’ in 10 CFR 430.2 to 

include vented hearth heaters with duct 

connections. This modification is 

necessary in order for the definition of 

‘‘vented home heating equipment or 

vented heater’’ to be consistent with the 

definition of ‘‘vented hearth heater.’’ 

DOE is also amending this definition to 

add ‘‘vented hearth heater’’ to the list of 

products—‘‘vented wall furnace, vented 

floor furnace, and vented room 

heater’’—that the definition currently 

states are included as vented home 

heating equipment. As stated in the 

December 2009 NOPR and above, 

vented hearth products already meet 

DOE’s definition for ‘‘vented home 

heating equipment.’’ This is true 

regardless of whether the term ‘‘vented 

hearth heater’’ is added to that 

definition. Thus, the addition of that 

term merely clarifies the existing 

definition, and is a technical correction 

that does not alter the substance of the 

definition. As amended, the definition 

reads as follows: 

Vented home heating equipment or 

vented heater means a class of home 

heating equipment, not including 

furnaces, designed to furnish warmed 

air to the living space of a residence, 

directly from the device, without duct 

connections (except that boots not to 

exceed 10 inches beyond the casing may 

be permitted and except for vented 

hearth heaters, which may be with or 

without duct connections) and includes: 

vented wall furnace, vented floor 

furnace, vented room heater, and vented 

hearth heater. 

b. Covered Products Not Included in 

This Rulemaking 

As the December 2009 NOPR explains 

in detail, unvented direct heating 

equipment, electric pool heaters, and 

combination water heating/space 

heating products all are covered 

products under EPCA, but no Federal 

energy conservation standards exist for 

them. 74 FR 65852, 65866–76 (Dec. 11, 

2009). DOE did not propose standards 

for them in this rulemaking, because, in 

the case of unvented DHE, a standard 

could produce little energy savings 

(largely due to the fact that any heat 

losses are dissipated directly into the 

conditioned space) and because of 

limitations in the applicable DOE test 

procedure, and in the case of the other 

two products, because of the lack of an 

appropriate DOE test procedure. Id. 

By contrast, standards currently apply 

to tabletop and electric instantaneous 

water heaters. (10 CFR 430.32(d)) But, as 

explained in the December 2009 NOPR, 

an increase in the current standard 

levels for tabletop products is not 

feasible, and would force them off the 

market, and an increase in the levels for 

electric instantaneous products would, 

at best, save little energy. 74 FR 65852, 

65867 (Dec. 11, 2009). Therefore, DOE 

also did not propose amended standards 

for these products. 

With regard to these five covered 

products, DOE sees no reason to change 

the conclusions expressed in the 

December 2009 NOPR, and takes no 

further action in today’s final rule. DOE 

did not receive any comments in 

response to its proposed treatment of 

these five covered products in the 

December 2009 NOPR. Consequently, 

DOE is not adopting standards for these 

products in today’s final rule. 

2. Product Classes 

In evaluating and establishing energy 

conservation standards, DOE generally 

divides covered products into classes by 

the type of energy used or by capacity 

or other performance-related feature that 

justifies a different standard for 

products having such feature. (See 42 

U.S.C. 6295(q)) In deciding whether a 

feature justifies a different standard, 

DOE must consider factors such as the 

utility of the feature to users. Id. DOE 

normally establishes different energy 

conservation standards for different 

product classes based on these criteria. 

Table IV.1 presents the product 

classes for the three types of heating 

products under consideration in this 

rulemaking. The subsections below 

provide additional details and a 

discussion of comments relating to the 

product classes for the three heating 

products in response to the December 

2009 NOPR proposals. 

TABLE IV.1—PRODUCT CLASSES FOR THE THREE HEATING PRODUCTS

Residential water heater type Characteristics 

Gas-Fired Storage Type .................................................... Nominal input of 75,000 Btu/h or less; rated storage volume from 20 to 100 gallons. 

Oil-Fired Storage Type ....................................................... Nominal input of 105,000 Btu/h or less; rated storage volume of 50 gallons or less. 

Electric Storage Type ......................................................... Nominal input of 12 kW (40,956 Btu/h) or less; rated storage volume from 20 to 120 

gallons. 

Gas-Fired Instantaneous .................................................... Nominal input of over 50,000 Btu/h up to 200,000 Btu/h; rated storage volume of 2 

gallons or less. 

Direct heating equipment type Heating capacity (Btu/h) 

Gas Wall Fan Type ............................................................ Up to 42,000. 

Over 42,000. 


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TABLE IV.1—PRODUCT CLASSES FOR THE THREE HEATING PRODUCTS—Continued 

Gas Wall Gravity Type ....................................................... Up to 27,000. 

Over 27,000 and up to 46,000. 

Over 46,000. 

Gas Floor ........................................................................... Up to 37,000. 

Over 37,000. 

Gas Room .......................................................................... Up to 20,000. 

Over 20,000 and up to 27,000. 

Over 27,000 and up to 46,000. 

Over 46,000. 

Gas Hearth ......................................................................... Up to 20,000. 

Over 20,000 and up to 27,000. 

Over 27,000 and up to 46,000. 

Over 46,000. 

Pool heater type Characteristics 

Residential Pool Heaters ................................................... Gas-fired. 

a. Water Heaters 

As presented in the December 2009 

NOPR, residential water heaters can be 

divided into various product classes 

categorized by physical characteristics 

that affect product efficiency. Key 

characteristics affecting the energy 

efficiency of the residential water heater 

are the type of energy used and the 

volume of the storage tank. 74 FR 65852, 

65868–71 (Dec. 11, 2009). These 

product classes are differentiated by the 

type of energy used (i.e., electric, gas, or 

oil) and the type of storage for the water 

heater (i.e., storage, tabletop, or 

instantaneous). In this rulemaking, DOE 

has excluded tabletop water heaters and 

electric instantaneous water heaters 

from consideration for the reasons 

discussed above. 74 FR 65852, 65868 

(Dec. 11, 2009). 

In response to the December 2009 

NOPR analysis and the issues for which 

DOE specifically sought comment, DOE 

received several comments from 

interested parties about DOE’s proposed 

product classes and their organization 

for residential water heaters. These 

comments are summarized and 

addressed immediately below. 

i. Low-Boy Water Heaters 

General Electric (GE), A.O. Smith 

Corporation (A.O. Smith), Bradford 

White Corporation (BWC), and AHRI 

supported the need for a separate 

product class for low-boy water heaters, 

which are electric storage water heaters 

that are shorter in height and wider in 

diameter than traditional water heaters. 

(GE, No. 84 at p. 1; A.O. Smith, No. 76 

at p. 2; BWC, No. 61 at p. 3; AHRI, No. 

91 at p. 3; Rheem, No. 89 at p. 11; and 

A. O. Smith, Public Meeting Transcript, 

No. 57.4 at pp. 55–56) ACEEE, 

EarthJustice, and ASAP disagreed and 

supported DOE’s position in the 

December 2009 NOPR, which did not 

establish a separate product class for 

low-boy electric storage water heaters. 

(ACEEE, No. 79 at p. 8; EarthJustice, No. 

83 at p. 1; and ASAP, Public Meeting 

Transcript, No. 57.4 at p. 60) The 

individual commenters’ rationales and 

further justification are presented 

below. 

GE asserted the low-boy water heaters 

should be separated into their own 

product class, because in some 

categories, the benefits of unique size, 

configuration, and functionality are very 

important to consumers. In this product 

category, the unique functionality of a 

low-boy water heater happens to focus 

on the physical dimensions of the 

product. GE asserted that some 

consumers prefer or require the lower 

overall product height, as they do not 

have the space available for a standardsized water heater. (GE, No. 84 at p. 1) 

A.O. Smith strongly asserted that a 

separate class for low-boy water heaters 

is justified, for many of the same 

reasons that a separate class is already 

established for table-top water heaters. 

According to the commenter, low-boy 

water heaters are predominately used in 

installations where height is a 

constraint, such as where a furnace or 

air-handler is mounted on a rack above 

the low-boy water heater in an 

equipment closet. Because low-boy 

water heaters are already a larger 

diameter unit than the baseline design, 

increasing the diameter even more by 

requiring additional insulation 

thickness would make the heater too 

large to fit into the space available in 

most replacement situations (again, 

such as the closet/rack example above). 

A.O. Smith stated its belief that there 

will be a loss of utility for low-boy 

heaters if they are not put into a 

separate class with an EF less than 

proposed for the ‘‘standard’’ heater. 

(A.O. Smith, No. 76 at p. 2) 

BWC supports a separate product 

class for low-boy water heaters because 

they have very specific applications. 

Low-boy water heaters are frequently 

used in condominiums where 

additional space is unavailable and a 

gas water heater cannot be used due to 

venting limitations. When used in these 

applications, BWC claimed that lowboys use less water than typical 

standard electric water heaters. 

Therefore, BWC asserted low-boy water 

heaters have a different utility than 

standard electric water heaters. (BWC, 

No. 61 at p. 3) 

AHRI asserted that low-boy water 

heaters use electricity, but are not 

offered in the same range of volumes as 

standard electric storage water heaters. 

Most low-boys are offered in 30-gallon 

and 40-gallon sizes. AHRI asserted that 

the December 2009 NOPR 

mischaracterizes the functionality or 

utility of these products. Low-boy 

models have the unique feature of being 

able to be installed in short, confined 

spaces in a dwelling. But, as is the case 

with countertop electric water heaters, 

the constraints dictated by the spaces in 

which these products are installed affect 

the options for increasing the efficiency 

of low-boy electric models. Many lowboy models today may have efficiencies 

comparable to standard size electric 

water heaters, but they do not have the 

same potential for further increasing 

their efficiency. Accordingly, AHRI 

argued that this separate product class 

should have a minimum EF standard 

that is 0.01 less than that proposed for 

electric storage water heaters. (AHRI, 

No. 91 at p. 3) 

Rheem asserted that low-boy electric 

water heaters (i.e., electric storage water 

heaters ranging from 20 to 50 gallons) 

are typically installed under a counter 

or stacked (air handler) in high-density 

housing, such as apartment and 

condominium communities. According 

to Rheem, any size increase driven by a 

significant change in the EF 


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requirements would affect the product 

geometry (diameter and height) and 

drive the potential use of multiple, 

smaller, point-of-use electric or 

instantaneous electric water heaters. 

(Rheem, No. 89 at p. 11) 

ACEEE asserted that low-boy water 

heaters designed to fit beneath 

conventional cabinets are similar to 

‘‘table-top’’ units, with similar trade-offs 

in terms of capacity and improved 

efficiency (through thicker insulation). 

ACEEE agrees with DOE’s reasoning in 

the December 2009 NOPR that low-boys 

can be designed to meet the proposed 

standards by using thicker insulation, 

higher set-point settings, and a 

tempering valve, and, therefore, ACEEE 

opined that, in general, no special 

product class is needed. However, as a 

compromise, ACEEE stated that it could 

support a special class for low-boys 

designed for small living units, but with 

an upper capacity limit of 30 gallons, in 

order to prevent ‘‘leakage’’ of lowerefficiency units into the general water 

heater applications. If larger units are 

also included, ACEEE expressed 

concern that significant growth in lowboy sales would be expected, leading to 

a significant loss in energy savings 

relative to use of higher-efficiency 

conventional units. (ACEEE, No. 79 at 

pp. 8–9) 

EarthJustice stated that a separate 

product class for low-boy water heaters 

is not justified. According to the 

commenter, DOE’s analyses demonstrate 

that water heaters in these 

configurations can meet the efficiency 

standards under consideration for 

electric-storage and gas-storage water 

heaters, respectively (see 74 FR 65852, 

65869 (Dec. 11, 2009)). (EarthJustice, 

No. 83 at p. 1) 

NRDC also stated that ‘‘low-boy’’ water 

heaters do not warrant a separate 

product class, because these products 

could become a low-cost loophole to the 

standard if allowed to be less efficient 

than traditional tank-type water heaters. 

(NRDC, No. 85 at p. 6) 

ASAP agreed with DOE’s position not 

to establish a separate product class for 

low-boy water heaters, as presented in 

the December 2009 NOPR. ASAP 

warned DOE to keep a close eye on 

lower standards for particular product 

classes, which can result in market 

shares for those products increasing and 

reduction of the overall energy savings 

associated with the energy conservation 

standards. (ASAP, Public Meeting 

Transcript, No. 57.4 at p. 60) 

After careful consideration, DOE does 

not agree with certain commenters that 

a separate product class needs to be 

established for low-boy water heaters. 

As noted above, in evaluating and 

establishing energy conservation 

standards, DOE generally divides 

covered products into classes by the 

type of energy used, or by capacity or 

another performance-related feature that 

justifies a different standard. (See 42 

U.S.C. 6295(q)) DOE notes that low-boy 

water heaters use the same type of 

energy as other water heaters (i.e., gas or 

electricity) and are offered in a range of 

storage volumes. Thus, the type of 

energy used and the functionality of 

low-boy units are similar to other types 

of water heaters. DOE acknowledges 

that low-boy water heaters are only 

offered in certain volume sizes, which 

tend to be at the lower end of the range 

(i.e., below 50 gallons). While many of 

the commenters pointed to specific sizeconstrained applications where low-boy 

water heaters are installed, DOE 

reviewed the market and found that 

low-boy water heaters are generally 

classified as water heaters that have a 

shorter height and wider diameter. 

However, unlike tabletop water heaters, 

low-boy water heaters did not seem to 

have a uniform or common platform 

size. Instead, the physical dimensions of 

low-boy water heaters varied by 

manufacturer, model, and efficiency, 

but this is also true of the entire electric 

storage water heating market. Water 

heater manufacturers offer a range of 

options to consumers, including various 

physical dimensions that are not unique 

to low-boy units. (See chapter 3 of the 

TSD.) Furthermore, DOE does not 

believe each different combination of 

physical dimensions currently available 

on the market warrants a separate 

product class. DOE reaffirmed its 

position in the December 2009 NOPR 

that the size constraints of these units 

do not appear to impact energy 

efficiency, since many ‘‘low-boy’’ 

models have efficiencies that are 

comparable to standard-size water 

heaters currently available on the 

market. DOE’s research suggests that 

there are currently multiple low-boy 

units offered that will meet the 

standards being adopted in today’s final 

rule for electric storage water heater less 

than 55 gallons. Specifically, DOE found 

multiple low-boy models at 0.95 EF 

with a rated storage volume of 50 

gallons. Consequently, for the reasons 

above, DOE is not establishing a 

separate product class for low-boy water 

heaters. 

ii. Ultra-Low NOX Water Heaters 

In the December 2009 NOPR analysis, 

DOE did not propose to establish a 

separate product class for ultra-low NOX

gas-fired storage water heaters. 74 FR 

65852, 65869–70 (Dec. 11, 2009). 

However, DOE did specifically analyze 

these water heaters as compared to 

traditional gas-fired storage water 

heaters with standard burners. 74 FR 

65852, 65882–83 (Dec. 11, 2009). In 

response to the treatment of ultra-low 

NOX gas-fired storage water heaters in 

the December 2009 NOPR, DOE 

received a number of different 

comments. A.O. Smith, BWC, AHRI, 

and Rheem urged DOE to establish a 

separate product class for ultra-low NOX

gas-fired water heaters. (A.O. Smith, No. 

76 at p. 2; BWC, 61 at p. 3; AHRI, No. 

91 at p. 3; A.O. Smith, Public Meeting 

Transcript, No. 57.4 at pp. 56–57; and 

AHRI, Public Meeting Transcript, No. 

57.4 at pp. 57–58) On the other hand, 

ACEEE, EarthJustice, and NRDC agreed 

with DOE’s position in the December 

2009 NOPR that ultra-low NOX gas-fired 

water heaters should not have their own 

product class. Further details provided 

by each commenter are presented 

below. 

A.O. Smith asserted that the burner 

technology needed to comply with the 

South Coast Air Quality Management 

District’s (SCAQMD) ultra-low NOX

requirements and the changes to the 

water heater technology that are needed 

to meet increased efficiency 

requirement are ‘‘operationally 

contradictory’’ with each other. The 

types of burners currently used to 

comply with the ultra-low NOX

requirement in atmospheric heaters are 

much more restrictive (higher pressure 

drop) than conventional burners. Since 

these ultra-low NOX heaters also must 

comply with the flammable vapor 

ignition resistance requirements, they 

also have flame arrestors on the air inlet, 

which add more restriction (pressure 

drop) to the system. In order to boost the 

efficiency, the flue baffle must be made 

more effective, which means making it 

more restrictive. The increased pressure 

drops due to all three components taken 

together is enough to offset the thermal 

buoyancy of the atmospheric venting 

design, and cause the heater to no 

longer work. The only way to overcome 

the additional restriction would be to 

add a blower and/or power-burner to 

the heater, which would greatly increase 

the manufacturing and installation costs 

of the heater. (A.O. Smith, No. 76 at 

p. 2) 

BWC asserted that ultra-low NOX gasfired water heaters should be a separate 

product class because they have distinct 

design differences compared to standard 

atmospheric gas water heaters. The 

unique design requirements for ultralow NOX gas-fired water heaters greatly 

limit their capacity to increase the 

efficiency while maintaining a lower 

level of emissions. (BWC, 61 at p. 3) 


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AHRI challenged the December 2009 

NOPR’s tentative conclusions that ultralow NOX gas-fired models provide the 

same utility as standard gas-fired storage 

water heaters, while simply using a 

distinct burner to achieve the ultra-low 

NOX emissions. AHRI argued that 

standard gas-fired water heaters do not 

offer the same utility as the ultra-low 

NOX models because the standard gasfired water heater cannot heat water 

efficiently while also emitting NOX at a 

very low rate. Regardless of its 

efficiency, a standard residential gasfired water heater cannot be sold or 

installed in many areas in California. 

According to AHRI, the feature of ultralow NOX emissions is a unique 

performance characteristic that imposes 

different conditions on how, and at 

what expense, the efficiency of these 

models can be increased. As is the case 

with low-boy electric models, AHRI 

asserted that ultra-low NOX water 

heaters should have a separate product 

class with a minimum EF standard that 

is 0.01 less than that proposed for gasfired storage water heaters. (AHRI, No. 

91 at p. 4) 

ACEEE stated that there is no reason 

for a separate product class with 

separate standards for ultra-low NOX

water heaters. According to ACEEE, 

these units can meet the same standards 

as conventional equipment, if they 

incorporate induced draft (power vent) 

to compensate for the combined 

pressure drop of the better baffle, FVIR, 

and ultra-low NOX burner. If 

stakeholders want an exception, the 

commenter suggested that this should 

be dealt with by the waiver process 

rather than by establishing another 

dead-end class of atmospherically 

vented equipment. (ACEEE, No. 79 at 

p. 9) 

EarthJustice stated that a separate 

product class for ultra-low NOX gasfired water heaters is not justified. The 

commenter pointed to DOE’s own 

analysis, which arguably demonstrates 

that water heaters in these 

configurations can meet the efficiency 

standards under consideration for 

electric storage and gas storage water 

heaters, respectively (see 74 FR 65852, 

65869, 65881 (Dec. 11, 2009)). 

(EarthJustice, No. 83 at p. 1) 

NRDC likewise argued that there 

should not be a separate product class 

for ultra-low NOX gas-fired water 

heaters. NRDC stated that the efficiency 

requirements considered in the 

rulemaking can be met in ultra-low NOX

gas-fired units by moving to power vent 

technology and probably with other 

routes. Therefore, the commenter 

concluded that there is no need to allow 

a less-stringent standard for these 

products when the proposed 

requirements can be met. (NRDC, No. 85 

at p. 6) 

After considering public comments on 

this issue, DOE has decided not to 

change its position from the December 

2009 NOPR and continues to believe 

that a separate product class does not 

need to be established for ultra-low NOX

gas-fired storage water heaters. As noted 

above, in evaluating and establishing 

energy conservation standards, DOE 

generally divides covered products into 

classes by the type of energy used, or by 

capacity or other performance-related 

feature that justifies a different standard 

for products having such feature. (See 

42 U.S.C. 6295(q)) Ultra-low NOX gasfired storage water heaters use the same 

type of energy (i.e., gas) and are offered 

in comparable storage volumes to 

traditional gas-fired storage water 

heaters using standard burners. In 

deciding whether the product 

incorporates a performance feature that 

justifies a different standard, DOE must 

consider factors such as the utility of the 

feature to users. Id. In terms of water 

heating, DOE believes ultra-low NOX

water heaters provide the same utility to 

the consumer. However, DOE also notes 

that ultra-low NOX water heaters do 

incorporate a specific burner technology 

allowing these units to meet the strict 

emissions requirements of local air 

quality management districts. Some of 

the commenters pointed out that the 

increased pressure drops could 

adversely impact the efficiency levels. 

DOE agreed with this assertion and 

maintained its methodology for 

handling ultra-low NOX gas-fired 

storage water heaters, which included 

development of a separate analysis for 

these products, as detailed in the 

December 2009 NOPR. 74 FR 65852, 

65881–82 (Dec. 11, 2009). See section 

IV.C.2.a for additional details. This 

analysis showed that implementing 

power venting and the same insulation 

increases as those for standard gas-fired 

water heaters would result in slightly 

lower efficiencies due to the additional 

pressure restrictions resulting from the 

addition of the ultra-low NOX burner. 

Therefore, DOE implemented 

technologies at lower efficiency levels 

for ultra-low NOX gas-fired storage 

water heaters in order to achieve the 

same efficiencies as those identified for 

standard gas-fired storage water heaters. 

Based on the teardown analysis of ultralow NOX water heaters, DOE believes 

that ultra-low NOX gas-fired storage 

water heaters will be able to meet the 

standards that are being adopted in 

today’s final rule using available 

technologies currently on the market. 

Therefore, for the above reasons, DOE 

has decided not to establish a separate 

product class for ultra-low NOX gasfired storage water heaters in this final 

rule. 

iii. Heat Pump Water Heaters 

Throughout the rulemaking, DOE has 

treated heat pump water heaters as a 

design option for electric storage water 

heaters rather than a separate product 

class, as further explained and detailed 

in the preliminary analysis. (See 

Chapter 2 of the preliminary analysis 

TSD and the discussion in the December 

2009 NOPR (74 FR 65852, 65870–81 

(Dec. 11, 2009).) A heat pump water 

heater represents a merging of two 

technologies: (1) An electric resistance 

storage water heater with tank and 

controls; and (2) a refrigeration circuit 

similar to that found in a residential airconditioner. Heat pump water heaters 

use existing heat pump technology to 

extract heat from the surrounding air 

(typically at room temperature) for 

heating stored water. For electric water 

heaters, this is an alternative to resistive 

heating, which transfers heat from the 

electric resistance element to the water. 

DOE received several comments from 

interested parties in response to its 

treatment of heat pump water heaters 

and its request for comment on some of 

the issues identified surrounding heat 

pump water heaters. Some commenters 

urged DOE to establish separate product 

classes for traditional electric resistance 

storage water heaters and heat pump 

water heaters, while others agreed with 

DOE’s classification of heat pump water 

heaters. Their specific comments and 

DOE’s response are presented below. 

General Electric stated support for 

DOE’s proposal to not create a separate 

product class for heat pump water 

heaters, as they are designed to replace 

traditional electric water heaters in most 

residences, and have similar consumer 

functionalities. (GE, No. 84 at p. 1) 

Daikin asserted that electric resistance 

water heaters should be placed in the 

same product class as heat pump water 

heaters. Anecdotally, Daikin stated that 

in the European Union, the European 

Parliament has classified both of these 

products in the same category for energy 

efficiency regulatory purposes, and the 

commenter further stated that in Japan, 

electric resistance water heaters have 

practically disappeared from the market 

as of 2010. In addition, Daikin stated 

that heat pump water heaters usually 

have a back-up electric heater. If heat 

pump water heaters are classified 

separately, there will be a difficult 

question about whether the back-up 

electric heater requires heat pump water 

heating systems to remain in the other 


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category for some purposes. However, 

Daikin suggested that if DOE decides to 

establish a heat pump water heater 

product class, then it should be 

subdivided based on the following three 

criteria: (1) Refrigerant type; (2) heat 

source (i.e., air to water heat pump); and 

(3) add-on or integrated type system 

(i.e., heat pump system and a tank). 

(Daikin, No. 82 at pp. 1–2) 

Northwest Energy Efficiency Alliance 

(NEEA) stated there is not a need for a 

separate class of water heaters based on 

heat pump versus resistance elements. 

According to NEEA, all of the current 

product offerings have a first-hour rating 

that is equivalent to an electric 

resistance heated product of the same 

size. From a consumer utility 

standpoint, the products are equivalent 

in terms of delivery of hot water for an 

equivalent tank size. These products are 

all designed as integrated, ‘‘drop-in’’ 

replacement units according to product 

literature that NEAA has reviewed from 

A.O. Smith, Rheem, and General 

Electric. (NEEA, No. 88 at p. 2) 

In its comments, EarthJustice opposed 

establishing a separate product class for 

heat pump water heaters, based on the 

following rationale. EarthJustice 

asserted that EPCA provides both 

mandatory and permissive authority for 

DOE to establish new product classes 

for covered products. (See 42 U.S.C. 

6295(o)(4) and (q)(1)) However, aside 

from the unique situation of a covered 

product capable of consuming different 

kinds of energy (42 U.S.C. 

6295(q)(1)(A)), EarthJustice argued that 

EPCA only mandates the creation of 

multiple product classes when the 

failure to do so would eliminate certain 

truly unique product attributes from the 

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

contrast, while DOE does have 

discretion to create separate classes for 

products based on the presence of ‘‘a 

capacity or other performance-related 

feature,’’ the Department may exercise 

this authority only if ‘‘such feature 

justifies a [different] standard.’’ 42 

U.S.C. 6295(q)(1)(B)) For the reasons 

explained below, EarthJustice argued 

that the plain language of EPCA 

forecloses an interpretation that the 

establishment of separate product 

classes for electric resistance and heat 

pump water heaters is warranted or 

required. First, EarthJustice stated that 

as DOE notes in the December 2009 

NOPR, there is no distinction between 

heat pump and electric resistance water 

heaters with regard to operational 

utility. Accordingly, EarthJustice argued 

that because heat pump and electric 

resistance water heaters provide 

identical service, there is no basis for 

DOE to conclude that separate product 

classes for these technologies are 

necessary to preserve the availability in 

the market of a distinct ‘‘feature’’ with 

utility to the user of the product (see 42 

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

At the public hearing on the 

December 2009 NOPR, representatives 

from some manufacturers asserted that a 

separate product class for heat pump 

water heaters was needed to address the 

fraction of households that would 

otherwise experience higher-thannormal installation costs to replace a 

water heater using electric resistance 

heating with one using a heat pump. 

However, EarthJustice stated that even if 

DOE’s analysis confirms that there is a 

cost penalty to install a heat pump 

water heater in some applications, this 

fact, standing alone, would not support 

the creation of separate product classes 

for heat pump and electric resistance 

water heaters. In all standards 

rulemakings, EarthJustice reasoned that 

some households will face higher 

incremental costs to install products 

meeting revised standards, but the 

proper approach under EPCA is to 

consider these impacts in calculating 

consumers’ average lifecycle cost and 

payback period for the standard levels 

under consideration (see 42 U.S.C. 

6295(o)(2)(B)(i)(II)). According to 

EarthJustice, to use an increase in the 

installed cost for a portion of shipments 

as the basis for a separate product class 

would be an end-run around the other 

factors Congress required DOE to 

consider in assessing the economic 

justification for a standard (see 42 

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

suggested that DOE’s recent statements 

in the commercial clothes washers 

rulemaking reinforce this point. There, 

an industry commenter argued that a 

particular product design merited a 

separate product class on the basis of its 

low installed cost. 75 FR 1122, 1130 

(Jan. 8, 2010). In response, DOE 

explained that it ‘‘does not consider first 

cost a ‘feature’ that provides consumer 

utility for purposes of EPCA. DOE 

acknowledges that price is an important 

consideration to consumers, but DOE 

accounts for such consumer impacts in 

the [lifecycle cost] and [payback period] 

analyses conducted in support of this 

rulemaking.’’ Id. at 1134. EarthJustice 

stated that DOE’s refusal to use installed 

costs as the basis for a separate product 

class for commercial clothes washers is 

faithful to EPCA’s text, and there is no 

justification for adopting a contrary 

approach for water heaters. 

(EarthJustice, No. 73 at pp. 1–3) 

NRDC also stated that heat pump 

water heaters do not warrant a separate 

product class since heat pump water 

heater and an electric tank type water 

heater provide the same consumer 

utility. (NRDC, No. 85 at p. 5) 

On the other hand, Southern 

Company (Southern) stated its belief 

that there is more of a functional 

difference between heat pump water 

heaters and electric resistance water 

heaters than with other products for 

which DOE has established separate 

product classes, including refrigerators 

(top freezer versus side-by-side), 

window air conditioners (for location of 

louvers), and transformers (a multitude 

of different phases and sizes). Southern 

Company argued that heat pump water 

heaters should be treated as a separate 

product class because the heat pump 

water heater transfers cold air from the 

heat pump to the surrounding space and 

are noisier than electric resistance water 

heaters. (Southern, No. 90 at p. 5) 

BWC recommended a separate 

product class be established for heat 

pump water heaters because the primary 

fuel source is air instead of electricity. 

Heat pump water heaters can attain 

greater efficiencies, because while 

electricity is being converted to heat the 

water like a typical electric resistance 

water heaters, heat is also being moved 

from the surrounding environment to 

the stored water via the heat pump. In 

order for heat pump water heaters to 

maximize efficiency, they must recover 

slowly, which changes the utility of the 

water heater. According to BWC, the 

same size heat pump water heater is not 

providing the same performance as the 

equivalent size electric resistance 

heater. (BWC, No. 61 at p. 4) 

AHRI reaffirmed its position that heat 

pump water heaters should be a 

separate product class. AHRI argued 

that DOE’s tentative conclusion that 

heat pump water heaters do not require 

a separate product class because they 

provide hot water just like a traditional 

electric storage water heater is invalid 

because it fails to recognize how the 

heat pump water heater produces that 

hot water and how the heat pump water 

heater’s performance is effected by the 

environment in which it is installed. 

AHRI asserted that the following 

characteristics make heat pump water 

heaters unique: (1) Water is heated by 

energy extracted from the air; (2) the 

heating capacity is variable depending 

on the temperature of the air provided 

to the heat pump; (3) the unit cannot 

heat water above approximately 135 

degrees Fahrenheit; (4) the unit must be 

installed in a space large enough to 

provide the necessary volume of air for 

the unit to adequately heat water; (5) the 

unit cools the air in the household; (6) 

the unit requires a condensate drain as 

part of the installation; (7) the unit 

cannot be adjusted to meet increases in 


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demand without relying on the electric 

resistance elements; (8) the unit can 

heat water as long as there is adequate 

airflow through the heat pump, and 

thus, a heat pump with electrical power 

but with a clogged air filter will not heat 

water; and (9) the unit needs a back up 

water heating means that can operate 

when the heat pump cannot meet the 

load. (AHRI, No. 91 at pp. 4–6) 

In response to these NOPR comments, 

DOE does not agree that heat pump 

water heaters meet the requirements for 

establishing a separate product class. 

Specifically, DOE does not believe heat 

pump water heaters provide a different 

utility from traditional electric 

resistance water heaters. Heat pump 

water heaters provide hot water to a 

residence just as a traditional electric 

storage water heater does. While AHRI 

noted that heat pump water heaters 

utilize heat extracted from the air to 

heat the water, both heat pump water 

heaters and traditional electric 

resistance storage water heaters use 

electricity as the primary fuel source. 

AHRI’s recitation of operational 

differences associated with water 

heaters that utilize heat pump 

technology does not establish that the 

mode of heating water is performancerelated feature or provides a unique 

utility. As pointed out by GE, current 

manufacturers of heat pump water 

heaters are marketing these products as 

direct replacements for traditional 

electric resistance water heaters. The 

rated storage volumes and first hour 

ratings of the heat pump water heaters 

currently on the market are comparable 

to the traditional electric resistance 

water heaters. Some of the commenters 

pointed out that heat pump water 

heaters require special installation 

considerations, but to account for this, 

DOE applied in its analysis specific 

installation costs, where applicable, to 

heat pump water heaters. (See section 

IV.F.2 of today’s notice for more details 

on treatment of the installation costs.) 

Consequently, DOE has concluded that 

heat pump water heaters can replace 

traditional electric resistance storage 

water heaters in most residences, 

although the installation requirements 

may be quite costly. For these reasons, 

DOE has decided not to establish a 

separate product class for heat pump 

water heaters. 

iv. Unpowered Gas-Fired Water Heaters 

The American Gas Association (AGA) 

asserted that unpowered gas-fired 

storage water heaters should be an 

independent product class. An 

unpowered gas-fired storage water 

heater is one that does not utilize line 

electricity in order to provide hot water 

to the residence. For many customers 

during a power outage, unpowered gasfired water heaters are the only utility 

system that provides a source of heat. 

AGA believes that this occurrence is 

sufficiently frequent to justify the 

treatment of unpowered gas-fired 

storage water heaters as an independent 

product class, consistent with DOE’s 

charge to establish product classes 

based on type of energy used, capacity, 

and in this case, ‘‘other performancerelated feature’’ such as those that 

provide utility to consumers. (AGA, No. 

78 at pp. 6–7) 

DOE does not agree with AGA’s 

assertion that unpowered gas-fired 

storage water heaters meet the criteria 

for the establishment of a separate 

product class. Both powered and 

unpowered gas-fired storage water 

heaters use gas as the primary fuel 

source, and both provide the same basic 

utility to consumers, which is to supply 

hot water to the residence. DOE does 

not believe that having the ability to 

maintain hot water during power 

outages when the electricity is not 

working provides enough additional 

utility to consumers to warrant a 

separate product class. DOE believes 

that power outages are infrequent events 

that can be handled by a number of 

different market solutions such as backup power systems. 

b. Direct Heating Equipment 

DHE can be divided into various 

product classes categorized by physical 

characteristics and rated input capacity, 

both of which affect product efficiency 

and function. Key characteristics 

affecting the energy efficiency of DHE 

are the physical construction (e.g., fan 

wall units contain circulation blowers), 

intended installation (e.g., floor furnaces 

are installed with the majority of the 

unit outside of the conditioned space), 

and input capacity. 

In the December 2009 NOPR, DOE 

proposed consolidating the product 

classes for four types of DHE and adding 

product classes for one type of DHE. 

DOE discusses the full details of its 

proposals in the December 2009 NOPR. 

74 FR 65852, 65871–72 (Dec. 11, 2009). 

In response to the proposed product 

class consolidation, AHRI took the 

position that the Federal energy 

conservation standards should not 

change for direct heating equipment, 

which would include not consolidating 

any of the existing BTU range categories 

or range levels. (AHRI, Public Meeting 

Transcript, No. 57.4 at p. 85) 

Empire Comfort Products (Empire) 

stated that if DOE condenses the 

product classes for direct heating 

equipment, it will reduce the 

manufacturers’ flexibility to increase 

efficiency. (Empire, Public Meeting 

Transcript, No. 57.4 at p. 86) 

Neither AHRI nor Empire provided 

any additional insight to explain why 

the proposed reduction in product 

classes would limit a manufacturer’s 

ability to increase the efficiency of 

direct heating equipment. DOE believes 

the consolidation of product classes 

reflects the current models offered by 

manufacturers. As discussed in the 

December 2009 NOPR, DOE carefully 

reviewed product catalogs and 

performance directories to determine 

the relationship between AFUE and 

input rating found among products 

listed in the AHRI Directory. For each 

of the five types of DHE, DOE found that 

manufacturers do not produce products 

in some of the input capacity ranges or 

that some of the efficiency 

characteristics of these products are 

similar. DOE explained each of these 

changes in the NOPR along with its 

proposal to further consolidate the 

product classes, where applicable. 74 

FR 65852, 65871–72 (Dec. 11, 2009). For 

each product class, DOE characterized 

this relationship, and the commenters 

have provided no data or rationale as to 

why DOE’s characterization was 

incorrect. Consequently, DOE is 

adopting the consolidated product 

classes as proposed in the December 

2009 NOPR. Table IV.2 presents the 

product classes for DHE being adopted 

by this rulemaking. 

TABLE IV.2—PRODUCT CLASSES FOR DIRECT HEATING EQUIPMENT

Direct heating equipment type Input heating capacity 

Btu/h 

Gas Wall Fan Type .............................................................................................................................. Up to 42,000. 

Over 42,000. 

Gas Wall Gravity Type ........................................................................................................................ Up to 27,000. 

Over 27,000 and up to 46,000. 


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TABLE IV.2—PRODUCT CLASSES FOR DIRECT HEATING EQUIPMENT—Continued 

Direct heating equipment type Input heating capacity 

Btu/h 

Over 46,000. 

Gas Floor ............................................................................................................................................. Up to 37,000. 

Over 37,000. 

Gas Room ............................................................................................................................................ Up to 20,000. 

Over 20,000 and up to 27,000. 

Over 27,000 and up to 46,000. 

Over 46,000. 

Gas Hearth .......................................................................................................................................... Up to 20,000. 

Over 20,000 and up to 27,000. 

Over 27,000 and up to 46,000. 

Over 46,000. 

c. Pool Heaters 

As discussed in the December 2009 

NOPR, the existing Federal energy 

conservation standards for pool heaters 

correspond to the efficiency levels 

specified by EPCA, as amended (42 

U.S.C. 6295(e)(2)), and codified in 10 

CFR 430.32(k), classifying residential 

pool heaters with one product class. 

This product class is distinguished by 

fuel input type (i.e., gas-fired). 74 FR 

65852, 65872 (Dec. 11, 2009). 

B. Screening Analysis 

The purpose of the screening analysis 

is to evaluate the technology options 

identified in the market and technology 

assessment as having the potential to 

improve the efficiency of products and 

to determine which technologies to 

consider further and which to screen 

out based on the four screening criteria. 

DOE consulted with industry, technical 

experts, and other interested parties to 

develop a list of technologies for 

consideration. DOE then applied the 

following four screening criteria to 

determine which design options are 

suitable for further consideration in the 

standards rulemaking: 

1. Technological feasibility. DOE 

considers technologies incorporated in 

commercial products or in working 

prototypes to be technologically 

feasible. 

2. Practicability to manufacture, 

install, and service. If mass production 

and reliable installation and servicing of 

a technology in commercial products 

could be achieved on the scale 

necessary to serve the relevant market at 

the time the standard comes into effect, 

then DOE considers that technology 

practicable to manufacture, install, and 

service. 

3. Adverse impacts on product utility 

or product 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. 

See 10 CFR part 430, subpart C, 

appendix A, (4)(a)(4) and (5)(b). 

As presented in the December 2009 

NOPR, DOE identified a number of 

technology options that might be used 

to improve the efficiency of residential 

heating products during the market and 

technology assessment. 74 FR 65852, 

65872–79 (Dec. 11, 2009). See chapter 3 

of the December 2009 NOPR and final 

rule TSDs for more information and the 

complete list of technologies identified 

by DOE. DOE then applied the screening 

criteria listed above to determine which 

technologies would be carried through 

the analysis. Table IV.3 through Table 

IV.5 show the technology options that 

were screened-in during the December 

2009 NOPR screening analysis. 

TABLE IV.3—TECHNOLOGIES DOE CONSIDERED FOR THE WATER HEATER ENGINEERING ANALYSIS

Technology 

Water heater type by fuel source 

Storage Instantaneous 

Gas-fired Electric Oil-fired Gas-fired 

Increased Jacket Insulation ............................................................. X X X ............................

Foam Insulation ............................................................................... ............................ ............................ X ............................

Improve/Increased Heat Exchanger Surface Area .......................... X X X X 

Enhanced Flue Baffle ...................................................................... X ............................ X ............................

Direct-Vent (Concentric Venting) ..................................................... ............................ ............................ ............................ X 

Power Vent ...................................................................................... X ............................ X X 

Electronic (or Interrupted) Ignition ................................................... X ............................ X X 

Heat Pump Water Heater ................................................................ ............................ X ............................ ............................

Condensing ...................................................................................... X ............................ X X 


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TABLE IV.4—TECHNOLOGIES DOE 

CONSIDERED FOR THE DIRECT

HEATING EQUIPMENT ENGINEERING

ANALYSIS

Technology 

Increased Heat Exchanger Surface Area. 

Direct-Vent (Concentric Venting). 

Electronic Ignition. 

Induced Draft. 

Two Stage and Modulating Operation. 

Condensing. 

TABLE IV.5—TECHNOLOGIES DOE 

CONSIDERED FOR THE POOL HEATER ENGINEERING ANALYSIS

Technology 

Increased Heat Exchanger Surface Area. 

More Effective Insulation (Combustion Chamber). 

Power Venting. 

Sealed Combustion. 

Condensing. 

1. Comments on the Screening Analysis 

In response to the screening analysis 

presented in the December 2009 NOPR, 

DOE received several comments from 

interested parties. 

In the December 2009 NOPR, CO2

heat pump water heaters were a 

technology option screened out by DOE 

for electric storage water heaters, 

because DOE research suggests U.S. 

manufacturers do not have the 

necessary infrastructure to support 

manufacturing, installation, and service 

of CO2 heat pump water heaters on the 

scale necessary to serve the relevant 

market by the compliance date of an 

amended energy conservation standard. 

74 FR 65852, 65873 (Dec. 11, 2009). In 

general, ACEEE stated that it strongly 

objected to the screening analysis 

because DOE considered only 

technologies available in U.S.- 

manufactured water heaters and 

screened out technologies used in other 

domestic products, as well as ones used 

in the global market. (ACEEE, No. 79 at 

p. 2) ACEEE stated that DOE’s screening 

out of CO2 as a heat pump water heater 

refrigerant is absurd, given the fact that 

1.7 million of them had been sold 

worldwide through the end of 2008, and 

that there is a 5-year lead time before 

the standards compliance date in which 

manufacturers could design a CO2 heat 

pump water heater. (ACEEE, No. 79 at 

p. 2) 

Conversely, Rheem commented that 

CO2 refrigerants were appropriately 

screened out. (Rheem, No. 89 at p. 8) 

AHRI noted that there is a huge heat 

pump business in the U.S. for air 

conditioning and space heating, and no 

significant percentage of those products 

use CO2 as the refrigerant. DOE believes 

AHRI is using the air conditioning and 

space heating industry as an example of 

an industry with significant expertise in 

working refrigerants, but that still does 

not use CO2 refrigerants in its heating 

and cooling products. Even though DOE 

is investigating the use of CO2 as a 

refrigerant in water heating 

applications, AHRI’s example 

demonstrates that U.S. manufacturers 

and service industries do not have the 

expertise in using or handling CO2 as a 

typical refrigerant in cooling 

applications. Therefore, AHRI stated its 

belief that CO2 heat pumps have been 

properly screened out because it is not 

the prevailing technology in North 

America. Further, AHRI stated that for 

standards that will apply to U.S. 

industry, DOE should not unnecessarily 

expand this rulemaking by looking at 

what might be happening in other parts 

of the world. (AHRI, Public Meeting 

Transcript, No. 57.4 at pp. 133–134) 

A.O. Smith stated that CO2 heat pump 

water heaters sold and installed in Japan 

are certified to different levels of 

standards requirements than those that 

exist in the U.S., and those heat pump 

water heaters would not be certifiable in 

the U.S. (A.O. Smith, Public Meeting 

Transcript, No. 57.4 at pp. 134–135) 

In response, DOE believes that CO2

heat pump water heaters were properly 

screened out during the December 2009 

NOPR analysis. DOE notes that 

technologies are not screened out solely 

because they are not yet available in the 

U.S. market. Technologies, such as CO2

heat pump water heaters, which are 

available overseas, are screened out if 

the U.S. does not have the necessary 

infrastructure to support such a 

technology on the scale necessary by the 

compliance date of the standard. As 

described in chapter 4 of the final rule 

TSD (Screening Analysis), CO2 heat 

pump water heaters were screened out 

because the necessary infrastructure to 

support manufacturing, installation, and 

service of CO2 heat pump water heaters 

is not available in the United States, and 

will not be available on the scale 

necessary to serve the relevant market at 

the time of the compliance date of the 

standard. ACEEE did not provide any 

new evidence that would cause DOE to 

change its position on this issue, and, 

therefore, DOE continued to screen out 

CO2 heat pump water heaters for the 

final rule analysis. DOE notes that 

pursuant to Section 612 of the Clean Air 

Act, the U.S. EPA has found CO2 an 

acceptable refrigerant for use in the U.S. 

in certain applications (e.g., retail food 

refrigeration), but has not made such a 

ruling on the use of CO2 in water 

heating heat pumps. EPA indicates that 

to date it has not received any 

submission under the SNAP program for 

the use of CO2 in such devices. For 

additional information on EPA’s 

Significant New Alternative Policy 

(SNAP) program (see http:// 

www.epa.gov/ozone/snap/.) 

ACEEE asserted that DOE fails to 

differentiate between low-voltage (i.e., 

24 volt) and line-voltage (i.e., 120 volt) 

power requirements for gas-fired 

equipment auxiliaries such as igniters, 

controls, and fans. The commenter 

stated that line voltage requires a power 

outlet reachable by a 6 foot power cord 

on the water heater, which would 

require a new outlet in some retrofits, 

while a remote low-voltage plug-in 

power supply can use much longer 

supply lines that could support 

electronic ignition and electromechanical flue dampers. ACEEE stated 

that a recent study of standby losses of 

atmospheric water heaters shows losses 

large enough that ACEEE infers that 

these features would be quite costeffective, and that such products have 

been demonstrated in the past (for the 

SCAQMD) and in gas stoves. (ACEEE, 

No. 79 at p. 3) ACEEE stated that 

requiring gas-fired appliances to have an 

electrical connection does not diminish 

utility because it is not an issue in the 

minds of the public, and if the 

capability of gas-fired products to 

operate during power outages was 

important, then local building codes 

would require backup non-electric 

heating capabilities for houses with 

electric water heaters. (ACEEE, Public 

Meeting Transcript, No. 57.4 at pp. 38– 

39) 

In response, DOE agrees with ACEEE 

that requiring gas-fired appliances to 

have an electrical connection does not 

diminish utility, and DOE notes that 

this rationale was not provided for 

screening out any of the technologies 

that DOE did not consider in the 

analysis. Further, DOE notes that many 

of the design options for gas-fired 

appliances included electronic 

components, such as electronic 

ignitions and power venting. 

Louisville Tin & Stove (LTS) 

commented that the proposed standards 

for DHE would reduce consumer utility 

because they would lose the ability to 

heat without electricity and/or lose the 

ability to retrofit. (LTS, No. 56.7 at p. 2) 

Empire stated adding components that 

require electricity would cause the 

elimination of the gas wall gravity, gas 

room, gas floor, and gas hearth 

categories because their main purpose is 

to provide efficient heating and be able 

to provide heat during a power outage 


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or for consumers who do not have 

electricity. (Empire, No. 100 at p. 2) 

Although DOE recognizes the 

consumer utility of direct heating 

equipment that can be operated in the 

event of a power outage, DOE also notes 

that there are direct heating equipment 

available on the market equipped with 

an electronic ignition that utilize battery 

backup systems to allow for operation 

during power outages. As a result, DOE 

does not believe the use of an electronic 

ignition would reduce the consumer 

utility of direct heating equipment. DOE 

also does not believe that adding 

electrical components would reduce the 

ability to retrofit these products, thereby 

causing the elimination of product 

classes. The addition of certain 

electrical components (e.g., an 

electronic ignition) does not require 

products to be any larger than products 

currently available that have no electric 

components, and thus, DOE does not 

believe this will prevent products from 

being retrofitted. DOE also does not 

believe adding larger electrical 

components (e.g., blower fans) would 

cause the elimination of any products, 

because DOE only considers the 

addition of blower fans for certain 

product classes which have products 

that have demonstrated that the 

technology is possible (i.e., gas wall fan 

DHE, gas room DHE, and gas hearth 

DHE). For gas wall gravity DHE, where 

the inclusion of a fan would shift 

products into the gas wall fan DHE 

product class, DOE does not consider a 

fan as a design option. 

However, DOE does recognize that in 

certain instances, consumers will have 

to install electrical power outlets near 

the heating equipment, thereby 

increasing the cost of retrofitting the 

product. These costs are addressed 

during DOE’s analysis of installation 

costs and are described in section IV.F.2 

of this document. Accordingly, DOE 

continued to screen-in electronic 

ignition and other electronic 

components for the final rule analysis of 

direct heating equipment. 

2. Heat Pump Water Heater and 

Condensing Gas-Fired Storage Water 

Heater Discussion 

In the December 2009 NOPR, DOE 

specifically requested comment 

regarding the screening process for the 

advanced technologies used as the basis 

for the max-tech levels for gas-fired 

storage and electric storage water heater 

(i.e., heat pump water heaters and 

condensing gas-fired storage water 

heaters). 74 FR 65852, 65878 (Dec. 11, 

2009). DOE received a multitude of 

comments on this topic, which are 

summarized below. 

a. Condensing Gas-Fired Water Heaters 

DOE received several comments 

specifically related to condensing gasfired water heater technology. ACEEE 

noted that all three of the full-line water 

heater manufacturers in the U.S. 

currently manufacture commercial 

condensing products. (ACEEE, Public 

Meeting Transcript, No. 57.4 at p. 127) 

Further, ACEEE stated that at least one 

condensing gas-fired storage water 

heater is actively marketed for 

residential applications and is shipped 

with a residential thermostat. ACEEE 

recognized that this product is easy to 

install, with height, diameter, and 

installation requirements similar to 

standard power-vent units. ACEEE 

asserted that the only skills required for 

installing condensing gas-fired water 

heaters, beyond those already required 

for installing conventional gas-fired 

water heaters, are those common to the 

installation of condensing furnaces and 

air conditioners—cutting and gluing 

PVC pipe, and hooking up a condensate 

pump, if required. (ACEEE, No. 79 at p. 

11) 

ASAP stated that the manufacturing 

capacity required for condensing gasfired storage water heaters at TSL 5 (i.e., 

approximately 4 percent, as estimated in 

the December 2009 NOPR) would be 

well within the capacity of 

manufacturers to serve the market. 

(ASAP, Public Meeting Transcript, No. 

57.4 at p. 126) AHRI stated that 

manufacturers could probably convert 

their production of 75-gallon gas-fired 

water heaters to make only condensing 

75-gallon gas-fired storage water heaters 

within five years. (AHRI, Public Meeting 

Transcript, No. 57.4 at p. 119) 

In addition, A.O. Smith stated that 

they manufacture commercial 

condensing gas-fired water heaters that 

are ultra-low NOX, and, therefore, it is 

technologically feasible to have an ultralow NOX condensing water heater. (A.O. 

Smith, Public Meeting Transcript, No. 

57.4 at p. 123) 

In light of the comments above from 

interested parties supporting the 

technologically feasibility and the 

practicability of manufacturing, 

installing, and servicing condensing gasfired water heaters, DOE has concluded 

that this technology option was 

appropriately screened-in and 

considered during the December 2009 

NOPR analysis, and DOE continued to 

consider condensing gas-fired water 

heaters in the final rule analysis. 

b. Heat Pump Water Heaters 

DOE received several comments 

specifically related to the screening 

analysis for heat pump water heater 

technology. These comments related to 

adverse impacts on product utility, as 

well as the practicability to 

manufacture, install, and service heat 

pump water heaters. 

Regarding adverse impacts on product 

utility, the American Public Power 

Association (APPA) commented that for 

electric storage water heaters at TSL 5 

and TSL 6 (i.e., levels requiring heat 

pump water heater technology), the 

utility of the product would be lessened, 

although no further explanation was 

provided. (APPA, No. 92 at p. 3) Rheem 

stated that the utility of heat pump 

water heaters is not equivalent to 

electric storage water heaters because of 

the reduced delivery performance of 

heat pump water heaters. As evidence of 

the reduced delivery performance, 

Rheem cited ENERGY STAR’s 

requirement of a minimum first hour 

rating of 50 gallons for heat pump water 

heaters, which is below the 67 gallons 

that Rheem claimed is typical for 

conventional technologies at that 

capacity. (Rheem, No. 89 at p. 8) The 

first hour rating is the amount of hot 

water in gallons the heater can supply 

per hour (starting with a tank full of hot 

water). If the first hour rating were 

reduced for heat pump water heaters, 

this would impact consumer utility 

because the water heater would not 

provide the consumer with the same 

amount of hot water as with a 

traditional electric resistance water 

heater. 

In response, DOE does not believe 

that any lessening of utility will occur 

for electric storage water heaters that 

use heat pump water heater technology, 

as asserted by APPA and Rheem. In 

response to APPA’s comment (as 

explained in the December 2009 NOPR), 

DOE does not believe the use of heat 

pump technology will diminish the 

utility of electric storage water heaters, 

and DOE believes that these products 

will provide the same utility to the 

consumer as electric storage water 

heaters using traditional electric 

resistance technology. 72 FR 65852, 

65876–77 (Dec. 11, 2009). In response to 

Rheem’s assertion that heat pump water 

heaters provide a reduced first hour 

rating, and thereby reduce consumer 

utility, DOE examined the first hour 

ratings of heat pump water heaters 

available on the market. DOE identified 

heat pump water heaters currently 

available on the market that have first 

hour ratings of up to 67 gallons, which 

Rheem states is typical for an electric 

resistance water heater. DOE also notes 

that electric storage water heater models 

in the AHRI Directory of certified 

equipment at the representative 50- 

gallon storage volume have first hour 


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ratings ranging from 48 to 68 gallons, 

and for 50-gallon heat pump water 

heaters currently available on the 

market, the first hour ratings range from 

63 to 67 gallons. Thus, DOE has 

concluded that the integrated heat 

pump water heater technology does not 

cause any lessening of utility since it 

provides similar first hour ratings as 

water heaters that utilize electric 

resistance technology. 

Regarding practicability to 

manufacture, install, and service heat 

pump water heaters, DOE received 

numerous comments from interested 

parties. The views of interested parties 

are summarized below, along with 

DOE’s conclusions based on the results 

of the comments received. 

AHRI stated that to convert the U.S. 

water heater industry from producing 

four million electric resistance units per 

year to all heat pump water heaters is 

an unreasonable expectation. (AHRI, 

Public Meeting Transcript, No. 57.4 at p. 

90) AHRI pointed out that converting 

existing product lines to manufacturing 

of heat pump water heaters would be 

difficult, because manufacturers would 

continue to manufacture electric 

resistance water heaters in order to meet 

consumer demand before the 

compliance date of the standard. (AHRI, 

Public Meeting Transcript, No. 57.4 at 

pp. 101–103) 

Bock asserted that with heat pump 

water heaters, there is no infrastructure 

to teach and train technicians to 

properly install and maintain those 

units. Bock asserted that training 

technicians of electric resistance, gasfired, and oil-fired water heaters to 

install and maintain heat pump water 

heaters could not be done quickly. 

(Bock, Public Meeting Transcript, No. 

57.4 at p. 96) Similarly, Bradford White 

stated that there is no infrastructure to 

repair and maintain heat pump water 

heaters. Bradford White stated that 

water heater service contractors would 

need to be extensively retrained, and 

that it would be impossible for them to 

train plumbers to install and maintain 

heat pump water heaters in sufficient 

time. (Bradford White, No. 61 at p. 3) 

In support of heat pump water 

heaters, GE stated that it does believe 

that heat pump water heaters are 

manufacturable in a reasonable 

timeframe. (GE, No. 84 at p. 1) Further, 

GE commented that it currently has a 

nationwide network for heat pump 

water heater product service, and is 

developing a nationwide installation 

base to ensure that its consumers can 

readily purchase, install, and repair 

their heat pump water heaters. (GE, No. 

84 at p. 1) The commenter noted that it 

is currently working with two national 

partners and numerous regional 

distributors to have its heat pump water 

heater available in most markets and to 

develop its water heater installation 

network. GE forecasted that the 

availability, service, installation, and 

manufacturability of heat pump water 

heaters will not present a significant 

obstacle to the market acceptance of 

such units. (GE, No. 84 at p. 2) The 

commenter stated that installation of a 

heat pump water heater is only slightly 

more complex than installing an electric 

resistance water heater, and is easily 

within the capabilities of any residential 

plumber. GE did acknowledge that 

service of the sealed refrigeration system 

can be more complex, but stated that it 

believes that this can be adequately 

handled by the national network of 

appliance technicians and plumbers. 

(GE, No. 84 at p. 2) 

NPCC commented that several 

manufacturers already have heat pump 

water heater products and business 

plans to sell heat pump water heaters 

over the next five years, a schedule well 

before the compliance date of the 

relevant amended energy conservation 

standards. Therefore, NPCC believes 

that it is within the ability of 

manufacturers to produce heat pump 

water heater units on the scale 

necessary to serve the market for largevolume products. (NPCC, Public 

Meeting Transcript, No. 57.4 at p. 107) 

NPCC also stated that it believes there 

is adequate lead time for those 

manufacturers who still must develop 

new products, since standards will not 

take effect for five years. (NPCC, No. 87 

at p. 5) Further, NPCC stated that DOE’s 

concern about the manufacturability of 

heat pump water heaters and the 

capacity of manufacturers to ramp up 

production are overstated, because two 

major manufacturers already appear 

committed to manufacturing significant 

quantities of heat pump water heaters 

and a third manufacturer also appears 

likely to do the same. NPCC asserted 

that because new energy conservation 

standards for water heaters will not go 

into effect for five years, manufacturers 

will have ample time to ‘‘ramp up’’ the 

production of these high-efficiency 

models to meet the limited market 

expected at TSL 5. (NPCC, No. 87 at pp. 

5–6) Regarding practicability to install 

heat pump water heaters, the 

commenter stated that heat pump water 

heaters currently on the market are 

drop-in replacements for electric 

resistance water heaters, and are 

advertised as such by manufacturer 

literature. NPCC commented that this 

fact, along with the fact that a national 

home improvement chain has agreed to 

sell Rheem’s heat pump water heater 

unit, are evidence that both 

manufacturers and retailers believe that 

the installation of ‘‘advanced’’ water 

heater technology is not a significant 

barrier to its adoption. (NPCC, No. 87 at 

pp.3–4) NPCC stated that DOE’s concern 

regarding whether the service 

infrastructure’s lack of familiarity with 

advanced technologies would act as a 

deterrent to their adoption also appears 

unwarranted, due to the fact that: (1) 

Manufacturers are already offering these 

products; (2) manufacturers will have 5 

years to train and deploy a service force; 

(3) major manufacturers with product 

on the market offer a 10-year warranty; 

(4) GE has a set up a nationwide 

network of authorized service 

technicians who are being trained to 

both install and service its ‘‘advanced 

technology’’ water heaters; and (5) 

Rheem has stated that its heat pump 

water heater uses a sealed heat pump 

and that no HVAC experience is needed, 

so no additional service technician 

training is required. (NPCC, No. 87 at p. 

4) 

NEEP stated that based on the 

documented ENERGY STAR-qualified 

water heating units on the market, heat 

pump water heaters and condensing gas 

water heaters are commercially viable, 

manufacturable, and have a growing 

infrastructure of service and 

maintenance professionals. (NEEP, No. 

86 at p.1) NEEP stated that according to 

a recent advertisement by Rheem and 

the Home Depot, their ENERGY STARqualified heat pump water heater 

‘‘installs as easily as a standard electric 

storage water heater,’’ and thus, NEEP 

commented that installation issues are 

clearly not as serious as many 

manufacturers claim. (NEEP, No. 86 at 

p. 2) 

NEEA commented that regarding a 

potential scale-up in response to a large 

utility program opportunity that was 

being considered for heat pump water 

heaters, major manufacturers assured 

them that scale-up to large 

manufacturing numbers is not a limiting 

factor. (NEEA, No. 88 at pp. 2–3) The 

commenter stated all of the heat pump 

water heater units being offered for sale 

are designed as drop-in integrated units 

that require no more connections than a 

conventional electric resistance tank. 

NEEA asserted that there is nothing in 

principle about heat pump water heater 

technology that makes it substantively 

more difficult than a current 

replacement with a standard electric 

tank. NEEA also stated that all heat 

pump water heaters offered for sale in 

2010 have sealed refrigeration 

components (similar to a refrigerator or 

a room air-conditioner that do not 


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4The joint advocacy comment was submitted by 

ASAP on behalf of multiple organizations, 

including: ACEEE, National Association of State 

Energy Officers, California Energy Commission, 

Consumer Federation of America, PG&E, ASE, 

ASAP, National Consumer Law Foundation, NRDC, 

National Grid, National Insulation Association, 

North American Insulation Manufacturers 

Association, NEEP, NPCC, Sierra Club, Iowa Office 

of Energy, New Hampshire Office of Energy and 

Planning, Office of the Ohio Consumers’ Council, 

California Public Utilities Commission, New 

Mexico Public Regulation Commission, Public 

Utility Commission of Oregon, New Jersey Board of 

Public Utilities, Community Environmental Center, 

Conservation Law Foundation, Environmental 

Defense Fund, Environment America, 

Environmental Law and Policy Center, 

Environmental and Energy Study Institute, Midwest 

Energy Efficiency Alliance, Southern Alliance for 

Clean Energy, Southwest Energy Efficiency Project, 

Urban Green Council (U.S. Green Building Council 

of New York), Arizona PIRG, Energy Coordinating 

Agency of Philadelphia, Environment Illinois, 

Environment Texas, Michigan Environmental 

Council, NW Energy Coalition, Ohio Environmental 

Council, Oklahoma Sustainability Network, Texas 

Ratepayer’s Organization to Save Energy, National 

Community Action Foundation, and Fresh Energy. 

require service) and have 10-year 

warranties, an indication of 

manufacturers’ confidence in the longterm reliability of the systems. NEEA 

commented that a duct to vent cold air 

to the outdoors is required in some heat 

pump water heater installations, and 

that installing such a duct is no more 

complicated than installing a flue for a 

gas-fired water heater, which is well 

within the skill set of existing water 

heater installers. (NEEA, No. 88 at p. 3) 

ACEEE commented that five years 

from final rule publication to the 

compliance date is sufficient time to 

design, test, tool up, manufacture, and 

certify a brand new product. (ACEEE, 

No. 79 at pp. 13) ACEEE stated that 

manufacturing capacity should not be a 

concern for heat pump water heaters, 

given the five-year lead time between 

the standards’ effective date and 

compliance date. The commenter also 

stated that resistive tank water heaters 

and refrigeration engines like the ones 

used in heat pump water heaters are 

mature technologies that can be 

integrated to manufacture heat pump 

water heaters. (ACEEE, No. 79 at p. 4) 

ACEEE commented that TSL 5 would 

require new production lines for about 

9 percent of the product, which should 

be manageable and in the scale of 

expected investments in new 

production lines. (ACEEE, No. 79 at p. 

10) Regarding practicability to install 

heat pump water heaters, ACEEE stated 

that the arguments regarding training 

time for installers and servicers are 

vastly overblown. The commenter noted 

further that the Web sites of the leading 

providers of ENERGY STAR heat pump 

water heaters do not contain language 

that would void warrantees if such units 

are home-owner installed, and such 

units are now sold by major ‘‘big box’’ 

retailers and Internet sales outlets. 

(ACEEE, No. 79 at p. 10) With regard to 

servicing, ACEEE stated that although a 

heat pump water heater operates more 

hours per year than a room air 

conditioner, it is basically the same kind 

of technology, and will require no 

routine service beyond that which can 

be done by the homeowner (i.e., filter 

cleaning). Thus, ACEEE argued that at 

least for heat pump water heaters with 

appropriate diagnostics, there are no 

skills required beyond those one would 

expect from a typical refrigerator repair 

person. (ACEEE, No. 79 at p. 10) ACEEE 

stated that in January 2010, the GE 

Hybrid electric heat pump water heater 

will be sold at Lowe’s, Sears, and other 

locations, presumably to do-it-yourself 

installers, and in examining the 

warranties available on-line, ACEEE 

found no restrictions as would limit 

product installation to certified or 

qualified trades people. From this, the 

commenter inferred that there are no 

special skills expected for installation of 

these heat pump water heater products. 

(ACEEE, No. 79 at p. 12) ACEEE 

asserted that the skill set required to 

service heat pump water heaters is the 

same as the skill set associated with 

fixing the refrigeration engines of room 

air conditioners, refrigerators, and 

similar light equipment. Similarly, the 

commenter argued that servicing of 

condensing gas water heaters uses the 

same skill sets as condensing boilers. 

Thus, ACEEE stated that it believes that 

over the next five years, the emergence 

and market penetration of incentive 

programs for both types of products will 

lead to adequate supplies of servicers 

with the requisite skills. (ACEEE, No. 79 

at p. 12) 

The Joint Advocacy comment 4

(submitted by ASAP) stated that the 

limited scope of the December 2009 

NOPR TSL 5 (i.e., the TSL requiring 

electric storage water heaters larger than 

55 gallons to use heat pump water 

heater technology), combined with the 

five-year lead time before the 

compliance date, will make the new 

standards more manageable for 

manufacturers, equipment installers, 

and servicers than standards which 

effectively require heat pump water 

heaters and condensing gas products in 

all sizes. (The Joint Advocacy Comment, 

No. 102 at p. 2) 

ASE stated that for the December 2009 

NOPR’s TSL 5, the advanced technology 

requirements are limited to a modest 

share of total water heater shipments, 

which is a sensible means of addressing 

the issue of manufacturers being able to 

scale up the production of these 

products to meet the needs of the 

market. (ASE, No. 77 at p. 2) 

A.O. Smith stated that a facility to 

produce 2 million heat pump water 

heaters per year (i.e., A.O. Smith’s 

approximate share of the entire electric 

storage water heater market) would take 

2–3 years to implement. (A.O. Smith, 

No. 76 at p. 3) 

Daikin stated that heat pump 

technology can be easily introduced to 

existing electric resistance water heater 

manufacturers from the air conditioning 

and refrigerator manufacturing sectors. 

The commenter noted that European 

and Japanese electric resistance heat 

pump manufacturers have already 

obtained the necessary heat pump 

technology and have heat pump water 

heater manufacturing lines up and 

running. Daikin stated its belief that 

taking into account the significance of 

the introduction of heat pump 

technology to unfamiliar manufacturers, 

at least one to two years would be 

required for this change to be 

implemented after publication of the 

final rule. (Daikin, No. 82 at p. 2) 

After reviewing the comments from 

interested parties above, DOE believes 

that integrated heat pump water heaters 

and condensing gas-fired storage water 

heaters were properly screened in for 

the December 2009 NOPR analysis, and 

DOE continued to consider this 

technology for the final rule analysis. 

Based on the comments of interested 

parties, including those from 

manufacturers, DOE has concluded that 

given the five-year lead time, the 

practicability to manufacture, install, 

and service heat pump water heaters 

and condensing gas-fired storage water 

heaters is not a concern that would 

justify eliminating these technologies 

from consideration in this analysis. 

However, DOE further considered the 

concerns of interested parties regarding 

heat pump water heaters and 

condensing gas-fired storage water 

heaters for the selection of the final 

standard level. 

Because DOE did not change any of 

its conclusions about the screening 

analysis for technologies for the 

December 2009 NOPR analysis, DOE 

screened in the same technologies for 

the final rule (shown in Table IV.3 

through Table IV.5). For more 

information about the technologies that 

were screened out, and the reasoning for 

those options being screened out, see 

chapter 4 of the final rule TSD. 

DOE believes that all of the efficiency 

levels discussed in today’s notice are 

technologically feasible. The 

technologies that DOE examined have 

been used (or are being used) in 


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commercially-available products or 

working prototypes. Furthermore, these 

technologies all incorporate materials 

and components that are commercially 

available in today’s supply markets for 

the residential heating products that are 

the subject of this final rule. 

C. Engineering Analysis 

The engineering analysis develops 

cost-efficiency relationships to show the 

manufacturing costs of achieving 

increased efficiency. As explained in 

the December 2009 NOPR, DOE 

conducted the engineering analysis for 

heating products using both the 

efficiency level approach to identify 

incremental improvements in efficiency 

for each product and the costassessment approach to develop the 

manufacturer production cost (MPC) at 

each efficiency level. 74 FR 65852, 

65879–96 (Dec. 11, 2009). DOE first 

identified the most common residential 

heating products on the market and 

determined their corresponding 

efficiencies and the distinguishing 

technology features associated with 

those levels. After identifying the most 

common products that represent a crosssection of the market, DOE gathered 

information about these selected 

products using reverse-engineering 

methodologies, product information 

from manufacturer catalogs, and 

discussions with manufacturers and 

other experts of water heaters, DHE, and 

pool heaters. This approach provided 

useful information, including 

identification of potential technology 

paths manufacturers use to increase 

energy efficiency. 

DOE used information gathered by 

reverse-engineering multiple 

manufacturers’ products spanning the 

range of efficiency levels for each of the 

three product categories to generate bills 

of materials (BOMs), which describe 

each product in detail, including all 

manufacturing steps required to make 

and/or assemble each part. DOE 

developed a cost model that converted 

the raw information BOMs into MPCs. 

By applying derived manufacturer 

markups to the MPCs, DOE calculated 

the manufacturer selling prices (MSPs) 

and constructed industry cost-efficiency 

curves. 

In response to the December 2009 

NOPR, DOE received comments from 

interested parties on various aspects of 

the engineering analysis, including: (1) 

Efficiency levels analyzed and 

technology options; (2) manufacturer 

production costs; (3) shipping costs; (4) 

scaling of storage water heater MPCs to 

other storage volumes; and (5) the 

energy efficiency equations. A further 

discussion of the engineering analysis 

methodology, a discussion of the 

comments DOE received, DOE’s 

response to those comments, and any 

changes DOE made to the engineering 

analysis methodology or assumptions as 

a result of those comments is presented 

in the sections below. See chapter 5 of 

the final rule TSD for additional details 

about the engineering analysis. 

1. Representative Products for Analysis 

As explained in the December 2009 

NOPR, DOE reviewed all of the product 

classes of residential water heaters, 

DHE, and pool heaters for the 

engineering analysis. Within each 

product type, DOE chose units for 

analysis that represent a cross-section of 

the residential heating products market. 

The December 2009 NOPR contains 

specific details about DOE’s selection of 

representative units for each type of 

heating product. 74 FR 65852, 65879–81 

(Dec. 11, 2009). The analysis of these 

representative products allowed DOE to 

identify specific characteristics that 

could be applied to all of the products 

across a range of storage and input 

capacities, as appropriate. In response to 

the December 2009 NOPR, DOE did not 

receive any comments regarding the 

representative units analyzed, and as a 

result, DOE did not change the 

representative units from the December 

2009 NOPR analysis. The representative 

units for each product class are shown 

in Table IV.6 below. For more details 

about the selection of the representative 

units for each product class, see chapter 

5 of the final rule TSD. 

TABLE IV.6—REPRESENTATIVE PRODUCTS ANALYZED

Residential Water Heaters 

Residential water heater class Representative storage volume 

(gallons) 

Gas-Fired Storage Type ............................................................................................................. 40. 

Electric Storage Type ................................................................................................................. 50. 

Oil-fired Storage Type ................................................................................................................ 32. 

Instantaneous Gas Fired ............................................................................................................ 0. 

(199,000 Btu/h input capacity). 

Direct Heating Equipment 

Direct heating equipment design type Representative input rating range (Btu/h) 

Gas Wall Fan .............................................................................................................................. Over 42,000. 

Gas Wall Gravity ......................................................................................................................... Over 27,000 and up to 46,000. 

Gas Floor .................................................................................................................................... Over 37,000. 

Gas Room ................................................................................................................................... Over 27,000 and up to 46,000. 

Gas Hearth ................................................................................................................................. Over 27,000 and up to 46,000. 

Residential Pool Heaters 

Pool heaters product class Representative input rating (Btu/h) 

Gas-fired Pool Heaters ............................................................................................................... 250,000. 

2. Efficiency Levels Analyzed 

For each of the representative 

products, DOE analyzed multiple 

efficiency levels and estimated 

manufacturer production costs at each 

efficiency level. These efficiency levels 

were presented in detail in the 

December 2009 NOPR. 74 FR 65852, 

65881–89 (Dec. 11, 2009). DOE analyzed 


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from the baseline efficiency level to the 

maximum technologically feasible (maxtech) efficiency level for each product 

class. The baseline units in each 

product class were used as reference 

points against which DOE measured 

changes resulting from potential 

amended energy conservation 

standards. These units generally 

represent the basic characteristics of 

equipment in that product class, just 

meet current Federal energy 

conservation standards, and provide 

basic consumer utility. DOE established 

intermediate energy efficiency levels for 

each of the product classes that are 

representative of efficiencies that are 

typically available on the market 

through a complete review of AHRI’s 

product certification directory, 

manufacturer catalogs, and other 

publicly-available literature. DOE 

determined the maximum improvement 

in energy efficiency that is 

technologically feasible (max-tech) for 

water heaters, DHE, and pool heaters, as 

required by section 325(o) of EPCA. (42 

U.S.C. 6295(o)). For the representative 

product within a given product class, 

DOE could not identify any working 

products or prototypes at higher 

efficiency levels that were currently 

available beyond the identified maxtech level at the time the analysis was 

performed. 

a. Water Heaters 

Table IV.7 through Table IV.11 in this 

section show the efficiency levels 

analyzed at the representative rated 

storage volume for each of the water 

heater product classes for the final rule. 

These tables also show the technology 

pathways identified by DOE which 

could be used to reach the identified 

efficiency levels. DOE received several 

comments (discussed below) in 

response to the efficiency levels and 

possible technology pathways presented 

in the December 2009 NOPR for gasfired storage water heater. 

Rheem stated that for 40-gallon gasfired storage water heaters at TSL 4 (i.e., 

0.63 EF), DOE underestimates the 

insulation thickness that would be 

required. Rheem asserted that 3 inches 

of insulation would be required to reach 

this efficiency level, instead of the 2 

inches that DOE estimated in the 

December 2009 NOPR. In addition, 

Rheem stated that for 50-gallon electric 

storage water heaters, DOE estimates 4 

inches of foam insulation are needed to 

achieve TSL 4 (i.e., 0.95 EF) but that 

DOE should recognize there are 

diminishing returns for added foam 

insulation. Further, Rheem asserted that 

the increased insulation requirements 

will result in increased product cost, 

shipping cost, life-cycle cost, space 

constraint frequency, and reduce 

consumer payback. (Rheem, No. 89 at 

p. 10) Similarly, Bradford White stated 

that when increasing insulation 

thickness to improve water heater 

efficiency, there is a diminishing return 

and a point at which increasing 

insulation does not result in any further 

efficiency gain. Bradford White asserted 

that to attain the efficiencies in the 

December 2009 NOPR, additional 

changes would be required besides 

increasing insulation thickness. 

(Bradford White, No. 61 at p. 1) 

As described in the December 2009 

NOPR, DOE performed extensive 

research regarding the technologies 

required to reach each efficiency level 

for the representative rated storage 

volumes analyzed. 74 FR 65852, 65884 

(December 11, 2009). DOE research 

suggested that the insulation 

thicknesses listed at various efficiency 

levels identified are consistent with 

products available on the market. DOE 

reviewed manufacturer literature (which 

typically includes information on 

energy factor and insulation 

thicknesses) and then reverseengineered several gas-fired water 

heaters to verify the technologies used 

to improve energy efficiency, including 

insulation thicknesses. For the 

December 2009 NOPR analysis, DOE 

also hired an independent testing 

facility to determine the EF of a 

representative sample of water heaters 

across multiple efficiency levels. (See 

chapter 5 of the December 2009 NOPR 

TSD for additional details.) These water 

heaters were subsequently disassembled 

to verify the technologies used to 

increase energy efficiency. DOE was 

able to measure the insulation 

thicknesses on the sides, top, and 

bottom of each water heater unit 

disassembled. For these reasons, DOE 

believes the results of its assessment of 

insulation thicknesses at various 

efficiency levels are accurate and 

maintained the same insulation 

thicknesses for the final rule analysis. 

AGA stated that efficiency level 2 for 

gas-fired storage water heaters should 

include power venting, because 

according to industry testing and 

research, the prevailing technology at 

that level will be a power-vented design, 

not an atmospheric design. (AGA, 

Public Meeting Transcript, No. 57.4 at 

pp. 35–36) Further, AGA stated that the 

majority of the models on the market 

rated at this efficiency level are not 

atmospherically vented, and contended 

that atmospherically-vented models at 

0.63 EF would have recovery 

efficiencies high enough such that they 

require venting modifications because of 

the possibility for corrosive condensate 

to occur. (AGA, No. 78 at p. 8) If proper 

venting is not installed, corrosion from 

condensate can cause leaks in the 

venting system, which in turn can allow 

combustion by-products (e.g., carbon 

monoxide) to infiltrate into areas where 

such by-products are not desirable, 

possibly leading to serious injury or 

death. Thus, AGA recommended that 

DOE should consider only powerventing technology as the design option 

at efficiency level 2 for reasons of 

installation safety and practicality, and 

asserted that continuing to rely upon 

atmospheric technology for the 

efficiency level 2 design would violate 

statutory requirements for DOE to avoid 

implementing efficiency standards that 

would pose an increased safety risk to 

consumers. (AGA, No. 78 at p. 10) 

In response, DOE notes that there are 

products currently available on the 

market at efficiency level 2 that do not 

use a power-venting design. The 

manufacturer literature for these 

products does not indicate that there are 

certain instances in which the 

installation of these products would be 

unsafe. Therefore, DOE did not change 

its technology options at efficiency level 

2. However, DOE does recognize the 

venting concerns of gas-fired storage 

water heaters at efficiency level 2 with 

high recovery efficiencies. DOE 

addresses this issue in section IV.F.2 

(Installation Cost). 

A.O. Smith strongly recommended 

that DOE lower the max-tech level for 

gas-fired storage water heaters from the 

0.80 EF level identified in the December 

2009 NOPR for the representative 40- 

gallon storage volume. A.O. Smith 

stated that the 0.80 EF level identified 

as the max-tech for gas-fired storage 

water heaters by the Super Efficient Gas 

Water Heating Appliance Initiative 

(SEGWHAI) program and in a 

presentation by A.O. Smith at the 2009 

ACEEE Hot Water Forum were based on 

theoretical modeling, and not 

operational prototypes. A.O. Smith also 

commented that the ENERGY STAR 

level of 0.80 EF is based on similar 

modeling, and stated that discussions 

are underway with DOE regarding the 

need to lower the Energy Star level to 

0.77 EF. A.O. Smith stated they have 

recently built and tested a number of 

condensing gas-fired water heater 

prototypes that result in actual 

performance that is somewhat lower 

than predicted by the models. 

Consequently, A.O. Smith expressed 

support for 0.77 EF as the max-tech 

level for 40 gallon gas-fired storage 

water heaters. (A.O. Smith, No. 76 at pp. 

1–2) 


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In the preliminary analysis, DOE 

proposed to use 0.77 EF as the max-tech 

level for gas-fired storage water heaters 

at the representative rated storage 

volume (see chapter 5 of the preliminary 

analysis TSD for more details). In 

response to this proposal in the 

preliminary analysis, DOE received 

comments from interested parties 

stating that the max-tech efficiency level 

considered for gas-fired storage water 

heaters in this rulemaking should be 

harmonized with the ENERGY STAR 

level for residential condensing gasfired storage water heaters, and DOE 

subsequently revised the max-tech level 

to 0.80 EF for the December 2009 NOPR 

analysis. 74 FR 65852, 65883 (Dec. 11, 

2009). DOE believes there is some 

uncertainty regarding the efficiencies 

that can be achieved by gas-fired storage 

water heaters because there are no 

products currently available on the 

market and to date only prototypes have 

been developed for residential 

applications. For the final rule, DOE has 

reviewed confidential data 

characterizing the performance of 

residential gas-fired storage water heater 

prototypes and has concluded that 0.77 

EF is more representative of the 

condensing water heaters likely to enter 

the market. As such, DOE has revised its 

max-tech efficiency level for the final 

rule so that at the 40-gallon 

representative capacity, the efficiency 

level is 0.77 EF, as shown in Table IV.7. 

TABLE IV.7—FORTY-GALLON GAS-FIRED STORAGE WATER HEATER (STANDARD BURNER) EFFICIENCY LEVELS

Efficiency level (EF) Technology 

Baseline (EF = 0.59) ................................................................................ Standing Pilot and 1’’ Insulation. 

Efficiency Level 1 (EF = 0.62) .................................................................. Standing Pilot and 1.5’’ Insulation. 

Efficiency Level 2 (EF = 0.63) .................................................................. Standing Pilot and 2.0’’ Insulation. 

Efficiency Level 3 (EF = 0.64) .................................................................. Electronic Ignition, Power Vent and 1’’ Insulation. 

Efficiency Level 4 (EF = 0.65) .................................................................. Electronic Ignition, Power Vent and 1.5’’ Insulation. 

Efficiency Level 5 (EF = 0.67) .................................................................. Electronic Ignition, Power Vent and 2’’ Insulation. 

Efficiency Level 6—Max-Tech (EF = 0.77) .............................................. Condensing, Power Vent, 2’’ Insulation. 

Regarding the technology options for 

ultra-low NOX gas-fired storage water 

heaters, ACEEE stated that once an 

inducer fan is added to an ultra-low 

NOX product, the ultra-low NOX design 

factor is not a prohibitive feature. 

(ACEEE, Public Meeting Transcript, No. 

57.4 at pp. 127) A.O. Smith stated that 

the only way for ultra-low NOX water 

heaters to overcome the additional 

restriction added by increased flue 

baffling (needed to promote heat 

exchange and increase efficiency) would 

be to add a blower and/or power-burner 

to the heater, which would greatly 

increase the manufacturing and 

installation costs of the heater. (A.O. 

Smith, No. 76 at p. 2) 

DOE tentatively concluded in the 

December 2009 NOPR that ultra-low 

NOX gas-fired water heaters require the 

introduction of additional technologies 

to achieve the same efficiency as 

standard gas-fired water heaters. For the 

December 2009 NOPR, DOE performed 

a teardown analysis of ultra-low NOX

gas-fired storage water heaters. 74 FR 

65852, 65881 (Dec. 11, 2009). (Details 

about DOE’s December 2009 NOPR 

analysis of ultra-low NOX storage water 

heaters are available in chapter 5 of the 

December 2009 NOPR TSD.) DOE 

research showed that implementing 

power venting and the same insulation 

increases as those for standard gas-fired 

water heaters would result in slightly 

lower efficiencies due to the additional 

pressure restrictions resulting from the 

addition of the ultra-low NOX burner. 

Therefore, DOE implemented 

technologies at lower efficiency levels 

for ultra-low NOX gas-fired storage 

water heaters in order to achieve the 

same efficiencies as those identified for 

standard gas-fired storage water heaters. 

Based on the teardown analysis of ultralow NOX water heaters, DOE believes 

that the levels identified for ultra-low 

NOX gas-fired storage water heaters are 

achievable using the technologies 

identified in Table IV.8. In its 

comments, ACEEE does not present any 

new data or evidence to support its 

assertion that once a power venting 

design is implemented, ultra-low NOX

gas-fired storage water heaters can 

achieve the same efficiencies as gasfired water heaters with standard 

burners. As a result, DOE maintained 

the technologies and efficiency levels 

identified in the December 2009 NOPR 

for the final rule, with the exception of 

the max-tech level, which was reduced 

to 0.77 EF for the reasons described 

above. 

TABLE IV.8—FORTY-GALLON GAS-FIRED STORAGE WATER HEATER (ULTRA-LOW NOX BURNER) EFFICIENCY LEVELS

Efficiency level (EF) Technology 

Baseline (EF = 0.59) ................................................................................ Standing Pilot and 1′′ Insulation. 

Efficiency Level 1 (EF = 0.62) .................................................................. Standing Pilot and 2′′ Insulation. 

Efficiency Level 2 (EF = 0.63) .................................................................. Electronic Ignition, Power Vent, and 1′′ Insulation. 

Efficiency Level 3 (EF = 0.64) .................................................................. Electronic Ignition, Power Vent and 1.5′′ Insulation. 

Efficiency Level 4 (EF = 0.65) .................................................................. Electronic Ignition, Power Vent and 2′′ Insulation. 

Efficiency Level 5 (EF = 0.67) .................................................................. Not Attainable (would go to condensing). 

Efficiency Level 6—Max-Tech (EF = 0.77) .............................................. Condensing, Power Vent, 2′′ Insulation. 

DOE also received several comments 

relating to the max-tech efficiency levels 

for electric storage water heaters, which 

was identified as 2.2 EF at the 50-gallon 

representative rated storage volume in 

the December 2009 NOPR. 74 FR 65852, 

65884 (Dec. 11, 2009). GE stated that the 

heat pump water heater it has in 

production has an EF of 2.35 at standard 

DOE test conditions, which is higher 

than the max-tech level identified in the 

December 2009 NOPR for electric 

storage water heaters. (GE, No. 84 at p. 

1) A.O. Smith also stated that the 2.2 EF 

max-tech in the December 2009 NOPR 

is too low, citing the GE heat pump 

water heater that is rated at 2.3 EF as 

evidence. A.O. Smith stated that the 

heat pump water heater max-tech level 

should be increased to 2.3 EF or higher 

if there is data available showing higher 


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levels are feasible. (A.O. Smith, No. 76 

at p. 2) Further, A.O. Smith stated that 

because of heat pumps using CO2 as a 

refrigerant and because other heat pump 

technologies exist, the max-tech 

possibly is higher than 2.2 EF. (A.O. 

Smith, Public Meeting Transcript, No. 

57.4 at p. 131) ACEEE stated that DOE 

does not have an appropriate max-tech 

for electric storage water heaters 

because it inappropriately screened out 

CO2 heat pump water heaters, which are 

commercially available in other 

countries. (ACEEE, Public Meeting 

Transcript, No. 57.4 at p. 130) 

Additionally, ACEEE stated that the GE 

product with an EF of 2.35 exceeds 

DOE’s December 2009 NOPR max-tech 

level of 2.2 EF (ACEEE, No. 79 at p. 8) 

Daikin stated that DOE’s proposed 

max-tech for heat pump water heaters of 

2.2 EF is reasonable and appropriate, 

and is an achievable standard for heat 

pump water heaters. (Daikin, No. 82 at 

p. 1) 

In response, DOE estimated the maxtech efficiency for electric storage water 

heaters for the December 2009 NOPR 

before any integrated heat pump water 

heaters were commercially available on 

the market. In the time since the 

December 2009 NOPR’s publication, 

several heat pump water heater models 

have become available to consumers. 

The highest EF of the heat pump water 

heater models currently available on the 

market is 2.35 EF at 50 gallons. While 

DOE does acknowledge A.O. Smith’s 

and ACEEE’s point that a CO2 heat 

pump water heater could provide an 

even higher EF, that technology was 

screened out during the screening 

process (see section IV.B.1), and DOE is 

not considering that technology as a 

viable way of reaching the max-tech 

level. As a result, DOE has revised the 

max-tech level for the final rule to be 

2.35 EF at the representative 50-gallon 

rated storage volume, as shown in Table 

IV.9. 

TABLE IV.9—FIFTY-GALLON ELECTRIC STORAGE WATER HEATER EFFICIENCY LEVELS

Efficiency level (EF) Technology 

Baseline (EF = 0.90) ................................................................................ 1.5′′ Foam Insulation. 

Efficiency Level 1 (EF = 0.91) .................................................................. 2′′ Foam Insulation. 

Efficiency Level 2 (EF = 0.92) .................................................................. 2.25′′ Foam Insulation. 

Efficiency Level 3 (EF = 0.93) .................................................................. 2.5′′ Foam Insulation. 

Efficiency Level 4 (EF = 0.94) .................................................................. 3′′ Foam Insulation. 

Efficiency Level 5 (EF = 0.95) .................................................................. 4′′ Foam Insulation. 

Efficiency Level 6 (EF = 2.0) .................................................................... Heat Pump Water Heater. 

Efficiency Level 7—Max-Tech (EF = 2.35) .............................................. Heat Pump Water Heater, More-Efficient Compressor. 

DOE received only one comment in 

response to the efficiency levels and 

technology pathways presented in the 

December 2009 NOPR for oil-fired 

storage water heaters. In the December 

2009 NOPR, DOE determined that oilfired storage water heaters would have 

to use a multi-flue design to achieve 

efficiency levels 6 and 7 (i.e., 0.66 and 

0.68 EF for the 32-gallon representative 

rated storage volume). 74 FR 65852, 

65885–86 (Dec. 11, 2009). Bradford 

White stated that at the efficiency level 

proposed in the December 2009 NOPR 

for oil-fired storage water heaters (i.e., 

efficiency level 5, or 0.62 EF for the 32- 

gallon representative rated storage 

volume), reaching the required 

efficiency will likely require the use of 

multi-flue designs, thereby adding 

tremendous cost to residential designs. 

(Bradford White, No. 61 at p. 2) 

In response, DOE identified the 

technologies at each efficiency level by 

examining the designs of products 

currently available on the market at 

each efficiency level. Oil-fired storage 

water heaters are currently available on 

the market at 0.62 EF, which do not 

utilize a multi-flue design or other 

proprietary technology. As a result, DOE 

believes that the technology options 

identified in the December 2009 NOPR 

at efficiency level 5 are appropriate, and 

has retained the same efficiency levels 

and technologies for the final rule. 

Accordingly, DOE did not include a 

multi-flue design at efficiency level 5 for 

the final rule analysis. 

TABLE IV.10—THIRTY-TWO-GALLON OIL-FIRED STORAGE WATER HEATER WITH BURNER ASSEMBLY

Efficiency level (EF) Technology 

Baseline (EF = 0.53) ................................................................................ 1′′ Fiberglass Insulation. 

Efficiency Level 1 (EF = 0.54) .................................................................. 1.5′′ Fiberglass Insulation. 

Efficiency Level 2 (EF = 0.56) .................................................................. 2′′ Fiberglass Insulation. 

Efficiency Level 3 (EF = 0.58) .................................................................. 2.5′′ Fiberglass Insulation. 

Efficiency Level 4 (EF = 0.60) .................................................................. 2′′ Foam Insulation. 

Efficiency Level 5 (EF = 0.62) .................................................................. 2.5′′ Foam Insulation. 

Efficiency Level 6 (EF = 0.66) .................................................................. 1′′ Fiberglass Insulation, and Multi-Flue Design. 

Efficiency Level 7—Max-Tech (EF = 0.68) .............................................. 1′′ Foam Insulation, and Multi-Flue Design. 

DOE did not receive any comments in 

response to the efficiency levels and 

technology options presented in the 

December 2009 NOPR analysis for gasfired instantaneous water heaters. 74 FR 

65852, 65886–87 (Dec. 11, 2009). DOE 

believes that the efficiencies and 

technology options presented for gasfired instantaneous water heaters in the 

December 2009 NOPR are still valid and 

continued to use the same technologies 

and efficiency levels in the final rule 

analysis. 


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TABLE IV.11—ZERO-GALLON GAS-FIRED INSTANTANEOUS WATER HEATER, 199,000 BTU/H INPUT CAPACITY

Efficiency level (EF) Technology 

Baseline (EF = 0.62) ................................................................................ Standing Pilot. 

Efficiency Level 1 (EF = 0.69) .................................................................. Standing Pilot and Improved Heat Exchanger Area. 

Efficiency Level 2 (EF = 0.78) .................................................................. Electronic Ignition And Improved Heat Exchanger. 

Efficiency Level 3 (EF = 0.80) .................................................................. Electronic Ignition and Power Vent. 

Efficiency Level 4 (EF = 0.82) .................................................................. Electronic Ignition, Power Vent, Improved Heat Exchanger Area. 

Efficiency Level 5 (EF = 0.84) .................................................................. Electronic Ignition, Power Vent, and Improved Heat Exchanger Area. 

Efficiency Level 6 (EF = 0.85) .................................................................. Electronic Ignition, Power Vent, Direct Vent, and Improved Heat Exchanger Area. 

Efficiency Level 7 (EF = 0.92) .................................................................. Electronic Ignition, Power Vent, Direct Vent, Condensing. 

Efficiency Level 8—Max Tech (EF = 0.95) .............................................. Electronic Ignition, Power Vent, Direct Vent, Condensing (Max-Tech). 

b. Direct Heating Equipment 

Table IV.12 through Table IV.16 

present the efficiency levels DOE 

examined for the final rule analysis for 

DHE. In the December 2009 NOPR 

analysis, DOE identified various 

efficiency levels for gas wall fan DHE. 

74 FR 65852, 65887 (Dec. 11, 2009). 

DOE did not receive any comments 

pertaining to its efficiency levels or 

technologies identified for the gas wall 

fan product in the December 2009 

NOPR analysis. After reviewing the 

efficiency levels and technologies, DOE 

has determined that the same efficiency 

levels and technologies are still 

appropriate and continued to use them 

in the final rule analysis. 

TABLE IV.12—GAS WALL FAN-TYPE DHE (OVER 42,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (AFUE) Technology 

Baseline (AFUE = 74) .............................................................................. Standing Pilot. 

Efficiency Level 1 (AFUE = 75) ................................................................ Intermittent Ignition and Two-Speed Blower. 

Efficiency Level 2 (AFUE = 76) ................................................................ Intermittent Ignition and Improved Heat Exchanger. 

Efficiency Level 3 (AFUE = 77) ................................................................ Intermittent Ignition, Two-Speed Blower, and Improved Heat Exchanger. 

Efficiency Level 4—Max-Tech (AFUE = 80) ............................................ Induced Draft and Electronic Ignition. 

For gas wall gravity DHE, DOE 

identified efficiency levels and 

technology options in the December 

2009 NOPR analysis, which included a 

72-percent AFUE level as the max-tech 

that could be achieved using electronic 

ignition. 74 FR 65852, 65887–88 (Dec. 

11, 2009). DOE received several 

comments in response to the efficiency 

levels and technologies for gas wall 

gravity DHE presented in the December 

2009 NOPR. These comments and 

DOE’s response are discussed below. 

Williams stated that due to factors 

such as interior stud-wall installation, 

the lack of an electricity requirement, 

and limited height footprint, gravity 

wall heaters do not lend themselves to 

the addition of a fan, and the 

commenter asserted that the TSD 

recommendations centered almost 

exclusively on the incorporation of a fan 

for improving efficiency of DHE. 

(Williams, No. 96 at p. 2) Further, 

Williams stated that a three-percent 

AFUE difference between a gravity wall 

and fan wall heater is not plausible. 

Williams also commented that DOE’s 

assumption that increased efficiencies 

of three percent to nine percent can be 

attained by using an electronic ignition 

is unproven. (Williams, No. 96 at p. 2) 

Empire stated that to improve 

efficiency of DHE, larger heat exchanger 

surface areas would be needed and, as 

a result, the overall size of the unit may 

increase. Furthermore, Empire stated 

that many of the modifications 

necessary to improve the efficiency of 

gas wall gravity DHE would require 

electricity. (Empire, Public Meeting 

Transcript, No. 57.4 at p. 166) LTS 

stated that it is not optimistic that it 

could manufacture gravity wall furnaces 

at the proposed level, because meeting 

that level would require a larger heat 

exchanger and cabinet and, 

consequently, the product would lose 

its retrofit ability. (LTS, No. 56.7 at 

p. 1) 

In consideration of the comments 

above, DOE reevaluated its efficiency 

levels and technologies for gas wall 

gravity DHE for the final rule. After 

reexamining the current market for gas 

wall gravity DHE for the final rule, DOE 

concluded that at the efficiency levels 

analyzed by DOE in the December 2009 

NOPR, some gas wall gravity DHE 

models are available on the market, but 

these models are not in the 

representative rated capacity range. 

Therefore, DOE revised the efficiency 

levels analyzed for the final rule to more 

accurately reflect the current market for 

products within the representative rated 

capacity. DOE notes that the revised 

efficiency levels do not require the use 

fans, and allow for heat exchangers to be 

sized so that the units can be easily 

retrofitted. In addition, although no gas 

wall gravity products that use an 

electronic ignition system are available 

on the market, DOE maintained the 

assumption from the December 2009 

NOPR that an electronic ignition could 

be added to gas wall gravity products to 

improve the AFUE by 1 percent. DOE 

does not believe that a reduction of 

consumer utility will occur by requiring 

electrical power for an electronic 

ignition because these products could 

incorporate a battery backup to mitigate 

any concerns about operation during 

power outages. 

Regarding Williams’ assertion that the 

AFUE increases from an electronic 

ignition have not been proven, DOE 

agrees that the actual AFUE increase 

resulting from the addition of an 

electronic ignition will be highly 

variable based on the characteristics of 

each individual product, and the results 

of this have not been demonstrated in 

gas wall gravity DHE on the market. 

Because no products are available on 

the market in this product class that 

utilize electronic ignition, it is difficult 

to determine the exact impact of 

utilizing an electronic ignition for gas 

wall gravity DHE. However, 

consideration under the DOE test 

procedures for vented home heating 


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equipment (10 CFR part 430, subpart B, 

appendix O) led DOE to believe it is 

reasonable to assume that a 1-percent 

increase in AFUE would be achieved 

with the addition of an electronic 

ignition. Section 4.1.17 of DOE’s test 

procedures for vented home heating 

equipment lists the AFUE equation as: 

AFUE = 0.968hss-wt ¥ 1.78DF ¥ 1.89DS

¥ 129PF ¥ 2.8LJ + 1.81 

Of particular relevance in the AFUE 

equation above is the PF term, which is 

the pilot fraction and accounts for the 

AFUE reduction caused by the standing 

pilot. PF is defined as the ratio of the 

pilot light input to the total input of the 

product. If DOE assumes a typical pilot 

light input of 400 Btu/h, the minimum 

pilot fraction for the representative 

input range for gas wall gravity DHE 

would be 0.009. When multiplied by the 

129 coefficient provided in the 

equation, a pilot fraction of 0.009 would 

yield slightly over a 1-percent AFUE 

reduction according to the equation. 

Therefore, DOE assumes that the 

elimination of a standing pilot would 

provide about a 1-percent AFUE 

increase for the representative capacity 

range. DOE used gas wall gravity DHE 

with an electronic ignition to represent 

the max-tech efficiency level because 

the incorporation of electronic ignition 

does not require significant 

modifications to the installation space 

that would limit consumers’ ability to 

retrofit the product. Table IV.13 shows 

the revised efficiency levels for gas wall 

gravity DHE that were used in the final 

rule analysis. 

TABLE IV.13—GAS WALL GRAVITY DHE (OVER 27,000 Btu/h AND UP TO 46,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (AFUE) Technology 

Baseline (AFUE = 64) .............................................................................. Standing Pilot. 

Efficiency Level 1 (AFUE = 66) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 2 (AFUE = 68) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 3 (AFUE = 69) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 4—Max Tech (AFUE = 70) ............................................ Electronic Ignition. 

For gas floor DHE, gas room DHE, and 

gas hearth DHE, DOE surveyed the 

market and identified a number of 

efficiency levels for these products 

based on the technologies available for 

each product class in the December 

2009 NOPR analysis. 74 FR 65852, 

65888 (Dec. 11, 2009). DOE did not 

receive any comments about the 

efficiency levels and technologies 

identified for these products. After 

reviewing the efficiency levels and 

technologies for each of these three 

product classes, DOE determined that 

the efficiency levels and technologies 

examined in the December 2009 NOPR 

are still appropriate and maintained 

them for the final rule analysis. Table 

IV.14 through Table IV.16 show the 

efficiency levels analyzed for gas floor, 

gas room, and gas hearth DHE. 

TABLE IV.14—GAS FLOOR DHE (OVER 37,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (AFUE) Technology 

Baseline (AFUE = 57) .............................................................................. Standing Pilot. 

Efficiency Level 1—Max Tech (AFUE = 58) ............................................ Standing Pilot and Improved Heat Exchanger. 

TABLE IV.15—GAS ROOM DHE (OVER 27,000 Btu/h AND UP TO 46,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (AFUE) Technology 

Baseline (AFUE = 64) .............................................................................. Standing Pilot. 

Efficiency Level 1 (AFUE = 65) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 2 (AFUE = 66) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 3 (AFUE = 67) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 4 (AFUE = 68) ................................................................ Standing Pilot and Improved Heat Exchanger. 

Efficiency Level 5—Max Tech (AFUE = 83) ............................................ Electronic Ignition and Multiple Heat Exchanger Design. 

TABLE IV.16—GAS HEARTH DHE (OVER 27,000 Btu/h AND UP TO 46,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (AFUE) Technology 

Baseline (AFUE = 64) .............................................................................. Standing Pilot. 

Efficiency Level 1 (AFUE = 67) ................................................................ Electronic Ignition. 

Efficiency Level 2 (AFUE = 72) ................................................................ Fan Assisted. 

Efficiency Level 3—Max Tech (AFUE = 93) ............................................ Condensing. 

c. Pool Heaters 

Table IV.17 shows the efficiency 

levels analyzed for the final rule 

analysis for pool heaters. In response to 

the December 2009 NOPR analysis, DOE 

received several comments related to 

the efficiency levels and technologies 

identified for pool heaters, particularly 

for efficiency level 5 (i.e., 84-percent 

thermal efficiency). 

AHRI asserted that DOE has 

incorrectly analyzed the measures 

required to manufacture gas-fired pool 

heaters capable of achieving a minimum 

thermal efficiency of 84 percent. 

Further, AHRI stated that manufacturers 

must design products to address the 

entire range of installation situations 

that the product could experience, and 

if a particular replacement installation 

presents concerns about possible 


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excessive condensation for a heater with 

83- or 84-percent thermal efficiency, the 

option currently exists to install a 

slightly less efficient pool heater and 

minimize this concern. However, AHRI 

asserted that because this option will no 

longer exist if DOE adopts TSL 4, 

manufacturers will have to use more 

corrosion-resistant (and more 

expensive) stainless steel in the heat 

exchangers. (AHRI, No. 91 at p. 9) 

Similarly, Raypak stated its belief, 

based on their own testing conducted to 

evaluate ways to achieve higher 

efficiency from their products that 

more-expensive stainless steel materials 

will be required to properly deal with 

the increased amount of condensate at 

higher efficiency levels (i.e., anything 

greater than TSL 2). Further, Raypak 

stated that atmospheric products 

currently on the market do condense 

(although they are designed to minimize 

condensation), so increasing the 

efficiency level will both increase the 

amount of condensation and reduce the 

life of the product, unless moreexpensive stainless steel materials are 

used to manage condensate more 

effectively. (Raypak, No. 67 at p. 3) 

Zodiac also stated that 84-percent 

thermal efficiency for gas-fired pool 

heaters approaches the point at which 

condensing occurs, and that 

condensation as a byproduct of 

combustion is acidic and can cause 

corrosion to important components of 

the heater, including the venting 

material if the proper type of venting is 

not installed. Zodiac stated that 

corrosion from condensate can lead to 

leaks in the venting system, which in 

turn can allow combustion by-products 

to infiltrate into areas where such byproducts are not desirable. Zodiac 

asserted this can subsequently 

contribute to creating a carbon 

monoxide hazard in the event that 

abnormal combustion ever occurs, 

which can lead to serious injury or 

death. (Zodiac, No. 68 at pp. 1–2) 

In response to these comments, DOE 

notes that in the engineering analysis, 

DOE examined pool heaters that are 

currently available on the market at 84- 

percent thermal efficiency. DOE 

determined that these products did not 

incorporate stainless steel heat 

exchangers. In addition, manufacturer 

literature does not specify instances 

when these products could cause unsafe 

installations, and where less-efficient 

products should be used to minimize 

corrosive condensate. Instead, 

manufacturer literature advertises safety 

features that minimize condensate, such 

as a manual bypass that will raise the 

incoming water temperature to reduce 

the formation of corrosive condensate. 

Because these products currently exist 

on the market and seem to be capable 

of safe operation with condensate being 

mitigated using less expensive methods 

than incorporating stainless steel 

materials, DOE did not consider 

stainless steel heat exchangers at 84- 

percent thermal efficiency for the final 

rule. Additionally, DOE notes that 

typically pool heaters are installed 

outdoors or outside of the living space, 

so these products are unlikely to cause 

safety concerns in most installations. 

DOE does not believe manufacturers 

would largely deviate from the designs 

currently on the market in the event of 

a standard at this efficiency level, and, 

thus, DOE based its technologies on 

products currently available on the 

market at 84-percent thermal efficiency. 

As a result, DOE maintained the pool 

heater efficiency levels analyzed for the 

December 2009 NOPR in the final rule 

analysis. 

TABLE IV.17—GAS-FIRED POOL HEATER (250,000 Btu/h) EFFICIENCY LEVELS

Efficiency level (thermal efficiency) Technology 

Baseline (Thermal Efficiency = 78)*. .................................

Efficiency Level 1 (Thermal Efficiency = 79)* .................... Improved Heat Exchanger Design. 

Efficiency Level 2 (Thermal Efficiency = 81)* .................... Improved Heat Exchanger Design. 

Efficiency Level 3 (Thermal Efficiency = 82)* .................... Improved Heat Exchanger Design, More Effective Insulation (Combustion Chamber). 

Efficiency Level 4 (Thermal Efficiency = 83) ..................... Power Venting. 

Efficiency Level 5 (Thermal Efficiency = 84) ..................... Power Venting, Improved Heat Exchanger Design. 

Efficiency Level 6 (Thermal Efficiency = 86) ..................... Sealed Combustion, Improved Heat Exchanger Design. 

Efficiency Level 7 (Thermal Efficiency = 90) ..................... Sealed Combustion, Condensing. 

Efficiency Level 8—Max-Tech (Thermal Efficiency = 95) Sealed Combustion, Condensing, Improved Heat Exchanger Design. 

* Technologies incorporating either a standing pilot or electronic ignition. Efficiency Levels above 3 include electronic ignition. 

3. Cost Assessment Methodology 

a. Manufacturer Production Cost 

As explained in the December 2009 

NOPR, DOE’s process for developing 

manufacturer production costs (MPCs) 

consisted of several steps. First, DOE 

selected representative models that 

corresponded to the representative rated 

storage volumes and input capacities, 

and that represented the most common 

designs and characteristics available in 

products on the market. DOE then 

performed a teardown analysis of the 

selected models, which included 

disassembling the selected products into 

their base components and 

characterizing each component 

according to its weight, dimensions, 

material, quantity, and the 

manufacturing processes used to 

fabricate and assemble it. The teardown 

analysis for this rulemaking included a 

total of over 60 physical and virtual 

teardowns of water heaters, DHE, and 

pool heaters during the preliminary and 

NOPR analysis phases. 74 FR 65852, 

65889–93 (Dec. 11, 2009). 

DOE used the data gathered during 

the teardown analysis to generate bills 

of materials (BOMs) that 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 developed a cost 

model using Microsoft Excel 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. To convert the 

information in the BOMs to dollar 

values, DOE collected information on 

labor rates, tooling costs, raw material 

prices, and other factors. For purchased 

parts, the cost model estimates the 

purchase price based on volumevariable price quotations and detailed 

discussions with manufacturers and 

component suppliers. For fabricated 

parts, the prices of raw metal materials 

(e.g., tube, sheet metal) are estimated on 

the basis of 5-year averages. The cost of 

transforming the intermediate materials 

into finished parts is estimated based on 

current industry pricing. 

For the final rule analysis, DOE 

updated all of the labor rates, tooling 

costs, raw material prices, and the 


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purchased parts costs. DOE calculated 

new 5-year average materials prices 

using the U.S. Department of Labor’s 

Bureau of Labor Statistics (BLS) 

Producer Price Indices (PPIs) for various 

raw metal materials from 2005 to 2009, 

which incorporate the changes within 

each material industry and inflation. 

DOE also used BLS PPI data to update 

current market pricing for other input 

materials such as plastic resins and 

purchased parts. Finally, DOE adjusted 

all averages to 2009$ using the gross 

domestic product implicit price 

deflator. Chapter 5 of the final rule TSD 

describes DOE’s cost model and 

definitions, assumptions, and estimates. 

Additionally, because integrated heat 

pump water heaters became available on 

the market before the completion of the 

final rule analysis, DOE was able to 

perform teardown analyses and develop 

detailed BOMs for multiple heat pump 

water heaters. DOE used the BOMs to 

develop the MPCs for heat pump water 

heaters, which DOE found affirmed the 

MPCs developed for the December 2009 

NOPR analysis that were based on a 

theoretical heat pump water heater 

design (since no heat pump water 

heaters were available on the market at 

the time of the December 2009 NOPR 

analysis). The teardown analysis of heat 

pump water heaters allowed DOE to 

refine its MPCs for these products for 

the final rule analysis. 

DOE received several comments in 

response to the manufacturer 

production costs and methodology 

presented in the December 2009 NOPR. 

ACEEE stated its disappointment that 

DOE did not perform retrospective 

analysis of the costs of products affected 

by changes in efficiency standards. 

ACEEE recommended that DOE balance 

the current approach to developing the 

cost-efficiency relationship by 

considering the historical results of 

rulemakings, arguing that manufacturer 

production costs for product redesigns 

almost inevitably result in lower 

consumer prices for more-efficient 

goods than DOE has typically estimated 

in its rulemaking analyses for energy 

conservation standards. Further, ACEEE 

stated that DOE’s reasoning that it 

cannot speculate about specific changes 

manufacturers might adopt, is no reason 

to reject analysis of the historical 

pattern of manufacturer responses. 

ACEEE cited published work by a DOE 

contractor purportedly showing that 

most standards yield consumer prices 

lower than projected by the Department, 

and ACEEE stated that empirical results 

are simply more credible than those 

relied upon in DOE’s rulemaking record, 

particularly for the future costs of 

products that include technology shifts 

and very low market shares today, such 

as heat pump water heaters. (ACEEE, 

No. 79 at p. 3) 

In response, DOE reiterates its 

tentative conclusion in the December 

2009 NOPR that DOE’s manufacturing 

cost estimates seek to gauge the most 

likely industry response to meet the 

requirements of proposed energy 

conservation standards. DOE’s analysis 

of manufacturing cost must be based on 

currently-available technology that 

would provide a nonproprietary 

pathway for compliance with a standard 

once it becomes effective, and, thus, 

DOE cannot speculate on future product 

and market innovation. In response to a 

change in energy conservation 

standards, manufacturers have made a 

number of changes to reduce costs in 

the past. DOE understands 

manufacturers have re-engineered 

products to reduce cost, made changes 

to manufacturing process to reduce 

labor costs, and moved production to 

lower-cost areas to reduce labor costs. 

However, these are individual company 

decisions, and it is impossible for DOE 

to forecast such decisions. DOE does not 

know of any data that would allow it to 

determine the precise course a 

manufacturer may take. Furthermore, 

while manufacturers have been able to 

reduce the cost of products that meet 

previous energy conservation standards, 

there are no data to suggest that any 

further reductions in cost are possible. 

Therefore, it would not be appropriate 

to speculate about cost reduction based 

upon prior actions of manufacturers of 

either the same or other products. 

Setting energy conservation standards 

based upon relevant data is particularly 

important given EPCA’s anti-backsliding 

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

At the December 2009 NOPR public 

meeting, A.O. Smith stated that the cost 

impact studies for ultra-low NOX in 

combination with condensing 

technology should be reworked 

extensively because it is significantly 

more complex to implement an ultralow NOX design with a condensing gasfired water heater than a noncondensing gas-fired water heater. (A.O. 

Smith, Public Meeting Transcript, No. 

57.4 at p. 124) A.O. Smith also 

commented at the public meeting that 

for ultra-low NOX gas-fired storage 

water heaters, the MPC at efficiency 

level 6 for an ultra-low NOX condensing 

gas water heater is considerably too low 

(A.O. Smith, Public Meeting Transcript, 

No. 57.4 at p. 139) However, in its 

written submission, A.O. Smith stated 

that they believe DOE’s manufacturer 

production costs in the December 2009 

NOPR are all reasonably accurate. (A.O. 

Smith, No. 76 at p. 3) DOE believes A.O. 

Smith’s written statement clarified A.O. 

Smith’s opinion regarding the 

manufacturer production costs, and 

thus, DOE did not change its approach 

to developing MPCs for ultra-low NOX

condensing water heaters. 

Turning to pool heaters, AHRI stated 

that the manufacturing cost for pool 

heater models to comply with TSL 4 

(i.e., 84-percent thermal efficiency) is 

underestimated by DOE. (AHRI, No. 91 

at p. 8) Similarly, Raypak asserted that 

DOE does not account for the stainless 

steel material improvements (a 

significant cost increase) at any TSL 

below fully condensing. (Raypak, No. 67 

at p. 3) 

In response, DOE did not include the 

cost of a stainless steel heat exchanger 

design in its analysis of pool heaters at 

84-percent thermal efficiency, because 

DOE’s MPC for this product is based on 

models at 84-percent thermal efficiency 

that are currently available on the 

market, as explained in section IV.C.2.c, 

DOE does not have sufficient reason to 

believe that in the event of a minimum 

energy conservation standard at this 

efficiency level, manufacturers would 

completely redesign their products at 

this efficiency. Thus, DOE disagrees 

with AHRI and Raypak, and does not 

believe that the pool heater MPC at 84- 

percent thermal efficiency was 

underestimated for the December 2009 

NOPR and has continued to use that 

MPC for the final rule analysis. 

b. Manufacturer Selling Price 

The manufacturer selling price (MSP) 

is the price at which the manufacturer 

can recover all production and nonproduction costs and earn a profit. The 

MSP should be high enough to recover 

the full cost of the product (i.e., full 

production and non-production costs), 

and yield a profit. For heating products, 

DOE calculates the MSP in one of two 

ways, depending on the product type. 

For gas-fired instantaneous water 

heaters, DHE, and pool heaters, the MSP 

is the MPC multiplied by a 

manufacturer markup. For gas-fired, 

electric, and oil-fired storage water 

heaters, the size of the unit is largely 

dependent on the final standard 

requirement, and as a result, the 

shipping costs are much different at 

each efficiency level. Therefore, in the 

December 2009 NOPR analysis, DOE 

separated the shipping costs of storage 

water heaters from the manufacturer 

markup to more transparently show the 

impacts of standards on the shipping 

costs of storage water heaters. The MSP 

for gas-fired, electric, and oil-fired 

storage water heaters was calculated as 

the MPC multiplied by the manufacturer 

markup (less the percentage of markup 


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usually attributed to shipping cost) plus 

the shipping cost per unit. See chapter 

5 of the final rule TSD for more 

information regarding the manufacturer 

markup. 

i. Manufacturer Markup 

The manufacturer markup is a nonproduction cost multiplier that DOE 

applies to the full MPC to account for 

corporate non-production costs and 

profit. To calculate the manufacturer 

markups for the preliminary analysis, 

DOE used 10–K reports from publiclyowned residential heating products 

companies. DOE presented the 

calculated markups to manufacturers 

during interviews conducted for the 

December 2009 NOPR MIA analysis, 

and considered the feedback from 

manufacturers in order to supplement 

the calculated markup. DOE then 

refined the markups for each type of 

residential heating product to better 

reflect the residential heating products 

market. DOE used a constant markup to 

reflect the MSPs of the baseline 

products as well as more-efficient 

products. DOE used this approach 

because amended standards may result 

in high-efficiency products (which 

currently are considered premium 

products) becoming the baselines. 

In regard to the manufacturer 

markups and methodology for 

determining manufacturer markups in 

the December 2009 NOPR, DOE did not 

receive any feedback from interested 

parties. After reviewing the 

manufacturer markups used for the 

December 2009 NOPR, DOE continued 

to use the same manufacturer markups 

for the final rule. 

ii. Shipping Cost for Storage Water 

Heaters 

The final step in DOE’s costassessment methodology was to 

calculate the shipping cost for storage 

water heaters. Typically, the cost of 

shipping is fully accounted for in the 

manufacturer markup, and as noted 

above, this was DOE’s approach for 

direct heating equipment, pool heaters, 

and gas-fired instantaneous water 

heaters. For storage water heaters, 

however, shipping costs are highly 

variable because the size of the unit is 

largely dependent upon the efficiency 

level being considered. Thus, DOE 

separated the shipping cost from 

manufacturer markup for storage water 

heaters. 

For the final rule, DOE used many of 

the same assumptions used in the 

December 2009 NOPR to calculate 

shipping costs. DOE calculated shipping 

costs based on a typical 53-foot straightframe trailer with a storage volume of 

4,240 cubic feet, and assumed an 

average cost of $4,000 per trailer load. 

DOE examined the average sizes of 

water heaters at each efficiency level 

and storage volume, and determined the 

number of units that would fit in each 

trailer based on assumptions about the 

arrangement of water heaters in the 

trailer. 

In response to the shipping costs 

presented in the December 2009 NOPR, 

Bradford White stated that the increases 

in shipping costs at higher efficiency 

levels are far too low. (Bradford White, 

Public Meeting Transcript, No. 57.4 at 

pp. 40–41) However, DOE notes that 

Bradford White did not provide any 

new data regarding shipping costs in 

response to the December 2009 NOPR. 

Further, Bradford White expressed 

strong disagreement with the shipping 

costs used for the December 2009 NOPR 

analysis, arguing that at the increased 

insulation thicknesses presented in the 

December 2009 NOPR, DOE’s shipping 

costs are very much underestimated. 

(Bradford White, No. 61 at p. 1) 

In response to these comments, DOE 

reexamined the shipping costs for the 

final rule analysis. DOE made several 

changes to its December 2009 NOPR 

assumptions for the final rule, including 

changes to the packaging dimensions of 

heat pump water heaters and changes to 

assumptions about the arrangement 

power vented gas-fired units on the 

trailer. For example, for the final rule 

analysis, DOE was able to examine 

actual heat pump water heaters 

available on the market, which allowed 

DOE to refine its estimated shipping 

dimensions of these units by increasing 

the dimensions to more accurately 

reflect the packaging of products that 

have recently become available to 

consumers. The increased shipping 

dimensions led to an increase the 

shipping cost (as manufacturers would 

be able to fit fewer units per shipping 

load). As a result, DOE was able to 

revise its shipping costs to more 

accurately reflect the cost to ship 

products currently available on the 

market. However, DOE notes that the 

shipping costs developed for the final 

rule represent estimates of the cost per 

unit shipped if the trailer were fully 

loaded with the same product (i.e., same 

type of water heater at the same 

efficiency level and same storage 

volume). DOE recognizes that in reality, 

manufacturers will likely mix different 

products of various storage volumes and 

efficiencies to try to optimize the use of 

space within the trailer, which will 

cause some variation in the actual 

shipping costs per unit. For a full 

description of shipping costs for storage 

water heaters, see chapter 5 of the final 

rule TSD. 

4. Engineering Analysis Results 

The results of the engineering analysis 

are reported as cost-efficiency data in 

the form of MSP (in dollars) versus 

efficiency (EF for water heaters, AFUE 

for DHE, and thermal efficiency for pool 

heaters). The results from the 

engineering analysis are the basis for the 

subsequent analyses in the final rule 

and were used in the LCC analysis to 

determine consumer prices for 

residential heating products at the 

various potential standard levels. 

Chapter 5 of the final rule TSD provides 

the full list of MPCs and MSPs at each 

efficiency level for each analyzed 

representative product. 

5. Scaling to Additional Rated Storage 

Capacities 

As discussed in the December 2009 

NOPR, to account for the large variation 

in the rated storage volumes of 

residential storage water heaters and 

differences in both usage patterns and 

first cost to consumers of water heaters 

larger or smaller than the representative 

capacity, DOE scaled its MPCs and 

efficiency levels for the representative 

rated storage volumes to several discrete 

rated storage volumes higher and lower 

than the representative storage volume 

for each storage water heater product 

class. 74 FR 65852, 65893–94 (Dec. 11, 

2009) DOE developed the MPCs for 

water heaters at each of the rated storage 

volumes shown in Table IV.18. The 

MPCs developed for this analysis were 

used in the downstream LCC analysis, 

where a distribution of MPCs was used 

based on the estimated market share of 

each rated storage volume (see section 

IV.F). 

TABLE IV.18—ADDITIONAL WATER HEATER STORAGE VOLUMES ANALYZED

Water heater product class Storage volumes 

analyzed (gallons, U.S.) 

Gas-fired Storage ........................................................................................................................................................... 30, 50, 65, 75. 

Electric Storage .............................................................................................................................................................. 30, 40, 66, 80, 119. 


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TABLE IV.18—ADDITIONAL WATER HEATER STORAGE VOLUMES ANALYZED—Continued 

Water heater product class Storage volumes 

analyzed (gallons, U.S.) 

Oil-fired Storage .............................................................................................................................................................. 50. 

As described in the December 2009 

NOPR, DOE developed the MPCs for the 

analysis of additional storage volumes 

by creating a cost model based on 

teardowns of products at nominal 

storage volumes outside the 

representative volume across a range of 

efficiencies and manufacturers. The cost 

model accounts for changes in the size 

of water heater components that would 

scale with tank volume, while assuming 

other components (e.g., gas valves, 

thermostats, controls) remain largely the 

same across the different storage volume 

sizes. DOE estimated the changes in 

material and labor costs that occur at 

volume sizes higher and lower than the 

representative volume based on 

observations made during teardowns, 

which allowed DOE to accurately model 

certain characteristics that are not 

identifiable in manufacturer literature. 

Additional details and the results of 

DOE’s analysis for the additional storage 

volumes are presented in chapter 5 of 

the final rule TSD (engineering 

analysis). 

In response to the scaled MPCs 

developed for the December 2009 NOPR 

analysis, DOE received feedback from 

several interested parties. Southern 

Company and AHRI commented that 

DOE’s assumption that for heat pump 

water heaters, the heat pump output 

capacity would not change as a function 

of tank size is likely incorrect. Southern 

Company stated that a heat pump with 

a higher capacity would be used on a 

119-gallon tank than on a 30-gallon 

tank. As a result, the commenters stated 

their belief that DOE’s scaling of costs 

for the heat pump water heater 

efficiency levels may be incorrect. 

(Public Meeting Transcript, No. 57.4 at 

pp. 152–155) Further, Southern 

Company stated that the reason the 

heating elements in electric resistance 

heaters have the same output capacity 

across the full range of gallon sizes is 

because they max-out the standard 

circuit. (Southern Company, Public 

Meeting Transcript, No. 57.4 at p. 155) 

A.O. Smith also commented that a 119- 

gallon heat pump water heater would 

likely have a higher-capacity refrigerant 

circuit than a 30-gallon heat pump 

water heater. (A.O. Smith, Public 

Meeting Transcript, No. 57.4 at p. 157) 

DOE’s analysis of electric storage 

water heaters currently available on the 

market revealed that electric storage 

water heaters use the same capacity 

heating elements across the range of 

storage volumes to provide the same 

amount of heat input to the water. DOE 

notes that for heat pump water heaters, 

the heat pump unit serves essentially 

the same function as the electric 

resistance element in electric storage 

water heaters (i.e., heating the water). 

Because heat pump modules paired 

with electric water heaters currently 

available on the market demonstrate 

that the same amount of heating 

capability as compared to the electric 

elements found in conventional water 

heaters and both of these types of 

heaters can be used to satisfy the 

heating requirements of the full range of 

water heater storage volumes, DOE 

believes the same amount of heat input 

from a heat pump can also be used to 

satisfy the heating requirements for the 

full range of storage volumes. Therefore, 

DOE does not believe an increase in the 

heat pump capacity would be required 

at larger tank storage volumes. DOE 

believes that the same amount of heat 

pump heating capacity will be adequate 

to serve the water heating needs across 

the entire range of storage volumes, and 

as a result manufacturers would be 

unlikely to increase the size and 

capacity of the heat pump unit as the 

storage volume increases. Therefore, 

DOE maintained the assumption that 

the heat pump unit will not scale with 

storage volume for the final rule 

analysis. 

EEI stated that for large water heaters 

(66 to 119 gallons), DOE’s costs to go 

from TSL 4 (electric resistance) to TSL 

5 (heat pump water heaters) are between 

$20 and $26, which are vastly 

understated. (EEI, No. 95 at p. 5) 

In response, DOE believes that EEI 

misinterpreted the scaled MPCs 

presented in the December 2009 NOPR 

analysis. EEI appears to have been 

considering the MPC differences 

between TSLs, whereas the December 

2009 NOPR only lists the cost 

differences between efficiency levels. 

Heat pump water heater technology is 

implemented for larger-storage-volume 

products at the December 2009 NOPR 

TSL 5; however, DOE does not consider 

heat pump water heater technology in 

the engineering analysis for efficiency 

level 5, but instead considers it at 

efficiency level 6 for all product classes. 

The December 2009 NOPR TSL 5 was a 

combination of efficiency level 5 for the 

smaller storage volume sizes (55 gallons 

or less), and efficiency level 6 for the 

larger storage volume sizes (greater than 

55 gallons). Thus, DOE believes the 

scaled MPCs at the higher gallon sizes 

and higher efficiency levels presented in 

the December 2009 NOPR were correct. 

6. Water Heater Energy Efficiency 

Equations 

For this rulemaking, DOE reviewed 

the energy efficiency equations that 

define the existing Federal energy 

conservation standards for residential 

water heaters. The energy efficiency 

equations characterize the relationship 

between rated storage volume and 

energy factor and allow DOE to expand 

the analysis on the representative rated 

storage volume to the full range of 

storage volumes covered under the 

existing Federal energy conservation 

standards. The energy efficiency 

equations allow DOE to account for the 

increases in standby losses as tank 

volume increases. The current energy 

efficiency equations show that for each 

water heater class, the minimum energy 

factor decreases as the rated storage 

volume increases. 

As described in the December 2009 

NOPR, DOE reviewed market data and 

product literature for gas-fired and 

electric storage water heaters and 

developed two approaches for amending 

the existing energy efficiency equations 

for gas-fired and electric storage water 

heaters in the preliminary analysis. 74 

FR 65852, 65894–96 (Dec. 11, 2009). 

One approach was to maintain the same 

slope used in the existing equations 

(found at 10 CFR 430.32(d)), but to 

incrementally increase the intercepts. 

The second approach was to adjust the 

slope of the energy efficiency equations 

based on the review of the storage water 

heater models currently on the market. 

The advantage of the second approach 

was to acknowledge the changes in the 

product efficiencies that have occurred 

since the previous standards were set, 

and to account for these changes. DOE 

examined the efficiencies of models 

with varying storage volumes, but with 

the same or similar design features and 

varied the slope of the line to maximize 

the number of models in the series that 

meet the efficiency levels that DOE is 

considering in the full range of rated 

storage volumes. 


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The standard levels proposed in the 

December 2009 NOPR were based on 

the results of the second approach for 

gas-fired and electric storage water 

heaters. For oil-fired storage water 

heaters and gas-fired instantaneous 

water heaters, DOE only used the first 

approach to develop energy efficiency 

equations due to the limited number of 

models available on the market and 

limited data to justify modifying the 

equations. In response to the energy 

efficiency equations presented in the 

December 2009 NOPR, DOE received 

feedback from several interested parties. 

A.O. Smith stated it supports the 

energy-efficiency equations as generally 

being appropriate for the various 

efficiency levels. A.O. Smith endorsed 

the equations applicable to TSL 4, and 

strongly recommended that they not be 

revised from those proposed in the 

December 2009 NOPR. (A.O. Smith, No. 

76 at p. 2) 

Bradford White expressed its 

disagreement with the energy efficiency 

equations proposed for electric storage 

water heaters. In particular, Bradford 

White commented that the efficiency 

level 4 equation (EF = ¥0.00060(VR) + 

0.965) should be used for VR ≤ 65 

gallons and that the efficiency level 3 

equation (EF = ¥0.00155(VR) + 1.026) 

should be used for VR > 65 gallons. 

Bradford White asserted that these 

changes are necessary to prevent the 

disproportionate EF increase that was 

proposed on larger volumes that have to 

combat higher standby losses. (Bradford 

White, No. 61 at p. 4) 

Similarly, AHRI recommended that 

DOE revise the energy efficiency 

equation for TSL 4 for electric storage 

water heaters above 65 gallons, because 

AHRI believes it represents a 

disproportionately large increase in the 

EF requirement for these units. AHRI 

asserts that because larger electric 

storage water heaters have a smaller 

surface-area-to-volume ratio, increased 

insulation is less effective in achieving 

energy efficiency gains, and as a result, 

the projected efficiencies are overstated. 

AHRI recommended that for electric 

storage water heaters above 65 gallons, 

DOE should select the equation for TSL 

3 (EF = 1.051 ¥ (0.00168 * Rated 

Storage Volume)) as the standard. 

(AHRI, No. 91 at p. 2) 

Rheem also stated that the energyefficiency equation for gas-fired storage 

water heaters at TSL 4 

disproportionately imposes higher 

minimum EF values for large-capacity 

gas-fired storage water heaters. Rheem 

expressed concern that the uneven 

treatment of large-capacity units would 

encourage work-around solutions and 

product shifts. In addition, Rheem 

stated that the energy efficiency 

equation for electric storage water 

heaters at TSL 4 disproportionately 

impacts large-capacity electric storage 

water heaters. Rheem recommends that 

the equation read EF = 1.026 ¥ (0.00155 

× Rated Storage Volume in gallons) for 

capacities above 55 gallons, in order to 

yield balance for high-capacity units. 

(Rheem, No. 89 at p. 12) 

In light of the comments above, DOE 

reexamined the energy efficiency 

equations proposed in the December 

2009 NOPR for gas-fired and electric 

storage water heaters. The energy 

efficiency equations are intended to 

represent the relationship between 

efficiency and storage volume so that 

the same technology could be used to 

meet the EF requirement for the entire 

range of gallon capacities. After 

examining the characteristics of 

products on the market at each 

efficiency level and gallon size, and 

based on the results of the testing and 

teardown analysis done prior to the 

December 2009 NOPR, DOE believes 

that the energy efficiency equations, as 

presented in the December 2009 NOPR, 

accurately represent the relationship 

between efficiency and storage volume. 

The equations developed by DOE have 

two slopes and decline faster for the 

larger storage volumes than the smaller 

storage volumes. The slopes developed 

for the December 2009 NOPR 

incorporated the results of testing and a 

physical examination (through 

teardowns) of the features incorporated 

into units across various gallon sizes 

and efficiency levels. Through this 

process, DOE was able to determine the 

efficiencies that can be achieved using 

the same technologies across the range 

of rated storage volumes. DOE then 

developed equations based on the 

results of this analysis to create 

efficiency levels that allow products to 

utilize the same technology across the 

range of storage volumes. 

DOE believes that the equations have 

a proportionate impact on both largerstorage-volume units and smallerstorage-volume units. While DOE 

acknowledges that the efficiency levels 

in the proposed TSLs (which are 

determined based on a variety of factors, 

see section VI.A for more details) may 

be paired in a way which requires 

different efficiency levels utilizing 

different technologies for water heaters 

at various storage volumes, DOE does 

not believe this applies for the energy 

efficiency equations in the engineering 

analysis, which are based on constant 

technologies across the full range of 

storage volumes. The commenters did 

not provide any new data or evidence to 

lead DOE to conclude that the outcome 

of its analysis for the December 2009 

NOPR is not valid. 

As a result, DOE is maintaining the 

energy efficiency equations presented in 

the December 2009 NOPR, with only 

minor changes to account for the new 

max-tech levels described in section 

IV.C.2. For the max-tech energy 

efficiency equation (i.e., EL 6) for gasfired storage water heaters, DOE 

maintained the slope used in the 

December 2009 NOPR, but shifted the 

efficiency requirements down so that 

the EF requirement at the 40-gallon 

representative rated storage volume is 

0.77 EF instead of 0.80 EF. Similarly, for 

the max-tech equation (i.e., EL 7) for 

electric storage water heaters, DOE 

maintained the same slope, but shifted 

the equation upwards so that the 

efficiency requirement at the 50-gallon 

representative rated storage volume is 

2.35 EF instead of 2.2 EF. See section 

IV.C.2.a for discussion of the max-tech 

efficiency levels. 

DOE did not receive any comments 

regarding the proposed approach for oilfired storage water heater energy 

efficiency equations presented in the 

December 2009 NOPR and has used the 

same approach in the final rule. 

Similarly, DOE did not receive any 

comments objecting to the proposed 

approach for gas-fired instantaneous 

water heater energy efficiency equations 

presented in the December 2009 NOPR 

and has used the same approach in the 

final rule. Table IV.19 through Table 

IV.22 show the energy efficiency 

equations for residential water heaters. 

For more information on the energy 

efficiency equations, see chapter 5 of the 

final rule TSD. 

TABLE IV.19—ENERGY EFFICIENCY EQUATIONS FOR GAS-FIRED STORAGE WATER HEATERS

Efficiency level Minimum energy factor (20 to 60 gallons) Minimum energy factor 

(Over 60 and up to 100 gallons) 

Baseline Energy Efficiency Equation ........................ EF = ¥0.00190(VR) + 0.670 


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TABLE IV.19—ENERGY EFFICIENCY EQUATIONS FOR GAS-FIRED STORAGE WATER HEATERS—Continued 

Efficiency level Minimum energy factor (20 to 60 gallons) Minimum energy factor 

(Over 60 and up to 100 gallons) 

EL 1 Energy Efficiency Equation ............................ EF = ¥0.00150(VR) + 0.675 .................................... EF = ¥0.00190(VR) + 0.699. 

EL 2 Energy Efficiency Equation ............................ EF = ¥0.00120(VR) + 0.675 .................................... EF = ¥0.00190(VR) + 0.717. 

EL 3 Energy Efficiency Equation ............................ EF = ¥0.00100(VR) + 0.680 .................................... EF = ¥0.00190(VR) + 0.734. 

EL 4 Energy Efficiency Equation ............................ EF = ¥0.00090(VR) + 0.690 .................................... EF = ¥0.00190(VR) + 0.750. 

EL 5 Energy Efficiency Equation ............................ EF = ¥0.00078(VR) + 0.700 .................................... EF = ¥0.00190(VR) + 0.767. 

EL 6 Energy Efficiency Equation ............................ EF = ¥0.00078(VR) + 0.8012 

TABLE IV.20—ENERGY EFFICIENCY EQUATIONS FOR ELECTRIC STORAGE WATER HEATERS

Efficiency level Minimum energy factor (20 to 80 gallons) 

Minimum energy factor 

(Over 80 and up to 120 gallons) 

Baseline Energy Efficiency Equation ............. EF = 0.00132(VR) + 0.97.

EL 1 Energy Efficiency Equation ................. EF = ¥0.00113(VR) + 0.97 ............................................................... EF = ¥0.00149(VR) + 

0.999. 

EL 2 Energy Efficiency Equation ................. EF = ¥0.00095(VR) + 0.967 ............................................................. EF = ¥0.00153(VR) + 

1.013. 

EL 3 Energy Efficiency Equation ................. EF = ¥0.00080(VR) + 0.966 ............................................................. EF = ¥0.00155(VR) + 

1.026. 

EL 4 Energy Efficiency Equation ................. EF = ¥0.00060(VR) + 0.965 ............................................................. EF = ¥0.00168(VR) + 

1.051. 

EL 5 Energy Efficiency Equation ................. EF = ¥0.00030(VR) + 0.960 ............................................................. EF = ¥0.00190(VR) + 

1.088. 

EL 6 Energy Efficiency Equation ................. EF = -0.00113(VR) + 2.057 

EL 7 Energy Efficiency Equation ................. EF = -0.00113(VR) + 2.406 

TABLE IV.21—ENERGY EFFICIENCY EQUATIONS FOR OIL-FIRED STORAGE WATER HEATERS

Efficiency level Minimum energy factor 

EL 1 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.60. 

EL 2 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.62. 

EL 3 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.64. 

EL 4 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.66. 

EL 5 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.68. 

EL 6 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.72. 

EL 7 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.74. 

TABLE IV.22—ENERGY EFFICIENCY EQUATIONS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS

Efficiency Level Minimum energy factor 

EL 1 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.69. 

EL 2 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.78. 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20153 

TABLE IV.22—ENERGY EFFICIENCY EQUATIONS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS—Continued 

Efficiency Level Minimum energy factor 

EL 3 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.80. 

EL 4 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.82. 

EL 5 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.84. 

EL 6 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.85. 

EL 7 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.92. 

EL 8 Energy Efficiency Equation .................................................................................................................... EF = ¥0.0019(VR) + 0.95. 

D. Markups To Determine Product Price 

DOE used manufacturer-to-consumer 

markups to convert the manufacturer 

selling prices estimated in the 

engineering analysis to customer prices, 

which then were used in the life-cycle 

cost (LCC), payback period (PBP), and 

manufacturer impact analyses. DOE 

calculates markups for baseline 

products (baseline markups) and for 

more-efficient products (incremental 

markups) based on the markups at each 

step in the distribution channel. The 

overall incremental markup relates the 

change in the manufacturer sales price 

of higher-efficiency models (the 

incremental cost increase) to the change 

in the retailer or distributor sales price. 

In order to develop markups, DOE 

identifies how the products are 

distributed from the manufacturer to the 

customer (the distribution channels). 

DOE estimated manufacturer-tocustomer markups for residential 

heating products based on separate 

distribution channels for water heaters, 

direct heating equipment, and pool 

heaters. After establishing appropriate 

distribution channels for each of the 

product classes, DOE relied on 

economic data from the U.S. Census 

Bureau and other sources to define how 

prices are marked up as the products 

pass from the manufacturer to the 

customer. A detailed description of the 

distribution channels and the markup 

applied at each step in the distribution 

process can be found in chapter 6 of the 

December 2009 NOPR TSD. DOE did 

not receive any comments on 

development of markups, and it used 

the same approach for the final rule as 

it used for the December 2009 NOPR. 

E. Energy Use Characterization 

The energy use characterization, 

which assesses the energy savings 

potential from adopting higher 

efficiency standards, provides the basis 

for the energy savings values used in the 

LCC and subsequent analyses. For each 

considered efficiency level within each 

heating product class, DOE calculated 

the potential energy savings compared 

to baseline models. As part of the 

characterization, DOE made certain 

engineering assumptions regarding 

product application, including how the 

products are operated and under what 

conditions. Those assumptions are 

documented in chapter 7 of the TSD, 

which also provides more detail about 

DOE’s approach. 

DOE determined the annual energy 

use in the field by using a nationallyrepresentative set of housing units for 

each type of product. The housing units 

were selected from EIA’s Residential 

Energy Consumption Survey (RECS). 

The December 2009 NOPR analysis and 

today’s final rule used the 2005 RECS, 

which was the latest data set available. 

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

recs/.) 

1. Water Heaters 

For residential storage-type water 

heaters, DOE relied on an energy use 

analysis tool, the water heater analysis 

model (WHAM), and a hot water draw 

model. For this rulemaking, DOE 

modified earlier versions of the tools, 

which were used to conduct the 

previous rulemaking that concluded in 

2001. Combined with data from the 

2005 RECS, these analytical tools enable 

DOE to establish the variation in water 

heater energy consumption in the 

United States. 

DOE determined the annual energy 

consumption of water heaters in actual 

housing units by considering the 

primary factors that determine energy 

use: (1) Hot water use per household; (2) 

the energy efficiency characteristics of 

the water heater; and (3) water heater 

operating conditions other than hot 

water draws. DOE used a hot water 

draw model to determine hot water use 

for each household in the sample. The 

characteristics of each water heater’s 

energy efficiency were taken from the 

engineering analysis. DOE developed 

water heater operating conditions (other 

than hot water draws) from weather data 

and other relevant sources. DOE 

calculated the energy use of water 

heaters using WHAM, which accounts 

for a range of operating conditions and 

energy efficiency characteristics of 

water heaters. 

For heat pump water heaters that 

would be located indoors, overcooling 

of the indoor space as a result of the 

unit’s operation is a potential problem. 

DOE assumed that the majority of 

households that would be affected by 

indoor operation of a heat pump water 

heater would not want to incur the cost 

of a venting system, and would instead 

operate their heating and cooling 

systems to compensate for the effects of 

the heat pump water heater. To account 

for this indirect increase in home 

heating (and the decrease in cooling 

during summer months), DOE estimated 

the associated energy consumption by 

space heating and air conditioning 

equipment for the appropriate homes in 

the RECS subsample for electric water 

heaters, and included this energy use in 

its analysis. 

A.O. Smith stated that to replace an 

electric resistance water heater with a 

heat pump water heater, the heat pump 

water heater will either require a larger 

tank to effectively utilize the heat pump 

cycle, or if a larger tank is not provided, 

the unit will run in the electric 

resistance mode and diminish the 

benefits of having a heat pump water 

heater. (A.O. Smith, No. 76 at pp. 2–3) 

In the December 2009 NOPR analysis 

and the final rule analysis, DOE 

estimated the fraction of heat pump 

water heater operation that would be in 

electric resistance mode for each unit in 

the subsample. The fraction estimated to 

be in electric resistance mode varies 

from 10 to 50 percent in the subsample. 

Southern stated that heat pump water 

heaters do not perform well in 

temperatures outside the 45°–120 °F 

range, and it pointed out that there are 

locations where ambient temperatures 

are outside this range. (Southern, No. 90 

at p. 3) DOE accounted for the ambient 

temperatures likely to be faced in heat 


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20154 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

pump water heater locations by 

assuming electric resistance heating 

operation under extreme temperatures. 

For gas-fired instantaneous water 

heaters, DOE modified the approach 

used for storage water heaters to account 

for the absence of a storage tank. DOE 

applied a performance adjustment factor 

to account for evidence that the rated 

energy efficiency of instantaneous water 

heaters does not accurately portray 

actual performance. 

2. Direct Heating Equipment 

The household sample developed for 

DHE is comprised of 2005 RECS 

housing units that used a floor/wall 

furnace, fireplace, or heater as the 

primary or secondary source of heat. 

DOE relied on the assumptions in the 

DOE test procedure (10 CFR part 430, 

subpart B, appendix O) to establish the 

typical annual energy consumption of 

direct heating equipment. However, to 

better reflect actual operating 

conditions, DOE used home heating 

loads derived from RECS instead of the 

average assumptions in the test 

procedure. 

Williams stated that DHE is used in 

many applications as a secondary heat 

source, where the primary heat source is 

turned down and the DHE provides heat 

to the occupied zone only. (Williams, 

No. 96 at p. 1) For the December 2009 

NOPR and today’s final rule, for those 

RECS households that used a gas 

furnace as the primary heating 

equipment and direct heating 

equipment as a secondary heat source, 

DOE adjusted the house heating load to 

estimate the portion of the load met by 

only the direct heating equipment. 

DOE did not receive any other 

comments on its approach for 

estimating energy consumption of direct 

heating equipment, and it has used 

essentially the same approach and data 

for the final rule. 

3. Pool Heaters 

DOE estimated energy consumption of 

pool heaters in a representative sample 

of housing units from the 2005 RECS. 

DOE relied on the assumptions in the 

DOE test procedure (10 CFR part 430, 

subpart B, appendix P) to establish the 

typical annual energy consumption of 

pool heaters. However, to better reflect 

actual operating conditions, DOE used 

pool heater heating loads derived from 

RECS instead of the average test 

procedure assumptions. 

The calculation of pool heater energy 

consumption at each considered 

efficiency level depends on the assumed 

fraction of products that use a pilot 

light. In the December 2009 NOPR 

analysis, DOE used data based on the 

number of models in the market to 

estimate that 26.5 percent of units use 

a pilot light. Raypak stated that 8 

percent of pool heaters are millivolt 

pool heaters (i.e., use a pilot light). 

(Raypak, No. 67 at p. 2) Given that 

Raypak’s estimate is based upon actual 

shipments data, DOE believes that the 

value it cited likely better reflects the 

actual market than the NOPR estimate 

based on the number of models. 

Therefore, for the final rule analysis, 

DOE adopted the value cited by Raypak. 

F. Life-Cycle Cost and Payback Period 

Analyses 

DOE conducted LCC and PBP 

analyses to evaluate the economic 

impacts on individual consumers of 

potential amended energy conservation 

standards for the three types of 

residential heating products. The LCC 

represents total consumer expenses 

during the life of an appliance, 

including purchase and installation 

costs plus operating costs (expenses for 

energy use, maintenance, and repair). 

To compute LCCs for the three heating 

products, DOE discounted future 

operating costs to the time of purchase, 

and then summed those costs over the 

life of the appliances. The PBP is 

calculated using the change in purchase 

cost (normally higher) that results from 

an amended efficiency standard, 

divided by the change in annual 

operating cost (normally lower) that 

results from the standard. 

DOE measures the changes in LCC 

and PBP associated with a given 

efficiency level relative to an estimate of 

base-case appliance efficiencies. The 

base-case estimate reflects the market in 

the absence of amended mandatory 

energy conservation standards, 

including the market for products that 

exceed the current standards. 

For each set of heating products, DOE 

calculated the LCC and PBP for a 

nationally representative set of housing 

units, which were selected from the 

2005 RECS. The housing units include 

five types: Single-family (attached), 

single-family (detached), multi-family 

(2–5 units), multi-family (more than 4 

units), and manufactured homes. For 

each sample household, DOE 

determined the energy consumption for 

the heating product and the energy price 

faced by the household. By developing 

a representative sample of households, 

the analysis captured the variability in 

energy consumption and energy prices 

associated with the use of residential 

heating products. DOE determined the 

LCCs and PBPs for each sampled 

household using a heating product’s 

unique energy consumption and the 

household’s energy price, as well as 

other variables. DOE calculated the LCC 

associated with the baseline heating 

product in each household. To calculate 

the LCC savings and PBP associated 

with equipment that meets higher 

efficiency standards, DOE’s analysis 

replaced the baseline unit with a range 

of more-efficient designs. 

Inputs to the calculation of total 

installed cost include the cost of the 

product—which includes manufacturer 

costs, manufacturer markups, retailer or 

distributor markups, and sales taxes— 

and installation costs. Inputs to the 

calculation of operating expenses 

include annual energy consumption, 

energy prices and price projections, 

repair and maintenance costs, product 

lifetimes, discount rates, and the year 

that proposed standards take effect. For 

many of the above inputs, DOE created 

distributions of values to account for 

uncertainty and variability. Within each 

distribution, probabilities are attached 

to each value. As described above, DOE 

used samples of households to 

characterize the variability in energy 

consumption and energy prices for 

heating products. For the inputs to 

installed cost, DOE used probability 

distributions to characterize sales taxes. 

DOE also used distributions to 

characterize the discount rate and 

product lifetime that are inputs to 

operating cost. 

The computer model DOE uses to 

calculate LCC and PBP, which 

incorporates Crystal Ball (a 

commercially-available software 

program), relies on a Monte Carlo 

simulation to incorporate uncertainty 

and variability into the analysis. The 

Monte Carlo simulations randomly 

sampled input values from the 

probability distributions and household 

samples. The model calculated the LCC 

and PBP for products at each efficiency 

level for 10,000 housing units per 

simulation run. 

Table IV.23 summarizes the approach 

and data DOE used to derive inputs to 

the LCC and PBP calculations. The table 

provides the data and approach DOE 

used for the December 2009 NOPR TSD, 

as well as the changes made for today’s 

final rule. The following subsections 

discuss the main inputs and the changes 

DOE made to them. 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20155 

TABLE IV.23—SUMMARY OF INPUTS AND KEY ASSUMPTIONS IN THE LCC AND PBP ANALYSES * 

Inputs NOPR Changes for the final rule 

Installed Costs 

Product Price ....................... Derived by multiplying manufacturer cost by manufacturer, retailer, and distributor markups and sales tax, 

as appropriate.

Updated manufacturer product costs (see section 

IV.C.3.a). 

Installation Cost ................... Water Heaters: Based on data from RS Means and 

other sources.

Applied additional cost for space constraints and other 

installation situations. 

DHE: Based on data from RS Means and DOE’s furnace installation model.No change. 

Pool Heaters: Based on data from RS Means ............... Modified fraction of installations with pilot light. 

Operating Costs 

Annual Energy Use .............. Water Heaters: Used hot water draw model to calculate 

hot water use for each household in the sample from 

RECS 2005. Calculated energy use using the water 

heater analysis model (WHAM).

No change. 

DHE: Based on sample and data from RECS 2005 ...... No change. 

Pool Heaters: Based on sample and data from RECS 

1993 to 2005.

Based on sample and data from RECS 2001 and 2005. 

Included spa heaters. 

Energy Prices ....................... Electricity: Based on EIA’s 2007 Form 861 data ............

Natural Gas: Based on EIA’s 2007 Natural Gas Navigator.

Variability: Regional energy prices determined for 13 

geographic areas **.

Electricity: Updated using data from EIA’s 2008 Form 

861 data and EIA’s Form 826. 

Natural Gas: Updated using EIA’s 2008 Natural Gas 

Navigator. 

Variability: No change. 

Energy Price Trends ............ Forecasted using EIA’s AEO2009 .................................. Forecasts updated using EIA’s AEO2010 (Early Release). 

Repair and Maintenance 

Costs.

Water Heaters: Based on RS Means and other sources No change. 

DHE: Based on RS Means and other sources ............... No change. 

Pool Heaters: Based on RS Means and other sources No change. 

Present Value of Operating Cost Savings 

Product Lifetime ................... Water Heaters: Based on data from RECS, AHS, and 

shipments. Variability and uncertainty: Characterized 

using Weibull probability distributions.

No change. 

Set lifetime of oil-fired storage water heater equal to 

that of gas-fired storage water heater.

No change. 

DHE: Based on range of lifetimes from various sources No change. 

Variability and uncertainty: Characterized using Weibull 

probability distributions.

Pool Heaters: Based on range of lifetimes from various 

sources. Variability and uncertainty: characterized 

using Weibull probability distributions..

Average lifetime increased from 8 years to 10 years. 

Discount Rates ..................... Approach based on the cost to finance an appliance 

purchase. Primary data source was the Federal Reserve Board’s SCF *** for 1989, 1992, 1995, 1998, 

2001, 2004, and 2007.

No change in approach; added data for asset classes. 

Standard Compliance Date .. Water heaters: 2015 ....................................................... No change. 

DHE and Pool Heaters: 2013. 

* References for the data sources mentioned in this table are provided in the sections following the table or in chapter 8 of the December 2009 

NOPR TSD. 

** Consisting of the nine U.S. Census Divisions, with four large States (New York, Florida, Texas, and California) treated separately. 

*** Survey of Consumer Finances. 


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20156 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

1. Product Price 

To calculate consumer product prices, 

DOE multiplied the manufacturer 

selling prices developed in the 

engineering analysis by the supplychain markups described above (along 

with sales taxes where appropriate). 

DOE used different markups for baseline 

products and higher-efficiency 

products, because the markups 

estimated for incremental costs differ 

from those estimated for baseline 

models. The estimated product prices at 

the considered efficiency levels are 

included in Chapter 8 in the TSD. 

2. Installation Cost 

Installation costs include labor, 

overhead, and any miscellaneous 

materials and parts. The following 

sections discuss DOE’s treatment of 

installation costs for each of the three 

heating products for the December 2009 

NOPR, describe and address significant 

comments received, and discuss 

changes that DOE made for today’s final 

rule. 

a. Water Heaters 

In its preliminary analysis, DOE 

included several installation costs to 

address the space constraints that water 

heaters having thicker insulation may 

face. DOE assumed that major 

modifications for replacement 

installations of electric storage water 

heaters would occur 40 percent of the 

time for water heater designs with 3 

inches or greater insulation. To estimate 

the fraction of households that would 

require various modifications, DOE used 

the water heater location determined for 

each sample household. DOE 

determined the location using 

information from the 2005 RECS, which 

reports whether the house has a 

basement, whether the basement is 

heated or unheated, and the presence or 

absence of a garage, crawlspace, or attic. 

Generally, DOE maintained the above 

approach for the December 2009 NOPR. 

However, in response to comments on 

the space constraints for water heaters 

with increased insulation thickness, for 

the NOPR analysis, DOE investigated 

the issue of space constraints for electric 

and gas-fired storage water heaters with 

an insulation thickness of 2 inches or 

more. Based upon the results of this 

inquiry, DOE expanded the percentage 

of installations that may have space 

constraints to also include water heaters 

with 2–3 inches of insulation. DOE 

assumed that major modifications for 

replacement installations of electric and 

gas storage water heaters would occur 

20 percent of the time for water heater 

designs with 2–3 inches of insulation. 

DOE also added for all water heaters a 

cost for extra labor needed to install 

water heaters in attics, and for installing 

larger water heaters. 

Commenting on the December 2009 

NOPR analysis, Rheem and Southern 

stated that DOE has not adequately 

considered the space constraints faced 

by manufactured housing, although no 

data were provided relevant to this 

issue. (Rheem, No. 89 at pp. 11–12; 

Southern, No. 90 at pp. 3–4) In 

response, DOE reviewed its assumptions 

regarding space constraints faced by 

manufactured housing, and based on its 

assessment of likely water heater 

locations from 2005 RECS, it 

approximately doubled the fraction of 

installations deemed to have space 

constraints. These installations would 

incur costs as described above to 

address the space constraints faced by 

water heater designs with more 

insulation. 

Regarding installation of gas-fired 

storage water heaters, A.O. Smith stated 

that the need (and cost) to add electrical 

power and condensate disposal to 

existing installations appears to be 

understated in the December 2009 

NOPR. (A.O. Smith, No. 76 at p. 4) DOE 

notes that the commenter did not 

provide any data to support its position. 

DOE reviewed the available sources, 

which are based on RS Means and 

consultant reports, concluded that they 

provide a reasonable basis for its 

estimates, and therefore it has 

maintained the NOPR estimates for the 

final rule. 

AHRI stated that replacing larger gasfired storage water heaters with 

condensing water heaters would require 

the added cost of new venting system, 

electrical connection, and a condensate 

disposal system, and sometimes an 

electric supply circuit. (AHRI, No. 91 at 

p. 7) Rheem stated that external power 

would be required to operate max-tech 

gas-fired storage water heaters, that 

venting would typically change to a 

positive pressure system with plastic 

venting, and that condensate lines, 

pumps, and proper disposal methods 

would be required. (Rheem, No. 89 at 

pp. 3–4) For the final rule analysis, DOE 

included a range of installation costs for 

the condensing water heater design that 

include all of the items cited by AHRI 

and Rheem. 

In its preliminary analysis, DOE 

applied a distribution of costs for heat 

pump water heater installations in 

indoor locations, including situations 

where modifications would be required. 

In response to comments on the 

assumed costs, for the December 2009 

NOPR analysis, DOE made a number of 

changes, which are discussed below. 

Additional comments on these issues at 

the NOPR stage and DOE’s response are 

likewise presented below. 

In 20 percent of replacement 

installations, DOE assumed that a 

household facing space constraints 

would install a smaller water heater and 

use tempering valves. BWC stated that 

adjusting the thermostat higher on a 

smaller-volume heat pump water heater 

and using a tempering valve cannot be 

done. It noted that the viable 

refrigerants available limit the water 

heater to lower temperatures (typically 

∼130 °F maximum), and to achieve 

temperatures above this level, an 

electric resistance element must be 

used, which decreases the efficiency of 

the water heater. (BWC, No. 61 at p. 2) 

Rheem raised similar concerns. (Rheem, 

No. 89 at p. 8) DOE finds some merit in 

the above comments. Therefore, it 

reduced the fraction of installations that 

would use a tempering valve to include 

only those cases where the water heater 

setpoint would not need to exceed 140 

°F, as recommended in manufacturer 

product literature. DOE assumed that 

those households for which the 

tempering valve strategy is not viable 

would incur significant costs to modify 

the space to accommodate the heat 

pump water heater. 

For the December 2009 NOPR, DOE 

assumed that some households that 

would experience significant indoor 

cooling due to operation of the heat 

pump water heater in the heating 

months would have a venting system 

installed to exhaust and supply air. DOE 

estimated that 40 percent of households 

facing a significant cooling effect would 

incur this cost, which averages $460. 

A.O. Smith stated that heat pump water 

heaters will not be vented due to the 

exorbitant costs of such a venting 

system and the fact that the venting will 

not fit within the existing studs and will 

need to be installed outside the current 

wall structure, where it will either be 

exposed, or have to be covered with 

additional material. (A.O. Smith, No. 76 

at p. 3) DOE agrees that the costs of a 

venting system could be high in some 

cases, but its analysis assumes that 

venting will occur in some cases, and 

the associated costs are included in its 

LCC analysis. DOE also agrees that in 

some cases it would be necessary to 

install the venting system outside the 

wall structure, where the exposed vents 

would likely be covered. Therefore, for 

the final rule analysis, DOE has 

assumed that one-fourth of the venting 

system installations would incur an 

additional cost (on average $581) for 

covering the exposed vents. 

For half of indoor replacement 

installations, DOE added a cost for 


jlentini on DSKJ8SOYB1PROD with RULES2
Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20157 

5National Fire Protection Association, National 

Fuel Gas Code—2009 Edition. Available at: http:// 

www.nfpa.org/AboutTheCodes/AboutTheCodes

.asp?DocNum=54. 

6U.S. Department of Energy—Office of Codes and 

Standards, Technical Support Document: Energy 

Efficiency Standards for Consumer Products: Room 

Air Conditioners, Water Heaters, Direct Heating 

Equipment, Mobile Home Furnaces, Kitchen Ranges 

and Ovens, Pool Heaters, Fluorescent Lamp Ballasts 

& Television Sets, 1993. Washington, DC. Vol. 1 of 

3. Report No. DOE/EE–0009. 

installing a fully-louvered closet door to 

permit adequate air flow for the 

operation of the unit. A.O. Smith stated 

that putting a louvered door on a closet 

will not provide adequate air volume for 

a heat pump water heater to function 

correctly. (A.O. Smith, No. 76 at p. 3) 

Southern raised similar concerns about 

closet installations. (Southern, No. 90 at 

pp. 3–4) AHRI also commented that heat 

pump water heaters installed in 

replacement situations may require 

costly alterations so that the heat pump 

water heater can perform efficiently. 

(AHRI, No. 91 at p. 6) DOE agrees that 

there are legitimate concerns about the 

extent to which installing a louvered 

door will provide adequate air flow for 

closet installations of heat pump water 

heaters. For the final rule analysis, DOE 

decreased the fraction of indoor 

replacement installations that add a 

louvered door. DOE now assumes that 

all indoor replacement installations 

where the household would face a 

significant cooling effect would use a 

venting system (costing on average 

$469), which would provide adequate 

air flow and also alleviate excessive 

cooling of the indoor space near the 

water heater. 

GE stated that DOE overstated the 

installation costs for heat pump water 

heaters, and claimed that their heat 

pump water heater has not required 

more labor, larger drain pans, tempering 

valves, or closet door redesigns. (GE, 

No. 84 at p. 1) DOE’s estimates of 

installation costs for heat pump water 

heaters seek to account for the full range 

of installation situations that might be 

faced in all replacements of 

conventional electric storage water 

heaters. DOE agrees that in many 

installations, particularly those not 

located indoors, the additional costs 

associated with heat pump water heater 

installation may be small, and DOE’s 

analysis accounts for those installations 

as well as those where higher costs may 

be incurred. Chapter 8 of the final rule 

TSD provides further details about 

DOE’s analysis of installation costs for 

heat pump water heaters. 

For the December 2009 NOPR, DOE’s 

design for gas-fired storage water heaters 

at efficiency level 2 (0.63 EF for the 

representative 40-gallon unit) assumed 

natural draft (atmospheric venting) 

operation. DOE’s analysis assumed that 

installations with water heaters with 

recovery efficiency (RE) of 80 percent or 

higher (which accounted for a small 

fraction of models at 0.63 EF) would use 

stainless steel vent connectors. Without 

such vent connectors, there is a 

potential for corrosion of the vent due 

to condensation of flue gases, which can 

lead to safety concerns. 

AGA expressed concerns about the 

safety of atmospheric venting at 

efficiency level 2. AGA referred to 

analysis by the Gas Technology Institute 

of vent temperatures from water heaters 

with high recovery efficiency, and 

voiced concern for recovery efficiencies 

of 78 percent and higher regarding 

condensation and the resulting 

corrosive environment in vent 

connectors during water heater cycling. 

AGA insisted that, for venting integrity 

and occupant safety, 100 percent of 

installations of units with recovery 

efficiency of 78 percent and higher 

should include the cost of a stainless 

steel vent connector. It added that the 

combined concerns of vent connector 

corrosion and venting system buoyancy 

suggest that the proper vent connector 

should be stainless steel Type B. (AGA, 

No. 78 at p. 9) A.O. Smith also 

expressed concerns that efficiency level 

2 could potentially lead to increased 

vent corrosion and raise issues that may 

require revisiting the venting table in 

the National Fuel Gas Code.5 (A.O. 

Smith, No. 76 at p. 1) 

In response, DOE appreciates the 

information provided by AGA regarding 

the safety of atmospheric venting at 

efficiency level 2. Although there are 

several 40-gallon gas-fired water heater 

models currently available to consumers 

at 0.63 EF that utilize atmospheric 

venting and do not have any 

instructions directing installers to use 

special venting for these products, DOE 

believes that the prudent course is to 

assume that a stainless steel vent 

connector would be required for all 

models with RE of 78 percent and 

higher. Applying this assumption 

resulted in DOE using a cost for a 

stainless steel vent connector for 57 

percent of installations at efficiency 

level 2, for 53 percent of installations at 

efficiency level 1, and for 24 percent of 

installations at the baseline level. DOE 

agrees that there remain issues that may 

require revisiting the venting table in 

the National Fuel Gas Code, and 

discusses these issues in section VI.D.2 

below. 

b. Direct Heating Equipment 

DOE used the approach in the 1993 

TSD 6 to calculate installation costs for 

baseline direct heating equipment for its 

December 2009 NOPR analysis, as it 

believed that the factors affecting DHE 

installation are largely unchanged, and 

more recent data are not available. For 

gas wall gravity, floor, and room direct 

heating equipment, DOE included 

installation costs for designs that require 

electricity (the average cost is $181). 

DOE made this adjustment for the 

replacement market only, because 

wiring is considered part of the general 

electrical work in new construction. 

LTS commented that the proposed 

standards for the gravity wall furnace 

category (71-percent AFUE for furnaces 

in the input capacity range over 27,000 

and up to 46,000 Btu/h) would not 

allow the product to keep the same 

characteristics, particularly cabinet size 

and combustion chamber sizes. The 

commenter claims that with a bigger 

cabinet and heat exchanger dimensions, 

installation would require more 

carpenter work, possible drywall work, 

and, in some cases, changing or 

replacing the vent. According to LTS, 

these changes would be in addition to 

providing an electrical port. (LTS, No. 

56.7 at pp. 1–2) 

In response, DOE found that gravity 

wall furnaces that have dimensions to 

fit in replacement applications are 

currently available on the market with 

efficiencies ranging from 64-percent to 

69-percent AFUE in the representative 

capacity range. There are currently no 

71-percent or 72-percent AFUE models 

within the representative capacity range 

offered by any of the manufacturers. 

DOE agrees that models at 71-percent or 

72-percent AFUE are likely to have 

larger dimensions and/or include 

electronic ignition, either of which 

would require an additional installation 

cost. As discussed in section IV.C.2.b, 

for the final rule, DOE decided to 

remove the 71-percent and 72-percent 

AFUE levels from its analysis. DOE 

introduced the 70-percent AFUE level, 

which it believes has the necessary 

dimensions to fit in replacement 

applications. This level includes 

electronic ignition, and DOE included a 

cost for installation of electrical wiring. 

Regarding gas wall fan type DHE, 

AHRI commented that adding to the 

heat exchanger to increase efficiency 

would make the upright models bigger, 

such that they may not be able to fit in 

the same space as the unit they are 

replacing. The result could be added 

installation costs. For the max-tech level 

for gas wall fan type DHE (80-percent 

AFUE), DOE added carpentry cost for 

cutting and repairing the wall to 

increase the dimensions of the wall 

opening for a fraction of installations. 

That fraction also takes into account 


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20158 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

7See Energy Information Administration, Natural 

Gas Navigator (2009). Available at: http://tonto.eia.

doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm. 

8See Energy Information Administration, 2007 

State Energy Consumption, Price, and Expenditure 

Estimates (SEDS). Available at: http://

www.eia.doe.gov/emeu/states/_seds.html. 

9See Energy Information Administration, 

Petroleum Navigator, December (2009). Available 

at: http://tonto.eia.doe.gov/dnav/pet/pet_cons_

821dsta_a_EPD0_VAR_Mgal_a.htm. 

10All AEO publications are available online at: 

http://www.eia.doe.gov/oiaf/aeo/. 

that some installations are ‘‘console 

units’’ and do not have this issue, and 

that some upright installations are not 

installed inside the wall and, therefore, 

do not have this issue. 

c. Pool Heaters 

DOE developed installation cost data 

for the baseline pool heater in its 

December 2009 NOPR analysis using RS 

Means and information in a consultant’s 

report. DOE incorporated additional 

installation costs for designs involving 

electronic ignition and/or condensing 

technology. 

In the December 2009 NOPR analysis, 

DOE included a cost for adding 

electricity at efficiencies above 82 

percent (which use electronic ignition 

only) for installations where the unit 

currently uses a pilot light. For the 

December 2009 NOPR, DOE estimated 

that 26.5 percent of installations would 

incur this cost. Raypak stated that 8 

percent of pool heaters are millivolt 

pool heaters (i.e., use a pilot light), and 

the cost of adding electricity is not 

insignificant. (Raypak, No. 67 at p. 2) 

For the final rule, DOE has adopted the 

8-percent value provided by Raypak to 

estimate the fraction of installations that 

would require addition of electricity at 

efficiencies above 82 percent. For 

further details on DOE’s derivation of 

installation costs for pool heaters, see 

chapter 8 of the TSD. 

3. Annual Energy Use 

DOE determined the annual energy 

use in the field for the three types of 

heating products as described above in 

section IV.E. 

4. Energy Prices 

For the December 2009 NOPR 

analysis, DOE derived average energy 

prices for 13 geographic areas consisting 

of the nine U.S. Census Divisions, with 

four large States (New York, Florida, 

Texas, and California) treated 

separately. For Census Divisions 

containing one of these large States, 

DOE calculated the regional average 

excluding the data for the large State. 

DOE estimated residential electricity 

prices for each of the geographic areas 

based on data from EIA Form 861, 

‘‘Annual Electric Power Industry 

Database,’’ and EIA Form 826, ‘‘Monthly 

Electric Utility Sales and Revenue Data.’’ 

DOE calculated average annual regional 

residential electricity prices as well as 

average monthly regional electricity 

prices. For the December 2009 NOPR, 

DOE used data from 2007. For the final 

rule analysis, DOE used more recent 

2008 data from the same sources. 

DOE estimated average annual 

residential natural gas prices in each of 

the 13 geographic areas based on data 

from EIA’s Natural Gas Navigator.7 For 

the December 2009 NOPR, DOE used 

EIA data from 2007. For today’s final 

rule, DOE used more recent 2008 data 

from the same source. 

DOE estimated average residential 

prices for liquefied petroleum gas (LPG) 

in each of the 13 geographic areas based 

on data from EIA’s State Energy 

Consumption, Price, and Expenditures 

Estimates.8 For the December 2009 

NOPR, DOE used data from 2006. For 

today’s final rule, DOE used the more 

recent 2007 data from the same source. 

DOE estimated average residential 

prices for oil in each of the 13 

geographic areas based on data from 

EIA’s Petroleum Navigator.9 For the 

December 2009 NOPR, DOE used data 

from 2007. For today’s final rule, DOE 

used more recent 2008 data from the 

same source. 

5. Energy Price Trend 

To estimate the trends in electricity 

prices for the December 2009 NOPR, 

DOE used the regional price forecasts in 

the 2009 Annual Energy Outlook (AEO 

2009) April Release.10 To arrive at 

prices in future years, DOE multiplied 

the average prices described above by 

the forecast of annual average price 

changes in each region. Because the 

AEO 2009 forecasts prices only to 2030, 

DOE followed past guidelines provided 

to the Federal Energy Management 

Program by EIA and used the average 

rate of change during 2020–2030 to 

estimate the price trends beyond 2030. 

For today’s final rule, DOE updated its 

analysis to use the price forecasts in the 

AEO 2010 Early Release, which 

includes price forecasts until 2035. DOE 

used the average rate of change from 

2025 to 2035 to estimate price trends 

beyond 2035. 

The spreadsheet tools used to conduct 

the LCC and PBP analysis allow users to 

select either the AEO’s high-price case 

or low-price case price forecasts to 

estimate the sensitivity of the LCC and 

PBP to different energy price forecasts. 

The AEO 2009 April Release and AEO 

2010 Early Release only provide 

forecasts for the Reference Case. 

Therefore, for the December 2009 

NOPR, DOE used the AEO 2009 March 

Release high-price or low-price forecasts 

directly to estimate high-price and lowprice trends. For today’s final rule, DOE 

updated the low-price and high-price 

forecasts to be based on the ratio 

between the AEO 2009 March Release 

low- or high-price forecasts and the AEO 

2009 March Release reference case. DOE 

then applied these ratios to the AEO 

2010 Early Release reference case to 

construct its high-price and low-price 

forecasts. DOE did not receive any 

substantive comments on its forecast of 

energy price trends. Thus, DOE retained 

the same approach for the final rule. 

6. Repair and Maintenance Costs 

Repair costs are associated with 

repairing or replacing components that 

have failed in the appliance, whereas 

maintenance costs are associated with 

maintaining the operation of the 

equipment. Determining the repair cost 

involves determining the cost and the 

service life of the components that are 

likely to fail. Addressing water heaters, 

A.O. Smith commented that the repair 

and maintenance costs presented in the 

December 2009 NOPR are reasonably 

accurate. (A.O. Smith, No. 76 at p. 4) 

For more information on DOE’s 

development of repair and maintenance 

cost estimates, see chapter 8 of the TSD. 

For the December 2009 NOPR 

analysis, DOE assumed that there would 

be some instances where professional 

maintenance would be needed for heat 

pump water heaters. For some locations 

where the heat pump water heater might 

be more exposed to the outdoor 

environment, such as garages and 

crawlspaces, DOE applied a 5-year 

preventative maintenance cost based on 

experience with heat pump water heater 

outdoor installations in Australia, 

which has roughly comparable 

conditions to much of the United States. 

Commenting on the December 2009 

NOPR, BWC stated that heat pump 

water heaters are installed with an 

optional component and that the repair 

and maintenance costs of the optional 

components were not taken into 

account, although the commenter 

provided no specific information 

regarding the nature or prevalence of 

such optional components. (BWC, No. 

61 at p. 3) Daikin stated that heat pump 

water heaters generally do not require 

maintenance for the first 10 years of 

operation. (Daikin, No. 82 at p. 2) GE 

stated that the maintenance cost for heat 

pump water heaters is overstated. (GE, 

No. 84 at p. 1) In response, DOE 

acknowledges that many heat pump 

water heaters may require little or no 

maintenance. However, DOE believes 

that because the field experience with 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20159 

11National Association of Home Builders 

(NAHB), ‘‘Study of Life Expectancy of Home 

Components’’ (Feb. 2007). Available at: http://

www.nahb.org/fileUpload_

details.aspx?contentID=99359. 12The Federal Reserve Board, Survey of 

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

2004, 2007. Available at: http://www.federalreserve

.gov/pubs/oss/oss2/scfindex.html. 

13Available at: http://www1.eere.energy.gov/

buildings/appliance_standards/pdfs/2010_feb_

report_to_congress.pdf. 

heat pump water heaters is limited, it is 

reasonable to apply a maintenance cost 

for some installations. DOE assumed 

that optional components, which are an 

addition to the water heater, are not 

uniformly applicable, and thus, it did 

not include them in its analysis. 

Therefore, for the reasons above, DOE 

has retained the approach to repair and 

maintenance costs used for the 

December 2009 NOPR for the final rule. 

The approach also accounts for repair or 

replacement of common components 

such as heating elements, fans, and 

compressors. 

7. Product Lifetime 

DOE used a variety of sources to 

establish minimum, average, and 

maximum values for the lifetime of each 

of the three types of heating products. 

For each water heater product class and 

for DHE and pool heaters, DOE 

characterized the product lifetime using 

a Weibull probability distribution that 

ranged from minimum to maximum 

lifetime estimates. See chapter 8 of the 

December 2009 NOPR TSD for further 

details on the sources DOE used to 

develop product lifetimes. 

a. Water Heaters 

For the December 2009 NOPR 

analysis, DOE used an average lifetime 

of 13 years for gas-fired, electric, and 

oil-fired storage water heaters. DOE did 

not receive any comments on this value, 

and it continued to use it for the final 

rule. 

For the December 2009 NOPR 

analysis, DOE used an average lifetime 

of 20 years for gas-fired instantaneous 

water heaters. A.O. Smith stated that a 

20 year lifetime for gas-fired 

instantaneous water heaters is too long, 

and is largely based on manufacturers’ 

literature or advertising claims. It 

referred to its experience with 

commercial water heating equipment 

that uses a similar copper-tube type heat 

exchanger as gas-fired instantaneous 

water heaters and similar input 

combustion systems of around 200,000 

Btu/h, and the commenter concluded 

that the same service life (i.e., 13 years) 

as a tank-type heater should be used for 

gas-fired instantaneous water heaters. 

(A.O. Smith, No. 76 at pp. 4–5) 

DOE acknowledges that, given that 

long-term field experience with gasfired instantaneous water heaters is 

relatively limited, there is uncertainty 

regarding the lifetime of these products. 

Furthermore, the lifetime is influenced 

by maintenance practices. The 20-year 

mean lifetime used by DOE is primarily 

based on the value reported in the 

National Association of Home Builders/ 

Bank of America Home Equity Study of 

Life Expectancy of Home Components, 

which is 20+ years.11 Regarding the 

analogy between gas-fired instantaneous 

water heaters and commercial water 

heating equipment mentioned by A.O. 

Smith, DOE notes that the usage 

patterns in residential applications are 

different (e.g., less hot water use), and 

these patterns have a significant impact 

on the lifetime. Given the available data, 

DOE decided to retain the mean lifetime 

of 20 years for the final rule analysis. 

b. Direct Heating Equipment 

For the December 2009 NOPR 

analysis, DOE used an average lifetime 

of 15 years for DHE. DOE did not 

receive any comments on this value, 

and it continued to use it for the final 

rule. 

c. Pool Heaters 

For the December 2009 NOPR 

analysis, DOE used an average lifetime 

of 8 years for pool heaters. In the public 

meeting, Lochinvar stated that pool 

heaters live longer than 6–8 years. 

(Lochinvar, Public Meeting Transcript, 

No. 57.4 at p. 224) For the final rule, 

DOE subsequently reviewed information 

provided by an expert consultant and 

based upon this information, decided to 

use a mean lifetime of 10 years for pool 

heaters, with the same distribution as in 

the December 2009 NOPR analysis (3 to 

20 years). 

8. Discount Rates 

For the December 2009 NOPR, DOE 

developed separate distributions of 

discount rates for new construction and 

replacement applications. Because the 

cost of heating products installed in 

new homes is part of the home selling 

price, DOE estimated discount rates for 

appliance purchases in new housing 

using the effective real mortgage rate for 

homebuyers, which accounts for 

deducting mortgage interest for income 

tax purposes. DOE developed a 

distribution of mortgage interest rates 

using data from the Federal Reserve 

Board’s ‘‘Survey of Consumer Finances’’ 

(SCF) for 1989, 1992, 1995, 1998, 2001, 

2004, and 2007.12 Because the mortgage 

rates carried by households in these 

years were established over a range of 

time, DOE believes they are 

representative of rates that may apply 

when amended standards take effect. 

The effective real interest rates on 

mortgages across the seven surveys 

averaged 3.0 percent. 

DOE’s approach for deriving discount 

rates for replacement purchases 

involved identifying all possible debt or 

asset classes that might be used to 

purchase replacement products, 

including household assets that might 

be affected indirectly. DOE used data 

from the surveys mentioned above to 

estimate the average percentages of the 

various debt and equity classes in the 

average U.S. household portfolios. DOE 

used SCF data and other sources to 

develop distributions of interest or 

return rates associated with each type of 

equity and debt. For the final rule, it 

added 2009 values for interest or return 

rates to the distributions for some of the 

asset classes. The resulting average rate 

across all types of household debt and 

equity, weighted by the shares of each 

class, is 5.1 percent. 

DOE did not receive any comments on 

the discount rates it used in the LCC 

analysis, and it continued to apply the 

approach used in the December 2009 

NOPR, with the updates discussed 

above, for the final rule. 

9. Compliance Date 

In the context of EPCA, the 

compliance date is the future date when 

parties subject to the requirements of a 

new standard must begin to comply. As 

described in DOE’s semi-annual 

Implementation Report for Energy 

Conservation Standards Activities 

submitted to Congress pursuant to 

section 141 of the Energy Policy Act of 

2005 and section 305 of the Energy 

Independence and Security Act of 

2007,13 a final rule for the three types 

of heating products that are the subject 

of this rulemaking is scheduled to be 

completed by March 2010. Compliance 

with amended energy efficiency 

standards for direct heating equipment 

and pool heaters is required three years 

after the final rule is published in the 

Federal Register (in 2013); compliance 

with amended standards for water 

heaters is required five years after the 

final rule is published (in 2015). 

Comments on the compliance date for 

the three types of heating products are 

presented and responded to in section 

V.B of this final rule. DOE calculated 

the LCC for the three types of heating 

products as if consumers would 

purchase new products in the year 

compliance with the standard is 

required. 


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20160 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

10. Product Energy Efficiency in the 

Base Case 

To accurately estimate the percentage 

of consumers who would be affected by 

a particular standard level, DOE’s 

analysis considered the projected 

distribution of product efficiencies that 

consumers purchase under the base case 

(i.e., the case without new energy 

efficiency standards). DOE refers to this 

distribution as a base-case efficiency 

distribution. Using the projected 

distribution of product efficiencies for 

each heating product, DOE randomly 

assigned a specific product efficiency to 

each sample household. If a household 

was assigned a product efficiency 

greater than or equal to the efficiency of 

the standard level under consideration, 

the LCC calculation shows that this 

household is not affected by that 

standard level. 

To estimate the base-case market 

shares of various energy efficiency 

levels for water heaters in the 

compliance year, DOE began with data 

on shipments for 2002–2006 from AHRI, 

supplemented with data on the number 

of water heater models at different 

energy efficiency levels reported in 

AHRI Directories. (See chapter 8 of the 

TSD for citations for these data sources.) 

For the final rule, DOE updated its 

estimates using the February 2010 AHRI 

Directory. To estimate the base-case 

market shares of gas-fired and electric 

storage water heaters, DOE considered 

the market penetration goals set by the 

ENERGY STAR program, in 

combination with its assessment of 

constraints on such penetration. The 

projected base-case energy efficiency 

market shares for water heaters that 

DOE used for the final rule, shown in 

Table IV.24, are half of the ENERGY 

STAR goal for heat pump water heaters 

(EF of 2.0 and 2.2), and one-fifth of the 

ENERGY STAR goal for gas-fired 

condensing water heaters (EF of 0.77). 

These market shares represent the 

products that households would 

purchase in 2015 in the absence of 

revised energy conservation standards. 

TABLE IV.24—WATER HEATERS: BASE-CASE ENERGY EFFICIENCY MARKET SHARES* 

Gas storage Electric storage Oil storage Gas-fired 

instantaneous 

EF Market 

share (%) EF Market share (%) EF Market share (%) EF Market 

share (%) 

0.59 .................................................................................. 63.9 0.90 29.8 0.53 0.0 0.62 1.0 

0.62 .................................................................................. 23.4 0.91 16.8 0.54 20.0 0.69 2.9 

0.63 .................................................................................. 1.6 0.92 11.2 0.56 0.0 0.78 1.0 

0.64 .................................................................................. 4.8 0.93 26.1 0.58 0.0 0.80 4.9 

0.65 .................................................................................. 0.0 0.94 7.5 0.60 10.0 0.82 52.4 

0.67 .................................................................................. 5.3 0.95 3.7 0.62 20.0 0.84 1.9 

0.77 .................................................................................. 1.0 2.0 4.0 0.66 25.0 0.85 3.9 

2.2 1.0 0.68 25.0 0.92 20.4 

0.95 11.7 

100% 100% 100% 100% 

* The base-case market shares of each product class are estimated in the shipment analysis, as described in chapter 9 of the final rule TSD. 

For DHE, DOE estimated the market 

shares of different energy efficiency 

levels within each product class in the 

base case using data in the AHRI 

Directory. For the final rule, DOE 

updated its estimates using the February 

2010 AHRI Directory, and for hearth 

products, DOE also consulted 

manufacturers’ Web sites in addition to 

the 2010 AHRI Directory (see chapter 8 

of the TSD for the citation and detailed 

information). For pool heaters, DOE 

estimated the market shares of different 

energy efficiency levels in the base-case 

by using 2008 data from the Federal 

Trade Commission (FTC) on the number 

of gas-fired pool heater models at 

different energy efficiency levels as a 

proxy for shipments. For the final rule, 

DOE updated its estimates using 2009 

FTC data. 

DOE did not receive any comments on 

its estimation of base-case energy 

efficiency market shares for the three 

types of heating products. For further 

information on DOE’s estimation of 

base-case market shares, see chapter 8 of 

the TSD. 

11. Inputs to Payback Period Analysis 

The payback period is the amount of 

time it takes the consumer to recover the 

additional installed cost of moreefficient products, compared to baseline 

products, through energy cost savings. 

For these calculations, DOE uses a 

simple payback period, which does not 

account for changes in operating 

expense over time or the time value of 

money. Payback periods are expressed 

in years. Payback periods that exceed 

the life of the product mean that the 

increased total installed cost is not 

recovered in reduced operating 

expenses. 

The inputs to the PBP calculation are 

the total installed cost of the equipment 

to the customer for each efficiency level 

and the annual (first-year) operating 

expenditures for each efficiency level. 

The PBP calculation uses the same 

inputs as the LCC analysis, except that 

energy price trends and discount rates 

are not needed. DOE did not receive any 

comments on its methodology for the 

payback period analysis. 

As noted above, EPCA, as amended, 

establishes a rebuttable presumption 

that a standard is economically justified 

if the Secretary finds that the additional 

cost to the consumer of purchasing a 

product complying with an energy 

conservation standard level will be less 

than three times the value of the energy 

(and, as applicable, water) savings 

during the first year that the consumer 

will receive as a result of the standard, 

as calculated under the test procedure 

in place for that standard. (42 U.S.C. 

6295(o)(2)(B)(iii)) For each TSL, DOE 

determined the value of the first year’s 

energy savings by calculating the 

quantity of those savings in accordance 

with the applicable DOE test procedure, 

and multiplying that amount by the 

average energy price forecast for the 

year in which compliance with the 

amended standard would be required. 

Results of DOE’s payback period 

analysis, including both the rebuttable 

presumption analysis and the payback 

period analysis considering all of the 

relevant statutory factors, are discussed 

in section VI. 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20161 

G. National Impact Analysis—National 

Energy Savings and Net Present Value 

Analysis 

1. General 

DOE’s National Impact Analysis (NIA) 

assesses the national energy savings 

(NES) and the national net present value 

(NPV) of total consumer costs and 

savings expected to result from 

standards at specific efficiency levels. 

DOE applied the NIA spreadsheet to 

calculate NES and NPV, using the 

annual energy consumption and total 

installed cost data from the LCC 

analysis. DOE forecasted the energy 

savings, energy cost savings, equipment 

costs, and NPV for each product class 

from 2013 through 2043 for DHE and 

pool heaters, and from 2015 through 

2045 for water heaters. The forecasts 

provide annual and cumulative values 

for all four parameters. In addition, DOE 

incorporated into its NIA spreadsheet 

the capability to analyze the sensitivity 

of the results to forecasted energy prices 

and equipment efficiency trends. Table 

IV.25 summarizes the approach and 

data DOE used to derive the inputs to 

the NES and NPV analyses for the 

December 2009 NOPR, and also 

summarizes the changes DOE made for 

today’s final rule. These changes are 

described in the following sections, and 

more details are available in chapter 10 

of the final rule TSD. Comments on the 

NIA, as presented in the December 2009 

NOPR, and DOE’s response are 

presented in the sections that follow. 

TABLE IV.25—APPROACH AND DATA USED FOR THE NATIONAL IMPACTS ANALYSIS

Inputs NOPR Changes for the final rule 

Shipments ................................................ Annual shipments from shipments model ............. See table IV.4. 

Compliance Date of Standard ................. Water Heaters: 2015 ............................................. No change. 

DHE and Pool Heaters: 2013.

Base-Case Forecasted Efficiencies ......... Efficiency market shares estimated for compliance year. Sales-weighted energy factor 

(SWEF) remains constant except for gas and 

electric water heaters, for which SWEF increases slightly over forecast period.

No change in approach; updated efficiency market shares for water heaters and DHE estimated for compliance year. 

Standards-Case Forecasted Efficiencies ‘‘Roll-up’’ scenario used for determining SWEF in 

2013 (or 2015) for each standards case. 

SWEF remains constant except for gas and 

electric water heaters, for which SWEF increases slightly over forecast period.

No change in approach. 

Annual Energy Consumption per Unit ..... Annual weighted-average values as a function of 

SWEF.

No change. 

Rebound Effect ........................................ Water heaters: 10% .............................................. No change. 

DHE: 15%.

Pool Heaters: 10%.

Total Installed Cost per Unit .................... Annual weighted-average values as a function of 

SWEF.

No change. 

Energy Cost per Unit ............................... Annual weighted-average values a function of the 

annual energy consumption per unit and energy (and water) prices.

No change. 

Repair Cost and Maintenance Cost per 

Unit.

Annual values are a function of efficiency level ... No change. 

Escalation of Energy Prices .................... AEO2009 forecasts (to 2030) and extrapolation 

to 2043 (and 2045).

Updated using AEO2010 (Early Release) forecasts. 

Energy Site-to-Source Conversion Factor Varies yearly and is generated by DOE/EIA’s 

NEMS.

No change. 

Discount Rate .......................................... Three and seven percent real ............................... No change. 

Present Year ............................................ Future expenses are discounted to 2010, when 

the final rule will be published.

No change. 

2. Shipments 

The shipments portion of the NIA 

spreadsheet is a model that uses 

historical data as a basis for projecting 

future shipments of the appliance 

products that are the subject of this 

rulemaking. In projecting shipments for 

water heaters and pool heaters, DOE 

accounted for two market segments: (1) 

New construction and (2) replacement 

of failed equipment. Data were 

unavailable to develop separate 

forecasts of direct heating equipment 

shipments for replacement and new 

home installations, so the forecast was 

based on the time series of historical 

total shipments developed for each 

product class. 

Table IV.26 summarizes the approach 

and data DOE used to derive the inputs 

to the shipments analysis for the 

December 2009 NOPR analysis, and the 

changes DOE made for today’s final 

rule, based on public comments. A 

discussion of these inputs and changes 

follows. For details on the shipments 

analysis, see chapter 9 of the TSD. 

TABLE IV.26—APPROACH AND DATA USED FOR THE SHIPMENTS ANALYSIS

Inputs NOPR analysis Changes for the final rule 

Historical Shipments ................................ Water Heaters: Data provided by AHRI ................ Water Heaters: Used new data for GIWH for 

2008 and 2009. 

DHE: Data provided by AHRI and DOE estimates, and data from manufacturers and the 

trade association for hearth products.

DHE: Derived new data based on manufacturer 

input. 


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20162 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

TABLE IV.26—APPROACH AND DATA USED FOR THE SHIPMENTS ANALYSIS—Continued 

Inputs NOPR analysis Changes for the final rule 

Pool Heaters: Data from 1993 TSD, inputs from 

manufacturers, and DOE estimates.

Pool Heaters: Used data provided by manufacturers trade association. 

New Construction Shipments .................. For water heaters and pool heaters, determined 

by multiplying housing forecasts by forecasted 

saturation of products in new housing.

Housing forecasts based on AEO2009 projections.

New housing product saturations based on American Housing Survey for water heaters, consultant data for pool heaters.

No change in approach. New housing forecast 

updated with AEO2010 projections. 

Replacements .......................................... For water heaters and pool heaters, determined 

by tracking total product stock by vintage and 

establishing the failure of the stock using retirement functions from the LCC and PBP analysis. For pool heaters, included estimated nonreplacement of some pool heaters.

No change. 

To determine new construction 

shipments, DOE used forecasts of 

housing starts coupled with estimates of 

product market saturation in new 

housing. For the preliminary analysis, 

DOE used actual data for 2008 for new 

housing completions and mobile home 

placements and adopted the projections 

from AEO2009 for 2009 to 2030. DOE 

updated its new housing projections for 

today’s final rule using AEO2010 Early 

Release, which provides projections 

from 2010 to 2035. DOE kept 

completions constant after 2035. DOE 

estimated replacements using historical 

shipments data and product retirement 

functions that it developed from 

product lifetimes. Table IV.27 provides 

a summary of total shipments in 2009 

for residential water heaters, direct 

heating equipment, and pool heaters. 

TABLE IV.27—RESIDENTIAL WATER

HEATERS, DIRECT HEATING EQUIPMENT AND POOL HEATERS SHIPMENTS (2009) 

Total shipments 

(million) 

Residential Water Heaters 

Gas-fired Storage ....................... 3 .76 

Electric Storage .......................... 3 .75 

Oil-fired Storage ......................... * 0 .031 

Gas-fired Instantaneous ............. * 0 .384 

Direct Heating Equipment 

Gas Wall Fan .............................. * 0 .030 

Gas Wall Gravity ........................ * 0 .103 

Gas Floor .................................... * 0 .003 

Gas Room .................................. * 0 .020 

Gas Hearth ................................. * 0 .286 

Pool Heaters 

Gas-fired ..................................... 0 .118 

*Estimated. 

a. Water Heaters 

For the December 2009 NOPR 

analysis, DOE used information on 

choice of water heater products in 

recently-built housing to estimate 

shipments of each product class to the 

new construction market. DOE 

calculated the average market shares of 

water heaters using a particular fuel in 

new homes during 2000 to 2008, and 

assumed that these shares would hold 

throughout the forecast period. AGA 

stated that DOE should not fix market 

shares, and should realize that 

increasing disparity between gas and 

electric installed cost will exacerbate a 

trend away from gas-fired units. (AGA, 

No. 78 at pp. 7–8) In response, DOE 

notes that its data on water heater 

choice in new homes does not show a 

clear trend away from gas-fired units 

during the period from 2000 to 2008 (as 

documented in chapter 9 of the TSD), 

nor did AGA provide any data to 

substantiate such a trend. DOE 

recognizes that future market dynamics 

may result in changes from the average 

pattern seen in 2000 to 2008, but DOE 

does not have sufficient information to 

forecast the various factors that affect 

water heater choice in new homes. 

Therefore, DOE has retained the 

approach used in the December 2009 

NOPR analysis for the final rule. 

The shipments model assumes that 

when a unit using a particular fuel is 

retired, it generally is replaced with a 

unit that uses the same fuel. Section 

IV.G.2.d discusses the potential effects 

of energy conservation standards on 

choice of water heater product in the 

new construction and replacement 

markets. 

For its shipments forecast for gas-fired 

storage water heaters and electric 

storage water heaters, DOE assumed that 

the current market shares of smallvolume products (20 to 55 gallons rated 

storage volume) and large-volume 

products (over 55 gallons rated storage 

volume) would remain the same 

throughout the forecast period. The 

shipments market shares for largevolume products are 4 percent for gasfired storage water heaters and 9 percent 

for electric storage water heaters. 

Within the category of gas-fired water 

heaters, DOE disaggregated the shares of 

gas storage water heaters and gas-fired 

instantaneous water heaters based on 

projections of total shipments of gasfired instantaneous water heaters. 

Because there is much uncertainty about 

the future growth of gas-fired 

instantaneous water heaters, DOE 

modeled scenarios of their market 

penetration based on experience with 

gas-fired instantaneous water heaters in 

Australia, where the proportion of 

instantaneous water heaters in total gasfired storage water heater shipments has 

grown considerably in the past decade. 

(See chapter 9 of the TSD for 

information on the past and projected 

market penetration in Australia.) 

Commenting on the December 2009 

NOPR approach, AHRI stated that the 

experience of gas-fired instantaneous 

water heaters in Australia is too 

dissimilar to the U.S. market to be used 

to predict future U.S. shipments. (AHRI, 

No. 91 at p. 3) Rheem stated that the 

Australian market was primarily based 

on outdoor installations, and was 

influenced by local government 

programs. (Rheem, No. 89 at p. 13) A.O. 

Smith stated that in 2009, gas-fired 

instantaneous water heater shipments 

will be about 9.4 percent of the total gas 

market, not 20 percent as the DOE 

forecast suggests. A.O. Smith estimated 

a more moderate growth curve for gasfired instantaneous water heaters, 

growing to 13–15 percent of the gas 

market, consistent with DOE’s lowVerDate Nov<24>2008 19:13 Apr 15, 2010 Jkt 220001 PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 E:\FR\FM\16APR2.SGM 16APR2

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penetration scenario. Moreover, A.O. 

Smith stated that this level will not be 

reached for 5–7 years, unlike the DOE 

forecast of 1–2 years. (A.O. Smith, No. 

76 at p. 5) 

In response, DOE acknowledges the 

uncertainty associated with basing its 

forecasted market penetration of gasfired instantaneous water heaters on the 

Australian experience, but it believes 

that there is no other market that could 

provide an approximate model for 

forecasting U.S. market penetration. In 

making use of the Australian 

experience, DOE’s December 2009 

NOPR analysis took into account some 

of the differences between the two 

markets that would tend to cause 

shipments growth to be lower in the 

U.S. In response to the comments from 

A.O. Smith, however, DOE made 

modifications to its approach for the 

final rule. First, it incorporated A.O. 

Smith’s estimated market share for 2009 

(as well as data it provided on the actual 

share in 2008). Second, based on the 

new data on shipments, DOE 

significantly moderated the growth 

curve for gas-fired instantaneous water 

heater market penetration such that the 

rise is less steep than had been assumed 

for the December 2009 NOPR. Because 

of broad similarities between the U.S. 

and Australian water heating markets, 

DOE continued to use scenarios of 

market penetration that are partly based 

on the Australian experience for the 

final rule. Differences in retail prices 

and installation costs for instantaneous 

water heaters, as well as in government 

incentives, suggest that the growth in 

the U.S. market will be less strong than 

in Australia. However, DOE believes 

that the rapid growth seen in the U.S. 

before 2008, together with the 

reputation of instantaneous gas-fired 

water heaters as an energy-efficient 

water heating option suggest that the 

ultimate market penetration may be 

higher than 13 to 15 percent of the gas 

water heating market. Therefore, DOE 

estimated that the U.S. market share 

(i.e., 28 percent) approaches a level 

equal to half of the Australian level (i.e., 

56 percent) by around 2025. Chapter 9 

of the TSD presents more details on 

DOE’s projection. 

b. Direct Heating Equipment 

To estimate historical shipments of 

direct heating equipment for the 

December 2009 NOPR analysis, DOE 

used two sets of data from AHRI and 

information from the 1993 TSD. As 

noted above, data were unavailable to 

develop separate forecasts of direct 

heating equipment shipments for 

replacement and new home 

installations, so DOE based the forecast 

on the time series of historical total 

shipments developed for each product 

class, along with assumptions regarding 

future trends. For gas hearth DHE 

shipments, the forecast used for the 

December 2009 NOPR related shipments 

to projected new housing completions. 

AHRI stated that the December 2009 

NOPR assumption that future shipments 

of traditional DHE (i.e., all of the 

product classes except gas hearth DHE) 

will be flat is unrealistically optimistic 

and contrary to the last 30 years of 

shipment history. The commenter stated 

that this is a declining market not only 

because these products are sold 

primarily as replacements, but also 

because in some cases, the failing unit 

is replaced not with a similar model but 

rather with a vented fireplace heater. 

AHRI recommended that, at a 

minimum, the shipment forecast for 

traditional DHE use a 30-percent 

decrease over the next 30 years. (AHRI, 

No. 91 at p. 11) In response, for the final 

rule analysis, DOE modified its forecast 

such that total shipments of traditional 

DHE decrease by 30 percent between 

2005 and 2042. The modification of the 

shipments forecast for each of the four 

traditional DHE product classes is 

described in chapter 9 of the TSD. 

c. Pool Heaters 

To forecast pool heater shipments for 

new construction for the December 2009 

NOPR analysis, DOE multiplied the 

annual housing starts forecasted for 

single-family and multi-family housing 

by the estimated saturation of gas-fired 

pool heaters in recently built new 

housing. For replacement pool heaters, 

DOE used a survival function based on 

its distribution of product lifetimes to 

determine when a unit fails. In addition, 

DOE assumed that some households 

would not replace their pool heater 

when it fails due to cost considerations. 

DOE also introduced a market segment 

representing purchases by existing 

households that had not owned a pool 

heater. These first-time owners include 

existing households that have a pool 

and those that install one. 

The Association of Pool and Spa 

Professionals (APSP) stated that DOE’s 

data on pool heater shipments are 

overstated, and they submitted 

shipments data for 2003–2009. (APSP, 

No. 64 at p. 1) AHRI made similar 

comments. (AHRI, No. 91 at p. 8) DOE 

appreciates the information provided by 

APSP. For the final rule, it used the data 

for 2003–2009 as a basis for its 

shipments forecast. 

Raypak stated that the pool heater 

forecasts are overstated, and that DOE’s 

projection of a huge recovery in firsttime pool owners is inaccurate, because 

of the significant reduction in property 

values and more difficult access to 

credit. (Raypak, Public Meeting 

Transcript, No. 57.4 at pp. 258–259) 

AHRI stated that DOE did not recognize 

the increasing sales of electric heat 

pump pool heaters, which will reduce 

the shipments of gas-fired pool heaters. 

(AHRI, No. 91 at p. 9) In response, DOE 

notes that incorporating the new data 

for 2003–2009 reduces the forecast of 

future shipments. DOE agrees with 

Raypak regarding first-time pool owners 

and reduced the number of such 

installations in the early years of its 

forecast. DOE was not able to consider 

the impact of heat pump pool heaters as 

well as electric resistance pool heaters 

on the market because shipments data 

were not available. Furthermore, DOE 

did not include electric pool heaters in 

the current rulemaking for reasons 

explained in the NOPR. 74 FR 65852, 

65866 (Dec. 11, 2009). Finally, DOE 

notes that the longer pool heater lifetime 

used for the final rule (as described in 

section IV.F.7.c) results in fewer 

replacement shipments. 

d. Impact of Standards on Shipments 

i. Water Heaters 

To the extent that energy conservation 

standards result in an increase in the 

price of a specific type of water heater 

compared to a competing product, some 

consumers (or home builders in the case 

of shipments for new construction) may 

purchase the competing product. The 

consumer or builder decision is not 

solely based on economic factors, as the 

availability of a natural gas supply plays 

a key role. Evaluation of this decision 

requires an assessment of the specific 

factors that influence it in the context of 

the two main markets for water heaters, 

replacements and new homes. 

In the December 2009 NOPR analysis, 

DOE determined that the greatest 

potential for product switching would 

exist in the case of a standard that 

effectively required an electric heat 

pump water heater. This type of product 

often has a substantially higher installed 

cost than a typical electric resistance 

storage water heater and is relatively 

new to consumers and builders. Because 

the product choice decision partially 

depends on the relative costs of 

competing products, DOE considered 

three potential combinations that could 

result from standards: (1) Electric heat 

pump water heater and a gas-fired 

storage water heater using natural draft; 

(2) electric heat pump water heater and 

a gas-fired storage water heater using 

power vent; and (3) electric heat pump 

water heater and a gas-fired storage 

water heater using condensing 


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14AHRI furnace shipment data. Available at 

http://www.ahrinet.org/Content/ 

Furnaces_609.aspx. 

15AEO 2010 (Early Release): Table 31. Residential 

Sector Equipment Stock and Efficiency. Available 

at: http://www.eia.doe.gov/oiaf/aeo/supplement/ 

supref.html. 

16 DOE notes that production of large gas-fired 

water heaters tends to be clustered around models 

with a rated storage volume of 66 gallons or 75 

gallons. DOE assumed that the strategies discussed 

here are likewise relevant to water heaters with a 

rated capacity from 56 gallons to 66 gallons. 

technology. DOE used data from the 

2005 RECS to estimate the percentage of 

households expected to purchase an 

electric water heater in the base case 

that could switch to gas-fired water 

heater because they had the necessary 

infrastructure. To estimate how many of 

these households would switch to gasfired water heaters, DOE considered the 

difference in installed cost between the 

gas-fired storage water heater and an 

electric heat pump water heater in each 

of the combinations listed above. The 

estimated fraction of households using 

an electric storage water heater 

estimated to switch to a gas-fired storage 

water heater instead of installing a heat 

pump water heater ranges from zero 

with a standard level for gas-fired 

storage water heaters that require 

condensing technology, to 9 percent 

with a standard level for gas-fired 

storage water heaters that require power 

vent technology. 

DOE did not quantify the potential for 

switching to gas water heating in the 

case of a standard that requires 0.95 EF 

for some or all electric water heaters, as 

the installed cost is only moderately 

higher than the baseline electric water 

heater (0.90 EF). DOE judged that this 

increase would not be sufficient to 

prompt consumers to consider 

switching to gas water heating, given the 

higher cost of a gas water heater and the 

fact that such switching would usually 

require installation of a venting system, 

which adds significant cost. 

Commenting on DOE’s December 

2009 NOPR analysis, A.O. Smith stated 

that there will not be appreciable fuel 

switching in retrofits. (A.O. Smith, No. 

76 at p. 4) GE stated that fuel switching 

is impractical for most consumers. (GE, 

No. 84 at p. 2) The American Public 

Power Association (APPA) stated that 

TSL 3 and TSL 4 would not likely 

induce fuel switching, but higher TSLs 

would. (APPA, No. 92 at p. 4) Rheem 

stated that TSL 6 (i.e., requiring heat 

pump water heaters) would encourage a 

shift to instantaneous electric water 

heaters. In response, DOE believes that 

the high equipment and installation cost 

of instantaneous electric water heaters, 

which may involve upgrading the 

electrical wiring, along with the high 

operating cost, will limit the prevalence 

of a shift to these products. Given that 

the remaining comments are generally 

supportive of the estimates in the 

December 2009 NOPR, DOE retained its 

December 2009 NOPR analysis of fuel 

switching for the final rule. However, 

DOE expanded its analysis to consider 

the potential for product switching 

within the same fuel type, as discussed 

below. 

In the December 2009 NOPR analysis, 

for TSL 5, DOE combined an efficiency 

level requiring heat pump technology 

for large-volume electric storage water 

heaters with an efficiency level 

requiring condensing technology for 

large-volume gas storage water heaters. 

Because these technologies have 

roughly comparable estimated installed 

costs and there are constraints in 

switching from gas to electric or from 

electric to gas water heaters, DOE did 

not project that fuel switching would 

occur under TSL 5. 

DOE received a number of comments 

on potential reaction of consumers to 

TSL 5. Rheem stated that TSL 5 would 

provide a strong value incentive for the 

replacement consumer to replace one 

large electric resistance unit with two 

smaller electric storage water heaters to 

avoid the higher first cost impact 

associated with a heat pump water 

heater. It also pointed to other 

approaches consumers might choose, 

and noted that TSL 5 could encourage 

installation of large commercial tank 

type models in residential applications, 

where such products often lack an 

equitable certification status for safe 

operation. (Rheem, No. 89 at p. 6) A.O. 

Smith stated that the added cost of a 

heat pump water heater would induce 

consumers to install two smallerstorage-capacity, lower-cost heaters in 

the place of one larger-capacity unit. 

(A.O. Smith, No. 76 at p. 4) AHRI stated 

that the market may react to TSL 5 by 

replacing a large electric storage water 

heater with either a 50-gallon model 

with a tempering valve, a 50-gallon 

model with higher input heating 

elements, two smaller storage water 

heaters, or multiple instantaneous water 

heaters. (AHRI, No. 91 at p. 7) NPCC 

stated that in emergency replacements 

of electric water heaters, switching to 

two smaller water heaters is unlikely 

because it would require a new 30 amp 

circuit, which would require a 

contractor. (NPCC, Public Meeting 

Transcript, No. 57.4 at pp. 106–107) 

Regarding TSL 5’s requirement of 

condensing gas-fired storage water 

heaters for large-volume water heaters, 

Southern stated that consumers could 

instead install a non-condensing unit 

with a 75,000 Btu burner and 55-gallon 

tank. (Southern, No. 90 at pp. 6–7) In 

contrast to these comments, NRDC 

opined that it is unlikely that TSL 5 

would cause product switching. (NRDC, 

No. 85 at p. 6) 

In response, DOE agrees that the 

December 2009 NOPR TSL 5 would 

present consumers of large water heaters 

with a total installed cost that could 

lead some of them to consider 

alternatives to purchasing a new large 

water heater. To estimate the likely 

incidence of switching away from largevolume units under TSL 5 and TSL 6 in 

today’s final rule (see section VI.A for 

description of TSLs), DOE considered 

several alternatives to purchasing a new 

large water heater, as well as constraints 

that would likely limit their adoption. 

First, DOE considered factors that 

would cause some households to choose 

not to install an alternative to a new 

large-volume unit. Most important is the 

need for emergency replacement, which, 

according to comments from Bradford 

White (BWC, No. 62 at p. 4), accounts 

for 95 percent of water heater 

replacements. This may preclude 

consideration of switching in some 

cases. In addition, based on shipments 

data from AHRI 14 and equipment stock 

information from AEO 2010 15, DOE 

determined that at least 15 percent of 

furnace shipments go to households that 

are switching from non-condensing to 

condensing gas furnace and also have a 

gas water heater. Some of these 

households may want to also install a 

condensing gas water heater to avoid 

complex venting system modifications. 

The details are described in chapter 9 of 

the TSD. DOE judged that the above 

factors would reduce the fraction of 

installations estimated to adopt an 

alternative to purchasing a large-volume 

water heater by 25 percent. 

One alternative applicable to both gasfired storage water heaters and electric 

storage water heaters involves installing 

a small-volume water heater, increasing 

the setpoint, and applying a tempering 

valve. DOE believes that this strategy 

would only be viable for a fraction of 

66-gallon units.16 This strategy results 

in the household having roughly the 

same amount of hot water with a smallvolume water heater as they would have 

with a large-volume unit; highertemperature water is stored in a smaller 

tank, and then mixed with cold water 

using the valve. For units larger than 66 

gallons, meeting the household’s hot 

water demand would require increasing 

the setpoint above the 140 °F limit, 

which could result in deposits on the 

internal surface of the tank. To assess 

the viability of this approach for each of 

the sample households with 66-gallon 


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water heaters, DOE calculated whether 

the first-hour rating of a small-volume 

water heater with a tempering valve 

would meet the first-hour rating of the 

existing 66-gallon water heater without 

exceeding a 140 °F setpoint. (The first 

hour rating is the amount of hot water 

in gallons the heater can supply per 

hour, starting with a tank full of hot 

water). If so, DOE assumed the 

household would choose this option. 

For gas-fired storage water heaters, 

DOE considered the approach of 

switching to a small-volume unit with 

high input capacity (larger burner). DOE 

understands that designs for units below 

56-gallon rated volume that have very 

high rated input (e.g., 75 kBtu/h) are not 

common. There are some 50-gallon 

models with an input of 65 kBtu/h; 

these designs usually incorporate a 5- 

inch internal flue tube (instead of 4- 

inch), and the tank is usually taller to 

accommodate the same water storage 

volume. These units are likely to require 

venting modifications (upgrade to 4- 

inch vent). In addition, for many 

installations the input rate for the 

existing 66-gallon or larger unit is 

already 55 kBtu/h or higher, and a 50- 

gallon unit with a high-capacity burner 

may not satisfy the household hot water 

requirements. DOE accounted for the 

above constraints to estimate the 

fraction of installations that would 

switch to a small-volume with high 

input capacity. DOE also evaluated a 

similar strategy for electric storage water 

heaters that involves switching to a 

small-volume unit with high input 

heating elements. 

To consider the alternative of 

installing two small-volume units, for 

each sample household with a largevolume water heater that, according to 

DOE’s estimation, would not adopt 

either of the above two strategies, DOE 

first considered space constraints that 

would limit this approach, depending 

on the water heater location. For those 

households judged not to have such 

constraints, DOE compared the total 

installed cost of either a heat pump 

water heater or a gas-fired condensing 

water heater with the alternative of 

installing two small-volume units. For 

the cost of this alternative, DOE used 

information from a consultant report. 

Because installing two small-volume 

units is more complicated and takes 

longer, DOE assumed that households 

would choose to install two smallvolume units only if the total installed 

cost was at least 10 percent less than the 

cost for a heat pump water heater or a 

gas-fired condensing water heater. 

The results of DOE’s analysis indicate 

that switching away from a largevolume water heater would occur in 37 

percent of large-volume electric storage 

water heater installations and in 22 

percent of large-volume gas-fired storage 

water heater installations. The details of 

DOE’s approach and the estimated 

degree of switching using each of the 

alternatives described above are 

provided in chapter 9 of the TSD. 

ii. Direct Heating Equipment and Pool 

Heaters 

For DHE and pool heaters, in the 

December 2009 NOPR analysis, DOE did 

not find any data it could use to 

estimate the extent of switching away 

from the products subject to this 

rulemaking if energy conservation 

standards were to result in a significant 

increase in installed costs. Raypak 

stated that as pool heaters become more 

expensive, more may be repaired 

instead of being replaced, so the fraction 

of non-replacements should be higher. 

(Raypak, Public Meeting Transcript, No. 

57.4 at p. 249) It also stated that the 

proposed standard for pool heaters 

would induce product switching to 

solar or heat pump pool heaters. 

(Raypak, No. 67 at p. 3) In response, 

DOE believes that the standard adopted 

for pool heaters in this final rule (82- 

percent thermal efficiency) does not 

increase the installed cost enough to 

induce most consumers to not replace 

the product or to switch to a different 

product. 

3. Base-Case and Standards-Case 

Efficiency Distributions 

A key input to DOE’s estimates of 

NES and NPV is the energy efficiencies 

that DOE forecasts 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. 

For the December 2009 NOPR 

analysis, DOE used the shipmentweighted average energy efficiencies for 

2013 (for DHE and pool heaters) or 2015 

(for water heaters) as a starting point to 

forecast the base-case energy efficiency 

distribution for each product class. To 

represent the distribution of product 

energy efficiencies in those years, DOE 

used the same market shares as in the 

base case for the LCC analysis. For gasfired storage water heaters and electric 

storage water heaters, DOE estimated 

the distribution of product energy 

efficiencies in 2015 by accounting for 

the estimated market impact of the 

recently-established ENERGY STAR 

efficiency levels for water heaters (see 

section IV.F.10). The projected trend to 

2015 represents an average annual 

increase in energy efficiency of 0.27 

percent for gas-fired storage water 

heaters and 0.55 percent for electric 

storage water heaters. DOE applied the 

above values to estimate the increase in 

average energy efficiency until the end 

of the forecast period. 

DOE found no quantifiable 

indications of change in energy 

efficiencies over time for oil-fired and 

gas-fired instantaneous water heaters, 

direct heating equipment, or pool 

heaters, and it did not receive any 

comments on this topic. Therefore, for 

these products, DOE estimated that 

energy efficiencies remain constant at 

the 2015 or 2013 level until the end of 

the forecast period. 

For its determination of standardscase forecasted efficiencies, DOE used a 

‘‘roll-up’’ scenario in the preliminary 

analysis and the December 2009 NOPR 

to establish the SWEF for the year that 

compliance with the standards would 

be required and subsequent years. In 

this approach, product energy 

efficiencies in the base case that do not 

meet the standards level under 

consideration would roll up to meet the 

new standard level. The market share of 

energy efficiencies that exceed the 

standard level under consideration 

would be the same in the standards case 

as in the base case. Changes over the 

forecast period match those in the base 

case. DOE did not receive any 

comments on its forecasts of energy 

efficiency distributions, so for today’s 

final rule, DOE maintained the approach 

described above. 

4. National Energy Savings 

DOE calculates NES for each year as 

the difference between energy 

consumption of the product stock using 

the average unit energy consumption 

(UEC) of the stock in the base case 

(without new standards) or in a case 

given new standards. In addition to 

annual shipments, key inputs for 

determining NES are annual UEC and 

the site-to-source conversion factor. 

a. Annual Unit Energy Consumption 

For each year in the forecast period, 

DOE used the shipments-weighted 

energy efficiencies for the base case and 

standards cases, along with the data on 

annual energy use by efficiency level, to 

estimate the shipments-weighted 

average annual per-unit energy 

consumption for each product class 

under the base case and standards cases. 

When calculating energy consumption 

at each considered efficiency level 

above the baseline, DOE applied a 

rebound effect of 10 percent for water 

heaters, 15 percent for DHE, and 10 

percent for pool heaters. A rebound 

effect refers to increased energy 


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20166 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

17See The National Academies, Board on Energy 

and Environmental Systems, Letter to Dr. John 

Mizroch, Acting Assistant Secretary, U.S. DOE, 

Office of EERE, from James W. Dally, Chair, 

Committee on Point-of-Use and Full-Fuel-Cycle 

Measurement Approaches to Energy Efficiency 

Standards (May 15, 2009). 

18For further information on the NREL studies, 

please see: Spath, Pamela L., Margaret K. Mann, and 

Dawn Kerr, ‘‘Life Cycle Assessment of Coal-fired 

Power Production, ’’ NREL/TP–570–25119 (June 

1999); and Spath, Pamela L. and Margaret K. Mann, 

‘‘Life Cycle Assessment of a Natural Gas CombinedCycle Power Generation System,’’ NREL/TP–570– 

27715 (Sept. 2000). 

consumption resulting from actions that 

increase energy efficiency and reduce 

consumer costs. (For example, if energy 

efficiency improvements were to reduce 

the energy consumption of a room air 

conditioner (thereby decreasing its 

electricity costs), a consumer may 

choose to run the unit more often, 

thereby increasing comfort but returning 

a portion of the savings arising from 

DOE’s standards.) When the rebound 

effect is incorporated, calculated energy 

savings are lower than if no rebound 

effect were considered. 

DOE’s calculation of UEC accounts for 

the product switching that DOE 

anticipates will occur under specific 

TSLs. That is, DOE accounted for the 

energy use of the products to which 

some fraction of households are 

assumed to switch. For example, in the 

case of switching from a large-volume 

water heater to two small-volume units, 

DOE calculated and incorporated the 

energy use of the two small-volume 

units. 

b. Site-to-Source Energy Conversion 

To estimate the national energy 

savings expected from appliance 

standards, DOE uses a multiplicative 

factor to convert site energy 

consumption (at the home or 

commercial building) into primary or 

source energy consumption (the energy 

required to deliver the site energy). 

These conversion factors account for the 

energy used at power plants to generate 

electricity and losses in transmission 

and distribution, as well as for natural 

gas losses from pipeline leakage and 

energy used for pumping. For 

electricity, the conversion factors vary 

over time due to projected changes in 

generation sources (i.e., the power plant 

types projected to provide electricity to 

the country). The factors that DOE 

developed are marginal values, which 

represent the response of the system to 

an incremental decrease in consumption 

associated with appliance standards. 

In the December 2009 NOPR analysis, 

DOE used annual site-to-source 

conversion factors based on the version 

of NEMS that corresponds to AEO2009. 

For today’s final rule, DOE updated its 

conversion factors based on AEO2010 

Early Release. The AEO does not 

provide energy forecasts beyond 2035; 

DOE used conversion factors that 

remain constant at the 2035 values 

throughout the remainder of the forecast 

period. 

In response to a request from the 

DOE’s Office of Energy Efficiency and 

Renewable Energy (EERE), the National 

Research Council (NRC) appointed a 

committee on ‘‘Point-of-Use and FullFuel-Cycle Measurement Approaches to 

Energy Efficiency Standards’’ to conduct 

a study called for in section 1802 of 

EPACT 2005. The fundamental task 

before the committee was to evaluate 

the methodology used for setting energy 

efficiency standards and to comment on 

whether site (point-of-use) or source 

(full-fuel-cycle) measures of energy 

efficiency better support rulemaking to 

achieve energy conservation goals. The 

NRC committee defined ‘‘site (point-ofuse) energy consumption’’ as reflecting 

the use of electricity, natural gas, 

propane, and/or fuel oil by an appliance 

at the site where the appliance is 

operated. ‘‘Full-fuel-cycle energy 

consumption’’ was defined as including, 

in addition to site energy use, the 

following: Energy consumed in the 

extraction, processing, and transport of 

primary fuels such as coal, oil, and 

natural gas; energy losses in thermal 

combustion in power generation plants; 

and energy losses in transmission and 

distribution to homes and commercial 

buildings.17

In evaluating the merits of using 

point-of-use and full-fuel-cycle 

measures, the NRC committee noted 

that DOE uses what the committee 

referred to as ‘‘extended site’’ energy 

consumption to assess the impact of 

energy use on the economy, energy 

security, and environmental quality. 

The extended site measure of energy 

consumption includes the generation, 

transmission, and distribution but, 

unlike the full-fuel-cycle measure, does 

not include the energy consumed in 

extracting, processing, and transporting 

primary fuels. A majority of members on 

the NRC committee concluded that 

extended site energy consumption 

understates the total energy consumed 

to make an appliance operational at the 

site. As a result, the NRC committee’s 

primary general recommendation is for 

DOE to consider moving over time to 

use of a full-fuel-cycle measure of 

energy consumption for assessment of 

national and environmental impacts, 

especially levels of greenhouse gas 

emissions, and to providing more 

comprehensive information to the 

public through labels and other means, 

such as an enhanced Web site. For those 

appliances that use multiple fuels (e.g., 

water heaters), the NRC committee 

believes that measuring full-fuel-cycle 

energy consumption would provide a 

more complete picture of energy used, 

thereby allowing comparison across 

many different appliances as well as an 

improved assessment of impacts. The 

NRC committee also acknowledged the 

complexities inherent in developing a 

full-fuel-cycle measure of energy use 

and stated that a majority of the 

committee recommended a gradual 

transition to that expanded measure and 

eventual replacement of the currently 

used extended site measure. 

DOE acknowledges that its site-tosource conversion factors do not capture 

all of the energy consumed in 

extracting, processing, and transporting 

primary fuels. DOE also agrees with the 

NRC committee’s conclusion that 

developing site-to-source conversion 

factors that capture the energy 

associated with the extraction, 

processing, and transportation of 

primary fuels is inherently complex and 

difficult. However, DOE has performed 

some preliminary evaluation of a fullfuel-cycle measure of energy use. 

Based on two studies completed by 

the National Renewable Energy 

Laboratory (NREL) in 1999 and 2000, 

DOE estimated the ratio of the energy 

used upstream to the energy content of 

the coal or natural gas delivered to 

power plants. For coal, the NREL 

analysis considered typical mining 

practices and mine-to-plant 

transportation distances, and used data 

for the State of Illinois. Based on data 

in this report, the estimated 

multiplicative factor for coal is 1.08 (i.e., 

it takes approximately 1.08 units of coal 

energy equivalent to provide 1 unit of 

coal to a power plant). A similar 

analysis of the energy consumed in 

upstream processes needed to produce 

and deliver natural gas to a power plant 

yielded a multiplicative factor of 1.19.18

While the above factors are indicative 

of the magnitude of the impacts of using 

full-fuel-cycle measures of energy use, 

there are two aspects of the problem that 

warrant further study. The first is the 

refinement of the estimates of the 

multiplicative factors, particularly to 

incorporate regional variation. The 

second is development of forecasts of 

the multiplicative factors over the 

timeframes used in the rulemaking 

analyses, typically ten to fifty years. The 

second issue, of forecasting how the 

efficiency factors for various fuels may 

change over time, has the potential to be 

quite significant. The existing NEMS 

forecast of power plant electricity 


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19AGA cited the ‘‘Report’’ issued by the National 

Academy of Sciences, but it is evident that AGA 

was referring to the report by the NRC committee 

cited in footnote 12. 

generation by fuel type can be used to 

estimate the impact of a changing mix 

of fuels. However, NEMS currently 

provides no information on potential 

changes to the relative ease with which 

the different fuels can be extracted and 

processed. 

AGA stated that the December 2009 

NOPR’s energy consumption estimates 

for specific design options do not reflect 

a full-fuel-cycle analysis of the energy 

consumed. Referring to the NRC 

committee’s report, AGA recommended 

that DOE use ‘‘extended site energy’’ 

analysis in the near term.19 (AGA, No. 

78 at pp. 2–3) In response, DOE refers 

to the preceding discussion of why it 

has not yet adopted a full-fuel-cycle 

measure of energy use. DOE’s 

calculation of national energy savings 

does in fact use the extended site 

measure of energy consumption, which 

includes generation, transmission, and 

distribution but, unlike the full-fuelcycle measure, does not include the 

energy consumed in extracting, 

processing, and transporting primary 

fuels. The calculation of energy 

consumption that DOE uses in the LCC 

analysis does not use an extended site 

energy measure, because the purpose of 

the calculation is to estimate the 

operating costs that consumers will face 

with alternative appliance efficiency 

levels. The site energy calculated in the 

LCC analysis is converted to extended 

site energy (i.e., source or primary 

energy) in the NIA. DOE intends to 

further evaluate the viability of using 

full-fuel-cycle measures of energy 

consumption for assessment of national 

and environmental impacts of appliance 

standards. 

5. Consumer Net Present Value 

The consumer NPV is the net value in 

the present of the costs and savings 

experienced by consumers of the 

considered products. DOE calculates the 

NPV using the value of increased total 

installed costs, the value of operating 

cost savings (including energy, repair, 

and maintenance costs) in each year in 

which such savings occur, and a 

discount rate. 

a. Increased Total Installed Costs and 

Operating Cost Savings 

The increase in total annual installed 

cost is equal to the annual change in the 

per-unit total installed cost (difference 

between base case and standards cases) 

multiplied by the shipments forecasted 

for the standards case. Similarly, the 

total annual savings in operating costs 

are equal to the change in annual 

operating costs (difference between base 

case and standards case) per unit 

multiplied by the shipments forecasted 

for the standards case. 

DOE’s calculation of total annual 

installed cost and total annual savings 

in operating costs accounts for the fuel 

and product switching that was 

estimated to occur under specific TSLs 

(see section IV.G.2.d). The accounting of 

the energy use of the products to which 

a fraction of households are assumed to 

switch was described above in section 

IV.G.4.a. DOE also accounted for the 

installed cost of those products. For 

example, in the case of switching from 

a large-volume water heater to two 

small-volume units, DOE calculated and 

incorporated the installed cost of the 

two units. 

b. Discount Rates 

DOE multiplies monetary values in 

future years by the discount factor to 

determine the present value. For the 

December 2009 NOPR analysis and 

today’s final rule, DOE estimated the 

NPV of appliance consumer benefits 

using both a 3-percent and a 7-percent 

real discount rate. DOE uses these 

discount rates in accordance with 

guidance provided by the Office of 

Management and Budget (OMB) to 

Federal agencies on the development of 

regulatory analysis (OMB Circular A–4 

(Sept. 17, 2003), section E, ‘‘Identifying 

and Measuring Benefits and Costs’’). 

DOE did not receive any comments on 

the discount rates used to calculate the 

NPV of appliance consumer benefits, 

and consequently, DOE has retained 

those discount rates in this final rule. 

H. Consumer Subgroup Analysis 

In analyzing the potential impact of 

new or amended energy conservation 

standards on individual and commercial 

consumers, DOE evaluates the impact 

on identifiable subgroups of consumers 

that may be disproportionately affected 

by a national standard level. For the 

December 2009 NOPR and today’s final 

rule, DOE used 2005 RECS data to 

analyze the potential effect of energy 

conservation standards on the 

considered consumer subgroups for 

selected heating products. For gas-fired 

and electric storage water heaters, and 

gas wall fan and gas wall gravity DHE, 

DOE estimated consumer subgroup 

impacts for low-income households and 

senior-only households. In addition, for 

gas-fired and electric storage water 

heaters, DOE estimated consumer 

subgroup impacts for households in 

multi-family housing and households in 

manufactured homes as well. 

DOE did not evaluate consumer 

subgroup impacts for gas-fired 

instantaneous water heaters and oilfired storage water heaters. Gas-fired 

instantaneous water heaters were 

excluded from the consumer subgroup 

analysis due to insufficient data, and 

oil-fired storage water heaters were 

excluded due to low product shipments. 

For direct heating equipment, gas floor 

DHE and gas room DHE were excluded 

due to the low and decreasing levels of 

product shipments. For gas hearth DHE, 

DOE examined the senior-only 

subgroup, but did not evaluate the lowincome subgroup because the saturation 

of this product is very small among lowincome households due to the high 

product cost. DOE did not evaluate 

consumer subgroup impacts for pool 

heaters because the sample size of the 

subgroups is too small for meaningful 

analysis. 

DOE did not receive any comments on 

its approach for the consumer subgroup 

analysis, and for today’s final rule, DOE 

has made no change to its method for 

estimating consumer subgroup impacts. 

Details on the consumer subgroup 

analysis and results can be found in 

chapter 11 of the TSD. 

I. Manufacturer Impact Analysis 

DOE conducted the MIA to estimate 

the financial impact of amended energy 

conservation standards on water heater, 

DHE, and pool heater manufacturers 

and to calculate the impact of such 

standards on gross domestic 

manufacturing employment and 

capacity. The MIA has both quantitative 

and qualitative aspects. The quantitative 

part of the MIA primarily relies on the 

GRIM—an industry-cash-flow model 

customized for the three products 

covered by this rulemaking. The GRIM 

inputs are data characterizing the 

industry cost structure, investments, 

shipments, and markups. The key MIA 

output is the INPV. Different sets of 

assumptions (scenarios) produce 

different results. DOE presents the 

industry impacts by the major product 

types. DOE estimated the industry 

impacts for gas-fired and electric storage 

water heaters together because these 

product groupings represent a market 

that is served by the same 

manufacturers and these products are 

typically produced in the same 

factories. Similarly, DOE presents the 

other MIA results separately for oil-fired 

storage water heaters, gas-fired 

instantaneous water heaters, the 

traditional DHE product categories, gas 

hearth DHE, and gas-fired pool heaters. 

The qualitative part of the MIA 

addresses factors such as product 

characteristics, market and product 


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20Annual Economic Census: 2007, American 

FactFinder, Bureau of the Census (Available at: 

http://www.census.gov/econ/census07/) (Last 

accessed Feb. 2010). 

trends, as well as an assessment of the 

impacts of standards on subgroups of 

manufacturers. DOE outlined its 

methodology for the MIA in the 

December 2009 NOPR. 74 FR 65852, 

65915–22 (December 11, 2009). The 

complete MIA for the December 2009 

NOPR is presented in chapter 12 of the 

NOPR TSD. 

In overview, for the final rule, DOE 

updated the MIA to reflect changes in 

the outputs of two other key DOE 

analyses that feed into the GRIM. 

Product costs are key inputs to the 

GRIM. For today’s final rule, DOE 

incorporated the changes made to the 

engineering analysis, including updates 

to the MPCs (see section IV.C). In the 

MIA, DOE updated its shipment 

forecasts and efficiency distributions. In 

turn, DOE updated the GRIM to 

incorporate these revised costs and 

shipments. 

For consistency in nominal dollars, 

for the final rule, DOE inflated the 

NOPR capital and product conversion 

costs to 2009$ from 2008$ using 

producer price index (PPI) information 

for the relevant industries. See http:// 

data.bls.gov:8080/PDQ/ 

outside.jsp?survey=pc. The PPI industry 

information is related to the North 

American Industry Classification 

System (NAICS) code. For gas-fired 

storage, oil-fired storage, and gas-fired 

instantaneous water heaters, DOE 

updated the conversion costs using PPI 

information under series id 

PCU3352283352283—‘‘Household water 

heaters, except electric.’’ DOE updated 

the conversion costs for electric storage 

water heaters using series id 

PCU3352283352281—‘‘Household water 

heaters, electric, for permanent 

installation.’’ DOE updated the DHE 

conversion costs using series id 

PCU3334143334147—‘‘Floor and wall 

furnaces, unit heaters, infrared heaters, 

and mechanical stokers.’’ Finally, DOE 

updated the conversion costs for pool 

heaters using series id 

PCU3334143334149—‘‘Other heating 

equipment, except electric.’’ For the 

final rule, DOE also updated its 

traditional DHE product line analysis 

used to calculate industry-wide 

conversion costs to account for new 

products that have come on to the 

market and to account for changes to the 

traditional DHE efficiency levels and 

TSLs, as reflected in the most current 

information in the AHRI certification 

database (see http:// 

www.ahridirectory.org/ahridirectory/ 

pages/home.aspx.). 

DOE used the GRIM to revise the MIA 

results from the December 2009 NOPR 

to reflect the updated MPCs, shipments, 

and conversion costs. For direct 

employment calculations, DOE revised 

the GRIM to include the latest U.S. 

Census information available from the 

2007 Economic Census.20

The following sections discuss 

interested parties’ comments on the 

December 2009 NOPR MIA 

methodology. In general, DOE provides 

background on an issue that was raised 

by interested parties, summarizes the 

interested parties’ comment, and 

discusses DOE’s response to the 

comments. 

1. Water Heater Conversion Costs 

For the MIA, DOE classified one-time 

conversion costs into two major 

categories: (1) Product conversion costs 

and (2) capital conversion costs. Product 

conversion costs are one-time 

investments in research, development, 

testing, marketing, and other costs 

focused on making product designs 

comply with the amended energy 

conservation standard. Capital 

conversion costs are one-time 

investments in property, plant, and 

equipment to adapt or change existing 

production facilities so that new 

product designs can be fabricated and 

assembled. 

In response to the December 2009 

NOPR, AHRI stated that TSL 4 would 

require more than 75 percent of gas 40- 

gallon water heater models and more 

than 90 percent of electric 50-gallon 

water heater models from the AHRI 

Directory to be either redesigned or 

dropped from production. AHRI added 

that the severity of this change is even 

greater than this example suggests 

because shipments are more skewed 

towards current Federal minimum 

efficiency standards than the proportion 

of models suggests. (AHRI, No. 91 at pp. 

1–2) 

DOE acknowledges that a significant 

effort may be necessary for 

manufacturers to reach the efficiencies 

required by TSL 4. In the December 

2009 NOPR, DOE noted that over 80 

percent of the gas-fired water heaters 

currently sold do not meet the efficiency 

requirements at TSL 2 through TSL 4 

and that only a small portion of the 

electric storage water heaters currently 

on the market meet the required 

efficiencies at TSL 4. This current 

product distribution drives the estimate 

of capital conversion costs at TSL 4 and, 

consequently, contributes to the overall 

results. These conversion costs reflect 

the need for manufacturers to add 

foaming stations and additional 

production lines to maintain current 

production levels with water heaters 

that require much thicker insulation. 74 

FR 65852, 65936–37 (Dec. 11, 2009). 

BWC commented that the significant 

increase in insulation thickness 

necessary to achieve the proposed level 

for water heaters would require 

additional assembly time to 

manufacture the same production 

quantity. In order to achieve the same 

manufacturing capacity, BWC stated 

that it would require a combination of 

more labor, a reconfiguration of 

production lines, more foaming 

equipment on production lines, and/or 

additional production lines. BWC stated 

that any of these options result in 

expensive capital conversion costs, 

which BWC does not believe were fully 

taken into consideration. (BWC, No. 61 

at pp. 1–2) 

DOE’s initial estimates for the capital 

conversion costs for water heaters at 

each TSL can be found in the December 

2009 NOPR. 74 FR 65852, 65936–41 

(Dec. 11, 2009). During interviews with 

manufacturers prior to the publication 

of the December 2009 NOPR, DOE 

solicited confidential information about 

the required capital conversion costs at 

each efficiency level. In the December 

2009 NOPR, DOE stated that it based its 

capital conversion costs for gas-fired 

and electric storage water heaters on 

information learned during these 

interviews. 74 FR 65852, 65917–18 

(Dec. 11, 2009). DOE verified its 

industry-wide estimates for the gas-fired 

and electric storage water heaters by 

comparing the NOPR estimates to a 

separate bottoms-up estimate of the subassembly lines, assembly lines, and 

tooling changes required by each 

manufacturer and the level of 

investments that would be required to 

maintain a historic value for net plant, 

property, and equipment as a ratio of 

total revenue. For oil-fired storage and 

gas-fired instantaneous water heaters, 

DOE estimated its capital conversion 

costs using a bottoms-up approach to 

estimate the cost of additional 

production equipment and changes to 

existing production lines that the 

industry would require at each TSL. 

DOE used feedback from manufacturer 

interviews about the tooling 

requirements at each efficiency level 

and product catalogs to estimate the 

total capital conversion costs for both 

oil-fired storage and gas-fired 

instantaneous water heaters at each 

TSL. Id. Pages 12–35 to 12–39 of the 

December 2009 NOPR TSD also 

contained DOE’s estimated capital 

conversion costs as well as additional 

information about the assumptions 


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behind the required changes at each 

efficiency level. 

For the gas-fired and electric storage 

water heater capital conversion costs at 

TSL 4 and TSL 5 in the December 2009 

NOPR, DOE noted and agrees with 

BWC’s comment that the increased 

insulation thickness would require 

manufacturers to lengthen existing 

assembly lines or add additional 

assembly lines because the much 

thicker insulation requirements lower 

the throughput of existing assembly 

lines. However, DOE continues to 

believe it has adequately addressed 

BWC’s concerns about the capital 

conversion cost estimates for two 

reasons. First, DOE’s capital conversion 

cost estimates are drawn from industrywide aggregated data gathered during 

manufacturer interviews. Second, DOE’s 

assumptions regarding the required 

plant changes at the proposed TSL in 

the December 2009 NOPR are consistent 

with the plant changes noted in BWC’s 

comment. Finally, BWC did not provide 

any additional data supporting its 

comment that DOE’s capital conversion 

cost estimates did not fully capture the 

potential costs. 

For today’s final rule, DOE continues 

to use the same methodology to 

calculate the water heater conversion 

costs. Additional details of DOE’s 

estimates can be found in chapter 12 of 

the TSD. 

DOE also received several comments 

from manufacturers regarding issues 

that would arise under a potential 

amended standard for electric storage 

water heaters that would effectively 

require heat pump water heaters (i.e., 

TSL 5 through TSL 8). Broadly, the 

comments addressed three issues: (1) 

Potential changes to current facilities; 

(2) the cost to manufacture heat pump 

water heaters; and (3) the unique 

challenges presented by the December 

2009 NOPR TSL 5. 

At the public meeting, A.O. Smith 

stated that it is in the final stages of 

implementing production for heat pump 

water heaters on a small scale relative 

to what would be required if the entire 

market moved to heat pump water 

heaters. (A.O. Smith, Public Meeting 

Transcript, No. 57.4 at pp. 91–92) In 

written comments, A.O. Smith 

extrapolated the cost of setting up this 

limited production line to estimate the 

cost of shifting the entirety of its electric 

storage market share to heat pump water 

heaters. A.O. Smith stated that a new 

facility capable of producing two 

million heat pump water heaters 

annually would cost $90 million to 

build—before accounting for investment 

in land and other fees—and would take 

2–3 years to complete. A.O. Smith 

stated that it would likely build a new 

facility because line speed and assembly 

operations would not allow for the 

product to be integrated into current 

production lines at high shipment 

volumes. A.O. Smith also stated that it 

would probably be cheaper to set up a 

new line than to rework the production 

lines in existing facilities. (A.O. Smith, 

Public Meeting Transcript, No. 57.4 at p. 

92) 

AHRI stated that an amended 

standard effectively requiring heat 

pump water heaters would force all 

manufacturers to continue to provide 

electric storage water heaters utilizing 

resistance technologies until the 

compliance date of the amended 

standard due to competitive pressures. 

A competitor that did not have to 

continue manufacturing resistance 

water heaters until the compliance date 

(because, presumably, it did not serve 

this market in the base case) could have 

an advantage. (AHRI, Public Meeting 

Transcript, No. 57.4 at pp. 100–103) 

BWC added that a standard that 

required heat pump water heaters 

would disrupt its manufacturing facility 

since existing manufacturing lines are 

optimized for specific products. Heat 

pump water heaters would require 

production lines to be redesigned to 

handle all new components and their 

assembly. Finally, a combination of 

additional production lines and/or a 

new manufacturing facility would be 

required to manufacture heat pump 

water heaters without interrupting 

current production. (BWC, No. 61 at pp. 

2–3) 

DOE agrees that modifying existing 

production facilities to exclusively heat 

pump water heaters could be very 

disruptive to ongoing operations there. 

During on-site manufacturing impact 

interviews, most manufacturers were 

still developing their heat pump water 

heaters. At that time, manufacturers 

responded to questions about how they 

would approach the manufacture of heat 

pump water heaters by describing the 

necessary changes to existing facilities. 

For example, manufacturers anticipated 

that they would purchase the heat pump 

modules from outside vendors if heat 

pump water heaters were required for 

all electric storage water heaters for 

three reasons: (1) They lacked 

experience manufacturing high-volume 

sealed refrigeration systems; (2) they 

had limited refrigeration engineering 

expertise; and (3) they lacked space in 

their facilities to produce heat pump 

module subassemblies. DOE 

incorporated these comments into its 

NOPR capital cost conversion analysis 

in the following manner: (1) 

Manufacturers would initially source 

the heat pump modules; (2) electric 

storage water heater assembly and 

subassembly lines would have to be 

modified to accommodate the assembly 

of heat pump water heaters; (3) 

assembly lines would need to be 

lengthened to merge new tank 

assemblies with the heat pump 

modules; and (4) heat pump water 

heater integration would require 

manufacturers to install advanced 

testing equipment to verify 

performance, operation, etc. In sum, 

DOE estimated in the NOPR that 

manufacturers would incur almost $70 

million in capital conversion costs to 

modify their production facilities to 

exclusively manufacture heat pump 

electric storage water heaters. DOE 

estimated these investments take place 

between 2010, the announcement date 

of the standard, and 2015, the year 

manufacturers must comply with the 

standard. However, the capital 

conversion cost estimates did not 

include the cost of building 

manufacturing capacity to produce the 

heat pump modules in house because 

DOE believed manufacturers would 

likely purchase these as subassemblies. 

74 FR 65852, 65921, 65938 (Dec. 11, 

2009). 

Manufacturers can choose among 

multiple design paths and production 

options for heat pump water heaters, so 

capital, manufacturing, and product 

development expenses will vary 

accordingly. DOE agrees with A.O. 

Smith that one possible reaction by 

manufacturers at the NOPR TSL 6 or 

TSL 7 (equivalently, TSL 7 and TSL 8 

in the final rule) could be to build a new 

facility to exclusively manufacture heat 

pump water heaters. In the December 

2009 NOPR, DOE stated that 

manufacturers could consider moving 

all or part of their existing production 

capacity abroad if NOPR TSL 6 were 

selected, as the benefit to the 

manufacturer of a new facility abroad 

could be greater than modifying an 

existing facility. In the NOPR, DOE 

noted that building a new facility could 

entail less business disruption risk than 

attempting to completely redesign and 

upgrade existing facilities. Combined 

with lower labor rates overseas, this 

prospect could compel manufacturers to 

move their production facilities outside 

of the U.S. 74 FR 65852, 65938, 65952 

(Dec. 11, 2009). 

While acknowledging there are 

multiple strategic paths to manufacturer 

heat pump water heaters, DOE believes 

it has used a consistent approach to 

characterize the costs facing the 

industry. DOE also believes its approach 

captures manufacturers’ concerns about 

the technology changes required at the 


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NOPR TSL 6 and TSL 7. While DOE did 

not include the conversion costs to 

manufacture the heat pump module or 

to build new facilities, DOE did include 

the substantial costs to modify all 

existing production lines. Furthermore, 

DOE believes that existing facilities 

could be modified to produce heat 

pump water heaters at the final rule TSL 

7 and TSL 8, although at a substantial 

capital conversion cost. Supporting this 

notion, DOE notes that most existing 

heat pump water heater designs from 

major manufacturers incorporate parts 

of standard electric resistance water 

heaters. For example, the tank portion of 

existing heat pump water heater designs 

are very similar to electric resistance 

water heater designs, thereby limiting 

most changes to the assembly line area 

of a plant. The designs of heat pump 

water heaters at TSL 7 or TSL 8 would 

likely be similar to recently-released 

heat pump water heaters and would 

maintain these similarities with electric 

resistance water heaters. 

Current manufacturing operations are 

highly optimized to manufacture water 

heaters that utilize resistive elements 

and relatively few additional 

components (e.g., thermostats), whereas 

heat pump water heater modules require 

additional assembly steps even if they 

are purchased as completed subassemblies. While a new manufacturing 

facility would make the integration of 

heat pump modules simpler, the $90 

million estimate for such a facility 

projected by A.O. Smith indicates that 

this approach could also be more costly. 

Alternatively, manufacturers could 

choose to build an annex for assembling 

heat pump water heater modules and 

then deliver them to the final assembly 

area in a manner similar to completed 

tank assemblies. When queried in 

manufacturer impact interviews, no 

manufacturer of electric water heater 

with traditional resistive elements had 

yet decided on a specific path towards 

high-volume heat pump water heater 

production. However, DOE believes that 

the capital conversion costs that assume 

manufacturers modify existing facilities 

to accommodate integrating a sourced 

heat pump module would be the most 

likely scenario on account of lower 

capital expenditures than a ‘‘green field’’ 

facility, established supplier bases, 

trained work force, etc. Hence, DOE 

believes that this scenario captures the 

significant impacts on electric storage 

water heater manufacturers. 

Finally, both the preservation of 

return on invested capital scenario and 

the preservation of operating profit 

scenario incorporate the financial 

burdens to substantially modify 

facilities to manufacture heat pump 

water heaters and the significant 

expenses that would be required to 

carry inventory that is many times more 

expensive than in the base case (because 

the MPCs of heat pump water heaters 

are multiple times the MPCs of 

resistance water heaters). In addition, 

the preservation of operating profit 

scenario models the impacts on 

manufacturers that would occur after 

the compliance date of the standard if 

they cannot fully markup the substantial 

cost of a sourced heat pump module. 

Therefore, the costs and market 

disruption to manufacture heat pump 

water heaters are modeled in the MIA 

scenarios. 

In response to DOE’s request for 

comment at the public meeting on the 

required conversion costs for all 

considered NOPR TSLs, Rheem did not 

comment specifically because it deemed 

conversion costs confidential and 

proprietary. However, Rheem wished to 

advise DOE that this information was 

submitted confidentially to DOE’s 

contractor during MIA interviews. 

(Rheem, No. 89 at p. 9) During the 

public meeting, Rheem did state that 

converting all of its electric water heater 

models to heat pump water heaters (as 

the December 2009 NOPR TSL 6 or TSL 

7 would require) would be a very 

significant undertaking requiring capital 

and new manufacturing capabilities. As 

evidence to that point, Rheem noted 

that it has to date released only one heat 

pump water heater model. (Rheem, 

Public Meeting Transcript No. 57.4 at p. 

93–94) 

DOE agrees that migrating electric 

storage production entirely to heat 

pump water heater production would 

require a significant investment in time 

and resources. DOE asked each 

participant during manufacturer 

interviews to quantify the costs to 

manufacture exclusively heat pump 

water heaters. DOE’s own analysis of 

these conversion costs proved 

consistent with the estimates submitted 

by the industry at large. Therefore, DOE 

believes that its capital conversion costs 

for the industry are reasonable and that 

it has adequately modeled the impacts 

of the significant plant changes that 

would be required to exclusively 

manufacture heat pump water heaters in 

the electric storage water heaters 

product class. The significant product 

and capital conversion costs associated 

with the technology and the required 

production changes contribute to large, 

negative impacts on INPV at the 

December 2009 NOPR TSL 6 and TSL 7. 

As discussed earlier, the December 

2009 NOPR TSL 5 would effectively 

require heat pump water heaters for 

tanks with rated storage volumes greater 

than 55 gallons. BWC commented that 

this proposed level would likely result 

in a smaller percentage of the market 

above the 55-gallon breakpoint, which 

would make it more difficult to finance 

the high conversion costs for moving 

large tank production to heat pump 

water heaters. BWC also stated it would 

have to cut down on its product 

offerings due to the high development 

and capital conversion costs. (BWC, No. 

61 at p. 2) A.O. Smith stated it has two 

dedicated factories that build 

commercial condensing products, and 

the commenter stated, after studying the 

production volumes at the December 

2009 NOPR TSL 5, that it would likely 

have to add production lines. Water 

heater manufacturers would have to 

invest a significant amount to learn how 

to manufacture a device with a 

refrigerant circuit for a small number of 

units per year. (A.O. Smith, Public 

Meeting Transcript, 122–123, 126) In its 

written comments, Rheem added that 

the December 2009 NOPR TSL 5 

introduces added burden and risk 

because it requires manufacturers to 

continue to produce conventional 

storage products in large quantities 

while incrementally preparing for 

production of maximum technology 

products which could involve 

additional production lines and new 

facilities. (Rheem, No. 89 at p. 10) AHRI 

stated that separate minimum efficiency 

levels for larger size water heaters 

would require separate production lines 

for these models. Given the significant 

differences in the process of 

manufacturing either heat pump water 

heaters or condensing gas-fired water 

heaters, these models could not be 

interspersed into the high-speed 

production lines currently operating in 

water heater manufacturing plants. 

(AHRI, No. 91 at p. 6) Finally, BWC, 

A.O. Smith, and Rheem all commented 

that the lower volume of water heaters 

above 55-gallons made the business case 

for the investments in the advanced 

technology harder to justify. (BWC, No. 

61 at p. 2; A.O. Smith, Public Meeting 

Transcript, No. 57.4 at pp. 98–99; 

Rheem, Public Meeting Transcript No. 

57.4 at pp. 99–100) 

DOE agrees with BWC, A.O. Smith, 

Rheem, and AHRI that the December 

2009 NOPR TSL 5 (i.e., TSL 6 for this 

final rule) would likely require 

additional production lines for 

manufacturers to produce heat pump 

water heaters and condensing products 

for high-volume products. While DOE 

believes that existing facilities could be 

modified to manufacture exclusively 

heat pump water heaters, DOE does not 

believe individual manufacturers could 


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integrate heat pump water heaters or 

condensing gas-fired water heaters 

above 55-gallons into existing 

production lines. Rather, DOE 

calculated the cost for each 

manufacturer to build a separate 

production line as an annex to an 

existing facility to maintain their 

current market share of the gas-fired and 

electric storage water heater markets 

above 55-gallons. DOE also assumed 

that the capital conversion costs for 

rated storage volumes less than 55- 

gallons at the NOPR TSL 5 would not 

decline if the efficiency requirements 

were higher for rated storage volumes 

greater than 55-gallons (see pages 12–36 

to 12–37 of the December 2009 NOPR 

TSD). 74 FR 65852, 65918 (Dec. 11, 

2009). In addition, DOE calculated the 

product conversion costs for large rated 

storage volumes at the December 2009 

NOPR TSL 5 by multiplying its estimate 

for the industry to offer heat pump 

products at TSL 6 and condensing gasfired products at TSL 7 for all rated 

storage volumes by the percentage of 

total electric storage and gas-fired 

storage water heater models that exceed 

a 55-gallon rated volume. 74 FR 65852, 

65917 (Dec. 11, 2009). DOE did not 

modify its approach to calculate the 

conversion costs at TSL 5 and TSL 6 for 

the final rule because its approach is 

consistent with manufacturers’ 

comments. Finally, DOE notes that there 

are a disproportionately large number of 

models above 55-gallons relative to the 

shipment volumes of those products. 

Thus, the economic impacts to convert 

those products to a new technology are 

proportionately more burdensome for 

those manufacturers. Therefore, DOE 

agrees that the business case is harder 

to justify for the larger storage volumes 

and that this is captured by the MIA, but 

notes that the impacts are still less 

severe than requiring manufacturers to 

exclusively offer either advanced 

technology. 

DOE also received a number of 

comments about the impacts of the oilfired storage water heater conversion 

costs on manufacturers. BWC stated that 

the business case to make the 

investments at the December 2009 

NOPR TSL 4 is difficult because the 

industry is small and declining and 

could lead them to exit the oil-fired 

market. (BWC, No. 61 at p. 2; Public 

Meeting Transcript, No. 57.4 at p. 289) 

AHRI stated that the cost to redesign, 

develop, and retool production for oilfired models is high at the proposed 

December 2009 NOPR TSL 4 compared 

to the very small market, which offers 

limited opportunity for a return. AHRI 

added that this TSL is not currently met 

by all current 50-gallon residential oilfired water heaters and all 30-gallon and 

32-gallon models except those offered 

by one manufacturer. Consequently, 

some manufacturers could drop out of 

the oil water heater market. (AHRI, No. 

91 at p. 2) 

DOE agrees that there are no existing 

50-gallon oil-fired water heaters on the 

market that meet the efficiencies 

required at the December 2009 NOPR 

TSL 4. However, DOE notes that there 

are three existing 30-gallon products 

from two manufacturers that meet these 

efficiencies using conventional 

technology. Therefore, DOE continues to 

believe that models that do not meet the 

required efficiencies could be made to 

do so by manufacturers using insulation 

changes. While not insignificant, the 

conversion costs to make insulation 

changes to existing products would not 

be as substantial as a higher efficiency 

requirement, which could require 

manufacturers to use significantly 

different technology. DOE noted in the 

December 2009 NOPR that if any 

manufacturer had to meet the standard 

using a more complex technology, these 

costs could force them to exit the oilfired storage water heater market. 74 FR 

65852, 65940 (Dec. 11, 2009). Whether 

a given manufacturer chooses to exit the 

market will depend on a variety of 

internal and external factors, but based 

upon the available information, DOE 

believes it has appropriately captured 

the magnitude of investments that the 

various TSLs require. 

2. Manufacturer Markups and Markup 

Scenarios 

The MPCs from the engineering 

analysis are key inputs to the GRIMs 

used in this rule. For water heaters, the 

MSP is comprised of production costs 

(the direct manufacturing costs or 

MPCs), non-production costs (indirect 

costs like selling, general, and 

administrative expenses (SG&A)), and 

profit. For gas-fired, electric, and oilfired storage water heaters in the MIA, 

MSP is calculated by multiplying the 

MPC by the manufacturer markup and 

adding the shipping cost. For all other 

products, MSP is calculated by 

multiplying the MPC by the appropriate 

manufacturer markup. DOE used several 

standards-case markup scenarios to 

bound the range of uncertainty about 

the potential impacts on prices and 

profitability following the 

implementation of amended energy 

conservation standards. 

In both its written submission and 

comments at the public meeting, BWC 

stated that profit margins for water 

heater manufacturers are falling due to 

the decline of new construction and the 

industry having excess capacity. BWC 

argued that because the profitability 

estimates in DOE’s analysis are 

incorrect, it would be difficult to sustain 

the costs associated with the December 

2009 NOPR TSL 4. Detailed profit data 

were supplied by BWC in previous 

communication with DOE’s contractor. 

(BWC, No. 61 at p. 2; Public Meeting 

Transcript, No. 57.4 at p. 40) 

As background, DOE used publiclyavailable information to calculate its 

initial markup estimates. Because not all 

manufacturers in the industry are public 

and because those that are public often 

compete in different businesses, DOE 

calibrated its initial estimates based on 

information received during 

manufacturer interviews. During the 

NOPR phase, DOE refined the 

manufacturer markup based on feedback 

from manufacturers to better reflect the 

residential heating products market. 74 

FR 65852, 65892 (Dec. 11, 2009). Given 

this process, DOE believes the 

manufacturer markups used in the 

engineering analysis and manufacturer 

impact analysis are representative of the 

industry as a whole. In addition, DOE 

used estimated market shares to weigh 

feedback it received on the financial 

parameters (including the industry 

capital structure) to determine an 

aggregate number representative of the 

entire industry. While individual 

manufacturers have different gross 

margins depending on a variety of 

factors, DOE’s use of weighted average 

financial parameters yields cash flow 

from operations that are consistent with 

the overall industry. For example, in the 

base case, earnings before interest and 

taxes (EBIT) for gas-fired and electric 

storage water heating manufacturing is 

approximately 5 percent. Finally, with 

respect to BWC’s concern that margins 

have compressed due to the housing 

downturn, DOE acknowledges that the 

current economic environment, 

particularly in new construction, has 

adversely impacted the industry. DOE 

notes that the two markup scenarios it 

models are used to bound the potential 

impacts on manufacturers due to 

amended energy conservation 

standards, in light of the inherent 

uncertainty in how pricing will adjust 

in the marketplace. The preservation of 

operating profit scenario models a case 

in which margins and profitability 

decline in response to amended energy 

conservation standards. DOE believes 

that the impacts captured by the 

preservation of operating profit scenario 

would be a better indicator of the likely 

impacts on manufacturers than 

specifically attempting to model a shortterm effect that also impacts margins in 


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the base case. A short-term effect that 

would be impacted in the base case and 

standards case would not model longterm financial impacts caused by 

standards and would not consider the 

impacts on INPV over the entire 

analysis period. Consequently, DOE has 

decided to continue to use the markup 

scenarios modeled in the December 

2009 NOPR. 

DOE also received comments from 

traditional DHE manufacturers about the 

markup scenarios in the MIA. As 

opposed to the preservation of return on 

invested capital scenario, LTS stated 

that it expects profitability to decrease, 

possibly to zero or below in the event 

of standards. LTS argued this outcome 

is likely because manufacturers will 

either have to abandon some product 

categories or face lower consumer 

demand following standards because 

features the consumer wants would no 

longer be available, such as the ability 

to retrofit replacement products and 

operate without line power. (LTS, No. 

56.7 at p. 2; Public Meeting Transcript, 

No. 57.4 at p. 21) LTS further argued 

that the preservation of operating profit 

scenario is too optimistic in the event 

product offerings are reduced. (LTS, No. 

56.7 at p. 2) Finally, LTS stated that the 

large negative impacts on industry net 

present values suggest that 

manufacturers would be substantially 

harmed if profitability were impacted. 

(LTS, Public Meeting Transcript, No. 

57.4 at pp. 21–22) 

In response, DOE created two markup 

scenarios to bound the potential impacts 

on DHE manufacturers, as discussed in 

TSD chapter 12. DOE believes the less 

optimistic scenario—in which 

manufacturers do not earn any 

additional profit from any of the 

changes required by standards despite 

increased investment—captures LTS’s 

concerns. DOE agrees with LTS that 

profitability could decrease if consumer 

demand was lower or product lines 

were dropped. At the same time, if 

manufacturers dropped selected product 

lines, they would not incur the capital 

investments included in DOE’s 

estimates because DOE assumes 

manufacturers convert all product lines. 

While DOE acknowledges that 

manufacturers could choose to 

eliminate certain product lines, DOE 

believes that its markup scenarios 

would still reflect the negative impact 

on industry value. DOE also agrees that 

lower consumer demand would impact 

profitability. All of the concerns raised 

by manufacturers indicate that the range 

of impacts would be towards the higher 

end calculated by DOE. While DOE’s 

results changed slightly from the NOPR 

to account for the latest available data 

on the industry’s product lines, as 

discussed in chapter 12 of the TSD, DOE 

believes that the analytical tools 

correctly capture the impacts on 

traditional DHE manufacturers. DOE is 

not adopting the same TSL for 

traditional DHE as was proposed in the 

NOPR, in part because of these impacts. 

DOE further discusses how it weighs the 

benefits and burden of the amended 

energy conservation standards, 

including the impact on traditional DHE 

manufacturers, in section VI.D.3. 

3. Pool Heater Conversion Costs 

Raypak agreed with DOE’s statement 

that TSL 5 and TSL 6 would require 

manufacturers to incur significant 

product and capital conversion costs. 

Raypak commented that this statement 

is also true for TSL 3 and TSL 4. While 

most manufacturers have some products 

at these efficiency levels, Raypak argued 

that manufacturing all products at the 

levels proposed in the December 2009 

NOPR would require substantial tooling 

and product conversion costs. (Raypak, 

No. 67 at p. 2; Public Meeting 

Transcript, No. 57.4 at p. 308) In 

addition, Zodiac stated that even small 

efficiency improvements often require 

significant efforts and burden 

manufacturers. (Zodiac, No. 68 at p. 1) 

DOE agrees that the conversion costs 

at TSL 3 and TSL 4 are also significant. 

However, DOE notes that the plant 

changes at TSL 5 and TSL 6 increase 

substantially over those necessary at 

TSL 4, because manufacturers would 

have to make changes to both 

component parts (including heating 

exchanger fabrication) and their main 

assembly lines. DOE calculated the 

conversion costs for manufacturers to 

convert all existing products that did 

not meet the standard. Therefore, the 

conversion costs for each manufacturer 

would vary depending on their 

experience with high-efficiency 

products and the range of their current 

product offerings. DOE believes it has 

adequately captured the impacts of the 

conversion costs in the MIA. 

4. Employment 

Bock stated that the employment 

impacts discussion in the December 

2009 NOPR for oil-fired water heaters 

did not take into consideration 

manufacturers shutting down or moving 

production outside of the United States. 

(Bock, No. 101 at p. 2) 

In the December 2009 NOPR, DOE 

calculated the potential impacts of 

amended energy conservation standards 

on direct employment by bounding the 

range of potential impacts. 74 FR 65852, 

65947–49 (Dec. 11, 2009). For the upper 

end of the range, the direct employment 

analysis estimated the number of U.S. 

production workers who are impacted 

by this rulemaking, assuming that 

manufacturers continue to produce the 

same scope of covered products after the 

compliance date and that the existing 

domestic production is not shifted to 

other countries. In this best case 

scenario, the direct employment impact 

analysis shows approximately no 

change in the number of U.S. 

production workers in the residential 

oil-fired storage water heater market. To 

calculate the lower bound of the range 

of potential impacts, DOE calculated the 

total number of domestic production 

workers that would lose their jobs if all 

production were no longer made 

domestically. Id. In this scenario, 

manufacturers respond to the higher 

labor requirements by shifting 

production to lower-labor-cost countries 

or exit the oil-fired market. Since a 

major US manufacturer has oil-fired 

storage water heaters that exceed the 

standard proposed in the December 

2009 NOPR, a complete exit from the 

market or a complete shift to lowerlabor-cost countries by industry is 

unlikely. In the December 2009 NOPR, 

DOE did not expect substantial changes 

to U.S. production workers in the 

residential oil-fired market if 

manufacturers were able to implement 

the insulation design options presented 

in the engineering analysis. 74 FR 

65852, 65949 (Dec. 11, 2009). 

A.O. Smith stated that the December 

2009 NOPR TSL 6 or TSL 7 would 

require manufacturers to keep their 

electric resistance water heater lines 

running while implementing new heat 

pump water heater production lines. 

This assumption implies manufacturers 

would be building new factories or 

production lines, which could be 

outside of the United States. (A.O. 

Smith, Public Meeting Transcript, No. 

57.4 at pp. 316–317) A.O. Smith also 

noted that it would expect to utilize 

low-cost-labor countries to produce the 

heat pump portion of the assembly, 

similar to the trend in the room air 

conditioning industry. (A.O. Smith, No. 

76 at p. 4) BWC added that a disruptive 

heat pump water heater standard could 

cause a new manufacturing facility to be 

located abroad to not disrupt 

manufacturing in their existing U.S. 

facility. (BWC, No. 61 at pp. 2–3) 

As stated in section IV.I.1, DOE 

believes that an electric storage water 

heater standard that effectively 

mandated heat pump water heaters 

would not require manufacturers to 

build new production facilities, because 

those products would mimic current 

heat pump water heater designs that 

simplify manufacturing by maintaining 


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similarities with electric resistance 

water heaters. However, DOE does 

recognize that heat pump water heaters 

have higher labor content than water 

heaters that only use a resistance 

element, which could put additional 

pressure on U.S. manufacturing 

employment. DOE also believes that 

these pressures exist at a standard level 

that would only effectively require heat 

pump water heaters for products with 

rated storage volumes greater than 55- 

gallons. In particular, DOE believes TSL 

5 or TSL 6 could cause a change in 

direct employment if manufacturers 

with multiple facilities in the U.S. build 

a dedicated heat pump water heater line 

at a factory abroad or relocate domestic 

production for large rated storage 

volumes. 

Also in response to the December 

2009 NOPR, ACEEE stated that focusing 

on manufacturing jobs within the 

heating products industry is too narrow, 

because energy savings creates more 

jobs, including direct employment 

impacts as noted by DOE’s statement 

that significant technology changes 

(such as heat pump water heaters) could 

increase other manufacturing 

employment. Finally, ACEEE expressed 

its belief that compared to the total 

number of jobs in the US economy and 

given the uncertainties of projections 

five years into the future, the small 

employment numbers estimated are not 

significant and should not be a 

determining factor in DOE’s decision. 

(ACEEE, No. 79 at pp. 3–4) 

DOE agrees with ACEEE that the 

energy savings from more-efficient 

standards would likely result in 

increased net employment. DOE 

analyzes how consumer savings 

increase employment in other sectors of 

the economy in the indirect 

employment analysis (see section IV.J). 

Furthermore, DOE agrees that moreefficient technologies such as heat 

pump water heaters could increase 

direct employment in the United States. 

DOE noted that even at the December 

2009 NOPR TSL 5, if manufacturers 

build a dedicated heat pump water 

heater line in the United States, 

additional labor would be required. 

DOE also noted that even sourcing heat 

pump modules could increase U.S. 

employment because existing assembly 

lines would need to be lengthened and 

the manufacturing process would take 

additional time to assemble and test. 74 

FR 65852, 65948–49 (Dec. 11, 2009). 

However, DOE continues to believe that 

the higher labor content for assembling 

heat pump water heaters could also put 

additional pressure on manufacturers to 

relocate existing manufacturing 

facilities in lower-labor-cost countries. 

Therefore, in light of the multiple 

strategic options manufacturers could 

pursue, DOE believes that presentation 

and consideration of the range of direct 

employment impacts is appropriate, in 

that it represents these possibilities. 

Lastly, while not the only determining 

factor, a potential reduction in industry 

employment is a consideration in terms 

of the impacts on manufacturers for the 

MIA. 

DOE received a number of comments 

about the direct employment impacts 

for traditional DHE at the standard 

levels proposed in the December 2009 

NOPR. Specifically, LTS expressed its 

agreement with DOE’s statement that 

TSL 3 would likely lead to the 

discontinuation of product lines and 

could cause small businesses to exit the 

market completely. LTS believes that 

both of these outcomes could be 

possible and that either would have a 

significant impact on future 

employment in their industry. (LTS, No. 

56.7 at p. 2; Public Meeting Transcript, 

No. 57.4 at p. 22) LTS also stated that 

reduced demand, if product features 

like retrofitability were eliminated, 

would also harm employment. (LTS, 

Public Meeting Transcript, No. 57.4 at p. 

317) Empire stated that jobs would be 

lost due to poor prospects for a 

sufficient return on investment needed 

in the traditional DHE categories. 

(Empire, No. 100 at p. 1; Public Meeting 

Transcript, No. 57.4 at p. 299) Finally, 

Williams added that increased 

efficiency standards would force them 

to eliminate jobs as a result of current 

products not meeting the new 

standards. (Williams, No. 96 at p. 1) 

In response, DOE notes that it 

calculated the potential impacts of 

amended energy conservation standards 

on domestic production employment for 

traditional DHE by bounding the range 

of potential impacts. The upper end of 

the range assumes that domestic 

production is not shifted to lower-laborcost countries and that production 

volume does not decrease. In this bestcase scenario, where shipments do not 

decrease and higher-efficiency products 

require more labor, the direct 

employment impact analysis shows a 

net increase in the number of domestic 

jobs for traditional direct heating 

equipment. To calculate the upper end 

of the range of direct employment 

impacts, DOE believes it is reasonable to 

assume that production volume could 

be sustained by selectively upgrading 

certain product lines and increasing 

shipments of products that meet the 

amended energy conservation standard. 

Under this set of assumptions, 

customers would likely continue to 

demand these products for the 

replacement market, and manufacturers 

would likely selectively upgrade their 

most popular products to maintain as 

many sales as possible with their 

limited resources. 

However, at some standard levels, 

including the December 2009 NOPR 

TSL 3, the capital conversion and 

product development costs could be 

prohibitive for the small domestic 

manufacturers of traditional DHE. 

Because DOE agrees that the December 

2009 NOPR TSL 3 could lead to the risk 

of manufacturers exiting the market or 

reducing the scope of their product 

lines, the lower end of the range 

illustrates the industry dynamic in 

which not all product lines continue to 

be produced in the U.S. In this scenario, 

small domestic manufacturers could 

exit the market rather than invest in 

new designs, which would result in a 

loss of domestic employment at these 

firms. In summary, DOE agrees that all 

the possibilities raised by manufacturers 

could result in a loss of direct 

employment in the traditional DHE 

market. DOE acknowledged this 

possibility in the December 2009 NOPR. 

74 FR 65852, 65949–50 (Dec. 11, 2009). 

However, DOE believes it has 

appropriately bounded the range of 

employment impacts. DOE continues to 

believe that amended energy 

conservation standards could impact 

DHE direct employment, but believes it 

has taken the potential into 

consideration in examining the 

economic impact on manufacturers in 

the industry. DOE also notes that it has 

reviewed its analysis on the potential 

impacts on small business 

manufacturers in light of the changes 

made since the December 2009 NOPR 

publication and believes it has taken the 

necessary steps to limit the possibility 

of manufacturers exiting the market. 

AHRI stated that the negative direct 

employment impacts for traditional 

direct heating equipment could be larger 

than the indirect employment gains. 

(AHRI, Public Meeting Transcript, No. 

57.4 at pp. 324–325) 

In response, DOE notes that direct and 

indirect employment impacts are 

assessed in different analyses for this 

rulemaking. The MIA assesses the direct 

employment impacts on manufacturers 

that make the covered products. The 

indirect employment impacts are jobs 

that are created from the consumer 

savings on energy as a result of the 

amended energy conservation 

standards. In light of the results of these 

analyses, DOE agrees with AHRI that the 

positive, indirect employment impacts 

due to the traditional DHE energy 

conservation standards could be offset 

by possible direct industry employment 


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21See U.S. Department of Commerce, Bureau of 

Economic Analysis, ‘‘Regional Multipliers: A User 

Handbook for the Regional Input-Output Modeling 

System (RIMS II)’’ (1992). 

losses. Specifically, DOE calculated that 

the indirect net employment benefits 

would be fewer than 250 jobs gained in 

any year, whereas DOE calculated that 

there are approximately 300 production 

workers currently in the traditional DHE 

market. See chapter 14 of the TSD for 

a more complete discussion of the 

indirect employment impacts related to 

the traditional DHE industry. 

BWC stated that while it does not 

meet the SBA definition of a small 

business, BWC is a small company, 

especially compared to its closest 

competitors. BWC stated that the 

December 2009 NOPR TSL 4, and the 

large cost increases and capital 

investments it would entail, could 

threaten the company’s survival, 

because it would place a 

disproportionate burden on their small 

company. (BWC, No. 61 at p. 1) 

While BWC is not a small business, 

DOE recognizes that the impacts on all 

manufacturers are not uniform. 

However, DOE believes that as a fullline competitor in the residential water 

heater market, BWC’s concerns about 

the capital investments are most 

appropriately captured in the industrywide impacts which are considered 

when determining what TSL is 

economically justifiable. DOE also notes 

that DOJ was primarily concerned about 

the potential impacts on competition in 

the traditional DHE market which is 

discussed in section VI.C.5. 

5. Access to Capital 

BWC stated that financing the costs 

associated with the December 2009 

NOPR TSL 4 for water heaters would be 

difficult, because banks are more 

hesitant to lend in the current economic 

environment. (BWC, No. 61 at p. 2) 

In response, DOE acknowledges that it 

may be difficult for a given 

manufacturer to access the capital 

necessary to finance the investments 

required by this final rule, particularly 

given the recent state of capital markets. 

In response to a similar comment in the 

December 2009 NOPR, DOE noted that 

the compliance date for the residential 

water heater standard is 2015. In the 

GRIM, DOE assumes the product 

conversion and capital conversion costs 

are allocated in between the 

announcement of the final rule adopting 

amended energy conservation standards 

(estimated to be March 2010) and the 

compliance date of the standard, with 

more of conversion costs occurring 

closer to the compliance date than the 

announcement date. Because most of 

the product conversion and capital 

conversion costs are allocated several 

years in the future, the economic 

conditions at that time will likely be 

different than they are currently. 74 FR 

65852, 65919 (Dec. 11, 2009). With that 

said, DOE’s current analytical tools do 

not have the capability to model the 

state of financial markets in future 

years, nor how those changes will 

impact the industry’s financing 

capabilities. DOE acknowledges that the 

impacts on individual manufacturers 

are not uniform, particularly in terms of 

access to capital. However, during the 

course of manufacturer interviews, DOE 

received feedback from manufacturers 

on their capital structure, and DOE 

adjusted the discount rate for each of 

the water heater product types to be 

reflective of the manufacturers in the 

industry. While it could be difficult to 

obtain the necessary funding for TSL 4 

and higher TSLs, DOE believes it has 

accurately captured the requisite level 

of expenditures to meet the amended 

energy conservation standards. 

LTS stated it does not have the 

required capital estimated by DOE to 

make the necessary conversions at TSL 

3 and, with the current credit markets, 

LTS does not think it can borrow it. 

(LTS, No. 56.7 at pp. 2–3; Public 

Meeting Transcript, No. 57.4 at p. 23) 

Again, DOE acknowledges that it may 

be difficult for a given manufacturer to 

access the capital necessary to finance 

the investments required by this final 

rule, particularly given the recent state 

of capital markets. This is particularly 

true for small business manufacturers 

who cannot rely on a parent company’s 

other operations to help finance the 

necessary investments. At the same 

time, DOE believes it would be 

inappropriate to extrapolate the health 

of the financial markets at any one 

particular time to future periods of time. 

As discussed above, there is a real 

possibility that small manufacturers 

may choose not to improve all product 

lines, whether due to limited access to 

capital or insufficient expected return 

on capital. To that point, DOE believes 

it has captured the level of expenditures 

necessary to meet the amended energy 

conservation standards and included 

the cost for manufacturers to convert all 

existing product lines to model the 

impacts these changes would have on 

the industry. These considerations are 

included in the assessment of the 

economic justification of the standard. 

Finally, DOE notes that the impact of 

amended energy conservation standards 

specifically considered the potential 

impacts on small business 

manufacturers. 

J. Employment Impact Analysis 

DOE considers employment impacts 

in the domestic economy as one factor 

in selecting an energy conservation 

standard. Employment impacts include 

direct and indirect impacts. Direct 

employment impacts are changes in the 

number of employees for manufacturers 

of equipment subject to standards, their 

suppliers, and related service firms. The 

MIA addresses these impacts. 

Indirect employment impacts from 

standards consist of the net jobs created 

or eliminated in the national economy, 

other than in the manufacturing sector 

being regulated, due to: (1) Reduced 

spending by end users on energy 

(electricity, gas (including liquefied 

petroleum gas), and oil); (2) reduced 

spending on new energy supply by the 

utility industry; (3) increased spending 

on the purchase price of new 

equipment; and (4) the effects of those 

three factors throughout the economy. 

DOE expects the net monetary savings 

from standards to be redirected to other 

forms of economic activity. DOE also 

expects these shifts in spending and 

economic activity to affect the demand 

for labor in the short term, as explained 

below. 

One method for assessing the possible 

effects on the demand for labor of such 

shifts in economic activity is to compare 

employment statistics in different 

economic sectors, which are compiled 

and published by the Bureau of Labor 

Statistics (BLS). The BLS regularly 

publishes its estimates of the number of 

jobs per million dollars of economic 

activity in different sectors of the 

economy, as well as the jobs created 

elsewhere in the economy by this same 

economic activity. Data from BLS 

indicate that expenditures in the utility 

sector generally create fewer jobs (both 

directly and indirectly) than 

expenditures in other sectors of the 

economy. There are many reasons for 

these differences, including wage 

differences and the fact that the utility 

sector is more capital-intensive and less 

labor-intensive than other sectors.21

Energy conservation standards have the 

effect of reducing consumer utility bills. 

Because reduced consumer 

expenditures for energy likely lead to 

increased expenditures in other sectors 

of the economy, the general effect of 

efficiency standards is to shift economic 

activity from a less labor-intensive 

sector (i.e., the utility sector) to more 

labor-intensive sectors (e.g., the retail 

and manufacturing sectors). Thus, based 

on the BLS data alone, DOE believes net 

national employment will increase due 


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22More information regarding ImSET is available 

online at: http://www.pnl.gov/main/publications/ 

external/technical_reports/PNNL-15273.pdf. 

23See U.S. Department of Energy, Office of 

Energy Efficiency and Renewable Energy, ‘‘Energy 

Conservation Standards for General Service 

Fluorescent Lamps and Incandescent Reflector 

Lamps; Proposed Rule,’’ 74 FR 16920, 16978–79 

(April 13, 2009). 

to shifts in economic activity resulting 

from standards. 

In developing the December 2009 

NOPR, DOE estimated indirect national 

employment impacts using an input/ 

output model of the U.S. economy 

called Impact of Sector Energy 

Technologies (ImSET).22 ImSET is a 

special-purpose version of the ‘‘U.S. 

Benchmark National Input-Output’’ 

(I–O) model designed to estimate the 

national employment and income 

effects of energy-saving technologies. 

The ImSET software includes a 

computer-based I–O model with 

structural coefficients to characterize 

economic flows among 188 sectors most 

relevant to industrial, commercial, and 

residential building energy use. 

DOE did not receive any comments on 

its employment impacts analysis, and 

DOE has made no change to its method 

for estimating employment impacts for 

today’s final rule. For further details, see 

chapter 14 of the final rule TSD. 

K. Utility Impact Analysis 

The utility impact analysis estimates 

the change in the forecasted power 

generation capacity for the Nation that 

would be expected to result from 

adoption of new energy conservation 

standards. For the December 2009 

NOPR and today’s final rule, DOE 

calculated this change using the NEMS– 

BT computer model. NEMS–BT models 

certain policy scenarios such as the 

effect of reduced energy consumption 

by fuel type. The output of the analysis 

provides a forecast for the needed 

generation capacities at each TSL. While 

DOE was able to use the forecasts from 

the AEO 2010 Early Release for the 

national impacts analysis, the NEMS– 

BT model corresponding to this case 

was not yet available. Thus, for the 

utility impact analysis, the estimated 

net benefit of the standards in today’s 

final rule is the difference between the 

forecasted generation capacities by 

NEMS–BT and the AEO 2009 April 

Release Reference Case. DOE expects 

that the results would be only 

minimally different if it had been able 

to use the NEMS–BT model 

corresponding to the AEO 2010 Early 

Release. DOE obtained the energy 

savings inputs associated with 

efficiency improvements to considered 

products from the NIA. These inputs 

reflect the effects of both fuel (natural 

gas) and electricity consumption 

savings. Chapter 13 of the final rule TSD 

presents more information on the utility 

impact analysis. 

1. Effects of Standards on Energy Prices 

and Associated Benefits 

To evaluate potentially important 

indirect effects of energy conservation 

standards on energy users in general, in 

its December 2009 NOPR analysis, DOE 

analyzed the potential impact on natural 

gas prices resulting from amended 

standards on water heaters and the 

associated benefits for all natural gas 

users in all sectors of the economy. 74 

FR 65852, 65914–15 (Dec. 11, 2009). 

(DOE did not include natural gas 

savings from amended standards on 

DHE and pool heaters in its analysis 

because they are not large enough to 

have a noticeable impact.) DOE used 

NEMS–BT to model the impact of the 

natural gas savings associated with 

possible standards on natural gas prices. 

Like other widely-used energyeconomic models, NEMS incorporates 

parameters to estimate the changes in 

energy prices that would result from an 

increase or decrease in energy demand. 

The response of price observed in the 

NEMS output changes over the forecast 

period based on the model’s dynamics 

of natural gas supply and demand. For 

each year, DOE calculated the nominal 

savings in total natural gas expenditures 

by multiplying the estimated annual 

change in the average end-user natural 

gas price by the annual total U.S. 

natural gas consumption, adjusted for 

the estimated natural gas savings 

associated with each TSL. DOE then 

calculated the NPV of the savings in 

natural gas expenditures for 2015 to 

2045 using 3- and 7-percent discount 

rates for each scenario. However, 

because there is uncertainty about the 

extent to which the calculated impacts 

from reduced natural gas prices are a 

benefits transfer, DOE tentatively 

concluded that it should not give a 

heavy weight to this factor in its 

consideration of the economic 

justification of standards on heating 

products. 

NRDC stated that DOE should give 

full weight to the aggregate benefit of 

reduced natural gas prices that result 

from the standards. NRDC stated that 

this consumer benefit needs to be 

quantified and included in the national 

impact analysis. NRDC disagreed with 

DOE that this factor not be given heavy 

weight because lower natural gas prices 

may be a benefits transfer from 

producers to consumers, and stated that 

there is no logical or statutory basis for 

failing to give the reduction in natural 

gas prices from efficiency standards 

their full weight (NRDC, No. 85 at p. 4) 

In response, DOE notes that the benefits 

to all consumers associated with 

reductions in energy prices resulting 

from standards is not listed among the 

seven factors that EPCA directs DOE to 

evaluate in determining whether an 

energy conservation standard for 

covered products is economically 

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

(VII)) Indeed, EPCA specifically directs 

DOE to consider the economic impact of 

the standard on manufacturers and 

consumers of the products subject to the 

standard. While it is true that EPCA 

directs DOE to consider other factors the 

Secretary of Energy considers relevant, 

in so doing, DOE takes under 

advisement the guidance provided by 

OMB on the development of regulatory 

analysis. Specifically, at page 38, 

Circular A–4 states, ‘‘You should not 

include transfers in the estimates of the 

benefits and costs of a regulation.’’ 

As discussed in the December 2009 

NOPR, when gas prices drop in 

response to lower demand and a lower 

output of existing natural gas 

production capacity, consumers benefit 

but producers suffer. In economic terms, 

the situation represents a benefits 

transfer to consumers (whose 

expenditures fall) from producers 

(whose revenue falls equally). When 

prices decrease because extraction costs 

decline, however, consumers and 

producers both benefit, and the change 

in natural gas prices represents a net 

gain to society. Consumers benefit from 

the lower prices, and producers, whose 

revenues and costs both fall, are no 

worse off. DOE is continuing to 

investigate the extent to which a change 

in natural gas prices projected to result 

from standards represents a net gain to 

society. At this time, however, DOE 

retains the position that it should not 

give a heavy weight to this factor in its 

consideration of the economic 

justification of standards on heating 

products. 

In its December 2009 NOPR analysis, 

DOE also considered the possibility of 

estimating the impact of specific 

standard levels on electricity prices. 

Investigation conducted for the 

rulemaking for general service 

fluorescent lamps and incandescent 

reflector lamps 23 found that whereas 

natural gas markets exhibit a fairly 

simple chain of agents from producers 

to consumers, the electric 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 actors are 


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more diverse. For these and other 

reasons, DOE decided not to estimate 

the value of potentially reduced 

electricity costs for all consumers 

associated with amended standards for 

heating products. 

NPCC stated that DOE should 

estimate the economic benefits of the 

reduced need for new electric power 

plants and infrastructure and include 

such estimation in the utility impacts 

analysis. It stated that since a primary 

goal of the Federal appliance standards 

program is to avoid construction and 

operation of unnecessary generating 

facilities and their associated 

environmental impacts, failure to 

quantify the economic value of doing so 

appears to be a fundamental oversight. 

(NPPC, No. 87 at p. 6) In a similar vein, 

NRDC criticized DOE for not analyzing 

the benefits associated with reduced 

electricity prices resulting from 

standards. NDRC stated that the use of 

NEMS–BT should be explored as a way 

to quantify the benefit of avoided 

generation and the corresponding rate 

impact, and that DOE should give full 

weight to the aggregate benefit of 

reduced electricity prices that result 

from the standards. (NRDC, No. 85 at p. 

4–5) 

In response to the above comments, 

DOE used NEMS–BT to assess the 

impacts of the reduced need for new 

electric power plants and infrastructure 

projected to result from standards. In 

NEMS–BT, changes in power generation 

infrastructure affect utility revenue 

requirements, which in turn affect 

electricity prices. As described in 

chapter 13 of the TSD, DOE found that 

the impact on electricity prices from a 

change in electricity demand is smaller 

than the impact seen for natural gas 

prices. Although the aggregate benefits 

for all electricity users are potentially 

large, DOE believes that there is 

uncertainty about the extent to which 

the calculated impacts from reduced 

electricity prices are a benefits transfer 

from the actors involved in electricity 

supply. Because of the aforementioned 

complexity and diversity of the electric 

power sector in the U.S., DOE has 

concluded that, at present, it should not 

give a heavy weight to this factor in its 

consideration of the economic 

justification of standards on heating 

products. DOE is continuing to 

investigate the extent to which change 

in electricity prices projected to result 

from standards represents a net gain to 

society. 

L. Environmental Assessment 

Pursuant to the National 

Environmental Policy Act of 1969 

(NEPA) (42 U.S.C. 4321 et seq.) 42 

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

prepared a draft environmental 

assessment (EA) of the potential impacts 

of the standards for heating products in 

today’s final rule, which it has included 

as chapter 16 of the TSD. DOE found 

that the environmental effects 

associated with the standards for 

heating products were not significant. 

Therefore, DOE is issuing a Finding of 

No Significant Impact (FONSI), 

pursuant to NEPA, the regulations of the 

Council on Environmental Quality (40 

CFR parts 1500–1508), and DOE’s 

regulations for compliance with NEPA 

(10 CFR part 1021). The FONSI is 

available in the docket for this 

rulemaking. 

In the EA, DOE estimated the 

reduction in power sector emissions of 

CO2, NOX, and Hg using the NEMS–BT 

computer model. In the EA, NEMS–BT 

is run similarly to the AEO NEMS, 

except that energy use of the heating 

products is reduced by the amount of 

energy saved (by fuel type) due to the 

TSLs. The inputs of national energy 

savings come from the NIA analysis; the 

output is the forecasted physical 

emissions. The estimated net benefit of 

the standards in today’s final rule is the 

difference between the forecasted 

emissions by NEMS–BT at each TSL 

and the AEO 2009 April Early Release 

Reference Case. NEMS–BT tracks CO2

emissions using a detailed module that 

provides results with broad coverage of 

all sectors and inclusion of interactive 

effects. Because the on-site operation of 

non-electric heating products requires 

use of fossil fuels and results in 

emissions of CO2, NOX, and sulfur 

dioxide (SO2), DOE also accounted for 

the reduction in these emissions due to 

standards at the sites where these 

appliances are used. 

DOE has determined that SO2

emissions from affected Electric 

Generating Units (EGUs) are subject to 

nationwide and regional emissions cap 

and trading programs that create 

uncertainty about the impact of energy 

conservation standards on SO2

emissions. Because of the cap, energy 

reductions due to energy conservation 

standards result in no reduction in SO2

emissions, although the costs of meeting 

such emission cap requirements are 

reflected in the electricity prices and 

forecasts used in DOE’s analysis of the 

standards. 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 (D.C.) are also limited under 

the Clean Air Interstate Rule (CAIR, 

published in the Federal Register on 

May 12, 2005; 70 FR 25162 (May 12, 

2005), which creates an allowancebased 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 

efficiency standards on SO2 emissions 

covered by the existing cap-and-trade 

system, the NEMS–BT modeling system 

that DOE uses to forecast emissions 

reductions currently indicates that no 

physical reductions in power sector 

emissions would occur for SO2. 

Much like SO2 emissions, NOX

emissions from 28 eastern States and 

D.C. are limited under the CAIR. 

Although CAIR has been remanded to 

EPA by the U.S. Court of Appeals for the 

District of Columbia Circuit (D.C. 

Circuit), it will 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 (D.C. Cir. 

2008); see also North Carolina v. EPA, 

550 F.3d 1176 (D.C. Cir. 2008). These 

court positions were taken into account 

in the analysis conducted for the 

December 2009 NOPR and in today’s 

final rule. 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. 

In the 28 eastern States and D.C. 

where CAIR is in effect, DOE’s forecasts 

indicate that no NOX emissions 

reductions will occur due to energy 

conservation standards because of the 

permanent cap. Energy conservation 

standards have the potential to produce 

an economic impact in the form of 

lower prices for NOX emissions 

allowances, if their impact on electricity 

demand is large enough. However, DOE 

has concluded that the standards in 

today’s final rule will not have such an 

effect because the estimated reduction 

in electricity demand in States covered 

by the CAIR cap would be too small to 

affect allowance prices for NOX under 

the CAIR. 

New or amended energy conservation 

standards would reduce NOX emissions 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20177 

in those 22 States that are not affected 

by the CAIR. DOE used the NEMS–BT 

to forecast emission reductions from the 

standards in today’s final rule. 

Similar to emissions of SO2 and NOX, 

future emissions of Hg would have been 

subject to emissions caps. The Clean Air 

Mercury Rule (CAMR) would have 

permanently capped emissions of 

mercury from new and existing coalfired plants in all States beginning in 

2010 (70 FR 28606). However, the 

CAMR was vacated by the D.C. Circuit 

in its decision in New Jersey v. 

Environmental Protection Agency, 517 F 

3d 574 (D.C. Cir. 2008). Thus, DOE was 

able to use the NEMS–BT model, which 

reflects CAMR being vacated and does 

not incorporate CAMR emission caps, to 

estimate the changes in Hg emissions 

resulting from today’s final rule. 

However, DOE continues to review the 

impact of rules that reduce energy 

consumption on Hg emissions, and may 

revise its assessment of Hg emission 

reductions in future rulemakings. 

The operation of non-electric heating 

products requires use of fossil fuels and 

results in emissions of CO2, NOX and 

SO2 at the sites where these appliances 

are used. NEMS–BT provides no means 

for estimating such emissions. DOE 

calculated the effect of the standards in 

today’s final rule on the above site 

emissions based on emissions factors 

derived from the literature. See Chapter 

16 of the final rule TSD for additional 

details. 

EEI stated that if DOE examines 

changes in power plant emissions, then 

it should also examine changes in the 

emissions associated with oil extraction 

(domestic and overseas), crude oil 

transportation (sea-based and landbased), natural gas flaring, oil refining, 

refined oil delivery, natural gas 

production, natural gas delivery, natural 

gas delivery system methane leaks, 

propane production and delivery, and 

emissions associated with the extraction 

and importation of liquefied natural gas. 

(EEI, No. 95 at p. 5) 

As noted in chapter 16 of the TSD, 

DOE developed only qualitative 

estimates of effects on upstream fuelcycle emissions because NEMS–BT does 

a thorough accounting only of emissions 

at the power plant due to downstream 

energy consumption. In other words, 

NEMS–BT does not account for 

upstream emissions. Therefore, the 

environmental assessment for today’s 

final rule reports only power plant 

emissions. 

EEI stated that DOE should consider 

the production process in the EA, 

especially if higher efficiency standards 

result in more water heaters being 

manufactured in other countries. (EEI, 

No. 95 at p. 5) In response, DOE believes 

that the standards in today’s final rule 

are unlikely to result in significant 

change in the location of water heater 

manufacturing. The dimensions and 

weight of water heaters, and the 

resulting shipping expense, mitigate 

against overseas production of the entire 

unit. 

M. Monetizing Carbon Dioxide and 

Other Emissions Impacts 

As part of the development of this 

final rule, DOE considered the estimated 

monetary benefits likely to result from 

the reduced emissions of CO2 and other 

pollutants that are expected to result 

from each of the TSLs considered. This 

section summarizes the basis for the 

estimated monetary values used for each 

of these emissions and presents the 

benefits estimates considered. 

For today’s final rule, DOE is relying 

on a new set of values for the social cost 

of carbon (SCC) that were recently 

developed by an interagency process. A 

summary of the basis for these new 

values is provided below, and a more 

detailed description of the 

methodologies used is provided as an 

Annex to Chapter 16 of the TSD. 

1. Social Cost of Carbon 

Under Executive Order 12866, 

agencies are required, to the extent 

permitted by law, ‘‘to assess both the 

costs and the benefits of the intended 

regulation and, recognizing that some 

costs and benefits are difficult to 

quantify, propose or adopt a regulation 

only upon a reasoned determination 

that the benefits of the intended 

regulation justify its costs.’’ The purpose 

of the SCC estimates presented here is 

to allow agencies to incorporate the 

social benefits of reducing CO2

emissions into cost-benefit analyses of 

regulatory actions that have small, or 

‘‘marginal,’’ impacts on cumulative 

global emissions. The estimates are 

presented with an acknowledgement of 

the many uncertainties involved and 

with a clear understanding that they 

should be updated over time to reflect 

increasing knowledge of the science and 

economics of climate impacts. 

The SCC is an estimate of the 

monetized damages associated with an 

incremental increase in carbon 

emissions in a given year. It is intended 

to include (but is not limited to) changes 

in net agricultural productivity, human 

health, property damages from 

increased flood risk, and the value of 

ecosystem services due to climate 

change. 

As part of the interagency process that 

developed these SCC estimates, 

technical experts from numerous 

agencies met on a regular basis to 

consider public comments, explore the 

technical literature in relevant fields, 

and discuss key model inputs and 

assumptions. The main objective of this 

process was to develop a range of SCC 

values using a defensible set of input 

assumptions grounded in the existing 

scientific and economic literatures. In 

this way, key uncertainties and model 

differences transparently and 

consistently inform the range of SCC 

estimates used in the rulemaking 

process. 

The interagency group selected four 

SCC values for use in regulatory 

analyses. Three values are based on the 

average SCC from three integrated 

assessment models, at discount rates of 

2.5, 3, and 5 percent. The fourth value, 

which represents the 95th percentile 

SCC estimate across all three models at 

a 3-percent discount rate, is included to 

represent higher-than-expected impacts 

from temperature change further out in 

the tails of the SCC distribution. 

TABLE IV.28—SOCIAL COST OF CO2, 2010–2050 (IN 2007 DOLLARS) 

Discount year 5% Avg 3% Avg 2.5% Avg 3% 95th 

2010 ......................................................................................... 4.7 21.4 35.1 64.9 

2015 ......................................................................................... 5.7 23.8 38.4 72.8 

2020 ......................................................................................... 6.8 26.3 41.7 80.7 

2025 ......................................................................................... 8.2 29.6 45.9 90.4 

2030 ......................................................................................... 9.7 32.8 50.0 100.0 

2035 ......................................................................................... 11.2 36.0 54.2 109.7 

2040 ......................................................................................... 12.7 39.2 58.4 119.3 

2045 ......................................................................................... 14.2 42.1 61.7 127.8 

2050 ......................................................................................... 15.7 44.9 65.0 136.2 


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24 In this document, DOE presents all values of 

the SCC as the cost per metric ton of CO2 emissions. 

Alternatively, one could report the SCC as the cost 

per metric ton of carbon emissions. The multiplier 

for translating between mass of CO2 and the mass 

of carbon is 3.67 (the molecular weight of CO2

divided by the molecular weight of carbon 

= 44/12 = 3.67). 

a. Monetizing Carbon Dioxide Emissions 

The ‘‘social cost of carbon’’ (SCC) is an 

estimate of the monetized damages 

associated with an incremental increase 

in carbon emissions in a given year. It 

is intended to include (but is not limited 

to) changes in net agricultural 

productivity, human health, property 

damages from increased flood risk, and 

the value of ecosystem services. 

Estimates of the social cost of carbon are 

provided in dollars per metric ton of 

carbon dioxide. 24

When attempting to assess the 

incremental economic impacts of carbon 

dioxide emissions, the analyst faces a 

number of serious challenges. A recent 

report from the National Academies of 

Science (Hidden Costs of Energy: 

Unpriced Consequences of Energy 

Production and Use. National 

Academies Press. 2009) points out that 

any assessment will suffer from 

uncertainty, speculation, and lack of 

information about: (1) Future emissions 

of greenhouse gases, (2) the effects of 

past and future emissions on the climate 

system, (3) the impact of changes in 

climate on the physical and biological 

environment, and (4) the translation of 

these environmental impacts into 

economic damages. As a result, any 

effort to quantify and monetize the 

harms associated with climate change 

will raise serious questions of science, 

economics, and ethics and should be 

viewed as provisional. 

Despite the serious limits of both 

quantification and monetization, SCC 

estimates can be useful in estimating the 

social benefits of reducing carbon 

dioxide emissions. Under Executive 

Order 12866, agencies are required, to 

the extent permitted by law, ‘‘to assess 

both the costs and the benefits of the 

intended regulation and, recognizing 

that some costs and benefits are difficult 

to quantify, propose or adopt a 

regulation only upon a reasoned 

determination that the benefits of the 

intended regulation justify its costs.’’ 

The purpose of the SCC estimates 

presented here is to make it possible for 

agencies to incorporate the social 

benefits from reducing carbon dioxide 

emissions into cost-benefit analyses of 

regulatory actions that have small, or 

‘‘marginal,’’ impacts on cumulative 

global emissions. Most Federal 

regulatory actions can be expected to 

have marginal impacts on global 

emissions. 

For such policies, the benefits from 

reduced (or costs from increased) 

emissions in any future year can be 

estimated by multiplying the change in 

emissions in that year by the SCC value 

appropriate for that year. The net 

present value of the benefits can then be 

calculated by multiplying each of these 

future benefits by an appropriate 

discount factor and summing across all 

affected years. This approach assumes 

that the marginal damages from 

increased emissions are constant for 

small departures from the baseline 

emissions path, an approximation that 

is reasonable for policies that have 

effects on emissions that are small 

relative to cumulative global carbon 

dioxide emissions. For policies that 

have a large (non-marginal) impact on 

global cumulative emissions, there is a 

separate question of whether the SCC is 

an appropriate tool for calculating the 

benefits of reduced emissions; we do 

not attempt to answer that question 

here. 

An interagency group convened on a 

regular basis to consider public 

comments, explore the technical 

literature in relevant fields, and discuss 

key inputs and assumptions in order to 

generate SCC estimates. Agencies that 

actively participated in the interagency 

process include the Environmental 

Protection Agency, and the Departments 

of Agriculture, Commerce, Energy, 

Transportation, and Treasury. This 

process was convened by the Council of 

Economic Advisers and the Office of 

Management and Budget, with active 

participation and regular input from the 

Council on Environmental Quality, 

National Economic Council, Office of 

Energy and Climate Change, and Office 

of Science and Technology Policy. The 

main objective of this process was to 

develop a range of SCC values using a 

defensible set of input assumptions that 

are grounded in the existing literature. 

In this way, key uncertainties and 

model differences can more 

transparently and consistently inform 

the range of SCC estimates used in the 

rulemaking process. 

The interagency group selected four 

SCC estimates for use in regulatory 

analyses. For 2010, these estimates are 

$4.7, $21.4, $35.1, and $64.9 (in 2007 

dollars). The first three estimates are 

based on the average SCC across models 

and socio-economic and emissions 

scenarios at the 5, 3, and 2.5-percent 

discount rates, respectively. The fourth 

value is included to represent the 

higher-than-expected impacts from 

temperature change further out in the 

tails of the SCC distribution. For this 

purpose, we use the SCC value for the 

95th percentile at a 3-percent discount 

rate. The central value is the average 

SCC across models at the 3-percent 

discount rate. For purposes of capturing 

the uncertainties involved in regulatory 

impact analysis, we emphasize the 

importance and value of considering the 

full range. These SCC estimates also 

grow over time. For instance, the central 

value increases to $24 per ton of CO2 in 

2015 and $26 per ton of CO2 in 2020. 

See Appendix A of the Annex to 

Chapter 16 of the TSD for the full range 

of annual SCC estimates from 2010 to 

2050. 

It is important to emphasize that the 

interagency process is committed to 

updating these estimates as the science 

and economic understanding of climate 

change and its impacts on society 

improves over time. Specifically, the 

interagency group set a preliminary goal 

of revisiting the SCC values within two 

years or at such time as substantially 

updated models become available, and 

to continue to support research in this 

area. In the meantime, we will continue 

to explore the issues raised by this 

analysis and consider public comments 

as part of the ongoing interagency 

process. 

b. Social Cost of Carbon Values Used in 

Past Regulatory Analyses 

To date, economic analyses for 

Federal regulations have used a wide 

range of values to estimate the benefits 

associated with reducing carbon dioxide 

emissions. In the final model year 2011 

CAFE rule, the Department of 

Transportation (DOT) used both a 

‘‘domestic’’ SCC value of $2 per ton of 

CO2 and a ‘‘global’’ SCC value of $33 per 

ton of CO2 for 2007 emission reductions 

(in 2007 dollars), increasing both values 

at 2.4 percent per year. It also included 

a sensitivity analysis at $80 per ton of 

CO2. A domestic SCC value is meant to 

reflect the value of damages in the 

United States resulting from a unit 

change in carbon dioxide emissions, 

while a global SCC value is meant to 

reflect the value of damages worldwide. 

A 2008 regulation proposed by DOT 

assumed a domestic SCC value of $7 per 

ton CO2 (in 2006 dollars) for 2011 

emission reductions (with a range of $0- 

$14 for sensitivity analysis), also 

increasing at 2.4 percent per year. A 

regulation finalized by DOE in October 

of 2008 used a domestic SCC range of 

$0 to $20 per ton CO2 for 2007 emission 

reductions (in 2007 dollars). In addition, 

EPA’s 2008 Advance Notice of Proposed 

Rulemaking for Greenhouse Gases 

identified what it described as ‘‘very 

preliminary’’ SCC estimates subject to 

revision. EPA’s global mean values were 


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$68 and $40 per ton CO2 for discount 

rates of approximately 2 percent and 3 

percent, respectively (in 2006 dollars for 

2007 emissions). 

In 2009, an interagency process was 

initiated to offer a preliminary 

assessment of how best to quantify the 

benefits from reducing carbon dioxide 

emissions. To ensure consistency in 

how benefits are evaluated across 

agencies, the Administration sought to 

develop a transparent and defensible 

method, specifically designed for the 

rulemaking process, to quantify avoided 

climate change damages from reduced 

CO2 emissions. The interagency group 

did not undertake any original analysis. 

Instead, it combined SCC estimates from 

the existing literature to use as interim 

values until a more comprehensive 

analysis could be conducted. 

The outcome of the preliminary 

assessment by the interagency group 

was a set of five interim values: Global 

SCC estimates for 2007 (in 2006 dollars) 

of $55, $33, $19, $10, and $5 per ton of 

CO2. The $33 and $5 values represented 

model-weighted means of the published 

estimates produced from the most 

recently available versions of three 

integrated assessment models—DICE, 

PAGE, and FUND—at approximately 3 

and 5 percent discount rates. The $55 

and $10 values were derived by 

adjusting the published estimates for 

uncertainty in the discount rate (using 

factors developed by Newell and Pizer 

(2003)) at 3 and 5 percent discount 

rates, respectively. The $19 value was 

chosen as a central value between the $5 

and $33 per ton estimates. All of these 

values were assumed to increase at 3 

percent annually to represent growth in 

incremental damages over time as the 

magnitude of climate change increases. 

These interim values represent the 

first sustained interagency effort within 

the U.S. Government to develop an SCC 

for use in regulatory analysis. The 

results of this preliminary effort were 

presented in several proposed and final 

rules and were offered for public 

comment in connection with proposed 

rules, including the joint EPA–DOT fuel 

economy and CO2 tailpipe emission 

proposed rules. 

c. Approach and Key Assumptions 

Since the release of the interim 

values, interagency group reconvened 

on a regular basis to generate improved 

SCC estimates considered for this final 

rule. Specifically, the group considered 

public comments and further explored 

the technical literature in relevant 

fields. 

It is important to recognize that a 

number of key uncertainties remain, and 

that current SCC estimates should be 

treated as provisional and revisable 

since they will evolve with improved 

scientific and economic understanding. 

The interagency group also recognizes 

that the existing models are imperfect 

and incomplete. The National Academy 

of Science (2009) points out that there 

is tension between the goal of producing 

quantified estimates of the economic 

damages from an incremental ton of 

carbon and the limits of existing efforts 

to model these effects. There are a 

number of concerns and problems that 

should be addressed by the research 

community, including research 

programs housed in many of the 

agencies participating in the interagency 

process to estimate the SCC. 

The U.S. Government will 

periodically review and reconsider 

estimates of the SCC used for costbenefit analyses to reflect increasing 

knowledge of the science and 

economics of climate impacts, as well as 

improvements in modeling. In this 

context, statements recognizing the 

limitations of the analysis and calling 

for further research take on exceptional 

significance. The interagency group 

offers the new SCC values with all due 

humility about the uncertainties 

embedded in them and with a sincere 

promise to continue work to improve 

them. 

In summary, in considering the 

potential global benefits resulting from 

reduced CO2 emissions, DOE used the 

most recent values identified by the 

interagency process, adjusted to 2009$ 

using the standard GDP deflator values 

for 2008 and 2009. For each of the four 

cases specified, the values for emissions 

in 2010 used were approximately $5, 

$22, $36, and $67 per metric ton 

avoided (values expressed in 2009$). To 

monetize the CO2 emissions reductions 

expected to result from amended 

standards for residential water heaters 

in 2015–2045 and for direct heating 

equipment and pool heaters in 2013– 

2043, DOE used the values identified in 

Table A1 of the ‘‘Social Cost of Carbon 

for Regulatory Impact Analysis Under 

Executive Order 12866,’’ which is 

reprinted as an Annex to Chapter 16 of 

the TSD, appropriately escalated to 

2009$. To calculate a present value of 

the stream of monetary values, DOE 

discounted the values in each of the 

four cases using the discount rates that 

had been used to obtain the SCC values 

in each case. 

NRDC stated that the economic 

impacts of avoided CO2 emissions 

should be aggregated into the NIA. 

(NRDC, No. 85 at p. 3) As discussed in 

section IV.G.1, the NIA assesses the 

national energy savings and the national 

net present value of total consumer 

costs and savings expected to result 

from standards at specific efficiency 

levels. The NPV is not intended as a 

measure of all national economic 

benefits associated with standards. 

Although DOE does not aggregate the 

estimated economic benefits of avoided 

CO2 emissions (and other emissions) 

into the NIA, it does believe that the 

NPV of the monetized benefits 

associated with emissions reductions 

can be viewed as a complement to the 

NPV of the consumer savings calculated 

for each TSL considered in this 

rulemaking. Therefore, in section VI of 

this final rule, DOE presents the NPV 

values that would result if DOE were to 

add the estimates of the potential 

economic benefits resulting from 

reduced CO2 and NOX emissions in each 

of four valuation scenarios to the NPV 

of consumer savings calculated for each 

TSL considered in this rulemaking. 

2. Monetary Values of Non-Carbon 

Emissions 

As previously stated, DOE’s analysis 

assumed the presence of nationwide 

emission caps on SO2 and caps on NOX

emissions in the 28 States covered by 

CAIR. In the presence of these caps, the 

NEMS–BT modeling system that DOE 

used to forecast emissions reduction 

indicated that no physical reductions in 

power sector emissions would occur 

(although there remains uncertainty 

about whether physical reduction of 

SO2 will occur), but that the standards 

could put slight downward pressure on 

the prices of emissions allowances in 

cap-and-trade markets. Estimating this 

effect is very difficult because of factors 

such as credit banking that can change 

the trajectory of prices. From its 

modeling to date, DOE is unable to 

estimate a benefit from energy 

conservation standards on the prices of 

emissions allowances at this time. See 

the environmental assessment in the 

final rule TSD for further details. 

DOE also investigated the potential 

monetary benefit of reduced NOX

emissions from the TSLs it considered. 

As noted above, new or amended energy 

conservation standards would reduce 

NOX emissions in those 22 States that 

are not affected by CAIR, in addition to 

the reduction in site NOX emissions 

nationwide. DOE estimated the 

monetized value of NOX emissions 

reductions resulting from each of the 

TSLs considered for today’s final rule 

based on environmental damage 

estimates from the literature. Available 

estimates suggest a very wide range of 

monetary values for NOX emissions, 

ranging from $370 per ton to $3,800 per 

ton of NOX from stationary sources, 

measured in 2001$ (equivalent to a 


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25Refer 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,’’ Washington, DC, for additional 

information. 

range of $447 to $4,591 per ton in 

2009$).25

EEI stated that the costs of 

remediating emissions are included in 

the electricity rates that consumers pay, 

and care should be taken not to double 

count the benefits of reduced emissions. 

(EEI, No. 95 at p. 5) DOE understands 

the comment as referring to actions 

power plant operators take to meet 

environmental regulations, the costs of 

which are reflected in electricity rates. 

With regulations currently in place, 

revised standards for heating products 

would result in a reduction in CO2 and 

NOX emissions by avoiding electricity 

generation. Because these emissions 

impose societal costs, their reduction 

has an economic value that can be 

estimated. 

DOE is not including monetization 

estimates of Hg in today’s final rule. 

DOE is aware of multiple agency efforts 

to determine the appropriate range of 

values used in evaluating the potential 

economic benefits of reduced Hg 

emissions. DOE has decided to await 

further guidance regarding consistent 

valuation and reporting of Hg emissions 

before further monetizing Hg in its 

rulemakings. As explained earlier, DOE 

was able to use the NEMS–BT model to 

estimate the changes in Hg emissions 

resulting from today’s final rule, and it 

has considered these physical emissions 

reductions as part of the standardsetting process. DOE notes that the 

amounts of Hg under consideration in 

today’s final rule are not large, so the 

monetized results would be unlikely to 

be significant as compared to the total 

costs and benefits of the rule. 

V. Discussion of Other Comments 

A. Trial Standard Levels and Proposed 

Standards 

Since DOE opened the docket for this 

rulemaking, it has received more than 

one hundred unique written comments, 

with hundreds of signatories, from a 

diverse set of parties, including 

manufacturers and their representatives, 

State Attorneys General, members of 

Congress, energy conservation 

advocates, consumer advocacy groups, 

electric and gas utilities, and private 

citizens. DOE also received more than 

17,000 form letter submissions 

recommending that DOE strengthen the 

proposed energy conservation 

standards. All substantive comments on 

the analytical methodologies DOE used 

are discussed above. DOE also received 

many comments related to the relative 

merits of various TSLs. Generally, these 

comments either stated that a certain 

TSL was economically justified, 

technologically feasible, and maximized 

energy, or they argued how DOE should 

weigh the various factors that go into 

making that determination. See section 

VI.D for a discussion of DOE’s analytical 

results and how it weighed those factors 

in establishing today’s final rule. 

For today’s final rule, DOE has 

revised the NOPR TSLs for water 

heaters and direct heating equipment 

and continued to analyze the same TSLs 

for pool heaters. A detailed description 

of these TSL revisions for water heaters 

and direct heating equipment is 

provided in section VI.A. A brief 

summary is provided in the sections 

that follow. 

1. Water Heaters 

In the NOPR, DOE proposed TSL 4 for 

water heaters. 74 FR 65852, 65854 (Dec. 

11, 2009). As discussed in that 

document, DOE strongly considered 

NOPR TSL 5, which would provide 

additional energy and carbon savings, 

while mitigating some of the issues 

associated with a national heat pump 

water heater standard, but it identified 

a number of potential issues for which 

DOE did not have adequate information 

to address before the publication of the 

NOPR. (See 74 FR 65852, 65965–67 

(Dec. 11, 2009)). DOE is adding a new 

TSL 5 for the final rule, which is a slight 

modification of the NOPR TSL 5. The 

NOPR TSL 5 is now referred to as TSL 

6 for the final rule. DOE tentatively 

concluded that at NOPR TSL 5 (now 

final rule TSL 6), the benefits would be 

outweighed by several burdens, but it 

stated that it will revisit this decision 

and strongly consider adoption of TSL 

6 in the final rule in light of any 

comments and data submitted by 

interested parties. Many of those 

comments were discussed in section IV. 

Below DOE presents further comments 

on NOPR TSL 5 (now final rule TSL 6), 

as well as on the proposed NOPR TSL 

4. 

Support for setting a standard at 

NOPR TSL 5 (TSL 6 for this final rule) 

was expressed by several interested 

parties. As noted above, DOE received 

over 17,000 form letters from private 

citizens advocating stronger standards 

for water heaters. (Private Citizens, No. 

63 and 74) The Joint Advocacy 

comment (submitted by ASAP) stated 

that its signatories are very pleased with 

the DOE’s proposed new efficiency 

standards for most storage-type 

residential water heaters but urged DOE 

to adopt stronger efficiency levels 

(NOPR TSL 5) for the largest units, 

which would help assure a market for 

these new emerging products where 

they are most cost-effective. It stated 

that NOPR TSL 5 offers a middle ground 

that increases savings relative to NOPR 

TSL 4 while also fostering the 

development of precisely the knowledge 

base and market infrastructure needed 

for a longer term, market-wide transition 

to high-efficiency technologies. It 

strongly urged DOE to choose NOPR 

TSL 5 (now TSL 6), for the final rule. 

(ASAP, No. 102 at p. 2) NRDC stated 

that NOPR TSL 5 should be adopted for 

water heaters as it is technically 

feasible, economically justified, and 

provides significant additional energy, 

economic, and environmental savings. 

(NRDC, No. 85 at p. 2) A comment 

provided by eight utilities stated 

support for NOPR TSL 5 because 

stronger standards for the biggest units 

would boost total energy and economic 

savings by more than 40 percent 

compared to the proposed rule, and 

DOE would be helping advanced 

technologies become mainstream 

products, thereby speeding transition to 

next-generation water heaters. (Eight 

utilities, No. 72 at p. 1) ASE stated that 

at NOPR TSL 5 the advanced technology 

requirements are limited to a modest 

share of total water heater shipments, 

which is a sensible means of addressing 

the issue of manufacturers being able to 

scale up the production of these 

products to meet the needs of the 

market. (ASE, No. 77 at p. 2) Other 

parties expressing support for choosing 

NOPR TSL 5 included Alabama 

Consumer Advocate, Avista, Energy 

Consumers Alliance of New England, 

KCP&L, Energy Trust of Oregon, 

Alliance to Save Energy, and NEEA. 

(ACA, No. 60 at p. 1; Avista, No. 66 at 

pp.1–2; Energy Consumers Alliance of 

New England, No. 59 at p. 1; KCP&L, 

No. 97 at p. 1; Energy Trust of Oregon, 

No. 69 at p. 1; Alliance to Save Energy, 

No. 56.4 at p.1; NEEA, No. 88 at p. 1) 

Opposition to setting a standard at 

NOPR TSL 5 (now TSL 6 for the final 

rule) was also expressed by several 

interested parties. AHRI stated that 

NOPR TSL 5 would cause installation 

issues for large-volume, advancedtechnology models and that consumers 

may opt for less-efficient alternative 

options. It stated that DOE’s analysis has 

undervalued these factors, and as a 

result, AHRI expects that the actual 

energy savings will fall well short of the 

savings projected in the TSD. (AHRI, 

No. 91 at p. 6) A.O. Smith stated that it 

does not support NOPR TSL 5. It 

believes that the energy savings are 

overstated because many consumers, 


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when faced with the increased cost of 

large-storage-capacity water heaters that 

are required to use either condensing 

gas or electric heat pump technology, 

would elect to install two smallerstorage-capacity water heaters instead of 

one larger capacity unit. (A.O. Smith, 

No. 76 at p. 4) Rheem commented that 

the energy savings from TSL 6 are 

significantly overstated, and it pointed 

to several options for consumers to work 

around the standards on large-volume 

units. (Rheem, No. 89 at pp. 6–7) BWC 

stated that the efficiency levels under 

consideration for larger-capacity water 

heaters would be difficult and 

expensive to obtain. (BWC, No. 61 at p. 

1) Referring to NOPR TSL 5 and NOPR 

TSL 6, APPA stated that they do not 

support a standard that eliminates high 

efficiency electric resistance water 

heaters as a consumer option. It believes 

that these TSLs would cause an adverse 

economic impact for consumers and 

lessen the utility of the product. (APPA, 

No. 92 at p. 2) Southern Company stated 

that it does not agree with NOPR TSL 

6 because performance of heat pump 

water heaters depends on climate and 

installation location. (Southern, No. 90 

at pp. 3–4) 

Support for NOPR TSL 4 (unchanged 

in the final rule), was expressed by 

APPA and A.O. Smith. (APPA, No. 92 

at p. 2; A.O. Smith, No. 76 at p. 1) AHRI 

recommended that DOE should adopt 

minimum efficiency requirements for 

gas-fired and electric storage water 

heaters that have their basis in TSL 4 

but have been modified to address 

issues related to the needs of the 

replacement market and unique 

attributes of some models. For electric 

storage water heaters 65 gallons and 

larger, AHRI recommended that DOE 

select TSL 3 (also unchanged for the 

final rule), as TSL 4 for this size 

presents a disproportionately large 

increase in efficiency. For oil-fired 

storage water heaters it recommended 

that DOE adopt TSL 3. For gas-fired 

instantaneous water heaters, AHRI 

recommended that the standard be 

changed to a minimum EF of 0.80 for 

models using an external electric supply 

and a minimum EF of 0.78 for models 

that do not use an external electric 

supply. (AHRI, No. 91 at p. 1) Rheem 

also supported a 0.80 EF level for gasfired instantaneous water heaters and 

noted that the 0.82 EF level has a high 

payback period. (Rheem, No. 89 at p. 13) 

Bock supported TSL 3 because all 

storage water heater manufacturers are 

capable of meeting the standard, and it 

would allow consumers to have 

abundant hot water at a reasonable cost. 

(Bock, No. 101 at p. 3) 

DOE acknowledges the positions 

expressed regarding adoption of either 

the proposed standards (TSL 4) or 

NOPR TSL 5 for water heaters. It 

addresses the arguments raised by the 

commenters, as well as other factors, in 

its discussion of the merits of the 

various considered TSLs in section 

VI.D. 

2. Direct Heating Equipment 

In the NOPR, DOE proposed TSL 3 for 

direct heating equipment. 74 FR 65852, 

65854 (Dec. 11, 2009). The only 

modifications made to the TSLs 

analyzed for the final rule compared to 

those analyzed for the NOPR were to the 

efficiency levels in TSLs 3, 4, 5, and 6 

for gas wall gravity DHE. DOE revised 

the efficiency levels analyzed for gas 

wall gravity DHE in the final rule to 

more accurately reflect the current 

market for products within the 

representative rated capacity. A detailed 

description of these changes is provided 

in section IV.C.2.b. 

AHRI stated that no amended energy 

conservation standards should be set for 

traditional DHE because of the 

significant impact on manufacturers and 

the small energy savings. (AHRI, No. 91 

at p. 10) AGA stated that standards 

should not be set for DHE because the 

low and declining shipments represent 

a minimal opportunity for energy 

savings, and the increased installed cost 

of DHE may lead to greater use of 

central heating, thereby increasing 

overall energy consumption (AGA, No. 

78 at p. 11) Williams recommended that 

DOE not adopt standards for DHE 

because of the significant impact on 

manufacturers, the unique utility of 

DHE to heat homes without ductwork, 

design constraints, and safety concerns. 

Williams stated that manufacturers, as 

well as consumers, would be negatively 

impacted by the proposed rule. 

(Williams, No. 96 at pp. 1–2) 

AHRI stated its belief that the 

proposed standards for traditional DHE 

(NOPR TSL 3) are too high and that the 

impact on manufacturers needs to be 

reconsidered. According to the 

commenter, the proposed levels would 

have very significant and costly effects 

on manufacturers. The DHE results 

show negative impact on the 

profitability of the manufacturers, all of 

which are small manufacturers, and 

there is a real concern about whether 

they could stay in business and make a 

profit at these levels. (AHRI, Public 

Meeting Transcript, No. 57.4 at pp. 28– 

29) AHRI reiterated DOE’s estimates for 

the INPV decreasing between 6 and 33.5 

percent at the proposed level, industry 

cash flow dropping from $1.4 million to 

¥$0.9 million (a 162-percent decrease), 

and the conversion costs reaching $2.31 

million per manufacturer (about 350 

percent of estimated earnings before 

interest and taxation). AHRI also stated 

that the number of product lines per 

manufacturer would drop from 5 to 3 

and that all of AHRI’s members 

indicated a loss of employment would 

result. Finally, AHRI stated all these 

negative impacts would be compounded 

by a decline in sales. Because of all 

these negative impacts and insignificant 

energy savings, AHRI stated that DOE 

should not consider TSL 3 for the final 

rule (AHRI, No. 91 at p. 13) 

LTS stated that DOE estimated that 

the conversion costs for a typical small 

DHE manufacturer at the proposed level 

would be $2.3 million or 347 percent of 

each company’s earnings before interest 

and taxes. LTS questioned having to 

spend three or four years’ profit to meet 

a standard they are certain will make 

them less profitable overall. (LTS, No. 

56.7 at pp. 2–3; Public Meeting 

Transcript, No. 57.4 at p. 23) LTS 

reiterated the NOPR’s estimate that 

industry cash flow could decrease up to 

161.8 percent. Finally, LTS reiterated 

DOE’s statement that the large estimated 

impact on INPV suggests that 

manufacturers would be substantially 

harmed if profitability were impacted. 

(LTS, No. 56.7 at p. 2) 

Congressman Costello and 

Congressman Shimkus urged DOE to 

consider Empire’s testimony and related 

concerns. Congressman Costello and 

Congressman Shimkus stated that 

Empire strongly believes the technology 

necessary to meet these proposed 

efficiency standards is not in place and 

that the cost of retrofitting these product 

lines does not justify the small energy 

savings for the small traditional DHE 

market. (Costello, No. 62 at p. 1) 

DOE acknowledges the positions 

expressed regarding adoption of the 

proposed standards (TSL 3) for direct 

heating equipment. It addresses the 

arguments raised by the commenters, as 

well as other factors, in its discussion of 

the merits of the various considered 

TSLs in section VI.D. 

3. Pool Heaters 

In the NOPR, DOE proposed NOPR 

TSL 3 for pool heaters. 74 FR 65852, 

65854 (Dec. 11, 2009). The TSLs 

analyzed in the final rule are identical 

to those analyzed in the NOPR. AHRI 

stated that the proposed standard for 

pool heaters is not economically 

justified because its payback period well 

exceeds product lifetime. It 

recommended the proposed standard for 

pool heaters be lowered to 81 percent. 

(AHRI, No. 91 at p. 9) Raypak stated that 

the proposed standard for pool heaters 


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has a very high payback period which 

is outside the lifetime of the appliance, 

so the commenter argued that such level 

should not be considered economically 

justified. Raypak supported adoption of 

amended energy conservation standards 

at TSL 1 for pool heaters because it 

would raise the efficiency level by 3 

percentage points, while preventing the 

elimination of the millivolt design 

option. (Raypak, No. 67 at pp. 3–4) 

APSP stated that the proposed level 

could result in a significantly negative 

impact on the pool heater industry in 

these already turbulent economic times. 

(APSP, No. 64 at p. 1) 

DOE acknowledges the positions 

expressed regarding adoption of the 

proposed standards (TSL 3) for pool 

heaters. It addresses the arguments 

raised by the commenters, as well as 

other factors, in its discussion of the 

merits of the various considered TSLs in 

section VI.D. 

B. Compliance Date of Amended 

Standards 

As discussed in section IV.F.9, 

compliance with amended energy 

conservation standards for direct 

heating equipment and pool heaters is 

required three years after the final rule 

is published in the Federal Register 

(i.e., in 2013); compliance with 

amended energy conservation standards 

for water heaters is required five years 

after the final rule is published (i.e., in 

2015). 

Raypak stated that the date of when 

the standard goes into effect should be 

changed to five years for pool heaters. 

(Raypak, No. 67 at p. 3) In response, 

DOE notes that the language in 42 

U.S.C. 6295(e)(4) specifies compliance 

dates for amended standards (if any) for 

the heating products that are the subject 

of this rulemaking. These statutory dates 

were set such that they were to apply to 

products manufactured on or after the 

36-month period beginning on the date 

such final rule was to be published for 

the first iteration of rulemaking and on 

or after the 60-month period beginning 

on the date such final rule was to be 

published for the second iteration of 

rulemaking. (42 U.S.C. 6295(e)(4)(A)– 

(B)) The language of 42 U.S.C. 

6295(e)(4)(B) anticipates that a standard 

will be in place for covered pool heaters 

that are manufactured precisely three 

years after publication of the final rule 

and prospectively thereafter. Although 

DOE did not meet the rulemaking dates 

set by the statute, DOE continues to 

believe that the time differential, as 

specified in EPCA, between the 

publication of the final rule and the 

compliance deadline reflects Congress’s 

judgment as to what constitutes 

adequate lead time. Consequently, for 

the final rule, DOE has maintained a 

compliance date corresponding to three 

years after final rule publication in the 

Federal Register for direct heating 

equipment and pool heaters, and five 

years after the date of publication in the 

Federal Register for water heaters. 

VI. Analytical Results and Conclusions 

A. Trial Standard Levels 

DOE analyzed the benefits and 

burdens of a number of TSLs for each 

of the three types of heating products 

separately. For a given product 

consisting of several product classes, 

DOE developed some of the TSLs so that 

each TSL is comprised of energy 

efficiency levels from each product class 

that exhibit similar characteristics. For 

example, in the case of water heaters, 

one of the TSLs consists of the max-tech 

efficiency levels from each product class 

being considered for this rulemaking. 

DOE attempted to limit the number of 

TSLs considered for the December 2009 

NOPR by eliminating efficiency levels 

that do not exhibit significantly 

different economic and/or engineering 

characteristics from the efficiency levels 

already selected as a TSL. For the 

December 2009 NOPR, DOE analyzed 

seven TSLs for water heaters, six TSLs 

for direct heating equipment, and six 

TSLs for pool heaters. 74 FR 65852, 

65929–32 (Dec. 11, 2009). 

For today’s final rule, DOE has 

revised the TSLs for water heaters and 

direct heating equipment and continued 

to analyze the same TSLs for pool 

heaters. A description of each TSL DOE 

analyzed for each of the three types of 

heating products is provided below. 

While DOE only presents the results for 

those efficiency levels used in TSL 

combinations in today’s final rule, DOE 

presents the results for all efficiency 

levels analyzed in the final rule TSD. 

1. Water Heaters 

Table VI.1 shows the eight TSLs DOE 

analyzed for water heaters for the final 

rule. Since amended water heater 

standards would apply to the full range 

of storage volumes, DOE is presenting 

the TSLs for water heaters in terms of 

the energy efficiency equations, rather 

than only showing the required 

efficiency level at the representative 

capacities. As further discussed in the 

December 2009 NOPR (74 FR 65852, 

65929 (Dec. 11, 2009)), DOE is grouping 

the energy efficiency equations for each 

of the four water heater product classes 

to show the benefits and burdens of 

amended energy conservation 

standards. 

For TSLs 1, 2, 3, and 4, DOE is using 

the rated storage volume divisions 

developed in the engineering analysis 

and the energy efficiency equations as 

shown in section IV.C.6, which specify 

a two-slope approach. TSLs 1, 2, 3, and 

4 are identical to those presented in the 

December 2009 NOPR. TSL 1 consists of 

the efficiency levels for each product 

class that are approximately equal to the 

current shipment-weighted average 

efficiency. TSL 2 and TSL 3 consist of 

efficiency levels with slightly higher 

efficiencies compared to TSL 1 for most 

of the product classes. TSL 4 represents 

the maximum electric resistance water 

heater efficiency across the entire range 

of storage volumes that DOE analyzed 

for electric storage water heaters, and 

the maximum atmospherically-vented 

efficiency across the entire range of 

storage volumes that DOE analyzed for 

gas-fired storage water heaters. 

DOE is adding a new TSL 5 for the 

final rule, which is a slight modification 

of the December 2009 NOPR TSL 5 

(currently referred to as TSL 6 for the 

final rule). For both TSL 5 and TSL 6, 

DOE considered a pairing of efficiency 

levels that would promote the 

penetration of advanced technologies 

into the electric and gas-fired storage 

water heater markets and potentially 

save additional energy by using a twoslope approach with different 

requirements for each category. 

Consequently, DOE pairs an efficiency 

level effectively requiring heat pump 

technology for large-volume electric 

storage water heaters with an efficiency 

level achievable using electric resistance 

technology for small-volume electric 

storage water heaters. In addition, DOE 

pairs an efficiency level effectively 

requiring condensing technology for 

large-volume gas storage water heaters 

with an efficiency level that can be 

achieved in atmospherically-vented gasfired storage water heaters with 

increased insulation thickness for small 

storage volumes. The only difference 

between TSL 5 and TSL 6 for the final 

rule is the requirements for gas-fired 

storage water heaters. DOE reanalyzed 

these levels due to potential safety 

concerns, which were discussed above 

and are further discussed below. For 

gas-fired water heaters at TSL 5, DOE 

analyzed energy efficiency level 1 for 

small volumes paired with efficiency 

level 6 for large volumes. For gas-fired 

water heaters at TSL 6, DOE analyzed 

energy efficiency level 2 for small 

volumes paired with efficiency level 6 

for large volumes. 

Although it paired different 

technologies for small-volume and 

large-volume products for TSL 5 and 

TSL 6, DOE maintained the same 


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division point between small-volume 

and large-volume gas-fired and electric 

storage water heaters just as was done 

in the December 2009 NOPR. As further 

explained in the December 2009 NOPR, 

DOE is concerned that increased 

standards for large-volume water heaters 

may drive production and sales of water 

heaters at volumes just below the 

division points. 74 FR 65852, 65929 

(Dec. 11, 2009). As a result, in analyzing 

TSL 5 and 6 for the final rule, DOE is 

using the same division points as it used 

for the December 2009 NOPR TSL 5, 

which is 55 gallons for gas-fired and 

electric storage water heaters, to attempt 

to mitigate the potential migration to 

small-volume units described above. 

TSL 5 and 6 include efficiency levels 

that effectively require heat pump 

technology for electric storage water 

heater with rated storage volumes above 

55 gallons, and efficiency levels that 

effectively require condensing 

technology for gas-fired storage water 

heaters with rated storage volumes 

above 55 gallons. Using DOE’s 

shipments model and market 

assessment, DOE estimated 

approximately 4 percent of gas-fired 

storage water heater shipments and 11 

percent of models would be subject to 

the large-volume water heater 

requirements using the TSL 5 and TSL 

6 division. Similarly, DOE estimated 

approximately 9 percent of electric 

storage water heater shipments and 27 

percent of models would be subject to 

the large-volume water heater 

requirements using the TSL 5 and TSL 

6 division. 

TSL 7 uses the same divisions as TSLs 

1, 2, 3, and 4 for gas-fired water heaters 

(i.e., does not include the distinction at 

TSL 5 and TSL 6 for units above and 

below a 55-gallon storage capacity). TSL 

7 is identical to TSL 4 except DOE is 

considering what is effectively a heat 

pump water heater level for electric 

storage water heaters across the entire 

range of storage volumes that is 

compatible with ENERGY STAR criteria 

for electric storage water heaters at the 

representative rated storage volume. 

TSL 8 consists of the max-tech 

efficiency levels for each of the water 

heater product classes at the time the 

analysis was developed. The max-tech 

efficiency levels were revised for the 

final rule as described in the 

engineering analysis. TSL 7 and 8 both 

set efficiency levels that effectively 

require use of heat pump technology for 

electric storage water heaters. TSL 8, 

however, requires a higher efficiency 

level than TSL 7, which corresponds to 

the max-tech efficiency level for the 

representative rated storage capacity 

(i.e., 2.35 EF at 50 gallons). TSL 8 also 

sets efficiency levels that effectively 

require use of condensing technology 

for gas-fired storage and instantaneous 

water heaters. 

Table VI.1 presents the energy 

efficiency equations and associated twoslope divisions for TSL 1 through 

TSL 8. 

TABLE VI.1—TRIAL STANDARD LEVELS FOR RESIDENTIAL WATER HEATERS (ENERGY FACTOR) 

Trial standard level Energy efficiency equation 

TSL 1 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 60 gallons: 

For GSWHs with a Rated Storage Volume above 

60 gallons: 

EF = 0.675¥(0.0015 × Rated Storage Volume in 

gallons).

EF = 0.699¥(0.0019 × Rated Storage Volume in 

gallons). 

For ESWHs with a Rated Storage Volume at or 

below 80 gallons: 

For ESWHs with a Rated Storage Volume above 

80 gallons: 

EF = 0.967¥(0.00095 × Rated Storage Volume 

in gallons).

EF = 1.013¥(0.00153 × Rated Storage Volume 

in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.64¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 2 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 60 gallons: 

For GSWHs with a Rated Storage Volume above 

60 gallons: 

EF = 0.675¥(0.0012 × Rated Storage Volume in 

gallons).

EF = 0.717¥(0.0019 × Rated Storage Volume in 

gallons). 

For ESWHs with a Rated Storage Volume at or 

below 80 gallons: 

For ESWHs with a Rated Storage Volume above 

80 gallons: 

EF = 0.966¥(0.0008 × Rated Storage Volume in 

gallons).

EF = 1.026¥(0.00155 × Rated Storage Volume 

in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.66¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 3 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 60 gallons: 

For GSWHs with a Rated Storage Volume above 

60 gallons: 

EF = 0.675¥(0.0012 × Rated Storage Volume in 

gallons).

EF = 0.717¥(0.0019 × Rated Storage Volume in 

gallons). 

For ESWHs with a Rated Storage Volume at or 

below 80 gallons: 

For ESWHs with a Rated Storage Volume above 

80 gallons: 

EF = 0.965¥(0.0006 × Rated Storage Volume in 

gallons).

EF = 1.051¥(0.00168 × Rated Storage Volume 

in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 


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TABLE VI.1—TRIAL STANDARD LEVELS FOR RESIDENTIAL WATER HEATERS (ENERGY FACTOR)—Continued 

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 4 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 60 gallons: 

For GSWHs with a Rated Storage Volume above 

60 gallons: 

EF = 0.675¥(0.0012 × Rated Storage Volume in 

gallons).

EF = 0.717¥(0.0019 × Rated Storage Volume in 

gallons). 

For ESWHs with a Rated Storage Volume at or 

below 80 gallons: 

For ESWHs with a Rated Storage Volume above 

80 gallons: 

EF = 0.960¥(0.0003 × Rated Storage Volume in 

gallons).

EF = 1.088¥(0.0019 × Rated Storage Volume in 

gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 5 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 55 gallons: 

For GSWHs with a Rated Storage Volume above 

55 gallons: 

EF = 0.675¥(0.0015 × Rated Storage Volume in 

gallons).

EF = 0.8012¥(0.00078 × Rated Storage Volume 

in gallons). 

For ESWHs with a Rated Storage Volume at or 

below 55 gallons: 

For ESWHs with a Rated Storage Volume above 

55 gallons: 

EF = 0.960¥(0.0003 × Rated Storage Volume in 

gallons).

EF = 2.057¥(0.00113 × Rated Storage Volume 

in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 6 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 55 gallons: 

For GSWHs with a Rated Storage Volume above 

55 gallons: 

EF = 0.675¥(0.0012 × Rated Storage Volume in 

gallons).

EF = 0.8012¥(0.00078 × Rated Storage Volume 

in gallons). 

For ESWHs with a Rated Storage Volume at or 

below 55 gallons: 

For ESWHs with a Rated Storage Volume above 

55 gallons: 

EF = 0.960¥(0.0003 × Rated Storage Volume in 

gallons).

EF = 2.057¥(0.00113 × Rated Storage Volume 

in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 7 ....................................................... For GSWHs with a Rated Storage Volume at or 

below 60 gallons: 

For GSWHs with a Rated Storage Volume above 

60 gallons: 

EF = 0.675¥0.0012 × Rated Storage Volume in 

gallons).

EF = 0.717¥(0.0019 × Rated Storage Volume in 

gallons). 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.057¥(0.00113 × Rated Storage Volume in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

TSL 8 ....................................................... For GSWHs (over the Entire Rated Storage Volume range): 

EF = 0.8012¥(0.00078 × Rated Storage Volume in gallons). 

For ESWHs (over the Entire Rated Storage Volume range): 

EF = 2.406¥(0.00113 × Rated Storage Volume in gallons). 

For OSWHs (over the Entire Rated Storage Volume range): 

EF = 0.74¥(0.0019 × Rated Storage Volume in gallons). 


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TABLE VI.1—TRIAL STANDARD LEVELS FOR RESIDENTIAL WATER HEATERS (ENERGY FACTOR)—Continued 

For GIWHs (over the Entire Rated Storage Volume range): 

EF = 0.95¥(0.0019 × Rated Storage Volume in gallons). 

2. Direct Heating Equipment 

Table VI.2 presents the six TSLs DOE 

analyzed for DHE in the final rule. The 

only modifications made to the TSLs 

analyzed for the final rule compared to 

those analyzed for the December 2009 

NOPR were to the efficiency levels in 

TSLs 3, 4, 5, and 6 for gas wall gravity 

DHE. These changes were made due to 

a review of the gas wall gravity units 

currently offered for sale and the 

adjustment of the max-tech efficiency 

level in response to commenters. 

In general, TSL 1 consists of the 

efficiency levels that are close to the 

current shipment-weighted average 

efficiency. TSL 2, TSL 3, and TSL 4 

consist of efficiency levels that have 

gradually higher efficiency than TSL 1. 

TSL 5 consists of the efficiency levels 

that include electronic ignition and fan 

assist (where applicable), and TSL 6 

consists of the max-tech efficiency 

levels for all of the DHE product classes. 

TABLE VI.2—TRIAL STANDARD LEVELS FOR DIRECT HEATING EQUIPMENT (AFUE) 

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas Wall Fan (over 42,000 Btu/h) ................................... 75% 76% 77% 80% 75% 80% 

Gas Wall Gravity (over 27,000 and up to 46,000 Btu/h) 66% 66% 69% 69% 70% 70% 

Gas Floor (over 37,000 Btu/h) ......................................... 58% 58% 58% 58% 58% 58% 

Gas Room (over 27,000 and up to 46,000 Btu/h) ........... 66% 67% 68% 68% 83% 83% 

Gas Hearth (over 27,000 and up to 46,000 Btu/h) ......... 67% 67% 67% 72% 72% 93% 

3. Gas-Fired Pool Heaters 

Table VI.3 shows the six TSLs DOE 

analyzed for pool heaters, which are 

identical to the TSLs analyzed in the 

December 2009 NOPR. TSL 1 consists of 

the efficiency level that is close to the 

current shipment-weighted average 

efficiency. TSL 2 and TSL 3 consist of 

efficiency levels that have gradually 

higher efficiency than TSL 1. TSL 4 is 

the highest efficiency level with positive 

NPV. TSL 5 is the highest analyzed noncondensing efficiency level, and TSL 6 

consists of the max-tech efficiency level. 

TABLE VI.3—TRIAL STANDARD LEVELS FOR POOL HEATERS (THERMAL EFFICIENCY) 

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas-fired .......................................................................... 81% 82% 83% 84% 86% 95% 

B. Significance of Energy Savings 

To estimate the energy savings due to 

potential standards, from 2013 to 2043 

for DHE and pool heaters and from 2015 

to 2045 for water heaters, DOE 

compared the energy consumption 

attributable to the three types of heating 

products under the base case (no 

standards) to energy consumption 

attributable to these products under 

each standards case (each TSL that DOE 

has considered). Table VI.4, Table VI.5, 

and Table VI.6 present DOE’s national 

energy savings (NES) estimates 

(undiscounted) for each of the three 

types of heating products, by product 

class at each TSL. Chapter 10 of the TSD 

describes these estimates in more detail. 

TABLE VI.4—WATER HEATERS: CUMULATIVE NATIONAL ENERGY SAVINGS IN QUADS

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

Gas-Fired Storage ........................... 0.69 1.17 1.17 1.17 0.81 1.29 1.17 4.91 

Electric Storage ................................ 0.29 0.41 0.79 1.09 1.67 1.67 8.90 11.22 

Oil-Fired Storage .............................. 0.00 0.01 0.01 0.01 0.01 0.01 0.01 0.02 

Gas-Fired Instantaneous ................. 0.08 0.08 0.08 0.08 0.08 0.08 0.08 0.58 

Total .......................................... 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73 

TABLE VI.5—DIRECT HEATING EQUIPMENT: CUMULATIVE NATIONAL ENERGY SAVINGS IN QUADS

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas Wall Fan ................................................................... 0 .01 0 .01 0 .01 0 .03 0 .01 0 .03 

Gas Wall Gravity .............................................................. 0 .01 0 .01 0 .03 0 .03 0 .06 0 .06 

Gas Floor ......................................................................... 0 .0001 0 .0001 0 .0001 0 .0001 0 .0001 0 .0001 

Gas Room ........................................................................ 0 .001 0 .002 0 .004 0 .004 0 .04 0 .04 

Gas Hearth ....................................................................... 0 .19 0 .19 0 .19 0 .37 0 .37 1 .13 

Total .......................................................................... 0 .20 0 .21 0 .23 0 .43 0 .48 1 .26 


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TABLE VI.6—POOL HEATERS: CUMULATIVE NATIONAL ENERGY SAVINGS IN QUADS

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas-Fired ..................................................................................... 0.01 0.02 0.04 0.06 0.09 0.22 

C. Economic Justification 

1. Economic Impact on Consumers 

a. Life-Cycle Costs and Payback Period 

Consumers affected by amended 

standards usually experience higher 

product purchase prices and lower 

operating costs. Generally, these 

impacts are captured by changes in lifecycle costs and by the payback period. 

Therefore, DOE calculated the LCC and 

PBP for the standard levels considered 

in this rulemaking. 

DOE’s LCC and PBP analyses provide 

seven key outputs for each TSL, which 

are reported in Table VI.7 through Table 

VI.16 below. The first two of these 

outputs is the average LCC and average 

LCC savings. (A negative ‘‘LCC savings’’ 

for a standard level indicates that the 

life-cycle cost of a standards-compliant 

product would be higher than the lifecycle cost of a baseline product.) The 

next three outputs are the proportion of 

purchases of the product that already 

comply with the TSL and that would 

create a net life-cycle cost, no impact, or 

a net life-cycle savings for the 

purchaser. 

The sixth and seventh outputs are the 

median and average PBPs, respectively, 

for the consumer purchasing a design 

that complies with the TSL compared 

with purchasing a baseline product. The 

PBP is the number of years it would take 

for the purchaser to recover, as a result 

of energy savings, the increased cost of 

a higher-efficiency product based on 

operating cost savings from the first year 

of ownership. The PBP is an economic 

benefit-cost measure that uses benefits 

and costs without discounting. DOE’s 

analysis includes both the analysis 

contemplated under the rebuttable 

presumption test, which is based on 

energy use as determined under 

conditions prescribed by the DOE test 

procedure, and analysis of the payback 

period based on conditions of actual use 

of the product by purchasers. DOE 

derived the median and average PBPs in 

Table VI.7 through Table VI.16 by using 

the latter method. While DOE examined 

the rebuttable presumption criterion 

(see chapter 8 of the TSD), it also 

evaluated the standard levels adopted in 

today’s rule through a more detailed 

analysis of the economic impacts of 

these levels pursuant to section 

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

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

TSD chapter 8 provides detailed 

information on the LCC and PBP 

analyses. 

TABLE VI.7—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 2009$ 

Average 

LCC savings 2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.62 $3,528 $16 25 36 39 2.0 17.0 

2, 3, 4 ............................... 0.63 3,537 7 32 22 45 4.5 18.6 

5 * ..................................... 0.62 3,528 18 27 33 40 2.3 16.9 

6 * ..................................... 0.63 3,537 9 34 21 46 4.7 18.3 

7 ....................................... 0.67 3,793 ¥218 70 6 23 21.5 27.1 

8 ....................................... 0.77 3,771 ¥195 70 1 28 15.6 16.8 

* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and large-volume 

water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal). 

TABLE VI.8—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.92 $3,255 $5 11 44 45 4.0 10.2 

2 ....................................... 0.93 3,245 11 12 39 48 4.0 10.0 

3 ....................................... 0.94 3,236 18 21 17 62 5.0 9.3 

4 ....................................... 0.95 3,236 18 32 10 59 6.7 9.9 

5, 6 ................................... * 1.04 3,188 64 33 9 58 6.8 10.2 

7 ....................................... 2.00 3,136 112 50 5 45 9.4 26.2 

8 ....................................... 2.35 3,076 171 50 1 49 9.0 20.0 

* For TSL 5 and 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and large-volume 

water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal). 


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TABLE VI.9—OIL-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS

TSL Energy 

factor LCC 

Average 

LCC 

2009$ 

Payback period 

Average 

LCC 

savings 

2009$ 

Households with Median 

years 

Average 

years 

Net cost 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.58 $8,102 $101 0 76 24 0.9 0.9 

2 ....................................... 0.60 7,885 203 0 54 46 0.3 0.2 

3, 4, 5, 6, 7 ...................... 0.62 7,721 295 0 47 53 0.5 0.7 

8 ....................................... 0.68 7,463 495 0 17 83 1.9 2.1 

TABLE VI.10—GAS-FIRED INSTANTANEOUS WATER HEATERS: LCC AND PBP RESULTS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 through 7 ....................... 0.82 $5,505 $9 5 91 4 14.8 24.3 

8 ....................................... 0.95 5,913 ¥259 77 12 11 38.7 55.0 

TABLE VI.11—GAS WALL FAN DHE: LCC AND PBP RESULTS

TSL AFUE % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1, 5 ................................... 75 $7,170 $83 0 60 40 2.7 2.7 

2 ....................................... 76 7,131 102 3 53 44 3.2 3.9 

3 ....................................... 77 7,114 114 19 26 55 5.0 9.9 

4, 6 ................................... 80 7,189 43 53 7 40 12.2 33.7 

TABLE VI.12—GAS WALL GRAVITY DHE: LCC AND PBP RESULTS

TSL AFUE % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1, 2 ................................... 66 $6,848 $21 10 75 15 7.5 13.8 

3, 4 ................................... 69 6,760 64 33 37 30 11.0 22.5 

5, 6 ................................... 70 6,880 ¥56 70 0 30 16.5 18.6 

TABLE VI.13—GAS FLOOR DHE: LCC AND PBP RESULTS

TSL AFUE % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1, 2, 3, 4, 5, 6 .................. 58 $7,755 $13 23 58 19 10.7 16.5 


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TABLE VI.14—GAS ROOM DHE: LCC AND PBP RESULTS

TSL AFUE % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 66 $7,349 $26 9 74 16 6.7 11.8 

2 ....................................... 67 7,284 60 12 50 38 4.5 8.3 

3, 4 ................................... 68 7,226 104 19 25 57 4.8 8.2 

5, 6 ................................... 83 6,628 702 32 0 68 6.9 8.7 

TABLE VI.15—GAS HEARTH DHE: LCC AND PBP RESULTS

TSL AFUE % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1, 2, 3 ............................... 67 $5,146 $112 3 61 37 0.0 3.1 

4, 5 ................................... 72 5,324 ¥28 55 23 21 17.1 47 

6 ....................................... 93 5,475 ¥179 77 1 22 26.8 60.2 

TABLE VI.16—GAS-FIRED POOL HEATERS: LCC AND PBP RESULTS

TSL Thermal 

efficiency % 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 81 $8,212 $25 5 72 23 2.7 5.4 

2 ....................................... 82 8,217 22 27 51 22 8.6 15.2 

3 ....................................... 83 8,264 ¥6 60 23 17 18.2 32.3 

4 ....................................... 84 8,322 ¥52 64 21 15 19.2 39.0 

5 ....................................... 86 8,959 ¥632 88 9 3 38.1 85.8 

6 ....................................... 95 9,698 ¥1,361 95 1 4 33.2 74.1 

b. Consumer Subgroup Analysis 

For water heaters, DOE estimated 

consumer subgroup impacts for lowincome households and senior-only 

households by determining the LCC 

impacts of the TSLs considered for gasfired and electric storage water heaters. 

In addition, DOE estimated consumer 

subgroup impacts on households in 

multi-family housing and households in 

manufactured homes for the TSLs 

considered for gas-fired and electric 

storage water heaters. DOE also 

estimated the consumer subgroup 

impacts for low-income households and 

senior-only households for gas wall fan 

and gas wall gravity DHE. 

For gas-fired storage water heaters, the 

impacts of the standard in today’s final 

rule are roughly the same for the senioronly subgroup and the low-income 

subgroup as they are for the full 

household sample for this product class 

(see Table VI.17 and Table VI.18). For 

the multi-family subgroup, the results 

report an average LCC increase (i.e., 

negative savings) of $13, and they also 

show a 36-percent share of households 

with a net LCC benefit, and a 31-percent 

share of households with a net LCC cost 

(see Table VI.19). For the manufactured 

home subgroup, the results report an 

average LCC increase (i.e., negative 

savings) of $17, and they also show a 

35-percent share of households with a 

net LCC benefit, and a 36-percent share 

of households with a net LCC cost (see 

Table VI.20). 

TABLE VI.17—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR SENIOR-ONLY HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.62 $3,072 $14 27 32 41 1.9 19.4 

2, 3, 4 ............................... 0.63 3,081 7 34 19 47 4.1 19.5 

5 * ..................................... 0.62 3,071 16 27 31 41 2.0 19.4 

6 * ..................................... 0.63 3,079 9 34 19 47 4.2 19.3 

7 ....................................... 0.67 3,355 ¥235 71 6 22 22.5 27.8 


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TABLE VI.17—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR SENIOR-ONLY HOUSEHOLDS— 

Continued 

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

8 ....................................... 0.77 3,377 ¥257 75 1 24 17.4 18.2 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal). 

TABLE VI.18—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR LOW-INCOME HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.62 $3,591 $9 29 31 40 2.1 18.7 

2, 3, 4 ............................... 0.63 3,610 ¥8 36 19 45 6.1 21.2 

5 * ..................................... 0.62 3,586 15 29 31 41 2.1 18.7 

6 * ..................................... 0.63 3,605 ¥2 36 19 45 6.2 21.2 

7 ....................................... 0.67 3,877 ¥243 71 6 23 22.9 28.5 

8 ....................................... 0.77 3,847 ¥213 70 2 28 16.4 17.6 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal). 

TABLE VI.19—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR MULTI-FAMILY HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.62 $2,825 ¥$11 31 33 36 2.4 26.5 

2, 3, 4 ............................... 0.63 2,868 ¥45 41 21 38 11.0 27.2 

5 * ..................................... 0.62 2,827 ¥13 31 32 36 2.5 26.5 

6 * ..................................... 0.63 2,870 ¥46 41 21 37 11.0 27.2 

7 ....................................... 0.67 3,182 ¥324 74 6 19 27.2 35.2 

8 ....................................... 0.77 3,239 ¥380 79 2 19 21.2 23.2 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal). 

TABLE VI.20—GAS-FIRED STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR MANUFACTURED HOME

HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.62 $4,035 ¥$17 36 29 35 9.9 25.1 

2, 3, 4 ............................... 0.63 4,082 ¥59 48 17 34 13.1 26.7 

5 * ..................................... 0.62 4,035 ¥17 36 29 35 9.9 25.1 

6 * ..................................... 0.63 4,082 ¥59 48 17 34 13.1 26.7 

7 ....................................... 0.67 4,275 ¥232 69 6 25 21.1 27.3 

8 ....................................... 0.77 4,207 ¥164 64 2 34 14.7 17.0 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (40 gal). 

For electric storage water heaters, the 

impacts of the standard in today’s final 

rule are approximately the same for the 

senior-only subgroup as they are for the 

full household sample for this product 

class (see Table VI.21). For the lowincome subgroup, the results show an 

average LCC savings of $18, a 53-percent 

share of households with a net LCC 


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benefit, and a 39-percent share of 

households with a net LCC cost (see 

Table VI.22). For the multi-family 

subgroup, the results report an average 

LCC increase (i.e., negative savings) of 

$8, and they also show a 53-percent 

share of households with a net LCC 

benefit, and a 38-percent share of 

households with a net LCC cost (see 

Table VI.23). For the manufactured 

home subgroup, the results report an 

average LCC increase (i.e., negative 

savings) of $20, and they also show a 

38-percent share of households with a 

net LCC benefit, and a 54-percent share 

of households with a net LCC cost (see 

Table VI.24). 

TABLE VI.21—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR SENIOR-ONLY HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.92 $2,859 $6 11 42 47 3.8 10.1 

2 ....................................... 0.93 2,849 11 12 38 50 3.8 9.9 

3 ....................................... 0.94 2,839 19 21 16 63 5.0 9.2 

4 ....................................... 0.95 2,837 20 30 10 60 6.3 9.6 

5, 6 ................................... * 1.04 2,826 31 32 9 59 6.6 10.1 

7 ....................................... 2.00 2,937 ¥76 59 5 36 11.0 21.6 

8 ....................................... 2.35 2,895 ¥34 58 1 41 10.5 17.5 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal). 

TABLE VI.22—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR LOW-INCOME HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.92 $3,203 ¥$3 15 39 46 4.2 12.4 

2 ....................................... 0.93 3,196 1 16 36 48 4.2 12.2 

3 ....................................... 0.94 3,196 0 29 14 57 5.5 11.1 

4 ....................................... 0.95 3,197 ¥1 38 9 53 7.1 11.3 

5, 6 ................................... * 1.04 3,178 18 39 9 53 7.3 11.5 

7 ....................................... 2.00 3,132 61 54 5 41 10.1 28.4 

8 ....................................... 2.35 3,078 114 54 1 45 9.9 23.0 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal). 

TABLE VI.23—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR MULTI-FAMILY HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.92 $2,015 ¥$2 14 35 50 4.0 11.6 

2 ....................................... 0.93 2,009 1 15 32 52 4.0 11.3 

3 ....................................... 0.94 2,017 ¥6 31 13 56 5.6 11.7 

4 ....................................... 0.95 2,018 ¥7 37 9 54 6.9 11.6 

5, 6 ................................... * 1.04 2,019 ¥8 38 9 53 7.0 11.9 

7 ....................................... 2.00 2,468 ¥436 79 5 16 25.5 67.9 

8 ....................................... 2.35 2,479 ¥447 81 1 18 24.4 50.8 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small- and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal). 

TABLE VI.24—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR MANUFACTURED HOME HOUSEHOLDS

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

1 ....................................... 0.92 $3,152 ¥$32 31 35 33 7.0 21.8 

2 ....................................... 0.93 3,151 ¥31 33 33 35 7.7 21.4 


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TABLE VI.24—ELECTRIC STORAGE WATER HEATERS: LCC AND PBP RESULTS FOR MANUFACTURED HOME

HOUSEHOLDS—Continued 

TSL Energy 

factor 

LCC Payback period 

Average 

LCC 

2009$ 

Average 

LCC 

savings 

2009$ 

Households with 

Median 

years 

Average 

Net cost years 

% 

No impact 

% 

Net benefit 

% 

3 ....................................... 0.94 3,153 ¥33 47 14 40 13.0 15.4 

4 ....................................... 0.95 3,154 ¥35 54 9 38 12.9 14.8 

5, 6 ................................... * 1.04 3,140 ¥20 54 9 38 13.4 15.0 

7 ....................................... 2.00 3,103 14 56 5 39 10.5 25.0 

8 ....................................... 2.35 3,055 61 55 1 44 10.1 21.4 

* For TSL 5 and TSL 6, the EF and the results represent shipments-weighted averages of the EFs and results that apply to small-and largevolume water heaters, respectively. For the other TSLs, the EF and the results refer to the representative rated volume (50 gal). 

For gas wall fan and gas wall gravity 

DHE, DOE estimated that the impacts of 

the standards in today’s final rule are 

roughly the same for the senior-only 

sample and the low-income sample as 

they are for the full household sample 

for these product classes. For gas hearth 

DHE, DOE performed the senior-only 

analysis but did not perform the lowincome analysis due to the extremely 

small sample size and relatively high 

product cost. The results for the gas 

hearth DHE senior-only sample were 

about the same as for the full household 

sample. (See tables in chapter 11 of the 

TSD). 

DOE did not estimate the impacts of 

consumer subgroups for oil-fired storage 

water heaters, gas floor DHE, and gas 

room DHE due to low product 

shipments, and for gas-fired 

instantaneous water heaters due to 

insufficient data. For pool heaters, DOE 

did not perform consumer subgroup 

analyses since this product is typically 

not owned by these subgroups. 

Chapter 11 of the TSD explains DOE’s 

methodology for conducting the 

consumer subgroup analysis and 

presents the detailed results of that 

analysis for each considered efficiency 

level. 

c. Rebuttable Presumption Payback 

As discussed in section III.D.2, EPCA 

provides a rebuttable presumption that 

an energy conservation standard is 

economically justified if the increase in 

purchase cost for a product that meets 

the standard is less than three times the 

value of the first-year energy (and, as 

applicable, water) savings resulting from 

the standard. DOE’s LCC and PBP 

analyses generate values that calculate 

the payback period for consumers of 

potential energy conservation standards, 

which include, but are not limited to, 

the payback period contemplated under 

the rebuttable presumption test 

discussed above. However, DOE 

routinely conducts a full economic 

analysis that considers the full range of 

impacts, including those to the 

consumer, manufacturer, Nation, and 

environment, as required under 42 

U.S.C. 6295(o)(2)(B)(i). The results of 

this analysis serve as the basis for DOE 

to evaluate definitively the economic 

justification for a potential standard 

level (thereby supporting or rebutting 

the results of any preliminary 

determination of economic 

justification). 

As required by EPCA, DOE based the 

calculation of rebuttable presumption 

payback period on the assumptions in 

the DOE test procedures for each of the 

three types of heating products. For 

water heaters and DHE, respectively, 

Table VI.24 and Table VI.25 show the 

rebuttable presumption PBPs for those 

TSLs that have a rebuttable presumption 

payback period of less than 3 years. For 

pool heaters, only one of the considered 

efficiency levels has a rebuttable 

presumption payback period of less 

than 3 years—81 percent thermal 

efficiency has a rebuttable presumption 

payback period of 2.7 years. 

TABLE VI.24—WATER HEATERS: REBUTTABLE PRESUMPTION PAYBACK PERIODS

TSL 

Payback period, years 

Gas-fired 

storage 

Electric 

storage 

Oil-fired 

storage 

Gas-fired 

instantaneous 

1 ....................................................................................................................... >3 >3 0.8 >3 

2 ....................................................................................................................... >3 >3 0.4 >3 

3 ....................................................................................................................... >3 >3 0.6 >3 

4 ....................................................................................................................... >3 >3 0.6 >3 

5 ....................................................................................................................... >3 >3 0.6 >3 

6 ....................................................................................................................... >3 >3 0.6 >3 

7 ....................................................................................................................... >3 >3 0.6 >3 

8 ....................................................................................................................... >3 >3 0.9 >3 

TABLE VI.25—DIRECT HEATING EQUIPMENT: REBUTTABLE PRESUMPTION PAYBACK PERIODS

TSL 

Payback period, years 

Gas wall fan 

DHE 

Gas wall 

gravity DHE 

Gas furnace 

DHE 

Gas wall 

room DHE 

Gas hearth 

DHE 

1 ............................................................................................................... >3 >3 >3 >3 2.5

2 ............................................................................................................... >3 >3 >3 >3 2.5


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TABLE VI.25—DIRECT HEATING EQUIPMENT: REBUTTABLE PRESUMPTION PAYBACK PERIODS—Continued 

TSL 

Payback period, years 

Gas wall fan 

DHE 

Gas wall 

gravity DHE 

Gas furnace 

DHE 

Gas wall 

room DHE 

Gas hearth 

DHE 

3 ............................................................................................................... >3 >3 >3 >3 2.5

4 ............................................................................................................... >3 >3 >3 >3 >3 

5 ............................................................................................................... >3 >3 >3 >3 >3 

6 ............................................................................................................... >3 >3 >3 >3 >3 

2. Economic Impact on Manufacturers 

For the MIA in the December 2009 

NOPR, DOE used the INPV to compare 

the financial impacts of different TSLs 

on water heater, DHE, and pool heater 

manufacturers. 74 FR 65852, 65935–47 

(Dec. 11, 2009). DOE presented the 

results by grouping product classes 

made by the same manufacturers and 

uses the scenarios that show the likely 

changes in industry value following 

amended energy conservation 

standards. DOE used the GRIM to 

compare the INPV of the base case (no 

new energy conservation standards) to 

that of each TSL for each covered 

product. The INPV is the sum of all net 

cash flows discounted by the industry’s 

cost of capital (discount rate). The 

difference in INPV between the base 

case and the standards case is an 

estimate of the economic impacts that 

implementing that standard level would 

have on the entire industry. 

For today’s final rule, DOE continues 

to use the methodology presented in the 

December 2009 NOPR (74 FR 65852, 

65915–22 (Dec. 11, 2009)) and in section 

IV.I. DOE modeled two different markup 

scenarios to estimate the potential 

impacts of amended energy 

conservation standards on 

manufacturers. To assess the lower end 

of the range of potential impacts on 

manufacturers, DOE modeled the 

preservation of return on invested 

capital scenario. In addition to the 

impact of the main NIA shipment 

scenario and the required capital and 

product conversion costs on INPV, this 

case models a situation in which 

manufacturers would maintain the basecase return on invested capital in the 

standards case. This scenario represents 

the lower (more favorable) end of the 

range of potential impacts on 

manufacturers because the industry 

generates a historical rate of operating 

profit on the physical and financial 

investments required by energy 

conservation standards. To assess the 

higher end of the range of potential 

impacts on the manufacturers of the 

three types of heating products, DOE 

modeled the preservation of operating 

profit markup scenario in which higher 

energy conservation standards result in 

lower manufacturer markups. This 

scenario models a scenario in which the 

higher production costs of moreefficient technology and required 

investments are not fully passed on to 

customers, consequently lowering 

operating profit margins. This scenario 

represents the upper end of the range of 

potential impacts on manufacturers only 

because no additional operating profit is 

earned on the investments required to 

meet the amended energy conservation 

standards. 

In overview, DOE notes that for water 

heaters, the main NIA scenario used the 

Reference Case gas-fired instantaneous 

water heater market share scenario, the 

AEO Reference Case economic growth 

scenario, and the moderate rate of 

efficiency growth scenarios. The main 

NIA scenario for water heaters also 

accounts for fuel switching at a level 

that effectively requires HPWHs for all 

rated storage volumes (final rule TSL 7 

and TSL 8) and capacity switching at a 

level that required advanced technology 

for water heaters with rated storage 

volumes above 55 gallons (final rule 

TSL 5 and TSL 6). In all standards-case 

shipment scenarios for all three types of 

heating products, DOE assumed that 

shipments at efficiencies below the 

projected minimum standard levels 

would roll up to the new standard levels 

in response to amended energy 

conservation standards. 

The sections below outline comments 

on the economic impacts on 

manufacturers presented in the 

December 2009 NOPR and provide 

DOE’s response. The complete MIA 

results section can be found in the 

December 2009 NOPR (74 FR 65852, 

65935–54 (Dec. 11, 2009)) and chapter 

12 of the TSD. 

a. Cash-Flow Analysis Results for Water 

Heaters 

i. Cash-Flow Analysis Results for GasFired and Electric Storage Water Heaters 

TABLE VI.26—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED AND ELECTRIC STORAGE WATER HEATERS— 

PRESERVATION OF RETURN ON INVESTED CAPITAL MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $880.4 $875.5 $876.0 $875.1 $875.5 $854.4 $856.8 $869.9 $959.6 

Change in INPV ............... (2009$ millions) ............... ................ ¥4.9 ¥4.3 ¥5.2 ¥4.8 ¥25.9 ¥23.6 ¥10.5 79.2 

(%) ................................... ................ ¥0.56% ¥0.49% ¥0.59% ¥0.55% ¥2.94% ¥2.68% ¥1.19% 9.00% 

Product Conversion Costs (2009$ millions) ............... ................ 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7 

Capital Conversion Costs (2009$ millions) ............... ................ 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0 

Total Conversion 

Costs.

(2009$ millions) ............... ................ 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8 


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TABLE VI.27—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED AND ELECTRIC STORAGE WATER HEATERS— 

PRESERVATION OF OPERATING PROFIT MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $880.4 $866.1 $849.0 $842.1 $790.9 $757.8 $745.7 $530.2 $233.4 

Change in INPV ............... (2009$ millions) ............... ................ ¥14.2 ¥31.4 ¥38.3 ¥89.4 ¥122.6 ¥134.6 ¥350.2 ¥647.0 

(%) ................................... ................ ¥1.62 ¥3.56 ¥4.35 ¥10.16 ¥13.93 ¥15.29 ¥39.78 ¥73.49 

Product Conversion Costs (2009$ millions) ............... ................ 12.1 14.5 14.5 14.5 31.8 31.8 61.1 79.7 

Capital Conversion Costs (2009$ millions) ............... ................ 0.0 4.3 4.3 40.7 63.7 63.7 76.0 208.0 

Total Conversion Costs ... (2009$ millions) ............... ................ 12.1 18.7 18.7 55.1 95.4 95.4 137.1 287.8 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for gasfired and electric storage water heater 

manufacturers in further detail. 74 FR 

65852, 65936–39 (Dec. 11, 2009). DOE 

did not receive any comments on the 

gas-fired and electric storage water 

heaters INPV results. Those comments 

related to conversion costs and 

methodology are discussed in section 

IV.I.1. 

ii. Cash-Flow Analysis Results for OilFired Storage Water Heaters 

TABLE VI.28—MANUFACTURER IMPACT ANALYSIS FOR OIL-FIRED STORAGE WATER HEATERS—PRESERVATION OF

RETURN ON INVESTED CAPITAL MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $9.1 $8.9 $8.9 $8.9 $8.9 $8.9 $8.9 $8.9 $7.7 

Change in INPV ............... (2009$ millions) ............... ................ (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (0.2) (1.4) 

(%) ................................... ................ ¥1.98 ¥1.85 ¥2.01 ¥2.01 ¥2.01 ¥2.01 ¥2.01 ¥15.37 

Product Conversion Costs (2009$ millions) ............... ................ 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1 

Capital Conversion Costs (2009$ millions) ............... ................ 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0 

Total Conversion Costs ... (2009$ millions) ............... ................ 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1 

TABLE VI.29—MANUFACTURER IMPACT ANALYSIS FOR OIL-FIRED STORAGE WATER HEATERS—PRESERVATION OF

OPERATING PROFIT MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $9.1 $8.8 $8.8 $8.7 $8.7 $8.7 $8.7 $8.7 $5.3 

Change in INPV ............... (2009$ millions) ............... ................ (0.4) (0.3) (0.4) (0.4) (0.4) (0.4) (0.4) (3.8) 

(%) ................................... ................ ¥3.85 ¥3.56 ¥4.23 ¥4.23 ¥4.23 ¥4.23 ¥4.23 ¥41.44 

Product Conversion Costs (2009$ millions) ............... ................ 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.1 

Capital Conversion Costs (2009$ millions) ............... ................ 0.2 0.2 0.2 0.2 0.2 0.2 0.2 4.0 

Total Conversion Costs ... (2009$ millions) ............... ................ 0.5 0.5 0.5 0.5 0.5 0.5 0.5 5.1 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for oilfired storage water heater manufacturers 

in further detail. 74 FR 65852, 65939– 

40 (Dec. 11, 2009). DOE did not receive 

any comments on the oil-fired water 

heaters INPV results. Those comments 

related to conversion costs and 

methodology are discussed in section 

IV.I.1. 

iii. Cash-Flow Analysis Results for GasFired Instantaneous Water Heaters 

TABLE VI.30—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS –PRESERVATION OF

RETURN ON INVESTED CAPITAL MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $648.2 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $650.6 $739.7 

Change in INPV ............... (2009$ millions) ............... ................ 2.3 2.3 2.3 2.3 2.3 2.3 2.3 91.4 

(%) ................................... ................ 0.36 0.36 0.36 0.36 0.36 0.36 0.36 14.10 

Product Conversion Costs (2009$ millions) ............... ................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8 

Capital Conversion Costs (2009$ millions) ............... ................ 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6 

Total Conversion Costs ... (2009$ millions) ............... ................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4 


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TABLE VI.31—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED INSTANTANEOUS STORAGE WATER HEATERS— 

PRESERVATION OF OPERATING PROFIT MARKUP SCENARIO

Units Base 

case 

Trial standard level 

1 2 3 4 5 6 7 8 

INPV ................................ (2009$ millions) ............... $648.2 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $647.0 $590.6 

Change in INPV ............... (2009$ millions) ............... ................ (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (1.2) (57.6) 

(%) ................................... ................ ¥0.19% ¥0.19% ¥0.19% ¥0.19% ¥0.19% ¥0.19% ¥0.19% ¥8.89% 

Product Conversion Costs (2009$ millions) ............... ................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.8 

Capital Conversion Costs (2009$ millions) ............... ................ 0.0 0.00 0.00 0.0 0.0 0.0 0.0 10.6 

Total Conversion Costs ... (2009$ millions) ............... ................ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.4 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for gasfired instantaneous water heater 

manufacturers in further detail. 74 FR 

65852, 65940–41 (Dec. 11, 2009). DOE 

did not receive any comments on the 

gas-fired instantaneous water heater 

INPV results. 

b. Cash-Flow Analysis Results for Direct 

Heating Equipment 

i. Cash-Flow Analysis Results for 

Traditional Direct Heating Equipment 

(Gas Wall Fan, Gas Wall Gravity, Gas 

Floor, and Gas Room Direct Heating 

Equipment) 

TABLE VI.32—MANUFACTURER IMPACT ANALYSIS FOR TRADITIONAL DIRECT HEATING EQUIPMENT—PRESERVATION OF

RETURN ON INVESTED CAPITAL MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $16.6 $15.7 $15.4 $14.7 $14.7 $12.8 $12.7 

Change in INPV ........... (2009$ millions) ........... .................. (0.9) (1.2) (1.9) (1.9) (3.8) (3.9) 

(%) ............................... .................. ¥5.24% ¥7.17% ¥11.31% ¥11.62% ¥22.74% ¥23.65% 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.95 1.38 2.41 2.95 5.02 5.91 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 1.96 3.24 5.60 6.95 6.75 9.11 

Total Conversion Costs (2009$ millions) ........... .................. 2.91 4.62 8.00 9.90 11.77 15.02 

TABLE VI.33—MANUFACTURER IMPACT ANALYSIS FOR TRADITIONAL DIRECT HEATING EQUIPMENT—PRESERVATION OF

OPERATING PROFIT MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $16.6 $14.1 $12.7 $9.6 $7.8 $6.2 $3.2 

Change in INPV ........... (2009$ millions) ........... .................. (2.5) (3.9) (7.0) (8.8) (10.4) (13.4) 

(%) ............................... .................. ¥14.88% ¥23.61% ¥42.38% ¥53.12% ¥62.40% ¥80.85% 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.95 1.38 2.41 2.95 5.02 5.91 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 1.96 3.24 5.60 6.95 6.75 9.11 

Total Conversion Costs (2009$ millions) ........... .................. 2.91 4.62 8.00 9.90 11.77 15.02 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for 

traditional DHE manufacturers in 

further detail. 74 FR 65852, 65942–44 

(Dec. 11, 2009). DOE addresses all the 

comments about the impacts on 

traditional DHE manufacturers in 

sections IV.I.4 and VII.B of today’s final 

rule. 

ii. Cash-Flow Analysis Results for Gas 

Hearth Direct Heating Equipment 

TABLE VI.34—MANUFACTURER IMPACT ANALYSIS FOR GAS HEARTH DIRECT HEATING EQUIPMENT—PRESERVATION OF

RETURN ON INVESTED CAPITAL MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $77.1 $76.2 $76.2 $76.2 $78.7 $78.7 $85.7 

Change in INPV ........... (2009$ millions) ........... .................. (0.9) (0.9) (0.9) 1.6 1.6 8.6 

(%) ............................... .................. ¥1.22% ¥1.22% ¥1.22% 2.04% 2.04% 11.09% 


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TABLE VI.34—MANUFACTURER IMPACT ANALYSIS FOR GAS HEARTH DIRECT HEATING EQUIPMENT—PRESERVATION OF

RETURN ON INVESTED CAPITAL MARKUP SCENARIO—Continued 

Units Base case 

Trial standard level 

1 2 3 4 5 6 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.56 0.56 0.56 1.46 1.46 8.42 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 0.21 0.21 0.21 0.55 0.55 4.20 

Total Conversion Costs (2009$ millions) ........... .................. 0.77 0.77 0.77 2.01 2.01 12.62 

TABLE VI.35—MANUFACTURER IMPACT ANALYSIS FOR GAS HEARTH DIRECT HEATING EQUIPMENT—PRESERVATION OF

OPERATING PROFIT MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $77.1 $76.9 $76.9 $76.9 $63.9 $63.9 $23.5 

Change in INPV ........... (2009$ millions) ........... .................. (0.2) (0.2) (0.2) (13.2) (13.2) (53.6) 

(%) ............................... .................. ¥0.30% ¥0.30% ¥0.30% ¥17.13% ¥17.13% ¥69.49% 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.56 0.56 0.56 1.46 1.46 8.42 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 0.21 0.21 0.21 0.55 0.55 4.20 

Total Conversion Costs (2009$ millions) ........... .................. 0.77 0.77 0.77 2.01 2.01 12.62 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for gas 

hearth DHE manufacturers in further 

detail. 74 FR 65852, 65944–45 (Dec. 11, 

2009). DOE did not receive any 

comments on the gas hearth DHE INPV 

results. 

c. Cash-Flow Analysis Results for Pool 

Heaters 

TABLE VI.36—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED POOL HEATERS—PRESERVATION OF RETURN ON

INVESTED CAPITAL MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $49.0 $49.1 $49.3 $48.2 $48.7 $49.8 $56.4 

Change in INPV ........... (2009$ millions) ........... .................. 0.0 0.3 (0.8) (0.3) 0.8 7.3 

(%) ............................... .................. 0.10% 0.54% ¥1.72% ¥0.63% 1.61% 14.93% 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.0 0.0 2.7 2.7 4.8 5.7 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 0.0 0.3 1.3 1.5 4.6 7.4 

Total Conversion Costs (2009$ millions) ........... .................. 0.0 0.3 4.0 4.2 9.4 13.1 

TABLE VI.37—MANUFACTURER IMPACT ANALYSIS FOR GAS-FIRED POOL HEATERS—PRESERVATION OF OPERATING

PROFIT MARKUP SCENARIO

Units Base case 

Trial standard level 

1 2 3 4 5 6 

INPV ............................. (2009$ millions) ........... $49.0 $48.9 $48.2 $44.0 $42.4 $31.9 $10.8 

Change in INPV ........... (2009$ millions) ........... .................. (0.1) (0.8) (5.0) (6.6) (17.2) (38.3) 

(%) ............................... .................. ¥0.25% ¥1.72% ¥10.22% ¥13.48% ¥35.05% ¥78.00% 

Product Conversion 

Costs.

(2009$ millions) ........... .................. 0.0 0.0 2.7 2.7 4.8 5.7 

Capital Conversion 

Costs.

(2009$ millions) ........... .................. 0.0 0.3 1.3 1.5 4.6 7.4 

Total Conversion Costs (2009$ millions) ........... .................. 0.0 0.3 4.0 4.2 9.4 13.1 

The December 2009 NOPR discusses 

the estimated impact of amended energy 

conservation standards on INPV for gasfired pool heaters in further detail. 74 

FR 65852, 65945–47 (Dec. 11, 2009). 

DOE did not receive any comments on 

the pool heaters INPV results. Those 

comments related to conversion costs 


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and methodology are discussed in 

section IV.I.3. 

d. Impacts on Employment 

As discussed in detail in the 

December 2009 NOPR and in today’s 

final rule, DOE quantitatively assessed 

the impacts of potential amended 

energy conservation standards on gross 

employment for each of the three types 

of heating products that are the subject 

of this rulemaking. DOE presented a 

range of the potential production 

employment levels that could result 

following the implementation of 

amended energy conservation 

standards. The upper end of the results 

represented the maximum potential 

increase in production workers after 

amended energy conservation standards 

if manufacturers continue to produce 

the same scope of covered products in 

the same production facilities. The 

lower end of the range of employment 

results included the estimate of the total 

number of U.S. production workers in 

the industry that could lose their jobs if 

all existing production were to no 

longer be made domestically. For 

example, DOE calculates that the 

impacts on gas-fired and electric storage 

water heaters could range from an 

increase of 439 employees to a decrease 

of 3,610. For oil-fired water heaters, 

DOE expects an increase of one 

employee to a decrease of 37 employees. 

Similarly, at the upper end of modeled 

impacts, the traditional DHE, gas hearth 

DHE, and pool heater industries could 

experience an increase of six, six, and 

19 employees, respectively. At the low 

end, these three industries could sustain 

decreases in direct employment of 275, 

1280, and 512 employees, respectively. 

74 FR 65852, 65947–51 (Dec. 11, 2009). 

Further details are also found in chapter 

12 of the TSD. DOE discusses and 

responds to public comments received 

regarding the impacts on the direct 

employment in section IV.I.4. 

e. Impacts on Manufacturing Capacity 

In the December 2009 NOPR, DOE 

provided a complete discussion of the 

potential impacts on manufacturing 

capacity for the three types of heating 

products as a result of amended energy 

conservation standards. 74 FR 65852, 

65951–53 (Dec. 11, 2009). 

In response to that discussion, Raypak 

stated that it does not believe three 

years would allow sufficient time for the 

proper development, testing, and 

tooling necessary to achieve reliable 

pool heater products, because pool 

heaters are installed outdoors and face 

harsher operating conditions than the 

other products covered by this 

rulemaking. (Raypak, No. 67 at p. 3) The 

commenter agreed with DOE’s statement 

that setting an amended energy 

conservation standard for pool heaters 

at or above TSL 5, which would require 

condensing or near-condensing 

technology, could lead to short-term 

capacity problems if manufacturers 

cannot make the substantially higher 

tooling, equipment, and assembly 

changes required at these levels in time 

to meet the standard. Moreover, Raypak 

argued that these same issues exist at 

TSL 3 and TSL 4, because at TSL 3 and 

above manufacturers would have 

difficulty changing their production 

lines and tooling to a new construction 

while still producing product to meet 

current market demands. (Raypak, No. 

67 at p. 2; Public Meeting Transcript, 

No. 57.4 at pp. 308–310) 

In response, DOE agrees that the 

proposed standard in the December 

2009 NOPR would require substantial 

changes for pool heater manufacturers. 

At an 84-percent thermal efficiency 

level, manufacturers would be required 

to make multiple improvements over 

the most common atmospheric models 

on the market today. However, DOE did 

not receive any comments that 

suggested the conversion costs for the 

industry presented in the NOPR were 

not representative at any TSL. Also, 

multiple manufacturers have products 

that meet and/or exceed the proposed 

standard in the December 2009 NOPR. 

While manufacturers would be required 

to spend resources to increase the 

production of those products or to 

modify existing products, DOE believes 

that manufacturers have the experience 

necessary to achieve the requisite 

operating conditions at the level 

proposed in the December 2009 NOPR 

(TSL 4) and, in general, to offer durable 

products by the compliance date for the 

amended standards being adopted in 

this final rule. 

f. Cumulative Regulatory Burden 

While any one regulation may not 

impose a significant burden on 

manufacturers, the combined effects of 

several impending regulations may have 

serious consequences for some 

manufacturers, groups of manufacturers, 

or an entire industry. Assessing the 

impact of a single regulation may 

overlook this cumulative regulatory 

burden. In addition to energy 

conservation standards, other 

regulations can significantly affect 

manufacturers’ financial operations. The 

cumulative regulatory burden focuses 

on the impacts on manufacturers of 

other Federal requirements with a 

compliance date three years prior to and 

three years after the anticipated 

compliance dates of the amended 

energy conservation standards of this 

rulemaking. The cumulative burden was 

outlined in the December 2009 NOPR, 

which included a discussion of the 

impact of low and ultra-low NOX

regulations and other environmental 

and safety regulations. 74 FR 65852, 

65953 (Dec. 11, 2009). For further detail, 

see the cumulative regulatory burden 

discussion in Chapter 12 of the TSD. 

Regarding the cumulative regulatory 

burden discussed in the NOPR, BWC 

stated that refrigerant regulations are 

constantly changing and could force 

manufacturers to redesign heat pump 

water heaters that have been recently 

commercialized. To this point, BWC 

noted that R–134a is being phased out 

in Europe, but the prospect of a similar 

phase-out in the U.S. was not 

considered in the NOPR analysis. (BWC, 

No. 61 at p. 2) Rheem also stated that 

proposed legislation that phases out 

hydrofluorocarbons (HFCs) would 

require double the amount of 

refrigerant, because the alternative is not 

as efficient. Rheem also added that a 

cap-and-trade program would have a 

significant effect on the heat pump 

water heater business. (Rheem, Public 

Meeting Transcript No. 57.4 at pp. 294– 

295) 

DOE acknowledges that an HFC 

phase-out or alternative legislation 

requiring a refrigerant change could 

necessitate substantial design changes 

for heat pump water heaters. However, 

for this heating products energy 

conservation standards rulemaking, 

DOE did not consider proposed 

legislation that would require a 

reduction in consumption of HFCs 

including refrigerants (i.e., phase-down) 

or a cap and trade program. It would be 

highly speculative to try to predict the 

passage of such legislation, much less 

the details of its provisions, all of which 

are highly uncertain. 

BWC stated that DOE should consider 

that additional Air Quality Management 

Districts have enacted standards since 

the rulemaking began. (BWC, No. 61 at 

pp. 3–4) In response, DOE has 

monitored the Air Quality Management 

Districts’ regulations. In the analysis, 

DOE assumed that the Air Quality 

Managements Districts with ultra-low 

NOX requirements would represent 50 

percent of shipments to California, or 

8.7 percent of shipments nationally, by 

the compliance date of today’s final rule 

in 2015. Thus, DOE’s analysis of the 

ultra-low NOX water heater shipments is 

up to date. DOE accounted for the 

higher costs of these ultra-low NOX gasfired water heaters in both the LCC and 

the MIA. 

AHRI stated lower NOX requirements 

will affect future designs of gas-fired 


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instantaneous water heaters and may 

cause design changes that reduce the 

efficiency of the product. (AHRI, No. 91 

at p. 3) 

DOE accounted for the added 

production costs for manufacturers of 

gas-fired storage water heaters to 

comply with regional ultra-low NOX

requirements (see section IV.C.2). DOE 

agrees with AHRI that the California Air 

Quality Management Districts will begin 

to regulate the emissions of gas-fired 

instantaneous water heaters beginning 

in 2012. However, DOE is not aware of 

any ultra-low NOX instantaneous gasfired water heaters currently on the 

market and could not create a separate 

cost curve to account for the additional 

cost of instantaneous water heaters. 

Raypak stated that pool heaters are 

not exempt from ultra-low NOX

requirements, but have only been 

exempted from any revisions to the 

existing requirements. Raypak stated 

that pool heaters are required to meet a 

maximum of 55 ppm of NOX in the 

South Coast Air Quality Management 

District. In addition, the Bay Area Air 

Quality Management District has 

implemented new NOX requirements for 

pool heaters starting on January 1, 2012. 

(Raypak, No. 67 at p. 2; Public Meeting 

Transcript, No. 57.4 at pp. 336–37) DOE agrees with Raypak that it 

should have indicated that gas-fired 

pool heaters were only exempted from 

revisions to existing low-NOX

requirements that would have required 

more-stringent emission standards. 

Furthermore, DOE agrees with Raypak 

that gas-fired pool heaters must meet the 

local low-NOX requirements in the Air 

Quality Management Districts shown in 

Table 12.7.9 of the TSD. In the 

engineering analysis, DOE examined 

several low-NOX pool heaters and 

believes its analysis is representative of 

both types of pool heaters. Chapter 12 

of the TSD also addresses in greater 

detail the issue of cumulative regulatory 

burden. 

g. Impacts on Manufacturers That Are 

Small Businesses 

As discussed in the December 2009 

NOPR, DOE identified small business 

manufacturers of all three types of 

heating products. 74 FR 65852, 65953– 

54 (Dec. 11, 2009). Due to the large 

number of comments about the impacts 

on traditional DHE manufacturers, DOE 

has moved and addressed all these 

comments in sections IV.I and VII.B. 

Section VII.B also contains DOE’s 

discussion about the impacts of 

amended energy conservation standards 

on small business manufacturers. 

3. National Net Present Value of 

Consumer Costs and Benefits and 

National Employment Impacts 

The NPV analysis estimates the 

cumulative benefits or costs to the 

Nation of total heating product 

consumer costs and savings that would 

result from particular standard levels. 

The NPV analysis estimates the national 

economic impacts of each such level 

relative to the base case. In accordance 

with the OMB Circular A–4, DOE 

calculated the NPV using both a 7- 

percent and a 3-percent real discount 

rate. Table VI.38 through Table VI.40 

show the consumer NPV results for each 

TSL DOE considered for the three types 

of heating products. See chapter 10 of 

the December 2009 NOPR TSD for more 

detailed NPV results. 

TABLE VI.38—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR WATER HEATERS

[Impacts for units sold from 2015 to 2045] 

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

billion 2009 dollars 

Discounted at 3%: 

Gas-Fired Storage ....... 2.72 ..................................... 3.13 3.13 3.13 2.38 2.78 3.13 ¥7.47 

Electric Storage ........... 1.35 ..................................... 2.10 3.46 3.96 5.84 5.84 19.80 32.24 

Oil-Fired Storage ......... 0.08 ..................................... 0.15 0.22 0.22 0.22 0.22 0.22 0.38 

Gas-Fired Instantaneous.0.24 ..................................... 0.24 0.24 0.24 0.24 0.24 0.24 ¥8.27 

Total ...................... 4.39 ..................................... 5.62 7.05 7.55 8.67 9.08 23.39 16.87 

Discounted at 7%: 

Gas-Fired Storage ....... 0.59 ..................................... 0.22 0.22 0.22 0.27 ¥0.10 0.22 ¥9.95 

Electric Storage ........... 0.35 ..................................... 0.61 0.85 0.73 1.03 1.03 ¥0.52 3.25 

Oil-Fired Storage ......... 0.03 ..................................... 0.06 0.09 0.09 0.09 0.09 0.09 0.15 

Gas-Fired Instantaneous.¥0.004 ............................... ¥0.004 ¥0.004 ¥0.004 ¥0.004 ¥0.004 ¥0.004 ¥5.02 

Total ...................... 0.96 ..................................... 0.88 1.55 1.03 1.39 1.01 ¥0.22 ¥11.57 

TABLE VI.39—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR DIRECT HEATING EQUIPMENT

[Impacts for units sold from 2013 to 2043] 

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2009 dollars 

Discounted at 3%: 

Gas Wall Fan ................................... 0.06 ......................................................... 0.07 0.07 ¥0.01 0.06 ¥0.01 

Gas Wall Gravity ............................. 0.04 ......................................................... 0.04 0.07 0.07 ¥0.12 ¥0.12 

Gas Floor ......................................... 0.0002 ..................................................... 0.0002 0.0002 0.0002 0.0002 0.0002 

Gas Room ....................................... 0.01 ......................................................... 0.02 0.03 0.03 0.20 0.20 

Gas Hearth ...................................... 1.21 ......................................................... 1.21 1.21 ¥1.35 ¥1.35 ¥5.04 

Total .......................................... 1.32 ......................................................... 1.34 1.39 ¥1.26 ¥1.22 ¥4.97 

Discounted at 7%: 

Gas Wall Fan ................................... 0.02 ......................................................... 0.03 0.03 ¥0.03 0.02 ¥0.03 


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TABLE VI.39—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR DIRECT HEATING EQUIPMENT— 

Continued 

[Impacts for units sold from 2013 to 2043] 

Product class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

Gas Wall Gravity ............................. 0.01 ......................................................... 0.01 0.02 0.02 ¥0.14 ¥0.14 

Gas Floor ......................................... 0.0001 ..................................................... 0.0001 0.0001 0.0001 0.0001 0.0001 

Gas Room ....................................... 0.003 ....................................................... 0.01 0.01 0.01 0.07 0.07 

Gas Hearth ...................................... 0.50 ......................................................... 0.50 0.50 ¥1.19 ¥1.19 ¥4.28 

Total .......................................... 0.54 ......................................................... 0.55 0.56 ¥1.19 ¥1.24 ¥4.38 

TABLE VI.40—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR POOL HEATERS

[Impacts for units sold from 2013 to 2043] 

TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

billion 2009 dollars 

Discounted at 3% ............................................................. 0.10 0.10 ¥0.01 ¥0.15 ¥2.33 ¥4.57 

Discounted at 7% ............................................................. 0.04 0.04 ¥0.06 ¥0.16 ¥1.39 ¥2.87 

DOE also estimated for each TSL the 

indirect employment impact of 

standards—the impact on the economy 

in general—in addition to considering 

the direct employment impacts on 

manufacturers of products covered in 

this rulemaking as discussed in section 

IV.I.4. DOE expects that consumers will 

redirect the net monetary savings from 

standards to other forms of economic 

activity, and that these shifts in 

spending and economic activity will 

affect the demand for labor. As shown 

in Table VI.41, DOE estimates that net 

indirect employment impacts from 

energy conservation standards for water 

heaters would be positive, though very 

small relative to total national 

employment. These increases would 

likely be sufficient to offset fully any 

adverse impacts on employment that 

might occur in the water heater 

industry. The estimated impacts from 

the amended standards for DHE and 

pool heaters are much smaller. For 

details on the employment impact 

analysis methods and results, see TSD 

Chapter 14. 

TABLE VI.41—INCREASE IN NATIONAL INDIRECT EMPLOYMENT UNDER WATER HEATER TSLS

Trial standard level 2015 thousands 

2020 thousands 2030 thousands 2044 thousands 

1 ....................................................................................................................... ¥0.40 0.44 1.56 2.06 

2 ....................................................................................................................... ¥0.72 0.48 2.08 2.80 

3 ....................................................................................................................... ¥0.83 1.04 3.54 4.60 

4 ....................................................................................................................... ¥0.97 1.43 4.63 5.96 

5 ....................................................................................................................... ¥0.85 3.07 8.34 10.41 

6 ....................................................................................................................... ¥1.20 2.89 8.37 10.56 

7 ....................................................................................................................... ¥3.89 12.70 34.97 43.46 

8 ....................................................................................................................... ¥8.21 13.82 43.69 56.26 

4. Impact on Utility or Performance of 

Products 

As indicated in section III.D.1.d, DOE 

has concluded that the TSLs it 

considered for the three types of heating 

products would not lessen the utility or 

performance of those products. 

Manufacturers of these products 

currently offer heating products that 

meet or exceed the efficiency levels 

being considered and would not 

necessitate changes in product design 

that would reduce the overall utility or 

performance of the three types of 

heating products that are the subject of 

this rulemaking. Therefore, DOE has 

concluded that none of the TSLs 

presented in today’s final rule would 

reduce the utility or performance of the 

products under consideration. 

5. Impact of Any Lessening of 

Competition 

As discussed in the December 2009 

NOPR (74 FR 65852, 65863, 65956 (Dec. 

11, 2009)) and in section III.D.1.e of this 

preamble, DOE considers any lessening 

of competition likely to result from 

standards; the Attorney General 

determines, in writing, the impact, if 

any, of any such lessening of 

competition. (42 U.S.C. 

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

Attorney General’s determination (DOJ 

determination) is summarized below, 

along with DOE’s response, and it is 

also reprinted in its entirety at the end 

of this final rule. 

After considering the NOPR, DOJ 

determined that DOE’s proposed 

standards for water heaters, pool 

heaters, and gas hearth DHE are not 

likely to lead to a lessening of 

competition; however, DOJ expressed 

concern that the proposed standards 

could adversely affect competition in 

the traditional DHE product categories. 

DOJ noted that only three manufacturers 

currently market products for each of 

the four traditional DHE categories. DOJ 

stated that the proposed standards could 

require manufacturers, even those 

currently producing models that meet 

the proposed standards, to make a 

substantial capital investment to convert 

or expand their production facilities. 

DOJ also stated that it also appeared that 

each manufacturer would have to 

commit significant resources for 

research and development. DOJ believed 

these costs create a significant risk that 


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no more than one or two DHE 

manufacturers would choose to 

continue to produce products in any 

one DHE category. DOJ asked DOE to 

consider the possible impact on 

competition in determining its final 

energy efficiency standards for DHE. 

(DOJ, No. 99 at p. 2) 

DOE is also concerned about the 

impacts on competition in the 

traditional DHE market. For any new or 

amended energy conservation standard, 

DOE must consider the impacts on 

manufacturers and consumers of the 

products in addition to the impacts of 

any lessening of competition. (42 U.S.C. 

6295(o)(2)(B)(i)) DOE notes that the 

potential impacts on small business 

manufacturers factored heavily in DOE’s 

proposed standard. 74 FR 65852, 

65972–73 (Dec. 11, 2009). 

DOE has carefully considered the 

potential adverse impacts on traditional 

DHE manufacturers in setting the 

amended energy conservation standards 

(see section VI.D.3). In total, DOE 

estimates that it will take approximately 

$4.6 million for the traditional DHE 

industry to upgrade all of it products to 

meet the amended energy conservation 

standards. Despite including the 

conversion costs for the additional 

product lines that were released since 

the December 2009 NOPR analysis was 

completed, the total conversion costs 

estimated by the industry to upgrade all 

products that do not meet the amended 

energy conservation standards is down 

$1.8 million from the $6.4 million total 

estimated for the proposed standards in 

the December 2009 NOPR. The 

conversion costs have been revised 

downward for gas wall gravity DHE due 

to the changes in the engineering 

analysis and a new TSL structure for gas 

wall gravity DHE that resulted in AFUE 

requirements that were 5 percentage 

points less stringent than the level 

proposed in the December 2009 NOPR. 

Finally, for other product categories, 

setting a lower TSL than proposed in 

the December 2009 NOPR also resulted 

in fewer product lines across the 

industry that need to be upgraded to 

meet the level established by today’s 

final rule. 

For the amended energy conservation 

standards for traditional DHE, one major 

manufacturer has a total of 3 product 

lines (7 models) that do not meet the 

amended energy conservation standards 

in the two smallest categories (gas floor 

and gas room DHE) but has a majority 

of product lines and models that meet 

the amended standards in the two 

largest product categories (gas wall fan 

and gas wall gravity). The other two 

major manufacturers have existing 

product lines that meet the amended 

energy conservation standards in all 4 

product categories. Therefore, without 

incurring any conversion costs, at least 

two manufacturers already have existing 

products in all four product categories. 

In the most important gas wall gravity 

category, 57 percent of the existing 

models and 71 percent of the existing 

product lines identified by DOE already 

meet the amended energy conservation 

standards. One manufacturer indicated 

in written comments that the important 

gas wall gravity products that meet the 

amended energy conservation standard 

represent a small portion of total sales. 

However, DOE believes it has addressed 

the concerns of this manufacturer by 

setting an amended energy conservation 

standard that would require much less 

substantial changes than those proposed 

in the December 2009 NOPR (a two 

percentage point improvement in AFUE 

versus the six percentage point 

improvement in AFUE proposed in the 

December 2009 NOPR). While the $4.6 

million in total conversion costs to 

upgrade all product lines that do not 

meet the amended energy conservation 

standards is substantial, DOE believes 

that a combination of products that meet 

the amended energy conservation 

standards and selectively upgrading 

popular product lines that fall below the 

standards will allow all three traditional 

DHE manufacturers to maintain a viable 

production volume. Because DOE has 

fully addressed the comments raised 

about the impacts on traditional DHE 

manufacturers, has considered the 

potential impacts on small business 

manufacturers of traditional DHE, and 

has adopted a less stringent standard 

than originally proposed for these 

products, DOE believes it has taken the 

potential impacts on competition in the 

traditional DHE market into 

consideration for today’s final rule. 

DOE also prepared a final regulatory 

flexibility analysis (FRFA) for direct 

heating equipment pursuant to the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.). In particular, the FRFA 

carefully considers the impacts of the 

rule on the two manufacturers in the 

traditional DHE market that are small 

businesses. DOE’s FRFA is found in 

section VII.B of today’s final rule. 

Several comments on the December 

2009 NOPR raised issues related to 

competitive impacts. These comments 

and DOE’s response are discussed 

below. In both its written submission 

and comments at the NOPR public 

meeting, Empire expressed concern 

about the potential for amended 

standards to create monopolies in 

certain DHE product categories. 

(Empire, Public Meeting Transcript, No. 

57.4 at p. 300; Empire, No. 100 at p. 1) 

In addition, Empire stated that in order 

to increase efficiency, the industry 

would need to spend millions of dollars. 

With the small number of shipments 

and the shrinking market for traditional 

DHE, Empire opined that manufacturers 

would likely eliminate product 

categories. For those few categories 

where only one manufacturer meets the 

minimums (e.g., floor furnaces), a 

monopoly would be created. (Empire, 

No. 100 at p. 2) 

In response and as noted above, DOE 

is concerned about the impacts on 

competition in the traditional DHE 

market and has considered these 

impacts for today’s final rule. In 

response to the concern that the 

amended energy conservation standards 

could create a monopoly in the floor 

furnace category, DOE notes that two of 

the major manufacturers currently offer 

products in the AHRI certification 

database that meet the required 

efficiencies, which implies that the 

creation of a monopoly is unlikely to 

result due to amended energy 

conservation standards. Additionally, 

DOE also recognizes that the traditional 

DHE market is mostly a replacement 

market. Even if only one manufacturer 

offered floor furnaces, for example, in 

response to the energy conservation 

standards, all other DHE categories are 

also potential substitutes. Finally, DOE 

has included the conversion costs for 

manufacturers to convert all existing 

products that do not meet the required 

efficiencies. While manufacturers 

currently in the industry would likely 

upgrade their most popular products 

that did not meet the standards, DOE 

notes that these conversion costs could 

also be made by manufacturers that are 

not currently in the market (i.e., new 

entrants to the market). 

Rheem stated that the U.S. residential 

water heater market currently has little 

or no presence of max-tech systems. 

Rheem commented that as a current 

manufacturer of conventional storage 

water heater products, it would be 

competitively disadvantaged by a 

standard at TSL 5 or higher in the 

December 2009 NOPR, as compared to 

companies that do not manufacture 

conventional technology. (Rheem, No. 

89 at p. 9) 

In response, DOE does not believe 

offering conventional technology would 

place a manufacturer at a disadvantage 

if DOE selected a TSL that used 

advanced technology. While TSL 5 or 

higher would drive a market for the 

advanced technology, full-line 

manufacturers that offer commercial 

condensing products, for example, 

could actually be in a better position 

because of their experience with the 


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condensing technology. Most water 

heaters sales are made on a replacement 

basis. The large installed base of 

existing manufacturers could make it 

more difficult for new entrants to gain 

market share if customers look for a 

similar replacement. Also, the major 

manufacturers have very established 

brands. In short, there are too many 

factors to conclude that manufacturers 

who produce conventional storage water 

heaters would be placed at a 

competitive disadvantage. 

Bock claimed that the proposed 

amended energy conservation standards 

for oil-fired water heaters would lessen 

competition. Bock stated that many 

manufacturers have exited the market 

since the last water heater rulemaking in 

the 1990s (Bock, No. 101 at p. 3) 

In response, DOE notes that whether 

a given manufacturer chooses to exit the 

residential oil-fired water heater market 

will depend on a variety of internal and 

external factors, and DOE also believes 

that the decision of any manufacturer to 

exit the market would not necessarily 

result in a lessening of competition. 

Consumers today have a number of fuel 

sources that could be substituted for oilfired products if any decrease in 

competition resulted in higher prices for 

consumers. Furthermore, any increase 

in prices could also attract new entrants 

to the market. While there are only two 

manufacturers that have a significant 

market share in the residential oil-fired 

water heater market, there are a number 

of manufacturers that offer lower 

volumes of residential oil-fired water 

heaters, commercial oil-fired water 

heaters, and oil-fired boilers. Any of 

these manufacturers could find it 

attractive to enter this market or expand 

production, if other manufacturers 

exited the residential oil-fired water 

heater market. Finally, as noted above, 

DOJ did not express concern about the 

potential lessening of competition in the 

oil-fired water heater market at the 

proposed standard level. (DOJ, No. 99 at 

pp. 1–2) 

6. Need of the Nation To Conserve 

Energy 

Improving the energy efficiency of 

heating products, where economically 

justified, would likely improve the 

security of the Nation’s energy system 

by reducing overall demand for energy, 

thereby reducing the Nation’s reliance 

on foreign sources of energy. Reduced 

electricity demand may also improve 

the reliability of the electricity system, 

particularly during peak-load periods. 

As a measure of this reduced demand, 

DOE expects the energy savings from 

today’s standards for the three types of 

heating products to eliminate the need 

for approximately 0.857 gigawatts (GW) 

of generating capacity by 2045. 

As discussed in section IV.K.1, DOE 

analyzed the potential impact on natural 

gas prices resulting from amended 

standards on water heaters and the 

associated benefits for all natural gas 

users in all sectors of the economy. DOE 

also analyzed the potential impact on 

electricity prices resulting from 

amended standards on water heaters 

and the associated benefits for all 

electricity users in all sectors of the 

economy. The estimated present value 

of the benefits to consumers are 

presented in chapter 13 of the TSD. 

As discussed in section IV.K.1, DOE 

believes that there is uncertainty about 

the extent to which the calculated 

impacts from reduced energy prices are 

a benefits transfer from energy 

producers to energy consumers. 

Therefore, DOE has concluded that, at 

present, it should not give a heavy 

weight to this factor in its consideration 

of the economic justification of 

standards on heating products. DOE is 

continuing to investigate the extent to 

which benefits associated with change 

in energy prices projected to result from 

standards represents a net gain to 

society. 

Enhanced energy efficiency also 

produces environmental benefits in the 

form of reduced emissions of air 

pollutants and greenhouse gases 

associated with energy production. 

Table VI.42 and Table VI.43 provide 

DOE’s estimate of cumulative CO2, NOX, 

and Hg emissions reductions expected 

to result from the TSLs considered in 

this rulemaking. The estimated 

cumulative CO2, NOX, and Hg emissions 

reductions for the standards in today’s 

rule are 164 Mt for CO2, 125 kt for NOX, 

and 0.54 tons for Hg. The expected 

energy savings from these standards 

may also reduce the cost of maintaining 

nationwide emissions standards and 

constraints. In the environmental 

assessment (chapter 16 of the TSD), 

DOE reports estimated annual changes 

in CO2, NOX, and Hg emissions 

attributable to each TSL. 

TABLE VI.42—SUMMARY OF EMISSIONS REDUCTIONS UNDER WATER HEATER TSLS

[Cumulative for products sold from 2015 to 2045] 

Emission type 

TSL 

1 2 3 4 5 6 7 8 

CO2 (Mt) ........................................................... 74.3 122 131 137 154 209 609 1,001 

NOX (kt) ........................................................... 57.5 94.3 101 106 116 159 456 755 

Hg (t) ................................................................ 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59 

TABLE VI.43—SUMMARY OF EMISSIONS REDUCTIONS UNDER DIRECT HEATING EQUIPMENT AND POOL HEATER TSLS

[Cumulative for products sold from 2013 to 2043] 

Emission type 

TSL 

1 2 3 4 5 6 

Direct Heating Equipment 

CO2 (Mt) ........................................................................... 8.3 8.8 9.3 17.9 20.2 49.9 

NOX (kt) ........................................................................... 7.5 8.1 8.5 16.4 18.6 46.0 

Hg (t) ................................................................................ (0.01) (0.01) (0.01) 0.03 0.03 0.08 

Pool Heaters 

CO2 (Mt) ........................................................................... 0.41 0.75 1.72 2.38 3.61 8.89 


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TABLE VI.43—SUMMARY OF EMISSIONS REDUCTIONS UNDER DIRECT HEATING EQUIPMENT AND POOL HEATER TSLS— 

Continued 

[Cumulative for products sold from 2013 to 2043] 

Emission type 

TSL 

1 2 3 4 5 6 

NOX (kt) ........................................................................... 0.37 0.67 1.53 2.10 3.18 7.84 

Hg (t) ................................................................................ 0.00 0.00 0.00 0.00 0.00 0.00 

As noted in section IV.L of this final 

rule, DOE does not report SO2 emissions 

reductions from power plants because 

DOE is uncertain that an energy 

conservation standard would affect the 

overall level of U.S. SO2 emissions due 

to emissions caps. DOE also did not 

include NOX emissions reduction from 

power plants in States subject to CAIR 

because an energy conservation 

standard would likely not affect the 

overall level of NOX emissions in those 

States due to the emissions caps 

mandated by CAIR. 

It should be noted that, for DHE, DOE 

estimates a very small increase in Hg 

emissions under the adopted standard. 

The reason for this result is that the 

more-efficient products save natural gas, 

but they also use more electricity due to 

electronic ignition and, for some DHE 

TSLs, use of a fan. This results in higher 

electricity generation than in the AEO 

Reference Case, which leads to higher 

emissions. For CO2 and NOX, the higher 

emissions from the power sector are 

more than canceled out by lower 

household emissions from gas 

combustion, such that total emissions 

decrease under the considered TSLs. 

For Hg, this is not the case because there 

are no offsetting household emissions. 

In the December 2009 NOPR, DOE 

investigated and considered the 

potential monetary benefit of reduced 

CO2 emissions that could result from the 

TSLs it considered. 74 FR 65852, 

65924–28 (Dec. 11, 2009). DOE valued 

the potential global benefits resulting 

from such reductions at the interim 

values of $5, $10, $20, $34, and $57 per 

metric ton in 2007 (in 2008$), and also 

valued the domestic benefits at 

approximately $1 per metric ton. For 

today’s final rule, DOE has updated its 

analysis to reflect the outcome of the 

most recent interagency process 

regarding the social cost of carbon 

dioxide emissions (SCC). See section 

IV.M for a full discussion. The four 

values of CO2 emissions reductions 

resulting from that process (expressed in 

2007$) are $4.70/ton (the average value 

from a distribution that uses a 5-percent 

discount rate), $21.40/ton (the average 

value from a distribution that uses a 3- 

percent discount rate), $35.10/ton (the 

average value from a distribution that 

uses a 2.5-percent discount rate), and 

$64.90/ton (the 95th-percentile value 

from a distribution that uses a 3-percent 

discount rate). These values correspond 

to the value of emission reductions in 

2010; the values for later years are 

higher due to increasing damages as the 

magnitude of climate change increases. 

Table VI.44, Table VI.45, and Table 

VI.46 present the global values of 

emissions reductions at each TSL. For 

each of the four cases, DOE calculated 

a present value of the stream of annual 

values using the same discount rate as 

was used in the studies upon which the 

dollar-per-ton values are based. DOE 

calculated domestic values as a range 

from 7 percent to 23 percent of the 

global values, and these results are 

presented in Table VI.47, Table VI.48, 

and Table VI.49. 

TABLE VI.44—ESTIMATES OF GLOBAL PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2015–2045 

UNDER WATER HEATER TRIAL STANDARD LEVELS

TSL 

Cumulative CO2

emission reductions, Mt 

Global Value of CO2 Emission Reductions, Million 2009$ 

5% discount 

rate, average* 

3% discount 

rate, average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 ....................................................................................... 74 .3 266 1,351 2,285 4,122 

2 ....................................................................................... 122 436 2,213 3,742 6,750 

3 ....................................................................................... 131 468 2,374 4,014 7,242 

4 ....................................................................................... 137 492 2,496 4,220 7,614 

5 ....................................................................................... 154 524 2,682 4,545 8,179 

6 ....................................................................................... 209 714 3,653 6,190 11,142 

7 ....................................................................................... 609 2,060 10,560 17,898 32,204 

8 ....................................................................................... 1,001 3,399 17,411 29,505 53,098 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the 

distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 


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TABLE VI.45—ESTIMATES OF GLOBAL PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2013–2043 

UNDER DIRECT HEATING EQUIPMENT TRIAL STANDARD LEVELS

TSL 

Cumulative 

CO2 emission 

reductions, Mt 

Global value of CO2 emission reductions, million 2009$ 

5% discount 

rate, average* 

3% discount 

rate, average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 ........................................................................................... 8.2 31 154 259 470 

2 ........................................................................................... 8.8 33 165 278 503 

3 ........................................................................................... 9.3 35 174 293 530 

4 ........................................................................................... 17.9 67 335 565 1,023 

5 ........................................................................................... 20.2 76 378 637 1,154 

6 ........................................................................................... 49.9 187 933 1,572 2,849 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the 

distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 

TABLE VI.46—ESTIMATES OF GLOBAL PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2013–2043 

UNDER POOL HEATER TRIAL STANDARD LEVELS

TSL 

Cumulative 

CO2 emission 

reductions, Mt 

Global value of CO2 emission reductions, million 2009$ 

5% discount 

rate, average* 

3% discount 

rate, average* 

2.5% discount 

rate, average* 

3% discount 

rate, 95th 

percentile* 

1 ........................................................................................... 0.4 2 8 13 24 

2 ........................................................................................... 0.8 3 14 24 43 

3 ........................................................................................... 1.7 6 32 54 99 

4 ........................................................................................... 2.4 9 45 75 136 

5 ........................................................................................... 3.6 14 68 114 206 

6 ........................................................................................... 8.9 33 167 281 509 

* Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the 

distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 

TABLE VI.47—ESTIMATES OF DOMESTIC PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2015–2045 

UNDER WATER HEATER TRIAL STANDARD LEVELS

TSL 

Domestic value of CO2 emission reductions, million 2009$ * 

5% discount rate, 

average** 

3% discount rate, 

average** 

2.5% discount 

rate, average** 

3% discount rate, 

95th percentile** 

1 .................................................................................................... 18.6 to 61.3 ........ 94.6 to 311 ......... 160 to 526 .......... 289 to 948. 

2 .................................................................................................... 30.5 to 100 ......... 155 to 509 .......... 262 to 861 .......... 473 to 1,553. 

3 .................................................................................................... 32.8 to 108 ......... 166 to 546 .......... 281 to 923 .......... 507 to 1,666. 

4 .................................................................................................... 34.4 to 113 ......... 175 to 574 .......... 295 to 971 .......... 533 to 1,751. 

5 .................................................................................................... 36.7 to 120 ......... 188 to 617 .......... 318 to 1,045 ....... 573 to 1,881. 

6 .................................................................................................... 50.0 to 164 ......... 256 to 840 .......... 433 to 1,424 ....... 780 to 2,563. 

7 .................................................................................................... 144 to 474 .......... 739 to 2,429 ....... 1,253 to 4,117 .... 2,254 to 7,407. 

8 .................................................................................................... 248 to 782 .......... 1,219 to 4,005 .... 2,065 to 6,786 .... 3,717 to 12,212. 

* Domestic values are presented as a range between 7% and 23% of the global values. 

** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the 

distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 

TABLE VI.48—ESTIMATES OF DOMESTIC PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2013–2043 

UNDER DIRECT HEATING EQUIPMENT TRIAL STANDARD LEVELS

TSL 

Domestic value of CO2 emission reductions, million 2009$ * 

5% discount rate, 

average** 

3% discount rate, 

average** 

2.5% discount 

rate, average** 

3% discount rate, 

95th percentile** 

1 .................................................................................................... 2.2 to 7.1 ............ 10.8 to 35.4 ........ 18.2 to 59.6 ........ 32.9 to 108.0. 

2 .................................................................................................... 2.3 to 7.6 ............ 11.5 to 37.9 ........ 19.5 to 63.9 ........ 35.2 to 115.8. 

3 .................................................................................................... 2.4 to 8.0 ............ 12.2 to 39.9 ........ 20.5 to 67.3 ........ 37.1 to 121.9. 

4 .................................................................................................... 4.7 to 15.4 .......... 23.5 to 77.1 ........ 39.5 to 129.9 ...... 71.6 to 235.4. 

5 .................................................................................................... 5.3 to 17.4 .......... 26.5 to 87.0 ........ 44.6 to 146.6 ...... 80.8 to 265.5. 

6 .................................................................................................... 13.1 to 43.0 ........ 65.3 to 214.7 ...... 110.1 to 361.7 .... 199.4 to 655.2. 

* Domestic values are presented as a range between 7% and 23% of the global values. 


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** Columns are labeled by the discount rate used to calculate SCC and whether it is an average value or drawn from a different part of the distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 

TABLE VI.49—ESTIMATES OF DOMESTIC PRESENT VALUE OF CO2 EMISSIONS REDUCTIONS FOR THE PERIOD 2013–2043 

UNDER POOL HEATERS TRIAL STANDARD LEVELS

TSL 

Domestic value of CO2 emission reductions, million 2009$ * 

5% discount rate, 

average** 

3% discount rate, 

average** 

2.5% discount 

rate, average** 

3% discount rate, 

95th percentile** 

1 .................................................................................................... 0.1 to 0.4 ............ 0.5 to 1.8 ............ 0.9 to 3.0 ............ 1.7 to 5.5. 

2 .................................................................................................... 0.2 to 0.7 ............ 1.0 to 3.2 ............ 1.7 to 5.4 ............ 3.0 to 9.9. 

3 .................................................................................................... 0.5 to 1.5 ............ 2.3 to 7.4 ............ 3.8 to 12.5 .......... 6.9 to 22.7. 

4 .................................................................................................... 0.6 to 2.1 ............ 3.1 to 10.3 .......... 5.3 to 17.3 .......... 9.5 to 31.4. 

5 .................................................................................................... 1.0 to 3.1 ............ 4.7 to 15.5 .......... 8.0 to 26.2 .......... 14.4 to 47.5. 

6 .................................................................................................... 2.3 to 7.7 ............ 11.7 to 38.3 ........ 19.6 to 64.6 ........ 35.6 to 117.0. 

* Domestic values are presented as a range between 7% and 23% of the global values. 

** Columns are labeled by the discount rate used to calculate the SCC and whether it is an average value or drawn from a different part of the 

distribution. Values presented in the table are based on escalating 2007$ to 2009$ for consistency with other values presented in this notice, and 

incorporate the escalation of the SCC with each year. 

DOE is well aware that scientific and 

economic knowledge about the 

contribution of CO2 and other GHG 

emissions to changes in the future 

global climate and the potential 

resulting damages to the world economy 

continues to evolve rapidly. Thus, any 

value placed in this rulemaking on 

reducing CO2 emissions is subject to 

change. DOE, together with other 

Federal agencies, will continue to 

review various methodologies for 

estimating the monetary value of 

reductions in CO2 and other GHG 

emissions. This ongoing review will 

consider the comments on this subject 

that are part of the public record for this 

and other rulemakings, as well as other 

methodological assumptions and issues. 

However, consistent with DOE’s legal 

obligations, and taking into account the 

uncertainty involved with this 

particular issue, DOE has included in 

this rule the most recent values and 

analyses resulting from the ongoing 

interagency review process. 

DOE also estimated a range for the 

cumulative monetary value of the 

economic benefits associated with NOX

emissions reductions anticipated to 

result from amended standards for 

heating products. The dollar-per-ton 

values that DOE used are discussed in 

section IV.M of this final rule. Table 

VI.50 through Table VI.55 present the 

estimates calculated using sevenpercent and three-percent discount 

rates, respectively. 

TABLE VI.50—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER WATER HEATER TRIAL STANDARD

LEVELS AT A SEVEN-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 .................................................................................................................................................................... 57 .5 6.6 to 67.8. 

2 .................................................................................................................................................................... 94 .3 10.8 to 111. 

3 .................................................................................................................................................................... 101 11.6 to 119. 

4 .................................................................................................................................................................... 106 12.1 to 125. 

5 .................................................................................................................................................................... 116 11.0 to 113. 

6 .................................................................................................................................................................... 159 15.2 to 157. 

7 .................................................................................................................................................................... 456 42.6 to 438. 

8 .................................................................................................................................................................... 755 71.4 to 734. 

TABLE VI.51—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER WATER HEATER TRIAL STANDARD

LEVELS AT A THREE-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 .................................................................................................................................................................... 57 .5 13.7 to 141. 

2 .................................................................................................................................................................... 94 .3 22.5 to 231. 

3 .................................................................................................................................................................... 101 24.0 to 247. 

4 .................................................................................................................................................................... 106 25.2 to 259. 

5 .................................................................................................................................................................... 116 25.4 to 261. 

6 .................................................................................................................................................................... 159 34.9 to 358. 

7 .................................................................................................................................................................... 456 99.1 to 1,018. 

8 .................................................................................................................................................................... 755 165 to 1,694. 


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TABLE VI.52—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER DIRECT HEATING EQUIPMENT TRIAL

STANDARD LEVELS AT A SEVEN-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 ...................................................................................................................................................................... 7.5 1.0 to 10.2. 

2 ...................................................................................................................................................................... 8.1 1.1 to 10.9. 

3 ...................................................................................................................................................................... 8.5 1.1 to 11.4. 

4 ...................................................................................................................................................................... 16.4 2.2 to 22.3. 

5 ...................................................................................................................................................................... 18.6 2.5 to 25.3. 

6 ...................................................................................................................................................................... 46.0 6.1 to 62.5. 

TABLE VI.53—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER DIRECT HEATING EQUIPMENT TRIAL

STANDARD LEVELS AT A THREE-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 ...................................................................................................................................................................... 7.5 1.9 to 19.6. 

2 ...................................................................................................................................................................... 8.1 2.0 to 21.0. 

3 ...................................................................................................................................................................... 8.5 2.1 to 22.1. 

4 ...................................................................................................................................................................... 16.4 4.2 to 42.9. 

5 ...................................................................................................................................................................... 18.6 4.7 to 48.7. 

6 ...................................................................................................................................................................... 46.0 11.7 to 120.2. 

TABLE VI.54—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER POOL HEATER TRIAL STANDARD

LEVELS AT A SEVEN-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 ...................................................................................................................................................................... 0.4 0.1 to 0.5. 

2 ...................................................................................................................................................................... 0.7 0.1 to 0.9. 

3 ...................................................................................................................................................................... 1.5 0.2 to 2.2. 

4 ...................................................................................................................................................................... 2.1 0.3 to 2.9. 

5 ...................................................................................................................................................................... 3.2 0.4 to 4.5. 

6 ...................................................................................................................................................................... 7.8 1.1 to 11.0. 

TABLE VI.55—ESTIMATES OF VALUE OF REDUCTIONS OF NOX EMISSIONS UNDER POOL HEATER TRIAL STANDARD

LEVELS AT A THREE-PERCENT DISCOUNT RATE

TSL 

Cumulative NOX

emission 

reductions, kt 

Value of NOX

emission 

reductions, 

million 2009$ 

1 ...................................................................................................................................................................... 0.4 0.1 to 1.0. 

2 ...................................................................................................................................................................... 0.7 0.2 to 1.8. 

3 ...................................................................................................................................................................... 1.5 0.4 to 4.1. 

4 ...................................................................................................................................................................... 2.1 0.5 to 5.6. 

5 ...................................................................................................................................................................... 3.2 0.8 to 8.4. 

6 ...................................................................................................................................................................... 7.8 2.0 to 20.8. 

The NPV of the monetized benefits 

associated with emissions reductions 

can be viewed as a complement to the 

NPV of the consumer savings calculated 

for each TSL considered in this 

rulemaking. Table VI.57 through Table 

VI.62 present the NPV values for heating 

products that would result if DOE were 

to add the estimates of the potential 

economic benefits resulting from 

reduced CO2 and NOX emissions in each 

of four valuation scenarios to the NPV 

of consumer savings calculated for each 

TSL considered in this rulemaking, at 

both a seven-percent and three-percent 

discount rate. The CO2 values used in 

the columns of each table correspond to 

the four scenarios for the valuation of 

CO2 emission reductions presented in 

section IV.M. Table VI.56 shows an 

example of the calculation of the NPV 

including benefits from emissions 

reductions for the case of TSL 5 for 

water heaters. 

Although adding the value of 

consumer savings to the values of 

emission reductions provides a valuable 

perspective, the following should be 

considered: (1) The national consumer 

savings are domestic U.S. consumer 


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monetary savings found in market 

transactions, while the values of 

emissions reductions are based on 

estimates of marginal social costs, 

which, in the case of CO2, are based on 

a global value; (2) The assessments of 

consumer savings and emission-related 

benefits are performed with different 

computer models, leading to different 

timeframes for analysis. For heating 

products, the present value of national 

consumer savings is measured for the 

period in which units shipped (2015 to 

2045 for water heaters, and 2013 to 2043 

for DHE and pool heaters) continue to 

operate. However, the time frames of the 

benefits associated with the emission 

reductions differ. For example, the 

value of CO2 emissions reductions 

reflects the present value of all future 

climate-related impacts due to emitting 

a ton of carbon dioxide in that year, out 

to 2300. 

TABLE VI.56—ESTIMATE OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS TO PRESENT VALUE OF MONETIZED

BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TSL 5 FOR WATER HEATERS

Category Present value 

billion 2009$ 

Discount rate 

(percent) 

Benefits 

Operating Cost Savings ............................................................................................................................... 12.4 7 

29.2 3 

CO2 Monetized Value ..................................................................................................................................

(at $4.7/Metric Ton)* .................................................................................................................................... 0.5 5 

CO2 Monetized Value ..................................................................................................................................

(at $21.4/Metric Ton)* .................................................................................................................................. 2.7 3 

CO2 Monetized Value ..................................................................................................................................

(at $35.1/Metric Ton)* .................................................................................................................................. 4.5 2.5 

CO2 Monetized Value ..................................................................................................................................

(at $64.9/Metric Ton)* .................................................................................................................................. 8.2 3 

NOX Monetized Value .................................................................................................................................

(at $2,437/Metric Ton) ................................................................................................................................. 0.1 7 

0.1 3 

Total Monetary Benefits ** ........................................................................................................................... 15.2 7 

32.1 3 

Costs 

Total Monetary Costs .................................................................................................................................. ¥11.1 7 

¥20.6 3 

Net Benefits/Costs 

Including CO2 and NOX** ............................................................................................................................ 4.1 7 

11.5 3 

* These values represent global values (in 2007$) of the social cost of CO2 emissions in 2010 under several scenarios. The values of $4.7, 

$21.4, and $35.1 per ton are the averages of SCC distributions calculated using 5%, 3%, and 2.5% discount rates, respectively. The value of 

$64.9 per ton represents the 95th percentile of the SCC distribution calculated using a 3% discount rate. See section IV.M for details. 

** Total Monetary Benefits for both the 3% and 7% cases utilize the central estimate of social cost of CO2 emissions calculated at a 3% discount rate (averaged across three IAMs), which is equal to $21.4/ton in 2010 (in 2007$). 

TABLE VI.57—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 7% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR WATER HEATERS

TSL 

Consumer NPV at 7% discount rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and Low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and Medium 

value for NOX*** 

billion 2009$ 

CO2 Value of 

$35.1/metric ton 

CO2* and Medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and high 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 1.24 2.35 3.29 5.15 

2 ............................................................................................... 1.33 3.16 4.69 7.74 

3 ............................................................................................... 1.63 3.59 5.23 8.52 

4 ............................................................................................... 1.54 3.60 5.32 8.77 

5 ............................................................................................... 1.92 4.13 5.99 9.68 

6 ............................................................................................... 1.74 4.75 7.29 12.31 

7 ............................................................................................... 1.89 10.59 17.92 32.43 

8 ............................................................................................... (8.10) 6.24 18.34 42.26 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low values correspond to $447 per ton of NOX emissions. 

*** Medium values correspond to $2,519 per ton of NOX emissions. 

**** High values correspond to $4,591 per ton of NOX emissions. 


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TABLE VI.58—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 3% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR WATER HEATERS

TSL 

Consumer NPV at 3% Discount Rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and Low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and Medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$35.1/metric ton 

CO2* and Medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and High 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 4.67 5.82 6.75 8.65 

2 ............................................................................................... 6.08 7.96 9.49 12.60 

3 ............................................................................................... 7.54 9.56 11.20 14.54 

4 ............................................................................................... 8.07 10.19 11.91 15.42 

5 ............................................................................................... 9.22 11.50 13.36 17.11 

6 ............................................................................................... 9.83 12.93 15.47 20.58 

7 ............................................................................................... 25.55 34.51 41.84 56.61 

8 ............................................................................................... 20.44 35.21 47.31 71.67 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low value corresponds to $447 per ton of NOX emissions. 

*** Medium value corresponds to $2,519 per ton of NOX emissions. 

**** High value corresponds to $4,591 per ton of NOX emissions. 

TABLE VI.59—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 7% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR DIRECT HEATING EQUIPMENT

TSL 

Consumer NPV at 7% discount rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$35.1/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and high 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 0.58 0.70 0.81 1.02 

2 ............................................................................................... 0.61 0.74 0.86 1.09 

3 ............................................................................................... 0.60 0.74 0.86 1.10 

4 ............................................................................................... (1.12) (0.84) (0.61) (0.14) 

5 ............................................................................................... (1.16) (0.85) (0.59) (0.06) 

6 ............................................................................................... (4.18) (3.41) (2.77) (1.47) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low value corresponds to $447 per ton of NOX emissions. 

*** Medium value corresponds to $2,519 per ton of NOX emissions. 

**** High value corresponds to $4,591 per ton of NOX emissions. 

Parentheses indicate negative (¥) values. 

TABLE VI.60—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 3% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR DIRECT HEATING EQUIPMENT

TSL 

Consumer NPV at 3% discount rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$35.1/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and high 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 1.35 1.48 1.59 1.80 

2 ............................................................................................... 1.42 1.56 1.68 1.91 

3 ............................................................................................... 1.43 1.58 1.70 1.94 

4 ............................................................................................... (1.18) (0.90) (0.67) (0.19) 

5 ............................................................................................... (1.14) (0.81) (0.55) (0.02) 

6 ............................................................................................... (4.77) (3.97) (3.33) (2.00) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low value corresponds to $447 per ton of NOX emissions. 

*** Medium value corresponds to $2,519 per ton of NOX emissions. 

**** High value corresponds to $4,591 per ton of NOX emissions. 

Parentheses indicate negative (¥) values. 


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TABLE VI.61—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 7% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR POOL HEATERS

TSL 

Consumer NPV at 7% discount rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$35.1/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and high 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 0.05 0.05 0.06 0.07 

2 ............................................................................................... 0.04 0.05 0.06 0.08 

3 ............................................................................................... (0.05) (0.03) (0.00) 0.04 

4 ............................................................................................... (0.15) (0.11) (0.08) (0.02) 

5 ............................................................................................... (1.38) (1.32) (1.28) (1.18) 

6 ............................................................................................... (2.84) (2.70) (2.59) (2.35) 

* These label values per ton represent the global SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low value corresponds to $447 per ton of NOX emissions. 

*** Medium value corresponds to $2,519 per ton of NOX emissions. 

**** High value corresponds to $4,591 per ton of NOX emissions. 

Parentheses indicate negative (¥) values. 

TABLE VI.62—ESTIMATES OF ADDING NET PRESENT VALUE OF CONSUMER SAVINGS (AT 3% DISCOUNT RATE) TO NET

PRESENT VALUE OF LOW, CENTRAL, AND HIGH-END MONETIZED BENEFITS FROM CO2 AND NOX EMISSIONS REDUCTIONS AT TRIAL STANDARD LEVELS FOR POOL HEATERS

TSL 

Consumer NPV at 3% discount rate added with: 

CO2 value of $4.7/ 

metric ton CO2* 

and low value for 

NOX** 

billion 2009$ 

CO2 value of 

$21.4/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$35.1/metric ton 

CO2* and medium 

value for NOX*** 

billion 2009$ 

CO2 value of 

$64.9/metric ton 

CO2* and high 

value for NOX**** 

billion 2009$ 

1 ............................................................................................... 0.10 0.11 0.11 0.12 

2 ............................................................................................... 0.11 0.12 0.13 0.15 

3 ............................................................................................... (0.01) 0.02 0.04 0.09 

4 ............................................................................................... (0.14) (0.10) (0.07) (0.01) 

5 ............................................................................................... (2.31) (2.26) (2.21) (2.11) 

6 ............................................................................................... (4.53) (4.39) (4.28) (4.04) 

* These label values per ton represent the SCC of CO2 in 2010, in 2007$. Their present values have been calculated with scenario-consistent 

discount rates. See section IV.M for a full discussion of the derivation of these values. 

** Low value corresponds to $447 per ton of NOX emissions. 

*** Medium value corresponds to $2,519 per ton of NOX emissions. 

**** High value corresponds to $4,591 per ton of NOX emissions. 

Parentheses indicate negative (¥) values. 

7. Other Factors 

In determining whether a standard is 

economically justified, the Secretary of 

Energy may consider any other factors 

that the Secretary deems to be relevant. 

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

Secretary has decided that the LCC 

impacts on identifiable groups of 

consumers, such as senior citizens and 

residents of multi-family housing who 

may be disproportionately affected by 

any national energy conservation 

standard level, is a relevant factor. The 

impacts on the identified consumer 

subgroups are described in section 

VI.C.1.b above. DOE also believes that 

uncertainties associated with the heat 

pump water heater market (e.g., product 

availability, servicing, and 

manufacturability) are relevant to 

consider as described in section VI.D.2 

below. Lastly, DOE believes that another 

relevant consideration is the potential 

safety concerns surrounding gas-fired 

storage water heaters that are 

atmospherically vented with high 

recovery efficiencies that potentially 

may be installed with improper venting 

in certain installations, which are also 

discussed in section VI.D.2 below. 

D. Conclusion 

1. Overview 

As discussed above, EPCA contains a 

number of criteria and other provisions 

which must be followed when 

prescribing new or amended energy 

conservation standards. Specifically, the 

statute provides that any such standard 

for any type (or class) of covered 

product must be designed to achieve the 

maximum improvement in energy 

efficiency that the Secretary determines 

is technologically feasible and 

economically justified. (42 U.S.C. 

6295(o)(2)(A)) In determining whether a 

standard is economically justified, the 

Secretary must determine whether the 

benefits of the standard exceed its 

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

DOE must do so after receiving public 

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 the manufacturers and 

consumers of the products subject to 

such standard; 

2. The savings in operating costs 

throughout the estimated average life of 

the covered product in the type (or 

class) compared to any increase in the 

price of, initial charges for, or 

maintenance expenses of the covered 


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products likely to result from 

imposition of the standard; 

3. The total projected amount of 

energy (or, as applicable, water) savings 

likely to result directly from imposition 

of the standard; 

4. Any lessening of the utility or 

performance of the covered products 

likely to result from imposition of the 

standard; 

5. The impact of any lessening of 

competition, as determined in writing 

by the Attorney General, likely to result 

from 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)) 

A determination of whether a 

standard level is economically justified 

is not based on any one factor in 

isolation. The Secretary must weigh 

each of these seven factors in total. In 

addition, the Secretary may not 

establish any standard if such standard 

would not result in ‘‘significant 

conservation of energy’’ or ‘‘is not 

technologically feasible or economically 

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

Furthermore, EPCA’s ‘‘anti-backsliding’’ 

provision prohibits the Secretary from 

prescribing any amended standard that 

either increases the maximum allowable 

energy use or decreases the minimum 

required energy efficiency of a covered 

product. (42 U.S.C. 6295(o)(1)) 

In selecting today’s energy 

conservation standards for the three 

heating products, DOE started by 

examining whether the maximum 

technologically feasible levels were 

economically justified. Upon finding 

that the maximum technologically 

feasible levels were not economically 

justified, DOE analyzed the next lower 

TSL to determine whether that level was 

economically justified. DOE follows this 

procedure until it: (1) Identifies a TSL 

that is both technologically feasible and 

economically justified, and saves a 

significant amount of energy; or (2) 

determines that no TSL is economically 

justified. 

Tables in each section below for each 

of the three types of heating products 

summarize DOE’s quantitative 

analytical results for each TSL it 

considered for this final rule. These 

tables will aid the reader in 

understanding the costs and benefits of 

each TSL that DOE considered in 

adopting standards in this final rule. 

2. Water Heaters 

Table VI.63 summarizes the results of 

DOE’s quantitative analysis for each 

TSL it considered for this final rule for 

water heaters. 

TABLE VI.63—SUMMARY OF ANALYTICAL RESULTS FOR WATER HEATERS

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

National Energy Savings (quads) ........... 1.07 1.66 2.05 2.35 2.58 3.06 10.16 16.73 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate ....... 4.39 5.62 7.05 7.55 8.67 9.08 23.39 16.87 

7% discount rate ....... 0.96 0.88 1.15 1.03 1.39 1.01 (0.22) (11.57) 

Industry Impacts 

Gas-Fired and Electric Storage: 

Industry NPV 

(2009$ million) (4.9)–(14.2) (4.3)–(31.4) (5.2)–(38.3) (4.8)–(89.4) (25.9)–(122.6) (23.6)–(134.6) (10.5)–(350.2) 79.2–(647.0) 

Industry NPV (% 

change) ........... (0.6)–(1.6) (0.5)–(3.6) (0.6)–(4.3) (0.5)–(10.2) (2.9)–(13.9) (2.7)–(15.3) (1.2)–(39.8) 9.0–(73.5) 

Oil-Fired Storage: 

Industry NPV 

(2009$ million) (0.2)–(0.4) (0.2)–(0.3) (0.2)–(0.4) (0.2)–(0.4) (0.2)–(0.4) (0.2)–(0.4) (0.2)–(0.4) (1.4)–(3.8) 

Industry NPV (% 

change) ........... (2.0)–(3.9) (1.8)–(3.6) (2.0)–(4.2) (2.0)–(4.2) (2.0)–(4.2) (2.0)–(4.2) (2.0)–(4.2) (15.4)–(41.4) 

Gas-Fired Instantaneous: 

Industry NPV 

(2009$ million) 2.3–(1.2) 2.3–(1.2) 2.3–(1.2) 2.3–(1.2) 2.3–(1.2) 2.3–(1.2) 2.3–(1.2) 91.4–(57.6) 

Industry NPV (% 

change) ........... 0.4–(0.2) 0.4–(0.2) 0.4–(0.2) 0.4–(0.2) 0.4–(0.2) 0.4–(0.2) 0.4–(0.2) 14.1–(8.9) 

Cumulative Emissions Reduction 

CO2 (Mt) .................... 74.3 122 131 137 154 209 609 1,001 

NOX (kt) ............. 57.5 94.3 101 106 116 159 456 755 

Hg (t) .................. 0.056 0.090 0.103 0.113 0.553 0.704 2.32 3.59 

Value of Cumulative Emissions Reduction (2009$ million) ††

CO2 ............................ 266 to 4,122 436 to 6,750 468 to 7,242 492 to 7,614 524 to 8,179 714 to 11,142 2,060 to 32,204 3,399 to 53,098 

NOX—3% discount 

rate ......................... 13.7 to 141 22.5 to 231 24 to 247 25 to 259 25 to 261 35 to 358 99 to 1,019 165 to 1,694 

NOX—7% discount 

rate ......................... 6.6 to 67.9 10.8 to 111 11.6 to 119 12.2 to 125 11.0 to 113 15.2 to 157 42.6 to 438 71.5 to 734 

Mean LCC Savings * (2009$) 

Gas-Fired Storage ..... 16 7 7 7 18 9 (218) (195) 

Electric Storage ......... 5 11 18 18 64 64 112 171 

Oil-Fired Storage ....... 101 203 295 295 295 295 295 495 

Gas-Fired Instantaneous ..................... 9 9 9 9 9 9 9 (259) 


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TABLE VI.63—SUMMARY OF ANALYTICAL RESULTS FOR WATER HEATERS—Continued 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 TSL 7 TSL 8 

Median PBP (years) 

Gas-Fired Storage ..... 2.0 4.5 4.5 4.5 2.3 4.7 21.5 15.6 

Electric Storage ......... 4.0 4.0 5.0 6.7 6.8 6.8 9.4 9.0 

Oil-Fired Storage ....... 0.9 0.3 0.5 0.5 0.5 0.5 0.5 1.9 

Gas-Fired Instantaneous ..................... 14.8 14.8 14.8 14.8 14.8 14.8 14.8 38.7 

Distribution of Consumer LCC Impacts 

Gas-Fired Storage: 

Net Cost (%) ...... 25 32 32 32 27 34 70 70 

No Impact (%) .... 36 22 22 22 33 21 6 1 

Net Benefit (%) .. 39 45 45 45 40 46 23 28 

Electric Storage: 

Net Cost (%) ...... 11 12 21 32 33 33 50 50 

No Impact (%) .... 44 39 17 10 9 9 5 1 

Net Benefit (%) .. 45 48 62 59 58 58 45 49 

Oil-Fired Storage: 

Net Cost (%) ...... 0 0 0 0 0 0 0 0 

No Impact (%) .... 76 54 47 47 47 47 47 17 

Net Benefit (%) .. 24 46 53 53 53 53 53 83 

Gas-Fired Instantaneous: 

Net Cost (%) ...... 5 5 5 5 5 5 5 77 

No Impact (%) .... 91 91 91 91 91 91 91 12 

Net Benefit (%) .. 4 4 4 4 4 4 4 11 

Generation Capacity Change 

(GW in 2045) .. (0.168) (0.270) (0.309) (0.339) (0.829) (1.05) (3.49) (5.39) 

Employment Impacts 

Total Potential 

Changes in Domestic Production 

Workers in 2015: 

Gas-Fired and 

Electric Storage .................. (3,610)–55 (3,610)–128 (3,610)–168 (3,610)–256 (3,610)–439 (3,610)–500 (3,610)–3,253 (3,610)–6,313 

Oil-Fired storage (37)–0 (37)–0 (37)–1 (37)–1 (37)–1 (37)–1 (37)–1 (37)–18 

Gas-Fired Instantaneous ........... Not Applicable †††

Net Change in 

National Indirect Employment in 2044 

thousands) †††† 2.1 2.8 4.6 6.0 10.4 10.6 43.5 56.3 

Parentheses indicate negative (¥) values. 

* For LCCs, a negative value means an increase in LCC by the amount indicated. 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. †††The industry for gas-fired instantaneous water heaters is international. †††† National Indirect Employment Impacts exclude direct impacts. 

DOE first considered TSL 8, which 

represents the max-tech efficiency levels 

for all four product classes. TSL 8 

includes a national standard effectively 

requiring the use of condensing 

technology for gas-fired storage and 

instantaneous water heaters, a national 

standard effectively requiring the use of 

heat pump water heater technology for 

electric storage water heaters, and a 

national standard effectively requiring 

the use of a multi-flue design for oilfired water heaters. TSL 8 would save 

16.7 quads of energy, an amount DOE 

considers significant. TSL 8 would 

result in a NPV of consumer cost of 

$11.6 billion, using a discount rate of 7 

percent, and consumer benefit of $16.9 

billion, using a discount rate of 3 

percent. 

The cumulative emissions reductions 

at TSL 8 are 1,001 Mt of CO2, 755 kt of 

NOX, and 3.6 t of Hg. The estimated 

monetary value of the cumulative CO2

emissions reductions at TSL 8 is $3,399 

million to $53,098 million. Total 

electricity generating capacity in 2045 is 

estimated to decrease by 5.39 gigawatts 

(GW) under TSL 8. 

At TSL 8, DOE projects that the 

average LCC impact for consumers is a 

loss of $195 for gas-fired storage water 

heaters, a gain of $171 for electric 

storage water heaters, a gain of $495 for 

oil-fired storage water heaters, and a 

loss of $259 for gas-fired instantaneous 

water heaters. The median payback 

period is 15.6 years for gas-fired storage 

water heaters, 9.0 years for electric 

storage water heaters, 1.9 years for oilfired storage water heaters, and 38.7 

years for gas-fired instantaneous water 

heaters (which is substantially longer 

than the mean lifetime of the product). 

At TSL 8, the fraction of consumers 

experiencing an LCC benefit is 28 

percent for gas-fired storage water 

heaters, 49 percent for electric storage 

water heaters, 83 percent for oil-fired 

storage water heaters, and 11percent for 

gas-fired instantaneous water heaters. 

The fraction of consumers experiencing 

an LCC cost is 70 percent for gas-fired 

storage water heaters, 50 percent for 

electric storage water heaters, 0 percent 

for oil-fired storage water heaters, and 


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77 percent for gas-fired instantaneous 

water heaters. 

At TSL 8, the average LCC savings are 

negative for all of the considered 

consumer subgroups for gas-fired 

storage water heaters, and a majority of 

the households in each subgroup 

experience a net cost. In the case of 

electric storage water heaters, the 

average LCC savings are negative for 

senior-only and multi-family 

households, but positive for low-income 

and manufactured home households. In 

all cases, however, a majority of the 

households in each subgroup 

experience a net cost. 

At TSL 8, the projected change in the 

INPV is estimated to decrease up to 

$647 million for gas-fired and electric 

storage water heaters, a decrease of up 

to $3.8 million for residential oil-fired 

storage water heaters, and a decrease of 

up to $58 million for gas-fired 

instantaneous water waters, in 2009$. 

For gas-fired and electric storage water 

heaters, the impacts are driven 

primarily by the assumptions regarding 

the ability for manufacturers to produce 

products at these efficiency levels in the 

volumes necessary to serve the entire 

market. Manufacturers would need to 

redesign almost all of their products at 

TSL 8, which would force 

manufacturers to incur significant 

product and capital conversion costs. 

Some loss in product utility may also 

occur for units that are presently 

installed in space-constrained 

applications because condensing and 

heat pump technologies would typically 

cause water heaters to have a larger 

footprint. At TSL 8, DOE recognizes the 

risk of very large negative impacts if 

manufacturers’ expectations about 

reduced profit margins are realized. In 

particular, if the high end of the range 

of impacts is reached as DOE expects, 

TSL 8 could result in a net loss of 73.5 

percent in INPV for gas-fired and 

electric storage water heaters, a net loss 

of 41.4 percent in INPV for oil-fired 

storage water heaters, and a net loss of 

8.9 percent in INPV for gas-fired 

instantaneous water heaters. 

For gas-fired storage and 

instantaneous water heaters at TSL 8, 

condensing operation would be 

required. As further described in the 

December 2009 NOPR, DOE outlined 

several concerns related to the 

condensing gas-fired storage water 

heater market. 74 FR 65852, 65963–64 

(Dec. 11, 2009). The main concerns 

included the ability for the industry to 

produce condensing gas-fired storage 

water heaters and provide installation 

and servicing on a scale necessary to 

serve the entire volume of the market 

(i.e., approximately, 4.6 million units 

annually). TSL 8 also includes an 

efficiency level for electric storage water 

heaters that would require the use of 

heat pump technology. The substantial 

average savings for customers estimated 

by DOE’s analysis for TSL 8 are 

primarily driven by the results for heat 

pump water heaters. However, DOE 

outlined a handful of concerns in the 

December 2009 NOPR with the current 

heat pump water heater market that may 

prevent heat pump technology from 

being ready for full-scale 

implementation for all consumers. 74 

FR 65852, 65965 (Dec. 11, 2009). These 

included manufacturability, 

serviceability, the ability to retrofit 

existing installations, and potential 

impacts on the space conditioning loads 

in the house. All four major storage 

water heater manufacturers within the 

industry echoed these concerns 

regarding the max-tech efficiency level 

products. 

Therefore, the Secretary has 

concluded that at TSL 8, the benefits of 

energy savings, positive NPV of 

consumer benefits (at 3-percent 

discount rate), generating capacity 

reductions, and emission reductions are 

outweighed by the economic burden on 

a significant fraction of consumers due 

to the large increases in first costs 

associated with electric heat pump 

water heaters and gas-fired condensing 

water heaters, the disproportionate 

impacts to consumers in multi-family 

housing, the large capital conversion 

costs that could result in a large 

reduction in INPV for the 

manufacturers, as well as the 

uncertainty associated with providing 

products at the max-tech level on a scale 

necessary to serve the entire market. 

Consequently, the Secretary has 

concluded that TSL 8 is not 

economically justified. 

Next, DOE considered TSL 7. The 

efficiency levels in TSL 7 include the 

ENERGY STAR program level for 

electric storage water heaters, which 

effectively requires the use of heat 

pump water heating technologies. 

However, TSL 7 allows the use of 

atmospherically-vented gas-fired storage 

water heaters. TSL 7 would save 10.16 

quads of energy, an amount DOE 

considers significant. TSL 7 would 

result in a negative consumer NPV of 

$0.22 billion, using a discount rate of 7 

percent, and a consumer NPV benefit of 

$23.4 billion, using a discount rate of 3 

percent. 

The cumulative emissions reductions 

at TSL 7 are 609 Mt of CO2, 456 kt of 

NOX, and 2.32 t of Hg. The estimated 

monetary value of the cumulative CO2

emissions reductions at TSL 7 is $2,060 

million to $32,204 million. Total 

generating capacity in 2045 is estimated 

to decrease by 3.49 GW under TSL 7. 

At TSL 7, DOE projects that the 

average LCC impact is a loss of $218 for 

gas-fired storage water heaters, a gain of 

$112 for electric storage water heaters, 

a gain of $295 for oil-fired storage water 

heaters, and a gain of $9 for gas-fired 

instantaneous water heaters. The 

median payback period is 21.5 years for 

gas-fired storage water heaters, 9.4 years 

for electric storage water heaters, 0.5 

years for oil-fired storage water heaters, 

and 14.8 years for gas-fired 

instantaneous water heaters. At TSL 7, 

the fraction of consumers experiencing 

an LCC benefit is 23 percent for gasfired storage water heaters, 45 percent 

for electric storage water heaters, 53 

percent for oil-fired storage water 

heaters, and 4 percent for gas-fired 

instantaneous water heaters. The 

fraction of consumers experiencing an 

LCC cost is 70 percent for gas-fired 

storage water heaters, 50 percent for 

electric storage water heaters, 0 percent 

for oil-fired storage water heaters, and 5 

percent for gas-fired instantaneous 

water heaters. 

At TSL 7, the estimated average LCC 

savings are negative for all of the 

considered consumer subgroups for gasfired storage water heaters, and a 

majority of the households in each 

subgroup experience a net cost. In the 

case of electric storage water heaters, the 

average LCC savings are negative for 

senior-only and multi-family 

households, but positive for low-income 

and manufactured home households. In 

all cases, however, a majority of the 

households in each subgroup 

experience a net cost. 

At TSL 7, the projected change in 

INPV ranges from a decrease of up to 

$350.2 million for gas-fired and electric 

storage water heaters, a decrease of up 

to $0.4 million for oil-fired storage water 

heaters, and a decrease of up to $1.2 

million for gas-fired instantaneous water 

heaters, in 2009$. The negative impacts 

on INPV are driven largely by the 

required efficiencies for electric storage 

water heaters which effectively require 

heat pump technology. The oil-fired 

storage water heater and gas-fired 

instantaneous water heater efficiencies 

do not require substantial changes to the 

existing operations for some 

manufacturers. The significant changes 

for electric storage water heaters help to 

drive the INPVs negative, especially if 

profitability is impacted after the 

compliance date of the amended energy 

conservation standard. In particular, if 

the high end of the range of impacts is 

reached as DOE expects, TSL 7 could 

result in a net loss of 39.8 percent in 

INPV for gas-fired and electric storage 


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water heaters, a net loss of 4.2 percent 

in INPV for oil-fired storage water 

heaters, and a net loss of 0.2 percent in 

INPV for gas-fired instantaneous water 

heaters. 

TSL 7 includes efficiency levels for 

the entire market of electric storage 

water heaters that are currently only 

achievable through the use of advanced 

heat pump technologies. DOE’s analysis 

indicates that dramatic reductions in 

energy use and substantial economic 

savings are possible for electric water 

heaters with the use of these 

technologies. As with TSL 8, the average 

savings for electric water heater 

customers estimated by DOE’s analysis 

for TSL 7 are primarily driven by the 

results for heat pump water heaters. 

While DOE finds the potential energy 

savings resulting from a national heat 

pump water heater standard very 

favorable, DOE outlined a number of 

concerns regarding the 

manufacturability and the market for 

heat pump water heaters in the 

December 2009 NOPR. 74 FR 65852, 

65965 (Dec. 11, 2009). These included 

manufacturability, serviceability, the 

ability to retrofit existing installations, 

and potential impacts on the space 

conditioning loads in the house. 

DOE further researched the heat 

pump water heater market for the final 

rule. Since the analysis was conducted 

for the December 2009 NOPR, several 

heat pump water heater models have 

been introduced into the market by 

major manufacturers. DOE’s engineering 

analysis for the final rule confirmed that 

the use of heat pump water heaters adds 

dramatically to the MSP estimates, 

increasing the MSP more than $588 over 

the baseline electric storage water 

heater. In part due to this change, the 

total installed cost to the consumer 

increases by an average of $915 for heat 

pump water heaters compared to 

traditional electric storage water heaters 

that use electric resistance heating 

elements. 

In the December 2009 NOPR, DOE 

posed a series of questions for interested 

parties regarding the manufacturability 

of heat pump water heaters to meet the 

demands of the entire market (i.e., 

approximately 5.8 million units). Even 

though DOE acknowledged in the 

December 2009 NOPR that most 

manufacturers are in the process of 

developing a heat pump water heater to 

offer to consumers in response to the 

ENERGY STAR program or have 

recently begun to offer a heat pump 

water heater model for sale, DOE 

questioned whether it was possible for 

manufacturers to convert all of their 

existing product lines over to produce 

heat pump water heaters within 5 years. 

74 FR 65852, 65965 (Dec. 11, 2009). In 

response to DOE’s question in the 

December 2009 NOPR, A.O. Smith, 

Rheem, and Bradford White all agreed 

that producing heat pump water heaters 

in the volumes necessary to service the 

market would be quite a transformation 

and investment for manufacturers. DOE 

estimates that it would take a total of 

$76 million in capital conversion costs 

and an additional $55 million in 

product conversion costs for the 

industry to offer exclusively HPWHs. In 

addition, the significantly higher 

production costs would require an 

additional $273 million in working 

capital to purchase more expensive 

components, carry more-costly 

inventory, and handle higher accounts 

receivable. DOE estimates that the 

working capital requirement and 

conversion costs would cause electric 

storage water heater manufacturers to 

incur a total one-time investment of at 

least $404 million in an electric storage 

market valued at approximately $301 

million. Furthermore, manufacturers 

would find it extremely difficult to 

create a service structure for over five 

million electric storage water heaters 

that use a relatively new technology by 

the compliance date of the final rule. 

Finally, DOE believes it is unlikely that 

manufacturers could earn the same 

return on these extremely large 

investments, so profitability would be 

expected to decrease after the 

compliance date of the amended energy 

conservation standards. Even with the 

ENERGY STAR incentive program, 

DOE’s only projects the market 

penetration of heat pump water heaters 

will be 5 percent in 2015. 

In the December 2009 NOPR, DOE 

questioned whether the service industry 

would be capable of providing the same 

level of service for heat pump water 

heaters that consumers are accustomed 

to receiving from a typical installer or 

repair person. 74 FR 65852, 65965 (Dec. 

11, 2009). DOE sought input from 

commenters about whether reliable 

installation and servicing could be 

achieved on the scale needed by the 

compliance date of the amended 

standard. Id. As further detailed in 

section IV.B.2.b, DOE received 

comments supporting both sides of the 

arguments. Some manufacturers believe 

the training of service technicians and 

infrastructure needed to provide service 

to the heat pump water heating industry 

is not adequate and would not be 

available by the compliance date of the 

standard to serve the needs of the entire 

market. Others, including a 

manufacturer of heat pump water 

heaters, asserted that a nationwide 

network for heat pump water heater 

product service currently exists to 

service the limited heat pump water 

heater market today. Also, this 

manufacturer is currently developing a 

nationwide installation base to ensure 

that its consumers can readily purchase, 

install, and repair their heat pump water 

heaters. Other commenters pointed out 

that the skills needed to service heat 

pump water heaters are similar to the 

skill set of technicians in the residential 

refrigerator industry, which has an 

extensive servicing base. 

While DOE believes that heat pump 

water heaters could require different 

servicing needs compared to traditional 

electric resistance storage water heaters, 

DOE also believes that the service 

industry will adapt to provide reliable 

installation, repair, and maintenance for 

heat pump water heaters by the 

compliance date of amended energy 

conservation standards for a subset of 

the entire market. Heat pump water 

heaters will require additional servicing 

needs for the sealed system portion of 

the unit. This includes handling a 

working refrigerant in addition to the 

typical plumbing type issues associated 

with residential water heaters. Even 

though DOE believes this additional 

servicing requirement can be adequately 

handled by a national servicing network 

of appliance technicians, DOE questions 

whether this can be done in the nearterm at a level necessary to service the 

entire market. 

In the December 2009 NOPR, DOE 

also questioned whether heat pump 

water heaters were capable of being 

installed in all types of installations 

currently serviced by the residential 

electric storage water heating market. 74 

FR 65852, 65965 (Dec. 11, 2009). DOE 

found that in certain situations 

(especially indoor locations), 

installations could be very costly for 

consumers, requiring them to alter their 

existing space to accommodate a heat 

pump water heater. In some indoor 

installations, the consumer needs to 

address space constraints issues, a 

requirement for sufficient air volume to 

maintain adequate operation of the 

water heater, and the impact of the 

water heater cooling off the space 

during the heating season. Id. DOE 

stated in the December 2009 NOPR that 

according to DOE’s estimates, 12 

percent of electric storage water heater 

consumers would experience an 

increase of more than $500 in their LCC 

compared to the base case. 74 FR 65852, 

65965 (Dec. 11, 2009). 

DOE strongly considered TSL 7 as the 

standard level for residential water 

heaters. Even though the commenters 

provided useful insight regarding the 


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potential manufacturability, 

serviceability, and capabilities of these 

units to be installed in similar types of 

installations where current electric 

storage water heaters are located, DOE is 

still concerned about some of the issues 

identified in the December 2009 NOPR 

and outlined above regarding a national 

heat pump water heater standard. 

Specifically, DOE is still concerned 

about the ability for manufacturers to 

ramp up production in time to meet the 

demand by the compliance date of 

amended standards, the potentially 

large increases in total installed cost to 

certain consumers, the potential impacts 

on multi-family households, and the 

potential impacts on the heating and 

cooling load of the residence. 

Consequently, for today’s final rule, the 

Secretary has concluded that at TSL 7, 

the benefits of energy savings, positive 

consumer NPV (at 3-percent discount 

rate), generating capacity reductions, 

and emission reductions would be 

outweighed by the negative economic 

impacts on those consumers that would 

have to make structural changes to 

accommodate the larger footprint of the 

heat pump water heaters, the economic 

burden on a significant fraction of 

consumers due to the large increases in 

total installed costs associated with heat 

pump water heaters, the 

disproportionate impacts to consumers 

in multi-family housing and others with 

comparatively low usage rates, the large 

capital conversion costs that could 

result in a large reduction in INPV for 

the manufacturers, and the uncertainties 

associated with the heat pump water 

heater market. 

Next, DOE considered TSL 6, in 

which DOE paired efficiency levels that 

would effectively require different 

technologies for large-volume and 

small-volume gas-fired and electric 

storage water heaters in an effort to 

promote advance technology 

penetration into the market and to 

potentially save additional energy. 

Specifically, TSL 6 would effectively 

require heat pump technology for 

electric storage water heaters with a 

rated storage volume greater than 55 

gallons and condensing technology for 

gas-fired storage water heaters with a 

rated storage volume greater than 55 

gallons. For electric storage water 

heaters at TSL 6, DOE considered 

efficiency level 6 (i.e., the lowest 

efficiency level DOE analyzed 

effectively requiring heat pump 

technology), instead of the max-tech 

efficiency level 7 for large water heaters, 

because at the time of the analysis, only 

one manufacturer had demonstrated the 

capability of reaching the efficiencies 

required by the max-tech energy 

efficiency equation for electric storage 

water heaters. Under this slightly lower 

efficiency level, manufacturers can 

better maintain design flexibility, and it 

encourages competition in the heat 

pump water heater market. DOE 

believes this level represents an 

efficiency level that is likely to result in 

efficient heat pump technologies, yet 

also maintains maximum flexibility 

regarding specific heat pump water 

heater designs. For electric storage water 

heaters with a rated storage volume of 

55 gallons or less, TSL 6 also includes 

requirements which continue to allow 

the use of electric resistance elements. 

TSL 6 also includes requirements 

allowing atmospherically-vented gasfired storage water heaters with a rated 

storage volume at or below 55 gallons. 

As an example, a gas-fired water heater 

with a rated storage volume of 40 

gallons would be required to meet a 0.63 

EF under TSL 6. As described above and 

further detailed below, this efficiency 

level, which is pushing the limits of 

atmospherically-vented gas-fired storage 

water heaters is where DOE has 

concerns over consumer safety for units 

with high recovery efficiencies in 

certain installations. These concerns are 

further described below. 

TSL 6 would save 3.06 quads of 

energy, an amount DOE considers 

significant. Under TSL 6, the NPV of 

consumer benefit would be $1.01 

billion, using a discount rate of 7 

percent, and $9.08 billion, using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 6 are 209 Mt of CO2, 159 kt of 

NOX, and 0.704 t of Hg. The estimated 

monetary value of the cumulative CO2

emissions reductions at TSL 6 is $714 

million to $11,142 million. Total 

generating capacity in 2045 is estimated 

to decrease by 1.05 GW under TSL 6. 

At TSL 6, DOE projects that the 

average LCC impact is a gain (consumer 

cost savings) of $9 for gas-fired storage 

water heaters, a gain of $64 for electric 

storage water heaters, a gain of $295 for 

oil-fired storage water heaters, and a 

gain of $9 for gas-fired instantaneous 

water heaters. The median payback 

period is 4.7 years for gas-fired storage 

water heaters, 6.8 years for electric 

storage water heaters, 0.5 years for oilfired storage water heaters, and 14.8 

years for gas-fired instantaneous water 

heaters. At TSL 6, the fraction of 

consumers experiencing an LCC benefit 

is 46 percent for gas-fired storage water 

heaters, 58 percent for electric storage 

water heaters, 53 percent for oil-fired 

storage water heaters, and 4 percent for 

gas-fired instantaneous water heaters. 

The fraction of consumers experiencing 

an LCC cost is 34 percent for gas-fired 

storage water heaters, 33 percent for 

electric storage water heaters, 0 percent 

for oil-fired storage water heaters, and 5 

percent for gas-fired instantaneous 

water heaters. 

At TSL 6, the estimated average LCC 

savings for gas-fired storage water 

heaters are negative for multi-family 

households and manufactured home 

households, slightly negative for lowincome households, and slightly 

positive for senior-only households. In 

the case of electric storage water heaters, 

the average LCC savings are positive for 

senior-only and low-income 

households, slightly negative for multifamily households, and negative for 

manufactured home households. In all 

cases except manufactured home 

households, a majority of the 

households in each subgroup 

experience a net benefit. 

At TSL 6, the projected change in 

INPV ranges from a decrease of up to 

$134.6 million for gas-fired and electric 

storage water heaters, a decrease of up 

to $0.4 million for oil-fired storage water 

heaters, and a decrease of up to $1.2 

million for gas-fired instantaneous water 

heaters, in 2009$. The negative impacts 

on INPV are driven largely by the 

required efficiencies for gas-fired and 

electric storage water heaters with rated 

storage volumes above 55 gallons. TSL 

6 would effectively require heat pump 

technology and condensing technology 

for the electric and gas-fired storage 

water heaters at these volume sizes. The 

efficiency requirements at TSL 6 for 

electric storage water heater with a rated 

volume less than 55 also result in 

negative impacts because such large 

increases in insulation also require 

manufacturers to implement changes to 

their existing equipment. The oil-fired 

storage water heater and gas-fired 

instantaneous water heater efficiencies 

at TSL 6 do not require substantial 

changes to the existing operations for 

some manufacturers. The significant 

changes to gas-fired and electric storage 

water heaters with rated storage 

volumes greater than 55 gallons help to 

drive the INPVs negative, especially if 

profitability is impacted after the 

compliance date of the amended energy 

conservation standard. In particular, if 

the high end of the range of impacts is 

reached as DOE expects, TSL 6 could 

result in a net loss of 15.3 percent in 

INPV for gas-fired and electric storage 

water heaters, a net loss of 4.2 percent 

in INPV for oil-fired storage water 

heaters, and a net loss of 0.2 percent in 

INPV for gas-fired instantaneous water 

heaters. 

DOE believes TSL 6 would provide an 

effective mechanism for increasing the 


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market penetration for advancedtechnology water heaters. Given DOE’s 

concerns with TSL 7 (which includes a 

national heat pump water heater 

standard for electric storage water 

heaters across the entire range of rated 

storage volumes) as described above, 

DOE also strongly considered adopting 

TSL 6. TSL 6 results in positive NPV of 

consumer benefit for both electric and 

gas-fired storage water heaters, while 

also providing considerable energy and 

carbon savings. 

Using DOE’s shipments model and 

market assessment, DOE estimated 

approximately 4 percent of gas-fired 

storage water heater shipments and 11 

percent of models would fall into the 

large-volume water heater category 

using the TSL 6 division (i.e., large 

water heaters with storage volumes 

above 55 gallons). Similarly, DOE 

estimated approximately 9 percent of 

electric storage water heater shipments 

and 27 percent of models would fall 

into the large-volume water heater 

category using the TSL 6 division. 

Compared to TSL 7, TSL 6 effectively 

requires heat pump technology for a 

relatively small fraction of the electric 

storage water heater market, reduces the 

number of installations that would 

necessitate significant structural 

modifications due to the size of heat 

pump water heaters, reduces the 

number of installations that have space 

conditioning impacts from cool air 

produced by the heat pump water heater 

operation, results in higher average LCC 

savings and shorter median payback 

periods, and reduces the negative 

impacts on consumer subgroups. For 

gas-fired storage water heaters, 

compared to a national condensing 

standard level (TSL 8), TSL 6 requires 

condensing technology for a relatively 

small fraction of the gas-fired storage 

water heater market, reduces the 

number of installations that require 

significant building modifications due 

to the size of condensing gas-fired water 

heaters, and results in higher average 

LCC savings and shorter median 

payback period. 

Although DOE has identified a 

number of benefits associated with TSL 

6, DOE is aware that there are multiple 

issues associated with promulgating an 

amended energy conservation standard 

at this level. Potential issues with TSL 

6 affecting both heat pump water 

heaters and condensing gas-fired water 

heaters include: (1) Consumer 

acceptance; (2) training; (3) product 

substitution; (4) engineering resource 

constraints; (5) product discontinuation; 

and (6) manufacturing issues. DOE fully 

discusses each of these in great detail in 

the December 2009 NOPR. 74 FR 65852, 

65966–67 (Dec. 11, 2009). The lack of 

clarity on many of these issues 

contributed to DOE’s tentative 

conclusion at the NOPR stage that a 

determination could not be made that 

NOPR TSL 5 (which contained different 

standards based upon the 55-gallon 

capacity division) is economically 

justified. However, comments and other 

information on these issues in response 

to the NOPR allowed DOE to make a 

more informed decision for the final 

rule. 

As far as consumer acceptance, DOE 

questioned whether consumers may 

elect not to buy the larger-volume water 

heaters for a number of reasons (e.g., 

including increases in first costs, 

unfamiliarity with the product, or 

space-constraint issues) and instead buy 

multiple water heaters that are under 

the capacity limit in the December 2009 

NOPR. 74 FR 65852, 65967 (Dec. 11, 

2009). In the final rule, DOE has now 

accounted for the equipment switching 

to lower rated storage volume water 

heaters in its analysis. DOE believes it 

has captured any potential impacts from 

that fraction of consumers who might 

elect to install one or two smaller water 

heaters. DOE derived the fraction of 

households which could switch from a 

large water heater to two smaller water 

heaters by comparing the total installed 

costs. DOE also considered the 

feasibility of switching a large water 

heater to a smaller water heater based 

on hot water needs of the household. 

DOE also took into consideration other 

factors such as whether some 

households would account for the 

operating cost advantages, need for 

emergency replacement, and avoiding 

costly venting system modifications 

when also installing a condensing gas 

furnace. See section IV.G.2.d for 

additional details. 

As far as the reliable installation, 

servicing, and repair network that 

would be needed to service the market, 

DOE believes TSL 6 mitigates these 

problems for the reasons that follow. 

Because TSL 6 only impacts at most 9 

percent of the electric storage water 

heater market, DOE believes the service 

industry will be able to provide 

adequate service to this subset of 

consumers. In addition, DOE believes 

that with the ENERGY STAR program 

and major water heater manufacturers 

continuing to introduce products into 

the market, the service industry will 

also continue to evolve. Given that this 

standard level does not impact the 

entire market and with the 5-year lead 

time, DOE believes the service industry 

will be able to properly train 

technicians and provide a nationwide 

network, which includes plumbers and 

refrigeration technicians to properly 

service heat pump water heaters by 

2015. 

As far as manufacturability, DOE 

estimates that it would take a total of 

$14.2 million and $26.1 million in 

capital conversion costs and product 

conversion costs for the industry to offer 

condensing products and heat pump 

water heaters for units with rated 

storage volumes above 55-gallons, 

respectively. While the total required 

investments (including working capital) 

to manufacture exclusively HPWHs 

greatly exceed the total industry value, 

the total conversion costs for converting 

only products with rated storage 

volumes above 55-gallons represent just 

2.4 percent and 8.7 percent of the total 

value of the gas-fired and electric 

storage markets, respectively. 

Additionally, TSL 6 requires far less 

investment in working capital than TSL 

7. Specifically, as compared to the $273 

million required by TSL 7 for electric 

storage water heaters, TSL 6 would 

necessitate an investment of $45 

million. Similarly, for gas-fired storage 

water heaters, TSL 8 requires an 

increase of $177 million in working 

capital needs, while TSL 6 requires an 

increase of $20 million. These much 

higher investments at TSL 7 and TSL 8, 

relative to TSL 6, are reflected in the 

mitigated INPV impacts shown in the 

MIA results. 

DOE also believes that manufacturers 

would be better able to make the 

technological changes required at TSL 6 

than TSL 7 before the compliance date, 

due, in part, to the experience of all 

three major manufacturers in producing 

large-volume condensing products for 

the commercial sector. DOE believes 

manufacturers can rely on this 

experience to adapt to TSL 6 to an 

extent they could not at TSL 8, at which 

smaller-volume products would also 

have to be converted. Furthermore, two 

of the three major manufacturers have 

some experience in manufacturing heat 

pump water heaters for the residential 

sector. The efficiency requirements for 

products only above 55-gallons rated 

storage volume would not require 

manufacturers to greatly alter most of 

their existing production lines. DOE 

believes that manufactures would create 

separate production lines for these 

products, which would be less 

disruptive to current facilities. In 

addition, five years should offer enough 

lead time for the product development 

and capital changes for these largerrated-volume products. Lastly, DOE 

believes that manufacturers would be 

more likely to maintain an historic level 

of return on investment on large-volume 

products, relative to small-volume 


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products, because that market contains 

a greater mix of high-end consumers. 

DOE strongly considered TSL 6 and 

believes it would provide additional 

energy and carbon savings, while 

mitigating some of the issues associated 

with a national heat pump water heater 

standard. However, TSL 6 also includes 

a level for gas-fired storage water heaters 

with rated storage volumes at or below 

55 gallons that has caused DOE some 

reservations related to consumer safety. 

These concerns came to light during the 

course of DOE’s consideration of public 

comments on the NOPR. Specifically, 

TSL 6 for smaller-volume gas-fired 

storage water heaters effectively 

continues to allow the use of 

atmospherically-vented technology. 

DOE reviewed the current market at 40 

gallons rated storage volume and two 

current designs offered at a 0.63 EF: (1) 

An atmospherically-vented unit and (2) 

a fan-assisted unit. Over 50 percent of 

these models have corresponding 

recovery efficiencies at or above 78 

percent. 

The efficiency of a gas-fired water 

heater is characterized by a number of 

factors, including the energy factor, the 

first hour rating, and the recovery 

efficiency. For atmospherically-vented 

gas-fired storage water heaters, 

manufacturers primarily modify either 

the insulation thickness to increase the 

energy factor or the baffling to increase 

the recovery efficiency. The recovery 

efficiency characterizes how efficiently 

the heat from the energy source is 

transferred to the water. For each design 

and energy factor analyzed by DOE, 

manufacturers offer units in a range of 

recovery efficiencies. As the recovery 

efficiency increases, the risk for 

condensation to occur in the vent 

increases. Recovery efficiencies at or 

above 78 percent present a potential 

safety risk if condensation occurs in 

certain installations and the proper 

venting has not been installed in the 

residence, thereby potentially allowing 

carbon monoxide to enter and build up 

in the living space. 

As explained in section IV.F.2.a 

above, DOE’s analysis assumed that 

installations with water heaters with 

recovery efficiency of 78 percent or 

higher (which accounted for 57 percent 

of installations at TSL 6) would use 

stainless steel vent connectors. Without 

such vent connectors, there is a 

potential for corrosion of the vent due 

to condensation of flue gases. At 

present, however, the National Fuel Gas 

Code venting tables that are used as 

guidelines for installation are based on 

assumed recovery efficiencies of 76 

percent, and they do not mention use of 

stainless steel vent connectors. 

Therefore, there is a possibility that 

some installations could occur without 

use of stainless steel vent connectors. 

DOE found that there are several 40- 

gallon gas-fired water heater models 

corresponding to TSL 6 efficiency levels 

that are currently available to 

consumers and that do not utilize power 

venting. These models do not have any 

venting or installation instructions 

directing installers to use special 

venting (other than what is already 

required by the National Fuel Gas Code 

and/or local codes) for these products, 

and it is unclear why the concerns 

raised have not been an issue for these 

products currently available on the 

market. 

However, in considering the adoption 

of a minimum standard for gas-fired 

water heaters at TSL 6 with rated 

storage volumes at or below 55 gallons, 

DOE believes there may be an increased 

risk of potential safety concerns due to 

improper installation of units with high 

recovery efficiencies. While DOE 

realizes there are units with recovery 

efficiencies offered in a range of energy 

factors, DOE also believes this risks 

increases as the limits of 

atmospherically-vented technology are 

reached. 

Ideally, DOE believes the National 

Fuel Gas Code venting tables should be 

modified to properly address 

condensation-related issues for the units 

on the market with recovery efficiencies 

at or above 76 percent. This would 

include a recommendation to use 

stainless steel vent connectors at these 

recovery efficiencies regardless of 

energy factor and in order to mitigate 

most of the safety concerns for 

atmospherically-vented units. However, 

DOE cannot be certain whether such 

changes would occur before the 

compliance date of amended energy 

conservation standards for water 

heaters. Thus, in practice, there remains 

the possibility that some installations of 

TSL 6 gas-fired water heaters with 

recovery efficiencies at or above 78 

percent would not use stainless steel 

vent connectors, which could result in 

safety problems in a likely small, but 

uncertain, number of cases. 

Therefore, for today’s final rule, the 

Secretary tentatively concludes that at 

TSL 6, the benefits of energy savings, 

positive consumer NPV, generating 

capacity reductions, economic savings 

for most consumers, and emission 

reductions would be outweighed the 

large capital conversion costs that could 

result in a large reduction in INPV for 

the manufacturers, the negative impacts 

on some consumer groups, and the 

safety concerns due to the corrosive 

condensate forming in the venting 

system of specific installations. 

Next, DOE considered TSL 5, which 

is very similar to TSL 6 except that it 

considers a lower efficiency level for 

gas-fired storage water heaters with 

rated storage volumes less than or equal 

to 55 gallons. TSL 5 still pairs efficiency 

levels that would effectively require 

different technologies for large-volume 

and small-volume gas-fired and electric 

storage water heaters in an effort to 

promote advance technology 

penetration into the market and to 

potentially save additional energy. 

Specifically, TSL 5 would effectively 

require heat pump technology for 

electric storage water heaters with rated 

storage volumes greater than 55 gallons 

and condensing technology for gas-fired 

storage water heaters with rated storage 

volumes greater than 55 gallons. For 

gas-fired water heaters at TSL 5, DOE 

analyzed energy efficiency level 1 for 

small-volume units due to the potential 

safety concerns with corrosive 

condensate formation. 

TSL 5 would save 2.58 quads of 

energy, an amount DOE considers 

significant. Under TSL 5, the NPV of 

consumer benefit would be $1.39 

billion, using a discount rate of 7 

percent, and $8.67 billion, using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 5 are 154 Mt of CO2, 116 kt of 

NOX, and 0.553 t of Hg. The estimated 

monetary value of the cumulative CO2

emissions reductions at TSL 5 is $524 

million to $8,179 million. Total 

generating capacity in 2045 is estimated 

to decrease by 0.83 GW under TSL 5. 

At TSL 5, DOE projects that the 

average LCC impact is a gain (consumer 

cost savings) of $18 for gas-fired storage 

water heaters, a gain of $64 for electric 

storage water heaters, a gain of $295 for 

oil-fired storage water heaters, and a 

gain of $9 for gas-fired instantaneous 

water heaters. The median payback 

period is 2.3 years for gas-fired storage 

water heaters, 6.8 years for electric 

storage water heaters, 0.5 years for oilfired storage water heaters, and 14.8 

years for gas-fired instantaneous water 

heaters. At TSL 5, the fraction of 

consumers experiencing an LCC benefit 

is 40 percent for gas-fired storage water 

heaters, 58 percent for electric storage 

water heaters, 53 percent for oil-fired 

storage water heaters, and 4 percent for 

gas-fired instantaneous water heaters. 

The fraction of consumers experiencing 

an LCC cost is 27 percent for gas-fired 

storage water heaters, 33 percent for 

electric storage water heaters, 0 percent 

for oil-fired storage water heaters, and 5 

percent for gas-fired instantaneous 

water heaters. 


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At TSL 5, the estimated average LCC 

savings for gas-fired storage water 

heaters are slightly negative for multifamily households and manufactured 

home households, and slightly positive 

for senior-only households and lowincome households. For all of the 

subgroups, a higher share of households 

have a net benefit than have a net cost. 

In the case of electric storage water 

heaters, the average LCC savings are 

positive for senior-only and low-income 

households, slightly negative for multifamily households, and negative for 

manufactured home households. In all 

cases except manufactured home 

households, a majority of the 

households in each subgroup 

experience a net benefit. 

At TSL 5, the projected change in 

INPV ranges from a decrease of up to 

$122.6 million for gas-fired and electric 

storage water heaters, a decrease of up 

to $0.4 million for oil-fired storage water 

heaters, and a decrease of up to $1.2 

million for gas-fired instantaneous water 

heaters, in 2009$. The negative impacts 

on INPV are driven largely by the 

required efficiencies for gas-fired and 

electric storage water heaters with rated 

storage volumes above 55 gallons. TSL 

5 would effectively require heat pump 

technology and condensing technology 

for the electric and gas-fired storage 

water heaters at these volume sizes. The 

efficiency requirements at TSL 5 for 

electric storage water heater with a rated 

volume less than 55 gallons also result 

in negative impacts because such large 

increases in insulation also require 

manufacturers to implement changes to 

their existing equipment. The oil-fired 

storage water heater and gas-fired 

instantaneous water heater efficiencies 

at TSL 5 do not require substantial 

changes to the existing operations for 

some manufacturers. The significant 

changes to gas-fired and electric storage 

water heaters with rated storage 

volumes greater than 55 gallons help to 

drive the INPVs negative, especially if 

profitability is impacted after the 

compliance date of the amended energy 

conservation standard. In particular, if 

the high end of the range of impacts is 

reached as DOE expects, TSL 5 could 

result in a net loss of 13.9 percent in 

INPV for gas-fired and electric storage 

water heaters, a net loss of 4.2 percent 

in INPV for oil-fired storage water 

heaters, and a net loss of 0.2 percent in 

INPV for gas-fired instantaneous water 

heaters. 

DOE believes TSL 5 would provide an 

effective mechanism for increasing the 

market penetration for advancedtechnology water heaters. Given DOE’s 

concerns with TSL 7 (which includes a 

national heat pump water heater 

standard for electric storage water 

heaters across the entire range of rated 

storage volumes) as described above, 

DOE also strongly considered adopting 

TSL 5. TSL 5 results in positive NPV of 

consumer benefit for both electric and 

gas-fired storage water heaters, and 

provides substantial energy and carbon 

savings, while mitigating some of the 

issues associated with a national heat 

pump water heater standard (TSL 7). 

Moreover, TSL 5 also reduces the risk of 

safety concerns for small-volume gasfired storage water heaters by providing 

manufacturers with additional 

flexibility in reaching TSL 5 efficiency 

levels. 

Therefore, for today’s final rule, the 

Secretary has concluded that at TSL 5, 

the benefits of energy savings, positive 

consumer NPV, generating capacity 

reductions, economic savings for most 

consumers, and emission reductions 

(both in physical quantities and the 

monetized value of those emissions) 

outweigh the large capital conversion 

costs that could result in a large 

reduction in INPV for the manufacturers 

and the negative impacts on some 

consumer subgroups. Further, global 

benefits from carbon dioxide reductions 

(at a central value of $21.4 per ton for 

emissions in 2010) would have a 

present value of $2.7 billion. These 

benefits from carbon dioxide emission 

reductions, when considered in 

conjunction with the consumer savings 

NPV and other factors described above, 

support DOE’s conclusion that TSL 5 is 

economically justified. Consequently, 

DOE is adopting TSL 5 for residential 

water heaters. Table VI.64 shows the 

standard levels DOE is adopting today 

for residential water heaters. 

TABLE VI.64—AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL WATER HEATERS

Residential Water Heaters 

Product Class Standard Level 

Gas-fired Storage ................. For tanks with a Rated Storage Volume at or below 55 

gallons: EF = 0.675¥(0.0015 × Rated Storage Volume in gallons).

For tanks with a Rated Storage Volume above 55 gallons: EF = 0.8012¥(0.00078 × Rated Storage Volume in gallons) 

Electric Storage .................... For tanks with a Rated Storage Volume at or below 55 

gallons: EF = 0.960¥(0.0003 × Rated Storage Volume in gallons).

For tanks with a Rated Storage Volume above 55 gallons: EF = 2.057¥(0.00113 × Rated Storage Volume 

in gallons) 

Oil-fired Storage ................... EF = 0.68¥(0.0019 × Rated Storage Volume in gallons) 

Gas-fired Instantaneous ....... EF = 0.82¥(0.0019 × Rated Storage Volume in gallons) 

3. Direct Heating Equipment 

Table VI.65 summarizes the results of 

DOE’s quantitative analysis for each 

TSL it considered for this final rule for 

direct heating equipment. 

TABLE VI.65—SUMMARY OF ANALYTICAL RESULTS FOR DIRECT HEATING EQUIPMENT

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) .................................... 0.20 0.21 0.23 0.43 0.48 1.26 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate .............................................................. 1.32 1.34 1.39 (1.26) (1.22) (4.97) 


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20216 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

TABLE VI.65—SUMMARY OF ANALYTICAL RESULTS FOR DIRECT HEATING EQUIPMENT—Continued 

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

7% discount rate .............................................................. 0.54 0.55 0.56 (1.19) (1.24) (4.38) 

Industry Impacts: 

Traditional Direct Heating Equipment:.

Industry NPV (2009$ million) .................................... (0.9)–(2.5) (1.2)–(3.9) (1.9)–(7.0) (1.9)–(8.8) (3.8)–(10.4) (3.9)–(13.4) 

Industry NPV (% change) ......................................... (5.2)–(14.9) (7.2)–(23.6) (11.3)– 

(42.4) 

(11.6)– 

(53.1) 

(22.7)– 

(64.2) 

(23.6)– 

(80.8) 

Gas Hearth Direct Heating Equipment:.

Industry NPV (2009$ million) .................................... (0.2)–(0.9) (0.2)–(0.9) (0.2)–(0.9) 1.6–(13.2) 1.6–(13.2) 8.6–(53.6) 

Industry NPV (% change) ......................................... (0.3)–(1.2) (0.3)–(1.2) (0.3)–(1.2) 2.0–(17.1) 2.0–(17.1) 11.1–(69.5) 

Cumulative Emissions Reduction*: 

CO2 (Mt) .................................................................... 8.2 8.8 9.3 17.9 20.2 49.9 

NOX (kt) .................................................................... 7.5 8.1 8.5 16.4 18.6 46.0 

Value of Cumulative Emissions Reduction (2009$ million) ††: 

CO2 ........................................................................... 31–470 33–503 35–530 67–1,023 76–1,154 187–2,849 

NOX–3% discount rate ............................................. 1.9–19.6 2.0–21.0 2.1–22.1 4.2–42.9 4.7–48.7 11.7–120 

NOX–7% discount rate ............................................. 0.99–10.2 1.06–10.9 1.1–11.4 2.2–22.3 2.5–25.3 6.1–62.5 

Mean LCC Savings ** (2009$): 

Gas Wall Fan ............................................................ 83 102 114 43 83 43 

Gas Wall Gravity ....................................................... 21 21 64 64 (56) (56) 

Gas Floor .................................................................. 13 13 13 13 13 13 

Gas Room ................................................................. 42 96 143 143 646 646 

Gas Hearth ............................................................... 96 96 96 (70) (70) (253) 

Median PBP (years): 

Gas Wall Fan ............................................................ 2.7 3.2 5.0 12.2 2.7 12.2 

Gas Wall Gravity ....................................................... 7.5 7.5 11.0 11.0 16.5 16.5 

Gas Floor .................................................................. 10.7 10.7 10.7 10.7 10.7 10.7 

Gas Room ................................................................. 6.7 4.5 4.8 4.8 6.9 6.9 

Gas Hearth ............................................................... 0 0 0 17.1 17.1 26.8 

Distribution of Consumer LCC Impacts: 

Gas Wall Fan:.

Net Cost (%) ............................................................. 0 3 19 53 0 53 

No Impact (%) ........................................................... 60 53 26 7 60 7 

Net Benefit (%) ......................................................... 40 44 55 40 40 40 

Gas Wall Gravity: 

Net Cost (%) ............................................................. 10 10 33 33 70 70 

No Impact (%) ........................................................... 75 75 37 37 0 0 

Net Benefit (%) ......................................................... 15 15 30 30 30 30 

Gas Floor: 

Net Cost (%) ............................................................. 25 25 25 25 25 25 

No Impact (%) ........................................................... 18 18 18 18 18 18 

Net Benefit (%) ......................................................... 57 57 57 57 57 57 

Gas Room: 

Net Cost (%) ............................................................. 19 19 20 20 26 26 

No Impact (%) ........................................................... 31 56 55 55 49 49 

Net Benefit (%) ......................................................... 50 25 25 25 25 25 

Gas Hearth: 

Net Cost (%) ............................................................. 9 9 9 69 69 81 

No Impact (%) ........................................................... 40 40 40 17 17 19 

Net Benefit (%) ......................................................... 51 51 51 13 13 0 

Generation Capacity Change (GW in 2042) ................... 0.024 0.026 0.028 0.036 0.041 0.103 

Employment Impacts: 

Total Potential Changes in Domestic Production Workers in 2013:.

Traditional Direct Heating Equipment ....................... (275)–4 (275)–6 (275)–33 (275)–37 (275)–35 (275)–44 

Gas Hearth Direct Heating Equipment ..................... (1,280)–6 (1,280)–6 (1,280)–6 (1,280)–448 (1,280)–448 (1,280)–770 

Net Change in National Indirect Employment in 2042 

(thousands) ††† .............................................................. 0.21 0.22 0.23 0.16 0.19 0.51 

Parentheses indicate negative (¥) values. 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20217 

* The impacts for Hg emissions are negligible (less than 0.01 ton). 

** For LCCs, a negative value means an increase in LCC by the amount indicated. 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. ††† National Indirect Employment Impacts exclude direct impacts. 

DOE first considered TSL 6, the maxtech level. TSL 6 would save 1.26 quads 

of energy, an amount DOE considers 

significant. TSL 6 would decrease 

consumer NPV by $4.38 billion, using a 

discount rate of 7 percent, and by $4.97 

billion, using a discount rate of 3 

percent. 

The emissions reductions at TSL 6 are 

49.9 Mt of CO2 and 46.0 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 6 is $187 million to $2,849 million. 

Total generating capacity in 2042 is 

estimated to increase slightly under TSL 

6. 

At TSL 6, DOE projects that the 

average LCC impact for consumers is a 

gain of $43 for gas wall fan DHE, a loss 

of $56 for gas wall gravity DHE, a gain 

of $13 for gas floor DHE, a gain of $646 

for gas room DHE, and a loss of $253 for 

gas hearth DHE. The median payback 

period is 12.2 years for gas wall fan 

DHE, 16.5 years for gas wall gravity 

DHE, 10.7 years for gas floor DHE, 6.9 

years for gas room DHE, and 26.8 years 

for gas hearth DHE (which is 

significantly longer than the mean 

lifetime of the product). At TSL 6, the 

fraction of consumers experiencing an 

LCC benefit is 40 percent for gas wall 

fan DHE, 30 percent for gas wall gravity 

DHE, 57 percent for gas floor DHE, 25 

percent for gas room DHE, and 0 percent 

for gas hearth DHE. The fraction of 

consumers experiencing an LCC cost is 

53 percent for gas wall fan DHE, 70 

percent for gas wall gravity DHE, 25 

percent for gas floor DHE, 26 percent for 

gas room DHE, and 81 percent for gas 

hearth DHE. 

With respect to consumer subgroups, 

DOE estimated that the impacts of TSL 

6 would be approximately the same for 

the senior-only and low-income 

subgroups as they are for the full 

household sample. 

At TSL 6, the projected change in 

INPV ranges from a decrease of up to 

$13.4 million for traditional DHE and a 

decrease of up to $53.6 million for gas 

hearth DHE, in 2009$. Very few 

manufacturers offer products at the 

max-tech level for both traditional and 

gas hearth DHE. At TSL 6, almost every 

manufacturer would face substantial 

product and capital conversion costs to 

completely redesign most of their 

current products and existing 

production facilities. In addition, higher 

component costs could significantly 

harm profitability. If the high end of the 

range of impacts is reached as DOE 

expects, TSL 6 could result in a net loss 

of 80.8 percent in INPV for traditional 

DHE and a net loss of 69.5 percent in 

INPV for gas hearth DHE. In addition to 

the large, negative impacts on INPV at 

TSL 6, the required capital and product 

conversion costs could cause material 

harm to a significant number of small 

business manufacturers in both the 

traditional and gas hearth DHE market. 

The conversion costs could cause many 

of these small business manufacturers to 

exit the market. 

Therefore, the Secretary concludes 

that at TSL 6, the benefits of energy 

savings and emission reductions would 

be outweighed by the negative impacts 

on consumer NPV, the economic burden 

on some consumers, the large capital 

conversion costs that could result in a 

large reduction in INPV for the 

manufacturers, and the potential 

impacts on a significant number of 

small business manufacturers. 

Consequently, the Secretary has 

concluded that TSL 6 is not 

economically justified. 

Next, DOE considered TSL 5. TSL 5 

would save 0.48 quads of energy, an 

amount DOE considers significant. TSL 

5 would decrease consumer NPV by 

$1.24 billion, using a discount rate of 7 

percent, and by $1.22 billion, using a 

discount rate of 3 percent. 

The emissions reductions at TSL 5 are 

20.2 Mt of CO2 and 18.6 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 5 is $76 million to $1,154 million. 

Total generating capacity in 2042 is 

estimated to increase slightly under TSL 

5. 

At TSL 5, DOE projects that the 

average LCC impact for consumers is a 

gain of $83 for gas wall fan DHE, a loss 

of $56 for gas wall gravity DHE, a gain 

of $13 for gas floor DHE, a gain of $646 

for gas room DHE, and a loss of $70 for 

gas hearth DHE. The median payback 

period is 2.7 years for gas wall fan DHE, 

16.5 years for gas wall gravity DHE, 10.7 

years for gas floor DHE, 6.9 years for gas 

room DHE, and 17.1 years for gas hearth 

DHE. At TSL 5, the fraction of 

consumers experiencing an LCC benefit 

is 40 percent for gas wall fan DHE, 30 

percent for gas wall gravity DHE, 57 

percent for gas floor DHE, 25 percent for 

gas room DHE, and 13 percent for gas 

hearth DHE. The fraction of consumers 

experiencing an LCC cost is 0 percent 

for gas wall fan DHE, 70 percent for gas 

wall gravity DHE, 25 percent for gas 

floor DHE, 26 percent for gas room DHE, 

and 69 percent for gas hearth DHE. 

With respect to consumer subgroups, 

DOE estimated that the impacts of TSL 

5 would be approximately the same for 

the senior-only and low-income 

subgroups as they are for the full 

household sample. 

At TSL 5, the projected change in 

INPV ranges from a decrease of up to 

$10.4 million for traditional DHE and a 

decrease of up to $13.2 million for gas 

hearth DHE, in 2009$. While some 

manufacturers offer a limited number of 

products at TSL 5, most of the current 

products would have to be redesigned to 

meet the required efficiencies at TSL 5. 

In addition, higher component costs for 

both traditional and gas hearth DHE 

could significantly harm profitability. If 

the high end of the range of impacts is 

reached as DOE expects, TSL 5 could 

result in a net loss of 62.4 percent in 

INPV for traditional DHE and a net loss 

of 17.1 percent in INPV for gas hearth 

DHE. In addition to the large, negative 

impacts on INPV at TSL 5, the required 

capital and product conversion costs 

could cause material harm to a 

significant number of small business 

manufacturers in both the traditional 

and gas hearth DHE market. These 

manufacturers could be forced to 

discontinue many of their existing 

product lines and, possibly, exit the 

market altogether. 

Therefore, the Secretary concludes 

that at trial standard level 5, the benefits 

of energy savings and emission 

reductions would be outweighed by the 

negative impacts on consumer NPV, the 

economic burden on some consumers, 

the large capital conversion costs that 

could result in a large reduction in INPV 

for the manufacturers, and the potential 

for small business manufacturers to 

have to reduce or discontinue a 

significant number of their product 

lines. Consequently, the Secretary has 

concluded that trial standard level 5 is 

not economically justified. 

Next, DOE considered TSL 4. TSL 4 

would save 0.43 quads of energy, an 

amount DOE considers significant. TSL 

4 would decrease consumer NPV by 

$1.19 billion, using a discount rate of 7 

percent, and $1.26 billion, using a 

discount rate of 3 percent. 

The emissions reductions at TSL 4 are 

17.9 Mt of CO2 and 16.4 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 4 is $67 million to $1,023 million. 

Total generating capacity in 2042 is 


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20218 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

estimated to increase slightly under TSL 

4. 

At TSL 4, DOE projects that the 

average LCC impact for consumers is a 

gain of $43 for gas wall fan DHE, a gain 

of $64 for gas wall gravity DHE, a gain 

of $13 for gas floor DHE, a gain of $143 

for gas room DHE, and a loss of $70 for 

gas hearth DHE. The median payback 

period is 12.2 years for gas wall fan 

DHE, 11.0 years for gas wall gravity 

DHE, 10.7 years for gas floor DHE, 4.8 

years for gas room DHE, and 17.1 years 

for gas hearth DHE. At TSL 4, the 

fraction of consumers experiencing an 

LCC benefit is 40 percent for gas wall 

fan DHE, 30 percent for gas wall gravity 

DHE, 57 percent for gas floor DHE, 57 

percent for gas room DHE, and 13 

percent for gas hearth DHE. The fraction 

of consumers experiencing an LCC cost 

is 53 percent for gas wall fan DHE, 33 

percent for gas wall gravity DHE, 25 

percent for gas floor DHE, 20 percent for 

gas room DHE, and 69 percent for gas 

hearth DHE. 

With respect to consumer subgroups, 

DOE estimated that the impacts of TSL 

4 would be approximately the same for 

the senior-only and low-income 

subgroups as they are for the full 

household sample. 

At TSL 4, the projected change in 

INPV ranges from a decrease of up to 

$8.8 million for traditional DHE and 

decrease of up to $13.2 million for gas 

hearth DHE. While some manufacturers 

offer a limited number of products at 

TSL 4, most of the current products 

would have to be redesigned to meet the 

required efficiencies at TSL 4. In 

addition, higher component costs for 

both traditional and gas hearth DHE 

could significantly harm profitability. If 

the high end of the range of impacts is 

reached as DOE expects, TSL 4 could 

result in a net loss of 53.1 percent in 

INPV for traditional DHE and a net loss 

of 17.1 percent in INPV for gas hearth 

DHE. In addition to the large, negative 

impacts on INPV at TSL 4, the required 

capital and product conversion costs 

could cause material harm to a 

significant number of small business 

manufacturers in both the traditional 

and gas hearth DHE market. These 

manufacturers could be forced to reduce 

their product offerings to remain 

competitive. 

Therefore, the Secretary concludes 

that at trial standard level 4, the benefits 

of energy savings and emission 

reductions would be outweighed by the 

negative impacts on consumer NPV, the 

economic burden on some consumers, 

the large capital conversion costs that 

could result in a large reduction in INPV 

for the manufacturers, and the potential 

for small business manufacturers of 

DHE to have to reduce their product 

offerings. Consequently, the Secretary 

has concluded that trial standard level 

4 is not economically justified. 

Next, DOE considered TSL 3. TSL 3 

would save 0.23 quads of energy, an 

amount DOE considers significant. TSL 

3 would provide an NPV of consumer 

benefit of $0.56 billion, using a discount 

rate of 7 percent, and $1.39 billion, 

using a discount rate of 3 percent. 

The emissions reductions at TSL 3 are 

9.3 Mt of CO2 and 8.5 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 3 is $35 million to $530 million. 

Total electric generating capacity in 

2042 is estimated to increase slightly 

under TSL 3. 

At TSL 3, DOE projects that the 

average LCC impact for consumers is a 

gain of $114 for gas wall fan DHE, a gain 

of $64 for gas wall gravity DHE, a gain 

of $13 for gas floor DHE, a gain of $143 

for gas room DHE, and a gain of $96 for 

gas hearth DHE. The median payback 

period is 5.0 years for gas wall fan DHE, 

11.0 years for gas wall gravity DHE, 10.7 

years for gas floor DHE, 4.8 years for gas 

room DHE, and 0.0 years for gas hearth 

DHE. At TSL 3, the fraction of 

consumers experiencing an LCC benefit 

is 55 percent for gas wall fan DHE, 30 

percent for gas wall gravity DHE, 57 

percent for gas floor DHE, 25 percent for 

gas room DHE, and 51 percent for gas 

hearth DHE. The fraction of consumers 

experiencing an LCC cost is 19 percent 

for gas wall fan DHE, 33 percent for gas 

wall gravity DHE, 25 percent for gas 

floor DHE, 20 percent for gas room DHE, 

and 9 percent for gas hearth DHE. 

With respect to consumer subgroups, 

DOE estimated that the impacts of TSL 

3 would be approximately the same for 

the senior-only and low-income 

subgroups as they are for the full 

household sample. 

At TSL 3, the projected change in 

INPV ranges from a decrease of up to $7 

million for traditional DHE and decrease 

of up to $0.9 million for gas hearth DHE. 

If the high end of the range of impacts 

is reached, TSL 3 could result in a net 

loss of 42.4 percent in INPV for 

traditional DHE and a net loss of 1.2 

percent in INPV for gas hearth DHE. The 

impacts on gas hearth DHE 

manufacturers are less significant at TSL 

3 because manufacturers offer a wide 

range of product lines that meet the 

required efficiencies at TSL 3 and most 

products that do not meet TSL 3 could 

be upgraded with inexpensive 

purchased parts and fairly small 

conversion costs. 

For traditional direct heating 

equipment, however, not all 

manufacturers have a substantial 

number of existing products that meet 

the efficiencies required at TSL 3. The 

industry has consolidated significantly 

over the last decade due to a steady 

decline in shipments. The three 

competitors that account for nearly 100 

percent of the market have survived by 

consolidating a variety of legacy brands 

and products and providing them in 

replacement situations. Thus, each of 

the three competitors, two of which are 

small business manufacturers, would 

face the prospect of significantly 

upgrading several low-volume product 

lines. For the most part, manufacturers 

do not have significant volume over 

which to spread the capital conversion 

costs required by TSL 3, meaning that 

margins will likely be pressured unless 

consumers accept large increases in 

product price. As a whole, DOE expects 

the industry would be required to invest 

$8.0 million to convert its product lines 

to meet TSL 3, or roughly half of the 

industry value. Because shipments are 

expected to remain flat or continue to 

decline, there may be limited 

opportunity for all manufacturers to 

recoup the investment necessary at TSL 

3 to upgrade their product lines. 

At TSL 3, the impacts on small 

business manufacturers are even more 

harmful than to the industry as a whole. 

For example, the typical small business 

manufacturer in the industry would 

require investment equal to 426 percent 

of its annual earnings before interest 

and taxes. With these prospects, it is 

likely manufacturers would drop a 

number of product lines or exit the 

market entirely. The small business 

manufacturers would likely be 

disproportionately affected by TSL 3 

because they would need to spread the 

product development costs, including 

R&D, over lower volumes. Finally, in 

the important gas wall gravity category, 

small business manufacturers have a 

limited number of products that meet 

the required efficiencies. The two small 

business manufacturers with significant 

market shares have a total of 6 models 

that meet the required efficiencies out of 

a total of 29 models for gas wall gravity 

DHE. Based on the public comments of 

these small manufacturers, these 

products also represent a small 

percentage of total sales. To offer a full 

range of the most popular replacements, 

a typical small manufacturer would 

have to convert over 70 percent of its 

gas wall gravity product lines, including 

multiple modifications to their most 

popular products. 

Therefore, the Secretary concludes 

that at TSL 3, the benefits of energy 

savings, emission reductions, and 

consumer NPV benefits would be 

outweighed by the economic burden on 


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some consumers, the large capital 

conversion costs that could result in a 

large reduction in INPV for the 

manufacturers of traditional DHE, and 

the potential for small business 

manufacturers of DHE to reduce their 

product offerings or to be forced to exit 

the market completely, thereby reducing 

competition in the traditional DHE 

market. Consequently, the Secretary has 

concluded that TSL 3 is not 

economically justified. 

Next, DOE considered TSL 2. TSL 2 

would save 0.21 quads of energy, an 

amount DOE considers significant. TSL 

2 would provide a NPV of consumer 

benefit of $0.55 billion, using a discount 

rate of 7 percent, and $1.34 billion, 

using a discount rate of 3 percent. 

The emissions reductions at TSL 2 are 

8.8 Mt of CO2 and 8.1 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 2 is $33 million to $503 million. 

Total electric generating capacity in 

2042 is estimated to increase slightly 

under TSL 2. 

At TSL 2, DOE projects that the 

average LCC impact for consumers is a 

gain of $102 for gas wall fan DHE, a gain 

of $21 for gas wall gravity DHE, a gain 

of $13 for gas floor DHE, a gain of $96 

for gas room DHE, and a gain of $96 for 

gas hearth DHE. The median payback 

period is 3.2 years for gas wall fan DHE, 

7.5 years for gas wall gravity DHE, 10.7 

years for gas floor DHE, 4.5 years for gas 

room DHE, and 0.0 years for gas hearth 

DHE. At TSL 2, the fraction of 

consumers experiencing an LCC benefit 

is 44 percent for gas wall fan DHE, 15 

percent for gas wall gravity DHE, 57 

percent for gas floor DHE, 25 percent for 

gas room DHE, and 51 percent for gas 

hearth DHE. The fraction of consumers 

experiencing an LCC cost is 3 percent 

for gas wall fan DHE, 10 percent for gas 

wall gravity DHE, 25 percent for gas 

floor DHE, 19 percent for gas room DHE, 

and 9 percent for gas hearth DHE. 

With respect to consumer subgroups, 

DOE estimated that the impacts of TSL 

2 would be approximately the same for 

the senior-only and low-income 

subgroups as they are for the full 

household sample. 

At TSL 2, the projected change in 

INPV ranges from a decrease of up to 

$3.9 million for traditional DHE and 

decrease of up to $0.9 million for gas 

hearth DHE. The impacts on gas hearth 

DHE manufacturers are less significant 

at TSL 2 because manufacturers offer a 

wide range of product lines that meet 

the required efficiencies at TSL 2, and 

most products that do not meet TSL 2 

could be upgraded with inexpensive 

purchased parts at fairly small 

conversion costs. If the high end of the 

range of impacts is reached, TSL 2 could 

result in a net loss of 23.6 percent in 

INPV for traditional DHE and a net loss 

of 1.2 percent in INPV for gas hearth 

DHE. In addition, the required capital 

and product conversion costs faced by 

small business manufacturers at this 

level decrease substantially, thereby 

mitigating the potential harm to a 

significant number of small business 

manufacturers. 

In total, DOE estimates that it will 

take approximately $4.6 million for the 

industry to upgrade all of it products to 

meet the amended energy conservation 

standards. Despite including the 

conversion costs for the additional 

product lines that were released since 

the NOPR analysis was completed, the 

total conversion costs estimated by the 

industry to upgrade all products that do 

not meet the amended energy 

conservation standards is down $1.8 

million from the $6.4 million total 

estimated for the proposed standards in 

the December 2009 NOPR, given the 

change in the standard level DOE has 

ultimately decided to adopt. For the 

amended energy conservation 

standards, one major manufacturer has 

a total of 3 product lines (7 models) that 

do not meet the amended energy 

conservation standards in the two 

smallest categories (gas floor and gas 

room DHE) but has a majority of product 

lines and models that meet the amended 

standards in the two largest product 

categories (gas wall fan and gas wall 

gravity). The other two major 

manufacturers have existing product 

lines that meet the amended energy 

conservation standards in all 4 product 

categories. Therefore, without spending 

any conversion costs, at least two 

manufacturers already have existing 

products in all four product categories. 

In the most important gas wall gravity 

category, 57 percent of the existing 

models and 71 percent of the existing 

product lines identified by DOE meet 

the amended energy conservation 

standards. One manufacturer indicated 

in written comments that the important 

gas wall gravity products that meet the 

amended energy conversation standard 

represent a small portion of total sales. 

However, DOE believes it has addressed 

the concerns of this manufacturer by 

setting an amended energy conservation 

standard that would require much less 

substantial changes than those proposed 

in the NOPR (a two percentage point 

improvement in AFUE versus the six 

percentage point improvement proposed 

in the NOPR). While the $4.6 million in 

total conversion costs to upgrade all 

product lines that do not meet the 

amended energy conservation standards 

is substantial, DOE believes that a 

combination of products that meet the 

amended energy conservation standards 

and selectively upgrading popular 

product lines that fall below the 

standards will allow all three traditional 

DHE manufacturers to maintain a viable 

production volume. 

After considering the analysis, 

comments on the December 2009 NOPR, 

and the benefits and burdens of TSL 2, 

the Secretary concludes that this trial 

standard level will offer the maximum 

improvement in efficiency that is 

technologically feasible and 

economically justified, and will result 

in significant conservation of energy. 

Further, global benefits from carbon 

dioxide reductions (at a central value of 

$21.4 for emissions in 2010) would have 

a present value of $165 million. These 

benefits from carbon dioxide emission 

reductions (both in physical reductions 

and the monetized value of those 

reductions), when considered in 

conjunction with the consumer savings 

NPV and other factors described above, 

outweigh the potential reduction in 

INPV for manufacturers and support 

DOE’s conclusion that trial standard 

level 2 is economically justified. 

Therefore, the Department today adopts 

the energy conservation standards for 

direct heating equipment at TSL 2, as 

shown in Table VI.66. 

TABLE VI.66—AMENDED ENERGY CONSERVATION STANDARDS FOR DIRECT HEATING EQUIPMENT

Direct heating equipment 

Product class Standard level 

Gas wall fan type up to 42,000 Btu/h ................................................................................................. AFUE = 75%. 

Gas wall fan type over 42,000 Btu/h .................................................................................................. AFUE = 76%. 

Gas wall gravity type up to 27,000 Btu/h ........................................................................................... AFUE = 65%. 

Gas wall gravity type over 27,000 Btu/h up to 46,000 Btu/h ............................................................. AFUE = 66%. 

Gas wall gravity type over 46,000 Btu/h ............................................................................................ AFUE = 67%. 


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20220 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

TABLE VI.66—AMENDED ENERGY CONSERVATION STANDARDS FOR DIRECT HEATING EQUIPMENT—Continued 

Direct heating equipment 

Product class Standard level 

Gas floor up to 37,000 Btu/h .............................................................................................................. AFUE = 57%. 

Gas floor over 37,000 Btu/h ............................................................................................................... AFUE = 58%. 

Gas room up to 20,000 Btu/h ............................................................................................................. AFUE = 61%. 

Gas room over 20,000 Btu/h up to 27,000 Btu/h ............................................................................... AFUE = 66%. 

Gas room over 27,000 Btu/h up to 46,000 Btu/h ............................................................................... AFUE = 67%. 

Gas room over 46,000 Btu/h .............................................................................................................. AFUE = 68%. 

Gas hearth up to 20,000 Btu/h ........................................................................................................... AFUE = 61%. 

Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h ...................................................................... AFUE = 66%. 

Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h ...................................................................... AFUE = 67%. 

Gas hearth over 46,000 Btu/h ............................................................................................................ AFUE = 68%. 

4. Pool Heaters 

Table VI.67 summarizes the results of 

DOE’s quantitative analysis for each 

TSL it considered for this final rule for 

pool heaters. 

TABLE VI.67—SUMMARY OF ANALYTICAL RESULTS FOR POOL HEATERS

Category TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6 

National Energy Savings (quads) 0.01 .................. 0.02 .................. 0.04 .................. 0.06 .................. 0.09 .................. 0.22 

NPV of Consumer Benefits (2009$ billion) 

3% discount rate .................. 0.10 .................. 0.10 .................. (0.01) ............... (0.15) ............... (2.32) ............... (4.56) 

7% discount rate .................. 0.04 .................. 0.04 .................. (0.06) ............... (0.16) ............... (1.39) ............... (2.87) 

Industry Impacts 

Industry NPV (2009$ million) 0.0–(0.1) .......... 0.3–(0.8) .......... (0.8)–(5.0) ........ (0.3)–(6.6) ........ 0.8–(17.2) ........ 7.3–(38.3) 

Industry NPV (% change) .... 0.1–(0.2) .......... 0.5–(1.7) .......... (1.7)–(10.2) ...... (0.6)–(13.5) ...... 1.6–(35.0) ........ 14.9–(78.0) 

Cumulative Emissions Reduction * 

CO2 (Mt) ............................... 0.41 .................. 0.75 .................. 1.72 .................. 2.38 .................. 3.61 .................. 8.89 

NOX (kt) ................................ 0.37 .................. 0.67 .................. 1.53 .................. 2.10 .................. 3.18 .................. 7.84 

Value of Cumulative Emissions Reduction (2009$ million) ††

CO2 ....................................... 2 to 24 ............. 3 to 43 ............. 6 to 99 ............. 9 to 136 ........... 14 to 206 ......... 33 to 509 

NOX—3% discount rate ....... 0.1 to 1.0 ......... 0. 2 to 1.8 ........ 0.4 to 4.1 ......... 0.5 to 5.6 ......... 0.8 to 8.4 ......... 2.0 to 20.77 

NOX—7% discount rate ....... 0.1 to 0.5 ......... 0.1 to 0.9 ......... 0.2 to 2.2 ......... 0.29 to 2.9 ....... 0.4 to 4.5 ......... 1.1 to 11.0 

Mean LCC Savings ** 

(2009$).

25 ..................... 22 ..................... (6) .................... (52) .................. (632) ................ (1,361) 

Median PBP (years) ............. 2.7 .................... 8.6 .................... 18.2 .................. 19.2 .................. 38.1 .................. 33.2 

Distribution of Consumer LCC Impacts 

Net Cost (%) ........................ 5 ....................... 27 ..................... 60 ..................... 64 ..................... 88 ..................... 95 

No Impact (%) ...................... 72 ..................... 51 ..................... 23 ..................... 21 ..................... 9 ....................... 1 

Net Benefit (%) ..................... 23 ..................... 22 ..................... 17 ..................... 15 ..................... 3 ....................... 4 

Generation Capacity Change 

(GW in 2042).

0.00 .................. 0.00 .................. 0.00 .................. +0.01 ............... +0.01 ............... +0.03 

Employment Impacts 

Total Potential Changes in 

Domestic Production 

Workers in 2013.

(512)–7 ............ (512)–19 .......... (512)–58 .......... (512)–81 .......... (512)–135 ........ (512)–268 

Net Change in National Indirect 

Employment in 2042 (thousands) †††.

0.01 .................. 0.02 .................. 0.02 .................. 0.02 .................. 0.04 .................. (0.07) 

Parentheses indicate negative (¥) values. 

* The impacts for Hg emissions are negligible. 

** For LCCs, a negative value means an increase in LCC by the amount indicated. 

†† Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions. ††† National Indirect Employment Impacts exclude direct impacts. 


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DOE first considered TSL 6, the maxtech level. TSL 6 would save 0.22 quads 

of energy, an amount DOE considers 

significant. TSL 6 would decrease 

consumer NPV by $2.87 billion, using a 

discount rate of 7 percent, and by $4.56 

billion, using a discount rate of 3 

percent. 

The emissions reductions at TSL 6 are 

8.89 Mt of CO2 and 7.84 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 6 is $33 million to $509 million, 

using a discount rate of 7 percent. Total 

generating capacity in 2042 is estimated 

to increase slightly under TSL 6. 

At TSL 6, DOE projects that the 

average LCC impact for consumers is a 

loss of $1,361. The median payback 

period is 33.2 years (which is 

substantially longer than the mean 

lifetime of the product). At TSL 6, the 

fraction of consumers experiencing an 

LCC benefit is 4 percent. The fraction of 

consumers experiencing an LCC cost is 

95 percent. 

At TSL 6, the INPV is projected to 

decrease by up to $38.3 million for gasfired pool heaters. Currently, gas-fired 

pool heaters that meet the efficiencies 

required by TSL 6 are manufactured in 

extremely low volumes by a limited 

number of manufacturers. The 

significant impacts on manufacturers 

arise from the large costs to develop or 

increase the production of fully 

condensing products. In addition, 

manufacturers are significantly harmed 

if profitability is negatively impacted to 

keep consumers in the market for a 

luxury item that is significantly more 

expensive than most products currently 

sold. If the high end of the range of 

impacts is reached as DOE expects, TSL 

6 could result in a net loss of 78 percent 

in INPV for gas-fired pool heaters. 

Therefore, the Secretary has 

concluded that at TSL 6, the benefits of 

energy savings and emission reductions 

would be outweighed by the negative 

impacts on consumer NPV, the 

economic burden on some consumers 

(as indicated by the large increase in 

total installed cost), and the large capital 

conversion costs that could result in a 

large reduction in INPV for the 

manufacturers. Consequently, the 

Secretary has concluded that TSL 6 is 

not economically justified. 

Next, DOE considered TSL 5. TSL 5 

would save 0.09 quads of energy, an 

amount DOE considers significant. TSL 

5 would decrease consumer NPV by 

$1.39 billion, using a discount rate of 7 

percent, and by $2.32 billion, using a 

discount rate of 3 percent. 

The emissions reductions at TSL 5 are 

3.6 Mt of CO2 and 3.2 kt of NOX. The 

estimated monetary value of the 

cumulative CO2 emissions reductions at 

TSL 5 is $14 million to $206 million. 

Total generating capacity in 2042 is 

estimated to increase slightly under TSL 

5. 

At TSL 5, DOE projects that the 

average LCC impact for consumers is a 

loss of $632. The median payback 

period is 38.1 years (which is 

substantially longer than the mean 

lifetime of the product). At TSL 5, the 

fraction of consumers experiencing an 

LCC benefit is 3 percent. The fraction of 

consumers experiencing an LCC cost is 

88 percent. 

At TSL 5, the projected change in 

INPV is a decrease of up to $17.2 

million for gas-fired pool heaters. 

Currently, gas-fired pool heaters that 

meet the efficiencies required by TSL 5 

are manufactured in extremely low 

volumes by a limited number of 

manufacturers, as with TSL 6. The 

significant adverse impacts on 

manufacturers arise from the large costs 

to develop or increase the production of 

products with multiple efficiency 

improvements. In addition, the potential 

for manufacturers to be significantly 

harmed increases if consumers’ 

purchasing decisions are impacted and 

shipments decline due to the large 

increases in first cost for a luxury item. 

If the high end of the range of impacts 

is reached as DOE expects, TSL 5 could 

result in a net loss of 35 percent in INPV 

for gas-fired pool heaters. 

Therefore, the Secretary has 

concluded that at TSL 5, the benefits of 

energy savings and emission reductions 

would be outweighed by the negative 

impacts on consumer NPV, the 

economic burden on some consumers, 

and the large capital conversion costs 

that could result in a large reduction in 

INPV for the manufacturers. 

Consequently, the Secretary has 

concluded that TSL 5 is not 

economically justified. 

Next, DOE considered TSL 4. TSL 4 

would save 0.06 quads of energy, an 

amount DOE considers significant. TSL 

4 would decrease consumer NPV by 

$0.16 billion, using a discount rate of 7 

percent, and by $0.15 billion, using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 4 are 2.38 Mt of CO2 and 2.10 

kt of NOX. The estimated monetary 

value of the cumulative CO2 emissions 

reductions at TSL 4 is $9 million to 

$136 million. Total generating capacity 

in 2042 is estimated to increase slightly 

under TSL 4. 

At TSL 4, DOE projects that the 

average LCC impact for consumers is a 

loss of $52. The median payback period 

is 19.2 years (which is substantially 

longer than the mean lifetime of the 

product). At TSL 4, the fraction of 

consumers experiencing an LCC benefit 

is 15 percent. The fraction of consumers 

experiencing an LCC cost is 64 percent. 

At TSL 4, DOE projects that INPV 

decreases by up to $6.6 million for gasfired pool heaters. At TSL 4, 

manufacturers believe that profitability 

could be harmed in order to keep 

consumers in the market for a luxury 

item that is more expensive than the 

most common products currently sold. 

If the high end of the range of impacts 

is reached as DOE expects, TSL 4 could 

result in a net loss of 13.5 percent in 

INPV for gas-fired pool heaters. 

Therefore, the Secretary has 

concluded that at TSL 4, the benefits of 

energy savings and emission reductions 

would be outweighed by the negative 

impacts on consumer NPV, the 

economic burden on some consumers, 

and the large capital conversion costs 

that could result in a large reduction in 

INPV for the manufacturers. 

Consequently, the Secretary has 

concluded that TSL 4 is not 

economically justified. 

Next, DOE considered TSL 3. TSL 3 

would save 0.04 quads of energy, an 

amount DOE considers significant. TSL 

3 would decrease consumer NPV by 

$0.06 billion, using a discount rate of 7 

percent, and by $0.01 billion, using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 3 are 1.72 Mt of CO2 and 1.53 

kt of NOX. The estimated monetary 

value of the cumulative CO2 emissions 

reductions at TSL 3 is $6 million to $99 

million. Total generating capacity in 

2042 is estimated to stay the same under 

TSL 3. 

At TSL 3, DOE projects that the 

average LCC impact for consumers is a 

loss of $6. The median payback period 

is 18.2 years (which is substantially 

longer than the mean lifetime of the 

product). At TSL 3, the fraction of 

consumers experiencing an LCC benefit 

is 17 percent. The fraction of consumers 

experiencing an LCC cost is 60 percent. 

At TSL 3, DOE projects that INPV 

decreases by up to $5 million for gasfired pool heaters. At TSL 3, 

manufacturers believe that profitability 

could be harmed in order to keep 

consumers in the market for a luxury 

item that is more expensive than the 

most common products currently sold, 

as with TSL 4. If the high end of the 

range of impacts is reached as DOE 

expects, TSL 3 could result in a net loss 

of 10 percent in INPV for gas-fired pool 

heaters. 

Therefore, the Secretary has 

concluded that at TSL 3, the benefits of 

energy savings and emission reductions 

would be outweighed by the negative 


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impacts on consumer NPV, the 

economic burden on some consumers, 

and the large capital conversion costs 

that could result in a large reduction in 

INPV for the manufacturers. 

Consequently, the Secretary has 

concluded that TSL 3 is not 

economically justified. 

Next, DOE considered TSL 2. TSL 2 

would save 0.02 quads of energy, an 

amount DOE considers significant. TSL 

2 would increase consumer NPV by 

$0.04 billion, using a discount rate of 7 

percent, and by $0.10 billion, using a 

discount rate of 3 percent. 

The cumulative emissions reductions 

at TSL 2 are 0.75 Mt of CO2 and 0.67 

kt of NOX. The estimated monetary 

value of the cumulative CO2 emissions 

reductions at TSL 2 is $3 million to $43 

million. Total generating capacity in 

2042 is estimated to stay the same under 

TSL 2. 

At TSL 2, DOE projects that the 

average LCC impact for consumers is a 

savings of $22. The median payback 

period is 8.6 years. At TSL 2, the 

fraction of consumers experiencing an 

LCC benefit is 22 percent. The fraction 

of consumers experiencing an LCC cost 

is 27 percent. 

At TSL 2, DOE projects that INPV 

decreases by up to $0.8 million for gasfired pool heaters. At TSL 2, 

manufacturers believe that profitability 

could be harmed in order to keep 

consumers in the market for a luxury 

item that is more expensive than the 

most common products currently sold, 

as with TSL 3 and 4. If the high end of 

the range of impacts is reached as DOE 

expects, TSL 2 could result in a net loss 

of 2 percent in INPV for gas-fired pool 

heaters. 

After considering the analysis and the 

benefits and burdens of TSL 2, the 

Secretary has concluded that this trial 

standard level will offer the maximum 

improvement in efficiency that is 

technologically feasible and 

economically justified, and will result 

in significant conservation of energy. 

Further, global benefits from carbon 

dioxide reductions (at a central value of 

$21.4 for emissions in 2010) have a 

present value of $14 million. These 

benefits from carbon dioxide emission 

reductions (in both physical reductions 

and the monetized value of those 

reductions), when considered in 

conjunction with the consumer savings 

NPV and other factors described above, 

outweigh the potential reduction in 

INPV for manufacturers and support 

DOE’s conclusion that trial standard 

level 2 is economically justified. 

Therefore, the Department today adopts 

the energy conservation standards for 

pool heaters at TSL 2, which requires a 

thermal efficiency of 82 percent for gasfired pool heaters as shown in Table 

VI.68. 

TABLE VI.68—AMENDED ENERGY

CONSERVATION STANDARD FOR

POOL HEATERS

Product class 

Minimum thermal efficiency 

% 

Gas-fired Pool Heaters ......... 82 

VII. Procedural Issues and Regulatory 

Review 

A. Review Under Executive Order 12866 

Section 1(b)(1) of Executive Order 

12866, ‘‘Regulatory Planning and 

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

requires each agency to identify in 

writing the market failure or other 

problem that it intends to address, and 

that warrants agency action (including 

where applicable, the failure of private 

markets or public institutions), as well 

as assess the significance of that 

problem, to enable assessment of 

whether any new regulation is 

warranted. The problems that today’s 

standards address are as follows: 

(1) There is a lack of consumer 

information and/or information 

processing capability about energy 

efficiency opportunities in the home 

appliance market. 

(2) There is asymmetric information 

(one party to a transaction has more and 

better information than the other) and/ 

or high transactions costs (costs of 

gathering information and effecting 

exchanges of goods and services). 

(3) There are external benefits 

resulting from improved energy 

efficiency of heating products that are 

not captured by the users of such 

equipment. These benefits include 

externalities related to environmental 

protection and energy security that are 

not reflected in energy prices, such as 

reduced emissions of greenhouse gases. 

In addition, DOE has determined that 

today’s regulatory action is a ‘‘significant 

regulatory action’’ under section 3(f)(1) 

of Executive Order 12866. Accordingly, 

section 6(a)(3) of the Executive Order 

requires that DOE prepare a regulatory 

impact analysis (RIA) on today’s rule 

and that the Office of Information and 

Regulatory Affairs (OIRA) in the Office 

of Management and Budget (OMB) 

review this rule. DOE presented to OIRA 

for review the draft rule and other 

documents prepared for this 

rulemaking, including the RIA, and has 

included these documents in the 

rulemaking record. They are available 

for public review in the Resource Room 

of DOE’s Building Technologies 

Program, 950 L’Enfant Plaza, SW., Suite 

600, Washington, DC 20024, (202) 586– 

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

Monday through Friday, except Federal 

holidays. 

The RIA is contained in the TSD 

prepared for the rulemaking. The RIA 

consists of: (1) A statement of the 

problem addressed by this regulation, 

and the mandate for government action; 

(2) a description and analysis of the 

feasible policy alternatives to this 

regulation; (3) a quantitative comparison 

of the impacts of the alternatives; and 

(4) specific national impacts of the 

standards. 

The RIA calculates the effects of 

feasible policy alternatives to mandatory 

standards for heating products, and 

provides a quantitative comparison of 

the impacts of the alternatives. DOE 

evaluated each alternative in terms of its 

ability to achieve significant energy 

savings at reasonable costs, and 

compared it to the effectiveness of the 

standards in today’s rule. DOE analyzed 

these alternatives using a series of 

regulatory scenarios for the three types 

of heating products. It modified the 

heating product NIA models to allow 

inputs for these policy alternatives. Of 

the four product classes of residential 

water heaters subject to standards, this 

RIA concerns only gas-fired storage and 

electric storage water heaters, which 

together represent the majority of 

shipments. Of the five product classes of 

DHE, this RIA concerns only gas wall 

fan DHE and gas hearth DHE, which 

together represent the majority of DHE 

shipments. 

DOE identified the following major 

policy alternatives for achieving 

increased energy efficiency in the three 

types of heating products: 

• No new regulatory action; 

• Consumer rebates; 

• Consumer tax credits; 

• Manufacturer tax credits; 

• Voluntary energy efficiency targets; 

• Bulk government purchases; 

• Early replacement programs; and 

• The regulatory action (energy 

conservation standards). 

DOE evaluated each alternative in 

terms of its ability to achieve significant 

energy savings at reasonable costs and 

compared it to the effectiveness of 

today’s rule. Table VII.1 through Table 

VII.5 show the results for energy savings 

and consumer NPV. 


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TABLE VII.1—IMPACTS OF NON-REGULATORY ALTERNATIVES FOR GAS-FIRED STORAGE WATER HEATERS THAT MEET THE

STANDARD (TSL 5) 

Policy alternative Primary energy 

savings quads 

Net present value* billion 2009$ 

7% discount rate 3% discount rate 

No New Regulatory Action .............................................................................................. 0.00 0.00 0.00 

Consumer Rebates .......................................................................................................... 0.21 0.05 0.55 

Consumer Tax Credits ..................................................................................................... 0.12 0.03 0.33 

Manufacturer Tax Credits ................................................................................................ 0.06 0.01 0.17 

Voluntary Energy Efficiency Targets ............................................................................... 0.12 0.05 0.38 

Early Replacement .......................................................................................................... 0.001 ¥0.03 ¥0.05 

Bulk Government Purchases ........................................................................................... 0.003 0.004 0.01 

Energy Conservation Standard ....................................................................................... 0.81 0.27 2.37 

* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045. 

TABLE VII.2—IMPACTS OF NON-REGULATORY ALTERNATIVES FOR ELECTRIC STORAGE WATER HEATERS THAT MEET THE

STANDARD (TSL 5) 

Policy alternative Primary energy 

savings quads 

Net present value* billion 2009$ 

7% discount rate 3% discount rate 

No New Regulatory Action .............................................................................................. 0.00 0.00 0.00 

Consumer Rebates .......................................................................................................... 0.53 0.19 1.50 

Consumer Tax Credits ..................................................................................................... 0.32 0.12 0.90 

Manufacturer Tax Credits ................................................................................................ 0.16 0.06 0.45 

Voluntary Energy Efficiency Targets ............................................................................... 0.17 0.29 0.99 

Early Replacement .......................................................................................................... 0.003 ¥0.05 ¥0.08 

Bulk Government Purchases ........................................................................................... 0.003 0.004 0.01 

Energy Conservation Standard ....................................................................................... 1.67 1.03 5.84 

* DOE determined the NPV of consumer benefit for product shipments from 2015 to 2045. 

TABLE VII.3—IMPACTS OF NON-REGULATORY ALTERNATIVES FOR GAS WALL FAN DHE THAT MEET THE STANDARD

(TSL 2) 

Policy alternative Primary energy 

savings quads 

Net present value* billion 2009$ 

7% discount rate 3% discount rate 

No New Regulatory Action .............................................................................................. 0.00 0.00 0.00 

Consumer Rebates .......................................................................................................... 0.004 0.007 0.018 

Consumer Tax Credits ..................................................................................................... 0.002 0.004 0.011 

Manufacturer Tax Credits ................................................................................................ 0.001 0.002 0.005 

Voluntary Energy Efficiency Targets ............................................................................... 0.001 0.003 0.007 

Early Replacement .......................................................................................................... <0.0001 0.000 0.000 

Bulk Government Purchases † ........................................................................................ NA NA NA 

Energy Conservation Standard ....................................................................................... 0.01 0.03 0.07 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for gas wall fan DHE because the market share associated with publiclyowned housing is minimal. 

TABLE VII.4—IMPACTS OF NON-REGULATORY ALTERNATIVES FOR GAS HEARTH DHE THAT MEET THE STANDARD (TSL 2) 

Policy alternative Primary energy 

savings quads 

Net present value* billion 2009$ 

7% discount rate 3% discount rate 

No New Regulatory Action .............................................................................................. 0.00 0.00 0.00 

Consumer Rebates .......................................................................................................... 0.04 0.10 0.23 

Consumer Tax Credits ..................................................................................................... 0.02 0.06 0.14 

Manufacturer Tax Credits ................................................................................................ 0.01 0.03 0.07 

Voluntary Energy Efficiency Targets ............................................................................... 0.02 0.05 0.14 

Early Replacement .......................................................................................................... <0.001 0.000 0.000 

Bulk Government Purchases† ......................................................................................... NA NA NA 

Energy Conservation Standard ....................................................................................... 0.19 0.50 1.21 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for gas hearth DHE because the market share associated with publiclyowned housing is minimal. 


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20224 Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 

TABLE VII.5—IMPACTS OF NON-REGULATORY ALTERNATIVES FOR POOL HEATERS THAT MEET THE STANDARD (TSL 2) 

Policy alternative Primary energy 

savings quads 

Net present value* billion 2009$ 

7% discount rate 3% discount rate 

No New Regulatory Action .............................................................................................. 0.00 0.00 0.00 

Consumer Rebates .......................................................................................................... 0.006 0.01 0.03 

Consumer Tax Credits ..................................................................................................... 0.003 0.006 0.02 

Manufacturer Tax Credits ................................................................................................ 0.002 0.003 0.01 

Voluntary Energy Efficiency Targets ............................................................................... 0.002 0.004 0.01 

Early Replacement .......................................................................................................... <0.001 0.000 0.000 

Bulk Government Purchases † ........................................................................................ NA NA NA 

Energy Conservation Standard ....................................................................................... 0.02 0.04 0.11 

* DOE determined the NPV of consumer benefit for product shipments from 2013 to 2043. 

† DOE did not evaluate the bulk government purchase alternative for pool heaters because there is no market share associated with publiclyowned housing. 

The NPV amounts shown in Table 

VII.1 through Table VII.5 refer to the 

NPV of consumer benefits. The costs to 

the government of each policy (such as 

rebates or tax credits) are not included 

in the costs for the NPV since, on 

balance, consumers in the aggregate 

both pay for rebates and tax credits 

through taxes and receive their benefits. 

The following paragraphs discuss the 

cumulative effect of each policy 

alternative listed in Table VII.1 through 

Table VII.5. (See the regulatory impact 

analysis in the final rule TSD for 

details.) For comparison with the results 

reported below for the non-regulatory 

policies, the combined impacts of the 

standards for all product classes 

considered in this rulemaking are 

projected to result in 2.81 quads of 

national energy savings and an NPV of 

consumer benefit of $1.98 billion (at a 

7-percent discount rate). 

No new regulatory action. The case in 

which no regulatory action is taken 

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

action’’) scenario. Since this is the base 

case, energy savings and NPV are zero 

by definition. 

Consumer Rebates. If consumers were 

offered a rebate that covered a portion 

of the incremental price difference 

between products meeting baseline 

efficiency levels and those meeting the 

energy efficiency levels in the 

standards, the number of consumers 

buying a more-efficient water heater, 

pool heater, or DHE would increase 

relative to the base case. For example, 

as a result of the consumer rebates, 

DOE’s analysis suggests that the market 

share of water heaters meeting the 

standard level would increase from 35 

percent (in the base case) to 62 percent 

for gas-fired storage products, and from 

9 percent (in the base case) to 48 percent 

for electric storage products. DOE 

assumed this policy would permanently 

transform the market so that the 

increased percentage of consumers 

purchasing more-efficient products seen 

in the first year of the program would 

be maintained throughout the forecast 

period. At the estimated participation 

rates, the rebates would provide 0.79 

quads of national energy savings and an 

NPV of consumer benefit of $0.36 

billion (at a 7-percent discount rate) for 

the five considered product classes. 

Although DOE estimated that rebates 

would provide national benefits, they 

would be much smaller than the 

benefits resulting from the national 

standards. 

Consumer Tax Credits. If consumers 

were offered a tax credit that covered a 

portion of the incremental price 

difference between products meeting 

baseline efficiency levels and those 

meeting the energy efficiency levels in 

the standards, DOE’s analysis suggests 

that the number of consumers buying a 

water heater, pool heater, or DHE that 

would take advantage of the tax credit 

would be approximately 60 percent of 

the number that would take advantage 

of rebates. For example, as a result of 

the consumer tax credit, the market 

share of water heaters meeting the 

standard level would increase from 35 

percent (in the base case) to 51 percent 

for gas-fired storage products and from 

9 percent (in the base case) to 31 percent 

for electric storage products. DOE 

assumed this policy would permanently 

transform the market so that the 

increased percentage of consumers 

purchasing more-efficient products seen 

in the first year of the program would 

be maintained throughout the forecast 

period. At the estimated participation 

rates, consumer tax credits would 

provide 0.47 quads of national energy 

savings and an NPV of consumer benefit 

of $0.22 billion (at a seven-percent 

discount rate) for the five considered 

products. Hence, DOE estimated that 

consumer tax credits would yield a 

fraction of the benefits that consumer 

rebates would provide. 

Manufacturer Tax Credits. DOE 

estimates that even smaller benefits 

would result from a manufacturer tax 

credit program that would effectively 

result in a lower price to the consumer 

by an amount that covers part of the 

incremental price difference between 

products meeting baseline efficiency 

levels and those meeting the standards. 

Because these tax credits would go to 

manufacturers instead of consumers, 

DOE assumed that fewer consumers 

would be aware of this program than 

would be aware of a consumer tax credit 

program. DOE assumes that 50 percent 

of the consumers who would take 

advantage of consumer tax credits 

would buy more-efficient products 

offered through a manufacturer tax 

credit program. For example, as a result 

of the manufacturer tax credit, the 

market share of water heaters meeting 

the standard would increase from 35 

percent (in the base case) to 43 percent 

for gas-fired storage products and from 

9 percent (in the base case) to 20 percent 

for electric storage products. DOE 

assumed this policy would permanently 

transform the market so that the 

increased percentage of consumers 

purchasing more-efficient products seen 

in the first year of the program would 

be maintained throughout the forecast 

period. At the estimated participation 

rates, the rebates would provide 0.23 

quads of national energy savings and an 

NPV of consumer benefit of $0.1 billion 

(at a seven-percent discount rate) for the 

five considered products. Thus, DOE 

estimated that manufacturer tax credits 

would yield a fraction of the benefits 

that consumer tax credits and rebates 

would provide. 

Voluntary Energy Efficiency Targets. 

The Federal government’s ENERGY 

STAR program has voluntary energy 

efficiency targets for gas-fired and 

electric storage water heaters. Some 

equipment purchases that result from 

the ENERGY STAR program already are 

reflected in DOE’s base-case scenario for 

gas-fired and electric storage water 

heaters. DOE evaluated the potential 


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Federal Register / Vol. 75, No. 73 / Friday, April 16, 2010 / Rules and Regulations 20225 

impacts of increased marketing efforts 

by ENERGY STAR that would 

encourage the purchase of water heaters 

meeting the standard. For direct heating 

equipment and pool heaters, DOE 

evaluated a hypothetical ENERGY STAR 

program for these products with market 

impacts comparable to the impacts of 

existing ENERGY STAR programs for 

similar products. DOE modeled the 

voluntary efficiency program based on 

these scenarios. DOE estimated that the 

enhanced effectiveness of voluntary 

energy efficiency targets would provide 

0.31 quads of national energy savings 

and an NPV of consumer benefit of 

$0.40 billion (at a 7-percent discount 

rate) for the five considered products. 

Although this would provide national 

benefits, they would be much smaller 

than the benefits resulting from the 

national standards. 

Early Replacement Incentives. This 

policy alternative envisions a program 

to replace old, inefficient water heaters, 

DHE, and pool heaters with models 

meeting the efficiency levels in the 

standards. DOE projected a 4-percent 

increase in the annual retirement rate of 

the existing stock in the first year of the 

program. It assumed the program would 

last as long as it took to completely 

replace all of the eligible existing stock 

in the year that the program begins 

(2013 or 2015). DOE estimated that for 

such an early replacement program, the 

national energy savings benefits would 

be negligible in comparison with the 

benefits resulting from the national 

standards, and the NPV would actually 

be negative. 

Bulk Government Purchases. Under 

this policy alternative, the government 

would be encouraged to purchase 

increased amounts of equipment that 

meet the efficiency levels in the 

standards. Federal, State, and local 

government agencies could administer 

such a program. At the Federal level, 

this would be an enhancement to the 

existing Federal Energy Management 

Program (FEMP). DOE modeled this 

program by assuming an increase in 

installation of water heaters meeting the 

efficiency levels of the standards among 

those households for whom government 

agencies purchase or influence the 

purchase of water heaters. (Because the 

market share of DHE units in publiclyowned housing is minimal and the 

market share of pool heaters in publiclyowned housing is zero, the Department 

did not consider bulk government 

purchases for those products.) DOE 

estimated that bulk government 

purchases would provide negligible 

national energy savings and NPV for the 

considered products, benefits that 

would be much smaller than those 

estimated for the national standards. 

Energy Conservation Standards. DOE 

is adopting the energy conservation 

standards listed in section VI.D. As 

indicated in the paragraphs above, none 

of the alternatives DOE examined would 

save as much energy as today’s 

standards. Also, several of the 

alternatives would require new enabling 

legislation because authority to carry 

out those alternatives may not exist. 

Additional Policy Evaluation. In 

addition to the above non-regulatory 

policy alternatives, DOE evaluated the 

potential impacts of a policy that would 

allow States to require that some water 

heaters installed in new homes have an 

efficiency level higher than the Federal 

standard. At present, States are 

prohibited from requiring efficiency 

levels higher than the Federal standard; 

the considered policy would remove 

this prohibition in the case of 

residential water heaters. DOE notes 

that removing the prohibition would 

require either legislative authority or 

DOE approval, after a case-by-case basis 

consideration on the merits, of waivers 

submitted by States. For the present 

rulemaking, DOE evaluated the impacts 

that such a policy would have for 

electric storage water heaters. 

Specifically, DOE estimated the 

impacts for a policy case in which 

several States adopted provisions in 

their building codes that would require 

electric storage water heaters to meet 

efficiency level 6 (2.0 EF, heat pump 

with two-inch insulation). DOE 

assumed that such codes would affect 

25 percent of water heaters in all new 

homes built in the United States in 2015 

and that the percentage would increase 

linearly to 75 percent by 2045. (DOE did 

not attempt to define the specific 

geographic areas that would be 

affected.) In this policy case, all other 

water heaters (those bought for 

replacement in existing homes) would 

meet the proposed standard level of 0.95 

(efficiency level 5). DOE’s analysis 

accounts for the estimate that some new 

homes would have a water heater with 

EF greater than or equal to 2.0 (e.g., heat 

pump technology) in the absence of any 

amended standards (the base case). 

DOE estimated that a policy that 

would allow States to require that some 

electric storage water heaters installed 

in new homes have an efficiency level 

higher than the Federal standard would 

provide 2.18 quads of national energy 

savings and an NPV of consumer benefit 

of $1.23 billion (at a 7-percent discount 

rate). The energy savings from this State 

building code requirement for new 

homes would be greater than the savings 

from today’s energy conservation 

standard for electric storage water 

heaters. This contrasts with the nonregulatory policy alternatives discussed 

above, whose savings are lower than 

those of the considered standards. 

B. Review Under the Regulatory 

Flexibility Act 

The Regulatory Flexibility Act (5 

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

of an initial regulatory flexibility 

analysis (IRFA) for any rule that by law 

must be proposed for public comment, 

and a final regulatory flexibility analysis 

(FRFA) for any such rule that an agency 

adopts as a final rule, unless the agency 

certifies that the rule, if promulgated, 

will not have a significant economic 

impact on a substantial number of small 

entities. As required by Executive Order 

13272, ‘‘Proper Consideration of Small 

Entities in Agency Rulemaking’’ 67 FR 

53461 (August 16, 2002), DOE 

published procedures and policies on 

February 19, 2003, to ensure that the 

potential impacts of its rules on small 

entities are properly considered during 

the rulemaking process. 68 FR 7990. 

DOE has made its procedures and 

policies available on the Office of the 

General Counsel’s Web site (http:// 

www.gc.energy.gov/). DOE reviewed the 

December 2009 NOPR and today’s final 

rule under the provisions of the 

Regulatory Flexibility Act and the 

procedure and policies published on 

February 19, 2003. 

For the manufacturers of the three 

types of heating products, the Small 

Business Administration (SBA) has set a 

size threshold, which defines those 

entities classified as ‘‘small businesses’’ 

for the purposes of the statute. DOE 

used the SBA’s small business size 

standards to determine whether any 

small entities would be subject to the 

requirements of the rule. 65 FR 30836, 

30850 (May 15, 2000), as amended at 65 

FR 53533, 53545 (Sept. 5, 2000) and 

codified at 13 CFR part 121.The size 

standards are listed by North American 

Industry Classification System (NAICS) 

code and industry description and are 

available at http://www.sba.gov/idc/ 

groups/public/documents/ 

sba_homepage/serv_sstd_tablepdf.pdf. 

Residential water heater manufacturing 

is classified under NAICS 335228— 

‘‘Other Major Household Appliance 

Manufacturing.’’ DHE and pool heater 

manufacturing are classified under NAICS 

333414—‘‘Heating Equipment (Except 

Warm Air Furnaces) Manufacturing.’’ 

The SBA sets a threshold of 500 

employees or less for an entity to be 

considered as a small business for both 

of these categories as shown in Table 

VII.6. 


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26 In the December 2009 NOPR, DOE mistakenly 

listed gas-fired pool heater manufacturing under 

NAICS code 335228. 74 FR 65852, 65984 (Dec. 11, 

2009). The correct classification for pool heater 

manufacturing is 333414. Both NAICS categories 

have the same 500 employee limit. 

TABLE VII.6—SBA AND NAICS CLASSIFICATION OF SMALL BUSINESS MANUFACTURERS POTENTIALLY AFFECTED BY THIS

RULE 26

Industry description Revenue limit Employee limit NAICS 

Residential Water Heater Manufacturing .................................................................. N/A 500 335228 

Direct Heating Manufacturing .................................................................................... N/A 500 333414 

Pool Heater Manufacturing ........................................................................................ N/A 500 333414

In the December 2009 NOPR, DOE 

looked at each type of heating product 

(water heaters, pool heaters, and direct 

heating) separately for purposes of 

determining whether certification was 

appropriate or an initial regulatory 

flexibility analysis was needed. DOE 

identified five small residential water 

heater manufacturers, 12 small DHE 

manufacturers, and one small pool 

heater manufacturer that produce 

covered products and can be considered 

small businesses manufacturers. 74 FR 

65852, 65984–86 (Dec. 11, 2009). DOE 

concluded that the proposed standards 

for residential water heaters and gasfired pool heaters set forth in the 

proposed rule, if promulgated, would 

not have a significant economic impact 

on a substantial number of small 

entities. DOE also sought comment on 

the impacts of the proposed amended 

energy conservation standards on small 

business manufacturers of residential 

water heaters and the impacts of the 

proposed amended energy conservation 

standards on small business 

manufacturers of gas-fired residential 

pool heaters. DOE received no 

comments on the certification or its 

additional requests for comment on 

small business impacts in response to 

the December 2009 NOPR for residential 

water heaters and gas-fired pool heaters. 

Comments related to the economic 

impacts of the proposed rule generally 

are discussed elsewhere in the 

preamble, and no changes were made to 

the certification as a result of these 

comments. Thus, DOE reaffirms the 

certification and has not prepared a 

FRFA for this final rule for those 

products. 

DOE determined, however, that it 

could not certify that the proposed 

standards, if promulgated, would not 

have significant impact on a substantial 

number of small entities in the direct 

heating equipment industry. DOE made 

the determination that small business 

manufacturers of both traditional and 

gas hearth DHE could be negatively 

impacted by the standards proposed in 

the December 2009 NOPR. 74 FR 65852, 

65985–86 (Dec. 11, 2009). Because of 

the potential impacts on small DHE 

manufacturers, DOE prepared an IRFA 

for DHE during the NOPR stage of this 

rulemaking. DOE provided the IRFA in 

its entirety in the December 2009 NOPR. 

74 FR 65852, 65984–92 (Dec. 11, 2009). 

Chapter 12 of the TSD contains more 

information about the impact of this 

rulemaking on manufacturers. DOE 

presents the FRFA conducted for this 

rulemaking in the following discussion. 

Comments received in response to the 

IRFA are also presented below. 

DOE’s determination that the rule 

may have a significant economic impact 

on a substantial number of small entities 

results from the large number of small 

DHE manufacturers and the expected 

impact of the standards on these small 

businesses. As presented and discussed 

below, the FRFA describes potential 

impacts on small business DHE 

manufacturers associated with the 

required capital and product conversion 

costs at each TSL and discusses 

alternatives that could minimize these 

impacts. 

Succinct Statement of the Need for, and 

Objectives of, the Rule 

The statement of the need for and 

objectives of the rule is set forth 

elsewhere in the preamble and is not 

repeated here. 

Description and Estimated Number of 

Small Entities Regulated 

After examining structure of the DHE 

industry, DOE determined it was 

necessary to divide potential impacts on 

small DHE manufacturers into two 

broad categories: (1) Impacts on small 

manufacturers of traditional DHE (i.e., 

manufacturers of gas wall fan, gas wall 

gravity, gas floor, and gas room DHE); 

and (2) impacts on small manufacturers 

of gas hearth products. The FRFA 

presents the results for traditional DHE 

and gas hearth DHE separately to be 

consistent with the MIA results in 

section VI.C.2 which also separate DHE 

in this manner. Traditional DHE and gas 

hearth DHE are made by different 

manufacturers (i.e., all manufacturers of 

gas hearth products do not manufacture 

traditional DHE, and vice versa, with 

one exception). 

Traditional Direct Heating Equipment 

Three major manufacturers control 

almost 100 percent of the traditional 

DHE market. Two of the three major 

manufacturers of traditional DHE are 

small business manufacturers. One of 

the small business manufacturers 

produces only traditional DHE and has 

products in all four traditional DHE 

product classes (i.e., gas wall fan, gas 

wall gravity, gas floor, and gas room 

DHE). The second small business 

manufacturer produces all five products 

classes of DHE, including gas hearth 

DHE. DOE identified a third small 

business manufacturer with less than a 

one-percent share of the traditional DHE 

market. This company offers two gas 

wall gravity models, but is mainly 

focused on specialty hearth products 

not covered by this rulemaking. 

Gas Hearth Direct Heating Equipment 

DOE identified 10 small business 

manufacturers of gas hearth DHE. Both 

small business manufacturers and large 

manufacturers indicated that the 

number of competitors in the market has 

been declining in recent years due to 

industry consolidation and smaller 

companies exiting the market. Three 

major domestic manufacturers now 

supply a majority of the marketplace. 

None of the three major manufacturers 

is considered a small business. The 

remainder of the market is either 

imported (mostly by Canadian 

companies) or produced by one of 12 

domestic manufacturers that hold 

varying market shares. 

Significant Issues Raised by Public 

Comments 

A number of interested parties 

commented on the appropriateness of 

the proposed standard level for 

traditional DHE, given the impacts DOE 

calculated in the MIA, and urged DOE 

to reconsider the traditional DHE 

standards for the final rule. See section 

V.A.2 for a summary of these comments, 

and see section VI.D.3 for a discussion 

of DOE’s conclusion about the final 

amended energy conservation standard 

for traditional DHE in light of these and 

other comments. 

DOE also received a number of 

comments from industry groups and 


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manufacturers, including two small 

business manufacturers, about the 

potential of the proposed standards to 

have a tremendous impact on direct 

employment in the traditional DHE 

market. See section IV.I.4 for a 

discussion of these comments. 

Interested parties also commented on 

the MIA scenarios and profitability in 

the traditional DHE market after the 

compliance date of the amended energy 

conservation standards (section IV.I.2). 

Another issue raised by interested 

parties that could impact small business 

manufacturers and the industry in 

general is securing the funding for the 

conversion costs estimated by DOE (see 

section IV.I.5). 

Several comments argued that TSL 3, 

as presented in the December 2009 

NOPR, presented a very negative 

business case for traditional DHE 

manufacturers, especially small 

business manufacturers. In general, 

AHRI and the small business 

manufacturers argued that the market 

for traditional DHE would not support 

the sales volume necessary to recoup 

the investments in R&D and capital 

equipment required by TSL 3. 

Essentially, two factors drive this 

argument: (1) The costs required by 

amended standards; and (2) revenues 

that follow the standards. On the cost 

side, AHRI stated that manufacturers 

cannot afford the necessary investment 

for product development and redesign 

for nearly all of their models; the 

retooling and changing of their 

production lines; and the testing of 

those redesigned models to certify 

compliance with the applicable safety 

standards. On the revenue side, AHRI 

and manufacturers attributed the lack of 

volume necessary to recoup these costs 

to three factors: (1) The market has 

already been in steady decline in the 

base case; (2) there would be fewer 

retrofits—the products’ primary 

market—because of space constraints 

and the increased size associated with 

higher-efficiency products; and (3) 

higher first costs, including higher 

installation costs, would further reduce 

demand. (Williams, No. 96 at p. 1; 

Empire, Public Meeting Transcript, No. 

57.4 at pp. 298–300; AHRI, No. 91 at p. 

10) AHRI and the manufacturers argued 

that the prospect of declining sales and 

the aforementioned costs would force 

those manufacturers to either drop 

product lines or exit the market entirely. 

(AHRI, No. 91 at p. 10; LTS, Public 

Meeting Transcript, No. 57.4 at p. 25) As 

a result, some segments of the 

traditional DHE market may shrink to 

only one or two manufacturers. (AHRI, 

No. 91 at p. 10) As mentioned in section 

VI.C.5, DOJ expressed concern that the 

proposed standards could adversely 

affect competition in the traditional 

DHE product categories. (DOJ, No. 99 at 

p. 2) 

DOE also received comments specific 

to the small business analysis presented 

in the IRFA section of the December 

2009 NOPR. LTS agreed that most 

manufacturers have existing products 

that meet the required efficiencies in 

three out of the four product types of 

traditional DHE, but said that that 

statement is misleading because only 15 

percent of LTS’ total sales come from 

products that meet the proposed 

standards. LTS stated its belief that its 

competitors similarly derive only a 

small portion of total revenue from 

products that would meet the proposed 

standards. (LTS, No. 56.7 at p. 2; Public 

Meeting Transcript, No. 57.4 at p. 22) 

LTS also disagreed with DOE’s 

statement in the December 2009 NOPR 

that small business manufacturers 

would be left with a viable number of 

product lines that meet the new 

standards, particularly for the gravity 

wall category which represents 60 

percent of their business. Because only 

one manufacturer has two gas wall 

gravity models that would meet the 

proposed standard (which represent 5 

percent of sales and only have lower 

input ratings less than 25,000 BTU), 

LTS stated that these few products do 

not lead to maintaining a viable number 

of product offerings. (LTS, No. 56.7 at p. 

3; LTS, Public Meeting Transcript, No. 

57.4 at pp. 23–24; 286–287) Therefore, 

LTS did not agree with DOE’s 

conclusion that manufacturers would 

have a viable number of product lines 

at TSL 3 to maintain a sufficient 

production volume and remain in the 

market. (LTS, No. 56.7 at p. 2) 

DOE acknowledges that, according to 

the AHRI database, LTS produces only 

a few gas wall gravity DHE models that 

would meet the standards being adopted 

in this final rule. According to the AHRI 

directory, LTS has certified four models 

that meet the proposed gas wall gravity 

standard in the 2009 NOPR. These four 

models are two basic products that are 

listed twice in the directory (once for 

using natural gas as a fuel source and 

once for using propane gas as a fuel 

source). DOE also understands that 

these products currently reflect a small 

share of the market and that few of 

LTS’s current products in other 

categories would meet the standards 

proposed in the December 2009 NOPR. 

To clarify, in the December 2009 NOPR, 

DOE concluded that a combination of 

existing product lines that currently 

meet the standard and other select 

product lines—which would have to be 

upgraded—would allow manufacturers 

to offer a viable number of product lines 

after the compliance date of the 

amended energy conservation standard. 

DOE did and does not assume that only 

products that meet the current standard 

will be sufficient to support 

manufacturers after compliance with the 

amended standards is required. 

For these reasons, in the IRFA, DOE 

accounted for the costs the industry 

would incur to upgrade all of its other 

gas wall gravity product lines at the 

proposed standard. For the final rule, 

DOE used the AHRI database to update 

the number of product lines 

manufacturers currently have, and 

continued to use this methodology to 

estimate its capital conversion costs. 

DOE recognizes that its conversion costs 

may, therefore, be conservative because 

manufacturers may choose not to 

upgrade all of their current product 

lines. However, DOE assumed 

manufacturers would have to invest to 

maintain the shipment volumes 

forecasted in the NIA. See chapter 12 of 

the TSD for more details on DOE’s 

product line analysis. 

AHRI stated that because 

manufacturers in the traditional DHE 

market provide products of every type, 

the total shipments of traditional DHE 

must be considered since that is the true 

base of manufacturers’ business. 

According to the commenter, DOE must 

reconsider its analysis for traditional 

DHE, both relative to the impacts on 

manufacturers and on national energy 

savings, given that total future 

shipments are expected to continue to 

decrease. (AHRI, No. 91 at p. 11) AHRI 

stated that, to date, the traditional DHE 

manufacturers have survived by offering 

replacements. Dropping product lines or 

dropping categories would hurt 

manufacturers because they would no 

longer be able to offer all replacements 

for all products, which could cause a 

complete exit from the market rather 

than upgrading some product lines. 

(AHRI, Public Meeting Transcript, No. 

57.4 at pp. 297–298) Williams stated 

that offering a range of products is 

critical to traditional DHE 

manufacturers, arguing that in a small, 

niche category, part of viability is being 

able to offer a breadth of products. 

Williams commented that it needs to be 

able to be able to offer like 

replacements, including units without 

electricity. (Williams, Public Meeting 

Transcript, No. 57.4 at pp. 301–302) 

DOE agrees with AHRI and Williams 

that total sales and offering a broad 

range of products are critical to 

traditional DHE manufacturers. In the 

December 2009 NOPR, DOE noted that 

the wide range of product offerings by 


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manufacturers is a legacy of a once 

higher-volume market that now 

typically supplies replacement units. 

The remaining manufacturers have 

stayed in business by consolidating 

brands and the legacy products of 

companies that are no longer in 

business to take increasing shares of a 

smaller total market. Because 

maintaining a sufficiently broad product 

line is so critical to traditional DHE 

manufacturers, DOE conducted its small 

business impact analysis by examining 

how the conversion costs to convert all 

product lines would impact small 

business manufacturers. Because each 

product line is manufactured in 

relatively low volumes, the discrepancy 

between unit shipments and the number 

of product lines requiring significant 

product and capital conversion costs 

results in negative impacts for all 

manufacturers. 74 FR 65852, 65986 

(Dec. 11, 2009). 

DOE notes that the comments it 

received on the IRFA pertain to the 

conclusion DOE drew from the results, 

rather than the methodology or results 

themselves. As such, DOE has 

maintained its methodology from the 

December 2009 NOPR (discussed in 

more detail in section IV.I) and believes 

it has appropriately captured the costs 

to traditional DHE manufacturers of 

upgrading all of their product lines to 

the TSLs. The cash flow impacts 

presented in section VI.C.2.b are 

reflective of this assumption. However, 

DOE recognizes the significant costs 

small business manufacturers could face 

in converting product lines. In light of 

these costs and the need to maintain a 

viable number of products to offer in the 

marketplace, DOE is adopting a different 

TSL for traditional DHE in today’s final 

rule. Particularly in light of this change, 

DOE continues to believe that 

manufacturers, including the small 

business manufacturers, will be able to 

maintain a viable number of products 

after the compliance date of the 

amended energy conservation 

standards. 

DOE did not receive any specific 

comments on the MIA for gas hearth 

DHE manufacturers. DOE also did not 

receive any comments on its request for 

comment on the characterization of a 

typical large and small business 

manufacturer of gas hearth DHE nor its 

request for comment on the potential 

impacts on small business 

manufacturers of gas hearth DHE. 

Description and Estimate of Compliance 

Requirements 

Traditional DHE 

While DOE explicitly analyzed one 

representative input capacity range for 

the gas wall gravity, gas wall fan, gas 

floor, and gas room types of DHE, 

manufacturers offer product lines that 

typically span multiple BTU ranges 

with many different features. This can 

result in many individual models 

offered by each manufacturer per 

product line. Again, the wide range of 

product offerings by manufacturers is a 

legacy of a once higher-volume market 

that now typically supplies replacement 

units. The remaining manufacturers 

have stayed in business by 

consolidating brands and the legacy 

products of companies that are no 

longer in business to take increasing 

shares of a smaller total market. Because 

each product line is manufactured in 

low volumes, the discrepancy between 

unit shipments and the number of 

product lines requiring significant 

product and capital conversion costs 

results in negative impacts for all 

manufacturers. Many product 

development costs (e.g., testing, 

certification, and marketing) are 

somewhat fixed, so achieving 

manufacturing scale is an important 

consideration in determining whether 

the product conversion costs are 

economically justified. Similarly, even 

though any capital conversion costs can 

be capitalized over a number of years, 

these costs must be paid up front, and 

there must be a large enough volume to 

justify an added per-unit cost. 

DOE calculated capital and product 

conversion costs for traditional DHE by 

estimating a per-product-line cost and 

assuming that every manufacturer 

would face the same per-product-line 

cost within each product class. DOE 

also assumed that any product line that 

does not meet the efficiency level being 

analyzed would be upgraded, thereby 

requiring product conversion and 

capital conversion costs. DOE used 

public data to calculate the number of 

product lines that would need to be 

upgraded at each TSL for each product 

class. To show how the small business 

manufacturers could be differentially 

harmed, DOE compared the conversion 

costs for a typical large manufacturer 

and a typical small business 

manufacturer within the industry. To 

calculate the conversion costs for a 

typical small business manufacturer and 

a typical large manufacturer, DOE used 

publicly-available information to 

determine the average number of 

product lines that meet each efficiency 

level in each product category for a 

typical small business manufacturer and 

a typical large manufacturer of 

traditional DHE. DOE updated this 

information for the final rule, adding 

products that had been released since 

the December 2009 NOPR analysis. For 

both small business and large 

manufacturers, DOE multiplied the 

number of product lines that fell below 

the required efficiency level by its 

estimate of the per-line capital and 

product conversion cost. Table VII.7 and 

Table VII.8 show DOE’s estimates of the 

average number of product lines 

requiring conversion at each TSL for a 

typical small business manufacturer and 

a typical large manufacturer of 

traditional DHE, respectively. 

TABLE VII.7—NUMBER OF PRODUCT LINES REQUIRING CONVERSION FOR A TYPICAL SMALL BUSINESS MANUFACTURER OF

TRADITIONAL DIRECT HEATING EQUIPMENT* 

Number of 

gas wall fan 

product lines 

requiring conversion 

Number of 

gas wall 

gravity product lines requiring conversion 

Number of 

gas floor 

product lines 

requiring conversion 

Number of 

gas room 

product lines 

requiring conversion 

Total number 

of product 

lines requiring conversion 

Total product 

lines that 

meet each or 

exceed each 

TSL 

Baseline ............................................................... 0 0 0 0 0 13 

TSL 1 ................................................................... 2 2 .5 0 .5 1 6 7 

TSL 2 ................................................................... 2 2 .5 0 .5 1 .5 6 .5 6 .5 

TSL 3 ................................................................... 3 4 0 .5 2 9 .5 3 .5 

TSL 4 ................................................................... 3 .5 4 0 .5 2 10 3 

TSL 5 ................................................................... 2 4 0 .5 2 8 .5 4 .5 

TSL 6 ................................................................... 3 .5 4 0 .5 2 10 3 

* Fractions of product lines result from taking the average number of product lines from publicly-available information. 


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TABLE VII.8—NUMBER OF PRODUCT LINES REQUIRING CONVERSION FOR A TYPICAL LARGE MANUFACTURER OF

TRADITIONAL DIRECT HEATING EQUIPMENT

Number of 

gas wall fan 

product 

lines requiring conversion 

Number of 

gas wall 

gravity product lines requiring conversion 

Number of 

gas floor 

product 

lines requiring conversion 

Number of 

gas room 

product 

lines requiring conversion 

Total number of product lines requiring conversion 

Total product lines 

that meet 

each or exceed each 

TSL 

Baseline ........................................................................... 0 0 0 0 0 18 

TSL 1 ............................................................................... 1 0 1 1 3 15 

TSL 2 ............................................................................... 2 0 1 1 4 14 

TSL 3 ............................................................................... 4 3 1 2 10 8 

TSL 4 ............................................................................... 7 3 1 2 13 5 

TSL 5 ............................................................................... 1 6 1 3 11 7 

TSL 6 ............................................................................... 7 6 1 3 17 1 

Amended energy conservation 

standards have the potential to 

differentially affect the small business 

manufacturers, because they generally 

lack the large-scale resources to alter 

their existing products and production 

facilities for those TSLs requiring major 

redesigns. While all manufacturers 

would be expected to be negatively 

impacted by amended energy 

conservation standards to varying 

degrees, the small business 

manufacturers would face higher 

product conversion costs at lower TSLs 

than their large competitor. Both large 

and small business manufacturers have 

several product offerings in each 

product class, sometimes at varying 

efficiency levels, but the larger 

manufacturer produces products with 

higher efficiencies in larger volumes. As 

a result, to produce a sufficiently large 

volume, the small business 

manufacturers would have to upgrade 

more product lines at lower TSLs than 

the large manufacturer at lower TSLs. 

As shown in Table VII.9 and Table 

VII.10, modifying facilities and 

developing new, more-efficient products 

would cause a typical small business 

manufacturer to incur higher conversion 

costs than a typical larger manufacturer 

for TSL 1 through TSL 3. 

TABLE VII.9—TOTAL CONVERSION COSTS FOR A TYPICAL SMALL BUSINESS MANUFACTURER OF TRADITIONAL DIRECT

HEATING EQUIPMENT

Capital conversion costs for a 

typical small 

business manufacturer (2009$ 

millions) 

Product conversion costs for a 

typical small 

business manufacturer (2009$ 

millions) 

Total conversion costs for a 

typical small 

business manufacturer (2009$ 

millions) 

Baseline ................................................................................................................................. .......................... .......................... ..........................

TSL 1 ..................................................................................................................................... 0.86 0.41 1.27 

TSL 2 ..................................................................................................................................... 1.35 0.57 1.92 

TSL 3 ..................................................................................................................................... 1.89 0.81 2.70 

TSL 4 ..................................................................................................................................... 2.18 0.92 3.10 

TSL 5 ..................................................................................................................................... 1.93 1.44 3.37 

TSL 6 ..................................................................................................................................... 2.52 1.65 4.17 

TABLE VII.10—TOTAL CONVERSION COSTS FOR A TYPICAL LARGE MANUFACTURER OF TRADITIONAL DIRECT HEATING

EQUIPMENT

Capital conversion costs for a 

typical large 

manufacturer 

(2009$ millions) 

Product conversion costs for a 

typical large 

manufacturer 

(2009$ millions) 

Total conversion 

costs for a typical large manufacturer (2009$ 

millions) 

Baseline ........................................................................................................................... ............................ ............................ ............................

TSL 1 ............................................................................................................................... 0.23 0.14 0.38 

TSL 2 ............................................................................................................................... 0.54 0.25 0.79 

TSL 3 ............................................................................................................................... 1.81 0.79 2.60 

TSL 4 ............................................................................................................................... 2.59 1.11 3.70 

TSL 5 ............................................................................................................................... 2.90 2.13 5.03 

TSL 6 ............................................................................................................................... 4.08 2.61 6.69 

Because the larger manufacturer offers 

more products at higher efficiencies, a 

typical small business manufacturer 

faces disproportionate costs at the lower 

TSLs in absolute terms at TSL 1 through 

TSL 3. Despite being similar in absolute 

terms, at these TSLs, the small business 

manufacturers would be more likely to 

be disproportionately harmed at any 

TSL because they have a much lower 

volume across which to spread similar 

costs. To show how a smaller scale 

would harm a typical small business 

manufacturer, DOE used estimates of 

the market shares within the industry 


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for each product class to estimate the 

typical annual revenue, operating profit, 

research and development expense, and 

capital expenditures for a typical large 

manufacturer and a typical small 

business manufacturer using the 

financial parameters in the DHE GRIM. 

Comparing the conversion costs of a 

typical small business manufacturer to a 

typical large manufacturer with 

operating profit provides a rough 

estimate of how quickly the investments 

could be recouped. Table VII.11 and 

Table VII.12 show these comparisons. 

TABLE VII.11—COMPARISON OF A TYPICAL SMALL BUSINESS MANUFACTURER’S CONVERSION COSTS TO ANNUAL

EXPENSES, REVENUE, AND OPERATING PROFIT

Capital conversion cost as a 

percentage of 

annual capital 

expenditures 

Product conversion cost as a 

percentage of 

annual R&D expense 

Total conversion 

cost as a percentage of annual revenue 

Total conversion 

cost as a percentage of annual EBIT 

Baseline ........................................................................................... ............................ ............................ ............................ ............................

TSL 1 ............................................................................................... 267 190 9 252 

TSL 2 ............................................................................................... 332 210 11 302 

TSL 3 ............................................................................................... 466 299 15 426 

TSL 4 ............................................................................................... 537 341 17 489 

TSL 5 ............................................................................................... 474 535 19 531 

TSL 6 ............................................................................................... 619 612 23 657 

TABLE VII.12—COMPARISON OF A TYPICAL LARGE MANUFACTURER’S CONVERSION COSTS TO ANNUAL EXPENSES, 

REVENUE, AND OPERATING PROFIT

Capital conversion cost as a 

percentage of 

annual capital 

expenditures 

Product conversion cost as a 

percentage of 

annual R&D expense 

Total conversion 

cost as a percentage of annual revenue 

Total conversion 

cost as a percentage of annual EBIT 

Baseline ........................................................................................... ............................ ............................ ............................ ............................

TSL 1 ............................................................................................... 33 30 1 34 

TSL 2 ............................................................................................... 77 53 3 72 

TSL 3 ............................................................................................... 257 169 8 237 

TSL 4 ............................................................................................... 368 237 12 337 

TSL 5 ............................................................................................... 412 456 16 458 

TSL 6 ............................................................................................... 580 559 22 610 

Table VII.11 and Table VII.12 

illustrate that, although the investments 

required at each TSL can be considered 

substantial for all companies, the 

impacts could be relatively greater for a 

typical small business manufacturer, 

because of much lower production 

volumes and a comparable number of 

product offerings. At higher TSLs, it is 

more likely that manufacturers of 

traditional DHE would reduce the 

number of product lines they offer to 

keep their conversion costs at 

manageable levels. At higher TSLs, 

small business manufacturers would 

face increasingly difficult decisions on 

whether to: (1) Invest the capital 

required to be able to continue offering 

a full range of products; (2) cut product 

lines; (3) consolidate to maintain a large 

enough combined scale to spread the 

required conversion costs and operating 

expenses; or (4) exit the market 

altogether. Because of the high 

conversion costs at higher TSLs, 

manufacturers would likely eliminate 

their lower-volume product lines. Small 

business manufacturers might only be 

able to afford to selectively upgrade 

their most popular products and be 

forced to discontinue lower-volume 

products, because the product 

development costs that would be 

required to upgrade all of their existing 

product lines would be too high. 

DOE’s product line analysis revealed 

the potential for small businesses 

manufacturers to be disproportionately 

harmed by the proposed standard levels 

and higher TSLs. Additionally, DOE 

agrees with comments that small 

business traditional DHE manufacturers 

have less access to capital than their 

larger competitor. Larger manufacturers 

profit from offering a variety of products 

and have the ability to fund required 

capital and product conversion costs 

using cash generated from all products. 

Unlike large manufacturers, the small 

business manufacturers cannot leverage 

resources from other departments. With 

these considerations, it is more likely 

that the small businesses would have to 

spend an even greater proportion of 

their annual R&D and capital 

expenditures than shown in the 

industry-wide figures. 

In addition, small business 

manufacturers have less buying power 

than their larger competitor. Traditional 

DHE is a low-volume industry, which 

can make it difficult for any 

manufacturer to take advantage of bulk 

purchasing power or economies of scale. 

The two small business manufacturers 

have approximately half the market 

share of their large competitor, which 

puts them at a disadvantage when 

purchasing components and raw 

materials. In addition, the large 

manufacturer has a parent company that 

manufactures products and equipment 

other than traditional DHE. This 

manufacturer’s larger scale and 

additional manufacturing capacity 

(required for products and equipment 

other than DHE) also give the company 

more leverage with its suppliers as it 

purchases greater volumes of 

components and raw materials. During 

the manufacturer interviews, the small 

businesses manufacturers commented 

that to comply with amended energy 

conservation standards, they would 

likely need to buy more purchased parts 

instead of producing most of the final 

product in-house. Because the large 

manufacturer has an advantage in 

purchasing power that would likely 

allow it to buy purchased parts at lower 


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costs, an amended energy conservation 

standard that requires more purchased 

parts may differentially harm the 

profitability of the small business 

manufacturers. 

Even though there is a potential for 

the small business manufacturers to be 

negatively impacted by today’s final 

rule, DOE believes that manufacturers, 

including the small businesses, would 

be able to maintain a viable number of 

product offerings at TSL 2, the adopted 

standard level. A typical small business 

manufacturer of traditional DHE offers 

product families in the four product 

types that would meet or exceed the 

standard levels adopted in today’s final 

rule. For example, over two-thirds of the 

product lines identified by DOE as 

currently on the market meet the 

standard established by today’s final 

rule for gas wall gravity DHE, which 

comprise over 60 percent of the 

traditional DHE market. While 

recognizing that the product lines that 

currently meet the standard represent a 

minority of current revenue, the 

standard levels do not require 

manufacturers, including those that are 

small businesses, to completely redesign 

all their product lines. For those 

product lines that would need to be 

redesigned, DOE believes that small 

business manufacturers would offer 

fewer product lines in response to the 

amended energy conservation 

standards. However, DOE believes that 

the standards adopted in today’s final 

rule will allow the small business 

manufacturers to selectively upgrade 

their existing product lines and 

maintain viable production volumes 

after the compliance date of the 

amended energy conservation 

standards. 

Gas Hearth DHE 

For gas hearth DHE in the IRFA, DOE 

used publicly-available information to 

estimate the conversion costs for a 

typical large and a typical small 

business manufacturer of gas hearth 

DHE as shown in the December 2009 

NOPR. 74 FR 65852, 65984–92 (Dec. 11, 

2009). DOE tentatively concluded that a 

typical small business manufacturer 

could be differentially impacted by 

amended energy conservation standards 

because of their smaller scale. However, 

DOE believed that a typical small 

business manufacturer would not face 

prohibitively large conversion costs and 

that the required changes would not 

require significant investments in 

product development. DOE tentatively 

concluded that because a typical 

manufacturer of gas hearth DHE already 

offers multiple product lines that meet 

and exceed the required efficiencies and 

because most product lines that did not 

meet the proposed standard could be 

upgraded with relatively minor changes, 

manufacturers, including the small 

business manufacturers, would be able 

to maintain a viable number of product 

offerings. 74 FR 65852, 65991 (Dec. 11, 

2009). In this final rule, while DOE is 

adopting a different TSL for direct 

heating equipment (i.e., TSL 2), the 

efficiency requirements are identical to 

the proposed amended energy 

conservation standard for gas hearth 

DHE. Additionally, because DOE did 

not receive any comments on the IRFA 

or the potential impacts on small 

business manufacturers of gas hearth 

DHE, DOE continues to believe that the 

analysis developed for the IRFA and 

presented in the December 2009 NOPR 

accurately presents the potential 

impacts on small business 

manufacturers of gas hearth DHE. (See 

74 FR 65852, 65989–91 (Dec. 11, 2009) 

for additional details.) Therefore, for the 

FRFA detailed in today’s final rule, DOE 

continues to believe that gas hearth DHE 

manufacturers, including the small 

business manufacturers, will be able to 

maintain a viable number of product 

offerings following the compliance date 

of the amended energy conservation 

standard. 

Description of the Steps DOE Has Taken 

To Minimize the Significant Economic 

Impact on Small Entities Consistent 

With the Stated Objectives of 

Applicable Statutes 

DOE acknowledges all the potential 

impacts highlighted by manufacturers 

and industry and updated its small 

business analysis for the impacts on 

traditional DHE manufacturers in light 

of these comments and additional 

information and analysis. The impacts 

on small business manufacturers of 

traditional DHE, as illustrated in public 

comments, contributed to DOE’s 

ultimate determination that the TSL 

proposed in the December 2009 NOPR 

for traditional DHE (TSL 3) was not 

economically justified. 

DOE discusses how it has considered 

the new information about the impacts 

on traditional DHE in section VI.D.3. 

Even though there is a potential for the 

small business manufacturers to be 

negatively impacted by today’s final 

rule, DOE believes that manufacturers, 

including the small businesses, would 

be able to maintain a viable number of 

product offerings at TSL 2, the adopted 

standard level. For today’s final rule, the 

small business manufacturers of 

traditional DHE have an average of 6.5 

product lines out of 13 that already meet 

the required efficiencies. In total, 61 

percent of the models offered by a 

typical small business manufacturer 

meet the amended energy conservation 

standards. DOE also reviewed the 

conversion costs required for each of the 

small business manufacturers to 

upgrade an average of approximately 

seven product lines for a capital cost 

totaling $1.35 million to offer 

replacements for all models that do not 

meet the standard. At the proposed 

standards in the December 2009 NOPR, 

DOE estimated small business 

manufacturers would be required to 

spend approximately 3.5 years worth of 

operating profit to convert every 

product line. For todays final rule, that 

estimate has fallen to 3.0 years despite 

changes to the analysis that lowered 

annual shipments and updates to the 

product line analysis to include new 

product lines. While DOE believes that 

this would still be a substantial 

undertaking, DOE has carefully 

reviewed the impact of the conversion 

costs on small business manufacturers 

and has carefully considered what 

would be required for these 

manufacturers to continue to offer a 

viable number of replacement models 

that are critical to their ability to remain 

in the market. In sum, DOE has 

concluded that adoption of a standard 

level at TSL 2 in this final rule (as 

compared to TSL 3 proposed in the 

NOPR) minimizes the impact on small 

business manufacturers to the extent 

possible, given EPCA’s requirements for 

setting energy conservation standards. 

Although the TSL lower than the 

adopted TSL would be expected to 

further reduce the impacts on small 

entities, DOE is required by EPCA to 

establish standards that achieve the 

maximum improvement in energy 

efficiency that are technically feasible 

and economically justified, and result in 

a significant conservation of energy, 

after considering a variety of factors. As 

explained earlier in the preamble, DOE 

rejected the lower TSL based on its 

analysis conducted pursuant to these 

EPCA requirements. 

In addition to the other TSLs being 

considered, the December 2009 NOPR 

TSD included a regulatory impact 

analysis. For DHE, this report discusses 

the following policy alternatives: (1) No 

new regulatory action; (2) consumer 

rebates; (3) consumer tax credits; (4) 

manufacturer tax credits; (5) voluntary 

energy efficiency targets; (6) early 

replacement incentives; and (7) bulk 

government purchases. While these 

alternatives may mitigate the economic 

impacts on small entities compared to 

the adopted standards, the energy 

savings of these regulatory alternatives 

are significantly smaller than those 

expected to result from the adopted 


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standard levels. Thus, DOE rejected 

these alternatives and is adopting the 

standards set forth in this rulemaking. 

C. Review Under the Paperwork 

Reduction Act of 1995 

This rule contains a collection-ofinformation requirement subject to the 

Paperwork Reduction Act of 1995 (PRA) 

which has been approved by OMB 

under control number 1910–1400. As 

described in the December 2009 NOPR, 

public reporting burden for compliance 

reporting for energy and water 

conservation standards is estimated to 

average 30 hours per response, 

including the time for reviewing 

instructions, searching existing data 

sources, gathering and maintaining the 

data needed, and completing and 

reviewing the collection of information. 

74 FR 65852, 65992 (Dec. 11, 2009). 

DOE did not receive any comments 

regarding this burden estimate, or any 

other aspect of this data collection in 

response to its proposals. DOE believes 

that the collection of information 

required by this final rule is the least 

burdensome method of meeting the 

statutory requirements. 

Notwithstanding any other provision 

of the law, no person is required to 

respond to, nor shall any person be 

subject to a penalty for failure to comply 

with, a collection of information subject 

to the requirements of the PRA, unless 

that collection of information displays a 

currently valid OMB Control Number. 

D. Review Under the National 

Environmental Policy Act of 1969 

DOE prepared an environmental 

assessment (EA) of the impacts of 

today’s final rule, pursuant to the 

National Environmental Policy Act of 

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

the regulations of the Council on 

Environmental Quality (40 CFR parts 

1500–1508), and DOE’s regulations for 

compliance with NEPA (10 CFR part 

1021). This assessment includes an 

examination of the potential effects of 

emission reductions likely to result from 

the rule in the context of global climate 

change, as well as other types of 

environmental impacts. The final EA 

has been incorporated into the final rule 

TSD at chapter 16. DOE found the 

environmental effects associated with 

today’s standard levels for water 

heaters, direct heating equipment, and 

pool heaters to be insignificant. 

Therefore, DOE is issuing a finding of 

no significant impact (FONSI) as part of 

the final EA. The FONSI is available in 

the docket for this rulemaking. 

E. Review Under Executive Order 13132 

DOE reviewed this rule pursuant to 

Executive Order 13132, ‘‘Federalism,’’ 64 

FR 43255 (August 4, 1999), which 

imposes certain requirements on 

agencies formulating and implementing 

policies or regulations that preempt 

State law or that have Federalism 

implications. The Executive Order 

requires agencies to examine the 

constitutional and statutory authority 

supporting any action that would limit 

the policymaking discretion of the 

States and to carefully assess the 

necessity for such actions. The 

Executive Order also requires agencies 

to have an accountable process to 

ensure meaningful and timely input by 

State and local officials in the 

development of regulatory policies that 

have Federalism implications. On 

March 14, 2000, DOE published a 

statement of policy describing the 

intergovernmental consultation process 

it will follow in the development of 

such regulations. 65 FR 13735. DOE has 

examined today’s final rule and has 

determined that it would not have a 

substantial direct effect on the States, on 

the relationship between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. EPCA governs and 

prescribes Federal preemption of State 

regulations as to energy conservation for 

the products that are the subject of 

today’s final rule. States can petition 

DOE for exemption from such 

preemption to the extent, and based on 

criteria, set forth in EPCA. (42 U.S.C. 

6297(d)) Therefore, no further action is 

required by Executive Order 13132. 

F. Review Under Executive Order 12988 

With respect to the review of existing 

regulations and the promulgation of 

new regulations, section 3(a) of 

Executive Order 12988, ‘‘Civil Justice 

Reform’’ (61 FR 4729 (Feb. 7, 1996)) 

imposes on Federal agencies the general 

duty to adhere to the following 

requirements: (1) Eliminate drafting 

errors and ambiguity; (2) write 

regulations to minimize litigation; and 

(3) provide a clear legal standard for 

affected conduct rather than a general 

standard and promote simplification 

and burden reduction. Section 3(b) of 

Executive Order 12988 specifically 

requires that Executive agencies make 

every reasonable effort to ensure that the 

regulation: (1) Clearly specifies the 

preemptive effect, if any; (2) clearly 

specifies any effect on existing Federal 

law or regulation; (3) provides a clear 

legal standard for affected conduct 

while promoting simplification and 

burden reduction; (4) specifies the 

retroactive effect, if any; (5) adequately 

defines key terms; and (6) addresses 

other important issues affecting clarity 

and general draftsmanship under any 

guidelines issued by the Attorney 

General. Section 3(c) of Executive Order 

12988 requires Executive agencies to 

review regulations in light of applicable 

standards in section 3(a) and section 

3(b) to determine whether they are met 

or it is unreasonable to meet one or 

more of them. DOE has completed the 

required review and determined that, to 

the extent permitted by law, this final 

rule meets the relevant standards of 

Executive Order 12988. 

G. Review Under the Unfunded 

Mandates Reform Act of 1995 

As indicated in the December 2009 

NOPR, DOE reviewed the proposed rule 

under Title II of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) 

(UMRA), which requires each Federal 

agency to assess the effects of their 

Federal regulatory actions on State, 

local, and Tribal governments and the 

private sector. See 74 FR 65852, 65992– 

93 (Dec. 11, 2009). For a proposed 

regulatory action likely to result in a 

rule that may cause the expenditure by 

State, local, and Tribal governments, in 

the aggregate, or by the private sector of 

$100 million or more in any one year 

(adjusted annually for inflation), section 

202 of UMRA requires a Federal agency 

to publish a written statement that 

estimates the resulting costs, benefits, 

and other effects of the rule on the 

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

The UMRA also requires a Federal 

agency to develop an effective process 

to permit timely input by elected State, 

local, and Tribal governments on a 

proposed ‘‘significant intergovernmental 

mandate,’’ and requires an agency plan 

for giving notice and opportunity for 

timely input to potentially affected 

small governments before establishing 

any requirements that might 

significantly or uniquely affect small 

governments. On March 18, 1997, DOE 

published a statement of policy on its 

process for intergovernmental 

consultation under UMRA (62 FR 

12820) (also available at http:// 

www.gc.doe.gov). Although today’s final 

rule does not contain a Federal 

intergovernmental mandate, it may 

impose expenditures of $100 million or 

more on the private sector. 

DOE has concluded that this final rule 

would likely result in a final rule that 

could impose expenditures of $100 

million or more between 2013 and 2045 

in the private sector. For the final rule, 

DOE estimated annualized impacts for 

the final standards using the results of 


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the national impacts analysis. The 

national impact analysis results, 

expressed as annualized values, range 

from $1.55–$2.03 billion (at a 7-percent 

discount rate) and $1.90–$2.38 billion 

(at a 3-percent discount rate) in total 

annualized benefits from the final rule. 

The NIA also reports $1.28 billion (at a 

7-percent discount rate) and $1.25 

billion (at a 3-percent discount rate) in 

annualized costs, and $0.27–$0.75 

billion (at a 7-percent discount rate) and 

$0.65–$1.13 billion (at a 3-percent 

discount rate) in annualized net 

benefits. Details are provided in chapter 

10 of the TSD. Therefore, DOE must 

publish a written statement assessing 

the costs, benefits, and other effects of 

the rule on the national economy. 

Section 205 of UMRA also requires 

DOE to identify and consider a 

reasonable number of regulatory 

alternatives before promulgating a rule 

for which UMRA requires such a 

written statement. DOE must select from 

those alternatives the most cost-effective 

and least burdensome alternative that 

achieves the objectives of the rule, 

unless DOE publishes an explanation 

for doing otherwise or the selection of 

such an alternative is inconsistent with 

law. 

As required by EPCA (42 U.S.C. 

6295(o)), today’s energy conservation 

standards for residential water heaters, 

direct heating equipment, and pool 

heaters would achieve the maximum 

improvement in energy efficiency that 

DOE has determined to be both 

technologically feasible and 

economically justified. DOE may not 

select a regulatory alternative that does 

not meet this statutory standard. A 

discussion of the alternatives 

considered by DOE is presented in the 

‘‘Regulatory Impact Analysis’’ section of 

the TSD for this final rule. Also, section 

202(c) of UMRA authorizes an agency to 

prepare the written statement required 

by UMRA in conjunction with or as part 

of any other statement or analysis that 

accompanies the proposed rule. (2 

U.S.C. 1532(c)) The TSD, preamble, and 

regulatory impact analysis for today’s 

final rule contain a full discussion of the 

rule’s costs, benefits, and other effects 

on the national economy, and, therefore, 

satisfy UMRA’s written statement 

requirement. 

H. Review Under the Treasury and 

General Government Appropriations 

Act, 1999 

Section 654 of the Treasury and 

General Government Appropriations 

Act, 1999 (Pub. L. 105–277) requires 

Federal agencies to issue a Family 

Policymaking Assessment for any rule 

that may affect family well-being. In the 

December 2009 NOPR, DOE tentatively 

determined that this rulemaking would 

not have any impact on the autonomy 

or integrity of the family as an 

institution, and, accordingly, that it is 

not necessary to prepare a Family 

Policymaking Assessment. See 74 FR 

65852, 65993 (Dec. 11, 2009). DOE 

received no comments concerning 

Section 654 in response to the December 

2009 NOPR, and, therefore, has 

concluded that no further action is 

necessary in today’s final rule with 

respect to this provision. 

I. Review Under Executive Order 12630 

DOE tentatively determined under 

Executive Order 12630, ‘‘Governmental 

Actions and Interference with 

Constitutionally Protected Property 

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

that this rule would not result in any 

takings that might require compensation 

under the Fifth Amendment to the U.S. 

Constitution. 74 FR 65852, 65993 (Dec. 

11, 2009). DOE received no comments 

concerning Executive Order 12630 in 

response to the December 2009 NOPR, 

and, therefore, has concluded that no 

further action is necessary in today’s 

final rule with respect to this Executive 

Order. 

J. Review Under the Treasury and 

General Government Appropriations 

Act, 2001 

Section 515 of the Treasury and 

General Government Appropriations 

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

for agencies to review most 

disseminations of information to the 

public under guidelines established by 

each agency pursuant to general 

guidelines issued by OMB. OMB’s 

guidelines were published at 67 FR 

8452 (Feb. 22, 2002), and DOE’s 

guidelines were published at 67 FR 

62446 (Oct. 7, 2002). DOE has reviewed 

today’s final rule under the OMB and 

DOE guidelines and has concluded that 

it is consistent with applicable policies 

in those guidelines. 

K. Review Under Executive Order 13211 

Executive Order 13211, ‘‘Actions 

Concerning Regulations That 

Significantly Affect Energy Supply, 

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

22, 2001), requires Federal agencies to 

prepare and submit to the Office of 

Information and Regulatory Affairs 

(OIRA) at OMB, a Statement of Energy 

Effects for any proposed significant 

energy action. A ‘‘significant energy 

action’’ is defined as any action by an 

agency that promulgates or is expected 

to lead to promulgation of a final rule, 

and that: (1) Is a significant regulatory 

action under Executive Order 12866, or 

any successor order; and (2) is likely to 

have a significant adverse effect on the 

supply, distribution, or use of energy; or 

(3) is designated by the Administrator of 

OIRA as a significant energy action. For 

any proposed significant energy action, 

the agency must give a detailed 

statement of any adverse effects on 

energy supply, distribution, or use 

should the proposal be implemented, 

and of reasonable alternatives to the 

action and their expected benefits on 

energy supply, distribution, and use. 

DOE has determined that today’s rule, 

which sets energy conservation 

standards for residential water heaters, 

direct heating equipment, and pool 

heaters, is not a ‘‘significant energy 

action’’ within the meaning of Executive 

Order 13211, because the standards are 

not likely to have a significant adverse 

effect on the supply, distribution, or use 

of energy, nor has it been designated as 

such by the Administrator of OIRA. 

Accordingly, DOE has not prepared a 

Statement of Energy Effects. 

L. Review Under the Information 

Quality Bulletin for Peer Review 

In consultation with the Office of 

Science and Technology Policy (OSTP), 

OMB issued on December 16, 2004, its 

‘‘Final Information Quality Bulletin for 

Peer Review’’ (the Bulletin). 70 FR 2664 

(Jan. 14, 2005). The Bulletin establishes 

that certain scientific information shall 

be peer reviewed by qualified specialists 

before it is disseminated by the Federal 

government, including influential 

scientific information related to agency 

regulatory actions. The purpose of the 

Bulletin is to enhance the quality and 

credibility of the government’s scientific 

information. Under the Bulletin, the 

energy conservation standards 

rulemaking analyses are ‘‘influential 

scientific information,’’ which the 

Bulletin defines as ‘‘scientific 

information that agency reasonably can 

determine will have or does have a clear 

and substantial impact on important 

public policies or private sector 

decisions.’’ 70 FR 2664, 2667 (Jan. 14, 

2005). 

In response to OMB’s Bulletin, DOE 

conducted formal in-progress peer 

reviews of the energy conservation 

standards development process and 

analyses, and has prepared a Peer 

Review Report on the energy 

conservation standards rulemaking 

analyses. Generation of this report 

involved a rigorous, formal, and 

documented evaluation using objective 

criteria and qualified and independent 

reviewers to make a judgment as to the 

technical/scientific/business merit, the 

actual or anticipated results, and the 

productivity and management 


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effectiveness of programs and/or 

projects. The ‘‘Energy Conservation 

Standards Rulemaking Peer Review 

Report’’ dated February 2007 has been 

disseminated and is available at the 

following Web site: http://www1.eere.

energy.gov/buildings/appliance_

standards/peer_review.htm. 

M. Congressional Notification 

As required by 5 U.S.C. 801, DOE will 

submit to Congress a report regarding 

the issuance of today’s final rule prior 

to the effective date set forth at the 

outset of this notice. The report will 

state that it has been determined that 

the rule is a ‘‘major rule’’ as defined by 

5 U.S.C. 804(2). DOE also will submit 

the supporting analyses to the 

Comptroller General in the U.S. 

Government Accountability Office 

(GAO) and make them available to each 

House of Congress. 

VIII. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of today’s final rule. 

List of Subjects in 10 CFR Part 430 

Administrative practice and 

procedure, Confidential business 

information, Energy conservation, 

Household appliances, Imports, 

Intergovernmental relations, Reporting 

and recordkeeping requirements, and 

Small businesses. 

Issued in Washington, DC, on March 22, 

2010. 

Cathy Zoi, 

Assistant Secretary, Energy Efficiency and 

Renewable Energy. 

■ For the reasons set forth in the 

preamble, DOE amends part 430 of 

chapter II, subchapter D, of title 10 of 

the Code of Federal Regulations, to read 

as set forth below: 

PART 430—ENERGY CONSERVATION 

PROGRAM FOR CONSUMER 

PRODUCTS 

■ 1. The authority citation for part 430 

continues to read as follows: 

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

2461 note. 

■ 2. In § 430.2, add the definitions 

‘‘Direct heating equipment’’ and ‘‘Vented 

hearth heater,’’ in alphabetical order and 

revise the definition ‘‘Vented home 

heating equipment,’’ to read as follows: 

§ 430.2 Definitions. 

* * * * * 

Direct heating equipment means 

vented home heating equipment and 

unvented home heating equipment. 

* * * * * 

Vented hearth heater means a vented 

appliance which simulates a solid fuel 

fireplace and is designed to furnish 

warm air, with or without duct 

connections, to the space in which it is 

installed. The circulation of heated 

room air may be by gravity or 

mechanical means. A vented hearth 

heater may be freestanding, recessed, 

zero clearance, or a gas fireplace insert 

or stove. Those heaters with a maximum 

input capacity less than or equal to 

9,000 British thermal units per hour 

(Btu/h), as measured using DOE’s test 

procedure for vented home heating 

equipment (10 CFR part 430, subpart B, 

appendix O), are considered purely 

decorative and are excluded from DOE’s 

regulations. 

Vented home heating equipment or 

vented heater means a class of home 

heating equipment, not including 

furnaces, designed to furnish warmed 

air to the living space of a residence, 

directly from the device, without duct 

connections (except that boots not to 

exceed 10 inches beyond the casing may 

be permitted and except for vented 

hearth heaters, which may be with or 

without duct connections) and includes: 

vented wall furnace, vented floor 

furnace, vented room heater, and vented 

hearth heater. 

* * * * * 

■ 3. In § 430.32, revise paragraphs (d), 

(i), (k) to read as follows: 

§ 430.32 Energy and water conservation 

standards and their effective dates. 

* * * * * 

(d) Water heaters. The energy factor of 

water heaters shall not be less than the 

following for products manufactured on 

or after the indicated dates. 

Product class Energy factor as of January 20, 

2004 Energy factor as of April 16, 2015 

Gas-fired Water Heater ................... 0.67¥(0.0019 × Rated Storage 

Volume in gallons).

For tanks with a Rated Storage Volume at or below 55 gallons: EF = 

0.675¥(0.0015 × Rated Storage Volume in gallons). 

For tanks with a Rated Storage Volume above 55 gallons: 

EF = 0.8012¥(0.00078 × Rated Storage Volume in gallons). 

Oil-fired Water Heater ..................... 0.59¥(0.0019 × Rated Storage 

Volume in gallons).

EF = 0.68¥(0.0019 × Rated Storage Volume in gallons). 

Electric Water Heater ...................... 0.97¥(0.00132 × Rated Storage 

Volume in gallons).

For tanks with a Rated Storage Volume at or below 55 gallons: EF = 

0.960¥(0.0003 × Rated Storage Volume in gallons). 

For tanks with a Rated Storage Volume above 55 gallons: 

EF = 2.057¥(0.00113 × Rated Storage Volume in gallons). 

Tabletop Water Heater .................... 0.93¥(0.00132 × Rated Storage 

Volume in gallons).

EF = 0.93¥(0.00132 × Rated Storage Volume in gallons). 

Instantaneous Gas-fired Water 

Heater.

0.62¥(0.0019 × Rated Storage 

Volume in gallons).

EF = 0.82¥(0.0019 × Rated Storage Volume in gallons). 

Instantaneous Electric Water Heater.0.93¥(0.00132 × Rated Storage 

Volume in gallons).

EF = 0.93¥(0.00132 × Rated Storage Volume in gallons). 

Note: The Rated Storage Volume equals the water storage capacity of a water heater, in gallons, as specified by the manufacturer. 

* * * * * 

(i) Direct heating equipment. (1) 

Vented home heating equipment 

manufactured on or after January 1, 

1990 and before April 16, 2013, shall 

have an annual fuel utilization 

efficiency no less than: 

Product class 

Annual fuel utilization efficiency, Jan. 1, 1990 

(percent) 

1. Gas wall fan type up to 42,000 Btu/h ............................................................................................................................. 73 

2. Gas wall fan type over 42,000 Btu/h ............................................................................................................................... 74 


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Product class 

Annual fuel utilization efficiency, Jan. 1, 1990 

(percent) 

3. Gas wall gravity type up to 10,000 Btu/h ........................................................................................................................ 59 

4. Gas wall gravity type over 10,000 Btu/h up to 12, 000 Btu/h ......................................................................................... 60 

5. Gas wall gravity type over 12,000 Btu/h up to 15,000 Btu/h .......................................................................................... 61 

6. Gas wall gravity type over 15,000 Btu/h up to 19,000 Btu/h .......................................................................................... 62 

7. Gas wall gravity type over 19,000 Btu/h and up to 27,000 Btu/h ................................................................................... 63 

8. Gas wall gravity type over 27,000 Btu/h and up to 46,000 Btu/h ................................................................................... 64 

9. Gas wall gravity type over 46,000 Btu/h ......................................................................................................................... 65 

10. Gas floor up to 37,000 Btu/h ......................................................................................................................................... 56 

11. Gas floor over 37,000 Btu/h .......................................................................................................................................... 57 

12. Gas room up to 18,000 Btu/h ........................................................................................................................................ 57 

13. Gas room over 18,000 Btu/h up to 20,000 Btu/h .......................................................................................................... 58 

14. Gas room over 20,000 Btu/h up to 27,000 Btu/h .......................................................................................................... 63 

15. Gas room over 27,000 Btu/h up to 46,000 Btu/h .......................................................................................................... 64 

16. Gas room over 46,000 Btu/h ......................................................................................................................................... 65 

(2) Vented home heating equipment 

manufactured on or after April 16, 2013, 

shall have an annual fuel utilization 

efficiency no less than: 

Product class 

Annual fuel utilization efficiency, April 16, 2013 

(percent) 

1. Gas wall fan type up to 42,000 Btu/h ............................................................................................................................. 75 

2. Gas wall fan type over 42,000 Btu/h ............................................................................................................................... 76 

3. Gas wall gravity type up to 27,000 Btu/h ........................................................................................................................ 65 

4. Gas wall gravity type over 27,000 Btu/h up to 46,000 Btu/h .......................................................................................... 66 

5. Gas wall gravity type over 46,000 Btu/h ......................................................................................................................... 67 

6. Gas floor up to 37,000 Btu/h ........................................................................................................................................... 57 

7. Gas floor over 37,000 Btu/h ............................................................................................................................................ 58 

8. Gas room up to 20,000 Btu/h .......................................................................................................................................... 61 

9. Gas room over 20,000 Btu/h up to 27,000 Btu/h ............................................................................................................ 66 

10. Gas room over 27,000 Btu/h up to 46,000 Btu/h .......................................................................................................... 67 

11. Gas room over 46,000 Btu/h ......................................................................................................................................... 68 

12. Gas hearth up to 20,000 Btu/h ...................................................................................................................................... 61 

13. Gas hearth over 20,000 Btu/h and up to 27,000 Btu/h ................................................................................................ 66 

14. Gas hearth over 27,000 Btu/h and up to 46,000 Btu/h ................................................................................................ 67 

15. Gas hearth over 46,000 Btu/h ....................................................................................................................................... 68 

* * * * * 

(k) Pool heaters. (1) Gas-fired pool 

heaters manufactured on or after 

January 1, 1990 and before April 16, 

2013, shall have a thermal efficiency not 

less than 78%. 

(2) Gas-fired pool heaters 

manufactured on or after April 16, 2013, 

shall have a thermal efficiency not less 

than 82%. 

* * * * * 

Appendix 

[The following letter from the Department 

of Justice will not appear in the Code of 

Federal Regulations.] 

DEPARTMENT OF JUSTICE, Antitrust 

Division 

CHRISTINE A. VARNEY, Assistant Attorney 

General, Main Justice Building, 950 

Pennsylvania Avenue, N.W., Washington, 

D.C 20530–0001, (202) 514–2401/(202) 

616–2645 (Fax) E-mail: 

antItrust.atr@usdoj.gov, Web site: http:// 

www.usdoj.gov/atr 

February 12, 2010 

Robert H. Edwards, Jr., Deputy General 

Counsel for Energy Policy, Department of 

Energy, Washington, DC 20585 

Dear Deputy General Counsel Edwards: 

I am responding to your letter seeking the 

views of the Attorney General about the 

potential impact on competition of proposed 

energy conservation standards for residential 

water heaters, direct heating equipment and 

pool heaters (collectively, residential heating 

products). Your request was submitted 

pursuant to Section 325(0)(2)(B)(i)(V) of the 

Energy Policy and Conservation Act, as 

amended, (‘‘EPCA’’), 42 U.S.C. 

§ 6295(0)(B)(i)(V), which requires the 

Attorney General to make a determination of 

the impact of any lessening of competition 

that is likely to result from the imposition of 

proposed energy conservation standards. The 

Attorney General’s responsibility for 

responding to requests from other 

departments about the effect of a program on 

competition has been delegated to the 

Assistant Attorney General for the Antitrust 

Division in 28 CFR § 0.40(g). 

In conducting its analysis, the Antitrust 

Division examines whether a proposed 

standard may lessen competition, for 

example, by substantially limiting consumer 

choice, leaving consumers with fewer 

competitive alternatives, placing certain 

manufacturers of a product at an unjustified 

competitive disadvantage compared to other 

manufacturers, or by inducing avoidable 

inefficiencies in production or distribution of 

particular products. 

We have reviewed the proposed standards 

contained in the Notice of Proposed 

Rulemaking (‘‘NOPR’’) (74 Fed. Reg. 65852, 

December 11, 2009) and the supplementary 

information submitted to the Attorney 

General, and attended the January 7, 2010 

public hearing on the proposed standards. 

Based on this review, the Department of 

Justice does not believe that the proposed 

standard for residential hot water heaters or 

pool heaters would likely lead to a lessening 

of competition. Our review has focused upon 

the standards DOE has proposed adopting; 

we have not determined the impact on 

competition of more stringent standards than 

those proposed in the NOPR. 

With respect to direct heating equipment 

(DHE), the Department does not see any 

competitive issue with gas hearth-heaters. 

The Department, however, is concerned that 

the proposed efficiency standards could 

adversely affect competition in the 

traditional DHE product categories: (1) 

gravity wall furnaces; (2) fan-forced wall 

furnaces; (3) floor furnaces; and (4) room 

heaters. 


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The Department notes that essentially only 

three manufacturers currently market 

products for each of these four traditional 

DHE categories. It appears from the record 

that meeting the proposed standards may 

require the manufacturers, even those 

currently producing models that meet the 

proposed standards, to make a substantial 

capital investment to convert or expand their 

production facilities. It also appears that each 

manufacturer will have to commit significant 

resources for research and development. 

Based on our review, the proposed 

efficiency standards could affect competition 

by limiting the number of competitors in 

each category. Given the capital investments 

and research and development costs required 

to produce products meeting the standards, 

there is a significant risk that no more than 

one or two DHE manufacturers will choose 

to continue to produce products in anyone 

DHE category. 

Although the Department of Justice is not 

in a position to judge whether manufacturers 

will be able to meet—or choose to make the 

capital expenditures to meet—the proposed 

standards, we ask the Department of Energy 

to take into account the possible impact on 

competition in determining its final energy 

efficiency standards for DHE. 

Sincerely, 

Christine A. Varney 

[FR Doc. 2010–7611 Filed 4–15–10; 8:45 am] 

BILLING CODE 6450–01–P 


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