Wednesday

January 17, 2001

Part VIII

Department of

Energy

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 430

Energy Conservation Program for

Consumer Products: Energy Conservation

Standards for Water Heaters; Final Rule

4474 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

DEPARTMENT OF ENERGY

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 430

[Docket Number EE–RM–97–900]

RIN 1904–AA76

Energy Conservation Program for

Consumer Products: Energy

Conservation Standards for Water

Heaters

AGENCY: Office of Energy Efficiency and

Renewable Energy, Department of

Energy (DOE).

ACTION: Final rule.

SUMMARY: The Department of Energy

(DOE or Department) has determined

that revised energy conservation

standards for water heaters will result in

significant conservation of energy, are

technologically feasible, and are

economically justified. On this basis,

the Department is today amending the

existing energy conservation standards

for water heaters.

EFFECTIVE DATES: The effective date of

this rule and standard is January 20,

2004.

ADDRESSES: You may read copies of the

Technical Support Document (TSD) at

the DOE Freedom of Information

Reading Room, U.S. Department of

Energy, Forrestal Building, 1000

Independence Avenue, S.W.,

Washington, DC. 20585, (202) 586–3142,

between the hours of 9:00 a.m. and 4:00

p.m., Monday through Friday, except

Federal holidays. You may obtain

copies of the TSD from the Codes and

Standards Internet site at: http://

www.eren.doe.gov/buildings/codes—

standards/applbrf/waterheater.htm or

from the U.S. Department of Energy,

Office of Energy Efficiency and

Renewable Energy, Forrestal Building,

Mail Station EE–41, 1000 Independence

Avenue, S.W., Washington, D.C. 20585.

(202) 586–9127.

FOR FURTHER INFORMATION CONTACT:

Terry Logee, U.S. Department of Energy,

EE–41, 1000 Independence Avenue,

S.W., Washington, DC 20585–0121,

(202) 586–9127, email:

terry.logee@ee.doe.gov or Francine

Pinto, Esq., U.S. Department of Energy,

Office of General Counsel, GC–72, 1000

Independence Avenue, S.W.,

Washington, DC 20585, (202) 586–7432,

email: francine.pinto@hq.doe.gov or

Eugene Margolis, Deputy Assistant

General Counsel, GC–72, at the same

address, (202) 586–9507, email:

eugene.margolis@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

A. Consumer Overview

B. Authority

C. Background

II. General Discussion

A. Test Procedures

B. Technological Feasibility

C. Lessening of Utility or Performance of

Products

D. Impact of Lessening of Competition

E. Economic Justification

F. Other Factors

III. Methodology

A. Engineering

B. Life-Cycle Costs (LCC)

C. Manufacturing Impact

D. Energy Savings and Net Present Value

IV. Discussion of Comments

A. Venting of Gas Water Heaters

B. Electric Water Heater Ratings

C. Measured vs. Rated Volume

D. Effective Date of Standards

E. Water Heater Models Affected

F. Instantaneous Water Heaters

G. Fuel Switching

V. Analytical Results and Conclusion

A. Economic Impacts on Consumers

B. Significance of Energy Savings

C. Lessening of Utility or Performance of

Products

D. Impact of Lessening of Competition

E. Need of the Nation to Save Energy and

Net National Employment

F. Conclusion

VI. Procedural Issues and Regulatory Reviews

A. Review Under the National

Environmental Policy Act

B. Review Under Executive Order 12866,

‘‘Regulatory Planning and Review’’

C. Review Under the Regulatory Flexibility

Act

D. Review Under the Paperwork Reduction

Act

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’

F. ‘‘Takings’’ Assessment Review

G. Review Under Executive Order 13132,

‘‘Federalism’

H. Review Under the Unfunded Mandates

Reform Act of 1995

I. Review Under the Treasury and General

Government Appropriations Act of 1999

J. Review Under the Plain Language

Directives

K. Congressional Notification

I. Introduction

The Energy Policy and Conservation

Act, as amended (hereinafter referred to

as EPCA or the Act), specifies that any

new or amended energy conservation

standard the Department of Energy

(DOE) prescribes shall be designed to

‘‘achieve the maximum improvement in

energy efficiency * * * which the

Secretary determines is technologically

feasible and economically justified.’’

Section 325(o)(2)(A), 42 U.S.C.

6295(o)(2)(A). Furthermore, the

amended standard must ‘‘result in

significant conservation of energy.’’

Section 325(o)(3)(B), 42 U.S.C.

6295(o)(3)(B).

In accordance with the statutory

criteria discussed in this notice, DOE is

amending the water heater energy

efficiency standards, to go into effect on

January 20, 2004.

A. Consumer Overview

The Table below summarizes the

‘‘vital statistics’’ of today’s typical gas

and electric water heater, as well as

presenting the cost implications for the

average consumer of water heaters after

the 2004 water heater standards take

effect.

VITAL STATISTICS OF TODAY’S TYPICAL WATER HEATERS

Current statistics Gas Electric

Average Price ................................................................................................................ $383 ................................... $380

Annual Utility Bill ............................................................................................................ $160 ................................... $256

Life Expectance ............................................................................................................. 9 years ............................... 14 years

Energy Consumption ..................................................................................................... 234 Therms/year ................ 3,459 kWh/year

Statistics In Year 2004:

Average New Water Heater Price* ................................................................................ $501 ................................... $486

Estimated Price Increase (Efficiency Only) ................................................................... $58 ..................................... $101

Annual Utility Bill Savings .............................................................................................. $12.74 ................................ $13.05

Simple Payback Period ................................................................................................. 3.6 years ............................ 7.4 years

Average Net Saving Over Appliance Life ...................................................................... $30 ..................................... $23

Energy Saving per Year ................................................................................................ 22 therms ........................... 188 kWh

*Includes expected price increases for non-energy efficiency regulations.

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4475

1Part B of Title III of the Energy Policy and

Conservation Act, as amended by the National

Energy Conservation Policy Act, the National

Appliance Energy Conservation Act, the National

Applicance Energy Conservation Amendments of

1988, and the Energy Policy Act of 1992 is referred

to in this notice as the ‘‘Act.’’ Part B of title III is

codified at 42 U.S.C. 6291 et seq. Part B of Title III

of the Energy Polciy and Conservation Act, as

amended by the National Energy Conservation

Policy Act only, is referred to in this notice as the

National Energy Conservation Policy Act.

Currently, the average typical water

heater costs, $380 for electric and $383

for gas. The average annual utility bill

for an electric water heater is $256,

while a gas water heater costs $160 a

year to operate.

The water heater energy efficiency

standards we are adopting today will

have a positive impact on consumers.

Consumers with electric water heaters

would save $13.05 per year while those

with natural gas water heaters would

save about $12.74 per year on average.

Of course these savings are not free,

consumers will have to pay an average

increase of $101 for electric and $58 for

gas water heaters. Note that the total

average increased cost for electric and

gas water heaters are $105 and $118,

respectively, due to the phase out of the

current insulating foam blowing agent

HCFC–141b and the compliance to

resist ignition of flammable vapors on

gas water heaters voluntarily agreed to

between the manufacturers and the

Consumer Product Safety Commission.

The simple payback for cost increases

due to efficiency standards is 7.4 years

for electric and 3.6 years for gas water

heaters. The lifetime owning cost or lifecycle costs are lower than life-cycle

costs on current water heaters by $23 for

electric and by $30 for gas water heaters.

The design improvements the

Department considered are thicker

insulation and heat traps on both gas

and electric water heaters and an

improved heat exchanger (flue baffle) on

gas water heaters. These improvements

result in a four percent increase in

energy efficiency for electric and an

eight percent increase in energy

efficiency for gas water heaters. These

kinds of improvements are already

available on 26 percent of all water

heater models. In energy terms,

households with electric water heaters

will save on average 188 kWh per year

and households with gas water heaters

will save 22 therms per year of natural

gas or propane gas.

The benefits to the nation from this

revised energy efficiency standard are

also significant with energy savings of

4.6 quads of energy over 26 years. This

is equivalent to the total energy

consumption of all U.S. homes over a

period of 2.8 months. By 2020, the

standards will avoid the construction of

nine 400 megawatt electric generating

plants.

The amended standards in today’s

rule can be achieved by using HFC–

134a, cyclopentane, or HFC–245fa as the

blowing agent in the insulation. The 4.6

quads of energy savings will result in

cumulative greenhouse gas emission

reductions of 152 million metric tons

(Mt) of carbon dioxide (CO2) equivalent,

or an amount equal to that produced by

3.9 million cars per year. Additionally,

there will be a cumulative reduction of

273 thousand metric tons of nitrogen

oxides ( NOX). In total, we estimate the

national energy savings to have a

positive net present value to American

business and industry of $2.02 billion

over 26 years.

B. Authority

Part B of Title III of the Energy Policy

and Conservation Act, Pub. L. 94–163,

as amended by the National Energy

Conservation Policy Act, Pub. L. 95–

619, the National Appliance Energy

Conservation Act, Pub. L. 100–12, the

National Appliance Energy

Conservation Amendments of 1988,

Pub. L. 100–357, and the Energy Policy

Act of 1992, Pub. L. 102–486,1 created

the Energy Conservation Program for

Consumer Products other than

Automobiles. Water heaters are one of

the consumer products subject to this

program. Section 322(a)(4), 42 U.S.C.

6292(a)(4).

Under the Act, the program consists

essentially of three parts: testing,

labeling, and Federal energy

conservation standards. The

Department, with assistance from the

National Institute of Standards and

Technology (NIST), may amend or

establish test procedures for each of the

covered products. Section 323(b)(1)(A)–

(B), 42 U.S.C. 6293(b)(1)(A)–(B). The test

procedures measure the energy

efficiency, energy use, or estimated

annual operating cost of a covered

product during a representative average

use cycle or period of use. They must

not be unduly burdensome to conduct.

Section 323(b)(3), 42 U.S.C. 6929(b)(3).

The water heater test procedure appears

at Title 10 Code of Federal Regulations

(CFR) Part 430, Subpart B, Appendix E.

The Federal Trade Commission (FTC)

prescribes rules governing the labeling

of covered products after DOE publishes

test procedures. Section 324(a). At the

present time, there are FTC rules

requiring labels for water heaters.

The National Appliance Energy

Conservation Act of 1987 prescribed

Federal energy conservation standards

for water heaters. Section 325(e). The

Act provides that the Department shall

determine whether amended standards

to the existing requirements in Section

325(e) for water heaters are warranted,

and issue a Final Rule. Such

amendment shall apply to products

manufactured three years on or after the

date of this Final Rule. Section

325(e)(4)(A).

Any new or amended standard must

be designed to achieve the maximum

improvement in energy efficiency that is

technologically feasible and

economically justified. Section

325(o)(2)(A), 42 U.S.C. 6295(o)(2)(A).

Section 325(o)(2)(B)(i), 42 U.S.C.

6295(o)(2)(B)(i) provides that before

DOE determines whether a standard is

economically justified, it must first ask

for comments on a proposed standard.

After reviewing comments on the

proposal, DOE must determine that the

benefits of the standard exceed its

burdens, based, to the greatest extent

practicable, on a weighing of the

following seven factors:

(1) The economic impact of the

standard on the manufacturers and on

the consumers of the products subject to

the 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, or in the initial charges for, or

maintenance expenses of, the covered

products which are likely to result from

the imposition of the standard;

(3) The total projected amount of

energy or water savings likely to result

directly from the imposition of the

standard;

(4) Any lessening of the utility or the

performance of the covered products

likely to result from the imposition of

the standard;

(5) The impact of any lessening of

competition, as determined in writing

by the Attorney General, that is likely to

result from the imposition of the

standard;

(6) The need for national energy and

water conservation; and

(7) Other factors the Secretary

considers relevant.

In addition, Section 325(o)(2)(B)(iii),

42 U.S.C. 6295(o)(2)(b)(iii), establishes a

rebuttable presumption of economic

justification in instances where the

Secretary determines 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

applicable test procedure. * * *’’ The

rebuttable presumption test is an

4476 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

2 In August and September 2000, DOE conducted

a certification review of high efficiency electric

water heaters at five manufacturers. Based on the

review of these manufacturers’ laboratory

procedures, we believe some clarifications to the

water heater test procedure may be needed. We are

planning to join GAMA and the manufacturers in

their water heater test program to determine what

needs to be clarified in the water heater test

procedure.

alternative path to establishing

economic justification.

Section 327 of the Act, 42 U.S.C.

6297, addresses the effect of Federal

rules on State laws or regulations

concerning testing, labeling, and

standards. Generally, all such State laws

or regulations are superseded by the

Act, unless specifically exempted in

Section 327. The Department can grant

a waiver of preemption in accordance

with the procedures and other

provisions of Section 327(d) of the Act.

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

C. Background

1. Current Standards. The existing

water heater efficiency standards have

been in effect since 1991. Energy

efficiency is measured in terms of an

energy factor (EF), which measures

overall water heater efficiency and is

determined by the DOE test procedure.

10 CFR, Part 430, Subpart B, Appendix

E. The current water heater efficiency

standards are as follows:

• Electric: EF = 0.93–(0.00132 x rated

volume)

• Gas-fired: EF = 0.62–(0.0019 x rated

volume)

• Oil-fired: EF = 0.59–(0.0019 x rated

volume)

where rated volume is the water storage

capacity of a water heater in gallons, as

specified by the manufacturer.

2. History of Previous Rulemakings.

On September 28, 1990, DOE published

an Advance Notice of Proposed

Rulemaking announcing the

Department’s intention to revise the

existing water heater efficiency

standard. 55 FR 39624 (September 28,

1990). On March 4, 1994, DOE proposed

a rule to revise the energy conservation

standards for water heaters, as well as

a variety of other consumer products. 59

FR 10464 (March 4, 1994). On January

31, 1995, we published a determination

that we would issue a revised notice of

proposed rulemaking (NOPR) for water

heaters. 60 FR 5880 (January 31, 1995).

The Department of Interior and

Related Agencies Appropriations Act for

Fiscal Year 1996 included a moratorium

on proposing or issuing Final Rules for

appliance efficiency standards for the

remainder of Fiscal Year 1996. See Pub.

L. 104–134. During the moratorium, the

Department examined the appliance

standards program and how it was

working. Congress advised DOE to

correct the standards-setting process

and to bring together stakeholders (such

as manufacturers and

environmentalists) for assistance.

Therefore, we consulted with energy

efficiency groups, manufacturers, trade

associations, state agencies, utilities and

other interested parties to provide input

to the process used to develop appliance

efficiency standards. As a result, on July

15, 1996, the Department published a

Final Rule: Procedures for

Consideration of New or Revised Energy

Conservation Standards for Consumer

Products (referred to as the Process

Rule) 61 FR 36974 (July 15, 1996),

codified at 10 CFR Part 430, Subpart C,

Appendix A.

The Process Rule states that for

products, such as water heaters, for

which DOE issued a proposed rule prior

to August 14, 1996, DOE will conduct

a review to decide whether any of the

analytical or procedural steps already

completed should be repeated. 61 FR

36974, 36982 (July 15, 1996). DOE

completed this review and decided to

use the Process Rule, to the extent

possible, in the development of the

revised water heater standards.

We developed an analytical

framework for the water heater

standards rulemaking for our

stakeholders, which we presented

during a water heater workshop on June

24, 1997. The analytical framework

described the different analyses (e.g.,

life-cycle costs (LCC), payback, and

manufacturing impact analyses (MIA))

to be conducted, the method for

conducting them, the use of new LCC

and national energy savings (NES)

spreadsheets, and the relationship

between the various analyses.

We held a workshop on November 9

and 10, 1998, to share the preliminary

analysis results. We discussed our

methodology for analyzing national

energy savings, environmental inputs,

consumer sub-group impacts and

impacts on utilities including fuel

switching. There was also a presentation

of the water heater insulation testing by

NIST. On July 23, 1999 we held another

workshop to present the full results of

our engineering and economic analysis.

We discussed the comments from the

November 1998 workshop and changes

we made in our analysis as a result of

these comments. On April 28, 2000 we

published the notice of proposed

rulemaking to amend water heater

energy efficiency standards. 65 FR

25042 (April 28, 2000). We held the

hearing/workshop to discuss comments

to the proposed rule on June 20, 2000.

II. General Discussion

A. Test Procedures

The Act does not allow DOE to set

energy standards for a product unless

there is a test procedure in place for that

product. The Department published a

test procedure on May 11, 1998, that

revised the first-hour rating of storagetype water heaters, added a new rating

for electric and gas-fired instantaneous

water heaters and amended the

definition of a heat pump water heater.

63 FR 25996 (May 11, 1998). This

revision did not change the test method

for determining energy efficiency

standards.

No one has petitioned DOE indicating

the Department’s test procedures are

inadequate for testing water heaters.

Accordingly the Department considers

the current Federal test procedures

applicable and appropriate for today’s

Final Rule.2

B. Technological Feasibility

The Act requires the Department, in

considering any new or amended

standards, to consider those that ‘‘shall

be designed to achieve the maximum

improvement in energy efficiency * * *

which the Secretary determines is

technologically feasible and

economically justified.’’ (Section 325

(o)(2)(A)). Accordingly, for each class of

product considered in this rulemaking,

a maximum technologically feasible

(max tech) design option was identified

and considered as discussed in the

Proposed Rule. 65 FR 25042, 24045

(April 28, 2000).

However, DOE eliminated the heat

pump water heater due to issues

concerning the practicability to

manufacture, install, and service on the

scale necessary to serve the relevant

market at the time of the effective date

of the standard and product utility of

these units. We eliminated heat pump

water heaters after careful consideration

of the current electric resistance and

heat pump water heater markets and

manufacturing technology, and after

applying the factors to be considered in

screening design options contained in

the Process Rule. We also eliminated gas

condensing water heaters because we

determined they are not technologically

feasible. 10 CFR 430, Subpart C,

Appendix A(4)(a)(4) and (5)(b). There is

a complete discussion of these

conclusions in the proposed rule. 65 FR

25042, 25047–49 (April 28, 2000).

The Department has determined that

the electric and gas water heaters

considered in today’s notice are

technologically feasible as required by

Section 325(o)(2)(A) of EPCA, as

amended. There are some models of

these water heaters in the market that

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4477

meet the new standard levels. Thus, the

design options DOE considered are

technologically feasible.

C. Lessening of Utility or Performance of

Products

This factor is not easily quantified.

However, DOE has considered the effect

of thicker insulation which might result

in smaller capacity water heaters to be

used in small existing spaces which

could cause a reduction in first hour

rating. A loss of first hour rating would

reduce consumer utility. The discussion

in the comments on size constraints

explains how DOE dealt with this issue.

Furthermore, if a certain type of water

heater would no longer fit in spaces that

it was designed for, we have considered

a new class of products. We have

included a discussion on new product

classes to address this.

1. Size Constraints. We addressed size

constraints in the proposed rule by

estimating approximately 32 percent of

electric water heating households and

27 percent of gas water heating

households would need to remove the

closet door for water heaters with 3 inch

thick insulation. Then, we added a cost

adjustment of $160 to install new water

heaters in these households. Several

stakeholders have commented on our

estimates of costs and the number of

households affected.

The American Gas Association (AGA)

requests that DOE address size

constraints consistently across electric

and gas water heaters. It requested DOE

to include the costs shown in the

Battelle report that addresses space

constraints. (AGA, No. 150 at 5). The

Gas Appliance Manufacturers

Association (GAMA) supports the

Battelle analysis. (GAMA, No. 160 at 4).

Battelle provided detailed comments on

space constraints associated with larger

gas water heaters. Based on a survey of

15 companies, covering areas within 24

states, it determined a range of space

impacts on costs and the percentages of

homes affected. (Battelle, No. 127 at C–

1 to C–5).

Southern Gas Association stated that

a survey of its members revealed that 18

percent of single family homes would be

unable to fit a 2 inch larger diameter

water heater into the existing space.

(Southern Gas Association, No. 152 at

4). Alagasco indicated that many of its

customers are renters in mid to lowincome brackets. The proposed gas

water heaters would cause space

constraints in many of these homes.

(Alagasco, No. 152 at 2). The National

Propane Gas Association and Atlanta

Gas Light Co. stated that an increase in

storage tank size will cause significant

and costly installation problems in

water heater replacements. (National

Propane Gas Association, No. 165 at 2

and Atlanta Gas Light Co., No. 178 at 1).

The Oregon Office of Energy (OOE)

claims that after installing tens of

thousands of high efficiency water

heaters in the Pacific Northwest,

physically larger tanks do not impose

higher installation costs. Drip pans are

sized for the larger tanks and water

connections are almost universally

made with flexible copper tubing that

easily accommodates a wide range of

tank heights and alignments. (OOE, No.

174 at 3).

To account for size constraints in our

revised analysis, we assume space

constraints would only apply in those

cases where the water heater is installed

in a conditioned space, e.g., not in a

garage or an unconditioned basement or

attic. We also assume this will only

apply to small houses or apartments.

Therefore, we have excluded houses or

apartments with a floor area of more

than 1000 square feet. These

assumptions are not intended to

accurately identify every individual

household that would face space

constraints when replacing their water

heater. Rather this estimate should

roughly identify the number of

households affected. Since this is based

on the Residential Energy Consumption

Survey (RECS) ’97 data, we have a

representative national sample of

households. We believe using the RECS

’97 database and the assumptions above

will give us the best estimate of the

impacts of increased water heater size.

In its comments, Battelle also

assumed a large fraction of closets are

smaller than 22 × 22 inches. Discussions

with installers report this is a rare

occurrence; they come upon this

situation approximately once per

month. We also checked the areas

served by the gas utilities in the Battelle

survey. We found that although 24

states are represented, usually the area

served by the utility covered only a very

small part of the state. Therefore, we do

not believe that this survey is really

representative of the entire United

States. Consequently, we did not add

any extra costs for small closets for gas

water heaters. We assumed extra costs

for removing and replacing closet doors

and door frames for 32 percent of

households with electric and 27 percent

of households with gas water heaters

with 3 inch insulation. See Chapter 9 of

the TSD.

In the proposed rule, DOE asked for

comments or suggestions to minimize

the effects of smaller tanks either by

increasing the electric element size from

4.5 kW to 6 kW or by increasing the

thermostat setpoint. Several

stakeholders opposed larger electric

elements. There were no comments on

increasing the thermostat setpoint.

The Electric Power Research Institute

(EPRI) claims using 6 kW elements is

not an option for smaller tanks to

provide the consumer utility of larger

tanks since these elements are only used

in commercial water heaters. They state

that it is generally not possible to use 6

kW elements in ‘‘residential’’ water

heaters because standard household

wiring circuits usually used for water

heaters cannot carry a 6 kW continuous

load with sufficient safety margin as

required by the National Electrical

Code. (EPRI, No. 104 at 3). Dominion

concurs with EPRI, and states further

that there are currently only two models

listed in the latest GAMA directory with

elements above 4.5 kW, and none

greater than 5.5 kW. (Dominion, No. 145

at 4). The National Rural Electric

Cooperative Association (NRECA) also

opposes the use of larger heating

elements. (NRECA, No. 126 at 1–2).

Southern Co. and Dominion claim that

increased element size will increase

peak electric demand on electric

utilities and could require new wiring

and circuit breakers or electric panels in

homes. (Southern Co., No. 142 at 3 and

Dominion, No.145 at 3).

We are not including 6 kW elements

as a means of compensating for

downsized electric water heaters in

today’s Final Rule. Instead, we have

increased the thermostat setpoint to

meet the load in those cases where the

downsized water heater would be too

small to meet the particular

requirements of a RECS ’97 home. In

addition to increasing the thermostat

setpoint, we added $106 for the costs of

tempering valves and check valves for

about fifteen percent of electric and

eight percent of the gas water heaters

where we had to increase the thermostat

setpoint above 140°F. (Generally, water

temperatures above 140°F have the

potential to cause scalding.) The

detailed computer algorithm we used to

determine when a tempering valve is

needed can be found in the TSD in

Chapter 9.

2. New Product Classes. During the

hearing and in the comments, several

comments claimed that tabletop and

lowboy water heaters would be unable

to fit into existing spaces if their size

increased substantially beyond current

dimensions. These comments suggested

DOE create separate product classes for

these water heaters.

GAMA requests DOE to establish a

separate product class for lowboy and

tabletop water heaters and not to

increase the efficiency standards for

these products. GAMA states that

4478 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

lowboy water heaters must be able to fit

under a 36 inch high counter. Therefore,

they are 34 inches high or shorter and

have a jacket diameter less than 26

inches. GAMA defines tabletop water

heaters as having typical dimensions of

36 inches high, 25 inches deep and 24

inches wide. Tabletop water heaters are

designed to slide into a kitchen

countertop space and provide additional

countertop surface area. (GAMA, No.

160 at 4–5). Bradford White supports

GAMA’s request stating that elimination

of these products will cost consumers

substantial capital to convert and will

impact the replacement market

negatively. Lowboy electric models are

limited to 34 inches in height and to 26

inches in diameter. (Bradford White,

No.175 at 2 and No. 138 at 3). A.O.

Smith also recommends a new product

class for countertop-type (also known as

tabletop) electric water heaters. (A.O.

Smith, No.179 at 1). The American

Council for an Energy-Efficient

Economy (ACEEE) commented that it is

not opposed to a new product class for

tabletops and lowboys but

recommended limiting these classes to a

30 gallon size. (ACEEE, No.170 at 7)

DOE has decided to establish a

separate product class for tabletop water

heaters due to strict size limitations for

these products. However, we have

concluded that lowboy water heaters do

not have as stringent limitations on

geometry as tabletop water heaters. For

example, the diameter of the lowboys

can be increased. We addressed these

size constrained lowboy water heaters

by adding extra installation costs, see

Section II, General Discussion,

Lessening of Utility or Performance of

Products, ‘‘Size Constraints’’ in today’s

rule. GAMA data shows that lowboys

make up 18 percent of the electric water

heater market and that 38 percent of

lowboy shipments are 30 gallon, 48

percent are 40 gallon, and 14 percent are

50 gallon tanks. (GAMA, No. 176 at 3).

In establishing classes of products and

accounting for cost increases for a

percentage of products which will

require space modification, the

Department does not believe any model

of water heater will become unavailable

as a result of thicker insulation.

Therefore, DOE has eliminated any

degradation of utility or performance in

the products in today’s Final Rule. In

the application for tabletop water

heaters, we established a new class with

no change in standards because these

models cannot be made any larger. In all

other applications, we have determined

from the GAMA directory, GAMA data

on shipments, and from the RECS ’97

data that sufficient types and sizes of

water heaters exist in the market to

satisfy any size constraints encountered.

D. Impact of Lessening of Competition

This factor seeks the views of the

Attorney General to determine the

potential impacts on competition

resulting from the imposition of the

proposed energy efficiency standards.

In order to assist the Attorney General

in making such a determination, the

Department provided the Attorney

General with copies of the Proposed

Rule and the Technical Support

Document for review. In a letter

responding to the Proposed Rule, the

Department of Justice (DOJ) found only

one area of concern regarding any

lessening of competition. The area of

concern involves the blowing agent for

the foam insulation and the possibility

that only one chemical, HFC–245fa,

could be used and that it is a patented

product with only one supplier. This

situation led DOJ to conclude ‘‘that the

proposed standards could have an

adverse affect on competition because

water heater manufacturers may have to

use an input that will be produced by

only one source.’’ (DOJ, No. 143 at 1).

The DOJ letter is printed at the end of

today’s rule.

To reduce heat loss from the stored

reservoir of hot water, water heaters

must have insulation. The choice of

insulation is critical to achieving high

water heater efficiency at a reasonable

cost and essentially all water heaters use

foam insulation. A blowing agent is

needed to produce the foam insulation

and currently all manufacturers are

using the chemical HCFC–141b.

Unfortunately, HCFC–141b is an ozone

depleting chemical and will be phased

out in January, 2003. Therefore, the

water heater industry, like all other

industries that use this chemical, must

find and use a replacement chemical.

Options for non-ozone depleting

blowing agents include HFC–245fa,

HFC–134a, carbon dioxide (CO2)/Water,

pentane/cyclopentane and HFC 365mfc,

as well as potential blends, or

combinations, of these blowing agents.

The U.S. Environmental Protection

Agency’s (EPA) Clean Air Act guides the

U.S. appliance industry on replacement

of HCFC/CFC blowing agents. The

EPA’s Significant New Alternatives

Program (SNAP) approves chemicals

and technologies that can be used to

replace ozone depleting chemicals. Of

the options listed above, all except

HFC–365mfc have been approved by the

EPA/SNAP.

Initially, the appliance industry,

including water heater manufacturers,

had leaned toward adopting HFC–245fa,

which performs similarly to HCFC–141b

but at a much higher material cost.

HFC–245fa has a lower manufacturing

conversion cost than some of the other

alternatives, such as pentane/

cyclopentane. Given the likelihood

HFC–245fa would be adopted by

manufacturers, the Department used the

performance characteristics and

increased material and manufacturing

costs associated with HFC–245fa to

estimate the impact the new blowing

agent would have on consumers and

manufacturers. This was not to imply

HFC–245fa was the only path to meeting

the standard and DOE believes that at

least three alternative blowing agents

are available to use in meeting the

standards adopted in today’s Final Rule.

See the following section for the

analysis we used to support our

conclusion.

1. Increased Costs Due to a Single

Source of Supply for HFC–245fa. In

addition to the Attorney General’s letter

on the anti-competitive effects of the

proposed rule, we received several

comments from stakeholders. They were

concerned about cost increases due to a

single source supplier for HFC–245fa

and about the unavailability of the

material until July, 2002 or later.

The AGA position is that DOE should

only consider water blown foams for its

analytical baseline and standard level

analysis. AGA pointed out that the

blowing agent HFC–245fa has not yet

been demonstrated in manufacture of

water heaters in the U.S. AGA claimed

that, due to uncertainty in availability to

manufacturers and a sole source U.S.

supplier, DOE should consider only

those blowing agents that are available

and proven for water heater

manufacture. (AGA, No. 150 at 5–7).

To address concerns about the

performance of alternative blowing

agents, we tested three sets of four

electric water heaters with different

foam insulations. The purpose of these

tests was to compare the performance of

the current foam insulation, HCFC–

141b, with water blown and HFC–245fa

blown foam insulation. The results of

the NIST tests showed that water

heaters insulated with HFC–245fa had

the same energy factors as those

insulated with HCFC–141b. Water

heaters insulated with water blown

foam insulation had energy factors

about two percent lower than tanks

insulated with HCFC–141b. We believe

the results of these tests demonstrate

that the blowing agents HFC–245fa and

water can be used to insulate water

heaters and that the insulation

performance is the same with HFC–

245fa and only slightly reduced with

water blown foam. (Performance Testing

of Alternative Blowing Agents for Foam

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4479

Insulation of Residential Water Heaters,

Fanney et al., Proceedings of the AMC,

1999).

The DOJ urges DOE to account for the

impact of a single source supplier on

competition, and to consider altering

the standard so manufacturers may meet

the standard for all affected models

using other blowing agents. DOJ further

noted that some manufacturers have

suggested that DOE underestimated the

performance capabilities of alternative

blowing agents. If this is true,

manufacturers may in fact be able to

comply with the proposed standard

while using water-based blowing agents.

(DOJ, No. 143 at 1–2).

Stepan is concerned that the proposed

standards would require foam suppliers

to use HFC–245fa as the blowing agent.

This raises an issue about relying on a

sole source supplier for an efficiency

standard, since Honeywell maintains

the exclusive North American rights to

its manufacture and sale. (Stepan, No.

123 at 1–2). APGA claims the reliance

on insulation technology licensed to a

single company raises new issues and

antitrust concerns and may be contrary

to the statute. (APGA, No. 167 at 2).

To address these comments, we

conducted additional engineering cost

analyses with HFC–245fa, HFC–134a

and cyclopentane as the blowing agent

in the insulation. An April 7, 2000,

Bayer press release states most

appliance manufacturers in North

America are considering either HFC–

245fa or HFC–134a. Cyclopentane is not

considered favorably because of the

capital investment required to handle

cyclopentane safely (cyclopentane is

highly flammable). There are also high

costs because the factory cannot

produce water heaters while converting

factory equipment to a cyclopentane

system. However, appliance

manufacturers are independently

deciding which blowing agent to select.

Switching to either HFC–245fa or HFC–

134a involves capital costs. According

to industry and Bayer research, HFC–

245fa exhibits the best insulation value

of the two blowing agents—roughly

equal to HCFC–141b—though it is more

costly per pound. HFC–134a

demonstrates an insulation value

approximately ten percent lower than

HCFC–141b but has a lower per-pound

cost than HFC–245fa.

We have examined, through the

engineering analysis, the impact on

product design and costs using two of

the other blowing agent options, HFC–

134a and cyclopentane, to achieve a

similar energy factor as the proposed

levels for HFC–245fa. See Table 1

below. We included the ten percent

performance reduction for HFC–134a

and an estimate of $7 per unit for the

capitalization costs of cyclopentane in

our engineering analyses. These

analyses show that energy factors are

the same for the three blowing agents.

Costs for all design options are within

a few dollars for HFC–245fa, HFC–134a

and cyclopentane. While we have not

examined every possible blowing agent

option, we conclude that at least two

additional options to HFC–245fa can be

used to achieve similar performance for

similar costs. The blowing agent

performance characteristics and test

results using HFC–245fa, HFC–134a and

cyclopentane blown foam to evaluate

design options can be found in Chapter

3.4.1 of the TSD.

Table 1 shows the trial standard

levels, design options, energy factor and

installed costs for the three alternative

blowing agents, HFC–245fa, HFC–134a

and cyclopentane. Note the energy

factors are the same for all trial standard

levels and all blowing agents. There are

small differences in costs; HFC–245fa is

the cheapest blowing agent, HFC–134a

costs about $2/unit more than HFC–

245fa, while cyclopentane is the most

expensive blowing agent costing about

$9 more per installed electric and $11

more per installed gas water heater.

TABLE 1.—ENGINEERING RESULTS FOR ALTERNATIVE BLOWING AGENTS

Trial standard level Design options Energy factor Installed costs

HFC–245fa:

1 ......................... Electric: Heat Traps + Tank Bottom Insulation ............................................................... 0.88 367.52

Natural Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation .......................... 0.59 431.57

2 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ................................ 0.89 403.69

Gas: Heat Traps + Flue Baffles (78% RE) + 2.5 Inch Insulation ................................... 0.60 456.79

3 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ............................. 0.90 440.69

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ...................................... 0.59 431.57

4 ......................... Electric: Heat Traps + 3 Inch Insulation + Plastic Tank .................................................. 0.91 547.04

Gas: Heat Traps + Flue Baffles (80% RE) + 3 Inch Insulation + Side Arm Heater +

Plastic Tank + IID.

0.71 751.31

HFC–134a:

1 ......................... Electric: Heat Traps + Tank Bottom Insulation ............................................................... 0.87 363.06

Natural Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation .......................... 0.59 428.65

2 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ................................ 0.89 391.60

Gas: Heat Traps + Flue Baffles (78% RE) + 2.5 Inch Insulation ................................... 0.60 454.39

3 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ............................. 0.90 428.01

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ...................................... 0.59 428.65

4 ......................... Electric: Heat Traps + 3 Inch Insulation + Plastic Tank .................................................. 0.91 531.45

Gas: Heat Traps + Flue Baffles (80% RE) + 3 Inch Insulation + Side Arm Heater +

Plastic Tank + IID.

0.71 749.41

Cyclopentane:

1 ......................... Electric: Heat Traps + Tank Bottom Insulation ............................................................... 0.88 368.11

Natural Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation .......................... 0.59 432.14

2 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ................................ 0.89 394.70

Gas: Heat Traps + Flue Baffles (78% RE) + 2.5 Inch Insulation ................................... 0.60 456.10

3 ......................... Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ............................. 0.90 428.79

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ...................................... 0.59 432.14

4 ......................... Electric: Heat Traps + 3 Inch Insulation + Plastic Tank .................................................. 0.91 529.79

Gas: Heat Traps + Flue Baffles (80% RE) + 3 Inch Insulation + Side Arm Heater +

Plastic Tank + IID.

0.72 749.25

4480 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

2. Availability of HFC–245fa. Bradford

White said it has given careful

consideration to all of the options

available for blowing agents. However,

since HCFC–141b may be in limited

supply early in 2002 because of facility

phase-outs and with the uncertainty in

availability of HFC–245fa, Bradford

White has no alternative but to pursue

water blown insulation. (Bradford

White, No. 175 at 1–2). Stepan has

concerns about the overall availability

of HFC–245fa. (Stepan, No. 123 at 1–2).

Honeywell indicated that over six

years and $30 million has been invested

in the development of HFC–245a.

Honeywell has received all the

necessary U.S. regulatory approvals and

is constructing a commercial

manufacturing facility at its Geismar,

Louisiana location. The facility is

expected to be online by July 1, 2002.

Honeywell expects ample capacity to be

available to water heater manufacturers.

(Honeywell, No. 114 at 2).

The OOE claims adequate quantities

of HFC–245fa are available now for

optimizing production processes. (OOE,

No. 174 at 3). The ACEEE states DOE

has previously decided, in the

refrigerator standard rulemaking, that

HFC–245fa will be available and can be

an energy-efficient and cost effective

blowing agent. DOE should make the

same decision here. ACEEE suggests

DOE provide for manufacturers to

petition for relief if HFC–245fa does not

become available. (ACEEE, No. 170 at

8). Southern Company also asks why

DOE made no provisions for an

alternative if the blowing agent does not

become available. (Southern Company,

No. 142 at 3).

DOE has investigated the issue of the

availability of HFC–245fa.

Announcements in The Advocate, a

Baton Rouge, LA newspaper (May 11,

2000 and October 6, 2000), indicate that

Honeywell is proceeding to secure the

necessary permits to build the HFC–

245fa plant. Furthermore, Vulcan

Chemicals is also planning to build a

plant in Geismar, LA to make

pentachloropropane, one of the

chemicals used in the manufacture of

HFC–245fa. DOE concludes that HFC–

245fa will be available as planned and

therefore does not believe it needs to

make any provision in today’s rule in

the event of HFC–245fa unavailability. If

Honeywell does not build its plant or if

the plant is delayed, DOE believes there

are still three or more alternative

blowing agents for water heater

manufacturers to use, i.e., water,

cyclopentane, HFC–134a or blends of

these three.

E. Economic Justification

As noted earlier, Section

325(o)(2)(B)(i) of the Act provides seven

factors to be evaluated in determining

whether an energy conservation

standard is economically justified. Since

there were significant comments from

the June 20, 2000, hearing, and new data

from RECS ‘97 and AEO 2000, DOE has

developed a revised water heater

analysis. Specific revisions to our

analysis methods are discussed in

Section III, Methodology.

F. Other Factors

This provision allows the Secretary of

Energy, in determining whether a

standard is economically justified, to

consider any other factors that the

Secretary deems to be relevant. Section

325(o)(2)(B)(i)(VI), 42 U.S.C.

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

decided that no other factors need to be

considered in this rulemaking.

III. Methodology

DOE has made some minor changes to

the engineering and LCC analysis for

this Final Rule. We discuss these

changes below in response to the

comments on markup, the WATSIM

computer model, blowing agents and

blended fuel prices. Additionally, the

household characteristics data used in

the analysis were updated from the 1993

RECS data to the 1997 RECS data

(except for oil-fired water heaters). We

used the energy price projections from

the AEO 2000 as well.

A. Engineering

DOE is continuing to use the

WATSIM and TANK computer models

in its analysis to evaluate the energy

factor of water heaters with various

design options. These models were

discussed in the engineering

methodology section of the proposed

rule. 65 FR 25042, 25052–53 (April 28,

2000). We adjusted the manufacturers’

costs and the installation costs to

account for comments to the proposed

rule. These changes resulted in reduced

manufacturers’ costs for gas water

heaters and slightly higher retail costs

for electric water heaters.

Further testing at NIST and reverse

engineering of a water heater at the

Lawrence Berkeley National Laboratory

(LBNL) allowed DOE to fully validate

WATSIM. These tests revealed that

WATSIM and NIST results for the

energy factor of a high efficiency electric

water heater were the same. See the

TSD, Chapter 8.2.4

1. Water Heater Markup. DOE’s

calculation of gas water heater markup

was a major concern to stakeholders.

There was wide spread criticism that

the markup for gas water heaters we

derived in the proposed rule was too

low to support any manufacturer’s

production of that product.

The AGA claims DOE’s approach to

calculating markups has been roundly

criticized by stakeholders throughout

the development of the TSD and

supporting analysis, and is unaware of

any comments supporting DOE’s

analysis. AGA claims that DOE has

provided no consistency checks for this

and other markups to determine their

validity, in spite of criticism it has

received on its analytical results, and

has failed to postulate a market

mechanism or economic model to

justify its numbers. Furthermore, AGA

commented that manufactured cost and

retail price are not independent random

variables, and that DOE did not

correlate its cost and price data. This

resulted in 21 percent of the RECS ‘93

households being constrained to 0

markup. AGA believes DOE should

adopt the Battelle markups. (AGA, No.

150 at 8–9). Laclede Gas claims DOE

should not limit the markup algorithm

to prevent negative markups. (Laclede

Gas, No. 148 at 9).

To address the comments about

correlating prices and costs, DOE has

changed its LCC analysis to use

correlated retail prices and

manufacturer costs, i.e., high prices

correlate with high costs. This has

eliminated the negative values of

markup which occurred in the analysis

for the proposed rule.

GAMA and Bradford White claim the

markup for gas water heaters combines

4-inch flue model costs with 3-inch flue

model prices. According to GAMA,

using the DOE database and only 4-inch

flue models, the markup increases from

1.22 to 1.5. (GAMA, No. 117 at 2–3 and

Bradford White, No. 108 at 7). Dominion

Virginia Power states that the DOE gas

water heater base line assumes a 4 inch

flue yet the typical 40 gallon gas water

heater uses a 3 inch flue. (Dominion

Virginia Power, No. 145 at 6).

We separated the retail prices for 3

inch and 4-inch flues on gas water

heaters. We had our consultant estimate

the incremental cost difference between

manufacturing water heaters with 3 inch

and 4 inch flues. We then subtracted

this cost from the manufacturer cost

supplied by GAMA for water heaters

with 4 inch flues. Our analysis now

accounts for these price and cost

differences as recommended. Since the

retail prices were not changed, this

increased the markup on the baseline

units in the LCC, as well as the markup

applied to the various design options.

Southern Company and the Energy

Market and Policy Analysis group claim

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4481

the price database is too limited for the

type of analysis conducted by DOE.

Specifically, Southern Company claims

the database has a geographic bias,

citing the high number of sample points

from Washington and Oregon. It claims

that over 23 percent of the sample

points are from these two states, which

represent slightly more than three

percent of the U.S. population. Southern

Company suggests using a combined

markup for gas and electric water

heaters. (Southern Company, No. 142 at

1–2 and Energy Market and Policy

Analysis, No.151, at 5–6).

DOE’s retail price database uses data

points broadly distributed over the 10

Census regions of the U.S., and DOE

does not believe the database has a

geographic bias. Only 10.9 percent of

the water heaters in the database are

from the Pacific Region (see Table 5.3 in

the TSD). The Department used a

slightly higher proportion of water

heaters from the northwest to ensure an

adequate representation of highefficiency units. DOE will not be using

a combined markup, since each fuel

type must be evaluated individually.

The design option approach requires

distinct costs for each fuel type.

Battelle estimated the cost of

materials and labor for the design

options under consideration and

applied standard industry markup

factors to determine the cost to the

consumer. Battelle assumed standard

industry markup factors were 1.5 for the

manufacturer, 1.2 for the distributor,

and 1.4 for the retailer. Thus, the overall

markup factor is 2.52 (1.5 x 1.2 x 1.4 =

2.52). Therefore, to determine the cost to

the consumer, the manufacturer’s

materials and labor costs for a design

option are multiplied by 2.52.

To validate this standard approach for

gas water heaters, Battelle conducted a

tear down analysis on six water heaters

varying in size among 30, 40, 50, and

75-gallon capacities. BDI Design for

Manufacture software was used to

catalog the components and estimate

materials and labor costs for each water

heater. The materials and labor costs for

the 30, 40, 50, and 75-gallon baseline

gas water heaters were $80.83, $86.06,

$90.95, and $139.77, respectively. The

40-gallon gas water heater cost of $86.06

is in excellent agreement with the value

of $87.51 supplied by GAMA to DOE.

(Battelle, No. 106 at 1–2).

DOE compared its manufacturer

markup to Battelle’s standard markup

factor. This is the total manufacturer

cost divided by the sum of the materials

and labor costs for 40 gallon gas-fired

water heaters.

Battelle: $133.78/$86.06 = 1.55

DOE: $133.78/($75.07 + $10.74) = 1.56

Therefore the manufacturing markup

is essentially identical.

The ACEEE claims the Battelle

markups applied to the GAMA

manufacturing costs yield incredibly

high retail prices. ACEEE concludes the

manufacturers’ costs are too high and

the markups may be too low on some

water heaters. (ACEEE, No. 170 at 9).

The OOE and the Northwest Power

Planning Council (NWPPC) do not

accept GAMA’s manufacturing costs

because the typical margins in the

Pacific Northwest are $30–$40 for high

efficiency water heaters. (OOE, No.174,

at 2 and NWPPC, No.163, at 2).

In order to address the concerns about

manufacturers’ costs, DOE adjusted the

higher range of the manufacturer’s cost

distribution, to match the average of the

low range of the manufacturers’ cost

distribution. We also applied this

correction to the incremental

manufacturer costs for heat traps and

increased insulation. We did this to

bring manufacturers’ costs in line with

known appliance manufacturing costs,

derived from publicly available SEC

reports. It also ensures consistency

within the data. Since the overall retail

prices remain constant, the change

eliminates the occurrences of

unreasonably low markups on the

baseline gas and electric water heaters.

This reduced the average values of

baseline costs for electric and gas water

heaters by $9.55 and $6.22 respectively.

Battelle claims that when its baseline

materials and labor costs were used in

conjunction with the DOE database of

retail water heater prices, the average

overall markup factor for gas water

heaters came out to be 2.44. This is in

excellent agreement with the assumed

standard markup factor of 2.52 stated

previously. (Battelle, No. 106 at 1–2).

Southern California Gas Co. agrees with

Battelle’s markup factor of 2.52.

(Southern California Gas, No. 181, at 2).

The American Public Gas Association

(APGA) claims there is an obvious

problem with the markup analysis. It

suggests DOE approach this matter with

real-world prices and manufacturers’

costs. (APGA, No. 167 at 2).

In the DOE analysis, the overall

markup factor consists of manufacturer

markup and distributor/retailer markup.

From the LCC analysis, we have an

overall markup of 1.59 for gas and 1.94

for electric water heaters. These

markups differ from the Battelle

markups in an important respect.

Battelle assumes that the water heater

market is characterized by large

distributors selling to retailers or

plumbers. DOE has determined that less

than 50 percent of the water heater

market operates that way. Many water

heaters are sold directly to retail by

large cash and carry distributors or they

are sold to builders or large plumbing

companies by large distributors.

Therefore, the standard markup factors

are not correct for the residential water

heater market.

2. WATSIM Computer Model for

Electric Water Heaters. DOE received

several comments about the WATSIM

computer model for electric water

heaters. Most comments stated that

WATSIM does not predict the energy

factor of electric water heaters

accurately. Other comments asserted

that DOE needed to test water heaters to

compare actual performance to

WATSIM predictions.

GAMA claims it has no confidence

that WATSIM is properly predicting the

energy factors resulting from the various

insulation options. (GAMA, No.160 at

1–3). Dominion states that DOE should

verify the accuracy of calculated energy

factors for design options with results

from commercially available products.

(Dominion, No. 145 at 3). EPRI claims

WATSIM can predict energy

consumption of electric water heaters

typically within 3–6 percent accuracy.

For the type of analysis represented by

DOE energy factor tests, the accuracy

would typically be around the 3–4

percent range. (EPRI, No.104 at 1).

Southern Company supports EPRI’s

remarks. (Southern Company, No. 142 at

2).

At the June 2, 1997, Water Heater

Workshop, the Department sought

comments on the selection of

appropriate engineering models such as

WATSIM and TANK to use in the

Engineering Analysis. Most of the

stakeholders’ comments indicated no

objections related to the use of the

simulation models for the analysis. The

following participants supported the use

of WATSIM and TANK: C. Hiller (EPRI),

J. Ranfone (AGA), J. Langmead (Water

Heater Consortium), S. Nadel (ACEEE),

R. Hemphill (Gas Technology Institute

(GTI)). There were no comments that

indicated WATSIM and TANK were

incorrect to use.

Bradford White says DOE must test

products to understand the actual

performance of cavity increases and

new blowing agents. (Bradford White,

No.108 at 2–6). GAMA concurs, saying

DOE has relied too heavily on computer

modeling to establish insulation

performance when actual testing of

water heaters would have provided

more precise results. GAMA further

states that, ‘‘DOE is expected to test

water heaters to exclude the energysaving benefits of design options when

4482 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

the agency can do so at reasonable cost,

rather then rely on computer modeling,’’

998 F. 2d 1041 (D.C. Cir. 1993).

Bradford White further comments that

DOE must test at least three storage

capacities affected by the standard.

(Bradford White, No.138 at 1).

We reviewed the court case that

GAMA cited in its comments. The Court

acknowledges that computer modeling

is ‘‘a useful and often essential tool for

performing the ‘Herculean labors’’’

imposed by Congress. Gas Appliance

Manufacturers Association v.

Department of Energy, 998 F. 2d 1041,

1045 (D.C. Cir. 1993). The Court also

stated that when computer modeling is

used, an agency must sufficiently

explain the assumptions and

methodology so that there is a rational

connection between the factual inputs,

modeling assumptions, modeling results

and conclusions drawn from these

results. Id. at 1046. (GAMA, No. 160 at

1)

DOE provided a detailed explanation

of the model, its assumptions, and its

results in the proposed rule and

accompanying Technical Support

document. In the proposed rule, we

stated that comparisons of the WATSIM

prediction to the NIST test result for an

electric water heater with an efficiency

at the level proposed was within 0.002

EF. 65 FR 25042, 25053 (April 28, 2000).

The detailed description of the

WATSIM model and the assumptions

DOE used to model electric water

heaters are provided in the TSD for the

proposed rule in Chapter 8.2.4.1.

In response to these comments on the

proposed rule, LBNL tore down (reverse

engineered) one of the American Water

Heater Company’s (American) 0.93 EF

products to assess what design options

were used. In addition, NIST tested the

two units of the American model that

LBNL tore down. Using the reverse

engineering data in the WATSIM model

and comparing to the NIST test results,

we obtained results from WATSIM that

were within 0.006 EF of the NIST

results. Therefore, WATSIM has been

validated at the efficiency levels and

with the types of design options that our

analysis is using. See Chapter 8.2.4.1 in

the TSD. Consequently, we believe

WATSIM correctly predicts the

efficiency of electric water heaters.

DOE did not rely on computer

modeling alone to demonstrate the

performance of higher efficiency electric

water heaters. In the fall of 1999, NIST

tested five higher efficiency electric

water heaters, one model from each

manufacturer. In the fall of 2000, NIST

tested six tanks, a sample of two tanks

of three models of electric water heaters.

None of these models achieved their

rated efficiency as shown in the GAMA

directory. However, several of these

models performed at or above the

standard level adopted in today’s rule.

Therefore, at this time, and while we are

still examining this issue, we have

concluded that the WATSIM model

correctly accounts for the maximum

technically feasible design options for

electric resistance water heaters and

continue to use it, without modification

for this rulemaking. Furthermore, we

believe we have performed sufficient

testing to demonstrate that the

minimum efficiency levels can be met.

3. Pipe Insulation. In our proposed

rule, the Department did not consider

insulation on water heater inlet and

outlet pipes. In recent visits to the five

water heater manufacturers, we

discovered that four manufacturers ship

the tanks with pipe insulation for their

high efficiency water heaters. The DOE

water heater test procedure allows water

heaters to be tested with pipe insulation

if the manufacturer ships the tank with

pipe insulation. To determine the

impact of pipe insulation on our

analysis, we modeled water heaters with

and without pipe insulation in

WATSIM. These results showed that

pipe insulation in combination with

heat traps improves the energy factor by

0.005 EF. We performed tests at NIST

with and without pipe insulation on

three different models of electric water

heaters equipped with heat traps, and

the average increase in the energy factor

with pipe insulation was 0.007. Since

both the WATSIM computer model and

NIST testing indicate the effects of pipe

insulation combined with heat traps is

small, we have not included the effects

of pipe insulation in our analysis.

Furthermore, since pipe insulation must

be applied during water heater

installation, we are not sure how often

it is used. Information from a small

survey of installers indicated that about

50 percent do not install the pipe

insulation.

4. Blowing Agent Conductivity. Stepan

believes HFC–245fa may not achieve the

energy performance results predicted in

the proposed rule, and that water blown

foams may actually exceed modeled

predictions. Stepan claims it measured

initial k-factors for water blown foam as

low as 0.175 BTU/hr-°F-in. (Stepan, No.

123 at 2–3). The NWPPC suggests DOE

recalculate the LCC using the water

blown foam k-factors given at the

workshop. (NWPPC, No. 163 at 3–4).

For cost information, Honeywell, the

licensee to manufacture HFC–245fa in

the U.S., provided estimates of HFC–

245fa costs. For efficiency data, we used

published laboratory measurements of

physical parameters but we derated

these conductivities by eleven percent

to account for losses of insulation

effectiveness due to the foaming process

and modeling assumptions. In order to

keep the baseline efficiency (those with

HCFC–141b insulation) and the energy

use characteristics of water heaters with

HFC–245fa insulation the same, we

modeled them with appropriately

thicker insulation. We also increased

the amount and cost of steel used for the

water heater jacket in addition to adding

the extra volume and cost of insulation.

5. Analytic Baseline. The current

baseline is for water heaters insulated

with HCFC–141b and without any

design to prevent the ignition of

flammable vapors on gas water heaters.

In order to analyze separately the effects

of energy efficiency standards from the

effects of EPA actions to phase out the

HCFC–141b blowing agent or of the

CPSC actions to make gas water heaters

more resistant to ignition of flammable

vapors, DOE has developed an ‘‘analytic

baseline’’ concept. This concept

assumes that by 2003 and before the

energy efficiency standards become

effective, the actions of these other

Federal agencies will have taken effect.

To meet these other agency’s

requirements, manufacturers will have

created new designs and made other

changes to the production of water

heaters. The cost estimates of these

production and design changes are

included in the analytic baseline.

Several comments state that DOE should

have included different designs or

production changes in its analytic

baseline. The analytic baseline is used

in the engineering and LCC analyses.

APGA claims manufacturers would

use heat traps to meet the baseline

standards in 2003. Furthermore, the

DOE analytic baseline overstates the

value of raising the standard. (APGA,

No. 21 at 2 and No. 167 at 2). AGA

suggests DOE should only consider

water blown foam for its analytical

baseline. AGA suggests that

manufacturers will use heat traps to add

the 0.01 EF needed to meet the current

standards with water blown insulation

after 2003. (AGA, No. 150 at 5). GTI

claims DOE has defined a virtual

baseline water heater that makes it

easier to justify added insulation. (GTI,

No. 141 at 4). The Southern Gas

Association’s experience with noisy

heat traps led them to discontinue using

heat traps when installers began

removing the heat traps during water

heater installation. (Southern Gas

Association, No. 152 at 3).

DOE does not believe heat traps

would be the only design option

manufacturers might use to meet the

current standard when the HCFC

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4483

3For more information on NEMS, please refer to

the National Energy Modeling System: An

Overview 1998. DOE/EIA–0581 (98), February,

1998. DOE/EIA approves use of the name NEMS to

describe only an official version of the model

without any modification to code or data. Because

our analysis entails some minor code modifications

and the model is run under various policy scenarios

that are variations on DOE/EIA assumptions, the

name NEMS–BRS refers to the model as used here.

BRs is DOE’s Building Research and Standards

office.

blowing agent is phased out. When

asked, during the manufacturer

interviews, none of the manufacturers

indicated they were limited to heat traps

as the only design option.

DOE also does not know what

blowing agent any particular

manufacturer would use. We believe

that manufacturers will likely choose

different blowing agents or use mixtures

of blowing agents based on what they

believe to be the best business decisions

for them.

B. Life-Cycle Costs

As discussed in the proposed rule,

DOE used new analytical tools in this

rulemaking. We used a spreadsheet

model to calculate LCC and payback. 65

FR 25042, 25059–64 (April 28, 2000). In

the LCC spreadsheet model, we use

Microsoft Excel for Windows 95,

combined with Crystal Ball (a

commercially available software

program) so we can use actual

distributions of input variables. The

LCC outputs from this program are a

range of LCCs and the fraction of the

population that will benefit from energy

efficiency standards.

1. Blended Natural Gas and Propane

Fuel Costs. In the LCC analysis for the

proposed rule, DOE used a gas price

composed of approximately ten percent

propane and 90 percent natural gas.

Many gas utilities and a gas utility

association objected to this approach.

AGA and GTI insist that we use

natural gas costs when evaluating gas

water heaters, not the blended fuel

costs, because our blended fuel costs

make natural gas prices ten percent

higher. (AGA, No. 150 at 7 and GTI, No.

141 at 4). ACEEE claims a blended price

is appropriate if the standard applies

equally to both fuels. (ACEEE, No. 170

at 10). Dominion stated that a blended

propane and natural gas price will

artificially increase savings for natural

gas equipment because propane has a

higher price. (Dominion, No. 145 at 7).

DOE agrees that use of blended fuel

costs is inappropriate when calculating

gas water heater life-cycle-costs and

national net present value, therefore,

DOE has separated natural gas and

propane water heaters and has

considered each of these fuels

separately in the LCC. To do this, DOE

asked its consultant to develop a

manufacturing cost for propane water

heaters from the GAMA manufacturing

cost data for natural gas water heaters.

We estimated the retail price

distribution for liquid petroleum gas

water heaters from the manufacturers’

costs and the markup for natural gas

since there were not enough propane

gas water heater prices in the price

database.

During the time from the water heater

hearing/workshop on the proposed rule

until publication of this Final Rule,

natural gas prices have risen

dramatically for many consumers. DOE

has investigated this increase to

determine if these price increases might

continue into the near future because

increased gas prices would mean larger

LCC savings and earlier paybacks for

more energy efficient water heaters. The

EIA has determined natural gas demand

has increased in 2000 due to several

factors including new gas-fired electric

generators and new home construction.

Natural gas prices will continue at

higher levels than recent years but will

return to more normal levels after the

winter of 2000–2001 because the new

gas wells should be in production by

then. The AEO 2000 does not forecast

any long term increase in gas prices.

2. Percent of Consumers Benefitting

from Standards. EEI and Dominion

claim the fraction of consumers

benefitting from the standard level (74

percent for electric, 87 percent for

natural gas) is too low for minimum

efficiency standards. EEI and Dominion

recommend DOE accept only those

standard levels that will provide

benefits to at least 90 percent of the

population. (EEI, No.124 at 2 and

Dominion, No. 145 at 2). Energy Market

and Policy Analysis states that DOE

overestimates the percentage of winners

and underestimates the losers because it

ignores some costs, uses high estimates

of future electricity prices, and uses low

discount rates. (Energy Market and

Policy Analysis, No. 151 at 2).

Although ACEEE admits the two

percent band of insignificance is

arbitrary, it claims this is a very useful

concept. ACEEE claims that life cycle

costs probably must differ by $100 or

$10/year before they are significant.

(ACEEE, No. 170 at 11).

The Act requires the Department to

consider life-cycle-cost as one of the

seven factors in determining economic

justification. In determining economic

justification, the Secretary shall

determine whether the benefits of a

standard exceed the burdens. Life-cyclecost is just one of the factors to be

considered and there is no mathematical

formula for weighing the benefits and

burdens of the various factors. There are

also no mathematical thresholds for life

cycle cost as implied by EEI and the

Energy Market and Policy Analysis.

Furthermore, it can be argued that the

Act, in requiring DOE to set national

standards that maximize energy savings

for appliances where there will

obviously be regional differences in

usage and energy costs, expected there

would be some consumers with higher

life cycle costs. Based on these

arguments, the Department strongly

disagrees with EEI and the Energy

Market and Policy Analysis comments.

The Department has used the two

percent band of insignificance as an

indicator of the levels of LCC savings or

costs where consumers could appreciate

savings or suffer real loss. DOE uses the

percent of households benefitting and

the band of insignificance to help it

weigh the LCC effects and in its

consideration of the benefits and

burdens of these amended standards.

C. Manufacturing Impact

We use the Government Regulatory

Impact Model (GRIM) to determine the

manufacturing impacts. The analysis

methodology is discussed in the

proposed rule and the TSD. 65 FR

25045, 25069–71 (April 28, 2000). The

manufacturing impact analysis

estimates the financial impact of

standards on manufacturers, as well as

the impacts on competition,

employment, and manufacturing

capacity. We used the GRIM

spreadsheet model to perform an

industry cash flow analysis.

D. Energy Savings and Net Present

Value

DOE uses a variant of the Energy

Information Administration (EIA)’s

National Energy Modeling System, the

National Energy Modeling SystemBuilding Research and Standards, called

NEMS-BRS, for the utility and

environmental analyses, together with

some scaling and interpolation

calculations.3 The NEMS-BRS permits

the modeling of interactions among the

various energy supply and demand

sectors and the economy as a whole, so

it produces a sophisticated picture of

the effects of appliance standards. EEI

claimed that DOE does not account for

the effects of electricity deregulation in

its analysis. (EEI, No. 124 at 2). The

effects of deregulation are built into the

NEMS-BRS 2000 model.

IV. Discussion of Comments

We received numerous comments

from gas utilities and other gas

4484 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

consumers, supporting the AGA

position and the Battelle analyses. We

appreciate these comments and we

believe we have covered their concerns

in our responses to the comments from

the Gas Technology Institute (GTI;

formerly GRI), AGA, Battelle, and others

in our responses to comments on

markups, venting, and size constraints.

A. Venting of Gas Water Heaters

Venting of gas water heaters has been

an issue throughout the water heater

rulemaking. In our proposed rule, we

advocated a standard level that included

an increase in the recovery efficiency

(RE) to 78 percent from the current 76

percent. Most gas utilities and

manufacturers are concerned about the

reduction in the margin of safety

regarding venting system corrosion with

this two percent increase in RE. To

make this discussion about venting

easier to follow, we have separated the

issue into the following subtopics:

safety, the National Fuel Gas Code

(NFGC) venting tables, Type B vent

connectors, costs, and direct vent

applications.

1. Safety. AGA believes DOE is

incorrect in its analysis concerning

venting systems for water heaters with

RE above 76 percent. AGA states DOE

can resolve this issue of vent system

modification by one of the following:

• By fully accounting for the vent

system costs as reflected in the Battelle

analysis;

• By determining that the comments

concerning venting integrity and safety

beyond its current analysis approach are

without merit; and

• By determining that safety concerns

are insignificant or the expected benefits

of the standard outweigh this safety

consideration as required under the

process rule.

AGA further requests DOE to

explicitly state its determination and its

underlying rationale if the second or

third option is chosen. AGA reiterates

its position that DOE should not

promulgate a standard that subjects

consumers to a potential increase in

safety risk. (AGA, No. 150 at 3–5). AGA

and the Atlanta Gas Light Co. believe

that DOE has not considered the retail

cash and carry market where needed

vent system upgrades are unlikely to

occur. (AGA, No 150 at 4 and Atlanta

Gas Light Co., No. 178 at 2).

Alagasco stated that the ability of gas

water heaters to deliver outstanding

economy, performance and

environmental benefits is dependent on

adequate margins of error in critical

subsystems like venting, gas piping,

combustion air and clearances. The

overall utility of gas water heating is a

function of proper installation.

(Alagasco, No. 162 at 1). The New

England Gas Association and Atlanta

Gas Light Co. believe increased gas

water heater efficiency from improved

flue loss efficiency can lead to increased

condensation and chimney degradation.

(New England Gas Association, No. 139

at 2–3 and Atlanta Gas Light Co., No.

178 at 2). The NYSEB, National Propane

Gas Association, Atlanta Gas Light Co,

and Southern California Gas Co. state

that DOE’s proposal reduces the margin

of error for installations of gas water

heaters in retrofits. The National

Propane Gas Association adds that

existing vent systems are more likely to

develop condensate problems and vent

failures. (NYSEB, No. 164 at 1, National

Propane Gas Association, No. 165 at 2,

Atlanta Gas Light Co., No. 178 at 1; and

Southern California Gas Co., No. 181 at

2).

ACEEE and OOE claim that there

should be no safety concern at 78

percent RE because the Talbert study for

GTI found that a single walled vent

connector is acceptable at flue-loss

efficiencies (FLE) up to 80 percent and

78 percent RE is equivalent to 79.75

percent FLE. (ACEEE, No. 170 at 3 and

OOE, No. 174 at 2).

DOE did not raise the RE enough to

create a safety concern if the venting

system is correctly installed. DOE used

the data from the GTI reports to estimate

the impacts of 78 percent RE gas water

heaters on venting systems. At 78

percent RE the flue loss efficiency is

still below 80 percent, the level at

which condensation begins. Since the

increased RE may reduce the margin of

error, DOE’s analysis accounts for the

cost of Type B vent connectors in eleven

percent of households and for chimney

relining in eight percent of households.

Type B vent connector is a double

walled vent connector that reduces

cooling of the flue gasses and is more

corrosion resistant than steel vent pipe.

Additionally, the California Energy

Commission (CEC) in its comments,

provided data about the number of

models of gas water heaters that have

energy factors at 76 percent RE and

above that would comply with the gas

water heater standards in the proposed

rule. (The CEC maintains its own

database of gas water heaters.) There are

170 distinct models of gas water heaters

in the CEC database. A distinct model

is a ‘‘discreet combination of

manufacturer, input, volume, energy

factor and recovery efficiency.’’ Of

these, 51 models or 30 percent of all

distinct models have a RE of 76 or 77

percent. Furthermore, there are nearly

an equal number of natural gas and

propane gas water heaters in this

category. (CEC, No. 171 at 3 and

Attachment A). Since gas water heaters

with a RE below 78 percent do not pose

any safety threat and 30 percent of the

models that can meet the standard are

in this group, installers will have

choices among lower RE models in

those applications where there may be

safety concerns. Therefore, DOE does

not believe there is any application that

will have a safety problem if the correct

type of water heater and the proper

installation procedures are followed.

2. NFGC Venting Tables. Bradford

White claims the venting tables were

developed around water heaters with a

RE of approximately 75 percent.

(Bradford White, No. 108 at 1–2).

Southern Gas Association believes

increasing RE to 78 percent would

require retesting water heaters and

rewriting the current venting tables

because it claims the tables were based

on 76 percent RE. (Southern Gas

Association, No. 152 at 4). Battelle

claims increasing RE to 78 percent will

require a revision to the current venting

tables. (Battelle, No. 127 at 26–27). GTI

and Southern California Gas Company

believe that DOE cannot make accurate

cost estimates until venting codes are

revised. (GTI, No. 141 at 3 and Southern

California Gas Company, No. 181 at 2).

The NFGC does not limit its venting

tables to any specific gas water heater

recovery efficiency. The NFGC venting

tables are based on specific conditions

for each application such as water

heater location and common venting

with a furnace. We do agree with

Battelle that the NFGC should revisit its

venting tables and make whatever

revisions are necessary to account for

potential increases in recovery

efficiencies. We also note that there are

37 models of gas water heaters with a

recovery efficiency of 76 percent listed

in the GAMA directory which can meet

the standard levels adopted in today’s

rule. On that basis, we conclude there

will be designs which can meet the new

standard with 76 percent RE.

3. Type B Vent Connectors. GAMA

and Bradford White claim each water

heater manufacturer will change the

installation instructions to require Type

B vent connectors for all installations.

Bradford White claims manufacturers

will design to 80 percent RE in order to

satisfy a 78 percent RE level. (GAMA,

No. 117 at 2 and Bradford White, No.

108 at 1–2). Dominion claims DOE does

not completely incorporate the

additional cost for Type B vent

connectors. (Dominion, No. 145 at 6).

GTI states that DOE relied too heavily

on data from an area of the country with

atypical weather conditions. (GTI, No.

141 at 3) Battelle claims that increasing

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4485

RE to 78 percent will require Type B

vent connectors in the 75 percent of

installations that currently do not have

them, which will add to the installed

cost. (Battelle, No. 127 at 26–27) The

New England Gas Association claims a

majority of homes in New England are

older with masonry chimneys which

could require Type B vent connectors

and chimney relining costing as much

as $800. (New England Gas Association,

No. 139 at 2–3).

ACEEE claims DOE overestimated the

number of homes needing Type B vents

at 78 percent RE because the AVISTA

data applies to climates with 7000

heating degree days (HDDs) and the

NFGC requires Type B vents in

unconditioned spaces. (ACEEE, No. 170

at 2). The CEC summarizes its database

of gas water heaters to show the number

of models of gas water heaters with

recovery efficiencies from 76 percent to

85 percent. There are 170 models which

currently meet the standards. CEC also

shows whether a vent connection

modification or masonry chimney

relining is needed. This data summary

shows that a Type B vent connector is

not needed until RE gets above 83

percent, and chimney relining is

sometimes needed when RE gets above

78 percent. It is interesting to note there

are 66 models or 39 percent of gas water

heaters with recovery efficiencies at or

below 78 percent which currently meet

the standard and which do not need

Type B vent connectors or chimney

relining. (CEC, No. 171 at 3).

DOE does not agree manufacturers

will specify that all installations with 78

percent RE gas water heaters will

require Type B vent connectors. This is

not current practice with gas water

heaters with RE greater than 76 percent.

Manufacturers have relied on the NFGC

venting tables, and we believe they will

continue to do so. We believe

manufacturers should advise installers

to use Type B vent connectors in

climates where there are more than

5,000 HDD or some reasonably

conservative level of heating degree

days, and otherwise follow local codes

and the NFGC requirements.

DOE uses HDD as an indicator for

determining where venting systems may

be subject to damage from the amount

of time vent connectors may have

condensate on their inside surfaces.

This indicator considers both the effect

of time and temperature. We use 5,000

HDD as a conservative approach since

no incidence of vent system failures is

associated with the installation of high

efficiency gas water heaters in the

Northwest, even in climates as cold as

or colder than 7,000 HDD.

Given that there are 66 models of gas

water heaters with RE at or below 78

percent, DOE believes a consumer has a

choice between a lower RE and a higher

RE with a Type B vent connector. At the

lower RE, the consumer can continue to

use a single wall vent connector

whereas, at the higher RE levels, a

consumer would be advised to use a

Type B vent connector and/or chimney

relining in those climate areas where

condensation in the venting system is a

concern.

4. Vent System Costs. AGA

commented that DOE has

underestimated the frequency of needed

venting system upgrades. (AGA, No. 150

at 3). APGA claims DOE has

underestimated venting costs. (APGA,

No. 167 at 2). ACEEE claims DOE’s cost

for vent installations should not include

a factor for the fraction of homes with

gas water heaters. (ACEEE, No. 170 at 2).

DOE believes we have accounted for

the installation costs associated with

higher RE gas water heaters. We used

installers’ estimates to calculate the cost

of installing Type-B vent connectors and

to determine the cost to reline masonry

chimneys. These estimates are slightly

higher than the GTI estimates. Using

information from comments and from

an AGA survey in a GTI report, we

estimated that eleven percent of

households with gas-fired water heaters

in regions with over 5,000 HDDs would

need Type-B vent connectors for 78

percent RE gas-fired water heaters.

(GRI–91/0298). DOE determined a cost

of $134 for Type-B vent connectors

based on the replacement market and

installers’ cost estimates for a typical

installation. We also estimated that

masonry chimney relining would cost

$795 for eight percent of the

households. This is nearly the same cost

($800) for chimney relining given by the

New England Gas Association in its

comments. See Appendix D–3 in the

TSD.

DOE did not include a factor for the

fraction of homes with gas water heaters

in the vent installation cost calculation.

The factor used in the vent installation

cost calculation included the fraction of

all homes with gas water heaters in the

U.S. that are in the Northeast or

Midwest. DOE was not double counting

the number of gas water heaters as

ACEEE states.

5. Direct Vent Applications. Dominion

claims DOE does not account for the

decreased vent length a 78 percent RE

gas water heater will have for direct

vent equipment. (Dominion, No. 145 at

6).

Dominion is correct; however, DOE

notes this equipment accounts for less

than two percent of the market. Only a

small fraction of this market would be

installed at the maximum length of vent

allowed. This tiny fraction of the market

could be served by a product that has

not used the improved flue baffle to

meet the standard or by a power vented

unit.

B. Electric Water Heater Ratings

Issues concerning the efficiency

ratings of electric water heaters with

energy factors greater than 0.91 were

raised in the workshops that the

Department conducted prior to the

proposed rule. Based on the

Department’s review of the GAMA

certification test program, the

Department noted the possibility that

high efficiency electric water heaters,

i.e., with manufacturer rated energy

factors greater than 0.91 EF, were

overrated. Several stakeholders have

requested that DOE take specific actions

to avoid any future overrating.

ACEEE is concerned that

manufacturers may be overrating

electric water heaters and if this practice

continues, some of the energy savings of

the new standard will be lost. ACEEE

stated that the apparent overrating

affects not only the standards program,

but also the efficacy of utility demand

side management programs. (ACEEE,

No. 170 at 1).

DOE has conducted a certification

review of the five major water heater

manufacturers and has found that there

are incorrect energy factor ratings

reported in the GAMA directory. All

five major manufacturers use GAMA as

their third party representative.

Therefore, the GAMA directory contains

manufacturers’ certified ratings. We also

found violations of DOE’s record

keeping requirements at several

manufacturers. The Department has

requested these manufacturers correct

their ratings on these high efficiency

electric water heaters, and the

manufacturers have agreed. The

corrected ratings will be published in

the December, 2000 GAMA directory.

Some manufacturers’ testing appears

to show that some 50 gallon electric

water heaters reach a 0.93 EF level. DOE

acknowledges that recent tests of high

efficiency electric water heaters at

Intertek Testing Services (ITS) have

shown several models with 0.92 or 0.93

EF. This testing was ordered by GAMA

on a sample of four electric water

heaters for each model. However, NIST

has tested several of these models and

has not been able to replicate the ITS

test results.

Testing of 11 high efficiency electric

water heaters at NIST has not

demonstrated that electric water heaters

can achieve a 0.93 EF. The difference

4486 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

between efficiency ratings listed in the

GAMA Directory and NIST measured

efficiencies ranged from 0.012 EF to

0.052 EF for an average difference of

0.029 EF. In other words, the average of

the 11 tanks NIST tested was nearly 0.03

EF below the rated values from the

manufacturer. We are continuing to

evaluate additional units and the testing

performed to understand why the NIST

and ITS test results do not agree.

There may be numerous reasons why

we cannot confirm the higher ratings.

There could be an improper application

of the DOE test procedure due to

differences in interpretation of the

requirements or due to selection of a

different option for making some of the

measurements. There could be problems

in the sampling procedures used by

GAMA or the manufacturers to obtain

their sample tanks for testing. (The test

procedure requires tanks for testing be

representative of production.) There

could be some design improvements in

some of these high efficiency models

that DOE did not consider in its

analysis. Therefore, at this time we

cannot determine if the difference in our

testing and the manufacturers’ rating is

real or not.

C. Measured vs. Rated Volume

CEC, NWPPC, and ACEEE commented

that DOE should use the measured

volume of water heaters because

manufacturers, by using the rated

volume, can gain a 0.01 EF

improvement by maximizing the

tolerances allowed by UL (+/¥10

percent for electric) or by ANSI Z21.10.1

(+/¥5 percent for gas). (CEC, No. 171 at

4–5; NWPPC, No. 163 at 3; and ACEEE,

No. 170 at 16–17). GAMA referred to its

July 18, 1994, comments on the 1994

proposed rule, where it addressed this

same issue, and suggested that DOE

should continue to use rated volume

because that is the basis of the extant

standards set by NAECA. (GAMA, No.

160 at 5).

EPCA, as amended, by the 1987

NAECA amendment, uses the rated

volume as the coefficient in the

standard levels. Our analysis uses the

rated tank volume to determine the

performance of the design options.

Therefore, DOE will continue to use the

rated volume in its water heater

standards.

D. Effective Date of Standards

Several stakeholders have taken the

position that the effective date of today’s

rule should be five years from its

publication. EPCA prescribes efficiency

standards for water heaters

manufactured on or after January 1,

1990, and requires two subsequent

rulemakings to consider amendments to

the water heater efficiency standards.

The statute provides in effect that any

amendment to the standards that results

from the first rulemaking shall be

effective three years after publication.

For the second rulemaking cycle, to

amend the standards then in effect, the

statute provides an effective date five

years after publication.

GAMA claims today’s Final Rule

should be effective 5 years after

publication. GAMA believes the three

year lead-time for the effective date

applies only to a Final Rule published

by January 1, 1992. (GAMA, No.113 at

2). Southern Co. and Dominion state

that NAECA requires a 5 year

implementation time. Southern Co. also

suggests that refrigerant availability will

become more manageable with two

additional years. (Southern Co., No. 142

at 3 and Dominion, No. 145 at 3). On the

other hand, ACEEE asserts the first

revision has a three year effective date

and since today’s rule is the first

amended standard, the three year

effective date applies. ACEEE states this

is the way the NAECA revisions have

been interpreted. (ACEEE, No. 170 at

10–11).

DOE interprets the language in EPCA

at 42 U.S.C. 6295(e)(4)(A) to mean that,

where the schedule specified in the

statute for the two required rulemakings

has not been met, the first amendment

to the standards should be effective

three years after publication, and the

second amendment to the standards,

five years after publication. We believe

that this interpretation is the one most

consistent with the statutory scheme.

DOE has the authority and

responsibility to complete the two

cycles of rulemakings mandated by

Congress in the statute. We recognize

that DOE has failed to implement the

rulemaking schedule in EPCA, but we

see no reason why such failure would

justify a departure from the time periods

the statute contemplates for an

amendment to the standards to become

effective. We believe we are adhering to

the statutory scheme by making the

effective date of today’s rule, the first

amended standard, conform to the

amount of time the statute designates for

the effective date after publication of the

final rule. As ACEEE pointed out at the

public hearing on June 20, 2000, in all

the rulemakings where DOE has missed

dates, it has used such an approach.

(Transcript, No. 120FF at 295–296).

Moreover, the statute contemplated

that the original efficiency standards

specified in EPCA could be in effect for

only five years before an amended

standard would take effect. To date, the

original standards have been in effect

for 11 years. By making today’s new

standards effective in three years, it will

be 14 years, not 5 years, before amended

standards become effective. A five-year

effective date would lengthen this

period to 16 years, further delaying the

benefits new standards will provide to

consumers and the nation. Furthermore,

the water heater industry never had an

expectation that the original standards

would be in effect so long. The original

standards will have been in place 9

years longer than envisioned by the

statute. For these reasons as well, a

three-year effective date for today’s rule

is more consistent with the statutory

scheme than the five-year period

advocated by some commenters.

Accordingly, today’s rule will become

effective three years after the date of

publication as originally proposed.

E. Water Heater Models Affected

GAMA commented that if the

proposed standard levels were adopted,

few current models listed in the GAMA

directory would survive, and only a

small percentage of current residential

water heater shipments meet the

proposed levels. (GAMA, No. 160 at 5).

GAMA stated that 26 percent of the

current models of gas and electric water

heaters can meet the proposed standard.

This number drops to 18 percent if only

30, 40 and 50 gallon models are

considered. (GAMA, No. 176 at 1).

Dominion suggests DOE should identify

existing equipment that will meet the

revised standards and designs it uses.

Additionally, Dominion claims DOE

should evaluate these models and

provide data verifying the achievability

of the proposed minimum efficiency

standards using design options

identified for the recommended

standard level. (Dominion, No.145 at 3).

The CEC claims that, based on its

directory of certified water heaters, of

the 170 models of gas water heaters

listed, 51 meet the proposed standard.

(CEC, No. 171 at 2). DOE’s review of the

April, 2000 GAMA Directory shows 37

gas-fired water heater models that could

meet the proposed standards.

DOE recognizes that standards will

eliminate current manufacturers’

offerings which would affect the

individual firms and industry’s net

present value. These effects are captured

in the Manufacturer Impact Analysis.

Furthermore, DOE rejects Dominion’s

comment that the Department should

identify technologies that can be used to

meet the standard. The standard is a

performance standard, not a design

standard. DOE’s analysis identified a

path, with different insulation blowing

agents, which could be used to meet the

standard. However, DOE believes there

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4487

are a number of approaches individual

manufacturers may elect to pursue to

meet the standard. It is not up to the

Department to mandate any one

approach.

F. Instantaneous Water Heaters

Controlled Energy Corporation

(Controlled Energy) claims

instantaneous water heaters should not

be included in the Final Rule without

further analysis. (Controlled Energy, No.

125 at 1). The CEC claims NAECA

clearly includes both storage and

instantaneous water heaters, and DOE

does not have any option to exempt this

type of water heater since that would be

equivalent to a reduction of energy

efficiency. (CEC, No. 171 at 4). GAMA

claims DOE should clearly state the

proposed standards do not apply to

instantaneous water heaters. GAMA

claims the minimum energy factor for

instantaneous water heaters has been

inadvertently raised without any

discussion or any analysis. Currently,

instantaneous water heaters must meet

a minimum of 0.62 EF. (GAMA,

Transcript, No. 120 at 38 and 177–178.).

Since instantaneous water heaters

make up a very small fraction of one

percent of the water heater shipments,

DOE did not include them in its

analysis. Although the statutory

definition includes instantaneous water

heaters within the general definition of

water heater, the statute does

distinguish between storage and

instantaneous water heaters based on

input rate. The DOE regulations at 10

CFR 430 Subpart B, Appendix E(1.7),

distinguish between the definition of

storage water heaters and instantaneous

gas water heaters by BTU input rates

and storage capacity. However, EPCA,

as amended, provides the same

standards for instantaneous and storage

water heaters. There is, moreover, a

provision in EPCA, as amended, in

Section 325(q), 42 U.S.C. 6295(q) for

establishing a new class if the capacity

or performance related features of a

product justifies it. The volume ranges

of storage water heaters are much larger

and do not include the volumes of

instantaneous water heaters as defined

in DOE’s regulation. Since DOE’s

current regulations use the capacity and

input rate to define instantaneous water

heaters, DOE is establishing a new class

for instantaneous gas and electric water

heaters and we will leave the standards

at the current levels.

G. Fuel Switching

The New England Gas Association

(NEGA) and Laclede Gas claim higher

first costs for gas water heaters will

encourage builders in new homes and

consumers replacing gas water heaters

to switch to electric water heaters.

Laclede claims this is especially true

when a consumer faces a $433 chimney

relining cost. (NEGA, No. 139 at 3 and

Laclede Gas, No. 148 at 3). AGA claims

DOE needs to include a detailed

analysis of fuel switching among gas

and electric utilities in the

environmental impacts analysis. (AGA,

No. 150 at 10). OOE claims that the

incremental costs for a 0.62 EF gas water

heater are trivial compared to the costs

of acquiring natural gas service where it

does not exist, to buy a gas furnace, and

in some cases to install a duct system

where one does not exist. (OOE, No. 174

at 2).

The LCC analysis is one of the seven

factors DOE is required by statute to

consider when it makes its decision on

standard levels. Included in the LCC

analysis are the installed costs of

electric and gas water heaters. These

costs provide an indication of whether

a particular standard level would cause

fuel switching. Furthermore, in the NES,

DOE estimates the shipments of each

fuel type. These results are shown in

Chapter 11 of the TSD. For example,

DOE estimates that the standards

adopted today will increase the total

shipments of gas water heaters by 8

million and decrease the total

shipments of electric water heaters by 7

million over the next 26 years. DOE has

taken fuel switching into account in

reaching its final decision. No further

analysis is required.

V. Analytical Results and Conclusion

The choice of insulation blowing

agent is critical to achieving high water

heater efficiency at a reasonable cost. In

the proposed rule, DOE based its

analysis on HFC–245fa and water blown

insulation. There were many comments

from manufacturers, utilities and the

DOJ that a standard based on HFC–245fa

alone could be anti-competitive due to

its single source of supply. There were

also issues about venting system margin

of error, size constraints for water

heaters with thicker insulation, and the

energy factor overrating of high

efficiency electric water heaters. To

determine whether there are alternative

approaches to meet the standard level

adopted by today’s Final Rule, we

evaluated two other blowing agents,

HFC–134a and cyclopentane, that the

proposed rule identified as potential

alternatives for the HCFC–141.65 FR

25042, 25049–50 (April 28, 2000). This

issue is briefly described in Section II,

General Discussion, ‘‘Impact of

Lessening of Competition’’ in today’s

rule.

We performed an engineering analysis

on both of these alternative insulation

blowing agents to determine if the

standard could be met with these

blowing agents and to estimate the

relative manufacturer and consumer

cost impacts. HFC–134a is a blowing

agent that is less expensive per pound

than HFC–245fa, but it also is ten

percent less effective as an insulation

material. Cyclopentane is a very

inexpensive blowing agent, has similar

insulation effectiveness to HFC–245fa,

but it is flammable and would require

expensive modifications to production

facilities to meet the OSHA safety

regulations. The engineering analyses

for HFC–134a and cyclopentane show

that water heater cost and performance

is within two percent of the results for

HFC–245fa. See Table 1 in Section II,

General Discussion, ‘‘Impact of

Lessening of Competition.’’ Therefore,

DOE believes that manufacturers have a

choice among at least three blowing

agents, water, HFC–134a and

cyclopentane. When designing products

to meet the new standard,

manufacturers will be faced with a

range of choices to consider. For

example, water heaters with

cyclopentane-blown foam insulation

have lower material costs, as compared

to HFC–245fa, however, the capital

investment is significantly greater. In

this scenario, they may weigh the

investment costs and material costs to

determine the approach that is costeffective for them. Similarly, they may

weigh either HFC–245fa and HFC–134a

with water-blown foam. The HFC-blown

foams have higher material costs,

compared to water, but better insulation

performance. Alternatively, at the

standard levels adopted today, some

manufacturers may find a design using

other blowing agents or blends of these

materials to be more cost effective. In

summary, DOE believes there are a

number of insulation blowing agents to

meet today’s standards. Manufacturers

will, DOE believes, weigh the cost and

efficiency trade-offs, as well as other

factors, in selecting the insulation

blowing material to use.

A. Economic Impacts on Consumers

1. Life-Cycle-Cost. To evaluate the

economic impact on consumers, we

conducted an LCC analysis for gas and

electric water heaters. We included data

and information from comments

pertaining to installation costs for size

constraints on fourteen percent of

electric water heaters. This accounts for

extra costs that consumers in small

apartments and homes may have to pay

for water heaters with thicker

insulation. We also included

4488 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

information and costs for drip pans from

the comments on gas water heaters.

Table 2 shows the average LCC savings

and percent of households benefitting

for each of the trial standard levels for

each fuel class. The average LCC savings

for trial standard levels one, two and

three are positive for gas-fired and

electric water heaters with the HFC–

245fa blowing agent. We do not show

oil-fired water heaters because we are

not making any revisions to the

standards for that class.

Where LCC savings are positive for

electric and gas-fired water heaters, the

percent of households benefitting ranges

from 59 percent to 90 percent for the

trial standard levels analyzed. At trial

standard level four, where the LCC

savings are negative, 18–26 percent of

households with electric or gas-fired

water heaters will benefit.

TABLE 2.—LIFE-CYCLE-COST SAVINGS AND PERCENT BENEFITTING

[HFC–245fa blown insulation]

Trial standard level Design options Percent benefitting

Life-cycle

cost savings

($)

1 ............................. Electric: Heat Traps + Tank Bottom Insulation ....................................................................... 90 36

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ................................ 78 30

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ....................................... 89 97

2 ............................. Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ....................................... 68 32

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2.5 Inch Insulation ............................. 64 11

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2.5 Inch Insulation .................................... 78 77

3 ............................. Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation .................................... 59 23

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ................................ 78 30

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ....................................... 89 97

4 ............................. Electric: Heat Traps + 3 Inch Insulation + Plastic Tank ......................................................... 26 ¥82

Natural Gas: Heat Traps + Flue Baffles (80 % RE) + 3 Inch Insulation + Side Arm Heater

+ Plastic Tank + IID.

18 ¥244

LP Gas: Heat Traps + Flue Baffles (80 % RE) + 3 Inch Insulation + Side Arm Heater +

Plastic Tank + IID.

37 ¥122

Another LCC analysis we conducted

is the Consumer Subgroup analysis.

This analysis examines the economic

impacts on different groups of

consumers by estimating the average

change in LCC and by calculating the

fraction of households that would

benefit. We analyzed the potential effect

of standards for households with low

income levels and for senior-only

households, two consumer subgroups of

interest identified by DOE and

supported by stakeholders. We present

the results of the analysis in Table 3.

TABLE 3.—CONSUMER SUBGROUP LCC SAVINGS AND PERCENT OF HOUSEHOLDS BENEFITTING

Product class

Trial

standard

level

Total sample Delta LCC Low-income Delta LCC Senior-only Delta LCC

Ave. (1998$)

Fraction of

population

benefitting

(%)

Ave. (1998$)

Fraction of

population

benefitting

(%)

Ave. (1998$)

Fraction of

population

benefitting

(%)

Electric ....................................... 1 36 90 35 90 39 92

2 32 68 28 67 39 72

3 23 59 7 54 33 64

4 ¥82 26 ¥105 22 ¥60 31

Natural Gas ................................ 1 30 78 30 78 34 82

2 11 64 ¥1 55 17 68

3 30 78 30 78 34 82

4 ¥244 18 ¥268 15 ¥194 20

LPG ............................................ 1 97 89 110 93 108 92

2 77 78 88 80 87 80

3 97 89 110 93 108 92

4 ¥122 37 ¥53 37 ¥34 38

The two consumer subgroups show a

similar trend in average LCC savings

and percent of sample households

benefitting as the total sample of

households. In the case of electric water

heaters, the low income consumer group

has less benefit at all trial standard

levels than the total sample of

households while the senior-only

consumer group has greater benefit at all

trial standard levels than the total

sample of households. In households

with natural gas-fired water heaters, low

income households have the same

benefit for trial standard levels 1 and 3

and less benefit for trial standard levels

2 and 4 than the total sample of

households. The senior-only households

with natural gas water heaters have

greater benefits at all trial standard

levels than the total sample of

households. Both low income and

senior-only households have greater

benefits at all trial standard levels with

propane gas.

We have noted the LCC savings for

the senior-only subgroup are similar to

those of the general population. Since

the elderly use 30 percent less hot water

on average than the general population,

one would expect their costs to be

lower, and as a result, the LCC effect to

be different. However, the standby

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4489

losses of water heaters, which are not

affected by hot water usage, are the

same for the elderly and the general

population. Therefore, since most of the

design options considered affect

standby losses and not water heating

efficiency, we expect the distribution of

LCC impacts for the elderly to be similar

to the general population, which they

were.

2. Median Payback. A part of the LCC

analysis is the payback analysis. The

LCC payback analysis considers all of

the design option combinations for each

fuel type and calculates a payback for

each RECS household. We report the

median payback from the distribution of

paybacks for each trial standard level in

Table 4. The median payback is the

median number of years required to

recover, in energy savings, the increased

costs of the efficiency improvements.

TABLE 4.—MEDIAN AND TEST PROCEDURE PAYBACK (YEARS)

[HFC–245fa blown insulation]

Trial standard level Design options Median

payback

Test procedure

payback 1

1 ............... Electric: Heat Traps + Tank Bottom Insulation ................................................................................................... 2.9 1.5

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ............................................................ 3.6 3.4

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ................................................................... 2.8

2 ............... Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation .................................................................... 6.5 3.7

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2.5 Inch Insulation ......................................................... 5.0 4.9

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2.5 Inch Insulation ................................................................ 4.0

3 ............... Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ................................................................. 7.4 5.2

Natural Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ............................................................ 3.6 3.4

.

LP Gas: Heat Traps + Flue Baffles (78 % RE) + 2 Inch Insulation ................................................................... 2.8

4 ............... Electric: Heat Traps + 3 Inch Insulation + Plastic Tank ..................................................................................... 14.4 9.8

Natural Gas: Heat Traps + Flue Baffles (80 % RE) + 3 Inch Insulation + Side Arm Heater + Plastic Tank +

IID.

12.1 10.5

LP Gas: Heat Traps + Flue Baffles (80 % RE) + 3 Inch Insulation + Side Arm Heater + Plastic Tank + IID .. 8.3

1Electric—50 gallon; Gas—40 gallon

3. Rebuttable Presumption. The Act

states that if the Department determines

that the payback period is less than

three years, as calculated with the DOE

test procedure, there shall be a

rebuttable presumption that such trial

standard level is economically justified.

In Table 4, we list the payback periods

by fuel type (product class) and trial

standard levels. The Act further states

that if this three year payback is not

met, this determination shall not be

taken into consideration in deciding

whether a standard is economically

justified. Section 325(o)(2)(B)(iii), 42

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

Only electric water heaters at trial

standard level one satisfy the rebuttable

presumption. Electric water heaters

with heat traps and insulated tank

bottoms have a 1.9 year payback

calculated under the test procedure.

There are no trial standard levels for

natural gas water heaters that have a

payback of three years or less.

4. Economic Impact on

Manufacturers. We performed an MIA

to determine the impact of standards on

manufacturers. The complete analysis is

in Chapter 13 of the TSD. In general,

manufacturers stated they would be able

to manufacture any of the design

options with heat traps, thicker

insulation, tank bottom insulation on

electric and improved flue baffles on

gas-fired water heaters. None of the

manufacturers indicated they would

leave the industry or go out of business

as a result of standard levels that would

require energy factors below plastic

tanks or side-arm heaters (i.e., trial

standard levels one through three).

We conducted detailed interviews

with four of the five major water heater

manufacturers. (The fifth manufacturer

declined to participate in our second

interviews.) The five together supply

more than 99 percent of the U.S.

residential water heater market. The

interviews provided valuable

information used to evaluate the

impacts of an amended standard on

manufacturers’ cash flows,

manufacturing capacities and

employment levels.

We analyzed the water heater

industry using two business scenarios.

The standards scenario represents the

investments needed to meet the energy

efficiency level of a trial standard level.

The cumulative scenario includes the

investments required for energy

efficiency improvement, changes to a

new blowing agent and the development

and manufacture of a gas-fired water

heater resistant to ignition of flammable

vapors. Additionally, we examined the

ability of manufacturers to recover the

investments required for each of the

scenarios and trial standard levels.

The potential value of the water

heater industry, represented by the

Industry Net Present Value (INPV) ($325

million in 1998 dollars), is directly

related to the manufacturers’ price to

the dealer/distributor. Since all five of

the major manufacturers produce both

gas-fired and electric water heaters, the

industry is highly competitive in terms

of manufacturer’s pricing. Manufacturer

prices are expected to increase from the

current average cost to the dealer/

distributor of $157 to a range of $187–

292 for trial standard levels one through

four. Based on comments from the

interviews, we assume manufacturers

will raise prices enough to recover the

costs of materials, labor and

transportation and 75 percent of their

investment. If manufacturers increased

water heater distributor prices slightly

more, from $0.13 for trial standard level

one to $2.00 for trial standard level four,

they would recover all of their

investment. Table 5 shows the results of

the cash flow analysis with these

assumptions.

4490 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

TABLE 5.—MANUFACTURER IMPACT ANALYSIS

Trial std level INPV ($ millions)

Change in INPV Investment required ($ mil-

(%) ($ millions) lions)

Standard Scenario, HFC–245fa blown insulation

Base Case ................................................................................................................... 325 000

1 ................................................................................................................................... 317 ¥3 ¥8 33

2 ................................................................................................................................... 310 ¥5 ¥15 60

3 ................................................................................................................................... 310 ¥5 ¥15 59

4 ................................................................................................................................... 268 ¥18 ¥57 229

Cumulative Scenario, HFC–245fa blown insulation

Base Case ................................................................................................................... 325 000

1 ................................................................................................................................... 288 ¥12 ¥37 149

2 ................................................................................................................................... 281 ¥14 ¥44 176

3 ................................................................................................................................... 281 ¥14 ¥44 176

4 ................................................................................................................................... 239 ¥27 ¥86 345

From Table 5, we note energy

efficiency standards could result in

losses of industry net present value from

about $8 million to $57 million (3–

18%), while requiring investments of

$33 million to $229 million. However,

even if DOE did not revise energy

efficiency standards, other Federal

regulatory actions that will take effect

on or before January 1, 2003, will result

in a $29 million loss (9%) in industry

NPV. This loss exceeds any of DOE’s

trial standard levels except level four.

As required by the Process Rule, 10 CFR

Part 430, Subpart C, Appendix A

10(g)(1), DOE considered the cumulative

impacts of other Federal regulatory

actions on the trial standard levels,

including the phase out of HCFC–141b

and the CPSC initiative to prevent the

ignition of flammable vapors on gasfired water heaters. These cumulative

losses range from $37 million to 86

million. The investments to prevent

ignition of flammable vapors and for

new blowing agents are $116 million.

The investments for cumulative

regulations are potentially large given

the current after tax profitability of the

water heater industry, estimated to be

$45 million (1998) on revenues of $1.5

billion.

Based on DOE’s interviews,

manufacturers expect little impact on

manufacturing capacity and expect to

meet future demand since the revised

standards are not based on side-arm gasfired water heaters and plastic tank

electric units. Currently, the U.S.

industry has far more manufacturing

capacity than the domestic market can

absorb. Manufacturers estimated the

industry is operating at approximately

80 percent of total capacity. Due to the

phase-out of HCFC–141b insulation

blowing agent and a requirement for a

gas-fired water heater resistant to

ignition of flammable vapors, it is likely

that nearly every product line would

have to be redesigned, retested and recertified. Several manufacturers

indicated a preference to retool for new

blowing agents, energy-efficiency

standards and flammable vapor-resistant

designs at the same time, to avoid

redundant efforts and limit costs.

We also used the manufacturers’

interviews to assess employment

impacts due to an amended energy

efficiency standard. Manufacturers

expected the impact of new blowing

agents and flammable vapor resistant

designs on labor to be minimal, neither

increasing nor reducing employment

levels by more than a few employees.

Since the revised efficiency levels do

not require the adoption of side arm

heaters or plastic tanks, manufacturers

do not anticipate significant changes in

employment levels or training

requirements. Additionally, we believe

market growth of 2.5 percent per year

for new homes and modest productivity

gains ensure current employment levels

for the foreseeable future. In our

analysis, yearly water heater shipments

range from 9.7 million in 2000 to 19.2

in 2030. Furthermore, a replacement

market that increases by about 1/10th of

the new home market each year ensures

future demand.

B. Significance of Energy Savings

The Act prohibits the Department

from adopting a standard for a product

if that standard would not result in

‘‘significant’’ energy savings. Section

325(o)(3)(B), 42 U.S.C. 6295(o)(3)(B).

While the term ‘‘significant’’ is not

defined in the Act, the U.S. Court of

Appeals, in Natural Resources Defense

Council v. Herrington, 768 F.2d 1355,

1373 (D.C. Cir. 1985), concluded that

Congressional intent in using the word

‘‘significant’’ was to mean ‘‘non-trivial.’’

The energy savings for all of the trial

standard levels considered in this

rulemaking are non-trivial and therefore

we consider them ‘‘significant’’ within

the meaning of Section 325 of the Act.

1. National Energy Savings. To

estimate the energy savings through the

year 2030 due to amended standards,

we compared the energy consumption

of water heaters in the 2004 base case

to the energy consumption of water

heaters complying with the trial

standard levels. DOE calculates these

energy savings at the source using the

NEMS–BRS distribution and generation

losses. Table 6 shows these results for

water heaters with HFC–245fa blown

insulation.

TABLE 6.—SOURCE ENERGY SAVINGS WITH HFC–245FA BLOWN INSULATION (QUADS)

Trial std 1 Trial std 2 Trial std 3 Trial std 4

Total quads saved ........................................................................................... 3.33 4.47 4.61 11.46

Total exajoules saved ...................................................................................... 3.51 4.72 4.86 12.09

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4491

All of the trial standard levels

considered in this rulemaking have

significant energy savings, ranging from

3.3 quads (3.5 Exajoules (EJ)) to 11.5

quads (12.1 EJ), depending on the trial

standard level.

2. National Net Present Value (NPV).

Additionally, we analyzed the economic

impact on the nation to the year 2030.

This is an NPV analysis using the AEO

2000 reference energy prices. Table 7

lists the NPV for HFC–245fa blown

insulation. The NPV considers the

combined discounted energy savings

minus increased consumer costs of the

four fuel types of equipment at a

particular trial standard level. We base

this calculation on all expenses and

savings occurring between 2004 and

2030.

TABLE 7.—NATIONAL NET PRESENT VALUE

Trial standard level NPV—HFC–245fa

($ billions)

1 ....................................................................................................................................................................... 1.20

2 ....................................................................................................................................................................... ¥0.13

3 ....................................................................................................................................................................... 2.02

4 ....................................................................................................................................................................... ¥24.94

The national NPV is positive for trial

standard levels one and three and

essentially 0 for trial standard level 2. In

this analysis, a positive NPV means that

the estimated energy savings are greater

than the increased costs due to

standards. Among the trial standard

levels analyzed, trial standard level

three has the highest NPV.

C. Lessening of Utility or Performance of

Products

None of the trial standard levels

reduces the performance of water

heaters. Generally, the trial standard

levels reduce heat losses and improve

heat exchanger effectiveness. These

changes improve energy and water

heating performance and may increase

the amount of water available in one

hour, i.e., the first hour rating.

However, to reduce heat losses, it may

be necessary to use thicker insulation.

At the trial standard level adopted in

today’s rule, DOE contemplates

insulation thicknesses of 2–2.5 inches

versus the 1–2 inches in common use

today. This extra thickness of insulation

will make water heaters larger and more

difficult to squeeze into tight spaces

when replacing a water heater. DOE

added costs for tempering valves for a

number of gas and electric water heaters

where we believed there could be some

loss of utility due to the need to

downsize a water heater. Tempering

valves allow the consumer to increase

the setpoint, thus increasing the amount

of cold water used to provide a

comfortable and safe usable water

temperature. The addition of cold water

increases the first hour rating.

Therefore, the consumer will not lose

any utility or performance.

To eliminate the possibility of any

water heater models becoming

unavailable as a result of thicker

insulation, we created a new class for

tabletop water heaters based on the

criteria in Section 325(q), 42 U.S.C.

6295(q) in the Act. These issues are

discussed in Section II. General

Discussion, ‘‘Lessening of Utility or

Performance of Products.’’

D. Impact of Lessening of Competition

The Act directs the Department to

consider any lessening of competition

that is likely to result from standards. It

further directs the Attorney General to

determine the impact, if any, on

competition likely to result from such

standard and transmit such

determination, not later than 60 days

after the publication of a proposed rule

to the Secretary, together with an

analysis of the nature and extent of such

impact. Section 325(o)(2)(B)(i)(V), 42

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

In order to assist the Attorney General

in making such a determination, the

Department provided the Attorney

General with copies of the Proposed

Rule and the Technical Support

Document for review. In a letter

responding to the Proposed Rule, the

Department of Justice (DOJ) found only

one area of concern regarding any

lessening of competition. The area of

concern involves the blowing agent for

the foam insulation and the possibility

that only one blowing agent, HFC–

245fa, could be used and that it is a

patented product with only one

supplier. This situation led DOJ to

conclude ‘‘that the proposed standards

could have an adverse affect on

competition because water heater

manufacturers may have to use an input

that will be produced by only one

source.’’ (DOJ, No. 143 at 1).

DOE examined other possible blowing

agents and concluded that at least four

blowing agents are available to use in

meeting the standards adopted in

today’s Final Rule. Therefore, the

Department concludes there will be

little to no impact on competition. See

Section II, General Discussion, ‘‘Impact

of Lessening of Competition’’ for the

complete discussion of this topic.

E. Need of the Nation to Save Energy

and Net National Employment

1. Environmental Impacts. Enhanced

energy efficiency improves the Nation’s

energy security, strengthens the

economy and reduces the

environmental impacts of energy

production. The energy savings from

water heater standards result in reduced

emissions of CO2 and NOX and aids in

addressing global climate change and

reducing air pollution. At the standard

levels analyzed, the actual cumulative

emission reductions to 2030 range from

149–354 Mt for carbon equivalent, 175–

459 thousand metric tons (kt) for NOX,

and ¥3 to ¥64 kt for SO2. The large

reductions in CO2 and NOX at all

standard levels are a positive benefit to

the nation. The small increases

(negative reductions) in SO2 are due to

small increases in the number of oilfired water heaters from our shipment

forecasts. We show actual cumulative

emissions savings from 2004–2030 in

Table 8.

TABLE 8.—ACTUAL CUMULATIVE EMISSIONS REDUCTIONS THROUGH 2030

Emission Trial std level

1

Trial std level

2

Trial std level

3

Trial std level

4

Carbon (Mt) ...................................................................................................... 149 139 152 354

4492 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

TABLE 8.—ACTUAL CUMULATIVE EMISSIONS REDUCTIONS THROUGH 2030—Continued

Emission Trial std level

1

Trial std level

2

Trial std level

3

Trial std level

4

NOX (kt) ........................................................................................................... 175 215 273 459

SO2 (kt) ............................................................................................................ **¥3 **¥11 **¥13 **¥64

** Results only include household SO2 emissions reductions because SO2 emissions from power plants are capped by clean air legislation.

Thus, SO2 emissions will only be negligibly affected by water heater standards.

The Department makes no effort to

monetize the benefits of the actual

emission reductions, but there may be

time-related differences in the perceived

value of the emissions depending on

when they occur, as with monetized

benefits that accumulate over time.

Emission reductions that occur sooner

are often more desirable than equivalent

reductions that occur later. Like

monetary benefits, the health,

recreational and ecosystem benefits that

result from emission reductions are

often perceived to have a greater value

if they occur sooner, rather than later.

To the extent that the different trial

standard levels have slightly different

shipment distributions over time, some

trial standard levels might have a

slightly higher proportion of earlier

emission reductions than another trial

standard level.

To show the possible effect of the

different timing patterns of the

emissions, the Department is also

presenting discounted emissions. We

used the same seven percent discount

rate for these calculations that we used

for discounting monetized benefits.

Since the discounted emission

reductions in carbon shift slightly from

trial standard level 3 to trial standard

level 1, this indicates trial standard

level 1 has a slight timing improvement

in emission reductions. There is no

similar shift in either the NOX or SO2

levels. We show the discounted

cumulative emission savings from

2004–2030 in Table 9.

TABLE 9.—DISCOUNTED CUMULATIVE EMISSIONS REDUCTIONS THROUGH 2030

Emission Trial std

level 1

Trial std

level 2

Trial std

level 3

Trial std

level 4

Carbon (Mt) ...................................................................................................... 51 46 50 118

NOX (kt) ........................................................................................................... 53 67 90 131

SO2 (kt) ............................................................................................................ **¥1 **¥3 **¥4 **¥17

** Results only include household SO2 emissions reductions because SO2 emissions from power plants are capped by clean air legislation.

Thus, SO2 emissions will only be negligibly affected by water heater standards.

2. Net National Employment. In the

Process Rule, DOE committed to

develop estimates of the employment

impacts of revised standards in the

economy in general. The standard

adopted in today’s rule will have a

positive impact on employment. The

results of the Department’s analysis are

shown in Chapter 15 of the TSD.

While both this input/output model

and the direct use of Bureau of Labor

Statistics (BLS) employment data

suggest the revised water heater

standards could increase the net

demand for labor in the economy, the

gains would most likely be very small

relative to total national employment.

For several reasons, however, even these

modest benefits for national

employment are in doubt:

• Unemployment is now at the lowest

rate in 30 years. If unemployment

remains very low during the period

when the revised standards are put into

effect, it is unlikely that the standards

could result in any net increase in

national employment levels.

• Neither the BLS data nor the inputoutput model used by DOE include the

quality or wage level of the jobs. One

reason that the demand for labor

increases in the model may be that the

jobs expected to be created pay less than

the jobs being lost. The benefits from

any potential employment gains would

be reduced if job quality and pay are

reduced.

• The net benefits from potential

employment changes are a result of the

estimated net present value of benefits

or losses likely to result from the revised

standards; it may not be appropriate to

separately identify and consider any

employment impacts beyond the

calculation of net present value.

Taking into consideration these

legitimate concerns regarding the

interpretation and use of the

employment impacts analysis, the

Department concludes only that the

proposed water heater standards are

likely to produce employment benefits

that are sufficient to offset fully any

adverse impacts on employment in the

water heater or energy industries.

F. Conclusion

1. Comments on Standard Levels.

Several stakeholders made specific

recommendations for standard levels

during the workshops held prior to

publication of the proposed rule or after

publication of the proposed rule. We list

these below to show the range of

standard levels stakeholders believe are

economically justified and technically

feasible. In the formula for water heater

standards, the letter ‘‘V’’ stands for rated

volume as given in the statute.

The American Gas Association

recommended EF =0.64—0.0019V for

gas water heaters. (AGA, No. 110 at 2)

ACEEE recommended EF =0.98—

0.00132V for electric and EF =0.69—

0.0019V for gas water heaters. (ACEEE,

No. 71 at 9). The water heater

manufacturer Bradford White

recommended EF =0.94—0.0013V for

electric, EF =0.65—0.0019V for gas and

no change for oil-fired water heaters.

(Bradford White, No. 108 at 7) The City

of Palo Alto recommended EF =0.64—

0.0019V for gas water heaters. (City of

Palo Alto, No. 136 at 2) The Edison

Electric Institute recommended EF

=0.66—0.0019V for gas water heaters.

(EEI, No. 105 at 3). The Electric Power

Research Institute recommended EF

=0.95—0.00132V for electric water

heaters. (EPRI, No. 104 at 3). GAMA

recommended EF =0.95—0.00132V for

electric and EF =0.65—0.0019V for gas

water heaters. (GAMA, No. 71 at 3 & 4).

The Northwest Power Planning Council

recommended EF =0.97—0.00132V for

electric and EF =0.68—0.0019V for gas

water heaters. (NWPPC, No. 163 at 4).

The efficiency standards recommended

in these comments are based on the

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4493

analysis for the proposed rule and other

information available to these

organizations making recommendations.

2. Proposed Revised Standard.

Section 325(o)(2)(A), 42 U.S.C.

6295(o)(2)(A), of the Act specifies that

any new or amended energy

conservation standard for any type (or

class) of covered product shall be

designed to achieve the maximum

improvement in energy efficiency which

the Secretary determines is

technologically feasible and

economically justified. In determining

whether a standard is economically

justified, the Secretary must determine

whether the benefits of the standard

exceed its burdens. Section

325(o)(2)(B)(i), 42 U.S.C.

6295(o)(2)(B)(i). The amended standard

must ‘‘result in significant conservation

of energy.’’ Section 325(o)(2(B)(iii)(3)(B),

42 U.S.C. 6295(o)(B)(iii)(3)(B). The

Secretary has eliminated the maximum

technologically feasible levels for

electric and gas-fired water heaters and

has eliminated any revised standard

levels for oil-fired water heaters based

on the analysis in the proposed rule. All

of the design options included in our

analysis are technologically feasible

since they are commercially available.

We consider the impacts of standards

on gas and electric water heaters at each

of four standard levels, beginning with

the most efficient level, i.e., standard

level four. We then consider less

efficient levels. Standard levels two and

three are different combinations of

efficiency levels for electric and gas

water heater classes. For gas-fired water

heaters, standard levels one and three

are the same, though at lower efficiency

than that found in standard level two.

For electric water heaters, no standard

levels are repeated and the efficiency of

each succeeding standard level is

higher. For oil fired water heaters, there

are no changes from the current levels

so this class is not shown but they were

included in the analysis. By combining

efficiency levels in this way, the

Department is able to evaluate the

impacts of different combinations of

standard levels to make an informed

decision on the merits of different

efficiency combinations.

To aid the reader as we discuss the

benefits or burdens of the trial standard

levels we have included a summary of

the analysis results in Table 10.

TABLE 10.—SUMMARY ANALYSIS RESULTS BASED ON HFC–245FA BLOWN INSULATION

Trial Std

1

Trial Std

2

Trial Std

3

Trial Std

4

Total Quads Saved .......................................................................................... 3. 4.5 4.6 11.5

NPV ($Billion) .................................................................................................. 1.2 ¥0.1 2.0 ¥24.9

Emissions:

Carbon Equivalent (Mt) ............................................................................ 149 139 152 354

NOX (kt) .................................................................................................... 175 215 273 459

SO2 (kt) ..................................................................................................... **¥3 **¥11 **¥13 **¥64

Cumulative Change in INPV ($ Million) .................................................... ¥8 ¥15 ¥15 ¥57

Life Cycle Cost ($):

Electric ...................................................................................................... 36 32 23 ¥82

Natural Gas .............................................................................................. 30 11 30 ¥244

Propane Gas ............................................................................................ 97 77 97 ¥122

** Results only include household SO2 emissions reductions because SO2 emissions from power plants are capped by clean air legislation.

Thus, SO2 emissions will only be negligibly affected by possible water heater standards.

We first considered trial standard

level four, the most efficient level for

the two classes. Trial standard level four

saves about 11.5 quads of energy, a

significant amount. The emissions

reductions of 354 Mt of carbon

equivalent and 459 kt of NOX are

significant. There is a 64 kt increase in

household emissions of SO2 due to

increased shipments of oil-fired water

heaters. However, at this level,

consumers experience negative LCC

impacts. They would lose $82 with

electric water heaters, $244 with natural

gas water heaters and $122 with

propane gas water heaters. Furthermore,

the water heater industry would lose 27

percent of its value and the nation

would have a loss in NPV of nearly $25

billion. The Department concludes the

resulting energy savings and emission

reductions at this level are outweighed

by the negative economic impacts on

the nation, consumers and

manufacturers. Consequently, the

Department concludes trial standard

level four is not economically justified.

Next, we considered trial standard

level three. This trial standard level

saves about 4.6 quads of energy, a

significant amount. The emissions

reductions are significant: 152 Mt of

carbon equivalent and 273 kt of NOX.

There is a 13 kt increase in household

emissions of SO2 due to a slight increase

in shipments of oil-fired water heaters.

The national NPV of trial standard level

three is $2.0 billion from 2004–2030.

The economic benefits to consumers

are significant. The average LCC savings

for consumers with electric, natural gas

and propane gas water heaters are $23,

$30 and $97, respectively. In trial

standard level three, 78 percent of

households with natural gas-fired water

heaters have LCC savings, for an average

savings of $55, while 22 percent

experience LCC losses, for an average

loss of $54. In households with propane

gas water heaters, the average LCC

savings are $117 for 89 percent of the

households while only eleven percent

experience an average loss of $61. For

households with electric water heaters,

59 percent have average LCC savings of

$80, while 41 percent experience an

average LCC loss of $59.

For electric water heaters, the analysis

predicts that 41 percent of all

consumers would experience no change

or some net cost with more efficient

electric water heaters. However, we

believe that there are costs or savings

near the point of zero change in LCC

that consumers would be unable to

distinguish in their yearly expenses. We

have chosen ±2 percent of average

baseline LCC as the band of no

consumer impact. We believe this small

percentage, regardless of the actual total

LCC, is insignificant to the consumer

because these LCC costs or savings are

spread over monthly utility bills for the

life of the water heater. By applying a

two percent band of average LCC, we

can clearly show the significant net

savings and net costs associated with a

trial standard level. This permits a more

informed decision based on weighing

the significant benefits and burdens in

terms of consumer impact. The resulting

ranges are shown in Figure 9.6.2 in the

TSD.

4494 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

4As DOE has determined, the benefits of today’s

final rule outweigh the $15 million loss to the

industry. To review the support for this

determination, see the TSD at Chapters 12.5 and

Table 12.1, 13.3.3.5 and Table 13.8, 13.3.4, and

13.3.5.

5The final standard is based on insulation blown

with HFC–245fa. We also compared the engineering

cost and performance for two alternative blowing

agents, HFC–134a and cyclopentane. All three

blowing agents are EPA–SNAP approved but there

are concerns about availability and a single source

supplier with HFC–245fa. However, since

engineering results are within two percent of HFC–

245fa, we conclude that the use of either of these

alternative blowing agents would not change our

decision.

We will use ±2 percent of baseline

LCC to indicate no impact, positively or

negatively, on consumers. Therefore,

only fifteen percent of consumers with

electric water heaters or twelve percent

of consumers with natural gas water

heaters or five percent of consumers

with propane gas water heaters sustain

any significant net costs under standard

level 3. Similarly, 30 percent of

consumers with electric water heaters or

52 percent of consumers with natural

gas water heaters or 69 percent of

consumers with propane gas water

heaters have significant net savings.

Two percent of average baseline LCC

equals $56 for electric water heaters.

Over the average life of 14 years for an

electric water heater, this is less than $4

per year. For consumers with natural

gas and propane gas water heaters, two

percent of average baseline LCC is $31

and $47, respectively. Over the average

life of 9 years for gas water heaters, this

is less than $4 per year for natural gas

and less than $6 per year for propane

gas. We believe this is a small amount

in terms of yearly expenditures and will

not adversely impact consumers’

purchase decisions about water heaters,

or their financial positions.

Additionally, low-income and senioronly consumer subgroups exhibit

similar distributions of costs and

savings. A similar small percentage of

low-income or senior only consumers

are affected by higher costs.

The industry will lose about five

percent ($15 million) of its INPV due to

energy efficiency standards. These

losses are more than balanced by NPV

gains to the nation of $2.0 billion, or 135

times the industry losses. Industry

losses for trial standard level three due

to all Federal actions (CPSC, EPA and

DOE) are fourteen percent of its INP, or

$44 million. Even this level of losses is

offset by gains to the nation that are 46

times the industry losses.4 Based on the

manufacturer interviews, DOE believes

there will not be any plant closures or

employee layoffs.

In determining the economic

justification of trial standard level three,

the Department has weighed the

benefits of energy savings, reduced

average consumer LCC, significant and

positive NPV, and emissions reductions

and the burdens of a loss in

manufacturer net present value, and

consumer LCC increases for some

households. After carefully considering

the results of the analysis, DOE has

determined the benefits of trial standard

level three outweigh its burdens and is

economically justified. The Department

also concludes trial standard level three

saves a significant amount of energy and

is technologically feasible.5 Therefore,

the Department today adopts amended

energy conservation standards for water

heaters at trial standard level three.

VI.Procedural Issues and Regulatory

Reviews

A. Review Under the National

Environmental Policy Act

In issuing the March 4, 1994,

Proposed Rule for energy efficiency

standards for eight products, one of

which was water heaters, the

Department prepared an Environmental

Assessment (DOE/EA–0819) that was

published within the TSD for that

Proposed Rule. (DOE/EE–0009,

November 1993). We found the

environmental effects associated with

various standard levels for water

heaters, as well as the other seven

products, to be not significant, and we

published a Finding of No Significant

Impact (FONSI). 59 FR 15868 (April 5,

1994).

In conducting the analysis for the

Proposed Rule upon which today’s

Final Rule is based, the DOE evaluated

several design options suggested in

comments to the screening document.

As a result, the energy savings estimates

and resulting environmental effects

from revised energy efficiency standards

for water heaters in that analysis differ

somewhat from those presented for

water heaters in the 1994 Proposed

Rule. Nevertheless, the environmental

effects expected from today’s Final Rule

fall within the ranges of environmental

impacts from the revised energy

efficiency standards for water heaters

that DOE found in the 1994 FONSI not

to be significant.

B. Review Under Executive Order 12866,

‘‘Regulatory Planning and Review’s

The Department has determined

today’s regulatory action is an

‘‘economically significant regulatory

action’’ under Executive Order 12866,

‘‘Regulatory Planning and Review.’’ 58

FR 51735 (October 4, 1993).

Accordingly, today’s action was subject

to review under the Executive Order by

the Office of Information and Regulatory

Affairs (OIRA) of the Office of

Management and Budget.

There were no substantive changes

between the draft we submitted to OIRA

and today’s action. The draft and other

documents we submitted to OIRA for

review are a part of the rulemaking

record and are available for public

review in the Department’s Freedom of

Information Reading Room, 1000

Independence Avenue, SW,

Washington, DC 20585, between the

hours of 9:00 a.m. and 4:00 p.m.,

Monday through Friday, except Federal

holidays, telephone (202) 586–3142.

The proposed rule contained a

summary of the Regulatory Impact

Analysis (RIA), which focused on the

major alternatives considered in arriving

at the approach to improving the energy

efficiency of consumer products. The

reader is referred to the complete RIA,

which is contained in the TSD, available

as indicated at the beginning of this

notice. It 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) the economic

impact of the proposed standard.

The RIA calculates the effects of

feasible policy alternatives to water

heater energy efficiency standards, and

provides a quantitative comparison of

the impacts of the alternatives. We

evaluate each alternative in terms of its

ability to achieve significant energy

savings at reasonable costs, and we

compare it to the effectiveness of trial

standard level 3 adopted by today’s

Final Rule.

We created the RIA using a series of

regulatory scenarios (with various

assumptions), which we used as input

to the shipments model for water

heaters. We used the results from the

shipments model as inputs to the NES

spreadsheet calculations.

DOE identified the following seven

major policy alternatives for achieving

consumer product energy efficiency.

These alternatives include:

• No New Regulatory Action.

• Informational Action.

• Product Labeling.

• Consumer Education.

• Prescriptive Standards.

• Financial Incentives.

—Tax credits

—Rebates

—Low income and seniors subsidy

• Voluntary Energy Efficiency Targets

(5 Years, 10 Years).

• Mass Government Purchases.

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4495

• The Proposed Approach

(Performance Standards).

We have evaluated each alternative in

terms of its ability to achieve significant

energy savings at reasonable costs

(Table 11), and have compared it to the

effectiveness of this Final Rule.

TABLE 11.—ALTERNATIVES CONSIDERED

Policy alternatives NPV

$ in billions

Energy savings

quads

Consumer Product Labeling ............................................................................................................................ ¥$0.003 0.08

Consumer Education ....................................................................................................................................... 0.40 0.49

Prescriptive Standards ..................................................................................................................................... 0.99 0.74

Consumer Tax Credits ..................................................................................................................................... 0.18 0.14

Consumer Rebates High Efficiency ................................................................................................................. 0.18 0.14

Consumer Rebates Heat Pump ...................................................................................................................... 0.85 0.50

Low Income and Seniors Subsidy ................................................................................................................... 0.05 0.37

Manufacturer Tax Credits ................................................................................................................................ 0.04 0.03

Voluntary Efficiency Target (5 year delay) ...................................................................................................... 0.92 2.8

Voluntary Efficiency Target (10 year delay) .................................................................................................... 0.47 2.1

Mass Government Purchases ......................................................................................................................... 0.01 0.06

Performance Standards ................................................................................................................................... 2.0 4.6

NPV = Net Present Value (2003–2030, in billion 1998 $) (does not include government expenses)

Savings = Energy Savings (Source Quads)

For a complete discussion of the

assumptions used to develop the

alternative regulatory impacts, see the

proposed rule. 65 FR 25042, 25080–

25081 (April 28, 2000). All of these

alternatives must be gauged against the

performance standards in this Final

Rule. The results in Table 11 above

show that none of the alternative

regulatory approaches meet or exceed

the estimated national cost and energy

savings from revised energy efficiency

standards. Additionally, several of the

alternatives would require new enabling

legislation, since authority to carry out

those alternatives does not exist

presently.

C. Review Under the Regulatory

Flexibility Act

The Regulatory Flexibility Act of

1980, 5 U.S.C. 601–612 requires an

assessment of the impact of regulations

on small businesses. The Small

Business Administration’s definition for

a small business in the water heater

industry is one that employs 500 or

fewer employees.

The water heater industry is

characterized by five firms accounting

for nearly 99 percent of sales. Smaller

businesses and firms, which make

specialty water heaters and supply

niche markets, share one percent of the

market. We are aware of three small

firms: Bock Water Heaters, Heat

Transfer Products, and Vaughn.

Of the three small firms, Bock

manufactures oil-fired water heaters that

have not been affected by this rule.

Therefore, Bock will not suffer any

adverse impacts due to the rule. The

other two firms, Heat Transfer and

Vaughn, both make electric water

heaters that are affected by this rule. In

the GAMA directory, these firms only

list electric water heaters that meet or

exceed the standard level in this rule.

Although the rule raises the standard

level enough to impact their niche

market for high efficiency electric water

heaters, these manufacturers also

manufacture very long life products that

incorporate other features which will

help them preserve their niche market.

The Department has taken this into

consideration in this rulemaking.

The Department prepared a

manufacturing impact analysis that it

shared with all the water heater

manufacturers. The smaller

manufacturers did not choose to discuss

the impacts of the trial standard levels

on their firms.

In view of the information discussed

above, the Department has determined

and hereby certifies pursuant to Section

605(b) of the Regulatory Flexibility Act

that, for this particular industry, the

standard levels in today’s Final Rule

will not ‘‘have a significant economic

impact on a substantial number of small

entities,’’ and it is not necessary to

prepare a regulatory flexibility analysis.

D. Review Under the Paperwork

Reduction Act

No new information or record keeping

requirements are imposed by this

rulemaking that would require Office of

Management and Budget clearance

under the Paperwork Reduction Act. 44

U.S.C. 3501 et seq.

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’’

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 (February 7, 1996),

imposes on Executive agencies the

general duty to adhere to the following

requirements: (1) Eliminate drafting

errors and ambiguity; (2) write

regulations to minimize litigation; (3)

provide a clear legal standard for

affected conduct rather than a general

standard; and (4) promote simplification

and burden reduction.

With regard to the review required by

Section 3(a), 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 reviewed today’s

Final Rule under the standards of

Section 3 of the Executive Order and

determined that, to the extent permitted

by law, the final regulations meet the

relevant standards.

F. ‘‘Takings’’ Assessment Review

The Department has determined

pursuant to Executive Order 12630,

‘‘Governmental Actions and Interference

with Constitutionally Protected Property

4496 Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations

Rights,’’ 53 FR 8859 (March 18, 1988)

that this regulation would not result in

any takings that might require

compensation under the Fifth

Amendment to the United States

Constitution.

G. Review Under Executive Order

13132, ‘‘ Federalism’’

Executive Order 13132, 64 FR 43255

(August 4, 1999) requires agencies to

develop an accountable process to

ensure meaningful and timely input by

State and local officials in the

development of regulatory policies that

have ‘‘federalism implications.’’ Policies

that have federalism implications are

defined in the Executive Order to

include regulations that have

‘‘substantial direct effects 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.’’ Under Executive

Order 13132, DOE may not issue a

regulation that has federalism

implications, that imposes substantial

direct costs, and that is not required by

statute, unless the Federal government

provides the funds necessary to pay the

direct compliance costs incurred by the

State and local governments, or DOE

consults with State and local officials

early in the process of developing the

proposed regulation. DOE also may not

issue a regulation that has federalism

implications and that preempts State

law unless it consults with State and

local officials early in the process of

developing the proposed regulations.

The statutory authority under which

this Final Rule is being promulgated

specifically addresses the effect of

Federal rules on State laws or

regulations concerning testing, labeling

and standards. Section 327 of EPCA, as

amended, 42 U.S.C. 6297. Generally all

such State laws or regulations are

superceded by EPCA, unless specifically

exempted in Section 327. The

Department can grant a waiver of

preemption in accordance with the

procedures and other provisions of

Section 327(d) of the Act, as amended.

42 U.S.C. 6297(d). States can file

petitions for exemption from

preemption with the Secretary and have

their request reviewed on a case-by-case

basis.

DOE has examined today’s Final Rule

and has determined that although

revised water heater standards would

preempt State laws in this area, they

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. No further

action is required by Executive Order

13132.

H. Review Under the Unfunded

Mandates Reform Act of 1995

With respect to a proposed regulatory

action that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

(adjusted annually for inflation) in any

one year, Section 202(a) of the

Unfunded Mandates Reform Act of 1995

(UMRA), 2 U.S.C. 1531 et seq., requires

a Federal agency to publish a written

statement concerning estimates of the

resulting costs, benefits and other effects

on the national economy. 2 U.S.C.

1532(a), (b). UMRA also requires each

Federal agency to develop an effective

process to permit timely input by state,

local, and tribal governments on a

proposed significant intergovernmental

mandate. The Department’s consultation

process is described in a notice

published in the Federal Register. 62 FR

12820 (March 18, 1997). Today’s Final

Rule may impose expenditures of $100

million or more in a year in the private

sector. It does not contain a Federal

intergovernmental mandate.

Section 202 of UMRA authorizes an

agency to respond to the content

requirements of UMRA in any other

statement or analysis that accompanies

this Final Rule. 2 U.S.C. 1532(c). The

content requirements of Section 202(b)

of UMRA relevant to the private sector

mandate substantially overlap the

economic analysis requirements that

apply under Section 325(o) of EPCA, as

amended, and Executive Order 12866.

The Supplementary Information section

of the Notice of Final Rulemaking and

the analysis contained in the

‘‘Regulatory Impact Analysis’’ section of

the TSD for this Final Rule respond to

those requirements.

DOE is obligated by Section 205 of

UMRA, 2 U.S.C. 1535, to identify and

consider a reasonable number of

regulatory alternatives before

promulgating a rule for which a written

statement under Section 202 is required.

From those alternatives, DOE must

select the least costly, most costeffective or least burdensome alternative

that achieves the objectives of the rule,

unless DOE publishes an explanation of

why a different alternative is selected or

the selection of such an alternative is

inconsistent with law. As required by

Section 325(o) of EPCA, as amended, 42

U.S.C. 6295(o), today’s Final Rule

establishes energy conservation

standards for water heaters that are

designed to achieve the maximum

improvement in energy efficiency that

DOE has determined is both

technologically feasible and

economically justified. A full discussion

of the alternatives considered by DOE is

presented in the ‘‘Regulatory Impact

Analysis’’ section of the TSD for this

Final Rule.

I. Review Under the Treasury and

General Government Appropriations

Act of 1999

Section 654 of the Treasury and

General Government Appropriations

Act, 1999 (Pub. L. No. 105–277) requires

Federal agencies to issue a Family

Policymaking Assessment for any

proposed rule or policy that may affect

family well-being. Today’s Final Rule

would not have any impact on the

autonomy or integrity of the family as

an institution. Accordingly, DOE has

concluded that it is not necessary to

prepare a Family Policymaking

Assessment.

J. Review Under the Plain Language

Directives

Section 1(b)(12) of Executive Order

12866 requires that each agency draft its

regulations so that they are simple and

easy to understand, with the goal of

minimizing the potential for uncertainty

and litigation arising from such

uncertainty. Similarly, the Presidential

memorandum directs the heads of

executive departments and agencies to

use plain language in all proposed and

Final Rulemaking documents published

in the Federal Register.63 FR 31883

(June 1, 1998).

Today’s rule uses the following

general techniques to abide by Section

1(b)(12) of Executive Order 12866 and

the Presidential memorandum. 63 FR

31883 (June 1, 1998):

• Organization of the material to

serve the needs of the readers

(stakeholders).

• Use of common, everyday words.

• Shorter sentences and sections.

K. 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. DOE also will

submit the supporting analyses to the

Comptroller General (GAO) and make

them available to each House of

Congress. 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).

List of Subjects in 10 CFR Part 430

Administrative practice and

procedure, Energy conservation,

Household appliances.

Federal Register / Vol. 66, No. 11 / Wednesday January 17, 2001 / Rules and Regulations 4497

1We note that some manufacturers have

suggested that DOE underestimated the

performance capabilities of alternative blowing

agents. If these suggestions prove correct, water

heater manufacturers may in fact be able to comply

with the proposed standard for more models, while

using water-based blowing agents. We also note that

it’s possible that manufacturers may in fact be able

to engineer design options using water-based

blowing agents with a greater performance

capability or lower cost than they now anticipate.

Issued in Washington, DC, on December

26, 2000.

Dan Reicher,

Assistant Secretary, Energy Efficiency and

Renewable Energy.

For the reasons set forth in the

preamble, Part 430 of Title 10, Code of

Federal Regulations, is amended 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. Section 430, Appendix E to Subpart

B of Part 430 is amended in Section 1

by adding paragraph 1.16 to read as

follows:

Appendix E to subpart B of Part 430—

Uniform Test Method for Measuring the

Energy Consumption of Water Heaters

1. Definitions

* * * * *

1.16 Tabletop water heater means a

water heater in a rectangular box

enclosure designed to slide into a

kitchen countertop space with typical

dimensions of 36 inches high, 25 inches

deep and 24 inches wide.

* * * * *

3. Section 430.32(d) of subpart C is

amended by revising paragraph (d) to

read as follows:

§ 430.32 Energy and water

conservation standards and 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 1,

1990

Energy factor as of of April 15,

1991

Energy factor as of January 20,

2004

1. Gas-fired Water Heater ............. 0.62 ¥ (.0019 × Rated Storage

Volume in gallons).

0.62 ¥ (.0019 × Rated Storage

Volume in gallons).

0.67 ¥ (0.0019 × Rated Storage

Volume in gallons).

2. Oil-fired Water Heater ................ 0.59 ¥ (.0019 × Rated Storage

Volume in gallons).

0.59 ¥ (.0019 × rated Storage

Volume in gallons).

0.59¥(0.0019 × Rated Storage

Volume in gallons).

3. Electric Water Heater ................ 0.95 ¥ (0.00132 × Rated Storage

Volume in gallons).

0.93 ¥ (0.00132 × Rated Storage

Volume in gallons.

0.97¥(0.00132 × Rated Storage

Volume in gallons).

4. Tabletop Water Heater .............. 0.95 ¥ (0.00132 × Rated Storage

Volume in gallons).

0.93 ¥ (0.00132 × Rated Storage

Volume in gallons).

0.93 ¥ (0.00132 × Rated Storage

Volume in gallons).

5. Instantaneous Gas-fire Water

Heater.

0.62 ¥ (0.0019 × Rated Storage

Volume in gallons).

0.62 ¥ (0.0019 × Rated Storage

Volume in gallons).

0.62 ¥ (0.0019 × Rated Storage

Volume in gallons).

6. Instantaneous Electric Water

Heater.

0.95 ¥ (0.00132 × Rated Storage

Volume in gallons).

0.93 ¥ (0.00132 × Rated Storage

Volume in gallons).

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.

* * * * *

Appendix

[The following letter from the Department of

Justice will not appear in the Code of Federal

Regulations.]

Department of Justice,

Antitrust Division, Joel I. Klein Assistant

Attorney General

Main Justice Building, 950 Pennsylvania

Avenue, NW, Washington, DC 20530–

0001, (202) 514–2401/(202) 616–2645 (f),

Antitrust@justice.usdoj.gov

July 10, 2000.

Mary Anne Sullivan,

General Counsel, Department of Energy,

Washington, DC 20585

Dear General Counsel Sullivan: I am

responding to your May 10, 2000 letter

seeking the views of the Attorney General

about the potential impact on competition of

the proposed energy efficiency standards for

water heaters, Docket No. EE–RM–97–900.

Your request was submitted pursuant to

Section 325(o)(2)(B)(i) of the Energy Policy

and Conservation Act, 42 U.S.C. 6291, 6295,

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 efficiency 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).

We have reviewed the proposed standards,

the supplementary information published in

the Federal Register notice, the Technical

Support Document, and information from

water heater manufacturers, their suppliers,

and other interested parties. The Antitrust

Division has concluded that the proposed

standards could have an adverse effect on

competition because water heater

manufacturers may have to use an input that

will be produced by only one source. We do

not anticipate that the proposed standard

will affect competition among water heater

manufacturers. Rather, competition to

provide heater manufacturers with blowing

agents could be adversely affected, with

resulting cost increases to consumers.

In the analysis of the proposed standard

that the Department of Energy published in

the Federal Register, the only design options

for affected electric water heaters that meet

the DOE’s proposed standard require use of

HFC–245fa as a blowing agent for insulation.

Insulation is an essential part of a water

heater, and HFC–245fa is a patented product

that has only one supplier. DOE’s published

analysis further concludes that gas-fired

water heaters have design options that would

eliminate the need for HFC–245fa, but at

significant added costs.

Water heater manufacturers have objected

to the proposed standard on the grounds that

their need to rely on a sole source will make

them vulnerable to supply disruptions and

monopoly pricing. Based on the analysis that

DOE published, the concerns of water heater

manufacturers regarding HFC–245fa, and our

interviews with industry participants, the

Antitrust Division has concluded that

competition could be adversely affected by

the adoption of the proposed standard.1 The

Department urges the Department of Energy

to take into account this impact on

competition in determining its final energy

efficiency standard for water heaters and to

consider altering the standard so that

manufacturers may meet the standard for all

affected models using blowing agents for

insulation other than HFC–245fa without

adding significantly to the costs of

manufacturing water heaters.

Sincerely,

Joel I. Klein

[FR Doc. 01–1081 Filed 1–16–01; 8:45 am]

BILLING CODE 6450–01–P