Thursday,

July 29, 2004

Part III

Department of 

Energy

Office of Energy Efficiency and 

Renewable Energy 

10 CFR Part 430

Energy Conservation Program for 

Consumer Products: Energy Conservation 

Standards for Residential Furnaces and 

Boilers; Proposed Rule

45420 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

DEPARTMENT OF ENERGY

Office of Energy Efficiency and 

Renewable Energy 

10 CFR Part 430

[Docket No. EE–RM/STD–01–350] 

RIN 1904–AA78 

Energy Conservation Program for 

Consumer Products: Energy 

Conservation Standards for 

Residential Furnaces and Boilers

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy.

ACTION: Advance notice of proposed 

rulemaking, public meeting and 

webcast. 

SUMMARY: The Energy Policy and 

Conservation Act (EPCA or the Act) 

authorizes the Department of Energy 

(DOE or the Department) to establish 

energy conservation standards for 

various consumer products and 

commercial and industrial equipment, 

including residential furnaces and 

boilers, if DOE determines that energy 

conservation standards would be 

technologically feasible and 

economically justified, and would result 

in significant energy savings. The 

Department publishes this Advance 

Notice of Proposed Rulemaking 

(ANOPR) to consider establishing 

energy conservation standards for 

residential furnaces and boilers and to 

announce a public meeting to receive 

comments on a variety of issues.

DATES: The Department will hold a 

webcast on Tuesday, August 17, 2004 

from 1 p.m. to 4 p.m. If you are 

interested in participating in this event, 

please inform Mohammed Khan at (202) 

586–7892. 

The Department will hold a public 

meeting on Wednesday, September 29, 

2004, starting at 9 a.m., in Washington, 

DC. The Department must receive 

requests to speak at the meeting before 

4 p.m., Wednesday, September 15, 2004. 

The Department must receive a signed 

original and an electronic copy of 

statements to be given at the public 

meeting no later than 4 p.m. 

Wednesday, September 22, 2004. 

The Department will accept 

comments, data, and information 

regarding the ANOPR before or after the 

public meeting, but no later than 

Wednesday, November 10, 2004. See 

section IV, ‘‘Public Participation,’’ of 

this ANOPR for details.

ADDRESSES: The public meeting will be 

held at the Ronald Reagan Building and 

International Trade Center, Polaris 

Room, 1300 Pennsylvania Avenue, NW., 

Washington, DC 20004. A photo ID is 

required to enter the building. 

You may submit comments, identified 

by docket number EE–RM/STD–01–350 

and/or RIN number 1904–AA78, by any 

of the following methods: 

• Federal eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: ResidentialFBANOPR

Comments@ee.doe.gov. Include EE–RM/

STD–01–350 and/or RIN number 1904–

AA78 in the subject line of the message. 

• Mail: Ms. Brenda Edwards-Jones, 

U.S. Department of Energy, Building 

Technologies Program, Mailstop EE–2J, 

ANOPR for Residential Furnaces and 

Boilers, docket number EE–RM/STD–

01–350 and/or RIN number 1904–AA78, 

1000 Independence Avenue, SW., 

Washington, DC 20585–0121. Please 

submit one signed original paper copy. 

• Hand Delivery/Courier: Ms. Brenda 

Edwards-Jones, U.S. Department of 

Energy, Building Technologies Program, 

Room 1J–018, 1000 Independence 

Avenue, SW., Washington, DC 20585. 

Instructions: All submissions received 

must include the agency name and 

docket number or Regulatory 

Information Number (RIN) for this 

rulemaking. For detailed instructions on 

submitting comments and additional 

information on the rulemaking process, 

see section IV of this document (Public 

Participation). 

Docket: For access to the docket to 

read background documents or 

comments received, go to the U.S. 

Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

Please call Ms. Brenda Edwards-Jones at 

the above telephone number for 

additional information regarding 

visiting the Resource Room. Please note: 

The Department’s Freedom of 

Information Reading Room (Room 1E–

190 at the Forrestal Building) is no 

longer housing rulemaking materials.

FOR FURTHER INFORMATION CONTACT:

Mohammed Khan, Project Manager, 

Energy Conservation Standards for 

Residential Furnaces and Boilers, 

Docket No. EE–RM/STD–01–350, EE–2J/

Forrestal Building, U.S. Department of 

Energy, Office of Building Technologies, 

EE–2J, 1000 Independence Avenue, 

SW., Washington, DC 20585–0121, (202) 

586–7892. E-mail: Mohammed.Khan

commat;ee.doe.gov.

Thomas B. DePriest, Esq., U.S. 

Department of Energy, Office of General 

Counsel, Forrestal Building, Mail 

Station GC–72, 1000 Independence 

Avenue, SW., Washington, DC 20585, 

(202) 586–9507. E-mail: 

Thomas.DePriest@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction 

A. Purpose of the ANOPR 

B. Summary of the Analysis 

1. Engineering Analysis 

2. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

3. National Impacts Analysis 

C. Authority 

D. Background 

1. History of Standards Rulemaking for 

Residential Furnaces and Boilers 

2. Current Rulemaking Process 

3. Miscellaneous Rulemaking Issues 

a. Separate Efficiency Standards for 

Different Regions 

b. Separate Efficiency Standards for New 

Construction and Replacement Markets 

c. Treatment of Mobile Home Furnaces 

d. Potential Market Share Shifts due to 

Standards 

e. Inclusion of Electric Furnaces in the 

Rulemaking 

f. Transparency of the Analysis 

g. Data Used in the Analysis 

h. Regulation of Furnace and Boiler 

Electricity Consumption 

4. Test Procedure 

II. Residential Furnace and Boiler Analyses 

A. Market Assessment and Technology 

Assessment 

1. Definition of Product Classes 

B. Screening Analysis 

C. Engineering Analysis 

1. Approach 

2. Baseline Models 

3. Design Option Selection 

4. Manufacturing Cost Analysis 

5. Markup Analysis 

6. Installation Cost 

a. Non-Weatherized Gas Furnaces 

b. Other Product Classes 

c. Safety and Reliability Issues Related to 

Installation 

7. Maintenance Costs 

8. Summary of Inputs 

9. Rebuttable Payback Periods 

D. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

1. Approach 

2. First-Cost Inputs 

a. Equipment Prices 

b. Installation Costs 

3. Operating-Cost Inputs 

a. Annual Energy Use 

b. Energy Prices 

c. Maintenance Costs 

4. Equipment Lifetime 

5. Discount Rate 

6. Effective Date 

7. Inputs to Payback Period Analysis 

8. Summary of Inputs 

9. LCC and PBP Results 

E. National Impact Analysis 

1. Approach 

2. Inputs 

a. Shipments 

i. Replacement and Conversions 

ii. Shipments to New Housing 

iii. Total Projected Shipments 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45421

b. Annual Unit Energy Consumption 

c. Site-to-Source Conversion Factors 

d. Installed Equipment Costs 

e. Energy Prices 

f. Discount Rate 

g. Summary of Inputs 

3. National Impact Analysis Results 

F. Life-Cycle Cost (LCC) Sub-group 

Analysis 

G. Manufacturer Impact Analysis 

1. Sources of Information for the 

Manufacturer Impact Analysis 

2. Industry Cash Flow Analysis 

3. Manufacturer Sub-Group Analysis 

4. Competitive Impacts Assessment 

5. Cumulative Regulatory Burden 

H. Utility Impacts Analysis 

I. Environmental Assessment 

J. Employment Impact Analysis 

K. Regulatory Impact Analysis 

III. Candidate Energy Conservation Standards 

Levels 

IV. Public Participation 

A. Attendance at Public Meeting 

B. Procedure for Submitting Requests to 

Speak 

C. Conduct of Public Meeting 

D. Submission of Comments 

E. Issues on Which DOE Seeks Comment 

1. Installation Model 

2. Venting Issues 

3. Efficiency Distribution of Weatherized 

Gas Furnaces 

4. 81 percent AFUE Furnaces with and 

without Two-stage Modulating Controls 

5. Regulation of Furnace Electricity 

Consumption 

V. Regulatory Review and Procedural 

Requirements 

VI. Approval of the Office of the Secretary

I. Introduction 

A. Purpose of the ANOPR 

The purpose of this ANOPR is to 

provide interested persons with an 

opportunity to comment on: 

(i) The product classes that the 

Department is planning to analyze;

(ii) the analytical framework, models, 

and tools (e.g., life-cycle cost (LCC) and 

national energy savings (NES) 

spreadsheets) that the Department has 

been using in performing analyses of the 

impacts of energy conservation 

standards; 

(iii) the results of preliminary 

analyses for the engineering, LCC, 

payback, and NES contained in the 

ANOPR Technical Support Document 

(TSD): Energy Efficiency Standards for 

Residential Furnaces and Boilers and 

summarized in this ANOPR; and 

(iv) the candidate energy conservation 

standard levels that the Department has 

developed from these analyses. 

B. Summary of the Analysis 

The Energy Policy and Conservation 

Act, as amended (EPCA or Act), 

authorizes the Department of Energy 

(DOE or Department) to establish 

minimum energy conservation 

standards for certain major household 

appliances. The Act established 

efficiency standards for certain 

residential furnaces and boilers, with an 

effective date of January 1, 1992. (42 

U.S.C. 6295(f)) In addition, the Act 

requires the Department to determine 

whether the standards should be 

amended. 

The Department began the 

preliminary work for this rulemaking in 

2001 and conducted a series of analyses. 

The Department conducted in-depth 

technical analyses in the following 

areas: engineering, life-cycle cost (LCC) 

and payback periods (PBP), and national 

energy savings (NES) and economic 

impacts. This ANOPR discusses the 

methodologies and assumptions for 

each of these analyses. Table I.1 

provides a summary of the key inputs, 

assumptions, and methods employed for 

each analysis area. Table I.1 also shows 

where to find the results in this ANOPR. 

It is important to note that the analysis 

results presented in this ANOPR are 

subject to revision following review and 

input from stakeholders and other 

interested parties. The final rule 

publication will contain the final 

analysis results.

TABLE I.1—IN-DEPTH TECHNICAL ANALYSES FOR THE ANOPR 

Analysis area Methodology Key inputs Key assumptions 

ANOPR section for results 

Engineering: equipment manufacturing costs, markups, 

and installation costs.

Teardown analysis supplemented with design option 

analysis; RS-Means based 

cost-weighted averages of 

many configurations.

Component cost data; financial reports of firm costs, 

expenses, and profits; installation configuration 

weights; component and 

labor cost.

Industry average ‘‘Greenfield 

Plant;’’ Production volumes; 

updated GRI venting survey 

weights; labor costs from 

RS Means; material costs 

from distributors.

Section II.E 

LCC and PBP ......................... Building-by-building analysis 

of a representative weighted sample of residential 

consumers; energy consumption according to field 

use.

First costs from engineering 

analysis; AEO 2003 energy 

price forecasts; RECS 97 

houses; virtual models from 

product literature with sizerelated parameters.

1997 RECS database subsets 

are nationally representative.

Section II.G 

National impacts ..................... Forecasts of national furnace 

and boiler costs and energy 

consumption.

Historical and projected shipments; average installed 

cost and energy consumption from the LCC analysis; 

and AEO 2003 energy price 

forecasts.

Responsiveness of shipments 

forecasts to installed cost; 

share of condensing gas 

furnaces in base case forecast; future trends in equipment costs.

Section II.H 

During the development of the above 

analyses, the Department consulted 

with interested parties to provide as 

much detail as possible on the 

development of the analyses. The 

Department continues to seek input 

from all interested parties on the 

methodologies, inputs, and assumptions 

used to develop the analyses. Obtaining 

that input is a primary purpose of this 

ANOPR.

1. Engineering Analysis 

The engineering analysis establishes 

the relationship between the cost and 

efficiency of residential furnaces and 

boilers. This relationship serves as the 

basis for cost/benefit calculations for 

individual consumers, manufacturers, 

and the Nation. 

The baseline model for each product 

class is the starting point for analyzing 

technologies that provide energyefficiency improvements. The 

Department defines a baseline model as 

an appliance having commonplace, 

cost-effective features and technologies 

while still meeting the current standard. 

45422 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

1U.S. Department of Energy—Energy Information 

Administration, Residential Energy Consumption 

Survey: Household Energy Consumption and 

Expenditures 1997, 1999. Washington, DC. Report 

No. DOE/EIA–0321(97). <http://www.eia.doe.gov/

emeu/recs/recs97/publicusefiles.html>

2U.S. Department of Energy—Energy Information 

Administration, Annual Energy Outlook 2003: With 

Projections Through 2025, January, 2003. 

Washington, DC. Report No. DOE/EIA–0383 (2003). 

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

After defining the baseline models, the 

Department estimated total installed 

cost to the consumer through an 

analysis of (1) manufacturer costs, (2) 

markups, which are the multiplier used 

to determine consumer price based on 

manufacturing cost, and (3) installation 

costs. DOE estimated annual average 

operating costs by calculating energy 

consumption using the DOE test 

procedure, applying average energy 

prices, and adding annual average 

maintenance costs. 

The Department developed 

manufacturing and installation costs 

through the use of tear-down analysis 

and cost modeling techniques and 

calibrated them to industry data 

sources. The Department determined all 

distribution markups through use of 

firm balance sheet data, U.S. Census 

Bureau data, and data from the 

Manufacturing Housing Institute for 

mobile home furnaces (use of the term 

‘‘mobile home furnace’’ is discussed in 

section I.C.3.c, ‘‘Treatment of Mobile 

Home Furnaces’’ of this document). 

Using the above inputs and 

calculation of energy consumption 

based on the DOE test procedure, the 

Department calculated payback periods 

for various design options to improve 

efficiency. The payback period 

represents the time needed for the 

increase in average, total installed 

equipment cost to be offset by annual, 

average operating cost savings. The 

Department presents these payback 

periods to address the legally 

established ‘‘rebuttable’’ presumption 

that an energy conservation standard is 

‘‘economically justified’’ if the 

additional cost to a consumer 

purchasing the more efficient product is 

less than three times the value of the 

energy savings during the first year of 

the product’s use. (42 U.S.C. 

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

2. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

The LCC and PBP analysis determines 

the economic impact of potential 

standards on consumers. The LCC that 

DOE calculated expresses the costs of 

installing and operating a furnace or 

boiler for its expected lifetime starting 

in the year 2012—the expected effective 

date for any new furnace standard, at 

the time the analysis occurred. The 

analysis compares the LCC of 

equipment with efficiency 

improvements designed to meet 

possible energy-efficiency standards 

with the LCC of the equipment likely to 

be installed in the absence of standards. 

The PBP represents the number of years 

of operation needed to achieve savings 

sufficient to pay for the increased 

installed cost of higher-efficiency 

equipment. It is the change in total 

installed cost due to increased 

efficiency divided by the change in 

annual operating cost from increased 

efficiency. 

The LCC calculation considers total 

installed cost (equipment cost plus 

installation cost), operating expenses 

(energy use and maintenance), 

equipment lifetime, and the discount 

rate. The Department performed the 

LCC analysis from the perspective of the 

users of residential furnaces and boilers. 

DOE calculated the energy consumption 

of furnace and boilers using data from 

the 1997 Residential Energy 

Consumption Survey (RECS97) 

conducted by the Energy Information 

Administration (EIA).1 DOE calculated 

future energy costs using energy price 

forecasts from EIA’s Annual Energy 

Outlook 2003 (AEO 2003).2

The LCC analysis uses a distribution 

of values to account for uncertainty and 

variability in the inputs to the LCC 

calculation. For each input, there is a 

distribution of values with probabilities 

attached to each value. As a result, the 

analysis produces a range of LCC 

results. An advantage of this approach 

is that DOE can identify the percentage 

of consumers achieving LCC savings or 

attaining certain payback values due to 

an increased efficiency standard, in 

addition to the average LCC savings or 

payback period for that standard. 

3. National Impacts Analysis 

The national impacts analysis 

estimates the national energy savings 

(NES) and the net present value (NPV) 

of total customer costs and savings 

expected to result from new standards at 

specific efficiency levels. The 

Department calculated NES and NPV for 

a given standard level as the difference 

between a base case forecast (without 

new standards) and the standards case 

forecast (with standards). The 

Department determined national annual 

energy consumption by multiplying the 

number of units in the stock of 

residential furnaces and boilers (by 

vintage) by the unit energy consumption 

(also by vintage). Cumulative energy 

savings are the sum of the annual NES 

determined over a specified time period. 

The Department calculated net savings 

each year as the difference between total 

operating cost savings and increases in 

total installed costs. Cumulative savings 

are the sum of the annual NPV 

determined over a specified time period. 

Critical inputs to this analysis include 

shipments projections (based in part on 

data provided by the Gas Appliance 

Manufacturers Association (GAMA)), 

retirement rates (based on estimated 

equipment lifetimes), and estimates of 

change in equipment purchase patterns 

in response to change in equipment 

costs due to standards (based on 

historical parameters). 

C. Authority 

Part B of Title III of EPCA established 

the Energy Conservation Program for 

Consumer Products other than 

Automobiles (Program). The consumer 

products currently subject to this 

Program (referred to as ‘‘covered 

products’’) include residential furnaces 

and boilers, the subject of this ANOPR. 

(42 U.S.C. 6291 et seq.) 

The Act authorizes the Department to 

prescribe new or amended standards for 

furnaces and boilers. (42 U.S.C. 6295(a), 

(f)) Any new or amended standard must 

be designed to achieve the maximum 

improvement in energy efficiency that is 

technologically feasible and 

economically justified and must result 

in significant conservation of energy. 

(42 U.S.C. 6295(o)(2)(A), (o)(3)) To 

determine whether the proposed 

standard is economically justified, the 

Department must determine that the 

benefits of the proposed standard 

exceed its burdens to the greatest extent 

practicable, weighing the following 

seven factors: 

(1) The economic impact of the 

standard on the manufacturers and on 

the consumers of the products subject to 

such standard; 

(2) The savings in operating costs 

throughout the estimated average life of 

the covered products which are likely to 

result from the standard;

(3) The total projected amount of 

energy savings likely to result directly 

from the standard; 

(4) Any lessening of the utility or the 

performance of the covered products 

likely to result from the standard; 

(5) The impact of any lessening of 

competition, as determined in writing 

by the Attorney General, that is likely to 

result from the standard; 

(6) The need for national energy 

conservation; and 

(7) Other factors the Secretary 

considers relevant. (42 U.S.C. 

6295(o)(2)(B)(i)). 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45423

3EPCA states that a ‘‘furnace’’ includes forced-air 

and gravity central furnaces and low-pressure steam 

and hot water boilers, and that it must have a heat 

input rate of less than 225,000 Btu/h for forced-air 

and gravity central furnaces, and less than 300,000 

Btu/h for boilers. (42 U.S.C. 6291(23)) However, in 

this ANOPR, DOE has adopted the terminology 

used in the HVAC (Heating, Ventilation and Air 

Conditioning) industry, which considers furnaces 

and boilers as separate categories.

D. Background 

1. History of Standards Rulemaking for 

Residential Furnaces and Boilers 

EPCA established efficiency standards 

for residential furnaces and boilers. It 

set the standard in terms of the Annual 

Fuel Utilization Efficiency (AFUE) 

descriptor at a minimum value of 78 

percent for most furnaces.3 EPCA set the 

minimum AFUE at 75 percent for gas 

steam boilers and 80 percent for other 

boilers. For mobile home furnaces, 

EPCA set the minimum AFUE at 75 

percent. The effective date for these 

standards was January 1, 1992. (42 

U.S.C. 6295(f)(1))

For ‘‘small’’ furnaces (those having an 

input rate of less than 45,000 British 

thermal units (Btu) per hour), the Act 

required the Department to publish a 

final rule by January 1, 1989, and to set 

a minimum AFUE at a specific percent 

not less than 71 percent and not more 

than 78 percent. (42 U.S.C 6295(f)(1)(B)) 

For these products, the Department 

published an Advance Notice of 

Proposed Rulemaking (ANOPR) (52 FR 

46367, December 7, 1987), followed by 

a Notice of Proposed Rulemaking 

(NOPR) (53 FR 48798, December 2, 

1988), in which the Department 

proposed to establish an energy 

conservation standard of 78 percent 

AFUE for small gas furnaces. In a final 

rule (54 FR 47916, November 17, 1989), 

the Department set the minimum AFUE 

for these products at 78 percent, with an 

effective date of January 1, 1992. 

For mobile home furnaces, the Act 

directed the Department to publish a 

final rule before January 1, 1992, to 

determine whether the standard should 

be amended. (42 U.S.C. 6295 (f)(3)(A)) 

The Act required the effective date for 

amendments to be January 1, 1994. The 

Department started this activity and 

issued an ANOPR (55 FR 39624, 

September 28, 1990), followed by a 

NOPR (59 FR 10464, March 4, 1994). As 

part of this activity, the Department 

proposed a new energy descriptor that 

accounts for both natural gas and 

electricity use in a furnace. DOE 

rejected this approach because ‘‘energy 

use’’ is defined in 42 U.S.C. 6291(4) as 

‘‘the quantity of energy directly 

consumed by a consumer product at 

point of use,’’ and therefore, furnace 

energy conservation standards must be 

based on consumption of energy at the 

site of the appliance, but DOE had 

difficulty in accounting for the source 

energy associated with electricity use. 

(61 FR 36983, July 15, 1996) Several 

events, including a fiscal year 1996 

moratorium on proposing or issuing 

new or amended appliance energy 

conservation standards and the 

development of an improved process for 

the Department’s energy efficiency 

standards rulemakings, interrupted 

further activities on this rulemaking. No 

final rule for mobile home furnace 

standards was published. 

The Act also required the Department 

to publish a final rule to determine for 

all furnaces and boilers whether the 

standards should be amended. (42 

U.S.C. 6295(f)(3)(B)) The Act required 

that DOE publish this final rule before 

January 1, 1994, and, if the Department 

determined that the standards should be 

amended, the Act required that those 

amendments be effective on January 1, 

2002. The Department started this 

activity and, in September 1993, 

published an ANOPR in which it 

presented the product classes for 

furnaces that it planned to analyze, and 

a detailed discussion of the analytical 

methodology and models that it 

expected to use in this rulemaking. (58 

FR 47326, September 8, 1993) The 

Department invited comments and data 

on the accuracy and feasibility of the 

planned methodology and encouraged 

interested persons to recommend 

improvements or alternatives to DOE’s 

approach. 

In its fiscal year 1998 Priority Setting 

for the Appliance Rulemaking Process, 

the Department assigned a low priority 

level to residential furnaces and boilers, 

which meant it did not plan to actively 

pursue the rulemaking over the next two 

years. The Department thus limited its 

work on these products to basic 

technology investigation. 

In the fiscal year 2001 Priority Setting 

for the Appliance Rulemaking Process, 

DOE assigned a high level of priority to 

residential furnaces and boilers, 

including mobile home furnaces, which 

meant the Department planned to 

pursue the rulemaking actively through 

meetings, workshops, and published 

notices (See section I.C.2). 

Table I.2 summarizes the history of 

the standards for furnaces and boilers.

TABLE I.2—HISTORY OF FURNACE AND BOILER STANDARDS

Furnaces/boilers Small furnaces Mobile home furnaces 

Original standard ........................... 78% (boilers 80%, gas steam 

boilers 75%).

78% ............................................... 75%. 

Standard Requirement Source ...... NAECA* ** ................................... Final Rule ..................................... NAECA. 

Publication year ............................. 1987 .............................................. 1989 .............................................. 1987. 

ANOPR .......................................... 1993* ............................................ 1993* ............................................ 1993* and 1994*. 

Current Rulemaking ....................... Furnace Rulemaking beginning 

date FY2001.

Defined as part of Furnace Product Class as of 1989.Included as a separate Product 

Class. 

* Rulemaking initiated but not finished. 

** National Appliance Energy Conservation Act. 

2. Current Rulemaking Process 

The framework presented in this 

ANOPR reflects the improvements and 

steps detailed in Procedures, 

Interpretations and Policies for 

Consideration of New or Revised Energy 

Conservation Standards for Consumer 

Products (Process Rule) 10 CFR 430, 

Subpart C, Appendix A, which 

elaborates on the procedures, 

interpretations, and policies that will 

guide the Department in establishing 

new or revised energy efficiency 

standards for consumer products. The 

rulemaking process is dynamic. If 

timely new data, models, or tools that 

enhance the development of standards 

become available, the Department will 

incorporate them into the rulemaking. 

The Department held a workshop on 

July 17, 2001, to discuss the proposed 

analytical framework for conducting 

this rulemaking. The framework 

presented at the workshop described the 

45424 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

4Example: ‘‘(GAMA, No. 8 at pp. 2–4)’’ refers to 

a written statement that was submitted by the Gas 

Appliance Manufacturers Association and is 

recorded in the DOE Building Technologies 

Program Resource Room in the Docket under 

‘‘Residential Furnaces and Boilers’’, as comment 

number 8, and the passage appears on pages 2 

through 4 of that statement. Likewise, ‘‘(Public 

Workshop Tr., No. 25JJ at p. 245)’’ refers to an oral 

statement which appears on page 245 of the 

transcript of the Furnace and Boiler Venting 

Workshop held in Washington, DC, May 8, 2002.

different analyses to be conducted (see

Table I.3), the methods proposed for 

conducting them, and the relationships 

among the various analyses.

TABLE I.3.—RESIDENTIAL FURNACE AND BOILER ANALYSIS

ANOPR NOPR Final rule 

Market and technology assessment ....................................... Revised ANOPR Analyses ..................................................... Revised analyses. 

Screening analysis .................................................................. Life-cycle cost sub-group analysis.

Markups for equipment price determination ........................... Manufacturer impact analysis.

Engineering analysis ............................................................... Utility impact analysis.

Energy Consumption ............................................................... Environmental assessment.

Life-cycle cost and payback period analyses ......................... Employment impact analysis.

Shipments analysis ................................................................. Regulatory impact analysis.

National impact analysis.

The Department held a public 

workshop on May 8, 2002, to receive 

and discuss comments on issues related 

to venting installations for residential 

furnaces and boilers and to discuss the 

Department’s research concerning 

venting systems. 

Statements received after publication 

of the framework document for the 

Residential Furnace and Boiler 

Standards Rulemaking and at 

workshops mentioned above helped 

identify issues involved in this 

rulemaking, and provided information 

that has contributed to DOE’s proposed 

resolution of these issues. This ANOPR 

quotes and summarizes many of the 

statements. A parenthetical reference at 

the end of a quotation or paraphrase 

provides the location of the item in the 

public record. 

In June 2002, DOE asked GAMA to 

review DOE’s analysis of manufacturing 

costs. GAMA provided comments which 

the Department considered in its further 

analysis. 

In August 2002, GAMA convened a 

meeting to discuss approaches for 

analyzing electricity use in furnaces. 

The Department, GAMA, and the 

American Council for an EnergyEfficient Economy (ACEEE) presented 

their ideas about this issue. In December 

2002, DOE reconsidered its authority to 

impose a standard that limits electricity 

consumption in residential furnaces and 

boilers (See section I.D.3.h of this 

ANOPR). 

In September 2002, the Department 

posted the engineering analysis for 

furnaces and boilers on its website and 

asked for comments. GAMA, ACEEE 

and Natural Resources Canada 

(NRCanada) provided comments which 

DOE considered in its further analysis. 

In response to stakeholder comment, 

the Department developed a detailed 

installation cost model to determine 

venting costs for residential furnaces 

and boilers. This ANOPR document 

(and accompanying TSD and 

spreadsheets) presents this ‘‘Installation 

Model’’ for stakeholder review and 

comment. Subsequently, in the spring 

and summer of 2003, the Department 

finished its analysis which is described 

in this ANOPR.

According to the proposed 

rulemaking timeline, as published in the 

December 22, 2003, Regulatory Agenda, 

DOE expects to issue a Final Rule in 

September 2005. The effective date for 

any new standards for furnaces and 

boilers will be eight years after its 

publication as a final rule in the Federal 

Register. (42 U.S.C. 6295 (f)(3)(B)) 

The Department received a number of 

comments concerning the rulemaking 

timeline. Several stakeholders 

commented that DOE should accelerate 

the rulemaking and implementation, 

while others thought the existing 

schedule was satisfactory. Those 

favoring an accelerated schedule 

include ACEEE, the Alliance to Save 

Energy (ASE), the California Energy 

Commission (CEC), Edison Electric 

Institute (EEI), Natural Resources 

Defense Council (NRDC), Oregon 

Department of Energy (ODOE), and 

Southern Company. ACEEE commented 

that DOE should commit to an effective 

date several years earlier than 2012. 

(ACEEE, No. 15 at p. 1) 4 ASE also 

believes that an eight-year lag in 

implementation of the standard is too 

long, and recommends a three-year lag, 

or, if the efficiency standard is a 

substantial increase, a five-year lag. 

(ASE, No. 18 at pp. 1 and 2) CEC 

commented that the eight-year lag is too 

long, and believes the standards should 

take effect in January 2007. (CEC, No. 19 

at p. 3) EEI commented that DOE should 

accelerate the rulemaking for furnaces 

and boilers to maximize energy savings 

and avoid affecting market shares of 

natural gas and electric heating. (EEI, 

No. 6 at p. 1) NRDC commented that the 

proceeding is very late, and therefore 

DOE should accelerate the final rule. 

NRDC also commented that DOE has 

demonstrated it can go from the ANOPR 

through a final rule in a year, and 

should have this as a goal in this 

proceeding. (NRDC, No. 21 at pp. 1 and 

2) ODOE commented that DOE should 

change the lead time to a three-year 

interval. (ODOE, No. 10 at p. 4) 

Southern Company commented that 

DOE should minimize the time between 

the effective dates of the air conditioner 

and the furnace rulemakings and stated 

that DOE should not give longer than a 

five-year lead time. (Southern, No. 14 at 

p. 2)

In contrast, Trane commented that 

DOE should keep the current time line. 

(Trane, No. 9 at p. 1) GAMA also 

supported a 2012 effective date for 

compliance. (GAMA, No. 8 at p. 1) 

The Department intends to follow the 

relative timeline outlined in the 

National Appliance Conservation Act 

(NAECA). Section 325(f)(3)(B) provides 

the same lead time between publication 

of amended standards for furnaces 

(including mobile home furnaces) and 

the effective date of such standards. 

Therefore, DOE is using the same 

effective date for all furnaces including 

mobile home furnaces. 

The American Gas Association (AGA) 

recommended scheduling follow-up 

workshops to discuss specific work as 

finished. (AGA, No. 11 at p. 5) The 

Department will document its 

assumptions, methods, and results, and 

will make these available for public 

review. 

GAMA commented that DOE’s 

accounting of national benefits should 

consider not only the net benefit to 

consumers, but also the net benefits or 

costs to manufacturers, utilities, and the 

net affect on the whole U.S. economy. 

(GAMA, No. 41 at p. 5) DOE’s LCC 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45425

analysis accounts for net benefits to 

consumers. Other analyses that DOE 

will perform for the NOPR stage of this 

rulemaking consider impacts on 

manufacturers (MIA), utilities in the 

utility and environmental analyses, and 

national employment impacts in the 

employment analysis. 

AGA encouraged DOE to monetize 

and include indirect societal costs and 

environmental benefits to the extent 

possible. (AGA, No. 11 at p. 5) The 

Department will consider all the 

benefits and costs, both qualitative and 

quantitative, including the results of the 

consumer, environmental, employment, 

utility, and manufacturer impact 

analyses when deciding what standard 

level to select. DOE believes that 

attaching a monetary value to many 

impacts involves a high level of 

uncertainty and is not always practical. 

3. Miscellaneous Rulemaking Issues 

a. Separate Efficiency Standards for 

Different Regions 

Because the cost-effectiveness of a 

furnace design is highly dependent on 

its heating load, which is affected by 

climate, some stakeholders suggested 

that DOE allow for a standard that varies 

by region of the country. ACEEE 

commented that the standard should 

allow individual states to require 

condensing furnaces and boilers 

whenever they are cost-effective or 

required for safety reasons. (ACEEE, No. 

15 at p. 2) It suggested that DOE could 

establish a furnace and boiler standard 

at an efficiency level that requires 

condensing technology, and could allow 

individual states where such a level 

might not be cost-effective to receive an 

automatic exemption from the standard 

upon petition. (ACEEE, No. 15 at p. 2) 

CEC would like the Department to set a 

standard that requires condensing 

furnaces in states with cold climates 

and believes that individual states 

where such a standard might not be 

cost-effective should be able to use DOE 

data to justify petitions for waivers from 

preemption. (CEC, No. 19 at p. 5) 

Similarly, NRDC commented that the 

Department should issue a standard that 

allows individual states where such a 

standard might not be cost-effective to 

get waivers from preemption for a 

standard at 90 percent or higher AFUE. 

(NRDC, No. 21 at p. 3) GAMA said that 

a state option on condensing furnaces 

would be illegal under EPCA. (GAMA, 

No. 31 at p. 9) Southern believes that 

manufacturers should be allowed 

maximum flexibility in designing 

systems to meet varying climatic 

conditions. (Southern, No. 14 at p. 4) 

EEI said that regional standards would 

destroy national standards. (Public 

Workshop Tr., No. 25JJ at p. 251) 

The Department recognizes that 

regional climatic effects may be 

important in the assessment of proposed 

energy efficiency standards for heating 

equipment because the energy demand 

and financial impacts to consumers can 

vary significantly with variations in 

climate. The life-cycle cost analysis 

considers regional impacts. However, 

DOE believes that the Act does not 

authorize the adoption of regional 

standards. See 42 U.S.C. 6291(6)(A). 

b. Separate Efficiency Standards for 

New Construction and Replacement 

Markets 

ASE commented that the Department 

should allow different efficiency levels 

for products installed in new versus 

replacement applications. ASE stated 

that the Department’s treatment of 

fluorescent lamp ballasts, where the 

efficiency standard is different for new 

construction and replacement 

applications, is a precedent for this 

approach. (ASE, No. 18 at p. 2) ASE also 

would like the Department to grant 

states the option of a separate standard 

for equipment used in new 

construction. (ASE, No. 18 at p. 2) 

EPCA does not allow DOE to set more 

than one efficiency standard for the 

same base model of a covered product. 

See 42 U.S.C. 6291(6)(A). See also 10 

C.F.R. 430.62. The efficiency standard 

for fluorescent lamp ballasts is different 

for new construction and replacement 

applications because the products have 

different design characteristics and are 

marketed and shipped as different 

products. When manufacturers ship 

these products, they label them 

explicitly to show whether they are 

intended for new construction or for 

replacements. In the case of furnaces 

and boilers, the Department is not aware 

of any products separately marketed, 

labeled, and shipped either for new 

construction installations or for the 

replacement market. Therefore, the 

Department does not plan to permit the 

states the option of a separate standard 

for equipment used in new 

construction.

The Department received comments 

on products to include or exclude from 

the rulemaking. Both the CEC and 

ODOE recommended that DOE include 

units designed for three-phase 

electricity. (CEC, No. 19 at p. 2; ODOE, 

No. 10 at p. 2) EPCA explicitly states at 

42 U.S.C. 6291 (a)(23) that the only 

furnace products that are covered 

products under the statute are those that 

use single-phase or DC (direct current) 

electricity in conjunction with natural 

gas, propane or home heating oil; and 

the Department must therefore exclude 

models that use three-phase electricity. 

c. Treatment of Mobile Home Furnaces 

Carrier and Trane believe that DOE 

should treat mobile home furnaces the 

same as other gas furnaces, and Trane 

suggested that the gas furnace product 

class should include mobile home 

furnaces. (Carrier, No. 7 at p. 2; and 

Trane, No. 9 at p. 1) GAMA commented 

that there should be no extra review or 

different lead time for amending the 

energy efficiency standard for mobile 

home furnaces. (GAMA, No. 8 at p. 1) 

The Manufactured Housing Institute 

(MHI) suggested that the Department 

use the term ‘‘manufactured home’’

instead of ‘‘mobile home.’’ (MHI, No. 13 

at p. 1) 

Because of their distinct market 

channels and installation restrictions, 

the Department decided to analyze 

mobile home furnaces as a separate 

product class. DOE currently plans to 

make the effective date for this product 

class the same as for other types of 

furnaces: January 1, 2012. Regarding the 

terminology for this product class, the 

Act uses the term ‘‘mobile home 

furnace.’’ The Department understands 

that the manufactured home market 

includes non-mobile/modular homes as 

well as mobile homes. Under the statute 

(42 U.S.C. 6295(f)(2) and (3)), the 

Department can only regulate the 

efficiency of mobile home furnaces, so 

it will use the term ‘‘mobile home 

furnace’’ until such time as Congress 

may amend the statutory language. 

d. Potential Market Share Shifts Due to 

Standards 

Several stakeholders, including AGA, 

the National Propane Gas Association 

(NPGA), and Trane, expressed concern 

that standards on gas furnaces could 

lead to increased purchase of electric 

furnaces: (1) Any standards should be 

fuel neutral and avoid distortion of 

market factors (AGA, No. 11 at p. 1); (2) 

if standard level efficiency is too high, 

consumers forced to change the venting 

system could choose an electric unit 

rather than replacing the gas-fired unit 

with a similar one (NPGA, No. 4 at p. 

3); (3) a gas furnace standard requiring 

AFUE > 90 percent could encourage a 

shift to electric heat pumps and/or 

combination systems if the latter are not 

comparably regulated (Trane, No. 9 at p. 

3); and (4) a high standard on LPG 

furnaces could increase the market 

share of electric units. (NPGA, No. 4 at 

p. 2) DOE’s analysis accounts for 

potential market shifts to electric 

heating that may follow from a higher 

standard on gas furnaces. DOE’s 

analysis is designed to determine the 

45426 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

extent of the market shift among fuel 

types. 

This information is used in the 

manufacturer impact analysis (MIA) 

which examines financial impacts on 

manufacturers and manufacturer 

subgroups. The MIA is provided to the 

Department of Justice (DOJ) to facilitate 

its determination of the impact of any 

lessening of competition that is likely to 

result from the imposition of proposed 

energy efficiency standards. 

e. Inclusion of Electric Furnaces in the 

Rulemaking 

CEC, NPGA, and ODOE all supported 

the inclusion of electric furnaces in the 

rulemaking. (CEC, No. 19 at p. 2; NPGA, 

No. 4 at p. 2; ODOE, No. 10 at p. 2) 

According to the American Society of 

Heating, Refrigerating and AirConditioning Engineers (ASHRAE), 

however, the AFUE rating for an electric 

furnace is already generally greater than 

98 percent, and if the furnace is located 

within the heated space, the AFUE is 

100 percent. No person has submitted to 

DOE any data or information to the 

contrary. Therefore, because of the 

limited opportunity for any 

improvement in energy efficiency as 

measured by AFUE and energy directly 

consumed by the product at the point of 

use, DOE decided not to include electric 

furnaces in this rulemaking. 

f. Transparency of the Analysis 

The Gas Technology Institute (GTI) 

would like the Department to use 

simple spreadsheet analyses whenever 

possible. (GTI, No. 5 at p. 3) The 

Department uses well-documented 

spreadsheets in its analyses. Most 

spreadsheets and other models used in 

this rulemaking are available to 

stakeholders for review and comment, 

and DOE is prepared to provide 

interested stakeholders explanations 

and some technical support in the use 

of the spreadsheets. To ensure the 

confidentiality of proprietary cost data, 

teardown cost model details will remain 

private. Methodology and aggregate 

industry assumptions and results are 

available for public comment. DOE 

welcomes any questions or comments 

on how to further simplify the analytical 

methods it has used in this rulemaking. 

g. Data Used in the Analysis 

EEI commented that DOE should use 

the most recent information available 

and recommended that DOE use the 

next version of the RECS when it is 

published. (EEI, No. 6 at p. 2) DOE 

makes every effort to use the most 

current version of RECS that is available 

at the time of each analysis. The 

analysis reflects the 1997 RECS and will 

be updated as a new RECS becomes 

available. 

GTI stressed the verification of all 

data. (GTI, No. 5 at p. 3) The 

Department uses the most reliable and 

accurate data available at the time of 

each analysis in this rulemaking. All 

data will be available for public review, 

and DOE welcomes any additional data 

for verification. 

h. Regulation of Furnace and Boiler 

Electricity Consumption

Furnaces and boilers use a significant 

amount of electricity. The Department’s 

analytical framework described an 

approach to regulate the electricity use 

of residential furnaces and boilers that 

would involve specifying a maximum 

annual electrical consumption. The 

current DOE test procedure (10 CFR 

430, subpart B, Appendix N) provides a 

means for determining electrical 

consumption. During the Framework 

Workshop, DOE asked for comments 

concerning whether and how to regulate 

electricity consumption of furnaces and 

boilers. 

In 1995, the Department considered 

development of a single descriptor that 

combines electricity use and a measure 

of fuel efficiency, AFUE. At the time, 

the approach considered the source 

energy input associated with the 

electricity use of a furnace or boiler and 

was rejected in 1997 because EPCA and 

NAECA do not permit the regulation of 

source energy. EPCA and NAECA 

specify that efficiency must be based on 

the energy consumption at the point of 

use. (42 U.S.C. 6291 (4)) 

In comments on DOE’s Framework, 

ACEEE, CEC, and NRDC supported a 

standard for electric efficiency. (ACEEE, 

No. 15 at p. 3; CEC, No. 19 at p. 3; and 

NRDC, No. 21 at p. 3) ODOE supported 

setting a standard for electricity 

consumption of fuel-fired furnaces and 

boilers. (ODOE, No. 10 at p. 2) 

EEI recommended that DOE not spend 

any effort on electricity consumption. 

EEI drew a parallel to a previous 

rulemaking, stating that since DOE did 

not analyze evaporator fan energy use 

for central air conditioners and heat 

pumps because it does not affect the 

seasonal energy efficiency ratio (SEER), 

DOE should not analyze furnace fan 

electricity use because it does not affect 

AFUE. (EEI, No. 6 at p. 4) 

AGA and GTI also recommended 

avoiding electricity consumption in this 

rulemaking, and suggested that DOE 

could address it in an electric motor 

rulemaking. (AGA, No. 11 at p. 3; and 

GTI, No. 5 at p. 3) EEI commented that 

DOE should not consider design options 

to increase fan and motor efficiencies, 

since furnace motors may be regulated 

as a separate product. (EEI, No. 6 at p. 

4) NRDC said that DOE should not wait 

to see what Congress does in terms of 

regulating furnace fan energy use, as it 

is authorized and required to consider 

this issue on its own initiative. (NRDC, 

No. 21 at p. 3) 

AGA recommended that DOE not 

limit a standard for electricity use to 

fuel-fired furnaces and boilers. (AGA, 

No. 11 at p. 2). Southern commented 

that the efficiency of fans in electric 

resistance furnaces makes no difference 

to the overall electricity use because the 

heat from the fan contributes to heating. 

(Southern, No. 14 at p. 3) 

Lochinvar recommended against 

putting an electricity requirement on 

boilers, since the installation 

configuration determines the capacity of 

the pump. (Lochinvar, No. 17 at p. 2) 

GAMA commented that any 

electricity consumption regulation 

should be based on parameters that exist 

in the current test procedure. (GAMA, 

No. 8 at p. 4) Lennox commented that 

EAE, a descriptor of furnace and boiler 

electricity consumption that is currently 

described in the test procedure and is 

reported by manufacturers, is the best 

choice for an electrical energy 

descriptor. (Lennox, No. 16 at p. 2) 

ACEEE supported measuring electric 

efficiency in terms of watts of electricity 

per cubic feet per minute (CFM) of 

airflow of a furnace blower and 

encouraged DOE to use realistic static 

pressures. (ACEEE, No. 15 at p. 3) NRDC 

recommends setting efficiency 

standards on fans in similar terms and 

believes DOE should set standards 

under standardized testing conditions at 

a fixed static pressure. (NRDC, No. 21 at 

pp. 3 and 2) 

ACEEE, CEC, and ODOE would like to 

see electricity consumption regulated 

separately from AFUE. (ACEEE, No. 15 

at p. 5; CEC, No. 19 at p. 3; and ODOE, 

No. 10 at p. 4) EEI stated that DOE 

should not include furnace fan energy 

use in AFUE calculations, since 

electricity is consumed throughout the 

year and AFUE is only for the heating 

season. (EEI, No. 6 at p. 2) Southern 

agrees that AFUE should not include 

electricity. (Southern, No. 14 at p. 3) 

Trane commented that AFUE does not 

include electric consumption and a new 

descriptor would delay the rulemaking 

process. (Trane, No. 9 at p. 2) Energy 

Kinetics commented that an efficiency 

rating should include annual electric 

consumption. (Energy Kinetics, No. 3 at 

p. 4)

In August 2002, GAMA convened a 

meeting to discuss the above issues at 

which the Department, GAMA, and 

ACEEE presented their ideas. In the fall 

of 2002, the Department considered 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45427

whether it had the legal authority to 

regulate electricity consumption in 

residential furnaces and boilers. Title 42 

of the United States Code provides in 

section 6291(6) that an ‘‘energy 

conservation standard’’ is either (A) ‘‘a 

* * * level of energy efficiency’’ or ‘‘a 

* * * quantity of energy use,’’ or (B) ‘‘a 

design requirement for the products 

specified * * *’’ Item (A) above seems 

to say that a single ‘‘energy conservation 

standard’’ cannot have measures or 

descriptions for both energy efficiency 

and energy use. A standard that 

includes both a level of energy 

efficiency and a quantity of energy use 

(kWh, thousands of watt-hours) would 

appear to conflict with the statutory 

language. Moreover, the Act, 42 U.S.C. 

6291(20), states that ‘‘the term ‘annual 

fuel utilization efficiency’ means the 

efficiency descriptor for furnaces and 

boilers, determined using test 

procedures prescribed under section 

323 * * *’’ The statute also requires 

DOE to use AFUE as the efficiency 

descriptor for furnaces and boilers. (42 

U.S.C. 6295(f)(1)) Thus, DOE believes 

that the statute would have to be 

amended to include electricity use in 

the AFUE before DOE could regulate 

electricity use in furnaces and boilers. 

Based on the approaches DOE 

considered and the statutory language, 

the Department believes it cannot set 

energy conservation standards for 

electricity use in conjunction with 

energy efficiency standards for 

residential furnaces and boilers at the 

present time. 

For informational purposes only, the 

Department did investigate a way to 

define an electricity use standard that 

would involve measuring electricity use 

as a function of furnace input capacity 

and the airflow. The details of this 

approach are given in Appendix 8.5 of 

the TSD. 

4. Test Procedure 

Section 7 of the Process Rule 

recommends that the Department 

identify and propose necessary 

modifications to relevant test 

procedures before issuing an ANOPR for 

energy conservation standards. There is 

an existing DOE test procedure for all 

furnace and boiler product classes, 

which DOE last revised in 1996. (10 

CFR part 430, Appendix N to Subpart B, 

Uniform Test Method for Measuring the 

Energy Consumption of Furnaces and 

Boilers) To a large extent, the DOE test 

procedure references ANSI/ASHRAE 

103–1993, Method of Testing for Annual 

Efficiency of Residential Central 

Furnaces and Boilers. 

The DOE test procedure includes a 

measurement of electricity 

consumption, Average Annual 

Auxiliary Electrical Energy 

Consumption (EAE). The furnace fan 

accounts for about 85 percent of total 

furnace electricity consumption. To 

allow proper selection of blower 

capacity, manufacturers rate furnace 

models in nominal cubic feet per 

minute (CFM) of cooling airflow at 0.5 

inches external static pressure; however, 

they do not report this as part of the test 

procedure. 

DOE received several comments on 

the existing test procedure for furnaces 

and boilers. Energy Kinetics 

recommended using the same operating 

conditions for boilers as for furnaces 

and said that the existing test procedure 

does not fully capture the differences in 

characteristics between boilers and 

furnaces. (Energy Kinetics, No. 3 at p. 1 

and p. 3, respectively) The analyses in 

this rulemaking are based on the 

existing test procedure. However, DOE 

is interested in additional data that 

would help the Department consider 

whether to update the existing test 

procedure to more accurately reflect 

actual boiler energy use. 

The Oilheat Manufacturers 

Association (OMA) commented that 

accurate evaluation of fuel savings from 

jacket insulation may need changes to 

the AFUE test. (OMA, No. 20 at p. 3) At 

this point, DOE believes the test 

procedure adequately deals with jacket 

insulation issues. DOE is aware that as 

a part of the regular update of the 

ASHRAE Standard 103 test procedure, 

ASHRAE is looking at several areas of 

the test procedure, including the effect 

of jacket insulation. Depending on 

ASHRAE’s findings, DOE may consider 

amending this part of the test procedure. 

Lochinvar Corporation commented 

that the test procedure for boilers does 

not properly reflect normal residential 

operation, as the temperature 

differential range of 10°F to 40°F found 

in normal operation is more accurate 

than the range in the test procedure. 

(Lochinvar, No. 17 at p. 1) Lochinvar 

also commented that DOE should use 

the thermal efficiency as the descriptor 

for boilers. (Lochinvar, No. 17 at p. 2) 

DOE uses AFUE for the energy 

descriptor because EPCA mandates it. 

OMA commented that DOE may need 

to revise its testing and rating 

procedures to evaluate electricity 

savings for oil-fired equipment. (OMA, 

No. 20 at p. 2) The current test 

procedure calculates the average annual 

auxiliary electrical energy consumption 

for oil furnaces using the same approach 

as for gas furnaces. The Department is 

not aware of any problems with using 

the existing procedure for oil-fired 

equipment and asks stakeholders that 

are aware of such problems to provide 

specific comments. 

The Department will continue to use 

the assumptions and conditions in the 

current test procedure. However, DOE is 

interested in high-quality field data so it 

can consider whether updating the 

existing test procedure is warranted. 

DOE received several comments 

regarding a test procedure for combined 

water and space heating appliances 

(combination appliances). Carrier and 

Southern Company commented that 

DOE should establish a test procedure 

for combined appliances. (Carrier, No. 7 

at p. 1; and Southern, No. 14 at p. 3) 

Trane commented that DOE should 

include combination systems in the 

rulemaking using standard water 

heaters, and that a test procedure should 

start with ASHRAE 124–1991. (Trane, 

No. 9 at p. 1) ODOE also commented 

that the test procedure should reference 

ASHRAE 124–1991. (ODOE, No. 10 at p. 

2) CEC commented that DOE should 

adopt the ASHRAE 124–1991 test 

procedure and not wait for ASHRAE 

revisions because the current edition of 

ASHRAE 124–1991 is widely approved 

and is adequate for this rulemaking. 

(CEC, No. 19 at p. 3) First Company 

commented that ASHRAE 124 is not a 

true consensus standard and that 

manufacturers strongly oppose it 

because it burdens combined appliance 

manufacturers. (First, No. 12 at p. 1) 

The National Institute of Standards 

and Technology (NIST) is developing a 

DOE test procedure for combined water 

heating and space heating equipment 

based on the ASHRAE 124–1991 test 

procedure standard. DOE’s process for 

adopting this test procedure has not yet 

been completed. Therefore, DOE did not 

analyze combined water heating and 

space heating equipment in the ANOPR 

stage of the furnace and boiler 

rulemaking. 

II. Residential Furnace and Boiler 

Analyses 

A. Market Assessment and Technology 

Assessment 

The Department reviewed existing 

literature and interviewed 

manufacturers to characterize the 

market for residential furnaces and 

boilers in the United States. Industry 

publications and trade journals, 

government agencies, and trade 

organizations provided the bulk of the 

information, including: (1) Historic 

shipments by product class, (2) number 

of models by capacity and efficiency 

level, (3) manufacturers of various 

products, and (4) product distribution 

patterns. 

45428 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

GAMA provided extensive historical 

shipment data to the Department. Where 

the data from GAMA were insufficient, 

DOE estimated historical shipments for 

each of the product classes through 

consultations with industry experts. The 

GAMA data give shipments for gas 

furnaces, including mobile home 

furnaces, as a group. Thus, to estimate 

mobile home gas furnace shipments, the 

Department used data on total mobile 

home placements (from the Census 

Bureau) and data from the American 

Housing Survey that give the share of 

gas in existing mobile homes of various 

vintages. 

The Department found no separate 

data on shipments for weatherized 

(outdoor) furnaces. It estimated 

shipments of weatherized gas furnaces 

based on estimated 1990–1997 

shipments of packaged air-conditioning 

equipment, since the latter are typically 

coupled with a weatherized gas furnace. 

These data suggest that weatherized gas 

furnaces account for 12 percent of total 

gas furnace shipments (not including 

mobile home gas furnaces). The 

remaining gas furnaces are classified as 

non-weatherized (indoor) gas furnaces. 

Since there are few weatherized oil-fired 

furnaces, DOE assumed that all oilfurnace shipments are non-weatherized. 

The GAMA data provide total 

shipments by fuel type for boilers. For 

each fuel, DOE estimated the split 

between hot water and steam types, 

based on estimates GAMA made in the 

early 1990’s. 

Table II.1 shows the estimated annual 

shipments in 2000 and the number of 

models in each of the product classes. 

Non-weatherized gas furnaces are by far 

the largest category.

TABLE II.1.—MARKET STATISTICS FOR FURNACES AND BOILERS BY PRODUCT CLASS

Product class 

Estimated 

shipments in 

2000 

Number of 

models in 

GAMA directory

(2001) 

Non-weatherized gas furnaces ................................................................................................................................ 2,645,000 6907 

Weatherized gas furnaces ....................................................................................................................................... 325,000 4476 

Non-weatherized oil-fired furnaces .......................................................................................................................... 120,000 868 

Weatherized oil-fired furnaces ................................................................................................................................. (1) 13 

Mobile home gas furnaces ...................................................................................................................................... 130,000 70 

Mobile home oil-fired furnaces ................................................................................................................................ (1) 16 

Hot water gas boilers ............................................................................................................................................... 190,000 990 

Hot water oil-fired boilers ......................................................................................................................................... 100,000 640 

Steam gas boilers .................................................................................................................................................... 36,000 254 

Steam oil-fired boilers .............................................................................................................................................. 13,000 140 

1Few. 

Most of the non-weatherized gas 

furnaces on the market have an 

efficiency of 80 percent AFUE. Only a 

few 78 percent AFUE models are still on 

the market. Roughly one-quarter of 

current sales of non-weatherized 

furnaces are condensing models, which 

range mostly between 90 percent and 92 

percent AFUE. 

The efficiency distribution of 

weatherized gas furnace models is 

similar to that of non-weatherized gas 

furnaces, except that no condensing 

units exist due to problems with 

condensate freezing. The efficiency of 

mobile home gas furnaces is generally 

either 75 percent or 80 percent AFUE, 

but there are a few condensing models 

with an efficiency of 90 to 94 percent 

AFUE. 

There are no gas furnaces currently on 

the market in the 83 to 89 percent AFUE 

range. In this range, condensate 

problems begin to occur, and yet the 

temperature of the flue is still too high 

to allow the use of polyvinyl chloride 

(PVC) for the venting system. These 

problems make proper venting of such 

a furnace difficult, requiring the use of 

higher-quality stainless steel to vent wet 

flue gases to the outdoors. 

In contrast to the available AFUE 

range of gas furnaces, oil-fired furnace 

models with an AFUE in the 82 to 86 

percent range are available but 

unavailable in the condensing (90 

percent AFUE and above) range. 

Because of the lower hydrogen content 

of fuel oil compared to natural gas or 

propane, condensate problems with oilfired furnaces at the 82 to 86 percent 

AFUE range levels are reduced. 

Condensing oil-fired furnaces are not 

currently available in the U.S. because 

the complexities associated with the 

maintenance of a secondary heat 

exchanger for oil-fired furnaces make 

production of high-efficiency oil-fired 

furnaces impractical. 

Most hot-water gas boilers have an 

AFUE in the 80 to 84 percent range. Gas 

boilers with higher AFUEs are vented 

with gas-tight stainless-steel venting 

systems to avoid condensate problems, 

until an AFUE of 90 percent is reached 

and PVC can be used. The AFUE for 

hot-water oil boilers ranges from 80 to 

88 percent. Gas steam boiler models 

have an AFUE in the 78 to 83 percent 

range; the range for oil-fired models is 

79 to 86 percent AFUE. 

A furnace or boiler is composed of a 

number of components—e.g., heat 

exchanger, fan and controls. For each of 

these components, manufacturers can 

make different choices; each of these 

choices is called a ‘‘design option.’’ For 

instance, a heat exchanger can be 

tubular, clamshell, or cylindrical in its 

design. Any individual furnace or 

boiler, which can be characterized by an 

efficiency level according to the DOE 

test procedure, is composed of an 

aggregate of design options. 

The Department based its list of 

technically feasible design options on 

options included in the previous 

ANOPR. (58 FR 47326, September 8, 

1993) The Department then updated the 

list through consultation with 

manufacturers of components and 

systems, trade publications, and 

technical papers. Since many options 

for improving product efficiency are 

available in existing equipment, product 

literature and direct examination 

provided additional information. 

1. Definition of Product Classes 

In general, the Department defines 

product classes based on information 

from discussions with appliance 

manufacturers, trade associations, and 

other interested parties. For this 

rulemaking, the Department developed 

product classes based on the type of 

energy used and performance-related 

features that affect utility to the 

consumers. Based on comments from 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45429

stakeholders and the market assessment, 

the product classes considered in this 

rulemaking are: 

• Gas furnaces 

—Non-weatherized 

—Weatherized 

• Oil-fired furnaces 

—Non-weatherized 

—Weatherized 

• Mobile home furnaces 

—Gas 

—Oil 

• Electric resistance furnaces 

• Hot water boilers 

—Gas 

—Oil 

• Steam boilers 

—Gas 

—Oil 

• Combination space/water-heating 

appliances 

—Water-heater/fancoil combination 

units 

—Boiler/tankless coil combination 

units 

The Department received comments 

on whether to include combination 

appliances that provide both space 

heating and domestic water heating as a 

product class. CEC and Carrier favored 

including combination appliances in the 

rulemaking. (CEC, No. 19 at p. 2; and 

Carrier, No. 7 at p. 1) EEI and Energy 

Kinetics want the Department to 

consider combination systems as a 

separate product category after the 

finalization of a test procedure. (EEI, No. 

6 at p. 1; and Energy Kinetics, No. 3 at 

p. 2) First Company opposed the 

inclusion of combination appliances in 

the rulemaking, stating that separate 

standards for combination systems are 

not warranted as they are already 

regulated as water heaters and boilers, 

and that including combination 

appliances will not result in significant 

energy savings. (First, No. 12 at p. 1) At 

this time, the Department has decided 

not to include combination heating and 

water heating appliances in the current 

rulemaking. DOE is working on 

adoption of the existing version of 

ANSI/ASHRAE 124–1991 ‘‘Methods of 

Testing for Rating Combination SpaceHeating and Water-Heating Appliances’’

as a test procedure for these products. 

ASE suggested separate product 

classes for condensing and noncondensing furnaces and boilers. (ASE, 

No. 18 at p. 2) Condensing furnace and 

boiler designs are more efficient but 

otherwise differ very little from noncondensing designs. The difference is 

the addition of a second heat exchanger; 

this added component represents a 

feature that does not change utility to 

the consumer. Therefore, the 

Department included condensing and 

non-condensing designs in a single 

product class.

Based on the market assessment and 

stakeholder comments, the Department 

grouped the product classes into four 

categories. 

The first category consists of the most 

widely used product class: NonWeatherized gas furnaces. The 

Department’s analyses considered this 

product class in depth. 

The second category consists of those 

classes that have shipments that are 

typically more than 100,000 per year: 

weatherized gas furnaces, mobile home 

gas furnaces, non-weatherized oil-fired 

furnaces, hot-water gas boilers, and hotwater oil-fired boilers. The analysis of 

these product classes is similar to that 

of the first category, but DOE considered 

a smaller number of design options. 

The third category includes product 

classes that have a low level of 

shipments: Steam gas boilers and steam 

oil-fired boilers. For these classes, DOE 

applied the results of the analyses of the 

hot-water boiler product classes. 

The Department did not conduct 

analyses on the fourth category, which 

includes weatherized oil-fired furnaces, 

mobile home oil-fired furnaces, and 

electric furnaces. The first two classes in 

this category have very low (essentially 

zero) shipments. The Department did 

not consider electric furnaces because 

they have limited energy-savings 

potential. 

Lochinvar commented that DOE 

should separate hot water boilers into 

low-mass and high-mass product 

classes. (Lochinvar, No. 17 at p. 1) 

Although they use different 

construction materials (cast iron vs. 

copper or aluminum), high- and lowmass boilers are essentially the same 

equipment and provide the same utility 

to the consumer. See 42 U.S.C. 6295 

(q)(1). Therefore, the Department 

included them in one product class. 

Lochinvar also commented that DOE 

should study boilers to the same extent 

as furnaces. (Lochinvar, No. 17 at p. 1) 

DOE used separate analytic tools to 

separately assess the boilers product 

class. 

B. Screening Analysis 

The screening analysis eliminated 

certain design options from further 

consideration in the engineering 

analysis phase. Section 4 of the Process 

Rule lists four factors to take into 

account in screening design options: 

1. Technological feasibility; 

2. Practicability to manufacture, 

install, and service; 

3. Adverse impacts on utility or 

availability to consumers; and 

4. Adverse impacts on health or 

safety. 

GAMA made a general comment that 

safety must always take priority over 

efficiency. (GAMA, No. 8 at p. 1) As the 

Process Rule recommends, the 

Department will screen out any design 

options that have adverse affects on the 

safety of consumers. 

The Department received a number of 

specific comments regarding design 

options. In considering these comments 

and its own analysis, the Department 

screened out a number of options for 

certain product classes, as shown in 

Table II.2. The options eliminated 

include: 

(1) Use of condensing secondary heat 

exchangers for oil-fired furnaces (sulfur 

content of fuel oil, soot, and heat 

exchanger fouling may have adverse 

impacts on health or safety); 

(2) Fuel-driven heat pumps (the 

practicality to manufacture, install, and 

service is uncertain); 

(3) Oil-fired pulse combustion (the 

practicality to manufacture, install, and 

service is not certain); 

(4) Self-generation of electricity using 

thermo-photovoltaics (not considered 

technologically feasible); 

(5) Smart valve for oil-fired furnaces 

and boilers (the practicality to 

manufacture, install, and service is not 

certain); and 

(6) Flue-gas recirculation (has not yet 

been shown to be technologically 

feasible in residential-sized equipment, 

and it has little energy-saving potential). 

For outdoor weatherized gas furnaces, 

the use of a condensing secondary heat 

exchanger that produces flue gas 

temperatures below the dew point 

temperature is not considered because 

condensate freezing may have adverse 

impacts on safety. 

Some options are not applicable for 

certain product classes. For example, 

improved or increased insulation is not 

applicable for boilers because boilers are 

tested as indoor appliances according to 

the DOE test procedure. 

The design options listed in Table II.2 

with a ‘‘Y’’ (for ‘‘yes’’) pass all screening 

criteria, so DOE initially included them 

in the engineering analysis. Chapter 4 in 

the TSD provides more detail on the 

design options.

45430 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.2.—SCREENING RESULTS FOR DESIGN OPTIONS BY PRODUCT CLASS

Design option 

Gas furnaces 

Oil-fired furnaces Mobile home 

gas-furnaces 

Hot water boilers 

Non-weatherized Weatherized Gas Oil 

Improved Heat Exchanger Effectiveness Y Y Y Y Y Y 

Modulating Operation Y Y Y Y Y Y 

Improved or Increased Insulation YYYY N/A N/A 

Condensing Secondary Heat Exchanger Y N N Y Y Y 

Electronic Ignition b b b Y Y b 

Induced or Forced 

Draft 

b b b Y Y b 

Infrared Burner Y Y Y Y Y Y 

Direct Vent Y Y Y Y Y Y 

Smart Valve N/A N/A N N/A N/A N 

Fuel Filtration N/A N/A Y N/A N/A Y 

Pulse Combustion Y Y N Y Y N 

Air-Atomized Burner 

with Modulation 

N/A N/A Y N/A N/A Y 

Delayed Action Oil 

Pump Solenoid 

Valve 

N/A N/A Y N/A N/A Y 

Increased Motor Efficiency Y Y Y Y Y Y 

Increased Blower Impeller Efficiency YYYY N/A N/A 

Self-Generation of 

Electricity 

N N N N N N 

Fuel-Driven Heat 

Pumps 

N N N N N N 

Flue Gas Recirculation N N N N N N 

Y The design option is applicable to this product class and passes screening. 

N The design option has been screened out from further analysis for this product class. 

N/A The design option is not applicable to this product class. 

b Already included in the baseline model design (see section C.2) 

C. Engineering Analysis 

The purpose of the engineering 

analysis is to estimate according to the 

DOE test procedure the energy savings 

potential from increased equipment 

efficiency levels, and to determine the 

incremental equipment and installation 

cost of achieving those levels, compared 

to the baseline model in each product 

class. The engineering analysis 

estimates the payback period for each of 

the design options in order for DOE to 

address the legally required 

‘‘rebuttable’’ payback consideration. The 

Department uses the costs developed in 

the engineering analysis in the LCC 

analysis. 

1. Approach 

There are a large number of ways to 

combine design options in furnaces and 

boilers to attain a particular efficiency 

level. To explore how manufacturers 

would likely design products to meet a 

standard and to thoroughly understand 

the relationships between different 

equipment configurations and 

efficiency, the Department considered 

several design options that could meet 

a given efficiency level. For the 

engineering analysis, DOE selected the 

design options considered most likely to 

be implemented. 

The baseline model for each product 

class is the starting point for analyzing 

technologies that provide energyefficiency improvement. The 

Department defined a baseline model as 

an appliance having the commonly 

available, most-cost-effective features 

and technologies while meeting the 

current efficiency standard. The 

Department defined a baseline model 

for each of the product classes in the 

first and second categories described 

above. 

After identifying the baseline models, 

the Department estimated the total cost 

of higher-efficiency units to the 

consumer through an analysis of 

manufacturer costs, markups, and 

installation costs. Costs for equipment 

design options are determined through 

tear-downs. Markups are estimated 

using publicly available corporate and 

industry data, supplemented by data 

from the Manufacturing Housing 

Institute. The Department created an 

‘‘Installation Model’’ to assess venting 

costs, and verified it against known 

existing data. 

2. Baseline Models 

Identification of the baseline for an 

equipment product class requires 

establishing a baseline efficiency level 

and selecting a size typical of that 

equipment. For furnace and boilers, the 

analysis also requires defining major 

design features, such as the 

configuration (which refers to the design 

of the supply air pathways), heat 

exchanger type, ignition type, and the 

means of heating fluid delivery (draft 

type). 

Several stakeholders submitted 

comments on recommended furnace 

and boiler baseline model 

characteristics. ACEEE commented that 

the Department should use the salesweighted median size as the baseline 

model size in each product class. 

(ACEEE, No. 15 at p. 5) AGA 

commented that the Department should 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45431

consider baseline models that include a 

range of building loads, airflows, 

regional heat demands, ignition system 

alternatives, and other technical 

variables. (AGA, No. 11 at p. 6) 

For each product class, GAMA 

provided specific recommendations for 

the features of the baseline model. For 

example, for the baseline nonweatherized gas furnace, GAMA 

recommended that the baseline should 

have an AFUE of 78 percent (the 

statutory minimum efficiency), 75 kBtu/

h (thousand Btu per hour) input, an 

induced draft combustion system, 

electric (hot surface) ignition, and a 

blower for three-ton cooling. (GAMA, 

No. 8 at p. 1) Trane commented that the 

baseline gas furnace should have 

electronic ignition, an induced draft, a 

75 kBtu/h input, 1200 CFM at 0.5′′ static 

pressure, and a three-ton airconditioning capacity. (Trane, No. 9 at 

p. 1) 

For the baseline oil-fired furnace, 

Lennox suggested that DOE use a 120 

kBtu/h size. (Lennox, No. 16 at p. 1) 

GAMA recommended that the baseline 

have an input of 105 kBtu/h, which is 

the most common in the current market. 

(GAMA, No. 8 at p. 3) 

MHI suggested that the baseline 

model for mobile home furnaces should 

have sealed combustion, a downflow 

configuration, and an inside thermal 

envelope footprint of less than 20 inches 

by 24 inches. (MHI, No. 13 at p. 1) 

GAMA recommended that the gas 

boiler baseline model should have an 

atmospheric burner, a standing pilot, 

and an electro-mechanical vent damper 

and an input of 105 kBtu/h. (GAMA, 

No. 8 at p. 3) For the oil-fired boiler 

baseline model, GAMA recommended a 

boiler with a power burner and an input 

of 140 kBtu/h. (GAMA, No. 8 at p. 3) 

In defining the baseline models, the 

Department took into account the above 

comments, as well as the technical 

description of the covered equipment, 

the definition of the product classes, 

and the results of the market 

assessment. DOE used the product 

features suggested by GAMA in the 

baseline definition, since they were 

consistent with most of the relevant 

stakeholder comments. Table II.3 

summarizes the main features of the 

baseline models. For more detail on 

baseline equipment, refer to the 

Engineering Analysis, section 6.3 of the 

ANOPR TSD.

TABLE II.3.—FEATURES OF FURNACE AND BOILER BASELINE MODELS

Product class 

Input capacity

(Btu/h) 

AFUE

(%) Configuration Heat exchanger type Ignition Draft 

Non-weatherized Gas Furnaces.75,000 78 Upflow ............................. Clam Shell/Tubular .......... Hot Surface ..................... Induced. 

Weatherized Gas Furnaces.75,000 78 Horizontal ........................ Clam Shell/Tubular .......... Hot Surface ..................... Induced. 

Mobile Home Gas Furnaces.70,000 75 Downflow ......................... Drum ................................ Standing Pilot .................. Natural. 

Non-weatherized Oil-Fired 

Furnaces.

105,000 78 Upflow ............................. Drum ................................ Intermittent Ignition .......... Forced. 

Hot Water Gas Boilers ..... 105,000 80 N/A .................................. Sectional, Dry-base, 

Cast-iron.

Standing Pilot .................. Natural. 

Hot Water Oil-Fired Boilers.140,000 80 N/A .................................. Sectional, Wet-base, 

Cast-iron.

Intermittent Ignition .......... Forced. 

In addition to the above features, the 

baseline models have a blower or pump 

driven by a standard permanent split 

capacitor (PSC) induction motor. 

3. Design Option Selection 

From the list of options that passed 

the screening analysis, DOE selected 

those design options considered most 

likely to be implemented. The 

Department assumed that manufacturers 

will incorporate design options that 

have the least cost to attain a given 

efficiency level. Cost and efficiency 

estimates were available for a broad 

array of design options. The Department 

used the relationship between cost and 

percent efficiency improvement to rank 

all the fuel-related design options. Two 

options were most favorable: increasing 

the heat exchanger area and increasing 

the heat exchanger transfer coefficient. 

In interviews with manufacturers, the 

Department confirmed that these 

choices were the most promising design 

options. 

The Department also included 

modulation technology as another 

design option that can provide an AFUE 

improvement for some of the product 

classes. Based on currently available 

products in the market, DOE applied 

two-stage modulation to noncondensing and condensing equipment 

and applied step modulation only to 

condensing furnaces. 

The Department also included 

consideration of the following design 

options: 

1. Improved heat exchanger 

effectiveness through 

electrohydrodynamic enhancement of 

heat exchangers; 

2. Condensate venting and disposal; 

3. Atomizing oil burner with twostage modulation; and 

4. Heat exchanger size optimization 

for oil-fired equipment. 

Section 6.4 of the ANOPR TSD further 

discusses the above design options. 

4. Manufacturing Cost Analysis 

There are three ways to estimate 

manufacturing costs: (1) The design 

option approach, reporting the 

incremental costs of adding specific 

design options to a baseline model; (2) 

the efficiency level approach, reporting 

incremental costs of achieving each 

level of energy efficiency improvement; 

and (3) the reverse engineering or costassessment approach, which requires a 

‘‘bottom-up’’ cost assessment based on a 

detailed bill of materials for models that 

operate at particular efficiency levels. 

The Department received a variety of 

recommendations on generating 

manufacturer cost estimates. ACEEE 

recommended using reverse engineering 

analysis. (ACEEE, No. 15 at p. 5) ASE 

commented that industry cost data lack 

transparency and credibility and 

suggested that the Department use 

reverse engineering as the primary data 

source. (ASE, No. 18 at p. 2) ODOE 

stated that manufacturer-supplied costs 

have been consistently (sometimes 

significantly) high, and suggested that 

DOE not rely on this single source. 

(ODOE, No. 10 at p. 4) EEI 

recommended that DOE not disregard 

industry cost data. (EEI, No. 6 at p. 2) 

Southern Co. supported the use of 

industry cost data rather than reverse 

engineering numbers. (Southern, No. 14 

45432 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

at p. 4) Trane recommended the 

efficiency level approach because: (1) 

There is no good simulation model 

available for all designs; (2) feasible 

design options are limited; (3) DOE 

should specify a performance standard, 

not a design standard; and (4) GAMA 

can gather accurate cost data. (Trane, 

No. 9 at p. 2) GAMA commented that if 

DOE gets manufacturer cost information 

directly from manufacturers, it should 

provide draft aggregate cost data so 

GAMA can confirm the reasonableness 

of the data. (GAMA, No. 8 at p. 1) 

Several comments suggested that DOE 

should consider historical trends or 

forces in estimating the retail price of 

equipment that would meet standards in 

the future. NRDC said DOE should 

include the ‘‘learning curve’’ effect that 

would come from greater cumulative 

production of higher-efficiency models. 

(NRDC, No. 21 at p. 2) ACEEE said that 

given historical trends and significant 

cost-reduction accomplishments of 

manufacturers, it is conceivable that 

they can produce higher equipment 

efficiency without significant increase 

in retail prices. (ACEEE, No. 15 at p. 5) 

NRDC, ACEEE, and CEC commented 

that actual equipment price increases 

have been lower than DOE’s projected 

increases in past rulemakings. (NRDC, 

No. 21 at p. 3; ACEEE, No. 15 at p. 4; 

CEC, No. 19 at p. 4) ACEEE urged DOE 

to review the accuracy of past price 

impact projections for regulated 

products. (ACEEE, No. 15 at p. 4) Trane 

suggested that the best way to 

understand retail prices is to get several 

hundred quotes covering a variety of 

regions, installation types, efficiency 

levels, and ranges of capacities. (Trane, 

No. 9 at p. 2) 

For other rulemakings, the 

Department has used production input 

costs and production technologies based 

on the best information available at the 

time. DOE has not made any 

assumptions about productivity 

improvements and material cost 

changes that may occur over time. The 

Department does not believe it can 

apply historical trends for residential 

furnaces or other products to forecast 

equipment costs where there are no data 

to show that the trends will continue. 

Therefore, the Department will not 

assume a productivity improvement 

factor in this rulemaking. 

After assessing the available methods 

and taking stakeholder comments into 

account, the Department used reverse 

engineering of existing products to 

estimate the manufacturing cost of the 

baseline model and the considered 

design options. The Department 

believes that the reverse engineering 

approach, which is based on a detailed 

bill of materials (BOM) for the various 

models, is the best way to accurately 

and cost-effectively assess 

manufacturing costs. The Department 

supplemented this approach with a 

review of relevant literature, computer 

simulation, and other analytical 

techniques, as well as industry-supplied 

data. Throughout the analysis period, 

the Department provided GAMA, 

manufacturers, and other stakeholders 

several opportunities to review and 

comment on the cost estimates to ensure 

accuracy and completeness. The 

Department considered these comments 

in its analysis. Refer to section 6.4 of the 

ANOPR TSD for further discussion of 

the method used for analysis of 

manufacturing costs. 

In estimating production costs for 

each potential efficiency (AFUE) level 

above the baseline model, the 

Department considered several design 

options that can be used to reach a given 

AFUE level. The Department also 

considered additional options that 

provide electrical power savings. The 

Department determined the efficiency 

levels corresponding to various design 

option combinations using 

manufacturer data submittals and DOE 

engineering calculations. 

The Department generated the BOM 

by examining and disassembling 

(through teardown analysis) some 

current-market units and/or simulating 

design options using numerical models 

and creating ‘‘hypothetical’’ units that it 

costed as if they were real units. (In the 

context of this study, the terms ‘‘reverse 

engineering’’ and ‘‘teardown analysis’’

solely describe the estimation of 

production costs by examining actual 

equipment or designs.) The availability 

of a large number of residential products 

with a wide range of efficiency allowed 

DOE to consider all potential design 

options in a reverse-engineering 

approach in order to establish an 

accurate estimate for production costs. 

The Department purchased and 

disassembled by hand the selected units 

and measured, weighed, and analyzed 

each part. Additionally, DOE studied 

and reconstructed all the steps of the 

manufacturing processes to finish the 

teardown analysis. The result was 

detailed BOMs that DOE used as input 

to the cost model.

The analysis required the Department 

to perform teardowns at a number of 

efficiency levels. Multiple teardowns 

per point were needed to capture major 

design approaches. To reduce the 

number of possible teardowns to a 

manageable level, the Department 

focused on representative sample units 

sold in high volumes. Thus, the sample 

units included in the teardown analysis 

do not represent all possible efficiency 

levels of each product class. DOE took 

the following steps in creating BOMs for 

additional efficiency levels: (1) Identify 

efficiency gaps; (2) Select the most 

promising design options; (3) Identify 

possible design modifications of 

existing units and create a written 

description of ‘‘hypothetical’’ (or 

‘‘theoretical’’) units; (4) Perform 

simulations to correlate design 

modifications with efficiency levels; 

and (5) Create BOMs for ‘‘hypothetical’’

units. 

The cost model is based on 

production activities and divides factory 

costs into the following categories: (1) 

Material (direct and indirect materials); 

(2) Labor (fabrication, assembly, indirect 

and overhead burdened labor); and (3) 

Overhead (equipment depreciation, 

tooling depreciation, building 

depreciation, utilities, equipment 

maintenance, rework). 

The Department used the cost data 

from all BOMs—whether obtained 

through teardowns or numerical 

simulations—in the cost model, which 

makes use of specific assumptions to 

provide cost estimates. These 

assumptions include industry averages 

for site-specific inputs (e.g., labor rates), 

assuming the production facility is a 

‘‘greenfield’’ plant (as if a new 

manufacturing plant were built) and 

assuming production volumes similar to 

current levels for each product class. 

Even after completion of both the teardown analysis on representative units 

and the numerical simulations, the 

Department still needed information for 

condensing boilers (both gas- and oilfired) and condensing mobile home 

furnaces. For these categories, DOE 

identified possible design options but 

did not have a methodology or a 

simulation tool in place to estimate the 

production costs. Therefore, the 

Department used a cost-per-pound 

estimation methodology for these 

products. 

In summary, the Department took the 

following steps in establishing 

manufacturing costs as a function of fuel 

efficiency: 

(1) Generate BOMs for products at 

different efficiency levels using 

teardown analysis and numerical 

simulations; 

(2) Enter BOMs into a cost model, 

incorporating assumptions obtained 

through available industry data, internal 

expertise, visits to manufacturers, and 

stakeholders’ input; 

(3) Perform sensitivity analysis and 

cost-per-pound estimates; and 

(4) Generate cost-efficiency data for 

each efficiency level. 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45433

Tables II.4a–f show the estimated 

incremental manufacturing costs of 

increasing AFUE for each product class. 

The reported efficiency levels are 

generally achieved by increasing heat 

exchanger area or improving the heat 

transfer coefficient. The incremental 

costs in the tables are relative to the 

baseline model for each product class. 

For the modulation design option, the 

Department considered a design 

approach currently in the market that 

uses a multiple-tap, multiple-speed PSC 

blower motor; a two-stage gas valve; and 

a multiple-tap, two-speed PSC inducer 

motor to achieve two-stage modulation 

operation. For this design, DOE 

estimated that an additional $23 would 

be added to the production cost of the 

furnace to account for the component 

changes. The Department estimated that 

the AFUE improvement for adding twostage modulation to a furnace would be 

1 percent, based on a survey of units 

with and without modulation in the 

GAMA directory. Therefore, to estimate 

the cost of a modulating furnace at 81 

percent AFUE, DOE added $23 to the 

production cost of a 80 percent AFUE 

furnace. An amendment to the current 

test procedure may be necessary to more 

completely characterize the energy 

savings from modulation. See Chapter 6 

of the TSD for further details.

TABLE II.4A.—INCREMENTAL MANUFACTURING COST FOR NON-WEATHERIZED GAS FURNACES

Efficiency level

(AFUE)

% 

Incremental 

cost 

78 Baseline Model ............. 0 

80 .......................................... $3 

81 .......................................... 6 

82 .......................................... 9 

90 .......................................... 146 

92 .......................................... 213 

96 .......................................... 570 

TABLE II.4B.—INCREMENTAL MANUFACTURING COST FOR WEATHERIZED

GAS FURNACES

Efficiency level

(AFUE)

% 

Incremental 

cost 

78 Baseline Model ............. 0 

80 .......................................... $3 

81 .......................................... 6 

82 .......................................... 9 

TABLE II.4C.—INCREMENTAL MANUFACTURING COST FOR MOBILE HOME

GAS FURNACES

Efficiency level

(AFUE)

% 

Incremental 

cost 

75 Baseline Model ............. 0 

80 .......................................... $29 

81 .......................................... 36 

82 .......................................... 46 

90 .......................................... 140 

TABLE II.4D.—INCREMENTAL MANUFACTURING COST FOR OIL-FIRED

FURNACES

Efficiency level

(AFUE)

% 

Incremental 

cost 

78 Baseline Model ............. 0 

80 .......................................... $2 

81 .......................................... 5 

82 .......................................... 7 

84 .......................................... 10 

85 .......................................... 15 

TABLE II.4E.—INCREMENTAL MANUFACTURING COST FOR HOT-WATER GAS

BOILERS

Efficiency level

(AFUE)

% 

Incremental 

cost 

80 Baseline Model ............. 0 

81 .......................................... $29 

82 .......................................... 39 

83 .......................................... 47 

84 .......................................... 55 

88 .......................................... 128 

91 .......................................... 379 

99 .......................................... 816 

TABLE II.4F.—INCREMENTAL MANUFACTURING COST FOR HOT-WATER OILFIRED BOILERS

Efficiency level

(AFUE)

% 

Incremental 

cost 

80 Baseline Model ............. 0 

81 .......................................... $4 

82 .......................................... 7 

83 .......................................... 11 

84 .......................................... 15 

86 .......................................... 22 

90 .......................................... 434 

95 .......................................... 836 

The Department also identified 

options that decrease electricity 

consumption in furnaces and boilers. 

The details are described in Appendix 

8.5 of the TSD. 

5. Markup Analysis 

Completing the equipment cost 

calculations in the engineering analysis 

requires determination of the cost to the 

customer of a baseline model furnace or 

boiler and the cost of more efficient 

units. The average customer price of 

such units is not generally known. To 

estimate the equipment costs to the 

customer, DOE determined typical 

markups on each stage of the 

distribution chain from the 

manufacturer to the consumer. The 

markup approach makes it possible to 

estimate a retail price from the 

manufacturing cost. In addition to 

estimating average markups, the 

Department also characterized the 

markups with probability distributions 

through a statistical analysis of U.S. 

Census data and used these 

distributions in the LCC analysis. 

The Department included the 

following expenses in the determination 

of the manufacturer markup: Research 

and development, net profit, general 

and administrative, warranty expenses, 

taxes, and sales and marketing. The 

estimated average markup of 1.26 was 

based on analysis of corporate financial 

records. The Department excluded 

shipping expenses (out-bound) because 

these expenses were included in the 

manufacturing cost. Research and 

development expenses were determined 

by assuming that engineering budgets 

would be reallocated from valueengineering and new-feature 

development to product development 

and redesign. The additional capital 

outlays and re-tooling investments are 

captured in the incremental cost of the 

equipment. 

The Department based the wholesale 

and contractor markups on firm balance 

sheet data. Builder markup (applied to 

new construction installations only) was 

estimated from U.S. Census data for the 

residential and commercial building 

construction industry and from HVAC 

industry data. Recent state and local 

sales tax data were used to estimate 

sales taxes (applied to replacement 

installations only). 

An exception to the above procedure 

was the case of mobile home furnaces, 

where the distribution chain is shorter; 

the heating equipment manufacturer 

sells to the mobile home maker, who 

installs the furnace at the factory. In this 

case, the Department estimated markups 

using information from the 

Manufacturing Housing Institute. 

The estimated average markups are 

listed in Table II.5. The markup on 

incremental costs (relative to a baseline 

model) is lower than the markup on the 

baseline model cost for wholesalers and 

45434 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

contractors because only profits and 

other operating costs typically scale 

with the manufacturer price or (for 

contractors) the cost of goods sold. The 

overall markups are lower for new 

construction installations than for 

replacement installations, since 

different markups apply. For more 

detail on how the Department 

developed the markups, refer to Chapter 

5 of the ANOPR TSD.

TABLE II.5.—AVERAGE MARKUPS ON

COSTS OF RESIDENTIAL FURNACES

AND BOILERS

Baseline 

model cost 

Incremental 

cost 

Manufacturer ..... 1.26 1.26 

Wholesaler ........ 1.36 1.11 

Contractor (new/

replacement) 1.41/1.62 1.22/1.33 

Builder (new 

construction 

only) .............. 1.43 1.33 

Sales tax (replacements 

only) .............. 1.07 1.07 

Total markup (on manufacturing cost)

Non-weatherized 

gas furnace ... 3.12 2.07 

Weatherized gas 

furnace .......... 3.12 2.07 

Oil-fired furnace 2.97 1.99 

Hot-water gas 

boiler ............. 2.97 1.99 

Hot-water oilfired boiler ..... 2.97 1.99 

Mobile home 

gas furnace ... 2.22 2.22 

6. Installation Cost 

The installation cost is the cost to the 

consumer for installing a furnace or a 

boiler; it is usually not part of the retail 

price. The cost of installation covers all 

labor and material costs associated with 

the installation of a new unit or the 

replacement of an existing one. For 

furnaces and boilers, the installation 

cost is the largest single component of 

the total cost to the consumer. It is even 

larger than the equipment cost.

The predominant part of the 

installation cost is the venting system. 

The American National Standards 

Institute (ANSI) standard Z21.47–1993 

defines four Categories (I–IV) for furnace 

or boiler venting systems. The categories 

are defined based on the operating 

pressure and temperature in the vent. 

Most non-condensing equipment 

operates with a Category I (high 

temperature, low pressure) venting 

system. Most condensing equipment 

operates with a Category IV (low 

temperature, high pressure) venting 

system, but some condensing boilers use 

a Category III (high temperature, high 

pressure) system. For a Category I 

venting system only, the 2002 National 

Fuel Gas Code (NFGC) Venting Tables 

13.1 through 13.5 define the 

requirements for installation. 

DOE devoted considerable effort to 

identifying appropriate costs to use in 

its analysis. In the process, DOE found 

that there is no complete data source for 

installation costs for the product classes 

under consideration. ACEEE suggested 

that DOE collect data from the field to 

help in estimating the cost of various 

types of installations. (ACEEE, No. 32 at 

p. 3) The Department concurs that this 

would be beneficial and will consider 

this approach if appropriate data are 

available. The Department hereby 

requests submittal of field installation 

cost data. 

One source of data is a 1994 GRI 

report, which GAMA supplemented in 

2002 with an updated summary version 

of the data. The installation costs in the 

GRI report were developed from the 

results of a field survey which several 

gas utilities conducted in 1992. These 

data are relatively old and, particularly 

for condensing furnaces, may not 

represent a well-established market. 

Differences between new and 

replacement installation costs may be 

underestimated. Further, no detailed 

cost breakdowns are available from the 

report for independent verification of 

the results. 

A second source is a 1999 Natural 

Resources Canada (NRCanada) study 

that developed installation cost data for 

non-weatherized gas furnaces for four 

Canadian areas. A company that 

provides cost estimates for building 

contractors conducted the study. The 

NRCanada study provides the most 

current data set available, and the data 

are used by Canadian government 

agencies and are well documented. 

However, for condensing furnaces, there 

are indications that these data are 

applicable only to new-construction 

installations. 

The Department looked at other 

possible sources of installation costs, 

including data from Wisconsin from a 

1999 survey of HVAC contractors. The 

Department did not use these data 

because of the very small size of the 

sample. 

Because of the shortcomings of the 

above sets of data, DOE performed its 

own study to determine installation 

costs for non-weatherized gas furnaces, 

referred to henceforth as the 

‘‘Installation Model.’’ The Department 

has posted the Installation Model 

spreadsheets for furnaces and boilers on 

its Web site: http://www.eere.doe.gov/

buildings/appliance_standards/

furnaces_boilers.html.

The Department used RS Means, a 

well-known and respected constructioncost-estimation method, to develop 

labor costs, and got quotes from national 

distributors to develop material costs. 

The Installation Model weight-averages 

the detailed costs for a large variety of 

typical installations in the field, 

including both new construction and 

retrofit installations; single and 

multifamily housing; plastic, metal and 

masonry chimney vents; single- and 

double-wall vent connectors; and 

common venting with other appliances. 

Chimney relining practices and 

orphaned water heaters are explicitly 

modeled. The Department validated the 

Installation Model results by comparing 

them with the preceding three data sets 

under equivalent assumptions; the 

incremental costs agree within 15 

percent. The Department is requesting 

comments about the Installation Model 

(see Issue 1 under ‘‘Issues for Public 

Participation’’ in section IV.E of this 

ANOPR). 

a. Non-Weatherized Gas Furnaces 

For non-weatherized gas furnaces, 

DOE considers the data derived with the 

Installation Model as the most current 

and comprehensive available for the 

analysis. It used a sensitivity analysis 

based on variations of installation size. 

The GAMA and NRCanada data sets 

also provide a basis for upper and lower 

bounds for installation cost. 

The Department determined that there 

is a small additional average installation 

cost for an 80 percent AFUE furnace 

relative to a baseline (78 percent AFUE) 

furnace. This cost involves the need to 

reline some masonry chimneys and 

applies to single-stage, as well as 

modulating, furnaces. 

When efficiency increases above 80 

percent AFUE, additional costs 

associated with venting system 

modifications may be necessary. 

At the DOE Venting workshop in May 

2002, the differences between steadystate efficiency (SSE) and AFUE were 

discussed in detail. Lennox and GAMA 

commented that installations in 

accordance with NFGC Venting Table 

rules may sometimes exceed the 

expected SSE, and recommended DOE 

apply a margin of safety to the SSE/

AFUE relationship. (Lennox, No. 35 at 

p. 2; and GAMA, No. 31 at p. 2) Lennox 

also said that some installation locations 

will yield operating conditions that 

differ substantially from test conditions. 

(Lennox, No. 35 at p. 2) Reflecting these 

concerns, DOE’s approach to 

determining the SSE/AFUE relationship 

includes an uncertainty range for the 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45435

fraction of installations at each 

efficiency level that would likely need 

a Category III venting system. DOE used 

the GAMA directory to develop data on 

the AFUE/SSE relationship. 

Several stakeholders commented that 

the SSE/AFUE relationship is not 

affected by differences in the type of 

furnace heat exchanger (tubular vs. 

clamshell). (Public Workshop Tr., No. 

25JJ at p. 68; GAMA, No. 31 at p. 6; and 

York, No. 33 at p. 3) DOE did not 

consider the type of furnace heat 

exchanger when evaluating the SSE/

AFUE relationship.

For the 81 percent AFUE level, DOE 

considered two cases for installation 

cost. The first assumes the use of twostage modulation technology. At 

present, two major manufacturers 

produce furnaces with 81 percent AFUE 

using modulation technology that 

allows use of a Category I venting 

system. By investigating existing models 

and manufacturers’ installation 

manuals, the Department determined 

that these furnaces must use Type B 

double-wall vent connectors in the 

venting system. 

The second case considers only the 

use of single-stage furnace models. The 

Department determined that at an 

energy efficiency of 81 percent AFUE, 

about 8 percent of the existing singlestage furnace models would have an 

SSE above 83 percent. At this SSE level, 

condensation in the venting system may 

occur, possibly leading to corrosion and 

carbon monoxide leakage. In this case, 

DOE assumed that 8 percent of 

installations would need a Category III 

stainless steel vent to allow safe 

operation. The remaining 92 percent 

would need to use Type B double-wall 

vent connectors in the venting system. 

For the 82 percent and 83 percent AFUE 

levels, DOE determined that 35 percent 

and 100 percent of units, respectively, 

could be above 83 percent SSE, and 

these units would need a Category III 

venting system for safe operation. 

Condensing furnaces at 90 percent 

AFUE use a Category IV venting system, 

which is mostly composed of a sidewall venting system with plastic vent 

pipes. For condensing furnaces, the 

Installation Model accounts for the 

installation of a new vent system, 

resizing of the remaining common 

system, condensate neutralization, and 

condensate pumping for disposal. The 

Department assumed that installation 

costs for all condensing furnaces are 

similar, since available information 

suggests that efficiency levels higher 

than 90 percent do not appreciably 

affect the installation cost for 

condensing gas furnaces. 

Simpson and GAMA commented that 

DOE should account for costs of 

handling the condensate disposal. 

(Simpson, No. 30 at p. 3; and GAMA, 

No. 8 at p. 1) The installation cost for 

condensing furnaces includes the cost of 

condensate disposal. 

The Department’s installation cost 

estimates are shown in Table II.6a. The 

cost data are presented in 2001 dollars 

to coincide with the manufacturing cost 

estimates.

TABLE II.6A.—INSTALLATION COST FOR NON-WEATHERIZED GAS FURNACES

Efficiency level

(AFUE)

(percent) 

NRCanada

(US $) 

Installation 

Model

(US $) 

GRI

(US $) 

78—Baseline Model ..................................................................................................................... 382 727 773 

80 ................................................................................................................................................. 382 731 965 

81—two-stage, no Category III .................................................................................................... 382 760 965 

81—single-stage, 8 Category III .................................................................................................. 432 810 1,104 

82 ................................................................................................................................................. 634 1,012 1,671 

83 ................................................................................................................................................. 1,012 1,356 2,732 

90 ................................................................................................................................................. 411 980 1,239 

93 and above ............................................................................................................................... 411 980 1,268 

b. Other Product Classes 

For weatherized gas furnaces, the 

location of the equipment (outdoors) 

influences the installation cost. Based 

on RS Means, the Department estimated 

a mean of $1,123 for the installation cost 

of the baseline model. Since limited 

data were available, DOE assumed that 

installation cost remains mostly 

constant as efficiency is increased. This 

assumption seems reasonable for singlepackage systems, as the increases in size 

and weight for more efficient, singlepackage systems are small relative to the 

large size and weight of the baseline 

model. 

For mobile home gas furnaces, 

common installation costs are part of 

the equipment cost because mobile 

home gas furnaces are assembled in the 

factory rather than in the field. The 

manufacturer’s markup includes these 

factory assembly costs. For 90 percent 

and over AFUE condensing furnaces, 

there is an additional installation cost in 

the field to account for condensate 

disposal systems. 

DOE modified the Installation Model 

to estimate venting costs for oil-fired 

furnaces, hot-water gas boilers, and oilfired boilers (see Chapter 6 of the TSD 

for details). For gas boilers, NFPA 54 

provides Category I venting guidelines; 

for oil-fired appliances, the applicable 

venting guideline is NFPA 31. However, 

the efficiency level at which the use of 

higher-cost Category III venting becomes 

necessary is not defined by these codes. 

For the analysis of gas boilers, DOE 

assumed that 20 percent of installations 

include Category III horizontal vents for 

construction-related reasons for 

efficiencies up to 84 percent AFUE. At 

85 percent AFUE, DOE assumes 

Category III venting must be used 100 

percent of the time. For oil-fired 

equipment, type L stainless venting is 

required at all AFUE levels. DOE 

assumes that the vent system must be 

upgraded to stainless AL–4C at 85 

percent and 84 percent AFUE for oilfired boilers and oil-fired furnaces, 

respectively. 

The Department’s installation cost 

estimates are shown in Table II.6b 

through II.6f. The cost data are 

presented in 2001 dollars to coincide 

with the manufacturing cost estimates.

TABLE II.6B.—INSTALLATION COST FOR

WEATHERIZED GAS FURNACES

AFUE

(percent) 

Average cost

($) 

Incremental 

cost

($) 

78 .............. 1,123 —

80 .............. 1,123 0 

81 .............. 1,123 0 

82 .............. 1,123 0 

45436 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.6C.—INSTALLATION COST FOR

MOBILE HOME GAS FURNACES

AFUE

(percent) 

Average cost

($) 

Incremental 

cost

($) 

75 .............. 0 —

80 .............. 0 0 

81 .............. 0 0 

82 .............. 0 0 

90 .............. 181 181 

TABLE II.6D.—INSTALLATION COST FOR

OIL-FIRED FURNACES

AFUE

(percent) 

Weighted average cost

($) 

Incremental 

cost

($) 

80 .............. 751 —

82 .............. 751 0 

83 .............. 751 0 

84 .............. 1,641 890 

85 .............. 1,641 890 

TABLE II.6E.—INSTALLATION COST FOR

HOT-WATER GAS BOILERS

AFUE

(percent) 

Weighted average cost

($) 

Incremental 

cost

($) 

80 .............. 1,679 —

82 .............. 1,679 0 

83 .............. 1,679 0 

84 .............. 1,679 0 

85 .............. 2,833 1,154 

90+ ............ 2,091 412 

TABLE II.6F.—INSTALLATION COST FOR

HOT-WATER OIL-FIRED BOILERS

AFUE

(Percent) 

Weighted

average cost 

Incremental 

cost 

80 .............. $1,631 —

84 .............. 1,631 0 

85 .............. 2,556 $925 

86 .............. 2,556 925 

90 .............. 2,091 460 

c. Safety and Reliability Issues Related 

to Installation 

Several stakeholders expressed 

concerns about safety and reliability 

issues associated with condensation 

problems that may arise with higherefficiency furnaces and boilers. For nonweatherized gas furnaces, GAMA and 

NPGA stated that 83 percent SSE, which 

corresponds to an AFUE of 80–82.5 

percent, is recognized as the threshold 

above which condensation may occur. 

(Public Workshop Tr., No. 25JJ at p. 162; 

and NPGA, No. 29 at p. 2) Lennox said 

that safety and reliability prevent 

manufacturers from selling products 

with an AFUE between 81 percent and 

90 percent, and even 81 percent AFUE 

furnaces are not sold in all geographic 

regions. ((Public Workshop Tr., No. 25JJ 

at p. 97) The few non-condensing 

furnaces sold with an AFUE over 81 

percent are intended for specialized 

applications. (Public Workshop Tr., No. 

25JJ at p. 97) Carrier commented that 

furnaces with an AFUE of 81 to 82 

percent were widely available in the 

1980’s and experienced numerous 

venting and corrosion problems. 

(Carrier, No. 7 at p. 1) Lennox 

recommended that the Department’s 

analysis should not consider gas-fired 

equipment between 81 percent and 90 

percent AFUE because of the difficulties 

in ensuring the safe operation of furnace 

and venting systems for the maximum 

useful life of the equipment. (Lennox, 

No. 16 at p. 1) Trane said that the fact 

that there are no available products with 

AFUE values between 82 percent and 90 

percent is a very important indicator of 

the existing efficiency range that allows 

for satisfactory margins of safety. (Trane, 

No. 34 at p. 1) ACEEE maintains that 83 

percent AFUE is technically feasible 

without significant risk of corroding the 

heat exchanger. (ACEEE, No. 15 at p. 2) 

For furnaces with an AFUE in the 

range of 81–83 percent, the Department 

evaluated the impact of condensate on 

vent systems. Based on the common 

practice with higher efficiency gas 

boilers, the Department determined that 

the use of Category III venting systems 

can adequately address safety concerns 

at these AFUE levels. The Department 

included costs for installing Category III 

venting systems where the analysis 

determined they would be needed. Refer 

to section 6.5 of the ANOPR TSD for 

further discussion. 

Battelle urged DOE to take into 

account the increased liabilities that 

may arise with higher efficiency. (Public 

Workshop Tr., No. 25JJ at p. 215) GAMA 

said that DOE must consider the risks 

and costs associated with venting and 

corrosion problems. (GAMA, No. 31 at 

p. 2) Trane said that increasing the 

AFUE above 81 percent would place an 

undue burden on manufacturers to 

protect customer safety. (Trane, No. 33 

at p. 1) DOE addressed this issue by 

assigning Category III venting systems to 

an appropriate fraction of installations, 

thus capturing the costs associated with 

ensuring safe operation of higherefficiency furnaces. 

For condensing furnaces, GAMA 

recommended that the Department 

consider in its analyses regional and 

local building code requirements 

concerning venting materials and 

practices. GAMA also mentioned the 

problems with less expensive plastic 

materials, such as high temperature 

plastic vents (HTPV), to vent exhaust 

gases, which resulted in a recall by the 

U.S. Consumer Product Safety 

Commission, and cautioned DOE about 

the appropriate use of materials and 

approaches to reduce condensation 

problems (e.g., vent coating, vent preheating, new materials, improved ventconnectors). (Public Workshop Tr., No. 

25JJ at p. 174) The Department used the 

appropriate venting practices for 

condensing furnaces in its analysis and 

only considered materials commonly 

used in existing equipment designs. 

Several stakeholders commented 

about including in DOE’s analysis the 

cost of upgrading the venting system 

due to increased efficiency. ACEEE 

recommended that the Department 

include costs to address the risks to the 

venting system. (ACEEE, No. 15 at p. 2) 

GAMA commented that costs must 

reflect installation in complete 

compliance with all manufacturer 

instructions and code requirements, 

including extra installation costs for 

relining or resizing non-compliant 

venting systems for orphaned water 

heaters. (GAMA, No. 8 at p. 3) GAMA 

also said that DOE needs to consider 

costs of upgrade or repair when the 

furnace is no longer vented using a 

Category I system. (Public Workshop 

Tr., No. 25JJ at p. 87) York said DOE 

should consider that a large percentage 

of replacement furnaces are installed 

where masonry chimneys are used 

(thereby requiring chimney upgrade), 

and another large segment of 

installations use common venting with 

water heaters. (York, No. 33 at p. 3) 

GAMA and NPGA commented that the 

new efficiency standards for water 

heaters will contribute to the 

condensation problem because many 

furnaces and water heaters are vented in 

a common system. (Public Workshop 

Tr., No. 25JJ at p. 174; and NPGA, No. 

35 at p. 2) ACEEE urged DOE to improve 

the understanding of this issue. (ACEEE, 

No. 32 at p.4) 

The Department included all costs for 

installations that are in complete 

compliance with manufacturer 

instructions and code requirements. 

This includes upgrades when the 

furnace is no longer vented using a 

Category I system, and changes to 

common venting systems. See Chapter 6 

of the TSD for more details on 

assumptions regarding orphaned water 

heaters and common venting systems. 

During the Framework Workshop, the 

Department proposed to investigate 

controls and sensors that prevent the 

development of condensation in the 

venting system. In its response, GAMA 

said that by the time a sensor or CO 

detector works, it is too late to prevent 

condensation. (Public Workshop Tr., 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45437

No. 25JJ at p. 171) AGA said that some 

control strategies would have adverse 

safety and health impacts. (Public 

Workshop Tr., No. 25JJ at p. 177) DOE 

agrees with the above comments but did 

not evaluate different control strategies 

in this analysis because of the potential 

for adverse impacts on the safety and 

health of consumers.

York said that venting applications for 

mobile home heating equipment have 

their own special requirements and 

standards, which must be considered 

when determining the impact of 

efficiency requirements on venting 

issues. (York, No. 33 at p. 3) The venting 

system of mobile home heating 

equipment is assembled in the factory as 

part of the mobile home construction, 

and its cost is included in DOE’s 

markup analysis for this product class. 

GAMA said that DOE should 

investigate corrosion and venting issues 

related to boilers. (GAMA, No. 31 at p. 

4) DOE included in this analysis the 

cost of appropriate venting of higherefficiency equipment for boiler product 

classes. 

As this brief discussion makes clear, 

several stakeholders have expressed 

concerns that requiring higherefficiency furnaces and boilers could 

result in situations where condensation 

could create safety problems for 

consumers. In addition, stakeholders 

have expressed concern about the use of 

special non-corrosive materials as well 

as controls and sensors to prevent 

condensation in the vent system. DOE 

believes that it has adequately 

addressed the safety issue by assigning 

Category III venting systems to an 

appropriate fraction of the installations 

in its analysis. This approach captures 

the costs associated with ensuring safe 

operation of higher-efficiency furnaces. 

DOE has also accounted for the 

effectiveness of materials as applicable 

to this analysis. As noted above, the 

Department did not consider controls 

and sensors to prevent condensation 

because of the adverse safety and health 

impacts on consumers. 

7. Maintenance Costs 

Maintenance costs include regular 

maintenance and repair of a furnace or 

a boiler when it fails. They cover all 

associated labor and material costs. For 

the discussion of the analysis of 

maintenance costs, refer to section 6.6 of 

the ANOPR TSD. 

For non-weatherized and weatherized 

gas furnaces and gas boilers, DOE used 

maintenance cost data from a 1994 GRI 

report. The data came from a field 

survey sponsored by several gas utilities 

that repair and service furnace and 

boiler equipment. The survey 

methodology estimated the average cost 

per service call as the average total 

service charge. 

The GRI study also developed the 

maintenance frequency as a function of 

the equipment efficiency level: once 

every four years for 80 to 81 percent 

AFUE equipment and once every three 

years for 82 to 83 percent AFUE 

equipment. For 90 percent and 92 

percent AFUE equipment, the 

maintenance value represents a service 

contract that includes a specified set of 

routine repairs. The 96 percent AFUE 

furnace also includes a service contract 

that provides for regular annual 

maintenance. The Department 

annualized the costs over the estimated 

lifetime of the furnace (see Table II.7).

TABLE II.7.—ANNUALIZED MAINTENANCE COST FOR GAS FURNACES

AND BOILERS

AFUE Mean cost

($) 

81% and less ........................ 35 

82–83% ................................. 58 

90% and 92% ....................... 61 

96% ....................................... 102 

For oil-fired furnaces and oil-fired 

boilers, DOE applied the results of a 

survey performed for the water heater 

rulemaking. This survey identifies the 

typical cost of annual service contracts 

applied to all oil equipment in a house. 

These contracts are very common in the 

Northeast, where most of the oil heating 

equipment is located. The mean cost of 

an annual service contract for all 

considered efficiency levels is $104. 

For mobile home furnaces, DOE used 

the data from the 1993 rulemaking for 

this product class. It also identified an 

additional maintenance cost needed for 

the design options considered in this 

analysis. 

GAMA commented that the added 

components and complexity of modern 

furnaces bring increased maintenance 

and repair costs. (GAMA, No. 8 at p. 3) 

ACEEE commented that continuing 

pressures to increase quality and reduce 

time and training for maintenance 

should be able to check increases in 

such costs. (ACEEE, No. 15 at p. 6) DOE 

believes that the maintenance costs used 

in the analysis reflect the best currently 

available data.

8. Summary of Inputs 

Table II.8 summarizes the inputs used 

to calculate rebuttable payback periods 

for various energy efficiency levels.

TABLE II.8.—SUMMARY OF INPUTS USED IN THE ENGINEERING ANALYSIS

Input Description 

Equipment Cost .............................. Uses a cost model of baseline model manufacturing costs created by tear-down analysis; design option 

analysis was used to fill gaps. Industry feedback from GAMA and individual manufacturers was incorporated to generate manufacturing cost versus efficiency curves for primary and secondary classes. 

Markups .......................................... Markups are derived from an analysis of corporate financial data. Manufacturing costs are multiplied by 

manufacturer, distributor, contractor, and builder markups, and sales tax, as appropriate, to get equipment price. 

Installation Cost .............................. Uses a distribution of weighted-average installation costs from the ‘‘Installation Model.’’ Installation configurations are weight-averaged by frequency of occurrence in the field, and vary by installation size. The Installation Model is RS Means-based, and comparable to available known data. 

Maintenance Costs ......................... Uses GRI data for gas furnaces and boilers, water heater rulemaking survey results for oil-fired equipment, 

and data from the 1993 rulemaking for mobile home furnaces. 

Annual Energy Use ......................... Energy use is calculated using the DOE test procedure. 

Energy Prices .................................. AEO 2003 forecast prices for year 2012. 

9. Rebuttable Payback Periods 

Section 325(o)(2)(B)(iii) of the Act, 42 

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

rebuttable presumption that a standard 

is economically justified if the Secretary 

finds that ‘‘the additional cost to the 

consumer of purchasing a product 

complying with an energy conservation 

standard level will be less than three 

times the value of the energy * * * 

savings during the first year that the 

consumer will receive as a result of the 

45438 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

standard, as calculated under the 

applicable test procedure * * * ’’

Using the cost inputs described above, 

combined with energy calculations 

under the DOE test procedure, the 

Department calculated simple payback 

periods for each efficiency level using 

the ratio of incremental total installed 

cost to the change in the annual 

operating cost (see Table II.9). Refer to 

section 6.7 of the ANOPR TSD for 

further discussion of the calculation 

methods. As can be observed in Table 

II.9 a number of efficiency levels higher 

than current standards have paybacks of 

less than three years. However, payback 

periods calculated based on energy 

consumption in actual field conditions 

may differ significantly. The LCC and 

Payback Period Analysis described in 

the following section reflects field 

conditions and is therefore a more 

accurate depiction of consumer impacts. 

The Department does not make a 

determination of economic justification 

based on the rebuttable payback 

presumption. Economic justification is 

based on a weighing of the seven factors 

described in section I.C of this ANOPR. 

A number of efficiency levels higher 

than current standards are economically 

justified by this metric. Payback periods 

calculated based on energy 

consumption in actual field conditions 

may differ significantly; the LCC 

analysis considers such conditions. 

Note that in the process of setting a 

standard, the Department weighs many 

factors in addition to the economic 

justification, as listed in section I.B of 

this ANOPR.

TABLE II.9.—EFFICIENCY LEVELS WITH LESS THAN 3-YEAR PAYBACK PERIOD USING DOE TEST PROCEDURE

Product Class 

Efficiency 

Level (AFUE)

(Percent) 

Payback 

(years) 

Non-weatherized Gas Furnace ................................................................................................................................ 80 1.0 

Weatherized Gas Furnaces ..................................................................................................................................... 80 0.6 

81 0.8 

82 0.9 

Mobile Home Furnaces ........................................................................................................................................... 80 2.8 

Oil-fired Furnaces .................................................................................................................................................... 80 0.2 

81 0.2 

82 0.2 

83 0.3 

Hot-Water Oil-fired Boilers ....................................................................................................................................... 81 0.4 

82 0.4 

83 0.4 

84 0.4 

D. Life-Cycle Cost (LCC) and Payback 

Period (PBP) Analysis 

When DOE is determining whether an 

energy efficiency standard is 

economically justified, EPCA directs 

DOE to consider the economic impact of 

potential standards on consumers. (42 

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

that impact, the Department calculated 

changes in equipment life-cycle cost 

(LCC) for consumers that are likely to 

result from each candidate standard, as 

well as payback periods. The effects of 

standards on individual consumers 

include changes in operating expenses 

(usually lower) and changes in total 

installed cost (usually higher). The 

Department analyzed the net effect of 

these changes by calculating the 

changes in LCC compared to a base case 

forecast. The LCC calculation considers 

total installed cost (equipment purchase 

price plus installation cost), operating 

expenses (energy and maintenance 

costs), equipment lifetime, and discount 

rate. The Department performed the 

analysis from the perspective of the user 

of residential furnace and boiler 

products. 

The LCC and PBP results are 

presented to facilitate stakeholder 

review of the LCC analysis. Similar to 

the LCC analysis, the PBP is based on 

the total cost and operating expenses. 

But unlike the LCC analysis, only the 

first year’s operating expenses are 

considered in the calculation of PBP. 

Because the PBP analysis does not take 

into account changes in operating 

expense over time or the time value of 

money, it is also referred to as a 

‘‘simple’’ payback period. 

Trane commented that the LCC 

analysis does not reflect consumer 

purchasing behavior, which exhibits a 

preference for a simple payback of less 

than 3 years. (Trane, No. 9 at p. 3) As 

mentioned above, the Department 

calculated payback periods as well as 

LCCs, and takes both factors into 

account in determining the economic 

justification for each possible energy 

efficiency standard.

AGA commented that the LCC 

analysis should be the primary basis for 

economic justification. (AGA, No. 11 at 

p. 5) The Department will weigh all 

costs and benefits, including the LCC. 

1. Approach 

The LCC analysis estimates the LCC 

for representative equipment in houses 

that are representative of the segment of 

the U.S. population that is buying 

furnaces and boilers. The calculation of 

LCC is done for a representative sample 

of houses, one house at a time, using 

appropriate values for the inputs each 

time. To account for uncertainty and 

variability in specific inputs such as 

lifetime and discount rate, there is a 

distribution of values with probabilities 

attached to each value. For each house, 

DOE samples the values of these inputs 

from the probability distributions. As a 

result, the analysis produces a range of 

LCCs. A distinct advantage of this 

approach is that DOE can identify the 

percentage of consumers achieving LCC 

savings or attaining certain payback 

values due to an increased efficiency 

standard, in addition to the average LCC 

savings or average payback for that 

standard. Refer to section 8.1 of the 

ANOPR TSD for further discussion of 

the LCC analysis method. 

The Department based the payback 

period calculations in the engineering 

analysis on the DOE test procedure. The 

test procedure uses specific, carefully 

prescribed values to calculate annual 

energy consumption. When the test 

procedure was written, these values 

were considered to be relatively typical 

of conditions in U.S. homes. In contrast, 

the LCC analysis estimates furnace and 

boiler energy consumption under field 

conditions for a sample of houses that 

is representative of U.S. homes. These 

conditions include the outdoor climates 

during the heating and cooling season, 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45439

which influence the operating hours of 

the equipment. 

For each product class, the LCC 

analysis considers all candidate 

standard efficiency levels, as well as the 

maximum-efficiency technology 

available. To estimate the impact of 

improved efficiency across a wide range 

of households that use furnaces and 

boilers, DOE selected a sample of 

households from the 1997 Residential 

Energy Consumption Survey (RECS97). 

For each sampled household, DOE 

estimated the energy consumption of 

furnaces and boilers with baseline 

model design characteristics and design 

options that yield higher efficiencies. 

DOE then calculated the LCC for all 

design options. 

To account for the uncertainty and 

variability in the inputs to the LCC 

calculation for a given household and 

between different households, the 

Department used a Monte Carlo 

simulation. A Monte Carlo simulation 

uses a distribution of values to allow for 

variability and/or uncertainty on inputs 

for complex calculations. For each 

input, there is a distribution of values, 

with probabilities (weighting) attached 

to each value. Monte Carlo simulations 

sample input values randomly from the 

probability distributions. 

For each product class, DOE 

calculated the LCC and payback period 

10,000 times per Monte Carlo 

simulation run. For some variables, 

such as energy price and climate, each 

calculation used the values associated 

with the sampled RECS house. The 

RECS houses were sampled according to 

the weighting each received from the 

Energy Information Administration 

(EIA). This weighting reflects the 

prevalence of various features in the 

national population of houses. Sampling 

according to the weighting means that 

some of the RECS houses are sampled 

more than once and others may not be 

sampled at all. The Department used 

Microsoft Excel spreadsheets with 

Crystal Ball, an add-on software, to 

perform the Monte Carlo analysis. 

GAMA commented that the cost of 

using Crystal Ball to perform the Monte 

Carlo analysis makes it difficult for 

stakeholders to use. (GAMA, No. 41 at 

p. 7) DOE seeks to minimize the 

hardware and software necessary to 

duplicate its analysis. At the same time, 

it wishes to handle the issues of 

variability among impacts and 

uncertainty in data and projections as 

comprehensively and rigorously as 

possible. Changing to another tool at 

this time for the current analysis would 

entail significant costs and delays since 

the LCC analysis tool using Crystal Ball 

is finished. DOE will explore the 

suitability of other, less expensive, 

analysis tools for future rulemakings. 

In addition, DOE has established a 

process for making the analysis results 

available to the public, including 

providing extensive documentation, 

posting the documentation and the LCC 

spreadsheet on the DOE Web site, 

holding informal meetings with 

stakeholders to walk them through the 

data and methods, publishing Technical 

Support Documents (TSDs), holding 

workshops, and receiving and 

responding to verbal and written 

comments.

GAMA commented that DOE’s use of 

Monte Carlo analysis to select 

households at random from the RECS 

database has no statistical validity and 

is potentially misleading from a policy 

standpoint. It noted that the sampling 

method: (1) Ensures that not every RECS 

household is represented in the analysis 

and that many are represented more 

than once; and (2) subjects each 

household that is selected to only one 

combination of variables instead of the 

hundreds or thousands that are needed 

to fully characterize the uncertainty 

surrounding that household. (GAMA, 

No. 41 at p. 3) 

GAMA’s comment seems to directly 

criticize the use of the Monte Carlo 

methodology in general, rather than the 

correctness of DOE’s particular 

application of it. The Monte Carlo 

method gives an adequate picture of the 

average policy affect on households, the 

variation in impacts over the housing 

stock, and the fraction of households 

likely to benefit from the standard. The 

systematic accuracy of the analysis for 

which the Monte Carlo simulation is 

used depends on the available data for 

each variable. Statistically, the degree to 

which the results of the simulation 

represent the full range of possible 

outcomes depends only on the sample 

size and can be judged using standard 

statistical techniques. 

GAMA said that DOE should evaluate 

each RECS household independently 

and expose each household to the full 

range of uncertainty and variability 

expected in that household. GAMA said 

that DOE should calculate the 

distribution of possible financial 

impacts for each RECS sample 

household to identify a ‘‘most likely’’

financial result for that household as 

well as a distribution of results, 

expressed within confidence intervals, 

on either side of the most likely result. 

To determine the most likely financial 

affect on the typical U.S. household, 

DOE must then compute a weighted 

average of all most likely financial 

results from each individual 

distribution. (GAMA, No. 41 at p. 3) 

It appears that GAMA is asking the 

Department to estimate the probability 

distribution of possible economic 

impacts on the specific households 

surveyed in RECS. DOE designed the 

LCC analysis to answer the question of 

what is the variation of economic 

impacts of a standard for a 

representative national sample of 

consumer households. The current 

analysis is not designed to evaluate 

specific impacts on individual 

households that were surveyed in RECS. 

DOE assumes a representative national 

distribution of households is selected 

when the Monte Carlo simulation 

samples a statistical distribution of 

households from the RECS data 

according to the EIA assigned weights. 

Many of the characteristics are attached 

to the households in the RECS database, 

e.g., energy prices, size of house, vintage 

of existing heating equipment, and type 

of fuel. GAMA does not provide clear 

evidence that the national distribution 

of household characteristics constructed 

using this method is incorrect. Overall, 

DOE believes that the current method is 

appropriate because it uses parameters 

for each household that have a basis in 

measured or sampled data from that 

household. 

For each product class, the base case 

forecast assumes that the purchase of 

equipment in the absence of new 

standards reflects current patterns with 

respect to efficiency. The Department 

sampled the AFUE of the base case 

forecast equipment assigned to each 

house from a distribution of AFUEs that 

is representative of current shipments. 

Thus, the sample houses vary in terms 

of their base case forecast equipment. 

The Department assigned to some 

houses base case forecast equipment 

that is more efficient than some of the 

design options. For those design 

options, DOE considered those houses 

as not being affected by the standard, 

since there would be no energy savings. 

For a given set of design options, the 

LCC analysis provides a distribution of 

households that can be divided into 

those for whom the LCC will decrease 

compared to the base case forecast 

(positive benefit), those for whom the 

LCC will increase compared to the base 

case forecast (negative impact), and 

those for whom the LCC will not change 

because the design option is less 

efficient than the base case forecast for 

that house. 

The Department received comments 

on regional issues that affect the LCC 

analysis. GAMA stated that DOE should 

examine whether costs for higher 

efficiency furnaces and boilers vary by 

region and consider regional differences 

in product use. (GAMA, No. 8 at p. 1) 

45440 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

5The Department intends these virtual furnace 

models to represent typical furnaces with basic 

features, but not to describe specific, existing 

furnaces. The Department derived the 

characteristics of the virtual furnace models from 

existing basic furnace models, after examining 

directories and product literature for existing 

furnaces.

AGA and EEI stated that the LCC 

analysis should consider regional 

differences among consumer 

populations. (AGA, No. 11 at p. 5; and 

EEI, No. 6 at p. 5) GRI stated that the 

Department should not extrapolate 

atypical regional data across all 

segments of the U.S. (GRI, No. 5 at p. 3) 

The Department recognizes that regional 

factors are important in the assessment 

of energy efficiency standards for 

heating equipment, and it evaluated the 

impact of regional variations as part of 

the LCC analysis. 

Many consumers purchase heating 

equipment using some type of 

financing. GAMA commented that DOE 

has been deducting rather than adding 

financing costs in its analyses. (GAMA, 

No. 41 at p. 4) DOE’s method accounts 

for the fact that purchases financed by 

credit card, mortgage, or other means 

are paid over time—not all at once. It 

discounts the value of those payments 

in the LCC calculation. Because DOE 

uses the financing cost interest rate as 

the discount rate, the present value of 

payments (including principal and 

financing costs) for consumers 

purchasing equipment over time is 

exactly the value of the equipment costs 

as if paid all at once. 

2. First-Cost Inputs 

For each efficiency level analyzed, the 

LCC analysis needs input data for the 

total installed cost of the equipment. 

a. Equipment Prices 

DOE derived equipment prices by 

multiplying manufacturer cost by 

manufacturer, distributor, contractor, 

and builder markups and sales tax, as 

appropriate. The LCC analysis draws on 

the engineering analysis for estimating 

manufacturing costs. 

For non-weatherized gas furnaces, to 

represent the majority of combinations 

of input capacity and maximum-rated 

airflow, the Department developed 

conceptual (‘‘virtual’’) furnace models 5

to represent 26 different combinations 

of those two variables. Each virtual 

model had its own cost and energy 

characteristics. (Refer to Chapter 7 of the 

ANOPR TSD for more details about 

virtual models.) To develop the cost for 

each virtual model, DOE reverseengineered one model size (input 

capacity = 75kBTU/h and airflow 

capacity = 3 tons) and assigned costs for 

the different components. The 

Department scaled the cost for other 

input capacities from the basic model 

cost for both non-condensing and 

condensing models. A cost adder 

adjusted costs for furnaces of different 

maximum nominal airflow capacity. 

The virtual models include models with 

the most commonly occurring input 

capacities, with corresponding 

maximum nominal airflow rates. 

For weatherized gas furnaces, DOE 

used the same virtual models as in the 

analysis of non-weatherized gas 

furnaces. For mobile home furnaces and 

oil-fired furnaces, the Department used 

a subset of the 26 virtual furnace models 

because the market in those product 

classes is limited to a smaller number of 

sizes of furnaces. For the boiler product 

classes, DOE used the sizes of the 

virtual models for non-weatherized gas 

furnaces, weighted to match the boiler 

sizes in the shipments data from GAMA. 

b. Installation Costs

The LCC analysis draws on the 

engineering analysis for estimating 

installation costs. DOE assigned each 

household an installation cost from a 

distribution of weighted-average values. 

For non-weatherized gas furnaces, oilfired furnaces, and gas and oil boilers, 

the distribution was calculated with the 

Installation Model. For weatherized gas 

furnaces, DOE used calculations based 

on the RS Means’ approach to calculate 

a mean value and assigned a triangular 

distribution of ±15 percent around the 

mean. For mobile home furnaces, which 

are installed at the mobile home factory, 

the installation cost is included in the 

markup. 

3. Operating-Cost Inputs 

a. Annual Energy Use 

Energy consumption consists of the 

fossil fuel and electricity used to operate 

a furnace or boiler year-round. While 

the primary focus of this rulemaking is 

on fossil fuel consumption, design 

options that save on fossil fuels may 

also change electricity consumption. To 

take this effect into account, it is 

necessary to model electricity 

consumption in detail. If the house has 

air conditioning, the energy 

consumption includes the electricity 

used by the furnace blower to distribute 

conditioned air during the cooling 

season. 

In determining the reduction in 

annual energy use due to more efficient 

furnace and boiler designs, the 

Department did not take into account a 

rebound effect. The rebound effect 

occurs when an appliance that is made 

more efficient is used more intensively, 

so that the expected energy savings from 

the efficiency improvement do not fully 

materialize. The Department seeks 

comments on whether a rebound effect 

should be included in the determination 

of annual energy savings. If a rebound 

effect should be included, the 

Department seeks data for basing the 

calculation of the rebound effect. 

For non-weatherized gas furnaces, 

DOE chose 26 generic (‘‘virtual’’) 

models to represent the range of input 

capacity and airflow capacity of models 

currently available on the market. The 

number of real models with every 

possible combination of characteristics 

is too unwieldy to model. The 

Department used specifications from 

actual models to select the 

specifications for each virtual model. 

These specifications included blower 

size, motor size, supply-air outlet area, 

power consumption of the draft inducer 

and the igniter, several delay times, and 

fan curves. The Department assigned 

one virtual model to each of the sample 

housing records. The particular virtual 

model assigned to each house depended 

on the location and characteristics of the 

house. 

To simulate fossil fuel and electrical 

energy use by furnaces, DOE used the 

1997 RECS to get a representative 

sample of houses. RECS97 is based on 

a sample of 5900 households that EIA 

surveyed for information on energy 

consumption and expenditures, stock of 

energy-consuming appliances, and 

energy-related behavior. The 

information collected represents all 

households nationwide—about 101 

million. 

The heating and cooling loads are the 

amount of heating and cooling that a 

given house needs to keep it 

comfortable over an entire year. 

Determination of annual heating and 

cooling loads for the house requires 

making certain assumptions about its 

size and construction, thermal 

efficiency, and geographical location. 

Determination of the energy 

consumption of the system installed to 

satisfy the heating and cooling loads 

requires estimating the input capacity 

and the efficiency of the existing 

furnace and the size and seasonal 

energy-efficiency of the existing air 

conditioner. 

The final element of the energy use 

calculations involved calculating how 

much energy furnaces of various designs 

would need to meet the heating and 

cooling load of each sample house. At 

this stage, DOE calculated the energy 

use of the virtual model furnace 

assigned to each house, incorporating 

all design options. Each house has 

several dozen different energy use 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45441

values, each one reflecting the furnace’s 

gas and electricity use with a different 

combination of design options. Chapter 

7 of the ANOPR TSD provides more 

information about these calculations. 

The Department based the energy 

calculations for the other product 

classes on the energy calculations for 

non-weatherized gas furnaces, with 

appropriate changes to the calculations 

to account for the different energyconsuming characteristics of the other 

product classes. 

EEI commented that the Department 

should compare conditional demand 

analysis of heating loads to simulationbased modeling. (EEI, No. 6 at p. 5) DOE 

did not use simulation-based modeling 

to estimate heat loads. The analysis 

used heating loads from RECS that are 

gotten with conditional demand 

analysis. Detailed simulation-based 

modeling that considers specific 

equipment designs is outside the scope 

of the analysis for this rulemaking. 

Several stakeholders pointed out that 

furnace blower capacity is typically 

sized to meet air conditioning 

requirements and there is no tight 

relationship between blower electricity 

use and the furnace output. (NRDC, No. 

21 at p. 4; GAMA, No. 8 at p. 4; and 

Trane, No. 9 at p. 2) The Department is 

aware that the furnace blower capacity 

is determined by the cooling capacity of 

the air conditioner that the furnace is 

designed to accompany, and takes this 

into account in its analysis. 

EEI commented that DOE should 

account for the duct system in analyzing 

electricity use of fan motors. (EEI, No. 

6 at p. 4) DOE accounts for duct system 

performance in the analysis by assigning 

system curve coefficients to each house 

selected from a set of distributions 

appropriate for a house with that size air 

conditioner. 

An issue regarding electricity use of 

furnace fans concerns whether DOE 

should consider fan operation in the 

heating season only, or year-round, 

since many furnaces are combined with 

split-system air conditioners and use the 

same circulating air fan during the 

heating and cooling modes. EEI 

recommended that DOE not include 

cooling season impacts because 

measures to reduce fan energy in the 

heating season may increase energy use 

for the air conditioning system during 

the cooling season. (EEI, No. 6 at p. 3 

and 5) Trane commented that DOE 

should not consider electricity use in 

the cooling mode since fan electric use 

for cooling is already covered by air 

conditioning standards. (Trane, No. 9 at 

p. 2) Because the fan is an integral part 

of a furnace, DOE accounted for yearround furnace electricity use, but it does 

not intend to regulate furnace electricity 

use. 

b. Energy Prices 

The LCC analysis requires 

information on the price of natural gas 

or heating oil, as well as the price of 

electricity used by electrical 

components. A furnace fan operates 

during the heating season and the 

cooling season. Since electricity prices 

vary by season in much of the country, 

DOE separately estimated winter and 

summer electricity prices. Boilers do not 

use electricity in the summer. Refer to 

section 8.3 of the ANOPR TSD for 

further discussion of the derivation of 

energy prices. 

For all product classes, the 

Department used average energy prices 

to calculate the energy costs of the base 

case equipment. DOE used marginal 

energy prices for the cost of saved 

energy associated with higher-efficiency 

equipment. Marginal energy prices are 

the prices consumers pay for the last 

unit of energy used. Since marginal 

prices reflect a change in a consumer’s 

bill associated with a change in energy 

consumed, such prices are appropriate 

for determining energy cost savings 

associated with efficiency standards.

For oil-fired furnaces and boilers, as 

well as gas furnaces using LPG, the 

Department used average prices for both 

base case and higher-efficiency 

equipment, as the data necessary for 

estimating marginal prices were not 

available. 

For each household sampled from the 

RECS database, DOE identified the 

average electricity and gas prices either 

from that household’s data, if available, 

or from another household in the same 

census division for which both prices 

were available. The Department 

estimated marginal energy prices from 

the RECS monthly billing data. The 

results show that the marginal prices are 

very close to average prices for the RECS 

households. 

As in past rulemakings, the 

Department used price forecasts by the 

EIA to estimate the trend in average 

natural gas and oil prices and average 

and marginal electricity prices. To 

arrive at prices in 2012 and beyond, it 

multiplied the average and marginal 

price for 1998 by the forecasted annual 

price changes in the Reference Case 

forecast in EIA’s Annual Energy Outlook 

2003 (AEO 2003). 

AGA supported DOE’s use of EIA 

energy price forecasts. (AGA, No. 11 at 

p. 5) ASE suggested that the Department 

allow for price increases beyond EIA 

forecasts and that DOE modify EIA 

forecasts by reviewing industry 

forecasts. (ASE, No. 18 at p. 3) It is the 

policy of the Department to use 

forecasts provided by the EIA about 

future trends in energy prices. Since 

there is uncertainty in price forecasting, 

the Department also evaluated the 

sensitivity of financial impacts to 

alternative energy price forecasts in 

AEO 2003. In addition, the Department 

will make available to stakeholders the 

ability to conduct a scenario analysis to 

examine the results under different 

energy-price conditions. 

c. Maintenance Costs 

For the LCC analysis, DOE drew on 

the maintenance cost data derived in the 

engineering analysis. DOE assumed a 

triangular distribution for maintenance 

costs in order to capture the variability 

of these costs among homes. The 

Department was not aware of any recent 

data that provide a distribution of 

maintenance costs. However, based on a 

sensitivity analysis in the 1994 GRI 

report, which increased maintenance 

costs by 20 percent, and based on 

engineering judgement the Department 

assumed that a 15 percent range is most 

appropriate for a distribution. Thus, the 

DOE assigned the minimum 

maintenance cost to be 15 percent below 

the average maintenance cost and the 

maximum to be 15 percent above the 

average. 

4. Equipment Lifetime 

The equipment lifetime is the age at 

which furnaces or boilers are retired 

from service. Based on industry data, 

DOE used lifetimes as shown in Table 

II.9. DOE used a triangular probability 

distribution to assign a lifetime to 

individual furnaces in the sample 

houses from a range for each product 

class. Because none of the available data 

on equipment lifetime shows a clear 

relationship between efficiency and 

lifetime, the Department assumed that 

equipment lifetime is independent of 

efficiency.

45442 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.9.—EXPECTED EQUIPMENT LIFETIME

[years] 

Gas furnace Oil-fired

furnace Gas boiler Oil-firedboiler Heat pump Electricfurnace 

Minimum ........................................................................... 10 10 13 12 6 11 

Mean ................................................................................ 20 15 17 15 14 17 

Maximum .......................................................................... 30 20 22 19 21 23 

GAMA said that because models are 

becoming more complex and more 

expensive to repair, owners may be 

likely to replace rather than repair 

equipment, which would lower the 

average life of equipment. (GAMA, No. 

8 at p. 4) The Department believes that 

the probability distribution of 

equipment lifetimes used in the analysis 

is appropriate, given available evidence 

of past performance and recent trends. 

5. Discount Rate 

The Department derived the discount 

rates for this analysis from estimates of 

the interest or ‘‘finance’’ cost to 

purchase furnaces or boilers. Following 

financial theory, the ‘‘finance’’ cost of 

raising funds to purchase furnaces or 

boilers can be interpreted as: (1) The 

financial cost of any debt incurred to 

purchase equipment, principally 

interest charges on debt, or (2) the 

opportunity cost of any assets used to 

purchase equipment, principally 

interest earnings on household equity. 

The purchase of equipment for new 

homes entails different finance costs for 

consumers than those from a purchase 

of replacement equipment. Thus, the 

Department used different discount 

rates corresponding to the finance cost 

of new construction and replacement 

installations. Refer to section 8.3 of the 

ANOPR TSD for further discussion of 

the method used to estimate discount 

rates. 

Furnaces or boilers purchased in new 

homes are financed with home 

mortgages. For purchases made to 

replace equipment, where cash or some 

form of credit is used to finance the 

acquisition, it is appropriate to establish 

how the purchase affects a consumer’s 

overall household financial situation. It 

is assumed that consumers maintain a 

balance of debt and equity in their 

portfolio that is not likely to change as 

a result of the purchase of a furnace or 

boiler. The Department assumed that 

households draw on equity and debt in 

proportion to the shares of the different 

types of equity and debt holdings in 

U.S. households. The Department 

estimated the average household equity 

and debt portfolio based on 1995 and 

1998 Survey of Consumer Finances 

(SCF) data, which show that the types 

of equity and debt include second 

mortgages, credit cards, transaction 

accounts, certificates of deposit, U.S. 

savings bonds, stocks, and mutual 

funds. For each type of equity and debt, 

DOE estimated an interest/return rate 

using time-series data, wherever 

possible. For each house, the 

Department selected a type of equity or 

debt and then selected a discount rate 

for that house from a distribution of 

rates. The weighted-average real interest 

rate across all types of household debt 

and equity (based on the share of each 

type in the average portfolio in 1995 and 

1998) is 6.7 percent. 

ASE suggested that, for replacement 

purchases, DOE should survey 

consumer financing patterns to 

determine the shares of cash, home 

equity credit, unsecured loans, and 

other credit in furnace and boiler 

purchases. (ASE, No. 18 at p. 3) DOE is 

not aware of any statistically 

representative data that show how 

households use debt and equity to 

purchase a replacement furnace or 

boiler. 

Trane commented that households 

have a large amount of debt on credit 

cards, so additional expenses for higherefficiency heating equipment will 

reduce funds available to pay off such 

high-interest debt. (Trane, No. 9 at p. 3) 

DOE believes that its approach accounts 

for the role of credit card debt in 

household financial portfolios. 

For equipment installed in new 

homes, the Department estimated the 

discount rate based on mortgage interest 

rate data provided in the SCF. This 

survey shows that mortgage rates carried 

by homeowners in 1998 averaged 7.9 

percent. After adjusting for inflation and 

interest tax deduction, real after-tax 

interest rates on mortgages averaged 4.2 

percent. ASE suggested that DOE use 

current mortgage interest rates as a 

discount rate for products sold in new 

homes. (ASE, No. 18 at p. 3) Since 

current rates may not be representative 

of rates in effect in 2012, DOE used 

mortgage interest rates that are 

representative of historical rates. The 

Department’s method uses data that 

provide a distribution of mortgage rates 

among consumers and uses the most 

current data available at the time of 

analysis which was for 1998. 

To account for variation in discount 

rates among consumers, DOE got 

information about the distribution of 

rates of interest or return on debt and 

equity among households from the data 

sources mentioned above. The 

Department calculated the real, after-tax 

rates as described above. The 

Department believes that this method 

allows for establishing a valid 

distribution of discount rates over the 

full range of discount rates relevant to 

most purchasers of the products covered 

by this rulemaking. 

GAMA commented that: (1) The 

discount rate used should reflect 

opportunity cost, which is independent 

of financing methods; and (2) the 

opportunity cost should be based on a 

distribution of returns on consumer 

portfolios, regardless of their choice of 

equipment purchase financing. (GAMA, 

No. 41 at p. 6) DOE used a distribution 

of discount rates for replacement 

furnaces to reflect the suggestions made 

by GAMA. 

GAMA suggested that implicit 

discount rates, while not a financial 

calculation, are a valid way to evaluate 

consumer decision making. (GAMA, No. 

41 at p. 6 ) Because the LCC analysis is 

a financial analysis, DOE does not use 

implicit discount rates. In addition, 

DOE finds it difficult to measure 

implicit discount rates because of 

market imperfections, such as the cost 

of getting information about efficient 

appliances. 

6. Effective Date 

The effective date is the date on and 

after which a manufacturer must 

comply with an energy conservation 

standard in the manufacture of a 

covered product. (10 C.F.R. § 430.2) 

DOE had anticipated that the effective 

date for any new energy efficiency 

standard for residential furnaces and 

boilers would be January 1, 2012. This 

date was based on the assumption that 

a final rule would be published by 

January 1, 2004. Thus, the Department 

calculated the LCC for all consumers as 

if each one purchased a new residential 

furnace or boiler in 2012, the year it 

assumed the standard would take effect. 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45443

6 In the analysis of standards for CAC and heat 

pumps, the Department considered the share of 

consumers that would receive a net LCC benefit, 

among other factors. However, it did not use a 

specific criterion with respect to the percent of 

consumers that would receive a net benefit.

For purposes of conducting the analyses 

for this ANOPR, DOE based the cost of 

the equipment on year 2012; however, 

because the Department collected 

manufacturing cost data for the ANOPR 

engineering analysis in 2001, it 

expresses all dollar values as year 2001 

dollars. Under 42 U.S.C. 6295 (f)(3)(B), 

any revised energy standards for these 

products will become effective eight 

years after its publication as a final rule 

in the Federal Register. 

7. Inputs to Payback Period Analysis 

The payback period (PBP) is the 

amount of time it takes the consumer to 

recover the assumed higher purchase 

expense of more energy efficient 

equipment through lower operating 

costs. This type of calculation is known 

as a ‘‘simple’’ payback period because it 

does not take into account changes in 

operating expense over time or the time 

value of money. 

The inputs to the calculation of the 

PBP are the total installed cost of the 

equipment to the customer for each 

efficiency level and the annual (first 

year) operating expenditures for each 

efficiency level. The PBP calculation 

uses the same inputs as the LCC 

analysis, except that electricity price 

trends and discount rates are not 

needed. The calculation needs energy 

prices only for the year in which a new 

standard is expected to take effect, in 

this case the year 2012.

8. Summary of Inputs 

Table II.10 summarizes the inputs 

used to calculate the customer economic 

impacts of various energy efficiency 

levels.

TABLE II.10.—SUMMARY OF INPUTS USED IN THE LCC AND PAYBACK ANALYSIS

Input Description 

Equipment Price .............................. Derived by multiplying manufacturer cost by manufacturer, distributor, contractor, and builder markups and 

sales tax, as appropriate. 

Installation Cost .............................. Uses a distribution of weighted-average installation costs from the ‘‘Installation Model.’’ Installation configurations are weight-averaged by frequency of occurrence in the field, and vary by installation size. The Installation Model is RS Means-based, and comparable to available known data. 

Maintenance Costs ......................... Uses GRI data for gas furnaces and boilers, water heater rulemaking survey results for oil-fired equipment, 

and data from the 1993 rulemaking for mobile home furnaces. 

Annual Heating Cooling Load ......... Heating and cooling loads calculated using 1997 RECS data. The furnace input capacity versus airflow capacity is assumed based on the vintage of the equipment and characteristics of each house. 

Annual Energy Use ......................... 26 virtual models based on actual furnace characteristics capture the range of common furnace sizes. Energy calculations reflect actual house characteristics. 

Energy Prices .................................. 1997 average and marginal energy prices are calculated for each house. AEO 2003 forecasts are used to 

estimate future average and marginal energy prices. 

Lifetime ............................................ Uses Appliance Magazine survey results. 

Discount Rate ................................. Data from Survey of Consumer Finance and other sources were applied to estimate a discount rate for 

each house. 

9. LCC and PBP Results 

For each set of sample houses using 

equipment in a given product class, 

DOE calculated the average LCC savings 

and the median PBP for various ways of 

achieving each efficiency level. The 

Department calculated the average LCC 

savings relative to the base case forecast 

in each product class. As mentioned 

above, the base case forecast assumes 

that equipment purchases in the 

absence of new standards will reflect 

current purchasing patterns, with 

respect to efficiency. Therefore, the base 

case forecast is not limited to baseline 

model equipment. 

Tables II.11a–f show the percentage of 

households that have a net cost and a 

net benefit for each design option. EEI 

commented that a minimum criterion 

for a standard level should be that at 

least 90 percent of affected consumers 

should receive a benefit, and that if DOE 

chooses not to use 90 percent, then it 

should use the same criterion as it used 

for central air conditioners (CAC) and 

heat pumps.6 (EEI, No. 6 at p. 2) 

Southern also suggested that the 

Department use the same criteria as it 

did in the CAC rulemaking. (Southern, 

No. 14 at p. 1) EEI also recommended 

that the Department show the overall 

percentage of consumers who would 

gain and lose from a given standard 

level. (EEI, No. 6 at p. 3) NRDC believes 

that ‘‘winners’’ and ‘‘losers’’ should be 

analyzed on a state-by-state basis so 

these results can be compared to a 

national standard. NRDC also 

commented that DOE should accept a 

higher proportion of losers for climatesensitive products such as furnaces than 

it does for other products. (NRDC, No. 

21 at p. 3)

DOE will consider the overall percent 

of consumers with net benefit and with 

net cost in the course of this 

rulemaking. The economic impact of a 

standard level on consumers is one of 

several factors that the Department 

weighs in determining whether 

economic justification exists for energy 

efficiency standards. As part of the 

consumer subgroup analysis, DOE will 

report fractions of households with net 

benefit or net cost at a regional level. 

The available data are not sufficient to 

produce statistically significant results 

at a state-by-state level. 

For non-weatherized gas furnaces 

(Table II.11a), the 81 percent AFUE 

level using single-stage (8 percent 

Category III venting system) shows a 

slightly negative LCC impact (¥$3), but 

the 81 percent AFUE level using twostage modulation (no Category III 

systems required) has a positive LCC 

savings of $72. The positive LCC savings 

for the 81 percent two-stage modulation 

design are due, in part, to its having 

lower energy consumption than the 

single-stage furnace of the same AFUE. 

To estimate the energy use of this 

furnace under field conditions, DOE 

adopted the assumptions for two-stage 

modulation that appear in the DOE test 

procedure (see Appendix 6.3 of the 

TSD). DOE is requesting comments on 

this issue; see section IV.E.4 of this 

ANOPR. The 90 percent AFUE 

condensing level has a negative average 

LCC impact.

45444 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.11A.—LCC AND PBP RESULTS FOR NON-WEATHERIZED GAS FURNACES

AFUE: design option 

LCC Payback 

Average

$ 

Average

savings $ 

Net cost

% 

No impact

% 

Net benefit

% Median years Average years 

78% .............................. 9,966 ........................ ........................ ........................ ........................ ........................ ........................

80% .............................. 9,795 0 0 99 1 2.1 37.8 

80% 2-stage modulation ............................ 9,718 41 33 27 40 8.6 13.5 

81% 8% Cat. III ............ 9,789 ¥3 32 27 41 8.8 27.8 

81% 2-stage modul., no 

Cat. III ....................... 9,680 63 29 27 45 7.6 17.0 

82% .............................. 10,170 ¥292 70 26 4 28.7 84.6 

82% 2-stage modulation ............................ 10,103 ¥256 65 26 9 18.5 60.2 

83% .............................. 10,400 ¥468 73 26 1 63.3 121.3 

90% .............................. 9,917 ¥154 56 26 18 17.9 42.5 

92% Incr. HX Area ....... 9,924 ¥166 60 15 25 16.1 41.7 

96% Step Mod ECM .... 10,723 ¥954 89 2 9 32.3 88.9 

For weatherized gas furnaces (Table 

II.11b), the results show positive average 

LCC savings for AFUE levels through 82 

percent. The exception is the 80 percent 

Improved Heat Transfer Coefficient 

design option due to the higher cost of 

this design.

TABLE II.11B.—LCC AND PBP RESULTS FOR WEATHERIZED GAS FURNACES

AFUE: design option 

LCC Payback 

Average

$ 

Average

savings $ 

Net cost

% 

No impact

% 

Net benefit

% Median years Average years 

78% Baseline Model .... 8,545 ........................ ........................ ........................ ........................ ........................ ........................

80% Incr. HX Area ....... 8,457 2 0 98 2 1.1 1.5 

80% Improved Insulation ............................ 8,454 4 26 46 28 9.0 8.2 

80% Improved Heat 

Xfer ........................... 8,467 ¥4 52 46 2 2.8 3.7 

81% Incr. HX Area ....... 8,418 23 2 46 52 2.0 2.6 

81% Improved Insulation ............................ 8,415 25 20 20 60 5.2 6.4 

81% Improved Heat 

Xfer ........................... 8,424 18 32 20 48 3.8 5.1 

82% Incr. HX Area ....... 8,380 53 3 20 77 2.1 2.9 

82% Improved Insulation ............................ 8,377 56 18 0 82 4.3 5.6 

82% Improved Heat 

Xfer ........................... 8,382 51 24 0 76 2.5 3.4 

For mobile home gas furnaces (Table 

II.11c), the results show positive average 

LCC savings for the 80 to 82 percent 

AFUE levels using single-stage 

technology. The 90 percent AFUE 

condensing level shows an average LCC 

saving of $192, but 45 percent of the 

households are negatively impacted.

TABLE II.11C.—LCC AND PBP RESULTS FOR MOBILE HOME GAS FURNACES

AFUE: design option 

LCC Payback 

Average 

LCC

$ 

Average 

savings

$ 

Net cost

% 

No impact

% 

Net benefit

% 

Median 

years 

Average 

years 

75% Baseline Model ............................................................ 7,904 ................ ................ ................ ................ ................ ................

80% ...................................................................................... 7,480 64 1 85 14 2.4 4.7 

80% 2-stage ......................................................................... 7,718 ¥163 80 5 15 26.0 60.5 

81% ...................................................................................... 7,428 112 10 5 85 4.4 6.3 

81% 2-stage Modulation ...................................................... 7,670 ¥117 75 5 20 24.9 60.3 

82% ...................................................................................... 7,385 153 14 5 81 5.1 7.5 

82% 2-stage Modulation ...................................................... 7,630 ¥80 70 5 25 22.9 56.3 

90% ...................................................................................... 7,352 184 46 5 49 12.1 22.7 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45445

For oil-fired furnaces (Table II.11d), 

the results show positive average LCC 

savings for AFUE levels from 80 percent 

through 83 percent.

TABLE II.11D.—LCC AND PBP RESULTS FOR OIL-FIRED FURNACES

AFUE: design option 

LCC Payback 

Average

$ 

Average

savings $ 

Net cost

% 

No Impact

% 

Net benefit

% Median years Average years 

78% Baseline Model .... 16,194 ........................ ........................ ........................ ........................ ........................ ........................

80% .............................. 15,900 11 0 96 4 0.2 0.2 

81% .............................. 15,762 95 2 39 59 0.4 0.5 

81% Atom Burner 2-

stage Mod ................. 15,885 8 42 30 28 11.7 19.4 

82% .............................. 15,625 190 2 30 68 0.3 0.4 

82% Atom Burner 2-

stage Mod ................. 15,753 89 35 22 42 8.5 13.8 

83% .............................. 15,492 293 3 22 75 0.3 0.4 

83% Atom Burner 2-

stage Mod ................. 15,626 178 31 15 54 6.8 11.2 

84% .............................. 15,967 ¥111 58 15 27 13.7 20.8 

84% Atom Burner 2-

stage Mod ................. 16,106 ¥240 71 7 22 16.3 25.1 

85% .............................. 15,845 1 49 7 44 10.0 13.8 

85% Atom Burner 2-

stage Mod ................. 15,989 ¥143 69 0 31 13.7 20.1 

For hot-water gas boilers (Table 

II.11e), the results show positive average 

LCC savings for the AFUE levels from 

81 percent through 84 percent using 

single-stage technology.

TABLE II.11E.—LCC AND PBP RESULTS FOR HOT-WATER GAS BOILERS

AFUE: design option 

LCC Payback 

Average LCC

$ 

Average

savings

$ 

Net cost

% 

No

impact

% 

Net

benefit

% 

Median years Average years 

80% Baseline Model .... 10,635 ........................ ........................ ........................ ........................ ........................ ........................

81% .............................. 10,371 93 0 65 35 2.1 2.4

81% 2-stage Modulation ............................ 10,599 ¥36 38 44 18 9.9 14.8

82% .............................. 10,314 125 3 44 53 2.5 3.3

82% 2-stage Modulation ............................ 10,542 ¥36 48 30 22 9.3 19.6

83% .............................. 10,256 166 5 30 66 2.5 3.3

83% 2-stage Modulation ............................ 10,483 ¥29 59 15 27 9.9 23.3

84% .............................. 10,199 215 6 15 79 2.5 3.4

84% 2-stage Modulation ............................ 10,426 0 62 6 32 10.5 22.7

88% .............................. 10,741 ¥294 67 6 27 17.5 29.8

91% .............................. 10,823 ¥372 75 3 22 19.3 43.0

99% .............................. 11,304 ¥853 85 0 15 21.7 46.1

For hot-water oil-fired boilers (Table 

II.11f), the AFUE levels through 84 

percent (without use of atomized 

burner) have positive average LCC 

savings.

TABLE II.11F.—LCC AND PBP RESULTS FOR HOT-WATER OIL-FIRED BOILERS

AFUE: design option 

LCC Payback 

Average

$

Average

savings

$

Net cost

%

No

impact

%

Net

benefit

%

Median years Average years 

80% .............................. 14,890 ........................ ........................ ........................ ........................ ........................ ........................

81% .............................. 14,772 6 0 95 5 0.6 0.8

81% Atomized Burner .. 15,166 ¥36 11 89 0 70.4 104.9

82% .............................. 14,657 18 0 89 11 0.7 0.8

45446 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.11F.—LCC AND PBP RESULTS FOR HOT-WATER OIL-FIRED BOILERS—Continued

AFUE: design option 

LCC Payback 

Average

$

Average

savings

$

Net cost

%

No

impact

%

Net

benefit

%

Median years Average years 

82% Atomized Burner .. 15,051 ¥45 16 84 0 35.0 64.3

83% .............................. 14,545 36 0 84 16 0.7 0.8

83% Atomized Burner .. 14,939 ¥119 37 61 2 23.0 45.0

84% .............................. 14,435 79 0 61 39 0.7 0.8

84% Atomized Burner .. 14,830 ¥169 58 37 5 26.7 57.6

86% .............................. 14,943 ¥234 52 37 11 23.0 31.6

86% Atomized Burner .. 15,338 ¥602 91 7 2 53.0 98.1

90% .............................. 15,260 ¥527 81 7 12 19.6 23.8

95% .............................. 15,561 ¥829 88 0 12 19.1 23.0

The Department seeks information 

and comments relevant to the 

assumptions, methodology, and results 

for the LCC and PBP analyses. 

E. National Impact Analysis 

The national energy savings and 

economic impacts anlaysis assesses the 

national energy savings (NES) and the 

net present value (NPV) of total 

customer costs and savings expected to 

result from new standards at specific 

efficiency levels. The Department 

calculated the NES and NPV for a given 

standard level as the difference between 

a base case forecast (without new 

standards) and the standards case (with 

standards). National annual energy 

consumption is determined by 

multiplying the number of units in the 

stock of residential furnaces and boilers 

(by vintage) by the unit energy 

consumption (also by vintage). 

Cumulative energy savings are the 

undiscounted sum of the annual NES 

determined over a specified time period. 

The Department calculated net savings 

each year as the difference between total 

operating cost savings and increases in 

total installed cost. Cumulative savings 

are the sum of the annual NPV 

determined over a specified time period. 

The NES analysis which will 

accompany the NOPR will include both 

discounted and undiscounted values for 

future energy savings to account for 

their timing. 

The Department assessed the NES and 

NPV using the NES Spreadsheet Model. 

DOE developed this method for 

standards rulemakings and tailors it for 

each specific rulemaking. The 

Department posts NES spreadsheets for 

furnaces and boilers on its Web site to 

make the analysis more accessible and 

transparent to all stakeholders. See 

http://www.eere.doe.gov/buildings/

appliance_standards/

furnaces_boilers.html. 

1. Approach 

The Department calculated national 

energy consumption for each year, 

beginning with the expected effective 

date of the standards (2012), for the base 

case forecast and for each candidate 

efficiency level. For each product class, 

DOE calculated the site energy 

consumption for the base case forecast 

and each considered efficiency level by 

summing the energy consumption of 

equipment operating in each year. The 

survival fraction of equipment shipped 

in previous years is equivalent to the 

percentage not replaced. The 

Department aggregated the differences 

in annual energy consumption between 

the base case forecast and standards 

cases forecast to arrive at the cumulative 

national energy savings in the 2012–

2035 period for each candidate 

efficiency level. 

The shipments forecast accounts for 

shifts in market share from gas to 

electric equipment as a result of an 

increase in gas equipment price. 

Projected shipments of gas equipment, 

and hence gas consumption, are lower 

in the higher-efficiency cases, but there 

is an increase in electricity consumption 

by electric heating equipment, for which 

the model also accounts. 

The Department calculated the NPV 

to the Nation of new efficiency 

standards from the incremental costs of 

higher-efficiency equipment minus the 

change in associated operating costs 

over the period considered. The 

Department accounted for operating cost 

savings until all the equipment installed 

through 2035 is retired.

GAMA commented that the NES 

analysis should be based on an 

aggregation of individual consumer lifecycle cost results. (GAMA, No. 41 at p. 

4) The NES and the LCC analyses are 

intended to answer different questions, 

so they use different methods. The LCC 

analysis provides a snapshot of the 

impact of standards on individual 

consumers purchasing new equipment 

in the first year the standards take effect. 

It analyzes the effect on a wide range of 

consumers and is designed to reflect the 

diversity of the situation for a crosssection of all the households in the U.S. 

In contrast, the NES calculates the 

impacts of potential standard levels for 

the entire Nation over a period of many 

years, using the average energy 

consumption and average total installed 

price from the LCC analysis for each 

considered efficiency level. In the NES, 

only a fraction of U.S. households is 

assumed to purchase new equipment 

each year. 

GAMA commented that there has 

been almost no consideration of 

uncertainty or variability in the National 

Benefits analysis in DOE’s rulemakings. 

(GAMA, No. 41 at p. 5) The 

Department’s NES analysis uses a 

scenario approach to address 

uncertainty in key variables. The 

Department conducts sensitivity 

analyses as needed by running 

alternative scenarios for input variables 

that are of interest to stakeholders. 

2. Inputs 

a. Shipments 

Furnace and boiler shipments 

comprise units used for (1) 

replacements of retired units with the 

same type, (2) conversions at retirement 

to another fuel type, and (3) 

installations in new homes. Almost all 

new construction has central heating 

equipment and most equipment is 

replaced at retirement. 

The Department estimated the 

number of replacements based on past 

shipments and expected retirement 

rates. Forecasting future replacements 

requires estimates of shipments to new 

housing, since the replacements 20–30 

years from now will replace the 

equipment shipped in the next few 

years. Consumers most commonly 

replace equipment with equipment in 

the same product class (replacement-inkind). Some fraction of households 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45447

switch fuels, retiring an oil or electric 

unit and replacing it with a gas system 

(conversion away from natural gas is 

rare). The Department estimated future 

conversions based on historical data 

from AGA. 

The Department estimated the total 

number of shipments to new housing 

based on projections of new housing 

construction. Market shares of heating 

equipment in newly constructed homes 

reflect a choice that is influenced by 

fuel costs and equipment prices. For gas 

furnaces, the Department modeled this 

choice as described below. 

i. Replacement and Conversions 

The replacement model estimates 

what fraction of the historically shipped 

units are still in service and how many 

will be replaced each year. The 

replacement model uses estimates of 

how long each type of equipment is 

expected to operate before it is replaced. 

Depending on the age of a piece of 

heating equipment, there is a certain 

probability of its being replaced. The 

model uses a replacement probability 

distribution based on distributions of 

expected equipment lifetimes. Two 

basic assumptions generated the 

probability distribution. First, DOE 

expects equipment to have a maximum 

probability of being replaced at the 

mean lifetime. Second, replacement 

probability goes to zero in the minimum 

and maximum lifetime years. Assuming 

a linear slope in probability produces a 

triangular distribution. 

Given the probability of replacement 

as a function of equipment age or 

vintage, the calculation of expected 

replacements in any given year follows 

directly from past shipments. In a given 

year, the number of replacements is 

equal to the portion of the previous 

year’s shipments expected to retire plus 

the number of shipments from two years 

ago expected to retire, etc. 

GAMA suggested that the retirement 

function should be applied randomly in 

the NES analysis, as DOE does in the 

LCC analysis. (GAMA, No. 41 at p. 4) In 

the NES analysis, DOE tracks shipments 

year by year and applies the retirement 

function to all equipment installed in 

each year. The Department does not 

apply the retirement function randomly 

to keep the NES model transparent and 

to avoid the need to use Monte Carlo 

calculation methodology (which uses a 

distribution of values to allow for 

variability and/or uncertainty on the 

inputs). 

AGA commented that standards that 

are not cost-effective will encourage 

consumers to defer replacement of 

equipment. (AGA, No. 11 at p. 2) DOE 

developed and applied modeling of 

equipment retirement and replacement 

that reflects the available information on 

market behavior. 

To estimate future conversions, DOE 

used data from the annual househeating survey conducted by the AGA, 

which reports the numbers of 

households that converted to natural gas 

space heating from 1990 to 1995. On 

average, about 100,000 oil-heating 

households and 75,000 electricityheating households converted to natural 

gas annually. Nearly a third of oilheating customers and more than a 

quarter of electricity-heating households 

decided to convert to natural gas instead 

of replacing their old system with the 

same fuel type. The number of 

conversions from gas to oil or electricity 

is negligible. 

The conversion rate is the fraction of 

oil or electric equipment retirements in 

which the consumer decides to change 

to gas heating. Based on available 

information, DOE assumed that there is 

no early replacement (i.e., before end of 

useful life) for conversion. The 

Department assumed that the 

conversion rates estimated from the 

AGA data, 33 percent for oil equipment 

(furnaces and boilers) and 26 percent for 

electric heating equipment will 

continue in the future. Since the oilfired furnace and boiler markets are 

mostly replacements, oil-to-gas 

conversions will have a significant 

negative affect on shipments of these 

product classes in the future. 

ii. Shipments to New Housing

New housing includes single- and 

multi-family units, referred to as ‘‘new 

housing completions,’’ and mobile 

home placements. For new housing 

completions and mobile home 

placements, DOE adopted separate 

projections for the South and non-South 

regions from AEO 2002 for the 2002–

2020 period. The Department assumed 

that completions grow at 0.5 percent per 

year (the projected average annual 

growth rate in the 2000–2020 period) for 

the 2021–2035 period. For mobile home 

placements, DOE extrapolated the trend 

of flat growth in 2010–2020 out to 2035. 

In DOE’s method, the number of 

annual shipments of each product class 

going to new housing units is equal to 

housing completions for that year, 

multiplied by the market share 

estimated for each product class. The 

Department expects changes in 

equipment cost or operating expense 

associated with a particular product 

class to affect relative market shares in 

new construction much more 

significantly than in the replacement 

market. Evidence suggests that changes 

in first cost and operating cost have had 

an effect in the past on the choice of 

installing either a gas furnace or an 

electric central heating system in a new 

home. 

For non-weatherized and weatherized 

gas furnaces and mobile home gas 

furnaces, the shipments model takes 

into account possible market-shift 

effects from changes in fuel prices and 

equipment price increases related to 

efficiency standards. The Department 

estimated future market shares using 

historical relationships between gas and 

electricity prices, gas and electric 

heating equipment prices, and gas 

furnace market shares, combined with 

estimated increases in equipment cost 

associated with higher efficiency. The 

model predicts changes in market share 

produced by a proportional change in 

the energy and equipment price 

variables. For a given heating load, gas 

furnaces are less expensive to operate 

than electric heating equipment, and 

forecasts of fuel prices predict that this 

will continue to be the case. Therefore, 

the Department does not expect a large 

shift from gas to electric heating due to 

increased cost of gas-fired equipment. 

This is especially true of colder regions, 

where electric heating is prohibitively 

expensive. In the Southern census 

region and in mobile homes, however, 

operating cost is less of a factor relative 

to the first cost of equipment. 

Purchasers of mobile housing often have 

relatively low incomes and therefore 

may be more sensitive to first costs than 

other households. For the above 

reasons, DOE estimated gas furnace 

market share independently for three 

groups: Single-family and multi-family 

homes in regions other than the 

Southern census region, single-family 

and multi-family homes within the 

Southern census region, and mobile 

homes in all census regions. 

DOE received several comments on 

the issue of market share shift due to 

standards. AGA called for better, more 

self-consistent estimates of future 

market shares, with cross-elasticities 

that do not vary across product classes. 

(AGA, No. 11 at p. 6) As described 

above, DOE used historical data to 

develop consistent market share 

estimates and it does not make use of 

cross-elasticities. EEI said that DOE 

should use the same type of parameters 

for its analysis of fuel-switching in 

furnaces as for its analysis of electric 

heat pumps. (EEI, No. 6 at p. 5) AGA 

commented that standards on electricity 

use of fuel-fired furnaces would 

encourage fuel-switching to electric 

resistance furnaces, especially in 

manufactured housing. (AGA, No. 11 at 

p. 3) DOE’s analysis accounts for market 

shifts to electric heating and considers 

45448 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

mobile housing separately. Market share 

shifts are reflected in the MIA, which is 

provided to the Department of Justice 

(DOJ) to facilitate its determination of 

the impact of any lessening of 

competition that is likely to result from 

the imposition of proposed energy 

efficiency standards. 

The analysis projects the market share 

of gas furnaces to fall slightly by 2012 

due to somewhat higher growth in 

natural gas prices relative to electricity 

prices. The Department expects the 

relationship between gas and electricity 

prices to be relatively stable beyond 

2012. The analysis does not project a 

significant market share shift due to 

operating cost changes, which were 

historically the dominant driver of 

market shares. 

The Department based its estimate of 

future market share shifts on the 

equipment costs estimated in the 

engineering analysis and on the 

Installation Model data. Since 

equipment cost varies with the 

efficiency level, the projected market 

share of gas furnaces is different for 

each efficiency level. The Department 

assumed that all shipments will incur 

the equipment price increase after the 

date of the standard implementation, 

but that prices will not rise further nor 

decline over time in real terms. 

The model estimates the combined 

market share of non-weatherized and 

weatherized gas furnaces in new 

housing completions in the South and 

non-South regions based on the 

historical parameters and their projected 

values. Table II.12 shows that the higher 

equipment prices associated with higher 

AFUE slightly decrease the share of gas 

furnaces in total new housing 

completions. The Department estimated 

shipments of weatherized gas furnaces 

by assuming that the latter have the 

same share of total gas furnace 

shipments in future years as estimated 

for year 2000.

TABLE II.12.—SHIPMENTS OF NON-WEATHERIZED AND WEATHERIZED GAS FURNACES TO NEW HOUSING FOR DIFFERENT

EFFICIENCY LEVELS

Year 

Total

completions

(million) 

Gas furnace 

share

(%) 

Gas furnace 

shipments

(million) 

2010 ............................................................................................................................................. 1.62 54.6 0.88

2020 ............................................................................................................................................. 1.72 ........................ ........................

Base ............................................................................................................................................. ........................ 54.9 0.94

80% .............................................................................................................................................. ........................ 54.9 0.94

81%* ............................................................................................................................................ ........................ 54.7 0.94

90% .............................................................................................................................................. ........................ 54.4 0.92

92% .............................................................................................................................................. ........................ 53.0 0.91

* The values are about the same for the single-stage and modulating furnaces. 

For mobile home gas furnaces, DOE 

used an approach similar to that used 

for non-weatherized gas furnaces. In this 

case, however, the impact of higher 

equipment cost associated with higher 

efficiency is greater than for nonweatherized gas furnaces. The historical 

data show a relatively large shift away 

from gas furnaces associated with the 

increase in the price of gas relative to 

electricity. 

The Department estimated the future 

market shares of oil-fired furnaces and 

gas and oil-fired boilers in total new 

housing completions based on the 

average shares in homes built in 1997–

1999. The Department assumed that 

these market shares will not be affected 

by changes in equipment price due to 

standards implementation. They remain 

constant after 2012.

iii. Total Projected Shipments 

The Department calculated total 

shipments in each class by adding new 

housing shipments in each year to 

replacements-in-kind and conversions. 

Table II.13a shows that efficiency levels 

up to 90 percent AFUE have little effect 

on total non-weatherized gas furnace 

shipments. Table II.13b shows the total 

shipment projection for selected years 

for all other product classes. For mobile 

home furnaces, higher efficiency levels 

up to 82 percent AFUE have a small 

effect on shipments.

TABLE II.13A.—TOTAL SHIPMENTS OF NON-WEATHERIZED GAS FURNACES FOR DIFFERENT EFFICIENCY LEVELS

[Million] 

Year New housing Replacementsin-kind 

Conversions to 

gas Total 

2010 ................................................................................................................. 0.78 1.72 0.14 2.64

2020 ................................................................................................................. ........................ ........................ ........................ ........................

Base .......................................................................................................... 0.83 2.30 0.16 3.28

80% ........................................................................................................... 0.83 2.30 0.16 3.28

81%* ......................................................................................................... 0.83 2.30 0.16 3.28

90% ........................................................................................................... 0.80 2.30 0.16 3.26

92% ........................................................................................................... 0.76 2.30 0.16 3.21

* The values are about the same for the single-stage and modulating furnaces. 

TABLE II.13B.—TOTAL SHIPMENTS IN OTHER PRODUCT CLASSES

[Million] 

Product Class 2012 2020 2030

Weatherized gas furnaces ....................................................................................................................... 0.369 0.429 0.469

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45449

TABLE II.13B.—TOTAL SHIPMENTS IN OTHER PRODUCT CLASSES—Continued

[Million] 

Product Class 2012 2020 2030

Mobile home gas furnaces: 

Base Case Forecast ......................................................................................................................... 0.082 0.080 0.075

81% AFUE ........................................................................................................................................ 0.080 0.078 0.073

Oil-fired furnaces ..................................................................................................................................... 0.102 0.093 0.079

Hot-water gas boilers ............................................................................................................................... 0.105 0.113 0.117

Hot-water oil-fired boilers ......................................................................................................................... 0.135 0.113 0.118

b. Annual Unit Energy Consumption 

The annual unit energy consumption 

(UEC) for the base case forecast and 

each efficiency level come from the LCC 

analysis. It includes a value for gas (or 

oil) consumption and a value for 

electricity consumption. 

The base case forecast reflects the 

expected pattern of equipment purchase 

in the absence of any new standards. 

For non-weatherized gas furnaces, DOE 

forecasted the share of condensing 

furnaces in total shipments based on 

historic trends. The projected share rises 

from 23 percent in 2000 to 37 percent 

in 2035. For each of these two types, the 

base case forecast assumes that the 

average AFUE in 2012 is equal to the 

estimated current average AFUE (based 

on data from GAMA). These average 

values are 80 percent for noncondensing furnaces and 93 percent for 

condensing types. The base case forecast 

assumes that these values remain 

constant through 2035. 

For other product classes, there is 

little evidence of change in recent years 

in the average AFUE, so DOE used the 

current averages for the base case 

forecast. These are 80.6 percent AFUE 

for weatherized gas furnaces, 79.8 

percent AFUE for mobile home gas 

furnaces, 81.1 percent AFUE for oilfired furnaces, 81.9 percent AFUE for 

hot-water gas boilers, and 83.9 percent 

AFUE for hot-water oil-fired boilers. 

AGA commented that data from 

GAMA suggest market movement 

toward higher efficiency without 

standards, and DOE should take these 

data into account. (AGA, No. 11 at p. 4) 

As mentioned above, DOE used the base 

case forecast which incorporates 

continued growth in the market share of 

high-efficiency condensing furnaces. 

c. Site-to-Source Conversion Factors 

Primary energy consumption includes 

energy used in the production and 

transmission of the energy consumed at 

the site. For natural gas and electricity, 

the Department used annual site-tosource conversion factors based on the 

LBNL version of NEMS, which 

corresponds to EIA’s Annual Energy 

Outlook 2002 (AEO 2002). The factors 

used are marginal values, which 

represent the response of the system to 

an incremental decrease in 

consumption. Natural gas losses include 

pipeline leakage, pumping energy, and 

transportation fuel. AEO 2002 forecasts 

losses of about 7 percent for the natural 

gas used on site for the period 2000–

2020, with only slight variation from 

year to year. For electricity, the 

conversion factors vary over time due to 

projected changes in generation sources 

(i.e., the power plant types projected to 

provide electricity to the country). The 

Department assumed that conversion 

factors remain constant at 2020 values 

through 2035. The Department assumed 

no losses for delivery of site heating oil. 

AGA said that DOE should account 

for energy consumption over the full 

fuel cycle. (AGA, No.11 at p. 1) DOE 

considers the complete primary energy 

consumption impacts of standards, 

including changes in consumption 

associated with market shifts induced 

by the standard. 

d. Installed Equipment Costs 

The Department calculated the 

potential effect on consumers of higherefficiency standards based on the 

incremental costs of higher-efficiency 

equipment minus the change in 

operating costs over the period 

considered. The Department took 

average equipment costs for the base 

case forecast and each efficiency level 

from the LCC analysis. Total equipment 

costs for each efficiency level equal the 

average cost multiplied by shipments in 

each year. The Department assumed no 

change in real equipment costs at each 

level after 2012. In cases where a market 

shift away from gas furnaces is 

projected, DOE accounted for the 

equipment costs of the electric heating 

equipment.

e. Energy Prices 

For a given efficiency level, total 

operating cost in each year is the 

product of total site energy consumption 

by type and the appropriate energy 

prices. The calculation uses marginal 

energy prices, which represent the cost 

of the last unit of energy used, and thus 

the savings on a consumer’s energy bill 

from consuming one fewer unit of 

energy. The Department determined 

1998 marginal gas and electricity prices 

in the LCC analysis. To project prices 

out to 2025, DOE used energy price 

projections from AEO 2003. For the 

years after 2025, DOE applied the 

average annual growth rate in 2010–

2025 for gas and heating oil prices and 

the average annual growth rate in 2015–

2025 for electricity prices. 

f. Discount Rate 

A final step in assessing financial 

impacts of standards is to discount 

future monetary impacts using an 

appropriate discount rate. The 

Department used both a discount rate of 

seven percent and three percent real rate 

of return, in accordance with the Office 

of Management and Budget’s (OMB) 

guidelines contained in Circular A–4, 

Regulatory Analysis, September 17, 

2003 (see Chapter 10 of the TSD). (OMB 

Circular A–4, section E (September 17, 

2003)) The Department defines the 

present year as 2001 for consistency 

with the year in which the Department 

collected manufacturer cost data. 

g. Summary of Inputs 

Table II.14 summarizes the inputs 

used to calculate the NES and NPV 

values.

TABLE II.14.—SUMMARY OF NATIONAL ENERGY SAVINGS AND NET PRESENT VALUE INPUTS

Parameter Data description 

Shipments .......................................................................... Annual shipments from shipments model. 

Effective Date of Standard ................................................. 2012. 

45450 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

TABLE II.14.—SUMMARY OF NATIONAL ENERGY SAVINGS AND NET PRESENT VALUE INPUTS—Continued

Parameter Data description 

Annual Unit Energy Consumption ...................................... Annual weighted-average values are a function of efficiency level via an assumed 

correlation of RECS data. 

Installed Cost per Unit ....................................................... Annual weighted-average values are a function of efficiency level (established from 

the LCC analysis). 

Maintenance Cost per Unit ................................................ Annual weighted-average values are a function of efficiency level (established from 

the LCC analysis). 

Energy Prices ..................................................................... EIA Annual Energy Outlook 2003 forecasts to 2025 and extrapolation beyond 2025. 

Energy Site-to-Source Conversion .................................... Generated by DOE/EIA’s National Energy Modeling System (NEMS) program (includes electric generation, transmission, and distribution losses) . 

Discount Rate ..................................................................... 7 percent and 3 percent real. 

Present Year ...................................................................... Future expenses are discounted to year 2001. 

3. National Impact Analysis Results 

The cumulative national energy 

savings (NES) in the 2012–2035 period, 

and the net present value (NPV) for 

equipment installed in the 2012–2035 

period, are shown in Tables II.15 a-f for 

the various product classes.

TABLE II.15A.—CUMULATIVE NES AND CONSUMER NPV FOR NON-WEATHERIZED GAS FURNACES

Efficiency level (AFUE) NES (Quads) 

NPV

(billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

80% .............................................................................................................................................. 0.03 0.05 0.15 

81%, 2-stage mod., no Cat. III .................................................................................................... 1.12 0.75 3.22 

81%, single-stage, 8% Cat. III ..................................................................................................... 0.44 ¥0.29 0.06 

82% .............................................................................................................................................. 0.82 ¥2.03 ¥3.08 

90% .............................................................................................................................................. 4.10 ¥0.56 5.11 

92% .............................................................................................................................................. 4.83 ¥1.66 3.36 

96% .............................................................................................................................................. 7.16 ¥11.59 ¥14.48 

TABLE II.15B.—CUMULATIVE NES AND CONSUMER NPV FOR WEATHERIZED GAS FURNACES

Efficiency level (AFUE)

(Percent) NES (Quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

80 ................................................................................................................................................. 0.01 0.02 0.05 

81 ................................................................................................................................................. 0.08 0.07 0.21 

82 ................................................................................................................................................. 0.18 0.14 0.43 

TABLE II.15C.—CUMULATIVE NES AND CONSUMER NPV FOR MOBILE HOME GAS FURNACES

Efficiency level (AFUE)

(percent) NES (quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

80 ................................................................................................................................................. 0.01 0.01 0.05

81 ................................................................................................................................................. 0.02 0.01 0.03

82 ................................................................................................................................................. 0.02 ¥0.01 ¥0.01

90 ................................................................................................................................................. ¥0.09 ¥0.38 ¥1.00

TABLE II.15D.—CUMULATIVE NES AND CONSUMER NPV FOR NON-WEATHERIZED OIL FURNACES

Efficiency level (AFUE)

(percent) NES (quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

80 ................................................................................................................................................. 0.005 0.01 0.03

81 ................................................................................................................................................. 0.02 0.04 0.10

82 ................................................................................................................................................. 0.04 0.07 0.19

83 ................................................................................................................................................. 0.05 0.11 0.29

84 ................................................................................................................................................. 0.07 ¥0.15 ¥0.20

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45451

TABLE II.15D.—CUMULATIVE NES AND CONSUMER NPV FOR NON-WEATHERIZED OIL FURNACES—Continued

Efficiency level (AFUE)

(percent) NES (quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

85 ................................................................................................................................................. 0.09 ¥0.11 ¥0.10

TABLE II.15E.—CUMULATIVE NES AND CONSUMER NPV FOR HOT-WATER GAS BOILERS

Efficiency level (AFUE)

(percent) NES (quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

81 ................................................................................................................................................. 0.03 0.02 0.09

82 ................................................................................................................................................. 0.09 0.10 0.37

83 ................................................................................................................................................. 0.16 0.20 0.70

84 ................................................................................................................................................. 0.24 0.33 1.10

88 ................................................................................................................................................. 0.57 ¥0.65 ¥0.42

99 ................................................................................................................................................. 1.43 ¥1.00 0.25

TABLE II.15F.—CUMULATIVE NES AND CONSUMER NPV FOR HOT-WATER OIL-FIRED BOILERS

Efficiency level (AFUE)

(percent) NES (quads) 

NPV (billion 2001 $) 

7% Discount 

rate 

3% Discount 

rate 

81 ................................................................................................................................................. 0.003 0.007 0.02

82 ................................................................................................................................................. 0.01 0.02 0.05

83 ................................................................................................................................................. 0.02 0.03 0.10

84 ................................................................................................................................................. 0.03 0.07 0.20

86 ................................................................................................................................................. 0.09 ¥0.28 ¥0.40

90 ................................................................................................................................................. 0.25 ¥0.53 ¥0.62

The Department seeks information 

and comments relevant to the 

assumptions, methodology, and results 

for the national energy savings and 

economics impacts analysis (see section 

IV.E of this ANOPR).

F. Life-Cycle Cost (LCC) Sub-Group 

Analysis 

The life-cycle cost sub-group analysis 

examines the economic impacts from 

possible revisions to U.S. residential 

furnace and boiler energy-efficiency 

standards on different population 

groups of consumers. The analysis 

determines whether or not a particular 

segment of consumers would be 

adversely affected by different trial 

standard levels in terms of increased 

LCC of equipment. DOE also calculated 

the fraction of the population that 

would have net benefits (reduced LCC) 

or net costs (increased LCC) from 

particular trial standard levels. 

Stakeholders said DOE should: (1) 

Conduct consumer sub-group analyses 

by region (ACEEE, No. 15 at p. 6); (2) 

provide stakeholders with a list of 

consumer sub-groups, reach consensus 

on major subgroups, and identify 

consumer subgroups expected to 

experience distinct levels of impacts 

(AGA, No. 11 at p. 5); and (3) segment 

householders into owners and renters, 

and ensure that renters (a majority of 

low income households) are not 

disadvantaged by standards. (ASE, No. 

18 at p. 3) In the NOPR phase, DOE will 

examine three consumer sub-groups: 

low-income households, senior-only 

residences, and renters. 

G. Manufacturer Impact Analysis 

The policies outlined in the 

Department’s Process Rule called for 

substantial revisions to the analytical 

framework of the manufacturer impact 

analysis. The Department held a public 

meeting on March 11 and 12, 1997, to 

describe and get comment on a new 

generic methodology to be used in 

performing future manufacturing impact 

analyses of products covered under 

NAECA. The Department intends to 

apply this methodology to other EPCArelated efficiency standards as well, 

tailoring the methodology for each rule 

on the basis of stakeholder comments. 

During the NOPR phase, DOE intends 

to assess the impacts of new energy 

efficiency standards on residential 

furnace and boiler manufacturers. In 

addition to the more obvious financial 

impacts, a wide range of quantitative 

and qualitative effects may occur 

following adoption of a standard that 

may require changes to the 

manufacturing practices for these 

products. The Department will identify 

these effects through interviews with 

manufacturers and other stakeholders. 

1. Sources of Information for the 

Manufacturer Impact Analysis 

Many of the analyses described earlier 

provide important information for the 

manufacturer impact analysis. 

Information includes manufacturing 

costs, shipments forecasts, and price 

forecasts. DOE will supplement this 

information with company financial 

data, and other information gathered 

during interviews with manufacturers. 

The interview process has a key role in 

the manufacturer impact analysis, since 

it allows DOE to consider confidential 

or sensitive information in the 

rulemaking decision. 

The Department and/or contractors 

will conduct detailed interviews with as 

many manufacturers as is necessary to 

gain insight into the range of potential 

impacts of new standards. During the 

interviews, the Department solicits 

information on the possible impacts of 

potential efficiency levels on sales, 

direct employment, capital assets, and 

industry competitiveness. Both 

qualitative and quantitative information 

45452 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

7For more information on NEMS, please refer to 

the U.S. Department of Energy, Energy Information 

Administration documentation. A useful summary 

is National Energy Modeling System: An Overview 

2000, DOE/EIA–0581 (2000), March, 2000. 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 this analysis 

entails some minor code modifications and the 

model is run under various policy scenarios that are 

variations on DOE/EIA assumptions, DOE refers to 

it by the name NEMS–BT (BT is DOE’s Building 

Technologies office, under whose aegis this work 

has been performed previously named NEMS–BRS).

is valuable. DOE will schedule 

interviews well in advance, to provide 

every opportunity for key individuals to 

be available for comment. Although a 

written response to the questionnaire is 

acceptable, DOE prefers an interactive 

interview process, because it helps 

clarify responses and provides the 

opportunity for DOE to identify 

additional issues. 

Before the interviews, the Department 

will prepare and distribute to the 

manufacturers estimates of the financial 

parameters that DOE plans to use in the 

impact analysis. During the interviews, 

the Department will seek comment and 

suggestions regarding the values 

selected for the parameters. 

The Department will ask interview 

participants to identify all confidential 

information that they have provided, 

either in writing or orally. DOE will 

consider all information collected, as 

appropriate, in its decision-making 

process. However, DOE cannot make 

confidential information available in the 

public record. The Department also will 

ask participants to identify all 

information that they wish to have 

included in the public record, but that 

they do not want to have associated 

with their interview. DOE will 

incorporate this information into the 

public record, but will report it without 

attribution. 

The Department and/or contractors 

will collate the completed interview 

questionnaires and prepare a summary 

of the major issues. 

2. Industry Cash Flow Analysis 

The industry cash flow analysis relies 

primarily on the Government Regulatory 

Impact Model (GRIM). The Department 

uses the GRIM to analyze the financial 

impacts of more stringent energy 

efficiency standards on the industry that 

produces the products covered by the 

standard. 

The GRIM analysis uses a number of 

factors to determine annual cash flows 

from a new standard: Annual expected 

revenues; manufacturer costs (including 

cost of goods, capital depreciation, R&D 

(research and development), selling, and 

general administrative costs); taxes; and 

conversion expenditures. DOE compares 

the results against baseline model 

projections that involve no new 

standards. The financial impact of new 

standards is the difference between the 

two sets of discounted annual cash 

flows. Other performance metrics, such 

as return on invested capital, also are 

available from the GRIM. 

ACEEE would like to see inter-annual 

variability of cash flows or profitability 

forecasts, for context and perspective. 

(ACEEE, No. 15 at p. 6) DOE uses the 

GRIM which is based on multi-year 

forecasts, and does not analyze intrayear variability directly. Collecting this 

information would impose a large datagathering burden on manufacturers.

3. Manufacturer Sub-Group Analysis 

Using industry cost estimates is not 

adequate for assessing differential 

impacts among sub-groups of 

manufacturers. Smaller manufacturers, 

niche players, or manufacturers 

exhibiting a cost structure that differs 

significantly from the industry average, 

could experience a more negative 

impact. Ideally, the Department would 

consider the effect on every firm 

individually; however, it typically uses 

the results of the industry 

characterization to group manufacturers 

exhibiting similar characteristics. 

During the interview process, the 

Department will discuss the potential 

sub-groups and sub-group members that 

it has identified for the analysis. DOE 

will look to the manufacturers to suggest 

what sub-groups or characteristics are 

most appropriate for the analysis. 

4. Competitive Impacts Assessment 

Southern Co. commented that DOE 

should make sure competition is not 

reduced as a result of the rulemaking. 

(Southern Co., No. 14 at p. 4) ACEEE 

was concerned that DOE should show 

how standards would change the 

historical trend to consolidation. 

(ACEEE, No. 15 at p. 6) EPCA directs the 

Department to consider any lessening of 

competition, as determined in writing 

by the Attorney General, that is likely to 

result from imposition of standards. (42 

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

Department will make a determined 

effort to gather and report firm-specific 

financial information and impacts. The 

competitive analysis will focus on 

assessing the impacts to smaller, yet 

significant, manufacturers. DOE will 

base the assessment on manufacturing 

cost data and on information collected 

from interviews with manufacturers. 

The manufacturer interviews will focus 

on gathering information that will help 

in assessing greater-than-average cost 

increases to some manufacturers, 

increased proportions of fixed costs that 

could potentially increase business 

risks, and potential barriers to market 

entry (e.g., proprietary technologies). 

5. Cumulative Regulatory Burden 

The Department recognizes and seeks 

to mitigate the overlapping effects on 

manufacturers of amended DOE 

standards and other regulatory actions 

affecting the same equipment or 

companies. See 10 CFR part 430, 

subpart C, Appendix A, 10(g)(1). The 

Department is not aware of any other 

regulations pending or planned that will 

increase the regulatory burden resulting 

from this rulemaking on furnace and 

boiler manufacturers. 

H. Utility Impact Analysis 

To estimate the effects of proposed 

furnace and boiler standard levels on 

the electric utility industry, the 

Department intends to use a variant of 

DOE/EIA’s National Energy Modeling 

System (NEMS 7). DOE/EIA uses NEMS 

to produce its Annual Energy Outlook 

(AEO). The Department will use a 

variant, known as NEMS–BT, to provide 

key inputs to the analysis. Utility 

impact analysis is a comparison 

between model results for the base case 

forecast and policy cases in which 

proposed standards forecast are in 

place. The analysis will consist of 

forecasted differences between the base 

and standards cases for electricity 

generation, installed capacity, sales, and 

prices.

The use of NEMS for the utility 

analysis offers several advantages. As 

the official DOE energy forecasting 

model, it relies on a set of assumptions 

that are transparent and have received 

wide exposure and commentary. NEMS 

allows an estimate of the interactions 

between the various energy supply and 

demand sectors and the economy as a 

whole. The utility analysis will report 

the changes in installed capacity and 

generation by fuel type which result for 

each trial standard level. 

DOE conducts the utility analysis as 

a policy deviation from the AEO, 

applying the same basic set of 

assumptions. For example, the operating 

characteristics (e.g., energy conversion 

efficiency, emissions rates) of future 

electricity generating plants are as 

specified in the AEO reference case, as 

are the prospects for natural gas supply. 

The Department also will explore 

deviations from some of the reference 

case assumptions to represent 

alternative futures. Two alternative 

scenarios use the high and low 

economic growth cases of AEO 2003 

(The reference case corresponds to 

medium growth). The high economic 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45453

growth case assumes higher projected 

growth rates for population, labor force, 

and labor productivity, resulting in 

lower predicted inflation and interest 

rates relative to the reference case and 

higher overall aggregate economic 

growth. The opposite is true for the lowgrowth case. While supply-side growth 

determinants are varied in these cases, 

AEO assumes the same reference case 

energy prices for all three economic 

growth cases. Different economic 

growth scenarios will affect the rate of 

growth of electricity demand. 

Because the current (AEO 2003) 

version of NEMS forecasts only to the 

year 2025, DOE must extrapolate results 

to 2035. The Department will use the 

approach developed by EIA to forecast 

fuel prices for the Federal Energy 

Management Program (FEMP). FEMP 

uses these prices to estimate the LCC of 

Federal equipment procurements. For 

petroleum products, the average growth 

rate for the world oil price over the 

years 2010–2025 is used in combination 

with the refinery and distribution 

markups from the year 2025 to 

determine the regional price forecasts. 

Similarly, natural gas prices are derived 

from an average growth rate figure in 

combination with regional price 

margins from the year 2025. Results of 

the analysis will include changes in 

residential electricity sales and installed 

capacity and generation by fuel type for 

each trial standard level, in five-year 

increments extrapolated to the year 

2035. 

AGA commented that DOE should 

consider AGA’s analytical approach to 

assess impacts on utilities and should 

provide a venue to discuss power plant 

heat rates and emission factors. (AGA, 

No. 11 at pp. 6–7) DOE plans to use the 

NEMS model for analysis of affect on 

utilities. In past rulemakings, DOE has 

used NEMS to evaluate the impact on 

utilities because NEMS is a 

comprehensive and transparent model 

which provides estimates for the 

interactions between the various supply 

and demand sectors and the economy as 

a whole. The Department routinely 

updates the power plant heat rates to 

reflect the latest available version of 

NEMS, the model used to generate the 

utility and environmental results. This 

tool, which is available to stakeholders, 

uses national-average, power-plant-heatrate forecasts that can be replaced or 

modified by users to conduct sensitivity 

analysis. 

ACEEE commented that DOE should 

evaluate the impact of new standards on 

winter and summer peak loads. (ACEEE, 

No. 15 at p. 6) During the NOPR stage 

of the rulemaking, the Department will 

consider in its analysis impacts of 

standards on electricity system loads. 

I. Environmental Assessment 

DOE will conduct an assessment of 

the impacts of proposed furnace and 

boiler standard levels on certain 

environmental indicators, using NEMS–

BT to provide key inputs to the analysis, 

as well as some exogenous calculations. 

Results of the environmental assessment 

are similar to those provided in AEO. 

The environmental assessment 

provides emissions results to 

policymakers and interveners and 

fulfills requirements that the 

environmental effects of all new Federal 

rules be properly quantified and 

considered. The environmental 

assessment considers only two 

pollutants, sulfur dioxide (SO2) and 

nitrogen oxides (NOX), and one 

emission, carbon dioxide (CO2). The 

only form of carbon tracked by NEMS–

BT is CO2, so the analysis will discuss 

carbon only in the form of CO2. For each 

of the standard levels, DOE will 

calculate total emissions using NEMS–

BT in part and using external analysis 

as needed.

The Department will conduct the 

environmental assessment as a policy 

deviation from the AEO, applying the 

same basic set of assumptions. For 

example, the emissions characteristics 

of an electricity generating plant will be 

exactly those used in AEO. Forecasts 

conducted with NEMS–BT also take 

into consideration the supply-side and 

demand-side effects on the electric 

utility industry. Thus, the Department’s 

analysis takes into account any factors 

affecting the type of electricity 

generation and, in turn, the type and 

amount of airborne emissions the utility 

industry generates. 

NEMS–BT tracks carbon emissions 

using a detailed carbon module which 

provides good results because of its 

broad coverage of all sectors and 

inclusion of interactive effects. Past 

experience with carbon results from 

NEMS suggests that emissions estimates 

are somewhat lower than emissions 

estimates based on simple average 

factors. One of the reasons for this 

divergence is that NEMS tends to 

predict that conservation displaces 

renewable generating capacity in the out 

years. On the whole, NEMS-BT provides 

carbon emissions results of reasonable 

accuracy at a level consistent with other 

Federal published results. 

NEMS–BT also reports the two 

airborne pollutant emissions that DOE 

has reported in past analyses, SO2 and 

NOX. The Clean Air Act Amendments of 

1990 set an SO2 emissions cap on all 

power generation. The attainment of 

this target, however, is flexible among 

generators through the use of emissions 

allowances and tradable permits. NEMS 

includes a module for SO2 allowance 

trading and delivers a forecast of SO2

allowance prices. Accurate simulation 

of SO2 trading tends to imply that 

physical emissions effects will be zero 

as long as emissions are at the ceiling. 

This fact has caused considerable 

confusion in the past. However, there is 

an SO2 benefit from conservation in the 

form of a lower allowance price as a 

result of additional allowances from this 

rule, and, if it is big enough to be 

calculable by NEMS–BT, DOE will 

report this value. The NEMS–BT model 

also has an algorithm for estimating 

NOX emissions from power generation. 

Two recent regulatory actions proposed 

by the EPA regarding regulations and 

guidelines for best available retrofit 

technology determinations and the 

reduction of interstate transport of fine 

particulate matter and ozone are tending 

towards further NOX reductions and 

likely to an eventual emissions cap on 

nation-wide NOX. 69 FR 25184 (May 5, 

2004) and 69 FR 32684 (June 10, 2004). 

As with SO2 emissions, a cap on NOX

emissions will likely result in no 

physical emissions effects from 

equipment efficiency standards. 

The results for the environmental 

assessment are similar to a complete 

NEMS run as published in the AEO. 

These include power sector emissions 

for SO2, NOX, and carbon, and SO2

prices, in five-year-forecasted 

increments extrapolated to the year 

2035. DOE reports the outcome of the 

analysis for each trial standard level as 

a deviation from the AEO reference 

cases. 

AGA commented that DOE should use 

full fuel-cycle emissions from the EPA’s 

E–GRID system, and the Department 

should consider using AGA information 

on emission characteristics. (AGA, No. 

11 at p. 7) DOE will consider these 

comments in conducting the 

environmental assessment in the NOPR 

phase of the rulemaking. 

GAMA commented that residential 

furnaces and boilers are not vented inhouse, so the Department may need to 

consider in-house emissions in the 

environmental assessment. (GAMA, No. 

8 at p. 4) The Department will analyze 

environmental impacts of potential 

standards on furnaces and boilers, 

including in-house emissions (the local 

emissions from combustion in the 

furnace or boiler) in the NOPR phase of 

the rulemaking. The Department will 

use the same approach as it applied 

during the residential water heating 

rulemaking. 

45454 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

EEI commented that a primary output 

of NEMS should be impacts on oil and 

gas production, refining, transportation 

and delivery systems and asked how 

DOE will handle emissions impacts on 

domestic and foreign oil refining and 

impacts on oil imports. (EEI, No. 6 at p. 

3) The NEMS model takes into 

consideration impacts on domestic oil 

and gas production, refining, 

transportation and delivery systems, as 

well as the imports of various petroleum 

products from outside the United States. 

It does not consider the emissions 

impacts from domestic or foreign oil 

refining. Thus, DOE will not be 

considering these emissions. 

J. Employment Impact Analysis 

The July 1996 Process Rule, 10 CFR 

part 430, subpart C, Appendix A4(7)(vi) 

includes employment impacts among 

the factors the Department should 

consider in selecting a proposed 

standard. The Process Rule states if the 

Department determines that a candidate 

standard level would be the direct cause 

of plant closures or significant losses in 

domestic manufacturer employment, 

that standard level will be presumed not 

to be economically justified. (10 CFR 

part 430, subpart C, Appendix 

A5(e)(3)(i)(B)) 

The Department estimates the impacts 

of standards on employment for 

equipment manufacturers, relevant 

service industries, energy suppliers, and 

the economy in general. DOE separates 

employment impacts into indirect and 

direct impacts. Direct employment 

impacts would result if standards led to 

a change in the number of employees at 

manufacturing plants and related 

supply and service firms. DOE 

estimated direct impacts in the 

manufacturer sub-group analysis. 

Indirect impacts are impacts on the 

national economy other than in the 

manufacturing sector being regulated. 

Indirect impacts may result from both 

expenditures shifting among goods 

(substitution effect) and changes in 

income, which lead to a change in 

overall expenditure levels (income 

effect). DOE defines indirect 

employment impacts from standards as 

net jobs eliminated or created in the 

general economy as a result of increased 

spending on the purchase price of 

equipment and reduced customer 

spending on energy. 

DOE expects new furnace and boiler 

standards to increase the total installed 

cost of equipment. DOE expects the 

same standards to decrease energy 

consumption, and therefore to reduce 

customer expenditures for energy. Over 

time, the increased total installed cost is 

paid back through energy savings. The 

savings in energy expenditures may be 

spent on new commercial investment 

and other items. Using an input/output 

model of the U.S. economy, this 

analysis seeks to estimate the effects on 

different sectors, and the net affect on 

jobs. DOE will estimate national impacts 

for major sectors of the U.S. economy in 

the NOPR. DOE will use public and 

commercially available data sources and 

software to estimate employment 

impacts. DOE will make all methods 

and documentation available for review.

BT has developed a spreadsheet 

model, Impact of Building Energy 

Efficiency Programs (IMBUILD), that it 

could use to analyze indirect 

employment impacts. IMBUILD is a 

special-purpose version of the Impact 

Analysis for Planning (IMPLAN) 

national input-output model which 

specifically estimates the employment 

and income effects of building energy 

technologies. IMBUILD is an economic 

analysis system that focuses on those 

sectors most relevant to buildings, and 

characterizes the interconnections 

among 35 sectors as national inputoutput matrices. The IMBUILD output 

includes employment, industry output, 

and wage income. One can introduce 

changes in expenditures due to 

appliance standards to IMBUILD as 

changes to existing economic flows, 

allowing estimation of the resulting net 

national impact on jobs by sector. 

ACEEE commented that DOE should 

carefully consider impacts on service 

providers and the manufacturer 

employment impact analysis should 

include the employment impacts of 

consumer energy cost savings. (ACEEE, 

No. 15 at p. 6) The Department will 

consider these comments in its analysis 

during the NOPR stage of the 

employment impacts of furnace and 

boiler standards. 

DOE believes increases or decreases 

in the net demand for labor in the 

economy estimated by the input/output 

model due to standards are likely to be 

very small relative to total national 

employment. It is difficult to project 

changes in employment for the 

following reasons: 

(1) If unemployment is very low 

during the period when the standards 

are put into effect, it is unlikely that the 

standards alone could result in any 

change in national employment levels; 

(2) Neither the Bureau of Labor 

Statistics (BLS) data nor the inputoutput model used by DOE include the 

quality or wage level of the jobs. The 

losses or gains from any potential 

employment change may be offset if job 

quality and pay also change; and 

(3) The net benefits or losses from 

potential employment changes are a 

result of the estimated NPV of benefits 

or losses likely to result from standards. 

It may not be appropriate to separately 

identify and consider any employment 

impacts beyond the calculation of NPV. 

The Department invites comments on 

the appropriate methodology that DOE 

should use in its employment impacts 

analysis. 

K. Regulatory Impact Analysis 

DOE will prepare a draft regulatory 

analysis under Executive Order 12866, 

‘‘Regulatory Planning and Review,’’

which will be subject to review under 

the Executive Order by the Office of 

Information and Regulatory Affairs 

(OIRA). 58 FR 51735 (October 4, 1993). 

As part of the regulatory analysis, the 

Department will identify and seek to 

mitigate the overlapping effects on 

manufacturers of new or revised DOE 

standards and other regulatory actions 

affecting the same equipment. Through 

manufacturer interviews and literature 

searches, the Department will compile 

information on burdens from existing 

and impending regulations affecting 

furnaces and boilers. 

DOE’s NOPR will include a complete 

quantitative analysis of alternatives to 

the proposed conservation standards. 

The Department plans to use the NES 

Spreadsheet Model (as discussed earlier 

in the section on the national impact 

analysis) to calculate the NES and the 

NPV corresponding to specified 

alternatives to the proposed 

conversation standards. 

III. Candidate Energy Conservation 

Standards Levels 

The Process Rule gives guidance to 

the Department to specify candidate 

standards levels in the ANOPR, but not 

to propose a particular standard. 10 CFR 

part 430, subpart C, appendix A, 4(c)(1). 

The Department intends to review the 

public comments received during the 

public comment period following the 

ANOPR public meeting and update the 

analyses appropriately for each 

equipment class before issuing the 

NOPR.

IV. Public Participation 

A. Attendance at Public Meeting 

The time and date of the public 

meeting are listed in the DATES section 

at the beginning of this notice of 

proposed rulemaking. Anyone who 

wants to attend the public meeting must 

notify Ms. Brenda Edwards-Jones at 

(202) 586–2945. As stated in the 

Addresses section of this document, a 

photo ID is required to enter the Ronald 

Reagan Building and International 

Trade Center. 

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45455

B. Procedure for Submitting Requests To 

Speak 

Any person who has an interest in 

today’s notice, or who is a 

representative of a group or class of 

persons that has an interest in these 

issues, may request an opportunity to 

make an oral presentation. Please handdeliver requests to speak, along with a 

computer diskette or CD in WordPerfect, 

Microsoft Word, PDF, or text (ASCII) file 

format to the address shown at the 

beginning of this advance notice of 

proposed rulemaking between the hours 

of 9 a.m. and 4 p.m., Monday through 

Friday, except Federal holidays. They 

may also be sent by mail or e-mail them 

to: Brenda.Edwards-Jones@ee.doe.gov. 

Persons requesting to speak should 

briefly describe the nature of their 

interest in this rulemaking and provide 

a telephone number for contact. The 

Department requests persons selected to 

be heard to submit an advance copy of 

their statements at least two weeks 

before the public meeting. At its 

discretion, DOE may permit any person 

who cannot supply an advance copy of 

his or her statement to participate, if 

that person has made advance 

alternative arrangements with the 

Building Technologies Program. The 

request to give an oral presentation 

should ask for such alternative 

arrangements. 

C. Conduct of Public Meeting 

The Department will designate a DOE 

official to preside at the public meeting 

and may also use a professional 

facilitator to aid discussion. The 

meeting will not be a judicial or 

evidentiary-type public hearing, but 

DOE will conduct it in accordance with 

5 U.S.C. 553 and section 336 of EPCA. 

(42 U.S.C. 6306) A court reporter will be 

present to record the transcript of the 

proceedings. The Department reserves 

the right to schedule the order of 

presentations and to establish the 

procedures governing the conduct of the 

public meeting. After the public 

meeting, interested parties may submit 

further comments on the proceedings as 

well as on any aspect of the rulemaking 

until the end of the comment period. 

The public meeting will be conducted 

in an informal, conference style. The 

Department will present summaries of 

comments received before the public 

meeting, allow time for presentations by 

participants, and encourage all 

interested parties to share their views on 

issues affecting this rulemaking. Each 

participant will be allowed to make a 

prepared general statement (within time 

limits determined by DOE) before the 

discussion of specific topics. The 

Department will permit other 

participants to comment briefly on any 

general statements. 

At the end of all prepared statements 

on a topic, DOE will permit participants 

to clarify their statements briefly and 

comment on statements made by others. 

Participants should be prepared to 

answer questions by DOE and by other 

participants concerning these issues. 

Department representatives may also 

ask questions of participants concerning 

other matters relevant to the public 

meeting. The official conducting the 

public meeting will accept additional 

comments or questions from those 

attending, as time permits. The 

presiding official will announce any 

further procedural rules or modification 

of the above procedures that may be 

needed for the proper conduct of the 

public meeting. 

The Department will make the entire 

record of this ANOPR rulemaking, 

including the transcript from the public 

meeting, available for inspection at the 

U.S. Department of Energy, Forrestal 

Building, Room 1J–018 (Resource Room 

of the Building Technologies Program), 

1000 Independence Avenue, SW., 

Washington, DC, (202) 586–9127, 

between 9 a.m. and 4 p.m., Monday 

through Friday, except Federal holidays. 

Any person may buy a copy of the 

transcript from the transcribing reporter. 

D. Submission of Comments

The Department will accept 

comments, data, and information 

regarding all aspects of this ANOPR 

before or after the public meeting, but 

no later than the date provided at the 

beginning of this advance notice of 

proposed rulemaking. Please submit 

comments, data, and information 

electronically. Send them to the 

following e-mail address: 

ResidentialFBANOPRComments@

ee.doe.gov. Submit electronic comments 

in WordPerfect, Microsoft Word, PDF, 

or text (ASCII) file format and avoid the 

use of special characters or any form of 

encryption. Comments in electronic 

format should be identified by the 

docket number EE–RM/STD–00–550, 

and wherever possible carry the 

electronic signature of the author. 

Absent an electronic signature, 

comments submitted electronically 

must be followed and authenticated by 

submitting the signed original paper 

document. No telefacsimiles (faxes) will 

be accepted. 

Pursuant to 10 CFR 1004.11, any 

person submitting information that he 

or she believes to be confidential and 

exempt by law from public disclosure 

should submit two copies: one copy of 

the document including all the 

information believed to be confidential, 

and one copy of the document with the 

information believed to be confidential 

deleted. The Department of Energy will 

make its own determination about the 

confidential status of the information 

and treat it according to its 

determination. 

Factors of interest to the Department 

when evaluating requests to treat 

submitted information as confidential 

include: (1) A description of the items; 

(2) whether and why such items are 

customarily treated as confidential 

within the industry; (3) whether the 

information is generally known by, or 

available from, other sources; (4) 

whether the information has previously 

been made available to others without 

obligation concerning its 

confidentiality; (5) an explanation of the 

competitive injury to the submitting 

person which would result from public 

disclosure; (6) when such information 

might lose its confidential character due 

to the passage of time; and (7) why 

disclosure of the information would be 

contrary to the public interest. 

E. Issues on Which DOE Seeks Comment 

The Department is interested in 

receiving comments and/or data to 

improve its analysis. The Department 

has asked for comments in a number of 

areas throughout this ANOPR. The 

Department is particularly interested in 

responses to the following questions 

and/or concerns: 

1. Installation Model 

Installation costs are a major part of 

the total consumer cost of a furnace or 

boiler and hence are a factor in the LCC 

analysis of potential standard levels. 

Due to the shortcomings of existing 

installation cost data, the Department 

developed an Installation Model to 

estimate installation costs (see section 

II.C.6 of this ANOPR). The Installation 

Model assumptions, methodology, and 

results regarding installation costs of 

residential furnaces and boilers are a 

recent development that stakeholders 

have not reviewed. In particular, the 

Department seeks information relevant 

to venting categories, markets, 

installation sizes, and the application of 

these components to establish 

installation costs for product classes 

under consideration in this rulemaking. 

2. Venting Issues 

Proper selection of vent materials and 

correct configuration of vent systems are 

essential for safe operation of any 

combustion appliance (see section 

II.C.6.c of this ANOPR). For gas boilers, 

NFPA 54 provides Category I venting 

guidelines; and for oil-fired appliances, 

45456 Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 

the applicable venting guideline is 

NFPA 31. However, the efficiency level 

at which the use of higher-cost Category 

III venting becomes necessary is not 

defined by these codes. For the analysis 

of gas boilers, DOE assumes that 20 

percent of installations include Category 

III horizontal vents for constructionrelated reasons for efficiencies up to 84 

percent AFUE. At 85 percent AFUE, 

DOE assumes Category III venting must 

be used 100 percent of the time. For oilfired equipment, type L venting is 

required at all AFUE levels up to 84 

percent. DOE assumes that at 85 percent 

and 84 percent AFUE for oil-fired 

boilers and oil-fired furnaces, 

respectively, the vent system must be 

upgraded to stainless AL–4C. 

The Department seeks further data 

and comment relevant to the above 

assumptions. In particular, the 

Department is interested in getting data 

regarding: (1) The fraction of total gas 

boiler installations at each efficiency 

rating that use Category III horizontal 

venting; and (2) the fraction of total oil 

boiler and total oil furnace installations 

at each efficiency level that use stainless 

AL–4C (as opposed to type L). 

3. Efficiency Distribution of 

Weatherized Gas Furnaces 

For weatherized gas furnaces, 

estimates of national energy savings 

depend on the baseline model efficiency 

level. The Department has limited data 

on the efficiency distribution of current 

sales of this product class, and has 

estimated the baseline model efficiency 

level using historical data. The 

Department seeks information on the 

efficiency distribution of current sales of 

weatherized gas furnaces from 

manufacturers of packaged air 

conditioners (which incorporate 

weatherized gas furnaces), or others. 

4. 81 Percent AFUE Furnaces With and 

Without Two-Stage Modulating Controls 

Two-stage modulation is used in both 

condensing and non-condensing, nonweatherized gas furnaces. Because there 

are at least two major manufacturers 

that market a series of 81 percent AFUE, 

two-stage modulating furnace models 

and specify, for these furnaces, Category 

I vent systems incorporating Type B 

vent and Type B vent connectors, it 

appears that 81 percent AFUE, two-stage 

modulating furnaces do not pose vent 

safety issues associated with premature 

corrosion. For non-modulating 81 

percent AFUE furnaces, the Department 

established that special venting 

treatments such as the use of Category 

III systems/components may be needed 

for many installations, and estimated 

the cost for these vent systems. 

Because of the higher initial venting 

costs and increased safety concerns 

associated with non-modulating 

furnaces, DOE assumes that 

manufacturers would choose to 

manufacture two-stage modulating 

furnaces if DOE established a minimum 

standard of 81 percent AFUE. This 

assumption seems to be supported by 

recent developments in the marketplace. 

Based on information available to DOE, 

it appears that manufacturers have 

ceased to produce non-modulating 

models with AFUE of 81 percent or 

higher, and that at least two 

manufacturers are offering 81 percent 

AFUE modulating furnaces.

The current DOE test procedure 

incorporates an adjustment factor for 

two-stage modulating furnaces to reflect 

the impact of their different operation 

(‘‘time on/time off’’) compared to singlestage furnaces. The presence of this 

adjustment in the test procedure results 

in a national energy savings estimate for 

two-stage modulating furnaces that is 

nearly three times as great as the savings 

for 81 percent AFUE furnaces using 

non-modulating technology. DOE is 

uncertain whether the adjustment for 

modulating furnaces that is included in 

the test procedure yields an accurate 

estimate of the expected energy use of 

the product and solicits public comment 

on this issue. Even if the test procedure 

presents an accurate representation of 

this product’s energy use, DOE solicits 

public comment on whether the test 

procedure should be modified to 

provide modulating furnaces with an 

AFUE rating that is a better reflection of 

its expected energy use. Based on the 

current test procedure, estimates for a 

two-stage modulating furnace with an 

AFUE rating of 81 percent is likely to 

show annual gas consumption in line 

with a non-modulating furnace with a 

higher AFUE rating. 

The Department also wishes to 

receive data on venting installation 

practices/guidelines and any additional 

information/data on vent safety issues 

for all 81 percent AFUE nonweatherized gas furnaces. 

5. Regulation of Furnace Electricity 

Consumption 

The Department’s analytical 

framework for the current rulemaking 

described an approach to regulate the 

electricity use of furnaces and boilers 

that would involve specifying a 

maximum annual electrical 

consumption. The current DOE test 

procedure provides a means to 

determine electrical consumption 

(kWh). However, 42 U.S.C. 6291(6) 

states that an ‘‘energy conservation 

standard’’ is either (A) ‘‘a * * * level of 

energy efficiency’’ or ‘‘a * * * quantity 

of energy use,’’ or (B) ‘‘a design 

requirement for the products specified 

* * *. ’’ Item (A) above strongly 

suggests that a single ‘‘energy 

conservation standard’’ cannot have 

measures or descriptions for both energy 

efficiency and energy use. A standard 

that includes both a level of energy 

efficiency and a quantity of energy use 

(kWh of electricity) conflicts with the 

statutory language. 42 U.S.C. 6291(20) 

states that ‘‘the term ‘annual fuel 

utilization efficiency’ means the 

efficiency descriptor for furnaces and 

boilers, determined using test 

procedures prescribed under section 

323 * * *.’’ Since the AFUE descriptor 

does not include electricity use, DOE 

cannot regulate the use of electricity by 

furnaces and boilers. 

Based on the considered approaches 

and the statutory language, the 

Department has decided not to regulate 

electricity consumption of residential 

furnaces and boilers at this time using 

the above-mentioned descriptor 

approaches. The Department seeks 

comment on the above methods and 

information on any other method for 

developing a standard that would be 

consistent with the existing statutory 

authority. 

V. Regulatory Review and Procedural 

Requirements 

This advance notice of proposed 

rulemaking was submitted for review to 

OIRA in the Office of Management and 

Budget under Executive Order 12866, 

‘‘Regulatory Planning and Review.’’ 58 

FR 51735. If DOE later proposes 

amended energy conservation standards 

for residential furnaces and boilers, the 

rulemaking would likely constitute a 

significant regulatory action, and DOE 

would prepare and submit to OIRA for 

review the assessment of costs and 

benefits required by section 6(a)(3) of 

the Executive Order. In addition, 

various other analyses and procedures 

may apply to such future rulemaking 

action, including those required by the 

National Environmental Policy Act, 42 

U.S.C. 4321 et seq.; the Unfunded 

Mandates Act of 1995, Public Law 104–

4; the Paperwork Reduction Act, 44 

U.S.C. 3501 et seq.; the Regulatory 

Flexibility Act, 5 U.S.C. 601 et seq.; and 

certain Executive Orders. 

VI. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of today’s Advance Notice 

of Proposed Rulemaking.

Federal Register / Vol. 69, No. 145 / Thursday, July 29, 2004 / Proposed Rules 45457

Issued in Washington, DC, on July 13, 

2004. 

David K. Garman, 

Assistant Secretary, Energy Efficiency and 

Renewable Energy.

[FR Doc. 04–16574 Filed 7–28–04; 8:45 am] 

BILLING CODE 6450–01–P