TASK REPORT

GTI PROJECT NUMBER 2 1492 

# Fuel Switching Survey Observations

Reporting Period: August 20 1 3 through April 20 1 4
Report Issued: June 4 , 20 1 4
, V 3 Revision D ecember 1 4 , 2015
Prepared For: American Gas Association, American Public Gas Association

GTI Technical Contact: Neil Leslie R&D Director End Use Solutions 847

- 768

- 0926 Fax: 847

- 768

- 0916 neil.leslie@gastechnology.org

Gas Technology Institute 1700 S. Mount Prospect Rd. Des Plaines, Illinois 60018 www.gastechnology.orgFUEL SWITCHING SURVE Y ANALYSIS REPORT

Page ii Disclaimer This information was prepared by Gas Technology Institute (“GTI”) for the American Gas Association (AGA) and the American Public Gas Association (APGA). Neither GTI, the members of GTI, AGA, APGA , nor any person acting on behalf of any of them: a. Makes any warranty or representation, express or implied with respect to the accuracy, completeness, or usefulness of the information co ntained in this report . Inasmuch as this project is experimental in nature, the technical information, results, or conclusi ons cannot be predicted. Conclusions and analysis of results by GTI represent GTI's opinion based on inferences from measurements and empirical relationships, which inferences and assumptions are not infallible, and with respect to which competent special ists may differ. b. Assumes any liability with respect to the use of, or for any and all damages resulting from the use of, any information, apparatus, method, or process disclosed in this report; any other use of, or reliance on, this report by any third party is at the third party's sole risk. Copyright © Gas Technology Institute All Rights ReservedFUEL SWITCHING SURVE Y ANALYSIS REPORT

Page ii i TABLE OF CONTENTS

EXECUTIVE SUMMARY

................................ ................................ ................................ .......................... 1 1 BACKGROUND

................................ ................................ ................................ ......................... 2 2 OBJECTIVE

................................ ................................ ................................ ................................ 5 3 APPROACH

................................ ................................ ................................ ................................ 5 4 OBSERVATIONS

................................ ................................ ................................ ...................... 6 4.1 Response Rate

................................ ................................ ................................ ............................. 6 4.2 Response s to Survey Questions

................................ ................................ ................................ ... 6 4.3 Builder and Contractor Comments

................................ ................................ ............................ 14 4.3.1 Sample Builder Comments

................................ ................................ ................................ . 14 4.3.2 Sample Contractor Comments

................................ ................................ ............................ 15 5 CONCLUSIONS

................................ ................................ ................................ ....................... 16

LIST OF FIGURES
Figure 1 Map of Regions for the 2011 DFR Furnace Standards

................................ ................................ .. 2 Figure 2 DFR Lifecycle Cost and Payback Period Results for Non

- Weatherized Gas Furnaces

................ 3 Figure 3 Expected Fuel Switching by Builders with a Condensing Furnace Minimum Standard

............... 8 Figure 4 Energy and Technology Options Expected by Builders Under Two Future Scenarios

................. 9 Figure 5 Expected Fuel Switching by Contractors with a Condensing Furnace Minimum Standard

........ 10 Figure 6 Energy and Technology Options Expected by Contractors Under Two Future Scenarios

.......... 11 Figure 7 Impact of Installed Cost Differential on Builder Furnace Fuel Switching Behavior

.................. 12 Figure 8 Impact of Modification Costs on Contractor Water Heater Fuel Switching Behavior

................ 13

LIST OF TABLES
Table 1 DOE Direct Final Rule Proposed Standards for Residential Furnaces

................................ ........... 2 Table 2 National and Census Region Response Rates

................................ ................................ ................. 6 Table 3 Response Rate by State

................................ ................................ ................................ ................... 7FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 1 

### Executive Summary
The objective of the research s ummarized in this report and accompanying spreadsheet wa s to d evelop and publish information on current and expected fuel switching behavior related to residential heating and water heating systems in n ew construction and replacement markets at national, regional
, and state level s. The survey data is intended for use in evaluating the impact of fuel switching on the technical feasibility and economic ju stification for increasing federal minimum efficiency requirements from non

- condensing furnace efficiency levels to condensing furnace efficiency levels. The approach was to develop, administer, collect, and analyze a nationwide survey of builders and installing contractors regarding their current fuel and technology choices for heating and water heating systems as well as their expected fuel switching behavior under two future scenarios:

• Scenario 1: T he future f ederal minimum efficien cy requirement for natural gas furnaces remains the same as it is today (i.e., non

- condensing furnaces).

• Scenario 2: The future f ederal minimum efficiency requirement changes to condensing furnaces.
A Project A dvisory C ommittee p rovide d high level project guidance to AGA and APGA , and helped

c oordinate local distribution company ( LDC ) participation in launching the survey . A Technical A dvisory C ommittee p rovide d technical guidance to GTI, AGA, and APGA
, and provided critical feedback on draft survey quest ions developed by GTI

. The response rate varied significantly in different states and between builders and contractors. 1,124 respondents started the survey (311 builders, 813 contractors); 603 completed all questions . Twenty or more respondents started the survey in 20 states ( AZ, NC, AL, MA, MI, NV, UT, MO, OR, PA, IN, IL, MD, NE, AR, OH, VA, MN, GA, and NJ ) . However, there were f ew responses in the four largest states ( CA, NY, FL, and TX ), and n o responses in 12 states ( CO, HI, ID, KS, ME, MT, ND, NH, SD, VT, WV, and WY ). Fuel switching survey responses indicate that a t least some incremental fuel switching from gas to electric technology options is expected if the future f ederal minimum efficiency requirement changes to natural gas condensing furnaces. Fuel switching is expected to occur in both heating and water heating systems. Some d ifferences in behavior are expected between builders and contractors , and some d ifferences are expected across regions and states

. Cont ractors expect more fuel switch ing than builders according to the survey. Comments were collected to assist in cataloging reasons for fuel switching behavior

. Installed cost differentials between gas and electric options are expected to impact fuel swit ching behavior. S ome builders and contractors consider themselves less sensitive to price, while others indicate that they will be more likely to switch to electric options as the price differential increases. Missing data will require extrapolation for many states and some census divisions . The methodology selected to extrapolate the available information may impact analysis results.FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 2 

### 1 Background
The Energy Policy and Conservation Act of 1975 requires the Department of Energy (DOE) to establish energy conservation standards for select consumer products and equipment and to update the stringency of these standards when it is determined that in addition to yielding energy savings, the updated standards are technologically feasible and economically justified. A DOE Direct Final Rule (DFR) published in the Federal Register on June 27, 2011, proposed to increase the minimum energy efficiency standards for non

- weatherized residential gas furnaces to 90% AFUE in 30 states in the North Region of the United States ( Table 1 and Figure 1 ). Under the DFR, these 90% AFUE standards were to take effect in 2013.

T able 1 DOE Direct Final Rule Proposed Standards for Residential Furnaces

Product Class South Region Standards North Region Standards Non

- weatherized gas AFUE = 80% AFUE = 90% Mobile home gas AFUE = 80% AFUE = 90% Weatherized gas AFUE = 81% AFUE = 81% Non

- weatherized oil

- fired AFUE = 83% AFUE = 83% Mobile home oil

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

- fired AFUE = 78% AFUE = 78% Electric AFUE = 78% AFUE = 78%

Figure 1 Map of Regions for the 2011 DFR Furnace Standards

A technical support document (TSD) based on a sophisticated Excel/Crystal Ball spreadsheet tool prepared for DOE by LBNL provided the technical rationale for DOE’s determination that the proposed standard is technologically feasible, economically justified, and will save significant amounts of energy. This spreadsheet tool was used by DOE to calculate the lifecycle cost and payback periods for the proposed efficiency increases under specific scenarios. Figure 2 shows a summary table of the results included in the DFR. Multiple variables strongly affect the results of lifecycle cost and payback period analyses, which jointly serve as the basis for DOE’s determination that the proposed rule is economically justified. One of the key variables missing from the TSD was the impact of harmful fuel switching caused by the proposed efficiency increases.FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 3 Figure 2 DFR Lifecycle Cost and Payback Period Results for Non

- Weatherized Gas Furnaces Source: DOE Direct Final Rule, Technical Support Document Chapter 8 1

For the DFR, DOE did not explicitly quantify the impact of fuel switching from g as furnaces to electric heating equipment. In its reasoning, DOE stated that because the operating costs of electric space heating systems are relatively high due to the price of electricity, using an electric system in a cold climate is significantly mor e expensive than using a gas furnace. Based on the this logic, DOE inferred that consumers with high heating loads would be unlikely to switch to electric space heating systems as a result of amended standards. Also likely to be impacted by the DFR , but not included in the TSD, is fuel switching from gas to electric resistance water heaters as a result of the amended standard. According to the TSD, in 5% to 10% of instances in which the mandated shift to a condensing furnace results in an orphaned water heater, the consumer will install a new electric water heater to replace the gas unit, because this is a less expensive alternative to a separately vented water heater. 2

1 U.S. Department of Energy website. “Residential Furnaces and Central Air Conditioners and Heat Pumps Direct Final Rule Technical Support Document.” Chapter 8. Life

- Cycle Cost and Payback Period Analyses. http://www1.eere.energy.gov/buildings/appliance_standards/residential/residential_furnaces_central_ac_hp_direct_final_rule_ts d.html

. 2 Department of Energy, Res idential Furnaces and Central Air Conditioners and Heat Pumps Direct Final Rule Technical Support Document, Appendix 8

- B. Installation Cost Determination for Furnaces, Page 8

- B

- 35, July 2011.FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 4 This fuel switching has both energy cost and environmental consequences. The oper ating costs
, primary energy consumption, and greenhouse gas emissions of an electric water heater are typically more than twice as high as a comparable gas storage water heater. It is important to consider the impact of such fuel switching
APGA file d a p etition challenging the 2011 DFR in court ( American Public Gas Ass’n v. U.S. Dep’t of Energy, No. 11

- 1485
, U.S. Court of Appeals for t he District of Columbia Circuit )

. The APGA petition requested that the court vacate the direct final rule as it applies t o residential gas furnaces and remand the matter to DOE for further rulemaking proceedings to establi sh new efficiency standards. E nvironmental and efficiency advocates as well as appliance distributors intervened in the court litigation. In January 2013 , APGA and DOE filed a joint motion with the court agreeing to settle the case by vacating the direct final rule with regard to natural gas furnaces and sending the matter back to DOE for further rulemaking proceedings to establish new minimum efficiency s tandards for gas furnaces. The joint motion was opposed by, among others, the Heating, Air

- Conditioning, & Refrigeration Distributors International (“HARDI”), wh ich argued that it should be substituted as a petitioner and be permitted to continue to chall enge the direct final rule even if the court grants the APGA

- DOE motion. The court issued an order granting a stay of the compliance deadline for the regional standards for gas furnaces and ordered the parties to submit a proposed format for the re

- briefi ng of the case. On March 11, 2014, a joint motion was filed with the court with the consent of all parties to the litigation that would resolve the litigation in all respects. In the settlement agreement motion , the parties request ed that the court enter an order vacating the direct final rule and the notice of effective date of the direct final rule as they relate to energy conservation standards for residential (“non

- weatherized”) gas furnaces, including DOE’s determination that suc h furnaces constitute a single class of products, and remand the matter to DOE for notice

- and

- comment rulemaking. On April 24, 2014, the court ordered that the joint unopposed motion to vacate in part and remand for further rulemaking, filed March 11, 201 4, be granted.
In the joint settlement agreement, DOE commit ted to using best efforts to issue a notice of proposed rulemaking (NOPR) regarding new efficiency standards for gas furnaces within one year of the issuance of the remand and to issue a final r ule within the later of two years of the issuance of the remand or one year of the issuance of the proposed rule. DOE also commit ted that if it grants an extension of the comment period or determines additional time is necessary, the period for completion of the final rule will be extended accordingly. DOE further commit ted to making its data available within 30 days after it sends a draft proposed rule to the Office of Management and Budget (OMB) for review, and that it will provide a comment period of a t least 90 days and will follow its normal practice in notice and comment proceedings with regard to any request for extensions of the comment period. DOE also agree d to include in the record the data gathered for the direct final rule concerning the impa ct on consumers resulting from the trial standard levels considered in the Technical Support Document for that proceeding for gas furnaces. Before DOE issues its draft NOPR to OMB, there is an opportunity to provide input to the new TSD that will be used t o provide justification for the level(s) selected by DOE in the NOPR. T he most important and also the most challenging opportunity is the development of defensible fuel switching information , at a regional or even state level if possible. This will help to ensure that a technically robust, transparent assessment of fuel switching impacts is included in the revised TSD

.FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 5 

### 2 Objective
The objective of the research summarized in this report and accompanying survey instrument and spreadsheet was to d evelop and publish information on current and expected fuel switching behavior related to residential heating and water heating systems in n ew construction and replacement markets at national, regional
, and state level s. The survey data is intended for use in evaluating the impact of fuel switching on the technical feasibility and economic justification for increasing federal minimum efficiency requirements from non

- condensing furnace efficiency levels to condensing furnace efficiency levels.



### 3 Approach
The app roach to providing defensible public domain fuel switching information was to develop, administer, collect, and analyze a nationwide survey of builders and installing contractors regarding their current fuel and technology choices for heating and water hea ting systems as well as their expected fuel switching behavior under two future scenarios:

• Scenario 1: The future f ederal minimum efficiency requirement for natural gas furnaces remains the same as it is today (i.e., non

- condensing furnaces).

• Scenario 2: The future f ederal minimum efficiency requirement changes to condensing furnaces.
A Project A dvisory C ommittee p rovide d high level project guidance to AGA and APGA , and helped

c oordinate LDC and ACCA participation in launching the survey . A Technical A d visory C ommittee p rovide d technical guidance to GTI, AGA, and APGA
, and provided critical feedback on draft survey questions developed by GTI for the survey instrument. GTI staff also interacted with LBNL staff during the survey development and administra tion to obtain input and feedback on useful survey topics and specific questions that would maximize the value of the survey.
GTI staff d evelop ed the draft fuel switching survey instrument using the SurveyMonkey ® web tool
, selected for its ease of use an d flexibility . Initial draft questions and format options were reviewed with TAC members and revised in response to feedback. In addition, draft questions were reviewed with LBNL staff and revised based on their feedback.
In November 2013 a small trial l aunch was conducted by New Jersey Natural Gas, Vectren, and Philadelphia Gas Works to obtain feedback from targeted respondents on survey content, effort to complete, and understanding. Based on collective feedback from the TAC, PAC, and LBNL , GTI d evelop ed the final survey instrument and instructions for LDC’s throughout the United States to help them launch the survey to builders and contractors. ACCA also was provided a link to the survey to permit additional responses by ACCA members.
The final surve y instrument was an anonymous survey expected to take approximately 15 minute s to complete. The survey included quantitative and qualitative questions, opportunity for comments after each question, options to skip certain questions, and an option for foll ow

- up interview s if individual respondent s voluntarily provide d contact information

. The survey remained open from January 20, 2014, through April 15, 2014. The survey included questions on c urrent behavior related to e quipment choices , e nergy choices
, rationale, and impact of installed cost differential on equipment and energy decisions. It also included questions on e xpected behavior in the future related to a n on

- condensing furnace minimum standard and a

c ondensing furnace minimum standard

. To faci litate analysis of survey results, the SurveyMonkey ® exportable raw data were incorporated into an i nteractive spreadsheet accompanying this report that allows national, regional, and state level analysis as desired by the user. The spreadsheet also permi ts segregation by builder or contractor size.FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 6 The public version of the survey responses accompanying this report includes all comments and responses to questions, but deleted individual contact information to maintain anonymity

. The complete set of surve y responses, including individual contact information, was provided as confidential information to LBNL staff as well as AGA, APGA, and PAC members to permit follow

- up interactions deemed appropriate by analysts and stakeholders.



### 4 Observations

**4.1 Response**  **Rate** The response rate varied significantly in different states and between builders and contractors

. Table 2 shows the national and census region response rates. Table 3 lists response rate by state

. 1,124 qualified respondents started the survey (311 builders, 813 contractors); 603 completed all questions

. 101 respondents st arted the survey but were disqualified because they indicated they were neither a builder nor a contractor. Twenty or more respondents started the survey in 20 states ( AZ, NC, AL, MA, MI, NV, UT, MO, OR, PA, IN, IL, MD, NE, AR, OH, VA, MN, GA, and NJ ). H owever, there were f ew responses in the four largest states ( CA, NY, FL, and TX ), and no responses in 12 states ( CO, HI, ID, KS, ME, MT, ND, NH, SD, VT, WV, and WY ). Some states (e.g., MD) had significantly higher contractor response rates, while others ( e.g., IL) had higher builder response rates. Missing data will require extrapolation for many states and some regions. The methodology selected to extrapolate the available information may impact analysis results
Table 2 National a nd Census Region Response Rates

**4.2 Responses to Survey**  **Questions** The interactive spreadsheet accompanying this report is the primary source of information and analysis of the fuel switching survey results. Selected graphs contained in the spreadsheet are included below in support of the following top level observations

.

• Fuel switching survey responses indicate that a t least some incremental fuel switching from gas to electric technology options is expected if the future f ederal minimum efficiency requirement changes to natural gas condensing furnaces.

• Fuel switching is expected to occur in both heating and water heating systems. Some d ifferences in behavior may occur between builders and contractors , and there may be some d ifferences across regions and states

. Contractors expect more fuel switch ing than builders du e to additional perceived issue s in the replacement market

.

• Installed cost differentials between gas and electric options are expected to impact fuel switching behavior. S ome builders and contractors expect less sensitivity to cost in the marketplace ; o thers expect a higher likel ihood of switch ing to electric options as the cost differential increases. Responses Started Responses Finished Percent Finished Responses Started Responses Finished Percent Finished Responses Started Responses Finished Percent Finished ALL 1225 603 49.2% 311 178 57.2% 813 425 52.3% Pacific 63 42 66.7% 20 13 65.0% 43 29 67.4% Mountain North 44 30 68.2% 6 1 16.7% 38 29 76.3% West North Central 156 99 63.5% 57 29 50.9% 99 70 70.7% East North Central 181 115 63.5% 94 61 64.9% 87 54 62.1% Middle Atlantic 261 81 31.0% 37 16 43.2% 224 65 29.0% New England 72 30 41.7% 14 5 35.7% 58 25 43.1% South Atlantic 229 144 62.9% 87 46 52.9% 142 98 69.0% East South Central 62 35 56.5% 42 23 54.8% 20 12 60.0% West South Central 90 50 55.6% 16 7 43.8% 74 43 58.1% Mountain South 41 24 58.5% 3 1 33.3% 38 23 60.5% All Home Builders Installing Contractor Census RegionFUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 7 Table 3 Response Rate by State

Responses Started Responses Finished Percent Finished Responses Started Responses Finished Percent Finished Responses Started Responses Finished Percent Finished ALL 1225 603 49% 311 178 57% 813 425 52% AK 1 0 0% 1 0 0% 0 0 0% AL 23 13 57% 17 10 59% 6 3 50% AR 52 29 56% 4 4 100% 48 25 52% AZ 20 12 60% 0 0 0% 20 12 60% CA 10 5 50% 1 0 0% 9 5 56% CO 0 0 0% 0 0 0% 0 0 0% CT 4 2 50% 1 0 0% 3 2 67% DC 2 0 0% 0 0 0% 2 0 0% DE 4 1 25% 4 1 25% 0 0 0% FL 6 2 33% 4 2 50% 2 0 0% GA 94 63 67% 46 31 67% 48 32 67% HI 0 0 0% 0 0 0% 0 0 0% IA 4 1 25% 1 0 0% 3 1 33% ID 0 0 0% 0 0 0% 0 0 0% IL 37 24 65% 36 24 67% 1 0 0% IN 34 22 65% 23 14 61% 11 8 73% KS 0 0 0% 0 0 0% 0 0 0% KY 10 5 50% 6 4 67% 4 1 25% LA 2 2 100% 0 0 0% 2 2 100% MA 25 18 72% 3 2 67% 22 16 73% MD 37 24 65% 2 1 50% 35 23 66% ME 0 0 0% 0 0 0% 0 0 0% MI 26 19 73% 10 7 70% 16 12 75% MN 78 50 64% 20 7 35% 58 43 74% MO 32 23 72% 21 14 67% 11 9 82% MS 4 3 75% 3 2 67% 1 1 100% MT 0 0 0% 0 0 0% 0 0 0% NC 20 12 60% 12 5 42% 8 7 88% ND 0 0 0% 0 0 0% 0 0 0% NE 37 23 62% 15 9 60% 22 14 64% NH 0 0 0% 0 0 0% 0 0 0% NJ 244 45 18% 18 6 33% 226 39 17% NM 1 0 0% 0 0 0% 1 0 0% NV 27 16 59% 0 0 0% 27 16 59% NY 2 1 50% 0 0 0% 2 1 50% OH 58 40 69% 15 11 73% 43 29 67% OK 19 12 63% 1 0 0% 18 12 67% OR 33 24 73% 9 8 89% 24 16 67% PA 33 28 85% 6 3 50% 27 25 93% RI 1 1 100% 0 0 0% 1 1 100% SC 4 2 50% 2 1 50% 2 1 50% SD 0 0 0% 0 0 0% 0 0 0% TN 10 5 50% 8 3 38% 2 2 100% TX 11 6 55% 3 2 67% 8 4 50% UT 30 23 77% 1 0 0% 29 23 79% VA 60 42 70% 8 4 50% 52 38 73% VT 0 0 0% 0 0 0% 0 0 0% WA 6 5 83% 3 3 100% 3 2 67% WI 1 0 0% 0 0 0% 1 0 0% WV 0 0 0% 0 0 0% 0 0 0% WY 0 0 0% 0 0 0% 0 0 0% State All Home Builders Installing ContractorFUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 8 Figure 3 provides an illustration of expected fuel switching behaviors by builders if the future f ederal minimum efficiency requirement changes to condensing furnaces , and natural gas is available in the development . Overall, 6 % of the 205 builders from various regions of the country that responded to the survey question expect to fuel switch from gas heating and water heating to electric heating, electric water heating, or both. 4 % of builders expec t to switch from gas heating to electric heating, and 2 % expect to switch from gas water heating to electric water heating. Census division information summarized in Figure 3 highlight s regional variations in expected behavior as well as the gaps in the response data set. States included in the Mountain North, New England, and Mountain South census divisions did not have any respondents that completed this question.

Figure 3 Expected Fuel Switching by Builders with a Condensing Furnace Minimum Standard 6 13

0 9

1 3

0 5 8

- 4 0

4 13

0 2

1 5

0 7

2

0 0

2 4

0 9

0

- 1 0

- 2 5

- 4 0

-6 -4 -2 0 2 4 6 8 10 12 14

ALL Pacific Mountain North West North Central East North Central Middle Atlantic New England South Atlantic East South Central West South Central Mountain Southpercent change if standard changes from non-condensing to condensing 

### Fuel Switching

- Builders when standard goes from non

- condensing to condensing

Went from all gas to not all gas
Went from gas heat to electric heat
Went from gas water heating to electric water heating Type of Respondent: Home Builder State of Respondent: ALL Census Region: ALL Number of Homes Built: ALL Respondents: 205FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 9 Figure 4 provides further details on expected behavior changes by builders if the future standard changes from non

- condensing furnaces to condensing furnaces
, and natural gas service is available for the home . Each of the columns represents the fraction of instal lations that are expected to include the design option pairs for heating and water heating. The first two columns provide the “all

- gas” option of a gas furnace and a gas water heater. If the future standard remains a non

- condensing furnace, 17.2% of inst allations are expected to be a non

- condensing furnace paired with a gas water heater, while 57.4% are expected to be condensing furnaces paired with gas water heaters. This is consistent with the current preference by builders for condensing furnaces. If a condensing furnace is the minimum requirement, then the fraction of non

- condensing furnaces with a gas water heater is expected to drop from 17.2% to 0%, since that option would not be permitted under a condensing furnace standard. As shown in the

seco nd column, condensing furnace installations are expected to increase by 11.4%, a net reduction of 5.8% (11.4

– 17.2). This reduction in “all

- gas” options represents top level fuel switching behavior by builders induced by the condensing furnace minimum st andard. The other columns show various combinations of gas and electric heating and water heating options. This information helps clarify the types of fuel switching behavior expected by builders . Heat pump installations are expected to increase by 5% overall (with either gas or electric water heaters), and gas furnace/electric water heater installations are expected to increase by about 2%. Few electric resistance heating options are expected to be installed by builders in either scenario.

Figure 4 Energy and Technology Options Expected by Builders Under Two Future Scenarios 17.2 57.4

3.2 0.6 3.9 8.5 5.5 2.0 1.7 68.9

7.0

0.3 13.7

6.7

1.6 1.9 - 17.2 11.4

3.8

- 0.3

- 3.9 5.1

1.2

- 0.4 0.2

0 10 20 30 40 50 60 70 80 90 100

- 40 - 30 - 20 - 10

0 10 20

Heating: minimum efficiency (non

condensing) furnace;

Water heating: natural gas Heating: high efficiency (condensing) furnace; Water heating: natural gas Heating: electric heat pump; Water heating: natural gas Heating: electric furnace or baseboard; Water heating: natural gas Heating: minimum efficiency (non

condensing) furnace;

Water heating:

electric Heating: high efficiency (condensing) furnace; Water heating: electric Heating: electric heat pump; Water heating: electric Heating: electric furnace or baseboard; Water heating: electric Other combinationspercent of installationschange in percentage of installations current efficiency standard

high efficiency (condensing) standard

response change non

- condensing

-- > condensing Type of Respondent: Home Builder State of Respondent: ALL Census Region: ALL Number of Homes Built: ALL Respondents: 205FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 10 Figure 5 provides an illustration of expected fuel switching behaviors by contractors if the future f ederal minimum efficiency requirement changes to condensing furnaces. Overall, 7% of the 589 contractors from various regions of the country that responded to the survey question s expect to fuel switch from gas hea ting and water heating to electric heating, electric water heating, or both. Seven percent of contractors expect to switch from gas heating to electric heating, and 1 % expect to switch from gas water heating to electric water heating. Census region infor mation summarized in Figure 5 highlight s regional variations in expected behavior. Unlike the builder survey responses, there were at least some contractor respondents within each census division

.

Figure 5 Expected Fuel Switching by Contractors with a Condensing Fu rnace Minimum Standard 7

2 10

8

5
4 9 10 20

6 13

7

5 8 8

6

4 9 9 20

5 12

1

- 3 1 2
1 1 2 2 7

2

0

-5 0 5 10 15 20 25

ALL Pacific Mountain North West North Central East North Central Middle Atlantic New England South Atlantic East South Central West South Central Mountain Southpercent change if standard changes from non-condensing to condensing 

### Fuel Switching

- Installation Contractors when standard goes from non

- condensing to condensing

Went from all gas to not all gas
Went from gas heat to electric heat
Went from gas water heating to electric water heating Type of Respondent: Installing Contractor State of Respondent: ALL Census Region: ALL Number of Gas Furnaces Installed: ALL Installs in New Construction: ALL Performs Replacements in Existing Homes: ALL Respondents: 589FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 11 Figure 6 provides further details on expected behavior changes by contractors if the future standard changes from non

- condensing furnaces to condensing furnaces, and natural gas service is available f or the home. Each of the columns represents the fraction of installations that are expected to include the design option pairs for heating and water heating. The first two columns provide the “all

- gas” option of a gas furnace and a gas water heater. If the future standard remains a non

- condensing furnace, 30.4% of installations are expected to be a non

- condensing furnace paired with a gas water heater, while 48.1% are expected to be condensing furnaces paired with gas water heaters. If a condensing furn ace is the minimum requirement, then the fraction of non

- condensing furnaces with a gas water heater is expected to drop from 30.4% to 0%, since that option would not be permitted under a condensing furnace standard. As shown in the second column, condens ing furnace installations are expected to increase by 23. 6 %, a net reduction of 6. 8 % (23. 6

– 30.4). This reduction in “all

- gas” options represents top level fuel switching behavior by contractors induced by the condensing furnace minimum standard.
The o ther columns show various combinations of gas and electric heating and water heating options. This information helps clarify the types of fuel switching behavior expected by contractors . Heat pump installations are expected to increase by 6 % overall (wit h either gas or electric water heaters) . G as furnace/electric water heater installations are expected to de crease slightly ( by about 0.5 % ) . Few electric resistance heating options are expected to be installed by contractors in either scenario , with an in crease of 0.6% expected under a condensing furnace standard

.

Figure 6 Energy and Technology Options Expected by Contractors Under Two Future Scenarios 30.4 48.1

3.4 1.2 2.4 3.2 5.5
1.3 4.6 71.8

8.1

1.8 5.1 6.8

1.5 5.0 - 30.4 23.6

4.7

0.6

- 2.4 2.0 1.3 0.2 0.4

0 10 20 30 40 50 60 70 80 90 100

-40 -30 -20 -10

0 10 20 30

Heating: minimumefficiency (noncondensing) furnace;

Water heating:

natural gas Heating: high efficiency (condensing) furnace; Water heating: natural gas Heating: electric heat pump; Water heating: natural gas Heating: electric furnace or baseboard; Water heating: natural gas Heating: minimumefficiency (noncondensing) furnace;

Water heating:

electric Heating: high efficiency (condensing) furnace; Water heating: electric Heating: electric heat pump; Water heating: electric Heating: electric furnace or baseboard; Water heating: electric Other combinationspercent of installationschange in percentage of installations current efficiency standard

high efficiency (condensing) standard

response change non-condensing --> condensing

Type of Respondent: Installing Contractor State of Respondent: ALL Census Region: ALL Number of Gas Furnaces Installed: ALL Installs in New Construction: ALL Performs Replacements in Existing Homes: ALL Respondents: 589FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 12 Figure 7 provides information on the expected impact of installed cost differential between a gas furnace and an electric space heating system on fuel switching behavior by builders

. As the installed cost differential increases, there is a range of expected behavior by builders, with an aggregate expectation for increased fuel switching to electric heating by builders as the installed cost differential increases. This information is intended for use in a methodology to conduct a fuel switching analysis for heating systems based on sensitivity to installed cost differentials.

Figure 7 Impact of Installed Cost Differential on Builder Furnace Fuel Switching Behavior 7 5 11 17 124

7 8 13 30 104
11 18

15 32 79

19 25 18
41 54 38 21 32

25 39 49 33 20 19 32 58 33 20 16 28 67 30 16 15 27 4.0 2.8 6.2 9.6 70.1 4.0 4.5 7.3 16.9 58.8

6.2 10.2

8.5 18.1 44.6

10.7 14.1 10.2 23.2 30.5 21.5 11.9 18.1

14.1 22.0 27.7 18.6 11.3 10.7 18.1 32.8 18.6 11.3 9.0 15.8 37.9 16.9 9.0 8.5 15.3
0 20 40 60 80 100 120 140 $0

- Never $0

- Sometimes $0

- Half the Time $0

- Usually $0

- Always $1

- $250

- Never $1

- $250

- Sometimes $1

- $250

- Half the Time $1

- $250

- Usually $1

- $250

- Always $251

- $500

- Never $251

- $500

- Sometimes $251

- $500

- Half the Time $251

- $500

- Usually $251

- $500

- Always $501

- $750

- Never $501

- $750

- Sometimes $501

- $750

- Half the Time $501

- $750

- Usually $501

- $750

- Always $751

- $1000

- Never $751

- $1000

- Sometimes $751

- $1000

- Half the Time $751

- $1000

- Usually $751

- $1000

- Always $1001

- $1200

- Never $1001

- $1200

- Sometimes $1001

- $1200

- Half the Time $1001

- $1200

- Usually $1001

- $1200

- Always $1201

- $1500

- Never $1201

- $1500

- Sometimes $1201

- $1500

- Half the Time $1201

- $1500

- Usually $1201

- $1500

- Always $1501 and above

- Never $1501 and above

- Sometimes $1501 and above

- Half the Time $1501 and above

- Usually $1501 and above

- Always
percent or number of respondents If a high efficiency (condensing) furnace costs more to install by the amount shown in each row below, would you

never, maybe, or always choose a high efficiency (condensing) furnace over an electric space heating system?

Number

Percent

Question 15 Type of Respondent: Home Builder State of Respondent: ALL Census Region: ALL Number of Homes Built: ALL Respondents: 177FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 13 Figure 8 provides information on the expected impact on fuel switching behavior by contractors of increased costs associated with “orphaned” gas water heater issues when a condensing furnace is installed. As the modification cost increases (e.g., vent relining, new vent installation), there is a range of expected behavior by contractors, with an aggregate expectation for increased fuel switching to electric water heaters by contractors as the modification cost of the gas water heater increases. This information is intended for use in a methodology to conduct a fuel switching analysis for water heating systems affected by the installation of a condensing furnace based on sen sitivity to modification costs.

Figure 8 Impact of Modification Costs on Contractor Water Heater Fuel Switching Behavior 289 54 4 11 29 240 67 16

20 13 186 96 38 17 12 176 89 37 34 11 169 74 36 42 26 165 65 26 45 45

69.1 12.9 1.0 2.6

6.9 57.4

16.0 3.8 4.8 3.1 44.5 23.0 9.1 4.1 2.9 42.1 21.3 8.9 8.1 2.6 40.4 17.7 8.6 10.0 6.2 39.5 15.6 6.2

10.8 10.8

0 50 100 150 200 250 300 350 $0 - Never $0 - Sometimes $0 - Half the time $0 - Usually $0 - Always $1 - $200 - Never $1 - $200 - Sometimes $1 - $200 - Half the time $1 - $200 - Usually $1 - $200 - Always $201 - $400 - Never $201 - $400 - Sometimes $201 - $400 - Half the time $201 - $400 - Usually $201 - $400 - Always $401 - $600 - Never $401 - $600 - Sometimes $401 - $600 - Half the time $401 - $600 - Usually $401 - $600 - Always $601 - $800 - Never $601 - $800 - Sometimes $601 - $800 - Half the time $601 - $800 - Usually $601 - $800 - Always Above $800 - Never Above $800 - Sometimes Above $800 - Half the time Above $800 - Usually Above $800 - Always

percent or number of respondentsIf the increased cost is more than this you would replace the gas water heater If the vent on an existing gas water heater needs modification due to a cond. furnce install replacing the gas water heater with an elec. one is an option, but it may require upgrading the elec. service.

Percent
Number Question 40 Type of Respondent: Installing Contractor State of Respondent: ALL Census Region: ALL Number of Gas Furnaces Installed: ALL Installs in New Construction: ALL Performs Replacements in Existing Homes: ALL Respondents: 418FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 14 **4.3 Builder and Contractor Comments**  The interactive spreadsheet that accompanies this report includes all anonymous comments provided by survey respondents. The following small sample of comments illustrate builder and contractor opinions and observations. Within both groups below
, sample comments related to specific questions are provided first
, then general comments are shown

. 4.3.1 Sample Builder Comments Question: When you chose a high efficiency furnace over a minimum

- efficiency furnace, what drives the decision?

• Our state energy code (IL, IN, WA)

• Marketing (NE) Question: What percentage of the homes you completed last yr. had high eff. furnaces and electric water heaters?

• Venting issues [drive the decision] when customers don’t want to spend the money to vent a regular gas water heater (IL )

• The only time we use electric water heaters are if the customer requests it or the power company has a large incentive (AL)

• Cost of gas water heaters is higher than electric (MI, MN)
General Builder Comments

• I personally have gas heat, dryer, hot water, and fireplace and recommend gas every time it’s available (AL)

• Gas is harder to install and very costly to the builder. The subcontractors charge a lot to do gas piping. (AL)

• Is it [gas] really cheaper or is it gas company sales (GA)?

• At this point in tim e, natural gas heating and water in area seems to be the most cost effective to operate and there fore that is why we use gas. If we had a change in operating costs, we would probably switch to the more competitive energy source (IL).

• Do not believe that h igh

- efficiency furnaces should be mandated because of the extra cost to install in both new homes and to retrofit in an existing home (NJ).

• The consumer will ultimately make the decision based on how much they will pay for the equipment vs. how much per mo nth they will spend for energy. We will build the homes based on what they want. (MI)

• Keep the code the same or relax it for what is left of affordable housing. Now is not the time to increase new home prices. Current rising costs and low buyer confidenc e for the last several years should not be compounded by even higher requirements. Additionally, I am not sure the science of "tight" homes is correct (OR).

• Efficiency of construction, equipment life, geographic region, owner habits, and anticipated futur e costs of service all play a role in choosing equipment (OR).FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 15 4.3.2 Sample Contractor Comments Question: Natural gas is currently used and the federal minimum has changed. What percentage of replacements are in these categories?

• I try to push the high efficient gas furnace and recommend not switching to electric because of the better comfort in heating with gas (AL)

• 95% furnaces are easy to sell and install, the cost needs to have a tip over with some rebates and tax incentives. A 1/3 of the cost is us ually enough (CA)

• As an HVAC contractor in the state of CT for over 25 years, myself, and fellow tradesmen have no choice but to choose reliability over efficiency...it always seems to come back to haunt us with condensate issues from drainage to freeze ups (CT)

• Most people won't pay to re

- line the common vent. GA power has rebates for electric water heaters (GA)

• If 90% is required, we would be forced to install heat pumps on occasion due to the venting (GA)

• If the building does not lend itself to venting a condensing gas furnace, the electric heat pump is usually the only viable energy efficient option. The gas industry will lose that segment of the market (IN)

• Many homes can't be converted to a direct vent furnace because of location within the home and d on't have adequate electric supply to convert to electric heat and be code compliant (MD)
General Contractor Comments

• Electric rates are very high in Southern California. Gas is the way to go. If the solar systems and other systems make the rate affordabl e then it may change. Electric conversion to heat with the present technology is always less efficient than gas (CA)

• Our local rates are competitive so on new homes we go with the customers wishes on gas verses electric. On existing gas heated homes we alw ays recommend they stay with gas and go at least 95% efficient. I never try to talk a customer out of using an electric water heater as customers tell us they have a quicker recovery rate (IN)

• There must be a way to file a waiver to be able to still instal l 80% furnaces for multi family dwellings (NJ)

• If the trend is toward high efficiency, it must become more affordable. If it does not, then I see much more demand for electric heat pumps for heat and cooling both. The same would happen with hot water, more electric heat pumps (UT)

• Let the customer decide. The government has no business regulating efficiency. Efficient equipment should pay for itself (UT)

• Requiring condensing furnaces can be done with few problems in new construction. However, in a retrofi t application it will be counter

- productive, resulting in customers opting to repair older furnaces, and will actually decrease overall efficiency compared to installing a new standard efficiency system. Retrofit installation can be difficult, and cost pro hibitive due to the need for new venting and drains through finished space (WA)FUEL SWITCHING SURVE Y ANALYSIS REPORT

Page 16 

### 5 Conclusions
Fuel switching survey responses indicate that a t least some incremental fuel switching from gas to electric technology options is expected if the future f ederal minimum efficiency requirement changes to natural gas condensing furnaces. Fuel switching is expected to occur in both heating and water heating systems. Some d ifferences in behavior are anticipated between builders and contractors , and there may be some d ifferences across regions and states

. Contractors expect more fuel switch ing than builders due to additional perceived issue s in the replacement market

. Installed cost differentials between gas and electric options are expected to impact fuel switching behavior. S ome builders and contractors expect less sensitivity to cost in the marketplace; others expect a higher likelihood of switching to electric options as the cost differential increases. Missing data will require extrapolation for ma ny states and some census divisions . The methodology selected to extrapolate the available information may impact analysis results. Builder and contractor comments are predominantly against new regulations , with a range of concerns expressed related to in stallation challenges and other consequences . Some commenters noted that they already favor condensing furnaces, and new regulations are not much of a th reat

.