CHAPTER 1. INTRODUCTION

TABLE OF CONTENTS

**1.1 PURPOSE OF THE DOCUMENT ................................................................................. 1-1 1.2**  **OVERVIEW OF RESIDENTIAL ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL HEATING PRODUCTS....................................................................... 1-1**  **1.3 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS ................... 1-2**  **1.4 STRUCTURE OF THE DOCUMENT............................................................................ 1-4**

LIST OF TABLES **Table 1.1 Analyses During Each Rulemaking Stage................................................................... 1-3**

**1-i 1-ii** 1.1 PURPOSE OF THE DOCUMENT **This preliminary technical supp ort document (preliminary TSD) is a stand-alone report**  **that provides the technical analyses and results supporting the information presented in the preliminary notice of public meeting (NOPM) and executive summary for residential water**  **heaters, direct heating equipment, and pool heaters (collectively referred to as “residential heating products”). This preliminary TSD reports on the preliminary activities and analyses**  **conducted in the period preceding the notice of proposed rulemaking (NOPR) of this rulemaking.**

1.2 OVERVIEW OF RESIDENTIAL ENERGY CONSERVATION STANDARDS F OR RESIDENTIAL HEATING PRODUCTS **The Energy Policy and Conservation Act (EPCA) of 1975 (42 U.S.C. 6291–6309)**

**es tablished an energy conservation program for major household appliances. The National**  **Energy Conservation Policy Act of 1978 (NECPA) amended EPCA to add Part C of Title III (42 U.S.C. 6311–6317), which established an energy conservation program for certain industrial**  **equipment. The amendments to EPCA in the National Appliance Energy Conservation Act of 1987 (NAECA) established energy conservation standards for residential water heaters, direct**  **heating equipment, and pool heaters, as well as requirements for determining whether these standards should be amended. (42 U.S.C. 6291–6309)**  **NAECA required DOE to conduct two cycles of rulemakings to determine if more st**  **ringent standards are economically justified and technologically feasible for these products. (42 U.S.C. 6295 (e)) Specifically, NAECA directed the Secretary to publish a final rule determining**  **whether the standards for residential water heaters, direct heating equipment, and pool heaters should be amended by January 1, 1992, and January 1, 2000. (42 U.S.C. 6295 (e)(4)) On**  **February 7, 1989 and October 17, 1990, DOE issued a final rule codifying the standards prescribed by NAECA, and thereby established the first set of energy conservation standards for**  **residential water heaters, direct water heating equipment, and pool heaters. 54 FR 6077 (February 7, 1989) and 55 FR 42163 (October 17, 1990).** 

**Pursuant to 42 U.S.C . 6295(e)(4)(A), on January 17, 2001 (the January 2001 final rule),**  **DOE published in the** Federal Register **a final rule, effective on January 20, 2004, amending the energy conservation standards for residential water heaters. 66 FR 4474 (January 17, 2001).**  **DOE initially analyzed energy conservation standards for direct heating equipment as part of an eight-product standards rulemaking. When DOE analyzed direct heating equipment in**  **these earlier proceedings, DOE only considered products categorized as vented home heating equipment. DOE issued a notice of propo**  **sed rulemaking (NOPR) on March 4, 1994, proposing to amend the energy conservation standards for direct heating equipment as well as other**  **consumer products. 59 FR 10464 (March 4, 1994). The Department of Interior and Related Agencies Appropriations Act for Fiscal Year 1996 (Pub. L. 104-134) provided for a moratorium**  **on proposing or issuing final rules for appliance standards rulemakings for the remainder of Fiscal Year 1996, thereby preventing DOE from finalizing the 1994 proposed standards and**  **leaving the existing NAECA energy efficiency levels in place. As with direct heating equipment,**

**1-1 DOE initially analyzed standards for pool heaters as part of the eight-product standards**  **rulemaking of 1994, 59 FR 10464 (March 4, 1994), but never finalized the proposed standards.**

1.3 PROCESS FOR SETTING ENERGY CONSERVATION STANDARDS

**Un der EPCA, when DOE studies new or amended standards, it must consider to the**  **gr eatest extent practicable the following seven factors:**  **(1) the economic impact of the standard on the manufacturers and consumers of the products subj**  **ect to the standard; (2) the savings in ope**  **rating costs throughout the estimated average life of the products in the type (or class) compared to any increases in the price, initial charges, or maintenance**  **expense for the products that are likely to result from the imposition of the standard; (3) the total proje**  **cted amount of energy savings likely to result directly from the imposition of the standard;**  **(4) any lessening of the utility or the performance of the products likely to result from the imposition of the standard;**  **(5) the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;**  **(6) the need for national energy conservation; and (7) other factors the Secretary considers relevant. (42 U.S.C**  **. 6295(o)(2)(B)(i)) Other statutory requirements are set forth in 42 U.S.C.**  **6295(o)(1)-(2)(A), (2)(B)(ii)-(iii), and (3)-(4).**  **DOE considers the participation of interested parties a very important part of the process**  **for setting energy conservation standards. Through formal public notifications (** i.e. **,** Federal Register **notices), DOE encourages the participation of all interested parties during the comment period in each stage of the rulemaking. Beginning with the framework document and during**  **subsequent comment periods, interactions among interested parties provide a balanced discussion of the information that is required for the standards rulemaking.**  **Before DOE determines whether to adopt a proposed energy conservation standard, it**  **must first solicit comments on the proposed standard. (42 U.S.C 6313(a)(6)(B)(i)) Any new or amended standard must be designed to achieve significant additional conservation of energy and**  **be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)) To determine whether economic justification exists, DOE must review comments on the proposal and**  **determine that the benefits of the proposed standard exceed its burdens to the greatest extent practicable, weighing the seven factors listed above. (42 U.S.C. 6295(o)(2)(B)(i))** 

**1-2 After the publication of the framework document, the energy conservation standards**  **rulemaking process involves three additional, formal public notices, which DOE publishes in the** Federal Register **. The first of the rulemaking notices is a NOPM, which is designed to publicly vet the models and tools used in the preliminary rulemaking and to facilitate public participation**  **before the NOPR stage. The second notice is the NOPR, which presents a discussion of comments received in response to the NOPM and the preliminary analyses and analytical tools;**  **analyses of the impacts of potential amended energy conservation standards on consumers, manufacturers, and the Nation; DOE’s weighting of these impacts of amended energy**  **conservation standards; and the proposed energy conservation standards for each product. The third notice is the final rule, which presents a discussion of the comments received in response to**  **the NOPR; the revised analyses; DOE’s weighting of these impacts; the amended energy conservation standards DOE is adopting for each product; and the effective dates of the amended**  **energy conservation standards. In November 2006, DOE published a notice of public meeting and availability of the**  **fr amework document. 71 FR 67825 (November 24, 2006). The framework document,**  Rulemaking Framework for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters **, describes the procedural and analytical approaches DOE anticipated using to evaluate the establishment of amended energy conservation standards for these products. This document**  **is available at: www.eere.energy.gov/buildings/appliance_standards/residential/pdfs/heating_equipment_**  **framework_092706.pdf. Subsequently, DOE held a public meeting on January 16, 2007, to discuss procedural and** 

**an alytical approaches to the rulemaking. In addition, DOE used the public meeting to inform and**  **facilitate involvement of interested parties in the rulemaking process. The analytical framework presented at the public meeting described the different analyses, such as the engineering analysis**  **and the consumer economic analyses (** i.e. **, the life-cycle cost (LCC) and payback period (PBB) analyses), the methods proposed for conducting them, and the relationships among the various**  **analyses.** Table 1.1 Analyses During Each Rulemaking Stage Preliminary Analyses NOPR Final Rule **Market and Technology Assessment Revised Preliminary Analyses Revised Analyses Screening Analysis**  **Life-Cycle Cost Sub-Group Analysis Engineering Analysis**  **Manufacturer Impact Analysis Energy Use Determination**  **Utility Impact Analysis Markups for Equipment Price**  **Determination Environmental Assessment**  **Life-Cycle Costs and Payback Period Analyses**  **Employment Impact Analysis Shipments Analysis**  **Regulatory Impact Analysis National Impact Analysis**  **Preliminary Manufacturer Impact Analysis** 

**1-3 During the January 2007 public meeting, interested parties commented about numerous**  **issues relating to each one of the analyses listed in Table 1.1. Due to the extensive scope of material and issues raised at the meeting, some interested parties at the public meeting requested**  **an extension to the comment period. DOE extended the comment period until February 13, 2007, to better provide opportunity for public review and comment on DOE's rulemaking approaches.**  **72 FR 4219 (January 30, 2007). Comments from interested parties submitted during the framework document comment period elaborated on the issues raised during the public meeting.**  **DOE attempted to address these issues during its preliminary analyses and summarized the comments and DOE’s responses in chapter 2 of the preliminary TSD.**  **As part of the information gathering and sharing process, DOE organized and held interviews with manufacturers of the residential heating products considered in this rulemaking**  **as part of the engineering analysis. DOE selected companies that represented production of all types of products, ranging from small to large manufacturers, and included the Air-Conditioning,**  **Heating, and Refrigerating Institute (AHRI) (formerly the Gas Appliance Manufacturers Association) member companies. DOE had four obj**  **ectives for these interviews: (1) solicit manufacturer feedback on the draft engineering analysis (including methodology, product costs,**  **manufacturing processes, and findings); (2) solicit feedback on topics related to the preliminary manufacturer impact analysis; (3) provide an opportunity, early in the rulemaking process, to**  **express manufacturers’ concerns to DOE; and (4) foster cooperation between manufacturers and DOE.**  **DOE incorporated the information gathered during the engineering interviews with manufacturers into its engineering analysis (Chapter 5) and the preliminary manufacturer impact**  **analysis (Chapter 12). Following the publ ication of the preliminary analyses and the NOPM**  **public meeting, DOE intends to hold additional meetings with manufacturers as part of the consultative process for the manufacturer impact analysis conducted during the NOPR phase of**  **the rulemaking. DOE developed spreadsheets for the engineering, LCC, PBP, and national impact** 

**an alyses for each product. For each product, DOE developed an LCC spreadsheet that calculates**  **the LCC and PBP at various energy efficiency levels. DOE also developed a national impact analysis spreadsheet that calculates the national energy savings (NES) and national net present**  **values (NPVs) at various energy efficiency levels. This spreadsheet includes a model that forecasts the impacts of amended energy conservation standards at various levels on product**  **shipments. All of these spreadsheets are available on the DOE website (www.eere.energy.gov/buildings/appliance_standards/) within the specific pages for each of**  **product.**

1.4 STRUCTURE OF THE DOCUMENT

**Thi s preliminary TSD o**  **utlines the analytical approaches used in this preliminary rulemaking. The preliminary TSD consists of 14 chapters, an executive summary, an**  **environmental assessment, a regulatory impact analysis, and appendices.**

**1-4 Executive Summary: Describes the rulemaking process, identifies the key results of the**  **preliminary analyses, and identify the key issues for which DOE seeks public comment that resulted from the preliminary analyses.**  **Chapter 1 In**  **troduction: Provides an overview of the appliance standards program, describes how the program applies to the residential heat products**  **rulemaking, and outlines the structure of the document. Chapter 2**  **An alytical Framework, Comments from Interested Parties, and DOE**  **Responses: Describes the analytical framework of the preliminary analyses, identifies the comments raised by interested parties during the**  **framework document comment period, and includes DOE’s responses to those comments.**  **Chapter 3 Ma**  **rket and Technology Assessment: Characterizes the residential heating products market and the technologies available for increasing product**  **energy efficiency. Chapter 4**  **Sc reening Analysis: Determines which technology options are viable for**  **consideration in the engineering analysis. Chapter 5**  **Eng ineering Analysis: Discusses the methods used for developing the**  **relationship between increased manufacturer price and increased energy efficiency.**  **Chapter 6 Ma**  **rkups to Determine Product Price: Discusses the methods used for establishing markups for converting manufacturer prices to customer**  **product prices. Chapter 7**  **Ene rgy Use Characterization: Discusses the process used for generating**  **energy use estimates for a variety of building types, climate locations, and standard levels.**  **Chapter 8 Li**  **fe-Cycle Cost and Payback Period Analyses: Discusses the economic effects of standards on individual customers and users of the products and**  **compares the LCC and PBP of products with and without higher energy conservation standards.**  **Chapter 9 Sh**  **ipments Analysis: Discusses the methods used for forecasting shipments with and without higher energy conservation standards.**  **Chapter 10 Nat**  **ional Impact Analysis: Discusses the methods used for forecasting national energy consumption and national economic impacts based on**  **annual product shipments and estimates of future product energy efficiency distributions in the absence and presence of higher energy**  **conservation standards.**

**1-5 Chapter 11**  **Life-Cycle Cost Sub-Group Analysis: Outlines how the effects of amended energy conservation standards on a sub-group of consumers of**  **residential heating products and compares the LCC and PBP of products with and without higher energy conservation standards for these** 

**consumers. Chapter 12**  **Pr eliminary Manufacturer Impact Analysis: Discusses the effects of**  **energy conservation standards on the finances and profitability of product manufacturers.**  **Chapter 13 Ut**  **ility Impact Analysis: Outlines how the effects of energy conservation standards on the installed generation capacity of electric utilities.**  **Chapter 14 Emp**  **loyment Impact Analysis: Outlines how the effects of energy conservation standards on national employment.**  **Environmental Assessment for Residential Heating Products: Outlines how the effects of energy conservation standards on airborne emissions of**  **electric utilities. Regulatory Impact Analysis for Residential Heating Products: Outlines how the impact of**  **non-regulatory alternatives to energy conservation standards. Appendix 6-A Detailed Data for Product Price Markups**  **Appendix 7-A RECS 2001 Values and Variables**  **Appendix 7-B Hot Water Draw Mo del**  **Appendix 7-C LCC Ene rgy Use Calculations**  **Appendix 7-D Weather Data and Tem perature Parameters for LCC Analysis**  **Appendix 7-E De**  **rivation of Heating Load for Pool Heaters and Direct Heating Equipment**  **Appendix 8-A Installation Cost Determination Appendix 8-B Maintenance and Repair Cost Determination**  **Appendix 8-C Lifetime Distributions Appendix 8-D Distributions Used for Discount Rates**  **Appendix 8-E Monthly Ene rgy Price Factor Calculations**  **Appendix 8-F Rebuttable Payback Analysis Results Appendix 8-G User Instructions for the Rebuttable Payback Analysis Spreadsheet** 

**1-6 Appendix 8-H User Instructions for the LCC Analysis Spreadsheet**  **Appendix 8-I Uncertainty and Variability Appendix 9-A**  **Us er Instructions for Shipments and National Energy Savings**  **Spreadsheet Appendix 12-A Preliminary Manufacturer Interview Guides** 

**1-7**