25042 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

DEPARTMENT OF ENERGY

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 430

[Docket Number EE–RM–97–900]

RIN 1904–AA76

Energy Conservation Program for

Consumer Products: Energy

Conservation Standards for Water

Heaters

AGENCY: Office of Energy Efficiency and

Renewable Energy, Department of

Energy (DOE).

ACTION: Notice of proposed rulemaking

and public workshop.

SUMMARY: The Energy Policy and

Conservation Act, as amended,

prescribes energy conservation

standards for certain major household

appliances, and requires the Department

of Energy (DOE) to administer an energy

conservation program for these

products. In this notice we are

proposing to amend the energy

conservation standards for water heaters

to make them more efficient and

announce a public hearing.

DATES: Comments must be received on

or before July 12, 2000. DOE is

requesting a signed original, a computer

disk (WordPerfect 8) and 10 copies of

the written comments. The Department

will also accept e-mailed comments, but

you must also send a signed original.

Oral views, data, and arguments may be

presented at the public workshop

(hearing) in Washington, DC, beginning

at 9:00 a.m. on June 20, 2000.

The Department must receive requests

to speak at the workshop and a copy of

your statements no later than 4:00 p.m.,

June 6, 2000, and we request that you

provide a computer diskette

(WordPerfect 8) of each statement at that

time. The DOE panel will read the

statements in advance of the workshop

and requests that speakers limit their

oral presentations to a summary.

Attendees will have an opportunity to

ask questions.

ADDRESSES: Please submit written

comments, oral statements, and requests

to speak at the workshop to Brenda

Edwards-Jones, U.S. Department of

Energy, Office of Energy Efficiency and

Renewable Energy, Energy Conservation

Program for Consumer Products: Water

Heaters, Docket Number EE–RM–97–

900, 1000 Independence Avenue, SW,

Rm 1J018, Washington, DC 20585–0121.

You may send email to:

brenda.edwards-jones@ee.doe.gov. The

workshop will begin at 9:00 a.m., in

Room 1E–245 at the U.S. Department of

Energy, Forrestal Building, 1000

Independence Avenue, SW,

Washington, DC. You can find more

information concerning public

participation in this rulemaking

proceeding in Section VI, ‘‘Public

Comment Procedures,’’ of this notice of

proposed rulemaking.

You may read copies of the public

comments, the Technical Support

Document for Energy Efficiency

Standards for Consumer Products:

Water Heaters (TSD) and the transcript

of the public hearing and previous

workshop transcripts at the DOE

Freedom of Information (FOI) Reading

Room, U.S. Department of Energy,

Forrestal Building, Room 1E–190, 1000

Independence Avenue, SW,

Washington, DC 20585, (202) 586–3142,

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

p.m., Monday through Friday, except

Federal holidays. You may obtain

copies of the TSD and analysis

spreadsheets from the Office of Energy

Efficiency and Renewable Energy’s

(EERE) web site at http://

www.eren.doe.gov/buildings/

codes_standards/applbrf/

waterheater.htm.

FOR FURTHER INFORMATION CONTACT:

Terry Logee, U.S. Department of Energy,

EE–41, 1000 Independence Avenue,

SW, Washington, DC 20585–0121, (202)

586–9127, email: terry.logee@ee.doe.gov

or Francine Pinto, Esq., U.S. Department

of Energy, Office of General Counsel,

GC–72, 1000 Independence Avenue,

SW, Washington, DC 20585, (202) 586–

7432, email: francine.pinto@hq.doe.gov

or Eugene Margolis, Esq., GC–72, at the

same address, (202) 586–9507, email:

eugene.margolis@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of Proposed Rule

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Previous Rulemakings

3. Process Improvement

4. Test Procedures

III. Analysis and Methodology

A. Market and Technology Assessment

1. General

2. Product Specific

B. Technological Feasibility

C. Screening Analysis

1. Product Classes

2. Baseline Units

3. Screening of Design Options

a. Design Options that Reduce Standby

Losses

b. Design Options that Improve

Combustion Efficiency

c. Design Options that Improve System

Efficiency

4. Results of Screening Analysis

a. Heat Pump Water Heater

b. Gas Condensing Water Heaters

c. Other Water Heater Design Options

D. Engineering Analysis of Design Options

1. Other Federal Agencies’ Initiatives

2. Maximum Technologically Feasible

Levels

3. Methodology

a. Energy Savings Potential

b. Comments on Design Options

c. Manufacturing Costs

d. Installation Costs

e. Maintenance Costs

f. Determination of Markups for Retail

Prices

E. Economic Analysis

1. Life-Cycle-Cost (LCC) and Payback

Analysis

a. Marginal Energy Price

b. Future Energy Prices

c. Discount Rates

d. Household Characteristics

e. Lifetime

2. LCC Spreadsheet Model

a. LCC and Payback Module

b. Equipment Cost Module

c. Operating Cost Module

d. Energy Analysis Module

e. Hot Water Draw Module

3. Consumer Subgroup Analysis

4. Payback Analysis for Rebuttable

Presumption

F. National Impacts Analysis

1. Net Present Value (NPV) and Energy

Savings

2. National Energy Savings Spreadsheet

Model

a. Shipments

b. Energy Prices

3. Comments

G. Manufacturer Impact Analysis

1. Economic Impact on Manufacturers

2. Product Specific

3. GRIM: Industry Cash Flow

4. Manufacturer Subgroup Analysis

5. Interview Process

H. Other Factors

I. Utility Analysis

J. Environmental Analysis

K. Net National Employment

IV. Analytical Results

A. Trial Standard Levels

1. Economic Impacts on Consumers

a. Life-Cycle-Cost

b. Median Payback

c. Test Procedure Payback

2. Economic Impact on Manufacturers

B. Significance of Energy Savings

C. Lessening of Utility or Performance of

Products

D. Impact of Lessening of Competition

E. Need of the Nation to Save Energy and Net

National Employment

1. Environmental Impacts

2. Net National Employment

F. Conclusion

1. Comments on Standard Levels

2. Proposed Standard

V. Procedural Reviews

A. Review under the National Environmental

Policy Act

B. Review under Executive Order 12866,

‘‘Regulatory Planning and Review’’

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25043

C. Review under the Regulatory Flexibility

Act

D. Review Under the Paperwork Reduction

Act

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’’

F. ‘‘Takings’’ Assessment Review

G. Federalism Review

H. Review Under the Unfunded Mandates

Reform Act

I. Review Under the Plain Language

Directives

J. Assessment of Federal Regulations and

Policies on Families Review

VI. Public Comment Procedures

A. Written Comment Procedures

B. Public Workshop

C. Issues for Public Comment

Appendix A—Acronyms and Abbreviations

I. Summary of Proposed Rule

The Energy Policy and Conservation

Act, as amended (hereinafter referred to

as EPCA or the Act), specifies that any

new or amended energy conservation

standard the Department of Energy

(DOE) prescribes shall be designed to

‘‘achieve the maximum improvement in

energy efficiency . . . which the

Secretary determines is technologically

feasible and economically justified.’’

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

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

amended standard must ‘‘result in

significant conservation of energy.’’

Section 325(o)(2)(B)(3)(B), 42 U.S.C.

6295(o)(2)(B)(3)(B).

In accordance with the statutory

criteria discussed in this notice, DOE is

proposing to amend the water heater

energy efficiency standards. The

proposed standards represent

performance consistent with:

• electric water heaters with heat

traps, 2.5 inches of insulation and an

insulated tank bottom;

• gas-fired water heaters with heat

traps, flue baffles that achieve a 78%

recovery efficiency (RE) and 2 inches of

insulation;

• no change from the current

standard for oil-fired water heaters.

The proposed standard, trial standard

level three, is based on using HFC–245fa

as a blowing agent in the insulation and

saves an estimated 4.75 quads of energy

over 27 years, a significant amount. This

amount is more than the primary energy

used for heating water in all U.S.

buildings (residential, commercial and

industrial) in 1997 (3.82 quads). The

economic impacts on consumers (i.e.,

the average life-cycle cost (LCC) savings)

are positive. We identified and

conducted analyses on two subgroups of

the population, senior-only and low

income consumers, because of concern

that these groups might potentially be

affected differently by the standards

than the rest of the population. Our

analyses showed no difference.

The national net present value (NPV)

of trial standard level three is $3.4

billion from 2003–2030. This is the

estimated total value of future savings

discounted to 1998 minus the estimated

increased equipment costs also

discounted to 1998. The water heater

industry net present value (INPV) today

is estimated to be $322 million. If we

adopt trial standard level three, we

expect manufacturers may lose 5

percent of the INPV, which is

approximately $15 million. Other

government actions that require the

phase out of HCFC–141b and the

prevention of ignition of flammable

vapors by gas-fired water heaters will

result in losses of an estimated $28

million in INPV. The cumulative effects

of all government actions is an

estimated loss of $43 million of INPV,

or about 13 percent. However, the

present value of future energy savings

for the U.S. are projected to be $3.4

billion. These substantial energy savings

exceed industry losses due to energy

efficiency standards by 227 times or,

due to all Federal actions, by 79 times.

Additionally, based on our interviews

with four of the five major

manufacturers, we do not expect any

plant closings or loss of employment

because the manufacturers stated that

they would stay in business. During the

interviews, the manufacturers all stated

that only trial standard level four

(incorporating plastic tanks and sidearm heaters) would severely impact

employment levels and require new

facilities.

The proposed standard has significant

environmental benefits, addressing

global climate change and reducing air

pollution. This proposed standard level

would result in cumulative greenhouse

gas emission reductions of 83 million

metric tons (Mt) of carbon equivalent.

Additionally, air pollution would be

reduced by the elimination of 229

thousand metric tons of nitrous oxides

(NOX) from 2003–2030.

Trial standard level three has several

other benefits. First, it maximizes the

LCC savings to consumers, which means

that total consumers’ benefits are higher

as a result of this standard level than

any of the other standard levels

analyzed. Second, this trial standard

level causes similar cost increases

between gas-fired and electric water

heaters so the impacts in the market are

fuel neutral.

Therefore, DOE has determined that

the benefits to the nation outweigh the

burdens and we conclude that trial

standard level three is economically

justified. Furthermore, DOE has

determined that trial standard level

three is technologically feasible. The

design options incorporated in trial

standard level three are commercially

available on some models of electric and

gas-fired heaters sold in the U.S.

II. Introduction

A. Authority

Part B of Title III of the Energy Policy

and Conservation Act, Pub.L. 94–163, as

amended by the National Energy

Conservation Policy Act, Pub.L. 95–619,

the National Appliance Energy

Conservation Act, Pub.L. 100–12, the

National Appliance Energy

Conservation Amendments of 1988,

Pub.L. 100–357, and the Energy Policy

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

Energy Conservation Program for

Consumer Products other than

Automobiles. Water heaters are one of

the consumer products subject to this

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

6292(a)(4).

Under the Act, the program consists

essentially of three parts: testing,

labeling, and Federal energy

conservation standards. The

Department, with assistance from the

National Institute of Standards and

Technology (NIST), may amend or

establish test procedures for each of the

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

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

procedures measure the energy

efficiency, energy use, or estimated

annual operating cost of a covered

product during a representative average

use cycle or period of use. They must

not be unduly burdensome to conduct.

Section 323(b)(3), 42 U.S.C. 6293(b)(3).

A test procedure is not required if DOE

determines by rule that one cannot be

developed. Section 323(d)(1), 42 U.S.C.

6293(d)(1). The water heater test

procedures appear at Title 10 Code of

Federal Regulations (CFR) part 430,

subpart B, appendix E.

The Act prescribes an initial Federal

energy conservation standard for each of

the listed covered products, except

television sets. The Department is

authorized to amend these standards.

Section 325, 42 U.S.C. 6295. Any new

or amended standard must be designed

to achieve the maximum improvement

in energy efficiency that is

technologically feasible and

economically justified. Section

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

The Department’s current review of

standards is for water heaters. Section

325(e), 42 U.S.C. 6295(e).

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

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

DOE determines whether a standard is

economically justified, it must first ask

25044 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

for comments on a proposed standard.

After reviewing comments on the

proposal, DOE must determine that the

benefits of the standard exceed its

burdens, based, to the greatest extent

practicable, on a weighing of the

following seven factors:

(1) The economic impact of the

standard on the manufacturers and the

consumers of the products subject to the

standard;

(2) The savings in operating costs

throughout the estimated average life of

the covered product in the type (or

class) compared to any increase in the

price of, or in the initial charges for, or

maintenance expenses of, the covered

products which are likely to result from

the imposition of the standard;

(3) The total projected amount of

energy or water savings likely to result

directly from the imposition of the

standard;

(4) Any lessening of the utility or the

performance of the covered products

likely to result from the imposition of

the standard;

(5) The impact of any lessening of

competition, as determined in writing

by the Attorney General, that is likely to

result from the imposition of the

standard;

(6) The need for national energy and

water conservation; and

(7) Other factors the Secretary

considers relevant.

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

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

rebuttable presumption of economic

justification in instances where the

Secretary determines that ‘‘the

additional cost to the consumer of

purchasing a product complying with

an energy conservation standard level

will be less than three times the value

of the energy, and as applicable, water,

savings during the first year that the

consumer will receive as a result of the

standard, as calculated under the

applicable test procedure . . .’’ The

rebuttable presumption test is an

alternative path to establishing

economic justification.

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

6297, addresses the effect of Federal

rules on State laws or regulations

concerning testing, labeling, and

standards. Generally, all such State laws

or regulations are superseded by the

Act, unless specifically exempted in

Section 327. The Department can grant

a waiver of preemption in accordance

with the procedures and other

provisions of Section 327(d) of the Act.

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

B. Background

1. Current Standards

The existing water heater efficiency

standards have been in effect since

1991. Energy efficiency is measured in

terms of an energy factor (EF), which

measures overall water heater efficiency

and is determined by the DOE test

procedure. 10 CFR part 430, subpart B,

appendix E. The water heater efficiency

standards are as follows:

• electric, EF = 0.93—(0.00132 x rated

volume)

• gas-fired, EF = 0.62—(0.0019 x rated

volume)

• oil-fired, EF = 0.59—(0.0019 x rated

volume)

where rated volume is the water storage

capacity of a water heater in gallons, as

specified by the manufacturer.

2. History of Previous Rulemakings

On September 28, 1990, DOE

published an Advance Notice of

Proposed Rulemaking (ANOPR)

announcing the Department’s intention

to revise the existing water heater

efficiency standard. (55 FR 39624). On

March 4, 1994, DOE proposed a rule to

revise the energy conservation standards

for water heaters, as well as a variety of

other consumer products. (59 FR

10464). On January 31, 1995, we

published a determination that we

would issue a revised notice of

proposed rulemaking (NOPR) for water

heaters. (60 FR 5880). This is the revised

proposal for amending the energy

efficiency standards for water heaters.

3. Process Improvement

The fiscal year (FY) 1996

appropriations legislation imposed a

moratorium on proposed or final rules

for appliance efficiency standards for

FY 1996. Pub. L. 104–134. During the

moratorium, the Department examined

the appliance standards program and

how it was working. Congress advised

DOE to correct the standards-setting

process and to bring together

stakeholders (such as manufacturers and

environmentalists) for assistance.

Therefore, we consulted with energy

efficiency groups, manufacturers, trade

associations, state agencies, utilities and

other interested parties to provide input

to the process used to develop appliance

efficiency standards. As a result, on July

15, 1996, the Department published a

Final Rule: Procedures for

Consideration of New or Revised Energy

Conservation Standards for Consumer

Products (referred to as the Process

Rule) (61 FR 36974), codified at 10 CFR

part 430, subpart C, appendix A.

The Process Rule states that for

products, such as water heaters, for

which DOE issued a NOPR prior to

August 14, 1996, DOE will conduct a

review to decide whether any of the

analytical or procedural steps already

completed should be repeated. (61 FR

36982). DOE completed this review and

decided to use the Process Rule, to the

extent possible, in the development of

the revised water heater standards.

We developed an analytical

framework for the water heater

standards rulemaking for our

stakeholders, which we presented

during a water heater workshop on June

24, 1997. The analytical framework

described the different analyses (e.g.,

LCC, payback and manufacturing

impact analyses (MIA)) to be conducted,

the method for conducting them, the use

of new LCC and national energy savings

(NES) spreadsheets, and the relationship

between the various analyses.

4. Test Procedures

The DOE test procedure determines

the water heater EF, which is a measure

of overall water heater efficiency. Two

other water heater performance

characteristics determined by the DOE

test procedures are the overall heat

transfer coefficient (UA) and the

recovery efficiency (RE) for gas and oilfired water heaters. The UA is referred

to as the standby heat loss coefficient of

the storage tank. It is a measure of the

amount of heat in British thermal units

(Btus) lost from a water heater in one

hour. The RE is defined as the ratio of

energy delivered to the water to the

energy content of the fuel consumed by

the water heater.

The Act does not allow DOE to set

energy standards for a product unless

there is a test procedure. The

Department published a test procedure

on May 11, 1998, that revised the firsthour rating of storage-type water

heaters, added a new rating for electric

and gas-fired instantaneous water

heaters and amended the definition of a

heat pump water heater. (63 FR 25996).

This revision did not change the test

method for determining energy

efficiency standards.

III. Analysis and Methodology

This section describes the analyses

and methodologies to be used in this

rulemaking. It includes a general

introduction to each analysis section

and provides a discussion of issues

relative to the water heater rule (see

Chapter 2 of the TSD).

A. Market and Technology Assessment

The market and technology

assessment characterizes the relevant

product markets and existing

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25045

technology options including prototype

designs.

1. General

When initiating a standards

rulemaking, the Department develops

information on the present and past

industry structure and market

characteristics of the product(s)

concerned. This activity consists of both

quantitative and qualitative efforts to

assess the industry and products based

on publicly available information.

Issues to be addressed include: (1)

manufacturer market share and

characteristics; (2) trends in the number

of firms; (3) the financial situation of

manufacturers; (4) existing nonregulatory efficiency improvement

initiatives; and (5) trends in product

characteristics and retail markets. The

information collected serves as resource

material to be used throughout the

rulemaking.

2. Product Specific

There are five major manufacturers in

the residential water heater market. We

estimate they have the following market

shares as of 1997: Bradford White 10%,

American and AO Smith 16% each,

Rheem 28% and State Industries 29%;

all others add up to 1%. Annual

residential water heater shipments (i.e.,

the total number of water heaters

delivered to and installed in consumers’

homes) have gradually increased from

7.4 million units in 1987 to 9.1 million

units per year in 1997.

Financial information for most water

heater manufacturers is not publicly

available, with only one publicly traded

water heater manufacturer in the United

States. Information from the U.S. Census

Bureau Current Industrial Reports for

1997 and other public sources shows

industry shipments with a value of $1.3

billion for 9.1 million water heaters.

Typical industry profits are 6 percent of

revenues.

There is no current national nonregulatory water heater efficiency

improvement program. However, DOE is

considering an Energy Star water

heater program and currently is

supporting a program to demonstrate a

50 gallon, 6,000 Btu input heat pump

water heater and to develop a

residential condensing gas-fired water

heater. If successful, the DOE heat pump

water heater program will eliminate the

installation, service and some of the

product utility issues that formed most

of our basis for screening out heat pump

water heaters. This DOE heat pump

water heater is designed to be a ‘‘dropin’’ replacement for a standard electric

water heater. Therefore it requires only

standard plumbing and wiring

connections and it will fit in most

electric water heater closets. However, it

still will not fit under counters or in

spaces less than four feet tall.

In addition, the Federal Energy

Management Program’s (FEMP) ‘‘Buying

Energy Efficient Products Program’’

identifies the upper 25% energy

efficient residential gas and electric

water heaters. These levels are

recommended to Federal agencies with

the ultimate goal of moving the entire

U.S. market toward higher energy

efficiency. We are aware of a few gas

and electric utility programs that

encourage the use of higher efficiency

water heaters, including consumer

rebates or dealer incentive programs,

financing, consumer education, and

rental/guarantee programs that often

include installation and maintenance

costs. In the past decade, the number of

these utility programs has diminished

considerably due to restructuring of the

electric and gas utility industries.

The water heater market is largely a

replacement market, accounting for 80–

85% of sales. The remaining 15–20% of

sales are for new installations. Of the 9.1

million water heaters sold annually, we

estimate plumbing wholesalers sell

approximately 4.3 million, while retail

outlets such as Sears, Wards, Home

Depot, and Lowes sell the majority of

the remaining 4.8 million.

Characteristics of the replacement

market include: (1) consumers typically

replace the existing water heater with

one of similar fuel and capacity; (2)

consumers consider the ease of

installation—it has to fit in the existing

space; (3) consumers usually replace

water heaters under emergency

conditions when they fail; and (4)

consumers typically ask for and follow

the installers’ recommendations.

Residential water heating uses about

2.6 quads per year of primary energy out

of 19 quads (year 1997) for all

residential buildings, at a cost of $26.4

billion. Where natural gas is available,

74% of households use gas to heat water

and 24% heat with electric. Where gas

is not available, 84% of households use

electric water heaters and the remaining

households use oil-fired water heaters

or liquid petroleum gas (LPG).

B. Technological Feasibility

Under the guidelines in the Process

Rule, DOE will eliminate from

consideration, early in the process, any

design options that present

unacceptable problems with respect to

technological feasibility, practicability

to manufacture, install, and service,

product utility or unavailability, or

safety. In order to conduct the screening

analysis, the Department gathers

information regarding all current

technology options and prototype

designs. In consultation with interested

parties, the Department develops a list

of design options for consideration in

the rulemaking. All technologically

feasible design options are candidates in

this initial assessment. We identified

heat pump water heaters and gas

condensing water heaters as the

maximum technologically feasible

designs based on measured EF’s greater

than 2.0 and 0.9, respectively.

The Department considers design

options technologically feasible if they

are already in use by the respective

industry or research has progressed to

the development of a working

prototype. The Process Rule sets forth a

definition of technological feasibility as

follows: ‘‘Technologies incorporated in

commercial products or in working

prototypes will be considered

technologically feasible.’’ 10 CFR 430,

subpart C, appendix A(4)(a)(4)(i).

The Department has determined that

all of the design options discussed in

today’s notice are technologically

feasible as required by Section

325(o)(2)(A) of EPCA, as amended.

C. Screening Analysis

Screening identifies those design

options the Department will consider in

the engineering analysis. This includes

all technologically feasible design

options not eliminated in the screening

analysis. The screening analysis

provides a basis for eliminating certain

problematic design options from further

consideration early in the process.

Initially, the candidate design options

encompass all those technologies

considered to be commercially available

or in working prototypes. The Process

Rule establishes the factors DOE uses for

screening design options. The factors

are as follows:

• Technological feasibility. DOE will

only consider technologies that are

incorporated in commercially available

products or in working prototypes.

• Practicability to manufacture,

install, and service. A technology must

be able to be mass produced, installed

and serviced on a scale that will serve

the relevant market at the time of the

effective date of the standard.

• Impacts on product utility to

consumers. DOE must determine if any

energy efficiency designs have

significant adverse impacts on product

utility, including impacts on significant

subgroups of consumers, or if a product

would become unavailable with

performance characteristics that are

substantially the same as products

presently available in the U.S.

25046 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

• Adverse impacts on health and/or

safety. DOE will not consider any

designs that have significant adverse

impacts on health or safety.

10 CFR part 430, subpart C, appendix

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

1. Product Classes

DOE divides water heaters into

classes based on the type of fuel used to

heat water: electricity, natural gas/LPG,

and oil. Different energy efficiency

standards will apply to different

product classes. DOE defines residential

storage water heaters in the following

classes:

• An electric water heater has a

storage capacity of 20–120 gallons and

a heat input of 12 kilowatt (kW) or less.

• A gas-fired water heater has a

storage capacity of 20–100 gallons and

a heat input of 75,000 Btu per hour or

less.

• An oil-fired water heater has a

storage capacity of 50 gallons or less and

a heat input of 105,000 Btu per hour or

less.

2. Baseline Units

In order to analyze design options for

energy efficiency improvements, the

Department defines a baseline unit. For

each product class, the baseline unit is

one that meets the existing standard. We

determined the following baseline units

for each fuel type:

• The baseline electric water heater is

a 50-gallon glass-lined steel tank with

1.5 inch polyurethane foam insulation

and two 4,500 watt heater elements. The

baseline EF is 0.86.

• The baseline gas water heater is a

40-gallon glass-lined steel tank with a

nominal 4 inch center flue. The heat

input rate is 40,000 Btu/hr with a 450

Btu/hr pilot light. The tank is insulated

with 1 inch of polyurethane foam. The

energy factor is 0.54 and the recovery

efficiency is 76%.

• The baseline oil-fired water heater

is a 32 gallon glass-lined steel tank

insulated with 1 inch of polyurethane

foam. The heat input rate is 90,000 Btu/

hr and it has a center flue. It has an EF

of 0.53 and the RE is 75%.

3. Screening of Design Options

In the water heater rulemaking

analysis, DOE considered three

categories of design options: designs

that reduce standby losses, designs that

improve combustion efficiency, and

designs that improve system efficiency.

For a complete description of these

design options, see Chapter 4.2 in the

TSD.

a. Design Options That Reduce Standby

Losses

Some designs that reduce standby

losses—heat traps and increased jacket

insulation—are frequently applicable to

all fuel types. A heat trap is a device

that keeps hot water from circulating

into a piping distribution system

because of natural convection.

Manufacturers insulate water heaters by

filling the cavity between the jacket and

the tank with polyurethane foam

insulation. Most water heaters on the

market today have at least 1 inch thick

foam insulation, while some models

have 2- or 3-inch thick insulation. An

alternate way to reduce jacket heat

losses is to use advanced insulation

materials such as evacuated panels.

The following design options reduce

standby losses, but usually are restricted

to one type of fuel:

• Plastic water heater tanks reduce

conducted heat. This design option is

used with electric water heaters or with

indirect water heating techniques.

• A manufacturer can insulate the

bottom of the tank, but this design

option can be used only with electric

water heaters or with gas or oil-fired

burners mounted beside the water tank

and using a heat exchanger to transfer

heat to the water.

• A damper installed either at the flue

exit or in the vent pipe of gas water

heaters minimizes off-cycle heat losses.

• The side-arm heater design avoids

flue losses by using a small, separate

heat exchanger to heat water and a small

circulation pump on gas-fired water

heaters.

• An electronic ignition device can

replace a standing pilot ignition system

in gas-fired water heaters.

b. Design Options That Improve

Combustion Efficiency

DOE considered six design options

that improve combustion efficiency.

Four design options are applicable for

gas-fired and three for oil-fired water

heaters:

• First, increased heat exchange from

a flue baffle, multiple flues, or

submerged combustion improves heat

transfer. The flue baffle is a twisted strip

of metal inserted into the flue of a gas

or oil-fired water heater that improves

heat transfer to the flue. Increased heat

exchanger surface area, usually from

multiple flues, improves the heat

transfer from the flue gas to the water.

In submerged combustion or direct-fired

combustion systems for gas-fired water

heaters, water is heated by direct

contact with the flue products.

• Second, a condensing gas-fired

water heater condenses some of the

water vapor in the flue gas and extracts

more heat.

• Third, an inverted U-shaped flue

increases recovery efficiency and

reduces standby losses of oil-fired water

heaters.

• Fourth, a thermophotovoltaic or

thermoelectronic generator uses silicon

photovoltaic cells (energized by heat or

light from the burning fuel) to generate

power to run a fan and operate the

electronic ignition and controls on a

gas-fired water heater. This is more

efficient because it eliminates the

standing pilot and does not require any

connection to an outside electric power

source.

• Fifth, the two-phase thermosiphon

is a heat pipe that transfers heat from

the gas burner to the storage tank.

• Sixth, the air-atomized burner (oilfired only) uses a stream of air to

atomize the oil. This improves

combustion efficiency and results in

less unburned fuel in the flue.

The heat pump is the only design

option that improves the heating

efficiency of an electric water heater. A

heat pump water heater can double the

EF of an electric water heater compared

to a resistance type because it uses heat

from the air within the house. This can

cause beneficial dehumidification or

unwanted overcooling. During those

times when heat gains from normal

household activities or from the

environment are not large enough to

keep the house comfortable, e.g., the

winter, the house heating system must

provide the makeup heat to the house.

c. Design Options That Improve System

Efficiency

There are several system

improvement applications:

• The timer design option limits the

amount of time during the day when an

electric water heater may be energized.

• The solar pre-heat technique uses

solar collectors as pre-heaters for a

standard electric or gas storage-type

water heater.

• The drain water heat recovery

system uses a heat exchanger to recover

waste heat from the drain water.

• A tempering tank—an un-insulated

storage tank installed in a conditioned

space— raises the inlet water

temperature to the ambient temperature.

• Dip-tubes that prevent the buildup

of sediment on the bottom of the tank

may reduce the degradation of

efficiency and prolong the life of the

water heater.

While system improvement features

may save energy, they are typically a

part of the water heater system, not the

water heater. For example, the

tempering tank is a separate tank that is

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25047

plumbed to the water heater. Each of

these designs was eliminated in the

screening analysis because none is

defined as a water heater in the Act.

Section 321(27), 42 U.S.C. 6291(27).

4. Results of Screening Analysis

In accordance with the Process Rule,

the Department conducted a screening

analysis and published the results in

‘‘Technology Assessment and Screening

Analysis,’’ Appendix B: Supplement to

the Water Heater Rulemaking

Framework, January 1998. DOE notified

stakeholders of the availability of this

document in the Federal Register on

January 14, 1998. (63 FR 2186).

We received many comments on the

elimination of the heat pump water

heater as a design option. Several

stakeholders commented that DOE

should consider all design options,

including heat pump water heater

designs. (American Gas Association

(AGA), No. 28 at 4; Okaloosa, No. 29 at

1; Clearwater, No. 30 at 1; Mesa, No. 34

at 1; Barley, No. 32 at 1; 13 Letters from

Various Gas Utilities, No. 31 at 1; and

Laclede, No. 47 at 2).

DOE eliminated the heat pump water

heater due to issues concerning the

practicability to manufacture, install,

and service on the scale necessary to

serve the relevant market at the time of

the effective date of the standard and

product utility of these units. DOE

eliminated heat pump water heaters

after careful consideration of the current

electric resistance and heat pump water

heater markets and manufacturing

technology, and after applying the

factors to be considered in screening

design options contained in the Process

Rule. 10 CFR 430, subpart C, appendix

A(4)(a)(4) and (5)(b). See Chapter

4.2.2.10 in the TSD for a discussion of

the heat pump water heater screening

analysis.

Several other stakeholders, including

Gas Appliance Manufacturers

Association (GAMA), Edison Electric

Institute (EEI), Southern Company (SC),

and Virginia Power (VP) supported

DOE’s decision to screen out heat pump

water heaters. (GAMA, No. 51 at 4; EEI,

No. 36 at 2; SC, No. 12 at 2 and No. 42

at 1; and VP, No. 45 at 3).

Similarly, the screening criteria were

applied to condensing gas-fired water

heaters. DOE eliminated gas condensing

water heaters because we determined

they are not technologically feasible. 10

CFR 430, subpart C, appendix A(4)(a)(4)

and (5)(b). See Chapter 4.2.2.10 in the

TSD for a discussion of the condensing

gas-fired water heater screening

analysis.

a. Heat Pump Water Heaters

Practicability to Manufacture. From

meetings with the water heater industry,

DOE has determined that water heater

manufacturers would not have the lead

time necessary to ramp up heat pump

water heater production to present sales

levels in the three-year time frame

established by the NOPR. Since the late

1970s, sales of heat pump water heaters

have not exceeded 10,000 per year

(<0.33% of electric water heater sales,

<0.17% of all water heater sales) and

presently sales of residential heat pump

water heaters are less than 4,000

residential water heaters a year in

categories covered by the present

rulemaking. None of the five major

manufacturers of residential water

heaters currently have a heat pump

design in their residential product line,

and only two (State and Rheem) have

had a heat pump water heater in their

product lines in the last 10 years.

LaClede Gas commented that DOE

should not screen heat pump water

heaters out as a design option because

DOE is presently supporting the

development of a residential heat pump

water heater product. (LaClede, No. 25

at 3) The heat pump water heater design

being researched by DOE is an integral

heat pump water heater design which

uses a small compressor with 40% less

heating capacity than any used in

existing heat pump water heater

products (and has about 25% of the

heating capacity of a typical electric

resistance hot water heater). This should

assist in installation in smaller spaces as

it will physically use smaller

components (particularly the

compressor and evaporator/fan system),

and will likely be quieter in operation.

Present designs of the DOE heat pump

re-inject condensate back into the air to

be re-condensed in the evaporator. DOE

believes this may simplify installation,

at some expense to system capacity,

efficiency and dehumidification of the

residence.

The integral heat pump water heater

design proposed by DOE uses a 50-

gallon tank, but even the small

compressor and heat exchanger used in

that design adds approximately a foot in

height to that tank. The attached 50-

gallon storage tank is sized to provide

ample water for a typical day’s use in

most residences. Smaller tank sizes are

not being proposed, as the cost

effectiveness of the heat pump decreases

rapidly with smaller tank sizes and

characteristic lower water usage.

Presently, the smallest integral heat

pump water heater design available in

the U.S. is an 80-gallon unit. The design

proposed by DOE would still need

access to the same amount of household

heat any heat pump water heater would

require to serve the residence load;

however, the lower heat extraction rate

of the DOE unit may allow for

installation in locations with smaller

surrounding air volume than is required

for existing designs.

The unit is being developed with

input from DOE, Arthur D. Little, and

Oak Ridge National Laboratory and has

been designed from the outset to

address many of the known market

barriers facing the adoption of

residential heat pump water heaters.

The first barrier is the high cost of heat

pump water heaters due to the heat

pump motor, compressor and controls.

A second barrier is the more complex

(and more costly) installation for heat

pump water heaters. There are size, air

flow, filter replacement and condensate

removal considerations. Third, poor

reliability of many models has caused a

lack of consumer confidence. Fourth,

heat pump water heaters require more

maintenance. Presently, no mass market

service infrastructure exists.

Preliminary field tests of the DOE

design are likely to start in the spring of

2000. Larger scale utility testing is

slated for late 2000 to 2001. Accelerated

reliability testing is also scheduled

sometime after initial field testing has

resulted in a more or less stable product.

If field and reliability testing are

positive, limited commercial production

and sales are possible by 2003. Actual

production and sales would be through

an existing air-conditioning equipment

manufacturer who would likely

purchase storage tanks from an existing

water heater manufacturer. Because of

the issues that have plagued heat pump

water heaters in the past, DOE is

requiring its partners to introduce the

product cautiously, correcting problems

encountered during field testing and

fully testing the corrections. A market

study done by Arthur D. Little projected

potential sales for the DOE design up to

300,000 units per year 10 years after

commercial introduction, or 7.5% of

present electric water heater sales. (ADL

Report #46230 to DOE).

Although most manufacturers could

develop, either alone or in partnership

with others, a working heat pump water

heater design in the next few years,

there are significant difficulties in

capitalizing and building heat pump

water heater manufacturing facilities to

provide for the present 4 million plus

electric water heater sales annually.

Manufacturers of heat pump water

heaters would need to design a

completely new product and build new

production facilities to supply the

current electric water heater market.

25048 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

This market has a market volume greater

than that of all room air-conditioner

shipments in the U.S. (1993 DOE

Report, EE–0009). In a 1994 A. D. Little

report, the estimated investment cost to

convert to heat pump water heaters was

$750 million. Given the current levels of

profitability of the water heater industry

and the limited capital resources, some

manufacturers will not be able to

finance these costs. (Dieckmann,

Topping and Shorey, August 31, 1994,

ADL Report to GAMA, ‘‘Technical

Analysis of the Proposed DOE Heat

Pump Water Heater Energy Efficiency

Standard’’)

In addition, given the high initial cost

for heat pump water heaters, poor

reliability with past heat pump water

heater designs, and anticipated impact

on consumer utility, initial sales of

electric water heaters after a heat pump

water heater standard may be low as

consumers look for other alternatives.

With a government imposed time frame

for shifting all production to heat pump

water heaters and a shifting market size,

it is unclear how the electric water

heater industry could plan and secure

investments to satisfy an unknown final

market volume.

Considering these issues with regard

to manufacturability and achieving

sufficient production volume, DOE has

concluded that the screening criterion of

practicability to manufacture, on the

scale necessary to serve the relevant

market at the time of the effective date

of the standard, will not be met.

Practicability to Install. Based on our

analysis of current heat pump water

heater designs and the DOE drop-in heat

pump water heater prototype, we do not

believe heat pump water heaters can be

used as direct replacements for electric

water heaters in many applications.

There are many replacement water

heater applications where present

electric resistance water heaters are

installed in small spaces, in attics and

under counters. An example of such

small spaces are the approximately 27%

(10 million) of all electric water heaters

installed in residences smaller than

1,000 ft 2 (average size: approximately

760 ft 2). In many of these installations,

space restrictions would make it

impossible to simply replace the

existing electric resistance water heater

with any of the existing heat pump

water heater designs sold today. The

DOE ‘‘drop-in’’ water heater is a

candidate for some of these

applications, but its current design does

not address the problems of small

spaces or small sizes.

Even the small (4,000–6,000 Btu/h)

heat pump unit for the DOE ‘‘drop-in’’

water heater mounted on top of a tank

will add approximately 8–12 inches on

top of the tank for compressor,

evaporator coils, and evaporator fan.

Assuming no change in tank size from

the electric resistance model, the extra

height of the heat pump design will

present installation problems where the

existing water heater enclosure is height

limited, such as many existing lowboy

water heater installations.

GAMA reported that electric lowboy

shipments account for about 18 percent

of residential electric water heater

shipments. (GAMA, No. 91 at 1). DOE

appreciates the electric lowboy

shipment information from GAMA.

About 18% of electric water heater

sales are lowboy models. An integral

heat pump water heater would not fit

into these locations. Perhaps 50% of the

lowboy sales would require an add-on

heat pump unit. (The other 50% are for

new construction.) Additionally, over

one million standard sized electric

water heaters per year are installed in

residences of 1,000 ft 2 or less. Perhaps

as many as half of these installations

would also require an add-on heat

pump unit. The lowboy and small

residence replacements could equal

850,000 add-on heat pump water

heaters per year. These add-on heat

pump units require a space with at least

100 cubic feet per minute of warm air

and wiring and plumbing connections

(probably through one or more walls) for

water pipes and a condensate drain. We

would characterize this installation as

‘‘difficult.’’ Without an extensive

survey, we are unable to determine how

many of these difficult installations

would be feasible, although costly, and

how many would result in loss of

product utility as discussed later in this

section.

We have determined that almost a

million households could be affected

each year. Therefore, DOE eliminated

heat pump water heaters as a design

option from further consideration

because of problems concerning

practicability to install on the scale

necessary to serve the relevant market at

the time of the effective date of the

standard.

Practicability to Service. We are also

aware of the thousands of comments

from interested consumers about heat

pump water heaters in our 1994 NOPR.

These comments cited lack of a good

service infrastructure, noise, and

reliability, among other factors. We have

more recent comments from Northeast

Utilities (NU) that significant (10%)

reliability problems are still evident in

some heat pump water heater designs.

(NU, No. 4 at 1).

Two hundred sixteen comments to

the 1994 rulemaking process (docket

EE–RM–90–201) claimed that ‘‘the

infrastructure to service heat pump

water heaters is not capable of handling

a large quantity of heat pump water

heater units.’’ The issues faced in

service and maintenance of heat pump

water heaters have not changed since

1994. The present installation and

service infrastructure for electric

resistance water heaters consists, for the

most part, of plumbers.

Heat pump water heaters are more

complex in design and based on

fundamentally different technology

from electric resistance water heater

designs. Because of this, they require a

broader range of skills to service the

units. Plumbers generally do not have

training or background in repair of

appliances like a failing heat pump

water heater. Generally, this type of

repair work is done by small appliance

repair personnel who repair

refrigerators, freezers, room air

conditioners, and other ‘‘white’’ goods

(e.g., washing machines). According to

the Bureau of Labor and Statistics, of the

approximately 71,000 home appliance

repair workers in the U.S., two out of

three work directly for department

stores or household appliance stores.

(1998–1999 Occupational Outlook

handbook, U.S. Dept. of Commerce,

BLS) These stores represent a small

fraction of water heater sales but might

be potential sales and service outlets for

heat pump water heaters.

Presently, no mass-market servicing

infrastructure for heat pump water

heaters exists. While the air

conditioning industry could provide

servicing capabilities, only one

company has any relationship with

major water heater manufacturers or

with plumbers who install water

heaters. There is no precedent in the

history of the U.S. major appliance

industries to suggest that a new service

and repair infrastructure could develop,

on the scale of several million units per

year, in a roughly three-year time frame.

Therefore, DOE eliminated heat pump

water heaters as a design option from

further consideration because of

problems concerning practicability to

service on the scale necessary to serve

the relevant market at the time of the

effective date of the standard.

Product Utility. Heat pumps need a

certain amount of space for proper

operation because a heat pump heats

water by removing heat from the

household air. Many heat pump water

heaters currently available require a

volume of at least 1,000 ft 3 of heated air

to provide adequate heat exchange and

minimize overcooling of the space,

which can impact performance.

Approximately 14% of all households

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25049

are smaller than 1000 ft 2 and presently

use electric water heaters. The volume

of heated air required for a heat pump

is equal to 12% of the floor space of a

1,000 ft 2 home. Therefore, in smaller

residences, current or prototype heat

pump units would have to be located in

the living space, or have vigorous (100

cubic feet per minute) air exchange

within the living space. Such a location

can lead to significant homeowner

dissatisfaction due to loss of space

occupied by the unit and related piping,

as well as the potential for noise of the

fan and compressor. This is particularly

a concern in small, slab-on-grade

housing, mobile/manufactured homes or

apartments.

If there is no space to incorporate both

the water tank and the refrigeration

subsystem in the same location, a

reduced tank size may have to be

installed. This could cause a 20% to 25

% loss of tank volume on a standard 50

gallon water heater. Any substantial

reduction in the tank size to

accommodate the heat pump would

reduce the first hour rating, since first

hour rating depends on tank size and

reheat capacity. The first hour rating is,

‘‘an estimate of the maximum volume of

‘‘hot’’ water that a storage-type water

heater can supply within an hour that

begins with the water heater fully

heated.’’ (10 CFR 430, subpart B,

appendix E). We interpret losses of first

hour rating as a loss of product utility.

DOE believes heat pump water

heaters should be eliminated from

further consideration because there

would be a loss of utility to a significant

portion of the population (10 million

households). Therefore, because of this

significant adverse impact to significant

subgroups of consumers, the

Department has eliminated heat pump

water heaters as a design option from

further consideration.

In summary, DOE has eliminated

residential heat pump water heaters as

a design option for this rulemaking

because they fail to meet two of the

three screening criteria listed earlier—

namely, they are impracticable to

manufacture, install, and service and

have adverse impacts on product utility.

There is no foreseeable means for the

technology to advance enough in the

short term to allow heat pump water

heaters to fill market needs and to

continue to provide a reasonable level of

consumer utility.

As a result of its screening analysis,

DOE has determined that heat pump

water heaters are not economically

justified. This conclusion is based on

the following factors: (1) a capital

investment that is 2.3 times the current

industry net present value; (2) adverse

utility impacts on about 10 million

households living in homes with less

than 1,000 square feet; and (3) adverse

impacts on low income and seniors-only

households due to a price increase

about 3 times the expected 2003

baseline price for electric water heaters.

b. Gas Condensing Water Heaters

Although several manufacturers offer

gas condensing water heaters, these are

only in commercial sizes. Results from

a GRI sponsored field test showed no

serious reliability or durability problems

and confirmed technical feasibility.

(ASHRAE Transactions, 1987, 93(2) p.

1485–1500.) However, DOE is not aware

of any prototypes or commercially

available residential condensing gasfired water heaters. Therefore, we have

eliminated this design option based on

a lack of technological feasibility. We

discuss the details in Chapter 4.2.2 of

the TSD.

c. Other Water Heater Design Options

DOE has eliminated air-atomized oil

burners, power vents, and increased

heat exchanger surface areas. Based on

comments, DOE eliminated air-atomized

burners on the basis that they are not

technologically feasible because the

prototype has not been applied to water

heaters. We eliminated power vents

because they require special venting

systems that cannot be installed in

applications such as existing

multifamily homes and some existing

town homes and condos. However, the

Department is aware of a new, low

volume fan that may allow power

venting of an oil-fired water heater unit

with conventional negative draft vent

systems. Test results of this technology

are not available. We eliminated the

increased heat exchanger surface areas

(for gas-fired water heaters) because

improved flue baffles can provide the

same efficiency improvement and are

preferred by manufacturers.

After considering the above, the

following are the design options

considered for the rulemaking (see

Table 1).

TABLE 1.—DESIGN OPTIONS USED IN THE ANALYSIS

Design options—description Gas Electric Oil

Heat traps ................................................................................................................................................ X X X

Plastic tank .............................................................................................................................................. (1)X X

Increased jacket insulation ...................................................................................................................... X X X

Insulating the tank bottom (electric only) ................................................................................................ .................... X

Improved flue baffle/forced draft .............................................................................................................. X .................... X

Increased heat exchanger surface area .................................................................................................. X .................... X

Flue damper (electro-mechanical) ........................................................................................................... X ....................

Side-arm heater ....................................................................................................................................... X ....................

Electronic (or interrupted) ignition ........................................................................................................... X .................... X

1 used only in conjunction with the side-arm heater option.

D. Engineering Analysis of Design

Options

The engineering analysis determines

the maximum technologically feasible

energy efficiency level, calculates unit

energy savings and payback, and

estimates the retail price for each design

option and combination of design

options. It analyzes the design options

identified as a result of the screening

analysis. This section discusses DOE’s

analytical tools and the critical

assumptions DOE used in the water

heater engineering analyses. We also

discuss two initiatives by other Federal

agencies that impact the rulemaking

analyses.

1. Other Federal Agencies’ Initiatives

Two actions by other Federal agencies

outside of the DOE efficiency standards

process will affect our engineering

analyses. First, the U.S. Environmental

Protection Agency (EPA) is requiring a

phase out of the blowing agent currently

used by the water heater industry for

foam insulation (HCFC–141b). Second,

manufacturers have reached a voluntary

agreement with the Consumer Product

Safety Commission (CPSC), to produce

gas-fired water heaters resistant to

ignition of flammable vapors. The first

will affect the efficiency of water

25050 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

heaters, and the second will increase the

price of gas-fired water heaters.

Most residential water heaters are

insulated with polyurethane foam in the

cavity between the tank and the jacket.

Currently, water heater manufacturers

use a hydrochlorofluorocarbon, HCFC–

141b, as a blowing agent for this

insulation. HCFC–141b is an ozonedepleting blowing agent and, as a result

of the Montreal Protocol, the EPA has

scheduled the phase-out of this blowing

agent by January 1, 2003. Water heater

manufacturers must use another

blowing agent after that time.

A number of alternative blowing

agents are available. The industry is

considering HFC–245fa, HFC–356mfc,

HFC–134b, cyclopentane and water

blown foam. DOE decided to analyze

two blowing agents—water-based and

HFC–245fa. We based our decision on a

number of criteria, including zero ozone

depletion potential, low global warming

potential, availability by 2003, and

price. In our preliminary analysis,

presented at the July 1999 Workshop,

we only analyzed one of the

alternatives—water blown insulation.

Some stakeholders raised concerns

about our failure to include HFC–245fa

blown insulation in our preliminary

analysis. Therefore, we added HFC–

245fa blown insulation to our analysis.

We used HFC–245fa and water blown

foam in our analysis. For cost

information, Honeywell, the licensee to

manufacture HFC–245fa in the U.S.,

provided estimates of HFC–245fa costs.

For efficiency data, we used published

laboratory measurements of physical

parameters. In order to keep the baseline

efficiency (those with HCFC–141b

insulation) and the energy use

characteristics of water heaters with

HFC–245fa insulation the same, we

modeled it with appropriately thicker

insulation. We also increased the

amount and cost of steel used for the

water heater jacket in addition to the

extra volume and cost of insulation. The

analysis and test results using HFC–

245fa and water blown foam to evaluate

design options can be found in Chapter

3.4.1 of the TSD.

Many comments addressed the

potential of other alternatives. GRI

claimed other types of insulation may

be preferable to HFC–245fa blown

insulation. (GRI, No. 48 at 2). The

Oregon Office of Energy (OOE)

requested that DOE provide a succinct

and complete summary of the

alternative insulations and why they

were not considered in the analysis.

(OOE, No. 96 at 5).

In addition to the water/carbon

dioxide (CO2) and HFC–245fa blowing

agents, there are cyclopentane, HFC–

134a, and HFC–365mfc. All of these

have zero ozone depletion potential and

thus will meet the Montreal Protocol’s

requirements. Cyclopentane, widely

used in Europe, is relatively

inexpensive and highly flammable; U.S.

manufacturers have been cautious about

its use. HFC–134a is currently available,

but its thermal resistance is lower than

HFC–245fa. HFC–365mfc may be a good

potential alternative blowing agent, but

it also has a lower thermal resistance

than HFC–245fa and its price is not

available. Our decision to analyze both

HFC–245fa and water/CO2 blowing

agents allowed us to cover the range of

performance and costs of the suggested

alternative blowing agents. We have

more detailed information about

alternative blowing agents in Chapter

3.4 of the TSD.

Although we have analyzed HFC–

245fa as a blowing agent, there is

continuing concern about its

availability. Representatives from

Honeywell, the licensee to manufacture

the material in the U.S., stated at the

July 1999 workshop that it would have

a commercial size plant ready to

produce HFC–245fa by mid-2002. (July

22, 1999 Water Heater Workshop

Transcript, pg. 105). We received

comments from several manufacturers,

GAMA, an individual, and an insulation

supplier about the availability of HFC–

245fa and Honeywell’s capacity to

supply the market. GAMA and

manufacturers are concerned that

Honeywell is the only source for HFC–

245fa. They are also concerned that

manufacturers need samples of HFC–

245fa soon as it will take about six to

nine months to replace existing low

pressure foaming equipment with high

pressure equipment and shrinkage tests

will take 250 days. (Stepan, No. 86 at 1;

Bradford White, No. 89 at 2; Vaughn,

No. 56 at 1; Rheem, No. 95 at 1; GAMA,

No. 91 at 2; and Energy Market and

Policy Analysis, Inc. (EMPA), No. 88 at

9).

Several comments suggested ways to

deal with issues concerning the

availability of HFC–245fa. The

American Council for an EnergyEfficient Economy (ACEEE) suggested

HCFC–141b could be stockpiled, the

EPA could be petitioned to extend the

phase out of HCFC–141b, or DOE could

make the new standard conditional on

the availability of HFC–245fa. (ACEEE,

No. 93 at 7). SC and EEI suggested DOE

delay implementation of the new water

heater standard if HFC–245fa based

insulation materials are not available.

(SC, No. 42 at 2 and EEI, No. 39 at 2).

DOE is concerned about the relatively

short time the manufacturers have to

incorporate a new blowing agent into

production and to perform the necessary

tests to measure results using the new

blowing agent. Since the choice of

insulation blowing agent has a

significant impact on energy savings

and water heater cost, we request

stakeholder comment on the cost and

availability of HFC–245fa and water

blown foam, and other alternative

blowing agents. We also invite

comments on approaches that would

enhance the transition to a new blowing

agent for manufacturers, including, but

not limited to, the timing needed for the

transition of HFC–245fa, water blown

foam, or any other alternative blowing

agent manufacturers suggest would be

appropriate to use in implementing a

new standard. Manufacturers are

requested to submit supporting data for

alternative blowing agents.

On September 13, 1999, we received

updated information indicating that

Honeywell had received EPA approval

for production of HFC–245fa.

Honeywell has since announced it

would start building a commercial plant

for producing HFC–245fa in Geismar,

Louisiana. Based on Honeywell’s

announcement, we have decided to base

our decision on insulation blown with

HFC–245fa because such insulation is

42% more effective in reducing thermal

losses than water blown insulation.

Therefore, since our proposed standard

uses HFC–245fa, this notice addresses

the results based on HFC–245fa blown

insulation. However, the Department

has completed an identical analysis

using water blown foam in order to

anticipate the unlikely event that HFC–

245fa does not become available.

The other action affecting this

rulemaking is a CPSC initiative to make

gas-fired water heaters resistant to

ignition of flammable vapors. Most

current designs for gas-fired water

heaters rely on a standing pilot to ignite

the main burner. If flammable vapors

are in the air near a water heater, there

is the possibility of unintended ignition.

This is a potential safety problem

because water heaters are often installed

in garages and basements, where

flammable liquids such as gasoline or

paint thinners may be used. The CPSC

staff recommended publication of an

advance notice of proposed rulemaking

for the development of a test procedure

that would determine whether a

particular gas-fired water heater design

would ignite flammable vapors.

However, before the notice was

published, the water heater

manufacturers agreed to voluntarily

develop a test procedure and new gas

burner designs.

The CPSC worked with GRI and the

water heater industry to develop a test

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25051

procedure for gas-fired water heater

designs that will resist ignition of

flammable vapors. The American

National Standards Institute (ANSI) Z21

Committee approved this test procedure

in May 1999, but final approval by the

full ANSI committee is still pending.

Gas-fired water heaters designed to be

resistant to the ignition of flammable

vapors are now on the market.

Manufacturers have agreed to begin

marketing gas-fired water heaters

resistant to ignition of flammable vapors

by April 2001. DOE will consider those

additional economic impacts on

manufacturers of the transition to

designs resistant to flammable vapors.

The voluntary agreement between

manufacturers and the CPSC will be

implemented by April 1, 2001, which

will be close to the effective date of this

rule.

The impact of this initiative on the

water heater rulemaking analyses is an

increase in manufacturing cost. Based

on discussions with the Water Heater

Industry Joint Research and

Development Consortium, DOE decided

to add an extra $35 per unit of

manufacturer cost for designs resistant

to ignition of flammable vapors. In this

analysis, the $35 is applied to the

manufacturing cost of all design options

for gas-fired water heaters, including the

baseline design. EEI stated that the cost

of $35 may be very conservative. (EEI,

No. 39 at 5). We believe until flammable

vapor ignition resistant designs are

widely available in the market, and a

market price is established, a

manufacturer cost of $35 is reasonable.

We discussed this during the

manufacturing interviews, and several

agreed with this cost estimate.

Furthermore, the design does not

require electricity for the water heater or

modifications of the venting system.

DOE also anticipates no changes in

efficiency from flammable vapor

ignition-resistant water heater designs.

DOE will monitor this situation to verify

these assumptions or to update the

analysis, as designs meeting the ANSI

standard become available.

2. Maximum Technologically Feasible

Levels

Amendments to a standard are

required to achieve the maximum

improvement in energy efficiency that is

technologically feasible and

economically justified. Section

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

Furthermore, Section 325(p)(2) requires

that the Secretary determine the

maximum technologically feasible level

(max tech) for each type (or class) of

covered product and then, if the

proposed standard is not designed to

achieve the max tech levels, state the

reasons that it will not meet those

levels.

The Secretary has determined heat

pump water heaters for electric, and gas

condensing water heaters, are the max

tech design options. This means the

max tech level for electric is 1.7 EF and

for gas is 0.91 EF. The max tech level

for oil is 0.61 EF. However, as a result

of our screening analysis, the max tech

levels for electric and gas-fired water

heaters have been eliminated. Therefore,

the proposed standard for both electric

and gas-fired water heaters will not

achieve the max tech levels. The reasons

for this decision are described in our

discussion on screening, and in Chapter

4.2.2 of the TSD. Accordingly, the

Department has satisfied the

requirements of Section 325(p)(2), 42

U.S.C. 6295(p)(2).

Therefore, we combined the design

option technologies that were not

screened out into successively more

efficient design options until we

reached the highest efficiency levels for

each product class. We combined design

options by using our payback analysis.

We define payback as the time required

to recover the cost of efficiency

improvements through energy savings.

We started with the design option with

the shortest payback and continued to

add design options with the next

shortest payback at each higher

efficiency level. See Table 3 for design

option combinations. The highest

efficiency levels for this rulemaking are

approximately 0.91 EF for 50-gallon

electric water heaters, 0.71 EF for 40-

gallon gas-fired water heaters, and 0.61

EF for 32-gallon oil-fired water heaters.

3. Methodology

Table 2 summarizes the information

we used in the engineering analysis and

the assumptions we made. We briefly

discuss many of the assumptions in this

section. For complete details about the

engineering analysis, please see Chapter

8 in the TSD.

TABLE 2.—KEY ELEMENTS USED IN THE ENGINEERING ANALYSIS

Description Elements

Product classes .................................................. Electric, gas (includes LPG) & oil.

Analysis approach .............................................. Design options.

Designs analyzed ............................................... Heat traps, thicker insulation, tank bottom insulation on electric, 78% & 80% RE on gas, 78%

& 82% RE on oil, plastic tank on electric, side-arm heater, & IID on gas, interrupted ignition

on oil.

Simulation models .............................................. WATSIM for electric, TANK for gas, WHAM for oil.

Basis for energy factor ....................................... DOE water heater test procedure, 64.3 gpd.

Baseline energy factor ........................................ Electric, 50 gallon =.86, gas, 40 gallon =.54, oil, 32 gallon =.53.

Cost data ............................................................ Provided by GAMA and consultants and the Water Heater Consortium ($35, resistance to ignition of flammable vapors).

Price data ............................................................ Water heater price database.

Insulation blowing agent ..................................... HFC–245fa (Water blown insulation analyzed in TSD).

Insulation cost ..................................................... Existing—HCFC–141b blown—$1/lb from Honeywell.

New—HFC–245fa blown—$1.32/lb, from Honeywell.

Insulation thicknesses ......................................... 2 inch, 2.5 inch & 3 inch.

Warranty on baseline .......................................... 6 years or less.

Markup ................................................................ Average baseline price divided by average manufacturer baseline cost.

Installation costs ................................................. $160 for door jamb removal & replacement on 27% of all designs with 3-inch insulation.

$114 for Type-B vent connectors in 25% of homes in northern states with 78% RE on gasfired.

$433 for chimney relining and Type-B vent connectors in 25% of homes in northern states with

80% RE on gas-fired.

Maintenance costs .............................................. None on electric, $14.73/yr for the side-arm heater for gas-fired and a $97.14 yearly maintenance contract for oil-fired.

25052 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

a. Energy Savings Potential

Having determined the highest energy

efficiency levels for each product in this

rulemaking, the Department then

estimates the energy savings potential of

individual design options or

combinations of design options. Table 3

shows the design option combinations

for each fuel type at incremental levels

of efficiency. (These do not represent

trial standard levels.) We use simulation

model calculations and manufacturer

data to determine the efficiency levels

corresponding to various design option

combinations.

TABLE 3.—DESIGN OPTION COMBINATIONS

Design

option

level

Design option for electric water

heaters

Design options for gas-fired water

heaters

Design options for oil-fired water

heaters

1 .............. Heat traps ...................................... Heat traps ........................................................ Heat traps.

2 .............. Heat traps + tank bottom insulation.Heat traps + flue baffles (78% RE) ................. Heat traps + 2 inch insulation.

3 .............. Heat traps + tank bottom insulation + 2 inch insulation.Heat traps + flue baffles (78% RE) + 2 inch

Insulation.

Heat traps + 2.5 inch insulation.

4 .............. Heat traps + tank bottom insulation + 2.5 inch insulation.Heat traps + flue baffles (78% RE) + 2.5 inch

insulation.

Heat traps + 3 inch insulation.

5 .............. Heat traps + 2.5 inch insulation +

plastic tank.

Heat traps + flue baffles (80% RE) + 2 inch

insulation.

Heat traps + 3 inch insulation + flue baffles

(78% RE).

6 .............. Heat traps + 3 inch insulation +

plastic tank.

Heat traps + flue baffles (80% RE) + 2.5 inch

insulation.

Heat traps + 3 inch insulation + flue baffles

(78% RE) + interrupted ignition.

7 .............. Heat traps + flue baffles (80% RE) + 3 inch

insulation.

Heat traps + 3 inch insulation + interrupted ignition + increased heat exchanger area

(82% RE).

8 .............. Heat traps + flue baffles (80% RE) + 3 inch

insulation + side arm + electronic ignition +

plastic tank.

2003 Baseline Model. As discussed

earlier, the Department defines a

baseline unit in order to analyze options

which increase energy efficiency over

the baseline. Because DOE expects new

energy-efficiency standards to take

effect near the phase-out date (2003) of

HCFC–141b, we had to create a baseline

model for this analysis which uses foam

insulation blown with an acceptable

alternative blowing agent. After

considering all possible insulation

choices, the Department determined

that the most likely alternatives to

replace HCFC–141b appears to be water

and HFC–245fa. Consequently, we

performed a complete analysis using

these two different blowing agents. After

weighing the comparative benefits and

costs of HFC–245fa and water blown

foam and then taking into account

Honeywell’s announcement on the

availability of HFC–245fa, we ultimately

selected HFC–245fa as the insulation for

our proposed trial standard levels. To model the baseline electric water

heater under existing efficiency

standards with the alternative blowing

agents, we increased the foam insulation

thickness to 1.55 inches for HFC–245fa.

To model the gas-fired water heater

baseline for the alternative blowing

agents, we increased the foam insulation

thickness to 1.0 inch for HFC–245fa. To

model the oil-fired water heater baseline

for the alternative blowing agents, we

assumed a foam insulation thickness of

1.01 inches for HFC–245fa. We made

similar calculations for water blown

foam so we could perform a

comparative analysis throughout the

TSD.

Computer Simulation Models. To

analyze the energy efficiency of water

heaters with various combinations of

design options, DOE used computer

simulation models for electric

(WATSIM) and gas-fired (TANK) water

heaters, and a spreadsheet model

(WHAM) for oil-fired water heaters.

AGA commented that it preferred

modeling results because modeling

allows the use of consistent

assumptions across design options.

(AGA, No. 49 at 1).

WATSIM Model for Electric Storage

Water Heaters. WATSIM is a detailed

electric water heater simulation program

developed by Electric Power Research

Institute (EPRI). (Report #TR–101702,

10/92). WATSIM contains two

simulation algorithms: one for the

detailed simulation of water heater

tanks and the other for controlling water

draw profiles. The output of WATSIM

provides detailed temperature profiles

of the water inside the water heater

tank. We use these temperature profiles

to determine the EF and other

parameters of the water heater using the

test DOE procedure calculations.

Our analysis began with a simulation

of a baseline model (i.e., one that is

currently marketed that achieves a

minimum allowable efficiency of 0.86

EF). When simulating the typical

existing electric water heater, WATSIM

was able to achieve the minimum

allowable efficiency of 0.86 EF by

simulating a jacket thickness of 1.5

inches of HCFC–141b foam insulation.

OOE, The Northwest Energy Efficiency

Alliance (NEEA), The Northwest Power

Planning Council (NWPPC), and

ACEEE, did not support DOE’s use of

1.5 inches of foam on electric water

heaters to adjust the model results of EF

0.83 to reach the minimum EF of 0.86.

(OOE, No. 44 at 3; NEEA, No. 53 at 2;

NWPPC, No. 43 at 1; and ACEEE, No.

52 at 2). The commenters did not

support this because the GAMA

directory listed one model with 1 inch

of insulation. Manufacturers indicated

to DOE that 1.5 inches of foam

insulation on electric water heaters is

the norm to meet the minimum

efficiency of 0.86 EF for a 50-gallon

electric water heater. Therefore DOE

chose to use 1.5 inches in its simulation.

Complete verification of the WATSIM

program is not currently available to the

public. The WATSIM user’s manual

states the model ‘‘has been vigorously

verified for use in tank and system

design, equipment sizing, and

individual or diversified demand

analyses, as well as for energy

consumption analysis.’’ (EPRI, TR–

101702, 10/92). The Department

validated the WATSIM simulations by

comparing them to NIST measurements.

NIST tested four mid-efficiency 50-

gallon commercially available electric

water heaters and reported an average

0.89 EF. (Fanney, 1999 ASHRAE

Summer Meeting). The Department

compared the NIST EFs with WATSIM

simulations of identical water heater

models. The results agree within 0.01

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25053

EF. Subsequently, NIST tested five high

efficiency electric water heaters and we

validated the WATSIM model to the

highest of the five test results, 0.91 EF.

The WATSIM modeled results were

within 0.002 EF of the NIST test results.

These validations are in Chapter 8.2.4.1

of the TSD. Therefore, we believe

WATSIM is accurate over the range of

EFs considered in this rulemaking.

Based on our selected design options,

the WATSIM model predicts a

maximum of 0.91 EF for electric water

heaters. Stakeholders raised concerns at

the November 1998 Workshop that the

GAMA directory lists 0.93 EF and

higher EFs for electric water heaters.

NEEA, NWPPC, VP, OOE, the National

Resources Defense Council (NRDC), and

ACEEE claim DOE should investigate

and reconcile the differences between

the EFs predicted by computer models

and those listed in the GAMA directory.

(NEEA, No. 53 at 1; NWPPC, No. 43 at

1; VP, No. 45 at 1; OOE, No. 44 at 1;

NRDC, No. 46 at 1; and ACEEE, No. 52

at 1). ACEEE stated the difference

between computer simulation and

directory listings is about 0.03 efficiency

points for electric water heaters. ACEEE

stated DOE must explain what it intends

to do to ensure that EF ratings are

accurate. (ACEEE, No. 75 at 3). DOE is

investigating the discrepancies in EF

ratings between the GAMA directory

and the WATSIM modeled results.

NIST measured one high efficiency

electric water heater from each

manufacturer and found an average

0.036 EF lower on test results than in

the GAMA directory listing. DOE also

received data from GAMA on its

certification testing program for 1994

through 1998. We reviewed this data

and found that for the 26 high efficiency

electric water heaters measured, results

averaged 0.02 EF lower than published

EFs in the GAMA directory. The NIST

and GAMA certification program test

results were consistent with the

WATSIM simulation program results.

Therefore, DOE will base its analysis of

electric water heater performance on

WATSIM results.

Some stakeholders raised concerns

about the test procedure. EEI and SC

claimed there may be measurement

problems when determining the electric

water heater EF, since electric water

heaters are close to their maximum

potential thermodynamic efficiency

levels. (EEI, No. 39 at 2 and SC, No. 42

at 2). Vaughn claimed the error factor in

the test equipment is greater than the

obtainable increase in energy efficiency.

(Vaughn, No. 56 at 1). VP recommended

DOE determine and report the

confidence level of EF results from the

water heater test procedure to ensure

that the difference between the existing

efficiency standard and any proposed

standard is within the accuracy of the

test procedure. (VP, No. 45 at 2). EPRI

claimed that routine EF testing

performed at testing laboratories is only

within 3 percent accuracy. (EPRI, No. 41

at 1). DOE investigated this problem

with Intertek Testing Services (ITS),

NIST, and the manufacturers. ITS

claimed that its test repeatability is

within 0.5%. NIST has demonstrated

accuracy better than 1 percent. NIST

and ITS recently measured the EF on

the same model of two electric water

heaters. The results agreed within 0.008

EF. Based on these responses, DOE does

not believe there is a problem in

accurately measuring performance

results that will adversely affect any

manufacturers’ ability to certify

compliance with the proposed energy

efficiency standard for electric, gasfired, or oil-fired water heaters.

TANK Model for Gas-Fired Storage

Water Heaters. TANK is a detailed gasfired storage water heater computer

simulation program developed by

Battelle for GRI, (GRI–93/0186). TANK

calculates energy flows throughout a

water heater including water draws, flue

heat losses, jacket heat losses, fittings

heat losses, and combustion chamber

heat losses. Unlike WATSIM outputs,

TANK outputs include the EF, RE, and

UA from the DOE test procedure.

To validate the analytical models

comprising the TANK program, Battelle

conducted actual water heater testing

and monitoring. Battelle performed a set

of tests to investigate the impacts of

different flue baffle designs, increased

insulation thickness, and different pilot

light input rates on EFs. Battelle

compared test results to the TANK

model results. Battelle then tested gas

water heaters under the assumptions of

the DOE test procedure to validate the

analytical predictions of TANK. Battelle

reported the results in terms of EF, RE,

UA, and total standby loss. Overall, the

difference between the experimental

values (measured) and the predicted

values (simulated by TANK) is less than

0.01 EF for all of the above parameters.

With the TANK simulation model for

gas-fired water heaters, we consulted

with Battelle to develop characteristics

similar to the Battelle baseline model

with a nominal insulation thickness of

1 inch. GAMA comments stated that the

manufacturers use a 450 Btu/hr pilot

light on gas water heaters. (GAMA, No.

51 at 1). DOE used this new heat input

rate for pilot lights on gas-fired water

heaters. See Chapter 8.2 of the TSD for

details about the simulation models and

the baseline characteristics.

WHAM Energy Calculation for OilFired Storage Water Heaters. We used a

simplified spread-sheet model (WHAM)

for our engineering analysis of oil-fired

water heaters. WHAM is based on the

24-hour simulated use test portion of

the DOE test procedure. The model

calculates energy consumption from a

water heater’s RE, UA, and rated input

(Pon). (Lutz, J., et al, 1998, ACEEE

Summer Study on Energy Efficiency in

Buildings, pp. 1.171–1.183). The model

assumes the water temperature remains

at the set point temperature throughout

the tank. We also assume RE and UA are

constant.

To validate WHAM, we compared the

results of the WHAM equation to results

of the WATSIM and TANK simulation

models of residential electric and gasfired storage water heaters with

excellent agreement. WHAM and

WATSIM results are within 3% or less

and WHAM and TANK results are

within 5% for normal operating

conditions, tank sizes and design

options.

b. Comments on Design Options

Tank Bottom Insulation. One design

option considered for electric water

heaters is insulation under the bottom of

the tank, referred to as tank bottom

insulation. EPRI and Bradford White

commented that they do not observe the

efficiency improvement from insulating

the tank bottom that WATSIM predicts.

(EPRI, No. 70 at 2 and Bradford White,

No. 89 at 3). Based on DOE’s computer

simulation results, and loss mechanisms

NIST observed by infrared photography,

DOE believes the improvement in

efficiency is real. The infrared

photography shows much warmer

regions at the base of water heaters and

around piping penetrations than any

other tank surfaces. (Fanney, Zarr and

Ketay-Paprocki, 1999 American Society

for Heating, Refrigerating and AirConditioning Engineers (ASHRAE)

Summer Meeting). We have also

discussed this approach with a

manufacturer who uses molded

insulation under its tanks. This

manufacturer believes water heater

performance is improved but did not

provide any test data to confirm the

observation. Therefore, we will continue

to use the WATSIM EF results in our

analyses.

Insulation Effectiveness. Due to water

heater tank geometry and the method of

pouring liquid insulation into the jacket

which then forms in place, the

insulation effectiveness may not be

consistent between the sides and top of

the tank. Bradford White recommended

DOE limit the foam cavities to 2.5

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25054 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

fired, and 1 inch in oil-fired water

heaters. Bradford White stated the

insulation effectiveness of foam does

not double for 2 inches or triple for 3

inches due to variations in cell structure

as the foam rises vertically and spreads

horizontally in the jacket cavity.

(Bradford White, No. 89 at 3). To

account for this, we derated the

effectiveness of HFC–245fa blown

insulation by about 10%. This allowed

us to assume a uniform thickness and

constant insulation effectiveness on the

sides and top of the tank in the

simulation models.

Insulation Thickness. With water

heaters, the thickness of the insulation

cavity helps determine the diameter and

height for a given tank volume. This is

an important consideration in water

heater product utility since some water

heaters are installed in tight spaces and

reduction of tank volume could reduce

the first hour rating. SC and EEI claimed

water heaters can become too wide to fit

through residential interior doors if the

insulation is too thick, and therefore the

thickness of the insulation should be

limited. (SC, No. 42 at 2 and EEI, No.

39 at 7). GAMA stated DOE should not

consider insulation thicknesses beyond

3 inches because replacement units

must be able to fit through doorways.

(GAMA, No. 33 at 3). DOE agrees with

the GAMA recommendation and has

limited insulation thicknesses to 3.0

inches or less.

We also have comments from GAMA,

Connecticut Natural Gas (CNG) and

New England Gas Association (NEGA)

that thicker insulation will raise

installation costs, cause installation of

multiple smaller units, or

inconvenience consumers with a

smaller sized, lower capacity unit.

(GAMA, No. 91 at 1; CNG, No. 85 at 2;

and NEGA, No. 90 at 3). GAMA and

Bradford White claimed a 2.5 inch

insulation thickness will increase the

diameter and height of electric water

heaters and product utility will be

impaired, particularly for 20–50 gallon

lowboys and tabletop models. (GAMA,

No. 71 at 4 and Bradford White, No. 74

at 2). We reviewed the application of

these water heaters in households in

multi-family buildings, mobile homes

and manufactured housing, and we

estimate only a small percentage of

households may be affected (see Chapter

3.4.4 in the TSD). Furthermore, we

believe a 6 kW heating element should

eliminate any lost first hour rating in

those situations where a smaller

capacity tank is required.

Flue Baffles. The flue baffle, the

twisted strip of metal inserted into the

flue of a gas or oil-fired water heater, is

the most commonly used method to

improve heat transfer, thereby

improving RE. RE is the percentage of

energy transferred to the hot water

compared to input energy. It takes into

account the amount of energy lost

through the flue and other parts of the

water heater.

There are many design options

available to increase RE. Because of the

low cost, the Department has assumed

in its analysis the flue baffle alone

would be the most cost effective method

for increasing RE up to 80%. GAMA

stated recovery efficiencies higher than

78% cannot be attained by modifying

the flue baffle only. (GAMA, No 71 at 3).

ACEEE claimed there are other

technologies that can be combined with

flue baffles to achieve 80% RE in gasfired water heaters. (ACEEE, No. 93 at

6). However, several manufacturers and

consultants told DOE they could reach

80% RE by modifying flue baffles alone.

For the July 1999 workshop, DOE

assumed flue baffles could be modified

to increase RE to 78% or 80% from the

current baseline of 76%. We will

analyze 78% and 80% RE based on

modifying flue baffles as design options.

Bradford White claimed the flue baffle

improvement to increase the recovery

efficiency in oil products is possible,

but only with a specific patented

approach. (Bradford White, No. 74 at 3).

DOE’s analysis assumes several designs

are possible, such as multi-flues,

internally finned flues or a finned

combustion chamber. We used the

patented Bock Turboflue as a proxy to

determine the performance of the

increased heat exchanger area on oilfired water heaters and reduced the

performance to be conservative, since

we were not confident a non-proprietary

design would achieve the same level of

performance. To estimate the costs of

the increased heat exchanger area

design, we examined other approaches

for providing increased heat exchanger

area that are not proprietary, and we

have estimated retooling and materials

costs based on the use of these other

approaches. We used this design to

complete the list of energy factors and

costs for oil-fired water heaters since

this is the maximum technologically

feasible level for oil-fired water heaters.

Venting for Gas-fired Water Heaters.

Most water heaters sold today are for the

replacement market, where an existing

vent system is in use. Improving the flue

baffle can significantly increase the RE

of a water heater, which in turn can

reduce the temperature of the flue gases

leaving the water heater. A reduction in

temperature of the flue gases can

increase the likelihood of condensation.

Due to excessive moisture condensing

from the flue gases, use of increased RE

gas-fired water heaters with existing

venting systems not designed for

increased RE gas-fired water heaters can

lead to excessive corrosion and failure

of the vent system in certain climates.

Studies conducted by GRI/Battelle have

shown corrosion can occur when a vent

wall becomes wet. While it is not

uncommon for a vent to be wet

immediately after the appliance starts,

the appliance must heat the vent system

and dry the walls before turning off. If

the vent does not dry, corrosion may

occur during a long period of wetness.

While we have discussed RE for water

heaters, typically appliances are

characterized for venting purposes by

flue-loss efficiency. Flue-loss efficiency

measures how much of the input heat

does not go up the flue. The DOE test

procedure for rating residential water

heaters does not measure flue-loss

efficiency; it measures RE instead.

Therefore, RE was used in this analysis

for measuring the impact on the flue

vent system, but in order to estimate the

impact of increasing the RE of a water

heater, a relationship between RE and

flue loss efficiency was needed. Flue

loss efficiency is not always directly

proportional to RE, but flue loss

efficiency is typically 2–4% higher than

RE.

RE of more than 80% is associated

with flue-loss efficiencies exceeding

84%, resulting in excessive

condensation within the vent system,

which can lead to corrosion and a

reduced vent system life. To ensure that

condensation does not occur in the flue,

only design options that increase RE to

a maximum of 80% were selected for

analysis. However, the Department

recognizes that potential venting

problems may occur in the 78–80% RE

range and could require Type-B vent

connectors and chimney relining. A

Type-B vent connector is a double wall

vent, with an aluminum inner wall and

a galvanized steel outer wall. The

special double wall construction keeps

flue gases hot while inside the vent,

providing a strong draft and minimizing

condensation. Additionally, the

aluminum inner wall is more corrosion

resistant to condensation that may occur

in the vent.

A number of comments supported a

maximum RE level of 80% for an

improved flue baffle design option.

(ACEEE, No. 52 at 4; OOE, No. 64 at 1–

4; ACEEE, No. 75 at 2; and OOE, No. 76

at 1). Additionally, ACEEE claimed,

based on Table 3 in the GRI study (GRI–

95/0198), the lowest flue-loss efficiency

for homes with Type-B vent connectors

and masonry chimneys is 84.5% and

therefore no chimney relining should be

needed for 80% RE. (ACEEE, No. 93 at

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25055

5). OOE claimed there are no inherent

safety issues associated with REs of up

to 80%. (OOE, No. 96 at 4).

Other comments raised concerns with

a maximum level of 80% RE. LaClede

Gas and GAMA stated DOE should not

exceed a 76% RE in order to maintain

an adequate margin of safety. (LaClede,

No. 69 at 6 and GAMA, No. 71 at 3).

CNG and NEGA claimed setting a

standard level at 78% RE could lead to

condensation and chimney degradation.

(CNG, No. 85 at 1 and NEGA, No. 90 at

2). Bradford White said 78% is the

maximum RE to avoid corrosion in the

vent, but 77% is more realistic.

(Bradford White, No. 74 at 2–3 and No.

89 at 2).

The Department is very concerned

about public safety for venting of gasfired water heaters. We appreciate the

analysis by OOE and GRI. We also

discussed venting concerns with state

experts and chimney installers. As a

result of these discussions and

comments, as well as the GRI study

(GRI–94/0193), we believe there are no

technological barriers to using either

78% or 80% RE gas-fired water heaters

in a replacement installation.

Furthermore, in most replacement

applications, vent systems and chimney

reliners are available on the market to

meet the venting requirements for water

heaters with 78% or 80% RE. In new

construction, installers can follow

manufacturers recommendations so

there are no problems with either a 78%

or 80% RE.

Heat Traps. In its analysis for the July

1999 workshop, DOE used WATSIM

and TANK default values for heat trap

performance. Manufacturers claimed

they could not achieve performance for

heat traps when installed on actual

water heaters. In its comments on heat

traps, GAMA claimed DOE should use

a 0.01 EF increase. (GAMA, No. 71 at 5).

Bradford White provided heat trap data

for oil-fired, gas-fired, and electric water

heaters. (Bradford White, No. 74 at 1).

ACEEE stated DOE should only change

the heat trap effectiveness based on

independent test data. (ACEEE, No. 93

at 8). DOE has averaged the GAMA and

Bradford White heat trap data. This has

not affected gas-fired water heaters’ heat

trap results, but it has reduced heat trap

performance on electric water heaters by

0.005 EF. Based on the above, heat traps

are estimated to result in improvements

of 0.012 EF for electric, 0.09 EF for gasfired, and 0.006 EF for oil-fired. These

are the improvement values used in the

analysis.

c. Manufacturing Costs

After determining the design option

combinations, the Department also had

to determine the cost to manufacturers

and consumers to achieve increased

efficiency. In the 1997 Rulemaking

Framework Workshop, DOE and

stakeholders discussed three methods

used to generate the manufacturing

costs for the engineering analysis. These

methods included: (1) The designoption approach, reporting the

incremental costs of adding design

options to a baseline model; (2) the

efficiency-level approach, reporting

relative costs of achieving energy

efficiency improvements; and (3) the

cost-assessment approach, which

requires a ‘‘bottom-up’’ manufacturing

cost assessment based on a detailed bill

of materials.

In written comments, GAMA

recommended DOE use the design

option approach in its economic

analyses because ‘‘there are only a few

identifiable discrete efficiency

improvement measures possible for

residential water heaters.’’ (GAMA, No.

5 at 4). There were no other comments.

At the water heater standards

rulemaking workshop in June 1997,

GAMA suggested it could collect and

aggregate manufacturer costs on the

design options of interest to DOE for

this rulemaking. DOE accepted that offer

and agreed to use the GAMA

manufacturing cost data.

The use of a design-option approach

provides useful information, such as the

identification of potential technological

paths manufacturers could use to

achieve increased energy efficiency. It

also allows the use of engineering

models to simulate the energy

consumption of different design

configurations under various user

profiles and applications. However, the

Department recognizes that the

manufacturer cost information derived

in the design-option approach may not

reflect the variability in design strategies

and cost structures that can exist among

manufacturers. Therefore, the

Department derived additional

manufacturing cost estimates from other

approaches based on consultant’s

estimates, component manufacturers’

prices, and occasionally from other

interested parties. DOE had two retired

water heater manufacturing engineers as

consultants provide cost estimates and

peer review our analysis results. We

describe these costs in the TSD in

Chapter 8.3.3 for electric, Chapter 8.4.3

for gas-fired and Chapter 8.5.3 for oilfired water heaters.

GAMA provided most of the

manufacturer costs with the exception

of all oil-fired water heaters, the tank

bottom insulation, and the plastic tank

costs for electric and side-arm heater

costs for gas-fired water heaters, which

our consultants provided. GAMA based

its cost estimates on the production of

a 50-gallon electric or 40-gallon gasfired water heater. GAMA separated the

costs into variable (material, labor,

transportation, overhead) and fixed

(capital, product design) costs on a perunit basis and provided a distribution of

fixed, variable, and total manufacturing

costs for several design options. We

used GAMA’s cost data and consultant

data to determine the water heater

manufacturer costs for all combinations

of design options. OOE claimed

GAMA’s manufacturing costs for gas

water heaters are too high. (OOE, No. 44

at 7). DOE could not get independent

cost data directly from individual

manufacturers, so we are unable to

determine if the manufacturing costs for

gas-fired water heaters are too high. We

believe the data best represents the costs

of all water heater manufacturers, as

well as the incremental costs between

design options.

GAMA based its existing baseline

model cost estimates on an electric

water heater with 1.5 inches of foamed

jacket insulation using HCFC–141b as a

blowing agent. The existing baseline is

the starting point to construct the 2003

baseline cost, to determine markup, to

develop incremental costs for heat traps

and to build up incremental costs for a

unit thickness of new insulation. For

gas-fired water heaters, GAMA based its

existing baseline model cost estimates

on 1 inch of foamed jacket insulation

using HCFC–141b as a blowing agent.

To develop costs for thicker insulation,

we estimated the material costs for the

additional foam and blowing agent as

well as the cost for additional sheet

metal. We used Honeywell’s estimate of

$4 per pound for the material costs of

the HFC–245fa blowing agent and

Honeywell’s estimate of 15% blowing

agent in a standard insulation mixture.

Since the blowing agent is only 15% of

the final foam insulation, total

insulation cost is $1.32 per pound for

HFC–245fa compared to $1 per pound

for HCFC–141b. We also assumed a

value of $35 additional incremental

manufacturing cost ($15 variable costs

and $20 fixed cost) for designs to resist

flammable vapor ignition in gas-fired

water heaters. We discuss the cost

assumptions for each design option

below.

Heat Traps. GAMA provided

manufacturer costs for electric and gas

water heaters with heat traps. GAMA

did not provide costs for the heat trap

component. Vaughn stated the costs for

heat traps should be the same for gas

and electric water heaters. (Vaughn, No.

56 at 2). Vaughn is correct. Based on

component costs from the heat trap

25056 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

manufacturer, we know heat trap costs

are the same for gas and electric.

However, we did not use the component

costs because we needed to include

labor, overhead, and other costs.

Therefore, we continue to use the

combined water heater plus heat trap

costs.

Increased Jacket Insulation. GAMA

provided variable and fixed cost data for

jacket insulation increases based on

HCFC–141b blown insulation from a

baseline level of 1.5 inches on electric

and 1 inch on gas-fired water heaters to

a thickness of 2 inches only. Since

HCFC–141b will be phased out in 2003,

we had to develop costs for alternative

insulation. Our consultant developed

the cost of the 2003 baseline by adding

incremental costs for HFC–245fa and

sheet metal to the HCFC–141b baseline

provided by GAMA. Our consultant

used the same approach, adding the

incremental costs for HFC–245fa and

sheet metal to the GAMA data, for the

2 inch insulation thickness. Then, our

consultant developed cost ratios from

the incremental cost differences for 2.5

and 3 inch insulation thicknesses for the

HFC–245fa blowing agent. We

multiplied GAMA’s incremental costs

for 2 inches of insulation by these ratios

to generate cost data in 2.5 inches and

3 inches of insulation. For cost

information see Chapter 6.4 in the TSD.

Increased insulation creates a larger

water heater than those typically

installed today. Many replacement

installations require the water heater to

match the dimensions of the one it is

replacing. One approach that addresses

this issue was suggested in comments

and discussed at the July 23, 1999

workshop, is to reduce the inner tank

diameter slightly. Manufacturing a

smaller inner tank diameter would

require retooling for many

manufacturers. Bradford White claimed

retooling for different diameters of tanks

cost $100,000 for each diameter.

(Bradford White, No. 89 at 2). We agree

with Bradford White on the retooling

costs. From discussions with GAMA, we

determined that the GAMA data

accounts for any retooling cost

associated with the trial standard levels,

including any potential design changes

to the inner tank diameter.

Insulating the Tank Bottom. ACEEE

claimed GAMA’s $40 cost for bottom

insulation on electric water heaters is

excessive. (ACEEE, No. 52 at 6). Based

on discussions with manufacturers who

use similar techniques, and our

consultants’ estimates, we determined

the cost to be between $2 and $4. After

the July 1999 workshop, GAMA and

Bradford White claimed DOE should

increase the $2–4 cost for tank bottom

insulation because it has to be molded.

(GAMA, No. 71 at 5 and Bradford

White, No. 74 at 2). Based on our

consultant’s analysis and discussions

with manufacturers who use tank

bottom insulation, we believe the $2–4

cost is reasonable, so we did not change

these costs after the July 1999

workshop. See Chapter 6.4 of the TSD

for more details.

Plastic Tank. Our consultant provided

the manufacturer costs for a plastic tank

electric water heater design. See Chapter

6.4 of the TSD. Although GAMA did not

provide cost information, GAMA

believed the cost of the plastic tank

option has been significantly

underestimated. (GAMA, No. 51 at 3).

Since GAMA did not provide any data

to substantiate its statement, DOE has

not changed its cost estimate.

Improved Flue Baffle. GAMA

provided manufacturer costs for the

improved flue baffle design. Originally,

the costs were based on a flue baffle

design that increased the RE to 78.5%.

After the November 1998 workshop, we

decided to use flue baffles that achieve

78% and 80% RE because we believed

80% RE was feasible although it

entailed more risk of venting system

condensation. Our consultant estimated

that the manufacturing costs for tooling

a flue baffle to achieve a 78% or 80%

RE are identical. There is no change in

material cost for a flue baffle achieving

78% or 80% RE.

OOE claimed as long as a

conventional furnace shares the flue

with a water heater, there should be no

need for relining the flue regardless of

the water heater efficiency. ACEEE

estimated 1% of homes will need TypeB vent connectors and 17% will need

flue relining. (ACEEE, No. 93 at 4–5).

NEGA stated many New England

consumers would have to install flue

liners and Type-B vents at a cost of $800

if higher flue-loss efficiency gas-fired

water heaters are mandated. (NEGA, No.

90 at 3). DOE estimates that at 78% RE,

about 10% of the households with gasfired water heaters in homes with over

5,000 heating degree days need Type-B

vent connectors; at 80% RE, about 25%

of these homes need Type-B vent

connectors and chimney relining. DOE

based its estimates on GRI data (GRI 91/

0298) modified for: gas-fired water

heaters in new homes (since 1994) that

use different venting systems; and the

current National Fuel Gas Code (NFGC),

which requires replacement furnaces

with higher efficiencies to have better

vents in existing installations. Since

1992, the DOE furnace energy efficiency

standards placed gas furnaces in a new

category of the NFGC and consequently

requires better vent systems in new

construction. DOE also determined that

Type-B vent connectors and chimney

relining, which might be needed in the

New England states, cost an average of

$508.

OOE claimed the GRI report shows

water heaters located in a conditioned

space have no special venting

requirements and no requirement or

cost for a Type-B vent connector. OOE

claimed Type-B connectors should be

used when water heaters are installed in

unheated spaces. Therefore, there is no

additional vent connector or flue

relining cost associated with higher

water heater efficiencies. (OOE, No. 44

at 5). OOE claimed there is no need for

Type-B venting or relining of chimneys

for a water heater with an 80% RE that

would not also be required for one with

a 76% RE. (OOE, No. 96 at 2). In order

to be conservative and provide a margin

of safety, DOE assumed up to 25% of

homes in cold climates with gas-fired

water heaters may need vent connectors

or relining of chimneys for 80% RE. We

included this assumption in both the

LCC and NPV analyses. It effectively

increases consumer costs.

Electro-Mechanical Flue Damper.

GAMA provided manufacturer costs to

include an electro-mechanical flue

damper and electronic ignition with a

gas-fired water heater. We used these

costs in the analysis.

Side-Arm Heater and Plastic Tank.

Our consultant provided manufacturer

costs for the side-arm heater for a gasfired water heater design because

GAMA received a response from only

one manufacturer and could not provide

this information for confidential

reasons. We considered costs for six

types of side-arm heater designs: 76%,

78%, and 80% RE designs using a metal

tank and electronic ignition, and 76%,

78%, and 80% RE designs using a

plastic tank and electronic ignition.

Based on our analysis, we determined

the cost increase of the 78% or 80% RE

designs were the same and were equal

to the cost of the improved flue baffle

design option. This means heat

exchanger costs for side-arm heaters

with 78% or 80% RE are equal. GAMA

disagreed with DOE’s cost estimate for

the side-arm heater design option;

however it did not provide any specific

information. (GAMA, No. 51 at 3).

Therefore, we are using our cost

estimate, absent any other information.

Furthermore, GAMA did not comment

on this issue at our July 1999 workshop.

Oil-Fired Water Heaters. GAMA did

not receive information from enough

manufacturers to allow it to aggregate

cost data for oil-fired water heaters.

Therefore, DOE relied completely on its

consultants’ cost data for each design

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25057

option considered for the oil-fired water

heater analysis. See Chapter 6.4.3 of the

TSD for details.

Bradford White suggested DOE only

increase the performance of oil-fired

water heaters by applying heat traps

because the burner is usually not

supplied with the tank and would

therefore need a conversion kit.

Bradford White also stated DOE’s cost

estimates for a conversion kit are too

low. (Bradford White, No. 89 at 3). DOE

considered two trial standard levels

using only heat traps for oil-fired water

heaters. However, the oil burner

manufacturer, who supplies most of the

water heater oil burners, provided our

cost estimates for the conversion kit.

d. Installation Costs

The installation cost is the cost to the

consumer of installing the water heater

and is separate from the retail price. The

cost of installation covers all labor and

material costs associated with the

simple replacement of an existing water

heater. Delivery, removal, and permit

fees are also included.

We established the installation costs

of baseline 50-gallon electric, 40-gallon

gas-fired, and 32-gallon oil-fired water

heaters from the same sources as the

retail price data. DOE assumed only the

3-inch insulation thickness would

increase installation costs for gas-fired

and electric water heaters installed

within a conditioned space based on

stakeholder comments and discussions

at the manufacturer interviews. Four

design options increased the cost of

installing a gas-fired water heater. They

are the improved flue baffle, electronic

ignition, electro-mechanical flue

damper, and side-arm heater.

In comments, ACEEE and VP claimed

installation costs differ in new

construction and in existing homes.

(ACEEE, No. 23 at 2 and No. 52 at 6; and

VP, No. 45 at 2). GAMA suggested

DOE’s analysis of revised water heater

standards should be based on installed

costs of replacement water heaters only.

(GAMA, No. 51 at 3–4). DOE used the

same installation costs for both markets.

We based these costs on replacement

costs because there are no cost

installation data for new construction.

New construction costs are combined

with the plumbing and venting costs

and we could not separate out the water

heater installation costs.

Installation Cost for 3 Inch Thick

Insulation. Thicker insulation creates a

larger water heater than the typical unit

sold today. VP claimed we should

account for the impact of increasing unit

size on installation ease and cost in

replacement applications. (VP, No. 45 at

3). Rheem and SC claimed customers

should not have to knock out walls and

ceilings or relocate a water heater

during replacement. (Rheem, No. 95 at

1 and SC, No. 84 at 2).

From the Residential Energy

Consumption Survey (RECS) 1993

public use data, 54% of water heaters

are located in a conditioned space. We

assumed at least 50% of those homes

would need the closet or an attic door

removed to facilitate water heater

replacement installation for 3 inch thick

insulation. We estimated this cost at

$160 using responses from water heater

installers and the 1996 Craftsman

National Construction Estimator. This

installation cost is for the removal and

replacement of door jambs for 50% of

all water heaters located in a

conditioned space. We assumed oilfired water heaters are not installed in

conditioned spaces and therefore this

cost is not applicable to oil-fired water

heaters.

We also do not believe people should

have to knock out ceilings or walls to

replace a water heater. Therefore, we

investigated the impact of reducing tank

volume by 20% on the first hour rating.

The first hour rating is a measure of how

much usable hot water can be supplied

by a water heater in one hour starting

from a fully heated tank. It is

determined by the DOE test procedure.

We believe that increasing the heating

element from 4.5–6 kW can adequately

compensate for the 10 gallons of storage

volume lost by a 20% reduction in a 50-

gallon electric water heater. We also

believe that a similar increase in gas

burner input rate can achieve the same

effect with gas-fired water heaters.

Venting Costs. If people replace their

gas-fired water heater located in a

conditioned space with one which has

a higher RE, then there may be

additional installation costs. In an

attempt to account for these costs, DOE

assumed a Type-B vent connector is

installed when replacing an existing

gas-fired water heater located in a

conditioned space with a water heater

with an RE of 78%, in 25% of homes in

climate regions exceeding 5,000 heating

degree days. Note that heating degree

days are the number of degrees the

average temperature is below 65°F. For

water heaters with flue baffles that

achieve 80% RE, we assumed a Type-B

vent connector is installed and a

masonry chimney is relined when

replacing an existing gas-fired water

heater located in a conditioned space in

25% of homes in climate regions

exceeding 5,000 heating degree days. In

comments, Bradford White, LaClede and

CNG stated we must add more

installation cost to gas-fired and oilfired water heaters for larger diameters

and heights, pressure and temperature

relief valves, relining masonry chimneys

and for condensate removal. (Bradford

White, No. 74 at 3; LaClede, No. 69 at

6; and CNG, No. 85 at 2).

DOE believes we have accounted for

the installation costs associated with

higher RE gas-fired water heaters. We

used installers’ estimates to calculate

the cost of installing Type-B vent

connectors and to determine the cost to

reline masonry chimneys. These

estimates are slightly higher than the

GRI estimates. We estimated the number

of homes needing Type-B vent

connectors for 78% RE gas-fired water

heaters from comments, and from an

AGA survey in a GRI report. (GRI–91/

0298). We also used the AGA survey

data to determine, by region, the

number of water heaters connected to

masonry chimneys. In the same manner,

we estimated installers would reline

25% of the masonry chimneys in

climate regions exceeding 5,000 heating

degree days when replacing an existing

gas-fired water heater with an 80% RE

water heater. DOE developed its

installation costs for Type-B vent

connectors and masonry chimney

relining based on the replacement

market and installers’ cost estimates for

a typical installation, which would

include the pressure and temperature

relief valve. See Appendix D–3 in the

TSD.

We did not raise the RE enough to

create condensation nor do we

anticipate higher installation costs for 2

or 2.5 inch insulation thicknesses.

Therefore, we added $160 for removal

and replacement of door jambs for 50%

of gas-fired water heaters with 3 inch

thick insulation located in conditioned

spaces. From the GRI data, we estimate

that 25% of households with gas-fired

water heaters in regions with over 5,000

heating degree days would need TypeB vent connectors at a cost of $114 for

78% RE. We estimated that 25% of

households with gas-fired water heaters

in regions with over 5,000 heating

degree days would need chimney

relining at a cost of $433 for 80% RE

gas-fired water heaters. This is about

one-half of the households with gasfired water heaters common vented with

gas furnaces.

Cost to Install Electricity. The three

remaining gas-fired water heater design

options (electronic ignition, electromechanical flue damper, and side-arm

heater) all require electricity to operate.

We used data from GRI to estimate the

number of households that would

require electricity. We also used GRI

data to estimate the cost of labor and

wiring and adjusted these estimates for

inflation to obtain 1998 cost estimates,

25058 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

see Chapter 8.4.5 in the TSD for more

details.

e. Maintenance Costs

The electro-mechanical flue damper

and the side-arm heater are the only

design options that increase a gas-fired

water heater’s maintenance cost. We

used the TSD water heater analysis for

the March 4, 1994, NOPR to estimate the

maintenance cost of the flue damper.

(59 FR 10464, March 4, 1994) In this

analysis, we assumed the flue damper

failed in the tenth year of operation. We

discounted the maintenance cost of the

flue damper at a 6 percent rate to get its

present value in 1998 dollars.

In response to a comment from

Battelle, we included the maintenance

cost to replace the side-arm heater

circulation pump. (Battelle, No. 66 at 9

and No. 83 at 11). We assumed 10% of

the installations would require a

replacement of the circulation pump

each year. We estimated the cost using

contractor estimates and the 1998/99

Grainger Catalog.

The intermittent ignition device (IID)

of gas-fired water heaters may incur

maintenance costs due to the failure of

the control module or the sensor. We

assumed the IID maintenance cost to be

equivalent to the maintenance cost of

replacing the standing pilot light and

therefore did not assign any incremental

cost to it.

With the exception of the electromechanical flue damper, the IID and the

side-arm circulation pump, information

gathered to date suggests there is

virtually no maintenance of residential

electric or gas-fired water heaters.

However, there were some suggestions

from the manufacturer interviews that

side-arm gas-fired water heater designs

may incur increased maintenance costs

due to clogging of the heat exchanger

from scaling associated with hard water,

but no data were identified or provided

to confirm this.

We included a typical annual

maintenance charge for oil-fired water

heaters. Since we anticipate that none of

the oil-fired water heater design options

will affect maintenance, this charge has

no bearing on the final engineering

analysis of the design options.

f. Determination of Markups for Retail

Prices

The retail price is the consumer cost

of the water heating equipment. We

determined the retail price for any

design option simply by multiplying the

manufacturer cost by the derived

markup for the particular product class.

We obtained a manufacturer cost-toretail price markup by dividing the

retail price by the manufacturer cost.

We performed this calculation

separately for electric, gas-fired, and oilfired water heaters. In the engineering

analysis, we assumed that the baseline

manufacturer cost-to-retail price markup

was constant for all design options

within a fuel class. Our approach results

in different average markups for each

fuel class in the engineering analysis.

In order to obtain the retail price, DOE

created the Water Heater Price Data

Base. This Data Base contains extensive

data on retail prices for electric and gasfired water heaters and very limited

information regarding retail prices of

oil-fired water heaters. While the data in

the Water Heater Price Database are

based on information from water heater

vendors in many regions of the U.S.

(e.g., large retailers, plumbing

wholesalers, small suppliers, web-sales

and utility representatives), the majority

of price information was gathered from

large retailers and plumbing

wholesalers. Although the database

lacks information on the number of

specific models sold, it contains actual

prices representative of many models.

We received the oil-fired water heater

retail prices from approximately 25 oil

equipment installers who buy water

heaters from manufacturers and sell

directly to consumers. In the case of oilfired water heaters, the retail price does

not include the cost of the burner,

which is typically purchased separately.

We determined an average price for

an existing baseline 50-gallon electric,

40-gallon gas-fired, or 32-gallon oil-fired

water heater with HCFC–141b foam

insulation . Since the length of the

manufacturer’s warranty affects the

price of the water heater, we originally

considered only water heaters with a

five year or less warranty as baseline

models. However, at the November 1998

workshop, water heater manufacturers

provided information that six-year

warranties are typical of those models

that are produced in large quantities

(i.e., baseline models). A longer

warranty period, in addition to raising

the price, also may indicate the

presence of some design features not

normally found in baseline models.

Based on this information, we have

changed the analysis to include water

heaters with warranties of six-years or

less in our baseline models.

The Water Heater Price Database

includes installation costs that are part

of the total cost to consumer. This price

includes miscellaneous fees such as the

delivery fee, removal fee, permit fee,

and parts fee. We applied additional

installation costs to some design

options’for example, to account for

replacing vent connectors, relining

masonry chimneys, or installing larger

water heaters in small spaces.

In their comments, AGA and EMPA

claimed the database is not

representative of all manufacturers or

states. (AGA, No. 49 at 5; EMPA, No. 50

at 3; and No. 88 at 4–6). NEEA, NWPPC,

ACEEE, Pacific Gas and Electric (PG&E)

and OOE claimed DOE’s retail prices are

too high or DOE’s incremental costs are

too large. They cited data from the

Eugene, Oregon Water and Light Board

or the California Residential Contractors

Program. (NEEA, No. 53 at 2; NWPPC,

No. 43 at 2; ACEEE, No. 52 at 6 and No.

93 at 4; PG&E, No. 94 at 4; and OOE, No.

44 at 6; and No. 76 at 10). We received

comments regarding the basis of the

markups. For example, the analysis only

included water heaters sold through

stores (ACEEE, No. 52 at 6); the data

may have been skewed by high sales

volume models used as loss leaders

(GAMA, No. 71 at 1); and the markup

results should be reasonably consistent

with prices found in the Northwest.

(OOE, No. 44 at 7).

In response to these comments DOE

collected more data to make the

database more representative. DOE

added more retail price data from

wholesalers and plumbing distributors.

DOE added price data from the Eugene

Water and Light Board’s database but

DOE added only a limited number of

these prices so that its database would

continue to be representative of regional

populations in the entire U.S.

Nevertheless, the addition of these data

did not significantly change the average

retail price of gas-fired or electric water

heaters. DOE believes its price database,

from more than 130 retail distributors

and plumbing wholesalers (representing

all 12 Census divisions and all five

major manufacturers), provides an

accurate representation of prices with

good regional representation.

OOE claimed a constant price should

not be used for the entire analysis

period because water heater prices

should match today’s prices in the

mature market of the Pacific Northwest

within 5–7 years after the imposition of

a standard. (OOE, No. 96 at 6). We

appreciate the price data provided by

OOE and we have used a portion of the

data in our national Water Heater Price

Database. However, we kept the prices

representative of each region in the U.S.

by maintaining a fixed relationship

between the number of water heater

prices and the population of each

region. See Chapter 5.2 in the TSD.

We obtained a manufacturer cost-toretail price markup by dividing the

retail price by the manufacturer cost.

Our approach results in different

average markups for each product class

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25059

(i.e., 1.49 for electric, 1.22 for gas-fired,

and 3.2 for oil-fired water heaters).

Since oil-fired water heaters are

essentially a niche product, the large

markup was not surprising. However,

several commenters believed that the

gas-fired water heater markup should be

nearly identical or identical to the

electric water heater markup. ACEEE

commented that DOE’s retail costs

showed inconsistent markups between

electric, gas-fired, and oil-fired water

heaters. (ACEEE, No. 52 at 6). GAMA

claimed the markup value for gas-fired

water heaters was too low because DOE

only sampled the retail market and

some of the models are direct vent

models. (GAMA, No. 51 at 4). GAMA,

AGA, EPRI, SC, CNG, and Bradford

White suggested DOE apply the same

markup to electric and gas-fired water

heaters. (GAMA, No. 51 at 4; AGA, No.

49 at 5; EPRI, No. 70 at 3; SC, No. 72

at 2; CNG, No. 85 at 3; and Bradford

White, No. 74 at 3). VP claimed there is

no justification for using one average

markup. (VP, No. 45 at 2). Battelle

claimed the gas-fired water heater

markup is too low. (Battelle, No. 83 at

8). SC did not believe retail markups for

electric water heaters are twice as high

as those for gas-fired water heaters. (SC,

No. 84 at 1). EPRI disagreed with DOE’s

markup approach because it raises the

price of heat traps differently for each

fuel and tank size. (EPRI, No. 41 at 4).

We derived the markups by

comparing retail prices to the baseline

costs provided by GAMA. We believe

these prices are representative of the

national market for residential water

heaters. Additionally, we applied our

approach uniformly to all fuel types.

Chapter 5 of the TSD provides a

discussion on retail prices.

E. Economic Analysis

1. Life-Cycle-Cost (LCC) and Payback

Analysis

In determining economic justification,

the Act directs the Department to

consider a number of different factors,

including the economic impact of

potential standards on consumers.

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

6295(o)(2)(B)(i)(I). The Act also

establishes a rebuttable presumption

that a standard is economically justified

if the additional product costs attributed

to the standard are less than three times

the value of the first year energy cost

savings. EPCA, § 325(o)(2)(B)(iii), 42

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

The payback, for purposes of the

rebuttable presumption test, attempts to

capture the payback to consumers

affected if a new standard is

promulgated. It compares the cost and

energy use of water heaters consumers

would buy in the year the standard

becomes effective with what they would

buy without a new efficiency standard.

DOE calculates a simple payback which

is the ratio of the increase in purchase

price (including installation) to the

decrease in annual operating expense

(including maintenance). In considering this factor, the

Department calculates changes in LCCs

to the consumers that are likely to result

from the proposed standard and two

different simple payback periods: the

median payback period and the test

procedure payback period. The

difference between these payback

calculations is due to the way we

calculate energy savings. The median

payback is based on the LCC analysis

using a derived amount of hot water

dependent on characteristics of each

household. The test procedure payback

is based on hot water usage of 64.3

gallons per day, the estimate of hot

water usage used in the DOE test

procedure. The effect of standards on individual

consumers includes a change in the

operating expense (usually decreased)

and a change in the purchase price

(usually increased). The net effect is

analyzed by calculating the change in

LCC as compared to the base case.

Inputs to the LCC calculation include

the installed consumer cost (purchase

price plus installation cost), operating

expenses (energy and maintenance

costs), lifetime of the appliance, and a

discount rate.

In addition to analyzing price and

energy cost effects on each household in

a national database, DOE also

determines which segments and what

size of the population, if any, may be

adversely affected. The Department has

decided to consider the LCC impacts on

low income and seniors-only consumer

subgroups in this rulemaking. We chose

the low-income subgroup because

higher water heater prices might affect

that subgroup more than the general

population. We chose the seniors-only

subgroup because many of them may be

in the low-income subgroup and

because they tend to use less hot water

than the general population. Lower

water usage could increase the payback

of some efficiency improvements.

The LCC and one of the payback

periods (median payback) are calculated

using the LCC spreadsheet model

developed in Microsoft Excel for

Windows 95, combined with Crystal

Ball (a commercially available software

program) based on actual distributions

of input variables. The LCC outputs

from this program are a range of values

that allow us to determine what fraction

of the population will benefit from

energy efficiency standards.

Based on the results of the LCC

analysis, DOE selects candidate

standard levels for a more detailed

analysis. The range of candidate

standard levels typically includes: (1)

the most energy-efficient combination of

design options or most energy-efficient

level; (2) the combination of design

options or efficiency level with the

lowest LCC; and (3) the combination of

design options or efficiency levels with

a payback period of not more than three

years. Additionally, candidate standard

levels that incorporate noteworthy

technologies or fill in large gaps

between efficiency levels of other

candidate standards levels may be

selected. 10 CFR Part 430, Subpart C,

Appendix A(5)(c)(3).

Table 4 lists the major input

distributions DOE used in the water

heater LCC analysis for the HFC–245fa

blowing agent. We also completed an

analysis for water blown insulation in

the TSD. We discuss many of these

assumptions briefly in this section. For

more details on the LCC analysis for

both blowing agents, please see Chapter

9 in the TSD.

TABLE 4.—INPUT DISTRIBUTION USED IN THE LCC ANALYSIS

LCC analysis assumptions

Description Assumption

Blowing agent ...................................................... HFC–245fa blowing agent.

Energy prices ...................................................... Marginal energy prices for incremental cost savings; average energy prices for base line

costs.

Future energy prices ........................................... AEO99 reference case to the year 2020 with extrapolations to the year 2030.

Discount rates ..................................................... 0–15% with an average about 6%.

Water heater prices ............................................. From the engineering analysis.

Installation costs & baseline retail prices ............ LBNL water heater price database.

Design option combinations ................................ From the engineering analysis.

25060 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

LCC Analysis Assumptions

Description Assumption

Markup ................................................................ Retail prices divided by GAMA’s manufacturing costs, calculated for each house in RECS ‘93.

Household characteristics ................................... 1993 RECS public use database, 5222 households.

Lifetime ................................................................ Electric, 4–19 years, most likely 12 years; gas and oil, 3–15 years, most likely 9 years.

Energy consumption ........................................... Using RE, standby losses and input heating rates from the engineering analysis and calculated with WHAM.

Daily hot water use ............................................. Based on number of people, tank size and type of appliances from RECS, and thermostat settings and location imputed from the RECS data; climate data from NOAA 30 year averages;

inlet water temperature and air temperature based on climate data.

To get data representative of all U.S.

residential households we used DOE’s

Energy Information Administration

(EIA) Residential Energy Consumption

Survey (RECS) for 1993. The RECS

public use data survey weights each

household so that the data properly

represent the 96.1 million households in

the 50 states and the District of

Columbia. The 1993 RECS public use

data survey provides information

concerning energy consumption in the

residential sector and contains a more

complete set of data for water heater

analysis than any other survey reviewed

and available for this study. The survey

contains basic data concerning

household characteristics from an

interview questionnaire and annual fuel

consumption and expenditures

(excluding transportation fuel) derived

from the records of fuel suppliers. It also

includes weather data (in the form of

heating and cooling degree days) and a

weighting variable. The households

included in the analysis (75% of the

RECS public use data) all have running

hot water, and an individual water

heater using one of four fuels:

electricity, oil, natural gas, or LPG.

Households without these features,

which did not report their water heater

size, or for which a marginal energy

price could not be calculated, are not

used in the analysis.

The Department has received

comments concerning the RECS data.

EMPA claimed the 1993 RECS public

use data is not valid, reliable, or

representative because the useable data

on electricity and gas consumption and

costs is from only a portion of the

households. (EMPA, No. 88 at 6). The

RECS public use data is the most

comprehensive national data set

concerning residential water heating

energy use. DOE used the entire data set

that pertains to the types and sizes of

water heaters in this rulemaking. We

believe this subset is nationally

representative and thus a valid data set.

a. Marginal Energy Price

DOE formerly used average energy

prices, but stakeholders objected

because these prices did not represent a

consumer’s true savings. For the LCC

analyses, the Advisory Committee on

Appliance Energy Efficiency Standards

recommended DOE use the full range of

consumer marginal energy prices

instead of national average energy

prices. Marginal energy prices are those

prices consumers pay (or save) for their

last units of energy used (or saved). The

Department agreed that marginal energy

prices would improve the accuracy of

the LCC analysis and estimated

marginal rates for electricity and natural

gas from the 1993 RECS database.

EIA gathered monthly energy bills

and energy consumption data for the

RECS public use data. It did not gather

information on rate schedules, fixed

charges, or marginal prices. DOE

estimated consumer marginal electricity

and natural gas prices directly from

household data in the 1993 RECS public

use data survey as the change in

household monthly energy bills divided

by the change in monthly energy

consumption for each fuel, referred to as

the change in monthly bill method. This

provides a precise marginal energy rate

based on actual household bills.

For electricity, DOE calculated the

slopes of the regression lines for four

summer months (June–September) and,

separately, for the winter (October–May)

months. DOE derived the annual

marginal price by taking the weighted

average of the two seasonal prices,

where the weighting used was the

relative energy consumption of the

appliance in each season. For water

heaters, the weighting was 28% summer

and 72% winter. For natural gas, DOE

calculated the slopes of the regression

lines at the annual level because there

was no seasonal difference in marginal

gas prices.

In order to understand and

characterize regional variations in

pricing and distribution of fuel oil and

LPG, we collected information relating

to pricing and distribution of fuel oil

and LPG. We learned that bills paid by

residential consumers for both fuel oil

and LPG are essentially volume-driven,

with a single block rate. We interpreted

the average prices inherent in those

bills, as reported in the RECS public use

data, as being equivalent to marginal

prices for the purposes of the LCC price

analysis.

Several stakeholders commented on

DOE’s marginal energy prices. EEI and

LaClede commented that marginal rates

from the RECS public use data did not

agree with EEI or AGA estimates. (EEI,

No. 67 at 1–2; and LaClede, No. 82 at

2). EEI claimed DOE overstates actual

electric costs by 12.8% due to the use

of Inflator93. (Inflator93 is a scaling

factor DOE used in an earlier analysis to

adjust electricity prices from 1993–

1998.) (EEI, No. 67 at 1–2). EMPA

claimed that DOE did not account for

the sampling and non-sampling errors

in the RECS public use data and that

DOE included fixed costs. (EMPA, No.

88 at 6–7).

We discovered that the Inflator93

coefficient in the July 1999 Workshop

Analysis was incorrect and we removed

it. There is no direct comparison

between DOE’s change in monthly bill

method and EEI’s and AGA’s method of

subtracting fixed costs because of

differences in the level of aggregation

(rate class vs. individual households),

sample set, and time period.

Furthermore, DOE believes a marginal

energy price based on subtraction of

fixed costs is not correct due to variable

rate schedules and seasonal rates. DOE’s

change in monthly bill method can and

does account for variable rates and

seasonal rates.

VP stated that statistical probability

analysis on many of the analysis inputs,

use of marginal energy prices, and

accurate conversion efficiencies provide

greater assurance that the final rule will

be appropriate and not overly

burdensome. (VP, No. 45 at 3). DOE

believes this is true. Our analysis

methodology uses distributions on

many analysis inputs, marginal energy

prices and conversion efficiencies

which change during the analysis based

on EIA forecasts.

We recognize there are sampling and

non-sampling errors in the RECS public

use data. However, these errors are

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25061

small and we expect they will have very

little impact on marginal energy rates.

For example, EIA compared the results

from RECS with the American Housing

Survey results and found the maximum

difference between the two surveys was

3.2%. EIA also compared results to

Consumer Expenditures (CE) estimates

by the Bureau of Labor Statistics and

found fuel expenditures for the CE were

2% higher for gas and 6% higher for

electricity.

DOE used projected future trends in

average energy prices to derive

estimates of future consumer marginal

energy prices for the economic analysis

of proposed standards. We created an

index (scaling factor) from the trend in

average prices (by fuel and sector) and

applied it to the 1993 marginal prices

calculated from the RECS public use

database. The index accounts for both

inflation and real energy price changes

and it is different than Inflator93. For

example, the average residential

electricity price declined by 20% from

1993–1998, so we assume the marginal

price for each household declines by

20% over the same period of time.

b. Future Energy Prices

Given the uncertainty of projections

of future energy prices, DOE used

scenario analysis to examine the

robustness of proposed energy

efficiency standards under different

energy price conditions. The LCC

calculations used these scenarios. Each

scenario integrates energy supply and

demand into its energy price. The

scenarios differ in the energy prices that

result. The Advisory Committee on

Appliance Energy Efficiency Standards

suggested the use of three scenarios

with high, low, and middle levels of

energy prices because three scenarios

should be sufficient to bound the range

of energy prices. This is also the

guidance provided in the Process Rule,

10 CFR 430 subpart C, appendix A

13(b).

The EIA’s 1999 Annual Energy

Outlook (AEO99) reference case

provides a middle scenario. For the high

and low energy price scenarios, DOE

used the scenarios with the highest and

lowest energy prices in the economic

sector and the fuel of interest from

AEO99. DOE also used the reference

case from the GRI projection, 1998 GRI

Baseline Projection: Residential Natural

Gas, Electricity, and Distillate Fuel Oil

Prices Tables. The future trend in

energy prices assumed in each of the

four scenarios is clearly labeled and

accessible in each spreadsheet.

Stakeholders can substitute alternative

assumptions in the spreadsheets to

examine additional scenarios as needed.

c. Discount Rates

The Process Rule states that DOE will

establish real (adjusted for federal taxes)

discount rates for residential consumers

by considering a range of three different

real discount rates: credit card financing

rate, a rate based on consumers having

substantial savings, and a mid-range

rate. 10 CFR 430, subpart C, appendix

A13(d). The mid-range discount rate

will represent DOE’s approximation of

the average financing cost (or

opportunity cost of reduced savings)

experienced by typical consumers.

Based on the guidelines from the

Process Rule, we derived a distribution

of discount rates to reflect the variability

in financing methods consumers can

use in purchasing water heaters. The

real interest rate associated with

financing an appliance purchase is a

good indicator of the additional costs

incurred by consumers who pay a

higher first cost, but enjoy future

savings, although it is not the only

indicator of such costs. While the

method used to derive this distribution

relies on a number of uncertain

assumptions regarding the financing

methods used by consumers, DOE

believes the resulting distribution of

discount rates encompasses the full

range of discount rates that are

appropriate to consider in evaluating

the impacts of standards on consumers

(i.e., values represented by the midrange financing cost, consumers with no

savings, and consumers with substantial

savings), as well as all the discount rates

that fall between the high and low

extreme values.

DOE assumes the method of purchase

used by consumers is indicative of the

source of the funds and the type of

financing used, although DOE is not

aware of detailed research into this

relationship. Whirlpool Corporation

indicated that approximately 40% of

white goods are purchased in cash, 35%

with credit cards, and 25% with retailer

loans. (1994 Eight Product Notice of

Proposed Rulemaking, 59 FR 10464,

March 4, 1994.) The same manufacturer

indicated that 25% of appliance

purchases are for new homes. However,

we know consumers purchase 20% of

water heaters with new homes, i.e., in

mortgages, and 80% as replacements for

existing water heaters in separate retail

purchases. Consumers pay for retail

purchases by cash, credit cards, or

loans. In the case of water heating

equipment, we assumed consumers

would usually use credit cards because

most water heater purchases are

emergency replacements. In order to

derive a full distribution of discount

rates, DOE estimated a range of interest

rates, based on historical data and

judgments of future trends, for different

types of consumer savings or financing.

For new housing, the estimated

nominal mortgage rate ranges from 5–

8%, the derived after-tax rate is based

on a tax of 28%, and a 2% inflation rate

is subtracted from the total. The result

is a range of real mortgage rates from

1.60%–3.76%. Example: 5%*(100%–

28%)–2% =1.6%.

For cash, the minimum interest rate is

0%. This rate applies to consumers

making cash purchases without

withdrawing from savings accounts or

interest bearing checking accounts. For

the maximum rate, the opportunity cost

is the interest that could have been

earned in a savings account or mutual

fund. The historical nominal maximum

savings rate ranged from 4.5–5.5% from

1970–1986 (real rates of –8.27 to

+3.58%). We believe the current

maximum is the opportunity cost

represented by the interest earned in a

typical mutual fund (assumed to be 6%

real). DOE selected a real rate of 3% as

the mean.

DOE assumed the interest rates for

retail loans and credit cards have the

same range. The minimum credit card

rate is 6% real. Introductory rates on

some credit cards today are 5.9%

nominal, but after the introductory

period (often six months), the rate can

increase sharply. Maximum rates are

more than 20% nominal. However, if

the consumer pays with a credit card

and the balance is paid in less than the

life of the water heater, then the

effective interest rate is lower than the

nominal credit card rate. The current

assumption is a range of 6–15% real.

Combining the assumed shares of

each financing method, the above real

interest rates result in a weightedaverage (mean) value of 6% and a

distribution that varies from 0–15%.

Sensitivity studies show that while the

LCC results are sensitive to the value

chosen for the mean discount rate, the

LCC results are not sensitive to the

distribution of discount rates.

DOE believes the methods described

above are valid for establishing a

distribution of discount rates relevant to

most purchasers of the products covered

by this rulemaking. However, the

Department acknowledges that different

assumptions could be made about likely

interest, inflation and marginal tax rates,

or about consumer financing methods,

and that different approaches to

identifying consumer discount rates

might also be valid. For example, it is

possible to base consumer discount

rates on the average real rates of return

on consumer investment or other

measures of the opportunity costs

25062 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

incurred by consumers who purchase

the covered products. DOE does not

believe, however, such alternative

assumptions or alternative approaches

would significantly alter the range of

discount rates used by the Department

or the conclusions drawn from the LCC

analyses conducted using these

discount rates.

The Department is seeking any

information that would support

significant alterations in the range or

distribution of the discount rates

derived from its analysis. Alternatively,

DOE is soliciting comment on the

possible use of a standardized

distribution of discount rates ranging

from approximately 4–12%, with a

mean of 6%. The use of such a

standardized distribution would

explicitly recognize the many

uncertainties associated with DOE’s

current analysis and, based on

sensitivity analyses already performed

by DOE, such a standardized

distribution would not significantly

alter the conclusions of DOE’s life cycle

cost analyses.

Two stakeholders, EEI and EMPA,

claimed the discount rates in the LCC

appear to be very low for consumers.

(EEI, No. 39 at 7 and EMPA, No. 50 at

2). They do not reflect the actual

consumer purchasing behavior as

measured by an implicit discount rate.

Such discount rates are often higher.

DOE policy is to base discount rates on

average financing costs (or opportunity

cost of reduced savings) experienced by

typical consumers.

d. Household Characteristics

The 1993 RECS public use data

provide a sample of 7,111 households

from the population of all primary,

occupied residential housing units in

the U.S. Of the 7,111 households, we

use 5,222 household records in the

analysis and we assume these

households are representative of

housing on a national scale. The

households included in the analysis (see

Table 5) have four defining features:

1. Water heater size

2. An individual water heater

3. One of four fuels: electricity, oil,

natural gas, LP gas

4. Billing data for electric and gas-fired

water heaters and gallons of fuel oil

or LPG used

Of the households not included,

11.8% shared water heaters or used

other fuels; these water heaters are not

subject to this rulemaking. Of the

remaining households not included,

6.2% had no water heater size indicated

and 8.2% had insufficient billing data

for energy price analysis.

EEI commented that the RECS public

use data are more than five years old.

(EEI, No. 39 at 3 and No. 67 at 1). The

detailed 1997 RECS public use data

were released in mid-January 2000.

However, the Department has not had

an opportunity to analyze the impact at

this time. We will, however, determine

the impacts of this updated information

for the final rule. We have accounted for

the age of the energy price data by

adjusting the 1993 data to represent

1998 prices. We did this by multiplying

the 1993 data by the ratio of the average

annual energy prices from the EIA AEO

between 1993 and 1998.

Table 5 provides some information

about households in the 1993 RECS

public use data used in the LCC

analysis. The weighted number of

households are the total households

represented by the RECS data. The

average hot water use is not from RECS

but is determined from the results of a

California Energy Commission (CEC)

study of hot water usage. We have

included the average water heater set

point and average inlet water

temperature, which are not part of the

RECS public use data. These are derived

from the location of the household using

the National Oceanic and Atmospheric

Administration’s (NOAA) 30-year

(1961–1990) database of average air

temperatures to estimate average annual

outdoor and inlet water temperatures

(NOAA database: www.ncdc.noaa.gov/

ol/climate/online/ccd). A more

complete discussion of the data not

from RECS is found in section III.E.2.d.,

Energy Analysis Module.

TABLE 5.—1993 RECS HOUSEHOLD CHARACTERISTICS

Gas Electricity LPG Fuel Oil All Fuels

Number of Households (records) .................................................. 2475 2323 248 176 5222

Number of Households (weighted) ................................................ 35,959,707 30,279,600 2,540,960 1,807,350 70,587,617

Household Size (average number of people) ................................ 2.79 2.58 2.70 2.87 2.70

Clothes Washer (percent saturation) ............................................. 89.2 82.0 89.1 96.6 86.3

Dishwasher (percent saturation) .................................................... 52.4 49.1 32.5 56.8 50.4

Average Thermostat Set point (deg F) .......................................... 134.6 133.5 135.0 137.5 134.2

Average Inlet Water (deg F) .......................................................... 57.1 59.1 56.3 51.8 57.8

Average Hot Water Use (gallons per day) .................................... 48.6 45.4 47.3 47.3 47.1

Low Income Households (percent of total) .................................... 5.68 5.69 0.64 0.12 12.13

Senior-Only Households (percent of total) .................................... 8.13 7.66 0.72 0.39 16.90

Senior-Only and/or Low income (percent of total) ........................ 12.59 12.17 1.17 0.492 6.42

Stakeholders raised concerns about

the RECS data. Battelle commented that

some fraction of households in the

RECS database incorrectly identifies

fuel type of water heaters. (Battelle, No.

66 at 5).

Battelle and AGA claimed DOE

‘‘fabricated data not in the database.’’

They believe this has led to higher

average set point temperatures for gas

water heaters (134.5°F for gas vs.

133.7°F for electric), cooler air

temperatures where the water heater is

installed (55.1°F for gas vs. 56.7°F for

electric), and colder entering water

temperatures (57.3°F for gas and 58.7°F

for electric). (Battelle, No. 83 at 2 and

AGA, No. 92 at 3).

Set point temperature, air

temperatures and entering water

temperatures are not in the RECS

database. To obtain the set point, air and

entering water temperatures, the

Department used the following

approach. DOE used heating degree

days to determine an approximate

location for each household. This is

necessary because household locations

are confidential. Based on the location,

we used the 30-year NOAA data to

determine the average air temperature.

We derived cold water inlet

temperatures based on the average

annual air temperature. (NOAA

database: www.ncdc.noaa.gov/ol/

climate/online/ccd). From a study by

the CEC (CEC, 1990, Report No. P400–

90–009), DOE has inferred the set point

temperature based on the cold water

inlet temperature. This methodology is

applied equally to all of the RECS

public use data—gas, oil and electric.

Any difference in the results among

fuels is due to regional differences of

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25063

saturations of water heater fuel types

and not to the data that DOE uses.

Battelle disagreed with DOE’s

preliminary results showing average

daily water use of 48.5 gallons per day

for households with gas-fired water

heaters versus 45.4 gallons per day for

households with electric water heaters.

Battelle claimed DOE’s results will

increase the energy used by 3.3% and

will cause 3.2% more standby losses for

gas water heaters. (Battelle, No. 83 at 3).

DOE believes the differences in average

energy use and standby losses between

gas and electric water heaters are due to

regional differences in numbers of water

heaters by fuel type and household size,

among other factors. These differences

are not caused by inadequate data.

e. Lifetime

Appliance Magazine was the source

of information for water heater lifetimes.

We created a triangular distribution

using 4–19 years as the base for electric

water heaters and the most likely value

of 12 years as the peak. Similarly, for

gas-fired water heaters the base is 3–15

years with the most likely value at 9

years. We assumed that oil-fired water

heaters have the same lifetime as gasfired water heaters.

2. LCC Spreadsheet Model

In order to simplify handling large

amounts of input data, the water heater

LCC analysis spreadsheet has five

modules. The modules are LCC and

Payback, Equipment Cost, Operating

Cost, Energy Analysis, and Hot Water

Draw. Chapter 9 in the TSD contains a

detailed discussion of the spreadsheet

and the individual modules.

a. LCC and Payback Module

The LCC analysis uses a spreadsheet

model developed in Microsoft Excel

combined with Crystal Ball (a

commercially available software

program). The model uses a Monte Carlo

simulation to perform the analysis while

considering uncertainty and variability

of many input values. Crystal Ball is a

program that provides risk analysis

capabilities to help analyze the

variability and uncertainties associated

with the data. We organized the

spreadsheet so ranges (distributions) are

entered for each input variable needed

to perform the calculations.

Recognizing that each household is

unique, we accounted for variability in

the model by performing the LCC

calculation for a large number of

individual households. The Monte Carlo

simulation samples individual

households from the RECS public use

data. The results show the fraction of

households having a particular LCC and

payback.

For the LCC calculations, we

randomly sampled the set of households

10,000 times. The analysis used separate

LCC spreadsheets for each fuel type

(electricity, natural gas, and fuel oil) and

blowing agent (water and HFC–245fa).

Chapter 9.1 of the TSD describes the

sampling methodology and contents of

the RECS public use data.

In comments, EMPA claimed 10,000

Monte Carlo runs are not enough, and

consumers’ actual savings depend on

their specific energy prices and amount

of usage of the appliance. (EMPA, No.

88 at 2–7). AGA claimed manufacturers’

costs and consumer prices are correlated

so DOE should use a correlated Monte

Carlo approach. (AGA, No. 92 at 5).

We believe 10,000 Monte Carlo runs

are sufficient because, when tested at

20,000 runs, there was less than 1%

difference in the results. The

manufacturers’ cost data is not

connected with a specific model but is

only provided as a cost distribution.

Therefore, manufacturers’ costs and the

prices in the Lawrence Berkeley

National Laboratory (LBNL) price

database cannot be correlated. There is

no one-to-one correlation between the

cost of a specific model to the price for

that same model because GAMA only

provided cost distribution data.

We analyzed all design options for

water heaters as if they were at

production levels equivalent to the

typical existing baseline models, i.e.,

possessing similar economies of scale.

We performed the LCC analysis

separately for each energy source:

electric, gas (including LPG) and oil. We

calculated the analysis twice, once for

water-blown insulation and again for

HFC–245fa blown insulation. The LCC

analysis does not address fuel choice;

this is addressed in Section F, National

Energy Savings and Shipments. See

Section IV.A.1.a of this notice for the

results of the LCC analysis.

The Department calculates payback

and LCC for each design option

combination and compares it to the

2003 baseline model for every sample

household.

b. Equipment Cost Module

Equipment cost represents the sum of

the retail price, sales tax, and

installation costs. We calculated the

retail price from the manufacturer’s cost

multiplied by an overall markup.

GAMA provided estimates of water

heater manufacturing costs for typical

existing baseline models. The source of

the retail price, the sales tax, and the

installation cost of existing baseline

models is the Water Heater Price

Database, which is described in Section

III.D.3.e. See Chapter 5.3 of the TSD.

In its analysis for the November 1998

workshop, we estimated the

manufacturing costs for all other

standard size existing baseline water

heaters based on the manufacturing cost

for the typical water heater plus (or

minus) incremental costs for extra foam

insulation, sheet metal, and other

components. We determined the retail

price of each combination of design

options by multiplying the

manufacturing cost times the markup.

See Chapter 7 on markups and Chapter

9.5 in the TSD for a complete discussion

of this.

AGA claimed DOE used average

markups in the LCC. (AGA, No. 92 at 5).

DOE does not use average markups in

the LCC. As described above, we

calculate an overall markup for each

RECS household by dividing a

randomly chosen retail price from the

Water Heater Price Database by a

randomly chosen manufacturing cost

from the cost distribution data for each

standard-size existing baseline model.

We apply this markup to all of the

subsequent design options for that

household. We limited the markup

algorithm to ensure the retail price was

never lower than the manufacturing

cost.

c. Operating Cost Module

Operating a water heater involves two

costs: Fuel to operate the water heater

and maintenance to keep the water

heater running properly. Fuel costs

depend on the water heater’s energy

usage and the per-unit cost of fuel.

Maintenance costs depend on water

heater design and were determined from

consultants’ discussions with

manufacturers and installers.

In the LCC analysis, we calculate the

operating cost for the baseline product

class (fuel type) for each household in

the RECS database using average annual

energy prices. For each design option or

combination of design options, we

multiply the energy savings by the

marginal energy price. The operating

cost is the baseline operating cost minus

the operating cost savings for the

particular design option or combination

of design options. Therefore, we apply

marginal energy prices to only the

portion of total operating cost resulting

from improved energy efficiency.

To account for future uncertainties,

we apply various scenarios of projected

future energy prices (trends by national

average) to each household’s marginal

energy price. After we adjusted for

inflation and energy price changes, we

adjusted energy prices for the RECS

public use data from the starting year by

25064 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

the projected average future energy

prices. Thus, each sample house from

the RECS public use data has four

different future annual energy price

series associated with it. We estimated

future annual operating costs as annual

energy use multiplied by the annual

energy price series for each of the four

scenarios: AEO99 High Growth, AEO99

Reference Case, AEO99 Low Growth,

and the 1998 GRI Baseline Projection.

The user can choose from among these

four scenarios in the spreadsheets or can

input his or her own price forecast.

d. Energy Analysis Module

Since we can write WHAM as an

equation, DOE used it in the LCC

spreadsheets to quickly and reliably

estimate residential water heater energy

consumption. We validated WHAM

with the TANK and WATSIM

simulation programs for gas-fired and

electric water heaters for many water

heater characteristics. The WHAM

results were within 3% of predicted

energy consumption for electric, and

within 5% of predicted energy

consumption for gas-fired water heaters.

Three parameters—RE, UA and rated

input power—describe the efficiency

characteristics of the water heater. The

operating conditions of the water heater

are the average daily hot water used,

inlet water temperature, hot water outlet

temperature, and air temperature

around the water heater.

We used the RE and standby heat loss

coefficient values from computer

simulations developed for the

Engineering Analysis and rated input

power from manufacturers’ product

literature to describe the energy

performance of water heaters.

WHAM uses the average daily hot

water consumption for each household

calculated by the Hot Water Draw

Module, discussed below. We

calculated temperatures for inlet water

and the air surrounding the water heater

from the outdoor air temperature and

the location of the water heater in the

house. The RECS public use database

provides data on heating and cooling

degree days, but not air or water

temperatures, for each household in the

sample. Each household was assigned to

the climate zone within its reported

Census division with the closest number

of heating and cooling degree days for

1993. Once each household was

associated with a climate zone, we made

other temperature assignments from

NOAA’s 30-year average annual

temperatures. (NOAA database:

www.ncdc.noaa.gov/ol/climate/online/

ccd).

To assign hot water outlet

temperatures for households, we

derived an equation from a CEC study

that measured delivered water

temperature and cold water

temperatures. (CEC, 1990, Report No.

P400–90–009) The equation derived

from the CEC data indicates that the

water heater set point varies inversely

with inlet water temperature. For every

degree the average inlet water

temperature increases, the hot water set

point temperature decreases about half

a degree. See Chapter 9.3.4 in the TSD

for a discussion of the CEC data.

e. Hot Water Draw Module

Hot water use varies widely among

households because it is dependent on

household and water heater

characteristics, including the number

and age of the people who live in the

home, the presence of appliances using

hot water, the tank size and thermostat

setting of the water heater, and the

climate in which the home is situated.

By accounting for these five

characteristics, the hot water draw

model estimates average daily hot water

used.

There is a degree of uncertainty in

estimating hot water use because of the

limited data on measured actual hot

water use. We estimate uncertainty

attached to the weighting factors using

normal distributions for parameters

provided in the 1985 EPRI study. Based

on the 1985 EPRI study, ‘‘Electric Water

Heating for Single-Family Residences:

Group Load Research and Analysis,’’

LBNL developed values for daily hot

water used for the number and age of

people living in the home and for the

presence of appliances. (1996. LBNL–

37805)

RECS provides data on the number

and age of household occupants,

presence of a clothes washer or

dishwasher, and three ranges of water

heater tank size: small, medium, and

large. For this analysis, however, we

needed specific water heater sizes. By

matching the three RECS ranges (small,

medium, and large) with the standard

water heater sizes, we assigned an exact

water heater size to each RECS house.

Generally, small is equivalent to 30

gallons, medium to 40 gallons, and large

to 50 gallons or larger.

3. Consumer Subgroup Analysis

In the Process Rule, DOE committed

to considering the LCC impacts on

consumer subgroups who might be

uniquely affected by a rulemaking.

Process Rule, Appendix A (11)(d). DOE

used LCC as the metric to determine

consumer impacts. See Chapter 10 in

the TSD for consumer subgroup

analysis.

The Consumer Subgroup Analysis for

water heaters estimates the variation in

energy consumption and LCC for

different subgroups of consumers under

different trial standard levels. Of

particular interest is the potential effect

of standards on households with low

incomes and on seniors over 65. DOE

identified these two subgroups from

stakeholder input at the water heater

workshop on November 11, 1998. The

analysis answers questions such as:

How many households of this type are

better off with standards and by how

much? How many households are worse

off and by how much?

By comparing the LCC of all

consumers to the LCC of the specific

consumer subgroups referenced above,

we determine if the standards will affect

those subgroups differently. DOE made

these determinations for each trial

standard level for low income and

seniors-only households.

AGA stated DOE must provide

statistical support for the way the RECS

data are used in the Consumer Subgroup

Analysis. (AGA, No. 68 at 6). There are

a total of 484 records for low income

households and 779 records for senioronly households in the RECS database.

Most of the low income or senior-only

households have either a gas-fired or

electric water heater. DOE used the

RECS data because it is the most

complete and largest database publicly

available.

4. Payback Analysis for Rebuttable

Presumption

The Act establishes a rebuttable

presumption that a standard is

economically justified if the additional

product costs attributed to the standard

are less than three times the value of the

first year energy savings. Section

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

(o)(2)(B)(iii).

The payback period measures the

amount of time needed to recover the

additional money the consumer invests

in increased efficiency through lower

operating costs. Numerically, the

payback period is the ratio of the

increase in purchase (and installation)

price to the decrease in annual

operating expenditures (including

maintenance) from replacing the 2003

baseline water heater with a water

heater incorporating another more

efficient design option.

For purposes of the rebuttable

presumption test, DOE identifies the

design options with the highest

efficiency that have a payback of no

more than three years. Since the Act

requires that the rebuttable presumption

be based on the DOE test procedure, it

is determined in the engineering

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25065

analysis. See section IV.A.1.c. of this

notice for these results.

F. National Impacts Analysis

1. Net Present Value (NPV) and Energy

Savings

The national impacts analysis

assesses the NPV of total consumer LCC

and energy (and water, if appropriate)

savings. A preliminary assessment of

the aggregate impacts at the national

level is conducted for the NOPR.

Analyzing impacts of Federal energyefficiency standards requires a

comparison of projected U.S. residential

energy consumption with and without

standards. The base case, which is the

projected U.S. residential energy

consumption without standards,

includes the mix of efficiencies being

sold at the time the standard becomes

effective. Sales projections together with

efficiency levels of the water heaters

sold, are important inputs to determine

the total energy consumption due to

water heaters under both base case and

standards case scenarios. The

differences between the base case and

standards case provides the energy and

cost savings. Depending on the analysis

method used, the sales under a

standards case projection may differ

from those of a base case projection.

The Department estimates national

energy and water, if applicable,

consumption for each year beginning

with the expected effective date of the

standards. National annual energy and

water savings are calculated as the

difference between two projections: a

base case and a standards case.

Analysis begins with estimated energy

savings by fuel type for electricity,

natural gas, LPG, and oil. DOE estimates

energy consumption and savings based

on ‘‘site energy’’ (kWh of electricity,

million Btu of natural gas, LPG or oil

used in the home). The Act defines

‘‘energy use’’ as the ‘‘quantity of energy

directly consumed by a consumer

product at the point of use, determined

in accordance with test procedures

under Section 323.’’ Section 321(4), 42

U.S.C. 6291(4). This is generally called

‘‘site’’ energy as opposed to ‘‘source’’

energy, which includes transportation

and generation losses.

The energy savings to the nation are

expressed in quadrillions of Btu’s of

‘‘source’’ energy. The National Energy

Savings ( NES) spreadsheet model first

calculates the energy savings in site

energy, kWh or Btu, and then uses a

time series of conversion factors to

convert site energy to source energy.

This was a recommendation by the

Appliance Efficiency Advisory

Committee that the Department

implemented recently. The conversion

factors are derived from the AEO99

(DOE/EIA–0383).

Measures of impact reported include

the NPV of the energy savings in dollars

and the energy savings at the source.

Each of the above are determined for

selected trial standard levels. These

calculations are done by the use of a

spreadsheet tool called the NES

spreadsheet model, which has been

developed for all the appliance

standards rulemakings and tailored to

each specific appliance rulemaking.

In the water heater rulemaking, the

NES spreadsheet model also forecasts

fuel type market shares to new housing

completions. Fuel switching may be

caused by price increases of gas-fired

and/or electric water heaters due to

standards or other government agency

actions. DOE examines several scenarios

in order to include the range of

possibilities for different market shares

of electric and gas-fired water heaters

(see Chapter 11.3 of the TSD).

2. National Energy Savings (NES)

Spreadsheet Model

Table 6 lists the major assumptions

that DOE used in the water heater NES

analysis. We discuss many of these

assumptions briefly in this section. We

discuss in more detail below our

shipment analysis because shipments

are an important input to the NES

analysis. The shipment model predicts

the number of water heaters expected to

be sold each year between 2003 and

2030. For more details on the NES

analysis, please see Chapter 12 in the

TSD.

TABLE 6.—ASSUMPTIONS USED IN THE NATIONAL ENERGY SAVING ANALYSIS

National energy savings assumptions

Description Assumption

Real Discount Rate and Year of the NPV ............................................... 7% discounted to the year 1998.

Start Year of New Standards ................................................................... 2003.

Energy Savings ........................................................................................ Source Consumption.

Average Marginal Energy Price ............................................................... From the LCC analysis adjusted to 1998$.

Average Retail Prices and Installation Costs ........................................... From the LCC analysis.

Energy Price Projections to 2020 ............................................................. AEO99.

Extrapolation of Energy Prices to 2030 ................................................... For petroleum, we use the average world oil price with markups from

2020; for gas, we use the average growth rates from 1997–2020

with margins from 2020; electricity prices are constant at 2020 levels.

Electric Source to Site Conversion Factors ............................................. Time variant values from AEO99.

Gas Source to Site Conversion Factors .................................................. 0.9 from AGA.

Voluntary Programs .................................................................................. Included in the base case via historical shipments data.

Annual Unit Energy Consumption ............................................................ Values from the engineering analysis are market weighted by shipments forecasts.

Base Case ................................................................................................ Electric: 80% low efficiency, 20% high efficiency.

Gas-fired: 70% low efficiency, 12% medium efficiency, 18% high efficiency.

Oil-fired: 80% low efficiency, 15% medium efficiency, 5% high efficiency.

The NES spreadsheet model

determines the total source energy

savings and the NPV of these savings.

The model calculates net savings each

year as the difference between total

operating cost savings and total

equipment cost increases. The NPV

calculations also capture any differences

in maintenance costs. NPV greater than

zero indicates net savings (i.e., that the

standard reduces consumer

expenditures in the standards case

25066 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

relative to the base case). NPV less than

zero indicates that the standard incurs

net costs. The elements of the NPV also

can be expressed as a benefit/cost ratio.

The benefit is the savings in decreased

energy expense, while the cost is the

increase in the purchase price due to

standards relative to the base case.

When the NPV is greater than zero, the

benefit/cost ratio is greater than one and

benefits exceed costs.

We determine equipment costs from

the increased purchase price associated

with the higher energy efficiency of

appliances purchased in the standards

case compared to the base case. We

calculate equipment costs as the

difference in the purchase price

between the base case and trial standard

levels for new water heaters purchased

each year, multiplied by water heater

sales. We accounted for the number of

water heaters sold each year by tracking

shipments of new water heaters and the

average lifetime of each market share by

trial standard levels. We determine the

retail prices of the baseline design and

the higher efficiency design options

from the LCC Analysis. Purchase price

includes the water heater installation

cost.

Reductions in operating costs

associated with the higher energy

efficiency of water heaters purchased in

the standards case—compared to the

base case—create savings. Total

operating cost savings are the product of

savings per unit and the number of units

of each age that continue to operate in

a particular year. We accounted for the

mix of different efficiencies each year

using an average annual unit energy

consumption weighted by the

percentage of water heaters in the

market.

DOE calculates national energy

consumption for the base case and each

trial standard level by multiplying the

average energy consumption by water

heater age times the number of water

heaters of that age still in the stock. This

yields an estimate of the national total

energy consumption for a year. We

calculated annual NES as the difference

between the total energy consumption

for the trial standard level and the base

case. We summed the annual NES to

obtain cumulative energy savings over

the period 2003–2030. Then using

energy conversion rates from the EIA’s

AEO99 or from AGA, we can calculate

the source energy consumption and

savings. Energy conversion rates

account for generation and distribution

losses of electricity and transportation

and pumping losses of natural gas.

DOE’s proposed standard is only based

on the AEO99 reference energy price

forecasts, although we consider the high

and low economic forecast.

NPV in a Saturated Market

NPV is the (discounted) difference in

national water heater expenditures

between the standard and base cases.

Standards generally lower the average

operating cost of appliances, but

increase the average first (equipment)

cost. Also, standards can cause

consumers to make different purchase

decisions, either choosing another

product, e.g., room air conditioner

instead of central air conditioners, or

another fuel type, e.g., electric to gas.

NPV accounts for these shifts.

Water heaters constitute a saturated

market (96% of households)—standards

are not expected to affect the percentage

of households using a water heater.

However, standards may affect the fuel

type mixture of the water heater market.

In calculating the NPV, the NES model

accounts for two effects, the operating

expenditures and increase in purchase

price of the more efficient water heaters.

The shipments model, an input to the

NES, forecasts the change in market

share of the various fuel types in

response to the different standards.

These shipment changes, due to

purchase price, are reflected in the NES

calculation of NPV.

Since trial standard levels 1 and 3 are

the same for gas water heaters, one

would expect the NPV for these two

levels to be the same. The individual, or

unit, change in purchase price and

operating expenditures are the same for

the two trial standards levels, however,

the shipment model forecasts are

different for gas and electric water

heaters. These different shipment

forecasts cause the aggregate equipment

expenditures and operating costs to

differ for the two trial standards levels.

Because of the higher cost of electric

water heaters in trial standard level 3,

the market share of electric water

heaters is predicted to decrease. In the

period between 2003 and 2030, the

shipment model predicts about five

million fewer electric water heater

shipments in trial standard level 3 than

in trial standard level 1. This loss in

shipments of electric units is (roughly)

compensated by an equivalent gain in

gas unit shipments.

NPV, combined across fuel types,

includes the effect of market share

changes caused by standards. For a

saturated market, which is the case with

water heaters, this accounts for the

effects on the nation of standards.

Considering NPV separately by fuel type

can be misleading because changes in

shipments among fuel types (market

effects due to price increases) can

obscure the expected national energy

savings due to improved efficiency

across all product classes. For a

complete discussion of this topic, see

sections 12.2 and 12.5 of Chapter 12 in

the TSD.

a. Shipments

One of the more important

components of any estimate of future

economic impact is shipments.

Forecasts of shipments for the base case

and the standard case need to be

obtained as an input to the NES. Table

7 lists the major assumptions that DOE

used in the water heater shipments

analysis. We discuss many of these

assumptions briefly in this section. For

more details on the shipments analysis,

please see Chapter 11 in the TSD.

TABLE 7.—ASSUMPTIONS USED IN THE SHIPMENTS ANALYSIS

Shipments analysis assumptions

Description Assumption

Base Case .......................................................... Based on historic data and new housing starts, projected to 2030.

Existing Homes ................................................... Replace water heaters with units of the same fuel type. 96% of housing units have water heaters of the type analyzed here.

New Construction ............................................... Have a fuel choice, 96% of homes have a residential water heater of one of the four major

fuel types. Number of housing units based on Census data and EIA forecasts.

Market Saturation in New Construction .............. Based on fuel price, equipment price and household income.

Implicit Discount Rates ....................................... Electric 191%, Gas-fired 83%, Oil-fired 124%, LPG 83%.

Cost Elasticities .................................................. From a 1979 Oak Ridge National Laboratory study, see Table 11.3 in the TSD.

Fuel Prices .......................................................... AEO99 and GRI98.

Lifetime ............................................................... Appliance Magazine 1998: Electric 4–19 yrs., most likely is 12 yrs; gas, oil and LPG, 3–15 yr.,

most likely is 9 yrs.

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25067

TABLE 7.—ASSUMPTIONS USED IN THE SHIPMENTS ANALYSIS—Continued

Shipments analysis assumptions

Description Assumption

Equipment Cost .................................................. From the LCC analysis.

Household Income .............................................. RECS93.

The Water Heater Shipments forecast

spreadsheet is used primarily as an

input into estimates of national impacts

from standards implementation and into

the manufacturer’s impact analysis. The

model predicts the total number of

water heaters expected to be sold by

manufacturers in each year between

2003 and 2030. In addition, it describes

the change in fuel type market

saturation due to implementing

standards and other macroeconomic

factors. The basic assumption of our

analysis is that nearly all homes

currently have a water heater with one

of the four major fuel types, and that

this trend will continue throughout the

forecast period. Furthermore, we

consider only water heaters serving a

single housing unit. (We know from the

RECS public use data that 4% of

housing units built will either have no

hot water, share a hot water heater with

other units, or be fueled by a source

other than the four fuel types, but we

have excluded these from our analysis.)

In its comments, AGA asked why the

consumer implicit discount rates are

different for gas, electric, and oil. (AGA,

No. 68 at 6). We use an implicit

discount rate to model a consumer’s

behavior and the tendency to purchase

the least expensive water heater. We

assume consumers are strongly

influenced by first cost and future

savings are much less important. The

implicit discount rates are different for

each fuel class because they depend on

the increase in consumer price from the

baseline to the first design option. In the

shipment analysis, we use the implicit

discount rate to determine the value of

future operating cost savings for gasfired, electric, oil-fired and LPG water

heaters.

ACEEE claimed DOE’s analysis

assumes purchasers are quite sensitive

to operating costs and suggested DOE

reduce the sensitivity to operating costs

in the water heater shipment model

similarly to the adjustments made to the

clothes washer shipments model.

(ACEEE, No. 93 at 5). We could not

make any adjustments to our shipments

model similar to the adjustments made

for clothes washers because we do not

have any consumer preference surveys

for water heaters.

We use implicit discount rates to

calculate equipment cost elasticities,

which are about 2–5 times higher than

operating cost elasticities. Based on the

operating cost elasticities derived by the

Oak Ridge National Laboratory (ORNL),

we assume consumers are more

sensitive to first cost than to operating

cost. Using these calculations in the

shipments model and the NES

spreadsheet, we can assess the impact of

fuel switching. The complete

explanation and derivation of terms are

in Chapter 11.3.2 of the TSD.

As part of its analysis to determine

energy savings, the Department

develops a base case forecast. The base

case shipments is a forecast of annual

shipments in the absence of new

standards and their weighted average

energy efficiency to the year 2030. This

forecast requires an assessment of the

impacts of past and current nonregulatory efforts by manufacturers,

utilities and other interested parties.

DOE considers information on the

actual impacts of such initiatives to

date, and also considers information

presented regarding the possible

impacts that any current initiatives

might have in the future. Such

information could include the actions

manufacturers, distribution channels,

utilities, or others will take to realize

such voluntary efficiency

improvements.

To develop a base case forecast of

shipments, we used total water heater

shipments from GAMA through 1993

and market share data from consultants

to calibrate the model so it correctly

estimates historical data. DOE

calculated annual water heater

shipments by fuel type as the sum of

water heater installations in new

housing and replacement units. We

account for the energy saving impacts of

non-regulatory efforts by manufacturers,

utilities, and government (e.g., the

FEMP), in the base case and we forecast

their effects in the future. DOE

considered information on the actual

impacts of such initiatives to date, and

also considered information regarding

possible impacts that any existing

initiatives might have in the future. See

Chapter 11.3.1 in the TSD for our

estimates of the relative market share

efficiencies for the base case.

Voluntary programs typically have a

small but important effect in raising the

future efficiency of the average

appliance in the market. In the water

heater market, utility programs and state

building codes have created regional

markets for high efficiency gas-fired and

electric water heaters. See Section V.B

of this notice for results of enhanced

voluntary programs. FEMP also

provides government purchasers with

information about higher efficiency

water heaters and their life-cycle costs.

We included the effects of these

programs in the base case by modeling

the current market for each fuel type by

efficiency level. DOE also is researching

electric heat pump water heaters and

hopes to increase their market

penetration in the future by reducing

the first cost to consumers. We have not

included any impact from these efforts

to increase heat pump water heater

market penetration in our forecast since

we are still doing research.

Since 1980, the U.S. has built about

1.3–2.1 million new housing units each

year, including mobile home

placements. From 1990–1993, about

96% of new housing units installed

residential storage water heaters of the

type and size considered under the

standards. The remaining 4% of new

housing units are not considered in the

shipments forecast because the water

heaters are shared among more than one

housing unit or renewable energy

sources are used for water heating.

Thus, there are about 1.2–2.0 million

residential storage water heaters

installed in new housing each year.

Since 1990, these installations have

accounted for 15–20% of annual water

heater shipments.

After accounting for new housing

construction, the remaining 80–85% of

shipments are replacements. We

determined the number of replacements

by using the number shipped in the past

and a distribution of water heater life

expectancies, which varies by fuel type.

The choice among competing fuels for

water heating is highly correlated with

the choice of fuel for space heating.

Most homes use the same fuel for water

heating as for space heating. In this

analysis, we assume that when water

heaters need to be replaced, they are

replaced by water heaters of the same

25068 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

fuel type as the original; changes in

market share occur primarily as a result

of installation trends in new housing.

Natural gas and electric water heaters

account for the major shares of

shipments. As of 1997, electric water

heaters account for about 47%, and

natural gas (including LPG) water

heaters account for almost 53%. Sales of

oil-fired water heaters account for less

than 1% of water heater shipments.

DOE estimates shipments based on

two markets: new housing construction

and water heater replacements in

existing housing. We assume

replacements in existing housing equal

retirements; that is, everyone replaces

his or her worn-out water heater. We

further assume consumers replace their

water heaters with the same fuel type;

that is, we assume no fuel switching in

the replacement market. For each fuel

type, the number of retirements is equal

to the total stock of each vintage,

multiplied by a retirement probability

for that vintage contained in the lifetime

function for that fuel type. Electric

water heaters have a life expectancy of

4–19 years and gas-fired water heaters

last from 3–15 years, with average

lifetimes of 12 and 9 years, respectively,

as published in the September 1998

issue of Appliance Magazine. We expect

water heater replacements to constitute

85 percent of total water heater

shipments by 2003. Total retirements

calculated in this way show rough

agreement with historical shipment data

provided by GAMA, during the period

from 1967 to the present.

The remainder of shipments comes

from new housing construction. We

took housing completions, including

mobile home shipments, from census

historic data and EIA forecasts.

Currently, 96% of new homes generate

a shipment of a water heater that is not

shared and that is fired by one of the

four major fuel types. We assume this

percentage remains constant throughout

the forecast period.

The projected shipments for each fuel

type consist of the water heaters retired

and replaced, plus the number of new

homes multiplied by the new-home

market saturation of the fuel type. Total

modeled shipments agree with actual

shipment data from 1980–1997.

In its comments, Battelle requested an

explanation for the sudden shifts in

shipments among fuel types in the

analysis. (Battelle, No. 83 at 7).

Although there may be shifts in

shipments among fuel types, we expect

the total number of water heaters

shipped to, and installed in, consumers’

homes (shipments) to be nearly the

same under different trial standard

levels. When standards become

effective, all the baseline water heaters

immediately have improved efficiency

and higher prices. The change in price

among fuel types causes the sudden

shift in shipments.

EEI claimed the water heater

shipment forecast seemed to be

optimistic, with sales increasing for gasfired and electric units every year from

2000–2030 (30 years). Past history has

shown periods of flat or declining

shipments. (EEI, No. 39 at 9). Our

shipment forecast reflects the EIA’s

forecast of continued strong demand for

new housing construction. Shipments of

each fuel type may differ slightly, due

to changes in market saturation

occurring as a result of installation

trends in new housing.

Fuel Switching and Market Share. The

Department decided to study the

potential impacts of different trial

standard levels on fuel type market

share using the shipment model. A large

shift from one fuel to another may affect

consumer costs and national energy

consumption and environmental

impacts. We created an Ad Hoc Water

Heater Fuel Switching Working Group

to assist us in investigating fuel

switching concerns. The Working Group

was made up of representatives from

GAMA, gas and electric utilities and

energy advocates. The Working Group

decided that since most water heater

replacements are usually emergencies,

water heaters are always replaced with

the same fuel type. Therefore, in our

analysis we assume no fuel switching in

the replacement market; all shifts in fuel

type market share are assumed to occur

in new construction.

The Department determined fuel type

market share in new construction in

response to economic conditions. The

three components contributing to the

type of water heater a consumer will

buy are: equipment (initial) cost,

operating (fuel) expense, and household

income. The shipment model that we

used takes income and fuel price

projections through 2030 from EIA.

Equipment costs and unit energy

consumption are those calculated in the

Engineering and LCC analyses. Each of

these variables is related to consumer

behavior by a set of cost elasticities from

a 1978 study by the ORNL (ORNL/CON–

24 1978). For more details on shipments

and fuel switching, see Chapter 11.3 in

the TSD.

Water heater market shares in new

construction by fuel type in 1992 were:

47% electric; 44% natural gas; 1% oil;

and 4% LPG. The shipments model

shows a drop in gas market shares in the

1990s that may not be supported by

data. Data from the American Housing

Survey on space heating fuel market

saturations shows no decline in gas

heating fuel installations during the

1990s. Since space heating fuel and

water heating fuels are highly correlated

in households, we decided to conduct a

sensitivity analysis to understand the

impact of different shipment scenarios.

We investigated several alternative

scenarios based on constant market

share. This scenario fits the results of

the American Housing Survey. U.S.

Census Bureau, Current Housing

Reports, Series H150/97, September

1999.

We conducted the NES analysis to

determine energy savings and NPV

using a constant market shipment

scenario and two scenarios based on a

10% change in the constant market

shipments. Note that a constant market

shipment fixes fuel shares so there is no

fuel switching. For each of these

scenarios, we forecast all four trial

standard levels. In all cases, we held

market shares of shipments constant

throughout the forecast period. In the

first scenario, we held market shares of

shipments at 1992 values; that is,

electric 47% and natural gas 44%. In the

second scenario, we shift market shares

of shipments 10%, to electric 57% and

natural gas 34%. In the third scenario,

we shift market shares of shipments to

37% electric and 54% natural gas.

Results from the NES analysis show

only slight differences in NES among

the three scenarios 0.06–0.11 quads

compared to the model result of 4.75

quads. Among the three scenarios, NPV

is at its highest level at trial standard

level three although it is about 15%

lower than the model forecast. Since we

only changed the shipment model in the

three scenarios and our shipment

forecast falls within the range of the

scenarios, we conclude the energy

savings and economic benefits to

consumers are not sensitive to a 10%

increase or decrease in new

construction market share of electric or

gas-fired water heaters. Therefore, we

have continued to use the model results

in our analysis. We present the results

for the sensitivity analysis in Chapter

11.3.3 of the TSD.

b. Energy Prices

Because the AEO99 forecasts only to

the year 2020 while other analyses

related to appliance energy efficiency

are forecast to 2030, we extrapolated

energy price data to 2030 using a

method similar to the one that EIA uses

to forecast fuel prices for FEMP. To

determine the regional price forecasts

for petroleum products, we used the

average growth rate for the world oil

price in combination with refinery and

distribution markups from 2020.

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25069

Similarly, we derived natural gas prices

from the average growth rate over the

years 1997–2020 in combination with

regional price margins from the year

2020. We kept electricity prices constant

at 2020 levels because we assume the

transition to a restructured utility

industry will be completed by then.

3. Comments

LaClede stated the spreadsheet only

allows the EIA price, heat rate,

emissions, and economic forecasts.

(LaClede, No. 69 at 4). EMPA stated

DOE’s analyses appear to be biased

toward EIA’s high economic scenario.

(EMPA, No. 88 at 2). The EIA high and

low economic forecasts bound the GRI

and AGA forecasts, with one exception.

From 2016–2020, the EIA low growth

scenario forecasts fuel prices that are

higher than the GRI forecast. See

Appendix E–4 of the TSD for the results

of alternate energy price forecasts. The

spreadsheets can produce output based

on any of the four economic scenarios.

We based our decision on the reference

case in the AEO99 energy price

forecasts. This is the middle range of the

energy price forecast and there is no

bias toward the high economic scenario.

AGA commented that the national

energy analysis spreadsheet does not

permit alternative inputs for electricity

generation efficiency. (AGA, No. 68 at

4). The NES spreadsheet models include

a clearly defined column of conversion

factors, one for each year of the

projection. DOE and stakeholders can

examine the effects of alternative

assumptions by substituting different

values in this column.

The model calculates national energy

consumption at the site (i.e., electricity

in kWh, natural gas, LPG, and oil in

MMBtu, consumed in the household).

Based on this site energy consumption,

DOE applied site-to-source conversion

factors to calculate the primary energy

consumed. The conversion factors are

different for natural gas and electricity

and account for losses, such as losses in

generation, transmission, and

distribution of electricity, or

distribution losses for natural gas. This

analysis assumes that the source

conversion factor changes over time,

and applies annual values. The model

uses the U.S. annual electricity

conversion factors from AEO99, Table

A4 (DOE/EIA 1998). The source

conversion factor applied to site natural

gas consumption is the site energy

divided by 0.9 (Natural Gas Council

(NGC), 1998).

In comments on the November 1998

analysis, AGA claimed the gas sourceto-site conversion should be 90%, but

the spreadsheet for the July workshop

used 78% in 2003 and 81% in 2030.

(AGA, No. 68 at 4). We have corrected

this error in the baseline case of the NES

spreadsheet and the conversion is now

90%. However, for the natural gas

savings from the trial standard levels we

use a marginal site to source gas

conversion factor from NEMS–BRS

model (see Section III.I of this notice)

that is approximately 91%. See Chapter

12 of the TSD.

NGC stated that in the case of natural

gas, approximately 10% of the total

energy is lost in the journey from the

wellhead to the burner tip. NGC

compared this loss to losses of 73% for

electricity generation and distribution. It

claims a total energy efficiency analysis

will show gas-fired water heaters to be

more efficient and cost effective than

their electric counterparts. (NGC, No. 59

at 1).

The Department has always believed

that, in evaluating the impacts of

appliance standards, one must consider

the full range of impacts, including

consumer and national impacts. In the

analysis of consumer impacts, the

Department considers the energy

directly consumed by the product at the

point of use. The measures of energy

efficiency and energy use are, for

example, all based on the energy

consumed at the point of use and these

are the measures of energy use that are

used in the consumer analyses, e.g., LCC

in Section III.E of this notice. See

Section 321(4) of EPCA, as amended, 42

U.S.C. 6291(4), which defines energy

use in this manner. This, DOE believes,

provides useful measures to consumers

since it can be directly related to

information readily available, i.e., utility

bills. In examining the impacts of

standards on the nation, however, the

Department considers the total energy

consumed over the entire fuel cycle as

well as emissions and energy costs. In

this manner, the analysis captures the

total impact of the standards.

G. Manufacturer Impact Analysis

1. Economic Impact on Manufacturers

The economic impact of the standard

on manufacturers is a criterion that

must be considered under EPCA, as

amended. Section 325(o)(2)(B)(i), 42

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

provides guidance on how to assess

these potential impacts on

manufacturers. 10 CFR 430, subpart C,

appendix A 10. First, the Department

will utilize an annual cash flow

approach in determining the

quantitative impacts on manufacturers.

This includes a short-term assessment

based on the cost and capital

requirements during the period between

the announcement of a regulation and

the time when the regulation comes into

effect. We will examine critical

variables affecting manufacturers, such

as industry NPV, cash flows by year,

changes in revenue and income,

changes in product price as it affects the

fuel type of water heaters shipped, and

other variables, as appropriate. Second,

the Department will analyze and report

the impacts on different types of

manufacturers, with particular attention

to impacts on small manufacturers.

Third, the Department will consider the

impact of standards on domestic

manufacturer employment,

manufacturing capacity, plant closures

and loss of capital investment. Finally,

the Department will consider the

cumulative impacts of other DOE and

other Federal agencies’ regulations on

manufacturers.

2. Product Specific

The manufacturing impact analysis

(MIA) estimates the financial impact of

standards on manufacturers, as well as

the impacts on competition,

employment, and manufacturing

capacity. Table 8 lists the major

assumptions that DOE used in the water

heater MIA. We discuss each of these

assumptions briefly in this section. For

more details on the MIA, please see

Chapter 13 in the TSD.

TABLE 8.—ASSUMPTIONS USED IN THE MANUFACTURING IMPACT ANALYSIS (MIA)

Assumptions in the manufacturer impact analysis

Description Assumption

Manufacturer Costs and Investments ...................................................... GAMA & consultants’ estimates.

Financial Information ................................................................................ SEC–10K Reports, Moody’s Company Data Reports, Standard &

Poor’s Stock Reports, and Robert Morris Associates Reports.

Shipments ................................................................................................. From the shipments forecast.

25070 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

TABLE 8.—ASSUMPTIONS USED IN THE MANUFACTURING IMPACT ANALYSIS (MIA)—Continued

Assumptions in the manufacturer impact analysis

Description Assumption

Business Scenarios .................................................................................. 1. Full recovery of investment,

2. Loss of all investment,

3. Recovery of 75% of investment.

Other Federal Regulatory Actions ............................................................ Phase out of HCFC–141b on January 1, 2003 and the CPSC initiative

to prevent ignition of flammable vapors on gas-fired water heaters.

Qualitative Impacts ................................................................................... From interviews.

We conducted the MIA in three

phases. Phase one consisted of the

preparation of an industry

characterization as well as individual

meetings with manufacturers to identify

issues facing the water heater industry.

Phase two focused on the larger

industry. In this phase, DOE used the

Government Regulatory Impact Model

(GRIM) to perform an industry cash flow

analysis. Phase three entailed

documenting additional impacts on

competition, employment, and

manufacturing capacity based on

comments during the manufacturer’s

interviews. Below, we describe the three

analytical tools used to accomplish

these three phases: GRIM modeling,

manufacturer subgroup analysis, and

interviews.

There are two other government

regulatory actions that water heater

manufacturers must incorporate into

their manufacturing process by January

1, 2003, or sooner. First, the EPA phase

out of HCFC’s will require an alternative

insulation blowing agent. Second, the

CPSC initiative to prevent ignition of

flammable vapors on gas-fired water

heaters will require design,

development, testing and production of

a radically new gas burner. We account

for these two actions in the MIA as

cumulative effects along with energy

efficiency standards.

3. GRIM: Industry Cash Flow

A change in energy efficiency

standards affects manufacturers in three

distinct ways. More stringent standards

require additional investment, raise

production costs, and affect revenue

through higher prices and, possibly,

lower quantities sold. To quantify these

changes, the Department performed an

industry cash flow analysis using the

GRIM. The GRIM analysis uses a

number of factors—annual expected

revenues, manufacturer cost of sales,

selling and general administration costs,

taxes, and capital expenditures related

to depreciation, new standards, and

maintenance—to arrive at a series of

annual cash flows beginning before

implementation of standards and

continuing explicitly for several years

after implementation. DOE obtained

financial information, also required as

an input to GRIM, from publicly

available data and aggregated values of

confidentially submitted manufacturer

information. Discounted annual cash

flows from the period before

implementation of standards to some

future point in time provide the

measure of industry net present values.

Given the relatively small number of

firms in the industry, the Department

created an industry cash flow analysis

using a combination of top-down and

bottom-up approaches. In order to

facilitate individual manufacturer

analyses, the Department prepared

baseline scenarios for a ‘‘strawman’’

manufacturer using publicly available

financial information (top-down).

Manufacturers were able to modify

relevant parameters to meet their own

situation (price, cost, financial, etc.)

(bottom-up). DOE aggregated the

modified inputs to the GRIM to develop

an industry cash flow. DOE then used

this industry cash flow to determine the

economic burden on manufacturers for

energy efficiency standards as well as

other regulations currently facing the

industry.

The Department received

manufacturing cost data for the various

design options for typically-sized gasfired and electric water heaters from

manufacturers; GAMA had compiled

and reported these data. DOE

consultants provided manufacturer

costs for the various design options for

typically-sized oil-fired water heaters.

DOE used the initial GAMA data,

coupled with publicly available

financial information, to develop a

‘‘strawman’’ industry cash flow.

In preparing the industry cash flow

analysis, the Department used the same

shipment scenarios in the GRIM and the

NES spreadsheets. The other GRIM

inputs are firm-level financial

information that indicates the extent to

which individual firms may be

adversely impacted by new standards.

To obtain estimates for these inputs we

analyzed publicly available, firmspecific financial information—SEC–

10K Reports, Moody’s Company Data

Reports, Standard & Poor’s Stock

Reports, and Robert Morris Associates

Reports—for major water heater

manufacturers.

4. Manufacturer Subgroup Analysis

Using industry ‘‘average’’ cost values

is not adequate for assessing the

variation in impacts among subgroups

of manufacturers. Standards could more

negatively affect smaller manufacturers,

niche players, or manufacturers

exhibiting a cost structure largely

different from industry averages. The

Department conducted detailed

interviews with as many manufacturers

as possible to gain insight into the

potential impacts of standards. During

these interviews, the Department

solicited the information necessary to

evaluate cash flows and to assess

competitive, employment, and capacity

impacts. The Department also

considered firm-specific cumulative

burden. We requested participation

from both large and small

manufacturers, but only four of the five

large manufacturers responded. No

small manufacturers responded to

DOE’s request for interviews, so

examination of the small manufacturers

was not possible at the quantitative

level carried out for the large

manufacturers.

5. Interview Process

The interview process played a key

role in the MIA, because it provided an

opportunity for interested parties to

privately express their views on

important issues. A key characteristic of

the interview process is that it allows

DOE to consider confidential

information in its decision making

process.

The Department developed a detailed

and focused questionnaire, using

information collected during the

industry characterization process from

industry and market publications,

industry trade organizations, company

financial reports, and product literature.

The Department of Justice (DOJ)

reviewed and commented on the

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25071

1For more information on NEMS, please refer to

the National Energy Modeling System: An

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

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

describe only an official version of the model

without any modification to code or data. Because

our analysis entails some minor code modifications

and the model is run under various policy scenarios

that are variations on DOE/EIA assumptions, the

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

BRS is DOE’s Building Research and Standards

office.

interview questionnaire. The interview

questionnaire solicited information on

the possible impacts of trial standard

levels on manufacturing costs, product

prices, and sales. The questionnaire

solicited both qualitative and

quantitative information. Evaluation of

the possible impacts on direct

employment, capital assets, and

industry competitiveness drew heavily

on the information gathered during the

interviews.

The questions on competitive impacts

pertained to the assessment of the

likelihood of increases in market

concentration levels and other market

conditions that could lead to anticompetitive pricing behavior. The

manufacturer interviews also gathered

information that helped in assessing

whether there may be asymmetrical cost

increases to some manufacturers,

whether any increased proportion of

fixed costs potentially increases

business risks, and whether there are

any potential barriers to market entry

(e.g., proprietary technologies).

DOE conducted face-to-face

interviews with four of the five major

water heater manufacturers in the

winter and spring of 1999. During these

interviews, the Department solicited the

information necessary to evaluate cash

flows and to assess competitive,

employment, and capacity impacts.

DOE also discussed firm-specific

cumulative regulatory burdens. DOE has

not placed any confidential information

from the manufacturer interviews in the

public record. However, DOE

considered all of the information

collected by interviews in its decision

making process.

DOE collated the completed interview

questionnaires and prepared a

summary. Chapter 13.3.2 of the TSD

discusses the major issues identified by

the manufacturers during the interview

process. Also, Appendix H–1 of the TSD

contains a copy of the manufacturer’s

interview guide.

The manufacturer interviews allowed

a free exchange of information between

DOE representatives and manufacturer

representatives, in a manner that does

not occur in public meetings. From this

exchange, the Department gained much

more than quantitative data on the

financial impacts of the trial standard

levels for each particular company.

During the interviews, DOE and

manufacturers discussed rulemaking

issues such as:

—The requirements for a new blowing

agent,

—Design options that are particularly

costly or difficult to manufacture or

market,

—Marketing and distribution issues,

—Impacts of developing and

manufacturing gas-fired water heaters

that prevent ignition of flammable

vapors, and

—Installation concerns due to thicker

insulation.

H. Other Factors

This provision allows the Secretary of

Energy, in determining whether a

standard is economically justified, to

consider any other factors that the

Secretary deems to be relevant. Section

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

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

decided that no other factors need to be

considered in this rulemaking.

I. Utility Analysis

The utility analysis estimates the

effects of the reduced energy

consumption due to improved

appliance efficiency on the utility

industry. Because electric utility

restructuring is well underway, it is no

longer valid to assume a cost recovery

mechanism under public utility

regulation, which was the basis of

previous utility impact analyses.

Therefore, this utility analysis consists

of a comparison between forecast results

for a case comparable to the AEO99

Reference Case and forecasts for policy

cases incorporating each of the water

heater trial standard levels.

Table 9 lists the major assumptions

DOE used in the water heater utility

analysis. We discuss each of these

assumptions briefly in this section. For

more details on the utility analysis,

please see Chapter 14 in the TSD.

TABLE 9.—ASSUMPTIONS USED IN THE UTILITY IMPACT ANALYSIS

Utility impact analysis assumptions

Description Assumption

Energy Prices .................................................................................................................... AEO99.

Energy Savings .................................................................................................................. From the NES spreadsheet as site energy savings.

Interpolation of Scaling Factors ......................................................................................... Linear.

The Department uses a variant of

EIA’s widely recognized National

Energy Modeling System-Building

Research and Standards called NEMS–

BRS for the utility analysis, together

with some scaling and interpolation

calculations.1 EIA uses NEMS primarily

for the purpose of preparing the Annual

Energy Outlook. Using NEMS, EIA

produces a baseline forecast for the U.S.

energy economy through 2020. The

NEMS–BRS model used for this analysis

is based on the AEO99 version of NEMS

with minor modifications.

NEMS–BRS has several advantages

that have led to its adoption as the

source for basic forecasting in the

appliance energy efficiency analyses.

NEMS–BRS relies on the AEO99

assumptions, which are well-known and

accepted due to the exposure and

scrutiny each AEO receives. In addition,

the comprehensiveness of NEMS–BRS

permits the modeling of interactions

among the various energy supply and

demand sectors and the economy as a

whole, so it produces a sophisticated

picture of the effects of appliance

standards. Perhaps most importantly,

because it explicitly simulates the

impact on the industry, NEMS–BRS

provides an accurate estimate of

marginal effects, which yield better

indicators of actual effects than

estimates based on industry-wide

average values. Marginal rates show

only the effects of standards. Average

rates show the effects of standards as

well as what is happening in the market.

To analyze the effects of standards,

we evaluate the trial standard levels by

entering the changes in electricity, gas,

LPG, and oil consumption values into

the NEMS–BRS Residential Demand

Module. We took the energy savings

input from the NES spreadsheet,

applied it to the water heater end use,

and allocated it appropriately among

census divisions. In the TSD, we report

25072 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

results for several key industry

parameters, notably residential energy

sales, generation, and installed capacity,

including the fuel mix that is used for

generation. See Chapter 14 of the TSD

for more details.

J. Environmental Analysis

The Department determines the

environmental impacts of each standard

level as required in Section

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

6295(o)(2)(B)(i)(VI). Specifically, DOE

calculates the reduction in carbon

dioxide (CO2, nitrous oxide (NOx) and

sulfur dioxide (SO2) emissions with the

NEMS–BRS computer model, together

with some external calculations. NEMS–

BRS is a modification of the National

Energy Modeling System used by DOE/

EIA.

Table 10 lists the major assumptions

DOE used in the water heater

environmental analysis. We discuss

each of these assumptions briefly in this

section. For more details on the

environmental analysis, please see

Chapter 14 in the TSD.

TABLE 10.—ASSUMPTIONS USED IN THE ENVIRONMENTAL ANALYSIS

Environmental analysis assumptions

Description Assumption

Energy Prices .................................................................................................................... AEO99.

Energy Savings .................................................................................................................. From the NES spreadsheet as site energy savings.

Interpolation of Scaling Factors ......................................................................................... Linear

Household Emissions ........................................................................................................ CO2, NOX & SO2 estimated from general factors.

We analyze the environmental effects

of proposed water heater energyefficiency standards using NEMS–BRS

plus some scaling and interpolation

calculations. Inputs to NEMS–BRS are

similar to those used for the AEO99

reference case, except residential energy

usage for water heaters is reduced by the

amount of energy (gas, oil, LPG, and

electricity) saved due to the water heater

trial standard levels.

The environmental analysis considers

two pollutants, SO2 and NOX, and one

emission, CO2. NEMS–BRS has an

algorithm for estimating NOX emissions

from power generation. Since we use

the AEO99 version of NEMS, the May

25, 1999 EPA rule (64 FR 28249) on

trading of NOX is fully incorporated in

our analysis. However, NEMS–BRS

estimates of NOX emissions are

incomplete because NEMS–BRS does

not estimate household emissions.

Household emissions result from the

combustion of fossil fuels, primarily

natural gas, within individual homes.

Because households that use natural

gas, fuel oil, or LPG contribute to NOX

emissions, DOE’s analysis includes a

separate household NOx emissions

estimation, based on simple emissions

factors derived from the general

literature. NEMS–BRS tracks CO2

emissions based on the total of fuels

consumed. NEMS–BRS also produces

comprehensive estimates of the benefits

of the trial standard levels, so no

additional analysis is necessary.

Because SO2 emissions from power

plants are capped by clean air

legislation, physical emissions of this

pollutant from electricity generation

will be only minimally affected by

possible water heater standards.

Therefore, we do not consider power

plant SO2 emissions here, although we

report household emissions savings

using a method similar to that described

for NOX. See Appendix EA–1 in the

TSD for the methodology used to derive

emission factors for residential

combustion.

The NES spreadsheet provides the

input of energy savings for NEMS–BRS,

which then produces the emissions

forecast. We calculate the net benefits of

the standard as the difference between

emissions estimated by the reference

case version of NEMS–BRS and the

emissions estimated with the trial water

heater standard in place. See the

Environmental Assessment (EA) bound

into the TSD for details.

We received several comments from

stakeholders about the environmental

analysis in NEMS–BRS. SC commented

that the EIA treats electricity from

renewable sources the same as fossilfired generation. SC believes there is no

benefit to ‘‘saving’’ hydroelectric, wind,

geothermal generation, or biomass Btus.

(SC, No. 42 at 3). However, DOE

believes there are benefits from end-use

electricity savings. Usually end-use

savings result in differences in fossil

fuel generation and not the fuels listed

by SC because fossil fuels tend to be

displaced first. The emissions

reductions reported in this rulemaking

are the net result of changes in the mix

of electricity generating fuels used.

Changes in equipment and any

construction program adjustments that

result from proposed standards are also

accounted for. For example, DOE will

only record CO2 emissions savings to

the extent that electricity generators

burn less fuels emitting CO2.

LaClede commented that DOE’s

emissions models appear to severely

underestimate electric losses from

extraction to generation, whereas

natural gas losses are accounted for from

the point of extraction to the point of

end-use. (LaClede, No. 47 at 2). All

losses from natural gas production are

accounted for in NEMS–BRS. NES

estimates are inputs to NEMS–BRS.

They affect the natural gas supply

system and are therefore completely

accounted for in the model. As

reductions in end-use consumption

result in less natural gas generation, less

gas is extracted from wellheads

resulting in less transportation losses

from point of extraction through

pipelines.

NEMS–BRS accounts for total CO2

emissions, so the full fuel cycle of

carbon is incorporated from both coal

and natural gas production. However,

since NOX and SO2 emissions are only

treated in the power sector, emissions of

these pollutants caused by mining and

transporting fuel for power plants

(‘‘upstream emissions’’) are ignored in

NEMS–BRS. For electric end-uses, all

energy losses associated with

transmission and distribution from

electric generators to residential

appliances are included. Appendix EA–

2 was included in the TSD to quantify

the relative contribution of these

upstream emissions to those reported in

NEMS-BRS. DOE does not include the

estimates of upstream coal mining

emissions in its emissions reduction

estimates.

VP commented DOE should use

marginal electric generating plant

emission rates in the analysis to be more

accurate and consistent with the energy

costs. (VP, No. 45 at 3). Reported

emissions are calculated from

marginally displaced electric generation

as simulated in NEMS–BRS.

K. Net National Employment

The Process Rule includes national

employment impacts among the factors

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25073

DOE considers in selecting a proposed

standard; 10 CFR 430 subpart C,

appendix A(4)(d)(7)(vi). The Department

estimates the impacts of standards on

employment for appliance

manufacturers, relevant service

industries, energy suppliers, and the

economy in general. We estimate two

employment impacts: total and direct

impacts. Total impacts—or net national

employment impacts—are impacts on

the national economy, including the

manufacturing sector being regulated.

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. The MIA only discusses the direct

employment impacts.

We define net national employment

impacts from water heater standards as

net jobs created or eliminated in the

general economy. We expect the

proposed energy efficiency standards for

water heaters to save consumers money,

although these savings will be partially

offset by increased costs for water

heaters. The resulting net savings are

expected to be redirected to other forms

of economic activity. We expect these

shifts in spending and economic activity

to affect the demand for labor, but there

is no generally accepted method for

estimating these effects.

One method to assess the possible

effects on the demand for labor of such

shifts in economic activity is to compare

sectoral employment statistics

developed by the Labor Department’s

Bureau of Labor Statistics (BLS). The

BLS regularly publishes its estimates of

the number of jobs per million dollars

of economic activity in different sectors

of the economy, as well as the jobs

created elsewhere in the economy by

this same economic activity. BLS data

indicates that expenditures in the

electric sector generally create fewer

jobs (both directly and indirectly) than

expenditures in other sectors of the

economy. There are many reasons for

these differences, including the capitalintensity of the utility sector and wage

differences. Based on the BLS data

alone, we believe net national

employment will increase due to shifts

in economic activity resulting from the

water heater standards.

In developing this proposed rule, the

Department attempted a more precise

analysis of national employment

impacts using an input/output model of

the U.S. economy. The model

characterizes the interconnections

among 35 economic sectors using the

data from the Bureau of Labor Statistics.

Since the electric utility sector is more

capital-intensive and less laborintensive than other sectors (see Bureau

of Economic Analysis, Regional

Multipliers: A User Handbook for the

Regional Input-Output Modeling System

(RIMS II), Washington, DC, U.S.

Department of Commerce, 1992), a shift

in spending away from energy bills into

other sectors would be expected to

increase overall employment. For more

details on the net national employment

analysis, please see Chapter 15 in the

TSD. This analysis also concluded that

the shifts in sectoral expenditures likely

to result from the proposed ballast

standard would likely increase the net

national demand for labor.

Because this is a new analysis for an

energy conservation standard

rulemaking, we are requesting public

comments on the validity of the

analytical methods used and the

appropriate interpretation and use of the

results of this analysis.

IV. Analytical Results

A. Trial Standard Levels

Based on the combination of design

options that represent the most energy

efficient level and the results of the

LCC, MIA and NES analyses, we

selected the following trial standard

levels (see Table 12). In selecting trial

standard levels, we followed the

guidance set forth in the Process Rule,

10 CFR 430, Subpart C, Appendix A,

5(c)(3), to identify and select candidate

standard levels at the lowest LCC, a

three year or less payback period, and

the most energy efficient combination of

design options.

We have established four trial

standard levels. Each level is made up

of a combination of design options for

each of the three fuel classes (electric,

gas and oil). Several of the trial standard

levels have the same efficiency within a

particular fuel type (i.e., gas-fired trial

standard level one and three have the

same efficiency, but the electric and oilfired efficiencies are different). This

allows us to evaluate different design

option combinations of fuel classes for

subsequent analysis, permitting us to

make an informed decision on the

merits of different trial standard levels.

We repeated some energy efficient, cost

effective design options for electric and

gas-fired water heaters in the selected

trial standard levels to reduce the

potential for fuel switching between

these fuels. Table 11 presents the

baseline and trial standard levels and

associated design options for each fuel

class of water heater.

TABLE 11.—TRIAL STANDARD LEVELS FOR WATER HEATERS WITH HFC–245FA BLOWING AGENT

Trial standard

level Design options Energy factor

Basecase ......... Electric: Baseline ..................................................................................................................................................

Gas: Baseline .......................................................................................................................................................

Oil: Baseline .........................................................................................................................................................

.93—.00132V*

.62—.0019V

.59—.0019V

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

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

Oil: Heat Traps .....................................................................................................................................................

.95—.00132V

.67–.0019V

.60—.0019V

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

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

Oil: Heat Traps .....................................................................................................................................................

.96–.00132V

.68—.0019V

.60–.0019V

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

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

Oil: Baseline .........................................................................................................................................................

.97—.00132V

.67—.0019V

.59—.0019V

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

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

Oil: Heat Traps + 3 Inch Insulation + Interrupted Ignition + Increased Heat Exchanger Area (82% RE) ..........

.98—.00132V

.79—.0019V

.67—.0019V

* V is the Rated Storage Volume, which equals the water storage capacity of a water heater, in gallons, as specified by the manufacturer.

25074 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

Based on Honeywell’s September 13,

1999, public announcement that it will

produce HFC–245fa, the proposed

standard levels are based on insulation

blown with HFC–245fa. We considered

insulation thicknesses of 2 inches, 2.5

inches, and 3 inches. Although we do

not report the results of the water blown

insulation analyses here, we completed

a full analysis using water blown foam

for each trial standard level. We chose

HFC–245fa over water blown insulation

because of 0.7 to 1.7 quads more energy

savings for trial standard levels one to

four. We request comments on the use

of water blown insulation since DOE

has analyzed both options. Results from

the water blown insulation analyses are

found in the TSD. Chapter 9.7 in the

TSD has tables for HFC–245fa and

water-blown insulation and the

associated design options for each fuel

class of water heater.

Water heater energy conservation

standards vary as a function of the water

heater volume. Section 325(e) of EPCA

as amended, 42 U.S.C. 6295(e). DOE

defines this volume as the rated volume

based on manufacturers’ labeling. See

10 CFR 430, subpart B, appendix E. For

this rulemaking, DOE verified that these

volumetric coefficients were consistent

for the increased levels of efficiency

under consideration in the analysis.

1. Economic Impacts on Consumers

a. Life-Cycle-Cost

To evaluate the economic impact on

consumers, we conducted a LCC

analysis for each of the fuel types and

trial standard levels including

estimating the percent of the population

that benefits at each trial standard level.

Table 12 shows the average LCC savings

and percent of households benefitting

for each of the trial standard levels for

each of the fuel classes. The average

LCC savings for trial standard levels

one, two and three are positive for gasfired and electric water heaters with the

HFC–245fa blowing agent. Only trial

standard level three is not negative for

oil-fired water heaters, and it is the

baseline. None of the other trial

standard levels has positive average LCC

savings for oil-fired water heaters

because energy savings are small

compared to the increase in consumer

price.

Where LCC savings are positive for

electric and gas-fired water heaters, the

percent of households benefitting ranges

from 74–91% for the trial standard

levels analyzed. For oil-fired water

heaters, the maximum of households

benefitting is 25% at trial standard level

two. However, even at trial standard

level four, 20–31% of households with

electric or gas-fired water heaters will

benefit.

TABLE 12.—LIFE-CYCLE-COST SAVINGS AND PERCENT BENEFITTING

[HFC–245fa Blown Insulation]

Trial

standard

level

Design options Percent

benefitting

Life-cycle cost

savings

1 .................. Electric: Heat Traps + Tank Bottom Insulation .............................................................................. 91 32

Gas Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ...................................................... 87 43

Oil: Heat Traps ............................................................................................................................... 25 ¥15

2 .................. Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ............................................... 79 36

Gas: Heat Traps + Flue Baffles (78% RE) + 2.5 Inch Insulation .................................................. 79 34

Oil: Heat Traps ............................................................................................................................... 25 ¥15

3 .................. Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ............................................ 74 40

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ..................................................... 87 43

Oil: Baseline ................................................................................................................................... NA 0

4 .................. Electric: Heat Traps + 3 Inch Insulation + Plastic Tank ................................................................ 31 ¥55

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

Tank + IID.

20 ¥214

Oil: Heat Traps + 3 Inch Insulation + Interrupted Ignition + Increased Heat Exchanger Area

(82% RE).

0 ¥459

Another LCC analysis we conducted

is the Consumer Subgroup analysis.

This analysis examines the economic

impacts on different groups of

consumers by estimating the average

change in LCC and by calculating the

fraction of households that would

benefit. We analyzed the potential effect

of standards for households with low

income levels and senior-only

households, two consumer subgroups of

interest identified by DOE and

supported by stakeholders. We present

the results of the analysis in Table 13.

TABLE 13.—CONSUMER SUBGROUP LCC SAVINGS AND PERCENT OF HOUSEHOLDS BENEFITTING

Trial std levels

Sample households benefitting (%) Average LCC Savings ($)

Total Senior-only Low income Total Senior-only Low income

Electric Water Heaters, HFC–245fa blown insulation

1 ............................................................... 91 94 92 32 34 29

2 ............................................................... 79 83 80 36 48 43

3 ............................................................... 74 77 76 40 53 48

4 ............................................................... 31 34 28 ¥55 ¥46 ¥66

Gas-fired Water Heaters, HFC–245fa blown insulation

1 ............................................................... 87 90 91 43 42 46

2 ............................................................... 79 80 82 34 34 38

3 ............................................................... 87 90 91 43 42 46

4 ............................................................... 20 20 19 ¥214 ¥193 ¥206

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25075

TABLE 13.—CONSUMER SUBGROUP LCC SAVINGS AND PERCENT OF HOUSEHOLDS BENEFITTING—Continued

Trial std levels

Sample households benefitting (%) Average LCC Savings ($)

Total Senior-only Low income Total Senior-only Low income

Oil-Fired Water Heaters, HFC–245fa blown insulation

1 ............................................................... 25 20 25 ¥15 ¥11 ¥6

2 ............................................................... 25 20 25 ¥15 ¥11 ¥6

3 ............................................................... 0 0 0 0 0 0

4 ............................................................... 0 0 0 ¥459 ¥512 ¥461

The two consumer subgroups show

the same trend in average LCC savings

and percent of sample households

benefitting as the total sample of

households. In the case of electric water

heaters, both senior-only and low

income consumer groups appear to

benefit more from trial standard levels

two through four than the total sample

of households. In households with gasfired water heaters, low income

households have greater savings of

average LCC for trial standard levels one

through three. None of the oil-fired

water heater trial standard levels show

positive LCC savings, but level three

shows zero LCC savings because it is the

same as the baseline. Low income

households with oil-fired water heaters

show 25% or less of households

benefitting from any of the trial standard

levels.

We have noted the LCC savings for

the senior-only subgroup are similar to

those of the general population. Since

the elderly use 30 percent less hot water

on average than the general population,

one would expect their costs to be lower

and as a result, the LCC effect to be

different. However, the standby losses of

water heaters, which are not affected by

hot water usage, are the same for the

elderly and the general population.

Therefore, since most of the design

options considered affect standby losses

and not water heating efficiency, we

would expect the distribution of LCC

impacts for the elderly to be similar to

the general population.

b. Median Payback

A part of the LCC analysis is the

payback analysis. The LCC payback

analysis considers all of the design

option combinations for each fuel type

and calculates a payback for each RECS

household. We report the median

payback from the distribution of

paybacks for each trial standard level in

Table 14. The median payback is the

median number of years required to

recover, in energy savings, the increased

costs of the efficiency improvements.

TABLE 14.—MEDIAN AND TEST PROCEDURE PAYBACK (YEARS)

[HFC–245fa Blown Insulation]

Trial

standard

level

Design options Median

payback

Test

procedure

payback 1

1 .................. Electric: Heat Traps + Tank Botton Insulation ............................................................................... 2.5 1.9

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ..................................................... 2.9 3.3

Oil: Heat Traps ............................................................................................................................... 8.2 6.1

2 .................. Electric: Heat Traps + Tank Bottom Insulation + 2 Inch Insulation ............................................... 4.8 3.3

Gas: Heat Traps + Flue Baffles (78% RE) + 2.5 Inch Insulation .................................................. 3.9 4.1

Oil: Heat Traps ............................................................................................................................... 8.2 6.1

3 .................. Electric: Heat Traps + Tank Bottom Insulation + 2.5 Inch Insulation ............................................ 5.4 3.7

Gas: Heat Traps + Flue Baffles (78% RE) + 2 Inch Insulation ..................................................... 2.9 3.3

Oil: Baseline ................................................................................................................................... 0.0 0.0

4 .................. Electric: Heat Traps + 3 Inch Insulation + Plastic Tank ................................................................ 11.7 8.2

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

Tank + IID.

11.3 10.3

Oil: Heat Traps + 3 Inch Insulation + Interrupted Ignition + Increased Heat Exchanger Area

(82% RE).

24.6 15.5

1Electric—50 Gallon; Gas—40 Gallon; Oil—32 Gallon.

c. Test Procedure Payback

The Act states that if the Department

determines that the payback period is

less than three years as calculated under

the water heater procedure, there shall

be a rebuttable presumption that such

trial standard level is economically

justified. In Table 14, we list the

payback periods by fuel type (product

class) and trial standard levels for HFC–

245fa blown insulation. The Act further

states that if this three year payback is

not met, this determination shall not be

taken into consideration in the deciding

whether a standard is economically

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

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

Only electric water heaters at trial

standard level one satisfy the rebuttable

presumption. Electric water heaters

with heat traps and insulated tank

bottoms have a 1.9 year payback

calculated under the test procedure.

There are no trial standard levels for

gas-fired or oil-fired water heaters that

have a payback of three years or less.

2. Economic Impact on Manufacturers

We performed a MIA to determine the

impact of standards on manufacturers.

The complete analysis is in Chapter 13

of the TSD. In general, manufacturers

stated they would be able to

manufacture any of the design options

with heat traps, thicker insulation, tank

bottom insulation on electric and

improved flue baffles on gas-fired water

heaters. None of the manufacturers

indicated they would leave the industry

or go out of business as a result of

standard levels that would require

25076 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

energy factors below plastic tanks or

side-arm heaters (i.e., trial standard

levels one through three).

We conducted detailed interviews

with four of the five major water heater

manufacturers. The five together supply

more than 99% of the U.S. residential

water heater market. The interviews

provided valuable information used to

evaluate the impacts of an amended

standard on manufacturers’ cash flows,

manufacturing capacities and

employment levels.

We analyzed the water heater

industry using two business scenarios.

The standards scenario represents the

investments needed to meet the energy

efficiency level of a trial standard level.

The cumulative scenario includes the

investments required for energy

efficiency improvement, changes to a

new blowing agent and the development

and manufacture of a gas-fired water

heater resistant to ignition of flammable

vapors. Additionally, we examined the

ability of manufacturers to recover the

investments required for each of the

scenarios and trial standard levels.

The potential value of the water

heater industry, represented by the

INPV, ($322 million in 1998 dollars) is

directly related to the manufacturers’

price to the dealer/distributor. Since all

five of the major manufacturers produce

both gas-fired and electric water heaters,

the industry is highly competitive in

terms of manufacturer’s pricing.

Manufacturer prices are expected to

increase from the current average cost to

the dealer/distributor of $156 to a range

of $188–299 for trial standard levels one

through four. Based on comments from

the interviews, we assume

manufacturers will raise prices enough

to recover the costs of materials, labor

and transportation and 75% of their

investment. If manufacturers increased

water heater distributor prices slightly

more, from $0.13 for trial standard level

one to $2.00 for trial standard level four,

they would recover all of their

investment. Table 15 shows the results

of the cash flow analysis with these

assumptions.

TABLE 15.—MANUFACTURER IMPACT ANALYSIS

Trial Std level INPV

($ millions)

Change in INPV Investment

required

(%) ($ millions) ($ millions)

Standard Scenario, HFC–5fa blown insulation

Base Case ............................................................................................... 322 0 0 0

1 ............................................................................................................... 314 ¥3 ¥8 32

2 ............................................................................................................... 307 ¥5 ¥15 61

3 ............................................................................................................... 307 ¥5 ¥15 61

4 ............................................................................................................... 265 ¥18 ¥57 229

Cumulative Scenario, HFC–245fa blown insulation

Base Case ............................................................................................... 322 0 0 0

1 ............................................................................................................... 287 ¥11 ¥35 142

2 ............................................................................................................... 280 ¥13 ¥42 172

3 ............................................................................................................... 279 ¥13 ¥43 172

4 ............................................................................................................... 237 ¥27 ¥85 340

From Table 15, we note energy

efficiency standards could result in

losses of industry net present value from

about $8 million to 57 million (3–18%),

while requiring investments of $32

million to 229 million. However, even if

DOE did not revise energy efficiency

standards, other Federal regulatory

actions that will take effect on or before

January 1, 2003, will result in a $27

million loss (8%) in industry NPV. This

loss exceeds any of DOE’s trial standard

levels except level four. As requested by

GRI and the SC and as required by the

Process Rule, 10 CFR part 430, subpart

C, appendix A 10(g)(1), DOE considered

the cumulative impacts of other Federal

regulatory actions on the trial standard

levels, including the phase out of

HCFC–141b and the CPSC initiative to

prevent the ignition of flammable

vapors on gas-fired water heaters. (GRI,

No. 11 at 1 and SC, No. 42 at 2). These

cumulative losses range from $35

million to $85 million. The investments

to prevent ignition of flammable vapors

and for new blowing agents are $111

million. The investments for cumulative

regulations are potentially large given

the current after tax profitability of the

water heater industry, estimated to be

$41 million (1998) on revenues of $1.3

billion.

Based on DOE’s interviews,

manufacturers expect little impact on

manufacturing capacity and expect to

meet future demand as long as standard

levels based on side-arm gas-fired water

heaters and plastic tank electric units

are not mandated. Currently, the U.S.

industry has far more manufacturing

capacity than the domestic market can

absorb. Manufacturers estimated the

industry is operating at 60–80% of total

capacity. Due to the phase-out of HCFC–

141b insulation blowing agent and a

requirement for a gas-fired water heater

resistant to ignition of flammable

vapors, it is likely that nearly every

product line would have to be

redesigned, retested and re-certified.

Several manufacturers indicated a

preference to retool for new blowing

agents, energy-efficiency standards and

flammable vapor-resistant designs at the

same time, to avoid redundant efforts

and limit costs.

We also used the manufacturers’

interviews to assess employment

impacts due to an amended energy

efficiency standard. Manufacturers

expected the impact of new blowing

agents and flammable vapor resistant

designs on labor to be minimal, neither

increasing nor reducing employment

levels by more than a few employees.

Unless efficiency levels requiring the

adoption of side arm heaters or plastic

tanks are mandated, manufacturers do

not anticipate significant changes in

employment levels or training

requirements. Additionally, we believe

market growth of 2.5% per year for new

homes and modest productivity gains

ensure current employment levels for

the foreseeable future. In our analysis,

yearly water heater shipments range

from 9.7 million in 1999 to 19.5 in 2030.

Furthermore, a replacement market that

increases by about 1/10th of the new

home market each year ensures future

demand.

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25077

B. Significance of Energy Savings

The Act prohibits the Department

from adopting a standard for a product

if that standard would not result in

‘‘significant’’ energy savings. Section

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

While the term ‘‘significant’’ is not

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

Appeals, in Natural Resources Defense

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

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

Congress intended ‘‘significant’’ energy

savings to be savings that were not

‘‘genuinely trivial.’’ The energy savings

for all of the trial standard levels

considered in this rulemaking are nontrivial and therefore we consider them

‘‘significant’’ within the meaning of

Section 325 of the Act.

National Energy Savings. To estimate

the energy savings through the year

2030 due to amended standards, we

compared the energy consumption of

water heaters in the 2003 baseline to the

energy consumption of water heaters

complying with the trial standard levels.

DOE calculates these energy savings at

the source using the NEMS–BRS

distribution and generation losses. This

addresses stakeholders’ comments that a

source-based analysis is a more accurate

measurement of the total energy being

used. (Clearwater, No. 30 at 1 and NGC,

No. 59 at 1). Table 16 shows these

results for water heaters with HFC–

245fa blown insulation.

TABLE 16.—SOURCE ENERGY SAVINGS WITH HFC–245FA BLOWN INSULATION (QUADS)

Trial Std 1 Trial Std 2 Trial Std 3 Trial Std 4

Total Quads Saved .......................................................................................... 3.4 4.3 4.8 13.1

Total Exajoules Saved ..................................................................................... 3.6 4.5 5.0 13.8

All of the trial standard levels

considered in this rulemaking have

significant energy savings, ranging from

3.4 quads (3.6 Exajoules (EJ)) to 13.1

quads (13.8 EJ), depending on the trial

standard level.

National Net Present Value.

Additionally, we analyzed the economic

impact on the nation to year 2030. This

is a NPV analysis using the AEO99

reference energy prices. Table 17 lists

the NPV for HFC–245fa blown

insulation. The NPV considers the

combined discounted energy savings

minus increased consumer costs of the

four fuel types of equipment at a

particular trial standard level. We base

this calculation on all expenses and

savings occurring between 2003 and

2030.

TABLE 17.—NATIONAL NET PRESENT

VALUE

Trial standard level

NPV—HFC–

245fa

($ billions)

1 ........................................ 2.3

2 ........................................ 1.5

3 ........................................ 3.3

4 ........................................ ¥17.4

The national NPV is positive for trial

standard levels one through three. In

this analysis, a positive NPV means that

the estimated energy savings are greater

than the increased costs due to

standards. Among the trial standard

levels analyzed, trial standard level

three has the highest NPV.

C. Lessening of Utility or Performance of

Products

None of the trial standard levels

reduces the performance of water

heaters. Generally, the trial standard

levels reduce heat losses and improve

heat exchanger effectiveness. These

changes improve energy and water

heating performance and may increase

the amount of water available in one

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

However, to reduce heat losses, it is

necessary to use thicker insulation. The

trial standard levels contemplate thicker

insulation of 2.5–3 inches versus the 1–

2 inches in common use today. This

extra thickness of insulation will make

water heaters larger and more difficult

to squeeze into tight spaces when

replacing a water heater. DOE does not

believe any model of water heater will

become unavailable as a result of thicker

insulation. In those applications where

thicker insulation could cause

problems, we believe possible solutions

include smaller tanks with larger

heating elements, taller tanks, more

effective insulation, e.g., space blanket,

or perhaps instantaneous water heaters.

Instantaneous water heaters generally

have characteristics such as, initiating

water heating based on sensing water

flow, a higher heating rate and storage

capacities less than two gallons.

However, a number of manufacturers

and other stakeholders believe that

thicker insulation will reduce product

utility or adversely impact consumers.

(Bradford White, No. 74 at 2; GAMA,

No. 71 at 4 and No. 91 at 1; CNG, No.

85 at 2; NEGA, No. 90 at 3; Rheem, No.

95 at 1; SC, No. 84 at 2; and AGA, No.

92 at 9). There may be replacement

applications where manufacturers can

only meet the demand for replacement

water heaters with a slightly smaller

tank. DOE has investigated this with

water heater manufacturers and home

builders and is aware that some

replacement applications may be unable

to accommodate the tank size currently

used.

ACEEE claimed manufacturers can

make water heaters taller or wider to fit

most of the installation situations

encountered. (ACEEE, No. 93 at 8). OOE

stated the industry can find the

additional space for insulation by

reducing the storage tank diameter. This

will only reduce tank volume by 2–3

gallons, according to OOE. (OOE, No. 96

at 5). In another approach, Battelle

suggested manufacturers could increase

the firing rate, set point, and heat

transfer rate of gas-fired water heaters so

they could reduce tank size without

sacrificing any first-hour rating.

(Battelle, No. 66 at 8 and No. 83 at 11).

We estimate external dimensions for

electric water heaters could be

maintained at approximately current

sizes, if tank volume were reduced

about 20%, coupled with a 1.35 kW

increase in the heating rate, from 4.5–

5.85 kW. This would restore the first

hour rating and a 6 kW heating element

as a common size, see Chapter 3.4.4 in

the TSD. We recognize the increased

heating element wattage may overload

some existing electrical circuits. We

request comments on these suggestions

and the extent that product utility might

be affected.

Further, DOE requests engineering

data or other information that will

substantiate claims of reduced product

utility and an explanation of the specific

impact that would be anticipated. We

are particularly interested in comments

on the number of households that may

be affected and whether these

households are in a particular

geographic region or income strata.

D. Impact of Lessening of Competition

The Act directs the Department to

consider any lessening of competition

that is likely to result from standards. It

further directs the Attorney General to

determine the impact, if any, of

competition likely to result from such

25078 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

standard and transmit such

determination, not later than 60 days

after the publication of a proposed rule

to the Secretary, together with an

analysis of the nature and extent of such

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

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

In order to assist the Attorney General

in making such a determination, the

Department has provided the

Department of Justice (DOJ) with copies

of this notice and the TSD for review.

At DOE’s request, the DOJ reviewed the

manufacturer impact analysis interview

questionnaire to ensure that it would

provide insight concerning any

lessening of competition due to any

proposed trial standard levels.

In response to a comment from the

AGA, DOE requested the DOJ’s view as

to whether the ‘‘lessening of

competition’’ language in Section

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

6295(o)(2)(B)(i)(V) applies to energy

suppliers. (AGA, No. 49 at 6). In its

letter dated June 25, 1999, the DOJ

replied that ‘‘we would consider not

only evidence of the effect on

competition among water heater

manufacturers, but also information

relating to the likely effect on

competition among energy suppliers.’’

However, the DOJ added they would

focus on the effect of standards ‘‘on the

overall level of market competition, not

on individual fuel suppliers or on shifts

in consumer usage among alternate

fuels.’’

E. Need of the Nation To Save Energy

and Net National Employment

1. Environmental Impacts

Enhanced energy efficiency improves

the Nation’s energy security, strengthens

the economy and reduces the

environmental impacts of energy

production. The energy savings from

water heater standards result in reduced

emissions of CO2, SO2 and NOX and

aids in addressing global climate change

and reducing air pollution. Depending

on the standard level chosen, the

cumulative emission reductions to 2030

range from 48–219 Mt for carbon

equivalent, 141–599 thousand metric

tons (kt) for NOX, and ¥6 to 54 kt for

SO2. The large reductions in CO2 and

NOX at all standard levels are a positive

benefit to the nation. We show

cumulative emissions savings from

2003–2030 in Table 18.

EEI, SC and VP claimed in-house

combustion also will produce carbon

monoxide (CO), particulates, and

volatile organic compounds (VOCs), yet

they are not included in the

environmental analysis. (EEI, No. 39 at

4 and No. 79 at 1; SC, No. 84 at 2; and

VP, No. 45 at 3). Properly functioning

appliances should not emit CO.

Additionally, particulates and

hydrocarbon emissions from appliances

are very, very small. Therefore, we

assumed CO and particulate emissions

reductions resulting from proposed

energy standards are negligible.

TABLE 18.—CUMULATIVE EMISSIONS REDUCTIONS THROUGH 2030

Emission Trial Std

level 1

Trial Std

level 2

Trial Std

level 3

Trial Std

level 4

Carbon (Mt) ...................................................................................................................... 48 74 83 219

NOX (kt) ........................................................................................................................... 141 208 229 599

SO2 (kt) ............................................................................................................................ **4 **<1 **¥6 **54

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

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

2. Net National Employment

In the Process Rule, DOE committed

to develop estimates of the employment

impacts of proposed standards in the

economy in general. The results of the

Department’s analysis are shown in

Chapter 15 of the TSD.

While both this input/output model

and the direct use of BLS employment

data suggest the proposed water heater

standards could increase the net

demand for labor in the economy, the

gains would most likely be very small

relative to total national employment.

For several reasons, however, even these

modest benefits for national

employment are in doubt:

• Unemployment is now at the lowest

rate in 30 years. If unemployment

remains very low during the period

when the proposed standards are put

into effect, it is unlikely that the

standards could result in any net

increase in national employment levels.

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

quality or wage level of the jobs. One

reason that the demand for labor

increases in the model may be that the

jobs expected to be created pay less than

the jobs being lost. The benefits from

any potential employment gains would

be reduced if job quality and pay are

reduced.

• The net benefits from potential

employment changes are a result of the

estimated net present value of benefits

or losses likely to result from the

proposed standards, it may not be

appropriate to separately identify and

consider any employment impacts

beyond the calculation of net present

value.

Taking into consideration these

legitimate concerns regarding the

interpretation and use of the

employment impacts analysis, the

Department concludes only that the

proposed water heater standards are

likely to produce employment benefits

that are sufficient to offset fully any

adverse impacts on employment in the

water heater or energy industries.

F. Conclusion

1. Comments on Standard Levels

In order to inform interested

stakeholders, we released our

preliminary analysis results and

convened a workshop to receive

comments on what standard might be

supported by the results. Below is a

short summary of the type of comments

we received on our preliminary

analysis. We have considered these

comments when selecting the proposed

standard level. Many of the comments

suggest actions that are already a part of

the process we use to select a standard.

SC stated minimum efficiency levels

should be set so that the majority of

consumers benefit from the new

standards. SC suggested if at least 85%

of the population benefitted, it would be

unlikely that any particular subgroup of

customers would suffer substantial loss

from the proposed standard. (SC, No. 42

at 3). CNG and NEGA stated any

standard above trial standard level one

(use EFs from July Workshop) is too

costly for consumers and may affect

safety. (CNG, No. 85 at 1 and NEGA, No.

90 at 1). When we select a standard

level, we weigh the overall benefits and

burdens. We do not base our decision

on any particular fraction of the

population that benefits.

Several comments claimed DOE

should keep new standards fuel neutral

(EEI, No. 79 at 2 and American Electric

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25079

Power, No. 87 at 1). The National Rural

Electric Cooperative Association

(NRECA) claimed gas-fired and electric

water heaters should have the same 0.03

increase in energy factor using thicker

insulation and heat traps. (NRECA, No.

2 at 2). EEI and American Electric Power

wanted DOE to keep new standards fuel

neutral by raising energy factors for all

fuel types.

Other comments made specific

recommendations for gas-fired and

electric water heaters. PG&E claimed

DOE should set the new standards for

electric and gas-fired water heaters at

the highest levels that can be achieved

with conventional technologies, e.g.,

0.60 EF for gas-fired water heaters that

are common in southern California.

(PG&E, No. 94 at 3). ACEEE claimed that

according to DOE’s July 1997 analysis,

the minimum LCC point is 0.91 EF for

a 50-gallon electric and 0.61 EF for a 40-

gallon gas-fired water heater when using

HFC–245fa blown insulation.

Furthermore, ACEEE believes this is

what DOE should propose as the new

standard in the NOPR. (ACEEE, No. 93

at 9). Bradford White recommended that

electric and oil standards should remain

the same and gas-fired water heater

standards should be raised by 0.02 EF.

(Bradford White, No. 89 at 5).

ACEEE claimed DOE should consider

a gas-fired water heater with an 80%

flue baffle, 2 inches of insulation and

heat traps because it appears to be the

minimum LCC. (ACEEE, No. 93 at 2). In

our revised analysis, the lowest LCC for

a gas-fired water heater is a 78% flue

baffle with 2 inches of insulation and

heat traps. To verify that we did not

overlook any economically justified trial

standard, we analyzed a gas-fired water

heater with an 80% flue baffle and 2

inches of insulation. This standard level

resulted in a negative LCC savings,

negative manufacturers’ impact and

negative NPV so we concluded it is not

economically justified.

2. Proposed Standard

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

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

any new or amended energy

conservation standard for any type (or

class) of covered product shall be

designed to achieve the maximum

improvement in energy efficiency which

the Secretary determines is

technologically feasible and

economically justified. In determining

whether a standard is economically

justified, the Secretary must determine

whether the benefits of the standard

exceed its burdens. Section

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

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

must ‘‘result in significant conservation

of energy.’’ Section

325(o)(2)(B)(iii)(3)(B), 42 U.S.C.

6295(o)(B)(iii)(3)(B). The Secretary has

eliminated the maximum

technologically feasible levels for

electric and gas-fired water heaters, but

we are analyzing the maximum

technologically feasible level for oilfired water heaters. See Section III.D.2

of this notice. All of the design options

included in our analysis are

technologically feasible since they are

commercially available.

As discussed in section IV.A, we

consider the impacts of standards at

each of four standards levels, beginning

with the most efficient level, i.e.,

standard level four. We then consider

less efficient levels. Standard levels

three and two are combinations of

different efficiency levels for the

different classes. For gas-fired water

heaters, standard levels three and one

are the same, though lower efficiency

than that found in standard level two.

For electric water heaters, no standard

levels are repeated and the efficiency of

each lower standard level is lower than

that found in higher standard levels.

Finally, for oil-fired water heaters,

standard levels two and one are the

same and level three is no change from

the current standard. By combining

efficiency levels in this way, the

Department is able to evaluate the

impacts of different combinations of

standard levels to make an informed

decision on the merits of different

efficiency combinations.

To aid the reader as we discuss the

benefits or burdens of the trial levels we

have included a summary of the

analysis results in Table 19.

TABLE 19.—SUMMARY ANALYSIS RESULTS BASED ON HFC–245FA BLOWN INSULATION

Trial Std 1 Trial Std 2 Trial Std 3 Trial Std 4

Total Quads Saved .................................................................................. 3.4 4.3 4.8 13.1

NPV ($Billion) .......................................................................................... 2.2 1.5 3.4 ¥17.4

Emissions:

Carbon Equivalent (Mt) .................................................................... 48 74 83 219

NOX (kt) ............................................................................................ 141 208 229 599

SO2 (kt) ............................................................................................. **4 **<1 **¥6 **54

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

Life Cycle Cost ($):

Electric .............................................................................................. 32 36 40 ¥55

Gas-Fired .......................................................................................... 43 34 43 ¥215

Oil-Fired ............................................................................................ ¥20 ¥20 0 ¥447

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

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

We first considered trial standard

level four, the most efficient level for

each of the three classes. Trial standard

level four saves about 13.1 quads of

energy, a significant amount. The

emissions reductions of 219 Mt of

carbon equivalent, 599 kt of NOX, and

54 kt of SO2 are significant. However, at

this level, consumers experience

negative LCC impacts. They would lose

$55 (with electric water heaters), $193

(with gas-fired water heaters) and $459

(with oil-fired water heaters).

Furthermore, the water heater industry

would lose 27% of its value and the

nation would have a loss in NPV of

more than $17 billion. The Department

concludes the resulting energy savings

and emission reductions at this level are

outweighed by the negative economic

impacts on the nation, consumers and

manufacturers. Consequently, the

Department concludes trial standard

level four is not economically justified.

Next, we considered trial standard

level three. This trial standard level

saves about 4.8 quads of energy, a

significant amount. The emissions

reductions are significant: 83 Mt of

carbon equivalent and 229 kt of NOX.

There is a small increase in household

emissions of SO2 (6 kt) due to a slight

increase in shipments of oil-fired water

heaters. The national NPV of trial

standard level three is $3.4 billion from

2003–2030.

25080 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

2As DOE has determined, the benefits of today’s

proposal outweigh the $15 million loss to the

industry. To review the support for this

determination, see the TSD at Chapters 12.5 and

Table 12.1a, 13.3.3.5 and Table 13.8a, 13.3.4, and

13.3.5.

3The proposed standard is based on insulation

blown with HFC–245fa. We also analyzed the

impact of using water-blown insulation. We found

the benefits of LCC savings, emission reductions,

and NPV are lower, and manufacturers’ losses are

higher using water blown insulation compared to

using HFC–245fa blown insulation. The energy

savings and water heater performance are also

lower because water blown insulation is 42% less

effective than HFC–245fa blown insulation.

If, based on comments on today’s proposed rule,

DOE were to conclude that insulation with energy

conservation characteristics similar to HFC–245fa

blown insulation will not be available at the

effective date of the standard, DOE would use the

water blown insulation analysis as a basis for its

final decision.

The economic benefits to consumers

are significant. The average LCC savings

for consumers with electric and gasfired water heaters are $40 and $43

respectively and there are no impacts on

users of oil-fired water heaters. In trial

standard level three, 87% of households

with gas-fired water heaters have LCC

savings, for an average savings of $57,

while 13% experience LCC losses, for

an average loss of $52. For households

with electric water heaters, 74% of

households have LCC savings, for an

average savings of $64, while 26%

experience LCC losses, for an average

loss of $27.

For electric water heaters, the analysis

predicts that 26 percent of all

consumers would experience no change

or some net cost with more efficient

electric water heaters. However, we

believe that there are costs or savings

near the point of zero change in LCC

that consumers would be unable to

distinguish in their yearly expenses. We

have chosen ±2 percent of average

baseline LCC as the band of no

consumer impact. We believe this small

percentage, regardless of the actual total

LCC, is insignificant to the consumer

because these LCC costs or savings are

spread over monthly utility bills for the

life of the water heater. By applying a

2% band of average LCC, we can clearly

show the significant net savings and net

costs associated with a trial standard

level. This permits a more informed

decision based on weighing the

significant benefits and burdens in

terms of consumer impact. The resulting

ranges are shown in Figure 9.6.2a in the

TSD.

We will use ±2 percent of baseline

LCC to indicate no impact, positively or

negatively, on consumers. Therefore,

only 4 percent of consumers in the case

of electric water heaters or 6 percent of

consumers in the case of gas water

heaters sustain any significant net costs

under the proposed standard level for

water heaters. Similarly, 35 percent of

consumers in the case of electric water

heaters or 62 percent of consumers in

the case of gas water heaters have

significant net savings.

Two percent of average baseline LCC

equals $51 for electric water heaters.

Over the average life of 12 years for an

electric water heater, this is less than

$4.50 per year. For consumers with gasfired water heaters, two percent of

average baseline LCC is $30. Over the

average life of 9 years for a gas water

heater, this is less than $3.50 per year.

We believe this is a small amount in

terms of yearly expenditures and will

not adversely impact consumers’

purchase decisions about water heaters,

or their financial positions.

Additionally, low-income and senioronly consumer subgroups exhibit

similar distributions of costs and

savings. A similar small percentage of

low-income or senior only consumers

are affected by higher costs.

The industry will lose about 5% ($15

million) of its INPV due to energy

efficiency standards. These losses are

more than balanced by NPV gains to the

nation of $3.3 billion, or 220 times the

industry losses. Industry losses for trial

standard level three due to all Federal

actions (CPSC, EPA and DOE) are 13%

of its INPV, or $43 million. Even this

level of losses is offset by gains to the

nation that are 77 times the industry

losses.2 Based on the manufacturer

interviews, DOE believes there will not

be any plant closures or employee

layoffs.

In determining the economic

justification of trial standard level three,

the Department has weighed the

benefits of energy savings, reduced

average consumer LCC, significant and

positive NPV, and emissions reductions

and the burdens of a loss in

manufacturer net present value, and

consumer LCC increases for some

households. After carefully considering

the results of the analysis, DOE has

determined the benefits of trial standard

level three outweigh its burdens and is

economically justified. The Department

also concludes trial standard level three

saves a significant amount of energy and

is technologically feasible.3 Therefore,

the Department today proposes to adopt

the energy conservation standards for

water heaters at trial standard level

three.

V. Procedural Reviews

A. Review Under the National

Environmental Policy Act

In issuing the March 4, 1994,

Proposed Rule for energy efficiency

standards for eight products, one of

which was water heaters, the

Department prepared an Environmental

Assessment (DOE/EA–0819) that was

published within the Technical Support

Document for that Proposed Rule. (DOE/

EE–0009, November 1993). The

environmental effects associated with

various standard levels for water

heaters, as well as the other seven

products, were found not to be

significant, and a Finding of No

Significant Impact (FONSI) was

published. (59 FR 15868, April 5, 1994).

In conducting the analysis for this

Proposed Rule, the DOE evaluated

several design options suggested in

comments to the screening document.

As a result, the energy savings estimates

and resulting environmental effects

from revised energy efficiency standards

for water heaters in this Proposed Rule

differ somewhat from those presented

for water heaters in the 1994 Proposed

Rule. Nevertheless, the environmental

effects expected from the energy

efficiency standards considered for this

Proposed Rule fall within the ranges of

environmental impacts from the revised

energy efficiency standards for water

heaters that DOE found in the 1994

FONSI not to be significant.

B. Review Under Executive Order 12866,

‘‘Regulatory Planning and Review’’

The Department has determined

today’s regulatory action is a significant

regulatory action within the scope of

Section 3(f)(1) of Executive Order

12866, ‘‘Regulatory Planning and

Review.’’ (58 FR 51735, October 4,

1993). Therefore, this proposal requires

a regulatory analysis. Such an analysis

presents major alternatives to the

proposed regulation that could achieve

substantially the same goal, as well as

a description of the cost and benefits

(including potential net benefits) of the

proposed rule. Accordingly, the Office

of Information and Regulatory Affairs

(OIRA) reviewed today’s action under

the Executive Order.

There were no substantive changes

between the draft we submitted to OIRA

and today’s action. The draft and other

documents we submitted to OIRA for

review are a part of the rulemaking

record and are available for public

review in the Department’s Freedom of

Information Reading Room, 1000

Independence Avenue, SW,

Washington, DC 20585, between the

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

Monday through Friday, except Federal

holidays, telephone (202) 586–3142.

The following summary of the

Regulatory Impact Analysis (RIA)

focuses on the major alternatives

considered in arriving at the proposed

approach to improving the energy

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25081

efficiency of consumer products. The

reader is referred to the complete RIA,

which is contained in the TSD, available

as indicated at the beginning of this

NOPR. It consists of: (1) A statement of

the problem addressed by this

regulation, and the mandate for

government action; (2) a description and

analysis of the feasible policy

alternatives to this regulation; (3) a

quantitative comparison of the impacts

of the alternatives; and (4) the economic

impact of the proposed standard.

The RIA calculates the effects of

feasible policy alternatives to water

heater energy efficiency standards, and

provides a quantitative comparison of

the impacts of the alternatives. We

evaluate each alternative in terms of its

ability to achieve significant energy

savings at reasonable costs, and we

compare it to the effectiveness of the

proposed rule.

We created the RIA using a series of

regulatory scenarios (with various

assumptions), which we used as input

to the shipments model for water

heaters. We used the results from the

shipments model as inputs to the NES

spreadsheet calculations.

DOE identified the following seven

major policy alternatives for achieving

consumer product energy efficiency.

These alternatives include:

• No New Regulatory Action

• Informational Action

• Product Labeling

• Consumer Education

• Prescriptive Standards

• Financial Incentives

—Tax credits

—Rebates

—Low income and seniors subsidy

• Voluntary Energy Efficiency Targets

(5 Years, 10 Years)

• Mass Government Purchases

• The Proposed Approach (Performance

Standards)

We have evaluated each alternative in

terms of its ability to achieve significant

energy savings at reasonable costs

(Table 20), and have compared it to the

effectiveness of the proposed rule.

TABLE 20.—ALTERNATIVES CONSIDERED

Policy Alternatives NPV

($ in billions)

Energy Savings

Quads

Consumer Product Labeling ............................................................................................................................ ¥0.009 0.077

Consumer Education ....................................................................................................................................... 0.439 0.539

Prescriptive Standards ..................................................................................................................................... 1.149 0.78

Consumer Tax Credits ..................................................................................................................................... 0.333 0.163

Consumer Rebates High Efficiency ................................................................................................................. 0.349 0.174

Consumer Rebates Heat Pump ...................................................................................................................... 1.164 0.586

Low Income and Seniors Subsidy ................................................................................................................... 1.011 0.415

Manufacturer Tax Credits ................................................................................................................................ 0.074 0.039

Voluntary Efficiency Target (5 year delay) ...................................................................................................... 1.47 2.887

Voluntary Efficiency Target (10 year delay) .................................................................................................... 0.882 2.211

Mass Government Purchases ......................................................................................................................... 0.012 0.057

Performance Standards ................................................................................................................................... 3.433 4.746

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

Savings = Energy Savings (Source Quads).

If we imposed no new regulatory

action, then we would implement no

new standards for this product. This is

essentially the ‘‘base case’’ for water

heaters. In this case, between the years

2003 and 2030, there would be an

expected energy use of 120.91 Quads

(127.56 Exajoules (EJ)) of primary

energy, with no energy savings and a

zero NPV.

We grouped several alternatives to the

base case under the heading of

informational action. They include

consumer product labeling and DOE

public education and information

programs. Both of these alternatives are

already mandated by, and are being

implemented under EPCA, as amended,

Sections 324 and 337, 42 U.S.C. 6294,

6297. One base case alternative would

be to estimate the energy conservation

potential of enhancing consumer

product labeling. To model this

possibility, the Department estimated

that 5 percent of consumers change their

decisions on which water heater to buy

based on a consumer product labeling

program. The consumer product

labeling alternative resulted in 0.077

quad (0.081 EJ) of energy savings with

a negative $0.009 billion NPV.

Another approach, called consumer

education, is to consider an Energy

Star program for heat pump water

heaters. We assume, under this program,

sales would jump to 150,000 units per

year in 2008 and continue to be constant

after that. This estimate is based on an

Arthur D. Little (ADL) report from

October 20, 1997, ‘‘Low Cost Heat Pump

Water Heater Status Report.’’ We

calculated the fraction that this

represents of the baseline electric water

heater market share in 2008, and

subtracted this fraction from the next

lowest design option with any market

share. This consumer education

program would perform somewhat

better than product labeling with energy

savings equal to 0.539 Quad (0.57 EJ)

and $0.439 billion NPV.

Another method of setting standards

would entail requiring that certain

design options be used on each product,

i.e., for DOE to impose prescriptive

standards. For this approach, we assume

that a prescriptive standard is

implemented as a standard at the next

lower trial standard level than the

performance standard level, i.e., we

would implement a prescriptive

standard at trial standard level two. The

reduced flexibility afforded to

manufacturers of a prescriptive standard

would make it difficult for

manufacturers to achieve the higher

level. The lower standard level entails

slightly smaller expenditures for

retooling and purchasing parts.

Consequently, the economic impacts we

expect before the implementation date

should be slightly smaller for

prescriptive standards. This resulted in

energy savings of 0.78 Quad (0.82 EJ)

and $1.15 billion NPV.

We tested various financial incentive

alternatives. These included tax credits

and rebates to consumers, as well as tax

credits to manufacturers. We assumed

the tax credits to consumers were 50%

of the incremental purchase expense for

higher energy-efficiency water heaters.

The incremental cost is based on the

difference between the 2003 baseline

cost and the cost of a 50-gallon 0.91 EF

electric, a 40-gallon 0.60 EF gas-fired,

and a 32-gallon 0.61 EF oil-fired water

heater. We estimate the impact of this

policy is to move 5% of the market

25082 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

share from the 2003 baseline to the more

efficient models. These tax credits start

in 2003 and run for six years. We

assume people stop buying these more

efficient and more expensive water

heaters when the tax credits stop. The

tax credits to consumers showed a

change from the base case, saving 0.163

Quad (0.17 EJ) with $0.333 billion NPV.

To estimate the impact of consumer

rebates, DOE assumed rebates of 35% of

the incremental retail prices for more

energy-efficient water heaters. The

incremental cost is based on the

difference between the 2003 baseline

cost and the cost of a 50-gallon 0.91 EF

electric, a 40-gallon 0.60 EF gas-fired,

and a 32-gallon 0.61 EF oil-fired water

heater. We estimate the impact of this

policy is to move 5% of market share

from the 2003 baseline to the more

efficient models. These rebates start in

2003 and run for six years and we

assume people stop buying these more

efficient and more expensive water

heaters when the rebates stop.

Consumer rebates would save 0.174

Quad (0.18 EJ) with $0.349 billion NPV.

We also considered a consumer rebate

alternative that was equal to the

difference between the retail cost of a

heat pump water heater and a 0.91 EF

electric resistance water heater. This

rebate is only applied to new

construction because heat pumps may

require more closet space and more air

space from which to remove heat. We

estimated the installed costs of heat

pump water heaters ($875) and market

penetration levels (300,000 units per

year) based on ADL data on drop-in heat

pump water heaters. We assumed these

rebates run for six years and we assume

people stop buying these more efficient

and more expensive water heaters when

the rebates stop. We estimated this

rebate alternative would save 0.586

Quad (0.62 EJ) and produce $1.164

billion NPV.

One of the market barriers to higher

efficiency gas-fired water heaters is the

expense to upgrade venting systems.

Another market barrier for electric and

gas-fired water heaters is the expense to

enlarge small closets or to relocate water

heaters with thicker insulation when

they will not fit into an existing space.

Since these expenses can be a particular

burden on low income and seniors-only

households, we considered a low

income and seniors-only subsidy of

$100 to make higher efficiency water

heaters available and cost effective for

these households. We determined the

number of low income and seniors only

households from the RECS public use

data. The program starts in 2003 and

runs for six years. This subsidy saved

0.415 Quad (0.44 EJ) with $1.011 billion

NPV.

Another financial incentive we

considered was a tax credit to

manufacturers for the production of

energy-efficient models of water heaters.

We assumed an investment tax credit of

20%, applicable to the tooling and

machinery costs of the manufacturers.

These are tooling costs as they relate to

producing a 0.91 EF on a 50-gallon

electric, a 0.60 EF on a 40-gallon gasfired, and a 0.61 EF on a 32-gallon oilfired water heater. We estimate the

impact of this policy is to move 1% of

the market share from the 2003 baseline

to the more efficient models. These tax

credits start in 2003 and run for six

years. We assume no persistence in the

market once they stop. Tax credits to

manufacturers would save 0.039 Quad

(0.41 EJ) and produce $0.074 billion

NPV.

The impact of this scenario produces

small savings because the investment

tax credit was applicable only to the

tooling and machinery costs of the

firms. The firms’ fixed costs and some

of the design improvements that would

likely be adopted to manufacture more

efficient versions of this product would

involve purchased parts. Expenses for

purchased parts would not be eligible

for an investment tax credit.

We examined two scenarios of

voluntary energy efficiency targets. In

the first one, we assumed all the

relevant manufacturers voluntarily

adopted the proposed energy

conservation standards in five years. In

the second scenario, we assumed the

proposed standards were adopted in 10

years. In these scenarios, voluntary

improvements having a five-year delay,

compared to implementation of

mandatory standards, would result in

energy savings of 2.887 Quads (3.05 EJ)

and $1.469 billion NPV; voluntary

improvements having a 10-year delay

would result in 2.211 Quads (2.33 EJ)

being saved and $0.882 billion NPV.

These scenarios assume that there

would be universal voluntary adoption

of the energy conservation standards by

these appliance manufacturers, an

assumption for which there is no

assurance.

Another policy alternative we

reviewed was that of large purchases of

high efficiency electric and gas-fired

water heaters by Federal, State, and

local governments. We modeled this

policy by assuming these governmental

entities (i.e., U.S. Department of

Housing and Urban Development and

DOE at the Federal level) purchased

high efficiency water heaters for 5% of

the low income, rented housing. This

policy alternative resulted in energy

savings of 0.057 Quad (0.06 EJ) and

$0.012 billion NPV.

Lastly, all of these alternatives must

be gauged against the performance

standards we are proposing in this

NOPR. Such performance standards

would result in energy savings of 4.746

Quads (5.00 EJ), and the NPV would be

an expected $3.443 billion.

As indicated in the paragraphs above,

none of the alternatives we examined

for these products would save as much

energy as the Proposed Rule. Also,

several of the alternatives would require

new enabling legislation, since authority

to carry out those alternatives does not

presently exist.

C. Review Under the Regulatory

Flexibility Act

The Regulatory Flexibility Act of

1980, 5 U.S.C. 601–612 (Pub. L. 96–354)

requires an assessment of the impact of

regulations on small businesses. The

Small Business Administration’s

definition for small business in the

water heater industry is one that

employs 500 or fewer employees.

The water heater industry is

characterized by five firms accounting

for nearly 99% of sales. Smaller

businesses and firms, which make

specialty water heaters and supply

niche markets, share 1% of the market.

We are aware of three small firms: Bock

Water Heaters, Heat Transfer Products,

and Vaughn.

Of the three small firms, Bock

manufactures oil-fired water heaters that

have not been affected by this proposed

rule. Therefore, we do not think that

this firm will suffer any adverse impacts

to the rule. The other two firms, Heat

Transfer and Vaughn, both make electric

water heaters that are considered in this

rule. In the GAMA directory, these firms

only list electric water heaters that meet

or exceed the standard level

contemplated in this rule. The proposed

rule may raise the standard level enough

to impact their niche market for high

efficiency electric water heaters.

However, these manufacturers also

manufacture very long life products that

incorporate other features which will

help them preserve their niche market.

The Department has taken this into

consideration in this rulemaking.

The Department prepared a

manufacturing impact analysis that it

shared with all the water heater

manufacturers. The smaller

manufacturers did not choose to discuss

the impacts of the trial standard levels

on their firms.

In view of the information discussed

above, the Department has determined

and hereby certifies pursuant to Section

605(b) of the Regulatory Flexibility Act

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25083

that, for this particular industry, the

proposed standard levels in today’s

Proposed Rule will not ‘‘have a

significant economic impact on a

substantial number of small entities,’’

and it is not necessary to prepare a

regulatory flexibility analysis.

D. Review Under the Paperwork

Reduction Act

No new information or record keeping

requirements are imposed by this

rulemaking that would require Office of

Management and Budget clearance

under the Paperwork Reduction Act. 44

U.S.C. 3501 et seq.

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’’

With respect to the review of existing

regulations and the promulgation of

new regulations, Section 3(a) of

Executive Order 12988, ‘‘Civil Justice

Reform,’’ 61 FR 4729 (February 7, 1996),

imposes on Executive agencies the

general duty to adhere to the following

requirements: (1) Eliminate drafting

errors and ambiguity; (2) write

regulations to minimize litigation; and

(3) provide a clear legal standard for

affected conduct rather than a general

standard and (4) promote simplification

and burden reduction.

With regard to the review required by

Section 3(a), Section 3(b) of Executive

Order 12988 specifically requires that

Executive agencies make every

reasonable effort to ensure that the

regulation: (1) Clearly specifies the

preemptive effect, if any; (2) clearly

specifies any effect on existing Federal

law or regulation; (3) provides a clear

legal standard for affected conduct

while promoting simplification and

burden reduction; (4) specifies the

retroactive effect, if any; (5) adequately

defines key terms; and (6) addresses

other important issues affecting clarity

and general draftsmanship under any

guidelines issued by the Attorney

General. Section 3(c) of Executive Order

12988 requires Executive agencies to

review regulations in light of applicable

standards in Section 3(a) and Section

3(b) to determine whether they are met

or it is unreasonable to meet one or

more of them. DOE reviewed today’s

proposed rule under the standards of

Section 3 of the Executive Order and

determined that, to the extent permitted

by law, these proposed regulations meet

the relevant standards.

F. ‘‘Takings’’ Assessment Review

The Department has determined

pursuant to Executive Order 12630,

‘‘Governmental Actions and Interference

with Constitutionally Protected Property

Rights,’’ 53 FR 8859 (March 18, 1988)

that this regulation would not result in

any takings that might require

compensation under the Fifth

Amendment to the United States

Constitution.

G. Review Under Executive Order

13132, ‘‘Federalism’’

Executive Order 13132 (64 FR 43255,

August 10, 1999) requires agencies to

develop an accountable process to

ensure meaningful and timely input by

State and local officials in the

development of regulatory policies that

have ‘‘federalism implications.’’ Policies

that have federalism implications are

defined in the Executive Order to

include regulations that have

‘‘substantial direct effects on the States,

on the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various level

of government.’’ Under Executive Order

13132, DOE may not issue a regulation

that has federalism implications, that

imposes substantial direct costs, and

that is not required by statute, unless

the Federal government provides the

funds necessary to pay the direct

compliance costs incurred by the State

and local governments, or DOE consults

with State and local officials early in the

process of developing the proposed

regulation. DOE also may not issue a

regulation that has federalism

implications and that preempts State

law unless it consults with State and

local officials early in the process of

developing the proposed regulations.

The statutory authority under which

this proposed standard is being

promulgated specifically addresses the

effect of Federal rules on State laws or

regulations concerning testing, labeling

and standards. Section 327 of EPCA, as

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

such State laws or regulations are

superseded by EPCA, unless specifically

exempted in Section 327. The

Department can grant a waiver of

preemption in accordance with the

procedures and other provisions of

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

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

petitions for exemption from

preemption with the Secretary and have

their request reviewed on a case-by-case

basis.

DOE has examined today’s rule and

has determined that although final

standards would preempt State laws in

this area, they would not have a

substantial direct effect on the States, on

the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. No further action

is required by Executive Order 13132.

H. Review Under the Unfunded

Mandates Reform Act of 1995

With respect to a proposed regulatory

action that may result in the

expenditure by State, local, and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

(adjusted annually for inflation) in any

one year, Section 202(a) of the

Unfunded Mandates Reform Act of 1995

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

a Federal agency to publish a written

statement concerning estimates of the

resulting costs, benefits and other effects

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

1532(a), (b). DOE estimates that the

proposed standards, if adopted, would

result in the expenditure by the private

sector of $100 million or more in a year.

Section 202 of UMRA authorizes an

agency to respond to the content

requirements of UMRA in any other

statement or analysis that accompanies

the proposed rule. 2 U.S.C. 1532(c). The

content requirements of Section 202(a)

of UMRA relevant to the private sector

mandate substantially overlap the

economic analysis requirements that

apply under Section 325(o) of EPCA, as

amended, and Executive Order 12866.

The Supplementary Information section

in this NOPR and the analysis contained

in the TSD for this proposed rule

responds to those requirements.

DOE is obligated by Section 205 of

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

consider a reasonable number of

regulatory alternatives before

promulgating a rule for which a written

statement under Section 202 is required.

From those alternatives, DOE must

select the least costly, most costeffective or least burdensome alternative

that achieves the objectives of the rule,

unless DOE publishes an explanation of

why a different alternative is selected.

As required by Section 325(o) of the

EPCA, as amended, 42 U.S.C. 6295(o),

this proposed rule would establish

energy conservation standards for water

heaters that are designed to achieve the

maximum improvement in energy

efficiency which DOE has determined is

technologically feasible and

economically justified. A full discussion

of the regulatory and non-regulatory

alternatives considered by DOE is

presented in the TSD for this proposed

rule.

I. Review Under the Plain Language

Directives

Section 1(b)(12) of Executive Order

12866 requires that each agency draft its

regulations so that they are simple and

easy to understand, with the goal of

25084 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

minimizing the potential for uncertainty

and litigation arising from such

uncertainty. Similarly, the Presidential

memorandum of June 1, 1998 (63 FR

31883) directs the heads of executive

departments and agencies to use, by

January 1, 1999, plain language in all

proposed and final rulemaking

documents published in the Federal

Register, unless the rule was proposed

before that date.

Today’s proposed rule uses the

following general techniques to abide by

Section 1(b)(12) of Executive Order

12866 and the Presidential

memorandum of June 1, 1998 (63 FR

31883):

• Organization of the material to

serve the needs of the readers

(stakeholders).

• Use of common, everyday words.

• Shorter sentences and sections.

We invite your comments on how to

make this proposed rule easier to

understand.

J. Assessment of Federal Regulations

and Policies on Families Review

Section 654 of the Treasury and

General Government Appropriations

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

Federal agencies to issue a Family

Policymaking Assessment for any

proposed rule or policy that may affect

family well-being. Today’s proposal

would not have any impact on the

autonomy or integrity of the family as

an institution. Accordingly, DOE has

concluded it is not necessary to prepare

a Family Policymaking Assessment.

VI. Public Comment Procedures

A. Written Comment Procedures

The Department invites interested

persons to participate in the proposed

rulemaking by submitting data,

comments, or information with respect

to the proposed issues set forth in

today’s proposed rule to Ms. Brenda

Edwards-Jones, at the address indicated

at the beginning of this notice. We will

consider all submittals received by the

date specified at the beginning of this

notice in developing the final rule.

According 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 one complete copy of the

document and ten (10) copies, if

possible, from which the information

believed to be confidential has been

deleted. The Department of Energy will

make its own determination with regard

to the confidential status of the

information and treat it according to its

determination.

Factors of interest to the Department

when evaluating requests to treat as

confidential information that has been

submitted include: (1) A description of

the items; (2) an indication as to

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) an indication as to 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.

B. Public Workshop

1. Procedures for Submitting Requests

To Speak

You will find the time and place of

the public workshop listed at the

beginning of this notice of proposed

rulemaking. The Department invites any

person who has an interest in today’s

notice of proposed rulemaking, or who

is a representative of a group or class of

persons that has an interest in these

proposed issues, to make a request for

an opportunity to make an oral

presentation. If you would like to attend

the public workshop, please notify Ms.

Brenda Edwards-Jones at (202) 586–

2945. You may hand deliver requests to

speak to the address indicated at the

beginning of this notice between the

hours of 8:00 a.m. and 4:00 p.m.,

Monday through Friday, except Federal

holidays, or send them by mail.

The person making the request should

state why he or she, either individually

or as a representative of a group or class

of persons, is an appropriate

spokesperson, briefly describe the

nature of the interest in the rulemaking,

and provide a telephone number for

contact.

The Department requests each person

wishing to speak to submit an advance

copy of his or her statement at least ten

days prior to the date of this workshop

as indicated at the beginning of this

notice. The Department, at its

discretion, may permit any person

wishing to speak who cannot meet this

requirement to participate if that person

has made alternative arrangements with

the Office of Building Research and

Standards in advance. The letter making

a request to give an oral presentation

must ask for such alternative

arrangements.

2. Conduct of Workshop

The workshop (hearing) will be

conducted in an informal, conference

style. The Department may use a

professional facilitator to facilitate

discussion, and a court reporter will be

present to record the transcript of the

meeting. We will present summaries of

comments received before the

workshop, allow time for presentations

by workshop participants, and

encourage all interested parties to share

their views on issues affecting this

rulemaking. Following the workshop,

we will provide an additional comment

period, during which interested parties

will have an opportunity to comment on

the proceedings at the workshop, as

well as on any aspect of the rulemaking

proceeding.

The Department will arrange for a

transcript of the workshop and will

make the entire record of this

rulemaking, including the transcript,

available for inspection in the

Department’s Freedom of Information

Reading Room. Any person may

purchase a copy of the transcript from

the transcribing reporter. You can also

download the TSD and other analyses

from the Internet at: http://

www.eren.doe.gov/buildings/

codes_standards/applbrf/

waterheater.htm

C. Issues for Public Comment

We are interested in receiving

comments and data to improve our

analyses. In particular, we are interested

in seeking responses to the following

questions and/or concerns:

1. Gas-fired water heater venting

studies or data on venting problems.

Data or studies on the use of 80% RE

gas-fired water heaters in natural draft

venting systems. Data on the number of

78% or 80% RE gas-fired water heaters

installations, type of venting systems

employed and the length of time

installed.

2. The number or type of ‘‘size

constrained’’ replacement water heater

installations. Data on the cost impact of

installing a 3–4 inch larger diameter

water heater in existing manufactured

homes, mobile homes, attics, and

applications where water heaters are

located in the living space. Also,

comments on the number of water

heaters affected. Suggestions for

alternative technologies such as, higher

input gas burners or larger electric

heating elements, that may reduce the

impact of thicker insulation on ‘‘size

constrained’’ replacement water heater

applications.

3. Additives or blowing agents with

zero ozone depletion potential that will

Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules 25085

provide lower conductivity or cost than

HFC–245fa blown insulation at

temperatures between 120°F and 140°F.

We also request comment on our choice

of insulation blowing agent, among the

alternatives we analyzed. We welcome

other suggestions of appropriate

blowing agents.

4. Approaches that will reduce the

impact on manufacturers of the

relatively short time between the

availability of HFC–245fa in commercial

quantities, the phase-out of HCFC–141b

and a proposed effective date of

September 2003 for DOE’s amended

water heater energy conservation

standard.

5. DOE is considering a consistent

distribution of consumer discounts

ranging from 4–12% with a mean of 6%

for all the appliance products. We

would like comments on this approach

as it applies to water heaters.

6. We request comments on the

validity of the analytical methods used

to develop the direct effects of water

heater standards on national

employment and the appropriate

interpretation and use of the results of

this analysis approach.

Appendix A—Acronyms and Abbreviations

ACEEE American Council for an Energy

Efficiency Economy

ADL Arthur D. Little

AEO EIA’s Annual Energy Outlook

AEO99 EIA’s 1999 Annual Energy Outlook

AGA America Gas Association

ANOPR Advance Notice of Proposed

Rulemaking

ANSI American National Standards

Institute

ASHRAE American Society for Heating,

Refrigerating and Air-Conditioning

Engineers

BRS DOE’s Office of Building Research and

Standards

Btu British thermal unit

C Elemental carbon

CE Consumer Expenditures

CEC California Energy Commission

CFR Code of Federal Regulations

CNG Connecticut Natural Gas

CO Carbon monoxide

CO2 Carbon dioxide

CPSC Consumer Product Safety

Commission

DOE U.S. Department of Energy (also the

Department)

DOJ U.S. Department of Justice

EA Environmental Assessment

EEI Edison Electric Institute

EIA DOE’s Energy Information

Administration

EERE DOE’s Office of Energy Efficiency and

Renewable Energy

EF Energy factor

EJ Exajoule

EMPA Energy Market and Policy Analysis

EPA Environmental Protection Agency

EPCA Energy Policy and Conservation Act

EPRI Electric Power Research Institute

FEMP Federal Energy Management Program

FOI Freedom of Information

FONSI Finding of No Significant Impact

FR Federal Register

GAMA Gas Appliance Manufacturers

Association

GRI Gas Research Institute

GRIM Government Regulatory Impact

Model

HCFC Hydrochlorofluorocarbon

HFC Hydrofluorocarbon

IID Intermittent ignition device

ImBuild Impact of Building Energy

Efficiency Programs model

INPV Industry net present value

ITS Intertek Testing Services

kt Thousand metric tons

kWh kilowatt hours

LBNL Lawrence Berkeley National

Laboratory

LCC Life-cycle cost

LPG Liquid petroleum gas

MIA Manufacturer impact analysis

MMBtu Million Btus

Mt Million metric tons

NEEA Northwest Energy Efficiency

Alliance

NEGA New England Gas Association

NEMS National Energy Modeling System

NEMS–BRS National Energy Modeling

System—Building Research and Standards

NEPA National Environmental Policy Act

NES National energy savings

NFGC National Fuel Gas Code

NGC Natural Gas Council

NIST National Institute of Standards and

Technology

NOX Oxides of nitrogen

NOAA National Oceanic and Atmospheric

Administration

NOPR Notice of Proposed Rulemaking

NPV Net present value

NRDC Natural Resources Defense Council

NRECA National Rural Electric Cooperative

Association

NU Northeast Utilities

NWPPC Northwest Power Planning Council

OIRA Office of Information and Regulatory

Affairs

OOE Oregon Office of Energy

ORNL Oak Ridge National Laboratory

PG&E Pacific Gas and Electric

PNNL Pacific Northwest National

Laboratory

Pon Rated input power

RE Recovery efficiency

RECS Residential Energy Consumption

Survey

RIA Regulatory impact analysis

SC Southern Company

SO2 Sulfur dioxide

TANK Computer simulation model for gasfired water heaters

TSD Technical Support Document

UA Heat transfer coefficient

UMRA Unfunded Mandates Reform Act of

1995

VOC Volatile organic compound

VP Virginia Power

WATSIM Computer simulation model for

electric storage water heaters

WHAM Water Heater Analysis Model for

oil-fired water heaters

List of Subjects in 10 CFR Part 430

Administrative practice and

procedure, Energy Conservation,

Household appliances.

Issued in Washington, DC, on March 8,

2000.

Dan W. Reicher,

Assistant Secretary, Energy Efficiency and

Renewable Energy.

For the reasons set forth in the

preamble, Part 430 of Chapter II of Title

10, Code of Federal Regulations is

proposed to be amended as set forth

below.

PART 430—ENERGY CONSERVATION

PROGRAM FOR CONSUMER

PRODUCTS

1. The authority citation for Part 430

continues to read as follows:

Authority: 42 U.S.C. 6291–6309.

2. Section 430.32(d) of Subpart C is

revised to read as follows:

§ 430.32 Energy conservation standards

and effective dates.

* * * * *

(d) Water Heaters

The energy factor of water heaters

shall not be less than the following for

products manufactured on or after the

indicated dates.

25086 Federal Register / Vol. 65, No. 83 / Friday, April 28, 2000 / Proposed Rules

Product class Energy factor as of

January 1, 1990

Energy factor as of

April 15, 1991

Energy factor as of [date 3 years

from publication of final rule]

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

Volume in gallons).

0.62¥(.0019 × Rated Storage

Volume in gallons).

0.67¥(0.0019 × Rated Storage

Volume in gallons).

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

Volume in gallons).

0.59¥(.0019 × Rated Storage

Volume in gallons).

0.59¥(0.0019 × Rated Storage

Volume in gallons).

3. Electric Water Heater ................ 0.95¥(.00132 × Rated Storage

Volume in gallons).

0.93¥(.00132 × Rated Storage

Volume in gallons).

0.97¥(0.00132 × Rated Storage

Volume in gallons).

Note: The Rated Storage Volume equals the water storage capacity of a water heater, in gallons, as specified by the manufacturer.

* * * * *

[FR Doc. 00–9847 Filed 4–17–00; 11:57 am]

BILLING CODE 6450–01–P