30610 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

DEPARTMENT OF ENERGY 

10 CFR Part 431 

[EERE–2021–BT–STD–0027] 

RIN 1904–AD34 

Energy Conservation Program: Energy 

Conservation Standards for 

Commercial Water Heating Equipment 

AGENCY: Office of Energy Efficiency and 

Renewable Energy, Department of 

Energy. 

ACTION: Notice of proposed rulemaking 

and announcement of public meeting. 

SUMMARY: The Energy Policy and 

Conservation Act, as amended 

(‘‘EPCA’’), prescribes energy 

conservation standards for certain 

commercial and industrial equipment, 

including commercial water heaters, hot 

water supply boilers, and unfired hot 

water storage tanks (hereinafter referred 

to as ‘‘commercial water heating (CWH) 

equipment’’). EPCA requires the U.S. 

Department of Energy (‘‘DOE’’) to 

periodically determine whether morestringent standards for CWH equipment 

would be technologically feasible and 

economically justified, and would result 

in significant energy savings. In this 

notice of proposed rulemaking 

(‘‘NOPR’’), DOE proposes to amend the 

standards for certain classes of CWH 

equipment for which DOE has 

tentatively determined there is clear and 

convincing evidence to support morestringent standards. Additionally, DOE 

is proposing to codify standards for 

electric instantaneous CWH equipment 

from EPCA into the Code of Federal 

Regulations (‘‘CFR’’). DOE also 

announces a public meeting to receive 

comment on these proposed standards 

and the associated analyses and results. 

DATES: 

Comments: DOE will accept 

comments, data, and information 

regarding this NOPR no later than July 

18, 2022. 

Comments regarding the likely 

competitive impact of the proposed 

standard should be sent to the 

Department of Justice contact listed in 

the ADDRESSES section on or before July 

18, 2022. 

Meeting: DOE will hold a public 

meeting via webinar on June 23, 2022, 

from 1:00 p.m. to 5:00 p.m. See section 

VII, ‘‘Public Participation,’’ for webinar 

registration information, participant 

instructions and information about the 

capabilities available to webinar 

participants. 

ADDRESSES: Interested persons are 

encouraged to submit comments using 

the Federal eRulemaking Portal at 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Alternatively, interested persons may 

submit comments, identified by docket 

number EERE–2021–BT–STD–0027 

and/or regulatory information number 

(RIN) 1904–AD34, by any of the 

following methods: 

(1) Federal eRulemaking Portal: 

www.regulations.gov. Follow the 

instructions for submitting comments. 

(2) Email: Mail to: CommWater 

Heaters2021STD0027@ee.doe.gov. 

Include the docket number EERE–2021– 

BT–STD–0027 in the subject line of the 

message. 

No telefacsimiles (faxes) will be 

accepted. For detailed instructions on 

submitting comments and additional 

information on the rulemaking process, 

see section VII of this document. 

Although DOE has routinely accepted 

public comment submissions through a 

variety of mechanisms, including the 

Federal eRulemaking Portal, email, 

postal mail and hand delivery/courier, 

the Department has found it necessary 

to make temporary modifications to the 

comment submission process in light of 

the ongoing coronavirus 2019 (‘‘COVID– 

19’’) pandemic. DOE is currently 

suspending receipt of public comments 

via postal mail and hand delivery/ 

courier. If a commenter finds that this 

change poses an undue hardship, please 

contact Appliance Standards Program 

staff at (202) 586–1445 to discuss the 

need for alternative arrangements. Once 

the COVID–19 pandemic health 

emergency is resolved, DOE anticipates 

resuming all of its regular options for 

public comment submission, including 

postal mail and hand delivery/courier. 

Docket: The docket for this 

rulemaking, which includes Federal 

Register notices, comments, and other 

supporting documents/materials, is 

available for review at 

www.regulations.gov. All documents in 

the docket are listed in the 

www.regulations.gov index. However, 

some documents listed in the index, 

such as those containing information 

that is exempt from public disclosure, 

may not be publicly available. 

The docket webpage can be found at 

www.regulations.gov/docket/EERE2021-BT-STD-0027. The docket 

webpage contains instructions on how 

to access all documents, including 

public comments, in the docket. See 

section VII, ‘‘Public Participation,’’ for 

information on how to submit 

comments through 

www.regulations.gov. 

Written comments regarding the 

burden-hour estimates or other aspects 

of the collection-of-information 

requirements contained in this proposed 

rule may be submitted to Office of 

Energy Efficiency and Renewable 

Energy following the instructions at 

www.reginfo.gov. 

EPCA requires the Attorney General 

to provide DOE a written determination 

of whether the proposed standard is 

likely to lessen competition. The U.S. 

Department of Justice (‘‘DOJ’’) Antitrust 

Division invites input from market 

participants and other interested 

persons with views on the likely 

competitive impact of the proposed 

standard. Interested persons may 

contact the Division at 

energy.standards@usdoj.gov on or 

before the date specified in the DATES

section. Please indicate in the ‘‘Subject’’ 

line of your email the title and Docket 

Number of this proposed rulemaking. 

FOR FURTHER INFORMATION CONTACT: 

Ms. Julia Hegarty, U.S. Department of 

Energy, Office of Energy Efficiency and 

Renewable Energy, Building 

Technologies Office, EE–5B, 1000 

Independence Avenue SW, Washington, 

DC 20585–0121. Telephone: (240) 597– 

6737. Email: ApplianceStandards 

Questions@ee.doe.gov. 

Mr. Matthew Ring, U.S. Department of 

Energy, Office of the General Counsel, 

GC–33, 1000 Independence Avenue SW, 

Washington, DC 20585–0121. 

Telephone: (202) 586–2555. Email: 

Matthew.Ring@hq.doe.gov. 

DOE has submitted the collection of 

information contained in the proposed 

rule to OMB for review under the 

Paperwork Reduction Act, as amended. 

(44 U.S.C. 3507(d)) Comments on the 

information collection proposal shall be 

directed to the Office of Information and 

Regulatory Affairs, Office of 

Management and Budget, Attention: 

Sofie Miller, OIRA Desk Officer by 

email: sofie.e.miller@omb.eop.gov. 

For further information on how to 

submit a comment, or review other 

public comments and the docket, 

contact the Appliance and Equipment 

Standards Program staff at (202) 287– 

1445 or by email: ApplianceStandards 

Questions@ee.doe.gov. 

SUPPLEMENTARY INFORMATION: DOE 

proposes to update previously approved 

incorporations by reference of the 

following industry standards in part 

431: 

ASTM C177–13, ‘‘Standard Test 

Method for Steady-State Heat Flux 

Measurements and Thermal 

Transmission Properties by Means of 

the Guarded-Hot-Plate Apparatus,’’ 

approved September 15, 2013. 

ASTM C518–15, ‘‘Standard Test 

Method for Steady-State Thermal 

Transmission Properties by Means of 

the Heat Flow Meter Apparatus,’’ 

approved September 1, 2015. 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30611 

Copies of ASTM C177–13 and ASTM 

C518–15 can be obtained from ASTM 

International, 100 Barr Harbor Drive, 

P.O. Box C700, West Conshohocken, PA 

19428–2959, (610) 832–9585, or go to 

www.astm.org. 

For a further discussion of these 

standards, see section VI.M of this 

document. 

Table of Contents 

I. Synopsis of the Proposed Rule 

A. Benefits and Costs to Consumers 

B. Impact on Manufacturers 

C. National Benefits and Costs 

D. Conclusion 

II. Introduction 

A. Authority 

B. Background and Rulemaking History 

C. Deviation From Appendix A 

III. General Discussion 

A. Test Procedures 

B. Scope of Rulemaking 

1. Residential-Duty Commercial Water 

Heaters 

2. Oil-Fired Commercial Water Heating 

Equipment 

3. Unfired Hot Water Storage Tanks 

4. Electric Instantaneous Water Heaters 

5. Commercial Heat Pump Water Heaters 

6. Electric Storage Water Heaters 

7. Instantaneous Water Heaters and Hot 

Water Supply Boilers 

C. Technological Feasibility 

1. General 

2. Maximum Technologically Feasible 

Levels 

D. Energy Savings 

1. Determination of Savings 

2. Significance of Savings 

E. Economic Justification 

1. Specific Criteria 

a. Economic Impact on Manufacturers and 

Commercial Consumers 

b. Savings in Operating Costs Compared to 

Increase in Price (Life-Cycle Costs) 

c. Energy Savings 

d. Lessening of Utility or Performance of 

Products 

e. Impact of Any Lessening of Competition 

f. Need for National Energy Conservation 

g. Other Factors 

2. Rebuttable Presumption 

F. Revisions to Notes in Regulatory Text 

G. Certification, Compliance, and 

Enforcement Issues 

H. General Comments 

IV. Methodology and Discussion of Related 

Comments 

A. Market and Technology Assessment 

1. Definitions 

2. Equipment Classes 

a. Residential-Duty Electric Instantaneous 

Water Heaters 

b. Storage-Type Instantaneous Water 

Heaters 

c. Condensing Gas-Fired Water Heating 

Equipment 

d. Tankless Water Heaters and Hot Water 

Supply Boilers 

e. Gas-Fired and Oil-Fired Storage Water 

Heaters 

f. Grid-Enabled Water Heaters 

g. Input Capacity for Instantaneous Water 

Heaters and Hot Water Supply Boilers 

3. Review of the Current Market for CWH 

Equipment 

4. Technology Options 

B. Screening Analysis 

1. Screened-Out Technologies 

2. Remaining Technologies 

C. Engineering Analysis 

1. Efficiency Analysis 

2. Cost Analysis 

3. Representative Equipment for Analysis 

4. Efficiency Levels for Analysis 

a. Thermal Efficiency Levels 

b. Standby Loss Levels 

c. Uniform Energy Efficiency Levels 

5. Standby Loss Reduction Factors 

6. Teardown Analysis 

7. Manufacturing Production Costs 

8. Manufacturer Markup and Manufacturer 

Selling Price 

9. Shipping Costs 

D. Markups Analysis 

1. Distribution Channels 

2. Comments on Withdrawn May 2016 

CWH ECS NOPR 

3. Markups Used in This NOPR 

E. Energy Use Analysis 

F. Life-Cycle Cost and Payback Period 

Analysis 

1. Approach 

2. Life-Cycle Cost Inputs 

a. Equipment Cost 

b. Installation Costs 

c. Annual Energy Consumption 

d. Energy Prices 

e. Maintenance Costs 

f. Repair Costs 

g. Product Lifetime 

h. Discount Rate 

i. Energy Efficiency Distribution in the NoNew-Standards Case 

3. Payback Period 

G. Shipments Analysis 

1. Commercial Gas-Fired and Electric 

Storage Water Heaters 

2. Residential-Duty Gas-Fired Storage and 

Instantaneous Water Heaters 

3. Available Products Database and 

Equipment Efficiency Trends 

4. Shipments to Residential Consumers 

5. NOPR Shipments Model 

H. National Impact Analysis 

1. Equipment Efficiency Trends 

2. Fuel and Technology Switching 

3. National Energy Savings 

4. Net Present Value Analysis 

I. Consumer Subgroup Analysis 

1. Residential Sector Subgroup Analysis 

J. Manufacturer Impact Analysis 

1. Overview 

2. Government Regulatory Impact Model 

and Key Inputs 

a. Manufacturer Production Costs 

b. Shipments Projections 

c. Product and Capital Conversion Costs 

d. Manufacturer Markup Scenarios 

K. Emissions Analysis 

1. Air Quality Regulations Incorporated in 

DOE’s Analysis 

L. Monetizing Emissions Impacts 

1. Monetization of Greenhouse Gas 

Emissions 

a. Social Cost of Carbon 

b. Social Cost of Methane and Nitrous 

Oxide 

2. Monetization of Other Air Pollutants 

M. Utility Impact Analysis 

N. Employment Impact Analysis 

V. Analytical Results and Conclusions 

A. Trial Standard Levels 

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Individual 

Consumers 

a. Life-Cycle Cost and Payback Period 

b. Consumer Subgroup Analysis 

c. Rebuttable Presumption Payback 

2. Economic Impacts on Manufacturers 

a. Industry Cash Flow Analysis Results 

b. Impacts on Direct Employment 

c. Impacts on Manufacturing Capacity 

d. Impacts on Subgroups of Manufacturers 

e. Cumulative Regulatory Burden 

3. National Impact Analysis 

a. Significance of Energy Savings 

b. Net Present Value of Consumer Costs 

and Benefits 

c. Indirect Impacts on Employment 

4. Impact on Utility or Performance of 

Products 

5. Impact of Any Lessening of Competition 

6. Need of the Nation To Conserve Energy 

7. Other Factors 

8. Summary of National Economic Impacts 

C. Conclusion 

1. Benefits and Burdens of TSLs 

Considered for CWH Equipment 

Standards 

2. Annualized Benefits and Costs of the 

Proposed Standards 

VI. Procedural Issues and Regulatory Review 

A. Review Under Executive Orders 12866 

and 13563 

B. Review Under the Regulatory Flexibility 

Act 

1. Description of Reasons Why Action Is 

Being Considered 

2. Objectives of, and Legal Basis for, Rule 

3. Description on Estimated Number of 

Small Entities Regulated 

4. Description and Estimate of Compliance 

Requirements 

5. Duplication, Overlap, and Conflict With 

Other Rules and Regulations 

6. Significant Alternatives to the Rule 

C. Review Under the Paperwork Reduction 

Act 

D. Review Under the National 

Environmental Policy Act of 1969 

E. Review Under Executive Order 13132 

F. Review Under Executive Order 12988 

G. Review Under the Unfunded Mandates 

Reform Act of 1995 

H. Review Under the Treasury and General 

Government Appropriations Act, 1999 

I. Review Under Executive Order 12630 

J. Review Under the Treasury and General 

Government Appropriations Act, 2001 

K. Review Under Executive Order 13211 

L. Information Quality 

M. Materials Incorporated by Reference 

VII. Public Participation 

A. Participation in the Webinar 

B. Procedure for Submitting Prepared 

General Statements for Distribution 

C. Conduct of the Webinar 

D. Submission of Comments 

E. Issues on Which DOE Seeks Comment 

VIII. Approval of the Office of the Secretary 


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30612 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

1For editorial reasons, upon codification in the 

U.S. Code, Part C was re-designated Part A–1. 

2All references to EPCA in this document refer 

to the statute as amended through the Energy Act 

of 2020, Public Law 116–260 (Dec. 27, 2020). 

3The average LCC savings refer to consumers that 

are affected by a standard and are measured relative 

to the efficiency distribution in the no-newstandards case, which depicts the market in the 

compliance year in the absence of new or amended 

standards (see section IV.F.2.i of this document). 

The simple PBP, which is designed to compare 

specific efficiency levels, is measured relative to the 

baseline product (see section IV.F.3 of this 

document). 

I. Synopsis of the Proposed Rule 

Title III, Part C1 of EPCA,2 established 

the Energy Conservation Program for 

Certain Industrial Equipment. (42 U.S.C. 

6311–6317) Such equipment includes 

CWH equipment, the subject of this 

NOPR. (42 U.S.C. 6311(1)(K)) 

Pursuant to EPCA, DOE must consider 

amending the energy efficiency 

standards for certain types of 

commercial and industrial equipment, 

including the equipment at issue in this 

document, whenever the American 

Society of Heating, Refrigerating, and 

Air-Conditioning Engineers 

(‘‘ASHRAE’’) amends the standard 

levels or design requirements prescribed 

in ASHRAE Standard 90.1, ‘‘Energy 

Standard for Buildings Except Low-Rise 

Residential Buildings,’’ (‘‘ASHRAE 

Standard 90.1’’), and at a minimum, 

every six 6 years. (42 U.S.C. 

6313(a)(6)(A)–(C)) 

In accordance with these and other 

statutory provisions discussed in this 

document, DOE proposes amended 

energy conservation standards for 

certain classes of CWH equipment. The 

proposed standards, which are 

expressed in terms of thermal efficiency, 

standby loss, and uniform energy factor 

(‘‘UEF’’), are shown in Table I.1 and 

Table I.2. These proposed standards, if 

adopted, would apply to all CWH 

equipment listed in Table I.1 and Table 

I.2, manufactured in, or imported into 

the United States starting on the date 3 

years after the publication of the final 

rule for this rulemaking. DOE is also 

proposing to codify standards for 

electric instantaneous CWH equipment 

from EPCA into the CFR. Finally, DOE 

is proposing several changes to the 

footnotes to tables of energy 

conservation standards at 10 CFR 

431.110 to clarify existing regulations 

for CWH equipment. The proposed 

standards for electric instantaneous 

CWH equipment and changes to the 

footnotes are also shown in Table I.1. 

TABLE I.1—PROPOSED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT EXCEPT FOR

RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Size 

Energy conservation standards * 

Minimum 

thermal 

efficiency 

(%) 

Maximum standby loss † 

Gas-fired storage water heaters ............................................................. All ........................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h). 

Electric instantaneous water heaters ‡ ................................................... <10 gal ................... 80 N/A. 

≥10 gal ................... 77 2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers .... <10 gal ................... 96 N/A. 

≥10 gal ................... 96 Q/800 + 110(Vr)1⁄2 (Btu/h). 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input rate in Btu/h, as determined pursuant to 

10 CFR 429.44. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) The tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a flue damper or fan-assisted combustion. 

‡Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance 

date for these energy conservation standards is January 1, 1994. In this NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in 

section III.B.4 of this NOPR. 

TABLE I.2—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED RESIDENTIAL-DUTY COMMERCIAL

WATER HEATERS

Equipment Specification * Draw pattern ** Uniform energy factor † 

Gas-fired Residential-Duty Storage >75 kBtu/h and .............................

≤105 kBtu/h and ...........................

≤120 gal and .................................

≤180 °F .........................................

Very Small ....................................

Low ...............................................

Medium .........................................

High ..............................................

0.5374¥(0.0009 × Vr). 

0.8062¥(0.0012 × Vr). 

0.8702¥(0.0011 × Vr). 

0.9297¥(0.0009 × Vr). 

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) If requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

† Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. 

A. Benefits and Costs to Consumers 

Table I.3 presents DOE’s evaluation of 

the economic impacts of the proposed 

standards on consumers of CWH 

equipment, as measured by the average 

life-cycle cost (‘‘LCC’’) savings and the 

simple payback period (‘‘PBP’’).3 The 

average LCC savings are positive for all 

equipment classes, and the PBP is less 

than the average lifetime of CWH 

equipment, which is estimated to range 

from 10 years for commercial gas-fired 

storage water heaters to 25 years for 

instantaneous water heaters and hot 

water supply boilers (see section 

IV.F.2.g of this document). 


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4All monetary values in this document are 

expressed in 2020 dollars. 5The quantity refers to full-fuel-cycle (‘‘FFC’’) 

energy savings. FFC energy savings include the 

energy consumed in extracting, processing, and 

transporting primary fuels (i.e., coal, natural gas, 

petroleum fuels), and, thus, presents a more 

complete picture of the impacts of energy efficiency 

standards. For more information on the FFC metric, 

see section IV.H.3 of this document. 

6A metric ton is equivalent to 1.1 short tons. 

Results for emissions other than CO2 are presented 

in short tons. 

7 DOE calculated emissions reductions relative to 

the no-new-standards case, which reflects key 

assumptions in the Annual Energy Outlook 2021 

(‘‘AEO2021’’). AEO2021 represents current Federal 

and State legislation and final implementation of 

regulations as of the time of its preparation. See 

section IV.K for further discussion of AEO2021 

assumptions that effect air pollutant emissions. 

8See Interagency Working Group on Social Cost 

of Greenhouse Gases, Technical Support Document: 

Social Cost of Carbon, Methane, and Nitrous Oxide. 

Interim Estimates Under Executive Order 13990, 

Washington, DC February 2021. 

www.whitehouse.gov/wp-content/uploads/2021/02/

TechnicalSupportDocument_SocialCostof

CarbonMethaneNitrousOxide.pdf?source=email. 

9On March 16, 2022, the Fifth Circuit Court of 

Appeals (No. 22–30087) granted the Federal 

Government’s emergency motion for stay pending 

appeal of the February 11, 2022, preliminary 

injunction issued in Louisiana v. Biden, No. 21–cv– 

1074–JDC–KK (W.D. La.). As a result of the Fifth 

Circuit’s order, the preliminary injunction is no 

longer in effect, pending resolution of the Federal 

Government’s appeal of that injunction or a further 

court order. Among other things, the preliminary 

injunction enjoined the defendants in that case 

from ‘‘adopting, employing, treating as binding, or 

relying upon’’ the interim estimates of the social 

cost of greenhouse gases—which were issued by the 

Interagency Working Group on the Social Cost of 

Greenhouse Gases on February 26, 2021—to 

monetize the benefits of reducing greenhouse gas 

emissions. In the absence of further intervening 

court orders, DOE will revert to its approach prior 

to the injunction and present monetized benefits 

where appropriate and permissible under law. 

10 DOE estimated the monetized value of SO2 and 

NOX emissions reductions associated with site and 

electricity savings using benefit per ton estimates 

from the scientific literature. See section IV.L.2 of 

this document for further discussion. 

TABLE I.3—IMPACTS OF PROPOSED ENERGY CONSERVATION STANDARDS ON CONSUMERS OF CWH EQUIPMENT

Equipment 

Average LCC 

savings 

(2020$) 

Simple 

payback 

period 

(years) 

Commercial Gas-Fired Storage and Storage-Type Instantaneous ......................................................................... 301 5 

Residential-Duty Gas-Fired Storage ........................................................................................................................ 90 9 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................... 599 9 

—Instantaneous, Gas-Fired Tankless .............................................................................................................. 63 9 

—Instantaneous Water Heaters and Hot Water Supply Boilers ...................................................................... 1,047 9 

DOE’s analysis of the impacts of the 

proposed standards on consumers is 

described in section IV.F of this 

document. 

B. Impact on Manufacturers 

The industry net present value 

(‘‘INPV’’) is the sum of the discounted 

cash flows to the industry from the base 

year through the end of the analysis 

period (2020–2055). Using a real 

discount rate of 9.1 percent, DOE 

estimates that the INPV for 

manufacturers of CWH Equipment in 

the case without amended standards is 

$183.1 million in 2020$. Under the 

proposed standards, the change in INPV 

is estimated to range from ¥12.8 

percent to ¥5.9 percent, which is 

approximately equivalent to a decrease 

of $23.4 million to a decrease of $10.8 

million, respectively. In order to bring 

products into compliance with amended 

standards, it is estimated that the 

industry would incur total conversion 

costs of $34.6 million. 

DOE’s analysis of the impacts of the 

proposed standards on manufacturers is 

described in section IV.J of this 

document. The analytic results of the 

manufacturer impact analysis (‘‘MIA’’) 

are presented in section V.B.2 of this 

document. 

C. National Benefits and Costs 4

DOE’s analyses indicate that the 

proposed energy conservation standards 

for CWH equipment would save a 

significant amount of energy. Relative to 

the case without amended standards, 

the lifetime energy savings for CWH 

Equipment purchased in the 30-year 

period that begins in the anticipated 

year of compliance with the amended 

standards (2026–2055) amount to 0.70 

quadrillion British thermal units 

(‘‘Btu’’), or quads.5 This represents a 

savings of 4.9 percent relative to the 

energy use of these products in the case 

without amended standards (referred to 

as the ‘‘no-new-standards case’’). 

The cumulative net present value 

(‘‘NPV’’) of total consumer benefits of 

the proposed standards for CWH 

equipment ranges from $0.48 billion (at 

a 7-percent discount rate) to $1.49 

billion (at a 3-percent discount rate). 

This NPV expresses the estimated total 

value of future operating-cost savings 

minus the estimated increased product 

and installation costs for CWH 

equipment purchased in 2026–2055. 

In addition, the proposed standards 

for CWH equipment are projected to 

yield significant environmental benefits. 

DOE estimates that the proposed 

standards would result in cumulative 

emission reductions (over the same 

period as for energy savings) of 38 

million metric tons (‘‘Mt’’) 6 of carbon 

dioxide (‘‘CO2’’), ¥0.02 thousand tons 

of sulfur dioxide (‘‘SO2’’), 95 thousand 

tons of nitrogen oxides (‘‘NOX’’), 471 

thousand tons of methane (‘‘CH4’’), 0.07 

thousand tons of nitrous oxide (‘‘N2O’’), 

and ¥0.001 tons of mercury (‘‘Hg’’).7

DOE estimates climate benefits from a 

reduction in greenhouse gases using 

four different estimates of the ‘‘social 

cost of carbon’’ (‘‘SC-CO2’’), the social 

cost of methane (‘‘SC-CH4’’), and the 

social cost of nitrous oxide (‘‘SC-N2O’’). 

Together these represent the social cost 

of greenhouse gases (‘‘SC-GHG’’). DOE 

used interim estimates of SC-GHG 

values developed by an Interagency 

Working Group on the Social Cost of 

Greenhouse Gases (IWG).8 The 

derivation of these values is discussed 

in section IV.L.1. of this document. For 

presentational purposes, the climate 

benefits associated with the average SCGHG at a 3-percent discount rate is 

$1.96 billion. DOE does not have a 

single central SC-GHG point estimate 

and it emphasizes the importance and 

value of considering the benefits 

calculated using all four SC-GHG 

estimates.9

DOE also estimates the health benefits 

from SO2 and NOX emissions 

reduction.10 DOE estimates the present 

value of the health benefits would be 

$0.99 billion using a 7-percent discount 

rate, and $2.62 billion using a 3-percent 

discount. DOE is currently only 

monetizing fine particulate matter 

(‘‘PM2.5’’) and (for NOX) ozone precursor 

health benefits, but will continue to 

assess the ability to monetize other 

effects such as health benefits from 

reductions in direct PM2.5 emissions. 

Table I.4 summarizes the economic 

benefits and costs expected to result 

from the proposed standards for CWH 

equipment. In the table, total benefits 

for both the 3-percent and 7-percent 

cases are presented using the average 

GHG social costs with 3-percent 

discount rate. DOE does not have a 


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30614 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

11To convert the time-series of costs and benefits 

into annualized values, DOE calculated a present 

value in 2021, the year used for discounting the 

NPV of total consumer costs and savings. For the 

benefits, DOE calculated a present value associated 

with each year’s shipments in the year in which the 

shipments occur (e.g., 2030), and then discounted 

the present value from each year to 2021. The 

calculation uses discount rates of 3 and 7 percent 

for all costs and benefits except for the value of CO2

reductions, for which DOE used case-specific 

discount rates, as shown in Table I.3. Using the 

present value, DOE then calculated the fixed annual 

payment over a 30-year period, starting in the 

compliance year, that yields the same present value. 

single central SC-GHG point estimate 

and it emphasizes the importance and 

value of considering the benefits 

calculated using all four SC-GHG 

estimates. The estimated total net 

benefits using each of the four SC-GHG 

estimates are presented in section V.B.6. 

of this document. 

TABLE I.4—SUMMARY OF ECONOMIC BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR

CWH EQUIPMENT

[TSL 3] 

Billion 2020$ 

3% Discount Rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 2.4 

Climate Benefits * ................................................................................................................................................................................. 2.0 

Health Benefits ** ................................................................................................................................................................................. 2.6 

Total Benefits † .................................................................................................................................................................................... 7.0 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 1.0 

Net Benefits ......................................................................................................................................................................................... 6.1 

7% Discount Rate 

Consumer Operating Cost Savings ..................................................................................................................................................... 1.0 

Climate Benefits * (3% discount rate) .................................................................................................................................................. 2.0 

Health Benefits ** ................................................................................................................................................................................. 1.0 

Total Benefits † .................................................................................................................................................................................... 4.0 

Consumer Incremental Product Costs ‡ .............................................................................................................................................. 0.6 

Net Benefits ......................................................................................................................................................................................... 3.4 

Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026–2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026–2055. Numbers may not add due to rounding. 

* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide 

(SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate), as shown in Table 

V.37 through Table V.39. Together these represent the global social cost of greenhouse gases (SC-GHG). For presentational purposes of this 

table, the climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown, but the Department does not have a 

single central SC-GHG point estimate. See section IV.L of this document for more details. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-percent discount rate, but the Department does not have a single 

central SC-GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates. See Table V.42 for net benefits using all four SC-GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22–30087) 

granted the federal government’s emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in Louisiana 

v. Biden, No. 21–cv–1074–JDC–KK (W.D. La.). As a result of the Fifth Circuit’s order, the preliminary injunction is no longer in effect, pending 

resolution of the federal government’s appeal of that injunction or a further court order. Among other things, the preliminary injunction enjoined 

the defendants in that case from ‘‘adopting, employing, treating as binding, or relying upon’’ the interim estimates of the social cost of greenhouse gases—which were issued by the Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021—to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its approach prior 

to the injunction and present monetized benefits where appropriate and permissible under law. 

‡ Costs include incremental equipment costs as well as installation costs. 

The benefits and costs of the proposed 

standards can also be expressed in terms 

of annualized values. The monetary 

values for the total annualized net 

benefits are (1) the reduced consumer 

operating costs, minus (2) the increase 

in product purchase prices and 

installation costs, plus (3) the value of 

the benefits of GHG, NOX, and SO2

emission reductions, all annualized.11

The national operating savings are 

domestic private U.S. consumer 

monetary savings that occur as a result 

of purchasing the covered products and 

are measured for the lifetime of CWH 

equipment shipped in 2026–2055. The 

climate benefits associated with reduced 

GHG emissions achieved as a result of 

the proposed standards are also 

calculated based on the lifetime of CWH 

equipment shipped in 2026–2055. 

Estimates of annualized benefits and 

costs of the proposed standards are 

shown in Table I.5. The results under 

the primary estimate are as follows. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

cost of the standards proposed in this 

rulemaking is $59 million per year in 

increased equipment costs, while the 

estimated annual benefits are $110 

million in reduced equipment operating 

costs, $113 million in climate benefits, 

and $104 million in health benefits. In 

this case, the net benefit would amount 

to $267 million per year. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated cost of 

the proposed standards is $55 million 

per year in increased equipment costs, 

while the estimated annual benefits are 

$140 million in reduced operating costs, 

$113 million in climate benefits, and 

$150 million in health benefits. In this 

case, the net benefit would amount to 

$349 million per year. 


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12Procedures, Interpretations, and Policies for 

Consideration in New or Revised Energy 

Conservation Standards and Test Procedures for 

Consumer Products and Commercial/Industrial 

Equipment, 86 FR 70892, 70901 (Dec. 13, 2021). 

TABLE I.5—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT

[TSL 3] 

Category 

Million 2020$/year 

Primary 

estimate 

Low-netbenefits 

estimate 

High-netbenefits 

estimate 

3% Discount Rate 

Consumer Operating Cost Savings ............................................................................................. 140.3 130.3 151.7 

Climate Benefits * ......................................................................................................................... 112.8 107.2 117.8 

Health Benefits ** ......................................................................................................................... 150.4 143.5 170.0 

Total Benefits † ............................................................................................................................ 404 381 439 

Consumer Incremental Product Costs ‡ ...................................................................................... 54.7 52.6 56.6 

Net Benefits ................................................................................................................................. 349 328 383 

7% Discount Rate 

Consumer Operating Cost Savings ............................................................................................. 109.6 103.3 116.7 

Climate Benefits * (3% discount rate) .......................................................................................... 112.8 107.2 117.8 

Health Benefits ** ......................................................................................................................... 104.3 100.4 117.2 

Total Benefits † ............................................................................................................................ 327 311 352 

Consumer Incremental Product Costs ‡ ...................................................................................... 59.2 57.5 60.9 

Net Benefits ................................................................................................................................. 267 253 291 

Note: This table presents the annualized costs and benefits associated with CWH equipment shipped in 2026–2055. These results include

benefits to consumers which accrue after 2055 from the products purchased in 2026–2055. 

* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane (SC-CH4), and nitrous oxide 

(SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate). Together these 

represent the global social cost of greenhouse gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with 

the average SC-GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC-GHG point estimate, and it 

emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates. See section IV.L of this document 

for more details. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC-GHG with 3-percent discount rate, but the Department does not have a single central 

SC-GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four SC-GHG estimates. On 

March 16, 2022, the Fifth Circuit Court of Appeals (No. 22–30087) granted the federal government’s emergency motion for stay pending appeal 

of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21–cv–1074–JDC–KK (W.D. La.). As a result of the Fifth Circuit’s order, the preliminary injunction is no longer in effect, pending resolution of the federal government’s appeal of that injunction or a further 

court order. Among other things, the preliminary injunction enjoined the defendants in that case from ‘‘adopting, employing, treating as binding, or 

relying upon’’ the interim estimates of the social cost of greenhouse gases—which were issued by the Interagency Working Group on the Social 

Cost of Greenhouse Gases on February 26, 2021—to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible 

under law. 

‡ Costs include incremental equipment costs as well as installation costs. 

DOE’s analysis of the national impacts 

of the proposed standards is described 

in sections IV.H, IV.K, and IV.L of this 

document. 

D. Conclusion 

DOE has tentatively concluded that, 

based on clear and convincing evidence 

as presented in the following sections, 

the proposed standards are 

technologically feasible and 

economically justified, and would result 

in the significant additional 

conservation of energy. Specifically, 

with regards to technological feasibility, 

CWH equipment achieving these 

standard levels are already 

commercially available for all 

equipment classes covered by this 

proposal. As for economic justification, 

DOE’s analysis shows that the benefits 

of the proposed standard exceed, to a 

great extent, the burdens of the 

proposed standards. Using a 7-percent 

discount rate for consumer benefits and 

costs and NOX and SO2 reduction 

benefits, and a 3-percent discount rate 

case for GHG social costs, the estimated 

cost of the proposed standards for CWH 

equipment is $59.2 million per year in 

increased equipment costs, while the 

estimated annual benefits are $109.6 

million in reduced equipment operating 

costs, $112.8 million in GHG 

reductions, $104.6 million in reduced 

NOX emissions, and ¥$0.30 million in 

(increased) SO2 emissions. The net 

benefit amounts to $267.4 million per 

year. 

As previously mentioned, the 

proposed standards would result in 

estimated national energy savings of 

0.70 quad, the equivalent of the 

electricity use of 7.0 million homes in 

one year. In determining whether energy 

savings are significant, DOE considers 

the specific circumstances surrounding 

a given rulemaking.12 In making this 

determination, DOE looks at, among 

other things, the FFC effects of the 

proposed standards. These effects 

include the energy consumed in 

electricity production (depending on 

load shape), in distribution and 

transmission, and in extracting, 

processing, and transporting primary 

fuels (i.e., coal, natural gas, petroleum 

fuels), and thus present a more complete 

picture of the impacts of energy 

conservation standards, including 

greenhouse gas emissions. Accordingly, 

taking into account the significance of 

cumulative FFC national energy savings, 

the cumulative FFC emissions 


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13The clear and convincing threshold is a 

heightened standard, and would only be met where 

the Secretary has an abiding conviction, based on 

available facts, data, and DOE’s own analyses, that 

it is highly probable an amended standard would 

result in a significant additional amount of energy 

savings, and is technologically feasible and 

economically justified. American Public Gas 

Association v. U.S. Dep’t of Energy, No. 20–1068, 

2022 WL 151923, at *4 (D.C. Cir. January 18, 2022) 

(citing Colorado v. New Mexico, 467 U.S. 310, 316, 

104 S.Ct. 2433, 81 L.Ed.2d 247 (1984)). 

reductions, and the need to confront the 

global climate crisis, among other 

factors, DOE has initially determined 

the energy savings for the TSL proposed 

in this rulemaking are ‘‘significant’’ 

within the meaning of EPCA. Finally, 

DOE notes that a more detailed 

discussion of the basis for these 

tentative conclusions is contained in the 

remainder of this document and the 

accompanying TSD. Based on available 

facts, data, and DOE’s own analyses, 

DOE has preliminarily determined that 

it is highly probable an amended 

standard would result in a significant 

additional amount of energy savings, 

and is technologically feasible and 

economically justified. 

DOE also considered more-stringent 

energy efficiency levels as potential 

standards, and is still considering them 

in this rulemaking. However, DOE has 

tentatively concluded that the potential 

burdens of the more-stringent energy 

efficiency levels would outweigh the 

projected benefits. 

Based on consideration of the public 

comments DOE receives in response to 

this document and related information 

collected and analyzed during the 

course of this rulemaking effort, DOE 

may adopt energy efficiency levels 

presented in this document that are 

either higher or lower than the proposed 

standards, or some combination of 

level(s) that incorporate the proposed 

standards in part. 

II. Introduction 

The following section briefly 

discusses the statutory authority 

underlying this NOPR, as well as some 

of the historical background relevant to 

the establishment of the amended 

standards for CWH equipment. 

A. Authority 

EPCA authorizes DOE to regulate the 

energy efficiency of a number of 

consumer products and industrial 

equipment. Title III, Part C of EPCA, 

added by Public Law 95–619, Title IV, 

section 441(a) (42 U.S.C. 6311–6317, as 

codified), established the Energy 

Conservation Program for Certain 

Industrial Equipment, which sets forth a 

variety of provisions designed to 

improve energy efficiency. This 

equipment includes the classes of CWH 

equipment that are the subject of this 

NOPR. (42 U.S.C. 6311(1)(K)) EPCA 

prescribed energy conservation 

standards for CWH equipment. (42 

U.S.C. 6313(a)(5)) Additionally, DOE 

must consider amending the energy 

efficiency standards for certain types of 

commercial and industrial equipment, 

including CWH equipment, whenever 

ASHRAE amends the standard levels or 

design requirements prescribed in 

ASHRAE/IES Standard 90.1, and at a 

minimum, every 6 years. (42 U.S.C. 

6313(a)(6)(A)–(C)) 

The energy conservation program for 

covered products under EPCA consists 

essentially of four parts: (1) Testing, (2) 

labeling, (3) the establishment of 

Federal energy conservation standards, 

and (4) certification and enforcement 

procedures. Relevant provisions of 

EPCA specifically include definitions 

(42 U.S.C. 6311), energy conservation 

standards (42 U.S.C. 6313), test 

procedures (42 U.S.C. 6314), labeling 

provisions (42 U.S.C. 6315), and the 

authority to require information and 

reports from manufacturers (42 U.S.C. 

6316). 

Federal energy conservation 

requirements for covered equipment 

established under EPCA generally 

supersede State laws and regulations 

concerning energy conservation testing, 

labeling, and standards. (42 U.S.C. 

6316(a) and (b); 42 U.S.C. 6297) DOE 

may, however, grant waivers of Federal 

preemption for particular State laws or 

regulations, in accordance with the 

procedures and other provisions set 

forth under EPCA. (See 42 U.S.C. 

6316(b)(2)(D)) 

Subject to certain criteria and 

conditions, DOE is required to develop 

test procedures to measure the energy 

efficiency, energy use, or estimated 

annual operating cost of covered 

equipment. (42 U.S.C. 6314) 

Manufacturers of covered equipment 

must use the Federal test procedures as 

the basis for (1) certifying to DOE that 

their equipment complies with the 

applicable energy conservation 

standards adopted pursuant to EPCA (42 

U.S.C. 6316(b); 42 U.S.C. 6296), and (2) 

making representations about the 

efficiency of that equipment (42 U.S.C. 

6314(d)). Similarly, DOE uses these test 

procedures to determine whether the 

equipment complies with relevant 

standards promulgated under EPCA. 

The DOE test procedures for CWH 

equipment appear at part 431, subpart 

G. 

ASHRAE Standard 90.1 sets industry 

energy efficiency levels for small, large, 

and very large commercial package airconditioning and heating equipment, 

packaged terminal air conditioners, 

packaged terminal heat pumps, warm 

air furnaces, packaged boilers, storage 

water heaters, instantaneous water 

heaters, and unfired hot water storage 

tanks (collectively ‘‘ASHRAE 

equipment’’). For each type of listed 

equipment, EPCA directs that if 

ASHRAE amends Standard 90.1, DOE 

must adopt amended standards at the 

new ASHRAE efficiency level, unless 

DOE determines, supported by clear and 

convincing evidence,13 that adoption of 

a more stringent level would produce 

significant additional conservation of 

energy and would be technologically 

feasible and economically justified. (42 

U.S.C. 6313(a)(6)(A)(ii) (The threshold 

for ‘‘clear and convincing’’ evidence is 

discussed in more detail in section 

III.H.) Under EPCA, DOE must also 

review energy efficiency standards for 

CWH equipment every 6 years and 

either: (1) Issue a notice of 

determination that the standards do not 

need to be amended as adoption of a 

more stringent level is not supported by 

clear and convincing evidence; or (2) 

issue a notice of proposed rulemaking 

including new proposed standards 

based on certain criteria and procedures 

in subparagraph (B) of 42 U.S.C. 

6313(a)(6). (42 U.S.C. 6313(a)(6)(C)) 

In deciding whether a more-stringent 

standard is economically justified, 

under either the provisions of 42 U.S.C. 

6313(a)(6)(A) or 42 U.S.C. 6313(a)(6)(C), 

DOE must determine whether the 

benefits of the standard exceed its 

burdens. DOE must make this 

determination after receiving comments 

on the proposed standard, and by 

considering, to the maximum extent 

practicable, the following seven factors: 

(1) The economic impact of the 

standard on manufacturers and 

consumers of products subject to the 

standard; 

(2) The savings in operating costs 

throughout the estimated average life of 

the covered products in the type (or 

class) compared to any increase in the 

price, initial charges, or maintenance 

expenses for the covered equipment that 

are likely to result from the standard; 

(3) The total projected amount of 

energy savings likely to result directly 

from the standard; 

(4) Any lessening of the utility or the 

performance of the covered product 

likely to result from the standard; 

(5) The impact of any lessening of 

competition, as determined in writing 

by the Attorney General, that is likely to 

result from the standard; 

(6) The need for national energy 

conservation; and 

(7) Other factors the Secretary of 

Energy considers relevant. 


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14ASHRAE Standard 90.1–2013 also appeared to 

change the standby loss levels for four equipment 

classes (gas-fired storage water heaters, oil-fired 

storage water heaters, gas-fired instantaneous water 

heaters, and oil-fired instantaneous water heaters) 

to efficiency levels that surpassed the Federal 

energy conservation standard levels. However, 

upon reviewing the changes DOE concluded that all 

changes to standby loss levels for these equipment 

classes were editorial errors because they were 

identical to SI (International System of Units; 

metric system) formulas rather than I–P (InchPound; English system) formulas. As a result, DOE 

did not conduct an analysis of the potential energy 

savings from amended standby loss standards for 

this equipment in response to the ASHRAE 

updates. DOE did not receive any comments on this 

issue. 80 FR 1171, 1185 (January 8, 2015). The 

standby loss levels for these equipment classes were 

reverted to the previous levels in ASHRAE 

Standard 90.1–2016 and have not been updated 

since then. 

(42 U.S.C. 6313(a)(6)(B)(ii)(I)–(VII)) 

Further, EPCA establishes a rebuttable 

presumption that an energy 

conservation standard is economically 

justified if the Secretary finds that the 

additional cost to the consumer of 

purchasing a product that complies with 

the standard 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. (42 

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

while this rebuttable presumption 

analysis applies to most commercial and 

industrial equipment (42 U.S.C. 

6316(a)), it is not a required analysis for 

ASHRAE equipment (42 U.S.C. 

6316(b)(1)). Nonetheless, DOE included 

the analysis of rebuttable presumption 

in its economic analysis and presents 

the results in section V.B.1.c of this 

document. 

EPCA also contains what is known as 

an ‘‘anti-backsliding’’ provision, which 

prevents the Secretary from prescribing 

any amended standard that either 

increases the maximum allowable 

energy use or decreases the minimum 

required energy efficiency of a covered 

product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) 

Also, the Secretary may not prescribe an 

amended or new standard if interested 

persons have established by a 

preponderance of the evidence that the 

standard is likely to result in the 

unavailability in the United States in 

any covered product type (or class) of 

performance characteristics (including 

reliability), features, sizes, capacities, 

and volumes that are substantially the 

same as those generally available in the 

United States. (42 U.S.C. 

6313(a)(6)(B)(iii)(II)(aa)) 

B. Background and Rulemaking History 

As previously noted, EPCA 

established initial Federal energy 

conservation standards for CWH 

equipment that generally corresponded 

to the levels in ASHRAE Standard 90.1– 

1989. On October 29, 1999, ASHRAE 

released Standard 90.1–1999, which 

included new efficiency levels for 

numerous categories of CWH 

equipment. DOE evaluated these new 

standards and subsequently amended 

energy conservation standards for CWH 

equipment in a final rule published in 

the Federal Register on January 12, 

2001. 66 FR 3336 (‘‘January 2001 final 

rule’’). DOE adopted the levels in 

ASHRAE Standard 90.1–1999 for all 

classes of CWH equipment, except for 

electric storage water heaters. For 

electric storage water heaters, the 

standard in ASHRAE Standard 90.1– 

1999 was less stringent than the 

standard prescribed in EPCA and, 

consequently, would have increased 

energy consumption. 

Under those circumstances, DOE 

could not adopt the new efficiency level 

for electric storage water heaters in 

ASHRAE Standard 90.1–1999. 66 FR 

3336, 3350. In the January 2001 final 

rule, DOE also adopted the efficiency 

levels contained in the Addendum to 

ASHRAE Standard 90.1–1989 for hot 

water supply boilers, which were 

identical to the efficiency levels for 

instantaneous water heaters. 66 FR 

3336, 3356. 

On October 21, 2004, DOE published 

a direct final rule in the Federal 

Register (‘‘October 2004 direct final 

rule’’) that recodified the existing energy 

conservation standards, so that they are 

located contiguous with the test 

procedures that were promulgated in 

the same notice. 69 FR 61974. The 

October 2004 final rule also updated 

definitions for CWH equipment at 10 

CFR 431.102. 

The American Energy Manufacturing 

Technical Corrections Act 

(‘‘AEMTCA’’), Public Law 112–210 

(Dec. 18, 2012), amended EPCA to 

require that DOE publish a final rule 

establishing a uniform efficiency 

descriptor and accompanying test 

methods for covered consumer water 

heaters and some CWH equipment. (42 

U.S.C. 6295(e)(5)(B)) EPCA further 

required that the final rule must replace 

the energy factor (for consumer water 

heaters) and thermal efficiency and 

standby loss (for some commercial 

water heaters) metrics with a uniform 

efficiency descriptor. (42 U.S.C. 

6295(e)(5)(C)) Pursuant to 42 U.S.C. 

6295(e), on July 11, 2014, DOE 

published a final rule for test 

procedures for residential and certain 

commercial water heaters (‘‘July 2014 

final rule’’) that, among other things, 

established UEF, a revised version of the 

current residential energy factor metric, 

as the uniform efficiency descriptor 

required by AEMTCA. 79 FR 40542, 

40578. In addition, the July 2014 final 

rule defined the term ‘‘residential-duty 

commercial water heater,’’ an 

equipment category that is subject to the 

new UEF metric and the corresponding 

UEF test procedures. 79 FR 40542, 

40586–40588 (July 11, 2014). 

Conversely, CWH equipment that does 

not meet the definition of a residentialduty commercial water heater is not 

subject to the UEF metric or 

corresponding UEF test procedures. Id. 

Further details on the UEF metric and 

residential-duty commercial water 

heaters are discussed in section III.A of 

this document. 

In a NOPR published on April 14, 

2015 (‘‘April 2015 NOPR’’), DOE 

proposed, among other things, 

conversion factors from thermal 

efficiency and standby loss to UEF for 

residential-duty commercial water 

heaters. 80 FR 20116, 20143. 

Subsequently, in a final rule published 

on December 29, 2016 (the ‘‘December 

2016 conversion factor final rule’’), DOE 

specified standards for residential-duty 

commercial water heaters in terms of 

UEF. However, while the metric was 

changed from thermal efficiency and/or 

standby loss, the stringency was not 

changed. 81 FR 96204, 96239 (Dec. 29, 

2016). 

In ASHRAE Standard 90.1–2013, 

ASHRAE increased the thermal 

efficiency level for commercial oil-fired 

storage water heaters, thereby triggering 

DOE’s statutory obligation to 

promulgate an amended uniform 

national standard at those levels, unless 

DOE were to determine that there is 

clear and convincing evidence 

supporting the adoption of morestringent energy conservation standards 

than the ASHRAE levels.14 In a final 

rule published on July 17, 2015 (‘‘July 

2015 ASHRAE equipment final rule’’), 

among other things, DOE adopted the 

standard for commercial oil-fired 

storage water heaters at the level set 

forth in ASHRAE Standard 90.1–2013, 

which increased the standard from 78 to 

80 percent thermal efficiency with 

compliance required starting on October 

9, 2015. 80 FR 42614 (July 17, 2015). 

Since that time ASHRAE has issued 2 

updated versions of Standard 90.1, 

90.1–2016 and 90.1–2019. However, 

DOE was not triggered to review 

amended standards for commercial 

water heaters by any updates in 

ASHRAE Standard 90.1–2016 or 

ASHRAE Standard 90.1–2019. Overall, 

DOE has not been triggered to review 

the standards for the equipment subject 

to this rulemaking based on an update 


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to the efficiency levels in ASHRAE 

Standard 90.1 since the 1999 edition 

because ASHRAE has not updated the 

efficiency levels for such equipment 

since 1999. The current standards for all 

CWH equipment classes are set forth in 

DOE’s regulations at 10 CFR 431.110, 

except for electric instantaneous water 

heaters that are not residential-duty, 

which are included in EPCA (the history 

of the standards for electric 

instantaneous water heaters is discussed 

in section III.B.4 of this document). (42 

U.S.C. 6313(a)(5)(D)–(E)) Table II.1 

shows the current standards for all CWH 

equipment classes, except residentialduty commercial water heaters, which 

are shown in Table II.2 of this 

document. 

TABLE II.1—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT FOR RESIDENTIALDUTY COMMERCIAL WATER HEATERS

Product Size 

Energy conservation standards * 

Minimum thermal 

efficiency 

(equipment 

manufactured on 

and after October 

9, 2015) ** *** 

(%) 

Maximum standby loss 

(equipment manufactured 

on and after October 29, 

2003) ** † 

Electric storage water heaters ................................................................. All ........................... N/A 0.30 + 27/Vm (%/h). 

Gas-fired storage water heaters .............................................................. ≤155,000 Btu/h ....... 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

>155,000 Btu/h ....... 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired storage water heaters ................................................................ ≤155,000 Btu/h ....... *** 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

>155,000 Btu/h ....... *** 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Electric instantaneous water heaters ‡ .................................................... <10 gal ................... 80 N/A. 

≥10 gal ................... 77 2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers ..... <10 gal ................... 80 N/A. 

≥10 gal ................... 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired instantaneous water heater and hot water supply boilers ......... <10 gal ................... 80 N/A. 

≥10 gal ................... 78 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Minimum thermal insulation 

Unfired hot water storage tank ................................................................ All ........................... R–12.5 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 

** For hot water supply boilers with a capacity of less than 10 gallons: (1) The standards are mandatory for products manufactured on and 

after October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed 

in this table or the applicable standards in subpart E of this part for a ‘‘commercial packaged boiler.’’ 

*** For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) 

equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) The tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡ Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance 

date for these energy conservation standards is January 1, 1994. In this NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in 

section III.B.4 of this NOPR. 

TABLE II.2—CURRENT ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Specification * Draw 

pattern ** Uniform energy factor Compliance date 

Gas-fired Storage ........ >75 kBtu/h and ≤105 kBtu/h and ≤120 gal ...... Very Small .... 0.2674¥(0.0009 × Vr) ........ December 29, 2016. 

Low ............... 0.5362¥(0.0012 × Vr).

Medium ......... 0.6002¥(0.0011 × Vr).

High ............... 0.6597¥(0.0009 × Vr).

Oil-fired storage ........... >105 kBtu/h and ≤140 kBtu/h and ≤120 gal .... Very Small .... 0.2932¥(0.0015 × Vr).

Low ............... 0.5596¥(0.0018 × Vr).

Medium ......... 0.6194¥(0.0016 × Vr).

High ............... 0.6740¥(0.0013 × Vr).

Electric instantaneous >12 kW and ≤58.6 kW and ≤ 2 gal .................. Very Small .... 0.80.

Low ............... 0.80.

Medium ......... 0.80.

High ............... 0.80.

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) If requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 


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15The parenthetical reference provides a 

reference for information located in the docket. 

(Docket No. EERE–2014–BT–STD–0042, which is 

maintained at www.regulations.gov/ 

#!docketDetail;D=EERE-2014-BT-STD-0042). The 

references are arranged as follows: (commenter 

name, comment docket ID number, page of that 

document). 

On October 21, 2014, DOE published 

a request for information (‘‘RFI’’) as an 

initial step for reviewing the energy 

conservation standards for CWH 

equipment. 79 FR 62899 (‘‘October 2014 

RFI’’). The October 2014 RFI solicited 

information from the public to help 

DOE determine whether more-stringent 

energy conservation standards for CWH 

equipment would result in a significant 

amount of additional energy savings, 

and whether those standards would be 

technologically feasible and 

economically justified. 79 FR 62899, 

62899–62900. DOE received a number 

of comments from interested parties in 

response to the October 2014 RFI. 

On May 31, 2016, DOE published a 

NOPR and notice of public meeting in 

the Federal Register (‘‘May 2016 CWH 

ECS NOPR’’) that addressed all of the 

comments received in response to the 

RFI and proposed amended energy 

conservation standards for CWH 

equipment. 81 FR 34440. The May 2016 

CWH ECS NOPR and the technical 

support document (‘‘TSD’’) for that 

NOPR are available at 

www.regulations.gov/docket?D=EERE2014-BT-STD-0042. 

On June 6, 2016, DOE held a public 

meeting at which it presented and 

discussed the analyses conducted as 

part of this rulemaking (e.g., engineering 

analysis, LCC, PBP, and MIA). In the 

public meeting, DOE presented the 

results of the analysis and requested 

comments from stakeholders on various 

issues related to the rulemaking in 

response to the May 2016 CWH ECS 

NOPR. 

DOE received a number of comments 

from interested parties in response to 

the May 2016 CWH ECS NOPR. Table 

II.3 identifies these commenters. 

Although DOE withdrew the May 2016 

CWH ECS NOPR (as discussed in the 

following paragraphs), DOE considered 

comments received in response to that 

document to the extent relevant to the 

preparation of this NOPR. 

TABLE II.3—INTERESTED PARTIES PROVIDING WRITTEN AND ORAL COMMENTS ON THE MAY 2016 CWH ECS NOPR 

Name Abbreviation Commenter 

type * 

Appliance Standards Awareness Project, Alliance to Save Energy, Northeast Energy Efficiency Partnership, American Council for an Energy-Efficient Economy, EarthJustice.Joint Advocates ..... EA 

Northwest Energy Efficiency Alliance .............................................................................................................. NEEA ..................... EA 

Air-Conditioning, Heating and Refrigeration Institute ...................................................................................... AHRI ...................... TA 

The U.S. Chamber of Commerce, the American Chemistry Council, the American Coke and Coal Chemicals Institute, the American Forest & Paper Association, the American Fuel & Petrochemical Manufacturers, the American Petroleum Institute, the Brick Industry Association, the Council of Industrial Boiler 

Owners, the National Association of Manufacturers, the National Mining Association, the National Oilseed Processors Association, and the Portland Cement Association.

The Associations ... TA 

Industrial Energy Consumers of America ........................................................................................................ IECA ...................... TA 

American Gas Association and American Public Gas Association ................................................................. AGA and APGA ..... UA 

Edison Electric Institute ................................................................................................................................... EEI ......................... UA 

National Propane Gas Association .................................................................................................................. NPGA ..................... IR 

National Rural Electric Cooperative Association, American Public Power Association, Edison Electric Institute.Joint Utilities ........... IR 

Plumbing-Heating-Cooling Contractors National Association ......................................................................... PHCC ..................... IR 

A.O. Smith Corporation .................................................................................................................................... A.O. Smith ............. M 

Bock Water Heaters, Inc .................................................................................................................................. Bock ....................... M 

Bradford White Corporation ............................................................................................................................. Bradford White ....... M 

HTP, Inc ........................................................................................................................................................... HTP ........................ M 

Raypak, Inc ...................................................................................................................................................... Raypak ................... M 

Rheem Corporation .......................................................................................................................................... Rheem ................... M 

California Energy Commission ........................................................................................................................ CEC ....................... OS 

Environmental Defense Fund, Institute for Policy Integrity at New York University School of Law, Natural 

Resources Defense Council, and Union of Concerned Scientists.

Joint Organizations OS 

Pacific Gas and Electric Company, Southern California Gas Company, San Diego Gas and Electric, and 

Southern California Edison.

CA IOUs ................ U 

Spire Inc ........................................................................................................................................................... Spire ...................... U 

Anonymous ...................................................................................................................................................... Anonymous ............ I 

Johnnie Temples .............................................................................................................................................. Johnnie Temples ... I 

PVI Industries, Inc ............................................................................................................................................ PVI ......................... M 

NegaWatt Consulting ....................................................................................................................................... NegaWatt ............... OS 

Bradley Corporation ......................................................................................................................................... Bradley ................... M 

* TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer, OS: other stakeholder, U: utility or 

utilities filing jointly, UA: utility association, and I: individual. 

A parenthetical reference at the end of 

a comment quotation or paraphrase 

provides the location of the item in the 

public record.15

On December 23, 2016, DOE 

published a notice of data availability 

(‘‘NODA’’) for energy conservation 

standards for CWH equipment 

(‘‘December 2016 CWH ECS NODA’’). 

81 FR 94234. The December 2016 CWH 

ECS NODA presented the thermal 

efficiency and standby loss levels 

analyzed in the May 2016 CWH ECS 

NOPR for residential-duty gas-fired 

storage water heaters in terms of UEF, 

using the updated conversion factors for 

gas-fired and oil-fired storage water 

heaters adopted in the December 2016 

conversion factor final rule (81 FR 

94234, 94237). 

On January 15, 2021, in response to a 

petition for rulemaking submitted by the 

American Public Gas Association, Spire, 

Inc., the Natural Gas Supply 

Association, the American Gas 

Association, and the National Propane 

Gas Association (83 FR 54883; Nov. 1, 

2018) DOE published a final interpretive 


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rule (‘‘the January 2021 final 

interpretive rule’’) determining that, in 

the context of residential furnaces, 

commercial water heaters, and 

similarly-situated products/equipment, 

use of non-condensing technology (and 

associated venting) constitute a 

performance-related ‘‘feature’’ under 

EPCA that cannot be eliminated through 

adoption of an energy conservation 

standard. 86 FR 4776. Correspondingly, 

DOE withdrew the May 2016 CWH ECS 

NOPR. 86 FR 3873 (Jan. 15, 2021). 

However, DOE has subsequently 

published a final interpretive rule that 

returns to the previous and longstanding interpretation (in effect prior to 

the January 15, 2021 final interpretive 

rule), under which the technology used 

to supply heated air or hot water is not 

a performance-related ‘‘feature’’ that 

provides a distinct consumer utility 

under EPCA. 86 FR 73947 (Dec. 29, 

2021). 

In conducting the analysis for this 

NOPR, DOE evaluates condensing 

technologies and associated venting 

systems (i.e., trial standard levels 

(‘‘TSLs’’) 2, 3, and 4) in its analysis of 

potential energy conservation standards. 

Any adverse impacts on utility and 

availability of non-condensing 

technology options are considered in 

DOE’s analyses of these TSLs. 

As illustrated by the preceding 

discussion, the rulemaking for CWH 

equipment has been subject to multiple 

rounds of public comment, including 

public meetings, and extensive records 

have been developed in the relevant 

dockets. (See Docket Number EERE– 

2014–BT–STD–0042, respectively). 

Consequently, the information obtained 

through those earlier rounds of public 

comment, information exchange, and 

data gathering have been considered in 

this rulemaking and DOE is building 

upon the existing record through further 

analysis and further notice and 

comment. 

C. Deviation From Appendix A 

On January 11, 2022, DOE published 

a test procedure NOPR for consumer 

water heaters and residential-duty 

commercial water heaters. 87 FR 1554. 

In accordance with section 3(a) of 10 

CFR part 430, subpart C, appendix A 

(‘‘appendix A’’), DOE notes that it is 

deviating from the provision in 

appendix A specifying that test 

procedures be finalized at least 180 days 

before new or amended standards are 

proposed for the same equipment. 10 

CFR part 430, subpart C, appendix A, 

section 8(d)(2). DOE is opting to deviate 

from this step because the proposed test 

procedure amendments for residentialduty commercial water heaters are not 

expected to impact the current 

efficiency ratings. Further, the test 

procedure final rule for consumer water 

heaters and residential-duty commercial 

water heaters is expected to publish 

before a final rule in this proposed 

rulemaking. If DOE determines that the 

test procedure amendments for 

residential-duty commercial water 

heaters do in fact impact the efficiency 

ratings, DOE will review the 

implications of those changes before 

finalizing amended standards for 

residential-duty commercial water 

heaters. 

Issue 1: DOE requests comment on its 

assumption that the proposed test 

procedure amendments for residentialduty commercial water heaters are not 

expected to impact the efficiency 

ratings. 

III. General Discussion 

DOE developed this proposed rule 

after considering comments, data, and 

information from interested parties that 

represent a variety of interests. This 

proposed rule addresses issues raised by 

commenters to the extent relevant to the 

preparation of this NOPR. 

A. Test Procedures 

DOE’s current test procedures for 

CWH equipment are specified at 10 CFR 

431.106 and provide mandatory 

methods for determining the thermal 

efficiency, standby loss, and UEF, as 

applicable, of CWH equipment. 

As noted previously, on October 21, 

2004, DOE published the October 2004 

direct final rule, which adopted 

amended test procedures for CWH 

equipment. 69 FR 61974. These test 

procedure amendments incorporated by 

reference certain sections of ANSI 

Z21.10.3–1998, ‘‘Gas Water Heaters, 

Volume III, Storage Water Heaters with 

Input Ratings above 75,000 Btu per 

Hour, Circulating and Instantaneous.’’ 

Id. at 69 FR 61983. On May 16, 2012, 

DOE published a final rule for certain 

commercial heating, air-conditioning, 

and water heating equipment in the 

Federal Register that, among other 

things, updated the test procedures for 

certain CWH equipment by 

incorporating by reference ANSI 

Z21.10.3–2011. 77 FR 28928. These 

updates did not materially alter DOE’s 

test procedure for CWH equipment. 

On May 9, 2016, DOE published a 

NOPR that proposed to amend the test 

procedures for certain CWH equipment 

(‘‘May 2016 CWH TP NOPR’’). 81 FR 

28588. In the May 2016 CWH TP NOPR, 

DOE proposed several changes, 

including (1) updating references of 

industry test standards to incorporate by 

reference the most recent versions of the 

industry standards; (2) updating the 

requirements for ambient conditions, 

measurement locations, and 

measurement intervals for the thermal 

efficiency and standby loss test 

procedures; (3) amending the test 

procedure set-up requirements for 

storage water heaters, storage-type 

instantaneous water heaters, 

instantaneous water heaters, and hot 

water supply boilers; (4) developing a 

test method for determining the standby 

loss of unfired hot water storage tanks; 

(5) updating provisions for setting the 

tank thermostat for storage and storagetype instantaneous water heaters prior 

to the thermal efficiency and standby 

loss tests; (6) clarifying the thermal 

efficiency and standby loss test 

procedures with regard to stored energy 

loss and manipulation of settings during 

efficiency testing; (7) defining ‘‘storagetype instantaneous water heater’’ and 

modifying several definitions for certain 

consumer water heaters and CWH 

equipment included at 10 CFR 430.2 

and 10 CFR 431.102, respectively; (8) 

updating DOE’s procedures for 

determining storage volume and 

standby loss of instantaneous water 

heaters and hot water supply boilers 

(other than storage-type instantaneous 

water heaters); (9) developing a new test 

procedure for commercial heat pump 

water heaters and incorporating by 

reference certain sections, figures, and 

tables from ASHRAE 118.1–2012; (10) 

establishing a procedure for determining 

the fuel input rate of gas-fired and oilfired CWH equipment and clarifying 

DOE’s certification and enforcement 

regulations regarding fuel input rate; 

and (11) establishing default values for 

certain testing parameters for oil-fired 

CWH equipment. 

On November 10, 2016, DOE 

published a final rule amending the test 

procedures for certain CWH equipment 

(‘‘November 2016 CWH TP final rule’’). 

81 FR 79261. In the November 2016 

CWH TP final rule, DOE generally 

adopted the proposals set forth in the 

May 2016 CWH TP NOPR, except that 

it did not adopt the following proposals: 

(1) Ambient humidity requirements, (2) 

tightened ambient room temperature 

allowable range (75 °F ± 5 °F), and (3) 

requirements that the certified fuel 

input rate be equal to the mean of the 

measured values of fuel input rate in a 

sample. In that final rule, DOE also 

amended its regulations for gas supply 

and outlet pressure of gas-fired CWH 

equipment, modified the definition for 

‘‘storage-type instantaneous water 

heater,’’ and updated the requirements 

for establishing steady-state operation. 

DOE received many industry comments 


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in response to DOE’s proposed standby 

loss test procedure for unfired hot water 

storage tanks, and in the November 2016 

CWH TP final rule, DOE stated that it 

was still considering these comments 

and would address the comments and 

its proposed test procedure for unfired 

hot water storage tanks in a separate 

rulemaking notice. 81 FR 79261, 79277 

(Nov. 10, 2016). 

In addition, as discussed in section 

II.B, AEMTCA amended EPCA to 

require that DOE publish a final rule 

establishing a uniform efficiency 

descriptor and accompanying test 

methods for covered consumer water 

heaters and certain CWH equipment. (42 

U.S.C. 6295(e)(5)(B)) The AEMTCA 

amendments required DOE, in the final 

rule, to replace the current energy factor 

(for consumer water heaters) and 

thermal efficiency and standby loss (for 

commercial water heaters) metrics with 

a uniform efficiency descriptor. (42 

U.S.C. 6295(e)(5)(C)) However, under 

the AEMTCA amendments, DOE may 

provide an exclusion from the uniform 

efficiency descriptor for specific 

categories of covered water heaters that 

do not have residential uses, that can be 

clearly described, and that are 

effectively rated using the current 

thermal efficiency and standby loss 

descriptors. (42 U.S.C. 6295(e)(5)(F)) 

The AEMTCA amendments to EPCA 

further require that, along with 

developing a uniform descriptor, DOE 

develop a mathematical conversion 

factor to translate the results based upon 

use of the efficiency metric under the 

test procedure in effect on December 18, 

2012, to the new energy descriptor. (42 

U.S.C. 6295(e)(5)(E)(i)) In addition, 

pursuant to 42 U.S.C. 6295(e)(5)(E)(ii) 

and (iii), the conversion factor must not 

affect the minimum efficiency 

requirements for covered water heaters, 

including residential-duty commercial 

water heaters. Furthermore, such 

conversions must not lead to a change 

in measured energy efficiency for 

covered residential and residential-duty 

commercial water heaters manufactured 

and tested prior to the final rule 

establishing the uniform efficiency 

descriptor. Id. 

In the July 2014 test procedure final 

rule, DOE, among other things, 

established the UEF metric, a revised 

version of the current residential energy 

factor metric, as the uniform efficiency 

descriptor required by AEMTCA. 79 FR 

40542, 40578–40579 (July 11, 2014). 

The uniform efficiency descriptor 

established in the July 2014 final rule 

applies to all commercial water heaters 

that meet the definition of ‘‘residentialduty commercial water heater.’’ This 

term was initially defined in the July 

2014 final rule, and later revised in the 

November 2016 CWH TP final rule. 81 

FR 79261, 79288–79289 (Nov. 10, 2016). 

Residential-duty commercial water 

heater is defined in 10 CFR 431.102 as 

any gas-fired storage, oil-fired storage, or 

electric instantaneous commercial water 

heater that meets the following 

conditions: 

(1) For models requiring electricity, 

uses single-phase external power 

supply; 

(2) Is not designed to provide outlet 

hot water at temperatures greater than 

180 °F; and 

(3) Does not meet any of the criteria 

shown in Table III.1, which reflects the 

table in 10 CFR 431.102. 

TABLE III.1—RATED INPUT AND STORAGE VOLUME RANGES FOR NONRESIDENTIAL-DUTY COMMERCIAL

WATER HEATERS

Water heater 

type 

Indicator of non-residential 

application 

Gas-fired storage.Rated input >105 kBtu/h; 

Rated storage volume 

>120 gallons. 

Oil-fired storage.Rated input >140 kBtu/h; 

Rated storage volume 

>120 gallons. 

Electric instantaneous.Rated input >58.6 kW; 

Rated storage volume >2 

gallons. 

CWH equipment not meeting the 

definition of ‘‘residential-duty 

commercial water heater’’ was deemed 

to be sufficiently characterized by the 

current thermal efficiency and standby 

loss metrics. DOE provided a method for 

converting existing thermal efficiency 

and/or standby loss ratings for 

residential-duty commercial water 

heaters to UEF in the December 2016 

conversion factor final rule. DOE also 

adopted UEF standard levels for the 

equipment, and DOE’s methodology for 

translating the standards ensured 

equivalent stringency between the thenexisting standards (in terms of thermal 

efficiency and standby loss metrics) and 

the converted standards (in terms of 

UEF). 81 FR 96204, 96219–96223 (Dec. 

29, 2016). 

Compliance with the UEF metric has 

been mandatory since December 29, 

2016, and manufacturers have been 

required to determine UEF based on 

UEF test data, rather than using 

equations to convert from thermal 

efficiency and standby loss, since 

December 29, 2017. Therefore, in this 

NOPR, DOE analyzes residential-duty 

gas-fired storage water heaters in terms 

of UEF and does not utilize any UEF 

conversion factors. 

B. Scope of Rulemaking 

1. Residential-Duty Commercial Water 

Heaters 

As discussed in the July 2014 final 

rule, DOE regulates residential-duty 

commercial water heaters as commercial 

water heaters. 79 FR 40542, 40544 (July 

11, 2014) However, as discussed in 

section III.B.2 of this document, DOE is 

not considering amended standards for 

residential-duty oil-fired storage water 

heaters because DOE has initially found 

that the market for this equipment has 

not changed appreciably since standards 

were last amended. However, the same 

is not true for residential-duty gas-fired 

storage water heaters. DOE has 

tentatively determined that the market 

for residential-duty gas-fired storage 

water heaters has appreciably changed 

since the July 2014 final rule. DOE is 

considering amended energy 

conservation standards for residentialduty commercial gas-fired storage water 

heaters in the current rulemaking, 

which addresses commercial water 

heaters generally. 

As discussed in sections II.B and III.A 

of this document, DOE established that 

residential-duty commercial water 

heaters are covered by the new UEF 

metric in the July 2014 final rule. 79 FR 

40542, 40586 (July 11, 2014). The 

analyses of residential-duty equipment 

for the withdrawn May 2016 CWH ECS 

NOPR were conducted in terms of the 

thermal efficiency and standby loss 

metrics because there were insufficient 

efficiency data in terms of UEF available 

when DOE undertook the analyses for 

the withdrawn May 2016 CWH ECS 

NOPR. 81 FR 34440, 34453. Those 

results were subsequently converted to 

the UEF metric in the December 2016 

NODA. 81 FR 94234. However, data in 

terms of UEF have since become 

available; therefore, DOE updated the 

analysis of residential-duty equipment 

to be in terms of UEF for this NOPR. 

Details about the UEF levels analyzed in 

this NOPR are discussed in sections 

IV.C.4.c and IV.C.6 of this document. 

2. Oil-Fired Commercial Water Heating 

Equipment 

ASHRAE Standard 90.1–2013 raised 

the thermal efficiency level for 

commercial oil-fired storage water 

heaters from 78 percent to 80 percent. 

In the July 2015 ASHRAE equipment 

final rule, DOE adopted the ASHRAE 

Standard 90.1 efficiency level of 80 

percent having determined that there 

was insufficient potential for energy 

savings to justify further increasing the 

standard. 80 FR 42614 (July 17, 2015). 

This standard applied to both 

residential-duty commercial oil storage 


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water heaters as well as non-residentialduty commercial oil storage water 

heaters at the time, although equivalent 

standards in terms of UEF were 

developed and adopted for residentialduty commercial gas storage water 

heaters in the December 2016 

Conversion Factor Final Rule. 81 FR 

96204 (Dec. 29, 2016). 

In considering amended efficiency 

standards for commercial oil-fired 

storage water heaters (including 

residential-duty oil-fired storage water 

heaters) in the withdrawn May 2016 

CWH ECS NOPR, DOE initially 

determined that circumstances did not 

change appreciably between the 

publication of the July 2015 ASHRAE 

equipment final rule and the May 2016 

CWH ECS NOPR, and, therefore, DOE 

did not analyze amended efficiency 

standards for this equipment in the May 

2016 CWH ECS NOPR. 81 FR 34440, 

34453. DOE has not received any new 

or additional information on this issue 

to suggest that DOE should consider 

amended standards for commercial oilfired storage water heaters or 

residential-duty oil-fired storage water 

heaters and therefore DOE maintains the 

approach from the withdrawn May 2016 

CWH ECS NOPR. 

For this NOPR, DOE considered 

whether amended standby loss 

standards for commercial oil-fired water 

heaters would be warranted. DOE has 

initially determined that a change in the 

maximum standby loss level would 

likely effect less of a change in energy 

consumption of oil-fired storage water 

heaters than would a change in the 

thermal efficiency due to the magnitude 

of energy consumed in active mode as 

compared to standby losses. Therefore, 

DOE has tentatively determined that an 

amended standby loss standard would 

likely result in only a negligible amount 

of additional energy savings. Thus, DOE 

has not analyzed amended standby loss 

standards for commercial oil-fired 

storage water heaters in this rulemaking. 

DOE also considered oil-fired 

instantaneous water heaters and hot 

water supply boilers and only identified 

a small number of oil-fired tank-type 

instantaneous units currently on the 

market that would meet DOE’s 

definition of oil-fired tank-type 

instantaneous commercial water 

heaters. DOE estimates that there are 

very few annual shipments for this 

equipment class. Therefore, DOE has 

initially determined that the energy 

savings possible from amended 

standards for such equipment is 

negligible, and thus, would not impact 

the results of the analyses conducted for 

this NOPR. Therefore, DOE did not 

analyze amended standards for 

commercial oil-fired instantaneous 

water heaters and hot water supply 

boilers for this NOPR. 

Based on the discussion in the 

preceding paragraphs, and because DOE 

has not received new information to 

contradict its previous findings, DOE 

tentatively concludes that the potential 

energy savings resulting from amended 

standards for commercial oil-fired water 

heating equipment would be negligible. 

Any such energy savings from amended 

standards for commercial oil-fired water 

heating equipment would not 

appreciably change the absolute energy 

savings estimated for CWH equipment; 

i.e., would not impact the determination 

of whether amended energy 

conservation standards for CWH 

equipment would result in significant 

energy savings. Thus, DOE has 

continued to exclude commercial oilfired water heating equipment from the 

analysis conducted for this NOPR. 

3. Unfired Hot Water Storage Tanks 

Unfired hot water storage tanks are a 

class of CWH equipment. On August 9, 

2019, DOE published an RFI initiating 

an effort to determine whether to amend 

the current uniform national standard 

for unfired hot water storage tanks. 84 

FR 39220. Subsequently, on June 10, 

2021 DOE published a notice of 

proposed determination and request for 

comment proposing not to amend 

energy conservation standards for 

unfired hot water storage tanks. 86 FR 

30796. Because amended energy 

conservation standards for unfired hot 

water storage tanks are being considered 

as part of that proceeding, they were not 

considered further for this NOPR. 

4. Electric Instantaneous Water Heaters 

EPCA prescribes energy conservation 

standards for several classes of CWH 

equipment manufactured on or after 

January 1, 1994. (42 U.S.C. 6313(a)(5)) 

DOE codified these standards in its 

regulations for CWH equipment at 10 

CFR 431.110. However, when codifying 

these standards from EPCA, DOE 

inadvertently omitted the standards put 

in place by EPCA for electric 

instantaneous water heaters. 

Specifically, for instantaneous water 

heaters with a storage volume of less 

than 10 gallons, EPCA prescribes a 

minimum thermal efficiency of 80 

percent. For instantaneous water heaters 

with a storage volume of 10 gallons or 

more, EPCA prescribes a minimum 

thermal efficiency of 77 percent and a 

maximum standby loss, in percent/hour, 

of 2.30 + (67/measured volume (in 

gallons)). (42 U.S.C. 6313(a)(5)(D) and 

(E)) Although DOE’s regulations at 10 

CFR 431.110 do not currently include 

energy conservation standards for 

electric instantaneous water heaters, 

these standards prescribed in EPCA are 

applicable. Therefore, in this NOPR, 

DOE is proposing to codify these 

standards in its regulations at 10 CFR 

431.110. 

DOE is also proposing to allow use of 

a calculation-based method for 

determining storage volume of electric 

instantaneous water heaters that is the 

same as the method for gas-fired and oilfired instantaneous water heaters and 

hot water supply boilers found at 10 

CFR 429.72(e) (added at 81 FR 79261, 

79320 (Nov. 10, 2016)). DOE has 

initially concluded that the same 

rationale for including these provisions 

for gas-fired and oil-fired instantaneous 

water heaters and hot water supply 

boilers also applies to electric 

instantaneous water heaters (i.e., it may 

be difficult to completely empty the 

instantaneous water heater in order to 

obtain a dry weight measurement, 

which is needed in a weight-based test 

for an accurate representation of the 

storage volume). Therefore, DOE is 

proposing to include electric 

instantaneous water heaters in these 

provisions in order to provide 

manufacturers with flexibility as to how 

the storage volume is determined. 

DOE notes that because electric 

instantaneous water heaters typically 

use electric resistance heating elements, 

which are highly efficient, the thermal 

efficiency of these units already 

approaches 100 percent. DOE has also 

tentatively determined that there are no 

options for substantially increasing the 

rated thermal efficiency of this 

equipment, and the impact of setting 

thermal efficiency energy conservation 

standards for these products would be 

negligible. Similarly, the stored water 

volume is typically low, resulting in 

limited potential for reducing standby 

losses for most electric instantaneous 

water heaters. As a result, amending the 

standards for electric instantaneous 

water heaters established in EPCA 

would result in minimal energy savings. 

Even if DOE were to account for the 

energy savings potential of amended 

standards for electric instantaneous 

water heaters, the contribution of any 

potential energy savings from amended 

standards for these units would be 

negligible and not appreciably impact 

the energy savings analysis for CWH 

equipment. Therefore, DOE did not 

analyze amended energy conservation 

standards for electric instantaneous 

water heaters. 


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16 DOE adopted a definition for ‘‘storage-type 

instantaneous water heater’’ in the November 2016 

CWH TP final rule. 81 FR 79261, 79289–79290 

(Nov. 10, 2016). Storage-type instantaneous water 

heaters are discussed in section IV.A.2.b of this 

NOPR. 

5. Commercial Heat Pump Water 

Heaters 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE did not consider energy 

conservation standards for commercial 

heat pump water heaters because DOE’s 

proposed test procedure for commercial 

heat pump water heaters was not 

finalized, and there were insufficient 

data with the proposed test procedure 

for units currently on the market. DOE 

expressed its intent to consider energy 

conservation standards for commercial 

heat pump water heaters in a future 

rulemaking. 81 FR 34440, 34454–34455 

(May 31, 2016). Further, DOE noted that 

all commercial heat pump water heaters 

it had identified on the market were 

‘‘add-on’’ heat pumps designed to be 

paired with a storage tank in the field, 

and DOE had not identified any 

commercial water heater models that 

integrate a storage tank and heat pump. 

DOE did not consider commercial 

integrated heat pump water heaters as a 

design option for electric storage water 

heaters because DOE did not identify 

any such units on the market. 81 FR 

34440, 34454 and 34469. 

In the November 2016 CWH TP final 

rule, DOE adopted a test procedure for 

commercial heat pump water heaters. 81 

FR 79261, 79301–79304. However, DOE 

has initially concluded that there are 

still limited data using this test 

procedure for units currently on the 

market due to limited units on the 

market. Since the November 2016 CWH 

TP DOE is aware of only one 

commercial integrated heat pump water 

heater model currently on the market. 

Therefore, DOE did not consider energy 

conservation standards for commercial 

heat pump water heaters in this NOPR. 

As stated in the withdrawn May 2016 

CWH ECS NOPR, DOE plans to analyze 

standards for commercial heat pump 

water heaters in a future rulemaking, at 

which time DOE will consider the 

appropriate equipment class structure 

for commercial electric water heaters, 

including commercial heat pump water 

heaters. Section IV.A.2.f of this NOPR 

includes discussion of DOE’s 

consideration of grid-enabled water 

heaters. 

6. Electric Storage Water Heaters 

In this rulemaking, DOE is not 

analyzing thermal efficiency standards 

for electric storage water heaters. 

Electric storage water heaters are not 

currently subject to a thermal efficiency 

standard under 10 CFR 431.110. Electric 

storage water heaters typically use 

electric resistance heating elements, 

which are highly efficient. The thermal 

efficiency of these units already 

approaches 100 percent. DOE did not 

consider commercial integrated heat 

pump water heaters as the maximum 

technologically feasible (‘‘max-tech’’) for 

electric storage water heaters at this 

time. DOE found only one such model 

on the market, at a single storage 

volume and heating capacity. Given the 

wide range of capacities and stored 

water volumes in products currently on 

the market, which are required to meet 

hot water loads in commercial 

buildings, it is unclear based on this 

single model whether heat pump water 

heater technology would be suitable to 

meet the range of load demands on the 

market. 

Issue 2: DOE requests comment and 

information on whether integrated heat 

pump water heaters are capable of 

meeting the same hot water loads as 

commercial electric storage water 

heaters that use electric resistance 

elements. 

Although DOE did not consider an 

integrated heat pump water heater as a 

design option for electric storage water 

heaters, DOE proposed amended 

standby loss standards for electric 

storage water heaters in the withdrawn 

May 2016 CWH ECS NOPR based on 

increased insulation thickness. 81 FR 

34440, 34443 (May 31, 2016). In 

response to the withdrawn May 2016 

CWH ECS NOPR, DOE received several 

comments opposing the proposed 

amended standby loss standard for 

electric storage water heaters. 

Summaries of these comments and 

DOE’s responses are included in section 

IV.C.4.b of this NOPR. After 

consideration of industry comments and 

closer examination of the market, DOE 

recognizes that the only technology 

option that DOE analyzed in the 

engineering analysis as providing 

standby loss reduction for electric 

storage water heaters (i.e., increasing 

tank foam insulation thickness to 3 

inches) is already currently included in 

some models rated at or near the current 

standby loss standard. Consequently, 

DOE did not analyze any technology 

options for reducing standby loss below 

(i.e., more stringent than) the current 

standard, and therefore, this NOPR does 

not propose to amend the standby loss 

standard for electric storage water 

heaters. Section IV.C.4.b of this NOPR 

includes further discussion of standby 

loss levels for electric storage water 

heaters and DOE’s decision not to 

amend standby loss standards for 

electric storage water heaters. 

7. Instantaneous Water Heaters and Hot 

Water Supply Boilers 

Other than storage-type instantaneous 

water heaters, DOE did not include 

instantaneous water heaters and hot 

water supply boilers in its analysis of 

potential amended standby loss 

standards.16 Instantaneous water heaters 

and hot water supply boilers (other than 

storage-type instantaneous water 

heaters) with greater than 10 gallons of 

water stored have a standby loss 

requirement under 10 CFR 431.110. 

However, DOE did not analyze more 

stringent standby loss standards for 

these units because it has initially 

determined that such amended 

standards would result in minimal 

energy savings. DOE identified only 81 

out of 468 models on the market of 

instantaneous water heaters or hot water 

supply boilers with greater than or equal 

to 10 gallons of water stored (other than 

storage-type instantaneous water 

heaters), and 32 of the identified models 

have less than 15 gallons of water 

stored. Even if DOE were to account for 

the energy savings potential of amended 

standby loss standards for instantaneous 

water heaters and hot water supply 

boilers (other than storage-type 

instantaneous water heaters) with 

greater than 10 gallons of water stored 

CWH equipment, the contribution of 

any potential energy savings from 

amended standards for these units 

would be negligible and not appreciably 

impact the energy savings analysis for 

CWH equipment. 

DOE has initially determined that 

instantaneous water heaters (other than 

storage-type instantaneous water 

heaters) and hot water supply boilers 

with less than 10 gallons of water stored 

would not have significantly different 

costs and benefits as compared to 

instantaneous water heaters (other than 

storage-type instantaneous water 

heaters) and hot water supply boilers 

with greater than or equal to 10 gallons 

of water stored. Therefore, DOE 

analyzed both equipment classes of 

instantaneous water heaters and hot 

water supply boilers (less than 10 

gallons and greater than or equal to 10 

gallons stored volume) together for 

thermal efficiency standard levels in 

this NOPR. 

DOE also initially determined that 

establishing standby loss standards for 

instantaneous water heaters and hot 

water supply boilers with less than or 

equal to 10 gallons water stored would 

result in minimal energy savings. Even 

if DOE were to account for the energy 

savings potential of amended standby 

loss standards for instantaneous water 


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17 DOE also presents a sensitivity analysis that 

considers impacts for equipment shipped in a 9- 

year period. 

18The FFC metric is discussed in DOE’s 

statement of policy and notice of policy 

amendment. 76 FR 51282 (Aug. 18, 2011), as 

amended at 77 FR 49701 (Aug. 17, 2012). 

19Natural gas and electricity were the energy 

types analyzed in the FFC calculations. 

20 In setting a more stringent standard for 

ASHRAE equipment, DOE must have ‘‘clear and 

convincing evidence’’ that doing so ‘‘would result 

in significant additional conservation of energy’’ in 

addition to being technologically feasible and 

economically justified. 42 U.S.C. 

6313(a)(6)(A)(ii)(II). This language indicates that 

Congress had intended for DOE to ensure that, in 

addition to the savings from the ASHRAE 

standards, DOE’s standards would yield additional 

energy savings that are significant. In DOE’s view, 

this statutory provision shares the requirement with 

the statutory provision applicable to covered 

products and non-ASHRAE equipment that 

‘‘significant conservation of energy’’ must be 

present (42 U.S.C. 6295(o)(3)(B))—and supported 

with ‘‘clear and convincing evidence’’—to permit 

DOE to set a more stringent requirement than 

ASHRAE. 

21The numeric threshold for determining the 

significance of energy savings established in a final 

rule published on February 14, 2020 (85 FR 8626, 

8670), was subsequently eliminated in a final rule 

published on December 13, 2021 (86 FR 70755). 

22See Executive Order 14008, 86 FR 7619 (Feb. 

1, 2021) (‘‘Tackling the Climate Crisis at Home and 

Abroad’’). 

heaters and hot waters supply boilers 

with less than or equal to 10 gallons of 

water stored, the contribution any 

potential energy savings from amended 

standards for these units would be 

negligible and not appreciably impact 

the energy savings analysis for CWH 

equipment. For instantaneous water 

heaters and hot water supply boilers 

(other than storage-type instantaneous 

water heaters), DOE has not found and 

did not receive any information or data 

suggesting that DOE should analyze 

amended standby loss standards or 

separately analyze amended thermal 

efficiency standards for each stored 

volume range (less than 10 gallons, and 

greater than or equal to 10 gallons stored 

volume). 

C. Technological Feasibility 

1. General 

In each energy conservation standards 

rulemaking, DOE conducts a screening 

analysis based on information gathered 

on all current technology options and 

prototype designs that could improve 

the efficiency of the products or 

equipment that is the subject of the 

rulemaking. As the first step in such an 

analysis, DOE develops a list of 

technology options for consideration in 

consultation with manufacturers, design 

engineers, and other interested parties. 

DOE then determines which of these 

means for improving efficiency are 

technologically feasible. DOE considers 

technologies incorporated in 

commercially-available equipment or in 

working prototypes to be 

technologically feasible. 

After DOE has determined that 

particular technology options are 

technologically feasible, it further 

evaluates each technology option in 

light of the following additional 

screening criteria: (1) Practicability to 

manufacture, install, and service; (2) 

adverse impacts on product utility or 

availability; and (3) adverse impacts on 

health or safety. See generally 10 CFR 

431.4; 10 CFR part 430, subpart C, 

appendix A, sections 6(c)(3)(ii)–(v) and 

7(b)(2)–(5). Additionally, it is DOE’s 

policy not to include in its analyses any 

proprietary technology that is a unique 

pathway to achieving a certain 

efficiency level. Section IV.B of this 

document discusses the results of the 

screening analysis for CWH equipment, 

particularly the designs DOE 

considered, those it screened out, and 

those that are the basis for the standard 

levels considered in this proposed 

rulemaking. For further details on the 

screening analysis for this proposed 

rulemaking, see chapter 4 of the NOPR 

TSD. 

2. Maximum Technologically Feasible 

Levels 

When DOE proposes to adopt an 

amended standard for a type or class of 

covered equipment, it determines the 

maximum improvement in energy 

efficiency or maximum reduction in 

energy use that is technologically 

feasible for such equipment. 

Accordingly, in the engineering 

analysis, DOE determined the max-tech 

improvements in energy efficiency for 

CWH equipment, using the design 

parameters for the most efficient 

products available on the market. The 

max-tech levels that DOE determined 

for this proposed rulemaking are 

described in section IV.C.4 of this NOPR 

and chapter 5 of the NOPR TSD. 

D. Energy Savings 

1. Determination of Savings 

For each TSL, DOE projected energy 

savings from the application of the TSL 

to CWH equipment purchased in the 30- 

year period that begins in the first full 

year of compliance with potential 

standards (2026–2055 for gas-fired CWH 

equipment).17 The savings are measured 

over the entire lifetime of CWH 

equipment purchased in the previous 

30-year period. DOE quantified the 

energy savings attributable to each TSL 

as the difference in energy consumption 

between each standards case and the nonew-standards case. The no-newstandards case represents a projection of 

energy consumption that reflects how 

the market for a product would likely 

evolve in the absence of amended 

energy conservation standards. 

DOE used its national impacts 

analysis (‘‘NIA’’) spreadsheet model to 

estimate national energy savings 

(‘‘NES’’) from potential amended 

standards for CWH equipment. The NIA 

spreadsheet model (described in section 

IV.H of this document) calculates energy 

savings in terms of site energy, which is 

the energy directly consumed by 

equipment at the locations where they 

are used. For electricity, DOE reports 

NES in terms of primary energy savings, 

which is the savings in the energy that 

is used to generate and transmit the site 

electricity. For natural gas, the primary 

energy savings are considered to be 

equal to the site energy savings because 

they are supplied to the user without 

transformation from another form of 

energy. 

DOE also calculates NES in terms of 

full-fuel cycle (‘‘FFC’’) energy savings. 

The FFC metric includes the energy 

consumed in extracting, processing, and 

transporting primary fuels (e.g., coal, 

natural gas, petroleum fuels), and thus 

presents a more complete picture of the 

impacts of energy conservation 

standards.18 DOE’s approach is based on 

the calculation of an FFC multiplier for 

each of the energy types used by 

covered equipment.19 For more 

information on FFC energy savings, see 

section IV.H.3 of this document. 

2. Significance of Savings 

To adopt any new or amended 

standards for covered equipment, DOE 

must determine that such action would 

result in significant energy savings. (See 

42 U.S.C. 6313(a)(6)(C)(i); 42 U.S.C. 

6313(a)(6)(A)(ii)(II)) 20

The significance of energy savings 

offered by a new or amended energy 

conservation standard cannot be 

determined without knowledge of the 

specific circumstances surrounding a 

given rulemaking.21 For example, the 

United States has now rejoined the Paris 

Agreement and will exert leadership in 

confronting the climate crisis.22

Additionally, some covered products 

and equipment have most of their 

energy consumption occur during 

periods of peak energy demand. The 

impacts of these products on the energy 

infrastructure can be more pronounced 

than products with relatively constant 

demand. In evaluating the significance 

of energy savings, DOE considers 

differences in primary energy and FFC 

effects for different covered products 

and equipment when determining 

whether energy savings are significant. 


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23 DOE also presents a sensitivity analysis that 

considers impacts for equipment shipped in a 9- 

year period, which is a proxy for the timeline in 

EPCA for the review of certain energy conservation 

standards and potential revision of and compliance 

with such revised standards. 

Primary energy and FFC effects include 

the energy consumed in electricity 

production (depending on load shape), 

in distribution and transmission, and in 

extracting, processing, and transporting 

primary fuels (i.e., coal, natural gas, 

petroleum fuels), and thus present a 

more complete picture of the impacts of 

energy conservation standards. 

Accordingly, DOE evaluates the 

significance of energy savings on a caseby-case basis, taking into account the 

significance of cumulative FFC national 

energy savings, the cumulative FFC 

emissions reductions, and the need to 

confront the global climate crisis, among 

other factors. As stated, the proposed 

standards would result in estimated 

national energy savings of 0.70 quad, 

the equivalent of the electricity use of 

7.0 million homes in one year. DOE has 

initially determined, based on the 

methodology described in section IV.E 

and the analytical results presented in 

section V.B.3.a, that there is clear and 

convincing evidence that the energy 

savings for the TSL proposed in this 

rulemaking are ‘‘significant’’ within the 

meaning of 42 U.S.C. 

6313(a)(6)(A)(ii)(II). 

E. Economic Justification 

1. Specific Criteria 

EPCA provides seven factors to be 

evaluated in determining whether a 

potential energy conservation standard 

for CWH equipment is economically 

justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)– 

(VII) and (C)(i)) The following sections 

discuss how DOE has addressed each of 

those seven factors in this rulemaking. 

a. Economic Impact on Manufacturers 

and Commercial Consumers 

EPCA requires DOE to consider the 

economic impact of a standard on 

manufacturers and the commercial 

consumers of the products subject to the 

standard. (42 U.S.C. 6313(a)(6)(B)(I) and 

(C)(i)) In determining the impacts of a 

potential amended standard on 

manufacturers, DOE typically conducts 

an MIA. For the MIA, DOE first uses an 

annual cash-flow approach to determine 

the quantitative impacts. This step 

incorporates both a short-term impact 

assessment (based on the cost and 

capital requirements during the period 

between when a regulation is issued and 

when entities must comply with the 

regulation) and a long-term impact 

assessment (over a 30-year period).23

The industry-wide impacts analyzed 

include: (1) INPV, which values the 

industry on the basis of expected future 

cash flows; (2) cash flows by year; (3) 

changes in revenue and income; and (4) 

other measures of impact, as 

appropriate. Second, DOE analyzes and 

reports the impacts on different types of 

manufacturers (manufacturer 

subgroups), including impacts on small 

manufacturers. Third, DOE considers 

the impact of standards on domestic 

manufacturer employment and 

manufacturing capacity, as well as the 

potential for new and amended 

standards to result in plant closures and 

loss of capital investment. Finally, DOE 

takes into account cumulative impacts 

of various DOE regulations and other 

regulatory requirements on 

manufacturers. 

For individual commercial 

consumers, measures of economic 

impact include the changes in LCC and 

PBP associated with new or amended 

standards. These measures are 

discussed further in the following 

section. For commercial consumers in 

the aggregate, DOE also calculates the 

national net present value of the 

economic impacts applicable to a 

particular rulemaking. DOE also 

evaluates the LCC impacts of potential 

standards on identifiable subgroups of 

commercial consumers that may be 

affected disproportionately by a national 

standard. 

b. Savings in Operating Costs Compared 

to Increase in Price (Life-Cycle Costs) 

EPCA requires DOE to consider the 

savings in operating costs throughout 

the estimated average life of CWH 

equipment compared to any increase in 

the price of the equipment that is likely 

to result from the standard. (42 U.S.C. 

6313(a)(6)(B)(ii)(II); 42 U.S.C. 

6313(a)(6)(C)(i)) DOE conducts this 

comparison in its LCC and PBP analysis. 

The LCC is the sum of the purchase 

price of a piece of equipment (including 

installation cost and sales tax) and the 

operating expense (including energy, 

maintenance, and repair expenditures) 

discounted over the lifetime of the 

equipment. To account for uncertainty 

and variability in specific inputs, such 

as equipment lifetime and discount rate, 

DOE uses distributions of values, with 

probabilities attached to each value. For 

its analysis, DOE assumes that 

commercial consumers will purchase 

the covered equipment in the first full 

year of compliance with amended 

standards. 

The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient equipment through lower 

operating costs. DOE calculates the PBP 

by dividing the change in purchase cost 

due to a more-stringent standard by the 

change in annual operating cost for the 

year that standards are assumed to take 

effect. 

The LCC savings are calculated 

relative to a no-new-standards case that 

reflects projected market trends in the 

absence of amended standards. DOE 

identifies the percentage of commercial 

consumers estimated to receive LCC 

savings or experience an LCC increase, 

in addition to the average LCC savings 

associated with a particular standard 

level. DOE’s LCC analysis is discussed 

in further detail in section IV.F of this 

NOPR. 

c. Energy Savings 

Although significant conservation of 

energy is a separate statutory 

requirement for adopting an energy 

conservation standard, EPCA requires 

DOE, in determining the economic 

justification of a standard, to consider 

the total projected energy savings that 

are expected to result directly from the 

standard. (42 U.S.C. 

6313(a)(6)(B)(ii)(III)) As discussed in 

section IV.H of this NOPR and chapter 

10 of the NOPR TSD, DOE uses the NIA 

spreadsheet to project NES. 

d. Lessening of Utility or Performance of 

Products 

In establishing classes of equipment, 

and in evaluating design options and 

the impact of potential standard levels, 

DOE must consider any lessening of the 

utility or performance of the considered 

equipment likely to result from the 

standard. (42 U.S.C. 

6313(a)(6)(B)(ii)(IV)) Based on data 

available to DOE, the standards 

proposed in this document would not 

reduce the utility or performance of the 

products under consideration in this 

rulemaking. As discussed in section 

IV.A.2.c, DOE considered whether 

different venting technologies should be 

considered a necessary feature. 

Although the standards proposed in 

this NOPR would, if adopted, effectively 

eliminate non-condensing technology 

(and associated venting), DOE has 

recently published a final interpretive 

rule that returns to the previous and 

long-standing interpretation (in effect 

prior to the January 15, 2021 final 

interpretive rule), under which the 

technology used to supply heated air or 

hot water is not a performance-related 

‘‘feature’’ that provides a distinct utility 

under EPCA. 86 FR 73947 (Dec. 29, 

2021). Therefore, for the purpose of the 

analysis conducted for this rulemaking 

DOE is not precluded from setting 


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24As discussed in section IV.L of this document, 

for the purpose of complying with the requirements 

of Executive Order 12866, DOE also estimates the 

economic value of emissions reductions resulting 

from the considered TSLs. DOE calculates this 

estimate using a measure of the social cost (‘‘SC’’) 

of each pollutant (e.g., SC–CO2). Although this 

estimate is calculated for the purpose of complying 

with Executive Order 12866, the Seventh Circuit 

Court of Appeals confirmed in 2016 that DOE’s 

consideration of the social cost of carbon in energy 

conservation standards rulemakings is permissible 

under EPCA. Zero Zone v. Dept of Energy, 832 F.3d 

654, 678 (7th Cir. 2016). 

energy conservation standards that 

preclude non-condensing technology 

and did not analyze separate equipment 

classes for non-condensing and 

condensing CWH equipment in this 

NOPR. 

e. Impact of Any Lessening of 

Competition 

EPCA directs DOE to consider the 

impact of any lessening of competition, 

as determined in writing by the 

Attorney General, that is likely to result 

from a proposed standard. (See 42 

U.S.C. 6313(a)(6)(B)(ii)(V)) DOE will 

transmit a copy of this proposed rule to 

the Attorney General with a request that 

the DOJ provide its determination on 

this issue. DOE will publish and 

respond to the Attorney General’s 

determination in the final rule. DOE 

invites comment from the public 

regarding the competitive impacts that 

are likely to result from this proposed 

rule. In addition, stakeholders may also 

provide comments separately to DOJ 

regarding these potential impacts. See 

the ADDRESSES section for information 

to send comments to DOJ. 

f. Need for National Energy 

Conservation 

DOE also considers the need for 

national energy conservation in 

determining whether a new or amended 

standard is economically justified. (42 

U.S.C. 6313(a)(6)(B)(ii)(VI)) The energy 

savings from the proposed standards are 

likely to provide improvements to the 

security and reliability of the Nation’s 

energy system. DOE conducts a utility 

impact analysis to estimate how 

standards may affect the Nation’s 

needed power generation capacity, as 

discussed in section IV.M of this 

document. 

DOE maintains that environmental 

and public health benefits associated 

with the more efficient use of energy are 

important to take into account when 

considering the need for national energy 

conservation. The proposed standards 

are likely to result in environmental 

benefits in the form of reduced 

emissions of air pollutants and GHGs 

associated with energy production and 

use. As part of the analysis of the need 

for national energy and water 

conservation, DOE conducts an 

emissions analysis to estimate how 

potential standards may affect these 

emissions, as discussed in section IV.K 

of this document; the estimated 

emissions impacts are reported in 

section V.B.6 of this document.24 DOE 

also estimates the economic value of 

emissions reductions resulting from the 

considered TSLs, as discussed in 

section IV.L of this document. DOE 

emphasizes that the SC–GHG analysis 

presented in this NOPR and TSD was 

performed in support of the cost-benefit 

analyses required by Executive Order 

12866, and is provided to inform the 

public of the impacts of emissions 

reductions resulting from this proposed 

rule. The SC–GHG estimates were not 

factored into DOE’s EPCA analysis of 

the need for national energy and water 

conservation. 

g. Other Factors 

EPCA 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. (42 U.S.C. 

6313(a)(6)(B)(ii)(VII) and (C)(i)) DOE did 

not consider other factors for this 

document. 

2. Rebuttable Presumption 

EPCA creates a rebuttable 

presumption that an energy 

conservation standard is economically 

justified if the additional cost to the 

consumer of a product that meets the 

standard is less than three times the 

value of the first year’s energy savings 

resulting from the standard, as 

calculated under the applicable DOE 

test procedure. DOE’s LCC and PBP 

analyses generate values used to 

calculate the effects that potential 

amended energy conservation standards 

would have on the PBP for commercial 

consumers. These analyses include, but 

are not limited to, the 3-year PBP 

contemplated under the rebuttablepresumption test. 

In addition, DOE routinely conducts 

an economic analysis that considers the 

full range of impacts to commercial 

consumers, manufacturers, the Nation, 

and the environment, as required under 

42 U.S.C. 6313(a)(6)(B)(ii) and 42 U.S.C. 

6313(a)(6)(C)(i). The results of this 

analysis serve as the basis for DOE’s 

evaluation of the economic justification 

for a potential standard level (thereby 

supporting or rebutting the results of 

any preliminary determination of 

economic justification). The rebuttable 

presumption payback calculation is 

discussed in section V.B.1.c of this 

document. 

F. Revisions to Notes in Regulatory Text 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE proposed to modify the 

three notes to the table of energy 

conservation standards in 10 CFR 

431.110. 81 FR 34440, 34458 (May 31, 

2016). First, DOE proposed to modify 

the note to the table of energy 

conservation standards denoted by 

subscript ‘‘a’’ to maintain consistency 

with DOE’s procedure and enforcement 

provisions for determining fuel input 

rate of gas-fired and oil-fired CWH 

equipment that were proposed in the 

May 2016 CWH TP NOPR (81 FR 28588, 

28622 (May 9, 2016)). Among these 

changes, DOE proposed that the fuel 

input rate certified to DOE, which must 

be equal to the mean of the measured 

values of fuel input rate in a sample, be 

used to determine equipment classes 

and calculate the standby loss standard. 

Therefore, in the withdrawn May 2016 

CWH ECS NOPR, DOE proposed to 

replace the term ‘‘nameplate input rate’’ 

with the term ‘‘fuel input rate.’’ 81 FR 

34440, 34458 (May 31, 2016). 

DOE also proposed to remove the note 

to the table of energy conservation 

standards denoted by subscript ‘‘b.’’ 

This note clarifies the compliance date 

for energy conservation standards for 

hot water supply boilers with capacity 

less than 10 gallons. Specifically, the 

note says that the standards in the table 

are mandatory for such equipment 

beginning on October 21, 2005, but that 

between October 23, 2003 and October 

21, 2005 manufacturers may either 

comply with the standards listed in the 

table for hot water supply boilers with 

less than 10 gallons of storage or with 

the standards in subpart E of 10 CFR 

part 431 for a ‘‘commercial packaged 

boiler.’’ DOE determined that this note 

is no longer needed because the specific 

compliance dates for hot water supply 

boilers with less than 10 gallons of 

storage is well in the past, with all such 

equipment being required to meet the 

standards in the table in 10 CFR 431.110 

since October 21, 2005. Id. 

DOE also proposed to modify the note 

to the table of energy conservation 

standards denoted by subscript ‘‘c,’’ 

which establishes design requirements 

for water heaters and hot water supply 

boilers having more than 140 gallons of 

storage capacity that do not meet the 

standby loss standard. DOE proposed to 

replace the phrase ‘‘fire damper’’ with 

the phrase ‘‘flue damper,’’ because ‘‘flue 

damper’’ was more consistent with 

commonly used terminology and likely 

the intended meaning, and that ‘‘fire 


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25 In the January 2001 final rule, DOE used the 

terminology ‘‘flue damper’’ in the footnote to the 

standards table. 66 FR 3356. The October 2004 final 

rule, which recodified the existing standards to be 

contiguous with newly adopted test procedures, 

changed the footnote terminology to ‘‘fire damper’’ 

without providing rationale. 69 FR 61985. Further, 

ASHRAE Standard 90.1 has consistently used the 

term ‘‘flue damper’’ to describe the requirements. 

Therefore, DOE concluded the change in the 

October 2004 final rule was likely inadvertent. 

damper’’ was a typographical error.25

The intent of this design requirement 

was to require that any water heaters or 

hot water supply boilers greater than 

140 gallons that do not meet the standby 

loss standard must have some device 

that physically restricts heat loss 

through the flue, either a flue damper or 

blower that sits atop the flue. Id. 

In response to the withdrawn May 

2016 CWH ECS NOPR, A.O. Smith and 

Rheem opposed DOE’s proposal to 

replace the term ‘‘nameplate input rate’’ 

with ‘‘fuel input rate.’’ A.O. Smith 

argued that because input rate is one of 

the characteristics that define a 

product’s DOE classification, a fixed 

number such as the nameplate rated 

input is necessary. A.O. Smith stated 

that manufacturers are required by 

safety standards to display the rated 

input on product labels and operating 

instructions. A.O. Smith also argued 

that the only role for rated input during 

efficiency testing is to ensure the unit is 

firing on rate, and that rated input has 

no effect on measurement of energy 

efficiency. A.O. Smith added that 

replacing the term with ‘‘fuel input 

rate’’ does not help consumers but will 

add regulatory burden to manufacturers. 

Rheem disagreed with the method for 

determining ‘‘fuel input rate’’ proposed 

in the May 2016 CWH TP NOPR and 

believes that the term ‘‘nameplate input 

rate’’ is clear and consistent for all water 

heaters and is should remain in 

subscript ‘‘a.’’ Rheem stated that it 

would only support a change to the term 

‘‘fuel input rate’’ if the method of 

determining fuel input rate remains 

unchanged from how it is currently 

performed in industry. (A.O. Smith, No. 

39 at pp. 6–7; Rheem, No. 43 at p. 8) 

In the November 2016 CWH TP final 

rule, DOE did not adopt its proposed 

certification provisions for fuel input 

rate. DOE stated that the safety 

certification process during the design 

and development of CWH equipment is 

sufficient for determining the rated 

input for CWH equipment. 

Additionally, DOE adopted the term 

‘‘rated input’’ to mean the maximum 

rate at which CWH equipment is rated 

to use energy as specified on the 

nameplate and adopted the term ‘‘fuel 

input rate’’ to mean the rate at which 

any particular unit of CWH equipment 

consumes energy during testing. 81 FR 

79261, 79304–79306 (Nov. 10, 2016). To 

maintain consistency with the 

November 2016 CWH TP final rule, DOE 

is no longer proposing to adopt its 

proposal in the May 2016 CWH ECS 

NOPR to replace the term ‘‘nameplate 

input rate’’ with the term ‘‘fuel input 

rate.’’ Instead, DOE is proposing to 

replace the term ‘‘nameplate input rate’’ 

with the term ‘‘rated input.’’ DOE notes 

that this change simply ensures 

consistency in nomenclature throughout 

DOE’s regulations for CWH equipment. 

Similar to the term ‘‘nameplate input 

rate,’’ the term ‘‘rated input’’ also refers 

to the input rate specified on the 

nameplate of CWH equipment. 

Additionally, in this NOPR, DOE 

continues to propose the other revisions 

initially proposed in the May 2016 CWH 

ECS NOPR to subscript ‘‘b’’ and ‘‘c’’ of 

10 CFR 431.110 for the reasons 

previously stated. 

Issue 3: DOE requests comment on its 

proposed revisions to notes to the table 

of energy conservation standards in 10 

CFR 431.110. 

G. Certification, Compliance, and 

Enforcement Issues 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE proposed to add 

requirements to its certification, 

compliance, and enforcement 

regulations at 10 CFR 429.44 that the 

rated value of storage volume must 

equal the mean of the measured storage 

volume of the units in the sample. 81 FR 

34440, 34458 (May 31, 2016). DOE notes 

that there are currently no requirements 

from the Department limiting the 

amount of difference that is allowable 

between the tested (i.e., measured) 

storage volume and the ‘‘rated’’ storage 

volume that is specified by the 

manufacturer for CWH equipment other 

than residential-duty commercial water 

heaters. In the July 2014 test procedure 

final rule, DOE established a 

requirement for consumer water heaters 

and residential-duty commercial water 

heaters that requires the rated volume to 

be equal to the mean of the measured 

volumes in a sample. 79 FR 40542, 

40565 (July 11, 2014). 

From examination of reported 

measured storage volume data in the 

AHRI Directory, DOE observed that 

many units are rated at storage volumes 

above the measured storage volume. 

DOE’s maximum standby loss equations 

for gas-fired and oil-fired CWH 

equipment are based on the rated 

storage volume, and the maximum 

standby loss standard increases as rated 

storage volume increases. Consequently, 

DOE proposed to require that the rated 

storage volume must be equal to the 

mean of the values measured using 

DOE’s test procedure. In addition, DOE 

proposed to specify that for DOEinitiated testing, the mean of the 

measured storage volumes must be 

within 5 percent of the rated volume in 

order to use the rated storage volume in 

calculation of maximum standby loss. If 

the mean of the measured storage 

volume is more than 5 percent different 

than the rated storage volume, then DOE 

proposed to use the mean of the 

measured values in calculation of 

maximum standby loss. DOE notes that 

similar changes were made to DOE’s 

certification, compliance, and 

enforcement regulations for residential 

and residential-duty water heaters in the 

July 2014 final rule. 79 FR 40542, 40565 

(July 11, 2014). In the May 2016 CWH 

ECS NOPR, DOE requested comment on 

its proposed changes to the certification, 

compliance, and enforcement 

regulations requiring the rated volume 

to be equal to the mean of the measured 

volumes in a sample. 

AHRI, Bock, A.O. Smith, and 

Bradford White opposed DOE’s 

proposed changes to 10 CFR 

429.44(b)(1)(ii)(C), which would make 

the rated volume equal to the mean of 

measured storage volumes within the 

sample. (AHRI, No. 40 at p. 37; Bock, 

No. 33 at p. 3; A.O. Smith, No. 39 at p. 

7; Bradford White, No. 42 at p. 3) AHRI, 

Bock, A.O. Smith, Bradford White, and 

Rheem stated that the relationship of 

measured volume and rated volume is 

already addressed by the applicable 

water heater safety standards. (AHRI, 

No. 40 at p. 37; Bock, No. 33 at p. 3; 

A.O. Smith, No. 39 at p. 7; Bradford 

White, No. 42 at p. 3; Rheem, No. 43 at 

p. 9) Bock stated that safety certification 

with ANSI Z21.10.3–2015 requires that 

rated storage volume be within ±5 

percent of the measured volume. 

Therefore, Bock argued that DOE should 

use rated volume for the calculation of 

maximum standby loss, and the 

certifying agency, ANSI, should resolve 

any discrepancy beyond a threshold of 

5 percent between rated and measured 

volume with the manufacturer. (Bock, 

No. 33 at p. 3) 

AHRI, Rheem, Bradford White, and 

A.O. Smith commented that DOE’s 

proposed changes regarding certification 

of rated volume are unnecessary. (AHRI, 

No. 40 at p. 37; Rheem, No. 43 at p. 9; 

Bradford White, No. 42 at p. 3; A.O. 

Smith, No. 39 at p. 7) AHRI commented 

that there is no evidence that the current 

practice of determining rated volume 

has caused any problems in the field or 

in the compliance of CWH equipment 

with the existing energy conservation 

standards. (AHRI, No. 40 at p. 37) AHRI 

and Rheem suggested that it is also 


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outside of DOE’s authority to redefine 

how rated volume is determined 

because it is not an energy conservation 

metric. (AHRI, No. 40 at p. 37; Rheem, 

No. 43 at p. 10) AHRI stated that it filed 

a petition with DOE which was 

published in the Federal Register on 

November 7, 2014 (79 FR 66338) in 

response to a similar provision included 

in the July 2014 final rule for consumer 

water heaters and residential-duty 

commercial water heaters. Specifically, 

AHRI’s petition sought the repeal of 

provisions that required the rated 

volume to be equal to the mean of the 

measured volumes in a sample for 

consumer water heaters and residentialduty commercial water heaters. AHRI 

stated in the petition that these 

amendments in effect increase the 

stringency of the applicable minimum 

standards for residential water heaters, 

are unnecessary to develop a uniform 

energy descriptor, do not coincide with 

industry practice, and would impose 

significant burden on manufacturers in 

terms of additional testing and rewriting 

of market literature. (AHRI, No. 40 at p. 

37) Rheem added that to define rated 

storage volume in the manner proposed 

in the May 2016 CWH ECS NOPR 

provides no measurable benefits nor 

addresses any known complaints, and it 

only would serve to infringe on industry 

standards and customary practice in the 

marketplace (i.e., requiring rated 

volume to be equal to the mean of 

measured volumes, rather than allowing 

a 5-percent tolerance when determining 

rated volume as included in ANSI 

Z21.10.3–2015). (Rheem, No. 43 at p. 

10) 

AHRI argued that according to 42 

U.S.C. 6314(a)(4)(A), DOE is required to 

adopt ‘‘generally accepted industry test 

procedures’’ unless that procedure 

either does not adequately measure 

energy or is unduly burdensome. AHRI 

stated that establishing certification and 

enforcement regulations for the rated 

volume of storage water heaters is 

contrary to the policy established by 

Office of Management and Budget 

(‘‘OMB’’) Circular No. A–119 and 

Executive Order 13563, in that DOE has 

provided no evidence or compelling 

arguments that voluntary consensus 

standards requirements for rated volume 

have failed to serve the agency’s needs. 

(AHRI, No. 40 at p. 38) 

Rheem stated that while rated storage 

volume is used as a variable in the 

standby loss equations for gas-fired and 

oil-fired CWH equipment, thermal 

efficiency is the desired energy 

efficiency value for these classes of 

CWH equipment in the industry and 

marketplace. Rheem commented that 

thermal efficiency is not dependent on 

storage volume. Conversely, Rheem 

stated that standby loss is the desired 

energy efficiency metric for electric 

storage water heaters, but the current 

maximum standby loss equation uses 

measured storage volume and not rated 

storage volume. Therefore, Rheem 

argued that rated storage volume is not 

a critical input to determining the 

desired energy efficiency values by 

commercial consumers of CWH 

equipment. (Rheem, No. 43 at p. 10) 

After considering the comments, DOE 

is not proposing to change the 

requirements regarding certification of 

storage volume in this NOPR. 

Additionally, in the withdrawn May 

2016 CWH ECS NOPR DOE proposed 

changes to the equations for maximum 

standby losses that would be consistent 

with the proposed changes to DOE’s 

certification, compliance, and 

enforcement regulations. DOE received 

several comments on these proposals. 

(A.O. Smith, No. 39 at p. 7; Bradford 

White, No. 42 at pp. 3–4; AHRI, Public 

Meeting Transcript, No. 20 at p. 14; 

Rheem, No. 43 at pp. 10–11) However, 

because DOE is no longer proposing 

changes to the storage volume 

determination of CWH equipment in 

this NOPR, DOE is also no longer 

proposing to change the equations to 

calculate maximum standby losses. 

DOE is not proposing to establish 

equipment-specific certification 

requirements for electric instantaneous 

water heaters in this NOPR. DOE may 

propose to establish certification 

requirements for electric instantaneous 

water heaters in future rulemakings. 

H. General Comments 

As discussed in section II.A of this 

NOPR, pursuant to EPCA, DOE must 

determine, supported by clear and 

convincing evidence, that amended 

standards for CWH equipment would 

result in significant additional 

conservation of energy and be 

technologically feasible and 

economically justified. (42 U.S.C. 

6313(a)(6)(A)(ii)(II); 42 U.S.C. 

6313(a)(6)(C)(i)) The statutory criteria 

require more than just a consideration of 

a standard level that provides the 

maximum improvement in energy 

savings for CWH equipment. In making 

the determination of economic 

justification of an amended standard, 

DOE must determine whether the 

benefits of the proposed standard 

exceed the burdens of the proposed 

standard by considering, to the 

maximum extent practicable, the seven 

criteria described in EPCA (see 42 

U.S.C. 6313(a)(6)(B)(ii)(I)–(VII)). A 

discussion of DOE’s consideration of the 

statutory factors is contained in section 

V of this NOPR. 

The clear and convincing threshold is 

a heightened standard, and would only 

be met where the Secretary has an 

abiding conviction, based on available 

facts, data, and DOE’s own analyses, 

that it is highly probable an amended 

standard would result in a significant 

additional amount of energy savings, 

and is technologically feasible and 

economically justified. See American 

Public Gas Association v. U.S. Dep’t of 

Energy, No. 20–1068, 2022 WL 151923, 

at *4 (D.C. Cir. January 18, 2022) (citing 

Colorado v. New Mexico, 467 U.S. 310, 

316, 104 S.Ct. 2433, 81 L.Ed.2d 247 

(1984)). 

In response to the withdrawn May 

2016 CWH ECS NOPR, DOE received 

comments and information regarding 

the assumptions that it used for inputs 

in the rulemaking analyses. DOE 

considered these comments in 

appropriate analyses conducted in this 

NOPR and modified its assumptions 

and inputs as necessary to account for 

the information or feedback provided by 

industry representatives. For example, 

DOE received comments from 

stakeholders about the achievable 

standby loss levels of gas-fired and 

electric storage water heaters. DOE used 

the suggestions provided in these 

comments and updated its analyzed 

standby loss levels to better reflect 

models currently on the market and the 

technology options that are used to 

reduce standby loss. Based on 

comments from stakeholders regarding 

the standby loss of electric storage water 

heaters, DOE concluded that the only 

technology option analyzed in the 

withdrawn NOPR would not reduce 

standby loss for all models on the 

market across the range of storage 

volumes. Therefore, DOE did not 

analyze amended energy conservation 

standards for electric storage water 

heaters for this NOPR. 

Several stakeholders commented that 

DOE’s analysis incorrectly estimates the 

energy use of CWH equipment (AHRI, 

No. 40 at p. 1; A.O. Smith, No. 39 at p. 

3; IECA, No. 24 at p. 1; Spire, No. 45 at 

pp. 12–13) and costs to commercial 

consumers (AHRI, No. 40 at p. 1; A.O. 

Smith, No. 39 at p. 3; IECA, No. 24 at 

p. 1; Bock, No. 33 at p. 2), and 

underestimates the market share of 

higher-efficiency (i.e., condensing) gasfired CWH equipment currently on the 

market (AHRI, No. 40 at p. 1; Bock, No. 

33 at p. 2). AHRI further argued that 

DOE’s analysis overestimates the future 

shipments of CWH equipment. (AHRI, 

No. 40 at p. 1) IECA argued that DOE 

substantially overstated the potential 

benefits of the proposed standards and 


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26 DOE is aware that a new version of CBECS 

(CBECS 2018) will likely be available for the next 

rulemaking phase, and DOE will evaluate its 

applicability for the commercial water heater 

energy analysis in that phase. 

27 DOE routinely uses a third spreadsheet tool, the 

Government Regulatory Impact Model (‘‘GRIM’’), to 

assess manufacturer impacts of potential new or 

amended standards as part of the MIA. However, as 

discussed in section III.E.1.a of this document, the 

MIA was not updated for the SNOPR. 

28For more information on NEMS, refer to EIA. 

The National Energy Modeling System: An 

Overview. 2018. EIA: Washington, DC. DOE/EIA– 

0581(2018). Available at www.eia.gov/outlooks/ 

aeo/. 29EIA approves the use of the name ‘‘NEMS’’ to 

describe only an AEO version of the model without 

any modification to code or data. Because the 

present analysis entails some minor code 

modifications and runs the model under various 

policy scenarios that deviate from AEO 

assumptions, the name ‘‘NEMS–BT’’ refers to the 

model as used here. (BT stands for DOE’s Building 

Technologies Office.) 

understated the negative impact on U.S. 

manufacturing jobs. (IECA, No. 24 at p. 

1) 

In response, DOE notes that for this 

NOPR, it refined the total shipment 

estimates and no-new-standards-case 

efficiency distributions in its analyses 

by integrating additional shipment data 

provided by AHRI in response to the 

withdrawn NOPR. DOE also updated its 

energy use analysis by incorporating 

data from CBECS 2012, as suggested by 

stakeholders.26 After thoroughly 

considering the stakeholder’s comments 

regarding installation costs of 

condensing gas-fired CWH equipment, 

DOE re-evaluated its installation costs to 

align more closely with field 

applications. Furthermore, DOE 

reiterates that it conducts a rigorous 

analysis on impacts of amended 

standards on manufacturers, including 

impact on direct employment. Section 

IV of this NOPR provides details on 

DOE’s updates to its various analyses. 

Spire argued that significant energy 

savings cannot be based on the claim 

that the aggregate additional energy 

savings for all proposed standards are 

significant. Spire asserted that DOE’s 

obligation is to consider each standard 

individually on the basis of clear and 

convincing evidence. Spire further 

argued that DOE failed to consider how 

fuel switching would affect the energy 

savings and emissions reductions 

estimated in the withdrawn NOPR. 

(Spire, No. 45 at p. 5) AGA and APGA 

recommended that DOE disaggregate the 

analyses of each equipment class and 

treat each of its economic justification 

criteria separately. AGA and APGA 

further argued that DOE’s consideration 

of each TSL by comparing the 

commercial consumer LCC results 

against monetized emission reductions 

is entirely subjective and leads to 

uncertainty as to what DOE considers to 

constitute ‘‘economic justification.’’ 

(AGA and APGA, No. 35 at p. 4) 

In response to the comments from 

Spire and AGA and APGA, as described 

in section V.A of this NOPR, DOE 

groups various efficiency levels for each 

equipment class into TSLs in order to 

examine the combined impact that 

amended standards for all analyzed 

equipment classes would have on an 

industry. This approach also allows 

DOE to capture the effects on 

manufacturers of amended standards for 

all classes, better reflecting the burdens 

for manufacturers that produce 

equipment across several equipment 

classes. As discussed in section IV.H.2 

of this NOPR, DOE also considered the 

effects of fuel switching by comparing 

total installed costs and operating costs 

of competing CWH equipment types. 

From this analysis, DOE has tentatively 

concluded that this NOPR will not 

incentivize fuel switching in the CWH 

market. 

DOE disputes the notion that its 

consideration of TSLs is subjective. 

Rather, through a detailed and thorough 

analysis, DOE considered the benefits 

and burdens of amended standards for 

CWH equipment to commercial 

consumers, the Nation, and 

manufacturers, in accordance with the 

criteria described in EPCA (see 42 

U.S.C. 6313(a)(6)(B)(ii)(I)–(VII)). 

Contrary to the assertion of AGA and 

APGA, DOE’s economic justification is 

not based on comparing the commercial 

consumer LCC results against monetized 

emissions reductions. In fact, DOE 

considers a variety of economic factors, 

including commercial consumer LCC 

results, NPV of commercial consumer 

benefits, and manufacturer INPV. DOE 

presents monetized benefits in 

accordance with the applicable 

Executive Orders and DOE would reach 

the same tentative conclusions 

presented in this NOPR in the absence 

of the social cost of greenhouse gases, 

including the Interim Estimates 

presented by the Interagency Working 

Group. 

IV. Methodology and Discussion of 

Related Comments 

This section addresses the analyses 

DOE has performed for this proposed 

rulemaking with regard to CWH 

equipment. Separate subsections 

address each component of DOE’s 

analyses. 

In overview, DOE used several 

analytical tools to estimate the impact of 

the standards considered in this 

document. The first tool is a spreadsheet 

that calculates the LCC and PBP of 

potential amended or new energy 

conservation standards. The NIA uses a 

second spreadsheet set that provides 

shipments forecasts and calculates NES 

and NPV resulting from potential new 

or amended energy conservation 

standards.27 These spreadsheet tools are 

available on the DOE website for this 

proposed rulemaking: 

www1.eere.energy.gov/buildings/ 

appliance_standards/ 

standards.aspx?productid=36. 

Additionally, DOE estimated the 

impacts on electricity demand and air 

emissions from utilities due to the 

amended energy conservation standards 

for CWH equipment. DOE used a 

version of the U.S. Energy Information 

Administration’s (‘‘EIA’s’’) National 

Energy Modeling System (‘‘NEMS’’) for 

the electricity and air emissions 

analyses. The NEMS model simulates 

the energy sector of the U.S. economy. 

EIA uses NEMS 28 to prepare its Annual 

Energy Outlook (‘‘AEO’’), a widely 

known baseline energy forecast for the 

United States. The version of NEMS 

used for appliance standards analysis, 

which makes minor modifications to the 

AEO version, is called NEMS–BT.29

NEMS–BT accounts for the interactions 

among the various energy supply and 

demand sectors and the economy as a 

whole. 

A. Market and Technology Assessment 

For the market and technology 

assessment for CWH equipment, DOE 

gathered information that provides an 

overall picture of the market for the 

equipment concerned, including the 

purpose of the equipment, the industry 

structure, manufacturers, market 

characteristics, and technologies used in 

the equipment. This activity included 

both quantitative and qualitative 

assessments based primarily on 

publicly-available information. The 

subjects addressed in the market and 

technology assessment for this 

rulemaking include the following: (1) A 

determination of equipment classes, (2) 

manufacturers and industry structure, 

(3) types and quantities of CWH 

equipment sold, (4) existing efficiency 

programs, and (5) technologies that 

could improve the energy efficiency of 

CWH equipment. The key findings of 

DOE’s market assessment are 

summarized below. Chapter 3 of the 

NOPR TSD provides further discussion 

of the market and technology 

assessment. 

1. Definitions 

EPCA includes the following 

categories of CWH equipment as 


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covered industrial equipment: Storage 

water heaters, instantaneous water 

heaters, and unfired hot water storage 

tanks. EPCA defines a ‘‘storage water 

heater’’ as a water heater that heats and 

stores water internally at a 

thermostatically-controlled temperature 

for use on demand. This term does not 

include units that heat with an input 

rating of 4,000 Btu per hour or more per 

gallon of stored water. EPCA defines an 

‘‘instantaneous water heater’’ as a water 

heater that heats with an input rating of 

at least 4,000 Btu per hour per gallon of 

stored water. Lastly, EPCA defines an 

‘‘unfired hot water storage tank’’ as a 

tank that is used to store water that is 

heated external to the tank. (42 U.S.C. 

6311(12)(A)–(C)) 

DOE first codified the following more 

specific definitions for CWH equipment 

at 10 CFR 431.102 in the October 2004 

direct final rule. 69 FR 61974, 61983. 

Several of these definitions were 

subsequently amended in the November 

2016 CWH TP final rule. 81 FR 79261, 

79287–79288 (Nov. 10, 2016). 

Specifically, DOE now defines ‘‘hot 

water supply boiler’’ in 10 CFR 431.102 

as a packaged boiler that is industrial 

equipment and that (1) has an input 

rating from 300,000 Btu/h to 12,500,000 

Btu/h and of at least 4,000 Btu/h per 

gallon of stored water; (2) is suitable for 

heating potable water; and (3) meets 

either or both of the following 

conditions: (i) It has the temperature 

and pressure controls necessary for 

heating potable water for purposes other 

than space heating; or (ii) the 

manufacturer’s product literature, 

product markings, product marketing, or 

product installation and operation 

instructions indicate that the boiler’s 

intended uses include heating potable 

water for purposes other than space 

heating. 

DOE also defines an ‘‘instantaneous 

water heater’’ in 10 CFR 431.102 as a 

water heater that uses gas, oil, or 

electricity, including: (1) Gas-fired 

instantaneous water heaters with a rated 

input both greater than 200,000 Btu/h 

and not less than 4,000 Btu/h per gallon 

of stored water; (2) oil-fired 

instantaneous water heaters with a rated 

input both greater than 210,000 Btu/h 

and not less than 4,000 Btu/h per gallon 

of stored water; and (3) electric 

instantaneous water heaters with a rated 

input both greater than 12 kW and not 

less than 4,000 Btu/h per gallon of 

stored water. 

DOE defines a ‘‘storage water heater’’ 

in 10 CFR 431.102 as a water heater that 

uses gas, oil, or electricity to heat and 

store water within the appliance at a 

thermostatically-controlled temperature 

for delivery on demand including: (1) 

Gas-fired storage water heaters with a 

rated input both greater than 75,000 

Btu/h and less than 4,000 Btu/h per 

gallon of stored water; (2) oil-fired 

storage water heaters with a rated input 

both greater than 105,000 Btu/h and less 

than 4,000 Btu/h per gallon of stored 

water; and (3) electric storage water 

heaters with a rated input both greater 

than 12 kW and less than 4,000 Btu/h 

per gallon of stored water. 

Lastly, DOE defines an ‘‘unfired hot 

water storage tank’’ in 10 CFR 431.102 

as a tank used to store water that is 

heated externally, and that is industrial 

equipment. 

2. Equipment Classes 

When evaluating and establishing 

energy conservation standards, DOE 

generally divides covered equipment 

into equipment classes by the type of 

energy used or by capacity or other 

performance-related features that justify 

a different standard. In determining 

whether a performance-related feature 

justifies a different standard, DOE 

considers such factors as the utility to 

the commercial consumers of the feature 

and other factors DOE determines are 

appropriate. 

CWH equipment classes are divided 

based on the energy source, equipment 

category (i.e., storage vs. instantaneous 

and hot water supply boilers), and size 

(i.e., input capacity and rated storage 

volume). Unfired hot water storage 

tanks are also included as a separate 

equipment class, but as discussed in 

section III.B.3 of this proposed 

rulemaking are being considered as part 

of a separate proceeding and therefore 

were not analyzed for this NOPR. Table 

IV.1 shows the current equipment 

classes and energy conservation 

standards for CWH equipment other 

than residential-duty commercial water 

heaters, and Table IV.2 shows DOE’s 

current equipment classes and energy 

conservation standards for residentialduty commercial water heaters. 

TABLE IV.1—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT

FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment class Size 

Energy conservation standards * 

Minimum thermal 

efficiency 

(equipment 

manufactured on 

and after Oct. 9, 

2015) ** *** 

(%) 

Maximum standby loss 

(equipment manufactured on 

and after Oct. 29, 2003) ** † 

Electric storage water heaters .............................................................. All .......................... N/A 0.30 + 27/Vm (%/h). 

Gas-fired storage water heaters ........................................................... ≤155,000 Btu/h ...... 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

>155,000 Btu/h ..... 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired storage water heaters ............................................................. ≤155,000 Btu/h ...... *** 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

>155,000 Btu/h ..... *** 80 Q/800 + 110(Vr)1⁄2 (Btu/h). 

Electric instantaneous water heaters ‡ ................................................. <10 gal .................. 80 N/A. 

≥10 gal .................. 77 2.30 + 67/Vm (%/h). 

Gas-fired instantaneous water heaters and hot water supply boilers .. <10 gal ..................

≥10 gal ..................

80 

80 

N/A. 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Oil-fired instantaneous water heater and hot water supply boilers ...... <10 gal ..................

≥10 gal ..................

80 

78 

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h). 

Minimum thermal insulation 

Unfired hot water storage tank ............................................................. All .......................... R–12.5 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 


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** For hot water supply boilers with a capacity of less than 10 gallons: (1) The standards are mandatory for products manufactured on and 

after October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed 

in this table or the applicable standards in subpart E of part 431 for a ‘‘commercial packaged boiler.’’ 

*** For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) 

equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) The tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this NOPR, DOE codifies these standards 

for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water 

heaters is included in section III.B.4 of this document. 

TABLE IV.2—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY

COMMERCIAL WATER HEATERS

Equipment Specification * Draw pattern ** Uniform energy factor 

Gas-fired Storage .......................... >75 kBtu/h and ............................. Very Small .................................... 0.2674¥(0.0009 × Vr). 

≤105 kBtu/h and ........................... Low ............................................... 0.5362¥(0.0012 × Vr). 

≤120 gal and ................................. Medium ......................................... 0.6002¥(0.0011 × Vr). 

≤180 °F ......................................... High .............................................. 0.6597¥(0.0009 × Vr). 

Oil-fired storage ............................. >105 kBtu/h and ........................... Very Small .................................... 0.2932¥(0.0015 × Vr). 

≤140 kBtu/h and ........................... Low ............................................... 0.5596¥(0.0018 × Vr). 

≤120 gal and ................................. Medium ......................................... 0.6194¥(0.0016 × Vr). 

≤180 °F ......................................... High .............................................. 0.6740¥(0.0013 × Vr). 

Electric instantaneous .................... >12 kW and .................................. Very Small .................................... 0.80. 

≤58.6 kW and ............................... Low ............................................... 0.80. 

≤2 gal and ..................................... Medium ......................................... 0.80. 

≤180 °F ......................................... High .............................................. 0.80. 

* To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power 

supply, and not be designed to heat water at temperatures greater than 180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

As discussed in section IV.A.2.e, DOE 

proposed in the May 2016 CWH ECS 

NOPR to consolidate commercial gasfired and oil-fired storage water heater 

equipment classes that are currently 

divided by input rates of 155,000 Btu/ 

h. 81 FR 34440, 34462 In the May 2016 

CWH ECS NOPR, DOE sought comment 

on the overall proposed equipment class 

structure for CWH equipment. 81 FR 

34440, 34460 (May 31, 2016). The 

following subsections include 

clarifications in response to the various 

comments received. 

a. Residential-Duty Electric 

Instantaneous Water Heaters 

Residential-duty electric 

instantaneous water heaters are a 

separate equipment class within DOE’s 

regulations for CWH equipment. In the 

December 2016 conversion factor final 

rule, DOE established equipment classes 

and energy conservation standards for 

residential-duty commercial water 

heaters, including residential-duty 

electric instantaneous water heaters. 81 

FR 96204, 96239 (Dec. 29, 2016). 

However, DOE notes that it did not 

analyze amended energy conservation 

standards for this equipment class in 

this NOPR, as further discussed in 

section III.B.4 of this NOPR. 

b. Storage-Type Instantaneous Water 

Heaters 

Based on a review of equipment on 

the market, DOE has found that gas-fired 

storage-type instantaneous water heaters 

are very similar to gas-fired storage 

water heaters, but with a higher ratio of 

input rating to tank volume. This higher 

input-volume ratio is achieved with a 

relatively larger heat exchanger paired 

with a relatively smaller tank. 

Increasing either the input capacity or 

storage volume increases the hot water 

delivery capacity of the water heater. 

However, through a review of product 

literature, DOE did not identify any 

significant design differences that 

would warrant different energy 

conservation standard levels (for either 

thermal efficiency or standby loss) 

between models in these two equipment 

classes. Therefore, DOE grouped the two 

equipment classes together in the May 

2016 CWH ECS NOPR analyses and 

proposed the same standard levels for 

each equipment class. 

In the withdrawn May 2016 CWH TP 

NOPR, DOE noted that the ‘‘gas-fired 

instantaneous water heaters and hot 

water supply boilers with a storage 

volume greater than or equal to 10 

gallons’’ equipment class encompasses 

both instantaneous water heaters and 

hot water supply boilers with large 

volume heat exchangers, as well as 

instantaneous water heaters with storage 

tanks (but with at least 4,000 Btu/h of 

input per gallon of water stored). 81 FR 

28588, 28607 (May 9, 2016). Therefore, 

in the May 2016 CWH TP NOPR, DOE 

proposed to define ‘‘storage-type 

instantaneous water heater’’ as an 

instantaneous water heater that includes 

a storage tank with a submerged heat 

exchanger(s) or heating element(s). Id. at 

81 FR 28637. However, based on 

industry feedback, in the November 

2016 CWH TP final rule, DOE decided 

not to include the criterion regarding 

submerged heat exchanger(s) or heating 

element(s) in the definition. Instead, 

DOE defined ‘‘storage-type 

instantaneous water heater’’ as an 

instantaneous water heater that includes 

a storage tank with a storage volume 

greater than or equal to 10 gallons. 81 

FR 79261, 79289–79290 (Nov. 10, 2016). 

In response to the May 2016 CWH 

ECS NOPR, DOE received various 

comments regarding the difference (or 

lack of difference) between storage-type 

instantaneous water heaters and storage 

water heaters and questioning whether 

storage-type instantaneous equipment 

should be considered in DOE’s analysis. 

(Rheem, No. 43 at p. 11; Bock, No. 33 

at p. 3; A.O. Smith, No. 39 at p. 7; 

Bradford White, No. 42 at p. 4) As 

stated, the definition for storage-type 

instantaneous water heaters was 

finalized in the November 2016 CWH 

TP final rule. 81 FR 79261, 79289– 


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79290 (Nov. 10, 2016). For this NOPR 

DOE has continued to analyze amended 

energy conservation standards for 

storage-type instantaneous water heaters 

in a manner consistent with storage 

water heaters, as was done in the 

withdrawn May 2016 CWH ECS NOPR. 

The potential standard levels 

considered in this document reflect the 

similarity of these types of equipment, 

with the same standard levels 

considered for both storage water 

heaters and storage-type instantaneous 

water heaters. 

c. Condensing Gas-Fired Water Heating 

Equipment 

DOE has recently considered whether 

non-condensing technology (and 

associated venting) constitutes a 

performance-related ‘‘feature’’ that 

provides a distinct consumer utility 

under EPCA which may not be 

eliminated by an energy conservation 

standard. On January 15, 2021, in 

response to a petition for rulemaking 

submitted by the American Public Gas 

Association, Spire, Inc., the Natural Gas 

Supply Association, the American Gas 

Association, and the National Propane 

Gas Association (83 FR 54883; Nov. 1, 

2018), DOE published the January 2021 

final interpretive rule determining that, 

in the context of residential furnaces, 

commercial water heaters, and 

similarly-situated products/equipment, 

use of non-condensing technology (and 

associated venting) constitute a 

performance-related ‘‘feature’’ under 

EPCA that cannot be eliminated through 

adoption of an energy conservation 

standard. 86 FR 4776. Correspondingly, 

DOE withdrew the May 2016 CWH ECS 

NOPR. 86 FR 3873 (Jan. 15, 2021). 

However, DOE has subsequently 

published a final interpretive rule that 

returns to the previous and longstanding interpretation (in effect prior to 

the January 15, 2021 final interpretive 

rule), under which the technology used 

to supply heated air or hot water is not 

a performance-related ‘‘feature’’ that 

provides a distinct consumer utility 

under EPCA. 86 FR 73947 (Dec. 29, 

2021). For the purpose of the analysis 

conducted for this rulemaking DOE did 

not analyze separate equipment classes 

for non-condensing and condensing 

CWH equipment in this NOPR. 

d. Tankless Water Heaters and Hot 

Water Supply Boilers 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE discussed the differences in 

design and application between 

equipment within the ‘‘gas-fired 

instantaneous water heaters and hot 

water supply boilers’’ equipment class 

with storage volume less than 10 

gallons. 81 FR 34440, 34461–34462 

(May 31, 2016). Specifically, DOE 

identified gas-fired instantaneous water 

heaters and hot water supply boilers 

that are ‘‘tankless water heaters’’ and 

those that are ‘‘hot water supply 

boilers.’’ Id. From examination of 

equipment literature and discussion 

with manufacturers, DOE stated that 

tankless water heaters are typically used 

without a storage tank, flow-activated, 

wall-mounted, and capable of higher 

temperature rises. Hot water supply 

boilers, conversely, are typically used 

with a storage tank and recirculation 

loop, thermostatically-activated, and not 

wall-mounted. However, despite these 

differences, tankless water heaters and 

hot water supply boilers share basic 

similarities: Both kinds of equipment 

supply hot water in commercial 

applications with at least 4,000 Btu/h 

per gallon of stored water, and both 

include heat exchangers through which 

incoming water flows and is heated by 

combustion flue gases that flow around 

the heat exchanger tubes. DOE analyzed 

tankless water heaters and hot water 

supply boilers as two separate kinds of 

representative equipment for the 

instantaneous water heaters and hot 

water supply boilers equipment class for 

the May 2016 CWH ECS NOPR. Id. 

In response to the May 2016 CWH 

ECS NOPR, DOE received several 

comments related to whether tankless 

water heaters and hot water supply 

boilers should be treated as separate 

equipment classes in DOE’s energy 

conservation standards for CWH 

equipment and whether proposing the 

same standards incentivizes any 

switching in shipments from one 

equipment class to the other. In 

addition, responses to the withdrawn 

May 2016 NOPR indicated that some 

stakeholders were confused by the 

terminology used in that NOPR and the 

types of equipment that were 

considered as representative of this 

class. (AHRI, No. 40 at pp. 6–8 and 

Raypak, No. 41 at pp. 6–7; Rheem, No. 

43 at p. 12; Bradford White, No. 42 at 

p. 4) 

In the withdrawn May 2016 CWH ECS 

NOPR analysis, DOE used the term ‘‘hot 

water supply boiler’’ to generally refer 

not only to hot water supply boilers, but 

also to instantaneous water heaters that 

have similar designs and applications as 

hot waters supply boilers (i.e., 

instantaneous water heaters other than 

tankless water heaters and storage-type 

instantaneous water heaters). DOE 

recognizes that this terminology may 

have led to confusion for some 

stakeholders. Therefore, in this NOPR, 

DOE refers to this representative 

equipment within the equipment class 

of ‘‘gas-fired instantaneous water 

heaters and hot water supply boilers’’ as 

‘‘gas-fired circulating water heaters and 

hot water supply boilers.’’ The term 

‘‘circulating water heater’’ is a 

commonly used term in industry, and 

its use is intended to resolve confusion 

for stakeholders regarding the 

equipment included in DOE’s analyses. 

DOE is not proposing to define the term 

‘‘circulating water heater’’ in DOE’s 

regulations, but rather uses the term 

within this rulemaking notice and the 

NOPR TSD to clarify the name of 

representative equipment for the 

analysis of gas-fired instantaneous water 

heaters in response to the comments 

received on the May 2016 CWH ECS 

NOPR. DOE reiterates that within this 

NOPR, the term ‘‘circulating water 

heaters and hot water supply boilers’’ 

refers to both instantaneous water 

heaters (other than tankless water 

heaters and storage-type instantaneous 

water heaters) and hot water supply 

boilers. 

With respect to the issue of whether 

separate equipment classes are 

necessary, DOE acknowledges that there 

are certain design differences between 

tankless water heaters and circulating 

water heaters and hot water supply 

boilers. For this NOPR, DOE maintained 

its approach of analyzing ‘‘tankless 

water heaters’’ and ‘‘circulating water 

heaters and hot water supply boilers’’ as 

two separate kinds of representative 

equipment in the gas-fired 

instantaneous water heaters equipment 

class, and presents analytical results 

separately for the two types of 

representative equipment in section V of 

this NOPR, although DOE is not 

proposing to restructure the equipment 

classes. 

e. Gas-Fired and Oil-Fired Storage Water 

Heaters 

In the withdrawn May 2016 CWH ECS 

NOPR, DOE proposed to consolidate 

commercial gas-fired and oil-fired 

storage water heater equipment classes 

that are currently divided by input rates 

of 155,000 Btu/h. DOE proposed the 

following two equipment classes 

without an input rate distinction: (1) 

Gas-fired storage water heaters and (2) 

oil-fired storage water heaters. 81 FR 

34440, 34462 (May 31, 2016). The input 

rate of 155,000 Btu/h was first used as 

a dividing criterion for storage water 

heaters in the Energy Policy Act of 1992 

(‘‘EPAct 1992’’) amendments to EPCA, 

which mirrored the standard levels and 

equipment classes in ASHRAE Standard 

90.1–1989. (42 U.S.C. 6313(a)(5)(B)–(C)) 

ASHRAE has since updated its 

efficiency levels for oil-fired and gasfired storage water heaters in ASHRAE 


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30Last accessed on March 4, 2021 and available 

at www.ahridirectory.org. 

31Last accessed on March 4, 2021 and available 

at cacertappliances.energy.ca.gov/Pages/ 

ApplianceSearch.aspx. 

32Last accessed on February 26, 2021 and 

available at www.regulations.doe.gov/certificationdata/. 

Standard 90.1–1999 by consolidating 

equipment classes that were previously 

divided by an input rate of 155,000 Btu/ 

h. Pursuant to requirements in EPCA, 

DOE adopted the increased standards in 

ASHRAE Standard 90.1–1999, but did 

not correspondingly consolidate the 

equipment classes above and below 

155,000 Btu/h. As a result, DOE’s 

current standards are identical for the 

equipment classes that are divided by 

input rate of 155,000 Btu/h. 

For this NOPR, DOE is maintaining its 

proposal to realign the equipment class 

structure to eliminate the input rate 

division at 155,000 Btu/h for 

commercial gas-fired storage water 

heaters and oil-fired storage water 

heaters, consistent with the equipment 

class structure in the latest version of 

ASHRAE Standard 90.1. 

f. Grid-Enabled Water Heaters 

DOE currently only prescribes a 

standby loss standard for commercial 

electric storage water heaters, and in 

this NOPR DOE is not proposing to 

amend the standby loss level for electric 

storage water heaters. In the withdrawn 

May 2016 CWH ECS NOPR DOE had 

proposed an amended standby loss 

standard for electric storage water 

heaters, which DOE determined would 

be most commonly met by increasing 

insulation thickness, and which would 

not differentially affect grid-enabled 

technology. Therefore, in the May 2016 

CWH ECS NOPR, DOE tentatively 

concluded that a separate equipment 

class for grid-enabled commercial 

electric storage water heaters was not 

warranted. 81 FR 34440 (May 31, 2016). 

DOE did not receive comments 

regarding its tentative conclusion in the 

May 2016 CWH ECS NOPR. Because 

DOE is not proposing to amend the 

standard for commercial electric storage 

water heaters, and because DOE 

maintains that a grid-enabled water 

heater would not be differentially 

impacted by a standby loss standard, 

DOE is not proposing to establish a 

separate equipment class for gridenabled electric storage water heaters in 

this NOPR. 

g. Input Capacity for Instantaneous 

Water Heaters and Hot Water Supply 

Boilers 

In response to the May 2016 CWH 

ECS NOPR, DOE received comments 

suggesting that DOE should split up the 

equipment class for gas-fired 

instantaneous water heaters and hot 

water supply boilers by input capacity, 

similar to DOE’s current energy 

conservation standards for commercial 

packaged boilers. (Raypak, No. 41 at p. 

7) However, DOE notes that it adopted 

the current equipment class structure 

for commercial packaged boilers, 

including the division by input 

capacity, from ASHRAE 90.1. As 

discussed in section IV.A.2.c of this 

document, EPCA established a specific 

and separate statutory scheme for 

establishing and amending energy 

conservation standards applicable to 

ASHRAE equipment, including CWH 

equipment. (See 42 U.S.C. 6313(a)(6)) 

DOE must adopt the level set forth in 

ASHRAE Standard 90.1 unless the 

Department has clear and convincing 

evidence to adopt a more-stringent 

standard. (See 42 U.S.C. 6313(a)(6)). 

ASHRAE 90.1 does not divide the 

equipment classes for commercial gasfired instantaneous water heaters and 

hot water supply boilers by input 

capacity. Therefore, DOE has not 

analyzed separate classes for gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment class by 

input capacity. 

3. Review of the Current Market for 

CWH Equipment 

In order to gather information needed 

for the market assessment for CWH 

equipment, DOE consulted a variety of 

sources, including manufacturer 

literature, manufacturer websites, the 

AHRI Directory of Certified Product 

Performance,30 the CEC Appliance 

Efficiency Database,31 and DOE’s 

Compliance Certification Database.32

DOE used these sources to compile a 

database of CWH equipment that served 

as resource material throughout the 

analyses conducted for this rulemaking. 

This database contained the following 

counts of unique models: 768 

commercial gas-fired storage water 

heaters, 94 residential-duty commercial 

gas-fired storage water heaters, 167 

commercial gas-fired storage-type 

instantaneous water heaters (tank-type 

water heaters with greater than 4,000 

Btu/h per gallon of stored water), 19 gasfired tankless water heaters, 449 gasfired circulating water heaters and hot 

water supply boilers, 115 commercial 

oil-fired storage water heaters, 2 

residential-duty commercial oil-fired 

storage water heaters, and 36 

commercial oil-fired storage-type 

instantaneous water heaters. No oil-fired 

tankless water heaters or hot water 

supply boilers were found on the 

market. Chapter 3 of the NOPR TSD 

provides more information on the CWH 

equipment currently available on the 

market, including a full breakdown of 

these units into their equipment classes 

and graphs showing performance data. 

4. Technology Options 

As part of the market and technology 

assessment, DOE uses information about 

commercially-available technology 

options and prototype designs to help 

identify technologies that manufacturers 

could use to improve energy efficiency 

for CWH equipment. This effort 

produces an initial list of all the 

technologies that are technologically 

feasible. This assessment provides the 

technical background and structure on 

which DOE bases its screening and 

engineering analyses. Chapter 3 of the 

NOPR TSD includes descriptions of all 

technology options identified for this 

equipment. 

Because thermal efficiency, standby 

loss, and UEF are the relevant 

performance metrics in this rulemaking, 

DOE did not consider technologies that 

have no significant effect on these 

metrics. However, DOE does not 

discourage manufacturers from using 

these other technologies because they 

might reduce annual energy 

consumption in the field. The following 

list includes the technologies that DOE 

did not consider because they would 

not significantly affect efficiency as 

measured by the DOE test procedure. 

Chapter 3 of the NOPR TSD provides 

details and reasoning for the exclusion 

from further consideration of each 

technology option, as listed here: 

• Plastic tank. 

• Direct vent. 

• Timer controls. 

• Intelligent and wireless controls. 

• Modulating combustion. 

• Self-cleaning. 

DOE also did not consider 

technologies as options for increasing 

efficiency if they are included in 

baseline equipment, as determined from 

an assessment of units on the market. 

DOE’s research suggests that 

electromechanical flue dampers and 

electronic ignition are technologies 

included in baseline equipment for 

commercial gas-fired storage water 

heaters; therefore, they were not 

included as technology options for that 

equipment class. However, 

electromechanical flue dampers and 

electronic ignition were not identified 

on baseline units for residential-duty 

gas-fired storage water heaters, and 

these options were, therefore, 

considered for increasing efficiency of 

residential-duty gas-fired storage water 

heaters. DOE also considered insulation 

of fittings around pipes and ports in the 


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tank to be included in baseline 

equipment; therefore, such insulation 

was not considered as a technology 

option for the analysis. 

The technology options that were 

considered for improving the energy 

efficiency of CWH equipment for this 

NOPR are as follows: 

• Improved insulation (including 

increasing jacket insulation, insulating 

tank bottom, advanced insulation types, 

and foam insulation). 

• Mechanical draft (including 

induced draft (also known as power 

vent) and forced draft). 

• Condensing heat exchanger (for all 

gas-fired equipment classes and 

including optimized flue geometry). 

• Condensing pulse combustion. 

• Improved heat exchanger design 

(including increased surface area and 

increased baffling). 

• Sidearm heating and two-phase 

thermosiphon technology. 

• Electronic ignition systems. 

• Improved heat pump water heaters 

(including gas absorption heat pump 

water heaters). 

• Premix burner (including 

submerged combustion chamber for gasfired storage water heaters and storagetype instantaneous water heaters). 

• Electromechanical flue damper. 

• Modulating combustion. 

B. Screening Analysis 

DOE uses the following screening 

criteria to determine which technology 

options are suitable for further 

consideration in an energy conservation 

standards rulemaking: 

• Technological feasibility. DOE will 

consider technologies incorporated in 

commercial products or in working 

prototypes to be technologically 

feasible. Technologies that are not 

incorporated in commercial equipment 

or in working prototypes are not 

considered in this NOPR. 

• Practicability to manufacture, 

install, and service. If mass production 

and reliable installation and servicing of 

a technology in commercial products 

could be achieved on the scale 

necessary to serve the relevant market at 

the time of the compliance date of the 

standard, then DOE will consider that 

technology practicable to manufacture, 

install, and service. 

• Adverse impacts on product utility 

or product availability. If DOE 

determines a technology would have a 

significant adverse impact on the utility 

of the product to significant subgroups 

of commercial consumers, or would 

result in the unavailability of any 

covered product type with performance 

characteristics (including reliability), 

features, sizes, capacities, and volumes 

that are substantially the same as 

products generally available in the 

United States at the time, it will not 

consider this technology further. 

• Adverse impacts on health or 

safety. If DOE determines that a 

technology will have significant adverse 

impacts on health or safety, it will not 

consider this technology further. 

• Unique-pathway proprietary 

technologies. If a design option utilizes 

proprietary technology that represents a 

unique pathway to achieving a given 

efficiency level, that technology will not 

be considered further. 

10 CFR 431.4; 10 CFR part 430, subpart 

C, appendix A, sections 6(c)(3) and 7(b). 

1. Screened-Out Technologies 

Technologies that pass through the 

screening analysis are subsequently 

examined in the engineering analysis for 

consideration in DOE’s downstream 

cost-benefit analysis. Based upon a 

review under the above factors, DOE 

screened out the design options listed in 

Table IV.3 for the reasons provided. 

Chapter 4 of the NOPR TSD contains 

additional details on the screening 

analysis, including a discussion of why 

each technology option was screened 

out. 

TABLE IV.3—SUMMARY OF SCREENED-OUT TECHNOLOGY OPTIONS

Excluded technology option Applicable equipment 

classes * 

Reasons for exclusion 

Technological 

feasibility 

Practicability 

to 

manufacture, 

install, and 

service 

Adverse 

impacts on 

product 

utility 

Adverse 

impacts on 

health or 

safety 

Uniquepathway 

proprietary 

technology 

Advanced insulation types .. All storage water heaters ... X X 

Condensing pulse combustion.All gas-fired equipment 

classes.

X 

Sidearm heating .................. All gas-fired storage ........... X 

Two-phase thermosiphon 

technology.

All gas-fired storage ........... X 

Gas absorption heat pump 

water heaters.

Gas-fired instantaneous 

water heaters.

X 

* All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters. 

In this NOPR, DOE has tentatively 

concluded that none of the identified 

technology options are proprietary. 

However, in the engineering analysis, 

DOE included the manufacturer 

production costs associated with 

multiple designs of condensing heat 

exchangers used by a range of 

manufacturers and these represent the 

vast majority of the condensing gas-fired 

storage water heater market to account 

for intellectual property rights 

surrounding specific designs of 

condensing heat exchangers. 

2. Remaining Technologies 

After screening out or otherwise 

removing from consideration certain 

technologies, the remaining 

technologies are passed through for 

consideration in the engineering 

analysis. Table IV.4 presents identified 

technologies for consideration in the 

engineering analysis. Chapter 3 of the 

NOPR TSD contains additional details 

on the technology assessment and the 

technologies analyzed. 


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TABLE IV.4—TECHNOLOGY OPTIONS CONSIDERED FOR ENGINEERING ANALYSIS

Equipment Mechanical 

draft 

Condensing 

heat 

exchanger 

Increased heat 

exchanger 

area, 

baffling 

Electronic 

ignition Premix burner 

Electromechanical 

flue 

damper 

Commercial gas-fired storage water 

heaters and storage-type instantaneous water heaters ............................. X X X X 

Residential-duty gas-fired storage water 

heaters .................................................. X X X X X X 

Gas-fired instantaneous water heaters 

and hot water supply boilers ................ X X X X 

C. Engineering Analysis 

The purpose of the engineering 

analysis is to establish the relationship 

between the efficiency and cost of CWH 

equipment. There are two elements to 

consider in the engineering analysis: 

The selection of efficiency levels to 

analyze (i.e., the ‘‘efficiency analysis’’) 

and the determination of product cost at 

each efficiency level (i.e., the ‘‘cost 

analysis’’). In determining the 

performance of higher-efficiency 

equipment, DOE considers technologies 

and design option combinations not 

eliminated by the screening analysis. 

For each equipment category, DOE 

estimates the baseline cost, as well as 

the incremental cost for the equipment 

at efficiency levels above the baseline. 

The output of the engineering analysis 

is a set of cost-efficiency ‘‘curves’’ that 

are used in downstream analyses (i.e., 

the LCC and PBP analyses and the NIA). 

1. Efficiency Analysis 

DOE typically uses one of two 

approaches to develop energy efficiency 

levels for the engineering analysis: (1) 

Relying on observed efficiency levels in 

the market (i.e., the efficiency-level 

approach), or (2) determining the 

incremental efficiency improvements 

associated with incorporating specific 

design options to a baseline model (i.e., 

the design-option approach). Using the 

efficiency-level approach, the efficiency 

levels established for the analysis are 

determined based on the market 

distribution of existing products (in 

other words, based on the range of 

efficiencies and efficiency level 

‘‘clusters’’ that already exist on the 

market). Using the design option 

approach, the efficiency levels 

established for the analysis are 

determined through detailed 

engineering calculations and/or 

computer simulations of the efficiency 

improvements from implementing 

specific design options that have been 

identified in the technology assessment. 

DOE may also rely on a combination of 

these two approaches. For example, the 

efficiency-level approach (based on 

actual products on the market) may be 

extended using the design option 

approach to ‘‘gap fill’’ levels (to bridge 

large gaps between other identified 

efficiency levels) and/or to extrapolate 

to the max-tech level (particularly in 

cases where the max-tech level exceeds 

the maximum efficiency level currently 

available on the market). 

For the analysis of thermal efficiency 

and UEF levels, DOE identified the 

efficiency levels for the analysis based 

on market data (i.e., the efficiency level 

approach). For the analysis of standby 

loss levels, DOE identified efficiency 

levels for analysis based on market data, 

commonly used technology options 

(e.g., electronic ignition), and testing 

data (i.e., a combination of the 

efficiency level approach and the design 

option approach). DOE’s selection of 

efficiency levels for this NOPR is 

discussed in additional detail in section 

IV.C.4 of this document. 

2. Cost Analysis 

The cost analysis portion of the 

engineering analysis is conducted using 

one or a combination of cost 

approaches. The selection of cost 

approach depends on a suite of factors, 

including the availability and reliability 

of public information, characteristics of 

the regulated product, the availability 

and timeliness of purchasing the 

product/equipment on the market. The 

cost approaches are summarized as 

follows: 

• Physical teardowns: Under this 

approach, DOE physically dismantles a 

commercially-available product, 

component-by-component, to develop a 

detailed bill of materials (‘‘BOM’’) for 

the product. 

• Catalog teardowns: In lieu of 

physically deconstructing a product, 

DOE identifies each component using 

parts diagrams (available from 

manufacturer websites or appliance 

repair websites, for example) to develop 

the bill of materials for the product. 

• Price surveys: If neither a physical 

nor catalog teardown is feasible (for 

example, for tightly integrated products 

such as fluorescent lamps, which are 

infeasible to disassemble and for which 

parts diagrams are unavailable) or costprohibitive and otherwise impractical 

(e.g., large commercial boilers), DOE 

conducts price surveys using publiclyavailable pricing data published on 

major online retailer websites and/or by 

soliciting prices from distributors and 

other commercial channels. 

For this NOPR, DOE conducted the 

cost analysis using a combination of 

physical teardowns and catalog 

teardowns. The resulting BOMs from 

physical and catalog teardowns provide 

the basis for the manufacturer 

production cost (‘‘MPC’’) estimates. 

To account for manufacturers’ nonproduction costs and profit margin, DOE 

applies a non-production cost multiplier 

(the manufacturer markup) to the MPC. 

The resulting manufacturer selling price 

(‘‘MSP’’) is the price at which the 

manufacturer distributes a unit into 

commerce. DOE developed an average 

manufacturer markup by examining the 

annual Securities and Exchange 

Commission (SEC) 10–K reports filed by 

companies that manufacturer CWH 

equipment. During manufacturer 

interviews conducted ahead of the May 

2016 CWH ECS NOPR, DOE discussed 

the manufacturer markup and used the 

industry feedback to modify the 

manufacturer markup estimate. DOE 

considers the manufacturer markup 

published in the May 2016 CWH ECS 

NOPR to be the best publicly available 

information. 

The approach for this NOPR was 

similar to that used for the withdrawn 

May 2016 CWH ECS NOPR, except that 

the analysis for residential-duty 

commercial storage water heaters is now 

done in terms of UEF instead of thermal 

efficiency and standby loss (which for 

the May 2016 CWH ECS NOPR were 

then converted to UEF). Chapter 5 of the 

NOPR TSD includes further detail on 

the engineering analysis. 

In choosing the physical and catalog 

teardown approach over the price 

survey approach, DOE considered 


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several factors. DOE notes that the sales 

prices of CWH equipment currently 

seen in the marketplace, which include 

both an MPC and various markups 

applied through the distribution chain, 

are not necessarily indicative of what 

the sales prices of those models of CWH 

equipment would be following the 

implementation of a more-stringent 

energy conservation standard. At a 

given efficiency level, the MPC of CWH 

equipment depends in part on the 

production volume. At any given 

efficiency level above the current 

baseline, the industry-aggregated MPC 

for CWH equipment at that level may be 

high relative to what it would be under 

a more-stringent standard, due to the 

increase in production volume (and 

thus, improved economies of scale and 

purchasing power for CWH equipment 

components), which would occur at that 

level if a Federal standard made it the 

new baseline efficiency level. 

Furthermore, under a more-stringent 

standard, the markups incorporated into 

the sales price may change relative to 

current markups. Therefore, basing the 

engineering analysis on prices of CWH 

equipment as currently seen in the 

marketplace would be a less accurate 

method of estimating future CWH 

equipment prices following an amended 

standard. It is for these reasons that DOE 

contractors conduct interviews with 

manufacturers under non-disclosure 

agreements (‘‘NDAs’’) to determine if 

the MPCs developed by the analysis 

reflect the industry average cost rather 

than rely on current sales prices 

whenever feasible (although as noted 

above in some cases this approach is not 

feasible). Because the cost estimation 

methodology uses data supplied by 

manufacturers under the NDAs (such as 

raw material and purchased part prices), 

the resulting individual model cost 

estimates themselves cannot be 

published. 

Additionally, while manufacturers of 

CWH equipment offer both noncondensing and condensing models, 

condensing equipment is often 

marketed as a premium product and, 

therefore, often includes features and 

capabilities that are not efficiencyrelated. While such features (e.g., 

powered anode rods, more sophisticated 

building management system 

integration) may be included in 

condensing equipment currently on the 

market, these features are not necessary 

in order to achieve a higher efficiency 

level, and, therefore, DOE does not 

believe that the costs for these features 

should be included in the costs of 

condensing equipment in the 

engineering analysis. 

The Department must balance 

transparency and access to information 

alongside protection of intellectual 

property and proprietary data. DOE 

understands that manufacturers would 

object to having any sensitive 

information related to the design of their 

products being released into the public 

domain. Additionally, DOE notes that 

all manufacturers that participated in 

manufacturer interviews conducted in 

advance of the withdrawn May 2016 

CWH ECS NOPR had access to DOE’s 

MPC estimates for models they 

manufacture that were torn down, as 

well as the raw material and purchased 

part price data underlying the MPC 

estimates for those models. These 

discussions were covered by NDAs to 

allow manufacturers to submit 

confidential data and to comment freely 

on the inputs into the DOE analysis as 

well as the results. The MPCs presented 

in this NOPR take into account the 

feedback received from manufacturers, 

which DOE has found to be a valuable 

tool for ensuring the accuracy of its cost 

estimates. Without adequate safeguards, 

manufacturers would likely be 

unwilling to share information relevant 

to the rulemaking, which would have 

correspondingly negative impacts on the 

rulemaking process. 

In the present case, as is generally the 

case in appliance standards 

rulemakings, manufacturer and 

equipment specific data are presented in 

aggregate. Additionally, prices for raw 

materials and purchased parts have 

been updated to the most recent market 

estimates, in 2020$, to create the current 

MPCs. Given the potential for 

competitive harm, data are not released 

outside the aggregated form (neither 

publicly, nor to DOE). The BOMs used 

to estimate the industry-aggregate MPCs 

are developed by a DOE contractor and 

are not provided to DOE; DOE only 

receives the industry-aggregate MPCs 

from its contractor for use in its 

analyses. Such aggregated data are used 

to help populate the analytical 

spreadsheets for the rulemaking that are 

publicly available. (DOE notes that it 

does not typically receive any separate 

report regarding the aggregated data; 

therefore, there is no such report 

available for entry in the rulemaking 

docket.) This approach allows 

manufacturers to provide feedback 

under NDA, improving the quality of 

the analysis. 

3. Representative Equipment for 

Analysis 

For the engineering analysis, DOE 

reviewed all CWH equipment categories 

analyzed in this rulemaking (see section 

III.B for discussion of rulemaking scope) 

and examined each one separately. 

Within each equipment category, DOE 

analyzed the distributions of input 

rating and storage volume of models 

available on the market and held 

discussions with manufacturers to 

determine appropriate representative 

equipment. DOE notes that 

representative equipment was selected 

which reflects the most common 

capacity and/or storage volume for a 

given equipment category. While a 

single representative equipment 

capacity can never perfectly represent a 

wide range of input capacities or storage 

volumes, DOE reasons that analyzing a 

representative capacity and storage 

volume that was selected using 

manufacturer feedback is sufficiently 

representative of the equipment 

category while also allowing for a 

feasible analysis. 

For storage water heaters, the volume 

of the tank is a significant factor for 

costs and efficiency. Water heaters with 

larger volumes have higher materials, 

labor, and shipping costs. A larger tank 

volume is likely to lead to a larger tank 

surface area, thereby increasing the 

standby loss of the tank (assuming other 

factors are held constant, e.g., same 

insulation thickness and materials). The 

current standby loss standards for 

storage water heaters are, in part, a 

function of volume to account for this 

variation with tank size. The 

incremental cost of increasing 

insulation thickness varies as the tank 

volume increases, and there may be 

additional installation concerns for 

increasing the insulation thickness on 

larger tanks. Installation concerns are 

discussed in more detail in section 

IV.F.2.b of this NOPR. DOE examined 

specific storage volumes for storage 

water heaters and storage-type 

instantaneous water heaters (referred to 

as representative storage volumes). 

Because DOE lacked specific 

information on shipments, DOE used its 

CWH equipment database (discussed in 

section IV.A.3 of this NOPR) to examine 

the number of models at each rated 

storage volume to determine the 

representative storage volume, and also 

solicited feedback from manufacturers 

during manufacturer interviews as to 

which storage volumes corresponded to 

the most shipments. Table IV.5 shows 

the representative storage volumes that 

DOE determined best characterize each 

equipment category. 

As discussed in sections III.B.6 and 

IV.C.4.b of this NOPR, DOE did not 

analyze amended energy conservation 

standards for electric storage water 

heaters in this NOPR because 

manufacturer feedback and DOE’s 

research of equipment on the market 


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indicated that the only technology 

option analyzed in the withdrawn May 

2016 CWH ECS NOPR for decreasing 

standby loss is already used in some 

models at the baseline. Consequently, 

no representative volume was analyzed 

for electric storage water heaters in this 

NOPR. 

For all CWH equipment categories, 

the input capacity is also a significant 

factor for cost and efficiency. Water 

heaters with higher input capacities 

typically have higher materials costs 

and may also have higher labor and 

shipping costs. Gas-fired storage water 

heaters with higher input capacities 

may have additional heat exchanger 

length to transfer more heat. This leads 

to higher material costs and may require 

the tank to expand to compensate for 

the displaced volume. Gas-fired tankless 

water heaters, circulating water heaters, 

and hot water supply boilers require 

larger heat exchangers to transfer more 

heat with a higher input capacity. DOE 

examined input capacities for models in 

all gas-fired CWH equipment categories 

to determine representative input 

capacities. Because the gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment class 

includes several types of equipment that 

is technologically disparate, DOE 

selected representative input capacities 

that would represent both tankless 

water heaters and circulating water 

heaters and hot water supply boilers 

within this broader equipment class. 

DOE did not receive any shipments data 

for specific input capacities, and, 

therefore, DOE considered the number 

of models at each input capacity in the 

database of models it compiled (based 

on DOE’s Compliance Certification 

Database, the AHRI Directory, the CEC 

Appliance Database, and manufacturer 

literature), as well as feedback from 

manufacturer interviews in determining 

the appropriate representative input 

capacities for this NOPR. The 

representative input capacities used in 

the analyses for this NOPR are shown in 

Table IV.5. 

TABLE IV.5—REPRESENTATIVE STORAGE VOLUMES AND INPUT CAPACITIES

Equipment Specifications 

Representative 

rated storage 

volume 

(gal) 

Representative 

input capacity 

(kBtu/h) 

Commercial gas-fired storage water heaters and gas-fired storage-type 

instantaneous water heaters *.

>105 kBtu/h or >120 gal ................. 100 199 

Residential-duty gas-fired storage water heaters ** .................................. ≤105 kBtu/h and ≤120 gal ............... 75 76 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Tankless water heaters ......................................................................

Circulating water heaters and hot water supply boilers .....................

<10 gal ............................................

All *** ................................................

........................

........................

250 

399 

* Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water heater is a commercial gasfired storage water heater regardless of whether it meets the specifications listed. 

** To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power 

supply, and not be designed to heat water at temperatures greater than 180 °F. 79 FR 40542, 40586 (July 11, 2014). 

*** For the engineering analysis, circulating water heaters and hot water supply boilers with storage volume <10 gallons and ≥10 gallons were 

analyzed in the same equipment class. Amended standby loss standards for circulating water heaters and hot water supply boilers with storage 

volume ≥10 gallons were not analyzed in this NOPR, as discussed in section III.B.7 of this NOPR. Therefore, no representative storage volume 

was chosen for the instantaneous water heaters and hot water supply boilers equipment class. 

The representative volume and input 

capacities shown in Table IV.5 are the 

same as those used for the withdrawn 

May 2016 CWH ECS NOPR. DOE sought 

comment on the representative CWH 

equipment used in the engineering 

analysis in the May 2016 CWH ECS 

NOPR (81 FR 34440, 34467 (May 31, 

2016)), and is including the 

clarifications in the following 

subsections in response to the various 

comments received. 

Some commenters expressed concerns 

regarding the representative input 

capacity for instantaneous water heaters 

and hot water supply boilers. (Raypak, 

No. 41 at p. 7; Spire, No. 45 at pp. 24– 

25) In response, DOE notes that the 

representative input capacity is meant 

to describe the most typical model sold 

of circulating water heaters and hot 

water supply boilers. From DOE’s 

market assessment and feedback from 

manufacturer interviews, DOE has 

determined that the most frequently 

sold input capacity of circulating water 

heaters and hot water supply boilers is 

399,000 Btu/h. Additionally, DOE has 

tentatively determined that a 

representative capacity of 250,000 Btu/ 

h is appropriate for tankless water 

heaters. No stakeholders have suggested 

an alternative input capacity that would 

be more appropriate for use as the 

representative input capacity for gasfired tankless water heaters. 

DOE also examined the parts catalogs 

of circulating water heaters and hot 

water supply boilers from various 

manufacturers. From this examination, 

DOE determined that the same or 

similar materials, as well as purchased 

parts, are typically utilized in the 

manufacture of both representative and 

larger-capacity circulating water heaters 

and hot water supply boilers. For 

example, DOE’s market assessment and 

feedback from manufacturer interviews 

indicate that the majority of condensing 

circulating water heaters and hot water 

supply boilers on the market use 

purchased condensing heat exchangers. 

These purchased condensing heat 

exchangers are typically designed to be 

modular, so that a larger-capacity unit 

may include either a larger, similar heat 

exchanger or multiple similar heat 

exchangers. Although the amount of 

material used increases as capacity 

increases, DOE has not found any 

evidence that the unit cost of the 

material would increase due to a lack of 

economy of scale. 

DOE research suggests that within a 

set input capacity range, circulating 

water heaters and hot water supply 

boilers feature many of the same 

components. For example, a largercapacity condensing circulating water 

heater or hot water supply boiler may 

feature one or more heat exchangers, 

each of which features a separate 

premix burner, gas valve, and blower 

system. Thus, within a given range of 

input capacities, the MPC of the 

combustion and heat exchange system 

will not change materially until an 

input/efficiency limit is reached; at that 

point, manufacturers typically add 

another parallel combustion path to the 

system (requiring a burner, heat 

exchanger, blower, and associated 

controls) or turn to a wholly new 

combustion system. Hence, the MPC 

related to the combustion and heat 

exchange subsystems for condensing 

circulating water heaters and hot water 


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supply boilers typically follows a steplike pattern as input capacities increase. 

DOE research suggests that 

condensing circulating water heaters 

and hot water supply boilers with input 

capacity less than 1 million Btu/h 

typically do not require more than one 

premix burner tube or one blower, and 

that circulating water heaters and hot 

water supply boilers with input capacity 

up to 1.7 million Btu/h only require two 

premix burner tubes and two blowers. 

Therefore, a condensing circulating 

water heater or hot water supply boiler 

with an input capacity of 800,000 Btu/ 

h, twice the representative input 

capacity, would still include only one 

premix burner tube and one blower, and 

a condensing circulating water heater or 

hot water supply boiler with an input 

capacity four times the representative 

input capacity would include only two 

premix burner tubes and two blowers. 

While the cost of premix burner tubes 

does increase with increasing input 

capacity, feedback from manufacturer 

interviews indicates that the cost would 

increase less than linearly with the 

input capacity. Additionally, within an 

input range in which circulating water 

heaters and hot water supply boilers use 

the same number of premix burner 

tubes, a larger-capacity unit would 

utilize the same or similar controls and 

wiring harness as a smaller inputcapacity unit, the cost of which would 

likely remain fixed regardless of the 

input capacity. There may be examples 

of components of certain larger capacity 

circulating water heaters and hot water 

supply boilers that may be purchased at 

a higher cost due to a lack of economy 

of scale. However, the potential increase 

in price of any such purchased part 

would be offset by the many instances 

in which the production costs remain 

fixed regardless of input capacity. 

For gas-fired storage water heaters and 

tankless water heaters, DOE expects that 

the fraction of costs that remain fixed 

regardless of input capacity would be 

even higher than for circulating water 

heaters and hot water supply boilers. 

Given the smaller input capacity ranges, 

DOE is not aware of any larger-capacity 

condensing models in these classes that 

require more blowers or premix burners 

than are required in models at the 

representative capacity. Similar to 

circulating water heaters and hot water 

supply boilers, larger-capacity models 

in these classes would utilize the same 

controls and wiring harness as smallercapacity models; thus, the controls and 

wiring harness costs would remain fixed 

regardless of the input capacity. 

Therefore, the representative capacities 

and corresponding manufacturer 

production costs used in this analysis 

appropriately estimate the costs for 

larger-capacity CWH equipment. 

4. Efficiency Levels for Analysis 

For each equipment category, DOE 

analyzed multiple efficiency levels and 

estimated manufacturer production 

costs at each efficiency level. The 

following subsections provide a 

description of the full efficiency level 

range that DOE analyzed from the 

baseline efficiency level to the max-tech 

efficiency level for each equipment 

category. 

Baseline equipment is used as a 

reference point for each equipment 

category in the engineering analysis and 

the LCC and PBP analyses, which 

provides a starting point for analyzing 

potential technologies that provide 

energy efficiency improvements. 

Generally, DOE considers ‘‘baseline’’ 

equipment to refer to a model or models 

having features and technologies that 

just meet, but do not exceed, the Federal 

energy conservation standard and 

provide basic consumer utility. 

DOE conducted a survey of its CWH 

equipment database and manufacturers’ 

websites to determine the highest 

thermal efficiency levels on the market 

for each equipment category. DOE 

identified the most stringent standby 

loss level for each class by consideration 

of rated standby loss values of models 

currently on the market as well as 

technology options that are feasible but 

may not currently be included in 

models on the market in each 

equipment category. 

As discussed in section III.B.1, DOE 

conducted the analysis for residentialduty gas-fired storage commercial water 

heaters using UEF rating data, whereas 

the analysis in the withdrawn May 2016 

CWH ECS NOPR analysis was 

conducted in terms of thermal efficiency 

and standby loss levels because 

sufficient data were not available when 

the rulemaking analysis was initially 

conducted to conduct the analysis in 

terms of UEF. 

a. Thermal Efficiency Levels 

In establishing the baseline thermal 

efficiency levels for this analysis, DOE 

used the current energy conservation 

standards for CWH equipment to 

identify baseline units. The baseline 

thermal efficiency levels used for the 

analysis in this NOPR are presented in 

Table IV.6. 

TABLE IV.6—BASELINE THERMAL EFFICIENCY LEVELS FOR CWH EQUIPMENT

Equipment 

Thermal 

efficiency 

(%) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ........................................................... 80 

Gas-fired instantaneous water heaters and hot water supply boilers ................................................................................................. 80 

For both the commercial gas-fired 

storage water heaters and gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment 

categories, DOE analyzed several 

thermal efficiency levels and 

determined the manufacturing cost at 

each of these levels. For this NOPR, 

DOE developed thermal efficiency 

levels based on a review of equipment 

currently available on the market. As 

noted previously, DOE compiled a 

database of CWH equipment to 

determine what types of equipment are 

currently available to commercial 

consumers. For each equipment class, 

DOE surveyed various manufacturers’ 

equipment offerings to identify the 

commonly available thermal efficiency 

levels. By identifying the most prevalent 

thermal efficiency levels in the range of 

available equipment and examining 

models at these levels, DOE established 

a technology path that manufacturers 

typically use to increase the thermal 

efficiency of CWH equipment. 

DOE established intermediate thermal 

efficiency levels for each gas-fired 

equipment category (aside from 

residential-duty gas-fired storage water 

heaters, which as noted previously were 

analyzed using UEF). The intermediate 

thermal efficiency levels are 

representative of the most common 

efficiency levels and those that 

represent significant technological 

changes in the design of CWH 

equipment. For commercial gas-fired 

storage water heaters and for 

commercial gas-fired instantaneous 

water heaters and hot water supply 

boilers, DOE chose four thermal 


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efficiency levels between the baseline 

and max-tech levels for analysis. DOE 

selected the highest thermal efficiency 

level identified on the market (99 

percent) as the ‘‘max-tech’’ level for 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters. For gas-fired 

instantaneous water heaters and hot 

water supply boilers, DOE identified hot 

water supply boilers with thermal 

efficiency levels of up to 99 percent and 

tankless instantaneous water heaters 

with thermal efficiency levels of up to 

97 percent available on the market. 

However, the tankless water heaters 

with thermal efficiencies of 97 percent 

were all at a single input capacity and 

it is unclear whether this thermal 

efficiency is achievable at other input 

capacities. As discussed in section 

IV.A.2.d of this document, DOE 

analyzed tankless water heaters and 

circulating water heaters and hot water 

supply boilers as two separate kinds of 

representative equipment for this 

rulemaking analysis, but they are part of 

the same equipment class (gas-fired 

instantaneous water heaters and hot 

water supply boilers). Therefore, 

because DOE did not find evidence that 

97 percent would be an appropriate 

max-tech level for tankless 

instantaneous water heaters that is 

achievable across the range of product 

inputs currently available, DOE 

analyzed 96 percent thermal efficiency 

as the max-tech level for the gas-fired 

instantaneous water heaters and hot 

water supply boilers equipment class. 

The selected thermal efficiency levels 

used in the current NOPR analysis are 

shown in Table IV.7. 

TABLE IV.7—BASELINE, INTERMEDIATE, AND MAX-TECH THERMAL EFFICIENCY LEVELS FOR REPRESENTATIVE CWH 

EQUIPMENT

Equipment 

Thermal efficiency levels 

Baseline— 

Et EL0 

(%) 

Et EL1 

(%) 

Et EL2 

(%) 

Et EL3 

(%) 

Et EL4 

(%) 

Et EL5 * 

(%) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ................................................................................... 80 82 90 92 95 99 

Gas-fired instantaneous water heaters and hot water supply boilers ........... 80 82 84 92 94 96 

* Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type instantaneous water heaters, as well 

as for gas-fired instantaneous water heaters and hot water supply boilers. 

b. Standby Loss Levels 

DOE used the current energy 

conservation standards for standby loss 

to set the baseline standby loss levels. 

Table IV.8 shows these baseline standby 

loss levels for representative 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters. In the withdrawn May 

2016 CWH ECS NOPR, DOE also 

identified baseline standby loss levels 

for electric storage water heaters. 81 FR 

34440, 34443 (May 31, 2016). However, 

as discussed in this section and section 

III.B.6 of this NOPR, DOE did not 

further analyze amended standards for 

electric storage water heaters in this 

NOPR because of manufacturer feedback 

and DOE research of equipment on the 

market indicating that the only analyzed 

technology option for decreasing 

standby loss is already used in some 

units at the baseline. 

TABLE IV.8—BASELINE STANDBY LOSS LEVELS FOR REPRESENTATIVE CWH EQUIPMENT

Equipment 

Representative 

rated storage 

volume 

(gal) 

Representative 

input capacity 

(kBtu/h) 

Baseline 

standby 

loss level 

(Btu/h) 

Commercial gas-fired storage water heaters and storage-type instantaneous water heaters 100 199 1,349 

Standby loss is a function of storage 

volume and input capacity for gas-fired 

and oil-fired storage water heaters, and 

is affected by many aspects of the design 

of a water heater. Additionally, standby 

loss is not widely reported in 

manufacturer literature so DOE relied 

on current and past data obtained from 

DOE’s Compliance Certification 

Database and the AHRI Directory. There 

is significant variation in reported 

standby loss values in these databases 

(e.g., standby loss values for commercial 

gas storage water heaters range from 33 

percent to 100 percent of the maximum 

allowable standby loss standard for 

those units). However, most 

manufacturers do not disclose the 

presence of technology options that 

affect standby loss, including insulation 

thickness and type, and baffle design, in 

their publicly-available literature. 

Because most manufacturers do not 

disclose the presence of such options, 

DOE was unable to determine the 

standby loss reduction from standbyloss-reducing technology options using 

market-rated standby loss data. 

Therefore, DOE analyzed technology 

options commonly used on the market 

to help guide its selection of standby 

loss levels. To inform the selection of 

standby loss levels for the withdrawn 

May 2016 CWH ECS NOPR, DOE 

performed heat loss calculations for 

representative equipment to estimate 

how more-stringent standby loss levels 

correspond to the identified technology 

options. Chapter 5 of the May 2016 

CWH ECS NOPR TSD provides details 

on these heat loss calculations. Because 

DOE used heat loss calculations 

corresponding to commonly used 

technology options to inform the 

selection of standby loss levels for the 

May 2016 CWH ECS NOPR in addition 

to rated standby loss market data, the 

most stringent standby loss levels 

analyzed did not necessarily reflect the 

current market max-tech level for each 

equipment category. However, as 

described later in this section, DOE did 

not analyze improved tank insulation as 

a technology option for reducing 

standby loss in this NOPR because such 

insulation improvements would not be 

a viable standby loss reducing option for 


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all models on the market. Therefore, 

DOE did not use tank heat loss 

calculations to determine standby loss 

levels in this NOPR. The technology 

options analyzed and selection of maxtech levels are discussed in the 

following sections for each equipment 

category. 

In addition to the potential to reduce 

standby losses using technology 

options, for commercial and residentialduty gas-fired storage water heaters, 

standby loss is also reduced by 

increasing thermal efficiency. Standby 

loss is measured in the test procedure 

predominantly as a function of the fuel 

used to heat the stored water during the 

standby loss test, with a small 

contribution of electric power 

consumption (if the unit requires a 

power supply). Because standby loss is 

calculated using the fuel consumed 

during the test to maintain the water 

temperature, the standby loss is 

dependent on the thermal efficiency of 

the water heater. DOE used data from 

independent testing of CWH equipment 

at a third-party laboratory to estimate 

the fraction of standby loss that can be 

attributed to fuel consumption or 

electric power consumption. DOE then 

scaled down (i.e., made more stringent) 

the portion of the standby loss 

attributable to fuel consumption as 

thermal efficiency increased to estimate 

the inherent improvement in standby 

loss associated with increasing thermal 

efficiency. Chapter 5 of the NOPR TSD 

explains these calculations, and the 

interdependence of thermal efficiency 

(‘‘Et’’) and standby loss (‘‘SL’’) are 

explained in more detail. However, for 

condensing thermal efficiency levels for 

residential-duty gas-fired storage water 

heaters, DOE did not include 

dependence on thermal efficiency in its 

standby loss levels, as discussed further 

later in this section. 

Standby loss levels for each 

equipment category are shown in the 

following sections in terms of Btu/h for 

the representative equipment. However, 

to analyze potential amendments to the 

current Federal standard, factors 

(‘‘standby loss reduction factors’’) were 

developed to multiply by the current 

maximum standby loss equation for 

each equipment class, based on the ratio 

of standby loss at each efficiency level 

to the current standby loss standard. 

The translation from standby loss values 

to maximum standby loss equations is 

described in further detail in section 

IV.C.5 of this NOPR. 

1. Heat Loss Calculations in the May 

2016 CWH ECS NOPR 

For the withdrawn May 2016 CWH 

ECS NOPR, DOE used heat loss 

calculations to determine the standby 

loss reduction from technology options 

used on the market because other 

options (including those suggested by 

manufacturers in response to the NOPR 

and discussed as follows) were not 

feasible. As previously discussed, 

manufacturers typically do not disclose 

the presence of standby loss reducing 

technology options in public literature. 

Additionally, the testing and/or tearing 

down of units currently on the market 

would only help inform the 

determination of standby loss reduction 

of technology options if DOE could 

isolate the effect of each individual 

technology option. However, DOE is 

unaware of any manufacturer that offers 

commercial or residential-duty storage 

water heater models that are completely 

identical except for one specific 

standby-loss-reducing technology 

option. Therefore, DOE would not 

reliably be able to determine to what 

extent (if at all) design difference(s) 

between two different storage water 

heaters contribute to the difference in 

standby loss. For example, two storage 

water heaters on the market at the same 

representative capacity might differ in 

any or all of the following respects that 

could affect the standby loss: Tank 

dimensions, numbers and/or sizes of 

fittings and connections, heat exchanger 

surface area, insulation type and 

thickness, and coverage of the tank 

(including tank walls, top, and bottom) 

with foam insulation. Therefore, DOE 

initially concluded in the May 2016 

CWH ECS NOPR that neither testing nor 

tearing down of storage water heaters on 

the market would allow DOE to reliably 

select standby loss levels or determine 

the technological pathway and 

manufacturing costs for manufacturers 

to achieve those levels, and instead 

performed heat loss calculations to 

estimate the standby loss reductions. 

The heat loss calculations are described 

in detail in the May 2016 NOPR TSD. 

In response to the May 2016 CWH 

ECS NOPR, DOE received comments 

from several stakeholders expressing 

concerns about DOE’s heat loss 

calculations. For example, Rheem 

argued that DOE’s calculation 

methodologies are incorrect because the 

proposed standby loss levels in the 

NOPR are not achieved by models 

currently on the market that use the 

analyzed standby-loss-reducing 

technology options. (Rheem, No. 43 at p. 

20) Rheem further stated that the 

maximum standby loss requirements 

proposed in the May 2016 CWH ECS 

NOPR cannot be achieved for every tank 

size of commercial storage water heater 

with the technology options that DOE 

analyzed for the representative volume. 

(Rheem, No. 43 at p. 14) 

Bock argued that the proposed 

standby loss levels are not 

representative of the capabilities of the 

analyzed technology options. (Bock, No. 

33 at pp. 3–4) A.O. Smith argued that 

DOE must not establish standby loss 

standards based on theoretical values 

that have not been validated. (A.O. 

Smith, No. 39 at pp. 9–10) AHRI also 

suggested that DOE is speculating costs 

of products that either do not exist or 

are produced by specialty companies, 

which is a departure from DOE’s 

longstanding practice of not including 

such products in its analysis. (AHRI, 

No. 40 at p. 20) Bradford White 

disagreed with DOE’s approach of using 

theoretical calculations to determine the 

proposed standby loss levels. (Bradford 

White, No. 42 at p. 14) 

A.O. Smith commented that DOE 

incorrectly assumed that heat loss has a 

linear relationship based on the R-value 

of the insulation multiplied by the 

thickness of the insulation. Instead, 

A.O. Smith argued that the relationship 

between heat loss and insulation 

thickness is non-linear and that foam 

insulation reaches a maximum effective 

thickness before experiencing 

diminishing returns. A.O. Smith also 

stated that there are design and 

engineering limitations as to where 

insulation can be applied on the water 

heater. (A.O. Smith, No. 39 at pp. 9–10) 

DOE recognizes manufacturers’ 

concerns regarding the use of theoretical 

calculations to inform the selection of 

standby loss levels, the feasibility of 

achieving DOE’s proposed standby loss 

levels with the analyzed technology 

options, and the lack of models 

currently on the market that meet DOE’s 

proposed standby loss levels. DOE also 

recognizes Rheem’s concerns regarding 

the proposed standby loss levels not 

being achievable for all tank volumes of 

storage water heaters and storage-type 

instantaneous water heaters. In large 

part, DOE’s subsequent analysis of 

models on the market agrees with these 

comments in that DOE found few 

models that meet the proposed standby 

loss levels, and it is not clear that the 

proposed levels could be met with the 

analyzed technology options across the 

range of storage volumes on the market. 

In light of these comments, DOE has 

made several changes to its standby loss 

level analysis for this NOPR. First, DOE 

adjusted the technology options that 

correspond to the standby loss baseline 

(i.e., the technology options that DOE 

assumes are used to meet the current 

standby loss standard) based on 

stakeholder comments. Second, because 

of the adjustment in technology options 


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33 In a multi-pass condensing heat exchanger 

design, the flue gases are forced through flue tubes 

that span the length of the tank multiple times. 

Typically, the flue gases are re-directed back 

through the tank via return plenums located above 

and/or below the tank. Top-fired, side-fired, and 

bottom-fired refer to the configuration of the burner 

assembly (consisting of a gas valve, blower, and 

premix burner tube) in a condensing gas-fired 

storage water heater. In a top-fired configuration, 

the premix burner assembly is located at the top of 

the tank and fires down into the heat exchanger. In 

a side-fired configuration, the burner assembly is 

located on the side of the tank. In a bottom-fired 

configuration, the burner assembly is located below 

the tank and fired up into the heat exchanger. 

analyzed at the baselines, DOE did not 

analyze improved tank insulation as a 

technology option for reducing standby 

loss. Third, because of comments 

indicating that there are no technology 

options that reliably decrease standby 

loss beyond the baseline for electric 

storage water heaters, DOE did not 

analyze amended standby loss standards 

for electric storage water heaters. All of 

these changes to the analysis are based 

on comments received for the May 2016 

CWH ECS NOPR and are further 

discussed later in this section. 

For all commercial gas-fired storage 

water heater levels, the only standby 

loss reduction analyzed corresponds to 

the inherent standby loss reduction 

from increasing thermal efficiency. 

(DOE notes that for non-condensing 

residential-duty gas-fired storage water 

heaters, an electromechanical flue 

damper and electronic ignition were 

considered which would improve UEF 

by reducing standby losses. This is 

discussed further in section IV.C.4.c. of 

this document) DOE research regarding 

rated standby loss values showed that 

the vast majority of models at a given 

thermal efficiency level already meet 

the standby loss level associated with 

the standby loss reduction factor being 

applied for that level. In addition, 

because the vast majority of models on 

the market that meet each thermal 

efficiency level being analyzed also 

meet the corresponding standby loss 

level, further validating the standby loss 

levels by testing models on the market 

or by building water heater prototypes 

is not necessary and was not done for 

this NOPR. 

2. Reduction in Standby Loss 

Associated With Increased Thermal 

Efficiency 

In the May 2016 CWH ECS NOPR, 

DOE stated that, for gas-fired storage 

water heaters, standby loss is a function 

of storage volume and input rate and is 

affected by many aspects of the design 

of a water heater. Further, because 

standby loss is calculated using the fuel 

consumed during the test to maintain 

the water temperature, the standby loss 

is dependent on the thermal efficiency 

of the water heater. DOE also suggested 

that variation in reported standby loss 

values may be partially attributed to 

undisclosed technology options 

(including insulation type and 

thickness, and baffle design) and 

sources of variation in the current 

standby loss test procedure. 81 FR 

34440, 34470. 

In response to the May 2016 CWH 

ECS NOPR, commenters questioned the 

certainty of the relationship between 

standby loss and thermal efficiency 

portrayed in DOE’s analysis. (See 

Rheem, No. 43 at p. 16; Bradford White, 

No. 42 at p. 6) In response, DOE notes 

that although it is true that actual heat 

losses are largely dependent on tank 

insulation, fittings, and flue openings, 

there is also an important distinction to 

be made between heat loss from the tank 

and standby loss measured as a function 

of fuel flow. Increased thermal 

efficiency does not necessarily affect 

heat loss from the tank, but it inherently 

decreases the amount of fuel consumed 

to reheat the stored water, and thus 

decreases measured standby loss. 

Accounting for this inherent difference 

does not ignore or understate the 

impacts of water heater design on 

standby loss. 

DOE also recognizes that heat 

exchangers in non-condensing and 

condensing storage water heater have 

different geometries and surface areas. 

However, DOE’s research suggests that 

many condensing models currently on 

the market include 1 inch of foam 

insulation, similar to many baseline 

non-condensing commercial gas-fired 

storage water heaters, indicating that the 

lower standby loss of the condensing 

models relative to the non-condensing 

models likely comes as a result of their 

higher thermal efficiency and 

condensing heat exchanger designs. 

DOE notes that the fact that the vast 

majority of models on the market 

already achieve the standby loss 

decreases that are inherent to increased 

thermal efficiency from condensing 

operation using a wide variety of heat 

exchanger designs (e.g., multi-pass and 

helical condensing heat exchangers with 

either a top-fired, side-fired, or bottomfired configuration 33) indicates that 

there are a variety of design paths 

available to manufacturers to achieve 

this standby loss reduction. Therefore, 

DOE maintained its approach to include 

a dependence of standby loss levels on 

thermal efficiency in this NOPR. 

Chapter 5 of the NOPR TSD includes 

further detail on the dependence of 

standby loss on thermal efficiency and 

on the corresponding analysis of models 

currently on the market. 

3. Commercial Gas-Fired Storage Water 

Heaters and Gas-Fired Storage-Type 

Instantaneous Water Heaters 

Technology Options 

For commercial gas-fired storage 

water heaters, DOE preliminarily 

determined in the May 2016 CWH ECS 

NOPR analysis that the current 

minimum Federal standard can be met 

with installation of 1 inch of fiberglass 

insulation around the walls of the tank. 

In the standby loss analysis, DOE 

considered baseline non-condensing 

equipment to include electromechanical 

flue dampers and all condensing 

equipment to include mechanical draft 

systems, both of which act to reduce 

standby losses out the flue. 81 FR 

34440, 34470 (May 31, 2016). 

In the May 2016 CWH ECS NOPR 

analysis, DOE then considered the next 

incremental standby loss level to 

correspond to the use of 1 inch of 

sprayed polyurethane foam insulation 

instead of fiberglass insulation. From 

DOE’s market assessment and 

manufacturer interviews, DOE found the 

highest insulation thickness available 

for commercial gas-fired water heaters 

to be 2 inches. Therefore, DOE 

considered the next incremental 

standby loss level to correspond to 2 

inches of polyurethane foam. While 

more-stringent standby loss levels than 

the max-tech standby loss level 

analyzed in the May 2016 CWH ECS 

NOPR exist on the market, these morestringent values are only rated for 

condensing models with specific heat 

exchanger designs. To avoid mandating 

specific heat exchanger designs for 

achieving condensing thermal efficiency 

levels, DOE considered the max-tech 

standby loss level to correspond to 2 

inches of foam insulation in the May 

2016 CWH ECS NOPR. Id. 

In response to the May 2016 CWH 

ECS NOPR, A.O. Smith stated that DOE 

overestimated the max-tech standby loss 

levels for gas-fired storage water heaters. 

(A.O. Smith, No. 39 at p. 9) A.O. Smith 

and Bradford White disagreed with 

DOE’s assertion that the current standby 

loss standard can be met with 1 inch of 

fiberglass insulation and with DOE’s 

consideration of this technology option 

as the baseline standby loss technology 

for commercial gas-fired storage water 

heaters. Rather, A.O. Smith and 

Bradford White argued that models 

available on the market typically use a 

combination of fiberglass and sprayed 

polyurethane foam. (A.O. Smith, No. 39 

at p. 10; Bradford White, No. 42 at p. 5) 

A.O. Smith further argued that if DOE’s 

proposed max-tech standby loss level 


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were adopted, it would result in a 

significant reduction of models 

available on the market, which would 

impact competition and pricing. A.O. 

Smith asserted that DOE does not 

appreciate the engineering complexity 

and costs involved in meeting the 

proposed standby loss standard. A.O. 

Smith further stated that minimizing 

heat loss through a heat exchanger 

while the water heater is in standby 

mode has a direct and significant 

correlation to standby loss, and that the 

methods of reducing standby loss 

through the heat exchanger are 

complicated and require use of 

mechanical draft and changes in 

controls or heat exchanger geometry. 

(A.O. Smith, No. 39 at p. 10) A.O. Smith 

also argued that the current ENERGY 

STAR standby loss level (i.e., 

corresponding to a standby loss 

reduction factor of 0.84) is 

representative of max-tech technology. 

(A.O. Smith, No. 39 at p. 11) 

Rheem stated that the standby loss 

level proposed in the May 2016 CWH 

ECS NOPR cannot be met using the 

analyzed technology option of 2-inch 

foam insulation because there is 

significant heat loss from uninsulated 

areas of the tank (e.g., fittings). (Rheem, 

No. 43 at p. 18) Bradford White stated 

that it was unable to identify any 

commercial gas-fired storage water 

heater models at the representative 

capacities (i.e., 199,000 Btu/h input 

capacity and 100 gallons rated volume) 

currently available on the market that 

meet the max-tech standby level or even 

some of the intermediate standby loss 

levels. Bradford White also commented 

that while some lower-capacity models 

may meet these standby loss levels, it 

would be unfair to include them in the 

analysis for the representative 

equipment. Bradford White also 

asserted that the technology options 

DOE used to select the standby loss 

levels in the May 2016 CWH ECS NOPR 

are already used in equipment currently 

on the market. (Bradford White, No. 42 

at pp. 5–6) Bock stated that none of 

Bock’s condensing gas-fired storage 

models would meet DOE’s proposed 

standby loss standard, even though 

these models use the technology options 

that DOE assumes are sufficient to meet 

the proposed standard. (Bock, No. 33 at 

p. 1) 

In light of comments received 

regarding the technology options used 

for baseline models and subsequent 

DOE research of equipment on the 

market, DOE agrees that many 

commercial gas-fired storage water 

heaters rated at or near the current 

standby loss standard use a combination 

of fiberglass and polyurethane foam 

insulation. Specifically, many models 

have fiberglass insulation near the 

bottom of the tank and around fittings 

and connections, and polyurethane 

foam insulation covering the rest of the 

tank walls. DOE acknowledges that 

changing from 1 inch of fiberglass 

insulation to 1 inch of foam insulation 

is not a viable standby-loss-reducing 

technology option for some models on 

the market rated at or near the current 

standby loss standard because they 

already have 1 inch of foam insulation. 

Additionally, DOE recognizes that there 

is significant variation in standby loss 

ratings for models currently on the 

market—such that an increase from 1 

inch to 2 inches of foam insulation does 

not necessarily allow all models within 

a model line to achieve the incremental 

standby levels corresponding to foam 

insulation analyzed for the May 2016 

CWH ECS NOPR. Specifically, not all 

models within a model line can 

necessarily meet a given standby loss 

level (i.e., standby loss reduction factor, 

see section IV.C.4.c of this NOPR) with 

the same insulation thickness. 

Additionally, stakeholder comments 

and DOE’s research suggest that many 

commercial gas-fired storage water 

heaters with standby loss values at or 

near the current standby loss standard 

already have foam insulation 

thicknesses greater than 1 inch. 

Therefore, increasing foam insulation 

thickness from 1 inch to 2 inches is also 

not a viable standby-loss-reducing 

technology option for some models on 

the market. Consequently, in this NOPR, 

DOE did not analyze increasing 

insulation thickness for commercial gasfired storage water heaters. The only 

level of standby loss reduction analyzed 

for commercial gas-fired storage water 

heaters in this NOPR corresponds to the 

standby loss reduction inherent to an 

increase in thermal efficiency (as 

discussed previously in this section). 

Because the analyzed standby loss 

levels only correspond to the standby 

loss reduction inherent to achieving 

each thermal efficiency, DOE expects 

that at the standby loss levels analyzed, 

heat exchanger modifications would not 

be required to meet any of the standby 

loss levels analyzed for this NOPR. 

DOE further notes that all commercial 

gas-fired storage water heaters that DOE 

identified on the market have either an 

electromechanical flue damper (noncondensing models) or mechanical draft 

technology (condensing models). For 

the May 2016 CWH ECS NOPR, DOE 

assumed an equivalent standby loss 

reduction between these two 

technologies. The baseline standby loss 

level reflects use of a flue damper (i.e., 

the baseline standby loss level is based 

on non-condensing models). When 

evaluating condensing thermal 

efficiency levels, DOE assumed the 

impact to standby loss from the use of 

a flue damper, which is not used in 

condensing models, is equal to the 

impact from use of mechanical draft. 

DOE notes that in the analysis for 

both the May 2016 CWH ECS NOPR and 

this NOPR, DOE included the increased 

standby electrical consumption 

associated with condensing technology 

in its determination of the fraction of 

standby loss attributable to fuel 

consumption. Chapter 5 of the NOPR 

TSD includes further detail on the 

consideration of standby losses from 

electricity consumption. 

DOE recognizes that the primary 

function of a blower is to propel flue 

gases as part of a mechanical draft 

system. However, the fact that it is not 

the primary function of a blower to 

restrict flue losses does not necessarily 

mean that a blower does not have the 

effect of restricting such flue losses. 

Similar to a flue damper, a blower sits 

on the top of the heat exchanger and is 

a barrier to prevent hot air from rising 

out of the flue(s) during standby mode. 

Therefore, in its analysis of the 

dependence of standby loss on thermal 

efficiency, DOE maintained its 

assumption that a blower would provide 

a similar level of flue loss reduction to 

that of an electromechanical flue 

damper. Correspondingly, DOE did not 

assume any change in flue loss 

reduction when moving from noncondensing to condensing thermal 

efficiency levels. This assumption is 

validated by the previously discussed 

observation that the majority of 

condensing commercial gas-fired storage 

water heaters currently on the market 

already achieve the inherent standby 

loss reduction associated with the 

thermal efficiency increases resulting 

from condensing operation. As 

discussed in section IV.C.6 of this NOPR 

and chapter 5 of the NOPR TSD, DOE’s 

teardown analysis and feedback from 

manufacturer interviews indicate that 

blowers are required for condensing 

operation. 

In the May 2016 CWH ECS NOPR 

TSD, in the context of comparing the 

standby loss reduction from a flue 

damper for commercial gas-fired storage 

water heaters and consumer gas-fired 

storage water heaters, DOE stated that 

many commercial water heaters have 

multiple vented flue pipes, meaning 

that there is significantly more 

opportunity for standby loss reduction 

from a flue damper in commercial water 

heaters than in consumer water heaters. 

(Docket No. EERE–2014–BT–STD– 


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34Page 5–15 of the May 2016 CWH ECS NOPR 

TSD is page 101 of the document PDF file. 

0042–0016 at p. 5–15 34) To further 

clarify, this statement was comparing 

the standby losses of a consumer gasfired storage water heater to those of a 

commercial gas-fired storage water 

heater. DOE noted that the flue losses 

would comprise a larger share of total 

standby loss for a commercial gas-fired 

storage water heater than for a consumer 

gas-fired storage water heater. One of 

DOE’s justifications for this argument 

was that many commercial gas-fired 

storage water heaters have multiple 

vented flue pipes, while consumer gasfired storage water heaters typically 

only have one flue pipe. DOE clarifies 

that the phrase ‘‘multiple vented flue 

pipes’’ was meant to refer to multiple 

flue pipes that exhaust flue gases 

outside of the tank, though all the flue 

gases may pass through a collector that 

has a single outlet to the vent system. 

Additionally, DOE’s intended position 

was that multiple vented flue pipes 

would have a higher heat exchanger 

surface area over which heat can be lost 

from the stored water when in standby 

mode. 

Table IV.9 presents the examined 

standby loss levels in this NOPR for 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters (other than residentialduty gas-fired storage water heaters, 

which are addressed in the next 

section). As discussed, these levels 

reflect only the reduction in standby 

loss that is achieved by increasing 

thermal efficiency. 

TABLE IV.9—STANDBY LOSS LEVELS

FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER

HEATERS, 100 GALLON RATED

STORAGE VOLUME, 199,000 Btu/h 

INPUT CAPACITY

Thermal 

efficiency 

level 

Thermal 

efficiency 

(%) 

Standby loss 

(Btu/h) 

Et EL0 .......... 80 1349 

Et EL1 .......... 82 1316 

Et EL2 .......... 90 1223 

Et EL3 .......... 92 1197 

Et EL4 .......... 95 1160 

Et EL5 .......... 99 1115 

4. Electric Storage Water Heaters 

Technology Options 

In the withdrawn May 2016 CWH ECS 

NOPR analysis for electric storage water 

heaters, DOE determined that the 

current Federal standard can be met 

through use of 2 inches of polyurethane 

foam insulation. Therefore, this design 

was selected to represent the baseline 

standby loss level. The more-stringent 

standby loss level that DOE considered, 

representing the max-tech efficiency 

level, corresponded to 3 inches of 

polyurethane foam insulation. 

In response to the May 2016 CWH 

ECS NOPR, AHRI and A.O. Smith stated 

that no electric storage water heater 

models on the market at that time met 

the proposed standby loss standard. 

(AHRI, No. 40 at p. 16; A.O. Smith, No. 

39 at p. 4) AHRI stated that while DOE 

has put forward possible engineering 

paths to reach its proposed standby loss 

levels, there is no direct manufacturing 

experience to demonstrate either that 

these levels can be met in practice or 

that these levels can be met at the costs 

projected by DOE. (AHRI, No. 40 at p. 

17) 

Several commenters suggested that 

DOE’s standby loss calculations 

overestimate the reduction in standby 

loss for given technology options for 

electric storage water heaters. (Bock, No. 

33 at p. 4; A.O. Smith, No. 39 at p. 9; 

Bradford White, No. 42 at p. 7; Rheem, 

No. 43 at p. 17) A.O. Smith and 

Bradford White stated that DOE’s 

analyzed technology option for reducing 

standby loss (i.e., using 3 inches of foam 

insulation) is already utilized in some 

electric storage water heaters on the 

market to meet the current standby loss 

standard. (A.O. Smith, No. 39 at p. 4; 

Bradford White, No. 42 at p. 7) A.O. 

Smith and Rheem commented that there 

are several models on the market with 

3 inches of foam insulation, and none of 

these models meet the proposed standby 

loss limits. (A.O. Smith, No. 39 at p. 9; 

Rheem, No. 43 at p. 17) 

Rheem argued that consideration of 

water heater design was absent from 

DOE’s analysis, and that there should 

have been a comparison with actual 

models to validate the theoretical 

calculations. (Rheem, No. 43 at p. 17) 

A.O. Smith argued that DOE created 

a theoretical max-tech level without 

explaining whether testing, research, 

and/or other analysis were performed to 

validate its theoretical standby loss 

level. A.O. Smith also argued that DOE 

has the burden to demonstrate that the 

proposed level can be achieved. (A.O. 

Smith, No. 39 at p. 9) EEI requested that 

DOE clarify whether the proposed 16- 

percent reduction in standby loss for 

electric storage water heaters is 

achievable for larger-volume models. 

EEI added that commercial electric 

storage water heaters are sized as large 

as 10,000 gallons and questioned 

whether DOE’s proposed standby loss 

reduction is possible for these larger 

water heaters that have more fittings 

and surface area (EEI, Public Meeting 

Transcript, No. 20 at pp. 38–40) AHRI 

suggested that the standby loss 

reduction analyzed for electric storage 

water heaters with 119 gallons storage 

volume might not scale well for models 

with storage volume less than 50 

gallons, and that these lower-volume 

models might be adversely affected by 

DOE’s proposed standby loss standard. 

(AHRI, No. 40 at p. 9) 

In light of comments received and 

DOE’s market research, DOE recognizes 

that some electric storage water heater 

models currently on the market with 3 

inches of foam insulation have a rated 

standby loss at or near the current 

standard. Because these models already 

have 3 inches of foam insulation, the 

standby loss reduction that DOE 

attributed to using 3 inches of foam 

insulation in the May 2016 CWH ECS 

NOPR would not be achievable for these 

models using DOE’s analyzed 

technology option. Therefore, in this 

NOPR, DOE analyzed 3 inches of 

polyurethane foam insulation as the 

technology option used to achieve the 

current standby loss standard. However, 

3 inches of foam insulation is also the 

max-tech technology option, and DOE 

did not consider any additional 

technology options for the reduction of 

standby loss for electric storage water 

heaters. Therefore, in this NOPR, DOE 

did not further analyze and is not 

adopting amended standby loss 

standards for electric storage water 

heaters. 

c. Uniform Energy Efficiency Levels 

As discussed in III.B.1 of this NOPR, 

DOE conducted all analyses of potential 

amended standards for residential-duty 

commercial water heaters in this 

document in terms of UEF to reflect the 

current test procedure and metric. 

However, the withdrawn May 2016 

CWH ECS NOPR analysis was 

conducted in terms of the previous 

thermal efficiency and standby loss 

metrics because there were insufficient 

efficiency data in terms of UEF available 

when DOE undertook the initial 

analyses for this proposed rulemaking. 

In the May 2016 CWH ECS NOPR 

analysis for residential-duty gas-fired 

storage water heaters, DOE previously 

determined that the Federal standards 

can be met through use of 1 inch of 

polyurethane foam insulation. From 

surveying commercially-available 

equipment, DOE also determined that 

all baseline residential-duty gas-fired 

storage water heaters have a standing 

pilot and do not use flue dampers. 

Therefore, in addition to considering 

increased foam insulation thickness, 

DOE also considered electromechanical 


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flue dampers and electronic ignition as 

technology options for improving 

efficiency. Electromechanical flue 

dampers were only considered as a 

technology option for non-condensing 

residential-duty gas-fired storage water 

heaters, because flue dampers are not 

used with mechanical draft systems and 

condensing water heaters use 

mechanical draft systems. Therefore, for 

residential-duty gas-fired storage water 

heaters, DOE considered 

electromechanical flue dampers to be a 

technology option to improve efficiency 

for non-condensing equipment and 

considered mechanical draft systems to 

be featured in all condensing 

equipment. Both of these technologies 

improve efficiency by reducing standby 

losses through the flue during periods 

when the burner is not operating. 

Additionally, because all condensing 

residential-duty gas-fired storage water 

heaters include electronic ignition, DOE 

only considered electronic ignition as a 

technology option for non-condensing 

residential-duty gas-fired storage water 

heaters. 

In response to the May 2016 CWH 

ECS NOPR, Bradford White commented 

that for residential-duty gas-fired storage 

water heaters, in most cases, 2 inches of 

polyurethane foam insulation are 

required to meet the current Federal 

standard, rather than 1 inch as assumed 

by DOE in the NOPR. (Bradford White, 

No. 42 at p. 7) 

DOE acknowledges Bradford White’s 

comment that some residential-duty gasfired storage water heaters with rated 

standby loss values at or near the 

current standard (now in terms of UEF 

rather than standby loss) have 2 inches 

of polyurethane foam insulation. 

Because these baseline or near-baseline 

models already have 2 inches of foam 

insulation, DOE considered 2 inches of 

polyurethane foam insulation as a 

baseline technology option for 

residential-duty gas-fired storage water 

heaters, and did not consider any 

efficiency gains associated with 

increased insulation. 

As previously discussed, 

electromechanical flue dampers and 

electronic ignition were only considered 

as a technology option for noncondensing equipment. Technology 

options that would specifically decrease 

standby losses were not considered for 

condensing residential-duty gas-fired 

storage water heaters (for which the 

baseline includes 2 inches of foam 

insulation and electronic ignition and 

for which electromechanical flue 

dampers are not an appropriate 

technology option). (Even though 

standby losses are no longer measured 

directly for residential-duty gas-fired 

storage water heaters, standby losses 

still contribute to UEF.) 

UEF standards are draw patternspecific (i.e., there are separate 

standards for very small, low, medium, 

and high draw patterns) and are 

expressed by an equation as a function 

of the stored water volume. DOE 

analyzed increased standards in terms 

of increases to the constant term of the 

UEF equations and did not consider 

changes to the slopes of the volumedependent term. Based on a review of 

the rated UEF and storage volume for 

products currently on the market, DOE 

tentatively determined that the existing 

slopes of the equations are 

representative of the relationship 

between UEF and stored volume across 

the range of efficiency levels, and thus, 

DOE did not find justification to 

consider varying the slope. 

Additionally, because all residentialduty gas-fired storage water heaters on 

the market are in the high draw pattern, 

the analysis was done for the high draw 

pattern and the same step increase are 

applied to all other draw patterns. For 

residential-duty gas-fired storage water 

heaters, DOE chose four UEF levels 

between the baseline and max-tech 

levels for analysis. 

To determine the max-tech level, DOE 

analyzed the difference between UEF 

ratings of residential-duty gas-fired 

storage water heaters in its database (see 

section IV.A.3 of this document) and the 

minimum UEF allowed for each model 

based on their rated volumes. The 

maximum step increase (rounded to the 

nearest hundredth) was 0.35. However, 

this level was only achieved at a single 

storage volume and has not been 

demonstrated as being achievable across 

a range of storage volumes. As a result, 

DOE considered the max-tech step 

increase to be 0.34, a level that has been 

demonstrated achievable by residentialduty gas-fired storage water heaters at a 

range of volumes. 

The four intermediate UEF levels are 

representative of common efficiency 

levels and those that represent 

significant technological changes in the 

design of CWH equipment. Table IV.10 

shows the examined UEF levels in this 

NOPR for residential-duty gas-fired 

storage water heaters in terms of the 

incremental step increase and the 

resulting equation for high draw pattern 

models. 

TABLE IV.10—BASELINE, INTERMEDIATE, AND MAX-TECH UEF LEVELS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE

WATER HEATERS

UEF level Incremental 

step increase 

UEF 

(high draw pattern) * 

EL0—Baseline ......................................................................................................................... 0 0.6597¥(0.0009 × Vr) 

EL1 .......................................................................................................................................... 0.02 0.6797¥(0.0009 × Vr) 

EL2 .......................................................................................................................................... 0.09 0.7497¥(0.0009 × Vr) 

EL3 .......................................................................................................................................... 0.18 0.8397¥(0.0009 × Vr) 

EL4 .......................................................................................................................................... 0.27 0.9297¥(0.0009 × Vr) 

EL5 .......................................................................................................................................... 0.34 0.9997¥(0.0009 × Vr) 

* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 

5. Standby Loss Reduction Factors 

As part of the engineering analysis for 

commercial gas-fired storage water 

heaters, DOE reviewed the maximum 

standby loss equations that define the 

existing Federal energy conservation 

standards for gas-fired storage water 

heaters. The equations allow DOE to 

expand the analysis on the 

representative rated input capacity and 

storage volume to the full range of 

values covered under the existing 

Federal energy conservation standards. 

DOE uses equations to characterize 

the relationship between rated input 

capacity, rated storage volume, and 

standby loss. The equations allow DOE 

to account for the increases in standby 

loss as input capacity and tank volume 

increase. As the tank storage volume 

increases, the tank surface area 

increases, resulting in higher jacket 

losses. As the input capacity increases, 

the surface area of flue tubes may 

increase, thereby providing additional 


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area for standby heat loss through the 

flue tubes. The current equations show 

that for gas-fired storage water heaters, 

the allowable standby loss increases as 

the rated storage volume and input 

rating increase. The current form of the 

standby loss standard (in Btu/h) for 

commercial gas-fired and oil-fired water 

heaters is shown in the multivariable 

equation below, depending upon both 

rated input (Q, Btu/h) and rated storage 

volume (Vr, gal). 

In order to consider amended standby 

loss standards for commercial gas-fired 

storage water heaters, DOE needed to 

revise the current standby loss standard 

equation to correspond to the decreased 

standby loss value, in Btu/h, determined 

for the representative capacity. In the 

withdrawn May 2016 CWH ECS NOPR, 

DOE considered revising the standby 

loss equations for gas-fired and electric 

storage water heaters. 81 FR 34440, 

34476–34477 (May 31, 2016). However, 

as discussed in sections III.B.6 and 

IV.C.4.b of this NOPR, DOE is not 

proposing to amend the standby loss 

standard for electric storage water 

heaters. 

DOE analyzed more-stringent standby 

loss standards by multiplying the 

current maximum standby loss equation 

by reduction factors. The use of 

reduction factors maintains the 

structure of the current maximum 

standby loss equation and does not 

change the dependence of maximum 

standby loss on rated input and rated 

storage volume, but still allows DOE to 

consider increased stringency for 

standby loss standards. The standby loss 

reduction factor is calculated by 

dividing each standby loss level (in Btu/ 

h) by the current standby loss standard 

(in Btu/h) for the representative input 

capacity and storage volume. 

Table IV.11 shows the standby loss 

reduction factors determined in this 

NOPR for commercial gas-fired storage 

water heaters for each thermal efficiency 

level. As discussed in section IV.C.4.b of 

this NOPR, the standby loss reductions 

associated with commercial gas-fired 

storage water heaters result from 

increased thermal efficiency. Chapter 5 

of the NOPR TSD includes more detail 

on the calculation of the standby loss 

reduction factor. 

TABLE IV.11—STANDBY LOSS REDUCTION FACTORS FOR COMMERCIAL

GAS-FIRED STORAGE WATER HEATERS

Thermal 

efficiency 

level 

Thermal 

efficiency 

(%) 

Standby loss 

reduction 

factor 

Et EL0 .......... 80 1.00 

Et EL1 .......... 82 0.98 

Et EL2 .......... 90 0.91 

Et EL3 .......... 92 0.89 

Et EL4 .......... 95 0.86 

Et EL5 .......... 99 0.83 

6. Teardown Analysis 

After selecting a representative input 

capacity and representative storage 

volume (for storage water heaters) for 

each equipment category, DOE selected 

equipment near both the representative 

values and the selected efficiency levels 

for its teardown analysis. DOE gathered 

information from these teardowns to 

create detailed BOMs that included all 

components and processes used to 

manufacture the equipment. For the 

analysis of residential-duty gas-fired 

storage water heaters DOE identified the 

UEF ratings of previously torn-down 

models, wherever possible, and used 

information from those existing 

teardowns to inform its analyses. To 

assemble the BOMs and to calculate the 

MPCs of CWH equipment, DOE 

disassembled multiple units into their 

base components and estimated the 

materials, processes, and labor required 

for the manufacture of each individual 

component, a process known as a 

‘‘physical teardown.’’ Using the data 

gathered from the physical teardowns, 

DOE characterized each component 

according to its weight, dimensions, 

material, quantity, and the 

manufacturing processes used to 

fabricate and assemble it. 

DOE also used a supplementary 

method called a ‘‘catalog teardown,’’ 

which examines published 

manufacturer catalogs and 

supplementary component data to allow 

DOE to estimate the major differences 

between equipment that was physically 

disassembled and similar equipment 

that was not. For catalog teardowns, 

DOE gathered product data such as 

dimensions, weight, and design features 

from publicly-available information 

(e.g., manufacturer catalogs and 

manufacturer websites). DOE also 

obtained information and data not 

typically found in catalogs, such as fan 

motor details or assembly details, from 

physical teardowns of similar 

equipment or through estimates based 

on industry knowledge. The teardown 

analysis performed for the withdrawn 

May 2016 CWH ECS NOPR used data 

from 11 physical teardowns and 22 

catalog teardowns to inform 

development of cost estimates for CWH 

equipment. In the current NOPR 

analysis, DOE included results from 11 

additional physical teardowns of water 

heaters and hot water supply boilers. 

These additional physical teardowns 

replaced several of the virtual and 

physical teardowns conducted for the 

NOPR analysis to ensure that the MPC 

estimates better reflect designs of 

models on the market by including 

physical teardowns of models from 

additional manufacturers at numerous 

efficiency levels. Chapter 5 of the NOPR 

TSD provides further detail on the CWH 

equipment units that were torn down. 

The teardown analysis allowed DOE 

to identify the technologies that 

manufacturers typically incorporate into 

their equipment, along with the 

efficiency levels associated with each 

technology or combination of 

technologies. As noted previously, the 

end result of each teardown is a 

structured BOM, which DOE developed 

for each of the physical and catalog 

teardowns. The BOMs incorporate all 

materials, components, and fasteners 

(classified as either raw materials or 

purchased parts and assemblies) and 

characterize the materials and 

components by weight, manufacturing 

processes used, dimensions, material, 

and quantity. The BOMs from the 

teardown analysis were then used to 

calculate the MPCs for each type of 

equipment that was torn down. The 

MPCs resulting from the teardowns 

were then used to develop an industry 


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average MPC for each efficiency level 

and equipment category analyzed. 

Chapter 5 of the NOPR TSD provides 

more details on BOMs and how they 

were used in determining the 

manufacturing cost estimates. 

During the manufacturer interviews, 

DOE requested feedback on the 

engineering analysis and the 

assumptions that DOE used in the May 

2016 CWH ECS NOPR. DOE used the 

information it gathered from those 

interviews, along with the information 

obtained through the teardown analysis, 

to refine the assumptions and data used 

to develop MPCs. Chapter 5 of the 

NOPR TSD provides additional details 

on the teardown process. 

During the teardown process, DOE 

gained insight into the typical 

technology options manufacturers use to 

reach specific efficiency levels. DOE 

also determined the efficiency levels at 

which manufacturers tend to make 

major technological design changes. 

Table IV.12 through Table IV.15 show 

the major technology options DOE 

observed and analyzed for each 

efficiency level and equipment category. 

DOE notes that in equipment above the 

baseline, and sometimes even at the 

baseline efficiency, additional features 

and functionalities that do not impact 

efficiency are often used to address nonefficiency-related consumer demands 

(e.g., related to comfort or noise when 

operating). DOE did not include the 

additional costs for options such as 

advanced building communication and 

control systems or powered anode rods 

that are included in many of the highefficiency models currently on the 

market, as they do not improve 

efficiency but do add cost to the model. 

In other words, DOE assumed the same 

level of non-efficiency related features 

and functionality at all efficiency levels. 

Chapter 5 of the NOPR TSD includes 

further detail on the exclusion of costs 

for non-efficiency-related features from 

DOE’s MPC estimates. 

TABLE IV.12—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR COMMERCIAL GAS-FIRED STORAGE

WATER HEATERS

Thermal 

efficiency level 

Thermal 

efficiency 

(%) 

Design changes * 

Et EL0 ............... 80 

Et EL1 ............... 82 Increased heat exchanger area. 

Et EL2 ............... 90 Condensing heat exchanger, forced draft blower, premix burner. 

Et EL3 ............... 92 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL4 ............... 95 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL5 ............... 99 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

* The condensing heat exchanger surface area incrementally increases at each EL from Et EL2 to Et EL5. 

TABLE IV.13—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR RESIDENTIAL-DUTY GAS-FIRED

STORAGE WATER HEATERS

UEF level UEF 

(high draw pattern) * Design changes ** 

EL0—Baseline ... 0.6597¥(0.0009 × Vr).

EL1 ..................... 0.6797¥(0.0009 × Vr) ............ Increased heat exchanger area. 

EL2 ..................... 0.7497¥(0.0009 × Vr) ............ Electronic ignition, electromechanical flue damper or power venting; increased heat exchanger area. 

EL3 ..................... 0.8397¥(0.0009 × Vr) ............ Electronic ignition; condensing heat exchanger; power venting. 

EL4 ..................... 0.9297¥(0.0009 × Vr) ............ Electronic ignition; condensing heat exchanger; power venting; premix burner; increased 

heat exchanger area. 

EL5 ..................... 0.9997¥(0.0009 × Vr) ............ Electronic ignition; condensing heat exchanger; power venting; premix burner; increased 

heat exchanger area. 

* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 

** The condensing heat exchanger surface area incrementally increases at each EL from EL3 to EL5. 

TABLE IV.14—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER

HEATERS

Thermal 

efficiency level 

Thermal 

efficiency 

(%) 

Design changes * 

Et EL0 ............... 80 

Et EL1 ............... 82 Increased heat exchanger area. 

Et EL2 ............... 84 Increased heat exchanger area. 

Et EL3 ............... 92 Secondary condensing heat exchanger. 

Et EL4 ............... 94 Secondary condensing heat exchanger, increased heat exchanger surface area. 

Et EL5 ............... 96 Secondary condensing heat exchanger, increased heat exchanger surface area. 

* The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. 


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35 In a multi-pass condensing heat exchanger 

design, the flue gases are forced through flue tubes 

that span the length of the tank multiple times. 

Typically, the flue gases are re-directed back 

through the tank via return plenums located above 

and below the tank. 

TABLE IV.15—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER

HEATERS AND HOT WATER SUPPLY BOILERS

Thermal 

efficiency level 

Thermal 

efficiency 

(%) 

Design changes * 

Et EL0 ............... 80 

Et EL1 ............... 82 Increased heat exchanger area. 

Et EL2 ............... 84 Increased heat exchanger area, induced draft blower. 

Et EL3 ............... 92 Condensing heat exchanger, forced draft blower, premix burner. 

Et EL4 ............... 94 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

Et EL5 ............... 96 Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. 

* The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. 

From surveying models currently on 

the market, DOE determined that the 

only design change for many efficiency 

levels is an increased heat exchanger 

surface area. Based upon heat exchanger 

calculations and feedback from 

manufacturer interviews, DOE 

determined a factor by which heat 

exchangers would need to expand to 

reach higher thermal efficiency levels. 

This factor was higher for condensing 

efficiency levels than for noncondensing efficiency levels. Chapter 5 

of the NOPR TSD provides more 

information on these heat exchanger 

sizing calculations, as well as on the 

technology options DOE considered at 

each efficiency level. 

In response to the May 2016 CWH 

ECS NOPR, DOE received comments 

from stakeholders questioning the 

typical design features assumed in 

DOE’s analysis. For example, Bradford 

White stated that manufacturers must 

use more anode rods on products with 

more flues (i.e., higher thermal 

efficiency) to ensure the product is 

sufficiently protected against corrosion. 

(Bradford White, No. 42 at p. 7) 

Lochinvar commented that in 

determining manufacturer production 

cost, DOE should take into 

consideration that condensing 

equipment requires costlier, corrosionresistant material. In addition, 

Lochinvar stated that use of such 

corrosion-resistant material means 

condensing equipment may not need 

anode rods. Lochinvar further stated 

that anode rods are required for 

condensing equipment that is built from 

less expensive, corrosive materials. 

(Lochinvar, Public Meeting Transcript, 

No. 20 at p. 44) 

In the May 2016 CWH ECS NOPR 

analysis, DOE assumed that the number 

of anode rods is independent of 

efficiency and, thus, analyzed the same 

number of anode rods across all 

efficiency levels for each storage water 

heater class. However, DOE recognizes 

that the welds inside a storage water 

heater are typically the primary source 

of concern for corrosion inside a storage 

water heater. As stated by Bradford 

White, a condensing gas-fired storage 

water heater with a multi-pass heat 

exchanger design 35 will typically have 

more flue pipes and, therefore, more 

welds (joining the flue pipe and tank 

top or bottom) than would a noncondensing gas-fired storage water 

heater. Therefore, DOE acknowledges 

that condensing gas-fired storage water 

heaters may require an additional anode 

rod to compensate for the additional 

welds, relative to a non-condensing gasfired storage water heater. To reflect this 

possibility, DOE included the costs of 

an additional anode rod for residentialduty and commercial gas-fired storage 

water heaters with a multi-pass 

condensing heat exchanger design. In 

response to Lochinvar, DOE included 

the cost of anode rods in its cost 

estimates for storage water heaters if the 

tank and heat exchanger are not 

constructed entirely from corrosionresistant materials (e.g., stainless steel or 

cupronickel), but did not include the 

cost of anode rods for designs where the 

tank and heat exchanger are constructed 

of corrosion-resistant alloys. 

Manufacturer literature for storage water 

heaters constructed with stainless steel 

tanks and heat exchangers indicate that 

such models do not require anode rods 

for corrosion protection. Chapter 5 of 

the NOPR TSD includes further detail 

on the number of anode rods DOE 

analyzed to develop cost estimates for 

storage water heaters. 

In addition, DOE notes that many 

condensing gas-fired storage water 

heaters currently on the market are often 

marketed as premium products and 

include non-efficiency-related features. 

Some of these features, such as built-in 

diagnostics and run history information, 

may require user interfaces, but a user 

interface is not necessary for operation 

of a condensing gas-fired storage water 

heater. DOE research suggests that 

condensing appliances may feature as 

little as a push button and several lightemitting diodes on the control board to 

communicate the status of the unit, 

error codes, and so on. Some 

condensing models on the market also 

include modulating burners and gas 

valves, which do require more 

sophisticated controls. However, 

modulation is not required to achieve 

condensing operation for gas-fired 

storage water heaters and does not affect 

efficiency as measured by DOE’s test 

procedure, and DOE notes that many 

condensing gas-fired storage water 

heaters currently on the market do not 

include modulating combustion systems 

or the corresponding more sophisticated 

controls. While a condensing 

combustion assembly (comprising a gas 

valve, blower, and premix burner) may 

require calibration by the manufacturer 

(the costs for which DOE accounts in its 

development of cost estimates), DOE 

does not believe that a technician would 

need a user interface included within 

the water heater to service a gas-fired 

storage water heater with a nonmodulating combustion assembly. In 

order to accurately assess the costs of 

adopting a more-stringent standard, 

DOE only considers costs of 

components that are necessary for 

models to achieve each efficiency level 

as measured by DOE’s test procedure. 

Therefore, DOE does not include the 

costs of features such as modulation, 

more sophisticated controls, and 

powered anode rods. Chapter 5 of the 

NOPR TSD includes further detail on 

the exclusion of costs for non-efficiencyrelated features from DOE’s MPC 

estimates. 

In the May 2016 CWH ECS NOPR 

TSD, in the context of assessing market 

standby loss data for commercial gasfired storage water heaters, DOE stated 

that, relative to non-condensing models, 

many condensing models tend to have 

fewer flue pipes that vent because the 


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36Page 3–21 of the May 2016 CWH ECS NOPR 

TSD is page 56 of the document PDF file. 

37Page 5–21 of the May 2016 CWH ECS NOPR 

TSD is page 107 of the document PDF file. 

38 In a multi-pass condensing heat exchanger 

design, the flue gases are forced through flue tubes 

that span the length of the tank multiple times. 

Typically, the flue gases are re-directed back 

through the tank via return plenums located above 

and below the tank. 

39 DOE uses the term ‘‘burdened wage’’ to refer to 

the gross wages and benefits paid to a 

manufacturing employee. 

flue gas must follow a longer path 

within the heat exchanger to begin 

condensation. DOE further stated that 

because there are fewer pipes that vent 

outside the water heater in most 

condensing models than in noncondensing models, less heat is lost out 

of these pipes in standby mode. DOE 

also mentioned that standby loss for 

condensing models would generally be 

lower than for non-condensing models 

because standby loss is in large part 

dependent on thermal efficiency, 

because standby loss is calculated using 

fuel flow to the burner during the test 

period. (Docket No. EERE–2014–BT– 

STD–0042–0016 at pp. 3–21) 36 This 

statement appears to have caused 

confusion among stakeholders as to 

DOE’s assumptions about typical 

condensing heat exchanger designs. 

To clarify, DOE notes that, as stated 

in chapter 5 of the withdrawn May 2016 

CWH ECS NOPR TSD, DOE did not 

assume that manufacturers will switch 

from their current condensing heat 

exchanger designs to a helical 

condensing heat exchanger design. 

(Docket No. EERE–2014–BT–STD– 

0042–0016 at pp. 5–21) 37 In the 

engineering analysis, DOE assumed that 

manufacturers would continue making 

condensing gas-fired storage water 

heaters with heat exchangers similar in 

design to those included in their current 

product offerings. Therefore, DOE 

modeled both helical and multi-pass 

condensing heat exchanger designs 38

and calculated a weighted average MPC 

based on manufacturer market shares. 

The intent of DOE’s aforementioned 

statements in the May 2016 CWH ECS 

NOPR TSD was to explain why 

condensing gas-fired storage water 

heaters currently on the market 

typically have lower standby losses than 

do non-condensing storage water 

heaters. Rather than assuming that 

manufacturers would change their 

designs, DOE was simply interpreting 

the efficiency distributions of models 

currently on the market. DOE clarifies 

that the intended meaning of its 

statement was that condensing gas-fired 

storage water heaters (including those 

with helical and multi-pass condensing 

heat exchanger designs) typically have 

less surface area on flue pipes (i.e., 

fewer pipes or smaller-diameter pipes) 

that vent vertically outside the top of 

the water heater and into the vent 

system than do non-condensing gasfired storage water heaters, therefore 

providing less opportunity for standby 

heat loss. In other words, in noncondensing gas-fired storage water 

heaters, all flue pipes typically vent 

outside the water heater; therefore, all 

flue pipes provide a direct air path for 

standby flue losses out the top of the 

water heater. Conversely, condensing 

heat exchangers often include flue pipes 

(or a single helical pipe) that do not vent 

out to the top of the water heater and 

therefore do not provide a direct air 

path for flue losses (e.g., in a multi-pass 

heat exchanger, flue gases in many tubes 

are re-routed within the heat exchanger 

rather than vented outside the water 

heater). 

Additionally, DOE notes that it has 

identified at least one manufacturer who 

produces commercial gas-fired tankless 

water heaters that include a secondary, 

condensing heat exchanger made of an 

aluminum alloy and are intended for 

potable water heating applications. 

Therefore, DOE included the 

manufacturing costs of this model in its 

market-share weighted average MPCs for 

gas-fired tankless water heaters in the 

analyses for both the May 2016 CWH 

ECS NOPR and this NOPR. However, 

DOE did not identify any circulating 

water heaters or hot water supply 

boilers on the market that include an 

aluminum heat exchanger, and, 

therefore, DOE only included 

condensing heat exchangers made of 

stainless steel in its cost estimates for 

circulating water heaters and hot water 

supply boilers. Chapter 5 of the NOPR 

TSD includes further details on the 

materials and cost estimates for 

condensing heat exchangers. 

In the analysis for the withdrawn May 

2016 CWH ECS NOPR, DOE did not 

include the costs of ASME construction 

as part of the MPC. Bradford White 

disagreed with DOE’s decision not to 

include the costs of ASME construction 

in cost estimates for commercial gasfired storage water heaters, and argued 

that DOE should consider these costs in 

its analysis. Bradford White stated that 

while ASME construction is not 

required in most States for storage water 

heaters at DOE’s representative capacity 

(i.e., 100 gallons, 199,000 Btu/h), ASME 

construction is required for models with 

an input capacity exceeding the ASME 

criteria. According to the commenter, 

manufacturing costs would be higher for 

condensing products if ASME 

construction is required. Bradford White 

also pointed out that Kansas requires 

ASME construction for all storage water 

heaters with a storage volume exceeding 

85 gallons. (Bradford White, No. 42 at p. 

7) 

In response to Bradford White’s 

concerns, DOE adjusted its MPC 

estimates for commercial gas-fired 

storage water heaters for this NOPR to 

account for the costs of ASME 

construction. Specifically, DOE 

estimated that 20 percent of commercial 

gas-fired storage water heater shipments 

are manufactured with ASME 

construction, based on feedback from 

manufacturer interviews. For this share 

of the market, DOE applied a multiplier 

of 1.2 to the MPC to account for the 

various costs associated with ASME 

construction (e.g., materials, labor, 

testing). This multiplier is consistent 

with feedback from manufacturer 

interviews and with the approach DOE 

used for estimating the costs of ASME 

construction for instantaneous water 

heaters and hot water supply boilers in 

the May 2016 CWH ECS NOPR 

engineering analysis. Chapter 5 of the 

NOPR TSD includes additional details 

on DOE’s analysis of ASME 

construction for commercial gas-fired 

storage water heaters. 

In the analysis for the withdrawn May 

2016 CWH ECS NOPR, DOE estimated 

the burdened assembly and fabrication 

labor wages as $24/hour.39 In response, 

Bradford White indicated that the 

average burdened assembly and 

fabrication labor wages used in DOE’s 

analysis of $24/hour was significantly 

too low. Bradford White stated that this 

value is closer to the actual value (but 

still low) if DOE is only considering 

wages plus benefits. However, Bradford 

White argued that DOE should consider 

fully burdened wages (including wages, 

benefits, and overhead) in its cost 

estimates. Bradford White further stated 

that it provided similar feedback 

regarding the burdened wage during 

manufacturer interviews and was 

disappointed that this feedback was not 

incorporated in the May 2016 CWH ECS 

NOPR analysis. (Bradford White, No. 42 

at p. 14) 

In response, DOE’s estimate of $24/ 

hour for burdened assembly and 

fabrication labor wages is based on 

feedback from manufacturer interviews 

across many manufacturing industries. 

DOE typically uses the same wage 

estimate for many manufacturing 

industries because the wages across 

these industries are competitive (e.g., 

welders are in demand in many 

manufacturing industries in addition to 

the CWH equipment industry). DOE also 

notes that other than Bradford White, no 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30649 

manufacturers of CWH equipment 

indicated that this labor wage estimate 

was too low in either public comments 

or manufacturer interviews. 

Additionally, DOE does not consider 

employee overhead costs in its labor 

wage estimates. While Bradford White’s 

comment does not specify what is 

meant by ‘‘overhead,’’ DOE presumes 

that the costs to which Bradford White 

is referring to are those that DOE 

designates as ‘‘non-production costs,’’ 

such as general corporate costs or, 

alternatively, a ‘‘shop rate.’’ The DOE 

wage estimate reflects only gross wages 

and benefits to the employee. Other 

overhead costs are captured in the 

manufacturer markup that is applied to 

the manufacturer production cost to 

determine the manufacturer selling 

price. DOE does not believe that these 

costs would directly scale with 

increased labor requirements in the 

same manner as wages and benefits. 

However, in order to better represent the 

costs for Bradford White of 

manufacturing CWH equipment, DOE 

included a 20 percent higher value for 

burdened assembly and fabrication 

labor wages for a portion of the market 

in the development of MPC estimates in 

this NOPR. 

7. Manufacturing Production Costs 

After calculating the cost estimates for 

all the components in each torn-down 

unit, DOE totaled the cost of materials, 

labor, depreciation, and direct overhead 

used to manufacture each type of 

equipment in order to calculate the 

MPC. DOE used the results of the 

teardowns on a market-share weighted 

average basis to determine the industry 

average cost increase to move from one 

efficiency level to the next. DOE reports 

the MPCs in aggregated form to 

maintain confidentiality of sensitive 

component data. DOE obtained input 

from manufacturers during the 

manufacturer interview process on the 

MPC estimates and assumptions. 

Chapter 5 of the NOPR TSD contains 

additional details on how DOE 

developed the MPCs and related results. 

DOE estimated the MPC at each 

efficiency level considered for 

representative equipment of each 

equipment category. DOE also 

calculated the percentages attributable 

to each element of total production costs 

(i.e., materials, labor, depreciation, and 

overhead). These percentages are used 

to validate the assumptions by 

comparing them to manufacturers’ 

actual financial data published in 

annual reports, along with feedback 

obtained from manufacturers during 

interviews. 

DOE notes that it developed its MPC 

estimates based on teardowns of CWH 

equipment from a variety of 

manufacturers. DOE conducted several 

rounds of manufacturer interviews and 

follow-up interviews with all CWH 

equipment manufacturers that 

responded to DOE’s requests for 

interviews. As part of the manufacturer 

interview process, DOE sought feedback 

on its MPC estimates, as well as 

feedback on specific component, 

material, labor, and assembly costs. 

DOE’s methodology for developing MPC 

estimates involves estimating the 

material, labor, depreciation, and 

overhead costs for every part and 

assembly within a unit. This level of 

detail allows DOE to estimate the cost 

of units that were not physically torn 

down, or to estimate the costs of making 

slight design changes such as adding an 

inch of insulation or increasing heat 

exchanger size. DOE presented 

manufacturers with MPC estimates 

broken down by each assembly (e.g., 

burner and gas valve, heat exchanger, 

controls) of the water heater, or even a 

BOM of a torn-down unit from that 

manufacturer for specific feedback on 

the estimated costs for every single part 

within the torn-down unit. As part of 

the manufacturer interview process, 

manufacturers did not provide any 

specific feedback on components or 

labor that would call into question the 

validity of the incremental MPC 

estimates for moving from noncondensing to condensing technology. 

The incremental MPC estimate reflects 

the additional components needed to 

build a condensing product while 

subtracting components that are either 

replaced or obviated. For example, 

condensing gas-fired storage water 

heaters require a mechanical draft 

combustion system, while baseline noncondensing models do not. Conversely, 

baseline non-condensing commercial 

water heaters typically include an 

electromechanical flue damper, while 

condensing models do not because they 

have a mechanical-draft combustion 

system that obviates the need for a flue 

damper. 

Additionally, as discussed in section 

IV.C.6 of this NOPR, DOE standardized 

non-efficiency-related features across all 

efficiency levels. This may cause DOE’s 

incremental MPC estimates to seem 

lower than that of equipment currently 

on the market, because in many cases 

condensing equipment is currently 

marketed as a premium product and 

includes features (e.g., advanced 

controls, powered anode rods, 

modulating gas valves) that are not 

necessary for condensing operation and 

do not affect efficiency as measured by 

DOE’s test procedure. Chapter 5 of the 

NOPR TSD includes further detail on 

the exclusion of costs for non-efficiencyrelated features from DOE’s MPC 

estimates. 

The MPC estimates presented in this 

NOPR and chapter 5 of the NOPR TSD 

are market-shared weighted average 

MPCs, which will not necessarily be 

representative for every design pathway 

used by every manufacturer (i.e., they 

reflect the industry average cost). DOE 

research suggests that the absolute and 

incremental MPCs between baseline and 

condensing levels are higher for some 

manufacturers than others. Therefore, 

DOE included multiple design pathways 

that are used by a range of 

manufacturers and that represent the 

vast majority of models on the market in 

the market-share weighted average cost 

estimates, both in absolute as well as 

incremental terms. 

Regarding MPC estimates for tankless 

water heaters, DOE notes that a 

significant difference between the 

incremental cost for condensing 

technology for gas-fired storage water 

heaters and gas-fired tankless water 

heaters is the cost of a blower. DOE 

research and manufacturer feedback 

suggest that commercial gas-fired 

tankless water heaters typically feature 

forced-draft combustion systems, 

necessitating a blower for both 

condensing as well as non-condensing 

models. Therefore, while reflected in 

the incremental MPC difference 

between non-condensing and 

condensing gas-fired storage water 

heaters, the cost of a blower would not 

be reflected in the incremental MPC 

difference for moving from noncondensing to condensing technology 

for gas-fired tankless water heaters. 

Regarding the incremental costs 

between condensing levels, the 

additional heat exchanger area required 

in DOE’s analysis to increase thermal 

efficiency between condensing levels is 

based upon feedback from manufacturer 

interviews. Multiple condensing units 

that DOE torn down had a rated thermal 

efficiency in the middle of the range of 

condensing thermal efficiency levels 

(e.g., 95–96 percent). MPC estimates for 

lower condensing efficiency levels (i.e., 

90 and 92 percent) were developed by 

scaling down the design of moreefficient units by reducing the size of 

their condensing heat exchangers, while 

assuming other components generally 

do not change, as described in detail in 

chapter 5 of the NOPR TSD. 

Finally, DOE notes that its analysis 

does not consider labor to be a fixed 

cost and instead determines the labor 

hours required for production separately 


jspears on DSK121TN23PROD with PROPOSALS2
30650 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

40U.S. Securities and Exchange Commission, 

Annual 10–K Reports (Various Years) (Available at 

sec.gov). 

for each efficiency level and each 

equipment category. Therefore, DOE’s 

analysis takes into account the costs for 

any additional labor required for 

producing more efficient equipment. 

For the reasons previously mentioned, 

DOE has tentatively concluded that its 

methodology for developing MPC 

estimates initially presented in the May 

2016 CWH ECS NOPR is sound and has 

maintained the same methodology for 

this NOPR. In addition, as noted 

previously, this NOPR analysis includes 

results from 11 additional physical 

teardowns of water heaters and hot 

water supply boilers (in addition to the 

physical teardowns performed for the 

previous (withdrawn) NOPR analysis of 

models still available on the market), 

which replaced several of the virtual 

teardowns conducted for the previous 

NOPR analysis. These additional 

physical teardowns were performed to 

ensure that the MPC estimates better 

reflect designs of models on the market 

by including physical teardowns of 

models from additional manufacturers 

at numerous efficiency levels. 

Additionally, DOE revised inputs to the 

development of MPC estimates based on 

updated pricing information (for raw 

materials and purchased parts). These 

changes resulted in refined MPCs and 

production cost percentages. Table 

IV.16, Table IV.17, and Table IV.18 of 

this document show the MPC for each 

combination of thermal efficiency and 

standby loss levels for each equipment 

category. 

TABLE IV.16—MANUFACTURER PRODUCTION COSTS FOR COMMERCIAL

GAS-FIRED STORAGE WATER HEATERS, 100-GALLON RATED STORAGE

VOLUME, 199,000 Btu/h INPUT CAPACITY

Thermal 

efficiency 

level 

Thermal 

efficiency 

MPC 

(2020$) 

Et EL0 ....... 80 $1,180.42 

Et EL1 ....... 82 1,200.45 

Et EL2 ....... 90 1,306.87 

Et EL3 ....... 92 1,317.83 

Et EL4 ....... 95 1,338.92 

Et EL5 ....... 99 1,377.83 

TABLE IV.17—MANUFACTURER PRODUCTION COSTS FOR RESIDENTIALDUTY GAS-FIRED STORAGE WATER

HEATERS, 75-GALLON RATED STORAGE VOLUME, 76,000 Btu/h INPUT

CAPACITY

Efficiency 

level 

UEF 

(high draw pattern) * 

MPC 

(2020$) 

EL0 ........ 0.6597¥(0.0009 × Vr) $318.64 

EL1 ........ 0.6797¥(0.0009 × Vr) 323.35 

EL2 ........ 0.7497¥(0.0009 × Vr) 411.16 

EL3 ........ 0.8397¥(0.0009 × Vr) 474.64 

EL4 ........ 0.9297¥(0.0009 × Vr) 645.18 

EL5 ........ 0.9997¥(0.0009 × Vr) 663.47 

* UEF standards vary based on the test procedure draw pattern that is used to determine 

the UEF rating. For simplicity and because all 

residential-duty gas-fired storage water heaters on the market are in the high draw pattern, 

only the high draw pattern efficiency levels are 

shown. 

TABLE IV.18—MANUFACTURER PRODUCTION COSTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER

SUPPLY BOILERS

Thermal efficiency level 

Thermal 

efficiency 

(%) 

MPC 

(2020$) 

Gas-fired 

tankless water 

heaters 

Gas-fired 

circulating 

water heaters 

and hot water 

supply boilers 

250,000 Btu/h 399,000 Btu/h 

Et EL0 .......................................................................................................................................... 80 $517.86 $1,006.19 

Et EL1 .......................................................................................................................................... 82 525.79 1,015.39 

Et EL2 .......................................................................................................................................... 84 533.55 1,097.04 

Et EL3 .......................................................................................................................................... 92 608.08 2,655.89 

Et EL4 .......................................................................................................................................... 94 624.08 2,811.34 

Et EL5 .......................................................................................................................................... 96 647.19 2,966.78 

8. Manufacturer Markup and 

Manufacturer Selling Price 

To account for manufacturers’ nonproduction costs and profit margin, DOE 

applies a non-production cost multiplier 

(the manufacturer markup) to the full 

MPC. The resulting MSP is the price at 

which the manufacturer can recover all 

production and non-production costs 

and earn a profit. To calculate the 

manufacturer markups, DOE used data 

from 10–K reports 40 submitted to the 

U.S. Securities and Exchange 

Commission (‘‘SEC’’) by the three 

publicly-owned companies that 

manufacture CWH equipment. DOE 

averaged the financial figures spanning 

the years 2008 to 2013 in order to 

calculate the initial estimate of markups 

for CWH equipment for this proposed 

rulemaking. During interviews 

conducted ahead of the withdrawn May 

2016 CWH ECS NOPR, DOE discussed 

the manufacturer markup with 

manufacturers and used the feedback to 

modify the manufacturer markup 

calculated through review of SEC 10–K 

reports. DOE considers the 

manufacturer markup published in the 

May 2016 CWH ECS NOPR to be the 

best publicly available information. In 

this NOPR, DOE is maintaining the 

manufacturer markups used previously 

in the May 2016 CWH ECS NOPR, as 

DOE has not received any additional 

information or data to indicate that a 

change would be warranted. 

To calculate the MSP for CWH 

equipment, DOE multiplied the 

calculated MPC at each efficiency level 

by the manufacturer markup. See 

chapter 12 of the NOPR TSD for more 

details about the manufacturer markup 

calculation and the MSP calculations. 

9. Shipping Costs 

Manufacturers of CWH equipment 

typically pay for shipping to the first 

step in the distribution chain. Freight is 

not a manufacturing cost, but it is a 

substantial cost incurred by the 

manufacturer that is passed through to 


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41Because the projected price of standardscompliant products is typically higher than the 

price of baseline products, using the same markup 

for the incremental cost and the baseline cost would 

result in higher per-unit operating profit. While 

such an outcome is possible, DOE maintains that in 

markets that are reasonably competitive it is 

unlikely that standards would lead to a sustainable 

increase in profitability in the long run. 

consumers. Therefore, DOE accounted 

for shipping costs of CWH equipment 

separately from other non-production 

costs. 

In the May 2016 CWH ECS NOPR, 

shipping costs for all classes of CWH 

equipment were determined based on 

the area of floor space occupied by the 

unit. In response, Bradford White stated 

that while consumer water heaters are 

mostly shipped in semi-trailers, it is 

more common for commercial water 

heaters to be shipped via less than 

truckload (‘‘LTL’’), when either lower 

quantities are being shipped, potentially 

in an emergency situation, or when a 

semi-trailer is not going to the area to 

which the commercial water heater is 

being delivered. Bradford White stated 

that DOE’s analysis should be weighted 

more to LTL shipping, which is based 

on weight. Per Bradford White, 

condensing water heaters are heavier 

than non-condensing models and hence 

would cost more to ship on an LTL 

basis. Bradford White also commented 

that commercial and residential-duty 

storage water heaters are typically 

shipped with consumer water heaters 

for distributors stocking inventory, 

rather than being segregated. (Bradford 

White, No. 42 at p. 12) Bradford White 

also disagreed with DOE’s statement in 

the May 2016 CWH ECS NOPR that an 

increase of height of storage water 

heaters would not affect shipping costs 

because commercial storage water 

heaters cannot be double-stacked. 

Bradford White argued that when 

commercial storage water heaters are 

shipped via semi-trailers, it is very 

common for the space above them to be 

used for smaller products. (Bradford 

White, No. 42 at pp. 12–13) 

DOE research suggests that trailers 

either cube-out (i.e., run out of floor 

space or storage volume) or weigh-out 

(i.e., reach their allowed weight limits). 

Because storage water heaters are filled 

with air during shipping and 

instantaneous water heaters and hot 

water supply boilers are typically lighter 

than commercial storage water heaters, 

DOE research suggests that trailers filled 

with CWH equipment will typically 

cube-out before they weigh-out. 

Additionally, because the space above 

and around the CWH equipment can be 

filled with smaller and/or lighter 

products, DOE understands that trailers 

are typically filled in a way that 

maximizes the available storage space. 

As a result, changes to the cubic volume 

of the product are just as critical as 

changes to the footprint in determining 

the change to the shipping cost as unit 

size increases. DOE’s shipping cost 

analysis only includes estimates of the 

shipping costs for CWH equipment, not 

for other products that may be included 

in the same truckload, although CWH 

equipment is likely to be shipped 

alongside other products, presumably to 

make efficient use of the space in 

shipping trailers. DOE notes that this is 

supported by Bradford White’s 

comment that CWH equipment is often 

shipped with consumer water heaters. 

Therefore, in this proposed 

rulemaking, shipping costs for all 

classes of CWH equipment were 

determined based on the cubic volume 

occupied by the representative units. 

DOE first calculated the cost per usable 

unit volume of a trailer, using the 

standard dimensions of a volume of a 

53-foot trailer and an estimated 5-year 

average cost per shipping load that 

approximates the cost of shipping the 

equipment from the middle of the 

country to either coast. Based on its 

experience with other rulemakings, DOE 

recognizes that trailers are rarely 

shipped completely full and, in 

calculating the cost per cubic foot, 

assumed that shipping loads would be 

optimized such that on average 80 

percent of the volume of a shipping 

container would be filled with cargo. 

DOE seeks feedback on its assumption 

about the typical percent of a shipping 

trailer volume that is filled. The 

calculated cost to ship each unit was the 

ratio of the unit’s total volume 

(including packaging) divided by the 

volume of the shipping container 

expected to be filled with cargo and 

multiplied by the total cost of shipping 

the trailer. DOE recognizes that its 

shipping costs do not necessarily reflect 

how every unit of CWH equipment is 

shipped, that it is possible that a units 

are shipped differently, and that the 

corresponding shipping costs may differ 

from DOE’s estimates based on a variety 

of factors such as composition of the 

units in a given shipping load and the 

actual manufacturing location and 

shipment destination. However, DOE’s 

analysis is intended to provide an 

estimate of the shipping cost that is 

representative of the cost to ship the 

majority of CWH equipment shipments 

and cannot feasibly account for the 

shipping costs of every individual unit 

shipped. Chapter 5 of the NOPR TSD 

contains additional details about DOE’s 

shipping cost assumptions and DOE’s 

shipping cost estimates. 

D. Markups Analysis 

The markups analysis develops 

appropriate markups in the distribution 

chain (e.g., retailer markups, distributer 

markups, contractor markups, and sales 

taxes) to convert the estimates of 

manufacturer selling price derived in 

the engineering analysis to consumer 

prices, which are then used in the LCC 

and PBP analysis and in the 

manufacturer impact analysis. At each 

step in the distribution channel, 

companies mark up the price of the 

product to cover business costs and 

profit margin. 

DOE developed baseline and 

incremental markups for each actor in 

the distribution chain. DOE developed 

supply chain markups in the form of 

multipliers that represent increases 

above equipment purchase costs for key 

market participants, including CWH 

equipment wholesalers/distributors, 

retailers, and mechanical contractors 

and general contractors working on 

behalf of commercial consumers. 

Baseline markups are applied to the 

price of products with baseline 

efficiency, while incremental markups 

are applied to the difference in price 

between baseline and higher-efficiency 

models (the incremental cost increase). 

The incremental markup is typically 

less than the baseline markup and is 

designed to maintain similar per-unit 

operating profit before and after 

amended standards.41

1. Distribution Channels 

Four different markets exist for CWH 

equipment: (1) New construction in the 

residential buildings sector, (2) new 

construction in the commercial 

buildings sector, (3) replacements in the 

residential buildings sector, and (4) 

replacements in the commercial 

buildings sector. DOE developed eight 

distribution channels to address these 

four markets. 

For the residential and commercial 

buildings sectors, DOE characterizes the 

replacement distribution channels as 

follows: 

• Manufacturer → Wholesaler → 

Mechanical Contractor → Consumer 

• Manufacturer → Manufacturer 

Representative → Mechanical 

Contractor → Consumer 

• Manufacturer → Retailer → 

Mechanical Contractor → Consumer 

DOE characterizes the new 

construction distribution channels for 

the residential and commercial 

buildings sectors as follows: 

• Manufacturer → Wholesaler → 

Mechanical Contractor → General 

Contractor → Consumer 


jspears on DSK121TN23PROD with PROPOSALS2
30652 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

42Heating Air-conditioning & Refrigeration 

Distributors International. Heating, AirConditioning & Refrigeration Distributors 

International 2013 Profit Report. 

43Air Conditioning Contractors of America 

(ACCA). Cool Insights 2020: ACCA’s Contractor 

Financial & Operating Performance Report (Based 

on 2018 Operations). 2020. 

44U.S. Census Bureau. 2017 Economic Census 

Data. 2020. Available at www.census.gov/programssurveys/economic-census.html. 

• Manufacturer → Manufacturer 

Representative → Mechanical 

Contractor → General Contractor → 

Consumer 

• Manufacturer → Retailer → General 

Contractor → Consumer 

In addition to these distribution 

channels, there are scenarios in which 

manufacturers sell CWH equipment 

directly to a consumer through a 

national account, or a consumer 

purchases the equipment directly from 

a retailer. These scenarios occur in both 

new construction and replacements 

markets and in both the residential and 

commercial sectors. In these instances, 

installation is typically accomplished by 

site personnel. These distribution 

channels are depicted as follows: 

• Manufacturer → Consumer 

• Manufacturer → Retailer → Consumer 

2. Comments on Withdrawn May 2016 

CWH ECS NOPR 

In response to the withdrawn NOPR, 

Rheem challenged DOE’s use of the 

2005 the Air Conditioning Contractors 

of America (‘‘ACCA’’) financial analysis 

in the development of markups on the 

basis that it is outdated. (Rheem, No. 43 

at p. 21) DOE develops its mechanical 

contractor markups using the most 

current data available. For this NOPR, 

DOE updated from the 2012 Economic 

Census to use data from the 2017 

Economic Census. However, the 2017 

Economic Census does not separate the 

mechanical contractor segment into 

replacement and new construction 

markets. To calculate markups for these 

two markets for the withdrawn NOPR, 

DOE utilized the 2005 ACCA financial 

data, which reported gross margin data 

for the entire mechanical contractor 

market, as well as for both the 

replacement and new construction 

markets. For this NOPR, DOE used more 

current data from the 2020 ACCA Cool 

Insights document. Using these data, 

DOE calculated that the baseline 

markups for the replacement and new 

construction markets are 1.7 and 15.5 

percent lower, respectively, than for all 

mechanical contractors serving all 

markets. The markup deviations were 

applied to the baseline and incremental 

markups developed from the 2017 

Economic Census data. 

In the withdrawn NOPR, DOE sought 

comments on the percentages of 

shipments allocated to the distribution 

channels relevant to each equipment 

class. 81 FR 34440, 34479 (May 31, 

2016). In response, three manufacturers 

commented that wholesalers and 

manufacturer’s representatives were 

underrepresented in DOE’s channel 

shares, whereas retailers were 

overrepresented. (A.O. Smith, No. 39 at 

pp. 11–12; Bradford White, No. 42 at p. 

8; Lochinvar, Public Meeting Transcript, 

No. 20 at p. 52) In addition, Rheem 

commented that it was reiterating its 

response to the October 2014 RFI 

regarding the percentage of shipments 

allocated to distribution channels. 

(Rheem, No. 43 at p. 21) In this 

response, Rheem stated that the majority 

of shipments are distributed through the 

wholesale channel. (Rheem, No. 10, at 

p. 4) 

Based on these comments and DOE’s 

additional research, DOE has decreased 

the percentage of shipments allocated to 

retail distribution channels and 

increased the percentage of shipments 

allocated to wholesaler and 

manufacturer’s representative channels 

in the markups analysis. For circulating 

water heater and hot water supply boiler 

equipment, the percentage of shipments 

allocated to retailers was decreased from 

5 percent to zero, whereas the allocation 

to wholesalers was increased from 70 

percent to 75 percent. For commercial 

gas-fired storage water heater 

equipment, the percentage of shipments 

allocated to retailers was decreased from 

15 percent to 5 percent in the new 

construction market and from 20 

percent to 5 percent in the replacement 

market, whereas the allocation to 

wholesalers was increased from 80 

percent to 90 percent in the new 

construction market and from 75 

percent to 90 percent in the replacement 

market. For the residential-duty gasfired storage water heater equipment 

class, the percentage of shipments 

allocated to retailers was decreased from 

20 percent to 10 percent in the new 

construction market, from 25 percent to 

15 percent in the replacement market 

for the commercial sector, and from 30 

percent to 15 percent in the replacement 

market for the residential sector. The 

percentage of shipments allocated to 

wholesalers was increased from 75 

percent to 85 percent in the new 

construction market, from 70 percent to 

80 percent in the replacement market 

for the commercial sector, and from 67.5 

percent to 80 percent in the replacement 

market for the residential sector. In 

addition, the percentage of shipments 

allocated to national accounts was 

increased from 2.5 percent to 5 percent. 

These adjustments address the overall 

assertion of the commenters and that the 

resulting channel shares reflect the 

market distribution, although A.O. 

Smith called for even greater reductions 

in shipments allocated to retail 

distribution channels. Appendix 6A of 

the NOPR TSD provides detail on the 

percentage of shipments allocated to 

each distribution channel by equipment 

category. 

During the public meeting for the 

withdrawn NOPR, Raypak commented 

that manufacturer’s representatives do 

not markup equipment in the same way 

as wholesalers, since manufacturer’s 

representatives make sales based on the 

expertise they provide to consumers. 

(Raypak, Public Meeting Transcript, No. 

20 at p. 53–56) NEEA stated during the 

public meeting that the expertise of 

manufacturer’s representatives is 

utilized more in the replacement 

market, and in this market, a consumer 

receives an equipment price quote from 

a manufacturer’s representative and 

then will shop the equipment price to 

other competitors in the market, such as 

wholesalers. This forces manufacturer’s 

representatives to maintain competitive 

markups with wholesalers. (NEEA, 

Public Meeting Transcript, No. 20 at p. 

55) DOE appreciates Raypak and 

NEEA’s comments on this issue and 

plans to continue researching 

manufacturer’s representative markups. 

Neither Raypak nor NEEA provided 

information or data to update the 

estimated manufacturer’s representative 

markups. Since DOE does not have 

enough information at this point to 

estimate separate markups for 

manufacturer’s representatives, DOE 

assumes that the manufacturer’s 

representative markup is the same as the 

wholesaler markup. 

3. Markups Used in This NOPR 

To develop markups for this NOPR, 

DOE utilized several sources, including 

the following: (1) The Heating, AirConditioning & Refrigeration 

Distributors International (‘‘HARDI’’) 

2013 Profit Report 42 to develop 

wholesaler markups; (2) the 2020 ACCA 

Cool Insights document containing 

financial analysis for the heating, 

ventilation, air-conditioning, and 

refrigeration (‘‘HVACR’’) contracting 

industry 43 to develop mechanical 

contractor markups; (3) the U.S. Census 

Bureau’s 2017 Economic Census data 44

for the commercial and institutional 

building construction industry to 

develop mechanical and general 

contractor markups; and (4) the U.S. 

Census Bureau’s 2017 Annual Retail 


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45U.S. Census Bureau. 2017 Annual Retail Trade 

Survey. 2019. Available at www.census.gov/retail/. 

46The Sales Tax Clearing House. 2021. Available 

at www.thestc.com/STrates.stm. Last accessed 

March 21, 2021. 

47 In this case, these efficiency levels comprise 

combinations of thermal efficiency and standby 

mode performance. 

48U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. Commercial 

Prototype Building Models. 2013. Available at 

www.energycodes.gov/commercial-prototypebuilding-models. 

49Such commercial building types included the 

following: Small office, medium office, large office, 

stand-alone retail, strip mall, primary school, 

secondary school, outpatient healthcare, hospital, 

small hotel, large hotel, warehouse, quick service 

restaurant, and full service restaurant. 

50U.S. Energy Information Administration (EIA). 

2012 Commercial Building Energy Consumption 

Survey (CBECS) Data. 2012. Available at 

www.eia.gov/consumption/commercial/data/2012/. 

51U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. Final Rule 

Technical Support Document: Energy Conservation 

Standards for Residential Water Heaters, Direct 

Heating Equipment, and Pool Heaters. April 8, 

2010. EERE–2006–STD–0129–0149. Available at 

www.regulations.gov/#!documentDetail;D=EERE2006-STD-0129-0149. 

52U.S. Energy Information Administration (EIA). 

2009 Residential Energy Consumption Survey 

(RECS) Data. 2009. Available at www.eia.gov/ 

consumption/residential/data/2009/. 

53 DOE is aware that a new version of CBECS will 

likely be available for the next rulemaking phase, 

and DOE will evaluate its applicability for the 

commercial water heater energy analysis in that 

phase. As discussed in section IV.F, the 2009 RECS 

contained information specific to multifamily 

buildings that was not available in the 2015 RECS 

analysis. EIA plans to release the characteristics 

data for the 2020 RECS in late 2021, and DOE will 

also evaluate its applicability for the commercial 

water heater energy analysis in the next rulemaking 

phase. 

54 DOE used 8.29 gallons per pound. 

55 DOE used 1.000743 Btu per pound per degree 

Fahrenheit. 

56U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. EnergyPlus 

Energy Simulation Software. TMY3 data. Available 

at apps1.eere.energy.gov/buildings/energyplus/cfm/ 

weather_data3.cfm/region=4_north_and_central_

america_wmo_region_4/country=1_usa/ 

cname=USA. Last accessed October 2014. 

57Hendron, R. Building America Research 

Benchmark Definition, Updated December 15, 2006. 

January 2007. National Renewable Energy 

Laboratory: Golden, CO. Report No. TP–550–40968. 

Available at www.nrel.gov/docs/fy07osti/40968.pdf. 

58A.O. Smith. Pro-Size Water Heater Sizing 

Program. Available at www.hotwatersizing.com/. 

Last accessed in March 2015. 

Trade Survey 45 data to develop retail 

markups. 

In addition to markups of distribution 

channel costs, DOE derived State and 

local taxes from data provided by the 

Sales Tax Clearinghouse.46 Because 

both distribution channel costs and 

sales tax vary by State, DOE developed 

its markups to vary by State. Chapter 6 

of the NOPR TSD provides additional 

detail on markups. 

E. Energy Use Analysis 

The purpose of the energy use 

analysis is to assess the energy 

requirements (i.e., annual energy 

consumption) of CWH equipment 

described in the engineering analysis for 

a representative sample of building 

types that utilize the equipment, and to 

assess the energy-savings potential of 

increased equipment efficiencies. DOE 

uses the annual energy consumption in 

the LCC and PBP analysis to establish 

the operating cost savings at various 

equipment efficiency levels.47 DOE 

estimated the annual energy 

consumption of CWH equipment at 

specified energy efficiency levels across 

a range of commercial and multifamily 

residential buildings in different climate 

zones, with different building 

characteristics, and including different 

water heating applications. The annual 

energy consumption includes use of 

natural gas (or liquefied petroleum gas 

(‘‘LPG’’)) as well as use of electricity for 

auxiliary components. 

In the October 2014 RFI, DOE 

indicated that it would estimate the 

annual energy consumption of CWH 

equipment at specified energy efficiency 

levels across a range of applications, 

building types, and climate zones. 79 FR 

62899, 62906–62907 (Oct. 21, 2014). 

DOE developed representative hot water 

volumetric loads and water heating 

energy usage for the selected 

representative products for each 

equipment category and building type 

combination analyzed. This approach 

captures the variability in CWH 

equipment use due to factors such as 

building activity, schedule, occupancy, 

tank losses, and distribution system 

piping losses. 

For commercial building types, DOE 

used the daily load schedules and 

normalized peaks from the 2013 DOE 

Commercial Prototype Building 

Models 48 to develop gallons-per-day 

hot water loads for the analyzed 

commercial building types.49 DOE 

assigned these hot water loads on a 

square-foot basis to associated 

commercial building records in the 

EIA’s 2012 CBECS 50 in accordance with 

their principal building activity 

subcategories. For residential building 

types, DOE used the hot water loads 

model developed by Lawrence Berkeley 

National Laboratory (‘‘LBNL’’) for the 

2010 rulemaking for ‘‘Energy 

Conservation Standards for Residential 

Water Heaters, Direct Heating 

Equipment, and Pool Heaters.’’ 51 DOE 

applied this model to the residential 

building records in the EIA’s 2009 

Residential Energy Consumption Survey 

(‘‘RECS’’).52 53 For RECS housing records 

in multi-family buildings, DOE focused 

only on apartment units that share water 

heaters with other units in the building. 

Since the LBNL model was developed to 

analyze individual apartment hot water 

loads, DOE had to modify it for the 

analysis of whole building loads. DOE 

established statistical average 

occupancy of RECS apartment unit 

records when determining the 

individual apartment unit’s load. DOE 

also developed individual apartment 

loads as if each were equipped with a 

storage water heater in accordance with 

LBNL’s methodology. Then, DOE 

multiplied the apartment unit’s load by 

the number of representative units in 

the building to determine the building’s 

total hot water load. 

DOE converted daily volumetric hot 

water loads into daily Btu energy loads 

by using an equation that multiplies a 

building’s gallons-per-day consumption 

of hot water by the density of water,54

specific heat of water,55 and the hot 

water temperature rise. To calculate 

temperature rise, DOE developed 

monthly dry bulb temperature estimates 

for each U.S. State using typical mean 

year (‘‘TMY’’) temperature data as 

captured in location files provided for 

use with the DOE EnergyPlus Energy 

Simulation Software.56 Then, these dry 

bulb temperatures were used to develop 

inlet water temperatures using an 

equation and methodology developed 

by the National Renewable Energy 

Laboratory (‘‘NREL’’).57 DOE took the 

difference between the building’s water 

heater set point temperature and inlet 

temperature to determine temperature 

rise (see chapter 7 of the NOPR TSD for 

more details). In addition, DOE 

developed building-specific Btu load 

adders to account for the heat losses of 

building types that typically use 

recirculation loops to distribute hot 

water to end uses. DOE converted daily 

hot water building loads (calculated for 

each month using monthly inlet water 

temperatures) to annual water heater 

Btu loads for use in determining annual 

energy use of water heaters at each 

efficiency level. 

DOE developed a maximum hot water 

loads methodology for buildings for 

determining the number of 

representative equipment needed using 

the data and calculations from a major 

water heater manufacturer’s sizing 

calculator.58 DOE notes that the sizing 

calculator used was generally more 

comprehensive and transparent in its 

maximum hot water load calculations 

than other publicly-available sizing 

calculators identified. This methodology 

was applied to commercial building 

records in 2012 CBECS and residential 

building records in 2009 RECS to 


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59PVI Industries Inc. ‘‘Water Heater Sizing Guide 

for Engineers,’’ Section X, pp. 18–19. Available at 

oldsizing.pvi.com/ 

pv592%20sizing%20guide%2011-2011.pdf. 

60American Society of Heating, Refrigerating and 

Air-Conditioning Engineers, Inc. (ASHRAE). 

ASHRAE Handbook of HVAC Applications: 

Chapter 51 (Service Water Heating. 2019. pp. 51.1– 

51.37. Available at www.ashrae.org/resources-- 

publications/handbook. 

61Electric Power Research Institute (EPRI). 

Commercial Water Heating Applications Handbook. 

1992. Electric Power Research Institute: Palo Alto, 

CA. Report No. TR–100212. Available at 

www.epri.com/abstracts/Pages/ 

ProductAbstract.aspx?ProductId=TR–100212. 

determine their maximum gallons-perhour requirements, assuming a 

temperature rise specific to the building. 

DOE divided these maximum building 

loads by the first-hour capability of the 

baseline representative model of each 

equipment category to determine the 

number of representative water heater 

units required to service the maximum 

load, but for buildings with maximum 

load durations of 2 or 3 hours, DOE 

divided maximum loads by the 2- or 3- 

hour delivery capability of the baseline 

representative model. For each 

equipment category, DOE sampled 

CBECS and RECS building loads in need 

of at least 0.9 water heaters, based on 

the representative model analyzed, to 

fulfill their maximum load 

requirements. Due to the maximum 

input capacity and storage 

specifications of residential-duty 

commercial gas-fired storage water 

heaters, DOE limited the buildings 

sample of this equipment class to 

building records requiring four or fewer 

representative water heaters to fulfill 

maximum load since larger maximum 

load requirements are more likely 

served by larger capacity equipment. 

For gas-fired tankless water heaters, an 

adjustment factor was applied to the 

first-hour capability to account for the 

shorter time duration for sizing this 

equipment, given its minimal stored 

water volume. DOE used the Modified 

Hunter’s Curve method 59 for sizing of 

gas-fired instantaneous water heaters to 

develop the adjustment factors for 

tankless water heaters. Gas-fired 

circulating water heaters and hot water 

supply boilers were teamed with 

unfired storage tanks to determine their 

first-hour capabilities since this is the 

predominant installation approach for 

this equipment. 

To the extent that there are concerns 

that the annual energy use for 

commercial gas instantaneous tankless 

water heaters is significantly lower than 

commercial gas-fired storage water 

heaters even where thermal efficiency 

input rates are similar, DOE notes that 

the applied adjustment factor modifies 

the first hour delivery capability 

calculations of commercial gas-fired 

tankless water heaters to account for the 

shorter time duration used to size for a 

very short ‘‘instantaneous’’ peak for this 

equipment, given the minimal volume 

of stored water to buffer meeting short 

duration peaks during the one hour 

maximum load period used for the first 

hour rating. DOE used the Modified 

Hunter’s Curve method to develop the 

adjustment factors, or divisors, based on 

residential or commercial building type 

(as shown in appendix 7B of the NOPR 

TSD). These adjustment factors adapt 

the sizing methodology for water heaters 

with storage to a methodology suitable 

for sizing water heaters or water heating 

systems without storage. The result of 

this adjustment is that the tankless 

water heater representative model, 

relative to the commercial gas-fired 

storage water heater representative 

model with a similar input rate, is sized 

to meet a significantly smaller overall 

maximum hot water load. This results 

in the lower annual energy use across 

all efficiency levels, since for a given 

end use or building, the smaller 

maximum load being serviced per unit 

also proportionally correlates with the 

lower average daily loads serviced by 

the tankless water heater. 

Given the hot water load requirements 

as well as the equipment needs of the 

sampled buildings, DOE was able to 

calculate the hours of operation to serve 

hot water loads and the hours of 

standby mode for the representative 

model of each equipment category to 

service each sampled building. Since 

the number of water heaters allocated to 

a specific building was held constant at 

the baseline efficiency level, a water 

heater’s hours of operation decreased as 

its thermal efficiency improved. This 

decrease in operation, in combination 

with standby loss performance, led to 

the energy savings achieved at each 

efficiency level above the baseline. For 

commercial gas-fired storage water 

heaters, DOE used the standby loss 

levels identified in the engineering 

analysis to estimate energy savings from 

more-stringent standby loss levels. For 

residential-duty gas-fired storage water 

heaters, DOE estimated standby loss 

levels for each UEF level developed in 

the Engineering Analysis. To estimate 

standby loss levels DOE first estimated 

recovery efficiency. DOE developed a 

regression between the measured 

recovery efficiency and the increase in 

UEF over the minimum UEF specified 

by current standards for equipment in 

DOE’s CCMS database. Recovery 

efficiency was assumed to be equivalent 

to thermal efficiency, and the regression 

results were in turn used to translate 

UEF at different analyzed efficiency 

levels analyzed to thermal efficiency. 

DOE used the Water Heater Analysis 

Model (‘‘WHAM’’) equation as modified 

for the daily energy consumption in the 

current UEF test procedure (based on 

the high usage draw profile), the 

analyzed UEF from the engineering 

analysis, and the regression based 

recovery efficiency to calculate the 

standby energy loss (Btu/hr °F) at each 

UEF efficiency level. This conversion is 

discussed in Chapter 7 of the NOPR 

TSD. Section IV.C.4 of this NOPR and 

chapter 5 of the NOPR TSD include 

additional details on the thermal 

efficiency, standby loss, and UEF levels 

identified in the engineering analysis. 

For this NOPR, DOE also further 

consulted ASHRAE 60 and Electric 

Power Research Institute (‘‘EPRI’’) 61

handbooks. These resources contain 

data on distribution losses and 

maximum load requirements of different 

building types and applications, which 

were used to compare and corroborate 

analyses of the average and peak loads 

derived from the CBECS and RECS data. 

To be clear, while DOE described 

calculations above relating to the 

number of units required to meet a 

building load, the LCC analysis 

calculates results for individual pieces 

of equipment. The energy usage 

analyses discussed in this section of this 

NOPR provide key inputs to the LCC 

analysis, namely monthly and annual 

energy consumption at each efficiency 

level for each sampled building as well 

as the hours of burner operation at rated 

input rate and the hours in standby 

mode per unit for water heaters to 

examine relative energy savings from 

thermal efficiency and standby loss 

changes. The energy analysis also helps 

DOE identify buildings for which each 

specific water heater might be suited 

(i.e., if the building load is too low to 

require 0.9 units of a defined 

representative unit or so large the 

building requires more than 4 

residential duty units, DOE excludes 

that building from sampling for that 

equipment). 

DOE received multiple comments on 

its energy use analysis presented in the 

withdrawn 2016 NOPR. There was 

discussion of the need or lack thereof of 

incorporating backup or redundant 

water heaters into the energy and life 

cycle cost analysis as well as a concern 

that manufacturing engineering 

guidelines tend to oversize equipment. 

DOE agrees that manufacturing 

engineering guidelines are likely to 

result in oversizing hot water equipment 

in many applications, and that the level 


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of built-in oversizing using such 

guidelines in this regard likely also 

results in the LCC analysis providing 

conservative estimates of economic 

benefits than might otherwise be the 

case. DOE did not include redundant 

units in the LCC analysis. Although 

redundant units may exist in certain 

buildings, DOE was not able to identify 

any information or data on this topic, 

nor have commenters in the course of 

this rulemaking provided information or 

detail as to the type of water heater 

plants where installation of a redundant 

unit would be considered common 

practice; therefore, DOE assumed that 

fully redundant units would be the 

exception in most installations. DOE 

considered how such a unit would be 

integrated into a system, but it is not 

clear if a redundant unit is piped into 

the system and actively part of the 

operating service hot water system (such 

that a hot water ‘‘plant’’ serving the 

building is further oversized from sizing 

guidelines), or if it is purchased and not 

utilized, in the latter case effectively a 

pre-purchase available for a subsequent 

installation or use. DOE also notes that 

increases in efficiency increase the 

overall hot water delivery capacity for 

similar input capacity water heaters in 

either single- or multiple-service water 

heater unit ‘‘plants’’ in a building. 

DOE’s analysis has not considered 

increased purchase costs for fully 

redundant units when they may occur, 

however it has also not included the 

potential cost savings for downsizing 

the input rating of the water heaters that 

would be needed to service a building’s 

known hot water load and any 

subsequent benefit from downsizing of 

a venting system, providing in this 

regard a conservative assessment of the 

costs to install the water heating system. 

DOE also considered that incorporation 

of redundant units, which might be 

expected to exist at all efficiency levels 

anyway, would add unnecessary 

complication given the lack of available 

information on how likely and in what 

building types a redundant unit would 

be purchased and whether such a unit 

is piped into the domestic water system 

and utilized directly or simply prepurchased, to be installed at a later date 

for immediate replacement when 

necessary. In the latter case, the earlier 

purchase does not affect the eventual 

life of the equipment or additional 

installation costs not already captured. 

Given that DOE’s current analysis does 

not reflect the benefits of downsizing 

that would occur for all CWH 

consumers, and its understanding that 

manufacturer sizing guidelines may 

already allow for CWH systems to be 

conservatively sized, incorporation of 

redundant units would be overly 

conservative in establishing the firstcost impact to the average consumer. 

To the extent that parties may be 

concerned that DOE’s commercial 

packaged boiler analysis also included 

commercial water heating loads in some 

portion of buildings that uses space 

heating boilers to meet both space and 

service water heating loads and that 

DOE is double counting those loads, 

DOE clarifies that its analysis does not 

double count the national energy 

savings from service hot water loads 

included in the commercial packaged 

boiler final rule in this CWH equipment 

NOPR. The CBECS and RECS data are 

used in the CWH equipment analysis to 

develop a representative hot water load 

profile (i.e., how much hot water is 

supplied to the buildings), which in 

turn is used to develop estimates of the 

operating hours and energy use for 

representative CWH equipment when 

they are installed. This is distinct from 

the shipments data, which are used to 

determine the number of units 

introduced into the market. However, 

the shipments data do not specify the 

type of building in which the equipment 

is actually installed, and such data are 

not available. The energy use analysis 

provides an estimate of how the shipped 

equipment is distributed across the 

various applications and the associated 

operating hours. The boiler loads in the 

commercial packaged boiler analysis 

included an assumption that some 

buildings use space heating boilers to 

provide for service hot water, however 

that assumption was used to develop 

representative loads for the boiler 

equipment where space heating boilers 

were used in place of commercial water 

heaters (i.e., in accounting for the hot 

water load of buildings that use the 

same fuel for water and space heating in 

the overall energy use analysis, 20 

percent of those boiler installations 

were assumed to use a commercial 

packaged boiler for both space and 

water heating based on other reviewed 

data). The boiler representative energy 

consumption numbers were drawn from 

CBECS and RECS data and are 

separately applied to the shipments of 

commercial space heating boiler. 85 FR 

1592 (January 10, 2020) The CWH 

analysis, which did not rely directly on 

hot water load estimates from CBECS, 

did not separately make such an 

allowance since it would simply have 

reduced the building count without 

impacting the hot water load profiles 

used in the CWH analysis. 

In this NOPR, the energy use analysis 

develops a typical energy usage for 

installations of the representative CWH 

equipment in buildings that are 

appropriate for using this equipment but 

relies on characteristics data rather than 

CBECS or RECS estimates for water 

heating energy consumption in the 

buildings. The shipments analysis is 

separate from the energy use analysis 

and uses AHRI CWH equipment 

shipment data where available. DOE 

applies the CWH energy use analysis to 

the shipments analysis to calculate the 

national energy savings achieved by this 

NOPR. Thus, the shipment analysis for 

the CWH rule does not rely on CBECs 

and RECs energy estimates directly, so 

the national energy impact is not 

affected if, in fact, a particular building 

may have served its domestic water 

heating load with a boiler in place of a 

water heater. 

Because DOE models a diverse set of 

buildings with differing loads and usage 

schedules, following is additional 

information explaining how the 

statistical analysis results in a single 

estimated average energy usage for CWH 

equipment. DOE conducted its energy 

use analysis using a Monte Carlo 

approach, selecting from thousands of 

commercial building records in 2012 

CBECS and thousands of residential 

housing records from 2009 RECS, 

including the impact of the building 

weight from CBECS and RECS, for those 

buildings that are appropriate uses of 

CWH equipment. Based on the 

characteristics data provided in each 

CBECS and RECS record, DOE 

determined maximum hot water loads 

for sizing equipment and daily hot 

water loads to determine equipment 

operation. Energy use was based on the 

equipment operation to meet the daily 

hot water loads, including recirculation 

loop losses for buildings which 

typically have this system design. The 

Monte Carlo approach (using the Crystal 

Ball Excel add-in) develops a 

distribution of inputs, as well as 

distributions of energy and energy 

savings as results which provides for 

calculating a statistical, weighted 

average of key model outputs, including 

average energy use, for all CWH 

equipment categories at each efficiency 

level. The calculated average CWH 

equipment utilization rates in terms of 

operating hours to meet the hot water 

loads are provided for each equipment 

type and efficiency level, which are 

available in appendix 7B of the NOPR 

TSD. Appendix 7B of the NOPR TSD 

also provides a table of building types 

that DOE assumed to use recirculation 

loops, as well as the operation hours of 

the recirculation loops. DOE estimates 

that commercial building records 

assigned recirculation loops comprised 


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29 percent of sampled commercial 

buildings from CBECS 2012. In 

addition, residential building records 

assigned recirculation loops comprised 

68 percent of sampled residential 

buildings from RECS 2009. However, 

DOE notes that the economics for each 

individual commercial consumer 

modeled in the LCC are based on the 

energy usage attributed to that 

consumer, and do not rely on the 

statistical weighted-average energy use 

or utilization rates. Additional detail 

about the energy use analysis 

methodology is explained in detail in 

chapter 7 of the NOPR TSD. Additional 

detail about the LCC analysis is 

explained in detail in chapter 8 of the 

NOPR TSD. 

DOE notes that the analysis accounts 

for recirculation loop losses in average 

daily hot water loads. In its NOPR 

analysis, DOE assigned insulated 

supply, return, and riser recirculation 

loop piping to sampled buildings with 

a year of construction of 1970 or later. 

For buildings constructed prior to 1970, 

DOE assigned uninsulated supply 

piping to 25 percent of sampled 

buildings and uninsulated return piping 

to 25 percent of sampled buildings. DOE 

acknowledges that its energy use 

analysis may not account for the extent 

of all possible heat losses that occur in 

the field. These losses can result from 

poor control of circulating system flow, 

uninsulated or poorly insulated piping, 

leaks or other higher than expected tap 

flows, and poor water heater 

performance due to aging. These issues 

may result in higher hot water energy 

use than predicted by DOE’s models. 

Due to the lack of field data on the 

magnitude of these energy losses across 

building applications, vintage, and 

location, DOE did not further attempt to 

include them into its analysis. DOE 

develops daily hot water loads for each 

building analyzed and normalizes 

building hot water loads to the hot 

water service capacity of the 

representative products using industry 

sizing tools and methodologies. DOE 

acknowledges that its approach for a 

given building loads treats multiple 

units for CWH equipment as equally 

sharing the hot water load. 

To the extent that commenters may be 

concerned whether the analysis fairly 

represents individual water heater 

operation for water heaters in buildings 

in which multiple representative model 

units operate to meet the building’s 

load, DOE notes that this would be 

system and building specific and its 

analysis may not capture the extremes 

of hot water loading on an individual 

water in all applications but would 

capture the average hot water loads on 

the equipment in those building. DOE 

notes that its analysis examines 

maximum sizing hot water loads and 

average daily hot water loads of 17 

commercial building applications and 4 

residential building applications, with 

additional variability in terms of 

specific end uses where identified in the 

CBECS or RECS data including 

variability based on inputs such as 

occupants, water fixtures, clothes 

washers, dishwashers, and food service 

as well as water mains inlet and outlet 

temperatures for estimating hot water 

loads. It also includes estimates of 

piping losses in circulating systems. 

Chapter 7 and appendix 7B in the NOPR 

TSD describe the calculation of hot 

water loads in the building. Appendix 

7B also provides a table of building 

types that DOE assumed to use 

recirculation loops, as well as the 

operation hours of the recirculation 

loops. DOE estimates that commercial 

building records assigned recirculation 

loops comprised 29 percent of sampled 

commercial buildings from CBECS 

2012. In addition, residential building 

records assigned recirculation loops 

comprised 68 percent of sampled 

residential buildings from RECS 2009. 

All of this variability is accounted for 

in the weighted results of the Monte 

Carlo analysis. While there may be 

further variability in hot water loads 

between multiple, individual water 

heaters operating in unison to meet a 

building’s hot water load, DOE’s 

analysis focuses on equipment 

operation over longer timeframes and 

developing representative loads for the 

equipment in the building. Equipment 

operated in unison in a building will 

experience, on average and over large 

populations represented, energy use 

reflecting the per-unit averaged building 

hot water load. As such, DOE did not 

directly account for the variability in 

operation of individual equipment 

when multiple units are installed and 

operated in tandem. DOE notes that 

with condensing equipment in 

particular, operation in parallel under 

part-load conditions can result in higher 

thermal efficiencies than those obtained 

under rated conditions, which reflect 

peak load thermal efficiencies. 

However, due to lack of detail of actual 

multiple water heaters installations 

exist the sampled buildings, DOE did 

not take this potential increase in fieldefficiency into account and DOE. 

DOE notes that its sizing methodology 

was based on industry sizing tools and 

guideline and was used to establish 

peak water heat loads that would reflect 

the anticipated peak in the buildings 

based on those guidelines and known or 

estimated building characteristics. 

These peaks were then used to establish 

the number of representative units (by 

CWH type) that would be installed to 

meet the anticipated peak loads, with 

the hot water load apportioned across 

the estimated number of representative 

units needed. DOE notes that its sizing 

methodology was customized to the 

building application, size, and 

accounted for building size, occupancy, 

and specific end uses. For the hot water 

delivery capability of each equipment 

category, DOE uses representative 

equipment designs. The representative 

design of each equipment category has 

a specific input capacity and volume as 

shown in Table IV.5 of this document. 

These representative specifications are 

used in a calculation of hot water 

delivery capability. For each equipment 

category, DOE sampled CBECS and 

RECS building loads in need of at least 

0.9 water heaters of the representative 

capacity, based on the representative 

model analyzed, to fulfill their 

maximum load requirements, and 

allows multiple representative units to 

serve the building load. As a result, DOE 

does not adjust input capacity and 

volume of equipment for a given 

building application. This individual 

building level of detail would 

complicate the engineering analysis 

requirements since every building 

record could potentially call for distinct 

equipment size or combination of 

equipment sizes, or combination of 

different storage volumes and input 

ratings in its specifications based on a 

wide variety of purchaser preferences. 

In addition, DOE assumed the 

circulating water heater equipment class 

is equipped with a storage tank since 

this is the predominant installation 

configuration for this equipment. For 

this equipment class and representative 

input capacity, the analysis used a 

variable storage tank size of 250 to 350 

gallons in volume, based on a triangle 

distribution consistent with 

manufacturer literature guidance as to 

typical storage tanks for the 

representative equipment input rating. 

However, DOE recognizes that for this 

equipment class as well, further 

variation in the storage tank sized with 

the equipment might also occur based 

on each individual building owner’s 

preferences. DOE received no comment 

on its sizing of storage tanks in 

conjunction with circulating water 

heaters and boilers. DOE therefore 

retained this use of representative 

installation practices for the NOPR 

analysis. Chapter 7 of the NOPR TSD 

provides more information on the hot 

water delivery calculations for 

circulating water heaters. 


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62American Society of Heating, Refrigerating and 

Air-Conditioning Engineers, Inc. (ASHRAE). 

ASHRAE Handbook of HVAC Applications: 

Chapter 51 (Service Water Heating). 2019. pp. 51.1– 

51.37. Available at www.ashrae.org/resources-- 

publications/handbook. 

63 Koeller and Company, and H.W. Hoffman & 

Associates. A Report on Potential Best Management 

Practices—Commercial Dishwashers. June 2010. 

Prepared for The California Urban Water 

Conservation Council. Available at 

p2infohouse.org/ref/53/52002.pdf. Last accessed 

May 1, 2020. 

64Lim, E. Low-Temp Dish Machine Water 

Temperature. March 21, 2016. On Cleaner Solutions 

website. Available at cleanersolutions.net/lowtemp-dish-machine-water-temperature/. Last 

accessed: November 2016. 

DOE’s energy use analysis used the 

A.O. Smith Pro Size Water Heating 

Sizing Program as a primary resource in 

determining the type, size, and number 

of water heaters needed to meet the hot 

water demand load applications. DOE 

did not identify a universal industry 

sizing methodology and reviewed a 

number of online sizing tools prior to its 

decision to use A.O. Smith’s online 

sizing tool as the basis for its water 

heater sizing methodology. Based on 

DOE’s initial review, the chosen sizing 

tool was most appropriate because of its 

transparency allowing it to be evaluated 

for fixture flow assumptions and other 

industry-accepted sizing methodologies. 

This tool provided peak-hour delivery 

in its sizing output, whereas several 

others manufacturing sizing tools 

reviewed provided equipment 

recommendations and/or equipment 

sizes only in their outputs. This made 

the chosen sizing tool easier to 

understand and allowed DOE to reverse 

engineer the methodology in detail. In 

addition, of the tools reviewed this tool 

was the most comprehensive and 

straightforward in its inputs. DOE 

reviewed the relationships between 

input data and outputs for this tool in 

detail for use in establishing the basis 

for its sizing calculations and made 

certain adjustments to improve the 

accuracy of its maximum load 

determinations, as shown in detail in 

appendix 7B. 

DOE utilized the Modified Hunter’s 

Curve approach for developing hot 

water delivery adjustment factors, or 

divisors, to adapt the sizing 

methodology for water heaters with 

storage to a methodology suitable for 

sizing water heaters without storage. 

DOE used the PVI Industries ‘‘Water 

Heater Sizing Guide for Engineers’’ 

which implements the Modified 

Hunter’s Curve approach to develop the 

adjustment factors for sizing tankless 

water heaters. This guide provided a 

clear and thorough methodology for 

how to apply the Modified Hunter’s 

curve to determine tankless water heater 

sizing. DOE’s research indicates that 

mechanical contractors and design 

engineers commonly rely on this general 

sizing methodology for determining 

appropriately-sized equipment to install 

in commercial and residential buildings, 

and the PVI tool captures the need and 

general industry methodology required 

to size tankless water heating equipment 

to address short-duration loads peaks. In 

addition, DOE consulted the ASHRAE 

Handbook of HVAC Applications,62

which provides guidance for sizing 

tankless and instantaneous water 

heaters. While the ASHRAE guidance 

also illustrates the Modified Hunter’s 

Curve methodology, it was not as clear 

in application as the guidance provided 

by PVI tool. In this area of CWH 

equipment selection, DOE research 

indicates that manufacturer sizing tools 

are more commonly used than ASHRAE 

handbooks. Because of the lack of 

storage and the need to meet 

instantaneous building loads at subhour intervals, the sizing strategy for 

instantaneous water heaters results in a 

lower hot water service and lower 

energy consumption per unit of input 

capacity than is the case for either 

storage water heaters, or equipment like 

circulating water heaters and boilers 

where separate storage tanks are 

typically used. DOE received comment 

on the withdrawn 2016 NOPR noting 

that there were applications that used 

set point temperatures greater than the 

140 °F high temperature used in that 

analysis, including specifically certain 

food service and restaurant applications. 

(AHRI, Public Meeting Transcript, No. 

20 at p. 69; Raypak, No. 41 at pp. 3–4) 

It was also noted that in these higher 

water temperature applications, 

condensing technology performs less 

efficiently for any stainless steel heat 

exchanger. (Raypak, No. 41 at pp. 3–4) 

For this NOPR, DOE reviewed the set 

point temperatures in the 2013 DOE 

commercial prototype building models 

and determined that the hospital and 

nursing home set point temperatures 

should be 140 °F. These building 

applications would need set point 

temperatures greater than 120 °F to 

prevent outbreaks of Legionella, and 

they would have mixing valves installed 

to prevent scalding. 

While DOE agrees that often food 

service and restaurant applications often 

have end uses requiring set point 

temperatures greater than 140 °F, these 

applications commonly use booster 

water heaters to increase hot water 

temperature for specific uses. Thus, 

DOE did not change the set point 

temperature universally for these 

applications in its analysis. The 2012 

CBECS building record data included a 

data field for certain building 

applications, notably food service, that 

indicated whether the building used a 

booster water heater. Given this data 

field, DOE updated its analysis for the 

fast food restaurant, full-service 

restaurant/cafeteria, and bar/pub/lounge 

building applications. If these building 

records contained one or more booster 

water heaters, DOE assigned a set point 

temperature of 140 °F for determining 

maximum and average daily hot water 

loads. In these instances, DOE assumed 

the booster water heater would receive 

hot water from the main water heater 

and increase the temperature to 180 °F 

for purposes of dishwashing. If the 

CBECS building record did not contain 

a booster water heater, DOE assigned a 

set point temperature of 150 °F for 

determining maximum hot water loads. 

The set point temperature of 150 °F is a 

weighted average based on shipment 

data of low-temperature and hightemperature commercial dishwashers.63

DOE assumed a food service building 

application that does not have a booster 

water heater uses either a lowtemperature or high-temperature 

commercial dishwasher to clean dishes. 

Low-temperature commercial 

dishwashers typically call for an inlet 

water temperature of around 140 °F,64

whereas high-temperature commercial 

dishwashers call for an inlet water 

temperature of 180 °F. This set point 

temperature assignment for food service 

building applications addresses higher 

delivery temperature in that market. 

DOE reviewed data submitted on the 

withdrawn 2016 NOPR in Raypak 

comment to support its assertion that a 

set point temperature of 160 °F 

decreases the efficiency of condensing 

equipment. These data refer to decreases 

in condensing equipment efficiency; 

however, DOE’s review of the data 

found that the decreased efficiency 

shown is likely primarily the result of 

the increased inlet water temperature 

referenced in the literature, not the 

increased set point or delivery 

temperature. Thus, DOE did not use the 

referenced data to adjust the thermal 

efficiency in the NOPR analysis. 

To clarify how DOE developed the 

inlet water temperature, DOE conducted 

its energy use analysis using a Monte 

Carlo approach, selecting commercial 

building records from 2012 CBECS and 

residential building records from 2009 

RECS in the development of maximum 

and daily hot water loads. Daily hot 

water loads were converted to energy 

use based on the equipment operation 

necessary to meet the load. Each 


jspears on DSK121TN23PROD with PROPOSALS2
30658 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

65U.S. Department of Energy—Office of Energy 

Efficiency and Renewable Energy. EnergyPlus 

Energy Simulation Software. TMY3 data. Available 

at apps1.eere.energy.gov/buildings/energyplus/cfm/ 

weather_data3.cfm/region=4_north_and_central_

america_wmo_region_4/country=1_usa/ 

cname=USA. Last accessed October 2014. 

66Hendron, R. Building America Research 

Benchmark Definition, Updated December 15, 2006. 

January 2007. National Renewable Energy 

Laboratory: Golden, CO. Report No. TP–550–40968. 

Available at www.nrel.gov/docs/fy07osti/40968.pdf. 

building record’s location is associated 

with a U.S. State. Using this State 

location, DOE assigned an average 

monthly inlet temperature for the 

CBECS Census Division or RECS 

Reportable Domain that the building 

resided in using monthly dry bulb 

temperature estimates for each State 

based on the TMY temperature data as 

captured in location files provided for 

use with the DOE EnergyPlus energy 

simulation software,65 along with an 

equation and methodology developed 

by NREL.66 DOE then summed the daily 

hot water loads of each month to 

determine the monthly hot water loads. 

DOE then summed the monthly hot 

water loads to determine annual hot 

water loads. The relationship between 

inlet temperature and energy use is for 

a given hot water usage, as inlet 

temperature is colder, energy use 

increases, since the water heater impart 

more heat to bring the inlet temperature 

to the set point temperature. Chapter 7 

of the NOPR TSD provides detailed 

information on how energy use was 

calculated using inlet water 

temperature. 

DOE developed daily hot water loads 

for building applications using the 

building service water heating 

schedules in the 2013 DOE commercial 

prototype building models. These 

schedules reflect typical building 

operation hours with different 

schedules for weekdays, Saturdays, 

Sundays, and holidays. While there may 

be greater variation of individual usage 

schedules in the general population 

even within a building type, DOE’s use 

of these typical schedules and weighting 

by the relative frequency of the 

buildings in the general population is 

appropriate for the energy use analysis. 

DOE notes that there is limited actual 

data on commercial hot water usage in 

the field. To the extent that stakeholders 

feel that DOE’s analysis may under or 

overstate hot water usage, DOE notes 

that the analysis reflects both variation 

in direct hot water loads, inlet and 

outlet temperatures and piping/ 

recirculation losses with a referenced 

estimating procedure. In the latter case, 

DOE assigned insulated supply, return, 

and riser recirculation loop piping to 

sampled buildings with a year of 

construction of 1970 or later. For 

buildings constructed prior to 1970, 

DOE assigned uninsulated supply 

piping to 25 percent of sampled 

buildings and uninsulated return piping 

to 25 percent of sampled buildings. DOE 

acknowledges that its energy use 

analysis may not account for the extent 

of all possible heat losses that occur in 

the field. These losses can result from 

poor control of circulating system flow, 

uninsulated or poorly insulated piping, 

leaks or other higher than expected tap 

flows, and poor water heater 

performance due to aging. These issues 

may result in higher hot water energy 

use than predicted by DOE’s models. 

Due to the lack of field data on the 

magnitude of these energy losses across 

building applications, vintage, and 

location, DOE did not further attempt to 

include them into its analysis. While 

DOE recognizes that additional energy 

losses can occur in the field, to the 

extent that these losses occur, it suggests 

that the results of DOE’s energy use 

analysis are conservative. In the 

withdrawn 2016 NOPR analysis, DOE 

received comment that the United States 

has reduced hot water use through DOE 

appliance and commercial equipment 

standards, as well as the ENERGY STAR 

program. (EEI, Public Meeting 

Transcript, No. 20 at p. 118; AHRI, 

Public Meeting Transcript. No. 20 at pp. 

117–118) In this NOPR, DOE used 

schedules and loads from ASHRAE 

prototype models with augmented data 

reflecting recent standards affecting 

water heater used by commercial 

appliances and equipment. Specifically, 

DOE developed commercial building 

hot water loads using the daily 

schedules and square footage from the 

scorecards of the 2013 DOE commercial 

prototype building models and 

corresponding normalized peak water 

heater loads from the DOE EnergyPlus 

energy simulation input decks for these 

prototypes, both of which were vetted 

by the ASHRAE 90.1 Committee. DOE 

developed residential building hot 

water loads using the hot water loads 

model created by the LBNL for the 2010 

final rule for Energy Conservation 

Standards for Residential Water Heaters, 

Direct Heating Equipment, and Pool 

Heaters. 75 FR 20112 (April 16, 2010). 

These data sources reflect expected hot 

water use at the time of their 

publication, including reductions of 

typical hot water use for certain 

appliances and commercial equipment 

based upon amended Federal standards 

and certain voluntary programs where 

those appliances are identified as part of 

the end use. DOE notes that its analysis 

and any eventual CWH standards are 

dominated by existing buildings and 

influenced by a lesser extent by 

shipments to new construction. 

Furthermore, DOE notes that to the 

extent that regulatory standards have or 

will reduce water loads, manufacturer 

sizing tools (as used in DOE’s analysis 

for sizing water heaters in different 

applications) should also reflect the 

reduction in water usage for sizing 

purposes, thereby minimizing the 

impact of reduced hot water loads 

resulting from DOE regulation on the 

overall economic evaluation of higher 

standards. 

With regards to the use of CWH 

equipment in residential buildings, DOE 

clarifies here that the only residential 

building type excluded from the 

analysis of CWH equipment was 

manufactured housing, since DOE 

determined that manufactured housing 

is not suitable for CWH equipment 

installation or use. Otherwise, for all 

other residential and commercial 

building types, if the estimated 

maximum sizing load of a sampled 

building was not at least 90 percent of 

the hot water delivery capability of the 

baseline representative model for any 

analyzed equipment category, then the 

building was not sampled since the 

building’s maximum load is deemed not 

large enough to warrant the installation 

of the specific CWH equipment to 

service the load. When a residential 

building does not have a maximum 

sizing load that is large enough to justify 

the type of commercial water heater 

being analyzed, DOE assumes the 

residential building will use residential 

water heating equipment to service its 

load. In such a case, DOE did not 

sample the building in its energy use 

analysis. In particular, residential-duty 

gas-fired storage water heaters were 

modeled for energy use using a sample 

of 494 applicable CBECS records and 

471 applicable RECS records. Singlefamily homes represented a small 

percentage of building records in the 

weighted Monte Carlo results of the 

energy use analysis. Multifamily 2–4 

unit and 5+ unit apartment buildings 

were the primary building applications 

sampled in the residential sector. While 

the input rating for the representative 

residential-duty gas-fired storage water 

heaters is at the bottom of the range for 

that equipment, these units are still 

capable of delivering a significant 

amount of hot water. Based on the 

residential hot water loads analysis, the 

vast majority of single-family home 

records examined for sizing did not 

need a water heater with this much hot 

water delivery capability, given their 

maximum calculated hot water loads. 


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67 DOE’s web page for commercial water heating 

equipment is available at www1.eere.energy.gov/ 

buildings/appliance_standards/standards

.aspx?productid=36. Last accessed on July 7, 2021. 

68Crystal BallTM is commercially-available 

software tool to facilitate the creation of these types 

of models by generating probability distributions 

and summarizing results within Excel, available at 

www.oracle.com/middleware/technologies/ 

crystalball/ (last accessed July 12, 2021). 

69 DOE utilized the building types defined in 

CBECS 2012, as well as residential buildings 

defined in RECS 2009. More information on the 

types of buildings considered is discussed later in 

this section. CBECS: www.eia.gov/consumption/ 

commercial/data/2012/ and RECS: www.eia.gov/ 

consumption/residential/data/2009/. Both links last 

accessed on July 12, 2021. 

70CBECS 2018 microdata were not available in 

early July 2021, when the analyses for this NOPR 

were completed. 

71To reiterate, DOE’s web page for commercial 

water heating equipment is available at 

www1.eere.energy.gov/buildings/appliance_

standards/standards.aspx?productid=36. 

Chapter 7 of the NOPR TSD provides 

details of DOE’s energy use analysis and 

sizing. 

F. Life-Cycle Cost and Payback Period 

Analysis 

The purpose of the LCC and PBP 

analysis is to analyze the effects of 

potential amended energy conservation 

standards on consumers of CWH 

equipment by determining how a 

potential amended standard affects their 

operating expenses (usually decreased) 

and their total installed costs (usually 

increased). DOE used the following two 

metrics to measure consumer impacts: 

• The LCC is the total consumer 

expense of equipment over the life of 

the equipment, consisting of total 

installed cost (manufacturer selling 

price, distribution chain markups, sales 

tax, and installation costs) plus 

operating costs (expenses for energy use, 

repair, and maintenance). To compute 

the operating costs, DOE discounts 

future operating costs to the time of 

purchase and sums them over the 

lifetime of the equipment. 

• The PBP is the estimated amount of 

time (in years) it takes consumers to 

recover the increased purchase cost 

(including installation) of a moreefficient type of equipment through 

lower operating costs. DOE calculates 

the PBP by dividing the change in 

purchase cost at higher efficiency levels 

by the change in annual operating cost 

for the year that amended or new 

standards are assumed to take effect. 

For any given efficiency level, DOE 

measures the change in LCC relative to 

the LCC in the no-new-standards-case, 

which reflects the estimated efficiency 

distribution of CWH equipment in the 

absence of new or amended energy 

conservation standards. In contrast, the 

PBP for a given efficiency level is 

measured relative to the baseline 

product. 

DOE conducted the LCC and PBP 

analyses using a commercially-available 

spreadsheet tool and a purpose-built 

spreadsheet model, available on DOE’s 

website.67 This spreadsheet model 

developed by DOE accounts for 

variability in energy use and prices, 

installation costs, repair and 

maintenance costs, and energy costs. As 

a result, the LCC results are also 

displayed as distributions of impacts 

compared to the no-new-standards-case 

(without amended standards) 

conditions. The results of DOE’s LCC 

and PBP analysis are summarized in 

section V.B.1.a of this NOPR and 

described in detail in chapter 8 of the 

NOPR TSD. 

As previously noted, DOE’s LCC and 

PBP analyses generate values that 

calculate the PBP for commercial 

consumers of potential energy 

conservation standards, which includes, 

but is not limited to, the 3-year PBP 

contemplated under the rebuttable 

presumption test. However, DOE 

routinely conducts a full economic 

analysis that considers the full range of 

impacts, including those to the 

consumer, manufacturer, Nation, and 

environment, as required under 42 

U.S.C. 6313(a)(6)(ii). The results of this 

analysis serve as the basis for DOE to 

definitively evaluate the economic 

justification for a potential standard 

level (thereby supporting or rebutting 

the results of any preliminary 

determination of economic 

justification). 

DOE expressed the LCC and PBP 

results for CWH equipment on a single, 

per-unit basis, and developed these 

results for each thermal efficiency and 

standby loss level, or UEF level, as 

appropriate. In addition, DOE reported 

the LCC results by the percentage of 

CWH equipment consumers 

experiencing negative economic impacts 

(i.e., LCC savings of less than 0, 

indicating net cost). 

DOE modeled uncertainty for specific 

inputs to the LCC and PBP analysis by 

using Monte Carlo simulation coupled 

with the corresponding probability 

distributions, including distributions 

describing efficiency of units shipped in 

the no-new-standards case. The Monte 

Carlo simulations randomly sample 

input values from the probability 

distributions and CWH equipment user 

samples. For this rulemaking, the Monte 

Carlo approach is implemented in MS 

Excel together with the Crystal BallTM

add-on.68 Then, the model calculated 

the LCC and PBP for equipment at each 

efficiency level for the 10,000 

simulations using the sampled inputs. 

More details on the incorporation of 

uncertainty and variability in the LCC 

are available in appendix 8B of the 

NOPR TSD. 

For the May 2016 CWH ECS NOPR, 

DOE analyzed the potential for 

variability by performing the LCC and 

PBP calculations on a nationally 

representative sample of individual 

commercial and residential buildings. 

This same general process was used for 

this NOPR analysis, however, with 

updates to the data set. One update was 

switching to CBECS 2012 consistent 

with DOE’s general practice of relying 

on updated data sources to the extent 

practicable and appropriate.69 DOE 

notes that the CBECS 2012 microdata 

needed for its analysis were not 

available when DOE conducted the May 

2016 CWH ECS NOPR analysis; hence, 

DOE used CBECS 2003 (the most recent 

available version at the time) for the 

NOPR analysis. In this NOPR, DOE 

updated its LCC model to use EIA’s 

CBECS 2012 microdata that became 

available in May 2016.70 DOE 

investigated but did not update to the 

2015 RECS. In reviewing the 2015 

RECS, DOE noted the absence of 

information on the number of 

apartments in buildings with an 

apartment reference in the database; the 

removal of the number of building floors 

for multifamily buildings with an 

apartment reference in the database; a 

reduction in the available occupant age 

data; and the removal of characteristics 

data describing whether an occupant 

directly pays for hot water usage—all of 

which were variables from the 2009 

RECS database that DOE used to model 

water usage. 

Following is a discussion of the 

development and validation of DOE’s 

LCC model. Across its energy 

conservation standards rulemakings, 

DOE incorporates tools that enable 

stakeholders to reproduce DOE’s 

published rulemaking results. DOE 

routinely utilizes Monte Carlo 

simulations using Crystal Ball for LCC 

model simulation purposes. More 

specifically, utilizing a spreadsheet 

program with Crystal Ball enables DOE 

to test the combined variability in 

different input parameters on the final 

life-cycle performance of the equipment. 

The CWH LCC model specifically 

includes macros to run the standards 

analysis with default settings that 

enable stakeholders to download the 

LCC model, run it on their own 

computers, and reproduce results 

published in this NOPR.71 To validate 

models, DOE develops models with 


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72The model being discussed in this section, the 

LCC, has few if any locked cells, meaning most if 

not all cells are available for editing by users as 

stated in the text. DOE does in some cases lock cells 

and worksheets in order to protect proprietary data. 

Such is not the case with the LCC model used in 

this rulemaking, so users should be able to edit 

assumptions in this model. 

73 Damodaran Online. Commercial Applications. 

Available at pages.stern.nyu.edu/∼adamodar/New_

Home_Page/home.htm. Last accessed on July 8, 

2021. 

74The real interest rates data for the six income 

groups (residential sector) were estimated using 

data from the Federal Reserve Board’s Survey of 

Consumer Finances (1989, 1992, 1995, 1998, 2001, 

2004, 2007, 2010, 2013, 2016, and 2019). Available 

at www.federalreserve.gov/pubs/oss/oss2/ 

scfindex.html. 

contractors familiar with Crystal Ball 

and Monte Carlo tools and other models 

generally, and regularly tests the models 

during development, both at average 

and atypical (extreme) conditions. DOE 

further notes that the LCC model using 

the Crystal Ball software can output the 

assumed values and results of each 

assumption and provide forecasted 

results for each iteration in the Monte 

Carlo simulation, if desired by 

stakeholders to review or trace the 

output. In addition, it is possible to 

directly modify the assumption cells in 

the model to examine impacts of 

changes to assumptions on the LCC, 

and, in fact, DOE relies on both of these 

techniques for model testing.72 DOE 

additionally seeks expert validation by 

going through a comprehensive 

stakeholder review of the assumptions 

and making its models and TSD 

publicly available during the comment 

period during each phase of its 

regulatory proceedings. DOE uses the 

Monte Carlo models for predicting the 

impact of future standards, a use 

different than many other uses that are 

envisioned generally for Monte Carlo 

tools (like industrial process 

examination), so direct validation 

against data demonstrating the impact of 

future standards is not possible. With 

regard to specifying correlations 

between inputs as part of modeling 

practices, DOE notes that while one can 

specify correlation parameters between 

two variables where such correlation 

and the data to provide for the level of 

correlation are known, specifying such 

correlations is not necessary to maintain 

the general integrity and accuracy of the 

analytical framework. Variable values 

may be selected based on other coding 

decisions unique to each iteration (e.g., 

correlation with building type or 

location or vintage) without specific 

reference to correlation variables, and 

DOE does this routinely. For instance, 

entering water temperature and fuel 

costs are effectively correlated based on 

data and the use of the geographic 

region, which impacts both through the 

available data or models. The use of 

explicit correlations between Crystal 

Ball variables, where data are available 

to determine or represent a degree of 

correlation, absent other influences, 

would be useful, but often, DOE’s 

experience is that the data to express the 

degree of correlation are not available 

and are influenced by other factors 

already dealt with explicitly in the 

model framework. 

In response to the withdrawn 2016 

NOPR, Spire commented that certain 

simulation trials may be unrealistic, 

citing an example of a storage water 

heater being replaced by multiple 

tankless units in a vintage 1960 multistory building. Spire considers this 

scenario to be highly unlikely, 

describing tankless units as point-of-use 

water heaters and stating that multiple 

units may need to be installed to 

provide the same service as a single 

central commercial water heater and 

that the complexity goes far beyond a 

single one-for-one replacement scenario 

due to multiple runs of gas lines, 

venting, and electrical supply required, 

as well as the need for localized venting; 

Spire argued that while DOE’s 

development and usage of CBECS NWeights discounts the number of such 

scenarios in the data set used by DOE, 

it does not solve the problem caused by 

the inclusion of unreasonable scenarios. 

(Spire, No. 45 at p. 22) 

The unlikely scenario of replacing a 

storage water heater by multiple 

tankless units does not reflect a 

purposeful replacement scenario but 

results from using existing CBECS data 

to develop hot water load scenarios for 

newer water heating technologies (i.e., 

tankless units), the use of which is not 

identified specifically in CBECS data. 

However, to address potentially 

unlikely installation scenarios, DOE 

modified its energy use analysis for 

tankless water heaters for this NOPR to 

use only building stock with 

construction dates of 1980 or later, 

reflecting more recent construction, in 

its hot water load analysis. 

DOE calculated the LCC and PBP for 

all commercial consumers as if each 

would purchase a new CWH unit in the 

year that compliance with amended 

standards is required. As previously 

discussed, DOE is conducting this 

rulemaking pursuant to its 6-yearlookback authority under 42 U.S.C. 

6313(a)(6)(C). At the time of preparation 

of the NOPR analyses, the expected 

issuance date was 2015, leading to an 

anticipated final rule publication in 

2016. For this NOPR, DOE relied on 

2023 as the expected publication date of 

a final rule. EPCA states that amended 

standards prescribed under this 

subsection shall apply to equipment 

manufactured after a date that is the 

later of (I) the date that is 3 years after 

publication of the final rule establishing 

a new standard or (II) the date that is 6 

years after the effective date of the 

current standard for a covered 

equipment. (42 U.S.C. 6313(a)(6)(C)(iv)) 

The date under clause (I), projected to 

be 2026, is later than the date under 

clause (II), which is 2009. Therefore, for 

the purposes of its analysis for this 

NOPR, DOE used January 1, 2026 as the 

beginning of compliance with potential 

amended standards for CWH 

equipment. 

1. Approach 

Recognizing that each consumer that 

uses CWH equipment is unique, DOE 

analyzed variability and uncertainty by 

performing the LCC and PBP 

calculations on a nationally 

representative stock of commercial and 

residential buildings. Commercial 

buildings can be categorized based on 

their specific activity, and DOE 

considered commercial buildings such 

as offices (small, medium, and large), 

stand-alone retail and strip-malls, 

schools (primary and secondary), 

hospitals and outpatient healthcare 

facilities, hotels (small and large), 

warehouses, restaurants (quick service 

and full service), assemblies, nursing 

homes, and dormitories. These 

encompass 89.4 percent of the total 

sample of commercial building stock in 

the United States. The residential 

buildings can be categorized based on 

the type of housing unit, and DOE 

considered single-family (attached and 

detached) and multi-family (with 2–4 

units and 5+ units) buildings in its 

analysis. This encompassed 95.5 

percent of the total sample of residential 

building stock in the United States, 

though not all of this sample would use 

CWH equipment. DOE developed 

financial data appropriate for the 

consumers in each business and 

building type. Each type of building has 

typical consumers who have different 

costs of financing because of the nature 

of the business. DOE derived the 

financing costs based on data from the 

Damodaran Online website.73 For 

residential applications, the entire 

population was categorized into six 

income bins, and DOE developed the 

probability distribution of real interest 

rates for each income bin by using data 

from the Federal Reserve Board’s Survey 

of Consumer Finances.74

The LCC analysis used the estimated 

annual energy use for every unit of 

CWH equipment described in section 


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IV.C of this NOPR. Aside from energy 

use, other important factors influencing 

the LCC and PBP analyses are energy 

prices, installation costs, and equipment 

distribution markups. At the national 

level, the LCC spreadsheets explicitly 

model both the uncertainty and the 

variability in the model’s inputs, using 

probability distribution functions. 

As mentioned earlier, DOE generated 

LCC and PBP results for individual 

CWH consumers, using business type 

data aligned with building type and by 

geographic location, and DOE 

developed weighting factors to generate 

national average LCC savings and PBPs 

for each efficiency level. As there is a 

unique LCC and PBP for each calculated 

combination of building type and 

geographic location, the outcomes of the 

analysis can also be expressed as 

probability distributions with a range of 

LCC and PBP results. A distinct 

advantage of this type of approach is 

that DOE can identify the percentage of 

consumers achieving LCC savings or 

attaining certain PBP values due to an 

increased efficiency level, in addition to 

the average LCC savings or average PBP 

for that efficiency level. 

2. Life-Cycle Cost Inputs 

For each efficiency level that DOE 

analyzed, the LCC analysis required 

input data for the total installed cost of 

the equipment, its operating cost, and 

the discount rate. Table IV.19 

summarizes the inputs and key 

assumptions DOE used to calculate the 

consumer economic impacts of all 

energy efficiency levels analyzed in this 

rulemaking. A more detailed discussion 

of the inputs follows. 

TABLE IV.19—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PBP ANALYSES

Inputs Description 

Affecting Installed Costs 

Product Cost ........................ Derived by multiplying manufacturer sales price or MSP (calculated in the engineering analysis) by distribution 

channel markups, as needed, plus sales tax from the markups analysis. 

Installation Cost .................... Installation cost includes installation labor, installer overhead, and any miscellaneous materials and parts, derived 

principally from RS Means 2021 data books ABC and converted to 2020$. 

Affecting Operating Costs 

Annual Energy Use .............. Annual unit energy consumption for each class of equipment at each efficiency and standby loss level estimated 

at different locations and by building type using building-specific load models and a population-based mapping 

of climate locations. The geographic scale used for commercial and residential applications are Census Divisions and reportable domains respectively. 

Electricity Prices, Natural 

Gas Prices.

DOE developed average residential and commercial electricity prices based on EIA Form 861M, using data for 

2019.D Future electricity prices are projected based on AEO2021. DOE developed residential and commercial 

natural gas prices based on EIA State-level prices in EIA Natural Gas Navigator, using data for 2019.E Future 

natural gas prices are projected based on AEO2021. 

Maintenance Cost ................ Annual maintenance cost did not vary as a function of efficiency. 

Repair Cost .......................... DOE determined that the materials portion of the repair costs for gas-fired equipment changes with the efficiency 

level for products. The different combustion systems varied among different efficiency levels, which eventually 

led to different repair costs. 

Affecting Present Value of Annual Operating Cost Savings 

Product Lifetime ................... Table IV.21 provides lifetime estimates by equipment category. DOE estimated that the average CWH equipment 

lifetimes range between 10 and 25 years, with the average lifespan dependent on equipment category based 

on estimates cited in available literature.F

Discount Rate ....................... Mean real discount rates (weighted) for all buildings range from 3.2% to 5.0%, for the six income bins relevant to 

residential applications. For commercial applications, DOE considered mean real discount rates (weighted) 

from 10 different commercial sectors, and the rates ranged between 3.2% and 7.2%. 

Analysis Start Year .............. Start year for LCC is 2026, which would be the anticipated compliance date for potential amended standards, if 

such were to be adopted by a final rule of this rulemaking. 

Analyzed Efficiency Levels 

Analyzed Efficiency Levels .. DOE analyzed baseline efficiency levels and up to five higher thermal efficiency levels. For Residential-Duty GasFired Storage DOE analyzed baseline and up to five higher UEF levels which combine thermal efficiency and 

standby loss improvements. See the engineering analysis for additional details on selections of efficiency levels 

and costs. 

A RSMeans. 2021 Plumbing Costs with RSMeans Data. Available at www.rsmeans.com/products/books/2021-cost-data-books/2021-plumbingcosts-book. B RSMeans. 2021 Facilities Maintenance & Repair Costs with RSMeans Data. Available at www.rsmeans.com/products/books/2021-facilitiesmaintenance-repair-costs-book. C RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, Mechanical Costs 2021. Available at www.rsmeans.com/products/books/ 

2021-mechanical-costs-book. All RS Means links, last accessed on July 8, 2021. D U.S. Energy Information Administration (EIA). Average Retail Price of Electricity (Form EIA–861). Available at www.eia.gov/electricity/data/ 

browser/. Last accessed on February 21, 2021. E U.S. Energy Information Administration (EIA). Average Price of Natural Gas Sold to Commercial Consumers—by State. Available at 

www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Prices for Residential Consumers are available at the same site using the Data 

Series menu. Last accessed on February 26, 2021. FAmerican Society of Heating, Refrigerating, and Air-Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and Air-Conditioning Applications. 2011. Available at www.ashrae.org/resources--publications. Last accessed on October 16, 2016. 


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75 DOE notes that RS Means publishes data books 

in one year for use the following year; hence, the 

2021 data book has a 2020 copyright date. 

76Whitestone Research. The Whitestone Facility 

Maintenance and Repair Cost Reference 2012–2013 

(17th Annual edition). 2012. Whitestone Research: 

Santa Barbara, CA. 

77See www.iccsafe.org/content/internationalplumbing-code-ipc-home-page/. The model 

International Plumbing Code has been adopted 35 

states for state or local plumbing codes. 

DOE calculates energy savings for the 

LCC and PBP analysis using only onsite 

electricity and natural gas usage. For 

determination of consumer cost savings, 

the onsite electricity and natural usage 

are estimated separately with 

appropriate electricity and natural gas 

prices, or marginal prices, applied to 

each. Primary and FFC energy savings 

are not used in the LCC analysis. 

a. Equipment Cost 

To calculate equipment costs, DOE 

multiplied the MPCs developed in the 

engineering analysis by the markups 

described previously in section IV.D of 

this document (along with sales taxes). 

DOE used different markups for baseline 

products and higher-efficiency 

products, because DOE applies an 

incremental markup to the increase in 

MSP associated with higher-efficiency 

products. For each equipment category, 

the engineering analysis provided 

contractor costs for the baseline 

equipment and up to five higher 

equipment efficiencies. DOE examined 

whether equipment costs for CWH 

equipment would change over time. 

DOE determined that there is no clear 

historical price trend for CWH 

equipment. Therefore, DOE used costs 

established in the engineering analysis 

directly for determining 2026 

equipment costs and future equipment 

costs (equipment is purchased by the 

consumer during the first year in 2026 

at the estimated equipment price, after 

which the equipment price remains 

constant in real dollars). See section 

IV.H.4 of this document and chapter 10 

of the NOPR TSD for more details. 

The markup is the percentage increase 

in cost as the CWH equipment passes 

through distribution channels. As 

explained in section IV.D of this NOPR, 

CWH equipment is assumed to be 

delivered by the manufacturer through a 

variety of distribution channels. There 

are several distribution pathways that 

involve different combinations of the 

costs and markups of CWH equipment. 

The overall resulting markups in the 

LCC analysis are weighted averages of 

all of the relevant distribution channel 

markups. 

b. Installation Costs 

The primary inputs for establishing 

the total installed cost are the retail cost 

of the CWH equipment and its 

corresponding installation costs, which 

includes labor, overhead, and any 

miscellaneous materials and parts 

needed to install the product. 

Installation costs vary by efficiency 

level, primarily due to venting costs. For 

new construction installations, the 

installation cost is added to the product 

cost to arrive at a total installed cost. For 

replacement installations, the costs to 

remove the previous equipment 

(including venting when necessary) and 

the installation costs for new 

equipment, including venting and 

additional expenses, are added to the 

product cost to arrive at the total 

replacement installation cost. 

DOE derived national average 

installation costs for commercial 

equipment from data provided in RS 

Means 2021 data books.75 RS Means 

provides estimates for installation costs 

for CWH units by equipment capacity, 

as well as cost indices that reflect the 

variation in installation costs for 295 

cities in the United States. The RS 

Means data identify several cities in 

each of the 50 States, as well as the 

District of Columbia. DOE incorporated 

location-based cost indices into the 

analysis to capture variation in 

installation costs, depending on the 

location of the consumer. Based upon 

the RS Means data, relationships were 

developed for each product subcategory 

to relate the amount of labor to the size 

of the product—either the storage 

volume or the input rate. Generally, the 

RS Means data were in agreement with 

other national sources, such as the 

Whitestone Facility Maintenance and 

Repair Cost Reference.76

DOE calculated venting costs for each 

building in the CBECS and RECS. A 

variety of installation parameters impact 

venting costs; among these, DOE 

simulated the type of installation (new 

construction or retrofit), water heater 

type, draft type (atmospheric venting or 

power venting), building vintage, 

number of stories, and presence of a 

chimney. A combination of Crystal Ball 

variable distributions and MS Excel 

macros and logic are used to address the 

identified variables to determine the 

venting costs for each instance of 

equipment for each building within the 

Monte Carlo analysis. With regard to the 

venting material for condensing 

equipment, the primary assumptions 

used in this logic are listed below: 

• 25 percent of commercial buildings 

built prior to 1980 were assumed to 

have a masonry chimney, and 25 

percent of masonry chimneys required 

relining. 

• Condensing equipment with vent 

diameters smaller than 5 inches were 

modeled using PVC (polyvinyl chloride) 

as the vent material. 

• Condensing equipment with vent 

diameters of 8 inches or greater were 

assigned AL29–4C (superferritic 

stainless steel) as the vent material. 

• Condensing equipment with vent 

diameters of 5 inches and up to 8 inches 

were assigned vent material based on a 

random selection process in which, on 

average, 50 percent of installations 

received PVC as the vent material and 

the remaining received AL29–4C. 

• 5 percent of all condensing CWH 

equipment installations were modeled 

as direct vent installations. The intake 

air pipe material for condensing 

products was modeled as PVC. 

Additional details of the venting logic 

sequence are found in chapter 8 and 

Appendix 8D of the NOPR TSD. 

1. Data Sources 

For this NOPR analysis, DOE used the 

most recent datasets available at the 

time the analysis was conducted. DOE 

makes its best attempt to update data to 

recent datasets available at its various 

rulemaking stages and has updated the 

CWH equipment LCC model with the 

most recent data estimates available for 

this NOPR, including use of the 2012 

CBECs and 2021 RS Means data 

(including 2021 RS Means Plumbing 

Costs Data, 2021 RS Means Mechanical 

Cost Data, and 2021 RS Means Facility 

Maintenance and Repair Costs). 

2. Condensate Removal and Disposal 

In response to the withdrawn NOPR, 

Anonymous, Raypak and AHRI 

commented about the difficulty in 

installing condensing water heaters is 

challenging in buildings lacking floor 

drains or other ways to drain 

condensate. (Raypak, No. 41 at p. 7; 

AHRI, No. 40 at p. 5; Anonymous, No. 

21 at p. 2) NEEA stated that the raw 

costs and application of costs for 

condensate removal appear high, 

specifically for the condensate pump, 

electrical receptacle for the pump, drain 

line, and heat tape. NEEA argued that 

since the International Plumbing 

Code 77 calls for temperature and 

pressure relief valves to be piped to 

drain, non-condensing CWH equipment 

should already have an existing 

drainage system. NEEA also stated that 

a condensate neutralizer is not required 

in certain jurisdictions, though it is 

good design practice. (NEEA, No. 37 at 

p. 1) 

In response, DOE’s LCC analysis 

accounted for condensate disposal in its 

installation cost estimates for 

condensing CWH equipment. The 


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International Plumbing Code is widely 

used in the U.S. as the model for state 

and local plumbing codes. Given this 

fact and given NEEA’s information on 

the International Plumbing Code 

requirement, DOE revised the 

assumption of 25 percent used in the 

withdrawn 2016 NOPR to the 

assumption for this NOPR of 10 percent 

of replacement installations requiring 

the installment and associated costs of 

a condensate pump and insulated 

condensate piping to dispose of 

condensate. For this NOPR analysis, a 

condensate neutralizer was assigned to 

12.5 percent of replacement 

installations, which was unchanged 

from the assumption used in the 

withdrawn 2016 NOPR. For this NOPR, 

the cost of heat tape was assigned to 10 

percent of replacement installations, 

which was unchanged from the 

withdrawn 2016 NOPR assumption. The 

cost of an electrical outlet specifically 

for heat tape was added for this NOPR 

in 10 percent of instances in which heat 

tape was installed. For this NOPR, DOE 

also conducted research on the 

appropriate condensate pump size and 

associated cost for each equipment 

category, which resulted in an update to 

the condensate pump assignment for 

residential-duty and commercial gasfired storage water heaters. For the 

withdrawn 2016 NOPR, DOE used one 

condensate pump for all equipment 

types while for this NOPR DOE used 

two sizes of condensate pumps. The 

representative designs for these 

residential-duty and commercial gasfired storage water heaters are met using 

a condensate pump with a lower 

volume capacity and gallons-per-hour 

performance. Chapter 8 of the TSD 

contains more information on the 

methodology, raw costs, and sources for 

the installation cost for condensate 

removal. 

3. Vent Replacement 

In response to the withdrawn NOPR 

stakeholders submitted comments 

describing challenges building owners 

may have installing condensing 

equipment using sidewall venting, 

while other commenters noted sidewall 

venting provided a cheaper option in 

some cases. (AHRI, No. 40 at p. 35; 

Spire, No. 45 at pp. 34, 35; Bradford 

White, No. 42 at p. 4; HTP, No. 44 at pp. 

1–2; NEEA, No. 37 at p. 1) In both the 

withdrawn NOPR and in this NOPR 

DOE conducted its analysis under the 

assumption that condensing CWH 

equipment would use the same chase 

for the venting system as the noncondensing CWH equipment that it 

replaces. Condensing CWH equipment 

is not required to sidewall vent 

exclusively and presents no special 

limitations restricting vertical vent 

scenarios. In instances in which a 

building has a centrally-located 

mechanical room, relocation of this 

mechanical room should not be 

necessary to accommodate condensing 

CWH equipment. The local building 

codes that may limit or prohibit 

sidewall venting in certain buildings 

should not be a factor for vertical 

venting systems. To the extent that 

horizontal natural draft venting is used 

at a job site, it is indicative that 

horizontal venting is allowed by the 

jurisdiction and potentially that vent 

runs may be different than DOE’s 

vertical venting assumption (shorter 

vertically, but with a horizontal length 

component). DOE received no 

information from commenters on the 

relative frequency of less-costly sidewall 

venting installations nor did DOE 

receive information or data suggesting 

that DOE’s assumption of vertical 

venting using the existing chase is 

unsound. Therefore, DOE has 

maintained its venting methodology and 

associated venting costs for scenarios in 

which non-condensing CWH equipment 

is replaced by condensing CWH 

equipment. 

NEEA recommended that DOE 

account for the cost of a high and low 

sidewall air ducts (per mechanical code) 

to the installation cost of noncondensing CWH equipment. (NEEA, 

No. 37 at p. 2) In response, DOE 

acknowledges that all combustion 

appliances require adequate air for 

combustion and that in installations 

where adequate combustion air is not 

provided through infiltration alone, 

high and low sidewall air ducts 

providing ventilation air are an 

installation option alone, or in 

combination with infiltration. The 

requirement for adequate combustion 

air exists regardless of whether 

naturally-vented or fan-assisted vent 

systems are used, but is not required for 

direct vent systems where combustion 

air is provided through dedicated means 

per manufacturers specifications. While 

there are certain differences in the 

requirements for fan-assisted versus 

naturally-vented equipment, the cost of 

providing for combustion air is similar 

for non-condensing or condensing nondirect-vent CWH equipment, and in fact, 

minimum room volume requirements 

before requiring separate ventilation 

openings are larger for natural draft 

versus fan-assisted combustion 

appliances. Direct vent equipment 

provides another option where fanassisted combustion equipment is used, 

and may provide better control of 

outside air into a building as well as 

providing combustion air that is free 

from indoor contaminants that can 

damage water heaters in certain 

circumstances (where necessary). 

Another option is to install a 

mechanical combustion air system (e.g., 

‘‘fan in a can’’) in the room to ensure 

proper make-up air for the equipment. 

NEEA did not provide information or 

data indicating how common these 

situations are in buildings, and DOE 

was unable to find this information in 

its research, and the Department has 

concluded that the cost to provide 

adequate combustion air will be similar 

for non-condensing and condensing 

CWH equipment. 

In response to the withdrawn NOPR 

NEEA commented that sleeving of vents 

in replacement scenarios avoids the cost 

of removing the existing venting system 

while Spire asked for clarification as to 

whether DOE considers existing vent 

systems to be sleeved. (NEEA, No. 37 at 

p. 2; Spire, Public Meeting Transcript, 

No. 20 at p. 83) In response, DOE 

incorporated the sleeving of existing 

vent systems in its SNOPR analysis. For 

existing buildings with natural draft (Bvent type) venting systems that have no 

elbows and possess vent lengths less 

than or equal to 30 feet, DOE assigned 

sleeving of the existing vent with PVC 

venting to 50 percent of replacement 

scenarios. DOE’s assumption of 50 

percent sleeving under these conditions 

presumes that sleeving of new vents can 

be done but that with plastic piping 

other limitations to sleeving, including 

access for joints, may present 

themselves. While DOE recognizes that 

with other venting systems, particularly 

polypropylene or stainless flexible 

venting, additional sleeving options are 

possible, DOE’s existing analysis 

adequately accounts for the potential for 

sleeved venting. 

Stakeholders commented on the 

withdrawn NOPR that jurisdictions in 

certain parts of the country do not allow 

for non-metallic vents (an estimated 5 

percent of installations), that many local 

municipalities disallow PVC usage 

when the vent diameter is greater than 

4 inches, and that polypropylene as a 

venting material is an option available 

to consumers that is widely used due to 

the growing number of municipality 

building codes and contractor requests 

calling for the use of this vent material. 

(See (A.O. Smith, No. 39 at p. 12; 

Rheem, No. 43, at p. 22; Rheem, No. 43, 

at p. 22; Bradford White, No. 42 at p. 8) 

DOE conducted further research as to 

the local or regional jurisdictions that 

prohibit certain vent materials for CWH 

equipment installation. While DOE 

found that PVC vent material is 


jspears on DSK121TN23PROD with PROPOSALS2
30664 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

78RSMeans. Estimating Costs with RSMeans Data, 

CostWorks CD, Mechanical Costs 2021. 79 Id. 80RSMeans. Estimating Costs with RSMeans Data, 

CostWorks CD, Mechanical Costs 2021. 81 Id. 82 Id. 

83NEEA, Northeast Energy Efficiency 

Partnerships, Pacific Gas & Electric, and National 

Grid. Joint comment response to the Notice of 

Petition for Rulemaking; request for comment 

(report attached—Memo: Investigation of 

Installation Barriers and Costs for Condensing Gas 

Appliances). Docket EERE–2018–BT–STD–0018, 

document number 62. www.regulations.gov/ 

disallowed in certain jurisdictions (e.g., 

New York, NY), DOE did not identify 

jurisdictions in which non-metallic 

vents are disallowed, and comments on 

the withdrawn NOPR did not provide 

examples for DOE to investigate. DOE 

also reviewed manufacturer product 

literature and costs for polypropylene 

vents. DOE did not identify physical 

limitations for using polypropylene 

venting with condensing CWH 

equipment. Polypropylene material 

costs have decreased significantly with 

increasing demand, and fewer labor 

hours are required to install 

polypropylene venting systems, which 

are found as ‘‘snap-together’’ gasketed 

systems, than for PVC or CPVC venting. 

For jurisdictions prohibiting PVC 

venting, polypropylene venting is a 

viable alternative and if it becomes more 

commonly used DOE expects it will be 

an even more viable, cost-competitive 

alternative by 2026. While 

polypropylene venting has the potential 

in some cases to reduce installation 

costs, DOE did not modify its analysis 

for this NOPR to explicitly include 

polypropylene venting. 

PHCC argued that, in some cases, vent 

replacement can be physically 

impossible and prohibitively expensive 

due to the uniqueness of each 

replacement situation. (PHCC, No. 34 at 

p. 1) Spire stated that DOE’s estimated 

installation and venting costs are too 

low in cases where installations are 

intrinsically difficult. (Spire, No. 45 at 

pp. 44–45) For this NOPR DOE’s 

analysis accounts for installation costs 

in the commercial and residential 

sectors for both replacement and new 

construction markets, along with an 

appropriate set of installation scenarios 

within each market and sector 

combination. Equipment installation 

and removal costs are separate from 

venting system installation and removal 

costs. The equipment installation labor 

hours for representative CWH models 

ranged from 4 to 22.4 hours, depending 

on the equipment category. The labor 

hours to remove CWH equipment in 

replacement situations were determined 

to be an additional 37.5 percent of the 

installation labor hours on average, 

meaning they ranged from an additional 

1.5 to 8.4 hours depending on the 

equipment category. These labor hour 

calculations were based on a linear 

regression formula using data from the 

RS Means Facilities Construction Cost 

Data, ENR Mechanical Cost book, and 

Whitestone Facility Maintenance and 

Repair Cost Reference. This formula 

escalated equipment installation labor 

hours based on the input capacity and/ 

or volume of the CWH equipment, as 

expressed in the sources that DOE relied 

upon. DOE has found no information 

that suggests basic CWH equipment 

installation or removal cost varies based 

on thermal efficiency rather than input 

capacity and/or volume. DOE accepts 

the methodologies of its sources that the 

activities required to install minimumefficiency and high-efficiency 

equipment are inherently similar. This 

approach to developing costs for CWH 

equipment installation or removal was 

not changed from the withdrawn NOPR. 

In addition to equipment installation 

and removal, DOE accounted for the 

labor hours to install and remove 

venting, scaled to the vent length in 

linear feet and/or the number of 

components (e.g., elbows) in the venting 

system. These costs differed based on 

the vent material and diameter involved 

in the installation. For example, the 

labor to install PVC venting for 

condensing CWH equipment in the 

commercial sector ranged from 0.302 

hours per linear foot for three-inch 

diameter vents to 0.333 hours per linear 

foot for 4-inch diameter vents. 78 The 

labor to install Type-B vent in the 

commercial sector for non-condensing 

CWH equipment ranged from 0.235 

hours per linear foot for 4-inch diameter 

vents to 0.286 hours per linear foot for 

7-inch diameter vents.79 The labor rates 

in DOE’s analysis depended on the crew 

type conducting the installation, region 

in which the installation occurred, and 

whether venting was installed in 

residential or commercial buildings. For 

the installation of Type-B venting for 

non-condensing CWH equipment, 

average labor rates (including overhead 

and profit) ranged from $65 per hour in 

the residential sector to $87 per hour in 

the commercial sector. 80 For the 

installation of PVC venting for 

condensing CWH equipment, average 

labor rates used by DOE (including 

overhead and profit) ranged from $66 

per hour in the residential sector to $89 

per hour in the commercial sector.81

Regional adjustments to these labor 

rates called for multipliers ranging from 

0.59 (South Carolina and North 

Carolina) to 1.68 (New York).82 For this 

NOPR, DOE did not further adjust labor 

rates for venting except to use the most 

up-to-date source data. 

In addition to accounting for 

equipment installation and removal, 

and venting installation and removal, 

DOE also incorporated an appropriate 

set of installation cost additions and 

subtractions, which included labor and 

material, arising from unique 

circumstances in replacement scenarios. 

These installation costs included 

reusing existing vent systems (when 

replacing non-condensing CWH 

equipment with similar non-condensing 

CWH equipment), relining of chimneys, 

installing condensate drainage, and 

sleeving of existing vent systems with 

certain replacement venting systems, 

introduced in this NOPR analysis. DOE 

did not incorporate the costs of sealing 

off chases and roof vents or moving 

mechanical rooms because it is logical 

that condensing CWH equipment would 

reside in the same location and use the 

same chase as the non-condensing CWH 

equipment it replaced. DOE found this 

to be appropriate since there are no 

technological limitations preventing 

condensing CWH equipment from using 

vertical venting systems. 

4. Extraordinary Venting Cost Adder 

In response to the withdrawn NOPR, 

PHCC and Spire argued that, in some 

cases, vent replacement can be 

physically impossible and/or 

prohibitively expensive in cases where 

installations are intrinsically difficult. 

(PHCC, No. 34 at p. 1; Spire, No. 45 at 

pp. 44–45) DOE acknowledges the 

possibility that its analysis of 

installation costs may not capture 

outlier installation scenarios that 

involve uncommon building conditions 

that may further reduce or increase 

installation costs. Neither PHCC nor 

Spire provided data or evidence to 

substantiate the extent that these 

unique, additional installation 

challenges occur for condensing CWH 

equipment in buildings, descriptions of 

what would be necessary to resolve 

these installations challenges, or 

amount of labor and materials required 

to perform the solution. DOE expects 

that these situations would be small in 

number and that it has captured an 

appropriate set of installation scenarios 

that are typical of residential and 

commercial buildings. For this NOPR, 

DOE researched the question of the 

prevalence and cost of extraordinarily 

costly installations. The one source 

identified that could be used to quantify 

extraordinary vent costs was the report 

submitted by NEEA in DOE Docket 

EERE–2018–BT–STD–0018.83 Using this 


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comment/EERE-2018-BT-STD-0018-0062. Last 

accessed July 8, 2021. 

as a reference, DOE implemented an 

extraordinary venting cost adder, which 

was included in the SNOPR LCC model 

as a feature of the main case. 

To account for the extraordinarily 

expensive venting installation costs 

hypothesized by stakeholders as 

discussed in section IV.F.2.b of this 

NOPR, DOE added an extraordinary 

vent cost adder. This is based on the 

report submitted by NEEA. Id. In that 

report it was stated that due to vent 

configurations, between 1 and 2 percent 

of replacements might experience 

extraordinary costs between 100 and 

200 percent above the average 

installation cost. Because there is no 

clear linkage between specific situations 

and extraordinary costs, DOE 

implemented this by adding for each 

equipment category two additional 

variables. One is a probability of 

occurrence and the second is the 

multiplier. For 2 percent of cases, DOE 

assumes a multiplier between 200 

percent and 300 percent. In all cases, 

the LCC model estimates the total 

installation cost, and multiplies it by the 

multiplier. In 98 percent of cases, the 

multiplier is equal to 1.00, or 100 

percent. When the LCC model selects 

the extraordinary installation cost case, 

it also selects a multiplier between 200 

and 300 percent to multiply the 

estimated installation cost. 

Issue 4: DOE seeks comments on the 

extraordinary venting cost adder. 

Specifically, DOE seeks data to estimate 

the fraction of consumers that might 

incur extraordinary costs, and the level 

of such extraordinary costs. 

5. Common Venting 

Spire and AO Smith commented on 

issues related to common venting of 

non-condensing equipment including 

assets being potentially ‘‘stranded’’ or 

needing to be prematurely retired and 

the cost of engineering a solution. 

(Spire, No. 45 at pp. 33, 34; AO Smith, 

No. 39 at p. 12) AHRI commented that 

one way to replace common vented, 

non-condensing CWH equipment is to 

replace all water heaters 

simultaneously. (AHRI, Public Meeting 

Transcript, No. 20 at pp. 89–90) 

DOE acknowledges that certain CWH 

equipment installations are commonly 

vented in certain building applications 

in which it is feasible. However, in 

these instances, the CWH equipment 

typically is not commonly vented with 

other, disparate gas-fired equipment 

(like furnaces). Instead, multiple units 

of CWH equipment are common vented 

together since the CWH equipment 

typically operates in unison, calling for 

a specific vent size. Common venting 

disparate gas-fired equipment 

complicates the design and sizing of the 

common vent, since it needs to 

accommodate exhaust of a wide range of 

flue gas volume due to the different 

operating profiles and flue capacities 

required for disparate equipment. When 

multiple units of CWH equipment are 

common vented, building engineers 

typically design the common vent 

system to suit a specific number of units 

of CWH equipment with certain 

specifications. The installation of these 

units typically occurs all at one time. As 

a result, each unit should have the 

similar expected lifetime and 

replacement cycle. Therefore, when one 

unit fails and requires replacement, the 

other units sharing the common vent 

should also be nearing the end of their 

lifetimes. In this scenario, building 

engineers will often replace all of the 

units at one time for sake of simplicity, 

time, cost, and risk avoidance. Thus, the 

stranded cost of any naturally-drafted, 

non-condensing CWH equipment due to 

this NOPR would have marginal 

residual value, which often would have 

been relinquished regardless of this 

NOPR. In addition, polypropylene 

common vent kits are available in the 

market to accommodate the common 

venting of condensing CWH equipment, 

and DOE is unaware of building codes 

issues to prevent such kits from being 

used widely. This means condensing 

CWH equipment could be installed in 

the same location as the naturallyvented, non-condensing CWH 

equipment that it replaces. Spire, AHRI, 

and A.O. Smith did not provide 

information supporting their claim that 

the building applications and 

circumstances that call for the design 

and installation of a common venting 

system. Moreover, commenters did not 

indicate how typical common venting is 

in the commercial and residential 

building stock, which would allow for 

an accounting of common venting 

where it has a substantial impact on the 

analysis. For all of these reasons, DOE 

determined that stranded gas-fired 

equipment due to common venting 

circumstances would not have a 

substantial impact on the results of its 

analysis. The SNOPR retained the 

assumption embodied in the NOPR 

analysis that common venting does not 

impose specific costs that must be 

captured in the installation cost 

analysis. 

6. Vent Sizing/Material Cost 

Raypak commented that the cost used 

by DOE for replacing venting systems is 

likely understated due to the selected 

input capacity for the representative 

designs of commercial gas-fired tankless 

water heaters and commercial gas-fired 

instantaneous circulating water heaters 

and hot water supply boilers. Raypak 

argues that higher-capacity commercial 

CWH equipment calls for larger vent 

diameters that require more expensive 

vent material (i.e., AL29–4C) than the 

material currently used in DOE’s 

analysis (i.e., PVC). (Raypak, No. 41 at 

p. 7) In response, DOE’s analysis uses 

representative models for each CWH 

equipment category as described in 

IV.C.3. 

These representative models were 

determined through research of the most 

common specifications of models 

within the equipment category in the 

market. DOE acknowledges that CWH 

equipment with higher input capacities 

calls for vents with larger diameters, 

and, thus, requires AL29–4C as the 

venting material for condensing CWH 

equipment. An examination of the 

installed costs for vents from 4–10 

inches in diameters based on straight 

vent pipe and national average labor 

rates suggests the AL29–4C double wall 

vent is approximately 50 percent more 

expensive per foot on average than PVC. 

However, as vent diameter increases 

linearly in size, the input capacity for 

the CWH equipment sized to the vent 

diameter increases roughly as the square 

of the vent diameter due to the volume 

of exhaust that can travel through the 

vent cross-sectional area at the same 

pressure. CWH equipment with such 

high input capacities will be installed in 

buildings with higher maximum and 

average daily loads, which will result in 

higher energy and monetized energy 

cost savings relative to the roughly 

linear cost increase in vent installation. 

Therefore, to the extent that CWH 

equipment requiring larger diameter 

venting is prevalent in the market, it 

suggests that DOE’s LCC analysis results 

may be conservative in terms of such 

CWH equipment. 

7. Masonry Chimney/Chimney Relining 

Bradford White questioned the 

validity of DOE’s assumptions that 25 

percent of buildings built prior to 1980 

have a masonry chimney, and that 25 

percent of those chimneys need 

relining. (Bradford White, No. 42 at p. 

8) 

In the withdrawn NOPR, DOE 

assumed that 25 percent of pre-1980 

buildings have masonry chimneys and 

that 25 percent need relining. DOE 

asked for input on these and other 

primary assumptions used in the logic 

underlying the calculation of venting 

costs. While DOE acknowledges 

Bradford White’s uncertainty about 


jspears on DSK121TN23PROD with PROPOSALS2
30666 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

84For examples of the types of steps hotels take 

to avoid downtime and the planning performed to 

meet customer needs with minimum downtimes, 

see www.usatoday.com/story/travel/hotels/2018/12/ 

03/hot-showers-hotels/2154259002/or 

continuingeducation.bnpmedia.com/courses/watts/ 

water-safety-and-efficiency-in-hospitality-buildings/ 

4/. 

85Fisher-Nickel. Design Guide: Improving 

Commercial Kitchen Hot Water System: Energy 

Efficient Heating, Delivery and Use. March 26, 

2010. 

these assumptions, DOE did not receive 

information or data on the percentage of 

buildings built prior to 1980 with a 

masonry chimney and the percentage of 

those chimneys that require relining. 

Because no information has been 

identified to cause DOE to alter the 

original assumptions, this NOPR 

continues to use the assumptions that 

25 percent of buildings constructed 

prior to 1980 have masonry chimneys, 

and 25 percent of those buildings need 

a relining of the chimney. 

8. Downtime During Replacement 

In response to the withdrawn NOPR, 

several stakeholders asked for 

clarification as to whether the downtime 

to switch from a non-condensing CWH 

equipment to condensing equipment 

was included in DOE’s analysis, or 

encouraged DOE to include tangential 

factors like downtime in the analysis. 

(PVI, Public Meeting Transcript, No. 20 

at pp. 85–86; AHRI, No. 40 at p. 5–6; 

Rheem, No. 43 at pp. 7, 15, 23; Raypak, 

No. 41 at pp. 4–5; NPGA, No. 32 at p. 

3) In response, DOE’s research indicates 

that consumers sensitive to the 

downtime incurred during CWH 

equipment replacement, such as in hotel 

and restaurant building applications, 

already plan ahead to limit the 

downtime of equipment replacement.84

These consumers already must schedule 

planned replacements during off hours 

or low-use periods to limit the impact 

on business operation. Therefore, DOE 

did not account for the loss of business 

in its LCC analysis. 

9. Fuel Switching, Cost Build-Up Versus 

Survey, Other Comments 

DOE’s LCC analysis accounts for 

consumers who experience a net cost 

due to a payback that is longer than the 

equipment lifetime of the more-efficient 

CWH equipment (i.e., non-cost-effective 

scenario). The results of DOE’s 

calculations of average lifetime cost and 

percent of consumers experiencing a net 

cost are presented for each equipment 

category in chapter 8 of the NOPR TSD. 

Table V.4 through Table V.12 of this 

NOPR present LCC savings and PBP 

results by TSL. DOE’s review of fuel 

switching is available in section IV.H.2 

of this NOPR. 

In comments on the withdrawn 

NOPR, two stakeholders claimed that 

using a cost build-up approach rather 

than surveys of contractor quotes, leads 

to systematically understated 

installation costs. (Spire, No. 45 at pp. 

20, 21; AHRI, No. 40 at pp. 35, 36) In 

response, DOE relied primarily on data 

from RS Means, Whitestone, and ENR to 

develop its installation costs. These 

resources provided itemized data on the 

installation and removal costs of both 

equipment and venting systems, as well 

as the installation costs of condensate 

drainage systems, electrical outlets, and 

chimney relining. The itemization of 

these costs was at the component level 

for both labor and material, and in both 

the commercial and residential sectors, 

which allowed DOE to develop an 

appropriate set of installation scenarios 

to factor into the LCC analysis. The use 

of these resources also provided DOE 

with a consistent evaluation of costs 

with a consistent set of location 

adjustments for each residential and 

commercial region included in the 

analysis. DOE notes that surveys of 

existing contractor quotes may not 

adequately separate equipment costs 

from installation costs since installing 

contractors would commonly be selling 

and marking up equipment as well as 

installation labor. Thus, use of surveys 

would not provide the level of detailed 

information needed to assess 

installation costs. For these reasons, the 

sources relied upon were nationally 

representative and appropriate for the 

development of installation costs, as 

were the methodologies used in the 

withdrawn NOPR. For this NOPR, DOE 

continued to use a built-up cost 

approach to installed cost estimation. 

The Joint Advocates referred DOE to 

a commercial kitchens service center for 

information on installation costs. (Joint 

Advocates, Public Meeting Transcript, 

No. 20 at p. 87) DOE believes this 

reference is to the Fisher-Nickel Food 

Technology Service Center. DOE 

reviewed the Installation Considerations 

section of the Fisher-Nickel ‘‘Design 

Guide for Improving Commercial 

Kitchen Hot Water System’’ 85

performance in its analysis. DOE’s 

analysis accounts for the installation 

recommendations included in this 

resource, such as the installation of a 

condensate neutralizer for condensate 

drainage and use of PVC vent material 

for condensing CWH equipment. In 

addition, DOE relied on this resource for 

certain components of its energy use 

analysis. Thus, DOE has properly 

considered this resource in this NOPR 

analysis. 

In response to the withdrawn NOPR 

four stakeholders mentioned the 

potential impacts of costs associated 

with asbestos treatment in venting 

retrofit cases and asked if asbestos was 

considered by DOE and/or stated that 

the presence of asbestos could drive up 

the costs to change to a new vent 

system. (Bradford White, No. 42 at pp. 

8–9; A.O. Smith, No. 39 at pp. 3, 13; 

NegaWatt, Public Meeting Transcript, 

No. 20 at p. 90; CA IOUs, No. 28 at p. 

3) In response to these comments, DOE 

researched the prevalence and vintage 

of asbestos insulation in venting 

systems. Asbestos-lined vents were 

installed in the 1970s to insulate singlewall vents as a safety precaution (i.e., 

prevent safety hazards resulting from 

hot vent temperatures). This practice 

was phased out in the 1980s due to the 

human health risks associated with 

asbestos material. In addition, EPAct 

1992 mandated a minimum thermal 

efficiency of 78 percent for CWH 

equipment, which went into effect in 

1994. As a result of this legislation, 

many consumers replacing CWH 

equipment also needed to replace the 

venting system due to the improper vent 

diameter of their existing system, at 

which time asbestos issues likely would 

have been addressed. Commenters 

seemed to agree this is an uncommon 

situation now and would be less 

common over time. DOE also notes that 

the deterioration of the asbestoscontaining venting over time implies 

that this is a pre-existing building 

concern and that many of these vents 

would need to be replaced or 

circumvented regardless, which when it 

occurs, points to situations where an 

existing vent is no longer reusable. DOE 

agrees that incorporation of costs for 

asbestos removal would increase the 

cost of venting generally, but due to 

these historical circumstances and the 

need to replace deteriorating and unsafe 

existing vents, generally, it is 

unnecessary to account for the 

additional cost of removing asbestoslined vents since they are uncommon 

and will be even less common by 2026. 

DOE notes that the approach taken for 

this NOPR analysis is unchanged from 

the withdrawn NOPR analysis in this 

regard. 

c. Annual Energy Consumption 

DOE estimated the annual electricity 

and natural gas consumed by each 

category of CWH equipment, by 

efficiency and standby loss level, based 

on the energy use analysis described in 

section IV.E and in chapter 7 of the 

NOPR TSD. 


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86U.S. Energy Information Administration (EIA). 

Form EIA–861M Database Monthly Electric Utility 

Sales and Revenue Data (aggregated: 1990–current). 

Available at www.eia.gov/electricity/data/eia861m/ 

. Last accessed on April 16, 2021. 

87U.S. Energy Information Administration (EIA). 

Natural Gas Prices. Available at www.eia.gov/dnav/ 

ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Last 

accessed on February 26, 2021. 88U.S. Energy Information Administration (EIA). 

‘‘Average retail price of electricity;’’ pre-generated 

report 5.6, average retail price of electricity to 

ultimate customers by end-use sector, by state. 

Available at www.eia.gov/electricity/data/browser/. 

Last accessed on February 21, 2021. 89U.S. Energy Information Administration (EIA). 

Natural Gas Navigator. Available at www.eia.gov/ 

dnav/ng/ng_pri_sum_a_EPG0_FWA_DMcf_a.htm. 

Last accessed on February 26, 2021. 90U.S. Energy Information Administration (EIA). 

Annual Energy Outlook 2021 with Projections to 

2050: Narrative. February 2021. Available at 

www.eia.gov/outlooks/aeo/. 

91See appendix 8E of the TSD for the 2016 

supplemental notice of proposed rulemaking for 

residential furnaces for a direct comparison, 

available at: www.regulations.gov/document/EERE2014-BT-STD-0031-0217 (Last accessed January 25, 

2022). 

d. Energy Prices 

Electricity and natural gas prices are 

used to convert changes in the energy 

consumption from higher-efficiency 

equipment into energy cost savings. It is 

important to consider regional 

differences in electricity and natural gas 

prices because the variation in those 

prices can impact electricity and natural 

gas consumption savings and equipment 

costs across the country. DOE 

determined average effective 

commercial electricity prices 86 and 

commercial natural gas prices 87 at the 

State level from EIA data for 2019. DOE 

used data from EIA’s Form 861 88 to 

calculate commercial and residential 

sector electricity prices, and EIA’s 

Natural Gas Navigator 89 to calculate 

commercial and residential sector 

natural gas prices. Future energy prices 

were projected using trends from the 

EIA’s AEO2021.90 This approach 

captured a wide range of commercial 

electricity and natural gas prices across 

the United States. 

CBECS and RECS report data based on 

different geographic scales. The various 

States in the United States are 

aggregated into different geographic 

scales such as Census Divisions (for 

CBECS) and reportable domains (for 

RECS). Hence, DOE weighted electricity 

and natural gas prices in each State 

based on the cumulative population in 

the cluster of one or more States that 

comprise each Census Division or 

reportable domain respectively. See 

appendix 8C of the NOPR TSD for 

further details. 

The electricity and natural gas price 

trends provide the relative change in 

electricity and natural gas costs for 

future years. DOE used the AEO2021 

Reference case to provide the default 

electricity and natural gas price forecast 

scenarios. DOE extrapolated the trend in 

values at the Census Division level to 

establish prices beyond 2050. 

DOE developed the LCC analysis 

using a marginal fuel price approach to 

convert fuel savings into corresponding 

financial benefits for the different 

equipment categories. This approach 

was based on the development of 

marginal price factors for gas and 

electric fuels based on historical data 

relating monthly expenditures and 

consumption. For details of DOE’s 

marginal fuel price approach, see 

chapter 8 of the NOPR TSD. 

DOE received comments on its 

marginal energy prices and marginal 

energy price factors, whether they 

represent the true marginal gas and 

electric energy costs, and the accuracy 

with which they represent the marginal 

energy costs paid by larger load 

consumers, in the withdrawn 2016 

NOPR. Spire commented that DOE’s 

needs to consider how changes in 

energy consumption are reflected in 

consumer energy bills based upon 

actual tariffs. (AGA and APGA, No. 35 

at pp. 5, 8–9; Spire, No. 45 at pp. 36, 

40; EEI, No. 38 at pp. 3–5). 

Regarding the usage of EIA data for 

development of marginal energy costs 

and comparisons to tariff data, DOE 

emphasizes that the EIA data provide 

complete coverage of all utilities and all 

customers, including larger commercial 

and industrial utility customers that 

may have discounted energy prices. The 

actual rates paid by individual 

customers are captured and reflected in 

the EIA data and are averaged over all 

customers in a state. DOE has 

previously compared these two 

approaches for determining marginal 

energy price factors in the residential 

sector. In a September 2016 

supplemental notice of proposed 

rulemaking for residential furnaces, 

DOE compared its marginal natural gas 

price approach using EIA data with 

marginal natural gas price factors 

determined from residential tariffs 

submitted by stakeholders. 81 FR 65719, 

65784 (Sept. 23, 2016). The submitted 

tariffs represented only a small subset of 

utilities and states and were not 

nationally representative, but DOE 

found that its marginal price factors 

were generally comparable to those 

computed from the tariff data (averaging 

across rate tiers).91 DOE noted that a full 

tariff-based analysis would require 

information on each household’s total 

baseline gas consumption (to establish 

which rate tier is applicable) and how 

many customers are served by a utility 

on a given tariff. These data were not 

available in the public domain. By 

relying on EIA data, DOE noted, its 

marginal price factors represented all 

utilities and all states, averaging over all 

customers, and was therefore ‘‘more 

representative of a large group of 

consumers with diverse baseline gas 

usage levels than an approach that uses 

only tariffs.’’ 81 FR 65719, 65784. While 

the above comparative analysis was 

conducted for residential consumers, 

the general conclusions regarding the 

accuracy of EIA data relative to tariff 

data remain the same for commercial 

consumers. DOE uses EIA data for 

determining both residential and 

commercial electricity prices and the 

nature of the data is the same for both 

sectors. DOE further notes that not all 

operators of CWH equipment are larger 

load utility customers. As reflected in 

the building sample derived from 

CBECS 2012 and RECS 2009 data, there 

are a range of buildings with varying 

characteristics, including multi-family 

residential buildings, that operate CWH 

equipment. The buildings in the LCC 

sample have varying hot water heating 

load, square footage, and water heater 

capacity. Operators of CWH equipment 

are varied, some large and some smaller, 

and thus the determination of the 

applicable marginal energy price should 

reflect the average CWH equipment 

operator. 

DOE’s approach is based on the 

largest, most comprehensive, most 

granular national data sets on 

commercial energy prices that are 

publicly available from EIA. The data 

from EIA are the highest quality energy 

price data available to DOE. The 

resulting estimated marginal energy 

prices do represent an average across all 

commercial customers in a given region 

(state or group of states for RECS, census 

division for CBECS). Some customers 

may have a lower marginal energy price, 

while others may have a higher 

marginal energy price. With respect to 

large customers who may pay a lower 

energy price, no tariffs were submitted 

to DOE during the rulemaking for 

analysis. Tariffs for individual nonresidential customers can be very 

complex and generally depend on both 

total energy use and peak demand 

(especially for electricity). These tariffs 

vary significantly from one utility to 

another. While DOE was unable to 

identify data to provide a basis for 

determining a potentially lower price 

for larger commercial and industrial 

utility customers, either on a state-bystate basis or in a nationally 

representative manner, the historic data 

on which DOE did rely includes such 


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30668 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

92Whitestone Research. The Whitestone Facility 

Maintenance and Repair Cost Reference 2012–2013 

(17th Annual edition). 2012. Whitestone Research: 

Santa Barbara, CA. 

93The Whitestone Research report is the most 

recent available from this source. The report was 

used in the determination of labor hours for 

maintenance and DOE has found no evidence 

indicating that maintenance tasks and labor hours 

have changed except as addressed in subsequent 

sections of this NOPR. 

discounts. The EIA data include both 

large non-residential customers with a 

potentially lower rate as well as more 

typical non-residential customers with a 

potentially higher rate. Thus, to the 

extent larger consumers of energy pay 

lower marginal rates, those lower rates 

are already incorporated into the EIA 

data, which would drive down EIA’s 

marginal rates for all consumers. If DOE 

were to adjust downward the marginal 

energy price for a small subset of 

individual customers in the LCC Monte 

Carlo, it would also have to adjust 

upward the marginal energy price for all 

other customers in the sample to 

maintain the same marginal energy 

price averaged over all customers. Even 

assuming DOE could accomplish those 

adjustments in a reliable or accurate 

way, this upward adjustment in 

marginal energy price would affect the 

majority of buildings in the LCC sample. 

Operational cost savings would 

therefore both decrease and increase for 

different buildings in the LCC sample, 

yielding substantially the same overall 

average LCC savings result as DOE’s 

current estimate. 

In summary, DOE’s current approach 

utilizes an estimate of marginal energy 

prices and captures the impact of actual 

utility rates paid by all customers in a 

State, including those that enjoy lower 

marginal rates for whatever reason, in 

an aggregated fashion. Adjustments to 

this methodology are unlikely to change 

the average LCC results. 

DOE uses EIA’s forecasted energy 

prices to compute future energy prices 

indices (for this NOPR, DOE updated 

forecasts from data published in the 

AEO2021 Reference case), and combines 

those indices with monthly historical 

energy prices and seasonal marginal 

price factors in calculating future energy 

costs in the LCC analysis. For this 

NOPR, DOE used 2019 EIA energy price 

data as a starting point and notes that 

the 2019 historical average natural gas 

prices are lower than the historical 

prices used in the withdrawn NOPR. 

EIA historical price trends and 

calculated indices are developed in a 

reasonable manner using the best 

available data and models, and DOE 

uses these trends consistently across its 

regulatory analyses. DOE points out that 

this NOPR analyzes potential new 

standards for gas-fired equipment, and 

that electricity usage for such 

commercial equipment occurs both 

during standby and during firing 

periods (depending on equipment 

design) and can occur during periods of 

utility peak usage. While electricity 

usage and resultant expenditures are 

significantly lower than fuel (gas)- 

related expenditures, they do impact the 

LCC analysis and have been included, 

using the calculated marginal electricity 

costs. DOE’s use of marginal cost factors 

for electricity in this analysis, which is 

based on overall electric expenditures, 

including those associated with 

electricity demand, may result in 

somewhat higher electricity costs than 

cost figures which omit the impact of 

demand costs; however, this is 

appropriate for the current analysis, 

barring other information on 

commercial load profiles and demandpeak windows. After careful 

consideration during the preparation of 

this NOPR, DOE concluded that it is 

appropriate to use its existing approach 

to the development of electric and fuel 

costs for the LCC and PBP analysis that 

(1) considers marginal electric and 

natural gas costs in its economic 

analysis, (2) reflects seasonal variation 

in marginal costs, and (3) uses EIArecommended future energy price 

escalation rates. DOE maintained this 

approach for this NOPR. 

e. Maintenance Costs 

Maintenance costs are the routine 

annual costs to the consumer of 

ensuring continued equipment 

operation. DOE utilized The Whitestone 

Facility Maintenance and Repair Cost 

Reference 2012–2013 92 93 to determine 

the amount of labor and material costs 

required for maintenance of each of the 

relevant CWH equipment subcategories. 

Maintenance costs include services such 

as cleaning the burner and flue and 

changing anode rods. DOE estimated 

average annual routine maintenance 

costs for each class of CWH equipment 

based on equipment groupings. Table 

IV.20 presents various maintenance 

services identified and the amount of 

labor required to service the equipment 

covered in the NOPR analysis. 

TABLE IV.20—SUMMARY OF MAINTENANCE LABOR HOURS AND SCHEDULE USED IN THE LCC AND PBP ANALYSES

Equipment Description Labor hours Frequency 

(years) 

Commercial gas-fired storage water heaters; Residential-duty gas-fired 

storage water heaters.

Clean (Volume ≤275 gallons) ..........

Clean (Volume >275 gallons) .........

2.67 

8 

1 

2 

Overhaul .......................................... 1.84 5 

Gas-fired instantaneous tankless water heaters ....................................... Service ............................................. 0.75 1 

Gas-fired instantaneous circulating water heaters and hot water supply 

boilers.

Service ............................................. 7.12 1 

Because data were not available to 

indicate how maintenance costs vary 

with equipment efficiency, DOE used 

preventive maintenance costs that 

remain constant as equipment efficiency 

increases. Additional information 

relating to maintenance of CWH 

equipment can be found in chapter 8 of 

the NOPR TSD. 

In response to the withdrawn NOPR, 

PHCC and Bradford White argued that 

maintenance of condensing equipment 

takes more labor time when compared 

to non-condensing equipment, i.e., that 

maintenance costs are not independent 

of thermal efficiency. (PHCC, No. 34 at 

p. 2; Bradford White, No. 42 at pp. 9– 

10) In preparing this NOPR, DOE 

reviewed the manuals of noncondensing and condensing CWH 

equipment for a number of major 

manufacturers (listed in NOPR TSD 

Appendix 8E). The maintenance 

sections of these manuals provide a 

detailed list of maintenance activities 

for the corresponding CWH model. 

Comparing non-condensing to 

condensing CWH equipment, DOE 

identified condensate line inspection as 

the distinct maintenance activity 

differentiating the two. This activity is 

neither sophisticated nor time 

consuming and not separately included. 

None of the manuals for condensing 

CWH equipment provided maintenance 

activities for controls, enclosures, access 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30669 

94U.S. Department of Energy, Technical Support 

Document: Energy Efficiency Program for Consumer 

Products and Commercial and Industrial 

Equipment: Commercial Warm Air Furnaces. 2015. 

Docket No. EERE–2013–BT–STD–0021. The 

Commercial Warm Air Furnaces NOPR TSD 

assumed 0.078 hours for replacing neutralizer filler 

every 3 years. For this NOPR, DOE used 5 minutes 

per year for checking and/or refilling neutralizers. 

95The condensate neutralizer DOE included in 

installation costs weighs approximately 5 pounds. 

It is essentially a plastic tube with water inlet and 

outlet, and filled with calcium carbonate pellets, 

and DOE estimates the pellets comprise 3.5 to 4 

pounds of the total. DOE found prices ranging from 

$0.25 per pound (phoenixphysique.com/ism-rootpvlsc/91da02-marble-chips-for-condensateneutralizer) up to $3 per pound in smaller purpose 

products. DOE estimates $10 per year would be 

sufficient to replace the pellets. 

96Whitestone Research. The Whitestone Facility 

Maintenance and Repair Cost Reference 2012–2013 

(17th Annual edition). 2012. Whitestone Research: 

Santa Barbara, CA. 

97RS Means Company. Facilities Maintenance 

and Repair Cost Data 2021. 28th Annual Edition. 

Available at https://www.rsmeans.com/products/ 

books/2021-facilities-maintenance-repair-costsbook. 

98RSMeans. RSMeans Mechanical Costs Book 

2021. Available at www.rsmeans.com/products/ 

books. 

99 Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. 

Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. 

Whitacre, J.G. Murray, W.J. Sheppard, D.W. 

DeWirth, and W.H. Thrasher. Assessment of 

Technology for Improving the Efficiency of 

Residential Gas Furnaces and Boilers. Volume I and 

II—Appendices. September 1994, 1994. Gas 

Research Institute. AGA Laboratories: Chicago, IL. 

Report No. GRI–94/0175. 

panels, wiring or motors. This suggests 

that there may be a confusion between 

what regular maintenance activities are 

and what would be considered repair. 

Accordingly, DOE has decided to 

maintain its current methodology for 

assigning the maintenance costs for noncondensing and condensing CWH 

equipment, with one exception. DOE 

added an additional 0.0833 labor hours 

per year 94 for checking condensate 

neutralizers during annual maintenance 

work, and $10 per year 95 for replacing 

the material within the neutralizers. 

In response to the withdrawn NOPR 

PHCC and Rheem commented that 

DOE’s assumption of 0.33 hours for 

tankless water heater maintenance as 

too low, with Rheem suggesting a 

minimum of 0.75 hour. (PHCC, No. 34 

at p. 1; Rheem, No. 43 at p. 25) In 

response, DOE relied on Whitestone 

Facility Maintenance and Repair Cost 

Reference 96 for the labor hours required 

for tankless water heater maintenance in 

the NOPR. Given the time needed to 

descale a tankless water heater 

annually, DOE increased the labor hours 

for tankless water heater maintenance to 

0.75 hours per year, as recommended by 

Rheem. In addition, DOE conducted 

research on the maintenance labor 

activities and associated hours needed 

to maintain commercial gas-fired 

instantaneous circulating water heaters 

and hot water supply boilers. This 

research involved reviewing guidance in 

manufacturer product manuals in 

combination with the estimates in the 

Whitestone Facility Maintenance and 

Repair Cost Reference and the RS Means 

Facilities Maintenance and Repair Cost 

Data.97 Using these references, DOE 

updated the maintenance labor hours 

from 0.33 to 7.12 for this equipment 

category. Appendix 8E of the NOPR 

TSD provides more detail on 

maintenance labor hours assigned to 

each equipment category of CWH. 

f. Repair Costs 

The repair cost is the cost to the 

consumer of replacing or repairing 

components that have failed in the CWH 

equipment. 

DOE calculated CWH repair costs 

based on an assumed typical failure rate 

for key CWH subsystems. DOE assumed 

a failure rate of 0.5 percent per year for 

combustion systems, 1 percent per year 

for controls, and 2 percent per year for 

high efficiency controls applied with 

condensing equipment. This probability 

of repair is assumed to extend through 

the life of the equipment, but only one 

major repair in the life of the equipment 

was considered. 

The labor required to repair a 

subsystem was estimated as 2 hours for 

combustion systems and 1 hour for 

combustion controls. Labor costs are 

based upon servicing by one plumber 

with overhead and profit included and 

are based on RSMeans data.98 Because 

a repair may not require the complete 

subsystem replacement, but rather 

separate components, DOE estimated a 

typical repair would have material costs 

of one-half the subsystem total cost, but 

would require the equivalent labor 

hours for total subsystem replacement. 

DOE calculated a cost for repair over the 

life of a CWH unit with these 

assumptions, and used that cost or 

repair in the analysis. A repair year was 

selected at random over the life for each 

unit selected in the LCC and the repair 

cost occurring in that year was 

discounted to present value for the LCC 

analysis. 

Heat exchanger failure is a unique 

repair scenario for certain commercial 

gas-fired instantaneous circulating water 

heaters and hot water supply boilers 

and was included in DOE’s repair cost 

analysis. The use of condensing or noncondensing technology determines the 

rate and timing of heat exchanger failure 

as well as the cost of repair with an 

approximately three times greater 

probability of repair for condensing 

equipment. DOE’s assumptions for the 

frequency of failure and the mean year 

of heat exchanger failure were based on 

a report from the Gas Research Institute 

(‘‘GRI’’) for boilers.99 The cost of heat 

exchanger replacement is assumed to be 

a third of the total water heater 

replacement cost. 

In the October 2014 RFI, DOE asked 

if repair costs vary as a function of 

equipment efficiency. 79 FR 62899, 

62908 (Oct. 21, 2014). Four stakeholders 

commented on the relationship between 

equipment efficiency and repair costs, 

with emphasis that higher-efficiency 

equipment incorporates additional 

components and more complex 

controls. (Bradford White, No. 3 at p. 3; 

A.O. Smith, No. 2 at p.4; AHRI, No. 5 

at p. 5; Rheem, No. 10 at p.7) DOE 

considered the feedback from the 

stakeholders and undertook further 

research to identify components and 

subsystems commonly replaced in order 

to evaluate differences in repair costs 

relative to efficiency levels. 

As a result of its research, DOE 

learned that the combustion systems 

and controls used in gas-fired CWH 

equipment have different costs related 

to the efficiency levels of these 

products, a finding in agreement with 

comments provided on the RFI. For the 

combustion systems, these differences 

relate predominately to atmospheric 

combustion, powered atmospheric 

combustion, and pre-mixed modulating 

combustion systems used on baselineefficiency, moderate-efficiency, and 

high-efficiency products respectively. 

The control systems employed on 

atmospheric combustion systems were 

found to be significantly less expensive 

than the controller used on powered 

combustion systems, which was 

observed to include a microprocessor in 

some products. 

Where similar component parts and 

costs were identified that reflected the 

equipment category and efficiency, 

DOE’s component cost was estimated as 

the average cost of those replacement 

components identified. This cost was 

applied at the frequency identified 

earlier in this section. DOE understands 

that this approach may conservatively 

estimate the total cost of repair for 

purposes of DOE’s analysis, but the 

percentage of total repair cost remains 

small compared to the consumer cost 

and the total installation cost. 

Additionally, DOE prefers to use this 

component-level approach to 

understand the incremental repair cost 

difference between efficiency levels of 

equipment. Additional details of this 

analysis and source references for the 

subsystem and component costs are 

found in chapter 8 of the NOPR TSD 


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30670 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

100 DOE attempted to only include only unique 

sources, as opposed to documents citing other 

sources already included in DOE’s reference list. 

101The implicit discount rate is inferred from a 

consumer purchase decision between two otherwise 

identical goods with different first cost and 

operating cost. It is the interest rate that equates the 

increment of first cost to the difference in net 

present value of lifetime operating cost, 

incorporating the influence of several factors: 

Transaction costs; risk premiums and response to 

uncertainty; time preferences; interest rates at 

which a consumer is able to borrow or lend. 

102 Damodaran Online. Damodaran financial data 

used for determining cost of capital. Available at 

pages.stern.nyu.edu/∼adamodar/. Last accessed on 

February 16, 2021. 

and Appendix 8E of the NOPR TSD. 

DOE’s incorporation and approach to 

repair costs in the LCC did not change 

from the NOPR implementation. 

Anonymous commented that 

condensing technology combined with 

electronic ignition is less reliable. 

(Anonymous, No. 21 at p. 1) Rheem 

commented that repair costs increase as 

a function of thermal efficiency, and 

asked that DOE present a tailored repair 

analysis for all TSLs considered. 

(Rheem, Public Meeting Transcript, No. 

20 at p. 127). In response, DOE 

acknowledges the point and again 

clarifies that in the LCC model, repair 

costs do vary as a function of thermal 

efficiency and are comparatively higher 

for condensing equipment. DOE did not 

perform an explicit repair/replace type 

analysis for CWH equipment, and this is 

documented in appendix 8E. The largest 

shipments of CWH equipment are 

storage water heaters and all 

commercial water heaters are high cost 

equipment; therefore, minor repairs that 

can be addressed with a part exchange 

(e.g., thermostat repair) are assumed to 

be done as part of regular repair and 

maintenance operation during the early 

life of the equipment. Thus, DOE 

assumed that most failures leading to 

replacement in non-condensing 

equipment are tied to storage-tank 

leakage, which is not considered a longterm repairable situation given the 

typical glass-lined steel tanks used. 

Other repairs, such as combustion 

system repairs, will be made or not 

based on the assessment of the 

remaining tank life. Because this is such 

a fundamental limitation to the 

equipment life, DOE tentatively 

concluded that any repair or 

replacement consideration will have 

only a minimal effect on the equipment 

life and the subsequent LCC and NIA 

analysis. 

g. Product Lifetime 

Product lifetime is the age when a 

unit of CWH equipment is retired from 

service. DOE used a distribution of 

lifetimes, with the weighted averages 

ranging between 10 years and 25 years 

as shown in Table IV.21, which are 

based on a review of CWH equipment 

lifetime estimates found in published 

studies and online documents. Sources 

include documents from prior DOE 

efficiency standards rulemaking 

processes, LBNL, NREL, the EIA, 

Federal Energy Management Program, 

Building Owner and Managers 

Association, Gas Foodservice 

Equipment Network, San Francisco 

Apartment Association, and National 

Grid.100 Specific document titles and 

references are provided in Appendix 8F 

of the NOPR TSD. DOE applied a 

distribution to all classes of CWH 

equipment analyzed. Chapter 8 of the 

NOPR TSD contains a detailed 

discussion of CWH equipment lifetimes. 

TABLE IV.21—AVERAGE CWH 

LIFETIME USED IN NOPR ANALYSES

CWH equipment 

Average 

lifetime 

(years) 

Commercial gas-fired storage water 

heaters and storage-type instantaneous ............................................... 10 

Residential-duty gas-fired storage 

water heaters ................................... 12 

Gas-fired instantaneous water heaters 

and hot water supply boilers: 

Tankless water heaters ................... 17 

Circulating water heaters and hot 

water supply boilers ..................... 25 

DOE notes that the average lifetime of 

all equipment covered by this proposed 

rulemaking is the same for baseline and 

max-tech thermal efficiency levels. The 

lifetime selected for each simulation run 

varies, but the weighted-average lifetime 

is the same across all thermal efficiency 

levels. DOE does not have data to 

suggest that the lifetime of condensing 

CWH equipment is lower than that of 

non-condensing equipment, despite the 

comments from industry purporting this 

viewpoint. DOE does have and has 

incorporated data regarding increased 

repair costs for individual component 

failures that may occur in higherefficiency equipment, as discussed in 

section IV.F.2.f of this document. DOE 

considered basing lifetime on warranty 

periods, but notes that warranty periods 

are based on individual business 

decisions for each manufacturer or 

entity that offers a warranty, decisions 

which likely reflect considerations other 

than expected lifetime. Accordingly, 

DOE has not used warranty periods to 

establish equipment lifetime in this 

NOPR. Additionally, DOE notes that 

lifetime used for hot water supply 

boilers in this proposed rulemaking is 

the same as the lifetime used in the 

space heating boilers rulemaking. 

(Docket No. EERE–2014–BT–STD– 

0030–0083 at p.8F–1) 

h. Discount Rate 

In the calculation of LCC, DOE 

applies appropriate discount rates to 

estimate the present value of future 

operating costs. DOE determined the 

discount rate by estimating the cost of 

capital for purchasers of CWH 

equipment. Most purchasers use both 

debt and equity capital to fund 

investments. Therefore, for most 

purchasers, the discount rate is the 

weighted-average cost of debt and 

equity financing, or the weightedaverage cost of capital (‘‘WACC’’), less 

the expected inflation. 

DOE applies weighted average 

discount rates calculated from consumer 

debt and asset data, rather than marginal 

or implicit discount rates.101 DOE notes 

that the LCC does not analyze the 

appliance purchase decision, so the 

implicit discount rate is not relevant in 

this model. The LCC estimates net 

present value over the lifetime of the 

product, so the appropriate discount 

rate will reflect the general opportunity 

cost of household funds, taking this 

time scale into account. Given the long 

time horizon modeled in the LCC, the 

application of a marginal interest rate 

associated with an initial source of 

funds is inaccurate. Regardless of the 

method of purchase, consumers are 

expected to continue to rebalance their 

debt and asset holdings over the LCC 

analysis period, based on the 

restrictions consumers face in their debt 

payment requirements and the relative 

size of the interest rates available on 

debts and assets. DOE estimates the 

aggregate impact of this rebalancing 

using the historical distribution of debts 

and assets. 

To estimate the WACC of CWH 

equipment purchasers, DOE used a 

sample of detailed business sub-sector 

statistics, drawn from the database of 

U.S. companies presented on the 

Damodaran Online website.102 This 

database includes most of the publiclytraded companies in the United States. 

Using this database, Damodaran 

developed a historical series of subsector-level annual statistics for 100+ 

business sub-sectors. Using data for 

1998–2019, inclusive, DOE developed 

sub-sector average WACC estimates, 

which were then assigned to aggregate 

categories. For commercial water 

heaters, the applicable aggregate 

categories include retail and service, 

property/real-estate investment trust 

(‘‘REIT’’), medical facilities, industrial, 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30671 

103Federal Reserve Bank of St. Louis. State and 

Local Bonds—Bond Buyer Go 20-Bond Municipal 

Bond Index. Data available through 2015 at 

research.stlouisfed.org/fred2/series/MSLB20/ 

downloaddata?cid=32995. Last accessed April 3, 

2020. 

104Bartel Associates, LLC. Ba 2019–12–31 20 

Year AA Municipal Bond Rates. Averaged quarterly 

municipal bond rates to develop annual averages 

for 2016–2020. bartel-associates.com/resources/ 

select-gasb-67-68-discount-rate-indices. Last 

accessed on February 18, 2021. 

105Rate calculated with rolling 40-year data series 

for the years 1989–2020. Data source: U.S. Federal 

Reserve. Available at www.federalreserve.gov/ 

releases/h15/data.htm. Last accessed on February 

18, 2021. 

106Board of Governors of the Federal Reserve 

System. Survey of Consumer Finances. Available at 

www.federalreserve.gov/PUBS/oss/oss2/ 

scfindex.html. 

107Thaler, R.H., Sunstein, C.R., and Balz, J.P. 

(2014). ‘‘Choice Architecture’’ in The Behavioral 

Foundations of Public Policy, Eldar Shafir (ed). 

108Thaler, R.H., and Bernartzi, S. (2004). ‘‘Save 

More Tomorrow: Using Behavioral Economics in 

Increase Employee Savings,’’ Journal of Political 

Economy 112(1), S164–S187. See also Klemick, H., 

et al. (2015) ‘‘Heavy-Duty Trucking and the Energy 

Continued 

hotel, food service, office, education, 

and other. The WACC approach for 

determining discount rates accounts for 

the applicable tax rates for each 

category. DOE did not evaluate the 

marginal effects of increased costs, and, 

thus, depreciation due to more 

expensive equipment, on the overall tax 

status. 

DOE used the sample of business subsectors to represent purchasers of CWH 

equipment. For each observation in the 

sample, DOE derived the cost of debt, 

percentage of debt financing, and cost of 

equity from industry-level data on the 

Damodaran Online website, from longterm nominal S&P 500 returns also 

developed by Damodaran, and risk-free 

interest rates based on nominal longterm Federal government bond rates. 

DOE then determined the weightedaverage values for the cost of capital, 

and the range and distribution of values 

of WACC for each of the sample 

business sectors. Deducting expected 

inflation from the cost of capital 

provided estimates of the real discount 

rate by ownership category. 

For most educational buildings and a 

portion of the office buildings occupied 

by public schools, universities, and 

State and local government agencies, 

DOE estimated the cost of capital based 

on a 40-year geometric mean of an index 

of long-term tax-exempt municipal 

bonds (>20 years).103 104 Federal office 

space was assumed to use the Federal 

bond rate, derived as the 40-year 

geometric average of long-term (>10 

years) U.S. government securities.105

Based on this database, DOE 

calculated the weighted-average, aftertax discount rate for CWH equipment 

purchases, adjusted for inflation, made 

by commercial users of the equipment. 

To establish residential discount rates 

for the LCC analysis, DOE identified all 

relevant household debt or asset classes 

in order to approximate a consumer’s 

opportunity cost of funds related to 

appliance energy cost savings. It 

estimated the average percentage shares 

of the various types of debt and equity 

by household income group using data 

from the Federal Reserve Board’s Survey 

of Consumer Finances (SCF) 106 for 

1995, 1998, 2001, 2004, 2007, 2010, 

2013, 2016, and 2019. Using the SCF 

and other sources, DOE developed a 

distribution of rates for each type of 

debt and asset by income group to 

represent the rates that may apply in the 

year in which amended standards 

would take effect. In the Crystal BallTM

analyses, when an LCC model selects a 

residential observation, the model 

selects an income group and then 

selects a discount rate from the 

distribution for that group. Chapter 8 of 

the NOPR TSD contains the detailed 

calculations related to discount rates. 

Use of discount rates in each section 

of the analysis is specific to the affected 

parties and the impacts being examined 

(e.g., LCC: Consumers, MIA: 

Manufacturers; NIA: National impacts 

using OMB-specified discount rates), 

consistent with the general need to 

examine these impacts independently. 

In addition, where factors indicate that 

a range or variability in discount rates 

is an important consideration and can 

be or is provided, DOE uses a range of 

discount rates in its various analyses. 

For this NOPR, DOE examined its 

established process for development 

and use of discount rates and has 

tentatively concluded that it sufficiently 

characterizes the discount rate facing 

consumers. 

i. Energy Efficiency Distribution in the 

No-New-Standards Case 

To accurately estimate the share of 

consumers that would be affected by a 

potential energy conservation standard 

at a particular efficiency level, DOE’s 

LCC analysis considered the projected 

distribution (market shares) of product 

efficiencies under the no-new-standards 

case (i.e., the case without amended or 

new energy conservation standards). 

To estimate the energy efficiency 

distribution of CWH equipment for 

2026, DOE developed the no-newstandards distribution of equipment 

using data from DOE’s Compliance 

Certification database and data 

submitted by AHRI regarding 

condensing versus non-condensing 

equipment. 

Each building in the sample was then 

assigned a water heater efficiency 

sampled from the no-new-standards 

case efficiency distribution for the 

appropriate equipment class, shown in 

Table IV.22. DOE was not able to assign 

a CWH efficiency to a building in the 

no-new-standards case based on 

building characteristics, since CBECS 

2012 and RECS 2009 did not provide 

enough information to distinguish 

installed water heaters disaggregated by 

efficiency. The efficiency of a CWH was 

assigned based on the forecasted 

efficiency distribution (which is 

constrained by the shipment and model 

data collected by DOE and submitted by 

AHRI) and accounts for consumers that 

are already purchasing efficient CWHs. 

While DOE acknowledges that 

economic factors may play a role when 

building owners or builders decide on 

what type of CWH to install, assignment 

of CWH efficiency for a given 

installation, based solely on economic 

measures such as life-cycle cost or 

simple payback period, most likely 

would not fully and accurately reflect 

actual real-world installations. There are 

a number of commercial sector market 

failures discussed in the economics 

literature, including a number of case 

studies, that illustrate how purchasing 

decisions with respect to energy 

efficiency are likely to not be 

completely correlated with energy use, 

as described below. 

There are several market failures or 

barriers that affect energy decisions 

generally. Some of those that affect the 

commercial sector specifically are 

detailed below. However, more 

generally, there are several behavioral 

factors that can influence the 

purchasing decisions of complicated 

multi-attribute products, such as water 

heaters. For example, consumers (or 

decision makers in an organization) are 

highly influenced by choice 

architecture, defined as the framing of 

the decision, the surrounding 

circumstances of the purchase, the 

alternatives available, and how they’re 

presented for any given choice 

scenario.107 The same consumer or 

decision maker may make different 

choices depending on the characteristics 

of the decision context (e.g., the timing 

of the purchase, competing demands for 

funds), which have nothing to do with 

the characteristics of the alternatives 

themselves or their prices. Consumers 

or decision makers also face a variety of 

other behavioral phenomena including 

loss aversion, sensitivity to information 

salience, and other forms of bounded 

rationality.108 Thaler, who won the 


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30672 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

Efficiency Paradox: Evidence from Focus Groups 

and Interviews,’’ Transportation Research Part A: 

Policy & Practice, 77, 154–166. (providing evidence 

that loss aversion and other market failures can 

affect otherwise profit-maximizing firms). 

109Thaler, R.H., and Sunstein, C.R. (2008). 

Nudge: Improving Decisions on Health, Wealth, and 

Happiness. New Haven, CT: Yale University Press. 

110American Society of Heating, Refrigerating, 

and Air-Conditioning Engineers. 2011 ASHRAE 

Handbook: Heating, Ventilating, and AirConditioning Applications. 2011. Available at 

www.ashrae.org/resources--publications. Last 

accessed on October 16, 2016. 

111 Vernon, D., and Meier, A. (2012). 

‘‘Identification and quantification of principal-agent 

problems affecting energy efficiency investments 

and use decisions in the trucking industry,’’ Energy 

Policy, 49, 266–273. 

112Blum, H. and Sathaye, J. (2010). ‘‘Quantitative 

Analysis of the Principal-Agent Problem in 

Commercial Buildings in the U.S.: Focus on Central 

Space Heating and Cooling,’’ Lawrence Berkeley 

National Laboratory, LBNL–3557E. (Available at: 

escholarship.org/uc/item/6p1525mg) (Last accessed 

January 20, 2022). 

113Prindle, B., Sathaye, J., Murtishaw, S., 

Crossley, D., Watt, G., Hughes, J., and de Visser, E. 

(2007). ‘‘Quantifying the effects of market failures 

in the end-use of energy,’’ Final Draft Report 

Prepared for International Energy Agency. 

(Available from International Energy Agency, Head 

of Publications Service, 9 rue de la Federation, 

75739 Paris, Cedex 15 France). 

114Bushee, B.J. (1998). ‘‘The influence of 

institutional investors on myopic R&D investment 

behavior,’’ Accounting Review, 305–333. 

DeCanio, S.J. (1993). ‘‘Barriers Within Firms to 

Energy Efficient Investments,’’ Energy Policy, 21(9), 

906–914. (explaining the connection between shorttermism and underinvestment in energy efficiency). 

115 International Energy Agency (IEA). (2007). 

Mind the Gap: Quantifying Principal-Agent 

Problems in Energy Efficiency. OECD Pub. 

(Available at: www.iea.org/reports/mind-the-gap) 

(Last accessed January 20, 2022). 

116 DeCanio, S.J. (1994). ‘‘Agency and control 

problems in US corporations: The case of energyefficient investment projects,’’ Journal of the 

Economics of Business, 1(1), 105–124. 

Stole, L.A., and Zwiebel, J. (1996). 

‘‘Organizational design and technology choice 

under intrafirm bargaining,’’ The American 

Economic Review, 195–222. 117Rohdin, P., and Thollander, P. (2006). 

‘‘Barriers to and driving forces for energy efficiency 

in the non-energy intensive manufacturing industry 

in Sweden,’’ Energy, 31(12), 1836–1844. 

Takahashi, M and Asano, H (2007). ‘‘Energy Use 

Affected by Principal-Agent Problem in Japanese 

Commercial Office Space Leasing,’’ In Quantifying 

the Effects of Market Failures in the End-Use of 

Energy. American Council for an Energy-Efficient 

Economy. February 2007. 

Visser, E and Harmelink, M (2007). ‘‘The Case of 

Energy Use in Commercial Offices in the 

Netherlands,’’ In Quantifying the Effects of Market 

Failures in the End-Use of Energy. American 

Council for an Energy-Efficient Economy. February 

2007. 

Bjorndalen, J. and Bugge, J. (2007). ‘‘Market 

Barriers Related to Commercial Office Space 

Leasing in Norway,’’ In Quantifying the Effects of 

Market Failures in the End-Use of Energy. American 

Council for an Energy-Efficient Economy. February 

2007. 

Schleich, J. (2009). ‘‘Barriers to energy efficiency: 

A comparison across the German commercial and 

services sector,’’ Ecological Economics, 68(7), 2150– 

2159. 

Muthulingam, S., et al. (2013). ‘‘Energy Efficiency 

in Small and Medium-Sized Manufacturing Firms,’’ 

Manufacturing & Service Operations Management, 

15(4), 596–612. (Finding that manager inattention 

contributed to the non-adoption of energy efficiency 

initiatives). 

Boyd, G.A., Curtis, E.M. (2014). ‘‘Evidence of an 

‘energy management gap’ in US manufacturing: 

Spillovers from firm management practices to 

energy efficiency,’’ Journal of Environmental 

Economics and Management, 68(3), 463–479. 

118Lovins, A. (1992). Energy-Efficient Buildings: 

Institutional Barriers and Opportunities. (Available 

at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (Last 

accessed January 20, 2022). 

119Fazzari, S.M., Hubbard, R.G., Petersen, B.C., 

Blinder, A.S., and Poterba, J.M. (1988). ‘‘Financing 

constraints and corporate investment,’’ Brookings 

Papers on Economic Activity, 1988(1), 141–206. 

Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, 

R.E., and Caballero, R.J. (1994). ‘‘A reconsideration 

of investment behavior using tax reforms as natural 

experiments,’’ Brookings Papers on Economic 

Activity, 1994(2), 1–74. 

DeCanio, S.J., and Watkins, W.E. (1998). 

‘‘Investment in energy efficiency: do the 

characteristics of firms matter? ’’ Review of 

Economics and Statistics, 80(1), 95–107. 

Nobel Prize in Economics in 2017 for 

his contributions to behavioral 

economics, and Sunstein point out that 

these behavioral factors are strongest 

when the decisions are complex and 

infrequent, when feedback on the 

decision is muted and slow, and when 

there is a high degree of information 

asymmetry.109 These characteristics 

describe almost all purchasing 

situations of appliances and equipment, 

including CWHs. The installation of a 

new or replacement CWH in a 

commercial building is a complex, 

technical decision involving many 

actors and is done very infrequently, as 

evidenced by the CWH mean lifetime of 

up to 25 years.110 Additionally, it would 

take at multiple billing cycles for any 

impacts on operating costs to be fully 

apparent. Further, if the purchaser of 

the CWH is not the entity paying the 

energy costs (e.g., a building owner and 

tenant), there may be little to no 

feedback on the purchase. These 

behavioral factors are in addition to the 

more specific market failures described 

as follows. 

It is often assumed that because 

commercial and industrial customers 

are businesses that have trained or 

experienced individuals making 

decisions regarding investments in costsaving measures, some of the commonly 

observed market failures present in the 

general population of residential 

customers should not be as prevalent in 

a commercial setting. However, there 

are many characteristics of 

organizational structure and historic 

circumstance in commercial settings 

that can lead to underinvestment in 

energy efficiency. 

First, a recognized problem in 

commercial settings is the principalagent problem, where the building 

owner (or building developer) selects 

the equipment and the tenant (or 

subsequent building owner) pays for 

energy costs.111 112 Indeed, a substantial 

fraction of commercial buildings with a 

CWH in the CBECS 2012 sample are 

occupied at least in part by a tenant, not 

the building owner (indicating that, in 

DOE’s experience, the building owner 

likely is not responsible for paying 

energy costs). Additionally, some 

commercial buildings have multiple 

tenants. There are other similar 

misaligned incentives embedded in the 

organizational structure within a given 

firm or business that can impact the 

choice of a CWH. For example, if one 

department or individual within an 

organization is responsible for capital 

expenditures (and therefore equipment 

selection) while a separate department 

or individual is responsible for paying 

the energy bills, a market failure similar 

to the principal-agent problem can 

result.113 Additionally, managers may 

have other responsibilities and often 

have other incentives besides operating 

cost minimization, such as satisfying 

shareholder expectations, which can 

sometimes be focused on short-term 

returns.114 Decision-making related to 

commercial buildings is highly complex 

and involves gathering information from 

and for a variety of different market 

actors. It is common to see conflicting 

goals across various actors within the 

same organization as well as 

information asymmetries between 

market actors in the energy efficiency 

context in commercial building 

construction.115

Second, the nature of the 

organizational structure and design can 

influence priorities for capital 

budgeting, resulting in choices that do 

not necessarily maximize 

profitability.116 Even factors as simple 

as unmotivated staff or lack of prioritysetting and/or a lack of a long-term 

energy strategy can have a sizable effect 

on the likelihood that an energy 

efficient investment will be 

undertaken.117 U.S. tax rules for 

commercial buildings may incentivize 

lower capital expenditures, since capital 

costs must be depreciated over many 

years, whereas operating costs can be 

fully deducted from taxable income or 

passed through directly to building 

tenants.118

Third, there are asymmetric 

information and other potential market 

failures in financial markets in general, 

which can affect decisions by firms with 

regard to their choice among alternative 

investment options, with energy 

efficiency being one such option.119


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Hubbard R.G. and Kashyap A. (1992). ‘‘Internal 

Net Worth and the Investment Process: An 

Application to U.S. Agriculture,’’ Journal of 

Political Economy, 100, 506–534. 

120Mills, E., Kromer, S., Weiss, G., and Mathew, 

P.A. (2006). ‘‘From volatility to value: analysing and 

managing financial and performance risk in energy 

savings projects,’’ Energy Policy, 34(2), 188–199. 

Jollands, N., Waide, P., Ellis, M., Onoda, T., 

Laustsen, J., Tanaka, K., and Meier, A. (2010). ‘‘The 

25 IEA energy efficiency policy recommendations 

to the G8 Gleneagles Plan of Action,’’ Energy Policy, 

38(11), 6409–6418. 

121Reed, J.H., Johnson, K., Riggert, J., and Oh, A. 

D. (2004). ‘‘Who plays and who decides: The 

structure and operation of the commercial building 

market,’’ U.S. Department of Energy Office of 

Building Technology, State and Community 

Programs. (Available at: www1.eere.energy.gov/ 

buildings/publications/pdfs/commercial_initiative/ 

who_plays_who_decides.pdf) (Last accessed January 

20, 2022). 

122Cooremans, C. (2012). ‘‘Investment in energy 

efficiency: do the characteristics of investments 

matter? ’’ Energy Efficiency, 5(4), 497–518. 

123Lovins 1992, op. cit. The Atmospheric Fund. 

(2017). Money on the table: Why investors miss out 

on the energy efficiency market. (Available at: 

taf.ca/publications/money-table-investors-energyefficiency-market/) (Last accessed January 20, 

2022). 

124Blumstein, C. and Taylor, M. (2013). 

Rethinking the Energy-Efficiency Gap: Producers, 

Intermediaries, and Innovation. Energy Institute at 

Haas Working Paper 243. (Available at: 

haas.berkeley.edu/wp-content/uploads/WP243.pdf) 

(Last accessed April 6, 2022). 

125A hurdle rate is the minimum rate of return 

on a project or investment required by an 

organization or investor. It is determined by 

assessing capital costs, operating costs, and an 

estimate of risks and opportunities. 

126 DeCanio 1994, op. cit. 

127 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox: 

Bureaucratic and Organizational Barriers to 

Profitable Energy-Saving Investments,’’ Energy 

Policy, 26(5), 441–454. 

128Andersen, S.T., and Newell, R.G. (2004). 

‘‘Information programs for technology adoption: the 

case of energy-efficiency audits,’’ Resource and 

Energy Economics, 26, 27–50. 

129Prindle 2007, op. cit. Howarth, R.B., Haddad, 

B.M., and Paton, B. (2000). ‘‘The economics of 

energy efficiency: insights from voluntary 

participation programs,’’ Energy Policy, 28, 477– 

486. 

130 Klemick, H., Kopits, E., Wolverton, A. (2017). 

‘‘Potential Barriers to Improving Energy Efficiency 

in Commercial Buildings: The Case of Supermarket 

Refrigeration,’’ Journal of Benefit-Cost Analysis, 

8(1), 115–145. 

131de Almeida, E.L.F. (1998). ‘‘Energy efficiency 

and the limits of market forces: The example of the 

electric motor market in France’’, Energy Policy, 

26(8), 643–653. Xenergy, Inc. (1998). United States 

Industrial Electric Motor Systems Market 

Opportunity Assessment. (Available at: 

www.energy.gov/sites/default/files/2014/04/f15/ 

mtrmkt.pdf) (Last accessed January 20, 2022). 

132EIA, Annual Energy Outlook, www.eia.gov/ 

outlooks/aeo/ (Last accessed January 25, 2022). 

133For further details, see: www.eia.gov/outlooks/ 

aeo/assumptions/pdf/commercial.pdf (Last 

accessed January 25, 2022). 

Asymmetric information in financial 

markets is particularly pronounced with 

regard to energy efficiency 

investments.120 There is a dearth of 

information about risk and volatility 

related to energy efficiency investments, 

and energy efficiency investment 

metrics may not be as visible to 

investment managers,121 which can bias 

firms towards more certain or familiar 

options. This market failure results not 

because the returns from energy 

efficiency as an investment are 

inherently riskier, but because 

information about the risk itself tends 

not to be available in the same way it 

is for other types of investment, like 

stocks or bonds. In some cases energy 

efficiency is not a formal investment 

category used by financial managers, 

and if there is a formal category for 

energy efficiency within the investment 

portfolio options assessed by financial 

managers, they are seen as weakly 

strategic and not seen as likely to 

increase competitive advantage.122 This 

information asymmetry extends to 

commercial investors, lenders, and realestate financing, which is biased against 

new and perhaps unfamiliar technology 

(even though it may be economically 

beneficial).123 Another market failure 

known as the first-mover disadvantage 

can exacerbate this bias against adopting 

new technologies, as the successful 

integration of new technology in a 

particular context by one actor generates 

information about cost-savings, and 

other actors in the market can then 

benefit from that information by 

following suit; yet because the first to 

adopt a new technology bears the risk 

but cannot keep to themselves all the 

informational benefits, firms may 

inefficiently underinvest in new 

technologies.124

In sum, the commercial and industrial 

sectors face many market failures that 

can result in an under-investment in 

energy efficiency. This means that 

discount rates implied by hurdle 

rates 125 and required payback periods 

of many firms are higher than the 

appropriate cost of capital for the 

investment.126 The preceding arguments 

for the existence of market failures in 

the commercial and industrial sectors 

are corroborated by empirical evidence. 

One study in particular showed 

evidence of substantial gains in energy 

efficiency that could have been 

achieved without negative 

repercussions on profitability, but the 

investments had not been undertaken by 

firms.127 The study found that multiple 

organizational and institutional factors 

caused firms to require shorter payback 

periods and higher returns than the cost 

of capital for alternative investments of 

similar risk. Another study 

demonstrated similar results with firms 

requiring very short payback periods of 

1–2 years in order to adopt energysaving projects, implying hurdle rates of 

50 to 100 percent, despite the potential 

economic benefits.128 A number of other 

case studies similarly demonstrate the 

existence of market failures preventing 

the adoption of energy-efficient 

technologies in a variety of commercial 

sectors around the world, including 

office buildings,129 supermarkets,130

and the electric motor market.131

The existence of market failures in the 

commercial and industrial sectors is 

well supported by the economics 

literature and by a number of case 

studies. If DOE developed an efficiency 

distribution that assigned boiler 

efficiency in the no-new-standards case 

solely according to energy use or 

economic considerations such as lifecycle cost or payback period, the 

resulting distribution of efficiencies 

within the building sample would not 

reflect any of the market failures or 

behavioral factors above. DOE thus 

concludes such a distribution would not 

be representative of the CWH market. 

Further, even if a specific building/ 

organization is not subject to the market 

failures above, the purchasing decision 

of CWH efficiency can be highly 

complex and influenced by a number of 

factors not captured by the building 

characteristics available in the CBECS or 

RECS samples. These factors can lead to 

building owners choosing a CWH 

efficiency that deviates from the 

efficiency predicted using only energy 

use or economic considerations such as 

life-cycle cost or payback period (as 

calculated using the information from 

CBECS 2012 or RECS 2009). 

DOE notes that EIA’s Annual Energy 

Outlook 132 (‘‘AEO’’) is another energy 

use model that implicitly includes 

market failures in the commercial 

sector. In particular, the commercial 

demand module 133 includes behavioral 

rules regarding capital purchases such 

that in replacement and retrofit 

decisions, there is a strong bias in favor 

of equipment of the same technology 

(e.g., water heater efficiency) despite the 

potential economic benefit of choosing 

other technology options. Additionally, 

the module assumes a distribution of 

time preferences regarding current 

versus future expenditures. 

Approximately half of the total 

commercial floorspace is assigned one 

of the two highest time preference 

premiums. This translates into very high 

discount rates (and hurdle rates) and 

represents floorspace for which 

equipment with the lowest capital cost 

will almost always be purchased 

without consideration of operating 

costs. DOE’s assumptions regarding 

market failures are therefore consistent 


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134The DOE test procedure for CWH equipment 

at 10 CFR 431.106 does not specify a calculation 

method for determining energy use. For the 

rebuttable presumption PBP calculation, DOE used 

average energy use estimates. 

135 DOE uses data on manufacturer shipments as 

a proxy for national sales, as aggregate data on sales 

are lacking. In general, one would expect a close 

correspondence between shipments and sales. 

136Air Conditioning, Heating, and Refrigeration 

Institute. Commercial Storage Water Heaters 

Historical Data. Available at www.ahrinet.org/site/ 

494/Resources/Statistics/Historical-Data/ 

Commercial-Storage-Water-Heaters-Historical-Data. 

Last accessed May 17, 2021. 

137U.S. Department of Energy. Screening Analysis 

for EPACT-Covered Commercial HVAC and WaterHeating Equipment. Volume 1—Main Report. 2000. 

EERE–2006–STD–0098–0015. Available at 

www.regulations.gov/#!documentDetail;D=EERE2006-STD-0098-0015. 

with other prominent energy 

consumption models. 

The estimated market shares for the 

no-new-standards case for CWH 

equipment are shown in Table IV.22. 

See chapter 8 of the NOPR TSD for 

further information on the derivation of 

the efficiency distributions. 

TABLE IV.22—MARKET SHARES FOR THE NO-NEW-STANDARDS CASE BY EFFICIENCY LEVEL FOR CWH EQUIPMENT

EL 

Commercial gas-fired 

storage water heaters 

(%) 

Residential-duty 

gas-fired storage 

water heaters 

(%) 

Gas-fired 

instantaneous 

tankless water 

heaters 

(%) 

Gas-fired circulating 

water heaters 

and hot water 

supply boilers 

(%) 

0 ....................................................................... 33.9 17.9 17.0 4.3 

1 ....................................................................... 3.2 12.0 0.0 12.0 

2 ....................................................................... 0.0 7.2 0.0 15.1 

3 ....................................................................... 12.3 31.5 0.0 2.1 

4 ....................................................................... 49.7 27.0 20.8 15.8 

5 ....................................................................... 0.9 4.5 62.3 50.7 

3. Payback Period 

The PBP is the amount of time it takes 

the consumer to recover the additional 

installed cost of more-efficient products, 

compared to baseline products, through 

energy cost savings. PBPs are expressed 

in years. PBPs that exceed the life of the 

product mean that the increased total 

installed cost is not recovered in 

reduced operating expenses. 

The inputs to the PBP calculation for 

each efficiency level are the change in 

total installed cost of the product and 

the change in the first-year annual 

operating expenditures relative to the 

baseline. The PBP calculation uses the 

same inputs as the LCC analysis, except 

that discount rates are not needed. 

As noted previously, EPCA 

establishes a rebuttable presumption 

that a standard is economically justified 

if the Secretary finds that the additional 

cost to the consumer of purchasing a 

product complying with an energy 

conservation standard level will be less 

than three times the value of the first 

year’s energy savings resulting from the 

standard, as calculated under the 

applicable test procedure. (42 U.S.C. 

6295(o)(2)(B)(iii)) For each considered 

efficiency level, DOE determined the 

value of the first year’s energy 

savings 134 by calculating the energy 

savings in accordance with the 

applicable DOE test procedure, and 

multiplying those savings by the average 

energy price projection for the year in 

which compliance with the amended 

standards would be required. Chapter 8 

of the NOPR TSD provides additional 

details about the PBP. 

G. Shipments Analysis 

DOE uses projections of annual 

equipment shipments to calculate the 

national impacts of potential amended 

or new energy conservation standards 

on energy use, NPV, and future 

manufacturer cash flows.135 The 

shipments model, discussed in section 

IV.G.5 of this NOPR, takes an 

accounting approach, tracking market 

shares of each equipment category and 

the vintage of units in the stock. Stock 

accounting uses equipment shipments 

as inputs to estimate the age distribution 

of in-service equipment stocks for all 

years. The age distribution of in-service 

equipment stocks is a key input to 

calculations of both the NES and NPV 

because operating costs for any year 

depend on the age distribution of the 

stock. 

As part of the analysis, DOE examined 

the possibility of fuel switching. DOE 

recognizes that some cities and states 

are passing legislation to eliminate fossil 

fuel use in new building construction, 

while other states have made moves to 

ban electrification legislation. 

Additionally, section 433 of the Energy 

Independence and Security Act of 2007 

(‘‘EISA 2007’’) amendments to the 

Energy Conservation and Production 

Act requires that fossil fuel generated 

energy consumption be reduced to zero 

(as compared to a 2003 baseline) by 

2030 for new construction and major 

renovations of Federal buildings. 

Depending on whether these various 

fossil fuel bans or electrification 

mandates allow for the purchase of 

renewable energy credits to offset 

natural gas usage, such bans could 

potentially result in a decrease in 

projected shipments of gas-fired CWH 

equipment. For 2026, DOE estimates 

that shipments of CWH equipment to 

new construction that are the subject of 

this rulemaking will comprise 

approximately 20 percent of total 

shipments. New Federal government 

construction is approximately 2 percent 

of new commercial construction; 

therefore, it would be estimated to make 

up a very small percentage of these 

shipments. DOE’s shipment projections 

do not adjust for the impacts of 

electrification laws and regulations 

explicitly, as DOE has no data with 

which to make such an adjustment. 

However, since DOE used regression 

techniques and historical shipments 

data for this NOPR analysis, as 

described in sections IV.G.1 and IV.G.2 

of this document, some impact may be 

accounted for implicitly. Beyond this, 

DOE has no data with which to adjust 

shipments, and DOE has historically not 

speculated about legislation or its 

impacts. Section IV.H.2 discusses fuel 

switching in more detail. 

1. Commercial Gas-Fired and Electric 

Storage Water Heaters 

To develop the shipments model, 

DOE started with known information on 

shipments of commercial electric and 

gas-fired storage water heaters collected 

for the years 1994–2020 from the AHRI 

website,136 and extended back to 1989 

with data contained in a DOE 

rulemaking document published in 

2000.137 The historical shipments of 

commercial electric and gas-fired 

storage water heaters are summarized in 

Table IV.23 of this NOPR. Given that the 

estimated average useful lifetimes of 

these two types of equipment are 12 and 

10 years, respectively, the historical 


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shipments provided a basis for the 

development of a multi-year series of 

stock values. Using the stock values, a 

saturation rate was determined by 

dividing equipment stock by building 

stock, and this saturation rate was 

combined with annual building stock 

additions to estimate the shipments to 

new construction. With these data 

elements, a yearly accounting model 

was developed for the historical period 

to identify shipments deriving from new 

construction and from replacements of 

existing equipment. The accounting 

model also identified consumer 

migration into or out of the storage 

water heater equipment classes by 

calculating the difference between new 

plus replacement shipments and the 

actual historical shipments. 

TABLE IV.23—HISTORICAL SHIPMENTS

OF COMMERCIAL GAS-FIRED AND

ELECTRIC STORAGE WATER HEATERS

Year 

Commercial 

gas-fired 

storage 

Commercial 

electric 

storage 

1994 .................. 91,027 22,288 

1995 .................. 96,913 23,905 

1996 .................. 127,978 26,954 

1997 .................. 96,501 30,339 

1998 .................. 94,577 35,586 

1999 .................. 100,701 39,845 

2000 .................. 99,317 44,162 

2001 .................. 93,969 46,508 

2002 .................. 96,582 45,819 

2003 .................. 90,292 48,137 

2004 .................. 96,481 57,944 

2005 .................. 82,521 56,178 

2006 .................. 84,653 63,170 

2007 .................. 90,345 67,985 

2008 .................. 88,265 68,686 

2009 .................. 75,487 55,625 

2010 .................. 78,614 58,349 

2011 .................. 84,705 60,257 

2012 .................. 80,490 67,265 

2013 .................. 88,539 69,160 

2014 .................. 94,247 73,458 

2015 .................. 98,095 88,251 

2016 .................. 97,026 127,344 

2017 .................. 93,677 152,330 

2018 .................. 94,473 137,937 

2019 .................. 88,548 150,667 

2020 .................. 80,070 140,666 

At the public meeting for the 

withdrawn NOPR, AHRI stated the 

shipment projections are based on the 

projections of building stock growth, but 

the commenter suggested that DOE 

should compare its assumptions to the 

historical data in CBECS 2012 to 

determine whether the trend in the 

proposal makes sense. (AHRI, NOPR 

Public Meeting Transcript, No. 20 at pp. 

123–125) In written comments, AHRI 

restated its belief that the projection of 

shipments of gas-fired storage water 

heaters is too high when compared to 

the 25-year historical data set, 

suggesting that a more reasonable 

forecast of shipments might be a flat 

85,000 units per year. AHRI also stated 

its opinion that something systematic 

seems to be happening, such that the 

stock accounting approach used in the 

withdrawn NOPR might not be serving 

DOE well and that DOE should 

investigate other methods such as using 

actual historical data trends. (AHRI, No. 

40 at p. 15) 

DOE agrees with AHRI that an 

alternative to the stock accounting 

method might better serve DOE’s 

purposes. For this NOPR, DOE utilized 

regression techniques to develop the 

shipments forecast based on the 

assumption that shipments of gas-fired 

storage water heaters are a function of 

relative prices of natural gas and 

electricity, building stocks (i.e., the 

replacement market), and building stock 

additions (the new market). DOE 

investigated the use of variables that 

lead (e.g., building stock additions 1 or 

2 years in the future) or lag (e.g., relative 

prices experienced 1 year in the past). 

Using historical data for the years 1994– 

2020, DOE investigated multiple model 

specifications to find the best trade-off 

between model statistics and making the 

most use of historical data. The result 

was a model yielding a forecast of 

shipments that increases 0.5 percent per 

year from 2021–2055, reaching just 

under 113,700 units by 2055. See 

chapter 9 of the NOPR TSD for further 

details. The resulting growth rate for 

shipments is less than the underlying 

growth in building stocks (1.0 percent 

between 2021–2055), a result that makes 

sense to DOE when combined with the 

forecast of continuing low natural gas 

prices well into the future. In summary, 

consistent with AHRI’s suggestion, DOE 

investigated an alternative forecasting 

method—and the alternative DOE chose 

uses an econometric model to project 

commercial gas-fired storage unit 

shipments. For this NOPR, DOE used an 

econometric model that: (1) Makes use 

of all of the historical shipments data 

collected for the withdrawn NOPR, (2) 

projects shipments with embedded 

shifts that will rise and fall based on 

relative fuel prices and building stock 

projections, and (3) eliminates the need 

for DOE to make assumptions and 

adjustments to the level of apparent 

shifts when the expected shipments 

derived in the stock accounting 

framework exceeds or falls short of the 

actual shipments discussed in the 

withdrawn NOPR. 

For the withdrawn May 2016 NOPR 

and for this NOPR, no historical 

information was available that 

specifically identified shipments of gasfired storage-type instantaneous water 

heaters. The AHRI online historical 

shipments data explicitly states 

residentially marketed equipment is 

excluded but does not explicitly state 

whether instantaneous storage 

equipment is included or excluded. 

Because of the similarities between the 

commercial storage gas water heaters 

and the gas-fired storage-type 

instantaneous water heaters, DOE has 

included both in downstream analyses 

in this NOPR. However, DOE recognizes 

that some or all of the storage-type 

instantaneous shipments may not be 

captured in the historical AHRI 

shipments data. The DOE shipments 

analysis is derived from AHRI historical 

shipments data and thus may 

underrepresent future shipments of gasfired storage-type instantaneous water 

heaters. 

2. Residential-Duty Gas-Fired Storage 

and Instantaneous Water Heaters 

For the withdrawn NOPR, no 

historical shipment information was 

available for residential-duty gas-fired 

storage water heaters, gas-fired tankless 

water heaters, or gas-fired hot water 

supply boilers. Therefore, the NOPR and 

the NOPR TSD presented DOE’s 

analysis, which estimated both past 

shipments and forecasts of future 

shipments for residential-duty gas-fired 

storage water heaters, gas-fired tankless 

waters, or gas-fired hot water supply 

boilers. DOE explained its shipments 

forecast methodology in some detail in 

the withdrawn NOPR, and the 

Department also requested feedback on 

the approaches used, actual historical 

data, or both. 81 FR 34440, 34488– 

34490 (May 31, 2016). 

AHRI stated that shipments of 

instantaneous water heaters are 

significantly higher, and shipments of 

hot water supply boilers are 

significantly lower than DOE’s estimates 

presented as part of the withdrawn 

NOPR. While AHRI conceded that they 

do not track hot water supply boiler 

shipments, they offered their opinion 

that DOE’s estimate of shipments was 

overstated by an order of magnitude. 

AHRI stated that hot water supply 

boilers are a subset of commercial 

packaged boilers with changes to make 

them suitable for potable water. (AHRI, 

No. 40 at p. 15) AHRI and the water 

heater manufacturers also collected and 

submitted efficiency distribution data 

for gas-fired instantaneous equipment to 

DOE. (AHRI, No. 40 at p. 10) AHRI 

provided data from manufacturers on 

instantaneous water heater shipments to 

DOE’s contractors under a 

confidentiality agreement and indicated 

that the data include shipments of gasVerDate Sep<11>2014 19:04 May 18, 2022 Jkt 256001 PO 00000 Frm 00067 Fmt 4701 Sfmt 4702 E:\FR\FM\19MYP2.SGM 19MYP2

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138While the instantaneous units are gas-fired, 

natural gas variables consistently exhibited 

incorrect signs on the estimated coefficients. For 

example, the ratio of commercial electric price 

divided by commercial gas had a negative sign, 

meaning that higher ratios would lead to lower 

shipments. This is the opposite of what was 

expected. Higher electric prices relative to gas 

prices should lead to higher, not lower, shipments 

of the natural gas products. Thus, commercial 

natural gas price variables were omitted from the 

model. 

139See 10 CFR 431.82. Hot water supply boiler is 

defined at 10 CFR 431.102. 

fired instantaneous tankless and 

circulating water heating equipment. 

A.O. Smith’s written comments stated 

that data were being provided which 

DOE interprets to be referring to the data 

being provided through AHRI. A.O. 

Smith urged DOE to use these data, 

arguing that doing so will improve the 

estimates of national energy savings and 

other critical items. (A.O. Smith, No. 39 

at p. 3) A.O. Smith also singled out for 

reconsideration what it described as the 

erratic aggregate growth in DOE’s 

forecasted total shipments, particularly 

the gas-fired instantaneous tankless 

water heaters. (A.O. Smith, No. 39 at p. 

14) Bradford White called on DOE to 

revise the methodology used to estimate 

historical shipments for residential-duty 

gas-fired storage water heaters and hot 

water supply boilers. Bradford White 

stated its opinion that it was not fair to 

draw conclusions that the decline in 

commercial gas-fired storage unit 

shipments from 1994 to 2009 and that 

the resurgence of such shipments to 

1994 levels by 2013 were related to or 

a result of increasing shipments of hot 

water supply boilers or residential-duty 

gas-fired storage water heaters. 

(Bradford White, No. 42 at p. 10) 

DOE acknowledges the work of AHRI 

and water heater manufacturers in 

collecting and submitting instantaneous 

water heater shipment data. As 

suggested by A.O. Smith, DOE is using 

this information. For this NOPR, DOE 

developed an econometric model 

similar to that described for commercial 

gas-fired storage water heater 

shipments; DOE used the AHRIprovided data to estimate an equation 

relating commercial instantaneous 

shipments to building stock additions 

and commercial electricity prices.138

Because the historical data did not 

provide sufficient detail to identify the 

percentages represented by tankless and 

circulating water heater shipments, DOE 

estimated that 50 percent of the 

shipments are instantaneous tankless 

shipments and the remainder are 

circulating water heaters. Because the 

actual information provided by AHRI is 

confidential and cannot be disclosed, 

the only information being made 

available in this NOPR is the 

econometric forecast made for use in the 

analysis. 

Since the equipment that DOE has 

been calling hot water supply boilers 

includes what AHRI calls circulators as 

well as a second type of equipment 

AHRI calls boilers, DOE clarifies that 

the new DOE forecast for hot water 

supply boilers includes both circulating 

water heating equipment and hot water 

supply boilers. The circulating water 

heater shipments were developed as 

described earlier. As noted in this 

shipments discussion, the withdrawn 

NOPR requested shipments data or 

information for projecting the number of 

hot water supply boilers. AHRI was the 

only stakeholder who responded to 

DOE’s request for input related to 

shipments of hot water supply boilers. 

AHRI opined that the withdrawn NOPR 

forecast was an order of magnitude too 

high, and that hot water supply boilers 

are a subset of commercial packaged 

boilers with changes in headers and 

other factors that make them suitable for 

providing potable water. (AHRI, No. 40, 

p. 15) DOE clarifies that hot water 

supply boilers are considered ‘‘packaged 

boilers’’ within DOE’s regulations, but 

are regulated as CWH equipment and do 

not meet DOE’s definition of 

‘‘commercial packaged boiler,’’ which 

specifically excludes hot water supply 

boilers.139 However, DOE acknowledges 

the similarities in design between hot 

water supply boilers and commercial 

packaged boilers. DOE notes that AHRI 

offered their opinion that the hot water 

supply boiler shipment value was too 

high by a factor of 10 (an order of 

magnitude) in the context of having just 

collected shipments data on commercial 

gas-fired instantaneous water heaters 

and recently collected similar data on 

commercial packaged boilers. While 

AHRI provided an opinion as to the 

appropriateness of the hot water supply 

boiler shipment values used by DOE, 

this opinion is in the context of the 

collection of significant amounts of 

related data as indicated by AHRI. For 

this reason, DOE utilized AHRI’s input 

to create a 2013 shipments estimate for 

hot water supply boilers by dividing the 

NOPR value for 2013 by 10. DOE then 

used the historical and forecasted 

growth rates in shipments of 

commercial small gas-fired packaged 

boilers to estimate historical and 

forecasted shipments of hot water 

supply boilers. This approach addresses 

the comments and information supplied 

by AHRI; it unlinks the hot water 

supply boiler forecast from the forecast 

of commercial gas-fired storage water 

heaters as suggested by Bradford White; 

it results in a smoother, less erratic 

forecast than the NOPR forecast that 

A.O. Smith asked DOE to reconsider; 

and it breaks the equivalency between 

hot water supply boilers and gas-fired 

commercial storage equipment types to 

which Spire objected. The hot water 

supply boiler shipments were combined 

with the aforementioned and described 

forecast of circulating water heater 

shipments to generate a forecast for the 

instantaneous products referred to in 

this notice as circulating water heaters 

and hot water supply boilers. 

DOE was not able to identify 

additional information sources for 

residential-duty gas-fired shipments. 

DOE clarifies that residential-duty gasfired storage water heaters are not 

residential water heaters. Instead, they 

are a type of CWH equipment and DOE 

draws no conclusions about residentialduty gas-fired storage shipments 

replacing or being replaced by 

commercial gas-fired storage water 

heater shipments. Rather, the linkage 

used in the DOE model would 

essentially have shipments of both types 

of storage equipment going up or down 

in parallel. DOE retained the forecasting 

method used for the withdrawn NOPR. 

To maintain a shipments forecast that is 

roughly consistent in magnitude with 

the NOPR forecast, DOE used the same 

20 percent factor used for the NOPR. In 

other words, DOE assumes residentialduty gas-fired storage water heater 

shipments track with commercial gasfired storage water heaters, and 

shipments of the former are assumed to 

be 20 percent of the shipments of the 

latter. 

Issue 5: DOE seeks input on actual 

historical shipments for residential-duty 

gas-fired storage water heaters, gas-fired 

storage-type instantaneous water 

heaters, and for hot water supply 

boilers. 

Issue 6: DOE seeks additional actual 

historical shipment information for 

commercial gas-fired instantaneous 

tankless water heaters covering the 

period between 2015 and 2020 to 

supplement the data provided in 

response to the withdrawn NOPR. 

See section VII.E of this document for 

a list of issues on which DOE seeks 

comment. 

3. Available Products Database and 

Equipment Efficiency Trends 

In response to the withdrawn NOPR, 

AHRI, Bradford White, and Raypak 

objected to the use of the number of 

models listed in the AHRI directory as 

representative of the number of 

shipments by efficiency level. Bradford 

White, A.O. Smith, and Raypak stated 


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140 42 U.S.C. 8259b; 10 CFR part 436, subpart C. 

For FEMP requirements for commercial gas-fired 

water heaters see the FEMP web page: energy.gov/ 

eere/femp/purchasing-energy-efficient-commercialgas-water-heaters. 

that DOE should rely instead on the 

shipments data collected and provided 

by AHRI. (AHRI, No. 40 at p. 13; 

Bradford White, No. 42 at pp. 2–3; A.O. 

Smith, No. 39 at p. 3; Raypak, No. 41 at 

p. 5) Raypak further stated that DOE 

should have looked for alternative ways 

to fill in this information, and offered its 

opinion that DOE personnel are aware 

that the number of units listed in the 

AHRI directory do not correlate to 

shipments. (Raypak, No. 41 at p. 5) 

Bradford White provided examples of 

how counting models in the database 

may lead to inaccurate results and 

stated that sales of the older models 

listed in the AHRI database tend to 

decline over time. (Bradford White, No. 

42 at p. 14) Rheem also disputed DOE’s 

methodology to estimate historical 

shipments for all equipment classes, 

stating the number of certified models is 

inadequate for determining the number 

of shipments. (Rheem, No. 43 at p. 26) 

AHRI argued that available models are 

a lagging indicator, and similar to the 

Bradford White comment, stated that 

shipments of older models tend to 

decline as new units are introduced into 

the market. AHRI added that when DOE 

uses available models, it needs to find 

a methodology to adjust share to 

account for underlying growth in highefficiency products. (AHRI, No. 40 at p. 

13) 

Several stakeholders asserted that the 

assumption used for the analysis in the 

withdrawn NOPR of constant 

equipment efficiency over time was 

incorrect. PHCC commented that market 

evidence indicates growth in energyefficient product uptake without new 

standards, pointing to manufacturers 

increasing their product offerings due to 

competitive pressures to differentiate 

themselves from competitors. (PHCC, 

No. 34 at p. 1) AHRI commented that 

the percentage of condensing products 

actually shipped is much higher than 

DOE projected in its analysis, and to 

support its point, the trade association 

provided historical data on the share of 

shipments represented by condensing 

equipment for commercial gas-fired 

storage and instantaneous products. 

(AHRI, No. 40 at pp. 10–13) AHRI 

recommended that DOE recalculate the 

NIA in order to ensure national energy 

savings reflect the market-driven 

savings from the purchases of 

condensing equipment in the absence of 

such standards and as reflected in 

shipments-by-efficiency bin data 

provided. (AHRI, No. 40 at p. 14) Bock, 

A.O. Smith, and Spire pointed to 

AHRI’s comments as evidence of the 

growth in equipment efficiency over the 

course of the currently effective 

standard, which they argue is occurring 

in absence of new standards. (Bock, No. 

33 at p. 2; A.O. Smith, No. 39 at p. 5; 

Spire, No. 45 at p. 14) A.O. Smith added 

that its company sales data demonstrate 

annual growth of higher-efficiency CWH 

equipment and urged DOE to reconcile 

its data set with the data compiled by 

AHRI. (A.O. Smith, No. 39 at p. 5) 

Rheem believes DOE’s assumption of no 

growth in equipment efficiency is 

flawed based on an incorrect premise 

that the number of available models by 

efficiency level is directly proportional 

to the market penetration. Rheem added 

there is a much higher shipment rate of 

higher-efficiency CWH models by 

Rheem than the proportional number of 

higher-efficiency certified models, and 

that shipments of high-efficiency CWH 

equipment are increasing steadily and 

disproportionately to the number of 

certified models. (Rheem, No. 43 at pp. 

7, 25) 

DOE acknowledges the efforts of 

AHRI and the water heater 

manufacturers in collecting and 

providing efficiency distribution data 

for commercial gas-fired storage water 

heater and for instantaneous gas-fired 

water heater shipments. DOE also 

acknowledges the anecdotal evidence 

provided by A.O. Smith and Rheem 

about shipments of efficient models. 

DOE, as suggested by AHRI, revised the 

shipments and other analyses to reflect 

this information. Thus, in response to 

the suggestions of A.O. Smith, Rheem, 

and others, DOE did reconcile the 

analyses to account for the AHRI data 

rather than relying heavily on the 

number of available models. In response 

to the parties that objected to the 

analyses not showing an increasing 

efficiency trend, DOE’s NOPR analyses 

do now show such a trend. 

To the extent that there may be 

concerns about data availability, DOE 

notes that analyses are based to the 

largest extent possible on actual data. 

The available model database provided 

actual data illustrating a point in time, 

and DOE did not possess actual data 

from other points in time to provide 

evidence of a trend. While 

manufacturers may provide data during 

manufacturer interviews, such 

information is subject to non-disclosure 

agreements and is typically 

manufacturer-specific. It can become 

available for use in analyses such as the 

shipments analysis when sufficient data 

points are collected from multiple 

parties to enable the interview team to 

mask an individual party’s data 

sufficiently; the use of the data provided 

by AHRI allows for inclusion of actual 

data at an aggregate level. 

With respect to potential concerns 

about the impact of federal, state, and 

local building energy codes on 

shipments of CWH equipment, DOE 

notes that under EPCA, State building 

codes are generally prohibited from 

requiring standards for CWH equipment 

that require energy efficiency levels 

more stringent than the applicable 

minimum energy efficiency requirement 

in the amended ASHRAE 90.1. (42 

U.S.C. 6316(b)(2)(A) & (B)) 

Similarly, DOE also recognizes that 

there are businesses, government 

entities, educational institutions, health 

care facilities, and other institutional 

purchasers of CWH equipment that are 

already adopting environmental, 

sustainability, or climate plans in which 

they seek reduction in energy 

consumption and carbon emissions. 

These factors indicate a sizable share of 

the market will be purchasing efficient 

equipment. DOE notes that the ENERGY 

STAR CWH criteria became effective in 

March 2013, and a comparison of the 

first 2 years of ENERGY STAR results 

mirror the efficiency distribution data 

provided by AHRI and the water heater 

manufacturers. Additionally, Federal 

buildings are subject to Federal Energy 

Management Program (‘‘FEMP’’) 

purchasing requirements, and have been 

required to purchase condensing 

equipment since 2012. Currently, the 

FEMP requirement is to purchase 

ENERGY STAR-qualifying equipment or 

FEMP-designated equipment for 

commercial gas-fired storage and 

instantaneous tankless gas-fired 

commercial water heaters.140 In 

summary, DOE has tentatively 

concluded that these shipments are 

likely already reflected in the AHRI 

shipment statistics, which have been 

used to update DOE’s analyses for this 

NOPR, and therefore no further 

adjustments are necessary. 

To the extent that there are concerns 

about the length of the analysis period, 

DOE recognizes that a 30-year study 

period is a long time, and much can 

happen in 30 years that would affect the 

results, but notes that this rulemaking 

includes circulating water heaters and 

hot water supply boilers with 25-year 

expected lives; therefore, a study period 

less than 30 years might not even cover 

the lifetime of the longest-lived piece of 

equipment shipped. DOE acknowledges 

that in the future, more-stringent 

efficiency standards are possibilities. 

However, the energy savings and other 

benefits accruing from standards set by 


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141U.S. Energy Information Administration (EIA). 

2021 Annual Energy Outlook. January 2021. 

Available at www.eia.gov/forecasts/aeo/. 

this rulemaking are analyzed and 

attributed to this standard. In future 

standards analyses, the standards set by 

this proposed rulemaking become part 

of the baseline. 

Issue 7: DOE seeks historical 

shipments data dividing shipments 

between condensing and noncondensing efficiencies, for all product 

types that comprise the subject of this 

proposed rulemaking. 

4. Shipments to Residential Consumers 

DOE determined the fractions of 

commercial and residential applications 

for each equipment category based on 

the number of samples (in both CBECS 

and RECS) selected as relevant to be 

served by each equipment category 

considered in this rulemaking. With 

regard to what types of residential 

building starts are relevant to 

forecasting commercial equipment 

shipments, in response to the 

withdrawn NOPR, Bradford White 

stated that multi-family buildings are 

the only building stock where CWH 

shipments would be appropriate. 

Bradford White believes shipments of 

commercial water heaters to singlefamily homes are minimal, though the 

commenter has heard of some such use 

in really large single-family houses. 

(Bradford White, No. 42 at p. 10) 

Rheem’s input was similar, with the 

additional detail that single-family 

homes greater than 5,000 square feet are 

more likely to use commercial water 

heaters. (Rheem, No. 43 at p. 27) A.O. 

Smith stated that in its experience, 

multi-family buildings were the only 

residential application for commercial 

water heaters. (A.O. Smith, No. 39 at p. 

16) Based upon these comments, for this 

NOPR, DOE did not include residential 

single-family building stock growth and 

used only residential multi-family 

building stocks and building additions 

when considering the potential noncommercial consumer component in the 

development of the shipments forecasts. 

5. NOPR Shipments Model 

To project shipments and equipment 

stocks for 2021 through the end of the 

30-year analysis period (2055), DOE 

used the shipments forecasting models 

(described in sections IV.G.1 and IV.G.2 

of this NOPR) and a stock accounting 

model. For each class of equipment, 

DOE forecasted shipments exogenously 

as described in the response to 

comments. The stock accounting model 

keeps track of shipments and calculates 

replacement shipments based on the 

historical shipments, the expected 

useful lifetime of each equipment class, 

and a Weibull distribution that 

identifies a percentage of units still in 

existence from a prior year that will fail 

and need to be replaced in the current 

year. In each year, DOE assumed a 

fraction of the replacement market will 

be retired rather than replaced due to 

the demolition of buildings in which 

this CWH equipment resides. This 

retirement fraction was derived from 

building stock data from the 

AEO2021.141

To project shipments of CWH 

equipment for new construction, DOE 

relied on building stock data obtained 

from AEO2021. For this NOPR, DOE 

assumes CWH equipment is used in 

both commercial buildings and 

residential multi-family buildings. DOE 

estimated a saturation rate for each 

equipment type using building and 

equipment stock values. The saturation 

rate was applied to new building 

additions in each year, yielding 

shipments to new buildings. The 

building stock and additions projections 

from AEO2021 are shown in Table 

IV.24. 

TABLE IV.24—BUILDING STOCK PROJECTIONS

Year 

Total commercial 

building stock 

(million sq. ft.) 

Commercial 

building stock 

additions 

(million sq. ft.) 

Multi-family 

residential building 

stock 

(millions of units) 

Multi-family 

residential building 

additions 

(millions of units) 

2021 ......................................................................................... 92,494 2,015 32.23 0.42 

2025 ......................................................................................... 96,109 2,110 33.22 0.42 

2026 ......................................................................................... 97,087 2,117 33.47 0.42 

2030 ......................................................................................... 100,970 2,155 34.40 0.40 

2035 ......................................................................................... 106,060 2,277 35.46 0.38 

2040 ......................................................................................... 111,151 2,307 36.45 0.38 

2045 ......................................................................................... 116,359 2,418 37.45 0.39 

2050 ......................................................................................... 121,825 2,520 38.44 0.39 

2055 * ....................................................................................... 127,540 2,633 39.48 0.41 

Source: EIA AEO2021 Reference case. 

* Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050. 

The final component in the stock 

accounting model is shifts to or away 

from particular equipment classes. For 

this NOPR, shipments were an input to 

the stock model. For both the historical 

and forecasted period, shifts to or away 

from a particular equipment class were 

calculated as a remainder. Using a 

saturation rate derived from historical 

equipment and building stocks, the 

model estimates shipments to new 

buildings. Using historical stock and 

retirement rates based on equipment 

life, the model estimates shipments for 

stock replacement. Shifts to or away 

from a particular equipment class equals 

total shipments less shipments for new 

buildings and shipments for 

replacements. While DOE refers to the 

remainders as ‘‘shifts to or away from 

the equipment class,’’ the remainders 

could be a result of numerous factors: 

Equipment lasting longer, which 

reduces the number of replacements; 

increased or decreased need for hot 

water generally due to greater efficiency 

in water usage; changing patterns of 

commercial activity; outside influences, 

such as ENERGY STAR and utility 

conservation or marketing programs; 

actual shifts between equipment classes 

caused by relative fuel prices, relative 

equipment costs and efficiencies, 

installation costs, repair and 

maintenance costs, and consumer 

preferences; and other factors. 

Based on the historic data, there is an 

apparent shift toward electric storage 

water heating equipment. The historical 

shipments summarized in Table IV.23 of 

this document show a steady growth in 

commercial electric storage water 


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heaters, with shipments growing from 

22,288 in 1994 to 150,665 in 2019. Over 

the same time period, commercial gasfired storage water heaters have seen a 

decline in shipments from 91,027 in 

1994 to a low of 75,487 in 2009. After 

2009, gas-fired storage water heater 

shipments rebounded, reaching a 

shipment level of 88,548 in 2019 (and 

a peak of 98,095 in 2015). During the 

period 2009 through 2015, there was a 

reduction in the apparent shift away 

from commercial gas-fired storage units 

compared to the earlier period; 

however, there appeared to be an 

increase in 2016–2017 before returning 

to a reduction in the shift in commercial 

gas-fired storage units. Because the 

forecasted shipments of residential-duty 

gas-fired storage water heaters are 

linked to commercial gas-fired storage 

units, there is a similar shift away from 

the residential-duty gas-fired storage 

equipment class in the shipment 

forecast. Gas-fired instantaneous 

equipment appears to have a positive 

shift pattern. 

Because the commercial gas-fired 

storage and gas-fired instantaneous 

CWH shipments forecasts were 

developed using econometric models 

based on historical data, these apparent 

shifts are captured in DOE’s shipments 

model and embedded in the total 

forecast. For purposes of assigning 

equipment costs and energy usage in the 

NIA, DOE needs to know if the 

increased/decreased shipments are new 

or replacement shipments. For all 

equipment classes, DOE assumed that 

the apparent shift is most likely to occur 

in new installations rather than in the 

replacement installations. As described 

in chapter 9 of this NOPR TSD, DOE 

assumed that a shift is twice as likely to 

take place in a new installation as in a 

replacement installation. For example, if 

DOE estimated that in 2021, 20 percent 

of shipments for an equipment class 

went to new installations and 80 

percent went for replacements in the 

absence of switching, DOE multiplied 

the 20 percent by 2 (40 percent) and 

added the 80 percent (which equals 120 

percent). Both the 40 percent for new 

and the 80 percent for replacement were 

then divided by 120 percent to 

normalize to 100 percent, yielding 

revised shipment allocations of 33 

percent for new and 67 percent for 

replacement. 

The resulting shipment projection is 

shown in Table IV.25. 

TABLE IV.25—SHIPMENTS OF COMMERCIAL WATER HEATING EQUIPMENT

Year 

Commercial gasfired storage water 

heaters and gasfired storage-type 

instantaneous 

water heaters 

(units) 

Residential-duty 

gas-fired storage 

water heaters 

(units) 

Gas-fired tankless 

water heaters 

(units) 

Gas-fired circulating 

water heaters and 

hot water supply 

boilers 

(units) 

2021 ..................................................................................... 97,418 19,484 8,708 10,484 

2025 ..................................................................................... 98,366 19,673 10,834 12,705 

2026 ..................................................................................... 99,373 19,875 11,297 13,236 

2030 ..................................................................................... 101,160 20,232 13,146 15,232 

2035 ..................................................................................... 103,099 20,620 15,469 17,695 

2040 ..................................................................................... 105,765 21,153 17,441 19,620 

2045 ..................................................................................... 108,590 21,718 19,712 21,964 

2050 ..................................................................................... 111,381 22,276 21,916 24,277 

2055 ..................................................................................... 113,671 22,734 24,323 26,797 

* The projected shipments are based on historical data for commercial gas-fired storage water heaters which may or may not include storagetype instantaneous shipments. For analysis purposes, DOE has grouped these categories but recognizes that future shipments for storage-type 

instantaneous may not be captured in the projection. 

Because the estimated energy usage of 

CWH equipment differs by commercial 

and residential settings, the NIA 

employs the same fractions of 

shipments (or sales) to commercial and 

to residential consumers used by the 

LCC analysis. The fractions of 

shipments by type of consumer are 

shown in Table IV.26. 

TABLE IV.26—SHIPMENT SHARES BY TYPE OF CONSUMER

Equipment Commercial Residential 

Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters ................ 79% 21% 

Residential-duty gas-fired storage water heaters .................................................................................................... 56 44 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Gas-fired tankless water heaters ..................................................................................................................... 69 31 

Gas-fired circulating water heaters and hot water supply boilers .................................................................... 79 21 

For the NIA model, shipments must 

be disaggregated by efficiency levels 

that correspond to the levels analyzed in 

the engineering and LCC analyses. To 

identify the percentage of shipments 

corresponding to each efficiency level, 

DOE combined the efficiency trends 

based on AHRI and manufacturer 

shipments data and information derived 

from a database of equipment currently 

produced and sold by manufacturers. 

The sources of information for this 

database included the DOE Compliance 

Certification and manufacturer catalogs 

and websites. DOE used the AHRI 

shipments data to project the percentage 

of shipments that are condensing and 

non-condensing, for the period from 

2015 through the end of the analysis 

period. Starting with the last year of 

historical data from AHRI, shipments 

within the non-condensing and 

condensing efficiency ranges were 

distributed based on the available 

models database. Because the efficiency 

bins used in the AHRI shipments data 

did not exactly match the thermal 

efficiency bins studied by DOE, 

available models were used to redistribute the historical shipment period 


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142The NIA accounts for impacts in the 50 states 

and the District of Columbia. 

143 DOE’s web page on commercial water heating 

equipment is available at www1.eere.energy.gov/ 

buildings/appliance_standards/ 

standards.aspx?productid=36. 

144This database was developed using model data 

from DOE’s Compliance Certification database 

(available at www.regulations.doe.gov/certificationdata/) and manufacturer websites and catalogs. 

within the non-condensing and 

condensing efficiency ranges to match 

the DOE thermal efficiency levels. For 

each subsequent year in the NOPR 

analysis period, as the percentage of 

shipments that are in the condensing 

efficiency range increases, the 

shipments are distributed across the 

condensing thermal efficiency levels by 

increasing proportionally the percentage 

of shipments by efficiency level in the 

previous year. Similarly, as the 

percentage of non-condensing 

shipments decrease, DOE distributed 

shipments across thermal efficiency 

levels by proportionately decreasing the 

percentage of shipments in the prior 

year. 

H. National Impact Analysis 

The NIA assesses the NES and the 

NPV from a national perspective of total 

consumer costs and savings that would 

be expected to result from amended 

standards at specific efficiency levels.142

(‘‘Consumer’’ in this context refers to 

consumers of the equipment being 

regulated.) DOE calculates the NES and 

NPV for the potential standard levels 

considered based on projections of 

annual equipment shipments, along 

with the annual energy consumption 

and total installed cost data from the 

energy use and LCC analyses. For this 

NOPR analysis, DOE projected the 

energy savings, operating cost savings, 

equipment costs, and NPV of consumer 

benefits for equipment shipped from 

2026 through 2055, the year in which 

the last standards-compliant equipment 

would be shipped during the 30-year 

analysis period. 

DOE evaluates the impacts of 

amended standards by comparing a case 

without such standards with standardscase projections. The no-new-standardscase characterizes energy use and 

consumer costs for each equipment 

class in the absence of any new or 

amended energy conservation 

standards. For this projection, DOE 

considers historical trends in efficiency 

and various forces that are likely to 

affect the mix of efficiencies over time. 

DOE compares the no-new-standardscase with projections characterizing the 

market for each equipment class if DOE 

adopted new or amended standards at 

specific energy efficiency levels (i.e., the 

TSLs or standards cases) for that class. 

For the standards cases, DOE considers 

how a given standard would likely 

affect the market shares of equipment 

with efficiencies greater than the 

standard. 

DOE uses a spreadsheet model to 

calculate the energy savings and the 

national consumer costs and savings 

from each TSL. Chapter 10 and 

appendix 10A of the NOPR TSD 

explains the model and how to use it. 

The model and documentation are 

available on DOE’s website.143

Interested parties can review DOE’s 

analyses by changing various input 

quantities within the spreadsheet. 

Unlike the LCC analysis, the NIA does 

not use distributions for inputs or 

outputs, but relies on inputs based on 

national average equipment costs and 

energy costs. DOE used the NIA 

spreadsheet to perform calculations of 

NES and NPV using the annual energy 

consumption, maintenance and repair 

costs, and total installed cost data from 

the LCC analysis. The NIA also uses 

energy prices and building stock and 

additions consistent with the 

projections from the AEO2021. NIA 

results are presented in chapter 10 of 

the NOPR TSD. 

Table IV.27 summarizes the inputs 

and methods DOE used for the NIA 

analysis for this NOPR. Discussion of 

these inputs and methods follows the 

table. See chapter 10 of the NOPR TSD 

for further details. 

TABLE IV.27—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS

Inputs Method 

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

Compliance Date of Standard ............................ 2026. 

Efficiency Trends ................................................ No-new-standards case, standards cases. 

Annual Energy Consumption per Unit ................ Annual weighted-average values are a function of energy use at each TSL. 

Total Installed Cost per Unit ............................... Annual weighted-average values are a function of cost at each TSL. 

Annual Energy Cost per Unit .............................. Annual weighted-average values as a function of the annual energy consumption per unit and 

energy prices. 

Repair and Maintenance Cost per Unit .............. Annual values do not change with efficiency level. 

Energy Price Trends ........................................... AEO2021 projections (to 2050) and extrapolation thereafter. 

Energy Site-to-Primary and FFC Conversion ..... A time-series conversion factor based on AEO2021. 

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

Present Year ....................................................... 2021. 

1. Equipment Efficiency Trends 

A key component of the NIA is the 

trend in energy efficiency projected for 

the no-new-standards case and each of 

the standards cases. DOE uses a no-newstandards-case distribution of efficiency 

levels to project what the CWH 

equipment market would look like in 

the absence of potential standards. For 

the withdrawn NOPR, DOE developed 

the no-new-standards-case distribution 

of equipment by thermal efficiency 

levels, and by standby loss efficiency 

levels, for CWH equipment by analyzing 

a database 144 of equipment currently 

available. For the standards cases, DOE 

used a ‘‘roll-up’’ scenario to establish 

the shipment-weighted efficiency for the 

year that standards are assumed to 

become effective (2026). In this 

scenario, the market shares of 

equipment in the no-new-standards case 

that do not meet the standard under 

consideration would ‘‘roll up’’ to meet 

the new standard level, and the market 

share of equipment above the standard 

would remain unchanged. The approach 

is further described in chapter 10 of the 

NOPR TSD. 

In comments filed in response to the 

withdrawn NOPR, Spire criticized a 

random selection of standards-case 

efficiencies as leading to inaccurate 

forecasts of cost and energy savings. 

(Spire, No. 45 at pp. 24, 25) Spire also 

commented on the issue of consumers 

switching to more-efficient equipment 

regardless of regulatory standards. 

(Spire, No. 45 at pp. 25, 32, 33) AHRI 


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145U.S. EPA. ENERGY STAR Unit Shipment and 

Market Penetration Report Calendar Year 2019 

Summary. Available at www.energystar.gov/sites/ 

default/files/asset/document/ 

2019%20Unit%20Shipment

%20Data%20Summary%20Report.pdf (last 

accessed July 7, 2021). 

also brought up the issue of whether 

consumers would migrate to condensing 

options due to economic reasons, even 

without amended minimum energy 

efficiency standards. (AHRI, NOPR 

Public Meeting Transcript, No. 20 at pp. 

104, 105) 

In response to Spire’s comments, DOE 

notes it constructed the no-newstandards efficiency distribution using 

its database as discussed in section 

IV.A.3. of this document. The selections 

in the LCC model, while random, are 

based on the distributions created from 

the best available data. The issue of the 

random assignment of equipment in the 

no-new standards case is discussed 

specifically in section IV.F.2.i. DOE uses 

this distribution in the LCC to model 

consumer choices that mirror the market 

and uses the mean values from the LCC 

analysis in the NIA. DOE stated at the 

NOPR public meeting that if data such 

as that provided by AHRI were 

available, the forecast of consumer costs 

and savings would be improved. (DOE, 

Public Meeting Transcript, No. 20, p. 

21) At the public meeting, DOE also 

stated that if manufacturers provide 

shipment data, DOE would use it in the 

analysis, and DOE has made use of the 

data provided by AHRI. DOE agrees 

with Spire’s and AHRI’s contention that 

some consumers will purchase higherefficiency equipment even in the 

absence of amended standards. 

Consequently, for this NOPR, DOE 

developed the no-new-standards 

distribution of equipment by thermal 

efficiency levels for CWH equipment 

using data from DOE’s Compliance 

Certification database and data 

submitted by AHRI regarding 

condensing versus non-condensing 

equipment. Using the data provided by 

AHRI, DOE has modeled a no-newstandards efficiency trend in which 75 

to 85 percent of consumers purchase 

condensing equipment by 2055 by using 

the historical AHRI data to develop a 

future trend, but the Department points 

out that at present, the adoption of 

equipment equivalent to the standards 

proposed herein is currently less than 

half of total shipments.145 Thus, this 

NOPR analysis assigns substantial credit 

to market-driven efficiency 

accomplishments. DOE further notes 

that new and replacement markets were 

modeled using the same efficiency 

distributions. 

The shipments analysis section of this 

NOPR addresses comments received 

from stakeholders related to DOE’s 

withdrawn NOPR shipment forecast that 

included constant equipment efficiency 

based on the available equipment 

database (see section IV.G.3). In 

comments about the NIA, Bock, A.O. 

Smith, Spire, and AHRI all reiterated 

their shipments comments concerning 

their belief that market shares by 

thermal efficiency derived from the 

available equipment database differ 

from the distribution that would be 

derived from actual shipments. The 

same stakeholders referenced data 

collected by AHRI, and stated that the 

sale of condensing gas-fired storage and/ 

or instantaneous tankless gas-fired water 

heaters is higher than DOE assumed in 

the withdrawn NOPR, and called on 

DOE to use the shipments data provided 

by AHRI in the calculation of energy 

savings. AHRI and Bock highlighted the 

level of the condensing unit sales, with 

AHRI noting the market share was 

approaching 46 percent of total 

shipments in 2015 and with Bock 

arguing that given historical growth 

rates, the market share would be 

expected to achieve majority market 

share by 2020. Spire stated that DOE 

overestimated NOPR energy savings by 

using an efficiency distribution that 

underrepresents high-efficiency 

equipment, thereby stripping marketdriven efficiency gains from the no-newstandards case and attributing these 

efficiency gains to the proposed 

standards. (Bock, No. 33 at p. 1; A.O. 

Smith, No. 39 at pp. 14–15; Spire, No. 

45 at p. 14; AHRI, No. 40 at p. 10) 

For this NOPR, DOE used the AHRI 

efficiency data to fit a Bass Diffusion 

curve, which shows continued marketdriven efficiency improvements over the 

forecast period up to a point where 75 

percent of commercial and residentialduty gas-fired storage and circulating 

water heaters and hot water supply 

boiler shipments are condensing in the 

no-new-standards case. For 

instantaneous tankless shipments, DOE 

modeled up to 85 percent of shipments 

in the condensing efficiency levels 

because it appears that presently, the 

percentage is much higher than for the 

other equipment types. Thus, an 

increasing efficiency trend is now 

modeled over the 30-year analysis 

period in the NIA model. While 

numerous other changes to the 

engineering, installation costs, and 

energy use analyses prevent direct 

comparisons in terms of varying only 

the efficiency distribution, the NOPR 

national energy savings and net present 

value of consumer benefits for the TSLs 

evaluated are reduced because a 

significant percentage of both are now 

attributed to market forces. 

Bradford White cautioned that DOE 

should understand that AHRI data do 

not capture the entire industry, but only 

reporting members. (Bradford White, 

NOPR Public Meeting Transcript, No. 20 

at p. 112) With respect to the shipments 

information provided by AHRI and 

manufacturers, DOE considers the data 

to be a significant improvement over the 

data available for the May 2016 CWH 

ESC NOPR phase. DOE uses the data 

with the caution, as it does with any 

data, and DOE does make adjustments 

when information becomes available to 

enable DOE to improve the quality of 

such data. 

Table IV.28 shows the starting 

distribution of equipment by efficiency 

level. In the no-new-standards case, the 

distributions represent the starting point 

for analyzing potential energy savings 

and cumulative consumer impacts of 

potential standards for each equipment 

category. 

TABLE IV.28—MARKET SHARES BY EFFICIENCY LEVEL IN 2026 * 

Equipment EL 0 ** 

(%) 

EL1 

(%) 

EL2 

(%) 

EL3 

(%) 

EL4 

(%) 

EL5 

(%) 

Commercial gas-fired storage water 

heaters and gas-fired storage-type instantaneous water heaters ................... 34 3 0 12 50 1 

Residential-duty gas-fired storage water 

heaters .................................................. 18 12 7 31 27 4 

Gas-fired instantaneous water heaters 

and hot water supply boilers: 


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30682 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

146Electric storage water heater costs were 

escalated from 2014$ to 2020$ using gross domestic 

product price deflators. First year electricity costs 

were recalculated using the AEO2021 prices for 

2026, weighted by the percent of shipments to the 

commercial and residential markets for the 

comparison equipment class (commercial gas-fired 

or residential-duty). 

147Since the electric storage water heater was 

dropped from this NOPR, for this analysis the MPC 

from the withdrawn 2016 ECS NOPR standby loss 

level 0 was used to represent no-new-standardscase electric storage water heaters. 

TABLE IV.28—MARKET SHARES BY EFFICIENCY LEVEL IN 2026 *—Continued 

Equipment EL 0 ** 

(%) 

EL1 

(%) 

EL2 

(%) 

EL3 

(%) 

EL4 

(%) 

EL5 

(%) 

Gas-fired tankless water heaters ...... 17 0 0 0 21 62 

Gas-fired circulating water heaters 

and hot water supply boilers ......... 4 12 15 2 16 51 

* Due to rounding, shares for each row might not add to 100 percent. 

** For the Residential-duty equipment class, efficiency is in terms of UEF. Because minimum UEF under the existing efficiency standard varies 

by storage tank size, equipment is categorized not by absolute value of UEF but by percentage point increases over the minimum efficiency required on the basis of the equipment’s tank size. 

For each efficiency level analyzed, 

DOE used a ‘‘roll-up’’ scenario to 

establish the market shares by efficiency 

level for the year that compliance would 

be required with potential standards. 

The analysis starts with the no-newstandards-case distributions wherein 

shipments are assumed to be distributed 

across efficiency levels as shown in 

Table IV.28. When potential standard 

levels above the base level are analyzed, 

as the name implies, the shipments in 

the no-new-standards case that did not 

meet the efficiency standard level being 

considered would roll up to meet the 

next higher standard level. The ‘‘rollup’’ scenario also suggests that 

equipment efficiencies in the no-newstandards case that were above the 

standard level under consideration 

would not be affected. The no-newstandards-case efficiency distributions 

for each equipment class are discussed 

more fully in chapter 10 of the NOPR 

TSD. The no-new-standards-case 

efficiency distributions for each 

equipment category are discussed more 

fully in chapter 10 of the NOPR TSD. 

2. Fuel and Technology Switching 

For this NOPR, DOE analyzed 

whether amended standards would 

potentially create economic incentives 

for shifting between fuels, and 

specifically from natural gas to 

electricity, beyond any switching 

inherent in historical trends, as 

discussed in section IV.G. of this 

document. 

DOE conducted a high-level analysis 

by using average NIA inputs and 

equipment operating hour data from the 

energy analysis to examine consumer 

PBPs in situations where they might 

switch from gas-fired to electric water 

heaters in both new and replacement 

construction at the proposed standard 

level. As previously noted, DOE is not 

analyzing thermal efficiency standards 

for electric storage water heaters since 

the thermal efficiency of these units 

already approaches 100 percent; as 

such, the underlying technology has 

most likely not changed, so for 

comparison purposes in this NOPR, the 

installation, equipment, and 

maintenance and repair costs from the 

withdrawn 2016 NOPR have been 

adjusted to account for inflation.146 To 

make the costs comparable across 

equipment categories, DOE adjusted the 

average costs using ratios based on the 

first-hour ratings shown in Table IV.29. 

TABLE IV.29—FIRST-HOUR EQUIPMENT RATINGS USED IN THE FUEL SWITCHING ANALYSIS

Year 

Commercial 

gas-fired 

storage water 

heaters 

Residentialduty gas-fired 

storage water 

heaters 

Gas-fired 

tankless water 

heaters 

Gas-fired 

circulating 

water heaters 

and hot water 

supply boilers 

Electric 

storage water 

heaters 

First-Hour Rating (gal) ......................................................... 283 134 268 664 165 

Ratio to Commercial Gas-fired Storage .............................. 1.00 0.47 * 0.32 2.34 0.58 

* The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired tankless water heaters is not directly 

comparable using only first-hour ratings, here based on a 90 °F temperature rise. The ratio shown reflects in-use delivery capability of the representative gas-fired tankless water heater model relative to the delivery capability of the representative commercial gas-fired storage water heater, and includes an estimated 3-to-1 delivery capability tradeoff for a tankless unit without storage compared to the representative gas-storage 

water heater with the same first-hour rating. 

DOE reviewed the installed cost of 

commercial electric and gas-fired 

storage water heaters, both at the nonew-standards-case efficiency level and 

with the standard level proposed herein 

for commercial gas-fired water heaters. 

The analysis uses costs for the year 

2026, the first year that an amended 

standard would be in effect. In new 

installations, the analysis assumes that 

the inflation-adjusted commercial 

electric storage water heater installed 

cost is $4,205 and the first year 

maintenance and repair cost is $48.147

In replacement installations, the 

analysis assumes that the inflationadjusted commercial electric storage 

water heater installed cost is $3,950 and 

the first year maintenance and repair 

cost is $48. In further investigating the 

potential for fuel-switching, DOE first 

scaled the first costs and the 

maintenance and repair costs of the 

electric storage water in new and 

replacement installations linearly with 

first-hour rating assuming that the 

consumer needs to meet the first hour 

capacity of the representative 

commercial gas-fired storage water 

heater. To better compare the electric 

energy use in a fuel switching scenario, 

DOE examined the average burner 

operating hours for the commercial gas 

water heater to meet the hot water load, 

as detailed in appendix 7B of the NOPR 

TSD. By multiplying the input rating of 

the gas storage water heater by the 

baseline thermal efficiency and the 

average 2.60 hour of operation to meet 


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Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30683 

the water load including piping losses 

(and not included standby burner 

operation), the average daily hot water 

provided by the unit was estimated at 

413,920 Btu/day. Assuming a 100% 

conversion efficiency for the electric 

energy to provide this load would be 

would 121.31 kWh/day or 44,279 kWh/ 

yr with an energy cost of $4,852 in the 

first year. DOE notes that this value does 

not account for additional energy for 

electric water heater standby losses. 

With the electric water heater costs 

thus scaled and corresponding energy 

cost calculated, within new 

construction installations the 

commercial gas storage water heater was 

estimated to be slightly more expensive 

to purchase and install than the electric 

storage unit in both the no-newstandards and standards cases, but 

significantly less costly to operate (see 

Table IV.30). In these cases, the up-front 

cost premium of the commercial gasfired storage unit at the proposed 

standard level (TSL 3) relative to the 

scaled electric storage unit costs, 

divided by the annual operating savings 

for choosing the gas water heater, yields 

a PBP of 0.18 years, compared to a PBP 

of 0.15 years in the no-new-standards 

case. In replacement markets, the total 

installed cost of a commercial gas-fired 

storage unit was compared to the firsthour-rating scaled cost estimate for the 

commercial electric water heater as a 

replacement unit from the withdrawn 

2016 NOPR. The estimated total 

installed cost of the comparable electric 

storage unit exceeds the cost of the 

commercial gas-fired storage unit. As 

with new construction, the replacement 

electric storage unit is substantially 

more costly to operate. 

TABLE IV.30—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (COMMERCIAL GAS-FIRED STORAGE = 1.0)— 

ELECTRIC STORAGE VERSUS COMMERCIAL GAS-FIRED STORAGE

[2020$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Electric Storage ....................... Installed Cost ............................................. $7,212 $6,774 $7,212 $6,774 

Energy, Maintenance, and Repair Cost 

(First Year).

4,935 4,935 4,935 4,935 

Commercial Gas-fired Storage Installed Cost ............................................. 7,645 4,723 7,789 6,056 

Energy, Maintenance, and Repair Cost 

(First Year).

1,963 1,961 1,733 1,727 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). 

DOE further notes that, depending on 

the specifics of the commercial 

building, significant additional costs 

could be incurred in switching to 

electric storage water heaters if the 

existing building lacks the electrical 

wiring and related infrastructure to 

handle the input rating of a scaled 

capacity commercial electric water 

heater. Thus, DOE has tentatively 

concluded that the proposed standard 

will not cause a noticeable increase in 

fuel switching from commercial gasfired to electric storage water heaters. 

A similar analysis to that of the 

commercial gas storage water heater and 

electric equivalent was repeated 

separately for residential-duty water 

heaters. The first costs and maintenance 

and repair costs were scaled by first 

hour rating to that equivalent to the 

representative residential-duty water 

heater. The hot water load for the 

electric equivalent unit was estimated 

based on the burner operating hours 

from Appendix 7B of the TSD and the 

electric water heater energy costs were 

estimated assume 100% conversion 

efficiency of the electric input to hot 

water load. For an electric water heater 

equivalent to a residential-duty gas 

water heater, the estimated energy 

consumption was 19,492 kWh/yr, 

equating to an energy cost of $2,218 in 

the first year. This value does not 

account for additional energy for 

electric water heater standby losses. The 

appropriately scaled first costs and 

operating cost estimates are shown in 

Table IV.31. In all but the no-newstandards replacement case, the 

residential-duty water heater is more 

expensive to install than the electric 

storage water heater; however, it was 

less costly to operate in all cases. For 

the cases in which the electric storage 

water heater was less expensive to 

install, the up-front cost premium of the 

gas-fired residential-duty unit relative to 

the electric storage unit, divided by the 

annual operating savings from using the 

gas water heater, yields a PBP of 0.16 

years in the no-new-standards new 

installation case, of 0.22 years at the 

proposed standard level (TSL 3) 

replacement case, and of 0.57 years at 

the proposed standard level new 

installation case. Based on the 

comparison of costs for equivalent 

electric water heating, DOE has 

tentatively concluded that amended 

standards would not introduce 

additional economic incentives for fuel 

switching from residential-duty to 

electric storage water heaters. 

TABLE IV.31—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (RESIDENTIAL-DUTY = 1.0)—ELECTRIC STORAGE

VERSUS RESIDENTIAL-DUTY

[2020$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Electric Storage ....................... Installed Cost ............................................. $3,415 $3,208 $3,415 $3,208 

Energy, Maintenance, and Repair Cost 

(First Year).

2,257 2,257 2,257 2,257 

Residential-duty Storage ......... Installed Cost ............................................. 3,589 1,941 4,134 3,486 


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30684 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

148For more information on NEMS, refer to The 

National Energy Modeling System: An Overview 

2018, DOE/EIA–0581(2018). April 2019. Available 

at www.eia.gov/outlooks/aeo/nems/overview/pdf/ 

0581(2018).pdf (last accessed July 7, 2021). 

TABLE IV.31—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (RESIDENTIAL-DUTY = 1.0)—ELECTRIC STORAGE

VERSUS RESIDENTIAL-DUTY—Continued 

[2020$] 

Equipment Cost 

No-newstandards 

case new 

construction 

No-newstandards 

case 

replacement * 

Standards 

case new 

construction 

Standards 

case 

replacement * 

Energy, Maintenance, and Repair Cost 

(First Year).

1,182 1,164 999 984 

* Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). 

DOE did not consider instantaneous 

gas-fired equipment and electric storage 

water heaters to be likely objects of gasto-electric fuel switching, largely due to 

the disparity in hot water delivery 

capacity between the instantaneous gasfired equipment and commercial 

electric storage equipment. However, 

DOE understands that systems can be 

built by plumbing multiple individual 

water heaters together to achieve the 

same level of hot water delivery 

capacity. DOE seeks comment as to the 

extent that this phenomenon exists in 

either the no-standards case or the 

standards case. While technically 

feasible for consumers not facing space 

constraints, DOE considered it unlikely 

that these consumers would choose 

upon replacement to swap one or more 

high-output, typically wall-mounted 

tankless units with physically larger, 

floor-mounted electric storage water 

heaters for economic reasons, given the 

relatively low incremental operating 

cost for installing condensing tankless 

units and the much higher operational 

cost of the electric units. Commercial 

tankless water heaters could in theory 

be replaced with one or more electric 

tankless units. DOE also has tentatively 

concluded that this would be an 

unlikely scenario for the same reasons 

cited for switching to electric storage, 

however DOE also notes that without 

hot water storage in such a system the 

instantaneous electric heating load 

could disproportionally impact a 

commercial buildings electric demand 

in many applications relative to the 

equivalent electric storage water heater, 

requiring greater electrical infrastructure 

upgrades as well as potentially higher 

and less predictable ongoing electric 

demand costs. DOE has tentatively 

concluded that amended standards 

would not introduce additional 

economic incentives for fuel switching 

from gas-fired instantaneous tankless to 

electric storage or electric tankless water 

heaters. Similarly, replacement of gas 

fired circulating water heaters or boilers 

with an electric equivalent would be 

expected to require substantial electric 

capacity upgrades expected as well as 

much higher operating cost of the 

electric equipment. The representative 

399 kBtu/h baseline gas-fired hot water 

boiler represents an approximately 94 

kW electric instantaneous equivalent, 

anticipated to be a significant load 

increase to most commercial buildings 

that might otherwise use the gas-fired 

hot water boiler. 

In summary, based upon the 

reasoning mentioned previously, DOE 

did not explicitly include fuel or 

technology switching in this NOPR 

beyond the continuation of historical 

trends discussed in section IV.G of this 

document. 

Issue 8: DOE seeks comment on the 

availability of systems that can be built 

by plumbing multiple individual water 

heaters together to achieve the same 

level of hot water delivery capacity. 

3. National Energy Savings 

The NES analysis involves a 

comparison of national energy 

consumption of the considered 

equipment between each potential 

standards case (‘‘TSL’’) and the case 

with no new or amended energy 

conservation standards. DOE calculated 

the national energy consumption by 

multiplying the number of units (stock) 

of each product (by vintage or age) by 

the unit energy consumption (also by 

vintage). DOE calculated annual NES 

based on the difference in national 

energy consumption for the no-newstandards case and for each higher 

efficiency standard case. DOE estimated 

energy consumption and savings based 

on site energy and converted the 

electricity consumption and savings to 

primary energy (i.e., the energy 

consumed by power plants to generate 

site electricity) using annual conversion 

factors derived from AEO2021. 

Cumulative energy savings are the sum 

of the NES for each year over the 

timeframe of the analysis. 

In 2011, in response to the 

recommendations of a committee on 

‘‘Point-of-Use and Full-Fuel-Cycle 

Measurement Approaches to Energy 

Efficiency Standards’’ appointed by the 

National Academy of Sciences, DOE 

announced its intention to use FFC 

measures of energy use and greenhouse 

gas and other emissions in the national 

impact analyses and emissions analyses 

included in future energy conservation 

standards rulemakings. 76 FR 51281 

(August 18, 2011). After evaluating the 

approaches discussed in the August 18, 

2011 notice, DOE published a statement 

of amended policy in which DOE 

explained its determination that EIA’s 

NEMS is the most appropriate tool for 

its FFC analysis and its intention to use 

NEMS for that purpose. 77 FR 49701 

(August 17, 2012). NEMS is a public 

domain, multi-sector, partial 

equilibrium model of the U.S. energy 

sector 148 that EIA uses to prepare its 

AEO. The FFC factors incorporate losses 

in production and delivery in the case 

of natural gas (including fugitive 

emissions) and additional energy used 

to produce and deliver the various fuels 

used by power plants. The approach 

used for deriving FFC measures of 

energy use and emissions is described 

in appendix 10D of the NOPR TSD. 

DOE calculated the NES associated 

with the difference between the per-unit 

energy use under a standards-case 

scenario and the per-unit energy use in 

the no-new-standards case. The average 

energy per unit used by the CWH 

equipment stock gradually decreases in 

the standards case relative to the nonew-standards case as more-efficient 

CWH units gradually replaces lessefficient units. 

Unit energy consumption values for 

each equipment category are taken from 

the LCC spreadsheet for each efficiency 

level and weighted based on market 

efficiency distributions. To estimate the 

total energy savings for each efficiency 

level, DOE first calculated the per-unit 

energy reduction (i.e., the difference 

between the energy directly consumed 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30685 

149The CPP was repealed in June 2019 as part of 

EPA’s final Affordable Clean Energy (‘‘ACE’’) Rule, 

but the ACE Rule was vacated in January 2021 by 

the United States Court of Appeals for the District 

of Columbia Circuit, who also remanded EPA to 

consider a new regulatory framework to replace the 

ACE Rule. 

by a unit of equipment in operation in 

the no-new-standards case and the 

standards case) for each class of CWH 

equipment for each year of the analysis 

period. The electricity and natural gas 

savings or increases (in the case of 

electricity used for condensing natural 

gas-fired water heaters) are accounted 

separately. Second, DOE determined the 

annual site energy savings by 

multiplying the stock of each equipment 

category by vintage (i.e., year of 

shipment) by the per-unit energy 

reduction for each vintage (from step 

one). This second step adds to the 

electricity impacts an amount of energy 

savings/increase to account for the 

losses and inefficiencies in the 

generation, transmission, and 

distribution systems. The result of the 

second step yields primary electricity 

impacts at the generation source. The 

second step applies only to electricity; 

there is no analogous adjustment made 

to natural gas savings. Third, DOE 

converted the annual site electricity 

savings into the annual amount of 

energy saved at the source of electricity 

generation (the source or primary 

energy), using a time series of 

conversion factors derived from the 

latest version of EIA’s NEMS. This third 

step accounts for the energy used to 

extract and transport fuel from mines or 

wells to the electric generation facilities, 

and accounts for the natural gas NES for 

drilling and pipeline energy usage. The 

third step yields the total FFC impacts. 

DOE accounts for the natural gas savings 

separately from the electricity impacts, 

so the factors used at each step are 

appropriate for the specific fuel. The 

coefficients developed for the analysis 

are mutually exclusive, so there should 

be no double-counting of impacts. 

Finally, DOE summed the annual 

primary energy savings for the lifetime 

of units shipped over a 30-year period 

to calculate the total NES. DOE 

performed these calculations for each 

efficiency level considered for CWH 

equipment in this rulemaking. DOE 

notes that for the LCC and PBP analyses, 

only site energy impacts are used. The 

only steps in the analysis wherein FFC 

savings are used are the calculation of 

NES. DOE notes that the development of 

data for site-to-source and other factors 

is accomplished by running the EIA’s 

model used to generate the AEO. DOE 

has included with this NOPR TSD the 

previously mentioned chapter 10 and 

appendix 10D, which reference the 

development of the FFC factors and 

provide some of the underlying data. 

Regarding the fossil fuel site-to-source 

values used in the NOPR analysis, DOE 

used the AEO2021 Reference case, 

which reflects the most up-to-date 

information on resource and fuel costs, 

but excludes Clean Power Plan (CPP) 149

impacts. Use of the AEO2021 also 

incorporates all Federal legislation and 

regulations in place when EIA prepared 

the analyses. The growing penetration of 

renewable electricity generation would 

have little effect on the trend in site-tosource energy factors because EIA uses 

an average fossil fuel heat to 

characterize the primary energy 

associated with renewable generation. 

At this time, DOE is continuing to use 

the ‘‘fossil fuel equivalency’’ accounting 

convention used by EIA. DOE notes the 

AEO projections stop in 2050. Because 

the trends were relatively flat, DOE 

maintained the 2050 value for the 

remainder of the forecast period. When 

DOE develops the site-to-source and 

FFC-factors, it models resource mixes 

representative of the load profile of the 

equipment covered in the rulemaking 

that vary by end-use. For this NOPR, 

DOE has used an average of resources 

compatible with the general load profile 

of CWH equipment, and the data used 

are the most current available. 

DOE also considered whether a 

rebound effect is applicable in its NES 

analysis for CWH equipment. A rebound 

effect occurs when an increase in 

equipment efficiency leads to increased 

demand for its service. For example, 

when a consumer realizes that a moreefficient water heating device will lower 

the energy bill, that person may opt to 

increase his or her amenity level by 

taking longer showers and thereby 

consuming more hot water. In this way, 

the consumer gives up a portion of the 

energy cost savings in favor of the 

increased amenity. For the CWH 

equipment market, there are two ways 

that a rebound effect could occur: (1) 

Increased use of hot water within the 

buildings in which such units are 

installed and (2) additional hot water 

outlets that were not previously 

installed. Because the CWH equipment 

addressed in this proposed rule is 

commercial equipment, the person 

owning the equipment (i.e., the 

apartment or commercial building 

owner) is usually not the person 

operating the equipment (e.g., the 

apartment renter, or the restaurant 

employee using hot water to wash 

dishes). Because the operator usually 

does not own the equipment, that 

person will not have the operating cost 

information necessary to influence his 

or her operation of the equipment. 

Therefore, the first type of rebound is 

unlikely to occur at levels that could be 

considered significant. Similarly, the 

second type of rebound is unlikely 

because a small change in efficiency is 

insignificant among the factors that 

determine whether a company will 

invest the money required to pipe hot 

water to additional outlets. 

In the October 2014 RFI, DOE sought 

comments and data on any rebound 

effect that may be associated with moreefficient commercial water heaters. 79 

FR 62908 (Oct. 21, 2014). DOE received 

two comments. Both A.O. Smith and 

Joint Advocates did not believe a 

rebound effect would be significant. 

A.O. Smith commented that water usage 

is based on demand and more efficient 

water heaters would not change the 

demand. (A.O. Smith, No. 2 at p. 4) Joint 

Advocates commented that with the 

marginal change in energy bill for small 

business owners, they would expect 

little increased hot water usage, and that 

for tenant-occupied buildings, it would 

be ‘‘difficult to infer that more tenants 

will wash their hands longer because 

the hot water costs the building owner 

less.’’ Thus, Joint Advocates thought the 

likelihood of a strong rebound effect is 

very low. (Joint Advocates, No. 7 at p. 

5) As DOE did not receive any 

comments suggesting the contrary in 

response to the withdrawn NOPR, DOE 

has retained its position that rebound 

effect is unlikely to occur for the CWH 

that are the subject of this NOPR. 

4. Net Present Value Analysis 

The inputs for determining the NPV 

of the total costs and benefits 

experienced by consumers are (1) total 

annual installed cost, (2) total annual 

operating costs (energy costs and repair 

and maintenance costs), and (3) a 

discount factor to calculate the present 

value of costs and savings. DOE 

calculates net savings each year as the 

difference between the no-newstandards case and each standards case 

in terms of total savings in operating 

costs versus total increases in installed 

costs. DOE calculates operating cost 

savings over the lifetime of each product 

shipped during the projection period. 

DOE determined the difference between 

the equipment costs under the standard 

case and the no-new-standards case in 

order to obtain the net equipment cost 

increase resulting from the higher 

standard level. As noted in section 

IV.F.2.a of this document, DOE used a 

constant real price assumption as the 

default price projection; the cost to 

manufacture a given unit of higher 

efficiency neither increases nor 


jspears on DSK121TN23PROD with PROPOSALS2
30686 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

150United States Office of Management and 

Budget. Circular A–4: Regulatory Analysis. 

September 17, 2003. Section E. Available at 

www.whitehouse.gov/sites/whitehouse.gov/files/ 

omb/circulars/A4/a-4.pdf (last accessed July 7, 

2021). 

decreases over time. The analysis of the 

price trends is described in chapter 10 

of the NOPR TSD. 

The operating cost savings are energy 

cost savings, which are calculated using 

the estimated energy savings in each 

year and the projected price of the 

appropriate form of energy. To estimate 

energy prices in future years, DOE 

multiplied the average regional energy 

prices by the projection of annual 

national-average commercial energy 

price changes in the Reference case from 

AEO2021, which has an end year of 

2050. To estimate price trends after 

2050, DOE used the average annual rate 

of change in prices from 2020 through 

2050. As part of the NIA, DOE also 

analyzed scenarios that used inputs 

from variants of the AEO2021 Reference 

case that have lower and higher 

economic growth. Those cases have 

lower and higher energy price trends 

compared to the Reference case. NIA 

results based on these cases are 

presented in appendix 10B of the NOPR 

TSD. 

DOE then determined the difference 

between the net operating cost savings 

and the net equipment cost increase in 

order to obtain the net savings (or 

expense) for each year. DOE then 

discounted the annual net savings (or 

expenses) to 2021 for CWH equipment 

bought on or after 2026 and summed the 

discounted values to provide the NPV 

for an efficiency level. 

In calculating the NPV, DOE 

multiplies the net savings in future 

years by a discount factor to determine 

their present value. For this NOPR, DOE 

estimated the NPV of consumer benefits 

using both a 3-percent and a 7-percent 

real discount rate. DOE uses these 

discount rates in accordance with 

guidance provided by the OMB to 

Federal agencies on the development of 

regulatory analysis.150 The discount 

rates for the determination of NPV are 

in contrast to the discount rates used in 

the LCC analysis, which are designed to 

reflect a consumer’s perspective. The 7- 

percent real value is an estimate of the 

average before-tax rate of return to 

private capital in the U.S. economy. The 

3-percent real value represents the 

‘‘social rate of time preference,’’ which 

is the rate at which society discounts 

future consumption flows to their 

present value. 

DOE considered the possibility that 

consumers make purchase decisions 

based on first cost instead of LCC. DOE 

projects that new installations meeting a 

potential standard would not cause the 

commercial gas-fired storage water 

heaters to be significantly more 

expensive than electric storage water 

heaters of comparable first-hour 

capacity, as detailed in section IV.H.2. 

of this document. DOE further notes that 

only the relative costs of purchasing, 

installing, and operating equipment 

were considered in its analysis, and did 

not consider unrelated issues such as 

current trends toward electrification of 

customer loads, as DOE cannot 

speculate about consumer electrification 

or other (see sections IV.G and IV.H.2 of 

this document). 

DOE notes that governmental and 

corporate purchasing policies are 

increasingly resulting in purchases of 

more-efficient equipment. However, 

DOE does not infer anything with 

respect to the remaining market for 

efficient water heaters simply because of 

a purchase by one consumer or even by 

one segment of the consumer base, such 

as purchases by government consumers. 

In other words, if all Federal 

government agencies purchase ENERGY 

STAR-compliant water heaters, that tells 

us nothing about the installation costs 

experienced by any other consumers. 

DOE assumes the purchases reveal more 

about the underlying consumer discount 

rate premiums than about a distribution 

of installation costs. It is possible that 

corporate commitment to green 

purchasing policies might result in 

situations where, in their rational 

decision-making process, the consumer 

gives green purchase alternatives an 

explicit advantage. As an example, a 

purchasing policy may specify that that 

a ‘‘non-green’’ alternative must have a 

PBP of 3 years or less while a ‘‘green’’ 

alternative can have a PBP up to 5 years. 

This type of corporate decision making 

would have the outward appearance of 

providing an apparent discount rate 

advantage to the ‘‘green’’ alternative, or 

perhaps, an appearance of assessing a 

lower discount rate premium on the 

‘‘green’’ alternative than is assessed on 

all other alternatives. Thus, while 

significant numbers of purchases are 

taking place in the market, DOE 

contends that such purchases reveal an 

underlying distribution of discount rate 

premiums rather than an underlying 

distribution of installation costs. Green 

policies and programs such as FEMPdesignated equipment and ENERGY 

STAR will continue to effectively 

reduce even more consumers’ discount 

rate premiums, leading to more green 

purchases. This assumption underlies 

DOE’s decision to take the efficiency 

trends data provided by manufacturers 

and extend the trends into the future 

rather than holding efficiency constant 

at current rates. 

To the extent that there may be 

concerns regarding the inconvenience 

and disruptions caused by installing 

new venting, DOE would note that 

installing commercial electric water 

heaters is not simply a matter of hauling 

the water heater into the building and 

plugging it into an existing power 

outlet. The typical unit DOE analyzed 

for this NOPR included 18 kilowatt 

(‘‘kW’’) heating elements, and in a 

setting where the electrical system 

cannot support a new load of this 

magnitude (or higher) without being 

upgraded, installation of an electric 

water heater might be no less disruptive 

and just as costly as the venting upgrade 

for a condensing gas-fired water heater. 

Within this NOPR analysis, DOE has 

considered the range of possible repairs 

and determined that there likely were 

few if any life-extending repairs that 

could be made beyond those included 

by DOE in the LCC and NIA analyses. 

For some equipment failures, such as 

tanks leaking, DOE knows of no good 

way to repair the equipment to extend 

the equipment’s life, so life-extending 

repair is likely extremely limited 

beyond the repairs already included by 

DOE. 

I. Consumer Subgroup Analysis 

In analyzing the potential impact of 

new or amended standards on 

commercial consumers, DOE evaluates 

the impact on identifiable groups (i.e., 

subgroups) of consumers, such as 

residential consumers at comparatively 

lower income levels that may be 

disproportionately affected by a new or 

revised national energy conservation 

standard level. The purpose of the 

subgroup analysis is to determine the 

extent of any such disproportionate 

impacts. For this rulemaking, DOE 

identified consumers at the lowest 

income bracket in the residential sector 

and only included them for a residential 

sector subgroup analysis. The following 

provides further detail regarding DOE’s 

consumer subgroup analysis. Chapter 11 

in the NOPR TSD describes the 

consumer subgroup analysis. 

1. Residential Sector Subgroup Analysis 

The RECS database divides the 

residential samples into 24 income bins. 

The income bins represent total gross 

annual household income. As far as 

discount rates are concerned, the survey 

of consumer finances divides the 

residential population into six different 

income bins: Income bin 1 (0–20 

percent income percentile), income bin 

2 (20–40 percent income percentile), 


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151U.S. Securities and Exchange Commission, 

Annual 10–K Reports (Various Years) (Available at 

www.sec.gov/edgar/searchedgar/ 

companysearch.html). 152U.S. Census Bureau, Annual Survey of 

Manufacturers: General Statistics: Statistics for 

Industry Groups and Industries (2018). Available at 

www.census.gov/data/tables/time-series/econ/asm/ 

2018-2019-asm.html. 

153 Dunn & Bradstreet Company Profiles, Various 

Companies. Available at app.dnbhoovers.com. 

income bin 3 (40–60 percent income 

percentile), income bin 4 (60–80 percent 

income percentile), income bin 5 (80–90 

percent income percentile), and income 

bin 6 (90–100 percent income 

percentile). In general, consumers in the 

lower income groups tend to discount 

future streams of benefits at a higher 

rate when compared to consumers in 

the higher income groups. 

Hence, to analyze the influence of a 

national standard on the low-income 

group population, DOE conducted a 

(residential) subgroup analysis where 

only the 0–20 percent income percentile 

samples were included for the entire 

simulation run. Subsequently, the 

results of the subgroup analysis are 

compared to the results from all 

consumers. 

The results of DOE’s LCC subgroup 

analysis are summarized in section 

V.B.1.b of this NOPR and described in 

detail in chapter 11 of the NOPR TSD. 

J. Manufacturer Impact Analysis 

1. Overview 

DOE performed an MIA to estimate 

the financial impacts of amended energy 

conservation standards on 

manufacturers of CWH equipment and 

to estimate the potential impacts of such 

standards on employment and 

manufacturing capacity. The MIA has 

both quantitative and qualitative aspects 

and includes analyses of projected 

industry cash flows, the INPV, 

investments in research and 

development (‘‘R&D’’) and 

manufacturing capital, and domestic 

manufacturing employment. 

Additionally, the MIA seeks to 

determine how amended energy 

conservation standards might affect 

manufacturing employment, capacity, 

and competition, as well as how 

standards contribute to overall 

regulatory burden. Finally, the MIA 

serves to identify any disproportionate 

impacts on manufacturer subgroups, 

including small business manufacturers. 

The quantitative part of the MIA 

primarily relies on GRIM, an industry 

cash flow model with inputs specific to 

this rulemaking. The key GRIM inputs 

include data on the industry cost 

structure, unit production costs, product 

shipments, manufacturer markups, and 

investments in R&D and manufacturing 

capital required to produce compliant 

products. The key GRIM outputs are the 

INPV, which is the sum of industry 

annual cash flows over the analysis 

period, discounted using the industryweighted average cost of capital, and the 

impact to domestic manufacturing 

employment. The model uses standard 

accounting principles to estimate the 

impacts of more-stringent energy 

conservation standards on a given 

industry by comparing changes in INPV 

and domestic manufacturing 

employment between a no-newstandards case and the various 

standards cases (i.e., TSLs). To capture 

the uncertainty relating to manufacturer 

pricing strategies following amended 

standards, the GRIM estimates a range of 

possible impacts under different 

markup scenarios. 

The qualitative part of the MIA 

addresses manufacturer characteristics 

and market trends. Specifically, the MIA 

considers such factors as a potential 

standard’s impact on manufacturing 

capacity, competition within the 

industry, the cumulative impact of other 

DOE and non-DOE regulations, and 

impacts on manufacturer subgroups. 

The complete MIA is outlined in 

chapter 12 of the NOPR TSD. 

DOE conducted the MIA for this 

proposed rulemaking in three phases. In 

Phase 1 of the MIA, DOE prepared a 

profile of the CWH equipment 

manufacturing industry based on the 

market and technology assessment, 

preliminary manufacturer interviews, 

and publicly-available information. This 

included a top-down analysis of CWH 

equipment manufacturers that DOE 

used to derive preliminary financial 

inputs for the GRIM (e.g., revenues; 

materials, labor, overhead, and 

depreciation expenses; selling, general, 

and administrative (‘‘SG&A’’) expenses; 

and R&D expenses). DOE also used 

public sources of information to further 

calibrate its initial characterization of 

the CWH equipment manufacturing 

industry, including company filings of 

form 10–K from the SEC,151 corporate 

annual reports, the U.S. Census 

Bureau’s Economic Census,152 and 

reports from Dunn & Bradstreet.153

In Phase 2 of the MIA, DOE prepared 

a framework industry cash-flow analysis 

to quantify the potential impacts of 

amended energy conservation 

standards. The GRIM uses several 

factors to determine a series of annual 

cash flows starting with the 

announcement of the standard and 

extending over a 30-year period 

following the compliance date of the 

standard. These factors include annual 

expected revenues, costs of sales, SG&A 

and R&D expenses, taxes, and capital 

expenditures. In general, energy 

conservation standards can affect 

manufacturer cash flow in three distinct 

ways: (1) Creating a need for increased 

investment, (2) raising production costs 

per unit, and (3) altering revenue due to 

higher per-unit prices and changes in 

sales volumes. 

In addition, during Phase 2, DOE 

developed interview guides to distribute 

to manufacturers of CWH equipment in 

order to develop other key GRIM inputs, 

including product and capital 

conversion costs, and to gather 

additional information on the 

anticipated effects of energy 

conservation standards on revenues, 

direct employment, capital assets, 

industry competitiveness, and subgroup 

impacts. 

In Phase 3 of the MIA, DOE 

conducted structured, detailed 

interviews with representative 

manufacturers. During these interviews, 

DOE discussed engineering, 

manufacturing, procurement, and 

financial topics to validate assumptions 

used in the GRIM and to identify key 

issues or concerns. As part of Phase 3, 

DOE also evaluated subgroups of 

manufacturers that may be 

disproportionately impacted by 

amended standards or that may not be 

accurately represented by the average 

cost assumptions used to develop the 

industry cash flow analysis. Such 

manufacturer subgroups may include 

small business manufacturers, lowvolume manufacturers, niche players, 

and/or manufacturers exhibiting a cost 

structure that largely differs from the 

industry average. DOE identified one 

subgroup for a separate impact analysis: 

Small business manufacturers. The 

small business subgroup is discussed in 

section VI.B ‘‘Review under the 

Regulatory Flexibility Act’’ of this 

document and in chapter 12 of the 

NOPR TSD. 

2. Government Regulatory Impact Model 

and Key Inputs 

DOE uses the GRIM to quantify the 

changes in cash flow due to amended 

standards that result in a higher or 

lower industry value. The GRIM uses a 

standard, annual discounted cash-flow 

analysis that incorporates manufacturer 

costs, markups, shipments, and industry 

financial information as inputs. The 

GRIM models changes in costs, 

distribution of shipments, investments, 

and manufacturer margins that could 

result from an amended energy 

conservation standard. The GRIM 

spreadsheet uses the inputs to arrive at 

a series of annual cash flows, beginning 

in 2020 (the base year of the analysis) 


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and continuing to 2055. DOE calculated 

INPVs by summing the stream of annual 

discounted cash flows during this 

period. For manufacturers of CWH 

equipment, DOE used a real discount 

rate of 9.1 percent, which was derived 

from industry financials and then 

modified according to feedback received 

during manufacturer interviews. 

The GRIM calculates cash flows using 

standard accounting principles and 

compares changes in INPV between the 

no-new-standards case and each 

standards case. The difference in INPV 

between the no-new-standards case and 

a standards case represents the financial 

impact of the amended energy 

conservation standard on 

manufacturers. As discussed previously, 

DOE developed critical GRIM inputs 

using a number of sources, including 

publicly-available data, results of the 

engineering analysis, and information 

gathered from industry stakeholders 

during the course of manufacturer 

interviews and through written 

comments. The GRIM results are 

presented in section V.B.2. Additional 

details about the GRIM, the discount 

rate, and other financial parameters can 

be found in chapter 12 of the NOPR 

TSD. 

a. Manufacturer Production Costs 

Manufacturing more efficient 

equipment is typically more expensive 

than manufacturing baseline equipment 

due to the use of more complex 

components, which are typically more 

costly than baseline components. The 

changes in the MPCs of covered 

products can affect the revenues, gross 

margins, and cash flow of the industry. 

MPCs were derived in the engineering 

analysis, using methods discussed in 

section IV.C. of this document. For a 

complete description of the MPCs, see 

chapter 5 of the NOPR TSD. 

b. Shipments Projections 

The GRIM estimates manufacturer 

revenues based on total unit shipment 

projections and the distribution of those 

shipments by efficiency level. Changes 

in sales volumes and efficiency mix 

over time can significantly affect 

manufacturer finances. For this analysis, 

the GRIM uses the NIA’s annual 

shipment projections derived from the 

shipments analysis from 2020 (the base 

year) to 2055 (the end year of the 

analysis period). See chapter 9 of the 

NOPR TSD for additional details. 

c. Product and Capital Conversion Costs 

Amended energy conservation 

standards could cause manufacturers to 

incur conversion costs to bring their 

production facilities and equipment 

designs into compliance. DOE evaluated 

the level of conversion-related 

expenditures that would be needed to 

comply with each considered efficiency 

level in each equipment category. For 

the MIA, DOE classified these 

conversion costs into two major groups: 

(1) Product conversion costs; and (2) 

capital conversion costs. 

Product conversion costs are 

investments in research, development, 

testing, marketing, and other noncapitalized costs necessary to make 

product designs comply with amended 

energy conservation standards. Capital 

conversion costs are investments in 

property, plant, and equipment 

necessary to adapt or change existing 

production facilities such that new 

compliant product designs can be 

fabricated and assembled. 

To evaluate potential product 

conversion costs, DOE estimated the 

number of platforms manufacturers 

would have to modify to move their 

equipment lines to each incremental 

efficiency level. DOE developed the 

product conversion costs by estimating 

the amount of labor per platform 

manufacturers would need for research 

and development to raise the efficiency 

of models to each incremental efficiency 

level. DOE also assumed manufacturers 

would incur safety certification costs 

(including costs for updating safety 

certification records and for safety 

testing) associated with modifying their 

current product offerings to comply 

with amended standards. 

To evaluate the level of capital 

conversion expenditures manufacturers 

would likely incur to comply with 

amended standards, DOE used 

information derived from the 

engineering analysis, equipment 

teardowns, and manufacturer 

interviews. DOE used the information to 

estimate the additional investments in 

property, plant, and equipment that are 

necessary to meet amended energy 

conservation standards. In the 

engineering analysis evaluation of 

higher efficiency equipment from 

leading manufacturers of commercial 

water heaters (both commercial duty 

and residential duty), DOE found a 

range of designs and manufacturing 

approaches. DOE attempted to account 

for both the range of manufacturing 

pathways and the current efficiency 

distribution of shipments in the 

modeling of industry capital conversion 

costs. 

The capital conversion cost estimates 

for gas-fired storage water heaters are 

driven by the cost for industry to double 

production capacity at condensing ELs. 

Those costs included, but were not 

limited to, capital investments in tube 

bending, press dies, machining, 

enameling, MIG welding, leak testing, 

quality assurance stations, conveyer, 

and additional space requirements. 

For gas-fired instantaneous water 

heaters capital conversion costs, DOE 

understands that manufacturers produce 

commercial models on the same 

production lines as residential models, 

which have much higher shipment 

volumes. As such, DOE modeled the 

scenario in which gas-fired 

instantaneous water heater 

manufacturers make incremental 

investments to increase production 

capacity, but do not need to setup 

entirely new production lines or new 

facilities to accommodate an amended 

standard requiring condensing 

technology for gas-fired instantaneous 

water heaters. 

For gas-fired instantaneous circulating 

water heaters and hot water supply 

boilers, the design changes to reach 

condensing efficiency levels were 

driven by purchased parts (i.e., 

condensing heat exchanger, burner tube, 

blower, gas valve). The capital 

conversion costs for this equipment 

class are based on incremental 

warehouse space needed to house 

additional purchased parts. 

DOE assumes all conversion-related 

investments occur between the year of 

publication of the final rule and the year 

by which manufacturers must comply 

with the new standard. The conversion 

cost figures used in the GRIM can be 

found in section V.B.2 of this document. 

For additional information on the 

estimated capital and product 

conversion costs and estimates by 

equipment category, see chapter 12 of 

the NOPR TSD. 

Issue 9: DOE seeks input on the 

production facility and manufacturing 

process changes required as a result of 

potential amended standards for each 

equipment category. DOE also requests 

input on the costs associated with those 

facility and manufacturing changes. 

d. Manufacturer Markup Scenarios 

MSPs include manufacturing 

production costs (i.e., labor, materials, 

and overhead estimated in DOE’s MPCs) 

and all non-production costs (i.e., 

SG&A, R&D, and interest), along with 

profit. To calculate the MSPs in the 

GRIM, DOE applied a manufacturer 

markups to the MPCs estimated in the 

engineering analysis for each equipment 

category and efficiency level. Modifying 

these manufacturer markups in the 

standards case yields different sets of 

impacts on manufacturers. For the MIA, 

DOE modeled two standards-case 

markup scenarios to represent 

uncertainty regarding the potential 


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154Available www.epa.gov/sites/production/files/ 

2021-04/documents/emission-factors_apr2021.pdf 

(last accessed July 12, 2021). 

155U.S. Environmental Protection Agency. 

External Combustion Sources. In Compilation of Air 

Pollutant Emission Factors. AP–42. Fifth Edition. 

Volume I: Stationary Point and Area Sources. 

Chapter 1. Available at www.epa.gov/air-emissionsfactors-and-quantification/ap-42-compilation-airemissions-factors (last accessed July 1, 2021). 

156For further information, see the Assumptions 

to AEO2021 report that sets forth the major 

Continued 

impacts on prices and profitability for 

manufacturers following the 

implementation of amended energy 

conservation standards: (1) A 

preservation of gross margin percentage 

markup scenario and (2) a preservation 

of per-unit operating profit markup 

scenario. These scenarios lead to 

different manufacturer markup values 

that, when applied to the MPCs, result 

in varying revenue and cash flow 

impacts. 

Under the preservation of gross 

margin percentage scenario, DOE 

applied a single uniform ‘‘gross margin 

percentage’’ markup across all efficiency 

levels, which assumes that 

manufacturers would be able to 

maintain the same amount of profit as 

a percentage of revenues at all efficiency 

levels within an equipment category. As 

manufacturer production costs increase 

with efficiency, this scenario implies 

that the absolute dollar markup will 

increase. 

To estimate the average manufacturer 

markup used in the preservation of 

gross margin percentage markup 

scenario, DOE analyzed publiclyavailable financial information for 

manufacturers of CWH equipment. DOE 

then requested feedback on its initial 

markup estimates during manufacturer 

interviews. The revised markups, which 

are used in DOE’s quantitative analysis 

of industry financial impacts, are 

presented in Table IV.32 of this NOPR. 

These markups capture all nonproduction costs, including SG&A 

expenses, R&D expenses, interest 

expenses, and profit. 

TABLE IV.32—MANUFACTURER MARKUPS FOR PRESERVATION OF GROSS MARGIN PERCENTAGE MARKUP SCENARIO

Equipment Markup 

Commercial gas-fired storage and gas-fired storage-type instantaneous water heaters ................................................................... 1.45 

Residential-duty gas-fired storage water heaters ................................................................................................................................ 1.45 

Gas-fired instantaneous water heaters and hot water supply boilers: 

Tankless water heaters ................................................................................................................................................................ 1.43 

Circulating water heaters and hot water supply boilers ............................................................................................................... 1.43 

DOE also models the preservation of 

per-unit operating profit scenario 

because manufacturers stated that they 

do not expect to be able to mark up the 

full cost of production in the standards 

case, given the highly competitive 

nature of the CWH market. In this 

scenario, manufacturer markups are set 

so that operating profit one year after 

the compliance date of amended energy 

conservation standards is the same as in 

the no-new-standards case on a per-unit 

basis. In other words, manufacturers are 

not able to garner additional operating 

profit from the higher production costs 

and the investments that are required to 

comply with the amended standards; 

however, they are able to maintain the 

same per-unit operating profit in the 

standards case that was earned in the 

no-new-standards case. Therefore, 

operating margin in percentage terms is 

reduced between the no-new-standards 

case and standards case. 

DOE adjusted the manufacturer 

markups in the GRIM at each TSL to 

yield approximately the same per-unit 

earnings before interest and taxes in the 

standards case as in the no-newstandards case. The preservation of perunit operating profit markup scenario 

represents the lower bound of industry 

profitability in the standards case. This 

is because manufacturers are not able to 

fully pass through to commercial 

consumers the additional costs 

necessitated by amended standards for 

CWH equipment. 

A comparison of industry financial 

impacts under the two markup 

scenarios is presented in section V.B.2.a 

of this document. 

K. Emissions Analysis 

The emissions analysis consists of 

two components. The first component 

estimates the effect of potential energy 

conservation standards on power sector 

and site (where applicable) combustion 

emissions of CO2, NOX, SO2, and Hg. 

The second component estimates the 

impacts of potential standards on 

emissions of two additional greenhouse 

gases, CH4 and N2O, as well as the 

reductions to emissions of other gases 

due to ‘‘upstream’’ activities in the fuel 

production chain. These upstream 

activities comprise extraction, 

processing, and transporting fuels to the 

site of combustion. 

The analysis of power sector 

emissions of CO2, NOX, SO2, and Hg 

uses marginal emissions factors that 

were derived from data in AEO2021, as 

described in section IV.M of this 

document. Details of the methodology 

are described in the appendices to 

chapters 13 and 15 of the NOPR TSD. 

Power sector emissions of CO2, CH4, 

and N2O are estimated using Emission 

Factors for Greenhouse Gas Inventories 

published by the EPA.154 The FFC 

upstream emissions are estimated based 

on the methodology described in 

chapter 15 of the NOPR TSD. The 

upstream emissions include both 

emissions from extraction, processing, 

and transportation of fuel, and 

‘‘fugitive’’ emissions (direct leakage to 

the atmosphere) of CH4 and CO2. 

The onsite operation of CWH 

equipment requires combustion of fossil 

fuels and results in emissions of CO2, 

NOX, SO2, CH4 and N2O at the sites 

where these products are used. DOE 

accounted for the reduction in these site 

emissions and the associated FFC 

upstream emissions due to potential 

standards. Site emissions of these gases 

were estimated using Emission Factors 

for Greenhouse Gas Inventories and 

emissions intensity factors from an EPA 

publication.155

The emissions intensity factors are 

expressed in terms of physical units per 

megawatt-hour (MWh) or million British 

thermal units (MMBtu) of site energy 

savings. Total emissions reductions are 

estimated using the energy savings 

calculated in the national impact 

analysis. 

1. Air Quality Regulations Incorporated 

in DOE’s Analysis 

DOE’s no-new-standards case for the 

electric power sector reflects the 

AEO2021, which incorporates the 

projected impacts of existing air quality 

regulations on emissions. AEO2021 

generally represents current legislation 

and environmental regulations, 

including recent government actions, 

that were in place at the time of 

preparation of AEO2021, including the 

emissions control programs discussed in 

the following paragraphs.156


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assumptions used to generate the projections in the 

Annual Energy Outlook. Available at www.eia.gov/ 

outlooks/aeo/assumptions/ (last accessed July 1, 

2021). 

157CSAPR requires states to address annual 

emissions of SO2 and NOX, precursors to the 

formation of fine particulate matter (PM2.5) 

pollution, in order to address the interstate 

transport of pollution with respect to the 1997 and 

2006 PM2.5 National Ambient Air Quality Standards 

(‘‘NAAQS’’). CSAPR also requires certain states to 

address the ozone season (May–September) 

emissions of NOX, a precursor to the formation of 

ozone pollution, in order to address the interstate 

transport of ozone pollution with respect to the 

1997 ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). 

EPA subsequently issued a supplemental rule that 

included an additional five states in the CSAPR 

ozone season program; 76 FR 80760 (Dec. 27, 2011) 

(Supplemental Rule). 

SO2 emissions from affected electric 

generating units (‘‘EGUs’’) are subject to 

nationwide and regional emissions capand-trade programs. Title IV of the 

Clean Air Act (‘‘CAA’’) sets an annual 

emissions cap on SO2 for affected EGUs 

in the 48 contiguous States and the 

District of Columbia (‘‘D.C.’’). (42 U.S.C. 

7651 et seq.) SO2 emissions from 

numerous States in the eastern half of 

the United States are also limited under 

the Cross-State Air Pollution Rule 

(‘‘CSAPR’’). 76 FR 48208 (Aug. 8, 2011). 

CSAPR requires these States to reduce 

certain emissions, including annual SO2

emissions, and went into effect as of 

January 1, 2015.157 AEO2021 

incorporates implementation of CSAPR, 

including the update to the CSAPR 

ozone season program emission budgets 

and target dates issued in 2016. 81 FR 

74504 (Oct. 26, 2016). Compliance with 

CSAPR is flexible among EGUs and is 

enforced through the use of tradable 

emissions allowances. Under existing 

EPA regulations, any excess SO2

emissions allowances resulting from the 

lower electricity demand caused by the 

adoption of an efficiency standard could 

be used to permit offsetting increases in 

SO2 emissions by another regulated 

EGU. 

However, beginning in 2016, SO2

emissions began to fall as a result of the 

Mercury and Air Toxics Standards 

(‘‘MATS’’) for power plants. 77 FR 9304 

(Feb. 16, 2012). In the MATS final rule, 

EPA established a standard for hydrogen 

chloride as a surrogate for acid gas 

hazardous air pollutants (‘‘HAP’’), and 

also established a standard for SO2 (a 

non-HAP acid gas) as an alternative 

equivalent surrogate standard for acid 

gas HAP. The same controls are used to 

reduce HAP and non-HAP acid gas; 

thus, SO2 emissions are being reduced 

as a result of the control technologies 

installed on coal-fired power plants to 

comply with the MATS requirements 

for acid gas. To continue operating, coal 

power plants must have either flue gas 

desulfurization or dry sorbent injection 

systems installed. Both technologies, 

which are used to reduce acid gas 

emissions, also reduce SO2 emissions. 

Because of the emissions reductions 

under the MATS, it is unlikely that 

excess SO2 emissions allowances 

resulting from the lower electricity 

demand would be needed or used to 

permit offsetting increases in SO2

emissions by another regulated EGU. 

Therefore, energy conservation 

standards that decrease electricity 

generation would generally reduce SO2

emissions. DOE estimated SO2

emissions reduction using emissions 

factors based on AEO2021. 

CSAPR also established limits on NOX

emissions for numerous States in the 

eastern half of the United States. Energy 

conservation standards would have 

little effect on NOX emissions in those 

States covered by CSAPR emissions 

limits if excess NOX emissions 

allowances resulting from the lower 

electricity demand could be used to 

permit offsetting increases in NOX

emissions from other EGUs. In such 

case, NOX emissions would remain near 

the limit even if electricity generation 

goes down. A different case could 

possibly result, depending on the 

configuration of the power sector in the 

different regions and the need for 

allowances, such that NOX emissions 

might not remain at the limit in the case 

of lower electricity demand. In this case, 

energy conservation standards might 

reduce NOX emissions in covered 

States. Despite this possibility, DOE has 

chosen to be conservative in its analysis 

and has maintained the assumption that 

standards will not reduce NOX

emissions in States covered by CSAPR. 

Energy conservation standards would be 

expected to reduce NOX emissions in 

the States not covered by CSAPR. DOE 

used AEO2021 data to derive NOX

emissions factors for the group of States 

not covered by CSAPR. DOE used 

AEO2021 data to derive NOX emissions 

factors for the group of States not 

covered by CSAPR. 

The MATS limit mercury emissions 

from power plants, but they do not 

include emissions caps and, as such, 

DOE’s energy conservation standards 

would be expected to slightly reduce Hg 

emissions. DOE estimated mercury 

emissions reduction using emissions 

factors based on AEO2021, which 

incorporates the MATS. 

L. Monetizing Emissions Impacts 

As part of the development of this 

proposed rule, for the purpose of 

complying with the requirements of 

Executive Order 12866, DOE considered 

the estimated monetary benefits from 

the reduced emissions of CO2, CH4, N2O, 

NOX, and SO2 that are expected to result 

from each of the TSLs considered. In 

order to make this calculation analogous 

to the calculation of the NPV of 

consumer benefit, DOE considered the 

reduced emissions expected to result 

over the lifetime of products shipped in 

the projection period for each TSL. This 

section summarizes the basis for the 

values used for monetizing the 

emissions benefits and presents the 

values considered in this NOPR. 

On March 16, 2022, the Fifth Circuit 

Court of Appeals (No. 22–30087) 

granted the federal government’s 

emergency motion for stay pending 

appeal of the February 11, 2022, 

preliminary injunction issued in 

Louisiana v. Biden, No. 21–cv–1074– 

JDC–KK (W.D. La.). As a result of the 

Fifth Circuit’s order, the preliminary 

injunction is no longer in effect, 

pending resolution of the federal 

government’s appeal of that injunction 

or a further court order. Among other 

things, the preliminary injunction 

enjoined the defendants in that case 

from ‘‘adopting, employing, treating as 

binding, or relying upon’’ the interim 

estimates of the social cost of 

greenhouse gases—which were issued 

by the Interagency Working Group on 

the Social Cost of Greenhouse Gases on 

February 26, 2021—to monetize the 

benefits of reducing greenhouse gas 

emissions. In the absence of further 

intervening court orders, DOE will 

revert to its approach prior to the 

injunction and present monetized 

benefits where appropriate and 

permissible under law. DOE requests 

comment on how to address the climate 

benefits and other non-monetized 

effects of the proposal. 

1. Monetization of Greenhouse Gas 

Emissions 

For the purpose of complying with 

the requirements of Executive Order 

12866, DOE estimates the monetized 

benefits of the reductions in emissions 

of CO2, CH4, and N2O by using a 

measure of the social cost (‘‘SC’’) of each 

pollutant (e.g., SC–GHGs). These 

estimates represent the monetary value 

of the net harm to society associated 

with a marginal increase in emissions of 

these pollutants in a given year, or the 

benefit of avoiding that increase. These 

estimates are intended to include (but 

are not limited to) climate-changerelated changes in net agricultural 

productivity, human health, property 

damages from increased flood risk, 

disruption of energy systems, risk of 

conflict, environmental migration, and 

the value of ecosystem services. DOE 

exercises its own judgment in 


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presenting monetized climate benefits 

as recommended by applicable 

Executive Orders and guidance, and 

DOE would reach the same conclusion 

presented in this notice in the absence 

of the social cost of greenhouse gases, 

including the February 2021 Interim 

Estimates presented by the Interagency 

Working Group on the Social Cost of 

Greenhouse Gases. 

DOE estimated the global social 

benefits of CO2, CH4, and N2O 

reductions (‘‘SC–GHG’’) using the 

estimates presented in the ‘‘Technical 

Support Document: Social Cost of 

Carbon, Methane, and Nitrous Oxide 

Interim Estimates under Executive 

Order 13990’’ published in February 

2021 by the Interagency Working Group 

on Social Cost of Greenhouse Gases, 

United States Government (IWG) (IWG, 

2021). The SC–GHGs is the monetary 

value of the net harm to society 

associated with a marginal increase in 

emissions in a given year, or the benefit 

of avoiding that increase. In principle, 

SC–GHGs includes the value of all 

climate change impacts, including (but 

not limited to) changes in net 

agricultural productivity, human health 

effects, property damage from increased 

flood risk and natural disasters, 

disruption of energy systems, risk of 

conflict, environmental migration, and 

the value of ecosystem services. The 

SC–GHGs therefore, reflects the societal 

value of reducing emissions of the gas 

in question by one metric ton. The SC– 

GHGs is the theoretically appropriate 

value to use in conducting benefit-cost 

analyses of policies that affect CO2, N2O 

and CH4 emissions. As a member of the 

IWG involved in the development of the 

February 2021 SC–GHG TSD, the DOE 

agrees that the interim SC–GHG 

estimates represent the most appropriate 

estimate of the SC–GHG until revised 

estimates have been developed 

reflecting the latest, peer-reviewed 

science. 

The SC–GHG estimates presented 

here were developed over many years, 

using transparent process, peerreviewed methodologies, the best 

science available at the time of that 

process, and with input from the public. 

Specifically, in 2009, an interagency 

working group (IWG) that included DOE 

and other executive branch agencies and 

offices was established to ensure that 

agencies were using the best available 

science and to promote consistency in 

the social cost of carbon (SC–CO2) 

values used across agencies. The IWG 

published SC–CO2 estimates in 2010 

that were developed from an ensemble 

of three widely cited integrated 

assessment models (IAMs) that estimate 

global climate damages using highly 

aggregated representations of climate 

processes and the global economy 

combined into a single modeling 

framework. The three IAMs were run 

using a common set of input 

assumptions in each model for future 

population, economic, and CO2

emissions growth, as well as 

equilibrium climate sensitivity (ECS)—a 

measure of the globally averaged 

temperature response to increased 

atmospheric CO2 concentrations. These 

estimates were updated in 2013 based 

on new versions of each IAM. In August 

2016 the IWG published estimates of the 

social cost of methane (SC–CH4) and 

nitrous oxide (SC–N2O) using 

methodologies that are consistent with 

the methodology underlying the SC– 

CO2 estimates. The modeling approach 

that extends the IWG SC–CO2

methodology to non-CO2 GHGs has 

undergone multiple stages of peer 

review. The SC–CH4 and SC–N2O 

estimates were developed by Marten et 

al. (2015) and underwent a standard 

double-blind peer review process prior 

to journal publication. In 2015, as part 

of the response to public comments 

received to a 2013 solicitation for 

comments on the SC–CO2 estimates, the 

IWG announced a National Academies 

of Sciences, Engineering, and Medicine 

review of the SC–CO2 estimates to offer 

advice on how to approach future 

updates to ensure that the estimates 

continue to reflect the best available 

science and methodologies. In January 

2017, the National Academies released 

their final report, Valuing Climate 

Damages: Updating Estimation of the 

Social Cost of Carbon Dioxide, and 

recommended specific criteria for future 

updates to the SC–CO2 estimates, a 

modeling framework to satisfy the 

specified criteria, and both near-term 

updates and longer-term research needs 

pertaining to various components of the 

estimation process (National 

Academies, 2017). Shortly thereafter, in 

March 2017, President Trump issued 

Executive Order 13783, which 

disbanded the IWG, withdrew the 

previous TSDs, and directed agencies to 

ensure SC–CO2 estimates used in 

regulatory analyses are consistent with 

the guidance contained in OMB’s 

Circular A–4, ‘‘including with respect to 

the consideration of domestic versus 

international impacts and the 

consideration of appropriate discount 

rates’’ (E.O. 13783, Section 5(c)). 

On January 20, 2021, President Biden 

issued Executive Order 13990, which reestablished the IWG and directed it to 

ensure that the U.S. Government’s 

estimates of the social cost of carbon 

and other greenhouse gases reflect the 

best available science and the 

recommendations of the National 

Academies (2017). The IWG was tasked 

with first reviewing the SC–GHG 

estimates currently used in Federal 

analyses and publishing interim 

estimates within 30 days of the E.O. that 

reflect the full impact of GHG 

emissions, including by taking global 

damages into account. The interim SC– 

GHG estimates published in February 

2021, specifically the SC–CH4 estimates, 

are used here to estimate the climate 

benefits for this proposed rule. The E.O. 

instructs the IWG to undertake a fuller 

update of the SC–GHG estimates by 

January 2022 that takes into 

consideration the advice of the National 

Academies (2017) and other recent 

scientific literature. 

The February 2021 SC–GHG TSD 

provides a complete discussion of the 

IWG’s initial review conducted under 

E.O. 13990. In particular, the IWG found 

that the SC–GHG estimates used under 

E.O. 13783 fail to reflect the full impact 

of GHG emissions in multiple ways. 

First, the IWG found that a global 

perspective is essential for SC–GHG 

estimates because it fully captures 

climate impacts that affect the United 

States and which have been omitted 

from prior U.S.-specific estimates due to 

methodological constraints. Examples of 

omitted effects include direct effects on 

U.S. citizens, assets, and investments 

located abroad, supply chains, and 

tourism, and spillover pathways such as 

economic and political destabilization 

and global migration. In addition, 

assessing the benefits of U.S. GHG 

mitigation activities requires 

consideration of how those actions may 

affect mitigation activities by other 

countries, as those international 

mitigation actions will provide a benefit 

to U.S. citizens and residents by 

mitigating climate impacts that affect 

U.S. citizens and residents. If the United 

States does not consider impacts on 

other countries, it is difficult to 

convince other countries to consider the 

impacts of their emissions on the United 

States. As a member of the IWG 

involved in the development of the 

February 2021 SC–GHG TSD, DOE 

agrees with this assessment and, 

therefore, in this proposed rule DOE 

centers attention on a global measure of 

SC–GHG. This approach is the same as 

that taken in DOE regulatory analyses 

from 2012 through 2016. Prior to that, 

in 2008 DOE presented Social Cost of 

Carbon (SCC) estimates based on values 

the Intergovernmental Panel on Climate 

Change (IPCC) identified in literature at 

that time. As noted in the February 2021 

SC–GHG TSD, the IWG will continue to 


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158For example, the February 2021 TSD discusses 

how the understanding of discounting approaches 

suggests that discount rates appropriate for 

intergenerational analysis in the context of climate 

change may be lower than 3 percent. 159See EPA, Revised 2023 and Later Model Year 

Light-Duty Vehicle GHG Emissions Standards: 

Regulatory Impact Analysis, Washington, DC, 

December 2021. Available at: https://www.epa.gov/ 

system/files/documents/2021-12/420r21028.pdf 

(last accessed January 13, 2022). 

review developments in the literature, 

including more robust methodologies 

for estimating a U.S.-specific SC–GHG 

value, and explore ways to better inform 

the public of the full range of carbon 

impacts. As a member of the IWG, DOE 

will continue to follow developments in 

the literature pertaining to this issue. 

Second, the IWG found that the use of 

the social rate of return on capital (7 

percent under current OMB Circular A– 

4 guidance) to discount the future 

benefits of reducing GHG emissions 

inappropriately underestimates the 

impacts of climate change for the 

purposes of estimating the SC–GHG. 

Consistent with the findings of the 

National Academies (2017) and the 

economic literature, the IWG continued 

to conclude that the consumption rate of 

interest is the theoretically appropriate 

discount rate in an intergenerational 

context (IWG 2010, 2013, 2016a, 2016b), 

and recommended that discount rate 

uncertainty and relevant aspects of 

intergenerational ethical considerations 

be accounted for in selecting future 

discount rates. As a member of the IWG 

involved in the development of the 

February 2021 SC–GHG TSD, DOE 

agrees with this assessment and will 

continue to follow developments in the 

literature pertaining to this issue. 

While the IWG works to assess how 

best to incorporate the latest, peer 

reviewed science to develop an updated 

set of SC–GHG estimates, it set the 

interim estimates to be the most recent 

estimates developed by the IWG prior to 

the group being disbanded in 2017. The 

estimates rely on the same models and 

harmonized inputs and are calculated 

using a range of discount rates. As 

explained in the February 2021 SC– 

GHG TSD, the IWG has recommended 

that agencies revert to the same set of 

four values drawn from the SC–GHG 

distributions based on three discount 

rates as were used in regulatory analyses 

between 2010 and 2016 and subject to 

public comment. For each discount rate, 

the IWG combined the distributions 

across models and socioeconomic 

emissions scenarios (applying equal 

weight to each) and then selected a set 

of four values recommended for use in 

benefit-cost analyses: An average value 

resulting from the model runs for each 

of three discount rates (2.5 percent, 3 

percent, and 5 percent), plus a fourth 

value, selected as the 95th percentile of 

estimates based on a 3 percent discount 

rate. The fourth value was included to 

provide information on potentially 

higher-than-expected economic impacts 

from climate change. As explained in 

the February 2021 SC–GHG TSD, and 

DOE agrees, this update reflects the 

immediate need to have an operational 

SC–GHG for use in regulatory benefitcost analyses and other applications that 

was developed using a transparent 

process, peer-reviewed methodologies, 

and the science available at the time of 

that process. Those estimates were 

subject to public comment in the 

context of dozens of proposed 

rulemakings as well as in a dedicated 

public comment period in 2013. 

DOE’s derivations of the SC–GHGs 

(i.e., SC–CO2, SC–N2O, and SC–CH4) 

values used for this NOPR are discussed 

in the following sections, and the results 

of DOE’s analyses estimating the 

benefits of the reductions in emissions 

of these pollutants are presented in 

section V.B.6. 

a. Social Cost of Carbon 

The SC–CO2 values used for this 

NOPR were generated using the values 

presented in the 2021 update from the 

IWG’s February 2021 TSD. Table IV.33 

shows the updated sets of SC–CO2

estimates from the latest interagency 

update in 5-year increments from 2020 

to 2050. The full set of annual values 

used is presented in Appendix 14A of 

the NOPR TSD. For purposes of 

capturing the uncertainties involved in 

regulatory impact analysis, DOE has 

determined it is appropriate to include 

all four sets of SC–CO2 values, as 

recommended by the IWG.158

TABLE IV.33—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 

[2020$ per metric ton CO2] 

Year 

Discount rate 

5% 3% 2.5% 3% 

Average Average Average 95th percentile 

2020 ................................................................................................. 14 51 76 152 

2025 ................................................................................................. 17 56 83 169 

2030 ................................................................................................. 19 62 89 187 

2035 ................................................................................................. 22 67 96 206 

2040 ................................................................................................. 25 73 103 225 

2045 ................................................................................................. 28 79 110 242 

2050 ................................................................................................. 32 85 116 260 

In calculating the potential global 

benefits resulting from reduced CO2

emissions, DOE used the values from 

the 2021 interagency report, adjusted to 

2020$ using the implicit price deflator 

for gross domestic product (‘‘GDP’’) 

from the Bureau of Economic Analysis. 

For each of the four sets of SC–CO2

cases specified, the values for emissions 

in 2020 were $14, $51, $76, and $152 

per metric ton avoided (values 

expressed in 2020$). DOE derived 

values from 2051 to 2070 based on 

estimates published by EPA.159 These 

estimates are based on methods, 

assumptions, and parameters identical 

to the 2020–2050 estimates published 

by the IWG. DOE derived values after 

2070 based on the trend in 2060–2070 

in each of the four cases in the IWG 

update. 

DOE multiplied the CO2 emissions 

reduction estimated for each year by the 

SC–CO2 value for that year in each of 

the four cases. To calculate a present 

value of the stream of monetary values, 

DOE discounted the values in each of 

the four cases using the specific 

discount rate that had been used to 

obtain the SC–CO2 values in each case. 

See chapter 13 for the annual emissions 


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160See Interagency Working Group on Social Cost 

of Greenhouse Gases, Technical Support Document: 

Social Cost of Carbon, Methane, and Nitrous Oxide. 

Interim Estimates Under Executive Order 13990, 

Washington, DC, February 2021. 

www.whitehouse.gov/wp-content/uploads/2021/02/ 

TechnicalSupportDocument_

SocialCostofCarbonMethaneNitrousOxide.pdf. 

161U.S. Environmental Protection Agency. 

Technical Support Document: Estimating the 

Benefit per Ton of Reducing PM2.5 and Ozone 

Precursors from 21 Sectors, available at: 

www.epa.gov/benmap/estimating-benefit-tonreducing-directly-emitted-pm25-pm25-precursorsand-ozone-precursors. 

reduction. See appendix 14A of the TSD 

for the annual SC–CO2 values. 

b. Social Cost of Methane and Nitrous 

Oxide 

The SC–CH4 and SC–N2O values used 

for this NOPR were generated using the 

values presented in the February 2021 

update from the IWG.160 Table IV.34 

shows the updated sets of SC–CH4 and 

SC–N2O estimates from the latest 

interagency update in 5-year increments 

from 2020 to 2050. The full set of 

annual values used is presented in 

Appendix 14A of the NOPR TSD. To 

capture the uncertainties involved in 

regulatory impact analysis, DOE has 

determined it is appropriate to include 

all four sets of SC–CH4 and SC–N2O 

values, as recommended by the IWG. 

TABLE IV.34—ANNUAL SC–CH4 AND SC–N2O VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 

[2020$ per metric ton] 

Year 

SC–CH4 SC–N2O 

Discount rate and statistic Discount rate and statistic 

5% 3% 2.5% 3% 5% 3% 2.5% 3% 

Average Average Average 95th percentile Average Average Average 95th percentile 

2020 .................................. 670 1,500 2,000 3,900 5,800 18,000 27,000 48,000 

2025 .................................. 800 1,700 2,200 4,500 6,800 21,000 30,000 54,000 

2030 .................................. 940 2,000 2,500 5,200 7,800 23,000 33,000 60,000 

2035 .................................. 1,100 2,200 2,800 6,000 9,000 25,000 36,000 67,000 

2040 .................................. 1,300 2,500 3,100 6,700 10,000 28,000 39,000 74,000 

2045 .................................. 1,500 2,800 3,500 7,500 12,000 30,000 42,000 81,000 

2050 .................................. 1,700 3,100 3,800 8,200 13,000 33,000 45,000 88,000 

DOE multiplied the CH4 and N2O 

emissions reduction estimated for each 

year by the SC–CH4 and SC–N2O 

estimates for that year in each of the 

cases. To calculate a present value of the 

stream of monetary values, DOE 

discounted the values in each of the 

cases using the specific discount rate 

that had been used to obtain the SC–CH4

and SC–N2O estimates in each case. See 

chapter 13 for the annual emissions 

reduction. See appendix 14A for the 

annual SC–CH4 and SC_N2O values. 

2. Monetization of Other Air Pollutants 

DOE estimated the monetized value of 

NOX and SO2 emissions reductions from 

electricity generation using benefit per 

ton estimates based on air quality 

modeling and concentration-response 

functions conducted by EPA for the 

Clean Power Plan final rule. 84 FR 

32520. DOE used EPA’s reported values 

for NOX (as PM2.5) and SO2 for 2020, 

2025, and 2030 calculated with discount 

rates of 3 percent and 7 percent, and 

EPA’s values for ozone season NOX, 

which do not involve discounting since 

the impacts are in the same year as 

emissions. DOE derived values specific 

to the sector for commercial water 

heating using a method described in 

appendix 14B of the NOPR TSD. DOE 

used linear interpolation to define 

values for the years between 2020 and 

2025 and between 2025 and 2030; for 

years beyond 2030 the values are held 

constant. 

DOE estimated the monetized value of 

NOX and SO2 emissions reductions from 

commercial water heating equipment 

using 2022 benefit-per-ton estimates 

from the EPA’s ‘‘Technical Support 

Document Estimating the Benefit per 

Ton of Reducing PM2.5 and Ozone 

Precursors from 21 Sectors’’ (‘‘EPA 

TSD’’).161 Although none of the sectors 

refers specifically to residential and 

commercial buildings, and by 

association, commercial water heaters, 

the sector called ‘‘area sources’’ would 

be a reasonable proxy for residential and 

commercial buildings. ‘‘Area sources’’ 

represents all emission sources for 

which states do not have exact (point) 

locations in their emissions inventories. 

Because exact locations would tend to 

be associated with larger sources, ‘‘area 

sources’’ would be fairly representative 

of small dispersed sources like homes 

and businesses. The EPA TSD provides 

high and low estimates for 2016, 2020, 

2025, and 2030 at 3- and 7-percent 

discount rates. DOE primarily relied on 

the low estimates to be conservative. 

DOE multiplied the site emissions 

reduction (in tons) in each year by the 

associated $/ton values, and then 

discounted each series using discount 

rates of 3 percent and 7 percent as 

appropriate. DOE will continue to 

evaluate the monetization of avoided 

NOX and SO2 emissions and will make 

any appropriate updates for the final 

rule. 

M. Utility Impact Analysis 

The utility impact analysis estimates 

several effects on the electric power 

generation industry that would result 

from the adoption of new or amended 

energy conservation standards. The 

utility impact analysis estimates the 

changes in installed electrical capacity 

and generation that would result for 

each TSL. The analysis is based on 

published output from the NEMS 

associated with AEO2021. NEMS 

produces the AEO Reference case, as 

well as a number of side cases that 

estimate the economy-wide impacts of 

changes to energy supply and demand. 

For the current analysis, impacts are 

quantified by comparing the levels of 

electricity sector generation, installed 

capacity, fuel consumption and 

emissions in the AEO2021 Reference 

case and various side cases. Details of 

the methodology are provided in the 

appendices to chapters 13 and 15 of the 

NOPR TSD. 

The output of this analysis is a set of 

time-dependent coefficients that capture 

the change in electricity generation, 

primary fuel consumption, installed 

capacity and power sector emissions 

due to a unit reduction in demand for 

a given end use. These coefficients are 

multiplied by the stream of electricity 

savings calculated in the NIA to provide 

estimates of selected utility impacts of 

potential new or amended energy 

conservation standards. 


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162See U.S. Department of Commerce—Bureau of 

Economic Analysis. Regional Multipliers: A User 

Handbook for the Regional Input-Output Modeling 

System (RIMS II). 1997. U.S. Government Printing 

Office: Washington, DC. Available at apps.bea.gov/ 

scb/pdf/regional/perinc/meth/rims2.pdf (last 

accessed July 7, 2021). 

163Livingston, O.V., S.R. Bender, M.J. Scott, and 

R.W. Schultz. ImSET 4.0: Impact of Sector Energy 

Technologies Model Description and User Guide. 

2015. Pacific Northwest National Laboratory: 

Richland, WA. PNNL–24563. 

N. Employment Impact Analysis 

DOE considers employment impacts 

in the domestic economy as one factor 

in selecting a proposed standard. 

Employment impacts from new or 

amended energy conservation standards 

include both direct and indirect 

impacts. Direct employment impacts are 

any changes in the number of 

employees of manufacturers of the 

products subject to standards, their 

suppliers, and related service firms. The 

MIA addresses those impacts. Indirect 

employment impacts are changes in 

national employment that occur due to 

the shift in expenditures and capital 

investment caused by the purchase and 

operation of more-efficient appliances. 

Indirect employment impacts from 

standards consist of the net jobs created 

or eliminated in the national economy, 

other than in the manufacturing sector 

being regulated, caused by (1) reduced 

spending by consumers on energy, (2) 

reduced spending on new energy supply 

by the utility industry, (3) increased 

consumer spending on the products to 

which the new standards apply and 

other goods and services, and (4) the 

effects of those three factors throughout 

the economy. 

One method for assessing the possible 

effects on the demand for labor of such 

shifts in economic activity is to compare 

sector employment statistics developed 

by the Labor Department’s Bureau of 

Labor Statistics (‘‘BLS’’). 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. Data from BLS 

indicate that expenditures in the utility 

sector generally create fewer jobs (both 

directly and indirectly) than 

expenditures in other sectors of the 

economy.162 There are many reasons for 

these differences, including wage 

differences and the fact that the utility 

sector is more capital-intensive and less 

labor-intensive than other sectors. 

Energy conservation standards have the 

effect of reducing consumer utility bills. 

Because reduced consumer 

expenditures for energy likely lead to 

increased expenditures in other sectors 

of the economy, the general effect of 

efficiency standards is to shift economic 

activity from a less labor-intensive 

sector (i.e., the utility sector) to more 

labor-intensive sectors (e.g., the retail 

and service sectors). Thus, the BLS data 

suggest that net national employment 

may increase due to shifts in economic 

activity resulting from energy 

conservation standards. 

DOE estimated indirect national 

employment impacts for the standard 

levels considered in this NOPR using an 

input/output model of the U.S. economy 

called Impact of Sector Energy 

Technologies version 4 (‘‘ImSET’’).163

ImSET is a special-purpose version of 

the ‘‘U.S. Benchmark National InputOutput’’ (‘‘I–O’’) model, which was 

designed to estimate the national 

employment and income effects of 

energy-saving technologies. The ImSET 

software includes a computer-based I–O 

model having structural coefficients that 

characterize economic flows among 187 

sectors most relevant to industrial, 

commercial, and residential building 

energy use. 

DOE notes that ImSET is not a general 

equilibrium forecasting model, and that 

the uncertainties involved in projecting 

employment impacts, especially 

changes in the later years of the 

analysis. Because ImSET does not 

incorporate price changes, the 

employment effects predicted by ImSET 

may over-estimate actual job impacts 

over the long run for this proposed rule. 

Therefore, DOE used ImSET only to 

generate results for near-term 

timeframes (2026–2030), where these 

uncertainties are reduced. For more 

details on the employment impact 

analysis, see chapter 16 of the NOPR 

TSD. 

V. Analytical Results and Conclusions 

The following section addresses the 

results from DOE’s analyses with 

respect to the considered energy 

conservation standards for CWH 

equipment. It addresses the TSLs 

examined by DOE and the projected 

impacts of each of these levels. 

Additional details regarding DOE’s 

analyses are contained in the NOPR 

TSD supporting this document. 

A. Trial Standard Levels 

In general, DOE typically evaluates 

potential amended standards for 

products and equipment by grouping 

individual efficiency levels for each 

class into TSLs. Use of TSLs allows DOE 

to identify and consider manufacturer 

cost interactions between the equipment 

classes, to the extent that there are such 

interactions, and market cross elasticity 

from consumer purchasing decisions 

that may change when different 

standard levels are set. 

In the analysis conducted for this 

NOPR, for commercial gas-fired storage 

water heaters, DOE included efficiency 

levels for both thermal efficiency and 

standby loss in each TSL because 

standby loss is dependent upon thermal 

efficiency. This dependence of standby 

loss on thermal efficiency is discussed 

in detail in section IV.C.4.b of this 

NOPR and chapter 5 of the NOPR TSD. 

However, as discussed in section 

IV.C.4.b of this NOPR, for all thermal 

efficiency levels for commercial gasfired storage water heaters, DOE only 

analyzed one standby loss level 

corresponding to each thermal 

efficiency level. The thermal efficiency 

levels for commercial gas-fired storage 

water heaters and commercial gas-fired 

instantaneous water heaters and hot 

water supply boilers, the standby loss 

levels for commercial gas-fired storage 

water heaters, and the UEF levels for 

residential-duty gas-fired storage water 

heaters that are included in each TSL 

are described in the following 

paragraphs and presented in Table V.1 

of this NOPR. 

TSL 4 consists of the max-tech 

efficiency levels for each equipment 

category, which correspond to the 

highest condensing efficiency levels. 

TSL 3 consists of intermediate 

condensing efficiency levels for 

commercial gas-fired storage water 

heaters and residential-duty gas-fired 

storage water heaters, and max-tech 

efficiency levels for commercial gasfired instantaneous water heaters and 

hot water supply boilers. TSL 2 consists 

of the minimum condensing efficiency 

levels analyzed for commercial gas-fired 

storage water heaters and residentialduty gas-fired storage water heaters, and 

intermediate condensing efficiency 

levels for commercial gas-fired 

instantaneous water heaters and hot 

water supply boilers. These TSLs 

require similar technologies to achieve 

the efficiency levels and have roughly 

comparable equipment availability 

across each equipment category in terms 

of the share of models available that 

meet the efficiency level and having 

multiple manufacturers that produce 

those models. TSL 1 consists of the 

maximum non-condensing thermal 

efficiency or UEF (as applicable) levels 

analyzed for each equipment category. 

Table V.1 presents the efficiency 

levels for each equipment category (i.e., 

commercial gas-fired storage water 

heaters and storage-type instantaneous 

water heaters, residential-duty gas-fired 

storage water heaters, gas-fired tankless 

water heaters, and gas-fired circulating 

water heaters and hot water supply 


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boilers) in each TSL. Table V.2 presents 

the thermal efficiency value and 

standby loss reduction factor for each 

equipment category in each TSL that 

DOE considered, with the exception of 

residential-duty gas-fired storage water 

heaters (for which TSLs are shown 

separately in Table V.3). The standby 

loss reduction factor is a multiplier 

representing the reduction in allowed 

standby loss relative to the current 

standby loss standard and which 

corresponds to the associated increase 

in thermal efficiency. Table V.3 presents 

the UEF equations for residential-duty 

gas-fired storage water heaters 

corresponding to each TSL that DOE 

considered. 

TABLE V.1—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY EFFICIENCY LEVEL

Equipment 

Trial standard level * ** 

1 2 3 4 

Et or UEF 

EL SL EL Et or UEF EL SL EL Et or UEF EL SL EL Et or UEF EL SL EL 

Commercial gas-fired storage water heaters 

and storage-type instantaneous water heaters .................................................................. 1 0 2 0 4 0 5 0 

Residential-duty gas-fired storage water heaters .................................................................. 2 .................... 3 .................... 4 .................... 5 ....................

Gas-fired instantaneous water heaters and hot 

water supply boilers: 

Tankless water heaters .............................. 2 .................... 4 .................... 5 .................... 5 ....................

Circulating water heaters and hot water 

supply boilers ......................................... 2 .................... 4 .................... 5 .................... 5 ....................

* Et stands for thermal efficiency, SL stands for standby loss, UEF stands for uniform energy factor, and EL stands for efficiency level. Et applies to commercial gasfired storage water heaters and storage-type instantaneous water heaters, and to gas-fired instantaneous water heaters and hot water supply boilers. SL applies to 

commercial gas-fired storage water heaters and storage-type instantaneous water heaters. UEF applies to residential-duty gas-fired storage water heaters. 

** As discussed in sections III.B.6 and III.B.7 of this NOPR, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water 

supply boilers. In addition, standby loss standards are not applicable for residential-duty commercial gas-fired storage water heaters. Lastly, for commercial gas-fired 

storage water heaters and storage-type instantaneous water heaters DOE only analyzed the reduction that is inherent to increasing Et and did not analyze SL ELs 

above EL0. 

TABLE V.2—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY THERMAL EFFICIENCY AND STANDBY LOSS REDUCTION

FACTOR

[Except Residential-Duty Gas-Fired Storage Water Heaters] 

Equipment 

Trial standard level * ** 

1 2 3 4 

Et

(percent) SL factor † Et(percent) SL factor † Et(percent) SL factor † Et(percent) SL factor † 

Commercial gas-fired storage water heaters 

and storage-type instantaneous water heaters .................................................................. 82 0.98 90 0.91 95 0.86 99 0.83 

Gas-fired instantaneous water heaters and hot 

water supply boilers: 

Tankless water heaters .............................. 84 .................... 94 .................... 96 .................... 96 ....................

Circulating water heaters and hot water 

supply boilers ......................................... 84 .................... 94 .................... 96 .................... 96 ....................

* Et stands for thermal efficiency, and SL stands for standby loss. 

** As discussed in sections III.B.6 and III.B.7 of this NOPR, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water 

supply boilers. 

† Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby loss equations are discussed 

in section IV.C.5 of this NOPR. 

TABLE—V.3 TRIAL STANDARD LEVELS BY UEF FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS

Draw pattern * 

Trial standard level ** 

1 2 3 4 

UEF UEF UEF UEF 

High .................................................................................. 0.7497¥0.0009*Vr 0.8397¥0.0009*Vr 0.9297¥0.0009*Vr 0.9997¥0.0009*Vr 

Medium ............................................................................ 0.6902¥0.0011*Vr 0.7802¥0.0011*Vr 0.8702¥0.0011*Vr 0.9402¥0.0011*Vr 

Low .................................................................................. 0.6262¥0.0012*Vr 0.7162¥0.0012*Vr 0.8062¥0.0012*Vr 0.8762¥0.0012*Vr 

Very Small ....................................................................... 0.3574¥0.0009*Vr 0.4474¥0.0009*Vr 0.5374¥0.0009*Vr 0.6074¥0.0009*Vr 

* Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the firsthour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR part 430. 

** Vr is rated volume in gallons. 

DOE constructed the TSLs for this 

NOPR to include ELs representative of 

ELs with similar characteristics (i.e., 

using similar technologies and/or 

efficiencies, and having roughly 

comparable equipment availability). The 


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164Efficiency levels that were analyzed for this 

NOPR are discussed in section IV.C.4 of this 

document. Results by efficiency level are presented 

in TSD chapters 8, 10, and 12. 

use of representative ELs provided for 

greater distinction between the TSLs. 

While representative ELs were included 

in the TSLs, DOE considered all 

efficiency levels as part of its 

analysis.164

B. Economic Justification and Energy 

Savings 

1. Economic Impacts on Individual 

Consumers 

DOE analyzed the economic impacts 

on CWH equipment consumers by 

looking at the effects that potential 

amended standards at each TSL would 

have on the LCC and PBP. DOE also 

examined the impacts of potential 

standards on selected consumer 

subgroups. These analyses are discussed 

in the following sections. 

a. Life-Cycle Cost and Payback Period 

In general, higher-efficiency products 

can affect consumers in two ways: (1) 

Purchase price increases and (2) annual 

operating costs decrease. Inputs used for 

calculating the LCC and PBP include 

total installed costs (i.e., product price 

plus installation costs) and operating 

costs (i.e., annual energy use, energy 

prices, energy price trends, repair costs, 

and maintenance costs). The LCC 

calculation also uses product lifetime 

and a discount rate. Chapter 8 of the 

NOPR TSD provides detailed 

information on the LCC and PBP 

analyses. 

Table V.4 through Table V.13 of this 

NOPR show the LCC and PBP results for 

the TSLs considered in this NOPR. In 

the first of each pair of tables, the 

simple payback is measured relative to 

the baseline product. In the second 

table, impacts are measured relative to 

the efficiency distribution in the nonew-standards case in the compliance 

year (see section IV.F.2.i of this 

document). Because some consumers 

purchase products with higher 

efficiency in the no-new-standards case, 

the average savings are less than the 

difference between the average LCC of 

the baseline product and the average 

LCC at each TSL. The savings refer only 

to consumers who are affected by a 

standard at a given TSL. As was noted 

in IV.H.1, DOE assumes a large 

percentage of consumers are already 

purchasing higher efficiency condensing 

equipment by 2027. Those who already 

purchase a product with efficiency at or 

above a given TSL are not affected. 

Consumers for whom the LCC increases 

at a given TSL experience a net cost. 

TABLE V.4—AVERAGE LCC AND PBP RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGETYPE INSTANTANEOUS WATER HEATERS

TSL * 

Thermal 

efficiency 

(Et) 

(percent) 

Standby loss 

(SL) factor 

Average costs (2020$) Simple 

payback 

period 

(years) 

Installed 

cost 

First year’s 

operating cost 

Lifetime 

operating cost LCC 

0 ................................... 80 1.00 5,145 1,888 17,874 23,018 ........................

1 ................................... 82 0.98 5,186 1,850 17,558 22,744 1.1 

2 ................................... 90 0.91 6,240 1,728 16,587 22,828 7.0 

3 ................................... 95 0.86 6,306 1,653 16,031 22,338 5.2 

4 ................................... 99 0.83 6,387 1,599 15,584 21,971 4.5 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.5—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR COMMERCIAL GAS-FIRED

STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) level 

(percent) 

Standby loss 

(SL) factor 

Life-cycle cost savings 

Percentage of 

commercial 

consumers 

that 

experience a 

net cost 

Percentage of 

commercial 

consumers 

that 

experience a 

net benefit 

Average 

life-cycle cost 

savings * 

(2020$) 

0 ........................................................................................... 80 1.00 0 0 0 

1 ........................................................................................... 82 0.98 1 33 93 

2 ........................................................................................... 90 0.91 14 22 80 

3 ........................................................................................... 95 0.86 12 38 301 

4 ........................................................................................... 99 0.83 13 86 664 

The calculation includes consumers with zero LCC savings (no impact). 

Note: TSL 0 represents the baseline. 

TABLE V.6—AVERAGE LCC AND PBP RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS

TSL * UEF ** 

Average costs (2020$) Simple 

payback 

period 

(years) Installed cost First year’s operating cost 

Lifetime 

operating cost LCC 

0 ........................................................... 0.59 2,219 925 12,033 14,253 ........................

1 ........................................................... 0.68 2,435 855 11,346 13,781 3.1 

2 ........................................................... 0.77 3,246 806 10,947 14,193 9.4 


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TABLE V.6—AVERAGE LCC AND PBP RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS— 

Continued 

TSL * UEF ** 

Average costs (2020$) Simple 

payback 

period 

(years) Installed cost First year’s operating cost 

Lifetime 

operating cost LCC 

3 ........................................................... 0.86 3,596 754 10,438 14,034 8.6 

4 ........................................................... 0.93 3,634 725 10,155 13,788 7.5 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

** The UEF shown is for the representative capacity of 75 gallons. 

TABLE V.7—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR RESIDENTIAL-DUTY GAS-FIRED

STORAGE WATER HEATERS

TSL UEF * 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

Average 

life-cycle 

cost savings ** 

(2020$) 

0 ................................................................................................................... 0.59 0 0 0 

1 ................................................................................................................... 0.68 2 28 129 

2 ................................................................................................................... 0.77 17 20 (20) 

3 ................................................................................................................... 0.86 26 44 90 

4 ................................................................................................................... 0.93 18 77 324 

* The UEF shown is for the representative capacity of 75 gallons. 

** The calculation includes consumers with zero LCC savings (no impact). A value in parentheses is a negative number. 

Note: TSL 0 represents the baseline. 

TABLE V.8—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS

TSL * 

Thermal 

efficiency 

(Et) 

(percent) 

Average costs (2020$) Simple 

payback 

period 

(years) Installed cost First year’s operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 80 2,875 597 8,338 11,213 ........................

1 ............................................................... 84 2,911 572 8,052 10,964 1.6 

2 ............................................................... 94 3,490 519 7,517 11,007 9.4 

3 ............................................................... 96 3,541 510 7,401 10,942 8.9 

4 ............................................................... 96 3,541 510 7,401 10,942 8.9 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

TSL 0 represents the baseline. 

TABLE V.9— AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED TANKLESS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

Average 

life-cycle cost 

savings * 

(2020$) 

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

1 ................................................................................................................... 84 0 17 42 

2 ................................................................................................................... 94 9 8 40 

3 ................................................................................................................... 96 12 25 63

4 ................................................................................................................... 96 12 25 63

* The calculation includes consumers with zero LCC savings (no impact). 

Note: TSL 0 represents the baseline. 


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TABLE V.10—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER HEATERS

AND HOT WATER SUPPLY BOILERS

TSL * 

Thermal 

efficiency 

(Et) 

(percent) 

Average costs (2020$) Simple 

payback 

period 

(years) Installed cost First year’s operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 80 7,714 4,449 80,795 88,509 ........................

1 ............................................................... 84 7,910 4,306 78,534 86,444 1.4 

2 ............................................................... 94 11,993 3,930 72,782 84,775 9.3 

3 ............................................................... 96 12,325 3,864 71,741 84,066 8.8 

4 ............................................................... 96 12,325 3,864 71,741 84,066 8.8 

* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.11—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

Average 

life-cycle cost 

savings * 

(2020$) 

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

1 ................................................................................................................... 84 2 15 172

2 ................................................................................................................... 94 11 22 702 

3 ................................................................................................................... 96 13 36 1,047 

4 ................................................................................................................... 96 13 36 1,047 

* The calculation includes consumers with zero LCC savings (no impact). 

Note: TSL 0 represents the baseline. 

TABLE V.12—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED INSTANTANEOUS WATER

HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL * 

Thermal 

efficiency 

(Et) 

(percent) 

Average costs (2020$) Simple 

payback 

period 

(years) Installed cost First year’s operating cost 

Lifetime 

operating cost LCC 

0 ............................................................... 80 5,512 2,696 47,826 53,338 ........................

1 ............................................................... 84 5,635 2,607 46,463 52,099 1.4 

2 ............................................................... 94 8,124 2,378 43,085 51,208 9.3 

3 ............................................................... 96 8,328 2,338 42,465 50,793 8.8 

4 ............................................................... 96 8,328 2,338 42,465 50,793 8.8 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10 of this NOPR. 

** The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative 

to the baseline equipment. 

Note: TSL 0 represents the baseline. 

TABLE V.13—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS* 

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Life-cycle cost savings 

Percentage of 

commercial 

consumers that 

experience a 

net cost 

Percentage of 

commercial 

consumers that 

experience a 

net benefit 

Average lifecycle cost 

savings ** 

(2020$) 

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

1 ................................................................................................................... 84 1 16 113

2 ................................................................................................................... 94 10 16 400 

3 ................................................................................................................... 96 12 31 599 

4 ................................................................................................................... 96 12 31 599 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.9 and V.11 of this NOPR. 

** The calculation includes consumers with zero LCC savings (no impact). 

Note: TSL 0 represents the baseline. 


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b. Consumer Subgroup Analysis 

In the consumer subgroup analysis, 

DOE estimated the impact of the 

considered TSLs on a low-income 

residential population (0–20 percentile 

gross annual household income) 

subgroup. Table V.14 through Table 

V.23 of this NOPR compare the average 

LCC savings and PBP at each efficiency 

level for the consumer subgroup, along 

with the average LCC savings for the 

entire consumer sample. In most cases, 

the average LCC savings and PBP for 

low-income residential consumers at the 

considered efficiency levels are either 

similar to or more favorable than the 

average for all consumers, due in part to 

greater levels of equipment usage in 

RECS apartment building sample 

identified as low-income observations 

when compared to the average 

consumer of CWH equipment. The 

exception is tankless water heaters in 

which low-income consumers’ LCC 

savings are lower than the average of all 

consumers. Chapter 11 of the NOPR 

TSD presents the complete LCC and 

PBP results for the subgroup analysis. 

TABLE V.14—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, COMMERCIAL GAS-FIRED

STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Standby loss 

(SL) factor 

(percent) 

LCC savings 

(2020$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ............................................................... 82 98 124 93 0.9 1.1 

2 ............................................................... 90 91 210 80 5.6 7.0 

3 ............................................................... 95 86 509 301 4.1 5.2 

4 ............................................................... 99 83 1,008 664 3.5 4.4 

TABLE V.15—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, COMMERCIAL

GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Standby loss 

(SL) factor 

(percent) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ............................................................... 82 98 0 1 34 33 

2 ............................................................... 90 91 11 14 26 22 

3 ............................................................... 95 86 7 12 42 38 

4 ............................................................... 99 83 6 13 93 86 

TABLE V.16—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, RESIDENTIAL-DUTY GASFIRED STORAGE WATER HEATERS

TSL UEF 

LCC savings 

(2020$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 0.68 131 129 3.1 3.1 

2 ........................................................................................... 0.77 15 (20) 8.5 9.4 

3 ........................................................................................... 0.86 138 90 7.9 8.6 

4 ........................................................................................... 0.93 383 324 6.9 7.5 

* Parentheses indicate negative values. 

TABLE V.17—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, RESIDENTIALDUTY GAS-FIRED STORAGE WATER HEATERS

TSL UEF 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 0.68 1 2 29 28 

2 ........................................................................................... 0.77 15 17 22 20 

3 ........................................................................................... 0.86 22 26 47 44 

4 ........................................................................................... 0.93 14 18 81 77 


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TABLE V.18—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED TANKLESS

WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

LCC savings 

(2020$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 25 42 2.8 1.6 

2 ........................................................................................... 94 11 40 13.2 9.4 

3 ........................................................................................... 96 21 63 12.7 8.9 

4 ........................................................................................... 96 21 63 12.7 8.9 

TABLE V.19—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

TANKLESS WATER HEATERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 0 0 17 17 

2 ........................................................................................... 94 11 9 6 8 

3 ........................................................................................... 96 16 12 22 25 

4 ........................................................................................... 96 16 12 22 25 

TABLE V.20—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED CIRCULATING

WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

LCC savings 

(2020$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 265 172 1.1 1.4 

2 ........................................................................................... 94 2,029 702 6.7 9.3 

3 ........................................................................................... 96 2,754 1,047 6.3 8.8 

4 ........................................................................................... 96 2,754 1,047 6.3 8.8 

TABLE V.21—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 1 2 15 15 

2 ........................................................................................... 94 6 11 28 22 

3 ........................................................................................... 96 6 13 43 36 

4 ........................................................................................... 96 6 13 43 36 

TABLE V.22—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED INSTANTANEOUS

WATER HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

LCC savings 

(2020$) 

Simple payback period 

(years) 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 156 113 1.2 1.4 

2 ........................................................................................... 94 1,111 400 7.0 9.3 

3 ........................................................................................... 96 1,511 599 6.5 8.8 

4 ........................................................................................... 96 1,511 599 6.5 8.8 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.18 and V.20 of this NOPR. 


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TABLE V.23—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED

INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * 

TSL 

Thermal 

efficiency 

(Et) 

(percent) 

Percent of consumers that 

experience a net cost 

Percent of consumers that 

experience a net benefit 

Residential 

low-income All Residential low-income All 

1 ........................................................................................... 84 1 1 16 16 

2 ........................................................................................... 94 8 10 18 16 

3 ........................................................................................... 96 10 12 33 31 

4 ........................................................................................... 96 10 12 33 31 

* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water 

heaters and hot water supply boilers), and reflects a weighted average result of Tables V.19 and V.21 of this NOPR. 

c. Rebuttable Presumption Payback 

As discussed in section I.A.2 of this 

document, EPCA establishes a 

rebuttable presumption that an energy 

conservation standard is economically 

justified if the increased purchase cost 

for a product that meets the standard is 

less than three times the value of the 

first-year energy savings resulting from 

the standard. In calculating a rebuttable 

presumption PBP for each of the 

considered TSLs, DOE used discrete 

values, and, as required by EPCA, based 

the energy use calculation on the DOE 

test procedure for CWH equipment. In 

contrast, the PBPs presented in section 

V.B.1.a were calculated using 

distributions that reflect the range of 

energy use in the field. Table V.24 

presents rebuttable presumption 

payback period results. TSL 1 is the 

only level at which the rebuttable 

presumption payback periods are less 

than or equal to three. See chapter 8 of 

the NOPR TSD for more information on 

the rebuttable presumption payback 

analysis. 

TABLE V.24—REBUTTABLE PRESUMPTION PAYBACK PERIODS

Equipment 

Trial standard level 

(years) 

1 2 3 4 

Commercial Gas-Fired Storage and Storage-Type Instantaneous Water 

Heaters ......................................................................................................... 1.1 6.8 4.9 4.3

Residential Duty Gas-Fired Storage ................................................................ 3.1 8.6 8.1 7.1 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ........ 1.4 8.2 7.9 7.9 

Instantaneous, Gas-Fired Tankless ................................................................. 1.5 7.9 7.7 7.7 

Instantaneous Water Heaters and Hot Water Supply Boilers ......................... 1.4 8.2 7.9 7.9 

2. Economic Impacts on Manufacturers 

DOE performed an MIA to estimate 

the impact of amended energy 

conservation standards on 

manufacturers of CWH equipment. The 

following section describes the expected 

impacts on manufacturers at each 

considered TSL. Chapter 12 of the 

NOPR TSD explains the analysis in 

further detail. 

a. Industry Cash Flow Analysis Results 

In this section, DOE provides GRIM 

results from the analysis, which 

examines changes in the industry that 

would result from a standard. Table 

V.25 through Table V.28 of this NOPR 

summarize the estimated financial 

impacts of potential amended energy 

conservation standards on 

manufacturers of CWH equipment, as 

well as the conversion costs that DOE 

estimates manufacturers of CWH 

equipment would incur at each TSL. 

The impact of potential amended 

energy conservation standards was 

analyzed under two markup scenarios: 

(1) The preservation of gross margin 

percentage markup scenario and (2) the 

preservation of per-unit operating profit 

markup scenario, as discussed in 

section IV.J.2.d of this document. The 

preservation of gross margin percentage 

scenario provides the upper bound 

while the preservation of operating 

profits scenario results in the lower (or 

more severe) bound to impacts of 

potential amended standards on 

industry. 

Each of the modeled scenarios results 

in a unique set of cash flows and 

corresponding INPV for each TSL. INPV 

is the sum of the discounted cash flows 

to the industry from the base year 

through the end of the analysis period 

(2020–2055). The ‘‘change in INPV’’ 

results refer to the difference in industry 

value between the no-new-standards 

case and standards case at each TSL. To 

provide perspective on the short-run 

cash flow impact, DOE includes a 

comparison of free cash flow between 

the no-new-standards case and the 

standards case at each TSL in the year 

before amended standards would take 

effect. This figure provides an 

understanding of the magnitude of the 

required conversion costs relative to the 

cash flow generated by the industry in 

the no-new-standards case. 

Conversion costs are one-time 

investments for manufacturers to bring 

their manufacturing facilities and 

product designs into compliance with 

potential amended standards. As 

described in section IV.J.2.c of this 

document, conversion cost investments 

occur between the year of publication of 

the final rule and the year by which 

manufacturers must comply with the 

new standard. The conversion costs can 

have a significant impact on the shortterm cash flow on the industry and 

generally result in lower free cash flow 

in the period between the publication of 

the final rule and the compliance date 

of potential amended standards. 

Conversion costs are independent of the 

manufacturer markup scenarios and are 

not presented as a range in this analysis. 

The results in Table V.25 through 

Table V.28 of this NOPR show potential 

INPV impacts for CWH equipment 

manufacturers by equipment class. The 


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tables present the range of potential 

impacts reflecting both the less severe 

set of potential impacts (preservation of 

gross margin) and the more severe set of 

potential impacts (preservation of perunit operating profit). In the following 

discussion, the INPV results refer to the 

difference in industry value between the 

no-new-standards case and each 

standards case that results from the sum 

of discounted cash flows from 2020 (the 

base year) through 2055 (the end of the 

analysis period). 

To provide perspective on the nearterm cash flow impact, DOE discusses 

the change in free cash flow between the 

no-new-standards case and the 

standards case at each TSL in the year 

before new standards take effect. These 

figures provide an understanding of the 

magnitude of the required conversion 

costs at each TSL relative to the cash 

flow generated by the industry in the 

no-new-standards case. 

1. Industry Cash Flow for Commercial 

Gas-Fired Storage Water Heaters and 

Storage-Type Instantaneous Equipment 

TABLE V.25—MANUFACTURING IMPACT ANALYSIS RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS

AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2020$ millions ........ 134.6 133.5–133.9 127.8–130.4 121.1–125.1 70.1–76.6 

Change in INPV ............................... 2020$ millions ........ ........................ (1.1)–(0.7) (6.8)–(4.2) (13.5)–(9.5) (64.5)–(58.0) 

% ............................ ........................ (0.8)–(0.5) (5.1)–(3.1) (10.0)–(7.0) (47.9)–(43.1) 

Free Cash Flow (2025) ................... 2020$ millions ........ 10.9 10.2 6.6 2.6 31.8 

Change in Free Cash Flow ............. 2020$ millions ........ ........................ (0.7) (4.3) (8.3) (42.7) 

% ............................ ........................ (6.2) (39.3) (75.8) (391.4) 

Product Conversion Costs ............... 2020$ millions ........ ........................ 1.9 5.3 11.6 82.1 

Capital Conversion Costs ................ 2020$ millions ........ ........................ 0.0 5.4 9.2 19.5 

Total Conversion Costs ............ 2020$ millions ........ ........................ 1.9 10.6 20.8 101.5 

At TSL 1, DOE estimates impacts on 

INPV for commercial gas-fired storage 

and storage-type instantaneous water 

heater equipment manufacturers to 

range from ¥0.8 percent to ¥0.5 

percent, or a change of ¥$1.1 million to 

¥$0.7 million. At this level, DOE 

estimates that industry free cash flow 

would decrease by approximately 6.2 

percent to $10.2 million, compared to 

the no-new-standards-case value of 

$10.9 million in the year before 

compliance (2025). 

DOE estimates 70 percent of 

commercial gas-fired storage water 

heater and storage-type instantaneous 

water heater basic models meet or 

exceed the thermal efficiency and 

standby loss standards at TSL 1. DOE 

does not expect the modest increases in 

thermal efficiency and standby loss 

requirements at this TSL to require 

major equipment redesigns or large 

capital investments. Overall, DOE 

estimates that manufacturers would 

incur $1.9 million in product 

conversion costs and $0.03 million in 

capital conversion costs to bring their 

equipment portfolios into compliance 

with a standard set to TSL 1. At TSL 1, 

conversion costs are a key driver of 

results. These upfront investments 

result in a lower INPV in both 

manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV for manufacturers of this 

equipment class to range from ¥5.1 

percent to ¥3.1 percent, or a change in 

INPV of ¥$6.8 million to ¥$4.2 

million. At this potential standard level, 

industry free cash flow would decrease 

by approximately 39.3 percent to $6.6 

million, compared to the no-newstandards case value of $10.9 million in 

the year before compliance (2025). 

DOE estimates 41 percent of 

commercial gas-fired storage water 

heater and storage-type instantaneous 

water heater basic models meet or 

exceed the thermal efficiency and 

standby loss standards at TSL 2. Product 

and capital conversion costs would 

increase at this TSL as manufacturers 

update designs and production 

equipment to meet a thermal efficiency 

standard that necessitates condensing 

technology. DOE notes that capital 

investment would vary by 

manufacturers due to differences in 

condensing heat exchanger designs and 

differences in existing production 

capacity. These capital conversion costs 

include, but are not limited to, 

investments in tube bending, press dies, 

machining, enameling, MIG welding, 

leak testing, quality assurance stations, 

and conveyer. 

DOE estimates that manufacturers 

would incur $5.3 million in product 

conversion costs and $5.4 million in 

capital conversion costs to bring their 

offered commercial gas-fired storage 

water heaters and storage-type 

instantaneous water heaters into 

compliance with a standard set to TSL 

2. At TSL 2, conversion costs are a key 

driver of results. These upfront 

investments result in a lower INPV in 

both manufacturer markup scenarios. 

At TSL 3, DOE estimates impacts on 

INPV for commercial gas-fired storage 

water heater and storage-type 

instantaneous water heater 

manufacturers to range from ¥10.0 

percent to ¥7.0 percent, or a change in 

INPV of ¥$13.5 million to ¥$9.5 

million. At this potential standard level, 

DOE estimates industry free cash flow 

would decrease by approximately 75.8 

percent to $2.6 million, compared to the 

no-new-standards-case value of $10.9 

million in the year before compliance 

(2025). 

DOE estimates that 34 percent of 

currently offered commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater basic models 

meet or exceed the thermal efficiency 

and standby loss standards at TSL 3. At 

this level, DOE estimates that product 

conversion costs would increase, as 

manufacturers would have to redesign a 

larger percentage of their offerings to 

meet the higher thermal efficiency 

levels. Additionally, capital conversion 

costs would increase, as manufacturers 

upgrade their laboratories and test 

facilities to increase capacity for 

product development and safety testing 

for their commercial gas-fired storage 

water heater and storage-type 

instantaneous water heater offerings. 

Overall, DOE estimates that 

manufacturers would incur $11.6 

million in product conversion costs and 

$9.2 million in capital conversion costs 


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to bring their commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater portfolio 

into compliance with a standard set to 

TSL 3. At TSL 3, conversion costs are 

a key driver of results. These upfront 

investments result in a lower INPV in 

both manufacturer markup scenarios. 

TSL 4 represents the max-tech 

thermal efficiency and standby loss 

levels. At TSL 4, DOE estimates impacts 

on INPV for commercial gas-fired 

storage water heater and storage-type 

instantaneous water heater 

manufacturers to range from ¥47.9 

percent to ¥43.1 percent, or a change in 

INPV of ¥$64.5 million to ¥$58.0 

million. At this TSL, DOE estimates 

industry free cash flow in the year 

before compliance (2025) would 

decrease by approximately 391 percent 

to ¥$31.8 million compared to the nonew-standards case value of $10.9 

million. 

The impacts on INPV at TSL 4 are 

significant. DOE estimates less than 1 

percent of currently offered basic 

models meet or exceed the efficiency 

levels prescribed at TSL 4. DOE expects 

product conversion costs to be 

significant at TSL 4, as almost all 

equipment on the market would have to 

be redesigned. Furthermore, the 

redesign process would be more 

resources intensive and costly at TSL 4 

than at other TSLs. Traditionally, 

manufacturers design their equipment 

platforms to support a range of models 

with varying input capacities and 

storage volumes, and the efficiency 

typically will vary slightly between 

models within a given platform. 

However, at TSL 4, manufacturers 

would be limited in their ability to 

maintain a platform approach to 

designing commercial gas-fired storage 

and storage-type instantaneous water 

heaters, because the 99 percent thermal 

efficiency level represents the maximum 

achievable efficiency and there would 

be no allowance for slight variations in 

efficiency between individual models. 

At TSL 4, manufacturers would be 

required to separately redesign each 

individual model to optimize 

performance for each specific input 

capacity and storage volume 

combination. In manufacturer 

interviews, some manufacturers raised 

concerns that they would not have 

sufficient engineering capacity to 

complete necessary redesigns within the 

3-year conversion period. If 

manufacturers require more than 3 years 

to redesign all models, they would 

likely prioritize redesigns based on sales 

volume. Due to the increase in number 

of redesigns and engineering effort, DOE 

estimates that product conversion costs 

would increase to $82.1 million. 

DOE estimates that manufacturers 

would also incur $19.5 million in 

capital conversion costs. In addition to 

upgrading production lines, DOE 

expects manufacturers would need to 

add laboratory space to develop and test 

products to meet amended standards at 

TSL 4 standards. These large upfront 

investments result in a lower INPV in 

both manufacturer markup scenarios. 

At TSL 4, the large conversion costs 

result in a free cash flow dropping 

below zero in the years before the 

standard year. The negative free cash 

flow calculation indicates 

manufacturers may need to access cash 

reserves or outside capital to finance 

conversion efforts. 

2. Industry Cash Flow for ResidentialDuty Gas-Fired Storage Water Heaters 

TABLE V.26—MANUFACTURING IMPACT ANALYSIS RESULTS FOR RESIDENTIAL DUTY GAS-FIRED STORAGE WATER

HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2020$ millions ........ 10.1 9.8–10.1 9.2–9.9 8.4–10.6 5.7–8.1 

Change in INPV ............................... 2020$ millions ........ ........................ (0.3)–0.0 (0.9)–(0.2) (1.7)–0.5 (4.5)–(2.0) 

% ............................ ........................ (3.0)–0.0 (8.7)–(2.4) (16.5)–5.4 (44.0)–(19.7) 

Free Cash Flow (2025) ................... 2020$ millions ........ 0.8 0.6 0.3 (0.02) (1.9) 

Change in Free Cash Flow ............. 2020$ millions ........ ........................ (0.2) (0.5) (0.8) (2.7) 

% ............................ ........................ (21.4) (59.7) (102.7) (335.2) 

Product Conversion Costs ............... 2020$ millions ........ ........................ 0.5 0.7 1.2 4.6 

Capital Conversion Costs ................ 2020$ millions ........ ........................ 0.0 0.5 0.9 1.9 

Total Conversion Costs ............ 2020$ millions ........ ........................ 0.5 1.2 2.1 6.5 

At TSL 1, DOE estimates impacts on 

INPV for residential-duty gas-fired 

storage equipment manufacturers to 

range from ¥3.0 percent to less than 

one percent, or a change of ¥$0.3 

million to less than 0.1 million. At this 

level, DOE estimates that industry free 

cash flow would decrease by 

approximately 21.4 percent to $0.6 

million, compared to the no-newstandards-case value of $0.8 million in 

the year before compliance (2025). 

DOE estimates that 53 percent of 

currently offered residential-duty gasfired storage water heater basic models 

already meet or exceed the UEF 

standards at TSL 1. DOE does not expect 

the modest increases in UEF 

requirements at this TSL to require 

major equipment redesigns or large 

capital investments. Overall, DOE 

estimates that manufacturers would 

incur $0.5 million in product 

conversion costs and $0.03 million in 

capital conversion costs to bring their 

residential-duty commercial gas-fired 

storage equipment portfolios into 

compliance with a standard set to TSL 

1. At TSL 1, conversion costs are the 

primary driver of results. These upfront 

investments result in a lower INPV in 

both manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV for manufacturers of this 

equipment class to range from ¥8.7 

percent to ¥2.4 percent, or a change in 

INPV of ¥$0.9 million to ¥$0.2 

million. At this potential standard level, 

industry free cash flow would decrease 

by approximately 59.7 percent to $0.3 

million, compared to the no-newstandards case value of $0.8 million in 

the year before compliance (2025). 

DOE estimates that 38 percent of 

currently offered residential-duty gasfired storage water heater basic models 

would already meet or exceed the UEF 

standards at TSL 2. DOE estimates that 

product and capital conversion costs 

would increase at this TSL. 

Manufacturers would meet the UEF 

levels for residential-duty commercial 

gas-fired storage equipment by shifting 

to condensing technology. DOE notes 


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that the capital investment would vary 

by manufacturers due to differences in 

condensing heat exchanger designs and 

differences in existing production 

capacity. 

DOE estimates that manufacturers 

would incur $0.7 million in product 

conversion costs and $0.5 million in 

capital conversion costs to bring their 

residential-duty gas-fired storage water 

heaters into compliance with a standard 

set to TSL 2. At TSL 2, conversion costs 

continue to be the primary driver of 

results. These upfront investments 

result in a lower INPV in both 

manufacturer markup scenarios. 

At TSL 3, DOE estimates impacts on 

INPV for residential-duty gas-fired 

manufacturers to range from ¥16.5 

percent to 5.4 percent, or a change in 

INPV of ¥$1.7 million to $0.5 million. 

At this potential standard level, DOE 

estimates industry free cash flow would 

decrease by approximately 102.7 

percent to ¥$0.02 million compared to 

the no-new-standards-case value of $0.8 

million in the year before compliance 

(2025). 

The impacts on INPV at TSL 3 are 

slightly more negative at the lower 

bound than at TSL 2. Unlike TSL 2, at 

the upper bound, INPV impacts are 

positive. DOE estimates that 22 percent 

of currently offered residential-duty 

commercial gas-fired storage water 

heater basic models would meet or 

exceed the UEF standards at TSL 3. At 

this level, DOE estimates that product 

conversion costs would increase, as 

manufacturers would have to redesign a 

larger percentage of their offerings to 

meet the higher UEF levels. 

Additionally, capital conversion costs 

would increase, as manufacturers 

increase production capacity for 

condensing equipment. Overall, DOE 

estimates that manufacturers would 

incur $1.2 million in product 

conversion costs and $0.9 million in 

capital conversion costs to bring their 

residential-duty commercial gas-fired 

storage water heater portfolio into 

compliance with a standard set to TSL 

3. At TSL 3, conversion costs are a key 

driver of results. 

TSL 4 represents the max-tech UEF 

levels. At TSL 4, DOE estimates impacts 

on INPV for residential-duty 

commercial gas-fired storage water 

heater manufacturers to range from 

¥44.0 percent to ¥19.7 percent, or a 

change in INPV of ¥$4.5 million to 

¥$2.0 million. At this TSL, DOE 

estimates industry free cash flow in the 

year before compliance (2025) would 

decrease by approximately 335.2 

percent to ¥$1.9 million compared to 

the no-new-standards case value of $0.8 

million. 

The impacts on INPV at TSL 4 are 

significant. DOE estimates that less than 

5 percent of currently offered 

residential-duty gas-fired water heater 

equipment meet or exceed the efficiency 

levels prescribed at TSL 4. DOE expects 

conversion costs to be significant at TSL 

4, as most equipment currently on the 

market would have to be redesigned and 

new products would have to be 

developed to meet a wider range of 

storage volumes. DOE estimates that 

product conversion costs would 

increase to $4.6 million, as 

manufacturers would have to redesign a 

much larger percentage of their offerings 

to meet max-tech. 

DOE estimates that manufacturers 

would also incur $1.9 million in capital 

conversion costs. In addition to 

upgrading production lines, DOE 

accounted for the costs to add laboratory 

space to develop and safety test 

products that meet max-tech efficiency 

levels. At TSL 4, conversion costs are 

high. These upfront investments result 

in a lower INPV in both manufacturer 

markup scenarios. 

At TSL 4, the large conversion costs 

result in a free cash flow dropping 

below zero in the years before the 

standard year. The negative free cash 

flow calculation indicates 

manufacturers may need to access cash 

reserves or outside capital to finance 

conversion efforts. 

3. Industry Cash Flow for Gas-Fired 

Instantaneous Tankless Water Heaters 

TABLE V.27—MANUFACTURING IMPACT ANALYSIS RESULTS FOR GAS-FIRED INSTANTANEOUS TANKLESS WATER HEATERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2020$ millions ........ 7.1 6.8–6.8 6.1–6.2 6.1–6.3 6.1–6.3 

Change in INPV ............................... 2020$ millions ........ ........................ (0.3)–(0.3) (1.0)–(0.9) (1.1)–(0.8) (1.1)–(0.8) 

% ............................ ........................ (4.5)–(4.2) (14.8)–(12.6) (15.0)–(11.8) (15.0)–(11.8) 

Free Cash Flow (2025) ................... 2020$ millions ........ 0.5 0.3 (0.2) (0.2) (0.2) 

Change in Free Cash Flow ............. 2020$ millions ........ ........................ (0.2) (0.7) (0.7) (0.7) 

% ............................ ........................ (43.2) (143.2) (143.3) (143.3) 

Product Conversion Costs ............... 2020$ millions ........ ........................ 0.6 1.2 1.2 1.2 

Capital Conversion Costs ................ 2020$ millions ........ ........................ 0.0 0.6 0.6 0.6 

Total Conversion Costs ............ 2020$ millions ........ ........................ 0.6 1.8 1.8 1.8 

At TSL 1, DOE estimates impacts on 

INPV for gas-fired instantaneous 

tankless water heaters manufacturers to 

range from ¥4.5 percent to ¥4.2 

percent, or a change of approximately 

¥$0.3 million. At this level, DOE 

estimates that industry free cash flow 

would decrease by approximately 43.2 

percent to $0.3 million, compared to the 

no-new-standards-case value of $0.5 

million in the year before compliance 

(2025). 

DOE estimates that 84 percent of basic 

models of gas-fired instantaneous 

tankless water heaters already meet or 

exceed the thermal efficiency standards 

at TSL 1. At this level, DOE expects 

manufacturers of this equipment class to 

incur product conversion costs to 

redesign their equipment. DOE does not 

expect the modest increases in thermal 

efficiency requirements at this TSL to 

require capital investments. Overall, 

DOE estimates that manufacturers 

would incur $0.6 million in product 

conversion costs and no capital 

conversion costs to bring this equipment 

portfolio into compliance with a 

standard set to TSL 1. At TSL 1, product 

conversion costs are the key driver of 

results. These upfront investments 

result in a lower INPV in both 

manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV ranges from ¥14.8 percent to 

¥12.6 percent, or a change in INPV of 

¥$1.0 million to ¥$0.9 million. At this 

potential standard level, DOE estimates 

industry free cash flow to decrease by 

approximately 143.2 percent to ¥$0.21 

million compared to the no-newVerDate Sep<11>2014 19:04 May 18, 2022 Jkt 256001 PO 00000 Frm 00096 Fmt 4701 Sfmt 4702 E:\FR\FM\19MYP2.SGM 19MYP2

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standards-case value of $0.5 million in 

the year before compliance (2025). 

DOE estimates that 84 percent of basic 

models of gas-fired instantaneous 

tankless water heaters already meet or 

exceed the thermal efficiency standards 

at TSL 2. DOE estimates that product 

and capital conversion costs would 

increase at this TSL. Manufacturers 

would meet the thermal efficiency 

levels by using condensing technology. 

DOE understands that tankless water 

heater manufacturers produce far more 

consumer products in significantly 

higher volumes than commercial 

offerings, and that these products are 

manufactured in the same facilities with 

shared production lines. DOE expects 

manufacturers would need to make 

incremental investments rather than 

setup new production lines. Overall, 

DOE estimates that manufacturers 

would incur $1.2 million in product 

conversion costs and $0.6 million in 

capital conversion costs to bring their 

instantaneous gas-fired tankless wat 

heater portfolio into compliance with a 

standard set to TSL 2. 

As discussed in section IV.A of this 

document, TSL 3 and TSL 4 represent 

max-tech thermal efficiency levels for 

gas-fired instantaneous tankless water 

heaters. Therefore, DOE modeled 

identical impacts to manufacturers of 

this equipment for both TSL 3 and TSL 

4. At these levels, DOE estimates 

impacts on INPV to range from ¥15.0 

percent to ¥11.8 percent, or a change in 

INPV of ¥$1.1 million to ¥$0.8 

million. At these levels, DOE estimates 

industry free cash flow in the year 

before compliance (2025) would 

decrease by approximately 143.3 

percent to ¥$0.2 million compared to 

the no-new-standards case value of $0.5 

million. DOE estimates that 53 percent 

of basic models of efficiency standards 

at TSL 3 and TSL 4. 

DOE anticipates modest product 

conversion costs as manufacturers 

continue to increase their offerings at 

greater input capacities. Overall, DOE 

estimates that manufacturers would 

incur $1.2 million in product 

conversion costs and $0.6 million in 

capital conversion costs to bring their 

gas-fired instantaneous tankless 

portfolio into compliance with a 

standard set to TSL 3 and TSL 4. 

4. Industry Cash Flow for Instantaneous 

Circulating Water Heaters and Hot 

Water Supply Boilers 

TABLE V.28—MANUFACTURING IMPACT ANALYSIS RESULTS FOR CIRCULATING WATER HEATERS AND HOT WATER SUPPLY

BOILERS

Units 

No-newstandards 

case 

Trial standard level 

1 2 3 4 

INPV ................................................ 2020$ millions ........ 31.3 31.1–31.3 28.0–33.2 24.0–30.2 24.0–30.2 

Change in INPV ............................... 2020$ millions ........ ........................ (0.2)–(0.0) (3.3)–1.9 (7.3)–(1.1) (7.3)–(1.1) 

% ............................ ........................ (0.5)–(0.1) (10.5)–5.9 (23.2)–(3.4) (23.2)–(3.4) 

Free Cash Flow (2025) ................... 2020$ millions ........ 2.1 2.0 0.6 (1.8) (1.8) 

Change in Free Cash Flow ............. 2020$ millions ........ ........................ (0.1) (1.5) (3.9) (3.9) 

% ............................ ........................ (4.1) (71.3) (187.5) (187.5) 

Product Conversion Costs ............... 2020$ millions ........ ........................ 0.2 1.8 8.1 8.1 

Capital Conversion Costs ................ 2020$ millions ........ ........................ 0.0 1.9 1.9 1.9 

Total Conversion Costs ............ 2020$ millions ........ ........................ 0.2 3.6 10.0 10.0 

At TSL 1, DOE estimates impacts on 

INPV for instantaneous circulating 

water heater and hot water supply boiler 

manufacturers to range from ¥0.5 

percent to ¥0.1 percent, or a change of 

¥$0.1 million to less than ¥0.1 

million. At this level, DOE estimates 

that industry free cash flow would 

decrease by approximately 4.1 percent 

to $2.0 million, compared to the nonew-standards-case value of $2.1 

million in the year before compliance 

(2025). 

DOE estimates that 62 percent of basic 

models of this equipment class already 

meet or exceed the thermal efficiency 

standards at TSL 1. At this level, DOE 

expects manufacturers of this 

equipment class to incur product 

conversion costs to redesign their 

equipment. DOE does not expect the 

modest increases in thermal efficiency 

requirements at this TSL to require 

capital investments. Overall, DOE 

estimates that manufacturers would 

incur $0.2 million in product 

conversion costs and no capital 

conversion costs to bring this equipment 

portfolio into compliance with a 

standard set to TSL 1. At TSL 1, product 

conversion costs are the key driver of 

results. These upfront investments 

result in a slightly lower INPV in both 

manufacturer markup scenarios. 

At TSL 2, DOE estimates impacts on 

INPV ranges from ¥10.5 percent to 5.9 

percent, or a change in INPV of ¥$3.3 

million to $1.9 million. At this potential 

standard level, DOE estimates industry 

free cash flow to decrease by 

approximately 71.3 percent to $0.6 

million compared to the no-newstandards-case value of $2.1 million in 

the year before compliance (2025). 

The impacts on INPV at TSL 2 remain 

similar to TSL 1. DOE estimates that 36 

percent of basic models of this 

equipment class already meet or exceed 

the thermal efficiency standards at TSL 

2. DOE estimates that product and 

capital conversion costs would increase 

at this TSL. Manufacturers would meet 

the thermal efficiency levels by using 

condensing technology. DOE anticipates 

that manufacturers will begin to incur 

some product conversion costs 

associated with design changes to reach 

condensing levels. Additionally, DOE 

anticipates manufacturers achieving 

condensing levels with additional 

purchased parts (i.e., condensing heat 

exchanger, burner tube, blower, gas 

valve). DOE’s capital conversion costs 

reflect the incremental warehouse space 

required to store these additional 

purchased parts. 

Overall, DOE estimates that 

manufacturers would incur $1.8 million 

in product conversion costs and $1.9 

million in capital conversion costs to 

bring their instantaneous circulating 

water heater and hot water supply boiler 

portfolio into compliance with a 

standard set to TSL 2. 

As discussed in section IV.A of this 

document, TSL 3 and TSL 4 represent 

max-tech thermal efficiency levels for 

circulating water heater and hot water 

supply boiler equipment. Therefore, 

DOE modeled identical impacts to 

manufacturers of this equipment for 

both TSL 3 and TSL 4. At these levels, 

DOE estimates impacts on INPV to range 

from ¥23.2 percent to ¥3.4 percent, or 


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30706 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

165U.S. Census Bureau, 2018–2019 Annual 

Survey of Manufacturers: Statistics for Industry 

Groups and Industries (2019) (Available at https:// 

www.census.gov/data/tables/time-series/econ/asm/ 

2018-2019-asm.html). 

166U.S. Bureau of Labor Statistics. Employer 

Costs for Employee Compensation. June 17, 2021. 

Available at: www.bls.gov/news.release/pdf/ 

ecec.pdf. 

a change in INPV of ¥$7.3 million to 

¥$1.1 million. DOE estimates industry 

free cash flow in the year before 

compliance (2025) would decrease by 

approximately 187.5 percent to ¥$1.8 

million compared to the no-newstandards case value of $2.1 million. 

DOE estimates that 27 percent of basic 

models of this equipment class already 

meet or exceed the max-tech thermal 

efficiency standards at these TSLs. 

b. Impacts on Direct Employment 

To quantitatively assess the potential 

impacts of amended energy 

conservation standards on direct 

employment in the CWH equipment 

industry, DOE typically uses the GRIM 

to estimate the domestic labor 

expenditures and number of direct 

employees in the no-new-standards case 

and in each of the standards cases 

during the analysis period. This analysis 

includes both production and nonproduction employees employed by 

CWH equipment manufacturers. DOE 

used statistical data from the U.S. 

Census Bureau’s 2018–2019 Annual 

Survey of Manufacturers 165 (ASM), the 

results of the engineering analysis, and 

interviews with manufacturers to 

determine the inputs necessary to 

calculate industry-wide labor 

expenditures and domestic employment 

levels. Labor expenditures related to 

manufacturing of the product are a 

function of the labor intensity of the 

product, the sales volume, and an 

assumption that wages remain fixed in 

real terms over time. 

The total labor expenditures in the 

GRIM are converted to domestic 

production worker employment levels 

by dividing production labor 

expenditures by the average fully 

burden wage per production worker. 

DOE calculated the fully burdened wage 

by multiplying the industry production 

worker hourly blended wage (provided 

by the ASM) by the fully burdened wage 

ratio. The fully burdened wage ratio 

factors in paid leave, supplemental pay, 

insurance, retirement and savings, and 

legally required benefits. DOE 

determined the fully burdened ratio 

from the Bureau of Labor Statistic’s 

employee compensation data.166 The 

estimates of production workers in this 

section cover workers, including linesupervisors who are directly involved in 

fabricating and assembling a product 

within the manufacturing facility. 

Workers performing services that are 

closely associated with production 

operations, such as materials handling 

tasks using forklifts, are also included as 

production labor. 

Non-production worker employment 

levels were determined by multiplying 

the industry ratio of production worker 

employment to non-production 

employment against the estimated 

production worker employment 

explained above. Estimates of nonproduction workers in this section cover 

above the line supervisors, sales, sales 

delivery, installation, office functions, 

legal, and technical employees. 

The total direct employment impacts 

calculated in the GRIM are the sum of 

the changes in the number of domestic 

production and non-production workers 

resulting from the amended energy 

conservation standards for CWH 

equipment, as compared to the no-newstandards case. Typically, more efficient 

equipment is more complex and labor 

intensive to produce. Per-unit labor 

requirements and production time 

requirements trend higher with more 

stringent energy conservation standards. 

DOE estimates that 93 percent of 

CWH equipment sold in the United 

States is currently manufactured 

domestically. In the absence of amended 

energy conservation standards, DOE 

estimates that there would be 217 

domestic production workers in the 

CWH industry in 2026, the year of 

compliance. 

DOE’s analysis forecasts that the 

industry will employ 382 production 

and non-production workers in the 

CWH industry in 2026 in the absence of 

amended energy conservation 

standards. Table V.29 presents the range 

of potential impacts of amended energy 

conservation standards on U.S. 

production workers of CWH equipment. 

TABLE V.29—CWH DIRECT EMPLOYMENT IN 2026 POTENTIAL CHANGES IN THE TOTAL NUMBER OF CWH EQUIPMENT

PRODUCTION WORKERS IN DIRECT EMPLOYMENT IN 2026 

No-newstandards 

case 

1 2 3 4 

Number of Domestic Production Workers ........................... 217 218 214 219 223 

Number of Domestic Non-Production Workers ................... 165 166 163 167 170 

Total Domestic Direct Employment ** ........................... 382 384 377 386 393 

Changes in Direct Employment ........................................... ........................ 2 (5) 4 11 

* Numbers in parentheses indicate negative numbers. 

** This field presents impacts on domestic direct employment, which aggregates production and non-production workers. Based on ASM census data, DOE assumed the ratio of production to non-production employees stays consistent across all analyzed TSLs, which is 43 percent 

non-production workers. 

In NOPR interviews conducted ahead 

of the 2016 NOPR notice, several 

manufacturers that produce highefficiency CWH equipment stated that a 

standard that went to condensing levels 

could cause them to hire more 

employees to increase their production 

capacity. Others stated that a 

condensing standard would require 

additional engineers to redesign CWH 

equipment and production processes. 

Due different variations in 

manufacturing labor practices, actual 

direct employment could vary 

depending on manufacturers’ preference 

for high capital or high labor practices 

in response to amended standards. DOE 

notes that the employment impacts 

discussed here are independent of the 

indirect employment impacts to the 

broader U.S. economy, which are 

documented in chapter 15 of the 

accompanying TSD. 

c. Impacts on Manufacturing Capacity 

At the time of manufacturer 

interviews (conducted ahead of the 


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withdrawn May 2016 CWH ECS NOPR), 

industry feedback indicated that the 

average CWH equipment manufacturer’s 

current production was running at 

approximately 60-percent capacity. 

However, some manufacturers did 

express concerns about engineering and 

laboratory constraints if standards were 

set at condensing levels. 

At TSL 4 (max-tech), this issue is 

exacerbated due to the proliferation of 

re-designs required. As discussed in 

further detail in section IV.J.2.c of this 

document, DOE anticipates 

manufacturers would incur significant 

product conversion costs for all gasfired storage water heaters, gas-fired 

circulating water heaters, and hot water 

supply boilers. Because of the high 

conversion costs as this level, some 

manufacturers may not have the 

capacity to redesign the full range of 

equipment offerings in the 3-year 

conversion period. Instead, 

manufacturers would likely choose to 

offer a reduced selection of models to 

limit upfront investments. 

Furthermore, none of the three largest 

manufacturers of commercial gas storage 

water heaters produces equipment that 

can meet the TE standard at TSL 4. 

Currently, only two models from a 

single manufacturer can meet the TE 

standard at TSL 4. This manufacturer is 

a small business and does not have the 

production capacity to meet the demand 

for the entire industry’s shipments. 

Similarly, for residential-duty gas-fired 

storage water heaters, only one 

manufacturer offers models that can 

meet the UEF standard at TSL 4. 

Issue 10: DOE seeks comment on 

whether manufacturers expect 

manufacturing capacity constraints 

would limit equipment availability to 

customers in the timeframe of the 

amended standard compliance date 

(2026). 

d. Impacts on Subgroups of 

Manufacturers 

Small manufacturers, niche 

equipment manufacturers, and 

manufacturers exhibiting a cost 

structure substantially different from the 

industry average could be affected 

disproportionately. Using average cost 

assumptions developed for an industry 

cash-flow estimate is inadequate to 

assess differential impacts among 

manufacturer subgroups. 

For the CWH equipment industry, 

DOE identified and evaluated the 

impact of amended energy conservation 

standards on one subgroup—small 

manufacturers. The SBA defines a 

‘‘small business’’ as having 1,000 

employees or fewer for NAICS code 

333318, ‘‘Other Commercial and Service 

Industry Machinery Manufacturing.’’ 

Based on this definition, DOE identified 

3 small, domestic manufacturers of the 

covered equipment that would be 

subject to amended standards. 

For a discussion of the impacts on the 

small manufacturer subgroup, see the 

regulatory flexibility analysis in section 

VI.B of this document and chapter 12 of 

the NOPR TSD. 

e. Cumulative Regulatory Burden 

One aspect of assessing manufacturer 

burden involves looking at the 

cumulative impact of multiple DOE 

standards and the product-specific 

regulatory actions of other Federal 

agencies that affect the manufacturers of 

a covered product or equipment. While 

any one regulation may not impose a 

significant burden on manufacturers, 

the combined effects of several existing 

or impending regulations may have 

serious consequences for some 

manufacturers, groups of manufacturers, 

or an entire industry. Assessing the 

impact of a single regulation may 

overlook this cumulative regulatory 

burden. In addition to energy 

conservation standards, other 

regulations can significantly affect 

manufacturers’ financial operations. 

Multiple regulations affecting the same 

manufacturer can strain profits and lead 

companies to abandon product lines or 

markets with lower expected future 

returns than competing products. For 

these reasons, DOE conducts an analysis 

of cumulative regulatory burden as part 

of its rulemakings pertaining to 

appliance efficiency. 

TABLE V.30—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION

STANDARDS AFFECTING COMMERCIAL WATER HEATER MANUFACTURERS

Federal energy conservation standard Number of 

manufacturers * 

Number of 

manufacturers 

potentially 

impacted by 

finalized rule ** 

Approx. 

standards year 

Industry 

conversion costs 

millions 

($) 

Industry 

conversion 

costs/product 

revenue *** 

Commercial Warm Air Furnaces; 81 FR 2420 (January 15, 2016) ...................................................... 14 2 2023 7.5–22.2 (2014$) 1.7%–5.1% † 

Residential Central Air Conditioners and Heat 

Pumps; 82 FR 1786 (January 6, 2017) ............... 30 3 2023 342.6 (2015$) 0.5% 

* This column presents the total number of manufacturers identified in the energy conservation standard rule contributing to cumulative regulatory burden. 

** This column presents the number of manufacturers producing CWH equipment that are also listed as manufacturers in the listed energy conservation standard contributing to cumulative regulatory burden. 

*** This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs 

are the upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue 

from just the covered product/equipment associated with each row. The conversion period is the time frame over which conversion costs are 

made and lasts from the announcement year of the final rule to the standards year of the final rule. The conversion period typically ranges from 

3 to 5 years, depending on the energy conservation standard. 

† Low and high conversion cost scenarios were analyzed as part of this Direct Final Rule. The range of estimated conversion expenses presented here reflects those two scenarios. 

Issue 11: DOE requests information 

regarding the impact of cumulative 

regulatory burden on manufacturers of 

CWH equipment associated with 

multiple DOE standards or productspecific regulatory actions of other 

Federal agencies. Additionally, where 

industry-wide constraints exist as a 

result of other overlapping regulatory 

actions, DOE requests stakeholders help 

identify and quantify those constraints. 

3. National Impact Analysis 

This section presents DOE’s estimates 

of the NES and the NPV of consumer 

benefits that would result from each of 

the TSLs considered as potential 

amended standards. 

a. Significance of Energy Savings 

To estimate the energy savings 

attributable to potential amended 

standards for CWH equipment, DOE 

compared their energy consumption 


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30708 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

167U.S. Office of Management and Budget. 

Circular A–4: Regulatory Analysis. September 17, 

2003. Available at www.whitehouse.gov/sites/ 

whitehouse.gov/files/omb/circulars/A4/a-4.pdf (last 

accessed July 7, 2021). 

168Section 325(m) of EPCA requires DOE to 

review its standards at least once every 6 years, and 

requires, for certain products, a 3-year period after 

any new standard is promulgated before 

compliance is required, except that in no case may 

any new standards be required within 6 years of the 

compliance date of the previous standards. While 

adding a 6-year review to the 3-year compliance 

period adds up to 9 years, DOE notes that it may 

undertake reviews at any time within the 6-year 

period and that the 3-year compliance date may 

yield to the 6-year backstop. A 9-year analysis 

period may not be appropriate given the variability 

that occurs in the timing of standards reviews and 

the fact that for some products, the compliance 

period is 5 years rather than 3 years. 

under the no-new-standards case to 

their anticipated energy consumption 

under each TSL. The savings are 

measured over the entire lifetime of 

equipment purchased in the 30-year 

period that begins in the year of 

anticipated compliance with amended 

standards (2026–2055). Table V.31 

presents DOE’s projections of the NES 

for each TSL considered for CWH 

equipment. The savings were calculated 

using the approach described in section 

IV.H of this document. 

TABLE V.31—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 30 YEARS OF SHIPMENTS

[2026–2055] 

Trial standard level 

(quads) 

1 2 3 4 

Primary Energy: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.04 0.19 0.30 0.51 

Residential duty gas-fired storage ............................................................ 0.01 0.03 0.06 0.09 

Instantaneous gas-fired tankless .............................................................. 0.00 0.01 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers .... 0.02 0.21 0.26 0.26 

Total Primary Energy ......................................................................... 0.08 0.44 0.64 0.87 

FFC Energy: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.04 0.21 0.33 0.56 

Residential duty gas-fired storage ............................................................ 0.02 0.03 0.07 0.10 

Instantaneous gas-fired tankless .............................................................. 0.00 0.01 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers .... 0.03 0.23 0.29 0.29 

Total FFC Energy .............................................................................. 0.09 0.48 0.70 0.96 

OMB Circular A–4 167 requires 

agencies to present analytical results, 

including separate schedules of the 

monetized benefits and costs that show 

the type and timing of benefits and 

costs. Circular A–4 also directs agencies 

to consider the variability of key 

elements underlying the estimates of 

benefits and costs. For this NOPR, DOE 

undertook a sensitivity analysis using 9 

years, rather than 30 years, of 

equipment shipments. The choice of a 

9-year period is a proxy for the timeline 

in EPCA for the review of certain energy 

conservation standards and potential 

revision of and compliance with such 

revised standards.168 The review 

timeframe established in EPCA is 

generally not synchronized with the 

equipment lifetime, equipment 

manufacturing cycles, or other factors 

specific to commercial water heaters. 

Thus, such results are presented for 

informational purposes only and are not 

indicative of any change in DOE’s 

analytical methodology. The NES 

sensitivity analysis results based on a 9- 

year analytical period are presented in 

Table V.32 of this NOPR. The impacts 

are counted over the lifetime of 

commercial water heaters purchased in 

2026–2034. 

TABLE V.32—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 9 YEARS OF SHIPMENTS

[2026–2034] 

Trial standard level 

(quads) 

1 2 3 4 

Primary Energy: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.01 0.06 0.10 0.16 

Residential-duty gas-fired storage ............................................................ 0.00 0.01 0.02 0.03 

Instantaneous gas-fired tankless .............................................................. 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers .... 0.01 0.05 0.06 0.06 

Total Primary Energy ......................................................................... 0.03 0.13 0.18 0.25 

FFC Energy: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.01 0.07 0.11 0.17 

Residential-duty gas-fired storage ............................................................ 0.01 0.01 0.02 0.03 

Instantaneous gas-fired tankless .............................................................. 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers .... 0.01 0.06 0.07 0.07 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 30709 

169U.S. Office of Management and Budget. 

Circular A–4: Regulatory Analysis. September 17, 

2003. Available at www.whitehouse.gov/sites/ whitehouse.gov/files/omb/circulars/A4/a-4.pdf (last 

accessed July 7, 2021). 

TABLE V.32—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 9 YEARS OF SHIPMENTS—Continued 

[2026–2034] 

Trial standard level 

(quads) 

1 2 3 4 

Total FFC Energy .............................................................................. 0.03 0.14 0.20 0.28 

b. Net Present Value of Consumer Costs 

and Benefits 

DOE estimated the cumulative NPV of 

the total costs and savings for 

consumers that would result from the 

TSLs considered for CWH equipment. In 

accordance with OMB’s guidelines on 

regulatory analysis,169 DOE calculated 

NPV using both a 7-percent and a 3- 

percent real discount rate. Table V.33 

shows the consumer NPV results with 

impacts counted over the lifetime of 

equipment purchased in 2026–2055. 

TABLE V.33—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CWH EQUIPMENT; 30 YEARS OF

SHIPMENTS

[2026–2055] 

Discount rate 

Trial standard level 

(billion 2020$) 

1 2 3 4 

3 percent: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.16 0.51 0.93 1.73 

Residential duty gas-fired storage ............................................................ 0.05 0.05 0.11 0.21 

Instantaneous gas-fired tankless .............................................................. 0.01 0.03 0.04 0.04 

Instantaneous circulating water heaters and hot water supply boilers .... 0.07 0.27 0.41 0.41 

Total NPV at 3 percent ...................................................................... 0.29 0.86 1.49 2.40 

7 percent: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.08 0.18 0.37 0.72 

Residential duty gas-fired storage ............................................................ 0.02 0.01 0.03 0.07 

Instantaneous gas-fired tankless .............................................................. 0.01 0.01 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers .... 0.02 0.03 0.07 0.07 

Total NPV at 7 percent ...................................................................... 0.12 0.22 0.48 0.88 

The NPV results based on the 

aforementioned 9-year analytical period 

are presented in Table V.34 of this 

NOPR. The impacts are counted over 

the lifetime of equipment purchased in 

2026–2034. As mentioned previously, 

such results are presented for 

informational purposes only and are not 

indicative of any change in DOE’s 

analytical methodology or decision 

criteria. 

TABLE V.34—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS CWH EQUIPMENT; 9 YEARS OF SHIPMENTS

[2026–2034] 

Discount rate 

Trial standard level * 

(billion 2020$) 

1 2 3 4 

3 percent: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.07 0.09 0.26 0.56 

Residential duty gas-fired storage ............................................................ 0.02 0.00 0.02 0.06 

Instantaneous gas-fired tankless .............................................................. 0.00 0.00 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers .... 0.02 0.08 0.12 0.12 

Total NPV at 3 percent ...................................................................... 0.11 0.18 0.41 0.75 

7 percent: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.04 0.03 0.13 0.31 

Residential duty gas-fired storage ............................................................ 0.01 (0.00) 0.00 0.03 

Instantaneous gas-fired tankless .............................................................. 0.00 0.00 0.00 0.00 

Instantaneous circulating water heaters and hot water supply boilers .... 0.01 0.01 0.03 0.03 


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TABLE V.34—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS CWH EQUIPMENT; 9 YEARS OF SHIPMENTS— 

Continued 

[2026–2034] 

Discount rate 

Trial standard level * 

(billion 2020$) 

1 2 3 4 

Total NPV at 7 percent ...................................................................... 0.06 0.03 0.16 0.36 

* A value in parentheses is a negative number. 

c. Indirect Impacts on Employment 

It is estimated that that amended 

energy conservation standards for CWH 

equipment would reduce energy 

expenditures for consumers of those 

products, with the resulting net savings 

being redirected to other forms of 

economic activity. These expected shifts 

in spending and economic activity 

could affect the demand for labor. As 

described in section IV.N of this 

document, DOE used an input/output 

model of the U.S. economy to estimate 

indirect employment impacts of the 

TSLs that DOE considered. There are 

uncertainties involved in projecting 

employment impacts, especially 

changes in the later years of the 

analysis. Therefore, DOE generated 

results for near-term timeframes (2026– 

2030), where these uncertainties are 

reduced. 

The results suggest that the proposed 

standards would be likely to have a 

negligible impact on the net demand for 

labor in the economy. The net change in 

jobs is so small that it would be 

imperceptible in national labor statistics 

and might be offset by other, 

unanticipated effects on employment. 

Chapter 16 of the NOPR TSD presents 

detailed results regarding anticipated 

indirect employment impacts. 

4. Impact on Utility or Performance of 

Products 

As discussed in section III.E.1.d of 

this document, DOE has tentatively 

concluded that the standards proposed 

in this NOPR would not lessen the 

utility or performance of the CWH 

equipment under consideration in this 

rulemaking. Manufacturers of these 

products currently offer units that meet 

or exceed the proposed standards. 

5. Impact of Any Lessening of 

Competition 

DOE considered any lessening of 

competition that would be likely to 

result from new or amended standards. 

As discussed in section III.E.1.e of this 

NOPR, the Attorney General determines 

the impact, if any, of any lessening of 

competition likely to result from a 

proposed standard, and transmits such 

determination in writing to the 

Secretary, together with an analysis of 

the nature and extent of such impact. To 

assist the Attorney General in making 

this determination, DOE has provided 

DOJ with copies of this NOPR and the 

accompanying TSD for review. DOE will 

consider DOJ’s comments on the 

proposed rule in determining whether 

to proceed to a final rule. DOE will 

publish and respond to DOJ’s comments 

in that document. DOE invites comment 

from the public regarding the 

competitive impacts that are likely to 

result from this proposed rule. In 

addition, stakeholders may also provide 

comments separately to DOJ regarding 

these potential impacts. See the 

ADDRESSES section for information to 

send comments to DOJ. 

6. Need of the Nation To Conserve 

Energy 

Enhanced energy efficiency, where 

economically justified, improves the 

Nation’s energy security, strengthens the 

economy, and reduces the 

environmental impacts (costs) of energy 

production. Chapter 15 in the NOPR 

TSD presents the estimated impacts on 

electricity generating capacity, relative 

to the no-new-standards case, for the 

TSLs that DOE considered in this 

proposed rulemaking. 

Energy conservation resulting from 

potential energy conservation standards 

for CWH equipment is expected to yield 

environmental benefits in the form of 

reduced emissions of certain air 

pollutants and greenhouse gases. Table 

V.35 provides DOE’s estimate of 

cumulative emissions reductions 

expected to result from the TSLs 

considered in this proposed rulemaking. 

The emissions were calculated using the 

multipliers discussed in section IV.K of 

this document. DOE reports annual 

emissions reductions for each TSL in 

chapter 13 of the NOPR TSD. Table V.36 

presents cumulative FFC emissions by 

equipment class. 

TABLE V.35—CUMULATIVE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

Trial standard level 

1 2 3 4 

Power Sector Emissions 

CO2 (million metric tons) ................................................................................. 5 24 34 47 

SO2 (thousand tons) ........................................................................................ (0.05) (0.12) (0.04) 0.06 

NOX (thousand tons) ....................................................................................... 4 21 30 41 

Hg (tons) .......................................................................................................... (0.0005) (0.0015) (0.0014) (0.0012) 

CH4 (thousand tons) ........................................................................................ 0.08 0.46 0.68 0.95 

N2O (thousand tons) ........................................................................................ 0.01 0.04 0.07 0.09 

Upstream Emissions 

CO2 (million metric tons) ................................................................................. 0.56 2.91 4.20 5.73 

SO2 (thousand tons) ........................................................................................ 0.00 0.01 0.02 0.02 

NOX (thousand tons) ....................................................................................... 8.60 44.68 64.44 88.04 


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TABLE V.35—CUMULATIVE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055—Continued 

Trial standard level 

1 2 3 4 

Hg (tons) .......................................................................................................... (0.00) (0.00) (0.00) (0.00) 

CH4 (thousand tons) ........................................................................................ 62.79 325.91 469.86 641.78 

N2O (thousand tons) ........................................................................................ 0.00 0.00 0.01 0.01 

Total FFC Emissions 

CO2 (million metric tons) ................................................................................. 5 26 38 52 

SO2 (thousand tons) ........................................................................................ (0.05) (0.11) (0.02) 0.08 

NOX (thousand tons) ....................................................................................... 13 66 95 129 

Hg (tons) .......................................................................................................... (0.0005) (0.0016) (0.0014) (0.0012) 

CH4 (thousand tons) ........................................................................................ 63 326 471 643 

N2O (thousand tons) ........................................................................................ 0.01 0.05 0.07 0.10 

Negative values refer to an increase in emissions. 

TABLE V.36—CUMULATIVE FFC EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055, BY EQUIPMENT

CLASS

Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous 

CO2 (million metric tons) ................................................................................. 2.4 11.5 18.0 30.6 

SO2 (thousand tons) ........................................................................................ 0.01 (0.10) (0.05) 0.04 

NOX (thousand tons) ....................................................................................... 5.9 28.7 44.6 75.5 

Hg (tons) .......................................................................................................... 0.0000 (0.0010) (0.0009) (0.0008) 

CH4 (thousand tons) ........................................................................................ 29.3 142.5 221.6 375.4 

N2O (thousand tons) ........................................................................................ 0.005 0.020 0.034 0.060 

Total FFC Emissions, Residential-Duty Gas-Fired Storage 

CO2 (million metric tons) ................................................................................. 0.9 1.8 3.7 5.2 

SO2 (thousand tons) ........................................................................................ (0.01) (0.03) (0.02) 0.00 

NOX (thousand tons) ....................................................................................... 2.2 4.6 9.1 12.9 

Hg (tons) .......................................................................................................... (0.0001) (0.0003) (0.0002) (0.0002) 

CH4 (thousand tons) ........................................................................................ 11.0 23.1 45.5 63.9 

N2O (thousand tons) ........................................................................................ 0.00 0.00 0.01 0.01 

Total FFC Emissions, Instantaneous Gas-Fired Tankless 

CO2 (million metric tons) ................................................................................. 0.3 0.8 1.0 1.0 

SO2 (thousand tons) ........................................................................................ 0.00 0.01 0.01 0.01 

NOX (thousand tons) ....................................................................................... 0.6 2.0 2.5 2.5 

Hg (tons) .......................................................................................................... 0.0000 0.0000 0.0000 0.0000 

CH4 (thousand tons) ........................................................................................ 3.1 9.7 12.5 12.5 

N2O (thousand tons) ........................................................................................ 0.00 0.00 0.00 0.00 

Total FFC Emissions, Instantaneous Circulating Water Heaters and Hot Water Supply Boilers 

CO2 (million metric tons) ................................................................................. 1.5 12.3 15.6 15.6 

SO2 (thousand tons) ........................................................................................ (0.06) 0.01 0.04 0.04 

NOX (thousand tons) ....................................................................................... 3.9 30.4 38.4 38.4 

Hg (tons) .......................................................................................................... (0.0004) (0.0003) (0.0003) (0.0003) 

CH4 (thousand tons) ........................................................................................ 19.5 150.8 190.6 190.6 

N2O (thousand tons) ........................................................................................ 0.00 0.02 0.03 0.03 

Negative values refer to an increase in emissions. 

As part of the analysis for this 

proposed rulemaking, DOE estimated 

monetary benefits likely to result from 

the reduced emissions of CO2 that DOE 

estimated for each of the considered 

TSLs for CWH equipment. Section IV.L 

of this document discusses the SC–CO2

values that DOE used. Table V.37 

presents the value of CO2 emissions 

reduction at each TSL. 


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TABLE V.37—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–CO2 case, discount rate and statistics 

(million 2020$) 

5% 3% 2.5% 3% 

(Average) (Average) (Average) 

(95th percentile) 

1 ....................................................................................................................... 42.72 188.75 297.10 572.26 

2 ....................................................................................................................... 216.02 965.28 1,524.73 2,925.16 

3 ....................................................................................................................... 315.92 1,406.42 2,218.97 4,262.76 

4 ....................................................................................................................... 441.12 1,950.37 3,070.51 5,913.66 

As discussed in section IV.L.1 of this 

document, DOE estimated monetary 

benefits likely to result from the 

reduced emissions of methane and N2O 

that DOE estimated for each of the 

considered TSLs for CWH equipment. 

Table V.38 presents the value of the CH4

emissions reduction at each TSL, and 

Table V.39 presents the value of the N2O 

emissions reduction at each TSL. 

TABLE V.38—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–CH4 case 

Discount rate and statistics 

(million 2020$) 

5% 3% 2.5% 3% 

Average Average Average 95th percentile 

1 ....................................................................................................... 24.18 74.88 105.36 198.50 

2 ....................................................................................................... 122.53 385.00 543.61 1,022.35 

3 ....................................................................................................... 178.13 556.88 785.40 1,477.79 

4 ....................................................................................................... 247.24 765.51 1,077.28 2,028.76 

TABLE V.39—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 

TSL 

SC–N2O case 

Discount rate and statistics 

(million 2020$) 

5% 3% 2.5% 3% 

Average Average Average 95th percentile 

1 ....................................................................................................... 0.03 0.12 0.18 0.31 

2 ....................................................................................................... 0.15 0.62 0.99 1.67 

3 ....................................................................................................... 0.23 0.95 1.49 2.54 

4 ....................................................................................................... 0.32 1.34 2.11 3.59 

DOE is well aware that scientific and 

economic knowledge about the 

contribution of CO2 and other GHG 

emissions to changes in the future 

global climate and the potential 

resulting damages to the global and U.S. 

economy continues to evolve rapidly. 

DOE, together with other Federal 

agencies, will continue to review 

methodologies for estimating the 

monetary value of reductions in CO2

and other GHG emissions. This ongoing 

review will consider the comments on 

this subject that are part of the public 

record for this and other rulemakings, as 

well as other methodological 

assumptions and issues. DOE notes that 

the proposed standards would be 

economically justified even without 

inclusion of monetized benefits of 

reduced GHG emissions. 

DOE also estimated the monetary 

value of the economic benefits 

associated with NOX and SO2 emissions 

reductions anticipated to result from the 

considered TSLs for CWH equipment. 

The dollar-per-ton values that DOE used 

are discussed in section IV.L of this 

document. Table V.40 presents the 

present value for NOX emissions 

reduction for each TSL calculated using 

7-percent and 3-percent discount rates, 

and Table V.41 presents similar results 

for SO2 emissions reductions. The 

results in these tables reflect application 

of the low dollar-per-ton values, which 

DOE used to be conservative. Results 

that reflect high dollar-per-ton values 

are presented in chapter 14 of the NOPR 

TSD. 

TABLE V.40—PRESENT VALUE OF

NOX EMISSIONS REDUCTION FOR

CWH EQUIPMENT SHIPPED IN

2026–2055 

TSL 

Million 2020$ 

3% discount 

rate 

7% discount 

rate 

1 .................... 356 137 

2 .................... 1,800 671 

3 .................... 2,627 990 

4 .................... 3,663 1,406 


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TABLE V.41—PRESENT VALUE OF SO2

EMISSIONS REDUCTION FOR CWH 

EQUIPMENT SHIPPED IN 2026–2055 

TSL 

Million 2020$ 

3% discount 

rate 

7% discount 

rate 

1 .................... (2.84) (0.89) 

2 .................... (10.36) (4.17) 

3 .................... (7.23) (2.85) 

4 .................... (3.17) (1.11) 

The benefits of reduced CO2, CH4, and 

N2O emissions are collectively referred 

to as climate benefits. The benefits of 

reduced SO2 and NOX emissions are 

collectively referred to as health 

benefits. For the time series of estimated 

monetary values of reduced emissions, 

see chapter 14 of the NOPR TSD. 

7. Other Factors 

The Secretary of Energy, in 

determining whether a standard is 

economically justified, may consider 

any other factors that the Secretary 

deems to be relevant. (42 U.S.C. 

6295(o)(2)(B)(i)(VII)) No other factors 

were considered in this analysis. 

8. Summary of National Economic 

Impacts 

Table V.42 presents the NPV values 

that result from adding the estimates of 

the potential climate and health benefits 

resulting from reduced GHG, SO2, and 

NOX emissions to the NPV of consumer 

benefits for each TSL considered in this 

rulemaking. The consumer benefits are 

domestic U.S. monetary savings that 

occur as a result of purchasing the 

covered commercial water heaters, and 

are measured for the lifetime of 

products shipped in 2026–2055. The 

climate benefits associated with reduced 

GHG emissions resulting from the 

adopted standards are global benefits, 

and are also calculated based on the 

lifetime of commercial water heaters 

shipped in 2026–2055. The climate 

benefits associated with four SC–GHG 

estimates are shown. DOE does not have 

a single central SC–GHG point estimate 

and it emphasizes the importance and 

value of considering the benefits 

calculated using all four SC–GHG 

estimates. 

TABLE V.42—NPV OF CONSUMER BENEFITS COMBINED WITH CLIMATE AND HEALTH BENEFITS FROM EMISSIONS

REDUCTIONS

Category TSL 1 TSL 2 TSL 3 TSL 4 

3% discount rate for NPV of Consumer and Health Benefits (billion 2020$) 

5% d.r., Average SC–GHG case ..................................................................... 0.71 2.99 4.61 6.75 

3% d.r., Average SC–GHG case ..................................................................... 0.91 4.00 6.08 8.78 

2.5% d.r., Average SC–GHG case .................................................................. 1.05 4.72 7.12 10.21 

3% d.r., 95th percentile SC–GHG case .......................................................... 1.42 6.60 9.85 14.01 

7% discount rate for NPV of Consumer and Health Benefits (billion 2020$) 

5% d.r., Average SC–GHG case ..................................................................... 0.33 1.23 1.96 2.97 

3% d.r., Average SC–GHG case ..................................................................... 0.52 2.24 3.43 5.00 

2.5% d.r., Average SC–GHG case .................................................................. 0.66 2.96 4.47 6.43 

3% d.r., 95th percentile SC–GHG case .......................................................... 1.03 4.84 7.21 10.23 

The national operating cost savings 

are domestic U.S. monetary savings that 

occur as a result of purchasing CWH 

equipment, and are measured for the 

lifetime of products shipped in 2026– 

2055. The benefits associated with 

reduced GHG emissions achieved as a 

result of the adopted standards are also 

calculated based on the lifetime of CWH 

equipment shipped in 2026–2055. 

C. Conclusion 

When considering new or amended 

energy conservation standards, the 

standards that DOE adopts for any type 

(or class) of covered product must be 

designed to achieve the maximum 

improvement in energy efficiency that 

the Secretary determines is 

technologically feasible and 

economically justified. (42 U.S.C. 

6313(a)(6)(A)(ii) and (C)(i)) In 

determining whether a standard is 

economically justified, the Secretary 

must determine whether the benefits of 

the standard exceed its burdens by, to 

the greatest extent practicable, 

considering the seven statutory factors 

discussed previously. (42 U.S.C. 

6313(a)(6)(B)(ii)(I)–(VII) and 42 U.S.C. 

6313(a)(6)(C)(i)) 

For this NOPR, DOE considered the 

impacts of amended standards for CWH 

equipment at each TSL, beginning with 

the maximum technologically feasible 

level, to determine whether that level 

was economically justified. Where the 

max-tech level was not justified, DOE 

then considered the next most efficient 

level and undertook the same evaluation 

until it reached the highest efficiency 

level that is both technologically 

feasible and economically justified and 

saves a significant amount of energy. 

To aid the reader as DOE discusses 

the benefits and/or burdens of each TSL, 

tables in this section present a summary 

of the results of DOE’s quantitative 

analysis for each TSL. In addition to the 

quantitative results presented in the 

tables, DOE also considers other 

burdens and benefits that affect 

economic justification. These include 

the impacts on identifiable subgroups of 

consumers who may be 

disproportionately affected by a national 

standard and impacts on employment. 

DOE also notes that the economics 

literature provides a wide-ranging 

discussion of how consumers trade off 

upfront costs and energy savings in the 

absence of government intervention. 

Much of this literature attempts to 

explain why consumers appear to 

undervalue energy efficiency 

improvements. There is evidence that 

consumers undervalue future energy 

savings as a result of (1) a lack of 

information, (2) a lack of sufficient 

salience of the long-term or aggregate 

benefits, (3) a lack of sufficient savings 

to warrant delaying or altering 

purchases, (4) excessive focus on the 

short term, in the form of inconsistent 

weighting of future energy cost savings 

relative to available returns on other 

investments, (5) computational or other 

difficulties associated with the 

evaluation of relevant tradeoffs, and (6) 

a divergence in incentives (for example, 

between renters and owners, or builders 

and purchasers). Having less than 

perfect foresight and a high degree of 

uncertainty about the future, consumers 

may trade off these types of investments 

at a higher than expected rate between 


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30714 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

current consumption and uncertain 

future energy cost savings. 

1. Benefits and Burdens of TSLs 

Considered for CWH Equipment 

Standards 

Table V.43 and Table V.44 summarize 

the quantitative impacts estimated for 

each TSL for CWH equipment. The 

national impacts are measured over the 

lifetime of each class of CWH 

equipment purchased in the 30-year 

period that begins in the anticipated 

year of compliance with amended 

standards (2026–2055). The energy 

savings, emissions reductions, and 

value of emissions reductions refer to 

full-fuel-cycle results. DOE exercises its 

own judgment in presenting monetized 

climate benefits as recommended in 

applicable Executive Orders and DOE 

would reach the same conclusion 

presented in this notice in the absence 

of the social cost of greenhouse gases, 

including the February 2021 Interim 

Estimates presented by the Interagency 

Working Group on the Social Cost of 

Greenhouse Gases. The efficiency levels 

contained in each TSL are described in 

section V.A of this document. 

TABLE V.43—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS: NATIONAL IMPACTS

Category TSL 1 TSL 2 TSL 3 TSL 4 

Cumulative FFC National Energy Savings (quads) 

Commercial gas-fired storage and storage-type instantaneous ...................... 0.04 0.21 0.33 0.56 

Residential duty gas-fired storage ................................................................... 0.02 0.03 0.07 0.10 

Instantaneous gas-fired tankless ..................................................................... 0.00 0.01 0.02 0.02 

Instantaneous circulating water heaters and hot water supply boilers ........... 0.03 0.23 0.29 0.29 

Total Quads .............................................................................................. 0.09 0.48 0.70 0.96 

NPV of Consumer Costs and Benefits (billion 2020$) 

NPV at 3% discount rate: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.16 0.51 0.93 1.73 

Residential duty gas-fired storage ............................................................ 0.05 0.05 0.11 0.21 

Instantaneous gas-fired tankless .............................................................. 0.01 0.03 0.04 0.04 

Instantaneous circulating water heaters and hot water supply boilers .... 0.07 0.27 0.41 0.41 

Total NPV at 3% (billion 2020$) ........................................................ 0.29 0.86 1.49 2.40 

NPV at 7% discount rate: 

Commercial gas-fired storage and storage-type instantaneous .............. 0.08 0.18 0.37 0.72 

Residential duty gas-fired storage ............................................................ 0.02 0.01 0.03 0.07 

Instantaneous gas-fired tankless .............................................................. 0.01 0.01 0.01 0.01 

Instantaneous circulating water heaters and hot water supply boilers .... 0.02 0.03 0.07 0.07 

Total NPV at 7% (billion 2020$) ........................................................ 0.12 0.22 0.48 0.87 

Cumulative FFC Emissions Reduction (Total FFC Emissions) 

CO2 (million metric tons) ................................................................................. 5 26 38 52 

SO2 (thousand tons) ........................................................................................ (0.05) (0.11) (0.02) 0.08 

NOX (thousand tons) ....................................................................................... 13 66 95 129 

Hg (tons) .......................................................................................................... (0.000) (0.002) (0.001) (0.001) 

CH4 (thousand tons) ........................................................................................ 63 326 471 643 

N2O (thousand tons) ........................................................................................ 0.01 0.05 0.07 0.10 

Present Value of Benefits and Costs (3% discount rate, billion 2020$) 

Consumer Operating Cost Savings ................................................................. 0.34 1.63 2.44 3.51 

Climate Benefits * ............................................................................................. 0.26 1.35 1.96 2.72 

Health Benefits ** ............................................................................................. 0.35 1.79 2.62 3.66 

Total Benefits † ......................................................................................... 0.96 4.77 7.03 9.89 

Consumer Incremental Product Costs ‡ .......................................................... 0.05 0.77 0.95 1.11 

Consumer Net Benefits ................................................................................... 0.29 0.86 1.49 2.40 

Total Net Benefits ..................................................................................... 0.91 4.00 6.08 8.78 

Present Value of Benefits and Costs (7% discount rate, billion 2020$) 

Consumer Operating Cost Savings ................................................................. 0.15 0.68 1.04 1.52 

Climate Benefits * ............................................................................................. 0.26 1.35 1.96 2.72 

Health Benefits ** ............................................................................................. 0.14 0.67 0.99 1.40 

Total Benefits † ......................................................................................... 0.55 2.70 3.99 5.64 

Consumer Incremental Product Costs ‡ .......................................................... 0.03 0.46 0.56 0.65 

Consumer Net Benefits ................................................................................... 0.12 0.22 0.48 0.87 

Total Net Benefits ..................................................................................... 0.52 2.24 3.43 5.00 

Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026–2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026–2055. 


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* Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide 

(SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate), as shown in Table 

V.37 through Table V.39. Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this 

table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown, but the Department does not have a 

single central SC–GHG point estimate. See section IV.L of this document for more details. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate, but the Department does not have a single central 

SC–GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. 

See Table V.42 for net benefits using all four SC–GHG estimates. On March 16, 2022, the Fifth Circuit Court of Appeals (No. 22–30087) granted 

the federal government’s emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in Louisiana v. 

Biden, No. 21–cv–1074–JDC–KK (W.D. La.). As a result of the Fifth Circuit’s order, the preliminary injunction is no longer in effect, pending resolution of the federal government’s appeal of that injunction or a further court order. Among other things, the preliminary injunction enjoined the 

defendants in that case from ‘‘adopting, employing, treating as binding, or relying upon’’ the interim estimates of the social cost of greenhouse 

gases—which were issued by the Interagency Working Group on the Social Cost of Greenhouse Gases on February 26, 2021—to monetize the 

benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible under law. 

‡ Costs include incremental equipment costs as well as installation costs. 

TABLE V.44—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS: MANUFACTURER AND CONSUMER

IMPACTS

Category TSL 1 * TSL 2 * TSL 3 * TSL 4 * 

Manufacturer Impacts: INPV (million 2020$) 

Commercial gas-fired storage and storage-type instantaneous (No-new-standards case INPV=134.6) ..................... 133.5–133.9 127.8–130.4 121.1–125.1 70.1–76.6 

Residential-duty gas-fired storage (No-new-standards case 

INPV=10.1) ........................................................................... 9.8–10.1 9.2–9.9 8.4–10.6 5.7–8.1 

Instantaneous gas-fired tankless (No-new-standards case 

INPV=7.1) ............................................................................. 6.8–6.8 6.1–6.2 6.1–6.3 6.1–6.3 

Instantaneous circulating water heaters and hot water supply 

boilers (No-new-standards case INPV = 31.3) .................... 31.1–31.3 28.0–33.2 24.0–30.2 24.0–30.2 

Total INPV ($) (No-new-standards case INPV = 183.1) .. 181.3–182.1 171.1–179.6 159.7–172.4 106.1–121.6 

Manufacturer Impacts: Change in INPV (million 2020$) 

Total Change in INPV ($) ................................................. (1.85)–(1.03) (12.03)–(3.50) (23.39)–(10.75) (77.00)–(61.53) 

Manufacturer Impacts: Industry NPV (% Change) 

Commercial gas-fired storage and storage-type instantaneous .................................................................................... (0.8)–(0.5) (5.1)–(3.1) (10.0)–(7.0) (47.9)–(43.1) 

Residential-duty gas-fired storage ........................................... (3.0)–0.0 (8.7)–(2.4) (16.5)–5.4 (44.0)–(19.7) 

Instantaneous gas-fired tankless ............................................. (4.5)–(4.2) (14.8)–(12.6) (15.0)–(11.8) (15.0)–(11.8) 

Instantaneous circulating water heaters and hot water supply 

boilers ................................................................................... (0.5)–(0.1) (10.5)–5.9 (23.2)–(3.4) (23.2)–(3.4) 

Total INPV (% change) .................................................... (1.0)–(0.6) (6.6)–(1.9) (12.8)–(5.9) (42.0)–(33.6) 

Consumer Average LCC Savings (2020$) 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ........................................................... 93 80 301 664 

Residential-Duty Gas-Fired Storage ........................................ 129 (20) 90 324 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................................. 113 400 599 599 

—Instantaneous, Gas-Fired Tankless ..................................... 42 40 63 63 

—Instantaneous Water Heaters and Hot Water Supply Boilers ........................................................................................ 172 702 1,047 1,047 

Shipment-Weighted Average * ................................................. 101 120 322 605 

Consumer Simple PBP (years) 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ........................................................... 1 7 5 4 

Residential-Duty Gas-Fired Storage ........................................ 3 9 9 7 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................................. 1 9 9 9 

—Instantaneous, Gas-Fired Tankless ..................................... 2 9 9 9 

—Instantaneous Water Heaters and Hot Water Supply Boilers ........................................................................................ 1 9 9 9 

Shipment-Weighted Average * ................................................. 1 8 6 6 


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TABLE V.44—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS: MANUFACTURER AND CONSUMER

IMPACTS—Continued 

Category TSL 1 * TSL 2 * TSL 3 * TSL 4 * 

Percent of Consumers that Experience a Net Cost 

Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ........................................................... 1% 14% 12% 13% 

Residential-Duty Gas-Fired Storage ........................................ 2% 17% 26% 18% 

Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................................. 1% 10% 12% 12% 

—Instantaneous, Gas-Fired Tankless ..................................... 0% 9% 12% 12% 

—Instantaneous Water Heaters and Hot Water Supply Boilers ........................................................................................ 2% 11% 13% 13% 

Shipment-Weighted Average * ................................................. 1% 14% 14% 13% 

Parentheses indicate negative (¥ ) values. 

* Weighted by shares of each equipment class in total projected shipments in 2026. 

DOE first considered TSL 4, which 

represents the max-tech efficiency 

levels. At this TSL, the Secretary has 

tentatively determined that the benefits 

are outweighed by the burdens, as 

discussed in detail in the following 

paragraphs. 

TSL 4 would save an estimated 0.96 

quads of energy, an amount DOE 

considers significant. Commercial gasfired storage water heaters and storagetype instantaneous water heaters save 

an estimated 0.56 quads while 

Residential-Duty Gas-Fired Storage 

equipment save 0.10 quads of energy. 

Instantaneous gas-fired tankless water 

heaters are estimated to save 0.02 quads 

of energy, while instantaneous 

circulating water heaters and hot water 

supply boilers save an estimated 0.29 

quads. 

Under TSL 4, the NPV of consumer 

benefit would be $0.87 billion using a 

discount rate of 7 percent, and $2.40 

billion using a discount rate of 3 

percent. Much of the consumer benefit 

is provided by the commercial gas-fired 

storage water heaters and storage-type 

instantaneous water heaters totaling an 

estimated $0.72 billion using a 7 percent 

discount rate, and $1.73 billion using a 

3 percent discount rate. The consumer 

benefit for residential-duty gas-fired 

storage water heaters is estimated to be 

$0.07 billion at a 7 percent discount rate 

and $0.21 billion at a 3 percent discount 

rate. The consumer benefit for 

instantaneous gas-fired tankless water 

heaters is estimated to be $0.01 billion 

at a 7 percent discount rate and $0.04 

at a 3 percent discount rate, and the 

consumer benefit for instantaneous 

circulating water heaters and hot water 

supply boilers is estimated to be $0.07 

billion at a 7 percent discount rate and 

$0.41 billion at a 3 percent discount 

rate. 

The cumulative emissions reductions 

at TSL 4 are 52 Mt of CO2, 0.08 

thousand tons of SO2, 129 thousand 

tons of NOX, ¥0.0012 ton of Hg, 643 

thousand tons of CH4, and 0.10 

thousand tons of N2O. The estimated 

monetary value of the climate benefits 

from reduced GHG emissions 

(associated with the average SC–GHG at 

a 3-percent discount rate) at TSL 4 is 

$2.72 billion. The estimated monetary 

value of the health benefits from 

reduced NOX and SO2 emissions at TSL 

4 is $3.66 billion using a 7-percent 

discount rate and $1.40 billion using a 

3-percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

total NPV at TSL 4 is $5.00 billion. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated total 

NPV at TSL 4 is $8.76 billion. The 

estimated total NPV is provided for 

additional information, however DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 4, the average LCC impact is 

a savings of $664 for commercial gasfired storage and storage-type 

instantaneous water heaters, $324 for 

residential-duty gas-fired storage water 

heaters, $63 for instantaneous gas-fired 

instantaneous water heaters, and $1,047 

for instantaneous circulating water 

heaters and hot water supply boilers. 

The simple PBP is 4 years for 

commercial gas-fired storage water 

heaters, 7 years for residential-duty gasfired storage water heaters, and 9 years 

for both the instantaneous gas-fired 

tankless water heaters and the 

instantaneous circulating water heaters 

and hot water supply boilers. The 

fraction of consumers experiencing a net 

LCC cost is 13 percent for commercial 

gas-fired storage water heaters and 

storage-type instantaneous water 

heaters, 18 percent for residential-duty 

gas-fired storage water heaters, 12 

percent for instantaneous gas-fired 

tankless water heaters, and 13 percent 

for instantaneous circulating water 

heaters and hot water supply boilers. 

At TSL 4, the projected change in 

manufacturer INPV ranges from a 

decrease of $77.0 million to a decrease 

of $61.5 million, which correspond to 

decreases of 42.0 percent and 33.6 

percent, respectively. Conversion costs 

total $119.8 million. 

Commercial gas-fired storage water 

heaters and storage type instantaneous 

equipment account for over 70 percent 

of unit shipments in the CWH industry. 

The projected change in manufacturer 

INPV for commercial gas-fired storage 

water heaters and storage type 

instantaneous equipment ranges from a 

decrease of $64.5 million to a decrease 

of $58.0 million, which correspond to 

decreases of 47.9 percent and 43.1 

percent, respectively. The potentially 

large negative impacts on INPV are 

largely driven by industry conversion 

costs. In particular, there are substantial 

increases in product conversion costs at 

TSL 4 for commercial gas-fired storage 

water heaters and storage type 

instantaneous equipment 

manufacturers. There are several factors 

that lead to high product conversion 

costs for this equipment. 

Currently, only two models of this 

equipment type from a single 

manufacturer can meet a 99 percent 

thermal efficiency standard, which 

represents less than 1 percent of the 

commercial gas-fired storage water 

heaters and storage type instantaneous 

equipment models currently offered on 

the market. The two models both have 

an input capacity of 300,000 Btu/h and 

share a similar design. The 

manufacturer of these models is a small 

business with less than 1 percent market 

share in the commercial gas storage 

water heater market. The company’s 


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ability to ramp-up production capacity 

at 99% thermal efficiency to serve a 

significantly larger portion of the market 

is unclear. 

Nearly all existing models would 

need to be redesigned to meet a 99 

percent thermal efficiency standard. 

Traditionally, manufacturers design 

their equipment platforms to support a 

range of models with varying input 

capacities and storage volumes, and the 

efficiency typically will vary slightly 

between models within a given 

platform. However, at TSL 4, 

manufacturers would not be able to 

maintain a platform approach to 

designing commercial gas-fired storage 

water heaters because the 99 percent 

thermal efficiency level represents the 

maximum achievable efficiency and 

there would be no allowance for slight 

variations in efficiency between 

individual models. At TSL 4, 

manufacturers would be required to 

individually redesign each model to 

optimize performance for one specific 

input capacity and storage volume 

combination. As a result, the industry’s 

level of engineering effort and 

investment would grow significantly. In 

manufacturer interviews, some 

manufacturers raised concerns that they 

would not have sufficient engineering 

capacity to complete necessary 

redesigns within the 3-year conversion 

period. If manufacturers require more 

than 3 years to redesign all models, they 

would likely prioritize redesigns based 

on sales volume. There is risk that some 

models become unavailable, either 

temporarily or permanently. 

Product conversion costs for 

commercial gas-fired storage water 

heaters and storage type instantaneous 

equipment are expected to reach $82.1 

million over the three-year conversion 

period. These investment levels are six 

times greater than typical R&D spending 

on this equipment class over a threeyear period. Compliance with DOE 

standards could limit other engineering 

and innovation efforts, such as 

developing heat pump water heaters for 

the commercial market, during the 

conversion period beyond compliance 

with amended energy conservation 

standards. 

Residential-duty gas-fired storage 

water heaters account for approximately 

14 percent of unit shipments in the 

CWH industry. At TSL 4, the projected 

change in INPV for residential-duty gasfired storage water heaters ranges from 

a decrease of $4.5 million to a decrease 

of $2.0 million, which correspond to 

decreases of 44.0 percent and 19.7 

percent, respectively. Conversion costs 

total $6.5 million. 

The drivers of negative impacts on 

INPV for residential-duty gas-fired 

storage water heaters are largely 

identical to those identified for the 

commercial gas-fired storage water 

heaters. At TSL 4, there is only one 

manufacturer with a compliant model at 

this standard level. This represents less 

than 5 percent of models currently 

offered in the market. Product 

conversion costs are expected to reach 

$4.6 million over the conversion period 

as manufacturers have to optimize 

designs for each specific input capacity 

and storage volume combination. 

Instantaneous gas-fired tankless water 

heaters account for 6 percent of unit 

shipments in the CWH industry. At TSL 

4, the projected change in manufacturer 

INPV for instantaneous gas-fired 

tankless water heaters ranges from a 

decrease of $1.1 million to a decrease of 

$0.8 million, which correspond to 

decreases of 15.0 percent and 11.8 

percent, respectively. Conversion costs 

total $1.8 million. 

At TSL 4, approximately half of 

currently offered instantaneous gas-fired 

tankless water heaters models would 

meet TSL 4 today. While most 

manufacturers have some compliant 

models, manufacturers would likely 

develop cost-optimized models to 

compete in a market where energy 

efficiency provides less product 

differentiation. Product conversion cost 

are expected to reach $1.2 million. 

Instantaneous circulating water 

heaters and hot water supply boilers 

account for over 7 percent of unit 

shipments in the CWH industry. At TSL 

4, the projected change in manufacturer 

INPV for instantaneous circulating 

water heaters and hot water supply 

boilers ranges from a decrease of $7.3 

million to a decrease of $1.1 million, 

which correspond to decreases of 23.2 

percent and 3.4 percent, respectively. 

Conversion cost total $10.0 million. 

At TSL 4, approximately 27 percent of 

instantaneous circulating water heaters 

and hot water supply boilers models 

would meet TSL 4 today. DOE notes 

that industry offers a large number of 

models to fit a wide range of installation 

requirements despite relatively low 

shipment volumes. Product conversion 

cost are expected to reach $8.1 million. 

The Secretary tentatively concludes 

that at TSL 4 for CWH equipment, the 

benefits of energy savings, positive NPV 

of consumer benefits, emission 

reductions, and the estimated monetary 

value of the emissions reductions would 

be outweighed by the economic burden 

on some consumers, and the impacts on 

manufacturers, including the potentials 

for large conversion costs, reduced 

equipment availability, delayed 

technology innovation, and substantial 

reductions in INPV. As noted 

previously, only one small manufacturer 

currently produces commercial gas-fired 

storage water heaters at that level. 

Similarly, only one manufacturer 

currently produces residential-duty gasfired water heaters at that level. In light 

of substantial conversion costs, it is 

unclear whether a sufficient quantity of 

other manufacturers would undertake 

the conversions necessary to offer a 

competitive range of products across the 

range of sizes and applications required 

for gas-fired storage water heaters. 

Consequently, the Secretary has 

tentatively concluded that the current 

record does not provide a clear and 

convincing basis to conclude that TSL 4 

is economically justified. 

DOE then considered TSL 3, which 

would save an estimated 0.70 quads of 

energy, an amount DOE also considers 

significant. Commercial gas-fired storage 

and storage-type instantaneous water 

heaters are estimated to save 0.33 quads 

while residential-duty gas-fired storage 

water heaters are estimated to save 0.07 

quads of energy. Instantaneous gas-fired 

tankless water heaters are estimated to 

save 0.02 quads. Instantaneous 

circulating gas-fired water heaters and 

hot water supply boilers are estimated 

to save 0.29 quads of energy. 

Under TSL 3, the NPV of consumer 

benefit would be $0.48 billion using a 

discount rate of 7 percent, and $1.49 

billion using a discount rate of 3 

percent. Benefits to consumers of 

commercial gas-fired storage and storage 

type instantaneous equipment are 

estimated to be $0.37 billion using a 

discount rate of 7 percent, and $0.93 

billion using a discount rate of 3 

percent. Consumer benefits for 

residential-duty gas-fired storage 

equipment are estimated to be $0.03 

billion dollars at a 7 percent discount 

rate and $0.11 billion at a 3 percent 

discount rate. Benefits to consumers of 

instantaneous gas-fired tankless water 

heaters are estimated to be $0.01 billion 

at a 7 percent discount rate and $0.04 

billion at a 3 percent discount rate, and 

consumer benefits for instantaneous 

circulating gas-fired water heaters and 

hot water supply boilers are estimated 

to be $0.07 billion at a 7 percent 

discount rate and 0.41 billion at a 3 

percent discount rate. 

The cumulative emissions reductions 

at TSL 3 are 38 Mt of CO2, ¥0.02 

thousand tons of SO2, 95 thousand tons 

of NOX, ¥0.0014 tons of Hg, 471 

thousand tons of CH4, and 0.07 

thousand tons of N2O. The estimated 

monetary value of the climate benefits 

from reduced GHG emissions reduction 

(associated with the average SC–GHG at 


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a 3-percent discount rate) at TSL 3 is 

$1.96 billion. The estimated monetary 

value of the health benefits from 

reduced NOX and SO2 emissions at TSL 

3 is $0.99 billion using a 7-percent 

discount rate and $2.62 billion using a 

3-percent discount rate. 

Using a 7-percent discount rate for 

consumer benefits and costs, health 

benefits from reduced SO2 and NOX

emissions, and the 3-percent discount 

rate case for climate benefits from 

reduced GHG emissions, the estimated 

total NPV at TSL 3 is $3.43 billion. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated total 

NPV at TSL 3 is $6.08 billion. The 

estimated total NPV is provided for 

additional information, however DOE 

primarily relies upon the NPV of 

consumer benefits when determining 

whether a proposed standard level is 

economically justified. 

At TSL 3, the average LCC impact is 

a savings of $301 for commercial gasfired storage and storage-type 

instantaneous water heaters, $90 for 

residential-duty gas-fired storage water 

heaters, $63 for instantaneous gas-fired 

tankless water heaters, and $1,047 for 

instantaneous circulating water heaters 

and hot water supply boilers. The 

simple PBP is 5 years for commercial 

gas-fired storage water heaters, 9 years 

for residential-duty gas-fired storage 

water heaters, and 9 years for both 

instantaneous gas-fired tankless water 

heaters and instantaneous circulating 

water heaters and hot water supply 

boilers. The fraction of consumers 

experiencing a net LCC cost is 12 

percent for commercial gas-fired storage 

water heaters, 26 percent for residentialduty gas-fired storage water heaters, 12 

percent for instantaneous gas-fired 

tankless water heaters, and 13 percent 

for instantaneous circulating water 

heaters and hot water supply boilers. 

At TSL 3, the projected change in 

manufacturer INPV ranges from a 

decrease of $23.4 million to a decrease 

of $10.8 million, which correspond to 

decreases of 12.8 percent and 5.9 

percent, respectively. At this level, 

industry free cash flow is estimated to 

drop by 95% in the year before the 

standards year. Conversion costs total 

$34.6 million. 

At TSL 3, nearly all commercial gasfired storage water heaters and storage 

type instantaneous equipment 

manufacturers have models at a range of 

input capacities and storage volumes 

that can meet 95 percent thermal 

efficiency. Approximately 34 percent of 

commercial gas-fired storage water 

heaters and storage type instantaneous 

models currently offered would meet 

TSL 3 today. Additionally, an amended 

standard at TSL 3 would allow 

manufacturers to design equipment 

platforms that support a range of models 

with varying input capacities and 

storage volumes, rather than having to 

optimize designs for each individual 

input capacity and storage volume 

combinations. 

The change in INPV for commercial 

gas-fired storage water heaters and 

storage type instantaneous equipment 

ranges from a decrease of $13.5 million 

to a decrease of $9.5 million, which 

correspond to decreases of 10.0 percent 

and 7.0 percent, respectively. Product 

conversion costs are $11.6 million and 

capital conversion costs are $9.2 

million, for a total of approximately 

$20.8 million. At this level, product 

conversion costs are typical of R&D 

spending over the conversion period. 

At TSL 3, multiple residential-duty 

gas-fired storage water heater 

manufacturers offer models at a range of 

input capacities and storage volumes 

that can meet a UEF standard at this 

level today. Approximately 22 percent 

of current residential-duty gas-fired 

storage water heater models would meet 

TSL 3. An amended standard at TSL 3 

would allow manufacturers to design 

equipment platforms that support a 

range of models with varying input 

capacities and storage volumes, rather 

than having to optimize designs for each 

individual input capacity and storage 

volume combination. 

The projected change in INPV for 

residential-duty gas-fired storage water 

heaters ranges from a decrease of $1.7 

million to an increase of $0.5 million, 

which correspond to a decrease of 16.5 

percent and an increase of 5.4 percent, 

respectively. DOE expects conversion 

costs for this equipment class to reach 

$2.1 million. 

At TSL 3, approximately half of 

instantaneous gas-fired tankless water 

heaters models would meet TSL 3 

today. The projected change in 

manufacturer INPV for instantaneous 

gas-fired tankless water heaters ranges 

from a decrease of $1.1 million to a 

decrease of $0.8 million, which 

correspond to decreases of 15.0 percent 

and 11.8 percent, respectively. 

Conversion costs total $1.8 million. 

At TSL 3, approximately 27 percent of 

instantaneous circulating water heaters 

and hot water supply boilers models 

would meet TSL 3 today. The projected 

change in manufacturer INPV for 

instantaneous circulating water heaters 

and hot water supply boilers ranges 

from a decrease of $7.3 million to a 

decrease of $1.1 million, which 

correspond to decreases of 23.2 percent 

and 3.4 percent, respectively. 

Conversion cost total $10.0 million. 

After considering the analysis and 

weighing the benefits and burdens, the 

Secretary has tentatively concluded that 

a standard set at TSL 3 for CWH 

equipment would be economically 

justified. Notably, the benefits to 

consumers vastly outweigh the cost to 

manufacturers. At TSL 3, the NPV of 

consumer benefits, even measured at the 

more conservative discount rate of 7 

percent, is over 2200 percent higher 

than the maximum of manufacturers’ 

loss in INPV. The positive average LCC 

savings—a different way of quantifying 

consumer benefits—reinforces this 

conclusion. The economic justification 

for TSL 3 is clear and convincing even 

without weighing the estimated 

monetary value of emissions reductions. 

When those emissions reductions are 

included—representing $1.96 billion in 

climate benefits (associated with the 

average SC–GHG at a 3-percent discount 

rate), and $0.30 billion (using a 3- 

percent discount rate) or $0.12 billion 

(using a 7-percent discount rate) in 

health benefits—the rationale becomes 

stronger still. 

As stated, DOE conducts a ‘‘walkdown’’ analysis to determine the TSL 

that represents the maximum 

improvement in energy efficiency that is 

technologically feasible and 

economically justified as required under 

EPCA. The walk-down is not a 

comparative analysis, as a comparative 

analysis would result in the 

maximization of net benefits instead of 

energy savings that are technologically 

feasible and economically justified, 

which would be contrary to the statute. 

86 FR 70892, 70908. Although DOE has 

not conducted a comparative analysis to 

select the proposed energy conservation 

standards, DOE notes at TSL 3 the 

conversion cost impacts for commercial 

gas storage and residential-duty gasfired storage water heaters are less 

severe than TSL 4. For commercial gas 

storage water heaters, nearly all 

manufacturers have equipment that can 

meet TSL 3 across a range of input 

capacities and storage volumes. 

Similarly, for residential-duty 

commercial gas water heaters, multiple 

manufacturers currently produce 

equipment meeting TSL 3. The concerns 

of manufacturers being unable to offer a 

competitive range of equipment across 

the range of input capacities and storage 

volumes currently offered would be 

mitigated at TSL 3. 

Although DOE considered proposed 

amended standard levels for CWH 

equipment by grouping the efficiency 

levels for each equipment category into 

TSLs, DOE evaluates all analyzed 

efficiency levels in its analysis. For 

commercial gas instantaneous water 


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heaters (including tankless and 

circulating/hot water supply boilers) 

TSL 3 (i.e., the proposed TSL) includes 

the max-tech efficiency levels, which is 

the maximum level determined to be 

technologically feasible. For commercial 

gas-fired storage water heaters and 

residential-duty gas-fired storage water 

heaters, TSL 3 includes efficiency levels 

that are one level below the max-tech 

efficiency level. As discussed 

previously, at the max-tech efficiency 

levels for gas-fired storage water heaters 

and residential-duty gas-fired storage 

water heaters there is a substantial risk 

of manufacturers being unable to offer a 

competitive range of equipment across 

the range of input capacities and storage 

volumes currently available. Setting 

standards at max-tech for these classes 

could limit other engineering and 

innovation efforts, such as developing 

heat pump water heaters for the 

commercial market, during the 

conversion period beyond compliance 

with amended energy conservation 

standards. The benefits of max-tech 

efficiency levels for commercial gasfired storage water heaters and 

residential-duty gas-fired storage water 

heaters do not outweigh the negative 

impacts to consumers and 

manufacturers. Therefore, DOE has 

tentatively concluded that the max-tech 

efficiency levels are not justified. 

Therefore, based on the previous 

considerations, DOE proposes to adopt 

the energy conservation standards for 

CWH equipment at TSL 3. The proposed 

amended energy conservation standards 

for CWH equipment, which are 

expressed as thermal efficiency and 

standby loss for commercial gas-fired 

storage and commercial gas-fired 

instantaneous water heaters and hot 

water supply boilers, and as UEF for 

residential-duty gas-storage water 

heaters, are shown in Table V.45 and 

Table V.46. 

TABLE V.45—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT

EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS

Equipment Size 

Energy conservation standards * 

Minimum 

thermal 

efficiency 

(%) 

Maximum standby loss † 

Gas-fired storage water heaters and storage-type instantaneous water 

heaters.

All ................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h) 

Electric instantaneous water heaters ‡ ...................................................... <10 gal ...........

≥10 gal ...........

80 

77 

N/A 

2.30 + 67/Vm (%/h) 

Gas-fired instantaneous water heaters and hot water supply boilers ...... <10 gal ...........

≥10 gal ...........

96 

96 

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h) 

* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. 

† Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: 

(1) The tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water 

heaters, they have a fire damper or fan-assisted combustion. 

‡Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance 

date for these energy conservation standards is January 1, 1994. In this NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in 

section III.B.4 of this NOPR. 

TABLE V.46—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY GAS-FIRED

COMMERCIAL WATER HEATERS

Equipment Specification * Draw pattern ** Uniform energy factor 

Gas-fired Storage .......................... >75 kBtu/h and .............................

≤105 kBtu/h and ...........................

Very Small ....................................

Low ...............................................

0.5374¥(0.0009 × Vr) 

0.8062¥(0.0012 × Vr) 

≤120 gal and ................................. Medium ......................................... 0.8702¥(0.0011 × Vr) 

≤180 °F ......................................... High .............................................. 0.9297¥(0.0009 × Vr) 

* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) If requiring 

electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 

180 °F. 

** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the 

first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 

2. Annualized Benefits and Costs of the 

Proposed Standards 

The benefits and costs of the proposed 

standards can also be expressed in terms 

of annualized values. The annualized 

net benefit is (1) the annualized national 

economic value (expressed in 2020$) of 

the benefits from operating products 

that meet the proposed standards 

(consisting primarily of operating cost 

savings from using less energy, minus 

increases in product purchase costs, and 

(2) the annualized monetary value of the 

benefits of GHG and NOX emission 

reductions. 

Table V.47 shows the annualized 

values for CWH equipment under TSL 

3, expressed in 2020$. The results under 

the primary estimate are as follows. 

Using a 7-percent discount rate for 

consumer benefits and costs and health 

benefits from reduced NOX and SO2

emissions, and a 3-percent discount rate 

case for climate benefits from reduced 

GHG emissions, the estimated cost of 

the proposed standards for CWH 

equipment is $59 million per year in 

increased equipment costs, while the 

estimated annual benefits are $110 

million in reduced equipment operating 

costs, $113 million in climate benefits, 

and $104 million in health benefits. In 

this case, the net benefit amounts to 

$267 million per year. 

Using a 3-percent discount rate for all 

benefits and costs, the estimated cost of 


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the proposed standards for CWH 

equipment is $55 million per year in 

increased equipment costs, while the 

estimated annual benefits are $140 

million in reduced operating costs, $113 

million in climate benefits, and $150 

million in health benefits. In this case, 

the net benefit would amount to $349 

million per year. 

TABLE V.47—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH 

EQUIPMENT

[TSL 3] 

Category 

Million 2020$/year 

Primary estimate Low-net-benefits 

estimate 

High-net-benefits 

estimate 

3% discount rate 

Consumer Operating Cost Savings ........................................................................... 140.3 130.3 151.7 

Climate Benefits * ....................................................................................................... 112.8 107.2 117.8 

Health Benefits ** ....................................................................................................... 150.4 143.5 170.0 

Total Benefits † ................................................................................................... 404 381 439 

Consumer Incremental Product Costs ‡ .................................................................... 54.7 52.6 56.6 

Net Benefits ........................................................................................................ 349 328 383

7% discount rate 

Consumer Operating Cost Savings ........................................................................... 109.6 103.4 116.7 

Climate Benefits * (3% discount rate) ........................................................................ 112.8 107.2 117.8 

Health Benefits ** ....................................................................................................... 104.3 100.4 117.2 

Total Benefits † ................................................................................................... 327 311 352 

Consumer Incremental Product Costs ‡ .................................................................... 59.2 57.5 60.9 

Net Benefits ........................................................................................................ 267 253 291

Note: This table presents the costs and benefits associated with consumer pool heaters shipped in 2026–2055. These results include benefits 

to consumers which accrue after 2055 from the products shipped in 2026–2055. Numbers may not add due to rounding. 

* Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide 

(SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate). Together these 

represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate benefits associated with 

the average SC–GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC–GHG point estimate, and it 

emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. See section IV.L of this document 

for more details. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone 

precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5

emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. 

† Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent 

and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate, but the Department does not have a single central 

SC–GHG point estimate. DOE emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. On 

March 16, 2022, the Fifth Circuit Court of Appeals (No. 22–30087) granted the federal government’s emergency motion for stay pending appeal 

of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21–cv–1074–JDC–KK (W.D. La.). As a result of the Fifth Circuit’s order, the preliminary injunction is no longer in effect, pending resolution of the federal government’s appeal of that injunction or a further 

court order. Among other things, the preliminary injunction enjoined the defendants in that case from ‘‘adopting, employing, treating as binding, or 

relying upon’’ the interim estimates of the social cost of greenhouse gases—which were issued by the Interagency Working Group on the Social 

Cost of Greenhouse Gases on February 26, 2021—to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible 

under law. 

‡ Costs include incremental equipment costs as well as installation costs. 

VI. Procedural Issues and Regulatory 

Review 

A. Review Under Executive Orders 

12866 and 13563 

Section 1(b)(1) of Executive Order 

(‘‘E.O.’’) 12866, ‘‘Regulatory Planning 

and Review,’’ 58 FR 51735 (Oct. 4, 

1993), requires each agency to identify 

the problem that it intends to address, 

including, where applicable, the failures 

of private markets or public institutions 

that warrant new agency action, as well 

as to assess the significance of that 

problem. The problems that the 

proposed standards set forth in this 

NOPR are intended to address are as 

follows: 

(1) Insufficient information and the 

high costs of gathering and analyzing 

relevant information leads some 

consumers to miss opportunities to 

make cost-effective investments in 

energy efficiency. 

(2) In some cases, the benefits of 

more-efficient equipment are not 

realized due to misaligned incentives 

between purchasers and users. An 

example of such a case is when the 

equipment purchase decision is made 

by a building contractor or building 

owner who does not pay the energy 

costs. 

(3) There are external benefits 

resulting from improved energy 

efficiency of appliances and equipment 

that are not captured by the users of 

such products. These benefits include 

externalities related to public health, 

environmental protection, and national 

energy security that are not reflected in 

energy prices, such as reduced 

emissions of air pollutants and 

greenhouse gases that impact human 

health and global warming. DOE 

attempts to quantify some of the 


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external benefits through use of social 

cost of carbon values. 

The Administrator of the Office of 

Information and Regulatory Affairs 

(‘‘OIRA’’) in the OMB has determined 

that the proposed regulatory action is a 

significant regulatory action under 

section (3)(f) of Executive Order 12866. 

Accordingly, pursuant to section 

6(a)(3)(B) of the Order, DOE has 

provided to OIRA: 

(i) The text of the draft regulatory 

action, together with a reasonably 

detailed description of the need for the 

regulatory action and an explanation of 

how the regulatory action will meet that 

need; and 

(ii) An assessment of the potential 

costs and benefits of the regulatory 

action, including an explanation of the 

manner in which the regulatory action 

is consistent with a statutory mandate. 

DOE has included these documents in 

the rulemaking record. A summary of 

the potential costs and benefits of the 

regulatory action is presented in Table 

VI.1. 

TABLE VI.1—ANNUALIZED BENEFITS, COSTS, AND NET BENEFITS OF PROPOSED STANDARDS

Category 

Million 2020$/year 

3% Discount rate 7% Discount rate 

Consumer Operating Cost Savings ............................................................................................................. 140.3 109.6 

Climate Benefits * ......................................................................................................................................... 112.8 112.8 

Health Benefits ** ......................................................................................................................................... 17.3 12.3 

Total Benefits † ..................................................................................................................................... 270 235 

Costs ‡ ......................................................................................................................................................... 54.7 59.2 

Net Benefits .......................................................................................................................................... 216 175 

Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026–2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026–2055. 

* Climate benefits are calculated using four different estimates of the global SC–CO2, SC–CH4, and SC–N2O (see section IV.L of this proposed 

rule). Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate 

benefits associated with the average SC–GHG at a 3 percent discount rate are shown, but the Department does not have a single central SC– 

GHG point estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. 

** Health benefits are calculated using benefit-per-ton values for NOX and SO2. The benefits are based on the low estimates of the monetized 

value. DOE is currently only monetizing PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize 

other effects such as health benefits from reductions in direct PM2.5 emissions. See section IV.L of this document for more details. 

† Total benefits include consumer, climate, and health benefits. Total benefits for both the 3-percent and 7-percent cases are presented using 

the average SC–GHG with 3-percent discount rate, but the Department does not have a single central SC–GHG point estimate. On March 16, 

2022, the Fifth Circuit Court of Appeals (No. 22–30087) granted the federal government’s emergency motion for stay pending appeal of the February 11, 2022, preliminary injunction issued in Louisiana v. Biden, No. 21–cv–1074–JDC–KK (W.D. La.). As a result of the Fifth Circuit’s order, 

the preliminary injunction is no longer in effect, pending resolution of the federal government’s appeal of that injunction or a further court order. 

Among other things, the preliminary injunction enjoined the defendants in that case from ‘‘adopting, employing, treating as binding, or relying 

upon’’ the interim estimates of the social cost of greenhouse gases—which were issued by the Interagency Working Group on the Social Cost of 

Greenhouse Gases on February 26, 2021—to monetize the benefits of reducing greenhouse gas emissions. In the absence of further intervening 

court orders, DOE will revert to its approach prior to the injunction and present monetized benefits where appropriate and permissible under law. 

‡ Costs include incremental equipment costs as well as installation costs. 

In addition, the Administrator of 

OIRA has determined that the proposed 

regulatory action is an ‘‘economically’’ 

significant regulatory action under 

section (3)(f)(1) of E.O. 12866. 

Accordingly, pursuant to section 

6(a)(3)(C) of the Order, DOE has 

provided to OIRA an assessment, 

including the underlying analysis, of 

benefits and costs anticipated from the 

regulatory action, together with, to the 

extent feasible, a quantification of those 

costs; and an assessment, including the 

underlying analysis, of costs and 

benefits of potentially effective and 

reasonably feasible alternatives to the 

planned regulation, and an explanation 

why the planned regulatory action is 

preferable to the identified potential 

alternatives. These assessments can be 

found in the technical support 

document for this proposed rulemaking. 

DOE has also reviewed this regulation 

pursuant to E.O. 13563, issued on 

January 18, 2011. 76 FR 3281 (Jan. 21, 

2011). E.O. 13563 is supplemental to 

and explicitly reaffirms the principles, 

structures, and definitions governing 

regulatory review established in E.O. 

12866. To the extent permitted by law, 

agencies are required by E.O. 13563 to 

(1) propose or adopt a regulation only 

upon a reasoned determination that its 

benefits justify its costs (recognizing 

that some benefits and costs are difficult 

to quantify); (2) tailor regulations to 

impose the least burden on society, 

consistent with obtaining regulatory 

objectives, taking into account, among 

other things, and to the extent 

practicable, the costs of cumulative 

regulations; (3) select, in choosing 

among alternative regulatory 

approaches, those approaches that 

maximize net benefits (including 

potential economic, environmental, 

public health and safety, and other 

advantages; distributive impacts; and 

equity); (4) to the extent feasible, specify 

performance objectives, rather than 

specifying the behavior or manner of 

compliance that regulated entities must 

adopt; and (5) identify and assess 

available alternatives to direct 

regulation, including providing 

economic incentives to encourage the 

desired behavior, such as user fees or 

marketable permits, or providing 

information upon which choices can be 

made by the public. 

DOE emphasizes as well that E.O. 

13563 requires agencies to use the best 

available techniques to quantify 

anticipated present and future benefits 

and costs as accurately as possible. In its 

guidance, OIRA has emphasized that 

such techniques may include 

identifying changing future compliance 

costs that might result from 

technological innovation or anticipated 

behavioral changes. For the reasons 

stated in the preamble, this NOPR is 

consistent with these principles, 

including the requirement that, to the 

extent permitted by law, benefits justify 

costs and that net benefits are 

maximized. 

B. Review Under the Regulatory 

Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires preparation 


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170The business size standards are listed by 

NAICS code and industry description and are 

available at www.sba.gov/document/support--tablesize-standards (Last accessed July 26th, 2021). 

171MAEDbS can be accessed at 

www.cacertappliances.energy.ca.gov/Pages/Search/ 

AdvancedSearch.aspx (Last accessed July 15th, 

2021). 

172Energy Star certified product can be found in 

the Energy Star database accessed at 

www.energystar.gov/productfinder/product/ 

certified-commercial-water-heaters/results (Last 

accessed July 15th, 2021). 

173Certified equipment in the CCD are listed by 

product class and can be accessed at 

www.regulations.doe.gov/certification-data/ 

#q=Product_Group_s%3A* (Last accessed July 15th, 

2021). 

of an initial regulatory flexibility 

analysis (IRFA) and a final regulatory 

flexibility analysis (FRFA) for any rule 

that by law must be proposed for public 

comment, unless the agency certifies 

that the rule, if promulgated, will not 

have a significant economic impact on 

a substantial number of small entities. 

As required by Executive Order 13272, 

‘‘Proper Consideration of Small Entities 

in Agency Rulemaking,’’ 67 FR 53461 

(August 16, 2002), DOE published 

procedures and policies on February 19, 

2003, to ensure that the potential 

impacts of its rules on small entities are 

properly considered during the 

rulemaking process. 68 FR 7990. DOE 

has made its procedures and policies 

available on the Office of the General 

Counsel’s website (www.energy.gov/gc/ 

office-general-counsel). The following 

sections detail DOE’s IRFA for this 

energy conversation standards proposed 

rulemaking. 

1. Description of Reasons Why Action Is 

Being Considered 

DOE is proposing to amend energy 

conservation standards for CWH 

equipment. Pursuant to EPCA, DOE is to 

consider amending the energy efficiency 

standards for certain types of 

commercial and industrial equipment, 

including the equipment at issue in this 

document, whenever the American 

Society of Heating, Refrigerating, and 

Air-Conditioning Engineers 

(‘‘ASHRAE’’) amends the standard 

levels or design requirements prescribed 

in ASHRAE Standard 90.1, ‘‘Energy 

Standard for Buildings Except Low-Rise 

Residential Buildings,’’ (‘‘ASHRAE 

Standard 90.1’’), and at a minimum, 

every six 6 years. DOE must adopt more 

stringent efficiency standards, unless 

DOE determines, supported by clear and 

convincing evidence, that adoption of a 

more stringent level would produce 

significant additional conservation of 

energy would be technologically 

feasible and economically justified. (42 

U.S.C. 6313(a)(6)(A)–(C)) 

2. Objectives of, and Legal Basis for, 

Rule 

Under EPCA, DOE must review 

energy efficiency standards for CWH 

equipment every six years and either: 

(1) Issue a notice of determination that 

the standards do not need to be 

amended as adoption of a more 

stringent level is not supported by clear 

and convincing evidence; or (2) issue a 

notice of proposed rulemaking 

including new proposed standards 

based on certain criteria and procedures 

in subparagraph (B) of 42 U.S.C. 

6313(a)(6). (42 U.S.C. 6313(a)(6)(C)) 

Under EPCA, DOE’s energy 

conservation program consists 

essentially of four parts: (1) Testing, (2) 

labeling, (3) Federal energy conservation 

standards, and (4) certification and 

enforcement procedures. For covered 

equipment, relevant provisions of the 

Act include definitions (42 U.S.C. 6311), 

energy conservation standards (42 

U.S.C. 6313), test procedures (42 U.S.C. 

6314), labeling provisions (42 U.S.C. 

6315), and the authority to require 

information and reports from 

manufacturers (42 U.S.C. 6316). DOE 

requires the manufacturer of any 

covered product or covered equipment 

to establish, maintain, and retain the 

records of certification reports, of the 

underlying test data for all certification 

testing, and of any other testing 

conducted to satisfy the requirements of 

10 CFR part 429, 10 CFR part 430, and/ 

or 10 CFR part 431. Certification reports 

provide DOE and consumers with 

comprehensive, up-to date efficiency 

information and support effective 

enforcement. 

3. Description on Estimated Number of 

Small Entities Regulated 

For manufacturers of CWH 

equipment, the Small Business 

Administration (‘‘SBA’’) has set a size 

threshold, which defines those entities 

classified as ‘‘small businesses’’ for the 

purposes of the statute. DOE used the 

SBA’s small business size standards to 

determine whether any small entities 

would be subject to the requirements of 

the rule. See 13 CFR part 121. The 

equipment covered by this proposed 

rule are classified under North 

American Industry Classification 

System (‘‘NAICS’’) code 333318,170

‘‘Other Commercial and Service 

Industry Machinery Manufacturing.’’ In 

13 CFR 121.201, the SBA sets a 

threshold of 1,000 employees or fewer 

for an entity to be considered as a small 

business for this category. DOE’s 

analysis relied on publicly available 

databases to identify potential small 

businesses that manufacture equipment 

covered in this rulemaking. DOE 

utilized the California Energy 

Commission’s Modernized Appliance 

Efficiency Database System 

(‘‘MAEDbS’’),171 the DOE’s Energy Star 

Database,172 and the DOE’s Certification 

Compliance Database (‘‘CCD’’) 173 in 

identifying manufacturers. For the 

purpose of this NOPR, two analyses are 

being performed regarding impacts to 

small businesses: (1) Impact of the 

amended standards and (2) impact of 

the codification of requirements for 

electric instantaneous water heater 

manufacturers. 

Regarding manufacturers impacted by 

the amended standards, DOE identified 

fifteen original equipment 

manufacturers (‘‘OEM’’). DOE screened 

out companies that do not meet the 

definition of a ‘‘small business’’ or are 

foreign-owned and operated. DOE used 

subscription-based business information 

tools to determine headcount and 

revenue of the small businesses. Of 

these fourteen OEMs, DOE identified 

three companies that are small, 

domestic OEMs. 

Regarding models impacted by the 

codification of requirements for electric 

instantaneous water heaters, DOE’s 

research identified 9 OEMs of 

commercial electric instantaneous water 

heaters being sold in the U.S. market. Of 

these nine companies, DOE has 

identified three as domestic, small 

businesses. The small businesses do not 

currently certify any other CWH 

equipment to DOE’s CCMS. 

Issue 12: DOE seeks comment on the 

number of small manufacturers 

producing covered CWH equipment. 

4. Description and Estimate of 

Compliance Requirements 

This NOPR proposes to adopt 

amended standards for gas-fired storage 

water heaters, gas-fired instantaneous 

water heaters and hot water supply 

boilers, and residential-duty gas-fired 

storage water heaters. Additionally, this 

NOPR seeks to codify energy 

conservation standards for electric 

instantaneous water heaters from EPCA 

into the CFR. 

To determine the impact on the small 

OEMs, product conversion costs and 

capital conversion costs were estimated. 

Product conversion costs are 

investments in research, development, 

testing, marketing, and other noncapitalized costs necessary to make 

product designs comply with amended 

energy conservation standards. Capital 

conversion costs are one-time 

investments in plant, property, and 


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equipment made in response to new 

and/or amended standards. 

In reviewing all commercially 

available models in DOE’s Compliance 

Certification Database, the three small 

manufacturers account for 

approximately 4 percent of industry 

model offerings. Of the three small 

manufacturers, the first manufacturer 

exclusively manufactures gas-fired 

instantaneous tankless water heaters 

and will remain unimpacted by the 

proposed standards as 100 percent of 

models meet TSL 3 or higher. There are 

no anticipated capital conversion costs 

or production conversion costs required 

to meet proposed standards. 

The second manufacturer exclusively 

manufacturers hot water supply boilers 

and 67 percent of its models are 

unimpacted by the proposed standards. 

DOE estimates that this manufacturer 

will incur approximately $16,700 in 

capital conversion costs and $15,650 in 

product conversion costs to meet 

proposed standards. The combined 

conversion costs represent less than one 

percent of the firm’s anticipated revenue 

during the conversion period. 

The third manufacturer primarily 

manufactures gas-fired storage water 

heaters and residential-duty gas fired 

storage water heaters. For this 

manufacturer, 53 percent of their 

models are unimpacted by the proposed 

standards. DOE estimates that this 

manufacturer will incur approximately 

$178,000 in capital conversion costs and 

$226,000 in product conversion costs to 

meet proposed standards. The combined 

conversion costs represent 2% of the 

firm’s anticipated revenue during the 

conversion period. 

In addition to proposing amended 

standards, this rulemaking, DOE is 

proposing to codify standards for 

electric instantaneous CWH equipment 

from EPCA into the CFR. 

EPCA prescribes energy conservation 

standards for several classes of CWH 

equipment manufactured on or after 

January 1, 1994. (42 U.S.C. 6313(a)(5)) 

DOE codified these standards in its 

regulations for CWH equipment at 10 

CFR 431.110. However, when codifying 

these standards from EPCA, DOE 

inadvertently omitted the standards put 

in place by EPCA for electric 

instantaneous water heaters. In the 

NOPR, DOE is proposing to codify these 

standards in its regulations at 10 CFR 

431.110. This NOPR does not propose 

certification requirements for electric 

instantaneous water heaters. Thus, DOE 

estimates no additional paperwork costs 

on manufacturers of electric 

instantaneous water heater equipment 

as result of the NOPR. 

Issue 13: DOE seeks comment on 

types of costs and magnitude of costs 

small manufacturers would incur as 

result of the amended standards 

proposed for CWH equipment and the 

codification of standards for commercial 

electric instantaneous water heaters. 

5. Duplication, Overlap, and Conflict 

With Other Rules and Regulations 

DOE is not aware of any rules or 

regulations that duplicate, overlap, or 

conflict with the proposed rule being 

considered in this action. 

6. Significant Alternatives to the Rule 

The discussion in the previous 

section analyzes impacts on small 

businesses that would result from DOE’s 

proposed rule, represented by TSL 3. In 

reviewing alternatives to the proposed 

rule, DOE examined a range of different 

efficiency levels and their respective 

impacts to both manufacturers and 

consumers. DOE first considered TSL 4. 

TSL 4 would save 0.96 quads of energy 

with a projected change in manufacturer 

INPV of ¥42.0 percent to ¥33.6 

percent. TSL 4 has energy savings that 

are 37 percent higher than TSL 3. 

DOE also considered TSL 2 and TSL 

1. TSL 2 would save 0.48 quads of 

energy with the projected change in 

manufacturer INPV ranging from ¥6.6 

percent to ¥1.9 percent. TSL 2 has 

energy savings that are 31 percent lower 

than TSL 3. TSL 1 would save 0.09 

quads of energy with the projected 

change in manufacturer INPV ranging 

from ¥1.0 percent to ¥0.6 percent. TSL 

1 has energy savings that are 87 percent 

lower than TSL 3. 

Based on the presented discussion, 

DOE believes that TSL 3 would deliver 

the highest energy savings while 

mitigating the potential burdens placed 

on CWH equipment manufacturers, 

including small business manufacturers. 

Accordingly, DOE does not propose one 

of the other TSLs considered in the 

analysis, or the other policy alternatives 

as part of the regulatory impact analysis 

and included in chapter 17 of the NOPR 

TSD. 

Additional compliance flexibilities 

may be available through other means. 

Manufacturers subject to DOE’s energy 

efficiency standards may apply to DOE’s 

Office of Hearings and Appeals for 

exception relief under certain 

circumstances. Manufacturers should 

refer to 10 CFR part 1003 for additional 

details. 

C. Review Under the Paperwork 

Reduction Act 

Manufacturers of CWH equipment 

must certify to DOE that their 

equipment complies with any 

applicable energy conservation 

standards. In certifying compliance, 

manufacturers must test their 

equipment according to the applicable 

DOE test procedures for CWH 

equipment, including any amendments 

adopted for those test procedures on the 

date that compliance is required. DOE 

has established regulations for the 

certification and recordkeeping 

requirements for all covered commercial 

consumer products and commercial 

equipment, including CWH equipment. 

(See generally 10 CFR part 429). The 

collection-of-information requirement 

for the certification and recordkeeping 

is subject to review and approval by 

OMB under the Paperwork Reduction 

Act (‘‘PRA’’). DOE’s current reporting 

requirements have been approved by 

OMB under OMB control number 1910– 

1400. Public reporting burden for the 

certification is estimated to average 35 

hours per response, including the time 

for reviewing instructions, searching 

existing data sources, gathering and 

maintaining the data needed, certifying 

compliance, and completing and 

reviewing the collection of information. 

Notwithstanding any other provision 

of the law, no person is required to 

respond to, nor shall any person be 

subject to a penalty for failure to comply 

with, a collection of information subject 

to the requirements of the PRA, unless 

that collection of information displays a 

currently valid OMB Control Number. 

D. Review Under the National 

Environmental Policy Act of 1969 

DOE is analyzing this proposed 

regulation in accordance with the 

National Environmental Policy Act of 

1969 (‘‘NEPA’’) and DOE’s NEPA 

implementing regulations (10 CFR part 

1021). DOE’s regulations include a 

categorical exclusion for rulemakings 

that establish energy conservation 

standards for consumer products or 

industrial equipment. 10 CFR part 1021, 

subpart D, appendix B5.1. DOE 

anticipates that this rulemaking 

qualifies for categorical exclusion B5.1 

because it is an interpretive rulemaking 

that that establishes energy conservation 

standards for consumer products or 

industrial equipment, none of the 

exceptions identified in CX B5.1(b) 

apply, no extraordinary circumstances 

exist that require further environmental 

analysis, and it otherwise meets the 

requirements for application of a 

categorical exclusion. See 10 CFR 

1021.410. DOE will complete its NEPA 

review before issuing the final rule. 

E. Review Under Executive Order 13132 

Executive Order 13132, ‘‘Federalism,’’ 

64 FR 43255 (August 10, 1999), imposes 


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certain requirements on Federal 

agencies formulating and implementing 

policies or regulations that preempt 

State law or that have federalism 

implications. The Executive order 

requires agencies to examine the 

constitutional and statutory authority 

supporting any action that would limit 

the policymaking discretion of the 

States and to carefully assess the 

necessity for such actions. The 

Executive order also requires agencies to 

have an accountable process to ensure 

meaningful and timely input by State 

and local officials in the development of 

regulatory policies that have federalism 

implications. On March 14, 2000, DOE 

published a statement of policy 

describing the intergovernmental 

consultation process that it will follow 

in the development of such regulations. 

65 FR 13735. DOE has examined this 

NOPR and has tentatively determined 

that it 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. EPCA governs and 

prescribes Federal preemption of State 

regulations as to energy conservation for 

the equipment that is the subject of this 

NOPR. States can petition DOE for 

exemption from such preemption to the 

extent, and based on criteria, set forth in 

EPCA (See 42 U.S.C. 6316(a) and (b); 42 

U.S.C. 6297). Therefore, no further 

action is required by Executive Order 

13132. 

F. Review Under Executive Order 12988 

With respect to the review of existing 

regulations and the promulgation of 

new regulations, section 3(a) of 

Executive Order 12988, ‘‘Civil Justice 

Reform,’’ imposes on Federal agencies 

the general duty to adhere to the 

following requirements: (1) Eliminate 

drafting errors and ambiguity, (2) write 

regulations to minimize litigation, (3) 

provide a clear legal standard for 

affected conduct rather than a general 

standard, and (4) promote simplification 

and burden reduction. 61 FR 4729 (Feb. 

7, 1996). Regarding 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 has completed the 

required review and determined that, to 

the extent permitted by law, this NOPR 

meets the relevant standards of 

Executive Order 12988. 

G. Review Under the Unfunded 

Mandates Reform Act of 1995 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) requires 

each Federal agency to assess the effects 

of Federal regulatory actions on State, 

local, and Tribal governments and the 

private sector. Public Law 104–4, sec. 

201 (codified at 2 U.S.C. 1531). For a 

proposed regulatory action likely to 

result in a rule that may cause the 

expenditure by State, local, and Tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more 

in any one year (adjusted annually for 

inflation), section 202 of UMRA requires 

a Federal agency to publish a written 

statement that estimates the resulting 

costs, benefits, and other effects on the 

national economy. (2 U.S.C. 1532(a), (b)) 

The UMRA also requires a Federal 

agency to develop an effective process 

to permit timely input by elected 

officers of State, local, and Tribal 

governments on a ‘‘significant 

intergovernmental mandate,’’ and 

requires an agency plan for giving notice 

and opportunity for timely input to 

potentially affected small governments 

before establishing any requirements 

that might significantly or uniquely 

affect them. On March 18, 1997, DOE 

published a statement of policy on its 

process for intergovernmental 

consultation under UMRA. 62 FR 

12820. DOE’s policy statement is also 

available at www.energy.gov/gc/officegeneral-counsel. 

This NOPR does not contain a Federal 

intergovernmental mandate, nor is it 

expected to require expenditures of 

$100 million or more in any one year by 

the private sector. As a result, the 

analytical requirements of UMRA do not 

apply. 

H. Review Under the Treasury and 

General Government Appropriations 

Act, 1999 

Section 654 of the Treasury and 

General Government Appropriations 

Act, 1999 (Pub. L. 105–277) requires 

Federal agencies to issue a Family 

Policymaking Assessment for any rule 

that may affect family well-being. This 

NOPR would not have any impact on 

the autonomy or integrity of the family 

as an institution. Accordingly, DOE has 

concluded that it is not necessary to 

prepare a Family Policymaking 

Assessment. 

I. Review Under Executive Order 12630 

Pursuant to Executive Order 12630, 

‘‘Governmental Actions and Interference 

with Constitutionally Protected Property 

Rights,’’ 53 FR 8859 (March 15, 1988), 

DOE has determined that this NOPR 

would not result in any takings that 

might require compensation under the 

Fifth Amendment to the U.S. 

Constitution. 

J. Review Under the Treasury and 

General Government Appropriations 

Act, 2001 

Section 515 of the Treasury and 

General Government Appropriations 

Act, 2001 (44 U.S.C. 3516 note) provides 

for Federal agencies to review most 

disseminations of information to the 

public under information quality 

guidelines established by each agency 

pursuant to general guidelines issued by 

OMB. OMB’s guidelines were published 

at 67 FR 8452 (Feb. 22, 2002), and 

DOE’s guidelines were published at 67 

FR 62446 (Oct. 7, 2002). Pursuant to 

OMB Memorandum M–19–15, 

Improving Implementation of the 

Information Quality Act (April 24, 

2019), DOE published updated 

guidelines which are available at 

www.energy.gov/sites/prod/files/2019/ 

12/f70/DOE%20Final%

20Updated%20IQA%

20Guidelines%20Dec%202019.pdf. 

DOE has reviewed this NOPR under the 

OMB and DOE guidelines and has 

concluded that it is consistent with 

applicable policies in those guidelines. 

K. Review Under Executive Order 13211 

E.O. 13211, ‘‘Actions Concerning 

Regulations That Significantly Affect 

Energy Supply, Distribution, or Use,’’ 66 

FR 28355 (May 22, 2001), requires 

Federal agencies to prepare and submit 

to OIRA at OMB, a Statement of Energy 

Effects for any proposed significant 

energy action. A ‘‘significant energy 

action’’ is defined as any action by an 

agency that promulgates or is expected 

to lead to promulgation of a final rule, 

and that (1) is a significant regulatory 

action under Executive Order 12866, or 

any successor order; and (2) is likely to 

have a significant adverse effect on the 

supply, distribution, or use of energy, or 

(3) is designated by the Administrator of 

OIRA as a significant energy action. For 

any significant energy action, the agency 

must give a detailed statement of any 


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174The 2007 ‘‘Energy Conservation Standards 

Rulemaking Peer Review Report’’ is available at the 

following website: energy.gov/eere/buildings/

downloads/energy-conservation-standardsrulemaking-peer-review-report-0 (last accessed 

August 25, 2021). 

adverse effects on energy supply, 

distribution, or use should the proposal 

be implemented, and of reasonable 

alternatives to the action and their 

expected benefits on energy supply, 

distribution, and use. 

DOE has tentatively concluded that 

this regulatory action, which proposes 

amended energy conservation standards 

for CWH equipment, is not a significant 

energy action because the proposed 

standards are not likely to have a 

significant adverse effect on the supply, 

distribution, or use of energy, nor has it 

been designated as such by the 

Administrator at OIRA. Accordingly, 

DOE has not prepared a Statement of 

Energy Effects on this proposed rule. 

L. Information Quality 

On December 16, 2004, OMB, in 

consultation with the Office of Science 

and Technology Policy (‘‘OSTP’’), 

issued its Final Information Quality 

Bulletin for Peer Review (‘‘the 

Bulletin’’). 70 FR 2664 (Jan. 14, 2005). 

The Bulletin establishes that certain 

scientific information shall be peer 

reviewed by qualified specialists before 

it is disseminated by the Federal 

Government, including influential 

scientific information related to agency 

regulatory actions. The purpose of the 

bulletin is to enhance the quality and 

credibility of the Government’s 

scientific information. Under the 

Bulletin, the energy conservation 

standards rulemaking analyses are 

‘‘influential scientific information,’’ 

which the Bulletin defines as ‘‘scientific 

information the agency reasonably can 

determine will have or does have a clear 

and substantial impact on important 

public policies or private sector 

decisions.’’ Id. at 70 FR 2667. 

In response to OMB’s Bulletin, DOE 

conducted formal peer reviews of the 

energy conservation standards 

development process and the analyses 

that are typically used and has prepared 

a report describing that peer review.174

Generation of this report involved a 

rigorous, formal, and documented 

evaluation using objective criteria and 

qualified and independent reviewers to 

make a judgment as to the technical/ 

scientific/business merit, the actual or 

anticipated results, and the productivity 

and management effectiveness of 

programs and/or projects. DOE has 

determined that the peer-reviewed 

analytical process continues to reflect 

current practice, and the Department 

followed that process for developing 

energy conservation standards in the 

case of the present SNOPR. 

M. Materials Incorporated by Reference 

In this NOPR, DOE proposes to 

incorporate by reference the following 

test standards: 

(1) ASTM C177–13, ‘‘Standard Test 

Method for Steady-State Heat Flux 

Measurements and Thermal 

Transmission Properties by Means of 

the Guarded-Hot-Plate Apparatus’’; and 

(2) ASTM C518–15, ‘‘Standard Test 

Method for Steady-State Thermal 

Transmission Properties by Means of 

the Heat Flow Meter Apparatus.’’ 

ASTM C177–13 is an industryaccepted test procedure for determining 

the R-value of a sample using a guardedhot-plate apparatus. ASTM C177–13 is 

available on ASTM’s website at 

www.astm.org/c0177-13.html. 

ASTM C518–15 is an industryaccepted test procedure for determining 

the R-value of a sample using a heat 

flow meter apparatus. ASTM C518–15 is 

available on ASTM’s website at https:// 

www.astm.org/c0518-15.html. 

VII. Public Participation 

A. Participation in the Webinar 

The time and date of the webinar are 

listed in the DATES section at the 

beginning of this document. If no 

participants register for the webinar 

then it will be cancelled. Webinar 

registration information, participant 

instructions, and information about the 

capabilities available to webinar 

participants will be published on DOE’s 

website: www1.eere.energy.gov/ 

buildings/appliance_standards/ 

standards.aspx?productid=36. 

Participants are responsible for ensuring 

their systems are compatible with the 

webinar software. 

B. Procedure for Submitting Prepared 

General Statements for Distribution 

Any person who has an interest in the 

topics addressed in this proposed rule, 

or who is representative of a group or 

class of persons that has an interest in 

these issues, may request an 

opportunity to make an oral 

presentation at the webinar. Such 

persons may submit to 

ApplianceStandardsQuestions@

ee.doe.gov. Persons who wish to speak 

should include with their request a 

computer file in WordPerfect, Microsoft 

Word, PDF, or text (ASCII) file format 

that briefly describes the nature of their 

interest in this rulemaking and the 

topics they wish to discuss. Such 

persons should also provide a daytime 

telephone number where they can be 

reached. 

Persons requesting to speak should 

briefly describe the nature of their 

interest in this rulemaking and provide 

a telephone number for contact. DOE 

requests persons selected to make an 

oral presentation to submit an advance 

copy of their statements at least two 

weeks before the webinar. At its 

discretion, DOE may permit persons 

who cannot supply an advance copy of 

their statement to participate, if those 

persons have made advance alternative 

arrangements with the Building 

Technologies Office. As necessary, 

requests to give an oral presentation 

should ask for such alternative 

arrangements. 

C. Conduct of the Webinar 

DOE will designate a DOE official to 

preside at the webinar/public meeting 

and may also use a professional 

facilitator to aid discussion. The 

meeting will not be a judicial or 

evidentiary-type public hearing, but 

DOE will conduct it in accordance with 

section 336 of EPCA (42 U.S.C. 6306). A 

court reporter will be present to record 

the proceedings and prepare a 

transcript. DOE reserves the right to 

schedule the order of presentations and 

to establish the procedures governing 

the conduct of the webinar/public 

meeting. There shall not be discussion 

of proprietary information, costs or 

prices, market share, or other 

commercial matters regulated by U.S. 

anti-trust laws. After the webinar/public 

meeting and until the end of the 

comment period, interested parties may 

submit further comments on the 

proceedings and any aspect of the 

rulemaking. 

The webinar/public meeting will be 

conducted in an informal, conference 

style. DOE will present summaries of 

comments received before the webinar/ 

public meeting, allow time for prepared 

general statements by participants, and 

encourage all interested parties to share 

their views on issues affecting this 

rulemaking. Each participant will be 

allowed to make a general statement 

(within time limits determined by DOE), 

before the discussion of specific topics. 

DOE will permit, as time permits, other 

participants to comment briefly on any 

general statements. 

At the end of all prepared statements 

on a topic, DOE will permit participants 

to clarify their statements briefly. 

Participants should be prepared to 

answer questions by DOE and by other 

participants concerning these issues. 

DOE representatives may also ask 

questions of participants concerning 

other matters relevant to this 

rulemaking. The official conducting the 

webinar/public meeting will accept 


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30726 Federal Register / Vol. 87, No. 97 / Thursday, May 19, 2022 / Proposed Rules 

additional comments or questions from 

those attending, as time permits. The 

presiding official will announce any 

further procedural rules or modification 

of the above procedures that may be 

needed for the proper conduct of the 

webinar/public meeting. 

A transcript of the webinar/public 

meeting will be included in the docket, 

which can be viewed as described in the 

Docket section at the beginning of this 

proposed rule. In addition, any person 

may buy a copy of the transcript from 

the transcribing reporter. 

D. Submission of Comments 

DOE will accept comments, data, and 

information regarding this proposed 

rule no later than the date provided in 

the DATES section at the beginning of 

this proposed rule. Interested parties 

may submit comments, data, and other 

information using any of the methods 

described in the ADDRESSES section at 

the beginning of this document. 

Submitting comments via 

www.regulations.gov. The 

www.regulations.gov web page will 

require you to provide your name and 

contact information. Your contact 

information will be viewable to DOE 

Building Technologies staff only. Your 

contact information will not be publicly 

viewable except for your first and last 

names, organization name (if any), and 

submitter representative name (if any). 

If your comment is not processed 

properly because of technical 

difficulties, DOE will use this 

information to contact you. If DOE 

cannot read your comment due to 

technical difficulties and cannot contact 

you for clarification, DOE may not be 

able to consider your comment. 

However, your contact information 

will be publicly viewable if you include 

it in the comment itself or in any 

documents attached to your comment. 

Any information that you do not want 

to be publicly viewable should not be 

included in your comment, nor in any 

document attached to your comment. 

Otherwise, persons viewing comments 

will see only first and last names, 

organization names, correspondence 

containing comments, and any 

documents submitted with the 

comments. 

Do not submit to www.regulations.gov 

information for which disclosure is 

restricted by statute, such as trade 

secrets and commercial or financial 

information (hereinafter referred to as 

Confidential Business Information 

(‘‘CBI’’)). Comments submitted through 

www.regulations.gov cannot be claimed 

as CBI. Comments received through the 

website will waive any CBI claims for 

the information submitted. For 

information on submitting CBI, see the 

Confidential Business Information 

section. 

DOE processes submissions made 

through www.regulations.gov before 

posting. Normally, comments will be 

posted within a few days of being 

submitted. However, if large volumes of 

comments are being processed 

simultaneously, your comment may not 

be viewable for up to several weeks. 

Please keep the comment tracking 

number that www.regulations.gov 

provides after you have successfully 

uploaded your comment. 

Submitting comments via email. 

Comments and documents submitted 

via email, hand delivery/courier, or 

postal mail also will be posted to 

www.regulations.gov. If you do not want 

your personal contact information to be 

publicly viewable, do not include it in 

your comment or any accompanying 

documents. Instead, provide your 

contact information in a cover letter. 

Include your first and last names, email 

address, telephone number, and 

optional mailing address. The cover 

letter will not be publicly viewable as 

long as it does not include any 

comments. 

Include contact information each time 

you submit comments, data, documents, 

and other information to DOE. No faxes 

will be accepted. 

Comments, data, and other 

information submitted to DOE 

electronically should be provided in 

PDF (preferred), Microsoft Word or 

Excel, WordPerfect, or text (ASCII) file 

format. Provide documents that are not 

secured, that are written in English, and 

that are free of any defects or viruses. 

Documents should not contain special 

characters or any form of encryption 

and, if possible, they should carry the 

electronic signature of the author. 

Campaign form letters. Please submit 

campaign form letters by the originating 

organization in batches of between 50 to 

500 form letters per PDF or as one form 

letter with a list of supporters’ names 

compiled into one or more PDFs. This 

reduces comment processing and 

posting time. 

Confidential Business Information. 

Pursuant to 10 CFR 1004.11, any person 

submitting information that he or she 

believes to be confidential and exempt 

by law from public disclosure should 

submit via email, postal mail, or hand 

delivery/courier two well-marked 

copies: One copy of the document 

marked ‘‘confidential’’ including all the 

information believed to be confidential, 

and one copy of the document marked 

‘‘non-confidential’’ with the information 

believed to be confidential deleted. DOE 

will make its own determination about 

the confidential status of the 

information and treat it according to its 

determination. 

It is DOE’s policy that all comments 

may be included in the public docket, 

without change and as received, 

including any personal information 

provided in the comments (except 

information deemed to be exempt from 

public disclosure). 

E. Issues on Which DOE Seeks Comment 

Although DOE welcomes comments 

on any aspect of this proposal, DOE is 

particularly interested in receiving 

comments and views of interested 

parties concerning the following issues: 

Issue 1: DOE requests comment on its 

assumption that the proposed test 

procedure amendments for residentialduty commercial water heaters are not 

expected to impact the efficiency 

ratings. 

Issue 2: DOE requests comment and 

information on whether integrated heat 

pump water heaters are capable of 

meeting the same hot water loads as 

commercial electric storage water 

heaters that use electric resistance 

elements. 

Issue 3: DOE requests comment on its 

proposed revisions to notes to the table 

of energy conservation standards in 10 

CFR 431.110. 

Issue 4: DOE seeks comments on the 

extraordinary venting cost adder. 

Specifically, DOE seeks data to estimate 

the fraction of consumers that might 

incur extraordinary costs, and the level 

of such extraordinary costs. 

Issue 5: DOE seeks input on actual 

historical shipments for residential-duty 

gas-fired storage water heaters, gas-fired 

storage-type instantaneous water 

heaters, and for hot water supply 

boilers. 

Issue 6: DOE seeks additional actual 

historical shipment information for 

commercial gas-fired instantaneous 

tankless water heaters covering the 

period between 2015 and 2020 to 

supplement the data provided in 

response to the withdrawn NOPR. 

Issue 7: DOE seeks historical 

shipments data dividing shipments 

between condensing and noncondensing efficiencies, for all product 

types that comprise the subject of this 

rulemaking. 

Issue 8: DOE seeks comment on the 

availability of systems that can be built 

by plumbing multiple individual water 

heaters together to achieve the same 

level of hot water delivery capacity. 

Issue 9: DOE seeks input on the 

production facility and manufacturing 

process changes required as a result of 

potential amended standards for each 

equipment category. DOE also requests 


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input on the costs associated with those 

facility and manufacturing changes. 

Issue 10: DOE seeks comment on 

whether manufacturers expect 

manufacturing capacity constraints 

would limit equipment availability to 

customers in the timeframe of the 

amended standard compliance date 

(2026). 

Issue 11: DOE requests information 

regarding the impact of cumulative 

regulatory burden on manufacturers of 

CWH equipment associated with 

multiple DOE standards or productspecific regulatory actions of other 

Federal agencies. Additionally, where 

industry-wide constraints exist as a 

result of other overlapping regulatory 

actions, DOE requests stakeholders help 

identify and quantify those constraints. 

Issue 12: DOE seeks comment on the 

number of small manufacturers 

producing covered CWH equipment. 

Issue 13: DOE seeks comment on 

types of costs and magnitude of costs 

small manufacturers would incur as 

result of the amended standards 

proposed for CWH equipment and the 

codification of standards for commercial 

electric instantaneous water heaters. 

VIII. Approval of the Office of the 

Secretary 

The Secretary of Energy has approved 

publication of this notice of proposed 

rulemaking and announcement of 

public meeting. 

List of Subjects in 10 CFR Part 431 

Administrative practice and 

procedure, Confidential business 

information, Incorporation by reference, 

Test procedures, Reporting and 

recordkeeping requirements. 

Signing Authority 

This document of the Department of 

Energy was signed on May 4, 2022, by 

Kelly J. Speakes-Backman, Principal 

Deputy Assistant Secretary for Energy 

Efficiency and Renewable Energy, 

pursuant to delegated authority from the 

Secretary of Energy. That document 

with the original signature and date is 

maintained by DOE. For administrative 

purposes only, and in compliance with 

requirements of the Office of the Federal 

Register, the undersigned DOE Federal 

Register Liaison Officer has been 

authorized to sign and submit the 

document in electronic format for 

publication, as an official document of 

the Department of Energy. This 

administrative process in no way alters 

the legal effect of this document upon 

publication in the Federal Register. 

Signed in Washington, DC, on May 5, 2022. 

Treena V. Garrett, 

Federal Register Liaison Officer, U.S. 

Department of Energy. 

For the reasons set forth in the 

preamble, DOE is proposing to amend 

part 431 of chapter II, subchapter D of 

title 10, Code of Federal Regulations, as 

set forth below: 

PART 431—ENERGY EFFICIENCY 

PROGRAM FOR CERTAIN 

COMMERCIAL AND INDUSTRIAL 

EQUIPMENT 

■ 1. The authority citation for part 431 

continues to read as follows: 

Authority: 42 U.S.C. 6291–6317; 28 U.S.C. 

2461 note. 

■ 2. Amend § 431.105 by: 

■ a. Revising paragraph (a); 

■ b. In paragraph (c)(1), removing 

‘‘§ 431.102’’ and adding in its place, 

‘‘§§ 431.102; 431.110’’; and 

■ c. In paragraph (c)(2), removing 

‘‘§ 431.102t’’ and adding in its place, 

‘‘§§ 431.102; 431.110’’. 

The revision reads as follows: 

§ 431.105 Materials incorporated by 

reference. 

(a) Certain material is incorporated by 

reference into this subpart with the 

approval of the Director of the Federal 

Register in accordance with 5 U.S.C. 

552(a) and 1 CFR part 51. To enforce 

any edition other than that specified in 

this section, DOE must publish a 

document in the Federal Register and 

the material must be available to the 

public. All incorporation by reference 

(IBR) approved material is available for 

inspection at DOE, and at the National 

Archives and Records Administration 

(NARA). Contact DOE at: The U.S. 

Department of Energy, Office of Energy 

Efficiency and Renewable Energy, 

Building Technologies Program, Sixth 

Floor, 950 L’Enfant Plaza SW, 

Washington, DC 20024, (202) 586–9127, 

Buildings@ee.doe.gov, www.energy.gov/ 

eere/buildings/building-technologiesoffice. For information on the 

availability of this material at NARA, 

email: fr.inspection@nara.gov, or go to: 

www.archives.gov/federal-register/cfr/ 

ibr-locations.html. The material may be 

obtained from the sources in the 

following paragraphs of this section. 

* * * * * 

■ 3. Revise § 431.110 to read as follows: 

§ 431.110 Energy conservation standards 

and their effective dates. 

(a) (1) Each commercial storage water 

heater, instantaneous water heater, and 

hot water supply boiler (excluding 

residential-duty commercial water 

heaters) must meet the applicable 

energy conservation standard level(s) as 

specified in table 1 to this paragraph. 

Any packaged boiler that provides 

service water that meets the definition 

of ‘‘commercial packaged boiler’’ in 

subpart E of this part, but does not meet 

the definition of ‘‘hot water supply 

boiler’’ in this subpart, must meet the 

requirements that apply to it under 

subpart E of this part. 

(2) Water heaters and hot water 

supply boilers with a rated storage 

volume greater than 140 gallons 

described in table 1 to this paragraph 

need not meet the standby loss 

requirement if: 

(i) The tank surface area is thermally 

insulated to R–12.5 or more, as 

determined using ASTM C177–13 or 

C518–15 (both incorporated by 

reference; see § 431.105) 

(ii) A standing pilot light is not used; 

and 

(iii) For gas-fired or oil-fired storage 

water heaters, they have a flue damper 

or fan-assisted combustion. 

TABLE 1 TO § 431.110(a)—COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS

Equipment Size 

Energy conservation standards a

Minimum thermal 

efficiency (equipment 

manufactured on and 

after October 9, 2015) 

Minimum thermal 

efficiency (equipment 

manufactured on and 

after [Compliance 

date of amended 

standards]) 

Maximum standby loss 

(equipment manufactured on 

and after October 29, 2003) 

Maximum standby loss 

(equipment manufactured on 

and after [compliance date of 

amended standards]) 

Electric storage water heaters .............. All ............ N/A N/A 0.30 + 27/Vm (%/h) ............... 0.30 + 27/Vm (%/h) 

Gas-fired storage water heaters and 

storage-type instantaneous water 

heaters.

All ............ 80% 95% Q/800 + 110(Vr)1⁄2 (Btu/h) .... 0.86 × [Q/800 + 110(Vr)1⁄2] 

(Btu/h) 

Oil-fired storage water heaters ............. All ............ 80% 80% Q/800 + 110(Vr)1⁄2 (Btu/h) .... Q/800 + 110(Vr)1⁄2 (Btu/h) 

Electric instantaneous water heaters b .. <10 gal .... 80% 80% N/A ........................................ N/A 

≥10 gal .... 77% 77% 2.30 + 67/Vm (%/h) ............... 2.30 + 67/Vm (%/h) 


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TABLE 1 TO § 431.110(a)—COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS—Continued 

Equipment Size 

Energy conservation standards a

Minimum thermal 

efficiency (equipment 

manufactured on and 

after October 9, 2015) 

Minimum thermal 

efficiency (equipment 

manufactured on and 

after [Compliance 

date of amended 

standards]) 

Maximum standby loss 

(equipment manufactured on 

and after October 29, 2003) 

Maximum standby loss 

(equipment manufactured on 

and after [compliance date of 

amended standards]) 

Gas-fired instantaneous water heaters 

and hot water supply boilers.

<10 gal ....

≥10 gal ....

80% 

80% 

96% 

96% 

N/A ........................................

Q/800 + 110(Vr)1⁄2 (Btu/h) ....

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h) 

Oil-fired instantaneous water heater 

and hot water supply boilers.

<10 gal ....

≥10 gal ....

80% 

78% 

80% 

78% 

N/A ........................................

Q/800 + 110(Vr)1⁄2 (Btu/h) ....

N/A 

Q/800 + 110(Vr)1⁄2 (Btu/h) 

aVm is the measured storage volume, and Vr is the rated storage volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10 CFR 429.44.n bThe compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994. 

(b) Each unfired hot water storage 

tank manufactured on and after October 

29, 2003, must have a minimum thermal 

insulation of R–12.5. 

(c) Each residential-duty commercial 

water heater must meet the applicable 

energy conservation standard level(s) in 

table 2 to this paragraph. Additionally, 

to be classified as a residential-duty 

commercial water heater, a commercial 

water heater must meet the following 

conditions: 

(1) If the water heater requires 

electricity, it must use a single-phase 

external power supply; and 

(2) The water heater must not be 

designed to heat water to temperatures 

greater than 180 °F 

TABLE 2 TO § 431.110(C)—RESIDENTIAL-DUTY COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS

Equipment Specifications Draw pattern 

Uniform energy factor a

Equipment manufactured 

before [compliance date of 

amended standards]) 

Equipment manufactured 

after [compliance date of 

amended standards] 

Gas-fired storage ................ >75 kBtu/hr and ≤105 kBtu/hr and ≤120 gal .... Very Small .......................... 0.2674¥(0.0009 × Vr) ...... 0.5374¥(0.0009 × Vr) 

Low ..................................... 0.5362¥(0.0012 × Vr) ...... 0.8062¥(0.0012 × Vr) 

Medium ............................... 0.6002¥(0.0011 × Vr) ...... 0.8702¥(0.0011 × Vr) 

High .................................... 0.6597¥(0.0009 × Vr) ...... 0.9297¥(0.0009 × Vr) 

Oil-fired storage .................. >105 kBtu/hr and ≤140 kBtu/hr and ≤120 gal .. Very Small .......................... 0.2932¥(0.0015 × Vr) ...... 0.2932¥(0.0015 × Vr) 

Low ..................................... 0.5596¥(0.0018 × Vr) ...... 0.5596¥(0.0018 × Vr) 

Medium ............................... 0.6194¥(0.0016 × Vr) ...... 0.6194¥(0.0016 × Vr) 

High .................................... 0.6470¥(0.0013 × Vr) ...... 0.6470¥(0.0013 × Vr) 

Electric instantaneous ......... >12 kW and ≤58.6 kW and ≤2 gal ................... Very Small .......................... 0.80 ................................... 0.80 

Low ..................................... 0.80 ................................... 0.80 

Medium ............................... 0.80 ................................... 0.80 

High .................................... 0.80 ................................... 0.80 

aVr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. 

[FR Doc. 2022–10011 Filed 5–18–22; 8:45 am] 

BILLING CODE 6450–01–P 


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