[Federal Register Volume 88, Number 193 (Friday, October 6, 2023)]
[Rules and Regulations]
[Pages 69686-69824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20392]
[[Page 69685]]
Vol. 88
Friday,
No. 193
October 6, 2023
Part II
Department of Energy
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10 CFR Part 431
Energy Conservation Program: Energy Conservation Standards for
Commercial Water Heating Equipment; Final Rule
Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules
and Regulations
[[Page 69686]]
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: Final rule.
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SUMMARY: The Energy Policy and Conservation Act, as amended (``EPCA''),
prescribes energy conservation standards for various consumer products
and certain commercial and industrial equipment, including Commercial
Water Heating (``CWH'') equipment. EPCA also requires the U.S.
Department of Energy (``DOE'') to periodically review standards. In
this final rule, DOE is adopting amended energy conservation standards
for CWH equipment.
DATES: The effective date of this rule is December 5, 2023. Compliance
with the amended standards established for CWH equipment in this final
rule is required on and after October 6, 2026.
ADDRESSES: The docket for this rulemaking, which includes Federal
Register notices, public meeting attendee lists and transcripts,
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, not all documents listed in
the index may be publicly available, such as information that is exempt
from public disclosure.
The docket web page can be found at www.regulations.gov/docket/EERE-2021-BT-STD-0027. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.
For further information on how to review the docket, contact the
Appliance and Equipment Standards Program staff at (202) 287-1445 or by
email: [email protected].
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: [email protected].
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: [email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Synopsis of the Final Rule
A. Benefits and Costs to Consumers
B. Impact on Manufacturers
C. National Benefits and Costs
D. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for CWH Equipment
C. Deviation From Appendix A
III. General Discussion
A. General Comments
1. Clear and Convincing Threshold
2. Analytical Structure and Inputs
3. Final Selection of Standards Levels
B. Scope of Coverage
1. Oil-Fired Commercial Water Heating Equipment
2. Unfired Hot Water Storage Tanks
3. Electric Instantaneous Water Heaters
4. Commercial Heat Pump Water Heaters
5. Electric Storage Water Heaters
6. Instantaneous Water Heaters and Hot Water Supply Boilers
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared To Increase in Price (LCC
and PBP)
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
G. Revisions to Notes in Regulatory Text
H. Certification, Compliance, and Enforcement Issues
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Definitions
2. Equipment Classes
a. Storage-Type Instantaneous Water Heaters
b. Venting for Gas-Fired Water Heating Equipment
c. Tankless Water Heaters and Hot Water Supply Boilers
d. Gas-Fired and Oil-Fired Storage Water Heaters
e. Grid-Enabled Water Heaters
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. Manufacturing Markups and Manufacturer Selling Price
9. Shipping Costs
D. Markups Analysis
1. Distribution Channels
2. Comments on the May 2022 CWH ECS NOPR
3. Markups Used in This Final Rule
E. Energy Use Analysis
F. Life-Cycle Cost and Payback Period Analysis
1. Equipment Cost
2. Installation Cost
a. Data Sources
b. Condensate Removal and Disposal
c. Vent Replacement
d. Extraordinary Venting Cost Adder
e. Common Venting
f. Vent Sizing/Material Cost
g. Masonry Chimney/Chimney Relining
h. Downtime During Replacement
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
a. Maintenance Costs
b. Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
10. Embodied Emissions and Recycling Costs
11. LCC Model Error Messages and Other
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. Electrification Trends
5. Shipments to Residential Consumers
6. Final Rule Shipment Model
H. National Impact Analysis
1. Product 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. Conversion Costs and Stranded Assets
d. Manufacturer Markup Scenarios
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
[[Page 69687]]
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 Emissions Impacts
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. Direct Impacts on 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 Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for CWH Equipment
Standards
2. Annualized Benefits and Costs of the Adopted Standards
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
B. Review Under the Regulatory Flexibility Act
1. Need For, and Objectives of, the Rule
2. Significant Issues Raised in Response to the IRFA
3. Description and Estimate of the Number of Small Entities
Affected
4. Description and Estimate of Compliance Requirements
5. 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. Congressional Notification
VII. Approval of the Office of the Secretary
I. Synopsis of the Final Rule
The Energy Policy and Conservation Act, Public Law 94-163, as
amended (``EPCA''),\1\ authorizes DOE to regulate the energy efficiency
of a number of consumer products and certain industrial equipment. (42
U.S.C. 6291-6317) Title III, Part C 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
rulemaking.
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\1\ All 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), which reflect the last statutory amendments that impact
Parts A and A-1 of EPCA.
\2\ For editorial reasons, upon codification in the U.S. Code,
Part C was re-designated Part A-1.
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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 6 years. (42 U.S.C. 6313(a)(6)(A)-(C))
In accordance with these and other statutory provisions discussed
in this document, DOE analyzed the benefits and burdens of trial
standard levels (TSLs) for CWH equipment. The TSLs and their associated
benefits and burdens are discussed in detail in sections V.A-C of this
section. As discussed in section V.C of this section, DOE has
determined that TSL 3 represents the maximum improvement in energy
efficiency that is technologically feasible and economically justified.
DOE is adopting amended energy conservation standards for certain
classes of CWH equipment. The adopted 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 adopted
standards 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 codifying standards for electric instantaneous
CWH equipment from EPCA into the Code of Federal Regulations (``CFR'').
Finally, DOE is amending the footnotes to tables of energy conservation
standards at 10 CFR 431.110 to clarify existing regulations for CWH
equipment. The adopted standards for electric instantaneous CWH
equipment and changes to the footnotes are also shown in Table I.1.
Table I.1--Adopted Energy Conservation Standards for Commercial Water Heating Equipment Except for Residential-
Duty Commercial Water Heaters
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Energy conservation standards (%) \a\
-----------------------------------------
Minimum
Equipment Size thermal
efficiency Maximum standby loss **
\b\ (%)
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Gas-fired storage water heaters and All........................ 95 0.86 x [Q/800 + 110(Vr)\1/
storage-type instantaneous water heaters. 2\] (Btu/h).
Electric instantaneous water heaters \c\. <10 gal.................... 80 N/A.
>=10 gal................... 77 2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters and <10 gal.................... 96 N/A.
hot water supply boilers except storage- >=10 gal................... 96 Q/800 + 110(Vr)\1/2\ (Btu/
type instantaneous water heaters. h).
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\a\ Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input in Btu/
h, as determined pursuant to 10 CFR 429.44.
\b\ 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.
\c\ The compliance date for these energy conservation standards is January 1, 1994.
[[Page 69688]]
Table I.2--Adopted Energy Conservation Standards for Gas-Fired Residential-Duty Commercial Water Heaters
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Uniform energy factor
Equipment Specification * Draw pattern ** [dagger]
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Gas-fired Residential-Duty Storage... >75 kBtu/h and <=105 Very Small............. 0.5374 - (0.0009 x Vr).
kBtu/h and <=120 gal Low.................... 0.8062 - (0.0012 x Vr).
and <=180 [deg]F. Medium................. 0.8702 - (0.0011 x Vr).
High................... 0.9297 - (0.0009 x Vr).
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* 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 [deg]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.
[dagger] 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 summarizes DOE's evaluation of the economic impacts of
the adopted standards on consumers of CWH equipment, as measured by the
average life-cycle cost (``LCC'') savings and the simple payback period
(``PBP'').\3\ The analysis inputs are described in section IV of this
document. 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.6 of this
document).
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\3\ The average LCC savings refer to consumers that are affected
by a standard and are measured relative to the efficiency
distribution in the no-new-standards case, which depicts the market
in the compliance year in the absence of new or amended standards
(see section IV.F.8 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.9 of this document).
Table I.3--Impacts of Adopted Energy Conservation Standards on Consumers
of CWH Equipment
------------------------------------------------------------------------
Average LCC
Equipment savings Simple payback
(2022$) period (years)
------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage- 367 5.8
Type Instantaneous.....................
Residential-Duty Gas-Fired Storage...... 119 7.2
Gas-Fired Instantaneous Water Heaters 898 9.3
and Hot Water Supply Boilers...........
--Instantaneous, Gas-Fired Tankless..... 120 8.9
--Instantaneous Water Heaters and Hot 1,570 9.4
Water Supply Boilers...................
------------------------------------------------------------------------
DOE's analysis of the impacts of the adopted 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 (2023-2055). 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 $212.8 million in
2022$. Under the adopted standards, the change in INPV is estimated to
range from -17.7 percent to -8.3 percent, which is approximately
equivalent to a decrease of $37.6 million to a decrease of $17.7
million, respectively. In order to bring products into compliance with
amended standards, it is estimated that the industry would incur total
conversion costs of $42.7 million.
DOE's analysis of the impacts of the adopted 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
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\4\ All monetary values in this document are expressed in 2022
dollars, and, where appropriate, are discounted to 2023 unless
explicitly stated otherwise.
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DOE's analyses indicate that the adopted 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 5.6 percent relative to the
energy use of these products in the case without amended standards
(referred to as the ``no-new-standards case'').
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\5\ The 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.2 of this document.
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The cumulative net present value (``NPV'') of total consumer
benefits of the standards for CWH equipment ranges from $0.43 billion
(at a 7-percent discount rate) to $1.43 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 adopted standards for CWH equipment are projected
to yield significant environmental benefits. DOE estimates that the
standards would result in cumulative emission reductions (over the same
period as for energy savings) of 38 million metric
[[Page 69689]]
tons (``Mt'') \6\ of carbon dioxide (``CO2''), 0.10 thousand
tons of sulfur dioxide (``SO2''), 103 thousand tons of
nitrogen oxides (``NOX''), 479 thousand tons of methane
(``CH4''), 0.08 thousand tons of nitrous oxide
(``N2O''), and -0.001 tons of mercury (``Hg'').\7\ The
estimated cumulative reduction in CO2 emissions through 2030
amounts to 1.5 million metric tons, which is equivalent to the
emissions resulting from the annual electricity use of more than
295,000 homes.
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\6\ A 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 2023 (``AEO2023''). AEO2023 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
AEO2023 assumptions that effect air pollutant emissions.
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DOE estimates the value of 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'').\8\ DOE used interim SC-GHG values
developed by an Interagency Working Group on the Social Cost of
Greenhouse Gases (``IWG'').\9\ 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 SC-GHG at a
3-percent discount rate over the 30-year analysis period is $2.30
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.
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\8\ To monetize the benefits of reducing GHG emissions this
analysis uses the interim 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 the Social Cost of
Greenhouse Gases (IWG).
\9\ See 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?
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DOE estimated the monetary health benefits from SO2 and
NOX emissions reduction, using benefit per ton estimates
from EPA's Benefits Mapping and Analysis Program, as discussed in
section IV.L of this document.\10\ DOE estimates the present value of
the health benefits would be $1.36 billion using a 7-percent discount
rate, and $3.29 billion using a 3-percent discount. DOE is currently
only monetizing health benefits from changes in fine particulate matter
(``PM2.5'') and (for NOX) ozone precursors, but
will continue to assess the ability to monetize other effects such as
health benefits from reductions in direct PM2.5 emissions.
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\10\ Estimating the Benefit per Ton of Reducing PM2.5
Precursors from 21 Sectors. www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
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Table I.4 summarizes the monetized benefits and costs expected to
result from the standards for CWH equipment. There are other important
unquantified effects, including certain unquantified climate benefits,
unquantified public health benefits from the reduction of toxic air
pollutants and other emissions, unquantified energy security benefits,
and distributional effects, among others. In the table, total benefits
for both the 3-percent and 7-percent cases are presented using the
average GHG social costs with 3-percent discount rate. DOE does not
have a single central SC-GHG point estimate and it emphasizes the
importance and value of considering the benefits calculated using all
four SC-GHG estimates. The estimated total net benefits using each of
the four SC-GHG estimates are presented in section V.B.6 of this
document.
Table I.4--Present Value of Monetized Benefits and Costs of Adopted
Energy Conservation Standards for CWH Equipment
[TSL 3]
------------------------------------------------------------------------
Benefits Billion 2022$
------------------------------------------------------------------------
3% Discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 2.76
Climate Benefits *...................................... 2.30
Health Benefits **...................................... 3.29
Total Monetized Benefits [dagger]....................... 8.35
Consumer Incremental Product Costs [Dagger]............. 1.33
Net Monetized Benefits.................................. 7.02
Change in Producer Cashflow (INPV [Dagger][Dagger])..... (0.04)-(0.02)
------------------------------------------------------------------------
7% Discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings......................... 1.28
Climate Benefits * (3% discount rate)................... 2.30
Health Benefits **...................................... 1.36
Total Monetized Benefits [dagger]....................... 4.94
Consumer Incremental Product Costs [Dagger]............. 0.85
Net Monetized Benefits.................................. 4.09
Change in Producer Cashflow (INPV [Dagger][Dagger])..... (0.04)-(0.02)
------------------------------------------------------------------------
Note: This table presents the present value of costs and benefits
associated with commercial water heaters shipped in 2026-2055. These
results include benefits (including climate and health 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
SC-CO2, SC-CH4, and SC-N2O (model average at 2.5 percent, 3 percent,
and 5 percent discount rates; 95th percentile at 3 percent discount
rate) (see section IV.L of this final rule). Together these represent
the global 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; however, DOE emphasizes the importance and
value of considering the benefits calculated using all four sets of SC-
GHG estimates. To monetize the benefits of reducing GHG emissions,
this analysis uses the interim 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 IWG.
[[Page 69690]]
** 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.
[dagger] 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.
[Dagger] Costs include incremental equipment costs as well as
installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life
cycle costs analysis and national impact analysis as discussed in
detail below. See sections IV.F and IV.H of this document. DOE's NIA
includes all impacts (both costs and benefits) along the distribution
chain beginning with the increased costs to the manufacturer to
manufacture the equipment and ending with the increase in price
experienced by the consumer. DOE also separately conducts a detailed
analysis on the impacts on manufacturers (the MIA). See section IV.J
of this document. In the detailed MIA, DOE models manufacturers'
pricing decisions based on assumptions regarding investments,
conversion costs, cashflow, and margins. The MIA produces a range of
impacts, which is the rule's expected impact on the INPV. The change
in INPV is the present value of all changes in industry cash flow,
including changes in production costs, capital expenditures, and
manufacturer profit margins. Change in INPV is calculated using the
industry weighted average cost of capital value of 9.1% that is
estimated in the manufacturer impact analysis (see chapter 12 of the
final rule TSD for a complete description of the industry weighted
average cost of capital). For commercial water heaters, those values
are -$38 million and -$18 million. DOE accounts for that range of
likely impacts in analyzing whether a TSL is economically justified.
See section V.C of this document. DOE is presenting the range of
impacts to the INPV under two markup scenarios: the Preservation of
Gross Margin scenario, which is the manufacturer markup scenario used
in the calculation of Consumer Operating Cost Savings in this table,
and the Preservation of Operating Profit Markup scenario, where DOE
assumed manufacturers would not be able to increase per-unit operating
profit in proportion to increases in manufacturer production costs.
DOE includes the range of estimated INPV in the above table, drawing
on the MIA explained further in section IV.J, of this document to
provide additional context for assessing the estimated impacts of this
rule to society, including potential changes in production and
consumption, which is consistent with OMB's Circular A-4 and E.O.
12866. If DOE were to include the INPV into the net benefit
calculation for this final rule, the net benefits would range from
$6.98 billion to $7.0 billion at 3-percent discount rate and would
range from $4.05 billion to $4.07 billion at 7-percent discount rate.
Parentheses ( ) indicate negative values.
The benefits and costs of the adopted 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 monetized value of the benefits of
GHG, NOX, and SO2 emission reductions, all
annualized.\11\
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\11\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2023, 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 2023. 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.
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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 adopted standards are also calculated based
on the lifetime of CWH equipment shipped in 2026-2055. Total benefits
for both the 3-percent and 7-percent cases are presented using the
average GHG social costs with 3-percent discount rate. Estimates of SC-
GHG values are presented for all four discount rates in section V.B.6.
DOE considered any lessening of competition that would be likely to
result from new or amended standards. As discussed in section III.F.1.e
of this document, EPCA directs the Attorney General of the United
States (``Attorney General'') to determine the impact, if any, of any
lessening of competition likely to result from a proposed standard and
to transmit such determination in writing to the Secretary within 60
days of the publication of a proposed rule, together with an analysis
of the nature and extent of the impact. To assist the Attorney General
in making this determination, DOE provided the Department of Justice
(``DOJ'') with copies of the proposed rule and the TSD for review. In
its assessment letter responding to DOE, DOJ concluded that the
proposed energy conservation standards for CWH equipment are unlikely
to have a significant adverse impact on competition. DOE is publishing
the Attorney General's assessment at the end of this final rule.
Table I.5 presents the total estimated monetized benefits and costs
associated with the adopted standard, expressed in terms of annualized
values.
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 monetized cost of the
standards adopted in this rule is $78 million per year in increased
equipment costs, while the estimated annual benefits are $118 million
in reduced equipment operating costs, $125 million in monetized climate
benefits, and $125 million in monetized health benefits. In this case,
the net monetized benefit would amount to $289 million per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated monetized cost of the standards is $72 million per year in
increased equipment costs, while the estimated annual monetized
benefits are $149 million in reduced operating costs, $125 million in
monetized climate benefits, and $178 million in monetized air pollutant
health benefits. In this case, the net benefit would amount to $380
million per year.
Table I.5--Annualized Monetized Benefits and Costs of Adopted Energy Conservation Standards for CWH Equipment
[TSL 3]
----------------------------------------------------------------------------------------------------------------
Million 2022$/year
-----------------------------------------------
Category Low-net- High-net-
Primary benefits benefits
estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% Discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 149 144 154
[[Page 69691]]
Climate Benefits *.............................................. 125 124 128
Health Benefits **.............................................. 178 177 197
Total Monetized Benefits [dagger]............................... 452 445 479
Consumer Incremental Product Costs [Dagger]..................... 72 72 74
Net Monetized Benefits.......................................... 380 373 405
Change in Producer Cashflow (INPV [Dagger][Dagger])............. (4)-(2) (4)-(2) (4)-(2)
----------------------------------------------------------------------------------------------------------------
7% Discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings................................. 118 115 122
Climate Benefits * (3% discount rate)........................... 125 124 128
Health Benefits **.............................................. 125 124.4 138.1
Total Monetized Benefits [dagger]............................... 368 364 388
Consumer Incremental Product Costs [Dagger]..................... 78 78.2 80.0
Net Monetized Benefits.......................................... 289 285 308
Change in Producer Cashflow (INPV [Dagger][Dagger])............. (4)-(2) (4)-(2) (4)-(2)
----------------------------------------------------------------------------------------------------------------
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.
The primary, low net benefits, and high net benefits estimates utilize projections of energy prices from the
AEO2023 Reference case, low economic growth case, and high economic growth case, respectively. Note that the
benefits and costs may not sum to the net benefits due to rounding.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
final rule). For presentational purposes of this table, the climate benefits associated with the average SC-
GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering
the benefits calculated using all four sets of SC-GHG estimates. To monetize the benefits of reducing GHG
emissions, this analysis uses the interim 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 IWG.
** 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.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life cycle costs analysis and national
impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's NIA includes
all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the
manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer.
DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J
of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions
regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is
the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry
cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The
annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that
is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete
description of the industry weighted average cost of capital). For commercial water heaters, those values are
$4 million and -$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is
economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV
under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup
scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of
Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit
operating profit in proportion to increases in manufacturer production costs. DOE includes the range of
estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J,
to provide additional context for assessing the estimated impacts of this rule to society, including potential
changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were
to include the INPV into the annualized net benefit calculation for this final rule, the annualized net
benefits would range from $376 million to $378 million at 3-percent discount rate and would range from $285
million to $287 million at 7-percent discount rate. Parentheses ( ) indicate negative values.
DOE's analysis of the national impacts of the adopted standards is
described in sections IV.H, IV.K, and IV.L of this document.
D. Conclusion
DOE concludes, based on clear and convincing evidence as presented
in the following sections, that the standards adopted in this final
rule are technologically feasible and economically justified, and would
result in significant additional conservation of energy. Specifically,
with regards to technological feasibility, CWH equipment achieving the
adopted standard levels are already commercially available for all
equipment classes covered by this final rule. As for economic
justification, DOE's analysis shows that the benefits of the proposed
standard exceed, to a great extent, the burdens of the adopted
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
monetized cost of the proposed standards for CWH equipment is $78
million per year in increased equipment costs, while the estimated
annual monetized benefits are $118 million in reduced equipment
operating costs, $125 million in monetized climate benefits from GHG
reductions, and $125 million in monetized air pollutant health
benefits. In this case, the net monetized benefit would amount to $289
million per year.
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.\12\ For
example, some
[[Page 69692]]
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. Accordingly, DOE evaluates
the significance of energy savings on a case-by-case basis. As
previously mentioned, the standards are projected to result in
estimated full-fuel cycle (``FFC'') national energy savings of 0.70
quad for equipment purchased in the 30-year period that begins in the
anticipated year of compliance with the amended standards (2026-2055),
the equivalent of the electricity use of approximately 28 million homes
in 1 year. In addition, they are projected to reduce CO2
emissions by 38 Mt. Based on these findings, DOE has determined the
energy savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6313(a)(6)(A)(ii)(II).
A more detailed discussion of the basis for these conclusions is
contained in the remainder of this document and the accompanying TSD.
---------------------------------------------------------------------------
\12\ Procedures, 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).
---------------------------------------------------------------------------
II. Introduction
The following section briefly discusses the statutory authority
underlying this final rule, as well as some of the relevant historical
background related to the establishment of standards for CWH equipment.
CWH equipment includes storage water heaters, instantaneous water
heaters, and unfired hot water storage tanks. Such equipment (besides
unfired hot water storage tanks, which only store hot water) may use
gas, oil, or electricity to heat potable water. CWH equipment generally
have higher input ratings than residential water heaters and are used
in a wide variety of applications (including restaurants, hotels,
multi-family housing, schools, convention centers, etc.). Some CWH
equipment (in particular, residential-duty CWH) may also be used in
certain residential applications.
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
final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation
standards for CWH equipment. (42 U.S.C. 6313(a)(5)) Pursuant to EPCA,
DOE is to 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 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 efficiency 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. 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 air-conditioning 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)) 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).\14\ (42 U.S.C. 6313(a)(6)(C))
---------------------------------------------------------------------------
\13\ 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. American Public
Gas Association v. U.S. Dep't of Energy, 22 F.4th 1018, 1025 (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)).
\14\ In relevant part, subparagraph (B) specifies that: (1) in
making a determination of economic justification, DOE must consider,
to the maximum extent practicable, the benefits and burdens of an
amended standard based on the seven criteria described in EPCA; (2)
DOE may not prescribe any standard that increases the energy use or
decreases the energy efficiency of a covered product; and (3) DOE
may not prescribe any standard that interested persons have
established by a preponderance of evidence is likely to result in
the unavailability in the United States of any 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)(ii)-(iii))
---------------------------------------------------------------------------
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
greatest extent practicable, the following seven statutory factors:
[[Page 69693]]
(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.
(42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII))
Further, EPCA, as codified, 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 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, as codified, 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
1. Current Standards
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.3 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 residential-duty
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 Residential-Duty
Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
---------------------------------------------
Minimum thermal
efficiency
Product Size (equipment Maximum standby loss
manufactured on (equipment manufactured
and after October on and after October 29,
9, 2015) ** *** 2003) ** [dagger]
(%)
----------------------------------------------------------------------------------------------------------------
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/
>155,000 Btu/h........... 80 h).
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/
>155,000 Btu/h........... *** 80 h).
Q/800 + 110(Vr)\1/2\ (Btu/
h).
Electric instantaneous water heaters <10 gal.................. 80 N/A.
[Dagger]. >=10 gal................. 77 2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters <10 gal.................. 80 N/A.
and hot water supply boilers. >=10 gal................. 80 Q/800 + 110(Vr)\1/2\ (Btu/
h).
Oil-fired instantaneous water heater <10 gal.................. 80 N/A.
and hot water supply boilers. >=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.
[dagger] 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.
[Dagger] 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
final rule, 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.3 of this final rule.
[[Page 69694]]
Table II.2--Current Energy Conservation Standards for Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
Uniform energy
Equipment Specification * Draw pattern ** factor Compliance date
----------------------------------------------------------------------------------------------------------------
Gas-fired storage............ >75 kBtu/h and Very Small....... 0.2674 - December 29, 2016.
<=105 kBtu/h Low.............. (0.0009 x Vr).
and <=120 gal. Medium........... 0.5362 -
High............. (0.0012 x Vr).
0.6002 -
(0.0011 x Vr).
0.6597 -
(0.0009 x Vr).
Oil-fired storage............ >105 kBtu/h and Very Small....... 0.2932 -
<=140 kBtu/h Low.............. (0.0015 x Vr)
and <=120 gal. Medium........... 0.5596 -
High............. (0.0018 x Vr).
0.6194 -
(0.0016 x Vr).
0.6740 -
(0.0013 x Vr).
Electric instantaneous....... >12 kW and Very Small....... 0.80
<=58.6 kW and Low.............. 0.80...........
<=2 gal. 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 [deg]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. History of Standards Rulemaking for CWH Equipment
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 residential-duty 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.C of this document.
In a notice of proposed rulemaking (``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
more-stringent energy conservation standards than the ASHRAE
levels.\15\ In a final
[[Page 69695]]
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 (i.e., commercial water
heating equipment other than commercial oil-fired storage water
heaters) based on an update 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.
---------------------------------------------------------------------------
\15\ ASHRAE 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 (Inch-Pound; 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.
---------------------------------------------------------------------------
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=EERE-2014-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.
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 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.\16\ 86
FR 3873 (Jan. 15, 2021). However, DOE has subsequently 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 consumer utility under EPCA. 86 FR 73947 (Dec. 29, 2021). In
conducting the analysis for this final rule, 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.
---------------------------------------------------------------------------
\16\ 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). Consequently, although the May
2016 CWH ECS NOPR was withdrawn, the information obtained through
those earlier rounds of public comment, information exchange, and
data gathering have been considered in this rulemaking.
---------------------------------------------------------------------------
On May 19, 2022, DOE published a NOPR (``May 2022 CWH ECS NOPR'')
for CWH equipment, in which DOE proposed amended energy conservation
standards for certain classes of CWH equipment and proposed to codify
existing standards from EPCA for commercial electric instantaneous
water heaters (except for residential-duty commercial electric
instantaneous water heaters).\17\ 87 FR 30610. DOE received 28 comments
in response to the May 2022 CWH ECS NOPR from the interested parties
listed in Table II.3.
---------------------------------------------------------------------------
\17\ On July 20, 2022, DOE published a notice that re-opened the
comment period for the May 2022 CWH ECS NOPR to allow comments to be
submitted until August 1, 2022. 87 FR 43226.
Table II.3--May 2022 CWH ECS NOPR Written Comments
----------------------------------------------------------------------------------------------------------------
Comment No. in
Commenter(s) Abbreviation the docket Commenter type *
----------------------------------------------------------------------------------------------------------------
Sean Erwin................................ Sean Erwin...................... 6............... I
The American Gas Association (``AGA''), Joint Gas Commenters............ 7, 14, 34....... UA
American Public Gas Association
(``AGPA''), National Propane Gas
Association (``NPGA''), Spire Inc., and
ONE Gas, Inc.
JJM Alkaline Technologies................. JJM Alkaline.................... 10.............. M
Atmos Energy Corporation.................. Atmos Energy.................... 11, 36.......... U
American Public Gas Association........... APGA............................ 13 **........... UA
Bradford White Corporation................ Bradford White.................. 12, 23.......... M
Law Offices of Barton Day, PLLC Barton Day Law.................. 13 **........... U
(representing Spire).
American Society for Testing and Materials ASTM............................ 15.............. EA
[[Page 69696]]
Suburban Propane Partners, L.P............ Suburban Propane................ 16.............. U
Center for Climate and Energy Solutions, Joint Climate Commenters........ 19.............. EA
Institute for Policy Integrity at New
York University School of Law, Montana
Environmental Information Center, Natural
Resources Defense Council, Sierra Club,
Union of Concerned Scientists.
Bock Water Heaters, Inc................... Bock Water Heaters.............. 20.............. M
Northwest Power and Conservation Council.. NWPCC........................... 21.............. EA
A.O. Smith Corporation.................... A.O. Smith...................... 22.............. M
Rheem Manufacturing Company............... Rheem........................... 24.............. M
WM Technologies, LLC...................... WM Technologies................. 25.............. M
Patterson-Kelley, LLC..................... Patterson-Kelley................ 26.............. M
California Energy Commission.............. CEC............................. 27.............. EA
Plumbing-Heating-Cooling Contractors PHCC............................ 28.............. TA
National Association.
Appliance Standards Awareness Project Joint Advocates................. 29.............. EA
(ASAP), American Council for an Energy-
Efficient Economy (ACEEE), Natural
Resources Defense Council (NRDC), and
Rocky Mountain Institute (RMI).
New York State Energy Research and NYSERDA......................... 30.............. EA
Development Authority.
Air-Conditioning, Heating, and AHRI............................ 31.............. TA
Refrigeration Institute.
The Aluminum Association; American Coke The Associations................ 32.............. TA
and Coal Chemicals Institute; American
Farm Bureau Federation; American Gas
Association; American Public Gas
Association; Council of Industrial Boiler
Owners; Independent Petroleum Association
of America; National Mining Association;
U.S. Chamber of Commerce.
California Investor-Owned Utilities CA IOUs......................... 33, 37.......... UA
(Pacific Gas and Electric Company (PG&E),
San Diego Gas and Electric (SDG&E), and
the Southern California Edison (SCE)).
Northwest Energy Efficiency Alliance...... NEEA............................ 35.............. EA
----------------------------------------------------------------------------------------------------------------
* TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer,
OS: other stakeholder, U: utility, utilities filing jointly, or utility representative, UA: utility
association, and I: individual.
** Comments raised during the June 23, 2022 public meeting. Docket No. 13 refers to the public meeting
transcript.
A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\18\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the June 23, 2022 public meeting, DOE cites the written comments
throughout this final rule. Any oral comments provided during the
webinar that are not substantively addressed by written comments are
summarized and cited separately throughout this final rule.
---------------------------------------------------------------------------
\18\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for CWH equipment. (Docket No. EERE-
2021-BT-STD-0027, which is maintained at www.regulations.gov). The
references are arranged as follows: (commenter name, comment docket
ID number, page of that document).
---------------------------------------------------------------------------
C. Deviation From Appendix A
On June 21, 2023, DOE published a test procedure final rule for
consumer water heaters and residential-duty commercial water heaters.
88 FR 40406. 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
DOE has determined that the test procedure amendments for residential-
duty commercial water heaters will not impact the current efficiency
ratings. 88 FR 40406, 40412. See section III.C of this document for
additional information on the test procedures for CWH equipment.
III. General Discussion
DOE developed this final rule after considering oral and written
comments, data, and information from interested parties that represent
a variety of interests. The following discussion addresses issues
raised by these commenters.
A. General Comments
This section summarizes general comments received from interested
parties regarding rulemaking timing and process.
1. Clear and Convincing Threshold
In response to the May 2022 CWH ECS NOPR in which DOE concluded
that it had clear and convincing evidence to propose a standard more
stringent than ASHRAE Standard 90.1, the Joint Gas Commenters stated
that since CWH are included in ASHRAE Standard 90.1, DOE must presume
that standards more stringent than the ASHRAE standards would not be
desirable in the absence of clear and convincing evidence that they are
justified. Therefore, the commenters argued that DOE must resolve
doubts against the need for more stringent standards, but in developing
the NOPR, the Joint Gas Commenters stated that DOE has done the
opposite. (Joint Gas Commenters, No. 34 at pp. 15-16) The Joint Gas
Commenters stated that DOE should follow the rulings of ASHRAE 90.1,
and noted that to date, the ASHRAE committee has not considered an
increase in the energy efficiency of these commercial water heaters in
order to lower overall energy consumption. (Joint Gas Commenters, No.
34 at p. 34)
Contrary to the Joint Gas Commenters' suggestion, EPCA does not
require DOE to presume that standards more stringent than the ASHRAE
standards would not be desirable in the absence of clear and convincing
evidence that they are justified. As noted by the Joint Gas Commenters
and as discussed in section II.A of this final rule, 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)) In making the
[[Page 69697]]
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)). 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. Dept of Energy, 22 F. 4th at 1025 (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)). However, this standard
does not require a presumption of desirability for the efficiency
levels in ASHRAE 90.1. As noted previously, DOE has determined that
there is clear and convincing evidence for standards for CWH equipment
more stringent than those found in ASHARE 90.1. A discussion of DOE's
consideration of the statutory factors is contained in section V of
this final rule.
2. Analytical Structure and Inputs
In response to both the withdrawn May 2016 CWH ECS NOPR and the May
2022 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
final rule and modified its assumptions and inputs as necessary to
account for the information or feedback provided by industry
representatives. Section IV of this final rule provides details on
DOE's updates to its various analyses.
Addressing the specific analysis that supports this rulemaking,
Bradford White highlighted that some sources are as many as 14 years
old and urged DOE to conduct updated surveys and studies in order to
inform these major regulatory policy decisions. (Bradford White, No. 23
at p. 7) Additionally, the Joint Gas Commenters stated that in several
cases, DOE lacks the data required to provide or support critical
inputs to its analysis. (The Joint Gas Commenters, No. 34 at p. 16) In
response, DOE uses the most recent data sources available at the time
of the analysis whenever possible, as discussed further throughout
section IV of this document.
The Joint Gas Commenters urged DOE to implement recommendations
from the recent National Academies of Sciences, Engineering, and
Medicine (``NASEM'') report into all its appliance rulemakings,
highlighting recommendations 2-2, 3-5, 4-1, 4-13, and 4-14 as the most
pertinent. (Joint Gas Commenters, No. 34 at pp. 38-39) In response, the
Department notes that the rulemaking process for standards of covered
products and equipment are outlined at appendix A to subpart C of 10
CFR part 430 (``appendix A''), and DOE periodically examines and
revises these provisions in separate rulemaking proceedings. The
recommendations in the NASEM report, which pertain to the processes by
which DOE analyzes energy conservation standards, will be considered in
a separate rulemaking considering all product categories.
PHCC noted that this rule impacts the resources of PHCC; therefore,
PHCC feels it is necessary to present the contractors' perspective on
these issues. PHCC stated that certain customers would bear
extraordinary costs as a result of this rule, and claimed that PHCC's
members will ultimately be the ones to shoulder the effects to those
consumers by finding economical solutions for their clients. (PHCC, No.
28 at p. 11) In response, DOE recognizes that contractors play an
important role in helping consumers purchase and install CWH equipment.
DOE appreciates the perspective of all interested parties, including
contractors and realizes that contractors will likely be responsible
for characterizing the costs for new and replacement equipment
installations to their customers as well as assisting in identifying
and implementing economical solutions. DOE's evaluation of the cost and
benefits of this final rule is discussed in section V of this document,
including impacts on certain consumers.
3. Final Selection of Standards Levels
DOE received several comments expressing general approval or
disapproval for the proposed standards.
The Joint Advocates, NYSERDA, the CA IOUs, and CEC supported the
proposed standards. (Joint Advocates, No. 29 at p. 1; NYSERDA No. 30 at
p. 2; CEC, No. 27 at p. 1; CA IOUs, No. 33 at p. 1) NYSERDA stated that
DOE should act swiftly to finalize the proposed standards and noted
that these standards will play an important role in meeting their State
climate goals through decarbonization of the water heater market.
(NYSERDA, No. 30 at pp. 1-2)
The CA IOUs expressed general support for DOE's proposal to
increase the efficiency requirements of commercial gas water heaters to
condensing levels and suggested that market data show that the market
is ready for this increase. (CA IOUs, No. 33 at p. 1) NEEA also stated
support for DOE's proposal to increase the efficiency levels of CWH
equipment to reflect condensing performance, and asserted that they
find the DOE analysis to be sound. They similarly commented in support
of DOE's proposal to increase the efficiency requirements of gas-fired
residential-duty commercial storage products. They explained that doing
so will realize the energy efficiency goals that were intended with the
residential standard, and would harmonize commercial and residential
requirements. (NEEA, No. 35 at p. 1)
The Joint Advocates echoed similar support for the proposed
standards and mentioned that updated standards for commercial gas-fired
water heaters are long overdue as they have not been amended since
2001. (The Joint Advocates, No. 29 at p. 1)
The CEC stated that based on data from its Modernized Appliance
Efficiency Database System (``MAEDbS''), CWH products meeting the
proposed standard are already certified for sale in California; 50
percent (969 out of 1936) meet the proposed requirement of 95 percent
thermal efficiency and 24 percent (299 out of 1259) of the
instantaneous models meet the proposed 96 percent thermal efficiency.
The CEC argues that these data indicate no market barrier to the
proposed standards. (CEC, No. 27 at p. 4) The CEC also encouraged DOE
to finalize its proposal to phase out non-condensing technology, thus
closing what they consider a significant loophole for standards of
residential-duty CWHs. Id. at p. 3. Further, according to CEC, MAEDbS
includes 324 residential-duty commercial gas water heaters, and none
have storage above 55 gallons. Therefore, CEC claims that residential
water heaters in California's market are exploiting this ``loophole''
since consumer gas ratings with input ratings above 75,000 Btu/hour
would only be subject to a condensing standard if the storage volume is
greater than 55 gallons. Id. The CA IOUs supported DOE's proposed
standards, and raised the same concern as CEC, stating that the energy
efficiency standards for residential gas storage water heaters with a
capacity greater than 55 gallons are currently higher than the
requirements for commercial residential-duty gas storage heaters of
similar capacity. As a result,
[[Page 69698]]
they claim that the greater-than-55-gallon-capacity segment of the
residential gas storage water heater market is exclusively served by
commercial residential-duty products. (CA IOUs, No. 33 at p. 2) Rheem
also suggested that DOE evaluate the proposed efficiency levels for
residential-duty commercial gas-fired storage water heaters to ensure
more equitable treatment for these products and consumer water heaters
with a rated storage volume greater than 55 gallons because, they said,
these categories can be used for the same applications. (Rheem, No. 24
at pp. 3-4)
Sean Erwin commented that DOE's proposal is agreeable, but also
explained various types of solar water heating systems that could be a
cost-effective means of generating hot water. (Erwin, No. 6 at p. 1)
A.O. Smith also commented noting support for DOE's proposal to move
the minimum energy conservation standards for CWH to a standard that
will require the utilization of condensing technology for gas-fired
equipment, inclusive of both the proposed thermal efficiency and
standby loss levels, with some modifications. (A.O. Smith, No. 22 at
pp. 2, 7) A.O. Smith commented that that the adoption of this equipment
will not only assist in reducing greenhouse gas emissions, but will
also help property and business owners save money on their monthly
energy bills, as well as preserve flexibility for businesses to install
water heating equipment that is the most economical to meet the
intended utility. A.O. Smith also recommended that high-efficiency gas-
fired water heating equipment remain available for commercial
customers. Id. at pp. 2-3. A.O. Smith suggested several modifications
to the standards proposed in the May 2022 CWH ECS NOPR, which are
discussed in the appropriate sections on this final rule. Id. at pp. 2-
5. Additionally, Rheem raised concerns that many equipment sizes are
not available at the proposed thermal efficiency levels and that, in
some cases, the proposed levels are at the maximum technologically
feasible (``max-tech'') levels evaluated. Rheem also stated that the
DOE's analysis has not shown that the proposed TSL is economically
viable for the entire range of equipment sizes. (Rheem, No. 24 at p. 2)
Several commenters suggested that DOE should analyze a 94 percent
thermal efficiency level for gas-fired water heaters (A.O. Smith, No.
22 at pp. 2-4; AHRI, No. 31 at p. 2; Rheem, No. 24 at p. 3). These
comments, and DOE's response, are discussed in more detail in section
IV.C.4.a of this document. A.O. Smith also proposed an adjustment to
the proposed efficiency level for gas-fired residential-duty commercial
water heaters, as discussed in section IV.C.4.c of this document.
AHRI raised concerns that, because gas-fired storage and gas-fired
instantaneous equipment are used in similar settings, setting higher
efficiency standards for one class (i.e., gas-fired instantaneous water
heaters and hot water supply boilers) inappropriately disadvantages
that class in the marketplace compared to the other class(es).
Therefore, AHRI requested the Department align the efficiency standards
for all gas-fired water heaters. (AHRI, No. 31 at p. 2). Bock Water
Heaters asserted their agreement with comments submitted by AHRI. (Bock
Water Heaters, No. 20 at p. 2) DOE received a similar comment from
Bradford White expressing concern that DOE has proposed more stringent
requirements for gas-fired instantaneous water heaters, including hot
water supply boilers, for greater than 10 gallons. Bradford White
recommended that the thermal efficiency requirements for gas-fired
instantaneous and hot water supply boilers be harmonized with that for
gas-fired storage water heaters. They further noted that this approach
would allow DOE to avoid unfairly biasing the marketplace towards one
technology over another. (Bradford White, No. 23 at p. 3)
The Joint Gas Commenters argued that a condensing standard would
have numerous adverse impacts on building owners, including required
building modifications, impacts on other equipment, impacts on occupied
spaces or building aesthetics, inconvenience or loss to business as a
result of additional time spent replacing equipment, additional
installation services, or overall impracticality. (Joint Gas
Commenters, No. 34 at pp. 9-10) They added that the proposed standards
would violate the ``unavailability'' provision of EPCA and would leave
many purchasers without gas products suitable for their needs. (Joint
Gas Commenters, No. 34 at p. 39) WM Technologies called on DOE to
rigorously review the inputs and the calculations in the LCC analysis
because, they suggest, under the anti-backsliding provision of EPCA,
the damage to the end user would be irreparable should the Department
promulgate condensing requirements for commercial water heaters. WM
Technologies asserted that such requirements would exceed the existing
infrastructures' ability to adapt to condensing products and appliances
in many places across the country, resulting in the unavailability of
the product due to an increase in the minimum efficiency, violating the
unavailability clause of EPCA (EPACT). As an example, WM Technologies
stated that row houses in many urban East Coast regions do not have the
ability to vent through an outside wall, which is a requirement for
many condensing products. (WM Technologies, No. 25 at pp. 5-6) Atmos
Energy stated that DOE should allow the continued manufacture and
availability of water heaters that meet consumer needs (including
businesses) and suggested that the elimination of affordable products
would undermine the goals of the energy efficiency program overall.
(Atmos Energy, No. 36 at pp. 1-2) DOE has provided more specific
responses to these comments throughout this document, but specifically,
DOE addresses comments regarding the downtime during replacement in
section IV.F.2.h of this document, comments regarding the
unavailability of noncondensing commercial water heaters in section
IV.A.2.b of this document and comments regarding the unavailability of
certain equipment sizes in IV.C.4.a of this document. Because there are
comments relating to regional differences, DOE would note that the
analysis accounts for the impact of entering water temperature on loads
by type of building, both of which are linked to region by the location
variables included in the source databases (see section IV.E of this
document). However, DOE would specifically note that row houses tend to
be comprised of single family dwellings that DOE believes are far more
likely to use consumer water heaters or potentially a consumer boiler
with unfired storage tanks rather than the CWH equipment that is the
subject of this final rule.
Atmos Energy stated that where insufficient data exist, DOE should
conclude it lacks evidence to support its proposed rule. It further
offered its opinion that more data are needed to assess the proposed
rule, including distributions of equipment by storage volume and input
capacities, frequencies of installations that are infeasible or costly,
installed costs, and customers' annual fuel use. Atmos Energy stated
that real-world data exist for this information and stated that DOE
should collect actual data rather than relying on estimates, though
Atmos Energy does not provide any such data or suggested sources. To
ensure standards are economically justified, Atmos Energy stated DOE
must fully
[[Page 69699]]
assess LCC, potential for fuel switching, economic benefits of
efficiency improvements, and actual installation costs. (Atmos Energy,
No. 36 at pp. 2, 4)
As already noted, DOE uses the most current data available when
performing rulemaking analyses, such as this CWH analysis. Atmos Energy
is correct in the assertion that considerable data exist, but overlooks
the fact that much of these data exists in forms not in the public
domain. For example, consumers receive quotes for installing new or
replacement water heaters, but such information is proprietary to the
parties involved, and even if not proprietary, DOE is unaware of any
existing service or process that aggregates such information. Contrary
to the position Atmos Energy takes the fact that this information may
exist in some form does not make this information necessarily available
or usable to the general public or to DOE. Some of the data that Atmos
Energy claims DOE should collect and use are not reasonably available
to DOE. DOE uses publicly available and referenceable cost data, along
with information collected during manufacturer interviews, to develop
models to estimate such information in a fashion reasonably consistent
with installation practice. For example, DOE uses U.S. Census data for
developing contractor markup for installation costs; manufacturer
shipment, DOE's Compliance Certification Management System, and Energy
Star data to develop equipment efficiency distributions; and price data
from RSMeans and/or from available and referenceable public sources. In
short, DOE's method is to collect and use the best current data that
are available to DOE and to develop analyses to estimate in a
reasonable fashion the costs and benefits of proposed energy
conservation standards. The specific analyses listed by Atmos Energy
are addressed within this final rule document.
As a general response to the comments in this section, DOE notes
that it may prescribe an energy conservation standard more stringent
than the level for such equipment in ASHRAE Standard 90.1, as amended,
only if ``clear and convincing evidence'' shows that a more-stringent
standard would result in significant additional conservation of energy
and is technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) 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)) As described in section V.A of this document, DOE
typically evaluates potential amended standards for products and
equipment by grouping individual efficiency levels for each class into
TSLs. The use of TSLs allows DOE to identify and consider, among other
things, market cross elasticity from consumer purchasing decisions that
may change when different standard levels are set. DOE typically
evaluates potential amended standards for products and equipment by
grouping individual efficiency levels for each class into TSLs.
Furthermore, as described in section V.C of this document, DOE
considered the impacts of amended standards for CWH equipment at each
TSL, with respect to the aforementioned criteria, and determined that
there is clear and convincing evidence that the adopted standards are
both technologically feasible and economically justified and save a
significant amount of energy. The benefits and costs of the standard
levels adopted in this final rule are discussed in section V.C.2 of
this document.
B. Scope of Coverage
1. Oil-Fired Commercial Water Heating Equipment
As discussed in the May 2022 CWH ECS NOPR, DOE has determined that
amended efficiency standards (in terms of both thermal efficiency and
standby loss) for commercial oil-fired storage water heaters (including
residential-duty oil-fired storage water heaters) would not be
warranted and did not analyze amended efficiency standards for this
equipment in this final rule. 87 FR 30610, 30622.
Similarly, DOE did not analyze amended standards for commercial
oil-fired instantaneous water heaters and hot water supply boilers in
the May 2022 CWH ECS NOPR because the energy savings possible from
amended standards for such equipment is expected to be negligible. Id.
Based on this rationale and because DOE has not received information
suggesting otherwise, DOE has continued to exclude commercial oil-fired
water heating equipment from the analysis conducted for this final
rule.
2. Unfired Hot Water Storage Tanks
Unfired hot water storage tanks are a class of CWH equipment. In
response to the May 2022 CWH ECS NOPR, the CA IOUs stated that the
efficiency requirements for unfired hot water storage tanks have been
unrevised since 2001 and recommended that DOE develop performance
requirements for unfired hot water storage tanks, which they said are
often incorporated into heat pump water heating systems. (The CA IOUs,
No. 33 at pp. 3-4) The CA IOUs requested that DOE develop performance-
based testing and standards for unfired hot water storage tanks,
stating that a performance-based metric would allow for innovation and
would reward manufacturers who insulate well. Id.
On May 24, 2022, DOE published a notice of final determination not
to amend energy conservation standards for unfired hot water storage
tanks. 87 FR 31359. Because amended energy conservation standards for
unfired hot water storage tanks were considered as part of that
proceeding, they were not considered further for this final rule.
Similarly, amended test procedures for unfired hot water storage tanks
and other CWH equipment will be considered in a separate rulemaking.
3. 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 final
rule, DOE is codifying these standards in its regulations at 10 CFR
431.110.
In the May 2022 CWH ECS NOPR, DOE also discussed allowing the 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 oil-fired 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 initially
[[Page 69700]]
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 tentatively concluded that including electric
instantaneous water heaters in these provisions would provide
manufacturers with flexibility as to how the storage volume is
determined. 87 FR 30622. However, DOE is considering these
certification changes in a separate rulemaking. Therefore, DOE is not
enacting any changes at 10 CFR 429.72(e) to allow the use of a
calculation-based method for determining the storage volume of electric
instantaneous water heaters in this final rule.
Additionally, as discussed in the May 2022 CWH ECS NOPR, DOE notes
that because electric instantaneous water heaters typically use
electric resistance heating, which is highly efficient, the thermal
efficiency of these units already approaches 100 percent. DOE has also
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 in this final rule.\19\
---------------------------------------------------------------------------
\19\ In the May 2022 CWH ECS NOPR, DOE noted that it did not
analyze amended energy conservation standards for residential-duty
electric instantaneous water heaters (87 FR 30631), which are a
separate equipment class within DOE's regulations for CWH equipment.
See 79 FR 40541, 40588 (Jul. 11, 2014). Consistent with the May 2022
CWH ECS NOPR, DOE did not analyze amended standards for residential-
duty electric instantaneous water heaters in this final rule for
similar reasons as those stated for not analyzing standards for
electric instantaneous water heaters.
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4. Commercial Heat Pump Water Heaters
In response to the May 2022 CWH ECS NOPR, DOE received multiple
comments regarding DOE's proposal not to consider energy conservation
standards for commercial heat pump water heaters. Rheem supported DOE's
decision not to consider heat pump technology in the current analysis
but encouraged DOE to review and amend the equipment class structure to
include heat pump water heaters as a technology option for specific
applications in a future rulemaking. (Rheem, No. 24 at p. 5) In
contrast, NEEA and the CA IOUs requested that DOE include heat pump
water heaters in its analysis. Both NEEA and the CA IOUs mentioned that
these technologies represent the current max-tech efficiency levels for
CWH. (NEEA, No. 35 at p. 2; the CA IOUs, No. 33 at p. 3) NEEA also
stated that an analysis of current commercial water heating is
incomplete without this consideration. (NEEA, No. 35 at p. 2) Further,
NEEA, the CA IOUs, and the Joint Advocates noted that many commercial-
duty heat pump products from several different manufacturers are
available on the market already, and NEEA and the CA IOUs provided
numerous citations to specific models. (NEEA, No. 35 at p. 2; the CA
IOUs, No. 33 at p. 3; Joint Advocates, No. 29 at p. 14) The CA IOUs
further commented that commercial electric heat pump water heaters have
already been successfully and efficiently providing hot water to
commercial buildings across the country and can include electric
resistance elements that allow them to deliver comparable peak demand
performance to commercial electric-resistance-only storage water
heaters. (CA IOUs, No. 33 at p. 3)
WM Technologies and Patterson-Kelley argued that they are not aware
of compressor-based water heating products which can operate at the
water temperatures required to achieve commercial hot water flow rate
at adequate temperatures, let alone sanitizing conditions, and added
that if such products become available, the sizing of various internal
components would be significantly different than heat pumps utilized
for other applications. (WM Technologies, No. 25 at p. 7; Patterson-
Kelley, No. 26 at p. 5) WM Technologies and Patterson-Kelley also
stated that if available, those products should be required to meet the
efficiencies at operating conditions of adequate hot water flow rate at
the required temperature. Id. Furthermore, WM Technologies said, if any
part of the heat pump system is located in unconditioned spaces, that
portion of the heat pump should be maintained at the worst-case
national temperature at which the product may experience during
efficiency testing. (WM Technologies, No. 25 at p. 7)
Rheem, AHRI, and Bradford White additionally suggested that it may
be difficult to meet the same hot water loads with an integrated heat
pump as with a commercial electric storage water heater. (AHRI, No. 31
at pp. 3-4; Rheem, No. 24 at p. 5; Bradford White, No. 23 at pp. 7-8)
The commenters further noted that heat pump water heaters typically
have a slower recovery time than commercial electric storage water
heaters and may also have difficulty reaching the same temperatures as
commercial electric storage water heaters without backup resistance
elements. Id. Further, Rheem and AHRI noted in particular that
integrated heat pump water heaters may have difficulty reaching
sanitizing temperatures. (AHRI, No. 31 at pp. 3-4; Rheem, No. 24 at p.
5) Rheem also noted that the larger footprint may limit replacement
opportunities and may result in a decrease in workspace (such as
kitchen space) as opposed to a decrease in mechanical room space.
(Rheem, No. 24 at p. 5) Furthermore, Bradford White stated that given
that most heat pump water heaters recover at a much slower rate,
additional storage capacity must be added to the hot water system,
which likely means that a split system heat pump water heater would be
used instead of an integrated heat pump water heater. (Bradford White,
No. 23 at p. 7)
DOE did not consider commercial integrated heat pump water heaters
in this final rule. 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. Similarly, based on the information currently
available and comments regarding the performance of heat pump water
heaters as compared to electric resistance water heaters in commercial
settings, it is uncertain if split-system heat pump water heaters can
serve all the applications currently filled by electric instantaneous
water heaters. Therefore, DOE is not analyzing this equipment in the
current analysis. However, DOE may analyze commercial heat pump water
heaters in a future rulemaking, at which time DOE will
[[Page 69701]]
consider the appropriate equipment class structure for commercial
electric water heaters, including commercial heat pump water heaters.
5. Electric Storage Water Heaters
In this rulemaking, DOE did not analyze 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. As
discussed in section III.B.4 of this document, DOE did not consider
commercial integrated heat pump water heaters as the max-tech for
electric storage water heaters at this time.
In the May 2022 CWH ECS NOPR, DOE concluded 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. In response to the May 2022 CWH ECS NOPR, Bock Water
Heaters indicated support for not amending the standby loss standard
for electric storage water heaters. (Bock Water Heaters, No. 20 at p.
1) Bradford White similarly supported DOE's decision not to change
standards for commercial electric storage, as there is no electric
resistance or insulation technology that would allow them to comply
with more stringent standards. (Bradford White, No. 23 at p. 3) DOE
maintains its conclusion originally stated in the May 2022 CWH ECS NOPR
and therefore, in this final rule, DOE did not further analyze and is
not adopting amended standby loss standards for electric storage water
heaters.
6. 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.\20\ 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 determined that such amended standards 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 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.
---------------------------------------------------------------------------
\20\ 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. DOE adopted a definition for
``storage-type instantaneous water heater'' in the November 2016 CWH
TP final rule. Id. at 79289-79290. Storage-type instantaneous water
heaters are discussed in section IV.A.2.a of this final rule.
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DOE has 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. (See section IV.C.7 of this document for further discussion of
the costs for instantaneous water heaters and hot water supply
boilers.) 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 final rule, which is
discussed further in section IV.C.3 of this document.
DOE also 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 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.
Bradford White commented in support of DOE's determination not to
establish standby loss standards for gas-fired instantaneous and hot
water supply boilers less than 10 gallons. (Bradford White, No. 23 at
p. 3) 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.
Bradford White commented that there is confusion in how different
types of products are characterized by DOE and stated that there
appears to be overlap in the structure of the proposed standards.
(Bradford White, No. 23 at p. 1) In particular, Bradford White stated
that gas-fired storage-type instantaneous water heaters and gas-fired
instantaneous water heaters are handled differently and that certain
products appear to fall into the two different categories with two
different sets of energy conservation standards. Id. AHRI stated that
it understands that the Department's intent is for the equipment class
of ``instantaneous water heaters and hot water supply boilers greater
than 10 gallons'' to refer specifically to hot water supply boilers
with storage tanks and circulating water heaters with an external
storage tank. AHRI stated that including separate standards for ``gas-
fired storage water heaters and storage-type instantaneous water
heaters'' and ``gas-fired instantaneous water heaters with a storage
capacity greater than or equal to 10 gallons'' in Table 1 to 10 CFR
431.110(a) of the May 2022 CWH ECS NOPR could cause market confusion by
creating unintentional overlap between these product types. (AHRI, No.
31 at pp. 2-3)
In response, DOE clarifies that in this final rule, it is adopting
a minimum thermal efficiency of 95 percent for gas-fired storage-
instantaneous water heaters and a minimum thermal efficiency of 96
percent for tankless water heaters and circulating water heaters and
hot water supply boilers. As discussed in section IV.A.2.a of this
document, gas-fired storage-type instantaneous water heaters were
analyzed together with gas-fired storage water heaters because of the
similarity of these types of equipment. Additionally, as discussed in
section IV.A.2.c 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, to reflect the differences between these types of equipment,
but they are part of the same equipment class (gas-fired instantaneous
water heaters and hot water supply boilers), and DOE is adopting the
same
[[Page 69702]]
minimum efficiency requirements for these equipment in this final rule.
Similarly, DOE notes that storage-type instantaneous water heaters are
instantaneous water heaters that include a storage tank with a storage
volume greater than or equal to 10 gallons. Other instantaneous water
heaters may also have greater than or equal to 10 gallons but if that
storage volume is included within the heat exchanger itself rather than
a storage tank, they are not considered storage-type instantaneous
water heaters.
C. Test Procedure
EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6314(a))
Manufacturers of covered products must use these test procedures to
certify to DOE that their product complies with energy conservation
standards and to quantify the efficiency of their product.
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.\21\
As discussed in the May 2022 CWH ECS NOPR, DOE analyzed standards for
residential-duty gas-fired storage water heaters in terms of UEF.
However, on January 11, 2022, DOE published a test procedure NOPR for
consumer water heaters and residential-duty commercial water heaters.
87 FR 1554. Subsequently, on July 14, 2022, DOE published a
supplemental NOPR (``SNOPR'') (``the July 2022 SNOPR'') proposing to
amend the test procedure for consumer water heaters and residential-
duty commercial water heaters. 87 FR 42270. Finally, on June 21, 2023,
DOE published the final rule (``the June 2023 TP Final Rule'') amending
the test procedure for consumer water heaters and residential-duty
commercial water heaters. 88 FR 40406.
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\21\ ``Thermal efficiency'' for an instantaneous water heater, a
storage water heater or a hot water supply boiler means the ratio of
the heat transferred to the water flowing through the water heater
to the amount of energy consumed by the water heater as measured
during the thermal efficiency test procedure prescribed in this
subpart. ``Standby loss'' means: (1) For electric commercial water
heating equipment (not including commercial heat pump water
heaters), the average hourly energy required to maintain the stored
water temperature expressed as a percent per hour (%/h) of the heat
content of the stored water above room temperature and determined in
accordance with appendix B or D to subpart G of part 431 (as
applicable), denoted by the term ``S''; or (2) For gas-fired and
oil-fired commercial water heating equipment, the average hourly
energy required to maintain the stored water temperature expressed
in British thermal units per hour (Btu/h) based on a 70 [deg]F
temperature differential between stored water and ambient room
temperature and determined in accordance with appendix A or C to
subpart G of part 431 (as applicable), denoted by the term ``SL.''
10 CFR 431.102.
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In response to the May 2022 CWH ECS NOPR, DOE received several
comments relating to the proposed test procedure amendments. A.O. Smith
stated that they do not anticipate any meaningful impact on future
energy efficiency ratings for residential-duty commercial water heaters
resulting from the proposed changes. (A.O. Smith, No. 22 at p. 5)
However, DOE also received several comments stating that the proposed
changes could cause impacts to the efficiency ratings of residential-
duty commercial water heaters. In particular, AHRI expressed concern
about changes to how effective storage volume is calculated, how
internal tank temperature is determined, the ramifications of
overheating on ratings, and the definition of demand response. (AHRI,
No. 31 at p. 3) Bradford White commented that they were still assessing
the potential impacts of the proposed test procedure amendments but
noted that a few of the proposed changes could possibly greatly impact
the efficiency ratings. (Bradford White, No. 23 at p. 7). Rheem
similarly raised concerns that the test procedure amendments proposed
in the July 2022 SNOPR could impact efficiency ratings for residential-
duty water heaters, and encouraged DOE to issue the final rule of the
consumer water heater test procedure at least 180 days prior to the
issuance of a CWH energy conservation standards rule, as recommended by
the Process Rule provisions in section (8)(d)(10) of appendix A to
subpart C of part 430. (Rheem, No. 24 at p. 4) The Joint Gas Commenters
stated that completing the residential-duty gas storage water heater
test procedure rulemaking before completing the CWH standards
rulemaking may be required by the Process Rule. (Joint Gas Commenters,
No. 34 at p. 37)
In response, as discussed in the June 2023 TP Final Rule, DOE has
concluded that the test procedure changes that were adopted in the June
2023 Final Rule will not alter the UEF ratings of residential-duty
water heaters. 88 FR 40406, 40412. In addition, DOE notes that it has
discretion to deviate from the procedures in appendix A in certain
cases. DOE's rationale for deviating from the 180day requirement in
appendix A is discussed in section II.C of this document.
D. 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 are 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 those means for improving efficiency are
technologically feasible. DOE considers technologies incorporated in
commercially available products or in working prototypes to be
technologically feasible. See generally 10 CFR 431.4; sections
6(b)(3)(i) and 7(b)(1) of appendix A to 10 CFR part 430 subpart C
(``Process Rule'').
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; (3) adverse impacts on
health or safety and (4) unique-pathway proprietary technologies. 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). 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 standards considered in this
rulemaking. For further details on the screening analysis for this
rulemaking, see chapter 4 of the final rule 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 or in working prototypes. The max-tech levels
that DOE determined for this rulemaking are described in section IV.C.4
of this final rule and in chapter 5 of the final rule TSD.
[[Page 69703]]
E. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy savings from application of the
TSL to CWH equipment purchased in the 30-year period that begins in the
year of compliance with the amended standards (2026-2055 for gas-fired
CWH equipment).\22\ The savings are measured over the entire lifetime
of CWH equipment purchased in the 30-year analysis period. DOE
quantified the energy savings attributable to each TSL as the
difference in energy consumption between each standards case and the
no-new-standards case. The no-new-standards 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.
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\22\ DOE also presents a sensitivity analysis that considers
impacts for equipment shipped in a 9-year period.
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DOE used its national impact analysis (``NIA'') spreadsheet models
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 products 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 FFC energy savings. The FFC
metric includes 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
conservation standards.\23\ DOE's approach is based on the calculation
of an FFC multiplier for each of the energy types used by covered
equipment.\24\ For more information on FFC energy savings, see section
IV.H.3 of this document.
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\23\ The 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).
\24\ Natural gas and electricity were the energy types analyzed
in the FFC calculations.
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2. Significance of Savings
To adopt any new or amended standards for a covered product, 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)) \25\
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\25\ 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.
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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.\26\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
this equipment on the energy infrastructure can be more pronounced than
equipment with relatively constant demand. Accordingly, DOE evaluates
the significance of energy savings on a case-by-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.
---------------------------------------------------------------------------
\26\ The 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 70892).
---------------------------------------------------------------------------
As stated, the standard levels adopted in this final rule are
projected to result in national energy savings of 0.70 quads. Based on
the amount of FFC savings, the corresponding reduction in emissions,
and need to confront the global climate crisis, DOE has determined
(based on the methodology described in section IV.E of this document
and the analytical results presented in section V.B.3.a of this
document) that there is clear and convincing evidence that the energy
savings from the standard levels adopted in this final rule are
``significant'' within the meaning of 42 U.S.C. 6313(a)(6)(A)(ii)(II).
F. Economic Justification
1. Specific Criteria
As noted previously, EPCA provides seven factors to be evaluated in
determining whether a potential energy conservation standard 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 Consumers
EPCA requires DOE to consider the economic impact of a standard on
manufacturers and the 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 potential amended standards on manufacturers, DOE conducts
an MIA, as discussed in section IV.J of this document. For the MIA, DOE
first uses an annual cash-flow approach to determine the quantitative
impacts. This step includes both a short-term 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 assessment over a 30-year period. 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 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 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 consumers
in the aggregate, DOE also calculates the national NPV of the economic
impacts applicable to a particular rulemaking. DOE also evaluates the
impacts of potential standards on identifiable subgroups of consumers
that may be affected disproportionately by a national standard.
b. Savings in Operating Costs Compared to Increase in Price (LCC and
PBP)
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, or in the initial charges for, or maintenance
expenses of, the covered product that are likely to result from a
[[Page 69704]]
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 its installation and sales tax) and the operating expense
(including energy, maintenance, and repair expenditures) discounted
over the lifetime of the equipment. The LCC analysis requires a variety
of inputs, such as product prices, product energy consumption, energy
prices, maintenance and repair costs, product lifetime, and discount
rates appropriate for consumers. To account for uncertainty and
variability in specific inputs, such as equipment lifetime and discount
rate, DOE uses a distribution of values, with probabilities attached to
each value. For its analysis, DOE assumes that 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 more-efficient product 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 for the considered efficiency levels are calculated
relative to the no-new-standards case that reflects projected market
trends in the absence of new or amended standards. DOE identifies the
percentage of 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 and PBP analysis is discussed in
further detail in section IV.F of this document.
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 document and chapter 10 of the final
rule TSD, DOE uses the NIA spreadsheet models to project national
energy savings.
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 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.b of
this document, DOE considered whether different venting technologies
should be considered a necessary feature.
Although the standards in this final rule would 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 has determined that it is not prohibited from
setting energy conservation standards that preclude non-condensing
technology and did not analyze separate equipment classes for non-
condensing and condensing CWH equipment in this final rule. A more
detailed explanation of DOE's determination may be found in section
IV.A.2 of this document.
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 standard. (See 42 U.S.C. 6313(a)(6)(B)(ii)(V))
To assist the Department of Justice (``DOJ'') in making such a
determination, DOE transmitted copies of its proposed rule and the NOPR
TSD to the Attorney General for review, with a request that the DOJ
provide its determination on this issue. In its assessment letter
responding to DOE, DOJ concluded that the proposed energy conservation
standards for CWH equipment are unlikely to have a significant adverse
impact on competition. DOE is publishing the Attorney General's
assessment at the end of this final rule.
f. Need for National Energy Conservation
DOE also considers the need for national energy and water
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 adopted standards are likely to provide improvements
to the security and reliability of the Nation's energy system.
Reductions in the demand for electricity also may result in reduced
costs for maintaining the reliability of the Nation's electricity
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 adopted standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and greenhouse gases (``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.\27\ 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 final rule and
TSD was performed in support of the cost-benefit analyses required by
Executive Order (``E.O.'') 12866, and is provided to inform the public
of the impacts of emissions reductions resulting from this rule. The
SC-GHG estimates were not factored into DOE's EPCA analysis of the need
for national energy and water conservation.
---------------------------------------------------------------------------
\27\ As discussed in section IV.L of this document, for the
purpose of complying with the requirements of E.O. 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 E.O. 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).
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[[Page 69705]]
g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may 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 consumers. These analyses include, but are not limited to, the 3-
year PBP contemplated under the rebuttable presumption test.
In addition, DOE routinely conducts an economic analysis that
considers the full range of impacts to 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.
G. Revisions to Notes in Regulatory Text
In the May 2022 CWH ECS NOPR, DOE proposed to modify the three
notes to the table of energy conservation standards in 10 CFR 431.110.
87 FR 30610, 30626-30627. First, DOE proposed to modify the note to the
table of energy conservation standards denoted by subscript ``a'' to
replace the term ``nameplate input rate'' with the term ``rated
input.'' DOE noted that this change ensures consistency in nomenclature
throughout DOE's regulations for CWH equipment. Id.
DOE also proposed in the May 2022 CWH ECS NOPR 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. However, the note is no longer needed because the specific
compliance date 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.
In the May 2022 CWH ECS NOPR, 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 damper'' was a typographical
error. 87 FR 30610, 30626-30627. This revised footnote, new footnote b
on Table 1 to 10 CFR 431.110(a), was inadvertently omitted in the May
2022 CWH ECS NOPR. DOE did not intend to remove this footnote and is
retaining that footnote in this final rule.
Finally, in the May 2022 CWH ECS NOPR, DOE proposed to add a
footnote to Table 1 at 10 CFR 431.110(a) (new footnote c) to clarify
that the compliance date for energy conservation standards for electric
instantaneous water heaters is January 1, 1994. 87 FR 30610, 306728. As
discussed in section III.B.3 of this document, DOE is codifying
standards for electric instantaneous water heaters that were originally
set by EPCA but were inadvertently omitted in DOE's regulations at 10
CFR 431.110.
In response to the May 2022 CWH ECS NOPR, Bradford White stated
that they support DOE's decision not to change the requirements for a
model's rated input. (Bradford White, No. 23 at p. 8) WM Technologies
and Patterson-Kelley also indicated support for using the term ``rated
input'', as long as the method to determine this value is unchanged.
They also encouraged DOE to maintain the ``b'' and ``c'' subscripts for
posterity to maintain chronological information. (WM Technologies, No.
25 at p. 7; Patterson-Kelley No. 26 at p. 5) In response, DOE notes
that the Electronic Code of Federal Regulations (eCFR) \28\ allows
users to access historical versions of the CFR by using the
``Timeline'' or ``Go to Date'' functions when viewing a page of the
CFR. Therefore, because chronological information about changes to the
CFR remain available to the public, DOE does not consider it necessary
to retain these notes in the current version of the CFR.
---------------------------------------------------------------------------
\28\ The eCFR is available at ecfr.gov.
---------------------------------------------------------------------------
In footnote b(1), DOE is amending the text to refer to the existing
definition of R-value in Sec. 431.102, rather than refer directly to
industry standards in this note. This does not change the standards
regarding standby loss, or the thermal insulation requirement as
detailed in this note, but improves consistency and prevents future
discrepancies between Sec. 431.102 and Sec. 431.110. DOE is adopting
the changes to notes ``b'' and ``c'' as proposed in the May 2022 CWH
ECS NOPR, with this editorial revision.
H. 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). 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. 81 FR 34440, 34458-34459. In the May 2022 CWH ECS NOPR,
DOE explained that after considering comments from stakeholders related
to this topic, it decided not to propose changes to the requirements
regarding certification of storage volume or the related changes to the
equations for maximum standby loss. 87 FR 30610, 30628.
Bock and Bradford White indicated support for DOE's proposal not to
change the requirements regarding certification of storage volume for
storage-type water heaters. (Bock, No. 20 at p. 1; Bradford White, No.
23 at p. 8) After considering the comments, DOE is not adopting any
changes to the requirements regarding certification of storage volume
in this final rule.
Additionally, in response to the May 2022 CWH ECS NOPR, Rheem
recommended that the certification criteria at 10 CFR 429.44(c)(2) be
amended to require manufacturers to state whether a basic model is a
``storage-type instantaneous water heater.'' Rheem also recommended
that DOE should publish an example certification template. (Rheem, No.
24 at p. 3) In response, DOE notes that manufacturers of commercial
gas-fired and oil-fired instantaneous water heaters and hot water
supply boilers with storage capacity greater than or equal to 10
gallons are already required to certify whether the water heater
[[Page 69706]]
includes a storage tank with a storage volume greater than or equal to
10 gallons. 10 CFR 429.44(c)(2)(iv). Such units that include a storage
tank with a storage volume greater than or equal to 10 gallons would
meet DOE's definition of storage-type water heaters as set out at 10
CFR 431.102.
Lastly, in the May 2022 CWH ECS NOPR, DOE stated that it was not
proposing to establish equipment-specific certification requirements
for electric instantaneous water heaters, but may propose to establish
certification requirements for electric instantaneous water heaters in
future rulemakings. 87 FR 30610, 30628. DOE did not receive any
comments related to this topic and is not establishing certification
requirements specific to electric instantaneous water heaters in this
final rule.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this
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 savings 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.\29\ These spreadsheet tools are available on the DOE website
for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. Additionally, DOE used
output from the latest version of the Energy Information
Administration's (``EIA's'') Annual Energy Outlook (``AEO'') for the
emissions and utility impact analyses.
---------------------------------------------------------------------------
\29\ DOE uses a third spreadsheet tool, the Government
Regulatory Impact Model (``GRIM''), to assess the financial impacts
of potential new or amended standards on manufacturers.
---------------------------------------------------------------------------
A. Market and Technology Assessment
For the market and technology assessment for CWH equipment, DOE
gathered information in the market and technology assessment 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 includes 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 the scope of
the rulemaking and 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 in the following sections. See chapter 3 of
the final rule TSD for further discussion of the market and technology
assessment.
1. Definitions
EPCA includes the following categories of CWH equipment as 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.
Relating to these definitions, Rheem recommended that the
definition of ``storage-type instantaneous water heater'' at 10 CFR
431.102 should be based on ``rated storage volume'' and that the
certification criteria at 10 CFR 429.44 be amended to be based on
``measured storage volume.'' (Rheem, No. 24 at p. 3) DOE agrees that
basing the categorizations of storage-type instantaneous water heaters
based on the rated storage volume is consistent with the criteria DOE
uses to identify such equipment. Therefore, DOE is amending the
definition of ``storage-type instantaneous water heater'' at 10 CFR
431.102 to clarify that the storage volume refers to the rated storage
volume. However, as discussed in section III.H of this document, DOE
has decided not to amend its requirements regarding certification of
storage volume of commercial water heaters (including storage-type
instantaneous water heaters) in this final rule. Rheem also suggested
that DOE's requirements for non-storage-type commercial gas-fired
instantaneous water heaters at 10 CFR 429.44(C)(2)(iv) be changed so
that manufacturers are required to state whether a calculation-based
method
[[Page 69707]]
was used to determine the ``rated storage volume'' instead of the
``measured storage volume.'' (Rheem, No. 24 at p. 3) Consistent with
its decision not to address certification requirements in this final
rule, DOE is not making such clarification in this final rule. However,
DOE may consider a clarification to this certification language in a
separate rulemaking.
2. Equipment Classes
When evaluating and establishing energy conservation standards, DOE
divides covered equipment into equipment classes by the type of energy
used. DOE will also establish separate equipment classes if a group of
equipment has a capacity or other performance-related feature that
other equipment within such type do not have and such feature justifies
a different standard. (42 U.S.C. 6295(q); 42 U.S.C. 6316(a)) In
determining whether a performance-related feature justifies a different
standard, DOE considers such factors as the utility to the 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.2 of this
rulemaking, were considered as part of a separate proceeding and
therefore were not analyzed for this final rule. 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 residential-duty commercial water
heaters.\30\
---------------------------------------------------------------------------
\30\ Consumer water heaters are separately covered products that
are distributed in commerce for personal use or consumption by
individuals, as opposed to commercial applications. These products
generally have lower input ratings than commercial water heaters.
Energy conservation standards for consumer water heaters can be
found at 10 CFR 430.32(d), and the test procedure for these products
can be found at appendix E to subpart B of 10 CFR part 430.
Residential-duty commercial water heaters are commercial water
heater that meet additional criteria, including using only single-
phase electrical power (if they use electricity) and not being
designed to heat water at temperatures greater than 180 [deg]F, as
discussed in the footnotes to Table IV.2 of this document.
Table IV.1--Current Equipment Classes and Energy Conservation Standards for CWH Equipment Except for Residential-
Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
---------------------------------------------
Minimum thermal
efficiency
Equipment class Size (equipment Maximum standby loss
manufactured on (equipment manufactured
and after October on and after October 29,
9, 2015)** *** 2003)** [Dagger]
(%)
----------------------------------------------------------------------------------------------------------------
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/
>155,000 Btu/h........... 80 h).
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/
>155,000 Btu/h........... *** 80 h).
Q/800 + 110(Vr)\1/2\ (Btu/
h).
Electric instantaneous water heaters <10 gal.................. 80 N/A.
[Dagger]. >=10 gal................. 77 2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters <10 gal.................. 80 N/A.
and hot water supply boilers. >=10 gal................. 80 Q/800 + 110(Vr)\1/2\ (Btu/
h).
Oil-fired instantaneous water heater <10 gal.................. 80 N/A.
and hot water supply boilers. >=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 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.
[dagger] 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.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this
rule, 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.3 of this document.
[[Page 69708]]
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 x Vr).
<=105 kBtu/h and....... Low.................... 0.5362 - (0.0012 x Vr).
<=120 gal and.......... Medium................. 0.6002 - (0.0011 x Vr).
<=180 [deg]F........... High................... 0.6597 - (0.0009 x Vr).
Oil-fired storage.................... >105 kBtu/h and........ Very Small............. 0.2932 - (0.0015 x Vr).
<=140 kBtu/h and....... Low.................... 0.5596 - (0.0018 x Vr).
<=120 gal and.......... Medium................. 0.6194 - (0.0016 x Vr).
<=180 [deg]F........... High................... 0.6740 - (0.0013 x Vr).
Electric instantaneous............... >12 kW and............. Very Small............. 0.80
<=58.6 kW and.......... Low.................... 0.80
<=2 gal and............ Medium................. 0.80
<=180 [deg]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
[deg]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.
The following subsections include further discussion of comments
received on equipment classes and DOE's approach to equipment classes
for this final rule.
a. 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 2022 CWH ECS NOPR analyses and
proposed the same standard levels for each equipment class. 87 FR
30610, 30631-30632.
Barton Day Law questioned whether gas-fired storage water heaters
and storage-type instantaneous water heaters can be categorized as the
same product within the analysis, and whether the same numbers can be
used to represent both product types. (Barton Day Law, Public Meeting
Transcript No. 13 at p. 23) However, Barton Day Law did not provide any
specific reasons that these products are functionally different. In
contrast, the Joint Advocates agreed with DOE's methodology for
analyzing equipment types and stated that it was appropriate to analyze
commercial gas-fired storage and storage-type instantaneous water
heaters together due to the commonalities in design and shared
features. (The Joint Advocates, No. 29 at pp. 1, 2)
As noted, DOE has found that gas-fired storage-type instantaneous
water heaters have a higher ratio of input rating to tank volume than
gas-fired storage water heaters (i.e., the ratio exceeds the 4,000 Btu/
h per gallon of stored water threshold included in the definition of
instantaneous water heaters at 10 CFR 431.102). However, through a
review of product literature, neither DOE nor any commenters identified
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
continued to group the two equipment classes together in this final
rule.
The 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.
b. Venting for Gas-Fired Water Heating Equipment
In response to the May 2022 CWH ECS NOPR, Patterson-Kelley and WM
Technologies stated that increasing efficiencies beyond the
capabilities of Category I Venting as defined in the National Fuel Gas
Code NFPA 54 will result in the unavailability of products that use
category I venting. (Patterson-Kelley, No. 26 at pp. 1-2; WM
Technologies, No. 25 at p. 2) Patterson-Kelley explained that
converting to Category I appliances may be costly and application
prohibitive in establishments in densely populated areas. (Patterson-
Kelley, No. 26 at p. 2) The Joint Gas Commenters stated that DOE's
treatment of venting issues raised by condensing-level standards is
unreasonable and contrary to law. Specifically, the Joint Gas
Commenters described that the imposition of standards that non-
condensing products cannot achieve would raise significant practical,
economic, and legal issues. Cumulatively, they said, inaccurate
assumptions undermine the May 2022 CWH ECS NOPR's economic evaluation
and its estimate of the market impacts of the proposed standards. (The
Joint Gas Commenters, No. 34 at p. 3)
Similarly, the Joint Gas Commenters argued that venting type is
indeed a performance feature and pointed to the January 2021 Final Rule
for Residential Furnaces and Commercial Water Heaters that agreed with
this logic but has since been withdrawn. (Joint Gas Commenters, No. 34
at p. 10) Patterson-Kelley and WM Technologies agreed and commented
that they maintain the same justification per 42 U.S.C. 6295(q)(l)
documented in the Final Interpretive Rule provided in 86 FR 4776
applies to fuel-fired commercial water heaters. As such, Patterson-
Kelley and WM Technologies also continue to support DOE's January 2021
acceptance of the Gas Industry Petition to recognize non-condensing as
a product feature per EPCA. (WM Technologies, No. 25 at p. 2;
Patterson-Kelly, No. 26 at pp. 1-2) WM Technologies believes that 42
U.S.C. 6313(a)(6)(B)(II)(aa) prohibits the elimination of non-
condensing water heaters. (WM Technologies, No. 25 at p.
[[Page 69709]]
1) The Joint Gas Commenters further claimed that DOE should recognize
the compatibility of a product with the existing atmospheric venting
systems is a performance-related feature that would require separate
standards for condensing and non-condensing products if standards
specific to condensing products are justified. (The Joint Gas
Commenters, No. 34 at p. 11) They explained that DOE is precluded by
EPCA from amending standards in such a way that renders existing
venting systems unusable by eliminating products consistent with the
venting type. (Joint Gas Commenters, No. 34 at p. 10) The Joint Gas
Commenters stated that Congress understood that buildings are designed
to accommodate standard installations and sought to ensure that
standards would not deprive consumers of the utility and convenience of
products that can be installed without the need to modify the existing
buildings to accommodate them. Id. The Joint Gas Commenters drew
parallels between the question of vent-type consistency and other
instances in which DOE avoided setting standards that would make it
impossible for consumers to install a space constrained product. Id.
The Joint Gas Commenters requested that any final rule in this
proceeding include a written finding that interested persons have
established by a preponderance of the evidence that the proposed
standards are likely to result in the unavailability in the United
States of commercial water heaters with ``performance characteristics
(including reliability, features, sizes, capacities, and volumes) that
are substantially the same as those generally available in the United
States'' on the date any such rule issues. (Joint Gas Commenters, No.
34 at p. 11)
PHCC similarly noted that they have on prior occasion expressed
concern for the elimination of non-condensing technology for commercial
gas fire water heaters. They believe that there are numerous parts of
the May 2022 CWH ECS NOPR that are overly optimistic, do not reflect
current market conditions, make inaccurate assumptions, and minimize
installation issues for condensing type products. (PHCC, No. 28 at p.
1)
Patterson-Kelley stated that hybridization of standard efficiency
and high efficiency products would be a low-cost migration to the
efficiencies the DOE is looking for, while mitigating the cost of full
conversions of the system. They noted that this would also allow for
proper analysis of the correctly sized equipment for the space
commercially and would further increase the system level efficiency,
which is the ultimate goal. (Patterson-Kelley, No. 26 at p. 2)
Addressing many of the same concepts as the Joint Gas Commenters, the
CA IOUs instead expressed support for DOE's arguments; they agreed with
analyzing both venting and condensing gas water heaters together, and
with DOE's withdrawal of the Condensing Products Interpretive Rule. The
commenters added that their commissioned research with other utility
partners shows it is always possible to retrofit a non-condensing gas
water heater with a condensing product. (CA IOUs, No. 33 at p. 5) The
CEC also indicated support for DOE's analysis, noting that DOE's
application of its rule interpreting EPCA's ``features provision'' is
lawful. (CEC, No. 27 at p. 3)
Under EPCA, DOE may not prescribe an amended standard if interested
persons have established by a preponderance of the evidence that a
standard is likely to result in the unavailability in the United States
in any 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)). Commenters have not
provided, and DOE has not found, any evidence that eliminating CHWs
that use category I venting would result in the unavailability of CWH
models of substantially the same reliability, sizes, capacities, or
volumes as those generally available in the current market. As
demonstrated in chapter 3 of the TSD accompanying this final rule,
condensing-level CWH equipment is generally available in the same
capacities and volumes as noncondensing CWH equipment. With respect to
reliability, all available data that DOE has reviewed suggest that the
lifetimes of condensing CWH equipment are substantially the same as
noncondensing CWH equipment. DOE notes that it does have, and has
incorporated, data regarding increased repair costs for individual
component failures that may occur in higher-efficiency condensing
equipment, as discussed in section IV.F.5.b of this document.\31\
However, the increased repair costs are largely related to the
increased component cost and even in the case of heat exchangers where
DOE cites a higher failure rate, such does not translate directly to
decreased product life. Moreover, DOE has not found a decrease in
product performance over the life of condensing models dissimilar from
what would be expected in noncondensing CWH equipment. As discussed in
IV.F.6 of this document, DOE has found that, within each equipment
class, the average lifetime of all equipment covered by this rulemaking
is the same for all thermal efficiency levels, from baseline through
max-tech. Thus, DOE believes the reliability of condensing and
noncondensing CWH equipment, in terms of equipment performance and
ability to serve the hot water loads and in terms of overall lifetime,
is substantially the same, and that there are no known reliability
concerns endemic to condensing technology.
---------------------------------------------------------------------------
\31\ Repair costs are based on annual failure rates of
combustion systems and controls. Increased repair costs reflect
increased costs for combustion systems and controls found in high
efficiency CWH equipment, as well as increased frequency of repair
for high efficiency controls. Heat exchanger replacement was also
considered for commercial gas-fired instantaneous circulating water
heaters and hot water supply boilers.
---------------------------------------------------------------------------
With respect to commenters' statements that category I venting
itself is a performance characteristic that DOE's standards cannot make
unavailable, DOE first notes that venting, like a gas burner or heat
exchanger, is one of the basic components found in every gas-fired
water heater (condensing or noncondensing). As such, assuming venting
is a performance characteristic, a standard would have to eliminate all
vented gas-fired water heaters on the market--i.e., both condensing and
non-condensing models--to run afoul of the unavailability provision in
EPCA. Thus, in order to meet the unavailability requirements in 42
U.S.C. 6313(a)(6)(B)(iii)(II), Joint Gas Commenters and others are
requesting DOE determine that a specific type of venting is a
performance characteristic.
In response, DOE first notes that almost every component of a
covered product or equipment could be broken down further by any of a
number of factors. For example, heat exchangers, which are used in a
variety of covered equipment and products, could be divided further by
geometry or material; refrigerator compressors could be further divided
by single-speed or variable-speed, and air-conditioning refrigerants
could be further divided by global warming potential. As a general
matter, energy conservation standards save energy by removing the
least-efficient technologies and designs from the market. For example,
DOE set energy conservation standards for furnace fans at a level that
effectively eliminated permanent split capacitor (PSC) motors from
several product classes, but which could be met by brushless permanent
magnet (BPM) motors, which are more efficient. 79 FR
[[Page 69710]]
38130 (July 3, 2014). As another example, DOE set energy conservation
standards for microwave oven standby mode and off mode at a level that
effectively eliminated the use of linear power supplies, but which
could be met by switch-mode power supplies, which exhibit significantly
lower standby mode and off mode power consumption. 78 FR 36316 (June
17, 2013). The energy-saving purposes of EPCA would be completely
frustrated if DOE were required to set standards that maintain less-
efficient covered products and equipment in the market based simply on
the fact that they use a specific type of (less efficient) heat
exchanger, motor, power supply, etc.
As discussed in the December 2021 final interpretive rule, DOE
believes that a consumer would be aware of performance-related features
of a covered product or equipment and would recognize such features as
providing additional benefits during operation of the covered product
or equipment. 86 FR 73955. Using the previous example of furnace fan
motors, if an interested person had wanted to preserve furnace fans
with PSC motors in the market, they would have had to show that furnace
fans with PSC motors offered some additional benefit during operation
as compared to furnace fans with BPM motors. Refrigerator-freezers, on
the other hand, are an example of where DOE determined that a specific
type of performance-related feature offered additional benefit during
operation. Some refrigerator-freezers have automatic icemakers.
Additionally, some automatic icemakers offer through-the-door ice
service, which provides consumers with an additional benefit during
operation. As such, DOE further divided refrigerator-freezers into
product classes based on the specific type of automatic icemaker (i.e.,
whether the automatic icemaker offers through-the-door ice service).
See 10 CFR 430.32(a).
Joint Gas Commenters and others have not pointed to any additional
benefits during operation offered by CWHs that use Category I venting
as compared to CWHs that use other types of venting. Instead, these
commenters cite the January 2021 final interpretive rule and economic
considerations as reasons why Category I venting should be considered a
performance characteristic for the purposes of EPCA's unavailability
provision. With regards to the January 2021 final rule, DOE cited the
potential for increased fuel switching and the potential need for
significant modifications during installation as support for revising
the Department's long-standing interpretation that Category 1 venting
is not a performance-related feature. 86 FR 4816. DOE's response to
these issues remains largely the same from the December 2021 final
interpretive rule. First, as explained in the December 2021 final
interpretive rule, the potential for increased fuel switching is simply
not a performance characteristic that could serve as the basis for an
unavailability finding under EPCA.
Second, with regards to the potential need for significant
modifications during installation, this argument overlaps with other
comments focused on the economic impacts of installation scenarios
where existing Category I venting systems need to be replaced with a
venting system suitable for a condensing CWH. DOE acknowledges that a
condensing water heater may not be operated if installed with a non-
condensing venting system, and that potentially complex replacement or
modification of these venting systems will typically be required at a
cost (as discussed in more detail in sections IV.F.2.c and IV.F.2.d. of
this document). However, while using existing venting can reduce
installation costs, it does not provide the consumer with any
additional benefits during operation. Further, EPCA specifically
directs DOE to consider installation and operating costs as part of the
Department's determination of economic justification (see 42 U.S.C.
6313(a)(6)(B)(ii)(II)). As a result, there is a clear distinction in
EPCA between the purposes of the unavailability provision in 42 U.S.C.
6313(a)(6)(B)(iii)(II)--to preserve performance-related features in the
market--and the economic justification requirement in 42 U.S.C.
6313(a)(6)(B)(ii)--to determine whether the benefits (e.g., reduced
fuel costs for an appliance) of a proposed standard exceed the burdens
(e.g., increased installed cost). Thus, the appropriate analysis to
determine whether less-efficient, non-condensing CWHs that use Category
I venting should remain in the market is the economic justification
analysis under 42 U.S.C. 6313(a)(6)(B)(ii). Accordingly, DOE has
conducted such an analysis as part of the standards amendment process
for this rulemaking. DOE analyzed ventilation installation and cost
issues in the May 2022 CWH ECS NOPR, and does so again in this final
rule. DOE's consideration of these issues and responses to associated
comments may be found in section IV.F.2 of this document.
For these reasons, DOE disagrees with commenters that eliminating
noncondensing CWHs that use Category I venting from the market would
violate EPCA's ``unavailability'' provision as that technology does not
provide unique utility to consumers that is not substantially the same
as that provided by condensing CWH equipment. Accordingly, 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 final rule.
c. Tankless Water Heaters and Hot Water Supply Boilers
In the May 2022 CWH ECS NOPR, DOE analyzed ``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, in order to reflect
the differences in design and application between these kinds of
equipment. DOE also presented analytical results separately for the two
types of representative equipment. 87 FR 30610, 30632. In the June 23,
2022 public meeting, Barton Day Law questioned whether commercial
instantaneous water heaters and hot water supply boilers can be
appropriately categorized as the same product within DOE's analysis.
(Barton Day Law, Public Meeting Transcript No. 13 at pp. 18-22)
In response, DOE notes that its analysis does account for the
differences between these product types by including different
installation costs for each. Tankless water heaters are typically flow-
activated, wall-mounted, used without a storage tank, and capable of
higher temperature rises. Circulating water heaters and hot water
supply boilers, conversely, are typically used with a storage tank and
recirculation loop, thermostatically-activated, and typically floor-
mounted. However, despite these differences, tankless water heaters and
hot water supply boilers are grouped in the same equipment category
because they share basic fundamental similarities: both kinds of
equipment supply hot water in commercial applications with an input
rate of 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.
Therefore, for this final rule, 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
[[Page 69711]]
representative equipment in section V of this final rule, although DOE
is not proposing to restructure the equipment classes.\32\
---------------------------------------------------------------------------
\32\ In the May 2022 CWH ECS NOPR, DOE responded to comments on
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. 87 FR 30633. As noted in the May 2022
CWH ECS NOPR, ASHRAE 90.1 does not divide the equipment classes for
commercial gas-fired instantaneous water heaters and hot water
supply boilers by input capacity. Therefore, DOE did not, in the
NOPR, and has not in this final rule, analyzed separate classes for
gas-fired instantaneous water heaters and hot water supply boilers
equipment class by input capacity.
---------------------------------------------------------------------------
d. Gas-Fired and Oil-Fired Storage Water Heaters
In the May 2022 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 into
two equipment classes without an input rate distinction: (1) gas-fired
storage water heaters and (2) oil-fired storage water heaters. DOE
noted that this class structure would be consistent with the equipment
class structure in the latest version of ASHRAE Standard 90.1. 87 FR
30610, 30633. In response Bradford White agreed with combining the
classes for gas-fired storage water heaters above and below 155,000
Btu/h and noted that the historical reasons for the requirements being
separated are no longer applicable. (Bradford White, No. 23 at p. 1)
Bock Water Heaters and Rheem similarly indicated support for DOE
removing the 155,000 Btu sizing categories from the energy conservation
standards tables. (Bock Water Heaters, No. 20 at p. 1; Rheem, No. 24 at
p. 2) AHRI also expressed support for the proposal and noted that these
categories had no efficiency differences and separating them adds
unnecessary complexity. (AHRI, No. 31 at p. 3) DOE is adopting this
proposal in this final rule and is removing the input rate size
distinctions for commercial gas-fired and oil-fired storage water
heaters.
e. Grid-Enabled Water Heaters
In the May 2022 CWH ECS NOPR, DOE explained that it was not
proposing to establish a separate equipment class for grid-enabled
electric storage water heaters (i.e., electric storage water heaters
that can receive and react to commands sent from local utilities and
which could at a minimum reduce their instantaneous power consumption
in response) because DOE did not propose to amend the standard for
commercial electric storage water heaters, and because a grid-enabled
water heater would not be differentially impacted by a standby loss
standard. 87 FR 30610, 30633. Bradford White agreed with DOE's decision
not to establish a separate class for grid-enabled water heaters.
(Bradford White, No. 23 at p. 1) DOE maintains its position from the
May 2022 CWH ECS NOPR and is not establishing a separate class for
grid-enabled water heaters.
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,\33\ the CEC Appliance Efficiency
Database,\34\ and DOE's Compliance Certification Database.\35\ 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 for which DOE analyzed for amended thermal efficiency standards:
431 commercial gas-fired storage water heaters, 44 residential-duty
commercial gas-fired storage water heaters, 111 commercial gas-fired
storage-type instantaneous water heaters (tank-type water heaters with
greater than 4,000 Btu/h per gallon of stored water), 22 gas-fired
tankless water heaters, and 280 gas-fired circulating water heaters and
hot water supply boilers. Chapter 3 of the final rule 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.
---------------------------------------------------------------------------
\33\ Last accessed on March 4, 2021 and available at
www.ahridirectory.org.
\34\ Last accessed on March 4, 2021 and available at
cacertappliances.energy.ca.gov/Pages/ApplianceSearch.aspx.
\35\ Last accessed on February 26, 2021 and available at
www.regulations.doe.gov/certification-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.
In response to the May 2022 CWH ECS NOPR, the Joint Advocates
encouraged DOE to evaluate heat pump technology as a technology option
for electric storage water heaters. (The Joint Advocates, No. 29 at p.
4) The Joint Advocates and the CA IOUs both noted that commercial
integrated heat pump water heaters on the market have electric
resistance elements that allow them to meet required hot water demand
when heat-pump-only operation would not suffice, and the CA IOUs cited
such products. (The Joint Advocates, No. 29 at p. 4; CA IOUs, No. 33 at
pp. 4-5) The Joint Advocates further cited that when both backup
elements and the heat pump compressor are operating together in hybrid
mode, this unit can achieve almost twice the heating capacity of a 12
kW commercial electric resistance water heater. (The Joint Advocates,
No. 29 at p. 4) The Joint Advocates stated that they are not aware of
any reason why commercial heat pump water heaters could not meet the
same hot water loads as commercial electric storage water heaters. Id.
NYSERDA similarly urged DOE to include commercial heat pump water
heaters in the analysis. They cited a recent New York Commercial
Baseline Study that found that between 1 and 4 percent of commercial
water heaters were classified as heat pumps across a variety of
applications. Therefore, NYSERDA recommended that DOE acknowledge heat
pumps in subsequent rulemakings, both as a max-tech option and as a
technology across the board. (NYSERDA, No. 30, pp. 1-2)
NWPCC also commented in support of DOE including commercial heat
pump water heaters as the max-tech in the analysis. NWPCC stated that
the analysis is incomplete without this consideration as there are
already many commercial-duty heat pump products available on the market
from several manufacturers. (NWPCC, No. 21 at p. 1) They explained that
heat pump water heaters are of interest to the Northwest region, as the
Regional Technical Forum estimates between 20 and 30 average megawatts
of energy saving potential for unitary commercial heat pump water
heaters and an additional 15 megawatts of potential for consumer heat
pump water heaters in commercial applications. Id. In contrast, A.O.
Smith added that inlet water temperature will vary across regions of
the country and climate zones for air-source heat pump water heaters
and noted that heat-pump water heaters may require backup heating in
certain scenarios. A.O. Smith also stated that an integrated heat pump
[[Page 69712]]
water heater may not be the correct technology option for applications
that require very large loads. (A.O. Smith, No. 22 at p. 6)
In response to these comments, DOE notes that, as discussed in
section III.B.4 of this document, it did not consider commercial heat
pump water heaters in this final rule because of the limited number of
units on the market, but may analyze commercial heat pump water heaters
in a future rulemaking.
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 final rule 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 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 final rule 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 gas-
fired storage water heaters and storage-type instantaneous water
heaters)
Electromechanical flue damper
Modulating combustion.
Chapter 3 of the final rule TSD includes descriptions of all
technology options identified for this equipment.
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:
(1) Technological feasibility. Technologies that are not
incorporated in commercial products or in commercially viable, existing
prototypes will not be considered further.
(2) Practicability to manufacture, install, and service. If it is
determined that mass production of a technology in commercial products
and reliable installation and servicing of the technology could not be
achieved on the scale necessary to serve the relevant market at the
time of the projected compliance date of the standard, then that
technology will not be considered further.
(3) Impacts on product utility. If a technology is determined to
have a significant adverse impact on the utility of the product to
subgroups of consumers, or 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 be considered further.
(4) Safety of technologies. If it is determined that a technology
would have significant adverse impacts on health or safety, it will not
be considered further.
(5) Unique-pathway proprietary technologies. If a technology has
proprietary protection and represents a unique pathway to achieving a
given efficiency level, it will not be considered further, due to the
potential for monopolistic concerns.
10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, sections 6(c)(3)
and 7(b).
In sum, if DOE determines that a technology, or a combination of
technologies, fails to meet one or more of the listed five criteria, it
will be excluded from further consideration in the engineering
analysis.
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. In the May 2022 CWH ECS NOPR,
DOE screened out gas absorption heat pump water heaters due to concerns
about their practicability to manufacture, install, and service. In
response, the Joint Advocates encouraged DOE to evaluate this
technology as a potential max-tech efficiency level for commercial gas
storage water heaters. The Joint Advocates explained that there appear
to be gas-fired heat pump models on the market that can provide both
space and water heating capabilities, and cited one such example. (The
Joint Advocates, No. 29 at p. 2) The CA IOUs and NEEA also stated that
DOE should evaluate gas heat pump water heaters as a max-tech level,
and cited several examples. (CA IOUs, No. 33 at p. 3; NEEA, No. 35, pp.
2-3)
DOE notes that the examples cited by the Joint Advocates and the CA
IOUs do not meet the input rating requirements to be considered CWH
equipment by the definitions in 10 CFR 431.102. However, other examples
provided by commenters do appear to meet the requirements to be
considered CWH equipment, but have low maximum output water
temperatures and may not be suitable for all applications. Therefore,
DOE does not have adequate information at this time to determine if
these products would result in adverse impacts on consumer utility.
Additionally, DOE is not aware of any demonstration of this technology
as being suitable for commercial applications or as being practicable
to manufacture, install, and service on the scale necessary to serve
the CWH equipment market at the time of the effective date of this
adopted standard. Accordingly, that technology remains screened out.
Based upon a review under the above factors, DOE screened out the
design options listed in Table IV.3 for the
[[Page 69713]]
reasons provided. Chapter 4 of the final rule 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reasons for exclusion
---------------------------------------------------------------------------------
Applicable equipment Practicability Adverse Adverse Unique-
Excluded technology option classes * Technological to manufacture, impacts on impacts on pathway
feasibility install, and product health or proprietary
service utility safety technology
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced insulation types................ All storage water heaters.. X X .............. .............. ..............
Condensing pulse combustion.............. All gas-fired equipment ............... X .............. .............. ..............
classes.
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 ............... X .............. .............. ..............
water heaters.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters.
In this final rule, DOE concludes 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, which 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 final rule TSD contains additional details on the
technology assessment and the technologies analyzed.
Table IV.4--Technology Options Considered for Engineering Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increased heat Electro-
Equipment Mechanical Condensing heat exchanger area, Electronic Premix burner mechanical flue
draft exchanger baffling ignition damper
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and X X X ............... X ...............
storage-type instantaneous water heaters.........
Residential-duty gas-fired storage water heaters.. X X X X X X
Gas-fired instantaneous water heaters and hot X X X ............... X ...............
water supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
DOE determined that these technology options are technologically
feasible because they are being used or have previously been used in
commercially-available products or working prototypes. DOE also finds
that all of the remaining technology options meet the other screening
criteria (i.e., practicable to manufacture, install, and service and do
not result in adverse impacts on consumer utility, product
availability, health, or safety). For additional details, see chapter 4
of the final rule TSD.
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
[[Page 69714]]
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 interpolate to define ``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 final rule 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 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 BOM 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 cost-prohibitive and otherwise
impractical (e.g., large commercial boilers), DOE conducts price
surveys using publicly available pricing data published on major online
retailer websites and/or by soliciting prices from distributors and
other commercial channels.
For this final rule, 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' non-production 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, and information gathered
from manufacturers as part of the analytic process for the May 2016 CWH
ECS NOPR. Chapter 5 of the final rule TSD includes further detail on
the engineering analysis.
In the May 2022 CWH ECS NOPR, DOE chose the physical and catalog
teardown approach over the price survey approach, based upon several
factors. 87 FR 30635-30636. In response to the May 2022 CWH ECS NOPR,
Bradford White suggested that DOE conduct additional interviews given
that previous interviews were conducted over 6 years ago, meaning the
data would not have taken into account the national and international
impacts of the global pandemic. (Bradford White, No. 23 at p. 8)
Bradford White and Rheem both indicated interest in participating in
confidential interviews to provide further feedback. (Bradford White,
No. 23 at p. 8, Rheem, No. 24 at p. 1) PHCC also encouraged the DOE to
revise its production cost information due to recent market conditions,
stating that projections based on the value of the U.S. dollar in 2020
do not accurately capture the effects of supply chain issues and the
increase in steel prices. (PHCC, No. 28 at p. 9) PHCC stated that
inflationary pressures have tremendously changed prices recently.
However, PHCC acknowledged that as an association, anti-trust
regulations limit their ability to gather or distribute pricing
information; therefore, their analysis is based on available sources
such as online retailers in order to gauge current market realities.
Id.
In response to this feedback, DOE conducted additional interviews
after the publication of the May 2022 CWH ECS NOPR to better understand
manufacturer's concerns regarding the proposals of the May 2022 CWH ECS
NOPR and gathered additional feedback to inform its updated MPC
estimates. Additionally, DOE updated all its part prices to reflect
more recent data, as discussed in section IV.C.7 of this document.
The MPCs presented in this final rule 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, as discussed in more detail in section IV.C.7
of this document, prices for raw materials and purchased parts have
been updated to the most recent market estimates to create the current
MPCs, resulting in increased MPCs as compared to the results presented
in the May 2022 CWH ECS NOPR.
3. Representative Equipment for Analysis
For the engineering analysis, DOE reviewed all CWH equipment
categories analyzed in this rulemaking (see section III.B of this
document 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
[[Page 69715]]
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 final
rule. 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 final rule) 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.
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. In the May 2022 CWH ECS NOPR, 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 final rule.
In response to the May 2022 CWH ECS NOPR, the Joint Advocates
agreed that DOE's approach of using a representative capacity chosen
based on discussions with manufacturers allows the analysis to be both
feasible and sufficiently representative. (The Joint Advocates, No. 29
at p. 2) A.O. Smith commented that based on their analysis, the most
popular size of residential-duty commercial water heater units is 75
and 100 gallon non-condensing models. (A.O. Smith, No. 22 at p. 4) DOE
agrees with A.O. Smith that the most popular size of residential-duty
CWH units is 75 and 100 gallons but notes that 75 gallon size is the
most common size in its database. Therefore, DOE continued to use 75
gallons as the representative storage volume for residential-duty
commercial water heaters in this final rule.
Bradford White questioned how DOE found similar costs for
instantaneous and hot water supply boilers with storage volumes greater
than or equal to 10 gallons and those with storage volumes less than 10
gallons. Bradford White stated that DOE assumed heat exchanger costs
will increase as input and surface area increase; however, Bradford
White suggested that this relationship changes at larger inputs where
manufacturers cannot necessarily justify automating the manufacturing
of heat exchangers or some part of them. They also added that
combustion systems and other non-heat-exchanger costs will increase
stepwise at a certain point. (Bradford White, No. 23 at p. 5)
DOE agrees that MPCs related to the combustion and heat exchange
subsystems for condensing circulating water heaters and hot water
supply boilers typically follows a step-like pattern as input
capacities increase. DOE's 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 larger-capacity
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. As
previously noted, DOE conducted this engineering analysis using a
representative capacity and storage volume for each equipment category
that was determined to be sufficiently representative of the category
as a whole while also allowing for a feasible analysis. However, no
representative storage volume was chosen for the instantaneous water
heaters and hot water supply boilers equipment class because only gas-
fired instantaneous water heaters and hot water supply boilers with
greater than or equal to 10 gallons of storage volume have standby loss
standards but amended standby loss standards for this equipment were
not analyzed in this final rule (as discussed in section III.B.6 of
this document). Given the similarities in thermal efficiency
performance and the technologies that could be used to improve thermal
efficiency of circulating water heaters and hot water supply boilers
with storage volumes greater than or equal to 10 gallons and those with
storage volumes less than 10 gallons, DOE concluded that a single
representative input capacity would sufficiently represent this entire
equipment category for the analysis of amended thermal efficiency
levels.
Additionally, Barton Day Law argued that DOE's categorization of
products is inappropriate in the context of the LCC analysis, claiming
that some LCC inputs would be different for products within the same
category. In particular, Barton Day Law noted that there is only one
LCC analysis for four separate standards for residential-duty water
heaters with different draw patterns. (Barton Day Law, Public Meeting
Transcript, No. 13 at pp. 29-30) In response to the comments from
Barton Day Law, as described in section V.A of this final rule, 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.
Additionally, DOE is only aware of residential-duty water heaters in
the high draw pattern group at the time of the current analysis.
Therefore, DOE's analysis used representative storage volumes and input
capacities that reflect this draw pattern group but DOE then applied
its findings to other draw patterns.
The representative input capacities used in the analyses for this
final rule are shown in Table IV.5. The
[[Page 69716]]
representative volume and input capacities shown in Table IV.5 are the
same as those used for May 2022 CWH ECS NOPR.
Table IV.5--Representative Storage Volumes and Input Capacities
----------------------------------------------------------------------------------------------------------------
Representative Representative
Equipment Specifications rated storage input capacity
volume (gal) (kBtu/h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters >105 kBtu/h or >120 gal....... 100 199
and gas-fired storage-type instantaneous
water heaters *.
Residential-duty gas-fired storage water <=105 and <=120 gal........... 75 76
heaters **.
Gas-fired instantaneous water heaters and
hot water supply boilers:
Tankless water heaters.................. <10 gal....................... ................ 250
Circulating water heaters and hot water All ***....................... ................ 399
supply boilers.
----------------------------------------------------------------------------------------------------------------
* Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water
heater is a commercial gas-fired 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 [deg]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 final rule, as discussed in section III.B.6 of this final rule. Therefore, no representative storage
volume was chosen for the instantaneous water heaters and hot water supply boilers equipment class.
In the May 2022 CWH ECS NOPR, in response to commenters' concerns
about the use of a representative input capacity in its analysis of
circulating water heaters and hot water boilers, DOE stated that the
increase in price of a purchased part used in the construction of an
especially high-capacity circulating water heater or hot water supply
boiler and purchased at low volumes would be offset by the many
instances in which the production costs remain fixed regardless of
input capacity. 87 FR 30610, 30638. Bradford White requested that DOE
clarify how fixed costs would offset an increase in the cost of other
purchased parts. (Bradford White, No. 23 at p. 5) In response, DOE
notes that the statement was not intended to suggest that fixed costs
could lead to negative cost impacts that offset higher purchased part
costs. However, the increase in cost due to those specialized
components that must be purchased at lower volumes is expected to be a
relatively small fraction of the overall cost of the unit, and would
not significantly impact the overall product cost (but would result in
a small increase).
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 or
UEF levels on the market for each equipment category.
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 final rule are presented in Table
IV.6.
Table IV.6--Baseline Thermal Efficiency Levels for CWH Equipment
------------------------------------------------------------------------
Thermal
Equipment feiciency (%)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage- 80
type instantaneous water heaters.......................
Gas-fired instantaneous water heaters and hot water 80
supply boilers.........................................
------------------------------------------------------------------------
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
final rule, 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 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
[[Page 69717]]
typically use to increase the thermal efficiency of CWH equipment.
Consistent with the approach in the May 2022 CWH ECS NOPR, in this
final rule, 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 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.\36\ However, the tankless
water heaters with thermal efficiencies of 97 percent were 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.c
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 final
rule analysis are shown in Table IV.7 of this document.
---------------------------------------------------------------------------
\36\ DOE identified two models in CCMS with thermal efficiency
levels of 98 percent but could not find any manufacturer literature
for those models that would indicate whether they are tankless water
heaters or hot water supply boilers. Because DOE was unable to
confirm the type of construction for these water heaters and because
they were not among the models listed as being available on the
manufacturer's website, 98 percent was not considered the max-tech
level.
---------------------------------------------------------------------------
In response to the May 2022 CWH ECS NOPR, DOE received several
comments from stakeholders about the thermal efficiency levels it
analyzed. Rheem stated concerns with the inconsistent levels proposed
for the different equipment classes, which can be used in the same
applications. Rheem recommended that a lower condensing thermal
efficiency level that does not exceed ENERGY STAR levels be applied
uniformly across the four equipment classes. (Rheem, No. 24 at p. 2)
Similarly, A.O. Smith stated that DOE should reconsider setting new
minimum energy conservation standards for all commercial gas-fired
water heaters (excepting residential-duty commercial water heaters) at
94 percent thermal efficiency or, in the alternative setting, a 95
percent thermal efficiency level across all product types, and added
that either outcome will result in significant energy savings. However,
A.O. Smith stated that a 94 percent thermal efficiency level would
afford a broader set of product options for CWH consumers, while at the
same time provide a more level playing field upon which manufacturers
can compete, foster innovation, and allow for continued incentivizing
of the market adoption of high-efficiency gas-fired CWH equipment.
(A.O. Smith, No. 22 at pp. 2-4) AHRI requested that a 94 percent
thermal efficiency be adopted if a condensing-only standard is set
based on its review of market data, and noted that this efficiency
aligns with the current ENERGY STAR levels and captures the main
distribution of condensing models by market share. AHRI stated that its
research indicates there is a misalignment between the market data and
the available product data in terms of the market shares. (AHRI, No. 31
at p. 2) Rheem also argued that all commercial gas-fired storage-type
instantaneous water heaters with a rated storage volume less than 100
gallons, as listed in the Compliance Certification Management System
(``CCMS''), will not meet the proposed energy conservation standard of
95 percent thermal efficiency. Rheem further stated that it is unproven
if the proposed efficiency level can be achieved, given the design
constraints for this product size, and recommended that DOE reevaluate
EL3 for gas-fired storage-type instantaneous water heaters and add a 94
percent thermal efficiency level, consistent with ENERGY STAR. (Rheem,
No. 24 at p. 3) Similarly, Rheem stated that all but two hot water
supply boilers with input rates above 500 kBtu/h and 200 Btu/h per
gallon of storage volume will not meet the proposed energy conservation
standard of 96 percent thermal efficiency, and added that given the
design constraints, it is unproven that the proposed efficiency level
can be achieved for these product sizes as well. Id. Rheem recommended
that DOE reevaluate EL3 and EL4 for gas-fired hot water supply boilers
with input rates above 500 kBtu/h and 200 kBtu/h per gallon of storage
volume, which is consistent with Version 2.0 of the Energy Star Program
Requirements Product Specification for Commercial Water Heaters. Id.
A.O. Smith stated that the ENERGY STAR program has been a
significant driver of the CWH market's adoption of high efficiency
equipment. They added that the ENERGY STAR market penetration stood at
51 percent in 2020, according to a report by ENERGY STAR. (A.O. Smith,
No. 22 at p. 2, 3) Similarly, A.O. Smith added that while CWH customers
continue to adopt high efficiency (e.g., condensing) commercial gas-
fired water heaters, the ENERGY STAR 94 percent thermal efficiency
level for commercial gas-fired water heaters continues to be a
catalyst. They explain that this standard still affords consumers a
large range of high efficiency product options for the intended
utility, which is especially important for small business owners who
operate their enterprises on very small margins. In contrast, this
range of options at or above 94 percent would become smaller if, as
proposed, the Department sets new minimum energy conservation standards
above the ENERGY STAR level. Id.
In response to these comments, DOE reviewed the distributions of
products on the market. As initially shown in chapter 3 of the May 2022
CWH ECS NOPR TSD and updated in chapter 3 of the current final rule
TSD, the market distributions show the greatest number of unique basic
models within the condensing range at 96 percent for gas-fired storage
water heaters and storage type-instantaneous water heaters, gas-fired
tankless water heaters, and gas-fired circulating water heaters and hot
water supply boilers. There are more models at this level than at
either 95 or 94 percent for each product category. Although setting the
standard at 94 percent would increase the potential for product
differentiation at efficiency levels above the standard level, DOE
anticipates that there is still room for product differentiation for
both gas-fired storage water heaters (for which products above 95
percent efficiency
[[Page 69718]]
currently exist at 96, 97, 98, and 99 percent), tankless water heaters
(for which products exist at 97 percent efficiency), and circulating
water heaters and hot water supply boilers (for which products exist at
97, 98, and 99 percent). Furthermore, because most condensing gas water
heaters are already at or above 95 percent (for gas storage water
heaters) and 96 percent (for gas-fired instantaneous water heaters) and
the equipment designs are similar at 94 percent but would result in
less energy savings, DOE did not find a strong justification for
analyzing a 94 percent efficiency level in this final rule.
Additionally, because storage water heaters and storage-type
instantaneous water heaters provide different consumer utility than
instantaneous water heaters other than storage-type instantaneous water
heaters (i.e., tankless water heaters and circulating water heaters and
hot water supply boilers can provide a continuous supply of hot water
on demand, while storage water heaters are often better suited to
handle large initial demands for hot water, and are also more likely to
have energy losses associated with hot water storage), DOE does not
agree that inconsistent efficiency levels across these equipment
categories will disadvantage certain markets. Therefore, DOE continued
to use the same efficiency levels in this final rule as were analyzed
in the May 2022 CWH ECS NOPR.
Table IV.7--Baseline, Intermediate, and Max-Tech Thermal Efficiency Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
Thermal efficiency levels
---------------------------------------------------------------
Equipment Et EL5 *
Baseline--Et Et EL1 Et EL2 Et EL3 Et EL4 (%)
EL0 (%) (%) (%) (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 80 82 90 92 95 99
storage-type instantaneous water heaters.......
Gas-fired instantaneous water heaters and hot 80 82 84 92 94 96
water supply boilers...........................
----------------------------------------------------------------------------------------------------------------
* 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.
Table IV.8--Baseline Standby Loss Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
Representative Representative Baseline standby
Equipment rated storage input capacity loss level (Btu/
volume (gal) (kBtu/h) h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage- 100 199 1349
type instantaneous water heaters.........................
----------------------------------------------------------------------------------------------------------------
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 standby-loss-reducing technology options using market-rated
standby loss data.
As discussed in the May 2022 CWH ECS NOPR, 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 did not analyze improved tank
insulation as a technology option for reducing standby loss in this
final rule because such insulation improvements would not be a viable
standby loss reducing option for all models on the market.
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
final rule TSD explains these calculations, and the
[[Page 69719]]
interdependence of thermal efficiency and standby loss are explained in
more detail.
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.4 of this final rule.
In response to the May 2022 CWH ECS NOPR, Bock indicated support
for DOE to set the reduction in standby loss to a level inherent with
the proposed thermal efficiency. (Bock, No. 20 at p. 1) Rheem also
commented in support of DOE's use of one standby loss level for each
efficiency level, but stated that DOE did not clarify which
technologies were used at the baseline and how these would be scaled
across the various equipment sizes for any of the four equipment
classes analyzed. (Rheem, No. 24 at p. 2)
Bradford White requested that DOE reevaluate their assumptions that
only changes in thermal efficiency will impact the standby loss level
achieved. Bradford White stated that the relationship between standby
loss and thermal efficiency can be impacted by the difference between
the ambient and average tank temperatures during the test and by the
time or total duration of the test, which is a function of the water
heater's differential (i.e., the temperature below the setpoint where
the control will call for heat). (Bradford White, No. 23 at p. 9)
Additionally, Bradford White raised concerns with the limited number of
units tested to develop the standby loss reduction factors for
commercial gas storage water heaters. Bradford White also noted that
DOE did not elaborate on what type of heat exchangers were in the
products that were evaluated, which would impact the observed results.
For example, the commenter explained that a multi-pass heat exchanger
is more likely to have greater standby loss as compared to a coiled
heat exchanger that is only a single pass. Bradford White recommended
that DOE analyze a greater number of units, as well as account for the
types of heat exchangers when further refining the standby loss
reduction factors. (Bradford White, No. 23 at p. 3)
As discussed in Chapter 5 of the TSD accompanying this final rule,
DOE notes that it conducted testing prior to the withdrawn May 2016 CWH
ECS NOPR to estimate the fraction of standby loss that can be
attributed to fuel consumption or electric power consumption, and this
fraction does not necessarily depend on the overall level of standby
loss associated with each unit. Further, the units tested incorporated
both multi-pass and coiled heat exchangers. Additionally, DOE's
research regarding rated standby loss values showed that the 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 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
final rule.
Table IV.9 presents the examined standby loss levels in this final
rule for commercial gas-fired storage water heaters and storage-type
instantaneous water heaters (other than residential-duty 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 Standby loss
Thermal efficiency level efficiency (%) (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
------------------------------------------------------------------------
c. Uniform Energy Efficiency Levels
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.
UEF standards are draw pattern-specific (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
volume-dependent term. Based on a review of the rated UEF and storage
volume for products currently on the market, DOE 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 residential-duty 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 residential-duty gas-fired storage water heater 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,
[[Page 69720]]
DOE considered the max-tech step increase to be 0.34, a level that has
been demonstrated achievable by residential-duty gas-fired storage
water heaters at a range of volumes.
In response to the May 2022 CWH ECS NOPR, A.O. Smith stated that
DOE's proposed condensing levels (including near max-tech (EL5) for the
high draw pattern) for residential-duty gas-fired storage water heaters
are disconnected from the current marketplace for this product category
and may have the unintended consequence of severely restricting product
availability, which will increase costs to consumers for this product
type. A.O. Smith stated that manufacturers of residential-duty water
heaters made capital investments and design improvements to this
product class to meet the current ENERGY STAR 4.0 specification (e.g.,
UEF >= 0.80) and will need to potentially make additional investments
in this product class given the ENERGY STAR program's recent
publication of its final residential water heater version 5.0
specification, which sets a minimum of 0.86 UEF value for gas fired RDC
products effective April 28, 2023. A.O. Smith recommended that the
appropriateness of setting a minimum energy conservation standard at
the condensing EL4 level for gas-fired residential-duty commercial
water heaters be reconsidered, and suggested that the UEF standard for
this equipment in the high draw pattern be calculated as 0.9297-(0.0016
x Vr). (A.O. Smith, No. 22 at pp. 4-5)
However, as noted previously, DOE has found that the existing
slopes of the equations are representative of the relationship between
UEF and stored volume across the range of efficiency levels. A.O. Smith
did not provide an explanation of why a slope of 0.0016 is more
appropriate than 0.0009, and thus, DOE did not find justification to
consider varying the slope. Additionally, the impacts of each EL are
considered in DOE's subsequent analyses and discussed in detail in
section V of this final rule. However, DOE notes that, for each
affected equipment class, existing equipment across a broad range of
storage volumes and input capacities meets or exceeds the minimum
efficiency levels adopted in this final rule. DOE does not agree that
consumer choice will be restricted as a result of the revised energy
conservation standards. Additionally, as discussed in section V.C, DOE
has concluded that the energy conservation standards adopted in this
final rule are economically justified.
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 final rule 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.1--Baseline, Intermediate, and Max-Tech UEF Levels for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Incremental
UEF level step increase UEF (high draw pattern) *
----------------------------------------------------------------------------------------------------------------
EL0--Baseline........................... 0 0.6597-(0.0009 x Vr).
EL1..................................... 0.02 0.6797-(0.0009 x Vr).
EL2..................................... 0.09 0.7497-(0.0009 x Vr).
EL3..................................... 0.18 0.8397-(0.0009 x Vr).
EL4..................................... 0.27 0.9297-(0.0009 x Vr).
EL5..................................... 0.34 0.9997-(0.0009 x 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 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).
[GRAPHIC] [TIFF OMITTED] TR06OC23.059
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.
DOE analyzed more-stringent standby loss standards by multiplying
the current maximum standby loss equation by reduction factors. The use
of
[[Page 69721]]
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 final rule for commercial gas-fired storage water heaters for each
thermal efficiency level. As discussed in section IV.C.4.b of this
final rule, the standby loss reductions associated with commercial gas-
fired storage water heaters result from increased thermal efficiency.
Chapter 5 of the final rule 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 Standby loss
Thermal efficiency level efficiency (%) 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 final
rule 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 2016 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 final rule 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 average MPC for
each efficiency level and equipment category analyzed. Chapter 5 of the
final rule TSD provides more details on BOMs and how they were used in
determining the manufacturing cost estimates.
During the manufacturer interviews conducted prior to the withdrawn
May 2016 CWH ECS NOPR as well as in advance of this final rule, DOE
requested feedback on its engineering analysis. 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 final rule
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 non-efficiency-
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
[[Page 69722]]
control systems that are included in many of the high-efficiency 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 final rule 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
Thermal efficiency level 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 (high draw
UEF level pattern) * Design changes **
------------------------------------------------------------------------
EL0--Baseline............. 0.6597 - (0.0009 x
Vr).
EL1....................... 0.6797 - (0.0009 x Increased heat
Vr). exchanger area.
EL2....................... 0.7497 - (0.0009 x Electronic ignition,
Vr). electromechanical
flue damper or power
venting; increased
heat exchanger area.
EL3....................... 0.8397 - (0.0009 x Electronic ignition;
Vr). condensing heat
exchanger; power
venting.
EL4....................... 0.9297 - (0.0009 x Electronic ignition;
Vr). condensing heat
exchanger; power
venting; premix
burner; increased
heat exchanger area.
EL5....................... 0.9997 - (0.0009 x Electronic ignition;
Vr). 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
Thermal efficiency level 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.
Table IV.15--Technologies Identified at Each Thermal Efficiency Level
for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
------------------------------------------------------------------------
Thermal
Thermal efficiency level 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.
[[Page 69723]]
Rheem expressed doubt as to whether achieving 82 percent thermal
efficiency is possible across the entire range of input rates and
storage volumes without the addition of power venting technology. Rheem
suggested that power venting technology should be included in the
analysis at baseline and 82 percent thermal efficiency levels to
reflect the regions requiring ultra-low NOX CWHs. (Rheem,
No. 24 at p. 2) However, DOE has identified multiple non-condensing
ultra-low NOX units that do not include power venting, which
span a range of volumes and capacities. Therefore, contrary to Rheem's
assertion, DOE does not expect that power venting would be necessary to
achieve ultra-low NOX operation and did not include a power
vent for those levels.
Additionally, in response to the May 2022 CWH ECS NOPR, Bradford
White commented that they disagree with DOE's assumption that
unsophisticated controls can be used in condensing systems, stating
that the controls need to be able to drive a blower, typically at
different fan speeds, and provide diagnostics capability in order to
provide the same reliability as non-condensing systems. Additionally,
Bradford White stated that they disagree with the assumption that an
increase in thermal efficiency would not affect heat loss because, they
said, an increase in heat exchanger surface area will necessitate an
increase in overall tank size to make up for lost storage volume and
would likely lead to an increase in penetrations to the tank. (Bradford
White, No. 23 at p. 2) Bradford White also noted that more
sophisticated controls, a blower, different combustion components, and
additional anodes are required to achieve condensing levels, and ensure
a similar lifetime as non-condensing systems. (Bradford White, No. 23
at p. 5) Bradford White stated that there are some features in
condensing water heaters that should have been included in DOE's cost
analysis because these are necessary features to ensure that the
product has comparable reliability to non-condensing water heaters,
especially if condensing water heaters are assumed to have the same
lifetime as non-condensing water heaters. Id.
As noted in the May 2022 CWH ECS NOPR, 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 light-emitting 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. 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 in order to be able to successfully diagnose
and service a gas-fired storage water heater with a non-modulating
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. 87 FR 30610, 30647. In
response to Bradford White's assertion that increased thermal
efficiency levels would necessitate increased storage volumes, DOE
notes that its analysis was conducted for a fixed storage volume and
DOE did account for slight adjustments to tank dimensions in its
analysis of different efficiency levels.
Therefore, DOE continued to not include the costs of features such
as modulation and more sophisticated controls in its costs for high-
efficiency products. However, for the final rule analysis, DOE included
powered anode rods in its cost models for some condensing gas-fired
storage water heaters, in response to manufacturer feedback during
interviews that these components may be necessary due to space
constraints. In the May 2022 CWH ECS NOPR, DOE stated that the welds
inside a storage water heater are typically the primary source of
concern for corrosion inside a storage water heater. Further, DOE noted
that a condensing gas-fired storage water heater with a multi-pass heat
exchanger design \37\ will typically have more flue pipes and,
therefore, more welds (joining the flue pipe and tank top or bottom)
than would a non-condensing gas-fired storage water heater. To account
for the fact that condensing gas-fired storage water heaters may
require an additional anode rod to compensate for the additional welds,
for the May 2022 CWH ECS NOPR analysis, DOE included the costs of an
additional anode rod for residential-duty and commercial gas-fired
storage water heaters with a multi-pass condensing heat exchanger
design. 87 FR 30610, 30647. Manufacturer feedback during interviews
conducted after the May 2022 CWH ECS NOPR suggested that in some cases
adding additional (unpowered) anode rods is impractical due to internal
geometry and therefore powered anode rods are required. DOE therefore
included the additional costs for powered anode rods and associated
controls for a subset of condensing gas-fired storage water heaters.
Chapter 5 of the final rule TSD includes further detail on the
exclusion of costs for non-efficiency-related features from DOE's MPC
estimates and on the assumptions relating to anode rods.
---------------------------------------------------------------------------
\37\ 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.
---------------------------------------------------------------------------
In addition, Bradford White disagreed with DOE's assumption that a
blower on top of a heat exchanger prevents hot air from escaping out of
the flue like a flue damper. They stated that based on their testing
and experience, a blower reduces standby loss but does not altogether
prevent it as a damper would. (Bradford White, No. 23 at p. 2) In
response, DOE notes that there are several residential-duty gas storage
water heaters on the market that meet or exceed the efficiency of EL2
and include a blower but do not include a flue damper. Therefore, based
on its review of the market, DOE expects that either technology option
can be used to meet that efficiency level.
Additionally, for the May 2022 CWH ECS NOPR, 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). 87
FR 30610, 30648. Bradford White commented in support of DOE's
adjustment of its MPC estimates for
[[Page 69724]]
commercial gas-fired storage water heaters for this final rule to
account for the costs of American Society of Mechanical Engineers
(``ASME'') construction. (Bradford White, No. 23 at p. 5) Chapter 5 of
the final rule TSD includes additional details on DOE's analysis of
ASME construction for commercial gas-fired storage water heaters.
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.
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. Chapter 5 of the final rule TSD contains additional details
on how DOE developed the MPCs and related results.
In response to the May 2022 CWH ECS NOPR, DOE received multiple
comments regarding its MPC estimates. Rheem commented that the MPC
estimates scaled from the May 2016 CWH ECS NOPR do not accurately
reflect material supply chain issues and inflationary cost increases.
(Rheem, No. 24 at p. 2) Rheem asserted that the MPCs presented in Table
5.12.2 of the May 2022 CWH ECS NOPR TSD are significantly
underestimated and similarly stated that the MPCs in Table 5.12.4 of
the May 2022 CWH ECS NOPR TSD are also significantly underestimated
across all efficiency levels.\38\ Specifically, they stated that in
Table 5.12.2 of the May 2022 CWH ECS NOPR TSD, the incremental cost to
shift from non-condensing to condensing, EL2 to EL3, is especially
significant, though the non-condensing MPC estimates are more
reasonable. (Rheem, No. 24 at p. 4) Rheem added that the incremental
cost from non-condensing to condensing in Table 5.12.4 of the May 2022
CWH ECS NOPR TSD, while low, is a reasonably accurate incremental
increase. Id. Along the same lines, Rheem stated that the MPCs for all
efficiency levels of commercial gas-fired storage water heaters are
also significantly understated, and that the incremental cost between
EL1 and EL2 should be much greater than $106. Rheem commented that DOE
is not fully accounting for the differences between consumer
(residential-duty) and commercial water heaters. Id. at p. 4. (Rheem,
No. 24 at p. 4) Bradford White also stated that the increase in cost
between EL1 and EL2 should be greater than $106 and cited the number of
construction changes and components required to achieve condensing
levels as rationale to support their assertion. (Bradford White, No. 23
at p. 5)
---------------------------------------------------------------------------
\38\ Table 5.12.2 presents DOE's estimated MPC, MSP, and
shipping costs for residential-duty gas-fired storage water heaters
at the representative rated storage volume of 75 gallons and
representative input capacity of 76,000 Btu/h. Table 5.12.4 presents
DOE's estimated MPC, MSP, and shipping costs for gas-fired
circulating water heaters and hot water supply boilers at the
representative input capacity of 399,000 Btu/h.
---------------------------------------------------------------------------
Bock Water Heaters stated that in Table IV.16 of the May 2022 CWH
ECS NOPR,\39\ the difference in cost between EL0 and condensing levels,
specifically EL4, for commercial gas-fired storage water heaters is
substantially understated. Bock Water Heaters also stated that the
magnitude of the MPC estimates in Table IV.16 in the May 2022 CWH ECS
NOPR were not representative of actual costs incurred by small
manufacturers such as themselves. The commenter noted that although
economies of scale will drive differences in MPC by manufacturer, the
values presented in Table IV.16 of the May 2022 CWH ECS NOPR should be
closer to an average representation of all manufacturers. (Bock Water
Heaters, No. 20 at pp. 1-2)
---------------------------------------------------------------------------
\39\ Table IV.16 presents the MPC for commercial gas fires
storage water heaters at the representative rated storage volume of
100 gallons and representative input capacity of 199,000 Btu/h.
---------------------------------------------------------------------------
A.O. Smith stated that there is a meaningful delta (e.g., about 40
percent) in DOE's estimated MPCs for the referenced 75 gallon product
category versus what manufacturers submitted to the Department's
contractor during confidential interviews. (A.O. Smith, No. 22 at p. 4)
PHCC commented that DOE's analysis has undervalued product costs at
higher efficiency levels by omitting costs for additional features.
They feel that the net effect is a significant cost increase relative
to the NOPR projections even if market pressures and streamlining of
inventories leads to savings and lowers prices. (PHCC, No. 28 at p. 9)
PHCC generally noted that they believe there are gaps in the economic
analysis. (PHCC, No. 28 at p. 2) PHCC stated that according to a
nationally known online plumbing wholesaler, one model of non-
condensing 100-gallon 199,000 Btu water heater would sell for about
$8,100 (for product costs only) and the condensing version of that
capacity would sell for about $10,000. (PHCC, No. 28 at p. 10)
A.O. Smith expressed concern about the impacts of these inaccurate
MPCs on the downstream analysis. (A.O. Smith, No. 22 at p. 4) Bock
Water Heaters and Rheem expressed similar concern, and specifically
noted that the understated MPC values may have affected the accuracy of
the LCC analysis and PBP analysis. (Bock Water Heaters, No. 20 at pp.
1-2; Rheem, No. 24 at p. 1)
Bock Water Heaters, AHRI, Rheem, and PHCC also encouraged DOE to
re-engage with manufacturers to verify its product cost information.
(Bock Water Heaters, No. 20 at p. 2; AHRI, No. 31 at p. 5; Rheem, No.
24 at p. 1; PHCC, No. 28 at p. 10) Specifically, AHRI requested that
additional manufacturer interviews be conducted relating to
manufacturing processes, costs, and capacity constraints as well as
impacts on small manufacturers and shipping costs. (AHRI, No. 31 at p.
5) Bradford White requested that DOE explain how it determined that
improved economies of scale will offset other costs, noting that these
other costs must be accounted for, will ideally be recovered, and will
result from a more stringent standard (e.g., capital conversion costs).
(Bradford White, No. 23 at p. 6)
In response to these comments, 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, including additional
interviews conducted after the publication of the May 2022 CWH ECS
NOPR. 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. DOE agrees that
[[Page 69725]]
prices for many parts have increased in recent years. Component costs
were also updated for this final rule analysis, to reflect recent
fluctuations and trends in cost values.
Conducting the analysis to 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. In the interviews
conducted prior to the withdrawn May 2016 CWH ECS NOPR, 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.
Regarding the incremental costs between non-condensing and
condensing levels, DOE first notes that 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 non-condensing
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 final rule,
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 or modulating gas valves)
that are not necessary for condensing operation and do not affect
efficiency as measured by DOE's test procedure. However, as discussed
in section IV.C.6, based on feedback received during manufacturer
interviews, DOE did update its cost models for a subset of condensing
gas-fired storage water heaters to include powered anode rods. The
updates to part prices as well as the other changes that DOE
implemented increased the cost delta between noncondensing and
condensing gas-fired storage water heaters from $106.41 to $120.65.
Chapter 5 of the final rule TSD includes further detail on the
exclusion of costs for non-efficiency-related features from DOE's MPC
estimates.
The MPC estimates presented in this final rule and chapter 5 of the
final rule 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. Similarly, in
response to comments about its production volumes, DOE notes that its
model incorporates different production volumes (which are also
informed by manufacturer feedback) when developing the production cost
estimates from different manufacturers. DOE then combined the resulting
production cost estimates from different manufacturers into its market-
share weighted average cost estimates.
Finally, in response to PHCC's comment suggesting that publicly-
available costs are much higher than DOE's MPCs, DOE notes that these
MPCs do not account for any subsequent markups, such as from
manufacturers, wholesalers, or mechanical contractors, that will
increase the price for end consumers. Manufacturer markups are
discussed in more detail in section IV.C.8 and other markups are
discussed in section IV.D.
For the reasons summarized previously, DOE has concluded that its
methodology for developing MPC estimates presented in the May 2022 CWH
ECS NOPR is sound and has maintained a similar methodology for this
final rule. Additionally, as discussed, DOE understands that many
component prices have been increasing recently and DOE revised inputs
to the development of MPC estimates based on updated information
(including pricing for raw materials and purchased parts) received from
manufacturers after the May 2022 CWH ECS NOPR. These changes resulted
in increased MPCs. Depending on the specific product categories and
efficiency levels, these changes increased MPCs by between 9 percent
and 27 percent as compared to the May 2022 CWH ECS NOPR. Because prices
continue to fluctuate, and the analyses for this final rule are in
2022$ (thus reflecting average values in 2022), there may continue to
be discrepancies between the MPCs and the current prices at the time of
publication. Using 5-year averages for raw metals (as discussed in
chapter 5 of this final rule TSD) is also expected to smooth out spikes
in raw metal costs. 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
Thermal efficiency level efficiency MPC 2022$
------------------------------------------------------------------------
Et EL0.................................. 80 $1,453.78
Et EL1.................................. 82 1,489.43
Et EL2.................................. 90 1,610.08
Et EL3.................................. 92 1,629.39
Et EL4.................................. 95 1,666.24
Et EL5.................................. 99 1,733.86
------------------------------------------------------------------------
[[Page 69726]]
Table IV.17--Manufacturer Production Costs for Residential-Duty Gas-
Fired Storage Water Heaters, 75-Gallon Rated Storage Volume, 76,000 Btu/
h Input Capacity
------------------------------------------------------------------------
UEF (high draw
Efficiency level pattern) * MPC 2022$
------------------------------------------------------------------------
EL0............................... 0.6597-(0.0009 x Vr) $403.91
EL1............................... 0.6797-(0.0009 x Vr) 410.90
EL2............................... 0.7497-(0.0009 x Vr) 512.22
EL3............................... 0.8397-(0.0009 x Vr) 581.66
EL4............................... 0.9297-(0.0009 x Vr) 770.60
EL5............................... 0.9997-(0.0009 x Vr) 801.30
------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is
used to determine the UEF rating. For simplicity and because all
residential-duty gas-fired storage water heaters on the market are in
the high draw pattern, only the high draw pattern efficiency levels
are shown.
Table IV.18--Manufacturer Production Costs for Gas-Fired Instantaneous Water Heaters and Hot Water Supply
Boilers
----------------------------------------------------------------------------------------------------------------
MPC 2022$
-------------------------------
Gas-fired Gas-fired
tankless water circulating
Thermal efficiency level Thermal heaters water heaters
efficiency (%) ---------------- and hot water
supply boilers
250,000 Btu/h ---------------
399,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Et EL0.......................................................... 80 $566.87 $1,259.70
Et EL1.......................................................... 82 575.83 1,270.95
Et EL2.......................................................... 84 584.62 1,355.79
Et EL3.......................................................... 92 686.29 3,146.59
Et EL4.......................................................... 94 709.22 3,329.25
Et EL5.......................................................... 96 741.13 3,511.91
----------------------------------------------------------------------------------------------------------------
8. Manufacturing Markups and Manufacturer Selling Price
To account for manufacturers' non-production 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 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 final rule, 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.
---------------------------------------------------------------------------
\40\ U.S. Securities and Exchange Commission, Annual 10-K
Reports (Various Years) (Available at sec.gov).
---------------------------------------------------------------------------
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 final rule 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 consumers. Therefore, DOE accounted for shipping
costs of CWH equipment separately from other non-production costs.
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.
Therefore, in this 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
[[Page 69727]]
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. 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 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 final rule TSD contains
additional details about DOE's shipping cost assumptions and DOE's
shipping cost estimates.
Rheem expressed support for DOE's method of calculating a
representative shipping cost, and notes that a trailer volume of 80
percent is reasonably conservative. (Rheem, No. 24 at p. 8) However,
Bradford White suggested that DOE's use of a 5-year average in shipping
costs is not accurate due to dramatic increases in shipping costs in
the past 2 to 3 years. (Bradford White, No. 23 at p. 6).
In response, for this final rule DOE used the most current shipping
costs available at the time of the analysis to determine the per unit
shipping cost, rather than a 5-year average. DOE agrees with Bradford
White that this more accurately reflects current costs.
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 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 new or amended standards.\41\
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\41\ Because the projected price of standards-compliant 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.
---------------------------------------------------------------------------
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 [rarr] Wholesaler [rarr] Mechanical Contractor
[rarr] Consumer
Manufacturer [rarr] Manufacturer Representative [rarr]
Mechanical Contractor [rarr] Consumer
Manufacturer [rarr] Retailer [rarr] Mechanical Contractor
[rarr] Consumer
DOE characterizes the new construction distribution channels for
the residential and commercial buildings sectors as follows:
Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor
[rarr] General Contractor [rarr] Consumer
Manufacturer [rarr] Manufacturer Representative [rarr]
Mechanical Contractor [rarr] General Contractor [rarr] Consumer
Manufacturer [rarr] Retailer [rarr] General Contractor [rarr]
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 [rarr] Consumer
Manufacturer [rarr] Retailer [rarr] Consumer.
2. Comments on the May 2022 CWH ECS NOPR
Joint Gas Commenters note that while markups vary between new and
replacement, there is very little difference between the values. (Joint
Gas Commenters, No. 34 at p. 19) DOE relies on U.S. Census and other
sources of data, some of which cannot be separated accurately into new
and replacement segments, or when it can be separated the differences
are small. When component pieces are combined to form markups, the new
and replacement markup factors incorporate either the same inputs or
inputs with small variations.
3. Markups Used in This Final Rule
Consistent with the May 2022 CWH ECS NOPR, to develop markups for
this final rule, DOE utilized several sources, including the following:
(1) The Heating, Air-Conditioning & 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
[[Page 69728]]
Retail Trade Survey \45\ data to develop retail markups.
---------------------------------------------------------------------------
\42\ Heating Air-conditioning & Refrigeration Distributors
International. Heating, Air-Conditioning & Refrigeration
Distributors International 2013 Profit Report.
\43\ Air Conditioning Contractors of America (ACCA). Cool
Insights 2020: ACCA's Contractor Financial & Operating Performance
Report (Based on 2018 Operations). 2020.
\44\ U.S. Census Bureau. 2017 Economic Census Data. 2020.
Available at www.census.gov/programs-surveys/economic-census.html.
The 2017 Economic Census is the most recent census available. The
next census, the 2022 Economic Census, is scheduled to begin
releasing results in 2024.
\45\ U.S. Census Bureau. 2017 Annual Retail Trade Survey. 2019.
Available at www.census.gov/retail/.
---------------------------------------------------------------------------
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 final rule TSD provides additional detail on markups.
---------------------------------------------------------------------------
\46\ The Sales Tax Clearing House. 2022. Available at
www.thestc.com/STrates.stm. Last accessed December 4, 2022.
---------------------------------------------------------------------------
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. The energy use
analysis estimates the range of energy use of CWH equipment in the
field (i.e., as the equipment is actually used by consumers). The
energy use analysis provides the basis for other analyses DOE
performed, particularly assessments of the energy savings and the
savings in consumer operating costs that could result from adoption of
amended or new standards.
The energy use for commercial water heaters varies by type of
commercial or residential building, by region, and by type and size of
CWH equipment. As explained in more detail below, and in the NOPR, for
this rulemaking, the energy use for water heaters is estimated by
identifying the various commercial buildings or residential buildings
in EIA's 2020 CBECS or 2009 RECS that utilize natural gas for water
heating and, for these buildings, estimating the hot water used in
gallons per day, taking into account the building type and the presence
of specific building activities. At the same time, DOE identified from
the same sample those buildings with estimated peak hot water loads
large enough to need commercial water heaters of the type examined in
this rulemaking. DOE's assessment of peak hot water loads considered
characteristics of the individual building including occupancy,
building type, floorspace, and other specific sampled data that are
used in sizing water heating systems, e.g. number of rooms in hotel or
dormitory, beds in a health care facility, seats in a restaurant, etc.
When considering multifamily residential, only buildings that indicate
the use of central hot water systems serving multiple apartments are
considered candidates for commercial water heaters. For those buildings
with large enough peak hot water demand, DOE used the estimated annual
hot water usage (gallons/day) for each of the buildings within the
sample, the incoming water temperatures, by month, derived for the
location, and the expected hot water delivery temperature to calculate
the annual hot water load (Btu/yr) for the building, including
additional piping circulation energy losses where appropriate. DOE
converts this to an average hot water load in (Btu/day).
For each type of commercial water heater, DOE calculates the output
capacity of the representative size water heater at design conditions
and at the baseline efficiency level, taking into account the usable
storage volume, where applicable, and the length of the peak sizing
period in hours based upon industry sizing guidance. Then for each of
the above buildings, DOE divides the daily hot water load requirements
by the hourly capacity of the water heater over the sizing period to
get the daily average burner operating hours necessary to meet the
above hot water load for the baseline unit at full output. Then for the
remaining hours in the day, DOE uses the water heater hourly standby
energy loss rate to calculate daily average standby loss energy
consumption. The daily energy consumption at baseline efficiency is
calculated as the operating hours to meet the building hot water load
times the full load input of the water heater plus the daily energy
consumed to meet the water heater standby loss. The average daily
energy for the equipment is then multiplied by the number of days in a
year to get annual energy consumption.
For the rulemaking, DOE is assessing the effect efficiency
improvements have on energy consumption. For the representative
equipment in each class, the burner operating hours to meet the
building load requirements decreases with improved efficiency. DOE uses
the decreased operating hours to calculate the annual energy
consumption for the water heater at each higher efficiency level
considered. Chapter 7, appendix 7A, and appendix 7B present further
detail regarding the water sizing methodology and estimation of
building hot water loads and corresponding energy consumption by
efficiency level.
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.
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 and efficiency level
analyzed. This approach used by DOE captures the variability in CWH
equipment use due to factors such as building activity, schedule,
occupancy, tank losses, and distribution system piping losses.
CWH equipment analyzed in this rulemaking is used in commercial
building applications and certain residential applications,
particularly multifamily buildings. For commercial sector buildings,
DOE used the daily load schedules and normalized peaks from the 2013
DOE Commercial Prototype Building Models \47\ to develop gallons-per-
day hot water loads for the analyzed commercial building types.\48\ For
this final rule, DOE assigned the corresponding hot water loads on a
square-foot basis to associated commercial building records in the
EIA's 2018 CBECS \49\ in accordance with their detailed 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.'' \50\ For this final rule, DOE applied this model to the
residential building records in the EIA's 2009 Residential Energy
Consumption Survey (``RECS'').\51\ For
[[Page 69729]]
the May 2022 CWH ECS NOPR DOE decided not to use the 2015 RECS because
it lacked information including the number of apartments and the number
of floors in the building of apartment observations, and other
information such as householder age distributions was less robust than
in the 2009 RECS dataset. Because of the data issues with the 2015 RECS
and because the 2020 RECS was not yet final at the time the final rule
analysis was completed, DOE maintained use of the 2009 RECS. 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 in part to analyze
individual apartment hot water loads, DOE had to modify it for the
analysis of shared water heater/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.
---------------------------------------------------------------------------
\47\ U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy. Commercial Prototype Building Models. 2013.
Available at www.energycodes.gov/prototype-building-models.
\48\ Such 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.
\49\ U.S. Energy Information Administration (EIA). 2018
Commercial Building Energy Consumption Survey (CBECS) Data. 2018.
Available at www.eia.gov/consumption/commercial/data/2018/.
\50\ U.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=EERE-2006-STD-
0129-0149.
\51\ U.S. Energy Information Administration (EIA). 2009
Residential Energy Consumption Survey (RECS) Data. 2009. Available
at www.eia.gov/consumption/residential/data/2009/.
---------------------------------------------------------------------------
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,\52\ specific
heat of water,\53\ 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.\54\ 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'').\55\ DOE took the difference between the building's water
heater set point temperature used in its energy analysis and the inlet
temperature to determine temperature rise (see chapter 7 of the final
rule 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 average hot water building loads
(calculated for each month using monthly inlet water temperatures) to
annual water heater loads for use in determining annual energy use for
the representative water heaters at each efficiency level analyzed.
---------------------------------------------------------------------------
\52\ DOE used 8.29 gallons per pound.
\53\ DOE used 1.000743 Btu per pound per degree Fahrenheit.
\54\ U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data.
\55\ Hendron, 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.
---------------------------------------------------------------------------
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.\56\ 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. For the final rule this methodology was applied to selected
commercial building records in 2018 CBECS and residential building
records in 2009 RECS to determine peak gallons-per-hour requirements,
assuming a temperature rise specific to the building, for sizing of the
water heater system. For buildings with sizing based greater than one
hour sizing periods, the average gallons per hour requirement during
the peak was developed. DOE divided these peak hourly hot water loads
by the average hourly hot water delivery capability of the baseline
representative model of each equipment category over the sizing period,
including in the case of circulating water heaters and boilers the
usable hot water storage of external storage tanks over that period, to
determine the number of representative water heater units required to
service the maximum load. For each representative unit of the CWH
equipment analyzed for the final rule, DOE examined the individual
CBECS and RECS building peak hot water loads to find those building
observations whose loads indicated a 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, a similar limit of four units per building was
set. For the commercial gas-fired storage and the instantaneous water
heaters and hot water supply boiler equipment classes, DOE set an upper
limit at 40 units. DOE recognizes that these two equipment classes
cover a wide range of capacities, and 40 units is equivalent to a much
smaller of very large units in the same equipment classes. This limit
had the effect of eliminating a small number of exceptionally large
loads from consideration. In addition, 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,\57\ which estimates a maximum water demand of a building
accounting for statistical probabilities for simultaneous fixture use
for sizing of instantaneous water heaters to develop the adjustment
factors for commercial gas-fired tankless water heaters. 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 1-hour
maximum load period used for the first hour rating. Gas-fired
circulating water heaters and hot water supply boilers as a class were
teamed with unfired storage tanks to determine their first-hour
capabilities since this is the predominant installation approach for
this equipment. (See appendix 7B of the final rule TSD).
---------------------------------------------------------------------------
\56\ A.O. Smith. Pro-Size Water Heater Sizing Program. Available
at www.hotwatersizing.com/. Last accessed in December 20, 2022.
\57\ PVI Industries Inc. ``Water Heater Sizing Guide for
Engineers,'' Section X, pp. 18-19. Available at oldsizing.pvi.com/pv592%20sizing%20guide%2011-2011.pdf.
---------------------------------------------------------------------------
For each equipment type being examined, DOE sampled all RECS and
CBECS buildings that were deemed suitable for the development of the
representative loads for that equipment type using a Monte Carlo
analysis in the LCC model; the Monte Carlo analysis randomly generates
values for uncertain variables from expected distributions of these
variables to simulate input variability in a model (see appendix 8B of
the final rule TSD for a more detailed description). For each building
sampled, DOE divided the buildings daily average hot water demand, in
Btu, including pipe circulating losses, by the product
[[Page 69730]]
of the output hot water heating capability of the representative water
heater unit examined and the total number of representative units
required for the sampled building to provide estimate the average daily
hours of full load operation to serve the building hot water needs for
that representative unit. The remainder of the hours in the day
represent hours of standby mode. For DOE's analysis, the number of
water heaters allocated to a specific building was held constant at the
baseline efficiency level, but as the heating output of each
representative unit increases with thermal efficiency, a water heater's
hours of operation decreased as its thermal efficiency improved. This
decrease in operating hours, in combination with changes in standby
hours and standby loss performance at each efficiency level, results in
changes in energy consumption at each efficiency level above the
baseline. In the case of residential-duty gas-fired storage water
heaters, DOE estimated the thermal efficiency and standby loss levels
for each UEF level developed in the Engineering Analysis using the same
methodology as for the NOPR. This conversion is discussed in Chapter 7
of the final rule TSD. Section IV.C.4 of this final rule and chapter 5
of the final rule TSD include additional details on the thermal
efficiency, standby loss, and UEF levels identified in the engineering
analysis.
DOE received multiple comments on the use of CBECS and RECS data in
its energy use analysis presented in the May 2022 CWH ECS NOPR. For the
NOPR, DOE's analysis used the 2012 CBECS and 2009 RECS in developing
building samples. Multiple stakeholders stated that DOE should use
newer data, pointing specifically to the availability of CBECS 2018 and
RECS 2020 data. (AHRI, No. 31 at p. 2; Joint Gas Commenters, No. 34 at
p. 33; Rheem, No. 24 at p. 2) Patterson-Kelley stated that they
reviewed the most current versions of RECS and CBECS with the
understanding that these would be used in the final rule. (Patterson-
Kelley, No. 26 at p. 4) CA IOUs indicated support for DOE's proposed
minimum efficiency standards if DOE updated the analyses with newer
data including specifically the more recent CBECS. (CA IOUs, No. 33 at
p. 1) Similarly, the Joint Gas Commenters urged DOE to use the most
current available data and stated DOE should halt the rulemaking until
this data was appropriately evaluated. (Joint Gas Commenters, No. 34 at
p. 33)
In response to comments that DOE should use the latest CBECS and
RECS, for the final rule, DOE used the 2018 CBECS, but maintained use
of the 2009 RECS data. The CBECS 2018 data is the most current CBECS
dataset for which the commercial building characteristics data used by
DOE is available. DOE considered using the RECS 2015 and 2020 datasets.
Both datasets lack the number of floors and the number of apartments in
apartment buildings, as well as some disaggregated data concerning the
ages of building occupants, all of which are needed for the analysis
and which were included in the 2009 RECS. Additionally, the 2020 RECS
was not finalized when the final rule analysis was being completed,
meaning that data could change after the final rule analysis was
completed which could complicate third-party review of DOE's models and
data after the final rule is published. Because both the 2015 RECS and
2020 RECS lack key data fields, and additionally because the 2020 RECS
dataset was not yet finalized, DOE used 2009 RECS data for this final
rule. It should be noted that the update to CBECS 2018 did not
represent a change in the methodology or tools used to generate
results. Rather, using the more recent CBECS data set is functionally
little different than updating other data sets such as using 2022
RSMeans labor rates rather than 2021 RSMeans labor rates. DOE replaced
the CBECS data in the LCC model with little difficulty given that all
relevant data fields existed in the new CBECS data.
Patterson-Kelley questioned the use of RECS and CBECS given
concerns about the appropriateness of the data. (Patterson-Kelley, No.
26 at p. 4) WM Technologies expressed certain concerns with the
appropriateness of DOE's use of RECS and CBECS data sets in its
analysis and provided several comments, particularly examining the 2015
RECS and 2018 CBECS data, which was the most recent available at that
time. In particular they commented that (1) the RECS process normalized
data toward the median values through a process referred to as minimum
variance estimation and therefore the variation in the data was
minimized, (2) RECS data do not agree with other surveys on energy use
due to how questions were asked and data edited, and (3) that more than
one half of the 2015 RECS square footage data were estimated using an
imputation method, and the overall imputation rate of these data was
65.6 percent. WM Technologies further states that the documented
variation in the published RECS data was not included in the LCC
analysis, which is expected to become significant when the department
reviews subgroups and must be corrected to assure an accurate analysis.
With respect to CBECS, WM Technologies stated that the primary sampling
unit for major cities focused on areas with significant commercial
activity while other primary sampling units were selected at random and
that this biased building selection toward high revenue generating
areas. The noted sampling rates for large buildings were higher than
small buildings and thus overstates energy consumption for the LCC,
that subgroups within CBECS with highly variable energy consumption
were sampled at a higher rate than subgroups with less variable energy
consumption, and finally the energy consumption from CBECS is an
estimate at best and includes a category of end use as other, resulting
in significant uncertainty in results. (WM Technologies, No. 25 at pp.
3-4)
DOE considered the comments from WM Technologies on the use of RECS
and CBECS data sets; however, DOE disagrees with the WM Technologies
conclusions with regard to DOE's analysis.
Regarding the discussion of the RECS use of minimum variance
estimation, this is discussed in EIA's 2015 Consumption and
Expenditures Technical Documentation Summary \58\ when calibrating the
end use estimates from modeling end uses for each household to the
measured annual energy use totals that are collected by EIA in the
development of RECS. It is not clear from the WM Technologies comment
exactly what is the concern with EIA's use of this in calibration;
however, DOE's use of RECS for this rulemaking is as a source for
household characteristics data used for the generation of hot water
loads. DOE is not using the 2015 RECS and does not use energy end use
estimates from the 2015 RECS. Thus, DOE does not believe this
discussion of minimum variance estimation is relevant to this
rulemaking.
---------------------------------------------------------------------------
\58\ U.S. Energy Information Administration (EIA). 2015
Consumption and Expenditures Technical Documentation Summary. May
2018. Available at www.eia.gov/consumption/residential/reports/2015/methodology/pdf/2015C&EMethodology.pdf.
---------------------------------------------------------------------------
WM Technologies also notes that 2015 RECS data do not agree with
other surveys on energy use due to how questions were asked and data
edited, and cites EIA's web page for the discussion of this, although
generally not providing detail on why this variation was considered
problematic except expressing the concern with the high ratio of
imputed data for household square footage. In response to these points,
DOE notes that the 2015 RECS
[[Page 69731]]
was not used in this final rule and to this extent the comments are not
applicable to the final rule analysis. In reviewing the cited
discussion from EIA, DOE notes that much of the discussion is focusing
on end use estimation. In fact, in the discussion from EIA comparing
against previous RECS analysis, EIA specifically notes that it believes
the updated modeling and calibration method are an improvement over
previous RECs estimation methods. However, other differences noted by
EIA were that it was a smaller sample than the 2009 RECS and that it
relied extensively on self-administered web and paper questionnaires to
supplement the traditional, computer-assisted personal interview and
indicated that where household data relied exclusively on web and paper
inputs, all square footage estimates for homes were imputed. There is
discussion provided by EIA comparing or contrasting RECS with other
Federal studies that may provide insight into residential energy
demand. In this discussion, EIA provides a very clear note that these
studies are optimized to serve a different purpose from the RECS and so
their results for similar items may vary from the RECS. The RECS study
is designed specifically for the analysis of current U.S. household
energy consumption, unlike the other studies it is contrasted with.
With regard to the WM Technologies concern that CBECS and the building
sampling are biased toward large buildings in commercial areas,
resulting in overstating consumption in the LCC--there are several
reasons why this is incorrect. First, CBECS samples are assigned
weights where the assignment process uses data from other larger
building data ``frames'' and sources so that the weight represents the
building itself and other similar buildings within the U.S. population.
As the samples are in fact weighted and DOE uses these weights when
sampling within the LCC, the oversampling of large buildings does not
translate to a bias in the final CBECS weighted sample. Second, DOE's
use of CBECS for this rulemaking is for the development of building
characteristics data and not based on the end use energy estimates. In
its review, DOE does not feel that the concerns expressed by WM
technologies regarding RECS or CBECS are important or relevant to the
use of these data sets in the final rule analysis.
DOE notes that the analysis accounts for recirculation loop losses
in average daily hot water loads. In its final rule 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
such as 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 heater 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 main 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 final rule 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.
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 field-efficiency into account.
DOE notes that its sizing methodology was based on industry sizing
tools and guidelines 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
[[Page 69732]]
volume of equipment for a given building application.
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 retained
this use of representative installation practices for the final rule
analysis. Chapter 7 of the final rule TSD provides more information on
the hot water delivery calculations for circulating water heaters.
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. 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. 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,\59\ 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 sub-hour 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 hot water boilers where separate storage
tanks are typically used.
---------------------------------------------------------------------------
\59\ American 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.
---------------------------------------------------------------------------
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 CBECS and residential
building records from 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 building
record's location is associated with geographic regions composed of one
or multiple U.S. States in the case of RECS (referred to herein as
``reportable domains''), and a Census Division in the case of CBECS.
Using this location, DOE assigned an average monthly inlet temperature
for the location the building resided in using monthly dry bulb
temperature estimates for each location based on the TMY temperature
data as captured in location files provided for use with the DOE
EnergyPlus energy simulation software,\60\ along with an equation and
methodology developed by NREL.\61\ Where CBECS data are used, DOE used
weighted average data across the states within the division, with data
being weighted by State population. Where RECS data are used, DOE used
weighted average data across the states within the reportable domain,
with data being weighted by State population. 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. For a given hot water usage, as inlet temperature is
colder, energy use increases, since the water heater must impart more
heat to bring the inlet temperature to the set point temperature.
Chapter 7 of the final rule TSD provides detailed information on how
energy use was calculated using inlet water temperature.
---------------------------------------------------------------------------
\60\ U.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.
\61\ Hendron, 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.
---------------------------------------------------------------------------
As stated, DOE developed daily hot water loads for building
applications using the building service water heating schedules in the
2013 DOE commercial prototype building models. 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. 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 this final rule, DOE used schedules and loads from
ASHRAE prototype models with augmented data reflecting recent standards
affecting water heater used by commercial appliances and equipment. The
commercial building hot water loads based on the daily schedules and
square footage from the scorecards of the 2013 DOE commercial prototype
building
[[Page 69733]]
models and corresponding normalized peak water heater loads from the
DOE EnergyPlus energy simulation input decks for these prototypes 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 specifically
excluded from the analysis of CWH equipment was manufactured
housing,\62\ since DOE determined that manufactured housing is not
suitable for any CWH equipment installation or use. A manufactured home
would have hot water loads which require a commercial water heater.
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. Chapter 7 of the final rule TSD provides
details of DOE's energy use analysis and sizing.
---------------------------------------------------------------------------
\62\ A manufactured home is defined as ``a structure,
transportable in one or more sections, which in the traveling mode
is 8 body feet or more in width or 40 body feet or more in length or
which when erected on-site is 320 or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling
with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air-
conditioning, and electrical systems contained in the structure. . .
.'' 24 CFR Subtitle B Chapter XX Part 3280. Available at
www.ecfr.gov/current/title-24/subtitle-B/chapter-XX/part-3280 (last
accessed April 21, 2023).
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In response to the May 2022 CWH ECS NOPR, Bradford White noted that
certain CWH equipment is designed to work within a limited delta T
range (i.e., temperature difference between the inlet and outlet of the
water heater) in order to hit the rated efficiency and meet the needs
of the application. Therefore, a 160 [deg]F setpoint temperature will,
in fact, decrease efficiency, as a limited delta T (e.g., 20 [deg]F)
will keep the inlet to the water heater high enough that condensing
will not occur. (Bradford White, No. 23 at p. 9) PHCC commented that to
achieve condensing in practice, water temperatures must be below 140
[deg]F and while this is easier to obtain in furnaces, with water
products the storage temperature may be close to or exceed that
temperature. Manufacturers of boilers will typically show an efficiency
curve with return water temperature and show a transition between when
a unit is condensing or not condensing. They further state that either
way, if a consumer elects to have water temperatures of 140 [deg]F or
higher, the performance of the heater will not hit the 95 percent
efficiency level. Perhaps the test method sets parameters that make 95
percent achievable but in the real world, that will not be the case.
Furthermore, they note that a 140 [deg]F consideration is very likely
for kitchens and laundries. In addition, due to biofilm and legionella
concerns, many facilities are moving toward higher storage temperatures
to combat contaminants. (PHCC, No. 28 at p. 3)
In response to the comment by Bradford White, DOE is aware that
certain instantaneous water heaters are designed as commercial booster
water heaters and that some of these units may in fact be operated with
high inlet water temperatures that would not allow condensing. While
many booster water heaters are electric resistance units, DOE is aware
that certain gas water heater products are on the market and examined
several of these products. The units examined however appear to be
capable of a wide range of temperature rise operation and not designed
solely for low temperature rise applications. This appears to be more
application specific choice on the part of the commercial user than a
limitation of the water heater itself. Several of these units examined
were rated as condensing water heaters. DOE understands that it is
possible that in certain applications a unit like this may not
condense, but it does not appear that this is a limitation of the water
heater. Further, DOE believes that such products represent a niche
market in the general class of gas instantaneous water heaters.
DOE is unaware of equipment rated as instantaneous water heaters
that are capable of operation only under low temperature rise (e.g., 20
[deg]F temperature rise) application. In general, hot water supply
boilers, circulators, and volume water heaters designed to work with
separate storage tanks also appear to be both tested according to the
DOE test procedure and the available literature reviewed by DOE
indicated were capable of operating at higher (e.g., 70 [deg]F)
temperature differentials between inlet and outlet. As discussed
previously, that such equipment could be placed in an application in
which it would not condense is possible, however it also appears that
in many cases piping arrangements in such an application could be
designed such that when cold inlet water enters the system (occurring
whenever hot water is removed from the system), mixing valves or mixing
stations can ensure that water going to the water heater is low enough
to provide for condensing to occur. Many volume water heaters already
provide for condensing efficiencies.
DOE further notes that water heaters are generally different than
hydronic, space heating boilers in that where hot water is removed from
the circulating system, cold water at the water main temperature is
introduced into the system. While PHCC has suggested that at 140 [deg]F
storage temperature or higher, the performance of the heater will not
hit 95 percent efficiency, DOE notes that the DOE test procedure for
commercial water heaters presumes a 140 [deg]F leaving water
temperature already (and therefore, a similar storage temperature) and
models are tested at that temperature and at full rated input capacity
and many achieve thermal efficiencies higher than 95 percent. While
there may be some degradation in performance at higher leaving water
temperatures, DOE believes that with modern water heater designs,
entering water temperature is the primary limitation on whether
condensation occurs, not leaving water temperature. Further DOE notes
that many commercial water heaters are designed with modulating
burners, which further lower the burner heat output and increase the
equipment efficiency beyond what may be envisioned at full rated output
as per the DOE test procedure.
[[Page 69734]]
DOE is aware of a variety of opinions on the handling of
legionella, but again notes that cool water will need to be heated in
any water heating system and notes that the heating of such water is
the majority of the hot water load on the water heaters in DOE's
analysis.
PHCC expressed concern that the estimated annual unit energy for
commercial water heaters is understated. To perform a simple check on
the estimates, PHCC divided unit energy by the input rating and the
number of days per year, a calculation that yields the daily average
hours of operation. PHCC notes that when these products are installed,
restaurants, hotels, dormitories, hospitals, and such, it is hard to
believe that these water heaters only operate for a few hours a day.
PHCC believes that the basis for the energy use is understated for all
categories of CWH products. (PHCC, No. 28 at p. 3)
In response, DOE notes that the primary inputs affecting the
operating hours per day are the hot water load, including any
circulation energy losses and the sizing of the water heater to meet
the peak building needs. Standby losses from the water heater itself
are also important but generally would result in only approximately 15-
20 minutes of operation on a given day for a commercial gas storage or
residential-duty water heater respectively even if the unit was in
standby for the entire day. In addition, while restaurants, hotels,
hospitals and dormitories would be expected to be high utilization end
uses, commercial water heaters can also serve office and retail
applications which might have comparatively small hot water loads per
unit of water heater capacity. DOE's analysis has tried to incorporate
both industry sizing tools (which potentially could be conservative)
and estimates of hot water load across a wide variety of building
applications, and represents relative frequency of use in these
application through the use of CBECS and RECS sampling of buildings
that could use the various classes of CWH equipment as described
previously and in detail in the final rule TSD. DOE recognizes that in
the end, however, operating hours, which provide a normalized
representation of the energy consumption for a given size of purchased
equipment, are a principle driver in the economics of DOE's life-cycle
cost and other downstream analysis and to the extent that any class of
commercial water heater operates on average more hours in a day than
estimated by DOE, it would generally result in larger energy use and
all else the same, correspondingly larger energy savings than estimated
by DOE.
PHCC noted that at the 2022 Emerging Water Technology Symposium,
Dr. Janet Stout, a noted infectious disease microbiologist from the
University of Pittsburgh, answered a question related to the setting of
water heaters by saying 140 [deg]F should be the minimum temperature.
They state that if that is the case, the assumed 95 percent water
heater may in reality be no better than 87 to 88 percent most of the
time. It is unclear if the proposed rule makes any allowance for this
situation, but it will have a large impact on the projected energy
savings. (PHCC, No. 28 at p. 3)
NYSERDA supports DOE's analytical approaches for temperature
settings and DOE's acknowledgement that in the real world multiple
setpoints are used. (NYSERDA, No. 30 at p. 2)
Bradford White noted that in the analysis for circulating water
heaters, DOE assumed a storage tank size of 250 to 350 gallons. While
this overall size can be used, Bradford White noted that this is highly
dependent on the application that the product is installed in. Also, if
too much storage is used in the wrong application, it can lead to
condensing where you do not want it. (Bradford White, No. 23 at p. 9).
CA IOUs noted a water heating system is often composed of multiple hot
water sources and separate hot water storage tanks. Separate hot water
systems are usually needed to meet the primary make-up load, hot water
load, and the secondary recirculating hot water loop load. Therefore,
in future analysis, the CA IOUs recommend that DOE consider the
interplay of these components when assessing heat pump water heaters.
(CA IOUs, No. 33 at pp. 2-3)
In response to PHCC, DOE recognizes that there is debate over water
heater set points and concern with legionella growth in hot water
systems, and there have been different approaches in practice regarding
set points and controls for CWH systems. DOE agrees with comments by
NYSERDA that, in practice, there will be some range of set points used.
DOE also reiterates that that the Federal test procedure for commercial
gas storage water heaters and commercial gas instantaneous water
heaters rates the thermal efficiency of these products at a flow rate
that provides for essentially a 140 [deg]F outlet temperature and to
provide for that in practice, the setpoint is set approximately at that
temperature. While DOE is cognizant of the concerns raised by PHCC, DOE
does not believe that a recommendation to use setpoints near but above
140 [deg]F will result in the dramatic change in thermal efficiency
indicated by PHCC. As previously stated, DOE believes that, for current
condensing water heater designs, it is inlet temperature that will have
a bigger effect on efficiency and more attention may need to be paid to
modulating heat capability and how inlet water is introduced to systems
with recirculation. Regarding the Bradford White observation on storage
tank sizing, DOE reviewed equipment manuals to try to establish a
reasonable range of storage tank sizes that would be typical selections
for the representative circulating water heaters and hot water supply
boilers units input rate developed unit from the engineering analysis.
The range of storage tank sizes was the same as was used in the
withdrawn May 2016 CWH ECS NOPR and DOE did not receive comment on how
it could improve this selection. DOE appreciates the comment that there
may be engineering aspects to the use of larger storage tanks but
believes that its selection of this size range was prudent for the
representative equipment input rate based on manufacturer literature
reviewed. In a similar vein, DOE appreciates the comment from CA IOUs
in terms of their understanding of the use of multiple and types of CWH
equipment in developing commercial hot water systems and their comment
that DOE should consider the interplay among these components when
assessing heat pump water heaters. DOE did not consider energy
conservation standards for commercial heat pump water heaters in this
final rule because of the limited number of units on the market.
However, DOE may analyze standards for commercial heat pump water
heaters in a future rulemaking, at which time DOE will consider how to
address the interplay among these different components in evaluating
standards including commercial heat pump water heaters.
F. Life-Cycle Cost and Payback Period Analysis
DOE conducted LCC and PBP analyses to evaluate the economic impacts
on individual consumers of potential energy conservation standards for
CWH equipment. The effect of new or amended energy conservation
standards on individual consumers usually involves a reduction in
operating cost and an increase in purchase cost. DOE used the following
two metrics to measure consumer impacts:
The LCC is the total consumer expense of equipment over
the life of that equipment, consisting of total installed cost
(manufacturer selling price, distribution chain markups, sales
[[Page 69735]]
tax, and installation costs) plus operating costs (expenses for energy
use, maintenance, and repair). 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 more-efficient 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
equipment.
DOE conducted the LCC and PBP analyses using a commercially
available spreadsheet tool and a purpose-built spreadsheet model,
available on DOE's website.\63\ 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 final rule and described in detail in chapter 8 of the final
rule TSD.
---------------------------------------------------------------------------
\63\ DOE's web page for CWH equipment is available at
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. Last accessed on December 15, 2022.
---------------------------------------------------------------------------
As previously noted, DOE's LCC and PBP analyses generate values
that calculate the PBP for 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 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 Ball\TM\ add-on.\64\ 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 final
rule TSD.
---------------------------------------------------------------------------
\64\ Crystal Ball\TM\ 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 December 15, 2022).
---------------------------------------------------------------------------
For the May 2022 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 final rule
analysis, however, with updates to the data set. One update was
switching to CBECS 2018 consistent with DOE's general practice of
relying on updated data sources to the extent practicable and
appropriate.\65\ The CBECS 2018 microdata needed for its analysis were
not available when DOE conducted the May 2022 CWH ECS NOPR analysis;
hence, DOE used CBECS 2012 (the most recent available version at the
time) for the 2022 CWH ECS NOPR analysis. In this final rule, DOE
updated its LCC model to use EIA's CBECS 2018 microdata.
---------------------------------------------------------------------------
\65\ More information on the types of buildings considered is
discussed later in this section. CBECS: www.eia.gov/consumption/commercial/data/2018/. Link last accessed on December 15, 2022.
---------------------------------------------------------------------------
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 final
rule.\66\ To validate models, DOE develops models with 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.\67\ 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
[[Page 69736]]
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.
---------------------------------------------------------------------------
\66\ To reiterate, DOE's web page for CWH equipment is available
at www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
\67\ The model being discussed in this section, the LCC, has no
known locked cells and it is unprotected, meaning 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.
---------------------------------------------------------------------------
DOE calculated the LCC and PBP for all 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-year-lookback authority under 42 U.S.C.
6313(a)(6)(C). At the time of preparation of the final rule analyses,
the anticipated final rule publication date was 2023. Thus, for the
purposes of the LCC modeling 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)) Therefore, for
the purposes of its LCC analysis for this final rule, DOE used January
1, 2026 as the beginning of compliance with potential amended standards
for CWH equipment.
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 93 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.\68\ For residential applications, the entire
household 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.\69\
---------------------------------------------------------------------------
\68\ Damodaran Online. Commercial Applications. Available at
pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm. Last accessed
on December 16, 2022.
\69\ The 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. Last accessed on
December 16, 2022.
---------------------------------------------------------------------------
The LCC analysis used the estimated annual energy use for each CWH
equipment category described in section IV.C of this final rule. 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.
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 gas 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.
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 RSMeans 2018
through 2022 data books\A\ \B\ \C\ and
converted to 2022$.
------------------------------------------------------------------------
[[Page 69737]]
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 DOE developed average residential and
Gas Prices. commercial electricity prices based on
EIA Form 861M, using data for 2022.\D\
Future electricity prices are projected
based on AEO2023. DOE developed
residential and commercial natural gas
prices based on EIA State-level prices
in EIA Natural Gas Navigator, using data
for 2022.\E\ Future natural gas prices
are projected based on AEO2023.
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 year for
adopted standards.
------------------------------------------------------------------------
Analyzed Efficiency Levels
------------------------------------------------------------------------
Analyzed Efficiency Levels... DOE analyzed baseline efficiency levels
and up to five higher thermal efficiency
levels for commercial gas-fired storage
water heaters, commercial gas-fired
tankless water heaters, and commercial
gas-fired instantaneous circulating
water heaters and hot water supply
boilers. For residential-duty gas-fired
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. 2017 through 2022 Plumbing Costs with RSMeans Data. RSMeans
data available at www.rsmeans.com/products/books, though when last
accessed, the 2022 books no longer appeared to be available.
\B\ RSMeans. 2022 Facilities Maintenance & Repair Costs with RSMeans
Data. RSMeans data available at www.rsmeans.com/products/books.
\C\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD,
Mechanical Costs for 2021 and 2022, and 2018 through 2020 Mechanical
Cost with RSMeans Data. Available www.rsmeans.com/2022-mechanical-cost-data-cd. RSMeans links last accessed on April 19, 2023.
\D\ U.S. Energy Information Administration (EIA). Average Retail Price
of Electricity (Form EIA-861M). Available at www.eia.gov/electricity/data.php. Last accessed on March 31, 2023.
\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. EIA data last updated March 31, 2023, and accessed on
March 31, 2023.
\F\ American 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.
In response to the May 2022 CWH ECS NOPR, DOE received numerous
general comments related to the LCC and PBP analysis. Atmos Energy and
Joint Gas Commenters state that DOE should break storage and
instantaneous water heaters out separately for purposes of LCC and PBP
analysis. (Atmos Energy, No. 36 at pp. 4-5; Joint Gas Commenters, No.
34 at p. 33) In section III.B.6, DOE discusses the determination that
commercial gas-fired storage water heaters and storage-type gas-fired
instantaneous water heaters would be treated jointly for purposes of
the final rule. Because they are being treated jointly, modeling them
separately in the LCC and PBP analysis was seen as confusing and
unnecessary.
As noted in section IV.E, many commenters said DOE should update to
more recent RECS and CBECS data. CA IOUs indicated support for DOE's
proposed minimum efficiency standards if DOE updated the analyses with
newer data including specifically the more recent CBECS and RSMeans
data. AHRI stated their concern about DOE is using older CBECS and RECS
data which they termed ``outdated data,'' and that this could cause DOE
to underestimate the true impacts to consumers. AHRI recommended that
DOE conduct updated analysis where existing data sources are out of
date. (CA IOUs, No. 33 at p. 1; AHRI, No. 31 at p. 2) DOE acknowledges
the CA IOUs and AHRI comments and notes that the LCC and PBP analysis
has been updated to include the 2018 CBECS, but as discussed in section
IV.E, DOE maintained use of the 2009 RECS.
PHCC believes that the economic analysis has several deficient
factors and as a result it would be difficult to rely on the projected
energy savings, cost of materials, labor costs and times presented by
DOE to do certain aspects of the work. PHCC encourages DOE to update
the basic information in the LCC model to reflect current 2022
conditions in the marketplace. (PHCC, No. 28 at pp. 10-11) As discussed
in the subsections below, DOE has updated a large number of the inputs
used in the LCC and PBP analyses. Some inputs such as the U.S. Economic
Census underlying the Markups Analysis cannot be updated because the
2017 census remains the most recent census.
Patterson-Kelley stated concerns that the methodology to generate
the RECS and CBECS data sets marginalizes large portions of the
country. (Patterson-Kelley, No. 26 at p. 2) WM Technologies expressed a
similar concern adding the data exhibit a bias toward larger revenue
generating areas and larger buildings. By doing so they believe CBECS
exhibits an unrecognized bias against underserved communities and
populations. Buildings and homes in rural and lower
[[Page 69738]]
revenue areas typically have less insulation while larger cities
typically have more exacting building codes and enforcement. Therefore,
the current CBECS approach also erroneously minimizes actual variation
in the LCC results, with the largest errors in the impact to
disadvantaged and underserved communities and small businesses. WM
Technologies also called on DOE to provide the impact to the results
from using different sources of information than RECS and CBECS and
provide realistic modeling by accounting for documented uncertainties
and variation to the inputs used in the analysis. (WM Technologies, No.
25, at pp. 4-5) Patterson-Kelley and WM Technologies stated that any
LCC modeling must include the variation in the CBECS and RECS data
sets, consistently relating to all references to the location-specific
information of the home or building modeled as this will better utilize
the variation and energy usage on average, identified in the national
energy surveys noted in the 2015 RECS comparison with other studies.
(Patterson-Kelly, No. 26, at pp. 2, 4; WM Technologies, No. 25 at p. 4-
5) DOE disagrees with the conclusions reached in WM Technologies' and
Patterson-Kelley's comments, as was pointed out in section III.E in
which DOE addressed the majority of WM Technologies and Patterson-
Kelley's comment. CBECS and RECS datasets are nationally representative
datasets available for public use. Since the commenters did not suggest
specific different sources of information when calling on DOE to
provide the impacts from using different sources of information, this
suggestion seems to not be feasible to DOE. DOE agrees that the EIA
sampled major cities with certainty as stated by WM Technologies and
Patterson-Kelly, but questions whether electing to not take the chance
that a major commercial hub like Chicago would be excluded from CBECS
samples due to pure random chance in the sampling selection represents
bias as alleged in these comments. Regardless, at the end of the
process EIA assigns weights to buildings. So, a large building in
downtown New York City receives a low building weight because there are
very few such buildings, while smaller buildings characteristic of
rural areas get much higher weights because there are large numbers of
them across the country.
The Joint Gas Commenters offered several reactions to DOE's
discussion of LCC and claimed that they overall believe the standards
are not economically justified nor supported by clear and convincing
evidence. Firstly, they stated that DOE's LCC results shows that
consumers barely break even with LCC savings ranging from 0.58 to 1.25
percent of total LCC. They further offered their opinion that because
DOE has addressed some variability of inputs in the model but has not
addressed all uncertainties about the ranges and distributions of
inputs to the model, the proposed standards could impose net costs, and
that this does not provide the clear and convincing evidence needed to
amend the standards. (Joint Gas Commenters, No. 34 at pp. 14-15)
Additionally, they noted that DOE performed the analysis by building up
to the price that consumers pay for products and their installation and
related costs, rather than collecting ``actual'' data. They pointed to
assumptions made and offered their opinion that DOE must locate
suitable data, and lacking such, must resolve against amending the
standards. (Joint Gas Commenters, No. 34 at pp. 16-17) In response, DOE
addresses similar ``clear and convincing evidence'' comments in section
III.A of this document.
DOE notes that the LCC savings presented in the 2022 CWH ECS NOPR
represent an overall average, reflecting the fractions of consumers
that are better off and that are worse off due to the proposed
standard, as well as a significant percentage of consumers for whom the
standard has no effect because they already purchase equipment that
meet the standard. In this final rule, the LCC savings represent an
average of the affected consumers only, excluding those for whom the
standard has no effect. The LCC savings in the final rule also reflect
changes DOE has made to address comments received on the NOPR. For
example, given stakeholder comments on the withdrawn 2016 CWH ECS NOPR
that there may be consumer with extraordinary installation costs, the
2022 CWH ECS NOPR introduced an extraordinary cost factor which
resulted in increased installation costs by a factor from 200 to 300
percent for a small percentage of customers. For the 2022 CWH ECS NOPR
that percentage of consumers was 2 percent, a figure that DOE retained
in the final rule analysis. In the final rule analysis, DOE has
increased the fraction of consumers that install condensate pumps and
increased the fractions of consumers installing condensate
neutralizers. In addition, DOE updated the installation costs and
venting materials costs based on the most current available data. These
changes and other are discussed in IV.F.2 of this document.
DOE notes that while Joint Gas Commenters are correct that the
relative LCC savings may be small, DOE considers other factors when
assessing whether there is clear and convincing evidence that a
standard is economically justified, such as PBP and the NIA. For
example, a major reason for the small LCC savings is the cost of
associated venting (discussed more in section IV.F.2 of this document).
However, DOE believes it reasonable to assume that once the venting has
been installed, it will also be usable in the future when the CWH
equipment is replaced. This benefit is captured in the longer-term NIA,
which includes replacement of water heaters as they reach the end of
their useful life. However, DOE did not capture the residual value of
the venting system in the LCC analysis as the LCC analysis ends at the
end of the useful life of the CWH unit. Moreover, DOE notes that, for
each equipment type, the simple payback period is shorter than the
equipment life, particularly for the instantaneous products where the
payback period is approximately half of the expected equipment
lifetime. So, while Joint Gas Commenters are correct that the relative
LCC savings may be small due to the standard, that fact alone is not
the end of DOE's economic justification analysis. Further discussion of
the results of all of DOE's economic analyses and DOE's conclusions may
be found in section V of this document.
DOE disagrees that there are unresolved uncertainties, and has
determined the issues raised in comments on the May 2022 CWH ECS NOPR
have been sufficiently addressed to resolve any alleged uncertainties.
As for whether ``building up costs'' is a reasonable approach, DOE
relied primarily on data from RSMeans and other nationally recognized
sources to develop its cost analyses. These resources provided itemized
data at each step of the process and in particular to the LCC
discussions, 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 lifecycle cost 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
[[Page 69739]]
commercial region included in the analysis. For these reasons, DOE
believes the sources relied upon were valid and appropriate for the
development of installed equipment costs. Moreover, 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. DOE has observed that contractor quotes are often
lump sum prices and getting contractors to disaggregate such prices has
historically been difficult. Thus, use of surveys would not provide the
level of detailed information needed to assess installation costs.
1. Equipment Cost
To calculate consumer equipment costs, DOE multiplied the MSCs
developed in the engineering analysis by the markups described
previously (along with sales taxes) in section IV.D of this document.
DOE used different markups for baseline equipment and higher-efficiency
equipment because DOE applies an incremental markup to the increase in
MSP associated with higher-efficiency products. For each equipment
category, the engineering analysis provided equipment costs for the
baseline equipment and up to five higher equipment efficiencies. For
the withdrawn 2016 CWH ECS NOPR, DOE examined whether available data
suggested that equipment costs for CWH equipment would change over time
in constant real dollar terms, indicating the potential for a
``learning'' or ``experience'' curve in equipment prices that might
indicate further reductions in equipment price might be expected. In
the data reviewed, DOE did not identify a clear long term historical
price trend for CWH equipment.. As DOE has seen no direct evidence to
overturn that earlier decision, 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 chapter 10
of the final rule 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 final rule, 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.
2. Installation Cost
Installation cost includes labor, overhead, and any miscellaneous
materials and parts needed to install the CWH equipment. Total
installed cost includes the retail cost of the CWH equipment and its
corresponding installation costs. Installation costs vary by efficiency
level, primarily due to venting costs. For new construction
installations, the installation cost is added to the equipment 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 RSMeans data books.\70\ RSMeans
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 RSMeans
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 RSMeans 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 RSMeans data were in agreement with
other national sources, such as the Whitestone Facility Maintenance and
Repair Cost Reference.\71\
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\70\ DOE notes that RSMeans publishes data books in November or
December for use the following year; hence, the 2022 data book has a
2021 copyright date.
\71\ Whitestone Research. The Whitestone Facility Maintenance
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012.
Whitestone Research: Santa Barbara, CA.
---------------------------------------------------------------------------
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
Microsoft Excel macros and spreadsheet calculations 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 as follows:
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 final rule TSD.
a. Data Sources
For this final rule analysis, DOE used the most recent datasets
available at the time the analysis was conducted. DOE routinely updates
data to the most 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 final rule, including use of the 2018
CBECs and 2022 RSMeans data (including 2022 RSMeans Plumbing Costs
Data, 2022 RSMeans Mechanical Cost Data, and 2022 RSMeans Facility
Maintenance and Repair Costs). In reviewing the 2022 RSMeans cost
books, DOE noted a rapid escalation of prices from 2021 to 2022 for
installation materials including PVC pipes and related connectors and
hangers, Type B venting and associated materials, and stainless steel.
The 2022 escalation in these prices relative to 2021 exceeded the
escalation seen in previous years' prices. DOE believes the 2022
escalation is related to the Covid-19 pandemic and the supply chain
bottleneck arising during the pandemic. Because these input materials
are generally undifferentiated between manufacturers and subject to
supply and demand
[[Page 69740]]
forces much like other construction materials like lumber or
commodities such as steel, DOE believes that prices will eventually
revert to something akin to historical trends. To capture prices more
consistent with long-term escalation trends, DOE used a 5-year average
of prices for PVC and Type B venting and related components, and for
Series 300 stainless steel venting materials derived from RSMeans 2018
through 2022 data books. For AL29-4C stainless steel, DOE had access to
4 years of data from the source that DOE has used in this rulemaking,
for the years 2018 and 2020 through 2022. For AL29-4C, DOE used an
average of these 4 years. For the RSMeans data and the AL29-4C data,
all prices not originally denominated in 2022$ were inflated to 2022$
using the GDP Implicit Price Deflator.
Bradford White disagreed that installation or removal cost does not
vary with thermal efficiency as more efficient products are typically
heavier than their less efficient counterparts. They stated this
translates into more people and/or equipment being required to position
the new water heater, which will drive up installation costs. Bradford
White also noted that condensate removal must be accounted for at
condensing levels. Bradford White also suggested that equipment costs
will influence installation costs, although that may not be detailed as
such on the invoice. (Bradford White, No. 23 at p. 8)
DOE, in response to Bradford White's comments, notes that it did
not explore relative weights between non-condensing and condensing
equipment of the same capacity but notes that the data sources used by
DOE indicated installation labor was a function of the input rating of
the equipment which will in turn determine the size (dimensions) of the
equipment. DOE based the labor assumption on the input rates of the
representative models, and because the input rate does not change by
EL, DOE's estimated labor also does not change by EL. Commercial water
heaters are generally large and already require multiple persons during
the installation, and DOE believes the size differences between ELs
would generally be small enough to be unlikely to impact the number of
people needed to install or remove equipment. DOE agrees that
condensate disposal is a factor leading to differing installation
costs, and addresses the cost of condensate removal in IV.F.2.b of this
document. To the extent that a contractor bases the installation cost
on equipment costs, the contractor is likely applying a markup to the
equipment to recover their own costs. DOE does include contractor
markups in the determination of retail price as well as markups
embedded in other inputs to the process such as the labor costs. Beyond
that, DOE was not provided with sufficiently specific data for DOE to
assess whether there is basis on which to account for such markups.
Bradford White stated the labor rate DOE used for the commercial
sector used, at $89 per hour, is in their opinion more representative
of the top end of the residential sector labor rates, and commercial
sector rates are in excess of $125 per hour. They also stated DOE is
correct that regional adjustments need to be made to this value, but
the low end for North and South Carolina is too low at 0.59. (Bradford
White, No. 23 at p. 8) PHCC also believes that the labor rates used by
DOE are significantly understated. PHCC notes that the U.S. Department
of Labor (``DOL'') publishes information about prevailing wage rates
for localities across the country, and the Biden Administration through
DOL has made efforts to expand the use of such information in hopes of
promoting fair and equitable employment opportunities. It would seem
that using this information would align with the goals of the Biden
Administration through DOE as well, PHCC stated. PHCC does express
concern that the labor assumptions made by DOE are outdated, that the
labor market has changed post COVID-19 with worker shortages driving up
pay and benefits and that DOE should evaluate its assumptions. PHCC
provided to DOE a sample table of commercial building plumber rates,
with employer costs and markups for each State as an example to DOE,
with a resulting average cost of $106/hr. While the sample table PHCC
provided used a random county in each State, PHCC notes that a weighted
scheme should be incorporated to accurately gauge State averages as
plumber rates in high population areas would apply to a greater
fraction of the population or sales. (PHCC, No. 28 at p. 10) DOE
acknowledges the information provided by Bradford White and PHCC, and
notes that the data source used by DOE for labor rates and for the
regional indexes is a nationally recognized source for labor rates.
Using the regional adjustment factors for individual states, four
states meet or exceed Bradford White's $125 value. The State factors
developed by DOE are a weighted average of individual city rates. Thus,
depending on where Bradford White observed the rates they are citing,
they are well within the range used by DOE. Additionally, DOE's
regional multipliers for North and South Carolina are consistent with
other southern states. With respect to PHCC's suggestion about the
prevailing wage, DOE uses the RSMeans values because they are from a
nationally recognized source, collected by surveys. With this in mind,
DOE elected to continue to use RSMeans data with the only change being
to update to the current RSMeans values available when the analysis was
performed.
Joint Gas Commenters stated that labor costs for CWH replacements
are typically not standard rates but are premium rates due to overnight
hours. Joint Gas Commenters also stated DOE inadequately accounted for
uncertainty about labor costs. (Joint Gas Commenters, No. 23, at pp. 14
and 18) In response, while Joint Gas Commenters suggested that labor
costs for CWH replacements are typically not standard rates, they did
not provide data to support this. DOE is aware that some businesses
that rely on water heaters for production (e.g., food service) might
opt for a night replacement. However, many other building types
(offices, retail, schools) can and do readily make changes such as
replacing water heaters during the day as the outage, while
inconvenient, does not limit operations. Two other large users are
hotels and health care facilities. All hotels and many health care
facilities (e.g., hospitals) are already 24/7 facilities, and it is
unclear that an over-night water heater replacement is an improvement
over a day-time replacement from the viewpoint of providing for hot
water. Many of these facilities rely on multiple water heater plants so
hot water can be available at some level if problems arise with a given
unit (as is pointed out later by the Joint Gas Commenters in their
comments). DOE believes many larger food service business may do the
same and where they do not use multiple water heaters, both non-
condensing and condensing units may be replaced at night (i.e.,
efficiency of the units is not particularly relevant to timing of
installation). Further, most food service buildings are relatively
small low rise one or two-story buildings commonly with the water
heater associated with the kitchen space and typically on a separate,
outside portion from the dining space and with floor drains already in
close proximity. This minimizes or eliminates factors potentially
leading to difficult installations, namely, most food service buildings
will not be many-storied buildings with difficult vertical venting
installations and in fact many may be able to use less costly and
simpler horizontal venting. In addition, where
[[Page 69741]]
water heaters are installed in commercial kitchen areas, floor drains
will typically exist already for code and safety reasons. DOE believes
that installation of condensing water heater venting may in fact be
less difficult for food service buildings than in other buildings,
meaning that the installation time will be more manageable. To the
extent the replacement needs to take place at night, such would occur
regardless of the efficiency of the equipment. Accordingly, for the
final rule, DOE did not apply any factor to increase the labor costs
above what was available in RSMeans.
b. Condensate Removal and Disposal
In the May 2022 CWH ECS NOPR, DOE based assumptions concerning the
need for condensate removal and disposal in part on DOE's understanding
of the International Plumbing Code.\72\ The International Plumbing Code
calls for temperature and pressure relief valves to be piped to drain,
which means that non-condensing CWH equipment should already have an
existing drainage system. An additional factor underlying DOE's
assumptions is the fact that a condensate neutralizer is not required
in certain jurisdictions, though it is good design practice.
---------------------------------------------------------------------------
\72\ See www.iccsafe.org/content/international-plumbing-code-ipc-home-page/. The model International Plumbing Code has been
adopted 35 States for State or local plumbing codes.
---------------------------------------------------------------------------
In response to these underlying factors the May 2022 CWH ECS NOPR
analysis assumed a condensate neutralizer was assigned to 12.5 percent
of replacement installations (which was unchanged from the assumption
used in the withdrawn May 2016 CWH ECS NOPR). The cost of heat tape was
assigned to 10 percent of replacement installations, and the cost of an
electrical outlet specifically for heat tape was added for 10 percent
of instances in which heat tape was installed.
JJM Alkaline stated that DOE's assumption of 12.5 percent of water
heater installations needing condensate neutralizers for condensing
equipment is too low, noting that the U.S. Environmental Protection
Agency (``EPA'') and many municipalities have codes regarding acidic
condensate discharge into public works and the acidic condensate from
heating appliances is generally 2.9 to 4.0 pH, which is below the
threshold of 5.0 pH. (JJM Alkaline, No. 10 at p. 1) Bradford White
recommended increasing the percentage of installations that utilize a
condensate neutralizer, stating that for installations that are over
200,000 Btu/hr, the percentage is closer to 75 percent (because those
installations are more likely to be inspected due to pressure vessel
requirements) while for installations under 200,000 Btu/hr, the
percentage is above the estimated 12.5 percent and growing. (Bradford
White, No. 23 at p. 8)
Regarding the comments on the use of condensate neutralizers from
JJM Alkaline and Bradford White, DOE reviewed the applicable IPC \73\
and Uniform Plumbing Code (``UPC'') \74\ as the two most widely used
model plumbing codes in the United States. Both documents have relevant
sections. The IPC requirement (IPC 2019 section 803.2) is titled
``Neutralizing device required for corrosive wastes'' and is a more
general requirement for ``Corrosive liquids, spent acids or other
harmful chemicals that destroy or injure drain, sewer, soil or waste
piping, or create noxious or toxic fumes or interfere with sewage
treatment processes.'' Where such harmful chemicals exist (as
determined by the authority having jurisdiction), the IPC requires such
corrosive wastes to be diluted or neutralized using an ``approved''
dilution or a neutralizing device. The UPC (UPC 2021 803.2) by contrast
refers specifically to condensate from fuel burning condensing
appliances, and where such condensate is discharged into a drain, the
material in the drainage system must be cast-iron, galvanized iron,
plastic, or other material approved for this use. DOE examination of
these suggests that the IPC and similar local code requirements would
be more likely to result in the use of condensate neutralizers,
particularly in new construction. DOE evaluated the population
weighting of States subject to the IPC or UPC and determined that
approximately 73 percent of the U.S. population would be in States or
jurisdictions that fall under the IPC or similar code requirements. DOE
also reviewed available data on States that require ASME stamps and
ASME-related inspections for water heating equipment and what
thresholds are used but recognizes that such inspections are safety
inspections of the equipment and would not generally address condensate
disposal issues. Based on its analysis of the language of these
requirements and discussions with others in the industry, DOE revised
the estimate of equipment using condensate neutralizer upwards, using
an average for new construction of 60 percent and separately 30 percent
for replacement equipment in the LCC analysis. Both the assumed
prevalence of condensate neutralization equipment and the expected cost
of such equipment are discussed in chapter 8 of the final rule TSD.
---------------------------------------------------------------------------
\73\ International Code Council. 2018 International Plumbing
Code (IPC). Available from www.iccsafe.org.
\74\ International Association of Plumbing & Mechanical
Officials (IAMPO). 2021 Uniform Plumbing Code. Available from
iapmo.org.
---------------------------------------------------------------------------
PHCC stated its members are concerned with the need for condensate
disposal with higher efficiency equipment, noting DOE reduced the
instances where additional work would be required assuming that the
International Plumbing Code requires a floor drain. PHCC disagrees,
stating section 502 of the code does not require a drain; instead, it
requires the relief valve to discharge to a suitable location such as a
floor, water heater drain pan, waste receptor, or outdoors. In
addition, it requires that relief valves, as emergency devices, are
allowed to discharge to the floor and in most cases that is what they
do. Service personnel are directed to solve the problem. Condensate
however is an ongoing discharge, and a method of disposal is required
per section 314.1 of the International Plumbing Code (``IPC''). Further
they note that while in some instances existing installation floor
drains may be present, additional piping may be required to get to the
drain location, and if that presents a trip hazard, owners may elect to
have a pump installed regardless. They comment that this situation will
impact more than 10 percent of installations and likely more than 50
percent. PHCC also noted that in a new installation without new
standards, consumers currently do not have to purchase condensing
products. (PHCC, No. 28 at pp. 6-7) PHCC agrees that many new
installations opt for high efficiency products already, but perhaps 25
percent to 30 percent would not. As such, some allowance should be
included in new installations for additional condensate disposal
expenses. (PHCC, No. 28 at pp. 6-7) Joint Gas Commenters noted many
commercial buildings with non-condensing equipment were not designed
with plumbing systems to dispose of condensate. (Joint Gas Commenters,
No. 34 at p. 4)
DOE interprets the comment from Joint Gas Commenters regarding
existing buildings not designed with plumbing systems to dispose of
condensate to refer to both condensate neutralization, which DOE
addressed previously, and condensate disposal which is discussed here.
With regard to the point raised by PHCC, DOE reviewed the language in
the IPC and agrees with PHCC that the code does not require a floor
drain be
[[Page 69742]]
present in spaces where a water heater exists and allows for other
means of dealing with discharge. In locations where drainage from the
T&P valve could cause damage, it requires a pan and some method of
disposal (either to the exterior of the building, a sump, or a floor
drain). In a situation where discharge would not cause damage, water
release could be handled as a maintenance call as noted by PHCC. DOE
examined the UPC requirements for floor drains as well and notes the
UPC does not appear to require floor drains for water heater
temperature and pressure discharge valves explicitly. The UPC does have
requirements for floor drains in certain areas, including what would be
most commercial restrooms (see definition, commercial kitchens,
commercial laundry spaces, and boiler rooms). The International
Mechanical Code, part of the ICC series of building codes also requires
floor drains. DOE examined other codes adoptions that occur at the
municipal or State level, and requirements for drains in non-boiler
mechanical rooms seem to occur through amendments in certain codes. For
example, the New York City code 501.16 seems to require drains at the
base of all chimneys and gas vents.\75\ In addition, DOE notes that
mechanical rooms that must deal with condensate from air handlers will
typically require some method of condensate disposal. However not all
such rooms will also be used for water heaters. In rooms that have
pumps, it appears that some form of drain will be common for
convenience to deal with replacement or leakage. DOE believes that in
many locations where commercial water heaters are installed, it appears
that drainage in the form of floor drains, trench drains, etc., will be
provided for or will be close by in existing buildings and expects this
to be more common in the case of new construction, in part due to the
prevalence of condensing equipment. However, DOE does agree that the
ability to gravity drain condensate may be limited in existing
construction and in the NOPR included the 10 percent factor. While DOE
agrees with PHCC that there may be factors at work such as avoiding a
tripping hazard, it is speculative to DOE how this leads to a fraction
as high as 50 percent as stated by PHCC. PHCC is speculating that there
in as many as half or more cases there may be a floor drain present
that building owners would choose not to use and instead pump
condensate to some other location. DOE believes this is a highly
speculative statement that implies that even where a floor drain
exists, in a majority of cases there is an alternative location in
which to dispose of condensate and owners would choose to incur
additional installation costs to reach that alternative drainage
location. That said, because the tripping hazard is a possible concern
not embodied in DOE's original 10 percent factor, DOE modified the LCC
to increase the fraction of installations with condensate pumps to 15
percent.
---------------------------------------------------------------------------
\75\ See www.nyc.gov/assets/buildings/apps/pdf_viewer/viewer.html?file=2022FGC_Chapter5_ChimneysVentsWB.pdf§ion=conscode_2022, p. 7.
---------------------------------------------------------------------------
For this final rule, 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 gas-fired storage water heaters. For
the withdrawn May 2016 CWH ECS NOPR, DOE used one condensate pump for
all equipment types while for the May 2022 CWH ECS NOPR and this final
rule DOE used two sizes of condensate pumps to reflect difference in
input rates between classes. Chapter 8 of the TSD contains more
information on the methodology, raw costs, and sources for the
installation cost for condensate removal.
c. Vent Replacement
In both the withdrawn May 2016 and the May 2022 CWH ECS NOPRs and
in this final rule, DOE conducted its analysis under the assumption
that condensing CWH equipment would commonly use the same, typically
vertical, chase for the venting system as the non-condensing CWH
equipment that it replaces. DOE recognizes that each venting situation
may be unique and will depend on the location where the water heater is
installed within the building, whether new construction or replacement,
the height of the building and or distance to the outside wall. In new
construction the latter two variables will in fact be influenced, in
part, on the water heater and water heater efficiency levels selected.
In an existing building that uses non-condensing water heaters, the
most common path for exhaust is expected to be a vertical chase and
flue or chimney, which formed the basis of DOE's analysis, although DOE
recognizes that other existing building flue scenarios may exist
including horizontal power venting of non-condensing equipment,
vertical power venting of non-condensing equipment, and exterior. For
this final rule, DOE maintained its venting methodology and associated
venting costs for scenarios in which non-condensing CWH equipment is
replaced by condensing CWH equipment.
DOE incorporated the sleeving of existing vent systems in its May
2022 CWH ECS NOPR analysis. For existing buildings with natural draft
(Type B) 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
NOPR and final rule analysis provides for using an existing vent as a
sleeve only for those installations meeting the criteria defined
previously.
For this final rule 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 RSMeans 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 minimum-efficiency and high-efficiency
equipment are inherently similar. This approach to developing costs for
CWH equipment installation or removal was not changed from the
withdrawn May 2016 CWH ECS 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 hours differed based on the vent material and
vent size involved in the installation and were developed
[[Page 69743]]
using data from RSMeans.\76\ 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 $89
per hour in the commercial sector.\77\ 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.\78\
Regional adjustments to these labor rates called for multipliers
ranging from 0.51 (Arkansas) to 1.64 (New York).\79\ For this final
rule, DOE did not further adjust labor rates for venting except to use
the most up-to-date source data.
---------------------------------------------------------------------------
\76\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD,
Mechanical Costs 2022.
\77\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD,
Mechanical Costs 2022.
\78\ Id.
\79\ Id.
---------------------------------------------------------------------------
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 final rule 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.
In response to the May 2022 CWH ECS NOPR, Joint Advocates suggested
that DOE thoroughly analyzed the cost of installing new venting
systems, and that the analysis is comprehensive and reasonable. (Joint
Advocates, No. 29 at pp. 2-3)
The Joint Gas Commenters stated that EIA data show that ``more than
half of all commercial buildings were constructed before condensing
commercial water heaters were introduced to the market'' and stated
that condensing products are incompatible with millions of these
existing commercial buildings. They further added that the
modifications required to alter these existing buildings to accommodate
the use of condensing products are far more complicated, extensive, and
burdensome than DOE's analysis assumes. (Joint Gas Commenters, No. 34
at p. 3)
DOE agrees that many commercial buildings were constructed before
condensing water heaters were introduced to the market, but does not
agree that millions of commercial buildings are thus by definition
incompatible with condensing water heaters. This statement implies that
such water heaters cannot be used in older buildings. Evidence strongly
suggests otherwise. Since the mid-1990s, the condensing water heater
market has grown rapidly. That growth has been substantially faster
than the growth of commercial building stock. The implication is that
condensing water heaters have been installed in preexisting commercial
buildings, which supports the conclusion that older buildings are not
incompatible with condensing water heater installations. DOE
acknowledges and addressed that in many existing buildings the venting
systems would need to be replaced and, as discussed in Appendix 8D, DOE
included costs for items such as vent removal, whether a condensing
vent can be sleeved into an existing non-condensing vent, and whether
an existing chimney needs to be relined. The percentage of water
heaters that potentially require vent modifications is identified in
Table IV.29. DOE's analysis considers the cost of these building vent
modifications, but the need to modify the building vent system does not
make the building incompatible. However, this could mean that there are
additional installation costs to be considered. DOE's analysis has
accounted for the possibility that certain installations--including
some, for example, in certain older commercial buildings--may incur
exceptional costs. To the extent that unusually high costs may be
incurred, DOE has included significant exceptional cost adders in 2
percent of buildings in its analysis of venting costs. This is
discussed in section IV.F.2.d of this document and in TSD chapter 8.
The Joint Gas Commenters also noted that condensing water heaters
are generally either power vent or direct vent products. They note that
power vented water heaters are typically vented horizontally and
require positive pressure venting--generally through a horizontal
conduit, powered by a fan or other additional electronic device--to
generate sufficient pressure and flow to vent the combustion gases.
Further, they stated such installations require plumbing drains to
dispose of the condensate developed in the operation of the appliance.
They also stated that direct vent water heaters use special coaxial
venting with separate chambers for intake and exhaust in a single vent
pipe. Joint Gas Commenters stated that these are vented through the
side wall and noted several additional factors about power vented
equipment including the cost of interior renovations, the need to have
electricity available to operate fans and condensate pumps,
restrictions on sidewall venting in some urban areas, the need for on
lower floors for terminations to be located 7 feet or more over public
sidewalks or above the snow level, and other factors. (Joint Gas
Commenters, No. 34 at pp. 4-5, 7-9) Joint Gas Commenters further stated
multi-story buildings in urban centers cannot use horizontal venting
because it is impossible to install and service vent terminations. In
addition, they stated that wall penetrations could compromise the
structural integrity of buildings in many cases. (Joint Gas Commenters,
No. 34 at p. 5) Bradford White noted limitations to vertical venting
may exist as a water heater in a basement/ground floor mechanical room
may not be certified with a long enough vent length to vent vertically
through a building's roof. Additionally, it may not be able to vent
horizontally due to jurisdictions prohibiting side wall venting in
these applications. (Bradford White, No. 23 at p. 4)
DOE disagrees with the Joint Gas Commenters that direct vent water
heaters necessarily use coaxial venting. This is an option for direct
vent systems and will have some advantages in certain situations,
though is not a necessary part of direct vent design as coaxial vent
solutions are relatively new. Two pipe direct vent solutions, such as
mentioned by PHCC, have been around longer. Further, coaxial venting is
used for both horizontal and vertical vents based on manufacturers'
literature.
Regarding the availability of electrical power, DOE believes that
it is generally available in most commercial situations where a
commercial water heater is situated, and provides for costs to bring
electricity close to the water heater location in cases where it may
not be nearby. A review of the market shows that non-condensing storage
commercial water heaters commonly utilize technology including
electronic ignition, electronic flue dampers, and
[[Page 69744]]
commonly electronic controls. In addition, many are power vented. While
the baseline efficiency model developed for this rulemaking were
simplified in this respect, the actual market is quite varied. Further,
even in equipment that does not use electric power, much of the
equipment may be installed in spaces like mechanical rooms where
electric power is readily available. For instances where this is not
the case, DOE has provided for electric power to be included in the
installation costs. DOE received no comment that the estimated cost to
bring electric power in these instances was inadequate. As noted
previously, DOE modified its assessment of the need for condensate
pumps in the final rule analysis to reflect higher anticipated usage
needs, particularly in existing buildings.
Regarding interior renovations, it is not clear what interior
renovations may be envisioned outside of those associated with flue
replacement costs. DOE agrees that in some dense urban areas there may
be restrictions on how sidewall venting is achieved, including the
appropriate considerations for sidewalks immediately adjacent to
buildings, and more generally those vents need to exhaust above the
snow level. However, these are requirements so that sidewall venting,
when used, is implemented in a safe manner. Other safety requirements
are that exhaust vents are not located near operable windows or air
intakes and these latter requirements are also found when exhausts are
used for non-condensing equipment. These restrictions also apply to
sidewall venting of non-condensing equipment, but do not imply that
non-condensing equipment cannot be used. DOE's analysis did not assume
sidewall venting and DOE and other commenters (see e.g., PHCC, No. 28
at p. 7) note sidewall venting may in fact be less expensive than
vertical venting.
DOE is not clear what is being implied regarding structural
integrity. DOE believes that the structural integrity of a building is
an engineering consideration to ensure that the building is operable
and structurally safe for its occupants. Competent contractor
assistance may be required to select the appropriate areas of a wall to
drill, to perform the drilling safely, and to ensure that the resulting
vent does not allow water to enter the wall, but there is nothing in
this process that inherently damages building integrity. Joint Gas
Commenters have provided no evidence that the structural strength of
building will be compromised by the addition of a horizontal exhaust
vent.
PHCC stated that they took issue with the phrase that ``Condensing
CWH equipment is not required to sidewall vent exclusively and presents
no special limitations restricting vertical vent scenarios,'' noting
that all manufacturers have vent length limits, and that the
``effective vent length'' needs to consider fittings, usually elbows,
and that in tall buildings, the vent length of the equipment can be
exceeded and the installation cannot be made in that location, and
perhaps this becomes an impossible location. (PHCC, No. 28 at p. 7)
Joint Gas Commenters noted in discussing vertical venting,
manufacturers place limits on the length of vertical vents. (Joint Gas
Commenters, No. 34 at p. 12)
Regarding the PHCC comment about no special considerations for
vertical venting, DOE's language did not mean to imply that vent length
is not an issue; rather, that in the context of whether the vent is
vertical or horizontal, the distance that a power vented condensing
water heater can vent is generally the same as a non-condensing
product. DOE notes that the distance a power vented product will vent
is largely a function of fan size and vent diameter used. DOE
understands that consideration of pipe elbows and bends must be
considered due to pressure losses through these components but notes
that the market is already moving to make longer vent length products
more available in condensing equipment. Condensing commercial water
heaters with maximum vent length of over 200 ft are available on the
market today as standard products without significant increases in vent
diameter for a given combustion air throughput. DOE also notes that
natural draft vent tables in the National Fuel Gas Code only go to 100
ft vent height and that where the actual height of a vent exceeds these
tables, recognized engineering methods must be used to establish vent
capacities for such systems. DOE statements here do not imply that such
very long natural draft vents do not exist, but that they are already
in the realm of professionally engineered systems. DOE also notes that
draft inducers for combustion equipment already exist on the market and
that these might be used to address combustion air from condensing
equipment in very long vent lengths.
PHCC commented that DOE asserts there would be sufficient space in
an existing chase to install plastic vents and stated that it depends,
and every installation is unique. Typically chase sizes are built to a
minimum dimension to maximize building floor space. If the existing
vent is large, the new vent may fit. PHCC stated that most high
efficiency systems (particularly 95 percent or better) will use two
pipes to achieve maximum efficiency. Depending on the vent length,
whether upsizing is required, and if using two pipes, the existing
chase may well be too small. PHCC added that in the real world this may
not matter because there will be significant work to open the chase,
install and support the piping, firestop the floor and ceiling
penetrations, and close the chase such that making it somewhat larger
will be trivial. PHCC questioned whether DOE accurately accounts for
this additional work because the May 2022 CWH ECS NOPR suggests this
will be an easy solution. When it is suggested that existing chases be
used, PHCC assumed that existing venting materials would be removed,
and the piping placed in the same vertical building compartment. The
chases would need to be opened throughout the path of the vent,
existing piping removed, new piping and supports installed and the
chases closed up. Typically, chases are fire rated construction, and
particular care must be used to ensure the integrity of these spaces.
(PHCC, No. 28 at p. 8) Joint Gas Commenters asserted that based on
interviews with installers, condensing water heaters are not installed
using the existing chase. Impediments include that the venting for the
new water heater cannot be suspended in a vertical chase; it requires
support at frequent intervals and that requires sufficient space in the
chase for vent hangers and often requires physical access to the chase
for installation. (Joint Gas Commenters, No. 34 at p. 12)
PHCC noted that in the discussion of sleeving and using the same
chase when changing vent systems, both of these options also present
problems. Although the systems may tend to be of plastic material,
those materials have weight that must be accounted for. Systems must be
supported to hold the weight and prevent seismic movement, two issues
that could cause failures in the vent system. Typical manufacturer
instructions direct installers to support the pipe every 5 feet
vertically and every 5 feet horizontally. It is unclear how this
support spacing would be affected in a sleeved scenario. Some
contractors have made efforts to install plastic vent piping in
existing large masonry chimneys, and complicated hangar arrangements
must be devised for this. Pipe joints must be made prior to placement
in the chimney and the vent installed as a unit, which PHCC noted is
cumbersome and costly. (PHCC, No. 28 at p. 7)
In response to PHCC concern regarding sufficient space in existing
chases, DOE notes that in cases where
[[Page 69745]]
an existing chase is used with Category I venting, the cross-sectional
area of the existing Category I or Type B vents, designed as they are
to vent flue gasses through natural draft, will generally be
substantially larger than that required for venting condensing
products. This is true for two main reasons. First, the flue path in a
Category I vent operates only on the natural draft pressure. The flue
path is therefore typically larger in diameter than that of a typical
Category IV where combustion products are pushed through the vent with
a fan. For example, per ANSI Z223.1-2015 (National Fuel Gas Code), when
considering a vent stack height of 30 feet, a lateral distance of 10
feet, and a 199,000 Btu/h input rate requires a 6-inch inside diameter
vent flue path. A strictly vertical vent with no lateral flow in the
system could use a 5-inch vent. By contrast, a similar input rated
condensing water heater venting over the same distances would commonly
be vented with a 3-inch flue diameter vent. When considering longer
vent height (50 feet), a 5-inch Category I vent could be used with up
to 5-foot lateral distance, but otherwise a 6-inch Type B vent would be
required. However, for the Category IV, condensing water heater of the
same input a 4-inch vent pipe could be used. Characteristically, the
vent pipe diameter for a condensing water heater will typically be
smaller, sometimes considerably smaller, than for a natural draft water
heater. Therefore, DOE does not believe this issue is as significant as
PHCC states.
In addition, because it is venting higher temperature flue gases,
the Type B vent must have at minimum an additional clearance of at
least 1 inch from any combustibles in the flue path. Because of the
need for larger diameter vent pipe and the additional need for
clearance, the cross-sectional area that would be required for a single
flue chase for a Category I vent is typically much larger than for the
exhaust vent for the same input rating for a Category IV vent such as
would be used for a condensing water heater product. In addition,
because of the higher efficiency for the condensing product and the
greater hot water output for a given input rating, it may be possible
to downsize the water heater input rating with possible further
reductions in vent size in some situations.
DOE acknowledges that in the case where direct vent products (using
a separate inlet and exhaust pipe or two-pipe as referred to by PHCC)
are selected for the condensing equipment, adding a direct vent inlet
pipe to an existing chase may not always be possible. A direct vent is
generally a separate optional feature that becomes prevalent with the
use of non-natural draft water heaters, but not a requirement in such
an equipment replacement. Inspection of CWH product literature shows
most condensing equipment allows for direct vent as an alternative to
the standard ``power exhaust'' vent configuration. Both direct vent and
standard, ``power exhaust'' water heater designs require ventilation
air for proper and safe operation. In a replacement situation, the
space where a similar sized Category I water heater is already located
should have this sufficient air supply for safe operation. A direct
vent water heater allows the intake air to be taken from another
location, typically outside of the building envelope. Where a direct
piped vent is used to bring air in from outside, it will typically
reduce overall building infiltration and provide for additional
efficiency benefits to the building not accounted for in DOE's
analysis, providing for an overall building efficiency improvement. A
direct vent configuration is not a requirement for a 95 percent thermal
efficiency rating per the DOE test procedure. Further, even where used,
the inlet air may not have to follow the same path as the exhaust flue.
In some cases, a coaxial-two pipe vent may also be an option with an
overall pipe diameter not significantly different from the original
Type B vent and without the additional clearance-to-combustibles
requirement. The Joint Gas Commenters state that a direct vent water
heater uses special coaxial venting that has separate chambers for
intake air and exhaust in a single assembled vent piece. (Joint Gas
Commenters, No. 34 at p. 4) DOE disagrees with the implication by the
Joint Gas Comments that a direct vent implies or necessarily (or even
commonly) requires use of a coaxial vent in most applications. DOE
acknowledges that in some cases coaxial vent systems can be an option
during installation of condensing equipment and may reduce installation
costs or provides other benefit, but they are not required in all
applications.
With regards to supporting vents installed vertically, multiple
options may be available. Where PVC plastic vents pipes are used, they
are solvent glued together forming a permanent bond where the PVC at
the bond becomes continuous and joints are of similar strength as the
pipe itself, which allows for longer sections of vent piping without
supports. This is unlike Type B vent sections that lock together upon
twisting and must be supported section by section. Horizontal PVC flue
sections can be supported similar to water piping, where the pipe
supports are installed periodically along the flue length as noted by
PHCC; however, the weight of PVC/CPVC is much less as a flue than as a
water pipe and piping supports can be of lighter construction. However,
it is important in a condensing product application that flues are
sloped properly for condensate drainage, and horizontal flues need to
have enough supports to prevent sagging. Vertical flue sections will
also require support, but unlike Type B vents that may require support
at each section, the continuous nature of the joined PVC pipe can allow
longer spans of vertical flue sections where required as long as the
weight is adequately supported.
Further, when polypropylene vent connections are considered, these
are typically much lighter (manufacturer literature notes up to one
third of the weight of PVC). The individual polypropylene vent sections
are clamp connected. Not only can rigid polypropylene vents be
supported using greater spacing between supports, flexible
polypropylene vent products are available that can be readily used to
allow for the lining of a chimney, Type B vents, and other existing
chases, and that is supported primarily from the top where simple
spacers may be used to provide some lateral centering. Note that
thermal expansion in length may need to be accommodated for with PVC/
CPVC flue systems; however, based on manufacturer literature, the
expansion of ridged polypropylene vent systems is accommodated for at
the joints between pipe sections.
Regarding support in a sleeved vent, DOE's analysis uses only a
restricted set of sleeved vent scenarios as outlined previously.
Further, while cognizant that using straight PVC pipe may be cumbersome
for the reasons indicated by PHCC, DOE recognizes that with different
venting systems, particularly polypropylene or stainless flexible
venting, additional sleeving options are possible. DOE notes that
manufacturers of polypropylene vent products make components that are
designed specifically to allow the use of sleeving in existing Type B
vents. Regardless DOE's NOPR and final rule analysis provides for using
an existing vent as a sleeve only for those installations meeting the
criteria defined previously and does not believe that it has overstated
the possible use of this technique.
In response to DOE's discussion of the selection of vertical
venting in the May 2022 NOPR analysis, PHCC agreed that there may be
sidewall venting issues for
[[Page 69746]]
some buildings but noted that should sidewall venting be possible; in
some cases, it could be more cost effective than vertical venting.
(PHCC, No. 28 at p. 7).
Atmos Energy stated that DOE should collect actual product and
installation costs rather than relying on assumptions and inadequate
data. (Atmos Energy, No. 36 at pp. 2, 4)
DOE does not agree with Atmos Energy that the collection of
contracted or retail costs for equipment today provides a more accurate
representation of future equipment costs under a standards scenario
than what can be provided for in DOE's engineering and markup analyses.
In DOE's experience reviewing such information, cost estimates provided
by contractors vary widely in terms of information provided, from a
total single price inclusive of everything including the equipment, to
considerably detailed estimates. Even if detailed installation costs
from a large enough statistically valid sample were made available from
individual contactors, collecting and using such information would be
highly impractical and could potentially require making as many or more
assumptions as DOE' current analysis to which Atmos Energy is
objecting. As to the installation costs, particularly in replacement
situations, DOE's is not aware of an extensive source of national data
on new or replacement installation of higher efficiency, condensing,
CWH equipment installation. DOE has estimated costs considering
publicly available sources, considered variation in vent length and
diameter in its venting model and provided for variation in venting and
material and labor costs using a national construction data source. DOE
agrees with PHCC that in many cases horizontal venting may often be
less expensive than a vertical vent solution. A good example of this is
where the mechanical room, commercial kitchen, or other space where a
water heater is located has an exterior wall on one or more sides. DOE
believes this is a common, but not ubiquitous, occurrence. Because of
the complexity of many larger commercial buildings, the location of the
water heater within the building is not always assured, but when
replacing a Category I type water heater, there will generally be a
vertical vent path.
d. Extraordinary Venting Cost Adder
In response to the withdrawn May 2016 CWH ECS NOPR, some
stakeholders argued that some venting installations can be physically
impossible and/or prohibitively expensive to install condensing vents.
In the May 2022 CWH ECS NOPR, DOE acknowledged 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. 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 the May 2022 CWH ECS NOPR and
this final rule, 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.\80\ Using this
as a reference, DOE implemented an extraordinary venting cost adder,
which was included in the May 2022 CWH ECS NOPR LCC model as a feature
of the main case. DOE used data from the NEEA report for both the May
2022 CWH ECS NOPR and this final rule to capture extraordinary venting
costs.
---------------------------------------------------------------------------
\80\ NEEA, 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/comment/EERE-2018-BT-STD-0018-0062.
Last accessed July 8, 2021.
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In the NEEA 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. In the May 2022 CWH ECS NOPR,
DOE asked for comments on this adder.
AHRI estimated that a small business or property owner could have
$1k to $10k in additional installation costs to convert from a non-
condensing unit to a condensing unit. AHRI noted that several factors
(including region, size of load, municipal restrictions, historic
building designation/protections, available materials and labor costs)
can all factor into affixing a level of extraordinary venting costs.
Rheem agreed with the AHRI comments. (AHRI, No. 31 at p. 4; Rheem, No.
24 at p. 5) A.O. Smith made a similar comment noting that venting costs
in retrofit or replacement cases might be significant or cost-
prohibitive due to a combination of tight mechanical rooms,
insufficient clearance between buildings for sidewall venting, and
common venting. A.O. Smith does not have an estimate of the number of
installations that may face extraordinary installation costs but
recommends that DOE evaluate the number and type of buildings in
metropolitan areas. As an example of extraordinary installation costs,
A.O. Smith estimated that installing stainless steel venting materials
in a typical NYC 5-story building for a commercial water heater or
boiler in the basement could cost $32,500. (A.O. Smith, No. 22 at pp.
6-7) In reviewing the A.O. Smith comment, DOE is unclear which product
classes or vent sizes were being considered in their estimation because
the comment did not specify labor beyond an estimate of 1.5 times
material costs, and presumed material costs of $200/lineal foot, which
are higher than the costs identified by DOE for stainless AL29/4C vent
in diameters needed for the representative condensing equipment sizes
analyzed. With respect to AHRI's and A.O. Smith's list of factors, DOE
agrees with these as potential issues that may impact real world costs.
AHRI also pointed to the venting analysis used in commercial
packaged boilers that appears to be more exacting, and AHRI stated it
provides a better representation and encouraged its use in the CWH
analysis. (AHRI, No. 31 at p. 4) APGA noted that it appears that DOE is
treating venting in commercial water heaters differently than for other
gas fired appliances. (APGA, Public Meeting Transcript, No. 13 at p.
57) Joint Gas Commenters criticize the use of one representative model
which results in one vent size and contrasted this to the 2016
Commercial Packaged Boiler (CPB) TSD that provided an equation for the
relationship between product input rate and vent diameter. (Joint Gas
Commenters, No. 34 at p. 18)
The venting logic used in DOE's boiler analysis was essentially the
same as used in the CWH analysis. The general methodology and
assumptions for determining the size and type of venting material based
on input rate was essentially the same as well as the decision
methodology for when a vent
[[Page 69747]]
could be reused or would need to be replaced. A difference in approach
was largely the result of the CWH engineering analysis approach which
looked at one representative unit size for each category of equipment
analyzed whereas, in the CPB engineering analysis approach, two size
classes (commercial packaged boiler with rated input between >=300,000
and <=2,500,000 Btu/h and commercial packaged boilers with rated input
>2,500,000 Btu/h) were already defined as DOE classes for each output
type of CPB equipment (i.e., hot water or steam) and for each fuel
(i.e., gas or oil) and one representative equipment size was selected
to be representative of each size class in that engineering analysis.
Because of the way cost data was collected for the CPB engineering
analysis, curves representing the cost variation by size within the
equipment classes were developed and it was possible to use these data,
along with additional data on sizing equipment to peak building loads
for the CBECS and RECS buildings and assumptions on the typical number
of boilers in buildings by peak building load, to provide greater
variability in boiler sizes analyzed in the CPB LCC. The lack of data
on variation in cost with equipment size from the CWH engineering
analysis, the greater complexity in sizing to building water heater
loads, and the lack of data on characterizing the number of water
heaters within a size class that would be installed in buildings made
such an approach practically impossible for the CWH LCC model. Further,
while there is variation in equipment size in water heaters, DOE
believes that the variation in size for the CPB is significantly
greater than for the CWH equipment in this rule, at least for the vast
majority of shipments. DOE does recognize that for all but residential
duty water heaters, larger equipment than represented in the
engineering analysis are sold into the market, but DOE believes its
equipment selections are representative of the majority of units
shipped. See section IV.C.3 for further discussion about DOE's decision
to use representative equipment sizes in this analysis.
Joint Gas Commenters and Bradford White criticized the use of the
NEEA report on extreme installation costs. Bradford White was concerned
that the report was based on interviewing 15 different parties in 10
states, which they believe is too small of a sample size. Bradford
White continued to add that all but one of the states are not a fair
representation of where extraordinary venting cost adders will occur.
These cost adders are likely to occur in larger, older cities (e.g.,
Chicago, New York, Philadelphia). Bradford White recommends that a
larger sample size is taken to understand these venting installation
costs. (Bradford White, No. 23 at p. 4) The Joint Gas Commenters stated
that DOE's economic analysis underestimated the costs imposed by
condensing-only standards and suggested that the problems associated
with condensing standards are common rather than uncommon scenarios.
Joint Gas Commenters noted that DOE was basing the adder on one of the
four identified categories of venting issues. Joint Gas Commenters
further stated that through their own interviews of individuals with
substantial experience replacing CWH equipment, they determined that
DOE underestimates the percentage of difficult installations and the
cost of such installations. (Joint Gas Commenters, No. 34 at pp. 12-14)
Joint Gas Commenters point also to the distribution DOE applied to the
extraordinary vent cost adder, calling it arbitrary, and stating that a
lognormal distribution changes small net LCC savings to small net LCC
costs, and the Joint Gas Commenters use this as evidence to support
their position that DOE should collect data through field work. (Joint
Gas Commenters, No. 34 at pp. 19-22).
In response, DOE notes that DOE researched the issue of
extraordinary vent installation costs for CWH and was only able to
identify the NEEA survey. Neither Bradford White nor the Joint Gas
Commenters provided any data to support their comments, nor did they
point to any alternative data or studies for DOE to examine for the
purposes of reviewing extraordinary venting costs. Regarding the Joint
Gas Commenters comment on the choice of a uniform distribution in DOE's
analysis, DOE notes that the data that it used from the NEEA survey
specifically defined the range of extraordinary costs as adding 100
percent to 200 percent to the typical cost and, lacking further
details, DOE used a uniform distribution in this range. While DOE
recognizes that a different distribution and range could exist, DOE
received no data to characterize this from stakeholders. Specifically,
with respect to the Joint Gas Commenters comment about using a
lognormal rather than a normal (or uniform) distribution DOE notes that
the data received from NEEA was cost adjustment data stated as a range,
and DOE implemented the adder in such a way as to make use of this
range in a manner that seemed most consistent with what was presented
by NEEA. DOE notes that Joint Gas Commenters provided their example of
the lognormal distribution as illustrative of what a lognormal
distribution could look like but did not link this back to actual data,
nor did they say their presented distribution was in fact the correct
distribution for use in this analysis. For these reasons, DOE
maintained the use of a uniform distribution for the final rule.
WM Technologies and Patterson-Kelley stated they understand that
the CWH analysis uses a low probability multiplier that models
difficult venting considerations and would prefer DOE make a more
exacting representation of this detail. They maintained that local
requirements will prohibit some locations from installing condensing
gas fired products based on building structure, orientation, or
location and that this percentage will vary significantly across the
nation, noting that 1940s multifamily units in certain densely
populated regions (e.g., New York, Chicago and Boston) would find all
condensing efficiency regulation cost prohibitive. WM Technologies
noted that this is why the Northeast continues to have a majority of
atmospherically vented products while the West Coast typically has a
higher rate of adapting to condensing products. (WM Technologies, No.
25 at p. 7; Patterson-Kelley, No. 26 at p. 5) Patterson-Kelley believes
the percentage of the population incurring excessive costs when
replacing a non-condensing appliance with a condensing product is more
than five percent. (Patterson-Kelley, No. 26 at p. 5)
PHCC had concerns related to installations with venting
installation issues and noted the recognition of this by DOE in the May
2022 CWH ECS NOPR. Although PHCC cannot provide lists of locations
where these issues may occur, PHCC disagreed with DOE, stating that
more than 1 percent to 2 percent of installations will be affected.
PHCC asserts that problem installations would likely be tall buildings,
perhaps 10 stories or more, in metropolitan areas. PHCC stated that the
extraordinary cost adder lacks a foundational basis, that it is unclear
how the adjustment is applied, and that in many cases it is
understated. PHCC maintains that there are significant venting issues
awaiting the implementation of this rule. (PHCC, No. 28 at pp. 7-8)
Conversely, NEEA supports DOE's conclusions on flue gas venting and
its analysis method thereof, which aligns with the findings of
independent research previously submitted to DOE. NEEA stated that
condensing gas-fired
[[Page 69748]]
water heaters can be installed in all commercial building applications
and said that DOE's analysis appropriately accounts for the rare cases
in which the solution bears increased cost. (NEEA, No. 35 at p. 1) DOE
acknowledges NEEA's input.
For the final rule, DOE has considered both the data provided from
NEEA and the comments received from the various stakeholders regarding
the fraction of consumers who would be characterized in the
extraordinary venting cost grouping. Numerous stakeholders suggested
that 2 percent was not representative. As noted by Joint Gas
Commenters, DOE based the 2 percent adder on the frequency of vent
installation issues noted in the NEEA report. DOE acknowledges that
there were other potential installation cost issues noted by NEEA, and
the high level summary statement was that fewer than 5 percent of
installations were encumbered by any of the significant installation
challenges identified. The other challenges noted by NEEA were,
however, less costly than the 100 to 200 percent cost adder, and/or
were already being addressed in the LCC model estimation of
installation costs (masonry chimneys). While recognizing the range of
comment on this issue, DOE believes that the data provided by NEEA
through the survey of contractors provides an appropriate estimate for
the fraction of the installations that might be considered to have
extraordinary costs, and has continued to include this figure in its
final rule analysis, along with the range of extraordinary cost
multipliers established in the NEEA survey.
e. Common Venting
Certain CWH equipment installations can feasibly be commonly vented
in certain building applications, where multiple individual equipment
units are connected to a single, non-pressurized, combustion air vent,
suitable for use with Category I equipment. However, as described more
in the ensuing paragraphs, in these instances, DOE believes that CWH
equipment typically is not commonly vented with other, disparate gas-
fired equipment (like furnaces). Commonly venting disparate gas-fired
equipment with significantly different capacities (such as a water
heater and a boiler in a building) 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 as well as the seasonal
variation of load. However, DOE understands that multiple, similar
units of CWH equipment may be more frequently commonly vented together
since the CWH equipment typically operates in unison, calling for a
specific vent size. When multiple units of CWH equipment are commonly
vented, building engineers design the common-vent system to suit a
total input rating of all gas-fired equipment collectively as well as
the input ratings of individual units. In the May 2022 CWH ECS NOPR,
DOE stated its understanding that 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. Thus,
the stranded cost of any naturally-drafted, non-condensing CWH
equipment due to amended standards would have limited residual value,
which may have been relinquished regardless of amended standards if a
consumer opts to replace the older, but still functioning unit at the
same time. As discussed more in this section, based on stakeholder
feedback, DOE performed a sensitivity analysis regarding these
assumptions and determined residual values from replaced equipment,
which DOE has incorporated into its LCC analysis.
AHRI disagreed with DOE's characterization of their statement
related to the withdrawn 2016 CWH ECS NOPR relating to customers
handling common-vented equipment by replacing all equipment at the same
time. (AHRI, No. 31 at p. 1) PHCC commented that it believes DOE
misinterpreted other stakeholder statements regarding replacement of
individual devices in common venting situation. (PHCC, No. 28 at pp. 8-
9) While DOE captured the AHRI comment as stated in the withdrawn 2016
CWH ECS NOPR public meeting, AHRI clarifies that what they intended to
illustrate was a misalignment of timing leading to the premature
retirement of functioning equipment. While DOE did not receive data on
the frequency of common venting of equipment, for the final rule DOE
examined through sensitivity analysis a potential cost impact on the
LCC that could occur due to premature replacement of equipment, as
discussed later in this section.
Joint Gas Commenters assert that common venting of CWH equipment
and space heating equipment was common practice for over 100 years, and
is still very common. Joint Gas Commenters stated that non-condensing
appliances have the ability to share a common vent with other non-
condensing appliances, and removing one or more units would disrupt the
venting system of the other locations. (Joint Gas Commenters, No. 34 at
pp. 4-5, 12-13) WM Technologies and Patterson-Kelley expressed concern
with the prevalence of common venting disparate gas-fired equipment,
stating it is so common that both the International Fuel Gas Code and
National Fuel Gas Code have appendices devoted to the sizing of such
venting systems. (WM Technologies, No. 25 at p. 5; Patterson-Kelley,
No. 26 at pp. 1-2)
In response to the comments on common venting disparate equipment,
DOE notes that for the 2016 commercial packaged boiler rule, DOE asked
for input on common venting of disparate gas heating equipment.
Comments on the frequency of common venting were inconsistent; however,
in response to the commercial packaged boiler NOPR, AHRI stated that
they believed that common venting of commercial boilers and commercial
water heaters may in fact be relatively rare given the size mismatch
between commercial boilers and commercial water heaters, such that
common venting would be more than problematic because the common vent
size would be so large that when the boiler wasn't firing there would
be venting problems on the water heater. (See EERE-2013-BT-STD-0030; 81
FR 15870)
Based on this input from AHRI, DOE determined that common venting
with water heaters would be negligible for large CPB equipment and
would be uncommon for small CPB equipment. See 85 FR 1630. Based on
this input DOE believes that to the extent common venting exists in a
commercial setting it is most likely to be multiple water heaters as
opposed to a water heater and another type of equipment.
With respect to the comment about the International Fuel Gas Code
and National Fuel Gas Code, the codes provide for installations in
residential setting as well as in commercial settings. In a residence,
typically there are 2 major gas-fired appliances to be vented, a space
heating appliance, e.g., furnace or boiler, and a water heater. Thus,
common venting when it does occur almost always is indicative of
disparate gas-fired equipment. In addition, this equipment will
typically be of sufficiently similar input rates to be common vented
even where their usage profiles may be disparate. This is a situation
which would not necessarily be the case in many commercial settings
where there may be greater variation in the input ratings of the
equipment serving the space heating and water heating needs of the
building as well as
[[Page 69749]]
more commonly the use of multiple individual equipment to satisfy
either the space heat or the water heating needs. Thus, while these
fuel gas safety codes provide for requirements for when common venting
of disparate equipment is used, these codes do not tell anything about
the frequency of these types of common venting applications,
particularly in commercial settings. DOE also notes that while most
residential gas-fired heating equipment is installed indoors, a
substantial fraction of the commercial floorspace is heated using
packaged rooftop equipment, a fact that further reduces the possibility
of venting of disparate equipment.
Joint Gas Commenters state DOE does not include costs for redesign
necessary to address common venting. (Joint Gas Commenters, No. 34 at
p. 18) However, Joint Gas Commenters provided no evidence of what such
redesign might cost. Because consumers have multiple paths they could
take to deal with upgrading common-vented equipment, without detailed
knowledge of individual installations it would be extremely difficult
to estimate the incremental cost of redesign of replacements of
individual components of the common-vented system. DOE did not receive
input on the frequency of common vented systems. Further, DOE did not
receive input on the frequency with which redesign of a common-vented
system would be significant and not already a part of the expected
installation cost. DOE notes that when considering the consumers
incurring extraordinary vent costs, the cost of redesign is part of
what results in extraordinary costs, and as such it is subsumed in the
doubling or tripling of the venting costs for such installations.
AHRI, Bradford White and Joint Gas Commenters stated that DOE
recognizes that product lifetimes vary and used a probability
distribution to describe lifetime here and in other DOE rulemakings.
They noted that modeling common vented equipment as if it is all
replaced at the same time can lead to consumers forgoing useful
equipment lifetime and modeling it if the other equipment is retained
can lead to increased venting cost as consumers have to vent condensing
and orphaned non-condensing equipment separately. (AHRI, No. 31 at p.
2; Bradford White, No. 23 at p. 3; Joint Gas Commenters, No. 34 at p.
13) Joint Gas Commenters add that one reason for having multiple units
is to have a primary and a backup so there will be no loss of service
when a water heater needs to be replaced, and that purpose would be
defeated if both units are replaced at the same time (Joint Gas
Commenters, No. 34 at p. 13)
Bradford White, WM Technologies, Patterson-Kelley, and Joint Gas
Commenters noted that DOE assumes that all commonly vented appliances
will be replaced at the same time if only one water heater fails and
found the approach to product lifetime for common vented equipment
concerning as DOE recognizes that products lifetimes vary and uses a
probability distribution in numerous other standards' rulemaking as in
the CWH LCC workbook. (Bradford White, No. 23 at p. 3; WM Technologies,
No. 25 at p. 5; Patterson-Kelley, No. 26 at pp. 1-2) PHCC and Bradford
White noted that while it is possible that multiple units that are
commonly vented are replaced at the same time, they rarely see this
occur, nor do they commonly see proactive replacement. As referenced
previously, equipment lifetimes will vary unit to unit, even of the
same model. If one unit happens to fail earlier in its life (e.g., in
year 3), it is highly unlikely that a building owner would replace
multiple other units at the same time. (Bradford White, No. 23 at p. 4;
PHCC, No. 28 at pp. 8-9)
WM Technologies and Patterson-Kelley both state that stranded water
heaters are a fact in the industry and the impact on such installations
should be taken into account in the LCC analysis. (WM Technologies, No.
25 at p. 5; Patterson-Kelley, No. 26 at p. 2)
In response to the comments, DOE elected to perform a sensitivity
analysis related to common venting. To the extent that the loss of
value of a second water heater on a common vent takes place, the cost
is an up-front cost and can be treated as such. To analyze the issue
DOE used the lifetime distributions by equipment class referenced in
several comments to model what happens when you have two independent
pieces of equipment operating at the same time. DOE modeled multiple
permutations to address two key questions: (1) What happens if they are
installed at the same time?; and (2) Is the answer different after one
equipment lifetime than it is after multiple (e.g., 3) equipment
lifetimes? With respect to the second question, certain issues make the
answer less than useful, namely, equipment today is different than it
was 20 or more years ago and venting systems may have changed. While
Joint Gas Commenters may be correct that equipment has been commonly
vented for 100 years, consumers likely cannot vent today's hot water
supply boilers with a boiler from 50 years ago because of changes in
the technology. The result of this modeling showed that on average in
commercial gas storage equipment a second water heater on a common vent
would lose approximately 3 years of useful life; a second hot water
supply boiler about 4 years; and residential duty gas-fired storage
about 3 years. DOE did not analyze tankless units because they
represent a newer technology and most of the equipment available today
is forced air combustion and not suitable for venting with category I
equipment. See chapter 3 of the final rule TSD for discussion of forced
combustion in tankless CWH equipment.
Next DOE translated lost equipment life into an estimate of
monetary value. Commenters have not provided data on the frequency of
common venting, other than that it exists. For its sensitivity
analysis, DOE modeled a scenario of 20% of non-condensing replacement
water heaters might be common vented for each of the above categories
where common venting was considered. The average value of the lost life
of the second water heater assumed to be common vented was taken as a
loss against the average equipment class LCC savings as calculated in
this final rule for the pair of new water heaters that were installed
in their place in the common venting replacement scenario. Based on
this sensitivity analysis, DOE determined that the overall impact of
the residual values was approximately $39 for commercial gas-fired
storage; $22 for residential duty gas-fired storage; and $5 for
instantaneous water heaters and hot water supply boilers. The LCC
savings as calculated for the final rule could potentially be lowered
via account for an analysis of this nature. However, the lack of
information on the fraction of installations in which common venting
has been utilized and the complexity of dealing with these historical
installations and how remaining life may be correlated between CWH
units are issues that did not support its incorporation in the base
analysis. DOE presents it as illustrative of the fact that including
this would reduce but not eliminate the economic benefits of the rule
to consumers. DOE's sensitivity case is discussed in TSD chapter 8.
Bradford White disagreed with DOE's assertion that water heaters
will be able to vent vertically in the case of common venting with
other Category I water heaters as it will not be able to use the
existing chimney as a chase as combustion products from existing water
heaters will compromise non-metallic venting used by the new water
heater. They further seek clarification on how polypropylene common
vent
[[Page 69750]]
kits can be used to vent both non-condensing, existing water heaters
with a newly installed condensing water heater. They also commented
that regarding horizontal vent replacement, that DOE noted ``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 acknowledged that while that may be true, [and that there are]
power venter kits that are used to horizontally vent natural draft
water heaters, it is our experience that this is rarely done in the
field. Therefore, this cannot be used as a good indicator of what local
jurisdictions' codes permit. (Bradford White, No. 23 at p. 4)
DOE believes Bradford White has misunderstood DOE's point. DOE
meant with the discussion in the May 2022 CWH ECS NOPR that there may
be other options to both water heaters using the vertical chase when
replacing the water heaters on the common vent. To the extent that a
separate flue path may exist such as a horizontal venting from a
mechanical room with an exterior wall, installers could very likely
choose a simple horizontal vent option for the replacement water
heater, and leave a functional non-condensing water heater in place,
taking into account the relative size of the remaining Category I vent
and the remaining water heater(s) input rate. Another option which may
be present is the use of specified common venting procedures using
multiple condensing water heaters (in a case where all units are
replaced). In addition, DOE is aware of the Duravent FNS 80/90 vent
solution, which allows for the use of an existing category I flue in
conjunction with a condensing flue system which may be used in certain
applications where replacement of the non-condensing water heater would
be far out in time. However, in the case where an alternate path does
not exist, DOE notes that multiple water heaters may have to be
replaced.
f. Vent Sizing/Material Cost
Bradford White stated DOE's analysis of installation costs does not
appropriately account for State level restrictions on the application
of PVC venting. In New Hampshire, PVC venting is not permitted for
exhausting combustion gases. In Massachusetts, only CPVC,
polypropylene, and other piping approved by the Plumbing Board are
acceptable. These codes do not disallow PVC based on size, as other
commenters stated. (Bradford White, No. 23 at p. 3) Bradford White also
asked DOE to elaborate on why they believe polypropylene venting will
become a more viable, cost-competitive alternative by 2026. (Bradford
White, No. 23 at p. 4)
After reviewing the comments from Bradford White and the
requirements with regard to venting materials in New Hampshire and
Massachusetts, DOE determined that in the case of New Hampshire, NFPA
54 was amended to require that a venting material would only be allowed
to be used if the maximum set point temperature of the water heater
does not exceed the safe operating temperature of the venting material
selected. In the case of PVC vent material, the maximum storage
temperature for use with PVC venting would be around 149 [deg]F (based
on the use of listed PVC vent products available that are rated to UL
1738). DOE agrees that this effectively does not allow PVC venting for
the vast majority of products regulated under this rule. DOE also
reviewed the requirements surrounding plastic venting materials for
Massachusetts. Massachusetts requires that all venting products must be
approved by the Plumbing Board. After consultation with a manufacturer
of venting materials and review of the Massachusetts Consumer Affairs
and Business Regulation website,\81\ DOE confirmed that at least one
manufacturers' product line of PVC vent piping that is currently listed
to UL 1738 is allowed as a venting material according to the
Massachusetts Plumbing Board. Based on this review, and the relative
population of New Hampshire to the US total, DOE determined that the
effect of restrictions imposed on PVC venting in New Hampshire would be
de minimis for DOE's venting cost analysis.
---------------------------------------------------------------------------
\81\ Accepted Plumbing Products Online System of the
Massachusetts Board of Registration of Plumbers and Gas Fitters.
licensing.reg.state.ma.us/public/pl_products/pb_pre_form.asp (Last
accessed Dec 20, 2022).
---------------------------------------------------------------------------
With response to possible growth in the use of polypropylene vent
materials, DOE does not have data on the relative use of different
plastic venting materials and historic changes over time. DOE's intent
in the May 2022 CWH ECS NOPR was only to note polypropylene venting as
a relatively new option compared to other venting materials on the U.S.
market that appears to have growth potential. Importantly, DOE did not
modify its analysis for the May 2022 CWH ECS NOPR or this final rule to
explicitly include polypropylene venting.
g. Masonry Chimney/Chimney Relining
In the May 2022 CWH ECS NOPR, DOE assumed that 25 percent of pre-
1980 buildings have masonry chimneys and that 25 percent need relining.
DOE also used these assumptions in the withdrawn May 2016 CWH ECS NOPR
and asked for input. DOE did not receive further information or data on
the percentage of buildings built prior to 1980 with a masonry chimney
or the percentage of those chimneys that require relining in response.
For this final rule DOE maintained these same assumptions to
characterize masonry chimneys; which DOE used in the logic underlying
the calculation of venting costs.
PHCC noted that with regard to the fraction of existing buildings
with masonry chimneys, it cannot provide data, but suggests that the
Department may want to break its pre-1980 assumption down into more
discrete year bins and also encouraged DOE to review possible data from
the General Services Administration (``GSA''), the largest occupier of
offices in the country. It encouraged DOE to make further examination
of available information and to refrain from making random assumptions
regarding building stock. (PHCC, No. 28 at p. 8)
DOE appreciates PHCC's input on this topic. DOE reviewed GSA data
and found it did not include information that provided insight into the
fraction of existing buildings with masonry chimney venting or to
develop more detailed estimates of this variable by finer year bins.
Consequently, DOE did not update its methodology in this area for the
final rule.
h. Downtime During Replacement
Joint Gas Commenters state that many CWH replacements occur on an
emergency basis or ``on an unplanned basis.'' For this reason, Joint
Gas Commenters criticize DOE's statement that some businesses are able
to plan ahead for CWH replacements. They further state that DOE failed
to take into account additional down-time required for condensing CWH
installations in buildings previously served by non-condensing
equipment and the potential for lost business during the downtime.
(Joint Gas Commenters, No. 12 at p. 14) Similarly, Joint Gas Commenters
pointed out that DOE did not take into account lost business operations
during replacement of heat exchangers. (Joint Gas Commenters, No. 34 at
p. 19) DOE has no mechanism for determining what if any impact there
would be on a consumer's business. As noted above, consumers have
several avenues to avoid downtime, whether due to a replacement or due
to a repair. DOE agrees with Joint Gas Commenters that a water heater
failure can happen at any time. However, DOE assumes that many
consumers would have contingency
[[Page 69751]]
plans to cope with such emergencies and limit business losses,
including potentially having insurance policies which include coverage
of business loss due equipment failures or similar business impacting
events. Because avenues exist for consumers to minimize or eliminate
lost business, DOE continues to assume there is no need to add in costs
for lost business.
DOE acknowledges that currently a wide range of industries are
experiencing supply chain bottlenecks, and that could, in today's
climate, add to the time required to replace water heaters. The
standard established by this final rule however would not take effect
for three years and DOE believes that these supply chain bottlenecks
should be resolved by that time.
3. Annual Energy Consumption
For each sampled building, DOE determined the energy consumption
for CWH equipment at different efficiency levels using the approach
described previously in section IV.C.4 of this document.
4. 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. In the May 2022 CWH ECS NOPR, DOE
determined average effective commercial electricity prices \82\ and
commercial natural gas prices \83\ at the State level from EIA data for
calendar year 2019.
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\82\ U.S. Energy Information Administration (EIA). Form EIA-861M
monthly electric utility Sales and Revenue Data (aggregated: 1990-
current). Available at www.eia.gov/electricity/data/eia861m/. Last
accessed on March 31, 2023.
\83\ U.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 March 31, 2023.
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In response to the May 2022 CWH ECS NOPR, Joint Gas Commenters were
critical of DOE's use of 2019 historical energy price data despite
newer data being available ``before the last update on March 25,
2022,'' and questioned why DOE did not update historical price data and
marginal prices to match other base year costs. (Joint Gas Commenters,
No. 34 at p. 23) In response, DOE chose 2019 as the base year in the
May 2022 CWH ECS NOPR because it was the last calendar year for which
complete natural gas and electricity data were available (i.e., there
were no missing data in the Natural Gas Navigator dataset), and at the
time the United States had not begun to recognize that the Nation was
in a period of rapid price inflation. For the final rule, DOE agrees
with the Joint Gas Commenters that it is important to have fuel prices
that are fully contemporaneous with the other base-year prices used in
the analysis, such as the prices for stainless steel venting. For the
final rule, DOE is using a 12-month period ending with December 2022.
For the final rule DOE again used data from EIA's Form 861 \84\ to
calculate commercial and residential sector electricity prices, and
EIA's Natural Gas Navigator to calculate commercial and residential
sector natural gas prices.\85\ Future energy prices were projected
using trends from the EIA's AEO2023.\86\ This approach captured a wide
range of commercial electricity and natural gas prices across the
United States.
---------------------------------------------------------------------------
\84\ U.S. Energy Information Administration (EIA). Uses prices
presented in the Sales and Revenue report, by sector by State. The
EIA-861M detailed data was the March 27, 2023 updated historical
data containing data from 2010 through January 2023.
\85\ U.S. Energy Information Administration (EIA). Natural Gas
Navigator. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm. Last accessed March 31, 2023.
\86\ U.S. Energy Information Administration (EIA). Annual Energy
Outlook 2023 with Projections to 2050: Narrative. March 2023.
Available at www.eia.gov/outlooks/aeo/.
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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). For both the commercial and residential sectors,
DOE continued to use population in each State and the cumulative
population in the States that comprise each Census Division and
Reportable Domain for developing natural gas prices. See appendix 8C of
the final rule 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 AEO2023 Reference case to provide the default electricity and
natural gas price forecast scenarios. This is an update from the May
2022 CWH ECS NOPR that relied on the AEO2021. DOE extrapolated the
trend in values at the Census Division level to establish prices beyond
2050.
Joint Gas Commenters criticized the use of AEO forecasts, claiming
they have systematically overstated future energy costs, and presented
a comparison of historical residential and commercial gas prices to AEO
forecasts going back to 2010 to support their claim. (Joint Gas
Commenters, No. 34 at pp. 19-23) DOE uses the AEO forecast because it
is the most widely available, widely reviewed and robust forecasting
process available to DOE. As Joint Gas Commenters did not propose any
alternative, let alone one as widely reviewed and robust as the AEO,
DOE determined that the appropriate alternative at this point is to
continue to use the AEO for future energy price trends, consistent with
its practice in energy conservation standards rulemakings, with the
only change made from the May 2022 CWH ECS NOPR being to update from
the AEO2021 to the AEO2023.
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
final rule TSD.
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 SNOPR 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).\87\ 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
[[Page 69752]]
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 2018 and RECS 2009
data, there is 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.
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\87\ See 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/EERE-2014-BT-STD-0031-0217 (Last accessed January 25, 2022).
---------------------------------------------------------------------------
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 represent an average across all commercial customers in a
given region (reportable domain 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 non-
residential 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-by-state basis or in a nationally
representative manner, the historic data on which DOE did rely include
such 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 final rule, DOE updated forecasts from data
published in the AEO2023 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 final rule, DOE used 2022 EIA energy price data as a starting
point. 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 final rule 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 that omit
the impact of demand costs; however, this is appropriate for the
current analysis, barring other information on commercial load profiles
and demand-peak windows. After careful consideration during the
preparation of this final rule, 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 EIA-recommended future energy
price escalation rates. DOE maintained this approach for this final
rule.
5. Maintenance and Repair Costs
Maintenance costs are the routine costs to the consumer of
maintaining the operation of equipment. Repair costs are the cost to
the consumer of replacing or repairing components that have failed in
the CWH equipment.
a. Maintenance Costs
DOE utilized The Whitestone Facility Maintenance and Repair Cost
Reference 2012-2013 88 89 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 final rule analysis.
---------------------------------------------------------------------------
\88\ Whitestone Research. The Whitestone Facility Maintenance
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012.
Whitestone Research: Santa Barbara, CA.
\89\ The 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 final rule.
[[Page 69753]]
Table IV.20--Summary of Maintenance Labor Hours and Schedule Used in the LCC and PBP Analyses
----------------------------------------------------------------------------------------------------------------
Frequency
Equipment Description Labor hours (years)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters; Clean (Volume <= 275 gallons)... 2.67 1
Residential-duty gas-fired storage water Clean (Volume > 275 gallons).... 8 2
heaters. Overhaul........................ 1.84 5
Gas-fired instantaneous tankless water heaters Service......................... 0.75 1
Gas-fired instantaneous circulating water Service......................... 7.12 1
heaters and hot water supply boilers.
----------------------------------------------------------------------------------------------------------------
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 final rule TSD.
For the May 2022 CWH ECS NOPR, DOE did make revisions to some of
the original Whitestone schedule of labor hour in response to comments
on the withdrawn ECS NOPR. DOE added an additional 0.0833 labor hours
per year \90\ for checking condensate neutralizers during annual
maintenance work, and $10 per year \91\ for replacing the material
within the neutralizers. In addition, DOE increased the labor hours for
annual tankless water heater maintenance from 0.33 hours to 0.75 hours.
DOE also 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 RSMeans Facilities Maintenance and
Repair Cost Data.\92\ Using these references, DOE updated the
maintenance labor hours from 0.33 to 7.12 for this equipment category.
Appendix 8E of the final rule TSD provides more detail on maintenance
labor hours assigned to each equipment category of commercial water
heaters.
---------------------------------------------------------------------------
\90\ U.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 final rule, DOE used 5 minutes per year for checking and/or
refilling neutralizers.
\91\ A condensate neutralizer is used to buffer or neutralize
the acidic content of flue gas condensate before disposal. The
condensate neutralizer DOE included in DOE's installation costs
weighs approximately 5 pounds. It is essentially a plastic tube with
water inlet and outlet, and filled with calcium carbonate pellets
(neutralizer media), 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-root-pvlsc/91da02-marble-chips-for-condensate-neutralizer) up to $3 per pound in smaller purpose
products. DOE estimates $10 per year would be sufficient to cover
replacement of the pellets.
\92\ RSMeans Company. Facilities Maintenance and Repair Cost
Data 2022. 29th Annual Edition. Available at www.rsmeans.com/products/books/.
---------------------------------------------------------------------------
In response to the May 2022 CWH ECS NOPR, Bradford White stated
that DOE assumed that annual maintenance costs do not vary as a
function of efficiency and recommended that this assumption be updated
as burner maintenance costs increase as a function of efficiency.
(Bradford White, No. 23 at p. 8) In response to this comment, DOE
downloaded Bradford White and Lochinvar installation and operation
manuals for commercial gas-fired condensing and non-condensing water
heaters. DOE compared the language for maintenance for burners. While
clearly the burners appeared different in the pictures in the manuals,
the language for this step was identical. Because DOE could not discern
where additional steps needed to be taken involving additional time,
and because Bradford White did not volunteer this information in their
comment, DOE did not add additional labor hours in response to this
comment.
In another comment on the May 2022 CWH ECS NOPR, JJM Alkaline noted
the costs to replace neutralizers ($10/year) is below prevailing market
costs. (JJM Alkaline, No. 10 at p. 1) DOE reviewed the cost assumptions
and inputs used in the modeling of condensate management solutions. DOE
reviewed costs for condensate neutralizer material (based on retail
prices available for different purchase quantities), condensate
neutralizers, as well as considerations for labor. DOE also considered
how consumption of neutralizer media would change between different
water heating equipment by input capacity, full load operating hours as
evidenced in its LCC analysis and subsequent overall condensate
production. DOE's revised analysis resulted in increased costs overall,
but more specifically made overall condensate management costs a
function of each representative equipment type in DOE's analysis. Labor
cost was doubled from 5 minutes to 10 minutes per year, and is assumed
to take place at the time of a normal maintenance cycle. Both the
assumed prevalence of condensate neutralization equipment and the
expected cost of such equipment are discussed in chapter 7 of the final
rule TSD.
b. Repair Costs
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.\93\ 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.
---------------------------------------------------------------------------
\93\ RSMeans. RSMeans Mechanical Costs Book 2022. Available at
www.rsmeans.com/products/books.
---------------------------------------------------------------------------
Heat exchanger failure is a unique repair scenario for certain
commercial gas-fired instantaneous circulating water
[[Page 69754]]
heaters and hot water supply boilers and was included in DOE's repair
cost analysis. The use of condensing or non-condensing 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.\94\ The
cost of heat exchanger replacement is assumed to be a third of the
total water heater replacement cost.
---------------------------------------------------------------------------
\94\ 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.
---------------------------------------------------------------------------
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 baseline-efficiency, 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
final rule TSD and appendix 8E of the final rule TSD. DOE's
incorporation and approach to repair costs in the LCC did not change
from the NOPR implementation.
Bradford White recommended DOE investigate other sources of more
recent data on heat exchanger failure, noting that DOE bases its
assumptions on heat exchanger failure based on a Gas Research Institute
report on boilers, not water heaters, and it is from 1994. (Bradford
White, No. 23 at p. 8) DOE understands Bradford White's concerns about
this source document, and DOE invested a considerable amount of time
investigating whether alternative information sources existed, and none
could be identified. Thus for this final rule, DOE continues to rely
upon this as the best available information.
Joint Gas Commenters note DOE, without reference or logic, assumes
the cost of heat exchanger replacement, where possible, is one third of
the total water heater replacement cost. They also state it is just as
likely that heat exchanger failure will cause a need for complete
replacement of the water heating equipment, but the added negative
economic impact of more frequent equipment outages on the business's
operation is not considered. (Joint Gas Commenter, No. 34 at p. 19) DOE
notes that appendix 8E in both the May 2022 CWH ECS NOPR and the final
rule TSDs outlines heat exchanger replacement assumptions. The
estimated cost equivalent to one-third of the hot water supply boiler
cost was based on manufacturer literature. Based on the aforementioned
Gas Research Institute report, DOE assumes that as many as 50 percent
of condensing heat exchangers will need to be replaced with an average
year of failure of 15 years. Note that for hot water supply boilers and
other instantaneous water heaters, DOE assumes a 25 year lifetime. DOE
also assumes 17 percent of non-condensing heat exchangers in those
units will need to be replaced with a mean year of failure of 20 years,
again for equipment with an expected 25 year lifetime. Thus, on
average, a non-condensing heat exchanger failure could lead to more
premature circulating water heaters and hot water supply boiler
replacements because, on average, the heat exchanger replacement would
occur closer to the expected end of life of the hot water supply boiler
and consumers' repair professionals would make them aware of how much
expected life would be available after the repair. DOE also notes that
economically rational consumers are not going to replace a serviceable
and repairable condensing hot water supply boiler that costs in excess
of $7,100 if the heat exchanger fails at year 15. They would only do
such if the water heater is otherwise compromised. As for the impact on
a consumer's business, DOE has no mechanism for determining what if any
impact there would be on a consumer's business. As discussed in
IV.F.2.h, consumers have many alternatives for minimizing or mitigating
downtime. While DOE is basing the assumptions of heat exchanger
replacement on the best available data, Bradford White is correct in
noting the Gas Research Institute report is from 1994, and DOE would
assume that in normal situations, manufacturers would have made
progress in reducing the failure rate since that date. When viewed in
this light, the inclusion of this higher failure rate might be a
conservative assumption.
6. Product Lifetime
For CWH equipment, DOE used lifetime estimates derived through a
review of numerous sources. Product lifetime is the age when a unit of
CWH equipment is retired from service. For the May 2022 CWH ECS NOPR
and for this final rule, 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. These
sources used by DOE in the review of lifetime 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.\95\ Specific document titles and
references are provided in appendix 8F of the final rule TSD. DOE
applied a
[[Page 69755]]
distribution to all classes of CWH equipment analyzed. Chapter 8 of the
final rule TSD contains a detailed discussion of CWH equipment
lifetimes.
---------------------------------------------------------------------------
\95\ DOE attempted to only include only unique sources, as
opposed to documents citing other sources already included in DOE's
reference list.
Table IV.21--Average CWH Lifetime Used in Final Rule Analyses
------------------------------------------------------------------------
Average lifetime
CWH equipment (years)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage- 10
type instantaneous...................................
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 25
boilers..........................................
------------------------------------------------------------------------
DOE notes that the average lifetime of all equipment covered by
this 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.
In response to the May 2022 CWH ECS NOPR, DOE received several
comments concerning the estimated lifetime of equipment. AHRI stated
that 10 years for commercial gas storage and 25 years for Instantaneous
Water Heaters and Hot Water Supply Boilers seem more characteristic of
residential applications than commercial. Higher water temperatures and
faster duty cycles decrease expected lifetimes. (AHRI, No. 31 at p. 1)
Rheem supported this AHRI comment. (Rheem, No. 24 at p. 2) Similarly,
Bradford White stated that DOE's assumed 10-year life for commercial
gas-fired storage and 25-year life for gas-fired instantaneous and hot
water supply boilers are almost the same (in the case of gas-fired
storage), or more than, their consumer (i.e., residential)
counterparts. Bradford White also reiterated the point AHRI made about
temperatures and duty cycles. Bradford White further noted that in
appendix 8F, DOE cited experts stating commercial water heaters are
expected to have shorter lives than residential water heaters. They
expressed concern that DOE referenced several sources more than 10
years old. (Bradford White, No. 23 at pp. 2 and 5) PHCC also stated
DOE's lifetimes are too long, and DOE's listed lifetimes would be the
maximum age for products, not the average age. PHCC notes that their
members do not have a complied database for these products to verify
life and that DOE should reengage with the product manufacturers and
other stakeholders to see if additional data can be developed. (PHCC,
No. 28 at p. 6) Joint Gas Commenters noted DOE assumes that the
lifetime distribution for a class of CWH unit is the same within an
equipment category, across all efficiency levels, then points to the
replacement of boiler heat exchangers implying that lower reliability
of heat exchangers in condensing units compared to
non[hyphen]condensing units should imply shorter life. (Joint Gas
Commenters, No. 34 at page 19)
In response, DOE notes that the residential (i.e., consumer) gas
water heaters are estimated to have a 14.5 year life, which exceeds
both the commercial gas storage water heaters lifetime (10 years) and
residential-duty gas-fired storage water heater lifetime (12
years).\96\ Consumer boilers are estimated to have a 26.6 year
lifetime, or 1.6 years longer than the lifetime for hot water supply
boilers and circulating water heaters assumed by DOE.\97\ Thus, DOE's
estimated equipment lifetimes for commercial water heaters are shorter
than the residential counter-parts. DOE notes that the commercial gas-
fired storage water heater lifetime is approximately 30 percent shorter
than its residential counterpart while the commercial hot water supply
boiler lifetime is 6 percent shorter than its residential boiler
counterpart. Bradford White, AHRI and Rheem did not provide DOE with
sufficient numerical data concerning CWH equipment lifetimes to justify
a significantly greater disparity in the lifetimes between these CWH
and residential equipment. In response to the age of the documents
cited in DOE's review of research on CWH equipment lifetimes, DOE
undertook an additional literature search to determine if newer
information was available. The search turned up newer documents with
information about CWH equipment lifetime, but virtually all such
documents refer to the sources cited in the NOPR for the lifetimes that
they state. Thus, while the NOPR list of citations includes many older
documents, updating this literature review did not provide evidence
leading DOE to conclude that a change was needed in any of the
estimated lifetimes.
---------------------------------------------------------------------------
\96\ Based on the average lifetime included in DOE's ongoing
consumer water heater rulemaking EERE-2017-BT-STD-0019.
\97\ Based on the average lifetime included in DOE's ongoing
consumer boiler rulemaking, Preliminary Technical Support Document,
from www.regulations.gov/document/EERE-2019-BT-STD-0036-0021.
---------------------------------------------------------------------------
In response to the Joint Gas Commenters, DOE does not have data to
suggest that the lifetime of condensing CWH equipment is lower than
that of non-condensing equipment; rather, all available data suggests
that the lifetime of condensing CWH equipment is substantially the same
as noncondensing CWH equipment. DOE does have and has incorporated data
regarding increased repair costs for individual component failures that
may occur in higher-efficiency equipment, as discussed in section
IV.F.5.b of this document. However, the increased repair costs are
largely related to the increased component cost and even in the case of
heat exchangers where DOE cites a higher failure rate, such does not
translate directly to decreased product life. While Joint Gas
Commenters remark about heat exchanger failure leading to early
replacement of the entire water heater, DOE would note that CWH
equipment has a rather high total installed cost and it would not be in
consumers economic best interest to replace an otherwise serviceable
and repairable water heater. As noted in both the May 2022 CWH ECS NOPR
and the Final Rule TSD appendix 8E, DOE assumes a mean failure year of
15 years for condensing heat exchangers which, when combined with the
original warranty period, means there is no reason to expect the heat
exchanger repair work to automatically result in a shorter lifetime.
7. Discount Rates
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
[[Page 69756]]
weighted-average cost of debt and equity financing, or the weighted-
average cost of capital (``WACC''), less the expected inflation.
For residential consumer purchase of CWH equipment, DOE applies
weighted average discount rates calculated from consumer debt and asset
data, rather than marginal or implicit discount rates.\98\ DOE notes
that the LCC does not analyze the equipment purchase decision, so the
implicit discount rate is not relevant in this model. The LCC estimates
net present value over the lifetime of the equipment, 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.
---------------------------------------------------------------------------
\98\ The 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.
---------------------------------------------------------------------------
For commercial purchasers, to estimate the WACC DOE used a sample
of detailed business sub-sector statistics, drawn from the database of
U.S. companies presented on the Damodaran Online website.\99\ This
database includes most of the publicly-traded companies in the United
States. Using this database, Damodaran developed a historical series of
sub-sector-level annual statistics for 100+ business sub-sectors. Using
data for 1998-2021, 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, 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.
---------------------------------------------------------------------------
\99\ Damodaran Online. Damodaran financial data used for
determining cost of capital. Available at pages.stern.nyu.edu/
~adamodar/. Last accessed on December 20, 2022.
---------------------------------------------------------------------------
DOE used the sample of business sub-sectors 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 long-term
nominal S&P 500 returns also developed by Damodaran, and risk-free
interest rates based on nominal long-term Federal government bond
rates. DOE then determined the weighted-average 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).100 101 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.\102\
---------------------------------------------------------------------------
\100\ Federal 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.
\101\ Bartel 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 June 23,
2022.
\102\ Rate calculated with rolling 40-year data series for the
years 1992-2021. Data source: U.S. Federal Reserve. Available at
www.federalreserve.gov/releases/h15/data.htm. Last accessed on July
12, 2022.
---------------------------------------------------------------------------
Based on this database, DOE calculated the weighted-average, after-
tax 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'')
\103\ 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 Ball\TM\ 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 final rule TSD contains the detailed calculations related to
discount rates.
---------------------------------------------------------------------------
\103\ Board of Governors of the Federal Reserve System. Survey
of Consumer Finances. Available at www.federalreserve.gov/PUBS/oss/
oss2/scfindex.html.
---------------------------------------------------------------------------
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 final rule, DOE examined its established process for
development and use of discount rates and has concluded that it
sufficiently characterizes the discount rate facing consumers.
Patterson-Kelley suggested that both State and local consumers and
small businesses need to be better included in the analysis.
(Patterson-Kelley, No. 26 at p. 2) DOE notes that CBECS is a nationally
representative sample of activity in buildings used for commercial
activities, and for activities of State and local governments and
government enterprises such as local school districts or State colleges
or universities. In the CBECS 2018 database, 1,407 of 6,436 buildings
are coded as either State government ownership or local government
owned buildings. Because there is no data field in CBECS that indicates
``small business,'' there is no reliable way to identify a specific
building as being small business. However, the CBECS dataset includes
representative numbers of buildings in business sectors commonly
thought of as small businesses, such as ``mom and pop'' restaurants,
retail establishments or motels, and other buildings that could be
considered small business according to the U.S. Small Business
Administration. Accordingly, DOE believes its analysis sufficiently
includes State and local consumers and small businesses.
[[Page 69757]]
8. 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-new-standards 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 at the end of
this section. DOE was not able to assign a CWH efficiency to a building
in the no-new-standards case based on building characteristics, since
CBECS 2018 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.
Joint Advocates stated DOE's use of the assignment of efficiency
levels in the no-new-standards case is sufficiently representative of
consumer behavior. Joint Advocates noted the examples of market
failures such as misaligned incentives in landowner-renter situations,
and these market failures result in under-investment in energy
efficiency and consumers not making decisions that result in the
highest net present value in their specific situations. Joint Advocates
stated that DOE's assignment of efficiency levels in the no-new-
standards case reasonably reflects actual consumer behavior. Joint
Advocates disagreed with Barton Day Law's comment during the Public
Meeting regarding random assignment (discussed later in this section).
Joint Advocates stated that market failures in commercial and
industrial sectors add complexity to the decision-making process and
result in an under-investment in energy efficiency. (Joint Advocates,
No. 29 at p.3) CA IOUs supported DOE's robust analysis of the no-new-
standards case and the consumer choice model. Like many utilities
across the country, the CA IOUs implement a statewide energy efficiency
program for commercial water heating to manage these [market] barriers
directly. The CA IOUs stated DOE's review of failures in the commercial
market presented in the May 2022 CWH ECS NOPR is consistent with their
understanding. They stated DOE's analysis is thoughtful, robust, and
well within its regulatory discretion. (CA IOUs, No. 33 at p. 5)
NYSERDA supported DOE's estimates of efficiency levels in the no-new-
standards case and stated that DOE's estimates are well-reasoned and
based on the most relevant data. In particular, NYSERDA stated that
DOE's use of Compliance Certification Database and AHRI data is a
thorough analysis that provides a well-founded estimate. NYSERDA
indicated that market data do not reflect the assumption that
purchasers of CWH equipment are only basing their decisions on
economics. NYSERDA stated they implement a wide variety of programs to
help spur market transformation, and these efforts seek to address the
specific types of market failures that DOE addresses in its analysis.
(NYSERDA, No. 30 at pp. 2-3) DOE acknowledges these comments and the
references to market failures being addressed by market transformation
programs. As a reminder the list of market failures discussed in the
May 2022 CWH ECS NOPR is included in this section after the comments
are addressed.
Joint Gas Commenters criticized DOE's use of random assignments of
baseline efficiency, stating that consumers who find condensing to be
cost effective have already installed it and for those who have not
installed it, it is likely not cost effective. Joint Gas Commenters
went on to state that the random assignment of efficiencies assumes
that purchasers of commercial water heaters never consider the
economics of their purchases. Joint Gas Commenters went on to state
that DOE's use of random assignment is most unreasonable when it
results in large LCC savings. (Joint Gas Commenters, No. 34 at pp. 21-
22 and 23-25) Barton Day Law asked about the distribution of extreme
outcomes resulting from random assignment, stating that extreme
outcomes have a disproportionate impact on the average LCC results.
Barton Day Law offered the opinion that DOE should look at the impact
of the extreme outcomes, and random assignment of outcomes where the
more efficient product is the low-cost option should be in the base
case for the analysis. (Barton Day Law, Public Meeting Transcript, No.
13 at pp. 51-55) Joint Gas Commenters pointed to the National Academy
of Sciences 2021 review of DOE's standards process and to the D.C.
Circuit's opinion in APGA v. DOE (22 F.4th 1018 to 1027) to support
their comments. They further referred to the literature cited in the
May 2022 CWH ECS NOPR discussing market failure and offer their opinion
that such information provides no basis to conclude that purchasers are
not acting in their economic interest when they make a decision to
purchase or not purchase condensing equipment. (Joint Gas Commenters,
No. 34 at p. 30) Similarly, Atmos Energy stated DOE's analysis does not
consider key consumer decision-making aspects such as hot water demand,
building design impacts on installation costs, and ``realistic''
maintenance and repair costs, as well as rebate costs. They noted that
DOE does not use a ``discrete choice model'' or rely on ``sufficient
collected data on consumer behavior.'' (Atmos Energy, No. 36 at p. 4)
DOE first notes that, with respect to the National Academy of
Sciences report, the recommendations will be evaluated in a separate
proceeding. With respect to the D.C. Circuit's opinion in APGA v. DOE,
22 F.4th 1018 (APGA I), DOE notes that the random assignment issue
raised in that litigation was further addressed by DOE through the
final rule for the commercial packaged boiler (``CPB'') ECS rulemaking
(EERE-2013-BT-STD-0030),\104\ and while the court in APGA v. DOE, No.
22-1107, 2023 WL 4377914 (D.C. Cir. July 7, 2023) (APGA II) vacated the
rule on other grounds, it did not address the merits of arguments on
random assignment raised by petitioner. In developing the May 2022 CWH
ECS NOPR and ultimately this final rule, DOE took into account all of
the available data concerning the market implementation of condensing
natural gas-fired CWH equipment. As shown in the table at the end of
this section (Table IV.22), using actual data from AHRI for a period
ending 2015, S-curves developed from the AHRI data, CCMS and other
data, DOE projected CWH shipments by efficiency level over the analysis
period. DOE then determined that, based on the presence of well-
understood market failures and a
[[Page 69758]]
corresponding lack of data showing a correlation between CWH efficiency
and building hot water load, a random assignment of efficiencies best
accounts for consumer behavior in the CWH market.
---------------------------------------------------------------------------
\104\ See Energy Conservation Program: Energy Conservation
Standards for Commercial Packaged Boilers; Response to United States
Court of Appeals for the District of Columbia Circuit Remand in
American Public Gas Association v. United States Department of
Energy, www.govinfo.gov/content/pkg/FR-2022-04-20/pdf/2022-08427.pdf.
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Further, DOE strongly disagrees with the statement from Joint Gas
Commenters that this methodology assumes that purchasers of CWHs never
consider the economics of their investments. Rather, as explained in
the remainder of this section, DOE is aware of multiple market failures
that prevent the purely economic decision making hypothesized by the
Joint Gas Commenters. That being said, DOE uses a random assignment
because it does reflect the full range of consumer behaviors, including
those consumers who make purely economic decisions, found in the CWH
market. As reflected in the LCC analysis, a significant portion (63 to
69 percent depending on product class) of buildings with large hot
water loads were assigned more efficient CWHs.
DOE also finds Joint Gas Commenters and Barton Day Law's focus on
trial cases with large LCC savings to be misguided. Commenters cite
these cases as evidence that random assignment results in unreasonable
results that disproportionately affect DOE's analysis. But as mentioned
previously and discussed in more detail below, DOE used a random
assignment because of well-understood market failures. Commenters seem
to be suggesting that these market failures should not apply to
situations where purchasing decisions have larger economic impacts. DOE
does not agree. For example, one well-understood market failure is
where a building owner purchases the CWH, but the tenant pays the
utility bills. DOE sees no reason to assume that this market failure
does not occur, or is less likely to occur, when the building has a
larger hot water load, i.e., the economic impacts are larger.
As stated previously, DOE believes that, based on the presence of
well-understood market failures and a corresponding lack of data
showing a correlation between CWH efficiency and building hot water
load, a random assignment of efficiencies best accounts for consumer
behavior in the CWH For these reasons, DOE rejects the approach
recommended by Barton Day Law, Joint Gas Commenters, and Atmos Energy,
and DOE continues to use the approach for selecting the baseline
efficiency level that was used for the May 2022 CWH ECS NOPR.
While DOE acknowledges that economic factors 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 LCC or simple PBP, 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 next.
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 these are presented for any given
choice scenario.\105\ 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.\106\ Thaler, who won the 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.\107\ These characteristics describe almost all purchasing
situations of appliances and equipment, including commercial water
heaters. 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.\108\ Additionally, it would take multiple billing cycles for
any impacts on operating costs to be fully apparent. Further, if the
purchaser of the commercial water heater 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.
---------------------------------------------------------------------------
\105\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014).
``Choice Architecture'' in The Behavioral Foundations of Public
Policy, Eldar Shafir (ed).
\106\ Thaler, 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 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).
\107\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale
University Press.
\108\ American 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.
---------------------------------------------------------------------------
It is often assumed that because commercial and industrial
customers are businesses that have trained or experienced individuals
making decisions regarding investments in cost-saving 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
principal-agent problem, where the building owner (or building
developer) selects the equipment and the tenant (or subsequent building
owner) pays for energy costs.109 110 Indeed, a substantial
fraction of commercial buildings with a commercial water heater in the
CBECS 2018 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
[[Page 69759]]
commercial water heater. 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.\111\ 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.\112\ 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.\113\
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\109\ 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.
\110\ Blum, 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).
\111\ Prindle, 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).
\112\ Bushee, 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 short-termism and underinvestment in energy
efficiency).
\113\ 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).
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Second, the nature of the organizational structure and design can
influence priorities for capital budgeting, resulting in choices that
do not necessarily maximize profitability.\114\ Even factors as simple
as unmotivated staff or lack of priority-setting 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.\115\ 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.\116\
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\114\ DeCanio, S.J. (1994). ``Agency and control problems in US
corporations: the case of energy-efficient 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.
\115\ Rohdin, 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.
\116\ Lovins, A. (1992). Energy-Efficient Buildings:
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed December 19, 2022).
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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.\117\ Asymmetric
information in financial markets is particularly pronounced with regard
to energy efficiency investments.\118\ 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,\119\ which can bias firms toward 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.\120\ This information
asymmetry extends to commercial investors, lenders, and real-estate
financing, which is biased against new and perhaps unfamiliar
technology (even though it may be economically beneficial).\121\
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.\122\
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\117\ Fazzari, 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.
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.
\118\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006).
``From volatility to value: analyzing 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.
\119\ Reed, 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
December 19, 2022).
\120\ Cooremans, C. (2012). ``Investment in energy efficiency:
do the characteristics of investments matter?'' Energy Efficiency,
5(4), 497-518.
\121\ Lovins 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-
energy-efficiency-market/) (Last accessed December 19, 2022).
\122\ Blumstein, 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
December 19, 2022).
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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
[[Page 69760]]
rates \123\ and required PBPs of many firms are higher than the
appropriate cost of capital for the investment.\124\ 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.\125\ The study found that multiple organizational and
institutional factors caused firms to require shorter PBPs and higher
returns than the cost of capital for alternative investments of similar
risk. Another study demonstrated similar results with firms requiring
very short PBPs of 1-2 years in order to adopt energy-saving projects,
implying hurdle rates of 50 to 100 percent, despite the potential
economic benefits.\126\ 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,\127\ supermarkets,\128\ and the
electric motor market.\129\
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\123\ A 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.
\124\ DeCanio 1994, op. cit.
\125\ DeCanio, S.J. (1998). ``The Efficiency Paradox:
Bureaucratic and Organizational Barriers to Profitable Energy-Saving
Investments,'' Energy Policy, 26(5), 441-454.
\126\ Andersen, 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.
\127\ Prindle 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.
\128\ 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.
\129\ de 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).
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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 commercial water efficiency in the no-new-standards case
solely according to energy use or economic considerations such as LCC
or PBP, 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 LCC or PBP (as calculated using the information
from CBECS 2018 or RECS 2009).
DOE notes that EIA's \130\ AEO is another energy use model that
implicitly includes market failures in the commercial sector. In
particular, the commercial demand module \131\ 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 with other prominent energy consumption models.
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\130\ EIA, Annual Energy Outlook, www.eia.gov/outlooks/aeo/
(Last accessed December 19, 2022).
\131\ For further details, see: www.eia.gov/outlooks/aeo/assumptions/pdf/commercial.pdf. (Last accessed December 19, 2022).
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Joint Gas Commenters also criticized DOE for failing to respond to
the comments provided in the withdrawn 2016 CWH ECS NOPR on random
assignment, referring to such as a violation of DOE's Basic Notice and
Comment Obligations. (Joint Gas Commenters, No. 34 at p. 28) Joint Gas
Commenters stated that DOE cannot release a final rule without
addressing the random assignment issues and cannot address them without
giving stakeholders an opportunity to refute DOE's response during the
rulemaking process--citing Owner[hyphen]Operator Indep. Drivers Ass'n
v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007). (Joint Gas Commenters,
No. 34 at p. 31) As a threshold matter, DOE notes that nothing in EPCA
or the Administrative Procedure Act (5 U.S.C. 551 et seq.) requires an
agency to provide additional notice and comment on a withdrawn NOPR, or
additional notice and comment before a final rule to allow commenters
to refute the Department's responses to comments on a NOPR. As noted
previously, DOE withdrew the 2016 CWH ECS NOPR and reissued a proposed
rule for commercial water heaters in the May 2022 CWH ECS NOPR. In the
May 2022 CWH ECS NOPR, DOE did address comments on the May 2016 CWH ECS
NOPR, which caused DOE to materially change the analyses (beyond simply
updating inputs) from the analyses performed for the withdrawn 2016 CWH
ECS NOPR. In the May 2022 CWH ECS NOPR, DOE also addressed the fact
that a considerable number of market failures could occur causing the
strict economic decision making hypothesized by the Joint Gas
Commenters to not be the sole guiding determinant of efficiency
choices. DOE further addressed the Joint Gas Commenters comments about
random assignments by explaining how DOE modeled the efficiency
distributions and the data sources used in the NOPR. Additionally, in
doing so, DOE provided stakeholders with a track record that could be
followed to understand the differences in the 2016 and the 2022 LCC
models. Notably, the model used for efficiency distribution in the no-
new standards case in the May 2022 CWH ECS NOPR was substantially the
same as the model used for the withdrawn May 2016 CWH ECS NOPR, and is
substantially the same in this final rule.
Stakeholders have been provided with adequate notice and
opportunity to comment on DOE's proposed rule. That DOE did not make
the changes recommended by the commenter does not negate the adequacy
of notice and comment. Stakeholders have been provided the same notice
and opportunity to comment as they would have had DOE issued a final
rule subsequent to the May 2016 CWH ECS NOPR. Nothing in EPCA or the
Administrative Procedure Act (5 U.S.C. 551 et seq.) requires DOE to
provide additional notice and comment before the final rule for its
responses to comments on a NOPR.\132\
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\132\ Joint Gas Commenters cite Owner[hyphen]Operator Indep.
Drivers Ass'n v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007) for the
proposition that DOE must provide stakeholders an opportunity to
refute DOE's responses during the rulemaking process. However, the
court in that case did not state that an agency must allow
stakeholders to refute its responses to comments on a NOPR as Joint
Gas Commenters suggest. Rather, in that case, the D.C. Circuit held
that the agency violated the notice-and-comment requirement of the
Administrative Procedure Act when it promulgated a final rule with
an update to a model used in the proposed rule that presented an
entirely new methodology relative to the proposed rule. Id. at 200-
201. As noted previously, DOE is using substantially the same model
for the energy efficiency distribution in the no new standards case
and Joint Gas Commenters had adequate ability to comment on, and
refute, DOE's analyses in the May 2022 CWH ECS NOPR.
---------------------------------------------------------------------------
[[Page 69761]]
Accordingly, for the reasons stated in this section, DOE has
maintained the approach used in the May 2022 CWH ECS NOPR for analyzing
energy efficiency distribution in the no-new-standards case. The
estimated market shares for the no-new-standards case for CWH equipment
are shown in Table IV.22. See chapter 8 of the final rule 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired
Commercial gas-fired Residential-duty gas- Gas-fired circulating water
EL storage water fired storage water instantaneous heaters and hot
heaters (%) heaters (%) tankless water water supply boilers
heaters (%) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0............................................................... 34.3 53.7 17.0 5.3
1............................................................... 2.7 20.9 0.0 13.3
2............................................................... 0.0 14.9 0.0 12.9
3............................................................... 15.3 3.0 4.2 2.1
4............................................................... 46.7 6.0 20.8 11.4
5............................................................... 1.0 1.5 58.1 55.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
9. Payback Period Analysis
The PBP is the amount of time (expressed in years) it takes the
consumer to recover the additional installed cost of more-efficient
products, compared to baseline products, through energy cost savings.
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. DOE
refers to this as a ``simple PBP'' because it does not consider changes
over time in operating cost savings. The PBP calculation uses the same
inputs as the LCC analysis when deriving first-year operating costs.
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 \133\ 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 final rule TSD provides
additional details about the PBP.
---------------------------------------------------------------------------
\133\ The 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.
---------------------------------------------------------------------------
10. Embodied Emissions and Recycling Costs
WM Technologies and Patterson-Kelley stated that if the Department
utilizes emissions, or reference to carbon in the analysis, then the
Department should also acknowledge the cost of embodied carbon in the
analysis. Both stakeholders have been working with an ASHRAE group with
the intention of improving the general understanding of embodied
carbon, LCC, and operational carbon and identifying ways to accurately
account for these metrics in HVAC products, among other things. (WM
Technologies, No. 25 at pp. 1-2; Patterson-Kelley, No. 26 at pp. 2-3)
EPCA requires DOE to consider the total projected energy saving
resulting from a standard. DOE considers FFC energy savings, including
the energy consumed in electricity production, in distribution and
transmission, and in extracting, processing, and transporting primary
fuels. DOE does not analyze energy savings (or air pollutant emissions)
related to manufacturing, transporting, recycling, or disposing of
products, as such impacts would not be considered a direct result of
the standard on the energy use of the covered product. As such,
embodied emission in this process is outside of DOE's CWH ECS
rulemaking scope.
Patterson-Kelley and WM Technologies both stated that because the
schedule and cost of recycling is different based upon the materials
used in the water heater, these differences must be captured in the
analysis. The World Green Building Council has recognized that carbon
emissions from manufacturing of components, assembly of components into
finished goods, their transportation, installation, and the end of life
stage must be accounted for as well. (WM Technologies, No. 25 at p. 2;
Patterson-Kelley, No. 26 at p. 3) Patterson-Kelley noted that in
examining embodied carbon the following must be considered--a higher
rate of recycling due to shorter life cycle of condensing products and
other changes noted previously. (Patterson-Kelley, No. 26 at p. 3) DOE
would note that it has yet to find evidence that condensing equipment
has a shorter lifetime than non-condensing equipment, so there would be
no change relative to lifetime. DOE takes into account the cost to
remove a water heater at the time of replacement. Stakeholders did not
provide information concerning the difference in the cost of materials
recycling--whether the materials in a condensing water heater have more
or less recycling value than a non-condensing water heater. Given that
the first replacement of a condensing water heater installed under this
standard would be 10 years in the future, DOE believes the discounted
present value of any difference would likely be small enough to
ultimately be immaterial. DOE has based the installation cost
calculations including removal of old water heaters on
[[Page 69762]]
nationally recognized sources. As a result of these considerations, DOE
has not elected to change the analysis to reflect these comments.
11. LCC Model Error Messages and Other
Barton Day Law stated that the LCC spreadsheet model looks almost
more like a draft than a final product, and that there are apparently
``loads of errors'' showing up, including computational errors. (Barton
Day Law, Public Meeting Transcript, No. 13 at pp. 32-33) Joint Gas
Commenter pointed to error messages in the LCC model, stating there
were 11 million cell errors, #N/A, and #DIV/0 errors throughout model;
some are labeled blank; others not; some tables and ranges are poorly
labeled; and Excel calculations and Visual Basic for Applications, and
the large number of worksheets make it more difficult to use and to
trace formulas. Joint Gas Commenters stated DOE should correct the
errors and give stakeholders sufficient time to review. (Joint Gas
Commenters, No. 34 at pp. 36-37)
In response, DOE notes that additional fields were included
throughout the LCC model to accommodate additional equipment classes.
In the high-level summary sheets where results reported in the NOPR are
tabulated, fields related to the additional equipment classes were
either removed or contents were erased and labeled as ``blank.'' In
some other worksheets, the calculations related to additional product
classes were not erased. However, numerous inputs related to potential
additional equipment classes were not populated and this fact led to
many calculations that attempted division using unpopulated input
fields, or in other words, which led to #DIV/0 messages. DOE has
removed all of the potential additional product class input fields. In
response to the ``11 million cell errors,'' DOE assumes this referred
to the fact that the May 2022 CWH ECS NOPR LCC model used a user-
defined function, the output of which would turn to an error code and
needed to be refreshed when the model was left idle. Refreshing the
function required the user to recalculate the model by pressing the F9
key, and once the model was recalculated the error codes would
disappear and be replaced by values. To eliminate this source of error
messages, DOE eliminated the user defined function by introducing an
Excel code in the venting costs worksheet in the block of cells between
Q22 and CA82. The new Excel code was written to exactly reproduce the
output from the old user defined function, so this modeling change does
not affect results but rather it merely removes the irritation of the
user defined function timing out and needing to be refreshed.
Additionally, in response to the comment that some portions of the
model were poorly labeled, DOE added labels to a small number of
columns of calculations that DOE considered on review to be
inadequately labeled, such as columns at the extreme right edges of the
RECS.WH and CBECS.WH worksheets.
A further response to the error messages referred to in the Joint
Gas Commenter and Barton Day Law comments--the error messages were
cosmetic in the sense that eliminating them did not change any results
in the analysis; therefore, there are no new data for Joint Gas
Commenters to review strictly in terms of the elimination of these
message codes. Based on comments documented in this section of the
final rule, DOE believes that Joint Gas Commenters were able to review
the LCC model in detailed ways even with the distractions caused by the
message codes. Thus, DOE declines to provide additional review time
related to the elimination of the extra product class fields.\134\
---------------------------------------------------------------------------
\134\ In response to requests, DOE reopened the comment period
on the May 2022 CWH ECS NOPR to provide an additional two weeks for
stakeholders to review and provide comments on the NOPR. 87 FR
43226.
---------------------------------------------------------------------------
Barton Day Law stated DOE should be more transparent about
disclosing how the outcomes are allocated in its analysis and what the
justification is. (Barton Day Law, Public Meeting Transcript, No. 13 at
p. 55) Joint Gas Commenters presented graphs of the cumulative LCC
savings of gas-fired tankless consumers from the LCC model, pointing
out that the net LCC savings (average) were being generated by a small
number of consumers with the largest LCC saving and if such customers
were ``reassigned'' to different baseline efficiencies the result would
have been different. (Joint Gas Commenters, No. 34 at p. 27) DOE would
note that LCC savings are averages and as such include the results from
those with large LCC savings and those with large LCC costs. Because of
the way the model works, selecting consumers from the RECS and CBECS
datasets for which each equipment type would apply, the number of
consumers in the extreme cost and benefit tails will be small. With
respect to the Joint Gas Commenter graphic about tankless product LCC
results, DOE notes that given the existing distribution, the
overwhelming majority of LCC customers modeled experience no impact
because they already purchased equipment of the efficiency level
selected for the standard. As discussed in section IV.F.8 there are
numerous reasons for customers to be either unaware of potential energy
savings when they make efficiency decisions or to deliberately ignore
such information.
Barton Day Law stated residential-duty gas-fired storage equipment
has four different draw patterns and four separate standards but only
one LCC analysis. (Barton Day Law, Public Meeting Transcript, No. 13 at
pp. 30, 32) Joint Gas Commenters also stated that DOE analyzed four
product classes but only provided one LCC analysis and asked that DOE
perform an analysis for each class separately, and although the comment
was unclear to DOE, it is presumed to refer to the same point Barton
Day Law made. (Joint Gas Commenters, No. 34 at pp. 32-33) As noted in
IV.C.4.c of this document, all residential-duty gas-fired equipment is
within the high draw pattern, so only one analysis was performed of
this equipment.
Joint Gas Commenters stated that the rule could have
disproportionate impacts on small rural businesses that use propane
fired equipment due to their more limited income and therefore a more
limited opportunity to fund venting upgrades. They also stated that the
problem is made worse by the fact that propane suppliers cannot provide
incentives to consumers, as gas utilities can. They also stated that
the May 2022 CWH ECS NOPR failed to address impacts on businesses that
qualify for the Administration's Justice40 Initiative. They further
offered their opinion that DOE's analysis must conform to the National
Academy of Science's peer review report and recommendations regarding
welfare analysis. Joint Gas Commenters urged DOE to delay the
rulemaking while investigating whether the rule would undermine the
Justice40 Initiative. (Joint Gas Commenters, No. 34 at pp. 31-32) With
respect to the impact on small rural businesses, DOE respects the Joint
Gas Commenters note about the more limited income of small rural
businesses, but also believes the overall cost structure of small rural
businesses includes components that are likely lower than their urban
counterparts, such as building lease or ownership costs. DOE also notes
that, according to the EIA's AEO used in this final rule, propane is,
at a national level, twice as expensive as natural gas on a $/Million
Btu basis, meaning that the value of energy savings to these customers
would be higher than the value to natural gas customers. Additionally,
DOE expects that commercial buildings in rural areas are
[[Page 69763]]
less likely to reach the 10-story level that is cited by various
commenters as problematic in vent installations. DOE also expects that
commercial buildings in rural areas are less likely to share common
brick walls with other neighboring businesses or have issues venting
over sidewalks or busy alleys. This means rural businesses may find it
easier to use horizontal venting than their metropolitan counterparts.
While this advantage could be offset at least partially by a greater
chance of having to deal with snow levels when siting a horizontal
vent, DOE disagrees with the bottom line conclusion of this comment.
With respect to the National Academy of Sciences report, the
recommendations in the report, which pertain to the processes by which
DOE analyzes energy conservation standards, are being considered in a
separate rulemaking considering all product categories and DOE does not
believe that this final rule should be delayed while the National
Academy of Sciences report is considered.
WM Technologies stated they received an error trying to run the LCC
model. They noted a macro returned an error message stating ``Compile
Error: Can't find project or library'' with the ``VBA Code Subroutine
cmdRun_Click( ) references [ControlPanel.IncomeBins]'' highlighted. (WM
Technologies, No. 25 at p. 10) DOE tested the LCC model to attempt to
reproduce this error code, and the only way DOE could generate this
code was to load the LCC model onto a computer that did not have
Crystal Ball installed on it. Without Crystal Ball being installed, the
macro is searching for software package references that do not exist.
DOE has added language in appendix 8A of the final rule TSD describing
how/why having Crystal Ball installed on the computer is necessary for
reviewing this LCC model.
WM Technologies recommended the Department move the instructions
for operating LCC models to the beginning of the TSD or provide a note
there referencing the instruction location. (WM Technologies, No. 25 at
p. 10) They additionally request a frequently asked questions website
is made available to support industry review of the LCCs along with a
question and answer portion where industry could post questions. (WM
Technologies, No. 25 at p. 10) DOE notes that the May 2022 CWH ECS NOPR
TSD chapter 1 included an outline of the document, and pointed to
appendix 8A, which provides instructions. DOE additionally encourages
stakeholders to utilize the public meetings to ask questions related to
operation of the LCC and other models, and will consider whether more
general resources are warranted.
WM Technologies commented that after running the analysis on a
local computer and using the Forecast Report writer in Crystal Ball,
several cells identified cell errors and yet the analysis continued and
provided results. WM Technologies noted some values of forecasts cells
were empty. WM Technologies requested the Department provide further
commentary on why empty values are present in forecast reports,
particularly when the all product categories are subject to 10,000
iterations. (WM Technologies, No. 25 at p. 10) In response, DOE notes
that the LCC model at each iteration selects a baseline efficiency for
use in the iteration for all four equipment classes. For any possible
efficiency level other than the lowest level, this leads to a situation
where, by definition, there will be no LCC savings if a standard is set
at that level. For example, if the model selects EL3 as the baseline,
there would be no LCC savings and no PBP results for a standard set at
lower efficiency levels. Because the number 0 is a valid result,
setting those to 0 introduces possible issues. Rather, the model sets
them equal to a blank, or a character field set to '' ``. Thus if you
print the forecast report, you will find blanks. Because introducing
characters into downstream calculations causes math errors, the Crystal
Ball routines are instructed by the VBA code to ignore these errors.
DOE has used this method in LCC models for years to distinguish between
``no impact cases'' and cases with a valid result of 0.
WM Technologies requested the Department comment upon how different
geographic areas are referenced in the same iteration. (WM
Technologies, No. 25 at p. 10) At each iteration, the LCC model pulls
eight samples, a RECS and CBECS sample for each of the four equipment
classes, and then selects either residential or commercial to choose
whether to use the RECS or CBECS sample. Those eight samples will all
have their own geographic location linked to either the RECS or the
CBECS samples selected, and would only purely by chance have the same
geographic location.
WM Technologies stated their review of chapter 8 and appendix 8G
did not clearly identify how the subgroup analysis is completed. They
said further review of the LCC workbook indicates that the low-income
subgroup is comprised of the first six bins in cells O3 to P28, and
shown in B6 to B11. However, the assumption cell (B40) makes a
probabilistic selection from range B6 to B36. Specifically, they stated
it would be beneficial to only run the sub-group analysis by hard
coding the selection of income bins. They asked DOE to please verify
that the correct values to hard code are in the range of B15 to AS16 on
the ``Bldg.Sample'' tab. Additionally, they asked DOE to please provide
insight into and how cells FG4 to FG12086 in tab ``RECS.WH'' relate the
analysis and how the range D30 to E 54 on the ``Control.Panel'' tab
interact with the analysis. (WM Technologies, No. 25 at p. 10) In
response, DOE notes that the entire column of B6 to B36 comprises the
probability distribution for the lowest 20 percent of residential
households, or, in other words, the households that would be included
in the low-income subgroup. The six bins that are referred to in cells
O3 through P28 refer to the effort to remap the RECS income bins to the
discount rate bins. The discount rates break the entire residential
sector out by percentage of households while RECS breaks households out
into discrete income bins. The model codes individual RECS samples as
either eligible for the sub-group using the look-up table referenced
above on the Control Panel tab and column CC on the Sampling
Distributions. Column CC is either 0 or 1. If the model is not running
a subgroup, all RECS income bins are coded as 1. If the model is
running a subgroup, only those RECS income bins in the subgroup are
coded 1, and the rest are coded 0. On the Sampling Distribution tab,
the sampling weight assigned to each RECS observation is multiplied by
the corresponding row of column CC. Thus, in a regular run, all
households could be chosen. In a subgroup model run, only those
households in the 0-20 percent of household income could be chosen.
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.6 of this final rule,
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
[[Page 69764]]
calculations of both the NES and NPV because operating costs for any
year depend on the age distribution of the stock.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 1994-2022 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 final rule. Given that the estimated average useful lifetimes of
these two types of equipment are 12 and 10 years, respectively, the
historical 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.
---------------------------------------------------------------------------
\136\ Air Conditioning, Heating, and Refrigeration Institute.
Commercial Storage Water Heaters Historical Data and Monthly
Shipments. Available at www.ahrinet.org/analytics/research/historical-data/commercial-storage-water-heaters-historical-dataand
www.ahrinet.org/analytics/statistics/monthly-shipments.Last accessed
March 10, 2023.
\137\ U.S. Department of Energy. Screening Analysis for EPACT-
Covered Commercial HVAC and Water-Heating Equipment. Volume 1--Main
Report. 2000. EERE-2006-STD-0098-0015. Available at
www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0098-0015.
Table IV.23--Historical Shipments of Commercial Gas-Fired and Electric
Storage Water Heaters
------------------------------------------------------------------------
Commercial Commercial
Year gas-fired electric
storage 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
2021.......................................... 90,192 154,330
2022.......................................... 83,487 120,152
------------------------------------------------------------------------
For the May 2022 CWH ECS 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); the
regression inputs were updated with 2022 data for this final rule. The
result was a model yielding a forecast of shipments that increases 0.03
percent per year from 2023-2055, reaching just over 90,100 units by
2055. See chapter 9 of the final rule TSD for further details. The
resulting growth rate for shipments is less than the underlying growth
in building stocks (0.9 percent between 2023-2055).
For the May 2022 CWH ECS NOPR and for this final rule, no
historical information was available that specifically identified
shipments of gas-fired 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 final rule. 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 gas-fired storage-type instantaneous
water heaters.
2. Residential-Duty-Gas-Fired Storage and Instantaneous Water Heaters
For the May 2022 CWH ECS NOPR, DOE developed an econometric model
similar to that described for commercial gas-fired storage water heater
shipments. Following publication of the withdrawn May 2016 CWH ECS
NOPR, 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 gas-fired
instantaneous tankless and circulating water heating equipment. DOE
used these 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 final rule is the econometric forecast
made for use in the analysis.
---------------------------------------------------------------------------
\138\ While 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.
---------------------------------------------------------------------------
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. In the May 2022
CWH ECS NOPR, DOE requested additional historical shipment information
for commercial gas-fired instantaneous tankless water heaters to
supplement the data provided in response to the
[[Page 69765]]
withdrawn May 2016 CWH ECS NOPR, and also sought actual historical
shipments for gas-fired storage-type instantaneous water heaters and
hot water supply boilers, but did not receive any data, and DOE was not
able to identify additional information sources for the instantaneous
equipment class shipments.
In the May 2022 CWH ECS NOPR, DOE requested actual historical
shipment data for residential-duty gas-fired storage water heaters, but
did not receive any data, and DOE was not able to identify additional
information sources for residential-duty gas-fired shipments. DOE
clarifies that residential-duty gas-fired storage water heaters are not
residential water heaters. Instead, they are a type of CWH equipment
and DOE draws no conclusions about residential-duty 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
May 2022 CWH ECS NOPR, using the same 20 percent factor. In other
words, DOE assumes residential-duty gas-fired storage water heater
shipments track with commercial gas-fired storage water heaters, and
shipments of the former are assumed to be 20 percent of the shipments
of the latter.
3. Available Products Database and Equipment Efficiency Trends
For the May 2022 CWH ECS NOPR, DOE revised the shipments and other
analyses to reflect efficiency distribution data for commercial gas-
fired storage water heaters and instantaneous gas-fired water heaters
provided by AHRI, reconciling the analyses to account for the AHRI data
rather than relying heavily on the number of available models to
produce equipment efficiency trends. For this final rule analysis, DOE
used the same adjustment method to account for underlying growth in
high-efficiency products.
In the May 2022 CWH ECS NOPR, DOE requested historical shipments
data dividing shipments between condensing and non-condensing
efficiencies for all equipment types that comprise the subject of this
proposed rulemaking. In comments filed in response to the May 2022 CWH
ECS NOPR, A.O. Smith stated that the percentage of commercial gas-fired
instantaneous circulating water heaters and hot water supply boilers
shipments that are condensing is lower than the percentage for gas
storage products. (A.O. Smith, No. 22 at p. 3) As discussed in section
IV.H.1, DOE used the AHRI-provided historical data received following
the withdrawn May 2016 CWH ECS NOPR to fit a Bass Diffusion curve for
each of the equipment categories analyzed for this final rule. With
respect to the concern raised by A.O. Smith regarding condensing shares
of circulating water heaters and hot water supply boilers in comparison
to commercial gas storage water heaters, the data received from AHRI
regarding the fraction of the units of the instantaneous equipment
class that were condensing at 90 percent and over was higher than it
was for the commercial gas storage category, and DOE did not receive
any additional data nor identify additional sources of shipments by
efficiency level for the instantaneous equipment categories on which
DOE could base an adjustment to the diffusion curve. Further, DOE
reviewed the underlying model counts and notes that the unadjusted
model counts for condensing level commercial gas-fired storage and
condensing level instantaneous circulating water heaters and hot water
supply boilers are the same percentage of total models (45 percent).
While DOE appreciates A.O. Smith's comment, the most recent industry
data supplied by AHRI does not indicate that the condensing share of
instantaneous circulating water heaters and hot water supply boilers
are less than those for the commercial gas-fired storage equipment
class.
In comments filed in response to the May 2022 CWH ECS NOPR, Rheem
noted that the same colors were used for ``Com/Res-Duty Gas Storage''
and ``Gas Instant HWSB'' in Figure 10.2.1 of the NOPR TSD making it
difficult to comment; however, Rheem commented it appeared that DOE was
estimating between 55 and 60 percent of gas-fired storage water heaters
are condensing, and that the breakdown between non-condensing and
condensing levels needs review; Rheem also noted that they were willing
to discuss the breakdown in a confidential meeting. (Rheem, No. 24 at
p. 3, 6)
DOE thanks Rheem for pointing out that the colors used in Figure
10.2.1 of the May 2022 CWH ECS NOPR TSD were difficult to
differentiate, and DOE has made adjustments to that figure within the
final rule TSD to better distinguish the data illustrated there.
Regarding Rheem's concern about condensing versus non-condensing shares
of commercial gas-fired storage water heaters, DOE notes that the most
recent ENERGY STAR data for commercial gas-fired water heaters reports
an estimated market penetration of 49 percent of total commercial gas-
fired water heaters were ENERGY STAR qualified in 2021, with a thermal
efficiency greater than or equal to 0.94.\139\ DOE notes that there are
additional condensing models currently on the market that do not meet
ENERGY STAR requirements, so the total estimated condensing percentage
is likely higher than ENERGY STAR levels. As discussed in response to
the A.O. Smith comment earlier, AHRI supplied industry-level data on
condensing shares of commercial gas-fired storage water heaters that
has been fit to a Bass Diffusion curve, and the additional information
received during supplemental manufacturer interviews did not include
additional data on which to base changes to these percentages.
---------------------------------------------------------------------------
\139\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last
accessed December 17, 2022.
---------------------------------------------------------------------------
In comments filed in response to the May 2022 CWH ECS NOPR, A.O.
Smith also stated that an analysis of their own shipments shows that 5
percent of residential-duty gas-fired storage units are condensing.
(A.O. Smith, No. 22 at p. 4) In the May 2022 CWH ECS NOPR, DOE had used
the same condensing market share curve calculated for commercial gas-
fired storage water heaters, projected to be greater than 60 percent by
2026. In response, DOE considered the A.O. Smith data point,
recognizing that it is a single data point that may not be
representative of the entire industry, and also reviewed both ENERGY
STAR data and the model counts database. Residential-duty gas-fired
storage water heaters are included under the residential ENERGY STAR
water heater program, rather than the commercial gas water heater
program. Based on ENERGY STAR data, shipments of ENERGY STAR-rated
residential gas-fired water heaters as a share of total shipments was 8
percent in 2021.\140\ DOE notes that historically, not all ENERGY STAR-
rated residential gas-fired water heaters have been condensing
models,\141\ and also that the
[[Page 69766]]
estimated number of residential-duty gas-fired water heaters are a
small fraction of total residential gas-fired water heater shipments,
so DOE was not able to definitively determine what share of the
residential-duty market is comprised of condensing equipment. DOE
calculated that the percentage of residential-duty gas-fired water
heaters that are condensing according to model counts is 32 percent,
which is significantly less than the 45 percent of model counts
identified as condensing for commercial gas-fired storage water
heaters. For this final rule, DOE has revised the condensing market
share for residential-duty gas-fired storage water heaters based on
this information, using the historical ENERGY STAR residential water
heater shipments to fit the Bass Diffusion curve. As conveyed in
section IV.H.1, the overall resulting condensing share diffusion curve
for the residential-duty equipment class is now lower than that modeled
for commercial gas-fired storage water heaters.
---------------------------------------------------------------------------
\140\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last
accessed December 17, 2022.
\141\ ENERGY STAR updated its residential gas water heater
criteria, including its criteria for gas-fired storage residential-
duty commercial water heaters, effective on April 18, 2023. Under
the updated specification requirements, residential-duty gas-fired
storage water heaters would likely need to be condensing to be
ENERGY STAR compliant.
---------------------------------------------------------------------------
A.O. Smith raised concerns that setting new minimum energy
conservation standards for commercial gas-fired products at 95 percent
and 96 percent thermal efficiency will have a dilutive effect on the
ENERGY STAR program. For ENERGY STAR to remain a relevant catalyst for
market adoption of commercial gas-fired water heaters, A.O. Smith said
ENERGY STAR would need to set a new specification level significantly
above the Department's proposed new minimums, which de facto would
render the program obsolete for gas-fired CWH. A.O. Smith believes such
an outcome would create significant marketplace competition
implications considering technology feasibility, manufacturer product
costs (MPCs) as well as limit product options for commercial
businesses. (A.O. Smith, No. 22 at p. 3) Similarly, Atmos Energy stated
that the proposed standards would negatively impact existing rebate
programs. Atmos Energy stated that incentive programs provide a cost-
effective means for improving residential building energy efficiency
without requiring a market transition through which the water heating
options consumers need are no longer available. (Atmos Energy, No. 36
at p. 3)
As discussed in section IV.C.4.a, DOE reviewed the efficiency level
distributions of products on the market and found that the market
distributions show the greatest number of unique basic models within
the condensing range at 96 percent for gas-fired storage water heaters
and storage type-instantaneous water heaters, gas-fired tankless water
heaters, and gas-fired circulating water heaters and hot water supply
boilers. DOE anticipates that there is still room for product
differentiation, particularly for gas-fired storage water heaters which
account for most of the shipments in this final rule, where products
above 95 percent efficiency currently exist at 96, 97, 98, and 99
percent, and DOE also notes that products exist at 97 percent
efficiency for tankless water heaters, and that there are products at
97, 98, and 99 percent efficiency products for circulating water
heaters and hot water supply boilers. Thus, ENERGY STAR specifications
could be updated, allowing for the continuation of utility rebate and
other incentive programs.
4. Electrification Trends
In comments submitted in response to the May 2022 CWH ECS NOPR,
several stakeholders expressed concerns about the impact of legislation
and codes requiring electrification. Bradford White believes that local
policies and codes that restrict the use of gas-fired commercial water
heaters need to be taken into account, and both WM Technologies and
Patterson-Kelley noted that local building codes are limiting
installation of new gas-fired products, which are a risk of decreased
future annual shipments across the market, and that changes in building
codes related to discarding appliances prior to the end of their normal
operational life could also impact shipments. (Bradford White, No. 23
at p. 6; WM Technologies, No. 25 at p. 3; Patterson-Kelley, No. 26 at
p. 3) WM Technologies also commented that changes in building codes
relating to electrification are impacting fuel switching differently at
different efficiency levels in some localities. (WM Technologies, No.
25 at p. 3) AHRI also noted building code changes in states like
Washington that are requiring heat pump water heating. (AHRI, No. 31 at
p. 6) In response, DOE has conducted an internet search of State and
municipal level legislation and building codes to identify locations
where electrification requirements have been put into place, and where
building codes have been changed with respect to discarding appliances
prior to the end of their normal life. DOE identified a total of 81
municipalities and 1 State with an electrification requirement, either
for new buildings, or upon equipment replacement.\142\ DOE also
identified a total of 20 States that have prohibited building gas
restrictions and electrification mandates.\143\ DOE was not able to
identify any building codes that had been changed with respect to
discarding appliances prior to the end of their normal life. DOE
further notes that States and municipalities are actively proposing
plans or legislation addressing electrification, or prohibiting
electrification. Until these are adopted or passed, they are subject to
change. As such, DOE attempted to account only for those jurisdictions
that have passed or adopted electrification requirements. For example,
both California and New York have released plans that incorporate end-
use electrification for buildings, but neither State has finalized
those plans.144 145 Thus only municipalities within these
States that have passed or adopted electricity requirements were
included in DOE's analysis. DOE conducted a sensitivity analysis of
potential electrification trends to consider the impact of additional
electrification if both California and New York were to adopt
electrification requirements state-wide (see appendix 10B of the final
rule TSD).
---------------------------------------------------------------------------
\142\ Building Decarbonization Coalition, Zero Emission Building
Ordinances, State and Local Government Decarbonization Efforts.
Available at buildingdecarb.org/zeb-ordinances.html, Last accessed
November 28, 2022.
\143\ Gas Ban Monitor: East Coast policies advance; Pa. gas ban
prohibition fails, August 2, 2022. Available at www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/gas-ban-monitor-east-coast-policies-advance-pa-gas-ban-prohibition-fails-71439034. Last Accessed November 28, 2022.
\144\ California Air Resources Board, November 16, 2022. 2022
Scoping Plan for Achieving Carbon Neutrality. Available at
ww2.arb.ca.gov/sites/default/files/2022-11/2022-sp.pdf. Last
accessed December 19, 2022.
\145\ New York State Climate Action Council. 2022. ``New York
State Climate Action Council Scoping Plan.'' Available at
climate.ny.gov/-/media/project/climate/files/2022-12-15-Draft-Final-Scoping-Plan.pdf. Last accessed December 20, 2022.
---------------------------------------------------------------------------
Additionally, DOE notes that in December of 2022, DOE published the
Clean Energy for New Federal Buildings and Major Renovations of Federal
Buildings SNOPR (``Clean Energy Rule'') as required by section 433 of
the Energy Independence and Security Act of 2007 (``EISA 2007''), which
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.\146\ Federal buildings are also
subject to E.O. 14057, which requires that all new construction and
major modernization
[[Page 69767]]
projects greater than 25,000 gross square feet be designed,
constructed, and operated to be net-zero emissions by 2030, and that
the Federal sector will have a net-zero emissions building portfolio by
2045, including a 50 percent emissions reduction (over 2008 levels) by
2032.\147\
---------------------------------------------------------------------------
\146\ Available at www.federalregister.gov/documents/2022/12/21/2022-27098/clean-energy-for-new-federal-buildings-and-major-renovations-of-federal-buildings. Last accessed February 13, 2023.
\147\ E.O. 14057: Catalyzing Clean Energy Industries and Jobs
Through Federal Sustainability, December 8, 2021. Available at
www.fedcenter.gov/programs/eo14057/. Last accessed December 16,
2022.
---------------------------------------------------------------------------
DOE used this information to develop an adjustment to account for
reduced shipments due to electrification requirements. In total, based
on policies and codes that have been adopted as of November 28, 2022,
approximately 8 percent of the United States by population will be
subject to electrification requirements for new buildings by 2026, with
approximately 0.3 percent subject to electrification upon equipment
replacement. Additionally, based on the proposed Clean Energy Rule and
E.O. 14057, the potential percentage of floorspace impacted by Federal
rules and requirements would range from 0.6 percent to 0.9 percent of
new construction, and of 0.6 percent to 2.3 percent of replacements.
The resulting adjustments are shown in Table IV.24.
Table IV.24--Electrification Reductions
------------------------------------------------------------------------
New Replacement
Year shipment shipment
reductions reductions (%)
------------------------------------------------------------------------
2026....................................... 8.6 0.9
2027....................................... 8.6 1.0
2028....................................... 8.6 1.1
2029....................................... 8.5 1.3
2030....................................... 8.5 1.4
2031....................................... 8.5 1.5
2032....................................... 8.6 1.6
2033....................................... 8.6 1.7
2034....................................... 8.6 1.8
2035....................................... 8.7 1.9
2036....................................... 8.7 1.9
2037....................................... 8.7 2.0
2038....................................... 8.8 2.1
2039....................................... 8.8 2.2
2040....................................... 8.8 2.3
2041....................................... 8.8 2.3
2042....................................... 8.9 2.4
2043....................................... 8.9 2.5
2044....................................... 8.9 2.6
2045....................................... 8.9 2.6
2046....................................... 8.9 2.6
2047....................................... 8.9 2.6
2048....................................... 8.9 2.6
2049....................................... 8.8 2.5
2050....................................... 8.8 2.5
2051....................................... 8.8 2.5
2052....................................... 8.8 2.5
2053....................................... 8.8 2.5
2054....................................... 8.8 2.5
2055....................................... 8.8 2.4
------------------------------------------------------------------------
A more detailed discussion of this adjustment and the underlying
calculations is contained in chapter 9 of this TSD.
5. 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. Based on comments
received in response to the withdrawn May 2016 CWH ECS NOPR, DOE
included only residential multi-family stocks and building additions
when considering the potential non-commercial consumer component in the
development of the shipments forecast in the May 2022 CWH ECS NOPR. In
comments received on the May 2022 CWH ECS NOPR, Bradford White noted
DOE has overstated the amount of commercial gas-fired storage and
storage-type instantaneous water heaters that are installed in
residential applications, as in their experience, there are very few
residential installations where this occurs (e.g., typically high end,
large homes), and that they do not see gas-fired circulating water
heaters and hot water supply boilers used in residential applications.
(Bradford White, No. 23 at p. 6) DOE wishes to clarify that the only
residential applications considered in both the May 2022 CWH ECS NOPR
and this final rule analysis are those in multi-family buildings;
single family and manufactured home applications were excluded from the
analysis, as previously suggested by commenters in response to the
withdrawn May 2016 CWH ECS NOPR.
6. Final Rule Shipment Model
To project shipments and equipment stocks for 2023 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
final rule), a stock accounting model, and adjustments for
electrification. 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 AEO2023.\148\
---------------------------------------------------------------------------
\148\ U.S. Energy Information Administration (EIA). 2023 Annual
Energy Outlook. March 2023. Available at www.eia.gov/outlooks/aeo/.
---------------------------------------------------------------------------
To project shipments of CWH equipment for new construction, DOE
relied on building stock data obtained from AEO2023. For this final
rule, 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 AEO2023 are shown in Table IV.25.
Table IV.25--Building Stock Projections
----------------------------------------------------------------------------------------------------------------
Multi-family
Commercial Multi-family residential
Total commercial building stock residential building
Year building stock additions building stock additions
(million sq. ft.) (million sq. ft.) (millions of (millions of
units) units)
----------------------------------------------------------------------------------------------------------------
2022................................ 93,444 2,027 32.84 0.61
2025................................ 96,234 2,272 33.86 0.49
2026................................ 97,373 2,197 34.18 0.49
2030................................ 101,747 2,473 35.47 0.49
[[Page 69768]]
2035................................ 108,065 2,336 36.93 0.46
2040................................ 112,879 2,127 38.37 0.48
2045................................ 116,845 2,152 39.78 0.47
2050................................ 121,045 2,293 41.14 0.48
2055 *.............................. 123,348 2,381 42.61 0.51
----------------------------------------------------------------------------------------------------------------
Source: EIA AEO2023 Reference case.
* Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050.
The next component in the stock accounting model is the calculation
of shifts to or away from particular equipment classes. For this final
rule, 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 equal the 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 heaters, with shipments growing from
22,288 in 1994 to 154,330 in 2021, but declining in 2022 to 120,152,
the lowest since 2016. Over the same time period, commercial gas-fired
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 90,192 in 2021
(and a peak of 98,095 in 2015), although they declined again in 2022,
to 83,487, the second lowest year since 2013. 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 the final rule
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 2023, 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.
Finally, an adjustment is made to account for units projected to
switch out of the equipment class due to electrification requirements.
The estimated percent reduction shown in Table IV.24 is applied to the
new and replacement shipments calculated for each year as described
previously. These modified shipments are then accounted for in future
stock retirements so that once a unit has ``exited'' the stock, it does
not re-enter when it would be due for replacement.
The resulting shipment projection is shown in Table IV.26.
Table IV.26--Shipments of Commercial Water Heating Equipment
----------------------------------------------------------------------------------------------------------------
Commercial gas-
fired storage Gas-fired
water heaters and Residential-duty Gas-fired circulating water
Year gas-fired storage- gas-fired storage tankless water heaters and hot
type instantaneous water heaters heaters (units) water supply
water heaters (units) boilers (units)
(units *)
----------------------------------------------------------------------------------------------------------------
2023.............................. 87,890 17,548 9,612 11,141
2025.............................. 89,827 17,919 10,123 11,658
2026.............................. 90,483 18,051 10,312 11,931
[[Page 69769]]
2030.............................. 90,838 18,189 13,212 15,123
2035.............................. 89,229 17,839 14,970 17,076
2040.............................. 88,121 17,617 16,700 18,615
2045.............................. 87,733 17,545 18,822 20,726
2050.............................. 87,422 17,484 21,013 22,992
2055.............................. 86,917 17,380 23,259 25,366
----------------------------------------------------------------------------------------------------------------
* The projected shipments are based on historical data for commercial gas-fired storage water heaters which may
or may not include storage-type 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.27.
Table IV.27--Shipment Shares by Type of Consumer
------------------------------------------------------------------------
Residential
Equipment Commercial (%) (%)
------------------------------------------------------------------------
Commercial gas-fired storage water 84 16
heaters and gas-fired storage-type
instantaneous water heaters............
Residential-duty gas-fired storage water 60 40
heaters................................
Gas-fired instantaneous water heaters
and hot water supply boilers:
Gas-fired tankless water heaters.... 60 40
Gas-fired circulating water heaters 85 15
and hot water supply boilers.......
------------------------------------------------------------------------
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 provided in response to the withdrawn May 2016 CWH ECS
NOPR 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 re-distribute the historical shipment period within the non-
condensing and condensing efficiency ranges to match the DOE thermal
efficiency levels. For each subsequent year in the final rule 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
new or amended standards at specific efficiency levels.\149\
(``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 the present
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.
---------------------------------------------------------------------------
\149\ The NIA accounts for impacts in the 50 states and U.S.
territories.
---------------------------------------------------------------------------
DOE evaluates the impacts of new or amended standards by comparing
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each
equipment class in the absence of 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-standards case 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
[[Page 69770]]
appendix 10A of the final rule TSD explain the model and how to use it.
The model and documentation are available on DOE's website.\150\
Interested parties can review DOE's analyses by changing various input
quantities within the spreadsheet. The NIA spreadsheet model uses
typical values (as opposed to probability distributions) as inputs.
---------------------------------------------------------------------------
\150\ DOE's web page on CWH equipment is available at
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------
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
AEO2023. NIA results are presented in chapter 10 of the final rule TSD.
Table IV.28 summarizes the inputs and methods DOE used for the NIA
analysis for this final rule. Discussion of these inputs and methods
follows the table. See chapter 10 of the final rule TSD for further
details.
Table IV.28--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 Annual weighted-average values are a
Unit. 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 Annual values do not change with
per Unit. efficiency level.
Energy Price Trends.......... AEO2023 projections (to 2050) and
extrapolation thereafter.
Energy Site-to-Primary and A time-series conversion factor based on
FFC Conversion. AEO2023.
Discount Rate................ 3 percent and 7 percent.
Present Year................. 2023.
------------------------------------------------------------------------
1. Product 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-new-standards-case distribution of efficiency
levels to project what the CWH equipment market would look like in the
absence of potential standards. For the withdrawn May 2016 CWH ECS
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 \151\ 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 final rule TSD.
---------------------------------------------------------------------------
\151\ This database was developed using model data from DOE's
Compliance Certification database (available at
www.regulations.doe.gov/certification-data/) and manufacturer
websites and catalogs.
---------------------------------------------------------------------------
For this final rule, DOE developed the no-new-standards
distribution of equipment by thermal efficiency levels for CWH
equipment using data from DOE's Compliance Certification database, data
submitted by AHRI regarding condensing versus non-condensing equipment,
and ENERGY STAR shipments for residential gas-fired water heaters.
Using the data provided by AHRI for commercial gas-fired storage water
heaters and instantaneous gas-fired water heaters and hot water supply
boilers, DOE has modeled a no-new-standards 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 about half of
total shipments.\152\ Thus, this final rule analysis assigns
substantial credit to market-driven efficiency accomplishments. DOE
further notes that new and replacement markets were modeled using the
same efficiency distributions.
---------------------------------------------------------------------------
\152\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last
accessed December 17, 2022.
---------------------------------------------------------------------------
For this final rule, DOE used the AHRI efficiency data to fit a
Bass Diffusion curve, which shows continued market-driven efficiency
improvements over the forecast period up to a point where 75 percent of
commercial 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. Similarly, DOE used ENERGY STAR shipments of
residential gas water heaters to fit a Bass Diffusion curve for the
residential-duty equipment category, which shows continued market-
driven efficiency improvement over the forecast period up to a point
where 23 percent of residential-duty gas-fired storage water heater
shipment are condensing in the no-new-standards case. DOE notes that
the specification for the Bass Diffusion curve used a maximum of 75
percent; however, that maximum was not reached during the forecast
period. Thus, an increasing efficiency trend is modeled over the 30-
year analysis period in the NIA model for all equipment categories.
Table IV.29 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.
[[Page 69771]]
Table IV.29--Market Shares by Efficiency Level in 2026 *
----------------------------------------------------------------------------------------------------------------
EL 0 **
Equipment (%) EL1 (%) EL2 (%) EL3 (%) EL4 (%) EL5 (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and gas- 34 3 0 15 47 1
fired storage-type instantaneous water heaters.....
Residential-duty gas-fired storage water heaters.... 54 21 15 3 6 1
Gas-fired instantaneous water heaters and hot water
supply boilers:
Gas-fired tankless water heaters................ 17 0 0 4 22 57
Gas-fired circulating water heaters and hot 5 13 13 2 11 55
water supply boilers...........................
----------------------------------------------------------------------------------------------------------------
* 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-new-standards-case distributions wherein shipments
are assumed to be distributed across efficiency levels as shown in
Table IV.29. 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 ``roll-up''
scenario also suggests that equipment efficiencies in the no-new-
standards case that were above the standard level under consideration
would not be affected. The no-new-standards-case efficiency
distributions for each equipment class are discussed more fully in
chapter 10 of the final rule TSD.
2. Fuel and Technology Switching
For this final rule, 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 or due to electrification requirements,
as discussed in section IV.G.4 of this document.
In comments filed in response to the May 2022 CWH ECS NOPR,
Bradford White disagreed with DOE's assertion that moving to condensing
levels would not lead to fuel switching in existing applications,
noting that if products are unable to be vented for a variety of
reasons, the commercial consumer will be forced to switch to one or
more electric water heaters to meet their hot water needs. (Bradford
White, No. 23 at p. 4) The Joint Gas Commenters stated that the
proposed standards would cause entities to switch to electric products
and raised concerns that EPCA does not permit DOE to establish
standards that would drive consumers to switch fuel types. (Joint Gas
Commenters, No. 34 at p. 39)
DOE acknowledges these concerns; however, DOE has determined (based
upon the analyses described in this section) that the amended standard
will not introduce additional economic incentives that would cause a
noticeable increase in fuel switching from gas-fired CWH (and
residential-duty) equipment to their electric counterparts.
Accordingly, DOE did not explicitly include fuel or technology
switching in this final rule beyond the continuation of historical
trends and electrification requirements discussed in section IV.G.4 of
this document. Additionally, DOE has previously received comments that
condensing water heaters can be installed in lieu of noncondensing CWH
equipment. For example, in comments received on the withdrawn May 2016
CWH ECS NOPR, HTP opined that given the various venting solutions
available in the market, condensing water heater installation would be
neither physically impossible nor prohibitively expensive, meaning
these buildings would not end up ``stranded.'' (DOE Docket EERE-2014-
BT-STD-0042, HTP Inc., No. 44 at pp. 1-2) As another example, in
comments received by NEEA,\153\ they noted that ``Even in cases that
present significant challenges, interviewees reported that technical
solutions were always possible'' and that ``Interviewees expressed that
there is always a technical way to solve each of the retrofit problems
that were identified, although sometimes the solutions may be expensive
or out of line with what the building owner wants.'' (DOE Docket EERE-
2018-BT-STD-0018, NEEA, No. 62 attached report at pp. 3, 6). DOE is
cognizant that there may be higher cost installations that an
individual building owner must weigh, and DOE has incorporated an
extraordinary venting cost adder to account for these potential
installations (see section IV.F.2.d).
---------------------------------------------------------------------------
\153\ NEEA, 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/comment/EERE-2018-BT-STD-0018-0062.
Last accessed July 8, 2021.
---------------------------------------------------------------------------
For fuel and technology switching, DOE focused on whether the
adopted standard would cause fuel switching based on economic factors,
and did not consider additional fuel switching beyond the continuation
of historical trends and electrification requirements discussed in
section IV.G.4 of this document. DOE considered the effects of fuel
switching by comparing total installed costs and operating costs of
competing CWH equipment types. 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 final rule,
the installation, equipment, and maintenance and repair costs from the
withdrawn May 2016 CWH ECS NOPR have been adjusted to account for
inflation.\154\ 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.30.
---------------------------------------------------------------------------
\154\ Electric storage water heater costs were escalated from
2014$ to 2022$ using gross domestic product price deflators. First
year electricity costs were recalculated using the AEO2023 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).
[[Page 69772]]
Table IV.30--First-Hour Equipment Ratings Used in the Fuel Switching Analysis
----------------------------------------------------------------------------------------------------------------
Gas-fired
Commercial gas- Residential- Gas-fired circulating Electric
Year fired storage duty gas-fired tankless water heaters storage
water heaters storage water water and hot water water
heaters heaters supply boilers 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 [deg]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 no-new-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 (in 2022$), 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 $4,705 and the first year maintenance and repair cost is
$54.\155\ In replacement installations, the analysis assumes that the
inflation-adjusted commercial electric storage water heater installed
cost is $4,419 and the first year maintenance and repair cost is $54.
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 final rule TSD. By multiplying the input rating
of the gas storage water heater by the baseline thermal efficiency and
the average 3.23 hours of operation to meet the water load including
piping losses (and not included standby burner operation), the average
daily hot water provided by the unit was estimated at 513,718 Btu/day.
Assuming a 100 percent conversion efficiency for the electric energy to
provide this load would be would 150.56 kWh/day or 54,955 kWh/yr with
an energy cost of $5,785 in the first year. DOE notes that this value
does not account for additional energy for electric water heater
standby losses.
---------------------------------------------------------------------------
\155\ Since the electric storage water heater was dropped from
this final rule, for this analysis the MPC from the withdrawn 2016
ECS NOPR standby loss level 0 was used to represent no-new-
standards-case electric storage water heaters.
---------------------------------------------------------------------------
With the electric water heater costs thus scaled and corresponding
energy cost calculated, within new construction installations the
commercial gas-fired storage water heater was estimated to be more
expensive to purchase and install than the electric storage unit in
both the no-new-standards and standards cases, but significantly less
costly to operate (see Table IV.31). In these cases, the up-front cost
premium of the commercial gas-fired storage unit at the amended
standard level (TSL 3) relative to the scaled electric storage unit
costs, divided by the annual operating savings for choosing the gas
water heater, yields a PBP of 0.33 years, compared to a PBP of 0.22
years in the no-new-standards case. In replacement markets, the total
installed cost of a commercial gas-fired storage unit was compared to
the first-hour-rating scaled cost estimate for the commercial electric
water heater as a replacement unit from the withdrawn May 2016 CWH ECS
NOPR. The estimated total installed cost of the comparable electric
storage unit exceeds the cost of the commercial gas-fired storage unit.
As with new construction, the replacement electric storage unit is
substantially more costly to operate.
Table IV.31--Typical Unit Costs, Scaled for First-Hour Rating (Commercial Gas-fired Storage = 1.0)--Electric
Storage Versus Commercial Gas-fired Storage
[2022$]
----------------------------------------------------------------------------------------------------------------
No-new-
standards case No-new- Standards case Standards case
Equipment Cost new standards case new replacement *
construction replacement * construction
----------------------------------------------------------------------------------------------------------------
Electric Storage............. Installed Cost. $8,070 $7,580 $8,070 $7,580
Energy, 5,878 5,878 5,955 5,955
Maintenance,
and Repair
Cost (First
Year).
Commercial Gas-fired Storage. Installed Cost. 8,945 5,642 9,505 7,298
Energy, 1,880 1,962 1,668 1,735
Maintenance,
and Repair
Cost (First
Year).
----------------------------------------------------------------------------------------------------------------
* 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 wire capacity to where equivalent electrical water
heater would be installed or related infrastructure (existing
electrical panels, which may require the addition or upsizing of
breakers, and electrical switchgear) to handle the input rating of a
commercial electric storage water heater(s) that would meet the
existing natural gas
[[Page 69773]]
water heater capacity/load. Thus, DOE concludes that the amended
standard will not cause a noticeable increase in fuel switching from
commercial gas-fired to electric storage water heaters.
A similar analysis to that of the commercial gas-fired 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 assuming 100 percent 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 25,618 kWh/yr, equating to an energy
cost of $2,853 in the first year. This value does not account for
additional energy for electric water heater standby losses. The
appropriately scaled first costs and operating cost estimates are shown
in Table IV.32. In all but the no-new-standards replacement case, the
residential-duty water heater is more expensive to install than the
electric storage water heater; however, it was less costly to operate
in all cases. For the cases in which the electric storage water heater
was less expensive to install, the up-front cost premium of the gas-
fired residential-duty unit relative to the electric storage unit,
divided by the annual operating savings from using the gas water
heater, yields a PBP of 0.11 years in the no-new-standards new
installation case, of 0.21 years at the amended standard level (TSL 3)
replacement case, and of 0.59 years at the amended standard level new
installation case. Based on the comparison of costs for equivalent
electric water heating, DOE concludes that amended standards would not
introduce additional economic incentives for fuel switching from
residential-duty to electric storage water heaters.
Table IV.32--Typical Unit Costs, Scaled for First-Hour Rating (Residential-Duty = 1.0)--Electric Storage Versus
Residential-Duty
[2022$]
----------------------------------------------------------------------------------------------------------------
No-new-
standards case No-new- Standards case Standards case
Equipment Cost new standards case new replacement *
construction replacement * construction
----------------------------------------------------------------------------------------------------------------
Electric Storage............. Installed Cost. $3,821 $3,589 $3,821 $3,589
Energy, 2,896 2,897 2,876 2,876
Maintenance,
and Repair
Cost (First
Year).
Residential-duty Storage..... Installed Cost. 4,014 2,247 4,922 3,979
Energy, 1,180 1,179 997 997
Maintenance,
and Repair
Cost (First
Year).
----------------------------------------------------------------------------------------------------------------
* 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).
In the May 2022 CWH ECS NOPR, DOE did not consider instantaneous
gas-fired equipment and electric storage water heaters to be likely
objects of gas-to-electric fuel switching, largely due to the disparity
in hot water delivery capacity between the instantaneous gas-fired
equipment and commercial electric storage equipment. In the May 2022
CWH ECS NOPR, DOE requested 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. In response,
AHRI, Rheem, and A.O. Smith all noted that CWH manufacturers currently
offer product solutions that utilize one or more individual water
heaters plumbed or racked together for hot water delivery. (AHRI, No.
31 at p. 4, Rheem, No. 24 at p. 6, A.O. Smith, No. 22 at p. 7) A.O.
Smith described that many of these systems are highly customized;
however, many manufacturers also offer systems that are preconfigured
at the point of manufacture in ranges of total system capacity and are
then sold as a single stock keeping unit (``SKU''). (A.O. Smith, No. 22
at p. 7) Rheem also suggested that these scalable hot water solutions
in which multiple gas-fired instantaneous water heaters are combined
may use water heaters that are individually rated, and the rack systems
are distributed on an engineered-to-order basis with the additional
rack system components (such as controllers and shut-off valves) sold
separately alongside the water heaters. (Rheem, No. 24 at p. 6)
Additionally, CA IOUs noted research that suggested commercial hot
water systems that include multiple water heaters are common practice.
(CA IOUs, No. 33 at p. 2) WM Technologies and Patterson-Kelley stated
their understanding that several products are available like rack-type
hot water heaters. In addition, the commenters stated the situation is
limited by the first cost of installation and occurs predominantly in
smaller commercial installations which employ multiple residential
products to meet the hot water demand. WM Technologies and Patterson-
Kelley stated these should be accounted for in the LCC model and that
the deciding factor on use is cost with driving factors like venting,
floor space, local code requirements, and possibly other causes. (WM
Technologies, No. 25 at p. 8; Patterson-Kelley, No. 26 at p. 6) DOE
appreciates the input from all commenters on the question about
multiple individual water heaters being plumbed together. After
reviewing the input from stakeholders on this issue, DOE believes that
its analysis of gas-fired tankless water heating equipment, which
already provides for multiple tankless water heaters to be used in a
commercial building, sufficiently characterizes the LCC for this
equipment and there is no need to consider these types of systems
separately in the LCC analysis because operating costs and savings are
similar, and additional costs associated with the racks and
preconfiguration costs would likely be the same regardless of
efficiency.
In its analysis of fuel switching DOE included tankless units, and
as noted above, DOE believes the rack systems would have similar
economic eventualities in the analysis of fuel switching, scaled up or
down representing their use of multiple tankless units. As discussed,
this analysis is similar to that of the commercial and residential-duty
gas storage water heaters for the instantaneous water heater equipment
categories as compared to an electric equivalent.
[[Page 69774]]
As with the commercial gas-fired and residential-duty storage water
heaters, the first costs and maintenance and repair costs were scaled
by first hour rating to the electric equivalent for the representative
instantaneous tankless 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 assuming 100 percent conversion efficiency of the
electric input to hot water load. For an electric water heater
equivalent to an instantaneous tankless water heater, the estimated
energy consumption was 15,338 kWh/yr, equating to an energy cost of
$1,769 in the first year. This value does not account for additional
energy for electric water heater standby losses. The appropriately
scaled first costs and operating cost estimates are shown in Table
IV.33. In all but the no-new-standards replacement case, the
instantaneous water heater is more expensive to install than the
electric storage water heater; however, it was less costly to operate
in all cases. For the cases in which the electric storage water heater
was less expensive to install, the up-front cost premium of the gas-
fired instantaneous tankless unit relative to the electric storage
unit, divided by the annual operating savings from using the gas water
heater, yields a PBP of 2.00 years in the no-new-standards new
installation case, of 1.26 years at the amended standard level (TSL 3)
replacement case, and of 1.05 years at the amended standard level new
installation case. Based on the comparison of costs for equivalent
electric water heating, DOE concludes that amended standards would not
introduce additional economic incentives for fuel switching from
instantaneous tankless to electric storage water heaters.
Table IV.33--Typical Unit Costs, Scaled for First-Hour Rating (Instantaneous Tankless = 1.0)--Electric Storage
versus Instantaneous Tankless
[2022$]
----------------------------------------------------------------------------------------------------------------
No-new-
standards case No-new- Standards case Standards case
Equipment Cost new standards case new replacement *
construction replacement * construction
----------------------------------------------------------------------------------------------------------------
Electric Storage............. Installed Cost. $2,582 $2,426 $2,582 $2,426
Energy, 1,799 1,799 1,798 1,798
Maintenance,
and Repair
Cost (First
Year).
Instantaneous Tankless....... Installed Cost. 4,790 2,414 3,834 3,956
Energy, 694 666 610 585
Maintenance,
and Repair
Cost (First
Year).
----------------------------------------------------------------------------------------------------------------
* 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).
Similarly, the first costs and maintenance and repair costs were
scaled by first hour rating to that equivalent to the representative
circulating water heater and hot water supply boiler. 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 to assume 100 percent conversion
efficiency of the electric input to hot water load. For an electric
water heater equivalent to a circulating water heater and hot water
supply boiler, the estimated energy consumption was 119,041 kWh/yr,
equating to an energy cost of $12,405 in the first year. This value
does not account for additional energy for electric water heater
standby losses. The appropriately scaled first costs and operating cost
estimates are shown in Table IV.34. In all cases, the circulating water
heater and hot water supply boiler is less expensive to install and
less costly to operate than the electric storage water. Based on the
comparison of costs for equivalent electric water heating, DOE
concludes that amended standards would not introduce additional
economic incentives for fuel switching from circulating water heaters
and hot water supply boilers to electric storage water heaters.
Table IV.34--Typical Unit Costs, Scaled for First-Hour Rating (Circulating Water Heater and Hot Water Supply
Boiler = 1.0)--Electric Storage Versus Circulating Water Heater and Hot Water Supply Boiler
[2022$]
----------------------------------------------------------------------------------------------------------------
No-new-
standards case No-new- Standards case Standards case
Equipment Cost new standards case new replacement *
construction replacement * construction
----------------------------------------------------------------------------------------------------------------
Electric Storage............. Installed Cost. $18,934 $17,785 $18,934 $17,785
Energy, 12,623 12,623 13,084 13,084
Maintenance,
and Repair
Cost (First
Year).
Circulating Water Heater and Installed Cost. 10,660 6,455 15,359 13,301
Hot Water Supply Boiler.
Energy, 4,206 4,377 3,735 3,861
Maintenance,
and Repair
Cost (First
Year).
----------------------------------------------------------------------------------------------------------------
* 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 recognizes that commercial tankless gas-fired water heaters
could in theory be replaced with one or more electric tankless units.
DOE 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
[[Page 69775]]
potentially higher and less predictable ongoing electric demand costs.
DOE concludes 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 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 above, DOE did not explicitly
include fuel or technology switching in this final rule beyond the
continuation of historical trends and electrification requirements
discussed in section IV.G.4 of this document.
3. National Energy Savings
The NES analysis involves a comparison of national energy
consumption of the considered products 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-new-standards 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 AEO2023.
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 (Aug. 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 (Aug. 17,
2012). NEMS is a public domain, multi-sector, partial equilibrium model
of the U.S. energy sector \156\ 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 final rule TSD.
---------------------------------------------------------------------------
\156\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview 2018, April 2019. Available at
www.eia.gov/forecasts/aeo/index.cfm (last accessed December 13,
2022).
---------------------------------------------------------------------------
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 no-new-standards case as more-efficient CWH units
gradually replaces less-efficient 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 by a unit of equipment in operation in the no-new-standards
case and the standards case) for each category 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 final rule 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 final
rule analysis, DOE used the AEO2023 Reference case, which reflects the
most up-to-date information on resource and fuel costs, but excludes
Clean Power Plan (``CPP'') \157\ impacts. Use of the AEO2023 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-to-source
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
[[Page 69776]]
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 final rule,
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.
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\157\ The 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.
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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 more-efficient
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
final 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 response to the May 2022 CWH ECS NOPR, Atmos
Energy stated that DOE should reconsider its conclusion that the
proposed rule is unlikely to result in rebound effects on water usage
and noted that some parts of the country are experiencing drought
conditions. (Atmos Energy, No. 36 at p. 5) DOE recognizes that drought
conditions may impact water usage within regions; however, the CWH
equipment that is the subject of this rulemaking addresses only the
heating of the water, and not the water usage itself, as water usage is
based on demand and not the efficiency of the water heater. DOE had
previously sought comments and data on any rebound effect that may be
associated with more efficient commercial water heaters in the October
2014 RFI. 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.
(DOE Docket EERE-2014-BT-STD-0042, 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. (DOE Docket
EERE-2014-BT-STD-0042, Joint Advocates, No. 7 at p. 5) DOE has
therefore retained its position that a rebound effect is unlikely to
occur for the CWH that are the subject of this final rule.
PHCC commented that the Department advanced this rule based on the
significant energy savings of 0.7 quads. (PHCC, No. 28 at pp. 1) PHCC
noted that totaling the energy use columns on the base case (no-new-
standards) section of the NIA model spreadsheet for new units and
replacement and switch units shows an approximate 6.5 quads, but if the
total stock of units is extended, using even just the replacement
energy yields 8.2 quads. PHCC stated it is important to make
transparent comparisons; for example, using one way the 0.7 quads is an
approximate 10 percent savings, and using the other is closer to 8.5
percent. (PHCC, No. 28 at pp. 1-2) PHCC further noted that commercial
gas-fired storage water heaters and instantaneous circulating water
heaters and hot water supply boilers are the major contributors and
that the residential-duty gas-fired water heaters and instantaneous
tankless water heaters are substantially less significant, and if
evaluated individually, the significant energy savings argument would
be even harder to make. (PHCC, No. 28 at p. 2)
As stated in section III.E.2, the significance of energy savings
offered by an amended energy conservation standard cannot be determined
without knowledge of the specific circumstances surrounding a given
rulemaking. DOE evaluates the significance of energy savings on a case-
by-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.
Accordingly, taking these factors, among others into account, DOE has
determined the energy savings for the TSL proposed in this rulemaking
are ``significant'' within the meaning of EPCA.\158\
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\158\ To the extent PHCC's comments refer to a numeric savings
threshold previously used to determine significance of energy
savings, DOE notes that the numeric threshold for determining the
significance of energy savings established in a final rule, Energy
Conservation Program for Appliance Standards: Procedures for Use in
New or Revised Energy Conservation Standards and Test Procedures for
Consumer Products and Commercial/Industrial Equipment, published on
February 14, 2020 (85 FR 8626, 8670), was subsequently eliminated in
a final rule, Energy Conservation Program for Appliance Standards:
Procedures, Interpretations, and Policies for Consideration in New
or Revised Energy Conservation Standards and Test Procedures for
Consumer Products and Commercial/Industrial Equipment, published on
December 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------
PHCC additionally questioned the NES calculations, noting that the
energy savings appear to be based on the savings of equipment sold
across the 30-year life cycle in the rule, but that it was not apparent
what the total energy of the installed equipment or CWH equipment
installed and currently in use might be. (PHCC, No. 28 at pp. 1) PHCC
further stated that using the Department's spreadsheets, it appears
that the total energy used is for the newly installed equipment. (PHCC,
No. 28 at pp. 1) PHCC stated that it is unclear how the 0.7 quads
savings was derived. PHCC calculated a separate estimate of savings at
0.37 quads out of total energy consumed to be 8.2 quads. PHCC also
noted that it has additional issues with assumptions made by the
Department that would further erode the potential savings, but are
difficult to quantify. (PHCC, No. 28 at p. 2) PHCC stated that based on
its own review and understanding, PHCC questions the energy use and
savings calculation that form the basis of the significant energy
savings assertion. (PHCC, No. 28 at p. 6) PHCC also sought
clarification as to the low energy use (site) in the early years of the
Department's analysis and noted that it appeared that there is no
consideration of the energy usage of all existing covered products.
(PHCC, No. 28 at p. 6)
In response, DOE would clarify that for its analysis, DOE considers
only the impact of the proposed standard levels on equipment shipments
that occur within the 2026 through 2055 analysis period. As a result,
the estimated energy
[[Page 69777]]
use in the early years of the analysis includes only equipment shipped
for new and replacement applications beginning in 2026, and does not
include the energy use of the existing equipment installed prior to
2026, the year in which the standard would go into effect. However, the
NES does include the stream of energy savings that occurs over the life
of the equipment installed during the analysis period, meaning that
energy savings for a commercial gas-fired storage water heater
installed in 2055 would be accrued throughout its life, beyond 2055
(see section IV.F.6 for a discussion of equipment lifetimes).
DOE further appreciates the effort that PHCC undertook to develop
their calculations of energy use and energy savings, and notes that the
PHCC calculations are similar to the DOE calculations within the NIA
model. However, the DOE NIA model incorporates some additional
calculations and factors to capture the energy accounting more fully.
For each year beginning with 2026 (the first year that the standard
would go into effect), energy use for both the no-new-standards case
(labeled base case within the NIA spreadsheet's product tabs) and the
selected efficiency level (labeled standards case) are calculated by
multiplying the estimated number of installed units still surviving
(which is equal to the installed units multiplied by a survival
function) by the estimated unit energy use for the year in which they
were installed. This calculation accounts for changes to the weighted
average efficiencies installed in a given year, as the no-new-standards
case has an increasing efficiency trend built into it. The NES is then
calculated as the sum of the differences between the energy use
calculated in the no-new-standards case and the energy use calculated
in the standards case.
DOE observed that the screen captures of the PHCC calculations
(PHCC, No. 28 at pp. 4-5) appear to contain only numbers for the
commercial sector and do not seem to account for additional energy use
and savings calculations for the residential sector (which can be
viewed by selecting ``Residential'' in any of the application sector
drop-down menus located throughout the model, as described in appendix
10A of the final rule TSD). Additionally, the PHCC calculations did not
appear to account for the energy savings that accrue after 2055 from
equipment installed through 2055 that had not yet reached their end of
life. By summing the calculated site energy savings in the May 2022 CWH
ECS NOPR NIA model (column CN within each of the product tabs of the
NOPR NIA model), DOE calculated commercial site natural gas savings of
0.35 quads for the years 2026-2055, an additional 0.13 quads of
commercial site natural gas savings beyond 2055 that accrue to
equipment installed during the analysis period, and an additional 0.17
quads of residential sector site natural gas savings, yielding a total
of 0.65 quads of site natural gas NES. DOE notes that the NES for the
selected subset of years and commercial sector (0.35 quads) were
similar to what PHCC calculated (0.37 quads). DOE also clarifies that
the 0.70 quads referenced by PHCC are FFC NES, which explains the
remaining difference between the site natural gas savings and the FFC
savings; PHCC did not include the impact of changes in electricity due
to proposed standards, which DOE also excluded here so as to produce a
comparable set of numbers. With regard to PHCC's additional unnamed
issues with assumptions made by DOE, DOE notes that the underlying
assumptions are made based on best available data and are meant to be
representative of the equipment category while also allowing for a
feasible analysis.
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-new-standards 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.1 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 decreases over time. The analysis of
the price trends is described in chapter 10 of the final rule TSD.
The energy cost savings 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
AEO2023, which has an end year of 2050. To estimate price trends after
2050, the 2040-2050 average was used for all years. As part of the NIA,
DOE also analyzed scenarios that used inputs from variants of the
AEO2023 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 final rule 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 2023 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
final rule, 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.\159\ 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.
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\159\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Section E. Available at
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last
accessed December 13, 2022).
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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 additional electrification of
customer
[[Page 69778]]
loads beyond those that have been adopted, as DOE cannot speculate
about consumer electrification or other policies or issues (see
sections IV.G and section 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 FEMP-designated 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.
I. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended standards on
consumers, DOE evaluates the impact on identifiable subgroups of
consumers that may be disproportionately affected by a new or revised
national energy conservation standard level. The purpose of a subgroup
analysis is to determine the extent of any such disproportionate
impacts. DOE evaluates impacts on particular subgroups of consumers by
analyzing the LCC impacts and PBP for those particular consumers from
alternative standard levels. For this final rule, 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 final rule TSD describes the consumer
subgroup analysis.
1. Residential Sector Subgroup Analysis
The RECS database divides the residential samples into 16 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), 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 final rule and described in detail in chapter
11 of the final rule 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, equipment shipments, manufacturer markups, and
investments in R&D and manufacturing capital required to produce
compliant equipment. The key GRIM outputs are the INPV, which is the
sum of industry annual cash flows over the analysis period, discounted
using the industry-weighted 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-new-standards case
and the various standards cases (``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 final rule TSD.
DOE conducted the MIA for this 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 expenses (``SG&A''); and R&D
expenses). DOE also used public sources of information to further
calibrate its initial characterization of the CWH
[[Page 69779]]
equipment manufacturing industry, including company filings of form 10-
K from the SEC,\160\ corporate annual reports, the U.S. Census Bureau's
Economic Census,\161\ and reports from Dunn & Bradstreet.\162\
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\160\ U.S. Securities and Exchange Commission, Annual 10-K
Reports (Various Years) (Available at www.sec.gov/edgar/searchedgar/companysearch.html).
\161\ U.S. Census Bureau, Annual Survey of Manufacturers:
General Statistics: Statistics for Industry Groups and Industries
(2021). Available at www.census.gov/data/tables/time-series/econ/asm/2018-2021-asm.html.
\162\ Dunn & Bradstreet Company Profiles, Various Companies.
Available at app.dnbhoovers.com.
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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, low-
volume manufacturers (``LVMs''), 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'' and in
chapter 12 of the final rule 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 2023 (the base year of the analysis) and continuing to
2055. DOE calculated INPVs by summing the stream of annual discounted
cash flows during this period. For manufacturers of residential central
air conditioners and heat pumps, 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 final rule 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 equipment 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. For a
complete description of the MPCs, see chapter 5 of the final rule 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 2023 (the base year) to 2055 (the end year of
the analysis period). See chapter 9 of the final rule TSD for
additional details.
c. Conversion Costs and Stranded Assets
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 product class. 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 non-capitalized 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.
[[Page 69780]]
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 efficiency levels. Those costs included, but
were not limited to, capital investments in tube bending, press dies,
machining, enameling, metal inert gas (``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.
Rheem commented the conversion costs should reflect larger
manufacturing space and more manufacturing time to produce a condensing
unit, and the costs should reflect the expansion of existing
facilities, expansion of assembly lines, and added shifts. (Rheem, No.
24 at p. 7) After the 2022 CWH ECS NOPR publication, DOE conducted
additional manufacturer interviews at the request of industry. (AHRI,
No. 31 at p. 5; Rheem, No. 24 at p.1; Bock, No. 20 at p. 2) Where
manufacturers provided estimates and analysis supporting updates to
conversion costs, DOE incorporated the interview feedback into its
estimation of investment levels. The interview feedback that DOE
received was primarily focused on the gas-fired storage water heaters
product class.
Bradford White commented that volume water heaters are not produced
on the same production lines as residential products, and that volume
water heaters are built in lower volumes and have different
installation configurations than consumer water heaters. (Bradford
White, No. 23 at p. 9) DOE's conversion costs reflect Bradford White's
statements. DOE understands that volume water heaters are produced on
lines dedicated to low-volume, commercial equipment.
In addition to capital and product conversion costs, amended energy
conservation standards could create stranded assets, i.e., tooling and
equipment that were not yet fully depreciated and could have been used
longer if energy conservation standards had not made them obsolete. In
the compliance year, manufacturers write down the remaining
undepreciated book value of existing tooling and equipment rendered
obsolete by amended energy conservation standards.
To evaluate conversion costs manufacturers would likely incur to
comply with amended standards, DOE used information derived from the
engineering analysis, equipment teardowns, and manufacturer interviews.
In conjunction with the evaluation of capital conversion costs, DOE
estimated the portion of existing equipment, tooling, and conveyor that
would be retired.
In general, 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
conversion costs, product conversion costs, and stranded assets, see
chapter 12 of the final rule TSD.
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 non-production cost markups to the
MPCs estimated in the engineering analysis for each product class 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 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 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
publicly-available 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.35 of this final rule. These markups capture all
non-production costs, including SG&A expenses, R&D expenses, interest
expenses, and profit.
[[Page 69781]]
Table IV.35--Manufacturer Markups for Preservation of Gross Margin
Percentage Markup Scenario
------------------------------------------------------------------------
Equipment Markup
------------------------------------------------------------------------
Commercial gas-fired storage and gas-fired storage-type 1.45
instantaneous water heaters............................
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 1.43
boilers............................................
------------------------------------------------------------------------
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 1 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-new-standards case. The
preservation of per-unit 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.1.b 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 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 in 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 electric power sector emissions of CO2,
NOX, SO2, and Hg uses emissions factors intended
to represent the marginal impacts of the change in electricity
consumption associated with amended or new standards. The methodology
is based on results published for the AEO, including a set of side
cases that implement a variety of efficiency-related policies. The
methodology is described in appendix 13A in the final rule TSD. The
analysis presented in this notice uses projections from AEO2023. Power
sector emissions of CH4 and N2O from fuel
combustion are estimated using ``Emission Factors for Greenhouse Gas
Inventories'' published by the Environmental Protection Agency
(``EPA'').\163\
---------------------------------------------------------------------------
\163\ Available at www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed December 22,
2022).
---------------------------------------------------------------------------
The onsite operation of CWH equipment involves combustion of fossil
fuels and results in emissions of CO2, NOX,
SO2, CH4, and N2O where this equipment
is used. Site emissions of these gases were estimated using ``Emission
Factors for Greenhouse Gas Inventories'' and, for NOX and
SO2, emissions intensity factors from an EPA
publication.\164\
---------------------------------------------------------------------------
\164\ U.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-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors#Proposed/
(last accessed December 22, 2022).
---------------------------------------------------------------------------
FFC upstream emissions, which include emissions from fuel
combustion during extraction, processing, and transportation of fuels,
and ``fugitive'' emissions (direct leakage to the atmosphere) of
CH4 and CO2, are estimated based on the
methodology described in chapter 15 of the final rule TSD.
The emissions intensity factors are expressed in terms of physical
units per MWh or MMBtu of site energy savings. For power sector
emissions, specific emissions intensity factors are calculated by
sector and end use. Total emissions reductions are estimated using the
energy savings calculated in the NIA.
1. Air Quality Regulations Incorporated in DOE's Analysis
DOE's no-new-standards case for the electric power sector reflects
the AEO2023, which incorporates the projected impacts of existing air
quality regulations on emissions. AEO2023 generally represents current
legislation and environmental regulations, including recent government
actions, that were in place at the time of preparation of AEO2023,
including the emissions control programs discussed in the following
paragraphs.\165\
---------------------------------------------------------------------------
\165\ For further information, see the Assumptions to AEO2023
report that sets forth the major assumptions used to generate the
projections in the Annual Energy Outlook. Available at www.eia.gov/outlooks/aeo/assumptions/ (last accessed April 13, 2023).
---------------------------------------------------------------------------
SO2 emissions from affected electric generating units
(``EGUs'') are subject to nationwide and regional emissions cap-and-
trade programs. Title IV of the Clean Air Act sets an annual emissions
cap on SO2 for affected EGUs in the 48 contiguous States and
the District of Columbia (``DC''). (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.\166\ AEO2023
incorporates implementation of CSAPR, including the update to the CSAPR
ozone season program emission budgets and target dates issued in 2016.
81 FR
[[Page 69782]]
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, for States subject to SO2
emissions limits under CSAPR, 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.
---------------------------------------------------------------------------
\166\ CSAPR 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), and EPA issued the CSAPR Update for the 2008
ozone NAAQS. 81 FR 74504 (Oct. 26, 2016).
---------------------------------------------------------------------------
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. In order to continue operating, coal 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 will generally reduce SO2 emissions.
DOE estimated SO2 emissions reduction using emissions
factors based on AEO2023.
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.
Depending on the configuration of the power sector in the different
regions and the need for allowances, however, NOX emissions
might not remain at the limit in the case of lower electricity demand.
That would mean that 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. Standards would be expected to reduce NOX
emissions in the States not covered by CSAPR. DOE used AEO2023 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 impact Hg emissions. DOE
estimated mercury emissions reduction using emissions factors based on
AEO2023, which incorporates the MATS.
In comments, Rheem stated some consumers will elect to switch from
gas-fired to electric water heaters in response to difficult
installations to switch from non-condensing to condensing, and that DOE
should consider how the electricity grid produces energy in DOE's
climate analysis. Rheem stated that in some regions, the use of
electricity generated from coal to power electric water heaters will
increase emissions compared to a gas water heater. (Rheem, No. 24 at p.
8). Similarly, Suburban Propane expressed concern that the proposed
standards would produce more, rather than less, greenhouse gas
emissions in most of the country due to lack of consideration of lower-
carbon and carbon-negative energy sources such as traditional and
renewable propane. (Suburban Propane, No. 16 at pp. 2-3) Suburban
Propane stated that the proposed standards would effectively mandate
that only electric energy be used for future water heating needs,
causing additional strain to the electric infrastructure and leading to
increased carbon emissions. Id. Suburban Propane added that traditional
propane is an abundant, domestically produced energy source and is
defined as a clean alternative fuel under the 1990 Clean Air Act. Id.
Suburban Propane encouraged DOE to focus on a technology-neutral
approach that requires low carbon and carbon negative fuel sources,
such as a clean fuel standard for building emissions. Id.
Because DOE has no authority over questions such as whether a
company might electrify loads or future State policies about
electrification, DOE is limiting the response to these comments to the
matters arising because of this final rule. As noted throughout this
final rule, under EPCA DOE can only set standards for CWH equipment if
such does not result in the elimination of products or product features
from the market, and if clear and convincing evidence exists to support
the standard. DOE believe both of these conditions exist, and that the
outcome described in the Suburban Propane comment where the standard
effectively becomes an electric-only mandate will not come to pass as a
result of this final rule. As discussed in section IV.H.2 of this
document, DOE believes that generally the final rule will not induce
fuel switching. Rheem's comment addresses a more specific case, that of
the difficult installation. DOE notes that consumers facing difficult
installations using vertical venting may have cost-effective
alternatives such as horizontal venting. DOE notes based on the NEEA
report the number of difficult installations is expected to be small.
Add to this the fact that bringing multiple tens of kW or more of
electric power to the existing commercial water heater(s) location
including wiring, switching, breaker panels and other internal building
changes to effect fuel switching in existing buildings, may be costly
itself making the economics of fuel switching, particularly to a more
expensive water heating fuel not an attractive option for existing
buildings. DOE believes the number of installations that would fuel
switch is small enough to not materially change the results posted in
this final rule.
Bradford White recommended that DOE take into account other
regulatory actions, including those at the State level (i.e.,
California) that will reduce NOX emissions regardless of the
outcome of this rulemaking to avoid potentially double counting reduced
emissions. (Bradford White, No. 23 at pp. 6-7) Bradford White
recommended that DOE take into account other regulatory actions,
including those at the State level (i.e., California) that will reduce
NOX emissions regardless of the outcome of this rulemaking
to avoid potentially double counting reduced emissions. (Bradford
White, No. 23 at pp. 6-7) In response, DOE has found that pre-mix
burners are the primary technology used to produce low, and ultra-low
NOX emitting equipment. (Docket No. EERE-2017-BT-STD-0019,
chapter 5) As Bradford White notes, DOE does not explicitly model the
quantity of these low- and ultra-low NOX units to
NOX regulated states in its baseline consumer sample. In a
standard that results in consumers migrating from atmospheric burners
to the types of pre-mix burners used to achieve condensing-level
efficiencies, as required in this rule, NOX reductions would
occur from reduction of energy
[[Page 69783]]
used at the site (as well as upstream from the site). In DOE's
emissions quantification, the emissions benefit from the reduction of
energy use is considered directly. However, the additional reduction
from the type of combustion system used has not been quantified. While
Bradford White is correct that DOE did not explicitly address the
extent of NOX emissions benefits in NOX-regulated
geographic areas, DOE does account for the large fraction of consumers
already purchasing condensing equipment, with powered burners, in its
base case (see section IV.F.8 of this document). To the extent that
consumers in NOX regulated geographic areas preferentially
purchase high-efficiency equipment with pre-mix burners to meet these
NOX regulations, this mitigates potential double counting.
Further, the analysis conducted by DOE examines the emissions benefits
from reduction of natural gas consumption due to efficiency
improvements. However, because of the burner technology shift necessary
to achieve the higher efficiency levels and the correlated reduction in
NOX emissions in the shift in burner technology, DOE
believes there will be additional NOX emission reductions
across the United States and these are not captured in DOE's analysis.
DOE believes that these additional benefits will offset any remaining
double counting in NOX-regulated geographies.
Bradford White recommend DOE also analyze additional emissions
generated to comply with an amended standard. (Bradford White, No. 23
at p. 6) With an amended standard, more components, including more
complex components and more of certain existing components will be
required to comply. Bradford White suggested that this begged the
question whether more emissions would be generated to produce
components to comply with an amended standard versus what emissions
will be saved by requiring higher efficiency equipment. (Bradford
White, No. 23 p. 6) In section IV.F.10 of this document, DOE addressed
the comments related to embodied emissions posted by WM Technologies
and Patterson-Kelley. EPCA authorizes DOE to promulgate rules
regulating the energy efficiency of CWH equipment, but this authority
does not extend to regulating or considering the means by which
manufacturers produce CWH equipment. DOE quantifies the emissions
reductions generated by the estimated energy savings as part of the
analysis relevant to its implementation of its authority to regulate
energy efficiency. Given DOE's lack of authority over manufacturers'
processes, DOE also has no mechanism for effecting change. Therefore,
DOE declines at present to quantify these embodied emissions as they
are outside the scope of DOE's authority and analysis of energy
efficiency of covered equipment.
L. Monetizing Emissions Impacts
As part of the development of this final rule, for the purpose of
complying with the requirements of E.O. 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 final rule.
To monetize the benefits of reducing GHG emissions, this analysis
uses the interim 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 IWG.
1. Monetization of Greenhouse Gas Emissions
For the purpose of complying with the requirements of E.O. 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-
CO2). 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-change-related 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 presenting monetized climate
benefits as recommended by applicable Executive Orders, and DOE would
reach the same conclusion presented in this rule in the absence of the
SC-GHG, including the February 2021 Interim Estimates presented by the
IWG. The social costs of greenhouse gases, whether measured using the
February 2021 interim estimates presented by the IWG or by another
means, did not affect the rule ultimately proposed by DOE.
DOE estimated the global social benefits of CO2,
CH4, and N2O reductions (i.e., SC-GHGs) 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 IWG. 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-GHG 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-GHG therefore, reflects the societal value
of reducing emissions of the gas in question by one metric ton. The SC-
GHG 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, 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, peer-reviewed methodologies, the best
science available at the time of that process, and input from the
public. Specifically, in 2009, the IWG, that included the 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 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
[[Page 69784]]
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 SC-CH4 and 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.\167\ and underwent a standard double-blind peer review
process prior to journal publication.
---------------------------------------------------------------------------
\167\ Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold,
and A. Wolverton. Incremental CH4 and N2O mitigation benefits
consistent with the US Government's SC-CO2 estimates.
Climate Policy. 2015. 15(2): pp. 272-298.
---------------------------------------------------------------------------
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.\168\
Shortly thereafter, in March 2017, President Trump issued E.O. 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)). Benefit-cost analyses following
E.O. 13783 used SC-GHG estimates that attempted to focus on the U.S.-
specific share of climate change damages as estimated by the models and
were calculated using two discount rates recommended by Circular A-4, 3
percent and 7 percent. All other methodological decisions and model
versions used in SC-GHG calculations remained the same as those used by
the IWG in 2010 and 2013, respectively.
---------------------------------------------------------------------------
\168\ National Academies of Sciences, Engineering, and Medicine.
Valuing Climate Damages: Updating Estimation of the Social Cost of
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------
On January 20, 2021, President Biden issued E.O. 13990, which re-
established the IWG and directed it to ensure that the U.S.
Government's estimates of the SC-CO2 and SC-GHG reflect the
best available science and the recommendations of the National
Academies. 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 Executive Order that reflect the full impact of
GHG emissions, including by taking global damages into account. The
interim SC-GHG estimates published in February 2021 are used here to
estimate the climate benefits for this rule. The Executive Order
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 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 the SC-GHG estimates used under E.O. 13783 fail to fully capture
many climate impacts that affect the welfare of U.S. citizens and
residents, and those impacts are better reflected by global measures of
the SC-GHG. Examples of omitted effects from the E.O. 13783 estimates
include direct effects on U.S. citizens, assets, and investments
located abroad, supply chains, U.S. military assets and interests
abroad, tourism, spillover pathways such as economic and political
destabilization, and global migration that can lead to adverse impacts
on U.S. national security, public health, and humanitarian concerns. 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. A
wide range of scientific and economic experts have emphasized the issue
of reciprocity as support for considering global damages of GHG
emissions. 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. The only way to
achieve an efficient allocation of resources for emissions reduction on
a global basis--and so benefit the United States and its citizens--is
for all countries to base their policies on global estimates of
damages. 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 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. A robust estimate of climate damages
that accrue only to U.S. citizens and residents does not currently
exist in the literature. As explained in the February 2021 TSD,
existing estimates are both incomplete and an underestimate of total
damages that accrue to the citizens and residents of the United States
because they do not fully capture the regional interactions and
spillovers discussed above, nor do they include all of the important
physical, ecological, and economic impacts of climate change recognized
in the climate change literature. As noted in the February 2021 SC-GHG
TSD, the IWG will continue to 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 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,\169\ and recommended
that
[[Page 69785]]
discount rate uncertainty and relevant aspects of intergenerational
ethical considerations be accounted for in selecting future discount
rates.
---------------------------------------------------------------------------
\169\ Interagency Working Group on Social Cost of Carbon. Social
Cost of Carbon for Regulatory Impact Analysis under Executive Order
12866. 2010. United States Government. (Last accessed April 15,
2022.) www.epa.gov/sites/default/files/2016-12/documents/scc_tsd_2010.pdf; Interagency Working Group on Social Cost of
Carbon. Technical Update of the Social Cost of Carbon for Regulatory
Impact Analysis Under Executive Order 12866. 2013. (Last accessed
April 15, 2022.) www.federalregister.gov/documents/2013/11/26/2013-28242/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact; Interagency Working Group on
Social Cost of Greenhouse Gases, United States Government. Technical
Support Document: Technical Update on the Social Cost of Carbon for
Regulatory Impact Analysis-Under Executive Order 12866. August 2016.
(Last accessed January 18, 2022.) www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf; Interagency Working
Group on Social Cost of Greenhouse Gases, United States Government.
Addendum to Technical Support Document on Social Cost of Carbon for
Regulatory Impact Analysis under Executive Order 12866: Application
of the Methodology to Estimate the Social Cost of Methane and the
Social Cost of Nitrous Oxide. August 2016. (Last accessed January
18, 2022.) www.epa.gov/sites/default/files/2016-12/documents/addendum_to_sc-ghg_tsd_august_2016.pdf.
---------------------------------------------------------------------------
Furthermore, the damage estimates developed for use in the SC-GHG
are estimated in consumption-equivalent terms, and so an application of
OMB Circular A-4's guidance for regulatory analysis would then use the
consumption discount rate to calculate the SC-GHG. DOE agrees with this
assessment and will continue to follow developments in the literature
pertaining to this issue. DOE also notes that while OMB Circular A-4,
as published in 2003, recommends using 3 percent and 7 percent discount
rates as ``default'' values, Circular A-4 also reminds agencies that
``different regulations may call for different emphases in the
analysis, depending on the nature and complexity of the regulatory
issues and the sensitivity of the benefit and cost estimates to the key
assumptions.'' On discounting, Circular A-4 recognizes that ``special
ethical considerations arise when comparing benefits and costs across
generations,'' and Circular A-4 acknowledges that analyses may
appropriately ``discount future costs and consumption benefits . . . at
a lower rate than for intragenerational analysis.'' In the 2015
Response to Comments on the Social Cost of Carbon for Regulatory Impact
Analysis, OMB, DOE, and the other IWG members recognized that
``Circular A-4 is a living document'' and ``the use of 7 percent is not
considered appropriate for intergenerational discounting. There is wide
support for this view in the academic literature, and it is recognized
in Circular A-4 itself.'' Thus, DOE concludes that a 7 percent discount
rate is not appropriate to apply to value the SC-GHG in the analysis
presented in this analysis.
To calculate the present and annualized values of climate benefits,
DOE uses the same discount rate as the rate used to discount the value
of damages from future GHG emissions, for internal consistency. That
approach to discounting follows the same approach that the February
2021 TSD recommends ``to ensure internal consistency--i.e., future
damages from climate change using the SC-GHG at 2.5 percent should be
discounted to the base year of the analysis using the same 2.5 percent
rate.'' DOE has also consulted the National Academies' 2017
recommendations on how SC-GHG estimates can ``be combined in RIAs with
other cost and benefits estimates that may use different discount
rates.'' The National Academies reviewed several options, including
``presenting all discount rate combinations of other costs and benefits
with [SC-GHG] estimates.''
As a member of the IWG involved in the development of the February
2021 SC-GHG TSD, DOE agrees with the above 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 were 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
benefit-cost 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.
There are a number of limitations and uncertainties associated with
the SC-GHG estimates. First, the current scientific and economic
understanding of discounting approaches suggests discount rates
appropriate for intergenerational analysis in the context of climate
change are likely to be less than 3 percent, near 2 percent or
lower.\170\ Second, the IAMs used to produce these interim estimates do
not include all of the important physical, ecological, and economic
impacts of climate change recognized in the climate change literature
and the science underlying their ``damage functions''--i.e., the core
parts of the IAMs that map global mean temperature changes and other
physical impacts of climate change into economic (both market and
nonmarket) damages--lags behind the most recent research. For example,
limitations include the incomplete treatment of catastrophic and non-
catastrophic impacts in the integrated assessment models, their
incomplete treatment of adaptation and technological change, the
incomplete way in which inter-regional and intersectoral linkages are
modeled, uncertainty in the extrapolation of damages to high
temperatures, and inadequate representation of the relationship between
the discount rate and uncertainty in economic growth over long time
horizons. Likewise, the socioeconomic and emissions scenarios used as
inputs to the models do not reflect new information from the last
decade of scenario generation or the full range of projections. The
modeling limitations do not all work in the same direction in terms of
their influence on the SC-CO2 estimates. However, as
discussed in the February 2021 TSD, the IWG has recommended that, taken
together, the limitations suggest that the interim SC-GHG estimates
used in this final rule likely underestimate the damages from GHG
emissions. DOE concurs with this assessment.
---------------------------------------------------------------------------
\170\ Interagency Working Group on Social Cost of Greenhouse
Gases (IWG). 2021. Technical Support Document: Social Cost of
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive
Order 13990. February. United States Government. Available at:
www.whitehouse.gov/briefing-room/blog/2021/02/26/a-return-to-science-evidence-based-estimates-of-the-benefits-of-reducing-climate-pollution/.
---------------------------------------------------------------------------
In comments filed in response to the May 2022 CWH ECS NOPR, Joint
Climate Commenters stated that DOE appropriately applies the social
cost estimates developed by the IWG for CO2, CH4,
and N2O, to its analysis of emission reduction benefits. The
Joint Climate Commenters added that those values are widely agreed to
underestimate the full SC-GHG emissions but are appropriate to use as
conservative estimates, have been used
[[Page 69786]]
in dozens of previous rulemakings, and were upheld in Federal court.
(Joint Climate Commenters, No. 19 at pp. 1-2). The Joint Climate
Commenters suggested that DOE should expand upon its rationale for
adopting a global damages valuation and for the range of discount rates
it applies to climate effects, and should also strongly consider
conducting supplemental sensitivity analyses to assess the proposed
rule's climate benefits at lower discount rates, as recommended by the
IWG. (Joint Climate Commenters, No. 20 at p. 2). The Joint Climate
Commenters also stated that DOE should provide additional support for
adopting a global framework for valuing climate impacts, including
providing legal justifications based on applicable requirements placed
on DOE. In particular, the Joint Climate Commenters suggested that DOE
could strengthen is economic and policy justifications by explicitly
concluding that the theory and evidence for international reciprocity
justify a focus on the full global values. However, they stated that
DOE should also consider including a discussion of domestic-only
estimates and should consider conducting sensitivity analysis using a
sounder domestic-only estimate as a backstop, and should explicitly
conclude that the rule is cost-benefit justified even using a domestic-
only valuation that may still undercount climate benefits. (Joint
Commenters, No. 21 at p. 2) The Joint Climate Commenters also stated
that DOE should consider including additional justification for
adopting the range of discount rates endorsed by the IWG and for
appropriately deciding not to apply a 7 percent capital-based discount
rate to climate impacts. In particular, they suggested that DOE should
provide additional justification for combining climate effects
discounted at an appropriate consumption-based rate with other costs
and benefits discounted at a capital-based rate. The Joint Climate
Commenters suggested that it is appropriate generally to focus its
analysis of this rule on consumption-based rates given that most costs
and benefits are projected to fall to consumption rather than to
capital investments. (Joint Commenters, No. 22 at pp. 2-3) The Joint
Climate Commenters also suggested that DOE should also consider
providing additional sensitivity analysis using discount rates of 2
percent or lower for climate impacts, as recently suggested by the
Working Group. (Joint Climate Commenters, No. 23 at p. 3) The Joint
Climate Commenters stated that DOE should consider adding further
justification for relying on the Working Group's other methodological
choices, including the fact that the Working Group applied a
transparent and rigorous process that relied upon the best-available
and most widely cited models for monetizing climate damages. In support
of this, they included several attachments which they said provide
detailed rebuttals to common criticisms of the Working Group's
methodology. (Joint Climate Commenters, No. 24 at p. 3) DOE
acknowledges that interim estimates were developed over many years,
using transparent process, peer-reviewed methodologies, the best
science available at the time of that process, and with input from the
public. 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 IWG February 2021 TSD
provides further justification for use of global SC-GHG estimates.
The Joint Climate Commenters encouraged DOE to clearly state that
any criticisms of the social cost of greenhouse gases are moot in this
rulemaking because the Proposed Rule is easily cost-justified without
any climate benefits. (Joint Climate Commenters, No. 25 at p. 3) DOE
acknowledges that this rule is economically justified without SC-GHG
and health benefits, but notes that consideration of those benefits and
costs is important when determining the impact to the nation.
The Associations state that DOE should not rely on the SC-GHG for
any decision-making until the procedural shortcomings in the SC-GHG
development have been addressed, alleging that the development of SC-
GHG needs to be developed through a process consistent with the
Administrative Procedure Act and that the current SC-GHG was not. (The
Associations, No. 32 at pp. 2-3) The Associations stated that the SC-
GHG was issued in 2021 without prior notice and no public comment
period. The Associations alleged this process lacked transparency, and
by extension the DOE NOPR process lacked transparency insofar as it
does not provide a full IWG process record for the public to comment
on. The Associations commented that without such a record, the public's
ability to comment meaningfully is impaired. They further stated that a
future comment period in the IWG process does not provide remedy. (The
Associations, No. 32 at p. 3) The Associations stated additionally that
the original social cost of carbon comment period in 2013 did not
reflect a meaningful opportunity to comment, lacked a peer review
process, and did not provide the public access to information
underlying the estimates. This period predated the SC-CH4
and SC-N2O, which the Associations alleged were also not
subject to public input. (The Associations, No. 32 at p. 4) The
Associations stated that DOE should further not use the SC-GHG because
the IWG has yet to fully consider recommendations for improvement made
by the National Academy of Sciences. (The Associations, No. 32 at p. 4)
DOE notes as stated above that interim estimates were developed over
many years, using transparent process, peer-reviewed methodologies, the
best science available at the time of that process, and with input from
the public. 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 Associations stated that the SC-GHG estimates do not comply
with OMB guidance on information quality because the IWG failed to
follow OMB's guidance for peer review, and therefore use by DOE could
be considered arbitrary and capricious. They noted further that the IWG
also failed to meet OMB's requirements for a formal uncertainty
analysis. (The Associations, No. 32 at pp. 4-5) The Associations also
pointed out that the discount rates used do not comport with OMB's
Circular A-4, which requires use of 3 and 7 percent discount rates, and
note that A-4 remains the governing guidance for regulatory cost-
benefit analyses. They urged DOE to comply with Circular A-4 in all
relevant aspects. (The Associations, No. 32 at p. 5) DOE notes in
response that DOE uses discount rates consistent with findings of the
National Academies, economic literature, and the IWG. Circular A-4
recognizes that ``special ethical considerations arise when comparing
the benefits and costs across generations.'' Circular A-4 acknowledges
that analyses may appropriately ``discount future costs and consumption
benefits . . . at a lower rate than for intragenerational analysis.''
See Circular A-4 at 36. DOE will continue to follow developments in the
literature pertaining to this issue.
The Associations recommended DOE state clearly the statutory
authority for applying SC-GHG estimates in the rulemaking and that DOE
``articulate the principles that will allow private parties to predict
future applications of such estimates in domains governed by the
particular statutory provisions.'' (The Associations, No. 32 at pp. 2
and 7) The
[[Page 69787]]
Associations urged DOE to consider whether the ``major questions
doctrine'' applies to DOE's use of the SC-GHG estimates ``because the
SC-GHG estimates are of such major economic and political
significance''. Id. at 7. The Associations liken the use of SC-GHG to
effectively serving as a fee for GHG emissions and note that Congress
has not established GHG taxes or fees. Thus, the Associations state
their opinion that SC-GHG usage falls under the major questions
doctrine and urge DOE to therefore not use the SC-GHG estimates. (The
Associations, No. 32 at pp. 2-3 and 8) The Associations note the change
in levels of SC-GHG between Administrations and use such as evidence
that choices might involve policy judgements requiring an express
delegation from Congress. (The Associations, No. 32 at p. 8)
DOE notes first that, under EPCA, the Department regulates only the
energy efficiency or use of CWHs. DOE does not regulate the emissions
of CWHs or the emissions of energy sources used to generate energy for
those water heaters. While DOE does not regulate emissions under EPCA,
DOE is required to determine the benefits and burdens of an energy
conservation standard. (See 42 U.S.C. 6313(a)(6)(B)(ii)) Emissions
reductions are one of the benefits that DOE considers when weighing the
possibility of more-stringent energy conservation standards. And in
compliance with E.O. 12866 and E.O. 13990, and for the reasons
described above, DOE is using the SC-GHG estimates to quantify the
value of those emissions reductions.\171\
---------------------------------------------------------------------------
\171\ For more information, see the ``Technical Support
Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim
Estimates under Executive Order 13990,'' published in February 2021
by the IWG.
---------------------------------------------------------------------------
Patterson-Kelley and WM Technologies commented regarding the
Supreme Court ruling in West Virginia v. EPA. Patterson-Kelley is
concerned over the emissions impact analysis in the commercial water
heater rulemaking, as it is likely to require rollback of any
efficiency rulemaking. (Patterson-Kelley, No. 26 at pp. 1-2, 7; WM
Technologies, No. 25 at pp. 1 and 9) DOE notes this final rule is
economically justified without including net benefits related to
emissions. Thus, if the Supreme Court or any other court acted to
curtail the consideration of the benefits arising from emissions
reductions, this rule is not dependent on the value of such benefits
and should not be affected.
In comments, PHCC stated that while DOE presented much information
on the social costs of climate emissions as well as related health
costs of emission, it is unclear how the Department intends to use this
information, noting that on occasion it is stated that the proposal
pays for itself without these factors, while at the same time stressing
these factors' importance. PHCC asked why DOE would engage in the
debate if the rule is economically justified without these factors.
(PHCC, No. 28 at p. 11) DOE acknowledges the rule is economically
justified without SC-GHG and health impacts. However, understanding SC-
GHG and health benefits and costs is part of describing clearly the
total impact of energy efficiency standards, and they are relevant
considerations for the public and stakeholders.
PHCC also questioned the Department's authority to regulate
emissions and notes the language of the statute directs DOE to deal
with energy, not emissions, and that this topic is a matter of current
litigation, which the Department acknowledges. PHCC would like
clarification as to the status of this rule should this question
ultimately be ruled contrary to the opinion of DOE. (PHCC, No. 28 at p.
11) In response, DOE notes again that it does not regulate emissions
for covered products and equipment. Instead, EPCA grants DOE clear
authority to establish energy conservation standards for covered
products and equipment.
PHCC asks for clarification as to why emissions information is
presented at the 3 percent discount rate and not at 7 percent, stating
that DOE should plainly state its rational for this practice other than
not having a ``single central SC-GHG point estimate'' and that DOE
should acknowledge that the projected social benefits and health
benefits are not simple benefits to a purchase of CWH products but
rather are benefits for the world population. (PHCC, No. 28 at p. 11)
DOE discusses the global nature of social emissions benefits in
sections I.C, IV.L.1.a, V.B.8, 0, and V.C.2. DOE uses all four sets of
SC-GHG estimates to capture the uncertainties involved in regulatory
impact analysis as recommended by the IWG. The rationale for the choice
of discount rates is described in the IWG's February 2021 TSD.
DOE's derivations of the SC-CO2, SC-N2O, and
SC-CH4 values used for this final rule are discussed in the
following sections, and the results of DOE's analyses estimating the
benefits of the reductions in emissions of these GHGs are presented in
section V.B.8 of this document.
a. Social Cost of Carbon
The SC-CO2 values used for this final rule were
generated using the values presented in the 2021 update from the IWG's
February 2021 TSD. Table IV.36 shows the updated sets of SC-
CO2 estimates from the IWG's TSD in 5-year increments from
2020 to 2050. The full set of annual values that DOE used is presented
in appendix 14A of the final rule 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.\172\
---------------------------------------------------------------------------
\172\ For 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.
Table IV.36--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
[2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate and statistic
---------------------------------------------------------------
5% 3% 2.5% 3%
Year ---------------------------------------------------------------
95th
Average Average Average 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
[[Page 69788]]
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 2022$ 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 $152 per metric ton
avoided (values expressed in 2020$). For 2051 to 2070, DOE used SC-
CO2 estimates published by EPA, adjusted to 2022$.\173\
These estimates are based on methods, assumptions, and parameters
identical to the 2020-2050 estimates published by the IWG (which were
based on EPA modeling). DOE expects additional climate benefits to
accrue for any longer-life furnaces after 2070, but a lack of available
SC-CO2 estimates for emissions years beyond 2070 prevents
DOE from monetizing these potential benefits in this analysis.
---------------------------------------------------------------------------
\173\ See EPA, Revised 2023 and Later Model Year Light-Duty
Vehicle GHG Emissions Standards: Regulatory Impact Analysis,
Washington, DC, December 2021. Available at: nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed January 13, 2023).
---------------------------------------------------------------------------
DOE multiplied the CO2 emissions reduction estimated for
each year by the SC-CO2 value for that year in each of the
four cases. DOE adjusted the values to 2022$ using the implicit price
deflator for GDP from the Bureau of Economic Analysis. 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
appendix 14A for the annual SC-CO2 values.
b. Social Cost of Methane and Nitrous Oxide
The SC-CH4 and SC-N2O values used for this
final rule were based on the values developed for the February 2021
TSD. Table IV.37 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 final rule 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.
DOE derived values after 2050 using the approach described above for
the SC-CO2.
Table IV.37--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
[2020$ per metric ton]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
SC-CH4 SC-N2O
-------------------------------------------------------------------------------------------------------------------------------
Discount rate and statistic Discount rate and statistic
-------------------------------------------------------------------------------------------------------------------------------
Year 5% 3% 2.5% 3% 5% 3% 2.5% 3%
-------------------------------------------------------------------------------------------------------------------------------
95th 95th
Average Average Average percentile Average Average Average 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. DOE
adjusted the values to 2022$ using the implicit price deflator for GDP
from the Bureau of Economic Analysis. 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 Emissions Impacts
For the final rule, DOE estimated the monetized value of
NOX and SO2 emissions reductions from electricity
generation using benefit per ton estimates for that sector from the
EPA's Benefits Mapping and Analysis Program.\174\ DOE used EPA's values
for PM2.5-related benefits associated with NOX
and SO2 and for ozone-related benefits associated with
NOX for 2025 and 2030, and 2040, calculated with discount
rates of 3 percent and 7 percent. DOE used linear interpolation to
define values for the years not given in the 2025 to 2040 period; for
years beyond 2040 the values are held constant. DOE combined the EPA
benefit per ton estimates with regional information on electricity
consumption and emissions to define weighted-
[[Page 69789]]
average national values for NOX and SO2 as a
function of sector (see appendix 14B of the NOPR TSD).
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\174\ Estimating the Benefit per Ton of Reducing
PM2.5 Precursors from 21 Sectors. www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
---------------------------------------------------------------------------
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.
M. Utility Impact Analysis
The utility impact analysis estimates the changes in installed
electrical capacity and generation projected to result for each
considered TSL. The analysis is based on published output from the NEMS
associated with AEO2023. 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
AEO2023 Reference case and various side cases. Details of the
methodology are provided in the appendices to chapters 13 and 15 of the
final rule 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.
N. Employment Impact Analysis
DOE considers employment impacts in the domestic economy as one
factor in selecting a 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.\175\ 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.
---------------------------------------------------------------------------
\175\ See 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 www.bea.gov/scb/pdf/regional/perinc/meth/rims2.pdf (last accessed July 1, 2021).
---------------------------------------------------------------------------
DOE estimated indirect national employment impacts for the standard
levels considered in this final rule using an input/output model of the
U.S. economy called Impact of Sector Energy Technologies
(``ImSET'').\176\ ImSET is a special-purpose version of the ``U.S.
Benchmark National Input-Output'' (``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.
---------------------------------------------------------------------------
\176\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W.
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model
Description and User's Guide. 2015. Pacific Northwest National
Laboratory: Richland, WA. PNNL-24563.
---------------------------------------------------------------------------
DOE notes that ImSET is not a general equilibrium forecasting
model, and understands 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 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 final rule 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, the projected impacts
of each of these levels if adopted as energy conservation standards for
CWH equipment, and the standards levels that DOE is adopting in this
final rule. Additional details regarding DOE's analyses are contained
in the final rule 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 final rule, 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 IIIIV.C.4.b of
this final rule and chapter 5 of the final rule TSD. However, as
discussed in section IV.C.4.b of this final rule, for all thermal
efficiency levels for commercial gas-fired 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
[[Page 69790]]
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 final rule.
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 gas-fired 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
residential-duty 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 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level * **
-------------------------------------------------------------------------------------------------------
1 2 3 4
Equipment -------------------------------------------------------------------------------------------------------
Et or UEF Et or UEF Et or UEF Et or UEF
EL SL EL EL SL EL EL SL EL EL SL EL
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 1 0 2 0 4 0 5 0
storage-type instantaneous water heaters.......
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 2 ........... 4 ........... 5 ........... 5 ...........
supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 gas-fired 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.5 and III.B.6 of this final rule, 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 efficiency levels 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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level * **
-------------------------------------------------------------------------------------------------------
1 2 3 4
Equipment -------------------------------------------------------------------------------------------------------
SL factor SL factor SL factor SL factor
Et (%) [dagger] Et (%) [dagger] Et (%) [dagger] Et (%) [dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 82 0.98 90 0.91 95 0.86 99 0.83
storage-type instantaneous water heaters.......
Gas-fired instantaneous water heaters and hot
water supply boilers:
Tankless water heaters...................... 84 ........... 94 ........... 96 ........... 96 ...........
Circulating water heaters and hot water 84 ........... 94 ........... 96 ........... 96 ...........
supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, and SL stands for standby loss.
** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters
and hot water supply boilers.
[dagger] 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.4.b of this final rule.
[[Page 69791]]
Table V.3--Trial Standard Levels by UEF for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Trial standard level **
-------------------------------------------------------------------------------
Draw pattern * 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 first-hour 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 final rule to include efficiency
levels representative of efficiency levels with similar characteristics
(i.e., using similar technologies and/or efficiencies, and having
roughly comparable equipment availability). The use of representative
efficiency levels provided for greater distinction between the TSLs.
While representative efficiency levels were included in the TSLs, DOE
considered all efficiency levels as part of its analysis.\177\
---------------------------------------------------------------------------
\177\ Efficiency levels that were analyzed for this final rule
are discussed in section IV.C.4 of this document. Results by
efficiency level are presented in TSD chapters 8, 10, and 12.
---------------------------------------------------------------------------
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 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 final rule
TSD provides detailed information on the LCC and PBP analyses.
Table V.4 through Table V.13 of this final rule show the LCC and
PBP results for the TSLs considered in this final rule. 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 no-new-standards case in the
compliance year (see section IV.F.8 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 of this document, DOE
assumes a large percentage of consumers will already be purchasing
higher efficiency condensing equipment by 2026. 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 Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2022$)
Thermal Standby loss ---------------------------------------------------------------- Simple payback
TSL * efficiency (SL) factor First year's Lifetime period (years)
(Et) (%) Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................... 80 1.00 6,083 2,419 18,589 24,672 0
1....................................... 82 0.98 6,158 2,374 18,252 24,410 1.7
2....................................... 90 0.91 7,477 2,243 17,266 24,743 7.9
3....................................... 95 0.86 7,593 2,157 16,681 24,274 5.8
4....................................... 99 0.83 7,733 2,094 16,206 23,939 5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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.
[[Page 69792]]
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
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-----------------------------------------------
Thermal Percentage of
efficiency Standby loss Percentage of commercial Average life-
TSL (Et) level (%) (SL) factor commercial consumers that cycle cost
consumers that experience a savings *
experience a net benefit (2022$)
net cost (%) (%)
----------------------------------------------------------------------------------------------------------------
0............................... 80 1.00 0 0 0
1............................... 82 0.98 3 32 267
2............................... 90 0.91 19 18 (85)
3............................... 95 0.86 17 35 367
4............................... 99 0.83 23 76 528
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only. A value in parenthesis is a negative number.
Note: TSL 0 represents the baseline.
Table V.6--Average LCC and PBP Results for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2022$)
------------------------------------------------------------------ Simple payback
TSL * UEF ** First year's Lifetime period (years)
Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0..................................................... 0.59 2,539 1,519 13,470 16,009 ..............
1..................................................... 0.68 2,791 1,427 12,671 15,462 2.7
2..................................................... 0.77 3,746 1,365 12,220 15,966 7.8
3..................................................... 0.86 4,135 1,298 11,634 15,769 7.2
4..................................................... 0.93 4,199 1,261 11,311 15,510 6.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------------------------
Percentage of Percentage of
TSL UEF * commercial commercial Average life-
consumers that consumers that cycle cost
experience a experience a savings **
net cost (%) net benefit (%) 2022$
----------------------------------------------------------------------------------------------------------------
0............................................. 0.59 0 0 0
1............................................. 0.68 6 69 509
2............................................. 0.77 43 47 (80)
3............................................. 0.86 42 50 119
4............................................. 0.93 37 62 370
----------------------------------------------------------------------------------------------------------------
* The UEF shown is for the representative capacity of 75 gallons.
** The calculation includes affected consumers only. 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
----------------------------------------------------------------------------------------------------------------
Average costs 2022$
-------------------------------------------------- Simple
Thermal First payback
TSL * efficiency Installed year's Lifetime period
(Et) (%) cost operating operating LCC years
cost cost
----------------------------------------------------------------------------------------------------------------
0..................................... 80 3,007 821 9,535 12,543 .........
1..................................... 84 3,046 789 9,201 12,247 1.3
2..................................... 94 3,858 729 8,612 12,471 9.3
3..................................... 96 3,925 717 8,480 12,405 8.9
[[Page 69793]]
4..................................... 96 3,925 717 8,480 12,405 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.
Note: TSL 0 represents the baseline.
Table V.9--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------------------------
Thermal Percentage of Percentage of
TSL efficiency commercial commercial Average life-
(Et) (%) consumers that consumers that cycle cost
experience a experience a savings *
net cost (%) net benefit (%) 2022$
----------------------------------------------------------------------------------------------------------------
0............................................. 80 0 0 0
1............................................. 84 0 17 295
2............................................. 94 10 11 105
3............................................. 96 15 27 120
4............................................. 96 15 27 120
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.
Table V.10--Average LCC and PBP Results by Efficiency Level for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs 2022$
Thermal ---------------------------------------------------------------- Simple payback
TSL * efficiency First year's Lifetime period years
(Et) (%) Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 80 8,622 5,273 80,367 88,989 ..............
1....................................................... 84 8,830 5,114 77,996 86,826 1.3
2....................................................... 94 13,973 4,731 72,358 86,331 9.9
3....................................................... 96 14,362 4,661 71,307 85,668 9.4
4....................................................... 96 14,362 4,661 71,307 85,668 9.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 Gas-Fired
Circulating Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-----------------------------------------------
Percentage of
Thermal Percentage of commercial Average life-
TSL efficiency commercial consumers that cycle cost
(Et) (%) consumers that experience a savings *
experience a net benefit 2022$
net cost (%) (%)
----------------------------------------------------------------------------------------------------------------
0............................................... 80 0 0 0
1............................................... 84 2 17 1,153
2............................................... 94 17 16 1,204
3............................................... 96 18 26 1,570
4............................................... 96 18 26 1,570
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.
[[Page 69794]]
Table V.12--Average LCC and PBP Results by Efficiency Level for Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs 2022$
Thermal ---------------------------------------------------------------- Simple payback
TSL ** efficiency First year's Lifetime period years
(Et) (%) Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 80 6,021 3,211 47,561 53,582 ..............
1....................................................... 84 6,151 3,111 46,132 52,284 1.3
2....................................................... 94 9,288 2,877 42,834 52,122 9.8
3....................................................... 96 9,528 2,834 42,208 51,736 9.3
4....................................................... 96 9,528 2,834 42,208 51,736 9.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* 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 final rule.
** 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 Gas-Fired
Instantaneous Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------------------------
Thermal Percentage of Percentage of
TSL efficiency commercial commercial Average life-
(Et) (%) consumers that consumers that cycle cost
experience a experience a savings **
net cost (%) net benefit (%) 2022$
----------------------------------------------------------------------------------------------------------------
0............................................. 80 0 0 0
1............................................. 84 1 17 756
2............................................. 94 14 14 695
3............................................. 96 17 27 898
4............................................. 96 17 27 898
----------------------------------------------------------------------------------------------------------------
* 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 final rule.
** The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.
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 final rule 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.
Chapter 11 of the final rule 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2022$) Simple payback period (years)
Thermal Standby loss ---------------------------------------------------------------
TSL efficiency (SL) factor Residential Residential
(Et) (%) (%) low-income All low-income All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 82 98 524 267 1.0 1.7
2....................................................... 90 91 994 (85) 4.3 7.9
3....................................................... 95 86 1,578 367 3.2 5.8
4....................................................... 99 83 1,542 528 2.8 5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 69795]]
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent of consumers that Percent of consumers that
Thermal Standby loss experience a net cost experience a net benefit
TSL efficiency (SL) factor ---------------------------------------------------------------
(Et) (%) (%) Residential Residential
low-income All low-income All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... 82 98 0 3 34 32
2....................................................... 90 91 10 19 27 18
3....................................................... 95 86 6 17 46 35
4....................................................... 99 83 4 23 95 76
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table V.16--Comparison of Impacts for Consumer Subgroup With All Consumers, Residential-Duty Gas-Fired Storage
Water Heaters
----------------------------------------------------------------------------------------------------------------
LCC savings (2022$) Simple payback period (years)
---------------------------------------------------------------
TSL UEF Residential Residential
low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 0.68 716 509 2.2 2.7
2............................... 0.77 368 (80) 5.6 7.8
3............................... 0.86 729 119 5.3 7.2
4............................... 0.93 1,033 370 4.7 6.4
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Table V.17--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Residential-Duty Gas-Fired
Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Percent of consumers that Percent of consumers that
experience a net cost experience a net benefit
TSL UEF ---------------------------------------------------------------
Residential Residential
low-income (%) All low-income (%) All
----------------------------------------------------------------------------------------------------------------
1............................... 0.68 1 6 73 69
2............................... 0.77 28 43 61 47
3............................... 0.86 24 42 68 50
4............................... 0.93 19 37 79 62
----------------------------------------------------------------------------------------------------------------
Table V.18--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
LCC savings 2022$ Simple payback period (years)
Thermal ---------------------------------------------------------------
TSL efficiency Residential Residential
(Et) (%) low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 217 295 1.7 1.3
2............................... 94 26 105 10.2 9.3
3............................... 96 49 120 9.9 8.9
4............................... 96 49 120 9.9 8.9
----------------------------------------------------------------------------------------------------------------
Table V.19--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Tankless Water
Heaters
----------------------------------------------------------------------------------------------------------------
Percent of consumers that Percent of consumers that
Thermal experience a net cost experience a net benefit
TSL efficiency ---------------------------------------------------------------
(Et) (%) Residential Residential
low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 0 0 17 17
2............................... 94 11 10 10 11
3............................... 96 17 15 26 27
4............................... 96 17 15 26 27
----------------------------------------------------------------------------------------------------------------
[[Page 69796]]
Table V.20--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Circulating Water Heaters
and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
LCC savings 2022$ Simple payback period (years)
Thermal ---------------------------------------------------------------
TSL efficiency Residential Residential
(Et) (%) low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 2,289 1,153 0.7 1.3
2............................... 94 7,552 1,204 5.6 9.9
3............................... 96 7,425 1,570 5.3 9.4
4............................... 96 7,425 1,570 5.3 9.4
----------------------------------------------------------------------------------------------------------------
Table V.21--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Circulating
Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
Percent of consumers that Percent of consumers that
Thermal experience a net cost experience a net benefit
TSL efficiency ---------------------------------------------------------------
(Et) (%) Residential Residential
low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 0 2 19 17
2............................... 94 5 17 28 16
3............................... 96 5 18 40 26
4............................... 96 5 18 40 26
----------------------------------------------------------------------------------------------------------------
Table V.22--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Instantaneous Water
Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
LCC savings (2022$) Simple payback period (years)
Thermal ---------------------------------------------------------------
TSL efficiency Residential Residential
(Et) (%) low-income All low-income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 1,329 756 0.8 1.3
2............................... 94 4,066 695 5.8 9.8
3............................... 96 4,009 898 5.5 9.3
4............................... 96 4,009 898 5.5 9.3
----------------------------------------------------------------------------------------------------------------
* 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 final rule.
Table V.23--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Instantaneous
Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
Percent of consumers that Percent of consumers that
Thermal experience a net cost experience a net benefit
TSL efficiency ---------------------------------------------------------------
(Et) (%) Residential Residential
low-income All low-Income All
----------------------------------------------------------------------------------------------------------------
1............................... 84 0 1 18 17
2............................... 94 8 14 20 14
3............................... 96 10 17 33 27
4............................... 96 10 17 33 27
----------------------------------------------------------------------------------------------------------------
* 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 final rule.
c. Rebuttable Presumption Payback
As discussed in section II.A, 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 procedures for CWH equipment. In contrast, the PBPs
presented in section V.B.1.a of this document were calculated using
distributions that reflect the range of energy use in the field.
Table V.24 presents the rebuttable presumption PBPs for the
considered TSLs for CWH equipment. TSL 1 is the only level at which the
rebuttable presumption PBPs are less than or equal to three. See
chapter 8 of the final rule TSD for more information on the rebuttable
presumption PBP analysis.
[[Page 69797]]
Table V.24--Rebuttable Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
Trial standard level (years)
Equipment ---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-Type 1.7 7.5 5.6 5.0
Instantaneous Water Heaters....................
Residential-Duty Gas-Fired Storage.............. 2.7 7.6 7.1 6.3
Gas-Fired Instantaneous Water Heaters and Hot 1.3 9.5 9.1 9.1
Water Supply Boilers *.........................
Instantaneous, Gas-Fired Tankless............... 1.3 8.7 8.4 8.4
Instantaneous Water Heaters and Hot Water Supply 1.3 9.6 9.1 9.1
Boilers........................................
----------------------------------------------------------------------------------------------------------------
* This row 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.
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on manufacturers of CWH equipment. The next
section describes the expected impacts on manufacturers at each
considered TSL. Chapter 12 of the final rule 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 final rule 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 (2023-2055). 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 free cash flow
comparison 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 short-term 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 final rule
show potential INPV impacts for CWH equipment manufacturers by
equipment class. The 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 per-unit 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 2023 (the base year) through
2055 (the end of the analysis period).
Industry Cash Flow for Commercial Gas-Fired Storage Water Heaters and
Storage-Type Instantaneous Equipment
The results in Table V.25 of this final rule shows the estimated
impacts for commercial gas-fired storage water heaters. Commercial gas-
fired storage water heaters represent approximately 69 percent of
shipments covered by this rulemaking.
Table V.25--Manufacturing Impact Analysis Results for Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................. 2022$ millions................... 154.2 153.3-154.0 139.1-142.7 130.4-136.5 62.0-73.1
Change in INPV....................... 2022$ millions................... .............. (0.9)-(0.1) (15.0)-(11.4) (23.7)-(17.6) (92.1)-(81.0)
%................................ .............. (0.6)-(0.1) (9.7)-(7.4) (15.4)-(11.4) (59.8)-(52.6)
Free Cash Flow (2025)................ 2022$ millions................... 12.6 12.2 5.1 1.2 (34.4)
Change in Free Cash Flow............. 2022$ millions................... .............. (0.4) (7.5) (11.5) (47.1)
%................................ .............. (3.1) (59.3) (90.6) (372.3)
Product Conversion Costs............. 2022$ millions................... .............. 1.0 4.9 10.9 84.1
Capital Conversion Costs............. 2022$ millions................... .............. 0.1 12.8 16.9 28.1
-------------------------------------------------------------------------------
[[Page 69798]]
Total Conversion Costs........... 2022$ millions................... .............. 1.1 17.7 27.8 112.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
At TSL 1, DOE estimates impacts on INPV for commercial gas-fired
storage and storage-type instantaneous water heater equipment
manufacturers to range from-0.6 percent to -0.1 percent, or a change of
-$0.9 million to -$0.1 million. At this level, DOE estimates that
industry free cash flow would decrease by approximately 3.1 percent to
$12.2 million, compared to the no-new-standards-case value of $12.6
million in the year before compliance (2025).
DOE estimates 67.3 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 $1.0 million in product conversion costs and $0.1 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 slightly
lower INPV in both manufacturer markup scenarios.
At TSL 2, DOE estimates impacts on INPV for manufacturers of this
equipment class to range from -9.7 percent to -7.4 percent, or a change
in INPV of -$15.0 million to -$11.4 million. At this potential standard
level, industry free cash flow would decrease by approximately 59.3
percent to $5.1 million, compared to the no-new-standards case value of
$12.6 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, production equipment, and floor space to
meet a thermal efficiency standard that necessitates condensing
technology. DOE notes that capital investment would vary by
manufacturer 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 industry would incur $4.9 million in product
conversion costs and $12.8 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 -15.4 percent to -11.4 percent, or a change
in INPV of -$23.7 million to -$17.6 million. At this potential standard
level, DOE estimates industry free cash flow would decrease by
approximately 90.6 percent to $1.2 million, compared to the no-new-
standards-case value of $12.6 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 $10.9 million in product
conversion costs and $16.9 million in capital conversion costs 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 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 -59.8 percent to -52.6 percent, or a change
in INPV of -$92.1 million to -$81.0 million. At this TSL, DOE estimates
industry free cash flow in the year before compliance (2025) would
decrease by approximately 372.3 percent to -$34.4 million compared to
the no-new-standards case value of $12.6 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 resource 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
[[Page 69799]]
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 $84.1 million.
DOE estimates that manufacturers would also incur $28.1 million in
capital conversion costs. In addition to upgrading production lines,
DOE expects manufacturers would need to add laboratory space to develop
and test products to meet amended standards at TSL 4 standards. These
large upfront investments result in a substantially lower INPV in both
manufacturer markup scenarios.
At TSL 4, the large conversion costs result in a free cash flow
dropping below zero in the years before the standard year. The negative
free cash flow calculation indicates manufacturers may need to access
cash reserves or outside capital to finance conversion efforts.
Industry Cash Flow for Residential-Duty Gas-Fired Storage Water Heaters
The results in Table V.26 of this final rule shows the estimated
impacts for residential-duty gas-fired storage water heaters.
Residential-duty gas-fired storage water heaters represent
approximately 13.5 percent of shipments covered by this rulemaking.
Table V.26--Manufacturing Impact Analysis Results for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................. 2022$ millions................... 9.0 8.4-9.6 7.6-9.6 6.5-11.2 2.3-7.4
Change in INPV....................... 2022$ millions................... .............. (0.5)-0.6 (1.4)-0.7 (2.5)-2.2 (6.7)-(1.5)
%................................ .............. (5.8)-6.8 (15.3)-7.4 (27.3)-25.0 (74.7)-(16.9)
Free Cash Flow (2025)................ 2022$ millions................... 0.7 0.5 0.2 (0.2) (2.4)
Change in Free Cash Flow............. 2022$ millions................... .............. (0.2) (0.6) (0.9) (3.1)
%................................ .............. (26.9) (78.8) (125.6) (429.9)
Product Conversion Costs............. 2022$ millions................... .............. 0.5 0.8 1.2 4.8
Capital Conversion Costs............. 2022$ millions................... .............. 0.1 0.7 1.0 2.5
-------------------------------------------------------------------------------
Total Conversion Costs *......... 2022$ millions................... .............. 0.5 1.4 2.3 7.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding.
At TSL 1, DOE estimates impacts on INPV for residential-duty gas-
fired storage equipment manufacturers to range from -5.8 percent to 6.8
percent, or a change of -$0.5 million to $0.6 million. At this level,
DOE estimates that industry free cash flow would decrease by
approximately 26.9 percent to $0.5 million, compared to the no-new-
standards-case value of $0.7 million in the year before compliance
(2025).
DOE estimates that 50 percent of currently offered residential-duty
gas-fired 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 industry would incur
$0.5 million in product conversion costs and $0.1 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 moderately lower INPV for the
preservation of operating profit scenario and a moderately higher INPV
for the preservation of gross margin scenario.
At TSL 2, DOE estimates impacts on INPV for manufacturers of this
equipment class to range from -15.3 percent to 7.4 percent, or a change
in INPV of -$1.4 million to $0.7 million. At this potential standard
level, industry free cash flow would decrease by approximately 78.8
percent to $0.2 million, compared to the no-new-standards case value of
$0.7 million in the year before compliance (2025).
DOE estimates that 32 percent of currently offered residential-duty
gas-fired storage water heater basic models would already meet or
exceed the UEF standards at TSL 2. 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 that the capital investment would vary
by manufacturer due to differences in condensing heat exchanger designs
and differences in existing production capacity.
DOE estimates that industry would incur $0.8 million in product
conversion costs and $0.7 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 -27.3 percent to 25.0 percent, or a
change in INPV of -$2.5 million to $2.2 million. At this potential
standard level, DOE estimates industry free cash flow would decrease by
approximately 125.6 percent to -$0.2 million compared to the no-new-
standards-case value of $0.7 million in the year before compliance
(2025).
DOE estimates that 27 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 and transition to a complete portfolio of condensing offerings.
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 $1.0 million in capital conversion costs to bring
their residential-duty commercial gas-fired storage water heater
portfolio into compliance with a standard set to
[[Page 69800]]
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 -74.7 percent to -16.9 percent, or a
change in INPV of -$6.7 million to -$1.5 million. At this TSL, DOE
estimates industry free cash flow in the year before compliance (2025)
would decrease by approximately 429.9 percent to -$2.4 million compared
to the no-new-standards case value of $0.7 million.
The impacts on INPV at TSL 4 are significant. DOE estimates that
approximately 2 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 $4.8 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 $2.5 million in
capital conversion costs. In addition to upgrading production lines,
DOE accounted for the costs to add laboratory space to develop and
safety test products that meet max-tech efficiency levels. At TSL 4,
conversion costs are high. These upfront investments result in a lower
INPV in both manufacturer markup scenarios.
At TSL 4, the large conversion costs result in a free cash flow
dropping below zero in the years before the standard year. The negative
free cash flow calculation indicates manufacturers may need to access
cash reserves or outside capital to finance conversion efforts.
Industry Cash Flow for Gas-Fired Instantaneous Tankless Water Heaters
The results in Table V.27 of this final rule shows the estimated
impacts for gas-fired instantaneous tankless water heaters. Gas-fired
instantaneous tankless water heaters represent approximately 8 percent
of shipments covered by this rulemaking.
Table V.27--Manufacturing Impact Analysis Results for Gas-Fired Instantaneous Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................. 2022$ millions................... 8.9 8.3-8.4 7.2-7.5 7.2-7.6 7.2-7.6
Change in INPV....................... 2022$ millions................... .............. (0.5)-(0.5) (1.7)-(1.4) (1.7)-(1.3) (1.7)-(1.3)
%................................ .............. (6.0)-(5.6) (18.6)-(15.6) (19.0)-(14.2) (19.0)-(14.2)
Free Cash Flow (2025)................ 2022$ millions................... 0.6 0.3 (0.3) (0.3) (0.3)
Change in Free Cash Flow............. 2022$ millions................... .............. (0.3) (0.8) (0.8) (0.8)
%................................ .............. (46.7) (145.6) (146.0) (146.0)
Product Conversion Costs............. 2022$ millions................... .............. 0.7 1.5 1.5 1.5
Capital Conversion Costs............. 2022$ millions................... .............. 0.0 0.7 0.7 0.7
-------------------------------------------------------------------------------
Total Conversion Costs *......... 2022$ millions................... .............. 0.7 2.1 2.1 2.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding.
At TSL 1, DOE estimates impacts on INPV for gas-fired instantaneous
tankless water heaters manufacturers to range from -6.0 percent to -5.6
percent, or a change of approximately -$0.53 million to -$0.50 million.
At this level, DOE estimates that industry free cash flow would
decrease by approximately -46.7 percent to $0.3 million, compared to
the no-new-standards-case value of $0.6 million in the year before
compliance (2025).
DOE estimates that 91 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 $0.7 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 -18.6 percent
to -15.6 percent, or a change in INPV of -$1.7 million to -$1.4
million. At this potential standard level, DOE estimates industry free
cash flow to decrease by approximately 145.6 percent to -$0.3 million
compared to the no-new-standards-case value of $0.6 million in the year
before compliance (2025).
DOE estimates that 86 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 set up new
production lines. Overall, DOE estimates that manufacturers would incur
$1.5 million in product conversion costs and $0.7 million in capital
conversion costs to bring their instantaneous gas-fired tankless water
heater portfolio into compliance with a standard set to TSL 2.
As discussed in section V.A, 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 -19.0 percent to -14.2 percent, or a
change in INPV of -$1.7 million to -$1.3 million. At these levels, DOE
estimates industry free cash flow in the year before compliance (2025)
would decrease by approximately 146.0 percent to -$0.3 million compared
to the no-new-standards case value of $0.6 million. DOE estimates that
64 percent of basic
[[Page 69801]]
models of gas-fired instantaneous tankless water heaters already meet
or exceed the thermal efficiency standards at TSL 3 and TSL 4.
DOE anticipates modest product conversion costs as manufacturers
continue to increase their max-tech offerings at greater input
capacities. Overall, DOE estimates that manufacturers would incur $1.5
million in product conversion costs and $0.7 million in capital
conversion costs to bring their gas-fired instantaneous tankless
portfolio into compliance with a standard set to TSL 3 and TSL 4.
Industry Cash Flow for Instantaneous Circulating Water Heaters and Hot
Water Supply Boilers
The results in Table V.28 show the estimated impacts for
circulating water heaters and hot water supply boilers. This equipment
represents approximately 9 percent of shipments covered by this
rulemaking.
Table V.28--Manufacturing Impact Analysis Results for Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................. 2022$ millions................... 40.8 40.6-40.7 36.3-43.6 30.9-39.7 30.9-39.7
Change in INPV....................... 2022$ millions................... .............. (0.2)-(0.0) (4.4)-2.8 (9.9)-(1.1) (9.9)-(1.1)
%................................ .............. (0.5)-(0.1) (10.9)-7.0 (24.3)-(2.7) (24.3)-(2.7)
Free Cash Flow (2025)................ 2022$ millions................... 2.5 2.4 0.9 (1.5) (1.5)
Change in Free Cash Flow............. 2022$ millions................... .............. (0.1) (1.6) (4.1) (4.1)
%................................ .............. (3.5) (63.0) (161.3) (161.3)
Product Conversion Costs............. 2022$ millions................... .............. 0.3 1.9 8.5 8.5
Capital Conversion Costs............. 2022$ millions................... .............. 0.0 2.0 2.0 2.0
-------------------------------------------------------------------------------
Total Conversion Costs........... 2022$ millions................... .............. 0.3 3.9 10.5 10.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
At TSL 1, DOE estimates impacts on INPV for instantaneous
circulating water heater and hot water supply boiler manufacturers to
range from -0.2 percent to 0.1 percent, or a change of -$0.2 million to
less than 0.1 million. At this level, DOE estimates that industry free
cash flow would decrease by approximately 3.5 percent to $2.4 million,
compared to the no-new-standards-case value of $2.5 million in the year
before compliance (2025).
DOE estimates that 58 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 $0.3 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 for the preservation of operating profit
scenario and an almost unchanged INPV for the preservation of gross
margin scenario.
At TSL 2, DOE estimates impacts on INPV ranges from -10.9 percent
to 7.0 percent, or a change in INPV of -$4.4 million to $2.8 million.
At this potential standard level, DOE estimates industry free cash flow
to decrease by approximately 63.0 percent to $0.9 million compared to
the no-new-standards-case value of $2.5 million in the year before
compliance (2025).
DOE estimates that 39 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 industry would incur $1.9 million in
product conversion costs and $2.0 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 V.A, 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 -24.3 percent to -
2.7 percent, or a change in INPV of -$9.9 million to -$1.1 million. DOE
estimates industry free cash flow in the year before compliance (2025)
would decrease by approximately 161.3 percent to -$1.5 million compared
to the no-new-standards case value of $2.5 million. DOE estimates that
29 percent of basic models of this equipment class already meet or
exceed the max-tech thermal efficiency standards at these TSLs.
b. Direct Impacts on Employment
To quantitatively assess the potential impacts of amended energy
conservation standards on direct employment in the CWH equipment
industry, DOE used 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 non-production employees employed by CWH
equipment manufacturers. DOE used statistical data from the U.S. Census
Bureau 2021 Annual Survey of Manufacturers (``ASM''),\178\ the results
of the engineering analysis, and interviews with manufacturers to
[[Page 69802]]
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.
---------------------------------------------------------------------------
\178\ U.S. Census Bureau, 2018-2021 Annual Survey of
Manufacturers: Statistics for Industry Groups and Industries (2021)
Available at www.census.gov/programs-surveys/asm/data/tables.html
(Last accessed December 16, 2022).
---------------------------------------------------------------------------
The total labor expenditures in the GRIM are converted to domestic
production worker employment levels by dividing production labor
expenditures by the average fully burdened 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.\179\ The
estimates of production workers in this section cover workers,
including line-supervisors 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.
---------------------------------------------------------------------------
\179\ U.S. Bureau of Labor Statistics. Employer Costs for
Employee Compensation. December 15, 2022. Available at www.bls.gov/news.release/pdf/ecec.pdf (Last accessed December 16, 2022).
---------------------------------------------------------------------------
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 previously. Estimates of non-production workers in
this section cover 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-new-standards 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 92 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 168 domestic production workers in the CWH industry in 2026, the
year of compliance. DOE notes that Congress authorized $250 million to
Accelerate Electric Heat Pump Manufacturing in America utilizing the
Defense Production Act. This program, funded by the Inflation Reduction
Act (IRA), will increase use of electric heat pumps, which provide both
heating and cooling for buildings and homes, will help lower energy
costs for more American families and businesses, and create healthier
indoor spaces through American-made clean energy technologies.
DOE's analysis forecasts that the industry will employ 296
production and non-production workers in the CWH industry in 2026 in
the absence of amended energy conservation standards. Table V.29
presents the potential impacts of amended energy conservation standards
on U.S. production workers of CWH equipment.
Table V.29--Domestic Direct Employment Impacts for CWH Manufacturers in 2026
----------------------------------------------------------------------------------------------------------------
No-new
standards 1 2 3 4
case
----------------------------------------------------------------------------------------------------------------
Direct Employment in 2026 (Production Workers + Non-Production 296 300 291 300 307
Workers............................................................
Changes in Direct Employment........................................ .......... 4 (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 high-efficiency CWH equipment stated that a
standard that went to condensing levels could require 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 to 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
As discussed in further detail in section IV.J.2.c of this
document, DOE anticipates manufacturers would incur significant product
conversion costs at TSL 4 (max-tech) for all gas-fired 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 thermal
efficiency standard at TSL 4. Currently, only two models from a single
manufacturer can meet the thermal efficiency 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.
In written comments regarding TSL 3, two manufacturers with
significant market share raised concerns about the ability to adapt
products and update production capacity if standards for multiple
equipment classes are set to max-tech. A.O. Smith raised concerns about
the concurrent challenges of
[[Page 69803]]
commercial gas-fired instantaneous, circulating product, and hot water
supply boilers all having a new minimum standard of 96 percent thermal
efficiency. A.O. Smith stated manufacturers will need to quickly shift
resources and make significant capital investments to redesign and
build these product types to ``max-tech'' technology within 3 years
ahead of compliance with a final rule. (A.O. Smith, No.22 at p.3) Rheem
stated increasing the energy conservation standards for commercial
water heaters to the proposed near max-tech condensing levels, could
significantly reduce equipment offerings from various manufacturers and
lessen competition. Rheem attributed the reduction on offerings to a
combination of limited compliance period of three years, the magnitude
of the equipment and manufacturing changes that would be required, and
the number of other rulemakings similarly affecting the water heating
industry--specifically the anticipated changes in the energy
conservation standards for consumer water heaters, consumer boilers,
and pool heaters. (Rheem, No. 24 at p.2)
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 333310, ``Other Commercial and
Service Industry Machinery Manufacturing.'' Based on this definition,
DOE identified three 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 final rule TSD.
e. Cumulative Regulatory Burden
One aspect of assessing manufacturer burden involves looking at the
cumulative impact of multiple DOE standards and the regulatory actions
of other Federal agencies and States 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.
Rheem noted that the company faces cumulative regulatory burden
from space conditioning and refrigeration rulemakings. (Rheem, No. 24
at p. 7) DOE identified DOE rulemakings affecting Rheem and other CWH
manufacturer that are Federal, are product-specific, and that will take
effect three years before or after the estimated 2026 compliance date
(see Table V.30).
Table V.30--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
Commercial Water Heater Manufacturers
----------------------------------------------------------------------------------------------------------------
Industry
conversion
Number of Approx. Industry costs/
Federal energy conservation Number of manufacturers standards conversion costs product
standard manufacturers * affected from year (millions $) revenue
today's rule ** [dagger]
(%)
----------------------------------------------------------------------------------------------------------------
Commercial Warm Air Furnaces 14 2 2023 7.5-22.2 (2014$) 1.7-5.1
81 FR 2420 (January 15, [dagger][da
2016)....................... gger]
Residential Central Air 30 3 2023 342.6 (2015$) 0.5
Conditioners and Heat Pumps
82 FR 1786 (January 6, 2017)
Room Air Conditioners 30 1 2023 22.8 (2020$) 0.5
[Dagger] 87 FR 20608 (April
7, 2022)....................
Consumer Pool Heaters 21 3 2028 33.8 (2020$) 1.9
[Dagger] 87 FR 22640 (April
15, 2022)...................
Consumer Furnaces [Dagger] 87 15 1 2029 150.6 (2020$) 1.4
FR 40590 (July 7, 2022).....
----------------------------------------------------------------------------------------------------------------
* 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.
[dagger] 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.
[dagger][dagger] 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.
[Dagger] These rulemakings are in the proposed rule stage and all values are subject to change until finalized.
In written comments, AHRI and Bradford White listed several
rulemakings that do not appear in Table V.31. (AHRI, No. 13 at pp. 5-6;
Bradford White, No. 23 at p.7) DOE published a March 2022 ECS
preliminary analysis for consumer water heaters, a May 2022 ECS
preliminary analysis for consumer boilers, and an August 2022 NODA for
commercial and industrial pumps. (87 FR 11327; 87 FR 26304; 87 FR
49537) These rulemakings do not have final rules, nor do they have
proposed standard levels or proposed compliance dates. Any estimation
of cost or timing at this time would be speculative. DOE does not list
test procedures in Table V.32. When applicable, test procedure costs
are incorporated into the associated energy conservation standard
rulemakings.
AHRI also identified the proposed rule for small electric motors as
potential cumulative regulatory burden. DOE notes that those energy
conservation standards for small electric motors do not apply to small
electric motors that are components of other DOE-regulated products.
(42 U.S.C. 6317(b)(3)) Additionally, the analysis for small electric
motors takes into consideration important attributes of
[[Page 69804]]
motors that affect selection in end use applications.\180\ DOE has not
included the small electric motor rulemaking in its analysis of
cumulative regulatory burden. AHRI also noted that the DOE rulemakings
for Federal Commercial and Multi-family High-rise Residential Buildings
and Federal Low-rise Residential Buildings Design and Construction may
``indirectly affect'' CWH manufacturers. The rulemakings do not
directly regulate manufacturers of commercial water heaters and are not
directly considered in the CRB analysis. However, DOE did account for
these rules in its shipments analysis as described in section IV.G.4 of
this document.
---------------------------------------------------------------------------
\180\ DOE notes that on February 6, 2023, DOE issued a notice of
proposed determination in which it initially determined that amended
energy conservation standards for small electric motors would not be
cost-effective, and therefore proposed not to amend its energy
conservation standards for small electric motors. 88 FR 7629.
---------------------------------------------------------------------------
A.O. Smith noted that manufacturers will potentially make
additional investments in response to the ENERGY STAR[supreg] program's
recent publication of its final residential water heater version 5.0
specification, which sets a >=0.86 UEF value for gas-fired residential-
duty commercial water heaters effective April 28, 2023. (A.O. Smith,
No. 22 at p. 4) DOE does not consider voluntary programs, such as
ENERGY STAR[supreg], in its analysis of cumulative regulatory burden.
WM Technologies and Patterson-Kelley both noted that industry has
limited resources to monitor and prepare for possible changes in
standards, and that the current regulatory push by the DOE and other
Federal agencies is placing tremendous stress upon all industries,
especially the heating industry. (WM Technologies, No. 25 at pp. 8-9;
Patterson-Kelley, No. 26 at p. 6) DOE acknowledges the commenters
concerns and has considered the impacts of this final rule on
manufacturers as described throughout this section. Additionally, as
noted in section II.A of this document, pursuant to EPCA, DOE is
obligated by law to 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)) DOE also notes that
between March 2016 and January 2021, DOE missed legal deadlines for a
range of rulemakings. In October 2020, a coalition of non-governmental
organizations filed suit under EPCA alleging that DOE has failed to
meet rulemaking deadlines for 25 different consumer products and
commercial equipment. In September 2022, DOE settled the lawsuit over
the missed rulemaking deadlines to review and update energy efficiency
standards. As part of the court-approved settlement, DOE has agreed to
a schedule to review these regulations and, as appropriate, update them
to improve efficiency requirements. DOE continues to evaluate the
impact of rulemakings on manufacturers and welcomes input of the direct
cost of monitoring possible changes in standards for incorporation into
analyses.
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
under the no-new-standards case to their anticipated energy consumption
under each TSL. The savings are measured over the entire lifetime of
products purchased in the 30-year period that begins in the year of
anticipated compliance with amended standards (2026-2055). Table V.33
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.33--Cumulative National Energy Savings for CWH Equipment; 30
Years of Shipments
[2026-2055]
------------------------------------------------------------------------
Trial standard level
-------------------------------------------
1 2 3 4
------------------------------------------------------------------------
(Quads)
------------------------------------------------------------------------
Primary Energy
------------------------------------------------------------------------
Commercial gas-fired storage 0.03 0.16 0.25 0.43
and storage-type
instantaneous..............
Residential-duty gas-fired 0.04 0.08 0.12 0.14
storage....................
Instantaneous gas-fired 0.00 0.01 0.02 0.02
tankless...................
Instantaneous circulating 0.02 0.19 0.23 0.23
water heaters and hot water
supply boilers.............
-------------------------------------------
Total Primary Energy.... 0.10 0.44 0.62 0.82
------------------------------------------------------------------------
FFC Energy
------------------------------------------------------------------------
Commercial gas-fired storage 0.04 0.18 0.28 0.48
and storage-type
instantaneous..............
Residential-duty gas-fired 0.05 0.09 0.13 0.16
storage....................
Instantaneous gas-fired 0.00 0.02 0.02 0.02
tankless...................
Instantaneous circulating 0.03 0.21 0.26 0.26
water heaters and hot water
supply boilers.............
-------------------------------------------
Total FFC Energy........ 0.12 0.49 0.70 0.92
------------------------------------------------------------------------
[[Page 69805]]
OMB Circular A-4 \181\ 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 rulemaking,
DOE undertook a sensitivity analysis using 9 years, rather than 30
years, of product 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.\182\ The review timeframe established in EPCA is generally
not synchronized with the product lifetime, product 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.34. The impacts are counted over the lifetime of
commercial water heaters purchased in 2026-2034.
---------------------------------------------------------------------------
\181\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Available at
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last
accessed December 13, 2022).
\182\ Section 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.
Table V.34--Cumulative National Energy Savings for CWH Equipment; 9
Years of Shipments
[2026-2034]
------------------------------------------------------------------------
Trial standard level
-------------------------------------------
1 2 3 4
------------------------------------------------------------------------
(Quads)
------------------------------------------------------------------------
Primary Energy
------------------------------------------------------------------------
Commercial gas-fired storage 0.01 0.06 0.09 0.14
and storage-type
instantaneous..............
Residential-duty gas-fired 0.01 0.03 0.04 0.05
storage....................
Instantaneous gas-fired 0.00 0.00 0.00 0.00
tankless...................
Instantaneous circulating 0.01 0.05 0.06 0.06
water heaters and hot water
supply boilers.............
-------------------------------------------
Total Primary Energy.... 0.03 0.13 0.19 0.25
------------------------------------------------------------------------
FFC Energy
------------------------------------------------------------------------
Commercial gas-fired storage 0.01 0.06 0.10 0.16
and storage-type
instantaneous..............
Residential-duty gas-fired 0.01 0.03 0.04 0.05
storage....................
Instantaneous gas-fired 0.00 0.00 0.00 0.00
tankless...................
Instantaneous circulating 0.01 0.05 0.06 0.06
water heaters and hot water
supply boilers.............
-------------------------------------------
Total FFC Energy........ 0.04 0.15 0.21 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,\183\ DOE
calculated NPV using both a 7-percent and a 3-percent real discount
rate. Table V.35 shows the consumer NPV results with impacts counted
over the lifetime of equipment purchased in 2026-2055.
---------------------------------------------------------------------------
\183\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Available at
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last
accessed December 13, 2022).
Table V.35--Cumulative Net Present Value of Consumer Benefits for CWH
Equipment; 30 Years of Shipments
[2026-2055]
------------------------------------------------------------------------
Trial standard level *
Discount rate -------------------------------------------
1 2 3 4
------------------------------------------------------------------------
(billion 2022$)
------------------------------------------------------------------------
3 percent
------------------------------------------------------------------------
Commercial gas-fired storage 0.15 0.41 0.81 1.51
and storage-type
instantaneous..............
Residential-duty gas-fired 0.16 0.17 0.27 0.38
storage....................
Instantaneous gas-fired 0.02 0.03 0.04 0.04
tankless...................
Instantaneous circulating 0.08 0.18 0.30 0.30
water heaters and hot water
supply boilers.............
-------------------------------------------
[[Page 69806]]
Total NPV at 3 percent.. 0.41 0.79 1.43 2.25
------------------------------------------------------------------------
7 percent
------------------------------------------------------------------------
Commercial gas-fired storage 0.07 0.13 0.32 0.65
and storage-type
instantaneous..............
Residential-duty gas-fired 0.07 0.04 0.08 0.13
storage....................
Instantaneous gas-fired 0.01 0.01 0.01 0.01
tankless...................
Instantaneous circulating 0.03 (0.02) 0.02 0.02
water heaters and hot water
supply boilers.............
-------------------------------------------
Total NPV at 7 percent.. 0.18 0.15 0.43 0.81
------------------------------------------------------------------------
* A value in parentheses is a negative number.
The NPV results based on the aforementioned 9-year analytical
period are presented in Table V.36. 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.36--Cumulative Net Present Value of Consumer Benefits CWH
Equipment; 9 Years of Shipments
[2026-2034]
------------------------------------------------------------------------
Trial standard level *
Discount rate -------------------------------------------
1 2 3 4
------------------------------------------------------------------------
(billion 2022$)
------------------------------------------------------------------------
3 percent
------------------------------------------------------------------------
Commercial gas-fired storage 0.07 0.04 0.20 0.47
and storage-type
instantaneous..............
Residential-duty gas-fired 0.06 0.02 0.06 0.10
storage....................
Instantaneous gas-fired 0.01 0.00 0.01 0.01
tankless...................
Instantaneous circulating 0.03 0.04 0.08 0.08
water heaters and hot water
supply boilers.............
-------------------------------------------
Total NPV at 3 percent.. 0.16 0.10 0.35 0.66
------------------------------------------------------------------------
7 percent
------------------------------------------------------------------------
Commercial gas-fired storage 0.04 (0.01) 0.09 0.26
and storage-type
instantaneous..............
Residential-duty gas-fired 0.04 (0.01) 0.01 0.04
storage....................
Instantaneous gas-fired 0.00 0.00 0.00 0.00
tankless...................
Instantaneous circulating 0.01 (0.02) 0.00 0.00
water heaters and hot water
supply boilers.............
-------------------------------------------
Total NPV at 7 percent.. 0.10 (0.04) 0.11 0.30
------------------------------------------------------------------------
* A value in parentheses is a negative number.
c. Indirect Impacts on Employment
DOE estimates that amended energy conservation standards for CWH
equipment will reduce energy expenditures for consumers of this
equipment, 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), in which these uncertainties are reduced.
The results suggest that the adopted standards are 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 final rule TSD presents detailed results
regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
As discussed in section III.F.1.d of this document, DOE has
concluded that the standards adopted in this final rule will 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 adopted standards.
[[Page 69807]]
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.F.1.e
of this document, EPCA directs the Attorney General of the United
States (``Attorney General'') to determine the impact, if any, of any
lessening of competition likely to result from a proposed standard and
to transmit such determination in writing to the Secretary within 60
days of the publication of a proposed rule, together with an analysis
of the nature and extent of the impact. To assist the Attorney General
in making this determination, DOE provided the Department of Justice
(``DOJ'') with copies of the proposed rule and the TSD for review. In
its assessment letter responding to DOE, DOJ concluded that the
proposed energy conservation standards for CWH equipment are unlikely
to have a significant adverse impact on competition. DOE is publishing
the Attorney General's assessment at the end of this final rule.
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
final rule TSD presents the estimated impacts on electricity generating
capacity, relative to the no-new-standards case, for the TSLs that DOE
considered in this 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.37 provides DOE's estimate of cumulative
emissions reductions expected to result from the TSLs considered in
this 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 final rule TSD.
Table V.38 presents cumulative FFC emissions by equipment class.
Table V.37--Cumulative Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
Trial standard level
---------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 5.7 23.9 33.5 44.0
SO2 (thousand tons)......................................... (0.00) 0.02 0.08 0.15
NOX (thousand tons)......................................... 5.07 21.16 29.54 38.71
Hg (tons)................................................... (0.000) (0.001) (0.001) (0.001)
CH4 (thousand tons)......................................... 0.11 0.48 0.68 0.90
N2O (thousand tons)......................................... 0.011 0.047 0.067 0.089
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 0.8 3.3 4.7 6.1
SO2 (thousand tons)......................................... 0.00 0.01 0.02 0.03
NOX (thousand tons)......................................... 13 53 74 97
Hg (tons)................................................... (0.000) (0.000) (0.000) (0.000)
CH4 (thousand tons)......................................... 82 342 478 627
N2O (thousand tons)......................................... 0.001 0.006 0.008 0.011
----------------------------------------------------------------------------------------------------------------
Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 6.5 27.3 38.2 50.1
SO2 (thousand tons)......................................... 0.00 0.03 0.10 0.17
NOX (thousand tons)......................................... 18 74 103 135
Hg (tons)................................................... (0.000) (0.001) (0.001) (0.001)
CH4 (thousand tons)......................................... 82 343 479 628
N2O (thousand tons)......................................... 0.012 0.053 0.075 0.100
----------------------------------------------------------------------------------------------------------------
Negative values refer to an increase in emissions.
Table V.38--Cumulative FFC Emissions Reduction for CWH Equipment Shipped in 2026-2055, by Equipment Class
----------------------------------------------------------------------------------------------------------------
Trial standard level
---------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 2.0 9.8 15.5 26.0
SO2 (thousand tons)......................................... 0.01 (0.00) 0.03 0.10
NOX (thousand tons)......................................... 5.5 26.7 42.0 70.3
Hg (tons)................................................... 0.0000 (0.0004) (0.0003) (0.0003)
CH4 (thousand tons)......................................... 25.5 123.8 194.8 326.0
N2O (thousand tons)......................................... 0.004 0.019 0.030 0.052
----------------------------------------------------------------------------------------------------------------
[[Page 69808]]
Total FFC Emissions, Residential-Duty Gas-Fired Storage
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 2.5 5.1 7.4 8.8
SO2 (thousand tons)......................................... 0.00 (0.01) 0.00 0.01
NOX (thousand tons)......................................... 6.8 13.9 20.1 23.9
Hg (tons)................................................... (0.0001) (0.0003) (0.0003) (0.0003)
CH4 (thousand tons)......................................... 31.6 64.5 93.2 110.8
N2O (thousand tons)......................................... 0.00 0.01 0.01 0.02
----------------------------------------------------------------------------------------------------------------
Total FFC Emissions, Instantaneous Gas-Fired Tankless
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 0.3 0.9 1.1 1.1
SO2 (thousand tons)......................................... 0.00 0.01 0.01 0.01
NOX (thousand tons)......................................... 0.71 2.30 3.05 3.05
Hg (tons)................................................... 0.0000 0.0000 0.0000 0.0000
CH4 (thousand tons)......................................... 3.29 10.63 14.11 14.11
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)................................... 1.7 11.5 14.1 14.1
SO2 (thousand tons)......................................... (0.02) 0.04 0.06 0.06
NOX (thousand tons)......................................... 4.7 31.2 38.3 38.3
Hg (tons)................................................... (0.0002) (0.0001) (0.0001) (0.0001)
CH4 (thousand tons)......................................... 21.7 143.9 176.7 176.7
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 rule, 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 estimated SC-CO2
values that DOE used. Table V.39 presents the value of CO2
emissions reduction at each TSL.
Table V.39--Present Value of CO2 Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
SC-CO2 Case
------------------------------------------------------------------
Discount rate and statistics
TSL ------------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................ 67 285 445 867
2............................................ 272 1,163 1,817 3,531
3............................................ 386 1,642 2,563 4,986
4............................................ 517 2,189 3,411 6,650
----------------------------------------------------------------------------------------------------------------
As discussed in section IV.L, DOE estimated the climate benefits
likely to result from the reduced emissions of CH4 and
N2O that DOE estimated for each of the considered TSLs for
CWH equipment. Table V.40 presents the value of the CH4
emissions reduction at each TSL, and Table V.41 presents the value of
the N2O emissions reduction at each TSL. The time-series of
annual values is presented for the selected TSL in chapter 14 of the
final rule TSD.
Table V.40--Present Value of Methane Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
SC-CH4 Case
------------------------------------------------------------------
Discount rate and statistics
TSL ------------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................ 39 114 159 303
2............................................ 159 469 653 1,241
[[Page 69809]]
3............................................ 224 659 917 1,745
4............................................ 300 874 1,214 2,315
----------------------------------------------------------------------------------------------------------------
Table V.41--Present Value of Nitrous Oxide Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
SC-N2O Case
------------------------------------------------------------------
Discount rate and statistics
TSL ------------------------------------------------------------------
3% 95th
5% Average 3% Average 2.5% Average percentile
----------------------------------------------------------------------------------------------------------------
(million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................ 0.05 0.19 0.30 0.51
2............................................ 0.20 0.79 1.22 2.10
3............................................ 0.28 1.13 1.76 3.02
4............................................ 0.39 1.53 2.36 4.07
----------------------------------------------------------------------------------------------------------------
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, however, that the adopted 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.42 presents the present value for NOX
emissions reduction for each TSL calculated using 7-percent and 3-
percent discount rates, and Table V.43 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 final rule TSD.
Table V.42--Present Value of NOX Emissions Reduction for CWH Equipment
Shipped in 2026-2055
------------------------------------------------------------------------
TSL 3% Discount rate 7% Discount rate
------------------------------------------------------------------------
(million 2022$)
------------------------------------------------------------------------
1............................... 573 240
2............................... 2,330 949
3............................... 3,290 1,356
4............................... 4,390 1,840
------------------------------------------------------------------------
Table V.43--Present Value of SO2 Emissions Reduction for CWH Equipment
Shipped in 2026-2055
------------------------------------------------------------------------
TSL 3% Discount rate 7% Discount rate
------------------------------------------------------------------------
(million 2022$)
------------------------------------------------------------------------
1............................... (0.40) (0.11)
2............................... (1.19) (0.82)
3............................... 1.87 0.51
4............................... 5.38 2.10
------------------------------------------------------------------------
DOE has not considered the monetary benefits of the reduction of Hg
for this final rule. Not all the public health and environmental
benefits from the reduction of greenhouse gases, NOX, and
SO2 are captured in the values
[[Page 69810]]
above, and additional unquantified benefits from the reductions of
those pollutants as well as from the reduction of Hg, direct
particulate matter (``PM''), and other co-pollutants may be
significant.
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 final rule 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. 6313(a)(6)(B)(ii)(VII)) No
other factors were considered in this analysis.
8. Summary of Economic Impacts
Table V.44 presents the NPV values that result from adding the
estimates of the economic benefits resulting from reduced GHG and
NOX and SO2 emissions to the NPV of consumer
benefits calculated 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 they 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, which 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.44--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 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case................................ 1.09 3.55 5.33 7.46
3% d.r., Average SC-GHG case................................ 1.38 4.75 7.02 9.71
2.5% d.r., Average SC-GHG case.............................. 1.59 5.59 8.20 11.27
3% d.r., 95th percentile SC-GHG case........................ 2.15 7.89 11.46 15.61
----------------------------------------------------------------------------------------------------------------
7% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case................................ 0.53 1.54 2.40 3.47
3% d.r., Average SC-GHG case................................ 0.82 2.74 4.09 5.72
2.5% d.r., Average SC-GHG case.............................. 1.03 3.57 5.27 7.28
3% d.r., 95th percentile SC-GHG case........................ 1.59 5.88 8.52 11.62
----------------------------------------------------------------------------------------------------------------
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
As noted previously, EPCA specifies that, for any commercial and
industrial equipment addressed under 42 U.S.C. 6313(a)(6)(A)(i), DOE
may prescribe an energy conservation standard more stringent than the
level for such equipment in ASHRAE Standard 90.1, as amended, only if
``clear and convincing evidence'' shows that a more-stringent standard
would result in significant additional conservation of energy and is
technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II)) 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 final rule, DOE considered the impacts of amended
standards for CWH equipment at each TSL, beginning with the max-tech
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 current consumption and uncertain future energy
cost savings.
[[Page 69811]]
1. Benefits and Burdens of TSLs Considered for CWH Equipment Standards
Table V.45 and Table V.46 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 is presenting monetized benefits in accordance with the
applicable Executive Orders and DOE would reach the same conclusion
presented in this notice in the absence of the SC-GHG, including the
Interim Estimates presented by the Interagency Working Group. The
efficiency levels contained in each TSL are described in section V.A of
this document.
Table V.45--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 0.18 0.28 0.48
Residential-duty gas-fired storage.......................... 0.05 0.09 0.13 0.16
Instantaneous gas-fired tankless............................ 0.00 0.02 0.02 0.02
Instantaneous circulating water heaters and hot water supply 0.03 0.21 0.26 0.26
boilers....................................................
---------------------------------------------------
Total Quads............................................. 0.12 0.49 0.70 0.92
----------------------------------------------------------------------------------------------------------------
NPV of Consumer Costs and Benefits (billion 2022$)
NPV at 3% discount rate
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type instantaneous. 0.15 0.41 0.81 1.51
Residential-duty gas-fired storage.......................... 0.16 0.17 0.27 0.38
Instantaneous gas-fired tankless............................ 0.02 0.03 0.04 0.04
Instantaneous circulating water heaters and hot water supply 0.08 0.18 0.30 0.30
boilers....................................................
---------------------------------------------------
Total NPV at 3% (billion 2022$)......................... 0.41 0.79 1.43 2.25
----------------------------------------------------------------------------------------------------------------
NPV at 7% discount rate
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type instantaneous. 0.07 0.13 0.32 0.65
Residential-duty gas-fired storage.......................... 0.07 0.04 0.08 0.13
Instantaneous gas-fired tankless............................ 0.01 0.01 0.01 0.01
Instantaneous circulating water heaters and hot water supply 0.03 (0.02) 0.02 0.02
boilers....................................................
---------------------------------------------------
Total NPV at 7% (billion 2022$)......................... 0.18 0.15 0.43 0.81
----------------------------------------------------------------------------------------------------------------
Cumulative FFC Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)................................... 7 27 38 50
SO2 (thousand tons)......................................... 0.00 0.03 0.10 0.17
NOX (thousand tons)......................................... 18 74 103 135
Hg (tons)................................................... (0.000) (0.001) (0.001) (0.001)
CH4 (thousand tons)......................................... 82 343 479 628
N2O (thousand tons)......................................... 0.01 0.05 0.08 0.10
----------------------------------------------------------------------------------------------------------------
Present Value of Benefits and Costs (3% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings............................. 0.51 1.87 2.76 3.83
Climate Benefits *.......................................... 0.40 1.63 2.30 3.06
Health Benefits **.......................................... 0.57 2.33 3.29 4.40
Total Benefits [dagger]..................................... 1.49 5.83 8.35 11.29
Consumer Incremental Product Costs [Dagger]................. 0.10 1.08 1.33 1.58
Consumer Net Benefits....................................... 0.41 0.79 1.43 2.25
---------------------------------------------------
Total Net Benefits...................................... 1.38 4.75 7.02 9.71
----------------------------------------------------------------------------------------------------------------
Present Value of Benefits and Costs (7% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings............................. 0.24 0.86 1.28 1.81
Climate Benefits *.......................................... 0.40 1.63 2.30 3.06
Health Benefits **.......................................... 0.24 0.95 1.36 1.84
Total Benefits [dagger]..................................... 0.88 3.44 4.94 6.71
Consumer Incremental Product Costs [Dagger]................. 0.06 0.70 0.85 1.00
Consumer Net Benefits....................................... 0.18 0.15 0.43 0.81
Total Net Benefits...................................... 0.82 2.74 4.09 5.72
----------------------------------------------------------------------------------------------------------------
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.
[[Page 69812]]
* 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.39 through Table V.41. 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; however, DOE
emphasizes the importance and value of considering the benefits calculated using all four sets of SC-GHG
estimates. To monetize the benefits of reducing GHG emissions, this analysis uses the interim 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 IWG.
** 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.
[dagger] 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.
[Dagger] Costs include incremental equipment costs as well as installation costs.
Table V.46--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 2022$)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage- 153.3-154.0 139.1-142.7 130.4-136.5 62.0-73.1
type instantaneous (No-new-standards case
INPV = 154.2)..............................
Residential-duty gas-fired storage (No-new- 8.4-9.6 7.6-9.6 6.5-011.2 2.3-7.4
standards case INPV = 9.0).................
Instantaneous gas-fired tankless (No-new- 8.3-8.4 7.2-7.5 7.2-7.6 7.2-7.6
standards case INPV = 8.9).................
Instantaneous circulating water heaters and 40.6-40.7 36.3-43.6 30.9-39.7 30.9-39.7
hot water supply boilers (No-new-standards
case INPV = 40.8)..........................
-------------------------------------------------------------------
Total INPV ($) (No-new-standards case 210.7-212.7 190.3-203.5 175.1-195.1 102.7-128.1
INPV = 212.8)..........................
----------------------------------------------------------------------------------------------------------------
Manufacturer Impacts: Industry NPV (% Change)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage- (0.6)-(0.1) (9.7)-(7.4) (15.4)-(11.4) (59.8)-(52.6)
type instantaneous.........................
Residential-duty gas-fired storage.......... (5.8)-6.8 (15.3)-7.4 (27.3)-25.0 (74.7)-(16.9)
Instantaneous gas-fired tankless............ (6.0)-(5.6) (18.6)-(15.6) (19.0)-(14.2) (19.0)-(14.2)
Instantaneous circulating water heaters and (0.5)-(0.1) (10.9)-7.0 (24.3)-(2.7) (24.3)-(2.7)
hot water supply boilers...................
-------------------------------------------------------------------
Total INPV (% change)....................... (1.0)-(0.0) (10.6)-(4.4) (17.7)-(8.3) (51.8)-(39.8)
----------------------------------------------------------------------------------------------------------------
Consumer Average LCC Savings (2022$)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage- 267 (85) 367 528
type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage.......... 509 (80) 119 370
Gas-Fired Instantaneous Water Heaters and 756 695 898 898
Hot Water Supply Boilers...................
--Instantaneous, Gas-Fired Tankless..... 295 105 120 120
--Instantaneous Water Heaters and Hot 1,153 1,204 1,570 1,570
Water Supply Boilers...................
Shipment-Weighted Average *................. 384 49 423 569
----------------------------------------------------------------------------------------------------------------
Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage- 2 8 6 5
type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage.......... 3 8 7 6
Gas-Fired Instantaneous Water Heaters and 1 10 9 9
Hot Water Supply Boilers...................
--Instantaneous, Gas-Fired Tankless..... 1 9 9 9
--Instantaneous Water Heaters and Hot 1 10 9 9
Water Supply Boilers...................
Shipment-Weighted Average *................. 2 8 7 6
----------------------------------------------------------------------------------------------------------------
Percent of Consumers that Experience a Net Cost
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage- 3 19 17 23
type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage.......... 6 43 42 37
Gas-Fired Instantaneous Water Heaters and 1 14 17 17
Hot Water Supply Boilers...................
--Instantaneous, Gas-Fired Tankless..... 0 10 15 15
--Instantaneous Water Heaters and Hot 2 17 18 18
Water Supply Boilers...................
Shipment-Weighted Average *................. 3 21 21 24
----------------------------------------------------------------------------------------------------------------
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 determined that the
benefits are outweighed by the burdens, as discussed in detail in the
following paragraphs.
TSL 4 would save an estimated 0.92 quads of energy, an amount DOE
considers significant. Commercial gas-fired storage water heaters and
storage-type instantaneous water heaters save an estimated 0.48 quads
while residential-duty gas-fired storage equipment saves 0.16 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 0.26 quads.
Under TSL 4, the NPV of consumer benefit would be $0.81 billion
using a discount rate of 7 percent, and $2.25 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 $0.65 billion using
a 7-percent discount rate, and $1.51 billion using a 3-percent discount
rate. The consumer benefit for residential-duty gas-fired storage water
heaters is estimated to be $0.13 billion at a 7-percent discount rate
and $0.38 billion
[[Page 69813]]
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 $0.02 billion at a 7-percent
discount rate and $0.30 billion at a 3-percent discount rate.
The cumulative emissions reductions at TSL 4 are 50 million metric
tons of CO2, 0.17 thousand tons of SO2, 135
thousand tons of NOX, -0.001 ton of Hg, 628 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 $3.06 billion. The estimated monetary value of the health
benefits from reduced NOX and SO2 emissions at
TSL 4 is $1.84 billion using a 7-percent discount rate and $4.40
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 $5.72
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 4 is $9.71 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 $528 for
commercial gas-fired storage and storage-type instantaneous water
heaters, $370 for residential-duty gas-fired storage water heaters,
$120 for instantaneous gas-fired instantaneous water heaters, and
$1,570 for instantaneous circulating water heaters and hot water supply
boilers. The simple PBP is 5 years for commercial gas-fired storage
water heaters, 6 years for residential-duty gas-fired storage water
heaters, 9 years for instantaneous gas-fired tankless water heaters,
and 9 years for instantaneous circulating water heaters and hot water
supply boilers. The fraction of consumers experiencing a net LCC cost
is 23 percent for commercial gas-fired storage water heaters and
storage-type instantaneous water heaters, 37 percent for residential-
duty gas-fired storage water heaters, 15 percent for instantaneous gas-
fired tankless water heaters, and 18 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 $110.1 million to a decrease of $84.6 million, which
corresponds to decreases of 51.8 percent and 39.8 percent,
respectively. Conversion costs total $132.2 million.
Commercial gas-fired storage water heaters and storage-type
instantaneous equipment currently account for approximately 68 percent
of current 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 $92.1
million to a decrease of $81.0 million, which corresponds to decreases
of 59.8 percent and 52.6 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 ability to
ramp-up production capacity at 99 percent 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
$84.1 million over the 3-year conversion period. These investment
levels are six times greater than typical R&D spending on this
equipment class over a three-year 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 current unit shipments in the CWH industry.
At TSL 4, the projected change in INPV for residential-duty gas-fired
storage water heaters ranges from a decrease of $6.7 million to a
decrease of $1.5 million, which corresponds to decreases of 74.7
percent and 16.9 percent, respectively. Conversion costs total $7.3
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 2 percent of models currently offered in the
market. Product conversion costs are expected to reach $4.8 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
approximately 9 percent of current 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 $1.7 million
to a decrease of $1.3 million,
[[Page 69814]]
which corresponds to decreases of 19.0 percent and 14.2 percent,
respectively. Conversion costs total $2.1 million.
At TSL 4, approximately 64 precent 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 $1.5 million.
Instantaneous circulating water heaters and hot water supply
boilers account for approximately 10 percent of current 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 $9.9 million to a decrease of $1.1
million, which corresponds to decreases of 24.3 percent and 2.7
percent, respectively. Conversion cost total $10.5 million.
At TSL 4, approximately 29 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 $8.5 million.
The Secretary 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 previously noted,
only one small manufacturer currently produces commercial gas-fired
storage water heaters at TSL 4. Similarly, only one manufacturer
currently produces residential-duty gas-fired 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 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 0.28 quads while residential-duty gas-fired storage
water heaters are estimated to save 0.13 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 0.26 quads of energy.
Under TSL 3, the NPV of consumer benefit would be $0.43 billion
using a discount rate of 7 percent, and $1.43 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
$0.32 billion using a discount rate of 7 percent, and $0.81 billion
using a discount rate of 3 percent. Consumer benefits for residential-
duty gas-fired storage equipment are estimated to be $0.08 billion
dollars at a 7-percent discount rate and $0.27 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 $0.02 billion at a 7-
percent discount rate and 0.30 billion at a 3-percent discount rate.
The cumulative emissions reductions at TSL 3 are 38 million metric
tons of CO2, 0.10 thousand tons of SO2, 103
thousand tons of NOX, -0.001 tons of Hg, 479 thousand tons
of CH4, and 0.08 thousand tons of N2O. The
estimated monetary value of the climate benefits from reduced GHG
emissions reduction (associated with the average SC-GHG at a 3-percent
discount rate) at TSL 3 is $2.30 billion. The estimated monetary value
of the health benefits from reduced NOX and SO2
emissions at TSL 3 is $1.36 billion using a 7-percent discount rate and
$3.29 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 $4.09
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 3 is $7.02 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 $367 for
commercial gas-fired storage and storage-type instantaneous water
heaters, $119 for residential-duty gas-fired storage water heaters,
$120 for instantaneous gas-fired tankless water heaters, and $1,570 for
instantaneous circulating water heaters and hot water supply boilers.
The simple PBP is 6 years for commercial gas-fired storage water
heaters, 7 years for residential-duty gas-fired storage water heaters,
9 years for instantaneous gas-fired tankless water heaters, and 9 years
for instantaneous circulating water heaters and hot water supply
boilers. The fraction of consumers experiencing a net LCC cost is 17
percent for commercial gas-fired storage water heaters, 42 percent for
residential-duty gas-fired storage water heaters, 15 percent for
instantaneous gas-fired tankless water heaters, and 18 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 $37.6 million to a decrease of $17.7 million, which
corresponds to decreases of 17.7 percent and 8.3 percent, respectively.
Conversion costs total $42.7 million.
At TSL 3, nearly all commercial gas-fired 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
$23.7 million to a decrease of $17.6 million, which corresponds to
decreases of 15.4 percent and 11.4 percent, respectively. Product
conversion costs are $10.9 million and capital conversion costs are
$16.9 million, for a total of approximately $27.8 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
[[Page 69815]]
input capacities and storage volumes that can meet a UEF standard at
this level today. Approximately 34 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 $2.5 million to an increase of
$2.2 million, which corresponds to a decrease of 27.3 percent and an
increase of 25.0 percent, respectively. DOE expects conversion costs
for this equipment class to reach $2.3 million.
At TSL 3, approximately 64 percent 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 $1.7 million to a decrease of $1.3
million, which corresponds to decreases of 19.0 percent and 14.2
percent, respectively. Conversion costs total $2.1 million.
At TSL 3, approximately 39 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 $9.9 million to a decrease of $1.1 million, which
corresponds to decreases of 24.3 percent and 2.7 percent, respectively.
Conversion cost total $10.5 million.
After considering the analysis and weighing the benefits and
burdens, the Secretary concludes 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 1,000 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 $2.3 billion in climate benefits (associated with the
average SC-GHG at a 3-percent discount rate), and $3.3 billion (using a
3-percent discount rate) or $1.4 billion (using a 7-percent discount
rate) in health benefits--the rationale becomes stronger still. DOE
notes, however, that it would reach the same conclusion presented in
this rule in the absence of the estimated SC-GHG benefits, based on the
February 2021 Interim Estimates presented by the IWG.
As stated, DOE conducts the walk-down analysis to determine the TSL
that represents the maximum improvement in energy efficiency that is
technologically feasible and economically justified as required under
EPCA. Although DOE has not conducted a comparative analysis to select
the amended energy conservation standards, DOE notes at TSL 3 the
conversion cost impacts for commercial gas storage and residential-duty
gas-fired 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 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 gas-fired storage water heaters and residential-duty gas-
fired storage water heaters do not outweigh the negative impacts to
consumers and manufacturers. Therefore, DOE concludes that the max-tech
efficiency levels are not justified.
Therefore, based on the previous considerations, DOE adopts the
energy conservation standards for CWH equipment at TSL 3. The 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.47 and Table V.48.
Table V.47--Proposed Amended Energy Conservation Standards for Commercial Water Heating Equipment Except for
Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
------------------------------------------
Equipment Size Minimum
thermal Maximum standby loss
efficiency (%) [dagger]
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water heaters and All......................... 95 0.86 x [Q/800 + 110(Vr)\1/
storage-type instantaneous water 2\] (Btu/h).
heaters.
Electric instantaneous water heaters <10 gal..................... 80 N/A.
[Dagger]. >=10 gal.................... 77 2.30 + 67/Vm (%/h).
[[Page 69816]]
Gas-fired instantaneous water heaters <10 gal..................... 96 N/A.
and hot water supply boilers. >=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 nameplate input rate
in Btu/h.
[dagger] 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.
[Dagger] 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
final rule, 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.3 of this final rule.
Table V.48--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......... Very Small............. 0.5374-(0.0009 x Vr).
<=105 kBtu/h and....... Low.................... 0.8062-(0.0012 x Vr).
<=120 gal and.......... Medium................. 0.8702-(0.0011 x Vr).
<=180 [deg]F........... High................... 0.9297-(0.0009 x 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 [deg]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 Adopted 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 2022$) of the
benefits from operating products that meet the proposed standards
(consisting primarily of operating cost savings from using less energy,
minus increases in product purchase costs, and (2) the annualized
monetary value of the benefits of GHG and NOX emission
reductions.
Table V.49 shows the annualized values for CWH equipment under TSL
3, expressed in 2022$. 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 $78 million per year in increased equipment costs, while
the estimated annual benefits are $118 million in reduced equipment
operating costs, $125 million in climate benefits, and $125 million in
health benefits. In this case, the net benefit amounts to $289 million
per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the proposed standards for CWH equipment is $72
million per year in increased equipment costs, while the estimated
annual benefits are $149 million in reduced operating costs, $125
million in climate benefits, and $178 million in health benefits. In
this case, the net benefit would amount to $380 million per year.
Table V.49--Annualized Benefits and Costs of Proposed Energy Conservation Standards for CWH Equipment
[TSL 3]
----------------------------------------------------------------------------------------------------------------
Million 2022$/year
--------------------------------------------------------
Category Low-net-benefits High-net-benefits
Primary estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................ 149 144 154
Climate Benefits *..................................... 125 124 128
Health Benefits **..................................... 178 177 197
--------------------------------------------------------
Total Benefits [dagger]............................ 452 445 479
Consumer Incremental Product Costs [Dagger]............ 72 72 74
--------------------------------------------------------
[[Page 69817]]
Net Benefits....................................... 380 373 405
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger]).... (4)-(2) (4)-(2) (4)-(2)
----------------------------------------------------------------------------------------------------------------
7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................ 118 115 122
Climate Benefits * (3% discount rate).................. 125 124 128
Health Benefits **..................................... 125 124.4 138.1
--------------------------------------------------------
Total Benefits[dagger]............................. 368 364 388
Consumer Incremental Product Costs [Dagger]............ 78 78.2 80.0
--------------------------------------------------------
Net Benefits........................................... 289 285 308
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger]).... (4)-(2) (4)-(2) (4)-(2)
----------------------------------------------------------------------------------------------------------------
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; however, DOE emphasizes the importance and value of considering
the benefits calculated using all four sets of SC-GHG estimates. To monetize the benefits of reducing GHG
emissions, this analysis uses the interim 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 IWG.
** 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.
[dagger] 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.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life cycle costs analysis and national
impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's NIA includes
all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the
manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer.
DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J
of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions
regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is
the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry
cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The
annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that
is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete
description of the industry weighted average cost of capital). For commercial water heaters, those values are
$4 million and -$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is
economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV
under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup
scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of
Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit
operating profit in proportion to increases in manufacturer production costs. DOE includes the range of
estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J
of this document, to provide additional context for assessing the estimated impacts of this rule to society,
including potential changes in production and consumption, which is consistent with OMB's Circular A-4 and
E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule,
the annualized net benefits would range from $376 million to $378 million at 3-percent discount rate and would
range from $285 million to $287 million at 7-percent discount rate. Parentheses () indicate negative values.
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
E.O. 12866, ``Regulatory Planning and Review,'' as supplemented and
reaffirmed by E.O. 13563, ``Improving Regulation and Regulatory Review,
76 FR 3821 (Jan. 21, 2011) and E.O. 14094, ``Modernizing Regulatory
Review,'' 88 FR 21879 (April 11, 2023), requires agencies, to the
extent permitted by law, 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, the
Office of Information and Regulatory Affairs (``OIRA'') in the Office
of Management
[[Page 69818]]
and Budget (``OMB'') 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 final regulatory action is
consistent with these principles.
Section 6(a) of E.O. 12866 also requires agencies to submit
``significant regulatory actions'' to OIRA for review. OIRA has
determined that this final regulatory action constitutes a
``significant regulatory action'' within the scope of section 3(f)(1)
of E.O. 12866, as amended by E.O. 14094. Accordingly, pursuant to
section 6(a)(3)(C) of E.O. 12866, DOE has provided to OIRA an
assessment, including the underlying analysis, of benefits and costs
anticipated from the final 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
are summarized in this preamble and further detail can be found in the
TSD for this rulemaking.
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation 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 E.O. 13272, ``Proper Consideration of Small Entities in Agency
Rulemaking,'' 67 FR 53461 (Aug. 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). As part of the May 2022 CWH
ECS NOPR, DOE prepared an IRFA. 87 FR 30722. DOE has prepared the
following FRFA for the products that are the subject of this
rulemaking.
1. Need for, and Objectives of, the Rule
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
final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation
standards for CWH equipment. (42 U.S.C. 6313(a)(5))
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 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 6 years. DOE must adopt the new ASHRAE efficiency level, 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)) Not later than 2
years after a NOPR is issued, DOE must publish a final rule amending
the standard. (42 U.S.C. 6313(a)(6)(C)(iii))
2. Significant Issues Raised in Response to the IRFA
DOE did not receive any comments directly commenting on the
Regulatory Flexibility Analysis in response to the IRFA.
3. Description and Estimate of the Number of Small Entities Affected
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 rule are
classified under North American Industry Classification System
(``NAICS'') code 333310,\184\ ``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 CEC Modernized
Appliance Efficiency Database System (``MAEDbS''),\185\ the DOE Energy
Star Database,\186\ and the DOE Certification Compliance Database
(``CCD'') \187\ in identifying manufacturers. For the purpose of this
final rule, 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.
---------------------------------------------------------------------------
\184\ The business size standards are listed by NAICS code and
industry description and are available at www.sba.gov/document/support--table-size-standards (Last accessed April 21, 2023).
\185\ MAEDbS can be accessed at
www.cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx
(Last accessed December 19, 2022).
\186\ Energy 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 December
19, 2022).
\187\ Certified 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 December 19, 2022).
---------------------------------------------------------------------------
Regarding manufacturers impacted by the amended standards, DOE
identified 15 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 15 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 nine
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 CCD.
4. Description and Estimate of Compliance Requirements
This final rule 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
[[Page 69819]]
final rule 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
non-capitalized costs necessary to make product designs comply with
amended energy conservation standards. Capital conversion costs are
one-time investments in plant, property, and equipment made in response
to new and/or amended standards. DOE's estimates of conversion costs
increased between the NOPR and the final rule. As noted in section
IV.J.2.c of this final rule, DOE updated its conversion cost analysis
for the final rule to reflect written comments submitted in response to
the NOPR and feedback received from additional manufacturer interviews
conducted at the request of industry. Additionally, DOE updated its
analysis to reflect changes to industry model availability that
occurred between the NOPR analysis and final rule analysis. These
changes result in different costs to small manufacturers between the
IRFA and FRFA.
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 the adopted standards.
The second manufacturer exclusively manufacturers hot water supply
boilers and 76 percent of its models are unimpacted by the proposed
standards. DOE estimates that this manufacturer will incur
approximately $50,000 in capital conversion costs and $210,000 in
product conversion costs to meet proposed standards. The combined
conversion costs represent less than 1 percent of the firm's estimated
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, 33 percent of their models are unimpacted by the
proposed standards. DOE estimates that this manufacturer will incur
approximately $0.6 million in capital conversion costs and $0.9 million
in product conversion costs to meet proposed standards. The combined
conversion costs represent approximately 4.8 percent of the firm's
estimated revenue during the conversion period.
Table VI.1--Summary of Small Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
Conversion period Conversion costs/
Conversion costs Annual revenue ($ revenue ($ conversion period
($ millions) millions) millions) revenue
----------------------------------------------------------------------------------------------------------------
Manufacturer A..................... 0 27 81 0.0
Manufacturer B..................... 0.2 219 657 0.0
Manufacturer C..................... 1.6 10.9 32.7 4.8
----------------------------------------------------------------------------------------------------------------
In addition to amending standards, in this rulemaking, DOE is
codifying 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 previously codifying these
standards from EPCA, DOE inadvertently omitted the standards put in
place by EPCA for electric instantaneous water heaters. In the final
rule, DOE is codifying these standards in its regulations at 10 CFR
431.110. This final rule 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 a result of the final rule.
5. Significant Alternatives to the Rule
The discussion in the previous section analyzes impacts on small
businesses that would result from the adopted standards, represented by
TSL 3. In reviewing alternatives to the adopted standards, DOE examined
energy conservation standards set at lower efficiency levels. While TSL
1 and TSL 2 would reduce the impacts on small business manufacturers,
it would come at the expense of a reduction in energy savings.
TSL 2 would save 0.49 quads of energy with the projected change in
manufacturer INPV ranging from -10.6 percent to -4.4 percent. TSL 2 has
energy savings that are 30 percent lower than TSL 3. TSL 1 would save
0.12 quads of energy with the projected change in manufacturer INPV
ranging from -1.0 percent to less than 0.1 percent. TSL 1 has energy
savings that are 83 percent lower than TSL 3.
Establishing standards at TSL 3 balances the benefits of the energy
savings at TSL 3 with the potential burdens placed on CWH equipment
manufacturers, including small business manufacturers. Accordingly, DOE
is not adopting one of the other TSLs considered in the analysis, or
the other policy alternatives examined as part of the regulatory impact
analysis and included in chapter 17 of the final rule 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
products comply with any applicable energy conservation standards. In
certifying compliance, manufacturers must test their products according
to the DOE test procedures for CWH equipment, including any amendments
adopted for those test procedures. DOE has established regulations for
the certification and recordkeeping requirements for all covered
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'').
This requirement has been approved by OMB under OMB control number
1910-1400. The public
[[Page 69820]]
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, 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
Pursuant to the National Environmental Policy Act of 1969
(``NEPA''), DOE has analyzed this final rule in accordance with NEPA
and DOE's NEPA implementing regulations. 10 CFR part 1021. DOE has
determined that this rule qualifies for categorical exclusion under 10
CFR part 1021, subpart D, appendix B5.1 because it is a rulemaking that
establishes energy conservation standards for consumer products or
industrial equipment, none of the exceptions identified in B5.1(b)
apply, no extraordinary circumstances exist that require further
environmental analysis, and it meets the requirements for application
of a categorical exclusion. See 10 CFR 1021.410. Therefore, DOE has
determined that promulgation of this rule is not a major Federal action
significantly affecting the quality of the human environment within the
meaning of NEPA and does not require an environmental assessment or an
environmental impact statement.
E. Review Under Executive Order 13132
E.O. 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999), imposes
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 it will follow in the development of such
regulations. 65 FR 13735. DOE has examined this rule and has 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 final rule. 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 E.O. 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 E.O. 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 E.O. 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 E.O. 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 if
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 final rule meets the relevant standards of E.O. 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 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 1 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/sites/prod/files/gcprod/documents/umra_97.pdf.
This rule does not contain a Federal intergovernmental mandate, nor
is it expected to require expenditures of $100 million or more in any 1
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 rule 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 E.O. 12630, ``Governmental Actions and Interference
with Constitutionally Protected Property Rights,'' 53 FR 8859 (March
18, 1988), DOE has determined that this rule 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
[[Page 69821]]
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 final rule 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 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 E.O. 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 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 concluded that this regulatory action, which sets forth
amended energy conservation standards for CWH equipment, is not a
significant energy action because the 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 final 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 Federal 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.'' 70 FR 2664, 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 prepared a report describing that peer
review.\188\ 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.
Because available data, models, and technological understanding have
changed since 2007, DOE has engaged with the National Academy of
Sciences to review DOE's analytical methodologies to ascertain whether
modifications are needed to improve DOE's analyses. DOE is in the
process of evaluating the resulting report.\189\
---------------------------------------------------------------------------
\188\ The 2007 ``Energy Conservation Standards Rulemaking Peer
Review Report'' is available at the following website: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed December 14, 2022).
\189\ The report is available at www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards.
---------------------------------------------------------------------------
M. Congressional Notification
As required by 5 U.S.C. 801, DOE will report to Congress on the
promulgation of this rule prior to its effective date. The report will
state that it has been determined that the rule is a ``major rule'' as
defined by 5 U.S.C. 804(2).
VII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this final
rule.
List of Subjects in 10 CFR Part 431
Administrative practice and procedure, Confidential business
information, Energy conservation test procedures, Incorporation by
reference, and Reporting and recordkeeping requirements.
Signing Authority
This document of the Department of Energy was signed on July 27,
2023, by Francisco Alejandro Moreno, Acting 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 September 15, 2023.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
For the reasons set forth in the preamble, DOE amends part 431 of
chapter II, subchapter D, of title 10 of the Code of Federal
Regulations, to read as set forth below:
PART 431--ENERGY EFFICIENCY PROGRAM FOR COMMERCIAL AND INDUSTRIAL
EQUIPMENT
0
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.
0
2. Amend Sec. 431.102 by revising the definition of ``Storage-type
instantaneous water heater'' to read as follows:
Sec. 431.102 Definitions concerning commercial water heaters, hot
water supply boilers, unfired hot water storage tanks, and commercial
heat pump water heaters.
* * * * *
Storage-type instantaneous water heater means an instantaneous
water heater that includes a storage tank with a rated storage volume
greater than or equal to 10 gallons.
* * * * *
0
3. Amend Sec. 431.105 by revising paragraph (a) to read as follows:
[[Page 69822]]
Sec. 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, the DOE must publish a document in
the Federal Register and the material must be available to the public.
All approved incorporation by reference (IBR) 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, 1000 Independence Avenue SW, EE-5B, Washington, DC 20024,
(202) 586-9127, [email protected], www.energy.gov/eere/buildings/building-technologies-office. For information on the availability of
this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations.html or email: [email protected]. The material may be
obtained from the sources in the following paragraphs of this section.
* * * * *
0
4. Revise Sec. 431.110 to read as follows:
Sec. 431.110 Energy conservation standards and their effective dates.
(a) 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 the table 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 subpart G of
this part, must meet the requirements that apply to it under subpart E
of this part.
Table 1 to Sec. 431.110(a)--Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Energy conservation standards \a\
-------------------------------------------------------------------------------------------
Minimum thermal Minimum thermal
efficiency efficiency Maximum standby loss Maximum standby loss
Equipment Size (equipment (equipment (equipment (equipment
manufactured on and manufactured on and manufactured on and manufactured on and
after October 9, after October 6, after October 29, after October 6, 2026)
2015) (%) 2026) (%) 2003) \b\ \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 All................... 80 95 Q/800 + 110(Vr)\1/2\ 0.86 x [Q/800 +
storage-type instantaneous water (Btu/h). 110(Vr)\1/2\] (Btu/h)
heaters.
Oil-fired storage water heaters..... All................... 80 80 Q/800 + 110(Vr)\1/2\ Q/800 + 110(Vr)\1/2\
(Btu/h). (Btu/h)
Electric instantaneous water heaters <10 gal............... 80 80 N/A................... N/A
\c\. >=10 gal.............. 77 77 2.30 + 67/Vm (%/h).... 2.30 + 67/Vm (%/h)
Gas-fired instantaneous water <10 gal............... 80 96 N/A................... N/A
heaters and hot water supply >=10 gal.............. 80 96 Q/800 + 110(Vr)\1/2\ Q/800 + 110(Vr)\1/2\
boilers. (Btu/h). (Btu/h)
Oil-fired instantaneous water heater <10 gal............... 80 80 N/A................... N/A
and hot water supply boilers. >=10 gal.............. 78 78 Q/800 + 110(Vr)\1/2\ Q/800 + 110(Vr)\1/2\
(Btu/h). (Btu/h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Vm 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.
\b\ Water heaters and hot water supply boilers with a rated storage volume greater than 140 gallons need not meet the standby loss requirement if:
(1) The tank surface area is thermally insulated to R-12.5 or more, with the R-value as defined in Sec. 431.102
(2) A standing pilot light is not used; and
(3) For gas-fired or oil-fired storage water heaters, they have a flue damper or fan-assisted combustion.
\c\ The 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) as follows:
Table 2 to Sec. 431.110(c)--Residential-Duty Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
Uniform energy factor \b\
-----------------------------------------------------------------------
Equipment Specifications \a\ Draw pattern Equipment manufactured before Equipment manufactured after
October 6, 2026 October 6, 2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired storage................. >75 kBtu/hr and <=105 Very Small........... 0.2674-(0.0009 x Vr).............. 0.5374-(0.0009 x Vr)
kBtu/hr and <=120 Low.................. 0.5362-(0.0012 x Vr).............. 0.8062-(0.0012 x Vr)
gal. Medium............... 0.6002-(0.0011 x Vr).............. 0.8702-(0.0011 x Vr)
High................. 0.6597-(0.0009 x Vr).............. 0.9297-(0.0009 x Vr)
Oil-fired storage................. >105 kBtu/hr and Very Small........... 0.2932-(0.0015 x Vr).............. 0.2932-(0.0015 x Vr)
<=140 kBtu/hr and Low.................. 0.5596-(0.0018 x Vr).............. 0.5596-(0.0018 x Vr)
<=120 gal. Medium............... 0.6194-(0.0016 x Vr).............. 0.6194-(0.0016 x Vr)
High................. 0.6470-(0.0013 x Vr).............. 0.6470-(0.0013 x Vr)
Electric instantaneous............ >12 kW and <=58.6 kW Very Small........... 0.80.............................. 0.80
and <=2 gal. Low.................. 0.80.............................. 0.80
Medium............... 0.80.............................. 0.80
High................. 0.80.............................. 0.80
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ 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 [deg]F.
\b\ Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44.
[[Page 69823]]
Note: The following letter will not appear in the Code of
Federal Regulations.
BILLING CODE 6450-01-P
[GRAPHIC] [TIFF OMITTED] TR06OC23.060
[[Page 69824]]
[GRAPHIC] [TIFF OMITTED] TR06OC23.061
[FR Doc. 2023-20392 Filed 10-5-23; 8:45 am]
BILLING CODE 6450-01-C