[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37778-37946]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-09209]
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Vol. 89
Monday,
No. 88
May 6, 2024
Part VI
Department of Energy
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10 CFR Parts 429 and 430
Energy Conservation Program: Energy Conservation Standards for Consumer
Water Heaters; Final Rule
Federal Register / Vol. 89 , No. 88 / Monday, May 6, 2024 / Rules and
Regulations
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DEPARTMENT OF ENERGY
10 CFR Parts 429 and 430
[EERE 2017-BT-STD-0019]
RIN 1904-AD91
Energy Conservation Program: Energy Conservation Standards for
Consumer Water Heaters
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 consumer
water heaters. EPCA also requires the U.S. Department of Energy
(``DOE'' or ``the Department'') to periodically determine whether more
stringent standards would be technologically feasible and economically
justified, and would result in significant energy savings. In this
final rule, DOE is adopting amended energy conservation standards for
consumer water heaters. It has determined that the new and amended
energy conservation standards for these products would result in
significant conservation of energy, and are technologically feasible
and economically justified.
DATES: The effective date of this rule is July 5, 2024. Compliance with
the new and amended standards established for consumer water heaters in
this final rule is required on and after May 6, 2029.
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-2017-BT-STD-0019. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.
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. Email:
[email protected].
Ms. Melanie Lampton, U.S. Department of Energy, Office of the
General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC
20585-0121. Telephone: (240) 751-5157. Email:
[email protected].
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].
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 Consumer Water Heaters
3. Scope of This Final Rule
III. General Discussion
A. General Comments
1. General Support
2. General Opposition
3. Selection of Standards Levels
B. Scope of Coverage and Definitions
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
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Product Classes
a. Circulating Water Heaters
b. Low-Temperature Water Heaters
c. Storage-Type and Instantaneous-Type Product Classes
d. Gas-Fired Water Heaters
e. Very Large Gas-Fired Storage Water Heaters
f. Electric Storage Water Heaters
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Product Classes With Current UEF-Based Standards
a. Efficiency Levels
b. Design Options
c. Cost Analysis
d. Shipping Costs
e. Cost-Efficiency Results
2. Product Classes Without Current UEF-Based Standards
a. Crosswalk to Equivalent-Stringency UEF-Based Standards
b. Consideration of More Stringent Standards
c. Circulating Water Heaters
3. Manufacturer Selling Price
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Hot Water Use Determination
3. Energy Use Determination
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs and Inputs
b. Gas-Fired and Oil-Fired Storage Water Heater Installation
Costs
c. Heat Pump Water Heater Installation Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
10. Accounting for Product Switching
11. Analytical Results
G. Shipments Analysis
1. Impact of Potential Standards on Shipments
a. Impact of Consumer Choice for Electric Storage Water Heaters
b. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
2. Senior-Only Households
3. Small Business Subgroup
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Product and Capital Conversion Costs
d. Manufacturer Markup Scenarios
3. Discussion of MIA Comments
a. Conversion Costs
b. Cumulative Regulatory Burden
c. Manufacturing Capacity
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
c. Sensitivity Analysis Using Updated SC-GHG Estimates
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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. National 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 Consumer Water
Heater Standards
2. Annualized Benefits and Costs of the Adopted Standards
3. Conversion Factor Final Rule Enforcement Policy
4. Severability
D. Test Procedure Applicability
1. High-Temperature Testing
a. Maximum Tank Temperature
b. Verification of Maximum Tank Temperature
c. Very Small and Large Electric Storage Water Heaters
d. Optional Representations for Heat Pump Water Heaters
e. Temporary Mode
f. Demand-Response Water Heaters
g. Summary of the High-Temperature Test Method Applicability
2. Circulating Water Heaters
a. Separate Storage Tank Requirements
b. Product-Specific Enforcement Provisions
3. Water Heaters Less Than 2 Gallons
4. Other Topics
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
B. Review Under the Regulatory Flexibility Act
1. Need for, and Objectives of, Rule
2. Significant Issues Raised by Public Comments in Response to
the IRFA
3. Description and Estimated Number of Small Entities Affected
4. Description of Reporting, Recordkeeping, and Other Compliance
Requirements
5. Significant Alternatives Considered and Steps Taken To
Minimize Significant Economic Impacts on Small Entities
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 B of EPCA \2\ established the Energy
Conservation Program for Consumer Products Other Than Automobiles. (42
U.S.C. 6291-6309) These products include consumer water heaters, the
subject of this rulemaking. As discussed in section II.B.3 of this
document, DOE is finalizing standards for all consumer water heaters,
with the exception of gas-fired instantaneous water heaters, in this
Final Rule.
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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 B was redesignated Part A.
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Pursuant to EPCA, any new or amended energy conservation standard
must be designed to achieve the maximum improvement in energy
efficiency that DOE determines is technologically feasible and
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new
or amended standard must result in significant conservation of energy.
(42 U.S.C. 6295(o)(3)(B)) EPCA also provides that not later than 6
years after issuance of any final rule establishing or amending a
standard, DOE must publish either a notice of determination that
standards for the product do not need to be amended, or a notice of
proposed rulemaking including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (42 U.S.C.
6295(m))
In accordance with these and other statutory provisions discussed
in this document, DOE analyzed the benefits and burdens of six trial
standard levels (``TSLs'') for consumer water heaters. The TSLs and
their associated benefits and burdens are discussed in detail in
sections V.A through V.C of this document. As discussed in section V.C
of this document, DOE has determined that TSL 2 represents the maximum
improvement in energy efficiency that is technologically feasible and
economically justified. The adopted standards, which are expressed in
terms of uniform energy factor (``UEF''), are shown in Table I.1. These
standards apply to all products listed in Table I.1 and manufactured
in, or imported into, the United States starting on May 6, 2029.
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A. Benefits and Costs to Consumers
Table I.2 summarizes DOE's evaluation of the economic impacts of
the adopted standards on consumers of consumer water heaters, as
measured by the average life-cycle cost (``LCC'') savings and the
simple payback period (``PBP'').\3\ The average LCC savings are
positive for all product classes, and the PBP is less than the average
lifetime of consumer water heaters, which is estimated to be about 15
years for storage water heaters (see section IV.F 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.9 of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.C of this document).
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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 (2023-2059). Using a real discount rate of
9.6 percent, DOE estimates that the INPV for manufacturers of consumer
water heaters in the case without amended standards is $1,478.8 million
in 2022$. Under the adopted standards, DOE estimates the change in INPV
to range
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from -18.6 percent to 1.9 percent, which is a loss of $275.3 million to
a gain of $28.2 million. In order to bring products into compliance
with amended standards, it is estimated that industry will incur total
conversion costs of $239.8 million.
DOE's analysis of the impacts of the adopted standards on
manufacturers is described in sections IV.J and 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.
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DOE's analyses indicate that the adopted energy conservation
standards for consumer water heaters would save a significant amount of
energy. Relative to the case without amended standards, the lifetime
energy savings for consumer water heaters purchased in the 30-year
period that begins in the anticipated year of compliance with the
amended standards (2030-2059), amount to 17.6 quadrillion British
thermal units (``Btu''), or quads.\5\ This represents a savings of 10
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 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 efficiency standards. For more information on the
FFC metric, see section IV.H.1 of this document.
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The cumulative net present value (``NPV'') of total consumer
benefits of the standards for consumer water heaters ranges from $25
billion (at a 7-percent discount rate) to $82 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 consumer water heaters purchased during the
period 2030-2059.
In addition, the adopted standards for consumer water heaters are
projected to yield significant environmental benefits. DOE estimates
that the standards will result in cumulative emission reductions (over
the same period as for energy savings) of 332 million metric tons
(``Mt'') \6\ of carbon dioxide (``CO2''), 90 thousand tons
of sulfur dioxide (``SO2''), 665 thousand tons of nitrogen
oxides (``NOX''), 3,058 thousand tons of methane
(``CH4''), 2.9 thousand tons of nitrous oxide
(``N2O''), and 0.6 tons of mercury (``Hg'').\7\
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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 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the Inflation Reduction Act. See section IV.K of this
document for further discussion of AEO2023 assumptions that affect
air pollutant emissions.
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DOE estimates the value of climate benefits from a reduction in
greenhouse gases (``GHG'') using four different estimates of the social
cost of CO2 (``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
GHG (``SC-GHG''). DOE used interim SC-GHG values (in terms of benefit
per ton of GHG avoided) developed by an Interagency Working Group on
the Social Cost of Greenhouse Gases (``IWG'').\8\ The derivation of
these values is discussed in section IV.L of this document. For
presentational purposes, the climate benefits associated with the
average SC-GHG at a 3-percent discount rate are estimated to be $17
billion. DOE does not have a single central SC-GHG point estimate and
it emphasizes the value of considering the benefits calculated using
all four sets of SC-GHG estimates. DOE notes, however, that the adopted
standards would be economically justified even without inclusion of
monetized benefits of reduced GHG emissions.
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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
Intereim Estimates Under Executive Order 13990 published in February
2021 by the IWG. (``February 2021 SC-GHG TSD''). www.whitehouse.gov/wp-content/uploads/2021/02/Technical/SupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.
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DOE estimated the monetary health benefits of SO2 and
NOX emissions reductions, using benefit per ton estimates
from the Environmental Protection Agency,\9\ as discussed in section
IV.L of this document. DOE estimated the present value of the health
benefits would be $12 billion using a 7-percent discount rate, and $33
billion using a 3-percent discount rate.\10\ DOE is currently only
monetizing health benefits from changes in ambient fine particulate
matter (PM2.5) concentrations from two precursors
(SO2 and NOX), and from changes in ambient ozone
from one precursor (for NOX), 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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\9\ U.S. EPA. Estimating the Benefit per Ton of Reducing
Directly Emitted PM2.5, PM2.5 Precursors and
Ozone Precursors from 21 Sectors. Available at www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
\10\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
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Table I.3 summarizes the monetized benefits and costs expected to
result from the amended standards for consumer water heaters. 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.
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The benefits and costs of the proposed standards can also be
expressed in terms of annualized values. The monetary values for the
total annualized net benefits are (1) the reduced consumer operating
costs, minus (2) the increase in product purchase prices and
installation costs, plus (3) the value of climate and health benefits
of 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 2022, 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., 2020 or 2030), and then discounted the present value from
each year to 2022. 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 cost 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 consumer water
heaters shipped during the period 2030-2059. The benefits associated
with reduced emissions achieved as a result of the adopted standards
are also calculated based on the lifetime of consumer water heaters
shipped during the period 2030-2059. 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 total benefits are
presented for all four SC-GHG value discount rates in section IV.L.1 of
this document.
Table I.4 presents the total estimated monetized benefits and costs
associated with the proposed standard, expressed in terms of annualized
values. 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 the 3-percent discount rate case for climate benefits
from reduced GHG emissions, the estimated cost of the standards adopted
in this rule is $2,623 million per year in increased equipment costs,
while the estimated annual benefits are $5,655 million in reduced
equipment operating costs, $1,051 in monetized climate benefits, and
1,416 in monetized health benefits. In this case, the net benefit would
amount to $5,499 per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the standards is $2,586 million per year in increased
equipment costs, while the estimated annual benefits are $7,566 million
in reduced operating costs, $1,051 million in monetized climate
benefits, and $2,033 million in monetized health benefits. In this
case, the net benefit would amount to $8,065 million per year.
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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 that the standards adopted in this final rule
represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result
in the significant conservation of energy. Specifically with regards to
technological feasibility, products achieving these standard levels are
already commercially available for all product classes covered by this
rule. As for economic justification, DOE's analysis shows that the
estimated benefits of the standards exceed, to a great extent, the
estimated burdens of the standards.
Using a 7-percent discount rate for consumer benefits and costs and
NOX and SO2 reduction benefits, and a 3-percent
discount rate case for GHG social costs, the estimated cost of the
standards for consumer water heaters is $2,623 million per year in
increased product costs, while the estimated annual benefits are $5,655
million in reduced product operating costs, $1,051 million in climate
benefits, and $1,416 million in health benefits. The net benefit
amounts to $5,499 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 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.
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\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).
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As previously mentioned, the standards are projected to result in
estimated cumulative national energy savings of 17.6 quads (full-fuel
cycle (``FFC'')), the equivalent of the primary annual energy use of
116 million homes. In addition, they are projected to reduce
CO2 emissions by 332 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.
6295(o)(3)(B). A more detailed discussion of the basis for these
conclusions is contained in the remainder of this document and the
accompanying TSD.
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 consumer water
heaters.
A. Authority
EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. Title III, Part
B of EPCA established the Energy Conservation Program for Consumer
Products Other Than Automobiles. These products include consumer water
heaters, the subject of this document. (42 U.S.C. 6292(a)(4)) EPCA
prescribed energy conservation standards for these products (42 U.S.C.
6295(e)(1)), and directs DOE to conduct future rulemakings to determine
whether to amend these standards. (42 U.S.C. 6295(e)(4)) EPCA further
provides that, not later than 6 years after the issuance of any final
rule establishing or amending a standard, DOE must publish either a
notice of determination that standards for the product do not need to
be amended, or a NOPR including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (42 U.S.C.
6295(m)(1))
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)
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certification and enforcement procedures. Relevant provisions of the
EPCA specifically include definitions (42 U.S.C. 6291), test procedures
(42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), energy
conservation standards (42 U.S.C. 6295), and the authority to require
information and reports from manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products
established under EPCA generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal
preemption in limited instances for particular State laws or
regulations, in accordance with the procedures and other provisions set
forth under EPCA. (See 42 U.S.C. 6297(d))
Subject to certain statutory criteria and conditions, DOE is
required to develop test procedures to measure the energy efficiency,
energy use, or estimated annual operating cost of each covered product.
(42 U.S.C. 6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of
covered products must use the prescribed DOE test procedure as the
basis for certifying to DOE that their products comply with the
applicable energy conservation standards adopted under EPCA and when
making representations to the public regarding the energy use or
efficiency of those products. (42 U.S.C. 6293(c) and 6295(s))
Similarly, DOE must use these test procedures to determine whether the
products comply with standards adopted pursuant to EPCA. (42 U.S.C.
6295(s)) The DOE test procedures for consumer water heaters appear at
title 10 of the Code of Federal Regulations (``CFR'') part 430, subpart
B, appendix E (``appendix E'').
DOE must follow specific statutory criteria for prescribing new or
amended standards for covered products, including consumer water
heaters. Any new or amended standard for a covered product must be
designed to achieve the maximum improvement in energy efficiency that
the Secretary of Energy determines is technologically feasible and
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may
not adopt any standard that would not result in the significant
conservation of energy. (42 U.S.C. 6295(o)(3))
Moreover, DOE may not prescribe a standard (1) for certain
products, including consumer water heaters, if no test procedure has
been established for the product, or (2) if DOE determines by rule that
the standard is not technologically feasible or economically justified.
(42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard
is economically justified, DOE must determine whether the benefits of
the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) 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:
(1) The economic impact of the standard on manufacturers and
consumers of the 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 products that are likely to result from the
standard;
(3) The total projected amount of energy (or as applicable,
water) savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the
covered products 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 and water conservation; and
(7) Other factors the Secretary of Energy (``Secretary'')
considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(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 an energy conservation standard level will be less than three
times the value of the energy 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))
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. 6295(o)(1)) 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.
6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an
energy conservation standard for a covered product that has two or more
subcategories. DOE must specify a different standard level for a type
or class of products that has the same function or intended use if DOE
determines that products within such group (A) consume a different kind
of energy from that consumed by other covered products within such type
(or class); or (B) have a capacity or other performance-related feature
which other products within such type (or class) do not have and such
feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In
determining whether a performance-related feature justifies a different
standard for a group of products, DOE must consider such factors as the
utility to the consumer of such a feature and other factors DOE deems
appropriate. Id. Any rule prescribing such a standard must include an
explanation of the basis on which such higher or lower level was
established. (42 U.S.C. 6295(q)(2))
Finally, pursuant to the amendments contained in the Energy
Independence and Security Act of 2007 (EISA 2007), Public Law 110-140,
any final rule for new or amended energy conservation standards
promulgated after July 1, 2010, is required to address standby mode and
off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE
adopts a standard for a covered product after that date, it must, if
justified by the criteria for adoption of standards under EPCA (42
U.S.C. 6295(o)), incorporate standby mode and off mode energy use into
a single standard, or, if that is not feasible, adopt a separate
standard for such energy use for that product. (42 U.S.C.
6295(gg)(3)(A)-(B)) In this rulemaking, DOE is applying the UEF metric
(which addresses standby mode and off mode energy use) to all product
classes of consumer water heaters, including those product classes for
which there are no currently applicable UEF-based standards.
B. Background
1. Current Standards
As directed by EPCA (42 U.S.C. 6295(e)(4)), DOE conducted two
cycles of rulemakings to determine whether to amend the statutory
standards for consumer water heaters found in 42 U.S.C. 6295(e)(1). The
most recent rulemaking from April 2010 resulted in amended standards
using the energy factor (``EF'') metric originally prescribed by EPCA
with a requirement for compliance starting on April 16, 2015. 75 FR
20112 (the ``April 2010 Final Rule''). Later amendments to
[[Page 37788]]
EPCA directed DOE to establish a uniform efficiency metric for consumer
water heaters (see 42 U.S.C. 6295(e)(5)(B)).\13\ The Federal test
procedure was revised to use a new metric, UEF, in a final rule
published on July 11, 2014 (the ``July 2014 UEF TP Final Rule''). 79 FR
40542. In a final rule published in the Federal Register on December
29, 2016, the existing EF-based energy conservation standards were then
translated from EF to UEF using a ``conversion factor'' method for
water heater basic models that were in existence at the time. 81 FR
96204 (``December 2016 Conversion Factor Final Rule'').
---------------------------------------------------------------------------
\13\ The requirement for a consumer water heater test procedure
using uniform energy factor as a metric, as well as the requirement
for DOE to undertake a conversion factor rulemaking to translate
existing consumer water heater standards denominated in terms of EF
to ones denominated in terms of UEF, were part of the amendments to
EPCA contained in the American Energy Manufacturing Technical
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).
---------------------------------------------------------------------------
These standards are set forth in DOE's regulations at 10 CFR
430.32(d) and are repeated in Table II.1.
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[[Page 37789]]
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In the December 2016 Conversion Factor Final Rule, DOE declined to
develop conversion factors and UEF-based standards for consumer water
heaters of certain sizes (by rated storage volume or input rating) and
of certain types (i.e., oil-fired instantaneous water heaters) where
models did not exist on the market at the time to inform the analysis
of the standards conversion. 81 FR 96204, 96210-96211. For consumer
water heaters that did not receive converted UEF-based standards, DOE
provided its interpretation that the original statutory standards--
found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric--
still applied; however, DOE would not enforce those statutorily-
prescribed standards until such a time conversion factors are developed
for these products and they can be converted to UEF. Id. Thus, the EF-
based standards specified by EPCA apply to any consumer water heaters
which do not have UEF-based standards found at 10 CFR 430.32(d). These
EF-based standards are set forth at 42 U.S.C. 6295(e)(1) and are
repeated in Table II.2.
[[Page 37790]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.008
2. History of Standards Rulemaking for Consumer Water Heaters
On May 21, 2020, DOE initiated the current rulemaking by publishing
in the Federal Register a request for information (``May 2020 RFI''),
soliciting public comment on various aspects of DOE's planned analyses
to help DOE determine whether to amend energy conservation standards
for consumer water heaters. 85 FR 30853 (May 21, 2020). DOE
subsequently published a notice requesting feedback on its preliminary
analysis and technical support document (``preliminary TSD'') on March
1, 2022 (the ``March 2022 Preliminary Analysis'') with a 60-day comment
period. 87 FR 11327 (Mar. 1, 2022). The comment period was extended by
14 days in a notice published on May 4, 2022. 87 FR 26303.
On October 21, 2022, DOE received a set of recommendations on
amended energy conservation standards for consumer water heaters from a
coalition of seven public- and private-sector organizations, including
two water heater manufacturers, three energy efficiency organizations,
one environmental group, and one consumer organization--collectively
the Joint Stakeholders \14\--which addressed standards for electric
storage water heaters, gas-fired storage water heaters, and gas-fired
instantaneous water heaters. This coalition's submission is herein
referred to as the ``Joint Stakeholder Recommendation.''
---------------------------------------------------------------------------
\14\ In this final rule, ``Joint Stakeholders'' refers to the
group of stakeholders who submitted and continued to support the
October 21, 2022, comment even though the makeup of this group has
changed since the July 2023 NOPR. Specifically, BWC removed itself
as a signatory after the July 2023 NOPR.
---------------------------------------------------------------------------
On July 28, 2023, DOE published in the Federal Register a notice of
proposed rulemaking (``July 2023 NOPR'') and technical support document
(``NOPR TSD'') with a 60-day comment period. 88 FR 49058 (Jul. 28,
2023). In the July 2023 NOPR, DOE proposed new and amended standards
for consumer water heaters and addressed stakeholder feedback on the
March 2022 Preliminary Analysis, including the Joint Stakeholder
Recommendation. On September 13, 2023, DOE presented the proposed
standards and accompanying analysis at a public meeting.
DOE received 2,950 comments in response to the July 2023 NOPR from
interested parties, some of which were docketed together as multiple
comments or commenters, resulting in a total of 1,140 docketed items.
Note that of these total comments, 2,800 comments were ``form letter''
email submissions. In total, four distinct form letters were received.
Additionally, several commenters submitted more than one comment to the
docket. DOE directly references 54 of these written submissions in this
final rule, which contain substantive comments regarding product
classes within the scope of this final rule and are shown in Table
II.3. The remainder of the comments were from individual commenters
either expressing general opposition or support for the rulemaking.
Total counts of both supportive and non-supportive comments received
are included in section III.A of this document.
BILLING CODE 6450-01-P
[[Page 37791]]
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[[Page 37792]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.010
[[Page 37793]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.011
A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\15\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the September 13, 2023, 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.
---------------------------------------------------------------------------
\15\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for consumer water heaters. (Docket
No. EERE-2017-BT-STD-0019, which is maintained at
www.regulations.gov). The references are arranged as follows:
(commenter name, comment docket ID number, page of that document).
---------------------------------------------------------------------------
Additionally, DOE received comments from stakeholders in response
to the July 2023 NOPR regarding the scope and classification of
circulating water heaters as defined at 10 CFR 430.2 by the June 2023
TP Final
[[Page 37794]]
Rule. DOE subsequently published a supplemental notice of proposed
rulemaking on December 27, 2023 (``December 2023 SNOPR''), that
discussed the comments received on this topic and proposed to amend the
definition for ``circulating water heater'' to reclassify these
products as storage-type water heaters. 88 FR 89330. DOE received 195
comments in response to the December 2023 SNOPR from interested
parties. DOE directly references 14 of these written submissions which
provided remarks about the rulemaking analysis pertinent to standards
for circulating water heaters or comments relevant to the issues
discussed in the December 2023 SNOPR, and these submissions are shown
in Table II.4.
[GRAPHIC] [TIFF OMITTED] TR06MY24.012
BILLING CODE 6450-01-C
3. Scope of This Final Rule
Following review of comments on the July 2023 NOPR and December
2023 SNOPR, DOE has decided to finalize at this time standards for all
consumer water heaters with the exception of gas-fired instantaneous
water heaters, as defined in 10 CFR 430.2 and replicated in section
III.B of this final rule. DOE is not summarizing or responding to any
comments specific to gas-fired instantaneous water heaters in this
document, nor discussing any analytical methodologies or results for
this product class as DOE continues to consider the comments submitted
in response to the July 2023 NOPR and December 2023 SNOPR in informing
DOE's decision on amended energy conservation standards for GIWHs.
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. General Support
In response to the July 2023 NOPR, DOE received 966 \16\ general
comments (those which provided general remarks on the impact of the
rulemaking) \17\ related to product classes within the scope of this
final rule, with 931, or 96 percent of, these comments expressing
support of the proposed standards and a majority acknowledging the
significant energy savings that would result from the adoption of the
proposed standards.\18\
---------------------------------------------------------------------------
\16\ The number of comments reflects the number of individual
party submissions. Specifically, form letters with multiple
submissions count each submission individually.
\17\ Commenters who are directly referenced in this final rule
and appear in Table II.3 are not counted in these statistics because
these submitters typically expressed detailed views that could not
be generalized as either clear support or clear opposition for all
aspects of the proposal.
\18\ One comment in support of the proposed standards had 8,357
signatories.
---------------------------------------------------------------------------
NYSERDA, GreenTECH, the CA IOUs, NCEL, Joint Regional Advocacy
Groups, Joint Stakeholders, Joint Utilities, Joint Commenters, Joint
Advocacy Groups, NYSPSC, Consumer Advocates, Health
[[Page 37795]]
Advocates, Joint Architects, PSR, NEEA and State Agencies all stated
their support of the standards proposed in the July 2023 NOPR. These
commenters highlighted the associated benefits of the proposal
including utility bill savings, reduced GHG emissions, protection of
human health, reduced energy consumption, and the ability to design
more energy efficient buildings. (NYSERDA, No. 1192 at p. 1; GreenTECH,
No. 71 at p. 1; CA IOUs, No. 1175 at pp. 1-2; NCEL, No. 1144 at p. 1;
Joint Regional Advocacy Groups, No. 1154 at p. 1; Joint Stakeholders,
No. 1156 at p. 1; Joint Utilities, No. 1158 at p. 1; Joint Commenters,
No. 1159 at p. 1-2; Joint Advocacy Groups, No. 1165 at p. 1; NYSPSC,
No. 1169 at p. 1; Consumer Advocates, No. 1172 at p. 1; Health
Advocates, No. 1179 at p. 1; Joint Architects, No. 1188 at p. 1; PSR,
No. 1196 at p. 1-2; NEEA, No. 1199 at p. 2; State Agencies, No. 1213 at
p. 1-2)
NCEL noted that, according to a report by the Appliance Standards
Awareness Project, water heaters represent the largest potential for
emissions reductions among regulated consumer products, and the
proposed standards would reduce CO2 emissions by more than
500 Mt over 30 years of sales, helping the United States meet its
climate goals. (NCEL, No. 1144 at p. 1) The Joint Regional Advocacy
Groups supported, specifically, the proposed standards for electric
storage water heaters at heat pump efficiency levels. (Joint Regional
Advocacy Groups, No. 1154 at p. 1) The Joint State Attorneys General
also commented in support of the proposed standards for consumer water
heaters and recommended that DOE finalize the proposed rule as soon as
possible. The Joint State Attorneys General further emphasized that the
proposed standards would significantly improve the energy efficiency of
both electric and gas water heaters while providing economic benefits
to consumers. The Joint State Attorneys General stated that the
proposed standards for consumer water heaters are projected to yield
significant environmental benefits, climate benefits, and monetized
health benefits. The Joint State Attorneys General also commented that
the transition to more efficient consumer water heating will be
increasingly cost effective and affordable as time progresses,
particularly considering the Federal investment in weatherization,
energy efficiency, and beneficial electrification programs that would
help address cost concerns related to installing new or replacement
products. (Joint State Attorneys General, No. 1035 at pp. 1-3) State
Agencies claimed that while State regulations have the potential to
reduce GHG emissions, individual States cannot adopt standards for
products for which the Federal government has promulgated an existing
standard (such as consumer water heaters) and that collaboration is
required for impactful climate action. (State Agencies, No. 1213 at p.
1) DOE understands the commenter to be referring to provisions at 42
U.S.C. 6297, by which Federal energy standards supersede State
regulations with exceptions for certain products that do not include
consumer water heaters. State Agencies also indicated that the proposed
standards would reduce the energy burden for low-income households,
which spend larger portions of their income on energy bills. (State
Agencies, No. 1213 at p. 2)
Rheem generally supported DOE's proposed amended standards and the
analysis behind them but expressed concern regarding potential
unintended consequences of the proposed standards for certain product
classes caused in part by the application of the high-temperature test
method and effective storage volume metric. Rheem suggested possible
solutions to resolve these issues, which are discussed further in
section V.D of this document. (Rheem, No. 1177 at p. 1) Rheem stated
that, for electric storage water heaters between 20 and 120 gallons
(except for small electric storage water heaters), heat pump-level
standards are appropriate. Rheem recommended that DOE act to prevent a
market shift away from heat pump technologies if standards are amended
to require this for a larger fraction of the electric storage water
heater market because not only would it result in reduction of energy
savings, but it also would pose a risk to manufacturers' return on
investment in heat pump water heater development in a timely manner.
Rheem noted that there would be significant changes to product design
and manufacturing facilities as a result of a heat pump standard in
this rulemaking. (Id. at p. 7)
The Joint Stakeholders stated that the proposed standards for gas-
fired water heaters are consistent with their recommendations and noted
that the proposal follows the established rationale that separate
standards be maintained for gas-fired storage water heaters and their
instantaneous counterparts. (Joint Stakeholders, No. 1156 at p. 2)
NEEA, the Joint Regional Advocacy Groups (citing the estimated FFC and
monetary savings), and Bosch supported the proposed standards for gas-
fired storage water heaters. (NEEA, No. 1199 at p. 9; Joint Regional
Advocacy Groups, No. 1154 at p. 1; Bosch, No. 1204 at p. 2)
The CA IOUs encouraged DOE to set more stringent standards for gas-
fired storage water heaters. According to the CA IOUs, more stringent
standards for all gas-fired consumer water heater sub-classes,
specifically at condensing efficiencies, would result in significant
savings of natural gas in California and across the United States. (CA
IOUs, No. 1175 at p. 2) AWHI also encouraged DOE to set more stringent
standards for gas-fired storage water heaters. (AWHI, No. 1036 at pp.
3-4)
NYSERDA stated that the proposals in the July 2023 NOPR
substantially aligned with the Joint Stakeholder Recommendation, which
was supported by NYSERDA. The commenter noted that, by allowing less
stringent standards for small electric storage water heaters, DOE would
ensure that there are replacement units available for lowboy water
heaters, while still allowing innovation and expansion for heat pump
water heaters. (NYSERDA, No. 1192 at p. 2)
Additionally, some commenters offered general support in response
to the December 2023 SNOPR.
NYSERDA commented that the proposals in the December 2023 SNOPR
fully address their concerns raised at the NOPR stage regarding the
potential use of electric resistance circulating water heaters in place
of heat pump electric storage water heaters. (NYSERDA, No. 1406 at p.
2) NEEA expressed support for the changes proposed in the December 2023
SNOPR and urged DOE to move forward with these proposals, as well as
those made in the July 2023 NOPR. (NEEA, No. 1414 at p. 1) NEEA
reiterated its support for effective storage volume-based standards and
high temperature test methods to prevent small, overheated products
from being used in place of products that meet the proposed standards.
(NEEA, No. 1414 at p. 2) CEC reiterated its appreciation for DOE's
efforts to address potential loopholes in the proposed regulatory
language for circulating water heaters and high temperature test
methods. (CEC, No. 1412 at p. 2)
2. General Opposition
Of the 966 general comments DOE received in response to the July
2023 NOPR related to product classes within the scope of this final
rule, 29, or 3 percent, were in opposition of new standards, with the
majority of opposition comments focused on the concerns of government
overreach and interference with a free market, impacts on product cost,
and overestimation of energy savings. Commenters also
[[Page 37796]]
expressed concerns about potential outsourcing to foreign companies due
to the proposed standards, installation costs for gas-fired and heat
pump water heaters, and the performance of heat pump water heaters.
These topics are discussed in this section through section III.A.3 of
this document.
Ravnitzky supported DOE's efforts to improve the energy efficiency
of consumer water heaters and reduce greenhouse gas emissions but
expressed concern for the impact of the proposed standards on consumers
and manufacturers. Ravnitzky urged DOE to reconsider the proposed
standards and account for the efficiency potential and resiliency
benefits of non-heat pump water heaters. (Ravnitzky, No. 73 at p. 1)
Ravnitzky stated that the proposed standards do not account for the
resiliency benefits of non-heat pump water heaters, which can operate
without electricity. Ravnitzky stated that heat pump water heaters
cannot function during a power outage, which could inconvenience
consumers and result in health risks. Ravnitzky also stated that gas-
fired water heaters are beneficial to consumers prone to natural
disasters and extreme weather events that disrupt the power grid
because they do not require electricity to operate. (Ravnitzky, No. 73
at p. 1)
Throughout this rulemaking, DOE has assessed the impacts of
potential amended standards on consumers and manufacturers,
specifically quantifying these impacts as national benefits and costs
(see section I of this document). In response to the concerns raised by
Ravnitzky, DOE notes that gas-fired water heaters will still be
available as an option to consumers at the levels adopted in this final
rule. Further, DOE notes that, while for certain classes of electric
storage water heaters the adopted standards are currently only met
through use of heat pump technology, electric storage water heaters
that rely on electric resistance technology also require a continuous
supply of electricity to operate. Therefore, without a backup supply of
electricity a power outage would render both types of electric storage
water heaters inoperable. DOE also notes that some gas-fired water
heaters do require electricity to operate. However, as discussed in the
July 2023 NOPR, DOE maintains its interpretation of EPCA at 42 U.S.C.
6295(q)(1) that gas-fired water heaters that do not require electricity
should not be treated differently (i.e., constitute a separate product
class) from gas-fired water heaters that do. 88 FR 49058, 49079.
AEI stated its belief that the rule is based on the need to
confront the global climate crisis, and therefore it is fatally flawed
and should not be finalized due to the lack of evidence of a climate
``threat'' or ``crisis.'' (AEI, No. 817 at p. 2)
DOE is finalizing amendments to the test procedure and energy
conservation standards for consumer water heaters based on its
authority described in section II.A of this document, which requires
the Department to consider seven (7) factors prior to finalizing such
amendments. This final rule outlines DOE's analysis of all seven
factors, with additional details provided in the TSD.
The Attorney General of TN commented that the proposed standards
have significant federalism implications within the meaning of
Executive Order 13132 for the following reasons: (1) DOE's standards
have a preemptive effect on States' procurement standards; and (2)
States own and purchase water heaters, and therefore the proposed
standards' effect on water heater costs directly affect States as
purchasers. (Attorney General of TN, No. 1149 at pp. 2-3) The Attorney
General of TN commented that DOE must show that the intrastate activity
covered by the proposed standards substantially affects the interstate
market for water heaters and there is no such analysis in the July 2023
NOPR. The Attorney General of TN commented that the proposed standards
will dominate the regulation of consumer goods--authority traditionally
belonging to the States. (Attorney General of TN, No. 1149 at p. 3)
DOE responds that it believes the scope of both the standard
proposed in the July 2023 NOPR and the amended standard adopted in this
final rule properly includes all consumer water heaters distributed in
commerce for personal use or consumption because intrastate state
activity regulated by 42 U.S.C. 6291(17) and 6302 is inseparable from
and substantially affects interstate commerce. DOE has clear authority
under EPCA to regulate the energy use of a variety of consumer products
and certain commercial and industrial equipment, including the subject
consumer water heaters. See 42 U.S.C. 6295. Based on this statutory
authority, DOE has a long-standing practice of issuing energy
conservation standards with the same scope as the standard in this
final rule. For example, DOE has maintained a similar scope of products
in the April 2010 Final Rule and in the December 2016 Conversion Factor
Final Rule. DOE disagrees with the Attorney General of TN's contention
that the Commerce Clause, the Tenth Amendment, the Major Questions
Doctrine, or any canons of statutory construction limit DOE's clear and
long-standing authority under EPCA to adopt the standard, including its
scope, in this final rule. A further discussion regarding the Attorney
General of TN's Federalism concerns can be found at section VI.E of
this document.
BWC, a former signatory to the Joint Stakeholder Recommendation,
urged DOE to reconsider re-aligning certain aspects of its proposal to
what was originally recommended by the Joint Stakeholder
Recommendation. (BWC, No. 1164 at p. 1)
The July 2023 NOPR proposed product classes and efficiency levels
incorporating the feedback from the Joint Stakeholder Recommendation;
however, the Department did not align entirely with the Joint
Stakeholder Recommendation. DOE provided its rationale for product
class definitions, efficiency level selection, and effective storage
volume throughout the July 2023 NOPR (see section IV of the July 2023
NOPR). These topics are discussed further in this final rule in
sections IV.A.1.f, IV.C.1.a, and V.D.1 of this document, respectively.
BWC noted that the July 2023 NOPR was published only shortly after
the June 2023 TP Final Rule, and that this period of time was too short
for manufacturers to provide adequate feedback on new aspects of the
test procedure, such as effective storage volume and high temperature
testing. BWC expressed its concern over this and the 60-day comment
period provided for the July 2023 NOPR, noting that these were both
deviations from appendix A. The Gas Association Commenters and Rinnai
also commented on this deviation, with ASA and the Gas Association
Commenters stating that the 60-day comment period was insufficient to
develop responses to the July 2023 NOPR and Rinnai stating that DOE did
not have an adequate basis to depart from the standard 75-day comment
period. ASA recommended extending the comment period to provide
commenters additional time for research and feedback and the Gas
Association Commenters stated this deviation placed undue burden on
commenters to review and evaluate a proposal that could have
significant ramifications on the water heater industry and consumers.
Rinnai claimed that DOE has rushed the rulemaking process by relying on
a preliminary TSD from 2022 and not producing a final TSD with the July
2023 NOPR and believed the compressed schedule between the September
2023 Webinar and the end of the comment period was
[[Page 37797]]
unjustified (BWC, No. 1164 at pp. 6-7; Gas Association Commenters, No.
1181, pp. 37-38; Rinnai, No. 1186 at p. 35; ASA, No. 1160 at p. 1) JEA,
WMU, and Southeast Gas commented that as members of APGA, they
supported APGA's submitted comments that offer more details on their
concerns. (JEA, No. 865 at p. 2; WMU, No. 872 at p. 2; Southeast Gas,
No. 887 at p. 1)
DOE has determined that the length of the comment period was
appropriate and provided a meaningful opportunity to comment on the
NOPR. In the July 2023 NOPR, DOE explained its deviation from section
6(f)(2) of 10 CFR part 430, subpart C, appendix A,\19\ which specifies
that the length of the public comment period for a NOPR be not less
than 75 calendar days. However, with respect to NOPRs, EPCA requires at
least a 60-day comment period. (42 U.S.C. 6295(p)(2)), and similarly,
Executive Order (``E.O.'') 12866, ``Regulatory Planning and Review,''
58 FR 51735 (Oct. 4, 1993) states that in most cases a comment period
should not be less than 60 days. On April 8, 2024, DOE published in the
Federal Register a final rule amending section 6 of appendix A to
specify that comment periods for standards rulemaking documents will be
determined on a case-by-case basis with a minimum 60-day comment period
for NOPRs based on the requirements of EPCA and recommendations in E.O.
12866. 89 FR 24360 (April 8, 2024). As discussed in the July 2023 NOPR,
DOE determined that a 60-day comment period provided sufficient time
because the NOPR relied on many of the same analytical assumptions and
approaches as used in the preliminary assessment, on which the public
had an opportunity to comment. 88 FR 49058. In particular, a 60-day
comment period (followed by 14-day extension) was provided for the
March 2022 Preliminary Analysis, and a 45-day period for the May 2020
RFI. 87 FR 11327; 85 FR 30853.
---------------------------------------------------------------------------
\19\ In reference to appendix A as it appeared at the time of
the publication of the July 2023 NOPR.
---------------------------------------------------------------------------
In response to the December 2023 SNOPR, DOE received 176 comments,
or 90 percent of comments, in opposition of new standards along similar
concerns as those expressed in response to the July 2023 NOPR.
DOE also received feedback from some stakeholders that the comment
period provided for the December 2023 SNOPR was too short. AHRI
requested that DOE extend the comment period to provide stakeholders
adequate time to properly respond. (AHRI, No. 1389 at p. 1) BWC stated
that the opportunity to comment on the December 2023 SNOPR was severely
limited due to its seasonal timing and comment period duration. (BWC,
No. 1413 at p. 3) Rinnai stated that there was little meaningful time
for a detailed assessment of the December 2023 SNOPR due to the timing
of the comment period and that only a limited number of inputs were
collected. (Rinnai, No. 1415 at p. 1)
The scope of the December 2023 SNOPR was limited to a definitional
change for circulating water heaters, with only two requests for
comment, and therefore DOE believes the comment period was sufficient.
The CA IOUs, NEEA, CEC, and NYSERDA expressed support for the December
2023 SNOPR comment period being limited to 14 days because its scope is
limited to circulating water heaters. (CA IOUs, No. 1409 at p. 1; NEEA,
No. 1414 at p. 2; CEC, No. 1412 at p. 3; NYSERDA, No. 1406 at p. 1)
Additionally, DOE's proposal in the SNOPR was mainly responsive to
more substantive stakeholder feedback received in response to the July
2023 NOPR, as discussed throughout that notice (see 88 FR 89330).
Many individual commenters also expressed concerns regarding the
implementation of heat pump water heaters due to efficiency concerns in
colder areas and weather, lack of expertise in maintaining a more
complex product, reliability, potential for mold, and potentially high
purchase and installation costs and requirements for a product with the
same expected lifetime as a standard electric water heater. Individual
commenters also stated that the proposed standards are
counterproductive because heat pump water heaters eject cold air into
the house which then has to be heated up by the household HVAC system.
Individual commenters stated that consumers may face high costs and
long wait times associated with retrofitting due to the proposed
standards, and due to increased insulation, which results in larger
products. These high costs will increase the cost of home ownership and
may prevent first-time buyers from obtaining a home.
DOE accounts for differences between rated efficiency and on-site
efficiency in its energy use analysis, which considers factors like
climate and heating load. Heat pump water heaters can help with cooling
demand in the summer but can work against the home heating system in
the winter if they are not ducted separately. DOE's energy use analysis
includes these impacts (see appendix 7B to the TSD). DOE quantifies
these impacts in the energy use analysis to include them in the
expected operating expenses for the LCC analysis.
One individual commenter requested that equipment and repair costs
be factored into savings and that consumers should decide the return in
savings when investing in new equipment. (Johnson, No. 1271 at p. 1)
Great Plains Resource supported the proposed standard and stated that
if a redesign of water heaters helps to control pollution, it should be
passed. Great Plains Resource stated, however, that DOE should plan to
mitigate costs for consumers associated with manufacturers increasing
costs of water heaters. Other commenters suggested that DOE subsidize
new water heater technologies or introduce a tax incentive rather than
seeking energy efficiency through regulations. Great Plains Resource
suggested that DOE should consider extending the time frame to help
manufacturers create new equipment and create competition to control
cost of equipment to consumers. (Great Plains Resource, No. 1267 at p.
1) An individual commented that condensing gas-fired water heaters use
expensive vent pipes due to the corrosiveness of condensation. (Harley,
No. 1341 at p. 1)
DOE notes that its analysis incorporates installation and equipment
costs into its analysis, including the necessary venting, as well as
repair and maintenance costs. Pickering expressed concern that the
definitions proposed in the December 2023 SNOPR for circulating water
heaters may not be compatible with solar photovoltaic direct water
heating systems, which the commenter described as a low-cost system
where DC electric output from the solar photovoltaic panel is wired
(without grid connection) directly to the heating elements of an
electric resistance storage water heater. (Pickering, No. 1399, at pp.
1-3)
DOE understands this comment to be opposing the proposed heat pump-
level standards for most electric storage water heaters due to the fact
that the direct solar photovoltaic water heating systems described by
the commenter is dependent upon a DC-compatible electric storage water
heater. DOE notes that electric resistance storage water heaters will
still be available within the small electric storage water heater (and
grid-enabled water heater product classes for cases where the home is
still connected to a utility grid), however.
According to NPGA, APGA, AGA, and Rinnai, DOE is seeking to promote
the market for electric heat pumps at the expense of gas-fired water
heaters, diminishing competition and profoundly affecting consumer
choice. They also stated that the proposed rule fails to meet EPCA's 3-
year rebuttable
[[Page 37798]]
presumption of economic justification under pure economic terms and
would be an enormous burden on manufacturing and on competition between
gas and electric water heaters. (NPGA, APGA, AGA, and Rinnai, No. 441
at pp. 3-4) EEI noted that while the proposed standards for electric
storage water heaters increase by 21 to 140 percent in efficiency, the
July 2023 NOPR only proposed an increase of 0 to 9.7 percent for gas-
fired and oil-fired storage water heaters, and this disparity would
cause fuel-fired storage water heaters to gain a competitive advantage
because buyers' decisions are strongly motivated by cost
considerations. (EEI, No. 1198 at pp. 3-4) Sunrise Pittsburgh stated
that the proposed standard would require electric and gas-fired water
heaters to meet vastly different standards, which could potentially
result in consumers switching to gas-fired water heaters given the
lower upfront cost associated with gas-fired water heaters compared to
heat pump water heaters. In turn, Sunrise Pittsburgh stated this may
result in more carbon emissions. According to Sunrise Pittsburgh,
revising the proposed standard to apply the same standard across all
water heaters regardless of the technology or fuel source used would
benefit consumers, especially it removes gas-fired water heaters from
the market, as this would save consumers from asthma and carcinogens as
well as dangerous gas-fired water heater explosions associated with gas
fueled products. (Sunrise Pittsburgh, No. 905 at pp. 1-2)
In this rulemaking DOE has provided its analytical approach and
results which have led to the selection of more stringent standards for
some product classes compared to others. When determining whether the
benefits of amended standards outweigh the burdens, DOE considers the
trial standards levels, which are comprised of different efficiency
levels for each product class. The construction of trial standards
levels is discussed in section V.A of this document. In the shipments
analysis, which is detailed in section IV.G of this document, DOE
considers the impacts of product life-cycle costs on consumer
purchasing decisions, which ultimately is used to assess the total
energy savings, economic impacts to consumers, and impacts to health
(summarized in section I.C of this document).
With respect to Sunrise Pittsburgh's suggestion to apply the same
standard across all water heaters regardless of the technology or fuel
source, DOE establishes separate standards for different product
classes of consumer water heaters based on statutory requirements from
EPCA, which includes a consideration for products that consume
different types of energy (e.g., electricity, oil, or gas). (42 U.S.C.
6295(q)(1)-(2)) The product classes established by this final rule are
discussed in section IV.A.1 of this document.
3. Selection of Standards Levels
DOE received several comments regarding the selection of proposed
efficiency levels.
CEC agreed with DOE's analysis recognizing that the majority of
electric storage water heaters can meet heat pump-level standards but
encouraged DOE to consider improving the minimum standard for electric
storage water heaters >20 and <=55 gal to a level closer to EL 2. CEC
noted that while a UEF of 2.3 (as proposed) is sufficient to drive the
core shift in technology, the least efficient heat pump water heaters
on the market today have a UEF of 2.8 or greater. (CEC, No. 1173 at pp.
3-4)
As stated in the July 2023 NOPR, split-system and 120-volt heat
pump water heaters may not be able to achieve the same efficiency
levels as conventional 240-volt products, as suggested by less
stringent ENERGY STAR Residential Water Heaters Specification Version
5.0 (``ENERGY STAR v5.0'') criteria at 2.20 UEF. DOE has observed
products certified to both the ENERGY STAR database and DOE's
Compliance Certification Database (``CCD'') capable of meeting these
criteria and determined EL 2 such that novel 120-volt products would
not be prevented from entering the market. 88 FR 49058, 49090. DOE
continued to consider these factors when evaluating the standard levels
for this final rule.
DOE received comments from BWC regarding the potential manufacturer
impacts and capacity constraints related to transitioning all electric
storage water heater products to heat pump designs. BWC stated
appreciation that DOE recognized that a 5-year compliance window may be
challenging for many manufacturers to redesign 100 percent of electric
storage water heater products to incorporate heat pump designs. BWC
noted that change of this scale would indeed require a commitment of
significant time, resources, and capital to ensure these units can be
produced at a rate that would satisfy sharply increased demand while
meeting and exceeding consumers' needs and expectations. (BWC, No. 1164
at pp. 14-15)
NRECA recommended that DOE delay implementation of the proposed
electric storage water heater standard for 40-gallon model sizes to
allow more time for manufacturers to innovate and design heat pump
water heaters that are more adaptable to a variety of installation
scenarios. NRECA also recommended that DOE allow electric resistance
options for storage tank sizes up to 50 gallons for space constrained
installations, and that DOE apply the proposed standard for electric
storage water heaters to new construction only, since new homes can be
designed to accommodate heat pump water heaters. (NRECA, No. 1127 at p.
13)
In response, DOE notes that the timing of amended standards for
consumer water heaters is mandated by EPCA. Furthermore, DOE finds that
a 5-year lead time is sufficient for manufacturers to prepare given
that heat pump water heaters available today can be installed in a
variety of installation scenarios. For consumer water heaters DOE does
not have the authority to regulate water heaters in new construction
only. As discussed in section V.C of this document, DOE has fully
weighed the burdens of its proposed standards for electric storage
water heaters against its benefits in determining the appropriate
standards level.
DOE acknowledges that requiring all electric storage water heater
products to utilize heat pump designs would require notably higher
levels of investment and development effort compared to only requiring
a portion of the electric storage water heater market to transition to
heat pump designs. In this final rule, DOE is adopting TSL 2, which,
for electric storage water heaters, includes standards for larger
products that are met through the use of heat pump technology while
leaving standards for smaller products that can be met through the use
of electric resistance heating. See section V.C.1 of this document for
the benefits and burdens of the TSLs considered in this rulemaking.
In this rulemaking, DOE did not analyze more stringent standards
for product classes for which there are currently no UEF-based
standards. Several commenters raised the concern that establishing such
standards for certain product classes and then raising standards for
other product classes would create a market condition where
manufacturers can shift their models to meet the requirements of the
new product classes with less stringent standards, hence undermining
the energy savings potential of this rulemaking. This issue is
discussed in detail throughout this document. The creation of separate
product classes for the models that do not have current
[[Page 37799]]
UEF-based standards is detailed in section IV.A.1 of this document. The
selection of standards for these products is explained in section
IV.C.1 of this document. Finally, the impact of market transition
(i.e., product class switching) is addressed in the shipments analysis
in section IV.G of this document.
DOE received comments from some stakeholders regarding the impact
of the proposed standards for electric storage water heaters (which
correspond to efficiencies attainable by heat pump water heaters) on
electric grids.
Armada claimed that the proposed standards would cause serious
business harm to companies that provide technologies to convert
traditional electric storage water heaters into demand-response
products. (Armada, No. 1193 at p. 3) Armada emphasized the importance
of American-made technologies for grid-reliability as critical to
tackling the climate crisis and advancing environmental justice
initiatives, but these technologies are at risk of being regulated out
of existence by the proposed standards. (Armada, No. 1193 at p. 7)
Armada commented that due to the long recovery cycle of heat pump water
heaters, these products are limited in their demand response
capabilities. Armada stated that while they can be used for scheduled
time-of-use programs, they do not work well responding to grid
congestion or to the intermittent availability of renewable energy
sources (e.g., wind or solar) because water heater energy use times do
not line up with when renewable energy resources are available during
the day. (Armada, No. 1193 at p. 3)
NRECA stated that heat pump water heaters may be beneficial to
electrical grid demand peaks because they draw lower demand than
electric resistance storage water heaters, however they expressed
concern that heat pump water heaters may not yield enough savings for
demand response programs to be cost-effective. NRECA also stated that
most electric cooperatives use load control switches to manage electric
water heater demand, but have found that this strategy is generally
incompatible with heat pump water heaters, which take more time to
reboot after a cut in power than an electric resistance storage water
heater. NRECA added that heat pump water heater can be managed using
more sophisticated strategies such as CTA 2045, AHRI 1430, or the
manufacturer's API; however, NRECA commented that electric cooperatives
are concerned about the time, expense, and security risks associated
with implementing a new control strategy. (NRECA, No. 1127 at p. 11)
NRECA stated many of their member electric cooperatives mitigate demand
peaks by running demand response programs, using both grid-enabled
water heaters and 50-gallon electric storage water heaters and added
that few of the cooperatives they interviewed include or plan to
include heat pump water heaters, due to incompatible load control
strategies or reduced grid management benefits. (NRECA, No. 1127 at p.
11)
ECSC urged DOE to retain electric resistance options for electric
storage water heater installations where heat pump water heaters impose
a time-consuming, costly burden, and to consider restrictions on
tankless electric water heaters instead. ECSC stated that if consumers
cannot afford or install heat pump water heaters, the remaining options
of a small electric storage water heater (``ESWH'') or a tankless
electric water heater pose a significant threat to existing electric
grid demand management programs, which rely on electric storage water
heaters as a thermal resource. ECSC added that the proposed standards
for electric storage water heaters will likely disproportionately harm
low-to-moderate income consumers. (ECSC, No. 1185 at p. 2)
NEEA, however, noted that heat pump water heaters have been
successfully deployed in demand response programs in the Pacific
Northwest, and added that, similar to electric resistance storage water
heaters, heat pump water heaters are capable of shifting load from on-
peak to off-peak hours, and are also capable of handling load-up events
since they have both electric resistance backup elements and a
compressor. NEEA cited a pilot program conducted by Bonneville Power
Administration and Portland General Electric which enrolled 175 heat
pump water heaters and 90 electric resistance water heaters in a demand
response program and controlled them through 600 events over the course
of 220 days. NEEA noted the pilot found that electric resistance and
heat pump water heaters alike were able to reduce load substantially.
(NEEA, No. 1199 at pp. 8-9)
NRECA's comment indicates that utilities may employ more strategies
for water heater load management than CTA-2045 or OpenADR communication
protocols. DOE reviewed load control switch technology in more
detail.\20\ These load control switches appear to be capable of
implementing schedule-based control. However, if utilities need to cut
power to water heaters at unplanned times to manage electricity demand,
heat pump water heaters are expected to still be able to return to
operation in a reasonable amount of time. DOE's teardown analyses of
heat pump water heaters on the market show that nearly all heat pump
water heater designs today have backup electric resistance elements
should the household require a faster recovery rate. DOE does not
expect heat pump water heaters to remove these backup elements as a
result of amended standards. Additionally, DOE finds that the studies
conducted by NEEA provide evidence towards the compatibility of heat
pump water heaters with present-day load control strategies.
---------------------------------------------------------------------------
\20\ See, for example, the Generac ARA Load Control Switch.
Product literature can be found online at: www.generacgs.com/wp-content/uploads/2023/04/ARA_LoadControlSwitch_SpecSheet_B-1.pdf
(Last accessed Oct. 11, 2023).
---------------------------------------------------------------------------
In response to ECSC, there is an increasing number of heat pump
water heaters available with demand-response capabilities. The ENERGY
STAR v5.0 specification incentivizes the manufacture of heat pump water
heaters that meet a list of criteria for connected product design,
including the use of the standardized CTA-2045 or OpenADR
communications protocols for utilities to send signals to enrolled
water heaters. Load management strategies are expected to still be
compatible with heat pump water heater designs. Additionally, DOE
reiterates that electric resistance storage water heaters which elevate
the storage tank temperature beyond 135 [deg]F when responding to
utility load management signals are exempt from having to test to the
high temperature test method and will likely remain on the market.
Beyond small electric storage water heaters and heat pump water
heaters, grid-enabled water heaters (which are larger than 75 gallons
of rated storage volume) are designed for this explicit purpose. DOE
does not expect the availability of grid-enabled water heaters to
decline as a result of this final rule (because no substantial
amendments to the standards for these products are being adopted in
this rulemaking), so there will remain electric resistance products
available to consumers to connect to utility grid programs.
NPGA, APGA, AGA, and Rinnai stated that DOE should consider the
effects the additional demand for electricity for water heaters may
have on the energy grid as it has presently failed to consider such an
impact its proposed standards may have on grid reliability. According
to NPGA, APGA, AGA, and Rinnai, DOE should heed the guidance of the
Government Accountability Office and analyze options for grid
resilience to avoid enhanced strain
[[Page 37800]]
without a demand management or supply plan and would benefit by
reviewing analysis of grid strain during extreme weather events. (NPGA,
APGA, AGA, and Rinnai, No. 441 at p. 4) NMHC and NAA also advised that
such an increase in electric product usage should be coupled with
efforts to ensure the electric grid is prepared and suggested that DOE
consider the costs and barriers in this rulemaking. (NMHC and NAA, No.
996 at p. 5)
DOE does not expect a significant fraction of consumers to switch
from gas-fired or oil-fired water heaters to electric water heaters as
a result of this rulemaking. See section IV.F.10 of this document. DOE
does expect a significant fraction of consumers to switch from electric
resistance storage water heaters to heat pump water heaters as a result
of the more stringent standards for electric storage water heaters,
however. Heat pump water heaters are significantly more efficient than
electric resistance storage water heaters, and, as a result, consume
significantly less electricity than electric resistance storage water
heaters, which actually reduces strain on electrical grids.
The Attorney General of TN commented that the proposed rulemaking
does not address the additional strain these standards would place on
the national energy infrastructure and power grid. The Attorney General
of TN stated that, by encouraging a 5 percent to 63 percent shift among
consumers from gas-fired water heaters to those powered by electric
pumps, the demand for additional electricity will place further stress
on an already overworked energy grid. (Attorney General of TN, No. 1149
at p. 3)
DOE has carefully considered the potential impact of proposed
standards on the national energy infrastructure and power grid. With
reduced energy consumption and appropriate configuration, the proposed
standards would actually benefit national energy infrastructure and
power grid.
B. Scope of Coverage and Definitions
As discussed in section II.B.3 of this document, this final rule
covers those consumer products that meet the definition of ``water
heater,'' as codified at 10 CFR 430.2 and as described by EPCA at 42
U.S.C. 6291(27), with the exception of ``Gas-fired instantaneous water
heater,'' as codified at 10 CFR 430.2.
Generally, DOE defines a ``water heater,'' consistent with EPCA's
definition, as a product which utilizes oil, gas, or electricity to
heat potable water for use outside the heater upon demand, including:
(a) Storage type units which heat and store water at a
thermostatically controlled temperature, including gas storage water
heaters with an input of 75,000 Btu per hour or less, oil storage water
heaters with an input of 105,000 Btu per hour or less, and electric
storage water heaters with an input of 12 kilowatts (kW) or less;
(b) Instantaneous type units which heat water but contain no more
than one gallon of water per 4,000 Btu per hour of input, including gas
instantaneous water heaters with an input of 200,000 Btu per hour or
less, oil instantaneous water heaters with an input of 210,000 Btu per
hour or less, and electric instantaneous water heaters with an input of
12 kilowatts or less; and
(c) Heat pump type units, with a maximum current rating of 24
amperes at a voltage no greater than 250 volts,\21\ which are products
designed to transfer thermal energy from one temperature level to a
higher temperature level for the purpose of heating water, including
all ancillary equipment such as fans, storage tanks, pumps, or controls
necessary for the device to perform its function.
---------------------------------------------------------------------------
\21\ In the June 2023 TP Final Rule, DOE amended the definition
of ``commercial heat pump water heater'' at 10 CFR 431.102 to align
with the amperage and voltage requirements for consumer heat pump
type units as specified in EPCA.
---------------------------------------------------------------------------
10 CFR 430.2; (42 U.S.C. 6291(27))
In addition, at 10 CFR 430.2, DOE further defines several specific
categories of consumer water heaters as follows:
``Electric instantaneous water heater'' means a water
heater that uses electricity as the energy source, has a nameplate
input rating of 12 kW or less, and contains no more than one gallon of
water per 4,000 Btu per hour of input.
``Electric storage water heater'' means a water heater
that uses electricity as the energy source, has a nameplate input
rating of 12 kW or less, and contains more than one gallon of water per
4,000 Btu per hour of input.
``Gas-fired instantaneous water heater'' means a water
heater that uses gas as the main energy source, has a nameplate input
rating less than 200,000 Btu per hour, and contains no more than one
gallon of water per 4,000 Btu per hour of input.
``Gas-fired storage water heater'' means a water heater
that uses gas as the main energy source, has a nameplate input rating
of 75,000 Btu per hour or less, and contains more than one gallon of
water per 4,000 Btu per hour of input.
``Grid-enabled water heater'' means an electric resistance
water heater that--
[cir] Has a rated storage tank volume of more than 75 gallons;
[cir] Is manufactured on or after April 16, 2015;
[cir] Is equipped at the point of manufacture with an activation
lock; and
[cir] Bears a permanent label applied by the manufacturer that--
[ssquf] Is made of material not adversely affected by water;
[ssquf] Is attached by means of non-water-soluble adhesive; and
[ssquf] Advises purchasers and end-users of the intended and
appropriate use of the product with the following notice printed in
16.5 point Arial Narrow Bold font: ``IMPORTANT INFORMATION: This water
heater is intended only for use as part of an electric thermal storage
or demand response program. It will not provide adequate hot water
unless enrolled in such a program and activated by your utility company
or another program operator. Confirm the availability of a program in
your local area before purchasing or installing this product.''
``Oil-fired instantaneous water heater'' means a water
heater that uses oil as the main energy source, has a nameplate input
rating of 210,000 Btu/h or less, and contains no more than one gallon
of water per 4,000 Btu per hour of input.
``Oil-fired storage water heater'' means a water heater
that uses oil as the main energy source, has a nameplate input rating
of 105,000 Btu/h or less, and contains more than one gallon of water
per 4,000 Btu per hour of input.
In the June 2023 Test Procedure Final Rule, DOE amended 10 CFR
430.2 (effective on July 21, 2023), adding the following definitions
for circulating, low-temperature, and tabletop water heaters:
``Circulating water heater'' means an instantaneous or
heat pump-type water heater that does not have an operational scheme in
which the burner, heating element, or compressor initiates and/or
terminates heating based on sensing flow; has a water temperature
sensor located at the inlet or the outlet of the water heater or in a
separate storage tank that is the primary means of initiating and
terminating heating; and must be used in combination with a
recirculating pump and either a separate storage tank or water
circulation loop in order to achieve the water flow and temperature
conditions recommended in the manufacturer's installation and operation
instructions.
``Low-temperature water heater'' means an electric
instantaneous water heater that is not a circulating water heater and
cannot deliver water at a
[[Page 37801]]
temperature greater than or equal to the set point temperature
specified in section 2.5 of appendix E to subpart B of this part when
supplied with water at the supply water temperature specified in
section 2.3 of appendix E to subpart B of part 430 and the flow rate
specified in section 5.2.2.1 of appendix E to subpart B of part 430.
``Tabletop water heater'' means a water heater in a
rectangular box enclosure designed to slide into a kitchen countertop
space with typical dimensions of 36 inches high, 25 inches deep, and 24
inches wide.
As stated in section I of this document, EPCA prescribed energy
conservation standards for all consumer water heaters (i.e., those that
meet the definition of ``water heater'' above). For the purposes of
this final rule, DOE is considering all consumer water heaters, as
defined by EPCA, with the exception of ``gas-fired instantaneous water
heaters.'' This rulemaking does include consumer water heaters for
which there are no current UEF-based standards codified at 10 CFR
430.32(d).
In the July 2023 NOPR, DOE responded to inquiries concerning
coverage of hot water dispensing products (not to be confused with low-
temperature electric instantaneous water heaters or point-of-use
electric storage water heaters), which operate at less than 2 kW of
power and generally provide water at temperatures between 160 [deg]F
and 210 [deg]F for food preparation purposes. DOE stated that while it
has the authority to set standards for products that meet the
definition of a consumer water heater (42 U.S.C. 6292(a)(4)), this
rulemaking is not currently considering standards for hot water
dispensing products. 88 FR 49058, 49070.
Additionally, DOE received comments from stakeholders in response
to the July 2023 NOPR regarding the scope and classification of
circulating water heater as defined at 10 CFR 430.2 by the June 2023 TP
Final Rule. DOE subsequently published an SNOPR on December 27, 2023
(``December 2023 SNOPR''), that discussed the comments received on this
topic and proposed to amend the definition for ``circulating water
heater'' to reclassify these products as storage-type water heaters. 88
FR 89330. In the December 2023 SNOPR, DOE proposed amending the
definition of ``circulating water heaters'' to re-classify these
products as storage-type water heaters. Id. After considering the
comments on the December 2023 SNOPR, DOE is adopting its proposal to
amend the definition for ``circulating water heater'' as it appears at
10 CFR 430.2 to reclassify these products as storage-type water
heaters. The SNOPR comments received from stakeholders and DOE's
responses, along with the definition of a ``circulating water heater,''
are discussed in detail in section IV.A.1.a of this document. As a
result of this reclassification, the scope of coverage for circulating
water heaters is limited to those products which meet the statutory
input rate limits for storage-type water heaters. Specifically,
electric circulating water heaters must have a nameplate input rating
of 12 kW or less, gas-fired circulating water heaters must have a
nameplate input rating of 75,000 Btu/h or less, oil-fired circulating
water heaters must have a nameplate input rating of 105,000 Btu/h or
less, and heat pump circulating water heaters must have a maximum
current rating of 24 amperes (``A'') at a voltage no greater than 250
volts (``V''). Circulating water heaters that have input rates greater
than these specifications would be considered commercial water heaters.
In response to the December 2023 SNOPR, BWC indicated that
commercial circulating water heaters are not separately defined at 10
CFR 431.102 and the recent final rule regarding energy conservation
standards for commercial water heaters \22\ did not establish separate
standards for circulating water heaters. BWC requested that DOE clarify
how the provisions in the December 2023 SNOPR will impact commercial
circulating water heaters if adopted. (BWC, No. 1413 at p. 2) A.O.
Smith agreed with DOE's determination that circulating water heaters
with input rates surpassing those defined for consumer storage water
heaters as outlined in 10 CFR 430.2, should be classified as commercial
water heaters. A.O. Smith suggested that DOE formalize this
categorization by establishing definitions for commercial gas-fired
circulating water heaters with input rates between 75,000 Btu/h and
200,000 Btu/h at 10 CFR 431.102. (A.O. Smith, No. 1411 at p. 2)
---------------------------------------------------------------------------
\22\ On October 6, 2023 the Department published a final rule
amending standards for commercial water heating equipment, including
commercial circulating water heaters. 88 FR 69686.
---------------------------------------------------------------------------
Rheem concluded that gas-fired circulating water heaters with input
rates greater than 75,000 but less than or equal to 105,000 Btu/h could
be categorized as residential-duty commercial water heating
equipment,\23\ and therefore could be subject to the energy
conservation standards recently established in the commercial water
heater equipment final rule. Rheem requested DOE confirm its
understanding that the proposed definitions circulating water heaters
would extend to residential-duty commercial water heaters. (Rheem, No.
1408 at p. 3)
---------------------------------------------------------------------------
\23\ DOE defines residential-duty commercial gas-fired storage
water heaters as commercial gas-fired storage water heaters that are
not designed to provide outlet hot water at temperatures greater
than 180 [deg]F, do not have a rated input greater than 105,000 Btu/
h, and do not have a rated storage volume greater than 120 gallons.
(10 CFR 431.102)
---------------------------------------------------------------------------
The scope of this rulemaking pertains specifically to consumer
water heaters, and the amended standards and definitions addressed
herein do not apply to residential-duty commercial water heaters (which
are commercial water heating equipment defined at 10 CFR 431.102). The
definition of circulating water heater DOE is establishing at 10 CFR
430.2 will be supplemented by additional definitions for electric, gas-
fired, and oil-fired circulating water heaters that specify input rate
limits consistent with consumer water heaters. Circulating water
heaters that exceed these input rates will be commercial water heaters
and therefore are outside the scope of standards established in this
rulemaking. DOE may consider addressing standards and test procedures
for commercial circulating water heaters in a future rulemaking for
commercial water heaters.
In response to the July 2023 NOPR, the Joint Advocacy Groups urged
DOE to clarify that electric water heaters that can operate at inputs
both above and below 12 kW must meet both the relevant consumer and
commercial water heater standards. (Joint Advocacy Groups, No. 1165 at
p. 8)
DOE is aware of certain ``field-convertible'' electric storage
water heaters which can be sold with elements rated above 12 kW (e.g.,
12.1 kW), but the product is designed in a way that allows the user to
change the elements to a lower input rate (e.g., 6 kW). Field-
convertible electric storage water heaters are, therefore, sold as
commercial water heaters but can be converted into consumer water
heaters.\24\
---------------------------------------------------------------------------
\24\ For example, Rheem offers a commercial electric water
heater that is marketed for light-duty commercial applications. In
certain storage volumes (i.e., 66, 80, and 119.9 gallon models) the
input rating as shipped from the manufacturer is only available at
12.1 kW which qualifies the product as a commercial water heater.
However, the product literature states that this product is factory
shipped with two 6.05 kW elements that operate simultaneously, but
can be easily converted in field for non-simultaneous element
operation. When converted, the input rating would be effectively
6.05 kW. This causes the product to meet the definition of a
consumer water heater. For more information see: https://s3.amazonaws.com/WebPartners/ProductDocuments/9A53AD9F-75C2-4E66-8967-1BAE91B17CAC.pdf (Last accessed on Dec. 20, 2023)
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[[Page 37802]]
Consistent with its determinations in other rulemakings, DOE has
concluded that if a product can be configured to meet either the
commercial water heater definition or the consumer water heater
definition, then it must comply with the standards applicable to all
types of product/equipment in which it can be configured. For example,
in a recent final rule addressing convertible consumer refrigeration
products, DOE specified that if a product is capable of operating with
compartment temperatures as specified in multiple product category
definitions (i.e., a ``convertible product''), the model must be tested
and certified to each applicable product category. 88 FR 7840, 7843
(Feb. 7, 2023). Also, in a recent final rule addressing the test
procedure for consumer boilers (which are a space-heating appliance
that can often also be configured to provide domestic water heating),
DOE determined that if a combination appliance meets the definition of
a consumer boiler, the product must be tested per the boiler test
procedure and demonstrate compliance with those standards. 88 FR 15510,
15515 (Mar. 13, 2023). Similarly, field-convertible electric storage
water heaters are subject to the appendix E test procedure and the
standards adopted by this final rule to the extent that they can be
configured to meet the consumer water heater definition.
Uponor stated that other countries have generated domestic hot
water via a heat exchanger connected to a hydronic mechanical system to
improve water quality and energy efficiencies for decades. Uponor
provided product literature from its technology offerings and requested
clarification about how such products would be covered under DOE's
standards. (Uponor, No. 606 at p. 1)
DOE reviewed the product literature cited by the commenter and
found that the technology being referenced is an unfired heat exchange
device which can couple hydronic piping to domestic hot water piping
far downstream of the point of heat generation so that the heat
exchange can occur in commercial high-rise buildings to produce
domestic hot water using heat from the building's hydronic heating
system. While DOE does not disagree that these technologies could
improve high-rise building system efficiencies, the heat exchangers
referenced by Uponor may be better characterized as heat recovery
devices that function based on diverting excess heat to the domestic
hot water supply and work in conjunction with the appliance providing
the heat.
In response to the July 2023 NOPR, DOE received questions from BWC
asking whether space-heating products that are capable of heating
domestic hot water by means of an indirect water heater tank would be
considered circulating water heaters. In response to the December 2023
SNOPR, Pickering provided comments raising concerns about the potential
for evaluating efficiency gains if there is overlap between these types
of systems and circulating water heaters.
Pickering commented that definitions that do not account for the
array of equipment that is on the market or coming on the market, and
that do not recognize the efficiency gains to be had with multiple
pieces of equipment operating as a system, may limit choice and stifle
innovation. Specifically, Pickering commented that the proposed
definitions for circulating water heaters may be incompatible with or
otherwise create regulatory impediments to air-to-water heat pumps that
provide domestic hot water as an ancillary function to space
conditioning. Pickering added that these combined systems can increase
overall system efficiency over a more typical separated system, but
that the proposed definitions mean that it may be difficult to quantity
the efficiency of the domestic hot water function of a combined system
specifically, and that they may not account for or accommodate the
combinations of equipment (assembled on site) that produce domestic hot
water in such a combined system. (Pickering, No. 1399 at pp. 1-3)
Pickering recommended DOE consider removing indirect tanks from the
definition of conventional electric storage water heaters, refrain from
setting water heater efficiency standards for heat pumps that produce
domestic hot water as an ancillary function, clarify that gas-fueled
heat pumps are not considered to be electric storage water heaters, and
take a systems approach to energy efficiency for domestic hot water.
(Pickering, No. 1399 at p. 3)
BWC requested that DOE provide answers to the following questions:
(1) Are split-system heat pump products that provide space heating, as
well as domestic hot water through an indirect unfired hot water
storage tank (``UFHWST'') classified as a circulating heat pump water
heater, or instead as an air-to-water heat pump? (2) Would such a
product need to be tested under the residential water heater test
procedure, the air-to-water heat pump test procedure once such a
procedure is created, or both? (3) Will such a product need to
represent its efficiency using UEF or annualized fuel utilization
efficiency, or both? (BWC, No. 1164 at pp. 11-12) While these questions
pertain specifically to air-to-water heat pump appliances, DOE
understands the need for general clarification regardless of the fuel
type or technology.
Circulating water heaters circulate potable water through a heat
exchanger: warm water from the stored volume of water enters the
circulating water heater and exits after being heated to the setpoint
temperature. By contrast, an indirect water heater uses the main
furnace or boiler of a home to heat a fluid that is circulated through
a heat exchanger in the storage tank.\25\ An indirect water heater does
not circulate the potable domestic hot water supply to and from the
boiler (it is a separate heating fluid which circulates through the
tank and boiler), therefore, DOE has determined that a boiler paired
with an indirect water heater is not a circulating water heater.
---------------------------------------------------------------------------
\25\ A diagram of an indirect water heater and further
description of this design configuration is provided on DOE's
website at: www.energy.gov/energysaver/tankless-coil-and-indirect-water-heaters (Last accessed: Oct. 30, 2023).
---------------------------------------------------------------------------
Pickering also commented that the proposed definitions for
circulating water heaters may be incompatible with or otherwise create
regulatory impediments to solar thermal water heating systems.
(Pickering, No. 1399 at p. 2)
DOE understands the commenter to be referring to solar water
heating systems that circulate a hot heat transfer fluid between a
solar heat collector and a heat exchanger inside a domestic hot water
storage tank. Such a setup is parallel to an indirect-fired water
heater: it is not the potable hot water that circulates between the
heat source and the tank, it is an intermediate heat transfer fluid
instead. As such, solar thermal water heating systems designed in this
way do not constitute circulating water heaters.
This is in contrast to a boiler with a tankless coil (or a
combination boiler-water heater). A tankless coil water heater provides
hot water on demand without a tank, much like an instantaneous water
heater. When a hot water faucet is turned on, water is heated as it
flows through a heating coil or heat exchanger installed in a main
furnace or boiler. In the tankless coil configuration, the domestic hot
water supply does circulate through the boiler. However, these systems
are typically flow-activated, and thus most do not meet the definition
of a ``circulating water heater,'' either.
[[Page 37803]]
BWC requested clarification on whether air-to-water heat pumps
would be covered as both circulating water heaters and as hydronic
heating system boilers, which are being discussed by the U.S.
Environmental Protection Agency (``EPA'') with regards to amendments to
the consumer boiler specification. Specifically, BWC called attention
to the potential overlap between the definition of circulating water
heater and what the EPA is considering regulating as air-to-water
(hydronic) heat pumps for space-heating in a potential revision or new
specification for consumer boilers. BWC stated that both heat pump
circulating water heaters and hydronic heat pumps are air-to-water heat
pumps, and there would be an issue if multiple product definitions
overlapped, thereby encompassing the same covered product within scope
and subjecting it to two separate test procedures and efficiency
standards. (BWC, No. 1164 at pp. 11-12)
There is currently no codified definition for an air-to-water
hydronic heat pump used for space heating purposes. However, in a March
2023 final rule amending the test procedure for consumer boilers (the
``March 2023 Boilers TP Final Rule''), DOE determined that hydronic
heat pump appliances which meet the consumer boiler definition would be
classified as consumer boilers. 88 FR 15510, 15516 (Mar. 13, 2023).
However, the March 2023 Boilers TP Final Rule did not establish a test
method for these hydronic heat pump boilers. Id. At this time, there is
no Federal test procedure to determine the Annual Fuel Utilization
Efficiency (``AFUE'') of such a product, hence, there are also no AFUE
requirements for these heat pumps. In the March 2023 Boilers TP Final
Rule, DOE also stated that, to the extent that a combination space and
water heating product meets the definition of electric boiler or low
pressure steam or hot water boiler, it is subject to the boilers test
procedure and energy conservation standards for consumer boilers at 10
CFR 430.32(e)(2), and must be tested and rated accordingly. Id. at
15515. Therefore, per DOE's test procedure requirements, if an air-to-
water heat pump meets both the definition of a consumer boiler and a
consumer water heater, then it must be tested to both test procedures,
should the boilers test procedure be amended at a future date to
include an applicable method of test. On June 5, 2023, EPA released a
Discussion Guide \26\ requesting information from stakeholders about a
method of test for hydronic heat pump boiler systems. DOE will monitor
the development of this method of test but notes that it is a draft
specification that has not been released as of this final rule.
---------------------------------------------------------------------------
\26\ The Boilers Discussion Guide can be found online at:
www.energystar.gov/products/residential_boilers_specification (Last
accessed: Nov. 3, 2023).
---------------------------------------------------------------------------
RVIA commented that based on the plain language of the consumer
product statute, appliances designed specifically for use in a
recreational vehicle (``RV'') are exempted from new standards. RVIA
urged DOE to continue to recognize the uniqueness of RVs and the
importance of excluding specific component parts designed for RVs from
new appliance standards. (RVIA, No. 1168 at p. 4)
The scope of this rulemaking excludes water heaters designed
exclusively for RV applications because the definition of ``consumer
product'' in EPCA excludes consumer products designed solely for use in
recreational vehicles and other mobile equipment. (See 42 U.S.C.
6292(a)) In the market and technology assessment, DOE evaluated
certification data to ensure that the model information used throughout
this rulemaking analysis aligned with the scope of coverage.
Section IV.A.1 of this document contains detailed discussion of the
product classes analyzed in this final rule.
C. Test Procedure
EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
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 energy conservation standards for consumer water heaters are
expressed in terms of UEF. (See 10 CFR 430.32(d).)
DOE most recently amended the test procedure for these products at
appendix E in the consumer and residential-duty commercial water heater
test procedure final rule published on June 21, 2023 (``June 2023 TP
Final Rule'') pursuant to the 7-year review requirement as specified by
EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In the June
2023 TP Final Rule, DOE added definitions and, where necessary,
additional test procedure provisions for circulating water heaters,
low-temperature water heaters, and tabletop water heaters, as well as
provisions for high-temperature testing. However, DOE deferred the
implementation of high-temperature testing provisions to this energy
conservation standards rulemaking. 88 FR 40406, 40448. DOE also
established effective storage volume as a metric and provided
additional optional ambient test conditions for heat pump water
heaters. Id. The test procedure for consumer water heaters incorporates
by reference current versions of industry standards ASHRAE 41.1, ASHRAE
41.6, ASHRAE 118.2, ASTM D2156, and ASTM E97 and harmonizes various
aspects of the test procedure with industry test procedures ASHRAE
118.2-2022 and NEEA Advanced Water Heating Specification v8.0. The
amended test procedure established by the June 2023 TP Final Rule is
mandatory for consumer water heater testing starting December 18, 2023,
180 days after publication, with the exception of certain provisions
(i.e., the new high temperature test method and the circulating water
heater test method). For these specific provisions, compliance is
mandatory on and after the compliance date of this final rule. (See
Note at the beginning of appendix E).
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. Sections 6(b)(3)(i) and 7(b)(1) of appendix A
to 10 CFR part 430 subpart C (``appendix A'').
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.
Section 7(b)(2)-(5) of the Appendix A. Section IV.B of this document
discusses the results of the screening analysis for consumer water
heaters, particularly the designs DOE considered, those it screened
out, and those that are the
[[Page 37804]]
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 a new or amended standard for a type or
class of covered product, it must determine the maximum improvement in
energy efficiency or maximum reduction in energy use that is
technologically feasible for such product. (42 U.S.C. 6295(p)(1))
Accordingly, in the engineering analysis, DOE determined the maximum
technologically feasible (``max-tech'') improvements in energy
efficiency for consumer water heaters, 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 of this final rule and in chapter 5 of
the final rule TSD.
E. Energy Savings
1. Determination of Savings
For each trial standard level (``TSL''), DOE projected energy
savings from application of the TSL to consumer water heaters purchased
in the 30-year period that begins in the first full year of compliance
with the amended standards (2030-2059).\27\ The savings are measured
over the entire lifetime of consumer water heaters 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.
---------------------------------------------------------------------------
\27\ DOE also presents a sensitivity analysis that considers
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------
DOE used its national impact analysis (``NIA'') spreadsheet models
to estimate national energy savings (``NES'') from potential amended
standards for consumer water heaters. 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 national energy savings 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. DOE also
calculates NES in terms of full-fuel-cycle (``FFC'') energy savings.
The FFC metric includes the energy consumed in extracting, processing,
and transporting primary fuels (i.e., coal, natural gas, petroleum
fuels), and thus presents a more complete picture of the impacts of
energy conservation standards.\28\ DOE's approach is based on the
calculation of an FFC multiplier for each of the energy types used by
covered products or equipment. For more information on FFC energy
savings, see section IV.H.2 of this document.
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\28\ 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).
---------------------------------------------------------------------------
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. (42 U.S.C. 6295(o)(3)(B))
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.\29\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
products with relatively constant demand. 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.
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\29\ The numeric threshold for determining the significance of
energy savings established in a final rule published on Feb. 14,
2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule
published on Dec. 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------
As stated, the standard levels adopted in this final rule are
projected to result in national energy savings of 17.6 quads, the
equivalent of the primary annual energy use of 116 million homes. Based
on the amount of FFC savings, the corresponding reduction in emissions,
and the need to confront the global climate crisis, 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. 6295(o)(3)(B).
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. 6295(o)(2)(B)(i)(I)(VII)) The
following sections discuss how DOE has addressed each of those seven
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of potential new or amended standards on
manufacturers, DOE conducts an MIA, as discussed in section IV.J of
this document. 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, 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 net present value of
the consumer costs and benefits expected to result from particular
standards. DOE also evaluates the impacts of potential standards on
identifiable subgroups of consumers that may be affected
disproportionately by a 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 the covered product in the
type (or class) compared to any increase in the price of, or in the
[[Page 37805]]
initial charges for, or maintenance expenses of, the covered product
that are likely to result from a standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP
analysis.
The LCC is the sum of the purchase price of a product (including
its installation) and the operating cost (including energy,
maintenance, and repair expenditures) discounted over the lifetime of
the product. 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 product lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
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.
For its LCC and PBP analysis, DOE assumes that consumers will
purchase the covered products in the first year of compliance with new
or amended standards. The LCC savings for the considered efficiency
levels are calculated relative to the case that reflects projected
market trends in the absence of new or amended standards. 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. 6295(o)(2)(B)(i)(III)) As
discussed in section IV.H of this document, DOE uses the NIA
spreadsheet models to project national energy savings.
d. Lessening of Utility or Performance of Products
In establishing product classes, and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted in this document would not
reduce the utility or performance of the products under consideration
in this rulemaking.
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. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It
also directs the Attorney General to determine the impact, if any, of
any lessening of competition likely to result from a standard and to
transmit such determination 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. (42 U.S.C. 6295(o)(2)(B)(ii)) 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
consumer water heaters are unlikely to substantially lessen
competition. DOE is publishing the Attorney General's assessment at the
end of this final rule.
In response to the July 2023 NOPR, NPGA, APGA, AGA, and Rinnai
asserted that the standards proposed in the July 2023 NOPR would have a
significant market effect, with manufacturers likely choosing to leave
the market rather than expend the millions of dollars it would take to
redesign their products and production especially in requiring
condensing technology in order to be in compliance with the standards
proposed. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 3)
Although commenters focus primarily on condensing technologies as
it relates to GIWHs, which are not amended in this final rule, DOE
continued to look at the impact of competition as it relates to the
other product classes for which DOE is adopting standards in this final
rule. DOE does not expect that the adopted standard would significantly
alter the level of concentration in the consumer water heater market.
Additionally, DOJ stated, in a letter to DOE written in response to the
July 2023 NOPR, that ``we do not have an evidentiary basis to conclude
that the proposed energy conservation standards for consumer water
heaters are likely to substantially lessen competition.'' (See Attorney
General's assessment at the end of this final rule). For this final
rule, DOE reviewed up-to-date information on the consumer water heater
models available on the U.S. market to ensure a comprehensive analysis
of the current manufacturer landscape. In response to stakeholders'
comments, DOE carefully reviewed product offerings of original
equipment manufacturers (``OEMs'') of gas-fired storage water heaters.
DOE identified five OEMs of gas-fired storage water heaters that would
be subject to more stringent standards under this rulemaking. Of the
five OEMs identified, four OEMs currently manufacture gas-fired storage
water heaters that meet the adopted TSL (EL 2 for gas-fired storage
water heaters). Collectively, the four OEMs that already offer gas-
fired storage water heaters that meet EL 2 account for approximately 95
percent of gas-fired storage water heater shipments.
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. 6295(o)(2)(B)(i)(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. 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. DOE also estimates the economic value
of emissions reductions resulting from the considered TSLs, as
discussed in section IV.L of this document.
[[Page 37806]]
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. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding economic
justification that does not fit into the other categories described
previously, DOE could consider such information under ``other
factors.''
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), 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 effect potential amended
energy conservation standards would have on the payback period for
consumers. These analyses include, but are not limited to, the 3-year
payback period 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. 6295(o)(2)(B)(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 IV.F of this document.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this
rulemaking with regard to consumer water heaters. Separate subsections
address each component of DOE's analyses.
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 national impacts analysis uses a
second spreadsheet set that provides shipments projections and
calculates national energy savings and net present value of total
consumer costs and savings expected to result from potential energy
conservation standards. DOE uses the third spreadsheet tool, the
Government Regulatory Impact Model (``GRIM''), to assess manufacturer
impacts of potential standards. These three spreadsheet tools are
available on the DOE website for this rulemaking: www.regulations.gov/docket/EERE-2017-BT-STD-0019. 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.
A. Market and Technology Assessment
DOE develops information in the market and technology assessment
that provides an overall picture of the market for the products
concerned, including the purpose of the products, the industry
structure, manufacturers, market characteristics, and technologies used
in the products. 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 (1) a determination of the scope
of the rulemaking and product classes, (2) manufacturers and industry
structure, (3) existing efficiency programs, (4) shipments information,
(5) market and industry trends, and (6) technologies or design options
that could improve the energy efficiency of consumer water heaters. 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. Product Classes
When evaluating and establishing energy conservation standards for
a type (or class) of covered products, DOE divides covered products
into product classes by the type of energy used, or by capacity or
other performance-related features which other products within such
type (or class) do not have and that justify differing standards. (42
U.S.C. 6295(q)) In making a determination whether a performance-related
feature justifies a different standard, DOE must consider such factors
as the utility of the feature to the consumer and other factors DOE
determines are appropriate. Id.
EPCA, as amended by the National Appliance Energy Act (NAECA; Pub.
L. 100-12), established initial energy conservation standards,
expressed as EF, that were based on three product classes
differentiated by fuel type: (1) gas-fired, (2) oil-fired, and (3)
electric. (42 U.S.C. 6295(e)(1)) These standards applied to consumer
water heaters manufactured on or after January 1, 1990.
DOE subsequently amended these EF standards twice, most recently in
the April 2010 Final Rule, with which compliance was required starting
on April 16, 2015. 75 FR 20112. In the April 2010 Final Rule, DOE
further divided consumer water heaters into product classes based on
fuel type (gas-fired, oil-fired, or electric), product type (storage,
instantaneous, tabletop), storage volume, and input rate.
The Energy Efficiency Improvement Act of 2015 (``EEIA 2015'') (Pub.
L. 114-11), enacted on April 30, 2015, added a definition of ``grid-
enabled water heater'' and a standard in terms of EF for such products
to EPCA's energy conservation standards. (42 U.S.C. 6295(e)(6)(A)(ii))
DOE codified the definition for grid-enabled water heater and the
associated energy conservation standards in a final rule published and
effective on August 11, 2015. 80 FR 48004.
Most recently, the December 2016 Conversion Factor Final Rule,
published and effective on December 29, 2016, translated the EF-based
standards to UEF-based standards for certain classes of consumer water
heaters, which are shown in Table IV.1. Although the classes of
consumer water heaters with UEF-based standards have limitations on the
stored volume, as discussed in that final rule, the standards
established in EPCA do not place any limitation on the storage volume
of consumer water heaters. Therefore, the original standards
established by EPCA in terms of EF remain applicable to all products
without UEF-based standards. 81 FR 96204, 96209-96211.
The 32 product classes covered in this final rule for which DOE has
currently established UEF-based standards are summarized in Table IV.1.
The product classes without UEF-based standards, for which EF-based
standards from EPCA apply, are shown in Table IV.2.
BILLING CODE 6450-01-P
[[Page 37807]]
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The CA IOUs suggested that DOE reconsider its approach to setting
minimum UEF standards for the water heaters formerly subject to EF
standards. Citing the provisions in EPCA (42 U.S.C. 6295(q)(1)(B)), the
CA IOUs stated that DOE must consider capacity, consumer utility, and
other performance-related features when establishing separate product
classes for different types of water heaters. The CA IOUs questioned
whether converting an EF standard to a
[[Page 37808]]
UEF standard should result in a new product class. The commenter urged
DOE to immediately initiate a new rulemaking to address appropriate
standards levels or the new product classes, if established. (CA IOUs,
No. 1175 at p. 5)
In response to the CA IOUs, DOE originally established these
product classes in the 2016 Conversion Factor Final Rule. 81 FR 96204,
96210. At this time, DOE does not have sufficient data to perform an
analysis of costs versus benefits of subjecting these products to
standards of the same stringency as the amended standards proposed in
the July 2023 NOPR. While these products may not have performance-
related ``features'' distinguishing them from currently covered
products, these models come in different capacities than the products
for which DOE has already established UEF-based standards. As has been
observed in DOE's teardown analyses and has been indicated by comments
from manufacturers, the applicability of efficiency-improving design
options is often predicated upon the size or capacity of the water
heater; therefore, at this time, the capacities of these products do
appear to justify separate standards. However, should future product
designs demonstrate that the same efficiency-improving design options
are equally as applicable for these capacities, DOE would consider the
need for distinguishing these product classes by evaluating whether
separate standards are justified for these capacities in a future
standards rulemaking (see 42 U.S.C. 6295(q)(1)(B)).
a. Circulating Water Heaters
In the June 2023 TP Final Rule, DOE established a definition for
``circulating water heater'' in 10 CFR 430.2, and also established test
procedures to determine the UEF of these types of water heaters. 88 FR
40406. In the July 2023 NOPR, DOE identified three potential classes of
circulating water heater based on fuel type and input ratings derived
from instantaneous water heater definitions in EPCA at 42 U.S.C.
6291(27), which are shown in 88 FR 49058, 49077.
Table IV.3, and proposed their addition to the definitions found at
10 CFR 430.2. 88 FR 49058, 49077.
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As discussed in the June 2023 TP Final Rule, DOE had at that time
determined that circulating water heaters with input ratings below
200,000 Btu/h (for gas-fired), 210,000 Btu/h (for oil-fired), or 12 kW
(for electric) met the definitional criteria for instantaneous consumer
water heaters. As such, these products were to be subject to the
applicable energy conservation standards; however, DOE previously
provided an enforcement policy for circulating water heaters.\30\
Because an amended test procedure that includes new provisions for
testing circulating water heaters was recently finalized in the June
2023 TP Final Rule, DOE proposed in the July 2023 NOPR to establish
updated UEF standards that reflect the new test method and requested
feedback on the proposed standards. In response to the July 2023 NOPR,
DOE received comments that largely suggested that circulating water
heaters are storage-type water heaters. As noted in section III.B, on
December 27, 2023, therefore, DOE published the December 2023 SNOPR
that proposed to reclassify these products as configurations of
storage-type water heaters, thus proposed that separate product classes
for circulating water heaters are not required. 88 FR 89330.
---------------------------------------------------------------------------
\30\ Prior to the June 2023 TP Final Rule, DOE became aware of
gas-fired instantaneous water heaters meeting the definition of
consumer water heaters which operated differently than those DOE had
previously considered in test procedure rulemakings. On September 5,
2019, DOE issued an enforcement policy for consumer water heaters
meeting the definition of gas-fired ``circulating water heater'' as
described in said enforcement policy in which DOE stated that it
would not seek civil penalties for failing to certify these
products, or if these products failed to comply with applicable
standards, on or before December 31, 2021. The June 2023 TP Final
Rule has since addressed this issue by establishing test procedures
to determine UEF ratings for circulating water heaters.
---------------------------------------------------------------------------
A ``circulating water heater'' is currently defined at 10 CFR 430.2
as an ``instantaneous or heat pump-type water heater that does not have
an operational scheme in which the burner, heating element, or
compressor initiates and/or terminates heating based on sensing flow;
has a water temperature sensor located at the inlet or the outlet of
the water heater or in a separate storage tank that is the primary
means of initiating and terminating heating; and must be used in
combination with a recirculating pump and either a separate storage
tank or water circulation loop in order to achieve the water flow and
temperature conditions recommended in the manufacturer's installation
and operation instructions.''
As described in the December 2023 SNOPR, circulating water heaters
contain very little to no water on their own (i.e., are ``tankless''),
but, as was determined in the June 2023 TP Final Rule, require a
separate volume of water in order to function properly when installed
in the field. In that rulemaking, circulating water heaters were
designated as instantaneous-type water heaters because of the minimal
storage volume contained within the product. However, comments received
in response to the July 2023 NOPR led DOE to reevaluate circulating
water heaters and propose in the December 2023 SNOPR to classify them
as storage-type water heaters because they necessarily operate in
tandem with a stored volume of water; hence, the circulating water
heater and its separate tank or recirculation loop must be
[[Page 37809]]
treated as one system. When considering the entire system--the
circulating water heater plus the stored water volume required for its
operation in the field--these water heaters are operationally very
similar to storage-type water heaters and, as a result, DOE had
tentatively determined that it is appropriate to classify them as such
under its regulations. 88 FR 89330, 89333. The December 2023 SNOPR
proposed the following revised definition for circulating water
heaters:
``Circulating water heater means a water heater that does not have
an operational scheme in which the burner, heating element, or
compressor initiates and/or terminates heating based on sensing flow;
has a water temperature sensor located at the inlet or the outlet of
the water heater or in a separate storage tank that is the primary
means of initiating and terminating heating; and must be used in
combination with a recirculating pump to circulate water and either a
separate storage tank or water circulation loop in order to achieve the
water flow and temperature conditions recommended in the manufacturer's
installation and operation instructions. Paired with a separate storage
tank, a circulating water heater constitutes a storage-type water
heater.''
88 FR 89330, 89339.
CEC, BWC, NEEA, NYSERDA, ASAP et al., and A.O. Smith expressed
support for DOE's tentative determination that circulating water
heaters be considered storage-type water heaters and subject to the
appropriate standards. (CEC, No. 1412 at pp. 1-2; BWC, No. 1413 at p.
1; NEEA, No. 1414 at p. 2; NYSERDA, No. 1406 at p. 2; ASAP et al., No.
1407 at pp. 1-2; A.O. Smith, No. 1411 at p. 2) NEEA and ASAP et al.
noted that, compared to other storage-type water heaters, circulating
water heaters do not provide any additional utility or performance-
related features that would warrant a separate product class. (NEEA,
No. 1414 at p. 2; ASAP et al., No. 1407 at pp. 1-2) NEEA and A.O. Smith
commented that defining circulating water heaters as storage-type will
address concerns regarding these products potentially being used as a
circumvention pathway for more stringent storage-type standards. (NEEA,
No. 1414 at p. 2; A.O. Smith, No. 1411 at p. 2) A.O. Smith added that
this will provide more business certainty. (A.O. Smith, No. 1411 at p.
2)
DOE specifically requested comment and information on whether gas-
fired circulating water heaters could offer the same utility as gas-
fired instantaneous water heaters. 88 FR 89330, 89334. DOE sought to
understand whether gas-fired circulating water heaters could be a
potential loophole to gas-fired instantaneous water heater standards
enforcement after receiving comments in response to the NOPR
identifying such a possibility.
BWC agreed with DOE that gas-fired circulating water heaters would
not be direct substitutes for gas-fired instantaneous water heaters,
indicating that gas-fired circulating water heaters as defined in the
December 2023 SNOPR are better suited towards providing large volumes
of hot water in short periods of time and gas-fired instantaneous water
heaters for lengthier periods of time. (BWC, No. 1413 at p. 3) Rheem
supported DOE's tentative determination that circulating water heaters
do not provide the same consumer utility as gas-fired instantaneous
water heaters. Rheem added that though they do not currently exist on
the market, the combination of the non-flow-activated operational
scheme, storage tank or recirculation loop requirement, and input rate
limits consistent with other storage-type water heaters present in
DOE's definition ensures that any future gas-fired circulating water
heaters would not serve as direct replacements for gas-fired
instantaneous water heaters. (Rheem, No. 1408 at p. 2) A.O. Smith
agreed with DOE's tentative determination that gas-fired circulating
water heaters do not provide the same consumer utility as gas-fired
instantaneous water heaters. (A.O. Smith, No. 1411 at p. 6) CEC noted
that circulating water heaters provide different utilities from
instantaneous water heaters and experience thermal standby losses more
than a typical non-circulating storage water heater due to plumbing
acting as a storage volume for a significant volume of hot water. (CEC,
No. 1412 at p. 3) ASAP et al. agreed with DOE's tentative determination
that gas-fired circulating water heaters do not provide the same
consumer utility as gas-fired instantaneous water heaters due to the
fact that gas-fired instantaneous water heaters utilize flow-activated
control schemes and larger burners (compared to gas-fired circulating
water heaters) in order to meet demand on a continuous basis, whereas
gas-fired circulating water heaters must operate with a separate stored
volume of hot water. (ASAP et al., No. 1407 at p. 2)
Rinnai agreed with DOE that gas-fired circulating water heaters do
not provide the same utility as gas-fired instantaneous water heaters.
Rinnai also stated that gas-fired circulating water heaters do not
provide consumers with the same features, energy efficiency and reduced
emissions benefits as gas-fired instantaneous water heaters at the
proposed UEF levels. Rinnai reiterated its comments made in response to
the July 2023 NOPR that UEFs of 0.80 to 0.81 result in increased energy
savings and reduction of CO2 emissions in comparison with
the levels gas-fired circulating water heaters would be subject to as
gas-fired storage water heaters. Thus, Rinnai arrived at a different
conclusion from DOE and claimed that there is not a sufficient basis
for allowing gas-fired circulating water heaters to be held to a lower
UEF standard than other consumer products and requested that DOE
instead establish the more stringent standards proposed in the July
2023 NOPR. (Rinnai, No. 1415 at pp. 1-2)
As discussed in section IV.A.1.c of this document, DOE has found
sufficient justification in accordance with the provisions of EPCA to
establish separate standards for storage-type and instantaneous-type
water heaters.
Rheem, however, noted an additional concern that circulating water
heaters can be paired with any size storage tank in the field, and that
there is still a concern that circulating water heaters certified to a
lower capacity energy conservation standard would be installed with
higher capacity storage tanks where higher energy conservation
standards would be required. Because of this, Rheem recommended DOE
establish separate energy conservation standards for circulating water
heaters, but at levels consistent with the higher capacity energy
conservation standards. In its recommendation, Rheem showed that the
standards equations for larger storage-type product classes (i.e., gas-
fired storage water heaters 55-100 gallons, and electric storage water
heaters 55-120 gallons) would apply to both circulating water heaters
and their analogous traditional storage-type water heaters. (Rheem, No.
1408 at pp. 2-3)
DOE understands Rheem to be suggesting that, in the case that a
circulating water heater is designed and marketed to be paired with
multiple volumes of storage tanks in the field, it is useful for the
rating to reflect larger storage volumes. However, DOE notes that the
size of the separate storage tank that the product is tested with (in
accordance with section 4.10 of the test procedure) results in the
effective storage volume of the circulating water heater, which, for
most types of circulating water heaters will be 80 to 120 gallons. This
already results in circulating water heaters being held to the same
standards as larger storage water heaters. The only exception to this
is electric heat pump circulating
[[Page 37810]]
water heaters, which are paired with smaller tanks. Separate storage
tank pairings are discussed further in section V.D.2 of this document.
Additionally, the commenter does not provide evidence as to how
different standards for circulating water heaters would be justified
under the provisions of EPCA.
After reviewing these comments DOE has concluded that circulating
water heaters do not have any characteristics which justify separate
standards under the provisions of EPCA at 42 U.S.C. 6295(q)(1). DOE has
determined not to create separate product classes for circulating water
heaters.
To accomplish this, in the December 2023 SNOPR DOE had proposed an
addition to the definition that stated, ``Paired with a separate
storage tank, a circulating water heater constitutes a storage-type
water heater.'' 88 FR 89330, 89335.
Multiple stakeholders raised concern that DOE's proposed revised
definition for ``circulating water heater'' seemingly implies that
circulating water heaters are only storage-type water heaters if they
are paired with a separate storage tank. These commenters--NEEA, ASAP
et al., the CA IOUs, CEC, A.O. Smith and NYSERDA--all indicated that
circulating water heaters paired with a circulating loop also
constitute storage-type water heaters. (NEEA, No. 1414 at p. 3; ASAP et
al., No. 1407 at p. 2; CA IOUs, No. 1409 at pp. 1-2; CEC, No. 1412 at
p. 2; A.O. Smith, No. 1411 at pp. 4-5; NYSERDA, No. 1406 at p. 2)
NEEA requested that DOE define circulating water heaters as
constituting storage-type water heaters regardless of the configuration
in which they are sold or installed. (NEEA, No. 1414 at p. 3) ASAP et
al. encouraged DOE to clarify the proposed definition for circulating
water heaters so that it is clear all circulating water heaters,
whether paired with a separate storage tank or recirculation loop,
would be considered storage-type water heaters. (ASAP et al., No. 1407
at p. 2)
The CA IOUs also stated that excluding mention of circulation loops
would be inconsistent with the earlier definitional requirements
indicating that they must be paired with either a separate storage tank
or a water circulation loop and recommend that DOE modify the
definition as ``Paired with a separate storage tank or circulation
loop, a circulating water heater constitutes a storage-type water
heater.'' (CA IOUs, No. 1409 at pp. 1-2)
CEC provided similar statements, adding that the exclusion of
pairings with water circulation loops may become a loophole exploited
by manufacturers. CEC recommended that DOE modify the definition to
simply state that ``a circulating water heater constitutes a storage-
type water heater'' to avoid potential misreading. (CEC, No. 1412 at p.
2)
A.O. Smith recommended DOE remove the phrase ``paired with'' from
the statement ``paired with a separate storage tank a circulating water
heater constitutes a storage-type water heater'' in the definition for
circulating water heater to avoid implying that only circulating water
heaters that come with a manufacturer-specified or supplied tank would
be considered circulating water heaters. In place of this phrasing,
A.O. Smith suggested DOE incorporate the definition for a ``water
heater requiring a storage tank'' currently outlined in section 1.9 of
appendix E to subpart B into Sec. 430.2 and reference this definition
in the circulating water heater definition to ensure clarity. A.O.
Smith commented that, given the input capacity limits placed on
circulating water heaters in their respective definitions, a
recirculation loop without the use of a storage tank is unlikely to be
an applicable configuration in the residential context. Therefore, A.O.
Smith recommended DOE remove the term ``either'' and the phrase ``or
water recirculation loop'' from the circulating water heater definition
proposed in the December 2023 SNOPR. (A.O. Smith, No. 1411 at pp. 4-5)
NYSERDA recommended that DOE update the definition for circulating
water heater to read as follows: ``When paired with a separate storage
tank or as part of a water circulation loop, a circulating water heater
constitutes a storage-type water heater''. (NYSERDA, No. 1406 at p. 2)
In response to these requests for further clarification, DOE agrees
with most commenters that circulating water heaters would constitute
storage water heaters whether they are paired with a tank or a
recirculation loop. The loop serves to store hot water in pipes instead
of in a tank. In both cases, the product does not function properly
unless the hot water can be maintained outside of the water heater
prior to delivery at a fixture.
While A.O. Smith suggested that a circulating water heater be
defined as a ``water heater requiring a storage tank,'' this is not
necessarily reflective of field usage to the extent that it can be used
to define the product at 10 CFR 430.2. Numerous other comments indicate
that a circulating water heater can also function with a recirculation
loop. DOE has found examples of gas-fired instantaneous water heaters
with input rates that modulate as low as 15,000 Btu/h and can be
outfitted with recirculation loops in residential homes. While these
specific products are not circulating water heaters because they have
flow-activated control schemes and do not explicitly require a separate
volume of stored hot water to function, they do demonstrate that it is
possible for gas-fired products with input rates lower than 75,000 Btu/
h to be used in conjunction with a recirculation loop and no tank.
Circulating water heaters are treated as ``water heaters requiring
a storage tank'' in appendix E for the purpose of conducting the test
procedure because they are not sold with a tank. The appendix E test
procedure refers to ``water heaters requiring a storage tank'' in
section 1.19 order to provide instruction on how to set up such a water
heater with a representative volume of stored water. Therefore, DOE is
not amending 10 CFR 430.2 to define a ``water heater requiring a
storage tank'' because this terminology has limited application to the
test setup instructions in appendix E only. DOE is also not
incorporating this terminology in the definition of ``circulating water
heater'' so as not to contradict how these products can be designed,
marketed, and used in the field.
After considering the suggestions provided by interested parties,
DOE is amending the definition of ``circulating water heater'' at 10
CFR 430.2 to read as:
Circulating water heater means a water heater that does not have an
operational scheme in which the burner, heating element, or compressor
initiates and/or terminates heating based on sensing flow; has a water
temperature sensor located at the inlet or the outlet of the water
heater or in a separate storage tank that is the primary means of
initiating and terminating heating; and must be used in combination
with a recirculating pump to circulate water and either a separate
storage tank or water circulation loop in order to achieve the water
flow and temperature conditions recommended in the manufacturer's
installation and operation instructions. A circulating water heater
constitutes a storage-type water heater.
The December 2023 SNOPR had also proposed to amend the definitions
of the three different fuel types of circulating water heater to align
with the re-classification of these products as storage water heaters.
88 FR 89330, 89339.
CA IOUs stated that specifying the volume of stored water per 4,000
Btu/h of input in these definitions is unnecessary because circulating
water
[[Page 37811]]
heaters are already defined as storage-type water heaters and
recommended that DOE remove this requirement from the definitions of
electric, gas-fired and oil-fired circulating water heaters as proposed
in the December 2023 SNOPR. (CA IOUs, No. 1409 at p. 2)
DOE also agrees with the CA IOUs' suggestion to revise the
definitions for the different types of circulating water heaters. As
discussed in section III.B, these additional definitions serve mainly
to clarify the input rate cutoffs to distinguish these products from
commercial water heaters. DOE is amending these definitions to read as:
Electric circulating water heater means a circulating water heater
with an input of 12 kW or less (including heat pump-only units with
power inputs of no more than 24 A at 250 V).
Gas-fired circulating water heater means a circulating water heater
with a nominal input of 75,000 Btu/h or less.
Oil-fired circulating water heater means a circulating water heater
with a nominal input of 105,000 Btu/h or less.
In the December 2023 SNOPR DOE requested comment on what the
implications to industry might be if circulating water heaters were to
be treated as storage water heaters. 88 FR 89330, 89335. In response,
several commenters agreed that DOE's analysis for amended standards of
storage-type water heaters is still representative if circulating water
heaters are included in these product classes.
CEC agreed with DOE that the definition of circulating water heater
as proposed in the December 2023 SNOPR would not change the results of
the life-cycle cost, national impact, and other downstream analyses,
stating that the proposed changes would not cause DOE's analysis to
become unrepresentative and agreeing that no additional analysis is
necessary. (CEC, No. 1412 at p. 2) The CA IOUs stated that there are
few to no shipments of consumer water heaters meeting the definition of
``circulating water heater'' as proposed in the December 2023 SNOPR. CA
IOUs stated that DOE may therefore maintain its July 2023 NOPR analyses
with respect to storage-type water heaters and apply the associated
proposed standards to circulating water heaters. (CA IOUs, No. 1409 at
p. 1) NYSERDA and ASAP et al. stated their agreement with DOE's
assessment that, because DOE has not identified consumer water heaters
on the U.S. market that qualify as circulating water heaters,
analytical results from the July 2023 NOPR remain representative and do
not need to be updated due to changes proposed in the December 2023
SNOPR. (NYSERDA, No. 1406 at p. 2; ASAP et al., No. 1407 at p. 3) ASAP
et al. added that, if introduced, circulating water heaters would
likely have similar cost and usage characteristics to existing storage-
type consumer water heaters. (ASAP et al., No. 1407 at p. 3)
Rinnai, however, requested that DOE clarify the justification for
amending the definition of products that do not currently exist on the
market. (Rinnai, No. 1415 at p. 1) BWC agreed with DOE that circulating
water heaters as defined in the June 2023 TP Final Rule are not
deployed in residential applications. (BWC, No. 1413 at p. 1) BWC
agreed with DOE that there are no consumer products that meet the
definition of ``circulating water heater'' as proposed in the December
2023 SNOPR and requested that DOE clarify how it determined that these
products would have similar cost and use profiles as storage-type water
heaters. (BWC, No. 1413 at p. 2)
In the December 2023 SNOPR the Department had erroneously stated
that there are no longer heat pump circulating water heaters available
on the market (see 88 FR 89330, 89333) due to changes in a
manufacturer's website. Product literature for these models exists and
has been added to the docket for this rulemaking. In addition to
stakeholder comments, this literature demonstrates the use of these
products in a manner similar to storage-type water heaters. Shipments
of these products, though they are fewer than those of traditional
storage-type water heaters, are not zero. These products are included
in historical data on heat pump water heater shipments as they would
meet efficiency level 1 for small electric storage water heaters. Hence
DOE's analysis does include circulating heat pump water heaters as
storage-type water heaters.
b. Low-Temperature Water Heaters
As stated previously in section III.B of this document, in the June
2023 TP Final Rule, DOE established the following definition for ``low-
temperature water heater'' in 10 CFR 430.2:
``Low-temperature water heater'' means an electric instantaneous
water heater that is not a circulating water heater and cannot deliver
water at a temperature greater than or equal to the set point
temperature specified in section 2.5 of appendix E to subpart B of this
part when supplied with water at the supply water temperature specified
in section 2.3 of appendix E to subpart B of part 430 and the flow rate
specified in section 5.2.2.1 of appendix E to subpart B of part 430.
DOE also established test procedures to determine the UEF of these
types of water heaters. 88 FR 40406. Regarding low-temperature water
heaters, DOE notes that they are covered as electric instantaneous
water heaters. As discussed in section IV.C of this document, DOE is
not considering updated standards for electric instantaneous water
heaters in this rulemaking because it was unable to determine
technologies associated with increased efficiencies in these products.
Therefore, although low-temperature water heaters are tested in a
slightly different manner from other electric instantaneous water
heaters, DOE is maintaining low-temperature water heaters within the
broader electric instantaneous water heater product class as proposed
in the July 2023 NOPR and is not establishing a separate class for
them.
c. Storage-Type and Instantaneous-Type Product Classes
In the March 2022 Preliminary Analysis, DOE addressed comments
received in response to the May 2020 RFI that suggested that DOE should
consider eliminating the separate product classes for instantaneous
water heaters. For the preliminary analysis, DOE analyzed separate
classes for instantaneous water heaters, but sought feedback from
stakeholders on whether storage-type and instantaneous-type water
heater product classes should be combined. (See section 2.3 of the
preliminary TSD.)
In response to the March 2022 Preliminary Analysis, DOE received
comments indicating that storage and instantaneous product classes
should not be combined because each type of product provides unique
utility to consumers and combining their product classes would lead to
UEF standards that are not technologically feasible. DOE tentatively
agreed with these comments, which were addressed in the July 2023 NOPR,
and maintained separate product classes for storage and instantaneous
water heaters for its analyses and proposed standards. 88 FR 49058,
49078.
In response to the July 2023 NOPR, BWC agreed with DOE's tentative
determination to maintain separate product classes for instantaneous-
type and storage-type water heaters because they offer distinct
utilities to consumers in both their designs and capabilities. (BWC,
No. 1164 at p. 14) Rheem also agreed with DOE's tentative determination
to maintain separate product classes for storage-type and
instantaneous-type water heaters given that these water heaters have
different
[[Page 37812]]
utilities and operational characteristics which necessitate separate
consideration. (Rheem, No. 1177 at p. 11) However, Rheem noted that the
proposed standards for electric instantaneous water heaters with 2 or
more gallons of rated storage volume are significantly higher than the
standards proposed for very small electric storage water heaters
despite these products all having similar under-sink or commercial
applications. (Rheem, No. 1177 at pp. 13-14) Rheem also requested
clarification on whether rated or effective storage volume should be
used when determining the storage-type and instantaneous-type water
heater classification. (Rheem, No. 1177 at p. 2)
NEEA stated that, while it does not disagree with DOE's conclusion
to create separate standards for gas-fired storage and gas-fired
instantaneous water heaters, standby energy losses should not be
considered in a determination of product class as they do not
constitute a performance-related feature. NEEA noted that in DOE's
decision to set separate product classes for storage and tankless water
heaters, DOE stated that ``storage water heaters have associated
standby energy losses that instantaneous water heaters do not.'' (NEEA,
No. 1199 at p. 10)
AWHI, however, urged DOE to investigate combining gas-fired
instantaneous and gas-fired storage water heater categories in a future
rulemaking such that the same minimum UEF requirements would apply to
both product classes. (AWHI, No. 1036 at pp. 3-4)
After reviewing the comments received on the July 2023 NOPR, DOE
has determined that different product classes and standards for storage
and instantaneous water heaters remain necessary at this time, and DOE
is not combining them in this rulemaking. As stated in the July 2023
NOPR, storage and instantaneous water heaters offer distinct utilities
to a consumer. For example, instantaneous water heaters provide a
continuous supply of hot water, up to the maximum flow rate, while
storage water heaters are often better suited to handle large initial
demands for hot water as opposed to continuous draws. 88 FR 49058,
49078. These products are, therefore, designed differently to suit
these different needs. As a result of the design differences (i.e., the
storage of hot water in storage-type water heaters), storage-type water
heaters incur standby losses to the surrounding ambient air.
In response to Rheem, DOE notes that although electric
instantaneous water heaters with 2 or more gallons of rated storage
volume and very small electric storage water heaters may be used for
many of the same under-sink-type applications, each still offers
distinct utility to the consumer. Per their definitions at 10 CFR
430.2, electric instantaneous water heaters will necessarily have a
higher input rate to volume ratio, and thus will be capable of
operating on a more continuous basis than very small electric storage
water heaters within the flow rate expectations of these applications.
DOE expects these products to have design differences because the scope
of coverage is limited to products with electric input rates no greater
than 12 kW (see section III.B of this document); therefore, electric
instantaneous water heaters cannot contain more than approximately 10
gallons of hot water,\31\ whereas very small electric storage water
heaters can contain up to 20 gallons.
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\31\ 12 kW is approximately 41,000 Btu/h. Instantaneous-type
water heaters contain no more than one gallon of water per 4,000
Btu/h of input, resulting in a maximum of about 10 gallons for an
electric instantaneous water heater with 12 kW of input.
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In response to NEEA, DOE does not consider standby losses to be a
performance-related feature; rather, the performance-related features
are as previously described and the standby losses create the
difference in energy consumption between storage-type and
instantaneous-type water heaters that justifies different standard
levels for the two types of products. In accordance with 42 U.S.C.
6295(q), DOE has concluded that separate standards for storage-type and
instantaneous-type water heaters are justified not only because these
types offer distinct utilities to the consumer, but also because the
design necessary to provide this utility (i.e., a stored volume of
water for storage-type water heaters) affects the UEF rating.
EPCA defines instantaneous-type water heaters as units which heat
water but contain no more than one gallon of water per 4,000 Btu per
hour of input. (42 U.S.C. 6291(27)(B)) Based on the specific use of the
term ``contain,'' the rated storage volume, which reflects the amount
of water that can be contained, should be used when determining the
storage-type and instantaneous-type water heater classification. For
circulating water heaters, which operate in a system that contains a
stored volume of hot water, this is the rated storage volume of the
separate storage tank (see section IV.A.1.a of this document).
d. Gas-Fired Water Heaters
Gas-fired water heaters operate by burning fuel to generate heat,
which is then transferred from the products of combustion (i.e., flue
gases) to the water using a heat exchanger before the flue gases are
expelled through venting to the outside. Regardless of efficiency, gas-
fired water heaters operate in the same manner, by transferring heat to
potable water for use within residences. Any combustion heat not
transferred to the water is lost to the environment as waste heat,
primarily through the exhaust venting. The difference between high-
efficiency water heaters and low-efficiency water heaters is the amount
of heat that is lost to the environment. Condensing gas-fired water
heaters are able to transfer more heat from the flue gases to the
water, which results in less heat being lost to the environment. As a
result, flue gases exhausted from a condensing gas-fired water heater
are typically less than 130 [deg]F, while flue gases exhausted to the
environment from a non-condensing gas-fired storage water heater may be
in the 300-400 [deg]F range or even higher. Condensing gas-fired water
heaters are able to extract more heat due to improved heat exchanger
designs.
For example, A.O. Smith notes that their high-efficiency condensing
gas storage water heaters ``are built similarly to standard [non-
condensing] gas tank water heaters with some modifications for higher
efficiency and performance.'' \32\ More specifically, A.O. Smith notes
that their condensing models ``are built with [a] helical internal heat
exchanger that keeps combustion gasses in the tank longer to transfer
more heat into the water, increasing efficiency and reducing operating
cost.'' \33\
---------------------------------------------------------------------------
\32\ See A.O. Smith's Info Center on Gas Tank High Efficiency
Water Heaters, available at www.hotwater.com/info-center/gas-water-heaters/gas-tank-high-efficiency.html (last accessed Apr. 3, 2024).
\33\ Id.
---------------------------------------------------------------------------
On December 29, 2021, DOE published a final interpretive rule
(``December 2021 Venting Interpretive Final Rule'') reinstating its
long-standing interpretation that the heat exchanger technology and
associated venting 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. Throughout this rulemaking, some
commenters have urged DOE to reconsider the conclusions reached in the
December 2021 Venting Interpretive Final Rule, and in the July 2023
NOPR, DOE considered these comments but
[[Page 37813]]
again concluded that heat exchanger technology and venting do not
constitute any of the characteristics upon which DOE has the authority
to establish separate product classes under EPCA. 88 FR 49058, 49079.
i. General Comments
Earthjustice supported DOE's tentative determination in the NOPR
that separate product classes for condensing and non-condensing
products are not warranted, and stated that this is consistent with
DOE's determinations in the December 2021 Venting Interpretive Rule.
(Earthjustice, No. 1189 at pp. 2-3)
In response to comments that DOE should establish separate product
classes for condensing and non-condensing gas-fired water heaters, DOE
notes that when evaluating and establishing energy conservation
standards, DOE is required to establish product classes based on: (1)
the type of energy used; and (2) capacity or other performance-related
feature which other products within such type (or class) do not have
and that DOE determines justify a different standard. In making a
determination of whether a performance-related feature justifies a
different standard, DOE must consider factors such as the utility to
the consumer of the feature and other factors DOE determines are
appropriate. (42 U.S.C. 6295(q))
ii. Performance-Related Feature Under 42 U.S.C. 6295(q)(1)(B)
DOE received several comments on whether non-condensing technology
should be considered a performance-related feature for the purpose of
establishing a separate product class under 42 U.S.C. 6295(q). For
example, Rinnai stated that, pursuant to section 6295(q) of EPCA, DOE
is required to issue higher or lower energy conservation standards for
non-condensing and condensing gas-fired instantaneous water heaters
because the products have distinct capacities and performance-related
features that provide consumer utility and justify separate standards.
(Rinnai, No. 1186 at p. 15) Rinnai asserted that DOE's finding in the
July 2023 NOPR that non-condensing technology does not constitute a
performance-related feature as prescribed by EPCA at 42 U.S.C.
6295(q)(1) exceeds DOE's authority because it errs in limiting the
analysis to non-condensing technology, ignoring features associated
with non-condensing technology such as ease of installation and reduced
installation cost, and because it interprets ``utility'' too narrowly
by only considering the impact the technology has on consumer's
operation of or interaction with the appliance. (Rinnai, No. 1186 at
pp. 12-14) Similarly, TPPF commented that DOE should set a separate
standard for condensing water heaters because, according to TPPF, a
non-condensing water heater serves a separate consumer utility because
it is more compact, easier to install, and requires less maintenance.
TPPF asserted that the consumer utility of a design is not limited to
that which is accessible to the layperson or based upon the consumer's
operation of or interaction with the product, even the ease of
installation of a non-condensing gas-fired instantaneous water heater
should be considered a consumer utility. (TPPF, No. 1153 at pp. 3-4)
ONE Gas asserted that minimizing installed cost is a distinct
product utility. (ONE Gas, No. 1200 at p. 5) ONE Gas asserted that the
availability of products that can serve as a ``drop-in'' replacement
for consumers who already have non-condensing products without
modifications to the installation space is a consumer utility. ONE Gas
also asserted that the ability of ``drop-in'' replacements to restore
water heating ability without delays associated with switching to other
products is a consumer utility. (ONE Gas, No. 1200 at p. 5) ONE Gas
stated that the December 2021 Venting Interpretive Final Rule did not
consider the technical and economic burdens of installation when it
concluded that product classes based on combustion system types (i.e.,
non-condensing and condensing) did not provide distinct customer
utility among combustion appliances. (ONE Gas, No. 1200 at p. 6) ONE
Gas reiterated its comments that DOE's determination that condensing/
non-condensing combustion and power/atmospheric venting do not provide
unique customer utility is unreasonable and that DOE is required to
separately consider minimum energy standards for ``covered products
that [have] two or more subcategories'' under EPCA at 42 U.S.C.
6295(q)(1). (ONE Gas, No. 1200 at p. 8)
With respect to commenters' statements that venting associated with
non-condensing technology itself is a performance-related feature that
justifies a separate product class, 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 (whether condensing or noncondensing). As
such, assuming venting is a performance-related feature, it is a
feature that all gas-fired water heaters possess. As a result, it
cannot be the basis for a product class. See 42 U.S.C. 6295(q)(1)(B).
Thus, in order to meet the product class requirements in 42 U.S.C.
6295(q)(1)(B), these commenters are requesting DOE determine that a
specific type of venting is a capacity or other performance-related
feature.
A specific venting technology--including non-condensing venting--is
not a ``capacity or other performance related feature'' under 42 U.S.C.
6295(q)((1)(B). As discussed in the December 2021 final interpretive
rule, DOE has concluded that performance-related features are those
that a consumer would be aware of and would recognize as providing
additional benefits during operation of the covered product or
equipment. 86 FR 73947, 73955.
DOE also notes that almost every component of a covered product
could be broken down further by any of a number of factors. For
example, heat exchangers, which are used in a variety of covered
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 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-energy-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.
In this rule and many others, DOE has considered whether the
purported ``feature'' provides additional performance benefits to the
consumer during operation. 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
[[Page 37814]]
show that furnace fans with PSC motors offered some additional
performance 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 performance 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).
After reviewing comments from stakeholders provided in this
rulemaking, DOE has concluded that commenters have not pointed to any
additional performance benefits during operation offered by non-
condensing water heaters that use non-condensing venting as compared to
water heaters that use other types of venting. Instead, these
commenters generally cite compatibility with existing venting (i.e.,
convenience of installation) and other economic considerations as
reasons why non-condensing venting should be considered a performance-
related feature for the purposes of EPCA's unavailability provision. To
be sure, DOE considers installation costs in determining whether a
standard is economically justified. The costs of installing condensing
venting may, in certain installations, be substantial, and DOE accounts
for such costs in its analysis. See section IV.F.2 of this document.
But such installation costs are not a ``capacity or other performance-
related feature'' for purposes of section 6295(q).
DOE has determined, based on its own research as well as
information presented in stakeholder comments, that differences in cost
or complexity of installation between different methods of venting
(e.g., a condensing water heater versus a non-condensing water heater)
do not make specific methods of venting a performance-related feature
under 42 U.S.C. 6295(o)(4), so as to justify separating the products/
equipment into different product/equipment classes under 42 U.S.C.
6295(q)(1). 86 FR 73947, 73951 (Dec. 29, 2021).
iii. Whether Stakeholders Have Shown by a Preponderance of Evidence
That Standards Would Result in Unavailability
DOE received public comments in reference to the ``unavailability
provision'' found in EPCA, 42 U.S.C. 6295(o)(4), contending that if the
proposed amended standard for GIWH were adopted, it would eliminate
non-condensing GIWH from the market. DOE is not summarizing or
responding to these comments in this notice, as DOE continues to
consider these comments in informing DOE's decision on amended energy
conservation standards for GIWH.
iv. Proper Treatment of Economic Considerations
According to NPGA, APGA, AGA, and Rinnai, the proposed UEF
requirements for gas-fired storage water heaters would require new
venting requirements and other additional equipment even if the adopted
standards did not require condensing gas-fired storage water heaters.
Based on these proposed UEF requirements, NPGA, APGA, AGA, and Rinnai
asserted that DOE failed to understand the market for water heaters and
what differentiates consumer decisions, apparent in its discussion of
product classes in the July 2023 NOPR. NPGA, APGA, AGA, and Rinnai
further asserted that DOE's failure to separate product classes based
on relevant features preferred by consumers shows a fundamental market
misunderstanding, questioning DOE's capacity to regulate the market.
According to NPGA, APGA, and Rinnai, DOE continues to strain to show
that the consumer gains no utility from features associated with
condensing and non-condensing products, insisting that the design and
operation of the unit ``does not provide any utility to the consumer
that is accessible to the layperson, which is based upon the consumer's
operation of or interaction with the appliance;'' however, these
commenters stated, these design and installation issues are certainly
accessible to the consumer when choosing the appliance. (NPGA, APGA,
AGA, and Rinnai, No. 441 at pp. 2-3)
NPGA, APGA, AGA, Rinnai, and TPPF commented that DOE does not
capture what differentiates consumer decisions to purchase non-
condensing over condensing water heaters. DOE recognizes, however, that
purchase price, installation cost, and maintenance cost--factors which
some commenters suggested could be ``features'' of non-condensing
models that lead some consumer to pick these models over condensing
models--are relevant to consumer decision-making. Accordingly, DOE has
treated those variables as inputs to evaluate the costs and benefits to
consumers of standards requiring differing technologies. But as stated
previously, those factors, while relevant to consumer decision-making
and DOE's standard setting, are not ``features'' for purpose of
sections 6295(o)(4) or (q)(1)(B). As stated in the December 2021
Venting Interpretive Final Rule, the ``features'' DOE considers
separately pertain to those aspects of the appliance with which the
consumer interacts during the operation of the product (i.e., when the
product is providing its ``useful output'') and the utility derived
from those features during normal operation. 86 FR 73947, 73955. The
installation and purchase decision factors mentioned by commenters do
not affect the performance of the water heater and how a consumer uses
it, but instead impact the cost of owning and operating one.
Because DOE views the issues discussed here to be matters of cost,
the Department finds it appropriate under the statute to address these
issues through the rulemaking's economic analysis. 86 FR 73947, 73951
(Dec. 29, 2021). This interpretation is consistent with EPCA's
requirement for a separate analysis of economic justification for the
adoption of any new or amended energy conservation standard (see 42
U.S.C. 6295(o)(2)-(3); 42 U.S.C. 6313(a)(6)(A)-(C); 42 U.S.C. 6316(a)).
These costs are addressed in the LCC in section IV.F of this document.
v. Comparison to Ventless Clothes Dryers
Rinnai noted that, in the case of ventless clothes dryers, DOE
recognized consumer costs associated with venting as a basis for
establishing separate product classes. (Rinnai, No. 1186 at p. 11)
In response to Rinnai's discussion of ventless clothes dryers, DOE
notes that venting in the case of clothes dryers is different from
venting of gas-fired appliances, where combustion gases must be
exhausted outside of the home, and these differences are outlined in
the December 2021 Venting Interpretative Final Rule.
Venting for clothes dryers refers to the method of removal of
evaporated moisture from the cabinet space. Vented clothes dryers
exhaust this evaporated moisture from the cabinet outside of the home
whereas ventless clothes dryers instead use a closed-loop system with
an internal condenser to remove the evaporated moisture from the heated
air.
[[Page 37815]]
In the TSD accompanying a 2011 direct final rule pertaining to
residential clothes dryers, DOE explained that ventless clothes dryers
can be installed where vented dryers would be precluded due to
restrictions preventing any sort of vent from being installed, and thus
the Department noted that how a clothes dryer is vented is not simply
an issue of initial costs or a consumer choosing one product over
another.\34\ As discussed in the December 2021 Venting Interpretive
Final Rule, unlike consumers of ventless dryers, consumers facing the
prospect of replacing a non-condensing water heater with a condensing
water heater do have options available to either modify existing
venting or install a new venting system to accommodate a condensing
product, or to install a feasible alternative to have heated air or
water provided (i.e., an electric appliance); but in all cases, the
consumer would not be precluded from having access to heated water, a
result which is distinctly different from the one at issue in the
ventless clothes dryers example. 86 FR 73947, 73957. Condensing gas-
fired water heaters can still be installed in buildings where non-
condensing gas-fired water heaters currently are. This is because,
unlike the case of clothes dryers, both non-condensing and condensing
gas-fired water heaters use a vent--the difference in installation is
in the type of venting material and its cost.
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\34\ Technical Support Document: Energy Efficiency Program for
Consumer Products and Commercial and Industrial Equipment:
Residential Clothes Dryers and Room Air Conditioners, pp. 3-6
(Available at: www.regulations.gov/document?D=EERE-2007-BT-STD-0010-0053).
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vi. Conclusion
For the reasons discussed in this section and in the December 2021
Final Interpretive Rule, DOE continues to find that there is no basis
for altering the Department's approach regarding the establishment of
product classes for gas-fired water heaters for this rulemaking.
e. Very Large Gas-Fired Storage Water Heaters
A.O. Smith identified that a product class for > 100 gallon gas-
fired storage water heaters with a non-condensing efficiency level is
likely to incentivize the circumvention of current condensing standards
for 55-100 gallon gas-fired storage water heaters and residential-duty
commercial gas-fired storage water heaters. (A.O. Smith, No. 1182 at p.
14) NYSERDA commented that a non-condensing-level standard for gas-
fired storage water heaters > 100 gallons would result in market
confusion and the possibility of circumventing residential-duty
commercial water heater standards, because residential-duty commercial
gas-fired storage water heaters may typically only be just over the
75,000 Btu/h input rate limit and could easily be converted to consumer
water heaters. (NYSERDA, No. 1192 at p. 6)
DOE notes that the non-condensing level for >100 gallon gas-fired
storage water heaters is simply a crosswalk of existing standards, and,
as discussed in section IV.C.2 of this document, DOE did not evaluate
more stringent standards for this product class in this rulemaking.
However, DOE understands the concerns from these stakeholders and
may consider evaluating amended standards for these product classes in
a future rulemaking.
f. Electric Storage Water Heaters
In response to the March 2022 Preliminary Analysis, DOE received
comments requesting that DOE establish separate product classes for
heat pump electric storage water heaters and electric resistance
storage water heaters, citing concern with expanding heat pump-level
standards for electric storage water heaters. DOE responded to these
comments in the July 2023 NOPR, tentatively determining that the
conclusions reached in the April 2010 Final Rule that separate classes
are not justified (see 75 FR 20112, 20135) remain valid and that heat
pump electric storage water heaters and electric resistance storage
water heaters do not warrant separate product classes as they do not
exhibit any unique performance-related features. 88 FR 49058, 49079-
49080.
In response to the July 2023 NOPR, DOE received additional comments
regarding the creation of separate product classes for heat pump
electric storage water heaters and electric resistance storage water
heaters. EEI asserted that DOE should create separate product classes
or require lower efficiency levels for electric resistance storage
water heaters rather than maintaining these technologies in the same
classes with heat pump water heaters, as this would allow newer
technologies at more economic price points a chance to meaningfully
compete in the marketplace and would, in turn, support the
Administration's climate and clean energy goals. EEI stated that the
proposed standards would cause a significant increase in efficiency for
existing electric resistance storage water heaters. (EEI, No. 1198 at
pp. 2-3) Earthjustice, however, stated that separate product classes
for heat pump and electric resistance storage water heaters are not
warranted, as the NOPR correctly determines. Earthjustice added,
specifically, that separate product classes would not be justifiable
under EPCA because heat pump and electric resistance water heaters
provide equivalent service to the end-user. (Earthjustice, No. 1189 at
pp. 1-2)
DOE agrees with EarthJustice and maintains its longstanding
position, outlined most recently in the July 2023 NOPR, that separate
product classes for heat pump and electric resistance water heaters are
not warranted under EPCA. DOE establishes separate product classes
based on two criteria: (1) fuel source; and (2) whether a type of
product offers a unique capacity or other performance-related feature
that justifies a different standard. (See 42 U.S.C. 6295(q)(1))
Heat pump electric storage water heaters and electric resistance
water heaters both use electricity as the fuel source. 88 FR 49058,
49079-49080. They both offer similar delivery capacities, and DOE has
not identified any unique performance-related features offered by
either heat pump electric storage water heaters or electric resistance
storage water heaters. Id. DOE considers performance-related features
to be those aspects of the appliance with which the consumer interacts
during operation of the product. The technology used to heat the water,
heat pump or electric resistance, is not something a consumer would
interact with during operation of the water heater. Therefore, DOE has
maintained both heat pump and electric resistance technologies within
the electric storage water heater classes in this rulemaking analysis,
consistent with its approach in the April 2010 Final Rule.
i. Configurations of Electric Water Heaters
In response to the December 2023 SNOPR, A.O. Smith requested
clarification as to what test procedure provisions apply to electric
resistance booster water heaters that meet the definition of a ``water
heater requiring a storage tank'' but not of a ``circulating water
heater''. A.O. Smith added that the June 2023 TP Final Rule preamble
seems to indicate that electric resistance booster water heaters are to
be tested to section 4.10 of appendix E, but that the heading for
section 4.10 indicates the section is intended for circulating water
heaters and does not include provisions for electric resistance booster
water heaters. A.O. Smith commented that electric resistance booster
water heaters and circulating water heaters both should be considered
as ``water heater requiring a storage tank'' and
[[Page 37816]]
recommended that the same test procedure apply to both. A.O. Smith
recommended DOE implement this approach by establishing a definition
for electric resistance booster water heaters and updating section 4.10
of appendix E to include provisions for testing electric resistance
booster water heaters. (A.O. Smith, No. 1411 at p. 6)
In response to A.O. Smith, DOE notes that this section provides a
description of electric water heater design examples and how they
should be tested and classified for the applicable standards. An
electric instantaneous water heater product that is designed to operate
in tandem with a storage tank but not circulate the water between
itself and the tank is not a circulating water heater because it does
not meet the definitional criteria ``must be used in combination with a
recirculating pump to circulate water.'' A.O. Smith suggested that this
type of add-on product might qualify as a ``water heater requiring a
storage tank'' per section 1.19 of appendix E; however, DOE does not
find this to necessarily be true. Appendix E defines a ``Water Heater
Requiring a Storage Tank'' in part as a water heater without a storage
tank that cannot meet the requirements of sections 2 and 5 of this
appendix without the use of a storage water heater or unfired hot water
storage tank. However, section 5.2.2.1 specifies that, for flow-
activated water heaters, if the water heater is not capable of
providing the discharge temperature specified in section 2.5 of
appendix E when the flow rate is 1.7 gallons 0.25 gallons
per minute, then adjust the flow rate as necessary to achieve the
specified discharge water temperature. Based on these requirements,
electric resistance booster water heaters would indeed be able to be
tested in accordance with appendix E without the use of a storage water
heater or separate storage tank.
A.O. Smith said that it agreed with DOE's clarifications in the
December 2023 SNOPR which classify all split-system heat pump water
heaters, regardless of whether or not they include a tank, as electric
storage water heaters. (A.O. Smith, No. 1411 at p. 3-4)
To offer additional clarity on how different electric water heaters
would be regulated as a result of this final rule, Table IV.4 shows the
distinguishing characteristics of circulating water heaters, split-
system heat pump water heaters, and other water heaters that operate in
tandem with a separate tank but are instantaneous-type.
A split-system heat pump water heater is defined in section 1.13 of
appendix E and reads, ``Split-system heat pump water heater means a
heat pump-type water heater in which at least the compressor, which may
be installed outdoors, is separate from the storage tank'' (therefore,
a split-system heat pump water heater is supplied with a storage tank).
These designs are discussed more in the following subsection of this
document. The definition of a circulating water heater is provided in
section IV.A.1.a of this document, and the key distinction between a
heat pump circulating water heater and a split-system heat pump water
heater is that a circulating water heater is not sold with a tank (but
must be paired with a tank or other stored volume of water in the field
to operate), whereas a split system heat pump water heater is sold with
a tank. Although heat pump circulating water heaters and split system
heat pump water heaters are functionally very similar when installed in
the field, they are differentiated in DOE's regulations due to
differences in the test methods, which are outlined in Table IV.4. The
definition of a low-temperature water heater is provided in section
IV.A.1.b of this document, and these units are instantaneous-type (they
do not include circulating water heaters).
BILLING CODE 6450-01-P
[[Page 37817]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.016
[[Page 37818]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.017
BILLING CODE 6450-01-C
The same concepts would apply for any other fuel type (e.g., gas or
oil).
ii. Plug-In and Split-System Heat Pump Electric Storage Water Heaters
DOE received comments in response to the March 2022 Preliminary
Analysis recommending that DOE create a separate product class for
split-system and plug-in (120-volt) heat pump water heaters. Commenters
cited their utility in installation scenarios unable to be met by other
heat pump water heaters. DOE responded to these comments in the July
2023 NOPR stating that, while plug-in heat pump water heaters were not
considered in the March 2022 Preliminary Analysis because they were not
commercially available in the United States at the time, DOE did not
have enough information to determine whether a higher or lower
efficiency standard would be justified. DOE also stated that it had not
identified any unique performance-related features that would warrant a
separate product class for split-system heat pump water heaters or
plug-in heat pump water heaters. 88 FR 49058, 49080.
Responding to the July 2023 NOPR, Rheem supported DOE's tentative
determination not to assign separate product classes to 120-volt heat
pump water heaters, noting that its 120-volt design configurations are
able to meet the proposed standards. Rheem also stated that there is no
need to amend the test procedure for 120-volt heat pump water heaters
at this time. (Rheem, No. 1177 at p. 8) A.O. Smith, however,
recommended that DOE separate 120-volt heat pump water heaters into
their own product class and align the efficiency levels for this
product class to ENERGY STAR[supreg] Version 5.0. A.O. Smith added that
120-volt heat pump water heaters are relatively new designs and are
limited in capacity due to the absence of backup electric resistance
elements (because the product must operate at a lower voltage of 120
volts as opposed to conventional 240-volt products). To ensure consumer
satisfaction, A.O. Smith stated, these products will tend to favor
maintaining higher FHRs at the detriment of UEF. (A.O. Smith, No. 1182,
pp. 15-16)
BWC also supported DOE's tentative determination not to create a
separate product class for 120-volt heat pump water heaters. BWC stated
it does not believe that otherwise identical electric products
differentiated only by their operating voltage meet the criteria for
establishing separate product classes; the commenter asserted that the
voltage
[[Page 37819]]
of the product does not cause the consumer to interact with the product
differently; not does it enhance the utility being provided directly to
the consumer by the product. (BWC, No. 1164 at p. 14)
Based on its review of the few models of 120-volt heat pump water
heaters that have been released at the time of this final rule, DOE
agrees with BWC in that it has not identified any unique consumer
utility provided by the 120-volt plug-in configuration. As discussed in
the assessment of benefits and burdens of each TSL (section V.C.1 of
this document), DOE has determined that the amended standards adopted
in this final rule will not significantly inhibit the future
development of 120-volt heat pump water heaters. Further details of
120-volt heat pump water heaters are provided in DOE's market and
technology assessment in chapter 3 of the final rule TSD.
In addition to 120-volt plug-in heat pump water heaters, split-
system heat pump water heaters are another possible configuration of
electric storage water heater.
A.O. Smith stated that commercially available split-system heat
pump water heaters fall under two main categories: refrigerant-split
systems (for electric storage water heaters) and water-split or
``monoblock'' systems (for electric circulating water heaters). (A.O.
Smith, No. 1182 at p. 16)
As discussed in section IV.A.1.a of this document, DOE has
determined that circulating water heaters are a configuration of
storage-type water heater. Therefore, refrigerant-split systems and
water-split systems must meet the same the standards adopted under this
final rule. As was tentatively determined in the July 2023 NOPR, DOE
has determined not to create a separate product class for split-system
heat pump water heaters. Split-system heat pump water heaters use the
same fuel source--electricity--as other electric storage water heaters.
DOE also has not identified any unique performance-related features
offered by split-system heat pump water heaters that would warrant a
separate product class consideration at this time. And, as DOE stated
previously, the type of technology used to heat the water, in this case
a split-system heat pump, is not something a consumer would interact
with during operation of the water heater.
In the December 2023 SNOPR DOE explained that treating circulating
water heaters as storage water heaters was parallel to how split-system
heat pump water heaters are treated: a heat pump module and a separate
storage tank, which, altogether, are treated as a storage-type water
heater. 88 FR 89330, 89333. Specifically, DOE wrote that these products
``have long been considered to be electric storage water heaters.'' Id.
Pickering noted that while most air-to-water heat pumps are
electric, systems using natural gas or propane as the fuel source are
emerging. Pickering added that the emergence of such technologies is
not in agreement with DOE's statement that heat pump water heaters
``have long been considered to be electric storage water heaters''.
(Pickering, No. 1399 at p. 2)
DOE agrees with Pickering that the statement in the December 2023
SNOPR implicitly was only referring to electric heat pumps. Split-
system heat pump water heaters that do not rely on electricity as the
main fuel source would not be electric storage water heaters. For
example, split-system heat pump water heaters that are gas-fired would
be considered gas-fired storage water heaters. Gas-fired heat pump
water heaters are addressed in section IV.B.1 of this document.
iii. Grid-Enabled Water Heaters
Grid-enabled water heaters are a specific type of electric storage
water heater with separate standards established by EPCA. (See 42
U.S.C. 6295I(6)(A)(ii), also discussed in section III.B of this
document). The statutory definition of a grid-enabled water heater
describes its characteristics as a product which must be activated when
enrolled with a utility, but it does not specifically define what
connected features the product must have once enrolled. In the July
2023 NOPR, DOE did not propose to define the connected features because
DOE had not found it necessary at the time to further define
connectivity.
SkyCentrics and TVA requested that DOE include a requirement for an
open standard communication port such as EcoPort (CTA-2045) or
equivalent to be added to the product requirements for all electric
storage water heaters with a storage volume larger than or equal to 32
gallons. (TVA, No. 978 at pp. 1-2; SkyCentrics, No. 1191 at p. 1) TVA
added that there are many water heater models with the port currently
on or soon to be on the market, and stated that DOE can help promote
this port as a national standard, helping OEMs benefit from volume
production and reducing the cost of production by reducing SKUs with
models that can be sold nationally. (TVA, No. 978 at pp. 1-2) AWHI also
urged DOE to require CTA-2045 EcoPort in new electric storage water
heaters, stating that industry partners would be ready for compliance
with CTA 2045-B Level 2 as of July 1, 2025. (AWHI, No. 1036 at pp. 4-6)
DOE is maintaining its determination from the July 2023 NOPR not to
adopt any specific requirements to define connectivity in this
rulemaking. With respect to grid-enabled water heaters, the scope of
this product class is defined by EPCA, which does not posit any
specific design requirements for the demand-response communication
protocol. While DOE recognizes that industry may benefit from
standardization of the communication protocols, demand-response
technology is not known to be a design option to improve efficiency of
the product over an average use cycle (see chapter 3 of the final rule
TSD, which discusses DOE's technology assessment); hence, it was not
considered in the design pathway for compliance with more stringent
standards. While EPCA establishes the authority for DOE to amend energy
conservation standards for consumer water heaters, it does not directly
grant DOE the authority to establish prescriptive design requirements
for consumer water heaters, particularly as it relates to a requirement
that would not directly impact the measured energy efficiency as
measured by the DOE test procedure. Instead, the ongoing work by the
EPA's ENERGY STAR program is expected to promote the standardization of
demand-response technology. Specifically, ENERGY STAR's version 5.0
specification contains criteria for meeting the connected product
designation, which references the CTA-2045 and OpenADR protocols.
Additionally, in the July 2023 NOPR, DOE did not propose to amend
standards for grid-enabled water heaters because there remains
uncertainty as to whether these products can achieve higher UEF values
with added insulation (reduced standby losses being the main pathway
towards higher efficiency because grid-enabled water heaters are
statutorily defined as having electric resistance heating). 88 FR
49058, 49086.
NRECA and ECSC supported DOE's proposed retention of existing
standards for grid-enabled water heaters, adding that these larger
water heaters remain an important load-control tool for their member
electric cooperatives. (NRECA, No. 1127 at pp. 2, 10; ECSC, No. 1185 at
p. 2) NYSERDA also supported DOE's proposals regarding grid-enabled
water heaters and stated that there is additional opportunity to
address demand-response functionality in a future rulemaking. (NYSERDA,
No. 1192 at p. 4)
[[Page 37820]]
CEC, however, urged DOE to reevaluate its conclusion that heat pump
technology is not applicable as a technology option for grid-enabled
water heaters, adding that although they are statutorily defined as
``electric resistance water heaters'' (see 42 U.S.C.
6295(e)(6)(A)(ii)), this definition does not preclude additional
technologies, such as heat pumps. Therefore, CEC stated, the vast
majority of hybrid grid-enabled water heaters employing both heat pump
and electric resistance technologies would meet the statutory
definition of grid-enabled water heater. (CEC, No. 1173 at pp. 11-12)
The CA IOUs recommended that DOE amend standards for grid-enabled water
heaters to be equivalent in stringency to those of other electric
storage water heaters in a future rulemaking because these products
directly compete with heat pump water heaters between 55 and 120
gallons. The CA IOUs also requested that DOE comply with the terms of
the 2015 legislation creating the grid-enabled water heater product
type and release the two market data reports described in 42 U.S.C.
6295(e)(6)(D)(i). (CA IOUs, No. 1175 at p. 5)
At this time, DOE is not aware of any commercially available heat
pump water heaters that also meet the statutory definition of a grid-
enabled water heater. Grid-enabled water heaters constitute an entirely
separate product class, defined at 42 U.S.C. 6295(e)(6)(A)(ii) and must
have a rated storage volume of more than 75 gallons. Not all demand-
response water heaters meet the definition of a grid-enabled water
heater. While DOE agrees that it is technologically feasible for grid-
enabled water heaters to employ heat pumps to increase efficiency, such
a product does not exist on the market. Manufacturers of certain models
of heat pump water heaters in the electric storage water heater
category, however, have certified these units' demand-response
capabilities (which can be incorporated in water heaters outside of the
grid-enabled product class) to ENERGY STAR, which indicates that heat
pump innovation for grid-connected products can continue to occur in
the absence of heat pump-level standards for grid-enabled water
heaters; thus, it is unclear whether heat pump-level standards for
grid-enabled water heaters would result in significant energy savings
considering that shipments of electric storage water heaters dwarf
those of grid-enabled water heaters today.\35\ In other words,
consumers seeking demand-response capabilities with heat pump
technology could be more likely to seek an electric storage water
heater with a communication module than a grid-enabled water heater.
DOE may further evaluate the potential for more stringent standards for
grid-enabled water heaters in a future rulemaking addressing energy
conservation standards for consumer water heaters.
---------------------------------------------------------------------------
\35\ DOE included an assessment of grid-enabled water heaters in
the March 2022 Preliminary Analysis. In shipments estimates, it was
approximated that there were about 15 thousand shipments of grid-
enabled water heaters in 2021, compared to 3.8 million shipments of
other electric storage water heaters. See the NIA spreadsheet to the
March 2022 Preliminary Analysis, docketed as Document No. EERE-2017-
BT-STD-0019-0024 and available online at www.regulations.gov/document/EERE-2017-BT-STD-0019-0024.
---------------------------------------------------------------------------
Rheem noted that EPCA (42 U.S.C. 6295(e)(6)(A)(ii)(I)) specifically
defines grid-enabled water heaters on the basis that such a product
``has a rated storage tank volume of more than 75 gallons,'' and that
DOE would be misaligning the scope of coverage of the grid-enabled
water heater product classes if it were to define these classes as
being greater than 75 gallons of effective storage volume. (Rheem, No.
1177 at p. 3)
DOE agrees with Rheem and will maintain the current product class
definition for grid-enabled water heaters, which is based on rated
storage volume rather than effective storage volume. However, as
discussed in section V.D.1.f of this document, DOE is adopting
amendments to the appendix E test procedure that will effectively
exempt grid-enabled water heaters from the high temperature test method
such that there is not likely to be any appreciable difference between
the two volume metrics as they pertain to standards for grid-enabled
water heaters. Therefore, the standards for grid-enabled water heaters
will apply to products with rated storage volume greater than 75
gallons instead of an effective storage volume greater than 75 gallons,
and this change from the July 2023 NOPR proposal is not expected to
have any impact on the results of DOE's analysis or the scope of
applicability of standards.
AHRI indicated that there is an additional backsliding concern for
grid-enabled water heaters but did not elaborate on details of the
concern. The commenter claimed that grid-enabled water heaters will not
work correctly unless they are enrolled in a utility program and noted
that DOE is collecting information to determine if these products are
used properly in the field. (AHRI, No. 1167 at p. 5)
DOE has not identified any backsliding concerns for grid-enabled
water heaters. Furthermore, maintaining the definition of this product
class in terms of rated storage volume will mean no change to the
standards for grid-enabled water heaters and therefore, no backsliding
will occur. Regarding the functionality of grid-enabled water heaters,
DOE agrees that grid-enabled water heaters will not function correctly
unless enrolled in a utility program. Specifically, per 42 U.S.C.
6295(e)(6)(A)(i), grid-enabled water heaters must possess an activation
lock that requires a key to enable the product to operate at its
designed specifications and capabilities and without which activation
the product will provide not greater than 50 percent of the rated first
hour delivery of hot water certified by the manufacturer. This
requirement sets these products apart from other large electric storage
water heaters with grid connectivity.
iv. Small Electric Storage Water Heaters and Tabletop Water Heaters
Current product classes for electric storage water heaters are
based on rated storage volume (capacity) and draw pattern. See 10 CFR
430.32(d). There are product classes for electric storage water heaters
with storage volumes greater than 20 gallons and less than or equal to
55 gallons, and product classes for electric storage water heaters with
storage volumes greater than 55 gallons and less than or equal to 120
gallons. As discussed in section II.B.2 of this document, DOE received
a Joint Stakeholder Recommendation for amended water heater standards
that included recommended standard levels for electric storage water
heaters. In particular, the Joint Stakeholder Recommendation suggested
setting different standards for smaller electric storage water heaters.
In the July 2023 NOPR, DOE tentatively concluded that separate product
classes for smaller electric storage water heaters are warranted. 88 FR
49058, 49080-49081. Specifically, DOE noted that market data for
electric storage water heaters suggest there is a certain category of
electric storage water heaters that are limited in their physical size
due to the places they are typically installed, which are commonly
referred to as ``lowboy'' water heaters. The physical size limitation
of these water heaters restricts the amount of hot water that can be
provided to the household. Id.
In reviewing the market for these water heaters, DOE found that
most ``small electric storage water heaters'' offer an effective
storage volume greater than or equal to 20 gallons and less than or
equal to 35 gallons and deliver FHRs less than 51 gallons. Due to their
low capacities, ``small electric storage water
[[Page 37821]]
heaters'' fall into the very small or low usage draw patterns. Thus,
DOE tentatively concluded that this physical limitation is a
performance-related feature affecting energy efficiency that would
warrant a separate product class. DOE also explained that the physical
size limitation constrains the technology options that can be
considered to increase the efficiency of these water heaters. DOE,
therefore, analyzed splitting the existing 20-55-gallon product classes
for electric storage water heaters by establishing new ``small electric
storage water heater'' product classes. Id.
In the July 2023 NOPR, DOE identified the following proposed
product classes for electric storage water heaters: (1) electric
storage water heaters with an effective storage volume greater than or
equal to 20 gallons and less than or equal to 35 gallons, with FHRs
less than 51 gallons (i.e., very small and low draw patterns) (``small
electric storage water heaters''); and (2) electric storage water
heaters with an effective storage volume greater than or equal to 20
gallons and less than or equal to 55 gallons (excluding small electric
storage water heaters).
Responding to the July 2023 NOPR, NEEA supported DOE's proposed
creation of the small electric storage water heater product class, and
noted that heat pump water heaters are sometimes too large to
physically fit in the spaces currently occupied by these types of water
heaters. (NEEA, No. 1199 at p. 8) The CA IOUs also supported DOE's
proposal to create a new product class and separate electric
resistance-level standards for small electric storage water heaters
with effective storage volumes of >= 20 and <= 35 gallons limited to
very small and low draw patterns. The CA IOUs agreed with DOE that
there is a specific practicality provided by small electric resistance
water heaters (also referred to as ``lowboys''), and that it is
impractical to install currently available heat pump water heater in
some spaces where lowboy water heaters are commonly installed. (CA
IOUs, No. 1175 at p. 3)
Rheem asserted that a large portion of 35-40-gallon heat pump water
heater sales would be at risk with the structure of the product classes
proposed in the July 2023 NOPR. Rheem stated that either the threshold
for small electric storage water heaters should be lowered to 30
gallons or the small electric storage water heater category be
additionally restricted to products less than 36 inches in height
(i.e., lowboys). (Rheem, No. 1177 at p. 7)
PHCC stated that if DOE wished to limit certain products based on
effective storage volume, the height is not a significant factor. The
commenter asked DOE about the relevance of establishing the small
electric storage water heater class based on a 36-inch height
limitation while asserting that removing a height consideration would
take pressure off the industry and streamline available models. PHCC
also suggested DOE adjust the current heat pump-level standard for >55-
gal electric storage water heaters to apply to those >40 gallons as
well. (PHCC, No. 1151 at p. 2)
DOE is aware that certain 20-55-gallon heat pump water heaters may
be interchangeable for some of the larger electric resistance water
heaters in the small electric storage water heater product class and
agrees with Rheem that some small electric storage water heaters may be
substituted for larger products that would be subject to more stringent
standards. As discussed in section IV.G.1 of this document, DOE has
accounted for this in its analysis. Although the current limitation
could lead to more substitution than if the volume threshold were
lowered, DOE believes the small electric storage water heater product
class, as proposed in the July 2023 NOPR, strikes the balance between
preserving consumer utility at smaller storage volumes and ensuring
heat pump water heaters are utilized where practicable to install. As
such, DOE is adopting the small electric storage water heater product
class, as proposed in the July 2023 NOPR. In response to PHCC, DOE
notes that although a height restriction was included in the Joint
Stakeholder Recommendation, DOE did not propose a height restriction on
the small electric storage water heater product class in the July 2023
NOPR. As shown in Table IV.4 of the July 2023 NOPR, small electric
storage water heaters are defined by volume and delivery capacity only.
88 FR 49058,49081. Additionally, DOE notes that PHCC's suggestion for
expanding the applicability of heat pump-level standards is essentially
what was proposed and is being adopted in this final rule. DOE is using
a 35-gallon effective storage volume cutoff combined with a draw
pattern requirement for small electric storage water heaters to be in
the very small or low draw patterns. In its market assessment, DOE
found that many products with nominal volumes of 40 gallons have rated
storage volumes from 35 to 36 gallons because manufacturers may
nominally report volumes that are within 10 percent of the actual
storage volume. With respect to Rheem's suggestion that a height
requirement be implemented, DOE notes that although most products on
the market that fit into this category are ``lowboy'' products with
limited overhead space, there are also products on the market that are
physically constrained by their width or diameter. These tall, small-
diameter water heaters also have smaller storage capacities and
delivery capacities. They also have the same energy consumption
characteristics as lowboy water heaters based on certification data. In
the April 2010 Final Rule, when DOE had first declined to establish a
separate product class for lowboy water heaters, DOE stated that it
does not believe each different combination of physical dimensions
currently available on the market warrants a separate product class. 75
FR 20112, 20131-20132. Consistent with the approach taken in the
previous rulemaking, DOE has determined that separate standards for
lowboy water heaters and these other shapes of small electric storage
water heaters are not justified and, as a result, the product class
definition should not specify a height restriction.
Tabletop water heaters, which typically have rated storage volumes
of around 35 gallons, also have very particular dimensions in order to
be used in a kitchen workspace. DOE is not amending the standards for
tabletop water heaters in this final rule based on the market
assessment for these products (see section IV.C.2 of this document for
details). There are only two basic models of tabletop water heaters on
the market currently. Because of the similarities between tabletop
water heaters and small electric storage water heaters, DOE proposed,
in the July 2023 NOPR, to create alignment between the standards for
these types of products. Specifically, DOE proposed to amend the
definition of ``tabletop water heater'' to specify that the tabletop
designation of electric storage water heaters is only applicable to
products in the very small or low draw pattern, and any tabletop water
heaters in the medium and high draw patterns would henceforth be
considered in the broader electric storage water heater product
classes. 88 FR 49058, 49081. In the July 2023 NOPR, DOE requested
comment on its proposal to limit the tabletop water heater designation
to products in the very small and low draw patterns.
In response, AHRI supported the proposal to limit the tabletop
water heater designation to the products in the very small and low draw
patterns as it will prevent the use of tabletop water heaters as an
avenue to bypass the current limitations on small electric storage
water heaters. (AHRI, No. 1167
[[Page 37822]]
at p. 10) The Joint Advocacy Groups also supported DOE's proposal to
limit the tabletop water heater designation to products in the very
small and low draw patterns, as it would align the standards for
tabletop water heaters with those for small electric storage water
heaters and help ensure tabletop water heaters are not used as a less
efficient substitute for conventional electric storage water heaters.
(Joint Advocacy Groups, No. 1165 at pp. 6-7) Rheem supported DOE's
proposed amendments to the tabletop water heater definition, indicating
that this otherwise low-sales-volume product has the potential to be
installed in place of heat pump water heaters. (Rheem, No. 1177 at p.
8) A.O. Smith supported the changes proposed to the tabletop water
heater standards even though it asserted that this may cause some
issues for existing products. (A.O. Smith, No. 1182 at p. 15)
BWC stated that re-defining tabletop water heaters as products that
only meet either the very small or low draw pattern would remove half
of the products from the market, even though this is a very small
number of models. As a result, BWC stated, there would be a drastic
reduction in model availability for consumers who rely on tabletop
water heaters, many of which may be in densely populated, low-income
households that have higher household occupancies and therefore require
products with delivery capacities in the medium draw pattern. (BWC, No.
1164 at pp. 15-16)
In response to BWC, DOE notes that, in its market assessment of
tabletop water heaters, there are only two basic models found to be
certified and commercially available. One is in the low draw pattern,
and the other has an FHR of 55 gallons, putting it into the medium draw
pattern. Water heaters with FHRs less than 51 gallons can remain
categorized as tabletop water heaters. Because the medium draw pattern
tabletop water heater on the market today is very close to this FHR
cutoff, in the July 2023 NOPR, DOE surmised that, with minimal design
changes, a modified version of this model may remain on the market and
be certified in the tabletop water heater category (see 88 FR 49058,
49081). This would avoid limitations to consumer choice. In written
comments in response to the NOPR, the two manufacturers that produce
tabletop water heaters both supported the proposed updates to the
tabletop water heater definition. Additionally, DOE is not aware of,
nor did BWC provide, information to support BWC's assertion that many
tabletop water heaters are used in households with higher occupancies
that require the medium draw pattern. Therefore, DOE is finalizing the
definition for tabletop water heaters as proposed.
Additionally, given these insights regarding the market for
tabletop water heaters, DOE is amending the product classes for
tabletop water heaters to remove the storage volume-based product class
boundary at 120 gallons. Comments indicate that the market for these
products is limited and requires the specific use of the rectangular
casing configuration with typical dimensions of 36 inches high, 25
inches deep, and 24 inches wide. The maximum possible volume contained
in these dimensions is approximately 94 gallons, hence DOE does not
expect there to exist a market for tabletop water heaters larger than
120 gallons. The amended product class structure for tabletop water
heaters results in two volume-based categories: products less than 20
gallons, and products greater than or equal to 20 gallons.
v. Very Large Electric Storage Water Heaters
Responding to the July 2023 NOPR, Bosch, the Joint Advocacy Groups,
the CA IOUs, Rheem, A.O. Smith, and AHRI all expressed concern that
defining the >120-gallon electric storage water heater product class in
terms of effective storage volume (rather than rated storage volume)
could pose backsliding concerns given that it would be possible for
electric resistance storage water heaters between 55 and 120 gallons to
increase their effective storage volume to over 120 gallons by
elevating tank temperatures, such that these products could circumvent
the existing heat pump-level standards for electric storage water
heaters which apply to rated storage volumes between 55 and 120
gallons. (Bosch, No. 1204 at pp. 2-3; Joint Advocacy Groups, No. 1165
at p. 8; CA IOUs, No. 1175 at pp. 3-4; Rheem, No. 1177 at p. 3; A.O.
Smith, No. 1182 at p. 14; AHRI, No. 1167, pp. 5-6) Bosch and the CA
IOUs also suggested that defining the greater than 120-gallon electric
storage water heater product class in terms of effective storage volume
could encourage a market shift towards larger electric resistance
storage water heaters in place of smaller, <55-gallon heat pump water
heaters. (Bosch, No. 1204 at pp. 2-3; CA IOUs, No. 1175 at pp. 3-4)
Rheem noted that a product with a rated storage volume of 75 gallons
could achieve an effective storage volume of 120 gallons at a storage
tank temperature of 160 [deg]F. (Rheem, No. 1177 at p. 3)
Multiple stakeholders suggested remedies to this potential problem.
Bosch recommended that all electric storage water heaters (apart from
very small electric storage water heaters) be required to utilize heat
pump technology. (Bosch, No. 1204 at pp. 2-3) The CA IOUs suggested
that DOE amend the calculations for effective storage volume such that
products with rated storage volumes less than or equal to 120 gallons
would be capped at an effective storage volume of 120 gallons. (CA
IOUs, No. 1175 at pp. 3-4) Rheem suggested that DOE exempt products
with rated storage volumes greater than 120 gallons from the high
temperature test method because a >120-gallon product can already
provide the same or more hot water than a heat pump water heater and
thus does not rely on increasing its temperature to have a large
effective storage volume. (Rheem, No. 1177 at p. 3) NYSERDA suggested
that, rather than creating a separate product class for electric
storage water heaters >120 gallons, DOE could instead remove the 120-
gallon cap and apply the same standards for electric storage water
heaters >55 gallons to those >120 gallons. (NYSERDA, No. 1192 at p. 5)
DOE agrees with stakeholders that defining the >120-gallon electric
storage water heater product class in terms of effective storage
volume, rather than rated storage volume, would pose a backsliding
risk. However, as discussed in V.D.1 of this document, the high-
temperature test method does not apply to water heaters that are larger
than 55 gallons in rated storage volume. Therefore, the scenarios
described above of an electric resistance water heater having a rated
volume less than 120 gallons and an effective storage volume greater
than 120 gallons is not likely to occur without the use of the high
temperature test method. As a result, there would be no risk of
backsliding for these standards.
2. Technology Options
DOE conducts a technology assessment to identify a complete list of
technologies for consumer water heaters (``technology options'') with
the potential to improve the UEF ratings of products. Section IV.B of
this document describes the process by which technology options are
screened in a separate screening analysis that aims to determine which
technology options could feasibly be adopted based on five screening
criteria. In the engineering analysis (section IV.C of this document),
DOE selects the technology options that are most likely to constitute
the design pathway to higher efficiency levels in a standards-case
scenario (thereafter referred to as ``design options''). Thus, after
DOE identifies a comprehensive
[[Page 37823]]
list of technologies for the technology assessment, the subsequent
analysis focuses only on those technologies that are the most likely to
be implemented in response to amended standards. In the July 2023 NOPR,
DOE presented a list of technologies that it identified for initial
consideration in the NOPR analysis. 88 FR 49058, 49082-49083.
In the technology assessment for the July 2023 NOPR, DOE examined
120-volt heat pump water heater technology and noted that there were
very few models of 120-volt heat pump water heater available on the
market at the time. DOE therefore requested comment on the outlook for
the emergence of 120-volt heat pump water heaters, information
regarding how their design and operation could differ from 240-volt
heat pump water heaters, and data on performance characteristics and
efficiencies. 88 FR 49058, 49082.
In response, AWHI commented that NEEA's Advanced Water Heating
Specification version 8.01 contains a technical specification for a
load shifting-capable 120-volt heat pump water heater, and that there
are now three manufacturers that offer commercially available 120-volt
heat pump water heaters ranging from 50 to 80 gallons. AWHI cited a
preliminary market assessment conducted by New Buildings Institute
stating that 22 to 30 percent of existing California homes could
transition from fossil fuel-based water heaters to 120-volt heat pump
water heaters without substantial site upgrades, and that the
installation cost of 120-volt heat pump water heaters is significantly
less that for 240-volt units due to minimal electrical interventions.
AWHI stated that 120-volt heat pump water heaters do not need a
dedicated circuit to be installed and can instead share a circuit with
other appliances, reducing the impact of installation on the existing
electrical infrastructure of the home. AWHI also stated that 120-volt
heat pump water heaters do not have electric resistance elements, which
results in slower recovery than 240-volt heat pump water heaters and
are therefore more sensitive to environmental factors that impact
compressor performance, such as input water temperature and ambient air
temperature. AWHI stated that 120-volt heat pump water heaters
incorporate integrated mixing valves and store water at temperatures
above the delivery temperature to increase hot water capacity, which
allows for easier participation in load shifting and demand-response
programs. Lastly, AWHI stated that a 120-volt heat pump water heater
performed at an overall average UEF of 2.90 and varied by season and
use characteristics in a field study conducted in California by New
Buildings Institute. (AWHI, No. 1036 at pp. 1-3)
BWC supported DOE's tentative determination not to include 120-volt
heat pump water heaters in its analysis because these products are
relatively new and do not have significant market share at the present
time. BWC stated a belief that it is appropriate for DOE, and the
industry, to take more time to better understand these products before
establishing regulations. (BWC, No. 1164 at p. 14)
DOE appreciates the insight into 120-volt heat pump water heaters
and continues to evaluate this technology. While DOE considers 120-volt
heat pump water heaters to be a technology for improving the efficiency
of electric water heaters, due to the nascent status of 120-volt heat
pump water heaters, DOE did not consider 120-volt designs to constitute
the main pathway towards higher efficiency for electric storage water
heaters. However, as discussed in section V.C.1 of this document, the
Department assessed TSLs with consideration of these designs.
Specifically, when evaluating TSLs, DOE considered whether the
potential standards levels would likely prevent new 120-volt designs
from emerging onto the market.
Responding to the July 2023 NOPR, NEEA supported DOE's inclusion of
the gas pressure-actuated non-powered damper as a technology option,
stating that it is likely the lowest cost pathway to achieving EL 2.
(NEEA, No. 1199 at p. 9) DOE has maintained non-powered dampers as a
technology option for the final rule.
Additionally, while DOE identified modulating burners as a
technology option for all gas-fired water heaters in the July 2023 NOPR
technology analysis, DOE tentatively determined that modulating burners
were used to increase UEF only in instantaneous gas-fired water
heaters. 88 FR 49058, 49082. DOE did not receive any comments on that
tentative determination. As discussed in section II.B.3 of this
document, gas-fired instantaneous water heaters are no longer within
the scope of this rulemaking. However, modulating burners could still
be used in circulating gas-fired water heaters, which are a type of
gas-fired storage water heater. Hence, in light of the classification
of circulating water heaters as storage-type water heaters (see section
IV.A.1.a of this document), DOE is retaining modulating burners in its
list of technology options investigated for this final rule; however,
as shown in chapter 5 of the TSD, modulating burners are not expected
to be part of the representative, cost-effective design pathway to
increasing efficiency for gas-fired storage water heaters. The
technology options for Improving UEF in consumer water heaters are
listed in Table IV.5 and described in chapter 3 of the final rule TSD.
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B. Screening Analysis
DOE uses the following five 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 part 430, subpart C, appendix A, sections 6(b)(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. The reasons for eliminating any technology are discussed in
the following sections.
The subsequent sections include comments from interested parties
pertinent to the screening criteria, DOE's evaluation of each
technology option against the screening analysis criteria, and whether
DOE determined that a technology option should be excluded (``screened
out'') based on the screening criteria.
1. Screened-Out Technologies
The following subsections describe the technologies that DOE
eliminated for failure to meet one of the following five factors: (1)
technological feasibility; (2) practicability to manufacture, install,
and service; (3) impacts on equipment utility or equipment
availability; (4) adverse impacts on health or safety; and (5) unique-
pathway proprietary technologies.
In the July 2023 NOPR, DOE screened out the following technology
options based on the above criteria: absorption and adsorption heat
pump water heaters, advanced insulation types, condensing pulse
combustion, direct-fired heat exchange, dual-fuel heat pumps, buoyancy-
operated flue dampers, thermopile-operated flue dampers, reduced burner
size (slow recovery), side-arm heating, two-phase thermosiphon
technology, and U-tube flues. 88 FR 49058, 49083. Each of these
technology options and the reasons for which they were screened out are
discussed in detail in chapter 4 of the final rule TSD.
BWC stated that it is aware of exclusive intellectual property
protections that it asserted may inhibit manufacturers from utilizing
certain technologies that are assumed by DOE to be available in the
market to increase energy efficiency on certain consumer water heater
products, and that BWC would be able to provide information in a
confidential interview with DOE's consultants. (BWC, No. 1164 at p. 16)
In selecting design options to improve efficiency in the
engineering analysis, DOE performed teardowns of models manufactured by
multiple companies to ensure that each efficiency level is achievable
using non-proprietary designs.
BWC supported DOE's tentative determination not to consider
thermopile-powered flue dampers for gas-fired storage water heaters.
(BWC, No. 1164 at p. 16)
BWC stated that direct-vent and power-direct-vent gas-fired water
heaters are not necessarily unsafe, but that their construction imposes
limits on how these products can vent and operate; a major
consideration for these products would be restrictions on the maximum
allowable vent length that safety standards would permit. BWC requested
that DOE consider these venting factors for gas-fired water heaters to
avoid unintentionally encouraging installations that conflict with the
requirements of safety standards such as ANSI Z21.10.1 and ANSI
Z21.10.3. (BWC, No. 1164 at p. 16)
DOE agrees with BWC that direct-vent and power-direct-vent gas-
fired water
[[Page 37826]]
heaters are safe to use when installed and operated in accordance with
manufacturer recommendations and/or applicable safety standards.
Therefore, DOE has not screened these technologies out of its analysis.
In evaluating these technologies, DOE accounts for the necessary
differences in venting systems installations (see section IV.F.2.b of
this document).
2. Remaining Technologies
Through a review of each technology, DOE concludes that all of the
other identified technologies listed in section IV.A.2 of this document
meet all five screening criteria to be examined further as design
options in DOE's final rule analysis. In summary, DOE did not screen
out the following technology options listed in Table IV.6. These
technology options are shown from left to right from broader categories
to specific design options.
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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 consumer water heaters.
There are two elements to consider in the engineering analysis; the
selection of efficiency
[[Page 37827]]
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
products, DOE considers technologies and design option combinations not
eliminated by the screening analysis. For each product class, DOE
estimates the baseline cost, as well as the incremental cost for the
product 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, the MIA,
and the NIA).
As discussed in section IV.A.1 of this document, certain classes of
consumer water heaters currently have UEF-based standards, while for
others EPCA's EF-based standards apply. For this rulemaking, DOE
analyzed amended UEF standards for the product classes that currently
have standards in terms of UEF. For the product classes with EF-based
standards, DOE developed translated standards in terms of UEF for use
in the analysis.
In this final rule, DOE has analyzed standards with respect to the
effective storage volume metric (as proposed in the July 2023 NOPR).
Compared to rated storage volume and FHR, effective storage volume is a
superior descriptor of the thermal energy stored in the hot water of
the water heater which can be made immediately available for consumer
use. As outlined in the July 2023 NOPR, there are two types of water
heaters that can cause the system to store more energy than would be
otherwise determined by the rated storage volume: (1) water heaters
capable of operating with an elevated tank temperature, and (2)
circulating water heaters. 88 FR 49058, 49086. In the June 2023 TP
Final Rule, DOE established that compliance with the effective storage
volume provisions (and, relatedly, the high temperature testing method
and testing with separate storage tanks for circulating water heaters)
would not be required until compliance with amended standards is
required. For circulating water heaters, the effective storage volume
of the water heater is determined by the measured storage volume of the
separate storage tank used in testing because these types of water
heaters are designed to operate with a volume of stored water in the
field. 88 FR 40406, 40461-40462. Certain provisions for circulating
water heater testing are discussed further in detail in section V.D.2
of this document. Section V.D.1 of this document discusses the proposed
approach to consider efficiency determinations for water heaters tested
using the high temperature testing method.
In the July 2023 NOPR, DOE tentatively determined not to propose
amended standards for gas-fired storage water heaters (55 gal <
Veff <= 100 gal), tabletop water heaters (20 gal <=
Veff <= 120 gal), electric instantaneous water heaters
(Veff < 2 gal), and grid-enabled water heaters at that time
based on the results of the market and technology assessment, screening
analysis, interviews with manufacturers, and comments from interested
parties. These assessments were discussed further in chapters 3 and 5
of the NOPR TSD. 88 FR 49058, 49086.
In this final rule, DOE has maintained the analytical approaches
proposed in the July 2023 NOPR. For circulating water heaters, as
discussed in section IV.A.1.a of this document, based on information
from the December 2023 SNOPR, DOE has determined that these products
offer the same consumer utility as storage-type water heaters, so the
storage-type water heater standards would apply. In summary, Table IV.7
presents the consumer water heater product classes along with the
approach to analyzing them for this final rule.
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Several commenters provided feedback about transitioning the energy
conservation standards from a rated storage volume basis to an
effective storage volume basis.
AHRI provided comments emphasizing the possibility of market
confusion resulting from amended standards being prescribed in terms of
effective storage volume instead of rated storage volume, noting that
the previous conversion from the EF to the UEF metric itself was not
without issue, leading to market disruption given that utility programs
across the United States and in Canada have still not fully adopted the
UEF metric. AHRI stated that the effective storage volume metric needs
to be further scrutinized to evaluate the representativeness and
repeatability of the metric, and that manufacturers require additional
time to analyze the effective storage volume calculation to determine
its accuracy, representativeness, and repeatability, as well as to
conduct laboratory testing to this end. AHRI asserted that the 60-day
comment period for the July 2023 NOPR was insufficient to conduct this
review.
[[Page 37829]]
AHRI recommended using only effective storage volume in the energy
conservation standards equations for products for which the metric
applies to limit confusion. (AHRI, No. 1167 at p. 5) AHRI requested
clarification on whether the effective storage volume metric would
apply to grid-enabled water heaters, tabletop water heaters, and
electric instantaneous water heaters larger than 2 gallons in rated
storage volume, recommending that the effective storage volume metric
not apply to grid-enabled water heaters. AHRI proposed two possible
options to mitigate potential market confusion from the new effective
storage volume metric: use rated storage volume for all product
categories not subject to high temperature testing; or (the option AHRI
stated was less preferable), include a footnote with the standards to
indicate those product categories for which effective storage volume is
identical to rated storage volume. (AHRI, No. 1167 at p. 6)
BWC commented that the replacement of the rated storage volume
metric with effective storage volume deviates from the Joint
Stakeholder Recommendation and could create situations where products
may not be capable of supplying adequate hot water to the home. (BWC,
No. 1164 at p. 1) BWC requested DOE not change the standards for all
product classes to be in terms of effective storage volume, but instead
to use the new metric only for product classes for which the rated
storage volume and effective storage volume are expected to be
different in order to avoid confusion. (BWC, No. 1164 at p. 9)
CEC identified a drafting error in the proposed regulatory language
in the heading at 10 CFR 430.32(d)(1) and (2), where ``rated storage
volume'' is used rather than ``effective storage volume.'' (CEC, No.
1173 at pp. 12-13) This was a publication error printed at 88 FR 49058,
49176. Stakeholders were notified of this typographical error in the
September 13 Public Meeting. (Public Meeting Transcript, No. 1190 at p.
101).
In response, DOE maintains that effective storage volume is
appropriate for use for all classes. In light of the reclassification
of circulating water heaters as storage-type water heaters, defining
all classes in terms of effective storage volume (rather than just
electric storage classes, as was suggested by stakeholders) and
delineating the standards as a function of effective storage volume is
necessary to ensure the appropriate classification of these products.
More specifically, because circulating water heaters will be considered
part of the storage-type product classes, the same standards will apply
to circulating water heaters. Where the standards for storage-type
product classes are linear functions of volume, the purpose of this is
to account for the additional standby loss that comes with more hot
water being contained in the system. The effective storage volume of a
circulating water heater is what captures the amount of hot water
contained in this type of system, and therefore is most appropriate to
base the standards equations on. Stakeholders correctly noted that the
use of the high temperature test method (described in section V.D.1 of
this document), which will apply to certain types of electric storage
water heaters, is one way by which a model can have an effective
storage volume different from its rated storage volume. Further, per
section 6.3.1.1 of appendix E test procedure, the effective storage
volume can be higher than the rated storage volume for any storage-type
water heater if the mean tank temperature is more than 5 [deg]F higher
than the delivery temperature (see section V.D.1 of this document for
details). Therefore, DOE adopts use of effective storage volume rather
than storage volume in this final rule.
1. Product Classes With Current UEF-Based Standards
DOE typically uses one of two approaches to develop energy
efficiency levels for the engineering analysis: (1) relying on observed
efficiency levels in the market (i.e., the efficiency-level approach),
or (2) determining the incremental efficiency improvements associated
with incorporating specific design options to a baseline model (i.e.,
the design-option approach). Using the efficiency-level approach, the
efficiency levels established for the analysis are determined based on
the market distribution of existing products (in other words, based on
the range of efficiencies and efficiency-level ``clusters'' that
already exist on the market). Using the design option approach, the
efficiency levels established for the analysis are determined through
detailed engineering calculations and/or computer simulations of the
efficiency improvements from implementing specific design options that
have been identified in the technology assessment. DOE may also rely on
a combination of these two approaches. For example, the efficiency-
level approach (based on actual products on the market) may be extended
using the design-option approach to ``gap fill'' levels (to bridge
large gaps between other identified efficiency levels) and/or to
extrapolate to the max-tech level (particularly in cases where the max-
tech level exceeds the maximum efficiency level currently available on
the market).
In the July 2023 NOPR, DOE developed efficiency levels with a
combination of the efficiency-level and design-option approaches. DOE
conducted a market analysis of currently available models listed in
DOE's CCD to determine which efficiency levels were most representative
of the current distribution of consumer water heaters available on the
market. DOE also completed physical teardowns of commercially available
units to determine which design options manufacturers may use to
achieve certain efficiency levels for each water heater category
analyzed. DOE requested comments from stakeholders and conducted
interviews with manufacturers concerning these initial efficiency
levels, which have been updated based on the feedback DOE received.
a. Efficiency Levels
In this final rule, as noted previously, DOE has analyzed
efficiency levels for UEF that are a function of effective storage
volume (with the exception of certain levels which were analyzed when
DOE incorporated feedback from the Joint Stakeholder Recommendation).
For products with substantial storage volumes, the UEF is expected to
decrease with higher volumes because standby losses (i.e., energy lost
from the stored water to the surroundings when the water heater is not
actively heating water) are related to the temperature of the water
stored and the size of the tank.\36\ The efficiency levels analyzed in
this rulemaking assume that the relationships between standby losses
and storage volume for baseline products (i.e., the slopes of the
current standards equations) would remain consistent for higher
efficiency levels. In other words, the higher efficiency levels are
linear equations that are parallel to the current standards. The
exception to this is for DOE's analysis of the Joint Stakeholder
Recommendation, which included certain efficiency levels that were not
specified as a function of storage volume.
---------------------------------------------------------------------------
\36\ As discussed in section III.C of this document, the
effective storage volume metric accounts for both temperature and
tank size, whereas rated storage volume alone only accounts for tank
size.
---------------------------------------------------------------------------
In this final rule, DOE has analyzed the same efficiency levels as
were considered in the July 2023 NOPR. The details of the efficiency
level analysis
[[Page 37830]]
are presented in chapter 5 of the final rule TSD, and a summary of the
efficiency levels is presented in the following sections.
i. Baseline Efficiency
For each product class, DOE generally selects a baseline model as a
reference point for each class and measures changes resulting from
potential energy conservation standards against the baseline. The
baseline model in each product class represents the characteristics of
a product/equipment typical of that class (e.g., capacity, physical
size). Generally, a baseline model is one that just meets current
energy conservation standards, or, if no standards are in place, the
baseline is typically the most common or least efficient unit on the
market. For this final rule, the baseline efficiency levels for product
classes with current UEF-based standards are equal to the current
energy conservation standards (see Table II.1).
ii. Higher Efficiency Levels
As part of DOE's analysis, the maximum available efficiency level
is the highest efficiency unit currently available on the market. DOE
also defines a ``max-tech'' efficiency level to represent the maximum
possible efficiency for a given product.
In July 2023 NOPR, the max-tech efficiency levels generally
corresponded to the maximum available efficiency level on the market.
DOE also analyzed multiple intermediate efficiency levels between the
baseline and max-tech in order to develop the cost-efficiency
relationship for each product class. Intermediate efficiency levels
were chosen based on the market assessment where there were clear
groupings in the market's efficiency distribution. In some cases,
efficiency levels were observed for one draw pattern but not the
others.
DOE has constructed cost versus efficiency curves for the
representative capacities and representative draw patterns which exist
on the market today, as opposed to directly analyzing every possible
draw pattern. However, DOE is increasing the stringency of standards
for draw patterns where products do not currently exist in order to
match the stringency of standards for draw patterns where products in
the same category do exist, in the event that products become available
with draw patterns not currently on the market.
For these cases, DOE estimated these max-tech levels using existing
relationships between efficiency levels observed in other draw patterns
where products do exist. Products in different draw patterns are
typically differentiated by rated storage volume and heating capacity
(burner input rate, compressor capacity, or element wattage), and the
design options used to improve UEF in one draw pattern can generally
also be applied to water heaters of the same type in a different draw
pattern. For the cases where products at additional intermediate
efficiency levels were observed in the market at one draw pattern but
not the others, DOE estimated efficiency levels in the other draw
patterns based on what was observed for the one available draw pattern.
The approach took into account how each product type's efficiency
correlates to its delivery capacity (i.e., either FHR or maximum GPM,
the delivery capacity metrics assigned for non-flow-activated water
heaters and flow-activated water heaters, respectively), recovery
efficiency, and technological feasibility of design-option
implementation. A detailed discussion of efficiency level selection on
a product-class by product-class basis is provided in chapter 5 of the
final rule TSD.
In the NOPR engineering analysis, DOE considered split-system heat
pump water heaters as a representative design strategy for small
electric storage water heaters because small electric storage water
heaters are typically configured for applications with limited vertical
clearance. Whereas integrated heat pump water heaters are typically
designed with the heat pump components affixed to the top of the
storage tank (significantly increasing the height of the water heater),
split-system heat pump water heaters have the advantage of being able
to install the heat pump in a remote location so that the storage tank
height does not change. However, there are currently no models of
split-system heat pumps for small electric storage water heaters on the
market today, so DOE estimated the performance of a hypothetical design
based on circulating heat pump water heaters and lowboy water heaters
that were available at the time of the July 2023 NOPR. See chapter 5 of
the NOPR TSD for further details. To ensure that the analysis is
representative, in the July 2023 NOPR, DOE requested information about
the potential design specifications, manufacturing processes, and
efficiencies of split-system heat pump water heaters. 88 FR 49058,
49091.
In response to DOE's request for information regarding split-system
heat pump water heaters, Rheem noted that it had identified a dual-fuel
combination heat pump water heater and boiler product manufactured by
its sister company in the Netherlands. (Rheem, No. 1177 at p. 8)
DOE reviewed product literature for the dual-fuel split-system heat
pump water heater mentioned by Rheem, marketed in the Netherlands as
the Intergas Xtend model. While dual-fuel heating is being screened out
from this rulemaking analysis (see section IV.B.1 of this document),
details about this design provide valuable information about the
performance potentials for split-system heat pump water heaters
(operating in heat pump-only mode). The Xtend split-system heat pump
water heater has a reported coefficient of performance (``COP'') of
4.68, uses R-32 refrigerant, has a total heating capacity of 5 kW (over
17,000 Btu/h), and is designed for combination space and domestic hot
water heating.\37\ Based on the COP rating, DOE understands that this
product identified by Rheem would likely have a UEF rating higher than
the max-tech efficiency analyzed for small electric storage water
heaters. However, after reviewing this design, DOE determined two main
factors which lead to uncertainty as to whether this design is viable
for small electric storage water heaters. First, the use of R-32
refrigerant (which has not been demonstrated in water heaters in the
United States market) and the resulting total capacity of over 17,000
Btu/h is more akin to the designs of single-split space-constrained
air-source heat pump air conditioners, which range between 15,200 and
23,800 Btu/h in DOE's CCD. In contrast, teardown analyses of heat pump
water heaters show that these systems typically have much smaller
compressors than do central (i.e., whole-home) air conditioners, and
therefore the Xtend water heater model as well. In addition, due to the
higher capacity of the Xtend model, this product is more likely to
function in the medium or high draw patterns, meaning that it does not
serve the same consumer utility as a small electric storage water
heater. This is because a much larger compressor would have very low
run time (causing technical difficulties for refrigerant circulation),
be noisier, and significantly increase the footprint of the heat pump
module. As a result, it remains unclear whether split-system heat pump
small electric storage water heaters are able to employ the same design
options to achieve the higher efficiency of the Xtend model. DOE will
continue to evaluate technologies for split-system heat pump water
heaters in future
[[Page 37831]]
rulemakings addressing consumer water heater standards.
---------------------------------------------------------------------------
\37\ Product information can be found online at: www.intergas-
verwarming.nl/consument/producten/xtend/ (Last accessed: Nov. 17,
2023).
---------------------------------------------------------------------------
In the July 2023 NOPR, DOE presented its efficiency levels for
analysis and specifically requested further information on the
technologies employed in 45-gallon medium draw pattern electric storage
products at a UEF of 3.50 (which would potentially help with re-
evaluating EL 2). 88 FR 49058, 49090. DOE did not, however, receive any
comments on this particular topic.
Commenting more specifically on the electric storage water heater
efficiency levels analyzed in the July 2023 NOPR, BWC noted that the
Joint Stakeholder Recommendation originally suggested a minimum UEF of
2.0 for some of the smallest volumes of electric storage water heaters,
and the NOPR proposes a level of 2.3 UEF. BWC asserted that a minimum
UEF of 2.0 would be necessary in some products to allow manufacturers
more flexibility to innovate new designs and reduce the cost of heat
pump water heaters, which it stated will be critical for consumers to
purchase these products because key rebates and tax incentives will
expire in the early 2030s. However, BWC stated that it still supported
electric resistance-level standards for small and very small electric
storage water heaters, and that, generally, redesigns for these
products would not be necessary to meet the proposed minimum efficiency
standards. (BWC, No. 1164 at pp. 1-2)
In response to BWC, DOE notes that products exceeding 2.3 UEF are
widely available across a range of capacities, indicating that this
level is readily achievable, and thus analyzing an additional
efficiency level at a UEF of 2.0 would be unlikely to provide
additional benefit. As discussed in chapter 5 of the final rule TSD, a
UEF of 2.0 is expected to correspond to split-system heat pump water
heaters in the small electric storage water heater product category,
which, as a result of the heat pump design, have certain limitations to
achieving higher efficiencies. Electric storage water heaters that are
not ``small electric storage water heaters'' do not have the same
design limitations and can achieve higher efficiencies with integrated
heat pump water heater designs (where the heat pump is adjoined at the
top of the tank). Additionally, split-system designs are typically more
expensive to manufacture compared to integrated designs, meaning that
the most cost-effective pathway to achieving higher efficiencies would
most likely be through integrated designs. (See section IV.C.1.e of
this document and chapter 5 of the final rule TSD for estimated
manufacturer production costs of both styles of heat pump designs.) In
the selection of efficiency levels for these larger water heaters, DOE
considered the certified UEF ratings of integrated heat pump water
heaters on the market, the ENERGY STAR v5.0 specification, the Joint
Stakeholder Recommendation, and its own test data. Based on these
sources, a UEF of 2.3 was determined to be most representative of a
low-cost heat pump water heater design for non-small electric storage
water heaters.
Earlier in this rulemaking DOE received comments from some
stakeholders who suggested that DOE consider establishing a ``heat
pump-only'' level, which would exclude the use of electric resistance
elements, as max tech for heat pump water heaters. In the July 2023
NOPR, DOE noted that its own test data indicate that heat pump water
heaters with backup electric resistance elements typically do not use
the elements during DOE's 24-hour simulated use test. Therefore, adding
an efficiency level that corresponds to a ``heat-pump only'' design
option as max tech would not be expected to change the UEF. 88 FR
49058, 49090.
BWC agreed with not including an efficiency level for electric
storage water heaters that specifically pertained to a heat pump design
that did not have backup electric resistance elements on the basis that
not only would a higher efficiency standard pose significant challenges
for the industry transition to heat pump water heaters, but also that
the efficiency benefits of not having a backup electric resistance
element would not be demonstrated by the current appendix E test
procedure and UEF metric. (BWC, No. 1164 at pp. 16-17)
Essency stated it has achieved an FHR of 80 gallons and a UEF of
0.93 with electric resistance technology and suggested that max tech
for electric resistance water heaters has not yet been reached.
(Essency, No. 1194 at p. 1) GreenTECH stated that it is currently
developing a fully electric consumer heat pump water heater with
projected energy savings of 50 percent compared to current models and
that utilizes peak amperage of less than 10 amps at 220 volts for a 50-
gallon comparable model. (GreenTECH, No. 71 at p.1)
In response to Essency, DOE previously considered an efficiency
level that corresponded to increased insulation for electric resistance
storage water heaters (see the March 2022 Preliminary Analysis).
However, DOE received many comments from manufacturers indicating that
it may not be practical to incorporate more insulation in the
manufacturing process, after which DOE had revised EL 1 to reflect a
baseline heat pump efficiency instead. 88 FR 49058, 49089. In response
to GreenTECH, based on its review of the components that are used in
conventional 240-volt heat pump water heaters, DOE expects that there
would not be any appreciable difference in technology or design between
conventional 240-volt heat pump water heaters and a 220-volt heat pump
water heater as described by GreenTECH. However, because GreenTECH did
not provide further details regarding their design, which is currently
commercially unavailable, DOE was unable to evaluate GreenTECH's
suggestions as a max-tech efficiency level.
NEEA urged DOE to consider gas absorption or adsorption heat pump
water heaters as max-tech, adding that statutorily, DOE is not limited
to commercially available technologies. NEEA noted that multiple
technology developers and manufacturers are advancing gas heat pump
water heaters for the residential market, many of which are expected to
be commercialized by 2025. (NEEA, No. 1199 at pp. 9-10)
In response to comments from NEEA, DOE did not consider gas-fired
absorption or adsorption heat pumps for the max-tech levels because, as
discussed in section IV.B of this document, these technologies were
screened out for not being practicable to manufacture, install, or
service on the scale necessary to serve the consumer water heater
market upon the compliance date of the amended standards. For more
details on the screening analysis, see chapter 4 of the final rule TSD.
AWHI encouraged DOE to consider efficiency levels for gas-fired
storage water heaters that couple 120-volt electric-readiness with gas-
fired water heater installations to minimize the burden of future
electrification requirements. AWHI cited a comment from Rheem made in
response to the March 2022 Preliminary Analysis recommending that DOE
add a higher efficiency level for gas-fired storage water heaters that
would require electricity but is achievable with a Category-I venting
solution. AHWI stated that adopting such a standard level would, upon
the second replacement of an existing gas-fired water heater after the
compliance date of this rule, give consumers the option to install
drop-in replacement 120-volt heat pump water heaters because the 120-
volt electricity connection would already exist (being necessary to
meet
[[Page 37832]]
such a standard). (AWHI, No. 1036 at p. 4)
In response to AWHI, DOE notes that it does consider an efficiency
level for gas-fired storage water heaters that requires electricity and
is achievable with category I venting, which is identified as EL 2B
(see section IV.C.1.b of this document) and includes an electric flue
damper but uses category I venting. Beyond that level, based on review
of the market and technologies currently being used, DOE has concluded
the most likely design pathway to improved UEF would be to increase
flue baffling, which would require use of category III venting (i.e.,
``power venting'').
CEC requested DOE establish more stringent standards for gas-fired
storage water heaters and, if necessary, proceed with a separate rule
for gas-fired storage water heaters to avoid delaying the finalization
of other settled portions of the proposed rule. CEC added that primary
innovation needed make substantial efficiency improvements to gas-fired
storage water heaters is to implement a spiral flue, which will
exchange more heat from the combusted gas to the water. (CEC, No. 1173
at p. 4)
In response to CEC, DOE agrees that a ``spiral'' (helical) flue is
one of the main technological improvements that allows gas-fired
storage water heaters to have condensing-level efficiencies. DOE notes
that the manufacture and design of these flues is a complicated and
expensive process, and spiraling flues have added material costs due to
the significantly longer flue length. Additionally, manufacturers must
adjust designs to account for the tank volume that the flue takes up:
the more space the flue takes up in the tank, the less tank volume
there is left to store the hot water. These costs are reflected in the
manufacturer production costs (``MPCs'') and conversion cost estimates
for ELs 4 and 5 for gas-fired storage water heaters, and they
eventually result in higher-priced products for consumers. DOE
evaluated whether standards at condensing efficiency levels were
economically justified taking into account these costs (see section
V.C.1 of this document.)
After considering these comments, DOE has maintained the efficiency
levels from the July 2023 NOPR.
iii. Efficiency Levels by Product Class
DOE's analysis for efficiency levels above baseline is discussed in
more detail in chapter 5 of the final rule TSD. Efficiency levels,
including baseline and higher efficiencies, across all product classes
are listed in the tables that follow. The efficiency levels which
correspond closely to the Joint Stakeholder Recommendation are
indicated with ``JSR''.
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b. Design Options
Based on its teardown analyses and feedback provided by
manufacturers in confidential interviews, DOE determined the technology
options that are most likely to constitute the pathway to achieving the
efficiency levels assessed. These technology options are referred to as
``design options.'' While manufacturers may achieve a given efficiency
level using more than one design strategy, the selected design options
reflect what DOE expects to be the most likely approach for the market
in general in a standards-case scenario. Further details are provided
in chapter 5 of the final rule TSD.
Ravnitzky indicated that DOE acknowledges that increased tank
insulation can improve the efficiency of storage-type water heaters and
questioned DOE's decision not to consider increased insulation
thickness as a feasible technology option for electric storage water
heaters. Ravnitzky claimed that, with sufficient insulation, non-heat
pump water heaters can be nearly as efficient as heat pump water
heaters. (Ravnitzky, No. 73 at p. 1)
DOE agrees that increased insulation thickness can improve the
efficiency of storage-type water heaters and notes that increased
insulation thickness is considered as a design option for increasing
the efficiency of gas-fired and oil-fired storage water heaters. In
addition, as discussed in the July 2023 NOPR, DOE initially considered
an efficiency level for electric storage water heaters based on
increased insulation thickness in the March 2022 Preliminary Analysis.
However, in the July 2023 NOPR, DOE explained that in response to
stakeholder feedback \38\ on the March 2022 Preliminary Analysis,
[[Page 37834]]
the first efficiency level design option for electric storage water
heaters was changed to include heat pump technology, which DOE noted
was more representative of the next level up from baseline. 88 FR
49058, 49089. Given the insulation thicknesses DOE has observed in
models currently on the market, DOE maintains its position that the
most likely design path for improving heat pump water heater efficiency
above the baseline level would be through use of heat pump technology.
Increasing insulation thicknesses to the point required to
substantially increase the UEF of electric storage water heaters beyond
what is required by the current standard may not be feasible.
Therefore, for this final rule DOE has maintained the efficiency levels
(and associated design options) for electric storage waters from the
July 2023 NOPR.
---------------------------------------------------------------------------
\38\ Specifically, DOE explained that feedback from multiple
sources indicated that increasing the thickness may not be practical
in the manufacturing process because the R-value of polyurethane
diminishes when the compound is blown into larger cavities, and the
increase in thickness does not offset the increase in water heater
surface area (which will increase standby losses).
---------------------------------------------------------------------------
In addition, DOE disagrees with the notion that non-heat pump water
heaters could be made to be as efficient as heat pump water heaters
through insulation thickness increases. Even if standby losses were to
be completely eliminated, the electric resistance elements used for
heating non-heat pump electric storage water heaters have a maximum
theoretical efficiency of 100 percent, resulting in a maximum UEF of
1.00. Heat pump water heaters achieve efficiencies greater than 1.00 by
extracting more heat energy from their surroundings than is required
for them to operate, which non-heat pump water heaters are incapable
of.
BWC generally supported the design options DOE selected at the NOPR
stage. (BWC, No. 1164 at p. 16) However, BWC reiterated its comments
indicating that gas-fired storage water heaters can only use 1 inch of
insulation in certain circumstances, and that it should not be
considered as the baseline design option. BWC stated that 1 inch of
insulation would not be capable of meeting the current standards, and
only certain models designed to accommodate space constraints may come
with 1 inch of insulation. The decreased insulation from 2 inches, BWC
stated, has a drawback in lowering the FHR and recovery rate of the
model. (BWC, No. 1164 at p. 17)
DOE believes that BWC may have misunderstood the design options
that were modeled for the baseline efficiency level for gas-fired
storage water heaters in the engineering analysis. Based on teardown
analyses, DOE did determine that products with 1 inch of insulation can
meet the existing standards, but only for the low draw pattern and the
medium draw pattern.\39\ At the NOPR stage, DOE took into account BWC's
feedback about decreased FHRs and slower recovery rates. 88 FR 49058,
49094. These factors lead to gas-fired storage water heaters with only
1 inch of insulation also having smaller burners with lower input
ratings. Products in the high draw pattern require larger burners. In
the NOPR engineering analysis, DOE increased the insulation thickness
for the high draw pattern designs of gas-fired storage water heaters. A
thickness of 1.5 inches was used based on teardown samples of high draw
pattern gas-fired storage water heaters at the representative size. Id.
(See chapter 5 of the NOPR TSD.) However, this specifically pertained
to side insulation. After reviewing BWC's comments and its own teardown
samples, DOE has again updated the design option for high draw pattern
gas-fired storage water heaters to use 1.5 inches of side insulation
and 2 inches of top insulation to reflect the minimum amount of
insulation necessary to meet the current standards.
---------------------------------------------------------------------------
\39\ There are no gas-fired storage products certified within
the very small draw pattern.
---------------------------------------------------------------------------
Table IV.13 through Table IV.17 show the design options at each UEF
level analyzed for this final rule. DOE maintained the design options
as they were discussed in the July 2023 NOPR.
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c. Cost Analysis
The cost analysis portion of the engineering analysis is conducted
using one or a combination of cost approaches. The selection of cost
approach depends on a suite of factors, including the availability and
reliability of public information, characteristics of the regulated
product, the availability and timeliness of purchasing the product on
the market. The cost approaches are summarized as follows:
[squ] Physical teardowns: Under this approach, DOE physically
dismantles a commercially available product, component-by-component, to
develop a detailed bill of materials for the product.
[squ] Catalog teardowns: In lieu of physically deconstructing a
product, DOE identifies each component using parts diagrams (available
from manufacturer websites or appliance repair websites, for example)
to develop the bill of materials for the product.
[squ] 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.
In this rulemaking, DOE utilizes a combination of the physical and
catalog teardown approaches to develop estimates of the MPC at each UEF
efficiency level analyzed. Data from the teardowns were used to create
bills of materials (``BOMs'') that capture all of the materials,
components, and manufacturing processes necessary to manufacture
products that achieve each UEF level. DOE used the BOMs along with
publicly available material and component cost data as the basis for
estimating the MPCs. DOE refined its cost estimates and its material
and component cost data based on feedback received during confidential
manufacturer interviews.
To perform this analysis, DOE selects representative capacities for
each product class. These capacities reflect the most common or average
size of a water heater in that product class, and this step is
important because the MPC is dependent upon the size of the water
heater--larger water heaters cost more to manufacture. The
representative capacities analyzed in this rulemaking are detailed in
chapter 5 of the final rule TSD. With the exception of one case, DOE
has determined that the representative capacities analyzed in the July
2023 NOPR remain representative at this final rule stage. In this final
rule analysis, DOE determined that a capacity of 75 gallons is more
representative of units within the high draw pattern for electric
storage water heaters in the 55-120-gallon range than 80 gallons, based
on the distribution of units currently on the market (see appendix 3A
to the final rule TSD). DOE therefore updated its analysis accordingly
for this product class to use 75 gallons as the representative
capacity.
In this rulemaking, DOE selected representative capacities for
storage-type water heaters based on rated storage volume.
A.O. Smith agreed that heat pump water heaters are technologically
feasible alternatives to electric resistance storage water heaters;
however, A.O. Smith stated that 50-gallon heat pump water heaters are
not always feasible replacements for 50-gallon electric resistance
storage water heaters because, even for units with the same FHR, the
heat pump offers a slower recovery that may not keep up with household
demand. Additionally, A.O. Smith commented, homeowners must consider
factors like ambient air temperature conditions when switching to a
heat pump water heater, and it is often recommended to ``upsize'' when
transitioning to a heat pump water heater so that performance
expectations are not diluted. (A.O. Smith, No. 1182 at pp. 7-8)
DOE understands the commenter to be suggesting that, when
evaluating the cost to improve efficiency, it may be more appropriate
to consider representative capacities using a metric other than rated
storage volume (e.g., the FHR delivery capacity metric). The FHR
determines which draw pattern a water heater falls into, and the
engineering analysis selects representative characteristics for each
draw pattern to determine cost and efficiency. While some consumers may
opt to upsize when transitioning to heat pump water heaters, because
the efficiency levels analyzed do not preclude designs with backup
resistance heating elements, such ``hybrid'' heat pump water heaters
can still achieve faster recoveries when the backup elements are used
(the recovery rate of a backup element is independent of the ambient
air conditions). Hence it would
[[Page 37837]]
not be mandatory to upsize if installing a typical hybrid heat pump
water heater. Thus, in this engineering analysis, DOE has maintained
analysis points based on rated storage volume as opposed to other
capacity metrics such as input rate or FHR. A separate consideration
for maintaining the FHR is not necessary given the analysis is
performed for each draw pattern separately. DOE did, however, perform a
separate analysis to address the impact of ambient air conditions on
heat pump water heater energy usage (see section IV.E of this
document).
The results of DOE's cost-efficiency analysis for this final rule
are shown in section IV.C.1.e of this document.
In response to the July 2023 NOPR, Rinnai pointed to a peer review
report by the National Academy of Science, Engineering and Medicine
(``NAS'') \40\ and stated that DOE's teardown analyses and cost
reconstructions for existing products and newer high-efficiency designs
is flawed and produces systematically underestimated costs (Rinnai
suggested these costs were underestimated by roughly 30-50 percent).
Rinnai stated that these underestimates to MPC lead to overstated LCC
savings, and that DOE should instead look to market pricing to
determine product cost or use market prices to validate other
estimates. (Rinnai, No. 1186 at p. 33)
---------------------------------------------------------------------------
\40\ National Academy of Science, Engineering and Medicine,
``Review of Methods Used by the U.S. Department of Energy in Setting
Appliance and Equipment Standards'' (2021), ISBN 978-0-309-68545-0/
DOI 10.17226/25992.
---------------------------------------------------------------------------
The rulemaking process for standards of covered products and
equipment are outlined at appendix A to subpart C of 10 CFR part 430,
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.
As described in section IV.D of this document, under a more
stringent standard, the mark-ups incorporated into the sales price may
also change relative to current mark-ups. Therefore, DOE has concluded
that basing the engineering analysis on prices of water heaters as
currently seen in the marketplace would be a less accurate method of
estimating future water heater prices following an amended standard
than DOE's approach of conducting an engineering analysis and mark-ups
analysis. (However, as noted earlier, price surveys are sometimes
required when other methods are infeasible.) When relying on retail
market data, the prices will include ``premium'' (i.e., non-efficiency-
related) features and do not account for the likely changes in designs,
market, and pricing that would occur under an amended standard.
Differences between online vendors with respect to mark-up and pricing
practices could lead to online prices being unrepresentative for the
overall market.
In response to the July 2023 NOPR, Rheem generally agreed with
DOE's manufacturer production cost estimates, stating that they
appeared reasonable for electric storage water heaters when the removal
of non-efficiency related features and economies of scale are accounted
for. (Rheem, No. 1177 at p. 8) BWC generally agreed with the gas-fired
storage water heater manufacturer production cost estimates provided in
the July 2023 NOPR, but noted that the MPC estimates for electric
storage water heaters were inconsistent with its experience. BWC stated
that it would welcome further opportunities to discuss this specific
matter confidentially with DOE for this rulemaking. (BWC No. 1164 at p.
17)
As discussed in the July 2023 NOPR, DOE's consultants routinely
conduct confidential manufacturer interviews to gather feedback on
various analytical inputs, which are then aggregated for use in the
analysis. Cost analyses are updated based on feedback where
appropriate. 88 FR 49058, 49095. In addition, due to the volatility of
metal prices, DOE uses 5-year average metal prices to minimize the
impact of large fluctuations in metal prices. Id. DOE's 5-year average
metal cost data have been updated to reflect prices for the most recent
5-year period ending August 2023. For all other material and component
prices, DOE used the most recent prices available at the time of the
analysis (i.e., August 2023). As discussed, the MPC estimates used in
this rulemaking reflect what would be the market-average product cost
to manufacture a model that meets the efficiency level, excluding the
cost of optional features that do not affect the efficiency of the
product, and these estimates take into account what the designs and
component costs would be in a standards-case-scenario. Because the
metal prices used may deviate from the most recent year's and because
the designs modeled reflect market averages in a standards-case-
scenario without optional non-efficiency-related components, the MPC
estimates resulting from this analysis may not exactly reflect the
designs of any one specific manufacturer today.
d. Shipping Costs
Shipping costs for storage-type consumer water heater product
classes were determined based on the area of floor space occupied by
the unit, including packaging, and the weight. Most consumer water
heaters cannot be shipped in any orientation other than vertical and
are too tall to be double-stacked in a vertical fashion, though some
units analyzed by DOE can be double-stacked. For small units that can
be double-stacked, including lowboy electric storage water heaters and
non-lowboy electric storage water heaters less than or equal to 35
gallons in storage volume, the floor area available effectively
doubles, reducing the overall shipping cost compared to taller
products. DOE also accounted for electric storage water heaters sold as
split-system heat pumps stacking the heat pump assembly atop the tank
assembly. DOE research suggests that consumer water heaters are usually
shipped together in nearly fully loaded trailers, rather than in less
than truckload (``LTL'') configurations, where the consumer water
heaters only occupy a portion of the trailer volume. Therefore,
shipping costs have been calculated assuming fully loaded trailers;
however, DOE applied an assumption that each truckload would only
consist of one type of water heater, which may result in a conservative
estimate of shipping costs.
To calculate the shipping costs, DOE estimated the cost per trailer
based on standard trailer sizes, shipping the products between the
middle of the country to the coast, using the most recent reference
year for prices (i.e., 2022 for the July 2023 NOPR and 2023 for this
final rule). Next, DOE estimated the shipped size (including packaging)
of products in each product class at each efficiency level and, for
each product class and efficiency level, determined the number of units
that would fit in a trailer. DOE then calculated the average shipping
cost per unit by dividing the cost per trailer load by the number of
units that would fit per trailer (based on a calculation of whether the
quantity is limited by space or by weight), for each product class and
efficiency level.
In the July 2023 NOPR, DOE requested feedback on the analysis
assumptions used to estimate shipping costs for consumer water heaters.
BWC stated that the shipping cost estimates provided in the July
2023 NOPR were generally consistent with its expectations, and that it
is correct to assume that water heaters typically do not ship in less-
than-truckload
[[Page 37838]]
configurations; however, real-world circumstances (such as one truck
delivering orders to multiple wholesalers) prevent truckloads from
consisting of solely one type of water heater. (BWC, No. 1164 at p. 18)
However, BWC did not agree with the Department's assumption that each
truckload would only consist of one type of water heater. In their
experience this rarely occurs since truckloads are scheduled to fulfill
multiple orders from multiple customers who are rarely ordering
identical products. (BWC No. 1164 at p. 18)
DOE agrees with BWC that manufacturers do not always ship trucks
completely full of one type of water heater. The shipping costs in the
real world vary with a multitude of factors that are difficult to model
and predict. For storage-type water heaters that are shipped with
tankless water heaters, DOE expects the shipping costs it assumed to be
conservatively high, because the estimate is based on a truck full of
only storage-type water heaters (which would, as a result, not be able
to carry as many products due to the size of the storage-type water
heaters).
After considering the feedback received on shipping costs, DOE
maintained the methodology from the July 2023 NOPR for this final rule
but updated the cost per trailer using the most recent data available.
The shipping costs are shown in section IV.C.1.e of this document.
e. Cost-Efficiency Results
The results of the engineering analysis are reported as cost-
efficiency data in the form of MPCs and shipping costs calculated for
each efficiency level of each product class for which DOE is proposing
amended UEF-based standards. As discussed previously, DOE determined
these costs by developing BOMs based on a combination of physical and
catalog teardowns and using information in the BOMs along with
component and material price data to estimate MPCs.
For heat pump water heaters specifically, BWC urged the Department
to consider price impacts related to the Federal American Innovation
and Manufacturing (``AIM'') Act of 2020, codified at 42 U.S.C. 7675.
BWC noted that this legislation calls for a gradual phasedown of
refrigerant products that are currently predominant in heat pump water
heater designs, and stated that the provisions in the AIM Act will
compel manufacturers to pivot to more costly refrigerants when
producing heat pump water heater products. (BWC No. 1164 at p. 18)
In response, DOE notes that the AIM Act authorizes EPA to address
hydrofluorocarbons (``HFCs'') in three main ways: phasing down HFC
production and consumption through an allowance allocation program;
promulgating certain regulations for purposes of maximizing reclamation
and minimizing releases of HFCs from equipment; and facilitating
sector-based transitions to next-generation technologies. (See 42
U.S.C. 7675) Regarding the gradual phasedown of HFC refrigerants with
high global warming potential (``GWP''), the AIM Act mandates the
phasedown of HFCs by 85 percent over a period ending in 2036, following
the schedule outlined in the AIM Act. (42 U.S.C. 7675(e)(2)(C)) DOE
notes that the engineering analysis incorporates up-to-date cost
estimates (including the cost of refrigerants currently used in heat
pump water heaters).
For this final rule, DOE reviewed EPA rulemakings pertaining to the
phasedown of HFC production and consumption and sector-based
transitions to next-generation technologies. Regarding the sector-based
transitions under subsection (i) of the AIM Act, EPA published a final
rule restricting the use of HFCs in specific sectors or subsectors on
October 24, 2023 (``October 2023 EPA Final Rule''). 88 FR 73098. In the
October 2023 EPA Final Rule, EPA does not adopt provisions to restrict
the use of high-GWP refrigerants in heat pump water heaters. DOE
understands that manufacturers may voluntarily invest in low-GWP
systems for future heat pump water heater designs, however, such
systems would not be mandatory as a result of Federal regulation at
this time. However, the October 2023 EPA Final Rule does restrict the
use of HFCs and blends containing HFCs with a GWP of 150 or greater
beginning January 1, 2025 for all foam subsectors, including rigid
polyurethane for use in water heaters. 88 FR 73098, 73183-73184. As
discussed in chapter 3 of the final rule TSD, DOE has found that water
heater manufacturers have already begun transitioning to alternative
blowing agents for insulation foam, therefore this regulation is not
expected to impact manufacturer production costs for consumer water
heaters.
DOE maintained the same methodology as the July 2023 NOPR to
develop the cost-efficiency results for this final rule, as detailed in
section IV.C.1.c of this document. The results of DOE's analysis are
listed in Table IV.18 through Table IV.23.
See chapter 5 of the final rule TSD for more details concerning
these results.
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2. Product Classes Without Current UEF-Based Standards
In the December 2016 Conversion Factor Final Rule, DOE established
that EF-based standards as established by EPCA are applicable to
consumer water heaters but would not be enforced until conversion
factors and converted standards are adopted. 81 FR 96204, 96209-96211.
To convert these EF-based standards to UEF-based standards, DOE first
developed conversion factors that convert tested values measured under
the DOE test procedure in effect prior to the July 2014 TP Final Rule
(which produces the EF metric) to values found under the current DOE
test procedure (which produces the UEF metric). DOE then applied these
conversion factors to representative baseline models and derived the
UEF-based energy conservation standards from the resulting UEF values.
For the July 2023 NOPR, DOE applied a similar methodology to
translate from minimum efficiency levels denominated in EF to those in
UEF for classes of covered consumer water heaters that do not yet have
UEF-based standards. The translated standards are shown in Table IV.24.
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a. Crosswalk to Equivalent-Stringency UEF-Based Standards
In the July 2023 NOPR, DOE requested feedback regarding the
appropriateness of the proposed converted UEF-based standards and
whether products on the market can meet or exceed the proposed levels.
88 FR 49058, 49100.
A.O. Smith noted that DOE initially proposed UEF levels for several
of these classes in the supplemental notice of proposed rulemaking
published on August 30, 2016 (``August 2016 Conversion Factor SNOPR'').
81 FR 59736. DOE, however, decided to forgo adopting the proposed
levels for these classes in the December 2016 Conversion Factor Final
Rule. A.O. Smith stated that DOE wrote it ``Received voluminous
comments regarding the technical merits of the conversion factors and
the converted standards expressed in UEF for the water heaters listed
in Table III.1 for which DOE is going to defer finalizing and
implementing these statutory standards and further consider the
comments.'' \41\ A.O. Smith reiterated its comments submitted in
response to the August 2016 SNOPR.\42\ Throughout the July 2023 NOPR
TSD, DOE notes that for most of the product classes being converted,
there are currently no models on the market, and therefore it did not
use test data to adjust its analytical model. However, there are
products on the market that comport to several of the product classes
for which DOE has proposed UEF energy conservation standard levels.
(A.O. Smith, No. 1182 at p. 11)
---------------------------------------------------------------------------
\41\ See 81 FR 96204, 96211.
\42\ Found online at: www.regulations.gov/comment/EERE-2015-BT-TP-0007-0028.
---------------------------------------------------------------------------
In the August 2016 Conversion Factor SNOPR, DOE explained that it
had considered the applicability of standards to the products which
eventually did not receive UEF-based standards because these products
were not considered in DOE's rulemakings that culminated in the April
16, 2010 and January 17, 2001 final rules (75 FR 20112 and 66 FR 4474,
respectively), and accordingly, the standards adopted in those final
rules are not applicable to these products. 81 FR 59736, 59742. Hence,
the statutory EF-based standards were deemed most applicable to these
product classes. Id. A.O. Smith generally raised the concern of needing
test data to validate the converted standards when responding to the
August 2016 Conversion Factor SNOPR, but did not explicitly indicate
that the conversion equations were incorrect for the products which did
not get converted. Rather, A.O. Smith had iterated that it was
inappropriate at the time to establish standards without the basis of a
test procedure that covered the sizes of water heaters in question.
(A.O. Smith, EERE-2015-BT-TP-0007-0028 at pp. 2-3) As of the June 2023
TP Final Rule, the appendix E test procedure does cover all of the
[[Page 37844]]
consumer water heaters being addressed in this analysis, and it is
clearly established which EF-based standards do apply to these
products.
Rheem supported DOE's methodology to conduct the EF to UEF
crosswalk for electric storage water heaters and gas-fired storage
water heaters that currently do not have UEF-based standards. (Rheem,
No. 1177 at p. 9-11) Other commenters requested that DOE publish data
to demonstrate that the crosswalk results in appropriate standards
compared to how these products would be rated if tested to the UEF test
procedure.
A.O. Smith emphasized that DOE must have test data to demonstrate
that the crosswalked UEF standards are achievable by products on the
market today, especially for very small electric storage water heaters,
where there are several models on the market. A.O. Smith noted that
previous experience with test procedure changeovers has shown that new
test methods and test metrics impact water heaters differently and
often unpredictably depending upon their specific attributes. The
commenter indicated that it conducted its own testing and provided a
limit set of results showing that very small electric storage water
heaters could pass the crosswalked standards at a normal temperature
setpoint. (A.O. Smith, No. 1182 at pp. 11-12)
NYSERDA noted that the crosswalked product classes begin with the
statutory EF standards, which result in the converted standards being
significantly lower than those proposed for products with current UEF
standards. (NYSERDA, No. 1192 at pp. 4-5) NYSERDA commented that, when
the conversion factors were developed, these equations did not apply to
the products that DOE is crosswalking to UEF standards in this
rulemaking. (NYSERDA, No. 1192 at p. 5) Additionally, NYSERDA stated
that the conversion factors were developed using rated storage volume;
therefore the converted standards should be in rated storage volume
also (instead of effective storage volume). (NYSERDA, No. 1192 at p. 5)
NYSERDA recommended two approaches for setting standards for the
product classes where there are no current models: a first option would
be to test similarly sized products that do exist on the market;
otherwise, the volume thresholds can be removed. NYSERDA commented that
if DOE determines that these converted standards require additional
analysis, it could simply clarify in the final rule that these products
are still subject to the statutory EF standards and continue to rely on
the waiver process to accommodate any products introduced within these
categories; however, the commenter still encouraged DOE to further
examine the converted EF standards. (NYSERDA, No. 1192 at p. 5)
Bosch stated there is insufficient information to fully justify the
proposed converted UEF values for the very small electric storage water
heater product class, adding that the 2016 Conversion Factor Final Rule
was not originally intended for this product group. Bosch requested DOE
release its analysis of the efficiency testing conducted on the 17
models in this product class, as there are significant differences
between tanks and element types within this product class. (Bosch, No.
1204 at pp. 3-4)
BWC expressed concerns regarding the EF-to-UEF crosswalk DOE has
analyzed in this rulemaking. BWC stated that using the December 2016
Conversion Factor Final Rule equations to establish UEF-based standards
for these products is not appropriate because these products were never
subjected to the EF test procedure, and that DOE's approach in the
March 2022 Preliminary Analysis and July 2023 NOPR could set an
improper baseline. (BWC, No. 1164 at p. 10)
As discussed in the July 2023 NOPR TSD, DOE conducted its own
testing to verify that products on the market, when tested to the
appendix E test procedure, would comply with the crosswalked standards.
In response to the numerous requests for additional test data, DOE has
published the results of the testing in chapter 5 of the final rule
TSD. Additionally, DOE notes that A.O. Smith's test data also indicates
that the standards are achievable (so long as the high temperature test
is not used, which results in lower ratings). As discussed in section
V.D.1 of this document, DOE has determined not to subject very small
electric storage water heaters to high temperature testing; therefore,
this would not be expected to reduce their UEF to a level below the
adopted standards.
DOE notes that during the 2016 Conversion Factor rulemaking, it
conducted testing of 55 consumer storage water heaters and 22 consumer
instantaneous water heaters to validate the conversion factors used to
determine the UEF-based standards DOE is establishing in this
rulemaking. In addition, AHRI provided data for 130 consumer storage
water heaters and 36 consumer instantaneous water heaters using both EF
and UEF test procedures.\43\ 81 FR 96204, 96214-96216. DOE concluded
that these conversion factors resulted in UEF-based standards that were
neither more nor less stringent than the equivalent EF-based standards.
81 FR 96204, 96207.
---------------------------------------------------------------------------
\43\ Data for consumer water heaters tested during the
development of the 2016 Conversion Factor Final Rule were reported
in an SNOPR published in the Federal Register on August 30, 2016. 81
FR 59736.
---------------------------------------------------------------------------
Rheem supported the translated UEF standards for very small
electric storage water heaters, but recommended that DOE remove the
high draw and medium draw pattern standards for very small electric
storage water heaters because these levels are generally not achievable
or necessary. (Rheem, No. 1177 at p. 9)
Removing the high and medium draw pattern standards for very small
electric storage water heaters would result in a gap in coverage of
standards, however, should products meeting this description become
available in the future. Therefore, DOE is maintaining its approach to
adopt standards for each draw pattern for very small electric storage
water heaters. Should more data become available after this rulemaking,
DOE may consider consolidating standards for different draw patterns if
it can be determined conclusively that the medium and high draw pattern
standards are not justified.
Rheem added further that reducing the crosswalked electric
instantaneous water heater standards to align with those for very small
electric storage water heaters would reduce manufacturer burden and
design costs. (Rheem, No. 1177 at pp. 13-14)
While DOE acknowledges that electric instantaneous water heaters
and very small electric storage water heaters may be installed in
similar applications, as discussed in section IV.A.1.c of this
document, storage-type and instantaneous-type water heaters generally
have differences in operation that can lead to different utilities.
Hence, DOE is maintaining its approach to treat these as separate
product classes and evaluate standards separately.
BWC provided that it did not believe an approach that relied on a
market analysis of currently listed models, along with an efficiency
level and design option (teardown) analysis, was appropriate for these
product classes that did not previously have a minimum efficiency
standard. BWC stated that accounting for the stored water temperature
and rated storage volume largely influence a product's efficiency
rating, but there are other factors that can strongly influence the
UEF, such as insulation thickness (for electric-type storage water
heaters) and modulating controls (for instantaneous water
[[Page 37845]]
heaters). BWC thus requested DOE to docket the analysis conducted to
establish the new minimum UEF levels for these product classes. (BWC,
No. 1164 at p. 10)
For this final rule DOE maintains its approach for converting
standards from EF to UEF. EPCA directed DOE to establish a uniform
efficiency descriptor to be used to regulate all covered water heaters,
with certain exceptions for water heaters used only in commercial
applications. (42 U.S.C. 6295I(5)) Therefore, DOE has conducted this
analysis in satisfaction of its statutory obligation to delineate
standards for all consumer water heaters in terms of UEF. The statute
provides that, in the case of a test procedure or metric change, DOE
must determine what equivalent standards are on the basis of the new
test procedure or metric. (42 U.S.C. 6293(e)(2)) The conversion factor
calculations serve to accomplish this purpose. Because the UEF-based
standards for these product classes reflect the same stringency as the
statutory EF-based standards that are currently applicable--i.e., these
are not standards that would require higher efficiency to comply-- it
is not necessary for DOE to conduct an assessment of energy savings or
economic justification prior to proposing such standards. The
Department believes that BWC may have misinterpreted the analysis for
product classes with current UEF-based standards as also applying to
these product classes which have EF-based standards. To reiterate,
these standards are not being established pursuant to EPCA provisions
at 42 U.S.C. 6295(o)(A), but instead in accordance with those at 42
U.S.C. 6293(e)(2). Additionally, the statutory EF-based standards are
provided within EPCA and do not require separate justification to adopt
these stringencies.
b. Consideration of More Stringent Standards
DOE also requested information and data regarding the UEF of
products within these product classes if they are found to generally
exceed the proposed levels. 88 FR 49058, 49100.
BWC supported DOE's tentative determination not to propose more
stringent standards for product classes that are currently covered by
the statutory EF-based standards because these product classes have low
market share and would present limited opportunity for energy savings.
(BWC, No. 1164 at p. 3)
Rheem commented that there may be no or very few water heaters on
the market in the volume ranges for which crosswalked standards were
proposed for gas-fired storage water heaters and therefore did not
support more stringent standards for these sizes of gas-fired storage
water heaters. (Rheem, No. 1177 at p. 11)
Rheem recommended against increasing the >120-gallon standards for
electric storage water heaters to a level that would require heat pump
technology because ASME tank construction is required for water heaters
with a measured volume >120 gallons, significantly increasing the cost
of the water heater to the point where it is not a low-cost replacement
for a heat pump water heater. (Rheem, No. 1177 at p. 10) However, Rheem
recommended increasing the energy conservation standards for <20-gallon
tabletop water heaters to the levels proposed for >=20-gallon tabletop
water heaters and simplifying the energy conservation standards table.
(Rheem, No. 1177 at p. 10)
In general, while there are few (or sometimes no) models on the
market that fall within these product classes, comments received in
response to the July 2023 NOPR suggested that, within the 5-year
compliance period of this final rule, manufacturers would be
incentivized to develop new models in these product classes in lieu of
developing designs for product classes with current UEF-based standards
that have to comply with more stringent standards. Based on the
comments, which are summarized in the following paragraphs, DOE
understands that this is possible if the design changes required to
transfer an existing model to a product class without current UEF-based
standards are less expensive than the design changes required to
increase the efficiency of that model to meet the amended standard for
the product class with a current UEF-based standard. Commenters
provided feedback on whether or not more stringent standards were
justified based on whether or not the product class could be used to
``circumvent'' other standards for similar product classes that have
higher standards.
A.O. Smith indicated that simultaneous establishment of baseline
UEF levels for converted product classes while increasing the
efficiency levels for existing product classes creates a scenario where
new products may emerge, and shipments may shift from product classes
with more stringent standards to very similar products in new product
classes with less stringent standards. (A.O. Smith, No. 1182 at p. 14)
DOE does not currently possess data supporting more stringent
standards than those being established as part of this rulemaking.
However, DOE may conduct a separate rulemaking to determine the
benefits and burdens of higher standards for these products at a later
time. For example, after the compliance date of this final rule, the
availability of certifications of UEF may enable DOE to consider more
stringent standards in a future rulemaking.
A.O. Smith provided some test data for very small electric storage
water heaters showing that these products would not pass the proposed
standards when tested to the high temperature test method, and thus
recommended that very small electric storage water heaters be exempt
from the high temperature test method. A.O. Smith stated that this test
method would not be representative of an average use cycle for very
small electric storage water heaters, and the company would rather
dedicate its engineering resources toward the development of future
heat pump offerings rather than redesigning existing product lines for
modest efficiency gains resulting from overlapping test procedure
changeovers. A.O. Smith recommended DOE test baseline very small and
small electric storage water heaters according to the proposed test
procedure to ensure that crosswalked standards do not result in a
stringency increase. (A.O. Smith, No. 1182 at pp. 11-12)
Rheem recommended against setting a standard for very small
electric storage water heaters at any higher stringency because a
forced redesign for these products may not be necessary and would
divert manufacturers' resources away from the heat pump water heater
innovation. (Rheem, No. 1177 at p. 9)
DOE understands that, if the high temperature test method were to
apply to very small electric storage water heaters, then that test
method would result in lower efficiency ratings for these products, and
these lower ratings would not comply with the crosswalked standards.
Therefore, manufacturers would have to redesign very small electric
storage water heaters to be more efficient in order to comply with the
standards that resulted from the EF-to-UEF crosswalk, and this would
effectively constitute an increase in stringency of standards for these
products. In section V.D.1.c of this document, DOE explains its
determination to exempt very small electric storage water heaters from
the high temperature test. As a result, there would be no increase to
stringency for these products.
[[Page 37846]]
c. Circulating Water Heaters
Prior to the publication of the June 2023 TP Final Rule, the test
procedure did not provide sufficient clarity regarding how circulating
water heaters should be tested, and the June 2023 TP Final Rule
established a new method of testing circulating water heaters with
separate storage tanks (see section 4.10 of appendix E) to represent
how these products are used in the field. As a result of this method of
testing, the efficiency ratings for circulating water heaters will
reflect the standby losses incurred by the separate storage tank. As
discussed previously in section IV.A.1.a of this document, DOE is
classifying circulating water heaters as storage-type water heaters
subject to the storage water heaters standards. In the July 2023 NOPR,
however, DOE considered circulating water heaters as instantaneous
water heaters and developed proposed standards using the instantaneous
water heater efficiency levels as a starting point.
In response to the levels proposed in the July 2023 NOPR, NYSERDA
suggested that DOE could address more stringent, heat pump-level
standards for electric circulating water heaters in a separate
rulemaking to ensure that the energy savings from this rulemaking are
realized. (NYSERDA, No. 1192 at p. 7)
BWC requested clarification on how DOE derived the minimum
efficiency levels for electric circulating water heaters in the NOPR,
noting that the efficiencies corresponded to electric resistance
technology, not heat pump circulating water heaters. (BWC, No. 1164 at
pp. 2-3)
As discussed in section IV.A.1.a of this document, circulating
water heaters will be subject to the applicable standards for storage-
type water heaters. As such, there is no separate analysis to address
UEF-based standards for circulating water heaters in this final rule.
In response to the December 2023 SNOPR proposing to treat
circulating water heaters as part of the storage-type water heater
product classes, BWC claimed that establishing heat pump-level
standards for electric circulating water heaters would be inappropriate
because they would favor one design option over another, as heat pump
water heaters are not considered a separate product class from electric
storage water heaters, stating that EPCA requires DOE to determine
standards without regards to the technologies utilized by manufacturers
or preferred by consumers. BWC requested that DOE clarify its
understanding of its authority under EPCA with respect to these
standards. (BWC, No. 1413 at pp. 2-3)
DOE notes that the analysis conducted in this rulemaking has
determined that the amended standards for electric storage water
heaters (which include electric circulating water heaters) are both
technologically feasible and economically justified, and result in
significant savings. These conclusions are discussed in detail in
section V.C.1 of this document. DOE uses the screening criteria found
in sections 6(b)(3) and 7(b) of appendix A to 10 CFR part 430, subpart
C to determine which technology options are suitable for further
consideration in an energy conservation standards rulemaking. Under the
criteria for technological feasibility, DOE considers technologies
incorporated in commercially-available products or in working
prototypes to be technologically feasible. As such, EPCA does not
prohibit DOE from establishing a standard that can only be met through
the use of a certain technology. Heat pump technology is the only
technology available to allow electric circulating water heaters to
achieve higher efficiency levels. DOE is not establishing a
prescriptive design requirement that electric circulating water heaters
must implement heat pump technology.
3. Manufacturer Selling Price
To account for manufacturers' non-production costs and profit
margin, DOE applies a 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 \44\ reports filed by publicly
traded manufacturers that produce consumer water heaters, the
manufacturer markups from the April 2010 Final Rule, and feedback from
confidential manufacturer interviews. 75 FR 20112. See chapter 12 of
the final rule TSD for additional detail on the manufacturer markup.
---------------------------------------------------------------------------
\44\ U.S. Securities and Exchange Commission. Company Filings.
Available atwww.sec.gov/edgar/searchedgar/companysearch.html (last
accessed December 1, 2023).
---------------------------------------------------------------------------
D. Markups Analysis
The markups analysis develops appropriate markups (e.g., retailer
markups, distributor markups, contractor markups) in the distribution
chain and sales taxes to convert the MSP estimates derived in the
engineering analysis to consumer prices, which are then used in the LCC
and PBP analysis. At each step in the distribution channel, companies
mark up the price of the product to cover business costs and profit
margin.
For consumer water heaters, the main parties in the distribution
chain are (1) manufacturers, (2) wholesalers or distributors, (3)
retailers, (4) plumbing contractors, (5) builders, (6) manufactured
home manufacturers, and (7) manufactured home dealers/retailers. See
chapter 6 and appendix 6A of the final rule TSD for a more detailed
discussion about parties in the distribution chain.
For this final rule, DOE characterized how consumer water heater
products pass from the manufacturer to residential and commercial
consumers \45\ by gathering data from several sources, including
consultant reports (available in appendix 6A of the final rule TSD),
the 2023 BRG report,\46\ and the 2022 Clear Seas Research Water Heater
contractor survey \47\ to determine the distribution channels and
fraction of shipments going through each distribution channel. The
distribution channels for replacement or new owners of consumer water
heaters in residential applications (not including mobile homes) are
characterized as follows: \48\
---------------------------------------------------------------------------
\45\ DOE estimates that 2 percent of gas-fired storage heaters
(``GSWHs''), 29 percent of oil-fired storage water heaters
(``OSWHs''), and 9 percent of electric storage water heaters
(``ESWHs'') will be shipped to commercial applications in 2030.
\46\ BRG Building Solutions, The North American Heating &
Cooling Product Markets (2023 Edition). Available at
www.brgbuildingsolutions.com/reports-insights (last accessed
December 1, 2023).
\47\ Clear Seas Research, 2022 Mechanical System--Water Heater.
Available at clearseasresearch.com/reports/industries/mechanical-systems/ (last accessed December 1, 2023).
\48\ Based on available data, DOE assumed that the consumer
water heater goes through the: wholesaler/contractor 50 percent of
the time for GSWHs, 90 percent of the time for OSWHs, and 45 percent
of the time for ESWHs; directly form the retailer 45 percent of the
time for GSWHs, 5 percent of the time for OSWHs, and 50 percent of
the time for ESWHs, and retailer/contractor 5 percent of the time
for GSWHs, OSWHs, and ESWHs.
Manufacturer [rarr] Wholesaler [rarr] Plumbing Contractor [rarr]
Consumer
Manufacturer [rarr] Retailer [rarr] Consumer
Manufacturer [rarr] Retailer [rarr] Plumbing Contractor [rarr] Consumer
For mobile home replacement or new owner applications, there is one
additional distribution channel where manufacturers sell to mobile home
dealers/retail outlets that then sell to the customer.\49\
---------------------------------------------------------------------------
\49\ Based on available data, DOE assumed that the consumer
water heater in mobile homes goes through the: wholesaler/contractor
5 percent of the time for GSWHs, 90 percent of the time for OSWHs,
and 5 percent of the time for ESWHs; directly form the retailer 10
percent of the time for GSWHs, 5 percent of the time for OSWHs, and
25 percent of the time for ESWHs; retailer/contractor 5 percent of
the time for GSWHs, OSWHs, and ESWHs; and directly through mobile
home retailer 80 percent of the time for GSWHs, 0 percent of the
time for OSWHs, and 65 percent of the time for ESWHs.
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[[Page 37847]]
Mainly for consumer water heaters in commercial applications, DOE
considers an additional distribution channel for which the manufacturer
sells the equipment to the wholesaler and then to the consumer through
a national account in both replacement and new construction markets.
The new construction distribution channel includes an additional
link in the chain--the builder. The distribution channels for consumer
water heaters in new construction \50\ in residential applications (not
including mobile homes) are characterized as follows: \51\
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\50\ DOE estimates that in the residential market 10 percent of
GSWHs, 2 percent of OSWHs, and 15 percent of ESWHs will be shipped
to new construction applications in 2030.
\51\ DOE believes that many builders are large enough to have a
master plumber and not hire a separate contractor, and assigned
about half of water heater shipments to new construction to this
channel. DOE estimated that in the new construction market, 90
percent of the residential (not including mobile homes) and 80
percent in commercial applications goes through a wholesalers to
builders channel and the rest go through national account
distribution channel.
Manufacturer [rarr] Wholesaler [rarr] Plumbing Contractor [rarr]
Builder [rarr] Consumer
Manufacturer [rarr] Wholesaler [rarr] Builder [rarr] Consumer
Manufacturer [rarr] Wholesaler (National Account) [rarr] Consumer
For new construction, all mobile home GSWHs and ESWHs are sold as
part of mobile homes in a specific distribution chain characterized as
follows:
Manufacturer [rarr] Mobile Home Manufacturer [rarr] Mobile Home Dealer
[rarr] Consumer
DOE developed baseline and incremental markups for each actor in
the distribution chain. 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.\52\
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\52\ 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.
---------------------------------------------------------------------------
To estimate average baseline and incremental markups, DOE relied on
several sources, including: (1) form 10-K \53\ from U.S. Securities and
Exchange Commission (``SEC'') for Home Depot, Lowe's, Wal-Mart, and
Costco (for retailers); (2) U.S. Census Bureau 2017 Annual Retail Trade
Report for miscellaneous store retailers (NAICS 453) (for online
retailers); \54\ (3) U.S. Census Bureau 2017 Economic Census data \55\
on the residential and commercial building construction industry (for
builder, plumbing contractor, mobile home manufacturer, mobile home
retailer/dealer); and (4) the U.S. Census Bureau 2017 Annual Wholesale
Trade Report data \56\ (for wholesalers). DOE assumes that the markups
for national accounts is half of the value of wholesaler markups. In
addition, DOE used the 2005 Air Conditioning Contractors of America's
(``ACCA'') Financial Analysis on the Heating, Ventilation, Air-
Conditioning, and Refrigeration (``HVACR'') contracting industry \57\
to disaggregate the mechanical contractor markups into replacement and
new construction markets for consumer water heaters used in commercial
applications.
---------------------------------------------------------------------------
\53\ U.S. Securities and Exchange Commission. Company Filings.
Available atwww.sec.gov/edgar/searchedgar/companysearch.html (last
accessed December 1, 2023).
\54\ U.S. Census Bureau, 2017 Annual Retail Trade Report,
available at www.census.gov/programs-surveys/arts.html (last
accessed December 1, 2023). Note that the 2017 Annual Retail Trade
Report is the latest version of the report that includes detailed
operating expenses data.
\55\ U.S. Census Bureau, 2017 Economic Census Data. available at
www.census.gov/programs-surveys/economic-census.html (last accessed
December 1, 2023). Note that the 2017 Economic Census Data is the
latest version of this data.
\56\ U.S. Census Bureau, 2017 Annual Wholesale Trade Report.
available at www.census.gov/wholesale/index.html (last accessed
December 1, 2023). Note that the 2017 AWTR Census Data is the latest
version of this data.
\57\ Air Conditioning Contractors of America (``ACCA''),
Financial Analysis for the HVACR Contracting Industry (2005),
available at www.acca.org/store#/storefront (last accessed December
1, 2023). Note that the 2005 Financial Analysis for the HVACR
Contracting Industry is the latest version of the report and is only
used to disaggregate the mechanical contractor markups into
replacement and new construction markets.
---------------------------------------------------------------------------
PHCC commented that DOE's approach of incremental markups is not
representative of how contractors set markups. PHCC commented that
contractors know the required profit margin and set markups
accordingly, rather than determining a markup for a baseline product
and deciding a lower appropriate markup based on additional costs due
to increased standards. (PHCC, No. 1151 at pp. 5-6) Rheem agreed that
DOE's estimates of manufacturers' production costs for electric
resistance and heat pump water heaters appear reasonable and that the
retail price for electric resistance water heaters is accurate but the
retail price of heat pump water heaters is a little low. Rheem
recommended reviewing incremental markups for heat pump water heaters.
Rheem also requested clarification on whether incremental markups are
current markups or estimated for the compliance date of the rulemaking.
(Rheem, No. 1177 at pp. 8-9)
In response, the development of all markup values is based on the
most current data available, representing current markups applied to
the products. The markups analysis is intended to represent products
sold and installed at higher volume, since such products become the new
baseline efficiency in the standards cases. Comparisons to current
retail prices are therefore not necessarily applicable if such products
are not common, high-volume products. For example, heat pump water
heaters currently have a small market share and have higher profit
margins. In a standards case with heat pump water heaters as the new
baseline efficiency, their markups will be more representative of high-
volume products. DOE also acknowledges that the contractor and customer
relationship is of value and hence assigns contractors as an active
market participant for a major portion of its distribution channels.
For contractor markups, DOE utilized the 2017 Economic Census data, the
latest data source consisting of the detailed operating costs needed to
derive incremental markups. DOE believes that while contractors are
unlikely to directly estimate an incremental markup in response to the
cost change due to efficiency standards, contractor behavior is
consistent with the characterization of DOE's markup approach which
results in lower overall markup than baseline markup. DOE does not mean
to suggest that contractors will directly adjust their markups on
equipment if the price they pay goes up as a result of appliance
standards. Rather, the approach assumes that such adjustment will occur
over a (relatively short) period of time as part of a business
management process. In summary, DOE acknowledges that its approach to
estimating distributor and contractor markup practices after amended
standards take effect is an approximation of real-world practices that
are both complex and varying with business conditions. However, it
[[Page 37848]]
continues to believe that its assumption that standards do not
facilitate a sustainable increase in profitability is reasonable.
In addition to the markups, DOE obtained State and local taxes from
data provided by the Sales Tax Clearinghouse.\58\ These data represent
weighted average taxes that include county and city rates. DOE derived
shipment-weighted average tax values for each State considered in the
analysis.
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\58\ Sales Tax Clearinghouse Inc., State Sales Tax Rates Along
with Combined Average City and County Rates (June 14, 2023).
Available at www.thestc.com/STrates.stm) (last accessed December 1,
2023).
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In response to the July 2023 NOPR, AHRI advised that DOE's process
should include industry participation by surveying manufacturers,
distributors, and consumers and DOE should conduct another round of
confidential interviews with manufacturers and reevaluate based on
those interviews. (AHRI, No. 1167 at p. 11)
In support of the July 2023 NOPR, DOE conducted confidential
interviews with OEMs representing approximately 80 percent of domestic
industry consumer water heater shipments. In those interviews, DOE
requested information about a range of topics including distribution
channels. See appendix 12-A of the final rule TSD for a copy of the
manufacturer interview guide. DOE also conducted confidential
interviews with consumer water heater OEMs in support of the March 2022
Preliminary Analysis. Data collected through this process was recent
and sufficient to conduct the analysis given that market conditions
have remained largely the same since those confidential interviews.
Chapter 6 of the final rule TSD provides details on DOE's development
of markups for consumer water heaters.
E. Energy Use Analysis
The purpose of the energy use analysis is to determine the annual
energy consumption of consumer water heaters at different efficiencies
in representative U.S. single-family homes, mobile homes, multi-family
residences, and commercial buildings, and to assess the energy savings
potential of increased consumer water heater efficiency. The energy use
analysis estimates the range of energy use of consumer water heaters in
the field (i.e., as they are 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.
DOE estimated the annual energy consumption of consumer water
heaters at specific energy efficiency levels across a range of climate
zones, building characteristics, and water heating applications. The
annual energy consumption includes the natural gas, liquid petroleum
gas (``LPG''), and electricity used by the consumer water heater.
1. Building Sample
To determine the field energy use of consumer water heaters used in
homes, DOE established a sample of households using consumer water
heaters from EIA's 2015 Residential Energy Consumption Survey (``RECS
2015'') in the July 2023 NOPR, which was the most recent such survey
that was then fully available.\59\ The RECS data provide information on
the vintage of the home, as well as water heating energy use in each
household. DOE used the household samples not only to determine water
heater annual energy consumption, but also as the basis for conducting
the LCC and PBP analyses. DOE projected household weights and household
characteristics in 2030, the first year of compliance with any amended
or new energy conservation standards for consumer water heaters. To
characterize future new homes, DOE used a subset of homes in RECS that
were built after 2000.
---------------------------------------------------------------------------
\59\ Energy Information Administration (``EIA''), 2015
Residential Energy Consumption Survey (``RECS''). Available at
www.eia.gov/consumption/residential/ (last accessed December 1,
2023).
---------------------------------------------------------------------------
In response to the July 2023 NOPR, Gas Association Commenters,
Essency, Rinnai, and Atmos Energy commented that RECS 2015 should not
have been used for the analysis and therefore the entire analysis is
flawed. Gas Association Commenters stated that DOE had plenty of time
to use RECS 2020 data and chose not to make their results look better.
(Gas Association Commenters, No. 1181 at p. 32; Essency, No. 1194 at p.
3; Atmos Energy, No. 1183 at pp. 5-6; Rinnai, No. 1186 at p. 33)
NYSERDA supported DOE's analysis, including RECS data and the consumer
choice model analysis methodology. (NYSERDA, No. 1192 at pp. 3-4)
In response, DOE notes that RECS 2020 published finalized microdata
in June 2023, with further updates published in July and September
2023. When conducting the analysis for the NOPR, the full set of
microdata was not available. For this final rule, however, DOE
incorporated RECS 2020 as the basis of the building sample development
and updated the analyses accordingly.\60\ DOE agrees that incorporating
RECS 2020 improves the representativeness of the residential building
sample as RECS 2020 brings a threefold increase in sample size compared
to RECS 2015.\61\ A larger sample size generally results in smaller
standard errors, especially for estimates of smaller subpopulations. In
this final rule, DOE maintains a similar methodology in sample
development for the analyzed product classes. The details of selection
criteria and the resulting sample size for each product class are
presented in the final rule TSD (see chapter 7 and appendix 7A).
---------------------------------------------------------------------------
\60\ Energy Information Administration (``EIA''), 2020
Residential Energy Consumption Survey (``RECS''). Available at
www.eia.gov/consumption/residential/ (last accessed December 1,
2023).
\61\ According to published data and EIA website, RECS 2020 is
based upon responses collected from in total 18,496 households which
is three times greater than 5,686 respondents in RECS 2015.
---------------------------------------------------------------------------
To determine the field energy use of consumer water heaters used in
commercial buildings, DOE established a sample of buildings using
consumer water heaters from EIA's 2018 Commercial Building Energy
Consumption Survey (``CBECS 2018''), which is the most recent such
survey that is currently fully available.\62\ DOE has maintained its
sample development methodology used in July 2023 NOPR for consumer
water heaters used in commercial applications.
---------------------------------------------------------------------------
\62\ U.S. Department of Energy: Energy Information
Administration, Commercial Buildings Energy Consumption Survey
(2018). Available at: www.eia.gov/consumption/commercial/data/2018/index.php?view=microdata (last accessed Dec. 1, 2023).
---------------------------------------------------------------------------
2. Hot Water Use Determination
Calculating hot water use for each sample household requires
assigning the water heater a specific tank size (referred to as rated
volume). For each household, RECS reports the size bin of the water
heater (30 gallons and less, 31 to 49 gallons, and 50 gallons and
more); for each commercial building, DOE assumes that the water heater
generally falls under the biggest size option applicable for each
product class. For each size bin, DOE derived the fraction of models
falling under each draw patterns and assigns the sampled water heater
to an appropriate one (i.e., low, medium, and high). A specific tank
size is then assigned based on the size bin and the draw pattern from
the typical water heater sizes. Typical water heater sizes are the most
common sizes for each product class and have the minimum energy factor
allowed by current energy conservation standards.
[[Page 37849]]
They are 30, 40, and 50 gallon for gas and electric storage water
heaters, 30 and 50 gallon for oil, and 60 and 75 gallon for electric
storage water heaters larger than 55 gallons. For the product class of
ESWHs smaller than 35 gallons, DOE also assigned a fraction the tank
size of 35 gallons. These sizes are referred to as ``standard'' sizes.
Finally, DOE calculated the hot water use for each household and
building based on the characteristics of the water heater and the
reported water heating energy use.
In order to disaggregate the selected sampled water heaters into
draw patterns and standard sizes, DOE used a variety of sources
including RECS historical data on reported tank sizes, input from an
expert consultant, and model data from DOE's public CCD \63\ and AHRI
certification directory \64\ together with other publicly available
data from manufacturers' catalogs of consumer water heaters. For all
product classes, DOE used disaggregated shipments data by rated volume
from BRG Building Solutions 2023 report from 2007 to 2022 \65\ and data
from U.S. Census Bureau data (2003-2008).\66\ Finally to determine the
appropriate product type and size for different applications, DOE used
manufacturer-produced consumer water heater sizing guidelines and
calculators.
---------------------------------------------------------------------------
\63\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed December 1, 2023).
\64\ Air Conditioning Heating and Refrigeration Institute.
Consumer's Directory of Certified Efficiency Ratings for Heating and
Water Heating Equipment. December 1, 2023. (Available at
www.ahridirectory.org) (last accessed December 1, 2023).
\65\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition). 2023.
\66\ U.S. Census Bureau. Current Industrial Reports for Major
Household Appliances 2003-2008. Washington, DC Report No. MA335F.
---------------------------------------------------------------------------
AHRI recommended DOE explain its inputs in the energy use
calculations. AHRI commented that DOE's use of nesting of various
assumptions for residential water heaters leads to unlikely results
that DOE does not, or cannot, explain. (AHRI, No. 1167 at p. 19) AHRI
also asked why DOE has not accepted the suggestion by AHRI and others
to use median, not the mean values for consumption and LCC savings to
avoid the effects of these outliers and to alleviate, at least in part,
the deficiencies of its base case random assignment issue. (AHRI, No.
1167 at p. 20)
In response, DOE notes that RECS data provides the information on
the household size and water heating energy use. RECS is the most
comprehensive, nationally-representative, and robust data source on
household energy consumption available to DOE. In general, DOE has
found that the weighted average energy use for water heating correlates
with the size of the household, i.e., the reported number of people in
that household. Greater energy expenditure on water heating largely
falls into the bins of households of larger sizes (4 people and above).
The hot water use derived based on the water heating energy use follows
similar pattern (see chapter 7 of the final rule TSD for the
calculation of hot water use). When reporting the distribution of the
derived hot water use, DOE takes into account both consumer water
heaters in residential as well as consumer water heaters used in
commercial applications and close to 40 percent of the top 5 percent of
water consuming sample buildings/households are commercial applications
which generally have higher upper bound of hot water use. These outlier
data points therefore represent either data directly reported from RECS
for larger households or commercial applications using consumer water
heaters, both of which represent real-world usage. In addition, DOE
evaluates each sampled building/household individually by calculating
its hot water use and the corresponding cost efficiency thereafter and
that DOE believes the average LCC savings as reported is a good
representation of the aggregated national values. Nevertheless, the LCC
spreadsheet includes a calculation of median LCC savings, as well as
LCC savings at various percentiles. Even if DOE were to rely on the
median LCC savings instead of the mean LCC savings, DOE's conclusion of
economic justification would remain the same.
Gas Association Commenters argued that water consumption should be
based on household size and that there are problems with water
consumption calculations. Gas Association Commenters argue the model
results in unrealistic outliers for smaller households reaching
consumption levels equivalent to space heating. Gas Association
Commenters argue that a potential reason for this failure is how the
model calculates daily water usage. For example, Gas Association
Commenters argued that in DOE's model, some single person households
use 200-350 gallons a day which is far from reasonable (4-7 baths of
water a day every day of the year). Gas Association Commenters argued
that Draw Pattern ID is based on randomly assigned distribution. Gas
Association Commenters argue that for small storage units, there is a 5
percent chance of a large draw pattern Gas Association Commenters
argues that a better solution would be to use the test procedure for
water heaters as a basis for modeling energy usage rather than assuming
draw rates based on the size of the original equipment in RECS. (Gas
Association Commenters, No. 1181 at pp. 25-31) Rinnai argued that hot
water usage should be determined through less opaque methods than the
current method. Rinnai stated that rather than using RECS data to
determine water usage, DOE should use test procedure defined hot water
usage rates for comparisons of ELs. Rinnai stated that they believe
that doing so would provide clearer consistency in comparison of
residential water heater technologies generally and for EL comparison
for proposed efficiency thresholds. Rinnai also stated that this would
make DOE's analysis more consistent with other federal rating programs
such as the FTC energy guide labeling program. (Rinnai, No. 1186 at p.
26 and p. 33) Furthermore, Rinnai commented that if RECS is to be used,
RECS 2015 is outdated and RECS 2020 should be used for this analysis.
(Rinnai, No. 1186 at p. 33) On the contrary, NEEA supported DOE's
overall method of analysis using Monte Carlo simulations informed by
RECS data. NEEA commented that the Monte Carlo approach can
successfully represent the true distribution of water product classes,
hot water use, energy use and costs and that NEEA uses a similar
approach when conducting similar analysis. NEEA commented that RECS
serves as a reliable national dataset that helps account for the
diversity found in the water heater market. (NEEA, No. 1199 at p. 5)
In response, for this final rule, DOE incorporated the latest RECS
2020 data for its analyses. With the increased sample size and the most
recent timeline of the fielding of the survey, DOE believes that it
provides a sample pool of more up to date national representation of
housing characteristics and energy consumption of the home appliances.
As discussed previously, the weighted average of the energy use on
water heating and the derived hot water use generally correlates with
the size of the household with deviations that represent the real world
complexities of the use of hot water heater in households of different
types. DOE continues to rely on RECS as the basis of its analyses for
its incomparable scope of coverage on housing
[[Page 37850]]
characteristics and energy consumption and believes that it is an
objective reflection of the landscape in the national water heater
market. In terms of the assignment of draw pattern, DOE derived the
distribution of different draw patterns based on market research of the
number of models in each bin that are available on the market. The
breakdown can be found in chapter 7 of the final rule TSD.
Ecotemp commented that the DOE consumer usage assumptions do not
match the water use patterns of cabins, vacation homes, rental
properties, or any other intermittent use dwelling. (Ecotemp, No. 1092
at p. 2) In response, RECS does not include in the survey house types
like vacant, seasonal, vacation homes and group quarters and thus DOE
build its analysis around regular households. However, in both
residential households (sample by RECS) and commercial buildings
(CBECS) DOE has observed samples with lower than usual water heating
energy use. As stated previously, DOE believes that RECS and CBECS
provide a nationally representative sample pool that includes a variety
of housing types.
3. Energy Use Determination
To calculate the energy use of consumer water heaters, DOE
determined the energy consumption associated with water heating and any
auxiliary electrical use. In addition, for heat pump water heaters, DOE
also accounted for the indirect effects of heat pump water heaters on
heating, cooling, and dehumidification systems to compensate for the
effects of the heat pump operation.\67\ DOE calculated the energy use
of water heaters using a simplified energy equation, the water heater
analysis model (``WHAM''). WHAM accounts for a range of operating
conditions and energy efficiency characteristics of water heaters.
Water heater operating conditions are indicated by the daily hot water
draw volume, inlet water temperature, thermostat setting, and air
temperature around the water heater (ambient air temperature). To
describe energy efficiency characteristics of water heaters, WHAM uses
three parameters that also are used in the DOE test procedure: recovery
efficiency (``RE''), standby heat-loss coefficient (``UA''), and rated
input power (``PON'').
---------------------------------------------------------------------------
\67\ If the heat pump water heater is installed in a conditioned
space and is un-ducted, the cooling byproduct of the heat pump
operation could produce a cooling effect that could increase space
heating energy use in the heating season and decrease space cooling
energy use in the cooling season. In addition, heat pump operation
could also produce a dehumidifying effect that could reduce
dehumidifier equipment energy use.
---------------------------------------------------------------------------
The current version of WHAM is appropriate for calculating the
energy use of electric resistance storage water heaters. To account for
the characteristics of other types of water heaters, energy use must be
calculated using modified versions of the WHAM equation. These modified
versions are further discussed in chapter 7 and appendix 7B of the
final rule TSD.
The daily hot water draw volume is estimated based on the water
heater energy use estimated from RECS 2020 and CBECS 2018. The inlet
water temperature is based on weather station temperature data and RECS
2020 ground water temperature data for each household. The consumer
water heater thermostat setting is based on multiple sources including
contractor survey data and field data. To estimate the air temperature
around the water heater (ambient air temperature), DOE assigned the
sampled water heaters a water heater installation location including
indoors (in the living space, such as an indoor closet), basement,
garages, crawlspaces, outdoor closets, attics, etc. These fractions
vary significantly by region and type of home, and match available
survey data. Once the water heater is assigned an installation
location, DOE then uses a methodology to determine the surrounding
water heater ambient temperature. For example, in indoor locations the
temperatures are assumed to be equal to the thermostat temperature.
Other locations such as unconditioned attics or unconditioned
basements/crawlspaces, outdoor closets, garages could have temperatures
that are either lower than 32 deg. or above 100 deg. for a fraction of
the year. See chapter 7 and appendix 8D (installation costs) of the
final rule TSD for more details about the installation location
methodology and ambient temperature methodology.
ONE Gas commented that DOE responded that it uses test procedure
energy descriptor performance to determine energy use that is then
``convert[ed] . . . to field energy use using modified WHAM
equations,'' but ONE Gas's review of these procedures as found in
appendix 7B of the Preliminary Analysis TSD suggests that the energy
consumption estimates modeled do not meet the intent of the NASEM peer
review, and DOE's response is effectively incomplete. ONE Gas
recommended that DOE (1) use the test procedure assumptions of hot
water consumption (based on the UEF draw patterns for residential water
heating products) as the basis for comparing efficiency levels and
alternatives for minimum efficiency standards, and (2) use WHAM
calculations or other methods for scaling up efficiency level savings
for the forecasted market under the ELs analyzed. (ONE Gas, No. 1200 at
p. 9) In response, the appendix 7B in Preliminary Analysis TSD was
merged in chapter 7 in NOPR TSD. Cross-reference pointing to appendix
7B for the energy use methodology in the TSD in the July 2023 NOPR was
a typo DOE now has corrected. Description of the use of WHAM can be
found in chapter 7 of the final rule TSD. As discussed in section
IV.E.2 of this document, DOE determines that calculating the hot water
use based on RECS reports presents a representative distribution of
real world energy consumption and the use of WHAM equation is essential
for translating energy consumption into hot water use. DOE maintains
its methodology in this final rule to use RECS-reported water heating
energy use and WHAM equation to calculate the corresponding energy use
for each efficiency level of each product classed for sampled
households/buildings.
For heat pump water heaters, energy efficiency and consumption are
dependent on ambient temperature. To account for this factor, DOE
expanded the WHAM to include a heat pump performance adjustment factor.
The equation for determining the energy consumption of heat pump water
heaters is similar to the WHAM equation, but a performance adjustment
factor that is a function of the average ambient temperature is applied
to adjust RE. In response to the July 2023 NOPR, Essency noted that the
energy consumption model used in the analysis utilizes a recovery
efficiency model that is too simplified and overestimated. They stated
that the recovery efficiency model is a quadratic function with a
minimum temperature of roughly 45 [deg]F-50 [deg]F which gives it a
recovery efficiency at 37 [deg]F, which Essency commented is a
temperature where most of the current heat pump water heaters are
working with electric resistance only. Essency also commented that the
energy removed from the air is deducted in warmer months but this
energy is not considered for cold months where the energy is removed
from a heated space, which Essency asserted creates a bias in the
published efficiency of heat pump water heaters. Essency also commented
that the surrounding air temperature was used to calculate the
efficiency of the heat pump even in the ducted configuration. (Essency,
No. 1194 at p. 2) Armada argued that the energy savings are only
realized under specific space and climate conditions, and
[[Page 37851]]
deviations from these ideal conditions diminish the efficiency of a
heat pump water heater. Armada noted that many heat pump water heaters
have back up electric resistance heating, and when these space and
climate conditions are not met, the water heater will utilize
resistance heating--all of the cost of a heat pump with none of the
anticipated benefits. (Armada, No. 1193 at pp. 5-6) NRECA commented
that stakeholders in cold climates are concerned about the
effectiveness of heat pump water heaters during extreme cold events. In
cold climates, and particularly during extreme cold events, heat pump
water heater in garages or other unconditioned spaces would operate
electric resistive heating elements for a large portion of the day,
resulting in high energy use and reducing LCC savings. NRECA commented
that cooperatives such as Agralite Electric Cooperative in Minnesota
and Iowa Lakes Electric Cooperative in Iowa expressed concerns related
to the energy the heat pump water heater removes from the home if
installed in the conditioned space. Because the heat pump water heater
draws its energy from the air in the home, the space heating system
must resupply heat taken up by the heat pump water heater. (NRECA, No.
1127 at p. 12)
In response, DOE notes that the analyses account for the energy
consumption when the heat pump water heater is operating on electric
resistance mode. DOE estimated that the electric resistance mode of
operation is used 100 percent of the time when the monthly ambient
temperature is less than 32 [deg]F or more than 100 [deg]F. As Essency
noted, DOE adjusts the recovery efficiency in a quadratic function to
account for the changes in performance of the heat pump under different
conditions. DOE slightly updated the adjustment function for this final
rule so that when below 32 [deg]F and above 100 [deg]F the electric
resistance mode is considered. DOE also modified the methodology to
take into account the outdoor temperature in ducted setting per
Essency's comment. A heat pump water heater also operates in the
electric resistance mode for part of the time even when the monthly
ambient temperature (where the equipment is installed) is between 32
[deg]F and 100 [deg]F because this product has a slower recovery rate
than an electric resistance water heater. DOE determined that,
depending on household hot water consumption patterns, the electric
resistance mode of operation varies significantly from household to
household; on average DOE estimated that electric resistance mode
accounts for 10 percent of the heat pump water heater unit's operating
time. Lastly, because of the cooling effect heat pump water heater can
have during heating season, DOE also estimated that two-thirds of heat
extracted from the air by the heat pump water heater is replaced by the
space conditioning system, which was taken in account for the heating
season.
Gas Association Commenters commented that there is a bug in the LCC
tool that causes it to use only a single year of weather data rather
than 10-year average. (Gas Association Commenters, No. 1181 at p. 34)
In response, DOE notes that the analysis uses the NOAA's 30 year
average weather data for the outside air temperature for all product
classes.
Chapter 7 of the final rule TSD provides details on DOE's energy
use analysis for consumer 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
consumer water heaters. 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:
[msqu] The LCC is the total consumer expense of an appliance or
product over the life of that product, consisting of total installed
cost (manufacturer selling price, distribution chain markups, sales
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 product.
[msqu] 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
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 consumer water heaters in the
absence of new or amended energy conservation standards. In contrast,
the PBP for a given efficiency level is measured relative to the
baseline product.
For each considered efficiency level in each product class, DOE
calculated the LCC and PBP for a nationally representative set of
housing units and commercial buildings. As stated previously, DOE
developed household samples from the RECS 2020 and CBECS 2018. For each
sample household and commercial building, DOE determined the energy
consumption for the consumer water heaters and the appropriate energy
price. By developing a representative sample of households and
commercial buildings, the analysis captured the variability in energy
consumption and energy prices associated with the use of consumer water
heaters.
Inputs to the calculation of total installed cost include the cost
of the product--which includes MPCs, manufacturer markups, retailer and
distributor markups, shipping costs, and sales taxes--and installation
costs. Inputs to the calculation of operating expenses include annual
energy consumption, energy prices and price projections, repair and
maintenance costs, product lifetimes, and discount rates. DOE created
distributions of values for product lifetime, discount rates, and sales
taxes, with probabilities attached to each value, to account for their
uncertainty and variability.
The computer model DOE uses to calculate the LCC relies on a Monte
Carlo simulation to incorporate uncertainty and variability into the
analysis. The Monte Carlo simulations randomly sample input values from
the probability distributions and consumer water heater user samples.
For this rulemaking, the Monte Carlo approach is implemented in MS
Excel together with the Crystal Ball\TM\ add-on.\68\ The model
calculated the LCC for products at each efficiency level for 10,000
water heater installations in housing and commercial building units per
simulation run. The analytical results include a distribution of 10,000
data points showing the range of LCC savings for a given efficiency
level relative to the no-new-standards case efficiency distribution (as
shown in chapter 8 of the final rule TSD). In performing an iteration
of the Monte Carlo simulation for a given consumer, product efficiency
is chosen based on its probability. At
[[Page 37852]]
the high end of the range, if the chosen product efficiency is greater
than or equal to the efficiency of the standard level under
consideration, the LCC calculation reveals that the hypothetical
consumer represented by that data point is not impacted by the standard
level because that consumer is already purchasing a more-efficient
product. At the low end of the range, if the chosen product efficiency
is less than the efficiency of the standard level under consideration,
the LCC calculation reveals that the hypothetical consumer represented
by that data point is impacted by the standard level. By accounting for
consumers who already purchase more-efficient products, DOE avoids
overstating the potential benefits from increasing product efficiency.
---------------------------------------------------------------------------
\68\ 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/technetwork/middleware/crystalball/overview/index.html (last accessed December 1, 2023).
---------------------------------------------------------------------------
DOE calculated the LCC and PBP for consumers of consumer water
heaters as if each were to purchase a new product in the first year of
required compliance with new or amended standards. New and amended
standards apply to consumer water heaters manufactured 5 years after
the date on which any new or amended standard is published. (42 U.S.C.
6295(m)(4)(A)(ii)) Therefore, DOE used 2030 as the first full year of
compliance with any amended standards for consumer water heaters.
Table IV.25 summarizes the approach and data DOE used to derive
inputs to the LCC and PBP calculations. The subsections that follow
provide further discussion. Details of the spreadsheet model, and of
all the inputs to the LCC and PBP analyses, are contained in chapter 8
of the final rule TSD and its appendices.
BILLING CODE 6450-01-P
[GRAPHIC] [TIFF OMITTED] TR06MY24.040
BILLING CODE 6450-01-C
1. Product Cost
To calculate consumer product costs, DOE multiplied the MSPs
developed in the engineering analysis by the markups described
previously (along with sales taxes). DOE used different markups for
baseline products and higher-efficiency products, because DOE applies
an incremental markup to the increase in MSP associated with higher-
efficiency products.
Examination of historical price data for certain appliances and
equipment that have been subject to energy conservation standards
indicates that the assumption of constant real prices may, in many
cases, overestimate long-term trends in appliance and equipment prices.
Economic literature and historical data suggest that the real costs of
these products may in fact trend downward over time according to
``learning'' or ``experience'' curves.\69\
---------------------------------------------------------------------------
\69\ Desroches, L.-B., K. Garbesi, C. Kantner, R. Van Buskirk,
and H.-C. Yang. Incorporating Experience Curves in Appliance
Standards Analysis. Energy Policy. 2013. 52 pp. 402-416; Weiss, M.,
M. Junginger, M.K. Patel, and K. Blok. A Review of Experience Curve
Analyses for Energy Demand Technologies. Technological Forecasting
and Social Change. 2010. 77(3): pp. 411-428.
---------------------------------------------------------------------------
In the experience curve method, the real cost of production is
related to the cumulative production or ``experience'' with a
manufactured product. This
[[Page 37853]]
experience is usually measured in terms of cumulative production. As
experience (production) accumulates, the cost of producing the next
unit decreases. The percentage reduction in cost that occurs with each
doubling of cumulative production is known as the learning rate. In
typical experience curve formulations, the learning rate parameter is
derived using two historical data series: cumulative production and
price (or cost). DOE obtained historical PPI data for water heating
equipment from 1950-1961, 1968-1973, and 1977-2022 for electric
consumer water heaters and from 1967-1973 and 1977-2022 for all other
consumer water heaters from the U.S. Bureau of Labor Statistics'
(``BLS'').\70\ The PPI data reflect nominal prices, adjusted for
product quality changes. An inflation-adjusted (deflated) price index
for heating equipment manufacturing was calculated by dividing the PPI
series by the implicit price deflator for Gross Domestic Product
Chained Price Index.
---------------------------------------------------------------------------
\70\ Series ID PCU33522033522081 and PCU33522833522083; see
www.bls.gov/ppi/.
---------------------------------------------------------------------------
From 1950 to 2006, the deflated price index for consumer water
heaters was mostly decreasing, or staying flat. Since then, the index
has risen, primarily due to rising prices of copper, aluminum, and
steel products which are the major raw material used in water heating
equipment. The rising prices for copper and steel products were
attributed to a series of global events, from strong demand from China
and other emerging economies to the recent severe delay in commodity
shipping due to the COVID-19 pandemic. Given the slowdown in global
economic activity in recent years and the lingering impact from the
global pandemic, DOE believes that the extent to which the trends of
the past five years will continue is very uncertain. DOE also assumes
that any current supply chain constraints are short-lived and will not
persist to the first year of compliance. Given the uncertainty
regarding the magnitude and direction of potential future price trends,
DOE decided to use constant prices as the default price assumption to
project future consumer water heater prices. Thus, projected prices for
the LCC and PBP analysis are equal to the 2022 values for each
efficiency level in each product class. However, DOE performed a
sensitivity analysis utilizing both a decreasing and an increasing
price trend (see appendix 8C). The relative comparison of potential
standard levels remains the same regardless of which price trend is
utilized and the conclusions of the analysis do not change.
BWC requested that DOE detail its methods in utilizing price
learning curves for both heat pump water heater and condensing gas
products, as was indicated in Section IV(F)(1) of the July 2023 NOPR,
so that stakeholders may review them. BWC suggested the additional
components required to manufacture higher efficiency products required
by this proposal, in addition to their more complex manufacturing
processes, will continue to compel higher product costs than is
currently expected of non-condensing gas and electric resistance water
heaters common in the market today, economies of scale notwithstanding.
(BWC No. 1164 at p. 17) The available data only allow estimation of
price trends for water heaters as a group, not for different efficiency
levels of water heaters. DOE agrees that the product costs of heat pump
water heater and condensing gas products will continue to be higher
than non-condensing gas and electric resistance water heaters. However,
it is reasonable to expect that factors affecting water heaters as a
whole, such as growing experience in production or changes in commodity
prices, will affect all water heaters. Thus, for this final rule, it
used the same price trend projection for all water heaters.
2. Installation Cost
The installation cost is the cost to the consumer of installing the
consumer water heater, in addition to the cost of the water heater
itself. The cost of installation covers all labor, overhead, and
material costs associated with the replacement of an existing water
heater or the installation of a water heater in a new home, as well as
delivery of the new water heater, removal of the existing water heater,
and any applicable permit fees. Higher-efficiency water heaters may
require consumers to incur additional installation costs.
DOE's analysis of installation costs estimated specific
installation costs for each sample household based on building
characteristics given in RECS 2020 and CBECS 2018. For this final rule,
DOE used 2023 RSMeans data for the installation cost estimates,
including labor costs.71 72 73 74 DOE's analysis of
installation costs accounted for regional differences in labor costs by
aggregating city-level labor rates from RSMeans into 50 U.S. States and
the District of Columbia to match RECS 2020 data and CBECS 2018 data.
---------------------------------------------------------------------------
\71\ RSMeans Company Inc., RSMeans Mechanical Cost Data.
Kingston, MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed December 1, 2023).
\72\ RSMeans Company Inc., RSMeans Residential Repair &
Remodeling Cost Data. Kingston, MA (2023) (Available at:
www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed
December 1, 2023).
\73\ RSMeans Company Inc., RSMeans Plumbing Cost Data. Kingston,
MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed December 1, 2023).
\74\ RSMeans Company Inc., RSMeans Electrical Cost Data.
Kingston, MA (2023) (Available at: www.rsmeans.com/products/books/2022-cost-data-books) (Last accessed December 1, 2023).
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PHCC stated that the costs calculated for the installation costs
are too low. PHCC commented that the data source RSMeans is intended
for larger contractor businesses and the data has not been properly
adjusted for small businesses. PHCC noted a discrepancy in the water
heater installation time between their RSMeans source and DOE's report.
(PHCC, No. 1151 at p. 4) PHCC stated that the values listed in the
overhead category for costs are not correct and questioned the 10%
profit, believing it to be understated. PHCC commented that the
overhead category will include office utilities and rent, support
staff, supervisors, estimators, advertising, truck and tool acquisition
expenses, fuel and maintenance, technician non-productive time and
depreciation. PHCC estimated that vehicle and tooling can be 15% to 20%
of a technician's hourly rate. PHCC commented that DOE's assumption of
$27 per hour overhead for 1 residential plumber is too low. (PHCC, No.
1151 at p. 5) In response, RSMeans is a reputable source for cost
estimation and it provides the national average labor rate for
different crew types as well as regional rates, regardless of business
size. DOE acknowledges that some individual contractors may depart from
cost estimates determined by RSMeans, however RSMeans remains the most
comprehensive and nationally representative data source for contractor
rates and costs. The RSMeans database includes tens of thousands of
individual line items and cost engineers spend tens of thousands of
hours validating these costs every year. Thousands of contractors rely
on RSMeans to determine cost estimates.\75\ DOE adjust the labor rates
for different regions based on where the sample household or building
is located. In regards to PHCC's concern over the labor rate and
overhead, DOE notes that the $27 per hour overhead for a residential
plumber is pointing to 63% markup compared to the bare hourly rate.
Taking into account regional difference, the exact
[[Page 37854]]
dollar value of the markup increases for regions with labor rates
higher than national average. For this final rule, DOE maintained the
method of calculating labor rates as used in the July 2023 NOPR.
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\75\ See: www.rsmeans.com/info/contact/about-us (Last accessed
March 6, 2024).
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a. Basic Installation Costs and Inputs
First, DOE estimated basic installation costs that are applicable
to all consumer water heaters, in replacement, new owner, and new home
or building installations. These costs include putting in place and
setting up the consumer water heater, gas piping and/or electrical
hookup, permits, water piping, removal of the existing consumer water
heater, and removal or disposal fees.
NMHC and NAA commented that in existing or future commercial-to-
residential conversions, by the nature of the building construction,
historic building considerations or zero lot lines result in building
facades that are frequently not available for vent terminations. They
claimed that these buildings may be taller than a new residential
building and existing structural frame geometries and shaft locations
significantly influence dwelling unit configurations, in which cases
new vent piping or condensate drains may need to traverse space outside
of the affected dwelling unit to reach a building shaft with sufficient
space to add piping. NMHC and NAA claimed that such piping runs will
virtually always exceed the lengths cited for cost-analysis in the TSD
and entail substantial additional costs unconsidered by DOE. (NMHC and
NAA, No. 996 at p. 4) Gas Association Commenters argued that the
installation cost did not address the breadth of existing multifamily
configurations like high-rise, low-rise buildings, historic structures
and adaptive reuse projects (i.e., commercial to residential
conversions). (Gas Association Commenters, No. 1181 at p. 4) In
response, DOE notes that current shipments of consumer water heaters to
commercial buildings are small, approximately 5 percent of total
shipments (see chapter 9 of final rule TSD). These are typically small
offices, restaurants, or smaller retailers with similar hot water
demand to residential households, otherwise they would be utilizing
commercial water heating equipment outside the scope of this final
rule. Any existing commercial-to-residential building conversions would
be present in the CBECS 2018. Any future commercial-to-residential
conversions are speculative at this time. Even if vent piping for gas-
fired water heaters were prohibitive for a given building, electric
water heaters are available to supply hot water at lower cost to each
individual unit, so there is no reason to expect substantially higher
costs for these residential units. Their impacts would be very similar
to those estimated for medium ESWH in new construction and/or multi-
family buildings and thus captured by the analysis. Furthermore, if the
existing commercial building utilizes a central commercial boiler to
supply hot water, DOE expects that such building conversions will take
advantage of the existing central commercial boiler system to supply
hot water to the newly built residential units. Also, in order to
satisfy the building codes, these conversions typically require very
extensive reconstructions including building new central shafts that
accommodate all of the piping and vents related to plumbing, HVAC and
water heating needs. These shafts could serve the condensation
withdrawal as required for the heat pump water heaters or condensing
gas water heaters. In regards to the length of the piping runs, DOE's
analysis includes a distribution of a wide range of piping length which
covers the additional piping requirements. Regarding existing multi-
family buildings, DOE clarifies that the analysis does include costs
separately for multi-family buildings of various sizes (see appendix
8D), and the RECS sample includes such multi-family buildings,
therefore they are captured in the LCC analysis. The majority of multi-
family buildings utilize electric storage water heaters.
b. Gas-Fired and Oil-Fired Storage Water Heater Installation Costs
For gas-fired and oil-fired water heater installations, DOE
included a number of additional costs (``adders'') for a fraction of
the sample households. Most of these additional cost adders are
associated with installing higher efficiency consumer water heater
designs in replacement installations.
For replacement installations, DOE conducted a detailed analysis of
installation costs when a baseline (or minimum efficiency) consumer
water heater is replaced with higher efficiency design options, with
particular attention to space constraint issues (associated with larger
dimensions for certain higher efficiency consumer water heaters),
venting issues, and condensate withdrawal (for power vented and
condensing gas-fired water heaters). Due to the larger dimensions of
higher efficiency storage water heaters, installation adders included
removing and replacing door jambs (to be able to fit the larger sized
water heater). DOE also takes into account that a fraction of
installations would include adding tempering valves for water heaters
with increased set-point temperatures due to the household preference.
For non-condensing gas-fired and oil-fired water heaters, additional
costs included updating flue vent connectors, vent resizing, and
chimney relining. For non-condensing power vented and condensing gas-
fired storage water heaters, additional costs included adding a new
flue vent, combustion air intake for direct vent installations,
concealing vent pipes for indoor installations, addressing an orphaned
furnace (by updating flue vent connectors, vent resizing, or chimney
relining), and condensate removal. Freeze protection is accounted for
in the cost of condensate removal for a fraction of condensing gas-
fired water heaters installed in non-conditioned spaces.
DOE also included installation adders for new owner and new
construction installations. For non-condensing gas-fired and oil-fired
storage water heaters, a new flue vent and accounting for other
commonly vented heating appliances are the only adders. For power
vented and condensing gas-fired water heaters, the adders include new
flue vent, combustion air vent for direct vent installations, and
condensate removal.
ONE Gas commented that venting costs are systematically under-
estimated but did not provide more data. ONE Gas argued that the
Department does not provide illustrations of the full range of site
conditions covered or confirmation data for its distributional data.
(ONE Gas, No. 1200 at p. 10) ONE Gas argued that the Department uses a
simplistic presumption of single-family household replacement
installation requirements (e.g., venting into masonry chimneys, common
venting with furnace) for multifamily households whose water heater
vents atmospherically into a common vent shared with other households,
which neglects various concerns. (ONE Gas, No. 1200 at p. 10) PHCC
requested clarification on the language on page 8D-7 of the NOPR TSD
surrounding masonry chimneys. PHCC commented that the language gets
confusing as it discusses lined masonry chimneys but then considers
metal lining systems. PHCC noted that masonry chimneys must be tile
lined for gas venting and it is unclear if DOE views the use of a
flexible metal liner kit as a lined chimney. Furthermore, PHCC
indicated the need for more clarification on the use of flexible liners
in chases, as those chases should contain metallic double wall vents.
Finally, PHCC requested clarification on the discussion surrounding
isolated water heaters that
[[Page 37855]]
are not gas-fired nor vented products, as PHCC is not clear on why they
are called isolated and what their relationship is with common venting.
(PHCC, No. 1151 at p. 3)
In response, DOE notes that sources and references used in the
analysis for deriving the methodology are presented in chapter 8 of the
TSD and its appendices. DOE is aware that in some multifamily
buildings, existing non-condensing storage water heaters of more than
one unit can be commonly vented with other equipment vented using a
Category I vent. In some cases, replacement of one water heater may
require re-assessment of the shared vent path. However, this final rule
does not require a condensing level for gas storage water heaters. DOE
notes that it is challenging to acquire data on how frequently water
heaters are commonly vented in multifamily buildings that allow DOE to
statistically account for the cost impact on its own. DOE estimates,
however, certain fractions by region where chimney venting is applied
and believes that, besides those typical cases where chimney venting is
shared by a water heater and a furnace, those installation cases have
captured to some extent the costs applicable for vent path
reassessment. In regards to the PHCC's comment on appendix 8D of NOPR
TSD, to clarify, DOE accounts for different types of venting used in
the field; venting through a masonry chimney and venting through a
metal vent going through the roof are both included. For venting in the
masonry chimney, DOE takes into account the cost for relining the
chimney and venting for orphaned furnace/boiler where applicable in
retrofits. Specifically, when venting through the chimney, DOE accounts
for the cost of chimney re-lining and resizing of the vent connector
should the retrofit require that. Additionally, ``isolated'' water
heaters as explained in the documentation refer to water heaters that
are not commonly vented or do not require venting at all, for which
there are no common venting related costs considered. See chapter 8 and
appendix 8D of the final rule TSD for details.
CHPK stated that the modification associated with increasing
insulation, the addition of a thermal flue damper, or an electronic
ignition and an electronic flue damper would require an electric supply
to gas-fired storage water heaters, and would potentially reduce vent
temperatures resulting in excessive condensation developing in the
vent. According to CHPK, these modifications would result in additional
costs of providing an electric outlet for gas storage water heaters in
a replacement situation and perhaps venting issues. (CHPK, No. 1008 at
p. 1) DOE took into account in the calculation of installation costs
the issues CHPK raised and applied a cost adder for an electric outlet
and condensate treatment for the efficiency levels that require those.
Regarding statements from some stakeholders that significant
installation barriers are associated with gas condensing water heaters,
the CA IOUs referred DOE to a report docketed in 2019 titled
``Investigation of Installation Barriers and Costs for Condensing Gas
Appliances.'' Key findings from this report indicate that these
challenges impact less than 5 percent of condensing gas retrofit
installations for residential and commercial applications, and that
condensate management and chimney relining were minor concerns for
installing gas condensing products. (CA IOUs, No. 1175 at p. 2) DOE
agrees that installation challenges will impact only a subset of
consumers, and even in those cases, DOE has included additional
installation costs into the analysis.
c. Heat Pump Water Heater Installation Costs
For heat pump water heater installations, DOE included a number of
adders for a fraction of the sample households. Most of these adders
are associated with installing heat pump water heaters in replacement
installations.
For replacement installations, DOE conducted a detailed analysis of
installation costs when a baseline consumer water heater is replaced
with higher efficiency designs, with particular attention to space
constraint issues (associated with larger dimensions for heat pump
water heaters compared to electric resistance water heaters),
condensate withdrawal, and ductwork for heat pump water heaters
installed in conditioned spaces. To address the larger dimensions of
heat pump water heaters, installation adders included removing and
replacing door jambs (to be able to fit the larger sized water heater)
or relocating water heater. Freeze protection is accounted for in the
cost of condensate removal for a fraction of heat pump water heaters
installed in non-conditioned spaces. DOE also included condensate
removal installation adders for new owner and new construction heat
pump water heater installations. DOE also accounted for the airflow
requirements as specified in manufacturer installation manuals in its
installation cost model. The additional costs of adding louvered doors,
venting, or relocating a water heater are included for a fraction of
installations, mainly for heat pump water heaters installed in indoor
locations. See appendix 8D of the final rule TSD for more details.
PHCC commented that DOE acknowledges that up to 40% of
installations could face space constrained heat pump installations and
the suggestion that DOE provides to use louvered doors may not be
applicable to all installations and the use of ducted air installations
should be accounted for. (PHCC, No. 1151 at p. 4) PHCC noted that on
page 8D-6 of NOPR TSD there are no modifications to remove and replace
door jambs for basements and garages, but plumbing, building and
mechanical codes require doorways to be of sufficient size to replace
equipment without future removal of doors and door frames. (PHCC, No.
1151 at p. 3) NMHC and NAA noted that DOE's suggestion that it may be
possible to ignore manufacturers' specified volume of space for heat
pump water heater installation based on ``current research'' is not
acceptable as it conflicts with building code requirements to comply
with manufacturer's instructions. NMHC and NAA also commented that
DOE's suggestion for installation of heat pump water heaters by
replacing utility closet doors with louvered doors is not viable as it
ignores the impacts of increases in equipment noise in the smaller area
of the typical apartment home. (NMHC and NAA, No. 996 at p. 4) Essency
argued that the cost of moving the heat pump water heater was not
calculated as there are significant additional electrical, plumbing,
and other construction work that are required. (Essency, No. 1194 at p.
2) EEI commented that it is important to recognize that installing heat
pump water heater units in space-constrained areas (like closets or
under stairs or in crawl spaces) will require significant retrofit
costs given heat pump water heaters' physical operating requirements
and the potential need for additional equipment. EEI commented that
non-ducted heat pump water heaters require at least 700 cu ft of space
to operate properly and achieve DOE's estimated efficiency levels, as
shown in manufacturer specifications. EEI noted that 10 to 40 percent
of water heaters are located in closets based on a survey by Southern
Company. EEI commented that DOE's analysis does not include a realistic
cost estimate for replacing electric resistance water heaters with heat
pump water heaters in closets where walls, ceilings, and doors must be
removed and replaced or ductwork
[[Page 37856]]
added in space constrained areas. EEI argued that DOE's analysis does
not accurately account for the replacement costs in other space-
constrained environments such as crawl spaces, attics, utility rooms,
or laundry rooms (EEI, No. 1198 at pp. 5-6) Armada argued that ideal
efficiency conditions for heat pump water heaters require 1000 cubic
feet of air. Armada argued that many homes cannot support such space
demands, and use of heat pump water heaters will increase home heating
costs for many consumers, diminishing any savings. Armada argued that
only in very rare circumstances would consumers be able to quickly
replace an electric storage water heater in an emergency, as many homes
will require construction to accommodate the space and environment
requirements of a heat pump water heater such as installing louvered
doors or building ductwork. (Armada, No. 1193 at p. 6)
In response to the preceding comments, DOE notes that the analysis
takes into account the cost of moving the water heater to a different
location or adding a louvered door for some installations. In the
field, plumbers would guide the customers to select a way that works
for them. In the analysis, DOE acknowledges the possible occurrence of
those additional costs and on top of those DOE also applied a
distribution of installation cost adders that ranges from $0 to $4,000
in total for the most challenging installations, averaging $2,000 (see
appendix 8D).
NRECA commented that manufactured and small homes experience
greater impact from both noise and cold air exhaust than larger homes
that have more space to isolate the noise of the water heater and more
air volume to buffer cold air exhaust. They commented that constrained
spaces may not have enough room for mitigation measures such as supply
and exhaust air ducting or noise dampening equipment. NRECA added that
consumers will not welcome any increase in their electricity bills
resulting from their heating system needing to work harder because of
the heat pump water heater drawing on the warm air as its heat source.
(NRECA, No. 1127 at p. 6). NRECA commented that manufactured and small
homes will face unique installation challenges with heat pump water
heaters. They noted that small and manufactured homes in NRECA member
territories typically use 40- to 50-gallon lowboys, tall tanks, or
tanks specifically designed for manufactured home closets, and that
although DOE created a small electric storage water heater product
class that covers some lowboy products this does not include tank sizes
and form factors that electric cooperatives typically observe in space
constrained spaces. NRECA cited the La Plata Electric Association
(``LPEA'') pilot study where 20 heat pump water heaters were installed
in owner-occupied manufactured homes and due to the complexity of
installation, concluded that a majority of manufactured homes are not
good candidates for a heat pump water heater. NRECA stated that
although heat pump water heaters can be installed in some constrained
spaces, they are likely not the best option when they cause high
installation costs, noise and cold air impacts, and potentially
unsightly installations to make the heat pump water heater fit a space
that was never designed to accommodate it, and there often is no other
available space in a small home to relocate the water heater, and
reducing tank size can cause negative user experience. (NRECA, No. 1127
at pp. 6-7) NRECA commented that because low-and-moderate income
consumers disproportionately face complex installations, they are
likely to disproportionately bear costs rather than savings as a result
of the proposed rule and they received multiple examples from electric
cooperatives illustrating that installation costs are far higher than
DOE's estimates. (NRECA, No. 1127 at p. 8)
NEEA noted that its research shows that heat pump water heaters can
be installed in a wide range of conditions and climates, including very
cold climates, and continue to deliver significant energy savings.
(NEEA, No. 1199 at pp. 3-4) NEEA commented that its research supports
DOE's installation cost analysis. (NEEA, No. 1199 at p. 7). However,
BWC highlighted that NEEA is a regional organization that operates its
programs primarily in the Northwestern United States and only included
those consumers who had already made the decision to take advantage of
available heat pump water heater rebate programs. (BWC, No. 1164 at p.
20)
In response, DOE acknowledges that manufactured homes and small
homes typically have greater challenges in installing a heat pump water
heater. Installing a heat pump water heater in such homes may require
additional installation costs, as described above, more so than an
average single-family home. The LCC analysis accounts for the higher
installation costs for such homes. However, in many cases, such homes
can utilize a small electric storage water heater instead of a heat
pump water heater, significantly reducing their total installed cost.
In terms of the cooling effect of the heat pump module, DOE took that
into account in its energy use analysis the additional heating it might
need in compensation, as discussed in section IV.E.3 of this document.
DOE acknowledges that for low income homeowners, higher installation
costs would indeed need more years of energy savings to pay back or may
even lead to net cost, and this is accounted for in the overall LCC
results. For renters, since they won't bear the first cost, it will
more likely be economically beneficial (as discussed in section IV.I.1
of this document).
In the July 2023 NOPR, DOE did extensive revisions to its
installation cost model to include installations of low-boy water
heaters. DOE estimated around 10 percent of the total 20 to 55 gallon
electric storage water heater market to be low boy water heaters. DOE
assessed that many of these installations would require significant
installation costs in order to install a heat pump water heater. DOE
notes that at the proposed standard, most models currently serving the
small electric water heater market will remain available.
A.O. Smith argued that retrofit costs associated with space-
constrained installs are under-represented, especially for the lowboy
electric resistance water heater to heat pump water heater transition.
A.O. Smith also argued that undersizing an electric storage water
heater (``ESWH'') and raising the temperature would not be possible in
scenarios where a heat pump water heater would not fit in a confined
space (which represents half of the modeled outcomes). A.O. Smith
stated that while the difference in size for tall ESWH replacements is
accounted for with a ~3 inch diameter increase, this same change is not
accounted for in a substantial way for lowboys which present an even
greater size constraint challenge. (A.O. Smith, No. 1182 at pp. 8-9)
A.O. Smith pointed out that they could not find the referenced ``review
of studies'' mentioned in Appendix 8D of the NOPR TSD which was
supposed to include a literature review and a comparison of results of
studies (related to lowboy costs) in response to previously submitted
comments. (A.O. Smith, No. 1182 at p. 9) AHRI commented that DOE is not
adequately considering the retrofit costs associated with space
constrained retrofits. Specifically, DOE did not consider the added
product and installation costs that would be faced by homeowners when
replacing medium draw pattern lowboy or ``short'' electric resistance
water heater with a heat pump water
[[Page 37857]]
heater. AHRI noted that consumers would not have the option to install
an over-heated tank in lieu of facing space constrained scenarios as
electric resistance storage water heaters with the capability of being
overheated will not be permitted under the proposed energy conservation
standard. AHRI stated that replacement of a lowboy with a heat pump
would require the use of a more expensive split heat pump and would
have additional installation costs. (AHRI, No. 1167 at p. 7)
DOE is aware of the challenges of replacing a low boy water heater
with a heat pump water heater, especially in confined space and in
small homes or manufactured homes. As discussed above and in the July
2023 NOPR, DOE applied significant installation cost adders to those
installations to encompass the additional labor hour and materials
needed to install such water heaters.
A.O. Smith argued that DOE did not fully account for the increased
product and installation costs associated with split-system heat pump
water heater designs that would be used to replace lowboy
installations. A.O. Smith recommended that DOE incorporate higher
product and installation costs associated with split designs for 13.7
percent of shipments in the medium electric storage water heater
product class. (A.O. Smith, No. 1182 at p. 9) For this final rule DOE
conducted further research on installing a heat pump water heater in a
split system configuration. Currently there are not many models
available for split system configuration and thus there are limited
installation examples. DOE maintained its main analytical approach
while adding a local installation cost sensitivity analysis for
installing a split system heat pump water heater. Specifically, DOE
modeled the cost line items needed for the installation of a 44-gallon
low boy tank with a split heat pump module, which is a commonly used
lowboy tank size for medium ESWHs. Appendix 8D of the final rule TSD
provides more details on this sensitivity analysis. In summary, DOE
found that the installation costs of a split system heat pump water
heater are not necessarily higher than an integrated heat pump in a
constrained space. Since DOE already applies a significant adder to the
installation of an integrated heat pump water heater in these
households, the overall average LCC savings would be more positive for
the adopted heat pump level had DOE included this split heat pump
option for medium electric storage water heaters in the main analysis.
Even though the retail price for a split system heat pump water heater
may be higher than an integrated heat pump, the lower installation cost
for a split system heat pump water heater compared to an integrated
heat pump water heater in a confined space and in small homes or
manufactured homes is likely to result in an overall lower total
installed cost. Should the market include more split heat pump models
in the future, the likely cost impacts will decrease for consumers with
water heaters in a confined space and in small homes or manufactured
homes.
A.O. Smith argued that DOE's analysis assumed that all water
heaters in manufactured homes are 30 gal and therefore did not account
for the costs of these units transitioning to heat pump levels. A.O.
Smith also pointed out that DOE acknowledges that 40 gal are also
common standards for manufactured homes. (A.O. Smith, No. 1182 at p.
10) In response, DOE notes that the statement A.O. Smith was
referencing was in a consultant report, where 30 gallon was only an
example made to represent the cost breakdown of water heaters typically
used in mobile homes. In DOE's actual analysis, different standard
sizes were considered (see section IV.E.2 for more information).
Rheem found the reported installation costs for heat pump water
heater to be lower than expected, but the incremental installation
costs between EL 0 and EL 3 aligned with their internal installation
cost data. Rheem noted that as operation at high tank temperatures is
expected to be representative of electric resistance water heater
operation, the installation of a mixing valve should be included in
DOE's analysis. (Rheem, No. 1177 at p. 9) DOE has found that for some
applications mixing valves are currently being used in order to have
higher hot water temperature for dishwashers or clothes washers, to
provide more hot water capacity, and to reduce bacterial growth, while
making sure the delivered water is within a safe range.\76\ Some water
heaters have internal mixing valves that are meant to increase
available hot water. In some cases, mixing valves could be used to
address the increased hot water needs when the number of people in the
household increases without replacing the entire water heater. DOE's
updated test procedure includes a method to test water heaters in the
highest storage tank temperature mode, which would be more
representative for these types of installations (this is discussed more
in section V.D.1). DOE's analysis in this final rule accounts for a
fraction of installations that utilize a mixing valve.
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\76\ See www.geappliances.com/appliance/GE-Smart-50-Gallon-Electric-Water-Heater-with-Flexible-Capacity-GE50S10BMM.
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3. Annual Energy Consumption
For each sampled household and building, DOE determined the energy
consumption for consumer water heaters at different efficiency levels
using the approach described previously in section IV.E of this
document.
Higher-efficiency water heaters reduce the operating costs for a
consumer, which can lead to greater use of the water heater. A direct
rebound effect occurs when a product that is made more efficient is
used more intensively, such that the expected energy savings from the
efficiency improvement may not fully materialize. At the same time,
consumers benefit from increased utilization of products due to
rebound. Although some households may increase their water heater use
in response to increased efficiency, DOE does not include the rebound
effect in the LCC analysis because the increased utilization of the
water heater provides value to the consumer. DOE does include rebound
in the NIA for a conservative estimate of national energy savings and
the corresponding impact to consumer NPV. See chapter 10 of the FR TSD
for more details.
4. Energy Prices
Because marginal energy price more accurately captures the
incremental savings associated with a change in energy use from higher
efficiency, it provides a better representation of incremental change
in consumer costs than average electricity prices. Therefore, DOE
applied average energy prices for the energy use of the product
purchased in the no-new-standards case, and marginal energy prices for
the incremental change in energy use associated with the other
efficiency levels considered.
DOE derived average monthly marginal residential and commercial
electricity, natural gas, and LPG prices for each state using data from
EIA.77 78 79
[[Page 37858]]
DOE calculated marginal monthly regional energy prices by: (1) first
estimating an average annual price for each region; (2) multiplying by
monthly energy price factors, and (3) multiplying by seasonal marginal
price factors for electricity, natural gas, and LPG. The analysis used
historical data up to 2022 for residential and commercial natural gas
and electricity prices and historical data up to 2021 for LPG and fuel
oil prices. Further details may be found in chapter 8 of the final rule
TSD.
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\77\ U.S. Department of Energy-Energy Information
Administration, Form EIA-861M (formerly EIA-826) detailed data
(2022) (Available at: www.eia.gov/electricity/data/eia861m/) (Last
accessed December 1, 2023).
\78\ U.S. Department of Energy-Energy Information
Administration, Natural Gas Navigator (2022) (Available at:
www.eia.gov/naturalgas/data.php) (Last accessed December 1, 2023).
\79\ U.S. Department of Energy-Energy Information
Administration, State Energy Data System (``SEDS'') (2021)
(Available at: www.eia.gov/state/seds/) (Last accessed December 1,
2023).
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GAAS argued that DOE has not fully responded to their previous
suggestion of using the CMER (Consumer Marginal Energy Rates) method
for energy prices. (GAAS, No. 1139 at p. 1)
DOE has evaluated other estimates of marginal energy prices but
maintains its approach in the final rule, since the data used to
develop those prices are nationally representative. Stakeholders have
previously proposed alternative methods and data to estimate marginal
natural gas prices. However, DOE compared its seasonal marginal price
factors developed from the EIA data to marginal price factors for 23
gas tariffs provided by the Gas Technology Institute for the 2016
residential boilers energy conservation standards rulemaking. DOE found
that the winter price factors used by DOE are generally comparable to
those computed from the tariff data, indicating that DOE's marginal
price estimates are reasonable at average usage levels. The summer
price factors are also generally comparable. Of the 23 tariffs
analyzed, eight have multiple tiers, and of these eight, six have
ascending rates and two have descending rates. The tariff-based
marginal factors use an average of the two tiers as the commodity
price. A full tariff-based analysis would require information about the
household's total baseline gas usage (to establish which tier the
consumer is in), and a weight factor for each tariff that determines
how many customers are served by that utility on that tariff. These
data are generally not available in the public domain. DOE's use of EIA
State-level data effectively averages overall consumer sales in each
State, and so incorporates information from all utilities. DOE's
approach is, therefore, more representative of a large group of
consumers with diverse baseline gas usage levels than an approach that
uses only tariffs. DOE notes that within a State, there could be
significant variation in the marginal price factors, including
differences between rural and urban rates. In order to take this to
account, DOE developed marginal price factors for each individual
household using RECS 2015 billing data. These data are then normalized
to match the average State marginal price factors, which are equivalent
to a consumption-weighted average marginal price across all households
in the State. DOE's methodology allows energy prices to vary by sector,
region and season. For more details on the comparative analysis and
marginal price analysis, see appendix 8E of the final rule TSD.
To estimate energy prices in future years, DOE multiplied the 2022
energy prices by the projection of annual average price changes for
each of the 50 U.S. states and District of Columbia from the reference
case in AEO2023, which has an end year of 2050.\80\ To estimate price
trends after 2050, DOE used the average annual growth rate in prices
from 2046 to 2050 based on the methods used in the 2022 Life-Cycle
Costing Manual for the Federal Energy Management Program
(``FEMP'').\81\
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\80\ EIA. Annual Energy Outlook 2023 with Projections to 2050.
Washington, DC. Available at www.eia.gov/forecasts/aeo/ (last
accessed December 1, 2023).
\81\ Lavappa, Priya D. and J.D. Kneifel. Energy Price Indices
and Discount Factors for Life-Cycle Cost Analysis--2022 Annual
Supplement to NIST Handbook 135. National Institute of Standards and
Technology (NIST). NISTIR 85-3273-37, available at www.nist.gov/publications/energy-price-indices-and-discount-factors-life-cycle-cost-analysis-2022-annual (last accessed December 1, 2023).
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AWHI suggested that the CA IOUs outline a price forecast scenario
that more accurately accounts for future changes in energy costs.
(AWHI, No. 1036 at p. 4) Gas Association Commenters argued that energy
price assumptions from AEO are consistently overestimated and therefore
should not be used (70% of the time was an overestimate for residential
and 86% of the time was an overestimate for commercial sector between
the 2010 and 2023 AEO projections). They argued that a distribution of
prices should be used and not a forecasted mean. (Gas Association
Commenters, No. 1181 at p. 34) Rinnai stated that DOE's average and
marginal consumer energy price forecasts (from EIA) for electricity and
gaseous fuels have historically overstated prices (particularly for
natural gas). Rinnai stated that DOE should instead use energy prices
employed in the Federal Trade Commission (``FTC'') Energy Guide labels
because the uncertainty of applying forecasted prices shouldn't be
primary drivers of LCC costs/savings and because FTC's use of AEO
energy prices is audited annually and approved as published in the
Federal Register prior to use for the EnergyGuide program. (Rinnai, No.
1186 at pp. 26-28) ONE Gas argued that consumer energy price forecasts
from the AEO have been shown to be notoriously unreliable from
forecasting year to forecasting year, and they systematically
overpredict natural gas prices over time. (ONE Gas, No. 1200 at pp. 10-
11) In response, DOE relies on AEO forecast for the energy price
projection across appliance standards work as a cross-cutting
methodology. Current energy prices are developed using other EIA data
sources as described above. DOE acknowledges that it is difficult to
project the future trend for any source given the uncertainty and
unpredictability. However, AEO 2023 projects relatively flat energy
price trends out to 2050 (see appendix 8E). AEO as issued by EIA
remains the most comprehensive and trustworthy source and DOE maintains
its methodology for this final rule. The energy prices developed for
FTC are consistent with DOE's development of current energy prices
(although here the analysis relies on marginal energy prices).
5. Maintenance and Repair Costs
Repair costs are associated with repairing or replacing product
components that have failed in an appliance; maintenance costs are
associated with maintaining the operation of the product. Typically,
small incremental increases in product efficiency produce no, or only
minor, changes in repair and maintenance costs compared to baseline
efficiency products. DOE included additional maintenance and repair
costs for higher efficiency consumer water heaters (including
maintenance costs associated with condensate withdrawal, heat pump
component filter cleaning, and deliming of the heat exchanger and
repair costs associated with electronic ignition, controls, and blowers
for fan-assisted designs, compressor, evaporator fan) based on 2023
RSMeans data.\82\ DOE accounted for regional differences in labor costs
by using RSMeans regional cost factors.
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\82\ RSMeans Company, Inc., RS Means Facilities Repair and
Maintenance (2023), available at www.rsmeans.com/ (last accessed
December 1, 2023).
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Ravnitzky stated that non-heat pump water heaters are less likely
to require maintenance or repair than heat pump water heaters because
they have a less complex design with fewer moving parts. (Ravnitzky,
No. 73 at p. 1) Essency argued that maintenance costs are
underestimated for heat pump water heaters because the lifetime of some
components in heat pump water heaters will require replacements of
parts once the heater is out of warranty. (Essency, No. 1194 at p. 3)
Rheem voiced support
[[Page 37859]]
for DOE's handling of operational and maintenance costs over the life
of the water heater. (Rheem, No. 1177 at p. 9)
In response to Ravnitzky, research conducted by DOE has not shown
that heat pump water heaters have different lifetimes than electric
resistance storage water heaters. DOE has factored any additional
maintenance or repair costs into the LCC. DOE takes into account
replacement of certain parts after the warranty period. For the
replacement of the heating element (which Essency provided as an
example in its comment), the replacement cost is accounted for the
fraction where it occurs and annualized across the years of use. The
repair and maintenance cost summary in the final rule TSD represents
the average cost with some households experiencing more or less than
the reported value.
6. Product Lifetime
Product lifetime is the age at which an appliance is retired from
service. DOE conducted an analysis of water heater lifetimes based on
the methodology described in a journal paper.\83\ For this analysis,
DOE relied on RECS 1990, 1993, 2001, 2005, 2009, 2015, and 2020.\84\
DOE also used the U.S. Census's biennial American Housing Survey
(``AHS''), from 1974-2021, which surveys all housing, noting the
presence of a range of appliances.\85\ DOE used the appliance age data
from these surveys, as well as the historical water heater shipments,
to generate an estimate of the survival function. The survival function
provides a lifetime range from minimum to maximum, as well as an
average lifetime. DOE estimates the average product lifetime to be
around 15 years for storage water heaters.
---------------------------------------------------------------------------
\83\ Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A.
Sturges, Using national survey data to estimate lifetimes of
residential appliances, HVAC&R Research (2011) 17(5): pp. 28
(Available at: www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166) (Last accessed December 1, 2023).
\84\ U.S. Department of Energy: Energy Information
Administration, Residential Energy Consumption Survey (``RECS''),
Multiple Years (1990, 1993, 1997, 2001, 2005, 2009, 2015, and 2020)
(Available at: www.eia.gov/consumption/residential/) (Last accessed
December 1, 2023).
\85\ U.S. Census Bureau: Housing and Household Economic
Statistics Division, American Housing Survey, Multiple Years (1974,
1975, 1976, 1977, 1978, 1979, 1980, 1981, 1983, 1985, 1987, 1989,
1991, 1993, 1995, 1997, 1999, 2001, 2003, 2005, 2007, 2009, 2011,
2013, 2015, 2017, 2019, and 2021) (Available at: www.census.gov/programs-surveys/ahs/) (Last accessed December 1, 2023).
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Stanonik argued that increased average lifetimes for consumer
storage water heaters are calculated estimates rather than based on
field data thus leading to overstatements of average lifetime. Stanonik
also argued that the increased complexity of newer products
realistically would result in shorter lifetimes and more scenarios
where ``replace'' might be a cheaper alternative than ``repair,'' and
that these scenarios are not reflected well in the analysis. (Stanonik,
No. 1197 at p. 2) NMHC and NAA noted that AHRI assumes a 10-13 year
lifespan for water heaters, which is less than DOE's estimated
lifetime. (NMHC and NAA, No. 996 at p. 6) DOE has conducted an
extensive literature review, including studies and surveys and warranty
information, to determine its product lifetimes, as discussed in
appendix 8G. DOE also utilizes Weibull distribution for the product
lifetime to capture the field variations.
Noritz disputed that condensing and non-condensing products have
the same average lifespan based on their internal testing. Noritz
argued that the less complex nature of the non-condensing product in
their testing typically lasts between 10 and 20 percent longer than a
similar condensing product. Noritz argued that the analysis conducted
by DOE that proposes the average lifespan of the two products to be
identical will impact the LCC and payback analysis. (Noritz, No. 1202
at p. 3). In response, DOE has not found any evidence in its research
pointing to a significantly different lifespan for the two types of
water heaters. As described in appendix 8G, the data sources cited did
not indicate any systematic decrease in lifetime for gas-fired
condensing products. For this final rule, DOE maintains its methodology
of assuming the same lifetime within product classes.
BWC noticed that the 2010 rulemaking reports an average lifetime of
13 years, rather than the assumed 15 years in the current rulemaking.
BWC claimed that the lower product lifetime conclusions reached by DOE
in the 2010 rulemaking appear to be more consistent with the evidence
presented in the NOPR TSD. Specifically, in Figure 8G.4.6 in the TSD,
the inflection points of the curves in this figure more closely align
with the assumed product lifetimes established as part of DOE's 2010
rulemaking, and in the case of electric storage water heaters, indicate
a product lifetime that is lower still. The assumed lifetime of 13
years for heat pump water heater products is also shared by the ENERGY
STAR program in its materials that promote these products. BWC
requested that DOE elaborate on the reason for an increase in product
lifetimes from the assumptions deployed in the 2010 rulemaking to the
longer product lifetimes assumed in the July 2023 NOPR. BWC also
requested that DOE explain the apparent discrepancies between the
graphic demonstration of product lifetimes in 8G.4.6 and those
expressed in Table 8G.4.1. (BWC, No. 1164 at pp. 3-4)
From the 2010 Final Rule to this rulemaking, DOE was able to
collect more evidence from literature review on product lifetime as
well as develop a more robust survival function to calculate the
lifetimes. Regarding the figure in the NOPR TSD, the inflection point
represents the lifetime most water heaters will live to, whereas the
average takes into account those who live an unusually short or long
lifetime. The lifetime distribution in this rulemaking, compared to
that of the 2010 rulemaking, has an early start, taking into account
those that retire starting from year two, and a longer tail, allowing
some water heaters to survive much longer than average. DOE believes
that it is beneficial to capture the variations in lifetime and thus
maintain its methodology in this final rule.
BWC expressed support for DOE conducting a sensitivity analysis for
all water heater product classes, as they claimed this is an effective
way for this rulemaking to account for the reality that product
lifetimes are not constant across efficiency levels and decrease with
increased efficiency and complexity of a system. (BWC, No. 1164 at p.
4) In order to evaluate the impact of the lifetime on the economic
analysis results, for this final rule DOE conducted a sensitivity
analysis, where two additional lifetime scenarios were evaluated. The
sensitivity results do not change DOE's conclusion of economic
justification of the adopted standards (see appendix 8G of the final
rule TSD for the comparison of results).
7. Discount Rates
In the calculation of LCC, DOE applies discount rates appropriate
to households to estimate the present value of future operating cost
savings. DOE estimated a distribution of discount rates for consumer
water heaters based on the opportunity cost of consumer funds.
DOE applies weighted average discount rates calculated from
consumer debt and asset data, rather than marginal or implicit discount
rates.\86\ The LCC
[[Page 37860]]
analysis estimates net present value over the lifetime of the product,
so the appropriate discount rate will reflect the general opportunity
cost of household funds, taking this time scale into account. Given the
long time horizon modeled in the LCC analysis, 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.
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\86\ 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. The implicit discount rate is
not appropriate for the LCC analysis because it reflects a range of
factors that influence consumer purchase decisions, rather than the
opportunity cost of the funds that are used in purchases.
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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 triennial Survey of Consumer Finances
\87\ (``SCF'') starting in 1995 and ending in 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. DOE assigned
each sample household a specific discount rate drawn from one of the
distributions. The average rate across all types of household debt and
equity and income groups, weighted by market share of each product
class, is 4.2 percent. See chapter 8 of the final rule TSD for further
details on the development of consumer discount rates.
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\87\ The Federal Reserve Board, Survey of Consumer Finances
(1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019)
(Available at: www.federalreserve.gov/econres/scfindex.htm) (last
accessed Dec. 1, 2023). The Federal Reserve Board is currently
processing the 2022 Survey of Consumer Finances, which is expected
to be fully available in late 2023.
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To establish commercial discount rates for the small fraction of
consumer water heaters installed in commercial buildings, DOE estimated
the weighted-average cost of capital using data from Damodaran
Online.\88\ The weighted-average cost of capital is commonly used to
estimate the present value of cash flows to be derived from a typical
company project or investment. Most companies use both debt and equity
capital to fund investments, so their cost of capital is the weighted
average of the cost to the firm of equity and debt financing. DOE
estimated the cost of equity using the capital asset pricing model,
which assumes that the cost of equity for a particular company is
proportional to the systematic risk faced by that company. DOE's
commercial discount rate approach is based on the methodology described
in a Lawrence Berkeley National Laboratory report, and the distribution
varies by business activity.\89\ The average rate for consumer water
heaters used in commercial applications in this final rule analysis,
across all business activity and weighted by the market share of each
product class, is 6.9 percent.
---------------------------------------------------------------------------
\88\ Damodaran Online, Data Page: Costs of Capital by Industry
Sector (2021) (Available at: pages.stern.nyu.edu/~adamodar/) (Last
accessed December 1, 2023).
\89\ Fujita, S., Commercial, Industrial, and Institutional
Discount Rate Estimation for Efficiency Standards Analysis: Sector-
Level Data 1998--2018 (Available at: ees.lbl.gov/publications/commercial-industrial-and) (Last accessed December 1, 2023).
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See chapter 8 of this final rule TSD for further details on the
development of consumer and commercial discount rates.
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). This approach reflects the fact that some
consumers may purchase products with efficiencies greater than the
baseline levels.
To estimate the energy efficiency distribution of consumer water
heaters for 2030, DOE used available shipments data by efficiency
including in previous AHRI submitted historical shipment data,\90\
ENERGY STAR unit shipments data,\91\ and data from a 2023 BRG Building
Solutions report. \92\ To cover gaps in the available shipments data,
DOE used DOE's public CCD model database \93\ and AHRI certification
directory.\94\
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\90\ AHRI. Gas-fired and Electric Storage Water Heater Shipments
Data to DOE. March 11, 2008; AHRI. Gas-fired Storage Heater
Shipments Data to DOE. March 18, 2009.
\91\ ENERGY STAR. Unit Shipments data 2010-2021. multiple
reports. (Available at: www.energystar.gov/partner_resources/products_partner_resources/brand_owner_resources/unit_shipment_data)
(Last accessed December 1, 2023).
\92\ BRG Building Solutions. The North American Heating &
Cooling Product Markets (2023 Edition). 2023.
\93\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed Dec. 1, 2023).
\94\ Air Conditioning Heating and Refrigeration Institute.
Consumer's Directory of Certified Efficiency Ratings for Heating and
Water Heating Equipment. May 16, 2023. (Available at
www.ahridirectory.org) (Last accessed December 1, 2023).
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The estimated market shares for the no-new-standards case for
consumer water heaters are shown in Table IV.26. See chapter 8 of the
final rule TSD for further information on the derivation of the
efficiency distributions.
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The LCC Monte Carlo simulations draw from the efficiency
distributions and assign an efficiency to the water heater purchased by
each sample household in the no-new-standards case according to these
distributions.
Finally, DOE considered the 2019 AHCS survey,\95\ which includes
questions to recent purchasers of HVAC equipment regarding the
perceived efficiency of their equipment (Standard, High, and Super High
Efficiency), as well as questions related to various household and
demographic characteristics. DOE did not find similar data for consumer
water heaters, but believes that the HVAC data is relevant to other
larger appliances such as consumer water heaters since they similarly
represent large energy end uses. From these data, DOE found that
households with larger square footage exhibited a higher fraction of
High- or Super-High efficiency equipment installed. The fraction of
respondents with ``super high efficiency'' equipment was larger by
approximately 5 percent for larger households and correspondingly
smaller for smaller households. DOE therefore used the AHCS data to
adjust its water heater efficiency distributions as follows: (1) the
market share of higher efficiency equipment for households under 1,500
sq. ft. was decreased by 5 percentage points; and (2) the market share
of condensing equipment for households above 2,500 sq. ft. was
increased by 5 percentage points.
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\95\ Decision Analysts, 2019 American Home Comfort Studies
(Available at: www.decisionanalyst.com/Syndicated/HomeComfort/)
(Last accessed January 5, 2024).
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DOE acknowledges that economic factors may play a role when
consumers, commercial building owners, or builders decide on what type
of water heater to install. However, assignment of water heater
efficiency for a given installation based solely on economic measures
such as life-cycle cost or simple payback period most likely would not
fully and accurately reflect actual real-world installations. There are
a number of market failures discussed in the economics literature that
illustrate how purchasing decisions with respect to energy efficiency
are unlikely to be perfectly correlated with energy use, as described
below. While this literature is not specific to water heaters, DOE
finds that the method of assignment, which is in part random, simulates
behavior in the water heater market, where market failures and other
consumer preferences result in purchasing decisions not being perfectly
aligned with economic interests, more realistically than relying only
on apparent cost-effectiveness criteria derived from the limited
information in CBECS or RECS. DOE further emphasizes that its approach
does not assume that all purchasers of water
[[Page 37862]]
heaters make economically irrational decisions (i.e., the lack of a
correlation is not the same as a negative correlation). As part of the
random assignment, some homes or buildings with large hot water use
will be assigned higher efficiency water heaters, and some homes or
buildings with particularly low hot water use will be assigned baseline
water heaters. By using this approach, DOE acknowledges the variety of
market failures and other consumer behaviors present in the water
heater market, and does not assume certain market conditions
unsupported by the available evidence.
First, consumers are motivated by more than simple financial trade-
offs. There are consumers who are willing to pay a premium for more
energy-efficient products because they are environmentally
conscious.\96\ There are also several behavioral factors that can
influence the purchasing decisions of complicated multi-attribute
products, such as water heaters. For example, consumers (or decision
makers in an organization) are highly influenced by choice
architecture, defined as the framing of the decision, the surrounding
circumstances of the purchase, the alternatives available, and how
they're presented for any given choice scenario.\97\ 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.\98\ R.H. 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.\99\ These characteristics describe almost all
purchasing situations of appliances and equipment, including water
heaters. The installation of a new or replacement water heater is done
infrequently, as evidenced by the mean lifetime for water heaters.
Additionally, it would take at least one full water heating season for
any impacts on operating costs to be fully apparent. Further, if the
purchaser of the 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. Additionally, there are systematic market failures
that are likely to contribute further complexity to how products are
chosen by consumers, as explained in the following paragraphs.
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\96\ Ward, D.O., Clark, C.D., Jensen, K.L., Yen, S.T., &
Russell, C.S. (2011): ``Factors influencing willingness-to pay for
the ENERGY STAR[supreg] label,'' Energy Policy, 39(3), 1450-1458.
(Available at: www.sciencedirect.com/science/article/abs/pii/S0301421510009171) (Last accessed January 5, 2024).
\97\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014).
``Choice Architecture'' in The Behavioral Foundations of Public
Policy, Eldar Shafir (ed).
\98\ 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).
\99\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale
University Press.
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The first of these market failures--the split-incentive or
principal-agent problem--is likely to affect water heaters more than
many other types of appliances. The principal-agent problem is a market
failure that results when the consumer that purchases the equipment
does not internalize all of the costs associated with operating the
equipment. Instead, the user of the product, who has no control over
the purchase decision, pays the operating costs. There is a high
likelihood of split incentive problems in the case of rental properties
where the landlord makes the choice of what water heater to install,
whereas the renter is responsible for paying energy bills. In the LCC
sample, a significant fraction of households with a water heater are
renters. For example, for the medium electric storage water heaters LCC
sample, nearly 30 percent of households are renters, whereas for the
small electric storage water heater LCC sample, nearly 50 percent of
households are renters. These fractions are significantly higher for
low-income households (see section IV.I of this document and chapter 11
of the final rule TSD). The principle-agent problem can also impact
homeowners. For example, in new construction, builders influence the
type of water heater used in many homes but do not pay operating costs.
Finally, contractors install a large share of water heaters in
replacement situations, and they can exert a high degree of influence
over the type of water heater purchased based on which products they
are familiar with.
In addition to the split-incentive problem, there are other market
failures that are likely to affect the choice of water heater
efficiency made by consumers. For example, emergency replacements of
essential equipment such as water heaters are strongly biased toward
like-for-like replacement (i.e., replacing the non-functioning
equipment with a similar or identical product). Time is a constraining
factor during emergency replacements and it may not be possible to
consider the full range of available options on the market. The
consideration of alternative product options is far more likely for
planned replacements and installations in new construction.
Additionally, Davis and Metcalf \100\ conducted an experiment
demonstrating that the nature of the information available to consumers
from EnergyGuide labels posted on air conditioning equipment results in
an inefficient allocation of energy efficiency across households with
different usage levels. Their findings indicate that households are
likely to make decisions regarding the efficiency of the climate
control equipment of their homes that do not result in the highest net
present value for their specific usage pattern (i.e., their decision is
based on imperfect information and, therefore, is not necessarily
optimal).
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\100\ Davis, L.W., and G.E. Metcalf (2016): ``Does better
information lead to better choices? Evidence from energy-efficiency
labels,'' Journal of the Association of Environmental and Resource
Economists, 3(3), 589-625. (Available at: www.journals.uchicago.edu/doi/full/10.1086/686252) (Last accessed January 5, 2024).
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In part because of the way information is presented, and in part
because of the way consumers process information, there is also a
market failure consisting of a systematic bias in the perception of
equipment energy usage, which can affect consumer choices. Attari, et
al.\101\ show that consumers tend to underestimate the energy use of
large energy-intensive appliances but overestimate the energy use of
small appliances. Water heaters are one of the largest energy-consuming
end-uses in a home. Therefore, it is likely that consumers
systematically underestimate the energy use associated with water
heater, resulting in less cost-effective water heater purchases.
---------------------------------------------------------------------------
\101\ Attari, S.Z., M.L. DeKay, C.I. Davidson, and W. Bruine de
Bruin (2010): ``Public perceptions of energy consumption and
savings.'' Proceedings of the National Academy of Sciences 107(37),
16054-16059 (Available at: www.pnas.org/content/107/37/16054) (Last
accessed January 5, 2024).
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These market failures may affect a sizeable share of the consumer
population. A study by Houde \102\
[[Page 37863]]
indicates that there is a significant subset of consumers that appear
to purchase appliances without taking into account their energy
efficiency and operating costs at all, though subsequent studies using
alternative methodologies have highlighted other consumer groups who
are to some extent responsive to local energy prices with their
appliance purchases.\103\ The extent to which consumers are perceptive
of energy prices and product efficiency when making appliance
purchasing decisions is a topic of ongoing research.
---------------------------------------------------------------------------
\102\ Houde, S. (2018): ``How Consumers Respond to Environmental
Certification and the Value of Energy Information,'' The RAND
Journal of Economics, 49 (2), 453-477 (Available at:
onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12231) (Last
accessed January 5, 2024).
\103\ Houde, S. and Meyers, E. (2021). ``Are consumers attentive
to local energy costs? Evidence from the appliance market,'' Journal
of Public Economics, 2011 (Available at: sciencedirect.com/science/article/pii/S004727272100116X) (Last accessed March 7, 2024).
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Although consumer water heaters are predominantly installed in the
residential sector, some are also installed in commercial buildings
(less than 10 percent of projected shipments; see chapter 9 of the
final rule TSD). There are market failures relevant to consumer water
heaters installed in commercial applications as well. 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.104 105 Indeed, more than a
quarter of commercial buildings 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 in some cases 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 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.\106\ 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.\107\ 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.\108\
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\104\ 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.
\105\ 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 5, 2024).
\106\ 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).
\107\ 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).
\108\ 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 5, 2024).
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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.\109\ 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.\110\ 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.\111\
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\109\ 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.
\110\ 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.
\111\ Lovins, A. (1992). Energy-Efficient Buildings:
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed January 5, 2024).
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[[Page 37864]]
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.\112\ Asymmetric
information in financial markets is particularly pronounced with regard
to energy efficiency investments.\113\ 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,\114\ which can bias firms towards more certain or
familiar options. This market failure results not because the returns
from energy efficiency as an investment are inherently riskier, but
because information about the risk itself tends not to be available in
the same way it is for other types of investment, like stocks or bonds.
In some cases energy efficiency is not a formal investment category
used by financial managers, and if there is a formal category for
energy efficiency within the investment portfolio options assessed by
financial managers, they are seen as weakly strategic and not seen as
likely to increase competitive advantage.\115\ 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).\116\
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.\117\
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\113\ Mills, E., Kromer, S., Weiss, G., and Mathew, P. A.
(2006). ``From volatility to value: analysing and managing financial
and performance risk in energy savings projects,'' Energy Policy,
34(2), 188-199.
Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J.,
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy
Policy, 38(11), 6409-6418.
\114\ 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
January 5, 2024).
\115\ Cooremans, C. (2012). ``Investment in energy efficiency:
do the characteristics of investments matter?'' Energy Efficiency,
5(4), 497-518.
\116\ 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 January 5, 2024).
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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 rates \118\ and
required payback periods of many firms are higher than the appropriate
cost of capital for the investment.\119\ 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.\120\ The study found
that multiple organizational and institutional factors caused firms to
require shorter payback periods and higher returns than the cost of
capital for alternative investments of similar risk. Another study
demonstrated similar results with firms requiring very short payback
periods of 1-2 years in order to adopt energy-saving projects, implying
hurdle rates of 50 to 100 percent, despite the potential economic
benefits.\121\ 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,\122\ supermarkets,\123\ and the
electric motor market.\124\
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\117\ 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
January 5, 2024).
\118\ 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.
\119\ DeCanio 1994, op. cit.
\120\ DeCanio, S.J. (1998). ``The Efficiency Paradox:
Bureaucratic and Organizational Barriers to Profitable Energy-Saving
Investments,'' Energy Policy, 26(5), 441-454.
\121\ 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.
\122\ 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.
\123\ 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.
\124\ 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 5, 2024).
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The existence of market failures in the residential and commercial
sectors is well supported by the economics literature and by a number
of case studies. Although these studies are not specifically targeted
to the water heater market, they cover decision-making generally and
the impact of energy efficiency, operating costs, and future savings/
expenditures on those decisions, all of which apply to the purchase of
a consumer water heater. DOE is not aware of any market failure studies
specifically and narrowly focused on water heaters and so relies on the
available literature discussed above. If DOE developed an efficiency
distribution that assigned water heater efficiency in the no-new-
standards case solely according to energy use or economic
considerations such as life-cycle cost or payback period, the resulting
distribution of efficiencies within the building sample would not
reflect any of the market failures or behavioral factors above. DOE
thus concludes such a distribution would not be representative of the
water heater market.
DOE further notes that, in the case of gas-fired storage, oil-fired
storage, and electric storage water heaters (<=55 gal), the
distribution of efficiency in the current market is heavily weighted
toward baseline efficiency or efficiency at EL 1. Accordingly, in the
no new-standards case, most consumers are assigned EL 0 or EL 1 in
accordance with the market data. As a result, any variation to DOE's
efficiency assignment methodology will not produce substantially
differing results than presented in this final rule, as most consumers
will continue to be assigned the same efficiency regardless of the
details of the methodology. In other words, as most consumers in the
storage water heater market are choosing baseline or near-baseline
efficiency products, there would be no significant difference between a
random
[[Page 37865]]
assignment of those efficiency levels to consumers as to another type
of assignment methodology such as one that tried to consider consumer
rationality more explicitly--in either case nearly every individual
consumer would be assigned a baseline or near-baseline efficiency
product. This may be in contrast to a product with a broad distribution
of efficiency levels purchased in the market, where changing the
assignment methodology could more significantly impact the assignment
of an efficiency level to individual consumers and therefore impact the
results.
Gas Association Commenters and Atmos Energy argued that random
assignment methodology is unreasonable because it overstates standards-
compliant outcomes in the base case by capturing decisions that
consumers would naturally choose on their own for economically
beneficial reasons and it understates outcomes in the rule case by
disproportionately including unattractive economic outcomes. Gas
Association Commenters argued that consumer economic preference is not
accounted for in random assignments, and argued that consumer choice
models, which were used for fuel switching scenarios in gas furnaces,
should be used in water heaters. Gas Association Commenters argued that
random assignment creates extreme examples of economic benefits and
consequences that heavily skew averages and are the least realistic
outcomes as they would be the most obvious economic consumer choice.
Gas Association Commenters argued that DOE has cases in their analysis
where a standards-compliant product is the cheapest option but because
of random assignment, a less-efficient, more expensive option is
initially assigned, skewing benefits for rule scenarios. In its
comment, Gas Association Commenters proposed alternatives to random
assignment. (Gas Association Commenters, No. 1181 at p. 10 and pp. 11-
23; Atmos Energy, No. 1183 at pp. 6-7) Rinnai argued that DOE has not
yet addressed the central criticism of the random assignment of base
case efficiencies which is that DOE has not justified through either
correlation or causation of random assignment to the alleged market
failures it represents. Rinnai argued that there are many better
alternate approaches to solving market failures beyond appliance
standards. Rinnai argued that base case random assignment implies that
consumers only make rational economic decisions in rulemaking
scenarios. Rinnai argued many of the same points made in other comments
already mentioned in this document; namely: consumers in base case
choosing worse efficiency products even when doing so is more
expensive; highly favorable economic outcomes that skew results; base
case irrationality versus rulemaking case rational economic decision
making. (Rinnai, No. 1186 at pp. 31-33)
ONE Gas argued that in its comments that past issues of random
assignment of consumers to appliance purchase decisions in the base
case life cycle cost analysis has been an enduringly contentious issue
with the Department's TSD approach, and the Department appears to have
not undertaken measures to address stakeholder concerns of that kind.
ONE Gas noted that more detailed review of this issue by industry
stakeholders is ongoing. ONE Gas argued that the Department has never
presented analysis that justifies linkages between market failure and
random purchase behavior and no evidence is provided in the Preliminary
Analysis TSD document that the Department has included additional
consideration of NASEM peer review recommendation that calls on the
Department to improve its coverage of market failure in relation to the
setting of appliance minimum efficiency standards. ONE Gas proposed to
the Department that it use alternative means of defining consumer base
case efficiencies based upon one of two of the following base case
definition strategies for consumer simulations: correlated consumer
attributes approach or rational consumer economic choice approach. (ONE
Gas, No. 1200 at pp. 11-12) NPGA, APGA, AGA, and Rinnai noted that
DOE's response to comments on its failing to address consumer choice
and to account for consumers making choices based on rational economic
terms in the July 2023 NOPR is arbitrary, capricious, and without
foundation. NPGA, APGA, AGA, and Rinnai commented that instead of
referencing actual interviews or studies, DOE pivoted to a ``cherry-
picked'' library of behavioral economics papers that have no bearing or
relevance to water heaters or the proposed rule. (NPGA, APGA, AGA, and
Rinnai, No. 441 at p. 4) AHRI recommended that DOE provide a theory of
market performance tailored to the specific situation for each and
every rulemaking. AHRI commented that DOE should build an analytical
approach that reflects some degree of market efficiency, rather than
assuming complete market efficiency. AHRI acknowledges that this may
necessitate a rethinking of the Monte Carlo method and the assignment
of base and standard case efficiencies. (AHRI, No. 1167 at p. 17) AHRI
highlighted that AHRI demonstrated there are ways to use the current
Monte Carlo approach to generate results and then use alternative
ranking systems to assign base and standards case efficiencies. (AHRI,
No. 1167 at p. 18) AHRI commented that DOE misunderstands the role of
plumbing contractors in the decision process and DOE implies that the
influence of plumbing contractors on water heater type purchased in the
replacement scenario is a form of market failure. AHRI claimed this is
incorrect as contractors serve as the information mediators to overcome
one of the key sources of possible market failure identified by DOE--
the absence of knowledge from consumers who rarely purchase water
heaters. (AHRI, No. 1167 at p. 18) AHRI posed the following questions
for DOE related to market failure: ``Why has DOE not adopted the
National Academies of Sciences (NAS) peer review recommendations and
when will it do so? On what basis has DOE determined that there are
significant market failures for residential water heaters, how
prevalent are these failures and do standards address them? How will
DOE modify its random assignment approach to be more responsive to
actual market conditions? '' (AHRI, No. 1167 at p. 18) Gas Association
Commenters argued the tab ``No-New Standards Case UEF'' of the analysis
tool incorrectly states an equation (relative to the coded version) for
how square footage of residences impacts likelihood of efficiency of
products. (Gas Association Commenters, No. 1181 at p. 35) Gas
Association Commenters argued that adjustment factors used based on
square footage do not make sense for this analysis and instead size of
household should be used. (Gas Association Commenters, No. 1181 at p.
35) Gas Association Commenters argued that estimated fractions of
shipments by market shares do not exactly match the stated
distributions (see specifics in comment). (Gas Association Commenters,
No. 1181 at p. 35) ONE Gas commented that, unlike many other products
covered by EPCA, consumers rarely have opportunity to consider other
water heating options when hot water is unavailable in a residence, a
premium exists to restore service, especially since water heater
failure is rarely anticipated by an average consumer; when time or
other circumstances allow, the consumer is likely to make a rational
consumer choice based, first and foremost, on minimizing installed
cost;
[[Page 37866]]
life cycle cost considerations and other factors play a role in
decision making, provided comparative installed costs are available to
the consumer. (ONE Gas, No. 1200 at p. 5)
In response, DOE notes that even for consumers who are motivated
and informed, the choice of product efficiency that perfectly minimizes
life-cycle cost is highly nuanced and requires access to many sources
of information. To make a decision that maximizes benefits for any
given consumer, that consumer would need to consider information
including utility bills for at least a year (and have the ability to
disaggregate the portion of the utility bill specific to the water
heater), the expected lifetime of the product, knowledge of equipment
and installation costs up front, knowledge of each potential product's
efficiency and performance in the field, future repair and maintenance
costs, the value of future operating savings and costs in the present
year, etc. This is a time-consuming and nontrivial calculation for even
the most motivated consumer and requires significant data collection to
make even a decent approximation. While there is some information
easily available to the consumer prior to making a purchase (e.g.,
labels, technical specifications, price estimates, etc.), this
information typically assumes an average household. Therefore, for a
consumer wishing to make an informed decision that results in
minimization of life-cycle costs in the no-new-standards case based on
such a label, it would require knowing how their own situation differs
from an average national household (e.g., hot water usage, energy
price, ambient indoor air temperature, inlet water temperature, etc.).
This evaluation is very complex. These challenges are part of the
reason why consumer perception of energy consumption of appliances is
varied and the extent to which consumers choose product efficiency
based on this perceived energy consumption is mixed, as discussed in
some of the literature cited above. There is empirical evidence that,
on average, consumers' perceived energy consumption of household
appliances and equipment does not match the actual energy consumption.
Acknowledging this consumer behavior, PHCC commented that in the
case of replacement due to a failed water heater, many consumers will
prioritize a water heater that is readily available within their price
range and will not consider energy efficiency in their decision. They
further comment that most consumers never even look at the energy
label, they just want hot water at the lowest cost. (PHCC, No. 1151 at
p. 6)
As stated above, the use of a random assignment of water heater
efficiency in the no-new-standards case of LCC model is a
methodological approach that reflects the full range of consumer
behaviors in this market, including consumers who make informed and
economically beneficial decisions and other consumers who, due to the
market failures discussed, do not or cannot make such perfectly
economically beneficial decisions. The methodology is further
constrained by shipments data by efficiency level; it must produce an
overall distribution that matches the available data. In the simplest
case, where baseline market shares are split between one lower
efficiency level and one higher efficiency level, DOE's methodology
results in the following groups of consumers:
(1) Consumers who, in the absence of standards, choose a lower
efficiency product with a lower life-cycle cost based on their
surveyed hot water usage. These consumers are making an optimal
choice from the perspective of cost savings in the model in the no-
new-standards case. With amended standards, they are made to
purchase a more efficient product and therefore experience a net
cost in the standards case. The efficiency assignment model is
already assigning minimal-cost choices to this fraction of consumers
in the no-new-standards case.
(2) Consumers who, in the absence of standards, choose a higher
efficiency product that also lowers their life-cycle cost compared
to the baseline efficiency product. These consumers are making a
cost-minimizing choice in the model in the no-new-standards case.
With amended standards, these consumers are not impacted because
they are already purchasing a standards-compliant product. The
efficiency assignment model is already assigning minimal-cost
choices to this fraction of consumers in the no-new-standards case.
(3) Consumers who, in the absence of standards, choose a lower
efficiency product that does not minimize their life-cycle cost. The
market failures discussed above apply to these consumers, preventing
them from making the choice that minimizes their costs in the no-
new-standards case. With amended standards, they are made to
purchase a more efficient product that ultimately results in a lower
life-cycle cost. These consumers experience a net benefit as a
result of the standard.
(4) Consumers who, in the absence of standards, choose a higher
efficiency product that does not lower their life-cycle cost
compared to the baseline or lower efficiency product. Although these
consumers are choosing a higher efficiency product in the no-new-
standards case, they may have incomplete knowledge of the energy
consumption of the equipment or may value environmental features
such as efficiency more heavily, resulting in a choice of a higher
efficiency product that does not lower life-cycle cost compared to a
baseline or lower efficiency product. With amended standards, these
consumers are not impacted because they are already purchasing a
standards-compliant product.
DOE's methodological approach is a proxy that ultimately reflects a
diversity of scenarios for consumers and therefore the range of
outcomes that will result from this diversity. The approach already
reflects market share outcomes consistent with some degree of market
efficiency and optimal decision-making among some consumers, but the
approach also acknowledges a number of factors that hinder perfect
decision-making for others. Furthermore, the model produces an overall
distribution of efficiency that matches the available shipments data.
Although DOE's random assignment methodology does not explicitly
model consumer decision making, nor does it take a stance on the
rationality or irrationality of specific consumers, DOE believes that
the approach would be consistent with a model in which some share of
consumers make economically optimal decisions, and some consumers--in
the face of market failures--do not. The use of a random assignment of
water heater efficiency is a methodological approach that reflects the
full range of consumer behaviors in this market, including consumers
who make economically beneficial decisions and consumers who, due to
market failures, do not or cannot make such economically beneficial
decisions, both of which occur in reality. Within those constraints,
DOE then assigns product efficiencies to consumers in the LCC,
consistent with the economics literature discussed above, to reflect
neither purely rational nor purely irrational decision-making.
DOE's analytical approach reflects some degree of market
efficiency. An alternative approach which assumes consumer behavior is
based solely on cost outcomes, for example by ranking LCCs and using
those to assign efficiencies as suggested by the commenters, is not
evidenced by the scientific literature surveyed above or by any data
submitted in the course of this rulemaking. Such an approach would
depend on the assumption, for example, that homeowners know--as a
rule--the efficiency of their homes' water heater and water heating
energy use, such that they always make water heating investments
accordingly. Similarly, such an approach would assume that, faced with
a water heater failure, homeowners will always select as a replacement
the most economically beneficial available model. Given the work
documenting market failures in
[[Page 37867]]
energy efficiency contexts described above, DOE believes that such
assumptions would bias the outcome of the analysis to the least
favorable results. DOE's approach, by contrast, recognizes that
assumptions like these hold for some consumers some of the time--but
not all consumers and not at all times.
As part of the random assignment, some households or buildings with
large water heating loads will be assigned higher-efficiency water
heaters in the no-new-standards case, and some households or buildings
with particularly low water heating loads will be assigned baseline
water heaters--i.e., the lowest cost investments.
DOE ran a sensitivity to look at the base-case shipment
distribution in 2030 that would be expected if every consumer made
their purchasing decision based on minimizing their life-cycle costs to
understand how this compares to actual consumer purchases based on the
data on shipments by efficiency. If every consumer in the LCC sample
chose a product that minimized their total life-cycle cost (i.e.,
perfectly rational, cost-minimizing consumers), the resulting
distribution of products by efficiency would deviate significantly from
the actual efficiency distribution, as determined from market share
data and shipments data by efficiency. For example, for medium ESWHs,
the baseline efficiency (EL 0, representing an electric resistance
water heater) results in a minimum life-cycle cost for only 36 percent
of all consumers in the LCC analysis, while higher efficiency heat pump
water heaters (ELs 1, 2, and 3) result in a minimum life-cycle cost for
the remaining 64 percent of consumers. Therefore, in a scenario in
which all consumers made cost-minimizing choices, one would expect the
efficiency distribution of new shipments in 2030, without any amended
standards, to be 36 percent electric resistance medium ESWHs and 64
percent heat pump medium ESWHs (at various efficiencies). However, the
projected efficiency distribution in 2030, based on existing market
share and actual shipments data (and even accounting for the recent
growth trend of heat pump water heaters), is that only 12 percent of
the market will be heat pump water heaters despite the fact that these
water heaters would result in lower total life-cycle costs for 64
percent of consumers, i.e., at least half of consumers will be
selecting a water heater that does not minimize their costs. This
significant discrepancy suggests the presence of the market failures
discussed previously in the medium ESWH market, which prevents a
significant portion of consumers from making purchasing decisions that
would minimize their life-cycle costs.
Regarding the role of contractors, DOE notes that they can exert a
high degree of influence over the type of water heater purchased. DOE
acknowledges that they can serve as an information mediator. However,
it is possible for a contractor to also influence the decision toward a
familiar like-for-like replacement, for example, or perhaps the
quickest replacement option available (e.g., based on equipment
availability). An individual contractor may not be familiar with every
product option available on the market. Ultimately, there are multiple
actors involved in the decision-making process which results in complex
purchasing behavior.
As DOE has noted, there is a complex set of behavioral factors,
with sometimes opposing effects, affecting the water heater market. It
is impractical to model every consumer decision incorporating all of
these effects at this extreme level of granularity given the limited
available data. Given these myriad factors, DOE estimates the resulting
distribution of such a model would be very scattered with high
variability. It is for this reason DOE utilizes a random distribution
(after accounting for market share constraints) to approximate these
effects. This is the standard methodological approach used on all of
DOE's prior rules. The methodology is not an assertion of economic
irrationality, but instead, it is a methodological approximation of
complex consumer behavior. The analysis is neither necessarily biased
toward high or low energy savings. The methodology does not
preferentially assign lower-efficiency water heaters to households in
the no-new-standards case where savings from the rule would be
greatest, nor does it preferentially assign lower-efficiency water
heaters to households in the no-new-standards case where savings from
the rule would be smallest. However, it is worth noting that energy use
could be improperly estimated if preferences for energy efficiency are
correlated with demand for hot water. Some consumers were assigned the
water heaters that they would have chosen if they had engaged in the
kind of perfect economic thinking upon which the commenters have
focused. Others were assigned less-efficient water heaters even where a
more-efficient water heater would eventually result in life-cycle
savings, simulating scenarios where, for example, various market
failures prevent consumers from realizing those savings. Still others
were assigned water heaters that were more efficient than one would
expect simply from life-cycle costs analysis, reflecting, say,
``green'' behavior, whereby consumers ascribe independent value to
minimizing harm to the environment.
DOE cites the available economic literature of which it is aware on
this subject, supporting the existence of the various market failures
in other appliance markets which would give rise to such a
distribution, and has requested more data or studies on this topic in
the May 2020 RFI, March 2022 preliminary analysis, and July 2023 NOPR.
DOE is not aware of any specific study regarding how consumer water
heaters (and their efficiency) are purchased.
In summary, DOE's efficiency assignment methodology produces
overall results that are consistent with the observed distribution of
efficiency across products as seen in the shipments data. The
methodology also results in a share of consumers being assigned product
efficiencies that minimize their lifetime costs in the absence of
standards. This represents consumers making informed decisions
regarding the efficiency of their products, without amended standards.
These consumers will be negatively impacted by the adopted standard
levels and the analysis accounts for these impacts. However, the
methodology also acknowledges that some consumers are unable to
minimize the life-cycle costs of their products for a variety of
reasons discussed in the economics literature (e.g., renters with no
say in the products purchased for their household). Even for motivated
and informed consumers, the information and data required to ultimately
make the best product choice that minimizes life-cycle cost is complex
and time-consuming. As a result, there are a subset of consumers for
whom adopting more stringent standard levels will result in life-cycle
savings. In contrast to some commenters' characterization, DOE's
methodology already reflects some degree of market efficiency in terms
of consumer choice of product efficiency, but it also reflects a
variety of observed effects that inhibit perfect market efficiency.
This is representative of the water heater market. On the whole, when
accounting for both consumers negatively impacted by, as well as those
benefiting from, amended standards, DOE's analysis demonstrates that
there are economically justified savings.
Finally, DOE notes that the recommendations of the NAS report,
which pertain to the processes by which DOE analyzes energy
conservation
[[Page 37868]]
standards, will be addressed as part of a separate notice-and-comment
process.
9. Payback Period Analysis
The payback period 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. Payback periods 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 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.
Armada noted that the EPCA creates a rebuttable presumption that an
energy conservation standard is economically justified if the
additional cost is less than three times the value of the first year's
energy savings, but the initial costs to switch from an electric
resistance storage water heater to one with heat pump technology is
greater than a three-year payback period, and that assumes the
consumer's home can accommodate a heat pump water heater. (Armada, No.
1193 at pp. 5-6) In response, DOE notes that the rebuttable presumption
provision is not a requirement that the average PBP of a standard must
be less than three years. Rather, it establishes a presumption that a
standard meeting that criteria is economically justified, which is then
evaluated further using the other criteria used to evaluate economic
justification. Whether the presumption is or is not met, a
determination of economic justification must be based on the criteria
specified by EPCA, as is the case for this final rule.
10. Accounting for Product Switching
For the preliminary analysis, DOE did not account for the product
switching under potential standards. For the July 2023 NOPR and this
final rule, DOE maintained the same approach and did not include any
product switching in its analysis, other than consumers potentially
downsizing their electric storage water heater to a small electric
water heater, as discussed in more detail in section IV.G.1 of this
document. DOE assumes that any product switching as a result of the
proposed standards is likely to be minimal.
As discussed in the specific examples below, the costs to switch to
another product class are higher than simply purchasing a standards-
compliant product in the same product class. When faced with the need
to replace a water heater, a consumer can either install a standards-
compliant product of the same product class as they originally had, or
spend even more to switch to an alternative product class. Because of
this higher cost to switch, DOE concludes it is extremely unlikely that
consumers would choose to spend more to switch product classes
specifically in response to amended standards. In the absence of
amended standards, some consumers choose to switch for reasons other
than simply cost, and that is reflected in historical market trends
that are incorporated into the analysis. However, for the purposes of
the analysis, the issue is whether more consumers would switch due to
the higher incremental costs of standards-compliant products. DOE
concludes that this is very unlikely and therefore market trends will
be unaffected.
In the hypothetical case of a consumer switching from a gas-fired
storage water heater to an electric water heater (storage or
instantaneous), there are likely additional installation costs
necessary to add an electrical connection since both of these types of
electric water heaters require high wattage. These are costs above and
beyond the normal installation costs included in the LCC analysis. In
some cases, it may be possible to install a 120-volt heat pump storage
water heater with minimal additional installation costs, particularly
if there is a standard electrical outlet nearby already. In most cases,
however, a standard 240-volt electrical storage water heater would be
installed. To do so, the consumer would need to add a 240-volt circuit
to either an existing electrical panel or upgrade the entire panel if
there is insufficient room for the additional amperage. The
installation of a new 240-volt circuit by a qualified electrician will
be at least several hundred dollars. Panel upgrade costs are
significant and can be approximately $750--$2,000 to upgrade to a 200-
amp electrical panel.\125\ Older homes and homes with gas-fired space
heating (e.g., homes with gas furnaces) are more likely to need an
electrical panel upgrade in order to install an electric storage water
heater, given the relatively modest electrical needs of the home at the
time of construction. Given the significant additional installation
costs for nearly all homes potentially switching to an electric water
heater, DOE estimates that very few consumers would switch from gas-
fired storage water heaters to electric water heaters as a result of an
energy conservation standard, especially at the proposed standard at
TSL 2. At TSL 2, the average total installed cost of an electric
storage water heater is $1,855 compared to the average total installed
cost of $1,578 for a gas-fired storage water heater (see section V.B.1
of this document). Further, these costs do not include the electrical
upgrade costs necessary when switching from a gas-fired to an electric
water heater. When including those costs, the average total installed
cost to switch to an electric water heater is significantly higher than
the standards-compliant gas-fired storage water heater (electric
instantaneous water heaters were not analyzed in this rule, however the
electrical panel upgrade cost alone is nearly as much as a standards-
compliant gas-fired storage water heater). Switching from a gas-fired
to an electrical water heater is especially unlikely in the case of an
emergency replacement where time is a critical factor. When a water
heater fails, consumers typically have limited time to make a decision
on which new water heater the consumer is going to choose to purchase
and rely upon replacing the water heater with one that is similar to
the one that failed. Consumers are unlikely to invest in switching
fuels to a water heater that utilizes a different fuel source in the
emergency replacement scenario.
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\125\ For example, see: www.homeadvisor.com/cost/electrical/upgrade-an-electrical-panel/#upgrade (last accessed Dec. 1, 2023).
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In the hypothetical case of a consumer switching from an electric
storage water heater to a gas-fired water heater, there are, similarly,
additional installation costs necessary to add a gas connection. Based
on RECS 2020, DOE estimates that only 25 percent of homes with an
electric storage water heater currently
[[Page 37869]]
use natural gas and an additional 25 percent reported that natural gas
is available in the neighborhood. Therefore, the option to switch to a
gas-fired water heater is not available to half of consumers and for
another 25 percent, it would require bringing in a natural gas
connection from the street level to the home. Additionally, switching
to a gas-fired water heater would require the installation of new gas
plumbing in the home, even if the home currently uses natural gas,
which would add several hundreds of dollars to the installation
costs.\126\ An additional 10 percent of homes use LPG, but the fuel
costs are much more expensive than natural gas and requires significant
gas line connection upgrades to connect the LPG tank to the water
heater. Even in homes with an existing gas connection, new venting
would need to be installed for either gas-fired storage water heaters
or gas-fired instantaneous water heaters. Installing new venting
represents a significant additional cost when switching from an
electric water heater to a gas fired heater. The LCC averages presented
in V.B.1 of this document for the gas-fired water heaters include some
situations where vent replacement is not necessary, and none of the
replacement situations require adding gas lines, therefore typical
installation costs for switching from an electric water heater to a
gas-fired water heater would be higher than the averages presented in
section V.B.1 of this document. Therefore, the total installed costs
for either gas-fired option, including all the necessary venting and
additional gas lines in the home, are larger than replacing the
electrical storage water heater with a standards-compliant model (at
the proposed level). As a result, DOE estimates that very few consumers
would switch from electric storage water heaters to gas-fired water
heaters as a result of an energy conservation standard, particularly in
the case of an emergency replacement.
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\126\ For example, see: www.homeadvisor.com/cost/plumbing/install-or-repair-gas-pipes/ (last accessed March 8, 2024).
---------------------------------------------------------------------------
Even if some consumers of medium ESWHs elected to switch to a non-
electric water heater (e.g., a GSWH), despite the additional costs of
doing so and instead of simply purchasing a standards-compliant medium
ESWH, the rule would still save a significant amount of energy. These
consumers would still need to purchase a standards-compliant GSWH. Such
switching from medium ESWHs to GSWHs or GIWHs would result in a slight
increase in FFC energy consumption for these consumers, however that is
more than made up for by the rest of the savings from medium ESWH
consumers, even after accounting for consumers switching to small
ESWHs. The energy savings for the rest of the medium ESWHs are at least
an order of magnitude larger than any incremental increase in energy
consumption from a small subset of consumers who might switch to GSWHs
or GIWHs. Under the assumption that all such consumers who switch to
gas-fired water heaters face an increase in cost, the total percentage
of existing medium ESWH consumers experiencing a net cost as a result
of the rule would therefore increase by a proportional amount. For
example, even if 10 percent of medium ESWH consumers elected to switch
to gas-fired water heaters despite the costs, the percentage of
consumers experiencing a net cost would increase by at most 10 percent
and the average LCC savings for medium ESWH consumers would still be
positive, which would not change DOE's conclusion that the standards
adopted are economically justified.
Lastly, in the hypothetical case of a consumer switching from a
GSWH to a GIWH, there are additional installation costs necessary as
well. The vast majority of GSWHs utilize non-condensing technology that
utilizes Category I type B metal vent material, whereas switching to
GIWHs would require Category III or Category IV venting material.
Regarding non-condensing GIWHs, A.O. Smith noted that these utilize
Category III venting (A.O. Smith, No. 1182 at p. 15). Condensing GIWHs
require Category IV venting. Switching from a GSWH to a GIWH would
therefore require replacing the venting in either case. Replacing the
venting system would result in significant installation costs.
Additionally, given the significantly higher Btu/h input required for
instantaneous water heaters, it may be necessary to upgrade the gas
line feeding the water heater to a larger diameter when switching from
GSWH to GIWH. This is especially true if the line also services a gas
furnace. Upgrading a gas line could add several hundred dollars in
extra costs or more. As a result of all the cost considerations above,
DOE estimates that very few consumers would switch from GSWHs to GIWHs
specifically as a result of the incremental costs of the amended energy
conservation standard for GSWH, particularly in the case of an
emergency replacement.
Ravnitzky expressed concern that the proposed standards favor heat
pump water heaters over gas-fired or electric resistance water heaters.
Ravnitzky claimed that the proposed standards would result in non-heat
pump water heaters becoming more expensive and less competitive in the
market and may force some consumers to switch to heat pump water
heaters.\127\ (Ravnitzky, No. 73 at p. 1)
---------------------------------------------------------------------------
\127\ Ravnitsky incorrectly asserted that the proposed standards
would require a minimum UEF of 0.96 for gas-fired water heaters,
0.95 for electric resistance water heaters, and 0.85 for heat pump
water heaters.
---------------------------------------------------------------------------
In response, given the upfront cost differential for heat pump
electric storage water heaters and gas-fired water storage heaters, DOE
does not expect that the adopted standards would induce consumers to
switch to heat pump water heaters. In addition, DOE notes that gas-
fired storage water heaters are not being eliminated as a result of the
standards being established in this final rule.
According to NPGA, APGA, AGA, and Rinnai, DOE made an assumption
about product switching, then reinforced its assumption without
analysis, ignoring the possibility that consumers may want to switch
product classes based on the proposed rule, but product classes may not
be available for such switching, and based on this assumption, DOE
conveniently omitted any installation costs in its LCC and PBP
analysis, showing its market analysis is inherently flawed and must be
reevaluated. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 4-5) DOE notes
that its assessment is based on the comparison of total installed costs
needed to switch from product class to product class. In response, DOE
determined that there would be minimal switching due to the additional
installation cost for a variety of possible scenarios, as discussed
above. Specifically in the case of switching from a GSWH to a GIWH,
these costs include upgrading gas lines and replacing the venting.
Like-for-like replacement for the water heater product classes
considered in this rulemaking, as DOE determined and summarized in the
installation cost analysis, is the most cost efficient. DOE does not
reject the idea that consumers may choose a different product class in
response to the no new standards case for reasons other than just total
costs. Indeed, the shipments projection accounts for recent market
trends that show growing consumer demand for GIWHs compared to GSWHs.
NMHC and NAA stated that DOE's assumption of minimal product
switching as a result of the proposed standard fails to account for
forced product switching driven by typical
[[Page 37870]]
space limitations in existing multifamily dwellings where frequently
the water heater shares a small closet with stacked laundry facilities
and owners will be forced to switch to instantaneous water heaters with
additional installation costs associated with venting, larger-sized gas
supply piping, or electrical panel upsizing. (NMHC and NAA, No. 996 at
p. 5) In response, DOE notes that existing market trends are
incorporated into the shipments analysis and projection. To the extent
that some product classes are becoming more prevalent in certain types
of buildings, that is reflected in the no-new-standards case shipments
projection. The most commonly used electric water heater for the
scenario described by NMHC and NAA would be a low-boy electric storage
water heater, likely to be in the small ESWH product class. This rule
does not amend standards for small ESWHs and therefore the consumers of
this product class will not be impacted. As DOE has discussed above,
the costs to switch product classes in response to amended standards
are larger than simply purchasing standards-compliant products within
the same product classes. Therefore DOE estimates that no additional
switching will occur beyond existing market trends.
NRECA stated that a large percentage of co-op consumers have no
access to natural gas service and have no affordable alternative option
for a product that performs equivalent to electric resistance water
heating, and therefore eliminating electric resistance water heating as
an option in the market would pose a serious problem for many of the
consumer-members served by cooperatives. They commented that these
consumers that could not afford heat pump water heaters or their
housing stock does not allow for their installation may be forced to
choose electric tankless (or instantaneous) water heaters, which units
may provide good comfort to consumers but have negative impacts to
utilities by potentially creating spikes in demand of 20 kW
instantaneously. NRECA commented that adding to a cooperative's peak
demand can significantly raise their costs and add to the electric
rates of all their consumer-members who must bear the cost. NRECA
stated that at least one cooperative told them that most new housing
stock in their territory is being equipped with electric tankless units
and that it is not clear that DOE's analysis accounts for switching
from electric storage to instantaneous electric. (NRECA, No. 1127 at p.
9) In response, DOE reiterates that a significant cost adder has been
applied to the fraction of electric storage consumers that have
challenging installation cases. For these consumers, DOE considered
several downsizing options with significantly lower installation costs,
including switching to a small electric storage water heater, and took
that impact into account in its shipment analysis (see section IV.G.1.a
of this document). In regards to the grid impact, this is discussed
more in section III.A.3 of this document. Finally, DOE notes that
although it did not analyze electric instantaneous water heaters, they
represent a very small market share at present. DOE did include,
however, an option to pair a small electric storage water heater with a
``booster'' instantaneous water heater as one of the switching options
for medium electric storage water heaters (see section IV.G.1.a of this
document).
Atmos Energy argued that because the cost to fuel switch is high,
DOE fails to ``acknowledge the equally prohibitive costs that will be
associated with high efficiency gas appliances as a result of this
proposal and the lack of gas-fired replacements in the market.'' (Atmos
Energy, No. 1183 at p. 6). Rinnai argued that DOE has failed to take
into account substitution effects in replacement markets. Rinnai stated
that the following are lacking from the analysis: replacement of water
heaters with same category of consumer water heaters that meet a
particular standard level; replacement with water heaters using
different fuel or different product category (e.g., GSWH to GIWH; GSWH
to ESWH; ESWH to GSWH, etc.); and repair of existing product; thereby
delaying the replacement. (Rinnai, No. 1186 at pp. 30-31) The Gas
Association Commenters commented that the proposals in the July 2023
NOPR would create an enhanced market for heat pumps, diminishing
competition between gas and electric water heaters. (Gas Association
Commenters, No. 1181 at pp. 32-39) A.O. Smith stated that storage and
tankless water heaters use incompatible venting systems (GSWH use Cat I
while non-condensing tankless water heaters use Cat III). (A.O. Smith,
No. 1182 at p. 15) As discussed above, DOE estimates that switching
between gas-fired and electric water heaters as a result of the rule is
likely to be negligible, as is switching from gas-fired storage to
instantaneous water heaters, due to the high installation costs of such
switching, (costs that are acknowledged to be high by Atmos Energy in
their comment). DOE finds no evidence that there would be a lack of
gas-fired water heater models available in the standards case for
replacements. Many such models are currently available by multiple
manufacturers. DOE acknowledges that in the standards case, many
electric water heaters would transition to heat pump water heaters.
However, since DOE estimates negligible switching between electric and
gas-fired water heaters, there is no reason to expect this would alter
the competition between electric and gas-fired water heater markets.
Furthermore, many manufacturers produce both electric and gas-fired
water heaters. Lastly, DOE agrees that gas-fired storage and
instantaneous water heaters use incompatible venting systems and
therefore switching from storage to instantaneous would require
significant extra installation costs. See chapter 8 and appendix 8D of
the final rule TSD for detailed description of the installation costs.
Noritz commented that the ability to replace a water heater in an
emergency is an important attribute of value to consumers, and changes
in installation patterns raise costs and impose other time-related
constraints such as changing venting patterns, carpentry to make
changes to the house, and possible electrical work to complete
installation. (Noritz, No. 1202 at pp. 1-2) PHCC commented that in the
case of replacement due to a failed water heater, many consumers will
prioritize a water heater that is readily available within their price
range and will not consider energy efficiency in their decision.
According to PHCC, energy efficiency increases costs and decreases
demand which leads to a longer wait time for installation and makes a
more energy efficient water heater an unattractive option in a time
when households simply care about having hot water and a working water
heater as soon as possible. (PHCC, No. 1151 at p. 6) DOE agrees that in
emergency replacement, like-for-like equipment provides the most
convenience to the consumer. However, DOE estimates that the
installation of condensing equipment, including the flue venting, the
condensate pump, and neutralizer can be accomplished as part of an
emergency replacement, meaning that for emergency replacements, non-
condensing equipment do not bring significant additional value.
11. Analytical Results
AHRI commented that DOE does not provide a measure of uncertainty
in LCC results. AHRI commented that each independent variable in LCC
analysis has uncertainty, and DOE does not document how confident DOE
should be in its estimates. AHRI asked DOE the
[[Page 37871]]
following questions related to model uncertainty: What is the estimated
standard deviation around the mean change in LCC at each EL and for
each product class? (AHRI, No. 1167 at p. 23) AHRI commented that DOE
does not take account of the fact that operating costs, including
energy, are deductible as business expenses for Federal and some state
income taxes for commercial customers in its LCC analysis and asks for
DOE's justification for not taking it into account. AHRI recommended
that DOE considers the effects of this tax deductibility in computing
the change in life cycle cost. AHRI claimed that failing to account for
this is inconsistent with other aspects of DOE's analyses. (AHRI, No.
1167 at p. 16)
In response, DOE clarifies that it uses probability distributions
for a number of input variables that are reasonably expected to exhibit
natural variation and diversity in practice (e.g., lifetime, repair
cost, installation costs). These probability distributions are modeling
diversity. In contrast, DOE addresses input uncertainty primarily with
the use of sensitivity scenarios. To determine whether the conclusions
of the analysis are robust, DOE performed several sensitivity scenarios
with more extreme versions of these input variables (e.g., high/low
economic growth and energy price scenarios, alternative price trend
scenarios, alternative mean lifetime scenarios). The relative
comparison of potential standard levels in the analysis remains the
same throughout these sensitivity scenarios, confirming that the
conclusion of economic justification is robust despite some input
uncertainty. Furthermore, DOE provides a range of statistics in the LCC
spreadsheet, including median values and values at various percentiles
for many intermediate variables, as well as the full data output table
for all 10,000 samples. For example, the 25th and 75th percentiles of
average LCC savings for all ELs for all product classes are available
in the LCC spreadsheet. DOE also provides a distribution of impacts,
including consumers with a net benefit, net cost, and not impacted by
the rule in the LCC spreadsheet and in chapter 8 of the final rule TSD.
DOE develops probabilities for as many inputs to the LCC analysis
as possible, to reflect the distribution of impacts as comprehensively
as possible. For example, DOE develops probabilities for building
sampling, installation costs, lifetime, discount rate, and efficiency
distribution, among other inputs. If there are insufficient data with
respect to a specific input parameter to create a robust probability
distribution, DOE will utilize a single input parameter. Such approach
is neither arbitrary nor capricious; it is informed by the available
data.
The installation cost estimates are the result of a significant
research and cite multiple sources, as discussed at length in section
IV.F.2 and appendix 8D of the final rule TSD. DOE has incorporated
feedback from various stakeholders and revised those costs for this
final rule.
Regarding deductible business expenses, DOE notes that equipment
purchases would also be deductible, and that increased equipment
expenses and lower operating expenses would have opposing effects on
total deductions. Even if overall deductions were to decrease as a
result of the rule, those savings could be easily invested in other
parts of the business in order to have no net impact on a business' tax
burden. Furthermore, DOE notes that the estimation of commercial
discount rates accounts for the tax deductibility of the energy costs
and capital investment depreciation and therefore the net present value
of the future operating cost savings in the LCC analysis should already
reflect that effect.
DOE provides stakeholders with the opportunity to provide accurate
data to represent a breadth of operating conditions, prices, and use
cases. In the absence of stakeholder provided information, DOE makes a
good-faith effort to collect reliable data from various sources and
summarize assumptions on the missing parameters. The Monte Carlo
simulation and its large number of samples (10,000 for each product
class) ensures that the results converge to a representative average.
For some inputs whose uncertainty is not well characterized, such as
future equipment prices or economic growth conditions, DOE performed a
series of sensitivity analyses to ensure that the results of the
analysis are not strongly dependent on those inputs and that the
conclusions of the analysis remain the same. As a result, DOE's
conclusion of economic justification is robust to a broad range of
sensitivity scenarios which capture the uncertainty inherent in
economic projections.
DOE acknowledges that in the LCC, there may be a handful of
outcomes with large benefits or costs. Large outlier LCC savings, both
positive and negative, may affect the average of LCC savings across the
whole sample of impacted consumers. In particular, for medium ESWHs,
there are some outcomes with LCC savings that are over 10 times the
average across the whole sample. Therefore, for medium ESWHs, DOE
considered an additional sensitivity analysis that eliminated these
outcomes with large benefits. Specifically, DOE removed outcomes with
positive LCC savings that exceed the absolute magnitude of the largest
LCC costs, so that the final distribution of outcomes is bounded by
similar extremes (positive and negative). This sensitivity removes 245
outcomes out of 8,801 impacted consumers. The resulting average LCC
savings in the sensitivity analysis are reduced to $581, compared to
$859 in the reference case. Although the average LCC savings are
reduced in this sensitivity analysis, they remain positive and there
continue to be significant energy and environmental savings. DOE
continues to conclude that the adopted standard level for medium ESWHs
is economically justified even in this sensitivity analysis that
eliminates large positive results.
DOE further notes that such cases in the LCC, represented with
outcomes resulting in large benefits or large costs, are likely to
occur in the real-world as a reflection of the variability in the
household characteristics across the United States. For example, a
household with high usage (e.g., 5 plus occupants with frequent
showering) located in an area with higher than average electricity
rates, with lower than average installation costs (e.g., there is
sufficient electrical, drainage, and space to accommodate the heat pump
water heater) will result in that household seeing net benefits greater
than the average population. Such a scenario is reflected in the model
as a high-benefits case. While DOE conducted the sensitivity to test
its conclusion that the standards adopted are economically justified
even with conservative assumptions, DOE also believes that such high
benefits or high costs cases reflect the realities of household
characteristics across the United States.
G. Shipments Analysis
DOE uses projections of annual product shipments to calculate the
national impacts of potential amended or new energy conservation
standards on energy use, NPV, and future manufacturer cash flows.\128\
The shipments model takes an accounting approach, tracking market
shares of each product class and the vintage of units in the stock.
Stock accounting uses product shipments as inputs to estimate the age
distribution of in-service product stocks for all years. The age
distribution of in-service product stocks
[[Page 37872]]
is a key input to calculations of both the NES and NPV, because
operating costs for any year depend on the age distribution of the
stock.
---------------------------------------------------------------------------
\128\ 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.
---------------------------------------------------------------------------
DOE developed shipment projections based on historical data and an
analysis of key market drivers for each product. DOE estimated consumer
water heater shipments by projecting shipments in three market
segments: (1) replacement of existing consumer water heaters; (2) new
housing; and (3) new owners in buildings that did not previously have a
consumer water heater or existing water heater owners that are adding
an additional consumer water heater.\129\
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\129\ The new owners primarily consist of households that add or
switch to a different water heater option during a major remodel.
Because DOE calculates new owners as the residual between its
shipments model compared to historical shipments, new owners also
include shipments that switch away from water heater product class
to another.
---------------------------------------------------------------------------
To project water heater replacement shipments, DOE developed
retirement functions from water heater lifetime estimates and applied
them to the existing products in the housing stock, which are tracked
by vintage. DOE calculated replacement shipments using historical
shipments and lifetime estimates. Annual historical shipments sources
are: (1) Appliance Magazine; \130\ (2) the Air-Conditioning, Heating,
and Refrigeration Institute (``AHRI'') website; \131\ (3) multiple AHRI
data submittals; \132\ (4) the BRG Building Solutions 2022 report; (5)
ENERGY STAR unit shipments data; \133\ (6) Oil Heating Magazine; \134\
and the 2010 Heating Products Final Rule. In addition, DOE adjusted
replacement shipments by taking into account demolitions, using the
estimated changes to the housing stock from AEO2023.
---------------------------------------------------------------------------
\130\ Appliance Magazine. Appliance Historical Statistical
Review: 1954-2012. 2014. UBM Canon.
\131\ Air-Conditioning, Heating, and Refrigeration Institute.
Water Heaters Historical Data. Available at: www.ahrinet.org/resources/statistics/historical-data/residential-storage-water-heaters-historical-data (last accessed Dec. 1, 2023).
\132\ AHRI. Confidential Instantaneous Gas-fired Water Heater
Shipments Data from 2004-2007 to LBNL. March 3, 2008; AHRI. Oil-
fired Storage Water Heater (30/32 gallons) Shipments Data provided
to DOE. 2008.
\133\ ENERGY STAR. Unit Shipments data 2010-2021. multiple
reports. Available at www.energystar.gov/partner_resources/products_partner_resources/brand_owner_resources/unit_shipment_data
(last accessed Dec. 1, 2023).
\134\ Oil Heating Magazine. Merchandising News: Monthly Data on
Water Heaters Installed by Dealers 1997-2007. 2007.
---------------------------------------------------------------------------
To project shipments to the new housing market, DOE used the
AEO2023 housing starts and commercial building floor space projections
to estimate future numbers of new homes and commercial building floor
space. DOE then used data from U.S. Census Characteristics of New
Housing,135 136 Home Innovation Research Labs Annual Builder
Practices Survey,\137\ RECS 2020, AHS 2021, and CBECS 2018 to estimate
new construction water heater saturations by consumer water heater
product class.\138\
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\135\ U.S. Census. Characteristics of New Housing from 1999-
2022. Available at www.census.gov/construction/chars/ (last accessed
Dec. 1, 2023).
\136\ U.S. Census. Characteristics of New Housing (Multi-Family
Units) from 1973-2022. Available at www.census.gov/construction/chars/mfu.html (last accessed Dec. 1, 2023).
\137\ Home Innovation Research Labs (independent subsidiary of
the National Association of Home Builders (``NAHB''). Annual Builder
Practices Survey (2015-2019). Available at www.homeinnovation.com/trends_and_reports/data/new_construction (last accessed Dec. 1,
2023).
\138\ Note that DOE does not project housing regionally. New
housing is therefore assumed to grow in the same regional
distribution as the current data would suggest.
---------------------------------------------------------------------------
DOE estimated shipments to the new owners' market based on residual
shipments from the calculated replacement and new construction
shipments compared to historical shipments in the last 5 years (2018-
2023 for this NOPR). DOE compared this with data from the Decision
Analysts' 2002 to 2022 American Home Comfort Study \139\ and 2022 BRG
data, which showed similar historical fractions of new owners. DOE
assumed that the new owner fraction in 2030 would be equal to the 10-
year average of the historical data (2013-2022) and then decrease to
zero by the end of the analysis period (2059). If the resulting
fraction of new owners is negative, DOE assumed that it was primarily
due to equipment switching or non-replacement and added this number to
replacements (thus reducing the replacements value).
---------------------------------------------------------------------------
\139\ Decision Analysts, 2002, 2004, 2006, 2008, 2010, 2013,
2016, 2019, and 2022 American Home Comfort Study. Available at
www.decisionanalyst.com/Syndicated/HomeComfort/ (last accessed Dec.
1, 2023).
---------------------------------------------------------------------------
For the preliminary analysis and NOPR, assumptions regarding future
policies encouraging electrification of households and electric water
heating were speculative at that time, so such policies were not
incorporated into the shipments projection.
DOE acknowledges, however, that ongoing electrification policies at
the Federal, State, and local levels are likely to encourage
installation of electric water heaters in new homes and adoption of
electric water heaters in homes that currently use gas-fired water
heaters. For example, the Inflation Reduction Act includes incentives
for heat pump water heaters and electrical panel upgrades. However,
there are many uncertainties about the timing and impact of these
policies that make it difficult to fully account for their likely
impact on gas and electric water heater market shares in the time frame
for this analysis (i.e., 2030 through 2059). Nonetheless, DOE's
shipments projections account for impacts that are most likely in the
relevant time frame. The assumptions are described in chapter 9 and
appendix 9A of the final rule TSD. The changes result in a decrease in
gas-fired storage water heater shipments in the no-new-standards case
in 2030 compared to the preliminary analysis. DOE acknowledges that
electrification policies may result in a larger decrease in shipments
of gas-fired water heaters than projected in this final rule,
especially if stronger policies are adopted in coming years. However,
this would occur in the no-new amended standards case and thus would
only reduce the energy savings estimated in this adopted rule. For
example, if incentives and rebates shifted 5 percent of shipments in
the no-new amended standards case from gas-fired storage water heaters
to heat pump electric storage water heaters, then the energy savings
estimated for gas-fired storage water heaters in this adopted rule
would decline by approximately 5 percent. The estimated consumer
impacts are likely to be similar, however, except that the percentage
of consumers with no impact at a given efficiency level would increase.
DOE notes that the economic justification for the adopted rule would
not change if DOE included the impact of incentives and rebates in the
no-new-standards case, even if the absolute magnitude of the savings
were to decline.
Gas Association Commenters advised that DOE should use State-level
data rather than national data with differentiation between new and
replacement market shares for each efficiency level in its analysis.
Gas Association Commenters included specifics that they believe support
this approach. (Gas Association Commenters, No. 1181 at pp. 35-37)
[[Page 37873]]
DOE has taken into account differences between new and replacement
market throughout its shipments analysis. DOE does not have detailed
State-level data and so did not consider it in its analysis.
GAAS commented that the shipment analysis should include historical
and projections of shipments for water heaters broken down by end use
applications and replacement versus new construction values. GAAS
stated this would show that high efficiency options are gaining in
market share without the need for more stringent energy efficiency
standards. GAAS also commented that the Inflation Reduction Act
(``IRA'') projections should be included in electric water heater sale
projections. (GAAS, No. 1139 at p. 7)
DOE's shipments analysis has considered historical and projected
shipments disaggregated by applications and by replacement vs. new
constructions markets using available data. Further details are
available in chapter 9 and appendix 9A of the final rule TSD. DOE has
accounted for recent trends in the adoption of high efficiency products
in its analysis, including the impacts of recent policies incentivizing
higher efficiency products in some jurisdictions.
BWC asked for further clarification on what measures were taken by
DOE to ensure that product shipments that may have been recorded in
several of the referenced sources in section IV.G of this document were
not accounted for multiple times, thus skewing the results of the data.
(BWC, No. 1164 at p. 22)
DOE carefully evaluated each data source and then cross-checked
against multiple available data sources. DOE validated its estimates to
avoid double-counting. Chapter 9 and appendix 9A provide a description
of how data sources were utilized in the shipments analysis. In
summary, some data sources provided an overview of the overall market
(e.g., BRG data) whereas other data sources focused on a narrower
subset (e.g., ENERGY STAR shipments) by efficiency level, capacity, or
other characteristic. All of these data sources complement each other.
BWC disagreed with DOE's estimate that heat pump water heaters
currently account for approximately 8 percent of current sales in the
United States. (BWC No. 1164 at p. 14) BWC disagreed with DOE's
assumption that small electric storage water heaters make up 11 percent
of the total market for electric storage water heaters with capacities
ranging from 20 to 55 gallons and expressed that the actual figure is
much higher. BWC commented that it is prepared to discuss the basis for
this belief in a confidential conversation with DOE. (BWC, No. 1164 at
p. 15)
DOE derived its estimates based on available data sources of
historical shipments and markets shares as discussed in further detail
in chapter 9 and appendix 9A. DOE clarifies that its estimate of small
electric storage water heaters are specifically for those that meet the
definition of the small electric storage water heater product class,
based on the distribution of capacities and first-hour ratings
available in the data sources and model databases. Some smaller
capacity storage water heaters may not meet the definition of small
electric storage water heaters. DOE also clarifies that its estimate of
market shares at various efficiency levels (including heat pump water
heaters), based on the data sources discussed in chapter 8 and appendix
8I, are presented for the first year of compliance (2030) and account
for any recent historical trends. By 2030, DOE estimates that the heat
pump water heater market share of the electric storage water heater
market will exceed 10 percent.
EEI commented that DOE projects electric storage water heater (20-
55 gallons except small electric storage water heaters) shipments
dropping by well over 30 percent in the first year and never recovering
compared to the ``no new standards'' case under the proposed rule, and
this type of demand destruction could lead manufacturers to invest in
and increase production of other less-efficient products. (EEI, No.
1198 at p. 4)
DOE acknowledges that some consumers may opt to change products,
from electric storage water heaters to small electric storage water
heaters, in response to the standard. This market dynamic is discussed
in more detail in section IV.G.1.a of this document. Although DOE
estimates that approximately 30 percent of electric storage water
heater shipments will shift to small electric storage water heaters in
the amended-standards case, this is not demand destruction as the
commenter as characterized. This is a shift in consumer demand to an
alternate product that is currently available. DOE acknowledges that
that this shift will result in lower energy savings than if no
consumers switched products, and this is accounted for in the analyses.
DOE further notes that at the adopted standard level, the minimum
efficiency requirement for small electric storage water heaters is
still achievable with electric resistance heating technology;
therefore, for this product class, manufacturers will continue to
produce similar water heaters to those that are produced today. While
there will be an increase in production for small electric water
heaters to meet this increased demand, there will also be an increase
in the production of efficient water heaters to meet the demand of the
rest of the electric storage water heater market.
1. Impact of Potential Standards on Shipments
a. Impact of Consumer Choice for Electric Storage Water Heaters
DOE applied a consumer choice model to estimate the impact on
electric storage water heaters shipments in the case of a heat pump
water heater standard. As noted previously (see section IV.F.10 of this
document), DOE did not include other product switching (e.g., using
different fuels) in its analysis as this is likely to be a minimal
effect. This is especially true in the case of an emergency
replacement.
DOE accounted for the potential of consumers selecting one or more
smaller electric storage water heaters with or without a ``booster''
instantaneous water heater instead of replacing a larger electric
storage water heater with a heat pump water heater.\140\ DOE analyzed
two main scenarios for a heat pump standard: (1) When electric storage
water heaters >=20 gal and <=55 gal, excluding small ESWHs, could
potentially downsize to the small electric storage water heater product
class, due to a heat pump standard to electric storage water heaters
>=20 gal and <=55 gal, excluding small ESWHs only; and (2) A heat pump
water heater standard for all ESWH product classes, where ESWHs could
potentially downsize to very small water heaters. DOE identified
households from the electric consumer water heater sample that might
downsize at each of the considered standard levels based on water
heater sizing criteria and matching to the different consumer choice
options that would result in no loss of utility. DOE assigned an
effective storage volume and draw pattern to sampled consumer water
heaters based on data from RECS 2020 and CBECS 2018. DOE selected the
households or buildings that would downsize based on the fact that the
consumer would have a financial incentive to downsize in the short term
(e.g., lower first cost), even though in some cases downsizing might
not be advantageous in the long run compared
[[Page 37874]]
to installing a heat pump water heater. Table IV.27 and Table IV.28
show the resulting estimated shipment market share impacted for each
scenario. Additional details of this analysis can be found in chapter 9
and appendix 8D of the TSD.
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\140\ See Rheem's booster instantaneous water heater, which can
increase the availability of hot water for storage tank water
heaters at www.rheem.com/innovations/innovation_residential/water-heater-booster/.
[GRAPHIC] [TIFF OMITTED] TR06MY24.042
[GRAPHIC] [TIFF OMITTED] TR06MY24.043
The shipments model considers the switching that might occur in
each year of the analysis period (2030-2059). To do so, DOE estimated
the switching in the first year of the analysis period (2030), using
data on willingness to pay, in the LCC analysis and derived trends from
2030 to 2059. The shipments model also tracks the number of additional
consumer water heaters shipped in each year. See appendix 9A of this
final rule TSD for further details regarding how DOE estimated
switching between various electric water heater options.
BWC commented that the findings presented in appendix 9A of the
July 2023 NOPR TSD do not align with its understanding of what has
occurred in the residential water heater market since the most recent
rulemaking on these products took effect in 2015. BWC also questioned
how DOE could have accounted for grid-enabled water heater shipments in
this appendix when the BRG report, referenced as the source for this
appendix's findings, does not account for shipments of these types of
products. For these reasons, BWC would welcome an opportunity to
discuss this matter further confidentially with DOE. (BWC, No. 1164 at
p. 22)
DOE derived its estimates based on multiple available data sources
and shipments model. The BRG report is only one data source. Other
sources include AHRI shipments data available online, shipments data
submitted confidentially to DOE, shipment estimates from ENERGY STAR,
EIA's Annual Electric Power Industry Report, and estimates from trade
magazines, as discussed in chapter 9. DOE used the combination of all
these data to estimate shipments of the smaller product classes, such
as electric storage water heaters greater than 55 gallons. DOE also
clarifies that it did not propose or adopt standards for grid-enabled
water heaters and therefore they were not specifically considered in
the analysis.
BWC recommended that DOE utilize information that is specific to
the residential water heater market in supporting its claims relative
to consumer preferences. In the absence of such information, BWC asked
that DOE take a proactive approach by working directly with
manufacturers, trade associations, consumer advocates, and other
knowledgeable stakeholders to collect information that is timely and
relevant to the products that are subject to this rulemaking through
confidential interviews and disaggregated surveys. (BWC, No. 1164 at p.
24)
DOE has considered available information and data sources,
including interviews with manufacturers, industry market research
reports, confidentially submitted data, and feedback from an industry
consultant. There are, however, no specific data or studies on consumer
decision-making preferences that DOE is aware of, specifically with
respect to the water heater market, other than what is revealed by
shipments data and the market share of various products currently
available. DOE derived its estimates of efficiency distributions based
on these market data. Regarding DOE's estimates of consumer preferences
and market failures, these are based on a wide body of economics
literature as discussed in more detail in section IV.F.8 of this
document.
b. Impact of Repair vs. Replace
DOE estimated a fraction of consumer water heater replacement
installations
[[Page 37875]]
that choose to repair their equipment, rather than replace their
equipment in the new standards case. The approach captures not only a
decrease in consumer water heater replacement shipments, but also the
energy use from continuing to use the existing consumer water heater
and the cost of the repair. DOE assumes that the demand for water
heating is inelastic and, therefore, that no household or commercial
building will forgo either repairing or replacing their equipment
(either with a new consumer water heater or a suitable water heating
alternative).
For details on DOE's shipments analysis, consumer choice, and the
repair option, see chapter 9 of the final rule TSD.
H. National Impact Analysis
The NIA assesses the national energy savings (``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.\141\ (``Consumer'' in this context refers to
consumers of the product being regulated.) DOE calculates the NES and
NPV for the potential standard levels considered based on projections
of annual product 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, product costs, and NPV of consumer benefits over the lifetime
of consumer water heaters sold from 2030 through 2059.
---------------------------------------------------------------------------
\141\ The NIA accounts for impacts in the United 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
product 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 product 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 products 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. 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.
Table IV.29 summarizes the inputs and methods DOE used for the NIA
analysis for the final rule. Discussion of these inputs and methods
follows the table. See chapter 10 of the final rule TSD for further
details.
[GRAPHIC] [TIFF OMITTED] TR06MY24.044
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. Section IV.F.8 of this document describes how DOE developed an
energy efficiency distribution for the no-new-standards case (which
yields a shipment-weighted average efficiency) for each of the
considered product classes for the year of anticipated compliance with
an amended or new standard. To project the trend in efficiency absent
amended standards for consumer water heaters over the entire shipments
projection period, DOE used available historical shipments data and
manufacturer input. The approach is further described in chapter 10 of
the final rule TSD.
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 (2030). In this scenario, the market
shares of products in the no-new-standards case that do not meet the
standard under consideration
[[Page 37876]]
would ``roll up'' to meet the new standard level, and the market share
of products above the standard would remain unchanged.
To develop standards-case efficiency trends after 2030, DOE used
historical shipment data and current consumer water heater model
availability by efficiency level (see chapter 8). DOE estimated growth
in shipment-weighted efficiency by assuming that the implementation of
ENERGY STAR's performance criteria and other incentives would gradually
increase the market shares of higher efficiency water heaters meeting
ENERGY STAR requirements such as EL 3 and above for gas-fired storage
water heaters and EL 2 and above for electric storage water heaters
(>=20 gal Veff >55 gal).DOE also took into account increased
incentives for higher efficiency equipment and electrification efforts.
For oil-fired storage water heaters and electric storage water heaters
(>55 gal Veff <=120 gal), DOE assumed a constant market
share throughout the analysis period (2030-2059).
BWC cautioned DOE against using ENERGY STAR performance criteria
data to assume growth in market shares for higher efficiency water
heaters after 2030 in the no-new-standards case. BWC noted that ENERGY
STAR's Residential Water Heater Specification 4.0 (effective March 29,
2022, to April 18, 2023) incentivized the purchase of high efficiency
water heater products, such as heat pump water heaters, but the
penetration rate for these products in the market remains low, as
ENERGY STAR's 2022 Unit Shipment and Market Penetration Report Summary
reports only a 3-percent market penetration for these products. In
contrast, Figure 10.2.2 of the NOPR TSD assumes heat pump water heaters
making up 11 percent of the market by 2030 in the no-new-standards
case, which appears unlikely when considering the information released
by ENERGY STAR cited above. (BWC, No. 1164 at p. 3)
DOE derived its estimates based on multiple available data sources
and shipments model, not just ENERGY STAR shipment data. DOE's
estimated market share of higher efficiency equipment is based on these
data as well as on existing policies and incentives that drive a higher
adoption of higher efficiency equipment in the no-new-standards case,
as discussed in more detail in appendix 8I and 9A. DOE notes that if
the analysis assumed a lower market share projection of heat pump water
heaters in the no-new-standards case, this would result in a higher
estimate of energy savings from the adopted standards, which would only
further support DOE's conclusion of economic justification.
2. National Energy Savings
The national energy savings 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.
Use of higher-efficiency products is sometimes associated with a
direct rebound effect, which refers to an increase in utilization of
the product due to the increase in efficiency. DOE examined a 2009
review of empirical estimates of the rebound effect for various energy-
using products.\142\ This review concluded that the econometric and
quasi-experimental studies suggest a mean value for the direct rebound
effect for household water heating of around 10 percent. DOE also
examined a 2012 ACEEE paper \143\ and a 2013 paper by Thomas and
Azevedo.\144\ Both of these publications examined the same studies that
were reviewed by Sorrell, as well as Greening et al.,\145\ and
identified methodological problems with some of the studies. The
studies believed to be most reliable by Thomas and Azevedo show a
direct rebound effect for water heating products in the 1-percent to
15-percent range, while Nadel concludes that a more likely range is 1
to 12 percent, with rebound effects sometimes higher for low-income
households that could not afford to adequately heat their homes prior
to weatherization. DOE applied a rebound effect of 10 percent for
consumer water heaters used in residential applications based on
studies of other residential products and the value used for consumer
water heaters in the 2010 Final Rule for Heating Products, and 0
percent for consumer water heaters in commercial applications, which
also matches EIA's National Energy Modeling System (``NEMS'') for
residential and commercial water heating and is consistent with other
recent energy conservation standards
rulemakings.146 147 148 149 The calculated NES at each
efficiency level is therefore reduced by 10 percent in residential
applications. DOE also included the rebound effect in the NPV analysis
by accounting for the additional net benefit from increased consumer
water heaters usage, as described in section IV.H.3 of this document.
---------------------------------------------------------------------------
\142\ Steven Sorrell, et al., Empirical Estimates of the Direct
Rebound Effect: A Review, 37 Energy Policy 1356-71 (2009). Available
at www.sciencedirect.com/science/article/pii/S0301421508007131 (last
accessed Dec. 1, 2023).
\143\ Steven Nadel, ``The Rebound Effect: Large or Small?''
ACEEE White Paper (August 2012). Available at www.aceee.org/files/pdf/white-paper/rebound-large-and-small.pdf (last accessed Dec. 1,
2023).
\144\ Brinda Thomas and Ines Azevedo, Estimating Direct and
Indirect Rebound Effects for U.S. Households with Input-Output
Analysis, Part 1: Theoretical Framework, 86 Ecological Econ. 199-201
(2013). Available at www.sciencedirect.com/science/article/pii/S0921800912004764) (last accessed Dec. 1, 2023).
\145\ Lorna A. Greening, et al., Energy Efficiency and
Consumption--The Rebound Effect--A Survey, 28 Energy Policy 389-401
(2002). Available at www.sciencedirect.com/science/article/pii/S0301421500000215 (last accessed Dec. 1, 2023).
\146\ See www.eia.gov/outlooks/aeo/nems/documentation/residential/pdf/m067(2020).pdf (last accessed Dec. 1, 2023.
\147\ DOE. Energy Conservation Program for Certain Industrial
Equipment: Energy Conservation Standards for Small, Large, and Very
Large Air-Cooled Commercial Package Air Conditioning and Heating
Equipment and Commercial Warm Air Furnaces; Direct final rule. 81 FR
2419 (Jan. 15, 2016). Available at www.regulations.gov/document/EERE-2013-BT-STD-0021-0055 (last accessed Dec. 1, 2023).
\148\ DOE. Energy Conservation Program: Energy Conservation
Standards for Residential Boilers; Final rule. 81 FR 2319 (Jan. 15,
2016). Available at www.regulations.gov/document/EERE-2012-BT-STD-0047-0078 (last accessed Dec. 1, 2023).
\149\ DOE. Energy Conservation Program: Energy Conservation
Standards for Commercial Packaged Boilers; Final Rule. 85 FR 1592
(Jan. 10, 2020). Available at www.regulations.gov/document/EERE-2013-BT-STD-0030-0099 (last accessed Dec. 1, 2023).
---------------------------------------------------------------------------
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
[[Page 37877]]
National Energy Modeling System (``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 \150\ that EIA uses
to prepare its Annual Energy Outlook. The FFC factors in corporate
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 10B
of the final rule TSD.
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\150\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview 2009, DOE/EIA-0581(2009), October 2009.
Available at www.eia.gov/forecasts/aeo/index.cfm (last accessed Dec.
1, 2023).
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EEI commented that the fossil fuel equivalency methodology,
employed in DOE's impact assessment of proposed changes to efficiency
standards, was developed in an earlier era when the penetration of
renewable energy generation was low. EEI commented that continuing to
apply fossil fuel equivalency factors leads to the false conclusion
that renewable energy generation has the same primary energy losses as
fossil generation and that these energy losses represent similar
economic loss. EEI stated that EIA is moving to the captured energy
approach in all of its analyses as of June 2023, and DOE should follow
EIA's lead and update its methodology as soon as possible to create
more realistic estimates of primary energy savings and electricity
sector emissions reductions. (EEI, No. 1198 at pp. 6-8)
As previously mentioned, DOE converts electricity consumption and
savings to primary energy using annual conversion factors derived from
the EIA's AEO2023. Traditionally, EIA has used the fossil fuel
equivalency approach to report noncombustible renewables' contribution
to total primary energy. The fossil fuel equivalency approach applies
an annualized weighted-average heat rate for fossil fuel power plants
to the electricity generated (in kWh) from noncombustible renewables.
EIA recognizes that using captured energy (the net energy available for
direct consumption after transformation of a noncombustible renewable
energy into electricity) or incident energy (the mechanical, radiation,
or thermal energy that is measurable as the ``input'' to the device)
are possible approaches for converting renewable electricity to a
common measure of primary energy, but used the fossil fuel equivalency
approach in AEO2023 and other reporting of energy statistics used in
this final rule. DOE contends that it is important for it to maintain
consistency with AEO2023 in DOE's accounting of primary energy savings
from energy efficiency standards.
3. 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.
As discussed in section IV.F.1 of this document, DOE used constant
prices as the default price assumption to project future consumer water
heater prices. However, DOE also developed consumer water heater price
trends based on historical PPI data. DOE applied the same trends to
project prices for each product class at each considered efficiency
level as a sensitivity analysis. DOE's projection of product prices is
described in appendix 10C of the final rule TSD.
To evaluate the effect of uncertainty regarding the price trend
estimates, DOE investigated the impact of different product price
projections on the consumer NPV for the considered TSLs for consumer
water heaters. In addition to the default price trend, DOE considered
two product price sensitivity cases: (1) a price decline case and (2)
price increase case based on PPI data. The derivation of these price
trends and the results of these sensitivity cases are described in
appendix 10C 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 residential energy price changes in the Reference case from
AEO2023, which has an end year of 2050. To estimate price trends after
2050, the 2046-2050 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 10C of the final rule TSD.
In considering the consumer welfare gained due to the direct
rebound effect, DOE accounted for change in consumer surplus attributed
to additional water heating from the purchase of a more efficient unit.
Overall consumer welfare is generally understood to be enhanced from
rebound. The net consumer impact of the rebound effect is included in
the calculation of operating cost savings in the consumer NPV results.
See appendix 10E of the final rule TSD for details on DOE's treatment
of the monetary valuation of the rebound effect.
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 Office of Management
and Budget (``OMB'') to Federal agencies on the development of
regulatory analysis.\151\ 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.
---------------------------------------------------------------------------
\151\ U.S. Office of Management and Budget. Circular A-4:
Regulatory Analysis. Available at www.whitehouse.gov/omb/information-for-agencies/circulars (last accessed Mar. 5, 2024). DOE
used the prior version of Circular A-4 (September 17, 2003) in
accordance with the effective date of the November 9, 2023 version.
Available at https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf (last accessed Dec. 1,
2023).
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Atmos Energy argued that increased efficiency in water heaters
could lead to an increase in water usage which could further drought in
southern and western states. Atmos Energy argued that a full evaluation
of rebound effects of the proposal should be conducted and that
increased water usage should be calculated and evaluated as an
environmental cost of the proposal. (Atmos Energy, No. 1183 at p. 5)
DOE has considered rebound effects in its analysis. DOE notes that
the impacts of changes in water usage on regional water supply are not
captured
[[Page 37878]]
within the scope of DOE's standards analysis.
I. Consumer Subgroup Analysis
In analyzing the potential impact of new or amended energy
conservation standards on consumers, DOE evaluates the impact on
identifiable subgroups of consumers that may be disproportionately
affected by a new or amended national standard. The purpose of a
subgroup analysis is to determine the extent of any such
disproportional 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
analyzed the impacts of the considered standard levels on three
subgroups: (1) low-income households, (2) senior-only households, and
(3) small businesses. The analysis used subsets of the RECS 2020 sample
composed of households and CBECS 2018 sample composed of commercial
buildings that meet the criteria for the three subgroups. DOE used the
LCC and PBP spreadsheet model to estimate the impacts of the considered
efficiency levels on these subgroups. Chapter 11 in the FR TSD
describes the consumer subgroup analysis.
1. Low-Income Households
Low-income households are significantly more likely to be renters
or live in subsidized housing units and less likely to be homeowners.
DOE notes that in these cases, the landlord purchases the equipment and
may pay the gas bill as well. RECS 2020 includes data on whether a
household pays for the gas bill, allowing DOE to categorize households
appropriately in the analysis.\152\ For this consumer subgroup
analysis, DOE considers the impact on the low-income household
narrowly, excluding any costs or benefits that are accrued by either a
landlord or subsidized housing agency. This allows DOE to determine
whether low-income households are disproportionately affected by an
amended energy conservation standard in a more representative manner.
DOE takes into account a fraction of renters that face product
switching (when landlords switch to products that have lower upfront
costs but higher operating costs, which will be incurred by tenants).
---------------------------------------------------------------------------
\152\ RECS 2020 includes a category for households that pay only
some of the gas bill. For the low-income consumer subgroup analysis,
DOE assumes that these households pay 50 percent of the gas bill,
and, therefore, would receive 50 percent of operating cost benefits
of an amended energy conservation standard.
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The majority of low-income households that experience a net cost at
higher efficiency levels are homeowner households, as opposed to
renters. These households either have a smaller capacity water heater
or lower hot water use. Unlike renters, homeowners would bear the full
cost of installing a new water heater. For these households, a
potential rebate program to reduce the total installed costs would be
effective in lowering the percentage of low-income consumers with a net
cost. DOE understands that the landscape of low-income consumers with a
water heater may change before the compliance date of amended energy
conservation standards, if finalized. For example, point-of-sale rebate
programs are being considered that may moderate the impact on low-
income consumers to help offset the total installed cost of a higher
efficiency water heater, particularly given the lower total installed
cost of smaller capacity water heater. Currently, DOE is aware that the
Inflation Reduction Act will likely include incentives for certain
water heaters, although the specific implementation details have yet to
be finalized. DOE is also aware of State or utility program rebates in
the Northeast or California, for example, that support additional heat
pump deployment as a result of decarbonization policy goals. Point-of-
sale rebates or weatherization programs could also reduce the total
number of low-income consumers that would be impacted because the
household no longer has a water heater to upgrade.
BWC cautioned DOE against relying as heavily as it does in this
proposal on state, local, and/or utility rebate programs to decrease
the upfront installation costs for condensing gas-fired water heaters,
as well as heat pump water heaters. While recognizing the existence of
many rebate programs today, BWC questions how many of these rebates
will continue in place if the Department finalizes this proposal. This
is therefore a scenario BWC urged DOE to account for in its subgroup
analysis as BWC believes it will reveal cost burdens that are much
higher on the low-income households than what is presently assumed in
this NOPR. (BWC, No. 1164 at p. 19). For consumers in subsidized
housing, BWC urged the Department to consider two realistic outcomes
regarding product rebates that are designed to cover upfront
installation costs. The first is that many or all third parties will
stop offering these rebates once federal, state, and/or local
regulatory bodies require the use of high-efficiency appliances. (BWC
No. 1164 at p. 26) The second is the cost that these consumers will
experience when their highly efficient product reaches the end of its
useful life. Many rebate programs are designed to assist consumers with
project costs associated with fuel-switching or upgrading a lower
efficiency product with a more expensive, higher efficiency
counterpart. However, many if not most of these rebate programs do not
apply to installations where a highly efficient product is undergoing a
like-for-like replacement. (BWC No. 1164 at p. 27)
Rheem argued that IRA will not impact water heaters sold at the
efficiency levels proposed by DOE; therefore, low-income households
will not benefit from 25C tax credits. Rheem pointed out that Energy
Star specification has recently been updated and recommended that DOE
address the new levels. This includes that Energy Star has indicated
that they will sunset gas-fired water heater specification and
therefore should not be used to determine uptake of higher efficiency
gas-fired WH. (Rheem, No. 1177 at pp. 16-17).
In response to the above comments regarding rebates, DOE clarifies
that it does not rely on the existence of rebate programs to justify
the energy conservation standards. DOE's installation costs are
estimated based on labor and material costs, as described in chapter 8
and appendix 8D, without any rebates. DOE merely notes that the
potential existence of such programs in the future would only improve
the economic justification of this rule.
Health Advocates and Joint Advocates of Energy Efficiency argued
that 67 percent of low-income households face a high-energy burden
where they must spend 3 times more of their income on energy costs
compared to median spending (8.1 percent vs 2.3 percent). Health
Advocates argued that renters (disproportionately low-income
households) would benefit from this rule because landlords have no
incentive to install efficient water heaters as tenants usually pay the
energy bills. (Health Advocates, No. 1179 at p. 2; Joint Advocates of
Energy Efficiency, No. 1165 at p. 2) In response, DOE notes that it has
considered the impacts on low-income households. Low-income homeowners
(including owners of manufactured homes) are more likely to have
smaller water heaters that either are not subject to amended standards
(in the case of small ESWHs) or have modest incremental costs. Low-
income renters are unlikely to bear the equipment and installation
costs of replacing their water heater but
[[Page 37879]]
are more likely to pay energy costs and therefore see operating
benefits from the rule. DOE has evaluated the full distribution of
impacts in the LCC analysis, including consumers that experience a net
cost and consumers that experience a net benefit, and concludes that on
the whole, the rule is economically justified.
Gas Association Commenters argued that if better regional market
share data were used, regions with low or negative LCC savings would
impact the overall outcome differently. Gas Association Commenters
included tables in their submitted comment summarizing these argued
regional impacts. Gas Association Commenters also argued that DOE is
missing subsets of low-income households by only using those who are
most likely to directly pay utility bills. They stated that utilities
can also be a function of rent where higher utility costs can still be
passed on to the end user. (Gas Association Commenters, No. 1181 at p.
6 and pp. 23-25) DOE acknowledges that there may be some regional
variation in LCC impacts and these results are available in the LCC
spreadsheet. DOE further acknowledges that some fraction of consumers
will experience a net cost, as presented in the LCC. However, DOE
concludes that on the whole, the rule continues to be economically
justified, with the incorporation of a much larger RECS 2020 sample.
The average LCC savings remain positive. With respect to low-income
households, DOE took into account both scenarios where the households
do or do not directly pay their utility bills, and these are included
in the low-income subgroup analysis as discussed in chapter 11.
NRECA commented that the subgroup is too narrowly defined to
include low-income homeowners and urged DOE to account for consumers
near but above the poverty level who can also experience a high burden
when the installation cost for a heat pump water heater easily takes up
10 percent of their annual income. NRECA also noted that manufactured
housing comprises 25 percent or more of the co-op's residential housing
stock and that these same homes present challenges for heat pump water
heater adoption due to space constraints. NRECA suggested that DOE
should improve its analysis by using low-and-moderate income instead of
poverty-level in the subgroup and assigning proportionally higher
occurrences of expensive installations to this subgroup. (NRECA, No.
1127 at pp. 5-6) In contrast, NYSERDA commented that the proposed
standard will bring significant benefits to low-and-moderate income
households and to disadvantaged communities. (NYSERDA, No. 1192 at p.
3) DOE notes that the low-income subgroup is specifically defined for
households meeting poverty thresholds, as defined in chapter 11. While
households slightly above these thresholds are not included in the low-
income subgroup analysis, they are part of the overall LCC analysis. On
the whole, DOE concludes that the rule is economically justified for
both the overall LCC consumer sample as well as the low-income
subgroup. Households that do not meet the low-income threshold but are
nonetheless energy insecure are likely to experience impacts that fall
in between the overall LCC results and the low-income subgroup results,
which would still be economically justified. As noted above, energy
insecure homeowners with smaller water heaters will either experience
smaller incremental equipment costs on average or have water heaters
not subject to amended standards, and energy insecure renters would
benefit similarly to low-income renters.
ECSC argued that heat pump water heater installations will be
hindered by lack of contractor availability in rural areas. (ECSC, No.
1185 at pp. 1-2) Regarding contractor availability, DOE notes that
while heat pump water heaters are not as common today, they will become
very common by the compliance date of the rule. Many contractors at
present are able to install different types of water heaters, including
heat pump water heaters. At the adopted standard level, the existing
market for small electric storage water heaters is preserved, which
reduces the level of contractor training and investment needed than if
higher standards were adopted for all electric storage water heaters.
While DOE acknowledges there is a ramp up in contractor training
required by 2030, the adopted standard level allows for a more
incremental transition to heat pump technology. Furthermore, DOE notes
that the emergence of workforce programs supported by the Inflation
Reduction Act and the Bipartisan Infrastructure Law will begin to
support the training and education of the workforce needed to support
the clean energy transition.
BWC disagreed with the Department excluding any costs or benefits
that are accrued by a landlord when analyzing impacts to the low-income
household subgroup. While BWC understood that these costs and benefits
are not imposed directly on renters, they will indirectly lead to
impacts on renters that DOE should account for, such as increased rent
rates resulting from landlords attempting to recoup the initial project
installation costs, as well as increased maintenance costs likely to
result for the installation of a higher efficiency product. (BWC No.
1164 at p. 26) Armada argued that DOE failed to acknowledge that
landlords will be forced to increase rent or other costs to cover the
purchase and installation of more efficient options, and a landlord
will have to dedicate a bedroom to a water heater or reconfigure the
duct-work of the property to accommodate the water heater. Armada
argued that these are major changes that will harm residents the most,
and these proposed efficiency standards which will effectively mandate
heat pump technology will only compound the existing affordable housing
issue. (Armada, No. 1193 at pp. 6-7) DOE finds no evidence that
significant rental cost increases would occur. Rental prices are
largely dictated by supply and demand of housing in individual
locations, not the sum of equipment costs in those rentals, such that
two similar rentals could have widely differing prices in different
cities. Furthermore, a landlord would be responsible for replacing an
end-of-life water heater in the no-new-standards case as well yet the
rent is unlikely to increase simply because of this regular
maintenance. The installation costs estimated in the LCC already
include any potential replacement of venting for gas-fired water
heaters and other installation costs for ESWHs, however there is never
a need to ``dedicate a bedroom'' to a new water heater. Additionally,
even if there are significant extra costs for the installation of a
heat pump water heater (see section IV.F.2.d of this document), the
analysis includes the potential to switch to a small ESWH for consumers
with lower hot water demand as an alternative to minimize installation
costs (see section IV.G.1 of this document). Finally, even if a
landlord were to fully pass on the incremental costs due to amended
standards, those costs would presumably be spread out over a monthly
rent spanning many years, possibly the lifetime of the water heater,
resulting in relatively small monthly rent increases. It is for these
reasons that the low-income subgroup analyzes impacts assuming renters
do not bear installation costs. However, as described in section IV.F
of this document, for the overall LCC analysis, DOE makes the
simplifying assumption that all installation and equipment costs are
paid for by the consumer of the equipment, including renters.
Therefore, the main LCC results do assume that
[[Page 37880]]
landlords pass on all costs and yet the analysis still finds that the
rule is economically justified.
For consumers in subsidized housing, BWC urged the Department to
consider two realistic outcomes regarding product rebates that are
designed to cover upfront installation costs. The first is that many or
all third parties will stop offering these rebates once federal, state,
and/or local regulatory bodies require the use of high-efficiency
appliances. (BWC No. 1164 at p. 26) The second is the cost that these
consumers will experience when their highly efficient product reaches
the end of its useful life. Many rebate programs are designed to assist
consumers with project costs associated with fuel-switching or
upgrading a lower efficiency product with a more expensive, higher
efficiency counterpart. However, many if not most of these rebate
programs do not apply to installations where a highly efficient product
is undergoing a like-for-like replacement. (BWC No. 1164 at p. 27)
DOE clarifies that the analysis does not assume that installation
costs are reduced by rebates or incentives. Rather, the analysis uses
these existing programs as part of the shipments projection and the
projection of market shares at different efficiency levels in the no-
new-standards case. This merely characterizes the market up to the
compliance date of the adopted standards.
2. Senior-Only Households
Senior-only households are households with occupants who are all at
least 65 years of age. RECS 2020 includes information on the age of
household occupants, allowing for the identification of senior-only
households from the sample. Senior-only households comprised 23.5
percent of the country's households. In estimating the LCC impacts to
senior-only households, it is assumed that any residual value of a
long-lived product is capitalized in the value of the home.
3. Small Business Subgroup
DOE identified small businesses in CBECS 2018 using threshold
levels for maximum number of employees within each building principal
building activity. DOE received no comments regarding small businesses
impacts relevant to products within the scope of this final rule.
J. Manufacturer Impact Analysis
1. Overview
DOE performed an MIA to estimate the financial impacts of amended
energy conservation standards on manufacturers of consumer water
heaters and to estimate the potential impacts of such standards on
direct 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 the GRIM, an
industry cash flow model with inputs specific to this rulemaking. The
key GRIM inputs include data on the industry cost structure, unit
production costs, product shipments, manufacturer markups, and
investments in R&D and manufacturing capital required to produce
compliant products. The key GRIM outputs are the INPV, which is the sum
of industry annual cash flows over the analysis period, discounted
using the 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. To capture the uncertainty relating to
manufacturer pricing strategies following amended standards, the GRIM
estimates a range of possible impacts under different manufacturer
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 consumer water heater
manufacturing industry based on the market and technology assessment,
preliminary manufacturer interviews, and publicly available
information. This included a top-down analysis of consumer water heater
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 consumer water heater
manufacturing industry, including company filings of form 10-K from the
SEC,\153\ corporate annual reports, the U.S. Census Bureau's Quarterly
Survey of Plant Capacity Utilization,\154\ U.S. Census Bureau's Annual
Survey of Manufactures (``ASM''),\155\ and reports from D&B
Hoovers.\156\
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\153\ U.S. Securities and Exchange Commission. Company Filings.
Available atwww.sec.gov/edgar/searchedgar/companysearch.html (last
accessed Aug. 2, 2022).
\154\ The U.S. Census Bureau. Quarterly Survey of Plant Capacity
Utilization. Available at www.census.gov/programs-surveys/qpc/data/tables.html (last accessed Aug. 2, 2022).
\155\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (Available at: www.census.gov/programs-surveys/asm/data/tables.html) (last accessed January 18, 2024).
\156\ The D&B Hoovers login is available at app.dnbhoovers.com
(last accessed Dec. 1, 2023).
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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 consumer water heaters 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
[[Page 37881]]
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, 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
of this document, ``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 new
or 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, manufacturer 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 2059. DOE calculated INPVs by summing the stream of annual
discounted cash flows during this period. For manufacturers of consumer
water heaters, DOE used a real discount rate of 9.3 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 new or
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. The GRIM results are presented
in section V.B.2 of this document. 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 products is typically more expensive
than manufacturing baseline products due to the use of more complex
components, which are typically more costly than baseline components.
The changes in the MPCs of covered products can affect the revenues,
gross margins, and cash flow of the industry.
As discussed in section IV.C.1 of this document, DOE conducted a
market analysis of currently available models listed in DOE's CCD to
determine which efficiency levels were most representative of the
current distribution of consumer water heaters available on the market.
DOE also completed physical teardowns of commercially available units
to determine which design options manufacturers may use to achieve
certain efficiency levels for each water heater category analyzed. DOE
requested comments from stakeholders and conducted interviews with
manufacturers concerning these initial efficiency levels, which have
been updated based on the feedback DOE received. For a complete
description of the MPCs, see section IV.C of this document and 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 2059 (the end year of
the analysis period). See section IV.G of this document and chapter 9
of the final rule TSD for additional details.
c. Product and Capital Conversion Costs
Amended energy conservation standards could cause manufacturers to
incur conversion costs to bring their production facilities and
equipment designs into compliance. DOE evaluated the level of
conversion-related expenditures that would be needed to comply with
each considered efficiency level in each 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 the level of product conversion costs manufacturers
would likely incur to comply with amended energy conservation
standards, DOE relied on feedback from manufacturer interviews. DOE
contractors conducted interviews with manufacturers of gas-fired
storage, gas-fired instantaneous, oil-fired storage, electric storage,
electric instantaneous, tabletop, and grid-enabled water heaters. The
interviewed manufacturers account for approximately 84 percent of sales
of consumer water heaters covered by this rulemaking. DOE used market
share weighted feedback from interviews to extrapolate industry-level
product conversion costs from the manufacturer feedback.
To evaluate the level of capital conversion costs manufacturers
would likely incur to comply with amended energy conservation
standards, DOE relied on estimates of equipment and tooling from its
engineering analysis and on feedback from manufacturer interviews. DOE
modeled the green field investments required for a major manufacturer
to set up a production facility. The investment figures included
capital required for manufacturing equipment, tooling, conveyors, and
facility. DOE then modeled the incremental investment required by more
stringent standards. DOE multiplied the incremental investment by the
number of ``major'' (i.e., high-volume) manufacturers. These investment
levels aligned with feedback from interviews. Additionally, DOE
determined that smaller manufacturers would have lower investment
levels given their lower production volumes, relative to ``major''
manufacturers, and accounted for those lower investments for
manufacturers with lower market share. DOE updated its conversion cost
estimates for the product classes analyzed in this final rule by
incorporating refined equipment, tooling, conveyor, and space estimates
generated from the product teardown analysis, but otherwise maintained
its
[[Page 37882]]
conversion cost methodology from the July 2023 NOPR.
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 product and
capital conversion costs, see chapter 12 of the final rule TSD.
d. Manufacturer Markup Scenarios
MSPs include direct 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 manufacturer markups to the MPCs
estimated in the engineering analysis for each analyzed 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 manufacturer 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 scenario; and (2) a preservation of operating profit
scenario. These scenarios lead to different manufacturer markup values
that, when applied to the MPCs, result in varying revenue and cash flow
impacts.
Under the preservation of gross margin percentage scenario, DOE
applied a single uniform ``gross margin percentage'' 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 a product class. As MPCs increase with
efficiency, this scenario implies that the per-unit dollar profit will
increase. DOE estimated gross margin percentages of 24 percent for the
gas-fired storage water heaters, 22 percent for electric storage water
heaters, and 23 percent for oil-fired storage water heaters.\157\
Manufacturers tend to believe it is optimistic to assume that they
would be able to maintain the same gross margin percentage as their
production costs increase, particularly for minimally efficient
products. Therefore, this scenario represents a high bound to industry
profitability under an amended energy conservation standard.
---------------------------------------------------------------------------
\157\ The gross margin percentage of 24 percent for gas-fired
storage is based on a manufacturer markup of 1.31. The gross margin
percentage of 22 percent for electric storage is based on a
manufacturer markup of 1.28. The gross margin percentage of 23
percent for oil-fired storage is based on a manufacturer markup of
1.30.
---------------------------------------------------------------------------
Under the preservation of operating profit scenario, DOE modeled a
situation in which manufacturers are not able to increase per-unit
operating profit in proportion to increases in MPCs. In the
preservation of operating profit scenario, as the cost of production
goes up under a standards case, manufacturers are generally required to
reduce their manufacturer markups to a level that maintains base-case
operating profit. DOE implemented this scenario in the GRIM by lowering
the manufacturer markups at each TSL to yield approximately the same
earnings before interest and taxes in the standards case as in the no-
new-standards case in the year after the compliance date of the amended
standards. The implicit assumption behind this scenario is that the
industry can only maintain its operating profit in absolute dollars
after the standard.
A comparison of industry financial impacts under the two scenarios
is presented in section V.B.2.a of this document.
3. Discussion of MIA Comments
a. Conversion Costs
In response to the July 2023 NOPR, BWC submitted written comments
about the accuracy of DOE's conversion cost estimates. BWC stated that
it continues to appreciate DOE considering conversion costs as part of
its analysis. However, BWC asserted that the industry conversion costs
DOE estimated in the July 2023 NOPR are understated and far lower than
the cost that manufacturers will realistically incur. BWC offered to
discuss these findings during confidential conversation with the
consultants that DOE engaged for this rulemaking. (BWC, 1164 at pp. 4-
5)
AHRI asserted that under the standards proposed in the July 2023
NOPR, manufacturers would need to produce exponentially more heat pump
water heaters, requiring many manufacturers to build new plants,
retrofit existing lines, or both. Additionally, AHRI expressed concern
that supply chains and labor shortages could compound these
difficulties. (AHRI, No. 1167 at p. 12)
To evaluate the level of conversion costs industry would likely
incur to comply with potential amended energy conservation standards,
DOE relied on feedback from confidential manufacturer interviews and
estimates of equipment, tooling, conveyor, and space from the
engineering and product teardown analyses. DOE interviewed a range of
manufacturers in advance of the July 2023 NOPR, which together account
for approximately 84 percent of U.S. sales of consumer water heaters
covered by this final rule. For this final rule, DOE reexamined its
conversion cost estimates from the July 2023 NOPR. For all product
classes analyzed in this final rule, DOE updated its conversion cost
estimates by incorporating refined equipment, tooling, conveyor, and
space estimates generated from the product teardown analysis, but
otherwise maintained its conversion cost methodology from the July 2023
NOPR. See section IV.J.2.c of this document and chapter 12 of the final
rule TSD for additional details on DOE's conversion cost methodology
and investment estimates.
In response to the July 2023 NOPR, AHRI stated that it supported
the inclusion of amortization of product conversion costs under
standards into the projected MSP in a recent rulemaking for microwave
ovens, and urges DOE to use this methodology in all rulemakings.\158\
AHRI further asked DOE to explain the justification for amortizing
conversion costs in one instance but not in all. (AHRI, No. 1167 at pp.
20-21)
---------------------------------------------------------------------------
\158\ Technical Support Document: Energy Efficiency Program For
Commercial And Industrial Equipment: Microwave Ovens. Available at
www.regulations.gov/document/EERE-2017-BT-STD-0023-0022.
---------------------------------------------------------------------------
DOE models different standards-case manufacturer markup scenarios
to represent uncertainty regarding the potential impacts on prices and
profitability for manufacturers following the implementation of amended
energy conservation standards. The analyzed manufacturer markup
scenarios vary by rulemaking as they are meant to reflect the potential
range of financial impacts for manufacturers of the specific covered
product or equipment. For the July 2023 NOPR, DOE applied a
preservation of gross margin percentage scenario to reflect an upper
bound to industry profitability under amended standards and a
preservation of operating profit scenario to reflect a lower bound of
industry profitability under amended standards. 88 FR 49058, 49128. For
consumer water heaters, manufacturing more efficient products is
generally more expensive than manufacturing baseline or minimally
efficient products, as reflected by the MPCs estimated in the
engineering analysis (see section IV.C.1.e of this document). Under the
preservation of gross margin scenario for consumer
[[Page 37883]]
water heaters, incremental increases in MPCs at higher efficiency
levels result in an increase in per-unit dollar profit per unit sold.
As shown in Table V.18, under the preservation of gross margin
scenario, the standards case INPV increases relative to the no-new-
standards case INPV for the adopted TSL (i.e., TSL 2). This implies
that the increase in cashflow from the higher MSP is outweighed by the
estimated conversion costs at the adopted level. In other words, under
the preservation of gross margin scenario, the consumer water heater
industry recovers conversion costs incurred as a result of amended
standards. The approach used in the microwave ovens rulemaking (i.e., a
conversion cost recovery scenario) modeled a scenario in which
manufacturers recover investments through an increase in their
manufacturer markup. 88 FR 39912, 39935. DOE implemented this scenario
in the microwave ovens GRIM by calibrating the standards case
manufacturer markups for each product class at each efficiency level to
cause manufacturer INPV in the standards cases to be equal to the INPV
in the no-new-standards case. Thus, if DOE applied a conversion cost
recovery scenario in this rulemaking, the potential change in INPV at
the adopted TSL would be within the range of estimated impacts
resulting from the preservation of gross margin scenario and
preservation of operating profit scenario. As such, DOE maintained the
two standards-case manufacturer markup scenarios used in the July 2023
NOPR for this final rule as they most appropriately reflect the upper
(least severe) and lower (more severe) impacts to manufacturer
profitability under amended standards.
b. Cumulative Regulatory Burden
In response to the July 2023 NOPR, AHRI submitted written comments
regarding cumulative regulatory burden. AHRI urged DOE to consider the
high volume of regulatory activity that directly affects manufacturers
of consumer water heaters and expressed concern that DOE was rushing to
publish recent rulemakings, risking significant revision that will
prolong uncertainty, confuse consumers, and potentially undermine
broader policy goals. AHRI cited standards and test procedure
rulemakings in regards not only to consumer water heaters, but also to
consumer boilers, consumer pool heaters, a final rule pertaining to
standards for commercial water heaters, small electric motors,
commercial and industrial pumps, commercial and multifamily high-rise
and low-rise residential, as well as low and zero NOx actions by
California Air Resources Board (``CARB'') and individual air quality
management districts, State building code changes, ENERGY STAR
potentially setting a max-tech requirement for gas storage water
heaters, and Federal and State refrigerant regulations as regulatory
actions that impact consumer water heater manufacturers. (AHRI, No.
1167 at pp. 7-9)
In response to the July 2023 NOPR, BWC commented that the impact of
cumulative regulatory burden experienced by manufacturers is not
limited to conversion costs, but also to the preparations manufacturers
must undergo in order to respond to proposed rules. BWC further stated
that DOE has promulgated several major rulemakings that will directly
impact the products that BWC manufactures, in addition to actions
undertaken by other governments and programs, and that the ability of
manufacturers to draw on outside resources for assistance will be
severely limited by the concurrent needs of many manufacturers across
rulemakings, particularly in the case of third-party laboratories. BWC
stated that due to the burden this rulemaking will place on third-party
labs, as well as the general burden of multiple concurrent ongoing
regulatory actions, BWC strongly disagreed with DOE's decision not to
consider test rulemakings as part of its analysis. (BWC, No. 1164 at
pp. 24-26) BWC also stated that, due to concurrent regulatory actions
regarding energy efficiency at both the State and Federal levels, it
disagreed with DOE's conclusion in section VI.B.5 of the July 2023 NOPR
that there are no rules or regulations that duplicate, overlap, or
conflict with this proposed rule and encouraged DOE to account for all
of these issues, ideally allowing manufacturers more time to review and
respond to DOE rulemakings when requested. (BWC, No. 1164 at p. 24)
DOE analyzes cumulative regulatory burden pursuant to section 13(g)
of Appendix A. 10 CFR part 430, subpart C, appendix A, section 13(g);
10 CFR 431.4. DOE notes some of the rules (e.g., consumer boilers)
detailed by AHRI are not finalized. Regulations that are not yet
finalized are not considered as cumulative regulatory burden, as the
timing, cost, and impacts of unfinalized rules are speculative.
However, to aid stakeholders in identifying potential cumulative
regulatory burden, DOE does list rulemakings that have proposed rules,
which have tentative compliance dates, compliance levels, and
compliance cost estimates. The results of this analysis can be found in
section V.B.2.e of this document. As shown in Table V.21, DOE analyzed
the consumer boilers, consumer pool heaters, and commercial water
heaters rulemakings as part of its cumulative regulatory burden
analysis. Regarding small electric motors, DOE published a notice of
proposed determination (``NOPD'') on February 6, 2023. As such, DOE
would not consider the small electric motors rulemaking as contributing
to cumulative regulatory burden since DOE did not propose to amend its
energy conservation standards. 88 FR 7629. Regarding commercial and
industrial pumps, DOE similarly would not consider the commercial and
industrial pumps rulemaking as contributing to cumulative regulatory
burden since DOE did not propose to amend its energy conservations
standards.
Regarding AHRI's comment about ultra-low NOX and zero
NOX regulations, DOE notes that in its analysis of
cumulative regulatory burden, DOE considers Federal, product specific
regulations that have compliance dates within 3 years of one another.
DOE is not aware of any Federal or State ultra-low NOX or
zero NOX regulations specific to consumer water heaters with
compliance dates within the 7-year cumulative regulatory burden
timeframe (2027-2033).\159\ DOE notes that certain localities (i.e.,
California Air Districts) have adopted regulations requiring ultra-low
NOX consumer water heaters. DOE accounts for the portion of
ultra-low NOX shipments in its analysis. DOE notes that a
California Air District--the Bay Area Air Quality Management District
Board of Directors--has adopted amendments to eliminate NOX
emissions from certain gas-fired consumer water heaters beginning in
2027.\160\ There are currently no natural gas-fired water heaters on
the market that would meet the zero NOX standards, though
manufacturers may choose to develop them. Regarding building code
changes in states
[[Page 37884]]
requiring heat pump water heating, DOE's accounts for increased
incentives for higher efficiency equipment and electrification efforts
in its shipments analysis. See section IV.H.1 of this document for
additional information on product efficiency trends.
---------------------------------------------------------------------------
\159\ California Air Resources Board (``CARB'') has stated that
it is committed to explore developing and proposing zero-emission
GHG standards for new space and water heaters sold in California as
part of the 2022 State Strategy for the State Implementation Plan
adopted in September 2022. However, at the time of issuance, CARB
has not proposed or adopted such standards for consumer water
heaters. Additional information is available at: ww2.arb.ca.gov/our-work/programs/zero-emission-appliance-standards/about. (Last
accessed Nov. 29, 2023).
\160\ Available at: www.baaqmd.gov/~/media/dotgov/files/rules/
reg-9-rule-4-nitrogen-oxides-from-fan-type-residential-central-
furnaces/2021-amendments/documents/20230315_rg0906-
pdf.pdf?rev=436fcdb037324b0b8f0c981d869e684d&sc_lang=en.
---------------------------------------------------------------------------
Regarding Federal and State refrigerant regulations, EPA published
a final rule pertaining to the phaseout of HFC refrigerants with high
global warming potential (``GWP'') in specific sectors or subsectors on
October 24, 2023. 88 FR 73098. However, EPA does not adopt provisions
to limit the manufacture of heat pump water heaters with HFC
refrigerants in that final rule. EPA restricts the use of HFCs and
blends containing HFCs with a GWP of 150 or greater beginning January
1, 2025 for all foam subsectors, including rigid polyurethane for use
in water heaters. As discussed in chapter 3 of the final rule TSD, DOE
found that water heater manufacturers have already begun transitioning
to alternative blowing agents for insulation foam. Additionally, DOE
notes that the January 1, 2025 compliance date falls outside the
cumulative regulatory burden timeframe. Regarding the comments about
EPA's new ENERGY STAR levels, DOE notes that participating in ENERGY
STAR is voluntary and not considered in DOE's analysis of cumulative
regulatory burden.
Regarding BWC's request that DOE not discount the costs for
stakeholders to review rulemakings, although appreciative that
monitoring and responding to rulemakings does impose costs for
stakeholders, DOE believes that this is outside the scope of analysis
for individual product rulemakings. Because EPCA requires DOE to
establish and maintain the energy conservation program for consumer
products and to periodically propose new and amended standards (or
propose that standards for products do not need to be amended) and test
procedures, DOE considers this rulemaking activity to be part of the
analytical baseline (i.e., in the no-new-standards case and the
standards case). That is, these activities (e.g., reviewing proposed
rules or proposed determinations) would exist regardless of the
regulatory option that DOE adopts through a rulemaking and would be
independent from the conversion costs required to adapt product designs
and manufacturing facilitates to meet an amended standard.
c. Manufacturing Capacity
A.O. Smith noted that while it supports the intent of DOE's
proposal to move the minimum energy conservation standards for a subset
of consumer water heaters, A.O. Smith remains concerned with the
feasibility of implementing these dramatic shifts in the time frame
proposed. A.O. Smith commented that the July 2023 NOPR would drive an
unprecedented transformation for the water heater industry, impacting
manufacturers, its supply chain, distributors, plumbers, and
installers. A.O. Smith noted that it invested significant capital in
its heat pump manufacturing facility following the April 2010 Final
Rule in anticipation of a ramp up in demand, which did not materialize.
A.O. Smith noted it plans to make the necessary investments to
transition to heat pump water heaters, but expressed concern that
uncertainty in the market may place these investments at risk. A.O.
Smith further expressed concern about the availability of the necessary
components at the scale the July 2023 NOPR would require, as well as
the current shortage of workers with the necessary skills and
experience to manufacture heat pump water heaters. (A.O. Smith, No.
1182 at pp. 17-19) Gas Association Commenters questioned the realism of
ramping up heat pump water heater capacity, stating that DOE did not
provide sufficient analysis showing how manufacturers could produce an
additional 3 to 4 million electric heat pump water heaters per year.
(Gas Association Commenters, No. 1181 at p. 33)
Rheem commented it is committed to transitioning the majority of
its electric storage water heaters to heat pump water heaters within
the 5-year compliance period, which Rheem views as sufficiently long to
complete the conversion. Rheem recommended that DOE and other Federal
agencies promote awareness of this rulemaking and the future of water
heating in the United States, particularly among plumbers, contractors,
and consumers. (Rheem, No. 1177 at p. 10)
DOE recognizes that the standards proposed in the July 2023 NOPR
and adopted in this final rule would require investments to update
production facilities and redesign products. DOE accounts for product
and capital conversion costs in the MIA. See section IV.J.2.c of this
document. Regarding industry's ability to ramp up production within the
5-year compliance period, DOE believes that having a major manufacturer
sign on to the Joint Stakeholder Recommendation is a testament to
industry's ability to ramp up capacity to produce the volumes necessary
to support the heat pump water heater market that will be required by
TSL 2 by the compliance date of the amended standards. Regarding the
uncertainty in the market related to heat pump water heaters, DOE
recognizes that amended standards could lead to shifts in the market
towards smaller electric storage water heater sizes which can meet the
adopted standard levels without the use of heat pump technology. DOE
accounts for the potential market shift in its shipments analysis, a
key input to the GRIM. For this final rule, DOE assumes a portion of
consumers would select one or more smaller electric storage water
heaters with or without a ``booster'' instantaneous water heater
instead of replacing a larger electric storage water heater with a heat
pump water heater under amended standards, see IV.G.1 of this document
for additional details. DOE notes that measures such as requiring high-
temperature testing will be required for certain electric storage water
heaters. As discussed in section V.D.1 of this document, the use of
high-temperature testing will be required for small electric resistance
water heaters that are able to continuously store water at a higher
temperature than the delivered water temperature setpoint since DOE
expects that consumers will use the high-temperature mode as part of
the regular operation of their water heater. By implementing the high-
temperature test method for certain smaller electric storage water
heaters designed to compete with larger electric storage water heaters
by operating at a higher temperature, DOE will ensure that
representations for such products are accurate and provide consumers
with the means to directly compare these products to the larger water
heaters they will likely compete with. In other words, the high-
temperature test method would create an equivalent basis of comparison
for products which can offer the same effective storage capacity. See
section V.D.1 of this document for information on high-temperature
testing.
K. Emissions Analysis
The emissions analysis consists of two components. The first
component estimates the effect of potential energy conservation
standards on power sector and site (where applicable) combustion
emissions of CO2, NOX, SO2, and Hg.
The second component estimates the impacts of potential standards on
emissions of two additional greenhouse gases, CH4 and
N2O, as well as the reductions 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
[[Page 37885]]
uses emissions 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 EPA.\161\
---------------------------------------------------------------------------
\161\ Available at www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed Dec. 1, 2023).
---------------------------------------------------------------------------
The on-site operation of consumer water heaters involves combustion
of fossil fuels and results in emissions of CO2,
NOX, SO2, CH4, and N2O
where these products are 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.\162\
---------------------------------------------------------------------------
\162\ 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 July 12, 2021).
---------------------------------------------------------------------------
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 national impact analysis.
BWC recommended including emissions as a result of increased
manufacturing of parts at a higher standard level, such as compressors,
evaporators, and other parts for heat pump water heaters. Additionally,
BWC mentioned that the leaking of refrigerant in heat pump water
heaters may result in additional unaccounted-for emissions and BWC is
discouraged that DOE has already declined to take the emission from
refrigerant leakages into account in the Energy Conservation Standards
for Consumer Pool Heater Final Rule. BWC commented that ASHRAE
standards are in development to measure refrigerant leakage
expectations for heat pump products that could be leveraged in future
DOE analysis. (BWC No. 1164 at p. 5)
DOE's emissions analysis is guided by section 16.h of Appendix
A,\163\ which states that DOE calculates emissions reductions of carbon
dioxide, sulfur dioxide, nitrogen oxides, methane, nitrous oxides, and
mercury likely to be avoided based on an analysis that includes
specific components. These components only include direct emissions
from use of covered products and emissions in the full-fuel-cycle. DOE
has never considered air pollutant emissions associated with
manufacturing or transport of products or emissions of refrigerants.
Even if DOE considered the emissions from refrigerants, DOE estimates
that refrigerant leakages in heat pump water heaters will be rare and
can be prevented with regular inspection and repair, which DOE accounts
for as repair and maintenance costs in its LCC analysis. If refrigerant
leaks do occur, the associated emissions increase would still be
negligible compared to the emissions savings of this rule. Accounting
for refrigerant leakage would not change the economic justification of
the rule.
---------------------------------------------------------------------------
\163\ Appendix A to Subpart C of Part 430--Procedures,
Interpretations, and Policies for Consideration of New or Revised
Energy Conservation Standards and Test Procedures for Consumer
Products and Certain Commercial/Industrial Equipment. https://www.ecfr.gov/current/title-10/chapter-II/subchapter-D/part-430/subpart-C/appendix-Appendix%20A%20to%20Subpart%20C%20of%20Part%20430.
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1. Air Quality Regulations Incorporated in DOE's Analysis
DOE's no-new-standards case for the electric power sector reflects
the AEO, which incorporates the projected impacts of existing air
quality regulations on emissions. AEO2023 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the emissions control programs discussed in the following
paragraphs the emissions control programs discussed in the following
paragraphs, and the Inflation Reduction Act.\164\
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\164\ 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 Dec. 1, 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.\165\ The AEO
incorporates implementation of CSAPR, including the update to the CSAPR
ozone season program emission budgets and target dates issued in 2016.
81 FR 74504 (Oct. 26, 2016). Compliance with CSAPR is flexible among
EGUs and is enforced through the use of tradable emissions allowances.
Under existing EPA regulations, 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.
---------------------------------------------------------------------------
\165\ 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-Sept.) 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).
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However, beginning in 2016, SO2 emissions began to fall
as a result of the Mercury and Air Toxics Standards (``MATS'') for
power plants.\166\ 77 FR 9304 (Feb. 16, 2012). The final rule
establishes power plant emission standards for mercury, acid gases, and
non-mercury metallic toxic pollutants. 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.
---------------------------------------------------------------------------
\166\ In order to continue operating, coal power plants must
have either flue gas desulfurization or dry sorbent injection
systems installed. Both technologies, which are used to reduce acid
gas emissions, also reduce SO2 emissions.
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[[Page 37886]]
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 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 reduce Hg emissions. DOE
estimated mercury emissions reduction using emissions factors based on
AEO2023, which incorporates the MATS.
L. Monetizing Emissions Impacts
As part of the development of this final rule, for the purpose of
complying with the requirements of Executive Order 12866, DOE
considered the estimated monetary benefits from the reduced emissions
of CO2, CH4, N2O, NOX, and
SO2 that are expected to result from each of the TSLs
considered. In order to make this calculation analogous to the
calculation of the NPV of consumer benefit, DOE considered the reduced
emissions expected to result over the lifetime of products shipped in
the projection period for each TSL. This section summarizes the basis
for the values used for monetizing the emissions benefits and presents
the values considered in this 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
DOE estimates the monetized benefits of the reductions in emissions
of CO2, CH4, and N2O by using a
measure of the SC (``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 rulemaking in the absence
of the social cost of greenhouse gases. That is, the social costs of
greenhouse gases, whether measured using the February 2021 interim
estimates presented by the IWG on the Social Cost of Greenhouse Gases
or by another means, did not affect the rule ultimately adopted by DOE.
DOE estimated the global social benefits of CO2,
CH4, and N2O reductions using SC-GHG values that
were based on the interim values 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 (``February 2021 SC-GHG TSD''). The SC-GHG 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, the 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 agreed that the interim SC-GHG estimates represent
the most appropriate estimate of the SC-GHG until revised estimates are
developed reflecting the latest, peer-reviewed science. See 87 FR
78382, 78406-78408 for discussion of the development and details of the
IWG SC-GHG estimates.
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.\167\ 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 SC-GHG 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.
---------------------------------------------------------------------------
\167\ Interagency Working Group on Social Cost of Greenhouse
Gases. 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/.
---------------------------------------------------------------------------
DOE's derivations of the SC-CO2, SC-N2O, and
SC-CH4 values used for this
[[Page 37887]]
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.6 of this document.
The Attorney General of TN asserted that the standards improperly
rely on faulty social-cost-of-carbon estimate. (Attorney General of TN,
No. 1149 at p. 2) In response, DOE noted that the Interagency Working
Group's (IWG) Social Costs of Greenhouse Gas (SC-GHG) 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 IWG's 2016 TSD \168\ and the 2017
National Academies report provide detailed discussions of the ways in
which the modeling underlying the development of the SC-GHG estimates
addressed quantified sources of uncertainty.\169\ In the February 2021
SC-GHG TSD, the IWG stated that the models used to produce the interim
estimates do not include all of the important physical, ecological, and
economic impacts of climate change recognized in the climate change
literature. In the judgment of the IWG, these and other limitations
suggest that the range of four interim SC-GHG estimates presented in
the TSD likely underestimate societal damages from GHG emissions.
---------------------------------------------------------------------------
\168\ Interagency Working Group on Social Cost of Greenhouse
Gases, United States Government. 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.
\169\ An overview is presented in section 4.1 of the February
2021 SC-GHG TSD.
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DOE is aware that in December 2023, EPA issued a new set of SC-GHG
estimates in connection with a final rulemaking under the Clean Air
Act. \170\ As DOE had used the IWG interim values in proposing this
rule and is currently reviewing the updated 2023 SC-GHG values, for
this final rule, DOE used these updated 2023 SC-GHG values to conduct a
sensitivity analysis of the value of GHG emissions reductions. DOE
notes that because EPA's estimates are considerably higher than the
IWG's interim SC-GHG values applied for this final rule, an analysis
that uses the EPA's estimates results in significantly greater climate-
related benefits. However, such results would not affect DOE's decision
in this final rule. As stated elsewhere in this document, DOE would
reach the same conclusion regarding the economic justification of the
standards presented in this final rule without considering the IWG's
interim SC-GHG values, which DOE agrees are conservative estimates. For
the same reason, if DOE were to use EPA's higher SC-GHG estimates, they
would not change DOE's conclusion that the standards are economically
justified.
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\170\ See www.epa.gov/environmental-economics/scghg.
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a. Social Cost of Carbon
The SC-CO2 values used for this final rule were based on
the values developed for the February 2021 SC-GHG TSD, which are shown
in Table IV.30 in 5-year increments from 2020 to 2050. The set of
annual values that DOE used, which was adapted from estimates published
by EPA,\171\ is presented in appendix 14A of the final rule TSD. These
estimates are based on methods, assumptions, and parameters identical
to the estimates published by the IWG (which were based on EPA
modeling) and include values for 2051 to 2070. DOE expects additional
climate benefits to accrue for products still operating 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.
---------------------------------------------------------------------------
\171\ 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 Dec. 1, 2023).
[GRAPHIC] [TIFF OMITTED] TR06MY24.045
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 gross domestic product (``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.
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 SC-
GHG TSD. Table IV.31 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.
[[Page 37888]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.046
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
gross domestic product (``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.
c. Sensitivity Analysis Using Updated SC-GHG Estimates
In December 2023, EPA issued an updated set of SC-GHG estimates
(2023 SC-GHG) in connection with a final rulemaking under the Clean Air
Act.\172\ These estimates incorporate recent research and address
recommendations of the National Academies (2017) and comments from a
2023 external peer review of the accompanying technical report. For
this rulemaking, DOE used these updated 2023 SC-GHG values to conduct a
sensitivity analysis of the value of GHG emissions reductions
associated with alternative standards for consumer water heaters. This
sensitivity analysis provides an expanded range of potential climate
benefits associated with amended standards. The final year of EPA's new
2023 SC-GHG estimates is 2080; therefore, DOE did not monetize the
climate benefits of GHG emissions reductions occurring after 2080.
---------------------------------------------------------------------------
\172\ See www.epa.gov/environmental-economics/scghg.
---------------------------------------------------------------------------
The overall climate benefits are greater when using the higher,
updated 2023 SC-GHG estimates, compared to the climate benefits using
the older IWG SC-GHG estimates. The results of the sensitivity analysis
are presented in appendix 14C of the final rule TSD.
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.\173\ 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
regional benefit-per-ton estimates with regional information on
electricity consumption and emissions from AEO2023 to define weighted-
average national values for NOX and SO2 (see
appendix 14B of the final rule TSD).
---------------------------------------------------------------------------
\173\ U.S. Environmental Protection Agency. Estimating the
Benefit per Ton of Reducing Directly-Emitted PM2.5,
PM2.5 Precursors and Ozone Precursors from 21 Sectors.
Available at www.epa.gov/benmap/estimating-benefit-ton-reducing-directly-emitted-pm25-pm25-precursors-and-ozone-precursors (last
accessed Dec. 1, 2023).
---------------------------------------------------------------------------
DOE also estimated the monetized value of NOX and
SO2 emissions reductions from site use of natural gas in
consumer water heaters using benefit per ton estimates from the EPA's
Benefits Mapping and Analysis Program. Although none of the sectors
covered by EPA refers specifically to residential and commercial
buildings, the sector called ``area sources'' would be a reasonable
proxy for residential and commercial buildings.\174\ The EPA document
provides high and low estimates for 2025 and 2030 at 3- and 7-percent
discount rates.\175\ DOE used the same linear interpolation and
extrapolation as it did with the values for electricity generation.
---------------------------------------------------------------------------
\174\ ``Area sources'' represents all emission sources for which
states do not have exact (point) locations in their emissions
inventories. Because exact locations would tend to be associated
with larger sources, ``area sources'' would be fairly representative
of small dispersed sources like homes and businesses.
\175\ ``Area sources'' are a category in the 2018 document from
EPA but are not used in the 2021 document cited above. See:
www.epa.gov/sites/default/files/2018-02/documents/sourceapportionmentbpttsd_2018.pdf.
---------------------------------------------------------------------------
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 chapter 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. The utility
[[Page 37889]]
analysis also estimates the impact on gas utilities in terms of
projected changes in natural gas deliveries to consumers for each TSL.
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. 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.\176\ 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.
---------------------------------------------------------------------------
\176\ See U.S. Department of Commerce--Bureau of Economic
Analysis. Regional Input-Output Modeling System (RIMS II) User's
Guide. Available at: www.bea.gov/resources/methodologies/RIMSII-user-guide (last accessed Jan. 18, 2024).
---------------------------------------------------------------------------
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 version 4
(``ImSET'').\177\ 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.
---------------------------------------------------------------------------
\177\ 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 that there are 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 (2030-2034), 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
consumer water heaters. It addresses the TSLs examined by DOE, the
projected impacts of each of these levels if adopted as energy
conservation standards for consumer water heaters, 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 new or 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 product classes, to
the extent that there are such interactions, and price elasticity of
consumer purchasing decisions that may change when different standard
levels are set. The changes to the shipments model will drive
differential national impacts both on the consumer and manufacturer
side that are more realistic of how the market may change in response
to amended DOE standards.
In the analysis conducted for this final rule, DOE analyzed the
benefits and burdens of six TSLs for consumer water heaters. DOE
developed TSLs that combine efficiency levels for each analyzed product
class. DOE presents the results for the TSLs in this document, while
the results for all efficiency levels that DOE analyzed are in the
final rule TSD.
Table V.1 presents the TSLs and the corresponding efficiency levels
that DOE has identified for potential amended energy conservation
standards for consumer water heaters. TSL 6 represents the maximum
technologically feasible (``max-tech'') energy efficiency for all
product classes. TSL 5 represents the highest efficiency level for each
product class with a positive NPV at the 7-percent discount rate for
all product classes. For gas-fired gas storage water heater, the NPV at
the 7-percent discount rate is negative from EL 3 to EL 5. Therefore,
TSL 5 is constructed by reducing the efficiency level for gas-fired
storage water heaters (i.e., EL 2) and with the same efficiency level
for all other product classes compared to the max-tech. TSL 4
represents the highest efficiency level for each product class with the
maximum NPV at the 7-percent discount rate for all product classes.
Therefore, TSL 4 is constructed by reducing the efficiency level for
electric storage water heaters (i.e., EL 2). TSL 3 represents an
interim energy efficiency level between the Joint Stakeholder
Recommendation (i.e., TSL 2) and TSL 4. TSL 2 represents the Joint
Stakeholder Recommendation. Finally, because EL 1 is the lowest
analyzed efficiency level above baseline, TSL 1 is constructed with EL
1 for all product classes, except for electric storage water heaters
(20 gal <= Veff <= 55 gal) which is set equal to the current
standard level.
[[Page 37890]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.047
DOE constructed the TSLs for this final rule to include ELs
representative of ELs with similar characteristics (i.e., using similar
technologies and/or efficiencies, and having roughly comparable
equipment availability). The use of representative ELs provided for
greater distinction between the TSLs. While representative ELs were
included in the TSLs, DOE considered all efficiency levels as part of
its analysis.\178\
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\178\ Efficiency levels that were analyzed for this final rule
are discussed in section IV.C of this document. Results by
efficiency level are presented in TSD chapters 8, 10, and 12.
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B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
DOE analyzed the economic impacts on consumer water heater
consumers by looking at the effects that potential new and 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.2 through Table V.11 show the LCC and PBP results for the
TSLs considered for each product class. In the first of each pair of
tables, the simple payback is measured relative to the baseline
product. In the second table, the impacts are measured relative to the
efficiency distribution in the 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. 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.
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b. Consumer Subgroup Analysis
In the consumer subgroup analysis, DOE estimated the impact of the
considered TSLs on low-income households, senior-only households, and
small businesses. Table V.12 through Table V.16 compare the average LCC
savings and PBP at each efficiency level for the consumer subgroups
with
[[Page 37893]]
similar metrics for the entire consumer sample for each consumer water
heater product class analyzed. In most cases, the average LCC savings
and PBP for low-income households and senior-only households at the
considered efficiency levels are not substantially different from the
average for all households. Chapter 11 of the final rule TSD presents
the complete LCC and PBP results for the subgroups.
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c. Rebuttable Presumption Payback
As discussed in section III.F.2 of this document, EPCA establishes
a rebuttable presumption that an energy conservation standard is
economically justified if the increased purchase cost for a product
that meets the standard is less than three times the value of the
first-year energy savings resulting from the standard. In calculating a
rebuttable presumption payback period 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 consumer water heaters.
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.17 presents the rebuttable-presumption payback periods for
the considered TSLs for consumer water heaters. While DOE examined the
rebuttable-presumption criterion, it considered whether the standard
levels considered for this rule are economically justified through a
more detailed analysis of the economic impacts of those levels,
pursuant to 42 U.S.C. 6295(o)(2)(B)(i), that considers the full range
of impacts to the consumer, manufacturer, Nation, and environment. The
results of that analysis serve as the basis for DOE to definitively
evaluate the economic justification for a potential standard level,
thereby supporting or rebutting the results of any preliminary
determination of economic justification.
[GRAPHIC] [TIFF OMITTED] TR06MY24.063
2. Economic Impacts on Manufacturers
DOE performed an MIA to estimate the impact of amended energy
conservation standards on manufacturers of consumer water heaters. 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. The
following tables summarize the estimated financial impacts (represented
by changes in INPV) of potential amended energy conservation standards
on manufacturers of consumer water heaters, as well as the conversion
costs that DOE estimates manufacturers of consumer water heaters would
incur at each TSL.
As discussed in section IV.J.2.d of this document, DOE modeled two
scenarios to evaluate a range of cash flow impacts on the consumer
water heater industry: (1) the preservation of gross margin percentage
scenario and (2) the preservation of operating profit. Under the
preservation of gross margin percentage scenario, DOE applied a single
uniform ``gross margin percentage'' across all efficiency levels. As
MPCs increase with efficiency, this scenario implies that the per-unit
dollar profit would also increase. DOE assumed a ``gross margin
percentage'' of 31 percent for gas-fired storage water heaters, 30
percent for oil-fired storage
[[Page 37896]]
water heaters, and 28 percent for all electric storage water heaters.
These gross margin percentages (and corresponding manufacturer markups)
are the same as the ones DOE assumed in the engineering analysis and
the no-new-standards case of the GRIM. Because this scenario assumes
that a manufacturer's absolute dollar markup would increase as MPCs
increase in the standards cases, it represents the upper bound to
industry profitability under potential new energy conservation
standards.
The preservation of operating profit scenario reflects
manufacturers' concerns about their inability to maintain margins as
MPCs increase to reach more stringent efficiency levels. In this
scenario, while manufacturers make the necessary investments required
to convert their facilities to produce compliant products, operating
profit does not change in absolute dollars and decreases as a
percentage of revenue.
Each of the modeled manufacturer markup scenarios results in a
unique set of cash flows and corresponding industry values at each TSL.
In the following discussion, the INPV results refer to the difference
in industry value between the no-new-standards case and each standards
case resulting from the sum of discounted cash flows from 2023 through
2059. To provide perspective on the short-run cash flow impact, DOE
includes in the discussion of results a comparison of free cash flow
between the no-new-standards case and the standards case at each TSL in
the year before new standards are required.
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[[Page 37897]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.065
At TSL 1, DOE estimates that impacts on INPV would range from -$8.4
million to $5.5 million, or a change in INPV of -0.6 percent to 0.4
percent. At TSL 1, industry free cash flow is $121.0 million, which is
a decrease of $3.0 million, or a drop of 2.4 percent, compared to the
no-new-standards case value of $124.0 million in 2029, the year leading
up to the standards year. Industry conversion costs total $7.5 million.
At TSL 1, approximately 73 percent of consumer water heater shipments
are expected to meet the required efficiency levels by the analyzed
2030 compliance date.
TSL 1 would set the energy conservation standard for gas-fired
storage water heaters at EL 1, oil-fired storage water heaters at EL 1,
small electric storage water heaters at baseline efficiency level
(i.e., EL 0), electric storage water heaters with an effective storage
volume of at least 20 gallons and less than or equal to 55 gallons
(excluding small electric storage water heaters) at baseline, and
electric storage water heaters with effective storage volumes above 55
gallons at EL 1. At TSL 1, DOE estimates that manufacturers would incur
approximately $3.5 million in product conversion costs, as some gas-
fired storage water heaters and electric storage water heaters would
need to be redesigned to comply with the standard. DOE also estimates
that manufacturers would incur approximately $4.0 million in capital
conversion costs at TSL 1 to accommodate the need for increased
capacity for gas-fired and electric storage water heaters.
At TSL 1, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 1.6 percent relative to
the no-new-standards case shipment-weighted average MPC for all water
heaters in 2030. Given the relatively small increase in production
costs, DOE does not project a notable drop in shipments in the year the
standard takes effect. In the preservation of gross margin scenario,
manufacturers are able to fully pass on this slight cost increase to
consumers. In the preservation of gross margin percentage scenario, the
slight increase in cashflow from the higher MSP outweighs the $7.5
million in conversion costs, causing a slightly positive change in INPV
at TSL 1 under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup and the $7.5 million in conversion
costs incurred by manufacturers cause a slightly negative change in
INPV at TSL 1 under the preservation of operating profit scenario.
At TSL 2, DOE estimates that impacts on INPV would range from -
$275.3 million to $28.2 million, or a change in INPV of -18.6 percent
to 1.9 percent. At TSL 2, industry free cash flow is $17.3 million,
which is a decrease of $106.7 million, or a drop of 86.0 percent
compared to the no-new-standards case value of $124.0 million in 2029,
the year leading up to the standards year. Industry conversion costs
total $239.8 million. At TSL 2, approximately 24 percent of consumer
water heater shipments are expected to meet the required efficiency
levels by the analyzed 2030 compliance date.
TSL 2 would set the energy conservation standard for gas-fired
storage water heaters at EL 2, oil-fired storage water heaters at EL 2,
small electric storage water heaters at baseline, electric storage
water heaters with an effective storage volume of at least 20 gallons
and less than 55 gallons (excluding small electric storage water
heaters) at EL 1, and electric storage water heaters with an effective
storage
[[Page 37898]]
volume of above 55 gallons at EL 1. At TSL 2, DOE estimates that
manufacturers would incur approximately $11.1 million in product
conversion costs, as some gas-fired storage water heaters and electric
storage water heaters would need to be redesigned to comply with the
standard. While small electric storage water heaters could remain
reliant on electric resistance technology, most electric storage water
heaters would need to transition to heat pump technology. In 2023, heat
pump electric storage water heaters comprise approximately 3 percent of
the electric storage water heater market. At TSL 2, heat pump water
heaters are expected to comprise approximately 61 percent of the
electric storage water heater market in 2030 since all electric storage
water heaters (except for small electric storage) would need to meet
heat pump levels, driving large investments to expand production
capacity of heat exchangers and to optimize production costs. Driven by
the need for increased heat exchanger production capacity, DOE
estimates that manufacturers would incur approximately $207.6 million
in capital conversion costs for electric storage water heaters (and
$228.7 million in capital conversion costs for all product classes) at
TSL 2.
At TSL 2, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 36.6 percent relative
to the no-new-standards case shipment-weighted average MPC for all
water heaters in 2030. Despite an increase in production costs, DOE
does not project a notable drop in shipments in the year the standard
takes effect. In the preservation of gross margin scenario,
manufacturers are able to fully pass on this cost increase to
consumers. In the preservation of gross margin percentage scenario, the
increase in cashflow from the higher MSP outweighs the $239.8 in
conversion costs, causing a slightly positive change in INPV at TSL 2
under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup and the $239.8 million in
conversion costs incurred by manufacturers cause a negative change in
INPV at TSL 2 under the preservation of operating profit scenario.
At TSL 3, DOE estimates that impacts on INPV would range from -
$391.5 million to -$39.8 million, or a change in INPV of -26.5 percent
to -2.7 percent. At TSL 3, industry free cash flow is -$24.1 million,
which is a decrease of $148.1 million, or a drop of 119.4 percent,
compared to the no-new-standards case value of $124.0 million in 2029,
the year leading up to the standards year. Industry conversion costs
total $332.4 million. At TSL 3, approximately 17 percent of consumer
water heater shipments are expected to meet the required efficiency
levels by the analyzed 2030 compliance date.
TSL 3 would set the energy conservation standard for gas-fired
storage water heaters at EL 2, oil-fired storage water heaters at EL 2,
small electric storage water heaters at EL 1, electric storage water
heaters with an effective storage volume of at least 20 gallons and
less than 55 gallons (excluding small electric storage water heaters)
at EL 1, and electric storage water heaters with an effective storage
volume of above 55 gallons at EL 1. At TSL 3, DOE estimates that
manufacturers would incur approximately $13.3 million in product
conversion costs, as some gas-fired storage water heaters and electric
storage water heaters with an effective storage volume of between 20
and 55 gallons would need to be redesigned to comply with the standard.
In 2023, heat pump electric storage water heaters comprise
approximately 3 percent of the electric storage water heater market. In
2030 (the analyzed compliance year), heat pump electric storage water
heaters would comprise 100 percent of the electric storage water heater
market, driving large investments in product redesign and expanding
heat exchanger manufacturing capacity. This would necessitate small
electric storage water heater manufacturers developing split-system
heat pump designs. Driven by the need for increased heat exchanger
production capacity, DOE estimates that the industry would incur
approximately $297.9 million in capital conversion costs for electric
storage water heaters (and $319.0 million in capital conversion costs
for all product classes) at TSL 3.
At TSL 3, the large conversion costs result in a free cash flow
dropping below zero in the years before the standards year. The
negative free cash flow calculation indicates manufacturers may need to
access cash reserves or outside capital to finance conversion efforts.
At TSL 3, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 54.7 percent relative
to the no-new-standards case shipment-weighted average MPC for all
water heaters in 2030. Given the projected increase in production
costs, DOE expects an estimated 15.4 percent drop in shipments in the
year the standard takes effect relative to the no-new-standards case.
The increase in cashflow from the higher MSP is outweighed by the
$332.4 million in conversion costs and the drop in annual shipments,
causing a slightly negative change in INPV at TSL 3 under this
scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup, $332.4 million in conversion
costs incurred by manufacturers, and the drop in annual shipments cause
a large negative change in INPV at TSL 3 under the preservation of
operating profit scenario.
At TSL 4, DOE estimates that impacts on INPV would range from -
$420.1 million to -$31.2 million, or a change in INPV of -28.4 percent
to -2.1 percent. At TSL 4, industry free cash flow is -$29.3 million,
which is a decrease of -$153.3 million, or a drop of 123.6 percent,
compared to the no-new-standards case value of $124.0 million in 2029,
the year leading up to the standards year. Industry conversion costs
total $344.0 million. At TSL 4, approximately 17 percent of consumer
water heater shipments are expected to meet the required efficiency
levels by the analyzed 2030 compliance date.
TSL 4 would set the energy conservation standard for gas-fired
storage water heaters at EL 2, oil-fired storage water heaters at EL 2,
small electric storage water heaters at EL 1, electric storage water
heaters with an effective storage volume of at least 20 gallons and
less than 55 gallons (excluding small electric storage water heaters)
at EL 2, and electric storage water heaters with an effective storage
volume of above 55 gallons at EL 2. At TSL 4, DOE estimates that
manufacturers would incur approximately $13.6 million in product
conversion costs, as some gas-fired storage water heaters, electric
storage water heaters with an effective storage volume of between 20
and 55 gallons, and electric storage water heaters with an effective
storage volume of above 55 gallons would need to be redesigned to
comply with the standard. In 2023, heat
[[Page 37899]]
pump electric storage water heaters comprise approximately 3 percent of
the electric storage water heater market. In 2030 (the analyzed
compliance year), heat pump electric storage water heaters would
comprise 100 percent of the electric storage water heater market,
driving large investments in product redesign and expanding heat
exchanger manufacturing capacity. This would necessitate small electric
storage water heater manufacturers developing split-system heat pump
designs. Driven by the need for increased heat exchanger production
capacity, DOE estimates that the industry would incur approximately
$309.3 million in capital conversion costs for electric storage water
heaters (and $330.4 million in capital conversion costs for all product
classes) at TSL 4.
At TSL 4, the large conversion costs result in a free cash flow
dropping below zero in the years before the standards year. The
negative free cash flow calculation indicates manufacturers may need to
access cash reserves or outside capital to finance conversion efforts.
At TSL 4, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 58.7 percent relative
to the no-new-standards case shipment-weighted average MPC for all
water heaters in 2030. Given the projected increase in production
costs, DOE expects an estimated 15.2 percent drop in shipments in the
year the standard takes effect relative to the no-new-standards case.
The increase in cashflow from the higher MSP is outweighed by the
$344.0 million in conversion costs and the drop in annual shipments,
causing a slightly negative change in INPV at TSL 4 under this
scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup, $344.0 million in conversion
costs incurred by manufacturers, and the drop in annual shipments cause
a large negative change in INPV at TSL 4 under the preservation of
operating profit scenario.
At TSL 5, DOE estimates that impacts on INPV would range from -
$478.1 million to -$31.3 million, or a change in INPV of -32.3 percent
to -2.1 percent. At TSL 5, industry free cash flow is -$48.8 million,
which is a decrease of $172.8 million, or a drop of 139.4 percent
compared to the no-new-standards case value of $124.0 million in 2029,
the year leading up to the standards year. Industry conversion costs
total $387.6 million. At TSL 5, approximately 14 percent of consumer
water heater shipments are expected to meet the required efficiency
levels by the analyzed 2030 compliance date.
TSL 5 would set the energy conservation standard for gas-fired
storage water heaters at EL 2, oil-fired storage water heaters at EL 2,
small electric storage water heaters at EL 1, electric storage water
heaters with an effective storage volume of less than 55 gallons
(excluding small electric storage water heaters) at EL 3, and electric
storage water heaters with effective an volume of above 55 gallons at
EL 3. At TSL 5, DOE estimates that manufacturers would incur
approximately $14.6 million in product conversion costs, as some gas-
fired storage water heaters, electric storage water heaters with an
effective storage volume of between 20 and 55 gallons, and electric
storage water heaters with an effective storage volume above 55 gallons
would need to be redesigned to comply with the standard. In 2023, heat
pump electric storage water heaters comprise approximately 3 percent of
the electric storage water heater market. At TSL 5, 100 percent of
electric storage water heaters would need to meet heat pump levels,
driving large investments in product redesign and expanding heat
exchanger manufacturing capacity. This would necessitate small electric
storage water heater manufacturers developing split-system heat pump
designs. Additionally, requiring larger condensers for gas-fired
storage water heaters would require significant investments in
capacity. Driven by the need for increased heat exchanger production
capacity for electric storage water heaters and increased production
capacity for larger condensers for gas-fired storage water heaters, DOE
estimates that the industry would incur approximately $373.1 million in
capital conversion costs at TSL 5.
At TSL 5, the large conversion costs result in a free cash flow
dropping below zero in the years before the standards year. The
negative free cash flow calculation indicates manufacturers may need to
access cash reserves or outside capital to finance conversion efforts.
At TSL 5, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 66.6 percent relative
to the no-new-standards case shipment-weighted average MPC for all
water heaters in 2030. Given the projected increase in production
costs, DOE expects an estimated 16.0 percent drop in shipments in the
year the standard takes effect relative to the no-new-standards case.
The increase in cashflow from the higher MSP is outweighed by the
$387.6 million in conversion costs and the drop in annual shipments,
causing a slightly negative change in INPV at TSL 5 under this
scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup, the $387.6 million in conversion
costs incurred by manufacturers, and the drop in annual shipments cause
a large negative change in INPV at TSL 5 under the preservation of
operating profit scenario.
At TSL 6, DOE estimates that impacts on INPV would range from -
$709.5 million to -$5.2 million, or a change in INPV of -48.0 percent
to -0.4 percent. At TSL 6, industry free cash flow is -$155.0 million,
which is a decrease of $279.0 million, or a drop of 225.0 percent,
compared to the no-new-standards case value of $124.0 million in 2029,
the year leading up to the standards year. Industry conversion costs
total $626.2 million. At TSL 6, approximately 2 percent of consumer
water heater shipments are expected to meet the required efficiency
levels by the analyzed 2030 compliance date.
TSL 6 would set the energy conservation standard for gas-fired
storage water heaters at EL 5, oil-fired storage water heaters at EL 2,
small electric storage water heaters at EL 1, electric storage water
heaters with an effective storage volume of less than 55 gallons
(excluding small electric storage water heaters) at EL 3, and electric
storage water heaters with an effective storage volume of above 55
gallons at EL 3. At TSL 6, DOE estimates that manufacturers would incur
approximately $25.1 million in product conversion costs, as some gas-
fired storage water heaters and electric storage water heaters with an
effective storage volume of between 20 and 55 gallons would need to be
redesigned to comply with the standard. In 2023, heat pump electric
storage water heaters comprise approximately 3 percent of the electric
storage water heater market. At TSL 6, 100 percent of electric storage
water heaters would need to meet heat pump levels, driving large
investments in product redesign and expanding heat
[[Page 37900]]
exchanger manufacturing capacity. This would necessitate small electric
storage water heater manufacturers developing split-system heat pump
designs. Additionally, requiring larger condensers, electronic
ignition, power venting, and larger heat exchangers for gas-fired
storage water heaters would require significant investments in
capacity. Driven by the need for increased heat exchanger production
capacity for electric storage water heaters and increased production
capacity for electronic ignition, power venting, larger heat
exchangers, and larger condensers for gas-fired storage water heaters,
DOE estimates that the industry would incur approximately $601.1
million in capital conversion costs at TSL 6.
At TSL 6, the large conversion costs result in a free cash flow
dropping below zero in the years before the standards year. The
negative free cash flow calculation indicates manufacturers may need to
access cash reserves or outside capital to finance conversion efforts.
At TSL 6, the shipment-weighted average MPC for consumer water
heaters covered by this rulemaking increases by 101.6 percent relative
to the no-new-standards case shipment-weighted average MPC for all
water heaters in 2030. Given the projected increase in production
costs, DOE expects an estimated 19.4 percent drop in shipments in the
year the standard takes effect relative to the no-new-standards case.
In this scenario, the increase in cashflow from the higher MSP is
outweighed by the $626.2 million in conversion costs and the drop in
annual shipments, causing a slightly negative change in INPV at TSL 6
under this scenario.
Under the preservation of operating profit scenario, manufacturers
earn the same per-unit operating profit as would be earned in the no-
new-standards case in 2031 (a year after the analyzed compliance year),
but manufacturers do not earn additional profit from their investments.
In this scenario, the manufacturer markup decreases in 2031. This
reduction in the manufacturer markup, the $626.2 million in conversion
costs, and the drop in annual shipments incurred by manufacturers cause
a significant negative change in INPV at TSL 6 under the preservation
of operating profit scenario.
b. Direct Impacts on Employment
To quantitatively assess the potential impacts of amended energy
conservation standards on direct employment in the consumer water
heater 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.
Labor expenditures related to product manufacturing depend on the
labor intensity of the product, the sales volume, and an assumption
that wages remain fixed in real terms over time. The total labor
expenditures in each year are calculated by multiplying the total MPCs
by the labor percentage of MPCs. The total labor expenditures in the
GRIM were then converted to total production employment levels by
dividing production labor expenditures by the average fully burdened
wage multiplied by the average number of hours worked per year per
production worker. To do this, DOE relied on hourly wages from the
engineering analysis and the ASM inputs: \179\ Production Workers'
Annual Hours, Production Workers for Pay Period, and Number of
Employees. DOE also relied on the BLS employee compensation data \180\
to determine the fully burdened wage ratio. The fully burdened wage
ratio factors in paid leave, supplemental pay, insurance, retirement
and savings, and legally required benefits.
---------------------------------------------------------------------------
\179\ U.S. Census Bureau's Annual Survey of Manufactures: 2018-
2021 (Available at: www.census.gov/programs-surveys/asm/data/tables.html) (last accessed January 18, 2024).
\180\ U.S. Bureau of Labor Statistics. Employer Costs for
Employee Compensation. (September 2023) (Dec. 15, 2023) Available at
www.bls.gov/news.release/archives/ecec_12152023.pdf (last accessed
Jan. 1, 2024).
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The number of production employees is then multiplied by the U.S.
labor percentage to convert total production employment to total
domestic production employment. The U.S. labor percentage represents
the industry fraction of domestic manufacturing production capacity for
the covered product. This value is derived from manufacturer
interviews, product database analysis, and publicly available
information. DOE estimates that 80 percent of consumer water heaters
analyzed in this final rule are produced domestically.
The domestic production employees estimate covers production line
workers, including line supervisors, who are directly involved in
fabricating and assembling products within the OEM facility. Workers
performing services that are closely associated with production
operations, such as materials handling tasks using forklifts, are also
included as production labor. DOE's estimates only account for
production workers who manufacture the specific products covered by
this final rule.
Non-production employees account for the remainder of the direct
employment figure. The non-production employees estimate covers
domestic workers who are not directly involved in the production
process, such as sales, engineering, human resources, and management.
Using the amount of domestic production workers calculated above, non-
production domestic employees are extrapolated by multiplying the ratio
of non-production workers in the industry compared to production
employees. DOE assumes that this employee distribution ratio remains
constant between the no-new-standards case and standards cases.
Direct employment is the sum of domestic production employees and
non-production employees. Using the GRIM, DOE estimates in the absence
of new energy conservation standards there would be 4,110 domestic
production and non-production employees for consumer water heaters in
2030. Table V.20 shows the range of the impacts of energy conservation
standards on U.S. manufacturing employment in the consumer water
heaters industry. The following discussion provides a qualitative
evaluation of the range of potential impacts presented in Table V.20.
[[Page 37901]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.066
The direct employment impacts shown in Table V.20 represent the
potential domestic employment changes that could result following the
compliance date for the consumer water heater product classes analyzed
in this final rule. Manufacturing employment could increase or decrease
due to the labor content of the various products being manufactured
domestically or if manufacturers decided to move production facilities
abroad because of the amended standards. The upper-bound estimate
corresponds to an increase in the number of domestic workers that would
result from amended energy conservation standards if manufacturers
continue to produce the same scope of covered products within the
United States after compliance takes effect. The lower-bound estimate
reflects the risk of manufacturers re-evaluating production siting
decisions in response to amended energy conservation standards. This
conservative lower bound of domestic direct employment varies by TSL
and product class. For this final rule, DOE reassessed and adjusted its
conservative lower bound of potential domestic direct employment
impacts to account for the potential that gas-fired storage water
heater OEMs may re-evaluate domestic manufacturing locations at certain
analyzed TSLs.
For electric storage water heaters (which account for approximately
51 percent of shipments in 2030), the lower end of the domestic
employment range represents the potential decrease in production
workers if manufacturing of heat pump electric storage water heaters
moves to lower labor-cost countries in response to the large
investments necessary to expand heat exchanger production capacity. To
establish the estimated change in domestic direct employment for
electric storage water heaters, the direct employment analysis assumed
a reduction in domestic employment commensurate with the percentage of
electric storage water heater shipments that transition to heat pump
designs. For gas-fired storage water heaters (which account for
approximately 49 percent of shipments in 2030), the lower bound
represents a shift of all domestic production workers to foreign
production locations at max-tech (TSL 6). At max-tech, it is possible
that manufacturers would revisit their siting decisions based on the
need for increased production capacity for larger condensers. DOE
applied this conservative assumption to establish a lower bound that
avoids underestimating the potential direct employment impacts.
Additional detail on the analysis of direct employment can be found
in chapter 12 of the final rule TSD. Additionally, the employment
impacts discussed in this section are independent of the employment
impacts from the broader U.S. economy, which are documented in chapter
16 of the final rule TSD.
c. Impacts on Manufacturing Capacity
Industry concerns around manufacturing capacity were driven by
potential technology transitions. In particular, manufacturers focused
on the transition to heat pump technology for electric storage water
heaters with rated storage volumes of between 20 and 55 gallons. The
vast majority of sales today in this product class are electric
resistance water heaters. DOE estimates that approximately 3 percent of
current electric storage consumer water heater sales are heat pump
units. At the final rule level, all electric storage water heaters,
excluding small electric storage water heaters, would need to
incorporate heat pump technology. Industry would need to add capacity
to produce an additional three to four million heat pump electric
storage water heater units per year. In interviews, manufacturers noted
that heat pump electric storage water heaters are more complex to
manufacture than electric resistance water heaters. DOE estimated
conversion costs based on both industry feedback and estimates of
capital investment from the engineering analysis. DOE's analysis
indicated significant investment in additional production floor space
and in production capacity for heat exchangers. At TSL 2, conversion
costs total $239.8 million, presuming all OEMs of electric storage
water heaters, excluding small electric storage water heaters, invest
in the transition to heat pump models.
d. Impacts on Subgroups of Manufacturers
As discussed in section IV.J.1 of this document, using average cost
assumptions to develop an industry cash flow estimate may not be
adequate for assessing differential impacts among manufacturer
subgroups. Small manufacturers, niche manufacturers, and manufacturers
exhibiting a cost structure substantially different from the industry
average could be affected disproportionately. DOE used the results of
the industry characterization to group manufacturers exhibiting similar
characteristics. Consequently, DOE identified small business
manufacturers as a subgroup for a separate impact analysis.
For the small business subgroup analysis, DOE applied the small
business size standards published by the U.S. Small Business
Administration (``SBA'') to determine whether a company is considered a
small business. The size standards are codified at 13 CFR part 121. To
be categorized as a small business under North American Industry
Classification System (``NAICS'') code 335220, ``Major Household
Appliance Manufacturing,'' a consumer water heater manufacturer and its
affiliates may employ a
[[Page 37902]]
maximum of 1,500 employees. The 1,500-employee threshold includes all
employees in a business's parent company and any other subsidiaries.
Based on this classification, DOE identified three manufacturers that
qualify as domestic small businesses.
The small business subgroup analysis is discussed in more detail in
chapter 12 of the final rule TSD. DOE examines the potential impacts of
this final rule on small business manufacturers in section VI.B of this
document.
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.
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.
For the cumulative regulatory burden analysis, DOE examined
Federal, product-specific regulations that could affect consumer water
heater manufacturers and that take effect approximately 3 years before
or after the estimated compliance date (2030). This information is
presented in Table V.21.
BILLING CODE 6450-01-P
[[Page 37903]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.067
[[Page 37904]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.068
BILLING CODE 6450-01-C
DOE received several comments in response to the July 2023 NOPR
about cumulative regulatory burden. DOE addresses those comments in
section IV.J.3.b of this document.
3. National Impact Analysis
This section presents DOE's estimates of the national energy
savings and the NPV of consumer benefits that would result from each of
the TSLs considered as potential amended standards.
a. National Energy Savings
To estimate the energy savings attributable to potential amended
standards for consumer water heaters, 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 (2030-2059).
Table V.22 presents DOE's projections of the national energy savings
for each TSL considered for consumer water heaters. The savings were
calculated using the approach described in section IV.H.2 of this
document.
[[Page 37905]]
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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 consumer 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.23. The impacts are counted over the lifetime of
consumer water heaters purchased during the period 2030-2038.
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\181\ U.S. Office of Management and Budget. Circular A-4:
Regulatory Analysis. Available at www.whitehouse.gov/omb/information-for-agencies/circulars (last accessed Jan. 18. 2024).
DOE used the prior version of Circular A-4 (September 17, 2003) in
accordance with the effective date of the November 9, 2023 version.
\182\ 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. (42 U.S.C.
6295(m)) 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.
[GRAPHIC] [TIFF OMITTED] TR06MY24.070
[[Page 37906]]
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 consumer water
heaters. 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.24 shows the consumer NPV results
with impacts counted over the lifetime of products purchased during the
period 2030-2059.
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\183\ U.S. Office of Management and Budget. Circular A-4:
Regulatory Analysis. September 17, 2003. https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf
(last accessed July 1, 2021).
[GRAPHIC] [TIFF OMITTED] TR06MY24.071
The NPV results based on the aforementioned 9-year analytical
period are presented in Table V.25. The impacts are counted over the
lifetime of products purchased during the period 2030-2038. 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.
[GRAPHIC] [TIFF OMITTED] TR06MY24.072
The previous results reflect the use of a default trend to estimate
the change in price for consumer water heaters over the analysis period
(see section IV.F.1 of this document). DOE also conducted a sensitivity
analysis that considered one
[[Page 37907]]
scenario with a price decline compared to the reference case and one
scenario with a price increase compared to the reference case. The
results of these alternative cases are presented in appendix 10C of the
final rule TSD. In the price-decline case, the NPV of consumer benefits
is higher than in the default case. In the price increase case, the NPV
of consumer benefits is lower than in the default case.
c. Indirect Impacts on Employment
DOE estimates that amended energy conservation standards for
consumer water heaters will reduce energy expenditures for consumers of
those products, with the resulting net savings being redirected to
other forms of economic activity. These expected shifts in spending and
economic activity could affect the demand for labor. As described in
section IV.N of this document, DOE used an input/output model of the
U.S. economy to estimate indirect employment impacts of the TSLs that
DOE considered. There are uncertainties involved in projecting
employment impacts, especially changes in the later years of the
analysis. Therefore, DOE generated results for near-term timeframes
(2030-2034), where 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 consumer water heaters under
consideration in this rulemaking. Manufacturers of these products
currently offer units that meet or exceed the adopted standards.
5. Impact of Any Lessening of Competition
DOE considered any lessening of competition that would be likely to
result from new or amended standards. As discussed in section III.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 NOPR and the TSD for review. In its
assessment letter responding to DOE, DOJ concluded that the proposed
energy conservation standards for consumer water heaters 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. Reduced electricity
demand due to energy conservation standards is also likely to reduce
the cost of maintaining the reliability of the electricity system,
particularly during peak-load periods. 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 consumer water heaters is expected to yield environmental
benefits in the form of reduced emissions of certain air pollutants and
greenhouse gases. Table V.26 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.
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[[Page 37908]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.073
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 consumer water
heaters. Section IV.L of this document discusses the estimated SC-
CO2 values that DOE used. Table V.27 presents the value of
CO2 emissions reduction at each TSL for each of the SC-
CO2 cases. The time-series of annual values is presented for
the selected TSL in chapter 14 of the final rule TSD.
[GRAPHIC] [TIFF OMITTED] TR06MY24.074
BILLING CODE 6450-01-C
As discussed in section IV.L.2, DOE estimated the climate benefits
likely to result from the reduced emissions of methane and
N2O that DOE estimated for each of the considered TSLs for
consumer water heaters. Table V.28 presents the value of the
CH4 emissions reduction at each TSL, and Table V.29 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.
[[Page 37909]]
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[GRAPHIC] [TIFF OMITTED] TR06MY24.076
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 are 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 consumer water
heaters. The dollar-per-ton values that DOE used are discussed in
section IV.L of this document. Table V.30 presents the present value
for NOX emissions reduction for each TSL calculated using 7-
percent and 3-percent discount rates, and Table V.31 presents similar
results for SO2 emissions reductions. The results in these
tables reflect application of EPA's low dollar-per-ton values, which
DOE used to be conservative. The time-series of annual values is
presented for the selected TSL in chapter 14 of the final rule TSD.
[GRAPHIC] [TIFF OMITTED] TR06MY24.077
[[Page 37910]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.078
Not all the public health and environmental benefits from the
reduction of greenhouse gases, NOX, and SO2 are
captured in the values above, and additional unquantified benefits from
the reductions of those pollutants as well as from the reduction of
direct PM and other co-pollutants may be significant. DOE has not
included monetary benefits of the reduction of Hg emissions because the
amount of reduction is very small.
7. Other Factors
The Secretary of Energy, in determining whether a standard is
economically justified, may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) No
other factors were considered in this analysis.
8. Summary of Economic Impacts
Table V.32 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 products, and are measured for the
lifetime of products shipped during the period 2030-2059. The climate
benefits associated with reduced GHG emissions resulting from the
adopted standards are global benefits, and are also calculated based on
the lifetime of consumer water heaters shipped during the period 2030-
2059.
[GRAPHIC] [TIFF OMITTED] TR06MY24.079
C. Conclusion
When considering new or amended energy conservation standards, the
standards that DOE adopts for any type (or class) of covered product
must be designed to achieve the maximum improvement in energy
efficiency that the Secretary determines is technologically feasible
and economically justified. (42 U.S.C. 6295(o)(2)(A)) 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. 6295(o)(2)(B)(i)) The new or
amended standard must also result in significant conservation of
energy. (42 U.S.C. 6295(o)(3)(B))
For this final rule, DOE considered the impacts of new and amended
[[Page 37911]]
standards for consumer water heaters at each TSL, beginning with the
maximum technologically feasible level, to determine whether that level
was economically justified. Where the max-tech level was not justified,
DOE then considered the next most efficient level and undertook the
same evaluation until it reached the highest efficiency level that is
both technologically feasible and economically justified and saves a
significant amount of energy.
To aid the reader as DOE discusses the benefits and/or burdens of
each TSL, tables in this section present a summary of the results of
DOE's quantitative analysis for each TSL. In addition to the
quantitative results presented in the tables, DOE also considers other
burdens and benefits that affect economic justification. These include
the impacts on identifiable subgroups of consumers who may be
disproportionately affected by a national standard and impacts on
employment.
DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off up-front 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.
In DOE's current regulatory analysis, potential changes in the
benefits and costs of a regulation due to changes in consumer purchase
decisions are included in two ways. First, if consumers forego the
purchase of a product in the standards case, this decreases sales for
product manufacturers, and the impact on manufacturers attributed to
lost revenue is included in the MIA. Second, DOE accounts for energy
savings attributable only to products actually used by consumers in the
standards case; if a standard decreases the number of products
purchased by consumers, this decreases the potential energy savings
from an energy conservation standard. DOE provides estimates of
shipments and changes in the volume of product purchases in chapter 9
of the final rule TSD. However, DOE's current analysis does not
explicitly control for heterogeneity in consumer preferences,
preferences across subcategories of products or specific features, or
consumer price sensitivity variation according to household
income.\184\
---------------------------------------------------------------------------
\184\ P.C. Reiss and M.W. White. Household Electricity Demand,
Revisited. Review of Economic Studies. 2005. 72(3): pp. 853-883.
doi: 10.1111/0034-6527.00354.
---------------------------------------------------------------------------
While DOE is not prepared at present to provide a fuller
quantifiable framework for estimating the benefits and costs of changes
in consumer purchase decisions due to an energy conservation standard,
DOE is committed to developing a framework that can support empirical
quantitative tools for improved assessment of the consumer welfare
impacts of appliance standards. DOE has posted a paper that discusses
the issue of consumer welfare impacts of appliance energy conservation
standards, and potential enhancements to the methodology by which these
impacts are defined and estimated in the regulatory process.\185\ DOE
welcomes comments on how to more fully assess the potential impact of
energy conservation standards on consumer choice and how to quantify
this impact in its regulatory analysis in future rulemakings.
---------------------------------------------------------------------------
\185\ Sanstad, A.H. Notes on the Economics of Household Energy
Consumption and Technology Choice. 2010. Lawrence Berkeley National
Laboratory. www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf (last accessed July 1, 2021).
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1. Benefits and Burdens of TSLs Considered for Consumer Water Heater
Standards
Table V.33 and Table V.34 summarize the quantitative impacts
estimated for each TSL for consumer water heaters. The national impacts
are measured over the lifetime of consumer water heaters purchased in
the 30-year period that begins in the anticipated year of compliance
with amended standards (2030-2059). The energy savings, emissions
reductions, and value of emissions reductions refer to full-fuel-cycle
results. DOE is presenting monetized benefits of GHG emissions
reductions in accordance with the applicable Executive orders, and DOE
would reach the same conclusion presented in this notice in the absence
of the social cost of greenhouse gases, including the Interim Estimates
presented by the Interagency Working Group because the consumer
benefits alone outweigh the costs of the adopted rule (as described in
section V.C of this document). The efficiency levels contained in each
TSL are described in section V.A of this document.
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[[Page 37913]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.081
BILLING CODE 6450-01-C
DOE first considered TSL 6, which represents the max-tech
efficiency levels for all product classes. At TSL 6, the design options
for GSWHs include condensing technology; the design options for ESWHs
include heat pump technology; and the design options for oil-fired
storage water heaters (``OSWHs'') include extra insulation and multi-
flue heat exchangers. TSL 6 would require extensive changes to the way
manufacturers currently produce water heaters. At TSL 6, approximately
2 percent of consumer water heater
[[Page 37914]]
shipments are expected to meet the required efficiency levels by the
2030 compliance date. This includes approximately 0.2 percent of
shipments for GSWHs, 17 percent of shipments for OSWHs, 1 percent of
small ESWH, 5 percent of ESWH with an effective storage volume of less
than 55 gallons (excluding small ESWH) shipments, and 11 percent of
ESWHs with an effective storage volume greater than or equal to 55
gallons shipments. There would be a significant ramp up in
manufacturing capacity, especially for gas storage and electric storage
water heaters, needed to support the market due to the transition to
accommodate these advanced technologies.
TSL 6 would save an estimated 30.8 quads of energy, an amount DOE
considers significant. Under TSL 6, the NPV of consumer benefit would
be $30 billion using a discount rate of 7 percent, and $115 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 6 are 803 Mt of
CO2, 8,534 thousand tons of CH4, 4.7 thousand
tons of N2O, 1,851 thousand tons of NOX, 127
thousand tons of SO2, and 0.9 tons of Hg. 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 6 is $43 billion. The estimated monetary value of the health
benefits from reduced SO2 and NOX emissions at
TSL 6 is $27 billion using a 7-percent discount rate and $77 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 6 is $100
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 6 is $235 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 6, consumers will experience an average LCC cost of $285 for
GSWHs, which is primarily driven by the total installed cost increases
for gas condensing technology. For OSWHs, consumers will experience an
average LCC savings of $141. For electric storage water heaters 20 to
35 gallons, consumers will experience an LCC cost of $750. For GSWHs,
the consumers experiencing a net LCC cost is 70 percent, and for small
ESWHs, the consumers experiencing a net LCC cost is 77 percent.
At TSL 6, the projected change in INPV ranges from a decrease of
$709.5 million to a decrease of $5.2 million, which corresponds to a
decrease of 48.0 percent and a decrease of 0.4 percent, respectively.
The range of the impacts is driven primarily by the ability of
manufacturers to recover their compliance costs. DOE estimates that
industry must invest $626.2 million to comply with standards set at TSL
6. DOE understands that manufacturers would need to significantly
upgrade their facilities to accommodate heat pump technology for ESWHs.
Upgrades to produce heat pump electric storage water heaters include
expansion of heat exchanger facilities and inclusion of refrigeration
charging systems. In addition, manufacturers would need to expand their
component sourcing of compressors and more sophisticated controls to
produce these more advanced technology products. DOE estimates that
manufacturers would need to scale up production of heat pump electric
storage water heaters from approximately 3 percent of ESWH sales today
(0.14 million units in 2023) to 100 percent of ESWH units in 2030. DOE
believes significant research and development efforts would also be
needed to support the introduction of a wider variety of heat pump
water heater models in the market to meet the various needs of
consumers, especially split-system heat pump water heaters that would
be needed to support the replacement of small electric storage water
heaters. Currently, there are very limited split-system heat pump water
heater models commercially available in the United States, which are
produced by only a few manufacturers and are sold in low quantities.
DOE is concerned that sufficient products may not be available to
support the small electric storage water heaters market, and new
products may not be introduced by a large majority of water heater
manufacturers by the compliance date of this final rule. In sum, DOE is
concerned that industry will not be able to transition to 100 percent
of electric storage water heaters to heat pump designs within a 5-year
compliance window, as would be necessary to comply with TSL 6.
DOE is also concerned about training the workforce that would be
needed to install and service the heat pump water heater market by the
compliance date of the standards. ESWHs are typically installed by
plumbers. Advanced-technology water heaters require the ability to work
with refrigerants similar to that of heating, ventilation, and air
conditioning servicing contractors. DOE hopes that the emergence of
workforce programs supported by the Inflation Reduction Act and the
Bipartisan Infrastructure Law will begin to support the training and
education of the workforce needed to support the clean energy
transition. However, DOE understands this transition will take time and
the workforce may not be ready at the scale necessary to support TSL 6.
The Secretary concludes that at TSL 6 for consumer water heaters,
the benefits of energy savings, positive NPV of consumer benefits,
emission reductions, and estimated monetary value of the emissions
reductions would be outweighed by economic impacts to manufacturers,
primarily driven by the ramp up in scale and offerings needed to
support both ESWH and GWSH efficiencies at TSL 6, the economic costs
for small ESWH consumers (many of whom are low income), and the
distinct impact of high initial costs for low-income consumers
purchasing replacement water heaters in emergency circumstances.
Approximately 0.2 percent of gas storage water heater shipments and
approximately 4 percent of all electric storage water heaters shipments
would meet TSL 6 efficiencies by 2030. DOE also notes that new
technologies have recently been introduced into the heat pump water
heater market, such as 120-volt water heaters, whose efficiencies are
lower than TSL 6. Such 120-volt water heaters can be more readily
adopted by more households, lowering installation costs. While DOE
expects continued innovation in the heat pump water heater market at
this time, DOE is worried that prematurely requiring TSL 6 efficiency
levels will remove these new products from the market prematurely. The
Secretary is also concerned about the uncertainty in the market to
ensure GSWHs and ESWHs will continue to be available to all consumers,
including small ESWH replacements. Consequently, the Secretary has
concluded that TSL 6 is not economically justified.
DOE then considered TSL 5, which represents the max-tech efficiency
levels for all product classes except for GSWHs, which includes a lower
non-condensing efficiency level. At TSL 5, the design options for GSWHs
include either gas-actuated or electric flue dampers instead of
condensing technologies. For the remainder of the product classes, the
efficiency levels and technologies are the same as in TSL 6: that is,
for ESWHs, TSL 5 includes max-technology efficiency levels for heat
pump water heaters across all
[[Page 37915]]
ESWH product classes, including small ESWHs. Approximately 14 percent
of consumer water heater shipments are expected to meet the TSL 5
efficiency levels by the 2030 compliance date. The percentage of
shipments expected to meet or exceed the efficiency levels in TSL 5 is
the same as TSL 6 for all product classes except for GSWH. For GSWHs,
approximately 23 percent of shipments are expected to meet TSL 5
efficiencies by the compliance date of the amended standards. At TSL 5,
the standard would transition all consumer electric storage water
heaters to heat pump technology across all effective storage volumes,
delivery capacity offerings, and sizes in the market.
TSL 5 would save an estimated 24.9 quads of energy, an amount DOE
considers significant. Under TSL 5, the NPV of consumer benefit would
be $33 billion using a discount rate of 7 percent, and $111 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 5 are 462 Mt of
CO2, 4,228 thousand tons of CH4, 4.1 thousand
tons of N2O, 919 thousand tons of NOX, 128
thousand tons of SO2, and 0.9 tons of Hg. 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 5 is $24 billion. The estimated monetary value of the health
benefits from reduced SO2 and NOX emissions at
TSL 5 is $16 billion using a 7-percent discount rate and $46 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 5 is $73
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 5 is $182 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 5, DOE estimates that consumers will see a life-cycle cost
savings for all product classes, except for small ESWH. At TSL 5, the
average LCC savings is $29 for GSWH consumers, which is driven by the
lower installed costs as compared to the TSL 6 condensing level. While
the LCC savings are positive for a majority of consumers across TSL 5
product classes, 77 percent of small ESWH consumers will experience a
net cost when installing a split-system heat pump water heater.
At TSL 5, the projected change in INPV ranges from a decrease of
$478.1 million to a decrease of $31.3 million, which corresponds to a
decrease of 32.3 percent and a decrease of 2.1 percent, respectively.
DOE estimates that industry must invest $387.6 million to comply with
standards set at TSL 5. The primary driver of high conversion costs is
the industry's investment to meet market demand for heat pump electric
storage water heaters. DOE estimates that manufacturers would need to
scale up production of heat pump electric storage water heaters from
approximately 3 percent of all ESWH units (0.14 million units in 2023)
to 100 percent of units in 2030. As a part of this scale-up,
manufacturers would need to develop new split-system heat pumps for the
small electric storage water heater market. Manufacturers would likely
need to invest in cost optimization of existing designs, in new
designs, and in additional manufacturing capacity for heat pump water
heaters.
Similar to the discussion at TSL 6, DOE's concerns continue to be
driven by the ramp up in manufacturing, research, and development that
would be needed to support the heat pump water heater market to
continue today's volumes. TSL 5 would require the expansion of heat
pump lines and the introduction of new products to support the entire
market, especially small ESWHs.
The Secretary concludes that at TSL 5 for consumer water heaters,
the benefits of energy savings, positive NPV of consumer benefits,
emission reductions, and estimated monetary value of the emissions
reductions would be outweighed by the impacts on manufacturers, driven
by the uncertainty in the ramp up needed to support a full transition
of all volumes to heat pump water heaters for ESWHs, the impacts on
consumers of small ESWHs, and the increase in initial costs. While the
LCC savings are positive for a majority of consumers across TSL 5
product classes, 56 percent of small ESWH consumers would experience
net costs when installing a split-system heat pump water heater. DOE is
concerned about the increase in first costs for consumers forced to
purchase a replacement water heater when their existing water heater
fails and the inability for the market to introduce cost-optimized heat
pump water heaters as an offering to consumers to help mitigate the
initial first cost increase. As at TSL 5, DOE is also concerned about
the workforce being ready to service and install at the volumes
necessary to support such a transition in 5 years. Consequently, the
Secretary has concluded that TSL 5 is not economically justified.
DOE then considered TSL 4, which represents a lower efficiency
level for ESWHs and maintains the same efficiency levels for OSWHs and
GSWHs as at TSL 5. At TSL 4, the design options for GSWHs include
either gas-actuated or electric flue dampers; the design options for
OSWHs include extra insulation and multi-flue heat exchangers; and the
design options for ESWHs include heat pump technology. Approximately 17
percent of consumer water heater shipments are expected to meet the TSL
4 efficiency levels by the 2030 compliance date. The percentage of
shipments in 2030 expected to meet the analyzed level in TSL 4 for
ESWHs is approximately 11 percent, which is a significant increase from
the max-tech efficiency levels required at TSL 5 and TSL 6. However,
for small ESWH, the percentage of shipments expected to meet TSL 4
remains at approximately 1 percent. At TSL 4, the standard would
transition all consumer electric storage water heaters to heat pump
technology, but at a more moderate efficiency level for ESWHs except
for small ESWHs. DOE still expects this transition to be significant,
but DOE notes that manufacturers have more experience producing ESWHs,
excluding small ESWHs, at these efficiency levels due to the prevalence
of the ENERGY STAR program. DOE also expects the programs from the
Inflation Reduction Act, including the appliance rebates and tax
credits, would help support the expansion of this market.
TSL 4 would save an estimated 24.3 quads of energy, an amount DOE
considers significant. Under TSL 4, the NPV of consumer benefit would
be $33 billion using a discount rate of 7 percent, and $111 billion
using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 448 Mt of
CO2, 4,078 thousand tons of CH4, 4.0 thousand
tons of N2O, 886 thousand tons of NOX, 126
thousand tons of SO2, and 0.9 tons of Hg. 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 $23 billion. The estimated monetary value of the health
benefits from reduced SO2 and NOX emissions at
TSL 4 is $16 billion using a 7-percent discount rate and $45 billion
using a 3-percent discount rate.
Using a 7-percent discount rate for consumer benefits and costs,
health
[[Page 37916]]
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 $72 billion. Using a 3-
percent discount rate for all benefits and costs, the estimated total
NPV at TSL 4 is $179 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.
The average LCC across all product classes is positive, except for
the small ESWH. DOE continues to be concerned about the development of
new models that would need to be introduced into the split-system heat
pump water heater market to support the small ESWH replacements. As DOE
noted in discussing TSL 6, only a few manufacturers produce consumer
water heaters today in very small volumes and would not be able to
support the entire small ESWH market today. Similar to TSLs 5 and 6, 77
percent of small ESWH consumers will experience a net cost when
installing a split-system heat pump water heater.
At TSL 4, the projected change in INPV ranges from a decrease of
$420.1 million to a decrease of $31.2 million, which corresponds to a
decrease of 28.4 percent and a decrease of 2.1 percent, respectively.
DOE estimates that industry must invest $344.0 million to comply with
standards set at TSL 4. For ESWH manufacturers, stepping down from max-
tech provides greater flexibility in the design process and reduces the
level of model-specific optimization. This results in lower conversion
costs. However, manufacturers would still need to develop new split-
system heat pumps for the small ESWH market and scale up production
capacity for integrated heat pump water heaters. As previously
discussed, DOE estimates that manufacturers would need to scale up
production of heat pump electric storage water heaters from
approximately 3 percent of ESWH sales in 2023 to 100 percent of units
in 2030.
The Secretary concludes that at TSL 4 for consumer water heaters,
the benefits of energy savings, positive NPV of consumer benefits,
emission reductions, and estimated monetary value of the emissions
reductions would be outweighed by the manufacturing concerns and by the
uncertainty associated with the industry's ability to ramp up
production at the levels necessary to meet a standard at TSL 4 within a
5-year period. Given TSL 4 represents a lower efficiency level that
would require less model-specific optimization, DOE expects the
research and development efforts to be smaller and DOE does expect
significant ramp-up of this greater efficiency market segment in
response to the incentive programs. However, DOE continues to be
concerned about industry's ability to produce more than three million
heat pump water heater units a year, while introducing new innovative
products to meet consumers' needs and optimizing to produce lower-cost
products. As at TSLs 6 and 5, DOE is concerned that the efficiency
level required by TSL 4 may preclude the introduction of 120-volt water
heaters into the broader market, which DOE considered as a qualitative
factor and has considered in its decision-making. Adopting a standard
level at TSL 4 would prevent innovation around these technologies (such
as reducing their costs). Consequently, the Secretary has concluded
that TSL 4 is not economically justified.
DOE then considered TSL 3, which represents the same levels as TSL
4 except includes a lower efficiency level for ESWHs. For those ESWHs
less than 55 gallons of effective storage volume (including small
ESWHs), TSL 3 includes an ``entry'' level heat pump efficiency level to
accommodate some of the new product innovations that have been recently
introduced into the market. At TSL 3, currently available 120-V heat
pump water heaters would be able to comply with the required
efficiencies. For ESWHs greater than 55 gallons of effective storage
volume, TSL 3 includes an incremental increase in heat pump efficiency
over the current standards. At TSL 3, the standard would still
transition all consumer electric storage water heaters to heat pump
technology. As previously noted, heat pump technology currently
comprises approximately 3 percent of the electric storage water heater
market. TSL 3 would shift 100 percent of electric storage water heaters
to heat pumps, driving large investments in design of new heat pump
offerings and new product capacity. Approximately 17 percent of
consumer water heater shipments are expected to meet the TSL 3
efficiency levels by the 2030 compliance date. The percentage of
shipments expected to meet or exceed the efficiency levels at TSL 3 is
the same as TSL 4 for all product classes except for ESWHs. The
percentage of shipments in 2030 expected to meet the analyzed level in
TSL 3 for ESWHs is approximately 11 percent. However, for small ESWHs,
the percentage of shipments expected to meet TSL 3 remains at
approximately 1 percent in 2030.
TSL 3 would save an estimated 21.0 quads of energy, an amount DOE
considers significant. Under TSL 3, the NPV of consumer benefit would
be $25 billion using a discount rate of 7 percent and $88 billion using
a discount rate of 3 percent.
The cumulative emissions reductions at TSL 3 are 379 Mt of
CO2, 3,413 thousand tons of CH4, 3.5 thousand
tons of N2O, 742 thousand tons of NOX, 109
thousand tons of SO2, and 0.8 tons of Hg. 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 3 is $20 billion. The estimated monetary value of the health
benefits from reduced SO2 and NOX emissions at
TSL 3 is $13 billion using a 7-percent discount rate and $38 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 $58
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 3 is $146 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 across all product
classes, except for the small ESWH. Similar to TSLs 4, 5, and 6, 77
percent of small ESWH consumers will experience a net cost when
installing a split-system heat pump water heater.
At TSL 3, the projected change in INPV ranges from a decrease of
$391.5 million to a decrease of $39.8 million, which corresponds to a
decrease of 26.5 percent and a decrease of 2.7 percent, respectively.
DOE estimates that industry must invest $332.4 million to comply with
standards set at TSL 3. Manufacturers would need to develop new split-
system heat pumps for the small ESWH market. They would also need to
scale up production capacity for integrated heat pump water heaters.
The Secretary concludes that at TSL 3 for consumer water heaters,
the benefits of energy savings, positive NPV of consumer benefits,
emission reductions, and estimated monetary value of the emissions
reductions would be outweighed by the uncertainty associated with the
ability for industry to meet the demand necessary to
[[Page 37917]]
support the entire market for ESWHs, including the workforce transition
needed to service and install all of these heat pump water heaters. For
small ESWHs, DOE estimates that the fraction of consumers experiencing
a net cost is 56 percent. Based on those costs to small ESWH consumers
and the possible difficulty of meeting the market needs within the
compliance timeframe, the Secretary has concluded that TSL 3 is not
economically justified.
DOE then considered TSL 2, which represents the baseline efficiency
level for small ESWHs and heat pump efficiency levels for all other
ESWHs. TSL 2 also includes max-tech efficiency levels for OSWHs and a
moderate increase in efficiency for GSWHs. TSL 2 also aligns most
closely with the Joint Stakeholder Recommendation efficiency levels,
with minor differences to the small ESWH product class as discussed in
section IV.C of this document. Approximately 24 percent of consumer
water heater shipments are expected to meet the TSL 2 efficiency levels
by the 2030 compliance date. The percentage of shipments expected to
meet or exceed the efficiency levels at TSL 2 is the same as TSL 3 for
all product classes except for small ESWHs. The percentage of shipments
in 2030 expected to meet the TSL 2 efficiency levels for ESWHs is
approximately 24 percent. However, since TSL 2 for small ESWHs
represents the baseline efficiency level, all small ESWHs are expected
to meet TSL 2 levels, compared to only 1 percent of small ESWH
shipments at TSL 3. While DOE recognizes that TSL 2 is not the TSL that
maximizes net monetized benefits, DOE has determined that TSL 2 is
designed to achieve the maximum improvement in energy efficiency that
is technologically feasible and economically justified.
TSL 2 would save an estimated 17.6 quads of energy, an amount DOE
considers significant. Under TSL 2, the NPV of consumer benefit would
be $25 billion using a discount rate of 7 percent and $82 billion using
a discount rate of 3 percent.
The cumulative emissions reductions at TSL 2 are 332 Mt of
CO2, 3,058 thousand tons of CH4, 2.9 thousand
tons of N2O, 665 thousand tons of NOX, 90
thousand tons of SO2, and 0.6 ton of Hg. 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 3 is $17 billion. The estimated monetary value of the health
benefits from reduced SO2 and NOX emissions at
TSL 2 is $12 billion using a 7-percent discount rate and $33 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 2 is $54
billion. Using a 3-percent discount rate for all benefits and costs,
the estimated total NPV at TSL 2 is $132 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 2, the average LCC impact is a savings for all product
classes. The average LCC impact is a savings of $29 for GSWHs, savings
of $141 for OSWHs, savings of $859 for ESWHs (20 gal <= Veff
<= 55 gal) excluding small ESWHs, and savings of $458 for ESWHs (55 gal
< Veff <= 120 gal). The fraction of consumers experiencing a
net LCC cost is 41 percent for GSWHs, 27 percent for OSWHs, 35 percent
for ESWHs (20 gal <= Veff <= 55 gal) excluding small ESWHs,
and 0 percent for ESWHs (55 gal < Veff <= 120 gal).
Consumers of small ESWH (20 gal <= Veff <= 35 gal) are not
impacted at TSL 2, as the standard is not proposed to be amended.
At TSL 2, the projected change in INPV ranges from a decrease of
$275.3 million to an increase of $28.2 million, which corresponds to a
decrease of 18.6 percent and an increase of 1.9 percent, respectively.
DOE estimates that industry must invest $239.8 million to comply with
standards set at TSL 2.
At higher TSLs, the primary driver of high conversion costs is the
industry's investment to meet market demand for heat pump electric
storage water heaters. TSL 2 preserves the existing market for small
ESWHs, allowing small ESWHs utilizing only electric resistance
technology (i.e., that do not utilize a heat pump) to remain in the
market. In turn, this reduces the level of investment needed to meet
market demand for heat pump water heaters. DOE estimates industry would
need to scale up production of heat pump electric storage water heaters
from approximately 3 percent of ESWHs today to 61 percent of ESWHs in
2030, a significant reduction from higher TSLs. This approach, while
still requiring a significant ramp up in manufacturing capacity for
heat pump water heaters, allows for a more incremental transition to
heat pump technology. It limits the investment required of
manufacturers relative to higher TSLs that would require transitioning
the entire ESWH market to heat pump technology and recognizes the
benefits of providing additional time for small electric storage water
heater designs using heat pump technology to mature. DOE believes that
having a major manufacturer sign on to the Joint Stakeholder
Recommendation is a testament to industry's ability to ramp up capacity
to produce the volumes necessary to support the heat pump water heater
market that will be required by TSL 2 by the compliance date of the
amended standards.\186\
---------------------------------------------------------------------------
\186\ As detailed in II.B.2 of this document, Rheem is a
signatory to the Joint Stakeholder Recommendation. BWC was an
original signatory to the Joint Stakeholder Recommendation, which
included a recommendation of heat pump levels for ESWHs with rated
storage volumes greater than 35 gallons, but subsequently removed
itself as a signatory after the July 2023 NOPR after raising
concerns about how DOE proposed to align with the Joint Stakeholder
Recommendation.
---------------------------------------------------------------------------
After considering the analysis and weighing the benefits and
burdens, the Secretary has concluded that standards set at TSL 2 for
consumer water heaters would be economically justified. At this TSL,
the average LCC savings for consumers of all product classes are
expected to be positive. The average LCC savings across all ESWH,
excluding small ESWHs, consumers is $1,867. At TSL 2, the efficiency
levels for ESWHs allow for continued development and innovation with
120-V heat pump ESWHs as well as split-system heat pump ESWHs. The
efficiency levels at TSL 2 also allow for existing small ESWHs to
remain on the market, providing an important option for a subset of
consumers. The FFC national energy savings are significant and the NPV
of consumer benefits is positive using both a 3-percent and 7-percent
discount rate. These national benefits vastly outweigh the costs. The
positive LCC savings--a different way of quantifying consumer
benefits--reinforces this conclusion. The standard levels at TSL 2 are
economically justified even without weighing the estimated monetary
value of emissions reductions. When those emissions reductions are
included--representing $17 billion in climate benefits (associated with
the average SC-GHG at a 3-percent discount rate), and $12 billion
(using a 7-percent discount rate) or $33 billion (using a 3-percent
discount rate) in health benefits--the rationale becomes stronger
still.
In addition, DOE considered that the efficiency levels across TSL 2
are generally representative of the Joint Stakeholder Recommendation.
More specifically, DOE believes the Joint Stakeholder agreement from a
cross section group of stakeholders provides DOE with a good indication
of stakeholder views on this rulemaking
[[Page 37918]]
and with some assurance that industry can transition to these levels
and the market will see significant benefits, as indicated by DOE's
analysis.
Accordingly, the Secretary has concluded that TSL 2 would offer the
maximum improvement in efficiency that is technologically feasible and
economically justified, and would result in the significant
conservation of energy. Although results are presented here in terms of
TSLs, DOE analyzes and evaluates all possible ELs for each product
class in its analysis. TSL 2 comprises efficiency levels that offer
significant LCC savings while keeping the percentage of consumers
experiencing a net cost at a modest level. In particular, lower-income
homeowners who currently use small ESWHs are significantly less likely
to be disproportionately impacted at TSL 2 than at higher TSLs. TSL 2
also reduces the percentage of the market that would be transitioning
to heat pump water heaters within a 5-year period. While DOE
understands the ramp up to accommodate heat pump water heaters at TSL 2
is still significant, DOE believes manufacturers can leverage their
existing operations, knowledge, workforce networks, and R&D to scale at
a level needed to support an amended standard at TSL 2. Lastly, TSL 2
most closely represents the recommended standard levels submitted by
Joint Stakeholders to DOE, providing further support for standard
levels set at TSL 2, a factor the Secretary considers significant.
As discussed in section IV.F.9 of this document, DOE does not
expect any significant amount of switching across product classes as a
result of the adopted standards, with the exception of ESWHs and small
ESWHs. There are a number of significant additional costs involved in
switching from electric equipment to gas equipment and vice versa, such
as replacing an electrical panel or installing new gas lines (both
inside and outside of the home) and new venting. These additional costs
can possibly exceed $1,000 on top of the installed costs estimated in
this final rule, making product switching as a result of standards very
likely to be a minimal effect at most.
Therefore, based on the above considerations, DOE adopts the
conservation standards for consumer water heaters at TSL 2 for those
product classes where there are existing applicable UEF standards. For
the remaining product classes, DOE adopts converted standards in the
UEF metric based on the amended appendix E test procedure. Altogether,
the new and amended energy conservation standards for consumer water
heaters, which are expressed as UEF, are shown in Table V.35. Note that
this table does not show product classes for which standards remain
unchanged by this final rule.
BILLING CODE 6450-01-P
[[Page 37919]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.082
[[Page 37920]]
BILLING CODE 6450-01-C
2. Annualized Benefits and Costs of the Adopted Standards
The benefits and costs of the adopted standards can also be
expressed in terms of annualized values. The annualized net benefit is
(1) the annualized national economic value (expressed in 2022$) of the
benefits from operating products that meet the adopted 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 climate and health benefits.
Table V.36 shows the annualized values for consumer water heaters
under TSL 2, 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 the 3-percent discount rate case for climate benefits
from reduced GHG emissions, the estimated cost of the standards adopted
in this rule is $2,623 million per year in increased equipment costs,
while the estimated annual benefits are $5,655 million in reduced
equipment operating costs, $1,051 in monetized climate benefits, and
1,416 in monetized health benefits. In this case, the net benefit would
amount to $5,499 per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the standards is $2,586 million per year in increased
equipment costs, while the estimated annual benefits are $7,566 million
in reduced operating costs, $1,051 million in monetized climate
benefits, and $2,033 million in monetized health benefits. In this
case, the net benefit would amount to $8,065 million per year.
BILLING CODE 6450-01-P
[[Page 37921]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.083
[[Page 37922]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.084
BILLING CODE 6450-01-C
3. Conversion Factor Final Rule Enforcement Policy
As discussed in section II.B.1 of this document, the currently
applicable standards were established by the December 2016 Conversion
Factor Final Rule, which utilized mathematical conversion equations to
translate EF-based standards to the UEF metric for products that were
on the market at the time. 81 FR 96204.
In that final rule, DOE issued an enforcement policy to ensure that
individual models manufactured prior to July 13, 2015 that complied
with the existing EF standards and remained unchanged in design would
be tested to the EF metric and not be harmed by the transition to the
UEF metric. 81 FR 96204, 96226-96227. This was done to prevent
``overrating'' to the minimum UEF standard; manufacturers are required
to disclose the actual performance in the same metric as all other
products. Id. The Department stated that these models will continue to
remain subject to the enforcement policy until compliance with amended
energy conservation standards is required. Id.
As a result, today's market continues to offer consumer water
heaters that do not meet the current UEF-based standards (this is
depicted in appendix 3A to the TSD). This final rule adopts amended
energy conservation standards for consumer water heaters. Upon the
compliance date of this final rule, the 2016 enforcement policy is
terminated for all water heaters.
4. Severability
Finally, DOE added a new paragraph to 10 CFR 430.32 to make
explicit the agency's intent that each energy conservation standard for
each product class is separate and severable from one another, and that
if any energy conservation standard for any product class is stayed or
determined to be invalid by a court of competent jurisdiction, the
remaining energy conservation standards for the other product classes
shall continue in effect. Because this is an expression of DOE's
intent, public comment on this paragraph is not relevant. This
severability clause is intended to clearly express the Department's
intent that should an energy conservation standard for any product
class be stayed or invalidated, energy conservation standards for the
other product classes shall continue in effect. In the event a court
were to stay or invalidate one or more energy conservation standards
for any product class as finalized, the Department would want the
remaining energy conservation standards for the other product classes
as finalized to remain in full force and legal effect.
D. Test Procedure Applicability
Manufacturers, including importers, must use product-specific
certification templates to certify compliance to DOE. For consumer
water heaters, the certification template reflects the general
certification requirements specified at 10 CFR 429.12 and the product-
specific requirements specified at 10 CFR 429.17. DOE has not proposed
to amend the product-specific certification requirements for these
products in this standards rulemaking. These requirements will be
addressed in a separate rulemaking.
[[Page 37923]]
As discussed in section III.C of this document, DOE most recently
amended the test procedure for these products at appendix E in the June
2023 TP Final Rule.
In light of the new and amended standards being adopted by this
final rule, DOE is creating new provisions to specify how the appendix
E test procedure should be applied. DOE is providing further
clarifications around certain aspects of the appendix E test procedure
to account for the products which would use this test procedure to
determine UEF ratings. These amendments to the test procedure and
related provisions are discussed in the following sections.
1. High-Temperature Testing
The current DOE test procedure calls for an outlet water
temperature of 125 [deg]F 5 [deg]F. 88 FR 40406, 40422.
This temperature is consistent with data DOE has on water heater
thermostat settings in the field. For example, as discussed in chapter
7 of the final rule TSD, a 2015 study of 127 homes with electric
resistance water heaters in central Florida showed that audited hot
water setpoint temperatures averaged 127 [deg]F (52.8 [deg]C) (Std.
Dev: 11.5 [deg]F (6.4 [deg]C)) and field measurement studies in
California showed the median setpoint temperature to be 123 [deg]F
(50.6 [deg]C). Additionally, as of 2017, survey data show that over 75%
of contractors usually or always set the tank thermostat to 120 [deg]F
(see chapter 7 of the final rule TSD).\187\ Further, the energy use
analysis in this rulemaking uses water heater thermostat settings that
are based on a 2006-2020 contractor survey conducted by Clear
Seas.188 189 This annual survey of more than 300 plumbing/
hydronic heating contractor firms indicated that 41 percent of
responding contractors always install a water heater with a setpoint
temperature of 120 [deg]F, 20 percent always install with a setpoint
temperature higher than 120 [deg]F, and 39 percent usually install with
a setpoint of 120 [deg]F. DOE assumed that half of the latter portion
installed the water heater at 120 [deg]F, resulting in an overall
distribution of 61 percent of water heaters set to 120 [deg]F, and 39
percent with setpoints uniformly distributed between 120 [deg]F and 140
[deg]F, resulting in an average setpoint of approximately 124 [deg]F.
In the July 2014 UEF TP Final Rule, DOE cited data that found the
average set point temperature for consumer water heaters in the field
is 124.2 [deg]F (51.2 [deg]C). 79 FR 40542, 40554. A compilation of
field data across the United States and southern Ontario by Lawrence
Berkeley National Laboratory had also found a median daily outlet water
temperature of 122.7 [deg]F (50.4 [deg]C). Id. Taken together, these
data indicate that the outlet water temperature of 125 [deg]F 5 [deg]F used in the DOE test procedure is representative of
average water heater temperature settings in the field, with 120 [deg]F
being the most common setting.
---------------------------------------------------------------------------
\187\ Clear Seas Research. 2017 Water Heater Study.
clearseasresearch.com (Last accessed: Dec. 1, 2023).
\188\ Clear Seas Research. Water Heater Study. 2006. Plumbing
and Mechanical.
\189\ Clear Seas Research. 2020 Water Heater Study, available
online at: clearseasresearch.com. (Last accessed: May 1, 2023).
---------------------------------------------------------------------------
However, after the December 2016 Conversion Factor Final Rule
issued amended standards for electric storage water heaters with rated
storage volumes above 55 gallons that could only be met through the use
of heat pump technology, DOE observed a market shift towards smaller
electric storage water heater sizes where the standards could be met
through electric resistance heating. These smaller water heaters have a
setting or mode that continuously stores water at a higher temperature
then uses a mixing valve to deliver water at the temperature setpoint.
As a result, a new market began to emerge for consumers who still
desired effective storage volumes above 55 gallons but did not want to
install heat pump water heaters: electric resistance storage water
heaters with rated storage volumes less than 55 gallons but with
significantly higher effective storage volumes due to higher storage
tank temperatures. 88 FR 40406, 40446. DOE anticipates a similar market
shift in response to this final rule as the new standards for electric
storage water heaters with capacities greater than or equal to 20
gallons and less than or equal to 55 gallons are met through the use of
heat pump technology, while the standards for small electric storage
water heaters (capacities greater than or equal to 20 gallons and less
than or equal to 35 gallons) can be met by electric resistance heating
technology.
As stated in the July 2022 TP SNOPR and the June 2023 TP Final
Rule, consumers would be expected to use the high-temperature mode on
these small electric storage water heaters as part of the regular
operation of their water heater because consumers are electing to
purchase an undersized water heater based on its capacity-boosting
ability. Accordingly, for such products, a representative average use
cycle must encompass the ``capacity boosting'' capability, as this is
the mode that the consumer will likely be using once the water heater
is installed in the field. 88 FR 49058, 49164. However, before the June
2023 TP Final Rule, the DOE test procedure did not have a provision for
measuring energy use of water heaters that continuously store water at
a higher temperature to boost capacity. The June 2023 TP Final Rule
established a high-temperature test method that would allow consumers
to compare the energy efficiency of water heaters that increase
capacity through elevated storage temperatures with water heaters that
use larger tank volumes to achieve the same capacity. However, DOE
deferred the implementation of high-temperature testing provisions to
this energy conservation standards rulemaking. 88 FR 40406, 40448. This
has allowed DOE to consider details of the implementation to best suit
the needs of the market in a standards-case-scenario.
Whereas the June 2023 TP Final Rule established how to conduct a
high-temperature test, this standards rulemaking establishes which
products must use the high-temperature test method. In this final rule,
DOE is adopting the proposed provisions for the application of the
high-temperature test method, clarifying how the maximum tank
temperature can be verified, adopting additional exemptions for very
small and large electric storage water heaters, and permitting optional
representations for heat pump water heaters using the high-temperature
test method.
DOE received the following general comments in response to the July
2023 NOPR and December 2023 SNOPR regarding general support,
applicability, and potential concerns around high-temperature testing
and the use of effective storage volume. DOE also addresses information
received regarding impacts associated with high-temperature testing.
The Joint Advocacy Groups supported DOE's proposed implementation
of the effective storage volume and high temperature testing
provisions, stating their agreement with DOE's determination that high-
temperature testing is representative of the average use cycle for
electric storage water heaters that offer consumers the ability to
increase storage tank temperature. The Joint Advocacy Groups added that
this proposal would also help ensure the expected savings from the
proposed standards are realized. (Joint Advocacy Groups, No. 1165 at p.
7) NEEA supported DOE's proposed use of effective storage volume and
high-temperature testing, asserting that it would effectively inhibit
the use of small, overheated tanks installed with mixing valves as a
means of circumventing heat pump-level standards, and would ensure the
energy savings projected in the NOPR are
[[Page 37924]]
realized. (NEEA, No. 1199 at pp. 7-8) CEC supported DOE's proposed
high-temperature testing provisions, stating that they would close a
significant loophole that would allow smaller, less-efficient storage
water heaters to operate with higher effective storage volumes. (CEC,
No. 1173 at p. 12) The Joint Stakeholders stated their support of the
effective storage volume provisions, conditional on their narrow
application to certain electric resistance storage water heaters, to
aid in ensuring the expected savings from the proposed standards are
realized.
The CA IOUs agreed that rated storage volume is no longer an
appropriate measure for hot water service and supported the transition
to using the effective storage volume metric, stating that such an
approach is consistent with comments that they and others have provided
previously in this rulemaking. The CA IOUs noted that only certain
electric resistance storage water heaters would be subject to the high-
temperature test method, and the effective storage volume would be
equivalent to the rated storage volume for all other consumer water
heaters. The CA IOUs recommended that DOE plainly state that high-
temperature testing is applicable only for those electric storage water
heaters with a maximum set point temperature above 135 [deg]F, and that
the effective storage volume for all other consumer water heaters is
equal to the rated volume. (CA IOUs, No. 1175 at p. 2) The Joint
Stakeholders also requested that DOE clarify the application of high-
temperature testing and effective storage volume requirements with
regards to product classes other than electric storage water heaters.
(Joint Stakeholders, No. 1156 at pp. 1-2)
Rheem requested clarification on whether high-temperature testing
is intended for electric instantaneous water heaters with rated storage
volumes greater than or equal to 2 gallons. Rheem recommended that the
high-temperature test method not apply to these products, as they are
not direct replacements for heat pump water heaters. (Rheem, No. 1177
at p. 3)
To clarify, the high-temperature test method is applicable only to
electric storage water heaters. It is not applicable to electric
instantaneous water heaters. Consumer electric instantaneous water
heaters, like consumer electric storage water heaters, are statutorily
limited to an input rate of 12 kW (which corresponds to the typical
household circuit limitations in residential buildings). (42 U.S.C.
6291(27)(A)-(B)) Instantaneous-type water heaters have at least 4,000
Btu/h of input per gallon of water stored. (42 U.S.C. 6291(27)(B))
Considering these two limitations, the maximum volume that a consumer
electric instantaneous water heater could have is approximately 10
gallons. For the reasons detailed in section V.D.1.c of this document,
products of this size are unlikely to use elevated temperatures to
directly replace the consumer utility of a water heater with a larger
stored volume of water. And, in response to the CA IOUs' request, DOE
clarifies the verification of the maximum tank temperature in section
V.D.1.b of this document, which does more than simply state the
applicability of the high-temperature test method is based on a maximum
setpoint.
NYSERDA supported the use of the effective storage volume and the
high-temperature test method, but noted that, although the high-
temperature test applies only to certain electric storage water
heaters, the appendix E test procedure would also result in an
effective storage volume greater than rated storage volume for all
other water heaters when Tmax,1 is greater than 130 [deg]F
and also more than 5 [deg]F higher than the delivery temperature,
Tdel,2.\190\ NYSERDA therefore asked for clarification on
how the effective storage volume metric is applied to different water
heaters. (NYSERDA, No. 1192 at pp. 5-6, 7)
---------------------------------------------------------------------------
\190\ Tmax,1 is the maximum measured mean tank
temperature after cut-out following the first draw of the 24-hour
simulated-use test. Tdel,2 is the average outlet water
temperature during the 2nd draw of the 24-hour simulated-use test.
See section 1.15 of appendix E.
---------------------------------------------------------------------------
DOE is maintaining the provisions in appendix E, which result in a
higher effective storage volume to products that have an internal tank
temperature five degrees above the delivery set point temperature in
order to assess products on an equivalent effective storage volume
basis. As discussed in the June 2023 TP Final Rule, this would
typically only apply if the product has a built-in mixing valve and
normally operates in a manner that elevates the storage tank
temperature in its default mode. Therefore, the increased effective
storage volume is representative of the actual performance of such a
model in its default mode. In the June 2023 TP Final Rule, DOE
presented test data which demonstrated that only models with this
specific design had effective storage volumes greater than rated
storage volumes, and that all other traditional models of storage water
heaters were unaffected.
GEA expressed support for DOE's proposals regarding high-
temperature testing and the scope of products to which it would apply.
GEA stated that DOE's proposed rule appropriately recognizes the
importance of integrated mixing valves and accounts for them. However,
GEA concurred with AHRI's comments regarding needed clarifications to
the test procedure and standard and to the appropriate temperature
limits for high-temperature testing (which are discussed in more detail
later in this section). (GEA, No. 1203 at pp. 1-2)
Rheem agreed that the transition from electric resistance to heat
pump storage water heaters presents an incentive to increase the
temperature of an electric resistance storage water heater to increase
the amount of hot water it can deliver. Rheem also stated that high-
temperature testing should only be valid for products that operate with
a stored volume of water (i.e., storage-type or circulating). (Rheem,
No. 1177 at p. 2) Relatedly, Rheem supported the application of the
high-temperature test method to tabletop water heaters because these
products can be used to replace heat pump water heaters. (Rheem, No.
1177 at p. 3)
Other commenters provided feedback for DOE to consider additional
potential impacts of the high-temperature test method on the market.
BWC stated that elements of the test procedure, such as the method for
circulating water heaters and the application of high-temperature
testing, appeared to be incomplete in the June 2023 TP Final Rule, and
that DOE has continued to revise these aspects of the test procedure in
the July 2023 NOPR. (BWC, No. 1164 at p. 7) AHRI raised concerns with
the high-temperature test provisions for electric storage water
heaters, stating that these provisions and their implications should
have been fully addressed in the recent test procedure rulemaking
because manufacturers require additional time to understand the
proposal and how it would be implemented. AHRI stated that DOE has not
provided clear direction in the July 2023 NOPR as to how the high-
temperature test will be applied and enforced. (AHRI, No. 1167 at p. 2)
AHRI and its members asserted that DOE has not provided sufficient test
data for stakeholders to understand the impacts of the high-temperature
test method on electric resistance storage water heaters. (AHRI, No.
1167 at p. 2)
A.O. Smith commented that the purpose of the high-temperature test
method was to prevent circumvention of heat pump-level standards for
larger electric storage water heaters by means of using a smaller
electric resistance storage water heater operating at a higher
temperature. A.O. Smith also
[[Page 37925]]
noted that there may be additional avenues by which industry could
avoid transitioning the market to heat pump water heaters. A.O. Smith
recommended addressing these concerns in a supplemental NOPR prior to
finalizing this rulemaking. A.O. Smith commented that understanding the
relationship between maximum temperature offering, effective storage
volume, FHR, and UEF is a prerequisite for evaluating the proposed
efficiency levels for the electric storage water heater product
classes. (A.O. Smith, No. 1182 at pp. 3-4)
A.O. Smith also asserted that DOE has not provided justification
nor testing data to demonstrate that the direct substitution of
effective storage volume instead of rated storage volume will make up
for the known negative impact that testing at higher temperatures will
have on UEF. Citing EPCA, A.O. Smith noted that DOE must account for
the change in efficiency resulting from an amended test procedure and
recommended that DOE test baseline very small and small electric
storage water heaters according to the new test procedure to ensure
that the proposed standards do not result in a stringency increase. To
this end, A.O. Smith also provided its own test data, which demonstrate
the reduction in UEF as a result of the high-temperature test method.
A.O. Smith recommended that DOE adjust the standards to allow for these
reduced ratings to remain compliant and minimize manufacturer redesign
burden. (A.O. Smith, No. 1182 at pp. 3-4)
Rheem and A.O. Smith provided data that demonstrate the impact of
high-temperature testing on these rated values for very small and small
electric storage water heaters, while NEEA provided insights from its
own testing regarding the relationship between temperature and FHR.
(Rheem, No. 1177 at p. 21; A.O. Smith, No. 1182 at pp. 6-7) NEEA stated
that the FHR increases by 2.5 gallons for every 5 [deg]F increase in
tank temperature from 125 [deg]F. (NEEA, No. 1199 at pp. 7-8) Rheem
stated that the boost in FHR from the high temperature will occur only
for the first draw of the FHR test, and then afterwards the recovery
rate will be the same, and the commenter provided an equation to
estimate the increased FHR. (Rheem, No. 1177 at p. 21)
DOE reviewed the information from Rheem, A.O. Smith, and NEEA in
addition to its own test data to evaluate the impact of the high-
temperature test. For example, in the process of developing the June
2023 TP Final Rule, DOE collected data on one 50-gallon electric
storage water heater set to three different tank temperature set points
(one of them being the maximum setting that would be used for the high-
temperature test method). 88 FR 40406, 40447.
The results of DOE's assessments on very small electric storage
water heaters follow in section V.D.1.c of this document. DOE's
calculations and data from stakeholders have led DOE to conclude that
the high-temperature test method should not be required for very small
electric storage water heaters.
In its own modeling analysis, Rheem identified that electric
storage water heaters with rated storage volumes between 20 and 35
gallons would be noncompliant with the proposed standards if tested to
the high-temperature test method, and therefore, all such products
would have to be redesigned to use an exemption. (Rheem, No. 1177 at p.
2)
DOE has identified 35 certified basic models of small electric
storage water heaters in its market assessment (see appendix 3A to the
final rule TSD) and determined that all of these models heat water
using electric resistance elements and, as currently designed, do not
meet any of the criteria for an exemption to the requirement to
determine UEF according to the high temperature test method. For
example, most of these products are likely capable of heating and
storing water at or above the temperature threshold criterion that
would, if they were capable of only heating and storing water at that
temperature or less, exempt them from high temperature testing (the
temperature criterion is discussed in more detail in the following
section of this document). (Heat pump small electric storage water
heaters, discussed later in this paragraph, were not certified to DOE.)
Based on the calculations provided by Rheem and NEEA, DOE has
determined that the vast majority of these small electric storage water
heaters are capable of achieving an FHR of more than 51 gallons when
set to the highest temperature set point (as would be required under
high-temperature testing), and thus these products would qualify for
the medium draw pattern when tested to the high-temperature test
method. As such, these products would be subject to the standards for
electric storage water heaters under 55 gallons generally and not the
standards for small electric storage water heaters, which are
applicable only for products in the very small and low draw patterns.
Further, the models that would remain in the low draw pattern (having
an FHR less than 51 gallons) would have an effective storage volume
greater than 35 gallons, such that they would not be considered small
electric storage water heaters, either. Therefore, these specific small
electric storage water heaters would be subject to standards being
adopted for electric storage water heaters with 20-55 gallons of
storage volume generally (i.e., the standards for small electric
storage water heaters would not apply), which are met through use of
heat pump technology, unless they are redesigned to be eligible for one
of the exemptions from high-temperature testing. If a product were
redesigned to become eligible for an exemption, then the high-
temperature test method would not be required, and thus these electric
resistance products would remain as small electric storage water
heaters and be subject to the standards being adopted for small
electric storage water heaters, which can be met using electric
resistance heating.
Additionally, in response to A.O. Smith's concern regarding the
potential need to adjust small electric storage water heater standards
to account for the impact of the high-temperature test, DOE notes that
redesigns to the thermostat capabilities of electric storage water
heaters are expected to be relatively low-cost for manufacturers, and
products redesigned in such a manner would still be able to serve the
majority of the market based on consumer field usage data (as described
above). In a final rule amending test procedures for commercial water-
heating equipment, DOE evaluated the implications of removing a
temperature criterion of 180 [deg]F that previously was part of the
definition of a commercial water heater. 81 FR 79261, 79285 (Nov. 10,
2016). In that final rule, it was discussed that redesigning water
heaters to account for the 180 [deg]F temperature threshold can be
achieved through replacement of a single part, the thermostat, which
can be very easily and inexpensively changed to allow for heating water
to greater than 180 [deg]F. Id. In 2016 A.O. Smith commented that a
thermostat designed to deliver water temperatures in excess of 180
[deg]F can be installed at no additional cost on products that are
consumer water heaters in all other respects. Id. (See also A.O. Smith,
Docket No. EERE-2014-BT-TP-0008, No. 27 at pp. 6-7). In light of these
previous stakeholder comments there is no reason to believe that, for
small electric storage water heaters, redesigning models to limit the
temperature to 135 [deg]F would increase the price of the product.
Hence, DOE expects thermostat redesigns to become a common strategy for
manufacturers to offer small electric storage water heaters
[[Page 37926]]
after the compliance date of this final rule.
However, this does not mean that all small electric storage water
heaters available today would require redesign to be compliant with the
amended standards set forth in this final rule. As discussed in section
V.D.1.d of this document, the high-temperature test method is not
required for heat pump water heaters; therefore, the high-temperature
test method would not affect heat pump configurations on the market
today. For example, consumers can continue to use circulating heat pump
water heaters in small electric storage water heater configurations
(i.e., with small separate tanks) for cases where a small electric
storage water heater is desired but without the specific design
exemptions that electric resistance products would require. DOE has
identified four recent models on the market--two of which have been
marked for sale in the United States-- which offer this
capability.\191\
---------------------------------------------------------------------------
\191\ Product literature for models of heat pump small electric
storage water heaters can be found docketed at www.regulations.gov/docket/EERE-2017-BT-STD-0019. In the December 2023 SNOPR the
Department had erroneously stated that there are no longer heat pump
circulating water heaters available on the market (see 88 FR 89330,
89333) due to changes in a manufacturer's website.
---------------------------------------------------------------------------
Consequently, DOE concludes that no compliant products on the
market today will be required to use the high-temperature test method
in order to demonstrate compliance with the standards being adopted in
this final rule. Therefore, DOE is not establishing any specific
enforcement provisions beyond the requirements of the appendix E test
procedure with regards to the high temperature test method.
DOE recognizes that there may be additional ways for industry to
develop alternatives to heat pump water heaters for consumers; however,
DOE aims to have all products that offer the same performance,
capacity, and consumer utility be treated equally under standards. The
development and implementation of the high-temperature test method is
one way to assure this for products that vary temperature to accomplish
these ends. In addition to this, DOE is amending the definitions of the
product classes to more accurately capture the branches of the market
under which performance, capacity, and consumer utility can be grouped.
This is discussed in section IV.A.1.e of this document.
PHCC commented that the storage temperature cannot be raised beyond
the ability of a mixing valve to safely regulate the outlet water
temperature, and that mixing valves are not inexpensive. PHCC asserted
that the device itself can be 25 percent to 30 percent of the cost of
the water heater itself, and along with additional labor, material,
maintenance, and operational costs, which the commenter suggested would
result in mixing valves not being a commonly used solution today. PHCC
also warned that installation of water heaters at elevated temperatures
without a mixing valve causes a serious safety risk in addition to
increased standby losses. In its comment, PHCC stated that the creation
of the limited capacity will almost ensure that the high-temperature
outcomes will happen, and if so, DOE should consider mandating mixing
valves to ensure safety for consumers. (PHCC, No. 1151 at p. 2)
The price of a mixing valve and its installation would vary
depending on whether the mixing valve is shipped with the water heater,
built into the water heater, or part of a standard installation kit.
DOE understands the estimate of a mixing valve being 25 to 30 percent
of the water heater's material price may reflect a separately purchased
mixing valve. However, as discussed throughout this rulemaking and the
most recent test procedure rulemaking, water heaters with built-in
mixing valves or with mixing valves in the water heater's installation
kit could become more common. Based on DOE's teardown analyses (as
described in section IV.C.1.c of this document and chapter 5 of the
final rule TSD), mixing valves that are provided by the water heater
manufacturer could be significantly less expensive than ones purchased
separately due to the volume in which water heater manufacturers can
supply these. In the LCC analysis, DOE uses an estimate of
approximately $75 per unit material price (before markup) based on the
aforementioned teardown analyses assuming that the mixing valve can
likely be provided by the water heater manufacturer in a scenario with
amended standards.
While DOE agrees with PHCC that mixing valves are a safety feature
and should be used to temper extra-hot water to a degree that does not
pose such a high scalding risk, the Department notes that EPCA does not
delegate DOE the authority to issue regulations mandating such a
consumer safety feature. Instead, DOE is statutorily obligated to
ensure that its energy conservation standards can be met by products
that are safe for consumers (see the screening analysis criteria in
section IV.B). In its analysis of amended standards for consumer water
heaters in this final rule, DOE has determined that the standards for
small electric storage water heaters can be met by products that either
limit the high temperature capability or are compatible with mixing
valves in order to protect consumers from scalding.
Therefore, as stated earlier, in this final rule, DOE is adopting
the proposed provisions for the high-temperature test method,
clarifying how the maximum tank temperature can be verified, adopting
additional exemptions for very small and large electric storage water
heaters, and permitting optional representations for heat pump water
heaters using the high-temperature test method.
a. Maximum Tank Temperature
In the July 2023 NOPR, DOE proposed that certain water heaters that
have a maximum setpoint temperature capable of heating and storing
water above 135 [deg]F would be required to conduct the high
temperature test, while water heaters that can only heat and store
water at or below 135 [deg]F would not be required to undergo such
testing. 88 FR 49058, 49165. In arriving at the 135 [deg]F setpoint,
DOE considered: (1) the effective storage volume of a small electric
storage water heater with a rated storage volume of 35 gallons for
various mean tank temperatures; and (2) potential consumer uses for
higher storage tank temperatures. Id. The effective storage volume at
various temperatures provides insight into the likelihood a small
electric storage water heater would operate in a capacity-boosting
mode, and in the July 2023 NOPR the Department provided a table that
showed the effective storage volume for various tank temperature
settings. Table V.37 from the July 2023 NOPR is reproduced here also.
Id.
[[Page 37927]]
[GRAPHIC] [TIFF OMITTED] TR06MY24.085
For instance, it is unlikely a consumer would purchase a 35-gallon
small electric storage water heater and set the tank temperature to 130
[deg]F to increase the effective storage volume to 38 gallons, which is
less than a 9 percent increase in effective storage volume. On the
other hand, at a maximum setpoint of 140 [deg]F, a 35-gallon small
electric storage water heater could replace up to a 44-gallon heat pump
water heater, which represents more than a 25 percent increase in
effective capacity. Id. The market share of medium electric storage
water heaters around 40 gallons is approximately 40 percent. As a
result, DOE proposed a maximum temperature setpoint of 135 [deg]F.
However, DOE also recognizes that increased capacity is not the
only reason a consumer may want a higher tank storage temperature.
Higher temperature setpoints can allow consumers to pair water heaters
with clothes washers or dishwashers that lack heating elements and can
be used to reduce bacterial growth. While the data shows that only a
small percentage of consumers are utilizing tank temperature setpoints
greater than 135 [deg]F, DOE notes that the 135 [deg]F maximum
temperature setpoint is not a temperature limit. There are heat pump
models of small electric water heaters available on the market that are
exempt from the high temperature testing provisions and have
temperature setpoints of 140 [deg]F or higher.\192\ Additionally, DOE
proposed that units capable of storing water at a setpoint above 135
[deg]F only through a temporary, consumer-initiated mode lasting no
longer than 120 hours would not be subject to high temperature testing.
This would allow consumers to initiate the temporary, high-heat mode
prior to using a clothes washer or dishwasher that lacks a heating
element for special cleaning loads, e.g., when dust mites or norovirus
may be of particular concern. This temporary mode would also allow
consumers to periodically raise the temperature of the tank past 135
[deg]F to quickly eliminate any bacteria growth in the tank. For
instance, if a consumer shuts their water heater off or puts it into a
low-temperature vacation mode to conserve energy while not in use, they
can use the temporary, high-heat mode to quickly eliminate any bacteria
in the tank. Finally, DOE also notes that a setpoint of 135 [deg]F is
well within the range of many recommendations for controlling bacteria
growth in storage water heaters.\193\
---------------------------------------------------------------------------
\192\ Product literature for models of heat pump small electric
storage water heaters can be found docketed at www.regulations.gov/docket/EERE-2017-BT-STD-0019. See, for example, models marketed to
reach up to 145 [deg]F: www.nyle.com/wp-content/uploads/2023/01/SB-E008T-010323.pdf and www.heatwater.com/wp-content/uploads/2021/09/SB-C6-112923.pdf (Last accessed Jan. 18, 2024).
\193\ According to the CDC, legionella generally grow well
between 77 [deg]F and 113 [deg]F, but growth slows between 113
[deg]F and 120 [deg]F, and legionella begin to die above 120 [deg]F.
See the CDC's Legionella Environmental Assessment Form. Centers for
Disease Control and Prevention. Available online at www.cdc.gov/legionella/downloads/legionella-environmental-assessment-p.pdf.
(Last accessed: Jan. 18, 2024).
---------------------------------------------------------------------------
In response to the July 2023 NOPR, the Joint Advocacy Groups
supported the proposed 135 [deg]F threshold for high temperature
testing provisions, adding that a threshold of 140 [deg]F could
significantly undermine the intent of the proposed standards by
allowing 35-gallon water heaters to reach an effective storage volume
of 44 gallons without being tested in a representative manner. The
Joint Advocacy Groups also agreed with DOE's tentative determination
that the proposed 135 [deg]F threshold would not compromise the utility
of the water heater for consumers who desire hotter water for certain
situations. (Joint Advocacy Groups, No. 1165 at pp. 7-8) NEEA also
urged DOE not to set the limit to require high-temperature testing any
higher than 135 [deg]F. (NEEA, No. 1199 at pp. 7-8)
BWC, on the other hand, urged DOE to consider increasing the
temperature criterion for the high-temperature test exemption from 135
[deg]F to 140 [deg]F because residential electric storage water heaters
that heat water to 140 [deg]F serve a distinct health and safety
function, as the Centers for Disease Control (``CDC'') recommends
maintaining this temperature to mitigate the formation or presence of
legionella bacteria. (BWC, No. 1164 at p. 9) AHRI also suggested that
the temperature criterion for the high-temperature test exemptions be
increased to 140 [deg]F because setting the internal tank temperature
to 140 [deg]F may produce significant health and safety benefits to
consumers (i.e., killing legionella, norovirus, and dust mites). AHRI
provided information that showed that washing clothes and bedding at
140 [deg]F is one of the suggested guidelines that healthcare agencies
provide to kill dust mites and norovirus. Additionally, AHRI cited
information from the CDC, which recommends storing hot water above 140
[deg]F to control for legionella. (AHRI, No. 1167 at p. 3-4)
A.O. Smith similarly commented that a temperature of 140 [deg]F is
recommended to wash bedding and linens to kill dust mites and
norovirus. The commenter also referenced DOE's website, which
recommends that people with suppressed immune systems may want
[[Page 37928]]
to keep their tank temperature at 140 [deg]F and install limited
devices on taps and baths. A.O. Smith stated that several codes,
including the National Plumbing Code of Canada,\194\ require electric
resistance storage water heaters to be shipped at a 140 [deg]F set
point; therefore, allowing a 140 [deg]F set point would reduce
manufacturer burden from having to produce separate model lines for the
United States and Canada. (A.O. Smith, No. 1182 at p. 6) A.O. Smith
collected data on water heater temperatures from a survey of 500
homeowners. The data, A.O. Smith stated, showed that 63 percent of
respondents adjusted the water heater set point from the factory-
shipped temperature.\195\ Of those who adjusted the set point, 45
percent increased the set point, 38 percent decreased the set point,
and 17 percent had done both. A.O. Smith also gathered data from 40-
gallon ``connected'' water heaters \196\ which showed that a total of
10 percent of customers have set the temperature higher than 135
[deg]F, whereas 5 percent of customers have the temperature higher than
140 [deg]F. A.O. Smith argued that it believes a threshold of 140
[deg]F for exemption from high-temperature testing better maintains
consumer utility. (A.O. Smith, No. 1182 at p. 6)
---------------------------------------------------------------------------
\194\ National Plumbing Code of Canada 2020, page 200. Available
online at: nrc-publications.canada.ca/eng/view/ft/?id=6e7cabf5-d83e-
4efd-9a1c-6515fc7cdc71r. (Last accessed: Oct. 31, 2023).
\195\ DOE notes that clause 23.3 of UL Standard 174, ``Household
Electric Storage Tank Water Heaters,'' was recently updated to
require that the temperature-regulating control shall be set before
leaving the factory to a control position corresponding to a water
temperature no higher than 51.7 [deg]C (125 [deg]F). When the water
heater is equipped with a thermostatic mixing valve in addition to
the temperature regulating control, the factory setting of the water
temperature mixing valve shall be no higher than 51.7 [deg]C (125
[deg]F), and the temperature-regulating control shall be factory set
no higher than 60 [deg]C (140 [deg]F). These updates went into
effect on October 14, 2023. This standard can be accessed online
at:www.shopulstandards.com/ProductDetail.aspx?productId=UL174_11_S_20040429. (Last accessed:
Nov. 30, 2023).
\196\ A.O. Smith did not specify whether these units were
connected to a utility demand-response program or were otherwise
equipped with WiFi-enabled controls and monitoring.
---------------------------------------------------------------------------
Rheem noted that the EF test procedure, which had been in use for
over 25 years, had a representative nominal tank temperature between
130 and 140 [deg]F, so a temperature of 140 [deg]F is representative
for a subset of water heaters in the field today. Rheem stated that, in
addition to requirements in Canada, the CDC also recommends temperature
control limits that store hot water above 140 [deg]F. (Rheem, No. 1177
at p. 4)
Finally, the CA IOUs strongly recommended that the temperature
criterion for the high-temperature test method exemptions be reduced to
no more than 130 [deg]F. The CA IOUs expressed concern that a
temperature as high as 135 [deg]F would still enable small electric
storage water heaters to directly compete with a larger heat pump water
heaters and erode the anticipated savings from heat pump-level
standards. The CA IOUs calculated that if a lowboy water heater with 35
gallons of rated storage volume and a 51-gallon FHR were to operate at
135 [deg]F with a thermostatic mixing valve, it would have an effective
storage volume of 42 gallons and a new FHR of 56 gallons--which would
appear to be in the range of the 20-55 gallon electric storage water
heater class. Therefore, the CA IOUs stated that the high-temperature
test should be required for electric storage water heaters that have a
permanent mode or setting in which the water heater is capable of
heating and storing water above the test procedure design temperature
of 125 [deg]F. (CA IOUs, No. 1175 at pp. 3-4)
First, in response to A.O. Smith's concern about manufacturer
burden, DOE notes that harmonizing the factory-shipped setpoint
temperature between the United States and Canada may not eliminate
manufacturer burden. Specifically, the current minimum efficiency
requirements for electric resistance storage water heaters are
different in Canada, and several manufacturers currently offer distinct
models in Canada to meet these requirements. See chapter 3 of the final
rule TSD for more details on Canada's minimum efficiency requirements.
With respect to the comments on both raising and lowering the
maximum setpoint temperature proposed in the July 2023 NOPR, DOE first
notes that the maximum setpoint temperature is based on the expected
use for these products. Data show that consumers do not generally use
very high temperature setpoints even in light of CDC guidance, so the
``upper limit'' of temperatures found in normal installations appears
to be lower than the 140 [deg]F suggested by some stakeholders.
In the July 2023 NOPR, DOE tentatively determined that small
electric storage water heaters that can heat and store water above 135
[deg]F will be substantially more likely to be used permanently at
higher temperatures to increase capacity (as discussed in section V.D.1
of this document). Commenters advocating for a higher maximum setpoint
temperature of 140 [deg]F do not dispute DOE's determination that small
electric storage water heaters that can heat and store water above 135
[deg]F will be substantially more likely to be used permanently at
higher temperatures to increase capacity. Instead, they focus on the
health and safety benefits of setting the tank temperature to 140
[deg]F. DOE recognizes that higher temperatures, e.g., 140 [deg]F, can
more quickly control bacterial growth in storage water heaters. But, as
discussed previously, DOE is not limiting the maximum temperature
setpoint for small electric water heaters. Based on DOE's and A.O.
Smith's data, approximately 10% of consumers use a setpoint temperature
greater than 135 [deg]F. For these consumers who prefer setpoint
temperatures greater than 135 [deg]F, there are small electric heat
pump water heaters on the market today that have setpoint temperatures
above 140 [deg]F, and these models would not be affected by the high-
temperature testing provision. Further, as noted earlier, the temporary
mode exemption will allow owners of electric resistance storage water
heaters to periodically increase the temperature above 135 [deg]F, and
for up to 120 hours (or five days) at a time, if desired for short-term
disinfection applications.
With respect to the comment from the CA IOUs that DOE lower the
temperature to 130 [deg]F, DOE thinks it is unlikely that a consumer
would purchase a 35 gallon small electric water heater and operate it
at 130 [deg]F to increase the capacity by 3 gallons. While Rheem
suggested that DOE refer to the outdated EF test procedure to determine
what temperatures are considered typical, the current UEF test
procedure can provide more recent insight. The current test method is
based on a normal delivery temperature of 125 [deg]F 5
[deg]F (as discussed previously), and within this normal range,
consumer storage-type water heaters may sometimes contain water at 130
[deg]F due to natural deviations from the setpoint temperature.
For example, commercially available electric storage water heaters
that are marketed today to boost the capacity using higher storage tank
temperatures all do so with temperatures above 135 [deg]F. One product
tested by DOE has a ``High'' setting that results in a tank temperature
of about 140 [deg]F, and the setting below that resulted in a tank
temperature of 125 [deg]F. There was no setting observed to boost
capacity at a tank temperature of 135 [deg]F. Another manufacturer
offers a 55-gallon product with a variety of settings allowing the user
to get ``performance equivalency'' of a 65-, 80-, or 100-gallon tank,
stating that the tank raises the temperature safely up to 170 [deg]F.
88 FR 40406, 40446.
[[Page 37929]]
At the lowest level of capacity boosting, this model is offering 18
percent additional effective storage volume (going from 55 gallons to
65 gallons), which would indicate a temperature around 140 [deg]F as
well. These designs demonstrate that storing water at 140 [deg]F is a
useful temperature for boosting capacity, whereas 135 [deg]F may not
be.
Crystal also recommended that DOE review the allowed usage of
germicidal UV-C water treatment in recirculating hot- and warm-water
lines to complement or substitute thermal disinfection cycles.
According to Crystal, this is allowed under regulation in several
countries around the world, and therefore products and research are
available on the market as well as ongoing novel technology adoptions
improving the sustainability and energy efficiency and maintenance of
this field further. (Crystal, No. 577 at p. 1)
DOE has not found examples of consumer water heaters using UV
treatment to disinfect hot water lines. However, to address issues like
this, one manufacturer produces a point-of-use water heater that uses
ozone generation to disinfect the water in the pipes and at the faucet
while still delivering hot water at a temperature that is comfortable
for hand-washing (the unit is advertised to have a maximum set point
temperature of 120 [deg]F).\197\ Additionally, circulating water
heaters (discussed more in section IV.A.1.a of this document) are a
type of storage water heater that can maintain the water in the pipes
at a high temperature so that all of the water in the system stays at a
safe temperature and does not stagnate. The high temperature test will
not impede the function of either of these types of products, as
discussed later. Another manufacturer uses an antimicrobial enamel
coating inside the water heater tank to prevent the growth of bacteria,
mold, and mildew on the surface of the tank lining (though it is not
advertised to specifically prevent legionella growth).\198\
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\197\ For more information, see product literature available
online at: www.intellihot.com/wp-content/uploads/2023/01/Legionator-Product-Spec-Sheet-2.23.pdf. (Last accessed: Nov. 28, 2023).
\198\ For more information, see product press release available
online at: www.microban.com/bradford-white. (Last accessed: Nov. 29,
2023).
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b. Verification of Maximum Tank Temperature
As discussed in the previous section, in the July 2023 NOPR, DOE
proposed that products that are unable to heat and store water at a set
point above 135 [deg]F would not be required to test using the high-
temperature test method. 88 FR 49058, 49165. DOE received the following
comments in response to the July 2023 NOPR requesting clarification on
the maximum tank temperature, how it is measured, and specific
tolerances around required values as well as criteria for products
exempt of the high-temperature test method.
BWC asked for DOE to further clarify what design factors would
constitute a product that is not capable of heating and storing water
above 135 [deg]F. Specifically, BWC sought additional information on
whether the exemption criteria would be based on a direct user
interface function which operates the product or, instead, a thermostat
capable of being set above 135 [deg]F. The commenter provided examples
of configurations with surface-mount thermostats and electronic
controls, with and without mixing valves, to inquire whether these
configurations would be exempt from the high temperature test. (BWC,
No. 1164 at pp. 7-8)
AHRI asked DOE to elaborate on how it would enforce the high-
temperature test method. The commenter stated that most electric
storage water heaters utilize a surface-mount thermostat, which is
unsophisticated and has a large temperature tolerance--as a result, the
mean tank temperature may vary appreciably from the temperature set
point. AHRI stated that the mean tank temperature will typically be
lower than the thermostat setting. As a result, AHRI requested feedback
on whether the enforcement of the high-temperature test method would be
based on thermostat set points or on test data (in the case that it is
test data, AHRI recommended a temperature tolerance of 5
[deg]F on Tmax,1 prior to requiring high-temperature testing
in appendix E). AHRI recommended that DOE measure the maximum tank
temperature using the Tmax,1 measurement in the simulated-
use test because it is commonly used in the industry to evaluate the
effective storage volume and is referenced in the regulations already
(manufacturers and labs are familiar with how to test for
Tmax,1, and there would be minimal burden associated with
determining the tank temperature based on this metric). (AHRI, No. 1167
at p. 4)
A.O. Smith also requested that DOE clarify how the temperature
criterion for the high-temperature test is determined--whether it is a
set point or whether it is a measurement. A.O. Smith stated that
additional specificity is necessary because most electric resistance
storage water heaters on the market use mechanical controls (e.g., bi-
metallic thermostats) which turn the elements on and off, resulting in
larger temperature variation around the set point. A.O. Smith also
requested that DOE clarify the enforcement provisions surrounding the
level of external consumer intervention required to be exempt from the
high-temperature test. (A.O. Smith, No. 1182 at p. 5)
Rheem requested clarification on how the maximum temperature a
water heater is capable of storing water at is measured (whether it be
the maximum temperature on the thermostat settings, the maximum
temperature within the tank, the maximum mean tank temperature, or the
maximum outlet temperature as measured by a test in section 29 of UL
174-2021.6.\199\ Rheem recommended the use of Tmax,1 to
verify the temperature that a water heater can heat and store water to.
(Rheem, No. 1177 at p. 5) Rheem recommended that DOE require
certification and disclosure in product literature of the maximum
temperature, FHR, and UEF when tested to the high-temperature
requirements. Rheem also recommended that DOE establish enforcement
provisions to ensure the maximum temperature aligns with the certified
values. Rheem commented that a tolerance of 5 [deg]F for
the maximum tank temperature and 3 percent on the
effective storage volume would be necessary due to variability in the
test procedure and the imprecise operation of bi-metallic thermostat
controllers. Rheem also asked for clarification on how DOE would
conduct enforcement testing, and if DOE will run tests at both
temperature conditions, then what steps must be taken between the two
simulated-use tests. (Rheem, No. 1177 at p. 6)
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\199\ See UL 174-2021.6, UL Standard for Safety Household
Electric Storage Tank Water Heaters.
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In response to these requests for clarification, DOE clarifies that
the exemption will be determined based on Tmax,1, which is a
measured parameter in the current test procedure that represents the
maximum measured mean tank temperature after cut-out following the
first draw of the 24-hour simulated-use test. In order to develop
product-specific enforcement provisions for the high-temperature test
method, DOE must first identify whether manufacturers should certify
this value privately; as such, a certification was not suggested in the
July 2023 NOPR. DOE is deferring this determination to a separate
rulemaking addressing certification and enforcement provisions for
consumer water heaters and is not codifying any specific requirements
in this final rule.
In addition to this topic, Rheem suggested that, instead of
conducting the high-temperature test at the
[[Page 37930]]
maximum tank temperature, the high-temperature test should be conducted
at a standardized temperature. Rheem recommended that the high-
temperature test be performed at 160 [deg]F 5 [deg]F as a
representative temperature for this type of water heater operation by
2029. Rheem stated that 160 [deg]F is in between the 135 [deg]F
temperature criterion and the 180 [deg]F maximum temperature (given
that UL 174-2021 safety standard limits the maximum tank temperature to
185 [deg]F). Rheem commented that future demand-response programs will
also require operation at or above 160 [deg]F. (Rheem, No. 1177 at p.
5)
In response to Rheem's request for a fixed set point temperature
for high-temperature testing, DOE notes that not all water heaters with
the capability to store water above 135 [deg]F will necessarily have
the capability to store water at 160 [deg]F; hence, DOE is not adopting
any changes to the set point requirements for the high-temperature test
method. While the test may not be carried out at the exact temperature
to which the water heater would be set in the field, it would be
representative of the maximum temperature the water heater can sustain
safely, which is important for consumer purchase decisions. UEF
decreases with increased tank temperature; therefore, the water heater
is expected to perform at least as well as a high-temperature rating
evaluated at the highest tank temperature set point, all other
environmental conditions the same. Should additional information become
available regarding the set point temperatures of consumer electric
resistance storage water heaters in the field, DOE may consider it in a
future test procedure rulemaking.
c. Very Small and Large Electric Storage Water Heaters
In response to the July 2023 NOPR, some commenters stated that very
small electric storage water heaters (i.e., products with less than 20
gallons of rated storage volume) should not have to test to the high-
temperature test method because these products are too small to
reasonably substitute for larger heat pump water heaters, so it may be
unlikely that these products are set to a high tank set point
temperature.
Rheem suggested that the high-temperature test should be narrowly
applied only to those electric storage water heaters which have
potential to introduce a circumvention risk for heat pump water heater
standards. In its comments, Rheem indicated that these products would
be tabletop and electric storage water heaters with rated storage
volumes greater than or equal to 20 gallons and less than or equal to
35 gallons. Rheem recommended that high-temperature testing should not
apply to all other electric water heaters with storage volume. (Rheem,
No. 1177 at p. 2) In its analysis, Rheem determined that a 19-gallon
very small electric storage water heater would need to store water at
180 [deg]F to achieve an FHR of approximately 51 gallons, which is much
higher than is typically observed in consumer water heaters. On this
basis, Rheem stated that very small electric storage water heaters
cannot match the delivery capacities of 20-55 gallon electric storage
water heaters, which would otherwise require heat pump technology.
(Rheem, No. 1177 at pp. 2-3)
For electric resistance storage water heaters with rated storage
volumes less than 20 gallons, AHRI recommended that high-temperature
testing not be required because these units are unlikely to get into
medium draw patterns at higher test temperatures. (AHRI, No. 1167 at p.
6)
A.O. Smith commented that, because small electric storage water
heaters are the most likely to be operated at a higher temperature with
a mixing valve to match the performance of larger water heaters, the
high-temperature test method should be limited to small electric
storage water heaters only. From its own testing of a 17-gallon very
small electric storage water heater, A.O. Smith determined that
increasing the set point from 125 [deg]F to 150 [deg]F resulted in a
43-percent increase in effective storage volume, but only a 4-percent
increase in FHR, and thus A.O. Smith concluded that very small electric
storage water heaters cannot match the performance of larger water
heaters, even when operating at their highest set point temperatures.
A.O. Smith recommended that DOE specify the high-temperature test only
applies to 20-35 gallon products in order to maintain
representativeness while reducing manufacturer testing burden. A.O.
Smith commented that this would still ``close the loophole'' for heat
pump water heater circumvention. (A.O. Smith, No. 1182 at pp. 6-7)
Providing this information, A.O. Smith recommended that electric
resistance storage water heaters of less than 20 gallons or greater
than 55 gallons should be exempt from the high-temperature test method.
(A.O. Smith, No. 1182 at p. 7)
To evaluate a potential exemption, DOE reviewed test data it had
collected from very small electric storage water heaters in support of
the proposed standards. These products, ranging in rated storage volume
between 1.8 gallons and 19.9 gallons, all had delivery capacities in
the very small or low draw patterns. Per its calculations, DOE also
came to the same conclusion as commenters: no model would be capable of
achieving an FHR high enough to place the water heater in the medium
draw pattern at the highest tank temperature set point.
Based on DOE's data and information presented by commenters, DOE
agrees that products with rated storage volumes of less than 20 gallons
would not likely be set to higher temperatures to boost household
delivery capacity as a substitute for a larger water heater. Therefore,
DOE is exempting all very small electric storage water heaters from
having to test to the high-temperature test method to demonstrate
compliance with new UEF-based standards.
In addition to the previous suggestions provided by manufacturers,
DOE received comments from NYSERDA and the CA IOUs suggesting that the
high-temperature test method does not serve a purpose for larger
electric resistance storage water heaters. NYSERDA stated that the
high-temperature test method should not apply to larger-volume electric
resistance storage water heaters that are already subject to heat pump-
level standards. (NYSERDA, No. 1192 at p. 6) NYSERDA stated that
exempting electric storage water heaters larger than 55 gallons of
rated storage volume from the high-temperature test method (or
potentially capping the effective storage volume) would reduce test
burden and allow manufacturers to maintain the status quo for larger
electric resistance storage water heaters. (NYSERDA, No. 1192 at p. 6)
The CA IOUs suggested that DOE amend the calculations for effective
storage volume such that products with rated storage volumes less than
or equal to 120 gallons would be capped at an effective storage volume
of 120 gallons. (CA IOUs, No. 1175 at pp. 3-4)
DOE agrees with NYSERDA and the CA IOUs that for products above a
certain volume threshold, it is unlikely that testing according to the
high-temperature method would provide more representative ratings.
Specifically, the currently applicable standards for electric storage
water heaters greater than 55 gallons of rated storage volume and less
than or equal to 120 gallons of rated storage volume correspond to
products with heat pump technology, such that all of these products on
the market today are heat pump water heaters. (See 10 CFR 430.32(d)).
Heat pump water heaters, discussed further in section V.D.1.d of this
document, would already be exempt from the high-temperature test
[[Page 37931]]
method, as it is unlikely to be more representative for these products.
Therefore, it is logical to exempt products that are 55-120 gallons of
rated storage volume from the high-temperature test method, as this
would be synonymous with the heat pump water heater exemption. Next,
while DOE has not observed consumer electric storage water heaters on
the market beyond 120 gallons of rated storage volume, it is unlikely
that such very large products would rely on high-temperature operation
to provide consumers with additional capacity: these products already
contain rated storage volumes that are greater than those of products
that have to comply with heat pump-level standards, such that the
elevated temperature is not necessary to provide as much capacity as a
heat pump water heater. Because of this, DOE has concluded that it is
reasonable to exempt any electric storage water heater greater than 55
gallons of rated storage volume from the high-temperature test method.
This exemption for large electric storage water heaters
additionally prevents potential backsliding from the standards of 55-
120 gallon products, a concern brought up by multiple stakeholders and
discussed in section IV.A.1.e of this document, because the rated
storage volume and effective storage volume would thus be equal for any
model greater than 55 gallons. An electric storage water heater between
55 and 120 gallons of rated storage volume would be required to
demonstrate compliance with standards in accordance with the normal
temperature test method, meaning that it cannot use the high
temperature test method to increase its effective storage volume beyond
120 gallons and become subject to less-stringent standards.
d. Optional Representations for Heat Pump Water Heaters
In the July 2023 NOPR, DOE proposed that high-temperature testing
would not apply to products that meet the definition of ``heat pump-
type'' water heater at 10 CFR 430.2. 88 FR 49058, 49166.
CEC stated their appreciation of DOE's recognition for the
significant non-efficiency grid benefit potential provided by
maximizing the thermal storage of heat pump water heaters through the
use of higher set point temperatures and thermostatic mixing valves.
(CEC, No. 1173 at p. 12)
Rheem supported allowing optional high-temperature representations
for certain heat pump water heaters because high-temperature operation
might become more representative of heat pump water heater
installations for three main reasons: (1) the increased need for
demand-response water heaters that can perform advanced load-up and
high-temperature energy storage, (2) the longer recovery time for heat
pumps can be offset by storing water at a higher temperature to
increase the amount of hot water immediately available, and (3) because
a heat pump increases the size of the water heater, a comparable FHR
can require elevated storage temperature. Rheem suggested that high-
temperature operation for heat pump water heaters could cause even
units with high UEF ratings to perform worse in the field. (Rheem, No.
1177 at pp. 2-4)
As noted in section V.D.1 of this document, if a water heater in
its default mode of operation \200\ has an internal tank temperature
that significantly exceeds the delivery set point temperature, the
calculation of effective storage volume captures this effect even
without the high-temperature test method. (See section 6.3.1.1 of
appendix E.) The FHR test would be carried out in this default mode and
capture the increased delivery capacity. The 24-hour simulated-use test
would be carried out in this default mode and would capture the
increased standby losses from the higher-temperature operation.
Therefore, if any heat pump water heater is designed to boost the tank
temperature and incorporate a mixing valve as part of its normal
operation, the effective storage volume, FHR, and UEF values resulting
from the appendix E test procedure as written would be representative
of this type of operation in the field.
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\200\ Section 5.1.1 of appendix E outlines the determination of
the operational mode for testing heat pump water heaters, which
shall be the default mode unless otherwise specified.
---------------------------------------------------------------------------
DOE did not receive any other comments requesting that the high-
temperature test method be made optional for voluntary representations
of heat pump water heaters; however, DOE understands there is potential
need to demonstrate storage and delivery capacity for heat pump water
heaters representative of high-temperature operation that is not the
default mode. Heat pump water heaters, unlike traditional electric
resistance storage water heaters, can offer more modes to control the
way the compressor and backup elements behave as a natural outcome of
having more than one way to heat the water, and increasing storage tank
temperature could be one potential way to increase delivery capacity
when the compressor operates alone (i.e., offers a slower recovery
speed). In the June 2023 TP Final Rule, DOE adopted optional metrics
for voluntary representations of heat pump water heaters to demonstrate
performance in a variety of different environmental conditions because
this information, DOE surmised, would be relevant for consumer
information, and manufacturers already tested products to these
alternate conditions. 88 FR 40406, 40437-40438. Similarly, DOE has
determined that optional high-temperature representations would be
relevant for consumer information as the market transitions towards
this technology.
First, as discussed earlier, certain consumers using certain water
heater configurations may desire higher set point temperatures, in
which case the high-temperature test method could provide
representative performance results. Second, as indicated by Rheem,
future heat pump water heater control strategies could use variation of
the storage tank temperature to compensate for slower compressor
recovery periods when backup elements are either absent or disabled.
A.O. Smith commented that consumers may be led to ``upsize'' when
transitioning to a heat pump water heater (see section IV.C.1.b of this
document for further discussion of this comment); however, as Rheem
suggested, high-temperature performance data could enable consumers to
purchase smaller, less expensive heat pump water heaters if the high-
temperature performance data demonstrate equivalent performance to a
larger product.
Unlike the mandatory requirement for electric resistance storage
water heaters, the high-temperature test is optional for heat pump
water heaters. This is because DOE expects the representativeness of
this test method to depend on the designs of heat pump water heaters
that emerge within the compliance period of this final rule. At this
time, heat pump water heaters comprise a relatively small portion of
the market; therefore, consumer preferences and usage are not yet as
well understood (whereas, for electric resistance storage water
heaters, several commenters indicated that the high-temperature test
method would be representative of field applications). Should higher
tank temperatures become more prevalent in field use as a result of a
technology transition, DOE may revisit the implementation of the high-
temperature test method in a future test procedure rulemaking.
e. Temporary Mode
Some electric resistance water heaters could offer high-temperature
modes that
[[Page 37932]]
allow for set points above the intended delivery temperature to boost
delivery capacity, but only temporarily before automatically reverting
to the normal temperature mode. This contrasts with several models that
are currently available, which remain in the high-temperature setting
until the consumer changes the mode or setting to deactivate the high-
temperature mode. Temporary modes would be intended for occasional use
in situations in which there is a short-term increased demand for hot
water, while non-temporary modes would be more likely to be used long-
term. In the June 2023 TP Final Rule, DOE discussed comments it
received from stakeholders regarding water heaters with high-
temperature modes. Specifically, stakeholders indicated that high-
temperature modes are not intended to be the primary mode of operation
and should not be used continuously, and that testing in these modes
would not reflect their intended use. 88 FR 40406, 40449.
DOE understands that temporary high-temperature modes would be
unlikely to be used long-term because they would automatically return
the set point to a more typical temperature after a certain period of
time has elapsed. Because these temporary modes cannot be used
permanently, in the July 2023 NOPR DOE tentatively determined that
units capable of storing water at a set point above 135 [deg]F only
through a temporary, consumer-initiated, high-temperature mode lasting
no longer than 120 hours should not be subject to high-temperature
testing. 88 FR 49058, 49165. DOE expects that such products would
operate in non-high temperature modes for the majority of the time and,
therefore, testing in the high-temperature mode would not be
representative. Thus, DOE proposed to limit the high-temperature mode
duration to 120 hours as a reasonable amount of time that demand may be
temporarily higher than normal (such as when guests are visiting).
Further, DOE expected that models with permanent high-temperature
modes, whether shipped from the factory with that mode as the default
mode or simply as a user-selectable mode, would be likely to be used
continuously in the high-temperature mode. Therefore, DOE tentatively
concluded it is representative to test such water heaters in the high-
temperature modes and is proposing to require such testing. Id.
GEA commented that DOE's 120-hour limit without user intervention
for extra demand is an appropriate approach for maintaining consumer
utility and the energy-saving benefits of such features. (GEA, No. 1203
at pp. 1-2)
AHRI requested that DOE provide additional information on what
meets the definition of a ``consumer-initiated'' high-temperature mode,
which, if lasting less than 120 hours, would deem the product exempt
from the high-temperature test method. AHRI also inquired as to the
type of interaction by the user that is necessary to satisfy the
requirement and whether the user can create a schedule. AHRI raised a
concern that if products fail to meet the specific requirement for the
temporary mode exemption, products tested to the high-temperature test
method would not be able to comply with standards. (AHRI, No. 1167 at
p. 4) BWC also asked for DOE to further clarify what a ``permanent mode
or setting'' meant for the high-temperature test exemption. (BWC, No.
1164 at pp. 7-8)
Stanonik stated that the proposed addition of high-temperature
testing provisions is confusing, and added that the provisions may be
read to apply to most electric storage water heaters despite the fact
that DOE explains the provisions are only meant to apply to a subset of
them. Stanonik requested DOE clarify if the act of changing the
thermostat on a consumer water heater would be considered an ``external
consumer intervention'' that would then exclude the water heater from
high-temperature testing. (Stanonik, No. 1197 at p. 1)
Rheem stated that it was generally supportive of the outlined
exemptions from the high-temperature test, except for the temporary
setting exemption. Although Rheem had suggested that DOE investigate
temporary modes of operation in the test procedure rulemaking, Rheem
indicated in its comments to the July 2023 NOPR that such an exemption
would not be necessary if the test method were clarified and the
temperature criterion were raised from 135 [deg]F to 140 [deg]F.
(Rheem, No. 1177 at pp. 6-7)
In response to these requests from stakeholders, DOE is clarifying
what would constitute consumer intervention for the purpose of the
high-temperature test exemption. As discussed in section V.D.1.b of
this document, a high-temperature mode would be one in which the water
heater can achieve a Tmax,1 greater than 135 [deg]F during
the 24-hour simulated-use test. If the water heater is set to such a
mode, and the only time when it can achieve a Tmax,1 greater
than 135 [deg]F is in the period of time that lasts 120 hours or less
after the mode or setting is engaged by the user, then this would
constitute a temporary high-temperature mode. To be exempt from the
high-temperature test method, such a temporary high-temperature mode
can only be activated via user intervention with the water heater. Once
the temporary period of high-temperature operation has elapsed, the
water heater must return to a lower tank temperature that would result
in a Tmax,1 less than or equal to 135 [deg]F. If the user
wishes to extend the period beyond 120 hours, they must reactivate the
mode manually.
The purpose of this exemption is to allow products to increase
capacity when there are limited times of high demand. Therefore, the
consumer would have to manually activate the mode (e.g., pushing a
physical or digital button) if the high-temperature mode is required.
If, instead, a product adheres to a regular schedule of high-
temperature operation, a product would operate in a manner that
demonstrates a consistent need for additional capacity, and in such a
case the high-temperature test method would be more representative of
the average daily use cycle of the product. For this reason, a
scheduled setting would not be exempt from the high-temperature test
method. For the normal-temperature test to remain representative of the
ratings of the product, the water heater must permanently return to a
mode in which the Tmax,1 will not exceed 135 [deg]F at any
time after the temporary high-temperature operation has elapsed, and
the only way in which the water heater would return to an elevated
temperature is if the consumer interacts with the product manually
again.
In response to Stanonik's question, the act of manually changing
the set point temperature to achieve a mode in which the water heater
can attain a Tmax,1 beyond 135 [deg]F is generally addressed
in section V.D.1.b of this document. If the consumer can set the water
heater to permanently heat and store water beyond 135 [deg]F, then the
water heater is not exempt from the high-temperature test. As outlined
in section V.D.1.g of this document, such a model would not pass the
second criterion for exemption.
f. Demand-Response Water Heaters
In the July 2023 NOPR, DOE proposed to exempt from high-temperature
testing any water heaters that can only heat and store water at
temperatures above 135 [deg]F in response to instructions received from
a utility or third-party demand-response program. DOE reasoned that the
additional energy consumption from high-temperature water storage in
demand-response water heaters is compensated for by periods of water
heater inactivity (i.e., a curtailment period) and, thus, demand-
response water heaters do not engage in high-
[[Page 37933]]
temperature water storage in order to directly increase capacity over a
representative average use cycle of 24 hours. 88 FR 49058, 49166.
AHRI stated that it appreciated the exemptions from the high-
temperature test method, especially regarding demand-response water
heaters; however, AHRI asserted the demand-response exemption was not
clearly defined. AHRI requested DOE clarify the extent of this
exemption for manufacturers. (AHRI, No. 1167 at p. 2) AHRI commented
that setting an arbitrary maximum temperature for electric storage
water heaters may create potential issues for consumers in
jurisdictions with demand-response requirements. Specifically, AHRI
stated that load-up events for demand-response water heaters allow
products to store energy, and limiting the temperature of the water
heater will limit its load-up capability. AHRI requested that DOE
consider increasing the temperature criterion for the high-temperature
test exemptions in order to accommodate this function of demand-
response water heaters. (AHRI, No. 1167 at p. 3)
BWC expressed concerns with how DOE's high-temperature test method
might impact demand-response electric resistance water heaters,
suggesting that there could still be complications for these products
even with the exemption from the high-temperature test method. BWC
stated that the purpose of demand-response controls, as required in
many states, is to heat the unit to a higher temperature during off-
peak hours to store energy during times of peak electric grid demand,
and that these controls can be activated by either the utility or the
consumer themselves. BWC commented that water heaters would be
incapable of storing water at or above 135 [deg]F if the proposal were
finalized, which would limit the load-shifting capabilities of demand-
response water heaters. (BWC, No. 1164 at p. 8)
In response to commenters' concern about demand-response water
heaters being limited to 135 [deg]F, DOE is clarifying the meaning of
its proposed exemption to the high-temperature test method. As noted
previously, DOE proposed that electric storage water heaters capable of
heating and storing water over 135 [deg]F only in response to utility
demand response signals would not be subject to high-temperature
testing. This exemption was proposed so that water heaters intended for
use in demand-response programs would not have to limit their
temperature, provided that the ability to raise the temperature is
initiated only as part of the water heater's use in a demand-response
program. (This does not, however, preclude a demand-response water
heater from also having a manual temporary high-heat mode as described
in the previous section.)
In this final rule, DOE is adopting an exemption to the high-
temperature test method that will allow demand-response programs to
elevate the temperature of the water heater to any temperature that the
unit is capable of achieving, so long as the unit can only achieve
those temperatures as a result of the demand-response operation and not
as a result of the user increasing the set point temperature. For
example, a product with its maximum user-operable set point can store
water at or below 135 [deg]F during normal operation, but in response
to utility signals requesting a load-up, the product can increase the
temperature to 160 [deg]F (as an example) would be exempt from the
high-temperature test method because the user cannot set the water
heater to continuously operate above 135 [deg]F. Whereas continuous
operation above 135 [deg]F would increase the effective storage volume
and FHR of the water heater, a load-up event that prompts the water
heater to increase the temperature above this point does not. The load-
up event only temporarily boosts the temperature so that the water
heater can rely on stored energy throughout peak grid demand periods
instead of relying on electricity from the grid; therefore, over the
course of a representative average-use cycle (one day), the water
heater does not provide extra capacity compared to when it is set to a
lower temperature and allowed to recover the tank throughout the day.
Additionally, AHRI questioned whether grid-enabled water heaters
are also exempt from the high-temperature testing method. (AHRI, No.
1167 at p. 3) BWC also requested clarification on whether the high-
temperature test method would apply to grid-enabled water heaters, as
this was not mentioned in either the June 2023 TP Final Rule or the
July 2023 NOPR. (BWC, No. 1164 at pp. 8-9) Rheem argued that, because
grid-enabled water heaters are intended for demand-response, they are
not a direct replacement for heat pump water heaters to a great extent,
and that the high-temperature test method need not apply to grid-
enabled water heaters. (Rheem, No. 1177 at p. 3)
Grid-enabled water heaters, discussed in section IV.A.1.e, are
defined as having rated storage volumes greater than 75 gallons (see 10
CFR 430.2). In section V.D.1.c of this final rule, DOE concluded that
products with rated storage volumes greater than 55 gallons would be
exempt from the high-temperature test method. As a result, all grid-
enabled water heaters are exempt from the high-temperature test method.
Grid-enabled water heaters are a specific subset of electric storage
water heater products, which must be enrolled with a grid utility
program and are designed for the purpose of demand-response control. As
such, DOE expects that these products achieve higher storage
temperatures as a result of utility signals and not as a result of a
consumer's need for additional hot water. Therefore, DOE has concluded
that it is representative for grid-enabled water heaters to test to a
normal set point temperature and not the high-temperature test method.
g. Summary of the High-Temperature Test Method Applicability
As a result of the considerations discussed in the previous
sections, DOE is establishing that the high-temperature test method
must be conducted for all electric storage water heaters, except for
those meeting the following exemptions.
The first exemption is for products that are not capable of heating
the stored water beyond a Tmax,1 temperature of 135 [deg]F.
If the product has a Tmax,1 less than or equal to 135 [deg]F
when tested in the user-operable mode that results in its highest set
point, the product is exempt. This temperature criterion allows the
water heater to maintain its utility of providing hotter water for
certain consumer needs without increasing the temperature so much that
the water heater can be used as a direct substitute for a larger water
heater that must comply with more stringent standards. Beyond this
temperature, the high-temperature test method is more representative of
the product's use in the field.
The second exemption is for heat pump water heaters. As discussed
previously, heat pump water heaters are unlikely to be used to a
significant extent at high temperatures. However, in the event that a
heat pump water heater is designed for high-temperature operation, the
heat pump water heaters are allowed to use the high-temperature test
method optionally for voluntary representations, but normal set point
operation (section 5.1.1 of appendix E) is the mode that must be used
to demonstrate compliance with standards.
The third exemption is for demand-response water heaters,
specifically those products which can only attain temperatures beyond
135 [deg]F when requested to do so by a utility signal. If a product
does not allow the consumer to operate it in a manner that would result
in a Tmax,1 beyond 135 [deg]F but does allow the grid to
increase the tank temperature above this point, it remains
[[Page 37934]]
exempt from the high-temperature test method.
The fourth exemption is for water heaters that allow the user to
raise the temperature beyond 135 [deg]F, but only for a maximum of 120
hours before automatically resetting to a temperature setting that
results in Tmax,1 at or below 135 [deg]F. This allows water
heaters to provide flexible-capacity modes for times when consumers may
experience increased occupancy in the residence and thus a greater
demand for hot water. The water heater must return to a mode that would
result in a Tmax,1 less than or equal to 135 [deg]F after
the 120-hour period elapses unless the user activates the boost mode
again.
The fifth exemption is for water heaters of in-size categories
where high-temperature operation is not expected to be representative
of the product's function over an average daily use cycle. Very small
electric storage water heaters (those with rated storage volumes less
than 20 gallons) and large electric storage water heaters (those with
rated storage volumes greater than 55 gallons) are not expected to use
higher temperatures to boost capacity in order to be direct substitutes
for products which have significantly more stringent standards.
This final rule adopts these five exemptions for section 5.1.2 of
appendix E and 10 CFR 429.17.
2. Circulating Water Heaters
a. Separate Storage Tank Requirements
In response to the December 2023 SNOPR, NYSERDA encouraged DOE to
review the test procedure to ensure that defining circulating water
heaters as storage-type water heaters is consistent with the test
method developed for these products. (NYSERDA, No. 1406 at p. 2)
The test method for circulating water heaters, as established by
the June 2023 TP Final Rule, requires these products to be connected to
a separate storage tank to serve as the volume of hot water that the
circulating water heater requires for its function. See section 4.10 of
the appendix E test procedure. As such, when a circulating water heater
is tested per the appendix E test method, the test method will account
for the stored volume of hot water and the standby losses that occur
from it. This is analogous to how other traditional storage-type water
heaters are tested.
When considering the potential impact of the proposed standards for
electric storage water heaters on the availability of products to pair
with heat pump circulating water heaters, DOE tentatively decided in
the July 2023 NOPR that it would be more representative to pair such a
product with an electric resistance storage water heater, surmising
that is unlikely for consumers to pair a circulating heat pump water
heater with an integrated heat pump water heater because they would
already receive the energy-saving benefits of the integrated heat pump
water heater. 88 FR 49058, 49167. Thus, in the July 2023 NOPR, DOE
proposed to amend the separate storage tank requirement for a heat pump
circulating water heater to reflect an electric resistance storage
water heater that would be compliant with the proposed standards.
Specifically, this proposed requirement was to pair a heat pump
circulating water heater with a 30 gallon 5 gallon
electric resistance storage water heater in the low draw pattern. Id.
In response to the July 2023 NOPR, some commenters indicated that
heat pump circulating water heaters would be paired with a variety of
tank sizes, meaning it would be impractical to base a rating for these
products on just one tank pairing. Additionally, some commenters
recommended alternative separate storage tank requirements to those
proposed, or requested clarification.
A.O. Smith noted that gas-fired circulating water heaters present
on the market today are only used in commercial applications, and the
UFHWST tank pairing for these products is not common in residential
applications, as it would result in a more expensive installation
compared to a gas-fired storage water heater. (A.O. Smith, No. 1182 at
p. 13)
BWC stated that it does not believe heat pump circulating water
heaters should be coupled with 30 gallon 5 gallons
electric storage water heaters in the appendix E test method for these
products because this would not be realistic or representative of most
real-world installations, which will typically rely on much larger
tanks due to the slower recovery rate of a heat pump. BWC added that
heat pump circulating water heaters are designed to meet a variety of
unique residential applications in the field, which include different
tank sizes and setups to provide adequate hot water, each of which
would produce different efficiency ratings when tested; if forced to
test to just one tank size, BWC stated that it would be compelled to
cite to consumers an efficiency rating that is likely inflated and
inaccurate compared to what the consumer will see in practice. BWC
added further that a UFHWST, like that which is used for other types of
circulating water heaters, would be a more representative pairing for
heat pump circulating water heaters. (BWC, No. 1164 at pp. 12-13) Rheem
suggested that heat pump circulating water heaters be certified with an
UFHWST similar to other types of circulating water heaters because heat
pump circulating water heaters may be developed to not rely on the use
of backup electric resistance elements in an electric storage water
heater tank. (Rheem, No. 1177 at pp. 14-15)
In section IV.A.1.a of this document, DOE discussed its decision to
consider circulating water heaters as storage-type water heaters.
Therefore, circulating electric heat pump water heaters would be
classified as electric storage water heaters and subject to the
applicable electric storage water heater standards. DOE does not intend
to stifle innovation in or misinform consumers on the efficiency and
performance characteristics of heat pump circulating water heaters,
which could be used by consumers in lieu of traditional heat pump water
heaters. In the test procedure rulemaking, DOE received an abundance of
feedback indicating that these products are most likely to be paired
with electric resistance storage water heaters, which was the basis for
the proposed tank pairing in the July 2023 NOPR. Notwithstanding the
recommendations from BWC and Rheem, there remains uncertainty regarding
the sizes of UFHWSTs that could be paired with a heat pump circulating
water heater should these products not be used with electric resistance
storage water heaters. Products DOE has found on the market have
demonstrated positive results from case studies while being paired up
with nominal 40-gallon electric resistance storage water heaters,\201\
so it is expected that the products available today would remain
compatible with slightly smaller tanks as well. Therefore, in this
final rule, DOE concludes that an electric resistance storage water
heater that is 30 gallons 5 gallons and in the low draw
pattern is still a representative pairing based on feedback received in
the test procedure rulemaking.
---------------------------------------------------------------------------
\201\ A case study published by Nyle Water Heating Systems
demonstrates the use of a circulating heat pump water heater with a
nominal 40-gallon electric storage water heater. See online at:
www.nyle.com/wp-content/uploads/2021/09/Case-Study-3.2.pdf (Last
accessed: Jan. 5, 2024).
---------------------------------------------------------------------------
In response to the December 2023 SNOPR, BWC commented that
manufacturers will need to be able to test gas-fired circulating water
heaters with a greater range of unfired hot water storage tank volumes
than that which is specified in the June 2023 TP Final Rule. (BWC, No.
1413 at p. 2)
[[Page 37935]]
However, without consumer gas-fired circulating water heaters on
the market, there is insufficient information (other than the feedback
received during the test procedure rulemaking) to make a determination
to amend the separate storage tank pairing for these products. The test
method to pair gas-fired circulating water heaters with 80- to 120-
gallon unfired hot water storage tanks was developed after careful
consideration of numerous comments provided in that rulemaking. While
finalizing the amendment as proposed, DOE will continue to assess the
representativeness of the separate storage tank provisions in the
appendix E test procedure and address these concerns in a future test
procedure rulemaking if necessary.
Rheem stated its understanding that circulating water heaters would
be tested with a manufacturer-specified storage tank, and that the
storage tanks described in section 4.10 of appendix E would only be
used if there was no manufacturer-specified storage tank. (Rheem, No.
1408 at p. 2) AHRI and A.O. Smith requested that DOE clarify whether a
manufacturer would be able to make efficiency representations of
circulating water heaters that are designed and specified (or shipped)
for use with a storage tank that does not fall into the volume ranges
outlined in the test procedure and enforcement provisions. (A.O. Smith,
No. 1182 at p. 7; AHRI, No. 1167 at pp. 13-14)
The Department intends for the separate storage tank requirements
in section 4.10 to apply to circulating water heaters, which are
storage-type water heaters that are not sold with a tank. DOE
understands that there may be some confusion based on the wording of
section 1.19 of appendix E, which reads that a ``water heater requiring
a storage tank'' means a water heater without a storage tank specified
or supplied by the manufacturer that cannot meet the requirements of
sections 2 and 5 of appendix E without the use of a storage water
heater or unfired hot water storage tank. The current wording of
section 1.19 in appendix E inadvertently conflates circulating water
heaters with split-system water heaters--the distinctions between these
two are discussed in section IV.A.1.f.i of this document. As such, DOE
is making a minor amendment to section 1.19 of appendix E to resolve
industry confusion around these distinctions after determining that it
is clearer to define a ``water heater requiring a storage tank'' as a
water heater without a storage tank supplied by the manufacturer that
cannot meet the requirements of sections 2 and 5 of appendix E without
the use of a storage water heater or unfired hot water storage tank.
This edit removes the possibility that a water heater could have a
manufacturer-specified tank pairing but would have to be tested with a
different separate storage tank. Simultaneously DOE is clarifying in
section 4.10 of appendix E that those setup provisions apply to water
heaters requiring a storage tank--a term that is essentially synonymous
with ``circulating water heater.''
In response to the questions from AHRI and A.O. Smith,
representations of circulating water heaters must be made in accordance
with the separate storage tank requirements in the appendix E test
procedure. The compliance of the circulating water heater with the
appropriate storage water heater standards would be determined based on
the storage volume of the tank selected, which in turn determines the
effective storage volume of the circulating water heater. For all types
of circulating water heaters, should a manufacturer desire to report
its performance to multiple tank sizes, each tank size would constitute
a separate basic model.
Reporting requirements are not being established in this rulemaking
addressing energy conservation standards for consumer water heaters,
however, and DOE will propose these requirements in a separate
rulemaking.
b. Product-Specific Enforcement Provisions
In the July 2023 NOPR, DOE proposed a series of steps it would take
to ensure that the UFHWST used in assessment testing is as close as
possible to the model that was used to determine the circulating water
heater's rating. As stated earlier, reporting requirements are not
being addressed in this rulemaking, but will be considered separately.
88 FR 49058, 49167. The intent of DOE's proposal was to create a
procedure that would default to using the same tank that the
circulating water heater manufacturer used, but in the extenuating
circumstance wherein that tank is unavailable to DOE, the model could
still be tested.
A.O. Smith recommended that DOE bolster the enforcement provisions
and definitions outlining what would constitute a circulating water
heater to prevent the emergence of electric resistance circulating
water heater configurations. (A.O. Smith, No. 1182 at pp. 12-13) A.O.
Smith also asked DOE to clarify certification requirements for
circulating water heaters. (A.O. Smith, No. 1182 at p. 7) BWC stated
that several provisions leave open the possibility that DOE could
conduct enforcement testing with a significantly different UFHWST,
including the possibility of testing with a different manufacturer's
tank. BWC added that this could lead to unfair results, and that
instead DOE should allow manufacturers to provide DOE with the UFHWST
that is to be paired with the circulating water heater. (BWC, No. 1164
at pp. 13-14) BWC requested that DOE reconsider its proposed product-
specific enforcement provisions for circulating water heaters, which
include the steps DOE would take to test with an UFHWST as similar as
possible to the one used by the manufacturer to rate the circulating
water heater, so that the manufacturer could provide the UFHWST to DOE
for testing. (BWC, No. 1164 at pp. 13-14) Rheem requested that DOE
clarify whether the effective storage volume is a more appropriate
metric to use than rated storage volume in the enforcement provisions
proposed. Rheem supported the enforcement provisions proposed for
testing these products but suggested that DOE test at the lowest
storage volume available within the 80-120 gallon range for UFHWSTs.
(Rheem, No. 1177 at pp. 14-15)
In response to the request from BWC, DOE does not directly source
the tank from manufacturers as it would limit the ability for
independent assessment testing given that manufacturers are not always
notified when assessment testing occurs.
In response to Rheem's question about rewriting provisions to use
the effective storage volume metric, it is unclear where a change would
apply, because the provisions outline the steps with regard to the
characteristics of the UFHWST, and UFHWSTs have a certified storage
volume rather than an effective storage volume.
As such, DOE is finalizing the product-specific enforcement
provisions for circulating water heaters as proposed in the July 2023
NOPR. DOE may re-evaluate the product-specific enforcement provisions
for these products in a separate rulemaking.
3. Water Heaters Less Than 2 Gallons
The July 2023 NOPR proposed to establish new UEF-based standards
for electric and gas storage-type water heaters with less than 20
gallons of effective storage volume. In its market assessment DOE has
found models of consumer electric storage-type water heaters which are
less than 2 gallons in nominal volume. In order for manufacturers to
determine compliance for these products, the test procedure must
include provisions for calculating
[[Page 37936]]
the rated storage volume and effective storage volume.
The current method to determine storage tank volume in the appendix
E test procedure, as amended by the June 2023 TP Final Rule, states:
``For water heaters with a rated storage volume greater than or
equal to 2 gallons and for separate storage tanks used for testing
circulating water heaters, determine the storage capacity, of the water
heater or separate storage tank under test, in gallons (liters), by
subtracting the tare weight from the gross weight of the storage tank
when completely filled with water at the supply water temperature
specified in section 2.3.''
(See section 5.2.1 of the amended appendix E test procedure); 88 FR
40406, 40478.
However, this method does not explicitly cover storage-type water
heaters less than 2 gallons which will be covered under the proposed
new UEF-based standards. Therefore, in the July 2023 NOPR, DOE proposed
to amend section 5.2.1 such that it is applicable to water heaters of
all volumes and not restricted to only products greater than or equal
to 2 gallons.
No comments were received in response to this proposal. Therefore,
DOE is adopting this update to appendix E as proposed in the July 2023
NOPR.
4. Other Topics
In the June 2023 TP Final Rule, DOE adopted optional provisions at
section 2.8 of appendix E to allow manufacturers to make voluntary
representations of heat pump water heater performance in a variety of
alternative conditions that could be useful for consumers installing
these products in different locations. These alternative conditions
would not be used to determine compliance with the UEF standards at 10
CFR 430.32(d) but were provided to permit representations at the NEEA
Advanced Water Heating Specification version 8.0 conditions.\202\ 88 FR
40406, 40476.
---------------------------------------------------------------------------
\202\ Representations of rated values for consumer water heaters
must be made in accordance with the provisions of the Federal test
procedure, appendix E. (42 U.S.C. 6293(c)).
---------------------------------------------------------------------------
Rheem requested that DOE address certification and enforcement
provisions for heat pump water heaters being tested to the optional
test conditions in section 2.8 of appendix E. (Rheem, No. 1177 at p. 7)
DOE reiterates that optional conditions cannot be used to
demonstrate compliance with standards. DOE is not adopting
certification and enforcement provisions for optional test conditions
in this final rule but may consider this in a future rulemaking
addressing these topics.
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
Executive Order (``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
amended by 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 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 this
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. 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 technical support document 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). DOE has prepared the
following FRFA for the products that are the subject of this
rulemaking.
For manufacturers of consumer water heaters, the 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
size standards are listed by North American Industry Classification
System (``NAICS'') code and industry description and are available at
www.sba.gov/document/support-table-size-standards. Manufacturing of
consumer water heaters is classified under NAICS 335220, ``Major
Household Appliance Manufacturing.'' The SBA sets a threshold of 1,500
[[Page 37937]]
employees or fewer for an entity to be considered as a small business
for this category.
1. Need for, and Objectives of, Rule
EPCA prescribed energy conservation standards for consumer water
heaters (42 U.S.C. 6295(e)(1)) and directed DOE to conduct two cycles
of rulemakings \203\ to determine whether to amend these standards. (42
U.S.C. 6295(e)(4)) EPCA further provides that, not later than 6 years
after the issuance of any final rule establishing or amending a
standard, DOE must publish either a notice of determination that
standards for the product do not need to be amended, or a NOPR
including new proposed energy conservation standards (proceeding to a
final rule, as appropriate). (42 U.S.C. 6295(m)(1))
---------------------------------------------------------------------------
\203\ DOE completed the first of these rulemaking cycles on
January 17, 2001, by publishing in the Federal Register a final rule
amending the energy conservation standards for consumer water
heaters. 66 FR 4474. Subsequently, DOE completed the second
rulemaking cycle to amend the standards for consumer water heaters
by publishing a final rule in the Federal Register on April 16,
2010. 75 FR 20112.
---------------------------------------------------------------------------
2. Significant Issues Raised by Public Comments in Response to the IRFA
In response to the July 2023 NOPR, the Gas Association Commenters
submitted comments noting that DOE identified only two small
businesses, neither of which produce gas-fired water heaters. As a
result, the Gas Association Commenters stated that DOE has no data on
small businesses that produce gas-fired water heaters relative to
redesign costs, product availability, or whether the proposed
efficiency levels could cause small businesses to exit the market. (Gas
Association Commenters No. 1181, pp. 38-39)
NPGA, APGA, AGA, and Rinnai stated that as the two small businesses
DOE identified in the July 2023 NOPR analysis do not produce gas-fired
water heaters, DOE cannot know what the effect on small businesses that
manufacture gas-fired water heaters could be as DOE has no data on
their redesign costs, product availability, or whether the standards
proposed in the July 2023 NOPR would force these manufacturers to leave
the market. Therefore, NPGA, APGA, AGA, and Rinnai asserted that the
July 2023 NOPR fails to comply with Executive Order 13272, ``Proper
Consideration of Small Entities in Agency Rulemaking,'' and must be
addressed. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 5)
For the IRFA conducted in support of the July 2023 NOPR, DOE
identified one small domestic original equipment manufacturer (``OEM'')
of oil-fired storage water heaters and one small domestic OEM of
electric storage water heaters. For this FRFA, DOE refreshed its
product database to include up-to-date information on the consumer
water heater models marketed for the United States. Based on its
comprehensive review of the market, DOE identified an additional small,
domestic OEM of electric storage water heaters. Therefore, DOE
maintains its finding from the IRFA that there are no small, domestic
OEMs that manufacture gas-fired water heaters. As such, DOE does not
expect that the standards adopted in this final rule would directly
impact small businesses that manufacture gas-fired water heaters.
BWC expressed concern about the extensive resources such an
undertaking would divert from ongoing projects, as well as its
potentially more severe impacts on smaller manufacturers, including
component suppliers. (BWC, No. 1164 at p. 15) ASA stated that
manufacturers and distributors, including small businesses, would be
negatively affected by increased costs for both units and installation
and that consumer choice would be restricted. ASA requested that DOE
update data used to develop these standards. (ASA, No. 1160 at p. 1)
DOE agrees that the impacts small manufacturers experience may
differ compared to larger, more diversified manufacturers. DOE conducts
a regulatory flexibility analysis to understand and assess the
potential impacts to small domestic OEMs that produce consumer water
heaters for the U.S. market in accordance with the procedures and
policies published on February 19, 2003. 68 FR 7990. See section VI.B.3
of this document for a discussion of potential impacts of amended
standards on the three small businesses with U.S. manufacturing
facilities identified.
3. Description and Estimated Number of Small Entities Affected
For this FRFA, DOE refreshed its product database to use up-to-date
information on the models available on the U.S. market and estimate the
number of companies that could be small business manufacturers of
products covered by this rulemaking. DOE's research involved reviewing
its CCD,\204\ California Energy Commission's Modernized Appliance
Efficiency Database System (``MAEDbS''),\205\ EPA's Energy Star Product
Finder dataset,\206\ AHRI's Directory of Certified Product
Performance,\207\ individual company websites, and market research
tools (e.g., reports from D&B Hoovers) \208\ to create a list of
companies that manufacture, produce, import, or assemble the products
covered by this rulemaking. DOE also asked stakeholders and industry
representatives if they were aware of any other small manufacturers
during manufacturer interviews.
---------------------------------------------------------------------------
\204\ U.S. Department of Energy's Compliance Certification
Database is available at regulations.doe.gov/certification-data
(last accessed May 16, 2023).
\205\ California Energy Commission's Modernized Appliance
Efficiency Database System is available at
cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx
(last accessed November 13, 2023).
\206\ U.S. Environmental Protection Agency's ENERY STAR Product
Finder dataset is available at www.energystar.gov/productfinder/
(last accessed November 13, 2023).
\207\ AHRI's Directory of Certified Product Performance is
available at www.ahridirectory.org/Search/SearchHome?ReturnUrl=%2f
(last accessed May 16, 2023).
\208\ The D&B Hoovers subscription login is available at
app.dnbhoovers.com.
---------------------------------------------------------------------------
DOE identified 22 OEMs of electric instantaneous, electric storage,
gas-fired instantaneous, gas-fired storage, or oil-fired storage water
heaters sold in the United States as part of its July 2023 NOPR
analysis. In preparation for the final rule, DOE conducted additional
research to ensure an up-to-date data on the consumer water heater
market. After a further comprehensive review of the model listings, DOE
concluded that three of the manufacturers previously identified do not
manufacture consumer water heaters in-house (i.e., they do not own and
operate manufacturing facilities that produce consumer water heaters).
However, DOE determined there are three additional manufacturers not
previously identified that manufacture consumer water heaters in-house.
DOE also revised its OEM count estimate to exclude manufacturers of
gas-fired instantaneous water heaters since this final rule does not
cover gas-fired instantaneous water heaters. Therefore, excluding
manufacturers that only offer gas-fired instantaneous water heaters,
DOE identified 16 OEMs of consumer water heaters covered by this final
rule. Of these 16 OEMs, DOE identified three small, domestic
manufacturers affected by amended standards for gas-fired storage water
heater, oil-fired storage water heater, or electric storage water
heater products. The first small business is an OEM of oil-fired
storage water heaters. The other two small businesses are OEMs of
electric storage water heaters.
[[Page 37938]]
4. Description of Reporting, Recordkeeping, and Other Compliance
Requirements
The first small business is an OEM that certifies three models of
oil-fired storage water heaters. One of the three models would meet the
standard. Given the small and shrinking market for oil-fired storage
water heaters, DOE does not expect the small manufacturer would
redesign non-compliant models. Rather, the company would likely reduce
its range of model offerings. DOE requested input on the potential
impacts of standards on this manufacturer in the July 2023 NOPR, but
did not receive any feedback. DOE, therefore, maintains its assumption
from the IRFA that this manufacturer would not incur significant
conversion costs as a result of this rulemaking.
The second small business is an OEM that certifies eleven models of
electric storage water heaters. The company offers two small electric
storage water heaters, six electric storage water heaters with an
effective storage volume greater than or equal to 20 gallons and less
than or equal to 55 gallons, and three electric storage water heaters
with effective storage volumes above 55 gallons. At the adopted level
(TSL 2), DOE does not expect the two small electric water heater models
would require notable redesign as standard levels would remain at the
baseline efficiency level (i.e., EL 0) for small electric water
heaters. None of the six electric storage water heaters (between 20 and
55 gallons, excluding small electric storage water heaters) would meet
the amended standard. However, one of the six electric storage water
heaters (between 20 and 55 gallons, excluding small electric storage
water heaters) is a heat pump model that would likely not require
significant redesign to meet the amended standards. DOE expects the
company would expand its heat pump offering rather than redesign the
electric resistance products that do not meet the amended standard. The
company offers three electric storage water heaters with effective
storage volumes above 55 gallons. All three of these are heat pumps
that do not meet the amended standard. After reviewing the three
electric storage water heaters with effective storage volumes above 55
gallons, DOE believes the three models could be updated to meet the
amended standard. In total, the company would need to redesign up to
nine models.
DOE assumed the company would need to invest the equivalent of one
year of its R&D resources to update its product lines to meet amended
standards. Therefore, to derive this company's estimated product
conversion costs, DOE scaled the annual industry R&D expenditures for
electric storage water heaters in the GRIM by the company's estimated
market share. DOE does not anticipate significant capital conversion
costs, as the company offers a broad line of heat pump electric storage
water heaters today. DOE estimates total conversion costs to be
$250,000 for this small manufacturer. Based on market research tools,
DOE estimated the company's annual revenue to be approximately $50
million. Taking into account the 5-year conversion period, DOE expects
conversion costs to be less than 1 percent of conversion period
revenue.\209\
---------------------------------------------------------------------------
\209\ DOE calculated total conversion costs as a percent of
revenue over the 5-year conversion period using the following
calculation: ($0.25 million)/(5 years x $50 million).
---------------------------------------------------------------------------
The third small business is an OEM that produces two models of
circulating water heaters, which are not currently required to comply
with a UEF standard. DOE expects that both of these models would
qualify as small electric storage water heaters, and thus would likely
be subject to new and amended UEF standards. At the adopted level (TSL
2), the standard required for small electric storage water heaters
would remain at the baseline efficiency level. DOE notes that both of
the models identified utilize heat pump technology. Therefore, DOE
assumes these models would not need to be redesigned to comply with new
and amended UEF standards. However, this small manufacturer would need
to certify these models at the time of compliance with new and amended
standards, incurring testing costs of $3,000 per basic model. 88 FR
40406, 40467. Based on market research tools, DOE estimated the
company's annual revenue to be approximately $7.7 million. Taking into
account the 5-year conversion period, DOE expects conversion costs to
be less than 1 percent of conversion period revenue.\210\
---------------------------------------------------------------------------
\210\ DOE calculated total conversion costs as a percent of
revenue over the 5-year conversion period using the following
calculation: ($6,000)/(5 years x $7,700,000).
---------------------------------------------------------------------------
5. Significant Alternatives Considered and Steps Taken To Minimize
Significant Economic Impacts on Small Entities
The discussion in the previous section analyzes impacts on small
businesses that would result from adopted standards, represented by TSL
2. In reviewing alternatives to the adopted standards, DOE examined
energy conservation standards set at lower efficiency levels. While TSL
1 would reduce the impacts on small business manufacturers, it would
come at the expense of a reduction in energy savings. TSL 1 achieves
98-percent lower energy savings compared to the energy savings at TSL
2.
Based on the presented discussion, establishing standards at TSL 2
balances the benefits of the energy savings with the potential burdens
placed on consumer water heater manufacturers, including small business
manufacturers. Accordingly, DOE does not adopt one of the other TSLs
considered in the analysis, nor 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. EPCA provides that a manufacturer whose annual gross revenue
from all its operations does not exceed $8 million may apply for an
exemption from all or part of an energy conservation standard for a
period not longer than 24 months after the effective date of a final
rule establishing the standard. (42 U.S.C. 6295(t)) Additionally,
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 430, subpart
E, and 10 CFR part 1003 for additional details.
C. Review Under the Paperwork Reduction Act
Manufacturers of consumer water heaters 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 consumer water
heaters, 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 consumer water heaters. (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. Public reporting burden for
the certification is estimated to average 35 hours per response,
including the time for reviewing instructions, searching existing data
sources, gathering and maintaining the
[[Page 37939]]
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 proposed action 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.
In the July 2023 NOPR, DOE tentatively determined that the proposed
rule 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. 88 FR 49058, 49170. Furthermore, DOE stated that EPCA
governs and prescribes Federal preemption of State regulations as to
energy conservation for the products that are the subject of the
proposed rule and that States can petition DOE for exemption from such
preemption to the extent, and based on criteria, set forth in EPCA. Id.
(citing 42 U.S.C. 6297). Accordingly, DOE concluded that no further
action was required by E.O. 13132.
As initially discussed in section III.A.2 of this document, the
Attorney General of TN commented that the proposed standards have
significant federalism implications within the meaning of Executive
Order 13132 because: (1) DOE's standards have a preemptive effect on
States' procurement standards; and (2) States own and purchase water
heaters and therefore the proposed standards' effect on water heater
costs directly affect States as purchasers. (Attorney General of TN,
No. 1149 at pp. 2-3)
DOE reiterates that this final rule does not have significant
federalism implications. 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 products that are the
subject of this final rule. Additionally, Federal energy efficiency
requirements for covered products established under EPCA, including
consumer water heaters, generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) States can petition DOE for exemption from such
preemption to the extent, and based on criteria, set forth in EPCA. (42
U.S.C. 6297) Therefore, no further action is required by Executive
Order 13132.
Even if DOE were to find otherwise, with regards to the Attorney
General of TN's arguments regarding E.O. 13132, DOE notes that the
Attorney General of TN does not provide any examples of a state
procurement rule that conflicts with the standards adopted in this
rulemaking and DOE is not aware of any such conflicts, nor has the
Attorney General of TN provided any examples of States owning and
purchasing a substantial number of consumer water heaters. While it is
possible that a State may have to revise its procurement standards to
reflect the new standards, States can petition DOE for exemption from
such preemption to the extent, and based on criteria, set forth in
EPCA. Absent such information, DOE concludes that no further action
would be required by E.O. 13132 even if the Executive order were
applicable here. Moreover, assuming the hypothetical preemption alleged
by the Attorney General of TN were to present itself, DOE notes that,
like all interested parties, states were presented with an opportunity
to engage in the rulemaking process early in the development of the
proposed rule. Prior to publishing the proposed rulemaking, on May 21,
2020, DOE published and sought public comment on an RFI to collect data
and information to help DOE determine whether any new or amended
standards for consumer water heaters would result in a significant
amount of additional energy savings and whether those standards would
be technologically feasible and economically justified. 85 FR 30853.
DOE then published a notice of public meeting and availability of the
preliminary TSD on March 1, 2022, and sought public comment again. 87
FR 11327. DOE then held a public meeting on April 12, 2022, to discuss
and receive comments on the preliminary TSD, which was open to the
public, including state agencies. As such, states were provided the
opportunity for meaningful and substantial input as envisioned by the
Executive order.
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
[[Page 37940]]
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 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 one year
(adjusted annually for inflation), section 202 of UMRA requires a
Federal agency to publish a written statement that estimates the
resulting costs, benefits, and other effects on the national economy.
(2 U.S.C. 1532(a),(b)) The UMRA also requires a Federal agency to
develop an effective process to permit timely input by elected officers
of State, local, and Tribal governments on a ``significant
intergovernmental mandate,'' and requires an agency plan for giving
notice and opportunity for timely input to potentially affected small
governments before establishing any requirements that might
significantly or uniquely affect them. On March 18, 1997, DOE published
a statement of policy on its process for intergovernmental consultation
under UMRA. 62 FR 12820. DOE's policy statement is also available at
energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.
DOE has concluded that this final rule may require expenditures of
$100 million or more in any one year by the private sector. Such
expenditures may include (1) investment in research and development and
in capital expenditures by consumer water heater manufacturers in the
years between the final rule and the compliance date for the new
standards, and (2) incremental additional expenditures by consumers to
purchase higher-efficiency consumer water heaters, starting at the
compliance date for the applicable standard.
Section 202 of UMRA authorizes a Federal agency to respond to the
content requirements of UMRA in any other statement or analysis that
accompanies the final rule. (2 U.S.C. 1532(c)) The content requirements
of section 202(b) of UMRA relevant to a private sector mandate
substantially overlap the economic analysis requirements that apply
under section 325(o) of EPCA and Executive Order 12866. The
SUPPLEMENTARY INFORMATION section of this document and the TSD for this
final rule respond to those requirements.
Under section 205 of UMRA, DOE is obligated to identify and
consider a reasonable number of regulatory alternatives before
promulgating a rule for which a written statement under section 202 is
required. (2 U.S.C. 1535(a)) DOE is required to select from those
alternatives the most cost-effective and least burdensome alternative
that achieves the objectives of the rule unless DOE publishes an
explanation for doing otherwise, or the selection of such an
alternative is inconsistent with law. As required by 42 U.S.C. 6295(m),
this final rule establishes new and amended energy conservation
standards for consumer water heaters that are designed to achieve the
maximum improvement in energy efficiency that DOE has determined to be
both technologically feasible and economically justified, as required
by 6295(o)(2)(A) and 6295(o)(3)(B). A full discussion of the
alternatives considered by DOE is presented in chapter 17 of the TSD
for this final rule.
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 proposed rule or policy that may affect
family well-being. Although this final rule would not have any impact
on the autonomy or integrity of the family as an institution as
defined, this rule could impact a family's well-being. When developing
a Family Policymaking Assessment, agencies must assess whether: (1) the
action strengthens or erodes the stability or safety of the family and,
particularly, the marital commitment; (2) the action strengthens or
erodes the authority and rights of parents in the education, nurture,
and supervision of their children; (3) the action helps the family
perform its functions, or substitutes governmental activity for the
function; (4) the action increases or decreases disposable income or
poverty of families and children; (5) the proposed benefits of the
action justify the financial impact on the family; (6) the action may
be carried out by State or local government or by the family; and
whether (7) the action establishes an implicit or explicit policy
concerning the relationship between the behavior and personal
responsibility of youth, and the norms of society.
DOE has considered how the benefits of this rule compare to the
possible financial impact on a family (the only factor listed that is
relevant to this rule). As part of its rulemaking process, DOE must
determine whether the energy conservation standards contained in this
final rule are economically justified. As discussed in section V.C.1 of
this document, DOE has determined that the standards are economically
justified because the benefits to consumers far outweigh the costs to
manufacturers. Families will also see LCC savings as a result of this
rule. Moreover, as discussed further in section V.B.1 of this document,
DOE has determined that for the for low-income households, average LCC
savings and PBP at the considered efficiency levels are improved (i.e.,
higher LCC savings and lower payback period) as compared to the average
for all households. Further, the standards will also result in climate
and health benefits for families.
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
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/7=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
[[Page 37941]]
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 Executive
Order 12866, or any successor order; and (2) is likely to have a
significant adverse effect on the supply, distribution, or use of
energy, or (3) is designated by the Administrator of OIRA as a
significant energy action. For any significant energy action, the
agency must give a detailed statement of any 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 new
and amended energy conservation standards for consumer water heaters,
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 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.\211\ 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.\212\
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\211\ 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 April 1, 2023).
\212\ 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 Office of
Information and Regulatory Affairs has determined that this rule meets
the criteria set forth in 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
10 CFR Part 429
Administrative practice and procedure, Confidential business
information, Energy conservation, Household appliances, Reporting and
recordkeeping requirements.
10 CFR Part 430
Administrative practice and procedure, Confidential business
information, Energy conservation, Household appliances, Imports,
Intergovernmental relations, Reporting and recordkeeping requirements,
and Small businesses.
Signing Authority
This document of the Department of Energy was signed on April 24,
2024, by Jeffrey Marootian Principal Deputy Assistant Secretary for
Energy Efficiency and Renewable Energy, pursuant to delegated authority
from the Secretary of Energy. That document with the original signature
and date is maintained by DOE. For administrative purposes only, and in
compliance with requirements of the Office of the Federal Register, the
undersigned DOE Federal Register Liaison Officer has been authorized to
sign and submit the document in electronic format for publication, as
an official document of the Department of Energy. This administrative
process in no way alters the legal effect of this document upon
publication in the Federal Register.
Signed in Washington, DC, on April 24, 2024.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.
For the reasons set forth in the preamble, DOE amends parts 429 and
430 of chapter II, subchapter D, of title 10 of the Code of Federal
Regulations, as set forth below:
PART 429--CERTIFICATION, COMPLIANCE, AND ENFORCEMENT FOR CONSUMER
PRODUCTS AND COMMERCIAL AND INDUSTRIAL EQUIPMENT
0
1. The authority citation for part 429 continues to read as follows:
Authority: 42 U.S.C. 6291-6317; 28 U.S.C. 2461 note.
0
2. Amend Sec. 429.17 by revising paragraph (a)(1)(ii)(C) and adding
paragraph (a)(1)(ii)(E) to read as follows:
Sec. 429.17 Water heaters.
(a) * * *
(1) * * *
(ii) * * *
(C) Any represented value of the rated storage volume must be equal
to the mean of the measured storage volumes of all the units within the
sample. Any represented value of the effective storage volume must be
equal to the mean of the effective storage volumes of all the units
within the sample.
* * * * *
(E) For an electric storage water heater that has a permanent mode
or setting in which it is capable of heating and storing water above
135 [deg]F, where permanent mode or setting means a mode of operation
that is continuous and does not require any external consumer
intervention to maintain for longer than 120 hours, except for those
that meet the definition of ``heat pump-type'' water heater at Sec.
430.2 of this chapter, whose rated storage volumes
[[Page 37942]]
are less than 20 gallons or greater than 55 gallons, or that are only
capable of heating the stored water above 135 [deg]F in response to
instructions received from a utility or third-party demand-response
program, the following applies:
(1) To demonstrate compliance with the energy conservation
standards in Sec. 430.32(d)(1) of this chapter, any represented value
of uniform energy factor shall be determined based on testing in
accordance with section 5.1.1 of appendix E to subpart B of 10 CFR part
430.
(2) To demonstrate compliance with the energy conservation
standards in Sec. 430.32(d)(2) of this chapter, any represented value
of uniform energy factor shall be determined based on high temperature
testing in accordance with section 5.1.2 of appendix E to subpart B of
10 CFR part 430.
* * * * *
0
3. Amend Sec. 429.134 by adding paragraph (d)(4) to read as follows:
Sec. 429.134 Product-specific enforcement provisions.
* * * * *
(d) * * *
(4) Circulating water heaters. A storage tank for testing will be
selected as described in paragraphs (d)(4)(i) and (ii) of this section.
The effective storage volume of the circulating water heater determined
in testing will be measured in accordance with appendix E to subpart B
of 10 CFR part 430 with the storage tank that is used for testing.
(i) Electric heat pump circulating water heaters. For UEF and
first-hour rating testing, electric heat pump circulating water heaters
will be tested with a minimally-compliant electric storage water heater
(as defined at Sec. 430.2 of this chapter) that has a rated storage
volume of between 25 and 35 gallons, and is in the low draw pattern, as
determined in accordance with appendix E to subpart B of 10 CFR part
430 and the standards set at Sec. 430.32(d) of this chapter. If the
manufacturer certifies the specific model of electric storage water
heater used for testing to determine the certified UEF and first-hour
rating of the electric heat pump circulating water heater, that model
of electric storage water heater will be used for testing. If this is
not possible (such as if the electric storage water heater model is no
longer available or has been discontinued), testing will be performed
with an electric storage water heater that has a minimally-compliant
UEF rating, in the low draw pattern, and a rated storage volume that is
within 3 gallons of the rated storage volume of the
electric storage water heater used to determine the certified ratings
of the electric heat pump circulating water heater (but not less than
25 gallons and not greater than 35 gallons). If no such model is
available, then testing will be performed with a minimally-compliant
electric storage water heater that has a rated storage volume of
between 25 and 35 gallons and is in the low draw pattern.
(ii) All other circulating water heaters. For UEF and first-hour
rating testing, circulating water heaters are paired with unfired hot
water storage tanks (``UFHWSTs'') that have certified storage volumes
between 80 and 120 gallons and are at exactly the minimum thermal
insulation standard, in terms of R-value, for UFHWSTs, as per the
standards set at Sec. 431.110(a) of this chapter. Testing will be
performed as follows:
(A) If the manufacturer certifies the specific model of UFHWST used
for testing to determine the certified UEF and first-hour rating of the
circulating water heater, that model of UFHWST will be used for
testing.
(B) If it is not possible to perform testing with the same model of
UFHWST certified by the manufacturer, testing will be carried out with
a different model of UFHWST accordingly:
(1) Testing will be performed with an UFHWST from the same
manufacturer as the certified UFHWST, with the same certified storage
volume as the certified UFHWST, and with a certified R-value that meets
but does not exceed the standard set at Sec. 431.110(a) of this
chapter. If this is not possible,
(2) Testing will be performed with an UFHWST from a different
manufacturer than the certified UFHWST, with the same certified storage
volume as the certified UFHWST, and with a certified R-value that meets
but does not exceed the standard set at Sec. 431.110(a) of this
chapter. If this is not possible,
(3) Testing will be performed with an UFHWST from the same
manufacturer as the certified UFHWST, having a certified storage volume
within 5 gallons of the certified UFHWST, and with a
certified R-value that meets but does not exceed the standard set at
Sec. 431.110(a) of this chapter. If this is not possible,
(4) Testing will be performed with an UFHWST from a different
manufacturer than the certified UFHWST, having a certified storage
volume within 5 gallons of the certified UFHWST, and with a
certified R-value that meets but does not exceed the standard set at
Sec. 431.110(a) of this chapter. If this is not possible,
(5) Testing will be performed with an UFHWST having a certified
storage volume between 80 gallons and 120 gallons and with a certified
R-value that meets but does not exceed the standard set at Sec.
431.110(a) of this chapter.
* * * * *
PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS
0
4. The authority citation for part 430 continues to read as follows:
Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.
0
5. Amend Sec. 430.2 by:
0
a. Revising the definition of ``Circulating water heater'';
0
b. Adding in alphabetical order the definitions of ``Electric
circulating water heater'', ``Gas-fired circulating water heater'', and
``Oil-fired circulating water heater''; and
0
c. Revising the definition of ``Tabletop water heater''.
The revisions and additions read as follows:
Sec. 430.2 Definitions.
* * * * *
Circulating water heater means a water heater that does not have an
operational scheme in which the burner, heating element, or compressor
initiates and/or terminates heating based on sensing flow; has a water
temperature sensor located at the inlet or the outlet of the water
heater or in a separate storage tank that is the primary means of
initiating and terminating heating; and must be used in combination
with a recirculating pump to circulate water and either a separate
storage tank or water circulation loop in order to achieve the water
flow and temperature conditions recommended in the manufacturer's
installation and operation instructions. A circulating water heater
constitutes a storage-type water heater.
* * * * *
Electric circulating water heater means a circulating water heater
with an input of 12 kW or less (including heat pump-only units with
power inputs of no more than 24 A at 250 V).
* * * * *
Gas-fired circulating water heater means a circulating water heater
with a nominal input of 75,000 Btu/h or less.
* * * * *
Oil-fired circulating water heater means a circulating water heater
with a nominal input of 105,000 Btu/h or less.
* * * * *
Tabletop water heater means a water heater in a rectangular box
enclosure
[[Page 37943]]
designed to slide into a kitchen countertop space with typical
dimensions of 36 inches high, 25 inches deep, and 24 inches wide, and
with a certified first-hour rating that results in either the very
small draw pattern or the low draw pattern, as specified in Table I in
section 5.4.1 of appendix E to subpart B of this part.
* * * * *
0
6. Amend Sec. 430.23 by revising paragraph (e) to read as follows:
Sec. 430.23 Test procedures for the measurement of energy and water
consumption.
* * * * *
(e) Water heaters. (1) The estimated annual operating cost is
calculated as:
(i) For a gas-fired or oil-fired water heater, the sum of:
(A) The product of the annual gas or oil energy consumption,
determined according to section 6.3.11 or 6.4.7 of appendix E to this
subpart, times the representative average unit cost of gas or oil, as
appropriate, in dollars per Btu as provided by the Secretary; plus
(B) The product of the annual electric energy consumption,
determined according to section 6.3.10 or 6.4.6 of appendix E to this
subpart, times the representative average unit cost of electricity in
dollars per kilowatt-hour as provided by the Secretary. Round the
resulting sum to the nearest dollar per year.
(ii) For an electric water heater, the product of the annual energy
consumption, determined according to section 6.3.10 or 6.4.6 of
appendix E to this subpart, times the representative average unit cost
of electricity in dollars per kilowatt-hour as provided by the
Secretary. Round the resulting product to the nearest dollar per year.
(2) For an individual unit, the uniform energy factor is rounded to
the nearest 0.01 and determined in accordance with section 6.3.8 or
section 6.4.4 of appendix E to this subpart.
* * * * *
0
7. Appendix E to subpart B is amended by revising the Note and
sections 1.19, 4.10, 5.1.2 and 5.2.1 to read as follows:
APPENDIX E TO SUBPART B OF PART 430--UNIFORM TEST METHOD FOR MEASURING
THE ENERGY CONSUMPTION OF WATER HEATERS
Note: Prior to December 18, 2023, representations with respect
to the energy use or efficiency of consumer water heaters covered by
this test method, including compliance certifications, must be based
on testing conducted in accordance with either this appendix as it
now appears or appendix E as it appeared at 10 CFR part 430, subpart
B revised as of January 1, 2021. Prior to June 15, 2024,
representations with respect to the energy use or efficiency of
residential-duty commercial water heaters covered by this test
method, including compliance certifications, must be based on
testing conducted in accordance with either this appendix as it now
appears or appendix E as it appeared at 10 CFR part 430, subpart B
revised as of January 1, 2021.
On and after December 18, 2023, representations with respect to
energy use or efficiency of consumer water heaters covered by this
test method, including compliance certifications, must be based on
testing conducted in accordance with this appendix, except as
described in the paragraphs that follow. On and after June 15, 2024,
representations with respect to energy use or efficiency of
residential-duty commercial water heaters covered by this test
method, including compliance certifications, must be based on
testing conducted in accordance with this appendix, except as
follows.
Prior to May 6, 2029, consumer water heaters subject to section
4.10 of this appendix may optionally apply the requirements of
section 4.10 of this appendix. For residential-duty commercial water
heaters subject to section 4.10 of this appendix the requirements of
section 4.10 of this appendix may optionally be applied prior to the
compliance date of any final rule reviewing potential amended energy
conservation standards for this equipment published after June 21,
2023.
Prior to May 6, 2029, consumer water heaters subject to section
5.1.2 of this appendix (as specified at Sec. 429.17(a)(1)(ii)(E) of
this chapter) may optionally apply the requirements of section 5.1.2
of this appendix in lieu of the requirements in section 5.1.1 of
this appendix.
On or after May 6, 2029, representations with respect to energy
use or efficiency of consumer water heaters subject to sections 4.10
and 5.1.2 of this appendix must be based on testing conducted in
accordance with those provisions.
* * * * *
1. * * *
1.19 Water Heater Requiring a Storage Tank means a water heater
without a storage tank supplied by the manufacturer that cannot meet
the requirements of sections 2 and 5 of this appendix without the
use of a storage water heater or unfired hot water storage tank.
* * * * *
4. * * *
4.10 Storage Tank Requirement for Water Heaters Requiring a
Storage Tank (i.e., Circulating Water Heaters). On or after May 6,
2029, when testing a gas-fired, oil-fired, or electric resistance
circulating water heater (i.e., any circulating water heater that
does not use a heat pump), the tank to be used for testing shall be
an unfired hot water storage tank having volume between 80 and 120
gallons (364-546 liters) determined using the method specified in
section 5.2.1 of this appendix that meets but does not exceed the
minimum energy conservation standards required according to Sec.
431.110 of this chapter. When testing a heat pump circulating water
heater, the tank to be used for testing shall be an electric storage
water heater that has a measured volume of 30 gallons (5
gallons), has a First-Hour Rating less than 51 gallons resulting in
classification under the low draw pattern, and has a rated UEF equal
to the minimum UEF standard specified at Sec. 430.32(d), rounded to
the nearest 0.01. The operational mode of the heat pump circulating
water heater and storage water heater paired system shall be set in
accordance with section 5.1.1 of this appendix. If the circulating
water heater is supplied with a separate non-integrated circulating
pump, install this pump as per the manufacturer's installation
instructions and include its power consumption in energy use
measurements.
* * * * *
5. * * *
5.1.2 High Temperature Testing. This paragraph applies to
electric storage water heaters capable of achieving a
Tmax,1 above 135 [deg]F. The following exceptions apply:
(1) Electric storage water heaters that do not have a permanent
mode or setting in which the water heater is capable of heating and
storing water above 135 [deg]F (as measured by Tmax,1),
where permanent mode or setting means a mode of operation that is
continuous and does not require any external consumer intervention
to maintain for longer than 120 hours;
(2) Electric storage water heaters that meet the definition of
``heat pump-type'' water heater at Sec. 430.2;
(3) Electric storage water heaters that are only capable of
heating the stored water above 135 [deg]F in response to
instructions received from a utility or third-party demand-response
program.
(4) Electric storage water heaters with measured storage volumes
(Vst) less than 20 gallons or greater than 55 gallons.
This paragraph may optionally apply to electric heat pump water
heaters for voluntary representations of high-temperature operation
only.
For those equipped with factory-installed or built-in mixing
valves, set the unit to maintain the highest mean tank temperature
possible while delivering water at 125 [deg]F 5 [deg]F.
For those not so equipped, install an ASSE 1017-certified mixing
valve in accordance with the provisions in section 4.3 of this
appendix and adjust the valve to deliver water at 125 [deg]F 5 [deg]F when the water heater is operating at its highest
storage tank temperature setpoint. Maintain this setting throughout
the entirety of the test.
* * * * *
5.2 * * *2.1 Determination of Storage Tank Volume. For water
heaters and separate storage tanks used for testing circulating
water heaters, determine the storage capacity, Vst, of
the water heater or separate storage tank under test, in gallons
(liters), by subtracting the tare weight, Wt, (measured
while the tank is empty) from the gross weight of the storage tank
when completely filled with water at the supply water temperature
specified in section 2.3 of this appendix, Wf, (with all
air eliminated and line pressure applied as described in section 2.6
of this appendix) and dividing the
[[Page 37944]]
resulting net weight by the density of water at the measured
temperature.
* * * * *
0
8. Amend Sec. 430.32 by revising paragraph (d) to read as follows:
Sec. 430.32 Energy and water conservation standard and their
compliance dates.
* * * * *
(d) Water Heaters. (1) The uniform energy factor of water heaters
manufactured May 6, 2029 shall not be less than the following:
----------------------------------------------------------------------------------------------------------------
Rated storage volume
Product class and input rating (if Draw pattern Uniform energy factor \1\
applicable)
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage Water Heater.... >=20 gal and <=55 gal Very Small.............. 0.3456 - (0.0020 x Vr)
..................... Low..................... 0.5982 - (0.0019 x Vr)
..................... Medium.................. 0.6483 - (0.0017 x Vr)
..................... High.................... 0.6920 - (0.0013 x Vr)
>55 gal and <=100 gal Very Small.............. 0.6470 - (0.0006 x Vr)
..................... Low..................... 0.7689 - (0.0005 x Vr)
..................... Medium.................. 0.7897 - (0.0004 x Vr)
..................... High.................... 0.8072 - (0.0003 x Vr)
Oil-fired Storage Water Heater.... <=50 gal............. Very Small.............. 0.2509 - (0.0012 x Vr)
..................... Low..................... 0.5330 - (0.0016 x Vr)
..................... Medium.................. 0.6078 - (0.0016 x Vr)
..................... High.................... 0.6815 - (0.0014 x Vr)
Electric Storage Water Heaters.... >=20 gal and <=55 gal Very Small.............. 0.8808 - (0.0008 x Vr)
..................... Low..................... 0.9254 - (0.0003 x Vr)
..................... Medium.................. 0.9307 - (0.0002 x Vr)
..................... High.................... 0.9349 - (0.0001 x Vr)
>55 gal and <=120 gal Very Small.............. 1.9236 - (0.0011 x Vr)
..................... Low..................... 2.0440 - (0.0011 x Vr)
..................... Medium.................. 2.1171 - (0.0011 x Vr)
..................... High.................... 2.2418 - (0.0011 x Vr)
Tabletop Water Heater............. >=20 gal and <=120 Very Small.............. 0.6323 - (0.0058 x Vr)
gal.
..................... Low..................... 0.9188 - (0.0031 x Vr)
..................... Medium.................. 0.9577 - (0.0023 x Vr)
..................... High.................... 0.9884 - (0.0016 x Vr)
Instantaneous Gas-fired Water <2 gal and >50,000 Very Small.............. 0.80
Heater. Btu/h.
..................... Low..................... 0.81
..................... Medium.................. 0.81
..................... High.................... 0.81
Instantaneous Electric Water <2 gal............... Very Small.............. 0.91
Heater.
..................... Low..................... 0.91
..................... Medium.................. 0.91
..................... High.................... 0.92
Grid-enabled Water Heater......... >75 gal.............. Very Small.............. 1.0136 - (0.0028 x Vr)
..................... Low..................... 0.9984 - (0.0014 x Vr)
..................... Medium.................. 0.9853 - (0.0010 x Vr)
..................... High.................... 0.9720 - (0.0007 x Vr)
----------------------------------------------------------------------------------------------------------------
\1\ Vr is the rated storage volume (in gallons), as determined pursuant to Sec. 429.17 of this chapter.
(2) The uniform energy factor of water heaters manufactured on or
after May 6, 2029 shall not be less than the following:
----------------------------------------------------------------------------------------------------------------
Rated storage volume
Product class and input rating (if Draw pattern Uniform energy factor \1\
applicable)
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage Water Heater.... <20 gal.............. Very Small.............. 0.2062 - (0.0020 x Veff)
..................... Low..................... 0.4893 - (0.0027 x Veff)
..................... Medium.................. 0.5758 - (0.0023 x Veff)
..................... High.................... 0.6586 - (0.0020 x Veff)
>=20 gal and <=55 gal Very Small.............. 0.3925 - (0.0020 x Veff)
..................... Low..................... 0.6451 - (0.0019 x Veff)
..................... Medium.................. 0.7046 - (0.0017 x Veff)
..................... High.................... 0.7424 - (0.0013 x Veff)
>55 gal and <=100 gal Very Small.............. 0.6470 - (0.0006 x Veff)
..................... Low..................... 0.7689 - (0.0005 x Veff)
..................... Medium.................. 0.7897 - (0.0004 x Veff)
..................... High.................... 0.8072 - (0.0003 x Veff)
>100 gal............. Very Small.............. 0.1482 - (0.0007 x Veff)
..................... Low..................... 0.4342 - (0.0017 x Veff)
..................... Medium.................. 0.5596 - (0.0020 x Veff)
..................... High.................... 0.6658 - (0.0019 x Veff)
Oil-fired Storage Water Heater.... <=50 gal............. Very Small.............. 0.2909 - (0.0012 x Veff)
..................... Low..................... 0.5730 - (0.0016 x Veff)
[[Page 37945]]
..................... Medium.................. 0.6478 - (0.0016 x Veff)
..................... High.................... 0.7215 - (0.0014 x Veff)
> 50 gal............. Very Small.............. 0.1580 - (0.0009 x Veff)
..................... Low..................... 0.4390 - (0.0020 x Veff)
..................... Medium.................. 0.5389 - (0.0021 x Veff)
..................... High.................... 0.6172 - (0.0018 x Veff)
Very Small Electric Storage Water < 20 gal............. Very Small.............. 0.5925 - (0.0059 x Veff)
Heater.
..................... Low..................... 0.8642 - (0.0030 x Veff)
..................... Medium.................. 0.9096 - (0.0020 x Veff)
..................... High.................... 0.9430 - (0.0012 x Veff)
Small Electric Storage Water >=20 gal and <=35 gal Very Small.............. 0.8808 - (0.0008 x Veff)
Heater.
..................... Low..................... 0.9254 - (0.0003 x Veff)
Electric Storage Water Heaters.... >20 and <=55 gal Very Small.............. 2.30
(excluding small
electric storage
water heaters).
..................... Low..................... 2.30
..................... Medium.................. 2.30
..................... High.................... 2.30
>55 gal and <=120 gal Very Small.............. 2.50
..................... Low..................... 2.50
..................... Medium.................. 2.50
..................... High.................... 2.50
>120 gal............. Very Small.............. 0.3574 - (0.0012 x Veff)
..................... Low..................... 0.7897 - (0.0019 x Veff)
..................... Medium.................. 0.8884 - (0.0017 x Veff)
..................... High.................... 0.9575 - (0.0013 x Veff)
Tabletop Water Heater............. <20 gal.............. Very Small.............. 0.5925 - (0.0059 x Veff)
..................... Low..................... 0.8642 - (0.0030 x Veff)
>=20 gal............. Very Small.............. 0.6323 - (0.0058 x Veff)
..................... Low..................... 0.9188 - (0.0031 x Veff)
Instantaneous Oil-fired Water <2 gal and <=210,000 Very Small.............. 0.61
Heater. Btu/h.
..................... Low..................... 0.61
..................... Medium.................. 0.61
..................... High.................... 0.61
>=2 gal and <=210,000 Very Small.............. 0.2780 - (0.0022 x Veff)
Btu/h.
..................... Low..................... 0.5151 - (0.0023 x Veff)
..................... Medium.................. 0.5687 - (0.0021 x Veff)
..................... High.................... 0.6147 - (0.0017 x Veff)
Instantaneous Electric Water <2 gal............... Very Small.............. 0.91
Heater.
..................... Low..................... 0.91
..................... Medium.................. 0.91
..................... High.................... 0.92
>=2 gal.............. Very Small.............. 0.8086 - (0.0050 x Veff)
..................... Low..................... 0.9123 - (0.0020 x Veff)
..................... Medium.................. 0.9252 - (0.0015 x Veff)
..................... High.................... 0.9350 - (0.0011 x Veff)
Grid-Enabled Water Heater......... >75 gal.............. Very Small.............. 1.0136 - (0.0028 x Veff)
..................... Low..................... 0.9984 - (0.0014 x Veff)
..................... Medium.................. 0.9853 - (0.0010 x Veff)
..................... High.................... 0.9720 - (0.0007 x Veff)
----------------------------------------------------------------------------------------------------------------
\1\ Veff is the Effective Storage Volume (in gallons), as determined pursuant to Sec. 429.17 of this chapter.
(3) The provisions of paragraph (d) of this section are separate
and severable from one another. Should a court of competent
jurisdiction hold any provision(s) of paragraph (d) of this section to
be stayed or invalid, such action shall not affect any other provision
of paragraph (d) of this section.
* * * * *
Note: The following letter will not appear in the Code of Federal
Regulations.
October 12, 2023
U.S. DEPARTMENT OF JUSTICE, Antitrust Division, Ami Grace-Tardy,
Assistant General Counsel for Legislation, Regulation and Energy
Efficiency, U.S. Department of Energy, Washington, DC 20585
Re: Energy Conservation Standards for Consumer Water Heaters DOE Docket
No. EERE-2017-BT-STD-0019
Dear Assistant General Counsel Grace-Tardy:
I am responding to your August 23, 2023 letter seeking the views of
the Attorney General about the potential impact on competition of
proposed energy conservation standards for consumer water heaters.
Your request was submitted under Section 325(o)(2)(B)(i)(V) of the
Energy Policy and Conservation Act, as amended (ECPA), 42 U.S.C.
6295(o)(2)(B)(i)(V), which requires the Attorney General to determine
the impact of any lessening of competition that is likely to result
from the imposition of proposed energy conservation standards. The
Attorney General's responsibility for responding to requests from other
departments about the effect of a program on competition has been
delegated to the Assistant Attorney General for the Antitrust Division
in 28 CFR 0.40(g). The Assistant Attorney General for the
[[Page 37946]]
Antitrust Division has authorized me, as the Policy Director for the
Antitrust Division, to provide the Antitrust Division's views regarding
the potential impact on competition of proposed energy conservation
standards on his behalf.
In conducting its analysis, the Antitrust Division examines whether
a proposed standard may lessen competition, for example, by
substantially limiting consumer choice, by placing certain
manufacturers at an unjustified competitive disadvantage, or by
inducing avoidable inefficiencies in production or distribution of
particular products. A lessening of competition could result in higher
prices to manufacturers and consumers.
We have reviewed the proposed standards contained in the notice of
proposed rulemaking (``NOPR'') (88 FR 49058, July 28, 2023) and the
related Technical Support Document. We have also reviewed public
comments and information provided by industry participants and have
reviewed the transcript and information presented at the Webinar of the
Public Meeting held on September 13, 2023. Based on this review, we do
not have an evidentiary basis to conclude that the proposed energy
conservation standards for consumer water heaters are likely to
substantially lessen competition.
Sincerely,
David G.B. Lawrence,
Policy Director.
[FR Doc. 2024-09209 Filed 5-3-24; 8:45 am]
BILLING CODE 6450-01-P