[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Proposed Rules]
[Pages 34440-34537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12178]
[[Page 34439]]
Vol. 81
Tuesday,
No. 104
May 31, 2016
Part II
Department of Energy
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10 CFR Parts 429 and 431
Energy Conservation Program: Energy Conservation Standards for
Commercial Water Heating Equipment; Proposed Rule
Federal Register / Vol. 81 , No. 104 / Tuesday, May 31, 2016 /
Proposed Rules
[[Page 34440]]
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DEPARTMENT OF ENERGY
10 CFR Parts 429 and 431
[Docket Number EERE-2014-BT-STD-0042]
RIN 1904-AD34
Energy Conservation Program: Energy Conservation Standards for
Commercial Water Heating Equipment
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Notice of proposed rulemaking and announcement of public
meeting.
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SUMMARY: The Energy Policy and Conservation Act of 1975 (EPCA), as
amended, prescribes energy conservation standards for various consumer
products and certain commercial and industrial equipment, including
commercial water heaters, hot water supply boilers, and unfired hot
water storage tanks (hereinafter referred to as ``commercial water
heating (CWH) equipment''). EPCA also requires that every 6 years, the
U.S. Department of Energy (DOE) must determine whether more-stringent,
amended standards would be technologically feasible and economically
justified, and would save a significant amount of energy. In this
action, DOE has tentatively concluded that there is clear and
convincing evidence to support more-stringent standards for several
classes of the equipment that are the subject of this rulemaking. DOE
did not consider more-stringent standards in this action for commercial
oil-fired storage water heaters, whose standards were recently amended.
Therefore, DOE proposes amended energy conservation standards for
certain commercial water heating equipment, and also announces a public
meeting to receive comment on these proposed standards and associated
analyses and results.
DATES: Meeting: DOE will hold a public meeting on June 6, 2016, from
1:00 p.m. to 5:00 p.m., in Washington, DC. The meeting will also be
broadcast as a webinar. See section VII, ``Public Participation,'' for
webinar registration information, participant instructions, and
information about the capabilities available to webinar participants.
Comments: DOE will accept comments, data, and information regarding
this notice of proposed rulemaking (NOPR) before and after the public
meeting, but no later than August 1, 2016. See section VII, ``Public
Participation,'' for details.
Comments regarding the likely competitive impact of the proposed
standards should be sent to the Department of Justice contact listed in
the ADDRESSES section before June 30, 2016.
ADDRESSES: The public meeting will be held at the U.S. Department of
Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW.,
Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at
(202) 586-2945. Please note that foreign nationals visiting DOE
Headquarters are subject to advance security screening procedures. Any
foreign national wishing to participate in the meeting should advise
DOE as soon as possible by contacting Ms. Edwards to initiate the
necessary procedures. Please also note that any person wishing to bring
a laptop computer or tablet into the Forrestal Building will be
required to obtain a property pass. Visitors should avoid bringing
laptops, or allow an extra 45 minutes. Persons may also attend the
public meeting via webinar. For more information, refer to section VII,
``Public Participation,'' near the end of this notice.
Instructions: Any comments submitted must identify the NOPR on
Energy Conservation Standards for Commercial Water Heating Equipment,
and provide docket number EERE-2014-BT-STD-0042 and/or regulatory
information number (RIN) number 1904-AD34. Comments may be submitted
using any of the following methods:
1. Federal eRulemaking Portal: www.regulations.gov. Follow the
instructions for submitting comments.
2. Email: [email protected]. Include the docket
number and/or RIN in the subject line of the message. Submit electronic
comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and
avoid the use of special characters or any form of encryption.
3. Postal Mail: Ms. Brenda Edwards, U.S. Department of Energy,
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue
SW., Washington, DC, 20585-0121. If possible, please submit all items
on a compact disc (CD), in which case it is not necessary to include
printed copies.
4. Hand Delivery/Courier: Ms. Brenda Edwards, U.S. Department of
Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite
600, Washington, DC, 20024. Telephone: (202) 586-2945. If possible,
please submit all items on a CD, in which case it is not necessary to
include printed copies.
Written comments regarding the burden-hour estimates or other
aspects of the collection-of-information requirements contained in this
proposed rule may be submitted to the Office of Energy Efficiency and
Renewable Energy through the methods listed above and by email to
[email protected].
EPCA requires the Attorney General to provide DOE a written
determination of whether the proposed standard is likely to lessen
competition. The U.S. Department of Justice Antitrust Division invites
input from market participants and other interested persons with views
on the likely competitive impact of the proposed standard. Interested
persons may contact the Division at [email protected] before
June 30, 2016. Please indicate in the ``Subject'' line of your email
the title and Docket Number of this rulemaking notice.
No telefacsimilies (faxes) will be accepted. For detailed
instructions on submitting comments and additional information on the
rulemaking process, see section VII of this document (Public
Participation).
Docket: The docket, 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, some documents listed in the index may not be publicly
available, such as those containing information that is exempt from
public disclosure.
A link to the docket Web page can be found at: http://www.regulations.gov/#!docketDetail;D=EERE-2014-BT-STD-0042. This Web
page contains a link to the docket for this document on the
www.regulations.gov site. The www.regulations.gov Web page contains
simple instructions on how to access all documents, including public
comments, in the docket. See section VII, ``Public Participation,'' for
further information on how to submit comments through
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Ms. Ashley Armstrong, U.S. Department of Energy, Office of Energy
Efficiency and Renewable Energy, Building Technologies Office, EE-5B,
1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone:
(202) 586-6590. Email: [email protected].
Mr. Eric Stas, U.S. Department of Energy, Office of the General
Counsel, GC-33, 1000 Independence Avenue SW., Washington, DC 20585-
0121.
[[Page 34441]]
Telephone: (202) 586-9507. Email: [email protected].
For information on how to submit or review public comments and the
docket, contact Ms. Brenda Edwards at (202) 586-2945 or by email:
[email protected].
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Synopsis of the Proposed Rule
A. Benefits and Costs to Commercial Consumers
B. Impact on Manufacturers
C. National Benefits and Costs
D. Conclusion
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for CWH Equipment
III. General Discussion
A. Compliance Dates
B. Test Procedures
C. Scope of Rulemaking
1. Commercial Water Heating Systems
2. Residential-Duty Commercial Water Heaters
3. Oil-Fired Commercial Water Heating Equipment
4. Unfired Hot Water Storage Tanks
5. Electric Instantaneous Water Heaters
6. Commercial Heat Pump Water Heaters
7. Electric Storage Water Heaters
8. Instantaneous Water Heaters and Hot Water Supply Boilers
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 Commercial Consumers
b. Savings in Operating Costs Compared to Increase in Price
(Life-Cycle Costs)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
G. Public Participation
H. Revisions to Notes in Regulatory Text
I. Certification, Compliance, and Enforcement Issues
1. Rated and Measured Storage Volume
2. Maximum Standby Loss Equations
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Definitions
2. Equipment Classes
a. Storage-Type Instantaneous Water Heaters
b. Tankless Water Heaters and Hot Water Supply Boilers
c. Gas-Fired and Oil-Fired Storage Water Heaters
d. Grid-Enabled Water Heaters
e. Condensing Gas-Fired Water Heating Equipment
3. Review of the Current Market for CWH Equipment
4. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Methodology
2. Representative Equipment for Analysis
3. Efficiency Levels for Analysis
a. Baseline Efficiency Levels
b. Intermediate and Max-Tech Efficiency Levels
4. Teardown Analysis
5. Manufacturing Production Costs
6. Manufacturer Markup
7. Shipping Costs
8. Maximum Standby Loss Equations
9. Conversion of Standards to Uniform Energy Factor
D. Markups Analysis
E. Energy Use Analysis
F. Life-Cycle Cost and Payback Period Analysis
1. Approach
2. Life-Cycle Cost Inputs
a. Equipment Prices
b. Installation Costs
c. Annual Energy Use
d. Electricity and Natural Gas Prices
e. Maintenance Costs
f. Repair Costs
g. Equipment Lifetime
h. Discount Rate
3. Payback Period
G. Shipments Analysis
H. National Impact Analysis
1. Equipment Efficiency in the No-New-Standards Case and
Standards Cases
2. National Energy Savings
3. Net Present Value
I. Commercial Consumer Subgroup Analysis
J. Manufacturer Impact Analysis
1. Overview
2. GRIM Analysis
a. Government Regulatory Impact Model Key Inputs
b. Government Regulatory Impact Model Scenarios
3. Manufacturer Interviews
K. Emission Analysis
L. Monetizing Carbon Dioxide and Other Emissions Impacts
1. Social Cost of Carbon
a. Monetizing Carbon Dioxide Emissions
b. Development of Social Cost of Carbon Values
c. Current Approach and Key Assumptions
2. Social Cost of Other Air Pollutants
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Commercial Consumers
a. Life-Cycle Cost and Payback Period
b. Life-Cycle Cost Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impact on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Impacts on Direct Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Commercial Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
C. Proposed Standards
1. Benefits and Burdens of Trial Standard Levels Considered for
CWH Equipment
2. Summary of Benefits and Costs (Annualized) of the Proposed
Standards
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act of 1995
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. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
A. Attendance at the Public Meeting
B. Procedure for Submitting Requests To Speak and Prepared
General Statements for Distribution
C. Conduct of the Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary
I. Synopsis of the Proposed Rule
Title III, Part C \1\ of the Energy Policy and Conservation Act of
1975 (``EPCA'' or ``the Act''), Public Law 94-163 (42 U.S.C. 6311-6317,
as codified), added by Public Law 95-619, Title IV, section 441(a),
established the Energy Conservation Program for Certain Industrial
Equipment,\2\ which sets forth a variety of provisions designed to
improve energy efficiency. These encompass several types of commercial
heating, air-conditioning, and water heating equipment, including the
classes of CWH equipment that are the subject of this rulemaking. (42
U.S.C. 6311(1)(K)) CWH equipment is also
[[Page 34442]]
covered under the American Society of Heating, Refrigerating, and Air-
Conditioning Engineers (ASHRAE) Standard 90.1 (ASHRAE Standard 90.1),
``Energy Standard for Buildings Except Low-Rise Residential
Buildings.''
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\1\ For editorial reasons, upon codification in the U.S. Code,
Part C was redesignated Part A-1.
\2\ All references to EPCA in this document refer to the statute
as amended through the Energy Efficiency Improvement Act of 2015
(EEIA 2015), Public Law 114-11 (April 30, 2015).
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EPCA, as amended by the Energy Independence and Security Act of
2007 (EISA 2007), Public Law 110-140, requires DOE to conduct an
evaluation of its standards for CWH equipment every 6 years and to
publish either a notice of determination that such standards do not
need to be amended or a notice of proposed rulemaking including
proposed amended standards (42 U.S.C. 6313(a)(6)(C)(i)) Pursuant to
these statutory requirements, DOE initiated this rulemaking to evaluate
the energy conservation standards for covered CWH equipment and to
determine whether new or amended standards are warranted.\3\
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\3\ As explained in further detail in section II.B.1, DOE most
recently issued a final rule amending standards for commercial oil-
fired storage water heaters on June 30, 2015, which was published in
the Federal Register on July 17, 2015. 80 FR 42614. However, for all
of the other water heating equipment that is the subject of this
rulemaking, DOE last issued a final rule amending standards on
January 4, 2001, which was published in the Federal Register on
January 12, 2001. 66 FR 3336.
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In addition, EPCA, as amended, also requires DOE to consider
amending the existing Federal energy conservation standards for certain
types of listed commercial and industrial equipment (generally,
commercial water heaters, commercial packaged boilers, commercial air-
conditioning and heating equipment, and packaged terminal air
conditioners and heat pumps) each time ASHRAE Standard 90.1 is amended
with respect to such equipment. (42 U.S.C. 6313(a)(6)(A)) For each type
of equipment, EPCA directs that if ASHRAE Standard 90.1 is amended, DOE
must publish in the Federal Register an analysis of the energy savings
potential of amended energy conservation standards within 180 days of
the amendment of ASHRAE Standard 90.1. (42 U.S.C. 6313(a)(6)(A)(i))
EPCA further directs that DOE must adopt amended energy conservation
standards at the new efficiency level in ASHRAE Standard 90.1, unless
clear and convincing evidence supports a determination that adoption of
a more-stringent efficiency level as a national standard would produce
significant additional energy savings and be technologically feasible
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) If DOE
decides to adopt as a national standard the efficiency levels specified
in the amended ASHRAE Standard 90.1, DOE must establish such a standard
not later than 18 months after publication of the amended industry
standard. (42 U.S.C. 6313(a)(6)(A)(ii)(I)) If DOE determines that a
more-stringent standard is appropriate under the statutory criteria,
DOE must establish such more-stringent standard not later than 30
months after publication of the revised ASHRAE Standard 90.1. (42
U.S.C. 6313(a)(6)(B)(i))
On October 9, 2013, ASHRAE officially released ASHRAE Standard
90.1-2013, which, among other things, amended standard levels for
commercial oil-fired storage water heaters greater than 105,000 Btu/h
and less than 4,000 Btu/h/gal, a category of CWH equipment covered
under EPCA, thereby triggering DOE's statutory obligation to promulgate
an amended uniform national standard at those levels, unless DOE
determines that there is clear and convincing evidence supporting the
adoption of more-stringent energy conservation standards than the
ASHRAE Standard 90.1 levels. Pursuant to 42 U.S.C. 6313(a)(6), DOE
determined in a final rule published on July 17, 2015 (``July 2015
ASHRAE equipment final rule'') that a more-stringent thermal efficiency
standard than the ASHRAE 90.1-2013 standard level for commercial oil-
fired water heaters is not justified. 80 FR 42614. Therefore, DOE
adopted the ASHRAE 90.1-2013 thermal efficiency standard for commercial
oil-fired storage water heaters in the Code of Federal Regulations
(CFR) at 10 CFR 431.110 with a compliance date of October 9, 2015. Id.
In this NOPR, DOE proposes to maintain the standard levels for
commercial oil-fired storage water heaters adopted in that final rule.
For the other types of CWH equipment,\4\ DOE was not triggered by
ASHRAE action in adopting ASHRAE Standard 90.1-2013, so for those
equipment classes, DOE proceeded under its 6-year-look-back authority.
(42 U.S.C. 6313(a)(6)(C)(i))
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\4\ Other types of CWH equipment include commercial electric
storage water heaters, commercial gas-fired storage water heaters,
residential-duty gas-fired storage water heaters, commercial gas-
fired instantaneous water heaters and hot water supply boilers,
commercial oil-fired instantaneous water heaters and hot water
supply boilers, and commercial electric instantaneous water heaters.
Commercial heat pump water heaters and unfired hot water storage
tanks were not considered in this NOPR and energy conservations
standards for these classes will be considered in a future
rulemaking(s). Commercial electric instantaneous water heaters and
commercial oil-fired instantaneous water heaters and hot water
supply boilers were not analyzed for amended energy conservation
standards in this NOPR because DOE determined amendment of standards
for these classes would result in negligible energy savings. Section
III.C includes further discussion on the scope of equipment classes
analyzed in this NOPR.
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Also relevant here, the American Energy Manufacturing Technical
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012), amended
EPCA to require that DOE publish a final rule establishing a uniform
efficiency descriptor and accompanying test methods for covered
residential water heaters and some CWH equipment. (42 U.S.C.
6295(e)(5)(B)) EPCA further requires the final rule must replace the
current energy factor (for residential water heaters) and thermal
efficiency and standby loss (for some commercial water heaters) metrics
with a uniform efficiency descriptor. (42 U.S.C. 6295(e)(5)(C))
Pursuant to 42 U.S.C. 6295(e), on July 11, 2014, DOE published a
final rule for test procedures for residential and certain commercial
water heaters (``July 2014 final rule'') that, among other things,
established the uniform energy factor (UEF), a revised version of the
current residential energy factor metric, as the uniform efficiency
descriptor required by AEMTCA. 79 FR 40542, 40578. In addition, the
July 2014 final rule defined the term ``residential-duty commercial
water heater,'' an equipment type that is subject to the new UEF metric
and the corresponding UEF test procedures. 79 FR 40542, 40586-88 (July
11, 2014). DOE excludes from the UEF covered CWH equipment that is not
a residential-duty commercial water heater. Id. Further details on the
UEF metric and residential-duty commercial water heaters are discussed
in section III.B of this document. For this NOPR, DOE analyzed and
developed potential energy conservation standards for residential-duty
commercial water heaters in terms of the current thermal efficiency and
standby loss metrics because there are currently not sufficient test
data for residential-duty commercial water heaters rated in UEF that
DOE could use in its analyses for this NOPR. However, in a NOPR
published on April 14, 2015 (``April 2015 NOPR''), DOE proposed, among
other things, conversion factors from thermal efficiency and standby
loss to UEF for residential-duty commercial water heaters. 80 FR 20116,
20143. DOE applied these conversion factors in converting the proposed
standards for residential-duty commercial water heaters to UEF in this
rulemaking. All other CWH equipment classes continue to have standards
measured in terms of the thermal efficiency and standby loss metrics,
with the exception of unfired hot water storage tanks, for which the
energy
[[Page 34443]]
conservation standard is a minimum R-value requirement for tank
insulation.
Pursuant to EPCA, any new or amended energy conservation standard
that DOE prescribes for CWH equipment shall be designed to achieve
significant additional conservation of energy that DOE determines,
supported by clear and convincing evidence, is both technologically
feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)
and (C)) In accordance with these and other statutory provisions
discussed in this document, DOE has examined all of the CWH equipment
classes (except for commercial oil-fired water heaters, which were
addressed in a separate rulemaking, as noted above, and unfired hot
water storage tanks, which will be examined in a separate rulemaking,
as discussed in section III.C.4). Because DOE did not analyze amended
energy conservations standards for unfired hot water storage tanks in
this rule, DOE proposes to maintain the current R-12.5 minimum thermal
insulation requirement for this class. DOE has tentatively concluded
that more-stringent standards for commercial gas-fired storage water
heaters, residential-duty commercial gas-fired storage water heaters,
gas-fired instantaneous water heaters and hot water supply boilers, and
electric storage water heaters are warranted. Accordingly, DOE is
proposing amended energy conservation standards for these classes of
CWH equipment. The proposed standards, if adopted, would apply to all
equipment listed in Table I.1 and Table I.2 and manufactured in, or
imported into, the United States on and after the compliance date of
the standards (i.e., 3 years after the publication date of the final
rule). As shown in Table I.1 and Table I.2, the proposed standards are
expressed in terms of: (1) Thermal efficiency, which describes the
ratio of the heat energy (Btu/h) transferred to the water flowing
through the water heater to the amount of energy (Btu/h) consumed by
the water heater; (2) standby loss, which is the average hourly energy,
expressed in Btu per hour, required to maintain the stored water
temperature; or (3) uniform energy factor, which is a uniform
efficiency descriptor that replaces thermal efficiency and standby loss
for residential-duty commercial water heaters.
Table I.1--Proposed Energy Conservation Standards for Commercial Water Heating Equipment Except for Residential-
Duty Commercial Water Heaters
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Energy conservation standards *
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Equipment Specifications ** Minimum thermal Maximum standby Compliance date
efficiency (percent) loss
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Electric storage water heaters. All............... N/A.................. 0.84 x [0.30 + 27/ 3 years after
Vr] (%/h). publication of
final rule.
Gas-fired storage water heaters All ***........... 95................... 0.63 x [Q/800 + 3 years after
110(Vr) 1/2] publication of
(Btu/h). final rule.
Oil-fired storage water heaters All ***........... 80................... Q/800 + 110(Vr) 1/ 10/09/2015
2 (Btu/h). [dagger].
Electric instantaneous water <10 gal ***....... 80................... N/A.............. 01/01/1994
heaters. [dagger].
>=10 gal.......... 77................... 2.30 + 67/Vr (%/ 01/01/1994
h). [dagger].
Gas-fired instantaneous water
heaters and hot water supply
boilers:
Instantaneous water heaters <10 gal........... 94................... N/A.............. 3 years after
(other than storage-type) publication of
and hot water supply final rule.
boilers.
Instantaneous water heaters >=10 gal.......... 94................... Q/800 + 110(Vr) 1/ 3 years after
(other than storage-type) 2 (Btu/h). publication of
and hot water supply final rule
boilers. [dagger][dagger]
[dagger].
Storage-type instantaneous >=10 gal.......... 95................... 0.63 x [Q/800 + 3 years after
water heaters 110(Vr) 1/2] publication of
[dagger][dagger]. (Btu/h). final rule.
Oil-fired instantaneous water
heaters and hot water supply
boilers:
Instantaneous water heaters <10 gal........... 80................... N/A.............. 10/09/2015
and hot water supply [dagger]
boilers.
Instantaneous water heaters >=10 gal.......... 78................... Q/800 + 110(Vr) 1/ 10/29/2003
and hot water supply 2 (Btu/h). [dagger].
boilers.
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* Vr is the rated volume in gallons. Q is the fuel input rate in Btu/h.
** These specifications only distinguish between classes of CWH equipment. The different classifications for
consumer water heaters and commercial water heating equipment are specified by the definitions codified at 10
CFR 430.2 and 10 CFR 431.102, respectively.
*** These standards only apply to commercial water heating equipment that does not meet the definition of
``residential-duty commercial water heater.'' See Table I.2 for energy conservation standards proposed for
residential-duty commercial water heaters.
[dagger] Amended standards for these equipment classes were not analyzed in this NOPR. Section III.C includes a
discussion of the scope of equipment analyzed in this NOPR. Standards for electric instantaneous water heaters
are included in EPCA. (42 U.S.C. 6313(a)(5)(D)-(E)) In this NOPR, DOE proposes to codify these standards for
electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for
electric instantaneous water heaters is included in section III.C.5.
[[Page 34444]]
[dagger][dagger] DOE proposes a new equipment class for storage-type instantaneous water heaters. This class of
equipment is similar to storage water heaters in design, cost, and application. However, it has a ratio of
input capacity to storage volume greater than or equal to 4,000 Btu/h per gallon of water stored; therefore,
it is properly classified as an instantaneous water heater by EPCA's definition at 42 U.S.C. 6311(12)(B).
Because of its similarities with storage water heaters, DOE grouped these two equipment classes together in
its analyses for this NOPR. Storage-type instantaneous water heaters are further discussed in section
IV.A.2.a.
[dagger][dagger][dagger] Amended standby loss standards for instantaneous gas-fired water heaters and hot water
supply boilers with greater than or equal to 10 gal water stored other than storage-type instantaneous water
heaters were not analyzed in this NOPR. Section III.C.8 includes a discussion of the coverage of instantaneous
water heaters and hot water supply boilers in this NOPR.
Table I.2--Proposed Energy Conservation Standards for Residential-Duty Commercial Water Heaters
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Uniform energy
Equipment Specification * Draw pattern ** factor [dagger] Compliance date
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage [dagger].. >75 kBtu/h and Very Small............ 0.4618 - (0.0010 3 years after
<=105 kBtu/h and Low................... x Vr). publication of final
<=120 gal and 0.6626 - (0.0009 rule.
<=180 [deg]F. x Vr). 3 years after
publication of final
rule.
Medium................ 0.6996 - (0.0007 3 years after
x Vr). publication of final
rule.
High.................. 0.7311 - (0.0006 3 years after
x Vr). publication of final
rule.
Oil-fired storage........... >105 kBtu/h and Very Small............ 0.3206 - (0.0006 Conversion factor
<=140 kBtu/h and Low................... x Vr). final rule
<=120 gal and 0.5577 - (0.0019 publication
<=180 [deg]F. x Vr). date.[dagger][dagger
]
Conversion factor
final rule
publication
date.[dagger][dagger
]
Medium................ 0.6027 - (0.0019 Conversion factor
x Vr). final rule
publication
date.[dagger][dagger
]
High.................. 0.5446 - (0.0018 Conversion factor
x Vr). final rule
publication
date.[dagger][dagger
]
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* To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity,
use single-phase external power supply, and not be designed to heat water at temperatures greater than 180
[deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
for Measuring the Energy Consumption of Water Heaters in Appendix E to Subpart B of 10 CFR part 430.
[dagger] Energy conservation standards for residential-duty commercial gas-fired storage water heaters at all
four draw patterns were converted from the thermal efficiency and standby loss metrics to the new UEF metric
using the conversion factors proposed by DOE in the April 2015 NOPR. 80 FR 20116, 20143 (April 14, 2015). In
these equations, Vr is the rated storage volume.
[dagger][dagger] Energy conservation standards in terms of UEF for residential-duty oil-fired storage water
heaters will be established in a final rule for consumer water heaters and certain commercial water heaters,
along with mathematical conversion factors for determining UEF. (See Docket No. EERE-2015-BT-TP-0007)
A. Benefits and Costs to Commercial Consumers
Table I.3 presents DOE's evaluation of the economic impacts of the
proposed energy conservation standards on commercial consumers of CWH
equipment, as measured by the average life-cycle cost (LCC) savings and
the simple payback period (PBP).\5\ The average LCC savings are
positive for the standards DOE is proposing in this NOPR for all CWH
equipment classes considered in this document. The estimated PBP for
all proposed equipment classes are also less than the projected average
lifetime of each equipment class, which varies from 10 to 25 years.
---------------------------------------------------------------------------
\5\ The average LCC savings are measured relative to the no-new-
standards-case efficiency distribution, which depicts the commercial
water heating market in the compliance year in the absence of
amended standard levels (see section IV.H.1 and chapter 8H of the
TSD). The simple PBP, which is designed to compare specific
efficiency levels for CWH equipment, is aggregate average payback
measured relative to baseline CWH equipment (see section IV.F.3 and
chapter 8 of the TSD).
Table I.3--Impacts of Proposed Energy Conservation Standards on Commercial Consumers of Commercial Water Heating
Equipment
----------------------------------------------------------------------------------------------------------------
Average
Equipment class Average LCC Simple payback period years lifetime
savings 2014$ years
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters 794 4.3............................... 10
and storage-type instantaneous water
heaters *.
Residential-duty gas-fired storage water 14 11.9.............................. 12
heaters.
Gas-fired instantaneous water heaters and 3,488 5.6............................... 22.6
hot water supply boilers **.
Tankless water heaters.................. 1,119 Immediate [dagger]................ 17
Hot water supply boilers................ 4,528 6.4............................... 25
Electric storage water heaters.............. 47 6.5............................... 12
----------------------------------------------------------------------------------------------------------------
* DOE proposes a new equipment class for storage-type instantaneous water heaters, which are similar to storage
water heaters with a ratio of input capacity to storage volume greater than or equal to 4,000 Btu/h per gallon
of water stored. Storage-type instantaneous water heaters are further discussed in section IV.A.2.a.
** Average LCC and PBP for the gas-fired instantaneous water heaters and hot water supply boilers class reflect
use of shipment-weighted inputs to these calculated values to provide results for the class as a whole.
Average lifetime of the gas-fired instantaneous water heaters and hot water supply boilers equipment class was
a shipment-weighted average of the tankless water heater and hot water supply boiler lifetimes.
[dagger] Immediate payback can result from a decrease in installation cost that is greater than the incremental
increase in equipment cost.
DOE's analysis of the impacts of the proposed standards on
commercial consumers is described in section IV.F of this document.
[[Page 34445]]
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 (2015 to 2048). Using a real discount rate of 9.1
percent,\6\ DOE estimates that the INPV for CWH equipment manufacturers
is $176.2 million in 2014$ using DOE's current standards as a baseline.
Under the proposed standards, DOE expects that the change in INPV will
range from 5.0 percent to -13.3 percent, which is approximately
equivalent to an increase of $8.8 million to a reduction of $23.4
million. Industry conversion costs are expected to total $29.8 million.
Additional detail on DOE's calculations of INPV for CWH equipment
manufacturers can be found in section V.B.2 of this NOPR and chapter 12
of the NOPR TSD. Based on DOE's interviews with CWH equipment
manufacturers, DOE does not expect any plant closings or significant
loss of employment to result from the proposed standards.
---------------------------------------------------------------------------
\6\ DOE estimated preliminary financial metrics, including the
industry discount rate, based on data in Securities and Exchange
Commission (SEC) filings and on industry-reviewed values published
in prior water heating equipment final rules. DOE presented the
preliminary financial metrics to manufacturers in manufacturer
impact analysis (MIA) interviews. DOE adjusted those values based on
feedback from manufacturers. The complete set of financial metrics
and more detail about the methodology can be found in chapter 12 of
the NOPR TSD.
---------------------------------------------------------------------------
C. National Benefits and Costs \7\
---------------------------------------------------------------------------
\7\ All monetary values in this section are expressed in 2014
dollars and, where appropriate, are discounted to 2015 unless
explicitly stated otherwise. Energy savings in this section refer to
the full-fuel-cycle savings (see section IV.H for discussion).
National benefits of DOE's proposed standard levels are presented as
compared to the current Federal standard levels as baseline.
---------------------------------------------------------------------------
DOE's analyses indicate that the proposed energy conservation
standards for CWH equipment would save a significant additional amount
of energy. The cumulative lifetime energy savings for CWH equipment
shipped in the 30-year period \8\ (which begins in the first full year
of compliance with amended standards relative to the no-new-standards
case without amended standards) amount to 1.8 quadrillion British
thermal units (quads \9\) of cumulative full-fuel-cycle energy. This is
a savings of 8 percent relative to the energy use of this equipment
\10\ in the case without amended standards. More details on energy
savings can be found in chapter 10 of the NOPR TSD and sections IV.H,
IV.L, and V.B.3 of this document.
---------------------------------------------------------------------------
\8\ The 30-year analysis period is 2019-2048 for electric and
gas-fired CWH equipment.
\9\ A quad is equal to 10\15\ British thermal units (Btu).
\10\ The no-new-standards-case assumptions are described in
section IV.H.1 of this notice.
---------------------------------------------------------------------------
The cumulative net present value (NPV) of total commercial consumer
costs and savings of the proposed CWH equipment standards in 2014$
ranges from $2.26 billion (at a 7-percent discount rate) to $6.75
billion (at a 3-percent discount rate), respectively. This NPV
expresses the estimated total value of future operating-cost savings
minus the estimated increased equipment costs for CWH equipment shipped
in 2019-2048 discounted back to the current year (2015). Chapter 10 of
the NOPR TSD provides more details on the NPV analyses.
In addition, the proposed standards would have significant
environmental benefits. The energy savings are estimated to result in
cumulative emission reductions (over the same period as for energy
savings) of 98 million metric tons (Mt) \11\ of carbon dioxide
(CO2), 1,172 thousand tons of methane (CH4), 0.2
thousand tons of nitrous oxide (N2O), 1.6 thousand tons of
sulfur dioxide (SO2), 316 thousand tons of nitrogen oxides
(NOX), and 0.004 tons of mercury (Hg).\12\ The cumulative
reduction in CO2 emissions through 2030 amounts to 15 Mt,
which is equivalent to the emissions resulting from the annual
electricity use of 2.1 million homes. More detailed emissions analysis
results can be found in chapter 13 of the NOPR TSD.
---------------------------------------------------------------------------
\11\ A metric ton is equivalent to 1.1 short tons. Results for
emissions other than CO2 are presented in short tons.
\12\ DOE calculated emissions reductions relative to the no-new-
standards case, which reflects key assumptions in the Annual Energy
Outlook 2015 (AEO 2015) Reference case. AEO 2015 generally
represents current legislation and environmental regulations for
which implementing regulations were available as of October 31,
2014.
---------------------------------------------------------------------------
The value of the CO2 reductions is calculated using a
range of values per metric ton of CO2 (otherwise known as
the Social Cost of Carbon, or SCC) developed by a recent Federal
interagency process.\13\ The derivation of the SCC values is discussed
in section IV.L of this NOPR. Using discount rates appropriate for each
set of SCC values, DOE estimates that the present monetary value of the
CO2 emissions reduction described above is between $0.64 and
$9.11 billion, with a value of $2.99 billion using the central SCC case
represented by $40.0 per metric ton in 2015.\14\ Additionally, DOE
estimates the present monetary value of the NOX emissions
reduction to be from $373 million at a 7-percent discount rate to $970
million at a 3-percent discount rate.\15\ More detailed results can be
found in chapter 14 of the NOPR TSD.
---------------------------------------------------------------------------
\13\ Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis Under Executive Order 12866, Interagency
Working Group on Social Cost of Carbon, United States Government
(May 2013; revised July 2015) (Available at: https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).
\14\ The values only include CO2 emissions;
CO2 equivalent emissions from other greenhouse gases are
not included.
\15\ DOE estimated the monetized value of NOX
emissions reductions using benefit per ton estimates from the
Regulatory Impact Analysis titled, ``Proposed Carbon Pollution
Guidelines for Existing Power Plants and Emission Standards for
Modified and Reconstructed Power Plants,'' published in June 2014 by
EPA's Office of Air Quality Planning and Standards. (Available at
www3.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf.)
See section IV.L.2 for further discussion. Note that the agency is
presenting a national benefit-per-ton estimate for particulate
matter emitted from the Electricity Generating Unit sector based on
an estimate of premature mortality derived from the ACS study
(Krewski et al. 2009). If the benefit-per-ton estimates were based
on the Six Cities study (Lepuele et al. 2011), the values would be
nearly two-and-a-half times larger. Because of the sensitivity of
the benefit-per-ton estimate to the geographical considerations of
sources and receptors of emissions, DOE intends to investigate
refinements to the agency's current approach of one national
estimate by assessing the regional approach taken by EPA's
Regulatory Impact Analysis for the Clean Power Plan Final Rule. Note
that DOE is currently investigating valuation of avoided
SO2 and Hg emissions.
---------------------------------------------------------------------------
Table I.4 summarizes the national economic benefits and costs
expected to result from this NOPR's proposed standards for CWH
equipment.
Table I.4--Summary of National Economic Benefits and Costs of Proposed
Commercial Water Heating Equipment Energy Conservation Standards (TSL 3)
*
------------------------------------------------------------------------
Present value billion
Category 2014$ Discount rate %
------------------------------------------------------------------------
Benefits
------------------------------------------------------------------------
Commercial Consumer Operating 3.7 7
Cost Savings.
9.3 3
[[Page 34446]]
CO2 Reduction (using mean SCC 0.6 5
at 5% discount rate) **.
CO2 Reduction (using mean SCC 3.0 3
at 3% discount rate) **.
CO2 Reduction (using mean SCC 4.8 2.5
at 2.5% discount rate) **.
CO2 Reduction (using 95th 9.1 3 (95th
percentile SCC at 3% percentile)
discount rate) **.
NOX Reduction [dagger]....... 0.4 7
1.0 3
Total Benefits 7.1 7
[dagger][dagger].
13.2 3
------------------------------------------------------------------------
Costs
------------------------------------------------------------------------
Incremental Equipment Costs.. 1.5 7
2.5 3
------------------------------------------------------------------------
Total Net Benefits
------------------------------------------------------------------------
Including CO2 and NOX 5.6 7
Reduction Monetized Value 10.7 3
[dagger].
------------------------------------------------------------------------
* This table presents the costs and benefits associated with CWH
equipment shipped in 2019-2048. These results include benefits to
consumers that accrue after 2048 from the equipment purchased in 2019-
2048. The incremental installed costs include incremental equipment
cost as well as installation costs. The CO2 reduction benefits are
global benefits due to actions that occur nationally.
** The interagency group selected four sets of SCC values for use in
regulatory analyses. Three sets of values are based on the average SCC
from the integrated assessment models, at discount rates of 5, 3, and
2.5 percent. For example, for 2015 emissions, these values are $12.2/
metric ton, $40.0/metric ton, and $62.3/metric ton, in 2014$,
respectively. The fourth set ($117 per metric ton in 2014$ for 2015
emissions), which represents the 95th percentile of the SCC
distribution calculated using SCC estimate across all three models at
a 3-percent discount rate, is included to represent higher-than-
expected impacts from temperature change further out in the tails of
the SCC distribution. See section IV.L.1 for more details.
[dagger] The $/ton values used for NOX are described in section IV.L.
DOE estimated the monetized value of NOX emissions reductions using
benefit per ton estimates from the Regulatory Impact Analysis titled,
``Proposed Carbon Pollution Guidelines for Existing Power Plants and
Emission Standards for Modified and Reconstructed Power Plants,''
published in June 2014 by EPA's Office of Air Quality Planning and
Standards. (Available at www3.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf.) See section IV.L.2 for further
discussion. Note that the agency is presenting a national benefit-per-
ton estimate for particulate matter emitted from the Electric
Generating Unit sector based on an estimate of premature mortality
derived from the ACS study (Krewski et al. 2009). If the benefit-per-
ton estimates were based on the Six Cities study (Lepuele et al.
2011), the values would be nearly two-and-a-half times larger. Because
of the sensitivity of the benefit-per-ton estimate to the geographical
considerations of sources and receptors of emissions, DOE intends to
investigate refinements to the agency's current approach of one
national estimate by assessing the regional approach taken by EPA's
Regulatory Impact Analysis for the Clean Power Plan Final Rule.
[dagger][dagger] Total benefits for both the 3-percent and 7-percent
cases are presented using only the average SCC with 3-percent discount
rate.
The benefits and costs of the proposed energy conservation
standards, for CWH equipment shipped in 2019-2048, can also be
expressed in terms of annualized values. The monetary values for the
total annualized net benefits are the sum of: (1) The national economic
value of the benefits in reduced operating costs, minus (2) the
increase in equipment purchase prices and installation costs, plus (3)
the value of the benefits of CO2 and NOX emission
reductions, all annualized.\16\
---------------------------------------------------------------------------
\16\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2015, 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 2015. The calculation uses discount rates of 3 and 7
percent for all costs and benefits except for the value of
CO2 reductions, for which DOE used case-specific discount
rates, as shown in Table I.3. Using the present value, DOE then
calculated the fixed annual payment over a 30-year period starting
in the compliance year that yields the same present value.
---------------------------------------------------------------------------
The national operating savings are domestic private U.S. consumer
monetary savings that occur as a result of purchasing this equipment.
The national operating cost savings is measured for the lifetime of CWH
equipment shipped in 2019-2048.
The CO2 reduction is a benefit that accrues globally due
to decreased domestic energy consumption that is expected to result
from this rule. Because CO2 emissions have a very long
residence time in the atmosphere,\17\ the SCC values in future years
reflect future CO2-emissions impacts that continue beyond
2100 through 2300.
---------------------------------------------------------------------------
\17\ The atmospheric lifetime of CO2 is estimated to
be on the order of 30-95 years. Jacobson, MZ, ``Correction to
`Control of fossil-fuel particulate black carbon and organic matter,
possibly the most effective method of slowing global warming,' '' J.
Geophys. Res. 110. pp. D14105 (2005).
---------------------------------------------------------------------------
Estimates of annualized benefits and costs of the proposed
standards (over a 30-year period) are shown in Table I.5. The results
under the primary estimate are as follows. Using a 7-percent discount
rate for benefits and costs other than CO2 reduction (for
which DOE used a 3-percent discount rate along with the average SCC
series that has a value of $40.0 per metric ton in 2015), the estimated
cost of the CWH standards proposed in this document is $144 million per
year in increased equipment costs, while the estimated benefits are
$367 million per year in reduced equipment operating costs, $166
million per year from CO2 reductions, and $37 million per
year from reduced NOX emissions. In this case, the
annualized net benefit amounts to $427 million per year. Using a 3-
percent discount rate for all benefits and costs and the average SCC
series that has a value of $40.0 per metric ton in 2015, the estimated
cost of the CWH standards proposed in this NOPR is $141 million per
year in increased equipment costs, while the benefits are $517 million
per year in reduced operating costs, $166 million from CO2
reductions, and $54 million in reduced NOX emissions. In
this case, the
[[Page 34447]]
net benefit amounts to $597 million per year.
Table I.5--Annualized Benefits and Costs of Proposed Energy Conservation Standards for Commercial Water Heating
Equipment (TSL 3)*
----------------------------------------------------------------------------------------------------------------
Low net benefits High net benefits
estimate estimate
Discount rate % Primary estimate ---------------------------------------
million 2014$/year million 2014$/year
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Operating 7................. 367............... 336............... 411.
Cost Savings.
3................. 517............... 465............... 588.
----------------------------------------------------------------------------------------------------------------
CO2 Reduction (using mean SCC at 5................. 48................ 46................ 50.
5% discount rate)*,**.
CO2 Reduction (using mean SCC at 3................. 166............... 159............... 176.
3% discount rate)*,**.
CO2 Reduction (using mean SCC at 2.5............... 245............... 234............... 259.
2.5% discount rate)*,**.
CO2 Reduction (using 95th 3................. 508............... 485............... 536.
percentile SCC at 3% discount
rate)*,**.
NOX Reduction[dagger]........... 7................. 37................ 35................ 86.
3................. 54................ 52................ 126.
Total Benefits[dagger][dagger].. 7% plus CO2 range. 452 to 912........ 417 to 855........ 547 to 1,033.
7................. 571............... 530............... 673.
3% plus CO2 range. 619 to 1,079...... 563 to 1,001...... 765 to 1,251.
3................. 737............... 676............... 890.
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Incremental 7................. 144............... 147............... 142.
Equipment Costs.
3................. 141............... 144............... 138.
----------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
----------------------------------------------------------------------------------------------------------------
Total[dagger][dagger]....... 7% plus CO2 range. 308 to 768........ 270 to 709........ 406 to 892.
7................. 427............... 383............... 531.
3% plus CO2 range. 478 to 938........ 419 to 857........ 627 to 1,113.
3................. 597............... 532............... 752.
----------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with CWH equipment shipped in 2019-2048.
These results include benefits to commercial consumers that accrue after 2048 from the equipment shipped in
2019-2048. The Primary, Low Benefits, and High Benefits Estimates for operating cost savings utilize
projections of energy prices and building growth (leading to higher shipments) from the AEO 2015 reference
case, Low Estimate, and High Estimate, respectively. In addition, DOE used a constant price assumption as the
default price projection; the cost to manufacture a given unit of higher efficiency neither increases nor
decreases over time. The analysis of the price trends is described in section IV.F.2.a and appendix 10B of the
NOPR TSD.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
are based on the average SCC from the integrated assessment models, at discount rates of 5, 3, and 2.5
percent. For example, for 2015 emissions, these values are $12.2/metric ton, $40.0/metric ton, and $62.3/
metric ton, in 2014$, respectively. The fourth set ($117 per metric ton in 2014$ for 2015 emissions), which
represents the 95th percentile of the SCC distribution calculated using SCC estimate across all three models
at a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change
further out in the tails of the SCC distribution. The SCC values are emission year specific. See section IV.L
for more detail.
[dagger] The $/ton values used for NOX are described in section IV.L. DOE estimated the monetized value of NOX
emissions reductions using benefit per ton estimates from the Regulatory Impact Analysis titled, ``Proposed
Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for Modified and Reconstructed
Power Plants,'' published in June 2014 by EPA's Office of Air Quality Planning and Standards. (Available at
www3.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf.) See section IV.L.2 for further discussion.
Note that the agency is presenting a national benefit-per-ton estimate for particulate matter emitted from the
Electric Generating Unit sector based on an estimate of premature mortality derived from the ACS study
(Krewski et al. 2009). If the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al.
2011), the values would be nearly two-and-a-half times larger. Because of the sensitivity of the benefit-per-
ton estimate to the geographical considerations of sources and receptors of emissions, DOE intends to
investigate refinements to the agency's current approach of one national estimate by assessing the regional
approach taken by EPA's Regulatory Impact Analysis for the Clean Power Plan Final Rule.
[dagger][dagger] Total benefits for both the 3-percent and 7-percent cases are presented using only the average
SCC with a 3-percent discount rate. In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the
operating cost and NOX benefits are calculated using the labeled discount rate, and those values are added to
the full range of CO2 values.
D. Conclusion
DOE has tentatively concluded that, based upon clear and convincing
evidence, the proposed standards for the CWH equipment classes
evaluated in this rulemaking represent the maximum improvement in
energy efficiency that is technologically feasible and economically
justified, and would result in the significant additional conservation
of energy. DOE further notes that equipment achieving these standard
levels is already commercially available for all equipment classes
covered by this proposal. Based on the analytical results described in
this section, DOE has tentatively concluded that the benefits of the
proposed standards to the Nation (i.e., energy savings, positive NPV of
commercial
[[Page 34448]]
consumer benefits, commercial consumer LCC savings, and emission
reductions) would outweigh the burdens (loss of INPV for
manufacturers).
DOE also considered more-stringent energy efficiency levels as
trial standard levels, and is still considering them in this
rulemaking. However, DOE has tentatively concluded that the potential
burdens of the more-stringent energy efficiency levels would outweigh
the projected benefits. Based on consideration of the public comments
DOE receives in response to this document and related information
collected and analyzed during the course of this rulemaking effort, DOE
may adopt energy efficiency levels presented in this document that are
either higher or lower than the proposed standards, or some combination
of level(s) that incorporate the proposed standards in part.
II. Introduction
The following section briefly discusses the statutory authority
underlying this proposal, as well as some of the relevant historical
background related to the establishment of standards for CWH equipment.
A. Authority
Title III, Part C \18\ of the Energy Policy and Conservation Act of
1975 (``EPCA'' or ``the Act''), Public Law 94-163 (42 U.S.C. 6311-6317,
as codified), added by Public Law 95-619, Title IV, Sec. 441(a),
established the Energy Conservation Program for Certain Industrial
Equipment, which sets forth a variety of provisions designed to improve
energy efficiency. These encompass several types of heating, air-
conditioning, and water heating equipment, including the classes of CWH
equipment that are the subject of this rulemaking.\19\ (42 U.S.C.
6311(1)(K)) In general, this program addresses the energy efficiency of
certain types of commercial and industrial equipment. Relevant
provisions of the Act specifically include definitions (42 U.S.C.
6311), energy conservation standards (42 U.S.C. 6313), test procedures
(42 U.S.C. 6314), labelling provisions (42 U.S.C. 6315), and the
authority to require information and reports from manufacturers (42
U.S.C. 6316).
---------------------------------------------------------------------------
\18\ For editorial reasons, upon codification in the U.S. Code,
Part C was redesignated Part A-1.
\19\ All references to EPCA in this document refer to the
statute as amended through the Energy Efficiency Improvement Act of
2015 (EEIA 2015), Public Law 114-11 (April 30, 2015).
---------------------------------------------------------------------------
The initial Federal energy conservation standards and test
procedures for CWH equipment were added to EPCA by the Energy Policy
Act of 1992 (EPACT 1992), Public Law 102-486. (42 U.S.C. 6313(a)(5) and
42 U.S.C. 6314(a)(4)(A)) These initial CWH standards mirrored the
levels and equipment classes in ASHRAE Standard 90.1-1989.
In acknowledgment of technological changes that yield energy
efficiency benefits, the U.S. Congress further directed DOE through
EPCA to evaluate and consider amending its energy conservation
standards for certain commercial and industrial equipment (i.e.,
specified heating, air-conditioning, and water heating equipment) each
time ASHRAE Standard 90.1 is updated with respect to such equipment.
(42 U.S.C. 6313(a)(6)(A)) Such review is to be conducted in accordance
with the statutory procedures set forth in 42 U.S.C. 6313(a)(6)(B).
Pursuant to 42 U.S.C. 6313(a)(6)(A), for CWH equipment, EPCA directs
that if ASHRAE Standard 90.1 is amended, DOE must publish in the
Federal Register an analysis of the energy savings potential of amended
energy conservation standards within 180 days of the amendment of
ASHRAE Standard 90.1. (42 U.S.C. 6313(a)(6)(A)(i)) EPCA further directs
that DOE must adopt amended standards at the new efficiency level in
ASHRAE Standard 90.1, unless clear and convincing evidence supports a
determination that adoption of a more-stringent level would produce
significant additional energy savings and be technologically feasible
and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) If DOE
decides to adopt as a national standard the efficiency levels specified
in the amended ASHRAE Standard 90.1, DOE must establish such standard
not later than 18 months after publication of the amended industry
standard. (42 U.S.C. 6313(a)(6)(A)(ii)(I)) If DOE determines that a
more-stringent standard is appropriate under the statutory criteria,
DOE must establish such more-stringent standard not later than 30
months after publication of the revised ASHRAE Standard 90.1. (42
U.S.C. 6313(a)(6)(B)(i))
In addition, DOE notes that pursuant to the EISA 2007 amendments to
EPCA, the agency must periodically review its already-established
energy conservation standards for covered ASHRAE equipment and publish
either a notice of proposed rulemaking with amended standards or a
determination that the standards do not need to be amended. (42 U.S.C.
6313(a)(6)(C)(i)) In December 2012, this provision was further amended
by AEMTCA to clarify that DOE's periodic review of ASHRAE equipment
must occur ``[e]very six years.'' (42 U.S.C. 6313(a)(6)(C)(i)) AEMTCA
also modified EPCA to specify that any amendments to the design
requirements with respect to the ASHRAE equipment would trigger DOE
review of the potential energy savings under 42 U.S.C.
6313(a)(6)(A)(i). AEMTCA also added a requirement that DOE must
initiate a rulemaking to consider amending the energy conservation
standards for any covered equipment for which more than 6 years has
elapsed since the issuance of the most recent final rule establishing
or amending a standard for the product as of the date of AEMTCA's
enactment (i.e., December 18, 2012), in which case DOE must publish
either: (1) a notice of determination that the current standards do not
need to be amended, or (2) a notice of proposed rulemaking containing
proposed standards. (42 U.S.C. 6313(a)(6)(C)(vi))
DOE published the most recent final rule for energy conservation
standards for CWH equipment on January 12, 2001 (``January 2001 final
rule''), which adopted efficiency levels in ASHRAE Standard 90.1-1999.
66 FR 3336, 3356. Because more than 6 years have passed since issuance
of the last final rule for CWH equipment, DOE is required to publish
either a notice of determination that the current standards for these
equipment types do not need to be amended, or a notice of proposed
rulemaking proposing amended energy conservation standards for these
equipment types.
When setting standards for the equipment addressed by this
document, EPCA, as amended by AEMTCA, prescribes specific statutory
criteria for DOE to consider when determining whether an amended
standard level more stringent than that in ASHRAE Standard 90.1 is
economically justified. See generally 42 U.S.C. 6313(a)(6)(A)-(C).
First, EPCA requires that any amended standards for CWH equipment must
be designed to achieve significant additional conservation of energy
that DOE determines, supported by clear and convincing evidence, and be
both technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii)(II) and (C)) Furthermore, DOE may not adopt any
standard that would increase the maximum allowable energy use or
decrease the minimum required energy efficiency of covered equipment.
(42 U.S.C. 6313(a)(6)(B)(iii)(I) and (C)(i)) In deciding whether a
proposed standard is economically justified, DOE must determine whether
the benefits of the standard exceed its burdens by considering, to the
maximum extent
[[Page 34449]]
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 product in the type (or class) compared to any increase in
the price, initial charges, or maintenance expenses of the products
likely to result from the standard;
(3) The total projected amount of energy savings likely to result
directly from the standard;
(4) Any lessening of the utility or the performance of the 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 conservation; and
(7) Other factors the Secretary considers relevant.
(42 U.S.C. 6313(a)(6)(B)(ii) and (C)(i))
Subject to certain criteria and conditions, DOE is required to
develop test procedures to measure the energy efficiency, energy use,
or estimated annual operating cost of covered equipment. (42 U.S.C.
6314) Specifically, EPCA requires that if a test procedure referenced
in ASHRAE Standard 90.1 is updated, DOE must update its test procedure
to be consistent with the amended test procedure in ASHRAE Standard
90.1, unless DOE determines that the amended test procedure is not
reasonably designed to produce test results that reflect the energy
efficiency, energy use, or estimated operating costs of the ASHRAE
equipment during a representative average use cycle. In addition, DOE
must determine that the amended test procedure is not unduly burdensome
to conduct. (42 U.S.C. 6314(a)(2) and (4)) Manufacturers of covered
equipment must use the prescribed DOE test procedure as the basis for
certifying to DOE that their equipment complies with the applicable
energy conservation standards adopted under EPCA and when making
representations to the public regarding the energy use or efficiency of
such equipment. (42 U.S.C. 6314(d)) Similarly, DOE must use these test
procedures to determine whether the equipment complies with standards
adopted pursuant to EPCA. The DOE test procedure for CWH equipment
currently appears at 10 CFR 431.106.
EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing
any amended standard that either increases the maximum allowable energy
use or decreases the minimum required energy efficiency of a covered
product. (42 U.S.C. 6313(a)(6)(B)(iii)(I) and (C)(i)) Furthermore, 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
of 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 at the time of the Secretary's finding. (42 U.S.C.
6313(a)(6)(B)(iii)(II)(aa) and (C)(i))
Further, EPCA, as codified, establishes a rebuttable presumption
that a standard is economically justified if the Secretary finds that
the additional costs to the consumer of purchasing a product complying
with an energy conservation standard level will be less than three
times the value of the energy (and, as applicable, water) savings
during the first year that the consumer will receive as a result of the
standard, as calculated under the applicable test procedure.
Additionally, EPCA specifies criteria when promulgating a standard
for a type or class of covered equipment that has two or more
subcategories that may justify different standard levels. DOE must
specify a different standard level than that which applies generally to
such type or class of equipment for any group of covered 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 which justifies a
higher or lower standard. In determining whether a performance-related
feature justifies a different standard for a group of products, DOE
generally considers such factors as the utility to the commercial
consumer of the feature and other factors DOE deems appropriate. In a
rule prescribing such a standard, DOE includes an explanation of the
basis on which such higher or lower level was established. DOE
considered these criteria in the context of this rulemaking.
Other than the exceptions specified in 42 U.S.C. 6316, Federal
energy conservation requirements generally supersede State laws or
regulations concerning energy conservation testing, labeling, and
standards for covered CWH equipment. (42 U.S.C. 6316(b))
B. Background
1. Current Standards
As noted above, DOE most recently amended energy conservation
standards for certain CWH equipment in the July 2015 ASHRAE equipment
final rule. 80 FR 42614, 42667 (July 17, 2015). The current standards
for all CWH equipment classes are set forth in Table II.1.
Table II.1--Current Federal Energy Conservation Standards for CWH Equipment
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
---------------------------------------------
Minimum thermal
efficiency
Product Size (equipment Maximum standby loss
manufactured on (equipment manufactured on
and after and after October 29,
October 9, 2015) 2003) ** [dagger][dagger]
** [dagger] (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters......... All...................... N/A 0.30 + 27/Vm (%/h)
Gas-fired storage water heaters........ <=155,000 Btu/h.......... 80 Q/800 + 110(Vr)\1/2\ (Btu/
>155,000 Btu/h........... 80 h)
Q/800 + 110(Vr)\1/2\ (Btu/
h)
Oil-fired storage water heaters........ <=155,000 Btu/h.......... 80[dagger] Q/800 + 110(Vr)\1/2\ (Btu/
>155,000 Btu/h........... 80[dagger] h)
Q/800 + 110(Vr)\1/2\ (Btu/
h)
[[Page 34450]]
Electric instantaneous water <10 gal.................. 80 N/A
heaters[dagger][dagger][dagger]. >=10 gal................. 77 2.30 + 67/Vm (%/h)
Gas-fired instantaneous water heaters <10 gal.................. 80 N/A
and hot water supply boilers. >=10 gal................. 80 Q/800 + 110(Vr)\1/2\ (Btu/
h)
Oil-fired instantaneous water heater <10 gal.................. 80 N/A
and hot water supply boilers. >=10 gal................. 78 Q/800 + 110(Vr)\1/2\ (Btu/
h)
---------------------------------------------
Minimum thermal insulation
---------------------------------------------
Unfired hot water storage tank......... All...................... R-12.5
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
in Btu/h.
** For hot water supply boilers with a capacity of less than 10 gallons: (1) The standards are mandatory for
products manufactured on an after October 21, 2005 and (2) products manufactured prior to that date, and on or
after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
Subpart E of this Part for a ``commercial packaged boiler.''
[dagger] For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and
after October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency
level of 78 percent.
[dagger][dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity
need not meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or
more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a
fire damper or fan assisted combustion.
[dagger][dagger][dagger] Energy conservation standards for electric instantaneous water heaters are included in
EPCA. (42 U.S.C. 6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1,
1994. In this NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its
regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is
included in section III.C.5.
2. History of Standards Rulemaking for CWH Equipment
The Energy Policy Act of 1992 (EPACT), Public Law 102-486, amended
EPCA to prescribe mandatory energy conservation standards for CWH
equipment, including storage water heaters, instantaneous water
heaters, and unfired hot water storage tanks. (42 U.S.C. 6313(a)(5))
These statutory energy conservation standards corresponded to the
efficiency levels in ASHRAE Standard 90.1-1989.
As noted in section II.A of this document, on October 29, 1999,
ASHRAE released Standard 90.1-1999, which included new efficiency
levels for numerous categories of CWH equipment. DOE evaluated these
new standards and subsequently amended energy conservation standards
for CWH equipment in a final rule published in the Federal Register on
January 12, 2001. 66 FR 3336. DOE adopted the levels in ASHRAE Standard
90.1-1999 for all types of CWH equipment, except for electric storage
water heaters. For electric storage water heaters, the standard in
ASHRAE Standard 90.1-1999 was less stringent than the standard
prescribed in EPCA and, consequently, would have increased energy
consumption.
Under those circumstances, DOE could not adopt the new efficiency
level for electric storage water heaters in ASHRAE Standard 90.1-1999.
Id. at 3350. In the January 2001 final rule, DOE also adopted the
efficiency levels contained in the Addendum to ASHRAE Standard 90.1-
1989 for hot water supply boilers, which were identical to the
efficiency levels for instantaneous water heaters. Id. at 3356.
As noted above, ASHRAE increased the thermal efficiency level for
commercial oil-fired storage water heaters greater than 105,000 Btu/h
and less than 4,000 Btu/h/gal in Standard 90.1-2013, thereby triggering
DOE's statutory obligation to promulgate an amended uniform national
standard at those levels, unless DOE determines that there is clear and
convincing evidence supporting the adoption of more-stringent energy
conservation standards than the ASHRAE levels. As a first step in this
process, DOE published an energy savings analysis as a Notice of Data
Availability (NODA) in the Federal Register on April 11, 2014. 79 FR
20114. In this NODA, DOE tentatively decided that energy savings were
not significant enough to justify further analysis of increasing
standards for commercial oil-fired storage water heaters beyond the
standard levels in ASHRAE 90.1-2013. DOE published a notice of proposed
rulemaking in the Federal Register on January 8, 2015, which took a
consistent position vis-[agrave]-vis commercial oil-fired storage water
heaters. 80 FR 1172. Subsequently, in the July 2015 ASHRAE equipment
final rule, among other things, DOE adopted the standard for commercial
oil-fired storage water heaters at the level set forth in ASHRAE 90.1-
2013. 80 FR 42614 (July 17, 2015). This adopted standard is shown in
Table II.2.
Table II.2--Federal Energy Conservation Standards for Thermal Efficiency for Commercial Oil-Fired Storage Water
Heaters
----------------------------------------------------------------------------------------------------------------
Input capacity/stored volume btu/ Thermal Compliance
Regulatory requirement (gal x h) efficiency (%) date
----------------------------------------------------------------------------------------------------------------
Previous Federal Standard..................... <4,000.......................... 78 10/29/2003.
[[Page 34451]]
Amended Federal Standard (ASHRAE 90.1-2013 <4,000.......................... 80 10/09/2015.
Level)
----------------------------------------------------------------------------------------------------------------
In addition to requiring rulemaking when triggered by ASHRAE
action, EPCA also requires DOE to conduct an evaluation of its
standards for CWH equipment every 6 years, and to publish either a
notice of determination that such standards do not need to be amended
or a notice of proposed rulemaking, including proposed amended
standards. (42 U.S.C. 6313(a)(6)(C)(i)) Pursuant to this statutory
requirement, DOE initiated this rulemaking to evaluate the energy
conservation standards for covered CWH equipment and to determine
whether new or amended standards are warranted. As an initial step for
reviewing energy conservation standards for CWH equipment, DOE
published a request for information for CWH equipment on October 21,
2014 (``October 2014 RFI''). 79 FR 62899. The October 2014 request for
information (RFI) solicited information from the public to help DOE
determine whether more-stringent energy conservation standards for CWH
equipment would result in a significant amount of additional energy
savings, and whether those standards would be technologically feasible
and economically justified. Id. at 62899-900.
DOE received a number of comments from interested parties in
response to the October 2014 RFI. These commenters are identified in
Table II.3. DOE considered these comments in the preparation of this
NOPR. In this document, DOE addresses the relevant public comments it
received in the appropriate sections.
Table II.3--Interested Parties Providing Written Comments on the CWH RFI
------------------------------------------------------------------------
Name Abbreviation Commenter type\*\
------------------------------------------------------------------------
A.O. Smith Corporation........ A.O. Smith....... M
Bradford White Corporation.... Bradford White... M
American Gas Association...... AGA.............. IR
Air-Conditioning, Heating and AHRI............. IR
Refrigeration Institute.
Steffes Corporation........... Steffes.......... M
Appliance Standards Awareness Joint Advocates EA
Project, American Council for (including ASAP,
an Energy-Efficient Economy, ACEEE, and NRDC).
Natural Resources Defense
Council.
Edison Electric Institute..... EEI.............. IR
University of Michigan Plant UM............... OS
Operations.
Rheem Corporation............. Rheem............ M
National Rural Electric NRECA............ IR
Cooperative Association.
------------------------------------------------------------------------
* ``IR'': Industry Representative; ``M'': Manufacturer; ``EA'':
Efficiency/Environmental Advocate; ``OS'': Other Stakeholder.
III. General Discussion
A. Compliance Dates
In 42 U.S.C. 6313(a), EPCA prescribes a number of compliance dates
for any resulting amended standards for CWH equipment. These compliance
dates vary depending on specific statutory authority under which DOE is
conducting its review (i.e., whether DOE is triggered by a revision to
ASHRAE Standard 90.1 or whether DOE is undertaking a ``6-year look
back'' review), and the action taken (i.e., whether DOE is adopting
ASHRAE Standard 90.1 levels or more-stringent levels). The discussion
that follows explains the potential compliance dates as they pertain to
this rulemaking.
As noted previously, EPCA requires that at least once every 6
years, DOE must review standards for covered equipment and publish
either a notice of determination that standards do not need to be
amended or a NOPR proposing new standards. (42 U.S.C 6313(a)(6)(C)(i))
For any NOPR published pursuant to 42 U.S.C. 6313(a)(6)(C), the final
rule would apply on the date that is the later of: (1) The date 3 years
after publication of the final rule establishing a new standard or (2)
the date 6 years after the effective date of the current standard for a
covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) For the CWH equipment
for which DOE is proposing amended standards, the date 3 years after
the publication of the final rule would be later than the date 6 years
after the effective date of the current standard. As a result,
compliance with any amended energy conservation standards, if adopted
by a final rule in this rulemaking, would be required beginning on the
date 3 years after the publication of the final rule.
B. Test Procedures
DOE's existing test procedure for CWH equipment is specified at 10
CFR 431.106, and incorporates by reference American National Standards
Institute (ANSI) Standard Z21.10.3-2011 (ANSI Z21.10.3-2011), ``Gas
Water Heaters, Volume III, Storage Water Heaters With Input Ratings
Above 75,000 Btu Per Hour, Circulating and Instantaneous.'' The test
procedure provides mandatory methods for determining the thermal
efficiency and standby loss of certain classes of CWH equipment. In 10
CFR 431.104, DOE provides two sources for guidance on how to determine
R-value of unfired hot water storage tanks.
On October 21, 2004, DOE published a direct final rule in the
Federal Register that adopted amended test procedures for CWH
equipment. 69 FR 61974. These test procedure amendments incorporated by
reference certain sections of ANSI Z21.10.3-1998, ``Gas Water Heaters,
Volume III, Storage Water Heaters with Input Ratings above 75,000 Btu
per Hour, Circulating and Instantaneous.'' Id. at 61983. On May 16,
2012, DOE published a final rule for certain commercial heating, air-
conditioning, and water heating
[[Page 34452]]
equipment in the Federal Register that, among other things, updated the
test procedures for certain CWH equipment by incorporating by reference
ANSI Z21.10.3-2011. 77 FR 28928. These updates did not materially alter
DOE's test procedure for CWH equipment.
AEMTCA amended EPCA to require that DOE publish a final rule
establishing a uniform efficiency descriptor and accompanying test
methods for covered residential water heaters and certain CWH
equipment. (42 U.S.C. 6295(e)(5)(B)) The final rule must replace the
current energy factor (for residential water heaters) and thermal
efficiency and standby loss (for commercial water heaters) metrics with
a uniform efficiency descriptor. (42 U.S.C. 6295(e)(5)(C)) AEMTCA
allowed DOE to provide an exclusion from the uniform efficiency
descriptor for specific categories of covered water heaters that do not
have residential uses, that can be clearly described, and that are
effectively rated using the current thermal efficiency and standby loss
descriptors. (42 U.S.C. 6295(e)(5)(F))
EPCA further requires that, along with developing a uniform
descriptor, DOE must also develop a mathematical conversion factor to
translate the results based upon use of the efficiency metric under the
test procedure in effect on December 18, 2012, to the new energy
descriptor. (42 U.S.C. 6295(e)(5)(E)(i)) In addition, pursuant to 42
U.S.C. 6295(e)(5)(E)(ii) and (iii), the conversion factor must not
affect the minimum efficiency requirements for covered water heaters,
including residential-duty commercial water heaters. Furthermore, such
conversions must not lead to a change in measured energy efficiency for
covered residential and residential-duty commercial water heaters
manufactured and tested prior to the final rule establishing the
uniform efficiency descriptor. Id. In the July 2014 final rule, DOE
interpreted these statutory requirements in 42 U.S.C. 6295(e)(5)(E) to
mean that DOE must translate existing standards and ratings from the
current metrics to the new metric, while maintaining the stringency of
the current standards. 79 FR 40542, 40558 (July 11, 2014).
In the July 2014 final rule, DOE, among other things, established
the uniform energy factor (UEF), a revised version of the current
residential energy factor metric, as the uniform efficiency descriptor
required by AEMTCA. 79 FR 40542, 40578-40579 (July 11, 2014). The
uniform efficiency descriptor established in the July 2014 final rule
only applies to commercial water heaters that meet the definition of
``residential-duty commercial water heater,'' which is defined as any
gas-fired, electric, or oil-fired storage water heater or instantaneous
commercial water heater that meets the following conditions:
(1) For models requiring electricity, uses single-phase external
power supply;
(2) Is not designed to provide outlet hot water at temperatures
greater than 180[emsp14][deg]F; and
(3) Is not excluded by any of the specified limitations regarding
rated input and storage volume shown in Table III.1, which reflects the
table in 10 CFR 431.102.
Id. at 40586.
Table III.1--Rated Input and Storage Volume Ranges for Non-Residential-
Duty Commercial Water Heaters
------------------------------------------------------------------------
Indicator of non-residential
Water heater type application
------------------------------------------------------------------------
Gas-fired Storage................. Rated input >105 kBtu/h; Rated
storage volume >120 gallons.
Oil-fired Storage................. Rated input >140 kBtu/h; Rated
storage volume >120 gallons.
Electric Storage.................. Rated input >12 kW; Rated storage
volume >120 gallons.
Heat Pump with Storage............ Rated input >12 kW; Rated current
>24 A at a rated voltage of not
greater than 250 V; Rated storage
volume >120 gallons.
Gas-fired Instantaneous........... Rated input >200 kBtu/h; Rated
storage volume >2 gallons.
Electric Instantaneous............ Rated input >58.6 kW; Rated storage
volume >2 gallons.
Oil-fired Instantaneous........... Rated input >210 kBtu/h; Rated
storage volume >2 gallons.
------------------------------------------------------------------------
CWH equipment not meeting the definition of ``residential-duty
commercial water heater'' was deemed to be sufficiently characterized
by the current thermal efficiency and standby loss metrics.
In April, 2016, DOE issued a NOPR proposing to amend the test
procedures for certain other CWH equipment (``2016 CWH TP NOPR''). (See
Docket No. EERE-2014-BT-TP-0008). In the 2016 CWH TP NOPR, DOE proposed
several changes, including: (1) Updating references of industry test
standards to incorporate by reference the most recent versions of the
industry standards (including updating references from ANSI Z21.10.3-
2011 to ANSI Standard Z21.10.3-2015 (ANSI Z21.10.3-2015), ``Gas Water
Heaters, Volume III, Storage Water Heaters With Input Ratings Above
75,000 Btu Per Hour, Circulating and Instantaneous''; (2) modifying the
thermal efficiency and standby loss tests for certain classes of CWH
equipment to improve repeatability; (3) developing a test method for
determining the efficiency of unfired hot water storage tanks in terms
of a standby loss metric; (4) changing the method for setting the
thermostat for storage water heaters and storage-type instantaneous
water heaters; (5) clarifying the thermal efficiency and standby loss
test procedures with regard to stored energy loss and manipulation of
settings during efficiency testing; (6) defining ``storage-type
instantaneous water heaters'' and modifying several definitions for
consumer water heaters and commercial water heating equipment included
at 10 CFR 430.2 and 10 CFR 431.102, respectively; (7) developing a test
procedure for measurement of standby loss for flow-activated
instantaneous water heaters; (8) establishing temperature-sensing
requirements for thermal efficiency and standby loss testing of
instantaneous water heaters and hot water supply boilers; (9) modifying
the standby loss test procedure for instantaneous water heaters and hot
water supply boilers; (10) developing a test procedure for commercial
heat pump water heaters; (11) establishing a procedure for determining
the fuel input rate of gas-fired and oil-fired CWH equipment and
clarifying DOE's enforcement provisions regarding fuel input rate; (12)
modifying several definitions included in DOE's regulations for CWH
equipment at 10 CFR 431.102; (13) establishing default values for
certain testing parameters to be used if these parameters are not
specified in product literature or supplemental test instructions; and
(14) modifying DOE's certification requirements for CWH equipment. (See
EERE-2014-BT-TP-0008) Discussion of DOE's treatment of unfired hot
water storage tanks and commercial heat pump water heaters with respect
to energy conservation standards can be
[[Page 34453]]
found in sections III.C.4 and III.C.6, respectively.
For four classes of residential-duty commercial water heaters--
electric storage water heaters, heat pump water heaters, gas-fired
instantaneous water heaters, and oil-fired instantaneous water
heaters--the input criteria established to separate residential-duty
commercial water heaters and commercial water heaters are identical to
those codified at 10 CFR 430.2 that separate consumer water heaters and
commercial water heaters. Because these input criteria are identical,
by definition, no models can be classified under these four
residential-duty equipment classes. Therefore, to eliminate potential
confusion, DOE proposed in the 2016 CWH TP NOPR to remove these classes
from the definition for ``residential-duty commercial water heater''
codified at 10 CFR 431.102. (See EERE-2014-BT-TP-0008) For electric
instantaneous water heaters, the rated maximum input criterion for
residential-duty commercial water heaters is 58.6 kW, higher than 12
kW, which is the maximum input rate for residential electric
instantaneous water heaters as defined in EPCA. (42 U.S.C. 6291(27)(B))
Therefore, there are models on the market that qualify as residential-
duty commercial electric instantaneous water heaters. DOE's treatment
of electric instantaneous water heaters in this rule is discussed in
section III.C.5 of this document.
C. Scope of Rulemaking
In response to the 2014 RFI, DOE received several comments on the
scope of this rulemaking. These comments cover specific equipment
classes, as well as the improvement of overall water heating systems.
1. Commercial Water Heating Systems
The University of Michigan recommended that DOE fund research to
develop best concepts for design, installation, and operation standards
and codes. (UM, No. 9 at p. 3) \20\ Additionally, Joint Advocates
recommended that DOE consider that many CWH equipment systems are
designed very inefficiently, citing unnecessary recirculation loops.
(Joint Advocates, No. 7 at p. 2) Furthermore, the University of
Michigan recommended that DOE approach the American Society of
Mechanical Engineers (ASME) and ASHRAE to determine whether the scope
of their existing standards can be expanded. (UM, No. 9 at p. 2)
---------------------------------------------------------------------------
\20\ A notation in this form provides a reference for
information that is in the docket of DOE's rulemaking to develop
energy conservation standards for commercial water heating equipment
(Docket No. EERE-2014-BT-STD-0042, which is maintained at http://www.regulations.gov/#!docketDetail;D=EERE-2014-BT-STD-0042). This
particular notation refers to a comment; (1) submitted by UM; (2)
appearing in document number 0009; and (3) appearing on page 3 of
that document.
---------------------------------------------------------------------------
In response, DOE notes that its Office of Energy Efficiency and
Renewable Energy (EERE) already supports research and development in
multiple areas of water-heating energy efficiency technology, including
building codes and roadmaps for emerging water heating
technologies.\21\ In the context of this rulemaking, however, DOE must
follow congressionally-mandated requirements and processes for setting
standards and test procedures for CWH equipment, and DOE may not
delegate its standard-setting responsibilities under the statute to
ASME, ASHRAE, or any other organization. These processes are codified
in the United States Code, Title 42, Chapter 77, Subchapter III, Part
A--Energy Conservation Program for Consumer Products Other Than
Automobiles and Part A-1--Certain Industrial Equipment. DOE notes that
ASHRAE does set minimum efficiency levels for CWH equipment in ASHRAE
Standard 90.1 and did recently update thermal efficiency levels for
certain oil-fired CWH equipment as discussed in section II.B.2, but has
not updated levels for other CWH equipment analyzed in this document
within the last 6 years. DOE also notes that its energy conservation
standards apply at the point of manufacture. DOE must consider energy
conservation standards with respect to the CWH equipment as shipped
from the manufacturer and using the statutory criteria contained in
EPCA. DOE does not have authority to set standards for efficiency of
installed CWH building systems.
---------------------------------------------------------------------------
\21\ For an overview of DOE's energy efficiency related
research, see http://energy.gov/eere/efficiency.
---------------------------------------------------------------------------
2. Residential-Duty Commercial Water Heaters
DOE analyzed equipment classes for commercial water heaters and
residential-duty commercial water heaters separately in this
rulemaking. This rulemaking, therefore, includes CWH equipment classes
that are covered by the UEF metric, as well as CWH equipment classes
that continue to be covered by the existing thermal efficiency and
standby loss metrics. However, DOE has conducted all analyses for
selecting proposed standards in this document using the existing
thermal efficiency and standby loss metrics, because there was no
efficiency data in terms of UEF available when DOE undertook the
analyses for this NOPR.
In the April 2015 NOPR, DOE proposed conversion factors to
determine UEF for residential and residential-duty commercial water
heaters from their current rated energy factor and thermal efficiency
and standby loss values. 80 FR 20116, 20142-43 (April 14, 2015). For
residential-duty commercial water heaters, conversion factors for
determining UEF were proposed for the four draw patterns specified in
the July 2014 test procedure final rule: high, medium, low, and very
small. Id. at 20143. DOE then converted standard levels proposed in
this NOPR for residential-duty commercial water heaters based upon the
thermal efficiency and standby loss metrics to standards based upon the
UEF metric, using the conversion factors proposed in the April 2015
NOPR. This conversion of standards from thermal efficiency and standby
loss to UEF is described in further detail in section IV.C.9 of this
NOPR.
3. Oil-Fired Commercial Water Heating Equipment
ASHRAE Standard 90.1-2013 raised the thermal efficiency level for
commercial oil-fired storage water heaters from 78 percent to 80
percent. In the July 2015 ASHRAE equipment final rule, DOE adopted the
ASHRAE Standard 90.1 efficiency level of 80 percent because DOE
determined that there was insufficient potential for energy savings to
justify further increasing the standard. 80 FR 42614 (July 17, 2015).
Therefore, because thermal efficiency standards for commercial oil-
fired storage water heater were just recently addressed in a separate
rulemaking under the ASHRAE trigger, DOE did not consider further
increasing thermal efficiency standards for commercial oil-fired
storage water heaters in this rulemaking, as circumstances have not
changed appreciably regarding this equipment during the intervening
period. Consequently, this equipment class was not included in any of
the analyses described in this document. For this NOPR, DOE also
considered whether amended standby loss standards for commercial oil-
fired water heaters would be warranted. DOE has tentatively concluded
that a change in the maximum standby loss level would likely effect
less of a change to energy consumption of oil-fired storage water
heaters than would a change in the thermal efficiency. Therefore, an
amended standby loss standard is
[[Page 34454]]
unlikely to result in significant additional energy savings. Thus, DOE
has not analyzed amended standby loss standards for commercial oil-
fired storage water heaters in this rulemaking. Similarly, DOE
considered oil-fired instantaneous water heaters and hot water supply
boilers, and did not identify any units currently on the market that
would meet the DOE definition. Therefore, DOE estimates that there are
very few, if any, annual shipments for this equipment class. Therefore,
DOE has tentatively concluded that the energy savings possible from
amended standards for such equipment is de minimis, and thus, did not
analyze amended standards for commercial oil-fired instantaneous water
heaters for this NOPR.
Issue 1: DOE seeks comment on its tentative conclusions regarding
the potential energy savings from analyzing amended standards for
standby loss of commercial oil-fired storage water heaters and for
thermal efficiency of commercial oil-fired instantaneous water heaters.
4. Unfired Hot Water Storage Tanks
The current Federal energy conservation standard for unfired hot
water storage tanks is expressed as an R-value requirement for the tank
thermal insulation. In the 2016 CWH TP NOPR, DOE proposed a new test
procedure for unfired hot water storage tanks using a new standby loss
metric, which would replace the current R-value requirement. (See EERE-
2014-BT-TP-0008) In the October 2014 RFI, DOE stated that any amended
energy conservation standards for unfired hot water storage tanks would
be in terms of the metric to be established in the noted test procedure
rulemaking. 79 FR 62899, 62903 (Oct. 21, 2014). Given the lack of
testing data for the new metric and test procedure proposed in the 2016
CWH TP NOPR, DOE plans to consider energy conservation standards for
unfired hot water storage tanks in a separate rulemaking. Therefore,
DOE did not evaluate potential amendments to standards for unfired hot
water storage tanks in this NOPR.
5. Electric Instantaneous Water Heaters
EPCA prescribes energy conservation standards for several classes
of commercial water heating equipment manufactured on or after January
1, 1994. (42 U.S.C. 6313(a)(5)) DOE codified these standards in its
regulations for commercial water heating equipment at 10 CFR 431.110.
However, when codifying these standards from EPCA, DOE inadvertently
omitted the standards put in place by EPCA for electric instantaneous
water heaters. Specifically, for instantaneous water heaters with a
storage volume of less than 10 gallons, EPCA prescribes a minimum
thermal efficiency of 80 percent. For instantaneous water heaters with
a storage volume of 10 gallons or more, EPCA prescribes a minimum
thermal efficiency of 77 percent and a maximum standby loss, in
percent/hour, of 2.30 + (67/measured volume [in gallons]). (42 U.S.C.
6313(a)(5)(D) and (E)) Although DOE's regulations at 10 CFR 431.110 do
not currently include energy conservation standards for electric
instantaneous water heaters, these standards prescribed in EPCA are
applicable. Therefore, DOE proposes to codify these standards in its
regulations at 10 CFR 431.110.
DOE received several comments on the analysis of commercial
electric instantaneous water heaters. A.O. Smith stated that commercial
electric instantaneous water heaters should be included in the scope of
this rulemaking. (A.O. Smith, No. 2 at p. 1) Similarly, Bradford White
and AHRI stated that electric instantaneous units should be included in
the scope of this rulemaking, in separate equipment classes. (Bradford
White, No. 3 at p. 1; AHRI, No. 5 at p. 2)
Rheem stated that electric instantaneous water heaters should not
be included in the scope of this rulemaking because of the limited
applications of this equipment. (Rheem, No. 10 at p. 1) Joint Advocates
recommended that electric instantaneous water heaters not be included
in this rulemaking, unless there is evidence of particularly
inefficient models on the market. (Joint Advocates, No. 7 at p. 3)
While it is within the Department's authority to propose amended
standards for electric instantaneous water heaters, DOE has tentatively
concluded that there is little potential for additional energy savings
from doing so. The thermal efficiency of electric instantaneous water
heaters is already at nearly 100 percent due to the high efficiency of
electric resistance heating elements, thus providing little reason to
propose an amended standard for this equipment class. Additionally, DOE
tentatively concluded that amending the standby loss standard for this
class would result in minimal energy savings.
6. Commercial Heat Pump Water Heaters
A.O. Smith also stated that commercial heat pump water heaters, of
add-on, integrated, air-source, and water-source categories, should be
included in the scope of this rulemaking. (A.O. Smith, No. 2 at p. 1)
Similarly, Bradford White, Rheem, and AHRI stated that add-on,
integrated, air-source, and water-source heat pump water heaters should
be included in this rulemaking. (Bradford White, No. 3 at p. 1; Rheem,
No. 10 at p. 1; AHRI, No. 5 at p. 2) Rheem also commented that
integrated and add-on heat pump water heaters differ by construction,
application, life-cycle cost, and energy consumption, and that both
air-source and water-source heat pump water heaters are currently
available on the market. AHRI also commented that electric
instantaneous water heaters and heat pump water heaters should be
considered as separate equipment classes, and that if integrated heat
pump water heaters are not included, then units falling outside of the
definition for residential heat pump water heaters will go unregulated.
Joint Advocates stated that DOE should develop a test procedure for
both integrated and add-on commercial heat pump water heaters. Joint
Advocates stated that such a test procedure should have low enough
operating temperature conditions to gauge whether units operate in
electric resistance heating mode during cold weather, and that a DOE
test procedure would help grow the market by allowing for greater use
of rebate programs. Joint Advocates also commented that air-source
units should be included, but that inclusion of water-source units
would be complicated due to varying inlet water conditions for water-
source and ground-source applications. (Joint Advocates, No. 7 at p. 3)
While DOE agrees that integrated, add-on, and air-source and water-
source commercial heat pump water heaters meet EPCA's definitions for
commercial storage and instantaneous water heaters, DOE is not
proposing amended standards for any of these classes of commercial heat
pump water heaters in this NOPR. DOE has found no evidence of any
commercial integrated heat pump water heaters on the market. All
commercial heat pump water heaters that DOE identified as currently on
the market are ``add-on'' units, which are designed to be paired with
either an electric storage water heater or unfired hot water storage
tank in the field.
As discussed in section III.B, a test procedure for commercial heat
pump water heaters was proposed in the 2016 CWH TP NOPR. (See EERE-
2014-BT-TP-0008) Because the test procedure has not yet been
established in a final rule and there is not sufficient test data with
the proposed test method for units
[[Page 34455]]
currently on the market, DOE plans to consider energy conservation
standards for commercial heat pump water heaters in a future
rulemaking.
7. Electric Storage Water Heaters
DOE did not include electric storage water heaters in the analysis
of amended thermal efficiency standards. Electric storage water heaters
do not currently have a thermal efficiency requirement under 10 CFR
431.110. Electric storage water heaters typically use electric
resistance coils as their heating elements, which are highly efficient.
The thermal efficiency of these units already approaches 100 percent.
Therefore, there are no options for increasing the rated thermal
efficiency of this equipment, and the impact of setting thermal
efficiency energy conservation standards for these products would be
negligible. However, DOE has considered amended standby loss standards
for electric storage water heaters.
8. Instantaneous Water Heaters and Hot Water Supply Boilers
In its analysis of amended standby loss standards, DOE did not
include instantaneous water heaters and hot waters supply boilers other
than storage-type instantaneous water heaters.\22\ Instantaneous water
heaters and hot waters supply boilers other than storage-type
instantaneous water heaters with greater than 10 gallons of water
stored do have a standby loss requirement under 10 CFR 431.110.
However, DOE did not analyze more-stringent standby loss standards for
these units because it tentatively determined that such amended
standards would result in minimal energy savings. DOE identified only
26 models on the market of instantaneous water heaters or hot water
supply boilers with greater than 10 gallons of water stored (other than
storage-type instantaneous water heaters), and 14 of the identified
models have less than 15 gallons of water stored. DOE tentatively
concluded that hot water supply boilers with less than 10 gallons would
not have significantly different costs and benefits as compared to hot
water supply boilers with greater than 10 gallons. Therefore, DOE
analyzed both equipment classes of instantaneous water heaters and hot
water supply boilers (less than 10 gallons and greater than 10 gallons
stored volume) together for thermal efficiency standard levels in this
NOPR. DOE also tentatively determined that establishing standby loss
standards for instantaneous water heaters and hot water supply boilers
with less than or equal to 10 gallons waters stored would result in
minimal energy savings.
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\22\ DOE proposed a definition for ``storage-type instantaneous
water heater'' in the 2016 CWH TP NOPR. (See EERE-2014-BT-TP-0008)
Storage-type instantaneous water heaters are discussed in section
IV.A.2.a of this NOPR.
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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 is the subject of the
rulemaking. As the first step in such an analysis, DOE conducts a
market and technology assessment that 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 equipment
or in working prototypes to be technologically feasible. 10 CFR part
430, subpart C, appendix A, section 4(a)(4)(i).
After DOE has determined that particular technology options are
technologically feasible, it further evaluates each technology option
in light of the following additional screening criteria: (1)
Practicability to manufacture, install, and service; (2) adverse
impacts on product utility or availability; and (3) adverse impacts on
health or safety. 10 CFR part 430, subpart C, appendix A, section
4(a)(4)(ii)-(iv). Additionally, DOE notes that the four screening
criteria do not directly address the propriety status of design
options. DOE only considers efficiency levels achieved through the use
of proprietary designs in the engineering analysis if they are not part
of a unique path to achieve that efficiency level (i.e., if there are
other non-proprietary technologies capable of achieving the same
efficiency). Section IV.B of this document discusses the results of the
screening analysis for CWH equipment, particularly the designs DOE
considered, those it screened out, and those that are the basis for the
trial standard levels (TSLs) in this rulemaking. For further details on
the screening analysis for this rulemaking, see chapter 4 of the NOPR
technical support document (TSD).
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt an amended standard for a type or class
of covered equipment, it must determine the maximum improvement in
energy efficiency or maximum reduction in energy use that is
technologically feasible for such equipment. Accordingly, in the
engineering analysis, DOE determined the maximum technologically
feasible (``max-tech'') improvements in energy efficiency for CWH
equipment, using the design parameters for the most efficient products
available on the market. The max-tech levels that DOE determined for
this rulemaking are described in section IV.C.3.b of this proposed
rule. Chapter 5 of the NOPR TSD includes more detail on the selected
max-tech efficiency levels.
E. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy savings from the classes of
equipment that are the subjects of this rulemaking shipped in the 30-
year period that begins in the year of compliance with amended
standards (2019-2048 for gas-fired CWH equipment and electric CWH
equipment).\23\ The savings are measured over the entire lifetime of
equipment shipped in the 30-year analysis period.\24\ DOE quantified
the energy savings attributable to each TSL as the difference in energy
consumption between standards and no-new-standards cases. The no-new-
standards case represents a projection of energy consumption in the
absence of amended mandatory energy conservation standards, and it
considers market forces and policies that affect current demand for
more-efficient equipment over the analysis period.
---------------------------------------------------------------------------
\23\ DOE also presents a sensitivity analysis that considers
impacts for equipment shipped in a 9-year period.
\24\ In the past, DOE presented energy savings results for only
the 30-year period that begins in the year of compliance. In the
calculation of economic impacts, however, DOE considered operating
cost savings measured over the entire lifetime of equipment shipped
in the 30-year period. DOE has chosen to modify its presentation of
national energy savings to be consistent with the approach used for
its national economic analysis.
---------------------------------------------------------------------------
DOE used its national impact analysis (NIA) spreadsheet model to
estimate national energy savings (NES) from potential amended standards
for commercial water heating equipment. The NIA spreadsheet model
(described in section IV.H of this document) calculates energy savings
in terms of site energy, which is the energy directly consumed by
equipment at the locations where they are used. For electric commercial
water heaters, DOE calculates NES on an annual basis in
[[Page 34456]]
terms of primary energy \25\ savings, which is the savings in the
energy that is used to generate and transmit the site electricity. To
calculate primary energy savings from site electricity savings, DOE
derived annual conversion factors from the model used to prepare the
Energy Information Administration (EIA)'s AEO 2015. For natural gas-
and oil-fired commercial water heaters, the primary energy savings are
considered equal to the site energy savings because they are supplied
to the user without transformation from another form of energy.
---------------------------------------------------------------------------
\25\ Primary energy consumption refers to the direct use at
source, or supply to users without transformation, of crude energy;
that is, energy that has not been subjected to any conversion or
transformation process.
---------------------------------------------------------------------------
In addition to primary energy savings, DOE also calculates full-
fuel-cycle (FFC) energy savings. As discussed in DOE's statement of
policy and notice of policy amendment, the FFC metric includes the
energy consumed in extracting, processing, and transporting primary
fuels (e.g., coal, natural gas, petroleum fuels), and, thus, presents a
more complete picture of the impacts of energy conservation standards.
76 FR 51281 (August 18, 2011), as amended at 77 FR 49701 (August 17,
2012). For FFC energy savings, DOE's approach is based on the
calculation of an FFC multiplier for each of the energy types used by
covered equipment.\26\ For more information, see section IV.H.2 of this
document.
---------------------------------------------------------------------------
\26\ Natural gas and electricity were the energy types analyzed
in the FFC calculations.
---------------------------------------------------------------------------
Issue 2: The agency assumes no growth in equipment efficiency in
absence of new standards; however, DOE requests comment on expected
changes over the analysis period in market share by energy efficiency
level or average shipment-weighted efficiency for the analyzed CWH
equipment classes in the no-new-standards case.
2. Significance of Savings
To amend standards for commercial water heating equipment, DOE must
determine with clear and convincing evidence that the standards would
result in ``significant'' additional energy savings. (42 U.S.C.
6313(a)(6)(A)(ii)(II) and (C)(i)) Although the term ``significant'' is
not defined in the Act, the U.S. Court of Appeals for the District of
Columbia Circuit, in Natural Resources Defense Council v. Herrington,
768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended
``significant'' energy savings in this context to be savings that were
not ``genuinely trivial.'' The energy savings for all of the TSLs
considered in this rulemaking, including the proposed standards
(presented in section V.C.1), are nontrivial. Therefore, DOE has
tentatively concluded that the energy savings associated with the
proposed standards in this NOPR--1.8 quads due to commercial water
heating equipment shipped in 2019-2048--are ``significant,'' as
required by 42 U.S.C. 6313(a)(6)(A)(ii)(II) and (C)(i).
F. Economic Justification
1. Specific Criteria
EPCA provides seven factors to be evaluated in determining whether
a potential energy conservation standard for commercial water heating
equipment is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-
(VII) and (C)(i)) The following sections discuss how DOE has addressed
each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Commercial Consumers
EPCA requires DOE to consider the economic impact of a standard on
manufacturers and the commercial consumers of the products subject to
the standard. (42 U.S.C. 6313(a)(6)(B)(I) and (C)(i)) In determining
the impacts of a potential amended standard on manufacturers, DOE
conducts a manufacturer impact analysis (MIA), as discussed in section
IV.J of this NOPR. DOE first uses an annual cash-flow approach to
determine the quantitative impacts. This step incorporates both a
short-term impact assessment (based on the cost and capital
requirements during the period between when a regulation is issued and
when entities must comply with the regulation) and a long-term impact
assessment (over a 30-year period).\27\ The industry-wide impacts
analyzed include: (1) Industry net present value (INPV), which values
the industry on the basis of expected future cash flows; (2) cash flows
by year; (3) changes in revenue and income; and (4) other measures of
impact, as appropriate. Second, DOE analyzes and reports the impacts on
different types of manufacturers (manufacturer subgroups), including
impacts on small manufacturers. Third, DOE considers the impact of
standards on domestic manufacturer employment and manufacturing
capacity, as well as the potential for new and amended standards to
result in plant closures and loss of capital investment. Finally, DOE
takes into account cumulative impacts of various DOE regulations and
other regulatory requirements on manufacturers.
---------------------------------------------------------------------------
\27\ DOE also presents a sensitivity analysis that considers
impacts for equipment shipped in a 9-year period, which is a proxy
for the timeline in EPCA for the review of certain energy
conservation standards and potential revision of and compliance with
such revised standards.
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For individual commercial consumers, measures of economic impact
include the changes in LCC and PBP associated with new or amended
standards. These measures are discussed further in the following
section. For commercial consumers in the aggregate, DOE also calculates
the national net present value of the economic impacts applicable to a
particular rulemaking. DOE also evaluates the LCC impacts of potential
standards on identifiable subgroups of commercial consumers that may be
affected disproportionately by a national standard.
b. Savings in Operating Costs Compared To Increase in Price (Life-Cycle
Costs)
EPCA requires DOE to consider the savings in operating costs
throughout the estimated average life of commercial water heating
equipment compared to any increase in the price of the equipment that
is likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II)
and (C)(i)) DOE conducts this comparison in its LCC and PBP analysis.
The LCC is the sum of the purchase price of a piece of equipment
(including installation cost and sales tax) and the operating expense
(including energy, maintenance, and repair expenditures) discounted
over the lifetime of the equipment. To account for uncertainty and
variability in specific inputs, such as equipment lifetime and discount
rate, DOE uses a distribution of values, with probabilities attached to
each value. For its analysis, DOE assumes that commercial consumers
will purchase the covered equipment in the first year of compliance
with amended standards.
The PBP is the estimated amount of time (in years) it takes
consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
due to a more-stringent standard by the change in annual operating cost
for the year that standards are assumed to take effect.
The LCC savings are calculated relative to a no-new-standards case
that reflects projected market trends in the absence of amended
standards. DOE identifies the percentage of commercial consumers
estimated to receive LCC savings or experience an LCC increase, in
addition to the average LCC savings associated with a particular
standard level. DOE's LCC analysis is discussed
[[Page 34457]]
in further detail in section IV.F of this NOPR.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III) and
(C)(i)) As discussed in section IV.H and chapter 10 of the NOPR TSD,
DOE uses the NIA spreadsheet to project NES.
d. Lessening of Utility or Performance of Products
In establishing classes of products, and in evaluating design
options and the impact of potential standard levels, DOE must consider
any lessening of the utility or performance of the considered products
likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)
and (C)(i)) Based on data available to DOE, the standards proposed in
this document would not reduce the utility or performance of the CWH
equipment under consideration in this rulemaking. Section IV.B of this
document and Chapter 4 of the NOPR TSD provide detailed discussion on
the potential impact of amended standards on equipment utility and
performance.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider any lessening of competition that is
likely to result from energy conservation standards. It also directs
the Attorney General of the United States (Attorney General) to
determine the impact, if any, of lessening of competition likely to
result from a proposed standard and to transmit such determination in
writing to the Secretary, together with an analysis of the nature and
extent of such impact. (42 U.S.C. 6313(a)(6)(B)(ii)(V) and (C)(i)) To
assist the Attorney General in making such determination, DOE will
transmit a copy of this proposed rule and the TSD to the Attorney
General for review with a request that the Department of Justice (DOJ)
provide its determination on this issue. DOE will publish and address
the Attorney General's determination in the final rule. DOE invites
comment from the public regarding the competitive impacts that are
likely to result from this proposed rule. In addition, stakeholders may
also provide comments separately to DOJ regarding these potential
impacts. See the ADDRESSES section for information to send comments to
DOJ.
f. Need for National Energy Conservation
In considering new or amended energy conservation standards, EPCA
also directs DOE to consider the need for national energy conservation.
(42 U.S.C. 6313(a)(6)(B)(ii)(VII) and (C)(i)) DOE expects that the
energy savings from the proposed 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 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.
The proposed standards also are likely to result in environmental
benefits in the form of reduced emissions of air pollutants and
greenhouse gases associated with energy production. DOE reports the
emissions impacts from the proposed standards of this rulemaking, and
from each TSL it considered, in sections IV.K and V.B.6 of this NOPR.
DOE also reports estimates of the economic value of emissions
reductions resulting from the considered TSLs, as discussed in section
IV.L of this NOPR.
g. Other Factors
EPCA allows the Secretary of Energy, in determining whether a
standard is economically justified, to consider any other factors that
the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)
and (C)(i)) DOE did not consider other factors for this document.
2. Rebuttable Presumption
EPCA creates a rebuttable presumption that an energy conservation
standard is economically justified if the additional cost to the
consumer of a product that meets the standard is less than three times
the value of the first year's energy savings resulting from the
standard, as calculated under the applicable DOE test procedure. DOE's
LCC and PBP analyses generate values used to calculate the effects that
proposed energy conservation standards would have on the payback period
for commercial 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 commercial consumers,
manufacturers, the Nation, and the environment, as required under 42
U.S.C. 6313(a)(6)(B)(ii) and (C)(i). The results of this analysis serve
as the basis for DOE's evaluation of the economic justification for a
potential standard level (thereby supporting or rebutting the results
of any preliminary determination of economic justification). The
rebuttable presumption payback calculation is discussed in section
V.B.1.c of this proposed rule.
G. Public Participation
UM commented that because of the number of issues on which DOE
seeks comment, only stakeholders who have staff dedicated to regulatory
processes would be able to comment on all issues involved in this
rulemaking. (UM, No. 9 at p. 1) UM stated that a large rulemaking like
this one favors trade associations over end users who have limited
means to respond. UM recommended that DOE break up the rulemaking into
smaller, more manageable pieces, thereby allowing more stakeholders to
provide comments. (UM, No. 9 at p. 2)
DOE notes that pursuant to EPCA requirements, DOE provides an equal
opportunity for the public to provide comment in response to rulemaking
notices published in the Federal Register or during DOE rulemaking
public meetings. DOE solicits data and information throughout the
rulemaking process to validate and improve its analyses. Although DOE
welcomes comments on any aspect of a rulemaking notice, to better
facilitate public comments, DOE clearly lists the issues on which it is
particularly interested in receiving comments and views of interested
parties, as shown in section VII.E of this document. All stakeholders
may comment on any or all of the issues so that their relevant views
are considered in DOE's analysis. Furthermore, to offer enough time for
the public to respond, DOE typically provides 60 days for the public to
provide comment after publication of a NOPR for energy conservation
standards. Therefore, DOE believes it provides the interested public an
equal opportunity and adequate time to respond to a rulemaking without
being overly burdensome for commenters.
In addition, DOE disagrees with UM's assertion that its rulemaking
public participation process disproportionally benefits certain groups
over end users. All stakeholders' views, data, and other relevant
information are taken into account in developing and implementing final
regulations. DOE is also statutorily mandated to evaluate the
[[Page 34458]]
impact on commercial consumers that could be potentially affected by
increased standards. As detailed in sections III.F.1, IV.F, and V.B.1
of this document, DOE thoroughly evaluates the impact on commercial
consumers in determining whether a proposed standard is economically
justified. Therefore, DOE believes comments from end users of covered
equipment are equally and appropriately considered in this rulemaking.
In response to UM's comments regarding breaking the rulemaking into
smaller pieces, DOE clarifies that its rulemaking notices already
separate the analysis into analytical subsections as shown in sections
III, IV, and V of this document. In each analytical subsection, DOE
presents the applicable analytical tools, resources, and data used for
the analysis. DOE also clarifies the issues pertaining to the analysis
on which it seeks public comment in each subsection. Therefore, DOE
views the current structure of its rulemaking notices as sufficient to
allow the public to consider and provide comment on specific sections
of its rulemaking. As with all rulemakings, DOE encourages stakeholder
review and feedback on the analyses described in this NOPR and in the
NOPR TSD.
H. Revisions to Notes in Regulatory Text
DOE proposes to modify the three notes to the table of energy
conservation standards in 10 CFR 431.110. First, DOE proposes to modify
the note to the table of energy conservation standards denoted by
subscript ``a'' to maintain consistency with DOE's procedure and
enforcement provisions for determining fuel input rate of gas-fired and
oil-fired CWH equipment that were proposed in the 2016 CWH TP NOPR.
Among these changes, DOE proposed that the fuel input rate be used to
determine equipment classes and calculate the standby loss standard.
(See EERE-2014-BT-TP-0008) Therefore, in this NOPR, DOE proposes to
replace the term ``nameplate input rate'' with the term ``fuel input
rate.''
Additionally, DOE proposes to remove the note to the table of
energy conservation standards denoted by subscript ``b.'' This note
clarifies the compliance dates for energy conservation standards for
units manufactured after 2005 and between 2003 and 2005. DOE has
determined that this note is no longer needed because both of these
compliance dates are over 10 years before the compliance date of
standards proposed in this NOPR.
DOE also proposes to modify the note to the table of energy
conservation standards denoted by subscript ``c,'' which establishes
design requirements for water heaters and hot water supply boilers
having more than 140 gallons of storage capacity that do not meet the
standby loss standard. DOE proposes to replace the phrase ``fire
damper'' with the phrase ``flue damper,'' because DOE believes that
``flue damper'' was the intended meaning, and that ``fire damper'' was
a typographical error. DOE believes the intent of this design
requirement was to require that any water heaters or hot water supply
boilers greater than 140 gallons that do not meet the standby loss
standard must have some device that physically restricts heat loss
through the flue, either a flue damper or blower that sits atop the
flue.
Issue 3: DOE seeks comment on its proposed revisions to notes to
the table of energy conservation standards in 10 CFR 431.110.
I. Certification, Compliance, and Enforcement Issues
1. Rated and Measured Storage Volume
In this NOPR, DOE proposes to make two changes to its
certification, compliance, and enforcement regulations at 10 CFR Part
429. First, DOE proposes to add requirements to 10 CFR 429.44 that the
rated value of storage tank volume must equal the mean of the measured
storage volume of the units in the sample. There are currently no
requirements from the Department limiting the amount of difference that
is allowable between the tested (i.e., measured) storage volume and the
``rated'' storage volume that is specified by the manufacturer for CWH
equipment other than residential-duty commercial water heaters. In the
July 2014 final rule, DOE established a requirement for residential
water heaters and residential-duty commercial water heaters that
requires the rated volume to be equal to the mean of the measured
volumes in a sample. 79 FR 40542, 40565 (July 11, 2014).
From examination of reported data in the AHRI Directory, DOE
observed that many units are rated at storage volumes above the
measured storage volume. DOE's maximum standby loss equations for gas-
fired and oil-fired CWH equipment are based on the rated storage
volume, and the maximum standby loss increases as rated storage volume
increases. DOE believes commercial consumers often look to storage
volume as a key factor in choosing a storage water heater.
Consequently, DOE proposes to adopt rating requirements that the rated
storage volume must be equal to the mean of the values measured using
DOE's test procedure. In the 2016 CWH TP NOPR, DOE proposed a test
procedure for measuring the storage volume of CWH equipment that is
similar to the method contained in section 5.27 of ANSI Z21.10.3-2015.
(See EERE-2014-BT-TP-0008) In addition, DOE proposes to specify that
for DOE-initiated testing, the mean of the measured storage volumes
must be within five percent of the rated volume in order to use the
rated storage volume in calculation of maximum standby loss. If the
mean of the measured storage volumes is more than five percent
different than the rated storage volume, then DOE proposes to use the
mean of the measured values in calculation of maximum standby loss. DOE
notes that similar changes were made to DOE's certification,
compliance, and enforcement regulations for residential and
residential-duty water heaters in the July 2014 final rule. 79 FR
40542, 40565 (July 11, 2014).
Issue 4: DOE requests comment on its proposed changes to its
certification, compliance, and enforcement regulations requiring the
rated volume to be equal to the mean of the measured volumes in a
sample.
2. Maximum Standby Loss Equations
As discussed in section III.I.1, DOE proposes to add requirements
to 10 CFR 429.44 that the rated value of storage tank volume must equal
the mean of the measured storage volumes of the units in the sample. In
addition, DOE proposes to specify that for DOE-initiated testing, a
tested value within 5 percent of the rated value would be a valid test
result, such that the rated storage volume would then be used in
downstream calculations. If the test result of the volume is invalid
(i.e., the measured value is more than 5 percent different than the
rated value), then DOE proposed to use the measured value in
determining the applicable minimum energy conservation standard and
calculations within the test procedure. Specifically, the storage
volume is used to calculate standby loss for CWH equipment.
To be consistent with the proposed changes to its certification,
compliance, and enforcement regulations, DOE has tentatively concluded
that the maximum standby loss equations for CWH equipment should be set
in terms of rated volume. The current standby loss standards for water
heaters differ in the storage volume metric used in calculation of the
standby loss standard (rated storage volume is used for certain
classes, while measured storage volume is used for others).
Specifically, the
[[Page 34459]]
maximum standby loss equation for gas-fired and oil-fired water heaters
depends on the rated storage volume of the water heater. However, the
maximum standby loss equations for electric water heaters depends on
the measured storage volume of the water heater. DOE notes there is
often a difference between the measured and rated volumes of water
heaters, as reported in data in the AHRI Directory. Therefore, DOE
proposes to modify the maximum standby loss equations for electric
water heaters to depend on rated volume. Specifically, DOE proposes to
modify the maximum standby loss equation for electric storage water
heaters as shown in the following equation.
[GRAPHIC] [TIFF OMITTED] TP31MY16.000
Additionally, DOE proposes to modify the maximum standby loss
equation for electric instantaneous water heaters with storage capacity
greater than or equal to ten gallons as shown in the following
equation. Further discussion of energy conservation standards for
electric instantaneous water heaters is included in section III.C.5.
[GRAPHIC] [TIFF OMITTED] TP31MY16.001
Issue 5: DOE requests comment on its proposed modification of the
maximum standby loss equations for electric storage and instantaneous
water heaters to depend on rated volume instead of measured volume.
IV. Methodology and Discussion of Related Comments
This section addresses the analyses DOE has performed for this
rulemaking with regard to CWH equipment. A separate subsection
addresses each component of the analyses.
In overview, DOE used several analytical tools to estimate the
impact of the standards proposed in this document. The first tool is a
spreadsheet that calculates the LCC and PBP of potential amended or new
energy conservation standards. The national impacts analysis (NIA) uses
a second spreadsheet set that provides shipments forecasts and
calculates national energy savings and net present value resulting from
potential new or amended energy conservation standards. DOE uses the
third spreadsheet tool, the Government Regulatory Impact Model (GRIM),
to assess manufacturer impacts of potential new or amended standards.
These three spreadsheet tools are available on the DOE Web site for
this rulemaking: https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
Additionally, DOE estimated the impacts on electricity demand and
air emissions from utilities due to the amended energy conservation
standards for CWH equipment. DOE used a version of EIA's National
Energy Modeling System (NEMS) for the electricity and air emissions
analyses. The NEMS model simulates the energy sector of the U.S.
economy. EIA uses NEMS \28\ to prepare its AEO, a widely known baseline
energy forecast for the United States. The version of NEMS used for
appliance standards analysis, which makes minor modifications to the
AEO version, is called NEMS-BT.\29\ NEMS-BT accounts for the
interactions among the various energy supply and demand sectors and the
economy as a whole.
---------------------------------------------------------------------------
\28\ For more information on NEMS, refer to The National Energy
Modeling System: An Overview. U.S. Energy Information Administration
(EIA) (2009) DOE/EIA-0581(2009) (Available at: www.eia.gov/oiaf/aeo/overview).
\29\ EIA approves the use of the name ``NEMS'' to describe only
an AEO version of the model without any modification to code or
data. Because the present analysis entails some minor code
modifications and runs the model under various policy scenarios that
deviate from AEO assumptions, the name ``NEMS-BT'' refers to the
model as used here. (BT stands for DOE's Building Technologies
Office.)
---------------------------------------------------------------------------
A. Market and Technology Assessment
For the market and technology assessment for CWH equipment, DOE
gathered information that provides an overall picture of the market for
the equipment concerned, including the purpose of the equipment, the
industry structure, manufacturers, market characteristics, and
technologies used in the equipment. This activity included both
quantitative and qualitative assessments, based primarily on publicly-
available information. The subjects addressed in the market and
technology assessment for this rulemaking include: (1) A determination
of equipment classes; (2) manufacturers and industry structure; (3)
types and quantities of CWH equipment sold; (4) existing efficiency
programs; and (5) technologies that could improve the energy efficiency
of CWH equipment. The key findings of DOE's market assessment are
summarized below. Chapter 3 of the NOPR TSD provides further discussion
of the market and technology assessment.
1. Definitions
EPCA includes the following categories of CWH equipment as covered
industrial equipment: storage water heaters, instantaneous water
heaters, and unfired hot water storage tanks. EPCA defines a ``storage
water heater'' as a water heater that heats and stores water internally
at a thermostatically controlled temperature for use on demand. This
term does not include units that heat with an input rating of 4,000 Btu
per hour or more per gallon of stored water. EPCA defines an
``instantaneous water heater'' as a water heater that heats with an
input rating of at least 4,000 Btu per hour per gallon of stored water.
Lastly, EPCA defines an ``unfired hot water storage tank'' as a tank
that is used to store water that is heated external to the tank. (42
U.S.C. 6311(12)(A)-(C))
DOE codified the following more specific definitions for CWH
equipment in 10 CFR 431.102 in a final rule published in the Federal
Register on October 21, 2004 (``October 2004 final rule''). 69 FR
61974, 61983.\30\
---------------------------------------------------------------------------
\30\ In the 2016 CWH TP NOPR, DOE proposed to amend its
definitions for commercial water heating equipment by changing the
phrase ``input rating'' to ``fuel input rate'' for gas-fired and
oil-fired equipment, in order to match DOE's proposed regulations
regarding fuel input rate. (See EERE-2014-BT-TP-0008)
---------------------------------------------------------------------------
Specifically, DOE defined ``hot water supply boiler'' as a packaged
boiler that is industrial equipment and that: (1) Has an input rating
from 300,000 Btu/h to 12,500,000 Btu/h and of at least 4,000 Btu/h per
gallon of stored water, (2) is suitable for heating potable water, and
(3) has the temperature and pressure controls necessary for heating
potable water for purposes other than space heating, and/or the
manufacturer's product literature, product markings, product marketing,
or product installation and operation instructions indicate that the
boiler's intended uses include heating potable water for purposes other
than space heating.\31\
---------------------------------------------------------------------------
\31\ In the 2016 CWH TP NOPR, DOE proposed to amend its
definition for ``hot water supply boiler'' by citing the definition
for ``packaged boiler'' included in Sec. 431.82 instead of a
duplicated definition for ``packaged boiler'' in Sec. 431.102,
which DOE proposed to remove. (See EERE-2014-BT-TP-0008)
---------------------------------------------------------------------------
DOE also defined an ``instantaneous water heater'' as a water
heater that has an input rating not less than 4,000 Btu/h per gallon of
stored water, and that is industrial equipment, including products
meeting this description that are designed to heat water to
temperatures of 180[emsp14][deg]F or higher.\32\
---------------------------------------------------------------------------
\32\ In the 2016 CWH TP NOPR, DOE proposed to amend its
definition for ``instantaneous water heater'' by making the
following changes: (1) Removing the clause stating that products
designed to heat water to temperatures of 180[emsp14][deg]F or
higher are included; (2) removing the clause ``that is industrial
equipment''; and (3) adding the input criteria that separate
consumer and commercial instantaneous water heaters for each energy
source (i.e., gas, oil, and electricity). (See EERE-2014-BT-TP-0008)
---------------------------------------------------------------------------
[[Page 34460]]
DOE defined a ``storage water heater'' as a water heater that heats
and stores water within the appliance at a thermostatically controlled
temperature for delivery on demand and that is industrial equipment,
and does not include units with an input rating of 4,000 Btu/h or more
per gallon of stored water.\33\
---------------------------------------------------------------------------
\33\ In the 2016 CWH TP NOPR, DOE proposed to amend its
definition for ``storage water heater'' by adding the input criteria
that separate consumer and commercial storage water heaters for each
energy source (i.e., gas, oil, and electricity). (See EERE-2014-BT-
TP-0008)
---------------------------------------------------------------------------
Lastly, DOE defined an ``unfired hot water storage tank'' as a tank
used to store water that is heated externally, and that is industrial
equipment.
Id.
2. Equipment Classes
When evaluating and establishing energy conservation standards, DOE
generally divides covered equipment into equipment classes by the type
of energy used or by capacity or other performance-related features
that justify a different standard. In determining whether a
performance-related feature justifies a different standard, DOE
considers such factors as the utility to the commercial consumers of
the feature and other factors DOE determines are appropriate.
DOE currently divides CWH equipment classes based on the energy
source, equipment category (i.e., storage vs. instantaneous and hot
water supply boilers), and size (i.e., input capacity rating and rated
storage volume). Unfired hot water storage tanks are also included as a
separate equipment class. Table IV.1 shows DOE's current CWH equipment
classes and energy conservation standards.
Table IV.1--Current CWH Equipment Classes and Energy Conservation Standards
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
---------------------------------------------
Maximum standby loss
Minimum thermal (equipment
Equipment class Size efficiency (equipment manufactured on and
manufactured on and after October 29,
after October 9, 2003)**
2015)** [dagger] [dagger][dagger]
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.... All........................... N/A.................. 0.30 + 27/Vm (%/h)
Gas-fired storage water heaters... <=155,000 Btu/h............... 80%.................. Q/800 + 110(Vr)1/2
>155,000 Btu/h................ 80%.................. (Btu/h)
Q/800 + 110(Vr)1/2
(Btu/h)
Oil-fired storage water heaters... <=155,000 Btu/h............... 80%[dagger].......... Q/800 + 110(Vr)1/2
>155,000 Btu/h................ 80%[dagger].......... (Btu/h)
Q/800 + 110(Vr)1/2
(Btu/h)
Electric instantaneous water <10 gal....................... 80%.................. N/A
heaters[dagger][dagger][dagger]. >=10 gal...................... 77%.................. 2.30 + 67/Vm (%/h)
Gas-fired instantaneous water <10 gal....................... 80%.................. N/A
heaters and hot water supply >=10 gal...................... 80%.................. Q/800 + 110(Vr)1/2
boilers. (Btu/h)
Oil-fired instantaneous water <10 gal....................... 80%.................. N/A
heater and hot water supply >=10 gal...................... 78%.................. Q/800 + 110(Vr)1/2
boilers. (Btu/h)
---------------------------------------------
Minimum thermal insulation
---------------------------------------------
Unfired hot water storage tank.... All........................... R-12.5
----------------------------------------------------------------------------------------------------------------
\*\Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
in Btu/h.
** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for
products manufactured on an after October 21, 2005 and (2) products manufactured prior to that date, and on or
after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
Subpart E of this Part for a ``commercial packaged boiler.''
[dagger] For oil-fired storage water heaters: (1) The standards are mandatory for equipment manufactured on and
after October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency
level of 78 percent.
[dagger][dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity
need not meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R-12.5 or
more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a
fire damper or fan assisted combustion.
[dagger][dagger][dagger] Energy conservation standards for electric instantaneous water heaters are included in
EPCA. (42 U.S.C. 6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1,
1994. In this NOPR, DOE proposes to codify these standards for electric instantaneous water heaters in its
regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is
included in section III.C.5.
Table IV.2 presents the proposed equipment classes for CWH
equipment. The following text provides additional details, discussion
of comments relating to the equipment classes, proposed definitions, as
well as issues on which DOE is seeking comments.
Table IV.2 Proposed CWH Equipment Classes
------------------------------------------------------------------------
Equipment class Specifications*
------------------------------------------------------------------------
Electric storage water heaters......... All
Gas-fired storage water heaters:
Commercial......................... Rated input >105 kBtu/h or
rated storage volume >120 gal
Residential-Duty**................. Rated input <=105 kBtu/h and
rated storage volume <=120 gal
Oil-fired storage water heaters:
Commercial......................... Rated input >140 kBtu/h or
rated storage volume >120 gal
Residential-Duty**................. Rated input <=140 kBtu/h and
rated storage volume <=120 gal
Electric instantaneous water heaters <10 gal
[dagger], [dagger][dagger]. >=10 gal
[[Page 34461]]
Gas-fired instantaneous water heaters
and hot water supply boilers
[dagger][dagger]
Instantaneous water heaters (other <10 gal
than storage-type) and hot water >=10 gal
supply boilers.
Storage-type instantaneous water >=10 gal
heaters [dagger][dagger][dagger].
Oil-fired instantaneous water heaters <10 gal
and hot water supply boilers >=10 gal
[dagger][dagger].
Unfired hot water storage tanks........ All
------------------------------------------------------------------------
* These specifications only distinguish between classes of CWH
equipment. The different classifications of consumer water heaters and
commercial water heating equipment are specified by the definitions
codified at 10 CFR 430.2 and 10 CFR 431.102, respectively.
** In addition to the listed specifications, to be classified as a
residential-duty commercial water heater, a commercial water heater
must, if requiring electricity, use single-phase external power
supply, and not be designed to heat water at temperatures greater than
180[emsp14][deg]F. 79 FR 40542, 40586 (July 11, 2014).
[dagger] Energy conservation standards for electric instantaneous water
heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D) (E)) In this
NOPR, DOE proposes to codify these equipment classes and corresponding
energy conservation standards for electric instantaneous water heaters
in its regulations at 10 CFR 431.110. Further discussion of standards
for electric instantaneous water heaters is included in section
III.C.5.
[dagger][dagger] To be considered an instantaneous water heater or hot
water supply boiler, CWH equipment must heat greater than 4,000 Btu
per gallon of water stored.
[dagger][dagger][dagger] DOE proposes a new equipment class for storage-
type instantaneous water heaters, which are similar to storage water
heaters, but with a ratio of input capacity to storage volume greater
than or equal to 4,000 Btu/h per gallon of water stored. DOE proposed
a definition for ``storage-type instantaneous water heater'' in the
2016 CWH TP NOPR. (See EERE-2014-BT-TP-0008)
In the October 2014 RFI, DOE sought comment on several issues
regarding the equipment class structure for CWH equipment. 79 FR 62899,
62904-09 (Oct. 21, 2014). In response, A.O. Smith, Bradford White, and
AHRI all recommended that the equipment class structure be simplified
by establishing the following equipment classes: (1) Commercial gas-
fired water heaters and hot water supply boilers <10 gallons; (2)
commercial-fired gas water heaters and hot water supply boilers >=10
gallons; (3) commercial oil-fired water heaters and hot water supply
boilers <10 gallons; and (4) commercial oil-fired water heaters and hot
water supply boilers >=10 gallons. (A.O. Smith, No. 2 at p. 1; Bradford
White, No. 3 at p. 1; AHRI, No. 5 at p. 1)
DOE disagrees that the equipment class structure should be
simplified in the manner the commenters suggested because commercial
instantaneous water heaters and hot water supply boilers with a storage
volume greater than 10 gallons would include units with significant
variation in design and utility. Specifically, this equipment class
currently contains both hot water supply boilers and storage-type water
heaters with greater than 4,000 Btu/h per gallon of water stored, which
DOE believes may require separate equipment classes for reasons
detailed in the discussion immediately below. Therefore, DOE has
tentatively concluded that instantaneous water heaters with a storage
volume greater than 10 gallons and storage water heaters should remain
in separate equipment classes.
a. Storage-Type Instantaneous Water Heaters
In the 2016 CWH TP NOPR, DOE noted that the ``gas-fired
instantaneous water heaters and hot water supply boilers'' equipment
class with a storage volume greater than or equal to 10 gallons
encompasses both instantaneous water heaters and hot water supply
boilers with large volume heat exchangers, as well as instantaneous
water heaters with storage tanks (but with at least 4,000 Btu/h of
input per gallon of water stored). (See EERE-2014-BT-TP-0008)
Therefore, DOE proposed to separate these units into classes--storage-
type instantaneous water heaters with greater than 4,000 Btu/h per
gallon of stored water, and instantaneous water heaters (other than
storage-type) and hot water supply boilers with greater than 10 gallons
of stored water, with the following definition for ``storage-type
instantaneous water heater'':
Storage-type instantaneous water heater means an instantaneous
water heater comprising a storage tank with a submerged heat
exchanger(s) or heating element(s).
It is DOE's understanding that gas-fired storage-type instantaneous
water heaters are very similar to gas-fired storage water heaters, but
with a higher ratio of input rating to tank volume. This higher input-
volume ratio is achieved with a relatively larger heat exchanger paired
with a relatively smaller tank. Increasing either the input capacity or
storage volume increases the recovery capacity of the water heater.
However, through a review of product literature, DOE noted no
significant design differences that would warrant different energy
conservation standard levels (for either thermal efficiency or standby
loss) between models in these two proposed equipment classes.
Therefore, DOE grouped the two equipment classes together in its
analyses for this rulemaking. As a result, DOE proposes the same
standard levels for commercial gas-fired storage water heaters and
commercial gas-fired storage-type instantaneous water heaters.
Issue 6: DOE requests comment on whether there are significant
differences between storage water heaters and storage-type
instantaneous water heaters that would justify analyzing these classes
separately for amended energy conservations standards.
b. Tankless Water Heaters and Hot Water Supply Boilers
DOE notes that there are also significant differences in design and
application between equipment within the ``gas-fired instantaneous
water heaters and hot water supply boilers'' equipment class with
storage volume less than 10 gallons. Specifically, DOE has identified
two kinds of equipment within this class: Tankless water heaters and
hot water supply boilers. From examination of equipment literature and
discussion with manufacturers, DOE understands that tankless water
heaters are typically used without a storage tank, flow-activated,
wall-mounted, and capable of higher temperature rises. Hot water supply
boilers, conversely, are typically used with a storage tank and
recirculation loop, thermostatically-activated, and not wall-mounted.
However, despite these differences, tankless water heaters and hot
water supply boilers share basic similarities: both kinds of equipment
supply hot
[[Page 34462]]
water in commercial applications with at least 4,000 Btu/h per gallon
of stored water, and both include heat exchangers through which
incoming water flows and is heated by combustion flue gases that flow
around the heat exchanger tubes. Because of these basic similarities,
DOE continued to group these types of equipment into a single equipment
class and analyzed tankless water heaters and hot water supply boilers
as two separate kinds of representative equipment for the instantaneous
water heaters and hot water supply boilers equipment class for this
NOPR.
Issue 7: DOE requests comment on whether tankless water heaters and
hot water supply boilers should be treated as separate equipment
classes in DOE's energy conservation standards for CWH equipment and
whether proposing the same standards incentivizes any switching in
shipments from one equipment class to the other. Additionally, DOE
requests feedback on what criteria should be used to distinguish
between tankless water heaters and hot water supply boilers if separate
equipment classes are established.
DOE only considered gas-fired instantaneous water heaters and hot
water supply boilers with an input capacity greater than 200,000 Btu/h
in its analysis, because EPCA includes gas-fired instantaneous water
heaters with an input capacity less than or equal to 200,000 Btu/h in
its definition of consumer ``water heater.'' (42 U.S.C. 6291(27)(b))
c. Gas-Fired and Oil-Fired Storage Water Heaters
A.O. Smith, Bradford White, Rheem, and AHRI commented that the
current separation of commercial gas and oil storage water heaters into
classes with input capacity less than or equal to 155,000 Btu/h and
greater than 155,000 Btu/h is not needed, arguing that such distinction
should be eliminated. (A.O. Smith, No. 2 at p. 1; Bradford White, No. 3
at p. 1; Rheem, No. 10 at p. 1; AHRI, No. 5 at p. 2)
DOE agrees with the commenters, and proposes to consolidate
commercial gas-fired and oil-fired storage equipment classes that are
currently divided by input rates of 155,000 Btu/h. DOE is now proposing
the following two equipment classes without an input rate distinction:
(1) Gas-fired storage water heaters and (2) oil-fired storage water
heaters. The input rate of 155,000 Btu/h was first used as a dividing
criterion for storage water heaters in the EPACT 1992 amendments to
EPCA, which mirrored the standard levels and equipment classes in
ASHRAE Standard 90.1-1989. (42 U.S.C. 6313(a)(5)(B)-(C)) ASHRAE has
since updated its efficiency levels for oil-fired and gas-fired storage
water heaters in ASHRAE Standard 90.1-1999 by consolidating equipment
classes that were divided by input rate of 155,000 Btu/h. Pursuant to
requirements in EPCA, DOE adopted the increased standards in ASHRAE
Standard 90.1-1999, but did not correspondingly consolidate the
equipment classes above and below 155,000 Btu/h. As a result, DOE's
current standards are identical for the equipment classes that are
divided by input rate of 155,000 Btu/h. Therefore, DOE tentatively
concluded that eliminating the dividing criterion for commercial gas-
fired and oil-fired storage water heaters at 155,000 Btu/h would
simplify the equipment class structure and make the structure more
consistent with that in ASHRAE Standard 90.1.
d. Grid-Enabled Water Heaters
A. O. Smith, Rheem, and AHRI suggested that DOE should adopt a
separate equipment class for grid-enabled electric storage water
heaters. (A.O. Smith, No. 2 at p. 1; Rheem, No. 10 at p. 1; AHRI, No. 5
at p. 1) NRECA stated that DOE should not adopt any standards that
effectively eliminate water heating technologies used for demand
response and thermal storage. (NRECA, No. 11 at p. 2) Steffes
recommended establishing a sub-class for grid-interactive electric
storage units, due to their different operating schedules and economic
considerations. (Steffes, No. 6 at p. 2)
DOE tentatively concludes that a separate equipment class for grid-
enabled commercial electric storage water heaters is not warranted.
First, as discussed in section III.B, there are no units in the
residential-duty electric storage equipment class, as the dividing
criteria for residential and commercial electric storage units match
those for residential-duty and commercial electric storage units.
Therefore, electric storage water heaters can only be classified as
residential or commercial, and an equipment class of grid-enabled
residential-duty water heaters would comprise no units. Second, for
commercial electric storage water heaters, DOE only prescribes a
standby loss standard. DOE does not believe an increased standby loss
standard level would be likely to affect grid-enabled technology
because the more-stringent standby loss level analyzed for electric
storage water heaters is most commonly met by increasing insulation
thickness, which would not differentially affect grid-enabled
technology. Therefore, DOE is not proposing a separate equipment class
for grid-enabled commercial electric storage water heaters in this
rulemaking.
e. Condensing Gas-Fired Water Heating Equipment
AGA suggested that DOE should analyze commercial gas condensing and
non-condensing water heaters as separate equipment classes. (AGA, No. 4
at p. 2) AGA stated that replacement of non-condensing gas water
heaters with condensing gas water heaters can be problematic due to the
separate venting needed and condensate disposal issues. AGA opined that
the ability of non-condensing gas water heaters to be common-vented
with other gas appliances into chimneys is a performance feature that
justifies analyzing non-condensing and condensing gas water heaters
separately. AGA also cited precedent for such a separation in analysis
in the residential clothes dryer energy conservation standards
rulemaking.
Regarding the separation of vented and vent-less clothes dryers
into two product classes in the residential clothes dryer rulemaking as
cited by AGA, DOE has found the circumstances in that rulemaking to be
distinguishable from the present rulemaking. More specifically, in a
direct final rule for energy conservation standards for residential
clothes dryers and room air conditioners published on April 21, 2011
(``April 2011 final rule''), DOE established separate product classes
for vented and vent-less clothes dryers because of the unique utility
they offer consumers (i.e., the ability to be installed in space-
constrained locations, such as high-rise apartments and recreational
vehicles, where venting dryers would be precluded entirely due to
venting restrictions). 76 FR 22454, 22485. In the April 2011 final
rule, ventless dryers provided that subset of consumers the utility of
being able to dry their clothes at all, so it is not simply a matter of
additional installation cost, as confronts us in this rulemaking for
CWH equipment. Id. Consequently, DOE believes that such a distinction
would not apply to commercial gas-fired water heaters, because all gas-
fired water heaters require venting and all installations could
accommodate a condensing gas water heater.
DOE reiterates that disparate equipment may have very different
consumer utilities, thereby making direct comparisons difficult and
potentially misleading. For instance, in the April 2011 final rule, DOE
[[Page 34463]]
established separate product classes for vented and ventless clothes
dryers because of their unique utility to consumers, as previously
discussed. But in a final rule for energy conservation standards for
residential water heaters, pool heaters, and direct heating equipment
published on April 16, 2010, DOE determined that water heaters that
utilize heat pump technology did not need to be put in a separate
product class from conventional types of hot water heaters that utilize
electric resistance technology, even though water heaters utilizing
heat pumps require the additional installation of a condensate drain
that a hot water heater utilizing electric resistance technology does
not require. 75 FR 20112, 20134-20135. DOE found that regardless of
these installation factors, the heat pump water heater and the
conventional water heater still had the same utility to the consumer:
Providing hot water. Id. In both cases, DOE made its finding based on
consumer type and utility type, rather than product design criteria
that impact product efficiency or installation costs. These
distinctions in both the consumer type and the utility type are
important because, as DOE has previously pointed out, taken to the
extreme, each different design could be designated a different
``product class'' and, therefore, require different energy conservation
standards.
Tying the concept of ``feature'' to a specific technology would
effectively lock-in the currently existing technology as the ceiling
for product efficiency and eliminate DOE's ability to address
technological advances that could yield significant consumer benefits
in the form of lower energy costs while providing the same
functionality for the consumer. DOE is very concerned that determining
features solely on product technology could undermine the Department's
Appliance Standards Program. If DOE is required to maintain separate
product classes to preserve less-efficient technologies, future
advancements in the energy efficiency of covered products would become
largely voluntary, an outcome which seems inimical to Congress's
purposes and goals in enacting EPCA.
DOE tentatively concludes that both non-condensing and condensing
commercial gas-fired CWH equipment provide the same hot water for use
by commercial consumers. Furthermore, DOE has tentatively concluded
that condensing gas-fired water heaters could replace non-condensing
gas-fired water heaters in all commercial settings, although in certain
instances this may lead to significant installation costs. DOE
recognizes the potential increased installation costs that a proposed
condensing standard might impose on some subset of consumers, and has
factored such installation costs in its LCC analysis. However, the
possibility that installing a non-condensing commercial water heater
may be less costly than a condensing commercial water heater because of
the difference in venting methods does not justify separating the two
kinds of equipment. Condensing technology is discussed in more detail
in the screening analysis at section IV.B, and installation costs for
all equipment classes are discussed in more detail in section IV.F.2.b
of this NOPR and in chapter 8 of the NOPR TSD.
Issue 8: DOE seeks comment on its proposed equipment class
structure, and whether any equipment classes are unnecessary or
additional equipment classes are needed.
3. Review of the Current Market for CWH Equipment
In order to gather information needed for the market assessment for
CWH equipment, DOE consulted a variety of sources, including
manufacturer literature, manufacturer Web sites, the AHRI Directory of
Certified Product Performance,\34\ the California Energy Commission
(CEC) Appliance Efficiency Database,\35\ and DOE's Compliance
Certification Database.\36\ DOE used these sources to compile a
database of CWH equipment that served as resource material throughout
the analyses conducted for this rulemaking. This database contained the
following counts of unique models: 269 commercial gas-fired storage
water heaters, 67 residential-duty commercial gas-fired storage water
heaters, 71 electric storage water heaters, 59 commercial gas-fired
storage-type instantaneous water heaters (storage water heaters with
greater than 4,000 Btu/h per gallon of stored water), 25 gas-fired
tankless water heaters, 239 gas-fired hot water supply boilers, 15
commercial oil-fired storage water heaters, 5 residential-duty
commercial oil-fired storage water heaters, and 4 commercial oil-fired
storage-type instantaneous water heaters. No oil-fired instantaneous
water heaters or hot water supply boilers were found on the market. As
the database was compiled mostly from certification databases,
efficiency data--standby loss and thermal efficiency for storage water
heaters, thermal efficiency for instantaneous water heaters and hot
water supply boilers--were available for all models considered. Chapter
3 of the NOPR TSD provides more information on the CWH equipment
currently available on the market, including a full breakdown of these
units into their equipment classes and graphs showing performance data.
---------------------------------------------------------------------------
\34\ Based on listings in the AHRI Directory last accessed in
September, 2014. (Available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx). Standby loss data for electric
storage water heaters were updated on March 17, 2015. Details of the
data comprising the database used for analysis are described in
Chapter 3 of the NOPR TSD.
\35\ Available at http://www.appliances.energy.ca.gov/AdvancedSearch.aspx.
\36\ Available at https://www.regulations.doe.gov/certification-data/
---------------------------------------------------------------------------
4. Technology Options
As part of the market and technology assessment, DOE uses
information about commercially-available technology options and
prototype designs to help identify technologies the manufacturers could
use to improve energy efficiency for CWH equipment. This effort
produces an initial list of all the technologies that DOE believes are
technologically feasible. This assessment provides the technical
background and structure on which DOE bases its screening and
engineering analyses. Chapter 3 of the NOPR TSD includes descriptions
of all technology options identified for this equipment.
In the October 2014 RFI, DOE listed twelve technology options and
requested comment regarding their applicability to the current market
and their impact on energy efficiency of CWH equipment. 79 FR 62899,
62904 (Oct. 21, 2014). The technology options identified in the October
2014 RFI were as follows:
Heat traps
Improved insulation (including increasing jacket insulation,
insulating tank bottom, or using a plastic tank (electric only),
advanced insulation types, foam insulation, and pipe and fitting
insulation)
Power and direct venting
Fully condensing technology (including storage, instantaneous,
and hybrid, as well as pulse combustion)
Improved flue design (including high-efficiency flue baffles,
multiple flues, submerged combustion chamber, and optimized flue
geometry)
Sidearm heating and two-phase thermosiphon technology
Electronic ignition systems
Improved heat pump water heaters
Thermovoltaic and thermoelectric generators
Improved controls (including timer controls, modulating
controls, and intelligent and wireless controls and communication)
Self-cleaning
[[Page 34464]]
Improved burners (including variable firing-rate burners, low-
stage firing burners, and modulating burners)
Id.
DOE also solicited information on potential additional energy-
efficiency-improving technology options that DOE should consider for
the purposes of this rulemaking in the October 2014 RFI. 79 FR 62899,
62904 (Oct. 21, 2014). Several parties commented on the list of
technologies. A.O. Smith, Bradford White, Rheem, and AHRI all commented
that self-cleaning should not be included in the list because it is a
feature that improves maintenance of storage water heaters, not
efficiency. (A.O. Smith, No. 2 at p. 2; Bradford White, No. 3 at p. 2;
Rheem, No. 10 at p. 1; AHRI, No. 5 at p. 2) Bradford White, Rheem, and
AHRI also commented that heat traps should not be included because heat
traps are installed in external piping for commercial water heater
installations. (Bradford White, No. 3 at p. 2; Rheem, No. 10 at p. 1;
AHRI, No. 5 at p. 2) AHRI added that ASHRAE Standard 90.1 requires
inclusion of heat traps for CWH equipment when installed, not when
manufactured. (AHRI, No. 5 at p. 2) A. O. Smith also stated that fully
condensing technology should not be considered for oil-fired units, as
it is not feasible to develop given the size of the market. (A.O.
Smith, No. 2 at p. 2)
DOE agrees with the commenters that self-cleaning technology would
not affect the thermal efficiency or standby loss of a storage water
heater. DOE also agrees that heat traps are most commonly installed in
piping, not in CWH equipment. Section 7.4.6 of ASHRAE Standard 90.1-
2013 requires heat traps be installed either integral to the water
heater or storage tank, or in both the inlet and outlet piping as close
as possible to the storage tank, if not part of a recirculating
system.\37\ DOE was not able to find evidence of a significant number
of models of CWH equipment on the market with installed heat traps.
Therefore, for the reasons above, DOE has removed these two
technologies from the list of potential technology options considered.
Regarding condensing technology for oil-fired water heaters, DOE did
not analyze oil-fired water heaters in this rulemaking, as discussed
previously in section III.C of this document. However, condensing
technology was analyzed as a technology option for gas-fired CWH
equipment.
---------------------------------------------------------------------------
\37\ ASHRAE, Standard 90.1-2013 (Available at www.ashrae.org).
---------------------------------------------------------------------------
Steffes recommended that grid-interactive technology for electric
storage water heaters be added to the list of technologies, as they
achieve significant system efficiency improvements and carbon
reductions. (Steffes, No. 6 at p. 2) Because the efficiency examined in
this rulemaking is that of CWH equipment at the point of manufacture as
measured by the DOE test procedure, and not of the entire energy grid,
DOE has tentatively concluded that grid-interactive technology would
not improve the efficiency of CWH equipment as measured by its test
procedure.
Because thermal efficiency, standby loss, and UEF are the relevant
performance metrics in this rulemaking, DOE did not consider
technologies that have no effect on these metrics. However, DOE does
not discourage manufacturers from using these other technologies
because they might reduce annual energy consumption. The following list
includes the technologies that DOE did not consider because they do not
affect efficiency as measured by the DOE test procedure. Chapter 3 of
the NOPR TSD provides details and reasoning of exclusion for each
technology option not considered further, as listed here.
Plastic tank
Direct vent
Timer controls
Intelligent and wireless controls
Modulating combustion (for storage water heaters; including
modulating controls and variable firing-rate burners, low-stage firing
burners, and modulating burners) \38\
---------------------------------------------------------------------------
\38\ DOE considers modulating combustion to be a baseline design
feature for gas-fired tankless water heaters.
---------------------------------------------------------------------------
Self-cleaning
DOE also did not consider technologies as options for increasing
efficiency if they are included in baseline equipment, as determined
from an assessment of units on the market. DOE's research suggests that
electromechanical flue dampers and electronic ignition are technologies
included in baseline equipment for commercial gas-fired storage water
heaters; therefore, they were not included as technology options for
that equipment class. However, electromechanical flue dampers and
electronic ignition were not identified on baseline units for
residential-duty gas-fired storage water heaters, and these options
were, therefore, considered for increasing efficiency of residential-
duty gas-fired storage water heaters. DOE also considered insulation of
fittings around pipes and ports in the tank to be included in baseline
equipment; therefore, such insulation was not considered as a
technology option for the analysis. While insulation of pipes does
reduce heat losses, DOE does not consider CWH equipment to include
external piping; therefore, piping insulation was not considered as a
technology option for CWH equipment.
After considering the comments above, DOE below lists all of the
technology options considered for improving the energy efficiency of
CWH equipment as part of this NOPR. This list includes those options
identified in the October 2014 RFI (discussed previously), with the
exception of those subsequently determined not to improve energy
efficiency. In addition, DOE has identified electromechanical flue
dampers as a technology option that can increase the efficiency of
water heaters. DOE also included three separate technology options
often used in condensing CWH equipment: (1) Mechanical draft; (2)
condensing heat exchangers, and (3) premix burners. DOE did not
consider CO2 heat pump water heaters for analysis because,
as explained in section III.C, commercial electric heat pump water
heaters were not analyzed for this NOPR. The technology options
selected are discussed in further detail in Chapter 3 of the NOPR TSD.
In summary, DOE has identified and considered in this NOPR the
following potential technologies for improving the energy efficiency of
CWH equipment:
Improved insulation (including increasing jacket insulation,
insulating tank bottom, advanced insulation types, and foam insulation)
Mechanical draft (including induced draft, also known as power
vent, and forced draft)
Condensing heat exchanger (for all gas-fired equipment
classes, and including optimized flue geometry)
Condensing pulse combustion
Improved heat exchanger design (including increased surface
area and increased baffling)
Sidearm heating and two-phase thermosiphon technology
Electronic ignition systems
Improved heat pump water heaters (including gas absorption
heat pump water heaters)
Thermovoltaic and thermoelectric generators
Premix burner (including submerged combustion chamber for gas-
fired storage water heaters and storage-type instantaneous water
heaters)
Electromechanical flue damper.
B. Screening Analysis
DOE uses the following four screening criteria to determine which
technology
[[Page 34465]]
options are suitable for further consideration in an energy
conservation standards rulemaking:
1. Technological feasibility. DOE will consider technologies
incorporated in commercial products or in working prototypes to be
technologically feasible. Technologies that are not incorporated in
commercial equipment or in working prototypes are not considered in
this NOPR.
2. Practicability to manufacture, install, and service. If mass
production and reliable installation and servicing of a technology in
commercial products could be achieved on the scale necessary to serve
the relevant market at the time of the compliance date of the standard,
then DOE will consider that technology practicable to manufacture,
install, and service.
3. Adverse impacts on product utility or product availability. If
DOE determines a technology would have a significant adverse impact on
the utility of the product to significant subgroups of consumers, or
would result in the unavailability of any covered product type with
performance characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as products
generally available in the United States at the time, it will not
consider this technology further.
4. Adverse impacts on health or safety. If DOE determines that a
technology will have significant adverse impacts on health or safety,
it will not consider this technology further.
10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b).
These four screening criteria do not include the proprietary status
of design options. As noted previously in section III.D.1, DOE only
considers efficiency levels achieved through the use of proprietary
designs in the engineering analysis if they are not part of a unique
path to achieve that efficiency level. DOE's research has not shown any
of the technologies identified in the technology assessment to be
proprietary, and thus, DOE did not eliminate any technologies for that
reason.
Issue 9: DOE seeks comment on its tentative conclusion that none of
the identified technology options are proprietary, and if any
technologies are proprietary, requests additional information regarding
proprietary designs and patented technologies.
1. Screened-Out Technologies
Technologies that pass through the screening analysis are
subsequently examined in the engineering analysis for consideration in
DOE's downstream cost-benefit analysis. Based upon a review under the
above factors, DOE screened out the design options listed in Table IV.3
for the reasons provided. Chapter 4 of the NOPR TSD contains additional
details on the screening analysis, including a discussion of why each
technology option was screened out.
Table IV.3--Summary of Screened-Out Technology Options
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reasons for exclusion
---------------------------------------------------------------------------
Practicability to
Excluded technology option Applicable equipment classes * Technological manufacture, Adverse impacts Adverse impacts
feasibility install, and on product on health or
service utility safety
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced insulation types................... All storage water heaters..... X X ................. .................
Condensing pulse combustion................. All gas-fired equipment X X ................. .................
classes.
Sidearm heating............................. All gas-fired storage......... X X ................. .................
Two-phase thermosiphon technology........... All gas-fired storage......... ................. X ................. .................
Gas absorption heat pump water heaters...... Gas-fired instantaneous water ................. X ................. .................
heaters.
Thermovoltaic and thermoelectric generators. All gas-fired equipment X X ................. .................
classes.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\*\ All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters.
2. Remaining Technologies
After screening out or otherwise removing from consideration
certain technologies, the remaining technologies are passed through for
consideration in the engineering analysis. Table IV.4 presents
identified technologies for consideration in the engineering analysis.
Chapter 3 of the NOPR TSD contains additional details on the technology
assessment and the technologies analyzed.
Table IV.4--Technology Options Considered for Engineering Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved
insulation Increased heat Electro-
Equipment class (thickness, Mechanical Condensing exchanger Electronic Premix burner mechanical
tank bottom, draft heat exchanger area, baffling ignition flue damper
foam)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric storage water heaters... X ............... ............... ............... ............... ............... ...............
Commercial gas-fired storage X X X X ............... X ...............
water heaters and storage-type
instantaneous water heaters.....
Residential-duty gas-fired X X X X X X X
storage water heaters...........
[[Page 34466]]
Gas-fired instantaneous water ............... X X X ............... X ...............
heaters and hot water supply
boilers.........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
C. Engineering Analysis
The engineering analysis establishes the relationship between an
increase in energy efficiency of the equipment and the increase in
manufacturer selling price (MSP) associated with that efficiency level.
This relationship serves as the basis for the cost-benefit calculations
for commercial consumers, manufacturers, and the Nation. In determining
the cost-efficiency relationship, DOE estimates the increase in
manufacturer cost associated with increasing the efficiency of
equipment above the baseline up to the maximum technologically feasible
(``max-tech'') efficiency level for each equipment class.
1. Methodology
DOE typically structures its engineering analysis using one of
three approaches: (1) Design-option; (2) efficiency-level; or (3)
reverse engineering (or cost-assessment). A design-option approach
identifies individual technology options (from the market and
technology assessment) that can be used alone or in combination with
other technology options to increase the energy efficiency of a
baseline unit of equipment. Under this approach, cost estimates of the
baseline equipment and more-efficient equipment that incorporates
design options are modeled based on manufacturer or component supplier
data or engineering computer simulation models. Individual design
options, or combinations of design options, are added to the baseline
model in descending order of cost-effectiveness. An efficiency-level
approach establishes the relationship between manufacturer cost and
increased efficiency at predetermined efficiency levels above the
baseline. Under this approach, DOE typically assesses increases in
manufacturer cost for incremental increases in efficiency, rather than
the technology or design options that would be used to achieve such
increases. The efficiency level approach uses estimates of cost and
efficiency at distinct levels of efficiency from publicly-available
information, and information gathered in manufacturer interviews that
is supplemented and verified through technology reviews. A reverse-
engineering, or cost-assessment, approach involves disassembling
representative units of CWH equipment, and estimating the manufacturing
costs based on a ``bottom-up'' manufacturing cost assessment; such
assessments use detailed data to estimate the costs for parts and
materials, labor, shipping/packaging, and investment for models that
operate at particular efficiency levels. The reverse-engineering
approach involves testing products for efficiency and determining costs
from a detailed bill of materials (BOM) derived from reverse
engineering representative equipment.
DOE conducted this engineering analysis for CWH equipment using a
combination of the efficiency-level and cost-assessment approaches. For
the analysis of thermal efficiency levels for commercial and
residential-duty storage and instantaneous water heaters, DOE
identified the efficiency levels for the analysis based on market data
and then used the cost-assessment approach to determine the
manufacturing costs at those levels. For the analysis of standby loss
levels for storage water heaters, DOE identified efficiency levels for
analysis based on market data and commonly used technology options
(i.e., insulation type, thickness), and then used the cost-assessment
approach to determine the manufacturing costs of models at those
levels.
DOE received several comments from interested parties on the
approach to the engineering analysis. A.O. Smith, Bradford White,
Rheem, and AHRI all agreed with the use of the reverse-engineering
approach, but stated that appropriate cost estimates for components,
materials, and labor should be used. (A.O. Smith, No. 2 at p. 2;
Bradford White, No. 3 at p. 2; Rheem, No. 10 at p. 2; AHRI, No. 5 at p.
3) DOE notes that it solicited input from manufacturers during
manufacturer interviews on the above cost estimates, other relevant
engineering assumptions, and other issues regarding this rulemaking.
The manufacturer interview process is described in more detail in
section IV.J.3 and chapter 12 of the NOPR TSD.
2. Representative Equipment for Analysis
For the engineering analysis, DOE reviewed all CWH equipment
classes analyzed in this rulemaking. Because the storage volume and
input capacity can affect the energy efficiency of CWH equipment, DOE
examined each equipment class separately. Within each equipment class,
DOE analyzed the distribution of models available on the market and
held discussions with manufacturers to determine appropriate
representative equipment for each equipment class.
For storage water heaters, the volume of the tank is a significant
factor for costs and efficiency. Water heaters with larger volumes have
higher materials, labor, and shipping costs. A larger tank volume is
likely to lead to a larger tank surface area, thereby increasing the
standby loss of the tank (assuming other factors are held constant,
e.g., same insulation thickness and materials). The current standby
loss standards for storage water heaters are, in part, a function of
volume to account for this variation with tank size. The incremental
cost of increasing insulation thickness varies as the tank volume
increases, and there may be additional installation concerns for
increasing the insulation thickness on larger tanks. Installation
concerns are discussed in more detail in section IV.F.2.b. DOE examined
specific storage volumes for gas-fired and electric storage water
heaters (referred to as representative storage volumes). Because DOE
lacked specific information on shipments, DOE examined the number of
models at each storage volume listed in the AHRI Directory to determine
the representative storage volume, and also solicited feedback from
manufacturers during manufacturer interviews as to which storage
volumes corresponded to
[[Page 34467]]
the most shipments. Table IV.5 shows the representative storage volumes
that DOE determined best characterize each equipment class.
The current standby loss standards for commercial storage water
heaters differ in the storage volume metric used in calculation of the
standby loss standard (rated storage volume is used for certain
classes, while measured storage volume is used for others).
Specifically, the standby loss standard for gas-fired and oil-fired
storage water heaters depends on the rated storage volume of the water
heater. However, the standby loss standard for electric storage water
heaters depends on the measured storage volume of the water heater. DOE
notes there is often a difference between the measured and rated
volumes of water heaters, as reported in data in the AHRI Directory.
Therefore, to calculate standby loss levels for a representative
electric storage water heater, a representative measured storage volume
is needed. In section III.I of this NOPR, DOE proposes to require that
the rated storage volume equal the measured storage volume. Therefore,
DOE selected a representative measured storage volume for electric
storage water heaters based upon data for measured volumes for units at
the selected representative rated storage volume in the AHRI Directory.
Table IV.5 shows both selected representative storage volumes for
electric storage water heaters.
For all CWH equipment classes, the input capacity is also a
significant factor for cost and efficiency. Fossil-fuel-fired water
heaters with higher input capacities have higher materials costs, and
may also have higher labor and shipping costs. Fossil-fuel-fired
storage water heaters with higher input capacities may have additional
heat exchanger length to transfer more heat. This leads to higher
material costs, and may require the tank to expand to compensate for
the displaced volume. Tankless water heaters and hot water supply
boilers require larger heat exchangers to transfer more heat with a
higher input capacity. Electric storage water heaters with higher input
capacities have higher-wattage resistance heating elements, which can
increase the cost of purchased parts for the water heater manufacturer.
DOE examined input capacities for units in all CWH equipment classes to
determine representative input capacities. Because DOE did not receive
any shipments data for specific input capacities, DOE considered the
number of models at each input capacity in the database of models it
compiled (based on the AHRI Directory, CEC Appliance Database, and
manufacturer literature) as well as feedback from manufacturer
interviews. DOE used this information to select representative input
capacities for each equipment class, which are shown in Table IV.5.
Table IV.5--Representative Storage Volumes and Input Capacities
----------------------------------------------------------------------------------------------------------------
Representative storage Representative input
Equipment class Specifications volume (gal) * capacity (kBtu/h or kW)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters....... N/A.................... 119 (rated), 114 18 kW.
(measured).
Commercial gas-fired storage water >105 kBtu/h or >120 gal 100.................... 199 kBtu/h.
heaters and gas-fired storage-type
instantaneous water heaters.
Residential-duty gas-fired storage <=105 kBtu/h and <=120 75..................... 76 kBtu/h.
water heaters **. gal.
Gas-fired instantaneous water heaters
and hot water supply boilers:
Tankless water heaters........... <10 gal................ ....................... 250 kBtu/h.
Hot water supply boilers......... All [dagger]........... ....................... 399 kBtu/h
----------------------------------------------------------------------------------------------------------------
* For all equipment classes where not specified, the representative volume is a rated storage volume, not a
measured storage volume.
** To be classified as a residential-duty water heater, a commercial water heater must, if requiring
electricity, use single-phase external power supply, and not be designed to heat water at temperatures greater
than 180 [deg]F. 79 FR 40542, 40586 (July 11, 2014).
[dagger] For the engineering analysis, hot water supply boilers <10 gallons and >=10 gallons were analyzed in
the same equipment class. Amended standby loss standards for hot water supply boilers >=10 gallons were not
analyzed in this NOPR, as discussed in section III.C.8. Therefore, no representative storage volume was chosen
for instantaneous water heaters or hot water supply boilers.
Issue 10: DOE seeks comment on the representative CWH equipment
used in the engineering analysis.
3. Efficiency Levels for Analysis
For each equipment class, DOE analyzed multiple efficiency levels
and estimated manufacturer production costs at each efficiency level.
The following subsections provide a description of the full efficiency
level range that DOE analyzed from the baseline efficiency level to the
maximum technologically feasible (``max-tech'') efficiency level for
each equipment class. DOE conducted a survey of its CWH equipment
database and manufacturers' Web sites to determine the highest thermal
efficiency levels on the market for each equipment class. DOE
identified the most stringent standby loss level for each class by
consideration of rated standby loss values of units currently on the
market as well as technology options that DOE believes to be feasible
but may not currently be included in units on the market in each
equipment class. Thermal efficiency levels were analyzed for all CWH
equipment considered in this rulemaking except for electric storage
water heaters. Standby loss levels were analyzed for all commercial and
residential-duty storage water heaters and storage-type instantaneous
water heaters.
a. Baseline Efficiency Levels
Baseline equipment is used as a reference point for each equipment
class in the engineering analysis and the life-cycle cost and payback-
period analyses, which provides a starting point for analyzing
potential technologies that provide energy efficiency improvements.
Generally, DOE considers ``baseline'' equipment to refer to a model or
models having features and technologies that just meet, but do not
exceed, the Federal energy conservation standard and provide basic
consumer utility. In establishing the baseline thermal efficiency
levels for this analysis, DOE used the current energy conservation
standards for CWH equipment to identify baseline units.
The baseline thermal efficiency levels used for analysis for each
equipment class are presented in Table IV.6.
[[Page 34468]]
Table IV.6--Baseline Thermal Efficiency Levels for CWH Equipment
------------------------------------------------------------------------
Thermal
Equipment class efficiency
(%)
------------------------------------------------------------------------
Electric storage water heaters.......................... ..............
Commercial gas-fired storage water heaters and gas-fired 80
storage-type instantaneous water heaters...............
Residential-duty gas-fired storage water heaters........ 80
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters.............................. 80
Hot water supply boilers............................ 80
------------------------------------------------------------------------
DOE used the current energy conservation standards for standby loss
to set the baseline standby loss levels. Table IV.7 shows these
baseline standby loss levels for representative equipment for each
equipment class.
Table IV.7--Baseline Standby Loss Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
Baseline
Equipment class Representative storage Representative input standby loss
volume (gal) * capacity (kBtu/h or kW) level (Btu/h)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.......... 119 (rated), 114 18 kW..................... 353
(measured).
Commercial gas-fired storage water 100....................... 199 kBtu/h................ 1349
heaters and gas-fired storage-type
instantaneous water heaters.
Residential-duty gas-fired storage water 75........................ 76 kBtu/h................. 1048
heaters.
Gas-fired instantaneous water heaters
and hot water supply boilers:
Tankless water heaters.............. .......................... 250 kBtu/h................ ..............
Hot water supply boilers............ .......................... 399 kBtu/h................ ..............
----------------------------------------------------------------------------------------------------------------
* For all equipment classes where not specified, the representative volume is a rated storage volume, not a
measured storage volume.
In the October 2014 RFI, DOE sought comment on approaches to
consider when establishing baseline efficiency levels for equipment
classes transitioning to the UEF metric. 79 FR 62899, 62905 (Oct. 21,
2014). A.O. Smith, Bradford White, Rheem, and AHRI commented that DOE
should convert the current thermal efficiency and standby loss
standards to UEF to use as the baseline levels. (A.O. Smith, No. 2 at
p. 2; Bradford White, No. 3 at p. 2; Rheem, No. 10 at p. 1; AHRI, No. 5
at p. 3) DOE has conducted an analysis for residential-duty water
heaters using thermal efficiency and standby loss. Because UEF rating
data were not available when this analysis was conducted, DOE is using
the mathematical conversion factors proposed in the April 2015 NOPR to
translate the results of the analyzed thermal efficiency and standby
loss levels to UEF levels. 80 FR 20116, 20143 (April 14, 2015). This
conversion of the existing standards to UEF is described in more detail
in section IV.C.9. Therefore, the current thermal efficiency and
standby loss standards were used as baseline levels.
b. Intermediate and Max-Tech Efficiency Levels
For each equipment class, DOE analyzes several efficiency levels
and determines the manufacturing cost at each of these levels. For this
NOPR, DOE developed efficiency levels based on a review of available
equipment. As noted previously, DOE compiled a database of CWH
equipment to determine what types of equipment are currently available
to commercial consumers. For each representative equipment type, DOE
surveyed various manufacturers' equipment offerings to identify the
commonly available efficiency levels. By identifying the most prevalent
energy efficiency levels in the range of available equipment and
examining models at these levels, DOE can establish a technology path
that manufacturers would typically use to increase the thermal
efficiency of CWH equipment.
DOE established intermediate thermal efficiency levels for each
equipment class. The intermediate thermal efficiency levels are
representative of the most common efficiency levels and those that
represent significant technological changes in the design of CWH
equipment. For commercial gas-fired storage water heaters, DOE chose
four thermal efficiency levels between the baseline and max-tech levels
for analysis. For residential-duty gas-fired storage water heaters, DOE
chose three thermal efficiency levels between the baseline and max-tech
levels for analysis. For commercial gas-fired instantaneous water
heaters and hot water supply boilers, DOE chose four thermal efficiency
levels between the baseline and max-tech levels for analysis. DOE also
selected the highest thermal efficiency level identified on the market
for each equipment class (i.e., the ``max-tech'' level). The selected
thermal efficiency levels are shown in Table IV.8.
[[Page 34469]]
Table IV.8--Baseline, Intermediate, and Max-Tech Thermal Efficiency Levels for Representative CWH Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
Thermal efficiency levels
-----------------------------------------------------------------------------------------------
Equipment class Baseline-- Et
EL0 (%) Et EL1 (%) Et EL2 (%) Et EL3 (%) Et EL4 * (%) Et EL5 ** (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric storage water heaters.......................... - - - - - -
Commercial gas-fired storage water heaters and gas-fired 80 82 90 92 95 99
storage-type instantaneous water heaters...............
Residential-duty gas-fired storage water heaters........ 80 82 90 95 97 -
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters.............................. 80 82 84 92 94 96
Hot water supply boilers............................ 80 82 84 92 94 96
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et EL4 is the max-tech efficiency level for residential-duty gas-fired storage water heaters.
** Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type instantaneous water heaters, as well as for
gas-fired instantaneous water heaters and hot water supply boilers.
In response to the October 2014 RFI, A. O. Smith stated that max-
tech efficiency levels should be condensing for gas-fired storage water
heaters, heat pump for electric storage water heaters, and ``near
condensing'' for oil-fired storage water heaters. (A. O. Smith, No. 2
at p. 2) Bradford White stated that the max-tech efficiency levels are
condensing for gas-fired storage water heaters and heat pump for
electric storage water heaters (Bradford White, No. 3 at p. 2) Rheem
responded that max-tech efficiency levels within Rheem products are 98
percent thermal efficiency and 325 Btu/h standby loss for electric
storage water heaters, 97 percent thermal efficiency and 960 Btu/h for
gas-fired storage water heaters, and 94 percent thermal efficiency for
gas-fired instantaneous water heaters. (Rheem, No. 10 at p. 3) AHRI
commented that max-tech efficiency levels should be determined for each
equipment class individually, as condensing would not be an achievable
max-tech level for oil-fired storage water heaters. (AHRI, No. 5 at p.
3)
DOE notes that the analyzed max-tech level for commercial gas-fired
storage water heaters is condensing as suggested by A. O. Smith and
Bradford White. DOE did not consider commercial integrated heat pump
water heaters as the max-tech for electric storage water heaters
because DOE did not identify any such units on the market. DOE selected
higher max-tech thermal efficiency levels than suggested by Rheem,
because DOE identified equipment for sale at even higher thermal
efficiency levels, which does not appear to make use of any proprietary
technology. Given the commercial availability of designs at higher
thermal efficiency levels than suggested by Rheem as max-tech, DOE has
tentatively concluded that such efficiency levels should be included in
the engineering analysis. In response to AHRI, DOE notes that it
established max-tech efficiency levels separately for each equipment
class, only considering the highest efficiency level on the market
within each equipment class. DOE also notes that it did not consider
amended energy conservation standards for oil-fired storage water
heaters in this NOPR; therefore, these units were not included in the
engineering analysis.
EEI commented that DOE should adopt the amended efficiency levels
in ASHRAE Standard 90.1-2013 for all CWH equipment classes, arguing
this would prevent confusion in the marketplace and allow for earlier
compliance dates than if higher standards are proposed. (EEI, No. 8 at
p. 2) In response, DOE notes that ASHRAE Standard 90.1-2013 only raised
efficiency standards for commercial oil-fired storage water heaters,
but DOE also has an independent statutory obligation to review
standards for the other CWH equipment classes. In the July 2015 ASHRAE
equipment final rule, DOE determined that a thermal efficiency level
for oil-fired storage water heaters more stringent than that adopted in
ASHRAE Standard 90.1-2013 would not be economically justified and
technologically feasible according to the seven criteria outlined in
section II.A. 80 FR 42614 (July 17, 2015). Therefore, DOE adopted the
amended thermal efficiency level from ASHRAE Standard 90.1-2013 for
commercial oil-fired storage water heaters with a compliance date of
October 9, 2015, as required by the statute. Id. Thus, any proposed
increased standards in this rulemaking will not affect the compliance
date for the amended standard adopted from ASHRAE Standard 90.1-2013.
Because DOE is not considering higher thermal efficiency standards for
commercial oil-fired storage water heaters in this rulemaking and given
DOE's history of amending energy conservation standards for ASHRAE
Standard 90.1 equipment, DOE does not believe proposed increased
standards in this rulemaking will lead to confusion in the marketplace.
Joint Advocates commented that the max-tech efficiency levels
should be identified by examining the most efficient technologies on
the global market as opposed to just the U.S. market. (Joint Advocates,
No. 7 at p. 3) As an example, Joint Advocates stated that
CO2 heat pump water heaters should be considered as a max-
tech technology. As parts of its energy conservation standards
rulemaking process, DOE considers equipment and designs sold both in
the U.S. market and in the broader global market. However, for each
technology identified from the global market, DOE must also consider
its applicability and market barriers specifically for the U.S. market,
and, thus, availability in other non-U.S. markets does not necessarily
mean a technology will be technologically feasible in the domestic
market. DOE considers technologies and their applicability to the U.S.
markets in the rulemaking analyses. With regard to the specific
recommendation to consider CO2 heat pump water heaters, as
discussed in section III.C.6, DOE notes that it does not currently have
a test procedure for commercial heat pump water heaters (including
CO2 heat pump water heaters), and plans to consider energy
conservation standards for
[[Page 34470]]
commercial heat pump water heaters in a future rulemaking.
DOE established intermediate and max-tech standby loss efficiency
levels for each equipment class of storage water heaters. Standby loss
is a function of rated volume for gas-fired storage water heaters;
however, in section III.I of this NOPR, DOE proposes changes to its
certification, compliance, and enforcement regulations that would
require the rated volume to be based on the mean of the measured
volumes in the sample. DOE believes that to be compliant with these
proposed changes, most manufacturers with units having a rated storage
volume that does not equal the measured volume will re-rate the storage
volumes of their current models based on the measured volumes, as
opposed to changing their designs so that the measured storage volume
increases to the current rated volume. Therefore, in analyzing market
standby loss data for this NOPR, DOE accounted for this change by
calculating the maximum standby loss levels under consideration using
the measured volume as reported in the AHRI Directory for each model.
Standby loss is a function of storage volume (and input for gas-
fired and oil-fired storage water heaters) and is affected by many
aspects of the design of a water heater. Additionally, standby loss is
not widely reported in manufacturer literature. DOE was not able to
find any CWH equipment literature that reported standby loss, and,
therefore, relied on data obtained from the AHRI Directory. However,
there is significant variation in reported standby loss values in the
AHRI Directory--i.e., standby loss values for power-vented non-
condensing residential-duty gas-fired storage water heaters range from
48 percent to 102 percent \39\ of the current standby loss standard.
Also, most manufacturers do not disclose the presence of technology
options that affect standby loss, including insulation thickness and
type, and baffle design, in their publicly-available literature.
Therefore, DOE analyzed technology options commonly used on the market
to help guide its selection of standby loss levels.
---------------------------------------------------------------------------
\39\ Because DOE calculated the maximum standby loss using
measured storage volume instead of the rated storage volume, some
units at or near the maximum allowable standby loss level have a
standby loss level that exceeds the current standard when calculated
using the measured volume.
---------------------------------------------------------------------------
One possible source of variation in reported standby loss values is
variation in unreported technology options, as previously discussed.
Additionally, during manufacturer interviews, manufacturers explained
that the current standby loss test procedure leads to significant
variation in test results from lab to lab, and sometimes even within
the same lab. Several reasons given for this variation include the air
draft in the area around the water heater, the wide tolerance for
ambient temperature, lack of humidity specification, and variation in
venting and insulation of connections. DOE addressed some of these
sources of variation in the revised standby loss test procedure for
commercial water heaters proposed in the 2016 CWH TP NOPR. (See EERE-
2014-BT-TP-0008)
DOE developed its incremental and max-tech standby loss levels by
considering levels currently on the market, designs detailed in
publicly-available equipment literature, observations from equipment
teardowns, and feedback from manufacturer interviews. For commercial
gas-fired storage water heaters, DOE determined that the current
minimum Federal standard can be met with installation of 1 inch of
fiberglass insulation around the walls of the tank. Therefore, DOE
considered 1 inch of fiberglass insulation to correspond to the
baseline standby loss efficiency level. DOE then considered the next
incremental standby loss level to correspond to the use of sprayed
polyurethane foam insulation instead of fiberglass insulation. From a
survey of units on the market, DOE considers switching from 1 inch of
fiberglass insulation to 1 inch of foam insulation a more commonly used
pathway to decrease standby loss than using 2 inches of fiberglass
insulation. From equipment teardowns and manufacturer interviews, DOE
found the highest insulation thickness available for commercial gas-
fired water heaters to be 2 inches. Therefore, DOE considered the next
incremental standby loss level, SL EL2, to correspond to 2 inches of
polyurethane foam. While more-stringent standby loss levels than SL EL2
exist on the market, these more-stringent values are only rated for
condensing units with specific heat exchanger designs. Because DOE does
not wish to mandate specific heat exchanger designs for achieving
condensing thermal efficiency levels, standby loss levels more
stringent than SL EL2 were not analyzed. Therefore, DOE considered SL
EL2 as the max-tech standby loss level for commercial gas-fired storage
water heaters. Table IV.9 shows the technology options identified for
each standby loss level for commercial gas-fired storage water heaters.
Based on a review of available equipment on the market and feedback
from manufacturers, DOE analyzed all non-condensing commercial gas-
fired storage water heaters (i.e., water heaters rated at thermal
efficiency levels between 80 percent and 82 percent) as including
electromechanical flue dampers. Electromechanical flue dampers were
only included in the analysis for non-condensing commercial gas-fired
storage water heaters, because flue dampers are not used with
mechanical draft systems, which are required for condensing units. In
place of standby loss reduction from electromechanical flue dampers,
DOE included standby loss reduction from mechanical draft systems for
all condensing commercial gas-fired storage water heaters in its
calculated standby loss levels. Therefore, for commercial gas-fired
storage water heaters, DOE considered baseline non-condensing equipment
to include electromechanical flue dampers and all condensing equipment
to include mechanical draft systems, both of which act to reduce
standby losses out the flue.
Table IV.9--Technology Options Identified at Each Standby Loss
Efficiency Level for Commercial Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
Standby loss level Technology Options
------------------------------------------------------------------------
SL EL0--Baseline.......................... 1'' fiberglass insulation.
SL EL1.................................... 1'' foam insulation.
SL EL2.................................... 2'' foam insulation.
------------------------------------------------------------------------
For residential-duty gas-fired storage water heaters, DOE has
tentatively concluded that the current Federal standard may be met
through use of 1 inch of polyurethane foam insulation. From surveying
commercially-available equipment, DOE notes that all baseline
residential-duty gas-fired storage water heaters have a standing pilot
and do not use flue dampers. Therefore, in addition to increasing the
thickness of foam insulation, DOE also considered electromechanical
flue dampers and electronic ignition as technology options for reducing
standby loss. Electromechanical flue dampers were only considered as a
technology option for non-condensing residential-duty gas-fired storage
water heaters, because flue dampers are not used with mechanical draft
systems. Therefore, for residential-duty gas-fired storage water
heaters, DOE considered electromechanical flue dampers to be a
technology option not featured in baseline non-condensing equipment,
and considered mechanical draft systems to be featured in all
condensing equipment. Similarly to commercial gas-fired storage water
[[Page 34471]]
heaters, both of these technologies act to reduce standby losses out
the flue.
For condensing residential-duty gas-fired storage water heaters,
rated standby loss market data show that the most-efficient standby
levels are only achieved by models with particular condensing heat
exchanger designs. Specifically, DOE observed that the most-efficient
standby loss level on the market is only achieved by a model with 90-
percent thermal efficiency. It is not evident that this standby level
can be reached by heat exchanger designs that also yield more-efficient
condensing thermal efficiency levels. DOE chose not to analyze standby
loss levels that have not been demonstrated to be achievable with more-
efficient thermal efficiency level designs, because thermal efficiency
typically will have a greater impact on the energy use of CWH equipment
than standby loss. To ensure the continued availability of condensing
CWH equipment with thermal efficiencies above 90 percent, DOE has
considered an amended standby loss level that is reduced to 48 percent
of the current standby loss standard as the max-tech standby loss
level. DOE's market assessment shows that this standby loss level can
be achieved by all condensing residential-duty gas-fired storage water
heaters currently on the market. To inform the selection of SL EL0 for
condensing residential-duty gas-fired storage water heaters, DOE
considered the increase in standby loss that would occur from reducing
the thickness of polyurethane foam insulation from 2 inches to 1 inch.
Table IV.10 shows the technology options corresponding to each standby
loss level selected for residential-duty gas-fired storage water
heaters. As previously discussed, electromechanical flue dampers were
only considered as a technology option for non-condensing equipment;
therefore, SL EL2 and SL EL3 were only analyzed for non-condensing
residential-duty gas-fired storage water heaters.
Table IV.10--Technology Options Identified at Each Standby Loss
Efficiency Level for Residential-Duty Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
Standby loss level Technology options
------------------------------------------------------------------------
SL EL0--Baseline.......................... 1'' foam insulation,
standing pilot.
SL EL1.................................... 2'' foam insulation,
electronic ignition.
SL EL2.................................... 1'' foam insulation,
electronic ignition,
electromechanical flue
damper.
SL EL3.................................... 2'' foam insulation,
electronic ignition,
electromechanical flue
damper.
------------------------------------------------------------------------
For electric storage water heaters, DOE determined that the current
Federal standard may be met through use of 2 inches of polyurethane
foam insulation. Therefore, this design was selected to represent the
baseline standby loss level. The more-stringent standby loss level that
DOE considered, representing the max-tech efficiency level, corresponds
to 3 inches of polyurethane foam insulation. Table IV.11 shows the
standby loss levels and technology options identified at each level for
electric storage water heaters.
Table IV.11--Technology Options Identified at Each Standby Loss
Efficiency Level for Electric Storage Water Heaters
------------------------------------------------------------------------
Standby loss level Technology options
------------------------------------------------------------------------
SL EL0--Baseline.......................... 2'' foam insulation.
SL EL1.................................... 3'' foam insulation.
------------------------------------------------------------------------
To inform the selection of standby loss levels, DOE performed heat
loss calculations for representative equipment for each equipment
class. These calculations yielded more stringent standby loss levels
corresponding to the identified technology options. Chapter 5 of the
NOPR TSD provides details on these heat loss calculations. Standby loss
levels are shown in Table IV.12, Table IV.13, and Table IV.14 in terms
of Btu/h for the representative equipment. However, to modify the
current Federal standard, factors were developed to multiply by the
current maximum standby loss equation for each equipment class, based
on the ratio of standby loss at each efficiency level to the current
standby loss standard. The translation from standby loss values to
maximum standby loss equations is described in further detail in
section IV.C.8.
For commercial and residential-duty gas-fired storage water
heaters, standby loss is measured predominantly as a function of fuel
flow used to heat the stored water during the standby loss test, with a
small contribution of electric power consumption (if the unit requires
a power supply). Because standby loss is calculated using the fuel
consumed during the test to maintain the water temperature, the standby
loss is dependent on the thermal efficiency of the water heater. DOE
used data from independent testing of CWH equipment at a third-party
laboratory to estimate the fraction of standby loss that can be
attributed to fuel consumption or electric power consumption. For a
given standby loss level (i.e., SL EL0, SL EL1, or SL EL2), DOE scaled
down (i.e., made more stringent) the portion of the standby loss
attributable to fuel consumption as thermal efficiency increased.
Chapter 5 of the NOPR TSD explains these calculations, and the
interdependence of thermal efficiency (Et) and standby loss
(SL) are explained in more detail. However, for condensing thermal
efficiency levels for residential-duty gas-fired storage water heaters,
DOE did not include dependence on thermal efficiency in its standby
loss levels. As previously discussed, the most stringent standby loss
level examined was a level that can be achieved by all condensing
residential-duty gas-fired storage water heaters currently on the
market. Because the examined level is currently met by all equipment at
condensing thermal efficiency levels, DOE did not lower the stringency
of the standby loss level for lower condensing thermal efficiency
levels. Table IV.12, Table IV.13, and Table IV.14 show the examined
standby loss levels for commercial gas-fired storage water heaters,
residential-duty gas-fired storage water heaters, and electric storage
water heaters, respectively.
[[Page 34472]]
Table IV.12--Standby Loss Levels for Commercial Gas-Fired Storage Water Heaters, 100 Gallon Rated Storage
Volume, 199,000 Btu/h Input Capacity
----------------------------------------------------------------------------------------------------------------
Standby loss (Btu/h)
Thermal efficiency level Thermal -----------------------------------------------
efficiency (%) SL EL0 SL EL1 SL EL2
----------------------------------------------------------------------------------------------------------------
Et EL0.......................................... 80 1349 1148 993
Et EL1.......................................... 82 1316 1120 969
Et EL2.......................................... 90 1225 1043 902
Et EL3.......................................... 92 1199 1021 883
Et EL4.......................................... 95 1163 989 856
Et EL5.......................................... 99 1117 951 823
----------------------------------------------------------------------------------------------------------------
Table IV.13--Standby Loss Levels for Residential-Duty Gas-Fired Storage Water Heaters, 75 Gallon Rated Storage
Volume, 76,000 Btu/h Input Capacity
----------------------------------------------------------------------------------------------------------------
Standby loss (Btu/h)
Thermal efficiency level Thermal ---------------------------------------------------------------
efficiency (%) SL EL0 SL EL1 SL EL2 * SL EL3 *
----------------------------------------------------------------------------------------------------------------
Et EL0.......................... 80 1048 836 811 707
Et EL1.......................... 82 1022 816 791 690
Et EL2.......................... 90 624 503 .............. ..............
Et EL3.......................... 95 624 503 .............. ..............
Et EL4.......................... 97 624 503 .............. ..............
----------------------------------------------------------------------------------------------------------------
* Electromechanical flue dampers were not considered as a technology option for condensing water heaters because
flue dampers are not used with mechanical draft systems.
Table IV.14--Standby Loss Levels for Electric Storage Water Heaters, 114 Gallon Measured Storage Volume
----------------------------------------------------------------------------------------------------------------
Standby loss (%/h)
Standby loss --------------------------------------------------------
Thermal efficiency (Btu/h)
SL EL0 SL EL1 SL EL0 EL1
------------------------------------------------------------------------------------------------------------- -----
98%...................................... 353 298 0.54 0.45
----------------------------------------------------------------------------------------------------------------
DOE notes that because of its use of heat loss calculations
corresponding to commonly used technology options to inform the
selection of standby loss levels in addition to rated standby loss
market data, the most stringent analyzed standby loss levels do not
necessarily reflect the current market max-tech level for each
equipment class. For some equipment thermal efficiency levels, the most
stringent analyzed standby loss level may be less efficient than that
of the most efficient unit on the market, and for other levels, it may
be more efficient. While there may not be units on the market with a
rated standby loss as efficient as some of the examined standby loss
levels, DOE has determined these levels would be achievable through
various technology options, including, but not limited to, those DOE
examined for this analysis. Chapter 5 of the NOPR TSD includes a
discussion of the following technology options with the potential to
reduce standby loss that DOE did not consider for this analysis and the
reasons for their exclusion: (1) Changing tank aspect ratio; (2)
improved insulation on tank top and bottom; (3) greater coverage of
foam insulation; and (4) improved baffling. DOE did not include standby
loss reduction from baffling because of insufficient data for
estimating the reduction, and therefore, DOE requests input on this
matter as well as DOE's estimated standby loss reduction for
electromechanical flue dampers and mechanical draft.
Issue 11: DOE seeks comment on all efficiency levels analyzed for
CWH equipment, including thermal efficiency and standby loss levels. In
particular, DOE is interested in the feasibility of the max-tech
thermal efficiency levels and standby loss levels, including whether
these efficiency levels can be achieved using the technologies
screened-in during the screening analysis (see section IV.B), and
whether higher efficiencies are achievable using technologies that were
screened-in during the screening analysis. DOE is also interested in
the feasibility of achieving the analyzed standby loss levels using the
identified technology options.
Issue 12: DOE seeks input on the reduction in standby loss of gas-
fired storage water heaters from the technology options for which DOE
estimated standby loss levels (i.e., varying insulation type and
thickness, electromechanical flue dampers, and mechanical draft) and
the technology options for which DOE did not have sufficient data to
develop an estimate (including baffling).
4. Teardown Analysis
After selecting a representative input capacity and representative
storage volume (for storage water heaters) for each equipment class,
DOE selected equipment near both the representative values and the
selected efficiency levels for its teardown analysis. DOE gathered
information from these teardowns to create detailed BOMs that included
all components and processes used to manufacture the equipment. To
assemble the BOMs and to calculate the manufacturing product costs
(MPCs) of CWH equipment, DOE disassembled multiple units into their
base
[[Page 34473]]
components and estimated the materials, processes, and labor required
for the manufacture of each individual component, a process known as a
``physical teardown.'' Using the data gathered from the physical
teardowns, DOE characterized each component according to its weight,
dimensions, material, quantity, and the manufacturing processes used to
fabricate and assemble it.
DOE also used a supplementary method called a ``catalog teardown,''
which examines published manufacturer catalogs and supplementary
component data to allow DOE to estimate the major differences between a
unit of equipment that was physically disassembled and a similar unit
of equipment that was not. For catalog teardowns, DOE gathered product
data such as dimensions, weight, and design features from publicly-
available information (e.g., manufacturer catalogs and manufacturer Web
sites). DOE also obtained information and data not typically found in
catalogs, such as fan motor details or assembly details, from physical
teardowns of similar equipment or through estimates based on industry
knowledge. The teardown analysis used data from 11 physical teardowns
and 21 catalog teardowns to inform development of cost estimates for
CWH equipment.
The teardown analysis allowed DOE to identify the technologies that
manufacturers typically incorporate into their equipment, along with
the efficiency levels associated with each technology or combination of
technologies. The end result of each teardown is a structured BOM,
which DOE developed for each of the physical and catalog teardowns. The
BOMs incorporate all materials, components, and fasteners (classified
as either raw materials or purchased parts and assemblies) and
characterize the materials and components by weight, manufacturing
processes used, dimensions, material, and quantity. The BOMs from the
teardown analysis were then used to calculate the MPCs for each type of
equipment that was torn down. The MPCs resulting from the teardowns
were then used to develop an industry average MPC for each equipment
class analyzed. Chapter 5 of the NOPR TSD provides more details on BOMs
and how they were used in determining the manufacturing cost estimates.
During the manufacturer interviews, DOE requested feedback on the
engineering analysis and the assumptions that DOE used. DOE used the
information it gathered from those interviews, along with the
information obtained through the teardown analysis, to refine the
assumptions and data used to develop MPCs. Chapter 5 of the NOPR TSD
provides additional details on the teardown process.
During the teardown process, DOE gained insight into the typical
technology options manufacturers use to reach specific efficiency
levels. DOE can also determine the efficiency levels at which
manufacturers tend to make major technological design changes. Table
IV.15, Table IV.16, Table IV.17, and Table IV.18 show the major
technology options DOE observed and analyzed for each thermal
efficiency level and equipment class. Technology options that
manufacturers use to reach each standby loss level are discussed in
section IV.C.3.b. DOE notes that in equipment above the baseline, and
sometimes even at the baseline efficiency, additional features and
functionalities that do not impact efficiency are often used to address
non-efficiency-related consumer demands (e.g., related to comfort or
noise when operating). DOE did not include the additional costs for
options such as advanced building communication and control systems or
powered anode rods that are included in many of the high-efficiency
units currently on the market, as they do not improve efficiency but do
add cost to the unit. In other words, DOE assumed the same level of
non-efficiency related features and functionality at all efficiency
levels.
Table IV.15--Technologies Identified at Each Thermal Efficiency Level
for Commercial Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
Thermal
Thermal efficiency level efficiency (%) Design changes *
------------------------------------------------------------------------
Et EL0............................ 80 ....................
Et EL1............................ 82 Increased heat
exchanger area.
Et EL2............................ 90 Condensing heat
exchanger, forced
draft blower,
premix burner.
Et EL3............................ 92 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
Et EL4............................ 95 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
Et EL5............................ 99 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
------------------------------------------------------------------------
* The condensing heat exchanger surface area incrementally increases at
each EL from Et EL2 to Et EL5.
Table IV.16--Technologies Identified at Each Thermal Efficiency Level
for Residential-Duty Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
Thermal
Thermal efficiency level efficiency (%) Design changes *
------------------------------------------------------------------------
Et EL0............................ 80 ....................
Et EL1............................ 82 Increased heat
exchanger area.
Et EL2............................ 90 Condensing heat
exchanger, induced
draft blower.
Et EL3............................ 95 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
Et EL4............................ 97 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
------------------------------------------------------------------------
* The condensing heat exchanger surface area incrementally increases at
each EL from Et EL2 to Et EL4.
[[Page 34474]]
Table IV.17--Technologies Identified at Each Thermal Efficiency Level
for Gas-Fired Tankless Water Heaters
------------------------------------------------------------------------
Thermal
Thermal efficiency level efficiency (%) Design changes *
------------------------------------------------------------------------
Et EL0............................ 80 ....................
Et EL1............................ 82 Increased heat
exchanger area.
Et EL2............................ 84 Increased heat
exchanger area.
Et EL3............................ 92 Secondary condensing
heat exchanger.
Et EL4............................ 94 Secondary condensing
heat exchanger,
increased heat
exchanger surface
area.
Et EL5............................ 96 Secondary condensing
heat exchanger,
increased heat
exchanger surface
area.
------------------------------------------------------------------------
* The heat exchanger surface area incrementally increases at each EL
from Et EL0 to Et EL2 and from Et EL3 to Et EL5.
Table IV.18--Technologies Identified at Each Thermal Efficiency Level
for Gas-Fired Hot Water Supply Boilers
------------------------------------------------------------------------
Thermal
Thermal efficiency level efficiency (%) Design changes *
------------------------------------------------------------------------
Et EL0............................ 80 ....................
Et EL1............................ 82 Increased heat
exchanger area.
Et EL2............................ 84 Increased heat
exchanger area,
inducer blower.
Et EL3............................ 92 Condensing heat
exchanger, forced
draft blower,
premix burner.
Et EL4............................ 94 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
Et EL5............................ 96 Condensing heat
exchanger, forced
draft blower,
premix burner,
increased heat
exchanger surface
area.
------------------------------------------------------------------------
*The heat exchanger surface area incrementally increases at each EL from
Et EL0 to Et EL2 and from Et EL3 to Et EL5.
DOE notes from surveying units currently on the market that the
only design change for many efficiency levels is an increased heat
exchanger surface area. Based upon heat exchanger calculations and
feedback from manufacturer interviews, DOE determined a factor by which
heat exchangers would need to expand to reach higher thermal efficiency
levels. This factor was higher for condensing efficiency levels than
for non-condensing efficiency levels. Chapter 5 of the NOPR TSD
provides more information on these heat exchanger sizing calculations,
as well as on the technology options DOE considered at each efficiency
level.
5. Manufacturing Production Costs
After calculating the cost estimates for all the components in each
teardown unit, DOE totaled the cost of materials, labor, depreciation,
and direct overhead used to manufacture each type of equipment in order
to calculate the manufacturing production cost (MPC). DOE used the
results of the teardowns on a market-share weighted average basis to
determine the industry average cost increase to move from one
efficiency level to the next. DOE reported the MPCs in aggregated form
to maintain confidentiality of sensitive component data. DOE obtained
input from manufacturers during the manufacturer interview process on
the MPC estimates and assumptions. Chapter 5 of the NOPR TSD contains
additional details on how DOE developed the MPCs and related results.
DOE estimated the MPC at each combination of thermal efficiency and
standby loss levels considered for representative equipment of each
equipment class. Table IV.19, Table IV.20, Table IV.21, and Table IV.22
show the MPC for each efficiency level for each equipment class. DOE
calculated the percentages attributable to each element of total
production costs (i.e., materials, labor, depreciation, and overhead).
These percentages are used to validate the assumptions by comparing
them to manufacturers' actual financial data published in annual
reports, along with feedback obtained from manufacturers during
interviews. DOE uses these production cost percentages in the MIA (see
chapter 12 of the NOPR TSD).
Table IV.19--Manufacturer Production Costs for Commercial Gas-Fired Storage Water Heaters, 100-Gallon Rated
Storage Volume, 199,000 Btu/h Input Capacity
----------------------------------------------------------------------------------------------------------------
Standby loss efficiency level
Thermal efficiency level Thermal -----------------------------------------------
efficiency (%) SL EL0 SL EL1 SL EL2
----------------------------------------------------------------------------------------------------------------
Et EL0.......................................... 80 $1,023.59 $1,029.70 $1,051.20
Et EL1.......................................... 82 1,046.14 1,052.31 1,074.10
Et EL2.......................................... 90 1,253.56 1,259.97 1,282.19
Et EL3.......................................... 92 1,263.93 1,270.35 1,292.63
Et EL4.......................................... 95 1,288.05 1,294.51 1,316.95
Et EL5.......................................... 99 1,331.09 1,335.00 1,360.66
----------------------------------------------------------------------------------------------------------------
[[Page 34475]]
Table IV.20--Manufacturer Production Costs for Residential-Duty Gas-Fired Storage Water Heaters, 75-Gallon Rated
Storage Volume, 76,000 Btu/h Input Capacity
----------------------------------------------------------------------------------------------------------------
Standby loss efficiency level
Thermal efficiency level Thermal ---------------------------------------------------------------
efficiency (%) SL EL0 SL EL1 SL EL2 SL EL3
----------------------------------------------------------------------------------------------------------------
Et EL0.......................... 80 $354.00 $401.35 $441.95 $462.14
Et EL1.......................... 82 359.37 407.06 447.89 468.18
Et EL2.......................... 90 667.75 685.67 .............. ..............
Et EL3.......................... 95 810.33 828.15 .............. ..............
Et EL4.......................... 97 818.60 836.43 .............. ..............
----------------------------------------------------------------------------------------------------------------
Table IV.21--Manufacturer Production Costs for Electric Storage Water
Heaters, 114-Gallon Measured Storage Volume
------------------------------------------------------------------------
Standby loss efficiency level
Thermal efficiency -------------------------------
SL EL0 SL EL1
------------------------------------------------------------------------
98%..................................... $854.25 $883.40
------------------------------------------------------------------------
Table IV.22--Manufacturer Production Costs for Gas-Fired Instantaneous Water Heaters and Hot Water Supply
Boilers
----------------------------------------------------------------------------------------------------------------
Equipment group
-------------------------------
Gas-fired Gas-fired hot
Thermal efficiency level Thermal tankless water water supply
efficiency (%) heaters boilers
-------------------------------
250,000 Btu/h 399,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Et EL0.......................................................... 80 $629.67 $1,182.00
Et EL1.......................................................... 82 638.62 1,205.56
Et EL2.......................................................... 84 647.38 1,411.17
Et EL3.......................................................... 92 790.45 2,671.86
Et EL4.......................................................... 94 804.87 2,826.90
Et EL5.......................................................... 96 824.45 2,981.94
----------------------------------------------------------------------------------------------------------------
6. Manufacturer Markup
To account for manufacturers' non-production costs and profit
margin, DOE applies a non-production cost multiplier (the manufacturer
markup) to the full MPC. The resulting MSP is the price at which the
manufacturer can recover all production and non-production costs and
earn a profit. To meet new or amended energy conservation standards,
manufacturers often introduce design changes to their equipment lines
that result in increased MPCs. Depending on the competitive pressures,
some or all of the increased production costs may be passed from
manufacturers to retailers and eventually to commercial consumers in
the form of higher purchase prices. As production costs increase,
manufacturers typically incur additional overhead. The MSP should be
high enough to recover the full cost of the equipment (i.e., full
production and non-production costs) and yield a profit. The
manufacturer markup has an important bearing on profitability. A high
markup under a standards scenario suggests manufacturers can readily
pass along the increased variable costs and some of the capital and
product conversion costs (the one-time expenditure) to commercial
consumers. A low markup suggests that manufacturers will not be able to
recover as much of the necessary investment in plant and equipment.
To calculate the manufacturer markups, DOE used 10-K reports \40\
submitted to the U.S. Securities and Exchange Commission (SEC) by the
three publicly-owned companies that manufacture CWH equipment. The
financial figures necessary for calculating the manufacturer markup are
net sales, costs of sales, and gross profit. DOE averaged the financial
figures spanning the years 2008 to 2013 in order to calculate the
markups for CWH equipment. DOE acknowledges that there are numerous
manufacturers of CWH equipment that are privately-held companies, which
do not file SEC 10-K reports. In addition, while the publicly-owned
companies file SEC 10-K reports, the financial information summarized
may not be exclusively for the CWH portion of their business and can
also include financial information from other product sectors, whose
margins could be quite different from that of the CWH industry. DOE
discussed the manufacturer markup with manufacturers during interviews,
and used the feedback to modify the markup calculated through review of
SEC 10-K reports. See chapter 5 of the NOPR TSD for more details about
the manufacturer markup calculation.
---------------------------------------------------------------------------
\40\ U.S. Securities and Exchange Commission, Annual 10-K
Reports (Various Years) (Available at: http://sec.gov).
---------------------------------------------------------------------------
7. Shipping Costs
Manufacturers of CWH equipment typically pay for shipping to the
first step in the distribution chain. Freight is not a manufacturing
cost, but because it
[[Page 34476]]
is a substantial cost incurred by the manufacturer, DOE accounted for
shipping costs of CWH equipment separately from other non-production
costs that comprise the manufacturer markup. To calculate the MSP for
CWH equipment, DOE multiplied the calculated MPC at each efficiency
level by the manufacturer markup and added shipping costs for equipment
at the given efficiency level.
In this rulemaking, shipping costs for all classes of CWH equipment
were determined based on the area of floor space occupied by the unit.
Most CWH equipment units are typically too tall to be double-stacked in
a vertical fashion, and they cannot be shipped in any other orientation
other than vertical. To calculate these shipping costs, DOE calculated
the cost per area of a trailer, based on the standard dimensions of a
53-foot trailer and an estimated 5-year average cost per shipping load
that approximates the cost of shipping the equipment from the middle of
the country to either coast. Next, DOE examined the average sizes of
equipment in each equipment class at each efficiency level and
determined the number of units that would fit in a trailer. DOE then
calculated the market-weighted average shipping cost per unit using the
cost per trailer load. For gas-fired tankless water heaters, DOE
assumed units could be double-stacked, due to the smaller size and
weight of these units. DOE also assumed tankless water heaters would be
manufactured overseas, and, therefore, costs of shipping a 40-foot
container on both a cargo ship and a truck were included. Chapter 5 of
the NOPR TSD contains additional details about DOE's shipping cost
assumptions and DOE's shipping cost estimates.
Issue 13: DOE seeks comment on its methodology for manufacturer
production cost, manufacturer selling price, and shipping cost
estimates for each equipment class and efficiency level.
8. Maximum Standby Loss Equations
As part of the engineering analysis for commercial storage water
heaters and residential-duty commercial storage water heaters, DOE
reviewed the maximum standby loss equations that define the existing
Federal energy conservation standards for gas-fired and electric
storage water heaters. The equations allow DOE to expand the analysis
on the representative rated input capacity and storage volume to the
full range of values covered under the existing Federal energy
conservation standards.
DOE uses equations to characterize the relationship between rated
input capacity, rated storage volume, and standby loss. The equations
allow DOE to account for the increases in standby loss as input
capacity and tank volume increase. As the tank storage volume
increases, the tank surface area increases. The larger surface area
results in higher heat transfer rates that result in higher jacket
losses. As the input capacity increases for gas-fired and oil-fired
water heaters, the surface area of flue tubes may increase, thereby
providing additional area for heat loss through the flue tubes. The
current equations show that for each storage water heater equipment
class, the allowable standby loss increases as the rated storage volume
increases, and also as the input rating increases for gas-fired and
oil-fired water heaters. The current form of the standby loss standard
(in Btu/h) for commercial and residential-duty commercial gas-fired and
oil-fired water heaters is shown in the multivariable equation below,
depending upon both rated input (Q, Btu/h) and rated storage volume
(Vr, gal).
[GRAPHIC] [TIFF OMITTED] TP31MY16.002
The current form of the standby loss standard (in %/h) for electric
storage water heaters is shown below, dependent only on measured
storage volume (Vm, gal). DOE notes that standby loss for electric
storage water heaters is not dependent on input capacity because there
are no flue tubes or heat exchangers, and a higher input capacity is
met with technology options that do not significantly affect the
standby loss, typically a combination of either more heating elements
or higher-power heating elements.
[GRAPHIC] [TIFF OMITTED] TP31MY16.003
In order to consider amended standby loss standards for CWH
equipment, which are in equation form, DOE would need to consider
revising the current standards equations. However, in the October 2014
RFI, DOE identified two potential issues with considering amended
maximum standby loss standards equations for commercial gas-fired and
oil-fired storage water heaters, and requested comment on approaches
for amending the equations. 79 FR 62899, 62905 (Oct. 21, 2014). The
first potential issue DOE recognized was how to modify the equation
given that there is no intercept in the equation. Because the current
standard depends on both volume and input without an intercept, it is
only possible to change the slopes for each variable when modifying the
standard to fit the analyzed efficiency levels. Changing the slopes
could be undesirable if shifting the standard up or down (while
maintaining the slopes) would better fit the distribution of units
outside the representative input and volume. DOE sought feedback on
this issue including the proposal of establishing discrete bins for one
variable (volume or input), thereby yielding single-variable equations
in each bin. The second issue raised in the RFI was that DOE observed
that standby loss is dependent on thermal efficiency (as discussed in
section IV.C.3.b of this document) and sought comment on whether
thermal efficiency should be taken into account in the standby loss
standard. Id.
A.O. Smith, Bradford White, Rheem, and AHRI all commented that the
structure of the current standby loss standard should not be changed,
as it was developed as the result of deliberate, technical discussions.
All of these commenters also stated that any changes to the existing
structure would bring unnecessary complexity to the analysis, and could
require test procedure changes. (A.O. Smith, No. 2 at p. 3; Bradford
White, No. 3 at p. 2; Rheem, No. 10 at p. 1; AHRI, No. 5 at p. 3) Joint
Advocates suggested that the use of discrete bins would be problematic,
due to discontinuities at the bin boundaries. (Joint Advocates, No. 7
at p. 4) Joint Advocates also mentioned allowing the use of rated
volume for classification but measured volume for standby loss
calculation as an advantage of using continuous equations over bins.
Further, Joint Advocates suggested that a standby loss standard should
be set that requires some kind of design option that limits flue losses
in standby mode. (Joint Advocates, No. 7 at p. 4)
DOE agrees with the commenters that bringing unnecessary complexity
to the analysis is not desirable. Therefore, DOE has tentatively
decided to consider more-stringent standby loss standards by
multiplying the current maximum standby loss equations by reduction
factors. The use of reduction factors maintains the structure of the
current maximum standby loss equations and does not require the
creation of bins or an intercept for altering the equations. This
approach does not change the dependence of maximum standby loss on
input and rated storage volume or introduce undesirable complexity to
the equation, but still allows DOE to consider increased stringency for
standby loss energy conservation
[[Page 34477]]
standards. This reduction factor is the product of two multipliers: one
that reduces the standard based upon thermal efficiency, and one that
reduces the standard based upon heat loss calculations for standby-
loss-reducing technology options identified by DOE (see section
IV.C.3.b). The multiplier based upon thermal efficiency uses the ratio
of the proposed thermal efficiency level to the current thermal
efficiency standard, and takes into account the portion (if any) of
standby loss attributable to electric power consumption. The multiplier
based upon heat loss calculations uses the ratio of standby loss at
each standby loss efficiency level (at the baseline thermal efficiency
level) to the current standby loss standard. However, as discussed in
section IV.C.3.b, DOE used market standby loss data instead of heat
loss calculations and thermal efficiency levels to develop standby loss
reduction factors for condensing residential-duty gas-fired storage
water heaters. Table IV.23, Table IV.24, and Table IV.25 show the
overall standby loss reduction factors for each equipment class and
efficiency level. The factors corresponding to the proposed TSL in this
NOPR were multiplied by the current standby loss equation to yield the
proposed maximum standby loss equations for each equipment class (see
section V.C). Chapter 5 of the NOPR TSD includes more detail on the
calculation of the standby loss reduction factor and the thermal
efficiency-based and heat loss-based multipliers it comprises.
Table IV.23--Standby Loss Reduction Factors for Commercial Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Standby loss reduction factor
Thermal efficiency level Thermal -----------------------------------------------
efficiency (%) SL EL0 SL EL1 SL EL2
----------------------------------------------------------------------------------------------------------------
Et EL0.......................................... 80 1.00 0.85 0.74
Et EL1.......................................... 82 0.98 0.83 0.72
Et EL2.......................................... 90 0.91 0.77 0.67
Et EL3.......................................... 92 0.89 0.76 0.65
Et EL4.......................................... 95 0.86 0.73 0.63
Et EL5.......................................... 99 0.83 0.70 0.61
----------------------------------------------------------------------------------------------------------------
Table IV.24--Standby Loss Reduction Factors for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Thermal Standby loss reduction factor
Thermal efficiency level efficiency ---------------------------------------------------------------
(%) SL EL0 SL EL1 SL EL2 SL EL3
----------------------------------------------------------------------------------------------------------------
Et EL0.......................... 80 1.00 0.80 0.77 0.67
Et EL1.......................... 82 0.98 0.78 0.76 0.66
Et EL2.......................... 90 0.60 0.48 .............. ..............
Et EL3.......................... 95 0.60 0.48 .............. ..............
Et EL4.......................... 97 0.60 0.48 .............. ..............
----------------------------------------------------------------------------------------------------------------
Table IV.25--Standby Loss Reduction Factors for Electric Storage Water
Heaters
------------------------------------------------------------------------
Standby loss reduction factor
Thermal efficiency -------------------------------
SL EL0 SL EL1
------------------------------------------------------------------------
98%..................................... 1.00 0.84
------------------------------------------------------------------------
In response to Joint Advocates, DOE notes that although the
proposed standby loss equations depend on rated volume, DOE proposes
changes in section III.I of this NOPR to its certification, compliance,
and enforcement regulations that require that the rated volume must
equal the mean of the measured storage volumes of the units in the
sample. DOE also notes that it has selected standby loss levels for
analysis of non-condensing residential-duty commercial gas-fired
storage water heaters that DOE believes would be achieved through the
incorporation of electromechanical flue dampers, despite the fact that
DOE observed no residential-duty gas-fired storage water heaters with
electromechanical flue dampers currently on the market. However,
pursuant to EPCA, DOE can establish energy conservation standards that
set either a single performance standard or a single design
requirement, not both. (42 U.S.C. 6311(18)) Therefore, DOE has not
proposed a design requirement for a feature that decreases flue standby
losses. After examining the market, DOE has tentatively concluded that
all commercial gas-fired storage water heaters on the market currently
use electromechanical flue dampers. DOE also notes that a flue damper
would not be used with a condensing gas-fired water heater.
Issue 14: DOE seeks comment on its proposed method for modifying
the maximum standby loss equations for commercial gas-fired storage
water heaters and residential-duty storage water heaters.
9. Conversion of Standards to Uniform Energy Factor
As part of the analysis in this rulemaking, DOE analyzed efficiency
levels for residential-duty commercial water heaters in terms of the
thermal efficiency and standby loss metrics. However, in the July 2014
final rule, DOE established that residential-duty commercial water
heaters would be covered by the new UEF metric. 79 40542, 40586 (July
11, 2014). Further, DOE proposed a method for converting the thermal
efficiency and standby loss ratings to UEF using conversion factors in
the April 2015 NOPR. 80 FR 20116, 20143 (April 14, 2015). In this NOPR,
DOE converted the efficiency levels analyzed for residential-duty
commercial gas-fired water heaters from thermal efficiency and standby
loss to UEF using the conversion factors proposed in the April 2015
NOPR for residential-duty water heaters for all four draw patterns:
High, medium, low, and very small.
For residential-duty commercial storage water heaters, DOE applied
each analyzed standby loss level to each unit on the market,
calculating the allowed maximum standby loss. The UEF was then
calculated for each unit for each draw pattern using this standby loss
level and each thermal efficiency level. Because the energy
conservation standards for residential-duty commercial water heaters
proposed in
[[Page 34478]]
the April 2015 NOPR were denominated in terms of UEF and had linear
equations dependent only on rated volume, in this NOPR DOE developed
UEF standard equations for residential-duty gas storage water heaters
consistent with this equation format. 80 FR 20116, 20147 (April 14,
2015). However, in section III.I, DOE proposes changes to its
certification, compliance, and enforcement regulations that would
require the rated volume to be based upon the mean of the measured
volumes in a sample. Therefore, the maximum standby loss of units in
this analysis to convert efficiency levels to UEF was calculated using
the currently reported measured volume instead of the rated volume. A
linear regression was performed between the measured volume of each
unit and the calculated UEF for each unit, yielding a line of best-fit.
Therefore, a line of best-fit was drawn relating UEF to measured volume
for each of the four draw patterns. For each line of best-fit, the
intercept was then decreased to translate the line down to pass through
the point furthest below the line of best-fit (the point with the
largest negative residual), creating a minimum line. DOE adopted these
minimum lines when establishing the trial standard levels and as the
proposed energy conservation standards for residential-duty commercial
water heaters in this NOPR. Chapter 5 of the NOPR TSD includes
additional detail on the conversion of energy conservation standards to
UEF for residential-duty commercial water heaters.
Issue 15: DOE seeks comment on its approach to convert the thermal
efficiency and standby loss levels analyzed for residential-duty
commercial water heaters to UEF.
Table IV.26 shows the UEF levels calculated for each combination of
thermal efficiency level and standby loss level, using the conversion
factors proposed in the April 2015 NOPR.
Table IV.26--UEF Levels Corresponding to Thermal Efficiency and Standby Loss Levels
----------------------------------------------------------------------------------------------------------------
Thermal Standby loss efficiency level
Thermal efficiency level efficiency ---------------------------------------------------------------
(%) SL EL0 SL EL1 SL EL2 SL EL3
----------------------------------------------------------------------------------------------------------------
Et EL0.......................... 80 0.57 0.60 0.60 0.61
Et EL1.......................... 82 0.58 0.61 0.61 0.62
Et EL2.......................... 90 0.67 0.69 .............. ..............
Et EL3.......................... 95 0.69 0.72 .............. ..............
Et EL4.......................... 97 0.70 0.73 .............. ..............
----------------------------------------------------------------------------------------------------------------
D. Markups Analysis
The markups analysis develops appropriate markups in the
distribution chain (e.g., manufacturer markups, retailer markups,
distributer markups, contractor markups, and sales taxes) to convert
the estimates of manufacturer selling price derived in the engineering
analysis to commercial consumer prices, which are then used in the LCC
and PBP analysis and in the manufacturer impact analysis. DOE develops
baseline and incremental markups based on the equipment markups at each
step in the distribution chain. DOE developed supply chain markups in
the form of multipliers that represent increases above equipment
purchase costs for key market participants, including commercial water
heating equipment wholesalers/distributors, modular building
manufacturers and wholesalers/distributors, retailers, and mechanical
contractors and general contractors working on behalf of commercial
consumers. The incremental markup relates the change in the
manufacturer sales price of higher-efficiency models (the incremental
cost increase) to the change in commercial consumer price.
Four different markets exist for commercial water heating
equipment: (1) New construction in the residential buildings sector,
(2) new construction in the commercial buildings sector, (3)
replacements in the residential buildings sector, and (4) replacements
in the commercial buildings sector. DOE developed eight distribution
channels to address these four markets.
For the residential and commercial buildings sectors, DOE
characterizes the replacement distribution channels as follows:
Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor
[rarr] Commercial Consumer
Manufacturer [rarr] Manufacturer Representative [rarr]
Mechanical Contractor [rarr] Commercial Consumer
Manufacturer [rarr] Retailer [rarr] Mechanical Contractor
[rarr] Commercial Consumer
DOE characterizes the new construction distribution channels for
the residential and commercial buildings sectors as follows:
Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor
[rarr] General Contractor [rarr] Commercial Consumer
Manufacturer [rarr] Manufacturer Representative [rarr]
Mechanical Contractor [rarr] General Contractor [rarr] Commercial
Consumer
Manufacturer [rarr] Retailer [rarr] General Contractor [rarr]
Commercial Consumer
In addition to these distribution channels, there are scenarios in
which manufacturers sell commercial water heating equipment directly to
a commercial consumer through a national account, or a commercial
consumer purchases the equipment directly from a retailer. These
scenarios occur in both new construction and replacements markets and
in both the residential and commercial sectors. In these instances,
installation is typically accomplished by site personnel. These
distribution channels are depicted as follows:
Manufacturer [rarr] Commercial Consumer
Manufacturer [rarr] Retailer [rarr] Commercial Consumer
In response to the October 2014 RFI, several stakeholders commented
on distribution channels. First, stakeholders provided inputs regarding
the types of distribution channels for commercial water heating
equipment. Rheem agreed that the distribution channel types outlined in
the October 2014 RFI were appropriate and sufficient to describe the
existing U.S. market. (Rheem, No. 10 at p. 4) AHRI and Bradford White
suggested that DOE should address a distribution channel that goes from
a manufacturer to a manufacturer's representative, who then sells to
the commercial consumer. (AHRI, No. 5 at p. 4; Bradford White, No. 3 at
p. 2) DOE addressed this comment by incorporating a manufacturer's
representative distribution channel in its markups analysis for the
NOPR.
In the October 2014 RFI, DOE also sought input on the percentage of
equipment distributed through the various types of distribution
channels. 79 FR 62899, 62906 (Oct. 21, 2014). Rheem stated that the
vast majority of
[[Page 34479]]
commercial water heating equipment is distributed through the wholesale
channel. (Rheem, No. 10 at p. 4) DOE assumes that Rheem's responses
reflect its experience, rather than a characterization of the industry
overall. For this document, DOE estimated the percentage of shipments
going through each distribution channel for each equipment class. The
majority of shipments were allocated to the wholesaler channel, ranging
from 60 to 70 percent, depending on the equipment class and market
type.
Last, DOE asked in the October 2014 RFI for recent data and
recommendations to establish the markups for the parties involved with
the distribution of the equipment. 79 FR 62899, 62906 (Oct. 21, 2014).
In response, Rheem stated that the markups varied within each market,
making it difficult to roll up to a total market analysis. Distributors
and their commercial consumers were reticent to provide Rheem with
markup data. (Rheem, No. 10 at p. 4) DOE acknowledges that private
businesses were reticent to provide potentially sensitive information
about pricing to other market participants or DOE. To develop markups
for this NOPR, DOE utilized several sources, including: (1) The
Heating, Air-Conditioning & Refrigeration Distributors International
(HARDI) 2013 Profit Report \41\ to develop wholesaler markups; (2) the
2005 Air Conditioning Contractors of America's (ACCA) financial
analysis for the heating, ventilation, air-conditioning, and
refrigeration (HVACR) contracting industry \42\ to develop mechanical
contractor markups; (3) the U.S. Census Bureau's 2007 Economic Census
data \43\ for the commercial and institutional building construction
industry to develop mechanical and general contractor markups; and (4)
the U.S. Census Bureau's 2012 Annual Retail Trade Survey \44\ data to
develop retail markups.
---------------------------------------------------------------------------
\41\ Heating Air-conditioning & Refrigeration Distributors
International. Heating, Air-Conditioning & Refrigeration
Distributors International 2013 Profit Report.
\42\ Air Conditioning Contractors of America (ACCA). Financial
Analysis for the HVACR Contracting Industry: 2005.
\43\ U.S. Census Bureau. 2007 Economic Census Data (2007)
(Available at: http://www.census.gov/econ/).
\44\ U.S. Census Bureau. 2012 Annual Retail Trade Survey (2012)
(Available at: http://www.census.gov/retail/).
---------------------------------------------------------------------------
In addition to markups of distribution channel costs, DOE derived
State and local taxes from data provided by the Sales Tax
Clearinghouse.\45\ Because both distribution channel costs and sales
tax vary by State, DOE developed its markups to vary by State. Chapter
6 of the NOPR TSD provides additional detail on markups.
---------------------------------------------------------------------------
\45\ The Sales Tax Clearing House (2014) (Available at:
www.thestc.com/STrates.stm) (Last accessed Feb. 7, 2014).
---------------------------------------------------------------------------
Issue 16: DOE seeks comment on the percentages of shipments
allocated to the distribution channels relevant to each equipment
class.
Issue 17: DOE requests comment on the estimated market and sector
weights for shipments by equipment class.
Issue 18: DOE requests comment on the development of markups at
each point in the distribution chain and the overall markup by
equipment class.
E. Energy Use Analysis
The purpose of the energy use analysis is to assess the energy
requirements (i.e., annual energy consumption) of commercial water
heating (CWH) equipment described in the engineering analysis for a
representative sample of building types that utilize the equipment, and
to assess the energy-savings potential of increased equipment
efficiencies. DOE uses the annual energy consumption and energy-savings
potential in the LCC and PBP analysis to establish the operating cost
savings at various equipment efficiency levels.\46\ DOE estimated the
annual energy consumption of CWH equipment at specified energy
efficiency levels across a range of climate zones, building
characteristics, and water heating applications. The annual energy
consumption includes use of natural gas, liquefied petroleum gas (LPG),
or electricity for hot water production, as well as use of electricity
for auxiliary components.
---------------------------------------------------------------------------
\46\ In this case, these efficiency levels comprise combinations
of thermal efficiency and standby mode performance.
---------------------------------------------------------------------------
In the October 2014 RFI, DOE indicated that it would estimate the
annual energy consumption of CWH equipment at specified energy
efficiency levels across a range of applications, building types, and
climate zones. 79 FR 62899, 62906-62907 (Oct. 21, 2014). DOE developed
representative hot water volumetric loads and water heating energy
usage for the selected representative products for each equipment class
and building type combination analyzed. This approach captures the
variability in CWH equipment use due to factors such as building
activity, schedule, occupancy, tank losses, and distribution system
piping losses.
For commercial building types, DOE used the daily load schedules
and normalized peaks from the 2013 DOE Commercial Prototype Building
Models \47\ to develop gallons-per-day hot water loads for the analyzed
commercial building types.\48\ DOE assigned these hot water loads on a
square-foot basis to associated commercial building records in the
EIA's 2003 Commercial Building Energy Consumption Survey \49\ (CBECS)
in accordance with their principal building activity subcategories. For
residential building types, DOE used the hot water loads model
developed by Lawrence Berkeley National Laboratory (LBNL) for the 2010
rulemaking for ``Energy Conservation Standards for Residential Water
Heaters, Direct Heating Equipment, and Pool Heaters.'' \50\ DOE applied
this model to the residential building records in the EIA's 2009
Residential Energy Consumption Survey (RECS).\51\ For RECS housing
records in multi-family buildings, DOE focused only on apartment units
that share water heaters with other units in the building. Since the
LBNL model was developed to analyze individual apartment loads, DOE had
to modify it for the analysis of whole building loads. DOE established
statistical average occupancy of RECS apartment unit records when
determining the individual apartment unit's load. DOE also developed
individual apartment loads as if they were equipped with a storage
water heater in accordance with LBNL's methodology. Then, DOE
multiplied the apartment unit's load by the number of units in the
building to determine the building's total hot water load.
---------------------------------------------------------------------------
\47\ U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy, Commercial Prototype Building Models (2013)
(Available at: http://www.energycodes.gov/commercial-prototype-building-models).
\48\ Such commercial building types included the following
types: Small office, medium office, large office, stand-alone
retail, strip mall, primary school, secondary school, outpatient
healthcare, hospital, small hotel, large hotel, warehouse, quick
service restaurant, and full service restaurant.
\49\ U.S. Energy Information Administration (EIA). 2003
Commercial Building Energy Consumption Survey (CBECS) Data (2003)
(Available at: http://www.eia.gov/consumption/commercial/data/2003/ 2003/
).
\50\ U.S. Department of Energy-Office of Energy Efficiency and
Renewable Energy. Final Rule Technical Support Document: Energy
Conservation Standards for Residential Water Heaters, Direct Heating
Equipment, and Pool Heaters (April 8, 2010) EERE-2006-STD-0129-0149
(Available at: http://www.regulations.gov/#!documentDetail;D=EERE-
2006-STD-0129-0149).
\51\ U.S. Energy Information Administration (EIA), 2009
Residential Energy Consumption Survey (RECS) Data (2009) (Available
at: http://www.eia.gov/consumption/residential/data/2009/).
---------------------------------------------------------------------------
DOE converted daily volumetric hot water loads into daily Btu
energy loads
[[Page 34480]]
by using an equation that multiplies a building's gallons-per-day
consumption of hot water by the density of water,\52\ specific heat of
water,\53\ and the hot water temperature rise. To calculate temperature
rise, DOE developed monthly dry bulb temperature estimates for each
U.S. State using typical mean year (TMY) temperature data as captured
in location files provided for use with the DOE EnergyPlus Energy
Simulation Software.\54\ Then these dry bulb temperatures were used to
develop inlet water temperatures using an equation and methodology
developed by the National Renewable Energy Laboratory (NREL).\55\ DOE
took the difference between the building's water heater setpoint
temperature and inlet temperature to determine temperature rise. In
addition, DOE developed building-specific Btu load adders to account
for the heat losses of building types that typically use recirculation
loops to distribute hot water to end uses. DOE converted daily hot
water building loads (calculated for each month using monthly inlet
water temperatures) to annual water heater Btu loads for use in
determining annual energy use of water heaters at each efficiency
level.
---------------------------------------------------------------------------
\52\ DOE used 8.29 gallons per pound.
\53\ DOE used 1.000743 Btu per pound per degree Fahrenheit.
\54\ U.S. Department of Energy--Office of Energy Efficiency and
Renewable Energy. EnergyPlus Energy Simulation Software, TMY3 data
(Available at: http://apps1.eere.energy.gov/buildings/energyplus/cfm/weather_data3.cfm/region=4_north_and_central_america_wmo_region_4/country=1_usa/cname=USA) (Last accessed October 2014).
\55\ Hendron, R., Building America Research Benchmark
Definition, Updated December 15, 2006 (January 2007) National
Renewable Energy Laboratory: Golden, CO. Report No. TP-550-40968
(Available at: http://www.nrel.gov/docs/fy07osti/40968.pdf).
---------------------------------------------------------------------------
DOE developed a maximum hot water loads methodology for buildings
using the calculations from a major water heater manufacturer's sizing
calculators,\56\ which were considered more comprehensive in their
maximum hot water load calculations than other publicly-available
sizing calculators. This methodology was applied to commercial building
records in 2003 CBECS and residential building records in 2009 RECS to
determine their maximum gallons-per-hour requirements, assuming a
temperature rise specific to the building. DOE divided these maximum
building loads by the first-hour capability of the baseline
representative model of each equipment class to determine the number of
water heater units required to service the maximum load. For buildings
with maximum load durations of two or three hours, DOE divided maximum
loads by the two- or three-hour delivery capability of the baseline
representative model. For each equipment class, DOE sampled CBECS and
RECS building loads in need of at least 0.9 water heaters, based on the
representative model analyzed, to fulfill their maximum load
requirements. Due to the maximum input capacity and storage
specifications of residential-duty commercial gas-fired storage water
heaters, DOE limited the buildings sample of this equipment to building
records requiring four or fewer representative water heaters to fulfill
maximum load since larger maximum load requirements are more likely
served by larger capacity equipment. For gas-fired tankless water
heaters, an adjustment factor was applied to the first-hour capability
to account for the shorter time duration for sizing this equipment,
given its minimal stored water volume. DOE used the modified Hunter's
curve \57\ for sizing of gas-fired tankless water heaters to develop
the adjustment factors. Gas-fired hot water supply boilers were teamed
with unfired storage tanks to determine their first-hour capabilities
since this is the predominant installation approach for this equipment.
---------------------------------------------------------------------------
\56\ A.O. Smith, Pro-Size Water Heater Sizing Program (Available
at: http://www.hotwatersizing.com/) (Last accessed in March 2015).
\57\ PVI Industries Inc., ``Water Heater Sizing Guide for
Engineers,'' Section X, pp 18-19 (Available at: http://sizing.pvi.com/PV592%20Sizing%20Guide%2011-2011.pdf).
---------------------------------------------------------------------------
Given the hot water load requirements as well as the equipment
needs of the sampled buildings, DOE was able to calculate the hours of
operation to serve hot water loads and the hours of standby mode for
the representative model of each equipment class to service each
sampled building. Since the number of water heaters allocated to a
specific building was held constant at the baseline efficiency level, a
water heater's hours of operation decreased as its thermal efficiency
improved. This decrease in operation, in combination with standby loss
performance, led to the energy savings achieved at each efficiency
level above the baseline. For storage water heaters, DOE used the
standby loss levels identified in the engineering analysis to estimate
energy savings from more-stringent standby loss levels. Section
IV.C.3.b and Chapter 5 of the NOPR TSD include additional details on
the standby loss levels analyzed in the engineering analysis.
For this NOPR, DOE also consulted the ASHRAE \58\ and Electric
Power Research Institute (EPRI) \59\ handbooks. These resources contain
data on distribution losses and maximum load requirements of different
building types and applications, which were used to compare and
corroborate analyses of the average and peak loads derived from the
CBECS and RECS data.
---------------------------------------------------------------------------
\58\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE), ASHRAE Handbook of HVAC
Applications: Chapter 50 (Service Water Heating) (2011) pp. 50.1-
50.32 (Available at: https://www.ashrae.org/resources-publications/handbook).
\59\ Electric Power Research Institute (EPRI), Commercial Water
Heating Applications Handbook (1992) Electric Power Research
Institute: Palo Alto, CA. Report No. TR-100212 (Available at: http://www.epri.com/abstracts/Pages/ProductAbstract.aspx?ProductId=TR-100212).
---------------------------------------------------------------------------
In response to the proposed method of determining water heating
energy use in the RFI, stakeholders expressed concerns regarding the
climate zones in DOE's annual energy consumption analysis for
commercial water heating equipment. In general, the commenters
emphasized the importance of appropriately sizing the equipment under
analysis for water heating energy use. A.O. Smith commented that
``analysis across climate zones is unnecessary except for air-source
HPWH's, as incoming water temperature is a more determinate parameter
for other technology classes.'' (A.O. Smith, No. 2 at p. 3) Along the
same lines, AHRI commented that it was overly complicated to have the
proposed annual energy consumption analysis consider a range of
applications of building types and climate zones. According to AHRI,
the analysis should assume that the water heating equipment had been
sized to meet the building load, regardless of building type or
location. (AHRI, No. 5 at p. 4) In addition, Bradford White commented
that the approach of the Energy Use Analysis was too involved and
needed to be simplified. (Bradford White, No. 3 at p. 2) AHRI also
commented that DOE could use manufacturers' sizing tools to size water
heaters to the right application. (AHRI, No. 5, at pp. 4-5) AHRI
cautioned that sizing methods are different than overall usage
profiles. (AHRI, No. 5 at pp. 4-5) Rheem Manufacturing Company
commented that commercial water heating equipment should be sized to
meet the building's peak demand. (Rheem, No. 10 at p. 5) Lastly,
Steffes recommended that DOE should use RECS 2009 in its analysis
(particularly Table CE4.6). (Steffes, No. 6 at p. 2)
In the October 2014 RFI, DOE sought input and sources of data or
[[Page 34481]]
recommendations for tools to support sizing of CWH equipment typically
found in commercial and residential applications. 79 FR 62899, 62907
(Oct. 21, 2014). In response, Rheem Manufacturing Company commented
that it had an online tool for projecting hot water demand, found
online at http://www.rheem.com/certispec. (Rheem, No. 10 at p. 5) A.O.
Smith responded that most manufacturers, including A.O. Smith, have
sizing calculators on their Web site, citing its own sizing calculators
at http://www.hotwatersizing.com and http://www.lochinvar.com/sizingguide.aspx. (A.O. Smith, No. 2 at p. 3) Bradford White commented
that its Web site had the RightSpec[supreg] Product Sizing Guide to
size water heating systems to commercial applications. (Bradford White,
No. 3 at p. 3)
DOE considered these comments in designing its energy use analysis.
As recommended by Steffes, DOE utilized 2009 RECS building
characteristics data for determining residential building hot water
loads and maximum load sizing requirements. DOE also used 2003 CBECS
building characteristics data for determining commercial building hot
water loads and maximum load sizing requirements. While recognizing
AHRI and Bradford White's concern for the complexity of the analysis,
DOE determined that assessing the energy use of CWH equipment across a
range of operating applications and climates specific to the building
types and locations in the 2009 RECS and 2003 CBECS data improves the
estimated hot water load associated with equipment sized for the
applications. This analytical approach enables DOE to evaluate the
impacts of the proposed energy conservation standards comprehensively,
accounting for the hot water requirements of U.S. commercial consumers
across a multitude of scenarios.
A.O. Smith and AHRI expressed concerns about analyzing the energy
use of CWH equipment across climate zones. Based on the comment
received, DOE believes that this concern was unfounded. As discussed
previously, DOE's analysis utilized climate zone data, in the form of
location-based dry bulb temperature data, which was then used to
estimate the inlet water temperature specific to each sampled
building's location, a key parameter identified by A.O. Smith. This
approach captured the effect of inlet water temperature on CWH
equipment hot water loads and maximum load sizing. As recommended by
AHRI, Rheem, A.O. Smith, and Bradford White, DOE used a major
manufacturer's peak sizing calculators as the basis for sizing CWH
equipment to the maximum hot water loads predicted for the sampled
CBECS and RECS building records.
For details of DOE's energy use analysis, see chapter 7 of the NOPR
TSD.
F. Life-Cycle Cost and Payback Period Analysis
The purpose of the LCC and PBP analysis is to analyze the effects
of potential amended energy conservation standards on commercial
consumers of CWH equipment by determining how a potential amended
standard affects their operating expenses (usually decreased) and their
total installed costs (usually increased). DOE used the following two
metrics to measure commercial consumer impacts:
The LCC (life-cycle cost) is the total consumer cost of an
appliance or equipment over the life of the equipment. The LCC
calculation includes total installed cost (equipment manufacturer
selling price, distribution chain markups, sales tax, and installation
costs), operating costs (energy, repair, and maintenance costs),
product lifetime, and discount rate. DOE discounts future operating
costs to the time of the purchase using a commercial consumer discount
rate.
The PBP (payback period) is the estimated amount of time
(in years) it takes commercial consumers to recover the increased total
installed cost (including equipment and installation costs) of a more-
efficient type of equipment through reduced operating costs. DOE
calculates the PBP by dividing the change in total installed cost
(normally higher) due to a proposed new or amended energy conservation
standard by the change in annual operating cost (normally lower) that
results from that potential standard. For a given efficiency level, DOE
measures the change in LCC, or the LCC savings, relative to an estimate
of the no-new-standards-case efficiency level. The no-new-standards-
case estimates reflect the market in the absence of amended energy
conservation standards, including market trends for equipment that
exceed the current energy conservation standards.
For the NOPR, DOE analyzed the potential for variability by
performing the LCC and PBP calculations on a nationally representative
sample of individual commercial and residential buildings. DOE utilized
the sample of buildings developed for the energy use analysis and the
corresponding simulations results.\60\ DOE expressed the LCC and PBP
results on a single, per-unit, commercial water heating equipment
basis, considered at each thermal efficiency and standby loss level. In
addition, DOE reported the LCC results as the percentage of CWH
equipment consumers experiencing differing economic impacts (LCC
savings of greater than 0 indicate net benefit; LCC savings of less
than 0 indicate net cost; and LCC savings equal to 0 indicate no
impact).
---------------------------------------------------------------------------
\60\ DOE utilized the building types defined in CBECS 2003, as
well as residential buildings defined in RECS 2009. More information
on the types of buildings considered is discussed later in this
section. (CBECS: http://www.eia.gov/consumption/commercial/data/2003/) (RECS: http://www.eia.gov/consumption/residential/) (Both
links last accessed on 04/06/2015).
---------------------------------------------------------------------------
DOE modeled uncertainty for specific inputs to the LCC and PBP
analysis by using Monte Carlo simulation coupled with the corresponding
probability distributions, including distributions describing
efficiency of units shipped in the no-new-standards case. The Monte
Carlo simulations, performed by Crystal Ball (a commercially-available
software program), randomly sampled input values from each of the
probability distributions. Then, the model calculated the LCC and PBP
for equipment at each efficiency level for the 10,000 simulations. More
details on the incorporation of uncertainty and variability in the LCC
are available in appendix 8B of the NOPR TSD.
DOE conducted the LCC and PBP analyses using a commercially-
available spreadsheet tool and a purpose-built spreadsheet model,
available on DOE's Web site.\61\ This spreadsheet model developed by
DOE accounts for variability in energy use and prices, installation
costs, repair and maintenance costs, and energy costs. As a result, the
LCC results are displayed as distributions of impacts compared to the
no-new-standards case (without amended standards) conditions. The
results of DOE's LCC and PBP analysis are summarized in section V.B and
described in detail in chapter 8 of the NOPR TSD.
---------------------------------------------------------------------------
\61\ DOE's Web page for commercial water heating equipment is
available at: https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------
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 energy (and, as applicable, water) savings during the first year
that the consumer will receive
[[Page 34482]]
as a result of the standard, as calculated under the test procedure in
place for that standard. For each considered efficiency level, DOE
typically determines the value of the first year's energy savings,\62\
and multiplies that amount by the average energy price forecast for the
year in which compliance with the amended standards would be required.
This value, in conjunction with equipment cost, was used in a
rebuttable payback calculation for each equipment class.
---------------------------------------------------------------------------
\62\ The DOE test procedure for commercial water heating
equipment at 10 CFR 431.106 does not specify a calculation method
for determining energy use. For the rebuttable presumption PBP
calculation, DOE used average energy use estimates.
---------------------------------------------------------------------------
DOE calculated the LCC and PBP for all commercial consumers as if
each would purchase a new CWH unit in the year that compliance with
amended standards is required. As discussed above, DOE is conducting
this rulemaking pursuant to its 6-year-lookback authority under 42
U.S.C. 6313(a)(6)(C), and EPCA directs DOE to publish a final rule
amending the standard for the equipment covered in this document no
later than 2 years after a NOPR is issued. (42 U.S.C.
6313(a)(6)(C)(iii)) At the time of preparation of the NOPR analyses,
the expected issuance date was 2015, leading to an anticipated final
rule publication in 2016. EPCA also states that amended standards
prescribed under this subsection shall apply to equipment manufactured
after a date that is later of: (I) The date that is 3 years after
publication of the final rule establishing a new standard; or (II) the
date that is 6 years after the effective date of the current standard
for a covered equipment. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under
clause (I), currently projected to be 2019, is later than the date
under clause (II), which is 2009. Therefore, for the purposes of its
analysis for this NOPR, DOE used January 1, 2019 as the beginning of
compliance with potential amended standards for CWH equipment.
As noted above, DOE's LCC and PBP analyses generate values that
calculate the PBP for commercial consumers of potential energy
conservation standards, which includes, but is not limited to, the 3-
year PBP contemplated under the rebuttable presumption test. However,
DOE routinely conducts a full economic analysis that considers the full
range of impacts, including those to the consumer, manufacturer,
Nation, and environment, as required under 42 U.S.C. 6313(a)(6)(ii).
The results of this analysis serve as the basis for DOE to definitively
evaluate the economic justification for a potential standard level
(thereby supporting or rebutting the results of any preliminary
determination of economic justification).
In the October 2014 RFI, DOE requested comment from stakeholders on
the overall method that it intended to use in conducting the LCC and
PBP analysis for CWH equipment. 79 FR 62899, 62907 (Oct. 21, 2014). In
response to this request, several stakeholders provided comment. A. O.
Smith and Rheem stated that the LCC and PBP methods were acceptable but
were dependent upon accurate assumptions and data. (A. O. Smith, No. 2
at p. 3; Rheem, No. 10 at p. 6) AHRI agreed, and mentioned potential
issues in selecting the inputs for the analysis. (AHRI, No. 5 at p. 4)
Bradford White further stated that while it had no issue with the
proposed method for the LCC and PBP analyses, it would like
representative cost estimates to be used. (Bradford White, No. 3 at p.
3)
1. Approach
Recognizing that each business that uses CWH equipment is unique,
DOE analyzed variability and uncertainty by performing the LCC and PBP
calculations on a nationally representative stock of commercial and
residential buildings. Commercial buildings can be categorized based on
their specific activity, and DOE considered commercial buildings such
as offices (small, medium, and large), stand-alone retail and strip-
malls, schools (primary and secondary), hospitals and outpatient
healthcare facilities, hotels (small and large), warehouses,
restaurants (quick service and full service), assemblies, nursing
homes, and dormitories. These encompass 89.1 percent of the total
sample of commercial building stock in the United States. The
residential buildings can be categorized based on the type of housing
unit, and DOE considered single-family (attached and detached) and
multi-family (with 2-4 units and 5+ units) buildings in its analysis.
This encompassed 95.5 percent of the total sample of residential
building stock in the United States, though not all of this sample
would use CWH equipment. DOE developed financial data appropriate for
the commercial consumers in each business and building type. Each type
of building has typical commercial consumers who have different costs
of financing because of the nature of the business. DOE derived the
financing costs based on data from the Damodaran Online Web site.\63\
For residential applications, the entire population was categorized
into six income bins, and DOE developed the probability distribution of
real interest rates for each income bin by using data from the Federal
Reserve Board's Survey of Consumer Finances.\64\
---------------------------------------------------------------------------
\63\ Damodaran Online (Commercial Applications) (Available at:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm) (Last
accessed on 04/04/2015).
\64\ The real interest rates data for the six income groups
(residential sector) can be obtained from the Survey of Consumer
Finances. The Federal Reserve Board. Survey of Consumer Finances.
1989, 1992, 1995, 1998, 2001, 2004, 2007, 2010 (Available at: http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html). Survey of
Consumer Finances (Estimate using 1995, 1998, 2001, 2004, 2007, and
2010 databases) (Residential Applications) (Available at: http://www.federalreserve.gov/econresdata/scf/aboutscf.htm) (Last accessed
on May 14, 2015).
---------------------------------------------------------------------------
The LCC analysis used the estimated annual energy use for every
unit of CWH equipment described in section IV.C. Aside from energy use,
other important factors influencing the LCC and PBP analyses are energy
prices, installation costs, and equipment distribution markups. At the
national level, the LCC spreadsheets explicitly model both the
uncertainty and the variability in the model's inputs, using
probability distribution functions.
As mentioned earlier, DOE generated LCC and PBP results for
commercial consumers using business type data aligned with building
type and by geographic location, and DOE developed weighting factors to
generate national average LCC savings and PBPs for each efficiency
level. As there is a unique LCC and PBP for each calculated combination
of building type and geographic location, the outcomes of the analysis
can also be expressed as probability distributions with a range of LCC
and PBP results. A distinct advantage of this type of approach is that
DOE can identify the percentage of commercial consumers achieving LCC
savings or attaining certain PBP values due to an increased efficiency
level, in addition to the average LCC savings or average PBP for that
efficiency level.
2. Life-Cycle Cost Inputs
For each efficiency level that DOE analyzed, the LCC analysis
required input data for the total installed cost of the equipment, its
operating cost, and the discount rate. Table IV.27 summarizes the
inputs and key assumptions DOE used to calculate the commercial
consumer economic impacts of all energy efficiency levels analyzed in
this rulemaking. A more detailed discussion of the inputs follows.
[[Page 34483]]
Table IV.27--Summary of Inputs and Key Assumptions Used in the LCC and
PBP Analyses
------------------------------------------------------------------------
Inputs Description
------------------------------------------------------------------------
Affecting Installed Costs
------------------------------------------------------------------------
Equipment Price................... Equipment price derived by
multiplying manufacturer sales
price or MSP (calculated in the
engineering analysis) by
distribution channel markups, as
needed, plus sales tax from the
markups analysis.
Installation Cost................. Installation cost includes
installation labor, installer
overhead, and any miscellaneous
materials and parts, derived
principally from RS Means 2015 data
books a b c and converted to 2014$.
------------------------------------------------------------------------
Affecting Operating Costs
------------------------------------------------------------------------
Annual Energy Use................. Annual unit energy consumption for
each class of equipment at each
efficiency and standby loss level
estimated at different locations
and by building type using building-
specific load models and a
population-based mapping of climate
locations. The geographic scale
used for commercial and residential
applications are Census Divisions
and reportable domains
respectively.
Electricity Prices, Natural Gas DOE developed average residential
Prices, and Oil Prices. and commercial electricity prices
based on EIA Form 861 data for
2013.\d\ Future electricity prices
are projected based on AEO 2015.
DOE developed residential and
commercial natural gas prices based
on EIA State-level prices in EIA
Natural Gas Navigator.\e\ Future
natural gas prices are projected
based on AEO 2015.
Maintenance Cost.................. Annual maintenance cost did not vary
as a function of efficiency.
Repair Cost....................... DOE determined that the materials
portion of the repair costs for gas-
fired equipment changes with the
efficiency level for products. The
different combustion systems varied
among different efficiency levels,
which eventually led to different
repair costs.
------------------------------------------------------------------------
Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Equipment Lifetime................ Table IV.29 provides lifetime
estimates for equipment class. DOE
estimated that the average CWH
equipment lifetimes range between
10 and 25 years, with the average
lifespan dependent on equipment
class based on estimates cited in
available literature.g h
Discount Rate..................... Mean real discount rates (weighted)
for all buildings range from 3.6%
to 5.1%, for the six income bins
relevant to residential
applications. For commercial
applications, DOE considered mean
real discount rates (weighted) from
ten different commercial sectors,
and the rates ranged between 3.5%
and 6%.
Analysis Start Year............... Start year for LCC is 2019, which is
the anticipated compliance date for
any potential amended standards if
adopted by a final rule of this
rulemaking.
------------------------------------------------------------------------
Analyzed Efficiency Levels
------------------------------------------------------------------------
Analyzed Efficiency Levels........ DOE analyzed baseline efficiency
levels and up to five higher
thermal efficiency levels. DOE also
analyzed baseline and up to three
higher efficiency standby loss
levels. See the engineering
analysis for additional details on
selections of efficiency levels and
costs.
------------------------------------------------------------------------
\a\ RSMeans, RSMeans Building Construction Cost Data 2015, 73rd ed.
(2014) (Available at: http://www.rsmeans.com).
\b\ RSMeans, RSMeans Contractor's Pricing Guide Residential Repair &
Remodeling Costs 2015 (2014) (Available at: http://www.rsmeans.com).
\c\ RSMeans, RSMeans Mechanical Cost Data 2015. 38th Annual ed. (2014)
(Available at: www.rsmeans.com).
\d\ U.S. Energy Information Administration (EIA), Electric Sales,
Revenue, and Average Price 2013: Select table Sales and Revenue Data
by State, Monthly Back to 1990 (Form EIA-826) (Available at: http://www.eia.gov/cneaf/electricity/page/sales_revenue.xls) (Last accessed
on 04/04/2015).
\e\ U.S. Energy Information Administration (EIA), Average Price of
Natural Gas Sold to Commercial Consumers--by State (Available at:
http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm) (Last
accessed on 04/04/2015).
\f\ U.S. Energy Information Administration (EIA), State Energy Data
System (SEDS) (Available at: http://www.eia.gov/state/seds/) (Last
accessed 04/04/2015).
\g\ American Society of Heating, Refrigerating, and Air-Conditioning
Engineers, 2011 ASHRAE Handbook: Heating, Ventilating, and Air-
Conditioning Applications (2011) (Available at: https://www.ashrae.org/resources-publications).
\h\ Abramson, B., D. Herman, and L. Wong, Interactive Web-based Owning
and Operating Cost Database (2005) Final Report ASHRAE Research
Project RP-1237 (Available at: https://www.ashrae.org/resources-publications publications).
a. Equipment Prices
The price of CWH equipment reflects the application of distribution
channel markups (mechanical contractor markups) and sales tax to the
MSP, which is the cost established in the engineering analysis. As
described in section IV.D, DOE determined distribution channel costs
and markups for commercial water heating equipment. For each equipment
class, the engineering analysis provided contractor costs for the
baseline equipment and up to five higher equipment efficiencies. DOE
examined whether equipment prices for CWH equipment would change over
time. DOE tentatively determined that there is no clear historical
price trend for CWH equipment. Therefore, DOE used costs established in
the engineering analysis directly for determining 2019 equipment prices
and future equipment prices (equipment is purchased by the commercial
consumer during the first year in 2019 at the estimated equipment
price, after which the equipment price remains constant). See section
IV.H.3 of this document and appendix 10B of the NOPR TSD for more
details.
The markup is the percentage increase in price as the CWH equipment
passes through distribution channels. As explained in section IV.D, CWH
equipment is assumed to be delivered by the manufacturer through a
variety of distribution channels. There are several distribution
pathways that involve different combinations of the costs and markups
of commercial water heating equipment. The overall markups used in the
LCC analysis are weighted averages of all of the relevant distribution
channel markups.
UM was concerned that this rulemaking would quickly drive up the
cost of water heaters without addressing the inefficiencies of related
systems. (UM, No. 9 at p. 2) In response, DOE does address the
inefficiencies of
[[Page 34484]]
building systems, including water heating systems, through its Building
Energy Codes Program. However, the present CWH rulemaking is initiated
as part of the Appliances and Equipment Standards Program, and through
this program, DOE can only set equipment standards that are
technologically feasible and economically justified, but does not
address other inefficiencies found in building systems.
b. Installation Costs
The primary inputs for establishing the total installed cost are
the baseline commercial consumer price, standard-level commercial
consumer price increases, and installation costs (labor and material
costs), where the primary installation costs changes, by efficiency
level, are the venting costs for high-efficiency gas-fired products.
Baseline commercial consumer prices and standard-level commercial
consumer price increases will be determined by applying markups to
manufacturer selling price estimates, including sales tax where
appropriate. For new installations, the installation cost is added to
the commercial consumer price to arrive at a total installed cost. For
replacement installations, the cost to remove the previous equipment
(including venting when necessary) and the installation cost for new
equipment are added to the commercial consumer price to arrive at the
total replacement installation cost.
In the October 2014 RFI, DOE stated that it intended to develop
installation costs using the most recent RS Means
data.65 66 67 68 69 79 FR 62899, 62907 (Oct. 21, 2014). In
addition, DOE sought inputs on its approach of using RS Means to
develop installation costs. Id. Several stakeholders commented on the
data sources for the installation cost analysis. AHRI commented that it
was not familiar enough with the development process of the RS Means
Mechanical Cost Data to be confident in its accuracy. (AHRI, No. 5 at
p. 5) A. O. Smith also commented that it was not familiar enough with
the development process of the RS Means Mechanical Cost Data to be
confident in its accuracy. (A. O. Smith, No. 2 at p. 3) Rheem opined
that RS Means Mechanical Cost Data was not appropriate for LCC and PBP
analysis. Rheem commented that installation cost was a function of fuel
input, and replacement installation was double the cost of new
construction installation. (Rheem, No. 10 at p. 6)
---------------------------------------------------------------------------
\65\ RSMeans, RSMeans Building Construction Cost Data 2015. 73rd
ed. (2014) (Available at: http://www.rsmeans.com).
\66\ RSMeans, RSMeans Contractor's Pricing Guide Residential
Repair & Remodeling Costs 2015 (2014) (Available at: http://www.rsmeans.com).
\67\ RSMeans, RSMeans Mechanical Cost Data 2015. 38th Annual ed.
(2014) (Available at: http://www.rsmeans.com).
\68\ RSMeans, RSMeans Electrical Cost Data 2015. 38th Annual ed.
(2014) (Available at: http://www.rsmeans.com).
\69\ RSMeans, RSMeans Plumbing Cost Data 2015. 38th Annual ed.
(2014) (Available at: http://www.rsmeans.com).
---------------------------------------------------------------------------
To summarize DOE's approach, DOE derived national average
installation costs for commercial equipment from data provided in RS
Means 2015 data books.\70\ RS Means provides estimates for installation
costs for CWH units by equipment capacity, as well as cost indices that
reflect the variation in installation costs for 295 cities in the
United States. The RS Means data identify several cities in all 50
States and the District of Columbia. DOE incorporated location-based
cost indices into the analysis to capture variation in installation
costs, depending on the location of the commercial consumer. Based upon
the RS Means data, relationships were developed for each product
subcategory to relate the amount of labor to the size of the product--
either the storage volume or the input rate. In response to the
comments received, DOE compared the RS Means data to other publically-
available sources of similar national information, specifically
Engineering News-Record (ENR) \71\ and Whitestone Research.\72\
Specifically, this approach was intended to address the concerns of
Joint Advocates, as no independent calibration of the RS Means data was
readily available. (Joint Advocates, No. 7 at p. 4) Generally, the RS
Means data were found to be in agreement with other national sources.
In certain specific instances when the RS Means data were found to be
significantly higher than the average, DOE scaled the RS means
relationship to represent the average of the available data sources. In
the specific cases where the modeled labor hours resulted in excessive
amounts of time in a given day, the number of laborers in the crew was
increased by one person, while the labor hour calculations were reduced
by a factor. This approach is in agreement with Rheem's comment that
the water heater is a critical building component and will be repaired
or replaced quickly to maintain operation of the building. (Rheem, No.
10 at p. 7) As none of the received comments identified alternative
sources of data, and with this comparison complete, DOE confirms the RS
Means data to be sufficient for this analysis.
---------------------------------------------------------------------------
\70\ DOE notes that RS Means publishes data books in one year
for use the following year; hence, the 2015 data book was published
in 2014.
\71\ Engineering News-Record, Mechanical Contracting Costbook
2015 Edition, Volume 8 (2014). McGraw-Hill Publishing Company, Inc.:
New York, NY.
\72\ Whitestone Research, The Whitestone Facility Maintenance
and Repair Cost Reference 2012-2013, 17th Annual ed. (2012)
Whitestone Research: Santa Barbara, CA.
---------------------------------------------------------------------------
For products requiring venting, DOE calculated venting costs for
each building in the Commercial Building Energy Consumption Survey
(CBECS) and Residential Energy Consumption Survey (RECS). A variety of
installation parameters impact venting costs; among these, DOE
simulated the type of installation (new construction or retrofit),
draft type (atmospheric venting or power venting), water heater fuel
type, building vintage, number of stories, and presence of a chimney. A
logic sequence was applied to the identified variables in order to
accurately determine the venting costs for each instance of equipment
and building within the Monte Carlo analysis. The primary assumptions
used in this logic are listed below:
25 percent of commercial buildings built prior to 1980
were assumed to have a masonry chimney, and 25 percent of masonry
chimneys required relining.
Condensing products with vent diameters smaller than 5
inches were modeled using PVC (polyvinyl chloride) as the vent
material.
Condensing products with vent diameters larger than 8
inches were modeled using AL29-4C as the vent material.
Condensing products with vent diameters of 5 inches and up
to and including 8 inches were modeled using a random selection process
where on average 50 percent of installations use PVC as the vent
material and the remaining use AL29-4C.
5 percent of all condensing water heater installations
were modeled as direct vent installations, where flue lengths would
allow. The intake air pipe material for condensing products was modeled
as PVC.
Additional details of the venting logic sequence can be found in
Chapter 8 of the NOPR TSD. In addition, total installed costs can be
found below in tables V.4, V.6, V.8, V.10, and V.14.
Issue 19: DOE seeks comment on the assumptions used in determining
the venting costs for the relevant types of CWH equipment.
Issue 20: DOE seeks comment on the percentage of installations
using polypropylene venting materials in this industry and any
limitations such venting has as to maximum available diameters or other
limitations.
[[Page 34485]]
DOE recognized that basic installation costs are higher for larger
units, but did not identify any significant basic installation cost
increases for higher-efficiency CWH equipment. These relationships were
consistent in the RS Means data. Therefore, DOE utilized RS Means
installation cost data to derive installation cost curves by equipment
size. As the data sources available to DOE did not have data to
calibrate the extent to which installation costs might change as
efficiency increased, DOE assumed for the NOPR LCC analysis that basic
installation cost would not increase as a function of increased
efficiency.
Rheem argued that the labor cost to remove a product was equal to
the labor cost to install an identical appliance. (Rheem, No. 10 at p.
7) Determination of the amount of labor was expected to be either a
constant percentage based upon the installation cost, as suggested by
Rheem, or a linear relationship of the percentage of the installation
cost related to the volume of the tank in question. However, inspection
of the available RS Means data demonstrated that the labor required for
removing a storage tank smaller than approximately 250 gallons required
approximately 20 percent of the labor necessary to complete the
installation. The percentage of labor required for removal, compared to
the labor required for installation, continued to increase with the
storage volume until it reached approximately 54 percent of
installation labor at a volume of 1,200 gallons. This relationship was
observed to be non-linear in nature, which would significantly
complicate the analysis, and did not agree with stakeholder feedback or
DOE's understanding of the costs.
Therefore, DOE estimated the labor required to remove CWH equipment
by averaging the calculated percentage of labor to remove a water
heater compared to the amount of labor required to install the water
heater with respect to the storage volume. As reported in RS Means
data, the average percentage of removal labor hours in terms of
installation labor hours was found to be 37.5 percent of the labor to
install a water heater, and this percentage was used to determine the
amount of labor required to remove a given unit of CWH equipment at the
end of service condition.
DOE did not find a source of data on the cost for venting system
removal. However, DOE understands that removal of venting requires many
similar tasks in handling components as installation does, but without
the same necessary care to ensure vent integrity. As found in the
equipment removal cost, the amount of labor required for removing
venting is less than the amount of labor required to install said
venting. Furthermore, DOE notes that the amount of labor required for
removal of the venting will increase significantly as the venting
diameter increases due to the difficulty of managing the components
during removal. Therefore, DOE modeled the labor required to remove an
existing venting system as 50 percent of the labor required to complete
an installation of a new venting system, as this presents a
conservative estimate of the amount of labor required for removal.
Issue 21: DOE seeks comment on the installation labor and labor to
remove equipment and venting in this analysis.
Issue 22: DOE seeks comment on the overall installed costs by TSL
for each equipment class as shown in the Average LCC and PBP Results
tables found in section V.B.1.a, Table V.4 through Table V.14.
c. Annual Energy Use
DOE estimated the annual electricity and natural gas consumed by
each class of CWH equipment, by efficiency and standby loss level,
based on the energy use analysis described in section IV.E and in
chapter 7 of the NOPR TSD.
d. Electricity and Natural Gas Prices
Electricity and natural gas prices are used to convert changes in
the energy consumption from higher-efficiency equipment into energy
cost savings. It is important to consider regional differences in
electricity and natural gas prices, because the variation in those
prices can impact electricity and natural gas consumption savings and
equipment costs across the country. DOE determined average effective
commercial electricity prices \73\ and commercial natural gas prices
\74\ at the State level from Energy Information Administration (EIA)
data for 2014. DOE used data from EIA's Form 861 \75\ to calculate
commercial and residential sector electricity prices, and EIA's Natural
Gas Navigator \76\ to calculate commercial and residential sector
natural gas prices. Future energy prices were projected using trends
from the EIA's AEO 2015.\77\ This approach captured a wide range of
commercial electricity and natural gas prices across the United States.
---------------------------------------------------------------------------
\73\ U.S. Energy Information Administration (EIA), Form EIA-826
Database Monthly Electric Utility Sales and Revenue Data (EIA-826
Sales and Revenue Spreadsheets) (Available at: http://www.eia.gov/electricity/data/eia826/ On the right side of the screen under
Aggregated, select 1990-current). (Last accessed on 04/04/2015.)
\74\ U.S. Energy Information Administration (EIA), Natural Gas
Prices (Available at: http://www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm) (Last accessed on 04/04/2015).
\75\ U.S. Energy Information Administration (EIA), Survey form
EIA-861--Annual Electric Power Industry Report (Available at: http://www.eia.gov/electricity/data/eia861/index.html) (Last accessed on
04/04/2015).
\76\ U.S. Energy Information Administration (EIA), Natural Gas
Navigator (Available at: http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm) (Last accessed on 04/04/2015).
\77\ U.S. Energy Information Administration (EIA), 2015 Annual
Energy Outlook (2015) Full report. DOE/EIA-0383(2015) (Available at:
http://www.eia.gov/forecasts/aeo/) (Last accessed on 04/04/2015).
---------------------------------------------------------------------------
CBECS and RECS report data based on different geographic scales.
The various States in the United States are aggregated into different
geographic scales such as Census Divisions (for CBECS) and reportable
domains (for RECS). Hence, DOE weighted electricity and natural gas
prices in each State based on the cumulative population in the cluster
of one or more States that comprise each Census Division or reportable
domain respectively. See chapter 8 of the NOPR TSD for further details.
The electricity and natural gas price trends provide the relative
change in electricity and natural gas costs for future years. DOE used
the AEO 2015 Reference case to provide the default electricity and
natural gas price forecast scenarios. DOE extrapolated the trend in
values at the Census Division level to establish prices beyond 2040.
Several stakeholders suggested further items to consider for the
electricity and gas price analysis. Steffes stated that using average
electric rates where demand and energy charges were bundled together in
LCC and PBP calculations would often fail to capture financial impact.
(Steffes, No. 6 at p. 2) Bradford White recommended that DOE reach out
to the Energy Solutions Center for natural gas pricing. (Bradford
White, No. 3 at p. 3) AGA recommended that DOE use marginal gas-price
analysis when evaluating monetary savings in the LCC, arguing that a
shift from a non-condensing water heater to a condensing water heater
would not alter fixed costs. (AGA, No. 4 at p. 5) DOE considered each
of these comments carefully, and in response, developed the LCC
analysis using a marginal fuel price approach to convert fuel savings
into corresponding financial benefits for the different equipment
classes. This approach was based on the development of marginal price
factors for gas and electric fuels based on historical data relating
monthly expenditures and consumption. For details of DOE's
[[Page 34486]]
marginal fuel price approach, see chapter 8 of the NOPR TSD.
e. Maintenance Costs
Maintenance costs are the routine annual costs to the commercial
consumer of ensuring continued equipment operation. DOE utilized The
Whitestone Facility Maintenance and Repair Cost Reference 2012-2013
\78\ to determine the amount of labor and material costs required for
maintenance of each of the relevant CWH equipment subcategories.
Maintenance costs include services such as cleaning the burner and flue
and changing anodes. DOE estimated average annual routine maintenance
costs for each class of CWH equipment based on equipment groupings.
Table IV.28 presents various maintenance services identified and the
amount of labor required to service each equipment class in this
analysis.
---------------------------------------------------------------------------
\78\ Whitestone Research, The Whitestone Facility Maintenance
and Repair Cost Reference 2012-2013 (17th Annual ed. 2012)
Whitestone Research: Santa Barbara, CA.
Table IV.28--Summary of Maintenance Labor Hours and Schedule Used in the LCC and PBP Analyses
----------------------------------------------------------------------------------------------------------------
Equipment class Description Labor hours Frequency years
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water Clean (Volume <=275 gallons)..... 2.67 1
heaters/Residential-duty gas-fired Clean (Volume >275 gallons)...... 8 2
storage water heaters. Overhaul......................... 1.84 5
Gas-fired instantaneous water heaters and Service.......................... 0.33 1
hot water supply boilers.
Electric storage water heaters........... Check............................ 0.33 3
Drain & Flush (Volume <=30 2.67 7
gallons). 4 7
Drain & Flush (Volume >30
gallons).
----------------------------------------------------------------------------------------------------------------
Because data were not available to indicate how maintenance costs
vary with equipment efficiency, DOE used preventive maintenance costs
that remain constant as equipment efficiency increases. Additional
information relating to maintenance of CWH equipment can be found in
Chapter 8 of the TSD.
Issue 23: DOE seeks comment on maintenance labor estimates used in
the LCC analysis and the assumption that maintenance costs remain
constant as efficiency increases.
f. Repair Costs
The repair cost is the cost to the commercial consumer of replacing
or repairing components that have failed in the CWH equipment.
In the October 2014 RFI, DOE sought input on its intention to use
the most recent RS Means Facilities Maintenance & Repair Cost data for
developing maintenance costs. 79 FR 62899, 62908 (Oct. 21, 2014). Joint
Advocates stated they were not aware of studies with independent
calibration of RS Means Facilities Maintenance & Repair Cost data and
suggested that DOE could survey a metropolitan area to perform such a
calibration. (Joint Advocates, No. 7 at p. 4) Rheem commented that RS
Means Facilities Maintenance & Repair Cost data presented best
practices but stated that there are a wide range of practices in the
field. (Rheem, No. 10 at p. 7) A.O. Smith and AHRI commented that each
was not familiar enough with the development process of the RS Means
Facilities Maintenance & Repair Cost Data to be confident in its
accuracy. (A.O. Smith, No. 2 at p. 4; AHRI, No. 5 at p. 5)
In response to these comments, DOE conducted further research to
identify alternative sources of data relating to the repair of CWH
equipment and identified The Whitestone Facility Maintenance and Repair
Cost Reference 2012-2013 \79\ as an alternative source of information.
Upon evaluation of the Whitestone Research data, and in consideration
of the comments received, DOE adopted a simplified analysis for
repairs. Specifically, although the Weibull probability distribution
may be utilized, Joint Advocates and Rheem consider this approach to
generalize equipment failure rates, and hence maintenance rates, across
environmental conditions, installation variations, design approaches,
and manufacturing processes which have changed with time. (Joint
Advocates, No. 7 at p. 4; Rheem, No. 10 at p. 8) As an alternative to
Weibull probability distribution, for this aspect of the analysis, DOE
calculated repair costs based on an assumed typical product level
failure rate of 2 percent per year, with an additional assumption of an
average of five components that are field replaceable during the
equipment's lifetime. These assumptions equate to a component failure
rate of 0.4 percent of shipments per year. This repair rate extends
through the life of the equipment.
---------------------------------------------------------------------------
\79\ The Whitestone Facility Maintenance and Repair Cost
Reference 2012-2013, 17th Annual ed. (2012) Whitestone Research:
Santa Barbara, CA (Whitestone Research) (Available at: http://whitestoneresearch.com/CBRE-Store/Books.html).
---------------------------------------------------------------------------
The labor required to replace a component was estimated as 2 hours
for combustion systems, 1 hour for combustion controls, and \3/4\ hour
to replace an electric water heater thermostat. The Department
estimates that a service technician would require 3 hours on average to
replace an electric heating element, accounting for the time required
to drain a storage tank prior to element replacement and refilling the
tank afterwards.
In the October 2014 RFI, DOE asked if repair costs vary as a
function of equipment efficiency. 79 FR 62899, 62908 (Oct. 21, 2014).
Several stakeholders commented on the relationship between equipment
efficiency and repair costs. Bradford White, A.O. Smith, and AHRI
commented that to the extent that higher-efficiency equipment
incorporates additional components and more complex controls, the
repair costs would likely be higher. (Bradford White, No. 3 at p. 3;
A.O. Smith, No. 2 at p. 4; AHRI, No. 5 at p. 5) Along the same line,
Rheem stated that repair costs could be greater for new, more-efficient
technologies. These repairs were more frequent, required more labor
hours, and had parts that were less likely to be available and may
require the cost of premium freight. (Rheem, No. 10 at p. 7)
DOE considered the feedback from the stakeholders and undertook
further research to identify components and subsystems commonly
replaced in order to evaluate differences in repair costs relative to
efficiency levels.
The combustion systems and controls used in gas-fired CWH equipment
were found to have different costs related to the efficiency levels of
these products. This is in agreement with comments provided by AHRI,
Bradford White,
[[Page 34487]]
Rheem, and A.O. Smith (AHRI, No. 5 at p. 5; Bradford White, No. 3 at p.
3; Rheem, No. 10 at p. 7; A.O. Smith, No. 2 at p. 4). For the
combustion systems, these differences relate predominately to
atmospheric combustion, powered atmospheric combustion, and pre-mixed
modulating combustion systems used on baseline-efficiency, moderate-
efficiency, and high-efficiency products respectively. The control
systems employed on atmospheric combustion systems were found to be
significantly less expensive than the controller used on powered
combustion systems, which was observed to include a microprocessor in
some products.
A simpler analysis was used to account for repair costs in the LCC
model for electric water heaters. Component costs used in repairs were
taken from average prices found on manufacturers' Web sites,
Grainger.com, and Internet searches.
The repair cost of equipment with multiple service parts was
estimated as the average cost of all of the components identified in
the Internet search. This cost was applied at the frequency identified
earlier in this section. DOE understands that this approach may
conservatively estimate the total cost of repair for purposes of DOE's
analysis, but the percentage of total repair cost remains small
compared to the commercial consumer price and the total installation
price. Additionally, DOE prefers to use this component level approach
to understand the incremental repair cost difference between efficiency
levels of equipment. Additional details of this analysis are found in
Chapter 8 of the NOPR TSD and Appendix 8E of the NOPR TSD.
Issue 24: DOE seeks comment on the findings of the repair costs of
CWH equipment, labor estimates for repairs, and the estimated rate of
component repair.
g. Equipment Lifetime
Equipment lifetime is the age when a unit of CWH equipment is
retired from service. In the October 2014 RFI, DOE presented various
sources that estimate the average lifetime for CWH equipment to be
between 7 and 25 years based on the application and equipment class. 79
FR 62899, 62908 (Oct. 21, 2014). In addition, DOE stated in the October
2014 RFI that it intended to determine average lifetime for each CWH
equipment class as the primary input for developing a Weibull
probability distribution to characterize CWH lifetime. DOE sought
comment on its approach of using a Weibull probability distribution to
characterize equipment lifetime. Id.
In response to DOE's request for comment, Joint Advocates stated
that Weibull survivorship was the ``least bad'' option for lifetime
estimation. However, that method also assumed that changing water
heater-related materials and processes relative to water heaters that
have already died would not affect the lifetime of future units. Joint
Advocates further pointed out that this assumption may not be valid,
particularly for early generation of technologies. (Joint Advocates,
No. 7 at p. 4) Lastly, Rheem agreed with DOE's approach of using
Weibull probability distribution for lifetime analysis but cautioned
that applications impact lifetime considerably. (Rheem, No. 10 at p. 8)
In response to the Joint Advocates' comment on Weibull
survivorship, DOE acknowledges that changing equipment, water heater-
related materials, and design processes may have an impact on future
product life. DOE has not been able to obtain any information (nor have
commenters provided such information) to assess how possible new
designs and processes may impact future equipment life or how the use
of early generation technologies informs or influences the life of
equipment analyzed in this rule. Without such information, consistent
with the Joint Advocates comment, DOE continued to assess lifetime of
equipment in its analysis using historical data and a Weibull approach
to allow for variability in equipment life within the LCC. Based on the
parameters of the Weibull distribution, the lifetime for the equipment
varies within each simulation run.
For the analysis of this NOPR, DOE did not obtain additional data
that conflicted with its findings of an average lifetime between 10 and
25 years for different classes of CWH equipment. Consequently, DOE used
a distribution of lifetimes, with the weighted averages ranging between
10 years and 25 years as shown in Table IV.29, based on a review of a
range of CWH equipment lifetime estimates found in published studies
and online documents. DOE applied a distribution to all classes of CWH
equipment analyzed. Chapter 8 of the NOPR TSD contains a detailed
discussion of CWH equipment lifetimes.
Table IV.29--Average CWH Lifetime Used in NOPR Analyses
------------------------------------------------------------------------
Average
CWH equipment class lifetime
(years)
-----------------------------------------------------------------------
Commercial gas-fired storage water heaters and gas- 10
fired storage-type instantaneous water heaters.......
Residential-duty gas-fired storage water heaters...... 12
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters............................ 17
Hot water supply boilers.......................... 25
Electric storage water heaters........................ 12
------------------------------------------------------------------------
h. Discount Rate
The discount rate is the rate at which future expenditures are
discounted to establish their present value. DOE determined the
discount rate by estimating the cost of capital for purchasers of CWH
equipment. Most purchasers use both debt and equity capital to fund
investments. Therefore, for most purchasers, the discount rate is the
weighted-average cost of debt and equity financing, or the weighted-
average cost of capital (WACC), less the expected inflation.
To estimate the WACC of CWH equipment purchasers, DOE used a sample
of more than 340 companies grouped to be representative of operators of
different businesses, drawn from a database of 7,766 U.S. companies
presented on the Damodaran Online Web site.\80\ This database includes
most of the publicly-traded companies in the United States. The WACC
approach for determining discount rates accounts for the current tax
status of individual firms on an overall corporate basis. DOE did not
evaluate the marginal effects of
[[Page 34488]]
increased costs, and, thus, depreciation due to more expensive
equipment, on the overall tax status.
---------------------------------------------------------------------------
\80\ Damodaran Online. Damodaran financial data used for
determining cost of capital (Available at: http://
pages.stern.nyu.edu/~adamodar/) (Last accessed on 04/05/2015).
---------------------------------------------------------------------------
DOE used the final sample of companies to represent purchasers of
CWH equipment. For each company in the sample, DOE derived the cost of
debt, percentage of debt financing, and systematic company risk from
information on the Damodaran Online Web site. Damodaran estimated the
cost of debt financing from the nominal long-term Federal government
bond rate and the standard deviation of the stock price. DOE then
determined the weighted average values for the cost of debt, range of
values, and standard deviation of WACC for each category of the sample
companies. Deducting expected inflation from the cost of capital
provided estimates of the real discount rate by ownership category.
For most educational buildings and a portion of the office
buildings occupied by public schools, universities, and State and local
government agencies, DOE estimated the cost of capital based on a 40-
year geometric mean of an index of long-term tax-exempt municipal bonds
(>20 years).\81\ Federal office space was assumed to use the Federal
bond rate, derived as the 40-year geometric average of long-term (>10
years) U.S. government securities.\82\
---------------------------------------------------------------------------
\81\ Federal Reserve Bank of St. Louis, State and Local Bonds--
Bond Buyer Go 20-Bond Municipal Bond Index (Available at: http://research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995)
(Last accessed 04/05/2015).
\82\ Rate calculated with 1973-2013 data. Data source: U.S.
Federal Reserve (Available at: http://www.federalreserve.gov/releases/h15/data.htm) (Last accessed on 04/05/2015).
---------------------------------------------------------------------------
Based on this database, DOE calculated the weighted-average, after-
tax discount rate for CWH equipment purchases, adjusted for inflation.
Chapter 8 of the NOPR TSD contains the detailed calculations related to
discount rates.
3. Payback Period
DOE also determined the economic impact of potential amended energy
conservation standards on commercial consumers by calculating the PBP
of more-stringent efficiency levels relative to the baseline efficiency
levels. The PBP measures the amount of time it takes the commercial
consumer to recover the assumed higher purchase expense of more-
efficient equipment through lower operating costs. Similar to the LCC,
the PBP is based on the total installed cost and the operating expenses
for all building types and purchase locations for the water-heating
equipment. Because the simple PBP does not take into account changes in
operating expense over time or the time value of money, DOE considered
only the first year's operating expenses, including annualized repair
and maintenance expenses, to calculate the PBP, unlike the LCC, which
is calculated over the lifetime of the equipment. Chapter 8 of the NOPR
TSD provides additional details about the PBP.
G. Shipments Analysis
In its shipments analysis, DOE developed shipment projections for
commercial water heating equipment and, in turn, calculated equipment
stock over the course of the analysis period. DOE uses the shipments
projection and the equipment stock to calculate the national impacts of
potential amended energy conservation standards on energy use, NPV, and
future manufacturer cash flows. DOE develops shipment projections based
on historical data and an analysis of key market drivers for each type
of equipment.
To develop the shipments model, DOE started with known information
on shipments of commercial electric and gas-fired storage water heaters
collected for the years 1994-2013 from the AHRI Web site,\83\ and
extended back to 1989 with data contained in a DOE rulemaking document
published in 2000.\84\ The historical shipments of commercial electric
and gas-fired storage water heaters are summarized in Table IV.30.
Given that the estimated average useful lifetimes of these two types of
equipment are 12 and 10 years, respectively, the historical shipments
provided a basis for the development of a multi-year series of stock
values. Using the stock values, a saturation rate was determined by
dividing equipment stock by building stock, and this saturation rate
was combined with annual building stock additions to estimate the
shipments to new construction. With these data elements, a yearly
accounting model was developed for the historical period to identify
shipments deriving from new construction and from replacements of
existing equipment. The accounting model also identified commercial
consumer migration into or out of the storage water heater equipment
classes by calculating the difference between new plus replacement
shipments and the actual historical shipments.
---------------------------------------------------------------------------
\83\ Air Conditioning, Heating, and Refrigeration Institute,
Commercial Storage Water Heaters Historical Data (Available at:
http://www.ahrinet.org/site/494/Resources/Statistics/Historical-Data/Commercial-Storage-Water-Heaters-Historical-Data) (Last
accessed April 1, 2015).
\84\ U.S. Department of Energy, Screening Analysis for EPACT-
Covered Commercial HVAC and Water-Heating Equipment. Volume 1--Main
Report (2000). EERE-2006-STD-0098-0015 (Available at: http://www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0098-0015).
Table IV.30--Historical Shipments of Commercial Gas-Fired and Electric
Storage Water Heaters
------------------------------------------------------------------------
Commercial Commercial
Year gas-fired electric
storage storage
------------------------------------------------------------------------
1994.......................................... 91,027 22,288
1995.......................................... 96,913 23,905
1996.......................................... 127,978 26,954
1997.......................................... 96,501 30,339
1998.......................................... 94,577 35,586
1999.......................................... 100,701 39,845
2000.......................................... 99,317 44,162
2001.......................................... 93,969 46,508
2002.......................................... 96,582 45,819
2003.......................................... 90,292 48,137
2004.......................................... 96,481 57,944
2005.......................................... 82,521 56,178
2006.......................................... 84,653 63,170
2007.......................................... 90,345 67,985
2008.......................................... 88,265 68,686
2009.......................................... 75,487 55,625
2010.......................................... 78,614 58,349
2011.......................................... 84,705 60,257
2012.......................................... 80,490 67,265
2013.......................................... 88,539 69,160
------------------------------------------------------------------------
Source: AHRI web site, http://www.ahrinet.org/site/494/Resources/Statistics/Historical-Data/Commercial-Storage-Water-Heaters-Historical-Data Data.
No historical shipment information was available for residential-
duty gas-fired storage water heaters, gas-fired tankless waters, or
gas-fired hot water supply boilers. The stock accounting model requires
historical stock and shipments, so DOE estimated past shipments for
these equipment classes. The stock of equipment for each equipment
class was developed in the same manner described for the gas-fired and
electric storage water heaters.
For residential-duty gas-fired storage equipment, DOE assumed
equivalency in shipments per basic model between the commercial and the
residential-duty gas-fired storage water heaters. The ratio of the
number of unique residential-duty gas-fired water heaters (67) to
commercial gas-fired water heaters (328) listed in the analysis
database was applied to the gas-fired water heater shipments, with the
result being an estimated historical series of residential-duty gas-
fired water heaters.
For gas-fired tankless water heaters, DOE used an estimation method
discussed in industry sources (e.g., the Consortium for Energy
Efficiency).\85\
[[Page 34489]]
This estimation method holds that tankless water heaters constitute 10
percent of the total CWH market. Because the only data widely available
are for gas-fired and electric storage unit shipments, DOE implemented
this by assuming that tankless water heaters constitute 10 percent of
the total shipments of gas-fired storage water heaters, electric
storage water heaters, and gas-fired tankless water heaters, and that
the resulting number of tankless water heaters would be split between
fuel types based on relative percentages of storage water heaters. DOE
performed this calculation for 2013 shipments. Shipments were estimated
for earlier years by applying a year-to-year growth rate in total
imports and exports (net of re-exports) of gas-fired tankless water
heaters obtained from a United Nations Web site.\86\
---------------------------------------------------------------------------
\85\ Consortium for Energy Efficiency (CEE), CEE Commercial
Water Heating Initiative Description (2012) (Available at: http://library.cee1.org/sites/default/files/library/7521/CEE_GasComm_WHInitiative_5Jun2012.pdf).
\86\ United Nations, Department of Economic and Social Affairs
Statistics Division, Trade Statistics, UN Comtrade--data extraction
interface (Available at: http://comtrade.un.org/data/) (Last
accessed April 1, 2015).
---------------------------------------------------------------------------
To estimate historical shipments of instantaneous water heaters and
hot water supply boilers, DOE started with an estimate of the total
stock of instantaneous equipment in commercial buildings for the year
2008.\87\ Based on information derived from CBECS,\88\ the DOE study
estimated the total stock of instantaneous water heaters and hot water
supply boilers in commercial buildings to be 600,000 units. However,
because CBECS data do not distinguish well between residential-rated
and commercial-rated equipment, it is likely that some residential-
rated tankless equipment is included in the estimated total stock.
Using the shipments of commercial tankless water heaters discussed in
the prior paragraph, DOE estimated the 2008 stock of commercial
tankless water heaters in commercial buildings and subtracted it from
the total instantaneous stock. Since DOE believes the total stock of
instantaneous equipment identified in the DOE study includes tankless
units that are classified by DOE as residential equipment, to account
for residential tankless units, DOE assumed that the residential and
commercial tankless water heaters exist in the same numbers. The
difference between the total instantaneous equipment stock and the
stock of residential and commercial tankless water heaters is assumed
to be the 2008 stock of hot water supply boilers. Shipments of hot
water supply boilers were estimated simplistically by dividing the
stock by the assumed 25-year life. The pre-2008 shipments were held
constant for the 25 years leading up to 2008, and post-2008 shipments
were generated by linking the 2008 value to the annual percentage
change in gas-fired storage shipments.
---------------------------------------------------------------------------
\87\ Navigant, Energy Savings Potential and RD&D Opportunities
for Commercial Building Appliances. 2009. Prepared for the U.S.
Department of Energy, Energy Efficiency and Renewable Energy,
Building Technologies Program (Available at: http://apps1.eere.energy.gov/buildings/publications/pdfs/corporate/commercial_appliances_report_12-09.pdf).
\88\ Energy Information Administration (EIA), 2003 Commercial
Building Energy Consumption Survey (CBECS) Data (2003) (Available
at: http://www.eia.gov/consumption/commercial/data/2003/ 2003/).
---------------------------------------------------------------------------
To project shipments and stock for 2014 through the end of the 30-
year analysis period (2048), DOE relied on a stock accounting model.
For each class of equipment, DOE projected replacement shipments based
on the historical shipments, the expected useful lifetime of each
equipment class, and a Weibull distribution that identifies a
percentage of units still in existence from a prior year that will fail
and need to be replaced in the current year. In each year, DOE assumed
a fraction of the replacement market will be retired rather than
replaced due to the demolition of buildings in which this CWH equipment
resides. This retirement fraction was derived from building stock data
from the AEO 2015.\89\
---------------------------------------------------------------------------
\89\ U.S. Energy Information Administration (EIA), 2015 Annual
Energy Outlook (2015) Full report. DOE/EIA-0383 (2014) (Available
at: http://www.eia.gov/forecasts/aeo/).
---------------------------------------------------------------------------
To project shipments of commercial water heating equipment for new
construction, DOE relied on building stock data obtained from the AEO
2015. For this rulemaking, DOE assumes commercial water heating
equipment is used in both commercial and residential buildings,
including residential multi-family dwellings. DOE estimated a
saturation rate for each equipment type using building and equipment
stock values. The saturation rate was applied to new building additions
in each year, yielding shipments to new buildings. The building stock
and additions projections from the AEO 2015 are shown Table IV.31.
Table IV.31--Building Stock Projections
----------------------------------------------------------------------------------------------------------------
Total Commercial Total Residential
commercial building stock residential building
Year building stock additions building stock additions
(million sq. (million sq. (millions of (millions of
ft.) ft.) units) units)
----------------------------------------------------------------------------------------------------------------
2013............................................ 81,382 1,451 114.33 0.99
2019............................................ 85,888 2,077 119.41 1.67
2020............................................ 86,938 2,089 120.51 1.69
2025............................................ 92,037 2,027 125.82 1.70
2030............................................ 96,380 1,987 131.09 1.66
2035............................................ 100,920 2,302 136.04 1.62
2040............................................ 106,649 2,408 140.96 1.62
2045............................................ 112,186 2,651 146.22 1.73
2048............................................ 115,646 2,808 149.48 1.77
----------------------------------------------------------------------------------------------------------------
Source: EIA AEO 2015.
The final component in the stock accounting model is shifts to or
away from particular equipment classes. Based on the historic data,
there is an apparent shift toward electric storage water heaters. The
historical shipments summarized in Table IV.30 showed a fairly steady
growth in commercial electric storage water heaters, with shipments
growing from 22,288 in 1994 to 69,160 in 2013. Over the same time
period, commercial gas-fired storage water heaters have seen a decline
in shipments from 91,027 in 1994, to a low of 75,487 in 2009, and to
the higher value of 88,539 in 2013. Thus, there is an apparent shift
away from gas-fired storage units, and because residential-
[[Page 34490]]
duty gas-fired storage water heaters and gas-fired hot water supply
boiler shipments were linked to gas-fired storage units, there is an
apparent shift away from the residential-duty and hot water supply
boiler equipment classes as well in the shipments analysis. These
apparent shifts were developed for each equipment class and are
captured in DOE's shipments model. The development of the apparent
shifts and the effect on projected equipment class shipments is
detailed in Chapter 7 of the TSD.
For each equipment class, there are factors that influence the
magnitude of the apparent shifts, including relative fuel prices and
the resultant energy cost of competing products, relative equipment and
installation costs, repair and maintenance costs, commercial consumer
preferences, and outside influences such as ENERGY STAR and utility
conservation or marketing programs. If the slope of the apparent shifts
in shipments is held constant at the values developed for 2013, the
last year of historical data, over the study period commercial gas-
fired storage water heater shipments would continue to decline, falling
to 79,000 units by 2048, while over the same time period the commercial
electric storage water heater shipments would climb to over 200,000
units. Nothing in the long term historical data indicates that such a
wide disparity between gas-fired and electric storage water heater
equipment shipments would develop. The historical data summarized in
Table IV.30 show the growth rate in commercial gas-fired storage water
heater equipment shipments over time to be flat, or increasing if one
looks at the last 5 years. Rather than showing shifts that result in
the wide disparity between commercial gas-fired and electric storage
units, for the NOPR analyses DOE used a shift value equal to the 2013
shift values adjusted downward by 50 percent. The resulting shipment
projection continues the observed trends of electric storage water
heater shipments increasing over time at a rate faster than the
commercial gas-fired water heater equipment. The resulting projection
shows commercial electric storage water heater shipments exceeding
commercial gas-fired storage shipments by 2030. The commercial electric
storage water heater shipments exceed commercial gas-fired storage
water heater shipments by approximately 25 percent in final year of the
study period (2048).
For all equipment classes, DOE assumed that the apparent shift is
most likely to occur in new installations rather than in the
replacement installations. As described in chapter 9 of the TSD, DOE
assumed that a shift is twice as likely to take place in a new
installation as in a replacement installation. For example, if DOE
estimated that in 2014, 20 percent of shipments for an equipment class
went to new installations and 80 percent went for replacements in the
absence of switching, DOE multiplied the 20 percent multiplied by 2 (40
percent) and added the 80 percent (which equals 120 percent). Both the
40 percent for new and the 80 percent for replacement were then divided
by 120 percent to normalize to 100 percent.
The resulting shipment projection is shown in Table IV.32.
Table IV.32--Shipments of Commercial Water Heating Equipment
----------------------------------------------------------------------------------------------------------------
Residential-
Commercial gas- duty gas- Gas-fired Gas-fired hot Electric
Year fired storage fired storage tankless water water supply storage water
water heaters water heaters heaters boilers heaters
----------------------------------------------------------------------------------------------------------------
2013............................ 88,539 18,086 9,838 15,858 69,160
2019............................ 95,145 19,534 8,940 21,959 86,782
2020............................ 92,054 19,402 11,128 22,060 89,390
2025............................ 102,269 19,243 13,323 21,969 91,501
2030............................ 103,025 21,590 14,957 21,957 105,626
2035............................ 109,539 20,911 14,606 22,383 121,567
2040............................ 115,788 22,647 22,817 26,637 131,683
2045............................ 121,163 23,725 22,625 31,671 153,854
2048............................ 130,779 23,726 24,170 32,951 164,934
----------------------------------------------------------------------------------------------------------------
Because the estimated energy usage of CWH equipment differs by
commercial and residential setting, the NIA employs the same fractions
of shipments (or sales) to commercial and to residential commercial
consumers used by the LCC analysis. The fractions of shipments by type
of commercial consumer are shown in Table IV.33.
Table IV.33--Shipment Shares by Type of Commercial Consumer
------------------------------------------------------------------------
Residential
Equipment class Commercial (%) (%)
------------------------------------------------------------------------
Commercial gas-fired storage water 81.0 19.0
heaters and gas-fired storage-type
instantaneous water heaters............
Residential-duty gas-fired storage water 48.0 52.0
heaters................................
Gas-fired instantaneous water heaters
and hot water supply boilers:
Gas-fired tankless water heaters.... 67.0 33.0
Gas-fired hot water supply boilers.. 82.0 18.0
Electric storage water heaters.......... 77.0 23.0
------------------------------------------------------------------------
Issue 25: DOE seeks input on actual historical shipments for the
three equipment classes for which no historical shipments data exist--
residential-duty gas-fired storage water heaters, gas-fired tankless
water heaters, and gas-fired hot water supply boilers.
Issue 26: DOE seeks input on the methodology used to estimate the
historical shipments for the residential-duty gas-fired storage water
heater, gas-fired tankless water heater, and hot water supply boiler
equipment classes, particularly in the absence of actual historic
shipments data.
[[Page 34491]]
Issue 27: DOE seeks input on commercial consumer switching between
equipment types or fuel types, and specific information that DOE can
use to model such commercial consumer switching. For example, if a
commercial consumer switches away from commercial gas-fired storage
water heaters, to what type of equipment is the commercial consumer
most likely to switch, and is it a one-for-one switch or some other
ratio?
Issue 28: DOE seeks input on the shares of shipments allocated to
commercial and to residential consumer types.
For the NIA model, shipments must be disaggregated by efficiency
levels that correspond to the levels analyzed in the engineering and
LCC analyses. To identify the percentage of shipments corresponding to
each efficiency level, DOE compiled and analyzed a database of
equipment currently produced and sold by manufacturers. The sources of
information for this database included the AHRI Certification
Directory,\90\ the California Energy Commission Appliance Efficiency
Database,\91\ and manufacturer catalogs and Web sites. DOE recognizes
that demand varies across different models of equipment, and that by
relying on the database of existing equipment DOE is explicitly
assuming each model of equipment is equally likely to be shipped for
sale to commercial consumers. Lacking data to the contrary, DOE
determined that the distribution of shipments by efficiency level
derived from available equipment models is a reasonable approximation
of the distribution that would be derived from actual equipment
shipments.
---------------------------------------------------------------------------
\90\ AHRI Certification Directory is available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
\91\ California Energy Commission Appliance Efficiency Database
is available at: https://cacertappliances.energy.ca.gov/Pages/ApplianceSearch.aspx.
---------------------------------------------------------------------------
Pursuant to DOE's October 2014 RFI, stakeholders commented on
inputs to the shipment analysis and offered support. AHRI mentioned
that it was consulting with its members to develop information that
addressed efficiency market shares of shipments and would provide the
findings to DOE once they were collated. (AHRI, No. 5 at p. 6) Rheem
stated that over the last 3 years, the shipments mix had increased
towards high-efficiency gas-fired condensing water heaters. (Rheem, No.
10 at p. 8) Bradford White stated that it would work with AHRI to
respond on current and historical efficiency shares of shipments.
(Bradford White, No. 3 at p. 3) DOE appreciates the offer of assistance
from AHRI and manufacturers. DOE notes that this information was not
received (or at least, not received in time for use in this NOPR), but
DOE remains hopeful that AHRI and manufacturers can provide information
on shipments, generally, and on shipment efficiency distributions for
use in the next phase of this rulemaking.
Rheem stated that the percentage of commercial water heaters used
in single-family residential-duty applications is minimal. (Rheem, No.
10 at p. 6) DOE's LCC analysis estimated the fraction of each equipment
type that is applied to residential or commercial building types. For
the shipment analysis, the distinction between single-family and
multifamily construction would have a second-order impact on the
estimates of shipments. DOE uses the building stock estimates to derive
annual saturation rates, which are then applied to estimated new
construction. For the NOPR, DOE used total residential building stocks.
If DOE used only multifamily stocks, the saturation rates would be
higher, but the stock against which it is applied would be smaller, so
from a mathematical perspective, the results would be similar. The main
difference would derive from the fact that multifamily construction
would be projected to grow at different rates by EIA than would total
residential construction. Over the 30-year analysis period, total
residential stock grows at 1.0 percent while multifamily stock grows at
0.8 percent.
Issue 29: DOE seeks input on whether the shipment model should
assume that multifamily buildings are the only residential building
stock in which CWH equipment is used, or whether DOE should continue to
use total residential building stocks.
In terms of evaluating shipment growth, DOE used the projected
number of millions of square feet of floor space additions and new
residential construction to drive the new additions forecast. A number
of the topics discussed in the Joint Advocates comment, such as the
impact of increased equipment height or diameter on the ease with which
the equipment can physically be carried into a building, were
considered in the estimation of installation costs in the LCC analysis.
H. National Impact Analysis
The national impact analysis (NIA) analyzes the effects of a
potential energy conservation standard from a national perspective. The
NIA assesses the NES and the NPV of total commercial consumer costs and
savings that would be expected to result from the amended standards.
The NES and NPV are analyzed at specific efficiency levels (i.e., TSLs)
for each equipment class of CWH equipment. DOE calculates the NES and
NPV based on projections of annual equipment shipments, along with the
annual energy consumption and total installed cost data from the LCC
analysis. For the NOPR analysis, DOE forecasted the energy savings,
operating cost savings, equipment costs, and NPV of commercial consumer
benefits for equipment shipped from 2019 through 2048--the year in
which the last standards-compliant equipment would be shipped during
the 30-year analysis period.
DOE evaluates the impacts of the new and amended standards by
comparing no-new-standards-case projections with standards-case
projections. The no-new-standards-case projections characterize energy
use and commercial consumer costs for each equipment class in the
absence of any new or amended energy conservation standards. DOE
compares these no-new-standards-case projections with projections
characterizing the market for each equipment class if DOE adopted the
amended standards at each TSL. For the standards cases, DOE assumed a
``roll-up'' scenario in which equipment at efficiency levels that do
not meet the standard level under consideration would ``roll up'' to
the efficiency level that just meets the proposed standard level, and
equipment already being purchased at efficiency levels at or above the
proposed standard level would remain unaffected.
DOE uses a computer spreadsheet model to calculate the energy
savings and the national commercial consumer costs and savings from
each TSL. Chapter 10 and appendix 10A of the NOPR TSD explain the
models and how to use them, and interested parties can review DOE's
analyses by interacting with these spreadsheets. The models and
documentation are available on DOE's Web site.\92\ Interested parties
can review DOE's analyses by changing various input quantities within
the spreadsheet.
---------------------------------------------------------------------------
\92\ DOE's Web page on commercial water heating equipment is
available at: https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------
Unlike the LCC analysis, the NES analysis does not use
distributions for inputs or outputs, but relies on national average
equipment costs and energy costs. DOE used the NES spreadsheet to
perform calculations of energy savings and NPV using the annual energy
consumption, maintenance and repair costs, and total installed cost
data from the LCC analysis. The NIA also uses
[[Page 34492]]
projections of energy prices and building stock and additions from the
AEO 2015 Reference case. Additionally, DOE analyzed scenarios that used
inputs from the AEO 2015 Low Economic Growth and High Economic Growth
cases. These cases have lower and higher energy price trends,
respectively, compared to the Reference case. NIA results based on
these cases are presented in chapter 10 of the NOPR TSD.
A detailed description of the procedure to calculate NES and NPV
and inputs for this analysis are provided in chapter 10 of the NOPR
TSD.
1. Equipment Efficiency in the No-New-Standards Case and Standards
Cases
DOE uses a no-new-standards-case distribution of efficiency levels
to project what the CWH equipment market would look like in the absence
of amended standards. DOE developed the no-new-standards-case
distribution of equipment by thermal efficiency levels, and by standby
loss efficiency levels, for CWH equipment by analyzing a database \93\
of equipment currently available. DOE applied the percentages of models
within each efficiency range to the total unit shipments for a given
equipment class to estimate the distribution of shipments for the no-
new-standards case. Then, from those market shares and projections of
shipments by equipment class, DOE extrapolated future equipment
efficiency trends both for a no-new-standards-case scenario and for
standards-case scenarios.
---------------------------------------------------------------------------
\93\ This database was developed using model data from the AHRI
Certification Directory (available at: https://www.ahridirectory.org/ahridirectory/pages/home.aspx), California
Energy Commission Appliance Efficiency Database (available at:
https://cacertappliances.energy.ca.gov/Pages/ApplianceSearch.aspx),
and manufacturer Web sites and catalogs.
---------------------------------------------------------------------------
This rulemaking is examining potential improvements for both
thermal efficiency of equipment and in the standby energy usage. Thus,
two sets of efficiency distributions for the no-new standards-case
scenario were developed for these classes. Table IV.34 shows the
distribution of equipment by thermal efficiency level. The standby loss
efficiency distribution is summarized in Table IV.35.
Table IV.34--Market Shares by Thermal Efficiency Level *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Equipment class Et EL0 ** (%) Et EL1 (%) Et EL2 (%) Et EL3 (%) Et EL4 (%) Et EL5 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and gas-fired 57 12 0 6 23 1
storage-type instantaneous water heaters...............
Residential-duty gas-fired storage water heaters........ 66 9 3 16 6
Gas-fired instantaneous water heaters and hot water
supply boilers:
Gas-fired tankless water heaters.................... 16 40 28 4 4 8
Gas-fired hot water supply boilers.................. 40 24 14 2 7 13
Electric storage water heaters.......................... 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Due to rounding, shares for each equipment class might not add to 100 percent.
** Et EL refers to Thermal Efficiency Level.
Table IV.35--Market Shares by Standby Loss Efficiency Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Standby loss level
Equipment class ** Et EL0 * % Et EL1 (%) Et EL2 (%) Et EL3 (%) Et EL4 (%) Et EL5 (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired Storage and SL EL0.............. 76 88 0 67 33 75
storage-type instantaneous water SL EL1.............. 20 0 0 19 14 25
heaters. SL EL2.............. 4 13 100 14 53 0
Residential-duty gas-fired storage SL EL0.............. 82 17 0 0 0
water heaters. SL EL1.............. 11 0 100 100 100 ..............
SL EL2.............. 5 17 0 0 0 ..............
SL EL3.............. 2 67 0 0 0 ..............
Electric storage water heaters.... SL EL1.............. 97
SL EL2.............. 3 .............. .............. .............. .............. ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et EL refers to Thermal Efficiency Level.
** SL EL refers to Standby Loss Efficiency Level.
For each efficiency level analyzed, DOE used a ``roll-up'' scenario
to establish the market shares by efficiency level for the year that
compliance would be required with amended standards. The analysis
starts with the no-new-standards-case distributions wherein shipments
are assumed to be distributed across thermal efficiency levels as shown
in Table IV.34. When potential standard levels above the base level are
analyzed, as the name implies, the shipments in the no-new-standards
case that did not meet the thermal efficiency standard level being
considered would roll up to meet the amended standard level. This
information also suggests that equipment efficiencies in the no-new-
standards case that were above the standard level under consideration
would not be affected.
For the equipment classes for which standby loss standards are
being considered, the analysis takes into account a two-dimensional
rollup. Equipment is distributed across the thermal efficiency levels,
and for 3 classes, across the SL efficiency levels. Thus, in the
analysis, a second roll-up
[[Page 34493]]
occurs starting with equipment distributed across SL efficiency levels
as shown in Table IV.35. As higher SL levels are considered, equipment
not meeting the standard being considered would roll-up to the SL level
being considered. The no-new-standards-case efficiency distributions
for each equipment class are discussed more fully in chapter 10 of the
NOPR TSD.
2. National Energy Savings
The inputs for determining the NES are: (1) Annual energy
consumption per unit; (2) shipments; (3) equipment stock; and (4) site-
to-source and full-fuel-cycle conversion factors.
DOE calculated the NES associated with the difference between the
per-unit energy use under a standards-case scenario and the per-unit
energy use in the no-new-standards case. The average energy per unit
used by the commercial water heating equipment stock gradually
decreases in the standards case relative to the no-new-standards case
as more-efficient commercial water heating units gradually replaces
less-efficient units.
Unit energy consumption values for each equipment class are taken
from the LCC spreadsheet for each efficiency level and weighted based
on market efficiency distributions. To estimate the total energy
savings for each efficiency level, DOE first calculated the per-unit
energy reduction (i.e., the difference between the energy directly
consumed by a unit of equipment in operation in the no-new-standards
case and the standards case) for each class of commercial water heating
equipment for each year of the analysis period. The analysis period
begins with the expected compliance date of amended energy conservation
standards (i.e., 2019, or 3 years after the publication of a final rule
issued as a result of this rulemaking). Second, DOE determined the
annual site energy savings by multiplying the stock of each equipment
class by vintage (i.e., year of shipment) by the per-unit energy
reduction for each vintage (from step one). Third, DOE converted the
annual site electricity savings into the annual amount of energy saved
at the source of electricity generation (the source or primary energy),
using a time series of conversion factors derived from the latest
version of EIA's National Energy Modeling System (NEMS). Finally, DOE
summed the annual primary energy savings for the lifetime of units
shipped over a 30-year period to calculate the total NES. DOE performed
these calculations for each efficiency level considered for commercial
water heating equipment in this rulemaking.
DOE has historically presented NES in terms of primary energy
savings. In the case of electricity use and savings, primary energy
savings include the energy lost in the power system in the form of
losses as well as the energy input required at the electric generation
station in order to convert and deliver the energy required at the site
of consumption. DOE uses a multiplicative factor called the ``site-to-
source conversion factor'' to convert site energy consumption to
primary energy consumption.
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 full-fuel-cycle (FFC) measures of energy
use and greenhouse gas and other emissions in the national impact
analyses and emissions analyses included in future energy conservation
standards rulemakings. 76 FR 51281 (August 18, 2011). While DOE stated
in that notice that it intended to use the Greenhouse Gases, Regulated
Emissions, and Energy Use in Transportation (GREET) model to conduct
the analysis, it also said it would review alternative methods,
including the use of NEMS. After evaluating both models and the
approaches discussed in the August 18, 2011 notice, DOE published a
statement of amended policy in the Federal Register in which DOE
explained its determination that NEMS is a more appropriate tool for
its FFC analysis and its intention to use NEMS for that purpose. 77 FR
49701 (August 17, 2012). DOE received one comment, which was supportive
of the use of NEMS for DOE's FFC analysis.\94\
---------------------------------------------------------------------------
\94\ Docket ID: EERE-2010-BT-NOA-0028, comment by Kirk
Lundblade.
---------------------------------------------------------------------------
The approach used for this NOPR, the site-to-source ratios, and the
FFC multipliers that were applied are described in appendix 10D of the
NOPR TSD. NES results are presented in both primary and FFC savings in
section V.B.3.a.
DOE considered whether a rebound effect is applicable in its NES
analysis for commercial water heating equipment. A rebound effect
occurs when an increase in equipment efficiency leads to increased
demand for its service. For example, when a commercial consumer
realizes that a more-efficient water heating device will lower the
energy bill, that person may opt to increase his or her amenity level,
for example, by taking longer showers and thereby consuming more hot
water. In this way, the commercial consumer gives up a portion of the
energy cost savings in favor of the increased amenity. For the CWH
equipment market, there are two ways that a rebound effect could occur:
(1) Increased use of hot water within the buildings in which such units
are installed; and (2) additional hot water outlets that were not
previously installed. Because the CWH equipment that are the subject of
this notice are commercial equipment, the person owning the equipment
(i.e., the apartment or commercial building owner) is usually not the
person operating the equipment (e.g., the apartment renter, or the
restaurant employee using hot water to wash dishes). Because the
operator usually does not own the equipment, that person will not have
the operating cost information necessary to influence his or her
operation of the equipment. Therefore, DOE believes the first type of
rebound is unlikely to occur at levels that could be considered
significant. Similarly, the second type of rebound is unlikely because
a small change in efficiency is insignificant among the factors that
determine whether a company will invest the money required to pipe hot
water to additional outlets.
In the October 2014 RFI, DOE sought comments and data on any
rebound effect that may be associated with more efficient commercial
water heaters. 79 FR 62908 (October 21, 2014). DOE received two
comments. Both A. O. Smith and Joint Advocates did not believe a
rebound effect would be significant. A.O. Smith commented that water
usage is based on demand and more efficient water heaters won't change
the demand. (A. O. Smith, No. 2 at p. 4) Joint Advocates commented that
with the marginal change in energy bill for small business owners, they
would expect little increased hot water usage, and that for tenant-
occupied buildings it would be ``difficult to infer that more tenants
will wash their hands longer because the hot water costs the building
owner less.'' Thus, Joint Advocates thought the likelihood of a strong
rebound effect is very low. (Joint Advocates, No. 7 at p. 5) Based on
its understanding of CWH equipment use as well as comments received
from stakeholders, DOE concurs that the likelihood of a rebound effect
is small and has not included a rebound effect in the analysis.
American Gas Association suggested that DOE use full-fuel-cycle
measurements in its analysis. (AGA, No. 4 at p. 2) DOE agrees with the
suggestion.
Issue 30: DOE seeks input on the possibility that rebound effect
would be
[[Page 34494]]
significant, and if so, estimates of the impact of the rebound effect
on NES.
3. Net Present Value
To estimate the NPV, DOE calculated the net impact as the
difference between total operating cost savings and increases in total
installed costs. DOE calculated the NPV of each considered standard
level over the life of the equipment using the following three steps.
First, DOE determined the difference between the equipment costs
under the standard-level case and the no-new-standards case in order to
obtain the net equipment cost increase resulting from the higher
standard level. As noted in section IV.F.2.a, DOE used a constant real
price assumption as the default price projection; the cost to
manufacture a given unit of higher efficiency neither increases nor
decreases over time. The analysis of the price trends is described in
appendix 10B of the NOPR TSD.
Second, DOE determined the difference between the no-new-standards-
case operating costs and the standard-level operating costs in order to
obtain the net operating cost savings from each higher efficiency
level. Third, DOE determined the difference between the net operating
cost savings and the net equipment cost increase in order to obtain the
net savings (or expense) for each year. DOE then discounted the annual
net savings (or expenses) to 2015 for CWH equipment bought on or after
2019 and summed the discounted values to provide the NPV for an
efficiency level.
In accordance with the OMB's guidelines on regulatory analysis,\95\
DOE calculated NPV using both a 7-percent and a 3-percent real discount
rate. The 7-percent rate is an estimate of the average before-tax rate
of return on private capital in the U.S. economy. DOE used this
discount rate to approximate the opportunity cost of capital in the
private sector, because recent OMB analysis has found the average rate
of return on capital to be near this rate. DOE used the 3-percent rate
to capture the potential effects of standards on private consumption
(e.g., through higher prices for products and reduced purchases of
energy). This is the rate at which society discounts future consumption
flows to their present value. This rate can be approximated by the real
rate of return on long-term government debt (i.e., yield on United
States Treasury notes minus annual rate of change in the Consumer Price
Index), which has averaged about 3 percent on a pre-tax basis for the
past 30 years.
---------------------------------------------------------------------------
\95\ Office of Management and Budget, section E in OMB Circular
A-4 (Sept. 17, 2003) (Available at: www.whitehouse.gov/omb/circulars_a004_a-4).
---------------------------------------------------------------------------
American Gas Association recommended that DOE include a fuel
switching analysis to ensure that standards would not result in
switching to less-efficient energy sources. (AGA, No. 4 at p. 2) As
part of the analysis, DOE examined the possibility of fuel switching by
using NIA inputs to examine commercial consumer payback periods in
situations where commercial consumers switch from gas-fired to electric
water heaters. In an attempt to make the values comparable, DOE
adjusted values using ratios based on the first-hour ratings shown in
Table IV.36. In the case of moving from a commercial gas-fired to an
electric storage water heater, the electric water heater would cost
more to purchase and install and cost more to operate. In the
comparison of residential-duty gas-fired to electric storage water
heaters, the electric water heater would be less expensive to purchase
and install, but sufficiently more expensive to operate, such that the
upfront cost savings would be outweighed by higher operating costs in 3
years. Based on the comparison of storage water heating equipment, DOE
does not believe fuel switching from gas to electricity to be an issue.
Table IV.36--First-Hour Equipment Ratings Used In Fuel Switching Analysis
----------------------------------------------------------------------------------------------------------------
Commercial gas- Residential-
fired storage duty gas-fired Gas-fired Gas-fired hot Electric
Year water storage water tankless water water supply storage water
heaters heaters heaters boilers heaters
----------------------------------------------------------------------------------------------------------------
First-Hour Rating (gal)......... 283 134 268 664 165
Ratio to Commercial Gas-fired 1.00 0.47 * 0.32 2.34 0.58
Storage........................
----------------------------------------------------------------------------------------------------------------
* The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired
tankless water heaters is not directly comparable using only first-hour ratings. The ratio shown reflects in-
use delivery capability of the representative gas-fired tankless water heater model relative to the delivery
capability of the representative commercial gas-fired storage water heater, and includes an estimated 3-to-1
delivery capability tradeoff in combination with the first-hour rating.
DOE did not consider instantaneous gas-fired equipment and electric
storage to be likely objects of gas-to-electric fuel switching, largely
due to the disparity in hot water delivery capacity between the
instantaneous gas-fired equipment and commercial electric storage
equipment. As the first-hour ratings indicate in Table IV.36, a
commercial consumer would need to purchase between 2 and 4 electric
storage water heaters to switch from instantaneous gas-fired equipment
to the electric storage equipment. While feasible for commercial
consumers not facing space constraints, DOE considered it unlikely that
these consumers would chose to replace one wall-mounted tankless unit
with two much larger floor-mounted electric storage water heaters. It
also seemed unlikely that consumers would replace one hot water supply
boiler with multiple electric storage water heaters.
Accordingly, for the NOPR, DOE did not explicitly include fuel
switching beyond the continuation of historical trends discussed in
section IV.G.
I. Commercial Consumer Subgroup Analysis
In analyzing the potential impact of new or amended standards on
commercial consumers, DOE evaluates the impact on identifiable groups
(i.e., subgroups) of consumers, such as consumers at comparatively
lower income levels that may be disproportionately affected by a new or
revised national energy conservation standard level. The purpose of the
subgroup analysis is to determine the extent of any such
disproportionate impacts. For this rulemaking, DOE identified
commercial consumers at the lowest income bracket in the residential
sector and only included them for the residential sector subgroup
analysis. Additionally, DOE identified small
[[Page 34495]]
business groups in CBECS and only included those samples in the
commercial sector subgroup analysis. The following provides further
detail regarding DOE's consumer subgroup analysis.
Residential Sector Subgroup Analysis: The RECS database divides the
residential samples into 24 income bins. The income bins represent
total gross annual household income. As far as discount rates are
concerned, the survey of consumer finances divides the residential
population into six different income bins: Income bin 1 (0-20% income
percentile), income bin 2 (20-40% income percentile), income bin 3 (40-
60% income percentile), income bin 4 (60-80% income percentile), income
bin 5 (80-90% income percentile), and income bin 6 (90-100% income
percentile). In general, consumers in the lower income groups tend to
discount future streams of benefits at a higher rate, when compared to
consumers in the higher income groups.
Hence, to analyze the influence of a national standard on the low-
income group population, DOE conducted a (residential) subgroup
analysis where only the 0-20% income percentile samples were included
for the entire simulation run. Subsequently, the results of the
subgroup analysis are compared to the results from all commercial
consumers.
Commercial Sector Subgroup Analysis: DOE identified small
businesses within CBECS by using threshold levels in different building
types. Threshold levels indicating maximum number of employees in each
building type (such as Assembly, Education, Food Service, Office,
Retail, and Warehouse) are used to identify small business within
CBECS. Subsequently, in addition to the discount rate chosen for each
``small business'' sample, a premium of 1.9 percent is added to
evaluate future benefit and cost streams.\96\ A premium of 1.9
percentage points is added to each discounted rate by business type
from the central LCC to reflect the appropriate discount costs for
small business entities of that business type. This analytical setup
reflects the fact that in general, smaller businesses tend to discount
future streams of monetary flows at higher rates.
---------------------------------------------------------------------------
\96\ U.S. Small Business Administration, The Small Business
Economy (Available at: https://www.sba.gov/advocacy/small-business-economy) (Last accessed May 26, 2015).
---------------------------------------------------------------------------
The results of DOE's LCC subgroup analysis for both subgroups are
summarized in section V.B.1.b of this notice and described in detail in
chapter 11 of the NOPR TSD.
J. Manufacturer Impact Analysis
1. Overview
DOE performed a manufacturer impact analysis (MIA) to determine the
financial impact of amended energy conservation standards on
manufacturers of CWH equipment and to estimate the potential impact of
amended standards on employment and manufacturing capacity. The MIA has
both quantitative and qualitative aspects. The quantitative part of the
MIA primarily relies on the Government Regulatory Impact Model (GRIM),
an industry cash-flow model with inputs specific to this rulemaking.
The key GRIM inputs are industry cost structure data, shipment data,
equipment costs, and assumptions about markups and conversion costs.
The key output is the industry net present value (INPV). DOE used the
GRIM to calculate cash flows using standard accounting principles and
to compare changes in INPV between a no-new-standards case and various
TSLs (the standards cases). The difference in INPV between the no-new-
standards case and standards cases represents the financial impact of
amended energy conservation standards on manufacturers of CWH
equipment. DOE used different sets of assumptions (markup scenarios) to
represent the uncertainty surrounding potential impacts on prices and
manufacturer profitability as a result of amended standards. These
different assumptions produce a range of INPV results. The qualitative
part of the MIA addresses the proposed standard's potential impacts on
manufacturing capacity and industry competition, as well as any
differential impacts the proposed standard may have on any particular
subgroup of manufacturers. The qualitative aspect of the analysis also
addresses product characteristics, as well as any significant market or
product trends. The complete MIA is outlined in chapter 12 of the NOPR
TSD.
DOE conducted the MIA for this rulemaking in three phases. In the
first phase of the MIA, DOE prepared an industry characterization based
on the market and technology assessment, preliminary manufacturer
interviews, and publicly-available information. As part of its profile
of the CWH industry, DOE also conducted a top-down cost analysis of
manufacturers in order to derive preliminary financial inputs for the
GRIM (e.g., sales, general, and administration (SG&A) expenses;
research and development (R&D) expenses; and tax rates). DOE used
public sources of information, including company SEC 10-K filings,\97\
corporate annual reports, the U.S. Census Bureau's Economic Census,\98\
and Hoover's reports \99\ to conduct this analysis.
---------------------------------------------------------------------------
\97\ U.S. Securities and Exchange Commission, Annual 10-K
Reports (Various Years) (Available at: http://www.sec.gov/edgar/searchedgar/companysearch.html).
\98\ U.S. Census Bureau, Annual Survey of Manufacturers: General
Statistics: Statistics for Industry Groups and Industries (2011)
(Available at: http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t).
\99\ Hoovers Inc. Company Profiles, Various Companies (Available
at: http://www.hoovers.com).
---------------------------------------------------------------------------
In the second phase of the MIA, DOE prepared an industry cash-flow
analysis to quantify the potential impacts of amended energy
conservation standards. In general, energy conservation standards can
affect manufacturer cash flow in three distinct ways. These include:
(1) Creating a need for increased investment; (2) raising production
costs per unit; and (3) altering revenue due to higher per-unit prices
and due to possible changes in sales volumes. DOE estimated industry
cash flows in the GRIM at various potential standard levels using
industry financial parameters derived in the first phase and the
shipment scenario used in the NIA. DOE used the GRIM to model impacts
from proposed energy conservation standards for both thermal efficiency
and standby loss. The GRIM results for the standards for both metrics
were analyzed together because the examined trial standard levels
include both thermal efficiency and standby loss levels (see section
V.A for more detail).
In the third phase of the MIA, DOE conducted structured, detailed
interviews with a variety of manufacturers that represent approximately
88 percent of domestic sales of CWH equipment covered by this
rulemaking. During these interviews, DOE discussed engineering,
manufacturing, procurement, and financial topics to validate
assumptions used in the GRIM. DOE also solicited information about
manufacturers' views of the industry as a whole and their key concerns
regarding this rulemaking. Section IV.J.3 includes a description of the
key issues manufacturers raised during the interviews.
Additionally, in the third phase, DOE 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. For
example, small manufacturers, niche players, or manufacturers
exhibiting a cost structure that largely
[[Page 34496]]
differs from the industry average could be more negatively affected by
amended energy conservation standards. DOE identified one subgroup
(small manufacturers) for a separate impact analysis.
To identify small businesses for this analysis, DOE applied the
small business size standards published by the Small Business
Administration (SBA) to determine whether a company is considered a
small business. 65 FR 30836, 30848 (May 15, 2000), as amended at 77 FR
49991, 50000, 50011 (August 20, 2012) and codified at 13 CFR part 121.
The small business size standards are listed by North American Industry
Classification System (NAICS) code and industry description and are
available at: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. CWH manufacturing is classified under NAICS
code 333318, ``Other Commercial and Service Industry Machinery
Manufacturing.'' To be considered a small business under this category,
a CWH equipment manufacturer may employ a maximum of 1,000 employees.
This 1,000-employee threshold includes all employees in a business's
parent company and any other subsidiaries. Based on this
classification, DOE identified 13 manufacturers of CWH equipment that
qualify as small businesses. The CWH small manufacturer subgroup is
discussed in section VI.B of this NOPR and in chapter 12 of the NOPR
TSD.
2. GRIM Analysis
DOE uses the GRIM to quantify the potential changes in cash flow
due to amended standards that result in a higher or lower industry
value. The GRIM is used to conduct an annual cash-flow analysis using
standard accounting principles that incorporates manufacturer costs,
markups, shipments, and industry financial information as inputs. DOE
thereby calculated a series of annual cash flows, beginning in 2015
(the base year of the analysis) and continuing to 2048. DOE summed the
stream of annual discounted cash flows during this period to calculate
INPVs at each TSL. For CWH equipment manufacturers, DOE used a real
discount rate of 9.1 percent, which was derived from industry financial
information and then modified according to feedback received during
manufacturer interviews. DOE also used the GRIM to model changes in
costs, shipments, investments, and manufacturer margins that could
result from amended energy conservation standards.
After calculating industry cash flows and INPV, DOE compared
changes in INPV between the no-new-standards case and each standards
case. The difference in INPV between the no-new-standards case and a
standards case represents the financial impact of the amended energy
conservation standard on manufacturers at a particular TSL. As
discussed previously, DOE collected this information on GRIM inputs
from a number of sources, including publicly-available data and
confidential interviews with a number of manufacturers. GRIM inputs are
discussed in more detail in the next section. The GRIM results are
discussed in section V.B.2. Additional details about the GRIM, the
discount rate, and other financial parameters can be found in chapter
12 of the NOPR TSD.
For consideration of amended standby loss standards, DOE modeled
the impacts to manufacturers of adapting their currently-offered
equipment to comply with each potential standby loss level analyzed in
the engineering analysis. The GRIM analysis incorporates the
incremental increases in MPC at each standby loss level and the
resulting impacts on markups. Section IV.C.3 and chapter 5 of the NOPR
TSD include further discussion of efficiency levels and equipment
classes analyzed.
a. Government Regulatory Impact Model Key Inputs
Manufacturer Production Costs
Manufacturing higher-efficiency equipment is typically more
expensive than manufacturing baseline equipment due to the use of more
complex and costly components. The changes in the MPCs of the analyzed
equipment can affect the revenues, gross margins, and cash flow of the
industry. As a result, MPCs are key GRIM inputs for DOE's analysis.
In the MIA, DOE used the MPCs for each considered efficiency level
calculated in the engineering analysis, as described in section IV.C
and further detailed in chapter 5 of the NOPR TSD. In addition, DOE
used information from its teardown analysis (described in chapter 5 of
the TSD) to disaggregate the MPCs into material, labor, depreciation,
and overhead costs. To calculate the MPCs for equipment at and above
the baseline, DOE performed teardowns and cost analysis that allowed
DOE to estimate the incremental material, labor, depreciation, and
overhead costs for equipment above the baseline. These cost breakdowns
and equipment markups were validated and revised with input from
manufacturers during manufacturer interviews.
Shipments Forecast
The GRIM estimates manufacturer revenues based on total unit
shipment forecasts and the distribution of these values 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 forecasts derived from the shipments
analysis from 2015 (the base year) to 2048 (the end year of the
analysis period). The shipments model divides the shipments of CWH
equipment into specific market segments. The model starts from a
historical base year and calculates retirements and shipments by market
segment for each year of the analysis period. This approach produces an
estimate of the total equipment stock, broken down by age or vintage,
in each year of the analysis period. In addition, the equipment stock
efficiency distribution is calculated for the no-new-standards case and
for each standards case for each equipment class. The NIA shipments
forecasts are based on a roll-up scenario. The forecast assumes that
equipment in the no-new-standards case that does not meet the standard
under consideration would ``roll up'' to meet the amended standard
beginning in the compliance year of 2019. Section IV.G and chapter 9 of
the NOPR TSD include additional details on the shipments analysis.
Product and Capital Conversion Costs
Amended energy conservation standards would cause manufacturers to
incur one-time 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 for each equipment class. For the MIA,
DOE classified these conversion costs into two major groups: (1)
Capital conversion costs; and (2) product conversion costs. Capital
conversion costs are one-time investments in property, plant, and
equipment necessary to adapt or change existing production facilities
such that new compliant equipment designs can be fabricated and
assembled. Product conversion costs are one-time investments in
research, development, testing, marketing, and other non-capitalized
costs necessary to make equipment designs comply with amended energy
conservation standards.
[[Page 34497]]
To develop conversion cost estimates, DOE used feedback received
during manufacturer interviews, as well as data on manufacturing and
equipment development costs derived from the equipment teardowns and
engineering analysis discussed in chapter 5 of the NOPR TSD. DOE
estimated conversion costs required to meet higher thermal efficiency
levels for each equipment class and also evaluated conversion costs
required to achieve higher standby loss levels, where applicable.
To evaluate the level of capital conversion expenditures
manufacturers would likely incur to comply with amended thermal
efficiency levels, DOE used data derived from the engineering analysis
and equipment teardowns. DOE used these analyses to estimate
investments in property, plant, and equipment that would be necessary
to achieve higher thermal efficiency levels. DOE also used results from
the engineering analysis to estimate capital expenditures manufacturers
may have to make to upgrade their R&D and testing facilities.
To evaluate the level of product conversion costs manufacturers
would likely incur to comply with amended thermal efficiency standards,
DOE estimated the number of platforms each manufacturer would have to
modify in order to move their equipment lines to each incremental
efficiency level. These platform number estimates were based on the
variation of units by input capacity offered by each manufacturer. DOE
then developed the product conversion costs by estimating the amount of
labor per platform manufacturers would need for research and
development to raise models to each incremental efficiency level.
To evaluate the level of conversion costs manufacturers would
likely incur to comply with amended standby loss standards, DOE used
feedback received during manufacturer interviews, as well as data
derived from the engineering analysis. For both commercial gas-fired
storage water heaters and electric storage water heaters, DOE estimated
that manufacturers would incur approximately $1.1 million in capital
conversion costs at all standby loss levels above the baseline. For
residential-duty gas-fired storage water heaters, DOE did not include
capital conversion costs at the analyzed standby loss levels, because
DOE has tentatively concluded that manufacturers already possess the
machinery and tooling necessary to achieve those levels as part of
their current production capabilities for either residential water
heaters or residential-duty commercial water heaters. DOE does not
expect manufacturers to incur any product conversion costs related to
amended standby loss standards, because DOE expects no substantial
redesign work or research and development would be necessary to achieve
the standby loss levels analyzed in the engineering analysis. Section
IV.C.3.b of this NOPR and Chapter 5 of the NOPR TSD include additional
details on the efficiency levels analyzed in the engineering analysis.
Issue 31: DOE requests comment on whether manufacturers would incur
any product conversion costs (i.e., substantial redesign work or
research and development) related to the standby loss levels analyzed
in this NOPR.
In general, DOE assumes that all conversion-related investments
occur between the year of publication of the final rule and the year by
which manufacturers must comply with the amended standards. The
conversion cost figures used in the GRIM can be found in section V.B.2
of this notice. For additional information on the estimated product and
capital conversion costs, see chapter 12 of the NOPR TSD.
b. Government Regulatory Impact Model Scenarios
Markup Scenarios
As discussed in the previous section, MSPs include direct
manufacturing production costs (i.e., labor, materials, depreciation,
and overhead estimated in DOE's MPCs) and all non-production costs
(i.e., SG&A, R&D, and interest), along with profit. To calculate the
MSPs in the GRIM, DOE applied non-production cost markups to the MPCs
estimated in the engineering analysis for each equipment class and
efficiency level. Specifically, the manufacturer markup is a multiplier
that is applied to the MPC. The MSP is calculated by adding the
shipping cost to the product of the MPC and manufacturer markup.
Modifying these markups in the standards case yields different sets of
impacts on manufacturers. For the MIA, DOE modeled two standards-case
markup scenarios to represent the uncertainty regarding the potential
impacts on prices and profitability for manufacturers following the
implementation of amended energy conservation standards: (1) A
preservation of gross margin percentage markup scenario; and (2) a
preservation of per-unit operating profit markup scenario. These
scenarios lead to different markup values that, when applied to the
inputted MPCs, result in varying revenue and cash-flow impacts.
Under the preservation of gross margin percentage markup scenario,
DOE applied a single uniform ``gross margin percentage'' markup across
all efficiency levels, which assumes that following amended standards,
manufacturers would be able to maintain the same amount of profit as a
percentage of revenue at all efficiency levels within an equipment
class. As production costs increase with efficiency, this scenario
implies that the absolute dollar markup will increase as well. Because
manufacturers are able to fully pass through additional costs due to
standards to commercial consumers, the preservation of gross margin
percentage markup scenario represents the upper bound of the CWH
industry's profitability in the standards case.
To estimate the average non-production cost markup used in the
preservation of gross margin percentage markup scenario, DOE analyzed
publicly-available financial information for manufacturers of CWH
equipment. DOE then requested feedback on its initial markup estimates
during manufacturer interviews. The revised markups, which are used in
DOE's quantitative analysis of industry financial impacts, are
presented in Table IV.37. These markups capture all non-production
costs, including SG&A expenses, R&D expenses, interest expenses, and
profit.
Table IV.37--Manufacturer Markups by Equipment Class for Preservation of
Gross Margin Scenario
------------------------------------------------------------------------
Equipment class Markup
-----------------------------------------------------------------------
Commercial gas-fired storage and gas-fired storage- 1.45
type instantaneous water heaters...................
Residential-duty gas-fired storage water heaters.... 1.45
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters.......................... 1.43
Hot water supply boilers........................ 1.43
Electric storage water heaters...................... 1.41
------------------------------------------------------------------------
[[Page 34498]]
DOE also models the preservation of per-unit operating profit
scenario because manufacturers stated that they do not expect to be
able to mark up the full cost of production in the standards case,
given the highly competitive nature of the CWH market. In this
scenario, manufacturer markups are set so that operating profit one
year after the compliance date of amended energy conservation standards
is the same as in the no-new-standards case on a per-unit basis. In
other words, manufacturers are not able to garner additional operating
profit from the higher production costs and the investments that are
required to comply with the amended standards; however, they are able
to maintain the same operating profit in the standards case that was
earned in the no-new-standards case. Therefore, operating margin in
percentage terms is reduced between the no-new-standards case and
standards case. DOE adjusted the manufacturer markups in the GRIM at
each TSL to yield approximately the same per-unit earnings before
interest and taxes in the standards case as in the no-new-standards
case. The preservation of per-unit operating profit markup scenario
represents the lower bound of industry profitability in the standards
case. This is because manufacturers are not able to fully pass through
to commercial consumers the additional costs necessitated by amended
standards for CWH equipment, as they are able to do in the preservation
of gross margin percentage markup scenario.
3. Manufacturer Interviews
DOE interviewed manufacturers representing approximately 88 percent
of the CWH market by revenue. DOE contractors endeavor to conduct
interviews with a representative cross-section of manufacturers
(including large and small manufacturers, covering all equipment
classes and product offerings). DOE contractors reached out to all the
small business manufacturers that were identified as part of the
analysis, as well as larger manufacturers that have significant market
share in the CWH market. As part of these interviews, DOE gathered
manufacturer feedback regarding both the engineering analysis and MIA
for this rulemaking. The information gathered during these interviews
enabled DOE to tailor the GRIM to reflect the unique financial
characteristics of the CWH industry. All interviews provided
information that DOE used to evaluate the impacts of potential amended
energy conservation standards on manufacturer cash flows, manufacturing
capacities, and employment levels.
In interviews, DOE asked manufacturers to describe their major
concerns with potential standards arising from a rulemaking involving
CWH equipment. Manufacturer interviews are conducted under non-
disclosure agreements (NDAs), so DOE does not document these
discussions in the same way that it does public comments in the comment
summaries and DOE's responses throughout the rest of this notice. The
following sections highlight the most significant of manufacturers'
statements that helped shape DOE's understanding of potential impacts
of an amended standard on the industry. Common issues raised by
manufacturers in interviews included: the magnitude of conversion costs
and the complexity and cost of retrofits.
Magnitude of Conversion Costs
Manufacturers stated in interviews that an increase in the
stringency of energy conservation standards may cause them to face
significant capital and product conversion costs to bring their
equipment into compliance if DOE were to propose a standard that
necessitates condensing technology. While all major CWH manufacturers
currently produce condensing equipment, most also offer a wide range of
non-condensing equipment that they stated is important in serving the
replacement market. Manufacturers stated that eliminating non-
condensing equipment would strand production assets and could result in
manufacturers having to make capital investments in machinery and
tooling to increase their condensing equipment production capacity.
Manufacturers also stated that shifting their entire product line
to condensing equipment would require significant product conversion
costs for R&D and testing. Most manufacturers currently offer a less
diverse product line of condensing equipment, compared to their non-
condensing equipment offerings. Several stated that in order to serve
the replacement market and remain competitive, they would need to
develop a range of sizes and capacities of condensing equipment that
they currently only offer at non-condensing thermal efficiency levels.
Manufacturers stated that this would require a substantial engineering
effort.
Complexity and Cost of Retrofits
In interviews, several manufacturers pointed out that approximately
85 percent of CWH equipment sales are conducted in the replacement
channel, rather than the new construction channel. They stated that the
majority of the CWH market is structured around the legacy venting
infrastructure designed for non-condensing equipment. Manufacturers
stated that these venting systems are not designed to handle the acidic
condensate that develops in condensing equipment. Manufacturers were
concerned that commercial consumers would have to make expensive
retrofits to install condensing products. According to manufacturers,
this may result in commercial consumers repairing water heaters, rather
than replacing them, which manufacturers argued would not save energy.
Impacts on Innovation
Manufacturers expressed concern that more-stringent energy
conservation standards may stifle innovation in the industry by causing
manufacturers to spend funds set aside for product innovation on
compliance efforts instead. Several manufacturers pointed out that it
is important for them to continually develop unique and innovative
products in order to differentiate their brands in the market. They
pointed out that it is difficult to accomplish this when engineering
resources are diverted to focus on compliance with amended DOE
standards. Manufacturers stated that this concern is particularly
important for small manufacturers' ability to compete in the market.
Small manufacturers generally have fewer resources to devote to
compliance, and so may be at a disadvantage if DOE amends energy
conservation standards.
K. Emission Analysis
The emissions analysis consists of two components. The first
component estimates the effect of potential energy conservation
standards on power sector and site (where applicable) combustion
emissions of CO2, NOX, SO2, and Hg.
The second component estimates the impacts of potential standards on
emissions of two additional greenhouse gases, CH4 and
N2O, as well as the reductions to emissions of all species
due to ``upstream'' activities in the fuel production chain. These
upstream activities comprise extraction, processing, and transporting
fuels to the site of combustion. The associated emissions are referred
to as upstream emissions.
The analysis of power sector emissions uses marginal emissions
factors calculated using a methodology based on results published for
the AEO 2015 Reference case and a set of side cases that implement a
variety of efficiency-related policies. The methodology is described in
chapter 15 of the NOPR TSD.
[[Page 34499]]
Combustion emissions of CH4 and N2O are
estimated using emissions intensity factors published by the EPA, GHG
Emissions Factors Hub.\100\ The FFC upstream emissions are estimated
based on the methodology described in chapter 15 of the NOPR TSD. The
upstream emissions include both emissions from fuel combustion during
extraction, processing, and transportation of fuel, and ``fugitive''
emissions (direct leakage to the atmosphere) of CH4 and
CO2.
---------------------------------------------------------------------------
\100\ Available at: http://www.epa.gov/climateleadership/inventory/ghg-emissions.html.
---------------------------------------------------------------------------
The emissions intensity factors are expressed in terms of physical
units per MWh or MMBtu of site energy savings. Total emissions
reductions are estimated using the energy savings calculated in the
national impact analysis.
For CH4 and N2O, DOE calculated emissions
reduction in tons and also in terms of units of carbon dioxide
equivalent (CO2eq). Gases are converted to CO2eq
by multiplying the physical units by the gas's global warming potential
(GWP) over a 100-year time horizon. Based on the Fifth Assessment
Report of the Intergovernmental Panel on Climate Change,\101\ DOE used
GWP values of 28 for CH4 and 265 for N2O.
---------------------------------------------------------------------------
\101\ IPCC (2013): Climate Change 2013: The Physical Science
Basis. Contribution of Working Group I to the Fifth Assessment
Report of the Intergovernmental Panel on Climate Change [Stocker,
T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A.
Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge
University Press, Cambridge, United Kingdom and New York, NY, USA.
Chapter 8.
---------------------------------------------------------------------------
Because the on-site operation of some CWH equipment requires use of
fossil fuels and results in emissions of CO2,
NOX, and SO2 at the sites where these appliances
are used, DOE also accounted for the reduction in these site emissions
and the associated upstream emissions due to potential standards. Site
emissions were estimated using emissions intensity factors from an EPA
publication.\102\
---------------------------------------------------------------------------
\102\ U.S. Environmental Protection Agency, Compilation of Air
Pollutant Emission Factors, AP-42, Fifth Edition, Volume I:
Stationary Point and Area Sources (1998) (Available at: http://www.epa.gov/ttn/chief/ap42/index.html).
---------------------------------------------------------------------------
The AEO incorporates the projected impacts of existing air quality
regulations on emissions. AEO 2015 generally represents current
legislation and environmental regulations, including recent government
actions, for which implementing regulations were available as of
October 31, 2014. DOE's estimation of impacts accounts for the presence
of the emissions control programs discussed in the following
paragraphs.
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 28 eastern States and DC were also limited under the
Clean Air Interstate Rule (CAIR). 70 FR 25162 (May 12, 2005). CAIR
created an allowance-based trading program that operates along with the
Title IV program. In 2008, CAIR was remanded to EPA by the U.S. Court
of Appeals for the District of Columbia Circuit, but it remained in
effect.\103\ In 2011, EPA issued a replacement for CAIR, the Cross-
State Air Pollution Rule (CSAPR). 76 FR 48208 (August 8, 2011). On
August 21, 2012, the DC Circuit issued a decision to vacate CSAPR,\104\
and the court ordered EPA to continue administering CAIR. On April 29,
2014, the U.S. Supreme Court reversed the judgment of the DC Circuit
and remanded the case for further proceedings consistent with the
Supreme Court's opinion.\105\ On October 23, 2014, the DC Circuit
lifted the stay of CSAPR.\106\ Pursuant to this action, CSAPR went into
effect (and CAIR ceased to be in effect) as of January 1, 2015. On July
28, 2015, the DC Circuit issued its opinion regarding CSAPR on remand
from the Supreme Court. The court largely upheld CSAPR, but remanded to
EPA without vacatur certain States' emissions budgets for
reconsideration.\107\
---------------------------------------------------------------------------
\103\ See North Carolina v. EPA, 550 F.3d 1176 (D.C. Cir. 2008);
North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008).
\104\ See EME Homer City Generation, LP v. EPA, 696 F.3d 7, 38
(D.C. Cir. 2012), cert. granted, 81 U.S.L.W. 3567, 81 U.S.L.W. 3696,
81 U.S.L.W. 3702 (U.S. June 24, 2013) (No. 12-1182).
\105\ EPA v. EME Homer City Generation, 134 S.Ct. 1584, 1610
(U.S. 2014). The Supreme Court held in part that EPA's methodology
for quantifying emissions that must be eliminated in certain States
due to their impacts in other downwind States was based on a
permissible, workable, and equitable interpretation of the Clean Air
Act provision that provides statutory authority for CSAPR.
\106\ EME Homer City Generation v. EPA, Order (D. C. Cir. filed
October 23, 2014) (No. 11-1302).
\107\ EME Homer City Generation, LP v. EPA 795 F.3d 118 (D.C.
Cir. 2015).
---------------------------------------------------------------------------
EIA was not able to incorporate CSAPR into AEO 2015, so it assumes
implementation of CAIR. Accordingly, DOE's analysis used emissions
factors that assume that CAIR, not CSAPR, is the regulation in force.
However, the difference between CAIR and CSAPR is not significant for
the purpose of DOE's analysis of emissions impacts from energy
conservation standards.
The attainment of emissions caps is typically flexible among EGUs
and is enforced through the use of emissions allowances and tradable
permits. Under existing EPA regulations, any excess SO2
emissions allowances resulting from the lower electricity demand caused
by the adoption of an efficiency standard could be used to permit
offsetting increases in SO2 emissions by any regulated EGU.
In past rulemakings, DOE recognized that there was uncertainty about
the effects of efficiency standards on SO2 emissions covered
by the existing cap-and-trade system, but it concluded that negligible
reductions in power sector SO2 emissions would occur as a
result of standards.
Beginning around 2016, however, SO2 emissions will fall
as a result of the Mercury and Air Toxics Standards (MATS) for power
plants.\108\ 77 FR 9304 (Feb. 16, 2012). In the final MATS rule, EPA
established a standard for hydrogen chloride as a surrogate for acid
gas hazardous air pollutants (HAP), and also established a standard for
SO2 (a non-HAP acid gas) as an alternative equivalent
surrogate standard for acid gas HAP. The same controls are used to
reduce HAP and non-HAP acid gas; thus, SO2 emissions will be
reduced as a result of the control technologies installed on coal-fired
power plants to comply with the MATS requirements for acid gas. AEO
2015 assumes that, in order to continue operating, coal plants must
have either flue gas desulfurization or dry sorbent injection systems
installed by 2016. Both technologies, which are used to reduce acid gas
emissions, also reduce SO2 emissions. Under the MATS,
emissions will be far below the cap that would be established by CAIR,
so it is unlikely that excess SO2 emissions allowances
resulting from the lower electricity
[[Page 34500]]
demand would be needed or used to permit offsetting increases in
SO2 emissions by any regulated EGU. Therefore, DOE believes
that energy conservation standards will reduce SO2 emissions
in 2016 and beyond.
---------------------------------------------------------------------------
\108\ DOE notes that on June 29, 2015, the U.S. Supreme Court
ruled that the EPA erred when the agency concluded that cost did not
need to be considered in the finding that regulation of hazardous
air pollutants from coal- and oil-fired electric utility steam
generating units is appropriate and necessary. Michigan v.
Environmental Protection Agency, 576 U.S. ___ (2015). The Supreme
Court did not vacate the MATS rule, and DOE has tentatively
determined that the Court's decision on the MATS rule does not
change the assumptions regarding the impact of energy conservation
standards on SO2 emissions (see chapter 13 of the NOPR
TSD for further discussion). Further, the Court's decision does not
change the impact of the energy conservation standards on mercury
emissions. The EPA, in response to the U.S. Supreme Court's
direction, has now considered cost in the appropriate and necessary
finding. On November 20, 2015, the EPA proposed a supplemental
finding that including a consideration of cost does not alter the
EPA's previous determination that it is appropriate to regulate air
toxics, including mercury, from power plants.
---------------------------------------------------------------------------
CAIR established a cap on NOX emissions in 28 eastern
States and the District of Columbia.\109\ Energy conservation standards
are expected to have little effect on NOX emissions in those
States covered by CAIR because excess NOX emissions
allowances resulting from the lower electricity demand could be used to
permit offsetting increases in NOX emissions from other
facilities. However, standards would be expected to reduce
NOX emissions in the States not affected by the caps, so DOE
estimated NOX emissions reductions from the standards
considered in this NOPR for these States.
---------------------------------------------------------------------------
\109\ CSAPR also applies to NOX, and it would
supersede the regulation of NOX under CAIR. As stated
previously, the current analysis assumes that CAIR, not CSAPR, is
the regulation in force. The difference between CAIR and CSAPR with
regard to DOE's analysis of NOX emissions is slight.
---------------------------------------------------------------------------
The MATS limit mercury emissions from power plants, but they do not
include emissions caps, and as such, DOE's energy conservation
standards would likely reduce Hg emissions. DOE estimated mercury
emissions reduction using emissions factors based on AEO 2015, which
incorporates MATS.
L. Monetizing Carbon Dioxide and Other Emissions Impacts
As part of the development of this NOPR, DOE considered the
estimated monetary benefits from the reduced emissions of
CO2 and NOX that are expected to result from each
of the TSLs considered. In order to make this calculation similar to
the calculation of the NPV of commercial consumer benefit, DOE
considered the reduced emissions expected to result over the lifetime
of equipment shipped in the forecast period for each TSL. This section
summarizes the basis for the monetary values used for CO2
and NOX emissions and presents the values considered in this
NOPR.
For this NOPR, DOE is relying on a set of values for the social
cost of carbon (SCC) that was developed by an interagency process. A
summary of the basis for those values is provided in the following
subsection, and a more detailed description of the methodologies used
is provided as an appendix to chapter 14 of the NOPR TSD.
1. Social Cost of Carbon
The SCC is an estimate of the monetized damages associated with an
incremental increase in carbon emissions in a given year. It is
intended to include (but is not limited to) changes in net agricultural
productivity, human health, property damages from increased flood risk,
and the value of ecosystem services. Estimates of the SCC are provided
in dollars per metric ton of carbon dioxide. A domestic SCC value is
meant to reflect the value of damages in the United States resulting
from a unit change in carbon dioxide emissions, while a global SCC
value is meant to reflect the value of damages worldwide.
Under section 1(b)(6) of Executive Order 12866, ``Regulatory
Planning and Review,'' 58 FR 51735 (Oct. 4, 1993), agencies must, to
the extent permitted by law, assess both the costs and the benefits of
the intended regulation and, recognizing that some costs and benefits
are difficult to quantify, propose or adopt a regulation only upon a
reasoned determination that the benefits of the intended regulation
justify its costs. The purpose of the SCC estimates presented here is
to allow agencies to incorporate the monetized social benefits of
reducing CO2 emissions into cost-benefit analyses of
regulatory actions. The estimates are presented with an acknowledgement
of the many uncertainties involved and with a clear understanding that
they should be updated over time to reflect increasing knowledge of the
science and economics of climate impacts.
As part of the interagency process that developed the SCC
estimates, technical experts from numerous agencies met on a regular
basis to consider public comments, explore the technical literature in
relevant fields, and discuss key model inputs and assumptions. The main
objective of this process was to develop a range of SCC values using a
defensible set of input assumptions grounded in the existing scientific
and economic literatures. In this way, key uncertainties and model
differences transparently and consistently inform the range of SCC
estimates used in the rulemaking process.
a. Monetizing Carbon Dioxide Emissions
When attempting to assess the incremental economic impacts of
carbon dioxide emissions, the analyst faces a number of challenges. A
recent report from the National Research Council\110\ points out that
any assessment will suffer from uncertainty, speculation, and lack of
information about: (1) Future emissions of greenhouse gases; (2) the
effects of past and future emissions on the climate system; (3) the
impact of changes in climate on the physical and biological
environment; and (4) the translation of these environmental impacts
into economic damages. As a result, any effort to quantify and monetize
the harms associated with climate change will raise questions of
science, economics, and ethics and should be viewed as provisional.
---------------------------------------------------------------------------
\110\ National Research Council, Hidden Costs of Energy:
Unpriced Consequences of Energy Production and Use, National
Academies Press: Washington, DC (2009).
---------------------------------------------------------------------------
Despite the limits of both quantification and monetization, SCC
estimates can be useful in estimating the social benefits of reducing
carbon dioxide emissions. The agency can estimate the benefits from
reduced (or costs from increased) emissions in any future year by
multiplying the change in emissions in that year by the SCC value
appropriate for that year. The net present value of the benefits can
then be calculated by multiplying the future benefits by an appropriate
discount factor and summing across all affected years.
It is important to emphasize that the interagency process is
committed to updating these estimates as the science and economic
understanding of climate change and its impacts on society improves
over time. In the meantime, the interagency group will continue to
explore the issues raised by this analysis and consider public comments
as part of the ongoing interagency process.
b. Development of Social Cost of Carbon Values
In 2009, an interagency process was initiated to offer a
preliminary assessment of how best to quantify the benefits from
reducing carbon dioxide emissions. To ensure consistency in how
benefits are evaluated across agencies, the Administration sought to
develop a transparent and defensible method, specifically designed for
the rulemaking process, to quantify avoided climate change damages from
reduced CO2 emissions. The interagency group did not
undertake any original analysis. Instead, it combined SCC estimates
from the existing literature to use as interim values until a more
comprehensive analysis could be conducted. The outcome of the
preliminary assessment by the interagency group was a set of five
interim values: Global SCC estimates for 2007 (in 2006$) of $55, $33,
$19, $10, and $5 per metric ton of CO2. These interim values
represented the first sustained interagency effort within the U.S.
government to develop
[[Page 34501]]
an SCC for use in regulatory analysis. The results of this preliminary
effort were presented in several proposed and final rules.
c. Current Approach and Key Assumptions
After the release of the interim values, the interagency group
reconvened on a regular basis to generate improved SCC estimates.
Specifically, the group considered public comments and further explored
the technical literature in relevant fields. The interagency group
relied on three integrated assessment models commonly used to estimate
the SCC: the FUND, DICE, and PAGE models. These models are frequently
cited in the peer-reviewed literature and were used in the last
assessment of the Intergovernmental Panel on Climate Change (IPCC).
Each model was given equal weight in the SCC values that were
developed.
Each model takes a slightly different approach to model how changes
in emissions result in changes in economic damages. A key objective of
the interagency process was to enable a consistent exploration of the
three models, while respecting the different approaches to quantifying
damages taken by the key modelers in the field. An extensive review of
the literature was conducted to select three sets of input parameters
for these models: Climate sensitivity, socio-economic and emissions
trajectories, and discount rates. A probability distribution for
climate sensitivity was specified as an input into all three models. In
addition, the interagency group used a range of scenarios for the
socio-economic parameters and a range of values for the discount rate.
All other model features were left unchanged, relying on the model
developers' best estimates and judgments.
In 2010, the interagency group selected four sets of SCC values for
use in regulatory analyses. Three sets of values are based on the
average SCC from three integrated assessment models, at discount rates
of 2.5 percent, 3 percent, and 5 percent. The fourth set, which
represents the 95th-percentile SCC estimate across all three models at
a 3-percent discount rate, is included to represent higher-than-
expected impacts from climate change further out in the tails of the
SCC distribution. The values grow in real terms over time.
Additionally, the interagency group determined that a range of values
from 7 percent to 23 percent should be used to adjust the global SCC to
calculate domestic effects,\111\ although preference is given to
consideration of the global benefits of reducing CO2
emissions. Table IV.38 presents the values in the 2010 interagency
group report,\112\ which is reproduced in appendix 14A of the NOPR TSD.
---------------------------------------------------------------------------
\111\ It is recognized that this calculation for domestic values
is approximate, provisional, and highly speculative. There is no a
priori reason why domestic benefits should be a constant fraction of
net global damages over time.
\112\ Interagency Working Group on Social Cost of Carbon, United
States Government, Social Cost of Carbon for Regulatory Impact
Analysis Under Executive Order 12866 (February 2010) (Available at:
http://www.whitehouse.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf).
Table IV.38--Annual SCC Values From 2010 Interagency Report, 2010-2050
[In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate
---------------------------------------------------------------
5% 3% 2.5% 3%
Year ---------------------------------------------------------------
95th
Average Average Average Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................ 4.7 21.4 35.1 64.9
2015............................................ 5.7 23.8 38.4 72.8
2020............................................ 6.8 26.3 41.7 80.7
2025............................................ 8.2 29.6 45.9 90.4
2030............................................ 9.7 32.8 50.0 100.0
2035............................................ 11.2 36.0 54.2 109.7
2040............................................ 12.7 39.2 58.4 119.3
2045............................................ 14.2 42.1 61.7 127.8
2050............................................ 15.7 44.9 65.0 136.2
----------------------------------------------------------------------------------------------------------------
The SCC values used for this document were generated using the most
recent versions of the three integrated assessment models that have
been published in the peer-reviewed literature, as described in the
2013 update from the interagency working group (revised July
2015).\113\ Table IV.39 shows the updated sets of SCC estimates from
the latest interagency update in 5-year increments from 2010 to 2050.
The full set of annual SCC values between 2010 and 2050 is reported in
appendix 14B of the NOPR TSD. The central value that emerges is the
average SCC across models at the 3-percent discount rate. However, for
purposes of capturing the uncertainties involved in regulatory impact
analysis, the interagency group emphasizes the importance of including
all four sets of SCC values.
---------------------------------------------------------------------------
\113\ Technical Update of the Social Cost of Carbon for
Regulatory Impact Analysis Under Executive Order 12866, Interagency
Working Group on Social Cost of Carbon, United States Government
(May 2013; revised July 2015) (Available at: http://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf).
Table IV.39--Annual SCC Values From 2013 Interagency Update (Revised July 2015), 2010-2050
[In 2007 dollars per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
Discount rate
---------------------------------------------------------------
5% 3% 2.5% 3%
Year ---------------------------------------------------------------
95th
Average Average Average Percentile
----------------------------------------------------------------------------------------------------------------
2010............................................ 10 31 50 86
[[Page 34502]]
2015............................................ 11 36 56 105
2020............................................ 12 42 62 123
2025............................................ 14 46 68 138
2030............................................ 16 50 73 152
2035............................................ 18 55 78 168
2040............................................ 21 60 84 183
2045............................................ 23 64 89 197
2050............................................ 26 69 95 212
----------------------------------------------------------------------------------------------------------------
It is important to recognize that a number of key uncertainties
remain, and that current SCC estimates should be treated as provisional
and revisable since they will evolve with improved scientific and
economic understanding. The interagency group also recognizes that the
existing models are imperfect and incomplete. The National Research
Council report mentioned above points out that there is tension between
the goal of producing quantified estimates of the economic damages from
an incremental ton of carbon and the limits of existing efforts to
model these effects. There are a number of analytical challenges that
are being addressed by the research community, including research
programs housed in many of the Federal agencies participating in the
interagency process to estimate the SCC. The interagency group intends
to periodically review and reconsider those estimates to reflect
increasing knowledge of the science and economics of climate impacts,
as well as improvements in modeling. Although uncertainties remain, the
revised estimates used for this NOPR are based on the best available
scientific information on the impacts of climate change. The current
estimates of the SCC have been developed over many years, and with
input from the public. In November 2013, OMB announced a new
opportunity for public comments on the interagency technical support
document underlying the revised SCC estimates. 78 FR 70586 (Nov. 26,
2013). In July 2015, OMB published a detailed summary and formal
response to the many comments that were received.\114\ It also stated
its intention to seek independent expert advice on opportunities to
improve the estimates, including many of the approaches suggested by
commenters. DOE stands ready to work with OMB and the other members of
the interagency working group on further review and revision of the SCC
estimates as appropriate.
---------------------------------------------------------------------------
\114\ Available at: https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions.
---------------------------------------------------------------------------
In summary, in considering the potential global benefits resulting
from reduced CO2 emissions, DOE used the values from the
2013 interagency report (revised July 2015), adjusted to 2014$ using
the gross domestic product (GDP) price deflator from the Bureau of
Economic Analysis. For each of the four cases specified, the values
used for emissions in 2015 were $12.2, $40.0, $62.3, and $117 per
metric ton avoided (values expressed in 2014$). DOE derived values
after 2050 using the relevant growth rates for the 2040-2050 period in
the interagency update.
DOE multiplied the CO2 emissions reduction estimated for
each year by the SCC value for that year in each of the four cases. To
calculate a present value of the stream of monetary values, DOE
discounted the values in each of the four cases using the specific
discount rate that had been used to obtain the SCC values in each case.
2. Social Cost of Other Air Pollutants
As noted previously, DOE has estimated how the considered energy
conservation standards would reduce site NOX emissions
nationwide and decrease power sector NOX emissions in those
22 States not affected by the CAIR.
DOE estimated the monetized value of NOX emissions
reductions using benefit per ton estimates from the Regulatory Impact
Analysis titled, ``Proposed Carbon Pollution Guidelines for Existing
Power Plants and Emission Standards for Modified and Reconstructed
Power Plants,'' published in June 2014 by EPA's Office of Air Quality
Planning and Standards. The report includes high and low values for
NOX (as PM2.5) for 2020, 2025, and 2030
discounted at 3 percent and 7 percent,\115\ which are presented in
chapter 14 of the NOPR TSD. DOE assigned values for 2021-2024 and 2026-
2029 using, respectively, the values for 2020 and 2025. DOE assigned
values after 2030 using the value for 2030.
---------------------------------------------------------------------------
\115\ For the monetized NOX benefits associated with
PM2.5, the related benefits (derived from benefit-per-ton
values) are based on an estimate of premature mortality derived from
the ACS study (Krewski et al. 2009), which is the lower of the two
EPA central tendencies. Using the lower value is more conservative
when making the policy decision concerning whether a particular
standard level is economically justified so using the higher value
would also be justified. If the benefit-per-ton estimates were based
on the Six Cities study (Lepuele et al. 2012), the values would be
nearly two-and-a-half times larger. (See chapter 14 of the NOPR TSD
for further description of the studies mentioned above.)
---------------------------------------------------------------------------
DOE multiplied the emissions reduction (tons) in each year by the
associated $/ton values, and then discounted each series using discount
rates of 3 percent and 7 percent as appropriate. DOE will continue for
evaluate the monetization of avoided NOX emissions and will
make any appropriate updates of the current analysis for the final
rulemaking.
DOE is evaluating appropriate monetization of avoided
SO2 and Hg emissions in energy conservation standards
rulemakings. DOE has not included monetization of those emissions in
the current analysis.
M. Utility Impact Analysis
The utility impact analysis estimates several effects on the
electric power generation industry that would result from the adoption
of new or amended energy conservation standards. The utility impact
analysis estimates the changes in installed electrical capacity and
generation that would result for each TSL. The analysis is based on
published output from NEMS, associated with AEO 2015. NEMS produces the
AEO Reference case, as well as a number of side cases that
[[Page 34503]]
estimate the economy-wide impacts of changes to energy supply and
demand. DOE uses published side cases that incorporate efficiency-
related policies to estimate the marginal impacts of reduced energy
demand on the utility sector. These marginal factors are estimated
based on the changes to electricity sector generation, installed
capacity, fuel consumption and emissions in the AEO Reference case and
various side cases. Details of the methodology are provided in the
appendices to Chapters 13 and 15 of the NOPR TSD.
The output of this analysis is a set of time-dependent coefficients
that capture the change in electricity generation, primary fuel
consumption, installed capacity, and power sector emissions due to a
unit reduction in demand for a given end use. These coefficients are
multiplied by the stream of electricity savings calculated in the NIA
to provide estimates of selected utility impacts of new or amended
energy conservation standards.
N. Employment Impact Analysis
Employment impacts from new or amended energy conservation
standards include direct and indirect impacts. Direct employment
impacts are any changes in the number of employees of manufacturers of
the equipment 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 jobs created or
eliminated in the national economy, other than in the manufacturing
sector being regulated, due to: (1) Reduced spending by end users on
energy; (2) reduced spending on new energy supply by the utility
industry; (3) increased commercial consumer spending on the purchase of
new equipment; 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.\116\ 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 commercial consumer
utility bills. Because reduced commercial 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, based on the BLS data alone, DOE tentatively concludes
net national employment may increase because of shifts in economic
activity resulting from amended energy conservation standards for CWH
equipment.
---------------------------------------------------------------------------
\116\ See U.S. Department of Commerce, Bureau of Economic
Analysis, Regional Multipliers: A User Handbook for the Regional
Input-Output Modeling System (RIMS II) (1992).
---------------------------------------------------------------------------
For the amended standard levels considered in this NOPR, DOE
estimated indirect national employment impacts using an input/output
model of the U.S. economy called Impact of Sector Energy Technologies
version 3.1.1 (ImSET).\117\ 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 the 187 sectors. ImSET's national economic I-O
structure is based on a 2002 U.S. benchmark table, specially aggregated
to the 187 sectors most relevant to industrial, commercial, and
residential building energy use. DOE notes that ImSET is not a general
equilibrium forecasting model, and understands the uncertainties
involved in projecting employment impacts, especially changes in the
later years of the analysis. Because ImSET does not incorporate price
changes, the employment effects predicted by ImSET may over-estimate
actual job impacts over the long run. For the NOPR, DOE used ImSET only
to estimate short-term (through 2023) employment impacts.
---------------------------------------------------------------------------
\117\ M. J. Scott, O. V. Livingston, P. J. Balducci, J. M. Roop,
and R. W. Schultz, ImSET 3.1: Impact of Sector Energy Technologies
(2009) Pacific Northwest National Laboratory: Report No. PNNL-18412
(Available at: www.pnl.gov/main/publications/external/technical_reports/PNNL-18412.pdf).
---------------------------------------------------------------------------
For more details on the employment impact analysis, see chapter 16
of the NOPR TSD.
V. Analytical Results and Conclusions
The following section addresses the results from DOE's analyses
with respect to potential amended energy conservation standards for the
CWH equipment that is the subject of this rulemaking. It addresses the
TSLs examined by DOE, the projected impacts of each of these levels if
adopted as energy conservation standards for CWH equipment, and the
proposed standard levels that DOE sets forth in this NOPR. Additional
details regarding DOE's analyses are contained in the TSD chapters
supporting this document.
A. Trial Standard Levels
DOE developed trial standard levels (TSLs) that combine efficiency
levels for each analyzed equipment class of CWH equipment. DOE
developed TSLs so that each TSL is composed of energy efficiency levels
from each equipment class that exhibit similar characteristics, such as
efficiency, or meet certain economic criteria. For example, one of the
TSLs consists of the max-tech efficiency levels from each equipment
class being considered for this rulemaking. DOE attempted to limit the
number of TSLs considered for the NOPR by only considering efficiency
levels that exhibit significantly different economic and/or engineering
characteristics from the efficiency levels already selected as a TSL.
DOE developed TSLs that include efficiency levels for both thermal
efficiency and standby loss because standby loss is dependent upon
thermal efficiency. This dependence of standby loss on thermal
efficiency is discussed in detail in section IV.C.3.b and chapter 5 of
the NOPR TSD. DOE developed the efficiency levels for thermal
efficiency and standby loss for each equipment class in each TSL that
DOE has identified for CWH equipment, as described below and as
presented in Table V.1.
TSL 4 consists of the max-tech efficiency levels. The efficiency
levels in TSL 4 also provide the highest NPV using a 7-percent discount
rate.
TSL 3 consists of intermediate condensing efficiency levels for
each gas-fired equipment class with the exception of the residential-
duty gas-fired storage water heater equipment class, which has a
minimum condensing level. All equipment classes have positive life-
cycle cost savings at TSL 3. For this TSL, DOE selected thermal
efficiency levels closest to the current
[[Page 34504]]
ENERGY STAR level \118\ for commercial gas-fired storage water heaters
and gas-fired instantaneous water heaters and hot water supply boilers.
For this TSL, all selected standby loss levels maximize energy savings
and have a positive NPV using a 7-percent discount rate.
---------------------------------------------------------------------------
\118\ Chapter 3 of the NOPR TSD includes more detail on the
ENERGY STAR program for commercial water heaters.
---------------------------------------------------------------------------
TSL 2 consists of minimum condensing thermal efficiency levels for
each gas-fired equipment class. For this TSL, all selected standby loss
levels maximize both energy savings and NPV using a 7-percent discount
rate.
TSL 1 consists of maximum non-condensing thermal efficiency levels
for each gas-fired equipment class. For this TSL, all selected standby
loss levels maximize energy savings and have a positive NPV using a 7-
percent discount rate.
Table V.1 presents the efficiency levels for thermal efficiency and
standby loss for each equipment class in each TSL that DOE has
identified for CWH equipment. Table V.2 presents the thermal efficiency
value and standby loss reduction factor for each equipment class in
each TSL that DOE considered, with the exception of residential-duty
gas-fired storage water heaters. The standby loss reduction factor is a
multiplier representing the reduction in allowed standby loss relative
to the current standby loss standard. For residential-duty gas-fired
storage water heaters, DOE must set standards in terms of the uniform
efficiency descriptor (UEF) metric established in the July 2014 final
rule. 79 FR 40542, 40578-79 (July 11, 2014). Table V.3 presents the UEF
equations for residential-duty gas-fired storage water heaters
corresponding to each TSL that DOE considered, developed using the
conversion factors proposed in the April 2015 NOPR. 80 FR 20116, 20143
(April 14, 2015).
Table V.1--Trial Standard Levels for CWH Equipment by Efficiency Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level * **
-----------------------------------------------------------------------------------------------
Equipment class 1 2 3 4
-----------------------------------------------------------------------------------------------
Et SL Et SL Et SL Et SL
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage- 1 2 2 2 4 2 5 2
type instantaneous water heaters.......................
Residential-duty gas-fired storage water heaters........ 1 3 2 1 2 1 4 1
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters.............................. 2 .......... 3 .......... 4 .......... 5 ..........
Hot water supply boilers............................ 2 .......... 3 .......... 4 .......... 5 ..........
Electric storage water heaters.......................... .......... 1 .......... 1 .......... 1 .......... 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, and SL stands for standby loss.
** As discussed in sections III.C.7 and III.C.8, DOE did not analyze amended energy conservations standards for standby loss of instantaneous water
heaters and hot water supply boilers or for thermal efficiency of electric storage water heaters.
Table V.2--Trial Standard Levels for CWH Equipment by Thermal Efficiency and Standby Loss Reduction Factor
[Except residential-duty gas-fired storage water heaters]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level * **
-----------------------------------------------------------------------------------------------
1 2 3 4
Equipment class -----------------------------------------------------------------------------------------------
SL factor SL factor SL factor SL factor
Et (%) [dagger] Et (%) [dagger] Et (%) [dagger] Et (%) [dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage- 82 0.72 90 0.67 95 0.63 99 0.61
type instantaneous water heaters.......................
Gas-fired instantaneous water heaters and hot water
supply boilers:
Tankless water heaters.............................. 84 .......... 92 .......... 94 .......... 96 ..........
Hot water supply boilers............................ 84 .......... 92 .......... 94 .......... 96 ..........
Electric storage water heaters.......................... .......... 0.84 .......... 0.84 .......... 0.84 .......... 0.84
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, and SL stands for standby loss.
** As discussed in sections III.C.7 and III.C.8, DOE did not analyze amended energy conservations standards for standby loss of instantaneous water
heaters and hot water supply boilers or for thermal efficiency of electric storage water heaters.
[dagger] Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as
applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby
loss equations are discussed in section IV.C.8.
Table V.3--Trial Standard Levels by UEF for Residential-Duty Gas-Fired Storage Water Heaters
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Draw pattern * TSL 0 TSL 1 TSL 2 TSL 3 TSL 4
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
High............................ 0.6215-(0.0007 x Vr) 0.6646-(0.0006 x Vr) 0.7311-(0.0006 x Vr) 0.7311-(0.0006 x Vr) 0.7718-(0.0006 x Vr)
[[Page 34505]]
Medium.......................... 0.5781-(0.0009 x Vr) 0.6304-(0.0007 x Vr) 0.6996-(0.0007 x Vr) 0.6996-(0.0007 x Vr) 0.7357-(0.0008 x Vr)
Low............................. 0.5316-(0.0009 x Vr) 0.5915-(0.0009 x Vr) 0.6626-(0.0009 x Vr) 0.6626-(0.0009 x Vr) 0.6939-(0.0010 x Vr)
Very Small...................... 0.3371-(0.0007 x Vr) 0.3986-(0.0009 x Vr) 0.4618-(0.0010 x Vr) 0.4618-(0.0010 x Vr) 0.4730-(0.0011 x Vr)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the first-hour rating. The draw pattern is determined
using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR Part 430.
Note: TSL 0 represents the baseline, and Vr is rated volume in gallons.
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Commercial Consumers
DOE analyzed the economic impacts on CWH commercial consumers by
looking at the effects potential amended standards would have on the
LCC and PBP. DOE also examined the impacts of potential standards on
commercial consumer subgroups. These analyses are discussed in the
following subsections.
a. Life-Cycle Cost and Payback Period
To evaluate the net economic impact of potential amended energy
conservation standards on commercial consumers of CWH equipment, DOE
conducted LCC and PBP analyses for each TSL. In general, higher-
efficiency equipment would affect commercial consumers in two ways: (1)
Annual operating expenses would decrease, and (2) purchase price would
increase. The results of the LCC analysis for each TSL were obtained by
comparing the installed and operating costs of the equipment in the no-
new-standards-case scenario (see section IV.F for a discussion of no-
new-standards-case efficiency distribution) against the standards-case
scenarios at each TSL. Inputs used for calculating the LCC and PBP
include total installed costs (i.e., equipment price plus installation
costs), operating expenses (i.e., annual energy use, energy prices,
energy price trends, repair costs, and maintenance costs), equipment
lifetime, and discount rates.
The LCC analysis is carried out using Monte Carlo simulations.
Consequently, the results of the LCC analysis are distributions
covering a range of values, as opposed to a single deterministic value.
DOE presents the mean values calculated from the distributions of
results. The LCC analysis also provides information on the percentage
of commercial consumers for whom an increase in the minimum efficiency
standard would have a positive impact (net benefit), a negative impact
(net cost), or no impact.
DOE also performed a PBP analysis as part of the LCC analysis. The
PBP is the number of years it would take for the commercial consumer to
recover the increased costs of higher-efficiency equipment as a result
of energy savings based on the operating cost savings. The PBP is an
economic benefit-cost measure that uses benefits and costs without
discounting. Chapter 8 of the NOPR TSD provides detailed information on
the LCC and PBP analyses.
As described in section IV.H of this document, DOE used a ``roll-
up'' scenario in this rulemaking. Under the roll-up scenario, DOE
assumes that the market shares of the efficiency levels in the no-new-
standards case that do not meet the new or amended standard level under
consideration would ``roll up'' into (meaning ``be added to'') the
market share of the efficiency level at the standard level under
consideration, and the market shares of efficiency levels that are
above the standard level under consideration would remain unaffected.
Commercial consumers in the no-new-standards-case scenario who buy the
equipment at or above the TSL under consideration, would be unaffected
if the standard were to be set at that TSL. Commercial consumers in the
no-new-standards-case scenario who buy equipment below the TSL under
consideration would be affected if the standard were to be set at that
TSL. Among these affected commercial consumers, some may benefit from
lower LCCs of the equipment, and some may incur net cost due to higher
LCCs, depending on the inputs to the LCC analysis such as electricity
prices, discount rates, installation costs, and markups.
DOE's LCC and PBP analyses provided key outputs for each efficiency
level above the baseline for each equipment class, as reported in Table
V.4 to Table V.15. Two tables are presented for each equipment class,
with separate pairs of tables shown for tankless gas-fired water
heaters and for gas-fired hot water supply boilers, two product groups
within the class of gas-fired instantaneous water heaters and hot water
supply boilers. LCC results for this class as a whole are also shown
based on shipment weighting of both equipment groups. The first table
in each pair presents the results of the LCC analysis by efficiency
level and TSL and shows installed costs, first year's operating cost,
lifetime operating cost, and mean LCC, as well as simple PBP. The
second table presents the percentage of commercial consumers who
experience a net cost, as well as the mean LCC savings for all
commercial consumers.
Analysis of all equipment classes showed positive mean LCC savings
values at TSL 4, the max-tech efficiency level. The percentage of
consumers experiencing net cost at TSL 4 varied from 14 percent for
electric storage water heaters to 36 percent for residential duty gas-
fired storage water heaters.
For commercial gas-fired storage and residential-duty gas-fired
storage water heaters, the trend is generally an increase in LCC
savings from TSL 2 to 4, going from lowest to highest condensing
efficiency level examined. Average LCC savings are positive at TSL 1
through TSL 4 for all equipment classes.
For commercial gas-fired storage water heaters, and gas-fired
instantaneous water heaters and hot water supply boilers, TSL 2 showed
positive mean LCC savings, with between 22 and 38 percent of commercial
consumers showing negative LCC savings. For residential-duty gas-fired
storage water heaters, 42 percent of consumers experienced net cost at
TSL 2. TSL 1 showed positive LCC savings for all equipment classes.
The simple PBP values for TSLs 2 through 4 are generally less than
7 years, except for residential-duty gas-fired storage water heater
class, which has a simple payback ranging from 10.2 to 11.9 years,
depending on TSL. Analyzed payback periods for the equipment group of
gas-fired tankless water heaters were immediate at TSL 2 through TSL 4,
resulting from reduced venting costs that offset equipment cost
increases, particularly in new construction. The PBP was less than the
average lifetime in all cases.
[[Page 34506]]
Table V.4--Average LCC and PBP Results by Efficiency Level for Commercial Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple payback period (years)
Thermal Standby loss Average costs ---------------------------------------------------------------
TSL * efficiency (SL) factor (2014$) First year's Lifetime
(Et) (%) Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................... 80 1.00 4,316 2,225 20,011 24,327 ..............
1....................................... 82 0.72 4,581 2,156 19,378 23,959 3.8
2....................................... 90 0.67 5,467 2,023 18,149 23,615 5.7
3....................................... 95 0.63 5,537 1,944 17,415 22,952 4.3
4....................................... 99 0.61 5,624 1,883 16,863 22,488 3.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all commercial consumers use equipment with that efficiency level. The PBP is measured relative
to the baseline equipment.
Note: TSL 0 represents the baseline.
Table V.5--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Commercial Gas-
Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------
Thermal Percentage of
TSL efficiency Standby loss commercial Average life-
(Et) level (SL) factor consumers that cycle cost
experience a savings *
net cost (2014$)
----------------------------------------------------------------------------------------------------------------
0............................................... 80 1.00 0 ..............
1............................................... 82 0.72 8 219
2............................................... 90 0.67 30 317
3............................................... 95 0.63 24 794
4............................................... 99 0.61 21 1,252
----------------------------------------------------------------------------------------------------------------
* The calculation includes commercial consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.
Table V.6--Average LCC and PBP Results by Efficiency Level for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Simple payback period (years)
Average costs ---------------------------------------------------------------
TSL * UEF (2014$) First year's Lifetime
Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 0.57 2,090 1,252 13,066 15,156 ..............
1....................................................... 0.62 2,528 1,210 12,609 15,136 10.5
2, 3.................................................... 0.69 3,361 1,145 11,886 15,248 11.9
4....................................................... 0.73 3,669 1,096 11,361 15,030 10.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming all commercial consumers use equipment with that efficiency level. The PBP is measured relative to
the baseline equipment. UEF values are for the representative model.
Note: TSL 0 represents the baseline.
Table V.7--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Residential-
Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings *
-------------------------------
Percentage of
TSL UEF commercial Average life-
consumers that cycle cost
experience a savings **
net cost (2014$)
----------------------------------------------------------------------------------------------------------------
0............................................................... 0.57 0 ..............
1............................................................... 0.62 32 537
2, 3............................................................ 0.69 42 14
[[Page 34507]]
4............................................................... 0.73 36 241
----------------------------------------------------------------------------------------------------------------
* A value in parentheses is a negative number.
** The calculation includes commercial consumers with zero LCC savings (no impact).
Note: UEF values are for the representative model.
TSL 0 represents the baseline.
Table V.8--Average LCC and PBP Results by Efficiency Level for Gas-Fired Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2014$)
Thermal ----------------------------------------------------------------
TSL* efficiency First year's Lifetime Simple payback period years
(Et) (%) Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0........................................ 80 4,273 690 9,607 13,880 .............................
1........................................ 84 4,337 668 9,283 13,620 2.9
2........................................ 92 3,819 622 8,628 12,447 Immediate.
3........................................ 94 3,849 611 8,474 12,322 Immediate.
4........................................ 96 3,884 600 8,325 12,209 Immediate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all commercial consumers use equipment with that efficiency level. The PBP is measured relative
to the baseline equipment.
Note: Immediate payback can result from a decrease in installation cost that is greater than the incremental increase in equipment cost.
TSL 0 represents the baseline.
Table V.9--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------
Thermal Percentage of
TSL efficiency commercial Average life-
(Et) (%) consumers that cycle cost
experience a savings *
net cost (2014$)
----------------------------------------------------------------------------------------------------------------
0............................................................... 80 0 ..............
1............................................................... 84 11 86
2............................................................... 92 38 1,009
3............................................................... 94 35 1,119
4............................................................... 96 33 1,224
----------------------------------------------------------------------------------------------------------------
* The calculation includes commercial consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.
Table V.10--Average LCC and PBP Results by Efficiency Level for Gas-Fired Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2014$)
Thermal ---------------------------------------------------------------- Simple payback
TSL* efficiency First year's Lifetime period
(Et) (%) Installed cost operating cost operating cost LCC (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 80 7,372 3,990 74,284 81,656 ..............
1....................................................... 84 7,961 3,828 71,216 79,178 3.6
2....................................................... 92 10,113 3,579 65,754 75,867 6.7
3....................................................... 94 10,433 3,514 64,516 74,949 6.4
4....................................................... 96 10,754 3,452 63,325 74,079 6.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all commercial consumers use equipment with that efficiency level. The PBP is measured relative
to the baseline equipment.
Note: TSL 0 represents the baseline.
[[Page 34508]]
Table V.11--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired Hot
Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------
Thermal Percentage of
TSL efficiency commercial Average life-
(Et) (%) consumers that cycle cost
experience a savings *
net cost (2014$)
----------------------------------------------------------------------------------------------------------------
0............................................................... 80 0 ..............
1............................................................... 84 15 1,245
2............................................................... 92 22 3,794
3............................................................... 94 22 4,528
4............................................................... 96 24 5,285
----------------------------------------------------------------------------------------------------------------
* The calculation includes commercial consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.
Table V.12--Average LCC and PBP Results by Efficiency Level for Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2014$)
Thermal ---------------------------------------------------------------- Simple payback
TSL** efficiency First year's Lifetime period
(Et) (%) Installed cost operating cost operating cost LCC (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 80 6,427 2,984 54,556 60,983 ..............
1....................................................... 84 6,856 2,864 52,325 59,181 3.6
2....................................................... 92 8,193 2,677 48,330 56,523 5.8
3....................................................... 94 8,425 2,629 47,422 55,846 5.6
4....................................................... 96 8,658 2,582 46,549 55,207 5.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters
and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10.
** The results for each TSL are calculated assuming that all commercial consumers use equipment with that efficiency level. The PBP is measured relative
to the baseline equipment.
Note: TSL 0 represents the baseline.
Table V.13--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
Instantaneous Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------------
Thermal Percentage of
TSL efficiency (Et) commercial Average life-
(%) consumers that cycle cost
experience a net savings **
cost (2014$)
----------------------------------------------------------------------------------------------------------------
0...................................................... 80 0
1...................................................... 84 14 891
2...................................................... 92 27 2,944
3...................................................... 94 26 3,488
4...................................................... 96 27 4,046
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
of Tables V.9 and V.11.
** The calculation includes commercial consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.
Table V.14--Average LCC and PBP Results by Efficiency Level for Electric Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average costs (2014$)
Standby loss ---------------------------------------------------------------- Simple payback
TSL * (SL) factor First year's Lifetime period (years)
Installed cost operating cost operating cost LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0....................................................... 1.00 3,649 1,743 17,094 20,743
1, 2, 3, 4.............................................. 0.84 3,743 1,728 16,952 20,694 6.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all commercial consumers use equipment with that efficiency level. The PBP is measured relative
to the baseline equipment.
Note: TSL 0 represents the baseline.
[[Page 34509]]
Table V.15--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Electric
Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
Life-cycle cost savings
-------------------------------
Percentage of
TSL Standby loss commercial Average life-
(SL) level consumers that cycle cost
experience a savings *
net cost (2014$)
----------------------------------------------------------------------------------------------------------------
0............................................................... 1.00 0
1, 2, 3, 4...................................................... 0.84 14 47
----------------------------------------------------------------------------------------------------------------
* The calculation includes commercial consumers with zero LCC savings (no impact).
Note: TSL 0 represents the baseline.
b. Life-Cycle Cost Subgroup Analysis
As described in section IV.I, DOE estimated the impact of amended
energy conservation standards for commercial water heating equipment.
Using the LCC spreadsheet model, DOE estimated the impacts of the TSLs
on the following commercial consumer subgroups: Low-income residential
population (0-20 percent percentile gross annual household income) and
small businesses. DOE estimated the average LCC savings and PBP for the
low-income subgroup compared with average CWH commercial consumers, as
shown in Table V.16 through Table V.21. DOE also estimated LCC savings
and PBP for small businesses, presenting the results in Table V.16
through Table V.21.
The results of the life-cycle cost subgroup analysis indicate that
for CWH equipment, the low-income residential subgroup in general had a
slightly higher LCC savings when compared to the general commercial
consumer population, due in part to greater hot water use than the
average commercial consumer for all equipment classes with the
exception of residential-duty. However, for both residential-duty gas-
fired commercial storage water heaters and for tankless water heating
equipment, the low-income residential subgroup analyzed had somewhat
lower hot water usage than the average commercial consumer of this
equipment, which contributed to lower LCC savings for some TSLs. In
particular, the low-income residential subgroup for the Residential-
Duty Low-Income Gas-Fired Storage Water Heaters equipment class at TSL
2/3 would experience negative LCC savings and an associated payback
period longer than the estimated 12 year lifetime of the product. DOE
requests comment on any potential impacts of the estimated increased
costs of the proposed standards on the low-income residential subgroup
and whether this would impact the rate of replacement of the existing
products due to low-income consumers choosing to repair as opposed to
replace their water heater. In addition, DOE requests comment on the
assumptions used in the LCC and PBP analysis such as the estimated
installation costs of $3,361, which includes all applicable costs and
markups for this equipment class. DOE also requests comment on the
potential for product switching from either smaller Residential (>55
gallon, <=75,000 Btu/h) or larger commercial (>105,000 Btu/h) gas
storage hot water heaters to the Residential-Duty Gas-Fired Storage
Water Heaters (>75,000 Btu/h and <=105,000 Btu/h) equipment class if
the agency were to adopt a less costly alternative for the Residential-
Duty Gas-Fired Storage Water Heaters equipment class.
For the small business subgroups, the LCC savings were consistently
lower than those of the average commercial consumer. Chapter 11 of the
NOPR TSD provides more detailed discussion on the LCC subgroup analysis
and results.
Table V.16--Comparison of Impacts for Consumer Subgroups With All Consumers, Commercial Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
Thermal Standby -----------------------------------------------------------------------------
TSL efficiency loss (SL) Commercial Commercial
(Et) (%) factor Residential small All Residential small All
low-income business low-income business
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................................... 82 0.72 345 179 219 3.2 3.8 3.8
2............................................... 90 0.67 731 243 317 4.7 5.5 5.7
3............................................... 95 0.63 1,399 679 794 3.5 4.2 4.3
4............................................... 99 0.61 2,046 1,093 1,252 3.1 3.7 3.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
[[Page 34510]]
Table V.17--Comparison of Impacts for Consumer Subgroups With All Consumers, Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
-----------------------------------------------------------------------------------------------
TSL UEF Residential Commercial Residential Commercial
low-income small business All low-income small business All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 0.62 587 467 537 9.8 10.5 10.5
2, 3.................................... 0.69 (17) 48 14 12.4 10.1 11.9
4....................................... 0.73 251 250 241 10.4 8.7 10.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Table V.18--Comparison of Impacts for Consumer Subgroups With All Consumers, Gas-Fired Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
Thermal ---------------------------------------------------------------------------------------------------------
TSL efficiency Residential Commercial Residential low- Commercial small
(Et) (%) low-income small business All income business All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1............................. 84 94 62 86 2.9............... 3.1.............. 2.9
2............................. 92 748 1,036 1,009 Immediate......... Immediate........ Immediate.
3............................. 94 869 1,121 1,119 Immediate......... Immediate........ Immediate.
4............................. 96 985 1,199 1,224 Immediate......... Immediate........ Immediate.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Note: Immediate payback can result from a decrease in installation cost that is greater than the incremental increase in equipment cost.
Table V.19--Comparison of Impacts for Consumer Subgroups With All Consumers, Gas-Fired Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
Thermal -----------------------------------------------------------------------------------------------
TSL efficiency Residential Commercial Residential Commercial
(Et) (%) low-income small business All low-income small business All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 84 2,937 401 1,245 2.1 6.4 3.6
2....................................... 92 9,568 761 3,794 4.1 12.2 6.7
3....................................... 94 11,302 979 4,528 4.0 11.7 6.4
4....................................... 96 13,101 1,192 5,285 3.8 11.4 6.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Table V.20--Comparison of Impacts for Consumer Subgroups With All Consumers, Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers *
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
Thermal -----------------------------------------------------------------------------------------------
TSL efficiency Residential Commercial Residential Commercial
(Et) (%) low-income small business All low-income small business All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................... 84 2,070 298 891 2.1 6.1 3.6
2....................................... 92 6,878 845 2,944 3.9 9.7 5.8
3....................................... 94 8,120 1,022 3,488 3.8 9.5 5.6
4....................................... 96 9,406 1,195 4,046 3.7 9.3 5.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters
and hot water supply boilers), and reflects a weighted average result of Tables V.18 and V.19.
** Parentheses indicate negative values.
[[Page 34511]]
Table V.21--Comparison of Impacts for Consumer Subgroups With All Consumers, Electric Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC savings (2014$) * Simple payback period (years)
Standby loss -----------------------------------------------------------------------------------------------------
TSL (SL) factor Residential low- Commercial Residential low- Commercial
income small business All income small business All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1,2,3,4.......................... 0.84 87 26 47 5.5 6.9 6.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
c. Rebuttable Presumption Payback
As discussed in section III.F.2, 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. Accordingly, DOE calculated a
rebuttable presumption payback period for each TSL for commercial water
heating equipment using average installed cost to the commercial
consumer and first-year energy savings. However, DOE routinely conducts
a full economic analysis that considers the full range of impacts,
including those to the commercial consumer, manufacturer, Nation, and
environment, as required by EPCA under 42 U.S.C. 6313(a)(6)(B)(ii) and
(C)(i). The results of this more detailed 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. Table V.22
shows the rebuttable presumption payback periods for each CWH equipment
class by TSL level. Rebuttable payback periods were greater than 3
years for all CWH equipment except the tankless water heaters subclass.
Tankless water heaters had rebuttable presumption payback periods of
less than 3 years at all TSL levels.
Table V.22--Rebuttable Presumption Payback Periods for Commercial Water Heating Equipment Classes
----------------------------------------------------------------------------------------------------------------
Rebuttable presumption payback (years)
Equipment class ---------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water 3.8 5.6................. 4.2................. 3.7.
heaters and storage-type
instantaneous water heaters.
Residential-duty gas-fired 10.5 11.3................ 11.3................ 9.6.
storage water heaters.
Gas-fired instantaneous water 3.4 5.1................. 5.0................. 5.0.
heaters and hot water supply
boilers.
Tankless water heaters.... 2.3 Immediate........... Immediate........... Immediate.
Hot water supply boilers.. 3.5 5.9................. 5.8................. 5.7.
Electric storage water heaters 6.5 6.5................. 6.5................. 6.5.
----------------------------------------------------------------------------------------------------------------
Note: Immediate payback can result from a decrease in installation cost that is greater than the incremental
increase in equipment cost.
2. Economic Impact on Manufacturers
As noted previously, DOE performed an MIA to estimate the impact of
amended energy conservation standards on manufacturers of CWH
equipment. The following section describes the expected impacts on
manufacturers at each considered TSL. Chapter 12 of the NOPR TSD
explains the analysis in further detail.
a. Industry Cash-Flow Analysis Results
Table V.23 and Table V.24 depict the estimated financial impacts
(represented by changes in INPV) of amended energy conservation
standards on CWH equipment manufacturers, as well as the conversion
costs that DOE expects manufacturers would incur for all equipment
classes at each TSL. To evaluate the range of cash-flow impacts on the
CWH industry, DOE modeled two markup scenarios using different
assumptions that correspond to the range of anticipated market
responses to amended energy conservation standards: (1) The
preservation of gross margin percentage markup scenario; and (2) the
preservation of per-unit operating profit markup scenario. Each of
these scenarios is discussed immediately below.
To assess the less severe end of the range of potential impacts,
DOE modeled a preservation of gross margin percentage markup scenario,
in which a uniform ``gross margin percentage'' markup is applied across
all potential efficiency levels. In this scenario, DOE assumed that a
manufacturer's absolute dollar markup would increase as production
costs increase in the standards case.
To assess the more severe end of the range of potential impacts,
DOE modeled the preservation of per-unit operating profit markup
scenario, which assumes that manufacturers would not be able to
generate greater operating profit on a per-unit basis in the standards
case as compared to the no-new-standards case. Rather, as manufacturers
make the necessary investments required to convert their facilities to
produce new standards-compliant equipment and incur higher costs of
goods sold, their percentage markup decreases. Operating profit does
not change in absolute dollars and decreases as a percentage of
revenue.
As noted in the MIA methodology discussion (see section IV.J.2), in
addition to markup scenarios, the MPCs, shipments, and conversion cost
assumptions also affect INPV results.
The results in Table V.23 and Table V.24 show potential INPV
impacts for CWH equipment manufacturers. Table V.23 reflects the less
severe set of potential impacts, and Table V.24 represents the more
severe set of potential impacts. In the following discussion, the INPV
results refer to the difference in industry value between the no-new-
standards case and each standards case that results from the sum of
discounted cash flows from the base
[[Page 34512]]
year 2015 through 2048, the end of the analysis period.
To provide perspective on the short-run cash flow impact, DOE
discusses the change in free cash flow between the no-new-standards
case and the standards case at each TSL in the year before new
standards take effect. These figures provide an understanding of the
magnitude of the required conversion costs at each TSL relative to the
cash flow generated by the industry in the no-new-standards case.
Table V.23--Manufacturer Impact Analysis Results--Preservation of Gross Margin Percentage Markup Scenario *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................ 2014$ millions.................... 176.2 177.4 187.8 185.0 166.6
Change in INPV...................... 2014$ millions.................... .............. 1.2 11.6 8.8 (9.7)
%................................. .............. 0.7 6.6 5.0 (5.5)
Free Cash Flow (2018)............... 2014$ millions.................... 12.8 10.9 5.6 2.5 (10.2)
Change in Free Cash Flow............ 2014$ millions.................... .............. (2.0) (7.3) (10.3) (23.1)
%................................. .............. (15.5) (56.7) (80.4) (179.8)
Product Conversion Costs............ 2014$ millions.................... .............. 3.6 12.5 18.1 48.2
Capital Conversion Costs............ 2014$ millions.................... .............. 2.2 8.4 11.7 21.3
-------------------------------------------------------------------------------
Total Conversion Costs.......... 2014$ millions.................... .............. 5.8 20.9 29.8 69.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
Table V.24--Manufacturer Impact Analysis Results--Preservation of Per-Unit Operating Profit Markup Scenario *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Trial standard level
Units No-new- ---------------------------------------------------------------
standards case 1 2 3 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV................................ 2014$ millions.................... 176.2 171.5 158.8 152.8 128.6
Change in INPV...................... 2014$ millions.................... .............. (4.7) (17.4) (23.4) (47.6)
%................................. .............. (2.7) (9.9) (13.3) (27.0)
Free Cash Flow (2018)............... 2014$ millions.................... 12.8 10.9 5.6 2.5 (10.2)
Change in Free Cash Flow............ 2014$ millions.................... .............. (2.0) (7.3) (10.3) (23.1)
%................................. .............. (15.5) (56.7) (80.4) (179.8)
Product Conversion Costs............ 2014$ millions.................... .............. 3.6 12.5 18.1 48.2
Capital Conversion Costs............ 2014$ millions.................... .............. 2.2 8.4 11.7 21.3
-------------------------------------------------------------------------------
Total Conversion Costs.......... 2014$ millions.................... .............. 5.8 20.9 29.8 69.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.
At TSL 1, DOE estimates impacts on INPV for CWH equipment
manufacturers to range from -2.7 percent to 0.7 percent, or a change of
-$4.7 million to $1.2 million. At this level, DOE estimates that
industry free cash flow would decrease by approximately 15.5 percent to
$10.9 million, compared to the no-new-standards-case value of $12.8
million in the year before compliance (2018).
DOE estimates that in the year of compliance (2019), 27 percent of
CWH shipments in the no-new-standards case would already meet or exceed
the thermal efficiency and standby loss standards at TSL 1. At this
level, DOE expects CWH equipment manufacturers to incur $3.6 million in
product conversion costs to redesign and test their equipment. DOE does
not expect the modest increases in thermal efficiency standards at this
TSL to require major equipment redesigns or capital investments.
However, DOE expects manufacturers to incur approximately $2.2 million
in capital conversion costs in order to comply with the proposed
standby loss levels at this TSL. DOE expects manufacturers will incur
these costs to purchase new tooling for the machinery used to make the
jackets for storage water heaters, which would need to expand to
enclose a thicker tank insulation layer.
At TSL 1, under the preservation of gross margin percentage
scenario, the shipment-weighted average price per unit increases by 4.5
percent relative to the no-new-standards-case price per unit in the
year of compliance (2019). In this scenario, manufacturers are able to
fully pass on this cost increase to commercial consumers. This slight
price increase would mitigate the $5.8 million in total conversion
costs estimated at TSL 1, resulting in slightly positive INPV impacts
at TSL 1 under this scenario. Under the preservation of per-unit
operating profit markup scenario, manufacturers earn the same operating
profit as would be earned in the no-new-standards case, but do not earn
additional profit from their investments. A weighted-average price
increase of 4.1 percent in this scenario is outweighed by the expected
$5.8 million in total conversion costs, resulting in slightly negative
impacts at TSL 1.
At TSL 2, DOE estimates impacts on INPV for CWH manufacturers to
range from -9.9 percent to 6.6 percent, or a change in INPV of -$17.4
million to $11.6 million. At this potential standard level, industry
free cash flow would decrease by approximately 56.7 percent to $5.6
million, compared to the base-case value of $12.8 million in the year
before compliance (2018).
DOE estimates that in the year of compliance (2019), 19 percent of
CWH shipments in the no-new-standards case would already meet or exceed
the thermal efficiency and standby loss standards at TSL 2. DOE
estimates that conversion costs would increase significantly at this
TSL because manufacturers would meet these
[[Page 34513]]
thermal efficiency levels for gas-fired CWH equipment classes by using
condensing technology, which significantly changes the equipment
design. DOE estimates that most of these costs would be driven by
commercial and residential-duty commercial gas-fired storage water
heaters and gas-fired hot water supply boilers. DOE acknowledges that
different manufacturers would likely make different investments in
order to meet these thermal efficiency levels, because condensing heat
exchanger designs vary from manufacturer to manufacturer. Manufacturers
of gas-fired storage water heaters that use helical condensing heat
exchanger designs may have to increase their tube-bending capacity to
increase their production capacity of condensing heat exchangers, as
would be required by a condensing standard. Other manufacturers may
have to invest to increase their welding capacity. Additionally,
manufacturers could incur capital costs for new press dies to form the
holes for flue pipes in the top and bottom bells of storage water
heaters. DOE estimated that manufacturers of the instantaneous CWH
equipment classes would likely incur low capital conversion costs at
this TSL. DOE assumes that tankless water heater manufacturers produce
far more residential products than commercial products and that these
products are manufactured in the same facilities with shared equipment.
Therefore, DOE has tentatively concluded that increased production of
condensing commercial tankless water heaters would not require high
conversion costs because many more condensing residential tankless
water heaters are already made. For hot water supply boilers, DOE
assumes that manufacturers would likely choose to purchase condensing
heat exchangers rather than design and manufacture them. While this
shift to a purchased heat exchanger might affect the vertically-
integrated structure of the manufacturer, DOE does not believe it would
lead to high conversion costs. Overall, DOE estimates that
manufacturers would incur $12.5 million in product conversion costs and
$8.4 million in capital conversion costs to bring their CWH equipment
portfolios into compliance with a standard set to TSL 2.
At TSL 2, under the preservation of gross margin percentage
scenario, the shipment-weighted average price per unit increases by
20.9 percent relative to the no-new-standards-case price per unit in
the year of compliance (2019). In this scenario, INPV impacts are
positive because manufacturers' ability to pass higher production costs
onto commercial consumers outweighs the $20.9 million in expected total
conversion costs. However, under the preservation of per-unit operating
profit markup scenario, a lower markup means the weighted average price
per unit increases by only 18.9 percent compared to the no-new-
standards case price per unit in the year of compliance (2019). In this
case, conversion costs outweigh the gain in weighted average price per
unit, resulting in moderately negative impacts at TSL 2.
At TSL 3, DOE estimates impacts on INPV for CWH manufacturers to
range from -13.3 percent to 5.0 percent, or a change in INPV of -$23.4
million to $8.8 million. At this potential standard level, DOE
estimates industry free cash flow would decrease by approximately 80.4
percent to $2.5 million compared to the no-new-standards-case value of
$12.8 million in the year before compliance (2018).
The impacts on INPV at TSL 3 are slightly more negative than at TSL
2. DOE estimates that in the year of compliance (2019), 16 percent of
CWH shipments in the no-new-standards case would meet or exceed the
thermal efficiency and standby loss standards at TSL 3. At this level,
DOE estimates that product conversion costs would increase as
manufacturers would have to redesign a larger percentage of their
offerings to meet the higher thermal efficiency levels, which would
require increased engineering resources. Additionally, capital
conversion costs would increase as manufacturers may have to upgrade
their laboratories and test facilities to increase capacity for
research, development, and testing for their gas-fired storage water
heater offerings. Overall, DOE estimates that manufacturers would incur
$18.1 million in product conversion costs and $11.7 million in capital
conversion costs to bring their CWH equipment portfolios into
compliance with a standard set to TSL 3.
At TSL 3, under the preservation of gross margin percentage markup
scenario, the shipment-weighted average price per unit in the year of
compliance (2019) increases by 23.1 percent relative to the no-new-
standards case price per unit. In this scenario, INPV impacts are
positive because manufacturers' ability to pass higher production costs
onto commercial consumers outweighs the $29.8 million in total
conversion costs. However, under the preservation of per-unit operating
profit markup scenario, a lower markup means the weighted average price
per unit increases by only 20.9 percent compared to the no-new-
standards case price per unit in the year of compliance (2019). In this
case, conversion costs outweigh the gain in weighted average price per
unit, resulting in moderately negative impacts at TSL 3.
TSL 4 represents the max-tech thermal efficiency and standby loss
levels for all equipment classes analyzed. At TSL 4, DOE estimates
impacts on INPV for CWH equipment manufacturers to range from -27.0
percent to -5.5 percent, or a change in INPV of -$47.6 million to -$9.7
million. At this TSL, DOE estimates industry free cash flow in the year
before compliance (2018) would decrease by approximately 179.8 percent
to -$10.2 million compared to the no-new-standards case value of $12.8
million.
The impacts on INPV at TSL 4 are negative under both markup
scenarios. DOE estimates that in 2019, only 4 percent of CWH equipment
shipments would already meet or exceed the efficiency levels prescribed
at TSL 4. DOE expects conversion costs to continue to increase at TSL
4, as almost all equipment on the market would have to be redesigned
and many new products would have to be developed. DOE estimates that
product conversion costs would increase to $48.2 million, as
manufacturers would have to redesign a larger percentage of their
offerings to meet max-tech for all classes. In particular,
manufacturers of commercial gas-fired storage water heaters would need
to extensively redesign almost all of their product offerings. This
extensive redesign would likely include many rounds of research and
development and testing across most equipment platforms. DOE estimates
that manufacturers would also incur $21.3 million in capital conversion
costs. In addition to upgrading production lines, DOE has tentatively
concluded that manufacturers would likely be required to make extensive
modifications and upgrades to their laboratories and possibly add
laboratory space in order to develop and test products that meet max-
tech efficiency levels, particularly for commercial gas-fired storage
water heaters.
At TSL 4, under the preservation of gross margin percentage markup
scenario, the shipment-weighted average price per unit in the year of
compliance (2019) increases by 27.1 percent relative to the no-new-
standards case price per unit. In this scenario, INPV impacts are
negative because manufacturers' ability to pass higher production costs
onto consumers is outweighed by the $69.6 million in total conversion
costs. Under the
[[Page 34514]]
preservation of per-unit operating profit markup scenario, a lower
markup means the weighted-average price per unit increases by only 24.5
percent compared to the no-new-standards case price per unit in the
year of compliance (2019). In this case, conversion costs outweigh the
gain in weighted-average price per unit, resulting in significantly
negative impacts at TSL 4.
b. Impacts on Direct Employment
To quantitatively assess the impacts of energy conservation
standards on direct employment in the CWH industry, DOE used the GRIM
to estimate the domestic labor expenditures and number of employees in
the no-new-standards case and at each TSL in 2019. DOE used statistical
data from the U.S. Census Bureau's 2013 Annual Survey of Manufacturers
(ASM),\119\ the results of the engineering analysis, and interviews
with manufacturers to determine the inputs necessary to calculate
industry-wide labor expenditures and domestic employment levels. Labor
expenditures related to manufacturing of the product are a function of
the labor intensity of the product, the sales volume, and an assumption
that wages remain fixed in real terms over time. The total labor
expenditures in each year are calculated by multiplying the MPCs by the
labor percentage of MPCs.
---------------------------------------------------------------------------
\119\ U.S. Census Bureau, Annual Survey of Manufacturers:
General Statistics: Statistics for Industry Groups and Industries
(2013) (Available at http://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ASM_2013_31GS101&prodType=table).
---------------------------------------------------------------------------
The total labor expenditures in the GRIM are converted to domestic
production employment levels by dividing production labor expenditures
by the annual payment per production worker (production worker hours
times the labor rate found in the U.S. Census Bureau's 2013 ASM). The
estimates of production workers in this section cover workers,
including line-supervisors who are directly involved in fabricating and
assembling a product within the manufacturing facility. Workers
performing services that are closely associated with production
operations, such as materials handling tasks using forklifts, are also
included as production labor. DOE's estimates only account for
production workers who manufacture the specific products covered by
this rulemaking. The total direct employment impacts calculated in the
GRIM are the sum of the changes in the number of production workers
resulting from the amended energy conservation standards for CWH
equipment, as compared to the no-new-standards case.
To estimate an upper bound to direct employment under amended
standards, DOE assumes all domestic manufacturers would choose to
continue producing CWH equipment in the United States and would not
move production to foreign countries. To estimate a lower bound to
direct employment under amended standards, DOE considers a case where
some manufacturers choose to relocate some production overseas rather
than make the necessary conversions at domestic production facilities.
To establish the lower bound employment under amended standards, DOE
estimated the maximum potential job loss due to manufacturers either
leaving the industry or moving production to foreign locations as a
result of amended standards. Due to shipping costs, most manufacturers
agreed that more-stringent energy conservation standards for CWH
equipment would probably not push their production overseas. Some
manufacturers stated that producing higher-efficiency equipment is
generally a more labor-intensive process and may cause them to hire
additional production employees. They also noted, however, that higher
efficiency standards could potentially shift the production of some of
the value content of CWH equipment overseas, causing U.S. manufacturers
to become less vertically integrated. In particular, manufacturers of
hot water supply boilers could choose to source condensing heat
exchangers, most of which are made overseas, rather than manufacture
them at domestic production facilities.
DOE estimates that 90 percent of CWH equipment sold in the United
States is currently manufactured domestically. In the absence of
amended energy conservation standards, DOE estimates that there would
be 377 domestic production workers in the CWH industry in 2019, the
year of compliance. Table V.25 presents the range of potential impacts
of amended energy conservation standards on U.S. production workers of
CWH equipment.
Table V.25--Potential Changes in the Total Number of CWH Equipment Production Workers in 2019
----------------------------------------------------------------------------------------------------------------
Trial standard level
Worker estimates No new ---------------------------------------------------------------
standard 1 2 3 4
----------------------------------------------------------------------------------------------------------------
Total Number of Domestic 377 389 to 241 406 to 212 408 to 199 416 to 153
Production Workers (2019)......
Potential Changes in Domestic .............. 12 to (136) 29 to (165) 31 to (178) 39 to (224)
Production Workers (2019)......
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative numbers.
At the upper end of the range, all examined TSLs show positive
impacts on domestic employment levels. Producing more-efficient CWH
equipment tends to require more labor, and DOE estimates that if CWH
equipment manufacturers chose to keep their current production in the
United States, domestic employment could increase at each TSL. In
interviews, several manufacturers that produce high-efficiency CWH
equipment stated that a standard that went to condensing levels could
cause them to hire more employees to increase their production
capacity. Others stated that a condensing standard would require
additional engineers to redesign CWH equipment and production
processes.
Regarding potential negative impacts on domestic direct employment,
DOE does not expect significant changes at TSL 1. Most manufacturers
agreed that these efficiency levels would require minimal changes to
their production processes and that most employees would be retained.
DOE estimates that there could be a more significant loss of domestic
employment at TSLs 2, 3, and 4 due to the fact that these TSLs require
condensing technology for gas-fired equipment classes. The lower bound
of employment under amended standards assumes manufacturers choose to
lay off some employees who work on their lower-efficiency, commodity
products. At these TSLs, CWH manufacturers could also choose to source
more components from overseas, limiting their need for production
employees. To derive the lower bound of direct employment under amended
standards, DOE estimated the percentage of CWH models that
manufacturers would have to redesign at each TSL and assumed
[[Page 34515]]
domestic direct employment in the industry would decline by an equal
proportion. This is intended to serve as a conservative assumption and
represents the lower bound of a range of potential direct employment
levels in the CWH industry under amended standards.
DOE notes that the employment impacts discussed here are
independent of the indirect employment impacts to the broader U.S.
economy, which are documented in chapter 15 of the NOPR TSD.
Issue 32: DOE seeks comment on its assessment of amended standards'
potential impacts on direct employment.
c. Impacts on Manufacturing Capacity
Based on manufacturer feedback, DOE estimates that the average CWH
equipment manufacturer's current production is running at approximately
60-percent capacity. Most manufacturers stated in interviews that they
generally did not anticipate production capacity constraints associated
with this rulemaking. Some noted that condensing equipment is generally
more labor-intensive and takes longer to build; however, most agreed
they could increase capacity by implementing a second shift with the
current machinery they have, or by expanding production capacity. Some
manufacturers did express concerns about engineering and laboratory
resources if standards were set at a high level. However, given the
compliance period, DOE believes that because most manufacturers already
make equipment that meets the efficiency levels proposed in this NOPR,
manufacturers would have time to redesign their product lines and
production processes.
Issue 33: DOE seeks comment on its assessment of amended standards'
potential impacts on manufacturing capacity.
d. Impacts on Subgroups of Manufacturers
Small manufacturers, niche equipment manufacturers, and
manufacturers exhibiting a cost structure substantially different from
the industry average could be affected disproportionately. Using
average cost assumptions developed for an industry cash-flow estimate
is inadequate to assess differential impacts among manufacturer
subgroups.
For the CWH equipment industry, DOE identified and evaluated the
impact of amended energy conservation standards on one subgroup--small
manufacturers. The SBA defines a ``small business'' as having 1,000
employees or fewer for NAICS code 333318, ``Other Commercial and
Service Industry Machinery Manufacturing.'' Based on this definition,
DOE identified 13 domestic manufacturers in the CWH equipment industry
that qualify as small businesses. For a discussion of the impacts on
the small manufacturer subgroup, see the regulatory flexibility
analysis in section VI.B of this notice and chapter 12 of the NOPR TSD.
e. Cumulative Regulatory Burden
While any one regulation may not impose a significant burden on
manufacturers, the combined effects of recent or impending regulations
may have serious consequences for some manufacturers, groups of
manufacturers, or an entire industry. Assessing the impact of a single
regulation may overlook this cumulative regulatory burden. In addition
to energy conservation standards, other regulations can significantly
affect manufacturers' financial operations. Multiple regulations
affecting the same manufacturer can strain profits and lead companies
to abandon product lines or markets with lower expected future returns
than competing products. For these reasons, DOE conducts an analysis of
cumulative regulatory burden as part of its rulemakings pertaining to
energy conservation standards for commercial equipment.
For the cumulative regulatory burden analysis, DOE looks at other
regulations that could affect CWH equipment manufacturers that will
take effect approximately three years before or after the 2019
compliance date of amended energy conservation standards for these
equipment types. In interviews, manufacturers cited Federal regulations
on equipment other than CWH equipment that contribute to their
cumulative regulatory burden. The compliance years and expected
industry conversion costs of relevant amended energy conservation
standards are indicated in Table V.26.
Table V.26--Compliance Dates and Expected Conversion Expenses of Federal
Energy Conservation Standards Affecting the Commercial Water Heating
Industry
------------------------------------------------------------------------
Estimated total
Federal energy conservation Approximate industry
standards compliance date conversion expense
------------------------------------------------------------------------
Commercial Packaged Air- 2018 and 2023 *... $520.8M (2014$).
Conditioning and Heating
Equipment 81 FR 2420 (January
15, 2016).
Residential Furnace Fans 79 FR 2019.............. $40.6M (2013$).
38129 (July 3, 2014).
Residential Boilers 81 FR 2320 2021.............. $2.5M (2014$).
(January 15, 2016).
Commercial Packaged Boilers **.. 2020.............. TBD.
Residential Furnaces 80 FR 13120 2021.............. $55M (2013$).
(March 12, 2015) (NOPR).
Direct Heating Equipment/Pool 2021.............. TBD.
Heaters **.
Residential Water Heaters **.... 2021.............. TBD.
------------------------------------------------------------------------
* This rule has multiple compliance dates.
** The NOPR and final rule for this energy conservation standard have
not been published. The compliance date and analysis of conversion
costs are estimates and have not been finalized at this time.
In addition to Federal energy conservation standards, DOE
identified another regulatory burden that would affect manufacturers of
CWH equipment:
Environmental Protection Agency (EPA) Significant New Alternatives
Policy (SNAP) Program
Several manufacturers raised concerns in interviews about EPA's
SNAP program and, in particular, a proposed rule to modify the listings
for certain hydrofluorocarbons in various end-uses in the aerosols,
refrigeration and air conditioning, and foam blowing sectors. 79 FR
46126 (August 6, 2014). On July 20, 2015, the EPA published a final
rule under the SNAP program that adopts modifications similar to those
outlined in the August 6, 2014 proposed rule. 80 FR 42870, 42923-24.
Specifically, the final rule changed the status of several
hydrofluorocarbons to
[[Page 34516]]
unacceptable for use as foam blowing agents beginning January 1, 2020.
Several manufacturers of CWH equipment use these materials (i.e., HFC-
245fa) as blowing agents to insulate their CWH equipment. DOE
acknowledges that the EPA ban on these substances will impact the
materials used by some CWH equipment manufacturers, which could require
them to alter the design of certain equipment.
Issue 34: DOE requests comment on whether the classification of
unacceptable blowing agents in the EPA's SNAP final rule will affect
the insulating properties of foam insulation used in CWH equipment
analyzed in this NOPR. Specifically, DOE seeks data that show the
difference in thermal resistivity (i.e., R-value per inch) between
insulation currently used in storage water heaters and insulation that
would be compliant with the regulations amended in the SNAP final rule,
if currently used blowing agents are classified as unacceptable.
3. National Impact Analysis
a. Significance of Energy Savings
For each TSL, DOE projected energy savings for CWH equipment
shipped in the 30-year period that begins in the year of anticipated
compliance with amended standards (2019-2048). The savings are measured
over the entire lifetime of equipment shipped in the 30-year 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.
Table V.27 presents the estimated primary energy savings for each
considered TSL, and Table V.28 presents the estimated FFC energy
savings for each TSL. The approach for estimating national energy
savings is further described in section IV.H. Table V.29 shows
cumulative primary national energy savings by TSL as a percentage of
the no-new-standards-case primary energy usage.
Table V.27--Cumulative National Primary Energy Savings for CWH Equipment Trial Standard Levels for Units Shipped
in 2019-2048
[Quads]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.160 0.505 0.716 0.924
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.024 0.069 0.069 0.102
Gas-fired instantaneous water heaters and hot 0.179 0.661 0.772 0.888
water supply boilers...........................
Tankless water heaters........................ 0.009 0.048 0.057 0.066
Hot water supply boilers...................... 0.169 0.613 0.715 0.822
Electric storage water heaters.................. 0.048 0.048 0.048 0.048
---------------------------------------------------------------
Total................................... 0.410 1.282 1.604 1.961
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
Table V.28--Cumulative National Full-Fuel-Cycle Energy Savings for CWH Equipment Trial Standard Levels for Units
Shipped in 2019-2048
[Quads]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.179 0.569 0.805 1.038
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.027 0.078 0.078 0.115
Gas-fired instantaneous water heaters and hot 0.200 0.741 0.865 0.996
water supply boilers...........................
Tankless water heaters...................... 0.011 0.054 0.064 0.074
Hot water supply boilers.................... 0.190 0.687 0.801 0.921
Electric storage water heaters.................. 0.050 0.050 0.050 0.050
---------------------------------------------------------------
Total................................... 0.457 1.438 1.798 2.199
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
Table V.29--Cumulative Primary National Energy Savings by TSL as a Percentage of Cumulative No-New-Standards-
Case Energy Usage of CWH Equipment Shipped in 2019-2048
----------------------------------------------------------------------------------------------------------------
No-new- TSL savings as percent of no-new-standards-case usage *
standards- ---------------------------------------------------------------
Equipment class case energy
usage (quads) TSL 1 (%) TSL 2 (%) TSL 3 (%) TSL 4 (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage 6.0 3 8 12 15
water heaters and gas-fired
storage-type instantaneous
water heaters..................
Residential-duty gas-fired 0.7 4 10 10 15
storage water heaters..........
Gas-fired instantaneous water 7.2 2 9 11 12
heaters and hot water supply
boilers........................
Tankless water heaters...... 0.5 2 9 11 12
[[Page 34517]]
Hot water supply boilers.... 6.7 3 9 11 12
Electric storage water heaters.. 5.9 1 1 1 1
-------------------------------------------------------------------------------
Total................... 19.8 2 6 8 10
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
Circular A-4 \120\ 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
equipment shipments. The choice of a 9-year period is a proxy for the
timeline in EPCA for the review of certain energy conservation
standards and potential revision of and compliance with such revised
standards.\121\ The review timeframe established in EPCA is generally
not synchronized with the equipment lifetime, equipment manufacturing
cycles, or other factors specific to CWH equipment. Thus, such results
are presented for informational purposes only and are not indicative of
any change in DOE's analytical methodology. The full-fuel-cycle NES
results based on a nine-year analytical period are presented in Table
V.30. The impacts are counted over the lifetime of products shipped in
2019-2027.
---------------------------------------------------------------------------
\120\ U.S. Office of Management and Budget, ``Circular A-4:
Regulatory Analysis'' (Sept. 17, 2003) (Available at: http://www.whitehouse.gov/omb/circulars_a004_a-4/).
\121\ EPCA requires DOE to review its standards at least once
every 6 years, and requires, for certain equipment, 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.
6313(a)(6)(C)) 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 commercial
equipment, the compliance period is 5 years rather than 3 years.
Table V.30--Cumulative Full-Fuel-Cycle National Energy Savings for Trial Standard Levels for Commercial Water
Heating Equipment Shipped in 2019-2027
[Quads]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.048 0.153 0.216 0.279
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.007 0.021 0.021 0.031
Gas-fired instantaneous water heaters and hot 0.053 0.197 0.230 0.264
water supply boilers...........................
Tankless water heaters...................... 0.002 0.013 0.015 0.017
Hot water supply boilers.................... 0.051 0.184 0.215 0.247
Electric storage water heaters.................. 0.012 0.012 0.012 0.012
---------------------------------------------------------------
Total................................... 0.121 0.382 0.479 0.586
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
b. Net Present Value of Commercial Consumer Costs and Benefits
DOE estimated the cumulative NPV of the total costs and savings for
commercial consumers that would result from the TSLs considered for CWH
equipment. In accordance with OMB's guidelines on regulatory
analysis,\122\ DOE calculated NPV using both a 3-percent and a 7-
percent real discount rate. Table V.31 and Table V.32 show the
commercial consumer NPV results at 3-percent and 7-percent discount
rates respectively for each TSL considered for the CWH equipment
covered in this rulemaking. In each case, the impacts cover the
lifetime of equipment shipped in 2019-2048. Results for all equipment
classes using the EPCA baseline can be found in chapter 10 of the NOPR
TSD.
---------------------------------------------------------------------------
\122\ OMB Circular A-4, section E (Sept. 17, 2003) (Available at
http://www.whitehouse.gov/omb/circulars_a004_a-4).
[[Page 34518]]
Table V.31--Cumulative Net Present Value of Commercial Consumer Benefit for CWH Equipment Trial Standard Levels
at a 3-Percent Discount Rate for Equipment Shipped in 2019-2048
[Billion 2014$]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.65 1.96 3.15 4.30
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.04 0.16 0.16 0.28
Gas-fired instantaneous water heaters and hot 0.84 2.78 3.30 3.83
water supply boilers...........................
Tankless water heaters...................... 0.04 0.34 0.39 0.43
Hot water supply boilers.................... 0.80 2.44 2.91 3.40
Electric storage water heaters.................. 0.14 0.14 0.14 0.14
---------------------------------------------------------------
Total................................... 1.68 5.04 6.75 8.55
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
Table V.32--Cumulative Net Present Value of Commercial Consumer Benefit for CWH Equipment Trial Standard Levels
at a 7-Percent Discount Rate for Equipment Shipped in 2019-2048
[Billion 2014$]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.26 0.71 1.23 1.73
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.006 0.03 0.03 0.07
Gas-fired instantaneous water heaters and hot 0.26 0.80 0.96 1.13
water supply boilers...........................
Tankless water heaters...................... 0.01 0.13 0.15 0.16
Hot water supply boilers.................... 0.25 0.67 0.82 0.96
Electric storage water heaters.................. 0.04 0.04 0.04 0.04
---------------------------------------------------------------
Total................................... 0.57 1.58 2.26 2.96
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
The NPV results based on the aforementioned nine-year analytical
period are presented in Table V.33 and Table V.34. The impacts are
counted over the lifetime of equipment shipped in 2019-2027. As
mentioned previously, such results are presented for informational
purposes only and are not indicative of any change in DOE's analytical
methodology or decision criteria.
Table V.33--Cumulative Net Present Value of Commercial Consumer Benefit for CWH Equipment Trial Standard Levels
at a 3-percent Discount Rate for Equipment Shipped in 2019-2027
[Billion 2014$]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.19 0.41 0.78 1.13
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters 0.01 0.00 0.00 0.04
Gas-fired instantaneous water heaters and hot 0.25 0.74 0.89 1.05
water supply boilers...........................
Tankless water heaters...................... 0.01 0.07 0.09 0.10
Hot water supply boilers.................... 0.24 0.67 0.80 0.95
Electric storage water heaters.................. 0.04 0.04 0.04 0.04
---------------------------------------------------------------
Total................................... 0.48 1.19 1.71 2.25
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
[[Page 34519]]
Table V.34--Cumulative Net Present Value of Commercial Consumer Benefit for CWH Equipment Trial Standard Levels
at a 7-percent Discount Rate for Equipment Shipped in 2019-2027
[Billion 2014$]
----------------------------------------------------------------------------------------------------------------
Trial standard level *
Equipment class ---------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and 0.10 0.20 0.43 0.64
gas-fired storage-type instantaneous water
heaters........................................
Residential-duty gas-fired storage water heaters -0.001 -0.01 -0.01 0.00
Gas-fired instantaneous water heaters and hot 0.11 0.30 0.37 0.43
water supply boilers...........................
Tankless water heaters...................... 0.00 0.04 0.05 0.06
Hot water supply boilers.................... 0.11 0.26 0.32 0.38
Electric storage water heaters.................. 0.02 0.02 0.02 0.02
---------------------------------------------------------------
Total................................... 0.23 0.50 0.80 1.10
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
The results presented in this section reflect an assumption of no
change in CWH equipment prices by efficiency level over the forecast
period. For this NOPR, DOE conducted sensitivity analyses to examine
NIA results with varying inputs. The main reason for assuming no change
in CWH equipment prices was data limitations, and the same limitations
made alternative price trends problematic as well, so in the
sensitivity analyses, the high and low price trends were also assumed
to be ``no change'' trends. Sensitivity analyses are described in
appendix 10B of the NOPR TSD.
c. Indirect Impacts on Employment
DOE expects that amended energy conservation standards for CWH
equipment would reduce energy costs for equipment owners, with the
resulting net savings being redirected to other forms of economic
activity. Those shifts in spending and economic activity could affect
the demand for labor. As described in section IV.N, DOE used an input/
output model of the U.S. economy to estimate indirect employment
impacts of the TSLs that DOE considered in this rulemaking. DOE
understands that there are uncertainties involved in projecting
employment impacts, especially changes in the later years of the
analysis. Therefore, DOE generated results for near-term time frames
(2019-2025), where these uncertainties are reduced.
The results suggest that these proposed standards would be likely
to have a negligible impact on the net demand for labor in the economy.
The net change in jobs is so small that it would be imperceptible in
national labor statistics and might be offset by other, unanticipated
effects on employment. Chapter 16 of the NOPR TSD presents more
detailed results about anticipated indirect employment impacts.
4. Impact on Utility or Performance of Equipment
DOE has tentatively concluded that the amended standards it is
proposing in this NOPR would not lessen the utility or performance of
CWH equipment.
5. Impact of Any Lessening of Competition
DOE has also considered any lessening of competition that is likely
to result from new and amended standards. The Attorney General
determines the impact, if any, of any lessening of competition likely
to result from a proposed standard, and transmits such determination in
writing to the Secretary, together with an analysis of the nature and
extent of such impact. (42 U.S.C. 6313(a)(6)(B)(ii)(V) and (C)(i))
To assist the Attorney General in making such determination, DOE
has provided the Department of Justice (DOJ) with copies of this NOPR
and the TSD for review. DOE will consider DOJ's comments on the
proposed rule in preparing the final rule, and DOE will publish and
respond to DOJ's comments in that document. DOE invites comment from
the public regarding the competitive impacts that are likely to result
from this proposed rule. In addition, stakeholders may also provide
comments separately to DOJ regarding those potential impacts. See the
ADDRESSES section for information to send comments to DOJ.
6. Need of the Nation To Conserve Energy
An improvement in the energy efficiency of the equipment subject to
this rule is likely to improve the security of the nation's energy
system by reducing overall demand for energy. Reduced energy demand may
also improve the reliability of the energy system. DOE evaluated the
impact on national electric generating capacity for each considered
TSL. Chapter 15 of the NOPR TSD provides more details of the TSLs'
impact on the electricity and natural gas utilities.
Potential energy savings from the proposed amended standards for
the considered CWH equipment classes could also produce environmental
benefits in the form of reduced emissions of air pollutants and
greenhouse gases associated with electricity production. Table V.35
provides DOE's estimate of cumulative emissions reductions projected to
result from the TSLs considered in this rulemaking. The table includes
both power sector emissions and upstream emissions. The upstream
emissions were calculated using the multipliers discussed in section
IV.K. DOE reports annual CO2, NOX, and Hg
emissions reductions for each TSL in chapter 13 of the NOPR TSD.
[[Page 34520]]
Table V.35--Cumulative Emissions Reduction for Potential Amended Standards for Commercial Water Heating
Equipment Shipped in 2019-2048
----------------------------------------------------------------------------------------------------------------
TSL
---------------------------------------------------------------
1 2 3 4
----------------------------------------------------------------------------------------------------------------
Power Sector and Site Emissions *
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 22 68 85 104
NOX (thousand tons)............................. 30 97 121 148
Hg (tons)....................................... 0.01 0.004 0.004 0.005
N2O (thousand tons)............................. 0.08 0.16 0.20 0.24
CH4 (thousand tons)............................. 0.66 1.52 1.89 2.30
SO2 (thousand tons)............................. 2.02 1.36 1.57 1.82
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 3 10 12 15
NOX (thousand tons)............................. 47 156 195 239
Hg (tons)....................................... 0.0001 0.00004 0.00004 0.00005
N2O (thousand tons)............................. 0.01 0.02 0.02 0.03
CH4 (thousand tons)............................. 279 934 1,170 1,432
SO2 (thousand tons)............................. 0.05 0.06 0.08 0.09
----------------------------------------------------------------------------------------------------------------
Total Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)....................... 25 78 98 119
NOX (thousand tons)............................. 77 252 316 386
Hg (tons)....................................... 0.01 0.004 0.004 0.005
N2O (thousand tons)............................. 0.08 0.18 0.22 0.26
N2O (thousand tons CO2eq) **.................... 22 47 58 70
CH4 (thousand tons)............................. 279 936 1,172 1,434
CH4 (thousand tons CO2eq) **.................... 7,821 26,197 32,812 40,149
SO2 (thousand tons)............................. 2.07 1.42 1.65 1.91
----------------------------------------------------------------------------------------------------------------
* Includes emissions from additional gas use of more-efficient CWH equipment.
** CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
As part of the analysis for this NOPR, DOE estimated monetary
benefits likely to result from the reduced emissions of CO2
and NOX estimated for each of the TSLs considered for CWH
equipment. As discussed in section IV.L, for CO2, DOE used
the most recent values for the SCC developed by an interagency process.
The interagency group selected four sets of SCC values for use in
regulatory analyses. Three sets are based on the average SCC from three
integrated assessment models, at discount rates of 2.5 percent, 3
percent, and 5 percent. The fourth set, which represents the 95th-
percentile SCC estimate across all three models at a 3-percent discount
rate, is included to represent higher-than-expected impacts from
temperature change further out in the tails of the SCC distribution.
The four SCC values for CO2 emissions reductions in 2015,
expressed in 2014$, are $12.2 per metric ton, $40.0 per metric ton,
$62.3 per metric ton, and $117 per metric ton. The values for later
years are higher due to increasing emissions-related costs as the
magnitude of projected climate change increases.
Table V.36 presents the global value of CO2 emissions
reductions at each TSL. DOE calculated domestic values as a range from
7 percent to 23 percent of the global values, and these results are
presented in chapter 14 of the NOPR TSD.
Table V.36--Global Present Value of CO2 Emissions Reduction for Potential Standards for CWH Equipment Shipped in
2019-2048
----------------------------------------------------------------------------------------------------------------
SCC scenario *
---------------------------------------------------------------
Million 2014$
TSL ---------------------------------------------------------------
3% discount
5% discount 3% discount 2.5% discount rate, 95th
rate, average rate, average rate, average percentile
----------------------------------------------------------------------------------------------------------------
Power Sector and Site Emissions **
----------------------------------------------------------------------------------------------------------------
1............................................... 145 680 1,085 2,073
2............................................... 441 2,081 3,327 6,348
3............................................... 555 2,612 4,173 7,967
4............................................... 682 3,202 5,113 9,765
----------------------------------------------------------------------------------------------------------------
Upstream Emissions
----------------------------------------------------------------------------------------------------------------
1............................................... 19 90 143 273
[[Page 34521]]
2............................................... 63 297 474 905
3............................................... 79 373 596 1,138
4............................................... 98 458 731 1,396
----------------------------------------------------------------------------------------------------------------
Total Emissions
----------------------------------------------------------------------------------------------------------------
1............................................... 164 769 1,228 2,346
2............................................... 504 2,378 3,801 7,253
3............................................... 635 2,985 4,769 9,105
4............................................... 780 3,660 5,844 11,161
----------------------------------------------------------------------------------------------------------------
* For each of the four cases, the corresponding SCC value for emissions in 2015 is $12.2, $40.0, $62.3 and $117
per metric ton (2014$). The values are for CO2 only (i.e., no CO2eq of other greenhouse gases).
** Includes site emissions associated with use of gas-fired CWH equipment.
DOE is well aware that scientific and economic knowledge continues
to evolve rapidly regarding the contribution of CO2 and
other greenhouse gas (GHG) emissions to changes in the future global
climate and the potential resulting damages to the world economy. Thus,
any value placed in this rulemaking on reducing CO2
emissions is subject to change. DOE, together with other Federal
agencies, will continue to review various 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.
However, consistent with DOE's legal obligations, and taking into
account the uncertainty involved with this particular issue, DOE has
included in this NOPR the most recent values and analyses resulting
from the interagency review process.
DOE also estimated the cumulative monetary value of the economic
benefits associated with NOX emissions reductions
anticipated to result from the considered TSLs for amended standards
for the CWH equipment that is the subject of this NOPR. The dollar-per-
ton values that DOE used are discussed in section IV.L. Table V.37
presents the cumulative present value for NOX emissions for
each TSL calculated using the average dollar-per-ton values and 7-
percent and 3-percent discount rates. This table presents values that
use the low dollar-per-ton values, which reflect DOE's primary
estimate. Results that reflect the range of NOX dollar-per-
ton values are presented in Table V.37. Detailed discussions on
NOX emissions reductions are available in chapter 14 of the
NOPR TSD.
Table V.37--Present Value of NOX Emissions Reduction for Potential
Standards for CWH Equipment
------------------------------------------------------------------------
Million 2014$
-------------------------------
TSL 3% discount 7% discount
rate rate
------------------------------------------------------------------------
Power Sector and Site Emissions *
------------------------------------------------------------------------
1....................................... 93 36
2....................................... 294 112
3....................................... 371 142
4....................................... 456 176
------------------------------------------------------------------------
Upstream Emissions
------------------------------------------------------------------------
1....................................... 143 55
2....................................... 475 181
3....................................... 599 231
4....................................... 737 285
------------------------------------------------------------------------
Total Emissions
------------------------------------------------------------------------
1....................................... 236 91
2....................................... 769 294
3....................................... 970 373
4....................................... 1,193 461
------------------------------------------------------------------------
* Includes site emissions associated with use of gas-fired CWH
equipment.
The NPV of the monetized benefits associated with emissions
reductions can be viewed as a complement to the NPV of the consumer
savings calculated for each TSL considered in this rulemaking. Table
V.38 presents the NPV values that result from adding the estimates of
the potential economic benefits resulting from reduced CO2
and NOX emissions in each of four valuation scenarios to the
NPV of consumer savings calculated for each TSL for CWH equipment
considered in this rulemaking, at both a 7-percent and 3-percent
discount rate. The CO2 values used in the columns correspond
to the four sets of SCC values discussed in section IV.L.1.
[[Page 34522]]
Table V.38--CWH Equipment TSLs: Net Present Value of Consumer Savings Combined With Net Present Value of
Monetized Benefits From CO2 and NOX Emissions Reductions
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 3% discount rate added with: (billion 2014$)
---------------------------------------------------------------
95th
TSL SCC at 5% SCC at 3% SCC at 2.5% percentile SCC
discount rate discount rate discount rate at 3% discount
* and 3% low * and 3% low * and 3% low rate * and 3%
NOX value NOX value NOX value low NOX value
----------------------------------------------------------------------------------------------------------------
1............................................... 2.105 2.711 3.170 4.287
2............................................... 6.398 8.272 9.695 13.147
3............................................... 8.463 10.814 12.598 16.933
4............................................... 10.656 13.537 15.721 21.038
----------------------------------------------------------------------------------------------------------------
Consumer NPV at 7% discount rate added with: (billion 2014$)
---------------------------------------------------------------
TSL SCC at 5% SCC at 3% SCC at 2.5% 95th
discount rate* discount rate* discount rate* percentile SCC
and 7% low NOX and 7% low NOX and 7% low NOX at 3% discount
value value value rate * and 7%
low NOX value
----------------------------------------------------------------------------------------------------------------
1............................................... 0.831 1.436 1.895 3.013
2............................................... 2.403 4.277 5.700 9.152
3............................................... 3.302 5.653 7.437 11.772
4............................................... 4.242 7.123 9.307 14.624
----------------------------------------------------------------------------------------------------------------
* The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values
are based on the average SCC from the integrated assessment models, at discount rates of 5, 3, and 2.5
percent. For example, for 2015 emissions, these values are $12.2/metric ton, $40.0/metric ton, and $62.3/
metric ton, in 2014$, respectively. The fourth set ($117 per metric ton in 2014$ for 2015 emissions), which
represents the 95th percentile SCC estimate across all three models at a 3-percent discount rate, is included
to represent higher-than-expected impacts from temperature change further out in the tails of the SCC
distribution. The SCC values are emission year specific. For NOX emissions, the 3 and 7-percent values are
discussed in more detail in section IV.L.2.
In considering the above results, two issues are relevant. First,
the national operating cost savings are domestic U.S. commercial
consumer monetary savings that occur as a result of market
transactions, while the value of CO2 reductions is based on
a global value. Second, the assessments of operating cost savings and
the SCC are performed with different methods that use quite different
time frames for analysis. The national operating cost savings is
measured for the lifetime of products shipped in 2019-2048. Because
CO2 emissions have a very long residence time in the
atmosphere,\123\ the SCC values in future years reflect future
CO2 emissions impacts that continue beyond 2100 through
2300.
---------------------------------------------------------------------------
\123\ The atmospheric lifetime of CO2 is estimated of
the order of 30-95 years. Jacobson, MZ, ``Correction to `Control of
fossil-fuel particulate black carbon and organic matter, possibly
the most effective method of slowing global warming,' '' J. Geophys.
Res. 110. pp. D14105 (2005).
---------------------------------------------------------------------------
7. Other Factors
The Secretary of Energy, in determining whether a standard is
economically justified, may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII) and
(C)(i)) No other factors were considered in this analysis.
C. Proposed Standards
To adopt national standards more stringent than the current
standards for CWH equipment, DOE must determine that such action would
result in significant additional conservation of energy and is
technologically feasible and economically justified. (42 U.S.C.
6313(a)(6)(A)(ii) and (C)(i)) In determining whether a standard is
economically justified, the Secretary must determine whether the
benefits of the standard exceed its burdens by, to the greatest extent
practicable, considering the seven statutory factors discussed
previously. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII) and (C)(i))
For this NOPR, DOE considered the impacts of amended standards for
CWH equipment at each TSL, beginning with the maximum technologically
feasible level, to determine whether that level was economically
justified. Where the max-tech level was not justified, DOE then
considered the next most efficient level and undertook the same
evaluation until it reached the highest efficiency level that is both
technologically feasible and economically justified and saves a
significant additional amount of energy.
To aid the reader in understanding 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 commercial consumers who may
be disproportionately affected by a national standard and impacts on
employment.
1. Benefits and Burdens of Trial Standard Levels Considered for CWH
Equipment
Table V.39, Table V.40, and Table V.41 summarize the quantitative
impacts estimated for each TSL for CWH equipment. The national impacts
are measured over the lifetime of CWH equipment shipped in the 30-year
period that begins in the year of compliance with amended standards
(2019-2048). The energy savings, emissions reductions, and value of
emissions reductions refer to full-fuel-cycle results.
[[Page 34523]]
Table V.39--Summary of Analytical Results for CWH Equipment: National Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category TSL 1 TSL 2 TSL 3 TSL 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
National FFC Energy Savings (quads). 0.457...................... 1.438...................... 1.798...................... 2.199.
--------------------------------------------------------------------------------------------------------------------------------------------------------
NPV of Commercial Consumer Benefits (billion 2014$)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3% discount rate.................... 1.68....................... 5.04....................... 6.75....................... 8.55.
7% discount rate.................... 0.57....................... 1.58....................... 2.26....................... 2.96.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Manufacturer Impacts
--------------------------------------------------------------------------------------------------------------------------------------------------------
Industry NPV (2014$ million):
No-new-standards case INPV = 171.5 to 177.4............. 158.8 to 187.8............. 152.8 to 185.0............. 128.6 to 166.6.
176.2.
Change in Industry NPV (2014$ (4.7) to 1.2............... (17.4) to 11.6............. (23.4) to 8.8.............. (47.6) to (9.7).
million).
Change in Industry NPV (%).......... (2.7) to 0.7............... (9.9) to 6.6............... (13.3) to 5.0.............. (27.0) to (5.5).
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)........... 25.08...................... 78.06...................... 97.63...................... 119.34.
NOX (thousand tons)................. 76.93...................... 252.35..................... 315.95..................... 386.48.
Hg (tons)........................... 0.01....................... 0.004...................... 0.004...................... 0.005.
N2O (thousand tons)................. 0.08....................... 0.18....................... 0.22....................... 0.26.
N2O (thousand tons CO2eq)........... 22.11...................... 46.63...................... 57.76...................... 70.14.
CH4 (thousand tons)................. 279........................ 936........................ 1,172...................... 1,434.
CH4 (thousand tons CO2eq) *......... 7,821...................... 26,197..................... 32,812..................... 40,149.
SO2 (thousand tons)................. 2.07....................... 1.42....................... 1.65....................... 1.91.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Value of Emissions Reduction (Total FFC Emissions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
CO2 (2014$ million) **.............. 164 to 2,346............... 504 to 7,253............... 635 to 9,105............... 780 to 11,161.
NOX--3% discount rate (2014$ 236 to 524................. 769 to 1,703............... 970 to 2,148............... 1,193 to 2,643.
million).
NOX--7% discount rate (2014$ 91 to 203.................. 294 to 655................. 373 to 833................. 461 to 1,030.
million).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* CO2eq is the quantity of CO2 that would have the same global warming potential (GWP).
** Range of the economic value of CO2 reductions is based on estimates of the global benefit of reduced CO2 emissions.
Note: Parentheses indicate negative values.
Table V.40--Summary of Analytical Results for CWH Equipment: NPV of Commercial Consumer Benefits by Equipment
Class
----------------------------------------------------------------------------------------------------------------
Trial standard level * Billion 2014$
Equipment class Discount rate ---------------------------------------------------------------
(%) 1 2 3 4
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage 3 0.654 1.958 3.154 4.302
water heaters and gas-fired
storage-type instantaneous
water heaters..................
7 0.256 0.708 1.231 1.727
Residential-duty gas-fired 3 0.044 0.163 0.163 0.282
storage water heaters..........
7 0.006 0.026 0.026 0.067
Gas-fired instantaneous water 3 0.842 2.778 3.296 3.832
heaters and hot water supply
boilers........................
7 0.265 0.805 0.964 1.128
Tankless water heaters...... 3 0.038 0.340 0.387 0.433
7 0.013 0.130 0.147 0.163
Hot water supply boilers.... 3 0.804 2.438 2.909 3.399
7 0.251 0.674 0.817 0.964
Electric storage water heaters.. 3 0.138 0.138 0.138 0.138
7 0.042 0.042 0.042 0.042
Total--All Classes...... 3 1.679 5.037 6.750 8.553
7 0.568 1.580 2.263 2.963
----------------------------------------------------------------------------------------------------------------
* Note: Components may not sum to total due to rounding.
Table V.41--Summary of Analytical Results for CWH Equipment: Commercial Consumer Impacts
----------------------------------------------------------------------------------------------------------------
TSL 1 TSL 2 TSL 3 TSL 4
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Mean LCC Savings (2014$)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage 219............... 317............... 794............... 1,252
water heaters.
Residential-duty gas-fired 537............... 14................ 14................ 241
storage water heaters.
Gas-fired instantaneous water 891............... 2,944............. 3,488............. 4,046
heaters and hot water supply
boilers.
Gas-fired tankless water heaters 86................ 1,009............. 1,119............. 1,224
Gas-fired hot water supply 1,245............. 3,794............. 4,528............. 5,285
boilers.
[[Page 34524]]
Electric storage water heaters.. 47................ 47................ 47................ 47
----------------------------------------------------------------------------------------------------------------
Commercial Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage 3.8............... 5.7............... 4.3............... 3.8
water heaters.
Residential-duty gas-fired 10.5.............. 11.9.............. 11.9.............. 10.2
storage water heaters.
Gas-fired instantaneous water 3.6............... 5.8............... 5.6............... 5.6
heaters and hot water supply
boilers.
Gas-fired tankless water heaters 2.9............... Immediate......... Immediate......... Immediate
Gas-fired hot water supply 3.6............... 6.7............... 6.4............... 6.3
boilers.
Electric storage water heaters.. 6.5............... 6.5............... 6.5............... 6.5
----------------------------------------------------------------------------------------------------------------
Distribution of Commercial Consumer LCC Impacts (Net Cost %)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage 8................. 30................ 24................ 21
water heaters.
Residential-duty gas-fired 32................ 42................ 42................ 36
storage water heaters.
Gas-fired instantaneous water 14................ 27................ 26................ 27
heaters and hot water supply
boilers.
Gas-fired tankless water heaters 11................ 38................ 35................ 33
Gas-fired hot water supply 15................ 22................ 22................ 24
boilers.
Electric storage water heaters.. 14................ 14................ 14................ 14
----------------------------------------------------------------------------------------------------------------
Note: Parentheses indicate negative values. Immediate payback can result from a decrease in installation cost
that is greater than the incremental increase in equipment cost.
DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy
savings in the absence of government intervention. Much of this
literature attempts to explain why consumers appear to undervalue
energy efficiency improvements. There is evidence that consumers
undervalue future energy savings as a result of: (1) A lack of
information; (2) a lack of sufficient salience of the long-term or
aggregate benefits; (3) a lack of sufficient savings to warrant
delaying or altering purchases (e.g., an inefficient ventilation fan in
a new building or the delayed replacement of a water pump); (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 (e.g., renter versus building owner, builder
versus home buyer). Other literature indicates that with 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. This undervaluation suggests that regulation that
promotes energy efficiency can produce significant net private gains
(as well as producing social gains by, for example, reducing
pollution).
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 amended 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
efficiency standards, and potential enhancements to the methodology by
which these impacts are defined and estimated in the regulatory
process.\124\ DOE welcomes comments on how to more fully assess the
potential impact of energy conservation standards on consumer choice
and methods to quantify this impact in its regulatory analysis.
---------------------------------------------------------------------------
\124\ Sanstad, A., Notes on the Economics of Household Energy
Consumption and Technology Choice, Lawrence Berkeley National
Laboratory (2010) (Available at: <www1.eere.energy.gov/buildings/appliance_standards/pdfs/consumer_ee_theory.pdf>).
---------------------------------------------------------------------------
First, DOE considered TSL 4, which corresponds to the max-tech
level for all the equipment classes and offers the potential for the
highest cumulative energy savings through the analysis period from 2019
through 2048. The estimated energy savings from TSL 4 are 2.2 quads of
energy, an amount DOE considers significant. TSL 4 has an estimated NPV
of commercial consumer benefit of $2.96 billion using a 7-percent
discount rate, and $8.55 billion using a 3-percent discount rate.
The cumulative emissions reductions at TSL 4 are 119 million metric
tons of CO2, 1.9 thousand tons of SO2, 386
thousand tons of NOX, 0.005 tons of Hg, 1,434 thousand tons
of CH4, and 0.3 thousand tons of N2O. The
estimated monetary value of the CO2 emissions reductions at
TSL 4 ranges from $780 million to $11,161 million.
At TSL 4, the average LCC savings range from $47 to $4,046, and the
simple PBP ranges from 3.8 to 10.2 years, depending on equipment class.
The fraction of commercial consumers incurring a net LCC cost ranges
from 14 percent for electric storage water heaters to 36 percent for
residential-duty gas-fired storage water heaters.
At TSL 4, the projected change in INPV ranges from a decrease of
$47.6 million to a decrease of $9.7 million. If the lower bound of the
range of impacts is reached, as DOE expects, TSL 4 could result in a
net loss of up to 27.0 percent in INPV for manufacturers of covered CWH
equipment.
Accordingly, the Secretary tentatively concludes that at TSL 4 for
CWH equipment, the benefits of energy savings, positive NPV of
commercial consumer benefits, emission reductions, and the estimated
monetary value of the CO2 and NOX emissions
reductions would be outweighed by the large reduction in INPV at TSL 4.
Consequently, DOE has tentatively concluded that TSL 4 is not
economically justified.
Next DOE considered TSL 3, which would save an estimated 1.8 quads
of energy, an amount DOE considers significant. TSL 3 has an estimated
NPV of commercial consumer benefit of $2.26 billion using a 7-percent
discount rate, and $6.75 billion using a 3-percent discount rate.
The cumulative emissions reductions at TSL 3 are 98 million metric
tons of CO2, 1.6 thousand tons of SO2, 316
[[Page 34525]]
thousand tons of NOX, 0.004 tons of Hg, 1,172 thousand tons
of CH4, and 0.2 thousand tons of N2O. The
estimated monetary value of the CO2 emissions reductions at
TSL 3 ranges from $635 million to $9,105 million.
At TSL 3, the average LCC savings ranges from $47 to $3,488, and
the simple PBP ranges from 4.3 to 11.9 years, depending on equipment
class. The fraction of commercial consumers incurring a net LCC cost
ranges from 14 percent for electric storage water heaters to 42 percent
for residential-duty gas-fired storage water heaters.
At TSL 3, the projected change in INPV ranges from a decrease of
$23.4 million to an increase of $8.8 million. At TSL 3, DOE recognizes
the risk of negative impacts if manufacturers' expectations concerning
reduced profit margins are realized. If the lower bound of the range of
impacts is reached, as DOE expects, TSL 3 could result in a net loss of
up to 13.3 percent in INPV for manufacturers of covered CWH equipment.
After carefully considering the analytical results and weighing the
benefits and burdens, DOE has tentatively concluded that at TSL 3 for
CWH equipment, the benefits of energy savings, positive NPV of
commercial consumer benefit, positive impacts on commercial consumers
through reduced life-cycle costs, emissions reductions, and the
estimated monetary value of emissions reductions would outweigh the
potential reductions in INPV for manufacturers. Accordingly, the
Secretary of Energy has tentatively concluded that TSL 3 would save a
significant additional amount of energy and is technologically feasible
and economically justified.
Therefore, based upon the above considerations, DOE proposes to
adopt amended energy conservation standards for commercial water
heating equipment at TSL 3. Table V.42 and Table V.43 present the
proposed energy conservation standards for commercial water heating
equipment.
Table V.42--Proposed Amended Energy Conservation Standards for Commercial Water Heating Equipment Except for
Residential-Duty Commercial Water Heaters
[TSL 3]
----------------------------------------------------------------------------------------------------------------
Energy conservation standards *
--------------------------------------------
Equipment class ** Specifications Minimum thermal
efficiency (%) Maximum standby loss
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters......... All....................... N/A 0.84 x [0.30+27/Vr] (%/
h).
Gas-fired storage water heaters........ All [dagger].............. 95 0.63 x [Q/800 + 110(Vr)1/
2] (Btu/h).
Gas-fired instantaneous water heaters
and hot water supply boilers:
Instantaneous water heaters (other <10 gal................... 94 N/A.
than storage-type) and hot water
supply boilers.
Instantaneous water heaters (other >=10 gal.................. 94 Q/800 + 110(Vr)1/2 (Btu/
than storage-type) and hot water h).
supply boilers.
Storage-type instantaneous water >=10 gal.................. 95 0.63 x [Q/800 + 110(Vr)1/
heaters. 2] (Btu/h).
----------------------------------------------------------------------------------------------------------------
* Vr is the rated volume in gallons. Q is the fuel input rate in Btu/h.
** DOE proposes a new equipment class for storage-type instantaneous water heaters. This class of equipment is
similar to storage water heaters in design, cost, and application. However, it has a ratio of input capacity
to storage volume greater than or equal to 4,000 Btu/h per gallon of water stored; therefore, it is classified
as an instantaneous water heater by EPCA's definition at 42 U.S.C. 6311(12)(B). Because of the similarities to
storage water heaters, DOE grouped these two equipment classes together in its analyses for this NOPR. Storage-
type instantaneous water heaters are further discussed in section IV.A.2.a.
[dagger] These standards only apply to commercial water heating equipment that does not meet the definition of
``residential-duty commercial water heater.'' See Table V.43 for energy conservation standards proposed for
residential-duty commercial water heaters.
Table V.43--Proposed Energy Conservation Standards for Residential-Duty Commercial Water Heating Equipment
[TSL 3]
----------------------------------------------------------------------------------------------------------------
Uniform energy factor
Equipment class Specification * Draw pattern **
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage [dagger]........... >75 kBtu/h and......... Very Small............. 0.4618-(0.0010 x Vr).
<=105 kBtu/h and....... Low.................... 0.6626-(0.0009 x Vr).
<=120 gal and.......... Medium................. 0.6996-(0.0007 x Vr).
<=180 [deg]F........... High................... 0.7311-(0.0006 x Vr).
----------------------------------------------------------------------------------------------------------------
* To be classified as a residential-duty commercial water heater, a commercial water heater must, if requiring
electricity, use single-phase external power supply, and not be designed to heat water at temperatures greater
than 180[emsp14][deg]F.
** Vr is the rated storage volume.
[dagger] Energy conservation standards for residential-duty commercial gas-fired storage water heaters were
converted from the thermal efficiency and standby loss metrics to the new UEF metric using conversion factors
proposed by DOE in the April 2015 NOPR for all four draw patterns: Very small, low, medium, and high. 80 FR
20116, 20143 (April 14, 2015).
2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
The benefits and costs of the proposed standards in this document
can also be expressed in terms of annualized values. The annualized
monetary values are the sum of: (1) The annualized national economic
value (expressed in 2014$) of the benefits from operating equipment
that meets the proposed standards (consisting primarily of operating
cost savings from using less energy, minus increases in equipment
purchase costs, which is another way of representing commercial
consumer NPV), and (2) the annualized monetary value of the benefits of
emission reductions,
[[Page 34526]]
including CO2 emission reductions.\125\ The value of the
CO2 reductions, otherwise known as the Social Cost of Carbon
(SCC), is calculated using a range of values per metric ton of
CO2 developed by a recent interagency process.
---------------------------------------------------------------------------
\125\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2015, 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
(2020, 2030, etc.), and then discounted the present value from each
year to 2015. The calculation uses discount rates of 3 and 7 percent
for all costs and benefits except for the value of CO2
reductions, for which DOE used case-specific discount rates. 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.
---------------------------------------------------------------------------
The national operating savings are domestic private U.S. consumer
monetary savings that occur as a result of purchasing these equipment.
The national operating cost savings is measured for the lifetime of CWH
equipment shipped in 2019-2048.
The CO2 reduction is a benefit that accrues globally due
to decreased domestic energy consumption that is expected to result
from this rule. Because CO2 emissions have a very long
residence time in the atmosphere,\126\ the SCC values in future years
reflect future CO2-emissions impacts that continue beyond
2100 through 2300.
---------------------------------------------------------------------------
\126\ The atmospheric lifetime of CO2 is estimated to
be on the order of 30-95 years. Jacobson, MZ, ``Correction to
`Control of fossil-fuel particulate black carbon and organic matter,
possibly the most effective method of slowing global warming,' '' J.
Geophys. Res. 110. pp. D14105 (2005).
---------------------------------------------------------------------------
Table V.44 shows the annualized benefit and cost values for the
proposed standards for CWH equipment under TSL 3, expressed in 2014$.
The results under the primary estimate are as follows.
Using a 7-percent discount rate for benefits and costs other than
CO2 reduction (for which DOE used a 3-percent discount rate
along with the average SCC series that has a value of $40.0 per metric
ton in 2015), the estimated cost of the CWH standards proposed in this
document is $144 million per year in increased equipment costs, while
the estimated benefits are $367 million per year in reduced equipment
operating costs, $166 million per year from CO2 reductions,
and $37 million per year from reduced NOX emissions. In this
case, the annualized net benefit amounts to $427 million per year.
Using a 3-percent discount rate for benefits and costs and the
average SCC series that has a value of $40.0 per metric ton in 2015,
the estimated cost of the CWH standards proposed in this NOPR is $141
million per year in increased equipment costs, while the estimated
benefits are $517 million per year in reduced operating costs, $166
million per year from CO2 reductions, and $54 million per
year in reduced NOX emissions. In this case, the net benefit
amounts to $597 million per year.
Table V.44--Annualized Benefits and Costs of Proposed Standards (TSL 3) for CWH Equipment *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Million 2014$/year
-----------------------------------------------------------------------------------
Discount rate Low net benefits estimate High net benefits estimate
Primary estimate * * *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Consumer Operating Cost 7%.............................. 367....................... 336....................... 411.
Savings *.
3%.............................. 517....................... 465....................... 588.
CO2 Reduction (using mean SCC at 5%.............................. 48........................ 46........................ 50.
5% discount rate) **.
CO2 Reduction (using mean SCC at 3%.............................. 166....................... 159....................... 176.
3% discount rate) **.
CO2 Reduction (using mean SCC at 2.5%............................ 245....................... 234....................... 259.
2.5% discount rate) **.
CO2 Reduction (using 95th 3%.............................. 508....................... 485....................... 536.
percentile SCC at 3% discount
rate) **.
NOX Reduction [dagger]............ 7%.............................. 37........................ 35........................ 86.
3%.............................. 54........................ 52........................ 126.
Total Benefits 7% plus CO2 range............... 452 to 912................ 417 to 855................ 547 to 1,033.
[dagger][dagger].
7%.............................. 571....................... 530....................... 673.
3% plus CO2 range............... 619 to 1,079.............. 563 to 1,001.............. 765 to 1,251.
3%.............................. 737....................... 676....................... 890.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Consumer Incremental 7%.............................. 144....................... 147....................... 142.
Equipment Costs.
3%.............................. 141....................... 144....................... 138.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net Benefits/Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total [dagger][dagger]........ 7% plus CO2 range............... 308 to 768................ 270 to 709................ 406 to 892.
7%.............................. 427....................... 383....................... 531.
3% plus CO2 range............... 478 to 938................ 419 to 857................ 627 to 1,113.
3%.............................. 597....................... 532....................... 752.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table presents the annualized costs and benefits associated with commercial water heating equipment shipped in 2019-2048. These results include
benefits to commercial consumers that accrue after 2048 from the equipment shipped in 2019-2048. The Primary, Low Benefits, and High Benefits
Estimates for operating cost savings utilize projections of energy prices and building growth (leading to higher shipments) from the AEO 2015
Reference case, Low Estimate, and High Estimate, respectively. In addition, DOE used a constant price assumption as the default price projection; the
cost to manufacture a given unit of higher efficiency neither increases nor decreases over time. The analysis of the price trends is described in
section IV.F.2.a and appendix 10B of the NOPR TSD.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values are based on the average SCC from the
integrated assessment models, at discount rates of 5, 3, and 2.5 percent. For example, for 2015 emissions, these values are $12.2/metric ton, $40.0/
metric ton, and $62.3/metric ton, in 2014$, respectively. The fourth set ($117 per metric ton in 2014$ for 2015 emissions), which represents the 95th
percentile of the SCC distribution calculated using SCC estimate across all three models at a 3-percent discount rate, is included to represent higher-
than-expected impacts from temperature change further out in the tails of the SCC distribution. The SCC values are emission year specific. See section
IV.L for more details.
[[Page 34527]]
[dagger] The $/ton values used for NOX are described in section IV.L. DOE estimated the monetized value of NOX emissions reductions using benefit per
ton estimates from the Regulatory Impact Analysis titled, ``Proposed Carbon Pollution Guidelines for Existing Power Plants and Emission Standards for
Modified and Reconstructed Power Plants,'' published in June 2014 by EPA's Office of Air Quality Planning and Standards. (Available at www3.epa.gov/ttnecas1/regdata/RIAs/111dproposalRIAfinal0602.pdf.) See section IV.L.2 for further discussion. Note that the agency is presenting a national benefit-
per-ton estimate for particulate matter emitted from the Electric Generating Unit sector based on an estimate of premature mortality derived from the
ACS study (Krewski et al. 2009). If the benefit-per-ton estimates were based on the Six Cities study (Lepuele et al. 2011), the values would be nearly
two-and-a-half times larger. Because of the sensitivity of the benefit-per-ton estimate to the geographical considerations of sources and receptors of
emissions, DOE intends to investigate refinements to the agency's current approach of one national estimate by assessing the regional approach taken
by EPA's Regulatory Impact Analysis for the Clean Power Plan Final Rule.
[dagger][dagger] Total benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to SCC value of $40.0/metric ton .
In the rows labeled ``7% plus CO2 range'' and ``3% plus CO2 range,'' the operating cost and NOX benefits are calculated using the labeled discount
rate, and those values are added to the full range of CO2 values.
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
Section 1(b)(1) of Executive Order 12866, ``Regulatory Planning and
Review,'' 58 FR 51735 (Oct. 4, 1993), requires each agency to identify
the problem that it intends to address, including, where applicable,
the failures of private markets or public institutions that warrant new
agency action, as well as to assess the significance of that problem.
The problems that this document's proposed standards address are as
follows:
(1) Insufficient information and the high costs of gathering and
analyzing relevant information lead some commercial consumers to miss
opportunities to make cost-effective investments in energy efficiency.
(2) In some cases, the benefits of more-efficient equipment are not
realized due to misaligned incentives between purchasers and users. An
example of such a case is when the equipment purchase decision is made
by a building contractor or building owner who does not pay the energy
costs of operating the equipment.
(3) There are external benefits resulting from improved energy
efficiency of CWH equipment that are not captured by the users of such
equipment. These benefits include externalities related to public
health, environmental protection, and energy security that are not
reflected in energy prices, such as reduced air pollutants and
emissions of greenhouse gases that impact human health and global
warming. DOE attempts to quantify some of the external benefits through
use of Social Cost of Carbon values.
The Administrator of the Office of Information and Regulatory
Affairs (OIRA) in the OMB has determined that the regulatory action
proposed in this document is a ``significant regulatory action'' under
section (3)(f) of Executive Order 12866. Accordingly, pursuant to
section 6(a)(3)(B) of the Executive Order, DOE has provided to OIRA:
(i) The text of the draft regulatory action, together with a reasonably
detailed description of the need for the regulatory action and an
explanation of how the regulatory action will meet that need; and (ii)
An assessment of the potential costs and benefits of the regulatory
action, including an explanation of the manner in which the regulatory
action is consistent with a statutory mandate. DOE has included these
documents in the rulemaking record.
In addition, the Administrator of OIRA has determined that the
proposed regulatory action is an ``economically significant regulatory
action'' under section (3)(f)(1) of Executive Order 12866. Accordingly,
pursuant to section 6(a)(3)(C) of the Executive Order, DOE has provided
to OIRA a regulatory impact analysis (RIA), including the underlying
analysis, of benefits and costs anticipated from the regulatory action,
together with, to the extent feasible, a quantification of those costs;
and an assessment, including the underlying analysis, of costs and
benefits of potentially effective and reasonably feasible alternatives
to the planned regulation, and an explanation why the planned
regulatory action is preferable to the identified potential
alternatives. These assessments prepared pursuant to Executive Order
12866 can be found in the technical support document for this
rulemaking. These documents have also been included in the rulemaking
record.
DOE has also reviewed this regulation pursuant to Executive Order
13563, issued on January 18, 2011. 76 FR 3281 (Jan. 21, 2011).
Executive Order 13563 is supplemental to and explicitly reaffirms the
principles, structures, and definitions governing regulatory review
established in Executive Order 12866. To the extent permitted by law,
agencies are required by Executive Order 13563 to: (1) Propose or adopt
a regulation only upon a reasoned determination that its benefits
justify its costs (recognizing that some benefits and costs are
difficult to quantify); (2) tailor regulations to impose the least
burden on society, consistent with obtaining regulatory objectives,
taking into account, among other things, and to the extent practicable,
the costs of cumulative regulations; (3) select, in choosing among
alternative regulatory approaches, those approaches that maximize net
benefits (including potential economic, environmental, public health
and safety, and other advantages; distributive impacts; and equity);
(4) to the extent feasible, specify performance objectives, rather than
specifying the behavior or manner of compliance that regulated entities
must adopt; and (5) identify and assess available alternatives to
direct regulation, including providing economic incentives to encourage
the desired behavior, such as user fees or marketable permits, or
providing information upon which choices can be made by the public.
DOE emphasizes as well that Executive Order 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 has
emphasized that such techniques may include identifying changing future
compliance costs that might result from technological innovation or
anticipated behavioral changes. For the reasons stated in the preamble,
DOE believes that this NOPR is consistent with these principles,
including the requirement that, to the extent permitted by law,
benefits justify costs and that net benefits are maximized.
B. Review Under the Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
preparation of an initial regulatory flexibility analysis (IRFA) for
any rule that by law must be proposed for public comment, unless the
agency certifies that the rule, if promulgated, will not have a
significant economic impact on a substantial number of small entities.
As required by Executive Order 13272, ``Proper Consideration of Small
Entities in Agency Rulemaking,'' 67 FR 53461 (August 16, 2002), DOE
published procedures and policies on February 19, 2003, to ensure that
the potential impacts of its rules on small entities are properly
considered during the
[[Page 34528]]
rulemaking process. 68 FR 7990. DOE has made its procedures and
policies available on the Office of the General Counsel's Web site
(http://energy.gov/gc/office-general-counsel). DOE has prepared the
following IRFA for the equipment that is the subject of this
rulemaking.
For manufacturers of CWH equipment, the Small Business
Administration (SBA) has set a size threshold, which defines those
entities classified as ``small businesses'' for the purposes of the
statute. DOE used the SBA's small business size standards to determine
whether any small entities would be subject to the requirements of the
rule. 65 FR 30836, 30848 (May 15, 2000), as amended at 77 FR 49991,
50000, 50011 (August 20, 2012) and codified at 13 CFR part 121. The
size standards are listed by North American Industry Classification
System (NAICS) code and industry description and are available at
http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/small-business-size-standards. Manufacturing of
CWH equipment is classified under NAICS 333318, ``Other Commercial and
Service Industry Machinery Manufacturing.'' The SBA sets a threshold of
1,000 employees or less for an entity to be considered as a small
business for this category.
1. Description and Estimated Number of Small Entities Regulated
To estimate the number of companies that could be small business
manufacturers of equipment covered by this rulemaking, DOE conducted a
market survey using publicly-available information to identify
potential small manufacturers. DOE's research involved industry trade
association membership directories (including AHRI \127\), public
databases (e.g., the California Energy Commission Appliance Efficiency
Database \128\ and DOE's Compliance Certification Database \129\),
individual company Web sites, and market research tools (e.g., Hoovers
reports \130\) to create a list of companies that manufacture or sell
equipment covered by this rulemaking. DOE also asked stakeholders and
industry representatives if they were aware of any other small
manufacturers during manufacturer interviews. DOE reviewed publicly-
available data and contacted select companies on its list, as
necessary, to determine whether they met the SBA's definition of a
small business manufacturer of covered CWH equipment. DOE screened out
companies that do not offer equipment covered by this rulemaking, do
not meet the definition of a ``small business,'' or are foreign owned
and operated.
---------------------------------------------------------------------------
\127\ The AHRI Directory is available at: www.ahridirectory.org/ahriDirectory/pages/home.aspx.
\128\ The CEC database is available at: http://www.energy.ca.gov/appliances/.
\129\ DOE's Compliance Certification Database is available at
http://www.regulations.doe.gov/certification-data/.
\130\ Hoovers Inc., Company Profiles, Various Companies
(Available at: www.hoovers.com/).
---------------------------------------------------------------------------
DOE identified 25 manufacturers of commercial water heaters sold in
the U.S. Of these 25, DOE identified 13 as domestic small businesses.
Twelve of the 13 domestic small businesses are original equipment
manufacturers (OEMs) of CWH equipment covered by this rulemaking, while
one rebrands equipment manufactured by other OEMs.
Before issuing this NOPR, DOE attempted to contact all the small
business manufacturers of CWH equipment it had identified. Two of the
small businesses agreed to take part in an MIA interview. DOE also
obtained information about small business impacts while interviewing
large manufacturers.
DOE estimates that small manufacturers control approximately 7
percent of the CWH market. Based on DOE's research, six small
businesses are primarily boiler manufacturers that produce hot water
supply boilers covered under this rulemaking. Two of these
manufacturers primarily produce high-efficiency condensing equipment,
while the remaining four do not produce equipment that meet the
efficiency level at the proposed TSL (TSL 3). DOE notes, however, that
three of these four manufacturers offer condensing commercial packaged
boilers. DOE believes the condensing heat exchanger designs for
commercial packaged boilers could be adapted for use in hot water
supply boilers. Five of the small businesses primarily manufacture
commercial gas-fired storage and electric storage water heaters. Three
of these five companies produce primarily high-efficiency condensing
gas-fired equipment, while two of the five primarily produce baseline
equipment. However, both of the latter companies offer at least one
condensing model. Of the remaining small businesses, one exclusively
manufacturers condensing gas-fired tankless water heaters, and one
rebrands equipment that is produced by other CWH equipment
manufacturers.
2. Description and Estimate of Compliance Requirements
As previously mentioned, in addition to direct interviews of small
manufacturers, DOE also used feedback from other manufacturer
interviews to help evaluate the potential impacts of potential amended
standards on small businesses. In addition, DOE used product listings
data to better understand the percentage of models small manufacturers
may have to convert in order to comply with standards.
In interviews, small manufacturers stated that they may be
disproportionately affected by product conversion costs. Product
redesign, testing, and certification costs tend to be fixed and do not
scale with sales volume. When confronted with new or amended energy
conservation standards, small businesses must make investments in
research and development to redesign their equipment, but because they
often have lower sales volumes, they may need to spread these costs
across fewer units. Small manufacturers also stated that they have
limited lab space, personnel, and equipment to test their CWH
equipment. They argued that they would experience higher testing costs
relative to larger manufacturers, as they would need to outsource some
or all of their testing at a higher per-unit cost. Small manufacturers
pointed out that in general, because they have fewer engineers and
product development resources, they would likely have to divert
engineering resources from customer and new product initiatives for a
longer period of time than would their larger competitors.
These product conversion cost and engineering resource
considerations are particularly applicable to the two small
manufacturers that primarily offer baseline commercial gas-fired
storage water heaters and the four manufacturers that only offer lower-
efficiency hot water supply boilers. DOE estimates that approximately
57 percent of commercial gas-fired storage models produced by small CWH
equipment manufacturers do not meet the thermal efficiency level
proposed in TSL 3. For the two manufacturers that primarily offer
baseline commercial gas-fired storage water heaters, DOE estimates that
88 percent of their models do not meet the proposed efficiency levels
at TSL 3. For reference, DOE estimates that large commercial gas-fired
storage water heater manufacturers would have to convert approximately
76 percent of their commercial gas-fired storage water heater models at
TSL 3. For hot water supply boilers, DOE estimates that small and large
manufacturers would need to redesign similar proportions of their
product offerings. Approximately 86 percent of the models currently
[[Page 34529]]
produced by small CWH equipment manufacturers do not meet the level in
TSL 3, while 79 percent of hot water supply boilers produced by large
manufacturers do not meet the level in TSL 3.
Smaller manufacturers also stated that they lack the purchasing
power of larger manufacturers. The purchasing power issue may be of
particular concern to the four manufacturers that produce lower-
efficiency hot water supply boilers, because many manufacturers would
purchase heat exchangers to comply with the thermal efficiency level
proposed in TSL 3. Few hot water supply boiler manufacturers produce
condensing boiler heat exchangers domestically, and most condensing
boiler heat exchangers are sourced from European companies. A
condensing standard, as proposed in TSL 3, could require small
manufacturers to purchase a greater proportion of their components.
This could exacerbate any pricing disadvantages small businesses
experience due to lower purchasing volumes.
Issue 35: DOE seeks comment on the number of small manufacturers,
on the potential impacts of amended energy conservation standards on
those small manufacturers, and on the severity of those impacts.
3. Duplication, Overlap, and Conflict With Other Rules and Regulations
DOE is not aware of any rules or regulations that duplicate,
overlap, or conflict with the rule being proposed in this document.
4. Significant Alternatives to the Rule
The discussion in section V.B.2.d analyzes impacts on small
businesses that would result from DOE's proposed rule. In addition to
the other TSLs being considered, the NOPR TSD includes a regulatory
impact analysis (RIA) which addresses the following policy
alternatives: (1) No change in standard; (2) consumer rebates; (3)
consumer tax credits; (4) voluntary energy efficiency programs; and (5)
early replacement.\131\ While these alternatives may mitigate to some
varying extent the economic impacts on small entities compared to the
proposed standards, DOE does not intend to consider these alternatives
further because in several cases, they would not be feasible to
implement without authority and funding from Congress, and in all
cases, DOE has determined that the energy savings of these regulatory
alternatives are from 70 to 80 percent smaller than those that would be
expected to result from adoption of the proposed standard levels.
Accordingly, DOE is declining to adopt any of these alternatives and is
proposing the standards set forth in this document. (See chapter 17 of
the NOPR TSD for further detail on the policy alternatives DOE
considered.)
---------------------------------------------------------------------------
\131\ The early replacement option includes bulk government
purchases, manufacturer promotions, utility incentives, and
commercial consumer incentives.
---------------------------------------------------------------------------
Additional compliance flexibilities may be available through other
means. For example, individual manufacturers may petition for a waiver
of the applicable test procedure. (See 10 CFR 431.401.) Further, EPCA
provides that a manufacturer whose annual gross revenue from all of its
operations does not exceed $8,000,000 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. Additionally, Section 504 of the Department of Energy
Organization Act, 42 U.S.C. 7194, provides authority for the Secretary
to adjust a rule issued under EPCA in order to prevent ``special
hardship, inequity, or unfair distribution of burdens'' that may be
imposed on that manufacturer as a result of such rule. Manufacturers
should refer to 10 CFR part 430, subpart E, and part 1003 for
additional details.
C. Review Under the Paperwork Reduction Act of 1995
Manufacturers of CWH equipment must certify to DOE that their
equipment complies with any applicable energy conservation standards.
In certifying compliance, manufacturers must test their equipment
according to the applicable DOE test procedures for CWH equipment,
including any amendments adopted for those test procedures on the date
that compliance is required. DOE has established regulations for the
certification and recordkeeping requirements for all covered commercial
consumer products and commercial equipment, including CWH equipment. 76
FR 12422 (March 7, 2011); 80 FR 5099 (Jan. 30, 2015). 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 30 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
Notwithstanding any other provision of the law, no person is
required to respond to, nor shall any person be subject to a penalty
for failure to comply with, a collection of information subject to the
requirements of the PRA, unless that collection of information displays
a currently valid OMB Control Number.
D. Review Under the National Environmental Policy Act of 1969
Pursuant to the National Environmental Policy Act (NEPA) of 1969,
DOE has determined that the proposed rule fits within the category of
actions included in Categorical Exclusion (CX) B5.1 and otherwise meets
the requirements for application of a CX. See 10 CFR part 1021, App. B,
B5.1(b); 1021.410(b) and App. B, B(1)-(5). The proposed rule fits
within this category of actions because it is a rulemaking that
establishes energy conservation standards for consumer products or
industrial equipment, and for which none of the exceptions identified
in CX B5.1(b) apply. Therefore, DOE has made a CX determination for
this rulemaking, and DOE does not need to prepare an Environmental
Assessment or Environmental Impact Statement for this proposed rule.
DOE's CX determination for this proposed rule is available at http://energy.gov/nepa/categorical-exclusion-cx-determinations-cx/.
E. Review Under Executive Order 13132
Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 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 that it will follow in the
development of such regulations. 65 FR 13735. DOE has examined this
proposed rule and has tentatively determined that it would not have a
substantial direct effect on the States, on the relationship between
the national government and the States, or on the distribution of power
and
[[Page 34530]]
responsibilities among the various levels of government. EPCA governs
and prescribes Federal preemption of State regulations as to energy
conservation for the equipment that is the subject of this proposed
rule. 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, Executive Order 13132 requires no further action.
F. Review Under Executive Order 12988
With respect to the review of existing regulations and the
promulgation of new regulations, section 3(a) of Executive Order 12988,
``Civil Justice Reform,'' imposes on Federal agencies the general duty
to adhere to the following requirements: (1) Eliminate drafting errors
and ambiguity; (2) write regulations to minimize litigation; (3)
provide a clear legal standard for affected conduct rather than a
general standard; and (4) promote simplification and burden reduction.
61 FR 4729 (Feb. 7, 1996). Regarding the review required by section
3(a), section 3(b) of Executive Order 12988 specifically requires that
Executive agencies make every reasonable effort to ensure that the
regulation: (1) Clearly specifies the preemptive effect, if any; (2)
clearly specifies any effect on existing Federal law or regulation; (3)
provides a clear legal standard for affected conduct while promoting
simplification and burden reduction; (4) specifies the retroactive
effect, if any; (5) adequately defines key terms; and (6) addresses
other important issues affecting clarity and general draftsmanship
under any guidelines issued by the Attorney General. Section 3(c) of
Executive Order 12988 requires Executive agencies to review regulations
in light of applicable standards in section 3(a) and section 3(b) to
determine whether they are met or it is unreasonable to meet one or
more of them. DOE has completed the required review and determined
that, to the extent permitted by law, this proposed rule meets the
relevant standards of Executive Order 12988.
G. Review Under the Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires each Federal agency to assess the effects of Federal
regulatory actions on State, local, and Tribal governments and the
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531).
For a proposed regulatory action likely to result in a rule that may
cause the expenditure by State, local, and Tribal governments, in the
aggregate, or by the private sector, of $100 million or more in any one
year (adjusted annually for inflation), section 202 of UMRA requires a
Federal agency to publish a written statement that estimates the
resulting costs, benefits, and other effects on the national economy.
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to
develop an effective process to permit timely input by elected officers
of State, local, and Tribal governments on a proposed ``significant
intergovernmental mandate,'' and requires an agency plan for giving
notice and opportunity for timely input to potentially affected small
governments before establishing any requirements that might
significantly or uniquely affect them. On March 18, 1997, DOE published
a statement of policy on its process for intergovernmental consultation
under UMRA. 62 FR 12820. DOE's policy statement is also available at
www.energy.gov/gc/office-general-counsel.
Although this proposed rule, which proposes amended energy
conservation standards for CWH equipment, does not contain a Federal
intergovernmental mandate, it may require annual expenditures of $100
million or more by the private sector. Specifically, the proposed rule
would likely result in a final rule that could require expenditures of
$100 million or more, including: (1) Investment in research and
development and in capital expenditures by CWH equipment manufacturers
in the years between the final rule and the compliance date for the
amended standards, and (2) incremental additional expenditures by
consumers to purchase higher-efficiency CWH equipment, 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 proposed 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 the NOPR and the ``Regulatory
Impact Analysis'' section of the TSD for this proposed rule respond to
those requirements.
Under section 205 of UMRA, the Department 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 proposed 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. 6313(a),
this proposed rule would establish amended energy conservation
standards for CWH equipment that are designed to achieve the maximum
improvement in energy efficiency that DOE has determined to be both
technologically feasible and economically justified. A full discussion
of the alternatives considered by DOE is presented in the ``Regulatory
Impact Analysis'' section of the TSD for this proposed 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 rule that may affect family well-being.
This rule would not have any impact on the autonomy or integrity of the
family as an institution. Accordingly, DOE has concluded that it is not
necessary to prepare a Family Policymaking Assessment.
I. Review Under Executive Order 12630
Pursuant to Executive Order 12630, ``Governmental Actions and
Interference with Constitutionally Protected Property Rights,'' 53 FR
8859 (March 15, 1988), DOE has determined that this proposed 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). DOE has reviewed this NOPR under the OMB and DOE
guidelines and has concluded that it is consistent with applicable
policies in those guidelines.
K. Review Under Executive Order 13211
Executive Order 13211, ``Actions Concerning Regulations That
[[Page 34531]]
Significantly Affect Energy Supply, Distribution, or Use,'' 66 FR 28355
(May 22, 2001), requires Federal agencies to prepare and submit to OIRA
at OMB, a Statement of Energy Effects for any proposed significant
energy action. A ``significant energy action'' is defined as any action
by an agency that promulgates or is expected to lead to promulgation of
a final rule, and that: (1) Is a significant regulatory action under
Executive Order 12866, or any successor order; and (2) is likely to
have a significant adverse effect on the supply, distribution, or use
of energy, or (3) is designated by the Administrator of OIRA as a
significant energy action. For any proposed 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 tentatively concluded that the regulatory action in this
document, which sets forth proposed amended energy conservation
standards for CWH equipment, is not a significant energy action because
the proposed standards are not likely to have a significant adverse
effect on the supply, distribution, or use of energy, nor has it been
designated as such by the Administrator at OIRA. Accordingly, DOE has
not prepared a Statement of Energy Effects on this proposed rule.
L. Review Under the Information Quality Bulletin for Peer Review
On December 16, 2004, OMB, in consultation with the Office of
Science and Technology Policy (OSTP), issued its Final Information
Quality Bulletin for Peer Review (the Bulletin). 70 FR 2664 (Jan. 14,
2005). The Bulletin establishes that certain scientific information
shall be peer reviewed by qualified specialists before it is
disseminated by the Federal Government, including influential
scientific information related to agency regulatory actions. The
purpose of the bulletin is to enhance the quality and credibility of
the Government's scientific information. Under the Bulletin, the energy
conservation standards rulemaking analyses are ``influential scientific
information,'' which the Bulletin defines as ``scientific information
the agency reasonably can determine will have or does have a clear and
substantial impact on important public policies or private sector
decisions.'' Id. at 2667.
In response to OMB's Bulletin, DOE conducted formal in-progress
peer reviews of the energy conservation standards development process
and analyses and has prepared a Peer Review Report pertaining to the
energy conservation standards rulemaking analyses. 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. The ``Energy Conservation Standards
Rulemaking Peer Review Report,'' dated February 2007, has been
disseminated and is available at the following Web site:
www1.eere.energy.gov/buildings/appliance_standards/peer_review.html.
VII. Public Participation
A. Attendance at the Public Meeting
The time, date, and location of the public meeting are listed in
the DATES and ADDRESSES sections at the beginning of this document. If
you plan to attend the public meeting, please notify Ms. Brenda Edwards
at (202) 586-2945 or [email protected]. As explained in the
ADDRESSES section, foreign nationals visiting DOE Headquarters are
subject to advance security screening procedures which require advance
notice prior to attendance at the public meeting. If a foreign national
wishes to participate in the public meeting, please inform DOE of this
fact as soon as possible by contacting Ms. Regina Washington at (202)
586-1214 or by email: [email protected] so that the
necessary procedures can be completed.
DOE requires visitors to have laptops and other devices, such as
tablets, checked upon entry into the building. Any person wishing to
bring these devices into the Forrestal Building will be required to
obtain a property pass. Visitors should avoid bringing these devices,
or allow an extra 45 minutes to check in. Please report to the
visitor's desk to have devices checked before proceeding through
security.
Due to the REAL ID Act implemented by the Department of Homeland
Security (DHS), there have been recent changes regarding ID
requirements for individuals wishing to enter Federal buildings from
specific States and U.S. territories. Driver's licenses from the
following States or territory will not be accepted for building entry,
and one of the alternate forms of ID listed below will be required. DHS
has determined that regular driver's licenses (and ID cards) from the
following jurisdictions are not acceptable for entry into DOE
facilities: Alaska, American Samoa, Arizona, Louisiana, Maine,
Massachusetts, Minnesota, New York, Oklahoma, and Washington.
Acceptable alternate forms of Photo-ID include: U.S. Passport or
Passport Card; an Enhanced Driver's License or Enhanced ID-Card issued
by the States of Minnesota, New York, or Washington (Enhanced licenses
issued by these States are clearly marked Enhanced or Enhanced Driver's
License); a military ID or other Federal government issued Photo-ID
card.
In addition, you can attend the public meeting via webinar. Webinar
registration information, participant instructions, and information
about the capabilities available to webinar participants will be
published on DOE's Web site at: https://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. Participants are
responsible for ensuring their systems are compatible with the webinar
software.
B. Procedure for Submitting Requests To Speak and Prepared General
Statements for Distribution
Any person who has an interest in the topics addressed in this
document, or who is representative of a group or class of persons that
has an interest in these issues, may request an opportunity to make an
oral presentation at the public meeting. Such persons may hand-deliver
requests to speak to the address shown in the ADDRESSES section at the
beginning of this document between 9:00 a.m. and 4:00 p.m., Monday
through Friday, except Federal holidays. Requests may also be sent by
mail or email to: Ms. Brenda Edwards, U.S. Department of Energy,
Building Technologies Office, Mailstop EE-5B, 1000 Independence Avenue
SW., Washington, DC 20585-0121, or [email protected]. Persons
who wish to speak should include with their request a computer diskette
or CD-ROM in WordPerfect, Microsoft Word, PDF, or text (ASCII) file
format that briefly describes the nature of their interest in this
rulemaking and the topics they wish to discuss. Such persons should
also provide a daytime telephone number where they can be reached.
DOE requests persons scheduled to make an oral presentation to
submit an advance copy of their statements at least one week before the
public meeting. DOE may permit persons who cannot supply an advance
copy of their statement to participate, if those persons have made
advance alternative arrangements with the Building
[[Page 34532]]
Technologies Program. As necessary, requests to give an oral
presentation should ask for such alternative arrangements.
C. Conduct of the Public Meeting
DOE will designate a DOE official to preside at the public meeting
and may also use a professional facilitator to aid discussion. The
meeting will not be a judicial or evidentiary-type public hearing, but
DOE will conduct it in accordance with section 336 of EPCA (42 U.S.C.
6306). A court reporter will be present to record the proceedings and
prepare a transcript. DOE reserves the right to schedule the order of
presentations and to establish the procedures governing the conduct of
the public meeting. There shall not be discussion of proprietary
information, costs or prices, market share, or other commercial matters
regulated by U.S. anti-trust laws. After the public meeting, interested
parties may submit further comments on the proceedings, as well as on
any aspect of the rulemaking, until the end of the comment period.
The public meeting will be conducted in an informal, conference
style. DOE will present summaries of comments received before the
public meeting, allow time for prepared general statements by
participants, and encourage all interested parties to share their views
on issues affecting this rulemaking. Each participant will be allowed
to make a general statement (within time limits determined by DOE),
before the discussion of specific topics. DOE will allow, as time
permits, other participants to comment briefly on any general
statements.
At the end of all prepared statements on a topic, DOE will permit
participants to clarify their statements briefly and comment on
statements made by others. Participants should be prepared to answer
questions by DOE and by other participants concerning these issues. DOE
representatives may also ask questions of participants concerning other
matters relevant to this rulemaking. The official conducting the public
meeting will accept additional comments or questions from those
attending, as time permits. The presiding official will announce any
further procedural rules or modification of the above procedures that
may be needed for the proper conduct of the public meeting.
A transcript of the public meeting will be included in the docket,
which can be viewed as described in the Docket section at the beginning
of this document and will be accessible on the DOE Web site. In
addition, any person may buy a copy of the transcript from the
transcribing reporter.
D. Submission of Comments
DOE will accept comments, data, and information regarding this
proposed rule before or after the public meeting, but no later than the
date provided in the DATES section at the beginning of this proposed
rule. Interested parties may submit comments, data, and other
information using any of the methods described in the ADDRESSES section
at the beginning of this document.
Submitting comments via www.regulations.gov. The
www.regulations.gov Web page will require you to provide your name and
contact information. Your contact information will be viewable to DOE
Building Technologies staff only. Your contact information will not be
publicly viewable except for your first and last names, organization
name (if any), and submitter representative name (if any). If your
comment is not processed properly because of technical difficulties,
DOE will use this information to contact you. If DOE cannot read your
comment due to technical difficulties and cannot contact you for
clarification, DOE may not be able to consider your comment.
However, your contact information will be publicly viewable if you
include it in the comment itself or in any documents attached to your
comment. Any information that you do not want to be publicly viewable
should not be included in your comment, nor in any document attached to
your comment. Otherwise, persons viewing comments will see only first
and last names, organization names, correspondence containing comments,
and any documents submitted with the comments.
Do not submit to www.regulations.gov information for which
disclosure is restricted by statute, such as trade secrets and
commercial or financial information (hereinafter referred to as
Confidential Business Information (CBI)). Comments submitted through
www.regulations.gov cannot be claimed as CBI. Comments received through
the Web site will waive any CBI claims for the information submitted.
For information on submitting CBI, see the Confidential Business
Information section below.
DOE processes submissions made through www.regulations.gov before
posting. Normally, comments will be posted within a few days of being
submitted. However, if large volumes of comments are being processed
simultaneously, your comment may not be viewable for up to several
weeks. Please keep the comment tracking number that www.regulations.gov
provides after you have successfully uploaded your comment.
Submitting comments via email, hand delivery/courier, or mail.
Comments and documents submitted via email, hand delivery, or mail also
will be posted to www.regulations.gov. If you do not want your personal
contact information to be publicly viewable, do not include it in your
comment or any accompanying documents. Instead, provide your contact
information in a cover letter. Include your first and last names, email
address, telephone number, and optional mailing address. The cover
letter will not be publicly viewable as long as it does not include any
comments.
Include contact information each time you submit comments, data,
documents, and other information to DOE. If you submit via mail or hand
delivery/courier, please provide all items on a CD, if feasible, in
which case it is not necessary to submit printed copies. No
telefacsimiles (faxes) will be accepted.
Comments, data, and other information submitted to DOE
electronically should be provided in PDF (preferred), Microsoft Word or
Excel, WordPerfect, or text (ASCII) file format. Provide documents that
are not secured, that are written in English, and that are free of any
defects or viruses. Documents should not contain special characters or
any form of encryption and, if possible, they should carry the
electronic signature of the author.
Campaign form letters. Please submit campaign form letters by the
originating organization in batches of between 50 to 500 form letters
per PDF or as one form letter with a list of supporters' names compiled
into one or more PDFs. This reduces comment processing and posting
time.
Confidential Business Information. Pursuant to 10 CFR 1004.11, any
person submitting information that he or she believes to be
confidential and exempt by law from public disclosure should submit via
email, postal mail, or hand delivery/courier two well-marked copies:
One copy of the document marked ``confidential'' including all the
information believed to be confidential, and one copy of the document
marked ``non-confidential'' with the information believed to be
confidential deleted. Submit these documents via email or on a CD, if
feasible. DOE will make its own determination about the confidential
status of the information and treat it according to its determination.
Factors of interest to DOE when evaluating requests to treat
submitted information as confidential include: (1)
[[Page 34533]]
A description of the items; (2) whether and why such items are
customarily treated as confidential within the industry; (3) whether
the information is generally known by or available from other sources;
(4) whether the information has previously been made available to
others without obligation concerning its confidentiality; (5) an
explanation of the competitive injury to the submitting person which
would result from public disclosure; (6) when such information might
lose its confidential character due to the passage of time; and (7) why
disclosure of the information would be contrary to the public interest.
It is DOE's policy that all comments may be included in the public
docket, without change and as received, including any personal
information provided in the comments (except information deemed to be
exempt from public disclosure).
E. Issues on Which DOE Seeks Comment
Although DOE welcomes comments on any aspect of this proposal, DOE
is particularly interested in receiving comments and views of
interested parties concerning the following issues:
Issue 1: DOE seeks comment on its tentative conclusions regarding
the potential energy savings from analyzing amended standards for
standby loss of commercial oil-fired storage water heaters and for
thermal efficiency of commercial oil-fired instantaneous water heaters.
Issue 2: The agency assumes no growth in equipment efficiency in
absence of new standards; however, DOE requests comment on expected
changes over the analysis period in market share by energy efficiency
level or average shipment-weighted efficiency for the analyzed CWH
equipment classes in the no-new-standards case.
Issue 3: DOE seeks comment on its proposed revisions to notes to
the table of energy conservation standards in 10 CFR 431.110.
Issue 4: DOE requests comment on its proposed changes to its
certification, compliance, and enforcement regulations requiring the
rated volume to be equal to the mean of the measured volumes in a
sample.
Issue 5: DOE requests comment on its proposed modification of the
maximum standby loss equations for electric storage and instantaneous
water heaters to depend on rated volume instead of measured volume.
Issue 6: DOE requests comment on whether there are significant
differences between storage water heaters and storage-type
instantaneous water heaters that would justify analyzing these classes
separately for amended energy conservations standards.
Issue 7: DOE requests comment on whether tankless water heaters and
hot water supply boilers should be treated as separate equipment
classes in DOE's energy conservation standards for CWH equipment and
whether proposing the same standards incentivizes any switching in
shipments from one equipment class to the other. Additionally, DOE
requests feedback on what criteria should be used to distinguish
between tankless water heaters and hot water supply boilers if separate
equipment classes are established.
Issue 8: DOE seeks comment on its proposed equipment class
structure, and whether any equipment classes are unnecessary or
additional equipment classes are needed.
Issue 9: DOE seeks comment on its tentative conclusion that none of
the identified technology options are proprietary, and if any
technologies are proprietary, requests additional information regarding
proprietary designs and patented technologies.
Issue 10: DOE seeks comment on the representative CWH equipment
used in the engineering analysis.
Issue 11: DOE seeks comment on all efficiency levels analyzed for
CWH equipment, including thermal efficiency and standby loss levels. In
particular, DOE is interested in the feasibility of the max-tech
thermal efficiency levels and standby loss levels, including whether
these efficiency levels can be achieved using the technologies
screened-in during the screening analysis (see section IV.B), and
whether higher efficiencies are achievable using technologies that were
screened-in during the screening analysis. DOE is also interested in
the feasibility of achieving the analyzed standby loss levels using the
identified technology options.
Issue 12: DOE seeks input on the reduction in standby loss of gas-
fired storage water heaters from the technology options for which DOE
estimated standby loss levels (i.e., varying insulation type and
thickness, electromechanical flue dampers, and mechanical draft) and
the technology options for which DOE did not have sufficient data to
develop an estimate (including baffling).
Issue 13: DOE seeks comment on its methodology for manufacturer
production cost, manufacturer selling price, and shipping cost
estimates for each equipment class and efficiency level.
Issue 14: DOE seeks comment on its proposed method for modifying
the maximum standby loss equations for commercial gas-fired storage
water heaters and residential-duty storage water heaters.
Issue 15: DOE seeks comment on its approach to convert the thermal
efficiency and standby loss levels analyzed for residential-duty
commercial water heaters to UEF.
Issue 16: DOE seeks comment on the percentages of shipments
allocated to the distribution channels relevant to each equipment
class.
Issue 17: DOE requests comment on the estimated market and sector
weights for shipments by equipment class.
Issue 18: DOE requests comment on the development of markups at
each point in the distribution chain and the overall markup by
equipment class.
Issue 19: DOE seeks comment on the assumptions used in determining
the venting costs for the relevant types of CWH equipment.
Issue 20: DOE seeks comment on the percentage of installations
using polypropylene venting materials in this industry and any
limitations such venting has as to maximum available diameters or other
limitations.
Issue 21: DOE seeks comment on the installation labor and labor to
remove equipment and venting in this analysis.
Issue 22: DOE seeks comment on the overall installed costs by TSL
for each equipment class as shown in the Average LCC and PBP Results
tables found in section V.B.1.a, Table V.4 through Table V.14.
Issue 23: DOE seeks comment on maintenance labor estimates used in
the LCC analysis and the assumption that maintenance costs remain
constant as efficiency increases.
Issue 24: DOE seeks comment on the findings of the repair costs of
CWH equipment, labor estimates for repairs, and the estimated rate of
component repair.
Issue 25: DOE seeks input on actual historical shipments for the
three equipment classes for which no historical shipments data exist--
residential-duty gas-fired storage water heaters, gas-fired tankless
water heaters, and gas-fired hot water supply boilers.
Issue 26: DOE seeks input on the methodology used to estimate the
historical shipments for the residential-duty gas-fired storage water
heater, gas-fired tankless water heater, and hot water supply boiler
equipment classes, particularly in the absence of actual historic
shipments data.
Issue 27: DOE seeks input on commercial consumer switching between
equipment types or fuel types, and specific information that DOE can
use to model such commercial
[[Page 34534]]
consumer switching. For example, if a commercial consumer switches away
from commercial gas-fired storage water heaters, to what type of
equipment is the commercial consumer most likely to switch, and is it a
one-for-one switch or some other ratio?
Issue 28: DOE seeks input on the shares of shipments allocated to
commercial and to residential consumer types.
Issue 29: DOE seeks input on whether the shipment model should
assume that multifamily buildings are the only residential building
stock in which CWH equipment is used, or whether DOE should continue to
use total residential building stocks.
Issue 30: DOE seeks input on the possibility that rebound effect
would be significant, and if so, estimates of the impact of the rebound
effect on NES.
Issue 31: DOE requests comment on whether manufacturers would incur
any product conversion costs (i.e., substantial redesign work or
research and development) related to the standby loss levels analyzed
in this NOPR.
Issue 32: DOE seeks comment on its assessment of amended standards'
potential impacts on direct employment.
Issue 33: DOE seeks comment on its assessment of amended standards'
potential impacts on manufacturing capacity.
Issue 34: DOE requests comment on whether the classification of
unacceptable blowing agents in the EPA's SNAP final rule will affect
the insulating properties of foam insulation used in CWH equipment
analyzed in this NOPR. Specifically, DOE seeks data that show the
difference in thermal resistivity (i.e., R-value per inch) between
insulation currently used in storage water heaters and insulation that
would be compliant with the regulations amended in the SNAP final rule,
if currently used blowing agents are classified as unacceptable.
Issue 35: DOE seeks comment on the number of small manufacturers,
on the potential impacts of amended energy conservation standards on
those small manufacturers, and on the severity of those impacts.
VIII. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this notice of
proposed rulemaking.
List of Subjects
10 CFR Part 429
Confidential business information, Energy conservation, Imports,
Measurement standards, Reporting and recordkeeping requirements.
10 CFR Part 431
Administrative practice and procedure, Confidential business
information, Test procedures, Reporting and recordkeeping requirements.
Issued In Washington, DC, on April 19, 2016.
David Friedman,
Principal Deputy Assistant Secretary, Energy Efficiency and Renewable
Energy.
For the reasons set forth in the preamble, DOE proposes to amend
parts 429 and 431 of chapter II, subchapter D of title 10, 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.
0
2. Section 429.44 is amended by:
0
a. Adding paragraph (b)(1)(ii)(C) [paragraph (b) proposed at 81 FR
28588 (May 9, 2016)];
0
b. Revising paragraph (c)(2);
0
c. Redesignating existing paragraphs (c)(3) and (4) as (c)(4) and (5);
and
0
d. Adding new paragraph (c)(3).
The additions and revisions read as follows:
Sec. 429.44 Commercial water heating equipment.
* * * * *
(b) * * *
(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.
* * * * *
(c) * * *
(2) Pursuant to Sec. 429.12(b)(13), a certification report for
equipment manufactured before (date 3 years after publication in the
Federal Register of the final rule establishing amended energy
conservation standards for commercial water-heating equipment) must
include the following public equipment-specific information:
(i) Commercial electric storage water heaters: The standby loss in
percent per hour (%/h) and the measured storage volume in gallons
(gal).
(ii) Commercial gas-fired and oil-fired storage water heaters: The
thermal efficiency in percent (%), the standby loss in British thermal
units per hour (Btu/h), the rated storage volume in gallons (gal), and
the fuel input rate in Btu/h rounded to the nearest 1,000 Btu/h.
(iii) Commercial water heaters and hot water supply boilers with
storage capacity greater than 140 gallons: The thermal efficiency in
percent (%); whether the storage volume is greater than 140 gallons
(Yes/No); whether the tank surface area is insulated with at least R-
12.5 (Yes/No); whether a standing pilot light is used (Yes/No); for gas
or oil-fired water heaters, whether the basic model has a flue damper
or fan assisted combustion (Yes/No); and, if applicable, pursuant to 10
CFR 431.110 of this chapter, the standby loss in British thermal units
per hour (Btu/h) and measured storage volume in gallons (gal).
(iv) Commercial gas-fired and oil-fired instantaneous water heaters
with storage capacity greater than or equal to 10 gallons and gas-fired
and oil-fired hot water supply boilers with storage capacity greater
than or equal to 10 gallons: The thermal efficiency in percent (%); the
standby loss in British thermal units per hour (Btu/h); the rated
storage volume in gallons (gal); the fuel input rate in Btu/h rounded
to the nearest 1,000 Btu/h; whether a submerged heat exchanger is used
(Yes/No); and whether flow through the water heater is required to
initiate burner ignition (Yes/No).
(v) Commercial gas-fired and oil-fired instantaneous water heaters
with storage capacity less than 10 gallons and gas-fired and oil-fired
hot water supply boilers with storage capacity less than 10 gallons:
The thermal efficiency in percent (%), the rated storage volume in
gallons (gal), and the fuel input rate in British thermal units per
hour (Btu/h) rounded to the nearest 1,000 Btu/h.
(vi) Commercial electric instantaneous water heaters with storage
capacity greater than or equal to 10 gallons: The thermal efficiency in
percent (%), the standby loss in percent per hour (%/h), and the
measured storage volume in gallons (gal).
(vii) Commercial electric instantaneous water heaters with storage
capacity less than 10 gallons: The thermal efficiency in percent (%)
and the measured storage volume in gallons (gal).
(viii) Commercial unfired hot water storage tanks: The thermal
insulation (i.e., R-value) and stored volume in gallons (gal).
(3) Pursuant to Sec. 429.12(b)(13), a certification report for
equipment manufactured on or after (date 3 years after publication in
the Federal Register of the final rule establishing
[[Page 34535]]
amended energy conservation standards for commercial water-heating
equipment) must include the following public equipment-specific
information:
(i) Commercial electric storage water heaters: The standby loss in
percent per hour (%/h) and the rated storage volume in gallons (gal).
(ii) Commercial gas-fired and oil-fired storage water heaters: The
thermal efficiency in percent (%), the standby loss in British thermal
units per hour (Btu/h), the rated storage volume in gallons (gal), and
the fuel input rate in British thermal units per hour (Btu/h) rounded
to the nearest 1,000 Btu/h.
(iii) Commercial water heaters and hot water supply boilers with
storage capacity greater than 140 gallons: The thermal efficiency in
percent (%), whether the storage volume is greater than 140 gallons
(Yes/No); whether the tank surface area is insulated with at least R-
12.5 (Yes/No); whether a standing pilot light is used (Yes/No); for gas
or oil-fired water heaters, whether the basic model has a flue damper
or fan assisted combustion (Yes/No); and, if applicable, pursuant to 10
CFR 431.110 of this chapter, the standby loss in British thermal units
per hour (Btu/h) and rated storage volume in gallons (gal).
(iv) Commercial gas-fired and oil-fired instantaneous water heaters
with storage capacity greater than or equal to 10 gallons and gas-fired
and oil-fired hot water supply boilers with storage capacity greater
than or equal to 10 gallons: The thermal efficiency in percent (%), the
standby loss in British thermal units per hour (Btu/h), the rated
storage volume in gallons (gal), and the fuel input rate in Btu/h
rounded to the nearest 1,000 Btu/h; whether a submerged heat exchanger
is used (Yes/No); and whether flow through the water heater is required
to initiate burner ignition (Yes/No).
(v) Commercial gas-fired and oil-fired instantaneous water heaters
with storage capacity less than 10 gallons and gas-fired and oil-fired
hot water supply boilers with storage capacity less than 10 gallons:
The thermal efficiency in percent (%), the rated storage volume in
gallons (gal), and the fuel input rate in British thermal units per
hour (Btu/h) rounded to the nearest 1,000 Btu/h.
(vi) Commercial electric instantaneous water heaters with storage
capacity greater than or equal to 10 gallons: The thermal efficiency in
percent (%), the standby loss in percent per hour (%/h), and the rated
storage volume in gallons (gal).
(vii) Commercial electric instantaneous water heaters with storage
capacity less than 10 gallons: The thermal efficiency in percent (%)
and the rated storage volume in gallons (gal).
(viii) Commercial unfired hot water storage tanks: The thermal
insulation (i.e., R-value) and rated storage volume in gallons (gal).
* * * * *
0
3. Section 429.134 is amended by revising paragraph (m)(2) [proposed at
81 FR 28588 (May 9, 2016)] to read as follows:
Sec. 429.134 Product-specific enforcement provisions.
* * * * *
(m) * * *
(2) Verification of rated storage volume. The following provisions
apply to commercial water heating equipment manufactured on or after
(date 3 years after publication in the Federal Register of the final
rule establishing amended energy conservation standards for commercial
water-heating equipment). The storage volume of the basic model will be
measured pursuant to the test requirements of 10 CFR part 431 for each
unit tested. The mean of the measured values will be compared to the
rated storage volume as certified by the manufacturer. The rated value
will be considered valid only if the measurement is within five percent
of the certified rating.
(i) If the rated storage volume is found to be within 5 percent of
the mean of the measured value of storage volume, then that value will
be used as the basis for calculation of the maximum standby loss for
the basic model.
(ii) If the rated storage volume is found to vary more than 5
percent from the mean of the measured values, then the mean of the
measured values will be used as the basis for calculation of the
maximum standby loss for the basic model.
PART 431--ENERGY EFFICIENCY PROGRAM FOR CERTAIN COMMERCIAL AND
INDUSTRIAL EQUIPMENT
0
4. The authority citation for part 431 continues to read as follows:
Authority: 42 U.S.C. 6291-6317.
0
5. Section 431.110 is revised to read as follows:
Sec. 431.110 Energy conservation standards and their effective dates.
(a) Each commercial storage water heater, instantaneous water
heater, and hot water supply boiler \1\ (except for residential-duty
commercial water heaters) must meet the applicable energy conservation
standard level(s) as follows:
---------------------------------------------------------------------------
\1\ Any packaged boiler that provides service water that meets
the definition of ``commercial packaged boiler'' in subpart E of
this part, but does not meet the definition of ``hot water supply
boiler'' in subpart G, must meet the requirements that apply to it
under subpart E.
----------------------------------------------------------------------------------------------------------------
Energy conservation standards \a\
-------------------------------------------
Minimum
thermal
efficiency Maximum standby loss
Equipment Size (equipment (equipment manufactured on
manufactured and after October 29,
on and after 2003) \b\
October 9,
2015) (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.......... All....................... N/A 0.30 + 27/Vm (%/h).
Gas-fired storage water heaters......... <=155,000 Btu/h........... 80 Q/800 + 110(Vr)1/2 (Btu/
h).
>155,000 Btu/h............ 80 Q/800 + 110(Vr)1/2 (Btu/
h).
Oil-fired storage water heaters......... <=155,000 Btu/h........... 80 Q/800 + 110(Vr)1/2 (Btu/
h).
>155,000 Btu/h............ 80 Q/800 + 110(Vr)1/2 (Btu/
h).
Electric instantaneous water heaters \c\ <10 gal................... 80 N/A.
>=10 gal.................. 77 2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters <10 gal................... 80 N/A.
and hot water supply boilers. >=10 gal.................. 80 Q/800 + 110(Vr)1/2 (Btu/
h).
[[Page 34536]]
Oil-fired instantaneous water heater and <10 gal................... 80 N/A.
hot water supply boilers. >=10 gal.................. 78 Q/800 + 110(Vr)1/2 (Btu/
h).
----------------------------------------------------------------------------------------------------------------
\a\ Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the fuel input rate in
Btu/hr.
\b\ Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet
the standby loss requirement if (1) the tank surface area is thermally insulated to R-12.5 or more; (2) a
standing pilot light is not used; and (3) for gas or oil-fired storage water heaters, they have a flue damper
or fan assisted combustion.
\c\ The compliance date for energy conservation standards for electric instantaneous water heaters is January 1,
1994.
(b) Each unfired hot water storage tank manufactured on or after
October 29, 2003, must have a minimum thermal insulation of R-12.5.
(c) Each commercial water heater, instantaneous water heater,
unfired hot water storage tank and hot water supply boiler \2\ (except
for residential-duty commercial water heaters) manufactured on or after
(date 3 years after publication in the Federal Register of the final
rule establishing amended energy conservation standards for commercial
water-heating equipment) must meet the applicable energy conservation
standard level(s) as follows:
---------------------------------------------------------------------------
\2\ Any packaged boiler that provides service water that meets
the definition of ``commercial packaged boiler'' in subpart E of
this part, but does not meet the definition of ``hot water supply
boiler'' in subpart G, must meet the requirements that apply to it
under subpart E.
----------------------------------------------------------------------------------------------------------------
Energy conservation standards \a\
-------------------------------------------
Equipment Specifications Minimum
thermal Maximum standby loss \b\
efficiency
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.......... All....................... N/A 0.84 x [0.30 + 27/Vr] (%/
h).
Gas-fired storage water heaters......... All \c\................... 95 0.63 x [Q/800 + 110(Vr) 1/
2] (Btu/h).
Oil-fired storage water heaters......... All \c\................... 80 Q/800 + 110(Vr) 1/2 (Btu/
h).
Electric instantaneous water heaters.... <10 gal \c\............... 80 N/A.
>=10 gal.................. 77 2.30 + 67/Vr (%/h).
Gas-fired instantaneous water heaters
and hot water supply boilers
Instantaneous water heaters (other <10 gal................... 94 N/A.
than storage-type) and hot water
supply boilers.
>=10 gal.................. 94 Q/800 + 110(Vr) 1/2 (Btu/
h).
Storage-type instantaneous water >=10 gal.................. 95 0.63 x [Q/800 + 110(Vr) 1/
heaters. 2] (Btu/h).
Oil-fired instantaneous water heaters <10 gal................... 80 N/A.
and hot water supply boilers.
>=10 gal.................. 78 Q/800 + 110(Vr) 1/2 (Btu/
h).
----------------------------------------------------------------------------------------------------------------
\a\ Vr is the rated volume in gallons. Q is the fuel input rate in Btu/h.
\b\ Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet
the standby loss requirement if (1) the tank surface area is thermally insulated to R-12.5 or more; (2) a
standing pilot light is not used; and (3) for gas or oil-fired storage water heaters, they have a flue damper
or fan assisted combustion.
\c\ These standards apply to commercial water heating equipment that does not meet the definition of
``residential-duty commercial water heater.'' See paragraph (c) of this section for energy conservation
standards applicable to residential-duty commercial water heaters.
(d) Each residential-duty commercial water heater manufactured
prior to (date 3 years after publication in the Federal Register of the
final rule establishing amended energy conservation standards for
commercial water-heating equipment) must meet the applicable energy
conservation standard level(s) as follows:
----------------------------------------------------------------------------------------------------------------
Uniform energy factor
Equipment Specifications \a\ Draw pattern \b\
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage.................... >75 kBtu/hr and........ Very Small............. 0.3261 - (0.0006 x Vr).
<=105 kBtu/hr and...... Low.................... 0.5219 - (0.0008 x Vr).
<=120 gal.............. Medium................. 0.5585 - (0.0006 x Vr).
High................... 0.6044 - (0.0005 x Vr).
Oil-fired Storage.................... >105 kBtu/hr and....... Very Small............. 0.3206 - (0.0006 x Vr).
<=140 kBtu/hr and...... Low.................... 0.5577 - (0.0019 x Vr).
<=120 gal.............. Medium................. 0.6027 - (0.0019 x Vr).
High................... 0.5446 - (0.0018 x Vr).
[[Page 34537]]
Electric Instantaneous............... >12 kW and <=58.6 kW [Reserved]............. [Reserved].
and <=2 gal.
----------------------------------------------------------------------------------------------------------------
\a\ Additionally, to be classified as a residential-duty commercial water heater, a commercial water heater must
meet the following conditions: (1) If the water heater requires electricity, it must use a single-phase
external power supply; and (2) the water heater must not be designed to heat water to temperatures greater
than 180 [deg]F.
\b\ Vr is the rated storage volume in gallons.
(e) Each residential-duty commercial water heater manufactured on
and after (date 3 years after publication in the Federal Register of
the final rule establishing amended energy conservation standards for
commercial water-heating equipment) must meet the applicable energy
conservation standard level(s) as follows:
----------------------------------------------------------------------------------------------------------------
Uniform energy factor
Equipment Specifications \a\ Draw pattern \b\
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage.................... >75 kBtu/h and......... Very Small............. 0.4618 - (0.0010 x Vr).
<=105 kBtu/h and....... Low.................... 0.6626 - (0.0009 x Vr).
<=120 gal.............. Medium................. 0.6996 - (0.0007 x Vr).
High................... 0.7311 - (0.0006 x Vr).
Oil-fired storage.................... >105 kBtu/h and........ Very Small............. 0.3206 - (0.0006 x Vr).
<=140 kBtu/h and....... Low.................... 0.5577 - (0.0019 x Vr).
<=120 gal.............. Medium................. 0.6027 - (0.0019 x Vr).
High................... 0.5446 - (0.0018 x Vr).
Electric Instantaneous............... >12 kW and <=58.6 kW [Reserved]............. [Reserved].
and <=2 gal.
----------------------------------------------------------------------------------------------------------------
\a\ Additionally, to be classified as a residential-duty commercial water heater, a commercial water heater must
meet the following conditions: (1) If the water heater requires electricity, it must use a single-phase
external power supply; and (2) the water heater must not be designed to heat water to temperatures greater
than 180 [deg]F.
\b\ Vr is the rated storage volume in gallons.
[FR Doc. 2016-12178 Filed 5-27-16; 8:45 am]
BILLING CODE 6450-01-P