[Federal Register: July 29, 2004 (Volume 69, Number 145)]
[Proposed Rules]
[Page 45419-45457]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29jy04-31]
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Part III
Department of Energy
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Office of Energy Efficiency and Renewable Energy
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10 CFR Part 430
Energy Conservation Program for Consumer Products: Energy Conservation
Standards for Residential Furnaces and Boilers; Proposed Rule
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 430
[Docket No. EE-RM/STD-01-350]
RIN 1904-AA78
Energy Conservation Program for Consumer Products: Energy
Conservation Standards for Residential Furnaces and Boilers
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Advance notice of proposed rulemaking, public meeting and
webcast.
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SUMMARY: The Energy Policy and Conservation Act (EPCA or the Act)
authorizes the Department of Energy (DOE or the Department) to
establish energy conservation standards for various consumer products
and commercial and industrial equipment, including residential furnaces
and boilers, if DOE determines that energy conservation standards would
be technologically feasible and economically justified, and would
result in significant energy savings. The Department publishes this
Advance Notice of Proposed Rulemaking (ANOPR) to consider establishing
energy conservation standards for residential furnaces and boilers and
to announce a public meeting to receive comments on a variety of
issues.
DATES: The Department will hold a webcast on Tuesday, August 17, 2004
from 1 p.m. to 4 p.m. If you are interested in participating in this
event, please inform Mohammed Khan at (202) 586-7892.
The Department will hold a public meeting on Wednesday, September
29, 2004, starting at 9 a.m., in Washington, DC. The Department must
receive requests to speak at the meeting before 4 p.m., Wednesday,
September 15, 2004. The Department must receive a signed original and
an electronic copy of statements to be given at the public meeting no
later than 4 p.m. Wednesday, September 22, 2004.
The Department will accept comments, data, and information
regarding the ANOPR before or after the public meeting, but no later
than Wednesday, November 10, 2004. See section IV, ``Public
Participation,'' of this ANOPR for details.
ADDRESSES: The public meeting will be held at the Ronald Reagan
Building and International Trade Center, Polaris Room, 1300
Pennsylvania Avenue, NW., Washington, DC 20004. A photo ID is required
to enter the building.
You may submit comments, identified by docket number EE-RM/STD-01-
350 and/or RIN number 1904-AA78, by any of the following methods:
Federal eRulemaking Portal: http://www. regulations.gov.
Follow the instructions for submitting comments.
E-mail: ResidentialFBANOPR Comments@ee.doe.gov. Include
EE-RM/STD-01-350 and/or RIN number 1904-AA78 in the subject line of the
message.
Mail: Ms. Brenda Edwards-Jones, U.S. Department of Energy,
Building Technologies Program, Mailstop EE-2J, ANOPR for Residential
Furnaces and Boilers, docket number EE-RM/STD-01-350 and/or RIN number
1904-AA78, 1000 Independence Avenue, SW., Washington, DC 20585-0121.
Please submit one signed original paper copy.
Hand Delivery/Courier: Ms. Brenda Edwards-Jones, U.S.
Department of Energy, Building Technologies Program, Room 1J-018, 1000
Independence Avenue, SW., Washington, DC 20585.
Instructions: All submissions received must include the agency name
and docket number or Regulatory Information Number (RIN) for this
rulemaking. For detailed instructions on submitting comments and
additional information on the rulemaking process, see section IV of
this document (Public Participation).
Docket: For access to the docket to read background documents or
comments received, go to the U.S. Department of Energy, Forrestal
Building, Room 1J-018 (Resource Room of the Building Technologies
Program), 1000 Independence Avenue, SW., Washington, DC, (202) 586-
9127, between 9 a.m. and 4 p.m., Monday through Friday, except Federal
holidays. Please call Ms. Brenda Edwards-Jones at the above telephone
number for additional information regarding visiting the Resource Room.
Please note: The Department's Freedom of Information Reading Room (Room
1E-190 at the Forrestal Building) is no longer housing rulemaking
materials.
FOR FURTHER INFORMATION CONTACT: Mohammed Khan, Project Manager, Energy
Conservation Standards for Residential Furnaces and Boilers, Docket No.
EE-RM/STD-01-350, EE-2J/Forrestal Building, U.S. Department of Energy,
Office of Building Technologies, EE-2J, 1000 Independence Avenue, SW.,
Washington, DC 20585-0121, (202) 586-7892. E-mail: Mohammed.Khan
commat;ee.doe.gov.
Thomas B. DePriest, Esq., U.S. Department of Energy, Office of
General Counsel, Forrestal Building, Mail Station GC-72, 1000
Independence Avenue, SW., Washington, DC 20585, (202) 586-9507. E-mail:
Thomas.DePriest@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Purpose of the ANOPR
B. Summary of the Analysis
1. Engineering Analysis
2. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
3. National Impacts Analysis
C. Authority
D. Background
1. History of Standards Rulemaking for Residential Furnaces and
Boilers
2. Current Rulemaking Process
3. Miscellaneous Rulemaking Issues
a. Separate Efficiency Standards for Different Regions
b. Separate Efficiency Standards for New Construction and
Replacement Markets
c. Treatment of Mobile Home Furnaces
d. Potential Market Share Shifts due to Standards
e. Inclusion of Electric Furnaces in the Rulemaking
f. Transparency of the Analysis
g. Data Used in the Analysis
h. Regulation of Furnace and Boiler Electricity Consumption
4. Test Procedure
II. Residential Furnace and Boiler Analyses
A. Market Assessment and Technology Assessment
1. Definition of Product Classes
B. Screening Analysis
C. Engineering Analysis
1. Approach
2. Baseline Models
3. Design Option Selection
4. Manufacturing Cost Analysis
5. Markup Analysis
6. Installation Cost
a. Non-Weatherized Gas Furnaces
b. Other Product Classes
c. Safety and Reliability Issues Related to Installation
7. Maintenance Costs
8. Summary of Inputs
9. Rebuttable Payback Periods
D. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
1. Approach
2. First-Cost Inputs
a. Equipment Prices
b. Installation Costs
3. Operating-Cost Inputs
a. Annual Energy Use
b. Energy Prices
c. Maintenance Costs
4. Equipment Lifetime
5. Discount Rate
6. Effective Date
7. Inputs to Payback Period Analysis
8. Summary of Inputs
9. LCC and PBP Results
E. National Impact Analysis
1. Approach
2. Inputs
a. Shipments
i. Replacement and Conversions
ii. Shipments to New Housing
iii. Total Projected Shipments
[[Page 45421]]
b. Annual Unit Energy Consumption
c. Site-to-Source Conversion Factors
d. Installed Equipment Costs
e. Energy Prices
f. Discount Rate
g. Summary of Inputs
3. National Impact Analysis Results
F. Life-Cycle Cost (LCC) Sub-group Analysis
G. Manufacturer Impact Analysis
1. Sources of Information for the Manufacturer Impact Analysis
2. Industry Cash Flow Analysis
3. Manufacturer Sub-Group Analysis
4. Competitive Impacts Assessment
5. Cumulative Regulatory Burden
H. Utility Impacts Analysis
I. Environmental Assessment
J. Employment Impact Analysis
K. Regulatory Impact Analysis
III. Candidate Energy Conservation Standards Levels
IV. Public Participation
A. Attendance at Public Meeting
B. Procedure for Submitting Requests to Speak
C. Conduct of Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
1. Installation Model
2. Venting Issues
3. Efficiency Distribution of Weatherized Gas Furnaces
4. 81 percent AFUE Furnaces with and without Two-stage
Modulating Controls
5. Regulation of Furnace Electricity Consumption
V. Regulatory Review and Procedural Requirements
VI. Approval of the Office of the Secretary
I. Introduction
A. Purpose of the ANOPR
The purpose of this ANOPR is to provide interested persons with an
opportunity to comment on:
(i) The product classes that the Department is planning to analyze;
(ii) the analytical framework, models, and tools (e.g., life-cycle
cost (LCC) and national energy savings (NES) spreadsheets) that the
Department has been using in performing analyses of the impacts of
energy conservation standards;
(iii) the results of preliminary analyses for the engineering, LCC,
payback, and NES contained in the ANOPR Technical Support Document
(TSD): Energy Efficiency Standards for Residential Furnaces and Boilers
and summarized in this ANOPR; and
(iv) the candidate energy conservation standard levels that the
Department has developed from these analyses.
B. Summary of the Analysis
The Energy Policy and Conservation Act, as amended (EPCA or Act),
authorizes the Department of Energy (DOE or Department) to establish
minimum energy conservation standards for certain major household
appliances. The Act established efficiency standards for certain
residential furnaces and boilers, with an effective date of January 1,
1992. (42 U.S.C. 6295(f)) In addition, the Act requires the Department
to determine whether the standards should be amended.
The Department began the preliminary work for this rulemaking in
2001 and conducted a series of analyses. The Department conducted in-
depth technical analyses in the following areas: engineering, life-
cycle cost (LCC) and payback periods (PBP), and national energy savings
(NES) and economic impacts. This ANOPR discusses the methodologies and
assumptions for each of these analyses. Table I.1 provides a summary of
the key inputs, assumptions, and methods employed for each analysis
area. Table I.1 also shows where to find the results in this ANOPR. It
is important to note that the analysis results presented in this ANOPR
are subject to revision following review and input from stakeholders
and other interested parties. The final rule publication will contain
the final analysis results.
Table I.1--In-Depth Technical Analyses for the ANOPR
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ANOPR section for
Analysis area Methodology Key inputs Key assumptions results
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Engineering: equipment Teardown analysis Component cost Industry average Section II.E
manufacturing costs, markups, supplemented with data; financial ``Greenfield
and installation costs. design option reports of firm Plant;''
analysis; RS- costs, expenses, Production
Means based cost- and profits; volumes; updated
weighted averages installation GRI venting
of many configuration survey weights;
configurations. weights; labor costs from
component and RS Means;
labor cost. material costs
from distributors.
LCC and PBP.................... Building-by- First costs from 1997 RECS database Section II.G
building analysis engineering subsets are
of a analysis; AEO nationally
representative 2003 energy price representative.
weighted sample forecasts; RECS
of residential 97 houses;
consumers; energy virtual models
consumption from product
according to literature with
field use. size-related
parameters.
National impacts............... Forecasts of Historical and Responsiveness of Section II.H
national furnace projected shipments
and boiler costs shipments; forecasts to
and energy average installed installed cost;
consumption. cost and energy share of
consumption from condensing gas
the LCC analysis; furnaces in base
and AEO 2003 case forecast;
energy price future trends in
forecasts. equipment costs.
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During the development of the above analyses, the Department
consulted with interested parties to provide as much detail as possible
on the development of the analyses. The Department continues to seek
input from all interested parties on the methodologies, inputs, and
assumptions used to develop the analyses. Obtaining that input is a
primary purpose of this ANOPR.
1. Engineering Analysis
The engineering analysis establishes the relationship between the
cost and efficiency of residential furnaces and boilers. This
relationship serves as the basis for cost/benefit calculations for
individual consumers, manufacturers, and the Nation.
The baseline model for each product class is the starting point for
analyzing technologies that provide energy-efficiency improvements. The
Department defines a baseline model as an appliance having commonplace,
cost-effective features and technologies while still meeting the
current standard.
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After defining the baseline models, the Department estimated total
installed cost to the consumer through an analysis of (1) manufacturer
costs, (2) markups, which are the multiplier used to determine consumer
price based on manufacturing cost, and (3) installation costs. DOE
estimated annual average operating costs by calculating energy
consumption using the DOE test procedure, applying average energy
prices, and adding annual average maintenance costs.
The Department developed manufacturing and installation costs
through the use of tear-down analysis and cost modeling techniques and
calibrated them to industry data sources. The Department determined all
distribution markups through use of firm balance sheet data, U.S.
Census Bureau data, and data from the Manufacturing Housing Institute
for mobile home furnaces (use of the term ``mobile home furnace'' is
discussed in section I.C.3.c, ``Treatment of Mobile Home Furnaces'' of
this document).
Using the above inputs and calculation of energy consumption based
on the DOE test procedure, the Department calculated payback periods
for various design options to improve efficiency. The payback period
represents the time needed for the increase in average, total installed
equipment cost to be offset by annual, average operating cost savings.
The Department presents these payback periods to address the legally
established ``rebuttable'' presumption that an energy conservation
standard is ``economically justified'' if the additional cost to a
consumer purchasing the more efficient product is less than three times
the value of the energy savings during the first year of the product's
use. (42 U.S.C. 6295(o)(2)(B)(iii))
2. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
The LCC and PBP analysis determines the economic impact of
potential standards on consumers. The LCC that DOE calculated expresses
the costs of installing and operating a furnace or boiler for its
expected lifetime starting in the year 2012--the expected effective
date for any new furnace standard, at the time the analysis occurred.
The analysis compares the LCC of equipment with efficiency improvements
designed to meet possible energy-efficiency standards with the LCC of
the equipment likely to be installed in the absence of standards. The
PBP represents the number of years of operation needed to achieve
savings sufficient to pay for the increased installed cost of higher-
efficiency equipment. It is the change in total installed cost due to
increased efficiency divided by the change in annual operating cost
from increased efficiency.
The LCC calculation considers total installed cost (equipment cost
plus installation cost), operating expenses (energy use and
maintenance), equipment lifetime, and the discount rate. The Department
performed the LCC analysis from the perspective of the users of
residential furnaces and boilers. DOE calculated the energy consumption
of furnace and boilers using data from the 1997 Residential Energy
Consumption Survey (RECS97) conducted by the Energy Information
Administration (EIA).\1\ DOE calculated future energy costs using
energy price forecasts from EIA's Annual Energy Outlook 2003 (AEO
2003).\2\
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\1\ U.S. Department of Energy--Energy Information
Administration, Residential Energy Consumption Survey: Household
Energy Consumption and Expenditures 1997, 1999. Washington, DC.
Report No. DOE/EIA-0321(97). < http://www.eia.doe.gov/emeu/recs/recs97/publicusefiles.html
>
\2\ U.S. Department of Energy--Energy Information
Administration, Annual Energy Outlook 2003: With Projections Through
2025, January, 2003. Washington, DC. Report No. DOE/EIA-0383 (2003).
<http://www.eia.doe.gov/oiaf/aeo>
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The LCC analysis uses a distribution of values to account for
uncertainty and variability in the inputs to the LCC calculation. For
each input, there is a distribution of values with probabilities
attached to each value. As a result, the analysis produces a range of
LCC results. An advantage of this approach is that DOE can identify the
percentage of consumers achieving LCC savings or attaining certain
payback values due to an increased efficiency standard, in addition to
the average LCC savings or payback period for that standard.
3. National Impacts Analysis
The national impacts analysis estimates the national energy savings
(NES) and the net present value (NPV) of total customer costs and
savings expected to result from new standards at specific efficiency
levels. The Department calculated NES and NPV for a given standard
level as the difference between a base case forecast (without new
standards) and the standards case forecast (with standards). The
Department determined national annual energy consumption by multiplying
the number of units in the stock of residential furnaces and boilers
(by vintage) by the unit energy consumption (also by vintage).
Cumulative energy savings are the sum of the annual NES determined over
a specified time period. The Department calculated net savings each
year as the difference between total operating cost savings and
increases in total installed costs. Cumulative savings are the sum of
the annual NPV determined over a specified time period. Critical inputs
to this analysis include shipments projections (based in part on data
provided by the Gas Appliance Manufacturers Association (GAMA)),
retirement rates (based on estimated equipment lifetimes), and
estimates of change in equipment purchase patterns in response to
change in equipment costs due to standards (based on historical
parameters).
C. Authority
Part B of Title III of EPCA established the Energy Conservation
Program for Consumer Products other than Automobiles (Program). The
consumer products currently subject to this Program (referred to as
``covered products'') include residential furnaces and boilers, the
subject of this ANOPR. (42 U.S.C. 6291 et seq.)
The Act authorizes the Department to prescribe new or amended
standards for furnaces and boilers. (42 U.S.C. 6295(a), (f)) Any new or
amended standard must be designed to achieve the maximum improvement in
energy efficiency that is technologically feasible and economically
justified and must result in significant conservation of energy. (42
U.S.C. 6295(o)(2)(A), (o)(3)) To determine whether the proposed
standard is economically justified, the Department must determine that
the benefits of the proposed standard exceed its burdens to the
greatest extent practicable, weighing the following seven factors:
(1) The economic impact of the standard on the manufacturers and on
the consumers of the products subject to such standard;
(2) The savings in operating costs throughout the estimated average
life of the covered products which are likely to result from the
standard;
(3) The total projected amount of energy savings likely to result
directly from the standard;
(4) Any lessening of the utility or the performance of the covered
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.
6295(o)(2)(B)(i)).
[[Page 45423]]
D. Background
1. History of Standards Rulemaking for Residential Furnaces and Boilers
EPCA established efficiency standards for residential furnaces and
boilers. It set the standard in terms of the Annual Fuel Utilization
Efficiency (AFUE) descriptor at a minimum value of 78 percent for most
furnaces.\3\ EPCA set the minimum AFUE at 75 percent for gas steam
boilers and 80 percent for other boilers. For mobile home furnaces,
EPCA set the minimum AFUE at 75 percent. The effective date for these
standards was January 1, 1992. (42 U.S.C. 6295(f)(1))
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\3\ EPCA states that a ``furnace'' includes forced-air and
gravity central furnaces and low-pressure steam and hot water
boilers, and that it must have a heat input rate of less than
225,000 Btu/h for forced-air and gravity central furnaces, and less
than 300,000 Btu/h for boilers. (42 U.S.C. 6291(23)) However, in
this ANOPR, DOE has adopted the terminology used in the HVAC
(Heating, Ventilation and Air Conditioning) industry, which
considers furnaces and boilers as separate categories.
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For ``small'' furnaces (those having an input rate of less than
45,000 British thermal units (Btu) per hour), the Act required the
Department to publish a final rule by January 1, 1989, and to set a
minimum AFUE at a specific percent not less than 71 percent and not
more than 78 percent. (42 U.S.C 6295(f)(1)(B)) For these products, the
Department published an Advance Notice of Proposed Rulemaking (ANOPR)
(52 FR 46367, December 7, 1987), followed by a Notice of Proposed
Rulemaking (NOPR) (53 FR 48798, December 2, 1988), in which the
Department proposed to establish an energy conservation standard of 78
percent AFUE for small gas furnaces. In a final rule (54 FR 47916,
November 17, 1989), the Department set the minimum AFUE for these
products at 78 percent, with an effective date of January 1, 1992.
For mobile home furnaces, the Act directed the Department to
publish a final rule before January 1, 1992, to determine whether the
standard should be amended. (42 U.S.C. 6295 (f)(3)(A)) The Act required
the effective date for amendments to be January 1, 1994. The Department
started this activity and issued an ANOPR (55 FR 39624, September 28,
1990), followed by a NOPR (59 FR 10464, March 4, 1994). As part of this
activity, the Department proposed a new energy descriptor that accounts
for both natural gas and electricity use in a furnace. DOE rejected
this approach because ``energy use'' is defined in 42 U.S.C. 6291(4) as
``the quantity of energy directly consumed by a consumer product at
point of use,'' and therefore, furnace energy conservation standards
must be based on consumption of energy at the site of the appliance,
but DOE had difficulty in accounting for the source energy associated
with electricity use. (61 FR 36983, July 15, 1996) Several events,
including a fiscal year 1996 moratorium on proposing or issuing new or
amended appliance energy conservation standards and the development of
an improved process for the Department's energy efficiency standards
rulemakings, interrupted further activities on this rulemaking. No
final rule for mobile home furnace standards was published.
The Act also required the Department to publish a final rule to
determine for all furnaces and boilers whether the standards should be
amended. (42 U.S.C. 6295(f)(3)(B)) The Act required that DOE publish
this final rule before January 1, 1994, and, if the Department
determined that the standards should be amended, the Act required that
those amendments be effective on January 1, 2002. The Department
started this activity and, in September 1993, published an ANOPR in
which it presented the product classes for furnaces that it planned to
analyze, and a detailed discussion of the analytical methodology and
models that it expected to use in this rulemaking. (58 FR 47326,
September 8, 1993) The Department invited comments and data on the
accuracy and feasibility of the planned methodology and encouraged
interested persons to recommend improvements or alternatives to DOE's
approach.
In its fiscal year 1998 Priority Setting for the Appliance
Rulemaking Process, the Department assigned a low priority level to
residential furnaces and boilers, which meant it did not plan to
actively pursue the rulemaking over the next two years. The Department
thus limited its work on these products to basic technology
investigation.
In the fiscal year 2001 Priority Setting for the Appliance
Rulemaking Process, DOE assigned a high level of priority to
residential furnaces and boilers, including mobile home furnaces, which
meant the Department planned to pursue the rulemaking actively through
meetings, workshops, and published notices (See section I.C.2).
Table I.2 summarizes the history of the standards for furnaces and
boilers.
Table I.2--History of Furnace and Boiler Standards
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Furnaces/boilers Small furnaces Mobile home furnaces
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Original standard.................... 78% (boilers 80%, gas 78%.................... 75%.
steam boilers 75%).
Standard Requirement Source.......... NAECA* **.............. Final Rule............. NAECA.
Publication year..................... 1987................... 1989................... 1987.
ANOPR................................ 1993*.................. 1993*.................. 1993* and 1994*.
Current Rulemaking................... Furnace Rulemaking Defined as part of Included as a separate
beginning date FY2001. Furnace Product Class Product Class.
as of 1989.
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* Rulemaking initiated but not finished.
** National Appliance Energy Conservation Act.
2. Current Rulemaking Process
The framework presented in this ANOPR reflects the improvements and
steps detailed in Procedures, Interpretations and Policies for
Consideration of New or Revised Energy Conservation Standards for
Consumer Products (Process Rule) 10 CFR 430, Subpart C, Appendix A,
which elaborates on the procedures, interpretations, and policies that
will guide the Department in establishing new or revised energy
efficiency standards for consumer products. The rulemaking process is
dynamic. If timely new data, models, or tools that enhance the
development of standards become available, the Department will
incorporate them into the rulemaking.
The Department held a workshop on July 17, 2001, to discuss the
proposed analytical framework for conducting this rulemaking. The
framework presented at the workshop described the
[[Page 45424]]
different analyses to be conducted (see Table I.3), the methods
proposed for conducting them, and the relationships among the various
analyses.
Table I.3.--Residential Furnace and Boiler Analysis
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ANOPR NOPR Final rule
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Market and technology assessment......... Revised ANOPR Analyses.......... Revised analyses.
Screening analysis....................... Life-cycle cost sub-group
analysis.
Markups for equipment price determination Manufacturer impact analysis....
Engineering analysis..................... Utility impact analysis.........
Energy Consumption....................... Environmental assessment........
Life-cycle cost and payback period Employment impact analysis......
analyses.
Shipments analysis....................... Regulatory impact analysis......
National impact analysis.................
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The Department held a public workshop on May 8, 2002, to receive
and discuss comments on issues related to venting installations for
residential furnaces and boilers and to discuss the Department's
research concerning venting systems.
Statements received after publication of the framework document for
the Residential Furnace and Boiler Standards Rulemaking and at
workshops mentioned above helped identify issues involved in this
rulemaking, and provided information that has contributed to DOE's
proposed resolution of these issues. This ANOPR quotes and summarizes
many of the statements. A parenthetical reference at the end of a
quotation or paraphrase provides the location of the item in the public
record.
In June 2002, DOE asked GAMA to review DOE's analysis of
manufacturing costs. GAMA provided comments which the Department
considered in its further analysis.
In August 2002, GAMA convened a meeting to discuss approaches for
analyzing electricity use in furnaces. The Department, GAMA, and the
American Council for an Energy-Efficient Economy (ACEEE) presented
their ideas about this issue. In December 2002, DOE reconsidered its
authority to impose a standard that limits electricity consumption in
residential furnaces and boilers (See section I.D.3.h of this ANOPR).
In September 2002, the Department posted the engineering analysis
for furnaces and boilers on its website and asked for comments. GAMA,
ACEEE and Natural Resources Canada (NRCanada) provided comments which
DOE considered in its further analysis.
In response to stakeholder comment, the Department developed a
detailed installation cost model to determine venting costs for
residential furnaces and boilers. This ANOPR document (and accompanying
TSD and spreadsheets) presents this ``Installation Model'' for
stakeholder review and comment. Subsequently, in the spring and summer
of 2003, the Department finished its analysis which is described in
this ANOPR.
According to the proposed rulemaking timeline, as published in the
December 22, 2003, Regulatory Agenda, DOE expects to issue a Final Rule
in September 2005. The effective date for any new standards for
furnaces and boilers will be eight years after its publication as a
final rule in the Federal Register. (42 U.S.C. 6295 (f)(3)(B))
The Department received a number of comments concerning the
rulemaking timeline. Several stakeholders commented that DOE should
accelerate the rulemaking and implementation, while others thought the
existing schedule was satisfactory. Those favoring an accelerated
schedule include ACEEE, the Alliance to Save Energy (ASE), the
California Energy Commission (CEC), Edison Electric Institute (EEI),
Natural Resources Defense Council (NRDC), Oregon Department of Energy
(ODOE), and Southern Company. ACEEE commented that DOE should commit to
an effective date several years earlier than 2012. (ACEEE, No. 15 at p.
1) \4\ ASE also believes that an eight-year lag in implementation of
the standard is too long, and recommends a three-year lag, or, if the
efficiency standard is a substantial increase, a five-year lag. (ASE,
No. 18 at pp. 1 and 2) CEC commented that the eight-year lag is too
long, and believes the standards should take effect in January 2007.
(CEC, No. 19 at p. 3) EEI commented that DOE should accelerate the
rulemaking for furnaces and boilers to maximize energy savings and
avoid affecting market shares of natural gas and electric heating.
(EEI, No. 6 at p. 1) NRDC commented that the proceeding is very late,
and therefore DOE should accelerate the final rule. NRDC also commented
that DOE has demonstrated it can go from the ANOPR through a final rule
in a year, and should have this as a goal in this proceeding. (NRDC,
No. 21 at pp. 1 and 2) ODOE commented that DOE should change the lead
time to a three-year interval. (ODOE, No. 10 at p. 4) Southern Company
commented that DOE should minimize the time between the effective dates
of the air conditioner and the furnace rulemakings and stated that DOE
should not give longer than a five-year lead time. (Southern, No. 14 at
p. 2)
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\4\ Example: ``(GAMA, No. 8 at pp. 2-4)'' refers to a written
statement that was submitted by the Gas Appliance Manufacturers
Association and is recorded in the DOE Building Technologies Program
Resource Room in the Docket under ``Residential Furnaces and
Boilers'', as comment number 8, and the passage appears on pages 2
through 4 of that statement. Likewise, ``(Public Workshop Tr., No.
25JJ at p. 245)'' refers to an oral statement which appears on page
245 of the transcript of the Furnace and Boiler Venting Workshop
held in Washington, DC, May 8, 2002.
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In contrast, Trane commented that DOE should keep the current time
line. (Trane, No. 9 at p. 1) GAMA also supported a 2012 effective date
for compliance. (GAMA, No. 8 at p. 1)
The Department intends to follow the relative timeline outlined in
the National Appliance Conservation Act (NAECA). Section 325(f)(3)(B)
provides the same lead time between publication of amended standards
for furnaces (including mobile home furnaces) and the effective date of
such standards. Therefore, DOE is using the same effective date for all
furnaces including mobile home furnaces.
The American Gas Association (AGA) recommended scheduling follow-up
workshops to discuss specific work as finished. (AGA, No. 11 at p. 5)
The Department will document its assumptions, methods, and results, and
will make these available for public review.
GAMA commented that DOE's accounting of national benefits should
consider not only the net benefit to consumers, but also the net
benefits or costs to manufacturers, utilities, and the net affect on
the whole U.S. economy. (GAMA, No. 41 at p. 5) DOE's LCC
[[Page 45425]]
analysis accounts for net benefits to consumers. Other analyses that
DOE will perform for the NOPR stage of this rulemaking consider impacts
on manufacturers (MIA), utilities in the utility and environmental
analyses, and national employment impacts in the employment analysis.
AGA encouraged DOE to monetize and include indirect societal costs
and environmental benefits to the extent possible. (AGA, No. 11 at p.
5) The Department will consider all the benefits and costs, both
qualitative and quantitative, including the results of the consumer,
environmental, employment, utility, and manufacturer impact analyses
when deciding what standard level to select. DOE believes that
attaching a monetary value to many impacts involves a high level of
uncertainty and is not always practical.
3. Miscellaneous Rulemaking Issues
a. Separate Efficiency Standards for Different Regions
Because the cost-effectiveness of a furnace design is highly
dependent on its heating load, which is affected by climate, some
stakeholders suggested that DOE allow for a standard that varies by
region of the country. ACEEE commented that the standard should allow
individual states to require condensing furnaces and boilers whenever
they are cost-effective or required for safety reasons. (ACEEE, No. 15
at p. 2) It suggested that DOE could establish a furnace and boiler
standard at an efficiency level that requires condensing technology,
and could allow individual states where such a level might not be cost-
effective to receive an automatic exemption from the standard upon
petition. (ACEEE, No. 15 at p. 2) CEC would like the Department to set
a standard that requires condensing furnaces in states with cold
climates and believes that individual states where such a standard
might not be cost-effective should be able to use DOE data to justify
petitions for waivers from preemption. (CEC, No. 19 at p. 5) Similarly,
NRDC commented that the Department should issue a standard that allows
individual states where such a standard might not be cost-effective to
get waivers from preemption for a standard at 90 percent or higher
AFUE. (NRDC, No. 21 at p. 3) GAMA said that a state option on
condensing furnaces would be illegal under EPCA. (GAMA, No. 31 at p. 9)
Southern believes that manufacturers should be allowed maximum
flexibility in designing systems to meet varying climatic conditions.
(Southern, No. 14 at p. 4) EEI said that regional standards would
destroy national standards. (Public Workshop Tr., No. 25JJ at p. 251)
The Department recognizes that regional climatic effects may be
important in the assessment of proposed energy efficiency standards for
heating equipment because the energy demand and financial impacts to
consumers can vary significantly with variations in climate. The life-
cycle cost analysis considers regional impacts. However, DOE believes
that the Act does not authorize the adoption of regional standards. See
42 U.S.C. 6291(6)(A).
b. Separate Efficiency Standards for New Construction and Replacement
Markets
ASE commented that the Department should allow different efficiency
levels for products installed in new versus replacement applications.
ASE stated that the Department's treatment of fluorescent lamp
ballasts, where the efficiency standard is different for new
construction and replacement applications, is a precedent for this
approach. (ASE, No. 18 at p. 2) ASE also would like the Department to
grant states the option of a separate standard for equipment used in
new construction. (ASE, No. 18 at p. 2)
EPCA does not allow DOE to set more than one efficiency standard
for the same base model of a covered product. See 42 U.S.C. 6291(6)(A).
See also 10 C.F.R. 430.62. The efficiency standard for fluorescent lamp
ballasts is different for new construction and replacement applications
because the products have different design characteristics and are
marketed and shipped as different products. When manufacturers ship
these products, they label them explicitly to show whether they are
intended for new construction or for replacements. In the case of
furnaces and boilers, the Department is not aware of any products
separately marketed, labeled, and shipped either for new construction
installations or for the replacement market. Therefore, the Department
does not plan to permit the states the option of a separate standard
for equipment used in new construction.
The Department received comments on products to include or exclude
from the rulemaking. Both the CEC and ODOE recommended that DOE include
units designed for three-phase electricity. (CEC, No. 19 at p. 2; ODOE,
No. 10 at p. 2) EPCA explicitly states at 42 U.S.C. 6291 (a)(23) that
the only furnace products that are covered products under the statute
are those that use single-phase or DC (direct current) electricity in
conjunction with natural gas, propane or home heating oil; and the
Department must therefore exclude models that use three-phase
electricity.
c. Treatment of Mobile Home Furnaces
Carrier and Trane believe that DOE should treat mobile home
furnaces the same as other gas furnaces, and Trane suggested that the
gas furnace product class should include mobile home furnaces.
(Carrier, No. 7 at p. 2; and Trane, No. 9 at p. 1) GAMA commented that
there should be no extra review or different lead time for amending the
energy efficiency standard for mobile home furnaces. (GAMA, No. 8 at p.
1) The Manufactured Housing Institute (MHI) suggested that the
Department use the term ``manufactured home'' instead of ``mobile
home.'' (MHI, No. 13 at p. 1)
Because of their distinct market channels and installation
restrictions, the Department decided to analyze mobile home furnaces as
a separate product class. DOE currently plans to make the effective
date for this product class the same as for other types of furnaces:
January 1, 2012. Regarding the terminology for this product class, the
Act uses the term ``mobile home furnace.'' The Department understands
that the manufactured home market includes non-mobile/modular homes as
well as mobile homes. Under the statute (42 U.S.C. 6295(f)(2) and (3)),
the Department can only regulate the efficiency of mobile home
furnaces, so it will use the term ``mobile home furnace'' until such
time as Congress may amend the statutory language.
d. Potential Market Share Shifts Due to Standards
Several stakeholders, including AGA, the National Propane Gas
Association (NPGA), and Trane, expressed concern that standards on gas
furnaces could lead to increased purchase of electric furnaces: (1) Any
standards should be fuel neutral and avoid distortion of market factors
(AGA, No. 11 at p. 1); (2) if standard level efficiency is too high,
consumers forced to change the venting system could choose an electric
unit rather than replacing the gas-fired unit with a similar one (NPGA,
No. 4 at p. 3); (3) a gas furnace standard requiring AFUE > 90 percent
could encourage a shift to electric heat pumps and/or combination
systems if the latter are not comparably regulated (Trane, No. 9 at p.
3); and (4) a high standard on LPG furnaces could increase the market
share of electric units. (NPGA, No. 4 at p. 2) DOE's analysis accounts
for potential market shifts to electric heating that may follow from a
higher standard on gas furnaces. DOE's analysis is designed to
determine the
[[Page 45426]]
extent of the market shift among fuel types.
This information is used in the manufacturer impact analysis (MIA)
which examines financial impacts on manufacturers and manufacturer
subgroups. The MIA is provided to the Department of Justice (DOJ) to
facilitate its determination of the impact of any lessening of
competition that is likely to result from the imposition of proposed
energy efficiency standards.
e. Inclusion of Electric Furnaces in the Rulemaking
CEC, NPGA, and ODOE all supported the inclusion of electric
furnaces in the rulemaking. (CEC, No. 19 at p. 2; NPGA, No. 4 at p. 2;
ODOE, No. 10 at p. 2) According to the American Society of Heating,
Refrigerating and Air-Conditioning Engineers (ASHRAE), however, the
AFUE rating for an electric furnace is already generally greater than
98 percent, and if the furnace is located within the heated space, the
AFUE is 100 percent. No person has submitted to DOE any data or
information to the contrary. Therefore, because of the limited
opportunity for any improvement in energy efficiency as measured by
AFUE and energy directly consumed by the product at the point of use,
DOE decided not to include electric furnaces in this rulemaking.
f. Transparency of the Analysis
The Gas Technology Institute (GTI) would like the Department to use
simple spreadsheet analyses whenever possible. (GTI, No. 5 at p. 3) The
Department uses well-documented spreadsheets in its analyses. Most
spreadsheets and other models used in this rulemaking are available to
stakeholders for review and comment, and DOE is prepared to provide
interested stakeholders explanations and some technical support in the
use of the spreadsheets. To ensure the confidentiality of proprietary
cost data, teardown cost model details will remain private. Methodology
and aggregate industry assumptions and results are available for public
comment. DOE welcomes any questions or comments on how to further
simplify the analytical methods it has used in this rulemaking.
g. Data Used in the Analysis
EEI commented that DOE should use the most recent information
available and recommended that DOE use the next version of the RECS
when it is published. (EEI, No. 6 at p. 2) DOE makes every effort to
use the most current version of RECS that is available at the time of
each analysis. The analysis reflects the 1997 RECS and will be updated
as a new RECS becomes available.
GTI stressed the verification of all data. (GTI, No. 5 at p. 3) The
Department uses the most reliable and accurate data available at the
time of each analysis in this rulemaking. All data will be available
for public review, and DOE welcomes any additional data for
verification.
h. Regulation of Furnace and Boiler Electricity Consumption
Furnaces and boilers use a significant amount of electricity. The
Department's analytical framework described an approach to regulate the
electricity use of residential furnaces and boilers that would involve
specifying a maximum annual electrical consumption. The current DOE
test procedure (10 CFR 430, subpart B, Appendix N) provides a means for
determining electrical consumption. During the Framework Workshop, DOE
asked for comments concerning whether and how to regulate electricity
consumption of furnaces and boilers.
In 1995, the Department considered development of a single
descriptor that combines electricity use and a measure of fuel
efficiency, AFUE. At the time, the approach considered the source
energy input associated with the electricity use of a furnace or boiler
and was rejected in 1997 because EPCA and NAECA do not permit the
regulation of source energy. EPCA and NAECA specify that efficiency
must be based on the energy consumption at the point of use. (42 U.S.C.
6291 (4))
In comments on DOE's Framework, ACEEE, CEC, and NRDC supported a
standard for electric efficiency. (ACEEE, No. 15 at p. 3; CEC, No. 19
at p. 3; and NRDC, No. 21 at p. 3) ODOE supported setting a standard
for electricity consumption of fuel-fired furnaces and boilers. (ODOE,
No. 10 at p. 2)
EEI recommended that DOE not spend any effort on electricity
consumption. EEI drew a parallel to a previous rulemaking, stating that
since DOE did not analyze evaporator fan energy use for central air
conditioners and heat pumps because it does not affect the seasonal
energy efficiency ratio (SEER), DOE should not analyze furnace fan
electricity use because it does not affect AFUE. (EEI, No. 6 at p. 4)
AGA and GTI also recommended avoiding electricity consumption in
this rulemaking, and suggested that DOE could address it in an electric
motor rulemaking. (AGA, No. 11 at p. 3; and GTI, No. 5 at p. 3) EEI
commented that DOE should not consider design options to increase fan
and motor efficiencies, since furnace motors may be regulated as a
separate product. (EEI, No. 6 at p. 4) NRDC said that DOE should not
wait to see what Congress does in terms of regulating furnace fan
energy use, as it is authorized and required to consider this issue on
its own initiative. (NRDC, No. 21 at p. 3)
AGA recommended that DOE not limit a standard for electricity use
to fuel-fired furnaces and boilers. (AGA, No. 11 at p. 2). Southern
commented that the efficiency of fans in electric resistance furnaces
makes no difference to the overall electricity use because the heat
from the fan contributes to heating. (Southern, No. 14 at p. 3)
Lochinvar recommended against putting an electricity requirement on
boilers, since the installation configuration determines the capacity
of the pump. (Lochinvar, No. 17 at p. 2)
GAMA commented that any electricity consumption regulation should
be based on parameters that exist in the current test procedure. (GAMA,
No. 8 at p. 4) Lennox commented that EAE, a descriptor of
furnace and boiler electricity consumption that is currently described
in the test procedure and is reported by manufacturers, is the best
choice for an electrical energy descriptor. (Lennox, No. 16 at p. 2)
ACEEE supported measuring electric efficiency in terms of watts of
electricity per cubic feet per minute (CFM) of airflow of a furnace
blower and encouraged DOE to use realistic static pressures. (ACEEE,
No. 15 at p. 3) NRDC recommends setting efficiency standards on fans in
similar terms and believes DOE should set standards under standardized
testing conditions at a fixed static pressure. (NRDC, No. 21 at pp. 3
and 2)
ACEEE, CEC, and ODOE would like to see electricity consumption
regulated separately from AFUE. (ACEEE, No. 15 at p. 5; CEC, No. 19 at
p. 3; and ODOE, No. 10 at p. 4) EEI stated that DOE should not include
furnace fan energy use in AFUE calculations, since electricity is
consumed throughout the year and AFUE is only for the heating season.
(EEI, No. 6 at p. 2) Southern agrees that AFUE should not include
electricity. (Southern, No. 14 at p. 3) Trane commented that AFUE does
not include electric consumption and a new descriptor would delay the
rulemaking process. (Trane, No. 9 at p. 2) Energy Kinetics commented
that an efficiency rating should include annual electric consumption.
(Energy Kinetics, No. 3 at p. 4)
In August 2002, GAMA convened a meeting to discuss the above issues
at which the Department, GAMA, and ACEEE presented their ideas. In the
fall of 2002, the Department considered
[[Page 45427]]
whether it had the legal authority to regulate electricity consumption
in residential furnaces and boilers. Title 42 of the United States Code
provides in section 6291(6) that an ``energy conservation standard'' is
either (A) ``a * * * level of energy efficiency'' or ``a * * * quantity
of energy use,'' or (B) ``a design requirement for the products
specified * * *'' Item (A) above seems to say that a single ``energy
conservation standard'' cannot have measures or descriptions for both
energy efficiency and energy use. A standard that includes both a level
of energy efficiency and a quantity of energy use (kWh, thousands of
watt-hours) would appear to conflict with the statutory language.
Moreover, the Act, 42 U.S.C. 6291(20), states that ``the term `annual
fuel utilization efficiency' means the efficiency descriptor for
furnaces and boilers, determined using test procedures prescribed under
section 323 * * *'' The statute also requires DOE to use AFUE as the
efficiency descriptor for furnaces and boilers. (42 U.S.C. 6295(f)(1))
Thus, DOE believes that the statute would have to be amended to include
electricity use in the AFUE before DOE could regulate electricity use
in furnaces and boilers. Based on the approaches DOE considered and the
statutory language, the Department believes it cannot set energy
conservation standards for electricity use in conjunction with energy
efficiency standards for residential furnaces and boilers at the
present time.
For informational purposes only, the Department did investigate a
way to define an electricity use standard that would involve measuring
electricity use as a function of furnace input capacity and the
airflow. The details of this approach are given in Appendix 8.5 of the
TSD.
4. Test Procedure
Section 7 of the Process Rule recommends that the Department
identify and propose necessary modifications to relevant test
procedures before issuing an ANOPR for energy conservation standards.
There is an existing DOE test procedure for all furnace and boiler
product classes, which DOE last revised in 1996. (10 CFR part 430,
Appendix N to Subpart B, Uniform Test Method for Measuring the Energy
Consumption of Furnaces and Boilers) To a large extent, the DOE test
procedure references ANSI/ASHRAE 103-1993, Method of Testing for Annual
Efficiency of Residential Central Furnaces and Boilers.
The DOE test procedure includes a measurement of electricity
consumption, Average Annual Auxiliary Electrical Energy Consumption
(EAE). The furnace fan accounts for about 85 percent of
total furnace electricity consumption. To allow proper selection of
blower capacity, manufacturers rate furnace models in nominal cubic
feet per minute (CFM) of cooling airflow at 0.5 inches external static
pressure; however, they do not report this as part of the test
procedure.
DOE received several comments on the existing test procedure for
furnaces and boilers. Energy Kinetics recommended using the same
operating conditions for boilers as for furnaces and said that the
existing test procedure does not fully capture the differences in
characteristics between boilers and furnaces. (Energy Kinetics, No. 3
at p. 1 and p. 3, respectively) The analyses in this rulemaking are
based on the existing test procedure. However, DOE is interested in
additional data that would help the Department consider whether to
update the existing test procedure to more accurately reflect actual
boiler energy use.
The Oilheat Manufacturers Association (OMA) commented that accurate
evaluation of fuel savings from jacket insulation may need changes to
the AFUE test. (OMA, No. 20 at p. 3) At this point, DOE believes the
test procedure adequately deals with jacket insulation issues. DOE is
aware that as a part of the regular update of the ASHRAE Standard 103
test procedure, ASHRAE is looking at several areas of the test
procedure, including the effect of jacket insulation. Depending on
ASHRAE's findings, DOE may consider amending this part of the test
procedure.
Lochinvar Corporation commented that the test procedure for boilers
does not properly reflect normal residential operation, as the
temperature differential range of 10[deg]F to 40[deg]F found in normal
operation is more accurate than the range in the test procedure.
(Lochinvar, No. 17 at p. 1) Lochinvar also commented that DOE should
use the thermal efficiency as the descriptor for boilers. (Lochinvar,
No. 17 at p. 2) DOE uses AFUE for the energy descriptor because EPCA
mandates it.
OMA commented that DOE may need to revise its testing and rating
procedures to evaluate electricity savings for oil-fired equipment.
(OMA, No. 20 at p. 2) The current test procedure calculates the average
annual auxiliary electrical energy consumption for oil furnaces using
the same approach as for gas furnaces. The Department is not aware of
any problems with using the existing procedure for oil-fired equipment
and asks stakeholders that are aware of such problems to provide
specific comments.
The Department will continue to use the assumptions and conditions
in the current test procedure. However, DOE is interested in high-
quality field data so it can consider whether updating the existing
test procedure is warranted.
DOE received several comments regarding a test procedure for
combined water and space heating appliances (combination appliances).
Carrier and Southern Company commented that DOE should establish a test
procedure for combined appliances. (Carrier, No. 7 at p. 1; and
Southern, No. 14 at p. 3) Trane commented that DOE should include
combination systems in the rulemaking using standard water heaters, and
that a test procedure should start with ASHRAE 124-1991. (Trane, No. 9
at p. 1) ODOE also commented that the test procedure should reference
ASHRAE 124-1991. (ODOE, No. 10 at p. 2) CEC commented that DOE should
adopt the ASHRAE 124-1991 test procedure and not wait for ASHRAE
revisions because the current edition of ASHRAE 124-1991 is widely
approved and is adequate for this rulemaking. (CEC, No. 19 at p. 3)
First Company commented that ASHRAE 124 is not a true consensus
standard and that manufacturers strongly oppose it because it burdens
combined appliance manufacturers. (First, No. 12 at p. 1)
The National Institute of Standards and Technology (NIST) is
developing a DOE test procedure for combined water heating and space
heating equipment based on the ASHRAE 124-1991 test procedure standard.
DOE's process for adopting this test procedure has not yet been
completed. Therefore, DOE did not analyze combined water heating and
space heating equipment in the ANOPR stage of the furnace and boiler
rulemaking.
II. Residential Furnace and Boiler Analyses
A. Market Assessment and Technology Assessment
The Department reviewed existing literature and interviewed
manufacturers to characterize the market for residential furnaces and
boilers in the United States. Industry publications and trade journals,
government agencies, and trade organizations provided the bulk of the
information, including: (1) Historic shipments by product class, (2)
number of models by capacity and efficiency level, (3) manufacturers of
various products, and (4) product distribution patterns.
[[Page 45428]]
GAMA provided extensive historical shipment data to the Department.
Where the data from GAMA were insufficient, DOE estimated historical
shipments for each of the product classes through consultations with
industry experts. The GAMA data give shipments for gas furnaces,
including mobile home furnaces, as a group. Thus, to estimate mobile
home gas furnace shipments, the Department used data on total mobile
home placements (from the Census Bureau) and data from the American
Housing Survey that give the share of gas in existing mobile homes of
various vintages.
The Department found no separate data on shipments for weatherized
(outdoor) furnaces. It estimated shipments of weatherized gas furnaces
based on estimated 1990-1997 shipments of packaged air-conditioning
equipment, since the latter are typically coupled with a weatherized
gas furnace. These data suggest that weatherized gas furnaces account
for 12 percent of total gas furnace shipments (not including mobile
home gas furnaces). The remaining gas furnaces are classified as non-
weatherized (indoor) gas furnaces. Since there are few weatherized oil-
fired furnaces, DOE assumed that all oil-furnace shipments are non-
weatherized.
The GAMA data provide total shipments by fuel type for boilers. For
each fuel, DOE estimated the split between hot water and steam types,
based on estimates GAMA made in the early 1990's.
Table II.1 shows the estimated annual shipments in 2000 and the
number of models in each of the product classes. Non-weatherized gas
furnaces are by far the largest category.
Table II.1.--Market Statistics for Furnaces and Boilers by Product Class
------------------------------------------------------------------------
Number of
Estimated models in GAMA
Product class shipments in directory
2000 (2001)
------------------------------------------------------------------------
Non-weatherized gas furnaces............ 2,645,000 6907
Weatherized gas furnaces................ 325,000 4476
Non-weatherized oil-fired furnaces...... 120,000 868
Weatherized oil-fired furnaces.......... (\1\) 13
Mobile home gas furnaces................ 130,000 70
Mobile home oil-fired furnaces.......... (\1\) 16
Hot water gas boilers................... 190,000 990
Hot water oil-fired boilers............. 100,000 640
Steam gas boilers....................... 36,000 254
Steam oil-fired boilers................. 13,000 140
------------------------------------------------------------------------
\1\ Few.
Most of the non-weatherized gas furnaces on the market have an
efficiency of 80 percent AFUE. Only a few 78 percent AFUE models are
still on the market. Roughly one-quarter of current sales of non-
weatherized furnaces are condensing models, which range mostly between
90 percent and 92 percent AFUE.
The efficiency distribution of weatherized gas furnace models is
similar to that of non-weatherized gas furnaces, except that no
condensing units exist due to problems with condensate freezing. The
efficiency of mobile home gas furnaces is generally either 75 percent
or 80 percent AFUE, but there are a few condensing models with an
efficiency of 90 to 94 percent AFUE.
There are no gas furnaces currently on the market in the 83 to 89
percent AFUE range. In this range, condensate problems begin to occur,
and yet the temperature of the flue is still too high to allow the use
of polyvinyl chloride (PVC) for the venting system. These problems make
proper venting of such a furnace difficult, requiring the use of
higher-quality stainless steel to vent wet flue gases to the outdoors.
In contrast to the available AFUE range of gas furnaces, oil-fired
furnace models with an AFUE in the 82 to 86 percent range are available
but unavailable in the condensing (90 percent AFUE and above) range.
Because of the lower hydrogen content of fuel oil compared to natural
gas or propane, condensate problems with oil-fired furnaces at the 82
to 86 percent AFUE range levels are reduced. Condensing oil-fired
furnaces are not currently available in the U.S. because the
complexities associated with the maintenance of a secondary heat
exchanger for oil-fired furnaces make production of high-efficiency
oil-fired furnaces impractical.
Most hot-water gas boilers have an AFUE in the 80 to 84 percent
range. Gas boilers with higher AFUEs are vented with gas-tight
stainless-steel venting systems to avoid condensate problems, until an
AFUE of 90 percent is reached and PVC can be used. The AFUE for hot-
water oil boilers ranges from 80 to 88 percent. Gas steam boiler models
have an AFUE in the 78 to 83 percent range; the range for oil-fired
models is 79 to 86 percent AFUE.
A furnace or boiler is composed of a number of components--e.g.,
heat exchanger, fan and controls. For each of these components,
manufacturers can make different choices; each of these choices is
called a ``design option.'' For instance, a heat exchanger can be
tubular, clamshell, or cylindrical in its design. Any individual
furnace or boiler, which can be characterized by an efficiency level
according to the DOE test procedure, is composed of an aggregate of
design options.
The Department based its list of technically feasible design
options on options included in the previous ANOPR. (58 FR 47326,
September 8, 1993) The Department then updated the list through
consultation with manufacturers of components and systems, trade
publications, and technical papers. Since many options for improving
product efficiency are available in existing equipment, product
literature and direct examination provided additional information.
1. Definition of Product Classes
In general, the Department defines product classes based on
information from discussions with appliance manufacturers, trade
associations, and other interested parties. For this rulemaking, the
Department developed product classes based on the type of energy used
and performance-related features that affect utility to the consumers.
Based on comments from
[[Page 45429]]
stakeholders and the market assessment, the product classes considered
in this rulemaking are:
Gas furnaces
--Non-weatherized
--Weatherized
Oil-fired furnaces
--Non-weatherized
--Weatherized
Mobile home furnaces
--Gas
--Oil
Electric resistance furnaces
Hot water boilers
--Gas
--Oil
Steam boilers
--Gas
--Oil
Combination space/water-heating appliances
--Water-heater/fancoil combination units
--Boiler/tankless coil combination units
The Department received comments on whether to include combination
appliances that provide both space heating and domestic water heating
as a product class. CEC and Carrier favored including combination
appliances in the rulemaking. (CEC, No. 19 at p. 2; and Carrier, No. 7
at p. 1) EEI and Energy Kinetics want the Department to consider
combination systems as a separate product category after the
finalization of a test procedure. (EEI, No. 6 at p. 1; and Energy
Kinetics, No. 3 at p. 2) First Company opposed the inclusion of
combination appliances in the rulemaking, stating that separate
standards for combination systems are not warranted as they are already
regulated as water heaters and boilers, and that including combination
appliances will not result in significant energy savings. (First, No.
12 at p. 1) At this time, the Department has decided not to include
combination heating and water heating appliances in the current
rulemaking. DOE is working on adoption of the existing version of ANSI/
ASHRAE 124-1991 ``Methods of Testing for Rating Combination Space-
Heating and Water-Heating Appliances'' as a test procedure for these
products.
ASE suggested separate product classes for condensing and non-
condensing furnaces and boilers. (ASE, No. 18 at p. 2) Condensing
furnace and boiler designs are more efficient but otherwise differ very
little from non-condensing designs. The difference is the addition of a
second heat exchanger; this added component represents a feature that
does not change utility to the consumer. Therefore, the Department
included condensing and non-condensing designs in a single product
class.
Based on the market assessment and stakeholder comments, the
Department grouped the product classes into four categories.
The first category consists of the most widely used product class:
Non-Weatherized gas furnaces. The Department's analyses considered this
product class in depth.
The second category consists of those classes that have shipments
that are typically more than 100,000 per year: weatherized gas
furnaces, mobile home gas furnaces, non-weatherized oil-fired furnaces,
hot-water gas boilers, and hot-water oil-fired boilers. The analysis of
these product classes is similar to that of the first category, but DOE
considered a smaller number of design options.
The third category includes product classes that have a low level
of shipments: Steam gas boilers and steam oil-fired boilers. For these
classes, DOE applied the results of the analyses of the hot-water
boiler product classes.
The Department did not conduct analyses on the fourth category,
which includes weatherized oil-fired furnaces, mobile home oil-fired
furnaces, and electric furnaces. The first two classes in this category
have very low (essentially zero) shipments. The Department did not
consider electric furnaces because they have limited energy-savings
potential.
Lochinvar commented that DOE should separate hot water boilers into
low-mass and high-mass product classes. (Lochinvar, No. 17 at p. 1)
Although they use different construction materials (cast iron vs.
copper or aluminum), high- and low-mass boilers are essentially the
same equipment and provide the same utility to the consumer. See 42
U.S.C. 6295 (q)(1). Therefore, the Department included them in one
product class.
Lochinvar also commented that DOE should study boilers to the same
extent as furnaces. (Lochinvar, No. 17 at p. 1) DOE used separate
analytic tools to separately assess the boilers product class.
B. Screening Analysis
The screening analysis eliminated certain design options from
further consideration in the engineering analysis phase. Section 4 of
the Process Rule lists four factors to take into account in screening
design options:
1. Technological feasibility;
2. Practicability to manufacture, install, and service;
3. Adverse impacts on utility or availability to consumers; and
4. Adverse impacts on health or safety.
GAMA made a general comment that safety must always take priority
over efficiency. (GAMA, No. 8 at p. 1) As the Process Rule recommends,
the Department will screen out any design options that have adverse
affects on the safety of consumers.
The Department received a number of specific comments regarding
design options. In considering these comments and its own analysis, the
Department screened out a number of options for certain product
classes, as shown in Table II.2. The options eliminated include:
(1) Use of condensing secondary heat exchangers for oil-fired
furnaces (sulfur content of fuel oil, soot, and heat exchanger fouling
may have adverse impacts on health or safety);
(2) Fuel-driven heat pumps (the practicality to manufacture,
install, and service is uncertain);
(3) Oil-fired pulse combustion (the practicality to manufacture,
install, and service is not certain);
(4) Self-generation of electricity using thermo-photovoltaics (not
considered technologically feasible);
(5) Smart valve for oil-fired furnaces and boilers (the
practicality to manufacture, install, and service is not certain); and
(6) Flue-gas recirculation (has not yet been shown to be
technologically feasible in residential-sized equipment, and it has
little energy-saving potential).
For outdoor weatherized gas furnaces, the use of a condensing
secondary heat exchanger that produces flue gas temperatures below the
dew point temperature is not considered because condensate freezing may
have adverse impacts on safety.
Some options are not applicable for certain product classes. For
example, improved or increased insulation is not applicable for boilers
because boilers are tested as indoor appliances according to the DOE
test procedure.
The design options listed in Table II.2 with a ``Y'' (for ``yes'')
pass all screening criteria, so DOE initially included them in the
engineering analysis. Chapter 4 in the TSD provides more detail on the
design options.
[[Page 45430]]
Table II.2.--Screening Results for Design Options by Product Class
----------------------------------------------------------------------------------------------------------------
Gas furnaces Hot water
---------------------------------------- Mobile home boilers
Design option Oil-fired furnaces gas-furnaces -----------------
Non-weatherized Weatherized Gas Oil
----------------------------------------------------------------------------------------------------------------
Improved Heat Y Y Y Y Y Y
Exchanger
Effectiveness
Modulating Y Y Y Y Y Y
Operation
Improved or Y Y Y Y N/A N/A
Increased
Insulation
Condensing Y N N Y Y Y
Secondary Heat
Exchanger
Electronic Ignition b b b Y Y b
Induced or Forced b b b Y Y b
Draft
Infrared Burner Y Y Y Y Y Y
Direct Vent Y Y Y Y Y Y
Smart Valve N/A N/A N N/A N/A N
Fuel Filtration N/A N/A Y N/A N/A Y
Pulse Combustion Y Y N Y Y N
Air-Atomized Burner N/A N/A Y N/A N/A Y
with Modulation
Delayed Action Oil N/A N/A Y N/A N/A Y
Pump Solenoid
Valve
Increased Motor Y Y Y Y Y Y
Efficiency
Increased Blower Y Y Y Y N/A N/A
Impeller
Efficiency
Self-Generation of N N N N N N
Electricity
Fuel-Driven Heat N N N N N N
Pumps
Flue Gas N N N N N N
Recirculation
----------------------------------------------------------------------------------------------------------------
Y The design option is applicable to this product class and passes screening.
N The design option has been screened out from further analysis for this product class.
N/A The design option is not applicable to this product class.
b Already included in the baseline model design (see section C.2)
C. Engineering Analysis
The purpose of the engineering analysis is to estimate according to
the DOE test procedure the energy savings potential from increased
equipment efficiency levels, and to determine the incremental equipment
and installation cost of achieving those levels, compared to the
baseline model in each product class. The engineering analysis
estimates the payback period for each of the design options in order
for DOE to address the legally required ``rebuttable'' payback
consideration. The Department uses the costs developed in the
engineering analysis in the LCC analysis.
1. Approach
There are a large number of ways to combine design options in
furnaces and boilers to attain a particular efficiency level. To
explore how manufacturers would likely design products to meet a
standard and to thoroughly understand the relationships between
different equipment configurations and efficiency, the Department
considered several design options that could meet a given efficiency
level. For the engineering analysis, DOE selected the design options
considered most likely to be implemented.
The baseline model for each product class is the starting point for
analyzing technologies that provide energy-efficiency improvement. The
Department defined a baseline model as an appliance having the commonly
available, most-cost-effective features and technologies while meeting
the current efficiency standard. The Department defined a baseline
model for each of the product classes in the first and second
categories described above.
After identifying the baseline models, the Department estimated the
total cost of higher-efficiency units to the consumer through an
analysis of manufacturer costs, markups, and installation costs. Costs
for equipment design options are determined through tear-downs. Markups
are estimated using publicly available corporate and industry data,
supplemented by data from the Manufacturing Housing Institute. The
Department created an ``Installation Model'' to assess venting costs,
and verified it against known existing data.
2. Baseline Models
Identification of the baseline for an equipment product class
requires establishing a baseline efficiency level and selecting a size
typical of that equipment. For furnace and boilers, the analysis also
requires defining major design features, such as the configuration
(which refers to the design of the supply air pathways), heat exchanger
type, ignition type, and the means of heating fluid delivery (draft
type).
Several stakeholders submitted comments on recommended furnace and
boiler baseline model characteristics. ACEEE commented that the
Department should use the sales-weighted median size as the baseline
model size in each product class. (ACEEE, No. 15 at p. 5) AGA commented
that the Department should
[[Page 45431]]
consider baseline models that include a range of building loads,
airflows, regional heat demands, ignition system alternatives, and
other technical variables. (AGA, No. 11 at p. 6)
For each product class, GAMA provided specific recommendations for
the features of the baseline model. For example, for the baseline non-
weatherized gas furnace, GAMA recommended that the baseline should have
an AFUE of 78 percent (the statutory minimum efficiency), 75 kBtu/h
(thousand Btu per hour) input, an induced draft combustion system,
electric (hot surface) ignition, and a blower for three-ton cooling.
(GAMA, No. 8 at p. 1) Trane commented that the baseline gas furnace
should have electronic ignition, an induced draft, a 75 kBtu/h input,
1200 CFM at 0.5'' static pressure, and a three-ton air-conditioning
capacity. (Trane, No. 9 at p. 1)
For the baseline oil-fired furnace, Lennox suggested that DOE use a
120 kBtu/h size. (Lennox, No. 16 at p. 1) GAMA recommended that the
baseline have an input of 105 kBtu/h, which is the most common in the
current market. (GAMA, No. 8 at p. 3)
MHI suggested that the baseline model for mobile home furnaces
should have sealed combustion, a downflow configuration, and an inside
thermal envelope footprint of less than 20 inches by 24 inches. (MHI,
No. 13 at p. 1)
GAMA recommended that the gas boiler baseline model should have an
atmospheric burner, a standing pilot, and an electro-mechanical vent
damper and an input of 105 kBtu/h. (GAMA, No. 8 at p. 3) For the oil-
fired boiler baseline model, GAMA recommended a boiler with a power
burner and an input of 140 kBtu/h. (GAMA, No. 8 at p. 3)
In defining the baseline models, the Department took into account
the above comments, as well as the technical description of the covered
equipment, the definition of the product classes, and the results of
the market assessment. DOE used the product features suggested by GAMA
in the baseline definition, since they were consistent with most of the
relevant stakeholder comments. Table II.3 summarizes the main features
of the baseline models. For more detail on baseline equipment, refer to
the Engineering Analysis, section 6.3 of the ANOPR TSD.
Table II.3.--Features of Furnace and Boiler Baseline Models
----------------------------------------------------------------------------------------------------------------
Input
Product class capacity AFUE Configuration Heat exchanger Ignition Draft
(Btu/h) (%) type
----------------------------------------------------------------------------------------------------------------
Non-weatherized Gas Furnaces. 75,000 78 Upflow......... Clam Shell/ Hot Surface.... Induced.
Tubular.
Weatherized Gas Furnaces..... 75,000 78 Horizontal..... Clam Shell/ Hot Surface.... Induced.
Tubular.
Mobile Home Gas Furnaces.... 70,000 75 Downflow....... Drum........... Standing Pilot. Natural.
Non-weatherized Oil-Fired 105,000 78 Upflow......... Drum........... Intermittent Forced.
Furnaces. Ignition.
Hot Water Gas Boilers........ 105,000 80 N/A............ Sectional, Dry- Standing Pilot. Natural.
base, Cast-
iron.
Hot Water Oil-Fired Boilers.. 140,000 80 N/A............ Sectional, Wet- Intermittent Forced.
base, Cast- Ignition.
iron.
----------------------------------------------------------------------------------------------------------------
In addition to the above features, the baseline models have a
blower or pump driven by a standard permanent split capacitor (PSC)
induction motor.
3. Design Option Selection
From the list of options that passed the screening analysis, DOE
selected those design options considered most likely to be implemented.
The Department assumed that manufacturers will incorporate design
options that have the least cost to attain a given efficiency level.
Cost and efficiency estimates were available for a broad array of
design options. The Department used the relationship between cost and
percent efficiency improvement to rank all the fuel-related design
options. Two options were most favorable: increasing the heat exchanger
area and increasing the heat exchanger transfer coefficient. In
interviews with manufacturers, the Department confirmed that these
choices were the most promising design options.
The Department also included modulation technology as another
design option that can provide an AFUE improvement for some of the
product classes. Based on currently available products in the market,
DOE applied two-stage modulation to non-condensing and condensing
equipment and applied step modulation only to condensing furnaces.
The Department also included consideration of the following design
options:
1. Improved heat exchanger effectiveness through
electrohydrodynamic enhancement of heat exchangers;
2. Condensate venting and disposal;
3. Atomizing oil burner with two-stage modulation; and
4. Heat exchanger size optimization for oil-fired equipment.
Section 6.4 of the ANOPR TSD further discusses the above design
options.
4. Manufacturing Cost Analysis
There are three ways to estimate manufacturing costs: (1) The
design option approach, reporting the incremental costs of adding
specific design options to a baseline model; (2) the efficiency level
approach, reporting incremental costs of achieving each level of energy
efficiency improvement; and (3) the reverse engineering or cost-
assessment approach, which requires a ``bottom-up'' cost assessment
based on a detailed bill of materials for models that operate at
particular efficiency levels.
The Department received a variety of recommendations on generating
manufacturer cost estimates. ACEEE recommended using reverse
engineering analysis. (ACEEE, No. 15 at p. 5) ASE commented that
industry cost data lack transparency and credibility and suggested that
the Department use reverse engineering as the primary data source.
(ASE, No. 18 at p. 2) ODOE stated that manufacturer-supplied costs have
been consistently (sometimes significantly) high, and suggested that
DOE not rely on this single source. (ODOE, No. 10 at p. 4) EEI
recommended that DOE not disregard industry cost data. (EEI, No. 6 at
p. 2) Southern Co. supported the use of industry cost data rather than
reverse engineering numbers. (Southern, No. 14
[[Page 45432]]
at p. 4) Trane recommended the efficiency level approach because: (1)
There is no good simulation model available for all designs; (2)
feasible design options are limited; (3) DOE should specify a
performance standard, not a design standard; and (4) GAMA can gather
accurate cost data. (Trane, No. 9 at p. 2) GAMA commented that if DOE
gets manufacturer cost information directly from manufacturers, it
should provide draft aggregate cost data so GAMA can confirm the
reasonableness of the data. (GAMA, No. 8 at p. 1)
Several comments suggested that DOE should consider historical
trends or forces in estimating the retail price of equipment that would
meet standards in the future. NRDC said DOE should include the
``learning curve'' effect that would come from greater cumulative
production of higher-efficiency models. (NRDC, No. 21 at p. 2) ACEEE
said that given historical trends and significant cost-reduction
accomplishments of manufacturers, it is conceivable that they can
produce higher equipment efficiency without significant increase in
retail prices. (ACEEE, No. 15 at p. 5) NRDC, ACEEE, and CEC commented
that actual equipment price increases have been lower than DOE's
projected increases in past rulemakings. (NRDC, No. 21 at p. 3; ACEEE,
No. 15 at p. 4; CEC, No. 19 at p. 4) ACEEE urged DOE to review the
accuracy of past price impact projections for regulated products.
(ACEEE, No. 15 at p. 4) Trane suggested that the best way to understand
retail prices is to get several hundred quotes covering a variety of
regions, installation types, efficiency levels, and ranges of
capacities. (Trane, No. 9 at p. 2)
For other rulemakings, the Department has used production input
costs and production technologies based on the best information
available at the time. DOE has not made any assumptions about
productivity improvements and material cost changes that may occur over
time. The Department does not believe it can apply historical trends
for residential furnaces or other products to forecast equipment costs
where there are no data to show that the trends will continue.
Therefore, the Department will not assume a productivity improvement
factor in this rulemaking.
After assessing the available methods and taking stakeholder
comments into account, the Department used reverse engineering of
existing products to estimate the manufacturing cost of the baseline
model and the considered design options. The Department believes that
the reverse engineering approach, which is based on a detailed bill of
materials (BOM) for the various models, is the best way to accurately
and cost-effectively assess manufacturing costs. The Department
supplemented this approach with a review of relevant literature,
computer simulation, and other analytical techniques, as well as
industry-supplied data. Throughout the analysis period, the Department
provided GAMA, manufacturers, and other stakeholders several
opportunities to review and comment on the cost estimates to ensure
accuracy and completeness. The Department considered these comments in
its analysis. Refer to section 6.4 of the ANOPR TSD for further
discussion of the method used for analysis of manufacturing costs.
In estimating production costs for each potential efficiency (AFUE)
level above the baseline model, the Department considered several
design options that can be used to reach a given AFUE level. The
Department also considered additional options that provide electrical
power savings. The Department determined the efficiency levels
corresponding to various design option combinations using manufacturer
data submittals and DOE engineering calculations.
The Department generated the BOM by examining and disassembling
(through teardown analysis) some current-market units and/or simulating
design options using numerical models and creating ``hypothetical''
units that it costed as if they were real units. (In the context of
this study, the terms ``reverse engineering'' and ``teardown analysis''
solely describe the estimation of production costs by examining actual
equipment or designs.) The availability of a large number of
residential products with a wide range of efficiency allowed DOE to
consider all potential design options in a reverse-engineering approach
in order to establish an accurate estimate for production costs. The
Department purchased and disassembled by hand the selected units and
measured, weighed, and analyzed each part. Additionally, DOE studied
and reconstructed all the steps of the manufacturing processes to
finish the teardown analysis. The result was detailed BOMs that DOE
used as input to the cost model.
The analysis required the Department to perform teardowns at a
number of efficiency levels. Multiple teardowns per point were needed
to capture major design approaches. To reduce the number of possible
teardowns to a manageable level, the Department focused on
representative sample units sold in high volumes. Thus, the sample
units included in the teardown analysis do not represent all possible
efficiency levels of each product class. DOE took the following steps
in creating BOMs for additional efficiency levels: (1) Identify
efficiency gaps; (2) Select the most promising design options; (3)
Identify possible design modifications of existing units and create a
written description of ``hypothetical'' (or ``theoretical'') units; (4)
Perform simulations to correlate design modifications with efficiency
levels; and (5) Create BOMs for ``hypothetical'' units.
The cost model is based on production activities and divides
factory costs into the following categories: (1) Material (direct and
indirect materials); (2) Labor (fabrication, assembly, indirect and
overhead burdened labor); and (3) Overhead (equipment depreciation,
tooling depreciation, building depreciation, utilities, equipment
maintenance, rework).
The Department used the cost data from all BOMs--whether obtained
through teardowns or numerical simulations--in the cost model, which
makes use of specific assumptions to provide cost estimates. These
assumptions include industry averages for site-specific inputs (e.g.,
labor rates), assuming the production facility is a ``greenfield''
plant (as if a new manufacturing plant were built) and assuming
production volumes similar to current levels for each product class.
Even after completion of both the tear-down analysis on
representative units and the numerical simulations, the Department
still needed information for condensing boilers (both gas- and oil-
fired) and condensing mobile home furnaces. For these categories, DOE
identified possible design options but did not have a methodology or a
simulation tool in place to estimate the production costs. Therefore,
the Department used a cost-per-pound estimation methodology for these
products.
In summary, the Department took the following steps in establishing
manufacturing costs as a function of fuel efficiency:
(1) Generate BOMs for products at different efficiency levels using
teardown analysis and numerical simulations;
(2) Enter BOMs into a cost model, incorporating assumptions
obtained through available industry data, internal expertise, visits to
manufacturers, and stakeholders' input;
(3) Perform sensitivity analysis and cost-per-pound estimates; and
(4) Generate cost-efficiency data for each efficiency level.
[[Page 45433]]
Tables II.4a-f show the estimated incremental manufacturing costs
of increasing AFUE for each product class. The reported efficiency
levels are generally achieved by increasing heat exchanger area or
improving the heat transfer coefficient. The incremental costs in the
tables are relative to the baseline model for each product class.
For the modulation design option, the Department considered a
design approach currently in the market that uses a multiple-tap,
multiple-speed PSC blower motor; a two-stage gas valve; and a multiple-
tap, two-speed PSC inducer motor to achieve two-stage modulation
operation. For this design, DOE estimated that an additional $23 would
be added to the production cost of the furnace to account for the
component changes. The Department estimated that the AFUE improvement
for adding two-stage modulation to a furnace would be 1 percent, based
on a survey of units with and without modulation in the GAMA directory.
Therefore, to estimate the cost of a modulating furnace at 81 percent
AFUE, DOE added $23 to the production cost of a 80 percent AFUE
furnace. An amendment to the current test procedure may be necessary to
more completely characterize the energy savings from modulation. See
Chapter 6 of the TSD for further details.
Table II.4a.--Incremental Manufacturing Cost for Non-Weatherized Gas
Furnaces
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
78 Baseline Model....................................... 0
80...................................................... $3
81...................................................... 6
82...................................................... 9
90...................................................... 146
92...................................................... 213
96...................................................... 570
------------------------------------------------------------------------
Table II.4b.--Incremental Manufacturing Cost for Weatherized Gas
Furnaces
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
78 Baseline Model....................................... 0
80...................................................... $3
81...................................................... 6
82...................................................... 9
------------------------------------------------------------------------
Table II.4c.--Incremental Manufacturing Cost for Mobile Home Gas
Furnaces
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
75 Baseline Model....................................... 0
80...................................................... $29
81...................................................... 36
82...................................................... 46
90...................................................... 140
------------------------------------------------------------------------
Table II.4d.--Incremental Manufacturing Cost for Oil-Fired Furnaces
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
78 Baseline Model....................................... 0
80...................................................... $2
81...................................................... 5
82...................................................... 7
84...................................................... 10
85...................................................... 15
------------------------------------------------------------------------
Table II.4e.--Incremental Manufacturing Cost for Hot-Water Gas Boilers
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
80 Baseline Model....................................... 0
81...................................................... $29
82...................................................... 39
83...................................................... 47
84...................................................... 55
88...................................................... 128
91...................................................... 379
99...................................................... 816
------------------------------------------------------------------------
Table II.4f.--Incremental Manufacturing Cost for Hot-Water Oil-Fired
Boilers
------------------------------------------------------------------------
Incremental
Efficiency level (AFUE) % cost
------------------------------------------------------------------------
80 Baseline Model....................................... 0
81...................................................... $4
82...................................................... 7
83...................................................... 11
84...................................................... 15
86...................................................... 22
90...................................................... 434
95...................................................... 836
------------------------------------------------------------------------
The Department also identified options that decrease electricity
consumption in furnaces and boilers. The details are described in
Appendix 8.5 of the TSD.
5. Markup Analysis
Completing the equipment cost calculations in the engineering
analysis requires determination of the cost to the customer of a
baseline model furnace or boiler and the cost of more efficient units.
The average customer price of such units is not generally known. To
estimate the equipment costs to the customer, DOE determined typical
markups on each stage of the distribution chain from the manufacturer
to the consumer. The markup approach makes it possible to estimate a
retail price from the manufacturing cost. In addition to estimating
average markups, the Department also characterized the markups with
probability distributions through a statistical analysis of U.S. Census
data and used these distributions in the LCC analysis.
The Department included the following expenses in the determination
of the manufacturer markup: Research and development, net profit,
general and administrative, warranty expenses, taxes, and sales and
marketing. The estimated average markup of 1.26 was based on analysis
of corporate financial records. The Department excluded shipping
expenses (out-bound) because these expenses were included in the
manufacturing cost. Research and development expenses were determined
by assuming that engineering budgets would be reallocated from value-
engineering and new-feature development to product development and
redesign. The additional capital outlays and re-tooling investments are
captured in the incremental cost of the equipment.
The Department based the wholesale and contractor markups on firm
balance sheet data. Builder markup (applied to new construction
installations only) was estimated from U.S. Census data for the
residential and commercial building construction industry and from HVAC
industry data. Recent state and local sales tax data were used to
estimate sales taxes (applied to replacement installations only).
An exception to the above procedure was the case of mobile home
furnaces, where the distribution chain is shorter; the heating
equipment manufacturer sells to the mobile home maker, who installs the
furnace at the factory. In this case, the Department estimated markups
using information from the Manufacturing Housing Institute.
The estimated average markups are listed in Table II.5. The markup
on incremental costs (relative to a baseline model) is lower than the
markup on the baseline model cost for wholesalers and
[[Page 45434]]
contractors because only profits and other operating costs typically
scale with the manufacturer price or (for contractors) the cost of
goods sold. The overall markups are lower for new construction
installations than for replacement installations, since different
markups apply. For more detail on how the Department developed the
markups, refer to Chapter 5 of the ANOPR TSD.
Table II.5.--Average Markups on Costs of Residential Furnaces and
Boilers
------------------------------------------------------------------------
Baseline Incremental
model cost cost
------------------------------------------------------------------------
Manufacturer.................................. 1.26 1.26
Wholesaler.................................... 1.36 1.11
Contractor (new/replacement).................. 1.41/1.62 1.22/1.33
Builder (new construction only)............... 1.43 1.33
Sales tax (replacements only)................. 1.07 1.07
-----------------------------------------------
Total markup (on manufacturing cost)
------------------------------------------------------------------------
Non-weatherized gas furnace................... 3.12 2.07
Weatherized gas furnace....................... 3.12 2.07
Oil-fired furnace............................. 2.97 1.99
Hot-water gas boiler.......................... 2.97 1.99
Hot-water oil-fired boiler.................... 2.97 1.99
Mobile home gas furnace....................... 2.22 2.22
------------------------------------------------------------------------
6. Installation Cost
The installation cost is the cost to the consumer for installing a
furnace or a boiler; it is usually not part of the retail price. The
cost of installation covers all labor and material costs associated
with the installation of a new unit or the replacement of an existing
one. For furnaces and boilers, the installation cost is the largest
single component of the total cost to the consumer. It is even larger
than the equipment cost.
The predominant part of the installation cost is the venting
system. The American National Standards Institute (ANSI) standard
Z21.47-1993 defines four Categories (I-IV) for furnace or boiler
venting systems. The categories are defined based on the operating
pressure and temperature in the vent. Most non-condensing equipment
operates with a Category I (high temperature, low pressure) venting
system. Most condensing equipment operates with a Category IV (low
temperature, high pressure) venting system, but some condensing boilers
use a Category III (high temperature, high pressure) system. For a
Category I venting system only, the 2002 National Fuel Gas Code (NFGC)
Venting Tables 13.1 through 13.5 define the requirements for
installation.
DOE devoted considerable effort to identifying appropriate costs to
use in its analysis. In the process, DOE found that there is no
complete data source for installation costs for the product classes
under consideration. ACEEE suggested that DOE collect data from the
field to help in estimating the cost of various types of installations.
(ACEEE, No. 32 at p. 3) The Department concurs that this would be
beneficial and will consider this approach if appropriate data are
available. The Department hereby requests submittal of field
installation cost data.
One source of data is a 1994 GRI report, which GAMA supplemented in
2002 with an updated summary version of the data. The installation
costs in the GRI report were developed from the results of a field
survey which several gas utilities conducted in 1992. These data are
relatively old and, particularly for condensing furnaces, may not
represent a well-established market. Differences between new and
replacement installation costs may be underestimated. Further, no
detailed cost breakdowns are available from the report for independent
verification of the results.
A second source is a 1999 Natural Resources Canada (NRCanada) study
that developed installation cost data for non-weatherized gas furnaces
for four Canadian areas. A company that provides cost estimates for
building contractors conducted the study. The NRCanada study provides
the most current data set available, and the data are used by Canadian
government agencies and are well documented. However, for condensing
furnaces, there are indications that these data are applicable only to
new-construction installations.
The Department looked at other possible sources of installation
costs, including data from Wisconsin from a 1999 survey of HVAC
contractors. The Department did not use these data because of the very
small size of the sample.
Because of the shortcomings of the above sets of data, DOE
performed its own study to determine installation costs for non-
weatherized gas furnaces, referred to henceforth as the ``Installation
Model.'' The Department has posted the Installation Model spreadsheets
for furnaces and boilers on its Web site: http://www.eere.doe.gov/buildings/appliance_standards/furnaces_boilers.html
.
The Department used RS Means, a well-known and respected
construction-cost-estimation method, to develop labor costs, and got
quotes from national distributors to develop material costs. The
Installation Model weight-averages the detailed costs for a large
variety of typical installations in the field, including both new
construction and retrofit installations; single and multifamily
housing; plastic, metal and masonry chimney vents; single- and double-
wall vent connectors; and common venting with other appliances. Chimney
relining practices and orphaned water heaters are explicitly modeled.
The Department validated the Installation Model results by comparing
them with the preceding three data sets under equivalent assumptions;
the incremental costs agree within 15 percent. The Department is
requesting comments about the Installation Model (see Issue 1 under
``Issues for Public Participation'' in section IV.E of this ANOPR).
a. Non-Weatherized Gas Furnaces
For non-weatherized gas furnaces, DOE considers the data derived
with the Installation Model as the most current and comprehensive
available for the analysis. It used a sensitivity analysis based on
variations of installation size. The GAMA and NRCanada data sets also
provide a basis for upper and lower bounds for installation cost.
The Department determined that there is a small additional average
installation cost for an 80 percent AFUE furnace relative to a baseline
(78 percent AFUE) furnace. This cost involves the need to reline some
masonry chimneys and applies to single-stage, as well as modulating,
furnaces.
When efficiency increases above 80 percent AFUE, additional costs
associated with venting system modifications may be necessary.
At the DOE Venting workshop in May 2002, the differences between
steady-state efficiency (SSE) and AFUE were discussed in detail. Lennox
and GAMA commented that installations in accordance with NFGC Venting
Table rules may sometimes exceed the expected SSE, and recommended DOE
apply a margin of safety to the SSE/AFUE relationship. (Lennox, No. 35
at p. 2; and GAMA, No. 31 at p. 2) Lennox also said that some
installation locations will yield operating conditions that differ
substantially from test conditions. (Lennox, No. 35 at p. 2) Reflecting
these concerns, DOE's approach to determining the SSE/AFUE relationship
includes an uncertainty range for the
[[Page 45435]]
fraction of installations at each efficiency level that would likely
need a Category III venting system. DOE used the GAMA directory to
develop data on the AFUE/SSE relationship.
Several stakeholders commented that the SSE/AFUE relationship is
not affected by differences in the type of furnace heat exchanger
(tubular vs. clamshell). (Public Workshop Tr., No. 25JJ at p. 68; GAMA,
No. 31 at p. 6; and York, No. 33 at p. 3) DOE did not consider the type
of furnace heat exchanger when evaluating the SSE/AFUE relationship.
For the 81 percent AFUE level, DOE considered two cases for
installation cost. The first assumes the use of two-stage modulation
technology. At present, two major manufacturers produce furnaces with
81 percent AFUE using modulation technology that allows use of a
Category I venting system. By investigating existing models and
manufacturers' installation manuals, the Department determined that
these furnaces must use Type B double-wall vent connectors in the
venting system.
The second case considers only the use of single-stage furnace
models. The Department determined that at an energy efficiency of 81
percent AFUE, about 8 percent of the existing single-stage furnace
models would have an SSE above 83 percent. At this SSE level,
condensation in the venting system may occur, possibly leading to
corrosion and carbon monoxide leakage. In this case, DOE assumed that 8
percent of installations would need a Category III stainless steel vent
to allow safe operation. The remaining 92 percent would need to use
Type B double-wall vent connectors in the venting system. For the 82
percent and 83 percent AFUE levels, DOE determined that 35 percent and
100 percent of units, respectively, could be above 83 percent SSE, and
these units would need a Category III venting system for safe
operation.
Condensing furnaces at 90 percent AFUE use a Category IV venting
system, which is mostly composed of a side-wall venting system with
plastic vent pipes. For condensing furnaces, the Installation Model
accounts for the installation of a new vent system, resizing of the
remaining common system, condensate neutralization, and condensate
pumping for disposal. The Department assumed that installation costs
for all condensing furnaces are similar, since available information
suggests that efficiency levels higher than 90 percent do not
appreciably affect the installation cost for condensing gas furnaces.
Simpson and GAMA commented that DOE should account for costs of
handling the condensate disposal. (Simpson, No. 30 at p. 3; and GAMA,
No. 8 at p. 1) The installation cost for condensing furnaces includes
the cost of condensate disposal.
The Department's installation cost estimates are shown in Table
II.6a. The cost data are presented in 2001 dollars to coincide with the
manufacturing cost estimates.
Table II.6a.--Installation Cost for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
NRCanada (US Installation
Efficiency level (AFUE) (percent) $) Model (US $) GRI (US $)
----------------------------------------------------------------------------------------------------------------
78--Baseline Model.............................................. 382 727 773
80.............................................................. 382 731 965
81--two-stage, no Category III.................................. 382 760 965
81--single-stage, 8 Category III................................ 432 810 1,104
82.............................................................. 634 1,012 1,671
83.............................................................. 1,012 1,356 2,732
90.............................................................. 411 980 1,239
93 and above.................................................... 411 980 1,268
----------------------------------------------------------------------------------------------------------------
b. Other Product Classes
For weatherized gas furnaces, the location of the equipment
(outdoors) influences the installation cost. Based on RS Means, the
Department estimated a mean of $1,123 for the installation cost of the
baseline model. Since limited data were available, DOE assumed that
installation cost remains mostly constant as efficiency is increased.
This assumption seems reasonable for single-package systems, as the
increases in size and weight for more efficient, single-package systems
are small relative to the large size and weight of the baseline model.
For mobile home gas furnaces, common installation costs are part of
the equipment cost because mobile home gas furnaces are assembled in
the factory rather than in the field. The manufacturer's markup
includes these factory assembly costs. For 90 percent and over AFUE
condensing furnaces, there is an additional installation cost in the
field to account for condensate disposal systems.
DOE modified the Installation Model to estimate venting costs for
oil-fired furnaces, hot-water gas boilers, and oil-fired boilers (see
Chapter 6 of the TSD for details). For gas boilers, NFPA 54 provides
Category I venting guidelines; for oil-fired appliances, the applicable
venting guideline is NFPA 31. However, the efficiency level at which
the use of higher-cost Category III venting becomes necessary is not
defined by these codes. For the analysis of gas boilers, DOE assumed
that 20 percent of installations include Category III horizontal vents
for construction-related reasons for efficiencies up to 84 percent
AFUE. At 85 percent AFUE, DOE assumes Category III venting must be used
100 percent of the time. For oil-fired equipment, type L stainless
venting is required at all AFUE levels. DOE assumes that the vent
system must be upgraded to stainless AL-4C at 85 percent and 84 percent
AFUE for oil-fired boilers and oil-fired furnaces, respectively.
The Department's installation cost estimates are shown in Table
II.6b through II.6f. The cost data are presented in 2001 dollars to
coincide with the manufacturing cost estimates.
Table II.6b.--Installation Cost for Weatherized Gas Furnaces
------------------------------------------------------------------------
Average cost Incremental
AFUE (percent) ($) cost ($)
------------------------------------------------------------------------
78...................................... 1,123 --
80...................................... 1,123 0
81...................................... 1,123 0
82...................................... 1,123 0
------------------------------------------------------------------------
[[Page 45436]]
Table II.6c.--Installation Cost for Mobile Home Gas Furnaces
------------------------------------------------------------------------
Average cost Incremental
AFUE (percent) ($) cost ($)
------------------------------------------------------------------------
75...................................... 0 --
80...................................... 0 0
81...................................... 0 0
82...................................... 0 0
90...................................... 181 181
------------------------------------------------------------------------
Table II.6d.--Installation Cost for Oil-Fired Furnaces
------------------------------------------------------------------------
Weighted
AFUE (percent) average cost Incremental
($) cost ($)
------------------------------------------------------------------------
80...................................... 751 --
82...................................... 751 0
83...................................... 751 0
84...................................... 1,641 890
85...................................... 1,641 890
------------------------------------------------------------------------
Table II.6e.--Installation Cost for Hot-Water Gas Boilers
------------------------------------------------------------------------
Weighted
AFUE (percent) average cost Incremental
($) cost ($)
------------------------------------------------------------------------
80...................................... 1,679 --
82...................................... 1,679 0
83...................................... 1,679 0
84...................................... 1,679 0
85...................................... 2,833 1,154
90+..................................... 2,091 412
------------------------------------------------------------------------
Table II.6f.--Installation Cost for Hot-Water Oil-Fired Boilers
------------------------------------------------------------------------
Weighted Incremental
AFUE (Percent) average cost cost
------------------------------------------------------------------------
80...................................... $1,631 --
84...................................... 1,631 0
85...................................... 2,556 $925
86...................................... 2,556 925
90...................................... 2,091 460
------------------------------------------------------------------------
c. Safety and Reliability Issues Related to Installation
Several stakeholders expressed concerns about safety and
reliability issues associated with condensation problems that may arise
with higher-efficiency furnaces and boilers. For non-weatherized gas
furnaces, GAMA and NPGA stated that 83 percent SSE, which corresponds
to an AFUE of 80-82.5 percent, is recognized as the threshold above
which condensation may occur. (Public Workshop Tr., No. 25JJ at p. 162;
and NPGA, No. 29 at p. 2) Lennox said that safety and reliability
prevent manufacturers from selling products with an AFUE between 81
percent and 90 percent, and even 81 percent AFUE furnaces are not sold
in all geographic regions. ((Public Workshop Tr., No. 25JJ at p. 97)
The few non-condensing furnaces sold with an AFUE over 81 percent are
intended for specialized applications. (Public Workshop Tr., No. 25JJ
at p. 97) Carrier commented that furnaces with an AFUE of 81 to 82
percent were widely available in the 1980's and experienced numerous
venting and corrosion problems. (Carrier, No. 7 at p. 1) Lennox
recommended that the Department's analysis should not consider gas-
fired equipment between 81 percent and 90 percent AFUE because of the
difficulties in ensuring the safe operation of furnace and venting
systems for the maximum useful life of the equipment. (Lennox, No. 16
at p. 1) Trane said that the fact that there are no available products
with AFUE values between 82 percent and 90 percent is a very important
indicator of the existing efficiency range that allows for satisfactory
margins of safety. (Trane, No. 34 at p. 1) ACEEE maintains that 83
percent AFUE is technically feasible without significant risk of
corroding the heat exchanger. (ACEEE, No. 15 at p. 2)
For furnaces with an AFUE in the range of 81-83 percent, the
Department evaluated the impact of condensate on vent systems. Based on
the common practice with higher efficiency gas boilers, the Department
determined that the use of Category III venting systems can adequately
address safety concerns at these AFUE levels. The Department included
costs for installing Category III venting systems where the analysis
determined they would be needed. Refer to section 6.5 of the ANOPR TSD
for further discussion.
Battelle urged DOE to take into account the increased liabilities
that may arise with higher efficiency. (Public Workshop Tr., No. 25JJ
at p. 215) GAMA said that DOE must consider the risks and costs
associated with venting and corrosion problems. (GAMA, No. 31 at p. 2)
Trane said that increasing the AFUE above 81 percent would place an
undue burden on manufacturers to protect customer safety. (Trane, No.
33 at p. 1) DOE addressed this issue by assigning Category III venting
systems to an appropriate fraction of installations, thus capturing the
costs associated with ensuring safe operation of higher-efficiency
furnaces.
For condensing furnaces, GAMA recommended that the Department
consider in its analyses regional and local building code requirements
concerning venting materials and practices. GAMA also mentioned the
problems with less expensive plastic materials, such as high
temperature plastic vents (HTPV), to vent exhaust gases, which resulted
in a recall by the U.S. Consumer Product Safety Commission, and
cautioned DOE about the appropriate use of materials and approaches to
reduce condensation problems (e.g., vent coating, vent pre-heating, new
materials, improved vent-connectors). (Public Workshop Tr., No. 25JJ at
p. 174) The Department used the appropriate venting practices for
condensing furnaces in its analysis and only considered materials
commonly used in existing equipment designs.
Several stakeholders commented about including in DOE's analysis
the cost of upgrading the venting system due to increased efficiency.
ACEEE recommended that the Department include costs to address the
risks to the venting system. (ACEEE, No. 15 at p. 2) GAMA commented
that costs must reflect installation in complete compliance with all
manufacturer instructions and code requirements, including extra
installation costs for relining or resizing non-compliant venting
systems for orphaned water heaters. (GAMA, No. 8 at p. 3) GAMA also
said that DOE needs to consider costs of upgrade or repair when the
furnace is no longer vented using a Category I system. (Public Workshop
Tr., No. 25JJ at p. 87) York said DOE should consider that a large
percentage of replacement furnaces are installed where masonry chimneys
are used (thereby requiring chimney upgrade), and another large segment
of installations use common venting with water heaters. (York, No. 33
at p. 3) GAMA and NPGA commented that the new efficiency standards for
water heaters will contribute to the condensation problem because many
furnaces and water heaters are vented in a common system. (Public
Workshop Tr., No. 25JJ at p. 174; and NPGA, No. 35 at p. 2) ACEEE urged
DOE to improve the understanding of this issue. (ACEEE, No. 32 at p.4)
The Department included all costs for installations that are in
complete compliance with manufacturer instructions and code
requirements. This includes upgrades when the furnace is no longer
vented using a Category I system, and changes to common venting
systems. See Chapter 6 of the TSD for more details on assumptions
regarding orphaned water heaters and common venting systems.
During the Framework Workshop, the Department proposed to
investigate controls and sensors that prevent the development of
condensation in the venting system. In its response, GAMA said that by
the time a sensor or CO detector works, it is too late to prevent
condensation. (Public Workshop Tr.,
[[Page 45437]]
No. 25JJ at p. 171) AGA said that some control strategies would have
adverse safety and health impacts. (Public Workshop Tr., No. 25JJ at p.
177) DOE agrees with the above comments but did not evaluate different
control strategies in this analysis because of the potential for
adverse impacts on the safety and health of consumers.
York said that venting applications for mobile home heating
equipment have their own special requirements and standards, which must
be considered when determining the impact of efficiency requirements on
venting issues. (York, No. 33 at p. 3) The venting system of mobile
home heating equipment is assembled in the factory as part of the
mobile home construction, and its cost is included in DOE's markup
analysis for this product class.
GAMA said that DOE should investigate corrosion and venting issues
related to boilers. (GAMA, No. 31 at p. 4) DOE included in this
analysis the cost of appropriate venting of higher-efficiency equipment
for boiler product classes.
As this brief discussion makes clear, several stakeholders have
expressed concerns that requiring higher-efficiency furnaces and
boilers could result in situations where condensation could create
safety problems for consumers. In addition, stakeholders have expressed
concern about the use of special non-corrosive materials as well as
controls and sensors to prevent condensation in the vent system. DOE
believes that it has adequately addressed the safety issue by assigning
Category III venting systems to an appropriate fraction of the
installations in its analysis. This approach captures the costs
associated with ensuring safe operation of higher-efficiency furnaces.
DOE has also accounted for the effectiveness of materials as applicable
to this analysis. As noted above, the Department did not consider
controls and sensors to prevent condensation because of the adverse
safety and health impacts on consumers.
7. Maintenance Costs
Maintenance costs include regular maintenance and repair of a
furnace or a boiler when it fails. They cover all associated labor and
material costs. For the discussion of the analysis of maintenance
costs, refer to section 6.6 of the ANOPR TSD.
For non-weatherized and weatherized gas furnaces and gas boilers,
DOE used maintenance cost data from a 1994 GRI report. The data came
from a field survey sponsored by several gas utilities that repair and
service furnace and boiler equipment. The survey methodology estimated
the average cost per service call as the average total service charge.
The GRI study also developed the maintenance frequency as a
function of the equipment efficiency level: once every four years for
80 to 81 percent AFUE equipment and once every three years for 82 to 83
percent AFUE equipment. For 90 percent and 92 percent AFUE equipment,
the maintenance value represents a service contract that includes a
specified set of routine repairs. The 96 percent AFUE furnace also
includes a service contract that provides for regular annual
maintenance. The Department annualized the costs over the estimated
lifetime of the furnace (see Table II.7).
Table II.7.--Annualized Maintenance Cost for Gas Furnaces and Boilers
------------------------------------------------------------------------
AFUE Mean cost ($)
------------------------------------------------------------------------
81% and less............................................ 35
82-83%.................................................. 58
90% and 92%............................................. 61
96%..................................................... 102
------------------------------------------------------------------------
For oil-fired furnaces and oil-fired boilers, DOE applied the
results of a survey performed for the water heater rulemaking. This
survey identifies the typical cost of annual service contracts applied
to all oil equipment in a house. These contracts are very common in the
Northeast, where most of the oil heating equipment is located. The mean
cost of an annual service contract for all considered efficiency levels
is $104.
For mobile home furnaces, DOE used the data from the 1993
rulemaking for this product class. It also identified an additional
maintenance cost needed for the design options considered in this
analysis.
GAMA commented that the added components and complexity of modern
furnaces bring increased maintenance and repair costs. (GAMA, No. 8 at
p. 3) ACEEE commented that continuing pressures to increase quality and
reduce time and training for maintenance should be able to check
increases in such costs. (ACEEE, No. 15 at p. 6) DOE believes that the
maintenance costs used in the analysis reflect the best currently
available data.
8. Summary of Inputs
Table II.8 summarizes the inputs used to calculate rebuttable
payback periods for various energy efficiency levels.
Table II.8.--Summary of Inputs Used in the Engineering Analysis
------------------------------------------------------------------------
Input Description
------------------------------------------------------------------------
Equipment Cost.................... Uses a cost model of baseline model
manufacturing costs created by tear-
down analysis; design option
analysis was used to fill gaps.
Industry feedback from GAMA and
individual manufacturers was
incorporated to generate
manufacturing cost versus
efficiency curves for primary and
secondary classes.
Markups........................... Markups are derived from an analysis
of corporate financial data.
Manufacturing costs are multiplied
by manufacturer, distributor,
contractor, and builder markups,
and sales tax, as appropriate, to
get equipment price.
Installation Cost................. Uses a distribution of weighted-
average installation costs from the
``Installation Model.''
Installation configurations are
weight-averaged by frequency of
occurrence in the field, and vary
by installation size. The
Installation Model is RS Means-
based, and comparable to available
known data.
Maintenance Costs................. Uses GRI data for gas furnaces and
boilers, water heater rulemaking
survey results for oil-fired
equipment, and data from the 1993
rulemaking for mobile home
furnaces.
Annual Energy Use................. Energy use is calculated using the
DOE test procedure.
Energy Prices..................... AEO 2003 forecast prices for year
2012.
------------------------------------------------------------------------
9. Rebuttable Payback Periods
Section 325(o)(2)(B)(iii) of the Act, 42 U.S.C. 6295(o)(2)(B)(iii),
establishes a rebuttable presumption that a standard is economically
justified if the Secretary finds that ``the additional cost to the
consumer of purchasing a product complying with an energy conservation
standard level will be less than three times the value of the energy *
* * savings during the first year that the consumer will receive as a
result of the
[[Page 45438]]
standard, as calculated under the applicable test procedure * * * ''
Using the cost inputs described above, combined with energy
calculations under the DOE test procedure, the Department calculated
simple payback periods for each efficiency level using the ratio of
incremental total installed cost to the change in the annual operating
cost (see Table II.9). Refer to section 6.7 of the ANOPR TSD for
further discussion of the calculation methods. As can be observed in
Table II.9 a number of efficiency levels higher than current standards
have paybacks of less than three years. However, payback periods
calculated based on energy consumption in actual field conditions may
differ significantly. The LCC and Payback Period Analysis described in
the following section reflects field conditions and is therefore a more
accurate depiction of consumer impacts. The Department does not make a
determination of economic justification based on the rebuttable payback
presumption. Economic justification is based on a weighing of the seven
factors described in section I.C of this ANOPR. A number of efficiency
levels higher than current standards are economically justified by this
metric. Payback periods calculated based on energy consumption in
actual field conditions may differ significantly; the LCC analysis
considers such conditions. Note that in the process of setting a
standard, the Department weighs many factors in addition to the
economic justification, as listed in section I.B of this ANOPR.
Table II.9.--Efficiency Levels with Less Than 3-year Payback Period
Using DOE Test Procedure
------------------------------------------------------------------------
Efficiency
Product Class Level (AFUE) Payback
(Percent) (years)
------------------------------------------------------------------------
Non-weatherized Gas Furnace............. 80 1.0
Weatherized Gas Furnaces................ 80 0.6
81 0.8
82 0.9
Mobile Home Furnaces.................... 80 2.8
Oil-fired Furnaces...................... 80 0.2
81 0.2
82 0.2
83 0.3
Hot-Water Oil-fired Boilers............. 81 0.4
82 0.4
83 0.4
84 0.4
------------------------------------------------------------------------
D. Life-Cycle Cost (LCC) and Payback Period (PBP) Analysis
When DOE is determining whether an energy efficiency standard is
economically justified, EPCA directs DOE to consider the economic
impact of potential standards on consumers. (42 U.S.C. 6295
(o)(2)(B)(i)(I)) To address that impact, the Department calculated
changes in equipment life-cycle cost (LCC) for consumers that are
likely to result from each candidate standard, as well as payback
periods. The effects of standards on individual consumers include
changes in operating expenses (usually lower) and changes in total
installed cost (usually higher). The Department analyzed the net effect
of these changes by calculating the changes in LCC compared to a base
case forecast. The LCC calculation considers total installed cost
(equipment purchase price plus installation cost), operating expenses
(energy and maintenance costs), equipment lifetime, and discount rate.
The Department performed the analysis from the perspective of the user
of residential furnace and boiler products.
The LCC and PBP results are presented to facilitate stakeholder
review of the LCC analysis. Similar to the LCC analysis, the PBP is
based on the total cost and operating expenses. But unlike the LCC
analysis, only the first year's operating expenses are considered in
the calculation of PBP. Because the PBP analysis does not take into
account changes in operating expense over time or the time value of
money, it is also referred to as a ``simple'' payback period.
Trane commented that the LCC analysis does not reflect consumer
purchasing behavior, which exhibits a preference for a simple payback
of less than 3 years. (Trane, No. 9 at p. 3) As mentioned above, the
Department calculated payback periods as well as LCCs, and takes both
factors into account in determining the economic justification for each
possible energy efficiency standard.
AGA commented that the LCC analysis should be the primary basis for
economic justification. (AGA, No. 11 at p. 5) The Department will weigh
all costs and benefits, including the LCC.
1. Approach
The LCC analysis estimates the LCC for representative equipment in
houses that are representative of the segment of the U.S. population
that is buying furnaces and boilers. The calculation of LCC is done for
a representative sample of houses, one house at a time, using
appropriate values for the inputs each time. To account for uncertainty
and variability in specific inputs such as lifetime and discount rate,
there is a distribution of values with probabilities attached to each
value. For each house, DOE samples the values of these inputs from the
probability distributions. As a result, the analysis produces a range
of LCCs. A distinct advantage of this approach is that DOE can identify
the percentage of consumers achieving LCC savings or attaining certain
payback values due to an increased efficiency standard, in addition to
the average LCC savings or average payback for that standard. Refer to
section 8.1 of the ANOPR TSD for further discussion of the LCC analysis
method.
The Department based the payback period calculations in the
engineering analysis on the DOE test procedure. The test procedure uses
specific, carefully prescribed values to calculate annual energy
consumption. When the test procedure was written, these values were
considered to be relatively typical of conditions in U.S. homes. In
contrast, the LCC analysis estimates furnace and boiler energy
consumption under field conditions for a sample of houses that is
representative of U.S. homes. These conditions include the outdoor
climates during the heating and cooling season,
[[Page 45439]]
which influence the operating hours of the equipment.
For each product class, the LCC analysis considers all candidate
standard efficiency levels, as well as the maximum-efficiency
technology available. To estimate the impact of improved efficiency
across a wide range of households that use furnaces and boilers, DOE
selected a sample of households from the 1997 Residential Energy
Consumption Survey (RECS97). For each sampled household, DOE estimated
the energy consumption of furnaces and boilers with baseline model
design characteristics and design options that yield higher
efficiencies. DOE then calculated the LCC for all design options.
To account for the uncertainty and variability in the inputs to the
LCC calculation for a given household and between different households,
the Department used a Monte Carlo simulation. A Monte Carlo simulation
uses a distribution of values to allow for variability and/or
uncertainty on inputs for complex calculations. For each input, there
is a distribution of values, with probabilities (weighting) attached to
each value. Monte Carlo simulations sample input values randomly from
the probability distributions.
For each product class, DOE calculated the LCC and payback period
10,000 times per Monte Carlo simulation run. For some variables, such
as energy price and climate, each calculation used the values
associated with the sampled RECS house. The RECS houses were sampled
according to the weighting each received from the Energy Information
Administration (EIA). This weighting reflects the prevalence of various
features in the national population of houses. Sampling according to
the weighting means that some of the RECS houses are sampled more than
once and others may not be sampled at all. The Department used
Microsoft Excel spreadsheets with Crystal Ball, an add-on software, to
perform the Monte Carlo analysis.
GAMA commented that the cost of using Crystal Ball to perform the
Monte Carlo analysis makes it difficult for stakeholders to use. (GAMA,
No. 41 at p. 7) DOE seeks to minimize the hardware and software
necessary to duplicate its analysis. At the same time, it wishes to
handle the issues of variability among impacts and uncertainty in data
and projections as comprehensively and rigorously as possible. Changing
to another tool at this time for the current analysis would entail
significant costs and delays since the LCC analysis tool using Crystal
Ball is finished. DOE will explore the suitability of other, less
expensive, analysis tools for future rulemakings.
In addition, DOE has established a process for making the analysis
results available to the public, including providing extensive
documentation, posting the documentation and the LCC spreadsheet on the
DOE Web site, holding informal meetings with stakeholders to walk them
through the data and methods, publishing Technical Support Documents
(TSDs), holding workshops, and receiving and responding to verbal and
written comments.
GAMA commented that DOE's use of Monte Carlo analysis to select
households at random from the RECS database has no statistical validity
and is potentially misleading from a policy standpoint. It noted that
the sampling method: (1) Ensures that not every RECS household is
represented in the analysis and that many are represented more than
once; and (2) subjects each household that is selected to only one
combination of variables instead of the hundreds or thousands that are
needed to fully characterize the uncertainty surrounding that
household. (GAMA, No. 41 at p. 3)
GAMA's comment seems to directly criticize the use of the Monte
Carlo methodology in general, rather than the correctness of DOE's
particular application of it. The Monte Carlo method gives an adequate
picture of the average policy affect on households, the variation in
impacts over the housing stock, and the fraction of households likely
to benefit from the standard. The systematic accuracy of the analysis
for which the Monte Carlo simulation is used depends on the available
data for each variable. Statistically, the degree to which the results
of the simulation represent the full range of possible outcomes depends
only on the sample size and can be judged using standard statistical
techniques.
GAMA said that DOE should evaluate each RECS household
independently and expose each household to the full range of
uncertainty and variability expected in that household. GAMA said that
DOE should calculate the distribution of possible financial impacts for
each RECS sample household to identify a ``most likely'' financial
result for that household as well as a distribution of results,
expressed within confidence intervals, on either side of the most
likely result. To determine the most likely financial affect on the
typical U.S. household, DOE must then compute a weighted average of all
most likely financial results from each individual distribution. (GAMA,
No. 41 at p. 3)
It appears that GAMA is asking the Department to estimate the
probability distribution of possible economic impacts on the specific
households surveyed in RECS. DOE designed the LCC analysis to answer
the question of what is the variation of economic impacts of a standard
for a representative national sample of consumer households. The
current analysis is not designed to evaluate specific impacts on
individual households that were surveyed in RECS. DOE assumes a
representative national distribution of households is selected when the
Monte Carlo simulation samples a statistical distribution of households
from the RECS data according to the EIA assigned weights. Many of the
characteristics are attached to the households in the RECS database,
e.g., energy prices, size of house, vintage of existing heating
equipment, and type of fuel. GAMA does not provide clear evidence that
the national distribution of household characteristics constructed
using this method is incorrect. Overall, DOE believes that the current
method is appropriate because it uses parameters for each household
that have a basis in measured or sampled data from that household.
For each product class, the base case forecast assumes that the
purchase of equipment in the absence of new standards reflects current
patterns with respect to efficiency. The Department sampled the AFUE of
the base case forecast equipment assigned to each house from a
distribution of AFUEs that is representative of current shipments.
Thus, the sample houses vary in terms of their base case forecast
equipment. The Department assigned to some houses base case forecast
equipment that is more efficient than some of the design options. For
those design options, DOE considered those houses as not being affected
by the standard, since there would be no energy savings.
For a given set of design options, the LCC analysis provides a
distribution of households that can be divided into those for whom the
LCC will decrease compared to the base case forecast (positive
benefit), those for whom the LCC will increase compared to the base
case forecast (negative impact), and those for whom the LCC will not
change because the design option is less efficient than the base case
forecast for that house.
The Department received comments on regional issues that affect the
LCC analysis. GAMA stated that DOE should examine whether costs for
higher efficiency furnaces and boilers vary by region and consider
regional differences in product use. (GAMA, No. 8 at p. 1)
[[Page 45440]]
AGA and EEI stated that the LCC analysis should consider regional
differences among consumer populations. (AGA, No. 11 at p. 5; and EEI,
No. 6 at p. 5) GRI stated that the Department should not extrapolate
atypical regional data across all segments of the U.S. (GRI, No. 5 at
p. 3) The Department recognizes that regional factors are important in
the assessment of energy efficiency standards for heating equipment,
and it evaluated the impact of regional variations as part of the LCC
analysis.
Many consumers purchase heating equipment using some type of
financing. GAMA commented that DOE has been deducting rather than
adding financing costs in its analyses. (GAMA, No. 41 at p. 4) DOE's
method accounts for the fact that purchases financed by credit card,
mortgage, or other means are paid over time--not all at once. It
discounts the value of those payments in the LCC calculation. Because
DOE uses the financing cost interest rate as the discount rate, the
present value of payments (including principal and financing costs) for
consumers purchasing equipment over time is exactly the value of the
equipment costs as if paid all at once.
2. First-Cost Inputs
For each efficiency level analyzed, the LCC analysis needs input
data for the total installed cost of the equipment.
a. Equipment Prices
DOE derived equipment prices by multiplying manufacturer cost by
manufacturer, distributor, contractor, and builder markups and sales
tax, as appropriate. The LCC analysis draws on the engineering analysis
for estimating manufacturing costs.
For non-weatherized gas furnaces, to represent the majority of
combinations of input capacity and maximum-rated airflow, the
Department developed conceptual (``virtual'') furnace models \5\ to
represent 26 different combinations of those two variables. Each
virtual model had its own cost and energy characteristics. (Refer to
Chapter 7 of the ANOPR TSD for more details about virtual models.) To
develop the cost for each virtual model, DOE reverse-engineered one
model size (input capacity = 75kBTU/h and airflow capacity = 3 tons)
and assigned costs for the different components. The Department scaled
the cost for other input capacities from the basic model cost for both
non-condensing and condensing models. A cost adder adjusted costs for
furnaces of different maximum nominal airflow capacity. The virtual
models include models with the most commonly occurring input
capacities, with corresponding maximum nominal airflow rates.
For weatherized gas furnaces, DOE used the same virtual models as
in the analysis of non-weatherized gas furnaces. For mobile home
furnaces and oil-fired furnaces, the Department used a subset of the 26
virtual furnace models because the market in those product classes is
limited to a smaller number of sizes of furnaces. For the boiler
product classes, DOE used the sizes of the virtual models for non-
weatherized gas furnaces, weighted to match the boiler sizes in the
shipments data from GAMA.
b. Installation Costs
---------------------------------------------------------------------------
\5\ The Department intends these virtual furnace models to
represent typical furnaces with basic features, but not to describe
specific, existing furnaces. The Department derived the
characteristics of the virtual furnace models from existing basic
furnace models, after examining directories and product literature
for existing furnaces.
---------------------------------------------------------------------------
The LCC analysis draws on the engineering analysis for estimating
installation costs. DOE assigned each household an installation cost
from a distribution of weighted-average values. For non-weatherized gas
furnaces, oil-fired furnaces, and gas and oil boilers, the distribution
was calculated with the Installation Model. For weatherized gas
furnaces, DOE used calculations based on the RS Means' approach to
calculate a mean value and assigned a triangular distribution of < plus-
minus>15 percent around the mean. For mobile home furnaces, which are
installed at the mobile home factory, the installation cost is included
in the markup.
3. Operating-Cost Inputs
a. Annual Energy Use
Energy consumption consists of the fossil fuel and electricity used
to operate a furnace or boiler year-round. While the primary focus of
this rulemaking is on fossil fuel consumption, design options that save
on fossil fuels may also change electricity consumption. To take this
effect into account, it is necessary to model electricity consumption
in detail. If the house has air conditioning, the energy consumption
includes the electricity used by the furnace blower to distribute
conditioned air during the cooling season.
In determining the reduction in annual energy use due to more
efficient furnace and boiler designs, the Department did not take into
account a rebound effect. The rebound effect occurs when an appliance
that is made more efficient is used more intensively, so that the
expected energy savings from the efficiency improvement do not fully
materialize. The Department seeks comments on whether a rebound effect
should be included in the determination of annual energy savings. If a
rebound effect should be included, the Department seeks data for basing
the calculation of the rebound effect.
For non-weatherized gas furnaces, DOE chose 26 generic
(``virtual'') models to represent the range of input capacity and
airflow capacity of models currently available on the market. The
number of real models with every possible combination of
characteristics is too unwieldy to model. The Department used
specifications from actual models to select the specifications for each
virtual model. These specifications included blower size, motor size,
supply-air outlet area, power consumption of the draft inducer and the
igniter, several delay times, and fan curves. The Department assigned
one virtual model to each of the sample housing records. The particular
virtual model assigned to each house depended on the location and
characteristics of the house.
To simulate fossil fuel and electrical energy use by furnaces, DOE
used the 1997 RECS to get a representative sample of houses. RECS97 is
based on a sample of 5900 households that EIA surveyed for information
on energy consumption and expenditures, stock of energy-consuming
appliances, and energy-related behavior. The information collected
represents all households nationwide--about 101 million.
The heating and cooling loads are the amount of heating and cooling
that a given house needs to keep it comfortable over an entire year.
Determination of annual heating and cooling loads for the house
requires making certain assumptions about its size and construction,
thermal efficiency, and geographical location. Determination of the
energy consumption of the system installed to satisfy the heating and
cooling loads requires estimating the input capacity and the efficiency
of the existing furnace and the size and seasonal energy-efficiency of
the existing air conditioner.
The final element of the energy use calculations involved
calculating how much energy furnaces of various designs would need to
meet the heating and cooling load of each sample house. At this stage,
DOE calculated the energy use of the virtual model furnace assigned to
each house, incorporating all design options. Each house has several
dozen different energy use
[[Page 45441]]
values, each one reflecting the furnace's gas and electricity use with
a different combination of design options. Chapter 7 of the ANOPR TSD
provides more information about these calculations.
The Department based the energy calculations for the other product
classes on the energy calculations for non-weatherized gas furnaces,
with appropriate changes to the calculations to account for the
different energy-consuming characteristics of the other product
classes.
EEI commented that the Department should compare conditional demand
analysis of heating loads to simulation-based modeling. (EEI, No. 6 at
p. 5) DOE did not use simulation-based modeling to estimate heat loads.
The analysis used heating loads from RECS that are gotten with
conditional demand analysis. Detailed simulation-based modeling that
considers specific equipment designs is outside the scope of the
analysis for this rulemaking.
Several stakeholders pointed out that furnace blower capacity is
typically sized to meet air conditioning requirements and there is no
tight relationship between blower electricity use and the furnace
output. (NRDC, No. 21 at p. 4; GAMA, No. 8 at p. 4; and Trane, No. 9 at
p. 2) The Department is aware that the furnace blower capacity is
determined by the cooling capacity of the air conditioner that the
furnace is designed to accompany, and takes this into account in its
analysis.
EEI commented that DOE should account for the duct system in
analyzing electricity use of fan motors. (EEI, No. 6 at p. 4) DOE
accounts for duct system performance in the analysis by assigning
system curve coefficients to each house selected from a set of
distributions appropriate for a house with that size air conditioner.
An issue regarding electricity use of furnace fans concerns whether
DOE should consider fan operation in the heating season only, or year-
round, since many furnaces are combined with split-system air
conditioners and use the same circulating air fan during the heating
and cooling modes. EEI recommended that DOE not include cooling season
impacts because measures to reduce fan energy in the heating season may
increase energy use for the air conditioning system during the cooling
season. (EEI, No. 6 at p. 3 and 5) Trane commented that DOE should not
consider electricity use in the cooling mode since fan electric use for
cooling is already covered by air conditioning standards. (Trane, No. 9
at p. 2) Because the fan is an integral part of a furnace, DOE
accounted for year-round furnace electricity use, but it does not
intend to regulate furnace electricity use.
b. Energy Prices
The LCC analysis requires information on the price of natural gas
or heating oil, as well as the price of electricity used by electrical
components. A furnace fan operates during the heating season and the
cooling season. Since electricity prices vary by season in much of the
country, DOE separately estimated winter and summer electricity prices.
Boilers do not use electricity in the summer. Refer to section 8.3 of
the ANOPR TSD for further discussion of the derivation of energy
prices.
For all product classes, the Department used average energy prices
to calculate the energy costs of the base case equipment. DOE used
marginal energy prices for the cost of saved energy associated with
higher-efficiency equipment. Marginal energy prices are the prices
consumers pay for the last unit of energy used. Since marginal prices
reflect a change in a consumer's bill associated with a change in
energy consumed, such prices are appropriate for determining energy
cost savings associated with efficiency standards.
For oil-fired furnaces and boilers, as well as gas furnaces using
LPG, the Department used average prices for both base case and higher-
efficiency equipment, as the data necessary for estimating marginal
prices were not available.
For each household sampled from the RECS database, DOE identified
the average electricity and gas prices either from that household's
data, if available, or from another household in the same census
division for which both prices were available. The Department estimated
marginal energy prices from the RECS monthly billing data. The results
show that the marginal prices are very close to average prices for the
RECS households.
As in past rulemakings, the Department used price forecasts by the
EIA to estimate the trend in average natural gas and oil prices and
average and marginal electricity prices. To arrive at prices in 2012
and beyond, it multiplied the average and marginal price for 1998 by
the forecasted annual price changes in the Reference Case forecast in
EIA's Annual Energy Outlook 2003 (AEO 2003).
AGA supported DOE's use of EIA energy price forecasts. (AGA, No. 11
at p. 5) ASE suggested that the Department allow for price increases
beyond EIA forecasts and that DOE modify EIA forecasts by reviewing
industry forecasts. (ASE, No. 18 at p. 3) It is the policy of the
Department to use forecasts provided by the EIA about future trends in
energy prices. Since there is uncertainty in price forecasting, the
Department also evaluated the sensitivity of financial impacts to
alternative energy price forecasts in AEO 2003. In addition, the
Department will make available to stakeholders the ability to conduct a
scenario analysis to examine the results under different energy-price
conditions.
c. Maintenance Costs
For the LCC analysis, DOE drew on the maintenance cost data derived
in the engineering analysis. DOE assumed a triangular distribution for
maintenance costs in order to capture the variability of these costs
among homes. The Department was not aware of any recent data that
provide a distribution of maintenance costs. However, based on a
sensitivity analysis in the 1994 GRI report, which increased
maintenance costs by 20 percent, and based on engineering judgement the
Department assumed that a 15 percent range is most appropriate for a
distribution. Thus, the DOE assigned the minimum maintenance cost to be
15 percent below the average maintenance cost and the maximum to be 15
percent above the average.
4. Equipment Lifetime
The equipment lifetime is the age at which furnaces or boilers are
retired from service. Based on industry data, DOE used lifetimes as
shown in Table II.9. DOE used a triangular probability distribution to
assign a lifetime to individual furnaces in the sample houses from a
range for each product class. Because none of the available data on
equipment lifetime shows a clear relationship between efficiency and
lifetime, the Department assumed that equipment lifetime is independent
of efficiency.
[[Page 45442]]
Table II.9.--Expected Equipment Lifetime
[years]
----------------------------------------------------------------------------------------------------------------
Oil-fired Oil-fired Electric
Gas furnace furnace Gas boiler boiler Heat pump furnace
----------------------------------------------------------------------------------------------------------------
Minimum........................... 10 10 13 12 6 11
Mean.............................. 20 15 17 15 14 17
Maximum........................... 30 20 22 19 21 23
----------------------------------------------------------------------------------------------------------------
GAMA said that because models are becoming more complex and more
expensive to repair, owners may be likely to replace rather than repair
equipment, which would lower the average life of equipment. (GAMA, No.
8 at p. 4) The Department believes that the probability distribution of
equipment lifetimes used in the analysis is appropriate, given
available evidence of past performance and recent trends.
5. Discount Rate
The Department derived the discount rates for this analysis from
estimates of the interest or ``finance'' cost to purchase furnaces or
boilers. Following financial theory, the ``finance'' cost of raising
funds to purchase furnaces or boilers can be interpreted as: (1) The
financial cost of any debt incurred to purchase equipment, principally
interest charges on debt, or (2) the opportunity cost of any assets
used to purchase equipment, principally interest earnings on household
equity.
The purchase of equipment for new homes entails different finance
costs for consumers than those from a purchase of replacement
equipment. Thus, the Department used different discount rates
corresponding to the finance cost of new construction and replacement
installations. Refer to section 8.3 of the ANOPR TSD for further
discussion of the method used to estimate discount rates.
Furnaces or boilers purchased in new homes are financed with home
mortgages. For purchases made to replace equipment, where cash or some
form of credit is used to finance the acquisition, it is appropriate to
establish how the purchase affects a consumer's overall household
financial situation. It is assumed that consumers maintain a balance of
debt and equity in their portfolio that is not likely to change as a
result of the purchase of a furnace or boiler. The Department assumed
that households draw on equity and debt in proportion to the shares of
the different types of equity and debt holdings in U.S. households. The
Department estimated the average household equity and debt portfolio
based on 1995 and 1998 Survey of Consumer Finances (SCF) data, which
show that the types of equity and debt include second mortgages, credit
cards, transaction accounts, certificates of deposit, U.S. savings
bonds, stocks, and mutual funds. For each type of equity and debt, DOE
estimated an interest/return rate using time-series data, wherever
possible. For each house, the Department selected a type of equity or
debt and then selected a discount rate for that house from a
distribution of rates. The weighted-average real interest rate across
all types of household debt and equity (based on the share of each type
in the average portfolio in 1995 and 1998) is 6.7 percent.
ASE suggested that, for replacement purchases, DOE should survey
consumer financing patterns to determine the shares of cash, home
equity credit, unsecured loans, and other credit in furnace and boiler
purchases. (ASE, No. 18 at p. 3) DOE is not aware of any statistically
representative data that show how households use debt and equity to
purchase a replacement furnace or boiler.
Trane commented that households have a large amount of debt on
credit cards, so additional expenses for higher-efficiency heating
equipment will reduce funds available to pay off such high-interest
debt. (Trane, No. 9 at p. 3) DOE believes that its approach accounts
for the role of credit card debt in household financial portfolios.
For equipment installed in new homes, the Department estimated the
discount rate based on mortgage interest rate data provided in the SCF.
This survey shows that mortgage rates carried by homeowners in 1998
averaged 7.9 percent. After adjusting for inflation and interest tax
deduction, real after-tax interest rates on mortgages averaged 4.2
percent. ASE suggested that DOE use current mortgage interest rates as
a discount rate for products sold in new homes. (ASE, No. 18 at p. 3)
Since current rates may not be representative of rates in effect in
2012, DOE used mortgage interest rates that are representative of
historical rates. The Department's method uses data that provide a
distribution of mortgage rates among consumers and uses the most
current data available at the time of analysis which was for 1998.
To account for variation in discount rates among consumers, DOE got
information about the distribution of rates of interest or return on
debt and equity among households from the data sources mentioned above.
The Department calculated the real, after-tax rates as described above.
The Department believes that this method allows for establishing a
valid distribution of discount rates over the full range of discount
rates relevant to most purchasers of the products covered by this
rulemaking.
GAMA commented that: (1) The discount rate used should reflect
opportunity cost, which is independent of financing methods; and (2)
the opportunity cost should be based on a distribution of returns on
consumer portfolios, regardless of their choice of equipment purchase
financing. (GAMA, No. 41 at p. 6) DOE used a distribution of discount
rates for replacement furnaces to reflect the suggestions made by GAMA.
GAMA suggested that implicit discount rates, while not a financial
calculation, are a valid way to evaluate consumer decision making.
(GAMA, No. 41 at p. 6 ) Because the LCC analysis is a financial
analysis, DOE does not use implicit discount rates. In addition, DOE
finds it difficult to measure implicit discount rates because of market
imperfections, such as the cost of getting information about efficient
appliances.
6. Effective Date
The effective date is the date on and after which a manufacturer
must comply with an energy conservation standard in the manufacture of
a covered product. (10 C.F.R. Sec. 430.2) DOE had anticipated that the
effective date for any new energy efficiency standard for residential
furnaces and boilers would be January 1, 2012. This date was based on
the assumption that a final rule would be published by January 1, 2004.
Thus, the Department calculated the LCC for all consumers as if each
one purchased a new residential furnace or boiler in 2012, the year it
assumed the standard would take effect.
[[Page 45443]]
For purposes of conducting the analyses for this ANOPR, DOE based the
cost of the equipment on year 2012; however, because the Department
collected manufacturing cost data for the ANOPR engineering analysis in
2001, it expresses all dollar values as year 2001 dollars. Under 42
U.S.C. 6295 (f)(3)(B), any revised energy standards for these products
will become effective eight years after its publication as a final rule
in the Federal Register.
7. Inputs to Payback Period Analysis
The payback period (PBP) is the amount of time it takes the
consumer to recover the assumed higher purchase expense of more energy
efficient equipment through lower operating costs. This type of
calculation is known as a ``simple'' payback period because it does not
take into account changes in operating expense over time or the time
value of money.
The inputs to the calculation of the PBP are the total installed
cost of the equipment to the customer for each efficiency level and the
annual (first year) operating expenditures for each efficiency level.
The PBP calculation uses the same inputs as the LCC analysis, except
that electricity price trends and discount rates are not needed. The
calculation needs energy prices only for the year in which a new
standard is expected to take effect, in this case the year 2012.
8. Summary of Inputs
Table II.10 summarizes the inputs used to calculate the customer
economic impacts of various energy efficiency levels.
Table II.10.--Summary of Inputs Used in the LCC and Payback Analysis
------------------------------------------------------------------------
Input Description
------------------------------------------------------------------------
Equipment Price................... Derived by multiplying manufacturer
cost by manufacturer, distributor,
contractor, and builder markups and
sales tax, as appropriate.
Installation Cost................. Uses a distribution of weighted-
average installation costs from the
``Installation Model.''
Installation configurations are
weight-averaged by frequency of
occurrence in the field, and vary
by installation size. The
Installation Model is RS Means-
based, and comparable to available
known data.
Maintenance Costs................. Uses GRI data for gas furnaces and
boilers, water heater rulemaking
survey results for oil-fired
equipment, and data from the 1993
rulemaking for mobile home
furnaces.
Annual Heating Cooling Load....... Heating and cooling loads calculated
using 1997 RECS data. The furnace
input capacity versus airflow
capacity is assumed based on the
vintage of the equipment and
characteristics of each house.
Annual Energy Use................. 26 virtual models based on actual
furnace characteristics capture the
range of common furnace sizes.
Energy calculations reflect actual
house characteristics.
Energy Prices..................... 1997 average and marginal energy
prices are calculated for each
house. AEO 2003 forecasts are used
to estimate future average and
marginal energy prices.
Lifetime.......................... Uses Appliance Magazine survey
results.
Discount Rate..................... Data from Survey of Consumer Finance
and other sources were applied to
estimate a discount rate for each
house.
------------------------------------------------------------------------
9. LCC and PBP Results
For each set of sample houses using equipment in a given product
class, DOE calculated the average LCC savings and the median PBP for
various ways of achieving each efficiency level. The Department
calculated the average LCC savings relative to the base case forecast
in each product class. As mentioned above, the base case forecast
assumes that equipment purchases in the absence of new standards will
reflect current purchasing patterns, with respect to efficiency.
Therefore, the base case forecast is not limited to baseline model
equipment.
Tables II.11a-f show the percentage of households that have a net
cost and a net benefit for each design option. EEI commented that a
minimum criterion for a standard level should be that at least 90
percent of affected consumers should receive a benefit, and that if DOE
chooses not to use 90 percent, then it should use the same criterion as
it used for central air conditioners (CAC) and heat pumps.\6\ (EEI, No.
6 at p. 2) Southern also suggested that the Department use the same
criteria as it did in the CAC rulemaking. (Southern, No. 14 at p. 1)
EEI also recommended that the Department show the overall percentage of
consumers who would gain and lose from a given standard level. (EEI,
No. 6 at p. 3) NRDC believes that ``winners'' and ``losers'' should be
analyzed on a state-by-state basis so these results can be compared to
a national standard. NRDC also commented that DOE should accept a
higher proportion of losers for climate-sensitive products such as
furnaces than it does for other products. (NRDC, No. 21 at p. 3)
---------------------------------------------------------------------------
\6\ In the analysis of standards for CAC and heat pumps, the
Department considered the share of consumers that would receive a
net LCC benefit, among other factors. However, it did not use a
specific criterion with respect to the percent of consumers that
would receive a net benefit.
---------------------------------------------------------------------------
DOE will consider the overall percent of consumers with net benefit
and with net cost in the course of this rulemaking. The economic impact
of a standard level on consumers is one of several factors that the
Department weighs in determining whether economic justification exists
for energy efficiency standards. As part of the consumer subgroup
analysis, DOE will report fractions of households with net benefit or
net cost at a regional level. The available data are not sufficient to
produce statistically significant results at a state-by-state level.
For non-weatherized gas furnaces (Table II.11a), the 81 percent
AFUE level using single-stage (8 percent Category III venting system)
shows a slightly negative LCC impact (-$3), but the 81 percent AFUE
level using two-stage modulation (no Category III systems required) has
a positive LCC savings of $72. The positive LCC savings for the 81
percent two-stage modulation design are due, in part, to its having
lower energy consumption than the single-stage furnace of the same
AFUE. To estimate the energy use of this furnace under field
conditions, DOE adopted the assumptions for two-stage modulation that
appear in the DOE test procedure (see Appendix 6.3 of the TSD). DOE is
requesting comments on this issue; see section IV.E.4 of this ANOPR.
The 90 percent AFUE condensing level has a negative average LCC impact.
[[Page 45444]]
Table II.11a.--LCC and PBP Results for Non-Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback
---------------------------------------------------------------------------------------------------------------
AFUE: design option Average
Average $ savings $ Net cost % No impact % Net benefit % Median years Average years
--------------------------------------------------------------------------------------------------------------------------------------------------------
78%..................................... 9,966 .............. .............. .............. .............. .............. ..............
80%..................................... 9,795 0 0 99 1 2.1 37.8
80% 2-stage modulation.................. 9,718 41 33 27 40 8.6 13.5
81% 8% Cat. III......................... 9,789 -3 32 27 41 8.8 27.8
81% 2-stage modul., no Cat. III......... 9,680 63 29 27 45 7.6 17.0
82%..................................... 10,170 -292 70 26 4 28.7 84.6
82% 2-stage modulation.................. 10,103 -256 65 26 9 18.5 60.2
83%..................................... 10,400 -468 73 26 1 63.3 121.3
90%..................................... 9,917 -154 56 26 18 17.9 42.5
92% Incr. HX Area....................... 9,924 -166 60 15 25 16.1 41.7
96% Step Mod ECM........................ 10,723 -954 89 2 9 32.3 88.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
For weatherized gas furnaces (Table II.11b), the results show
positive average LCC savings for AFUE levels through 82 percent. The
exception is the 80 percent Improved Heat Transfer Coefficient design
option due to the higher cost of this design.
Table II.11b.--LCC and PBP Results for Weatherized Gas Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback
---------------------------------------------------------------------------------------------------------------
AFUE: design option Average
Average $ savings $ Net cost % No impact % Net benefit % Median years Average years
--------------------------------------------------------------------------------------------------------------------------------------------------------
78% Baseline Model...................... 8,545 .............. .............. .............. .............. .............. ..............
80% Incr. HX Area....................... 8,457 2 0 98 2 1.1 1.5
80% Improved Insulation................. 8,454 4 26 46 28 9.0 8.2
80% Improved Heat Xfer.................. 8,467 -4 52 46 2 2.8 3.7
81% Incr. HX Area....................... 8,418 23 2 46 52 2.0 2.6
81% Improved Insulation................. 8,415 25 20 20 60 5.2 6.4
81% Improved Heat Xfer.................. 8,424 18 32 20 48 3.8 5.1
82% Incr. HX Area....................... 8,380 53 3 20 77 2.1 2.9
82% Improved Insulation................. 8,377 56 18 0 82 4.3 5.6
82% Improved Heat Xfer.................. 8,382 51 24 0 76 2.5 3.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
For mobile home gas furnaces (Table II.11c), the results show
positive average LCC savings for the 80 to 82 percent AFUE levels using
single-stage technology. The 90 percent AFUE condensing level shows an
average LCC saving of $192, but 45 percent of the households are
negatively impacted.
Table II.11c.--LCC and PBP Results for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
LCC Payback
----------------------------------------------------------------------------
AFUE: design option Average Average Net cost No impact Net Median Average
LCC $ savings $ % % benefit % years years
----------------------------------------------------------------------------------------------------------------
75% Baseline Model................. 7,904 ......... ......... ......... ......... ......... .........
80%................................ 7,480 64 1 85 14 2.4 4.7
80% 2-stage........................ 7,718 -163 80 5 15 26.0 60.5
81%................................ 7,428 112 10 5 85 4.4 6.3
81% 2-stage Modulation............. 7,670 -117 75 5 20 24.9 60.3
82%................................ 7,385 153 14 5 81 5.1 7.5
82% 2-stage Modulation............. 7,630 -80 70 5 25 22.9 56.3
90%................................ 7,352 184 46 5 49 12.1 22.7
----------------------------------------------------------------------------------------------------------------
[[Page 45445]]
For oil-fired furnaces (Table II.11d), the results show positive
average LCC savings for AFUE levels from 80 percent through 83 percent.
Table II.11d.--LCC and PBP Results for Oil-Fired Furnaces
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback
---------------------------------------------------------------------------------------------------------------
AFUE: design option Average
Average $ savings $ Net cost % No Impact % Net benefit % Median years Average years
--------------------------------------------------------------------------------------------------------------------------------------------------------
78% Baseline Model...................... 16,194 .............. .............. .............. .............. .............. ..............
80%..................................... 15,900 11 0 96 4 0.2 0.2
81%..................................... 15,762 95 2 39 59 0.4 0.5
81% Atom Burner 2-stage Mod............. 15,885 8 42 30 28 11.7 19.4
82%..................................... 15,625 190 2 30 68 0.3 0.4
82% Atom Burner 2-stage Mod............. 15,753 89 35 22 42 8.5 13.8
83%..................................... 15,492 293 3 22 75 0.3 0.4
83% Atom Burner 2-stage Mod............. 15,626 178 31 15 54 6.8 11.2
84%..................................... 15,967 -111 58 15 27 13.7 20.8
84% Atom Burner 2-stage Mod............. 16,106 -240 71 7 22 16.3 25.1
85%..................................... 15,845 1 49 7 44 10.0 13.8
85% Atom Burner 2-stage Mod............. 15,989 -143 69 0 31 13.7 20.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
For hot-water gas boilers (Table II.11e), the results show positive
average LCC savings for the AFUE levels from 81 percent through 84
percent using single-stage technology.
Table II.11e.--LCC and PBP Results for Hot-Water Gas Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback
---------------------------------------------------------------------------------------------------------------
AFUE: design option Average Net benefit
Average LCC $ savings $ Net cost % No impact % % Median years Average years
--------------------------------------------------------------------------------------------------------------------------------------------------------
80% Baseline Model...................... 10,635 .............. .............. .............. .............. .............. ..............
81%..................................... 10,371 93 0 65 35 2.1 2.4
81% 2-stage Modulation.................. 10,599 -36 38 44 18 9.9 14.8
82%..................................... 10,314 125 3 44 53 2.5 3.3
82% 2-stage Modulation.................. 10,542 -36 48 30 22 9.3 19.6
83%..................................... 10,256 166 5 30 66 2.5 3.3
83% 2-stage Modulation.................. 10,483 -29 59 15 27 9.9 23.3
84%..................................... 10,199 215 6 15 79 2.5 3.4
84% 2-stage Modulation.................. 10,426 0 62 6 32 10.5 22.7
88%..................................... 10,741 -294 67 6 27 17.5 29.8
91%..................................... 10,823 -372 75 3 22 19.3 43.0
99%..................................... 11,304 -853 85 0 15 21.7 46.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
For hot-water oil-fired boilers (Table II.11f), the AFUE levels
through 84 percent (without use of atomized burner) have positive
average LCC savings.
Table II.11f.--LCC and PBP Results for Hot-Water Oil-Fired Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
LCC Payback
---------------------------------------------------------------------------------------------------------------
AFUE: design option Average Net benefit
Average $ savings $ Net cost % No impact % % Median years Average years
--------------------------------------------------------------------------------------------------------------------------------------------------------
80%..................................... 14,890 .............. .............. .............. .............. .............. ..............
81%..................................... 14,772 6 0 95 5 0.6 0.8
81% Atomized Burner..................... 15,166 -36 11 89 0 70.4 104.9
82%..................................... 14,657 18 0 89 11 0.7 0.8
[[Page 45446]]
82% Atomized Burner..................... 15,051 -45 16 84 0 35.0 64.3
83%..................................... 14,545 36 0 84 16 0.7 0.8
83% Atomized Burner..................... 14,939 -119 37 61 2 23.0 45.0
84%..................................... 14,435 79 0 61 39 0.7 0.8
84% Atomized Burner..................... 14,830 -169 58 37 5 26.7 57.6
86%..................................... 14,943 -234 52 37 11 23.0 31.6
86% Atomized Burner..................... 15,338 -602 91 7 2 53.0 98.1
90%..................................... 15,260 -527 81 7 12 19.6 23.8
95%..................................... 15,561 -829 88 0 12 19.1 23.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Department seeks information and comments relevant to the
assumptions, methodology, and results for the LCC and PBP analyses.
E. National Impact Analysis
The national energy savings and economic impacts anlaysis assesses
the national energy savings (NES) and the net present value (NPV) of
total customer costs and savings expected to result from new standards
at specific efficiency levels. The Department calculated the NES and
NPV for a given standard level as the difference between a base case
forecast (without new standards) and the standards case (with
standards). National annual energy consumption is determined by
multiplying the number of units in the stock of residential furnaces
and boilers (by vintage) by the unit energy consumption (also by
vintage). Cumulative energy savings are the undiscounted sum of the
annual NES determined over a specified time period. The Department
calculated net savings each year as the difference between total
operating cost savings and increases in total installed cost.
Cumulative savings are the sum of the annual NPV determined over a
specified time period. The NES analysis which will accompany the NOPR
will include both discounted and undiscounted values for future energy
savings to account for their timing.
The Department assessed the NES and NPV using the NES Spreadsheet
Model. DOE developed this method for standards rulemakings and tailors
it for each specific rulemaking. The Department posts NES spreadsheets
for furnaces and boilers on its Web site to make the analysis more
accessible and transparent to all stakeholders. See http://www.eere.doe.gov/buildings/appliance_standards/furnaces_boilers.html
.
1. Approach
The Department calculated national energy consumption for each
year, beginning with the expected effective date of the standards
(2012), for the base case forecast and for each candidate efficiency
level. For each product class, DOE calculated the site energy
consumption for the base case forecast and each considered efficiency
level by summing the energy consumption of equipment operating in each
year. The survival fraction of equipment shipped in previous years is
equivalent to the percentage not replaced. The Department aggregated
the differences in annual energy consumption between the base case
forecast and standards cases forecast to arrive at the cumulative
national energy savings in the 2012-2035 period for each candidate
efficiency level.
The shipments forecast accounts for shifts in market share from gas
to electric equipment as a result of an increase in gas equipment
price. Projected shipments of gas equipment, and hence gas consumption,
are lower in the higher-efficiency cases, but there is an increase in
electricity consumption by electric heating equipment, for which the
model also accounts.
The Department calculated the NPV to the Nation of new efficiency
standards from the incremental costs of higher-efficiency equipment
minus the change in associated operating costs over the period
considered. The Department accounted for operating cost savings until
all the equipment installed through 2035 is retired.
GAMA commented that the NES analysis should be based on an
aggregation of individual consumer life-cycle cost results. (GAMA, No.
41 at p. 4) The NES and the LCC analyses are intended to answer
different questions, so they use different methods. The LCC analysis
provides a snapshot of the impact of standards on individual consumers
purchasing new equipment in the first year the standards take effect.
It analyzes the effect on a wide range of consumers and is designed to
reflect the diversity of the situation for a cross-section of all the
households in the U.S. In contrast, the NES calculates the impacts of
potential standard levels for the entire Nation over a period of many
years, using the average energy consumption and average total installed
price from the LCC analysis for each considered efficiency level. In
the NES, only a fraction of U.S. households is assumed to purchase new
equipment each year.
GAMA commented that there has been almost no consideration of
uncertainty or variability in the National Benefits analysis in DOE's
rulemakings. (GAMA, No. 41 at p. 5) The Department's NES analysis uses
a scenario approach to address uncertainty in key variables. The
Department conducts sensitivity analyses as needed by running
alternative scenarios for input variables that are of interest to
stakeholders.
2. Inputs
a. Shipments
Furnace and boiler shipments comprise units used for (1)
replacements of retired units with the same type, (2) conversions at
retirement to another fuel type, and (3) installations in new homes.
Almost all new construction has central heating equipment and most
equipment is replaced at retirement.
The Department estimated the number of replacements based on past
shipments and expected retirement rates. Forecasting future
replacements requires estimates of shipments to new housing, since the
replacements 20-30 years from now will replace the equipment shipped in
the next few years. Consumers most commonly replace equipment with
equipment in the same product class (replacement-in-kind). Some
fraction of households
[[Page 45447]]
switch fuels, retiring an oil or electric unit and replacing it with a
gas system (conversion away from natural gas is rare). The Department
estimated future conversions based on historical data from AGA.
The Department estimated the total number of shipments to new
housing based on projections of new housing construction. Market shares
of heating equipment in newly constructed homes reflect a choice that
is influenced by fuel costs and equipment prices. For gas furnaces, the
Department modeled this choice as described below.
i. Replacement and Conversions
The replacement model estimates what fraction of the historically
shipped units are still in service and how many will be replaced each
year. The replacement model uses estimates of how long each type of
equipment is expected to operate before it is replaced. Depending on
the age of a piece of heating equipment, there is a certain probability
of its being replaced. The model uses a replacement probability
distribution based on distributions of expected equipment lifetimes.
Two basic assumptions generated the probability distribution. First,
DOE expects equipment to have a maximum probability of being replaced
at the mean lifetime. Second, replacement probability goes to zero in
the minimum and maximum lifetime years. Assuming a linear slope in
probability produces a triangular distribution.
Given the probability of replacement as a function of equipment age
or vintage, the calculation of expected replacements in any given year
follows directly from past shipments. In a given year, the number of
replacements is equal to the portion of the previous year's shipments
expected to retire plus the number of shipments from two years ago
expected to retire, etc.
GAMA suggested that the retirement function should be applied
randomly in the NES analysis, as DOE does in the LCC analysis. (GAMA,
No. 41 at p. 4) In the NES analysis, DOE tracks shipments year by year
and applies the retirement function to all equipment installed in each
year. The Department does not apply the retirement function randomly to
keep the NES model transparent and to avoid the need to use Monte Carlo
calculation methodology (which uses a distribution of values to allow
for variability and/or uncertainty on the inputs).
AGA commented that standards that are not cost-effective will
encourage consumers to defer replacement of equipment. (AGA, No. 11 at
p. 2) DOE developed and applied modeling of equipment retirement and
replacement that reflects the available information on market behavior.
To estimate future conversions, DOE used data from the annual
house-heating survey conducted by the AGA, which reports the numbers of
households that converted to natural gas space heating from 1990 to
1995. On average, about 100,000 oil-heating households and 75,000
electricity-heating households converted to natural gas annually.
Nearly a third of oil-heating customers and more than a quarter of
electricity-heating households decided to convert to natural gas
instead of replacing their old system with the same fuel type. The
number of conversions from gas to oil or electricity is negligible.
The conversion rate is the fraction of oil or electric equipment
retirements in which the consumer decides to change to gas heating.
Based on available information, DOE assumed that there is no early
replacement (i.e., before end of useful life) for conversion. The
Department assumed that the conversion rates estimated from the AGA
data, 33 percent for oil equipment (furnaces and boilers) and 26
percent for electric heating equipment will continue in the future.
Since the oil-fired furnace and boiler markets are mostly replacements,
oil-to-gas conversions will have a significant negative affect on
shipments of these product classes in the future.
ii. Shipments to New Housing
New housing includes single- and multi-family units, referred to as
``new housing completions,'' and mobile home placements. For new
housing completions and mobile home placements, DOE adopted separate
projections for the South and non-South regions from AEO 2002 for the
2002-2020 period. The Department assumed that completions grow at 0.5
percent per year (the projected average annual growth rate in the 2000-
2020 period) for the 2021-2035 period. For mobile home placements, DOE
extrapolated the trend of flat growth in 2010-2020 out to 2035.
In DOE's method, the number of annual shipments of each product
class going to new housing units is equal to housing completions for
that year, multiplied by the market share estimated for each product
class. The Department expects changes in equipment cost or operating
expense associated with a particular product class to affect relative
market shares in new construction much more significantly than in the
replacement market. Evidence suggests that changes in first cost and
operating cost have had an effect in the past on the choice of
installing either a gas furnace or an electric central heating system
in a new home.
For non-weatherized and weatherized gas furnaces and mobile home
gas furnaces, the shipments model takes into account possible market-
shift effects from changes in fuel prices and equipment price increases
related to efficiency standards. The Department estimated future market
shares using historical relationships between gas and electricity
prices, gas and electric heating equipment prices, and gas furnace
market shares, combined with estimated increases in equipment cost
associated with higher efficiency. The model predicts changes in market
share produced by a proportional change in the energy and equipment
price variables. For a given heating load, gas furnaces are less
expensive to operate than electric heating equipment, and forecasts of
fuel prices predict that this will continue to be the case. Therefore,
the Department does not expect a large shift from gas to electric
heating due to increased cost of gas-fired equipment. This is
especially true of colder regions, where electric heating is
prohibitively expensive. In the Southern census region and in mobile
homes, however, operating cost is less of a factor relative to the
first cost of equipment. Purchasers of mobile housing often have
relatively low incomes and therefore may be more sensitive to first
costs than other households. For the above reasons, DOE estimated gas
furnace market share independently for three groups: Single-family and
multi-family homes in regions other than the Southern census region,
single-family and multi-family homes within the Southern census region,
and mobile homes in all census regions.
DOE received several comments on the issue of market share shift
due to standards. AGA called for better, more self-consistent estimates
of future market shares, with cross-elasticities that do not vary
across product classes. (AGA, No. 11 at p. 6) As described above, DOE
used historical data to develop consistent market share estimates and
it does not make use of cross-elasticities. EEI said that DOE should
use the same type of parameters for its analysis of fuel-switching in
furnaces as for its analysis of electric heat pumps. (EEI, No. 6 at p.
5) AGA commented that standards on electricity use of fuel-fired
furnaces would encourage fuel-switching to electric resistance
furnaces, especially in manufactured housing. (AGA, No. 11 at p. 3)
DOE's analysis accounts for market shifts to electric heating and
considers
[[Page 45448]]
mobile housing separately. Market share shifts are reflected in the
MIA, which is provided to the Department of Justice (DOJ) to facilitate
its determination of the impact of any lessening of competition that is
likely to result from the imposition of proposed energy efficiency
standards.
The analysis projects the market share of gas furnaces to fall
slightly by 2012 due to somewhat higher growth in natural gas prices
relative to electricity prices. The Department expects the relationship
between gas and electricity prices to be relatively stable beyond 2012.
The analysis does not project a significant market share shift due to
operating cost changes, which were historically the dominant driver of
market shares.
The Department based its estimate of future market share shifts on
the equipment costs estimated in the engineering analysis and on the
Installation Model data. Since equipment cost varies with the
efficiency level, the projected market share of gas furnaces is
different for each efficiency level. The Department assumed that all
shipments will incur the equipment price increase after the date of the
standard implementation, but that prices will not rise further nor
decline over time in real terms.
The model estimates the combined market share of non-weatherized
and weatherized gas furnaces in new housing completions in the South
and non-South regions based on the historical parameters and their
projected values. Table II.12 shows that the higher equipment prices
associated with higher AFUE slightly decrease the share of gas furnaces
in total new housing completions. The Department estimated shipments of
weatherized gas furnaces by assuming that the latter have the same
share of total gas furnace shipments in future years as estimated for
year 2000.
Table II.12.--Shipments of Non-Weatherized and Weatherized Gas Furnaces to New Housing for Different Efficiency
Levels
----------------------------------------------------------------------------------------------------------------
Total Gas furnace
Year completions Gas furnace shipments
(million) share (%) (million)
----------------------------------------------------------------------------------------------------------------
2010............................................................ 1.62 54.6 0.88
2020............................................................ 1.72 .............. ..............
Base............................................................ .............. 54.9 0.94
80%............................................................. .............. 54.9 0.94
81%*............................................................ .............. 54.7 0.94
90%............................................................. .............. 54.4 0.92
92%............................................................. .............. 53.0 0.91
----------------------------------------------------------------------------------------------------------------
* The values are about the same for the single-stage and modulating furnaces.
For mobile home gas furnaces, DOE used an approach similar to that
used for non-weatherized gas furnaces. In this case, however, the
impact of higher equipment cost associated with higher efficiency is
greater than for non-weatherized gas furnaces. The historical data show
a relatively large shift away from gas furnaces associated with the
increase in the price of gas relative to electricity.
The Department estimated the future market shares of oil-fired
furnaces and gas and oil-fired boilers in total new housing completions
based on the average shares in homes built in 1997-1999. The Department
assumed that these market shares will not be affected by changes in
equipment price due to standards implementation. They remain constant
after 2012.
iii. Total Projected Shipments
The Department calculated total shipments in each class by adding
new housing shipments in each year to replacements-in-kind and
conversions. Table II.13a shows that efficiency levels up to 90 percent
AFUE have little effect on total non-weatherized gas furnace shipments.
Table II.13b shows the total shipment projection for selected years for
all other product classes. For mobile home furnaces, higher efficiency
levels up to 82 percent AFUE have a small effect on shipments.
Table II.13a.--Total Shipments of Non-Weatherized Gas Furnaces for Different Efficiency Levels
[Million]
----------------------------------------------------------------------------------------------------------------
Replacements- Conversions to
Year New housing in-kind gas Total
----------------------------------------------------------------------------------------------------------------
2010............................................ 0.78 1.72 0.14 2.64
2020............................................ .............. .............. .............. ..............
Base........................................ 0.83 2.30 0.16 3.28
80%......................................... 0.83 2.30 0.16 3.28
81%*........................................ 0.83 2.30 0.16 3.28
90%......................................... 0.80 2.30 0.16 3.26
92%......................................... 0.76 2.30 0.16 3.21
----------------------------------------------------------------------------------------------------------------
* The values are about the same for the single-stage and modulating furnaces.
Table II.13b.--Total Shipments in Other Product Classes
[Million]
------------------------------------------------------------------------
Product Class 2012 2020 2030
------------------------------------------------------------------------
Weatherized gas furnaces......... 0.369 0.429 0.469
[[Page 45449]]
Mobile home gas furnaces:
Base Case Forecast........... 0.082 0.080 0.075
81% AFUE..................... 0.080 0.078 0.073
Oil-fired furnaces............... 0.102 0.093 0.079
Hot-water gas boilers............ 0.105 0.113 0.117
Hot-water oil-fired boilers...... 0.135 0.113 0.118
------------------------------------------------------------------------
b. Annual Unit Energy Consumption
The annual unit energy consumption (UEC) for the base case forecast
and each efficiency level come from the LCC analysis. It includes a
value for gas (or oil) consumption and a value for electricity
consumption.
The base case forecast reflects the expected pattern of equipment
purchase in the absence of any new standards. For non-weatherized gas
furnaces, DOE forecasted the share of condensing furnaces in total
shipments based on historic trends. The projected share rises from 23
percent in 2000 to 37 percent in 2035. For each of these two types, the
base case forecast assumes that the average AFUE in 2012 is equal to
the estimated current average AFUE (based on data from GAMA). These
average values are 80 percent for non-condensing furnaces and 93
percent for condensing types. The base case forecast assumes that these
values remain constant through 2035.
For other product classes, there is little evidence of change in
recent years in the average AFUE, so DOE used the current averages for
the base case forecast. These are 80.6 percent AFUE for weatherized gas
furnaces, 79.8 percent AFUE for mobile home gas furnaces, 81.1 percent
AFUE for oil-fired furnaces, 81.9 percent AFUE for hot-water gas
boilers, and 83.9 percent AFUE for hot-water oil-fired boilers.
AGA commented that data from GAMA suggest market movement toward
higher efficiency without standards, and DOE should take these data
into account. (AGA, No. 11 at p. 4) As mentioned above, DOE used the
base case forecast which incorporates continued growth in the market
share of high-efficiency condensing furnaces.
c. Site-to-Source Conversion Factors
Primary energy consumption includes energy used in the production
and transmission of the energy consumed at the site. For natural gas
and electricity, the Department used annual site-to-source conversion
factors based on the LBNL version of NEMS, which corresponds to EIA's
Annual Energy Outlook 2002 (AEO 2002). The factors used are marginal
values, which represent the response of the system to an incremental
decrease in consumption. Natural gas losses include pipeline leakage,
pumping energy, and transportation fuel. AEO 2002 forecasts losses of
about 7 percent for the natural gas used on site for the period 2000-
2020, with only slight variation from year to year. For electricity,
the conversion factors vary over time due to projected changes in
generation sources (i.e., the power plant types projected to provide
electricity to the country). The Department assumed that conversion
factors remain constant at 2020 values through 2035. The Department
assumed no losses for delivery of site heating oil.
AGA said that DOE should account for energy consumption over the
full fuel cycle. (AGA, No.11 at p. 1) DOE considers the complete
primary energy consumption impacts of standards, including changes in
consumption associated with market shifts induced by the standard.
d. Installed Equipment Costs
The Department calculated the potential effect on consumers of
higher-efficiency standards based on the incremental costs of higher-
efficiency equipment minus the change in operating costs over the
period considered. The Department took average equipment costs for the
base case forecast and each efficiency level from the LCC analysis.
Total equipment costs for each efficiency level equal the average cost
multiplied by shipments in each year. The Department assumed no change
in real equipment costs at each level after 2012. In cases where a
market shift away from gas furnaces is projected, DOE accounted for the
equipment costs of the electric heating equipment.
e. Energy Prices
For a given efficiency level, total operating cost in each year is
the product of total site energy consumption by type and the
appropriate energy prices. The calculation uses marginal energy prices,
which represent the cost of the last unit of energy used, and thus the
savings on a consumer's energy bill from consuming one fewer unit of
energy. The Department determined 1998 marginal gas and electricity
prices in the LCC analysis. To project prices out to 2025, DOE used
energy price projections from AEO 2003. For the years after 2025, DOE
applied the average annual growth rate in 2010-2025 for gas and heating
oil prices and the average annual growth rate in 2015-2025 for
electricity prices.
f. Discount Rate
A final step in assessing financial impacts of standards is to
discount future monetary impacts using an appropriate discount rate.
The Department used both a discount rate of seven percent and three
percent real rate of return, in accordance with the Office of
Management and Budget's (OMB) guidelines contained in Circular A-4,
Regulatory Analysis, September 17, 2003 (see Chapter 10 of the TSD).
(OMB Circular A-4, section E (September 17, 2003)) The Department
defines the present year as 2001 for consistency with the year in which
the Department collected manufacturer cost data.
g. Summary of Inputs
Table II.14 summarizes the inputs used to calculate the NES and NPV
values.
Table II.14.--Summary of National Energy Savings and Net Present Value
Inputs
------------------------------------------------------------------------
Parameter Data description
------------------------------------------------------------------------
Shipments......................... Annual shipments from shipments
model.
Effective Date of Standard........ 2012.
[[Page 45450]]
Annual Unit Energy Consumption.... Annual weighted-average values are a
function of efficiency level via an
assumed correlation of RECS data.
Installed Cost per Unit........... Annual weighted-average values are a
function of efficiency level
(established from the LCC
analysis).
Maintenance Cost per Unit......... Annual weighted-average values are a
function of efficiency level
(established from the LCC
analysis).
Energy Prices..................... EIA Annual Energy Outlook 2003
forecasts to 2025 and extrapolation
beyond 2025.
Energy Site-to-Source Conversion.. Generated by DOE/EIA's National
Energy Modeling System (NEMS)
program (includes electric
generation, transmission, and
distribution losses) .
Discount Rate..................... 7 percent and 3 percent real.
Present Year...................... Future expenses are discounted to
year 2001.
------------------------------------------------------------------------
3. National Impact Analysis Results
The cumulative national energy savings (NES) in the 2012-2035
period, and the net present value (NPV) for equipment installed in the
2012-2035 period, are shown in Tables II.15 a-f for the various product
classes.
Table II.15a.--Cumulative NES and Consumer NPV for Non-Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) NES (Quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
80%............................................................. 0.03 0.05 0.15
81%, 2-stage mod., no Cat. III.................................. 1.12 0.75 3.22
81%, single-stage, 8% Cat. III.................................. 0.44 -0.29 0.06
82%............................................................. 0.82 -2.03 -3.08
90%............................................................. 4.10 -0.56 5.11
92%............................................................. 4.83 -1.66 3.36
96%............................................................. 7.16 -11.59 -14.48
----------------------------------------------------------------------------------------------------------------
Table II.15b.--Cumulative NES and Consumer NPV for Weatherized Gas Furnaces
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) (Percent) NES (Quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
80.............................................................. 0.01 0.02 0.05
81.............................................................. 0.08 0.07 0.21
82.............................................................. 0.18 0.14 0.43
----------------------------------------------------------------------------------------------------------------
Table II.15c.--Cumulative NES and Consumer NPV for Mobile Home Gas Furnaces
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) (percent) NES (quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
80.............................................................. 0.01 0.01 0.05
81.............................................................. 0.02 0.01 0.03
82.............................................................. 0.02 -0.01 -0.01
90.............................................................. -0.09 -0.38 -1.00
----------------------------------------------------------------------------------------------------------------
Table II.15d.--Cumulative NES and Consumer NPV for Non-Weatherized Oil Furnaces
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) (percent) NES (quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
80.............................................................. 0.005 0.01 0.03
81.............................................................. 0.02 0.04 0.10
82.............................................................. 0.04 0.07 0.19
83.............................................................. 0.05 0.11 0.29
84.............................................................. 0.07 -0.15 -0.20
[[Page 45451]]
85.............................................................. 0.09 -0.11 -0.10
----------------------------------------------------------------------------------------------------------------
Table II.15e.--Cumulative NES and Consumer NPV for Hot-Water Gas Boilers
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) (percent) NES (quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
81.............................................................. 0.03 0.02 0.09
82.............................................................. 0.09 0.10 0.37
83.............................................................. 0.16 0.20 0.70
84.............................................................. 0.24 0.33 1.10
88.............................................................. 0.57 -0.65 -0.42
99.............................................................. 1.43 -1.00 0.25
----------------------------------------------------------------------------------------------------------------
Table II.15f.--Cumulative NES and Consumer NPV for Hot-Water Oil-Fired Boilers
----------------------------------------------------------------------------------------------------------------
NPV (billion 2001 $)
-------------------------------
Efficiency level (AFUE) (percent) NES (quads) 7% Discount 3% Discount
rate rate
----------------------------------------------------------------------------------------------------------------
81.............................................................. 0.003 0.007 0.02
82.............................................................. 0.01 0.02 0.05
83.............................................................. 0.02 0.03 0.10
84.............................................................. 0.03 0.07 0.20
86.............................................................. 0.09 -0.28 -0.40
90.............................................................. 0.25 -0.53 -0.62
----------------------------------------------------------------------------------------------------------------
The Department seeks information and comments relevant to the
assumptions, methodology, and results for the national energy savings
and economics impacts analysis (see section IV.E of this ANOPR).
F. Life-Cycle Cost (LCC) Sub-Group Analysis
The life-cycle cost sub-group analysis examines the economic
impacts from possible revisions to U.S. residential furnace and boiler
energy-efficiency standards on different population groups of
consumers. The analysis determines whether or not a particular segment
of consumers would be adversely affected by different trial standard
levels in terms of increased LCC of equipment. DOE also calculated the
fraction of the population that would have net benefits (reduced LCC)
or net costs (increased LCC) from particular trial standard levels.
Stakeholders said DOE should: (1) Conduct consumer sub-group
analyses by region (ACEEE, No. 15 at p. 6); (2) provide stakeholders
with a list of consumer sub-groups, reach consensus on major subgroups,
and identify consumer subgroups expected to experience distinct levels
of impacts (AGA, No. 11 at p. 5); and (3) segment householders into
owners and renters, and ensure that renters (a majority of low income
households) are not disadvantaged by standards. (ASE, No. 18 at p. 3)
In the NOPR phase, DOE will examine three consumer sub-groups: low-
income households, senior-only residences, and renters.
G. Manufacturer Impact Analysis
The policies outlined in the Department's Process Rule called for
substantial revisions to the analytical framework of the manufacturer
impact analysis. The Department held a public meeting on March 11 and
12, 1997, to describe and get comment on a new generic methodology to
be used in performing future manufacturing impact analyses of products
covered under NAECA. The Department intends to apply this methodology
to other EPCA-related efficiency standards as well, tailoring the
methodology for each rule on the basis of stakeholder comments.
During the NOPR phase, DOE intends to assess the impacts of new
energy efficiency standards on residential furnace and boiler
manufacturers. In addition to the more obvious financial impacts, a
wide range of quantitative and qualitative effects may occur following
adoption of a standard that may require changes to the manufacturing
practices for these products. The Department will identify these
effects through interviews with manufacturers and other stakeholders.
1. Sources of Information for the Manufacturer Impact Analysis
Many of the analyses described earlier provide important
information for the manufacturer impact analysis. Information includes
manufacturing costs, shipments forecasts, and price forecasts. DOE will
supplement this information with company financial data, and other
information gathered during interviews with manufacturers. The
interview process has a key role in the manufacturer impact analysis,
since it allows DOE to consider confidential or sensitive information
in the rulemaking decision.
The Department and/or contractors will conduct detailed interviews
with as many manufacturers as is necessary to gain insight into the
range of potential impacts of new standards. During the interviews, the
Department solicits information on the possible impacts of potential
efficiency levels on sales, direct employment, capital assets, and
industry competitiveness. Both qualitative and quantitative information
[[Page 45452]]
is valuable. DOE will schedule interviews well in advance, to provide
every opportunity for key individuals to be available for comment.
Although a written response to the questionnaire is acceptable, DOE
prefers an interactive interview process, because it helps clarify
responses and provides the opportunity for DOE to identify additional
issues.
Before the interviews, the Department will prepare and distribute
to the manufacturers estimates of the financial parameters that DOE
plans to use in the impact analysis. During the interviews, the
Department will seek comment and suggestions regarding the values
selected for the parameters.
The Department will ask interview participants to identify all
confidential information that they have provided, either in writing or
orally. DOE will consider all information collected, as appropriate, in
its decision-making process. However, DOE cannot make confidential
information available in the public record. The Department also will
ask participants to identify all information that they wish to have
included in the public record, but that they do not want to have
associated with their interview. DOE will incorporate this information
into the public record, but will report it without attribution.
The Department and/or contractors will collate the completed
interview questionnaires and prepare a summary of the major issues.
2. Industry Cash Flow Analysis
The industry cash flow analysis relies primarily on the Government
Regulatory Impact Model (GRIM). The Department uses the GRIM to analyze
the financial impacts of more stringent energy efficiency standards on
the industry that produces the products covered by the standard.
The GRIM analysis uses a number of factors to determine annual cash
flows from a new standard: Annual expected revenues; manufacturer costs
(including cost of goods, capital depreciation, R&D; (research and
development), selling, and general administrative costs); taxes; and
conversion expenditures. DOE compares the results against baseline
model projections that involve no new standards. The financial impact
of new standards is the difference between the two sets of discounted
annual cash flows. Other performance metrics, such as return on
invested capital, also are available from the GRIM.
ACEEE would like to see inter-annual variability of cash flows or
profitability forecasts, for context and perspective. (ACEEE, No. 15 at
p. 6) DOE uses the GRIM which is based on multi-year forecasts, and
does not analyze intra-year variability directly. Collecting this
information would impose a large data-gathering burden on
manufacturers.
3. Manufacturer Sub-Group Analysis
Using industry cost estimates is not adequate for assessing
differential impacts among sub-groups of manufacturers. Smaller
manufacturers, niche players, or manufacturers exhibiting a cost
structure that differs significantly from the industry average, could
experience a more negative impact. Ideally, the Department would
consider the effect on every firm individually; however, it typically
uses the results of the industry characterization to group
manufacturers exhibiting similar characteristics.
During the interview process, the Department will discuss the
potential sub-groups and sub-group members that it has identified for
the analysis. DOE will look to the manufacturers to suggest what sub-
groups or characteristics are most appropriate for the analysis.
4. Competitive Impacts Assessment
Southern Co. commented that DOE should make sure competition is not
reduced as a result of the rulemaking. (Southern Co., No. 14 at p. 4)
ACEEE was concerned that DOE should show how standards would change the
historical trend to consolidation. (ACEEE, No. 15 at p. 6) EPCA directs
the Department to consider any lessening of competition, as determined
in writing by the Attorney General, that is likely to result from
imposition of standards. (42 U.S.C. 6295 (o)(2)(B)(i)(V)) The
Department will make a determined effort to gather and report firm-
specific financial information and impacts. The competitive analysis
will focus on assessing the impacts to smaller, yet significant,
manufacturers. DOE will base the assessment on manufacturing cost data
and on information collected from interviews with manufacturers. The
manufacturer interviews will focus on gathering information that will
help in assessing greater-than-average cost increases to some
manufacturers, increased proportions of fixed costs that could
potentially increase business risks, and potential barriers to market
entry (e.g., proprietary technologies).
5. Cumulative Regulatory Burden
The Department recognizes and seeks to mitigate the overlapping
effects on manufacturers of amended DOE standards and other regulatory
actions affecting the same equipment or companies. See 10 CFR part 430,
subpart C, Appendix A, 10(g)(1). The Department is not aware of any
other regulations pending or planned that will increase the regulatory
burden resulting from this rulemaking on furnace and boiler
manufacturers.
H. Utility Impact Analysis
To estimate the effects of proposed furnace and boiler standard
levels on the electric utility industry, the Department intends to use
a variant of DOE/EIA's National Energy Modeling System (NEMS \7\). DOE/
EIA uses NEMS to produce its Annual Energy Outlook (AEO). The
Department will use a variant, known as NEMS-BT, to provide key inputs
to the analysis. Utility impact analysis is a comparison between model
results for the base case forecast and policy cases in which proposed
standards forecast are in place. The analysis will consist of
forecasted differences between the base and standards cases for
electricity generation, installed capacity, sales, and prices.
---------------------------------------------------------------------------
\7\ For more information on NEMS, please refer to the U.S.
Department of Energy, Energy Information Administration
documentation. A useful summary is National Energy Modeling System:
An Overview 2000, DOE/EIA-0581 (2000), March, 2000. DOE/EIA approves
use of the name NEMS to describe only an official version of the
model without any modification to code or data. Because this
analysis entails some minor code modifications and the model is run
under various policy scenarios that are variations on DOE/EIA
assumptions, DOE refers to it by the name NEMS-BT (BT is DOE's
Building Technologies office, under whose aegis this work has been
performed previously named NEMS-BRS).
---------------------------------------------------------------------------
The use of NEMS for the utility analysis offers several advantages.
As the official DOE energy forecasting model, it relies on a set of
assumptions that are transparent and have received wide exposure and
commentary. NEMS allows an estimate of the interactions between the
various energy supply and demand sectors and the economy as a whole.
The utility analysis will report the changes in installed capacity and
generation by fuel type which result for each trial standard level.
DOE conducts the utility analysis as a policy deviation from the
AEO, applying the same basic set of assumptions. For example, the
operating characteristics (e.g., energy conversion efficiency,
emissions rates) of future electricity generating plants are as
specified in the AEO reference case, as are the prospects for natural
gas supply.
The Department also will explore deviations from some of the
reference case assumptions to represent alternative futures. Two
alternative scenarios use the high and low economic growth cases of AEO
2003 (The reference case corresponds to medium growth). The high
economic
[[Page 45453]]
growth case assumes higher projected growth rates for population, labor
force, and labor productivity, resulting in lower predicted inflation
and interest rates relative to the reference case and higher overall
aggregate economic growth. The opposite is true for the low-growth
case. While supply-side growth determinants are varied in these cases,
AEO assumes the same reference case energy prices for all three
economic growth cases. Different economic growth scenarios will affect
the rate of growth of electricity demand.
Because the current (AEO 2003) version of NEMS forecasts only to
the year 2025, DOE must extrapolate results to 2035. The Department
will use the approach developed by EIA to forecast fuel prices for the
Federal Energy Management Program (FEMP). FEMP uses these prices to
estimate the LCC of Federal equipment procurements. For petroleum
products, the average growth rate for the world oil price over the
years 2010-2025 is used in combination with the refinery and
distribution markups from the year 2025 to determine the regional price
forecasts. Similarly, natural gas prices are derived from an average
growth rate figure in combination with regional price margins from the
year 2025. Results of the analysis will include changes in residential
electricity sales and installed capacity and generation by fuel type
for each trial standard level, in five-year increments extrapolated to
the year 2035.
AGA commented that DOE should consider AGA's analytical approach to
assess impacts on utilities and should provide a venue to discuss power
plant heat rates and emission factors. (AGA, No. 11 at pp. 6-7) DOE
plans to use the NEMS model for analysis of affect on utilities. In
past rulemakings, DOE has used NEMS to evaluate the impact on utilities
because NEMS is a comprehensive and transparent model which provides
estimates for the interactions between the various supply and demand
sectors and the economy as a whole. The Department routinely updates
the power plant heat rates to reflect the latest available version of
NEMS, the model used to generate the utility and environmental results.
This tool, which is available to stakeholders, uses national-average,
power-plant-heat-rate forecasts that can be replaced or modified by
users to conduct sensitivity analysis.
ACEEE commented that DOE should evaluate the impact of new
standards on winter and summer peak loads. (ACEEE, No. 15 at p. 6)
During the NOPR stage of the rulemaking, the Department will consider
in its analysis impacts of standards on electricity system loads.
I. Environmental Assessment
DOE will conduct an assessment of the impacts of proposed furnace
and boiler standard levels on certain environmental indicators, using
NEMS-BT to provide key inputs to the analysis, as well as some
exogenous calculations. Results of the environmental assessment are
similar to those provided in AEO.
The environmental assessment provides emissions results to
policymakers and interveners and fulfills requirements that the
environmental effects of all new Federal rules be properly quantified
and considered. The environmental assessment considers only two
pollutants, sulfur dioxide (SO2) and nitrogen oxides
(NOX), and one emission, carbon dioxide (CO2).
The only form of carbon tracked by NEMS-BT is CO2, so the
analysis will discuss carbon only in the form of CO2. For
each of the standard levels, DOE will calculate total emissions using
NEMS-BT in part and using external analysis as needed.
The Department will conduct the environmental assessment as a
policy deviation from the AEO, applying the same basic set of
assumptions. For example, the emissions characteristics of an
electricity generating plant will be exactly those used in AEO.
Forecasts conducted with NEMS-BT also take into consideration the
supply-side and demand-side effects on the electric utility industry.
Thus, the Department's analysis takes into account any factors
affecting the type of electricity generation and, in turn, the type and
amount of airborne emissions the utility industry generates.
NEMS-BT tracks carbon emissions using a detailed carbon module
which provides good results because of its broad coverage of all
sectors and inclusion of interactive effects. Past experience with
carbon results from NEMS suggests that emissions estimates are somewhat
lower than emissions estimates based on simple average factors. One of
the reasons for this divergence is that NEMS tends to predict that
conservation displaces renewable generating capacity in the out years.
On the whole, NEMS-BT provides carbon emissions results of reasonable
accuracy at a level consistent with other Federal published results.
NEMS-BT also reports the two airborne pollutant emissions that DOE
has reported in past analyses, SO2 and NOX. The
Clean Air Act Amendments of 1990 set an SO2 emissions cap on
all power generation. The attainment of this target, however, is
flexible among generators through the use of emissions allowances and
tradable permits. NEMS includes a module for SO2 allowance
trading and delivers a forecast of SO2 allowance prices.
Accurate simulation of SO2 trading tends to imply that
physical emissions effects will be zero as long as emissions are at the
ceiling. This fact has caused considerable confusion in the past.
However, there is an SO2 benefit from conservation in the
form of a lower allowance price as a result of additional allowances
from this rule, and, if it is big enough to be calculable by NEMS-BT,
DOE will report this value. The NEMS-BT model also has an algorithm for
estimating NOX emissions from power generation. Two recent
regulatory actions proposed by the EPA regarding regulations and
guidelines for best available retrofit technology determinations and
the reduction of interstate transport of fine particulate matter and
ozone are tending towards further NOX reductions and likely
to an eventual emissions cap on nation-wide NOX. 69 FR 25184
(May 5, 2004) and 69 FR 32684 (June 10, 2004). As with SO2
emissions, a cap on NOX emissions will likely result in no
physical emissions effects from equipment efficiency standards.
The results for the environmental assessment are similar to a
complete NEMS run as published in the AEO. These include power sector
emissions for SO2, NOX, and carbon, and
SO2 prices, in five-year-forecasted increments extrapolated
to the year 2035. DOE reports the outcome of the analysis for each
trial standard level as a deviation from the AEO reference cases.
AGA commented that DOE should use full fuel-cycle emissions from
the EPA's E-GRID system, and the Department should consider using AGA
information on emission characteristics. (AGA, No. 11 at p. 7) DOE will
consider these comments in conducting the environmental assessment in
the NOPR phase of the rulemaking.
GAMA commented that residential furnaces and boilers are not vented
in-house, so the Department may need to consider in-house emissions in
the environmental assessment. (GAMA, No. 8 at p. 4) The Department will
analyze environmental impacts of potential standards on furnaces and
boilers, including in-house emissions (the local emissions from
combustion in the furnace or boiler) in the NOPR phase of the
rulemaking. The Department will use the same approach as it applied
during the residential water heating rulemaking.
[[Page 45454]]
EEI commented that a primary output of NEMS should be impacts on
oil and gas production, refining, transportation and delivery systems
and asked how DOE will handle emissions impacts on domestic and foreign
oil refining and impacts on oil imports. (EEI, No. 6 at p. 3) The NEMS
model takes into consideration impacts on domestic oil and gas
production, refining, transportation and delivery systems, as well as
the imports of various petroleum products from outside the United
States. It does not consider the emissions impacts from domestic or
foreign oil refining. Thus, DOE will not be considering these
emissions.
J. Employment Impact Analysis
The July 1996 Process Rule, 10 CFR part 430, subpart C, Appendix
A4(7)(vi) includes employment impacts among the factors the Department
should consider in selecting a proposed standard. The Process Rule
states if the Department determines that a candidate standard level
would be the direct cause of plant closures or significant losses in
domestic manufacturer employment, that standard level will be presumed
not to be economically justified. (10 CFR part 430, subpart C, Appendix
A5(e)(3)(i)(B))
The Department estimates the impacts of standards on employment for
equipment manufacturers, relevant service industries, energy suppliers,
and the economy in general. DOE separates employment impacts into
indirect and direct impacts. Direct employment impacts would result if
standards led to a change in the number of employees at manufacturing
plants and related supply and service firms. DOE estimated direct
impacts in the manufacturer sub-group analysis.
Indirect impacts are impacts on the national economy other than in
the manufacturing sector being regulated. Indirect impacts may result
from both expenditures shifting among goods (substitution effect) and
changes in income, which lead to a change in overall expenditure levels
(income effect). DOE defines indirect employment impacts from standards
as net jobs eliminated or created in the general economy as a result of
increased spending on the purchase price of equipment and reduced
customer spending on energy.
DOE expects new furnace and boiler standards to increase the total
installed cost of equipment. DOE expects the same standards to decrease
energy consumption, and therefore to reduce customer expenditures for
energy. Over time, the increased total installed cost is paid back
through energy savings. The savings in energy expenditures may be spent
on new commercial investment and other items. Using an input/output
model of the U.S. economy, this analysis seeks to estimate the effects
on different sectors, and the net affect on jobs. DOE will estimate
national impacts for major sectors of the U.S. economy in the NOPR. DOE
will use public and commercially available data sources and software to
estimate employment impacts. DOE will make all methods and
documentation available for review.
BT has developed a spreadsheet model, Impact of Building Energy
Efficiency Programs (IMBUILD), that it could use to analyze indirect
employment impacts. IMBUILD is a special-purpose version of the Impact
Analysis for Planning (IMPLAN) national input-output model which
specifically estimates the employment and income effects of building
energy technologies. IMBUILD is an economic analysis system that
focuses on those sectors most relevant to buildings, and characterizes
the interconnections among 35 sectors as national input-output
matrices. The IMBUILD output includes employment, industry output, and
wage income. One can introduce changes in expenditures due to appliance
standards to IMBUILD as changes to existing economic flows, allowing
estimation of the resulting net national impact on jobs by sector.
ACEEE commented that DOE should carefully consider impacts on
service providers and the manufacturer employment impact analysis
should include the employment impacts of consumer energy cost savings.
(ACEEE, No. 15 at p. 6) The Department will consider these comments in
its analysis during the NOPR stage of the employment impacts of furnace
and boiler standards.
DOE believes increases or decreases in the net demand for labor in
the economy estimated by the input/output model due to standards are
likely to be very small relative to total national employment. It is
difficult to project changes in employment for the following reasons:
(1) If unemployment is very low during the period when the
standards are put into effect, it is unlikely that the standards alone
could result in any change in national employment levels;
(2) Neither the Bureau of Labor Statistics (BLS) data nor the
input-output model used by DOE include the quality or wage level of the
jobs. The losses or gains from any potential employment change may be
offset if job quality and pay also change; and
(3) The net benefits or losses from potential employment changes
are a result of the estimated NPV of benefits or losses likely to
result from standards. It may not be appropriate to separately identify
and consider any employment impacts beyond the calculation of NPV.
The Department invites comments on the appropriate methodology that
DOE should use in its employment impacts analysis.
K. Regulatory Impact Analysis
DOE will prepare a draft regulatory analysis under Executive Order
12866, ``Regulatory Planning and Review,'' which will be subject to
review under the Executive Order by the Office of Information and
Regulatory Affairs (OIRA). 58 FR 51735 (October 4, 1993).
As part of the regulatory analysis, the Department will identify
and seek to mitigate the overlapping effects on manufacturers of new or
revised DOE standards and other regulatory actions affecting the same
equipment. Through manufacturer interviews and literature searches, the
Department will compile information on burdens from existing and
impending regulations affecting furnaces and boilers.
DOE's NOPR will include a complete quantitative analysis of
alternatives to the proposed conservation standards. The Department
plans to use the NES Spreadsheet Model (as discussed earlier in the
section on the national impact analysis) to calculate the NES and the
NPV corresponding to specified alternatives to the proposed
conversation standards.
III. Candidate Energy Conservation Standards Levels
The Process Rule gives guidance to the Department to specify
candidate standards levels in the ANOPR, but not to propose a
particular standard. 10 CFR part 430, subpart C, appendix A, 4(c)(1).
The Department intends to review the public comments received during
the public comment period following the ANOPR public meeting and update
the analyses appropriately for each equipment class before issuing the
NOPR.
IV. Public Participation
A. Attendance at Public Meeting
The time and date of the public meeting are listed in the DATES
section at the beginning of this notice of proposed rulemaking. Anyone
who wants to attend the public meeting must notify Ms. Brenda Edwards-
Jones at (202) 586-2945. As stated in the Addresses section of this
document, a photo ID is required to enter the Ronald Reagan Building
and International Trade Center.
[[Page 45455]]
B. Procedure for Submitting Requests To Speak
Any person who has an interest in today's notice, or who is a
representative of a group or class of persons that has an interest in
these issues, may request an opportunity to make an oral presentation.
Please hand-deliver requests to speak, along with a computer diskette
or CD in WordPerfect, Microsoft Word, PDF, or text (ASCII) file format
to the address shown at the beginning of this advance notice of
proposed rulemaking between the hours of 9 a.m. and 4 p.m., Monday
through Friday, except Federal holidays. They may also be sent by mail
or e-mail them to: Brenda.Edwards-Jones@ee.doe.gov.
Persons requesting to speak should briefly describe the nature of
their interest in this rulemaking and provide a telephone number for
contact. The Department requests persons selected to be heard to submit
an advance copy of their statements at least two weeks before the
public meeting. At its discretion, DOE may permit any person who cannot
supply an advance copy of his or her statement to participate, if that
person has made advance alternative arrangements with the Building
Technologies Program. The request to give an oral presentation should
ask for such alternative arrangements.
C. Conduct of Public Meeting
The Department 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 5 U.S.C. 553
and section 336 of EPCA. (42 U.S.C. 6306) A court reporter will be
present to record the transcript of the proceedings. The Department
reserves the right to schedule the order of presentations and to
establish the procedures governing the conduct of the public meeting.
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. The Department will present summaries of comments received
before the public meeting, allow time for presentations by
participants, and encourage all interested parties to share their views
on issues affecting this rulemaking. Each participant will be allowed
to make a prepared general statement (within time limits determined by
DOE) before the discussion of specific topics. The Department will
permit 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.
Department representatives may also ask questions of participants
concerning other matters relevant to the public meeting. 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.
The Department will make the entire record of this ANOPR
rulemaking, including the transcript from the public meeting, available
for inspection at the U.S. Department of Energy, Forrestal Building,
Room 1J-018 (Resource Room of the Building Technologies Program), 1000
Independence Avenue, SW., Washington, DC, (202) 586-9127, between 9
a.m. and 4 p.m., Monday through Friday, except Federal holidays. Any
person may buy a copy of the transcript from the transcribing reporter.
D. Submission of Comments
The Department will accept comments, data, and information
regarding all aspects of this ANOPR before or after the public meeting,
but no later than the date provided at the beginning of this advance
notice of proposed rulemaking. Please submit comments, data, and
information electronically. Send them to the following e-mail address:
WordPerfect, Microsoft Word, PDF, or text (ASCII) file format and avoid
the use of special characters or any form of encryption. Comments in
electronic format should be identified by the docket number EE-RM/STD-
00-550, and wherever possible carry the electronic signature of the
author. Absent an electronic signature, comments submitted
electronically must be followed and authenticated by submitting the
signed original paper document. No telefacsimiles (faxes) will be
accepted.
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 two copies: one copy of the document including
all the information believed to be confidential, and one copy of the
document with the information believed to be confidential deleted. The
Department of Energy will make its own determination about the
confidential status of the information and treat it according to its
determination.
Factors of interest to the Department when evaluating requests to
treat submitted information as confidential include: (1) 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.
E. Issues on Which DOE Seeks Comment
The Department is interested in receiving comments and/or data to
improve its analysis. The Department has asked for comments in a number
of areas throughout this ANOPR. The Department is particularly
interested in responses to the following questions and/or concerns:
1. Installation Model
Installation costs are a major part of the total consumer cost of a
furnace or boiler and hence are a factor in the LCC analysis of
potential standard levels. Due to the shortcomings of existing
installation cost data, the Department developed an Installation Model
to estimate installation costs (see section II.C.6 of this ANOPR). The
Installation Model assumptions, methodology, and results regarding
installation costs of residential furnaces and boilers are a recent
development that stakeholders have not reviewed. In particular, the
Department seeks information relevant to venting categories, markets,
installation sizes, and the application of these components to
establish installation costs for product classes under consideration in
this rulemaking.
2. Venting Issues
Proper selection of vent materials and correct configuration of
vent systems are essential for safe operation of any combustion
appliance (see section II.C.6.c of this ANOPR). For gas boilers, NFPA
54 provides Category I venting guidelines; and for oil-fired
appliances,
[[Page 45456]]
the applicable venting guideline is NFPA 31. However, the efficiency
level at which the use of higher-cost Category III venting becomes
necessary is not defined by these codes. For the analysis of gas
boilers, DOE assumes that 20 percent of installations include Category
III horizontal vents for construction-related reasons for efficiencies
up to 84 percent AFUE. At 85 percent AFUE, DOE assumes Category III
venting must be used 100 percent of the time. For oil-fired equipment,
type L venting is required at all AFUE levels up to 84 percent. DOE
assumes that at 85 percent and 84 percent AFUE for oil-fired boilers
and oil-fired furnaces, respectively, the vent system must be upgraded
to stainless AL-4C.
The Department seeks further data and comment relevant to the above
assumptions. In particular, the Department is interested in getting
data regarding: (1) The fraction of total gas boiler installations at
each efficiency rating that use Category III horizontal venting; and
(2) the fraction of total oil boiler and total oil furnace
installations at each efficiency level that use stainless AL-4C (as
opposed to type L).
3. Efficiency Distribution of Weatherized Gas Furnaces
For weatherized gas furnaces, estimates of national energy savings
depend on the baseline model efficiency level. The Department has
limited data on the efficiency distribution of current sales of this
product class, and has estimated the baseline model efficiency level
using historical data. The Department seeks information on the
efficiency distribution of current sales of weatherized gas furnaces
from manufacturers of packaged air conditioners (which incorporate
weatherized gas furnaces), or others.
4. 81 Percent AFUE Furnaces With and Without Two-Stage Modulating
Controls
Two-stage modulation is used in both condensing and non-condensing,
non-weatherized gas furnaces. Because there are at least two major
manufacturers that market a series of 81 percent AFUE, two-stage
modulating furnace models and specify, for these furnaces, Category I
vent systems incorporating Type B vent and Type B vent connectors, it
appears that 81 percent AFUE, two-stage modulating furnaces do not pose
vent safety issues associated with premature corrosion. For non-
modulating 81 percent AFUE furnaces, the Department established that
special venting treatments such as the use of Category III systems/
components may be needed for many installations, and estimated the cost
for these vent systems.
Because of the higher initial venting costs and increased safety
concerns associated with non-modulating furnaces, DOE assumes that
manufacturers would choose to manufacture two-stage modulating furnaces
if DOE established a minimum standard of 81 percent AFUE. This
assumption seems to be supported by recent developments in the
marketplace. Based on information available to DOE, it appears that
manufacturers have ceased to produce non-modulating models with AFUE of
81 percent or higher, and that at least two manufacturers are offering
81 percent AFUE modulating furnaces.
The current DOE test procedure incorporates an adjustment factor
for two-stage modulating furnaces to reflect the impact of their
different operation (``time on/time off'') compared to single-stage
furnaces. The presence of this adjustment in the test procedure results
in a national energy savings estimate for two-stage modulating furnaces
that is nearly three times as great as the savings for 81 percent AFUE
furnaces using non-modulating technology. DOE is uncertain whether the
adjustment for modulating furnaces that is included in the test
procedure yields an accurate estimate of the expected energy use of the
product and solicits public comment on this issue. Even if the test
procedure presents an accurate representation of this product's energy
use, DOE solicits public comment on whether the test procedure should
be modified to provide modulating furnaces with an AFUE rating that is
a better reflection of its expected energy use. Based on the current
test procedure, estimates for a two-stage modulating furnace with an
AFUE rating of 81 percent is likely to show annual gas consumption in
line with a non-modulating furnace with a higher AFUE rating.
The Department also wishes to receive data on venting installation
practices/guidelines and any additional information/data on vent safety
issues for all 81 percent AFUE non-weatherized gas furnaces.
5. Regulation of Furnace Electricity Consumption
The Department's analytical framework for the current rulemaking
described an approach to regulate the electricity use of furnaces and
boilers that would involve specifying a maximum annual electrical
consumption. The current DOE test procedure provides a means to
determine electrical consumption (kWh). However, 42 U.S.C. 6291(6)
states that an ``energy conservation standard'' is either (A) ``a * * *
level of energy efficiency'' or ``a * * * quantity of energy use,'' or
(B) ``a design requirement for the products specified * * *. '' Item
(A) above strongly suggests that a single ``energy conservation
standard'' cannot have measures or descriptions for both energy
efficiency and energy use. A standard that includes both a level of
energy efficiency and a quantity of energy use (kWh of electricity)
conflicts with the statutory language. 42 U.S.C. 6291(20) states that
``the term `annual fuel utilization efficiency' means the efficiency
descriptor for furnaces and boilers, determined using test procedures
prescribed under section 323 * * *.'' Since the AFUE descriptor does
not include electricity use, DOE cannot regulate the use of electricity
by furnaces and boilers.
Based on the considered approaches and the statutory language, the
Department has decided not to regulate electricity consumption of
residential furnaces and boilers at this time using the above-mentioned
descriptor approaches. The Department seeks comment on the above
methods and information on any other method for developing a standard
that would be consistent with the existing statutory authority.
V. Regulatory Review and Procedural Requirements
This advance notice of proposed rulemaking was submitted for review
to OIRA in the Office of Management and Budget under Executive Order
12866, ``Regulatory Planning and Review.'' 58 FR 51735. If DOE later
proposes amended energy conservation standards for residential furnaces
and boilers, the rulemaking would likely constitute a significant
regulatory action, and DOE would prepare and submit to OIRA for review
the assessment of costs and benefits required by section 6(a)(3) of the
Executive Order. In addition, various other analyses and procedures may
apply to such future rulemaking action, including those required by the
National Environmental Policy Act, 42 U.S.C. 4321 et seq.; the Unfunded
Mandates Act of 1995, Public Law 104-4; the Paperwork Reduction Act, 44
U.S.C. 3501 et seq.; the Regulatory Flexibility Act, 5 U.S.C. 601 et
seq.; and certain Executive Orders.
VI. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of today's Advance
Notice of Proposed Rulemaking.
[[Page 45457]]
Issued in Washington, DC, on July 13, 2004.
David K. Garman,
Assistant Secretary, Energy Efficiency and Renewable Energy.
[FR Doc. 04-16574 Filed 7-28-04; 8:45 am]
BILLING CODE 6450-01-P