Energy Efficiency: DOE’s Regional Standards for Indoor (Non-Weatherized) Residential Gas Furnaces
Congressional research reportNov 21, 2014
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Energy Efficiency: DOE’s Regional Standards
for Indoor (Non-Weatherized) Residential Gas
Furnaces
(name redacted)
Specialist in Energy Policy
(name redacted)
Legislative Attorney
November 21, 2014
Congressional Research Service
7-....
www.crs.gov
R43815
Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Summary
This report reviews the background, regulatory framework, and policy issues that have shaped the
debate over regional energy efficiency standards for residential natural gas furnaces. Those
furnaces are the most common type of home heating appliance. While the scope of the report is
limited to that one type of furnace, much of the discussion also applies to standards for other
furnaces and to standards for residential central air conditioners and heat pumps.
A 1987 statutory congressional directive set gas furnace standards for 1992 and directed the
Department of Energy (DOE) to consider raising the standards in 1994 and 2007. DOE’s
responses were challenged in court twice (2005, 2007). The Energy Independence and Security
Act (EISA) authorized DOE to set new standards for residential natural gas furnaces and certain
other equipment. EISA Section 306 empowered DOE to set both a “technical” standard for
manufacturers (a base national standard) and a regional “installation” standard for distributors and
contractors. The regional standard concept aims to address geographic differences in heating
needs. This law marked the first time that Congress authorized DOE to set regional standards.
All other previous DOE energy efficiency standards for consumer products—whether set by law
or by DOE rule—had only created a national technical standard for manufacturers. In that case,
the compliance date served as a deadline only for manufacturers to have retooled their production
lines, so that new equipment would comply with the new energy efficiency criteria. As the
inventory of “old” equipment became exhausted, the “new” equipment from manufacturers would
gradually replace it in the supply chain. Ultimately, the equipment distributors and residential
installers at the end of the supply chain would have only the new equipment available to them.
In contrast, the DOE-proposed regional gas furnace standard would have set the same compliance
date for both manufacturers and installers. This would effectively move the scheduled
implementation date down the supply chain from manufacturers, and thereby accelerate the
change-over requirement date and shorten the “sell-through” adjustment period for furnace
distributors and contractors.
In another departure from past practice, EISA Section 308 specified that DOE could employ a
direct final rule (DFR) process to implement the new regional standards. This is another policy
innovation that had not been used previously in the appliance standard-making process. The DFR
process—which relies upon a preliminary consensus agreement among industry and energy
efficiency groups—differs from the “traditional” notice-and-comment process that had been used
in all previous DOE rulemakings for consumer product energy efficiency standards.
The two innovations—regional standards and the DFR process—led to new uncertainties and
implementation design issues which, in late 2011, prompted an industry court challenge. In April
2014, the court adopted a negotiated settlement that directs DOE to reformulate the gas furnace
rulemaking and directs that standards for air conditioners and heat pumps begin in 2015 and
2016. The final rule for gas furnaces had been set for May 2013—but the new, revised rule is not
expected to take effect before 2021 or 2022. In October 2014, gas industry groups raised the issue
of separating gas furnace product classes in the revised rulemaking. One report suggests that the
court-adopted settlement which directs DOE to “reformulate” the residential gas furnace standard
could influence the development of several other energy efficiency standards processes that are
underway.
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Contents
Background ...................................................................................................................................... 1
Residential Furnaces .................................................................................................................. 1
EPCA, NAECA, and Previous DOE Rulemakings ................................................................... 1
Parties Challenge DOE for Failure to Issue Final Rule for New Standards ........................ 3
DOE’s 80% AFUE Rule Challenged by Industry, States, and Others ................................. 3
EISA Authorizes DOE to Set Regional Standards ..................................................................... 4
Collaborative Negotiation Process ............................................................................................ 5
DOE Rulemaking Framework ......................................................................................................... 6
Rulemaking Analysis Plan ......................................................................................................... 7
DOE Publishes a Direct Final Rule (DFR) ................................................................................ 7
Estimated Energy Savings ................................................................................................... 9
“Lead Time” for Compliance Date.................................................................................... 10
Enforcement Rulemaking ........................................................................................................ 11
Enforcement Framework Document ................................................................................. 11
Industry Comment on Information Alternatives ............................................................... 12
Guidance on Regional Installation Standard ..................................................................... 12
Delays of DFR and Enforcement Rule .................................................................................... 13
DFR Takes Longer Than Expected ................................................................................... 13
Enforcement Compliance Rulemaking Not Completed .................................................... 14
Implementation Design Issues ....................................................................................................... 14
Compliance Date Issue: Manufactured vs. Installed ............................................................... 14
Costs of Stranded Inventory .............................................................................................. 14
Need for Time Extension................................................................................................... 15
Compliance (Enforcement) Information Issue ........................................................................ 17
DOE Proposes Alternative Information Requirements ..................................................... 17
Industry Objects to New “Information Burden” ............................................................... 18
Gas Furnace Installation Issue ................................................................................................. 21
Installation Challenges for 90% Regional Standard .......................................................... 21
Pressure to Switch from Gas to Electric............................................................................ 22
DOE Proposes Furnace Installation Waivers..................................................................... 24
Industry Responds to Proposed Waiver Process................................................................ 24
DOE Final Enforcement Guidance Unfinished ................................................................. 25
Industry Challenges DOE Rulemaking in Court ........................................................................... 26
APGA Challenge to the DFR................................................................................................... 26
Negotiated Settlement ............................................................................................................. 27
Details of Settlement Agreement and Next Steps .................................................................... 28
DOE Prepares for New Rulemaking ....................................................................................... 29
New Issue: Separate Product Classes ................................................................................ 29
Implications for Energy Efficiency Policy ........................................................................ 30
Figures
Figure A-1. Non-Condensing Gas Furnace, with Air Handling Equipment .................................. 32
Figure D-1. Regions for Furnace Efficiency Standards ................................................................. 41
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Tables
Table 1. DOE Rulemaking: Standards for Selected Technologies ................................................... 8
Appendixes
Appendix A. Gas Furnace: Non-Condensing Type ........................................................................ 32
Appendix B. Chronology of the Regional Standards Policymaking Process ................................ 33
Appendix C. DOE Rulemaking Analysis Plan .............................................................................. 36
Appendix D. Map of the Northern Region for Indoor (Non-Weatherized) Furnaces .................... 41
Contacts
Author Contact Information........................................................................................................... 41
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Background
Space heating is the largest energy-using activity in the residential sector, accounting for nearly
40% of total residential energy use. Natural gas furnaces account for about half of that total.1
About 40% of households use natural gas furnaces—the most common type of equipment and
fuel—used for space heating.2
Residential Furnaces
Furnaces are the most common type of residential central heating equipment in the nation.
Residential furnaces come in a variety of designs, each of which employs a different fuel. Natural
gas furnaces are, by far, the dominant type.3 A furnace produces hot air that is distributed
throughout the home by a ventilation duct system.4 There are two main types of residential
furnaces: weatherized (for outdoor installation, such as on rooftops) and non-weatherized
(installed indoors, often in a basement or special closet). Non-weatherized furnaces are far more
common and come in two forms: condensing and non-condensing. Furnaces with a 90% or
greater AFUE (annual fuel utilization efficiency) are known as “condensing” furnaces because
they condense water out of exiting (exhaust) flue gases to recover heat to further warm the home.
Those exhaust gases would otherwise be vented up the chimney.5 A non-condensing furnace does
not have the secondary system to recapture heat from byproduct moisture and gases. Thus, it
requires a chimney or other exhaust venting to allow the larger amount of waste gases to escape.
Appendix A provides an illustration of a non-condensing natural gas furnace.6
EPCA, NAECA, and Previous DOE Rulemakings
This section recounts the beginning stages of federal policymaking for energy efficiency
standards for residential gas furnaces. Subsequent sections continue to trace the evolution of this
vein of energy efficiency policymaking. Appendix B provides a chronology of key policy
developments in the evolution of policy for regional energy efficiency standards for those
furnaces.
The Energy Policy and Conservation Act of 1975 (EPCA, P.L. 94-163) established voluntary
national energy efficiency targets for various types of residential appliances and commercial
1
DOE Energy Information Administration (EIA), Gas Furnace Efficiency Has Large Implications for Residential
Natural Gas Use, December 5, 2013, http://www.eia.gov/todayinenergy/detail.cfm?id=14051.
2
Also, slightly more than 14% use electric furnaces and about 3% use oil furnaces. Appliance Standards Awareness
Project, Furnaces, http://www.appliance-standards.org/product/furnaces.
3
Natural gas furnaces account for about 90% of annual sales of residential furnaces. Other furnace types employ oil,
propane, or electricity.
4
Some furnaces, a relatively small percentage of national sales, operate on electricity instead of a combustible fuel.
5
A condensing furnace captures as much available energy as possible to convert it into useful heat. Instead of wasting
the heat content in moisture and exhaust gases that otherwise drain through pipes to the outdoors, where they would
evaporate, a condensing furnace essentially recycles these resources into usable energy for home heating. After that, a
fan vents a small amount of moisture and gases outdoors through a PVC pipe.
6
DOE, Residential Furnaces and Boilers, http://www1.eere.energy.gov/buildings/appliance_standards/product.aspx/
productid/72.
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equipment, including residential furnaces.7 Also, EPCA authorized the Federal Energy
Administration (FEA) to administer the targets and directed the Federal Trade Commission (FTC)
to provide energy labels for equipment covered by the targets. When FEA became part of the new
Department of Energy (DOE) in 1978, the regulatory authority was transferred to the Secretary of
Energy. The National Energy Conservation Policy Act of 1978 (NECPA, P.L. 95-619) further
authorized DOE to set and enforce mandatory energy efficiency standards.
EPCA, as amended, establishes criteria to guide the process of amending standards for “covered
products.”8 The law directs that any amended standard for a covered product must be designed to
achieve the maximum improvement in energy efficiency that is technologically feasible and
economically justified.9 Further, EPCA precludes DOE from adopting any standard that would not
result in significant conservation of energy.10 EPCA also requires that, in deciding whether a
standard is economically justified, DOE must determine whether the benefits of the standard
exceed its burdens.11 DOE must do so only after receiving comments on the proposed standard
and by considering, “to the greatest extent practicable,” several factors: (1) the economic impact
on manufacturers and consumers, (2) operating cost savings over the estimated average life of
equipment compared with any increase in price, (3) total projected energy savings, (4) any
lessening of usefulness or performance, (5) any lessening of market competition, (6) the need for
energy conservation, and (7) any other factors DOE deems relevant.12
The National Appliance Energy Conservation Act of 1987 (NAECA, P.L. 100-12) amended
EPCA to establish energy conservation standards by statute for residential furnaces and boilers.
NAECA set a minimum national standard of 78% AFUE for residential oil and gas furnaces.13
The standard was scheduled to take effect on January 1, 1992. Also, NAECA amended EPCA to
require DOE to consider amending the 78% AFUE standard in two subsequent rulemakings.14
First, the law required DOE to publish a final rule no later than January 1, 1994, to determine if
the initial statutory efficiency standards for furnaces should be amended.15 Second, the law
directed DOE to publish the second final rule by January 1, 2007, to determine whether efficiency
standards for furnaces should be further amended.
DOE missed EPCA’s 1994 deadline for a new rulemaking. In August 2005, the Energy Policy Act
of 2005 (EPAct 2005, P.L. 109-58) was enacted. Section 141 of EPAct 2005 directs DOE to
develop a plan to issue expeditiously efficiency standards for those products for which DOE had
not yet met the deadlines specified by the NAECA amendments to EPCA. Section 141 also
7
California first began regulating appliance standards in the 1970s, and New York (state) and Minnesota quickly
followed.
8
“Covered products” is the formal term used to mean appliances and other equipment, such as natural gas furnaces.
9
42 U.S.C. §6295(o)(2)(A).
10
42 U.S.C. §6295(o)(3)(B).
11
42 U.S.C. §6295(o)(2)(B)(i).
12
Ibid.
13
This was the first time that federal minimum energy efficiency standards were established for residential furnaces
and for other types of residential equipment.
14
NAECA also set standards for central air conditioners and heat pumps. The National Appliance Energy Conservation
Act Amendments of 1988 (P.L. 100-357) amended EPCA to add standards for certain types of lighting equipment.
15
Especially whether the level of efficiency specified in the standard should be increased.
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
required that DOE submit semi-annual reports on its standard-setting activities. The first of those
reports was published in January 2006.16
Parties Challenge DOE for Failure to Issue Final Rule for New Standards
In September 2005, a number of states and environmental groups brought a suit in the U.S.
District Court for the Southern District of New York challenging DOE’s failure to comply with
EPCA’s mandate to adopt certain efficiency standards by established deadlines for various
categories of products, including residential furnaces.17 The parties eventually entered into a
consent decree, pursuant to which DOE agreed to deadlines for taking various actions concerning
efficiency standards for each product category.18 The consent decree required DOE to adopt a rule
for furnace efficiency standards by September 30, 2007.19 The court eventually terminated the
consent decree, finding that DOE had completed all of the required actions.20
DOE’s 80% AFUE Rule Challenged by Industry, States, and Others
Pursuant to the requirements of the consent decree described above, DOE published a final rule in
November 2007 that would have raised the residential gas furnace efficiency standard from 78%
to 80% AFUE.21 The rule established a final compliance date of November 19, 2015.22 DOE
believed that publishing the rule fulfilled its obligation under the consent decree mentioned
above.
However, the rule was met with criticism from states and public interest groups who felt the rule
should have demanded a greater increase in the efficiency standards. In January 2008, two
parallel challenges to the DOE Final Rule were filed in the U.S. Court of Appeals for the Second
Circuit.23 The challenges took issue with perceived flaws in DOE’s economic analysis as well as
the allegedly minimal energy saving associated with the 80% standard. One challenge noted that
DOE had found that “a 90% standard would result in average life cycle costs (LCC) savings on a
national level of $55 per consumer, while the 80% standard would result in only $2 of LCC
16
DOE, Energy Conservation Standards Activities, January 2006, http://www1.eere.energy.gov/buildings/
appliance_standards/pdfs/congressional_report_013106.pdf. For a list of all subsequent reports, see
http://www1.eere.energy.gov/buildings/appliance_standards/reports_and_publications.html.
17
U.S. District Court for the Southern District of New York, State of New York et al. vs. DOE: Complaint for
Declaratory and Injunctive Relief (05 CV 7807), September 7, 2005, http://www.nj.gov/oag/newsreleases05/complaintdoe-070105-states.pdf.
18
Consent Decree, State of New York et al. vs. Bodman et al. (No. 5-7807) and Natural Resources Defense Council,
Inc. et al. vs. Bodman (No. 5-7808) (November 6, 2006). The Consent Decree addressed two consolidated cases, New
York et al. vs. Bodman (DOE), No. 05-7807 (S.D.N.Y. Nov. 3, 2007), and Natural Resources Defense Council et al. vs.
Bodman (DOE). The text of the decree is available at http://oag.ca.gov/sites/all/files/pdfs/environment/2-2708consent_decree_NYvBodman.pdf.
19
Ibid. at 9.
20
Endorsed Letter, State of New York et al. vs. Bodman et al. (No. 5-7807) and Natural Resources Defense Council,
Inc. et al. vs. Bodman (No. 5-7808) (May 1, 2012).
21
Energy Conservation Program for Consumer Products: Energy Conservation Standards for Residential Furnaces and
Boilers, 72 Fed. Reg. 64, 156 (November 19, 2007).
22
Ibid.
23
State of New York et al. vs. U.S. Department of Energy, No. 08-0311 (2nd Cir. Jan. 17, 2008); Natural Resources
Defense Council vs. U.S. Department of Energy, No. 08-0312 (2nd Cir Jan 17, 2008).
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savings per consumer” due to “DOE’s assumption that by 2015, 99% of households will purchase
furnaces that achieve the 80% efficiency level irrespective of any revision of standards.”24
Some states also expressed a concern that the 80% AFUE national efficiency standard would
preempt stricter state standards. For example, the state of California filed a motion to intervene in
the State challenge to the DOE standards in which it contended that “[i]f DOE’s weak standards
for residential furnaces and boilers are permitted to stand, California will lose the opportunity to
benefit from a more stringent rule.”25
Other states also raised concerns about the new federal standards preempting stricter state
standards. For example, in October 2009, the state of Massachusetts delivered a waiver petition to
DOE seeking state exemption from DOE’s 80% AFUE rule—which would preempt its state
standard of 90% for non-weatherized residential gas furnaces.26 In October 2010, DOE issued a
denial of the petition.27
In response to the legal challenges to the 80% rule and the state preemption concerns, DOE
reasserted its position that it had previously determined that a 90% regional standard was beyond
the scope of its statutory authority, but that it did have authority to grant state waivers.28 In
response to these concerns regarding the energy savings impact of the proposed efficiency
standard and the concerns regarding preemption, DOE sought and was granted a remand in the
parallel proceedings at the U.S. Court of Appeals for the Second Circuit in order to reconsider the
November 2007 Final Rule.29
EISA Authorizes DOE to Set Regional Standards
The Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) was enacted on
December 19, 2007. As an answer to DOE’s prior claim, noted above, that it lacked the authority
24
Final Opening Brief for Government Petitioners, State of New York et al. vs. U.S. Department of Energy, No. 080311 (2nd Cir. September 3, 2008) at 16 (citing “Energy Conservation Program for Consumer Products: Energy
Conservation Standards for Residential Furnaces and Boilers,” 72 Federal Register 65156, November 19, 2007).
25
Motion of the State of California to Intervene, State of New York et al. vs. U.S. Department of Energy, No. 08-0311
(2nd Cir. February 14, 2008).
26
Petition of the Commonwealth of Massachusetts to Exempt from Federal Preemption Massachusetts’ 90% Annual
Fuel Utilization Efficiency Standard for Non-Weatherized Gas Furnaces (October 1, 2009), available at
http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/ma_state_petition.pdf.
27
DOE, “Energy Conservation Program for Consumer Products: Commonwealth of Massachusetts Petition for
Exemption from Federal Preemption of Massachusetts’ Energy Efficiency Standard for Residential Non-Weatherized
Gas Furnaces,” 75 Federal Register 62115, October 7, 2010, http://www1.eere.energy.gov/buildings/
appliance_standards/pdfs/ma_petition_denial.pdf.
28
DOE noted that, in its 2006 notice of proposed rulemaking (NOPR) for residential furnaces, it had analyzed the
potential energy savings from a 90% AFUE regional standard for the northern tier of the country—but rejected the idea
based on its lack of authority. The 2006 NOPR had stated that, “As discussed in the 2004 ANOPR [Advanced Notice of
Proposed Rulemaking], the Department has determined that EPCA does not authorize DOE to set regional energy
conservation standards; instead, the Department can only establish national standards.... None of the comments
received in response to the 2004 ANOPR provided a basis for changing that determination. However, the Department
notes that EPCA allows states to seek from the Department a waiver of Federal preemption of state or local energy
conservation standards.” DOE, Energy Conservation Standards for Residential Furnaces and Boilers; Proposed Rule,
October 6, 2006, p. 59209.
29
Order Granting Voluntary Motion for Remand, State of New York et al. vs. U.S. Department of Energy (No. 080311) and Natural Resources Defense Council vs. U.S. Department of Energy (No. 08-0312) (April 22, 2009).
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to set regional standards, Section 306 of the law empowered DOE to set regional energy
efficiency standards for residential furnaces as well as central air conditioners and heat pumps.
This provision marked the first time that Congress authorized DOE to set regional efficiency
standards—in order to account for geographic differences in heating or cooling needs. The law
specified that any DOE rule which establishes a regional energy efficiency standard must be
accompanied by a base national “minimum” standard. Further, it directed that any regional
standard for the furnace product “shall apply to any such product installed on or after the
effective date of the standard.” (emphasis added)30 Thus, Section 306 authorized DOE to make a
technical standard for manufacturers (the base national “minimum standard”) and a higher
regional “installation standard.” All other previous DOE energy efficiency standards for
consumer products—whether set by statute or by regulation—only created national technical
standards for manufacturers. In another departure from past practice, Section 308 of the law
specified that DOE could employ a “direct final rule” process to implement new regional
standards. That process differed from the traditional notice-and-comment rulemaking process that
had been used for all previous DOE rulemakings for efficiency standards.31
Collaborative Negotiation Process
EISA Section 308 empowered DOE to set standards based on an “expedited rulemaking” that
involved a collaborative negotiation process:32
On receipt of a [consensus] statement that is submitted jointly by interested parties that are
fairly representative of relevant points of view (including representatives of manufacturers of
covered products, States, and efficiency advocates), as determined by the Secretary, and
contains recommendations with respect to an energy or water conservation standard.33
Section 308 defined the outcome of such a DOE rulemaking process as a “direct final rule.” In
2008, representatives of key manufacturers and energy efficiency advocacy organizations began a
collaborative process to design the next round of energy efficiency standards for residential
furnaces and other equipment covered by EISA Section 306.34
The new process for a direct final rule was hailed by representatives of the Air-Conditioning,
Heating, and Refrigeration Institute (AHRI)35 and the American Council for an Energy-Efficient
Economy (ACEEE)36 as a breakthrough in regulatory rulemaking:
30
EISA §306.
American Public Gas Association (APGA) website, APGA Files Brief Challenging DOE’s Direct Final Rule on
Furnace, May 14, 2012,
http://www.apga.org/files/public/correspondence/PR%20APGA%20Files%20brief%20challenging%20DOE%27s%20
direct%20final%20rule%20on%20furnaces.pdf.
32
Collaborative negotiation processes had been used previously, for other appliance efficiency standards-making
activities. EISA §308 may mark the first time that such a process was set as a requirement.
33
EISA §308 (a). Emphasis added.
34
Since the mid-1990s, this type of collaborative process has become a de facto standard operating procedure in the
appliance energy efficiency standard-setting process. In general, the collaborative organization negotiates issues
between the two contending groups and offers its consensus recommendation to DOE. That consensus position often
becomes the starting point for the DOE rulemaking activity. The collaborative process has smoothed out the standardsetting process and greatly reduced the number of legal battles over DOE rules.
35
AHRI is the trade association representing manufacturers of heating, cooling, and commercial refrigeration
equipment. With more than 300 members, the Institute is an internationally recognized advocate for the industry, and
(continued...)
31
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The agreement is without precedent. If accepted by Congress and the Department of Energy,
it will profoundly change strategies for achieving greater energy efficiency. First, the
agreement will avoid the long, expensive, and unpredictable process of a DOE rulemaking,
giving manufacturers predictable standards to meet with cost-effective, innovative, products.
Second, the agreement will ultimately shift some enforcement responsibility from
manufacturers to distributors, contractors, and local officials, because efficiency levels will
vary regionally. In addition, the agreement reaches out to call for changes to building codes
that will lead to more efficient structures by allowing states to increase the standards for
reference buildings in new homes (emphasis added).37
In late 2009—after months of negotiations—the two groups signed a consensus agreement to set
new standards for residential furnaces and other EISA-identified products.38 A summary of the
agreement was also published.39 For indoor (non-weatherized) natural gas furnaces, the
agreement called for a base national (minimum) standard of 80% annual fuel utilization efficiency
(AFUE)40 and a “northern” regional standard of 90% AFUE.41
DOE Rulemaking Framework
Based on this new authority granted by EISA, DOE initiated a regional standards rulemaking for
residential furnaces, heat pumps, and central air conditioners. The discussion in this section, and
in those that follow, focuses mainly on efficiency standards policy design and issues for natural
gas furnaces, but much of the discussion would also apply to issues for the other equipment.
(...continued)
develops standards for and certifies the performance of many of the products manufactured by industry members. In
North America, the heating, ventilation, air conditioning, and refrigeration industry produces more than $20 billion
worth of product, and in the United States alone, Institute members employ approximately 130,000 people and support
some 800,000 dealers and contractors. The AHRI website is at http://www.ari.org/site/318/About-Us.
36
ACEEE is a nonprofit, tax-exempt organization focused on policy analysis that can serve “as a catalyst to advance
energy efficiency policies, programs, technologies, and investments.” The ACEEE website is at http://www.aceee.org/
about.
37
ACEEE Summer Study on Energy Efficiency in Buildings, The Regional Standards Agreement for Residential
Furnaces, Air Conditioners, and Heat Pumps: Process, Results, and Implications, 2010, http://aceee.org/files/
proceedings/2010/data/papers/1923.pdf.
38
The document was titled: Agreement on Legislative and Regulatory Strategy for Amending Federal Energy
Efficiency Standards, Test Procedures, Metrics and Building Code Provisions for Residential Central Air Conditioners,
Heat Pumps, Weatherized and Non-Weatherized Furnaces and Related Matters. Fed. Reg. 76, 210 (October 31, 2011),
p. 67037.
39
AHRI et al., Fact Sheet on Air Conditioner, Furnace, and Heat Pump Efficiency Standards Agreement, 2009,
http://www.appliance-standards.org/sites/default/files/1009hvac_fact.pdf.
40
An 80% standard for annual fuel utilization efficiency means that 80% of the input energy is converted to useful hot
air (in furnaces), steam (in radiators), or hot water (in radiators) that is then circulated to provide space heating.
41
A population-weighted annual heating demand greater than 5,000 heating degree-days was used by DOE to define
the northern states that would be subject to a higher regional standard than the base (minimum) standard. A heating
degree day (HDD) is a measurement designed to reflect the demand for energy needed to heat a building. Specifically,
HDD is the number of degrees that a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius),
which is the temperature below which buildings need to be heated. The map in Appendix D shows the states that DOE
included in its definition of the northern region for furnace standards. The 30 states are: Alaska, Colorado, Connecticut,
Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska,
New Hampshire, New Jersey, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota,
Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.
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Rulemaking Analysis Plan
In March 2010, DOE published a Rulemaking Analysis Plan (RAP) for residential furnaces.42 The
RAP lays out the key elements and models that DOE used to estimate energy savings for a
number of furnace efficiency levels. DOE’s modeling exercise involved engineering and
economic analysis to estimate energy prices, trial energy efficiency levels, and equipment energy
use. DOE also modeled manufacturer costs, price markups, product (sale) prices, consumer costs,
lifecycle costs, and payback periods. Further, DOE modeled potential impacts on manufacturers,
utilities, employment, and selected environmental emissions.
In the RAP, DOE stated that it expected similar industry impacts from a new direct final rule as
those it had experienced in its previous rulemaking for this equipment. The RAP laid out three
potential ways that the new standards could affect industry. First, DOE anticipated that new
regional standards could disrupt existing supply chains. Second, DOE foresaw that the supply
chain disruption could raise management and compliance costs. Third, DOE expected that those
cost increases were likely to cause industry to mark up its prices.43 While the preceding tensions
did exist, the new regional standards and the direct final rule process led to additional industry
concerns—as noted in the following sections.
Also in March 2010, DOE published a notice that it had received the consensus agreement
produced by the collaborative negotiation process.44 The notice requested public comment on the
proposed percentage efficiency requirements, the proposed regional divisions, and the proposed
compliance dates for residential furnace standards.45
DOE Publishes a Direct Final Rule (DFR)
As noted previously, EISA Section 308 allows DOE to establish an energy efficiency standard by
direct final rule based “... on the receipt of a [consensus] statement submitted jointly by interested
persons that are fairly representative of relevant points of view.” (emphasis added) Section 308
also directed DOE to initiate, simultaneously, a parallel alternative—a “traditional” notice-andcomment rulemaking process—that it could trigger later if opposition to a direct final rule
surfaced. In June 2011, DOE published a direct final rule (DFR) in accordance with the authority
granted by Section 308 of EISA that included standards for non-weatherized (indoor) residential
natural gas furnaces.46 DOE interpreted its direction from EISA to include events that would
trigger the choice of implementing either the DFR or a traditional rulemaking:
A notice of proposed rulemaking (NOPR)47 that proposes an identical energy efficiency
standard must be published simultaneously with the final rule, and DOE must provide a
42
DOE, Energy Conservation Standards for Residential Furnaces: Rulemaking Analysis Plan, March 11, 2010,
http://www1.eere.energy.gov/buildings/appliance_standards/residential/pdfs/furnaces_framework_rap.pdf. Some
additional details about DOE’s RAP economic model design and analysis appear in Appendix C.
43
See discussion of DOE’s RAP in Appendix C.
44
75 Federal Register 12144, March 15, 2010.
45
75 Federal Register 12146, March 15, 2010.
46
“Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential Central Air
Conditioners and Heat Pumps, Direct Final Rule,” 76 Federal Register 37408, June 27, 2011.
47
The NOPR appears at 76 Federal Register 37549.
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public comment period of at least 110 days on this proposal.48 Not later than 120 days after
issuance of the direct final rule, if one or more adverse comments or an alternative joint
recommendation are received relating to the direct final rule, the Secretary must determine
whether the comments or alternative recommendation may provide a reasonable basis for
withdrawal under 42 U.S.C. 6295(o) or other applicable law. If the Secretary makes such a
determination, DOE must withdraw the direct final rule and proceed with the
simultaneously-published NOPR. (emphasis added)49
Table 1. DOE Rulemaking: Standards for Selected Technologies
(The rule covers 14 types of furnaces, air conditioners, and heat pumps)
Technology / Device
National Standard
Regional Standard
Original Target
Implementation Date
Non-Weatherized
(Indoor) Gas Furnacea
80% AFUE
90% AFUE for northern
states
May 1, 2013
Split System Central Air
Conditioner
13 SEERb
14 SEER for southern and
southwestern states
January 1, 2015
Split System Heat Pumpc
14 SEER
no regional standard set
January 1, 2015
Source: DOE, Direct Final Rule, 76 Federal Register 37408, June 27, 2011.
Notes: The DOE rule covers seven types of natural gas, oil, and electric furnaces, and seven types of central air
conditioners and heat pumps. So far, most of the controversy has focused on the proposed standards for nonweatherized furnaces.
a.
AFUE stands for annual fuel utilization efficiency. DOE proposed a higher regional standard of efficiency for
furnaces that would apply to 30 northern states, which are listed in footnote 39 and shown in Appendix
D.
b.
SEER stands for seasonal energy efficiency ratio. A higher SEER means less energy is required to produce
the same amount of air conditioning. Thus, a higher SEER represents a higher level of energy efficiency.
DOE proposed a higher regional standard for central air conditioners that would apply to 15 southern
states and six southwestern states, as shown in Appendix D. For more about central air conditioners, see
http://energy.gov/energysaver/articles/central-air-conditioning.
c.
DOE did not propose a regional standard for heat pumps.
Table 1 shows the standards for selected technology products, including non-weatherized natural
gas furnaces. The DFR called for an 80% AFUE national (minimum) standard and a 90% AFUE
northern regional standard.50 Based on its analyses and projections of the standard’s likely effects,
DOE found that the standards would meet the basic EPCA requirements:
[T]he benefits of today’s standards (energy savings, positive NPV51 of consumer benefits,
consumer LCC52 savings, and emission reductions) would outweigh the burdens (loss of
48
42 U.S.C. 6295(p)(4).
“Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential Central Air
Conditioners and Heat Pumps, Direct Final Rule,” 76 Federal Register 37408, June 27, 2011, p. 23
50
As noted above, these standards were based on the consensus statement issued by the parties to the collaborative.
51
NPV stands for net present value. NPV compares the value of a dollar today to the value of that same dollar in the
future, taking inflation and returns on investment into account. An NPV calculation uses a formula (with a “discount
rate”) to estimate the current dollar value of a money stream that is projected to run through future years.
52
LCC stands for life-cycle cost. LCC is the sum of all recurring and one-time (non-recurring) costs over the full life
(continued...)
49
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INPV53 for manufacturers and LCC increases for some consumers). DOE has concluded that
today’s standards represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result in the significant
conservation of energy.54 DOE further notes that products achieving these standard levels are
already commercially available for all of the product classes covered by today’s proposal
(emphases added).55
Thus, DOE concluded that the expected benefits of the standard would outweigh the expected
costs.56
In October 2011, the public comment period closed and DOE issued a notice confirming adoption
of the DFR.57 The notice addressed several adverse comments that were submitted in response to
the DFR. DOE determined that the adverse comments did not provide “a reasonable basis for
withdrawing” the DFR.58
Estimated Energy Savings
The DFR specified that:
Pursuant to EPCA, any new or amended energy conservation standard that DOE prescribes
for certain products, such as the residential furnaces (furnaces) and residential central air
conditioners and central air conditioning heat pumps (air conditioners and heat pumps) that
are the subject of this rulemaking, shall be designed to ‘achieve the maximum improvement
in energy efficiency ... which the Secretary determines is technologically feasible and
economically justified.’ (42 U.S.C. 6295(o)(2)(A)). Furthermore, the new or amended
standard must ‘result in significant conservation of energy.’59
In the DFR, DOE reported that the new energy efficiency standards that were scheduled to take
effect on May 1, 2013, would yield an estimated 3.4 to 4.4 quads60 of cumulative energy savings
over a 30-year period.61 Those energy savings were estimated to avoid the need for about 4 billion
(...continued)
span or a specified period of a good, service, structure, or system.
53
INPV stands for industry net present value over DOE’s 35-year analysis period. This is an application of NPV to
cash flows for an entire industry.
54
EPCA requires that those three conditions hold for all appliance and equipment efficiency standards. The conditions
are also noted under EISA §306(a).
55
DOE, Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential
Central Air Conditioners and Heat Pumps (Direct Final Rule, DFR), June 27, 2011, 76 Federal Register 37414.
56
Ibid.
57
DOE, “Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential
Central Air Conditioners and Heat Pumps (Notice of effective date and compliance dates for direct final rule),” 76
Federal Register 67037, October 31, 2011.
58
Ibid.
59
DOE, Direct Final Rule (DFR), 76 Federal Register 37410.
60
One “quad” equals one quadrillion British thermal units (Btus). One quadrillion is equal to the number 10 raised to
the 15th power—or a million (10 raised to the 6th power) billion (10 raised to the 9th power).
61
DOE, Direct Final Rule (DFR), 76 Federal Register 37412. This estimate includes all equipment covered by the
DFR, including gas furnaces, central air conditioners and heat pumps. The values were estimated in 2009 dollars. The
period begins with the scheduled compliance date for each equipment category (2013 for furnaces and 2015 for other
equipment) and ends in 2045.
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watts (gigawatts, GW) of power plant construction and reduce carbon dioxide emissions by an
estimated 113 to 143 million metric tons.62 For non-weatherized gas furnaces with a 90% AFUE,
DOE estimated an average life-cycle cost savings of about $150 and a payback period of about 10
years.63
The DFR also discussed the potential for a rebound effect on estimated energy savings.64 The rule
stated that “the rebound effect for residential space heating appears to be highly variable, ranging
from 10% to 30%. Based on [a] review, DOE incorporated a rebound effect of 20% for furnaces
in the direct final rule analysis.”65
In a subsequent discussion of the value of consumer benefits, DOE’s comments in the DFR
reflected on the value of the foregone energy savings: “As previously discussed in section IV.F,
because the rebound effect provides consumers with increased value (i.e., a more comfortable
environment), DOE believes that, if it were able to monetize the increased value to consumers
added by the rebound effect, this value would be similar in value to the foregone energy
savings.”66
“Lead Time” for Compliance Date
In the DFR, DOE reported on its perception of the statutory time frame applicable to the regional
standards rulemaking process:
EPCA establishes a lead time between the publication of amended energy conservation
standards and the date by which manufacturers must comply with the amended standards for
both furnaces and central air conditioners and heat pumps. For furnaces, EPCA dictates an
eight-year period between the rulemaking publication date and compliance date for the first
round of amended residential furnace standards, and a five-year period for the second round
of amended residential furnace standards. (42 U.S.C. 6295(f)(4)(B)–(C)) DOE has concluded
that the remand agreement [for the combined cases of State of New York v. DOE and NRDC
v. DOE] for furnaces does not vacate the November 2007 Rule for furnaces and boilers.
Therefore, the November 2007 Rule completed the first round of rulemaking for amended
energy conservation standards for furnaces, thereby satisfying the requirements of 42 U.S.C.
6295(f)(4)(B). As a result, the current rulemaking constitutes the second round of rulemaking
for amended energy conservation standards for furnaces, as required under 42 U.S.C.
6295(f)(4)(C), a provision which prescribes a five-year period between the standard’s
publication date and compliance date. (emphasis added)67
However, the Consensus Agreement published in early 2010 included a May 1, 2013, compliance
date for the gas furnace regional standard—an even shorter lead time period of slightly more than
three years. AHRI initially supported this shorter period, observing that “DOE has the authority to
62
Ibid.
Ibid. at 37503, 37507.
64
A rebound effect could occur when a piece of equipment that is more efficient (and thus cheaper to operate) is used
more intensively, so that the expected energy savings from the efficiency improvement may not fully materialize.
65
76 Federal Register 37468. This point, and much of the other discussion of the rebound effect, was also presented in
the DOE Rulemaking Analysis Plan, pp. 51-53.
66
Ibid. at 37487.
67
Ibid. at 37425.
63
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adopt the accelerated standards compliance dates in the consensus agreement whether DOE
proceeds via a conventional rulemaking process or via direct final rule.”68
DOE, in turn, stated that it “agrees with AHRI, Rheem, and NRDC that in circumstances where
the manufacturers who must comply with the standard support acceleration of the compliance
date of the standard (such as in the case of the consensus agreement where compliance dates were
an integral part of the agreement), DOE has some flexibility in establishing the compliance dates
for amended energy conservation standards.”69
A further passage of the DFR reinforced the use of a shortened agreement-specified period,
observing that “DOE believes that the applicable statutory provisions (i.e., 42 U.S.C.
6295(f)(4)(C) for furnaces and 42 U.S.C. 6295(d)(3)(B) for central air conditioners and heat
pumps) necessitate a five-year time period between the final rule publication date and the
compliance date. The only exception would be in the case of the adoption of the consensus
agreement.... ” (emphasis added)70
Enforcement Rulemaking
Enforcement Framework Document
EISA Section 306 directed DOE to initiate a separate rulemaking for enforcement of the regional
standards within 90 days after the direct final rule and to complete the rulemaking within 15
months after the DFR publication date. In December 2011, DOE published a Regional Standards
Enforcement Framework Document which reflected that: “The Department recognizes that
regional standards present new certification, compliance, and enforcement issues. Congress
ostensibly anticipated these issues and explicitly required DOE to initiate rulemaking for
enforcement of regional standards.”71
The Enforcement Document anticipated the differences between “traditional” standards for
manufacturers and the new regional standards, which would be determined by geographic
location of the installation:
In adopting amendments to EISA authorizing establishment of regional standards, Congress
recognized that an entirely new enforcement framework would be needed. Under the
amended energy conservation standards framework, the base national standard applies to the
manufacturer (including importers). Compliance with the base national standard is entirely
determined by whether the covered product complies with the standard for that covered
product applicable at the time of manufacture (or importation). Under regional standards,
the applicable standard is determined by the installation location of the covered product
(emphases added). 72
68
Ibid. at 37426.
Ibid.
70
Ibid. at 37427.
71
DOE, Regional Standards Enforcement Framework Document, December 2, 2013, p. 1,
http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/furncac_regstnd_enforceframework.pdf (hereinafter
Enforcement Document).
72
Ibid.
69
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Also, the new focus on the point of installation had the effect of moving the standard down the
equipment distribution supply chain. This, in turn, accelerated the timing of the effect of a
regional standard on distributors and installers (contractors) relative to a standard that only affects
manufacturers:
Regional standards also differ from a base national standard with respect to the compliance
date of the standard for a particular product. The current base national standard applies to
products “manufactured or imported” on or after the effective date of the standard. (42
U.S.C. § 6295(o)(6)(E)(i)(II)) Regional standards apply to products “installed” on or after
the compliance date of the standard. (42 U.S.C. § 6295(o)(6)(E)(ii)) This requirement places
a burden for compliance with a regional standard at the point of installation. (emphasis
added)73
The Enforcement Document acknowledged that the impact of regional standards would extend
beyond the usual effects on manufacturers to have new types of effects on distributors and
contractors. In it, DOE proposed three alternative modes of information production that industry
participants could use to demonstrate compliance:
DOE is also considering the appropriate roles and responsibilities of other parties, such as
distributors and contractors, that might be involved in compliance with regional standards ...
An effective regional standards enforcement program will include participation by
manufacturers, distributors, and contractors. The program should not overburden any one
participant, nor should it overtax DOE with an impractical enforcement mandate. DOE has
developed three potential approaches to enforcement of regional energy conservation
standards for central air conditioners, heat pumps, and furnaces to facilitate discussion
regarding the elements of an effective enforcement program. (emphasis added)74
Industry Comment on Information Alternatives
Representatives from all three industry sectors—manufacturers, distributors, and contractors
(installers)—expressed strong opposition to DOE’s proposals to expand industry information
processing requirements in order to demonstrate compliance with regional standards. For the
most part, industry requested that past compliance information requirements be continued with
added support from the online AHRI equipment certification directory75 and a revision of Federal
Trade Commission (FTC) Energy Guide labels.76 More details about industry comments are
presented in the section below on Implementation Issues.
Guidance on Regional Installation Standard
EISA specifically tied the compliance date for regional standards to the date of installation. In a
May 17, 2012, letter to DOE, AHRI sought clarification of the relevant regulatory provisions and
73
Ibid.
DOE, Enforcement Document, pp. 3-4.
75
The AHRI site is at https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
76
For more about the FTC energy guide labels, see http://www.consumer.ftc.gov/articles/0072-shopping-homeappliances-use-energyguide-label.
74
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urged DOE to tie the compliance date for regional standards only to the date of product
manufacture, and not to the installation date.77
In response—on June 28, 2012—DOE clarified its intent to administer an installation standard by
providing a one-page “Final Guidance” document about its plans for enforcement of regional
standards.78 DOE stated that it was constrained by statutory language to enforce an installation
compliance date for regional standards in addition to a manufactured compliance date for national
standards. Specifically, DOE noted that it was constrained by language in EISA which provided
that the base national standard shall “...apply to all products manufactured or imported into the
United States on and after the effective date of the standard,” but which also provides in the same
section that “...[a]ny additional and more restrictive regional standard … shall apply to any such
product installed on or after the effective date of the standard….” DOE stated that those terms
have very distinct and different meanings, and that Congress clearly differentiated between the
two within EISA §306. DOE stressed that it was not at liberty to adopt a contrary interpretation
that would violate the law.79
Delays of DFR and Enforcement Rule
DFR Takes Longer Than Expected
In a May 2012 letter to DOE, AHRI observed that DOE’s efforts to formulate a direct final rule
took much longer than industry had expected, with direct consequences for the amount of
available lead-time remaining for industry adjustments:
We did not anticipate that it would take DOE nearly a year and a half to publish a direct
final rule adopting the standards as federal regulations. Nevertheless, AHRI did not object
when the direct final rule prescribed a compliance lead-time for non-weatherized gas furnace
standards that had been compressed to a period of less than two years. By the time DOE
confirmed the direct final rule at the end of October 2011, the lead time for compliance with
the furnace standards had been further compressed to 18 months. Industry was willing to live
with that reduced amount of lead time despite it being much less than the minimum threeyear lead time originally anticipated by the industry when the consensus standards were
presented to the DOE in January 2010. Although, historically and as a general rule, the
Energy Policy and Conservation Act (EPCA) has provided the HVAC [heating, ventilation,
and air conditioning] industry at least 5 years lead time for compliance with amended
residential product standards, the industry accepted less lead time in presenting the
consensus standards to DOE and even less time than that following DOE’s delay in adopting
the consensus standards.80
77
AHRI, “Re: Notice of Compliance Burden for May 1, 2013, Effective Date of Non-Weatherized Gas Furnace
Minimum Efficiency Standards Published in June 27, 2011, Federal Register,” May 17, 2012,
http://images.magnetmail.net/images/clients/AHRI/attach/ChuLetter051712.pdf.
78
DOE, Final Guidance on Residential Furnaces, Central Air Conditioners, and Heat Pumps, June 28, 2012,
http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/csc_hp_furnaces_regstnddate_faq_2012-06-28.pdf.
Note: other documents often refer to this document with a July 2, 2012, date.
79
DOE, Guidance Document, emphases are from original.
80
AHRI, “Re: Notice of Compliance Burden for May 1, 2013, Effective Date of Non-Weatherized Gas Furnace
Minimum Efficiency Standards Published in June 27, 2011, Federal Register,” May 17, 2012,
http://images.magnetmail.net/images/clients/AHRI/attach/ChuLetter051712.pdf.
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Thus, from AHRI’s view, it was willing to accept a reduction in lead-time from five years down
to about 18 months.
Enforcement Compliance Rulemaking Not Completed
While focused on the May 2013 target implementation date, AHRI anticipated that DOE would
need to issue a final compliance enforcement rule by the end of 2012. However, AHRI noted that
the “delay in the anticipated DOE rulemaking on enforcing the new standards has added
complexity and uncertainty that potentially make it very difficult for industry to prepare for
compliance.”81
DOE’s Final Guidance document was silent on how DOE would make a final decision about
compliance information requirements. The urgency of making such a decision may have been
eclipsed by the mounting importance of court action, which ultimately prompted DOE to agree
with the American Public Gas Association (APGA)82 to vacate the DFR as it applied to the gas
furnace regional standard. That court action is reviewed in the last section of this report.
Implementation Design Issues
As part of the authorization for DOE to adopt a direct final rule, EISA directed DOE to seek
public comment on the proposed rule. According to DOE, the law stipulated that
if one or more adverse comments or an alternative joint recommendation are received
relating to the direct final rule, the Secretary must determine whether the comments or
alternative recommendation may provide a reasonable basis for withdrawal under 42 U.S.C.
6295(o) or other applicable law. If the Secretary makes such a determination, DOE must
withdraw the direct final rule and proceed with the simultaneously published [Notice of
Proposed Rulemaking].83
Three main industry issues were raised through this public comment process. A description of
those issues—both industry concerns and DOE responses—follow.
Compliance Date Issue: Manufactured vs. Installed
Costs of Stranded Inventory
In July 2012, the Air Conditioning Contractors of America (ACCA)84 expressed concern that the
regional standard could strand large amounts of furnace inventory:
81
As of November 20, 2013, DOE had not yet issued a final enforcement rule. For more about the enforcement
rulemaking, see AHRI’s comments in the following section on “Need for Time Extension.”
82
APGA is a trade organization that represents publicly-owned natural gas local distribution companies. It has over 700
members in 36 states. The APGA website is at http://www.apga.org/i4a/pages/index.cfm?pageid=3289.
83
DOE, “Notice Confirming Adoption of the DFR,” 76 Federal Register 67037, October 31, 2011.
84
ACCA is a trade association representing installers of, and service providers for, indoor energy equipment and
services. Its membership includes more than 60,000 contractors and 4,000 businesses. The ACCA website is at
http://www.acca.org/about/.
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[T]he new regional standards must abide by “installed by” rules in order to be compliant
when the pending regulations begin to go into effect next year [May 1, 2013]. This
determination has the potential to wreak havoc on hundreds of millions of dollars worth of
inventory and shorten supplies of residential heating equipment in the Northern region in the
months before the new rule’s compliance date. (emphasis added)85
ACCA noted that, previously, whenever the DOE set new minimum efficiency standards, it set a
“manufactured by” compliance system that allowed for covered products legally manufactured to
the older standard to be sold and installed after the compliance date. In this case, however, the
new “installed by” compliance system would require that on or after May 1, 2013, it would be
unlawful to install an 80% residential gas furnace or mobile home furnace in the 30 northern
states.86 Although DOE preparation of the final enforcement rules were not finished, ACCA
observed that the Guidance Document made it clear that DOE did not intend to allow for a “sell
through period” for natural gas furnaces or mobile home furnaces (emphasis added).87
Need for Time Extension
On July 30, 2012, AHRI petitioned DOE for an 18-month extension of the May 1, 2013,
compliance date for the regional gas furnace standard. Several factors and concerns drove
industry’s effort to extend the amount of time available for compliance.
First, AHRI emphasized that the choice to use an installation date would be an important
departure from the consensus agreement: “Making the effective date of the regional standard for
furnaces the date of installation instead of the date of manufacture is not what the parties that
signed the consensus agreement contemplated, and it effectively advances the implementation of
the standard by a minimum of eight months. That is the amount of time it would take distribution
channels from manufacturers to distributors to installers to do what is necessary to avoid having
stranded inventory as of May 1, 2013.” (emphasis added)88
Second, AHRI explained the need from the manufacturers’ perspective:
This extension of the standards’ effective date is needed in order for manufacturers to have
adequate time to prepare for compliance with regional furnace standards and related
standards enforcement and product labeling requirements, and to ensure that any changes in
furnace minimum standards are timed to coincide with the start of the 2014-2015 heating
season.89
85
ACCA, DOE Regional Standards Ruling Could Strand Millions Worth of Inventory, July 3, 2012,
https://www.acca.org/archives/industry-resources/government-affairs/hot-air/7320.
86
The 30 northern states, shown in Appendix D, are Alaska, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa,
Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Jersey,
New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Utah, Vermont, Washington,
West Virginia, Wisconsin, and Wyoming.
87
ACCA, DOE Regional Standards Ruling Could Strand Millions Worth of Inventory, July 3, 2012,
https://www.acca.org/archives/industry-resources/government-affairs/hot-air/7320.
88
AHRI, “AHRI Petition for an 18-Month Extension of the May 1, 2013, Effective Date of Amended Federal
Minimum Efficiency Standards for Residential Non-Weatherized Gas Furnaces,” July 30, 2012,
http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/06-2012/The%20Honorable%20Steven%20Chu%20730-12.pdf.
89
Ibid.
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The requested delay, AHRI noted, would enable manufacturers to avoid economic losses and
market disruptions for the 2012-2013 and 2013-2014 heating seasons.
Third, distributors and installers emphasized the need for additional “sell-through time” to avoid
losses from stranded inventory. HARDI (the association of equipment distributors)90 and ACCA
supported the AHRI-proposed extension. HARDI stressed that the DOE approach to regional
standards had been very difficult for distributors,91 and AHRI stressed the economic importance
of coordinating the projected preparation time needed with the compliance date constraint:
We request that DOE grant this petition as soon as possible, but by no later than September
15, 2012; otherwise manufacturers and distribution channels will begin to incur significant
market disruptions and economic losses as they will have to re-position product offerings
and distribution for the upcoming heating season. The 18-month delay would make the
effective date November 1, 2014. This is still two years before what would have been the
normal effective date for these standards and less than two years from DOE publication of its
enforcement rule, assuming that DOE publishes this rule near the end of this year [2012].92
Uncertainties about requirements for enforcement and product labeling were additional concerns
that prompted industry efforts to extend the time period for compliance. AHRI cited the fact that
DOE had not yet prescribed the final enforcement information measures that manufacturers,
distributors, and installers would be required to take in order to establish compliance with
regional standards. The AHRI petition emphasized that:
Inasmuch as DOE has not even published a proposed rule on regional standards
enforcement and recognizing that under the Energy Policy and Conservation Act (EPCA)
DOE has 15 months from the date it prescribes regional standards to prescribe regional
standards enforcement rules, AHRI assumes that it will be the end of the year [2012] before a
final rule is published ... if [the final rule] imposes an obligation to track products or to
submit additional information, manufacturers should be allowed a minimum of 12 months to
begin compliance. Distributors and contractors will, of course, have their own compliance
lead time needs depending on what they are required to do by the final rule. (emphasis
added)93
Also, AHRI noted that product labeling for regional standards enforcement would require several
months of lead time for compliance. In conclusion, AHRI reflected on the new process, while
requesting an adjustment to the compliance date: “Regional standards and direct final rules are
new both to DOE and to industry and other stakeholders, and all of us are learning from
90
HARDI is a trade association that represents heating, ventilation, air-conditioning, and refrigeration equipment
(“HVACR”) distributors. It is comprised of nearly 1,000 member companies, over 450 of which are U.S.–based
wholesalers. More than 80% of HARDI’s distributor members are classified as small businesses. Collectively, HARDI
members employ over 30,000 U.S. workers and represent over $25 billion in annual sales and an estimated 90% of the
U.S. wholesale distribution market of HVACR equipment, supplies, and controls. USCA Case #11-1485, Motion to
Intervene of the Heating, Air-Conditioning & Refrigeration Distributors International (“HARDI”), filed January 20,
2012, p. 2, http://causeofaction.org/wp-content/uploads/2012/01/Motion-to-Intervene-by-HARDI-filed-20-Jan2012.pdf.
91
Ibid.
92
AHRI, “AHRI Petition for an 18-Month Extension of the May 1, 2013, Effective Date of Amended Federal
Minimum Efficiency Standards for Residential Non-Weatherized Gas Furnaces,” July 30, 2012,
http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/06-2012/The%20Honorable%20Steven%20Chu%20730-12.pdf.
93
Ibid.
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experience. AHRI has readily engaged in negotiating consensus standards ... [w]e ask that DOE
recognize and appreciate where we started from and how much we compromised and adjust the
furnace standards’ effective date to allow manufacturers, as well as distribution channels,
adequate time to prepare for compliance.”94
Compliance (Enforcement) Information Issue
DOE Proposes Alternative Information Requirements
As previously noted, DOE has an enforcement rulemaking responsibility attendant to its
standards rulemaking charge. In December 2011, DOE solicited comments on its Regional
Standards Enforcement Framework Document. DOE noted that an effective enforcement program
design would set compliance information burdens on the manufacturers, distributors, and
contractors in a way that neither overburdens any one industry participant nor overtaxes DOE.
Three approaches were proposed, to offer alternative ways to distribute the information burdens.
Under each approach, the tracking and recordkeeping requirements would apply only to units
(equipment) that were required to meet a regional standard.95
1. Approach 1 would require that manufacturers track the serial numbers of units
shipped to each distributor location and that distributors maintain records
demonstrating that purchasers acknowledged the regional limits applicable to
each unit.96
2. Approach 2 would require manufacturers and distributors to maintain records of
the distributor/contractor to which each unit of a covered product was distributed.
Contractors would be required to maintain a record for each unit installed,
including the unit’s serial number and installation address. The only information
reported to DOE would be the certification reports filed by the manufacturers.97
3. Approach 3 would require a complete tracking system for each individual unit by
serial number starting with the manufacturer all the way through the distribution
chain until the actual installation. This approach would place a heavier burden
on manufacturers, distributors, and contractors but would provide a very
comprehensive and effective enforcement program.98
The remainder of the document lays out more details about the information role and recordkeeping requirements for manufacturers, distributors, and contractors.
94
Ibid.
These approaches also assume various labeling, notification, and information requirements would be imposed by the
Federal Trade Commission (FTC) as part of a coordinated enforcement program.
96
DOE, Enforcement Document, p. 4.
97
DOE, Enforcement Document, pp. 4-5. This approach would allow for a record keeping system that the Department
could track by requesting the information from each party in the distribution chain.
98
DOE, Enforcement Document, p. 5. This approach would require contractors to maintain records of each serial
number and installation address for installed units and to provide that information to the distributor. The distributor
would be required to compile the information from multiple contractors and submit the basic model number, efficiency,
serial number of the unit, and zip code of the installation to DOE for review. Distributors would be responsible for
ensuring the distributors or contractors to whom it provides units are installing the units in appropriate regions and that
all units are properly reported to the Department.
95
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Industry Objects to New “Information Burden”
In response to DOE’s solicitation of comments on its Regional Standards Enforcement
Framework Document, three major industry associations—APGA,99 AHRI,100 and HARDI101—
filed responses in February 2012.102 AHRI subsequently presented a collective industry viewpoint
in an article published in March 2012.103
Information Burdens Pose Major Barrier
AHRI described DOE’s three proposed approaches from an industry perspective. Overall, AHRI
found that:
None of the three potential enforcement schemes in the framework document will provide an
appreciably higher rate of compliance with the regional standard than [the existing
system].... All of the three schemes will create an unnecessary administrative burden at all
levels of distribution, inject DOE into existing business practices, and add unnecessary cost
for all parties involved in the distribution and installation of equipment.... (emphasis
added)104
More specifically, AHRI identified the first approach as the one most similar to existing industry
requirements. That approach could, AHRI noted, be made workable by modifying the FTC’s
Energy Guide labels.105 The second and third approaches, AHRI observed, both require additional
record-keeping and reporting requirements, including the tracking of hardware serial numbers by
distributors and contractors.106
Regarding the options for product tracking and information reporting, the AHRI article stressed
that AHRI does not support additional reporting requirements for regional standards beyond the
99
APGA, Comments of the American Public Gas Association on Regional Standards Enforcement Framework
Document, February 6, 2012, http://www.apga.org/files/public/federal%20filings/
APGA%20Waiver%20Comments%20020612.pdf.
100
AHRI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/02-2012/
DOE%20Reg%20Enforce%20NODA%20Com%202-6-12.pdf.
101
HARDI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, http://www.regulations.gov/#!documentDetail;D=EERE-2011-BT-CE-0077-0015.
102
Also, the Furnace Waiver Design Group (which includes ACCA and a variety of other organizations) filed its
response to the DOE request for comments. Furnace Design Group, http://ftc.gov/os/comments/
regionaldisclosurenprm/560904-00003-83225.pdf.
103
AHRI, Industry Responds to Regional. Enforcement Proposals, March 12, 2012, http://www.achrnews.com/articles/
119550-industry-responds-to-regional-enforcement-proposals.
104
AHRI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, p. 6, http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/02-2012/
DOE%20Reg%20Enforce%20NODA%20Com%202-6-12.pdf.
105
The familiar yellow-and-black Energy Guide labels help consumers comparison-shop for energy-efficient
appliances, lighting, and plumbing products by providing an estimate of the products’ energy consumption or energy
efficiency. Manufacturers of most major home appliances are required to attach the labels to their products under the
FTC’s Appliance Labeling Rule. The labels show the highest and lowest energy consumption or efficiency estimates of
similar appliance models. FTC designs the labels in cooperation with DOE. For more about the labels see
http://www.ftc.gov/opa/reporter/shopping/energyguides.shtml.
106
AHRI, Industry Responds to Regional. Enforcement Proposals, March 12, 2012, http://www.achrnews.com/articles/
119550-industry-responds-to-regional-enforcement-proposals.
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reporting called for under current regulations.107 As for record-keeping, AHRI recommended that
“DOE should recognize the existing record-keeping schemes.”108
To emphasize the points about the potential for a new burden of record-keeping and reporting,
AHRI stressed that “there are over 10 million serial- numbered residential HVAC units (packaged
AC/HP, split system coil, split system, condensing unit, or furnace) installed each year. The
potential paperwork burden under the most ambitious program outlined in the framework
document would be overwhelming.” (emphasis added)109
In arguing for a more status quo approach, AHRI emphasized the statutory basis for the role of
industry trade associations in the information certification process:
The Energy Independence and Security Act (EISA) of 2007 includes a statement that the
DOE Secretary shall use, to the maximum extent practicable, nationally recognized
certification programs of trade associations to enforce standards. The AHRI [online
equipment certification] directory is the authoritative source for certified performance
information on the residential furnaces and residential central air conditioners and heat
pumps available for installation in the U.S. (emphasis added)110
Aside from the different features in its three proposed alternatives for information requirements,
DOE has not stated publically any objections that it might have to the use of an industry-based
certification program.
Industry Prefers FTC-AHRI Option
DOE’s adoption of regional standards also triggers an equipment-labeling requirement for the
Federal Trade Commission (FTC). EPCA directs the FTC to initiate a rulemaking within 90 days
after DOE publishes a final rule for regional standards. FTC is directed to determine one or more
methods for disclosing equipment information in a way that consumers, distributors, contractors,
and installers can easily determine whether the device installed in a specific building conforms to
the regional standard. The FTC is required to complete this rulemaking no later than 15 months
after publication of the final rule that establishes the regional standards.111
In support of the DFR, FTC initiated a parallel and supplementary rulemaking to update its
Energy Guide labels for furnaces and other hardware. FTC initiated this action by publishing an
107
AHRI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, p. 5, http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/02-2012/
DOE%20Reg%20Enforce%20NODA%20Com%202-6-12.pdf.
108
Ibid., p. 6.
109
Ibid.
110
Ibid., p. 3. AHRI states that, “The directory is relied upon by the contracting, building and consulting engineering
community to develop specifications and to determine the efficiency of matched components. To facilitate DOE’s use
of AHRI’s certification programs to the maximum extent practicable, AHRI stands ready to reformat its directory to
make clear the appropriate efficiency requirements by region.”
111
DOE, Enforcement Document, p. 1. DOE cites to 42 U.S.C. §6295(o)(6)(H)(i), (iii).
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Advanced Notice of Proposed Rulemaking in late 2011.112 FTC published a proposed rule in June
2012,113 and issued a final rule in February 2013.114
Instead of adopting one of the DOE-proposed approaches, AHRI offered a possible expansion of
the existing mechanism, in which each link in the equipment supply chain could play a role in the
compliance information process: “AHRI commits to working with DOE to develop those tools to
raise awareness throughout the [distribution] channel,115 building upon the recommended
revisions to the FTC label and suggested DOE public awareness campaign.”116
AHRI’s ideal enforcement regime would limit manufacturers’ obligation to inform distributors. In
its view, because only a few products would require enforcement of a regional standard, the
enforcement goal could be met with some revisions to FTC energy labels.
To address the information compliance issue, AHRI proposed modifications to the FTC label for
residential furnaces, air conditioners, and heat pumps:
We believe that the objectives of FTC and DOE can be met through revisions to the existing
Energy Guide labels alone, and that no additional reporting requirements should be imposed
on manufacturers ... While revising its existing Energy Guide labels, FTC should consider
incorporating a reference in all labels to the AHRI directory of certified product
performance, www.ahridirectory.org, so that consumers can ensure that the correct
equipment is installed in their region. The AHRI directory of certified equipment currently
plays an important role in helping consumers make informed decisions when purchasing
residential furnaces and central air conditioners and heat pumps. We believe that the AHRI
directory can even play a bigger role with the implementation of regional standards to ensure
that contractors select the right products and that consumers get equipment that can meet the
regional standards. We recommend that FTC allow the AHRI directory of certified products
to be one of the approved methods for disclosing information associated with the new
regional standards for residential furnaces and central air conditioners and heat pumps.
(emphasis added)117
In conclusion, AHRI stressed that, “The Federal Trade Commission (FTC) Energy Guide labels
for residential furnaces, air conditioners and heat pumps, modified as proposed by AHRI, will be
112
FTC, “Appliance Labeling Rule,” 76 Federal Register 72872, November 28, 2011, http://www.gpo.gov/fdsys/pkg/
FR-2011-11-28/pdf/2011-30436.pdf.
113
FTC, “Appliance Labeling Rule,” 77 Federal Register 3337, June 6, 2012, http://www.ftc.gov/sites/default/files/
documents/federal_register_notices/16-cfr-part-305-request-comments-proposed-rule-concerning-disclosuresregarding-energy-consumption/120531energylabeling.pdf.
114
FTC, “Energy Labeling Rule,” 78 Federal Register 8362, February 6, 2013, http://www.gpo.gov/fdsys/pkg/FR2013-02-06/html/2013-02225.htm.
115
AHRI notes that products covered by regional standards are often sold through a multiple channel distribution
process from the manufacturer, to a distributor, to an installing contractor, and finally to the end consumer. At each step
the businesses in the distribution process can raise awareness of regional standards through bulletins, meetings, and
sales literature.
116
AHRI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, p. 3, http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/02-2012/
DOE%20Reg%20Enforce%20NODA%20Com%202-6-12.pdf.
117
AHRI, AHRI Comments—Regional Labeling for Heating and Cooling Equipment, February 6, 2012, pp. 1-2,
http://www.ftc.gov/os/comments/regionaldisclosuresanpr/00003-82667.pdf.
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
the single most useful tool for effectively implementing the regional standards.” (emphasis
added)118
From the distributors’ perspective, HARDI asserted its opposition to new and additional forms of
record-keeping relative to past requirements.119 HARDI found that all three of DOE’s proposed
enforcement approaches would “put unprecedented burdens on distributors.”120 HARDI stated
further that current standards enforcement and certification procedures are “fully capable” of
ensuring compliance:
HARDI believes the current certification system, as managed by AHRI, is more than capable
of assuring energy efficiency compliance.... We believe that the proposal from the AHRI to
the FTC regarding an updated energy-efficiency label ... [combined with] voluntary interchannel communication, and consumer and contractor education done by the DOE will prove
sufficient in securing compliance with the law.121
In support of its view, HARDI noted that, in February 2013, the FTC changed its Energy Guide
labeling rule to add regional information and a map to the labels used for residential furnaces and
central air conditioners. The FTC’s final rule requires the Energy Guide label on product
packaging, at the point of sale, on websites, and on the product hardware.122
From the contractor (installer) perspective, ACCA expressed strong opposition to DOE’s
proposals,123 and stated a preference for an approach most similar to the current compliance
information requirements for efficiency standards.
Gas Furnace Installation Issue
Installation Challenges for 90% Regional Standard
In September 2012, ACCA raised technical installation concerns about the regional natural gas
furnace standard. One concern was that the 90% AFUE standard could only be met by the use of
condensing furnaces.124 That type of furnace, it said, has such a low amount of exhaust gases that
118
AHRI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012, p. 2, http://www.ahrinet.org/App_Content/ahri/files/NEWSLETTER/02-2012/
DOE%20Reg%20Enforce%20NODA%20Com%202-6-12.pdf.
119
HARDI, DOE Outlines Possible Enforcement Options for Regional Standards, December 2, 2011,
http://wholesaleobservations.blogspot.com/2011/12/doe-outlines-possible-enforcement.html.
120
HARDI, DOE Outlines Possible Enforcement Options for Regional Standards, December 2, 2011,
http://wholesaleobservations.blogspot.com/2011/12/doe-outlines-possible-enforcement.html. Further, HARDI claimed
that the law precludes DOE from requiring distributors to help with enforcement.
121
AHRI, Industry Responds to Regional. Enforcement Proposals, statement by Aniruddh Roy, AHRI regulatory
engineer.
122
FTC, “FTC Approves Final Revised Energy Labeling Rule for Home Heating and Cooling Equipment,” January 25,
2013, http://www.ftc.gov/opa/2013/01/energylabeling.shtm.
123
AHRI, Industry Responds to Regional. Enforcement Proposals, statement by Aniruddh Roy, AHRI regulatory
engineer.
124
EIA notes that about 35% of gas furnaces sold nationally in 2012 were 90% AFUE or higher. EIA, Gas Furnace
Efficiency Has Large Implications for Residential Natural Gas Use, 2013, http://www.eia.gov/todayinenergy/
detail.cfm?id=14051.
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
it cannot use a chimney and, thus, must be vented through a side wall.125 ACCA elaborated that
such venting is a problem for some residential buildings, such as row houses. “The requirement
that non-weatherized furnaces installed in the north[ern] region meet a minimum 90% AFUE
poses potential installation issues for contractors and their customers. In certain cases, adequately
addressing the ventilation and condensate requirements for higher efficiency may cause the
installation costs to increase considerably or make the installation impractical or impossible.”126
Under certain conditions, EISA §306 allows for waivers of the regional standard. ACCA noted
that the waiver possibility created another source of uncertainty—about enforcement of the
furnace rule. ACCA described its concern:
Preliminary documents outlining DOE’s enforcement plan indicate the agency may create a
‘waiver’ from the requirement to install condensing furnaces in the North[ern] region ‘to
mitigate the unintended consequences of a condensing furnace standard for residential
furnaces in the Northern Region for a select subset of installations that may be severely
impacted.’ The waiver process would allow a trained contractor to determine whether a
specific installation job would qualify for a waiver, then file documentation with the
Department of Energy after the installation. It’s important to note that until the DOE
finalizes the enforcement rule,127 it is unknown whether waivers will be allowed, the criteria
for allowing them, or the exact process to obtain one. But the fact waivers are being
considered is causing some confusion about the new furnace rule.128
Thus, although the waiver provision appears to have been designed to help create flexibility for
addressing potential barriers to a regional standard, ACCA viewed it as contributing to
uncertainty about enforcement of the rulemaking.
Pressure to Switch from Gas to Electric
In its comments on DOE’s Enforcement Framework Document, APGA contended that DOE’s
proposed regional standard rule could cause consumers to switch fuels:
One of APGA’s main concerns regarding the DFR analysis is that, by forcing consumers in
the Northern Region to replace non-condensing furnaces with condensing furnaces in order
to meet the new 90% AFUE standard, the new rule will precipitate substantial fuel switching
from gas-fired furnaces and water heaters to their electric (or other, such as kerosene)
counterparts—a result that undermines the policy goals of the Energy Policy and
Conservation Act.129
125
EIA observes that, “Switching from a noncondensing to condensing gas furnace often requires modifying the
furnace ventilation at additional expense. In some cases the switch may require retrofitting or abandoning a gas-fired
water heater because the existing exhaust flue would be poorly sized for the existing water heater and new furnace.”
EIA, Gas Furnace Efficiency Has Large Implications for Residential Natural Gas Use, 2013.
126
ACCA, Questions Remain About New Minimum Efficiency Standards for HVAC Equipment, September 6, 2012,
https://www.acca.org/archives/industry-resources/government-affairs/hot-air/7565.
127
As of January 2014, DOE had not published a final enforcement rule. Presumably, this action was halted in light of
the legal challenges to the DFR and regional standards, as described in the final section of this report. As of November
20, 2014, DOE had still not published a final enforcement rule—presumably due to court to remand and restart the
rulemaking process.
128
ACCA, Questions Remain About New Minimum Efficiency Standards for HVAC Equipment, September 6, 2012,
https://www.acca.org/archives/industry-resources/government-affairs/hot-air/7565.
129
APGA, Comments of the American Public Gas Association on Regional Standards Enforcement Framework
(continued...)
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APGA stressed that, for a standard to address a key problem of the DFR—specifically, the
assumption that life cycle energy and cost savings will prevent fuel switching—the standard must
account for the income level of the affected consumers.130 DOE, it stated, concludes that most
affected consumers will act in an economically rational fashion and hence will not switch from
gas to electric equipment. APGA finds DOE’s logic faulty, noting:
The problem with DOE’s rationale is that there are many millions of lower income persons
for whom the key determinant—in fact, the only determinant—is the up-front cost disparity
for purchase and installation of gas equipment versus electric equipment;131 the record in the
DFR proceeding [and other documents] ... are crystal clear that, on the basis of up-front
costs, fuel switching will occur. Lower income consumers do not make decisions regarding
household appliances such as furnaces and water heaters based on life cycle costs because
they are living paycheck to paycheck (assuming they are employed at all) and hence make
economic choices based on immediate out-of-pocket costs.... The only way to mitigate this
unintended but certain outcome of the DFR is a meaningful waiver provision.132
Based on that view, APGA advocated for two distinct waiver provisions: one based on income
level, and one based on characteristics of the building. In the first case, APGA stressed that an
“effective” waiver must allow all gas consumers below a certain income level to “self-certify” to
that effect, thereby permitting them to “replace a non-condensing furnace with a [new] noncondensing furnace if they choose.”133 APGA observed that such a self-certification approach has
worked for the Low Income Home Energy Assistance Program (LIHEAP),134 which supports
those needing assistance in paying for their home energy needs.135 However, APGA argued that
the LIHEAP level of income eligibility is too low to be “fully effective” for residential furnace
waiver qualification.136 Instead, APGA proposed that 250% of the poverty level “will catch most,
though certainly not all.” of the lower income customers that would otherwise switch to another
fuel.137
In the second case, APGA recommended a waiver provision targeted to all row houses, and any
similar residential buildings, for an exemption from the 90% AFUE standard—regardless of the
income level of the occupants. This “blanket waiver” would require some “reasonable” DOE
qualification to avoid any potential for gaming of the exemption.138
(...continued)
Document, February 6, 2012, p. 1, http://www.apga.org/files/public/federal%20filings/
APGA%20Waiver%20Comments%20020612.pdf (hereinafter APGA, Comments).
130
Additionally, APGA noted that the standard should also be simple, straight-forward, and easy to administer.
131
APGA claimed that adoption of the DFR 90% AFUE standard for residential furnaces would cause substantial fuel
switching, primarily by lower income customers who, when faced with the up-front costs of installing a condensing
furnace, will not do so because there are less expensive first cost options. APGA, Comments, p. 5.
132
APGA, Comments, pp. 2-5.
133
APGA additionally assumes that the affected consumers have been fully informed in writing as part of the waiver
process regarding the operating cost savings that could accrue to them over the life of an efficient (90% or higher)
condensing furnace.
134
For more about the LIHEAP program, see CRS Report RL31865, LIHEAP: Program and Funding, by (name redacted).
135
LIHEAP is administered by the Department of Health and Human Services (HHS).
136
The LIHEAP eligibility level is currently set at the greater of 150% of the poverty level or 75% of the state median
income.
137
APGA, Comments, pp. 5-6.
138
APGA, Comments, p. 8.
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
DOE Proposes Furnace Installation Waivers
One general approach DOE identified to address both the income and house characteristics issues
would be a waiver process that could allow case-by-case exemptions from the regional standard.
This approach could be designed as a new waiver process or could build upon DOE’s existing
waiver process.139 In the existing process, a party, such as a contractor, could apply for a waiver
on an installation-specific basis, providing detailed information that demonstrated the need for a
furnace that does not meet the applicable regional standard.
In regard to the house characteristics (row house) issue, DOE responded that it was aware of
concerns that certain customers may have “stranded” appliances that share venting with a furnace
and the attendant possibility of higher installation costs. DOE stated that it was open to
considering alternatives to mitigate the unintended consequences of a condensing furnace
requirement on a subset of installations in the northern region.
DOE requested public comment on the need for a waiver process and, if necessary, the types of
information it should consider collecting, the degree of public access, and whether a waiver
should be awarded by a “post-installation approval” or be available for all installations that are
identical to one for which DOE had previously granted a waiver.140
Industry Responds to Proposed Waiver Process
Furnace Waiver Design Group141
In February 2012, the Furnace Waiver Design Group responded to DOE’s request for comments
on the Enforcement Framework Document.142 The Group’s main points were:
•
DOE should establish a process to provide waivers from the new regional furnace
standard.
•
Waivers should be available where pre-determined criteria are met and eligibility
is documented by the installer. No case-specific application to, or action by, DOE
should be required.
•
A waiver should be available only for furnace replacement in an existing home,
and then only if: (a) building conditions or local regulatory restrictions
effectively preclude installation of a condensing furnace, or (b) the incremental
139
The existing process is administered through DOE’s Office of Hearing and Appeals.
DOE, Enforcement Document, pp. 9-10.
141
The Furnace Waiver Design Group is an ad hoc coalition of stakeholders participating in the regional standards
rulemaking process. The Group developed a detailed policy proposal on appropriate waivers from the DOE final rule
for regional furnace standards. The Group includes the Air Conditioning Contractors of America, Alliance to Save
Energy, American Council for an Energy-Efficient Economy, American Gas Association, Appliance Standards
Awareness Project, Consumer Federation of America, National Consumer Law Center, Natural Resources Defense
Council, and Plumbing, Heating, Cooling Contractors - National Association on Regional Standards Enforcement
Framework Document.
142
Furnace Waiver Design Group, Comments of the Air Conditioning Contractors of America et al on Regional
Standards Enforcement Framework Document, February 6, 2012, http://ftc.gov/os/comments/regionaldisclosurenprm/
560904-00003-83225.pdf.
140
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installation cost (of a condensing furnace relative to a non-condensing furnace) is
prohibitive.
•
An installer should be required to document eligibility for the waiver on a
standardized form, to be subsequently submitted to DOE. Documentation should
include building characteristics driving excessive incremental installation cost,
regulatory constraints, and project cost data.
•
Installers determining waiver eligibility should be required to have appropriate
training and certification on the waiver process and criteria.
•
In order to ensure that the waiver policy is working as intended, DOE should
periodically review experience with the waiver policy to determine whether it
needs adjustment. Any significant changes to the waiver policy should be
accomplished through a public notice-and-comment process.143
HARDI
In its comments on the Enforcement Framework Document, HARDI expressed its concerns about
DOE’s proposed waiver process:
HARDI opposes the waiver provision and feels the proposals and discussions of a waiver,
which would allow for the installation of non-compliant equipment, are problematic on a
variety of levels ... distributors have general concerns with the retroactive nature of the
proposed waiver process, enforcement of the waiver and the potential for fraud.... Finally, a
waiver process for installations is vastly different than the current test procedure and
certification waivers DOE grants to a handful of manufacturers. We see no way a
bureaucratic scheme could address, for example, emergency furnace replacements during the
coldest seasons in the North, or emergency air-conditioning replacements during severe heat
conditions in the South.144
In conclusion, HARDI recommended that DOE continue the current waiver criteria and
enforcement process and that the Federal Trade Commission (FTC) embrace the AHRI proposal
for an updated energy efficiency label. Further, HARDI surmised that the present certification
system, as managed by AHRI, would be fully capable of assuring compliance with the regional
energy efficiency standards.145
DOE Final Enforcement Guidance Unfinished
DOE’s one-page Final Guidance Document was silent on making a final decision about waivers
to address the issue of gas furnace installation problems. The urgency of making such a decision
may have been eclipsed by the mounting importance of court action, which ultimately prompted
DOE to agree with APGA to vacate the DFR as it applied to the gas furnace regional standard—
143
VanNess Feldman, Memorandum Re: Disclosure of Permitted Communication Concerning Regional Standards
Enforcement Framework Document, February 13, 2012, http://energy.gov/sites/prod/files/
memo_furnace_std_waiver_policy.pdf.
144
HARDI, Enforcement of Regional Standards for Residential Furnaces and Residential Central Air Conditioners and
Heat Pumps, February 6, 2012.
145
Ibid.
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thus leaving the waiver question unresolved. That court action on the DFR is reviewed in the next
section.
Industry Challenges DOE Rulemaking in Court146
APGA Challenge to the DFR
In December 2011, APGA petitioned the U.S. Court of Appeals for the District of Columbia
Circuit for review of the DFR.147 The APGA contended that: (1) the 90% efficiency standard for
the northern region constituted an effective ban on non-condensing residential furnaces in
violation of Section 325(o)(4) of EPCA; (2) the use of a DFR to prescribe a standard that was
contested on the merits by a number of parties violated Section 325(p)(4) of EPCA; and (3)
DOE’s actions in publishing the DFR were arbitrary and capricious and otherwise in violation of
the requirements of the Administrative Procedure Act.148 Over the ensuing months, a number of
parties intervened in the dispute. Several trade organizations intervened in support of the APGA’s
challenge, while a number of environmental organizations and other groups intervened in support
of DOE and the efficiency standards adopted in the DFR.
In January 2013, DOE and the APGA reached agreement on a settlement and filed a joint motion
asking the court to vacate the portion of the DFR that established regional efficiency standards for
residential natural gas furnaces and remand the dispute to DOE for a traditional notice and
comment period prior to issuance of a final rule. Although the initial parties had both agreed to
this settlement, the intervenors on both sides of the dispute opposed the request.149 HARDI
opposed the settlement on the grounds that it would leave the portions of the DFR that apply to
central air conditioners and heat pumps in place.150 HARDI argued that many of the issues raised
in the APGA challenge applied to those standards as well as to the residential furnace
standards.151 HARDI also moved to be substituted for the APGA as the petitioner in the case so
that the legal challenge to the DFR could continue for other equipment even if the court approved
the proposed settlement.152 DOE opposed this request for substitution for a number of legal and
policy-related reasons.153
The proposed settlement was met with objections from the other side of the debate as well.
Several environmental and consumer organizations also filed a motion opposing the DOE-APGA
146
This section was prepared by (name redacted), CRS Legislative Attorney, 7-...., [redacted]@crs.loc.gov.
Brief for Petitioner, American Public Gas Ass’n vs. U.S. Dep’t of Energy, No 11-1485 (D.C. Cir. May 14, 2012).
148
Ibid. at 1-2.
149
As the scheduled implementation date of May 1, 2013, approached, AHRI took action on its concern about lead time
by filing a request, on March 4, 2013, that the Court stay the compliance date for the regional gas furnace standard.
150
Response in Opposition Combined with Motion to Substitute Party filed by Heating, Air Conditioning and
Refrigeration Distributors International, American Public Gas Ass’n vs. U.S. Dep’t of Energy, No 11-1485 (D.C. Cir.
January 25, 2013).
151
Ibid.
152
Ibid.
153
Reply to Motion to Substitute Party filed by DOE, American Public Gas Ass’n vs. U.S. Dep’t of Energy, No 111485 (D.C. Cir. February 7, 2013).
147
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settlement.154 These parties opposed remand of the DFR because they believed the efficiency
standards of the DFR to be beneficial to consumers and the environment.155 The motion also
noted the long history of delays in the issuance of these efficiency standards.156 Citing these
delays, the parties argued that if the court granted the settlement and resulting remand to DOE for
revision of the rule, it should impose a strict timeline for issuing the new rules.
In response to these challenges, the court granted motions to stay implementation of the DFR,
which had been scheduled to take effect on May 1, 2013, until six months after it issued a
decision on the proposed settlement.157 The court also directed the parties to submit a joint
proposed format for re-briefing the case.158 This request was complied with on September 28,
2013, when APGA, DOE, and intervenors on both sides filed a proposed briefing schedule with
the court.159
Negotiated Settlement
On March 11, 2014, DOE and APGA, as well as the various intervenors in the case, filed a joint
unopposed motion for approval of a new settlement in which DOE agreed to seek a remand of the
non-weatherized gas furnaces portion of the June 27, 2011, direct final rule.160 Under this new
settlement, the portion of the rule relating to energy conservation standards for non-weatherized
gas furnaces were vacated and remanded to DOE for a new notice and comment rulemaking
proceeding. Further, DOE agreed to (1) conduct an administrative proceeding to clarify its
process related to direct final rules; (2) clarify its position regarding its enforcement authority visà-vis distributors; (3) exercise its enforcement discretion by not seeking civil penalties for
violations of the regional air conditioner standards for 18 months, so as to alleviate problems
related to product sell-through and stranded inventory; and (4) consider a negotiated rulemaking
to address enforcement of regional standards for central air conditioners.161
On April 24, 2014, the Court approved the settlement agreement and issued an order that the
standards established for non-weatherized gas furnaces and mobile home gas furnaces be vacated
and remanded to DOE for further rulemaking.162 As a result, the standards established by the DFR
for the non-weatherized gas furnaces and mobile home gas furnaces will not go into effect.
Instead, the standards previously established—but not implemented—for these product classes of
furnaces in DOE’s 2007 Final Rule will come into effect, with compliance required beginning on
154
Response in Opposition filed by Alliance to Save Energy et al., American Public Gas Ass’n vs. U.S. Dep’t of
Energy, No. 11-1485 (D.C. Cir. January 25, 2013).
155
Ibid.
156
Ibid.
157
Order Granting Emergency Motion to Stay Case and Directing that the Parties File Proposed Briefing Format
American Public Gas Ass’n vs. U.S. Dep’t of Energy, No. 11-1485 (D.C. Cir. May 1, 2013).
158
Ibid.
159
Joint Proposed Briefing Format, American Public Gas Ass’n vs. U.S. Dep’t of Energy, No. 11-1485 (D.C. Cir.
September 18, 2013).
160
Joint Unopposed Motion to Vacate and Remand Case, American Public Gas Ass’n vs. U.S. Dep’t of Energy, No.
11-1485 (D.C. Cir. March 11, 2014) (Joint Motion).
161
Ibid.
162
Order Granting the Joint Unopposed Motion to Vacate in Part and Remand For Further Rulemaking, American
Public Gas Ass’n vs. U.S. Dep’t of Energy, No. 11-1485 (D.C. Cir. March 11, 2014).
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November 19, 2015.163 However, the remaining portions of the challenged DFR, including the
efficiency standards for other furnaces, central air conditioners, and heat pumps, remained in
place.
Details of Settlement Agreement and Next Steps
The Court order adopted all elements of proposed settlement, noting that “[t]he parties and
intervenors have agreed that vacatur should accordingly be limited to the portions of the direct
final rule and the notice of effective date that relate to energy conservation standards for nonweatherized gas furnaces.”164 Thus the energy conservation standards established in the DFR for
other types of furnaces, central air conditioners, and heat pumps would be unaffected by the order
partially vacating the DFR for further proceedings and would go into effect in accordance with
the DFR.
However, with respect to non-weatherized residential gas furnaces, the settlement requires DOE
to (1) make data available to the public prior to publishing a proposed rule;165 (2) “use best efforts
to issue a notice of proposed rulemaking regarding energy efficiency standards for nonweatherized gas furnaces within one year of the issuance of the remand in this case”;166 and (3) to
issue a final rule within the later of two years of the issuance of the remand or one year of the
issuance of proposed rule.167
As a result of the adopted settlement, the current national standard of 78% will remain in effect
until November 19, 2015, when a new national standard of 80% will be established pursuant to
the November 2007 Final Rule referenced above.
The adopted settlement also clarifies the applicable requirements for residential central air
conditioners. As noted above, the settlement leaves in place the requirements for other products
adopted in the DFR. Under the terms of the settlement, DOE is required to issue an “enforcement
policy statement addressing the upcoming deadline for compliance with regional standards for
central air conditioners.”168 Starting January 1, 2015, a national energy conservation standard will
apply to all central air conditioners manufactured on or after that date, but regional standards will
impose additional requirements in a number of states as well.169 However, DOE also pledges that
it will not seek civil penalties for violations of regional standards until July 1, 2016, due to
“uncertainty created by the litigation and in an exercise of its enforcement discretion.”170
Finally, under the terms of the settlement, DOE agreed to initiate a notice and comment
rulemaking proceeding to clarify its process related to the promulgation of Direct Final Rules as a
163
Energy Conservation Program for Consumer Products: Energy Conservation Standards for Residential Furnaces and
Boilers; 64 Federal Register 65136, November 19, 2007.
164
Joint Motion, at 6.
165
Ibid. at 7.
166
Ibid.
167
Ibid.
168
Ibid. at 9.
169
Ibid.
170
Ibid. at 10.
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general matter.171 To this end, DOE attached an addendum titled Plan for Clarification of DOE
Direct Final Rule Process.
DOE Prepares for New Rulemaking
On July 21, 2014, DOE issued a final rule technical amendment that amended the relevant
portions of its regulations to reflect the Court’s order vacating the amended energy conservation
standards for non-weatherized gas furnaces (including mobile home furnaces). The final rule
technical amendment was published on July 29, 2014.172
Pursuant to the settlement agreement, DOE has undertaken a new rulemaking process for
residential gas furnaces. Per the agreement, DOE will issue a notice of proposed rulemaking
within one year of issuance of the remand, including at least a ninety-day public comment period.
DOE has also agreed to issue a final rule either within two years of the issuance of the remand or
within one year of the issuance of the proposed rule.173
Also, the settlement agreement compels DOE to complete its enforcement guidance.174 DOE is
preparing a NOPR for this rulemaking. As one early step in that process, in June 2014, DOE
issued a notice of intent to establish a negotiated rulemaking working group under the Appliance
Standards and Rulemaking Federal Advisory Committee to negotiate proposed requirements for
enforcement of regional standards.175 The purpose of the working group is to discuss and reach
consensus on a proposed rule.176
New Issue: Separate Product Classes
In October 2014, the American Gas Association (AGA) and APGA issued a white paper which
recommends that DOE’s new rulemaking for non-weatherized residential gas furnaces establish
separate product classes for condensing and non-condensing furnaces. This recommendation was
prompted mainly by an issue APGA raised previously: some residential buildings may not
accommodate side-venting required by 90%-efficient condensing-type furnaces.
AGA and APGA asserted that:
Condensing and non-condensing non-weatherized gas furnaces are significantly different in
terms of the venting mechanisms they use, how they produce and dispose of condensate and
the building environments in which they can be installed. These differences create important
171
Joint Motion, at 12.
79 Federal Register 43927.
173
DOE, Energy Conservation Standards Activities: Report to Congress, August 2014, pp. 25-26, http://energy.gov/
sites/prod/files/2014/08/f18/16th%20SemiAnnual%20Report%20to%20Congress%20on%20Appliance%20Energy%20Efficiency%20Rulemakings.pdf.
174
As noted previously, in late 2011, DOE issued a notice of data availability (NODA) that suggested possible
approaches to the enforcement of regional standards for furnaces (and central air conditioners). The comment period
closed on February 6, 2012.
175
79 Federal Register 33870.
176
DOE, Energy Conservation Standards Activities, pp. 13 and 46-47. The working group will consist of
representatives of parties having a defined stake in the outcome of the proposed standard, and will consult with experts
on technical issues.
172
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differences in consumer utility, and must be appropriately considered in DOE’s standards
development process.177
The two groups argue that, under the settlement agreement approved by Court order, DOE agreed
to reconsider the question of whether condensing and noncondensing non-weatherized gas
furnaces should be treated as separate product classes in any future rulemaking that covers those
products. Further, they cite EPCA’s “special rule for certain types or classes of products” as
requiring DOE to establish separate standards for any group of covered products if the products
“have a capacity or other performance-related feature which other products within such type (or
class) do not have and such feature justifies a higher or lower standard from that which applies
(or will apply) to other products within such type (or class).”178
AGA and APGA conclude that, given the special performance-related characteristics and utility
that non-condensing non-weatherized residential gas furnaces provide to consumers, “EPCA
requires that DOE establish separate product classes for condensing and non-condensing gas
furnaces.” (emphasis added)179
Implications for Energy Efficiency Policy
Spurred by EISA, DOE attempted to employ two energy efficiency policy innovations in its
formulation of the DFR for regional furnace efficiency standards. As the first policy to
incorporate regional standards, it sought to expand the application of more efficient technology to
the energy efficiency potential in northern states. Such an increased “extraction” of the energy
efficiency “resource” there would parallel the way that new drilling technology can increase
access to underground oil and natural gas reserves. Through DOE’s upcoming rulemaking
following from the court-approved settlement, the regional furnace standards policy initiative
may yet be realized—though perhaps in a somewhat more limited application than may have been
envisioned by the parties to the 2009 collaborative agreement that ultimately led to the DFR.180
The DFR policy mechanism was designed to accelerate the energy efficiency rulemaking process.
In one aspect, it aimed to address the many years of delay in updating the furnace standards to
reflect advances in technology.181 In another aspect, it also aimed to reduce the amount of time
177
AGA and APGA, In the Upcoming Rulemaking on Amendments to the Minimum Efficiency Standards for NonWeatherized Residential Gas Furnaces, DOE Should Employ Separate Product Classes for Condensing and
Noncondensing Furnaces, White Paper Developed by the American Gas Association and American Public Gas
Association, October 22, 2014, http://www.apga.org/files/AGA%20Furnace%20Product%20Class%20Whitepaper.pdf
(hereinafter Upcoming Rulemaking).
178
AGA and APGA, Upcoming Rulemaking, p. 1.
179
AGA and APGA, Upcoming Rulemaking, p. 2.
180
Also, one report has suggested that the Court-adopted settlement which directs DOE to reformulate the residential
gas furnace standard could influence the development of energy efficiency standards underway for several other types
of products: “The Department of Energy’s (DOE’s) successful request for a federal appeals court to remand a contested
natural gas furnace energy efficiency standard to the department raises questions over the fate of more than a dozen
pending efficiency standards, as DOE rewrites the furnace rule to address criticisms [that] it would hinder efficiency.
Whatever approach the department takes in the revised version of the gas furnace rule could have implications for how
DOE crafts the slew of upcoming efficiency standards. That in turn raises questions over the department’s ability to
meet Energy Secretary Ernest Moniz’ recently stated goal to approve the pending rules for various types of appliances
within the next several months, as part of President Obama’s Climate Action Plan to boost efficiency.” Inside EPA’s
Clean Energy Report, DOE Bid for Remand of Furnace Rule Spurs Doubts on Efficiency Agenda, May 5, 2014.
181
The Government Accountability Office (GAO) has noted that previous delays in the formulating and updating of a
(continued...)
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required to formulate the standards. Clearly, industry concerns about the need for additional
preparation and sell-through time to meet a new regional installation standard increased the
complexity of the process relative to previous standards processes that had only targeted
equipment manufacturing changeovers. The new unaddressed complexity ultimately led to court
challenges and additional time delays.
In sum, the advent of regional standards may yet raise the efficiency levels in the northern states
for gas furnace equipment retrofits and for outfitting newly constructed housing. Such action on
standards would have the effect of increasing national energy savings. Meanwhile,
implementation of the new standards—previously scheduled for 2013—may not occur before the
year 2020. The delay in standards will clearly defer some energy savings. It is not clear whether
the delay would affect the achievement of savings targets for state energy efficiency resource
standards.
(...continued)
broad range of energy efficiency equipment had led to substantial losses in potential energy savings. GAO, Energy
Efficiency: Long-Standing Problems with DOE’s Program for Setting Efficiency Standards Continue to Result in
Forgone Energy Savings, GAO-07-42, 2007, http://www.gao.gov/new.items/d0742.pdf.
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Appendix A. Gas Furnace: Non-Condensing Type
Figure A-1. Non-Condensing Gas Furnace, with Air Handling Equipment
(The furnace is the rectangular unit, from the blower to the draft hood)
Source: The Family Handyman, Fall Furnace Maintenance Guide, http://www.familyhandyman.com/heating-cooling/
furnace-repair/fall-furnace-maintenance-guide/view-all.
Notes: The elaborate ductwork that “snakes” its way through the household is not shown.
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Appendix B. Chronology of the Regional Standards
Policymaking Process
(Related to indoor, non-weatherized furnaces)
Date
Action
December 22, 1975
Energy Policy and Conservation Act (EPCA, P.L. 94-163) was signed into law. Title III
contained provisions empowering the Federal Energy Administration (which later became part
of the Department of Energy, DOE) to establish voluntary energy efficiency targets for various
types of residential appliances and commercial equipment.
November 9, 1978
National Energy Conservation Policy Act (NECPA, P.L. 95-619) amended EPCA, directing
DOE to replace voluntary targets with rulemakings to establish mandatory standards.
March 17, 1987
National Appliance Energy Conservation Act of 1987 (NAECA, P.L. 100-12) amended EPCA
further, requiring that DOE set standards for residential furnaces. The amended law directed
DOE to publish a “first final rule” by January 1, 1994, and an “amended final rule” by January
1, 2007.
August 8, 2005
Energy Policy Act of 2005 (EPAct 2005, P.L. 109-58) was enacted. Section 141 directed DOE
to develop a plan to publish standards for several products—including residential furnaces—
for which DOE had missed NAECA-specified rulemaking deadlines.
September 7, 2005
Fifteen states and several other parties sued DOE in the U.S. District Court for the Southern
District of New York for failing to comply with 22 EPCA (as amended by NAECA) rulemaking
deadlines This included a failure to publish the first final rule on amended standards for
residential furnaces by January 1, 1994.
November 1, 2006
The District Court issued a Consent Decree order, requiring that DOE complete a rulemaking
on residential furnaces by September 30, 2007.
November 19, 2007
DOE published a final rule to raise the gas furnace standard from 78% to 80% AFUE. During
the rulemaking process, DOE considered regional standards for furnaces, but concluded that
it lacked the legal authority to establish such standards.
December 19, 2007
Energy Independence and Security Act (EISA, P.L. 110-140) was enacted. Section 306 directed
DOE to consider regional standards for residential furnaces, air conditioners, and heat pumps.
Section 308 authorized DOE to use a new direct final rule (DFR) process.
January 17, 2008
Two legal challenges to the 2007 DOE furnace rule (80% AFUE) were filed in the U.S. Court
of Appeals for the Second Circuit. The lawsuits challenged the legality of the standards, citing
flaws in DOE’s economic analysis.
2008 - 2009
The Air Conditioning, Heating, and Refrigeration Institute (AHRI), along with several HVAC
manufacturers, energy efficiency groups, and others began negotiations for a collaborative
agreement on regional standards that would satisfy EISA §306.
October 13, 2009
The Collaborative group reached a consensus and signed a consensus agreement.
January 15, 2010
The Collaborative group submitted a “joint petition” to DOE, transmitting its consensus
agreement recommendations.
March 15, 2010
DOE published a notice that recognized the consensus agreement issued by parties to the
collaborative process for standard-setting and published a rulemaking analysis plan (RAP) for
residential furnaces.
June 27, 2011
DOE published a direct final rule (DFR) to establish regional standards for residential furnaces,
air conditioners, and heat pumps. Also, DOE requested public comment on the rule.
October 31, 2011
DOE adopted the DFR. The standard for gas furnaces was scheduled to take effect on May 1,
2013, and the standards for heat pumps and air conditioners were set for January 1, 2015.
November 28, 2011
The Federal Trade Commission (FTC) published an advance notice of proposed rulemaking
(ANOPR) to update its Energy Guide labels to reflect the new DFR on regional standards.
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Date
Action
December 2, 2011
DOE issued a Regional Standards Enforcement Framework Document, which proposed a
compliance strategy for the DFR.
December 7, 2011
DOE published a Notice of Data Availability, which solicited comment on the Enforcement
Framework Document.
December 23, 2011
The American Public Gas Association (APGA) petitioned the U.S. Court of Appeals for the
District of Columbia Circuit to vacate the portion of the DFR that would establish a regional
standard for natural gas furnaces. APGA also requested that the DFR be remanded to DOE
for a “traditional” notice-and-comment rulemaking process.
January 20, 2012
The Heating, Air Conditioning, and Refrigeration Distributors International (HARDI) moved
to intervene in support of APGA.
February 6, 2012
APGA, AHRI, HARDI, and the Collaborative’s Furnace Waiver Design Group filed comments
with DOE on the Enforcement Framework Document.
April 30, 2012
The Court of Appeals set a schedule for the filing of legal briefs.
May 29, 2012
HARDI and the Air Conditioning Contractors of America (ACCA) filed a joint brief in
support of APGA.
June 6, 2012
FTC issued a notice of proposed rulemaking (NOPR) for an updated version of its Energy
Guide labels.
June 28, 2012
DOE published a one-page “final enforcement guidance” document to clarify the “installed-by”
date for the regional standard.
July 30, 2012
AHRI requested that DOE provide an 18-month extension (to November 2014) of the
regional gas furnace standard.
October 12, 2012
Several intervenors (including the City of New York and the Natural Resources Defense
Council) for respondents (DOE and AHRI) submitted final briefs to the Court of Appeals.
Fall 2012
DOE and APGA discussed the potential for a settlement agreement under a Court-supervised
mediation process.
January 11, 2013
APGA and DOE filed a joint settlement motion requesting that the Court vacate the gas
furnace portion of the DFR and remand to DOE for a new notice-and-comment rulemaking.
January 25, 2013
HARDI filed a motion that objected to the requested settlement, moved to continue the
regional standards court case, and sought to be substituted for APGA as petitioner in the
case. The request for substitution attempted to broaden the case by seeking to also rescind
the portions of the DFR that set standards for residential heat pumps and central air
conditioners.
In a separate action, several intervenors for respondents (New York, NRDC, et al.) moved to
oppose the APGA-DOE motion to vacate the gas furnace rule, citing the need to accelerate a
long overdue increase in the furnace standards.
February 6, 2013
FTC issued a final rule that established updated Energy Guide labels to be applied to
equipment covered by the regional standards in the DFR. The rule was designed to take effect
when the new standards go into effect.
February 7, 2013
DOE and AHRI (separately) moved to oppose the HARDI motion to substitute for APGA.
In a separate action, intervenors for respondents (New York, NRDC, et al.) moved to oppose
the HARDI motion to substitute for APGA.
February 19, 2013
HARDI issued a reply to DOE’s opposition to HARDI’s motion to substitute for APGA.
February 27, 2013
AHRI sent a letter DOE, that again sought to delay the May 1, 2013, enforcement date by 18
months (to November 2014).
March 2, 2013
AHRI filed a request that the Court “stay” the gas furnace standards pending judicial review;
and grant an extension of the May 1, 2013, compliance date “should the Court uphold the
furnace standards on the merits.”
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Date
Action
April 5, 2013
DOE released a statement indicating that it would not enforce the regional furnace standards
until the Court ruled on the settlement agreement.
May 1, 2013
The Court of Appeals ordered postponement of the May 1, 2013, compliance deadline until
six months after the Court issues a decision on the settlement agreement. Also, the Court
ordered that the parties submit a joint proposed format for a re-briefing of the case.
May 13, 2013
APGA filed a request for reconsideration of the Court order, seeking Court action to (1)
grant the joint APGA-DOE settlement motion to vacate gas furnace portion of the DFR, (2)
deny HARDI’s request to substitute as a petitioner, and (3) clarify that any additional briefing
be limited to supplemental briefs.
May 28, 2013
DOE and several intervenors filed their concurrence with the APGA request for
reconsideration and to limit any additional briefing requirements.
In a separate action, HARDI filed a request that the Court deny APGA’s motion for
reconsideration.
August 19, 2013
The Court issued an order that denied APGA’s motion to deny HARDI’s request to
substitute as the petitioner. Also, the order formally requested that the Court be briefed
again on (1) the APGA-DOE settlement agreement, (2) HARDI’s motion to continue the
lawsuit, and (3) the merits of the lawsuit. All parties were advised to agree to a briefing
schedule within 30 days.
September 18, 2013
All parties to the case filed a joint proposed briefing format with the Court. The proposed
format included a series of six briefs covering three issues (settlement, substitution, and
merits) with a total (collective) time limit of 115 working days.
December 9, 2013
The Court adopted the briefing schedule, which gave parties until mid-April 2014 to brief the
court on the three issues—the settlement agreement between the APGA and DOE; HARDI’s
motion to continue the case; and the merits of the lawsuit itself. The briefing process was
later dropped, with the re-establishment of a Court-supervised negotiation process.
February 18, 2014
DOE filed an abeyance motion, with consent of all parties involved, to suspend the briefing
schedule until March 3 to accommodate pending mediation. The motion signified that all
parties were nearing agreement on a settlement.
March 3, 2014
Parties requested a short extension to March 17, or sooner, by which time all parties and
intervenor would “notify the court concerning the status of settlement negotiations, including
approval and implementation. Counsel for all parties and intervenor have authorized [the
parties] to state that they do not oppose the relief requested in this motion."
March 11, 2014
Parties in the case filed a joint settlement motion with the Court. The agreement would
vacate the regional furnace efficiency standards and restart the rulemaking process, giving
stakeholders more opportunities to provide input throughout the rulemaking process. In
order to help avoid stranded inventory, the settlement would also give the industry an 18month sell-through period to comply with the January 1, 2015, efficiency standards for splitsystem air conditioners. Also, as part of the agreement, DOE agreed to not penalize
distributors as part of its enforcement of the standard.
April 24, 2014
The Court accepted the agreement, vacating the regional standard for non-weatherized
furnaces and remanding it to DOE for further notice and comment rulemaking.
October 22, 2014
The American Gas Association and APGA issued a white paper contending that DOE’s new
rulemaking for non-weatherized residential gas furnaces should establish separate product
classes for condensing and non-condensing furnaces.
Source: Various legal filings and trade press articles.
Notes: The June 28, 2012, date on DOE’s final enforcement guidance document (1-page) is often referenced as
July 2, 2012.
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Appendix C. DOE Rulemaking Analysis Plan
Overview and General Approach
In March 2010, DOE published a notice of the consensus agreement and issued a Rulemaking
Analysis Plan (RAP) for residential furnaces. The RAP is based on the energy-saving criteria
specified in EPCA, as amended. As noted previously, in the background section, EPCA specified
that any amended appliance (“covered product”) efficiency standard must be designed to achieve
the maximum improvement in energy efficiency that is “technologically feasible and
economically justified.”182 Further, DOE may not adopt a standard that would not result in
“significant conservation of energy.”183 In assessing an efficiency standard as “economically
justified,” DOE must determine that the benefits of using equipment that satisfies the standard
would exceed its burdens.184 This assessment must address public comments on the proposed
standard and consider, “to the greatest extent practicable,” several additional factors.185
To address the criterion of “technological feasibility” DOE assesses the full range of
commercially available equipment and its associated energy efficiency levels. DOE then chooses
several trial standard levels (TSLs) across the spectrum of available energy efficiency levels. To
assess the economic justification criterion, DOE runs an elimination process for the TSLs. The
process starts with the maximum technologically feasible level—the highest of DOE’s selected
TSL levels of energy efficiency—and then runs scenarios with successively lower efficiency
levels until reaching a point where the level is economically justified. DOE must then assess
whether that level would achieve a “significant amount of energy savings.”
Market Participants and Distribution Channels
The RAP identified non-weatherized (indoor) natural gas furnaces as accounting for the dominant
market share among the family of residential furnace equipment types:
Because the large majority of residential furnace shipments fall into the non-weatherized gas
product class, DOE will focus heavily on non-weatherized gas-fired furnaces. As a result,
DOE plans to select units for teardown186 that will include approximately 25 non-
182
42 U.S.C. §6295(o)(2)(A).
42 U.S.C. §6295(o)(3)(B).
184
42 U.S.C. §6295(o)(2)(B)(i).
185
As noted previously, these factors are (1) the economic impact on manufacturers and consumers, (2) operating cost
savings over the estimated average life of equipment compared with any increase in price, (3) total projected energy
savings, (4) any lessening of usefulness or performance, (5) any lessening of market competition, (6) the need for
energy conservation, and (7) any other factors DOE deems relevant. DOE, Rulemaking Analysis Plan (RAP), p. 3.
186
The term “teardown analysis” describes DOE’s process of estimating the manufacturer production costs of products
through reverse-engineering (i.e., physically disassembling the products and examining existing product designs). DOE
notes that the availability of a large number of residential furnaces across a wide range of efficiencies allows it to
consider the technologies most commonly used by manufacturers to improve the energy efficiency of their products.
Further, DOE asserts that the teardown analysis approach allows it to accurately estimate the manufacturers’ cost of
production. DOE, RAP, p. 34.
183
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weatherized gas-fired furnaces, 4 weatherized gas-fired furnaces, 6 mobile home gas-fired
furnaces, and 8 non-weatherized oil-fired furnaces.187
In order to estimate the price “markup” that a manufacturer adds to furnace production cost,188
DOE had to define furnace market participants and identify associated distribution channels
(supply chains). The RAP describes the furnace distribution channel in simple terms:
Most residential furnaces pass through the following distribution channel:189 the original
equipment manufacturer (OEM) assembles the system and sells it to a distributor;190 the
distributor sells the unit to a contractor; the contractor sells the unit to the final end-user and
performs the installation. After installation, the contractor performs all service on the system,
including inspection, maintenance, and repair.191
The RAP provides rich detail about the contractor portion of the channel, where the direct
interaction with consumers takes place:
Most contractors compete at the local level and the majority of them are small businesses.
Many contractors carry products made by more than one manufacturer. Contractors interface
with the end-user: installing new furnace systems to their specifications as well as inspecting,
servicing, or repairing the existing system. In the residential furnace market, contractors sell
products as part of an installation package and do not list retail product prices separately
from installation cost. Furthermore, differences in local markets, weather conditions, and
many other factors can affect the price [that] contractors charge for furnaces. (emphasis
added)192
Potential Industry Impacts of Regional Standards
In the RAP, DOE stated that it expected similar issues for the new DFR rule as it had experienced
in its previous rulemaking for this equipment. In describing DOE’s methods for assessing
potential impacts of regional standards, the RAP notes the similarities of the market participants
and distribution channels for each of each of the three types of equipment covered by DOE’s
2007 rule that called for an 80% AFUE standard:
Market participants in the residential furnace distribution chain are often represented by the
same trade associations as those in the central air conditioning and heat pump distribution
chain. For the current [2007] central air conditioner and heat pump standards rulemaking,
187
DOE, RAP, p. 36.
DOE used the markup to account for corporate non-production costs and profit. Thus, the resulting manufacturer
selling price is the price at which the manufacturer can recover all production and non-production costs and earn a
profit. DOE, RAP, p. 40.
189
More generally, DOE found that the furnace distribution chain includes six types of market participants: (1)
distributors, (2) dealers, (3) general contractors, (4) mechanical contractors, (5) installers, and (6) builders. Based on
comments regarding the similarities of market participants, DOE considered three distinct categories of market
participants: “distributors,” “mechanical contractors,” and “general contractors.” The category of “mechanical
contractors” includes dealers and installers. The category of “general contractors” also includes builders.
190
Distributors receive shipments from manufacturers and resell the products at a markup to contractors. No other
participant in the channel carries significant inventory, so distributors absorb imbalances between manufacturer supply
and consumer demand.
191
DOE, RAP, pp. 41-42.
192
DOE, RAP, pp. 41-42.
188
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
DOE conducted limited interviews with distributors and contractors, and sought comment
regarding the potential impacts of regional standards as they relate to these products.
Commenters noted that distributors and contractors of central air conditioners and heat
pumps also service furnaces and face very similar issues with respect to regional standards.
(emphasis added)193
DOE’s RAP laid out three potential ways that the new standards could affect industry. First, DOE
anticipated that new regional standards could disrupt existing supply chains. Based on the
comments of the distributors, the RAP recounted DOE’s interpretation of their views and
concerns:
The distributors were concerned that possible disparities between the regional boundaries for
standards and existing distribution boundaries may prove problematic. Distributors stated
that regional standards may be defined based on geographic boundaries composed of state
lines, which are usually different than the boundaries of markets for heating and cooling
products. Additionally, distributors were concerned about the possible impact of regional
standards on the efficiency of the distribution chain, and ultimately, their ability to control
costs. National and regional distributors stated that they would face decreases in their
economies of scale, which currently affect products that can be stocked and sold nationwide.
They stated that if certain products could not be sold throughout the entire country, then the
cost of those products in the regions where they could be sold would be driven up. They
added that distributors [in] service areas that overlap borders between regions would be
particularly affected, as their costs would increase due to the more complex and diverse
inventories.194
Second, DOE foresaw that supply chain disruption could raise management and compliance
costs. For furnace distributors and contractors, DOE anticipated that the regional standards would
present two new challenges:
Based on the ... interviews and its own preliminary market assessment, DOE believes there
are two main ways in which regional standards could impact furnace distributors and
contractors. First, because some distributors close to borders of regions may sell products in
more than one region, complying with standards that differ across regions may cause these
distributors to carry a different mix of inventory to fill orders in each region. The inventory
management costs could increase or the overall investment in inventory could increase.
Second, EISA 2007 allows for regional standards to be enforced at the installation level, in
addition to the existing enforcement of national efficiency standards at the manufacturer
level. As a consequence, there likely would be new compliance costs for distributors and
contractors, involving at a minimum additional record-keeping and reporting. (emphasis
added)195
Third, the DOE Plan also anticipated that distributors and contractors would respond to the
above-noted cost increases by increasing prices:
Based on its current assessment of the market, DOE believes that any additional costs that
regional standards may impose on furnace distributors and contractors would be reflected
by a change in the markups used by these entities. In its analysis of regional standards, DOE
plans to estimate changes in markups based on an assessment of (1) the inventory that would
193
DOE, RAP, pp. 46-47.
DOE, RAP, pp. 46-47.
195
DOE, RAP, pp. 46-47.
194
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
likely be carried in various geographic areas (South, North, and border areas), and (2) the
potential costs of enforcement requirements. (emphasis added)196
Some Key Economic Assumptions
Energy Price Assumptions
DOE’s Appliance Standards Program planned to use the Energy Information Administration’s
(EIA’s) projections of national average natural gas, propane, electricity, and fuel oil prices to
residential consumers to estimate future energy prices. The most recent edition of EIA’s Annual
Energy Outlook (AEO) was chosen to serve as the source of projections for future energy
prices.197
Equipment First Cost vs. Life Cycle Cost
In order to analyze future monetary “first costs” of furnace equipment and the costs associated
with the equipment’s energy use through a long-term future, DOE had to select a value for the
consumer discount rate:
The calculation of [Life Cycle Cost] requires the use of an appropriate discount rate to
determine the present value of operating expenses during the product lifetime. The discount
rate used in the LCC analysis represents the rate from an individual consumer’s
perspective.... For consumers of residential furnaces, DOE plans to use the same approach
that it relied on to develop discount rates for the November 2007 residential furnaces and
boilers standards rulemaking (i.e., deriving the discount rates from estimates of the “finance
cost” to purchase residential products).198
Potential Risk of Fuel Switching
The potential problem of fuel-switching (product-switching) was addressed in the RAP:
DOE also plans to account for fuel and product switching that may result from standards
requiring higher-efficiency furnaces. Because home builders are sensitive to first costs, a
standard level that significantly increases the purchase price may induce some builders to
switch to a different heating system. Such a standard level may also induce some home
owners to replace their existing furnace with a different heating product, although in this case
switching may incur additional costs to accommodate the different product. The decision to
switch is also affected by the prices of the energy sources for competing products (i.e., the
prices of natural gas and electricity). DOE’s analysis will account for the key factors
expected to influence fuel and product switching that may result from standards requiring
higher-efficiency furnaces. DOE will take into consideration factors from the rulemaking on
heat pumps that may influence fuel switching from furnaces, in particular the potential
installed costs of heat pumps, which compete with furnaces in some markets.199
196
DOE, RAP, pp. 46-47.
DOE, RAP, pp. 54-55.
198
DOE, RAP, pp. 54-55.
199
DOE, RAP, p. 61
197
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Estimating the Future Value of Energy Savings
To estimate the values for cumulative energy savings, DOE adopted OMB-specified guidelines
for values of discount rates:
According to U.S. Office of Management and Budget (OMB) guidelines for Federal
agencies, DOE will conduct two NPV [net present value] calculations, one using a real
discount rate of 3 percent and another using a real discount rate of 7 percent.200 The discount
rates for the determination of NPV are in contrast to the discount rates used in the LCC
analysis, which are designed to reflect a consumer’s perspective. The 7-percent real value is
an estimate of the average before-tax rate of return to private capital in the U.S. economy.
The 3-percent real value represents the “societal rate of time preference,” which is the rate at
which society discounts future consumption flows to their present value.201
Key Issues for Public Comment
The RAP noted that DOE wanted to receive public comment on a variety of key issues, including:
•
The consensus agreement;
•
The combining of multiple equipment standards into a single rulemaking that
covered residential central air conditioners, heat pumps, residential furnaces, and
furnace fans;
•
DOE’s proposed definitions of regions, for the analysis of regional standards; and
•
The viability of the regional standard enforcement mechanisms presented in the
RAP, other mechanisms DOE should consider, and the extent to which these
mechanisms would result in additional financial burdens to consumers,
manufacturers, contractors, distributors, dealers, and installers. In particular,
DOE stated an interest in data on how, if at all, the enforcement options would
increase compliance costs and/or other costs.202
200
The RAP refers to OMB, Circular A-4: Regulatory Analysis, 2003. DOE, RAP, p. 66.
DOE, RAP, p. 66. The “societal rate” may include dollar values for environmental benefits of reduced energy use.
202
DOE, RAP, p. 82.
201
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Energy Efficiency: Regional Standards for Indoor (Non-Weatherized) Residential Furnaces
Appendix D. Map of the Northern Region for
Indoor (Non-Weatherized) Furnaces
Figure D-1. Regions for Furnace Efficiency Standards
Source: Adapted by CRS, with map from HARDI, Regional Standards Details, accessed November 19, 2013
http://www.hardinet.org/regional-standards-details, and information from map by ACEEE, Fact Sheet on Air
Conditioner, Furnace, and Heat Pump Efficiency Standards Agreement, 2009, http://aceee.org/files/pdf/
1009hvac_fact_0.pdf.
Author Contact Information
(name redacted)
Specialist in Energy Policy
[redacted]@crs.loc.gov, 7-....
Congressional Research Service
(name redacted)
Legislative Attorney
[redacted]@crs.loc.gov, 7-....
41
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