Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential Central Air Conditioners and Heat Pumps

Federal RegisterJun 27, 2011

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DEPARTMENT OF ENERGY

10 CFR Part 430

[Docket Number EERE-2011-BT-STD-0011]

RIN 1904-AC06

Energy Conservation Program: Energy Conservation Standards for Residential Furnaces and Residential Central Air Conditioners and Heat Pumps

AGENCY:

Office of Energy Efficiency and Renewable Energy, Department of Energy.

ACTION:

Direct final rule.

SUMMARY:

The Energy Policy and Conservation Act of 1975 (EPCA), as amended, prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including residential furnaces and residential central air conditioners and heat pumps. EPCA also requires the U.S. Department of Energy (DOE) to determine whether more-stringent, amended standards for these products would be technologically feasible and economically justified, and would save a significant amount of energy. In this direct final rule, DOE adopts amended energy conservation standards for residential furnaces and for residential central air conditioners and heat pumps. A notice of proposed rulemaking that proposes identical energy efficiency standards is published elsewhere in this issue of the

Federal Register

. If DOE receives adverse comment and determines that such comment may provide a reasonable basis for withdrawing the direct final rule, this final rule will be withdrawn, and DOE will proceed with the proposed rule.

DATES:

The direct final rule is effective on October 25, 2011 unless adverse comment is received by October 17, 2011. If adverse comments are received that DOE determines may provide a reasonable basis for withdrawal of the direct final rule, a timely withdrawal of this rule will be published in the

Federal Register

. If no such adverse comments are received, compliance with the standards in this final rule will be required on May 1, 2013 for non-weatherized gas furnaces, mobile home gas furnaces, and non-weatherized oil furnaces; and January 1, 2015 for weatherized gas furnaces and all central air conditioner and heat pump product classes.

ADDRESSES:

Any comments submitted must identify the direct final rule for Energy Conservation Standards for Residential Furnaces, Central Air Conditioners, and Heat Pumps, and provide the docket number EERE-2011-BT-STD-0011 and/or regulatory information number (RIN) 1904-AC06. Comments may be submitted using any of the following methods:

Federal eRulemaking Portal: http://www.regulations.gov

. Follow the instructions for submitting comments.

E-mail: ResFurnaceAC-2011-Std-0011@ee.doe.gov

. Include Docket Numbers EERE-2011-BT-STD-0011 and/or RIN number 1904-AC06 in the subject line of the message.

Mail:

Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, Mailstop EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-0121. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

Hand Delivery/Courier:

Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Program, 950 L'Enfant Plaza, SW., Suite 600, Washington, DC 20024. Telephone: (202) 586-2945. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.

No telefacsimilies will be accepted. For detailed instructions on submitting comments and additional information on the rulemaking process, see section VII of this document (Public Participation).

Docket:

The docket is available for review at

http://www.regulations.gov,

including

Federal Register

notices, framework documents, public meeting attendee lists and transcripts, comments, and other supporting documents/materials. All documents in the docket are listed in the

http://www.regulations.gov

index. However, not all documents listed in the index may be publicly available, such as information that is exempt from public disclosure.

A link to the docket Web page can be found at:

http://www.regulations.gov/#!docketDetail;dct=FR

PR+++SR+PS;rpp=50;so=DESC;sb=postedDate;po=0;D=EERE-2011-BT-STD-0011

The

http://www.regulations.gov

Web page contains simple instructions on how to access all documents, including public comments, in the docket. See section VII for further information on how to submit comments through

http://www.regulations.gov

For further information on how to submit or review public comments, or view hard copies of the docket in the Resource Room, contact Ms. Brenda Edwards at (202) 586-2945 or by e-mail:

Brenda.Edwards@ee.doe.gov

FOR FURTHER INFORMATION CONTACT:

Mr. Mohammed Khan (furnaces) or Mr. Wesley Anderson (central air conditioners and heat pumps), U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202) 586-7892 or (202) 586-7335. E-mail:

Mohammed.Khan@ee.doe.gov

Wes.Anderson@ee.doe.gov

Mr. Eric Stas or Ms. Jennifer Tiedeman, U.S. Department of Energy, Office of the General Counsel, GC-71, 1000 Independence Avenue, SW., Washington, DC 20585-0121. Telephone: (202) 586-9507 or (202) 287-6111. E-mail:

Eric.Stas@hq.doe.gov

Jennifer.Tiedeman@hq.doe.gov

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Direct Final Rule

A. The Energy Conservation Standard Levels

B. Benefits and Costs to Consumers

C. Impact on Manufacturers

D. National Benefits

E. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

a. Furnaces

b. Central Air Conditioners and Heat Pumps

2. History of Standards Rulemaking for Residential Furnaces, Central Air Conditioners, and Heat Pumps

a. Furnaces

b. Central Air Conditioners and Heat Pumps

III. General Discussion

A. Combined Rulemaking

B. Consensus Agreement

1. Background

2. Recommendations

a. Regions

b. Standard Levels

c. Compliance Dates

3. Comments on Consensus Agreement

C. Compliance Dates

a. Consensus Agreement Compliance Dates

b. Shift From Peak Season

c. Standby Mode and Off Mode Compliance Dates

D. Regional Standards

1. Furnace Regions for Analysis

2. Central Air Conditioner and Heat Pump Regions for Analysis

3. Impacts on Market Participants and Enforcement Issues

a. Impacts on Additional Market Participants

b. Enforcement Issues

E. Standby Mode and Off Mode

1. Furnaces

a. Standby Mode and Off Mode for Weatherized Gas and Weatherized Oil-Fired Furnaces

b. Standby Mode and Off Mode for Electric Furnaces

c. Standby Mode and Off Mode for Mobile Home Oil-Fired Furnaces

2. Central Air Conditioners and Heat Pumps

a. Off Mode for Space-Constrained Air Conditioners and Heat Pumps

F. Test Procedures

1. Furnaces

a. AFUE Test Method Comment Discussion

b. Standby Mode and Off Mode

2. Central Air Conditioners and Heat Pumps

a. Proposed Test Procedure Amendments

G. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

a. Weatherized Gas Furnace Max-Tech Efficiency Level

b. Space-Constrained Central Air Conditioner and Heat Pump Max-Tech Efficiency Levels

H. Energy Savings

1. Determination of Savings

2. Significance of Savings

I. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Life-Cycle Costs

c. Energy Savings

d. Lessening of Utility or Performance of Products

e. Impact of Any Lessening of Competition

f. Need of the Nation To Conserve Energy

g. Other Factors

2. Rebuttable Presumption

IV. Methodology and Discussion

A. Market and Technology Assessment

1. General

2. Products Included in this Rulemaking

a. Furnaces

b. Central Air Conditioners and Heat Pumps

3. Product Classes

a. Furnaces

b. Central Air Conditioners and Heat Pumps

4. Technologies That Do Not Impact Rated Efficiency

B. Screening Analysis

1. Furnaces

a. Screened-Out Technology Options

2. Central Air Conditioners and Heat Pumps

3. Standby Mode and Off Mode

4. Technologies Considered

C. Engineering Analysis

1. Cost Assessment Methodology

a. Teardown Analysis

b. Cost Model

c. Manufacturing Production Cost

d. Cost-Efficiency Relationship

e. Manufacturer Markup

f. Shipping Costs

g. Manufacturer Interviews

2. Representative Products

a. Furnaces

b. Central Air Conditioners and Heat Pumps

3. Efficiency Levels

a. Furnaces

b. Central Air Conditioners and Heat Pumps

4. Results

5. Scaling to Additional Capacities

a. Furnaces

b. Central Air Conditioners and Heat Pumps

6. Heat Pump SEER/HSPF Relationships

7. Standby Mode and Off Mode Analysis

a. Identification and Characterization of Standby Mode and Off Mode Components

b. Baseline Model

c. Cost-Power Consumption Results

D. Markup Analysis

E. Energy Use Analysis

1. Central Air Conditioners and Heat Pumps

2. Furnaces

3. Standby Mode and Off Mode

a. Central Air Conditioners and Heat Pumps

b. Furnaces

F. Life-Cycle Cost and Payback Period Analyses

1. Product Cost

2. Installation Cost

a. Central Air Conditioners and Heat Pumps

b. Furnaces

3. Annual Energy Consumption

4. Energy Prices

5. Energy Price Projections

6. Maintenance and Repair Costs

a. Central Air Conditioners and Heat Pumps

b. Furnaces

7. Product Lifetime

8. Discount Rates

9. Compliance Date of Amended Standards

10. Base-Case Efficiency Distribution

a. Energy Efficiency

b. Standby Mode and Off Mode Power

11. Inputs to Payback Period Analysis

12. Rebuttable Presumption Payback Period

G. National Impact Analysis-National Energy Savings and Net Present Value

1. Shipments

a. Impact of Potential Standards on Shipments

2. Forecasted Efficiency in the Base Case and Standards Cases

3. Installed Cost per Unit

4. National Energy Savings

5. Net Present Value of Consumer Benefit

6. Benefits From Effects of Standards on Energy Prices

H. Consumer Subgroup Analysis

I. Manufacturer Impact Analysis

1. Overview

a. Phase 1: Industry Profile

b. Phase 2: Industry Cash Flow Analysis

c. Phase 3: Sub-Group Impact Analysis

2. GRIM Analysis

a. GRIM Key Inputs

b. Markup Scenarios

3. Manufacturer Interviews

a. Consensus Agreement

b. Potential for Significant Changes to Manufacturing Facilities

c. Increase in Product Repair and Migration to Alternative Products

d. HFC Phase-Out Legislation

e. Physical Constraints

f. Supply Chain Constraints

J. Employment Impact Analysis

K. Utility Impact Analysis

L. Environmental Assessment

M. Monetizing Carbon Dioxide and Other Emissions Impacts

1. Social Cost of Carbon

a. Monetizing Carbon Dioxide Emissions

b. Social Cost of Carbon Values Used in Past Regulatory Analyses

c. Current Approach and Key Assumptions

2. Valuation of Other Emissions Reductions

V. Analytical Results

A. Trial Standard Levels

1. TSLs for Energy Efficiency

2. TSLs for Standby Mode and Off Mode Power

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers

a. Life-Cycle Cost and Payback Period

b. Consumer Subgroup Analysis

c. Rebuttable Presumption Payback

2. Economic Impacts on Manufacturers

a. Industry Cash-Flow Analysis Results

b. Impacts on Employment

c. Impacts on Manufacturing Capacity

d. Impacts on Sub-Groups of Small Manufacturers

e. Cumulative Regulatory Burden

3. National Impact Analysis

a. Significance of Energy Savings

b. Net Present Value of Consumer Costs and Benefits

c. Indirect Impacts on Employment

4. Impact on Utility or Performance of Products

5. Impact of Any Lessening of Competition

6. Need of the Nation To Conserve Energy

7. Other Factors

C. Conclusion

1. Benefits and Burdens of TSLs Considered for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency

2. Benefits and Burdens of TSLs Considered for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power

3. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency

4. Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode Power

5. Certification Requirements

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Order 12866 and 13563

B. Review Under the Regulatory Flexibility Act

1. Description and Estimated Number of Small Entities Regulated

2. Description and Estimate of Compliance Requirements

a. Central Air Conditioning and Heat Pumps

b. Residential Furnaces

3. Duplication, Overlap, and Conflict With Other Rules and Regulations

4. Significant Alternatives to the Rule

C. Review Under the Paperwork Reduction Act of 1995

D. Review Under the National Environmental Policy Act of 1969

E. Review Under Executive Order 13132

F. Review Under Executive Order 12988

G. Review Under the Unfunded Mandates Reform Act of 1995

H. Review Under the Treasury and General Government Appropriations Act, 1999

I. Review Under Executive Order 12630

J. Review Under the Treasury and General Government Appropriations Act, 2001

K. Review Under Executive Order 13211

L. Review Under the Information Quality Bulletin for Peer Review

M. Congressional Notification

VII. Public Participation

A. Submission of Comments

VIII. Approval of the Office of the Secretary

I. Summary of the Direct Final Rule

A. The Energy Conservation Standard Levels

Title III, Part B

of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified), established the Energy Conservation Program for Consumer Products Other Than Automobiles. 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.” (42 U.S.C. 6295(o)(3)(B)) In accordance with these and other statutory provisions discussed in this notice, DOE adopts amended energy conservation standards for furnaces and central air conditioners and heat pumps. The standards for energy efficiency are shown in Table I.1, and the standards for standby mode and off mode

are shown in Table I.2. These standards apply to all products listed in Table I.1 and manufactured in, or imported into, the United States on or after May 1, 2013, for non-weatherized gas and oil-fired furnaces and mobile home gas furnaces, and on or after January 1, 2015, for weatherized furnaces and central air conditioners and heat pumps.

For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.

“Residential central air conditioner” is a product that provides cooling only. It is often paired with a separate electric or gas furnace. “Residential central air conditioning heat pump” is a product that provides both cooling and heating, with the cooling provided in the same manner as a residential central air conditioner and the heating provided by a heat pump mechanism. In this document, “residential central air conditioners and central air conditioning heat pumps” are referred to collectively as “central air conditioners and heat pumps,” and separately as “air conditioners” (cooling only) and “heat pumps” (both cooling and heating), respectively.

In this rule, DOE is changing the nomenclature for the standby mode and off mode power consumption metrics for furnaces from those in the furnace and boiler test procedure final rule published on October 20, 2010. 75 FR 64621. DOE is renaming the P

and P

OFF

metrics as P

W,SB

and P

W,OFF

, respectively. However, the substance of these metrics remains unchanged.

Table I.1—Amended Energy Conservation Standards for Furnace, Central Air Conditioner, and Heat Pump Energy Efficiency

Product class

National standards

Northern Region ** standards

Residential Furnaces *

Non-weatherized gas

AFUE = 80%

AFUE = 90%.

Mobile home gas

AFUE = 80%

AFUE = 90%.

Non-weatherized oil-fired

AFUE = 83%

AFUE = 83%.

Weatherized gas

AFUE = 81%

AFUE = 81%.

Mobile home oil-fired

‡‡

AFUE = 75%

AFUE = 75%.

Weatherized oil-fired

‡‡

AFUE = 78%

AFUE = 78%.

Electric

‡‡

AFUE = 78%

AFUE = 78%.

Product class

National standards

Southeastern Region

††

standards

Southwestern Region

‡

standards

Central Air Conditioners and Heat Pumps

†

Split-system air conditioners

SEER = 13

SEER = 14

SEER = 14.

EER = 12.2 (for units with a rated cooling capacity less than 45,000 Btu/h).

EER = 11.7 (for units with a rated cooling capacity equal to or greater than 45,000 Btu/h).

Split-system heat pumps

SEER = 14

SEER = 14.

HSPF = 8.2

HSPF = 8.2.

Single-package air conditioners

‡‡

SEER = 14

SEER = 14.

EER = 11.0.

Single-package heat pumps

SEER = 14

SEER = 14.

HSPF = 8.0

HSPF = 8.0.

Small-duct, high-velocity systems

SEER = 13

SEER = 13.

HSPF = 7.7

HSPF = 7.7.

Space-constrained products—air conditioners

‡‡

SEER = 12

SEER = 12.

Space-constrained products—heat pumps

‡‡

SEER = 12

SEER = 12.

HSPF = 7.4

HSPF = 7.4.

* AFUE is annual fuel utilization efficiency.

** The Northern region for furnaces contains the following States: 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.

†

SEER is Seasonal Energy Efficiency Ratio; EER is Energy Efficiency Ratio; HSPF is Heating Seasonal Performance Factor; and Btu/h is British thermal units per hour.

††

The Southeastern region for central air conditioners and heat pumps contains the following States: Alabama,, Arkansas, Delaware, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia, and the District of Columbia.

‡

The Southwestern region for central air conditioners and heat pumps contains the States of Arizona, California, Nevada, and New Mexico.

‡‡

DOE is not amending energy conservation standards for these product classes in this rule.

Table I.2—Amended Energy Conservation Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode*

Product class

Standby mode and off mode standard levels

Residential Furnaces*

Non-weatherized gas

W,SB

= 10 watts.

W,OFF

= 10 watts.

Mobile home gas

W,SB

= 10 watts.

W,OFF

= 10 watts.

Non-weatherized oil-fired

W,SB

= 11 watts.

W,OFF

= 11 watts.

Mobile home oil-fired

W,SB

= 11 watts.

W,OFF

= 11 watts.

Electric

W,SB

= 10 watts.

W,OFF

= 10 watts.

Central Air Conditioners and Heat Pumps

††

Product class

Off mode standard levels

††

Split-system air conditioners

W,OFF

= 30 watts.

Split-system heat pumps

W,OFF

= 33 watts.

Single-package air conditioners

W,OFF

= 30 watts.

Single-package heat pumps

W,OFF

= 33 watts.

Small-duct, high-velocity systems

W,OFF

= 30 watts.

Space-constrained air conditioners

W,OFF

= 30 watts.

Space-constrained heat pumps

W,OFF

= 33 watts.

* P

W,SB

is standby mode electrical power consumption, and P

W,OFF

is off mode electrical power consumption. For furnaces, DOE is proposing to change the nomenclature for the standby mode and off mode power consumption metrics for furnaces from those in the furnace and boiler test procedure final rule published on October 20, 2010. 75 FR 64621. DOE is renaming the P

and P

OFF

metrics as P

W,SB

and P

W,OFF

, respectively. However, the substance of these metrics remains unchanged.

** Standby mode and off mode energy consumption for weatherized gas and oil-fired furnaces is regulated as a part of single-package air conditioners and heat pumps, as discussed in section III.E.1.

†

W,OFF

is off mode electrical power consumption for central air conditioners and heat pumps.

††

DOE is not adopting a separate standby mode standard level for central air conditioners and heat pumps, because standby mode power consumption for these products is already regulated by SEER and HSPF.

B. Benefits and Costs to Consumers

The projected economic impacts of the standards in this rule on individual consumers are generally positive. For the standards on energy efficiency, the estimated average life-cycle cost (LCC)

savings for consumers are $155 for non-weatherized gas furnaces in the northern region, $419 for mobile home gas furnaces in the northern region, and $15 for non-weatherized oil-fired furnaces at a national level. (The standards in this rule on energy efficiency would have no impact for consumers of non-weatherized gas furnaces and mobile home gas furnaces in the southern region.) The estimated LCC savings for consumers are $93 and $107 for split system air conditioners (coil only) in the hot-humid and hot-dry regions,

respectively; $89 and $101 for split system air conditioners (blower coil) in the hot-humid and hot-dry regions, respectively; $102 and $175 for split system heat pumps in the hot-humid and hot-dry regions, respectively, and $4 for the rest of the country; $37 for single package air conditioners in the entire country; and $104 for single package heat pumps in the entire country.

For small-duct, high-velocity systems, no consumers would be impacted by the standards in this rule.

The LCC is the total consumer expense over the life of a product, consisting of purchase and installation costs plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the product.

Throughout this notice, the terms “hot-humid” and “hot-dry” are used interchangeably with the terms “southeastern” and “southwestern,” respectively, when referring to the two southern regions for central air conditioners and heat pumps.

For single-package air conditioners and single-package heat pumps, DOE has analyzed the regional standards on a national basis because the standard would be identical in each region. Additionally, given the low level of shipments of these products, DOE determined that an analysis of regional standards would not produce significant differences in comparison to a single national standard.

For the national standards in this rule on standby mode and off mode power, the estimated average LCC savings for consumers are $2 for non-weatherized gas furnaces, $0 for mobile home gas furnaces and electric furnaces, $1 for non-weatherized oil-fired furnaces, $84 for split system air conditioners (coil only), $40 for split system air conditioners (blower coil), $9 for split system heat pumps, $41 for single package air conditioners, $9 for single package heat pumps and $37 for small-duct, high-velocity (SDHV) systems.

C. Impact on Manufacturers

The industry net present value (INPV) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2010 through 2045). Using a real discount rate of 8.0 percent, DOE

estimates that the INPV for manufacturers of furnaces, central air conditioners, and heat pumps in the base case (without amended standards) is $8.50 billion in 2009$. For the standards in this rule on energy efficiency, DOE expects that manufacturers may lose 5.6 to 10.6 percent of their INPV, or approximately $0.48 billion to $0.90 billion. For the standards in this rule on standby mode and off mode power, DOE expects that manufacturers may lose up to 2.9 percent of their INPV, or approximately $0.25 billion.

D. National Benefits

DOE's analyses indicate that the standards in this rule for energy efficiency and standby mode and off mode power would save a significant amount of energy—an estimated 3.36 to 4.38 quads of cumulative energy in 2013-2045 for furnaces and in 2015-2045 for central air conditioners and heat pumps.

This amount is comprised of savings of 3.20 to 4.22 quads for the standards in this rule on energy efficiency and 0.16 quads for the standards in this rule on standby mode and off mode power. The total amount is approximately one-fifth of the amount of total energy used annually by the U.S. residential sector. In addition, DOE expects the energy savings from the standards in this rule to eliminate the need for approximately 3.80 to 3.92 gigawatts (GW) of generating capacity by 2045.

DOE has calculated the energy savings over a period that begins in the year in which compliance with the proposed standards would be required (as described in the text preceding Table I.1) and continues through 2045. DOE used the same end year (2045) for both types of products to be consistent with the end year that it used in analyzing other standard levels that it considered. See section IV.G of this notice for further discussion.

The cumulative national net present value (NPV) of total consumer costs and savings of the standards in this rule for products shipped in 2013-2045 for furnaces and in 2015-2045 for central air conditioners and heat pumps, in 2009$, ranges from $4.30 billion to $4.58 billion (at a 7-percent discount rate) to $15.9 billion to $18.7 billion (at a 3-percent discount rate).

This NPV is the estimated total value of future operating-cost savings during the analysis period, minus the estimated increased product costs (including installation), discounted to 2011.

DOE uses discount rates of 7 and 3 percent based on guidance from the Office of Management and Budget (OMB Circular A-4, section E (Sept. 17, 2003)). See section IV.G of this notice for further information.

In addition, the standards in this rule would have significant environmental benefits. The energy savings would result in cumulative greenhouse gas emission reductions of 113 million to 143 million metric tons (Mt)

of carbon dioxide (CO

) in 2013-2045 for furnaces and in 2015-2045 for central air conditioners and heat pumps. During this period, the standards in this rule would also result in emissions reductions of 97 to 124 thousand tons of nitrogen oxides (NO

) and 0.143 to 0.169 ton of mercury (Hg).

DOE estimates the present monetary value of the total CO

emissions reductions is between $0.574 billion and $11.8 billion, expressed in 2009$ and discounted to 2011 using a range of discount rates (see notes to Table I.3). DOE also estimates the present monetary value of the NO

emissions reductions, expressed in 2009$ and discounted to 2011, is between $12.7 million and $169 million at a 7-percent discount rate, and between $30.7 million and $403 million at a 3-percent discount rate.

A metric ton is equivalent to 1.1 short tons. Results for NO

and Hg are presented in short tons.

DOE calculates emissions reductions relative to the most recent version of the

Annual Energy Outlook

(

AEO

) Reference case forecast. As noted in section 15.2.4 of TSD chapter 15, this forecast accounts for regulatory emissions reductions through 2008, including the Clean Air Interstate Rule (CAIR, 70 FR 25162 (May 12, 2005)), but not the Clean Air Mercury Rule (CAMR, 70 FR 28606 (May 18, 2005)). Subsequent regulations, including the currently proposed CAIR replacement rule, the Clean Air Transport Rule (75 FR 45210 (Aug. 2, 2010)), do not appear in the forecast.

DOE is aware of multiple agency efforts to determine the appropriate range of values used in evaluating the potential economic benefits of reduced Hg emissions. DOE has decided to await further guidance regarding consistent valuation and reporting of Hg emissions before it once again monetizes Hg emissions reductions in its rulemakings.

The benefits and costs of the standards in this rule can also be expressed in terms of annualized values. The annualized monetary values are the sum of: (1) The annualized national economic value, expressed in 2009$, of the benefits from operating products that meet the standards in this rule (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase costs, which is another way of representing consumer NPV), and (2) the monetary value of the benefits of emission reductions, including CO

emission reductions.

The value of the CO

reductions, otherwise known as the Social Cost of Carbon (SCC), is calculated using a range of values per metric ton of CO

developed by a recent interagency process. The monetary costs and benefits of cumulative emissions reductions are reported in 2009$ to permit comparisons with the other costs and benefits in the same dollar units. The derivation of the SCC values is discussed in further detail in section IV.M.

DOE used a two-step calculation process to convert the time-series of costs and benefits into annualized values. First, DOE calculated a present value in 2011, the year used for discounting the NPV of total consumer costs and savings, for the time-series of costs and benefits using discount rates of three and seven percent for all costs and benefits except for the value of CO

reductions. For the latter, DOE used a range of discount rates, as shown in Table I.3. From the present value, DOE then calculated the fixed annual payment over a 32-year period, starting in 2011 that yields the same present value. The fixed annual payment is the annualized value. Although DOE calculated annualized values, this does not imply that the time-series of cost and benefits from which the annualized values were determined would be a steady stream of payments.

Although combining the values of operating savings and CO

emission reductions provides a useful perspective, two issues should be considered. First, the national operating savings are domestic U.S. consumer monetary savings that occur as a result of market transactions, whereas the value of CO

reductions is based on a global value. Second, the assessments of operating cost savings and CO

savings are performed with different methods that use quite different time frames for analysis. The national operating cost savings is measured for the lifetime of products shipped in 2013-2045 for furnaces and 2015-2045 for central air conditioners and heat pumps. The SCC values, on the other hand, reflect the present value of future climate-related impacts resulting from the emission of one metric ton of carbon dioxide in each year. These impacts continue well beyond 2100.

Estimates of annualized benefits and costs of the standards in this rule for furnace, central air conditioner, and heat pump energy efficiency are shown in Table I.3. The results under the primary estimate are as follows. Using a 7-percent discount rate for consumer impacts and the SCC series that has a value of $22.1/ton in 2010 (in 2009$), the cost of the standards in this rule is $527 million to $773 million per year in increased equipment costs, while the annualized benefits are $837 million to $1106 million per year in reduced equipment operating costs, $140 million to $178 million in CO

reductions, and $5.3 million to $6.9 million in reduced NO

emissions. In this case, the net benefit amounts to $456 million to $517 million per year. DOE also calculated annualized net benefits using a range of potential electricity and equipment price trend forecasts. Given the range of

modeled price trends, the range of net benefits in this case is from $295 million to $623 million per year. The low estimate in Table I.3 corresponds to a scenario with a low electricity price trend and a constant real price trend for equipment, while the high estimate reflects a high electricity price trend and a strong declining real price trend for equipment.

Using a 3-percent discount rate for consumer impacts and the SCC series that has a value of $22.1/ton in 2010 (in 2009$), the cost of the standards in this rule is $566 million to $825 million per year in increased equipment costs, while the benefits are $1289 million to $1686 million per year in reduced operating costs, $140 million to $178 million in CO

reductions, and $7.9 million to $10.2 million in reduced NO

emissions. In this case, the net benefit amounts to $871 million to $1049 million per year. DOE also calculated annualized net benefits using a range of potential electricity and equipment price trend forecasts. Given the range of modeled price trends, the range of net benefits in this case is from $601 million to $1,260 million per year. The low estimate corresponds to a scenario with a low electricity price trend and a constant real price trend for equipment, while the high estimate reflects a high electricity price trend and a strong declining real price trend for equipment.

Table I.3—Annualized Benefits and Costs of Standards for Furnace and Central Air Conditioner and Heat Pump Energy Efficiency (TSL 4) *

Discount rate

Monetized (million 2009$/year)

Primary estimate **

Low estimate **

High estimate **

Benefits

Operating Cost Savings

837 to 1,106

723 to 959

955 to 1,258.

1,289 to 1,686

1,083 to 1,422

1,493 to 1,948.

Reduction at $4.9/t

†

34 to 43

34 to 43.

Reduction at $22.1/t

†

140 to 178

141 to 178

140 to 178.

Reduction at $36.3/t

†

2.5%

224 to 284

225 to 285

224 to 284.

Reduction at $67.1/t

†

427 to 541

428 to 543

427 to 541.

Reduction at $2,519/ton

†

5.3 to 6.9

5.3 to 7.0

5.3 to 6.9.

7.9 to 10.2

7.9 to 10.3

7.9 to 10.2.

Total

††

7% plus CO

range

876 to 1,653

762 to 1,509

994 to 1,805.

983 to 1,290

869 to 1,144

1,100 to 1,442.

1,437 to 1,874

1,232 to 1,611

1,641 to 2,136.

3% plus CO

range

1,330 to 2,237

1,125 to 1,975

1,535 to 2,499.

Costs

Incremental Product Costs

527 to 773

574 to 840

555 to 819.

566 to 825

630 to 916

599 to 876.

Net Benefits/Costs

Total

††

7% plus CO

range

349 to 880

188 to 669

438 to 986.

456 to 517

295 to 305

545 to 623.

871 to 1,049

601 to 695

1,042 to 1,260.

3% plus CO

range

764 to 1,412

494 to 1,059

935 to 1,623.

* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and heat pump standards.

** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the

AEO2010

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the Low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the High estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.

†

The CO

values represent global monetized values (in 2009$) of the social cost of CO

emissions in 2010 under several scenarios. The values of $4.9, $22.1, and $36.3 per metric ton are the averages of SCC distributions calculated using 5-percent, 3-percent, and 2.5-percent discount rates, respectively. The value of $67.1 per ton represents the 95th percentile of the SCC distribution calculated using a 3-percent discount rate. The value for NO

(in 2009$) is the average of the low and high values used in DOE's analysis.

††

Total Benefits for both the 3-percent and 7-percent cases are derived using the SCC value calculated at a 3-percent discount rate, which is $22.1/ton in 2010 (in 2009$). In the rows labeled as “7% plus CO

range” and “3% plus CO

range,” the operating cost and NO

benefits are calculated using the labeled discount rate, and those values are added to the full range of CO

values.

Estimates of annualized benefits and costs of the standards in this rule for furnace, central air conditioner, and heat pump standby mode and off mode power are shown in Table I.4. The results under the primary estimate are as follows. Using a 7-percent discount rate and the SCC value of $22.1/ton in 2010 (in 2009$), the cost of the standards in this rule is $16.4 million per year in increased equipment costs, while the annualized benefits are $46.5 million per year in reduced equipment operating costs, $12.4 million in CO

reductions, and $0.4 million in reduced NO

emissions. In this case, the net benefit amounts to $42.8 million per year. Using a 3-percent discount rate and the SCC value of $22.10/ton in 2010 (in 2009$), the cost of the standards in this rule is $19.1 million per year in increased equipment costs, while the benefits are $79.3 million per year in reduced operating costs, $12.4 million in CO

reductions, and $0.6 million in reduced NO

emissions. In this case, the net benefit amounts to $73.2 million per year.

Table I.4—Annualized Benefits and Costs of Standards for Furnace, Central Air Conditioner, and Heat Pump Standby Mode and Off Mode (TSL 2) *

Discount rate

Monetized (million 2009$/year)

Primary estimate **

Low estimate **

High estimate **

Benefits

Operating Cost Savings

46.5

40.4

52.8.

79.3

67.9

90.8.

Reduction at $4.9/t

†

2.9

2.9.

Reduction at $22.1/t

†

12.4

12.4.

Reduction at $36.3/t

†

2.5%

19.9

19.9.

Reduction at $67.1/t

†

37.6

37.6.

Reduction at $2,519/ton

†

0.4

0.4.

0.6

0.6.

Total

††

7% plus CO

range

49.7 to 84.5

43.6 to 78.4

56.1 to 90.8.

59.2

53.1

65.5.

92.3

80.9

103.8.

3% plus CO

range

82.8 to 117.5

71.4 to 106.2

94.3 to 129.1.

Costs

Incremental Product Costs

16.4

15.2

17.7.

19.1

17.6

20.6.

Net Benefits/Costs

Total

††

7% plus CO

range

33.3 to 68.1

28.5 to 63.2

38.4 to 73.1.

42.8

38.0

47.9.

73.2

63.3

83.2.

3% plus CO

range

63.7 to 98.4

53.8 to 88.5

73.7 to 108.5.

* The benefits and costs are calculated for products shipped in 2013-2045 for the furnace standards and in 2015-2045 for the central air conditioner and heat pump standards.

** The Primary, Low, and High Estimates utilize forecasts of energy prices and housing starts from the

AEO2010

Reference case, Low Economic Growth case, and High Economic Growth case, respectively. In addition, the low estimate uses incremental product costs that reflects constant prices (no learning rate) for product prices, and the high estimate uses incremental product costs that reflects a declining trend (high learning rate) for product prices. The derivation and application of learning rates for product prices is explained in section IV.F.1.

†

The CO

values represent global monetized values (in 2009$) of the social cost of CO

(in 2009$) is the average of the low and high values used in DOE's analysis.

††

range” and “3% plus CO

range,” the operating cost and NO

benefits are calculated using the labeled discount rate, and those values are added to the full range of CO

values.

E. Conclusion

Based on the analyses culminating in this rule, DOE has concluded that the benefits of the standards in this rule (energy savings, positive NPV of consumer benefits, consumer LCC savings, and emission reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC increases for some consumers). DOE has concluded that the standards in this rule represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. DOE further notes that products achieving these standard levels are already commercially available for all of the product classes covered by today's proposal.

II. Introduction

The following sections briefly discuss the statutory authority underlying today's direct final rule, as well as some of the relevant historical background related to the establishment of standards for residential furnaces and residential central air conditioners and heat pumps.

A. Authority

Title III, Part B of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6291-6309, as codified) established the Energy Conservation Program for Consumer Products Other Than Automobiles,

a program covering most major household appliances (collectively referred to as “covered products”), which includes the types of residential central air conditioners and heat pumps and furnaces that are the subject of this rulemaking. (42 U.S.C. 6292(a)(3) and (5)) EPCA prescribed energy conservation standards for central air conditioners and heat pumps and directed DOE to conduct two cycles of rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(d)(1)-(3)) The statute also prescribed standards for furnaces, except for “small” furnaces (

i.e.,

those units with an input capacity less than 45,000 British thermal units per hour (Btu/h)), for which EPCA directed DOE to prescribe standards. (42 U.S.C. 6295(f)(1)-(2)) Finally, EPCA directed DOE to conduct rulemakings to determine whether to amend the standards for furnaces. (42 U.S.C. 6295(f)(4)(A)-(C)) As explained in further detail in section II.B, “Background,” this rulemaking represents the second round of amendments to both the central air conditioner/heat pump and the furnaces standards, under the authority of 42 U.S.C. 6295(d)(3)(B) and (f)(4)(C), respectively.

For editorial reasons, upon codification in the U.S. Code, Part B was redesignated Part A.

DOE notes that this rulemaking is one of the required agency actions in two court orders. First, pursuant to the

consolidated Consent Decree in

State of New York, et al.

Bodman, et al.,

05 Civ. 7807 (LAP), and

Natural Resources Defense Council, et al.

Bodman, et al.,

05 Civ. 7808 (LAP), DOE is required to complete a final rule for amended energy conservation standards for residential central air conditioners and heat pumps that must be sent to the

Federal Register

by June 30, 2011. Second, pursuant to the Voluntary Remand in

State of New York, et al.

Department of Energy, et al.,

08-0311-ag(L); 08-0312-ag(con), DOE agreed to complete a final rule to consider amendments to the energy conservation standards for residential furnaces which it anticipated would be sent to the

Federal Register

by May 1, 2011.

DOE further notes that under 42 U.S.C. 6295(m), the agency must periodically review its already established energy conservation standards for a covered product. Under this requirement, the next review that DOE would need to conduct must occur no later than six years from the issuance of a final rule establishing or amending a standard for a covered product.

Pursuant to EPCA, DOE's energy conservation program for covered products consists essentially of four parts: (1) Testing; (2) labeling; (3) the establishment of Federal energy conservation standards; and (4) certification and enforcement procedures. The Federal Trade Commission (FTC) is primarily responsible for labeling, and DOE implements the remainder of the program. Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. (42 U.S.C. 6293) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their products comply with the applicable energy conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with standards adopted pursuant to EPCA.

Id.

The DOE test procedures for central air conditioners and heat pumps, and for furnaces, appear at title 10 of the Code of Federal Regulations (CFR) part 430, subpart B, appendices M and N, respectively.

DOE must follow specific statutory criteria for prescribing amended standards for covered products. As indicated above, 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. (42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3)) Moreover, DOE may not prescribe a standard: (1) For certain products, including both furnaces and central air conditioners and heat pumps, if no test procedure has been established for the product, or (2) if DOE determines by rule that the proposed standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven factors:

1. The economic impact of the standard on manufacturers and consumers of the products subject to the standard;

2. The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the imposition of the standard;

3. The total projected amount of energy, or as applicable, water, savings likely to result directly from the imposition of the standard;

4. Any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard;

5. The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard;

6. The need for national energy and water conservation; and

7. Other factors the Secretary of Energy (the Secretary) considers relevant. (42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))

The Energy Independence and Security Act of 2007 (EISA 2007; Pub. L. 110-140) amended EPCA, in relevant part, to grant DOE authority to issue a final rule (hereinafter referred to as a “direct final rule”) establishing an energy conservation standard on receipt of a statement submitted jointly by interested persons 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, that contains recommendations with respect to an energy or water conservation standard that are in accordance with the provisions of 42 U.S.C. 6295(o). A notice of proposed rulemaking (NOPR) that proposes an identical energy efficiency standard must be published simultaneously with the final rule, and DOE must provide a public comment period of at least 110 days on this proposal. 42 U.S.C. 6295(p)(4). 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. DOE must publish in the

Federal Register

the reason why the direct final rule was withdrawn.

Id.

The Consent Decree in

State of New York, et al.

Bodman, et al.,

described above, defines a “final rule” to have the same meaning as in 42 U.S.C. 6295(p)(4) and defines “final action” as a final decision by DOE. As this direct final rule is issued under authority at 42 U.S.C. 6295(p)(4) and constitutes a final decision by DOE which becomes legally effective 120 days after issuance, absent an adverse comment that leads the Secretary to withdraw the direct final rule, DOE asserts that issuance of this direct final rule on or before the date required by the court constitutes compliance with the Consent Decree in

State of New York, et al.

Bodman, et al.

EPCA, as codified, also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States of any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6295(o)(4))

Further, EPCA, as codified, establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))

Additionally, 42 U.S.C. 6295(q)(1) specifies requirements when promulgating a standard for a type or class of covered product that has two or more subcategories. DOE must specify a different standard level than that which applies generally to such type or class of products “for any group of covered products which have the same function or intended use, if * * * products within such group—(A) consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and such feature justifies a higher or lower standard” than applies or will apply to the other products within that type or class.

Id.

In determining whether a performance-related feature justifies a different standard for a group of products, DOE must “consider such factors as the utility to the consumer of such a feature” and other factors DOE deems appropriate.

Id.

Any rule prescribing such a standard must include an explanation of the basis on which such higher or lower level was established. (42 U.S.C. 6295(q)(2))

Under 42 U.S.C. 6295(o)(6), which was added by section 306(a) of the Energy Independence and Security Act of 2007 (EISA 2007; Pub. L. 110-140), DOE may consider the establishment of regional standards for furnaces (except boilers) and for central air conditioners and heat pumps. Specifically, in addition to a base national standard for a product, DOE may establish for furnaces a single more-restrictive regional standard, and for central air conditioners and heat pumps, DOE may establish one or two more-restrictive regional standards. (42 U.S.C. 6295(o)(6)(B)) The regions must include only contiguous States (with the exception of Alaska and Hawaii, which may be included in regions with which they are not contiguous), and each State may be placed in only one region (

i.e.,

an entire State cannot simultaneously be placed in two regions, nor can it be divided between two regions). (42 U.S.C. 6295(o)(6)(C)) Further, DOE can establish the additional regional standards only: (1) Where doing so would produce significant energy savings in comparison to a single national standard, (2) if the regional standards are economically justified, and (3) after considering the impact of these standards on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. (42 U.S.C. 6295(o)(6)(D))

Federal energy conservation requirements generally supersede State laws or regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under 42 U.S.C. 6297(d).

Finally, pursuant to the amendments contained in section 310(3) of EISA 2007, any final rule for new or amended energy conservation standards promulgated after July 1, 2010 are required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under 42 U.S.C. 6295(o), incorporate standby mode and off mode energy use into the standard, if feasible, or, if that is not feasible, adopt a separate standard for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) DOE's current energy conservation standards for furnaces are expressed in terms of minimum annual fuel utilization efficiencies (AFUE), and, for central air conditioners and heat pumps, they are expressed in terms of minimum seasonal energy efficiency ratios (SEER) for the cooling mode and heating seasonal performance factors (HSPF) for the heating mode.

DOE's current test procedures for furnaces have been updated to address standby mode and off mode energy use. 75 FR 64621 (Oct. 20, 2010). DOE is in the process of amending its test procedures for central air conditioners and heat pumps to address standby mode and off mode energy use. 75 FR 31224 (June 2, 2010). In this rulemaking, DOE is adopting provisions to comprehensively address such energy use. In addition, DOE is amending the test procedure for furnaces and boilers to specify that furnaces manufactured on or after May 1, 2013 (

i.e.,

the compliance date of the standard) will be required to be tested for standby mode and off mode energy consumption for purposes of certifying compliance with the standard. As noted above, for central air conditioners and heat pumps, DOE is currently in the process of amending the test procedures. Accordingly, DOE is including language to specify that off mode testing does not need to be performed until the compliance date for the applicable off mode energy conservation standards resulting from this rule.

DOE has also reviewed this regulation pursuant to Executive Order 13563, issued on January 18, 2011 (76 FR 3281, Jan. 21, 2011). EO 13563 is supplemental to and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, agencies are required by Executive Order 13563 to: (1) Propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public.

We emphasize as well that Executive Order 13563 requires agencies “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” In its guidance, the Office of Information and Regulatory Affairs has emphasized that such techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.” For the reasons stated in the preamble, DOE believes that today's direct final rule is consistent with these principles, including that, to the extent permitted by law, agencies adopt a regulation only upon a reasoned determination that its benefits justify its costs and select, in choosing among alternative regulatory approaches, those approaches that

maximize net benefits. Consistent with EO 13563, and the range of impacts analyzed in this rulemaking, the energy efficiency standard adopted herein by DOE achieves maximum net benefits.

B. Background

1. Current Standards

a. Furnaces

EPCA established the energy conservation standards that apply to most residential furnaces currently being manufactured, consisting of a minimum AFUE of 75 percent for mobile home furnaces and a minimum AFUE of 78 percent for all other furnaces, except “small” gas furnaces (those having an input rate of less than 45,000 Btu per hour), for which DOE was directed to prescribe a separate standard. (42 U.S.C. 6295(f)(1)-(2); 10 CFR 430.32(e)(1)(i)) The standard for mobile home furnaces has applied to products manufactured for sale in the United States, or imported into the United States, since September 1, 1990, and the standard for most other furnaces has applied to products manufactured or imported since January 1, 1992.

Id.

On November 17, 1989, DOE published a final rule in the

Federal Register

adopting the current standard for “small” gas furnaces, which consists of a minimum AFUE of 78 percent that has applied to products manufactured or imported since January 1, 1992. 54 FR 47916.

Pursuant to EPCA, DOE was required to conduct further rulemaking to consider amended energy conservation standards for furnaces. (42 U.S.C. 6295(f)(4)) For furnaces manufactured or imported on or after November 19, 2015, DOE published a final rule in the

Federal Register

on November 19, 2007 (the November 2007 Rule) that revised these standards for most furnaces, but left them in place for two product classes (

i.e.,

mobile home oil-fired furnaces and weatherized oil-fired furnaces). 72 FR 65136. This rule completed the first of the two rulemakings required under 42 U.S.C. 6295(f)(4)(B)-(C) to consider amending the standards for furnaces. The energy conservation standards in the November 2007 Rule consist of a minimum AFUE level for each of the six classes of furnaces (10 CFR 430.32(e)(1)(ii)) and are set forth in Table II.1 below.

Table II.1—Energy Conservation Standards for Residential Furnaces Manufactured on or After November 19, 2015

Product class

AFUE

(percent)

Non-weatherized Gas Furnaces

Weatherized Gas Furnaces

Mobile Home Oil-Fired Furnaces

Non-weatherized Oil-Fired Furnaces

Weatherized Oil-Fired Furnaces

b. Central Air Conditioners and Heat Pumps

Congress initially prescribed statutory standard levels for residential central air conditioners and heat pumps. (42 U.S.C. 6295(d)(1)-(2)) DOE was required to subsequently conduct two rounds of rulemaking to consider amended standards for these products. (42 U.S.C. 6295(d)(3)) In a final rule published in the

Federal Register

on August 17, 2004 (the August 2004 Rule), DOE prescribed the current Federal energy conservation standards for central air conditioners and heat pumps manufactured or imported on or after January 23, 2006. 69 FR 50997. This rule completed the first of the two rulemakings required under 42 U.S.C. 6295(d)(3)(A) to consider amending the standards for these products. The standards consist of a minimum SEER for each class of air conditioner and a minimum SEER and HSPF for each class of heat pump (10 CFR 430.32(c)(2)). These standards are set forth in Table II.2 below.

In 2004 and 2005, DOE's Office of Hearings and Appeals (OHA) granted exception relief from the standards for this class of products, under section 504 of the DOE Organization Act (42 U.S.C. 7194), to allow three manufacturers to sell such products so long as they had a SEER no less than 11 and an HSPF no less than 6.8. See Office of Hearings and Appeals case numbers TEE-0010 and TEE-0011, which were filed on May 24, 2004.

Table II.2—Energy Conservation Standards for Central Air Conditioners and Heat Pumps Manufactured on or After January 23, 2006

Product class

SEER

HSPF

Split-System Air Conditioners

Split-System Heat Pumps

7.7

Single-Package Air Conditioners

Single-Package Heat Pumps

7.7

Through-the-wall Air Conditioners and Heat Pumps—Split System*

10.9

7.1

Though-the-wall Air Conditioners and Heat Pumps—Single Package*

10.6

7.0

Small-Duct, High-Velocity Systems

7.7

Space-Constrained Products—Air Conditioners

Space-Constrained Products—Heat Pumps

7.4

* As defined in 10 CFR 430.2, this product class applies to products manufactured prior to January 23, 2010.

2. History of Standards Rulemaking for Residential Furnaces, Central Air Conditioners, and Heat Pumps

a. Furnaces

Amendments to EPCA in the National Appliance Energy Conservation Act of 1987 (NAECA; Pub. L. 100-12) established EPCA's original energy conservation standards for furnaces, which are still in force, consisting of the minimum AFUE levels described above for mobile home furnaces and for all other furnaces except “small” gas furnaces. (42 U.S.C. 6295(f)(1)-(2)) Pursuant to 42 U.S.C. 6295(f)(1)(B), in November 1989, DOE adopted a mandatory minimum AFUE level for “small” furnaces. 54 FR 47916 (Nov. 17, 1989). DOE was required to conduct two more cycles of rulemakings to determine whether to amend all of the standards for furnaces. (42 U.S.C. 6295(f)(4)(B)-(C)) As discussed above, the November 2007 Rule completed the first cycle of required rulemaking to consider amendment of the standards for furnaces under 42 U.S.C. 6295(f)(4)(B).

Following DOE's adoption of the November 2007 Rule, however, several

parties jointly sued DOE in the United States Court of Appeals for the Second Circuit to invalidate the rule. Petition for Review,

State of New York, et al.

Department of Energy, et al.,

Nos. 08-0311-ag(L); 08-0312-ag(con) (2d Cir. filed Jan. 17, 2008). The petitioners asserted that the standards for residential furnaces promulgated in the November 2007 Rule did not reflect the “maximum improvement in energy efficiency” that “is technologically feasible and economically justified,” as required under 42 U.S.C. 6295(o)(2)(A). On April 16, 2009, DOE filed with the Court a motion for voluntary remand that the petitioners did not oppose. The motion did not state that the November 2007 Rule would be vacated, but indicated that DOE would revisit its initial conclusions outlined in the November 2007 Rule in a subsequent rulemaking action.

Motion for Voluntary Remand, State of New York, et al.

Department of Energy, et al.,

supra. The Court granted the voluntary remand on April 21, 2009.

State of New York, et al.

Department of Energy, et al.,

supra, (order granting motion). Under the remand agreement, DOE anticipated that it would issue a revised final rule amending the energy conservation standards for furnaces by May 1, 2011.

DOE also agreed that the final rule would address both regional standards for furnaces, as well as the effects of alternate standards on natural gas prices. Subsequently, the furnaces rulemaking was combined with the central air conditioners and heat pumps rulemaking because of the functional and analytical interplay of these types of products (see section III.A for more details). The petitioners and DOE agreed that the final rule for furnaces should be issued on June 30, 2011, to coincide with the date by which the central air conditioner and heat pump rulemaking is required to be issued.

The current rulemaking for furnaces is being conducted pursuant to authority under 42 U.S.C. 6295(f)(4)(C) and (o)(6). DOE notes that the second round of amended standards rulemaking called for under 42 U.S.C. 6295(f)(4)(C) applies to both furnaces and boilers. However, given the relatively recently prescribed boiler standards under 42 U.S.C. 6295(f)(3), with compliance required for products manufactured or imported on or after September 1, 2012, DOE has decided to consider amended standards for boilers under 42 U.S.C. 6295(f)(4)(C) in a future rulemaking.

DOE initiated the portion of this rulemaking that concerns furnaces on March 11, 2010, by publishing on the DOE Web site its “Energy Conservation Standards for Residential Furnaces Rulemaking Analysis Plan” (furnaces RAP). (The furnaces RAP is available at:

http://www1.eere.energy.gov/buildings/appliance_standards/residential/furnaces_nopm_rulemaking_analysis.html.

) The furnaces RAP set forth the product classes DOE planned to analyze for purposes of amending the energy conservation standards for furnaces, and, as set forth below, the approach DOE would use to evaluate such amended standards. DOE also published a notice of public meeting (NOPM) announcing the availability of the RAP and a public meeting to discuss and receive comments on the subjects in that document, and requesting written comment on these subjects. 75 FR 12144 (March 15, 2010) (the March 2010 NOPM). In this notice, DOE stated its interest in receiving views concerning other relevant issues that participants believe would affect energy conservation standards for furnaces or that DOE should address.

Id.

at 12147-48.

The RAP provided an overview of the activities DOE planned to undertake in developing amended energy conservation standards for furnaces. It included discussion of: (1) A consensus agreement

that recommended particular standards for DOE adoption for furnaces and central air conditioners/heat pumps; (2) DOE's consideration of whether to conduct a single rulemaking to address standards either for these two products or for these products and furnace fans, and (3) DOE's intention to develop regional standards for furnaces. In addition, the RAP described the analytical framework that DOE planned to use in any rulemaking that considered amended standards for furnaces, including a detailed description of the methodology, the analytical tools, the analyses DOE would perform, and the relationships among these analyses. DOE also summarized in detail all of these points in the March 2010 NOPM, including the nature and function of the analyses DOE would perform.

Id.

at 12146-47. These analyses are as follows:

On January 15, 2010, several interested parties submitted a joint comment to DOE recommending adoption of minimum energy conservation standards for residential central air conditioners, heat pumps, and furnaces, as well as associated compliance dates for such standards, which represents a negotiated agreement among a variety of interested stakeholders including manufacturers and environmental and efficiency advocates. The original agreement (referred to as the “consensus agreement”) was completed on October 13, 2009, and had 15 signatories. For more information, see section III.B of this direct final rule.

• A

market and technology assessment

to address the scope of this rulemaking, identify the potential classes for furnaces, characterize the market for this product, and review techniques and approaches for improving its efficiency;

• A

screening analysis

to review technology options to improve the efficiency of furnaces, and weigh these options against DOE's four prescribed screening criteria;

• An

engineering analysis

to estimate the manufacturer selling prices (MSPs) associated with more energy-efficient furnaces;

• An

energy use analysis

to estimate the annual energy use of furnaces;

• A

markups analysis

to convert estimated MSPs derived from the engineering analysis to consumer prices;

• A

life-cycle cost analysis

to calculate, for individual consumers, the discounted savings in operating costs throughout the estimated average life of the product, compared to any increase in installed costs likely to result directly from the imposition of a given standard;

• A

payback period (PBP) analysis

to estimate the amount of time it takes individual consumers to recover the higher purchase price expense of more energy-efficient products through lower operating costs;

• A

shipments analysis

to estimate shipments of furnaces over the time period examined in the analysis, for use in performing the national impact analysis (NIA);

• A

national impact analysis

to assess the national and regional energy savings, and the national and regional net present value of total consumer costs and savings, expected to result from specific, potential energy conservation standards for furnaces;

• A

manufacturer impact analysis

to evaluate the effects on manufacturers of new efficiency standards.

• A

utility impact analysis

to estimate specific effects of standards for furnaces on the utility industry;

• An

employment impacts analysis

to assess the indirect impacts of standards on employment in the national economy;

• An

environmental impact analysis

to quantify and consider the environmental effects of amended standards for furnaces; and

• A

regulatory impact analysis

to address the potential for non-regulatory approaches to supplant or augment standards to improve the efficiency of furnaces.

The public meeting announced in the March 2010 NOPM took place on March 31, 2010 at DOE headquarters in Washington, DC. At this meeting, DOE presented the methodologies it intends to use and the analyses it intends to perform to consider amended energy conservation standards for furnaces. Interested parties that participated in the public meeting discussed a variety of topics, but focused on the following

issues: (1) The consensus agreement; (2) the scope of coverage for the rulemaking; (3) a combined rulemaking; (4) regional standards and their enforcement; (5) test procedure and rating metrics; (6) product classes; (7) efficiency levels and representative products analyzed in the engineering analysis; (8) installation, repair, and maintenance costs; and (9) product and fuel switching. The comments received since publication of the March 2010 NOPM, including those received at the March 2010 public meeting, have contributed to DOE's resolution of the issues in this rulemaking. This direct final rule quotes and/or summarizes these comments, and responds to all the issues they raised. (A parenthetical reference at the end of a quotation or paraphrase provides the location of the item in the public record.)

b. Central Air Conditioners and Heat Pumps

As with furnaces, NAECA included amendments to EPCA that established EPCA's original energy conservation standards for central air conditioners and heat pumps, consisting of two minimum SEER levels for air conditioners and for heat pumps when operating in the cooling mode and two minimum HSPF levels for heat pumps when operating in the heating mode. (42 U.S.C. 6295(d)(1)-(2)) One of the SEER levels and one of the HSPF levels applied to split systems, and the other SEER and HSPF levels applied to single package systems. Each “split system” consists of an outdoor unit and an indoor unit which are “split” from each other and connected via refrigerant tubing. The outdoor unit has a compressor, heat exchanger coil, fan, and fan motor. The indoor unit has a heat exchanger coil and a blower fan unless it resides within a furnace, in which case the furnace contains the blower fan for air circulation. In “single package systems,” all the components that comprise a split system, including the air circulation components, are in a single cabinet that resides outdoors. In both types of systems, conditioned air is conveyed to the home via ducts.

EPCA, as amended, also requires DOE to conduct two cycles of rulemakings to determine whether to amend the energy conservation standards for central air conditioners and heat pumps. (42 U.S.C. 6295(d)(3)) Pursuant to 42 U.S.C. 6295(d)(3)(A), on January 22, 2001, DOE published a final rule in the

Federal Register

that adopted amended standards for split system air conditioners and heat pumps and single package air conditioners and heat pumps. 66 FR 7170 (the January 2001 Rule). However, shortly after publication of the January 2001 Rule, DOE postponed the effective date of the rule from February 21, 2001 to April 23, 2001 in response to President Bush's Regulatory Review Plan, and in order to reconsider the amended standards it contained. 66 FR 8745 (Feb. 2, 2001). While reviewing the amended standards, DOE further postponed the effective date pending the outcome of a petition submitted by the Air Conditioning and Refrigeration Institute. 66 FR 20191 (April 20, 2001). DOE subsequently withdrew the 2001 final rule and published another final rule which adopted revisions of these amended standards, as well as new amended standards for the product classes for which the January 2001 Rule had not prescribed standards. 67 FR 36368 (May 23, 2002) (the May 2002 Rule). The Natural Resources Defense Council (NRDC), along with other public interest groups and several State Attorneys General filed suit in the U.S. Court of Appeals for the Second Circuit, challenging DOE's withdrawal of the January 2001 final rule and promulgation of the May 2002 final rule. On January 13, 2004, the U.S. Court of Appeals for the Second Circuit invalidated the May 2002 Rule's revisions of the standards adopted in the January 2001 Rule, because the May 2002 final rule had lower amended standards than the January 2001 Rule and, thus, violated 42 U.S.C. 6295(o)(1) (

i.e.,

the “anti-backsliding clause”).

Natural Resources Defense Council

Abraham,

355 F.3d 179 (2d Cir. 2004). However, the Court's decision did not affect the standards DOE adopted in the May 2002 Rule for products not covered by the standards in the January 2001 Rule. To be consistent with the court's ruling, DOE published the August 2004 Rule, which established the standards currently applicable to central air conditioners and heat pumps. 69 FR 50997 (August 17, 2004). As stated above, this rule completed the first cycle of rulemaking for revised standards for central air conditioners and heat pumps under 42 U.S.C. 6295(d)(3)(A), and these standards took effect on January 23, 2006.

Id.

DOE initiated the current rulemaking on June 2, 2008, by publishing on its Web site its “Rulemaking Framework for Residential Central Air Conditioners and Heat Pumps.” (A PDF of the framework document is available at

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_new_rulemaking.html.

) DOE also published a notice announcing the availability of the framework document and a public meeting on the document, and requesting public comment on the matters raised in the document. 73 FR 32243 (June 6, 2008). The framework document described the procedural and analytical approaches that DOE anticipated using to evaluate energy conservation standards for central air conditioners and heat pumps and identified various issues to be resolved in conducting this rulemaking.

DOE held the public meeting on June 12, 2008, in which it: (1) Presented the contents of the framework document; (2) described the analyses it planned to conduct during the rulemaking; (3) sought comments from interested parties on these subjects; and (4) in general, sought to inform interested parties about, and facilitate their involvement in, the rulemaking. Interested parties discussed the following major issues at the public meeting: (1) The scope of coverage for the rulemaking; (2) product classes; (3) test procedure modifications; (4) effects on cost and system efficiency of phasing out certain refrigerants due to climate and energy legislation such as the Waxman-Markey bill (H.R. 2454); (5) regulation of standby mode and off mode energy consumption; and (6) regional standards. At the meeting and during the comment period on the framework document, DOE received many comments that helped it identify and resolve issues pertaining to central air conditioners and heat pumps relevant to this rulemaking.

DOE then gathered additional information and performed preliminary analyses to help develop potential energy conservation standards for these products. This process culminated in DOE's announcement of another public meeting to discuss and receive comments on the following matters: (1) The product classes DOE planned to analyze; (2) the analytical framework, models, and tools that DOE was using to evaluate standards; (3) the results of the preliminary analyses performed by DOE; and (4) potential standard levels that DOE could consider. 75 FR 14368 (March 25, 2010) (the March 2010 Notice). DOE also invited written comments on these subjects and announced the availability on its Web site of a preliminary technical support document (preliminary TSD) it had prepared to inform interested parties and enable them to provide comments.

Id.

(The preliminary TSD is available at:

http://www1.eere.energy.gov/buildings/appliance_standards/residential/cac_heatpumps_new_rulemaking.html

) Finally, DOE stated its interest in receiving views concerning other

relevant issues that participants believed would affect energy conservation standards for central air conditioners and heat pumps, or that DOE should address in this direct final rule.

Id.

at 14372.

The preliminary TSD provided an overview of the activities DOE undertook to develop standards for central air conditioners and heat pumps and discussed the comments DOE received in response to the framework document. Similar to the RAP for furnaces, it also addressed the consensus agreement that recommended particular standards for DOE adoption for furnaces and central air conditioners/heat pumps, and it addressed DOE's consideration of whether to conduct a single rulemaking to address standards either for these two products or for these products and furnace fans. The preliminary TSD also described the analytical framework that DOE used (and continues to use) in considering standards for central air conditioners and heat pumps, including a description of the methodology, the analytical tools, and the relationships between the various analyses that are part of this rulemaking. The preliminary TSD presented and described in detail each analysis that DOE had performed for these products up to that point, including descriptions of inputs, sources, methodologies, and results, and it included DOE's evaluation of potential regional standards for central air conditioners and heat pumps. These analyses were as follows:

• A

market and technology assessment

addressed the scope of this rulemaking, identified the potential classes for central air conditioners and heat pumps, characterized the markets for these products, and reviewed techniques and approaches for improving their efficiency;

• A

screening analysis

reviewed technology options to improve the efficiency of central air conditioners and heat pumps, and weighed these options against DOE's four prescribed screening criteria;

• An

engineering analysis

estimated the manufacturer selling prices (MSPs) associated with more energy-efficient central air conditioners and heat pumps;

• An

energy use analysis

estimated the annual energy use of central air conditioners and heat pumps;

• A

markups analysis

converted estimated MSPs derived from the engineering analysis to consumer prices;

• A

life-cycle cost analysis

calculated, for individual consumers, the discounted savings in operating costs throughout the estimated average life of central air conditioners and heat pumps, compared to any increase in installed costs likely to result directly from the imposition of a given standard;

• A

payback period analysis

estimated the amount of time it takes individual consumers to recover the higher purchase price expense of more energy-efficient products through lower operating costs;

• A

shipments analysis

estimated shipments of central air conditioners and heat pumps over the time period examined in the analysis, and was used in performing the national impact analysis;

• A

national impact analysis

assessed the national and regional energy savings, and the national and regional net present value of total consumer costs and savings, expected to result from specific, potential energy conservation standards for central air conditioners and heat pumps; and

• A

preliminary manufacturer impact analysis

took the initial steps in evaluating the effects on manufacturers of amended efficiency standards.

In the March 2010 Notice, DOE addressed the consensus agreement, regional standards, and the possibility of a combined rulemaking. DOE also summarized in detail in the notice the nature and function of the following analyses: (1) Engineering analysis; (2) energy use analysis; (3) markups to determine installed prices; (4) LCC and PBP analyses; and (5) national impact analysis. 75 FR 14368, 14370-71 (March 25, 2010).

The public meeting announced in the March 2010 Notice took place on May 5, 2010 at DOE headquarters in Washington, DC. At this meeting, DOE presented the methodologies and results of the analyses set forth in the preliminary TSD. Interested parties that participated in the public meeting discussed a variety of topics, but centered on the following issues: (1) The consensus agreement; (2) a combined rulemaking with furnaces and furnace fans; (3) efficiency metrics; (4) technology options; (5) product classes; (6) installation, maintenance, and repair costs; (7) markups and distributions chains; (8) central air conditioner and heat pumps shipments; and (9) electricity prices. The comments received since publication of the March 2010 Notice, including those received at the May 2010 public meeting, have contributed to DOE's resolution of the issues in this rulemaking as they pertain to central air conditioners and heat pumps. This direct final rule responds to the issues raised by the commenters. (A parenthetical reference at the end of a quotation or paraphrase provides the location of the item in the public record.)

III. General Discussion

A. Combined Rulemaking

As discussed in section II.B.2, DOE had been conducting or planning separate standards rulemakings for three interrelated products: (1) Central air conditioners and heat pumps; (2) gas furnaces; and (3) furnace fans. Rather than analyze each set of products separately, DOE considered combining the analyses to examine how the interaction between the three products impacts the cost to consumers and the energy savings resulting from potential amended standards. In both its RAP regarding energy conservation standards for residential furnaces and preliminary analysis for residential central air conditioners and heat pumps, DOE specifically invited comment from interested parties related to the potential for combining the rulemakings regarding energy conservation standards for residential central air conditioners and heat pumps, residential furnaces, and furnace fans.

NRDC commented that it supports accelerating the furnace fan rulemaking to coincide with the rulemakings for furnaces and central air conditioners, because a combined rulemaking would potentially provide analytical simplification and is consistent with the President's request that DOE meet all statutory deadlines and accelerate those with large potential energy savings. (FUR: NRDC, No. 1.3.020 at pp. 9-10)

The California investor-owned utilities (CA IOUs,

i.e.,

Pacific Gas & Electric, Southern California Gas Company, San Diego Gas and Electric, and Southern California Edison) also supported a combined rulemaking, arguing that this approach would allow DOE to more accurately analyze the energy-efficiency impacts of various standards options. The CA IOUs also stated that a combined rulemaking would reduce redundant workload for DOE and minimize the number of public meetings. (FUR: CA IOUs, No. 1.3.017 at p. 2) Proctor Engineering Group (Proctor) stated support for combining the furnace, furnace fan, and central air conditioner and heat pump rulemakings because the three products work

together. Proctor asserted that the standards need to be integrated together and that the analysis should be integrated as well. (FUR: Proctor, Public Meeting Transcript, No. 1.2.006 at p. 29) In written comments, Proctor elaborated that DOE could improve current standards by promulgating standards that recognize the interdependence of furnaces, air conditioners, heat pumps, and air handler fans within the average U.S. household and that are consistent such that they can be properly integrated within a system to produce results that are representative of a system typically found in a home in the United States of America. (FUR, Proctor, FDMS No. 0002 at p. 2)

In this direct final rule, DOE discusses comments received in response to both the furnaces rulemaking analysis plan and the central air conditioners and heat pumps preliminary analysis. Comments received in response to the furnace rulemaking analysis plan are identified by “FUR” preceding the comment citation. Comments received in response to the central air conditioners and heat pump preliminary analysis are identified by “CAC” preceding the comment citation.

The American Council for an Energy Efficient Economy (ACEEE), Heating Air-conditioning & Refrigeration Distributors International (HARDI), Ingersoll Rand, Southern Company (Southern), Edison Electric Institute (EEI), and Lennox supported a combined rulemaking of furnaces and central air conditioners and heat pumps, but did not support a combined rulemaking that also covers furnace fans. (FUR: ACEEE, No. 1.3.009 at p. 4; HARDI, No. 1.3.016 at pp. 2, 5-6; Ingersoll Rand, No. 1.3.006 at p. 1; Lennox, No. 1.3.018 at p. 2) (CAC: ACEEE, No. 72 at p. 2; HARDI, No. 56 at p. 2; Lennox No. 65 at p. 2; Ingersoll Rand, No. 66 at p. 8; Southern, No. 73 at p.2; EEI, No. 75 at p. 4) HARDI commented that there would not be time for a thorough analysis of furnace fans if that rulemaking is accelerated to include it with furnaces and central air conditioners and heat pumps. (FUR: HARDI, No. 1.3.016 at pp. 2, 5-6) Ingersoll Rand concurred, further stating that furnace fan efficiency is a complex topic that needs to be handled separately. (FUR: Ingersoll Rand, No. 1.3.006 at p. 1) (CAC: Ingersoll Rand, No. 66 at p. 8) Lennox stated that the furnace fan rulemaking will be more complicated than typical DOE proceedings, and valuable information can be obtained by conducting the furnace and central air conditioner and heat pump rulemakings in advance of the fan rulemaking. Additionally, Lennox stated that the furnace fan rulemaking should not be rushed by accelerating the schedule by a year and a half. (FUR: Lennox, No. 1.3.018 at p. 2) (CAC: Lennox, No. 65 at p. 2)

The Appliance Standards Awareness Project (ASAP) submitted a joint comment on behalf of ACEEE, the Air-conditioning, Heating and Refrigeration Institute (AHRI), Alliance to Save Energy (ASE), ASAP, California Energy Commission (CEC), National Consumer Law Center (NCLC) (on behalf of low-income clients), NRDC, Northeast Energy Efficiency Partnerships (NEEP), and Northwest Power and Conservation Council (NPCC). Collectively, these organizations are referred to as “Joint Stakeholders,” when referencing this comment. The Joint Stakeholders stated that rules for furnaces and air conditioners can be completed much earlier than a final rule for furnace fans, especially if the furnace and air conditioner rules are based on the consensus agreement. (FUR: Joint Stakeholders, No. 1.3.012 at p. 3) Similarly, AHRI supported a separate rulemaking for furnace fans, but it stated that it would agree to a combined central air conditioners and heat pumps and furnaces rulemaking, if the consensus agreement is adopted by DOE in a direct final rule or through an expedited normal rulemaking. In the event that DOE decides not to adopt the consensus agreement, AHRI recommended separate rulemakings for all three products, and explicitly stated that the furnace fan rulemaking should not be combined with either of the other two products under any circumstances because AHRI believes that shortening the furnace fan rulemaking is unreasonable given that DOE has no prior experience with furnace fans. AHRI stated that more time is needed to fully analyze the electrical energy consumed by furnace fans in order to establish appropriate energy conservation standards for those products. (FUR: AHRI, No. 1.3.008 at p. 3) (CAC: AHRI, No. 67 at p. 3) Rheem recommended that DOE should conduct a separate rulemaking for furnace fans and should only combine the rulemakings for furnaces and central air conditioners and heat pumps if DOE adopts the consensus agreement. Rheem stated that much study and analysis is needed to determine the appropriate energy conservation standards for furnace fans, and that shortening the timeframe is unreasonable and not imperative. (FUR: Rheem, No. 1.3.022 at pp. 2-3) The American Public Power Association (APPA) commented that it supports an “across the board” rulemaking that creates an “even playing field” for residential space heating technologies (

e.g.,

heat pumps and furnaces) so as to avoid a less competitive market that would cause market distortions and non-rational purchasing behavior. (FUR: APPA, No. 1.3.011 at p. 4)

The Air Conditioning Contractors of America (ACCA) stated there is no added benefit in combining the rulemakings for furnaces, residential central air conditioners and heat pumps, and furnaces fans. (FUR: ACCA, No. 1.3.007 at p. 3) The American Public Gas Association (APGA) commented that it does not support combining the furnace, central air conditioner, and furnace fan rulemakings. (FUR: APGA, No. 1.3.004 at p. 2)

DOE agrees with the comments supporting a combined rulemaking for central air conditioners, heat pumps, and furnaces because these products are linked as part of the complete heating, ventilation, and air-conditioning (HVAC) system for a home. A residential HVAC system often includes a central air conditioner, a furnace, and a furnace fan, or in some instances a heat pump, a furnace, and a furnace fan. Further, all of the major manufacturers of these products produce central air conditioners, heat pumps, and furnaces and use the same distribution network for these products. Combining the analyses for these products simplified the analyses and allowed for the analyses to accurately account for the relations between the different systems.

However, DOE also believes there are merits to the comments suggesting that DOE should not attempt to combine furnace fans with the furnace and central air conditioner and heat pump rulemaking. While previous rulemakings have been conducted to regulate central air conditioners and heat pumps and furnaces, furnace fans are not currently regulated. DOE recognizes that the analyses required to develop a test procedure and to determine appropriate energy conservation standards for furnaces fans are complex and will be extensive. Therefore, DOE has determined that the furnace fan analysis cannot be accelerated such that it could be completed in the shortened timeframe that would be necessary for a combined rule that would also include furnace fans, while still generating valid and reliable results. Additionally, DOE believes that the furnace fan rulemaking would benefit from insights gained during the combined rulemaking of central air conditioners and heat pumps and furnaces. Therefore, DOE has decided to combine only the central air conditioner and heat pump and furnace rulemakings into a single combined rulemaking. The furnace fan rulemaking will continue as a separate rulemaking, and DOE will publish a final rule to establish energy conservation standards for furnace fans by December 31, 2013, as required by 42 U.S.C. 6295(f)(4)(D).

B. Consensus Agreement

1. Background

On January 15, 2010, AHRI, ACEEE, ASE, ASAP, NRDC, and NEEP submitted a joint comment to DOE's residential furnaces and central air conditioners and heat pumps rulemakings recommending adoption of a package of minimum energy conservation standards for residential central air conditioners, heat pumps, and furnaces, as well as associated compliance dates for such standards, which represents a negotiated agreement among a variety of interested stakeholders including manufacturers and environmental and efficiency advocates. (FUR: Joint Comment, No. 1.3.001; CAC: Joint Comment, No. 47) More specifically, the original agreement was completed on October 13, 2009, and had 15 signatories, including AHRI, ACEEE, ASE, NRDC, ASAP, NEEP, NPCC, CEC, Bard Manufacturing Company Inc., Carrier Residential and Light Commercial Systems, Goodman Global Inc., Lennox Residential, Mitsubishi Electric & Electronics USA, National Comfort Products, and Trane Residential. Numerous interested parties, including signatories of the consensus agreement as well as other parties, expressed support for DOE adoption of the consensus agreement in both oral and written comments on the furnaces and central air conditioners rulemakings, which are described in further detail in section III.B.3. In both the furnace RAP and the central air conditioner and heat pump preliminary analysis, DOE requested comment on all aspects of the consensus agreement, including the regional divisions, recommended standard levels, and the suggested compliance dates.

After careful consideration of the joint comment containing a consensus recommendation for amended energy conservation standards for residential central air conditioners, heat pumps, and furnaces, the Secretary has determined that this “Consensus Agreement” has been submitted by interested persons who are fairly representative of relevant points of view on this matter. Congress provided some guidance within the statute itself by specifying that representatives of manufacturers of covered products, States, and efficiency advocates are relevant parties to any consensus recommendation. (42 U.S.C. 6295(p)(4)(A)) As delineated above, the Consensus Agreement was signed and submitted by a broad cross-section of the manufacturers who produce the subject products, their trade associations, and environmental and energy-efficiency advocacy organizations. Although States were not signatories to the Consensus Agreement, they did not express any opposition to it. Moreover, DOE does not read the statute as requiring absolute agreement among all interested parties before the Department may proceed with issuance of a direct final rule. By explicit language of the statute, the Secretary has discretion to determine when a joint recommendation for an energy or water conservation standard has met the requirement for representativeness (

i.e.,

“as determined by the Secretary”). Accordingly, DOE will consider each consensus recommendation on a case-by-case basis to determine whether the submission has been made by interested persons fairly representative of relevant points of view.

Pursuant to 42 U.S.C. 6295(p)(4), the Secretary must also determine whether a jointly-submitted recommendation for an energy or water conservation standard is in accordance with 42 U.S.C. 6295(o) or 42 U.S.C. 6313(a)(6)(B), as applicable. This determination is exactly the type of analysis which DOE conducts whenever it considers potential energy conservation standards pursuant to EPCA. DOE applies the same principles to any consensus recommendations it may receive to satisfy its statutory obligation to ensure that any energy conservation standard that it adopts achieves the maximum improvement in energy efficiency that is technologically feasible and economically justified and will result in significant conservation of energy, Upon review, the Secretary determined that the Consensus Agreement submitted in the instant rulemaking comports with the standard-setting criteria set forth under 42 U.S.C. 6295(o). Accordingly, the consensus agreement levels were included as TSL 4 in this rule, the details of which are discussed at relevant places throughout this document.

In sum, as the relevant criteria under 42 U.S.C. 6295(p)(4) have been satisfied, the Secretary has determined that it is appropriate to adopt amended energy conservation standards for residential central air conditioners, heat pumps, and furnaces through this direct final rule.

As required by the same statutory provision, DOE is also simultaneously publishing a NOPR which proposes the identical standard levels contained in this direct final rule with a 110-day public comment period. (While DOE typically provides a comment period of 60 days on proposed standards, in this case DOE provides a comment period of the same length as the comment period on the direct final rule.) DOE will consider whether any comment received during this comment period is sufficiently “adverse” as to provide a reasonable basis for withdrawal of the direct final rule and continuation of this rulemaking under the NOPR. Typical of other rulemakings, it is the substance, rather than the quantity, of comments that will ultimately determine whether a direct final rule will be withdrawn. To this end, the substance of any adverse comment(s) received will be weighed against the anticipated benefits of the Consensus Agreement and the likelihood that further consideration of the comment(s) would change the results of the rulemaking. DOE notes that to the extent an adverse comment had been previously raised and addressed in the rulemaking proceeding, such a submission will not typically provide a basis for withdrawal of a direct final rule.

2. Recommendations

a. Regions

The consensus agreement divides the nation into three regions for residential central air conditioners and heat pumps, and two regions for residential furnaces based on the population-weighted number of heating degree days (HDD) of each State and recommends a different minimum standard level for products installed in each region. For these products generally, States with 5,000 HDD or more are considered as part of the northern region, while States with less than 5,000 HDD are considered part of the southern region, and these regions (and the States that compose them) are discussed further in section III.D. For residential central air conditioners and heat pumps, the consensus agreement establishes a third region—the “southwest” region—comprised of California, Arizona, New Mexico, and Nevada. For furnaces, the southwest region States are included in the southern region. For residential central air conditioners and heat pumps, the States in the northern region would be subject to the “National standard” under 42 U.S.C. 6295(o)(6)(B)(i), while regional standards would apply for States in the two southern regions (

i.e.,

the hot-dry region and hot-humid region). For furnaces, the States in the southern region would be subject to the “National standard” under 42 U.S.C. 6295(o)(6)(B)(i), while the States in the northern region would be required to meet a more-stringent regional standard. DOE received numerous comments from interested parties regarding the regional definitions for the analysis, some of

which were related to the regions recommended in the consensus agreement. These comments are discussed in detail in section III.D, “Regional Standards.”

b. Standard Levels

The minimum energy conservation standards for furnaces and central air conditioners and heat pumps recommended by the consensus agreement are contained in Table III.1 and Table III.2. (CAC: Joint Comment, No. 47 at p. 2) The consensus agreement recommends amended AFUE standards for all furnace product classes that are being considered in this rulemaking for amended minimum AFUE energy conservation standards. However, the agreement does not contain recommendations for amended SEER and HSPF standards for the space-constrained or small-duct, high-velocity (SDHV) product classes of central air conditioners and heat pumps, which are also included in this rulemaking. Additionally, the consensus agreement does not contain recommendations for energy conservation standards for standby mode and off mode energy consumption, which DOE is required to consider in this rulemaking pursuant to 42 U.S.C. 6295(gg)(3).

For central air conditioners, the consensus agreement recommends that DOE adopt dual metrics (

i.e.,

SEER and EER) for the hot-dry region. Generally, DOE notes that EPCA's definition of “efficiency descriptor” at 42 U.S.C 6291(22) specifies that the efficiency descriptor for both central air conditioners and heat pumps shall be SEER. Accordingly, DOE used SEER as the sole metric for analyzing most of the TSLs considered for today's direct final rule. However, DOE believes that the language at 42 U.S.C 6295(p)(4) provides DOE some measure of discretion when considering recommended standards in a consensus agreement, if the Secretary determines that the recommended standards are in accordance with 42 U.S.C. 6295(o).

Table III.1—Consensus Agreement Recommended Minimum Energy Conservation Standards for Residential Furnaces

System type

Recommended AFUE requirement for States with ≥ 5,000 HDD*

Recommended AFUE requirement for States with < 5,000 HDD**

Non-weatherized Gas Furnaces

†

Non-weatherized Oil Furnaces

Gas-Packs (weatherized furnace)

* These States include: 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.

** These States include: Alabama, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, New Mexico, Nevada, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.

†

Non-weatherized gas furnaces also include mobile home furnaces.

Table III.2—Consensus Agreement Recommended Minimum Energy Conservation Standards for Residential Central Air Conditioners and Heat Pumps

System Type

Recommended SEER/HSPF

requirements for northern “rest of country” region*

Recommended SEER/HSPF

requirements for southeast “hot-humid” region**

Recommended SEER/HSPF

requirements for southwest “hot-dry” region

†

Split AC

13 SEER

14 SEER

14 SEER/12.2 EER

<45,000 Btu/h.

14 SEER/11.7EER

45,000 Btu/h.

Split HP

14 SEER/8.2HSPF

14 SEER/8.2 HSPF

14 SEER/8.2 HSPF.

Packaged AC

14 SEER

14 SEER/11.0 EER.

Packaged HP

14 SEER/8.0 HSPF

14 SEER/8.0 HSPF.

Space Constrained AC and HP and SDHV

No standard recommended

No standard recommended.

** These States include: Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Hawaii, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.

†

These States include: Arizona, California, New Mexico, and Nevada.

c. Compliance Dates

The compliance dates specified in the consensus agreement are May 1, 2013, for non-weatherized furnaces and January 1, 2015, for weatherized furnaces (

i.e.,

“gas-packs”) and central air conditioners and heat pumps. These dates are at least eighteen months earlier than the compliance dates for these products as determined under 42 U.S.C. 6295(d)(3)(B) and (f)(4)(C). DOE received several comments from interested parties regarding its consideration of the compliance dates specified by the consensus agreement, as well as comments about the compliance dates under EPCA. A full discussion of comments related to the compliance dates for energy conservation standards for furnaces and central air conditioners and heat pumps is contained in section III.C.

3. Comments on Consensus Agreement

In its RAP for residential furnaces and the preliminary analysis for residential central air conditioners and heat pumps, DOE specifically invited comment from interested parties on the consensus agreement. In particular, DOE was interested in comments relating to the recommended AFUE, SEER, and HSPF requirements, the recommended regional divisions, and the

recommended compliance dates for amended standards. As noted above, comments on the regional divisions are discussed in section III.D. Additionally, DOE discusses compliance dates and the related comments in section III.C. DOE received numerous other comments regarding whether interested parties support or do not support the consensus agreement, whether DOE should adopt the consensus agreement as a direct final rule, and additional concerns interested parties have about the agreement. These comments are discussed in the paragraphs below.

Many commenters expressed support for the adoption of the consensus agreement. ACEEE stated it is the best available route to the maximum savings that are technologically feasible and economically justified. (FUR: ACEEE, No.1.3.009 at p. 1) (CAC: ACEEE, No. 72 at p. 1) NRDC requested that DOE move expeditiously to adopt the levels and dates presented by the agreement. (FUR: NRDC, No.1.3.020 at pp. 1-2) NEEP expressed support for the standard levels and procedural improvements in the consensus agreement and urged DOE to implement the recommendations through a direct final rule. (FUR: NEEP, No.1.3.021 at p. 1) ASAP stated its strong support for adoption of the consensus agreement, and encouraged DOE to adopt the consensus agreement as a direct final rule. (FUR: ASAP, Public Meeting Transcript, No. 1.2.006 at pp. 38-39)

AHRI stated that the agreement has several benefits including: (1) An accelerated compliance date of May 2013; (2) acceleration of the next rulemaking iteration; (3) a significant amount of energy savings; (4) economic savings to consumers; and (5) the fact that it would allow DOE to focus its resources on completing other rulemakings involving new or amended energy conservation standards. In the event that DOE cannot promulgate a direct final rule, AHRI recommended that DOE adopt the agreement in an expedited rulemaking process. (FUR: AHRI, No.1.3.008 at pp. 1-3) (CAC: AHRI, No. 67 at pp. 1-2) Carrier stated that DOE should adopt the consensus agreement, because it includes a comprehensive, harmonized approach for new regional efficiency standards that could be implemented in an accelerated fashion. (FUR: Carrier, No.1.3.013 at p. 2) (CAC: Carrier, No. 60 at p. 1) Ingersoll Rand and EEI echoed these comments. (FUR: Ingersoll Rand, No.1.3.006 at p. 1) (CAC: Ingersoll Rand, No. 66 at p. 1; EEI, No. 75 at p. 2) Southern initially stated at the furnaces public meeting that DOE should issue a NOPR and have a comment period rather than go directly to a final rule because many stakeholder groups were left out of the consensus agreement process. (FUR: Southern, Public Meeting Transcript, No. 1.2.006 at pp. 258-59) However, in its later comments on the central air conditioners and heat pumps rulemaking, Southern clarified its position, recommending that DOE accept the consensus agreement and, proceed with a direct final rule on central air conditioners, heat pumps, and furnace standards, if the necessary minor statutory revisions (

e.g.,

changes to building codes) are approved by Congress. (CAC: Southern, No. 73 at p. 1)

Lennox and NPCC supported the adoption of the consensus agreement in full, including the AFUE standards, recommended regional divisions, and recommended compliance dates. Lennox supported DOE's use of a direct final rule to adopt the agreement or, as an alternative, use of the standard rulemaking process in an expedited fashion. (FUR: Lennox, No.1.3.018 at p. 1) (CAC: Lennox, No. 65 at pp.1-2) (CAC: NPCC, No. 74 at p.1) Ingersoll Rand commented that DOE should adopt the consensus agreement because it would allow DOE to focus its resources on the furnace fan rule and on development of regional standards. (CAC: Ingersoll Rand, No. 66 at p. 1) Rheem asserted that Congress authorized DOE to issue direct final rules upon receipt of joint stakeholder proposals and that the agreement satisfies the criteria of the law and the Process Improvement Rule.

However, Rheem stated that if DOE cannot issue a direct final rule, Rheem would recommend that DOE adopt the agreement in an expedited rulemaking process. (FUR: Rheem, No.1.3.022 at pp. 1-2) (CAC: Rheem, No. 71 at p. 2) Daikin expressed support for the consensus agreement, provided that the SEER level for new construction is raised to 15 SEER on January 1, 2013 and to 18 SEER on January 1, 2016. (CAC: Daikin, No. 63 at p. 2)

The Process Improvement Rule was published in the

Federal Register

by DOE on July 15, 1996, and codified in Appendix A to 10 CFR part 430, subpart C. 61 FR 36974. The Process Improvement Rule elaborated on the procedures, interpretations, and policies that guide DOE in establishing new or amended energy conservation standards for consumer products.

The Joint Stakeholders expressed support for the agreement and encouraged DOE to expedite the adoption of the agreement through either a direct final rule or through the standard rulemaking process. The Joint Stakeholders cited many of the previously mentioned benefits and added that the consensus agreement would enable States to incorporate more-stringent appliance efficiency standards into their building codes, which are limited by Federal appliance efficiency standards. The Joint Stakeholders stated that DOE should address the issues of standby mode and off mode energy consumption for residential furnaces and standards for furnace fans in separate rulemakings without impeding the adoption of the consensus agreement in a final rule in the current rulemaking. (FUR: Joint Stakeholders, No. 1.3.012 at pp. 1-4)

APPA stated that it is in favor of the consensus agreement because it provides a high degree of regulatory certainty for manufacturers and utilities, and increases the minimum efficiency of gas and oil furnaces, products for which energy conservation standards have not been updated since 1992. APPA argued that DOE has the authority to adopt the consensus agreement in a direct final rule. (FUR: APPA, No. 1.3.011 at pp. 2-3) EEI expressed support for the consensus agreement for many of the reasons outlined above, adding that the consensus agreement would have the added benefit of increasing standards for furnaces at nearly the same time as the efficiency standards for residential boilers are increasing. (FUR: EEI, No. 1.3.015 at p. 2) CA IOUs supported the consensus agreement as a balanced package that would achieve significant energy, economic, and environmental benefits, while providing regulatory certainty. They urged DOE to adopt as efficiently as possible the regulatory aspects of the agreement, either through a direct final rule or the normal rulemaking process. However, the CA IOUs recognized that not all stakeholders supported the consensus agreement, and encouraged DOE to choose a rulemaking path that will produce a robust, defensible, and enforceable final standard. (FUR: CA IOUs, No. 1.3.017 at p. 1)

On behalf of Texas Client Services Center, Massachusetts Union of Public Housing Tenants, Texas Ratepayers Organization to Save Energy (collectively referred to hereafter as Low Income Groups), the National Consumer Law Center encouraged DOE to accept and implement the recommendations contained in the Joint Comment as soon as possible. The Low Income Groups are particularly interested in having DOE adopt the standards for furnaces, heat pumps, and central air conditioners included in the consensus agreement, along with the associated effective dates and regional boundaries. (FUR: Low Income Groups, No. 1.3.019 at pp. 5-6)

In contrast to the above viewpoints, some commenters expressed opposition to, or reservations about, adoption of the consensus agreement. The American Gas Association (AGA) stated that DOE should not adopt the consensus agreement and should continue refining the November 2007 Rule. AGA strongly recommended that DOE should not issue a direct final rule requiring a 90-percent AFUE minimum efficiency for furnaces in the northern States and should, instead, proceed with an analysis of the technological feasibility and economic justification of the proposal, consistent with governing statutory requirements. It added that the signatories of the agreement do not represent consumer interests in the affected States, and that DOE needs to more fully account for potential consumer impacts. (FUR: AGA, No. 1.3.010 at p. 2) In the public meeting, AGA expressed concerns about replacing a non-condensing furnace with a condensing furnace due to potential problems with venting systems. (FUR: AGA, Public Meeting Transcript, No. 1.2.006 at pp. 40-41) APGA expressed similar comments, further stating that DOE should consider non-regulatory mechanisms to encourage market transformation to condensing non-weatherized furnaces, including through building codes. (FUR: APGA, No. 1.3.004 at pp. 3-4) The National Propane Gas Association (NPGA) also opposed requiring 90-percent AFUE furnaces in northern States, because of concerns related to venting issues in replacement installations (particularly when a furnace that has a common vent with a water heater is being replaced). (FUR: NPGA, No. 1.3.005 at p. 4)

HARDI stated that it supports the consensus agreement only to the extent that DOE is confident it can justify increases to residential HVAC minimum efficiency standards and regionalization of standards. HARDI is not convinced such justification is possible given its experiences since the last amendments to the central air conditioners and heat pumps standards in 2006. (FUR: HARDI, No. 1.3.016 at p. 4) (CAC: HARDI, No. 56 at p. 4) HARDI believes DOE will have difficulty justifying a higher heating standard in a northern region that includes both North Dakota and Kentucky, which have vastly different heating demands. HARDI also stated that a southeastern regional standard that applies to both Florida and Maryland, or a southwestern regional standard that includes cities with significantly different climates appears to significantly threaten consumer choice and product availability. (FUR: HARDI, No. 1.3.016 at p. 5) HARDI is also concerned that: (1) The standards in the consensus agreement will encourage utilities to exit the energy-efficiency business as it pertains to HVAC systems, because they might no longer see value in providing an incentive for 95-percent AFUE premium furnaces if a standard is set at 90-percent AFUE; and (2) the loss of such incentives would make purchases of higher-than-minimum-efficiency furnaces highly unlikely. (FUR: HARDI, No. 1.3.016 at p. 8)

ACCA expressed concern over the requirement for condensing furnaces in the northern region, noting that the cost of replacing a non-condensing furnace with a condensing furnace (which might require venting retrofit measures) could be prohibitive in some cases. (FUR: ACCA, No. 1.3.007 at pp. 2-3)

DOE also received comments that, while not specifically addressing the consensus agreement, concern the standard-level recommendations for central air conditioners and heat pumps. Specifically, Southern remarked that standards should have equal cooling efficiency requirements for central air conditioners and heat pumps, and Ingersoll Rand, Rheem, and EEI provided similar statements. (CAC: Southern, No. 73 at p. 3) (CAC: Ingersoll Rand, No. 66 at p. 1) (CAC: EEI, No. 75 at p. 5) (CAC: Rheem, No. 76 at p. 2)

In considering the proposed standard levels in the consensus agreement, DOE reviewed 42 U.S.C. 6295(p)(4)(C), which states that if DOE issues a direct final rule (as suggested by the signatories to the consensus agreement) and receives any adverse public comments within 120 days of publication of the rule, then DOE would be forced to withdraw the final rule. Interested parties have already submitted comments expressing opposition to the consensus agreement, which indicates there is a possibility that DOE may receive adverse comments to the adoption of the consensus agreement as part of this direct final rule.

DOE recognizes the substantial effort and analysis that resulted in the consensus agreement and analyzed it as a separate TSL, in conjunction with other TSLs for this direct final rule. As described above, the interested parties opposing the consensus agreement were primarily concerned with the requirement that non-weatherized gas furnaces and mobile home furnaces in the northern region achieve a minimum of 90-percent AFUE. In its analysis for today's direct final rule, DOE addressed the issues raised by the parties with respect to replacement installations of 90-percent AFUE non-weatherized gas furnaces or mobile home furnaces. DOE believes that, although in some instances it may be costly, consumers can replace non-condensing furnace with condensing furnaces in virtually all installations.

As suggested by AGA, DOE performed an analysis of the technological feasibility and economic justification of the consensus agreement recommendations, consistent with statutory requirements in EPCA. DOE fully considered all costs of replacing non-condensing furnaces with condensing furnaces in the northern region. DOE's results indicate that some consumers would be negatively impacted by a northern region standard at 90-percent AFUE for non-weatherized gas furnaces or mobile home furnaces, but that on balance, the benefits of such a standard would outweigh the costs. Section V.C of this notice discusses the results of DOE's analyses and the weighting of benefits and burdens when considering the consensus agreement standard levels and compliance dates (

i.e.,

TSL 4).

C. Compliance Dates

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 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. For central air conditioners and heat pumps, the statutory provision at 42 U.S.C. 6295(d)(3)(B) establishes a similar five-year time period between the standard's publication date and compliance date.

Therefore, in its analysis of amended energy conservation standards for

furnaces and central air conditioners and heat pumps, DOE used a five-year lead time between the publication of the standard and the compliance date for all TSLs, except for the TSL which analyzed the consensus agreement. Because the accelerated compliance dates were a negotiated aspect of the consensus agreement which amounts to an important benefit, DOE used the accelerated compliance dates when analyzing the consensus agreement TSL. (See section V.A for a description of the TSLs considered for this direct final rule.)

In response to the RAP for furnaces and the preliminary analysis for central air conditioners and heat pumps, DOE received comments from interested parties regarding the required lead time between the publication of amended energy conservation standards and the date by which manufacturers must comply with the amended standards. These comments are discussed in the section immediately below.

a. Consensus Agreement Compliance Dates

Several interested parties commented on the issue of the compliance dates for amended energy conservation standards for furnaces and central air conditioners and heat pumps in the context of the dates specified in the consensus agreement. AHRI argued that DOE has the authority to adopt the accelerated standards compliance dates in the consensus agreement whether DOE proceeds via a conventional rulemaking process or via direct final rule. AHRI asserted that 42 U.S.C. 6295(p)(4), “Direct final rules,” which delineates procedures for when DOE receives a joint recommendation for amended standards by interested parties that are fairly representative of relevant points of view (including manufacturers, States, and efficiency advocates), trumps 42 U.S.C. 6295(m), “Amendment of standards,” which contains specific provisions pertaining to compliance dates and lead time. Further, AHRI commented that DOE has itself previously recognized that in circumstances where the manufacturers who must comply with a standard support acceleration of the compliance date of the standard, DOE has the flexibility to adopt the earlier compliance date (

see

67 FR 36368, 36394 (May 23, 2002) and 69 FR 50997, 50998 (August 17, 2004)). (FUR: AHRI, No. 1.3.008 at pp. 3-4) (CAC: AHRI, No. 67 at pp. 3-4) NRDC and Rheem expressed similar views. (FUR: NRDC, No. 1.3.020 at p. 2; Rheem, No. 1.3.022 at p. 3) (CAC: Rheem, No. 71 at p. 3) However, AHRI further clarified its position that if DOE decides in a final rule to adopt levels that are different from those in the consensus agreement, then AHRI would maintain that the compliance date (for furnaces) specified by the law would be eight years after publication of the final rule. (FUR: AHRI, Public Meeting Transcript, No. 1.2.006 at p. 126)

EarthJustice asserted that DOE must either adopt the compliance dates specified in the consensus agreement, or adopt an expedited compliance deadline of its own design. EarthJustice asserted that the provisions of EPCA relevant here do not require an eight-year lead time for furnaces, but instead require a hard-date deadline, which has passed. Therefore, EarthJustice believes DOE has discretion in setting a compliance date. EarthJustice added that there is no basis to the argument that maintaining an eight-year lead time is necessary to ease manufacturers' compliance burdens since manufacturers have indicated via the consensus agreement that they can meet the levels in the consensus agreement in a much shorter timeframe than eight years. (FUR: EarthJustice, No. 1.3.014 at pp. 2-4)

Similarly, ACEEE stated that DOE should seriously consider adopting the compliance dates in the consensus agreement because the compliance dates in the statute are intended to provide manufacturers time to reengineer their products and production facilities, but in this case, manufacturers have agreed to the compliance dates specified in the consensus agreement. (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 112-113) ACEEE acknowledged that while having the same compliance dates for all products is desirable for implementation and enforcement purposes, limited engineering resources led to different compliance dates for non-weatherized gas and weatherized gas furnaces in the consensus agreement (of 2013 and 2015, respectively). (FUR: ACEEE, Public Meeting Transcript, No. 1.2.006 at pp. 109-110)

EEI suggested that if DOE rejects the consensus agreement, DOE should establish a compliance date for all covered furnaces that is no later than November 19, 2015 (

i.e.,

the compliance date for the standards promulgated in the November 2007 Rule). This date is shortly before the compliance date for the new efficiency standards for heat pumps in June 2016, and according to EEI, it would avoid potential market distortions for space heating equipment that might result from increasing efficiency standards for one product type but not for a competing product. (FUR: EEI, No. 1.3.015 at p. 4) (CAC: EEI, No. 75 at p. 4) APPA reiterated EEI's comments on these points. (FUR: APPA, No. 1.3.011 at pp. 3-4)

After careful consideration of these comments, DOE has concluded that it is bound by EPCA in terms of setting the lead time between the publication of amended energy conservation standards and the date by which manufacturers must comply with those amended standards. DOE has consistently interpreted the statutory time period between publication of a final rule and the compliance date for amended standards to reflect Congress's determination as to adequate lead time for manufacturers to retool their operations to ensure that the product in question meets the new or amended standards, even in those instances where the statutory deadline has passed. However, DOE 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. For the other levels, DOE believes the statutory provisions pertaining to lead time should continue to govern, particularly for levels more stringent than the consensus agreement (

i.e.,

levels to which manufacturers never agreed, particularly on an accelerated basis). Therefore, as noted in the preceding section, DOE has determined that for all TSLs analyzed—except for the consensus agreement TSL—DOE is bound by the lead time requirements in EPCA when determining compliance dates. For those other TSLs, the analysis accounts for a five-year lead time between the publication of the final rule for furnaces and central air conditioners and heat pumps and the date by which manufacturers would have to comply with the amended standard. However, for the consensus agreement TSL, DOE's analyses utilized the compliance dates specified in the consensus agreement.

b. Shift From Peak Season

Several interested parties noted that if DOE follows a typical rulemaking schedule and publishes a final rule on June 30, 2011, then the compliance date (June 2016) would fall during the peak of the air conditioner shipment season in 2016. Interested parties expressed concern that a compliance date during peak season could potentially lead to costly disruptions in the distribution chain, as well as consumer confusion.

HARDI, Southern, ACEEE, and Ingersoll Rand stated that the compliance date should not be set during the peak cooling season. (CAC: HARDI, No. 70 at p. 2; ACEEE, No. 72 at p. 3; SCS, No. 73 at p. 2; Ingersoll Rand, No. 66 at p. 3). HARDI, ACEEE, and Southern went further and recommended that January 1 be used as the compliance date instead for central air conditioners and heat pumps. (CAC: HARDI, No. 70 at p. 2; ACEEE, No. 72 at p. 3; SCS, No. 73 at p. 2) EEI also noted that if compliance dates are moved for central air conditioners and heat pumps, then the compliance dates for furnaces should be moved as well to avoid the same issue for the heating season. (CAC: EEI, No. 75 at p. 3)

As discussed above in this section, 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, because of the importance of accelerated compliance dates to the energy savings provided by this agreement. If DOE adopts any standards besides those in the consensus agreement, DOE believes that it is constrained by EPCA and does not have the authority to shift the compliance dates away from the peak cooling season (either earlier or later). However, this constraint does not prevent manufacturers from voluntarily complying at an earlier non-peak season date to ease the transition to amended energy conservation standards.

c. Standby Mode and Off Mode Compliance Dates

EPCA, as amended, does direct DOE to incorporate standby mode and off mode energy consumption into a single amended or new standard, if feasible. (42 U.S.C. 6295(gg)(3)(A)) Under such a circumstance where standby mode and off mode energy consumption is integrated into the existing regulatory metric, the standby mode and off mode standards would have the same compliance dates as the amended or new active mode standards. Therefore, DOE believes that, when feasible, the compliance dates for standby mode and off mode should be the same as the compliance dates for amended active mode energy conservation standards. Although DOE has determined that it is technically infeasible to integrate the standby mode and off mode energy consumption into a single standard for furnaces and central air conditioners/heat pumps, DOE believes it is still sensible to keep the timeline for compliance with standby mode and off mode standards the same so that manufacturers of furnaces, central air conditioners, and heat pumps can bring all of their compliance-related modifications forward at the same time. DOE further believes that this approach would provide adequate lead time for manufacturers to make the changes necessary to comply with the standby mode and off mode standards. As a result, DOE is adopting standby mode and off mode standards with compliance dates that match the compliance dates for amended AFUE, SEER, and HSPF minimum energy conservation standards.

D. Regional Standards

As described in section II.A, EISA 2007 amended EPCA to allow for the establishment of a single more-restrictive regional standard in addition to the base national standard for furnaces, and up to two more-restrictive regional standards in addition to the base national standard for residential central air conditioners and heat pumps. (42 U.S.C. 6295(o)(6)(B)) The regions must include only contiguous States (with the exception of Alaska and Hawaii, which can be included in regions with which they are not contiguous), and each State may be placed in only one region (

i.e.,

a State cannot be divided among or otherwise included in two regions). (42 U.S.C. 6295(o)(6)(C))

Further, EPCA mandates that a regional standard must produce significant energy savings in comparison to a single national standard, and provides that DOE must determine that the additional standards are economically justified and consider the impact of the additional regional standards on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. (42 U.S.C. 6295(o)(6)(D)) For this rulemaking, DOE has considered the above-delineated impacts of regional standards in addition to national standards for both furnaces and central air conditioners and heat pumps.

For single-package air conditioners and single-package heat pumps, DOE has analyzed the standards on a national basis where the standard would be effectively the same in each region. For consistency with the consensus agreement and ease of presentation, DOE specifies the requirements of the standard by region, but for all practical purposes the standard is a national one. DOE evaluated whether regional standards with different requirements in certain regions satisfied the statutory criteria for regional standards. Given the low level of shipments of these products, DOE determined that enforcement of regionally distinct standards would be difficult for these product categories. DOE believes that it is likely that given a less stringent requirement in some regions there would be leakage effects (

i.e.

installers purchasing product in less stringent regions and shipping them to regions with more stringent requirements). Such leakage effects would decrease the energy savings of regionally distinct standards requirements relative to a national standard with the same stringency in each region. DOE has therefore determined that regional standards would not produce significant energy savings in comparison to a single national standard for these products. DOE made a similar determination for oil-fired furnaces.

Where appropriate, DOE has addressed the potential impacts from regional standards in the relevant direct final rule analyses, including the mark-ups to determine product price, the LCC and payback period analysis, the national impact analysis (NIA), and the manufacturer impact analysis (MIA). DOE's approach for addressing regional standards is included in the methodology section corresponding to each individual analysis, in section IV of this notice. For certain phases of the analysis, additional regional analysis is not required. For example, technologies for improving product efficiency generally do not vary by region, and thus, DOE did not perform any additional regional analysis for the technology assessment and screening analysis. Similarly, DOE did not examine the impacts of having two regions in the engineering analysis, since the technologies and manufacturer processes are the same under both a national and regional standard.

1. Furnace Regions for Analysis

To evaluate regional standards for residential furnaces, in the RAP, DOE stated its intention to use the regions shown in Table III.3 and Figure III.1. The allocation of individual States to the regions is similar to the evaluation methodology DOE used in exploring regional standards in the November 2007 Rule, although DOE ultimately decided that it could not adopt such an approach because it lacked statutory authority, a situation which changed with enactment of EISA 2007. The allocation considered in the November 2007 Rule was largely based on whether a State's annual heating HDD average is

above or below 5,000. 72 FR 65136, 65146-47 (Nov. 19, 2007). This level offers a rough threshold point at which space heating demands are significant enough to require longer operation of heating systems, which provides a basis for utilization of higher-efficiency systems. In the RAP, DOE proposed two changes from the November 2007 Rule methodology to establish regions for furnaces. The first was moving Nevada from the Northern region to the Southern region, and the second was moving West Virginia from the Southern region to the Northern region. These changes better reflect the climate characteristics of these two States—West Virginia has on average more than 5,000 HDD, and Nevada's major population areas have fewer than 5,000 HDD. DOE notes that the changes resulted in a regional allocation of States that is the same as the regions defined in the consensus agreement.

Table III.3—Regions for Analysis of Furnace Standards

Northern region states

(rest of country)

Southern region States

Alaska

Alabama

Colorado

Arizona

Connecticut

Arkansas

Idaho

California

Illinois

Delaware

Indiana

District of Columbia

Iowa

Florida

Kansas

Georgia

Maine

Hawaii

Massachusetts

Kentucky

Michigan

Louisiana

Minnesota

Maryland

Missouri

Mississippi

Montana

Nevada

Nebraska

New Mexico

New Hampshire

North Carolina

New Jersey

Oklahoma

New York

South Carolina

North Dakota

Tennessee

Ohio

Texas

Oregon

Virginia

Pennsylvania

Rhode Island

South Dakota

Utah

Vermont

Washington

West Virginia

Wisconsin

Wyoming

ER27JN11.000

Commenting on the furnaces RAP, Ingersoll Rand stated that the regions proposed for the regional analysis are appropriate. (FUR: Ingersoll Rand, No. 1.3.006 at p. 1) Lennox expressed a similar view, noting that the regional definitions outlined in the furnaces RAP are consistent with the consensus agreement. (FUR: Lennox, No. 1.3.018 at p. 2) NCLC commented that the Low Income Groups support the regions defined as north and south in the agreement. (FUR: NCLC, No. 1.3.019 at p. 6) HARDI stated that the 5,000 HDD demarcation makes the most sense. (FUR: HARDI, No. 1.3.016 at p. 5) ACEEE expressed a similar view, but added that if the consensus agreement is not adopted, DOE needs to examine the economics and other impacts of high-efficiency furnaces at other possible regional boundaries, such as 4,500 and 4,000 HDD. (FUR: ACEEE, No. 1.3.009 at p. 4) ASAP expressed support for the regions proposed for the furnaces regional analysis and stated that having consistent regional borders for furnaces and central air conditioners is important to help reduce issues associated with implementing and enforcing regional standards. (FUR: ASAP, Public Meeting Transcript, No. 1.2.006 at pp. 64-65) APPA stated that if DOE rejects the climate zones specified in the consensus agreement, DOE should modify its definition of the northern region in such a way that, in effect, it would include “southwestern” States, such as Arizona, Nevada, and New Mexico, in the

northern region, because the majority of these States have a climate that is similar to some other States that DOE has classified in the northern region. (FUR: APPA, No. 1.3.011 at p. 3) EEI stated that DOE should consider establishing California, Nevada, Arizona, and New Mexico as northern States for purposes of regional standards, in order to be more consistent with DOE's classification of northern States, and to avoid leaving energy savings on the table when establishing new heating efficiency standards. (FUR: EEI, No. 1.3.015 at pp. 3-4)

After evaluating these comments, DOE has concluded that using a 5,000 HDD threshold as the basis for assigning States to northern or southern regions, as proposed in the furnaces RAP, is appropriate. DOE does not believe that the States mentioned by APPA and EEI should be classified as northern States for the analysis of furnaces. On average, these States have significantly lower heating loads than the other States that DOE has classified as northern States. Therefore, for the direct final rule analysis of furnaces, DOE used the regions as defined in Table III.3 and Figure III.1. Regarding ACEEE's suggestion that DOE consider additional analysis using other possible regional boundaries if the consensus agreement is not adopted, because DOE is adopting standards consistent with the consensus agreement in this rule, DOE does not see a compelling reason to conduct such analyses. DOE notes that the 5,000 HDD threshold is supported by most of the interested parties, including ACEEE. DOE further notes that the 5,000 HDD threshold would provide benefits in terms of minimizing the difference between the regional boundaries for central air conditioners/heat pumps and furnaces. Harmonizing boundaries, to the extent possible, may also facilitate subsequent compliance and enforcement efforts.

2. Central Air Conditioner and Heat Pump Regions for Analysis

To evaluate regional standards for residential central air conditioners and heat pumps in the preliminary analysis, DOE used the regions listed in Table III.4 and Figure III.2. For cooling equipment performance, the annual number of operating hours and relative humidity during those operating hours are the most important regional variations. DOE established two regions (

i.e.,

a “hot-dry” region and a “hot-humid” region) in the south based upon these factors, in addition to a “rest of country” region (

i.e.,

northern region), composed of the remaining States. The southern limit of the northern region was approximately based on whether a State's annual HDD average was above or below 4,500 HDD, and the division between the hot-humid and hot-dry regions was determined from analysis of typical meteorological year (TMY3) weather data.

TMY3 weather data are sets of typical hourly values of solar radiation and meteorological elements developed for a one-year span for selected locations based on long-term historical data. The selection of regions for the preliminary analysis was discussed in detail in Appendix 7C of the preliminary TSD.

S. Wilcox and W. Marion,

Users Manual for TMY3 Data Sets,

NREL/TP-581-43156 (May 2008).

Table III.4—Preliminary Analysis Proposed Regions for Central Air Conditioner and Heat Pump Standards

Northern region states

(rest of country)

Southern region states

(hot-humid)

Southwestern region states

(hot-dry)

Alaska

Alabama

Arizona

Colorado

Arkansas

California

Connecticut

Florida

Nevada

Delaware

Georgia

New Mexico

District of Columbia

Hawaii

Idaho

Louisiana

Illinois

Mississippi

Indiana

North Carolina

Iowa

Oklahoma

Kansas

South Carolina

Kentucky

Tennessee

Maine

Texas

Maryland

Massachusetts

Michigan

Minnesota

Missouri

Montana

Nebraska

New Hampshire

New Jersey

New York

North Dakota

Ohio

Oregon

Pennsylvania

Rhode Island

South Dakota

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

ER27JN11.001

In response to DOE's request for comment on the regions used in the preliminary analysis for central air conditioners and heat pumps, several stakeholders submitted comments. HARDI, Southern, and Ingersoll Rand stated that the regions defined in the consensus agreement should be used instead of those in Table III.4. This suggested change would necessitate moving Delaware, the District of Columbia, Maryland, Kentucky, and Virginia into the southern hot-humid region. (CAC: HARDI, No. 56 at p. 4; Ingersoll Rand, No. 66 at p.4; Southern, Public Meeting Transcript at p. 33; HARDI, No. 56 at p. 4) Southern also remarked that the regional boundaries for central air conditioners and heat pumps and furnaces should be the same to avoid unnecessary complexity for manufacturers and public confusion. (CAC: Southern, No. 73 at p. 2) ACEEE expressed views similar to those of HARDI, Southern, and Ingersoll Rand and further warned that the confusion and complexity associated with differing regional boundaries could lead to inadvertent non-compliance. (CAC: ACEEE, No. 72 at p. 3) Conversely, EEI commented that Nevada should be moved to the “rest of country” region for heating efficiency requirements and the hot-dry region for cooling efficiency requirements because 90 percent of the State is located in climate zone 5, as specified in Figure 2 of 10 CFR 430, subpart B, appendix M . (CAC: EEI, No. 75 at p. 3)

In response to these comments, DOE agrees that a unified regional allocation of States for both central air conditioners and heat pumps and furnaces would provide key benefits. As mentioned in section III.A, similar manufacturers produce these products and use the same distribution network. Using the same regional allocation of States, as compared to the “rest of country” national standard, would be easier for manufacturers and distributors to implement and would also help to minimize consumer confusion. Additionally, regional standards may shift enforcement from the manufacturer to the point of sale or place of installation, and a single boundary between regions would reduce the motivation for non-compliance as well as simplify the overall enforcement of regional standards. Of course, there would be some differentiation, given that there is only one regional standard for furnaces, but two regional standards for central air conditioners and heat pumps. Nevertheless, DOE believes that there would still be benefits with harmonizing the States included in the northern region across these products.

To this end, DOE agrees with the comments recommending use of the regions in the consensus agreement for central air conditioners and heat pumps and furnaces. Doing so would also align the boundary of the northern region for the central air conditioners and furnaces. The regions selected for the direct final rule analyses for central air conditioners and heat pumps are shown in Table III.5 and Figure III.3.

Table III.5—Regions for Analysis of Central Air Conditioner and Heat Pump Standards

Northern region states

(rest of country)

Southeastern region states

(hot-humid)*

Southwestern region states

(hot-dry)*

Alaska

Alabama

Arizona

Colorado

Arkansas

California

Connecticut

Delaware

Nevada

Idaho

District of Columbia

New Mexico

Illinois

Florida

Indiana

Georgia

Iowa

Hawaii

Kansas

Kentucky

Maine

Louisiana

Massachusetts

Maryland

Michigan

Mississippi

Minnesota

North Carolina

Missouri

Oklahoma

Montana

South Carolina

Nebraska

Tennessee

New Hampshire

Texas

New Jersey

Virginia

New York

North Dakota

Ohio

Oregon

Pennsylvania

Rhode Island

South Dakota

Utah

Vermont

Washington

West Virginia

Wisconsin

Wyoming

* The combined southeastern and southwestern regions for central air conditioners and heat pumps correspond to the southern region for furnaces.

ER27JN11.002

3. Impacts on Market Participants and Enforcement Issues

As described in section II.A of this notice, DOE is required to evaluate the impact of introducing regional standards on consumers, manufacturers, and other market participants, including product distributors, dealers, contractors, and installers. (42 U.S.C. 6295(o)(6)(D)) Chapter 17 of the preliminary TSD for central air conditioners and heat pumps details DOE's preliminary analysis on the potential impacts of regional standards on market participants other than manufacturers and consumers for residential central air conditioners and heat pumps and residential furnaces. (However, impacts on manufacturers and consumers were fully addressed in a manner consistent with any other energy conservation standards rulemaking.) The analysis focuses on the unique burdens associated with introducing differentiated energy conservation standards based on geography. The analysis does not incorporate the impact of more-stringent energy conservation standards on market participants, only the impact of multiple geographic standards, because the impacts of more-stringent standards would occur regardless of whether differentiated regional standards are promulgated.

a. Impacts on Additional Market Participants

Chapter 17 of the preliminary TSD began by identifying the primary market participants, identified as distributors, contractors, and general contractors. It described their basic business models and assesses how additional regional standards may impact those models. The chapter then investigated potential non-enforcement impacts on distributors, contractors, and general contractors. Finally, the chapter provided two quantitative analyses looking at the key changes that distributors may face as a result of regional standards: (1) A distributor inventory impact analysis, and (2) a distributor markup impact analysis.

HARDI voiced concern about DOE's preliminary distributor inventory impact analysis, citing its belief that distributors located within border regions would have to carry two lines of stock. As a result, HARDI predicts at least a 5-percent stock increase for these distributors. (CAC: HARDI, No. 56 at p. 7) In response, DOE's inventory analysis does assume that distributors located along border regions will need to carry two lines of stock, as indicated by HARDI, and, thus, requires some additional safety stock. In the absence of additional data supporting more or less severe inventory impacts, for the direct final rule, DOE has not revised its estimate of a 2-percent inventory impact for the reference case. However, the impacts of inventory changes ranging from 0 percent to 10 percent are considered in Chapter 17 of the direct final rule TSD as a sensitivity analysis.

Regarding the inventory change analysis, ACEEE stated that distributors located along a border region may find it more cost-effective to stock fewer product models and meet customer demand by shipping the next higher-efficiency model at the same price as the lower-efficiency model under regional standards. (FUR: ACEEE, No. 1.2.006 at p. 103) ACEEE suggested that this hypothetical substitution effect would reduce the additional inventory necessary for distributors to meet customer demand under regional standards. Based on interviews with distributors and DOE's understanding of the HVAC industry, DOE considers such a scenario unlikely. Such a substitution would remove upsell opportunities for distributors and potentially commoditize higher-margin products. Furthermore, not having the units desired by some contractors may jeopardize relationships with at least some customers. DOE does not expect such a strategy to be the lowest-cost option for distributors along the border region.

HARDI contested the four shipment scenarios detailed in the distribution inventory impact analysis discussed in chapter 17 of the preliminary TSD. Citing the experience following the change in central air conditioner energy conservation standards from 10 SEER to 13 SEER in 2006, HARDI asserted that an impact of increasing standards is a decrease in shipments due to substitution effects. (FUR: HARDI, No. 1.3.016 at p. 7) In chapter 17 of the TSD, DOE analyzed the impact of differentiated regional standards rather than the impacts of higher standards. The analysis is intended to model changes in distributor inventory resulting from bimodal product demand, and not the impacts resulting from higher standards. However, DOE notes that the impacts of higher standards on replacement rates and product orders for the industry are accounted for and modeled in DOE's shipments analysis conducted for this direct final rule. A reduction in product replacement is reflected in the NIA and in the industry net present value analysis presented in the MIA.

Additional comments were received regarding the analysis of distributor markup impact analysis. These comments are addressed in markups portion of this document in section IV.D.

b. Enforcement Issues

Although the preliminary TSD for central air conditioners and heat pumps did not analyze enforcement issues, it did discuss potential enforcement impacts on market participants in chapter 17, section 17.4, of the preliminary TSD. In addition, in section II.A of the RAP for furnaces, DOE described a number of enforcement options and requested data on how, if at all, the enforcement options would increase compliance or other costs.

Multiple manufacturers and trade associations commented on enforcement issues discussed in either the preliminary TSD for central air conditioners and heat pumps or the RAP for furnaces. ACCA, AHRI, and HARDI all emphasized the need for strong enforcement to ensure fair competition in the marketplace and to mitigate risk of diluting intended energy savings. (FUR: ACCA, No. 1.3.007 at p. 2) (CAC: AHRI, No. 67 at p. 4; HARDI, No. 70 at p. 2) HARDI emphasized the complexity of enforcing regional standards and explained that their members (

i.e.,

the industry's distributors) are not equipped to bear the burden of ensuring that product installations are occurring within the boundaries of regional standards. (FUR: HARDI, No. 1.3.016 at pp. 4-7) Manufacturers, including Lennox, Rheem, and Ingersoll Rand; trade groups, including ACCA, AGA, ARI, EEI, and HARDI; advocacy groups, including ACEEE, NCLC, and NRDC; and utilities, including Pacific Gas and Electric, Southern California Gas Company, San Diego Gas and Electric, and Southern California Edison, all commented on the effectiveness, viability, and complexity of various enforcement mechanisms. (FUR: Lennox, No. 1.3.018 at pp. 2-4; Rheem, Public Meeting Transcript No. 1.2.006 at p. 80; AGA, No. 1.3.010 at pp. 2-3; EEI, No. 1.3.015 at p. 4; ACEEE, No. 1.3.009 at pp. 4-5; NCLC, 1.3.019 at p. 9; NRDC, No. 1.3.020 at pp. 7-8) (CAC: Ingersoll Rand, No. 66 at pp. 7-8; ACCA, No. 7 at p. 3; HARDI, No. 56 at p. 6; PG&E, No. 17 at pp. 3-4)

DOE recognizes the challenges of regional standards enforcement and continues to investigate the most effective means of meeting those challenges. DOE will incorporate all feedback into the enforcement rulemaking it will conduct within 90 days of the issuance of this direct final

rule establishing regional standards, as required by 42 U.S.C. 6295(o)(6)(G)(ii).

E. Standby Mode and Off Mode

As noted in section II.A of this direct final rule, any final rule for amended or new energy conservation standards that is published on or after July 1, 2010 must address standby mode and off mode energy use. (42 U.S.C. 6295(gg)) As a result, DOE has analyzed and is regulating the standby mode and off mode electrical energy consumption for furnaces and off mode energy consumption for central air conditioners and heat pumps. These provisions are addressed in further detail immediately below.

1. Furnaces

AFUE, the statutory metric for furnaces, does not incorporate standby mode or off mode use of electricity, although it already fully addresses use in these modes of fossil fuels by gas and oil-fired furnaces. In the October 2010 test procedure final rule for furnaces, DOE determined that incorporating standby mode and off mode electricity consumption into a single standard for residential furnaces is not feasible. 75 FR 64621, 64626-27 (Oct. 20, 2010). DOE concluded that a metric that integrates standby mode and off mode electricity consumption into AFUE is not technically feasible, because the standby mode and off mode energy usage, when measured, is essentially lost in practical terms due to rounding conventions for certifying furnace compliance with Federal energy conservation standards.

Id.

Therefore, in this notice, DOE is adopting amended furnace standards that are AFUE levels, which exclude standby mode and off mode electricity use, and DOE is also adopting separate standards that are maximum wattage (W) levels to address the standby mode and off mode electrical energy use of furnaces. DOE also presents corresponding TSLs for energy consumption in standby mode and off mode. DOE has decided to use a maximum wattage requirement to regulate standby mode and off mode for furnaces. DOE believes using an annualized metric could add unnecessary complexities, such as trying to estimate an assumed number of hours that a furnace typically spends in standby mode. Instead, DOE believes that a maximum wattage standard is the most straightforward metric for regulating standby mode and off mode energy consumption of furnaces and will result in the least amount of industry and consumer confusion.

DOE is using the metrics just described—AFUE and W—in the amended energy conservation standards it adopts in this rulemaking for furnaces. This approach satisfies the mandate of 42 U.S.C. 6295(gg) that amended standards address standby mode and off mode energy use. The various analyses performed by DOE to evaluate minimum standards for standby mode and off mode electrical energy consumption for furnaces are discussed further in section IV.E of this direct final rule.

a. Standby Mode and Off Mode for Weatherized Gas and Weatherized Oil-Fired Furnaces

DOE did not find any weatherized furnaces (both gas and oil-fired) available on the market that are not sold as part of a single package air conditioner or a “dual fuel” single package heat pump and furnace

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