Energy Conservation Program for Certain Industrial Equipment: Energy Conservation Standards for Commercial Warm Air Furnaces
Federal RegisterFeb 4, 2015
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DEPARTMENT OF ENERGY
10 CFR Part 431
[Docket Number EERE-2013-BT-STD-0021]
RIN 1904-AD11
Energy Conservation Program for Certain Industrial Equipment: Energy Conservation Standards for Commercial Warm Air Furnaces
AGENCY:
Office of Energy Efficiency and Renewable Energy, Department of Energy.
ACTION:
Notice of proposed rulemaking and public meeting.
SUMMARY:
The Energy Policy and Conservation Act of 1975 (EPCA), as amended, prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including commercial warm air furnaces (CWAF). EPCA also requires that every six years, the U.S. Department of Energy (DOE) must consider amending its standards for specified types of commercial heating, air-conditioning, and water-heating equipment in order to determine whether more-stringent, amended standards would be technologically feasible and economically justified, and would save a significant additional amount of energy. DOE has tentatively concluded that there is sufficient record evidence to support more-stringent standards, so DOE is proposing to amend the current energy conservation standards for CWAF. DOE also announces a public meeting to receive comment on these proposed standards and associated analyses and results.
DATES:
Comments:
DOE will accept comments, data, and information regarding this notice of proposed rulemaking (NOPR) before and after the public meeting, but no later than April 6, 2015. See section VII, “Public Participation,” for details.
Meeting:
DOE will hold a public meeting on Monday, March 2, 2015, from 9:00 a.m. to 4:00 p.m., in Washington, DC. The meeting will also be broadcast as a webinar. See section VII, “Public Participation,” for webinar registration information, participant instructions, and information about the capabilities available to webinar participants.
ADDRESSES:
The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW., Washington, DC 20585. To attend, please notify Ms. Brenda Edwards at (202) 586-2945. For more information, refer to section VII, “Public Participation,” near the end of this notice.
Instructions:
Any comments submitted must identify the NOPR for Energy Conservation Standards for Commercial Warm Air Furnaces, and provide docket number EE-2013-BT-STD-00021 and/or regulatory information number (RIN) number 1904-AD11. Comments may be submitted using any of the following methods:
1.
Federal eRulemaking Portal: www.regulations.gov.
Follow the instructions for submitting comments.
2.
Email: CommWarmAirFurn2013STD0021@ee.doe.gov.
Include the docket number and/or RIN in the subject line of the message. Submit electronic comments in WordPerfect, Microsoft Word, PDF, or ASCII file format, and avoid the use of special characters or any form of encryption.
3.
Postal Mail:
Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Office, Mailstop EE-2J, 1000 Independence Avenue SW., Washington, DC, 20585-0121. If possible, please submit all items on a compact disc (CD), in which case it is not necessary to include printed copies.
4.
Hand Delivery/Courier:
Ms. Brenda Edwards, U.S. Department of Energy, Building Technologies Office, 950 L'Enfant Plaza SW., Suite 600, Washington, DC, 20024. Telephone: (202) 586-2945. If possible, please submit all items on a CD, in which case it is not necessary to include printed copies.
Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted to Office of Energy Efficiency and Renewable Energy through the methods listed above and by email to
Chad_S_Whiteman@omb.eop.gov.
No telefacsimiles (faxes) will be accepted. For detailed instructions on submitting comments and additional information on the rulemaking process, see section VII of this document (Public Participation).
Docket:
The docket is available for review at
www.regulations.gov.
All documents in the docket are listed in the
www.regulations.gov
index. A link to the docket Web page can be found at:
http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=70
. This Web page contains a link to the docket for this notice on the
http://www.regulations.gov
site. The
www.regulations.gov
Web page contains simple instructions on how to access all documents, including public comments, in the docket.
For further information on how to submit a comment, review other public comments and the docket, or participate in the public meeting, contact Ms. Brenda Edwards at (202) 586-2945 or by email:
Brenda.Edwards@ee.doe.gov.
FOR FURTHER INFORMATION CONTACT:
Mr. John Cymbalsky, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies, EE-5B, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 286-1692. Email:
John.Cymbalsky@ee.doe.gov.
Mr. Eric Stas, U.S. Department of Energy, Office of the General Counsel, GC-71, 1000 Independence Avenue SW., Washington, DC 20585-0121. Telephone: (202) 586-9507. Email:
Eric.Stas@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Proposed Rule
A. Benefits and Costs to Commercial Consumers
B. Impact on Manufacturers
C. National Benefits
II. Introduction
A. Authority
B. Background
1. Current Standards
2. History of Standards Rulemaking for CWAF
III. General Discussion
A. Compliance Date
B. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
C. Energy Savings
1. Determination of Savings
2. Significance of Savings
D. 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 Equipment
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. General
2. Scope of Coverage and Equipment Classes
3. Technology Options
B. Screening Analysis
C. Engineering Analysis
1. Methodology
2. Efficiency Levels
a. Baseline Efficiency Levels
b. Incremental and Max-Tech Efficiency Levels
3. Equipment Testing and Reverse Engineering
4. Cost Model
5. Manufacturing Production Costs
6. Manufacturer Markup
7. Shipping Costs
D. Markups Analysis
E. Energy Use Analysis
F. Life-Cycle Cost and Payback Period Analysis
1. Inputs to Installed Cost
2. Inputs to Operating Costs
a. Energy Consumption
b. Energy Prices
c. Maintenance and Repair Costs
d. Other Inputs
G. Shipments Analysis
H. National Impact Analysis
I. Consumer Subgroup Analysis
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model
a. Government Regulatory Impact Model Key Inputs
b. Government Regulatory Impact Model Scenarios
c. Manufacturer Interviews
K. Emissions Analysis
L. Monetizing Carbon Dioxide and Other Emissions Impacts
1. Social Cost of Carbon
a. Monetizing Carbon Dioxide Emissions
b. Development of Social Cost of Carbon Values
c. Current Approach and Key Assumptions
2. Valuation of Other Emissions Reductions
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Commercial Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash-Flow Analysis Results
b. Impacts on Direct Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. Significance of Energy Savings
b. Net Present Value of Commercial Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Equipment
5. Impact of Any Lessening of Competition
6. Need of the Nation to Conserve Energy
7. Other Factors
8. Summary of Other National Economic Impacts
C. Proposed Standards
1. Benefits and Burdens of Trial Standard Levels Considered for CWAF
2. Summary of Benefits and Costs (Annualized) of the Proposed Standards
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866 and 13563
B. Review Under the Regulatory Flexibility Act
C. Review Under the Paperwork Reduction Act of 1995
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Review Under the Information Quality Bulletin for Peer Review
VII. Public Participation
A. Attendance at the Public Meeting
B. Procedure for Submitting Requests to Speak and Prepared General Statements For Distribution
C. Conduct of the Public Meeting
D. Submission of Comments
E. Issues on Which DOE Seeks Comment
VIII. Approval of the Office of the Secretary
I. Summary of the Proposed Rule
Title III, Part C
1
of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as codified), added by Public Law 95-619, Title IV, § 441(a), established the Energy Conservation Program for Certain Industrial Equipment, which includes the commercial warm air furnaces that are the subject of this rulemaking. CWAF are a type of equipment also covered under the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 90.1 (ASHRAE Standard 90.1), “Energy Standard for Buildings Except Low-Rise Residential Buildings.”
2
Pursuant to recent statutory amendments to EPCA, DOE must conduct an evaluation of its standards for CWAF every six years and publish either a notice of determination that such standards do not need to be amended or a notice of proposed rulemaking including proposed amended standards. (42 U.S.C. 6313(a)(6)(C)(i)) EPCA further requires that any new or amended energy conservation standard that DOE prescribes for covered equipment, such as CWAF, shall be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Furthermore, the new or amended standard must result in a significant additional conservation of energy.
Id.
Under the applicable statutory provisions, DOE must determine that there is clear and convincing evidence supporting the adoption of more-stringent energy conservation standards than the ASHRAE level.
Id.
Once complete, this rulemaking will satisfy DOE's statutory obligation under 42 U.S.C. 6313(a)(6)(C).
1
For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1.
2
ASHRAE Standard 90.1-2013 (
i.e.,
the most recent version of ASHRAE Standard 90.1) did not amend the efficiency levels for CWAF. Thus, DOE was not triggered by the statutory provision for ASHRAE equipment. For more information on DOE's review of ASHRAE Standard 90.1-2013, see:
http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx?ruleid=108
.
In accordance with these and other statutory provisions discussed in this notice, DOE has examined all of the CWAF equipment classes and has tentatively concluded that there is clear and convincing evidence to support more-stringent standards for both gas-fired and oil-fired CWAF. Accordingly, DOE is proposing amended energy conservation standards for both gas-fired and oil-fired CWAF. The proposed standards, which prescribe the minimum allowable thermal efficiency (TE), are shown in Table I.1. These proposed standards, if adopted, would apply to all equipment listed in Table I.1 and manufactured in, or imported into, the United States on and after the date three years after the publication of the final rule for this rulemaking.
Table I.1—Proposed Energy Conservation Standards for Commercial Warm Air Furnaces
Equipment class
Input capacity *
(Btu/h)
Thermal
efficiency **
Gas-Fired Furnaces
≥225,000 Btu/h
82%
Oil-Fired Furnaces
≥225,000 Btu/h
82%
* In addition to being defined by input capacity, a CWAF is “a self-contained oil- or gas-fired furnace designed to supply heated air through ducts to spaces that require it and includes combination warm air furnace/electric air conditioning units but does not include unit heaters and duct furnaces.” CWAF coverage is further discussed in section IV.A.2, “Scope of Coverage and Equipment Classes.”
** Thermal efficiency is at the maximum rated capacity (rated maximum input), and is determined using the DOE test procedure specified at 10 CFR 431.76.
A. Benefits and Costs to Commercial Consumers
Table I.2 presents DOE's evaluation of the economic impacts of the proposed energy conservation standards on commercial consumers of CWAF, as measured by the average life-cycle cost (LCC) savings and the median payback period (PBP). The average LCC savings are positive for both equipment classes, and the PBP is less than the average lifetime of the equipment, which is estimated to be 19 years for gas-fired CWAF and 26 years for oil-fired CWAF.
Table I.2—Impacts of Proposed Energy Conservation Standards on Commercial Consumers of Commercial Warm Air Furnaces
Equipment class
Average
LCC savings
(2013$)
Median
payback
period
(years)
Gas-Fired Furnaces
426
0.7
Oil-Fired Furnaces
164
2.8
DOE's analysis of the impacts of the proposed standards on consumers is described in section IV.F of this notice and in chapter 8 of the NOPR TSD.
B. Impact on Manufacturers
The industry net present value (INPV) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2014 to 2047). Using a real discount rate of 8.9 percent, DOE estimates that the INPV for manufacturers of CWAF is $74.7 million in 2013$. Under the proposed standards, DOE expects that INPV may be reduced by approximately $43.3 to $11.1 million, which is −58.0 percent to −14.9 percent.
DOE's analysis of the impacts of the proposed standards on manufacturers is described in section IV.J of this notice.
C. National Benefits
3
3
All monetary values in this NOPR are expressed in 2013 dollars and are discounted to 2014.
DOE's analyses indicate that the proposed energy conservation standards for CWAF would save a significant amount of energy. The energy savings over the entire lifetime of CWAF equipment installed during the 30-year period that begins in the year of compliance with amended standards (2018-2047), relative to the base case without amended standards, amount to 0.52 quadrillion Btus (quads) of full-fuel-cycle energy.
4
This represents a savings of 1.0 percent relative to the energy use of this equipment in the base case.
4
These results include impacts on commercial consumers which accrue after 2048 from the products purchased in 2018-2047.
The cumulative net present value (NPV) of total consumer costs and savings of the proposed standards for CWAF ranges from $1.0 billion to $2.7 billion at 7-percent and 3-percent discount rates, respectively. This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased product costs for CWAF purchased in 2018-2047.
In addition, the proposed standards would have significant environmental benefits.
5
The energy savings would result in cumulative emission reductions of 27.9 million metric tons (Mt)
6
of carbon dioxide (CO
2
), 319.8 thousand tons of methane (CH
4
), 0.1 thousand tons of nitrous oxide (N
2
O), 2.2 thousand tons of sulfur dioxide (SO
2
), 66.84 thousand tons of nitrogen oxides (NO
X
) and 0.003 tons of mercury (Hg). The cumulative reduction in CO
2
emissions through 2030 amounts to 4.4 Mt.
5
DOE calculated emissions reductions relative to the
Annual Energy Outlook 2013
(
AEO 2013
) Reference case, which generally represents current legislation and environmental regulations for which implementing regulations were available as of December 31, 2012.
6
A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO
2
are presented in short tons.
The value of the CO
2
reductions is calculated using a range of values per metric ton of CO
2
(otherwise known as the Social Cost of Carbon, or SCC) developed by an interagency process.
7
The derivation of the SCC values is discussed in section IV.L. Using discount rates appropriate for each set of SCC values, DOE estimates the present monetary value of the CO
2
emissions reduction to be between $0.2 billion and $2.6 billion, with a value of $0.8 billion using the central SCC case represented by $40.5/t in 2015.
8
Additionally, DOE estimates the present monetary value of the NO
X
emissions reduction to be $34.2 million to $82.0 million at 7-percent and 3-percent discount rates, respectively.
9
7
Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866,
Interagency Working Group on Social Cost of Carbon, United States Government (May 2013; revised November 2013) (Available at:
http://www.whitehouse.gov/sites/default/files/omb/assets/inforeg/technical-update-social-cost-of-carbon-for-regulator-impact-analysis.pdf).
8
The values only include CO
2
emissions; CO
2
equivalent emissions from other greenhouse gases are not included.
9
DOE is investigating monetization of reductions in SO
2
and Hg emissions.
Table I.3 summarizes the national economic costs and benefits expected to result from the proposed standards for CWAF.
Table I.3—Summary of National Economic Benefits and Costs of Proposed Energy Conservation Standards for Commercial Warm Air Furnaces
Category
Present
value
Billion 2013$
Discount rate
Benefits
Operating Cost Savings
1.052
7%
2.721
3
CO
2
Reduction Monetized Value ($12.0/t case) **
0.175
5
CO
2
Reduction Monetized Value ($40.5/t case) **
0.841
3
CO
2
Reduction Monetized Value ($62.4/t case) **
1.347
2.5
CO
2
Reduction Monetized Value $119/t case) **
2.606
3
NO
X
Reduction Monetized Value (at $2,684/ton) **
0.034
7
0.082
3
Total Benefits †
1.928
7
3.645
3
Costs
Incremental Installed Costs
0.036
7
0.062
3
Total Net Benefits
Including Emissions Reduction Monetized Value †
1.892
7
3.582
3
* This table presents the costs and benefits associated with CWAF shipped in 2018-2047. These results include impacts on commercial consumers which accrue after 2048 from the products purchased in 2018-2047. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values (represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC from the integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set (represented by 2015 value of $119/t in 2013$), which represents the 95th percentile SCC estimate across all three models at a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time series incorporate an escalation factor. The value for NO
X
represents the average of the low and high NO
X
values considered in DOE's analysis.
† Total Benefits for both the 3% and 7% cases are derived using the series corresponding to average SCC with 3-percent discount rate.
The benefits and costs of these proposed standards, for products sold in 2018-2047, can also be expressed in terms of annualized values. The annualized monetary values are the sum of: (1) The annualized national economic value of the benefits from consumer operation of equipment that meets the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase price and installation costs, which is another way of representing commercial consumer NPV), and (2) the annualized monetary value of the benefits of CO
2
and NO
X
emission reductions.
10
10
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 2013, 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
2
reductions. For the latter, DOE used a range of discount rates, as shown in Table I.4. From the present value, DOE then calculated the fixed annual payment over a 30-year period (2018 through 2047) 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 is a steady stream of payments.
Although combining the values of operating savings and CO
2
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
2
reductions is based on a global value. Second, the assessments of operating cost savings and CO
2
savings are performed with different methods that use different time frames for analysis. The national operating cost savings is measured for the lifetime of CWAF shipped in 2018-2047. The SCC values, on the other hand, reflect the present value of some future climate-related impacts resulting from the emission of one ton of carbon dioxide in each year. Because CO
2
emissions have a very long residence time in the atmosphere,
11
the SCC values after 2050 reflect future climate-related impacts resulting from the emission of CO
2
that continue beyond 2100.
11
The atmospheric lifetime of CO
2
is estimated of the order of 30-95 years. Jacobson, MZ (2005). “Correction to “Control of fossil-fuel particulate black carbon and organic matter, possibly the most effective method of slowing global warming.” ”
J. Geophys. Res.
110. pp. D14105.
Estimates of annualized benefits and costs of the proposed standards are shown in Table I.4. The results under the primary estimate are as follows. Using a 7-percent discount rate for benefits and costs other than CO
2
reduction, for which DOE used a 3-percent discount rate along with the average SCC series that uses a 3-percent discount rate, the estimated cost of the proposed CWAF standards is $3.51 million per year in increased equipment costs, while the estimated benefits are $104 million per year in reduced equipment operating costs, $47 million in CO
2
reductions, and $3.38 million in reduced NO
X
emissions. In this case, the net benefit would amount to $151 million per year. Using a 3-percent discount rate for all benefits and costs and the average SCC series, the estimated cost of the proposed CWAF standards is $3.48 million per year in increased equipment costs, while the estimated benefits are $152 million per year in reduced equipment operating costs, $47 million in CO
2
reductions, and $4.57 million in reduced NO
X
emissions. In this case, the net benefit would amount to $200 million per year.
Table I.4—Annualized Benefits and Costs of Proposed Energy Conservation Standards for Commercial Warm Air Furnaces *
Discount rate
Million 2013$/year
Primary
estimate
Low estimate
High estimate
Benefits
Operating Cost Savings
7%
104
98
111
3%
152
143
163
CO
2
Reduction Monetized Value ($12.0/t case) **
5%
13
13
14
CO
2
Reduction Monetized Value ($40.5/t case) **
3%
47
45
48
CO
2
Reduction Monetized Value ($62.4/t case) **
2.5%
69
67
72
CO
2
Reduction Monetized Value ($119/t case) **
3%
145
140
150
NO
X
Reduction Monetized Value (at $2,684/ton) **
7%
3.38
3.28
3.49
3%
4.57
4.41
4.72
Total Benefits †
7% plus CO
2
range
120 to 253
114 to 242
128 to 264
7%
154
147
163
3% plus CO
2
range
169 to 302
160 to 287
181 to 318
3%
203
192
216
Costs
Incremental Equipment Costs
7%
3.51
3.48
3.67
3%
3.48
3.41
3.68
Net Benefits
Total †
7% plus CO
2
range
117 to 249
111 to 238
124 to 261
7%
151
143
159
3% plus CO
2
range
166 to 298
156 to 283
177 to 314
3%
200
189
212
* This table presents the annualized costs and benefits associated with CWAF shipped in 2018-2047. These results include benefits to commercial consumers which accrue after 2048 from the products purchased in 2018-2047. The results account for the incremental variable and fixed costs incurred by manufacturers due to the standard, some of which may be incurred in preparation for the rule. The Primary, Low Benefits, and High Benefits Estimates utilize projections of energy prices from the
AEO 2013
Reference case, Low Economic Growth case, and High Economic Growth case, respectively. Incremental equipment costs account for equipment price trends and include, beyond the reference scenario, a low price decline scenario used in the Low Benefits Estimate and a high price decline scenario used in the High Benefits Estimates.
** The interagency group selected four sets of SCC values for use in regulatory analyses. Three sets of values (represented by 2015 values of $12.0/t, $40.5/t, and $62.4/t, in 2013$) are based on the average SCC from the integrated assessment models, at discount rates of 2.5, 3, and 5 percent. The fourth set (represented by 2015 value of $119/t, in 2013$), which represents the 95th percentile SCC estimate across all three models at a 3-percent discount rate, is included to represent higher-than-expected impacts from temperature change further out in the tails of the SCC distribution. The values in parentheses represent the SCC in 2015. The SCC time series incorporate an escalation factor. The value for NO
X
represents the average of the low and high values considered in DOE's analysis.
† Total Benefits for both the 3-percent and 7-percent cases are derived using the series corresponding to average SCC with a 3-percent discount rate. In the rows labeled “7% plus CO
2
range” and “3% plus CO
2
range,” the operating cost and NO
X
benefits are calculated using the labeled discount rate, and those values are added to the full range of CO
2
values.
DOE's analysis of the national impacts of the proposed standards is described in sections IV.H, IV.K and IV.L of this notice.
D. Conclusion
DOE has tentatively concluded that, based upon clear and convincing evidence, the proposed standards 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 equipment achieving these standard levels is already commercially available for the equipment classes covered by this proposal. Based on the analyses described above, DOE has tentatively concluded that the benefits of the proposed standards to the Nation (energy savings, positive NPV of commercial consumer benefits, commercial consumer LCC savings, and emission reductions) would outweigh the burdens (loss of INPV for manufacturers and LCC increases for some commercial consumers).
DOE also considered more-stringent energy efficiency levels as trial standard levels, and is still considering them in this rulemaking. However, DOE has tentatively concluded that the potential burdens of the more-stringent energy efficiency levels would outweigh the projected benefits. Based on consideration of the public comments DOE receives in response to this notice and related information collected and analyzed during the course of this rulemaking effort, DOE may adopt energy efficiency levels presented in this notice that are either higher or lower than the proposed standards, or some combination of level(s) that incorporate the proposed standards in part.
II. Introduction
The following section briefly discusses the statutory authority underlying this proposal, as well as some of the relevant historical background related to the energy conservation standards for CWAF.
A. Authority
Title III, Part C
12
of the Energy Policy and Conservation Act of 1975 (EPCA or the Act), Public Law 94-163 (42 U.S.C. 6311-6317, as codified), added by Public Law 95-619, Title IV, § 441(a), established the Energy Conservation Program for Certain Industrial Equipment, which includes provisions covering the CWAF equipment that is
the subject of this notice.
13
In general, this program addresses the energy efficiency of certain types of commercial and industrial equipment. Relevant provisions of the Act specifically include definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 6315), and the authority to require information and reports from manufacturers (42 U.S.C. 6316).
12
For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A-1.
13
All references to EPCA in this document refer to the statute as amended through the American Energy Manufacturing Technical Corrections Act of 2012, Pub. L. 112-210 (enacted Dec. 18, 2012).
The initial Federal energy conservation standards for CWAF were added to EPCA by the Energy Policy Act of 1992 (EPACT 1992), Public Law 102-486. (42 U.S.C. 6313(a)(4)) These types of covered equipment have a rated capacity (rated maximum input
14
) greater than or equal to 225,000 Btu/h, can be gas-fired or oil-fired, and are designed to heat commercial buildings.
Id.
Under the Act, DOE is obligated to review its energy conservation standards for certain commercial and industrial equipment (
i.e.,
specified heating, air-conditioning, and water-heating equipment) whenever the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) updates the efficiency levels in ASHRAE Standard 90.1,
Energy Standard for Buildings Except Low-Rise Residential Buildings.
DOE must either adopt the levels contained in ASHRAE Standard 90.1 or adopt levels more stringent than the ASHRAE levels if there is clear and convincing evidence in support of doing so. (42 U.S.C. 6313(a)(6)(A)) Such review is to be conducted in accordance with the procedures established for ASHRAE equipment under 42 U.S.C. 6313(a)(6). In addition, DOE must periodically review and consider amending the energy conservation standards for these specified types of covered commercial and industrial equipment and publish either a notice of proposed rulemaking with amended standards or a determination that the standards do not need to be amended. (42 U.S.C. 6313(a)(6)(C)(i))
14
Rated maximum input means the maximum gas-burning capacity of a commercial warm-air furnace in Btu per hour, as specified by the manufacturer.
In amending EPCA, the American Energy Manufacturing Technical Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012), in relevant part, modified the manner in which DOE must amend the energy efficiency standards for certain types of commercial and industrial equipment, adding a review requirement that is triggered when ASHRAE adopts a design requirement, even if the standard level remains unchanged.
Id.
AEMTCA also clarified that DOE's periodic review of ASHRAE equipment must occur “[e]very six years.”
Id.
AEMTCA further added to this process a requirement that DOE must initiate a rulemaking to consider amending the energy conservation standards for any covered equipment for which more than 6 years has elapsed since the issuance of the most recent final rule establishing or amending a standard for the product as of the date of AEMTCA's enactment (
i.e.,
December 18, 2012), in which case DOE must publish either: (1) A notice of determination that the current standards do not need to be amended, or (2) a notice of proposed rulemaking containing proposed standards by December 31, 2013. (42 U.S.C. 6313(a)(6)(C)(vi)) Because DOE has not issued a standard for commercial warm air furnaces in the past six years, the December 31, 2013 deadline for publication of the applicable rulemaking document applies.
Pursuant to EPCA, DOE's energy conservation program for covered equipment consists essentially of four parts: (1) Testing; (2) labeling; (3) the establishment of Federal energy conservation standards; and (4) certification and enforcement procedures. Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of covered equipment. (42 U.S.C. 6314) Manufacturers of covered equipment must use the prescribed DOE test procedure as the basis for certifying to DOE that their equipment comply with the applicable energy conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of such equipment. (42 U.S.C. 6314(d)) Similarly, DOE must use these test procedures to determine whether the equipment comply with standards adopted pursuant to EPCA. The DOE test procedures for CWAF currently appear at title 10 of the Code of Federal Regulations (CFR) part 431.76.
When setting standards for the equipment addressed by the proposed rule, EPCA, as amended by AEMTCA, prescribes specific statutory criteria for DOE to consider. See generally 42 U.S.C. 6313(a)(6)(A)-(C). As indicated above, any amended standard for covered equipment more stringent than the level contained in ASHRAE Standard 90.1 must be designed to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Furthermore, DOE may not adopt any standard that would not result in the significant additional conservation of energy.
Id.
In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. DOE must make this determination after receiving comments on the proposed standard, and by considering, to the maximum extent practicable, the following seven statutory factors:
1. The economic impact of the standard on manufacturers and consumers of 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 which are likely to result from the standard;
3. The total projected amount of energy savings likely to result directly from the standard;
4. Any lessening of the utility or the performance of the covered products likely to result from the standard;
5. The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;
6. The need for national energy conservation; and
7. Other factors the Secretary of Energy considers relevant.
(42 U.S.C. 6313(a)(6)(B)(ii))
EPCA, as codified, also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) 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. 6313(a)(6)(B)(iii)(II))
Further, under EPCA's provisions for consumer products, there is a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the customer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy (and, as
applicable, water) savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For this rulemaking, DOE considered the criteria for rebuttable presumption as part of its analysis.
Additionally, when a type or class of covered equipment has two or more subcategories, DOE often specifies more than one standard level. DOE generally will adopt a different standard level than that which applies generally to such type or class of products for any group of covered products that have the same function or intended use if DOE determines that products within such group: (A) Consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and which justifies a higher or lower standard. In determining whether a performance-related feature justifies a different standard for a group of products, DOE generally considers such factors as the utility to the customer of the feature and other factors DOE deems appropriate. In a rule prescribing such a standard, DOE includes an explanation of the basis on which such higher or lower level was established. DOE considered these criteria for this rulemaking.
Because ASHRAE did not update its efficiency levels for CWAF in any of its most recent updates to ASHRAE Standard 90.1 (
e.g.,
ASHRAE Standard 90.1-2007, ASHRAE Standard 90.1-2010, ASHRAE Standard 90.1-2013), DOE is analyzing amended standards consistent with the procedures defined under 42 U.S.C. 6313(a)(6)(C). Specifically, pursuant to 42 U.S.C. 6313(a)(6)(C)(i)(II), DOE must use the procedures established under subparagraph (B) when issuing a NOPR. As noted above, the statutory provision at 42 U.S.C. 6313(a)(6)(B)(ii), recently amended by AEMTCA, states that in deciding whether a standard is economically justified, DOE must determine, after receiving comments on the proposed standard, whether the benefits of the standard exceed its burdens by considering, to the maximum extent practicable, the seven factors, as stated above.
After carefully reviewing all CWAF equipment classes, DOE has tentatively concluded that following this rulemaking process will provide “clear and convincing evidence” that the proposed standards for gas-fired and oil-fired CWAF which are more stringent than those set forth in ASHRAE Standard 90.1-2013, would result in significant additional conservation of energy and would be technologically feasible and economically justified, as mandated by 42 U.S.C. 6313(a)(6).
B. Background
1. Current Standards
As noted above, EPACT 1992 amended EPCA to set the current minimum energy conservation standards for CWAF. (42 U.S.C. 6313(a)(4)(A) and (B)) These standards apply to all CWAF manufactured on or after January 1, 1994. The current standards are set forth in Table II.1.
Table II.1—Current Federal Energy Conservation Standards for CWAF
Equipment type
Input capacity
Thermal
efficiency *
Compliance date
Gas-Fired Furnaces
≥225,000 Btu/h
80%
1/1/1994
Oil-Fired Furnaces
≥225,000 Btu/h
81%
1/1/1994
* At the maximum rated capacity (rated maximum input).
2. History of Standards Rulemaking for CWAF
On October 21, 2004, DOE published a final rule in the
Federal Register
which adopted definitions for “commercial warm air furnace” and “thermal efficiency,” promulgated test procedures for this equipment, and recodified the energy conservation standards so that the standards are located contiguous with the test procedures in the Code of Federal Regulations (CFR). 69 FR 61916, 61917, 61939-41. In the same final rule, DOE incorporated by reference (see 10 CFR 431.75) a number of industry test standards relevant to commercial warm air furnaces, including: (1) American National Standards Institute (ANSI) Standard Z21.47-1998, “Gas-Fired Central Furnaces,” for gas-fired CWAF; (2) Underwriters Laboratories (UL) Standard 727-1994, “Standard for Safety Oil-Fired Central Furnaces,” for oil-fired CWAF; (3) provisions from Hydronics Institute (HI) Standard BTS-2000, “Method to Determine Efficiency of Commercial Space Heating Boilers,” to calculate flue loss for oil-fired CWAF, and (4) provisions from the American Society of Heating, Refrigerating, and Air-conditioning Engineers (ASHRAE) Standard 103-1993, “Method of Testing for Annual Fuel Utilization Efficiency of Residential Central Furnaces and Boilers,” to determine the incremental efficiency of condensing furnaces under steady-state conditions.
Id.
at 61940. Then in a final rule published in the
Federal Register
on May 16, 2012, DOE updated the test procedures for commercial warm air furnaces to match the procedures specified in ASHRAE Standard 90.1-2010, which referenced ANSI Z21.47-2006, “Gas-Fired Central Furnaces,” for gas-fired CWAF, and UL 727-2006, “Standard for Safety for Oil-Fired Central Furnaces,” for oil-fired furnaces. 77 FR 28928, 28987-88.
As noted previously, in accordance with the requirements of EPCA, as amended by AEMTCA, DOE must publish either: (1) A notice of determination that the current standards do not need to be amended, or (2) a notice of proposed rulemaking containing proposed standards for CWAF by December 31, 2013. (42 U.S.C. 6313(a)(6)(C)(i) and (vi)) Consequently, DOE initiated this rulemaking to determine whether to amend the current standards for CWAF.
On May 2, 2013, DOE published a request for information (RFI) and notice of document availability for CWAF. 78 FR 25627. The notice solicited information from the public to help DOE determine whether more-stringent energy conservation standards for CWAF would result in a significant additional amount of energy savings and whether those standards would be technologically feasible and economically justified.
DOE received a number of comments from interested parties in response to the RFI. These commenters are identified in Table II.2. DOE considered these comments in the preparation of the NOPR. Relevant comments, and DOE's responses, are provided in the appropriate sections of this notice.
Table II.2—Interested Parties Providing Written Comments on the CWAF RFI
Name
Abbreviation
Commenter type *
Air-Conditioning, Heating and Refrigeration Institute
AHRI
IR.
Appliance Standards Awareness Project, American Council for an Energy-Efficient Economy, Natural Resources Defense Council
ASAP, ACEEE, NRDC (Joint Efficiency Advocates)
EA.
Lennox International Inc.
Lennox
M.
UTC Climate, Controls & Security
Carrier
M.
Goodman Manufacturing Inc.
Goodman
M.
American Society of Heating, Refrigeration, and Air-Conditioning Engineers
ASHRAE
IR.
* “IR”: Industry Representative; “M”: Manufacturer; “EA”: Efficiency/Environmental Advocate.
III. General Discussion
A. Compliance Date
As discussed in section II.A, DOE is analyzing amended standards pursuant to 42 U.S.C. 6313(a)(6)(C)(vi), which requires DOE to publish by December 31, 2013, either a notice of determination that standards for this type of equipment do not need to be amended or a notice of proposed rulemaking for any equipment for which more than 6 years has elapsed since the issuance of the most recent final rule. EPCA requires that an amended standard prescribed under 42 U.S.C. 6313(a)(6)(C) must apply to products manufactured after the date that is the later of: (1) The date 3 years after publication of the final rule establishing a new standard or (2) the date 6 years after the effective date of the current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) For CWAF, the date 3 years after the publication of the final rule would be later than the date 6 years after the effective date of the current standard. As a result, compliance with any amended energy conservation standards promulgated in the final rule would be required beginning on the date 3 years after the publication of the final rule.
B. Technological Feasibility
1. General
In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of the rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. See chapter 3 of the NOPR TSD for a discussion of the list of technology options that were identified. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially-available equipment or in working prototypes to be technologically feasible. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(i).
After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) Practicability to manufacture, install, and service; (2) adverse impacts on equipment utility or availability; and (3) adverse impacts on health or safety. 10 CFR part 430, subpart C, appendix A, section 4(a)(4)(ii)-(iv). Section IV.B of this notice discusses the results of the screening analysis for CWAF, particularly the designs DOE considered, those it screened out, and those that are the basis for the trial standard levels (TSLs) in this rulemaking. For further details on the screening analysis for this rulemaking, see chapter 4 of the NOPR Technical Support Document (TSD).
Additionally, DOE notes that these screening criteria do not directly address the proprietary status of design options. DOE only considers efficiency levels achieved through the use of proprietary designs in the engineering analysis if they are not part of a unique path to achieve that efficiency level (
i.e.,
if there are other non-proprietary technologies capable of achieving the same efficiency). DOE believes the proposed standards for the equipment covered in this rulemaking would not mandate the use of any proprietary technologies, and that all manufacturers would be able to achieve the proposed levels through the use of non-proprietary designs. DOE seeks comment on this tentative conclusion and requests additional information regarding proprietary designs and patented technologies.
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt an amended standard for a type or class of covered equipment, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such equipment. Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for CWAF, using the design parameters for the most efficient equipment available on the market or in working prototypes. (See chapter 5 of the NOPR TSD.) The max-tech levels that DOE determined for this rulemaking are described in section IV.C.2.b of this proposed rule.
C. Energy Savings
1. Determination of Savings
For each TSL, DOE projected energy savings from the equipment that is the subject of this rulemaking purchased in the 30-year period that begins in the year of compliance with potential amended standards (2018-2047). The savings are measured over the entire lifetime of equipment purchased in the 30-year analysis period.
15
DOE quantified the energy savings attributable to each TSL as the difference in energy consumption between each standards case and the base case. The base case represents a projection of energy consumption in the absence of amended mandatory efficiency standards, and it considers market forces and policies that affect demand for more-efficient products.
15
In the past DOE presented energy savings results for only the 30-year period that begins in the year of compliance. In the calculation of economic impacts, however, DOE considered operating cost savings measured over the entire lifetime of products purchased in the 30-year period. DOE has chosen to modify its presentation of national energy savings to be consistent with the approach used for its national economic analysis.
DOE used its national impact analysis (NIA) spreadsheet model to estimate energy savings from amended standards for the products that are the subject of this rulemaking. The NIA spreadsheet model (described in section IV.H of this notice) calculates energy savings in site energy, which is the energy directly
consumed by products at the locations where they are used. For CWAF, the energy savings are primarily in the form of natural gas, which is considered to be primary energy.
16
16
Primary energy consumption refers to the direct use at the source, or supply to users without transformation, of crude energy; that is, energy that has not been subjected to any conversion or transformation process.
DOE has begun to also estimate full-fuel-cycle energy savings, as discussed in DOE's statement of policy and notice of policy amendment. 76 FR 51281 (August 18, 2011), as amended at 77 FR 49701 (August 17, 2012). The full-fuel-cycle (FFC) metric includes the energy consumed in extracting, processing, and transporting primary fuels (
i.e.,
coal, natural gas, petroleum fuels), which collectively presents a more complete picture of the impacts of energy efficiency standards. DOE's approach is based on calculation of an FFC multiplier for each of the energy types used by covered products and equipment. For more information on FFC energy savings, see section IV.H.
DOE reports both primary energy and FFC energy savings in section V.B.3.a of this NOPR.
2. Significance of Savings
To adopt more-stringent standards for CWAF, DOE must determine that such action would result in significant additional conservation of energy. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) Although the term “significant” is not defined in the Act, the U.S. Court of Appeals, in
Natural Resources Defense Council
v.
Herrington,
768 F.2d 1355, 1373 (D.C. Cir. 1985), indicated that Congress intended “significant” energy savings in the context of EPCA to be savings that were not “genuinely trivial.” DOE has tentatively concluded that the energy savings associated with the proposed standards—0.52 quads due to CWAFs shipped in 2018-2047—are significant.
D. Economic Justification
1. Specific Criteria
As discussed above, EPCA provides seven factors to be evaluated in determining whether a potential more-stringent energy conservation standard for CWAF is economically justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII)) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of a potential amended standard on manufacturers, DOE conducts a manufacturer impact analysis (MIA), as discussed in section IV.J. (42 U.S.C. 6313(a)(6)(B)(ii)(I)) DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a short-term assessment—based on the cost and capital requirements during the period between when a regulation is issued and when entities must comply with the regulation—and a long-term assessment over a 30-year period. The industry-wide impacts analyzed include: (1) Industry net present value (INPV), which values the industry on the basis of expected future cash flows; (2) cash flows by year; (3) changes in revenue and income; and (4) other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different subgroups of manufacturers, including impacts on small manufacturers. Third, DOE considers the impact of standards on domestic manufacturer employment and manufacturing capacity, as well as the potential for standards to result in plant closures and loss of capital investment. Finally, DOE takes into account cumulative impacts of various DOE regulations and other regulatory requirements on manufacturers.
For individual consumers, measures of economic impact include the changes in life-cycle cost (LCC) and payback period (PBP) associated with new or amended standards. The LCC is discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the economic impacts applicable to a particular rulemaking. DOE also evaluates the LCC impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a national standard.
b. Life-Cycle Costs
EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product compared to any increase in the price of the covered product that are likely to result from the imposition of the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II)) DOE conducts this comparison in its LCC and PBP analysis. The LCC is the sum of the purchase price of a product (including its installation) and the operating expense (including energy, maintenance, and repair expenditures) discounted over the lifetime of the product. The LCC analysis requires a variety of inputs, such as product prices, product energy consumption, energy prices, maintenance and repair costs, product lifetime, and consumer discount rates. To account for uncertainty and variability in specific inputs, such as product lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value. For the LCC analysis, DOE assumes that consumers will purchase the covered products in the first year of compliance with amended standards.
The LCC savings and the PBP for the considered efficiency levels are calculated relative to a base case that reflects projected market trends in the absence of amended standards. DOE identifies the percentage of consumers estimated to receive LCC savings or experience an LCC increase, in addition to the average LCC savings associated with a particular standard level. DOE's LCC and PBP analysis is discussed in further detail in section IV.F.
c. Energy Savings
Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III)) As discussed in section IV.H, DOE uses the NIA spreadsheet to project national energy savings.
d. Lessening of Utility or Performance of Equipment
In establishing classes of equipment, and in evaluating design options and the impact of potential standard levels, DOE must consider any lessening of the utility or performance of the considered products likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) Based on data available to DOE, the proposed standards would not reduce the utility or performance of the products under consideration in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from a proposed standard. (42 U.S.C. 6313(a)(6)(B)(ii)(V)) DOE will transmit a copy of the proposed rule to the Attorney General with a request that the Department of Justice (DOJ) provide its determination on this issue. DOE will publish and respond to the Attorney General's determination in the final rule.
f. Need for National Energy Conservation
In evaluating the need for national energy conservation, DOE expects that the energy savings from the proposed standards are likely to provide improvements to the security and reliability of the nation's energy system. (42 U.S.C. 6313(a)(6)(B)(ii)(VI)) Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the nation's electricity system. DOE conducts a utility impact analysis to estimate how standards may affect the nation's needed power generation capacity, as discussed in section IV.M.
The proposed standards also are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases associated with energy production. DOE reports the emissions impacts from the proposed standards, and from each TSL it considered, in section IV.K of this notice. DOE also reports estimates of the economic value of some of the emissions reductions resulting from the considered TSLs, as discussed in section IV.L.
g. Other Factors
EPCA allows the Secretary of Energy, in determining whether a standard is economically justified, to consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) DOE did not consider other factors for this notice.
2. Rebuttable Presumption
EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE's LCC and PBP analyses generate values used to calculate the effects that proposed energy conservation standards would have on the payback period for consumers. These analyses include, but are not limited to, the 3-year payback period contemplated under the rebuttable-presumption test. In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment. The results of this analysis serve as the basis for DOE's evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section IV.F of this proposed rule.
IV. Methodology and Discussion of Related Comments
DOE used four analytical tools to estimate the impact of the proposed standards for CWAF. The first tool is the LCC spreadsheet, a spreadsheet that calculates LCCs and PBPs of potential new energy conservation standards, and the second tool, the LCC inputs spreadsheet, is a spreadsheet that provides detailed inputs to the LCC spreadsheet. The third tool, the NIA spreadsheet, is a spreadsheet that calculates national energy savings and net present value resulting from potential amended energy conservation standards. The fourth spreadsheet tool, the Government Regulatory Impact Model (GRIM), helped DOE to assess manufacturer impacts.
Additionally, DOE used a variant of EIA's National Energy Modeling System (NEMS) for the utility and emissions analyses. NEMS is a public domain, multi-sectored, partial equilibrium model of the U.S. energy sector that EIA uses NEMS to prepare its
Annual Energy Outlook
(
AEO
), a widely known energy forecast for the United States.
17
17
For more information on NEMS, refer to the U.S. Department of Energy, Energy Information Administration documentation. A useful summary is
National Energy Modeling System: An Overview 2003,
DOE/EIA-0581(2003) (March, 2003).
A. Market and Technology Assessment
1. General
For the market and technology assessment for CWAF, DOE developed information that provided an overall picture of the market for the equipment concerned, including the purpose of the equipment, the industry structure, market characteristics, and the technologies used in the equipment. This activity included both quantitative and qualitative assessments, based primarily on publicly-available information. The subjects addressed in the market and technology assessment for this rulemaking include scope of coverage, equipment classes, types of equipment sold and offered for sale, manufacturers, and technology options that could improve the energy efficiency of the equipment under examination. The key findings of DOE's market and technology assessment are summarized below. For additional detail, see chapter 3 of the NOPR TSD.
2. Scope of Coverage and Equipment Classes
The proposed energy conservation standards in the NOPR cover commercial warm air furnaces, as defined by EPCA and DOE. EPCA defines “warm air furnace” as meaning “a self-contained oil- or gas-fired furnace designed to supply heated air through ducts to spaces that require it and includes combination warm air furnace/electric air conditioning units but does not include unit heaters and duct furnaces.” (42 U.S.C. 6311(11)(A)) DOE defines “commercial warm air furnace” as meaning “a warm air furnace that is industrial equipment, and that has a capacity (rated maximum input) of 225,000 Btu per hour or more.” 10 CFR 431.72. Accordingly, this rulemaking covers equipment in these categories having a rated capacity of 225,000 Btu/h or higher and that are designed to supply heated air in commercial buildings via ducts (excluding unit heaters and duct furnaces).
When evaluating and establishing energy conservation standards, DOE divides covered equipment into equipment classes based on the type of energy used or by capacity or other performance-related features that would justify having a higher or lower standard from that which applies to other equipment classes. In determining whether a performance-related feature would justify a different standard, DOE considers such factors as the utility to the consumer of the feature and other factors DOE determines are appropriate.
The current equipment classes for CWAF were defined in the EPACT 1992 amendments to EPCA, and divide this equipment into two classes based on fuel type (
i.e.,
one for gas-fired units, and one for oil-fired units). Table IV.1 shows the current equipment class structure for CWAF.
Table IV.1—Current CWAF Equipment Classes
Fuel type
Heating capacity
(Btu/h)
Thermal
efficiency
(%)
Gas-fired
≥225,000
80
Oil-fired
≥225,000
81
In the May 2, 2013 RFI, DOE stated that it planned to use the existing CWAF equipment classes for its analysis of amended energy conservation standards. DOE requested feedback on the current equipment classes and sought information regarding other equipment classes it should consider for
inclusion in its analysis. 78 FR 25627, 25629-31.
One particular issue on which DOE sought comment was the need for separate equipment classes for units designed to be installed indoors (
i.e.,
“non-weatherized” units) and units designed to be installed outdoors (
i.e.,
“weatherized” units). High efficiency, condensing CWAF produce acidic condensate during operation due to the cooling of flue gasses below their dew point. Condensate is more difficult to manage in weatherized CWAF than in non-weatherized CWAF, due to the risk of the condensate freezing after exiting the furnace. For gas-fired models, which represent the large majority of CWAF on the market, most of the models on the market are weatherized units, and a small number are non-weatherized. For oil-fired units, which make up a very small percentage of the CWAF models on the market, all models that DOE identified during the market assessment are non-weatherized.
In response to the RFI, Carrier supported the idea of separate product classes for weatherized and non-weatherized commercial warm air furnaces and stated that unit heaters and duct heaters could potentially fall into these two classifications. (Carrier, No. 2 at p. 1) AHRI asserted that it believes that separate classes are needed for non-weatherized and weatherized CWAF due to issues related to condensate management, but noted that creating separate equipment classes would not lead to any significant energy savings because a majority of the commercial warm air furnace market consists of non-condensing weatherized equipment. (AHRI, No. 7 at p. 4) Similarly, Goodman commented that there is a very small segment of the commercial warm air furnace market that consists of units installed indoors, which would indicate that the costs would far outweigh the benefits of having separate equipment classes (indoor/outdoor). (Goodman, No. 6 at p. 2)
DOE considered these comments and has tentatively decided to continue the use of the existing equipment classes. DOE agrees with AHRI that differentiating between weatherized and non-weatherized CWAF for establishing product classes would provide little opportunity for additional energy savings or benefits as compared to the current equipment class structure. Therefore, DOE is not proposing to adopt separate equipment classes for weatherized and non-weatherized equipment. As to Carrier's assertion that unit heaters and duct heaters could fall into the classification of commercial warm air furnaces, DOE notes that the definition of “warm air furnace” in EPCA explicitly excludes such equipment as it defines a warm air furnace as: “a self-contained oil- or gas-fired furnace designed to supply heated air through ducts to spaces that require it and includes combination warm air furnace/electric air conditioning units but does not include unit heaters and duct furnaces.” (42 U.S.C. 6311(11)(A))
Another specific issue identified in the May 2, 2013 RFI was the potential gap in coverage of DOE's regulations for three-phase commercial furnaces with an input rating below 225,000 Btu/h. 78 FR 25627, 25630-31. Current Federal energy conservation standards for CWAF only cover equipment with an input rating at or above 225,000 Btu/h, and Federal energy conservation standards for residential furnaces cover products with input ratings below 225,000 Btu/h, but only for single-phase products. Thus, there are no Federal standards for furnaces with an input rating below 225,000 Btu/h that use 3-phase electric power.
Carrier stated that weatherized and non-weatherized product classes should be created to cover three-phase commercial warm air furnaces with input ratings below 225,000 Btu/h, and that DOE should adopt the current levels in ASHRAE Standard 90.1 for these products. However, Carrier stated that there would be limited energy savings for new 3-phase, less than 225,000 Btu/h product classes because many of those products share designs with current covered products that already meet efficiency levels set forth in ASHRAE Standard 90.1. (Carrier, No. 2 at p. 2) Lennox supported regulation of three-phase commercial warm air furnaces with input ratings below 225,000 Btu/h, stating that closing this gap would prevent a manufacturer from entering the market with a cost advantage. (Lennox, No. 3 at p. 2) Conversely, AHRI stated that creating an equipment class for three-phase commercial warm air furnaces with an input rating below 225,000 Btu/h would not lead to any additional energy savings since they share the same design as their single-phase counterparts, and consequently have similar thermal efficiencies. (AHRI, No. 7 at p. 4) Goodman reiterated this point, stating that most manufacturers have the same basic design for single- and three-phase products and added that the efficiency of three-phase equipment with an input rating below 225,000 Btu/h generally meet the requirements of single-phase products. Therefore, Goodman argued that any additional regulations would be duplicative and burdensome. (Goodman, No. 6 at p. 3)
Upon considering the comments in response to the RFI on the potential for a new equipment class for three-phase commercial warm air furnaces with an input capacity less than 225,000 Btu/h, DOE has tentatively decided not to extend coverage to this equipment at this time. DOE agrees with commenters who pointed out the limited potential for energy savings due to the fact that equipment with these characteristics already meets efficiency levels specified by ASHRAE Standard 90.1. In its review of the market, DOE did not identify any equipment not meeting or exceeding the ASHRAE Standard 90.1 levels, and thus, has tentatively concluded that a separate equipment class and standard for this equipment may be unnecessarily duplicative and provide little opportunity for energy savings. Further, three-phase commercial warm air furnaces with input ratings below 225,000 Btu/h typically achieve the same efficiency as their single-phase residential counterparts. Thus, the efficiency of this equipment could be expected to be consistent with residential furnace energy conservation standards.
Lastly, in response to the RFI, several commenters suggested that DOE should adopt an upper limit to the input capacity of covered commercial warm air furnaces. Carrier recommended that DOE should consider an upper limit for weatherized furnaces corresponding to DOE's upper limit of 760,000 Btu/h of cooling capacity for commercial air conditioners, and noted that for 760,000 Btu/h air conditioners, the maximum heat input of equipment in their product offering is 1.2 million Btu/h. (Carrier, No. 2 at p. 2) AHRI also recommended an upper limit on input capacity and suggested that the limit be 2,000,000 Btu/h. According to AHRI, this is the maximum input capacity associated with a commercial warm air furnace that is paired with an air conditioner having a cooling capacity of 760,000 Btu/h. (AHRI, No. 7 at p. 5)
DOE notes that neither the statute nor DOE's existing regulations for CWAF specify an upper limit to the input rating of covered equipment. Establishing an upper limit as suggested by interested parties would potentially remove coverage of models that would have otherwise been covered by DOE regulations. As such, DOE sees advantage to leaving the upper end of the range open, such that the standard can accommodate any very large CWAF which may come on the market in the future. Therefore, DOE has tentatively
decided not to establish an upper limit on the input capacity of covered CWAF.
DOE requests comment on the proposed scope of coverage and equipment classes for this rulemaking.
3. Technology Options
As part of the market and technology assessment, DOE uses information about existing and past technology options and prototype designs to help identify technologies that manufacturers could use to improve CWAF energy efficiency. Initially, these technologies encompass all those that DOE believes are technologically feasible. Chapter 3 of the NOPR TSD includes the detailed list and descriptions of all technology options identified for this equipment.
In the May 2, 2013 RFI, DOE requested comment on technology options that could be used to improve the thermal efficiency of CWAF. 78 FR 25627, 25631. The comments generally centered on how to improve the efficiency of non-condensing CWAF while still achieving efficiencies in the non-condensing range (
i.e.,
less than 90 percent thermal efficiency), and on how to improve the efficiency of non-condensing CWAF by utilizing condensing operation (which would achieve a thermal efficiency greater than 90 percent).
Carrier stated that raising the thermal efficiency from 80 to 82 percent requires more heat transfer surface. (Carrier, No. 2 at p. 3) Lennox commented that all their warm air furnaces are rated at 80 percent thermal efficiency and are constructed with induced draft combustion system with multiple burners firing into aluminized steel tubes. Lennox explained that these tubes are enhanced on the flue portion to improve heat transfer and balance flow between the parallel flow paths. Further, Lennox expounded that heat exchanger tubes are arranged below or beside the supply blower for optimal coverage of the tube surface area, and the tubes are sloped from the flue outlet back to the burner area to allow any condensate produced by the heat exchanger to drain out in order to prevent heat exchanger corrosion. Lennox stated that 82-percent thermal efficiency furnaces are similar to 80-percent furnaces except that more heat transfer surface is needed, and the amount of excess air required to support complete combustion has to be reduced, and the commenter asserted that the additional flue side pressure drop requires a more powerful combustion inducer (which would draw more electricity). Lennox stated that the lower excess air would reduce the ability for the furnace to operate without derating at high-altitude conditions, and expressed its belief that there would be a risk of corrosion and heat exchanger failure at 82 percent for a very small benefit. (Lennox, No. 3 at p. 4)
To reach 90 percent thermal efficiency, Carrier stated that a secondary heat exchanger is required along with a reliable condensate management system. Carrier described the challenges for achieving thermal efficiencies of greater than 82 percent, including dealing with condensate freezing and disposal of acidic condensate. (Carrier, No. 2 at p. 2) AHRI stated that in order to increase the efficiency of a commercial gas warm air furnace to a condensing level, the heat exchanger surface area must be increased. AHRI further explained that handling acidic condensate would require condensate disposal lines, which cannot be drained on ground or on the roof. (AHRI, No. 7 at p. 3) Lennox commented that condensing furnaces would necessitate a secondary heat exchanger, which would require a much more expensive corrosion-resistant material. Further, Lennox explained that combustion blowers with upgraded housing and stainless steel impellers to protect against corrosion would be required. Lennox reported that it participated in a 1988 Gas Research Institute study on the feasibility of a 90+ percent gas furnace, where condensate was managed by draining it into the building; Lennox explained that incremental product costs were high due to use of a stainless steel secondary heat exchanger, a larger combustion inducer, piping, and thermostatically-controlled heat tape, and that the additional energy used to overcome the pressure drop offset the gas savings. Lennox added that a 90-percent-efficiency gas furnace would have even more barriers in horizontal applications (which make up approximately 15 to 20 percent of the market) because the condensate would have to be pumped into the building. (Lennox, No. 3 at p. 5) Goodman stated that while technology exists that allows condensing operation of commercial warm air furnaces, the application requirements are very onerous, costly, and potentially dangerous. Goodman further stated that many condensate lines today are exposed to extreme weather conditions and are apt to crack or fail at joints, and such a failure would then leak acidic condensate directly onto the building rooftop with a high risk of causing holes in the roof surface. (Goodman, No. 6 at p. 3)
After considering the comments, discussing approaches for improving efficiency with manufacturers during interviews, and reviewing the market for CWAF, DOE primarily considered the following technology options for improving the rated thermal efficiency of CWAF in the development of this NOPR:
• Increased heat exchanger (HX) surface area
18
18
This design option includes a larger combustion inducer (to overcome the pressure drop of the increased HX area). The larger combustion inducer does not directly lead to a higher thermal efficiency, but would allow the implementation of other technologies (
i.e.,
HX improvements) that would cause the furnace to operate more efficiently.
• Improved flue side HX enhancements (
e.g.,
dimples, turbulators)
• Secondary HX (stainless steel)
19
19
This design option includes a larger combustion inducer fan, upgraded housing for combustion blowers, stainless steel impellers, condensate heater, and condensate drainage system that would be required for condensing operation. Although these design changes do not directly lead to a higher thermal efficiency, they allow the implementation of condensing operation, which causes the furnace to operate more efficiently.
DOE notes that many commenters acknowledged that a secondary heat exchanger for condensing operation is a possible technology option for CWAF, but also that that technology has considerable issues to overcome when used in weatherized equipment. These issues relate specifically to the handling of acidic condensate produced by a condensing furnace in the secondary heat exchanger. Condensate must be drained from the furnace to prevent build-up in the secondary heat exchanger, and properly disposed of after exiting into the external environment. Some building codes limit the disposal of condensate into the municipal sewage system, so the condensate must be passed through a neutralizer to reduce its acidity to appropriate levels prior to disposal. In weatherized installations, it is more difficult to access the municipal sewage system than in non-weatherized installations. Condensate produced by a weatherized condensing furnace must flow naturally or be pumped through pipes to the nearest disposal drain, which may not be in close proximity to the furnace. In cold environments, there is a risk of the condensate freezing as it flows through these pipes, which can cause an eventual back-up of condensate into the heat exchanger, resulting in significant damage to the furnace.
Despite these issues, DOE found in its review of the market that multiple manufacturers offer weatherized HVAC equipment with a condensing furnace heating section. DOE believes that this indicates that many of the issues explained by the commenters can be
overcome, and thus, DOE considered a secondary condensing heat exchanger as a technology option. As discussed in section IV.B and IV.C.2.b, this technology was ultimately passed through the screening analysis and considered in the engineering analysis. Regarding condensate disposal, DOE included the cost of a condensate disposal lines for all condensing installations. For more details, see section IV.F.1.
DOE also identified the following technology options for improving the efficiency of CWAF, which were either removed from the analysis because they were screened out (see section IV.B) or because they did not improve the rated thermal efficiency as measured by the DOE test procedure.
• Pulse combustion
• Low NO
X
premix burners
• Low pressure, air-atomized burners
• Burner derating
• Two-stage or modulating burners
DOE requests comment on the technologies identified in this rulemaking, as well as the technologies which were primarily considered as the methods for increasing thermal efficiency of commercial warm air furnaces.
B. Screening Analysis
After DOE identified the technologies that might improve the energy efficiency of CWAF, DOE conducted a screening analysis. The purpose of the screening analysis is to determine which options to consider further and which to screen out. DOE consulted with industry, technical experts, and other interested parties in developing a list of design options. DOE then applied the following set of screening criteria to determine which design options are unsuitable for further consideration in the rulemaking:
•
Technological Feasibility:
DOE will consider only those technologies incorporated in commercial equipment or in working prototypes to be technologically feasible.
•
Practicability to Manufacture, Install, and Service:
If mass production of a technology in commercial equipment and reliable installation and servicing of the technology could be achieved on the scale necessary to serve the relevant market at the time of the effective date of the standard, then DOE will consider that technology practicable to manufacture, install, and service.
•
Adverse Impacts on Equipment Utility or Equipment Availability:
DOE will not further consider a technology if DOE determines it will have a significant adverse impact on the utility of the equipment to significant subgroups of customers. DOE will also not further consider a technology that will result in the unavailability of any covered equipment type with performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as equipment generally available in the United States at the time.
•
Adverse Impacts on Health or Safety:
DOE will not further consider a technology if DOE determines that the technology will have significant adverse impacts on health or safety.
(10 CFR part 430, subpart C, appendix A, 4(a)(4) and 5(b))
Additionally, DOE notes that these screening criteria do not directly address the propriety status of design options. DOE only considers efficiency levels achieved through the use of proprietary designs in the engineering analysis if they are not part of a unique path to achieve that efficiency level (
i.e.,
if there are other non-proprietary technologies capable of achieving the same efficiency). DOE believes the proposed standards for the CWAF equipment covered in this rulemaking would not mandate the use of any proprietary technologies, and that all manufacturers would be able to achieve the proposed levels through the use of non-proprietary designs. DOE seeks comment on this tentative conclusion and requests additional information regarding proprietary designs and patented technologies.
Technologies that pass through the screening analysis are referred to as “design options” and are subsequently examined in the engineering analysis for consideration in DOE's downstream cost-benefit analysis. In view of the above factors, DOE screened out the following design options listed below in Table IV.2.
Table IV.2—Screened Technology Options
Technology option
Reason for screening out
Pulse Combustion
Adverse impact on utility; potential for adverse impact on safety.
Low NO
X
Premix Burner
Technological feasibility.
Burner Derating
Adverse impact on utility.
Low Pressure, Air-Atomized Burner
Technological Feasibility.
Based on the screening analysis, DOE identified the following seven design options for further consideration in the engineering analysis:
• Condensing secondary heat exchanger
• Increased heat exchanger surface area
• Incorporation of heat exchanger surface features (
e.g.,
dimples)
• Use of heat exchanger baffles and turbulators
• Use of concentric venting of flue gases
• Improved combustion air flow (oil-fired)
• High-static oil burner
A full description of each technology option is included in chapter 3 of the TSD, and additional discussion of the screening analysis is included in chapter 4 of the TSD.
C. Engineering Analysis
The engineering analysis establishes the relationship between an increase in energy efficiency of the equipment and the increase in manufacturer selling price (MSP) associated with that efficiency level. This relationship serves as the basis for the cost-benefit calculations for commercial consumers, manufacturers, and the Nation. In determining the cost-efficiency relationship, DOE estimates the increase in manufacturer cost associated with increasing the efficiency of equipment above the baseline up to the maximum technologically feasible (“max-tech”) efficiency level for each equipment class.
1. Methodology
DOE typically structures its engineering analysis using one or more of three identified basic methods for generating manufacturing costs: (1) The design-option approach, which provides the incremental costs of adding individual technology options (from the market and technology assessment) that can be added alone or in combination to a baseline model in order to improve its efficiency (
i.e.,
lower its energy use); (2) the efficiency-level approach, which provides the incremental costs of moving to higher energy efficiency levels, without regard to the particular design option(s) used to achieve such increases; and (3) the reverse-
engineering (or cost-assessment) approach, which provides “bottom-up” manufacturing cost assessments for achieving various levels of increased efficiency, based on teardown analyses (or physical teardowns) providing detailed data on costs for parts and material, labor, shipping/packaging, and investment for models that operate at particular efficiency levels. A supplementary method called a catalog teardown uses published manufacturer catalogs and supplementary component data to estimate the major physical differences between a piece of equipment that has been physically disassembled and another piece of similar equipment for which catalog data are available to determine the cost of the latter equipment.
In the RFI, DOE stated that in order to create the cost-efficiency relationship for CWAF, it anticipated having to structure its engineering analysis using the reverse-engineering approach, potentially including physical and catalog teardowns. DOE requested comments on the approach outlined in the RFI and on the appropriate representative capacities for each equipment class. 78 FR 25627, 25631 (May 2, 2013).
In response to the RFI, Carrier stated that equipment is available for teardown analysis to develop a cost-efficiency relationship between 80 percent and 82 percent, but noted that it may be difficult to draw clear conclusions from the data. However, Carrier added that it was unclear how to analyze a 90-percent efficiency level through a teardown analysis.
For this NOPR, DOE conducted the engineering analysis using the reverse-engineering approach to estimate the costs of achieving various efficiency levels. DOE selected two gas-fired CWAF in the non-condensing efficiency range for physical teardowns at an input rating of 250,000 Btu/h, which was considered to be the representative input rating for analysis. DOE also performed a physical teardown of an oil-fired CWAF at 81-percent thermal efficiency at an input rating of 400,000 Btu/h, which was subsequently scaled down via cost modeling techniques to represent a unit of the representative 250,000 Btu/h input rating. DOE seeks comment regarding the applicability of these teardown units to represent the range of potential input capacities on the market. Additional detail on the teardowns performed is provided in chapter 5, section 5.6.2, of the proposed rule TSD. In addition, DOE used catalog data and information from physical teardowns to virtually model a gas-fired unit at the max-tech 92-percent thermal efficiency level, as well as two oil-fired furances (at 82 percent and the max-tech 92 percent thermal efficiency).
2. Efficiency Levels
a. Baseline Efficiency Levels
The baseline model is used as a reference point for each equipment class in the engineering analysis and the life-cycle cost and payback-period analyses, which provides a starting point for analyzing potential technologies that provide energy efficiency improvements. Generally, DOE considers “baseline” equipment to refer to a model or models having features and technologies that just meet, but do not exceed, the minimum energy conservation standard. In establishing the baseline efficiency level for this analysis, DOE used the existing minimum energy conservation standards for CWAF to identify baseline units. The baseline thermal efficiency levels for each equipment class are presented below in Table IV.3.
Table IV.3—Baseline Thermal Efficiency Levels for CWAF
Equipment class
Baseline
efficiency level
(%)
Gas-fired Commercial Warm Air Furnace
80
Oil-fired Commercial Warm Air Furnace
81
b. Incremental and Max-Tech Efficiency Levels
For each equipment class, DOE analyzes several efficiency levels and determines the incremental cost at each of these levels. For this NOPR, DOE developed efficiency levels based on a review of available equipment. DOE compiled a database of the CWAF market to determine what types of equipment are currently available to commercial consumers. At each representative capacity, DOE surveyed various manufacturers' equipment offerings to identify the commonly-available efficiency levels. By identifying the most prevalent energy efficiencies in the range of available equipment, DOE can establish a technology path that manufacturers would typically use to increase the thermal efficiency of a CWAF and corresponding efficiency levels along that technology path.
DOE established incremental thermal efficiency levels for each equipment class. The incremental thermal efficiency levels are representative of efficiency levels along the technology paths that manufacturers of CWAF commonly use to maintain cost-effective designs while increasing the thermal efficiency. DOE reviewed AHRI's Directory of Certified Product Performance,
20
manufacturer catalogs, and other publicly-available literature to determine which thermal efficiency levels are the most prevalent for each representative equipment class. For gas-fired CWAF, DOE chose two efficiency levels between the baseline and max-tech for analysis (see Table IV.4). For oil-fired CWAF, DOE chose one thermal efficiency level between the baseline and max-tech for analysis (see Table IV.5).
20
For more information see:
http://cafs.ahrinet.org/gama_cafs/sdpsearch/search.jsp?table=CFurnace.
Carrier stated that in the current market, the max-tech efficiency level for gas-fired weatherized furnaces is 81-percent to 82-percent thermal efficiency, pointing out that no AHRI member makes a more efficient gas-fired furnace, and asserting that 90 percent is not currently feasible. (Carrier, No. 2 at p. 2) Lennox described how an 82-percent gas-fired commercial furnace could be designed, but then expressed significant concerns about trying to develop furnaces at 82-percent thermal efficiency. The commenter asserted that there would be an undue risk of corrosion and heat exchanger failure for a very small benefit in gas consumption at this efficiency level. Lennox also commented that the two gas-fired 90-percent thermal efficiency model lines available on the market currently are for makeup air applications,
21
which is a niche market. (Lennox, No. 3 at pp. 4-5) AHRI stated that since January 1, 1994, the efficiency trends for gas-fired commercial warm air furnaces have stayed near a thermal efficiency of 80 percent. As discussed previously in section IV.A.3, many of the commenters also noted concerns regarding issues with condensate management in weatherized furnaces with thermal efficiencies at or above 90 percent.
21
Makeup air applications require fresh outdoor air that is brought into a building through the ventilation system, and do not allow air to be recirculated through the building.
DOE considered these comments in conjunction with its review of the market. DOE found several manufacturers that offer gas-fired equipment at 81-percent thermal efficiency. In addition, although only one manufacturer has gas-fired equipment rated at 82-percent thermal efficiency, there is equipment available across a wide range of input capacities indicating that the entire product family would be capable of meeting 82-percent
thermal efficiency. DOE acknowledges the concerns raised regarding the near-condensing operation at 82-percent thermal efficiency, but believes that the presence of models across a broad range of input ratings demonstrates the feasibility of this efficiency level. Thus, DOE considered 81-percent and 82-percent as incrementally higher thermal efficiency levels for the gas-fired commercial furnace analysis. DOE also considered the max-tech level, which was identified as 92-percent thermal efficiency. The max-tech level is based on a dedicated outdoor air system with a condensing furnace section, which proves the technical feasibility of a weatherized condensing furnace. For oil-fired furnaces, which are typically installed indoors, DOE surveyed the market and found non-condensing equipment with thermal efficiencies in the range of 81 to 82 percent, as well as a condensing model with a thermal efficiency of 92 percent. Therefore, DOE analyzed those three levels in this NOPR analysis. The efficiency levels DOE considered for each equipment class during the NOPR analyses (including the baseline levels) are presented in Table IV.4 and Table IV.5.
Table IV.4—Efficiency Levels for Gas-Fired CWAF
Efficiency level
Gas-fired CWAF
(%)
EL0 (Baseline)
80
EL1
81
EL2
82
Max-Tech
92
Table IV.5—Efficiency Levels for Oil-Fired CWAF
Efficiency level
Oil-fired CWAF
(%)
EL0 (Baseline)
81
EL1
82
Max-Tech
92
DOE requests comment on the efficiency levels analyzed for gas-fired and oil-fired commercial warm air furnaces. In particular, DOE is interested in the feasibility of the max-tech efficiency levels, as well as the 82-percent thermal efficiency level for gas-fired commercial warm air furnaces.
3. Equipment Testing and Reverse Engineering
As discussed above, for the engineering analysis, DOE analyzed a representative input capacity of 250,000 Btu/h for the gas-fired and oil-fired CWAF equipment classes to develop incremental cost-efficiency relationships. The models were selected to represent the efficiency levels available on the market, ranging from the baseline 80-percent thermal efficiency for gas-fired units, and baseline 81-percent thermal efficiency for oil-fired units, up to the max-tech 92-percent thermal efficiency for gas-fired units, and 92-percent thermal efficiency for oil-fired units. DOE based the selection of units for testing and reverse engineering on the efficiency data available in the AHRI certification database
22
and the CEC equipment database.
23
Details of the key features of the tested units are presented in chapter 5 of the NOPR TSD.
22
Available at:
https://www.ahridirectory.org/ahridirectory/pages/home.aspx.
23
Available at:
http://www.appliances.energy.ca.gov/Default.aspx.
DOE conducted physical or virtual teardowns on each test unit to develop a manufacturing cost model and to evaluate key design features (
e.g.,
heat exchangers, blower and inducer fans/fan motors, control strategies).
For gas-fired commercial warm air furnaces, DOE performed two teardowns on weatherized furnaces at non-condensing efficiency levels. Prior to teardown, the units were tested by a third-party test lab and achieved a thermal efficiency of 82 percent. The units were from the same manufacturer and had nearly identical furnace sections with different air conditioner sections. DOE assumed that the repeatability of the test result on both units indicated that the furnace design that was torn down is representative of equipment that would achieve 82-percent thermal efficiency. Using the cost-assessment methodology, DOE determined the cost of the furnace components through reverse-engineering of the furnace section of the weatherized packaged units. Based on discussions with manufacturers, a review of product literature, and experience obtained from examining residential weatherized furnaces, DOE made assumptions regarding how the heat exchanger size would vary between units with 82-percent thermal efficiency and at the baseline (80-percent thermal efficiency) and the 81-percent thermal efficiency intermediate level. At the 80-percent and 81-percent thermal efficiency levels, DOE scaled down the size of the heat exchanger and related components (
e.g.,
inducer fan, cabinet panels, insulation), as applicable, to generate an estimate of the cost to manufacture equipment at those levels. Thus, DOE obtained an estimate of the differential cost of manufacturing a commercial gas furnace section at the baseline (80-percent), 81-percent, and 82-percent thermal efficiency. To develop an estimate of the cost of a max-tech unit at 92-percent thermal efficiency, DOE obtained a sample of commercial HVAC equipment that utilizes a condensing furnace section for analysis, and also used information gathered from a teardown of a condensing weatherized residential furnace. DOE examined the heat exchanger, inducer fan, condensate management system, and other aspects of the furnace section in the commercial equipment sample to develop a cost estimate to manufacture a condensing commercial furnace. DOE then used information from the residential condensing weatherized furnace teardown to refine estimates of the costs of the exhaust assembly, inducer fan assembly, and condensate management system to model the cost of a 92-percent efficient CWAF that is designed for implementation on a broad scale.
For oil-fired commercial furnaces, DOE performed a teardown of a non-weatherized furnace at 81-percent thermal efficiency. DOE used this teardown, along with product literature, prior industry experience, manufacturer feedback, and analysis previously performed on residential furnaces to develop cost estimates at the 82-percent and 92-percent thermal efficiency levels.
In a previous analysis of residential non-weatherized oil-fired furnaces, DOE developed an estimate of the cost-efficiency relationship across a range of efficiency levels. In examining product literature for commercial oil-fired furnaces, DOE found that commercial units are very similar to residential units, except with higher input ratings and overall larger size. Based on information obtained from the physical teardown of the 81-percent thermal efficiency oil furnace, in addition to the information gained from the residential furnace analysis and product literature, DOE was able to conduct a virtual teardown at the 82-percent thermal efficiency level. Key to this model was the growth in heat exchanger size necessary for a 1-percent increase in thermal efficiency, which necessitates a larger cabinet to accommodate it. Sheet metal and other components sensitive to size changes were scaled in order to match the larger size of the unit, while components that are not sensitive to heat exchanger size changes remained unchanged.
Similarly, DOE relied on the physical teardown at the 81-percent thermal efficiency level, as well as prior
comparisons of residential oil-fired furnaces at condensing and non-condensing efficiency levels, to conduct a virtual teardown at the 92-percent thermal efficiency level. At 92-percent thermal efficiency, a secondary condensing heat exchanger made from a high-grade stainless steel was added in order to withstand the formation of condensate from the flue gases coupled with increased heat extraction into the building airstream (and, thus, higher thermal efficiency). This additional heat exchanger was appropriately sized based on information gathered from the residential furnaces teardowns. To accommodate the secondary heat exchanger, the cabinet was increased in size, and all associated sheet metal, wiring, and other components sensitive to cabinet size changes were also scaled as a result. In addition, the size of the blower fan blade was increased appropriately to account for the additional airflow needed over the secondary heat exchanger (however, based on observations in product literature, the rated fan power was unchanged). The manufacturing costs obtained from these physical and virtual teardowns served as the basis for the cost-efficiency relationship for this equipment class. The teardown analyses are described in further detail in section 5.6 of the proposed rule TSD.
4. Cost Model
DOE developed a manufacturing cost model to estimate the manufacturing production cost of CWAF. The cost model is a spreadsheet model that converts the materials and components in the bills of materials (BOMs) into dollar values based on the price of materials, average labor rates associated with fabrication and assembling, and the cost of overhead and depreciation, as determined based on manufacturer interviews and DOE expertise. To convert the information in the BOMs into dollar values, DOE collected information on labor rates, tooling costs, raw material prices, and other factors. For purchased parts, the cost model estimates the purchase price based on volume-variable price quotations and detailed discussions with manufacturers and component suppliers. For fabricated parts, the prices of raw metal materials (
e.g.,
tube, sheet metal) are estimated on the basis of five-year averages. The cost of transforming the intermediate materials into finished parts is estimated based on current industry pricing. Additional details on the cost model are contained in chapter 5 of the NOPR TSD.
5. Manufacturing Production Costs
Once the cost estimates for all the components in each teardown unit were finalized, DOE totaled the cost of materials, labor, and direct overhead used to manufacture each type of equipment in order to calculate the manufacturing production cost. The total cost of the equipment was broken down into two main costs: (1) The full manufacturing production cost, referred to as MPC; and (2) the non-production cost, which includes selling, general, and administration (SG&A) costs; the cost of research and development; and interest from borrowing for operations or capital expenditures. DOE estimated the MPC at each efficiency level considered for each equipment class, from the baseline through the max-tech level. After incorporating all of the assumptions into the cost model, DOE calculated the percentages attributable to each element of total production costs (
i.e.,
materials, labor, depreciation, and overhead). These percentages are used to validate the assumptions by comparing them to manufacturers' actual financial data published in annual reports, along with feedback obtained from manufacturers during interviews. DOE uses these production cost percentages in the MIA.
Based on the analytical methodology discussed in the sections above, DOE developed the cost-efficiency results shown in Table IV.6 for each thermal efficiency level analyzed. The results shown in Table IV.6 represent the incremental increase in manufacturing cost, relative to the baseline manufacturing cost, needed to produce equipment at each efficiency level above baseline. Details of the cost-efficiency analysis, including descriptions of the technologies DOE analyzed for each thermal efficiency level to develop incremental manufacturing costs, are presented in chapter 5 of the NOPR TSD. DOE seeks comment on the results of the engineering analysis at each efficiency level considered.
Table IV.6—Incremental Manufacturing Cost Increases *
Equipment type
EL0
(baseline)
EL1
EL2
(oil-fired max-tech)
EL3
(gas-fired max-tech)
Gas-fired CWAF
$5
$10
$613
Oil-fired CWAF
24
660
* DOE structures proposed standards in terms of TSLs and analyzed five TSLs for this NOPR. TSL 1 includes EL1 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 2 includes EL1 for both equipment classes, TSL 3 includes EL2 for gas-fired CWAF and EL0 for oil-fired CWAF, TSL 4 includes EL2 for gas-fired CWAF and EL1 for oil-fired CWAF, and TSL 5 includes EL3 for gas-fired CWAF and EL2 for oil-fired CWAF. For more information on the TSL structure, see section V.A of this NOPR.
6. Manufacturer Markup
To account for manufacturers' non-production costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the full MPC. The resulting manufacturer selling price (MSP) is the price at which the manufacturer can recover all production and non-production costs and earn a profit. To meet new or amended energy conservation standards, manufacturers often introduce design changes to their equipment lines that result in increased MPCs. Depending on the competitive pressures, some or all of the increased production costs may be passed from manufacturers to retailers and eventually to customers in the form of higher purchase prices. As production costs increase, manufacturers typically incur additional overhead. The MSP should be high enough to recover the full cost of the equipment (
i.e.,
full production and non-production costs) and yield a profit. The manufacturer markup has an important bearing on profitability. A high markup under a standards scenario suggests manufacturers can readily pass along the increased variable costs and some of the capital and product conversion costs (the one-time expenditure) to customers. A low markup suggests that manufacturers will not be able to recover as much of the necessary investment in plant and equipment. DOE developed the manufacturer markup through an examination of corporate annual reports and Securities and Exchange Commission (SEC) 10-K
reports.
24
Additional information is contained in chapter 5 of the TSD.
24
U.S. Securities and Exchange Commission, Annual 10-K Reports (Various Years) (Available at:
http://www.sec.gov/edgar/searchedgar/companysearch.html
) (Last Accessed Dec. 13, 2013).
7. Shipping Costs
Manufacturers of heating, ventilation, and air-conditioning (HVAC) equipment typically pay for shipping to the first step in the distribution chain. Freight is not a manufacturing cost, but because it is a substantial cost incurred by the manufacturer, DOE is accounting for shipping costs of CWAF separately from other non-production costs that comprise the manufacturer markup. To calculate the MSP for CWAF, DOE multiplied the MPC at each efficiency level by the manufacturer markup and added shipping costs for equipment at the given efficiency level. More specifically, DOE calculated shipping costs at each efficiency level based on the average outer dimensions of equipment at the given efficiency and assuming the use of a typical 53-foot straight-frame trailer with a storage volume of 4,240 cubic feet. Gas-fired CWAF equipment is almost exclusively enclosed within a cabinet that also contains a commercial unitary air conditioner (CUAC). Thus, the CUAC components are significant factor in driving the overall cabinet dimensions. DOE found that the changes in CWAF component sizes necessary to achieve the 81 percent and 82 percent thermal efficiency levels are not large enough to add any size to the cabinet, which is driven primarily by the size of the CUAC components. The shipping costs calculated for each efficiency level are shown in Table IV.7. Due to the noted dependence on CUAC components of the overall shipping cost for gas-fired CWAF, DOE presents only the incremental cost change due to increased CWAF efficiency for that equipment. For oil-fired CWAF, DOE presents the full cost of shipping, since this equipment is not packaged with CUAC components, and thus, the shipping cost represents only the oil-fired CWAF. Chapter 5 of the NOPR TSD contains additional details about DOE's shipping cost assumptions and DOE's shipping cost estimates.
Table IV.7—CWAF Shipping Cost Estimates
CWAF equipment class
Thermal efficiency
(%)
Shipping costs *
(2013$)
Gas-Fired CWAF
80
81
$0
0
82
0
92
39.64
Oil-Fired CWAF
81
82
63.78
69.60
92
76.53
* Because gas-fired CWAF are weatherized and are typically included in a cabinet with a commercial unitary air conditioner which affects the shipping cost, the shipping costs for gas-fired CWAF are shown in terms of the incremental increase from the baseline level. Since oil-fired CWAF are normally self-contained non-weatherized units, the shipping costs for oil-fired CWAF are representative of the entire cost to ship the unit.
D. Markups Analysis
The markups analysis develops appropriate markups in the distribution chain to convert the estimates of manufacturer selling price derived in the engineering analysis to commercial consumer prices. (“Commercial consumer” refers to purchasers of the equipment being regulated.) DOE develops baseline and incremental markups based on the equipment markups at each step in the distribution chain. The markups are multipliers that represent increases above equipment purchase costs for CWAF equipment. The incremental markup relates the change in the manufacturer sales price of higher-efficiency models (the incremental cost increase) to the change in the customer price.
In the RFI, DOE characterized two distribution channels to describe how CWAF equipment passes from the manufacturer to the commercial consumer. 78 FR 25627, 25632 (May 2, 2013). The first distribution channel is characterized as follows:
Manufacturer
→
Wholesaler
→
Mechanical Contractor
→
General Contractor
→
Consumer
In the second distribution channel, the manufacturer sells the equipment directly to the customer through a national account:
Manufacturer
→
Consumer (National Account)
Carrier stated that the distribution channels outlined in the RFI are relevant for commercial warm air furnaces. Carrier added that in addition to the two channels described, for very large air-cooled equipment, there is an additional channel that consists of factory employees selling direct to end customers/mechanical contractors. (Carrier, No. 2 at p. 3) Lennox stated that the first example of distribution channels provided by DOE (manufacturer to wholesaler to mechanical contractor to general contractor to customer) is a typical distribution approach. Lennox stated that the second example (where a manufacturer would sell directly to a customer) is not a typical distribution approach, but rather the distribution channel should include the contractor, who must set up and install the system at the building site. (Lennox, No. 3 at p. 6) Goodman stated that the distribution channels should not be significantly different from the analysis performed for the same products being considered for the cooling mode. (Goodman, No. 6 at p. 3)
In response to these comments, DOE modified the second distribution channel to include a wholesaler who purchases the equipment and sells it to the customer. DOE's understanding of this channel is that the contractor who installs the system generally does not purchase and mark up the equipment. Rather, the building owner purchases the equipment and hires the contractor. Thus, for the purposes of DOE's analysis, it would not be appropriate to include the contractor in the distribution channel.
DOE also sought input on the percentage of equipment being distributed through the various types of distribution channels. Carrier stated that approximately 70 percent of equipment flows through the first distribution
channel described in the RFI, with the remainder split among the other channels. (Carrier, No. 2 at p. 4) Lennox stated that the first distribution approach discussed is the typical approach to equipment sales, accounting for approximately 90-95 percent of sales. (Lennox, No. 3 at p. 6)
DOE assumes that the above responses reflect each company's experience, rather than a characterization of the industry overall. For this NOPR, DOE estimated that the first distribution channel accounts for 83 percent of shipments, and the second distribution channel accounts for 17 percent.
To develop markups for the parties involved in the distribution of the equipment, DOE utilized several sources, including: (1) The Heating, Air-Conditioning & Refrigeration Distributors International (HARDI) 2012 Profit Report
25
to develop wholesaler markups; (2) the 2005 Air Conditioning Contractors of America's (ACCA) financial analysis for the heating, ventilation, air-conditioning, and refrigeration (HVACR) contracting industry
26
to develop mechanical contractor markups, and (3) U.S. Census Bureau's 2007 Economic Census data
27
for the commercial and institutional building construction industry to develop general contractor markups. For mechanical contractors, DOE derived separate markups for small and large contractors.
25
Heating, Air Conditioning & Refrigeration Distributors International 2012 Profit Report
(Available at:
http://www.hardinet.org/Profit-Report
) (Last accessed April 10, 2013).
26
Air Conditioning Contractors of America (ACCA),
Financial Analysis for the HVACR Contracting Industry: 2005
(Available at:
https://http://www.acca.org/store/product.php?pid=142
) (Last accessed April 10, 2013).
27
U.S. Census Bureau,
2007 Economic Census Data
(2007) (Available at:
http://www.census.gov/econ/
) (Last accessed April 10, 2013).
In addition to the markups, DOE derived State and local taxes from data provided by the Sales Tax Clearinghouse.
28
These data represent weighted average taxes that include county and city rates. DOE derived shipment-weighted average tax values for each CBECS region considered in the analysis.
28
Sales Tax Clearinghouse Inc., State Sales Tax Rates Along with Combined Average City and County Rates, 2013 (Available at:
http://thestc.com/STrates.stm
) (Last accessed Sept. 11, 2013).
Chapter 6 of the NOPR TSD provides further detail on the estimation of markups.
E. Energy Use Analysis
The purpose of the energy use analysis is to assess the energy requirements of equipment at different efficiencies in several building types that utilize the equipment and to assess the energy savings potential of increased commercial warm air furnace efficiency. The annual energy consumption includes the natural gas and oil fuel types used for heating and the auxiliary electrical use associated with the furnace electrical components.
DOE based the energy use analysis on Energy Information Administration's 2003 Commercial Building Energy Consumption Survey (CBECS)
29
for the subset that uses the type of equipment covered by the standards. DOE utilized the building types defined in CBECS 2003.
30
Each building was assigned to a specific location, and the approach captured variability in heating loads due to factors such as building activity, schedule, occupancy, local weather, and shell characteristics. Energy use estimates from 2003 CBECS were adjusted for average weather conditions and for projected improvements to the building shell efficiency. DOE also accounted for the energy use of a small fraction of commercial warm air furnaces that are installed in residential housing using data from the 2009 Residential Energy Consumption Survey (RECS 2009).
31
29
Energy Information Administration (EIA), 2003 Commercial Building Energy Consumption Survey (Available at:
http://www.eia.gov/consumption/commercial/
) (Last accessed April 10, 2013). Note: CBECS 2012 is currently in development but was not available in time for this rulemaking.
30
Definitions of CBECS building types can be found at:
http://www.eia.gov/emeu/cbecs/building_types.html.
31
EIA, 2009 Residential Energy Consumption Survey (Available at:
http://www.eia.gov/consumption/residential/
) (Last accessed April 10, 2013).
To determine the energy consumption of commercial warm air furnaces, DOE is using a Thermal Efficiency (TE) rating, along with relevant characteristics for each sample building. DOE assumed that TE is proportional to annual heating energy consumption for any given set of operating conditions. To calculate commercial warm air furnace energy consumption at each considered efficiency level, DOE determined the equipment capacity and the heating load in each CBECS building.
In the RFI, DOE requested comment on its planned method to determine the equipment load profiles. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that DOE should develop equipment load profiles using the 16 benchmark buildings from Pacific Northwest National Laboratories (PNNL) building models.
32
(Carrier, No. 2 at p. 4)
32
Deru, M., K. Field, D. Studer, K. Benne, B. Griffith, P. Torcellini, B. Liu, M. Halverson, D. Winiarski, M. Rosenberg, M. Yazdanian, J. Huang, and D. Crawley,
U.S. Department of Energy Commercial Reference Building Models of the National Building Stock,
2011 (Available at
http://www.nrel.gov/docs/fy11osti/46861.pdf
) (Last accessed December 6, 2013).
In response, rather than developing detailed load profiles for various building types, DOE decided to use CBECS-reported heating energy use for each sample building. DOE assumed that the CBECS data are representative of the energy use measured in the field for the U.S. commercial building types. CBECS provides information about buildings with a wide range of energy use representing both high-energy-use and low-energy-use buildings. DOE has concluded that the selected approach better reflects the heating energy use of the commercial buildings stock in the U.S. in comparison to using a set of benchmark buildings.
DOE's RFI also sought input from stakeholders on the current distribution of equipment efficiencies in the building population. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that the vast majority of equipment should be in the 80-percent to 82-percent efficiency range based on the ASHRAE 90.1 standard. (Carrier, No. 2 at p. 4) DOE's approach is consistent with Carrier's comment. It utilizes model efficiency information from the 2013 AHRI Certification Directory for Commercial Furnaces.
33
33
AHRI, 2013 AHRI Certification Directory for Commercial Furnaces (Available at:
http://www.ahridirectory.org/ahridirectory/pages/home.aspx
).
In the RFI, DOE requested comment on how equipment energy use for a given heating load shape scales as a function of capacity (
i.e.,
whether two commercial furnace units of a certain capacity use the same total heating energy as one commercial furnace unit of twice the capacity). 78 FR 25627, 25632 (May 2, 2013). Carrier stated that it would expect to see no measurable difference in energy use for a given load shape as a function of capacity. (Carrier, No. 2 at p. 4) DOE's approach reflects the statement made by Carrier.
Lennox stated that in its experience, furnaces with higher thermal efficiency ratings may use less gas, but they may use more electricity, offsetting the potential benefits. (Lennox, No. 3 at p. 7) For condensing CWAF, DOE's analysis accounts for the increased blower fan electricity use in the field in both heating and cooling mode due to the presense of the secondary heat exchanger. The increased electricity use of condensing furnaces is expected to be small compared to the potential savings in fuel use. DOE also accounts for
condensate line freeze protection or a condensate pump for a fraction of installations. Condensing CWAF installed outdoors that are located in regions with an outdoor design temperature of ≤32 °F were assumed to require condensate freeze protection. This applies to roughly 90 percent of gas-fired CWAF. All oil-fired CWAFs are assumed to be installed indoors so condensate line freeze protection was assumed to not be needed.
Carrier stated that increasing plug loads (
e.g.,
computers and related equipment) and tighter buildings with higher insulation values will most likely continue to lower the change-over temperature from cooling to heating in commercial buildings. (Carrier, No. 2 at p. 6) Lennox stated that commercial buildings are being required to have higher insulation levels by ASHRAE Standard 90.1 in the future, which will reduce the building load and further reduce the potential energy savings for higher-efficiency furnaces. (Lennox, No. 3 at p. 7) DOE's analysis accounts for improvements in the building shell. The analysis uses the
AEO 2013
building shell efficiency index for commercial buildings to account for these impacts. Although plug loads may increase, decreasing the heating load, the efficiency of the equipment is also likely to improve, which would increase the heating load, so the net effect is uncertain.
In the RFI, DOE requested comment on the fraction of commercial warm air furnaces which are used in residential applications such as multi-family buildings. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that the fraction of commercial furnaces applied in residential applications is negligible. (Carrier, No. 2 at p. 5) Based on RECS 2009 data, DOE estimates that about two percent of commercial furnaces are used in residential applications.
34
34
EIA, 2009 Residential Energy Consumption Survey (Available at:
http://www.eia.gov/consumption/residential/
) (Last accessed April 10, 2013).
F. Life-Cycle Cost and Payback Period Analysis
The purpose of the LCC and PBP analysis is to analyze the effects of potential amended energy conservation standards on commercial consumers of commercial furnace equipment by determining how a potential amended standard would affect their operating expenses (usually decreased) and their total installed costs (usually increased).
The LCC is the total consumer expense over the life of the equipment, consisting of equipment and installation costs plus operating costs over the lifetime of the equipment (expenses for energy use, maintenance, and repair). DOE discounts future operating costs to the time of purchase using commercial consumer discount rates. The PBP is the estimated amount of time (in years) it takes commercial consumers to recover the increased total installed cost (including equipment and installation costs) of a more-efficient type of equipment through lower operating costs. DOE calculates the PBP by dividing the change in total installed cost (normally higher) due to a new or amended energy conservation standard by the change in annual operating cost (normally lower) that results from that standard.
For any given efficiency level, DOE measures the PBP and the change in LCC relative to an estimate of the base-case efficiency level. The base-case estimate reflects the market in the absence of amended energy conservation standards, including market trends for equipment that exceeds the current energy conservation standards.
DOE analyzed the potential for variability and uncertainty by performing the LCC and PBP calculations on a nationally-representative sample of individual commercial buildings. More specifically, DOE utilized the sample of buildings developed for the energy use analysis. Within a given building, one or more commercial warm air furnace units may serve the building's space-conditioning needs, depending on the heating load requirements of the building. As a result, the Department also expressed the LCC and PBP results as the percentage of commercial warm air furnace customers experiencing economic impacts of different magnitudes. DOE modeled both the uncertainty and the variability in the inputs to the LCC and PBP analysis using Monte Carlo simulation and probability distributions. As a result, the LCC and PBP results are displayed as distributions of impacts compared to the base-case conditions.
EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy (and, as applicable, water) savings during the first year that the consumer will receive as a result of the standard, as calculated under the test procedure in place for that standard. For each considered efficiency level, DOE typically determines the value of the first year's energy savings by calculating the quantity of those savings in accordance with the applicable DOE test procedure,
35
and multiplying that amount by the average energy price forecast for the year in which compliance with the amended standards would be required.
35
The DOE test procedure for commercial warm air furnaces a 10 CFR 431.76 does not specify a calculation method for determining energy use. For the rebuttable presumption PBP calculation, DOE used average energy use reported from CBECS 2003 for this equipment.
DOE calculated the LCC and PBP for all commercial consumers of CWAF as if each were to purchase new equipment in the year that compliance with amended standards is required. EPCA directs DOE to publish a final rule amending the standard for the products covered by this NOPR not later than 2 years after a notice of proposed rulemaking is issued. (42 U.S.C. 6313(a)(6)(C)(iii)) At the time of preparation of the NOPR analysis, the expected issuance date was early 2015, leading to an anticipated final rule publication in 2015. EPCA also states that amended standards prescribed under this subsection shall apply to products manufactured after a date that is the later of—(I) the date that is 3 years after publication of the final rule establishing a new standard; or (II) the date that is 6 years after the effective date of the current standard for a covered product. (42 U.S.C. 6313(a)(6)(C)(iv)) The date under clause (I), currently projected to be 2018, is later than the date under clause (II). Therefore, for purposes of its analysis, DOE used January 1, 2018 as the beginning of compliance with potential amended standards for CWAF.
In the RFI, DOE requested comment from stakeholders on the overall method that it intended to use in conducting the LCC and PBP analysis for commercial warm air furnaces. 78 FR 25627, 25632 (May 2, 2013). Carrier stated that DOE should use the procedures as developed by the ASHRAE 90.1 committee and PNNL for evaluating changes to ASHRAE Standard 90.1, because this procedure has defined buildings that can be used for these products. Carrier added that ASHRAE also has a standard work procedure for economic analysis that is similar to the LCC analysis but uses the Scalar Ratio as defined by the ASHRAE 90.1 committee with national average electric and gas rates. (Carrier, No. 2 at p. 5)
DOE reviewed the approach suggested by Carrier. It did not use this approach because, for the reasons explained in section IV.E, DOE is not estimating
energy use using whole building simulation, as do the procedures as developed by the ASHRAE 90.1 committee. Furthermore, DOE's methodology allows a better evaluation of variability and uncertainty in key variables, such as equipment lifetime and discount rates, that affect the LCC analysis. The method advocated by Carrier typically uses average values, which do not capture the range of equipment operation and user characteristics found in the field.
Inputs to the LCC and PBP analysis are categorized as: (1) inputs for establishing the purchase expense, otherwise known as the total installed cost, and (2) inputs for calculating the operating expense. These key inputs are discussed in further detail immediately below.
1. Inputs to Installed Cost
The primary inputs for establishing the total installed cost are the baseline commercial consumer equipment price, standard-level customer price increases, and installation costs. Baseline customer prices and standard-level customer price increases were determined by applying markups to manufacturer price estimates. The installation cost is added to the customer price to arrive at a total installed cost.
DOE used the historic trend in the Producer Price Index (PPI) for “Warm air furnaces”
36
to estimate the change in price for commercial warm air furnaces between the present and 2018. The PPI for “Warm air furnaces” shows a small rate of annual price decline. The price trend in this PPI series shows a small rate of annual price decline.
36
PCU333415333415C: Warm air furnaces including duct furnaces, humidifiers and electric comfort heating (Available at:
http://www.bls.gov/ppi/
).
In the RFI, DOE sought input on its planned approach and the data sources it intended to use to develop installation costs. 78 FR 25627, 25633 (May 2, 2013). Carrier recommended that if RS Means Mechanical Cost Data are to be used to estimate installed cost, it should be based on unit rated cooling capacity for combined air conditioning and commercial furnace equipment.
DOE developed installation costs for commercial warm air furnaces using the most recent RS Means Mechanical Cost Data.
37
In estimating costs, DOE considered the heating and cooling capacity of the combined equipment.
37
RS Means, 2013 Mechanical Cost Data (Available at:
http://rsmeans.reedconstructiondata.com/60023.aspx
) (Last accessed April 10, 2013).
Carrier stated that DOE must factor in additional cost for condensate drainage and treatment if the analysis includes furnaces at condensing efficiencies. (Carrier, No. 2 at p. 5) Goodman expects that application costs would be very significant for the application of condensing technologies, and, therefore, must be thoroughly and completely considered. (Goodman, No. 6 at p. 4)
DOE accounted for additional installation costs for condensate removal, which includes condensate drainage, freeze protection, and treatment for furnaces with condensing designs. On average, the installation cost for condensate removal is $389 for gas-fired CWAF and $180 for oil-fired CWAF. The details about the condensate removal costs are provided in appendix 8-D of DOE's proposed rule TSD. DOE also accounted for meeting the venting requirements for oil-fired commercial warm air furnaces, as well as for the small fraction of gas commercial warm air furnaces installed indoors.
2. Inputs to Operating Costs
The primary inputs for calculating the operating costs are equipment energy consumption, equipment efficiency, energy prices and forecasts, maintenance and repair costs, equipment lifetime, and discount rates.
a. Energy Consumption
The equipment energy consumption is the site energy use associated with providing space-heating to the building. DOE utilized the methodology described in section IV.E to establish equipment energy use.
Lennox cautioned DOE that, as it develops estimates for the operating costs of these systems, DOE should keep in mind that the systems are being applied in a commercial application where the overwhelming majority of the time the system is operating in cooling—not heating—mode. Lennox gave the example that when the outside ambient temperature is 30 °F, the system could be calling for cooling, based on the internal heat gains. (Lennox, No. 3 at p. 7) DOE's analysis accounts for the range of CWAF operating conditions with respect to heating and cooling mode.
b. Energy Prices
In the RFI, DOE sought comment on its approach for developing energy prices. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that DOE's tariff-based approach makes sense, and that the most recent price data available should be used. (Carrier, No. 2 at p. 5)
For the NOPR, DOE determined gas, oil, and electricity prices based on recent or current tariffs from a representative sample of utilities, as well as historical State commercial energy price data from the Energy Information Administration (EIA). This approach calculates energy expenses based on actual energy prices that commercial consumers are paying in different geographical areas of the country. In addition to using tariffs, DOE used data provided in EIA's Form 861 data
38
to calculate commercial electricity prices, EIA's Natural Gas Navigator
39
to calculate commercial natural gas prices, and EIA's State Energy Data System (SEDS)
40
to calculate LPG and fuel oil prices. Future energy prices were projected using trends from the EIA's 2013
Annual Energy Outlook
(
AEO 2013
).
41
38
Energy Information Administration (EIA), Survey form EIA-861—Annual Electric Power Industry Report (Available at:
http://www.eia.gov/electricity/data/eia861/index.html
) (Last accessed April 15, 2013).
39
Energy Information Administration (EIA), Natural Gas Navigator (Available at:
http://tonto.eia.doe.gov/dnav/ng/ng_pri_sum_dcu_nus_m.htm
) (Last accessed April 15, 2013).
40
Energy Information Administration (EIA), State Energy Data System (SEDS) (Available at:
http://www.eia.gov/state/seds/
) (Last accessed April 15, 2013).
41
Energy Information Administration (EIA), 2013
Annual Energy Outlook
(
AEO
) Full Version (Available at:
http://www.eia.gov/forecasts/aeo/
) (Last accessed April 15, 2013).
c. Maintenance and Repair Costs
Maintenance costs are expenses associated with ensuring continued operation of the covered equipment over time. In the RFI, DOE sought input on the approach and data sources it intended to use to develop maintenance costs. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that RS Means might serve as a reasonable guide to assist in developing maintenance costs; however, assuming the issues associated with condensing furnace technology are overcome, it is reasonable to expect increased maintenance costs for these higher-efficiency furnaces. Carrier added that, based on experience with residential 80-percent versus 90-percent AFUE furnaces, it expects the maintenance costs for condensing furnace sections to be at least two to three times the maintenance costs for current non-condensing commercial warm air furnaces. (Carrier, No. 2 at p. 5)
DOE developed maintenance costs for its analysis using the most recent RS Means Facilities Maintenance & Repair Cost Data.
42
DOE included increased maintenance costs for condensing
equipment. For condensing gas-fired commercial warm air furnaces, DOE added labor and material costs to account for checking the condensate withdrawal system, including inspecting, cleaning, and flushing the condensate trap and drain tubes; inspecting the grounding and power connection of heat tape; checking condensate neutralizer; and checking condensate pump for corrosion and proper operation. For gas-fired CWAF, the annualized maintenance cost is $157 for 81- and 82-percent TE units, and $169 for 92 percent TE units. For oil-fired CWAF, the annualized maintenance cost is $289 for 82-percent TE units, and $317 for 92 percent TE units.
42
RS Means, 2013 Facilities Maintenance & Repair Cost Data (Available at:
http://rsmeans.reedconstructiondata.com/60303.aspx
) (Last accessed April 10, 2013).
For condensing oil-fired commercial warm air furnaces, DOE added additional maintenance for installations in non-low-sulfur regions to account for extra cleaning of the heat exchanger for condensing designs, as well as checking of the condensate withdrawal system. DOE also considered the cases when the equipment is covered by service and/or maintenance agreements.
Repair costs are expenses associated with repairing or replacing components of the covered equipment that have failed. In the RFI, DOE sought comment as to whether repair costs vary as a function of equipment efficiency. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that condensing furnace repair costs will be higher due to a number of factors including: (1) The presence of acidic condensate; (2) potential damage due to condensate expansion during freezing; (3) the presence of a secondary heat exchanger; and (4) the need to add a condensate pump for some applications. (Carrier, No. 2 at p. 6) Goodman stated that as a general rule, due to additional components and additional materials required to achieve higher efficiencies, as well as additional service time for analysis and actual repair time, repair costs will always be higher for higher-efficiency products. (Goodman, No. 6 at p. 4)
DOE developed repair costs for its analysis using the most recent RS Means Facilities Maintenance & Repair Cost Data.
43
It agrees with the comments and, therefore, included additional repair costs for higher efficiency levels (
i.e.,
condensing furnaces). For gas-fired CWAF, the annualized repair cost is $0.57 for 81- and 82-percent TE units, and $1.31 for 92 percent TE units. For gas-fired CWAF, the annualized repair cost is $1.94 for 82-percent TE units, and $2.58 for 92 percent TE units.
43
RS Means, 2013 Mechanical Cost Data (Available at:
http://rsmeans.reedconstructiondata.com/60023.aspx
) (Last accessed April 10, 2013).
See chapter 8 of the NOPR TSD for more details on maintenance and repair costs.
d. Other Inputs
Equipment lifetime is the age at which a unit of covered equipment is retired from service. The average equipment lifetime for commercial warm air furnaces is estimated by ASHRAE to be between 15 and 20 years.
44
44
American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc. (ASHRAE), ASHRAE Handbook of HVAC Systems and Equipment (2008) p. 32.8.
In the RFI, DOE requested any equipment lifetime data and sought comment on its approach of using a Weibull probability distribution to characterize equipment lifetime. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that a 15 to 20 year life expectancy for commercial warm air furnaces is reasonable. (Carrier, No. 2 at p. 6) Lennox stated that the Weibull analysis is the preferred method when evaluating product or component life. (Lennox, No. 3 at p. 7)
For gas-fired commercial warm air furnaces, DOE used the lifetime Weibull probability distribution developed in the NOPR analysis for small, large, and very large air-cooled commercial package air conditioning and heating equipment,
45
which results in a 19-year average lifetime. For oil-fired commercial warm air furnaces, DOE used a lifetime Weibull probability distribution based on a method described in an article in
HVAC&R Research,
46
which results in a 26-year average lifetime. DOE expects the lifetime of the equipment to not change due to any new energy efficiency standards.
45
Technical Support Document for Small, Large, and Very Large Commercial Package Air Conditioners and Heat Pumps Notice of Proposed Rulemaking (Available at:
http://www1.eere.energy.gov/buildings/appliance_standards/rulemaking.aspx/ruleid/59
).
46
Lutz, J., A. Hopkins, V. Letschert, V. Franco, and A. Sturges, Using national survey data to estimate lifetimes of residential appliances.
HVAC&R Research
(2011) 17(5): pp. 28 (Available at:
http://www.tandfonline.com/doi/abs/10.1080/10789669.2011.558166
).
The discount rate is the rate at which future expenditures are discounted to establish their present value. DOE did not receive comments on discount rates. It derived a distribution of discount rates by estimating the cost of capital of companies that purchase commercial warm air furnace equipment.
DOE measures LCC and PBP impacts of potential standard levels relative to a base case that reflects the likely distribution of efficiencies in the market in the absence of amended standards. In the RFI, DOE requested data on current efficiency market shares (of shipments) by equipment class, and also similar historic data. 78 FR 25627, 25633 (May 2, 2013). Carrier stated that these data are not readily available for the industry as a whole. Carrier added that the vast majority of equipment should be in the 80-percent to 82-percent efficiency range based on the standard in place since 1989. (Carrier, No. 2 at p. 6)
Since shipment-weighted efficiency data are not available, DOE developed current market-share efficiency (
i.e.,
the current distribution of equipment shipments by efficiency) for the CWAF equipment classes for 2013 based on the number of models at different efficiency levels from AHRI's Certification Directory for Commercial Furnaces.
47
These data show no market share for condensing CWAF.
47
AHRI, 2013 AHRI Certification Directory for Commercial Furnaces (Available at:
http://www.ahridirectory.org/ahridirectory/pages/home.aspx
) (Last accessed Oct. 15, 2013).
In the RFI, DOE also requested information on expected trends in efficiency for commercial warm air furnaces over the next five years. 78 FR 25627, 25633 (May 2, 2013). Carrier added that while there will be continuing pressure on cooling efficiency, it expects that the resultant efficiency trend will be flat for commercial warm air furnaces combined in air conditioning equipment. (Carrier, No. 2 at p. 6) Lennox stated that its weatherized commercial furnaces are at the 80-percent thermal efficiency level and would be expected to remain there for the foreseeable future, as there is little market demand for higher-efficiency furnaces in the commercial sector. (Lennox, No. 3 at p. 7) DOE agrees with the comments with respect to non-condensing CWAF, and it assumed no change from the current distribution of equipment shipments by efficiency. For condensing gas-fired CWAF, however, DOE found that models are just now becoming available, so DOE estimated a market share of one percent by 2018.
A rebound effect occurs when a piece of equipment that is made more efficient is used more intensively, such that the expected energy savings from the efficiency improvement may not fully materialize. In the RFI, DOE sought comments and data on any rebound effect that may be associated with more-efficient commercial warm air furnaces. 78 FR 25627, 25633 (May 2, 2013). Carrier opined that any rebound effect associated with higher-efficiency
commercial equipment would be negligible for commercial buildings. (Carrier, No. 2 at p. 7)
DOE found no evidence for a rebound effect associated with higher-efficiency commercial furnaces. HVAC operation adjustment in commercial buildings is not driven by the occupants but primarily by building managers or owners. In such cases, the comfort conditions are already established in order to satisfy the occupants, and they are unlikely to change due to replacement with higher-efficiency equipment. CWAF installed in residential buildings are mainly in situations similar to commercial buildings, so DOE expects there would be negligible rebound effect.
G. Shipments Analysis
DOE uses projections of product shipments for CWAF to calculate equipment stock over the course of the analysis period, which in turn is used to determine the impacts of amended standards on national energy savings, net present value, and future manufacturer cash flows. DOE develops shipment projections based on historical data and an analysis of key market drivers for each product. Historical shipments data are used to build up an equipment stock and also to calibrate the shipments model.
Historical shipments data for commercial warm air furnace equipment are very limited. DOE used 1994 shipments data from AHRI (previously GAMA) that were presented in a report from PNNL,
48
and the historical shipments of non-heat pump commercial unitary air conditioners (CUAC),
49
which are usually packaged together with CWAF. The ratio of the shipments of non-heat pump CUAC equipment and the shipments of gas-fired commercial warm air furnaces in 1994 was calculated.
50
DOE believes that this ratio should be reasonably stable over time. Therefore, DOE determined the historical shipments of gas-fired CWAF by multiplying this ratio with the historical shipments of non-heat pump CUAC.
48
Pacific Northwest National Laboratory (PNNL), Screening Analysis for EPACT-Covered Commercial HVAC and Water-Heating Equipment, April 2000. (Available at:
http://www.pnl.gov/main/publications/external/technical_reports/PNNL-13232.pdf
) (Last accessed April 10, 2013).
49
Air-Conditioning and Refrigeration Institute, Commercial Unitary Air Conditioner and Heat Pump Unit Shipments for 1980-2001 (Jan. 2005) (Prepared for Lawrence Berkeley National Laboratory).
50
The fraction of non-heat pump CUAC equipment that is packaged with commercial furnaces is 80 percent.
Shipments data for oil-fired CWAF is not publically available. DOE used the ratio of oil-fired versus gas-fired residential furnace shipments from AHRI
51
and the historical shipments of gas-fired commercial furnaces to calculate the historical shipment of oil-fired commercial furnaces. DOE estimated that oil-fired CWAF account for about 1 percent of total CWAF shipments.
51
Air-Conditioning Heating and Refrigeration Institute,
Furnaces Historical Data (1994-2013).
2015. (Available at:
http://www.ahrinet.org/site/497/Resources/Statistics/Historical-Data/Furnaces-Historical-Data
). (Last accessed January 7, 2015).
The CWAF shipments model considers two market segments: (1) new commercial buildings acquiring equipment; (2) existing buildings replacing old equipment.
For new commercial buildings, DOE estimated shipments using forecasts of commercial building and residential housing construction and estimates of the saturation of CWAF equipment in new buildings. DOE determined new commercial building and residential housing construction starts by using recorded data through 2012
52
and projections from
AEO 2013.
DOE developed data on the historic saturation of CWAF equipment in new buildings using CBECS 2003 and RECS 2009. To estimate future saturations in new commercial buildings, DOE used the average saturations in buildings built in 1990-2003 (from CBECS 2003 data) that use each type of CWAF equipment. To estimate future saturations in residential housing, DOE used the average saturations in homes built in 1990-2009 (from RECS 2009 data) that use each type of CWAF equipment.
52
U.S. Department of Commerce—Bureau of the Census, New Privately Owned Housing Units Started: Annual Data 1959-2012 (2013) (Available at:
http://www.census.gov/construction/mhs/mhsindex.html
) (Last accessed March 15, 2013).
U.S. Department of Commerce—Bureau of the Census, Placements of New Manufactured Homes by Region and Size of Home: 1980-2011 (2013) (Available at:
http://www.census.gov/construction/mhs/pdf/placnsa_all.pdf)
(Last accessed March 15, 2013).
To estimate shipments to existing buildings replacing old equipment, DOE used a survival function to estimate the fraction of commercial warm air furnaces of a given age still in operation. When a furnace fails, it is removed from the stock or, as explained below, is repaired for extended use. The survival function uses the lifetime values from the LCC analysis and has the form of a cumulative Weibull distribution.
For cases with potential CWAF standards, DOE considered whether the increase in price would cause some commercial consumers to choose to repair rather than replace their commercial furnace equipment. To determine whether a commercial consumer would choose to repair rather than replace their commercial warm air furnace equipment, the shipments model uses a relative price elasticity to account for the combined effects of changes in purchase price and annual operating cost on the purchase versus repair decision. Appendix 9-A of the NOPR TSD describes the method. DOE assumed that the consumers who repair their equipment rather than replace it would extend the life of the product by 6 years. When the extended repaired units fail after the 6-year period, they will be replaced with new ones.
The details of the shipments analysis can be found in chapter 9 of the NOPR TSD.
H. National Impact Analysis
The purpose of the national impact analysis (NIA) is to estimate aggregate impacts of potential energy conservation standards from a national perspective, rather than from the consumer perspective represented by the LCC and PBP analysis. Impacts that DOE reports include the national energy savings (NES) from potential standards and the net present value (NPV) (future amounts discounted to the present) of the total commercial consumer costs and savings that are expected to result from amended or new standards at specific efficiency levels.
To make the analysis more accessible and transparent to all interested parties, DOE used a spreadsheet model to calculate the energy savings and the national commercial consumer costs and savings from each TSL.
53
The NIA calculations are based on the annual energy consumption and total installed cost data from the energy use analysis and the LCC analysis. In the NIA, DOE forecasted the lifetime energy savings, energy cost savings, equipment costs, and NPV of commercial consumer benefits for each equipment class over the lifetime of equipment sold from 2018 through 2047.
53
DOE's use of spreadsheet models provides interested parties with access to the models within a familiar context. In addition, the TSD and other documentation that DOE provides during the rulemaking help explain the models and how to use them, and interested parties can review DOE's analyses by changing various input quantities within the spreadsheet.
To develop the NES, DOE calculates annual energy consumption for the base case and the standards cases. DOE calculates the annual energy consumption using per-unit annual energy use data multiplied by projected shipments. As explained in section IV.E,
DOE did not incorporate a rebound effect for CWAF.
To develop the national NPV of consumer benefits from potential energy conservation standards, DOE calculates annual energy expenditures and annual equipment expenditures for the base case and the standards cases. DOE calculates annual energy expenditures from annual energy consumption by incorporating forecasted energy prices, using shipment projections and average energy efficiency projections. The per-unit energy savings were derived as described in section IV.E. To calculate future electricity prices, DOE applied the projected trend in national-average commercial electricity price from the
AEO 2013
Reference case (which extends to 2040) to the prices derived in the LCC and PBP analysis. DOE used the trend from 2030 to 2040 to extrapolate beyond 2040. DOE calculates annual equipment expenditures by multiplying the price per unit times the projected shipments.
DOE used the historic trend in the Producer Price Index (PPI) for “Warm air furnaces”
54
to estimate the change in price for commercial warm air furnaces over the analysis period. The inflation-adjusted PPI for “Warm air furnaces” from 1989 to 2006 shows a small rate of annual price decline. DOE also developed a sensitivity analysis that considered one scenario with a lower rate of price decline than the Reference case and one scenario with a higher rate of price decline than the Reference case.
54
PCU333415333415C: Warm air furnaces including duct furnaces, humidifiers and electric comfort heating (Available at:
http://www.bls.gov/ppi/
).
The aggregate difference each year between energy bill savings and increased equipment expenditures is the net savings or net costs. In calculating the NPV, DOE multiplies the net savings in future years by a discount factor to determine their present value. DOE estimates the NPV using both a 3-percent and a 7-percent real discount rate, in accordance with guidance provided by the Office of Management and Budget (OMB) to Federal agencies on the development of regulatory analysis.
55
The discount rates for the determination of NPV are in contrast to the discount rates used in the LCC analysis, which are designed to reflect a consumer's perspective.
55
OMB Circular A-4, section E (Sept. 17, 2003) (Available at:
http://www.whitehouse.gov/omb/circulars_a004_a-4).
A key component of the NIA is the equipment energy efficiency forecasted over time for the base case and for each of the standards cases. In the RFI, DOE requested information on expected trends in efficiency of commercial warm air furnaces over the long run. 78 FR 25627, 25634 (May 2, 2013). AHRI stated that since January 1, 1994, the efficiency trends for commercial warm air furnaces have stayed near a thermal efficiency of 80 percent. AHRI expects that the efficiency trends for these products will continue to remain flat over the long run. (AHRI, No. 7 at p. 6) DOE agrees with the comment, and it assumed no change in efficiency in the base case for non-condensing CWAF. For condensing gas-fired CWAF, however, it estimated that market interest in efficiency would lead to a modest growth in market share (from one percent in 2018 to five percent in 2047). In addition, for each standards case, DOE assumed no change in efficiency over time, given this long-term efficiency trend.
To estimate the impact that amended energy conservation standards may have in the year compliance becomes required, DOE uses “roll-up” or “shift” scenarios in its standards rulemakings. Under the “roll-up” scenario, DOE assumes equipment efficiencies in the base case that do not meet the new or amended standard level under consideration would “roll up” to meet that standard level, and equipment shipments at efficiencies above the standard level under consideration would not be affected. Under the “shift” scenario, DOE retains the pattern of the base-case efficiency distribution but re-orients the distribution at and above the new or amended minimum energy conservation standard.
In the RFI, DOE requested comment on whether it should pursue a roll-up or shift approach for potential commercial warm air furnace standards in the NIA. 78 FR 25627, 25634 (May 2, 2013). Lennox stated that given that virtually all commercial warm air furnaces are at or just above the current minimum efficiency requirement, the roll-up approach is the more appropriate choice. (Lennox, No. 3 at p. 8) DOE concurs with the comment, and it used the roll-up approach for the standards cases.
Based on the user samples in the LCC and PBP analysis, DOE estimated that a small fraction of commercial warm air furnaces (1-3 percent) is installed in residential buildings. The national energy savings in the standard cases includes the savings from both commercial and residential furnace users.
DOE has historically presented NES in terms of primary energy savings. In response to the recommendations of a committee on “Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards” appointed by the National Academy of Sciences, DOE announced its intention to use full-fuel-cycle (FFC) measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (August 18, 2011). After evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in the
Federal Register
in which DOE explained its determination that NEMS is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (August 17, 2012). The method used to derive the FFC measures is described in appendix 10-B of the NOPR TSD.
I. Consumer Subgroup Analysis
In analyzing the potential impacts of new or amended standards on commercial consumers, DOE evaluates impacts on identifiable groups (
i.e.,
subgroups) of consumers that may be disproportionately affected by a national standard. DOE believes that small businesses could be such a subgroup. Accordingly, for the NOPR, DOE evaluated impacts on a small business subgroup using the LCC and PBP spreadsheet model. To the extent possible, it utilized inputs appropriate for this subgroup. The commercial consumer subgroup analysis is discussed in detail in chapter 11 of the NOPR TSD.
J. Manufacturer Impact Analysis
1. Overview
DOE performed a manufacturer impact analysis (MIA) to estimate the financial impact of amended energy conservation standards on manufacturers of CWAF and to calculate the potential impact of such standards on employment and manufacturing capacity. The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA primarily relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow model with inputs specific to this rulemaking. The key GRIM inputs are data on the industry cost structure, equipment costs, shipments, and assumptions about markups and conversion expenditures. The key output is the industry net present value (INPV). Different sets of assumptions (markup scenarios) will produce different results. The qualitative part of the MIA addresses factors such as equipment characteristics, impacts on particular subgroups of firms, and important industry, market, and equipment trends.
The complete MIA is outlined in chapter 12 of the NOPR TSD.
DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the CWAF industry that includes a top-down manufacturer cost analysis that DOE used to derive preliminary financial inputs for the GRIM (
e.g.,
sales, general, and administration (SG&A) expenses; research and development (R&D) expenses; and tax rates). DOE used public sources of information, including company Securities and Exchange Commission (SEC) 10-K filings, corporate annual reports, the U.S. Census Bureau's Economic Census,
56
and Hoover's reports.
57
56
U.S. Census Bureau, Annual Survey of Manufacturers: General Statistics: Statistics for Industry Groups and Industries (Available at:
http://factfinder2.census.gov/faces/nav/jsf/pages/searchresults.xhtml?refresh=t
).
57
Hoovers Inc., Company Profiles, Various Companies (Available at:
http://www.hoovers.com
). Last Accessed December 13, 2013.
In Phase 2 of the MIA, DOE prepared an industry cash-flow analysis to quantify the potential impacts of an amended energy conservation standard. In general, new or more-stringent energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) Create a need for increased investment; (2) raise production costs per unit; and (3) alter revenue due to higher per-unit prices and possible changes in sales volumes.
In Phase
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