Energy Conservation Program: Energy Conservation Standards for Consumer Water Heaters

Federal RegisterMay 6, 2024

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DEPARTMENT OF ENERGY

10 CFR Parts 429 and 430

[EERE 2017-BT-STD-0019]

RIN 1904-AD91

Energy Conservation Program: Energy Conservation Standards for Consumer Water Heaters

AGENCY:

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

ACTION:

Final rule.

SUMMARY:

The Energy Policy and Conservation Act, as amended (“EPCA”), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including consumer water heaters. EPCA also requires the U.S. Department of Energy (“DOE” or “the Department”) to periodically determine whether more stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this final rule, DOE is adopting amended energy conservation standards for consumer water heaters. It has determined that the new and amended energy conservation standards for these products would result in significant conservation of energy, and are technologically feasible and economically justified.

DATES:

The effective date of this rule is July 5, 2024. Compliance with the new and amended standards established for consumer water heaters in this final rule is required on and after May 6, 2029.

ADDRESSES:

The docket for this rulemaking, which includes

Federal Register

notices, public meeting attendee lists and transcripts, comments, and other supporting documents/materials, is available for review at

www.regulations.gov

. All documents in the docket are listed in the

www.regulations.gov

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

The docket web page can be found at

www.regulations.gov/docket/EERE-2017-BT-STD-0019

. The docket web page contains instructions on how to access all documents, including public comments, in the docket.

FOR FURTHER INFORMATION CONTACT:

Ms. Julia Hegarty, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC 20585-0121. Email:

ApplianceStandardsQuestions@ee.doe.gov

Ms. Melanie Lampton, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. Telephone: (240) 751-5157. Email:

Melanie.Lampton@hq.doe.gov

For further information on how to review the docket, contact the Appliance and Equipment Standards Program staff at (202) 287-1445 or by email:

ApplianceStandardsQuestions@ee.doe.gov

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Synopsis of the Final Rule

A. Benefits and Costs to Consumers

B. Impact on Manufacturers

C. National Benefits and Costs

D. Conclusion

II. Introduction

A. Authority

B. Background

1. Current Standards

2. History of Standards Rulemaking for Consumer Water Heaters

3. Scope of This Final Rule

III. General Discussion

A. General Comments

1. General Support

2. General Opposition

3. Selection of Standards Levels

B. Scope of Coverage and Definitions

C. Test Procedure

D. Technological Feasibility

1. General

2. Maximum Technologically Feasible Levels

E. Energy Savings

1. Determination of Savings

2. Significance of Savings

F. Economic Justification

1. Specific Criteria

a. Economic Impact on Manufacturers and Consumers

b. Savings in Operating Costs Compared To Increase in Price (LCC and PBP)

c. Energy Savings

d. Lessening of Utility or Performance of Products

e. Impact of Any Lessening of Competition

f. Need for National Energy Conservation

g. Other Factors

2. Rebuttable Presumption

IV. Methodology and Discussion of Related Comments

A. Market and Technology Assessment

1. Product Classes

a. Circulating Water Heaters

b. Low-Temperature Water Heaters

c. Storage-Type and Instantaneous-Type Product Classes

d. Gas-Fired Water Heaters

e. Very Large Gas-Fired Storage Water Heaters

f. Electric Storage Water Heaters

2. Technology Options

B. Screening Analysis

1. Screened-Out Technologies

2. Remaining Technologies

C. Engineering Analysis

1. Product Classes With Current UEF-Based Standards

a. Efficiency Levels

b. Design Options

c. Cost Analysis

d. Shipping Costs

e. Cost-Efficiency Results

2. Product Classes Without Current UEF-Based Standards

a. Crosswalk to Equivalent-Stringency UEF-Based Standards

b. Consideration of More Stringent Standards

c. Circulating Water Heaters

3. Manufacturer Selling Price

D. Markups Analysis

E. Energy Use Analysis

1. Building Sample

2. Hot Water Use Determination

3. Energy Use Determination

F. Life-Cycle Cost and Payback Period Analysis

1. Product Cost

2. Installation Cost

a. Basic Installation Costs and Inputs

b. Gas-Fired and Oil-Fired Storage Water Heater Installation Costs

c. Heat Pump Water Heater Installation Costs

3. Annual Energy Consumption

4. Energy Prices

5. Maintenance and Repair Costs

6. Product Lifetime

7. Discount Rates

8. Energy Efficiency Distribution in the No-New-Standards Case

9. Payback Period Analysis

10. Accounting for Product Switching

11. Analytical Results

G. Shipments Analysis

1. Impact of Potential Standards on Shipments

a. Impact of Consumer Choice for Electric Storage Water Heaters

b. Impact of Repair vs. Replace

H. National Impact Analysis

1. Product Efficiency Trends

2. National Energy Savings

3. Net Present Value Analysis

I. Consumer Subgroup Analysis

1. Low-Income Households

2. Senior-Only Households

3. Small Business Subgroup

J. Manufacturer Impact Analysis

1. Overview

2. Government Regulatory Impact Model and Key Inputs

a. Manufacturer Production Costs

b. Shipments Projections

c. Product and Capital Conversion Costs

d. Manufacturer Markup Scenarios

3. Discussion of MIA Comments

a. Conversion Costs

b. Cumulative Regulatory Burden

c. Manufacturing Capacity

K. Emissions Analysis

1. Air Quality Regulations Incorporated in DOE's Analysis

L. Monetizing Emissions Impacts

1. Monetization of Greenhouse Gas Emissions

a. Social Cost of Carbon

b. Social Cost of Methane and Nitrous Oxide

c. Sensitivity Analysis Using Updated SC-GHG Estimates

2. Monetization of Other Emissions Impacts

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 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. Direct Impacts on Employment

c. Impacts on Manufacturing Capacity

d. Impacts on Subgroups of Manufacturers

e. Cumulative Regulatory Burden

3. National Impact Analysis

a. National Energy Savings

b. Net Present Value of Consumer Costs and Benefits

c. Indirect Impacts on Employment

4. Impact on Utility or Performance of Products

5. Impact of Any Lessening of Competition

6. Need of the Nation To Conserve Energy

7. Other Factors

8. Summary of Economic Impacts

C. Conclusion

1. Benefits and Burdens of TSLs Considered for Consumer Water Heater Standards

2. Annualized Benefits and Costs of the Adopted Standards

3. Conversion Factor Final Rule Enforcement Policy

4. Severability

D. Test Procedure Applicability

1. High-Temperature Testing

a. Maximum Tank Temperature

b. Verification of Maximum Tank Temperature

c. Very Small and Large Electric Storage Water Heaters

d. Optional Representations for Heat Pump Water Heaters

e. Temporary Mode

f. Demand-Response Water Heaters

g. Summary of the High-Temperature Test Method Applicability

2. Circulating Water Heaters

a. Separate Storage Tank Requirements

b. Product-Specific Enforcement Provisions

3. Water Heaters Less Than 2 Gallons

4. Other Topics

VI. Procedural Issues and Regulatory Review

A. Review Under Executive Orders 12866, 13563, and 14094

B. Review Under the Regulatory Flexibility Act

1. Need for, and Objectives of, Rule

2. Significant Issues Raised by Public Comments in Response to the IRFA

3. Description and Estimated Number of Small Entities Affected

4. Description of Reporting, Recordkeeping, and Other Compliance Requirements

5. Significant Alternatives Considered and Steps Taken To Minimize Significant Economic Impacts on Small Entities

C. Review Under the Paperwork Reduction Act

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. Information Quality

M. Congressional Notification

VII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

The Energy Policy and Conservation Act, Public Law 94-163, as amended (“EPCA”),

authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. (42 U.S.C. 6291-6317) Title III, Part B of EPCA

established the Energy Conservation Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291-6309) These products include consumer water heaters, the subject of this rulemaking. As discussed in section II.B.3 of this document, DOE is finalizing standards for all consumer water heaters, with the exception of gas-fired instantaneous water heaters, in this Final Rule.

All references to EPCA in this document refer to the statute as amended through the

Energy Act of 2020, Public Law 116-260 (Dec. 27, 2020), which reflect the last statutory amendments that impact Parts A and A-1 of EPCA.

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

Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in significant conservation of energy. (42 U.S.C. 6295(o)(3)(B)) EPCA also provides that not later than 6 years after issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a notice of proposed rulemaking including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m))

In accordance with these and other statutory provisions discussed in this document, DOE analyzed the benefits and burdens of six trial standard levels (“TSLs”) for consumer water heaters. The TSLs and their associated benefits and burdens are discussed in detail in sections V.A through V.C of this document. As discussed in section V.C of this document, DOE has determined that TSL 2 represents the maximum improvement in energy efficiency that is technologically feasible and economically justified. The adopted standards, which are expressed in terms of uniform energy factor (“UEF”), are shown in Table I.1. These standards apply to all products listed in Table I.1 and manufactured in, or imported into, the United States starting on May 6, 2029.

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A. Benefits and Costs to Consumers

Table I.2 summarizes DOE's evaluation of the economic impacts of the adopted standards on consumers of consumer water heaters, as measured by the average life-cycle cost (“LCC”) savings and the simple payback period (“PBP”).

The average LCC savings are positive for all product classes, and the PBP is less than the average lifetime of consumer water heaters, which is estimated to be about 15 years for storage water heaters (

see

section IV.F of this document).

The average LCC savings refer to consumers that are affected by a standard and are measured relative to the efficiency distribution in the no-new-standards case, which depicts the market in the compliance year in the absence of new or amended standards (

see

section IV.F.9 of this document). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the baseline product (

see

section IV.C of this document).

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DOE's analysis of the impacts of the adopted standards on consumers is described in section IV.F of this document.

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 (2023-2059). Using a real discount rate of 9.6 percent, DOE estimates that the INPV for manufacturers of consumer water heaters in the case without amended standards is $1,478.8 million in 2022$. Under the adopted standards, DOE estimates the change in INPV to range

from −18.6 percent to 1.9 percent, which is a loss of $275.3 million to a gain of $28.2 million. In order to bring products into compliance with amended standards, it is estimated that industry will incur total conversion costs of $239.8 million.

DOE's analysis of the impacts of the adopted standards on manufacturers is described in sections IV.J and V.B.2 of this document.

C. National Benefits and Costs

All monetary values in this document are expressed in 2022 dollars.

DOE's analyses indicate that the adopted energy conservation standards for consumer water heaters would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for consumer water heaters purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2030-2059), amount to 17.6 quadrillion British thermal units (“Btu”), or quads.

This represents a savings of 10 percent relative to the energy use of these products in the case without amended standards (referred to as the “no-new-standards case”).

The quantity refers to full-fuel-cycle (FFC) energy savings. FFC energy savings includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and, thus, presents a more complete picture of the impacts of energy efficiency standards. For more information on the FFC metric,

see

section IV.H.1 of this document.

The cumulative net present value (“NPV”) of total consumer benefits of the standards for consumer water heaters ranges from $25 billion (at a 7-percent discount rate) to $82 billion (at a 3-percent discount rate). This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased product and installation costs for consumer water heaters purchased during the period 2030-2059.

In addition, the adopted standards for consumer water heaters are projected to yield significant environmental benefits. DOE estimates that the standards will result in cumulative emission reductions (over the same period as for energy savings) of 332 million metric tons (“Mt”)

of carbon dioxide (“CO

”), 90 thousand tons of sulfur dioxide (“SO

”), 665 thousand tons of nitrogen oxides (“NO

”), 3,058 thousand tons of methane (“CH

”), 2.9 thousand tons of nitrous oxide (“N

O”), and 0.6 tons of mercury (“Hg”).

A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO

are presented in short tons.

DOE calculated emissions reductions relative to the no-new-standards-case, which reflects key assumptions in the

Annual Energy Outlook 2023

(

“AEO2023”

AEO2023

reflects, to the extent possible, laws and regulations adopted through mid-November 2022, including the Inflation Reduction Act.

See

section IV.K of this document for further discussion of

AEO2023

assumptions that affect air pollutant emissions.

DOE estimates the value of climate benefits from a reduction in greenhouse gases (“GHG”) using four different estimates of the social cost of CO

(“SC-CO

”), the social cost of methane (“SC-CH

”), and the social cost of nitrous oxide (“SC-N

O”). Together these represent the social cost of GHG (“SC-GHG”). DOE used interim SC-GHG values (in terms of benefit per ton of GHG avoided) developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (“IWG”).

The derivation of these values is discussed in section IV.L of this document. For presentational purposes, the climate benefits associated with the average SC-GHG at a 3-percent discount rate are estimated to be $17 billion. DOE does not have a single central SC-GHG point estimate and it emphasizes the value of considering the benefits calculated using all four sets of SC-GHG estimates. DOE notes, however, that the adopted standards would be economically justified even without inclusion of monetized benefits of reduced GHG emissions.

To monetize the benefits of reducing GHG emissions this analysis uses the interim estimates presented in the

Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Intereim Estimates Under Executive Order 13990

published in February 2021 by the IWG. (“February 2021 SC-GHG TSD”).

www.whitehouse.gov/wp-content/uploads/2021/02/Technical/SupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf.

DOE estimated the monetary health benefits of SO

and NO

emissions reductions, using benefit per ton estimates from the Environmental Protection Agency,

as discussed in section IV.L of this document. DOE estimated the present value of the health benefits would be $12 billion using a 7-percent discount rate, and $33 billion using a 3-percent discount rate.

DOE is currently only monetizing health benefits from changes in ambient fine particulate matter (PM

2.5

) concentrations from two precursors (SO

and NO

), and from changes in ambient ozone from one precursor (for NO

), but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM

2.5

emissions.

U.S. EPA. Estimating the Benefit per Ton of Reducing Directly Emitted PM

2.5

, PM

2.5

Precursors and Ozone Precursors from 21 Sectors. Available at

www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors

DOE estimates the economic value of these emissions reductions resulting from the considered TSLs for the purpose of complying with the requirements of Executive Order 12866.

Table I.3 summarizes the monetized benefits and costs expected to result from the amended standards for consumer water heaters. There are other important unquantified effects, including certain unquantified climate benefits, unquantified public health benefits from the reduction of toxic air pollutants and other emissions, unquantified energy security benefits, and distributional effects, among others.

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The benefits and costs of the proposed standards can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are (1) the reduced consumer operating costs, minus (2) the increase in product purchase prices and installation costs, plus (3) the value of climate and health benefits of emission reductions, all annualized.

To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2022, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated with each year's shipments in the year in which the shipments occur (

e.g.,

2020 or 2030), and then discounted the present value from each year to 2022. Using the present value, DOE then calculated the fixed annual payment over a 30-year period, starting in the compliance year, that yields the same present value.

The national operating cost savings are domestic private U.S. consumer monetary savings that occur as a result of purchasing the covered products and are measured for the lifetime of consumer water heaters shipped during the period 2030-2059. The benefits associated with reduced emissions achieved as a result of the adopted standards are also calculated based on the lifetime of consumer water heaters shipped during the period 2030-2059. Total benefits for both the 3-percent and 7-percent cases are presented using the average GHG social costs with 3-percent discount rate. Estimates of total benefits are presented for all four SC-GHG value discount rates in section IV.L.1 of this document.

Table I.4 presents the total estimated monetized benefits and costs associated with the proposed standard, expressed in terms of annualized values. The results under the primary estimate are as follows.

Using a 7-percent discount rate for consumer benefits and costs and health benefits from reduced NO

and SO

emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the standards adopted in this rule is $2,623 million per year in increased equipment costs, while the estimated annual benefits are $5,655 million in reduced equipment operating costs, $1,051 in monetized climate benefits, and 1,416 in monetized health benefits. In this case, the net benefit would amount to $5,499 per year.

Using a 3-percent discount rate for all benefits and costs, the estimated cost of the standards is $2,586 million per year in increased equipment costs, while the estimated annual benefits are $7,566 million in reduced operating costs, $1,051 million in monetized climate benefits, and $2,033 million in monetized health benefits. In this case, the net benefit would amount to $8,065 million per year.

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DOE's analysis of the national impacts of the adopted standards is described in sections IV.H, IV.K, and IV.L of this document.

D. Conclusion

DOE concludes that the standards adopted in this final rule represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. Specifically with regards to technological feasibility, products achieving these standard levels are already commercially available for all product classes covered by this rule. As for economic justification, DOE's analysis shows that the estimated benefits of the standards exceed, to a great extent, the estimated burdens of the standards.

Using a 7-percent discount rate for consumer benefits and costs and NO

and SO

reduction benefits, and a 3-percent discount rate case for GHG social costs, the estimated cost of the standards for consumer water heaters is $2,623 million per year in increased product costs, while the estimated annual benefits are $5,655 million in reduced product operating costs, $1,051 million in climate benefits, and $1,416 million in health benefits. The net benefit amounts to $5,499 million per year.

The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking.

Procedures, Interpretations, and Policies for Consideration in New or Revised Energy Conservation Standards and Test Procedures for Consumer Products and Commercial/Industrial Equipment, 86 FR 70892, 70901 (Dec. 13, 2021).

As previously mentioned, the standards are projected to result in estimated cumulative national energy savings of 17.6 quads (full-fuel cycle (“FFC”)), the equivalent of the primary annual energy use of 116 million homes. In addition, they are projected to reduce CO

emissions by 332 Mt. Based on these findings, DOE has determined the energy savings from the standard levels adopted in this final rule are “significant” within the meaning of 42 U.S.C. 6295(o)(3)(B). A more detailed discussion of the basis for these conclusions is contained in the remainder of this document and the accompanying TSD.

II. Introduction

The following section briefly discusses the statutory authority underlying this final rule, as well as some of the relevant historical background related to the establishment of standards for consumer water heaters.

A. Authority

EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part B of EPCA established the Energy Conservation Program for Consumer Products Other Than Automobiles. These products include consumer water heaters, the subject of this document. (42 U.S.C. 6292(a)(4)) EPCA prescribed energy conservation standards for these products (42 U.S.C. 6295(e)(1)), and directs DOE to conduct future rulemakings to determine whether to amend these standards. (42 U.S.C. 6295(e)(4)) EPCA further provides that, not later than 6 years after the issuance of any final rule establishing or amending a standard, DOE must publish either a notice of determination that standards for the product do not need to be amended, or a NOPR including new proposed energy conservation standards (proceeding to a final rule, as appropriate). (42 U.S.C. 6295(m)(1))

The energy conservation program under EPCA, consists essentially of four parts: (1) testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4)

certification and enforcement procedures. Relevant provisions of the EPCA specifically include definitions (42 U.S.C. 6291), test procedures (42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), energy conservation standards (42 U.S.C. 6295), and the authority to require information and reports from manufacturers (42 U.S.C. 6296).

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

See

42 U.S.C. 6297(d))

Subject to certain statutory criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered product. (42 U.S.C. 6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of covered products must use the prescribed DOE test procedure as the basis for certifying to DOE that their products comply with the applicable energy conservation standards adopted under EPCA and when making representations to the public regarding the energy use or efficiency of those products. (42 U.S.C. 6293(c) and 6295(s)) Similarly, DOE must use these test procedures to determine whether the products comply with standards adopted pursuant to EPCA. (42 U.S.C. 6295(s)) The DOE test procedures for consumer water heaters appear at title 10 of the Code of Federal Regulations (“CFR”) part 430, subpart B, appendix E (“appendix E”).

DOE must follow specific statutory criteria for prescribing new or amended standards for covered products, including consumer water heaters. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6295(o)(3))

Moreover, DOE may not prescribe a standard (1) for certain products, including consumer water heaters, if no test procedure has been established for the product, or (2) if DOE determines by rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:

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

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

(3) The total projected amount of energy (or as applicable, water) 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 and water conservation; and

(7) Other factors the Secretary of Energy (“Secretary”) considers relevant.

(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))

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

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

Additionally, EPCA specifies requirements when promulgating an energy conservation standard for a covered product that has two or more subcategories. DOE must specify a different standard level for a type or class of products that has the same function or intended use if DOE determines that products within such group (A) consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In determining whether a performance-related feature justifies a different standard for a group of products, DOE must consider such factors as the utility to the consumer of such a feature and other factors DOE deems appropriate.

Id.

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

Finally, pursuant to the amendments contained in the Energy Independence and Security Act of 2007 (EISA 2007), Public Law 110-140, any final rule for new or amended energy conservation standards promulgated after July 1, 2010, is required to address standby mode and off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE adopts a standard for a covered product after that date, it must, if justified by the criteria for adoption of standards under EPCA (42 U.S.C. 6295(o)), incorporate standby mode and off mode energy use into a single standard, or, if that is not feasible, adopt a separate standard for such energy use for that product. (42 U.S.C. 6295(gg)(3)(A)-(B)) In this rulemaking, DOE is applying the UEF metric (which addresses standby mode and off mode energy use) to all product classes of consumer water heaters, including those product classes for which there are no currently applicable UEF-based standards.

B. Background

1. Current Standards

As directed by EPCA (42 U.S.C. 6295(e)(4)), DOE conducted two cycles of rulemakings to determine whether to amend the statutory standards for consumer water heaters found in 42 U.S.C. 6295(e)(1). The most recent rulemaking from April 2010 resulted in amended standards using the energy factor (“EF”) metric originally prescribed by EPCA with a requirement for compliance starting on April 16, 2015. 75 FR 20112 (the “April 2010 Final Rule”). Later amendments to

EPCA directed DOE to establish a uniform efficiency metric for consumer water heaters (

see

42 U.S.C. 6295(e)(5)(B)).

The Federal test procedure was revised to use a new metric, UEF, in a final rule published on July 11, 2014 (the “July 2014 UEF TP Final Rule”). 79 FR 40542. In a final rule published in the

Federal Register

on December 29, 2016, the existing EF-based energy conservation standards were then translated from EF to UEF using a “conversion factor” method for water heater basic models that were in existence at the time. 81 FR 96204 (“December 2016 Conversion Factor Final Rule”).

The requirement for a consumer water heater test procedure using uniform energy factor as a metric, as well as the requirement for DOE to undertake a conversion factor rulemaking to translate existing consumer water heater standards denominated in terms of EF to ones denominated in terms of UEF, were part of the amendments to EPCA contained in the American Energy Manufacturing Technical Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).

These standards are set forth in DOE's regulations at 10 CFR 430.32(d) and are repeated in Table II.1.

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In the December 2016 Conversion Factor Final Rule, DOE declined to develop conversion factors and UEF-based standards for consumer water heaters of certain sizes (by rated storage volume or input rating) and of certain types (

i.e.,

oil-fired instantaneous water heaters) where models did not exist on the market at the time to inform the analysis of the standards conversion. 81 FR 96204, 96210-96211. For consumer water heaters that did not receive converted UEF-based standards, DOE provided its interpretation that the original statutory standards—found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric—still applied; however, DOE would not enforce those statutorily-prescribed standards until such a time conversion factors are developed for these products and they can be converted to UEF.

Id.

Thus, the EF-based standards specified by EPCA apply to any consumer water heaters which do not have UEF-based standards found at 10 CFR 430.32(d). These EF-based standards are set forth at 42 U.S.C. 6295(e)(1) and are repeated in Table II.2.

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2. History of Standards Rulemaking for Consumer Water Heaters

On May 21, 2020, DOE initiated the current rulemaking by publishing in the

Federal Register

a request for information (“May 2020 RFI”), soliciting public comment on various aspects of DOE's planned analyses to help DOE determine whether to amend energy conservation standards for consumer water heaters. 85 FR 30853 (May 21, 2020). DOE subsequently published a notice requesting feedback on its preliminary analysis and technical support document (“preliminary TSD”) on March 1, 2022 (the “March 2022 Preliminary Analysis”) with a 60-day comment period. 87 FR 11327 (Mar. 1, 2022). The comment period was extended by 14 days in a notice published on May 4, 2022. 87 FR 26303.

On October 21, 2022, DOE received a set of recommendations on amended energy conservation standards for consumer water heaters from a coalition of seven public- and private-sector organizations, including two water heater manufacturers, three energy efficiency organizations, one environmental group, and one consumer organization—collectively the Joint Stakeholders

—which addressed standards for electric storage water heaters, gas-fired storage water heaters, and gas-fired instantaneous water heaters. This coalition's submission is herein referred to as the “Joint Stakeholder Recommendation.”

In this final rule, “Joint Stakeholders” refers to the group of stakeholders who submitted and continued to support the October 21, 2022, comment even though the makeup of this group has changed since the July 2023 NOPR. Specifically, BWC removed itself as a signatory after the July 2023 NOPR.

On July 28, 2023, DOE published in the

Federal Register

a notice of proposed rulemaking (“July 2023 NOPR”) and technical support document (“NOPR TSD”) with a 60-day comment period. 88 FR 49058 (Jul. 28, 2023). In the July 2023 NOPR, DOE proposed new and amended standards for consumer water heaters and addressed stakeholder feedback on the March 2022 Preliminary Analysis, including the Joint Stakeholder Recommendation. On September 13, 2023, DOE presented the proposed standards and accompanying analysis at a public meeting.

DOE received 2,950 comments in response to the July 2023 NOPR from interested parties, some of which were docketed together as multiple comments or commenters, resulting in a total of 1,140 docketed items. Note that of these total comments, 2,800 comments were “form letter” email submissions. In total, four distinct form letters were received. Additionally, several commenters submitted more than one comment to the docket. DOE directly references 54 of these written submissions in this final rule, which contain substantive comments regarding product classes within the scope of this final rule and are shown in Table II.3. The remainder of the comments were from individual commenters either expressing general opposition or support for the rulemaking. Total counts of both supportive and non-supportive comments received are included in section III.A of this document.

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A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record.

To the extent that interested parties have provided written comments that are substantively consistent with any oral comments provided during the September 13, 2023, public meeting, DOE cites the written comments throughout this final rule. Any oral comments provided during the webinar that are not substantively addressed by written comments are summarized and cited separately throughout this final rule.

The parenthetical reference provides a reference for information located in the docket of DOE's rulemaking to develop energy conservation standards for consumer water heaters. (Docket No. EERE-2017-BT-STD-0019, which is maintained at

www.regulations.gov

). The references are arranged as follows: (commenter name, comment docket ID number, page of that document).

Additionally, DOE received comments from stakeholders in response to the July 2023 NOPR regarding the scope and classification of circulating water heaters as defined at 10 CFR 430.2 by the June 2023 TP Final

Rule. DOE subsequently published a supplemental notice of proposed rulemaking on December 27, 2023 (“December 2023 SNOPR”), that discussed the comments received on this topic and proposed to amend the definition for “circulating water heater” to reclassify these products as storage-type water heaters. 88 FR 89330. DOE received 195 comments in response to the December 2023 SNOPR from interested parties. DOE directly references 14 of these written submissions which provided remarks about the rulemaking analysis pertinent to standards for circulating water heaters or comments relevant to the issues discussed in the December 2023 SNOPR, and these submissions are shown in Table II.4.

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3. Scope of This Final Rule

Following review of comments on the July 2023 NOPR and December 2023 SNOPR, DOE has decided to finalize at this time standards for all consumer water heaters with the exception of gas-fired instantaneous water heaters, as defined in 10 CFR 430.2 and replicated in section III.B of this final rule. DOE is not summarizing or responding to any comments specific to gas-fired instantaneous water heaters in this document, nor discussing any analytical methodologies or results for this product class as DOE continues to consider the comments submitted in response to the July 2023 NOPR and December 2023 SNOPR in informing DOE's decision on amended energy conservation standards for GIWHs.

III. General Discussion

DOE developed this final rule after considering oral and written comments, data, and information from interested parties that represent a variety of interests. The following discussion addresses issues raised by these commenters.

A. General Comments

This section summarizes general comments received from interested parties regarding rulemaking timing and process.

1. General Support

In response to the July 2023 NOPR, DOE received 966

general comments (those which provided general remarks on the impact of the rulemaking)

related to product classes within the scope of this final rule, with 931, or 96 percent of, these comments expressing support of the proposed standards and a majority acknowledging the significant energy savings that would result from the adoption of the proposed standards.

The number of comments reflects the number of individual party submissions. Specifically, form letters with multiple submissions count each submission individually.

Commenters who are directly referenced in this final rule and appear in Table II.3 are not counted in these statistics because these submitters typically expressed detailed views that could not be generalized as either clear support or clear opposition for all aspects of the proposal.

One comment in support of the proposed standards had 8,357 signatories.

NYSERDA, GreenTECH, the CA IOUs, NCEL, Joint Regional Advocacy Groups, Joint Stakeholders, Joint Utilities, Joint Commenters, Joint Advocacy Groups, NYSPSC, Consumer Advocates, Health

Advocates, Joint Architects, PSR, NEEA and State Agencies all stated their support of the standards proposed in the July 2023 NOPR. These commenters highlighted the associated benefits of the proposal including utility bill savings, reduced GHG emissions, protection of human health, reduced energy consumption, and the ability to design more energy efficient buildings. (NYSERDA, No. 1192 at p. 1; GreenTECH, No. 71 at p. 1; CA IOUs, No. 1175 at pp. 1-2; NCEL, No. 1144 at p. 1; Joint Regional Advocacy Groups, No. 1154 at p. 1; Joint Stakeholders, No. 1156 at p. 1; Joint Utilities, No. 1158 at p. 1; Joint Commenters, No. 1159 at p. 1-2; Joint Advocacy Groups, No. 1165 at p. 1; NYSPSC, No. 1169 at p. 1; Consumer Advocates, No. 1172 at p. 1; Health Advocates, No. 1179 at p. 1; Joint Architects, No. 1188 at p. 1; PSR, No. 1196 at p. 1-2; NEEA, No. 1199 at p. 2; State Agencies, No. 1213 at p. 1-2)

NCEL noted that, according to a report by the Appliance Standards Awareness Project, water heaters represent the largest potential for emissions reductions among regulated consumer products, and the proposed standards would reduce CO

emissions by more than 500 Mt over 30 years of sales, helping the United States meet its climate goals. (NCEL, No. 1144 at p. 1) The Joint Regional Advocacy Groups supported, specifically, the proposed standards for electric storage water heaters at heat pump efficiency levels. (Joint Regional Advocacy Groups, No. 1154 at p. 1) The Joint State Attorneys General also commented in support of the proposed standards for consumer water heaters and recommended that DOE finalize the proposed rule as soon as possible. The Joint State Attorneys General further emphasized that the proposed standards would significantly improve the energy efficiency of both electric and gas water heaters while providing economic benefits to consumers. The Joint State Attorneys General stated that the proposed standards for consumer water heaters are projected to yield significant environmental benefits, climate benefits, and monetized health benefits. The Joint State Attorneys General also commented that the transition to more efficient consumer water heating will be increasingly cost effective and affordable as time progresses, particularly considering the Federal investment in weatherization, energy efficiency, and beneficial electrification programs that would help address cost concerns related to installing new or replacement products. (Joint State Attorneys General, No. 1035 at pp. 1-3) State Agencies claimed that while State regulations have the potential to reduce GHG emissions, individual States cannot adopt standards for products for which the Federal government has promulgated an existing standard (such as consumer water heaters) and that collaboration is required for impactful climate action. (State Agencies, No. 1213 at p. 1) DOE understands the commenter to be referring to provisions at 42 U.S.C. 6297, by which Federal energy standards supersede State regulations with exceptions for certain products that do not include consumer water heaters. State Agencies also indicated that the proposed standards would reduce the energy burden for low-income households, which spend larger portions of their income on energy bills. (State Agencies, No. 1213 at p. 2)

Rheem generally supported DOE's proposed amended standards and the analysis behind them but expressed concern regarding potential unintended consequences of the proposed standards for certain product classes caused in part by the application of the high-temperature test method and effective storage volume metric. Rheem suggested possible solutions to resolve these issues, which are discussed further in section V.D of this document. (Rheem, No. 1177 at p. 1) Rheem stated that, for electric storage water heaters between 20 and 120 gallons (except for small electric storage water heaters), heat pump-level standards are appropriate. Rheem recommended that DOE act to prevent a market shift away from heat pump technologies if standards are amended to require this for a larger fraction of the electric storage water heater market because not only would it result in reduction of energy savings, but it also would pose a risk to manufacturers' return on investment in heat pump water heater development in a timely manner. Rheem noted that there would be significant changes to product design and manufacturing facilities as a result of a heat pump standard in this rulemaking. (

Id.

at p. 7)

The Joint Stakeholders stated that the proposed standards for gas-fired water heaters are consistent with their recommendations and noted that the proposal follows the established rationale that separate standards be maintained for gas-fired storage water heaters and their instantaneous counterparts. (Joint Stakeholders, No. 1156 at p. 2) NEEA, the Joint Regional Advocacy Groups (citing the estimated FFC and monetary savings), and Bosch supported the proposed standards for gas-fired storage water heaters. (NEEA, No. 1199 at p. 9; Joint Regional Advocacy Groups, No. 1154 at p. 1; Bosch, No. 1204 at p. 2)

The CA IOUs encouraged DOE to set more stringent standards for gas-fired storage water heaters. According to the CA IOUs, more stringent standards for all gas-fired consumer water heater sub-classes, specifically at condensing efficiencies, would result in significant savings of natural gas in California and across the United States. (CA IOUs, No. 1175 at p. 2) AWHI also encouraged DOE to set more stringent standards for gas-fired storage water heaters. (AWHI, No. 1036 at pp. 3-4)

NYSERDA stated that the proposals in the July 2023 NOPR substantially aligned with the Joint Stakeholder Recommendation, which was supported by NYSERDA. The commenter noted that, by allowing less stringent standards for small electric storage water heaters, DOE would ensure that there are replacement units available for lowboy water heaters, while still allowing innovation and expansion for heat pump water heaters. (NYSERDA, No. 1192 at p. 2)

Additionally, some commenters offered general support in response to the December 2023 SNOPR.

NYSERDA commented that the proposals in the December 2023 SNOPR fully address their concerns raised at the NOPR stage regarding the potential use of electric resistance circulating water heaters in place of heat pump electric storage water heaters. (NYSERDA, No. 1406 at p. 2) NEEA expressed support for the changes proposed in the December 2023 SNOPR and urged DOE to move forward with these proposals, as well as those made in the July 2023 NOPR. (NEEA, No. 1414 at p. 1) NEEA reiterated its support for effective storage volume-based standards and high temperature test methods to prevent small, overheated products from being used in place of products that meet the proposed standards. (NEEA, No. 1414 at p. 2) CEC reiterated its appreciation for DOE's efforts to address potential loopholes in the proposed regulatory language for circulating water heaters and high temperature test methods. (CEC, No. 1412 at p. 2)

2. General Opposition

Of the 966 general comments DOE received in response to the July 2023 NOPR related to product classes within the scope of this final rule, 29, or 3 percent, were in opposition of new standards, with the majority of opposition comments focused on the concerns of government overreach and interference with a free market, impacts on product cost, and overestimation of energy savings. Commenters also

expressed concerns about potential outsourcing to foreign companies due to the proposed standards, installation costs for gas-fired and heat pump water heaters, and the performance of heat pump water heaters. These topics are discussed in this section through section III.A.3 of this document.

Ravnitzky supported DOE's efforts to improve the energy efficiency of consumer water heaters and reduce greenhouse gas emissions but expressed concern for the impact of the proposed standards on consumers and manufacturers. Ravnitzky urged DOE to reconsider the proposed standards and account for the efficiency potential and resiliency benefits of non-heat pump water heaters. (Ravnitzky, No. 73 at p. 1)

Ravnitzky stated that the proposed standards do not account for the resiliency benefits of non-heat pump water heaters, which can operate without electricity. Ravnitzky stated that heat pump water heaters cannot function during a power outage, which could inconvenience consumers and result in health risks. Ravnitzky also stated that gas-fired water heaters are beneficial to consumers prone to natural disasters and extreme weather events that disrupt the power grid because they do not require electricity to operate. (Ravnitzky, No. 73 at p. 1)

Throughout this rulemaking, DOE has assessed the impacts of potential amended standards on consumers and manufacturers, specifically quantifying these impacts as national benefits and costs (

see

section I of this document). In response to the concerns raised by Ravnitzky, DOE notes that gas-fired water heaters will still be available as an option to consumers at the levels adopted in this final rule. Further, DOE notes that, while for certain classes of electric storage water heaters the adopted standards are currently only met through use of heat pump technology, electric storage water heaters that rely on electric resistance technology also require a continuous supply of electricity to operate. Therefore, without a backup supply of electricity a power outage would render both types of electric storage water heaters inoperable. DOE also notes that some gas-fired water heaters do require electricity to operate. However, as discussed in the July 2023 NOPR, DOE maintains its interpretation of EPCA at 42 U.S.C. 6295(q)(1) that gas-fired water heaters that do not require electricity should not be treated differently (

i.e.,

constitute a separate product class) from gas-fired water heaters that do. 88 FR 49058, 49079.

AEI stated its belief that the rule is based on the need to confront the global climate crisis, and therefore it is fatally flawed and should not be finalized due to the lack of evidence of a climate “threat” or “crisis.” (AEI, No. 817 at p. 2)

DOE is finalizing amendments to the test procedure and energy conservation standards for consumer water heaters based on its authority described in section II.A of this document, which requires the Department to consider seven (7) factors prior to finalizing such amendments. This final rule outlines DOE's analysis of all seven factors, with additional details provided in the TSD.

The Attorney General of TN commented that the proposed standards have significant federalism implications within the meaning of Executive Order 13132 for the following reasons: (1) DOE's standards have a preemptive effect on States' procurement standards; and (2) States own and purchase water heaters, and therefore the proposed standards' effect on water heater costs directly affect States as purchasers. (Attorney General of TN, No. 1149 at pp. 2-3) The Attorney General of TN commented that DOE must show that the intrastate activity covered by the proposed standards substantially affects the interstate market for water heaters and there is no such analysis in the July 2023 NOPR. The Attorney General of TN commented that the proposed standards will dominate the regulation of consumer goods—authority traditionally belonging to the States. (Attorney General of TN, No. 1149 at p. 3)

DOE responds that it believes the scope of both the standard proposed in the July 2023 NOPR and the amended standard adopted in this final rule properly includes all consumer water heaters distributed in commerce for personal use or consumption because intrastate state activity regulated by 42 U.S.C. 6291(17) and 6302 is inseparable from and substantially affects interstate commerce. DOE has clear authority under EPCA to regulate the energy use of a variety of consumer products and certain commercial and industrial equipment, including the subject consumer water heaters.

See

42 U.S.C. 6295. Based on this statutory authority, DOE has a long-standing practice of issuing energy conservation standards with the same scope as the standard in this final rule. For example, DOE has maintained a similar scope of products in the April 2010 Final Rule and in the December 2016 Conversion Factor Final Rule. DOE disagrees with the Attorney General of TN's contention that the Commerce Clause, the Tenth Amendment, the Major Questions Doctrine, or any canons of statutory construction limit DOE's clear and long-standing authority under EPCA to adopt the standard, including its scope, in this final rule. A further discussion regarding the Attorney General of TN's Federalism concerns can be found at section VI.E of this document.

BWC, a former signatory to the Joint Stakeholder Recommendation, urged DOE to reconsider re-aligning certain aspects of its proposal to what was originally recommended by the Joint Stakeholder Recommendation. (BWC, No. 1164 at p. 1)

The July 2023 NOPR proposed product classes and efficiency levels incorporating the feedback from the Joint Stakeholder Recommendation; however, the Department did not align entirely with the Joint Stakeholder Recommendation. DOE provided its rationale for product class definitions, efficiency level selection, and effective storage volume throughout the July 2023 NOPR (

see

section IV of the July 2023 NOPR). These topics are discussed further in this final rule in sections IV.A.1.f, IV.C.1.a, and V.D.1 of this document, respectively.

BWC noted that the July 2023 NOPR was published only shortly after the June 2023 TP Final Rule, and that this period of time was too short for manufacturers to provide adequate feedback on new aspects of the test procedure, such as effective storage volume and high temperature testing. BWC expressed its concern over this and the 60-day comment period provided for the July 2023 NOPR, noting that these were both deviations from appendix A. The Gas Association Commenters and Rinnai also commented on this deviation, with ASA and the Gas Association Commenters stating that the 60-day comment period was insufficient to develop responses to the July 2023 NOPR and Rinnai stating that DOE did not have an adequate basis to depart from the standard 75-day comment period. ASA recommended extending the comment period to provide commenters additional time for research and feedback and the Gas Association Commenters stated this deviation placed undue burden on commenters to review and evaluate a proposal that could have significant ramifications on the water heater industry and consumers. Rinnai claimed that DOE has rushed the rulemaking process by relying on a preliminary TSD from 2022 and not producing a final TSD with the July 2023 NOPR and believed the compressed schedule between the September 2023 Webinar and the end of the comment period was

unjustified (BWC, No. 1164 at pp. 6-7; Gas Association Commenters, No. 1181, pp. 37-38; Rinnai, No. 1186 at p. 35; ASA, No. 1160 at p. 1) JEA, WMU, and Southeast Gas commented that as members of APGA, they supported APGA's submitted comments that offer more details on their concerns. (JEA, No. 865 at p. 2; WMU, No. 872 at p. 2; Southeast Gas, No. 887 at p. 1)

DOE has determined that the length of the comment period was appropriate and provided a meaningful opportunity to comment on the NOPR. In the July 2023 NOPR, DOE explained its deviation from section 6(f)(2) of 10 CFR part 430, subpart C, appendix A,

which specifies that the length of the public comment period for a NOPR be not less than 75 calendar days. However, with respect to NOPRs, EPCA requires at least a 60-day comment period. (42 U.S.C. 6295(p)(2)), and similarly, Executive Order (“E.O.”) 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993) states that in most cases a comment period should not be less than 60 days. On April 8, 2024, DOE published in the

Federal Register

a final rule amending section 6 of appendix A to specify that comment periods for standards rulemaking documents will be determined on a case-by-case basis with a minimum 60-day comment period for NOPRs based on the requirements of EPCA and recommendations in E.O. 12866. 89 FR 24360 (April 8, 2024). As discussed in the July 2023 NOPR, DOE determined that a 60-day comment period provided sufficient time because the NOPR relied on many of the same analytical assumptions and approaches as used in the preliminary assessment, on which the public had an opportunity to comment. 88 FR 49058. In particular, a 60-day comment period (followed by 14-day extension) was provided for the March 2022 Preliminary Analysis, and a 45-day period for the May 2020 RFI. 87 FR 11327; 85 FR 30853.

In reference to appendix A as it appeared at the time of the publication of the July 2023 NOPR.

In response to the December 2023 SNOPR, DOE received 176 comments, or 90 percent of comments, in opposition of new standards along similar concerns as those expressed in response to the July 2023 NOPR.

DOE also received feedback from some stakeholders that the comment period provided for the December 2023 SNOPR was too short. AHRI requested that DOE extend the comment period to provide stakeholders adequate time to properly respond. (AHRI, No. 1389 at p. 1) BWC stated that the opportunity to comment on the December 2023 SNOPR was severely limited due to its seasonal timing and comment period duration. (BWC, No. 1413 at p. 3) Rinnai stated that there was little meaningful time for a detailed assessment of the December 2023 SNOPR due to the timing of the comment period and that only a limited number of inputs were collected. (Rinnai, No. 1415 at p. 1)

The scope of the December 2023 SNOPR was limited to a definitional change for circulating water heaters, with only two requests for comment, and therefore DOE believes the comment period was sufficient. The CA IOUs, NEEA, CEC, and NYSERDA expressed support for the December 2023 SNOPR comment period being limited to 14 days because its scope is limited to circulating water heaters. (CA IOUs, No. 1409 at p. 1; NEEA, No. 1414 at p. 2; CEC, No. 1412 at p. 3; NYSERDA, No. 1406 at p. 1)

Additionally, DOE's proposal in the SNOPR was mainly responsive to more substantive stakeholder feedback received in response to the July 2023 NOPR, as discussed throughout that notice (

see

88 FR 89330).

Many individual commenters also expressed concerns regarding the implementation of heat pump water heaters due to efficiency concerns in colder areas and weather, lack of expertise in maintaining a more complex product, reliability, potential for mold, and potentially high purchase and installation costs and requirements for a product with the same expected lifetime as a standard electric water heater. Individual commenters also stated that the proposed standards are counterproductive because heat pump water heaters eject cold air into the house which then has to be heated up by the household HVAC system. Individual commenters stated that consumers may face high costs and long wait times associated with retrofitting due to the proposed standards, and due to increased insulation, which results in larger products. These high costs will increase the cost of home ownership and may prevent first-time buyers from obtaining a home.

DOE accounts for differences between rated efficiency and on-site efficiency in its energy use analysis, which considers factors like climate and heating load. Heat pump water heaters can help with cooling demand in the summer but can work against the home heating system in the winter if they are not ducted separately. DOE's energy use analysis includes these impacts (

see

appendix 7B to the TSD). DOE quantifies these impacts in the energy use analysis to include them in the expected operating expenses for the LCC analysis.

One individual commenter requested that equipment and repair costs be factored into savings and that consumers should decide the return in savings when investing in new equipment. (Johnson, No. 1271 at p. 1) Great Plains Resource supported the proposed standard and stated that if a redesign of water heaters helps to control pollution, it should be passed. Great Plains Resource stated, however, that DOE should plan to mitigate costs for consumers associated with manufacturers increasing costs of water heaters. Other commenters suggested that DOE subsidize new water heater technologies or introduce a tax incentive rather than seeking energy efficiency through regulations. Great Plains Resource suggested that DOE should consider extending the time frame to help manufacturers create new equipment and create competition to control cost of equipment to consumers. (Great Plains Resource, No. 1267 at p. 1) An individual commented that condensing gas-fired water heaters use expensive vent pipes due to the corrosiveness of condensation. (Harley, No. 1341 at p. 1)

DOE notes that its analysis incorporates installation and equipment costs into its analysis, including the necessary venting, as well as repair and maintenance costs. Pickering expressed concern that the definitions proposed in the December 2023 SNOPR for circulating water heaters may not be compatible with solar photovoltaic direct water heating systems, which the commenter described as a low-cost system where DC electric output from the solar photovoltaic panel is wired (without grid connection) directly to the heating elements of an electric resistance storage water heater. (Pickering, No. 1399, at pp. 1-3)

DOE understands this comment to be opposing the proposed heat pump-level standards for most electric storage water heaters due to the fact that the direct solar photovoltaic water heating systems described by the commenter is dependent upon a DC-compatible electric storage water heater. DOE notes that electric resistance storage water heaters will still be available within the small electric storage water heater (and grid-enabled water heater product classes for cases where the home is still connected to a utility grid), however.

According to NPGA, APGA, AGA, and Rinnai, DOE is seeking to promote the market for electric heat pumps at the expense of gas-fired water heaters, diminishing competition and profoundly affecting consumer choice. They also stated that the proposed rule fails to meet EPCA's 3-year rebuttable

presumption of economic justification under pure economic terms and would be an enormous burden on manufacturing and on competition between gas and electric water heaters. (NPGA, APGA, AGA, and Rinnai, No. 441 at pp. 3-4) EEI noted that while the proposed standards for electric storage water heaters increase by 21 to 140 percent in efficiency, the July 2023 NOPR only proposed an increase of 0 to 9.7 percent for gas-fired and oil-fired storage water heaters, and this disparity would cause fuel-fired storage water heaters to gain a competitive advantage because buyers' decisions are strongly motivated by cost considerations. (EEI, No. 1198 at pp. 3-4) Sunrise Pittsburgh stated that the proposed standard would require electric and gas-fired water heaters to meet vastly different standards, which could potentially result in consumers switching to gas-fired water heaters given the lower upfront cost associated with gas-fired water heaters compared to heat pump water heaters. In turn, Sunrise Pittsburgh stated this may result in more carbon emissions. According to Sunrise Pittsburgh, revising the proposed standard to apply the same standard across all water heaters regardless of the technology or fuel source used would benefit consumers, especially it removes gas-fired water heaters from the market, as this would save consumers from asthma and carcinogens as well as dangerous gas-fired water heater explosions associated with gas fueled products. (Sunrise Pittsburgh, No. 905 at pp. 1-2)

In this rulemaking DOE has provided its analytical approach and results which have led to the selection of more stringent standards for some product classes compared to others. When determining whether the benefits of amended standards outweigh the burdens, DOE considers the trial standards levels, which are comprised of different efficiency levels for each product class. The construction of trial standards levels is discussed in section V.A of this document. In the shipments analysis, which is detailed in section IV.G of this document, DOE considers the impacts of product life-cycle costs on consumer purchasing decisions, which ultimately is used to assess the total energy savings, economic impacts to consumers, and impacts to health (summarized in section I.C of this document).

With respect to Sunrise Pittsburgh's suggestion to apply the same standard across all water heaters regardless of the technology or fuel source, DOE establishes separate standards for different product classes of consumer water heaters based on statutory requirements from EPCA, which includes a consideration for products that consume different types of energy (

e.g.,

electricity, oil, or gas). (42 U.S.C. 6295(q)(1)-(2)) The product classes established by this final rule are discussed in section IV.A.1 of this document.

3. Selection of Standards Levels

DOE received several comments regarding the selection of proposed efficiency levels.

CEC agreed with DOE's analysis recognizing that the majority of electric storage water heaters can meet heat pump-level standards but encouraged DOE to consider improving the minimum standard for electric storage water heaters >20 and ≤55 gal to a level closer to EL 2. CEC noted that while a UEF of 2.3 (as proposed) is sufficient to drive the core shift in technology, the least efficient heat pump water heaters on the market today have a UEF of 2.8 or greater. (CEC, No. 1173 at pp. 3-4)

As stated in the July 2023 NOPR, split-system and 120-volt heat pump water heaters may not be able to achieve the same efficiency levels as conventional 240-volt products, as suggested by less stringent ENERGY STAR Residential Water Heaters Specification Version 5.0 (“ENERGY STAR v5.0”) criteria at 2.20 UEF. DOE has observed products certified to both the ENERGY STAR database and DOE's Compliance Certification Database (“CCD”) capable of meeting these criteria and determined EL 2 such that novel 120-volt products would not be prevented from entering the market. 88 FR 49058, 49090. DOE continued to consider these factors when evaluating the standard levels for this final rule.

DOE received comments from BWC regarding the potential manufacturer impacts and capacity constraints related to transitioning all electric storage water heater products to heat pump designs. BWC stated appreciation that DOE recognized that a 5-year compliance window may be challenging for many manufacturers to redesign 100 percent of electric storage water heater products to incorporate heat pump designs. BWC noted that change of this scale would indeed require a commitment of significant time, resources, and capital to ensure these units can be produced at a rate that would satisfy sharply increased demand while meeting and exceeding consumers' needs and expectations. (BWC, No. 1164 at pp. 14-15)

NRECA recommended that DOE delay implementation of the proposed electric storage water heater standard for 40-gallon model sizes to allow more time for manufacturers to innovate and design heat pump water heaters that are more adaptable to a variety of installation scenarios. NRECA also recommended that DOE allow electric resistance options for storage tank sizes up to 50 gallons for space constrained installations, and that DOE apply the proposed standard for electric storage water heaters to new construction only, since new homes can be designed to accommodate heat pump water heaters. (NRECA, No. 1127 at p. 13)

In response, DOE notes that the timing of amended standards for consumer water heaters is mandated by EPCA. Furthermore, DOE finds that a 5-year lead time is sufficient for manufacturers to prepare given that heat pump water heaters available today can be installed in a variety of installation scenarios. For consumer water heaters DOE does not have the authority to regulate water heaters in new construction only. As discussed in section V.C of this document, DOE has fully weighed the burdens of its proposed standards for electric storage water heaters against its benefits in determining the appropriate standards level.

DOE acknowledges that requiring all electric storage water heater products to utilize heat pump designs would require notably higher levels of investment and development effort compared to only requiring a portion of the electric storage water heater market to transition to heat pump designs. In this final rule, DOE is adopting TSL 2, which, for electric storage water heaters, includes standards for larger products that are met through the use of heat pump technology while leaving standards for smaller products that can be met through the use of electric resistance heating.

See

section V.C.1 of this document for the benefits and burdens of the TSLs considered in this rulemaking.

In this rulemaking, DOE did not analyze more stringent standards for product classes for which there are currently no UEF-based standards. Several commenters raised the concern that establishing such standards for certain product classes and then raising standards for other product classes would create a market condition where manufacturers can shift their models to meet the requirements of the new product classes with less stringent standards, hence undermining the energy savings potential of this rulemaking. This issue is discussed in detail throughout this document. The creation of separate product classes for the models that do not have current

UEF-based standards is detailed in section IV.A.1 of this document. The selection of standards for these products is explained in section IV.C.1 of this document. Finally, the impact of market transition (

i.e.,

product class switching) is addressed in the shipments analysis in section IV.G of this document.

DOE received comments from some stakeholders regarding the impact of the proposed standards for electric storage water heaters (which correspond to efficiencies attainable by heat pump water heaters) on electric grids.

Armada claimed that the proposed standards would cause serious business harm to companies that provide technologies to convert traditional electric storage water heaters into demand-response products. (Armada, No. 1193 at p. 3) Armada emphasized the importance of American-made technologies for grid-reliability as critical to tackling the climate crisis and advancing environmental justice initiatives, but these technologies are at risk of being regulated out of existence by the proposed standards. (Armada, No. 1193 at p. 7) Armada commented that due to the long recovery cycle of heat pump water heaters, these products are limited in their demand response capabilities. Armada stated that while they can be used for scheduled time-of-use programs, they do not work well responding to grid congestion or to the intermittent availability of renewable energy sources (

e.g.,

wind or solar) because water heater energy use times do not line up with when renewable energy resources are available during the day. (Armada, No. 1193 at p. 3)

NRECA stated that heat pump water heaters may be beneficial to electrical grid demand peaks because they draw lower demand than electric resistance storage water heaters, however they expressed concern that heat pump water heaters may not yield enough savings for demand response programs to be cost-effective. NRECA also stated that most electric cooperatives use load control switches to manage electric water heater demand, but have found that this strategy is generally incompatible with heat pump water heaters, which take more time to reboot after a cut in power than an electric resistance storage water heater. NRECA added that heat pump water heater can be managed using more sophisticated strategies such as CTA 2045, AHRI 1430, or the manufacturer's API; however, NRECA commented that electric cooperatives are concerned about the time, expense, and security risks associated with implementing a new control strategy. (NRECA, No. 1127 at p. 11) NRECA stated many of their member electric cooperatives mitigate demand peaks by running demand response programs, using both grid-enabled water heaters and 50-gallon electric storage water heaters and added that few of the cooperatives they interviewed include or plan to include heat pump water heaters, due to incompatible load control strategies or reduced grid management benefits. (NRECA, No. 1127 at p. 11)

ECSC urged DOE to retain electric resistance options for electric storage water heater installations where heat pump water heaters impose a time-consuming, costly burden, and to consider restrictions on tankless electric water heaters instead. ECSC stated that if consumers cannot afford or install heat pump water heaters, the remaining options of a small electric storage water heater (“ESWH”) or a tankless electric water heater pose a significant threat to existing electric grid demand management programs, which rely on electric storage water heaters as a thermal resource. ECSC added that the proposed standards for electric storage water heaters will likely disproportionately harm low-to-moderate income consumers. (ECSC, No. 1185 at p. 2)

NEEA, however, noted that heat pump water heaters have been successfully deployed in demand response programs in the Pacific Northwest, and added that, similar to electric resistance storage water heaters, heat pump water heaters are capable of shifting load from on-peak to off-peak hours, and are also capable of handling load-up events since they have both electric resistance backup elements and a compressor. NEEA cited a pilot program conducted by Bonneville Power Administration and Portland General Electric which enrolled 175 heat pump water heaters and 90 electric resistance water heaters in a demand response program and controlled them through 600 events over the course of 220 days. NEEA noted the pilot found that electric resistance and heat pump water heaters alike were able to reduce load substantially. (NEEA, No. 1199 at pp. 8-9)

NRECA's comment indicates that utilities may employ more strategies for water heater load management than CTA-2045 or OpenADR communication protocols. DOE reviewed load control switch technology in more detail.

These load control switches appear to be capable of implementing schedule-based control. However, if utilities need to cut power to water heaters at unplanned times to manage electricity demand, heat pump water heaters are expected to still be able to return to operation in a reasonable amount of time. DOE's teardown analyses of heat pump water heaters on the market show that nearly all heat pump water heater designs today have backup electric resistance elements should the household require a faster recovery rate. DOE does not expect heat pump water heaters to remove these backup elements as a result of amended standards. Additionally, DOE finds that the studies conducted by NEEA provide evidence towards the compatibility of heat pump water heaters with present-day load control strategies.

See, for example, the Generac ARA Load Control Switch. Product literature can be found online at:

www.generacgs.com/wp-content/uploads/2023/04/ARA_LoadControlSwitch_SpecSheet_B-1.pdf

(Last accessed Oct. 11, 2023).

In response to ECSC, there is an increasing number of heat pump water heaters available with demand-response capabilities. The ENERGY STAR v5.0 specification incentivizes the manufacture of heat pump water heaters that meet a list of criteria for connected product design, including the use of the standardized CTA-2045 or OpenADR communications protocols for utilities to send signals to enrolled water heaters. Load management strategies are expected to still be compatible with heat pump water heater designs. Additionally, DOE reiterates that electric resistance storage water heaters which elevate the storage tank temperature beyond 135 °F when responding to utility load management signals are exempt from having to test to the high temperature test method and will likely remain on the market. Beyond small electric storage water heaters and heat pump water heaters, grid-enabled water heaters (which are larger than 75 gallons of rated storage volume) are designed for this explicit purpose. DOE does not expect the availability of grid-enabled water heaters to decline as a result of this final rule (because no substantial amendments to the standards for these products are being adopted in this rulemaking), so there will remain electric resistance products available to consumers to connect to utility grid programs.

NPGA, APGA, AGA, and Rinnai stated that DOE should consider the effects the additional demand for electricity for water heaters may have on the energy grid as it has presently failed to consider such an impact its proposed standards may have on grid reliability. According to NPGA, APGA, AGA, and Rinnai, DOE should heed the guidance of the Government Accountability Office and analyze options for grid resilience to avoid enhanced strain

without a demand management or supply plan and would benefit by reviewing analysis of grid strain during extreme weather events. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 4) NMHC and NAA also advised that such an increase in electric product usage should be coupled with efforts to ensure the electric grid is prepared and suggested that DOE consider the costs and barriers in this rulemaking. (NMHC and NAA, No. 996 at p. 5)

DOE does not expect a significant fraction of consumers to switch from gas-fired or oil-fired water heaters to electric water heaters as a result of this rulemaking.

See

section IV.F.10 of this document. DOE does expect a significant fraction of consumers to switch from electric resistance storage water heaters to heat pump water heaters as a result of the more stringent standards for electric storage water heaters, however. Heat pump water heaters are significantly more efficient than electric resistance storage water heaters, and, as a result, consume significantly less electricity than electric resistance storage water heaters, which actually reduces strain on electrical grids.

The Attorney General of TN commented that the proposed rulemaking does not address the additional strain these standards would place on the national energy infrastructure and power grid. The Attorney General of TN stated that, by encouraging a 5 percent to 63 percent shift among consumers from gas-fired water heaters to those powered by electric pumps, the demand for additional electricity will place further stress on an already overworked energy grid. (Attorney General of TN, No. 1149 at p. 3)

DOE has carefully considered the potential impact of proposed standards on the national energy infrastructure and power grid. With reduced energy consumption and appropriate configuration, the proposed standards would actually benefit national energy infrastructure and power grid.

B. Scope of Coverage and Definitions

As discussed in section II.B.3 of this document, this final rule covers those consumer products that meet the definition of “water heater,” as codified at 10 CFR 430.2 and as described by EPCA at 42 U.S.C. 6291(27), with the exception of “Gas-fired instantaneous water heater,” as codified at 10 CFR 430.2.

Generally, DOE defines a “water heater,” consistent with EPCA's definition, as a product which utilizes oil, gas, or electricity to heat potable water for use outside the heater upon demand, including:

(a) Storage type units which heat and store water at a thermostatically controlled temperature, including gas storage water heaters with an input of 75,000 Btu per hour or less, oil storage water heaters with an input of 105,000 Btu per hour or less, and electric storage water heaters with an input of 12 kilowatts (kW) or less;

(b) Instantaneous type units which heat water but contain no more than one gallon of water per 4,000 Btu per hour of input, including gas instantaneous water heaters with an input of 200,000 Btu per hour or less, oil instantaneous water heaters with an input of 210,000 Btu per hour or less, and electric instantaneous water heaters with an input of 12 kilowatts or less; and

which are products designed to transfer thermal energy from one temperature level to a higher temperature level for the purpose of heating water, including all ancillary equipment such as fans, storage tanks, pumps, or controls necessary for the device to perform its function.

In the June 2023 TP Final Rule, DOE amended the definition of “commercial heat pump water heater” at 10 CFR 431.102 to align with the amperage and voltage requirements for consumer heat pump type units as specified in EPCA.

10 CFR 430.2; (42 U.S.C. 6291(27))

In addition, at 10 CFR 430.2, DOE further defines several specific categories of consumer water heaters as follows:

• “Electric instantaneous water heater” means a water heater that uses electricity as the energy source, has a nameplate input rating of 12 kW or less, and contains no more than one gallon of water per 4,000 Btu per hour of input.

• “Electric storage water heater” means a water heater that uses electricity as the energy source, has a nameplate input rating of 12 kW or less, and contains more than one gallon of water per 4,000 Btu per hour of input.

• “Gas-fired instantaneous water heater” means a water heater that uses gas as the main energy source, has a nameplate input rating less than 200,000 Btu per hour, and contains no more than one gallon of water per 4,000 Btu per hour of input.

• “Gas-fired storage water heater” means a water heater that uses gas as the main energy source, has a nameplate input rating of 75,000 Btu per hour or less, and contains more than one gallon of water per 4,000 Btu per hour of input.

• “Grid-enabled water heater” means an electric resistance water heater that—

○ Has a rated storage tank volume of more than 75 gallons;

○ Is manufactured on or after April 16, 2015;

○ Is equipped at the point of manufacture with an activation lock; and

○ Bears a permanent label applied by the manufacturer that—

Is made of material not adversely affected by water;

Is attached by means of non-water-soluble adhesive; and

Advises purchasers and end-users of the intended and appropriate use of the product with the following notice printed in 16.5 point Arial Narrow Bold font: “IMPORTANT INFORMATION: This water heater is intended only for use as part of an electric thermal storage or demand response program. It will not provide adequate hot water unless enrolled in such a program and activated by your utility company or another program operator. Confirm the availability of a program in your local area before purchasing or installing this product.”

• “Oil-fired instantaneous water heater” means a water heater that uses oil as the main energy source, has a nameplate input rating of 210,000 Btu/h or less, and contains no more than one gallon of water per 4,000 Btu per hour of input.

• “Oil-fired storage water heater” means a water heater that uses oil as the main energy source, has a nameplate input rating of 105,000 Btu/h or less, and contains more than one gallon of water per 4,000 Btu per hour of input.

In the June 2023 Test Procedure Final Rule, DOE amended 10 CFR 430.2 (effective on July 21, 2023), adding the following definitions for circulating, low-temperature, and tabletop water heaters:

• “Circulating water heater” means an instantaneous or heat pump-type water heater that does not have an operational scheme in which the burner, heating element, or compressor initiates and/or terminates heating based on sensing flow; has a water temperature sensor located at the inlet or the outlet of the water heater or in a separate storage tank that is the primary means of initiating and terminating heating; and must be used in combination with a recirculating pump and either a separate storage tank or water circulation loop in order to achieve the water flow and temperature conditions recommended in the manufacturer's installation and operation instructions.

• “Low-temperature water heater” means an electric instantaneous water heater that is not a circulating water heater and cannot deliver water at a

temperature greater than or equal to the set point temperature specified in section 2.5 of appendix E to subpart B of this part when supplied with water at the supply water temperature specified in section 2.3 of appendix E to subpart B of part 430 and the flow rate specified in section 5.2.2.1 of appendix E to subpart B of part 430.

• “Tabletop water heater” means a water heater in a rectangular box enclosure designed to slide into a kitchen countertop space with typical dimensions of 36 inches high, 25 inches deep, and 24 inches wide.

As stated in section I of this document, EPCA prescribed energy conservation standards for all consumer water heaters (

i.e.,

those that meet the definition of “water heater” above). For the purposes of this final rule, DOE is considering all consumer water heaters, as defined by EPCA, with the exception of “gas-fired instantaneous water heaters.” This rulemaking does include consumer water heaters for which there are no current UEF-based standards codified at 10 CFR 430.32(d).

In the July 2023 NOPR, DOE responded to inquiries concerning coverage of hot water dispensing products (not to be confused with low-temperature electric instantaneous water heaters or point-of-use electric storage water heaters), which operate at less than 2 kW of power and generally provide water at temperatures between 160 °F and 210 °F for food preparation purposes. DOE stated that while it has the authority to set standards for products that meet the definition of a consumer water heater (42 U.S.C. 6292(a)(4)), this rulemaking is not currently considering standards for hot water dispensing products. 88 FR 49058, 49070.

Additionally, DOE received comments from stakeholders in response to the July 2023 NOPR regarding the scope and classification of circulating water heater as defined at 10 CFR 430.2 by the June 2023 TP Final Rule. DOE subsequently published an SNOPR on December 27, 2023 (“December 2023 SNOPR”), that discussed the comments received on this topic and proposed to amend the definition for “circulating water heater” to reclassify these products as storage-type water heaters. 88 FR 89330. In the December 2023 SNOPR, DOE proposed amending the definition of “circulating water heaters” to re-classify these products as storage-type water heaters.

Id.

After considering the comments on the December 2023 SNOPR, DOE is adopting its proposal to amend the definition for “circulating water heater” as it appears at 10 CFR 430.2 to reclassify these products as storage-type water heaters. The SNOPR comments received from stakeholders and DOE's responses, along with the definition of a “circulating water heater,” are discussed in detail in section IV.A.1.a of this document. As a result of this reclassification, the scope of coverage for circulating water heaters is limited to those products which meet the statutory input rate limits for storage-type water heaters. Specifically, electric circulating water heaters must have a nameplate input rating of 12 kW or less, gas-fired circulating water heaters must have a nameplate input rating of 75,000 Btu/h or less, oil-fired circulating water heaters must have a nameplate input rating of 105,000 Btu/h or less, and heat pump circulating water heaters must have a maximum current rating of 24 amperes (“A”) at a voltage no greater than 250 volts (“V”). Circulating water heaters that have input rates greater than these specifications would be considered commercial water heaters.

In response to the December 2023 SNOPR, BWC indicated that commercial circulating water heaters are not separately defined at 10 CFR 431.102 and the recent final rule regarding energy conservation standards for commercial water heaters

did not establish separate standards for circulating water heaters. BWC requested that DOE clarify how the provisions in the December 2023 SNOPR will impact commercial circulating water heaters if adopted. (BWC, No. 1413 at p. 2) A.O. Smith agreed with DOE's determination that circulating water heaters with input rates surpassing those defined for consumer storage water heaters as outlined in 10 CFR 430.2, should be classified as commercial water heaters. A.O. Smith suggested that DOE formalize this categorization by establishing definitions for commercial gas-fired circulating water heaters with input rates between 75,000 Btu/h and 200,000 Btu/h at 10 CFR 431.102. (A.O. Smith, No. 1411 at p. 2)

On October 6, 2023 the Department published a final rule amending standards for commercial water heating equipment, including commercial circulating water heaters. 88 FR 69686.

Rheem concluded that gas-fired circulating water heaters with input rates greater than 75,000 but less than or equal to 105,000 Btu/h could be categorized as residential-duty commercial water heating equipment,

and therefore could be subject to the energy conservation standards recently established in the commercial water heater equipment final rule. Rheem requested DOE confirm its understanding that the proposed definitions circulating water heaters would extend to residential-duty commercial water heaters. (Rheem, No. 1408 at p. 3)

DOE defines residential-duty commercial gas-fired storage water heaters as commercial gas-fired storage water heaters that are not designed to provide outlet hot water at temperatures greater than 180 °F, do not have a rated input greater than 105,000 Btu/h, and do not have a rated storage volume greater than 120 gallons. (10 CFR 431.102)

The scope of this rulemaking pertains specifically to consumer water heaters, and the amended standards and definitions addressed herein do not apply to residential-duty commercial water heaters (which are commercial water heating equipment defined at 10 CFR 431.102). The definition of circulating water heater DOE is establishing at 10 CFR 430.2 will be supplemented by additional definitions for electric, gas-fired, and oil-fired circulating water heaters that specify input rate limits consistent with consumer water heaters. Circulating water heaters that exceed these input rates will be commercial water heaters and therefore are outside the scope of standards established in this rulemaking. DOE may consider addressing standards and test procedures for commercial circulating water heaters in a future rulemaking for commercial water heaters.

In response to the July 2023 NOPR, the Joint Advocacy Groups urged DOE to clarify that electric water heaters that can operate at inputs both above and below 12 kW must meet both the relevant consumer and commercial water heater standards. (Joint Advocacy Groups, No. 1165 at p. 8)

DOE is aware of certain “field-convertible” electric storage water heaters which can be sold with elements rated above 12 kW (

e.g.,

12.1 kW), but the product is designed in a way that allows the user to change the elements to a lower input rate (

e.g.,

6 kW). Field-convertible electric storage water heaters are, therefore, sold as commercial water heaters but can be converted into consumer water heaters.

For example, Rheem offers a commercial electric water heater that is marketed for light-duty commercial applications. In certain storage volumes (

i.e.,

66, 80, and 119.9 gallon models) the input rating as shipped from the manufacturer is only available at 12.1 kW which qualifies the product as a commercial water heater. However, the product literature states that this product is factory shipped with two 6.05 kW elements that operate simultaneously, but can be easily converted in field for non-simultaneous element operation. When converted, the input rating would be effectively 6.05 kW. This causes the product to meet the definition of a consumer water heater. For more information see:

https://s3.amazonaws.com/WebPartners/ProductDocuments/9A53AD9F-75C2-

4E66-8967-1BAE91B17CAC.pdf

(Last accessed on Dec. 20, 2023)

Consistent with its determinations in other rulemakings, DOE has concluded that if a product can be configured to meet either the commercial water heater definition or the consumer water heater definition, then it must comply with the standards applicable to all types of product/equipment in which it can be configured. For example, in a recent final rule addressing convertible consumer refrigeration products, DOE specified that if a product is capable of operating with compartment temperatures as specified in multiple product category definitions (

i.e.,

a “convertible product”), the model must be tested and certified to each applicable product category. 88 FR 7840, 7843 (Feb. 7, 2023). Also, in a recent final rule addressing the test procedure for consumer boilers (which are a space-heating appliance that can often also be configured to provide domestic water heating), DOE determined that if a combination appliance meets the definition of a consumer boiler, the product must be tested per the boiler test procedure and demonstrate compliance with those standards. 88 FR 15510, 15515 (Mar. 13, 2023). Similarly, field-convertible electric storage water heaters are subject to the appendix E test procedure and the standards adopted by this final rule to the extent that they can be configured to meet the consumer water heater definition.

Uponor stated that other countries have generated domestic hot water via a heat exchanger connected to a hydronic mechanical system to improve water quality and energy efficiencies for decades. Uponor provided product literature from its technology offerings and requested clarification about how such products would be covered under DOE's standards. (Uponor, No. 606 at p. 1)

DOE reviewed the product literature cited by the commenter and found that the technology being referenced is an unfired heat exchange device which can couple hydronic piping to domestic hot water piping far downstream of the point of heat generation so that the heat exchange can occur in commercial high-rise buildings to produce domestic hot water using heat from the building's hydronic heating system. While DOE does not disagree that these technologies could improve high-rise building system efficiencies, the heat exchangers referenced by Uponor may be better characterized as heat recovery devices that function based on diverting excess heat to the domestic hot water supply and work in conjunction with the appliance providing the heat.

In response to the July 2023 NOPR, DOE received questions from BWC asking whether space-heating products that are capable of heating domestic hot water by means of an indirect water heater tank would be considered circulating water heaters. In response to the December 2023 SNOPR, Pickering provided comments raising concerns about the potential for evaluating efficiency gains if there is overlap between these types of systems and circulating water heaters.

Pickering commented that definitions that do not account for the array of equipment that is on the market or coming on the market, and that do not recognize the efficiency gains to be had with multiple pieces of equipment operating as a system, may limit choice and stifle innovation. Specifically, Pickering commented that the proposed definitions for circulating water heaters may be incompatible with or otherwise create regulatory impediments to air-to-water heat pumps that provide domestic hot water as an ancillary function to space conditioning. Pickering added that these combined systems can increase overall system efficiency over a more typical separated system, but that the proposed definitions mean that it may be difficult to quantity the efficiency of the domestic hot water function of a combined system specifically, and that they may not account for or accommodate the combinations of equipment (assembled on site) that produce domestic hot water in such a combined system. (Pickering, No. 1399 at pp. 1-3)

Pickering recommended DOE consider removing indirect tanks from the definition of conventional electric storage water heaters, refrain from setting water heater efficiency standards for heat pumps that produce domestic hot water as an ancillary function, clarify that gas-fueled heat pumps are not considered to be electric storage water heaters, and take a systems approach to energy efficiency for domestic hot water. (Pickering, No. 1399 at p. 3)

BWC requested that DOE provide answers to the following questions: (1) Are split-system heat pump products that provide space heating, as well as domestic hot water through an indirect unfired hot water storage tank (“UFHWST”) classified as a circulating heat pump water heater, or instead as an air-to-water heat pump? (2) Would such a product need to be tested under the residential water heater test procedure, the air-to-water heat pump test procedure once such a procedure is created, or both? (3) Will such a product need to represent its efficiency using UEF or annualized fuel utilization efficiency, or both? (BWC, No. 1164 at pp. 11-12) While these questions pertain specifically to air-to-water heat pump appliances, DOE understands the need for general clarification regardless of the fuel type or technology.

Circulating water heaters circulate potable water through a heat exchanger: warm water from the stored volume of water enters the circulating water heater and exits after being heated to the setpoint temperature. By contrast, an indirect water heater uses the main furnace or boiler of a home to heat a fluid that is circulated through a heat exchanger in the storage tank.

An indirect water heater does not circulate the potable domestic hot water supply to and from the boiler (it is a separate heating fluid which circulates through the tank and boiler), therefore, DOE has determined that a boiler paired with an indirect water heater is not a circulating water heater.

A diagram of an indirect water heater and further description of this design configuration is provided on DOE's website at:

www.energy.gov/energysaver/tankless-coil-and-indirect-water-heaters

(Last accessed: Oct. 30, 2023).

Pickering also commented that the proposed definitions for circulating water heaters may be incompatible with or otherwise create regulatory impediments to solar thermal water heating systems. (Pickering, No. 1399 at p. 2)

DOE understands the commenter to be referring to solar water heating systems that circulate a hot heat transfer fluid between a solar heat collector and a heat exchanger inside a domestic hot water storage tank. Such a setup is parallel to an indirect-fired water heater: it is not the potable hot water that circulates between the heat source and the tank, it is an intermediate heat transfer fluid instead. As such, solar thermal water heating systems designed in this way do not constitute circulating water heaters.

This is in contrast to a boiler with a tankless coil (or a combination boiler-water heater). A tankless coil water heater provides hot water on demand without a tank, much like an instantaneous water heater. When a hot water faucet is turned on, water is heated as it flows through a heating coil or heat exchanger installed in a main furnace or boiler. In the tankless coil configuration, the domestic hot water supply does circulate through the boiler. However, these systems are typically flow-activated, and thus most do not meet the definition of a “circulating water heater,” either.

BWC requested clarification on whether air-to-water heat pumps would be covered as both circulating water heaters and as hydronic heating system boilers, which are being discussed by the U.S. Environmental Protection Agency (“EPA”) with regards to amendments to the consumer boiler specification. Specifically, BWC called attention to the potential overlap between the definition of circulating water heater and what the EPA is considering regulating as air-to-water (hydronic) heat pumps for space-heating in a potential revision or new specification for consumer boilers. BWC stated that both heat pump circulating water heaters and hydronic heat pumps are air-to-water heat pumps, and there would be an issue if multiple product definitions overlapped, thereby encompassing the same covered product within scope and subjecting it to two separate test procedures and efficiency standards. (BWC, No. 1164 at pp. 11-12)

There is currently no codified definition for an air-to-water hydronic heat pump used for space heating purposes. However, in a March 2023 final rule amending the test procedure for consumer boilers (the “March 2023 Boilers TP Final Rule”), DOE determined that hydronic heat pump appliances which meet the consumer boiler definition would be classified as consumer boilers. 88 FR 15510, 15516 (Mar. 13, 2023). However, the March 2023 Boilers TP Final Rule did not establish a test method for these hydronic heat pump boilers.

Id.

At this time, there is no Federal test procedure to determine the Annual Fuel Utilization Efficiency (“AFUE”) of such a product, hence, there are also no AFUE requirements for these heat pumps. In the March 2023 Boilers TP Final Rule, DOE also stated that, to the extent that a combination space and water heating product meets the definition of electric boiler or low pressure steam or hot water boiler, it is subject to the boilers test procedure and energy conservation standards for consumer boilers at 10 CFR 430.32(e)(2), and must be tested and rated accordingly.

Id.

at 15515. Therefore, per DOE's test procedure requirements, if an air-to-water heat pump meets both the definition of a consumer boiler and a consumer water heater, then it must be tested to both test procedures, should the boilers test procedure be amended at a future date to include an applicable method of test. On June 5, 2023, EPA released a Discussion Guide

requesting information from stakeholders about a method of test for hydronic heat pump boiler systems. DOE will monitor the development of this method of test but notes that it is a draft specification that has not been released as of this final rule.

The Boilers Discussion Guide can be found online at:

www.energystar.gov/products/residential_boilers_specification

(Last accessed: Nov. 3, 2023).

RVIA commented that based on the plain language of the consumer product statute, appliances designed specifically for use in a recreational vehicle (“RV”) are exempted from new standards. RVIA urged DOE to continue to recognize the uniqueness of RVs and the importance of excluding specific component parts designed for RVs from new appliance standards. (RVIA, No. 1168 at p. 4)

The scope of this rulemaking excludes water heaters designed exclusively for RV applications because the definition of “consumer product” in EPCA excludes consumer products designed solely for use in recreational vehicles and other mobile equipment. (

See

42 U.S.C. 6292(a)) In the market and technology assessment, DOE evaluated certification data to ensure that the model information used throughout this rulemaking analysis aligned with the scope of coverage.

Section IV.A.1 of this document contains detailed discussion of the product classes analyzed in this final rule.

C. Test Procedure

EPCA sets forth generally applicable criteria and procedures for DOE's adoption and amendment of test procedures. (42 U.S.C. 6293) Manufacturers of covered products must use these test procedures to certify to DOE that their product complies with energy conservation standards and to quantify the efficiency of their product. DOE's current energy conservation standards for consumer water heaters are expressed in terms of UEF. (

See

10 CFR 430.32(d).)

DOE most recently amended the test procedure for these products at appendix E in the consumer and residential-duty commercial water heater test procedure final rule published on June 21, 2023 (“June 2023 TP Final Rule”) pursuant to the 7-year review requirement as specified by EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In the June 2023 TP Final Rule, DOE added definitions and, where necessary, additional test procedure provisions for circulating water heaters, low-temperature water heaters, and tabletop water heaters, as well as provisions for high-temperature testing. However, DOE deferred the implementation of high-temperature testing provisions to this energy conservation standards rulemaking. 88 FR 40406, 40448. DOE also established effective storage volume as a metric and provided additional optional ambient test conditions for heat pump water heaters.

Id.

The test procedure for consumer water heaters incorporates by reference current versions of industry standards ASHRAE 41.1, ASHRAE 41.6, ASHRAE 118.2, ASTM D2156, and ASTM E97 and harmonizes various aspects of the test procedure with industry test procedures ASHRAE 118.2-2022 and NEEA Advanced Water Heating Specification v8.0. The amended test procedure established by the June 2023 TP Final Rule is mandatory for consumer water heater testing starting December 18, 2023, 180 days after publication, with the exception of certain provisions (

i.e.,

the new high temperature test method and the circulating water heater test method). For these specific provisions, compliance is mandatory on and after the compliance date of this final rule. (

See

Note at the beginning of appendix E).

D. Technological Feasibility

1. General

In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that 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. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially available products or in working prototypes to be technologically feasible. Sections 6(b)(3)(i) and 7(b)(1) of appendix A to 10 CFR part 430 subpart C (“appendix A”).

After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; (3) adverse impacts on health or safety and (4) unique-pathway proprietary technologies. Section 7(b)(2)-(5) of the Appendix A. Section IV.B of this document discusses the results of the screening analysis for consumer water heaters, particularly the designs DOE considered, those it screened out, and those that are the

basis for the standards considered in this rulemaking. For further details on the screening analysis for this rulemaking,

see

chapter 4 of the final rule TSD.

2. Maximum Technologically Feasible Levels

When DOE proposes to adopt a new or amended standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such product. (42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for consumer water heaters, using the design parameters for the most efficient products available on the market or in working prototypes. The max-tech levels that DOE determined for this rulemaking are described in section IV.C of this final rule and in chapter 5 of the final rule TSD.

E. Energy Savings

1. Determination of Savings

For each trial standard level (“TSL”), DOE projected energy savings from application of the TSL to consumer water heaters purchased in the 30-year period that begins in the first full year of compliance with the amended standards (2030-2059).

The savings are measured over the entire lifetime of consumer water heaters purchased in the 30-year analysis period. DOE quantified the energy savings attributable to each TSL as the difference in energy consumption between each standards case and the no-new-standards case. The no-new-standards case represents a projection of energy consumption that reflects how the market for a product would likely evolve in the absence of amended energy conservation standards.

DOE also presents a sensitivity analysis that considers impacts for products shipped in a 9-year period.

DOE used its national impact analysis (“NIA”) spreadsheet models to estimate national energy savings (“NES”) from potential amended standards for consumer water heaters. The NIA spreadsheet model (described in section IV.H of this document) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. For electricity, DOE reports national energy savings in terms of primary energy savings, which is the savings in the energy that is used to generate and transmit the site electricity. For natural gas, the primary energy savings are considered to be equal to the site energy savings. DOE also calculates NES in terms of full-fuel-cycle (“FFC”) energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (

i.e.,

coal, natural gas, petroleum fuels), and thus presents a more complete picture of the impacts of energy conservation standards.

DOE's approach is based on the calculation of an FFC multiplier for each of the energy types used by covered products or equipment. For more information on FFC energy savings, see section IV.H.2 of this document.

The FFC metric is discussed in DOE's statement of policy and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as amended at 77 FR 49701 (Aug. 17, 2012).

2. Significance of Savings

To adopt any new or amended standards for a covered product, DOE must determine that such action would result in significant energy savings. (42 U.S.C. 6295(o)(3)(B))

The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking.

For example, some covered products and equipment have most of their energy consumption occur during periods of peak energy demand. The impacts of these products on the energy infrastructure can be more pronounced than products with relatively constant demand. Accordingly, DOE evaluates the significance of energy savings on a case-by-case basis, taking into account the significance of cumulative FFC national energy savings, the cumulative FFC emissions reductions, and the need to confront the global climate crisis, among other factors.

The numeric threshold for determining the significance of energy savings established in a final rule published on Feb. 14, 2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule published on Dec. 13, 2021 (86 FR 70892).

As stated, the standard levels adopted in this final rule are projected to result in national energy savings of 17.6 quads, the equivalent of the primary annual energy use of 116 million homes. Based on the amount of FFC savings, the corresponding reduction in emissions, and the need to confront the global climate crisis, DOE has determined the energy savings from the standard levels adopted in this final rule are “significant” within the meaning of 42 U.S.C. 6295(o)(3)(B).

F. Economic Justification

1. Specific Criteria

As noted previously, EPCA provides seven factors to be evaluated in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(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 potential new or amended standards on manufacturers, DOE conducts an MIA, as discussed in section IV.J of this document. 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) INPV, which values the industry on the basis of expected future cash flows; (2) cash flows by year; (3) changes in revenue and income; and (4) other measures of impact, as appropriate. Second, DOE analyzes and reports the impacts on different types of manufacturers, 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 LCC and PBP associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the consumer costs and benefits expected to result from particular standards. DOE also evaluates the impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a standard.

b. Savings in Operating Costs Compared To Increase in Price (LCC and PBP)

EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the

initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(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 cost (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 discount rates appropriate for consumers. 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.

The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more-efficient product through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost due to a more stringent standard by the change in annual operating cost for the year that standards are assumed to take effect.

For its LCC and PBP analysis, DOE assumes that consumers will purchase the covered products in the first year of compliance with new or amended standards. The LCC savings for the considered efficiency levels are calculated relative to the case that reflects projected market trends in the absence of new or amended standards. DOE's LCC and PBP analysis is discussed in further detail in section IV.F of this document.

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. 6295(o)(2)(B)(i)(III)) As discussed in section IV.H of this document, DOE uses the NIA spreadsheet models to project national energy savings.

d. Lessening of Utility or Performance of Products

In establishing product classes, and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data available to DOE, the standards adopted in this document 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 standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine the impact, if any, of any lessening of competition likely to result from a standard and to transmit such determination to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the Department of Justice (“DOJ”) in making such a determination, DOE transmitted copies of its proposed rule and the NOPR TSD to the Attorney General for review, with a request that the DOJ provide its determination on this issue. In its assessment letter responding to DOE, DOJ concluded that the proposed energy conservation standards for consumer water heaters are unlikely to substantially lessen competition. DOE is publishing the Attorney General's assessment at the end of this final rule.

In response to the July 2023 NOPR, NPGA, APGA, AGA, and Rinnai asserted that the standards proposed in the July 2023 NOPR would have a significant market effect, with manufacturers likely choosing to leave the market rather than expend the millions of dollars it would take to redesign their products and production especially in requiring condensing technology in order to be in compliance with the standards proposed. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 3)

Although commenters focus primarily on condensing technologies as it relates to GIWHs, which are not amended in this final rule, DOE continued to look at the impact of competition as it relates to the other product classes for which DOE is adopting standards in this final rule. DOE does not expect that the adopted standard would significantly alter the level of concentration in the consumer water heater market. Additionally, DOJ stated, in a letter to DOE written in response to the July 2023 NOPR, that “we do not have an evidentiary basis to conclude that the proposed energy conservation standards for consumer water heaters are likely to substantially lessen competition.” (

See

Attorney General's assessment at the end of this final rule). For this final rule, DOE reviewed up-to-date information on the consumer water heater models available on the U.S. market to ensure a comprehensive analysis of the current manufacturer landscape. In response to stakeholders' comments, DOE carefully reviewed product offerings of original equipment manufacturers (“OEMs”) of gas-fired storage water heaters. DOE identified five OEMs of gas-fired storage water heaters that would be subject to more stringent standards under this rulemaking. Of the five OEMs identified, four OEMs currently manufacture gas-fired storage water heaters that meet the adopted TSL (EL 2 for gas-fired storage water heaters). Collectively, the four OEMs that already offer gas-fired storage water heaters that meet EL 2 account for approximately 95 percent of gas-fired storage water heater shipments.

f. Need for National Energy Conservation

DOE also considers the need for national energy and water conservation in determining whether a new or amended standard is economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from the adopted standards are likely to provide improvements to the security and reliability of the Nation's energy system. Reductions in the demand for electricity also may result in reduced costs for maintaining the 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 of this document.

DOE maintains that environmental and public health benefits associated with the more efficient use of energy are important to take into account when considering the need for national energy conservation. The adopted standards are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases (“GHGs”) associated with energy production and use. DOE conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.K of this document; the estimated emissions impacts are reported in section V.B.6 of this document. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L of this document.

g. Other Factors

In determining whether an energy conservation standard is economically justified, DOE may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To the extent DOE identifies any relevant information regarding economic justification that does not fit into the other categories described previously, DOE could consider such information under “other factors.”

2. Rebuttable Presumption

As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), 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 effect potential amended 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, as required under 42 U.S.C. 6295(o)(2)(B)(i). The results of this analysis serve as the basis for DOE's evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section IV.F of this document.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this rulemaking with regard to consumer water heaters. Separate subsections address each component of DOE's analyses.

DOE used several analytical tools to estimate the impact of the standards considered in this document. The first tool is a spreadsheet that calculates the LCC savings and PBP of potential amended or new energy conservation standards. The national impacts analysis uses a second spreadsheet set that provides shipments projections and calculates national energy savings and net present value of total consumer costs and savings expected to result from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (“GRIM”), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE website for this rulemaking:

www.regulations.gov/docket/EERE-2017-BT-STD-0019

. Additionally, DOE used output from the latest version of the Energy Information Administration's (“EIA's”)

Annual Energy Outlook

(“

AEO”

) for the emissions and utility impact analyses.

A. Market and Technology Assessment

DOE develops information in the market and technology assessment that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics, and technologies used in the products. This activity includes both quantitative and qualitative assessments, based primarily on publicly available information. The subjects addressed in the market and technology assessment for this rulemaking include (1) a determination of the scope of the rulemaking and product classes, (2) manufacturers and industry structure, (3) existing efficiency programs, (4) shipments information, (5) market and industry trends, and (6) technologies or design options that could improve the energy efficiency of consumer water heaters. The key findings of DOE's market assessment are summarized in the following sections.

See

chapter 3 of the final rule TSD for further discussion of the market and technology assessment.

1. Product Classes

When evaluating and establishing energy conservation standards for a type (or class) of covered products, DOE divides covered products into product classes by the type of energy used, or by capacity or other performance-related features which other products within such type (or class) do not have and that justify differing standards. (42 U.S.C. 6295(q)) In making a determination whether a performance-related feature justifies a different standard, DOE must consider such factors as the utility of the feature to the consumer and other factors DOE determines are appropriate.

Id.

EPCA, as amended by the National Appliance Energy Act (NAECA; Pub. L. 100-12), established initial energy conservation standards, expressed as EF, that were based on three product classes differentiated by fuel type: (1) gas-fired, (2) oil-fired, and (3) electric. (42 U.S.C. 6295(e)(1)) These standards applied to consumer water heaters manufactured on or after January 1, 1990.

DOE subsequently amended these EF standards twice, most recently in the April 2010 Final Rule, with which compliance was required starting on April 16, 2015. 75 FR 20112. In the April 2010 Final Rule, DOE further divided consumer water heaters into product classes based on fuel type (gas-fired, oil-fired, or electric), product type (storage, instantaneous, tabletop), storage volume, and input rate.

The Energy Efficiency Improvement Act of 2015 (“EEIA 2015”) (Pub. L. 114-11), enacted on April 30, 2015, added a definition of “grid-enabled water heater” and a standard in terms of EF for such products to EPCA's energy conservation standards. (42 U.S.C. 6295(e)(6)(A)(ii)) DOE codified the definition for grid-enabled water heater and the associated energy conservation standards in a final rule published and effective on August 11, 2015. 80 FR 48004.

Most recently, the December 2016 Conversion Factor Final Rule, published and effective on December 29, 2016, translated the EF-based standards to UEF-based standards for certain classes of consumer water heaters, which are shown in Table IV.1. Although the classes of consumer water heaters with UEF-based standards have limitations on the stored volume, as discussed in that final rule, the standards established in EPCA do not place any limitation on the storage volume of consumer water heaters. Therefore, the original standards established by EPCA in terms of EF remain applicable to all products without UEF-based standards. 81 FR 96204, 96209-96211.

The 32 product classes covered in this final rule for which DOE has currently established UEF-based standards are summarized in Table IV.1. The product classes without UEF-based standards, for which EF-based standards from EPCA apply, are shown in Table IV.2.

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The CA IOUs suggested that DOE reconsider its approach to setting minimum UEF standards for the water heaters formerly subject to EF standards. Citing the provisions in EPCA (42 U.S.C. 6295(q)(1)(B)), the CA IOUs stated that DOE must consider capacity, consumer utility, and other performance-related features when establishing separate product classes for different types of water heaters. The CA IOUs questioned whether converting an EF standard to a

UEF standard should result in a new product class. The commenter urged DOE to immediately initiate a new rulemaking to address appropriate standards levels or the new product classes, if established. (CA IOUs, No. 1175 at p. 5)

In response to the CA IOUs, DOE originally established these product classes in the 2016 Conversion Factor Final Rule. 81 FR 96204, 96210. At this time, DOE does not have sufficient data to perform an analysis of costs versus benefits of subjecting these products to standards of the same stringency as the amended standards proposed in the July 2023 NOPR. While these products may not have performance-related “features” distinguishing them from currently covered products, these models come in different capacities than the products for which DOE has already established UEF-based standards. As has been observed in DOE's teardown analyses and has been indicated by comments from manufacturers, the applicability of efficiency-improving design options is often predicated upon the size or capacity of the water heater; therefore, at this time, the capacities of these products do appear to justify separate standards. However, should future product designs demonstrate that the same efficiency-improving design options are equally as applicable for these capacities, DOE would consider the need for distinguishing these product classes by evaluating whether separate standards are justified for these capacities in a future standards rulemaking (

see

42 U.S.C. 6295(q)(1)(B)).

a. Circulating Water Heaters

In the June 2023 TP Final Rule, DOE established a definition for “circulating water heater” in 10 CFR 430.2, and also established test procedures to determine the UEF of these types of water heaters. 88 FR 40406. In the July 2023 NOPR, DOE identified three potential classes of circulating water heater based on fuel type and input ratings derived from instantaneous water heater definitions in EPCA at 42 U.S.C. 6291(27), which are shown in 88 FR 49058, 49077.

Table IV.3, and proposed their addition to the definitions found at 10 CFR 430.2. 88 FR 49058, 49077.

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As discussed in the June 2023 TP Final Rule, DOE had at that time determined that circulating water heaters with input ratings below 200,000 Btu/h (for gas-fired), 210,000 Btu/h (for oil-fired), or 12 kW (for electric) met the definitional criteria for instantaneous consumer water heaters. As such, these products were to be subject to the applicable energy conservation standards; however, DOE previously provided an enforcement policy for circulating water heaters.

Because an amended test procedure that includes new provisions for testing circulating water heaters was recently finalized in the June 2023 TP Final Rule, DOE proposed in the July 2023 NOPR to establish updated UEF standards that reflect the new test method and requested feedback on the proposed standards. In response to the July 2023 NOPR, DOE received comments that largely suggested that circulating water heaters are storage-type water heaters. As noted in section III.B, on December 27, 2023, therefore, DOE published the December 2023 SNOPR that proposed to reclassify these products as configurations of storage-type water heaters, thus proposed that separate product classes for circulating water heaters are not required. 88 FR 89330.

Prior to the June 2023 TP Final Rule, DOE became aware of gas-fired instantaneous water heaters meeting the definition of consumer water heaters which operated differently than those DOE had previously considered in test procedure rulemakings. On September 5, 2019, DOE issued an enforcement policy for consumer water heaters meeting the definition of gas-fired “circulating water heater” as described in said enforcement policy in which DOE stated that it would not seek civil penalties for failing to certify these products, or if these products failed to comply with applicable standards, on or before December 31, 2021. The June 2023 TP Final Rule has since addressed this issue by establishing test procedures to determine UEF ratings for circulating water heaters.

A “circulating water heater” is currently defined at 10 CFR 430.2 as an “instantaneous or heat pump-type water heater that does not have an operational scheme in which the burner, heating element, or compressor initiates and/or terminates heating based on sensing flow; has a water temperature sensor located at the inlet or the outlet of the water heater or in a separate storage tank that is the primary means of initiating and terminating heating; and must be used in combination with a recirculating pump and either a separate storage tank or water circulation loop in order to achieve the water flow and temperature conditions recommended in the manufacturer's installation and operation instructions.”

As described in the December 2023 SNOPR, circulating water heaters contain very little to no water on their own (

i.e.,

are “tankless”), but, as was determined in the June 2023 TP Final Rule, require a separate volume of water in order to function properly when installed in the field. In that rulemaking, circulating water heaters were designated as instantaneous-type water heaters because of the minimal storage volume contained within the product. However, comments received in response to the July 2023 NOPR led DOE to reevaluate circulating water heaters and propose in the December 2023 SNOPR to classify them as storage-type water heaters because they necessarily operate in tandem with a stored volume of water; hence, the circulating water heater and its separate tank or recirculation loop must be

treated as one system. When considering the entire system—the circulating water heater plus the stored water volume required for its operation in the field—these water heaters are operationally very similar to storage-type water heaters and, as a result, DOE had tentatively determined that it is appropriate to classify them as such under its regulations. 88 FR 89330, 89333. The December 2023 SNOPR proposed the following revised definition for circulating water heaters:

“Circulating water heater means a water heater that does not have an operational scheme in which the burner, heating element, or compressor initiates and/or terminates heating based on sensing flow; has a water temperature sensor located at the inlet or the outlet of the water heater or in a separate storage tank that is the primary means of initiating and terminating heating; and must be used in combination with a recirculating pump to circulate water and either a separate storage tank or water circulation loop in order to achieve the water flow and temperature conditions recommended in the manufacturer's installation and operation instructions. Paired with a separate storage tank, a circulating water heater constitutes a storage-type water heater.”

88 FR 89330, 89339.

CEC, BWC, NEEA, NYSERDA, ASAP et al., and A.O. Smith expressed support for DOE's tentative determination that circulating water heaters be considered storage-type water heaters and subject to the appropriate standards. (CEC, No. 1412 at pp. 1-2; BWC, No. 1413 at p. 1; NEEA, No. 1414 at p. 2; NYSERDA, No. 1406 at p. 2; ASAP et al., No. 1407 at pp. 1-2; A.O. Smith, No. 1411 at p. 2) NEEA and ASAP et al. noted that, compared to other storage-type water heaters, circulating water heaters do not provide any additional utility or performance-related features that would warrant a separate product class. (NEEA, No. 1414 at p. 2; ASAP et al., No. 1407 at pp. 1-2) NEEA and A.O. Smith commented that defining circulating water heaters as storage-type will address concerns regarding these products potentially being used as a circumvention pathway for more stringent storage-type standards. (NEEA, No. 1414 at p. 2; A.O. Smith, No. 1411 at p. 2) A.O. Smith added that this will provide more business certainty. (A.O. Smith, No. 1411 at p. 2)

DOE specifically requested comment and information on whether gas-fired circulating water heaters could offer the same utility as gas-fired instantaneous water heaters. 88 FR 89330, 89334. DOE sought to understand whether gas-fired circulating water heaters could be a potential loophole to gas-fired instantaneous water heater standards enforcement after receiving comments in response to the NOPR identifying such a possibility.

BWC agreed with DOE that gas-fired circulating water heaters would not be direct substitutes for gas-fired instantaneous water heaters, indicating that gas-fired circulating water heaters as defined in the December 2023 SNOPR are better suited towards providing large volumes of hot water in short periods of time and gas-fired instantaneous water heaters for lengthier periods of time. (BWC, No. 1413 at p. 3) Rheem supported DOE's tentative determination that circulating water heaters do not provide the same consumer utility as gas-fired instantaneous water heaters. Rheem added that though they do not currently exist on the market, the combination of the non-flow-activated operational scheme, storage tank or recirculation loop requirement, and input rate limits consistent with other storage-type water heaters present in DOE's definition ensures that any future gas-fired circulating water heaters would not serve as direct replacements for gas-fired instantaneous water heaters. (Rheem, No. 1408 at p. 2) A.O. Smith agreed with DOE's tentative determination that gas-fired circulating water heaters do not provide the same consumer utility as gas-fired instantaneous water heaters. (A.O. Smith, No. 1411 at p. 6) CEC noted that circulating water heaters provide different utilities from instantaneous water heaters and experience thermal standby losses more than a typical non-circulating storage water heater due to plumbing acting as a storage volume for a significant volume of hot water. (CEC, No. 1412 at p. 3) ASAP et al. agreed with DOE's tentative determination that gas-fired circulating water heaters do not provide the same consumer utility as gas-fired instantaneous water heaters due to the fact that gas-fired instantaneous water heaters utilize flow-activated control schemes and larger burners (compared to gas-fired circulating water heaters) in order to meet demand on a continuous basis, whereas gas-fired circulating water heaters must operate with a separate stored volume of hot water. (ASAP et al., No. 1407 at p. 2)

Rinnai agreed with DOE that gas-fired circulating water heaters do not provide the same utility as gas-fired instantaneous water heaters. Rinnai also stated that gas-fired circulating water heaters do not provide consumers with the same features, energy efficiency and reduced emissions benefits as gas-fired instantaneous water heaters at the proposed UEF levels. Rinnai reiterated its comments made in response to the July 2023 NOPR that UEFs of 0.80 to 0.81 result in increased energy savings and reduction of CO

emissions in comparison with the levels gas-fired circulating water heaters would be subject to as gas-fired storage water heaters. Thus, Rinnai arrived at a different conclusion from DOE and claimed that there is not a sufficient basis for allowing gas-fired circulating water heaters to be held to a lower UEF standard than other consumer products and requested that DOE instead establish the more stringent standards proposed in the July 2023 NOPR. (Rinnai, No. 1415 at pp. 1-2)

As discussed in section IV.A.1.c of this document, DOE has found sufficient justification in accordance with the provisions of EPCA to establish separate standards for storage-type and instantaneous-type water heaters.

Rheem, however, noted an additional concern that circulating water heaters can be paired with any size storage tank in the field, and that there is still a concern that circulating water heaters certified to a lower capacity energy conservation standard would be installed with higher capacity storage tanks where higher energy conservation standards would be required. Because of this, Rheem recommended DOE establish separate energy conservation standards for circulating water heaters, but at levels consistent with the higher capacity energy conservation standards. In its recommendation, Rheem showed that the standards equations for larger storage-type product classes (

i.e.,

gas-fired storage water heaters 55-100 gallons, and electric storage water heaters 55-120 gallons) would apply to both circulating water heaters and their analogous traditional storage-type water heaters. (Rheem, No. 1408 at pp. 2-3)

DOE understands Rheem to be suggesting that, in the case that a circulating water heater is designed and marketed to be paired with multiple volumes of storage tanks in the field, it is useful for the rating to reflect larger storage volumes. However, DOE notes that the size of the separate storage tank that the product is tested with (in accordance with section 4.10 of the test procedure) results in the effective storage volume of the circulating water heater, which, for most types of circulating water heaters will be 80 to 120 gallons. This already results in circulating water heaters being held to the same standards as larger storage water heaters. The only exception to this is electric heat pump circulating

water heaters, which are paired with smaller tanks. Separate storage tank pairings are discussed further in section V.D.2 of this document. Additionally, the commenter does not provide evidence as to how different standards for circulating water heaters would be justified under the provisions of EPCA.

After reviewing these comments DOE has concluded that circulating water heaters do not have any characteristics which justify separate standards under the provisions of EPCA at 42 U.S.C. 6295(q)(1). DOE has determined not to create separate product classes for circulating water heaters.

To accomplish this, in the December 2023 SNOPR DOE had proposed an addition to the definition that stated, “Paired with a separate storage tank, a circulating water heater constitutes a storage-type water heater.” 88 FR 89330, 89335.

Multiple stakeholders raised concern that DOE's proposed revised definition for “circulating water heater” seemingly implies that circulating water heaters are only storage-type water heaters if they are paired with a separate storage tank. These commenters—NEEA, ASAP et al., the CA IOUs, CEC, A.O. Smith and NYSERDA—all indicated that circulating water heaters paired with a circulating loop also constitute storage-type water heaters. (NEEA, No. 1414 at p. 3; ASAP et al., No. 1407 at p. 2; CA IOUs, No. 1409 at pp. 1-2; CEC, No. 1412 at p. 2; A.O. Smith, No. 1411 at pp. 4-5; NYSERDA, No. 1406 at p. 2)

NEEA requested that DOE define circulating water heaters as constituting storage-type water heaters regardless of the configuration in which they are sold or installed. (NEEA, No. 1414 at p. 3) ASAP et al. encouraged DOE to clarify the proposed definition for circulating water heaters so that it is clear all circulating water heaters, whether paired with a separate storage tank or recirculation loop, would be considered storage-type water heaters. (ASAP et al., No. 1407 at p. 2)

The CA IOUs also stated that excluding mention of circulation loops would be inconsistent with the earlier definitional requirements indicating that they must be paired with either a separate storage tank or a water circulation loop and recommend that DOE modify the definition as “Paired with a separate storage tank or circulation loop, a circulating water heater constitutes a storage-type water heater.” (CA IOUs, No. 1409 at pp. 1-2)

CEC provided similar statements, adding that the exclusion of pairings with water circulation loops may become a loophole exploited by manufacturers. CEC recommended that DOE modify the definition to simply state that “a circulating water heater constitutes a storage-type water heater” to avoid potential misreading. (CEC, No. 1412 at p. 2)

A.O. Smith recommended DOE remove the phrase “paired with” from the statement “paired with a separate storage tank a circulating water heater constitutes a storage-type water heater” in the definition for circulating water heater to avoid implying that only circulating water heaters that come with a manufacturer-specified or supplied tank would be considered circulating water heaters. In place of this phrasing, A.O. Smith suggested DOE incorporate the definition for a “water heater requiring a storage tank” currently outlined in section 1.9 of appendix E to subpart B into § 430.2 and reference this definition in the circulating water heater definition to ensure clarity. A.O. Smith commented that, given the input capacity limits placed on circulating water heaters in their respective definitions, a recirculation loop without the use of a storage tank is unlikely to be an applicable configuration in the residential context. Therefore, A.O. Smith recommended DOE remove the term “either” and the phrase “or water recirculation loop” from the circulating water heater definition proposed in the December 2023 SNOPR. (A.O. Smith, No. 1411 at pp. 4-5)

NYSERDA recommended that DOE update the definition for circulating water heater to read as follows: “When paired with a separate storage tank or as part of a water circulation loop, a circulating water heater constitutes a storage-type water heater”. (NYSERDA, No. 1406 at p. 2)

In response to these requests for further clarification, DOE agrees with most commenters that circulating water heaters would constitute storage water heaters whether they are paired with a tank or a recirculation loop. The loop serves to store hot water in pipes instead of in a tank. In both cases, the product does not function properly unless the hot water can be maintained outside of the water heater prior to delivery at a fixture.

While A.O. Smith suggested that a circulating water heater be defined as a “water heater requiring a storage tank,” this is not necessarily reflective of field usage to the extent that it can be used to define the product at 10 CFR 430.2. Numerous other comments indicate that a circulating water heater can also function with a recirculation loop. DOE has found examples of gas-fired instantaneous water heaters with input rates that modulate as low as 15,000 Btu/h and can be outfitted with recirculation loops in residential homes. While these specific products are

not

circulating water heaters because they have flow-activated control schemes and do not explicitly require a separate volume of stored hot water to function, they do demonstrate that it is possible for gas-fired products with input rates lower than 75,000 Btu/h to be used in conjunction with a recirculation loop and no tank.

Circulating water heaters are treated as “water heaters requiring a storage tank” in appendix E for the purpose of conducting the test procedure because they are not sold with a tank. The appendix E test procedure refers to “water heaters requiring a storage tank” in section 1.19 order to provide instruction on how to set up such a water heater with a representative volume of stored water. Therefore, DOE is not amending 10 CFR 430.2 to define a “water heater requiring a storage tank” because this terminology has limited application to the test setup instructions in appendix E only. DOE is also not incorporating this terminology in the definition of “circulating water heater” so as not to contradict how these products can be designed, marketed, and used in the field.

After considering the suggestions provided by interested parties, DOE is amending the definition of “circulating water heater” at 10 CFR 430.2 to read as:

Circulating water heater

means a water heater that does not have an operational scheme in which the burner, heating element, or compressor initiates and/or terminates heating based on sensing flow; has a water temperature sensor located at the inlet or the outlet of the water heater or in a separate storage tank that is the primary means of initiating and terminating heating; and must be used in combination with a recirculating pump to circulate water and either a separate storage tank or water circulation loop in order to achieve the water flow and temperature conditions recommended in the manufacturer's installation and operation instructions. A circulating water heater constitutes a storage-type water heater.

The December 2023 SNOPR had also proposed to amend the definitions of the three different fuel types of circulating water heater to align with the re-classification of these products as storage water heaters. 88 FR 89330, 89339.

CA IOUs stated that specifying the volume of stored water per 4,000 Btu/h of input in these definitions is unnecessary because circulating water

heaters are already defined as storage-type water heaters and recommended that DOE remove this requirement from the definitions of electric, gas-fired and oil-fired circulating water heaters as proposed in the December 2023 SNOPR. (CA IOUs, No. 1409 at p. 2)

DOE also agrees with the CA IOUs' suggestion to revise the definitions for the different types of circulating water heaters. As discussed in section III.B, these additional definitions serve mainly to clarify the input rate cutoffs to distinguish these products from commercial water heaters. DOE is amending these definitions to read as:

Electric circulating water heater

means a circulating water heater with an input of 12 kW or less (including heat pump-only units with power inputs of no more than 24 A at 250 V).

Gas-fired circulating water heater

means a circulating water heater with a nominal input of 75,000 Btu/h or less.

Oil-fired circulating water heater

means a circulating water heater with a nominal input of 105,000 Btu/h or less.

In the December 2023 SNOPR DOE requested comment on what the implications to industry might be if circulating water heaters were to be treated as storage water heaters. 88 FR 89330, 89335. In response, several commenters agreed that DOE's analysis for amended standards of storage-type water heaters is still representative if circulating water heaters are included in these product classes.

CEC agreed with DOE that the definition of circulating water heater as proposed in the December 2023 SNOPR would not change the results of the life-cycle cost, national impact, and other downstream analyses, stating that the proposed changes would not cause DOE's analysis to become unrepresentative and agreeing that no additional analysis is necessary. (CEC, No. 1412 at p. 2) The CA IOUs stated that there are few to no shipments of consumer water heaters meeting the definition of “circulating water heater” as proposed in the December 2023 SNOPR. CA IOUs stated that DOE may therefore maintain its July 2023 NOPR analyses with respect to storage-type water heaters and apply the associated proposed standards to circulating water heaters. (CA IOUs, No. 1409 at p. 1) NYSERDA and ASAP et al. stated their agreement with DOE's assessment that, because DOE has not identified consumer water heaters on the U.S. market that qualify as circulating water heaters, analytical results from the July 2023 NOPR remain representative and do not need to be updated due to changes proposed in the December 2023 SNOPR. (NYSERDA, No. 1406 at p. 2; ASAP et al., No. 1407 at p. 3) ASAP et al. added that, if introduced, circulating water heaters would likely have similar cost and usage characteristics to existing storage-type consumer water heaters. (ASAP et al., No. 1407 at p. 3)

Rinnai, however, requested that DOE clarify the justification for amending the definition of products that do not currently exist on the market. (Rinnai, No. 1415 at p. 1) BWC agreed with DOE that circulating water heaters as defined in the June 2023 TP Final Rule are not deployed in residential applications. (BWC, No. 1413 at p. 1) BWC agreed with DOE that there are no consumer products that meet the definition of “circulating water heater” as proposed in the December 2023 SNOPR and requested that DOE clarify how it determined that these products would have similar cost and use profiles as storage-type water heaters. (BWC, No. 1413 at p. 2)

In the December 2023 SNOPR the Department had erroneously stated that there are no longer heat pump circulating water heaters available on the market (

see

88 FR 89330, 89333) due to changes in a manufacturer's website. Product literature for these models exists and has been added to the docket for this rulemaking. In addition to stakeholder comments, this literature demonstrates the use of these products in a manner similar to storage-type water heaters. Shipments of these products, though they are fewer than those of traditional storage-type water heaters, are not zero. These products are included in historical data on heat pump water heater shipments as they would meet efficiency level 1 for small electric storage water heaters. Hence DOE's analysis does include circulating heat pump water heaters as storage-type water heaters.

b. Low-Temperature Water Heaters

As stated previously in section III.B of this document, in the June 2023 TP Final Rule, DOE established the following definition for “low-temperature water heater” in 10 CFR 430.2:

“Low-temperature water heater” means an electric instantaneous water heater that is not a circulating water heater and cannot deliver water at a temperature greater than or equal to the set point temperature specified in section 2.5 of appendix E to subpart B of this part when supplied with water at the supply water temperature specified in section 2.3 of appendix E to subpart B of part 430 and the flow rate specified in section 5.2.2.1 of appendix E to subpart B of part 430.

DOE also established test procedures to determine the UEF of these types of water heaters. 88 FR 40406. Regarding low-temperature water heaters, DOE notes that they are covered as electric instantaneous water heaters. As discussed in section IV.C of this document, DOE is not considering updated standards for electric instantaneous water heaters in this rulemaking because it was unable to determine technologies associated with increased efficiencies in these products. Therefore, although low-temperature water heaters are tested in a slightly different manner from other electric instantaneous water heaters, DOE is maintaining low-temperature water heaters within the broader electric instantaneous water heater product class as proposed in the July 2023 NOPR and is not establishing a separate class for them.

c. Storage-Type and Instantaneous-Type Product Classes

In the March 2022 Preliminary Analysis, DOE addressed comments received in response to the May 2020 RFI that suggested that DOE should consider eliminating the separate product classes for instantaneous water heaters. For the preliminary analysis, DOE analyzed separate classes for instantaneous wat

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