Energy Conservation Program: Energy Conservation Standards for Commercial Water Heating Equipment, 69686-69824 [2023-20392]

Download as PDF 69686 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations DEPARTMENT OF ENERGY 10 CFR Part 431 [EERE–2021–BT–STD–0027] RIN 1904–AD34 Energy Conservation Program: Energy Conservation Standards for Commercial Water Heating Equipment Office of Energy Efficiency and Renewable Energy, Department of Energy. ACTION: Final rule. AGENCY: The Energy Policy and Conservation Act, as amended (‘‘EPCA’’), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including Commercial Water Heating (‘‘CWH’’) equipment. EPCA also requires the U.S. Department of Energy (‘‘DOE’’) to periodically review standards. In this final rule, DOE is adopting amended energy conservation standards for CWH equipment. DATES: The effective date of this rule is December 5, 2023. Compliance with the amended standards established for CWH equipment in this final rule is required on and after October 6, 2026. 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/EERE2021-BT-STD-0027. The docket web page contains instructions on how to access all documents, including public comments, in the docket. 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. 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. Telephone: (240) 597– 6737. Email: ApplianceStandardsQuestions@ ee.doe.gov. lotter on DSK11XQN23PROD with RULES2 SUMMARY: VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Mr. Matthew Ring, U.S. Department of Energy, Office of the General Counsel, GC–33, 1000 Independence Avenue SW, Washington, DC 20585–0121. Telephone: (202) 586–2555. Email: Matthew.Ring@hq.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 CWH Equipment C. Deviation From Appendix A III. General Discussion A. General Comments 1. Clear and Convincing Threshold 2. Analytical Structure and Inputs 3. Final Selection of Standards Levels B. Scope of Coverage 1. Oil-Fired Commercial Water Heating Equipment 2. Unfired Hot Water Storage Tanks 3. Electric Instantaneous Water Heaters 4. Commercial Heat Pump Water Heaters 5. Electric Storage Water Heaters 6. Instantaneous Water Heaters and Hot Water Supply Boilers 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 G. Revisions to Notes in Regulatory Text H. Certification, Compliance, and Enforcement Issues IV. Methodology and Discussion of Related Comments A. Market and Technology Assessment 1. Definitions 2. Equipment Classes a. Storage-Type Instantaneous Water Heaters b. Venting for Gas-Fired Water Heating Equipment c. Tankless Water Heaters and Hot Water Supply Boilers d. Gas-Fired and Oil-Fired Storage Water Heaters e. Grid-Enabled Water Heaters 3. Review of the Current Market for CWH Equipment PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 4. Technology Options B. Screening Analysis 1. Screened-Out Technologies 2. Remaining Technologies C. Engineering Analysis 1. Efficiency Analysis 2. Cost Analysis 3. Representative Equipment for Analysis 4. Efficiency Levels for Analysis a. Thermal Efficiency Levels b. Standby Loss Levels c. Uniform Energy Efficiency Levels 5. Standby Loss Reduction Factors 6. Teardown Analysis 7. Manufacturing Production Costs 8. Manufacturing Markups and Manufacturer Selling Price 9. Shipping Costs D. Markups Analysis 1. Distribution Channels 2. Comments on the May 2022 CWH ECS NOPR 3. Markups Used in This Final Rule E. Energy Use Analysis F. Life-Cycle Cost and Payback Period Analysis 1. Equipment Cost 2. Installation Cost a. Data Sources b. Condensate Removal and Disposal c. Vent Replacement d. Extraordinary Venting Cost Adder e. Common Venting f. Vent Sizing/Material Cost g. Masonry Chimney/Chimney Relining h. Downtime During Replacement 3. Annual Energy Consumption 4. Energy Prices 5. Maintenance and Repair Costs a. Maintenance Costs b. Repair Costs 6. Product Lifetime 7. Discount Rates 8. Energy Efficiency Distribution in the NoNew-Standards Case 9. Payback Period Analysis 10. Embodied Emissions and Recycling Costs 11. LCC Model Error Messages and Other G. Shipments Analysis 1. Commercial Gas Fired and Electric Storage Water Heaters 2. Residential-Duty-Gas-Fired Storage and Instantaneous Water Heaters 3. Available Products Database and Equipment Efficiency Trends 4. Electrification Trends 5. Shipments to Residential Consumers 6. Final Rule Shipment Model H. National Impact Analysis 1. Product Efficiency Trends 2. Fuel and Technology Switching 3. National Energy Savings 4. Net Present Value Analysis I. Consumer Subgroup Analysis 1. Residential Sector Subgroup Analysis J. Manufacturer Impact Analysis 1. Overview 2. Government Regulatory Impact Model and Key Inputs a. Manufacturer Production Costs b. Shipments Projections c. Conversion Costs and Stranded Assets d. Manufacturer Markup Scenarios K. Emissions Analysis 1. Air Quality Regulations Incorporated in DOE’s Analysis E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations L. Monetizing Emissions Impacts 1. Monetization of Greenhouse Gas Emissions a. Social Cost of Carbon b. Social Cost of Methane and Nitrous Oxide 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. Significance of Energy Savings b. Net Present Value of Consumer Costs and Benefits c. Indirect Impacts on Employment 4. Impact on Utility or Performance of Products 5. Impact of Any Lessening of Competition 6. Need of the Nation To Conserve Energy 7. Other Factors 8. Summary of Economic Impacts C. Conclusion 1. Benefits and Burdens of TSLs Considered for CWH Equipment Standards 2. Annualized Benefits and Costs of the Adopted Standards VI. Procedural Issues and Regulatory Review A. Review Under Executive Orders 12866 and 13563 B. Review Under the Regulatory Flexibility Act 1. Need For, and Objectives of, the Rule 2. Significant Issues Raised in Response to the IRFA 3. Description and Estimate of the Number of Small Entities Affected 4. Description and Estimate of Compliance Requirements 5. Significant Alternatives to the Rule 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’’),1 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 C of EPCA,2 established the Energy Conservation Program for Certain Industrial Equipment. (42 U.S.C. 6311–6317) Such equipment includes CWH equipment, the subject of this rulemaking. Pursuant to EPCA, DOE is to consider amending the energy efficiency standards for certain types of commercial and industrial equipment, including the equipment at issue in this document, whenever the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (‘‘ASHRAE’’) amends the standard levels or design requirements prescribed in ASHRAE Standard 90.1, ‘‘Energy 69687 Standard for Buildings Except Low-Rise Residential Buildings,’’ (‘‘ASHRAE Standard 90.1’’), and at a minimum, every 6 years. (42 U.S.C. 6313(a)(6)(A)– (C)) In accordance with these and other statutory provisions discussed in this document, DOE analyzed the benefits and burdens of trial standard levels (TSLs) for CWH equipment. The TSLs and their associated benefits and burdens are discussed in detail in sections V.A–C of this section. As discussed in section V.C of this section, DOE has determined that TSL 3 represents the maximum improvement in energy efficiency that is technologically feasible and economically justified. DOE is adopting amended energy conservation standards for certain classes of CWH equipment. The adopted standards, which are expressed in terms of thermal efficiency, standby loss, and uniform energy factor (‘‘UEF’’), are shown in Table I.1 and Table I.2. These adopted standards apply to all CWH equipment listed in Table I.1 and Table I.2, manufactured in, or imported into the United States starting on the date 3 years after the publication of the final rule for this rulemaking. DOE is also codifying standards for electric instantaneous CWH equipment from EPCA into the Code of Federal Regulations (‘‘CFR’’). Finally, DOE is amending the footnotes to tables of energy conservation standards at 10 CFR 431.110 to clarify existing regulations for CWH equipment. The adopted standards for electric instantaneous CWH equipment and changes to the footnotes are also shown in Table I.1. TABLE I.1—ADOPTED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Energy conservation standards (%) a Size Gas-fired storage water heaters and storage-type instantaneous water heaters. Electric instantaneous water heaters c ........................................................... All ................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h). <10 gal ≥10 gal <10 gal ≥10 gal 80 77 96 96 N/A. 2.30 + 67/Vm (%/h). N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). Gas-fired instantaneous water heaters and hot water supply boilers except storage-type instantaneous water heaters. lotter on DSK11XQN23PROD with RULES2 Minimum thermal efficiency b (%) Equipment ........... ........... ........... ........... Maximum standby loss ** aV m is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10 CFR 429.44. b Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a flue damper or fan-assisted combustion. c The compliance date for these energy conservation standards is January 1, 1994. 1 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 VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 reflect the last statutory amendments that impact Parts A and A–1 of EPCA. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 2 For editorial reasons, upon codification in the U.S. Code, Part C was re-designated Part A–1. E:\FR\FM\06OCR2.SGM 06OCR2 69688 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE I.2—ADOPTED ENERGY CONSERVATION STANDARDS FOR GAS-FIRED RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Equipment Specification * Draw pattern ** Gas-fired Residential-Duty Storage >75 kBtu/h and ≤105 kBtu/h and ≤120 gal and ≤180 °F. Very Small .................................... Low ............................................... Medium ......................................... High .............................................. Uniform energy factor † 0.5374 0.8062 0.8702 0.9297 ¥ ¥ ¥ ¥ (0.0009 (0.0012 (0.0011 (0.0009 × × × × Vr). Vr). Vr). Vr). * Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 180 °F. ** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. † Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. A. Benefits and Costs to Consumers Table I.3 summarizes DOE’s evaluation of the economic impacts of the adopted standards on consumers of CWH equipment, as measured by the average life-cycle cost (‘‘LCC’’) savings and the simple payback period (‘‘PBP’’).3 The analysis inputs are described in section IV of this document. The average LCC savings are positive for all equipment classes, and the PBP is less than the average lifetime of CWH equipment, which is estimated to range from 10 years for commercial gas-fired storage water heaters to 25 years for instantaneous water heaters and hot water supply boilers (see section IV.F.6 of this document). TABLE I.3—IMPACTS OF ADOPTED ENERGY CONSERVATION STANDARDS ON CONSUMERS OF CWH EQUIPMENT Average LCC savings (2022$) Equipment Commercial Gas-Fired Storage and Storage-Type Instantaneous ......................................................................... Residential-Duty Gas-Fired Storage ........................................................................................................................ Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................... —Instantaneous, Gas-Fired Tankless ..................................................................................................................... —Instantaneous Water Heaters and Hot Water Supply Boilers ............................................................................. 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 lotter on DSK11XQN23PROD with RULES2 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 (2023–2055). Using a real discount rate of 9.1 percent, DOE estimates that the INPV for manufacturers of CWH equipment in the case without amended standards is $212.8 million in 2022$. Under the adopted standards, the change in INPV is estimated to range from ¥17.7 percent to ¥8.3 percent, which is approximately equivalent to a decrease of $37.6 million to a decrease of $17.7 million, respectively. In order to bring products into compliance with amended 3 The average LCC savings refer to consumers that are affected by a standard and are measured relative to the efficiency distribution in the no-newstandards case, which depicts the market in the compliance year in the absence of new or amended standards (see section IV.F.8 of this document). The simple PBP, which is designed to compare specific efficiency levels, is measured relative to the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 standards, it is estimated that the industry would incur total conversion costs of $42.7 million. DOE’s analysis of the impacts of the adopted standards on manufacturers is described in section IV.J of this document. The analytic results of the manufacturer impact analysis (‘‘MIA’’) are presented in section V.B.2 of this document. C. National Benefits and Costs 4 DOE’s analyses indicate that the adopted energy conservation standards for CWH equipment would save a significant amount of energy. Relative to the case without amended standards, the lifetime energy savings for CWH equipment purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2026–2055) amount to 0.70 quadrillion British thermal units baseline product (see section IV.F.9 of this document). 4 All monetary values in this document are expressed in 2022 dollars, and, where appropriate, are discounted to 2023 unless explicitly stated otherwise. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 367 119 898 120 1,570 Simple payback period (years) 5.8 7.2 9.3 8.9 9.4 (‘‘Btu’’), or quads.5 This represents a savings of 5.6 percent relative to the energy use of these products in the case without amended standards (referred to as the ‘‘no-new-standards case’’). The cumulative net present value (‘‘NPV’’) of total consumer benefits of the standards for CWH equipment ranges from $0.43 billion (at a 7-percent discount rate) to $1.43 billion (at a 3percent discount rate). This NPV expresses the estimated total value of future operating cost savings minus the estimated increased product and installation costs for CWH equipment purchased in 2026–2055. In addition, the adopted standards for CWH equipment are projected to yield significant environmental benefits. DOE estimates that the standards would result in cumulative emission reductions (over the same period as for energy savings) of 38 million metric 5 The quantity refers to full-fuel-cycle (‘‘FFC’’) energy savings. FFC energy savings include 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.2 of this document. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations tons (‘‘Mt’’) 6 of carbon dioxide (‘‘CO2’’), 0.10 thousand tons of sulfur dioxide (‘‘SO2’’), 103 thousand tons of nitrogen oxides (‘‘NOX’’), 479 thousand tons of methane (‘‘CH4’’), 0.08 thousand tons of nitrous oxide (‘‘N2O’’), and ¥0.001 tons of mercury (‘‘Hg’’).7 The estimated cumulative reduction in CO2 emissions through 2030 amounts to 1.5 million metric tons, which is equivalent to the emissions resulting from the annual electricity use of more than 295,000 homes. DOE estimates the value of climate benefits from a reduction in greenhouse gases using four different estimates of the ‘‘social cost of carbon’’ (‘‘SC–CO2’’), the social cost of methane (‘‘SC–CH4’’), and the social cost of nitrous oxide (‘‘SC–N2O’’). Together these represent the social cost of greenhouse gases (‘‘SC–GHG’’).8 DOE used interim SC– GHG values developed by an Interagency Working Group on the Social Cost of Greenhouse Gases (‘‘IWG’’).9 The derivation of these values is discussed in section IV.L.1 of this document. For presentational purposes, the climate benefits associated with the average SC–GHG at a 3-percent discount rate over the 30-year analysis period is $2.30 billion. DOE does not have a single central SC–GHG point estimate, and it emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. DOE estimated the monetary health benefits from SO2 and NOX emissions reduction, using benefit per ton estimates from EPA’s Benefits Mapping and Analysis Program, as discussed in section IV.L of this document.10 DOE estimates the present value of the health benefits would be $1.36 billion using a 7-percent discount rate, and $3.29 billion using a 3-percent discount. DOE is currently only monetizing health benefits from changes in fine particulate matter (‘‘PM2.5’’) and (for NOX) ozone precursors, but will continue to assess the ability to monetize other effects such 69689 as health benefits from reductions in direct PM2.5 emissions. Table I.4 summarizes the monetized benefits and costs expected to result from the standards for CWH equipment. There are other important unquantified effects, including certain unquantified climate benefits, unquantified public health benefits from the reduction of toxic air pollutants and other emissions, unquantified energy security benefits, and distributional effects, among others. In the table, total benefits for both the 3-percent and 7-percent cases are presented using the average GHG social costs with 3-percent discount rate. DOE does not have a single central SC–GHG point estimate and it emphasizes the importance and value of considering the benefits calculated using all four SC– GHG estimates. The estimated total net benefits using each of the four SC–GHG estimates are presented in section V.B.6 of this document. TABLE I.4—PRESENT VALUE OF MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT [TSL 3] Benefits Billion 2022$ 3% Discount rate Consumer Operating Cost Savings ..................................................................................................................................................... Climate Benefits * ................................................................................................................................................................................. Health Benefits ** ................................................................................................................................................................................. Total Monetized Benefits † .................................................................................................................................................................. Consumer Incremental Product Costs ‡ .............................................................................................................................................. Net Monetized Benefits ....................................................................................................................................................................... Change in Producer Cashflow (INPV ‡‡) ............................................................................................................................................ 2.76 2.30 3.29 8.35 1.33 7.02 (0.04)–(0.02) 7% Discount rate Consumer Operating Cost Savings ..................................................................................................................................................... Climate Benefits * (3% discount rate) .................................................................................................................................................. Health Benefits ** ................................................................................................................................................................................. Total Monetized Benefits † .................................................................................................................................................................. Consumer Incremental Product Costs ‡ .............................................................................................................................................. Net Monetized Benefits ....................................................................................................................................................................... Change in Producer Cashflow (INPV ‡‡) ............................................................................................................................................ 1.28 2.30 1.36 4.94 0.85 4.09 (0.04)–(0.02) lotter on DSK11XQN23PROD with RULES2 Note: This table presents the present value of costs and benefits associated with commercial water heaters shipped in 2026–2055. These results include benefits (including climate and health benefits) to consumers which accrue after 2055 from the products shipped in 2026–2055. Numbers may not add due to rounding. * Climate benefits are calculated using four different estimates of the SC–CO2, SC–CH4, and SC–N2O (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate) (see section IV.L of this final rule). Together these represent the global SC–GHG. For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. 6 A metric ton is equivalent to 1.1 short tons. Results for emissions other than CO2 are presented in short tons. 7 DOE calculated emissions reductions relative to the no-new-standards case, which reflects key assumptions in the Annual Energy Outlook 2023 (‘‘AEO2023’’). AEO2023 represents current Federal and State legislation and final implementation of regulations as of the time of its preparation. See section IV.K for further discussion of AEO2023 assumptions that effect air pollutant emissions. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 8 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG). 9 See Interagency Working Group on Social Cost of Greenhouse Gases, Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide. PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 Interim Estimates Under Executive Order 13990, Washington, DC February 2021. www.whitehouse.gov/wp-content/uploads/2021/02/ TechnicalSupportDocument_ SocialCostofCarbonMethaneNitrousOxide.pdf? 10 Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21 Sectors. www.epa.gov/ benmap/estimating-benefit-ton-reducing-pm25precursors-21-sectors. E:\FR\FM\06OCR2.SGM 06OCR2 69690 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. † Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. ‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. Change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values are ¥$38 million and ¥$18 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated INPV in the above table, drawing on the MIA explained further in section IV.J, of this document to provide additional context for assessing the estimated impacts of this rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the net benefit calculation for this final rule, the net benefits would range from $6.98 billion to $7.0 billion at 3-percent discount rate and would range from $4.05 billion to $4.07 billion at 7-percent discount rate. Parentheses ( ) indicate negative values. The benefits and costs of the adopted 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 monetized value of the benefits of GHG, NOX, and SO2 emission reductions, all annualized.11 The national operating 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 CWH equipment shipped in 2026–2055. The climate benefits associated with reduced GHG emissions achieved as a result of the adopted standards are also calculated based on the lifetime of CWH equipment shipped in 2026–2055. Total benefits for both the 3-percent and 7percent cases are presented using the average GHG social costs with 3-percent discount rate. Estimates of SC–GHG values are presented for all four discount rates in section V.B.6. DOE considered any lessening of competition that would be likely to result from new or amended standards. As discussed in section III.F.1.e of this document, EPCA directs the Attorney General of the United States (‘‘Attorney General’’) to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination in writing 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. To assist the Attorney General in making this determination, DOE provided the Department of Justice (‘‘DOJ’’) with copies of the proposed rule and the TSD for review. In its assessment letter responding to DOE, DOJ concluded that the proposed energy conservation standards for CWH equipment are unlikely to have a significant adverse impact on competition. DOE is publishing the Attorney General’s assessment at the end of this final rule. Table I.5 presents the total estimated monetized benefits and costs associated with the adopted standard, expressed in terms of annualized values. Using a 7-percent discount rate for consumer benefits and costs and health benefits from reduced SO2 and NOX emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated monetized cost of the standards adopted in this rule is $78 million per year in increased equipment costs, while the estimated annual benefits are $118 million in reduced equipment operating costs, $125 million in monetized climate benefits, and $125 million in monetized health benefits. In this case, the net monetized benefit would amount to $289 million per year. Using a 3-percent discount rate for all benefits and costs, the estimated monetized cost of the standards is $72 million per year in increased equipment costs, while the estimated annual monetized benefits are $149 million in reduced operating costs, $125 million in monetized climate benefits, and $178 million in monetized air pollutant health benefits. In this case, the net benefit would amount to $380 million per year. TABLE I.5—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT [TSL 3] Million 2022$/year Category Primary estimate Low-netbenefits estimate High-netbenefits estimate lotter on DSK11XQN23PROD with RULES2 3% Discount rate Consumer Operating Cost Savings ............................................................................................. 11 To convert the time-series of costs and benefits into annualized values, DOE calculated a present value in 2023, the year used for discounting the NPV of total consumer costs and savings. For the benefits, DOE calculated a present value associated VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 with each year’s shipments in the year in which the shipments occur (e.g., 2030), and then discounted the present value from each year to 2023. The calculation uses discount rates of 3 and 7 percent for all costs and benefits except for the value of CO2 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 149 144 154 reductions, for which DOE used case-specific discount rates, as shown in Table I.3. 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. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69691 TABLE I.5—ANNUALIZED MONETIZED BENEFITS AND COSTS OF ADOPTED ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT—Continued [TSL 3] Million 2022$/year Category Primary estimate Climate Benefits * ......................................................................................................................... Health Benefits ** ......................................................................................................................... Total Monetized Benefits † .......................................................................................................... Consumer Incremental Product Costs ‡ ...................................................................................... Net Monetized Benefits ............................................................................................................... Change in Producer Cashflow (INPV ‡‡) .................................................................................... Low-netbenefits estimate High-netbenefits estimate 125 178 452 72 380 (4)–(2) 124 177 445 72 373 (4)–(2) 128 197 479 74 405 (4)–(2) 118 125 125 368 78 289 (4)–(2) 115 124 124.4 364 78.2 285 (4)–(2) 122 128 138.1 388 80.0 308 (4)–(2) 7% Discount rate Consumer Operating Cost Savings ............................................................................................. Climate Benefits * (3% discount rate) .......................................................................................... Health Benefits ** ......................................................................................................................... Total Monetized Benefits † .......................................................................................................... Consumer Incremental Product Costs ‡ ...................................................................................... Net Monetized Benefits ............................................................................................................... Change in Producer Cashflow (INPV ‡‡) .................................................................................... Note: This table presents the annualized costs and benefits associated with CWH equipment shipped in 2026–2055. These results include benefits to consumers which accrue after 2055 from the products purchased in 2026–2055. The primary, low net benefits, and high net benefits estimates utilize projections of energy prices from the AEO2023 Reference case, low economic growth case, and high economic growth case, respectively. Note that the benefits and costs may not sum to the net benefits due to rounding. * Climate benefits are calculated using four different estimates of the global SC–GHG (see section IV.L of this final rule). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. † Total benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. ‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values are ¥$4 million and ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J, to provide additional context for assessing the estimated impacts of this rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the annualized net benefits would range from $376 million to $378 million at 3-percent discount rate and would range from $285 million to $287 million at 7-percent discount rate. Parentheses ( ) indicate negative values. 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. lotter on DSK11XQN23PROD with RULES2 D. Conclusion DOE concludes, based on clear and convincing evidence as presented in the following sections, that the standards adopted in this final rule are technologically feasible and economically justified, and would result in significant additional conservation of energy. Specifically, with regards to technological feasibility, CWH equipment achieving the adopted VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 standard levels are already commercially available for all equipment classes covered by this final rule. As for economic justification, DOE’s analysis shows that the benefits of the proposed standard exceed, to a great extent, the burdens of the adopted standards. Using a 7-percent discount rate for consumer benefits and costs and NOX and SO2 reduction benefits, and a 3-percent discount rate case for GHG social costs, the estimated monetized cost of the proposed standards for CWH equipment is $78 million per year in increased equipment costs, while the estimated annual monetized benefits are PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 $118 million in reduced equipment operating costs, $125 million in monetized climate benefits from GHG reductions, and $125 million in monetized air pollutant health benefits. In this case, the net monetized benefit would amount to $289 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.12 For example, some 12 Procedures, Interpretations, and Policies for Consideration in New or Revised Energy E:\FR\FM\06OCR2.SGM Continued 06OCR2 69692 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 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 caseby-case basis. As previously mentioned, the standards are projected to result in estimated full-fuel cycle (‘‘FFC’’) national energy savings of 0.70 quad for equipment purchased in the 30-year period that begins in the anticipated year of compliance with the amended standards (2026–2055), the equivalent of the electricity use of approximately 28 million homes in 1 year. In addition, they are projected to reduce CO2 emissions by 38 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. 6313(a)(6)(A)(ii)(II). A more detailed discussion of the basis for these conclusions is contained in the remainder of this document and the accompanying TSD. lotter on DSK11XQN23PROD with RULES2 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 CWH equipment. CWH equipment includes storage water heaters, instantaneous water heaters, and unfired hot water storage tanks. Such equipment (besides unfired hot water storage tanks, which only store hot water) may use gas, oil, or electricity to heat potable water. CWH equipment generally have higher input ratings than residential water heaters and are used in a wide variety of applications (including restaurants, hotels, multi-family housing, schools, convention centers, etc.). Some CWH equipment (in particular, residential-duty CWH) may also be used in certain residential applications. A. Authority EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and industrial equipment. Title III, Part C of EPCA, added by Public Law 95–619, Title IV, section 441(a) (42 U.S.C. 6311–6317, as codified), established the Energy Conservation Program for Certain Industrial Equipment, which sets forth a Conservation Standards and Test Procedures for Consumer Products and Commercial/Industrial Equipment, 86 FR 70892, 70901 (Dec. 13, 2021). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 variety of provisions designed to improve energy efficiency. This equipment includes the classes of CWH equipment that are the subject of this final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation standards for CWH equipment. (42 U.S.C. 6313(a)(5)) Pursuant to EPCA, DOE is to consider amending the energy efficiency standards for certain types of commercial and industrial equipment, including CWH equipment, whenever ASHRAE amends the standard levels or design requirements prescribed in ASHRAE/IES Standard 90.1, and at a minimum, every 6 years. (42 U.S.C. 6313(a)(6)(A)–(C)) 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 EPCA specifically include definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 6315), and the authority to require information and reports from manufacturers (42 U.S.C. 6316). Federal energy efficiency requirements for covered equipment established under EPCA generally supersede State laws and regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6316(a) and (b); 42 U.S.C. 6297) DOE may, however, grant waivers of Federal preemption for particular State laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. (See 42 U.S.C. 6316(b)(2)(D)) Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of covered equipment. Manufacturers of covered equipment must use the Federal test procedures as the basis for (1) certifying to DOE that their equipment complies with the applicable energy conservation standards adopted pursuant to EPCA (42 U.S.C. 6316(b); 42 U.S.C. 6296), and (2) making representations about the efficiency of that equipment (42 U.S.C. 6314(d)). Similarly, DOE uses these test procedures to determine whether the equipment complies with relevant standards promulgated under EPCA. The DOE test procedures for CWH equipment appear at part 431, subpart G. ASHRAE Standard 90.1 sets industry energy efficiency levels for small, large, and very large commercial package air- PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 conditioning and heating equipment, packaged terminal air conditioners, packaged terminal heat pumps, warm air furnaces, packaged boilers, storage water heaters, instantaneous water heaters, and unfired hot water storage tanks (collectively ‘‘ASHRAE equipment’’). For each type of listed equipment, EPCA directs that if ASHRAE amends Standard 90.1, DOE must adopt amended standards at the new ASHRAE efficiency level, unless DOE determines, supported by clear and convincing evidence,13 that adoption of a more stringent level would produce significant additional conservation of energy and would be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) Under EPCA, DOE must also review energy efficiency standards for CWH equipment every 6 years and either: (1) issue a notice of determination that the standards do not need to be amended as adoption of a more stringent level is not supported by clear and convincing evidence; or (2) issue a notice of proposed rulemaking including new proposed standards based on certain criteria and procedures in subparagraph (B) of 42 U.S.C. 6313(a)(6).14 (42 U.S.C. 6313(a)(6)(C)) In deciding whether a more-stringent standard is economically justified, under either the provisions of 42 U.S.C. 6313(a)(6)(A) or 42 U.S.C. 6313(a)(6)(C), DOE must determine whether the benefits of the standard exceed its burdens. DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors: 13 The clear and convincing threshold is a heightened standard, and would only be met where the Secretary has an abiding conviction, based on available facts, data, and DOE’s own analyses, that it is highly probable an amended standard would result in a significant additional amount of energy savings, and is technologically feasible and economically justified. American Public Gas Association v. U.S. Dep’t of Energy, 22 F.4th 1018, 1025 (D.C. Cir. January 18, 2022) (citing Colorado v. New Mexico, 467 U.S. 310, 316, 104 S. Ct. 2433, 81 L. Ed. 2d 247 (1984)). 14 In relevant part, subparagraph (B) specifies that: (1) in making a determination of economic justification, DOE must consider, to the maximum extent practicable, the benefits and burdens of an amended standard based on the seven criteria described in EPCA; (2) DOE may not prescribe any standard that increases the energy use or decreases the energy efficiency of a covered product; and (3) DOE may not prescribe any standard that interested persons have established by a preponderance of evidence is likely to result in the unavailability in the United States of any product type (or class) of performance characteristics (including reliability, features, sizes, capacities, and volumes) that are substantially the same as those generally available in the United States. (42 U.S.C. 6313(a)(6)(B)(ii)– (iii)) E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations (1) The economic impact of the standard on manufacturers and consumers of products subject to the standard; (2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered equipment that are likely to result from the standard; (3) The total projected amount of energy savings likely to result directly from the standard; (4) Any lessening of the utility or the performance of the covered product likely to result from the standard; (5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard; (6) The need for national energy conservation; and (7) Other factors the Secretary of Energy considers relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(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 the standard will be less than three times the value of the energy (and, as applicable, water) savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) However, while this rebuttable presumption analysis applies to most commercial and industrial equipment (42 U.S.C. 6316(a)), it is not a required analysis for ASHRAE equipment (42 U.S.C. 6316(b)(1)). Nonetheless, DOE included the analysis of rebuttable presumption in its economic analysis and presents the results in section V.B.1.c of this document. EPCA, as codified, also contains what is known as an ‘‘anti-backsliding’’ provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not prescribe an amended or new 69693 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. 6313(a)(6)(B)(iii)(II)(aa)) B. Background 1. Current Standards The current standards for all CWH equipment classes are set forth in DOE’s regulations at 10 CFR 431.110, except for electric instantaneous water heaters that are not residential duty, which are included in EPCA (the history of the standards for electric instantaneous water heaters is discussed in section III.B.3 of this document). (42 U.S.C. 6313(a)(5)(D)–(E)) Table II.1 shows the current standards for all CWH equipment classes, except residentialduty commercial water heaters, which are shown in Table II.2 of this document. TABLE II.1—CURRENT FEDERAL ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT FOR RESIDENTIALDUTY COMMERCIAL WATER HEATERS Energy conservation standards * Product Size Electric storage water heaters ................................................................. Gas-fired storage water heaters .............................................................. All ........................... ≤155,000 Btu/h ....... >155,000 Btu/h ....... ≤155,000 Btu/h ....... >155,000 Btu/h ....... <10 gal ................... ≥10 gal ................... <10 gal ................... ≥10 gal ................... <10 gal ................... ≥10 gal ................... Oil-fired storage water heaters ................................................................ Electric instantaneous water heaters ‡ .................................................... Gas-fired instantaneous water heaters and hot water supply boilers ..... Oil-fired instantaneous water heater and hot water supply boilers ......... Minimum thermal efficiency (equipment manufactured on and after October 9, 2015) ** *** (%) N/A 80 80 *** 80 *** 80 80 77 80 80 80 78 Maximum standby loss (equipment manufactured on and after October 29, 2003) ** † 0.30 + 27/Vm (%/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). N/A. 2.30 + 67/Vm (%/h). N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). Minimum thermal insulation lotter on DSK11XQN23PROD with RULES2 Unfired hot water storage tank ................................................................ All ........................... R–12.5 * Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. ** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in subpart E of this part for a ‘‘commercial packaged boiler.’’ *** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. † Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire damper or fan-assisted combustion. ‡ Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance date for these energy conservation standards is January 1, 1994. In this final rule, DOE codifies these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section III.B.3 of this final rule. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69694 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE II.2—CURRENT ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Equipment Specification * Draw pattern ** Gas-fired storage ......... >75 kBtu/h and ≤105 kBtu/h and ≤120 gal ...... Oil-fired storage ........... >105 kBtu/h and ≤140 kBtu/h and ≤120 gal .... Electric instantaneous >12 kW and ≤58.6 kW and ≤2 gal ................... Very Small .... Low ............... Medium ......... High ............... Very Small .... Low ............... Medium ......... High .............. Very Small .... Low ............... Medium ......... High ............... Uniform energy factor 0.2674 0.5362 0.6002 0.6597 0.2932 0.5596 0.6194 0.6740 0.80 0.80 0.80 0.80 ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ (0.0009 (0.0012 (0.0011 (0.0009 (0.0015 (0.0018 (0.0016 (0.0013 × × × × × × × × Vr) ..... Vr) Vr) Vr) Vr) Vr) Vr) Vr) Compliance date December 29, 2016. * Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 180 °F. ** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. lotter on DSK11XQN23PROD with RULES2 2. History of Standards Rulemaking for CWH Equipment As previously noted, EPCA established initial Federal energy conservation standards for CWH equipment that generally corresponded to the levels in ASHRAE Standard 90.1– 1989. On October 29, 1999, ASHRAE released Standard 90.1–1999, which included new efficiency levels for numerous categories of CWH equipment. DOE evaluated these new standards and subsequently amended energy conservation standards for CWH equipment in a final rule published in the Federal Register on January 12, 2001. 66 FR 3336 (‘‘January 2001 final rule’’). DOE adopted the levels in ASHRAE Standard 90.1–1999 for all classes of CWH equipment, except for electric storage water heaters. For electric storage water heaters, the standard in ASHRAE Standard 90.1– 1999 was less stringent than the standard prescribed in EPCA and, consequently, would have increased energy consumption. Under those circumstances, DOE could not adopt the new efficiency level for electric storage water heaters in ASHRAE Standard 90.1–1999. 66 FR 3336, 3350. In the January 2001 final rule, DOE also adopted the efficiency levels contained in the Addendum to ASHRAE Standard 90.1–1989 for hot water supply boilers, which were identical to the efficiency levels for instantaneous water heaters. 66 FR 3336, 3356. On October 21, 2004, DOE published a direct final rule in the Federal Register (‘‘October 2004 direct final rule’’) that recodified the existing energy conservation standards, so that they are located contiguous with the test VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 procedures that were promulgated in the same notice. 69 FR 61974. The October 2004 final rule also updated definitions for CWH equipment at 10 CFR 431.102. The American Energy Manufacturing Technical Corrections Act (‘‘AEMTCA’’), Public Law 112–210 (Dec. 18, 2012), amended EPCA to require that DOE publish a final rule establishing a uniform efficiency descriptor and accompanying test methods for covered consumer water heaters and some CWH equipment. (42 U.S.C. 6295(e)(5)(B)) EPCA further required that the final rule must replace the energy factor (for consumer water heaters) and thermal efficiency and standby loss (for some commercial water heaters) metrics with a uniform efficiency descriptor. (42 U.S.C. 6295(e)(5)(C)) Pursuant to 42 U.S.C. 6295(e), on July 11, 2014, DOE published a final rule for test procedures for residential and certain commercial water heaters (‘‘July 2014 final rule’’) that, among other things, established UEF, a revised version of the current residential energy factor metric, as the uniform efficiency descriptor required by AEMTCA. 79 FR 40542, 40578. In addition, the July 2014 final rule defined the term ‘‘residential-duty commercial water heater,’’ an equipment category that is subject to the new UEF metric and the corresponding UEF test procedures. 79 FR 40542, 40586–40588 (July 11, 2014). Conversely, CWH equipment that does not meet the definition of a residentialduty commercial water heater is not subject to the UEF metric or corresponding UEF test procedures. Id. Further details on the UEF metric and residential-duty commercial water PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 heaters are discussed in section III.C of this document. In a notice of proposed rulemaking (‘‘NOPR’’) published on April 14, 2015 (‘‘April 2015 NOPR’’), DOE proposed, among other things, conversion factors from thermal efficiency and standby loss to UEF for residential-duty commercial water heaters. 80 FR 20116, 20143. Subsequently, in a final rule published on December 29, 2016 (the ‘‘December 2016 conversion factor final rule’’), DOE specified standards for residential-duty commercial water heaters in terms of UEF. However, while the metric was changed from thermal efficiency and/or standby loss, the stringency was not changed. 81 FR 96204, 96239 (Dec. 29, 2016). In ASHRAE Standard 90.1–2013, ASHRAE increased the thermal efficiency level for commercial oil-fired storage water heaters, thereby triggering DOE’s statutory obligation to promulgate an amended uniform national standard at those levels, unless DOE were to determine that there is clear and convincing evidence supporting the adoption of morestringent energy conservation standards than the ASHRAE levels.15 In a final 15 ASHRAE Standard 90.1–2013 also appeared to change the standby loss levels for four equipment classes (gas-fired storage water heaters, oil-fired storage water heaters, gas-fired instantaneous water heaters, and oil-fired instantaneous water heaters) to efficiency levels that surpassed the Federal energy conservation standard levels. However, upon reviewing the changes DOE concluded that all changes to standby loss levels for these equipment classes were editorial errors because they were identical to SI (International System of Units; metric system) formulas rather than I–P (InchPound; English system) formulas. As a result, DOE did not conduct an analysis of the potential energy savings from amended standby loss standards for this equipment in response to the ASHRAE updates. DOE did not receive any comments on this E:\FR\FM\06OCR2.SGM 06OCR2 69695 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations rule published on July 17, 2015 (‘‘July 2015 ASHRAE equipment final rule’’), among other things, DOE adopted the standard for commercial oil-fired storage water heaters at the level set forth in ASHRAE Standard 90.1–2013, which increased the standard from 78 to 80 percent thermal efficiency with compliance required starting on October 9, 2015. 80 FR 42614 (July 17, 2015). Since that time ASHRAE has issued 2 updated versions of Standard 90.1, 90.1–2016 and 90.1–2019. However, DOE was not triggered to review amended standards for commercial water heaters by any updates in ASHRAE Standard 90.1–2016 or ASHRAE Standard 90.1–2019. Overall, DOE has not been triggered to review the standards for the equipment subject to this rulemaking (i.e., commercial water heating equipment other than commercial oil-fired storage water heaters) based on an update to the efficiency levels in ASHRAE Standard 90.1 since the 1999 edition because ASHRAE has not updated the efficiency levels for such equipment since 1999. On October 21, 2014, DOE published a request for information (‘‘RFI’’) as an initial step for reviewing the energy conservation standards for CWH equipment. 79 FR 62899 (‘‘October 2014 RFI’’). The October 2014 RFI solicited information from the public to help DOE determine whether more-stringent energy conservation standards for CWH equipment would result in a significant amount of additional energy savings, and whether those standards would be technologically feasible and economically justified. 79 FR 62899, 62899–62900. DOE received a number of comments from interested parties in response to the October 2014 RFI. On May 31, 2016, DOE published a NOPR and notice of public meeting in the Federal Register (‘‘May 2016 CWH ECS NOPR’’) that addressed all of the comments received in response to the RFI and proposed amended energy conservation standards for CWH equipment. 81 FR 34440. The May 2016 CWH ECS NOPR and the technical support document (‘‘TSD’’) for that NOPR are available at www.regulations.gov/docket?D=EERE2014-BT-STD-0042. On June 6, 2016, DOE held a public meeting at which it presented and discussed the analyses conducted as part of this rulemaking (e.g., engineering analysis, LCC, PBP, and MIA). In the public meeting, DOE presented the results of the analysis and requested comments from stakeholders on various issues related to the rulemaking in response to the May 2016 CWH ECS NOPR. On December 23, 2016, DOE published a notice of data availability (‘‘NODA’’) for energy conservation standards for CWH equipment (‘‘December 2016 CWH ECS NODA’’). 81 FR 94234. The December 2016 CWH ECS NODA presented the thermal efficiency and standby loss levels analyzed in the May 2016 CWH ECS NOPR for residential-duty gas-fired storage water heaters in terms of UEF, using the updated conversion factors for gas-fired and oil-fired storage water heaters adopted in the December 2016 conversion factor final rule (81 FR 94234, 94237). On January 15, 2021, in response to a petition for rulemaking submitted by the American Public Gas Association, Spire, Inc., the Natural Gas Supply Association, the American Gas Association, and the National Propane Gas Association (83 FR 54883; Nov. 1, 2018) DOE published a final interpretive rule (‘‘the January 2021 final interpretive rule’’) determining that, in the context of residential furnaces, commercial water heaters, and similarly-situated products/equipment, use of non-condensing technology (and associated venting) constitute a performance-related ‘‘feature’’ under EPCA that cannot be eliminated through adoption of an energy conservation standard. 86 FR 4776. Correspondingly, DOE withdrew the May 2016 CWH ECS NOPR.16 86 FR 3873 (Jan. 15, 2021). However, DOE has subsequently published a final interpretive rule that returns to the previous and longstanding interpretation (in effect prior to the January 15, 2021 final interpretive rule), under which the technology used to supply heated air or hot water is not a performance-related ‘‘feature’’ that provides a distinct consumer utility under EPCA. 86 FR 73947 (Dec. 29, 2021). In conducting the analysis for this final rule, DOE evaluates condensing technologies and associated venting systems (i.e., trial standard levels (‘‘TSLs’’) 2, 3, and 4) in its analysis of potential energy conservation standards. Any adverse impacts on utility and availability of non-condensing technology options are considered in DOE’s analyses of these TSLs. On May 19, 2022, DOE published a NOPR (‘‘May 2022 CWH ECS NOPR’’) for CWH equipment, in which DOE proposed amended energy conservation standards for certain classes of CWH equipment and proposed to codify existing standards from EPCA for commercial electric instantaneous water heaters (except for residential-duty commercial electric instantaneous water heaters).17 87 FR 30610. DOE received 28 comments in response to the May 2022 CWH ECS NOPR from the interested parties listed in Table II.3. lotter on DSK11XQN23PROD with RULES2 TABLE II.3—MAY 2022 CWH ECS NOPR WRITTEN COMMENTS Commenter(s) Abbreviation Comment No. in the docket Sean Erwin ......................................................................................................................... The American Gas Association (‘‘AGA’’), American Public Gas Association (‘‘AGPA’’), National Propane Gas Association (‘‘NPGA’’), Spire Inc., and ONE Gas, Inc. JJM Alkaline Technologies ................................................................................................. Atmos Energy Corporation ................................................................................................. American Public Gas Association ...................................................................................... Bradford White Corporation ................................................................................................ Law Offices of Barton Day, PLLC (representing Spire) ..................................................... American Society for Testing and Materials ....................................................................... Sean Erwin .................... Joint Gas Commenters .. 6 ................. 7, 14, 34 .... I UA JJM Alkaline ................... Atmos Energy ................ APGA ............................. Bradford White ............... Barton Day Law ............. ASTM ............................. 10 ............... 11, 36 ......... 13 ** ........... 12, 23 ......... 13 ** ........... 15 ............... M U UA M U EA issue. 80 FR 1171, 1185 (January 8, 2015). The standby loss levels for these equipment classes were reverted to the previous levels in ASHRAE Standard 90.1–2016 and have not been updated since then. 16 The rulemaking for CWH equipment has been subject to multiple rounds of public comment, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 including public meetings, and extensive records have been developed in the relevant dockets. (See Docket Number EERE–2014–BT–STD–0042). Consequently, although the May 2016 CWH ECS NOPR was withdrawn, the information obtained through those earlier rounds of public comment, PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 Commenter type * information exchange, and data gathering have been considered in this rulemaking. 17 On July 20, 2022, DOE published a notice that re-opened the comment period for the May 2022 CWH ECS NOPR to allow comments to be submitted until August 1, 2022. 87 FR 43226. E:\FR\FM\06OCR2.SGM 06OCR2 69696 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE II.3—MAY 2022 CWH ECS NOPR WRITTEN COMMENTS—Continued Comment No. in the docket Commenter type * Commenter(s) Abbreviation Suburban Propane Partners, L.P ....................................................................................... Center for Climate and Energy Solutions, Institute for Policy Integrity at New York University School of Law, Montana Environmental Information Center, Natural Resources Defense Council, Sierra Club, Union of Concerned Scientists. Bock Water Heaters, Inc .................................................................................................... Northwest Power and Conservation Council ...................................................................... A.O. Smith Corporation ...................................................................................................... Rheem Manufacturing Company ........................................................................................ WM Technologies, LLC ...................................................................................................... Patterson-Kelley, LLC ......................................................................................................... California Energy Commission ........................................................................................... Plumbing-Heating-Cooling Contractors National Association ............................................ Appliance Standards Awareness Project (ASAP), American Council for an Energy-Efficient Economy (ACEEE), Natural Resources Defense Council (NRDC), and Rocky Mountain Institute (RMI). New York State Energy Research and Development Authority ......................................... Air-Conditioning, Heating, and Refrigeration Institute ........................................................ The Aluminum Association; American Coke and Coal Chemicals Institute; American Farm Bureau Federation; American Gas Association; American Public Gas Association; Council of Industrial Boiler Owners; Independent Petroleum Association of America; National Mining Association; U.S. Chamber of Commerce. California Investor-Owned Utilities (Pacific Gas and Electric Company (PG&E), San Diego Gas and Electric (SDG&E), and the Southern California Edison (SCE)). Northwest Energy Efficiency Alliance ................................................................................. Suburban Propane ......... Joint Climate Commenters. 16 ............... 19 ............... U EA Bock Water Heaters ...... NWPCC ......................... A.O. Smith ..................... Rheem ........................... WM Technologies .......... Patterson-Kelley ............. CEC ............................... PHCC ............................. Joint Advocates ............. 20 21 22 24 25 26 27 28 29 ............... ............... ............... ............... ............... ............... ............... ............... ............... M EA M M M M EA TA EA NYSERDA ...................... AHRI .............................. The Associations ........... 30 ............... 31 ............... 32 ............... EA TA TA CA IOUs ......................... 33, 37 ......... UA NEEA ............................. 35 ............... EA * TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer, OS: other stakeholder, U: utility, utilities filing jointly, or utility representative, UA: utility association, and I: individual. ** Comments raised during the June 23, 2022 public meeting. Docket No. 13 refers to the public meeting transcript. A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record.18 To the extent that interested parties have provided written comments that are substantively consistent with any oral comments provided during the June 23, 2022 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. lotter on DSK11XQN23PROD with RULES2 C. Deviation From Appendix A On June 21, 2023, DOE published a test procedure final rule for consumer water heaters and residential-duty commercial water heaters. 88 FR 40406. In accordance with section 3(a) of 10 CFR part 430, subpart C, appendix A (‘‘appendix A’’), DOE notes that it is deviating from the provision in appendix A specifying that test procedures be finalized at least 180 days before new or amended standards are proposed for the same equipment. 10 18 The parenthetical reference provides a reference for information located in the docket of DOE’s rulemaking to develop energy conservation standards for CWH equipment. (Docket No. EERE– 2021–BT–STD–0027, which is maintained at www.regulations.gov). The references are arranged as follows: (commenter name, comment docket ID number, page of that document). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 CFR part 430, subpart C, appendix A, section 8(d)(2). DOE is opting to deviate from this step because the DOE has determined that the test procedure amendments for residential-duty commercial water heaters will not impact the current efficiency ratings. 88 FR 40406, 40412. See section III.C of this document for additional information on the test procedures for CWH equipment. 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. Clear and Convincing Threshold In response to the May 2022 CWH ECS NOPR in which DOE concluded that it had clear and convincing evidence to propose a standard more stringent than ASHRAE Standard 90.1, the Joint Gas Commenters stated that since CWH are included in ASHRAE Standard 90.1, DOE must presume that standards more stringent than the PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 ASHRAE standards would not be desirable in the absence of clear and convincing evidence that they are justified. Therefore, the commenters argued that DOE must resolve doubts against the need for more stringent standards, but in developing the NOPR, the Joint Gas Commenters stated that DOE has done the opposite. (Joint Gas Commenters, No. 34 at pp. 15–16) The Joint Gas Commenters stated that DOE should follow the rulings of ASHRAE 90.1, and noted that to date, the ASHRAE committee has not considered an increase in the energy efficiency of these commercial water heaters in order to lower overall energy consumption. (Joint Gas Commenters, No. 34 at p. 34) Contrary to the Joint Gas Commenters’ suggestion, EPCA does not require DOE to presume that standards more stringent than the ASHRAE standards would not be desirable in the absence of clear and convincing evidence that they are justified. As noted by the Joint Gas Commenters and as discussed in section II.A of this final rule, pursuant to EPCA, DOE must determine, supported by clear and convincing evidence, that amended standards for CWH equipment would result in significant additional conservation of energy and be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II); 42 U.S.C. 6313(a)(6)(C)(i)) In making the E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations determination of economic justification of an amended standard, DOE must determine whether the benefits of the proposed standard exceed the burdens of the proposed standard by considering, to the maximum extent practicable, the seven criteria described in EPCA (see 42 U.S.C. 6313(a)(6)(B)(ii)(I)–(VII)). The clear and convincing threshold is a heightened standard, and would only be met where the Secretary has an abiding conviction, based on available facts, data, and DOE’s own analyses, that it is highly probable an amended standard would result in a significant additional amount of energy savings, and is technologically feasible and economically justified. See American Public Gas Association v. U.S. Dept of Energy, 22 F. 4th at 1025 (D.C. Cir. January 18, 2022) (citing Colorado v. New Mexico, 467 U.S. 310, 316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984)). However, this standard does not require a presumption of desirability for the efficiency levels in ASHRAE 90.1. As noted previously, DOE has determined that there is clear and convincing evidence for standards for CWH equipment more stringent than those found in ASHARE 90.1. A discussion of DOE’s consideration of the statutory factors is contained in section V of this final rule. lotter on DSK11XQN23PROD with RULES2 2. Analytical Structure and Inputs In response to both the withdrawn May 2016 CWH ECS NOPR and the May 2022 CWH ECS NOPR, DOE received comments and information regarding the assumptions that it used for inputs in the rulemaking analyses. DOE considered these comments in appropriate analyses conducted in this final rule and modified its assumptions and inputs as necessary to account for the information or feedback provided by industry representatives. Section IV of this final rule provides details on DOE’s updates to its various analyses. Addressing the specific analysis that supports this rulemaking, Bradford White highlighted that some sources are as many as 14 years old and urged DOE to conduct updated surveys and studies in order to inform these major regulatory policy decisions. (Bradford White, No. 23 at p. 7) Additionally, the Joint Gas Commenters stated that in several cases, DOE lacks the data required to provide or support critical inputs to its analysis. (The Joint Gas Commenters, No. 34 at p. 16) In response, DOE uses the most recent data sources available at the time of the analysis whenever possible, as discussed further throughout section IV of this document. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 The Joint Gas Commenters urged DOE to implement recommendations from the recent National Academies of Sciences, Engineering, and Medicine (‘‘NASEM’’) report into all its appliance rulemakings, highlighting recommendations 2–2, 3–5, 4–1, 4–13, and 4–14 as the most pertinent. (Joint Gas Commenters, No. 34 at pp. 38–39) In response, the Department notes that the rulemaking process for standards of covered products and equipment are outlined at appendix A to subpart C of 10 CFR part 430 (‘‘appendix A’’), and DOE periodically examines and revises these provisions in separate rulemaking proceedings. The recommendations in the NASEM report, which pertain to the processes by which DOE analyzes energy conservation standards, will be considered in a separate rulemaking considering all product categories. PHCC noted that this rule impacts the resources of PHCC; therefore, PHCC feels it is necessary to present the contractors’ perspective on these issues. PHCC stated that certain customers would bear extraordinary costs as a result of this rule, and claimed that PHCC’s members will ultimately be the ones to shoulder the effects to those consumers by finding economical solutions for their clients. (PHCC, No. 28 at p. 11) In response, DOE recognizes that contractors play an important role in helping consumers purchase and install CWH equipment. DOE appreciates the perspective of all interested parties, including contractors and realizes that contractors will likely be responsible for characterizing the costs for new and replacement equipment installations to their customers as well as assisting in identifying and implementing economical solutions. DOE’s evaluation of the cost and benefits of this final rule is discussed in section V of this document, including impacts on certain consumers. 3. Final Selection of Standards Levels DOE received several comments expressing general approval or disapproval for the proposed standards. The Joint Advocates, NYSERDA, the CA IOUs, and CEC supported the proposed standards. (Joint Advocates, No. 29 at p. 1; NYSERDA No. 30 at p. 2; CEC, No. 27 at p. 1; CA IOUs, No. 33 at p. 1) NYSERDA stated that DOE should act swiftly to finalize the proposed standards and noted that these standards will play an important role in meeting their State climate goals through decarbonization of the water heater market. (NYSERDA, No. 30 at pp. 1–2) PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 69697 The CA IOUs expressed general support for DOE’s proposal to increase the efficiency requirements of commercial gas water heaters to condensing levels and suggested that market data show that the market is ready for this increase. (CA IOUs, No. 33 at p. 1) NEEA also stated support for DOE’s proposal to increase the efficiency levels of CWH equipment to reflect condensing performance, and asserted that they find the DOE analysis to be sound. They similarly commented in support of DOE’s proposal to increase the efficiency requirements of gas-fired residential-duty commercial storage products. They explained that doing so will realize the energy efficiency goals that were intended with the residential standard, and would harmonize commercial and residential requirements. (NEEA, No. 35 at p. 1) The Joint Advocates echoed similar support for the proposed standards and mentioned that updated standards for commercial gas-fired water heaters are long overdue as they have not been amended since 2001. (The Joint Advocates, No. 29 at p. 1) The CEC stated that based on data from its Modernized Appliance Efficiency Database System (‘‘MAEDbS’’), CWH products meeting the proposed standard are already certified for sale in California; 50 percent (969 out of 1936) meet the proposed requirement of 95 percent thermal efficiency and 24 percent (299 out of 1259) of the instantaneous models meet the proposed 96 percent thermal efficiency. The CEC argues that these data indicate no market barrier to the proposed standards. (CEC, No. 27 at p. 4) The CEC also encouraged DOE to finalize its proposal to phase out noncondensing technology, thus closing what they consider a significant loophole for standards of residentialduty CWHs. Id. at p. 3. Further, according to CEC, MAEDbS includes 324 residential-duty commercial gas water heaters, and none have storage above 55 gallons. Therefore, CEC claims that residential water heaters in California’s market are exploiting this ‘‘loophole’’ since consumer gas ratings with input ratings above 75,000 Btu/ hour would only be subject to a condensing standard if the storage volume is greater than 55 gallons. Id. The CA IOUs supported DOE’s proposed standards, and raised the same concern as CEC, stating that the energy efficiency standards for residential gas storage water heaters with a capacity greater than 55 gallons are currently higher than the requirements for commercial residential-duty gas storage heaters of similar capacity. As a result, E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69698 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations they claim that the greater-than-55gallon-capacity segment of the residential gas storage water heater market is exclusively served by commercial residential-duty products. (CA IOUs, No. 33 at p. 2) Rheem also suggested that DOE evaluate the proposed efficiency levels for residential-duty commercial gas-fired storage water heaters to ensure more equitable treatment for these products and consumer water heaters with a rated storage volume greater than 55 gallons because, they said, these categories can be used for the same applications. (Rheem, No. 24 at pp. 3–4) Sean Erwin commented that DOE’s proposal is agreeable, but also explained various types of solar water heating systems that could be a cost-effective means of generating hot water. (Erwin, No. 6 at p. 1) A.O. Smith also commented noting support for DOE’s proposal to move the minimum energy conservation standards for CWH to a standard that will require the utilization of condensing technology for gas-fired equipment, inclusive of both the proposed thermal efficiency and standby loss levels, with some modifications. (A.O. Smith, No. 22 at pp. 2, 7) A.O. Smith commented that that the adoption of this equipment will not only assist in reducing greenhouse gas emissions, but will also help property and business owners save money on their monthly energy bills, as well as preserve flexibility for businesses to install water heating equipment that is the most economical to meet the intended utility. A.O. Smith also recommended that high-efficiency gas-fired water heating equipment remain available for commercial customers. Id. at pp. 2–3. A.O. Smith suggested several modifications to the standards proposed in the May 2022 CWH ECS NOPR, which are discussed in the appropriate sections on this final rule. Id. at pp. 2–5. Additionally, Rheem raised concerns that many equipment sizes are not available at the proposed thermal efficiency levels and that, in some cases, the proposed levels are at the maximum technologically feasible (‘‘max-tech’’) levels evaluated. Rheem also stated that the DOE’s analysis has not shown that the proposed TSL is economically viable for the entire range of equipment sizes. (Rheem, No. 24 at p. 2) Several commenters suggested that DOE should analyze a 94 percent thermal efficiency level for gas-fired water heaters (A.O. Smith, No. 22 at pp. 2–4; AHRI, No. 31 at p. 2; Rheem, No. 24 at p. 3). These comments, and DOE’s response, are discussed in more detail VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 in section IV.C.4.a of this document. A.O. Smith also proposed an adjustment to the proposed efficiency level for gasfired residential-duty commercial water heaters, as discussed in section IV.C.4.c of this document. AHRI raised concerns that, because gas-fired storage and gas-fired instantaneous equipment are used in similar settings, setting higher efficiency standards for one class (i.e., gas-fired instantaneous water heaters and hot water supply boilers) inappropriately disadvantages that class in the marketplace compared to the other class(es). Therefore, AHRI requested the Department align the efficiency standards for all gas-fired water heaters. (AHRI, No. 31 at p. 2). Bock Water Heaters asserted their agreement with comments submitted by AHRI. (Bock Water Heaters, No. 20 at p. 2) DOE received a similar comment from Bradford White expressing concern that DOE has proposed more stringent requirements for gas-fired instantaneous water heaters, including hot water supply boilers, for greater than 10 gallons. Bradford White recommended that the thermal efficiency requirements for gas-fired instantaneous and hot water supply boilers be harmonized with that for gas-fired storage water heaters. They further noted that this approach would allow DOE to avoid unfairly biasing the marketplace towards one technology over another. (Bradford White, No. 23 at p. 3) The Joint Gas Commenters argued that a condensing standard would have numerous adverse impacts on building owners, including required building modifications, impacts on other equipment, impacts on occupied spaces or building aesthetics, inconvenience or loss to business as a result of additional time spent replacing equipment, additional installation services, or overall impracticality. (Joint Gas Commenters, No. 34 at pp. 9–10) They added that the proposed standards would violate the ‘‘unavailability’’ provision of EPCA and would leave many purchasers without gas products suitable for their needs. (Joint Gas Commenters, No. 34 at p. 39) WM Technologies called on DOE to rigorously review the inputs and the calculations in the LCC analysis because, they suggest, under the antibacksliding provision of EPCA, the damage to the end user would be irreparable should the Department promulgate condensing requirements for commercial water heaters. WM Technologies asserted that such requirements would exceed the existing infrastructures’ ability to adapt to condensing products and appliances in PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 many places across the country, resulting in the unavailability of the product due to an increase in the minimum efficiency, violating the unavailability clause of EPCA (EPACT). As an example, WM Technologies stated that row houses in many urban East Coast regions do not have the ability to vent through an outside wall, which is a requirement for many condensing products. (WM Technologies, No. 25 at pp. 5–6) Atmos Energy stated that DOE should allow the continued manufacture and availability of water heaters that meet consumer needs (including businesses) and suggested that the elimination of affordable products would undermine the goals of the energy efficiency program overall. (Atmos Energy, No. 36 at pp. 1–2) DOE has provided more specific responses to these comments throughout this document, but specifically, DOE addresses comments regarding the downtime during replacement in section IV.F.2.h of this document, comments regarding the unavailability of noncondensing commercial water heaters in section IV.A.2.b of this document and comments regarding the unavailability of certain equipment sizes in IV.C.4.a of this document. Because there are comments relating to regional differences, DOE would note that the analysis accounts for the impact of entering water temperature on loads by type of building, both of which are linked to region by the location variables included in the source databases (see section IV.E of this document). However, DOE would specifically note that row houses tend to be comprised of single family dwellings that DOE believes are far more likely to use consumer water heaters or potentially a consumer boiler with unfired storage tanks rather than the CWH equipment that is the subject of this final rule. Atmos Energy stated that where insufficient data exist, DOE should conclude it lacks evidence to support its proposed rule. It further offered its opinion that more data are needed to assess the proposed rule, including distributions of equipment by storage volume and input capacities, frequencies of installations that are infeasible or costly, installed costs, and customers’ annual fuel use. Atmos Energy stated that real-world data exist for this information and stated that DOE should collect actual data rather than relying on estimates, though Atmos Energy does not provide any such data or suggested sources. To ensure standards are economically justified, Atmos Energy stated DOE must fully E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations assess LCC, potential for fuel switching, economic benefits of efficiency improvements, and actual installation costs. (Atmos Energy, No. 36 at pp. 2, 4) As already noted, DOE uses the most current data available when performing rulemaking analyses, such as this CWH analysis. Atmos Energy is correct in the assertion that considerable data exist, but overlooks the fact that much of these data exists in forms not in the public domain. For example, consumers receive quotes for installing new or replacement water heaters, but such information is proprietary to the parties involved, and even if not proprietary, DOE is unaware of any existing service or process that aggregates such information. Contrary to the position Atmos Energy takes the fact that this information may exist in some form does not make this information necessarily available or usable to the general public or to DOE. Some of the data that Atmos Energy claims DOE should collect and use are not reasonably available to DOE. DOE uses publicly available and referenceable cost data, along with information collected during manufacturer interviews, to develop models to estimate such information in a fashion reasonably consistent with installation practice. For example, DOE uses U.S. Census data for developing contractor markup for installation costs; manufacturer shipment, DOE’s Compliance Certification Management System, and Energy Star data to develop equipment efficiency distributions; and price data from RSMeans and/or from available and referenceable public sources. In short, DOE’s method is to collect and use the best current data that are available to DOE and to develop analyses to estimate in a reasonable fashion the costs and benefits of proposed energy conservation standards. The specific analyses listed by Atmos Energy are addressed within this final rule document. As a general response to the comments in this section, DOE notes that it may prescribe an energy conservation standard more stringent than the level for such equipment in ASHRAE Standard 90.1, as amended, only if ‘‘clear and convincing evidence’’ shows that a more-stringent standard would result in significant additional conservation of energy and is technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In determining whether a standard is economically justified, the Secretary must determine whether the benefits of the standard exceed its burdens by, to the greatest VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 extent practicable, considering the seven statutory factors discussed previously. (42 U.S.C. 6313(a)(6)(B)(ii)(I)–(VII) and 42 U.S.C. 6313(a)(6)(C)(i)) As described in section V.A of this document, DOE typically evaluates potential amended standards for products and equipment by grouping individual efficiency levels for each class into TSLs. The use of TSLs allows DOE to identify and consider, among other things, market cross elasticity from consumer purchasing decisions that may change when different standard levels are set. DOE typically evaluates potential amended standards for products and equipment by grouping individual efficiency levels for each class into TSLs. Furthermore, as described in section V.C of this document, DOE considered the impacts of amended standards for CWH equipment at each TSL, with respect to the aforementioned criteria, and determined that there is clear and convincing evidence that the adopted standards are both technologically feasible and economically justified and save a significant amount of energy. The benefits and costs of the standard levels adopted in this final rule are discussed in section V.C.2 of this document. B. Scope of Coverage 1. Oil-Fired Commercial Water Heating Equipment As discussed in the May 2022 CWH ECS NOPR, DOE has determined that amended efficiency standards (in terms of both thermal efficiency and standby loss) for commercial oil-fired storage water heaters (including residentialduty oil-fired storage water heaters) would not be warranted and did not analyze amended efficiency standards for this equipment in this final rule. 87 FR 30610, 30622. Similarly, DOE did not analyze amended standards for commercial oilfired instantaneous water heaters and hot water supply boilers in the May 2022 CWH ECS NOPR because the energy savings possible from amended standards for such equipment is expected to be negligible. Id. Based on this rationale and because DOE has not received information suggesting otherwise, DOE has continued to exclude commercial oil-fired water heating equipment from the analysis conducted for this final rule. 2. Unfired Hot Water Storage Tanks Unfired hot water storage tanks are a class of CWH equipment. In response to the May 2022 CWH ECS NOPR, the CA IOUs stated that the efficiency requirements for unfired hot water PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 69699 storage tanks have been unrevised since 2001 and recommended that DOE develop performance requirements for unfired hot water storage tanks, which they said are often incorporated into heat pump water heating systems. (The CA IOUs, No. 33 at pp. 3–4) The CA IOUs requested that DOE develop performance-based testing and standards for unfired hot water storage tanks, stating that a performance-based metric would allow for innovation and would reward manufacturers who insulate well. Id. On May 24, 2022, DOE published a notice of final determination not to amend energy conservation standards for unfired hot water storage tanks. 87 FR 31359. Because amended energy conservation standards for unfired hot water storage tanks were considered as part of that proceeding, they were not considered further for this final rule. Similarly, amended test procedures for unfired hot water storage tanks and other CWH equipment will be considered in a separate rulemaking. 3. Electric Instantaneous Water Heaters EPCA prescribes energy conservation standards for several classes of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 6313(a)(5)) DOE codified these standards in its regulations for CWH equipment at 10 CFR 431.110. However, when codifying these standards from EPCA, DOE inadvertently omitted the standards put in place by EPCA for electric instantaneous water heaters. Specifically, for instantaneous water heaters with a storage volume of less than 10 gallons, EPCA prescribes a minimum thermal efficiency of 80 percent. For instantaneous water heaters with a storage volume of 10 gallons or more, EPCA prescribes a minimum thermal efficiency of 77 percent and a maximum standby loss, in percent/hour, of 2.30 + (67/measured volume (in gallons)). (42 U.S.C. 6313(a)(5)(D) and (E)) Although, DOE’s regulations at 10 CFR 431.110 do not currently include energy conservation standards for electric instantaneous water heaters, these standards prescribed in EPCA are applicable. Therefore, in this final rule, DOE is codifying these standards in its regulations at 10 CFR 431.110. In the May 2022 CWH ECS NOPR, DOE also discussed allowing the use of a calculation-based method for determining storage volume of electric instantaneous water heaters that is the same as the method for gas-fired and oilfired instantaneous water heaters and hot water supply boilers found at 10 CFR 429.72(e) (added at 81 FR 79261, 79320 (Nov. 10, 2016)). DOE initially E:\FR\FM\06OCR2.SGM 06OCR2 69700 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 concluded that the same rationale for including these provisions for gas-fired and oil-fired instantaneous water heaters and hot water supply boilers also applies to electric instantaneous water heaters (i.e., it may be difficult to completely empty the instantaneous water heater in order to obtain a dry weight measurement, which is needed in a weight-based test for an accurate representation of the storage volume). Therefore, DOE tentatively concluded that including electric instantaneous water heaters in these provisions would provide manufacturers with flexibility as to how the storage volume is determined. 87 FR 30622. However, DOE is considering these certification changes in a separate rulemaking. Therefore, DOE is not enacting any changes at 10 CFR 429.72(e) to allow the use of a calculation-based method for determining the storage volume of electric instantaneous water heaters in this final rule. Additionally, as discussed in the May 2022 CWH ECS NOPR, DOE notes that because electric instantaneous water heaters typically use electric resistance heating, which is highly efficient, the thermal efficiency of these units already approaches 100 percent. DOE has also determined that there are no options for substantially increasing the rated thermal efficiency of this equipment, and the impact of setting thermal efficiency energy conservation standards for these products would be negligible. Similarly, the stored water volume is typically low, resulting in limited potential for reducing standby losses for most electric instantaneous water heaters. As a result, amending the standards for electric instantaneous water heaters established in EPCA would result in minimal energy savings. Even if DOE were to account for the energy savings potential of amended standards for electric instantaneous water heaters, the contribution of any potential energy savings from amended standards for these units would be negligible and not appreciably impact the energy savings analysis for CWH equipment. Therefore, DOE did not analyze amended energy conservation standards for electric instantaneous water heaters in this final rule.19 19 In the May 2022 CWH ECS NOPR, DOE noted that it did not analyze amended energy conservation standards for residential-duty electric instantaneous water heaters (87 FR 30631), which are a separate equipment class within DOE’s regulations for CWH equipment. See 79 FR 40541, 40588 (Jul. 11, 2014). Consistent with the May 2022 CWH ECS NOPR, DOE did not analyze amended standards for residential-duty electric instantaneous water heaters in this final rule for similar reasons as those stated for not analyzing standards for electric instantaneous water heaters. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 4. Commercial Heat Pump Water Heaters In response to the May 2022 CWH ECS NOPR, DOE received multiple comments regarding DOE’s proposal not to consider energy conservation standards for commercial heat pump water heaters. Rheem supported DOE’s decision not to consider heat pump technology in the current analysis but encouraged DOE to review and amend the equipment class structure to include heat pump water heaters as a technology option for specific applications in a future rulemaking. (Rheem, No. 24 at p. 5) In contrast, NEEA and the CA IOUs requested that DOE include heat pump water heaters in its analysis. Both NEEA and the CA IOUs mentioned that these technologies represent the current maxtech efficiency levels for CWH. (NEEA, No. 35 at p. 2; the CA IOUs, No. 33 at p. 3) NEEA also stated that an analysis of current commercial water heating is incomplete without this consideration. (NEEA, No. 35 at p. 2) Further, NEEA, the CA IOUs, and the Joint Advocates noted that many commercial-duty heat pump products from several different manufacturers are available on the market already, and NEEA and the CA IOUs provided numerous citations to specific models. (NEEA, No. 35 at p. 2; the CA IOUs, No. 33 at p. 3; Joint Advocates, No. 29 at p. 14) The CA IOUs further commented that commercial electric heat pump water heaters have already been successfully and efficiently providing hot water to commercial buildings across the country and can include electric resistance elements that allow them to deliver comparable peak demand performance to commercial electric-resistance-only storage water heaters. (CA IOUs, No. 33 at p. 3) WM Technologies and PattersonKelley argued that they are not aware of compressor-based water heating products which can operate at the water temperatures required to achieve commercial hot water flow rate at adequate temperatures, let alone sanitizing conditions, and added that if such products become available, the sizing of various internal components would be significantly different than heat pumps utilized for other applications. (WM Technologies, No. 25 at p. 7; Patterson-Kelley, No. 26 at p. 5) WM Technologies and Patterson-Kelley also stated that if available, those products should be required to meet the efficiencies at operating conditions of adequate hot water flow rate at the required temperature. Id. Furthermore, WM Technologies said, if any part of the heat pump system is located in PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 unconditioned spaces, that portion of the heat pump should be maintained at the worst-case national temperature at which the product may experience during efficiency testing. (WM Technologies, No. 25 at p. 7) Rheem, AHRI, and Bradford White additionally suggested that it may be difficult to meet the same hot water loads with an integrated heat pump as with a commercial electric storage water heater. (AHRI, No. 31 at pp. 3–4; Rheem, No. 24 at p. 5; Bradford White, No. 23 at pp. 7–8) The commenters further noted that heat pump water heaters typically have a slower recovery time than commercial electric storage water heaters and may also have difficulty reaching the same temperatures as commercial electric storage water heaters without backup resistance elements. Id. Further, Rheem and AHRI noted in particular that integrated heat pump water heaters may have difficulty reaching sanitizing temperatures. (AHRI, No. 31 at pp. 3–4; Rheem, No. 24 at p. 5) Rheem also noted that the larger footprint may limit replacement opportunities and may result in a decrease in workspace (such as kitchen space) as opposed to a decrease in mechanical room space. (Rheem, No. 24 at p. 5) Furthermore, Bradford White stated that given that most heat pump water heaters recover at a much slower rate, additional storage capacity must be added to the hot water system, which likely means that a split system heat pump water heater would be used instead of an integrated heat pump water heater. (Bradford White, No. 23 at p. 7) DOE did not consider commercial integrated heat pump water heaters in this final rule. DOE found only one such model on the market, at a single storage volume and heating capacity. Given the wide range of capacities and stored water volumes in products currently on the market, which are required to meet hot water loads in commercial buildings, it is unclear based on this single model whether heat pump water heater technology would be suitable to meet the range of load demands on the market. Similarly, based on the information currently available and comments regarding the performance of heat pump water heaters as compared to electric resistance water heaters in commercial settings, it is uncertain if split-system heat pump water heaters can serve all the applications currently filled by electric instantaneous water heaters. Therefore, DOE is not analyzing this equipment in the current analysis. However, DOE may analyze commercial heat pump water heaters in a future rulemaking, at which time DOE will E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations consider the appropriate equipment class structure for commercial electric water heaters, including commercial heat pump water heaters. 5. Electric Storage Water Heaters In this rulemaking, DOE did not analyze thermal efficiency standards for electric storage water heaters. Electric storage water heaters are not currently subject to a thermal efficiency standard under 10 CFR 431.110. Electric storage water heaters typically use electric resistance heating elements, which are highly efficient. The thermal efficiency of these units already approaches 100 percent. As discussed in section III.B.4 of this document, DOE did not consider commercial integrated heat pump water heaters as the max-tech for electric storage water heaters at this time. In the May 2022 CWH ECS NOPR, DOE concluded that the only technology option that DOE analyzed in the engineering analysis as providing standby loss reduction for electric storage water heaters (i.e., increasing tank foam insulation thickness to 3 inches) is already currently included in some models rated at or near the current standby loss standard. Consequently, DOE did not analyze any technology options for reducing standby loss below (i.e., more stringent than) the current standard. In response to the May 2022 CWH ECS NOPR, Bock Water Heaters indicated support for not amending the standby loss standard for electric storage water heaters. (Bock Water Heaters, No. 20 at p. 1) Bradford White similarly supported DOE’s decision not to change standards for commercial electric storage, as there is no electric resistance or insulation technology that would allow them to comply with more stringent standards. (Bradford White, No. 23 at p. 3) DOE maintains its conclusion originally stated in the May 2022 CWH ECS NOPR and therefore, in this final rule, DOE did not further analyze and is not adopting amended standby loss standards for electric storage water heaters. lotter on DSK11XQN23PROD with RULES2 6. Instantaneous Water Heaters and Hot Water Supply Boilers Other than storage-type instantaneous water heaters, DOE did not include instantaneous water heaters and hot water supply boilers in its analysis of potential amended standby loss standards.20 Instantaneous water heaters 20 On November 10, 2016, DOE published a final rule amending the test procedures for certain CWH equipment (‘‘November 2016 CWH TP final rule’’). 81 FR 79261. DOE adopted a definition for ‘‘storagetype instantaneous water heater’’ in the November 2016 CWH TP final rule. Id. at 79289–79290. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 and hot water supply boilers (other than storage-type instantaneous water heaters) with greater than 10 gallons of water stored have a standby loss requirement under 10 CFR 431.110. However, DOE did not analyze more stringent standby loss standards for these units because it has determined that such amended standards would result in minimal energy savings. Even if DOE were to account for the energy savings potential of amended standby loss standards for instantaneous water heaters and hot water supply boilers (other than storage-type instantaneous water heaters) with greater than 10 gallons of water stored CWH equipment, the contribution of any potential energy savings from amended standards for these units would be negligible and not appreciably impact the energy savings analysis for CWH equipment. DOE has determined that instantaneous water heaters (other than storage-type instantaneous water heaters) and hot water supply boilers with less than 10 gallons of water stored would not have significantly different costs and benefits as compared to instantaneous water heaters (other than storage-type instantaneous water heaters) and hot water supply boilers with greater than or equal to 10 gallons of water stored. (See section IV.C.7 of this document for further discussion of the costs for instantaneous water heaters and hot water supply boilers.) Therefore, DOE analyzed both equipment classes of instantaneous water heaters and hot water supply boilers (less than 10 gallons and greater than or equal to 10 gallons stored volume) together for thermal efficiency standard levels in this final rule, which is discussed further in section IV.C.3 of this document. DOE also determined that establishing standby loss standards for instantaneous water heaters and hot water supply boilers with less than or equal to 10 gallons water stored would result in minimal energy savings. Even if DOE were to account for the energy savings potential of amended standby loss standards for instantaneous water heaters and hot waters supply boilers with less than or equal to 10 gallons of water stored, the contribution any potential energy savings from amended standards for these units would be negligible and not appreciably impact the energy savings analysis for CWH equipment. Bradford White commented in support of DOE’s determination not to establish standby loss standards for gas-fired instantaneous and hot water Storage-type instantaneous water heaters are discussed in section IV.A.2.a of this final rule. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 69701 supply boilers less than 10 gallons. (Bradford White, No. 23 at p. 3) For instantaneous water heaters and hot water supply boilers (other than storagetype instantaneous water heaters), DOE has not found and did not receive any information or data suggesting that DOE should analyze amended standby loss standards. Bradford White commented that there is confusion in how different types of products are characterized by DOE and stated that there appears to be overlap in the structure of the proposed standards. (Bradford White, No. 23 at p. 1) In particular, Bradford White stated that gas-fired storage-type instantaneous water heaters and gas-fired instantaneous water heaters are handled differently and that certain products appear to fall into the two different categories with two different sets of energy conservation standards. Id. AHRI stated that it understands that the Department’s intent is for the equipment class of ‘‘instantaneous water heaters and hot water supply boilers greater than 10 gallons’’ to refer specifically to hot water supply boilers with storage tanks and circulating water heaters with an external storage tank. AHRI stated that including separate standards for ‘‘gas-fired storage water heaters and storage-type instantaneous water heaters’’ and ‘‘gas-fired instantaneous water heaters with a storage capacity greater than or equal to 10 gallons’’ in Table 1 to 10 CFR 431.110(a) of the May 2022 CWH ECS NOPR could cause market confusion by creating unintentional overlap between these product types. (AHRI, No. 31 at pp. 2– 3) In response, DOE clarifies that in this final rule, it is adopting a minimum thermal efficiency of 95 percent for gasfired storage-instantaneous water heaters and a minimum thermal efficiency of 96 percent for tankless water heaters and circulating water heaters and hot water supply boilers. As discussed in section IV.A.2.a of this document, gas-fired storage-type instantaneous water heaters were analyzed together with gas-fired storage water heaters because of the similarity of these types of equipment. Additionally, as discussed in section IV.A.2.c of this document, DOE analyzed tankless water heaters and circulating water heaters and hot water supply boilers as two separate kinds of representative equipment for this rulemaking analysis, to reflect the differences between these types of equipment, but they are part of the same equipment class (gas-fired instantaneous water heaters and hot water supply boilers), and DOE is adopting the same E:\FR\FM\06OCR2.SGM 06OCR2 69702 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations minimum efficiency requirements for these equipment in this final rule. Similarly, DOE notes that storage-type instantaneous water heaters are instantaneous water heaters that include a storage tank with a storage volume greater than or equal to 10 gallons. Other instantaneous water heaters may also have greater than or equal to 10 gallons but if that storage volume is included within the heat exchanger itself rather than a storage tank, they are not considered storage-type instantaneous water heaters. lotter on DSK11XQN23PROD with RULES2 C. Test Procedure EPCA sets forth generally applicable criteria and procedures for DOE’s adoption and amendment of test procedures. (42 U.S.C. 6314(a)) 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 test procedures for CWH equipment are specified at 10 CFR 431.106 and provide mandatory methods for determining the thermal efficiency, standby loss, and UEF, as applicable, of CWH equipment.21 As discussed in the May 2022 CWH ECS NOPR, DOE analyzed standards for residential-duty gas-fired storage water heaters in terms of UEF. However, on January 11, 2022, DOE published a test procedure NOPR for consumer water heaters and residential-duty commercial water heaters. 87 FR 1554. Subsequently, on July 14, 2022, DOE published a supplemental NOPR (‘‘SNOPR’’) (‘‘the July 2022 SNOPR’’) proposing to amend the test procedure for consumer water heaters and residential-duty commercial water heaters. 87 FR 42270. Finally, on June 21, 2023, DOE published the final rule (‘‘the June 2023 TP Final Rule’’) 21 ‘‘Thermal efficiency’’ for an instantaneous water heater, a storage water heater or a hot water supply boiler means the ratio of the heat transferred to the water flowing through the water heater to the amount of energy consumed by the water heater as measured during the thermal efficiency test procedure prescribed in this subpart. ‘‘Standby loss’’ means: (1) For electric commercial water heating equipment (not including commercial heat pump water heaters), the average hourly energy required to maintain the stored water temperature expressed as a percent per hour (%/h) of the heat content of the stored water above room temperature and determined in accordance with appendix B or D to subpart G of part 431 (as applicable), denoted by the term ‘‘S’’; or (2) For gas-fired and oil-fired commercial water heating equipment, the average hourly energy required to maintain the stored water temperature expressed in British thermal units per hour (Btu/h) based on a 70 °F temperature differential between stored water and ambient room temperature and determined in accordance with appendix A or C to subpart G of part 431 (as applicable), denoted by the term ‘‘SL.’’ 10 CFR 431.102. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 amending the test procedure for consumer water heaters and residentialduty commercial water heaters. 88 FR 40406. In response to the May 2022 CWH ECS NOPR, DOE received several comments relating to the proposed test procedure amendments. A.O. Smith stated that they do not anticipate any meaningful impact on future energy efficiency ratings for residential-duty commercial water heaters resulting from the proposed changes. (A.O. Smith, No. 22 at p. 5) However, DOE also received several comments stating that the proposed changes could cause impacts to the efficiency ratings of residentialduty commercial water heaters. In particular, AHRI expressed concern about changes to how effective storage volume is calculated, how internal tank temperature is determined, the ramifications of overheating on ratings, and the definition of demand response. (AHRI, No. 31 at p. 3) Bradford White commented that they were still assessing the potential impacts of the proposed test procedure amendments but noted that a few of the proposed changes could possibly greatly impact the efficiency ratings. (Bradford White, No. 23 at p. 7). Rheem similarly raised concerns that the test procedure amendments proposed in the July 2022 SNOPR could impact efficiency ratings for residential-duty water heaters, and encouraged DOE to issue the final rule of the consumer water heater test procedure at least 180 days prior to the issuance of a CWH energy conservation standards rule, as recommended by the Process Rule provisions in section (8)(d)(10) of appendix A to subpart C of part 430. (Rheem, No. 24 at p. 4) The Joint Gas Commenters stated that completing the residential-duty gas storage water heater test procedure rulemaking before completing the CWH standards rulemaking may be required by the Process Rule. (Joint Gas Commenters, No. 34 at p. 37) In response, as discussed in the June 2023 TP Final Rule, DOE has concluded that the test procedure changes that were adopted in the June 2023 Final Rule will not alter the UEF ratings of residential-duty water heaters. 88 FR 40406, 40412. In addition, DOE notes that it has discretion to deviate from the procedures in appendix A in certain cases. DOE’s rationale for deviating from the 180day requirement in appendix A is discussed in section II.C of this document. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 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. See generally 10 CFR 431.4; sections 6(b)(3)(i) and 7(b)(1) of appendix A to 10 CFR part 430 subpart C (‘‘Process Rule’’). 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. See generally 10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, sections 6(c)(3)(ii)–(v) and 7(b)(2)–(5). Section IV.B of this document discusses the results of the screening analysis for CWH equipment, 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 an amended standard for a type or class of covered equipment, it determines the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such equipment. Accordingly, in the engineering analysis, DOE determined the max-tech improvements in energy efficiency for CWH equipment, 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.4 of this final rule and in chapter 5 of the final rule TSD. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations E. Energy Savings 1. Determination of Savings For each TSL, DOE projected energy savings from application of the TSL to CWH equipment purchased in the 30year period that begins in the year of compliance with the amended standards (2026–2055 for gas-fired CWH equipment).22 The savings are measured over the entire lifetime of CWH equipment 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 nonew-standards case. The no-newstandards 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 used its national impact analysis (‘‘NIA’’) spreadsheet models to estimate national energy savings (‘‘NES’’) from potential amended standards for CWH equipment. 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 NES 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 because they are supplied to the user without transformation from another form of energy. DOE also calculates NES in terms of 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.23 DOE’s approach is based on the calculation of an FFC multiplier for each of the energy types used by covered equipment.24 For more information on FFC energy savings, see section IV.H.3 of this document. 2. Significance of Savings lotter on DSK11XQN23PROD with RULES2 To adopt any new or amended standards for a covered product, DOE 22 DOE also presents a sensitivity analysis that considers impacts for equipment shipped in a 9year period. 23 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). 24 Natural gas and electricity were the energy types analyzed in the FFC calculations. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 must determine that such action would result in significant energy savings. (See 42 U.S.C. 6313(a)(6)(C)(i); 42 U.S.C. 6313(a)(6)(A)(ii)(II)) 25 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.26 For example, some covered products and equipment have most of their energy consumption occur during periods of peak energy demand. The impacts of this equipment on the energy infrastructure can be more pronounced than equipment with relatively constant demand. Accordingly, DOE evaluates the significance of energy savings on a caseby-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. As stated, the standard levels adopted in this final rule are projected to result in national energy savings of 0.70 quads. Based on the amount of FFC savings, the corresponding reduction in emissions, and need to confront the global climate crisis, DOE has determined (based on the methodology described in section IV.E of this document and the analytical results presented in section V.B.3.a of this document) that there is clear and convincing evidence that the energy savings from the standard levels adopted in this final rule are ‘‘significant’’ within the meaning of 42 U.S.C. 6313(a)(6)(A)(ii)(II). 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 25 In setting a more stringent standard for ASHRAE equipment, DOE must have ‘‘clear and convincing evidence’’ that doing so ‘‘would result in significant additional conservation of energy’’ in addition to being technologically feasible and economically justified. 42 U.S.C. 6313(a)(6)(A)(ii)(II). This language indicates that Congress had intended for DOE to ensure that, in addition to the savings from the ASHRAE standards, DOE’s standards would yield additional energy savings that are significant. In DOE’s view, this statutory provision shares the requirement with the statutory provision applicable to covered products and non-ASHRAE equipment that ‘‘significant conservation of energy’’ must be present (42 U.S.C. 6295(o)(3)(B))—and supported with ‘‘clear and convincing evidence’’—to permit DOE to set a more stringent requirement than ASHRAE. 26 The numeric threshold for determining the significance of energy savings established in a final rule published on February 14, 2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule published on December 13, 2021 (86 FR 70892). PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 69703 justified. (42 U.S.C. 6313(a)(6)(B)(ii)(I)– (VII) and (C)(i)) The following sections discuss how DOE has addressed each of those seven factors in this rulemaking. a. Economic Impact on Manufacturers and Consumers EPCA requires DOE to consider the economic impact of a standard on manufacturers and the consumers of the products subject to the standard. (42 U.S.C. 6313(a)(6)(B)(I) and (C)(i)) In determining the impacts of potential amended standards on manufacturers, DOE conducts an MIA, as discussed in section IV.J of this document. For the MIA, DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes both a shortterm 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 industrywide 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 (manufacturer subgroups), 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 NPV of the economic impacts applicable to a particular rulemaking. DOE also evaluates the impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a national 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 CWH equipment 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 E:\FR\FM\06OCR2.SGM 06OCR2 69704 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II); 42 U.S.C. 6313(a)(6)(C)(i)) DOE conducts this comparison in its LCC and PBP analysis. The LCC is the sum of the purchase price of a piece of equipment (including its installation and sales tax) and the operating expense (including energy, maintenance, and repair expenditures) discounted over the lifetime of the equipment. 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 equipment lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value. For its analysis, DOE assumes that consumers will purchase the covered equipment in the first full year of compliance with amended standards. The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a moreefficient 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. The LCC savings for the considered efficiency levels are calculated relative to the no-new-standards case that reflects projected market trends in the absence of new or amended standards. DOE identifies the percentage of consumers estimated to receive LCC savings or experience an LCC increase, in addition to the average LCC savings associated with a particular standard level. DOE’s LCC and PBP analysis is discussed in further detail in section IV.F of this document. lotter on DSK11XQN23PROD with RULES2 c. Energy Savings Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(III)) As discussed in section IV.H of this document and chapter 10 of the final rule TSD, DOE uses the NIA spreadsheet models to project national energy savings. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 d. Lessening of Utility or Performance of Products f. Need for National Energy Conservation In establishing classes of equipment, and in evaluating design options and the impact of potential standard levels, DOE must consider any lessening of the utility or performance of the considered equipment likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) Based on data available to DOE, the standards in this document would not reduce the utility or performance of the products under consideration in this rulemaking. As discussed in section IV.A.2.b of this document, DOE considered whether different venting technologies should be considered a necessary feature. Although the standards in this final rule would effectively eliminate noncondensing technology (and associated venting), DOE has recently published a final interpretive rule that returns to the previous and long-standing interpretation (in effect prior to the January 15, 2021 final interpretive rule), under which the technology used to supply heated air or hot water is not a performance-related ‘‘feature’’ that provides a distinct utility under EPCA. 86 FR 73947 (Dec. 29, 2021). Therefore, for the purpose of the analysis conducted for this rulemaking, DOE has determined that it is not prohibited from setting energy conservation standards that preclude non-condensing technology and did not analyze separate equipment classes for non-condensing and condensing CWH equipment in this final rule. A more detailed explanation of DOE’s determination may be found in section IV.A.2 of this document. 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. 6313(a)(6)(B)(ii)(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. As part of the analysis of the need for national energy and water conservation, 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.27 DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L of this document. DOE emphasizes that the SC–GHG analysis presented in this final rule and TSD was performed in support of the cost-benefit analyses required by Executive Order (‘‘E.O.’’) 12866, and is provided to inform the public of the impacts of emissions reductions resulting from this rule. The SC–GHG estimates were not factored into DOE’s EPCA analysis of the need for national energy and water conservation. 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. (See 42 U.S.C. 6313(a)(6)(B)(ii)(V)) 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 CWH equipment are unlikely to have a significant adverse impact on competition. DOE is publishing the Attorney General’s assessment at the end of this final rule. PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 27 As discussed in section IV.L of this document, for the purpose of complying with the requirements of E.O. 12866, DOE also estimates the economic value of emissions reductions resulting from the considered TSLs. DOE calculates this estimate using a measure of the social cost (‘‘SC’’) of each pollutant (e.g., SC–CO2). Although this estimate is calculated for the purpose of complying with E.O. 12866, the Seventh Circuit Court of Appeals confirmed in 2016 that DOE’s consideration of the social cost of carbon in energy conservation standards rulemakings is permissible under EPCA. Zero Zone v. Dept of Energy, 832 F.3d 654, 678 (7th Cir. 2016). E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 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. 6313(a)(6)(B)(ii)(VII) and (C)(i)) DOE did not consider other factors for this document. 2. Rebuttable Presumption EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of a product that meets the standard is less than three times the value of the first year’s energy savings resulting from the standard, as calculated under the applicable DOE test procedure. DOE’s LCC and PBP analyses generate values used to calculate the effects that potential amended energy conservation standards would have on the PBP for consumers. These analyses include, but are not limited to, the 3-year PBP 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. 6313(a)(6)(B)(ii) and 42 U.S.C. 6313(a)(6)(C)(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 V.B.1.c of this document. lotter on DSK11XQN23PROD with RULES2 G. Revisions to Notes in Regulatory Text In the May 2022 CWH ECS NOPR, DOE proposed to modify the three notes to the table of energy conservation standards in 10 CFR 431.110. 87 FR 30610, 30626–30627. First, DOE proposed to modify the note to the table of energy conservation standards denoted by subscript ‘‘a’’ to replace the term ‘‘nameplate input rate’’ with the term ‘‘rated input.’’ DOE noted that this change ensures consistency in nomenclature throughout DOE’s regulations for CWH equipment. Id. DOE also proposed in the May 2022 CWH ECS NOPR to remove the note to the table of energy conservation standards denoted by subscript ‘‘b.’’ This note clarifies the compliance date for energy conservation standards for hot water supply boilers with capacity less than 10 gallons. However, the note is no longer needed because the specific compliance date for hot water supply VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 boilers with less than 10 gallons of storage is well in the past, with all such equipment being required to meet the standards in the table in 10 CFR 431.110 since October 21, 2005. Id. In the May 2022 CWH ECS NOPR, DOE also proposed to modify the note to the table of energy conservation standards denoted by subscript ‘‘c,’’ which establishes design requirements for water heaters and hot water supply boilers having more than 140 gallons of storage capacity that do not meet the standby loss standard. DOE proposed to replace the phrase ‘‘fire damper’’ with the phrase ‘‘flue damper,’’ because ‘‘flue damper’’ was more consistent with commonly used terminology and likely the intended meaning, and that ‘‘fire damper’’ was a typographical error. 87 FR 30610, 30626–30627. This revised footnote, new footnote b on Table 1 to 10 CFR 431.110(a), was inadvertently omitted in the May 2022 CWH ECS NOPR. DOE did not intend to remove this footnote and is retaining that footnote in this final rule. Finally, in the May 2022 CWH ECS NOPR, DOE proposed to add a footnote to Table 1 at 10 CFR 431.110(a) (new footnote c) to clarify that the compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994. 87 FR 30610, 306728. As discussed in section III.B.3 of this document, DOE is codifying standards for electric instantaneous water heaters that were originally set by EPCA but were inadvertently omitted in DOE’s regulations at 10 CFR 431.110. In response to the May 2022 CWH ECS NOPR, Bradford White stated that they support DOE’s decision not to change the requirements for a model’s rated input. (Bradford White, No. 23 at p. 8) WM Technologies and PattersonKelley also indicated support for using the term ‘‘rated input’’, as long as the method to determine this value is unchanged. They also encouraged DOE to maintain the ‘‘b’’ and ‘‘c’’ subscripts for posterity to maintain chronological information. (WM Technologies, No. 25 at p. 7; Patterson-Kelley No. 26 at p. 5) In response, DOE notes that the Electronic Code of Federal Regulations (eCFR) 28 allows users to access historical versions of the CFR by using the ‘‘Timeline’’ or ‘‘Go to Date’’ functions when viewing a page of the CFR. Therefore, because chronological information about changes to the CFR remain available to the public, DOE does not consider it necessary to retain these notes in the current version of the CFR. 28 The PO 00000 eCFR is available at ecfr.gov. Frm 00021 Fmt 4701 Sfmt 4700 69705 In footnote b(1), DOE is amending the text to refer to the existing definition of R-value in § 431.102, rather than refer directly to industry standards in this note. This does not change the standards regarding standby loss, or the thermal insulation requirement as detailed in this note, but improves consistency and prevents future discrepancies between § 431.102 and § 431.110. DOE is adopting the changes to notes ‘‘b’’ and ‘‘c’’ as proposed in the May 2022 CWH ECS NOPR, with this editorial revision. H. Certification, Compliance, and Enforcement Issues In the withdrawn May 2016 CWH ECS NOPR, DOE proposed to add requirements to its certification, compliance, and enforcement regulations at 10 CFR 429.44 that the rated value of storage volume must equal the mean of the measured storage volume of the units in the sample. 81 FR 34440, 34458 (May 31, 2016). Additionally, in the withdrawn May 2016 CWH ECS NOPR, DOE proposed changes to the equations for maximum standby losses that would be consistent with the proposed changes to DOE’s certification, compliance, and enforcement regulations. 81 FR 34440, 34458–34459. In the May 2022 CWH ECS NOPR, DOE explained that after considering comments from stakeholders related to this topic, it decided not to propose changes to the requirements regarding certification of storage volume or the related changes to the equations for maximum standby loss. 87 FR 30610, 30628. Bock and Bradford White indicated support for DOE’s proposal not to change the requirements regarding certification of storage volume for storage-type water heaters. (Bock, No. 20 at p. 1; Bradford White, No. 23 at p. 8) After considering the comments, DOE is not adopting any changes to the requirements regarding certification of storage volume in this final rule. Additionally, in response to the May 2022 CWH ECS NOPR, Rheem recommended that the certification criteria at 10 CFR 429.44(c)(2) be amended to require manufacturers to state whether a basic model is a ‘‘storage-type instantaneous water heater.’’ Rheem also recommended that DOE should publish an example certification template. (Rheem, No. 24 at p. 3) In response, DOE notes that manufacturers of commercial gas-fired and oil-fired instantaneous water heaters and hot water supply boilers with storage capacity greater than or equal to 10 gallons are already required to certify whether the water heater E:\FR\FM\06OCR2.SGM 06OCR2 69706 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations includes a storage tank with a storage volume greater than or equal to 10 gallons. 10 CFR 429.44(c)(2)(iv). Such units that include a storage tank with a storage volume greater than or equal to 10 gallons would meet DOE’s definition of storage-type water heaters as set out at 10 CFR 431.102. Lastly, in the May 2022 CWH ECS NOPR, DOE stated that it was not proposing to establish equipmentspecific certification requirements for electric instantaneous water heaters, but may propose to establish certification requirements for electric instantaneous water heaters in future rulemakings. 87 FR 30610, 30628. DOE did not receive any comments related to this topic and is not establishing certification requirements specific to electric instantaneous water heaters in this final rule. lotter on DSK11XQN23PROD with RULES2 IV. Methodology and Discussion of Related Comments This section addresses the analyses DOE has performed for this rulemaking with regard to CWH equipment. Separate subsections address each component of DOE’s analyses. In overview, 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 NIA uses a second spreadsheet set that provides shipments forecasts and calculates NES and NPV resulting from potential new or amended energy conservation standards.29 These spreadsheet tools are available on the DOE website for this rulemaking: www1.eere.energy.gov/ buildings/appliance_standards/ standards.aspx?productid=36. 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 For the market and technology assessment for CWH equipment, DOE gathered information in the market and technology assessment that provides an overall picture of the market for the equipment concerned, including the purpose of the equipment, the industry structure, manufacturers, market characteristics, and technologies used in the equipment. This activity includes both quantitative and qualitative assessments, based primarily on 29 DOE uses a third spreadsheet tool, the Government Regulatory Impact Model (‘‘GRIM’’), to assess the financial impacts of potential new or amended standards on manufacturers. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 publicly-available information. The subjects addressed in the market and technology assessment for this rulemaking include the following: (1) a determination of the scope of the rulemaking and equipment classes, (2) manufacturers and industry structure, (3) types and quantities of CWH equipment sold, (4) existing efficiency programs, and (5) technologies that could improve the energy efficiency of CWH equipment. 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. Definitions EPCA includes the following categories of CWH equipment as covered industrial equipment: storage water heaters, instantaneous water heaters, and unfired hot water storage tanks. EPCA defines a ‘‘storage water heater’’ as a water heater that heats and stores water internally at a thermostatically-controlled temperature for use on demand. This term does not include units that heat with an input rating of 4,000 Btu per hour or more per gallon of stored water. EPCA defines an ‘‘instantaneous water heater’’ as a water heater that heats with an input rating of at least 4,000 Btu per hour per gallon of stored water. Lastly, EPCA defines an ‘‘unfired hot water storage tank’’ as a tank that is used to store water that is heated external to the tank. (42 U.S.C. 6311(12)(A)–(C)) DOE first codified the following more specific definitions for CWH equipment at 10 CFR 431.102 in the October 2004 direct final rule. 69 FR 61974, 61983. Several of these definitions were subsequently amended in the November 2016 CWH TP final rule. 81 FR 79261, 79287–79288 (Nov. 10, 2016). Specifically, DOE now defines ‘‘hot water supply boiler’’ in 10 CFR 431.102 as a packaged boiler that is industrial equipment and that (1) has an input rating from 300,000 Btu/h to 12,500,000 Btu/h and of at least 4,000 Btu/h per gallon of stored water; (2) is suitable for heating potable water; and (3) meets either or both of the following conditions: (i) it has the temperature and pressure controls necessary for heating potable water for purposes other than space heating; or (ii) the manufacturer’s product literature, product markings, product marketing, or product installation and operation instructions indicate that the boiler’s intended uses include heating potable water for purposes other than space heating. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 DOE also defines an ‘‘instantaneous water heater’’ in 10 CFR 431.102 as a water heater that uses gas, oil, or electricity, including: (1) gas-fired instantaneous water heaters with a rated input both greater than 200,000 Btu/h and not less than 4,000 Btu/h per gallon of stored water; (2) oil-fired instantaneous water heaters with a rated input both greater than 210,000 Btu/h and not less than 4,000 Btu/h per gallon of stored water; and (3) electric instantaneous water heaters with a rated input both greater than 12 kW and not less than 4,000 Btu/h per gallon of stored water. DOE defines a ‘‘storage water heater’’ in 10 CFR 431.102 as a water heater that uses gas, oil, or electricity to heat and store water within the appliance at a thermostatically-controlled temperature for delivery on demand including: (1) gas-fired storage water heaters with a rated input both greater than 75,000 Btu/h and less than 4,000 Btu/h per gallon of stored water; (2) oil-fired storage water heaters with a rated input both greater than 105,000 Btu/h and less than 4,000 Btu/h per gallon of stored water; and (3) electric storage water heaters with a rated input both greater than 12 kW and less than 4,000 Btu/h per gallon of stored water. Lastly, DOE defines an ‘‘unfired hot water storage tank’’ in 10 CFR 431.102 as a tank used to store water that is heated externally, and that is industrial equipment. Relating to these definitions, Rheem recommended that the definition of ‘‘storage-type instantaneous water heater’’ at 10 CFR 431.102 should be based on ‘‘rated storage volume’’ and that the certification criteria at 10 CFR 429.44 be amended to be based on ‘‘measured storage volume.’’ (Rheem, No. 24 at p. 3) DOE agrees that basing the categorizations of storage-type instantaneous water heaters based on the rated storage volume is consistent with the criteria DOE uses to identify such equipment. Therefore, DOE is amending the definition of ‘‘storage-type instantaneous water heater’’ at 10 CFR 431.102 to clarify that the storage volume refers to the rated storage volume. However, as discussed in section III.H of this document, DOE has decided not to amend its requirements regarding certification of storage volume of commercial water heaters (including storage-type instantaneous water heaters) in this final rule. Rheem also suggested that DOE’s requirements for non-storage-type commercial gas-fired instantaneous water heaters at 10 CFR 429.44(C)(2)(iv) be changed so that manufacturers are required to state whether a calculation-based method E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations was used to determine the ‘‘rated storage volume’’ instead of the ‘‘measured storage volume.’’ (Rheem, No. 24 at p. 3) Consistent with its decision not to address certification requirements in this final rule, DOE is not making such clarification in this final rule. However, DOE may consider a clarification to this certification language in a separate rulemaking. 2. Equipment Classes When evaluating and establishing energy conservation standards, DOE divides covered equipment into equipment classes by the type of energy used. DOE will also establish separate equipment classes if a group of equipment has a capacity or other performance-related feature that other equipment within such type do not have and such feature justifies a different standard. (42 U.S.C. 6295(q); 42 U.S.C. 6316(a)) In determining whether a performance-related feature justifies a different standard, DOE considers such factors as the utility to the consumers of the feature and other factors DOE determines are appropriate. CWH equipment classes are divided based on the energy source, equipment category (i.e., storage vs. instantaneous and hot water supply boilers), and size 69707 (i.e., input capacity and rated storage volume). Unfired hot water storage tanks are also included as a separate equipment class, but as discussed in section III.B.2 of this rulemaking, were considered as part of a separate proceeding and therefore were not analyzed for this final rule. Table IV.1 shows the current equipment classes and energy conservation standards for CWH equipment other than residentialduty commercial water heaters, and Table IV.2 shows DOE’s current equipment classes and energy conservation standards for residentialduty commercial water heaters.30 TABLE IV.1—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Energy conservation standards * Equipment class Size Electric storage water heaters .................................................................. Gas-fired storage water heaters ............................................................... All ........................... ≤155,000 Btu/h ....... >155,000 Btu/h ....... ≤155,000 Btu/h ....... >155,000 Btu/h ....... <10 gal ................... ≥10 gal ................... <10 gal ................... ≥10 gal ................... <10 gal ................... ≥10 gal ................... Oil-fired storage water heaters ................................................................. Electric instantaneous water heaters ‡ ..................................................... Gas-fired instantaneous water heaters and hot water supply boilers ..... Oil-fired instantaneous water heater and hot water supply boilers ......... Minimum thermal efficiency (equipment manufactured on and after October 9, 2015)** *** (%) N/A 80 80 *** 80 *** 80 80 77 80 80 80 78 Maximum standby loss (equipment manufactured on and after October 29, 2003)** ‡ 0.30 + 27/Vm (%/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). Q/800 + 110(Vr)1⁄2 (Btu/h). N/A. 2.30 + 67/Vm (%/h). N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). Minimum thermal insulation. Unfired hot water storage tank ................................................................. All ........................... R–12.5. lotter on DSK11XQN23PROD with RULES2 * Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. ** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in subpart E of part 431 for a ‘‘commercial packaged boiler.’’ *** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level of 78 percent. † Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire damper or fan-assisted combustion. ‡ Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this rule, DOE codifies these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section III.B.3 of this document. 30 Consumer water heaters are separately covered products that are distributed in commerce for personal use or consumption by individuals, as opposed to commercial applications. These products generally have lower input ratings than commercial water heaters. Energy conservation VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 standards for consumer water heaters can be found at 10 CFR 430.32(d), and the test procedure for these products can be found at appendix E to subpart B of 10 CFR part 430. Residential-duty commercial water heaters are commercial water heater that meet additional criteria, including using PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 only single-phase electrical power (if they use electricity) and not being designed to heat water at temperatures greater than 180 °F, as discussed in the footnotes to Table IV.2 of this document. E:\FR\FM\06OCR2.SGM 06OCR2 69708 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.2—CURRENT EQUIPMENT CLASSES AND ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Equipment Specification * Draw pattern ** Gas-fired storage ........................... >75 kBtu/h and ............................. ≤105 kBtu/h and ........................... ≤120 gal and ................................. ≤180 °F ......................................... >105 kBtu/h and ........................... ≤140 kBtu/h and ........................... ≤120 gal and ................................. ≤180 °F ......................................... >12 kW and .................................. ≤58.6 kW and ............................... ≤2 gal and ..................................... ≤180 °F ......................................... Very Small .................................... Low ............................................... Medium ......................................... High .............................................. Very Small .................................... Low ............................................... Medium ......................................... High .............................................. Very Small .................................... Low ............................................... Medium ......................................... High .............................................. Oil-fired storage ............................. Electric instantaneous .................... Uniform energy factor 0.2674 0.5362 0.6002 0.6597 0.2932 0.5596 0.6194 0.6740 0.80 0.80 0.80 0.80. ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ (0.0009 (0.0012 (0.0011 (0.0009 (0.0015 (0.0018 (0.0016 (0.0013 × × × × × × × × Vr). Vr). Vr). Vr). Vr). Vr). Vr). Vr). * To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power supply; and not be designed to heat water at temperatures greater than 180 °F. ** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. The following subsections include further discussion of comments received on equipment classes and DOE’s approach to equipment classes for this final rule. lotter on DSK11XQN23PROD with RULES2 a. Storage-Type Instantaneous Water Heaters Based on a review of equipment on the market, DOE has found that gas-fired storage-type instantaneous water heaters are very similar to gas-fired storage water heaters, but with a higher ratio of input rating to tank volume. This higher input-volume ratio is achieved with a relatively larger heat exchanger paired with a relatively smaller tank. Increasing either the input capacity or storage volume increases the hot water delivery capacity of the water heater. However, through a review of product literature, DOE did not identify any significant design differences that would warrant different energy conservation standard levels (for either thermal efficiency or standby loss) between models in these two equipment classes. Therefore, DOE grouped the two equipment classes together in the May 2022 CWH ECS NOPR analyses and proposed the same standard levels for each equipment class. 87 FR 30610, 30631–30632. Barton Day Law questioned whether gas-fired storage water heaters and storage-type instantaneous water heaters can be categorized as the same product within the analysis, and whether the same numbers can be used to represent both product types. (Barton Day Law, Public Meeting Transcript No. 13 at p. 23) However, Barton Day Law did not provide any specific reasons that these products are functionally different. In contrast, the Joint Advocates agreed VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 with DOE’s methodology for analyzing equipment types and stated that it was appropriate to analyze commercial gasfired storage and storage-type instantaneous water heaters together due to the commonalities in design and shared features. (The Joint Advocates, No. 29 at pp. 1, 2) As noted, DOE has found that gasfired storage-type instantaneous water heaters have a higher ratio of input rating to tank volume than gas-fired storage water heaters (i.e., the ratio exceeds the 4,000 Btu/h per gallon of stored water threshold included in the definition of instantaneous water heaters at 10 CFR 431.102). However, through a review of product literature, neither DOE nor any commenters identified any significant design differences that would warrant different energy conservation standard levels (for either thermal efficiency or standby loss) between models in these two equipment classes. Therefore, DOE continued to group the two equipment classes together in this final rule. The standard levels considered in this document reflect the similarity of these types of equipment, with the same standard levels considered for both storage water heaters and storage-type instantaneous water heaters. b. Venting for Gas-Fired Water Heating Equipment In response to the May 2022 CWH ECS NOPR, Patterson-Kelley and WM Technologies stated that increasing efficiencies beyond the capabilities of Category I Venting as defined in the National Fuel Gas Code NFPA 54 will result in the unavailability of products that use category I venting. (PattersonKelley, No. 26 at pp. 1–2; WM Technologies, No. 25 at p. 2) Patterson- PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 Kelley explained that converting to Category I appliances may be costly and application prohibitive in establishments in densely populated areas. (Patterson-Kelley, No. 26 at p. 2) The Joint Gas Commenters stated that DOE’s treatment of venting issues raised by condensing-level standards is unreasonable and contrary to law. Specifically, the Joint Gas Commenters described that the imposition of standards that non-condensing products cannot achieve would raise significant practical, economic, and legal issues. Cumulatively, they said, inaccurate assumptions undermine the May 2022 CWH ECS NOPR’s economic evaluation and its estimate of the market impacts of the proposed standards. (The Joint Gas Commenters, No. 34 at p. 3) Similarly, the Joint Gas Commenters argued that venting type is indeed a performance feature and pointed to the January 2021 Final Rule for Residential Furnaces and Commercial Water Heaters that agreed with this logic but has since been withdrawn. (Joint Gas Commenters, No. 34 at p. 10) PattersonKelley and WM Technologies agreed and commented that they maintain the same justification per 42 U.S.C. 6295(q)(l) documented in the Final Interpretive Rule provided in 86 FR 4776 applies to fuel-fired commercial water heaters. As such, Patterson-Kelley and WM Technologies also continue to support DOE’s January 2021 acceptance of the Gas Industry Petition to recognize non-condensing as a product feature per EPCA. (WM Technologies, No. 25 at p. 2; Patterson-Kelly, No. 26 at pp. 1–2) WM Technologies believes that 42 U.S.C. 6313(a)(6)(B)(II)(aa) prohibits the elimination of non-condensing water heaters. (WM Technologies, No. 25 at p. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 1) The Joint Gas Commenters further claimed that DOE should recognize the compatibility of a product with the existing atmospheric venting systems is a performance-related feature that would require separate standards for condensing and non-condensing products if standards specific to condensing products are justified. (The Joint Gas Commenters, No. 34 at p. 11) They explained that DOE is precluded by EPCA from amending standards in such a way that renders existing venting systems unusable by eliminating products consistent with the venting type. (Joint Gas Commenters, No. 34 at p. 10) The Joint Gas Commenters stated that Congress understood that buildings are designed to accommodate standard installations and sought to ensure that standards would not deprive consumers of the utility and convenience of products that can be installed without the need to modify the existing buildings to accommodate them. Id. The Joint Gas Commenters drew parallels between the question of vent-type consistency and other instances in which DOE avoided setting standards that would make it impossible for consumers to install a space constrained product. Id. The Joint Gas Commenters requested that any final rule in this proceeding include a written finding that interested persons have established by a preponderance of the evidence that the proposed standards are likely to result in the unavailability in the United States of commercial water heaters with ‘‘performance characteristics (including reliability, features, sizes, capacities, and volumes) that are substantially the same as those generally available in the United States’’ on the date any such rule issues. (Joint Gas Commenters, No. 34 at p. 11) PHCC similarly noted that they have on prior occasion expressed concern for the elimination of non-condensing technology for commercial gas fire water heaters. They believe that there are numerous parts of the May 2022 CWH ECS NOPR that are overly optimistic, do not reflect current market conditions, make inaccurate assumptions, and minimize installation issues for condensing type products. (PHCC, No. 28 at p. 1) Patterson-Kelley stated that hybridization of standard efficiency and high efficiency products would be a low-cost migration to the efficiencies the DOE is looking for, while mitigating the cost of full conversions of the system. They noted that this would also allow for proper analysis of the correctly sized equipment for the space commercially and would further increase the system level efficiency, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 which is the ultimate goal. (PattersonKelley, No. 26 at p. 2) Addressing many of the same concepts as the Joint Gas Commenters, the CA IOUs instead expressed support for DOE’s arguments; they agreed with analyzing both venting and condensing gas water heaters together, and with DOE’s withdrawal of the Condensing Products Interpretive Rule. The commenters added that their commissioned research with other utility partners shows it is always possible to retrofit a non-condensing gas water heater with a condensing product. (CA IOUs, No. 33 at p. 5) The CEC also indicated support for DOE’s analysis, noting that DOE’s application of its rule interpreting EPCA’s ‘‘features provision’’ is lawful. (CEC, No. 27 at p. 3) Under EPCA, DOE may not prescribe an amended standard if interested persons have established by a preponderance of the evidence that a standard is likely to result in the unavailability in the United States in any product type (or class) of performance characteristics (including reliability, features, sizes, capacities, and volumes) that are substantially the same as those generally available in the United States. (42 U.S.C. 6313(a)(6)(B)(iii)(II)). Commenters have not provided, and DOE has not found, any evidence that eliminating CHWs that use category I venting would result in the unavailability of CWH models of substantially the same reliability, sizes, capacities, or volumes as those generally available in the current market. As demonstrated in chapter 3 of the TSD accompanying this final rule, condensing-level CWH equipment is generally available in the same capacities and volumes as noncondensing CWH equipment. With respect to reliability, all available data that DOE has reviewed suggest that the lifetimes of condensing CWH equipment are substantially the same as noncondensing CWH equipment. DOE notes that it does have, and has incorporated, data regarding increased repair costs for individual component failures that may occur in higherefficiency condensing equipment, as discussed in section IV.F.5.b of this document.31 However, the increased repair costs are largely related to the increased component cost and even in 31 Repair costs are based on annual failure rates of combustion systems and controls. Increased repair costs reflect increased costs for combustion systems and controls found in high efficiency CWH equipment, as well as increased frequency of repair for high efficiency controls. Heat exchanger replacement was also considered for commercial gas-fired instantaneous circulating water heaters and hot water supply boilers. PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 69709 the case of heat exchangers where DOE cites a higher failure rate, such does not translate directly to decreased product life. Moreover, DOE has not found a decrease in product performance over the life of condensing models dissimilar from what would be expected in noncondensing CWH equipment. As discussed in IV.F.6 of this document, DOE has found that, within each equipment class, the average lifetime of all equipment covered by this rulemaking is the same for all thermal efficiency levels, from baseline through max-tech. Thus, DOE believes the reliability of condensing and noncondensing CWH equipment, in terms of equipment performance and ability to serve the hot water loads and in terms of overall lifetime, is substantially the same, and that there are no known reliability concerns endemic to condensing technology. With respect to commenters’ statements that category I venting itself is a performance characteristic that DOE’s standards cannot make unavailable, DOE first notes that venting, like a gas burner or heat exchanger, is one of the basic components found in every gas-fired water heater (condensing or noncondensing). As such, assuming venting is a performance characteristic, a standard would have to eliminate all vented gas-fired water heaters on the market—i.e., both condensing and noncondensing models—to run afoul of the unavailability provision in EPCA. Thus, in order to meet the unavailability requirements in 42 U.S.C. 6313(a)(6)(B)(iii)(II), Joint Gas Commenters and others are requesting DOE determine that a specific type of venting is a performance characteristic. In response, DOE first notes that almost every component of a covered product or equipment could be broken down further by any of a number of factors. For example, heat exchangers, which are used in a variety of covered equipment and products, could be divided further by geometry or material; refrigerator compressors could be further divided by single-speed or variable-speed, and air-conditioning refrigerants could be further divided by global warming potential. As a general matter, energy conservation standards save energy by removing the leastefficient technologies and designs from the market. For example, DOE set energy conservation standards for furnace fans at a level that effectively eliminated permanent split capacitor (PSC) motors from several product classes, but which could be met by brushless permanent magnet (BPM) motors, which are more efficient. 79 FR E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69710 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 38130 (July 3, 2014). As another example, DOE set energy conservation standards for microwave oven standby mode and off mode at a level that effectively eliminated the use of linear power supplies, but which could be met by switch-mode power supplies, which exhibit significantly lower standby mode and off mode power consumption. 78 FR 36316 (June 17, 2013). The energy-saving purposes of EPCA would be completely frustrated if DOE were required to set standards that maintain less-efficient covered products and equipment in the market based simply on the fact that they use a specific type of (less efficient) heat exchanger, motor, power supply, etc. As discussed in the December 2021 final interpretive rule, DOE believes that a consumer would be aware of performance-related features of a covered product or equipment and would recognize such features as providing additional benefits during operation of the covered product or equipment. 86 FR 73955. Using the previous example of furnace fan motors, if an interested person had wanted to preserve furnace fans with PSC motors in the market, they would have had to show that furnace fans with PSC motors offered some additional benefit during operation as compared to furnace fans with BPM motors. Refrigerator-freezers, on the other hand, are an example of where DOE determined that a specific type of performance-related feature offered additional benefit during operation. Some refrigerator-freezers have automatic icemakers. Additionally, some automatic icemakers offer through-the-door ice service, which provides consumers with an additional benefit during operation. As such, DOE further divided refrigerator-freezers into product classes based on the specific type of automatic icemaker (i.e., whether the automatic icemaker offers through-the-door ice service). See 10 CFR 430.32(a). Joint Gas Commenters and others have not pointed to any additional benefits during operation offered by CWHs that use Category I venting as compared to CWHs that use other types of venting. Instead, these commenters cite the January 2021 final interpretive rule and economic considerations as reasons why Category I venting should be considered a performance characteristic for the purposes of EPCA’s unavailability provision. With regards to the January 2021 final rule, DOE cited the potential for increased fuel switching and the potential need for significant modifications during installation as support for revising the Department’s long-standing VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 interpretation that Category 1 venting is not a performance-related feature. 86 FR 4816. DOE’s response to these issues remains largely the same from the December 2021 final interpretive rule. First, as explained in the December 2021 final interpretive rule, the potential for increased fuel switching is simply not a performance characteristic that could serve as the basis for an unavailability finding under EPCA. Second, with regards to the potential need for significant modifications during installation, this argument overlaps with other comments focused on the economic impacts of installation scenarios where existing Category I venting systems need to be replaced with a venting system suitable for a condensing CWH. DOE acknowledges that a condensing water heater may not be operated if installed with a noncondensing venting system, and that potentially complex replacement or modification of these venting systems will typically be required at a cost (as discussed in more detail in sections IV.F.2.c and IV.F.2.d. of this document). However, while using existing venting can reduce installation costs, it does not provide the consumer with any additional benefits during operation. Further, EPCA specifically directs DOE to consider installation and operating costs as part of the Department’s determination of economic justification (see 42 U.S.C. 6313(a)(6)(B)(ii)(II)). As a result, there is a clear distinction in EPCA between the purposes of the unavailability provision in 42 U.S.C. 6313(a)(6)(B)(iii)(II)—to preserve performance-related features in the market—and the economic justification requirement in 42 U.S.C. 6313(a)(6)(B)(ii)—to determine whether the benefits (e.g., reduced fuel costs for an appliance) of a proposed standard exceed the burdens (e.g., increased installed cost). Thus, the appropriate analysis to determine whether lessefficient, non-condensing CWHs that use Category I venting should remain in the market is the economic justification analysis under 42 U.S.C. 6313(a)(6)(B)(ii). Accordingly, DOE has conducted such an analysis as part of the standards amendment process for this rulemaking. DOE analyzed ventilation installation and cost issues in the May 2022 CWH ECS NOPR, and does so again in this final rule. DOE’s consideration of these issues and responses to associated comments may be found in section IV.F.2 of this document. For these reasons, DOE disagrees with commenters that eliminating noncondensing CWHs that use Category I venting from the market would violate PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 EPCA’s ‘‘unavailability’’ provision as that technology does not provide unique utility to consumers that is not substantially the same as that provided by condensing CWH equipment. Accordingly, for the purpose of the analysis conducted for this rulemaking, DOE did not analyze separate equipment classes for non-condensing and condensing CWH equipment in this final rule. c. Tankless Water Heaters and Hot Water Supply Boilers In the May 2022 CWH ECS NOPR, DOE analyzed ‘‘tankless water heaters’’ and ‘‘circulating water heaters and hot water supply boilers’’ as two separate kinds of representative equipment in the gas-fired instantaneous water heaters equipment class, in order to reflect the differences in design and application between these kinds of equipment. DOE also presented analytical results separately for the two types of representative equipment. 87 FR 30610, 30632. In the June 23, 2022 public meeting, Barton Day Law questioned whether commercial instantaneous water heaters and hot water supply boilers can be appropriately categorized as the same product within DOE’s analysis. (Barton Day Law, Public Meeting Transcript No. 13 at pp. 18–22) In response, DOE notes that its analysis does account for the differences between these product types by including different installation costs for each. Tankless water heaters are typically flow-activated, wall-mounted, used without a storage tank, and capable of higher temperature rises. Circulating water heaters and hot water supply boilers, conversely, are typically used with a storage tank and recirculation loop, thermostatically-activated, and typically floor-mounted. However, despite these differences, tankless water heaters and hot water supply boilers are grouped in the same equipment category because they share basic fundamental similarities: both kinds of equipment supply hot water in commercial applications with an input rate of at least 4,000 Btu/h per gallon of stored water, and both include heat exchangers through which incoming water flows and is heated by combustion flue gases that flow around the heat exchanger tubes. Therefore, for this final rule, DOE maintained its approach of analyzing ‘‘tankless water heaters’’ and ‘‘circulating water heaters and hot water supply boilers’’ as two separate kinds of representative equipment in the gasfired instantaneous water heaters equipment class, and presents analytical results separately for the two types of E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations representative equipment in section V of this final rule, although DOE is not proposing to restructure the equipment classes.32 d. Gas-Fired and Oil-Fired Storage Water Heaters In the May 2022 CWH ECS NOPR, DOE proposed to consolidate commercial gas-fired and oil-fired storage water heater equipment classes that are currently divided by input rates of 155,000 Btu/h into two equipment classes without an input rate distinction: (1) gas-fired storage water heaters and (2) oil-fired storage water heaters. DOE noted that this class structure would be consistent with the equipment class structure in the latest version of ASHRAE Standard 90.1. 87 FR 30610, 30633. In response Bradford White agreed with combining the classes for gas-fired storage water heaters above and below 155,000 Btu/h and noted that the historical reasons for the requirements being separated are no longer applicable. (Bradford White, No. 23 at p. 1) Bock Water Heaters and Rheem similarly indicated support for DOE removing the 155,000 Btu sizing categories from the energy conservation standards tables. (Bock Water Heaters, No. 20 at p. 1; Rheem, No. 24 at p. 2) AHRI also expressed support for the proposal and noted that these categories had no efficiency differences and separating them adds unnecessary complexity. (AHRI, No. 31 at p. 3) DOE is adopting this proposal in this final rule and is removing the input rate size distinctions for commercial gas-fired and oil-fired storage water heaters. lotter on DSK11XQN23PROD with RULES2 e. Grid-Enabled Water Heaters In the May 2022 CWH ECS NOPR, DOE explained that it was not proposing to establish a separate equipment class for grid-enabled electric storage water heaters (i.e., electric storage water heaters that can receive and react to commands sent from local utilities and which could at a minimum reduce their instantaneous power consumption in response) because DOE did not propose to amend the standard for commercial 32 In the May 2022 CWH ECS NOPR, DOE responded to comments on the May 2016 CWH ECS NOPR. DOE received comments suggesting that DOE should split up the equipment class for gasfired instantaneous water heaters and hot water supply boilers by input capacity, similar to DOE’s current energy conservation standards for commercial packaged boilers. 87 FR 30633. As noted in the May 2022 CWH ECS NOPR, ASHRAE 90.1 does not divide the equipment classes for commercial gas-fired instantaneous water heaters and hot water supply boilers by input capacity. Therefore, DOE did not, in the NOPR, and has not in this final rule, analyzed separate classes for gasfired instantaneous water heaters and hot water supply boilers equipment class by input capacity. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 electric storage water heaters, and because a grid-enabled water heater would not be differentially impacted by a standby loss standard. 87 FR 30610, 30633. Bradford White agreed with DOE’s decision not to establish a separate class for grid-enabled water heaters. (Bradford White, No. 23 at p. 1) DOE maintains its position from the May 2022 CWH ECS NOPR and is not establishing a separate class for gridenabled water heaters. 3. Review of the Current Market for CWH Equipment In order to gather information needed for the market assessment for CWH equipment, DOE consulted a variety of sources, including manufacturer literature, manufacturer websites, the AHRI Directory of Certified Product Performance,33 the CEC Appliance Efficiency Database,34 and DOE’s Compliance Certification Database.35 DOE used these sources to compile a database of CWH equipment that served as resource material throughout the analyses conducted for this rulemaking. This database contained the following counts of unique models for which DOE analyzed for amended thermal efficiency standards: 431 commercial gas-fired storage water heaters, 44 residential-duty commercial gas-fired storage water heaters, 111 commercial gas-fired storage-type instantaneous water heaters (tank-type water heaters with greater than 4,000 Btu/h per gallon of stored water), 22 gas-fired tankless water heaters, and 280 gas-fired circulating water heaters and hot water supply boilers. Chapter 3 of the final rule TSD provides more information on the CWH equipment currently available on the market, including a full breakdown of these units into their equipment classes and graphs showing performance data. 4. Technology Options As part of the market and technology assessment, DOE uses information about commercially-available technology options and prototype designs to help identify technologies that manufacturers could use to improve energy efficiency for CWH equipment. This effort produces an initial list of all the technologies that are technologically feasible. This assessment provides the technical background and structure on 33 Last accessed on March 4, 2021 and available at www.ahridirectory.org. 34 Last accessed on March 4, 2021 and available at cacertappliances.energy.ca.gov/Pages/ ApplianceSearch.aspx. 35 Last accessed on February 26, 2021 and available at www.regulations.doe.gov/certificationdata/. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 69711 which DOE bases its screening and engineering analyses. In response to the May 2022 CWH ECS NOPR, the Joint Advocates encouraged DOE to evaluate heat pump technology as a technology option for electric storage water heaters. (The Joint Advocates, No. 29 at p. 4) The Joint Advocates and the CA IOUs both noted that commercial integrated heat pump water heaters on the market have electric resistance elements that allow them to meet required hot water demand when heat-pump-only operation would not suffice, and the CA IOUs cited such products. (The Joint Advocates, No. 29 at p. 4; CA IOUs, No. 33 at pp. 4–5) The Joint Advocates further cited that when both backup elements and the heat pump compressor are operating together in hybrid mode, this unit can achieve almost twice the heating capacity of a 12 kW commercial electric resistance water heater. (The Joint Advocates, No. 29 at p. 4) The Joint Advocates stated that they are not aware of any reason why commercial heat pump water heaters could not meet the same hot water loads as commercial electric storage water heaters. Id. NYSERDA similarly urged DOE to include commercial heat pump water heaters in the analysis. They cited a recent New York Commercial Baseline Study that found that between 1 and 4 percent of commercial water heaters were classified as heat pumps across a variety of applications. Therefore, NYSERDA recommended that DOE acknowledge heat pumps in subsequent rulemakings, both as a max-tech option and as a technology across the board. (NYSERDA, No. 30, pp. 1–2) NWPCC also commented in support of DOE including commercial heat pump water heaters as the max-tech in the analysis. NWPCC stated that the analysis is incomplete without this consideration as there are already many commercial-duty heat pump products available on the market from several manufacturers. (NWPCC, No. 21 at p. 1) They explained that heat pump water heaters are of interest to the Northwest region, as the Regional Technical Forum estimates between 20 and 30 average megawatts of energy saving potential for unitary commercial heat pump water heaters and an additional 15 megawatts of potential for consumer heat pump water heaters in commercial applications. Id. In contrast, A.O. Smith added that inlet water temperature will vary across regions of the country and climate zones for air-source heat pump water heaters and noted that heat-pump water heaters may require backup heating in certain scenarios. A.O. Smith also stated that an integrated heat pump E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69712 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations water heater may not be the correct technology option for applications that require very large loads. (A.O. Smith, No. 22 at p. 6) In response to these comments, DOE notes that, as discussed in section III.B.4 of this document, it did not consider commercial heat pump water heaters in this final rule because of the limited number of units on the market, but may analyze commercial heat pump water heaters in a future rulemaking. Because thermal efficiency, standby loss, and UEF are the relevant performance metrics in this rulemaking, DOE did not consider technologies that have no significant effect on these metrics. However, DOE does not discourage manufacturers from using these other technologies because they might reduce annual energy consumption in the field. The following list includes the technologies that DOE did not consider because they would not significantly affect efficiency as measured by the DOE test procedure. Chapter 3 of the final rule TSD provides details and reasoning for the exclusion from further consideration of each technology option, as listed here: • Plastic tank • Direct vent • Timer controls • Intelligent and wireless controls • Modulating combustion • Self-cleaning. DOE also did not consider technologies as options for increasing efficiency if they are included in baseline equipment, as determined from an assessment of units on the market. DOE’s research suggests that electromechanical flue dampers and electronic ignition are technologies included in baseline equipment for commercial gas-fired storage water heaters; therefore, they were not included as technology options for that equipment class. However, electromechanical flue dampers and electronic ignition were not identified on baseline units for residential-duty gas-fired storage water heaters, and these options were, therefore, considered for increasing efficiency of residential-duty gas-fired storage water heaters. DOE also considered insulation of fittings around pipes and ports in the tank to be included in baseline equipment; therefore, such insulation was not considered as a technology option for the analysis. The technology options that were considered for improving the energy efficiency of CWH equipment for this final rule are as follows: • Improved insulation (including increasing jacket insulation, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 insulating tank bottom, advanced insulation types, and foam insulation) • Mechanical draft (including induced draft (also known as power vent) and forced draft) • Condensing heat exchanger (for all gas-fired equipment classes and including optimized flue geometry) • Condensing pulse combustion • Improved heat exchanger design (including increased surface area and increased baffling) • Sidearm heating and two-phase thermosiphon technology • Electronic ignition systems • Improved heat pump water heaters (including gas absorption heat pump water heaters) • Premix burner (including submerged combustion chamber for gas-fired storage water heaters and storage-type instantaneous water heaters) • Electromechanical flue damper • Modulating combustion. Chapter 3 of the final rule TSD includes descriptions of all technology options identified for this equipment. B. Screening Analysis DOE uses the following screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking: (1) Technological feasibility. Technologies that are not incorporated in commercial products or in commercially viable, existing prototypes will not be considered further. (2) Practicability to manufacture, install, and service. If it is determined that mass production of a technology in commercial products and reliable installation and servicing of the technology could not be achieved on the scale necessary to serve the relevant market at the time of the projected compliance date of the standard, then that technology will not be considered further. (3) Impacts on product utility. If a technology is determined to have a significant adverse impact on the utility of the product to subgroups of consumers, or result in the unavailability of any covered product type with performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as products generally available in the United States at the time, it will not be considered further. (4) Safety of technologies. If it is determined that a technology would have significant adverse impacts on health or safety, it will not be considered further. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 (5) Unique-pathway proprietary technologies. If a technology has proprietary protection and represents a unique pathway to achieving a given efficiency level, it will not be considered further, due to the potential for monopolistic concerns. 10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, sections 6(c)(3) and 7(b). In sum, if DOE determines that a technology, or a combination of technologies, fails to meet one or more of the listed five criteria, it will be excluded from further consideration in the engineering analysis. 1. Screened-Out Technologies Technologies that pass through the screening analysis are subsequently examined in the engineering analysis for consideration in DOE’s downstream cost-benefit analysis. In the May 2022 CWH ECS NOPR, DOE screened out gas absorption heat pump water heaters due to concerns about their practicability to manufacture, install, and service. In response, the Joint Advocates encouraged DOE to evaluate this technology as a potential max-tech efficiency level for commercial gas storage water heaters. The Joint Advocates explained that there appear to be gas-fired heat pump models on the market that can provide both space and water heating capabilities, and cited one such example. (The Joint Advocates, No. 29 at p. 2) The CA IOUs and NEEA also stated that DOE should evaluate gas heat pump water heaters as a max-tech level, and cited several examples. (CA IOUs, No. 33 at p. 3; NEEA, No. 35, pp. 2–3) DOE notes that the examples cited by the Joint Advocates and the CA IOUs do not meet the input rating requirements to be considered CWH equipment by the definitions in 10 CFR 431.102. However, other examples provided by commenters do appear to meet the requirements to be considered CWH equipment, but have low maximum output water temperatures and may not be suitable for all applications. Therefore, DOE does not have adequate information at this time to determine if these products would result in adverse impacts on consumer utility. Additionally, DOE is not aware of any demonstration of this technology as being suitable for commercial applications or as being practicable to manufacture, install, and service on the scale necessary to serve the CWH equipment market at the time of the effective date of this adopted standard. Accordingly, that technology remains screened out. Based upon a review under the above factors, DOE screened out the design options listed in Table IV.3 for the E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations reasons provided. Chapter 4 of the final rule TSD contains additional details on the screening analysis, including a 69713 discussion of why each technology option was screened out. TABLE IV.3—SUMMARY OF SCREENED-OUT TECHNOLOGY OPTIONS Reasons for exclusion Technological feasibility Practicability to manufacture, install, and service Adverse impacts on product utility Adverse impacts on health or safety Uniquepathway proprietary technology All storage water heaters ... All gas-fired equipment classes. All gas-fired storage ........... All gas-fired storage ........... X ........................ X X ........................ ........................ ........................ ........................ ........................ ........................ ........................ ........................ X X ........................ ........................ ........................ ........................ ........................ ........................ Gas-fired instantaneous water heaters. ........................ X ........................ ........................ ........................ Excluded technology option Applicable equipment classes * Advanced insulation types .. Condensing pulse combustion. Sidearm heating .................. Two-phase thermosiphon technology. Gas absorption heat pump water heaters. * All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters. In this final rule, DOE concludes that none of the identified technology options are proprietary. However, in the engineering analysis, DOE included the manufacturer production costs associated with multiple designs of condensing heat exchangers used by a range of manufacturers, which represent the vast majority of the condensing gas- fired storage water heater market, to account for intellectual property rights surrounding specific designs of condensing heat exchangers. 2. Remaining Technologies After screening out or otherwise removing from consideration certain technologies, the remaining technologies are passed through for consideration in the engineering analysis. Table IV.4 presents identified technologies for consideration in the engineering analysis. Chapter 3 of the final rule TSD contains additional details on the technology assessment and the technologies analyzed. TABLE IV.4—TECHNOLOGY OPTIONS CONSIDERED FOR ENGINEERING ANALYSIS Equipment Mechanical draft Condensing heat exchanger Increased heat exchanger area, baffling Electronic ignition Premix burner Electromechanical flue damper X X X ........................ X ........................ X X X X X X X X X ........................ X ........................ Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ............................. Residential-duty gas-fired storage water heaters .................................................. Gas-fired instantaneous water heaters and hot water supply boilers ................ lotter on DSK11XQN23PROD with RULES2 DOE determined that these technology options are technologically feasible because they are being used or have previously been used in commercially-available products or working prototypes. DOE also finds that all of the remaining technology options meet the other screening criteria (i.e., practicable to manufacture, install, and service and do not result in adverse impacts on consumer utility, product availability, health, or safety). For additional details, see chapter 4 of the final rule TSD. C. Engineering Analysis The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of CWH equipment. There are two elements to consider in the engineering analysis; the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 selection of efficiency levels to analyze (i.e., the ‘‘efficiency analysis’’) and the determination of product cost at each efficiency level (i.e., the ‘‘cost analysis’’). In determining the performance of higher-efficiency equipment, DOE considers technologies and design option combinations not eliminated by the screening analysis. For each equipment category, DOE estimates the baseline cost, as well as the incremental cost for the equipment at efficiency levels above the baseline. The output of the engineering analysis is a set of cost-efficiency ‘‘curves’’ that are used in downstream analyses (i.e., the LCC and PBP analyses and the NIA). 1. Efficiency Analysis DOE typically uses one of two approaches to develop energy efficiency PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 levels for the engineering analysis: (1) relying on observed efficiency levels in the market (i.e., the efficiency-level approach), or (2) determining the incremental efficiency improvements associated with incorporating specific design options to a baseline model (i.e., the design-option approach). Using the efficiency-level approach, the efficiency levels established for the analysis are determined based on the market distribution of existing products (in other words, based on the range of efficiencies and efficiency level ‘‘clusters’’ that already exist on the market). Using the design option approach, the efficiency levels established for the analysis are determined through detailed engineering calculations and/or computer simulations of the efficiency E:\FR\FM\06OCR2.SGM 06OCR2 69714 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations improvements from implementing specific design options that have been identified in the technology assessment. DOE may also rely on a combination of these two approaches. For example, the efficiency-level approach (based on actual products on the market) may be extended using the design option approach to interpolate to define ‘‘gap fill’’ levels (to bridge large gaps between other identified efficiency levels) and/or to extrapolate to the max-tech level (particularly in cases where the maxtech level exceeds the maximum efficiency level currently available on the market). For the analysis of thermal efficiency and UEF levels, DOE identified the efficiency levels for the analysis based on market data (i.e., the efficiency level approach). For the analysis of standby loss levels, DOE identified efficiency levels for analysis based on market data, commonly used technology options (e.g., electronic ignition), and testing data (i.e., a combination of the efficiency level approach and the design option approach). DOE’s selection of efficiency levels for this final rule is discussed in additional detail in section IV.C.4 of this document. lotter on DSK11XQN23PROD with RULES2 2. Cost Analysis The cost analysis portion of the engineering analysis is conducted using one or a combination of cost approaches. The selection of cost approach depends on a suite of factors, including the availability and reliability of public information, characteristics of the regulated product, the availability and timeliness of purchasing the equipment on the market. The cost approaches are summarized as follows: • Physical teardowns: Under this approach, DOE physically dismantles a commercially available product, component-by-component, to develop a detailed bill of materials (‘‘BOM’’) for the product. • Catalog teardowns: In lieu of physically deconstructing a product, DOE identifies each component using parts diagrams (available from manufacturer websites or appliance repair websites, for example) to develop the BOM for the product. • Price surveys: If neither a physical nor catalog teardown is feasible (for example, for tightly integrated products such as fluorescent lamps, which are infeasible to disassemble and for which parts diagrams are unavailable) or costprohibitive and otherwise impractical (e.g., large commercial boilers), DOE conducts price surveys using publicly available pricing data published on major online retailer websites and/or by VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 soliciting prices from distributors and other commercial channels. For this final rule, DOE conducted the cost analysis using a combination of physical teardowns and catalog teardowns. The resulting BOMs from physical and catalog teardowns provide the basis for the manufacturer production cost (‘‘MPC’’) estimates. To account for manufacturers’ nonproduction costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the MPC. The resulting manufacturer selling price (‘‘MSP’’) is the price at which the manufacturer distributes a unit into commerce. DOE developed an average manufacturer markup by examining the annual Securities and Exchange Commission (‘‘SEC’’) 10–K reports filed by companies that manufacturer CWH equipment, and information gathered from manufacturers as part of the analytic process for the May 2016 CWH ECS NOPR. Chapter 5 of the final rule TSD includes further detail on the engineering analysis. In the May 2022 CWH ECS NOPR, DOE chose the physical and catalog teardown approach over the price survey approach, based upon several factors. 87 FR 30635–30636. In response to the May 2022 CWH ECS NOPR, Bradford White suggested that DOE conduct additional interviews given that previous interviews were conducted over 6 years ago, meaning the data would not have taken into account the national and international impacts of the global pandemic. (Bradford White, No. 23 at p. 8) Bradford White and Rheem both indicated interest in participating in confidential interviews to provide further feedback. (Bradford White, No. 23 at p. 8, Rheem, No. 24 at p. 1) PHCC also encouraged the DOE to revise its production cost information due to recent market conditions, stating that projections based on the value of the U.S. dollar in 2020 do not accurately capture the effects of supply chain issues and the increase in steel prices. (PHCC, No. 28 at p. 9) PHCC stated that inflationary pressures have tremendously changed prices recently. However, PHCC acknowledged that as an association, anti-trust regulations limit their ability to gather or distribute pricing information; therefore, their analysis is based on available sources such as online retailers in order to gauge current market realities. Id. In response to this feedback, DOE conducted additional interviews after the publication of the May 2022 CWH ECS NOPR to better understand manufacturer’s concerns regarding the proposals of the May 2022 CWH ECS NOPR and gathered additional feedback PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 to inform its updated MPC estimates. Additionally, DOE updated all its part prices to reflect more recent data, as discussed in section IV.C.7 of this document. The MPCs presented in this final rule take into account the feedback received from manufacturers, which DOE has found to be a valuable tool for ensuring the accuracy of its cost estimates. Without adequate safeguards, manufacturers would likely be unwilling to share information relevant to the rulemaking, which would have correspondingly negative impacts on the rulemaking process. In the present case, as is generally the case in appliance standards rulemakings, manufacturer and equipment specific data are presented in aggregate. Additionally, as discussed in more detail in section IV.C.7 of this document, prices for raw materials and purchased parts have been updated to the most recent market estimates to create the current MPCs, resulting in increased MPCs as compared to the results presented in the May 2022 CWH ECS NOPR. 3. Representative Equipment for Analysis For the engineering analysis, DOE reviewed all CWH equipment categories analyzed in this rulemaking (see section III.B of this document for discussion of rulemaking scope) and examined each one separately. Within each equipment category, DOE analyzed the distributions of input rating and storage volume of models available on the market and held discussions with manufacturers to determine appropriate representative equipment. DOE notes that representative equipment was selected which reflects the most common capacity and/or storage volume for a given equipment category. While a single representative equipment capacity can never perfectly represent a wide range of input capacities or storage volumes, DOE reasons that analyzing a representative capacity and storage volume that was selected using manufacturer feedback is sufficiently representative of the equipment category while also allowing for a feasible analysis. For storage water heaters, the volume of the tank is a significant factor for costs and efficiency. Water heaters with larger volumes have higher materials, labor, and shipping costs. A larger tank volume is likely to lead to a larger tank surface area, thereby increasing the standby loss of the tank (assuming other factors are held constant, e.g., same insulation thickness and materials). The current standby loss standards for storage water heaters are, in part, a E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations function of volume to account for this variation with tank size. The incremental cost of increasing insulation thickness varies as the tank volume increases, and there may be additional installation concerns for increasing the insulation thickness on larger tanks. Installation concerns are discussed in more detail in section IV.F.2.b of this final rule. DOE examined specific storage volumes for storage water heaters and storage-type instantaneous water heaters (referred to as representative storage volumes). Because DOE lacked specific information on shipments, DOE used its CWH equipment database (discussed in section IV.A.3 of this final rule) to examine the number of models at each rated storage volume to determine the representative storage volume, and also solicited feedback from manufacturers during manufacturer interviews as to which storage volumes corresponded to the most shipments. Table IV.5 shows the representative storage volumes that DOE determined best characterize each equipment category. For all CWH equipment categories, the input capacity is also a significant factor for cost and efficiency. Water heaters with higher input capacities typically have higher materials costs and may also have higher labor and shipping costs. Gas-fired storage water heaters with higher input capacities may have additional heat exchanger length to transfer more heat. This leads to higher material costs and may require the tank to expand to compensate for the displaced volume. Gas-fired tankless water heaters, circulating water heaters, and hot water supply boilers require larger heat exchangers to transfer more heat with a higher input capacity. In the May 2022 CWH ECS NOPR, DOE examined input capacities for models in all gas-fired CWH equipment categories to determine representative input capacities. Because the gas-fired instantaneous water heaters and hot water supply boilers equipment class includes several types of equipment that is technologically disparate, DOE selected representative input capacities that would represent both tankless water heaters and circulating water heaters and hot water supply boilers within this broader equipment class. DOE did not receive any shipments data for specific input capacities, and, therefore, DOE considered the number of models at each input capacity in the database of models it compiled (based on DOE’s Compliance Certification Database, the AHRI Directory, the CEC Appliance Database, and manufacturer literature), as well as feedback from VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 manufacturer interviews in determining the appropriate representative input capacities for this final rule. In response to the May 2022 CWH ECS NOPR, the Joint Advocates agreed that DOE’s approach of using a representative capacity chosen based on discussions with manufacturers allows the analysis to be both feasible and sufficiently representative. (The Joint Advocates, No. 29 at p. 2) A.O. Smith commented that based on their analysis, the most popular size of residential-duty commercial water heater units is 75 and 100 gallon non-condensing models. (A.O. Smith, No. 22 at p. 4) DOE agrees with A.O. Smith that the most popular size of residential-duty CWH units is 75 and 100 gallons but notes that 75 gallon size is the most common size in its database. Therefore, DOE continued to use 75 gallons as the representative storage volume for residential-duty commercial water heaters in this final rule. Bradford White questioned how DOE found similar costs for instantaneous and hot water supply boilers with storage volumes greater than or equal to 10 gallons and those with storage volumes less than 10 gallons. Bradford White stated that DOE assumed heat exchanger costs will increase as input and surface area increase; however, Bradford White suggested that this relationship changes at larger inputs where manufacturers cannot necessarily justify automating the manufacturing of heat exchangers or some part of them. They also added that combustion systems and other non-heat-exchanger costs will increase stepwise at a certain point. (Bradford White, No. 23 at p. 5) DOE agrees that MPCs related to the combustion and heat exchange subsystems for condensing circulating water heaters and hot water supply boilers typically follows a step-like pattern as input capacities increase. DOE’s research suggests that within a set input capacity range, circulating water heaters and hot water supply boilers feature many of the same components. For example, a largercapacity condensing circulating water heater or hot water supply boiler may feature one or more heat exchangers, each of which features a separate premix burner, gas valve, and blower system. Thus, within a given range of input capacities, the MPC of the combustion and heat exchange system will not change materially until an input/efficiency limit is reached; at that point, manufacturers typically add another parallel combustion path to the system (requiring a burner, heat exchanger, blower, and associated controls) or turn to a wholly new PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 69715 combustion system. As previously noted, DOE conducted this engineering analysis using a representative capacity and storage volume for each equipment category that was determined to be sufficiently representative of the category as a whole while also allowing for a feasible analysis. However, no representative storage volume was chosen for the instantaneous water heaters and hot water supply boilers equipment class because only gas-fired instantaneous water heaters and hot water supply boilers with greater than or equal to 10 gallons of storage volume have standby loss standards but amended standby loss standards for this equipment were not analyzed in this final rule (as discussed in section III.B.6 of this document). Given the similarities in thermal efficiency performance and the technologies that could be used to improve thermal efficiency of circulating water heaters and hot water supply boilers with storage volumes greater than or equal to 10 gallons and those with storage volumes less than 10 gallons, DOE concluded that a single representative input capacity would sufficiently represent this entire equipment category for the analysis of amended thermal efficiency levels. Additionally, Barton Day Law argued that DOE’s categorization of products is inappropriate in the context of the LCC analysis, claiming that some LCC inputs would be different for products within the same category. In particular, Barton Day Law noted that there is only one LCC analysis for four separate standards for residential-duty water heaters with different draw patterns. (Barton Day Law, Public Meeting Transcript, No. 13 at pp. 29–30) In response to the comments from Barton Day Law, as described in section V.A of this final rule, DOE groups various efficiency levels for each equipment class into TSLs in order to examine the combined impact that amended standards for all analyzed equipment classes would have on an industry. This approach also allows DOE to capture the effects on manufacturers of amended standards for all classes, better reflecting the burdens for manufacturers that produce equipment across several equipment classes. Additionally, DOE is only aware of residential-duty water heaters in the high draw pattern group at the time of the current analysis. Therefore, DOE’s analysis used representative storage volumes and input capacities that reflect this draw pattern group but DOE then applied its findings to other draw patterns. The representative input capacities used in the analyses for this final rule are shown in Table IV.5. The E:\FR\FM\06OCR2.SGM 06OCR2 69716 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations representative volume and input capacities shown in Table IV.5 are the same as those used for May 2022 CWH ECS NOPR. TABLE IV.5—REPRESENTATIVE STORAGE VOLUMES AND INPUT CAPACITIES Representative rated storage volume (gal) Representative input capacity (kBtu/h) Equipment Specifications Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters *. Residential-duty gas-fired storage water heaters ** Gas-fired instantaneous water heaters and hot water supply boilers: Tankless water heaters ..................................... Circulating water heaters and hot water supply boilers. >105 kBtu/h or >120 gal ........................................... 100 199 ≤105 and ≤120 gal ................................................... 75 76 <10 gal ...................................................................... All *** ......................................................................... ............................ ............................ 250 399 * Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water heater is a commercial gasfired storage water heater regardless of whether it meets the specifications listed. ** To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity, use single-phase external power supply, and not be designed to heat water at temperatures greater than 180 °F. 79 FR 40542, 40586 (July 11, 2014). *** For the engineering analysis, circulating water heaters and hot water supply boilers with storage volume <10 gallons and ≥10 gallons were analyzed in the same equipment class. Amended standby loss standards for circulating water heaters and hot water supply boilers with storage volume ≥10 gallons were not analyzed in this final rule, as discussed in section III.B.6 of this final rule. Therefore, no representative storage volume was chosen for the instantaneous water heaters and hot water supply boilers equipment class. In the May 2022 CWH ECS NOPR, in response to commenters’ concerns about the use of a representative input capacity in its analysis of circulating water heaters and hot water boilers, DOE stated that the increase in price of a purchased part used in the construction of an especially highcapacity circulating water heater or hot water supply boiler and purchased at low volumes would be offset by the many instances in which the production costs remain fixed regardless of input capacity. 87 FR 30610, 30638. Bradford White requested that DOE clarify how fixed costs would offset an increase in the cost of other purchased parts. (Bradford White, No. 23 at p. 5) In response, DOE notes that the statement was not intended to suggest that fixed costs could lead to negative cost impacts that offset higher purchased part costs. However, the increase in cost due to those specialized components that must be purchased at lower volumes is expected to be a relatively small fraction of the overall cost of the unit, and would not significantly impact the overall product cost (but would result in a small increase). 4. Efficiency Levels for Analysis For each equipment category, DOE analyzed multiple efficiency levels and estimated manufacturer production costs at each efficiency level. The following subsections provide a description of the full efficiency level range that DOE analyzed from the baseline efficiency level to the max-tech efficiency level for each equipment category. Baseline equipment is used as a reference point for each equipment category in the engineering analysis and the LCC and PBP analyses, which provides a starting point for analyzing potential technologies that provide energy efficiency improvements. Generally, DOE considers ‘‘baseline’’ equipment to refer to a model or models having features and technologies that just meet, but do not exceed, the Federal energy conservation standard and provide basic consumer utility. DOE conducted a survey of its CWH equipment database and manufacturers’ websites to determine the highest thermal efficiency or UEF levels on the market for each equipment category. a. Thermal Efficiency Levels In establishing the baseline thermal efficiency levels for this analysis, DOE used the current energy conservation standards for CWH equipment to identify baseline units. The baseline thermal efficiency levels used for the analysis in this final rule are presented in Table IV.6. TABLE IV.6—BASELINE THERMAL EFFICIENCY LEVELS FOR CWH EQUIPMENT Thermal feiciency (%) Equipment lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ........................................................... Gas-fired instantaneous water heaters and hot water supply boilers ................................................................................................. For both the commercial gas-fired storage water heaters and gas-fired instantaneous water heaters and hot water supply boilers equipment categories, DOE analyzed several thermal efficiency levels and determined the manufacturing cost at each of these levels. For this final rule, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 DOE developed thermal efficiency levels based on a review of equipment currently available on the market. As noted previously, DOE compiled a database of CWH equipment to determine what types of equipment are currently available to consumers. For each equipment class, DOE surveyed PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 80 80 various manufacturers’ equipment offerings to identify the commonly available thermal efficiency levels. By identifying the most prevalent thermal efficiency levels in the range of available equipment and examining models at these levels, DOE established a technology path that manufacturers E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 typically use to increase the thermal efficiency of CWH equipment. Consistent with the approach in the May 2022 CWH ECS NOPR, in this final rule, DOE established intermediate thermal efficiency levels for each gasfired equipment category (aside from residential-duty gas-fired storage water heaters, which as noted previously were analyzed using UEF). The intermediate thermal efficiency levels are representative of the most common efficiency levels and those that represent significant technological changes in the design of CWH equipment. For commercial gas-fired storage water heaters and for commercial gas-fired instantaneous water heaters and hot water supply boilers, DOE chose four thermal efficiency levels between the baseline and max-tech levels for analysis. DOE selected the highest thermal efficiency level identified on the market (99 percent) as the ‘‘max-tech’’ level for commercial gas-fired storage water heaters and storage-type instantaneous water heaters. For gas-fired instantaneous water heaters and hot water supply boilers, DOE identified hot water supply boilers with thermal efficiency levels of up to 99 percent and tankless instantaneous water heaters with thermal efficiency levels of up to 97 percent available on the market.36 However, the tankless water heaters with thermal efficiencies of 97 percent were at a single input capacity and it is unclear whether this thermal efficiency is achievable at other input capacities. As discussed in section IV.A.2.c of this document, DOE analyzed tankless water heaters and circulating water heaters and hot water supply boilers as two separate kinds of representative equipment for this rulemaking analysis, but they are part of the same equipment class (gas-fired instantaneous water heaters and hot water supply boilers). Therefore, because DOE did not find evidence that 97 percent would be an appropriate max-tech level for tankless instantaneous water heaters that is achievable across the range of product inputs currently available, DOE analyzed 96 percent thermal efficiency as the max-tech level for the gas-fired instantaneous water heaters and hot water supply boilers equipment class. 36 DOE identified two models in CCMS with thermal efficiency levels of 98 percent but could not find any manufacturer literature for those models that would indicate whether they are tankless water heaters or hot water supply boilers. Because DOE was unable to confirm the type of construction for these water heaters and because they were not among the models listed as being available on the manufacturer’s website, 98 percent was not considered the max-tech level. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 The selected thermal efficiency levels used in the current final rule analysis are shown in Table IV.7 of this document. In response to the May 2022 CWH ECS NOPR, DOE received several comments from stakeholders about the thermal efficiency levels it analyzed. Rheem stated concerns with the inconsistent levels proposed for the different equipment classes, which can be used in the same applications. Rheem recommended that a lower condensing thermal efficiency level that does not exceed ENERGY STAR levels be applied uniformly across the four equipment classes. (Rheem, No. 24 at p. 2) Similarly, A.O. Smith stated that DOE should reconsider setting new minimum energy conservation standards for all commercial gas-fired water heaters (excepting residential-duty commercial water heaters) at 94 percent thermal efficiency or, in the alternative setting, a 95 percent thermal efficiency level across all product types, and added that either outcome will result in significant energy savings. However, A.O. Smith stated that a 94 percent thermal efficiency level would afford a broader set of product options for CWH consumers, while at the same time provide a more level playing field upon which manufacturers can compete, foster innovation, and allow for continued incentivizing of the market adoption of high-efficiency gas-fired CWH equipment. (A.O. Smith, No. 22 at pp. 2–4) AHRI requested that a 94 percent thermal efficiency be adopted if a condensing-only standard is set based on its review of market data, and noted that this efficiency aligns with the current ENERGY STAR levels and captures the main distribution of condensing models by market share. AHRI stated that its research indicates there is a misalignment between the market data and the available product data in terms of the market shares. (AHRI, No. 31 at p. 2) Rheem also argued that all commercial gas-fired storage-type instantaneous water heaters with a rated storage volume less than 100 gallons, as listed in the Compliance Certification Management System (‘‘CCMS’’), will not meet the proposed energy conservation standard of 95 percent thermal efficiency. Rheem further stated that it is unproven if the proposed efficiency level can be achieved, given the design constraints for this product size, and recommended that DOE reevaluate EL3 for gas-fired storage-type instantaneous water heaters and add a 94 percent thermal efficiency level, consistent with ENERGY STAR. (Rheem, No. 24 at p. 3) Similarly, PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 69717 Rheem stated that all but two hot water supply boilers with input rates above 500 kBtu/h and 200 Btu/h per gallon of storage volume will not meet the proposed energy conservation standard of 96 percent thermal efficiency, and added that given the design constraints, it is unproven that the proposed efficiency level can be achieved for these product sizes as well. Id. Rheem recommended that DOE reevaluate EL3 and EL4 for gas-fired hot water supply boilers with input rates above 500 kBtu/ h and 200 kBtu/h per gallon of storage volume, which is consistent with Version 2.0 of the Energy Star Program Requirements Product Specification for Commercial Water Heaters. Id. A.O. Smith stated that the ENERGY STAR program has been a significant driver of the CWH market’s adoption of high efficiency equipment. They added that the ENERGY STAR market penetration stood at 51 percent in 2020, according to a report by ENERGY STAR. (A.O. Smith, No. 22 at p. 2, 3) Similarly, A.O. Smith added that while CWH customers continue to adopt high efficiency (e.g., condensing) commercial gas-fired water heaters, the ENERGY STAR 94 percent thermal efficiency level for commercial gas-fired water heaters continues to be a catalyst. They explain that this standard still affords consumers a large range of high efficiency product options for the intended utility, which is especially important for small business owners who operate their enterprises on very small margins. In contrast, this range of options at or above 94 percent would become smaller if, as proposed, the Department sets new minimum energy conservation standards above the ENERGY STAR level. Id. In response to these comments, DOE reviewed the distributions of products on the market. As initially shown in chapter 3 of the May 2022 CWH ECS NOPR TSD and updated in chapter 3 of the current final rule TSD, the market distributions show the greatest number of unique basic models within the condensing range at 96 percent for gasfired storage water heaters and storage type-instantaneous water heaters, gasfired tankless water heaters, and gasfired circulating water heaters and hot water supply boilers. There are more models at this level than at either 95 or 94 percent for each product category. Although setting the standard at 94 percent would increase the potential for product differentiation at efficiency levels above the standard level, DOE anticipates that there is still room for product differentiation for both gas-fired storage water heaters (for which products above 95 percent efficiency E:\FR\FM\06OCR2.SGM 06OCR2 69718 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations currently exist at 96, 97, 98, and 99 percent), tankless water heaters (for which products exist at 97 percent efficiency), and circulating water heaters and hot water supply boilers (for which products exist at 97, 98, and 99 percent). Furthermore, because most condensing gas water heaters are already at or above 95 percent (for gas storage water heaters) and 96 percent (for gas-fired instantaneous water heaters) and the equipment designs are similar at 94 percent but would result in less energy savings, DOE did not find a strong justification for analyzing a 94 percent efficiency level in this final rule. Additionally, because storage water heaters and storage-type instantaneous water heaters provide different consumer utility than instantaneous water heaters other than storage-type instantaneous water heaters (i.e., tankless water heaters and circulating water heaters and hot water supply boilers can provide a continuous supply of hot water on demand, while storage water heaters are often better suited to handle large initial demands for hot water, and are also more likely to have energy losses associated with hot water storage), DOE does not agree that inconsistent efficiency levels across these equipment categories will disadvantage certain markets. Therefore, DOE continued to use the same efficiency levels in this final rule as were analyzed in the May 2022 CWH ECS NOPR. TABLE IV.7—BASELINE, INTERMEDIATE, AND MAX-TECH THERMAL EFFICIENCY LEVELS FOR REPRESENTATIVE CWH EQUIPMENT Thermal efficiency levels Equipment Baseline— Et EL0 Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ................................................................................... Gas-fired instantaneous water heaters and hot water supply boilers ........... Et EL1 (%) 80 80 Et EL2 (%) 82 82 Et EL3 (%) 90 84 92 92 Et EL4 (%) Et EL5 * (%) 95 94 99 96 * Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type instantaneous water heaters, as well as for gas-fired instantaneous water heaters and hot water supply boilers. b. Standby Loss Levels DOE used the current energy conservation standards for standby loss to set the baseline standby loss levels. Table IV.8 shows these baseline standby loss levels for representative commercial gas-fired storage water heaters and storage-type instantaneous water heaters. TABLE IV.8—BASELINE STANDBY LOSS LEVELS FOR REPRESENTATIVE CWH EQUIPMENT Equipment Representative rated storage volume (gal) Representative input capacity (kBtu/h) Baseline standby loss level (Btu/h) 100 199 1349 lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage water heaters and storage-type instantaneous water heaters ...................................................................................................................................... Standby loss is a function of storage volume and input capacity for gas-fired and oil-fired storage water heaters, and is affected by many aspects of the design of a water heater. Additionally, standby loss is not widely reported in manufacturer literature so DOE relied on current and past data obtained from DOE’s Compliance Certification Database and the AHRI Directory. There is significant variation in reported standby loss values in these databases (e.g., standby loss values for commercial gas storage water heaters range from 33 percent to 100 percent of the maximum allowable standby loss standard for those units). However, most manufacturers do not disclose the presence of technology options that affect standby loss, including insulation thickness and type, and baffle design, in their publicly-available literature. Because most manufacturers do not disclose the presence of such options, DOE was unable to determine the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 standby loss reduction from standbyloss-reducing technology options using market-rated standby loss data. As discussed in the May 2022 CWH ECS NOPR, for all commercial gas-fired storage water heater levels, the only standby loss reduction analyzed corresponds to the inherent standby loss reduction from increasing thermal efficiency. (DOE notes that for noncondensing residential-duty gas-fired storage water heaters, an electromechanical flue damper and electronic ignition were considered which would improve UEF by reducing standby losses. This is discussed further in section IV.C.4.c of this document.) DOE did not analyze improved tank insulation as a technology option for reducing standby loss in this final rule because such insulation improvements would not be a viable standby loss reducing option for all models on the market. PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 Standby loss is measured in the test procedure predominantly as a function of the fuel used to heat the stored water during the standby loss test, with a small contribution of electric power consumption (if the unit requires a power supply). Because standby loss is calculated using the fuel consumed during the test to maintain the water temperature, the standby loss is dependent on the thermal efficiency of the water heater. DOE used data from independent testing of CWH equipment at a third-party laboratory to estimate the fraction of standby loss that can be attributed to fuel consumption or electric power consumption. DOE then scaled down (i.e., made more stringent) the portion of the standby loss attributable to fuel consumption as thermal efficiency increased to estimate the inherent improvement in standby loss associated with increasing thermal efficiency. Chapter 5 of the final rule TSD explains these calculations, and the E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations interdependence of thermal efficiency and standby loss are explained in more detail. Standby loss levels for each equipment category are shown in the following sections in terms of Btu/h for the representative equipment. However, to analyze potential amendments to the current Federal standard, factors (‘‘standby loss reduction factors’’) were developed to multiply by the current maximum standby loss equation for each equipment class, based on the ratio of standby loss at each efficiency level to the current standby loss standard. The translation from standby loss values to maximum standby loss equations is described in further detail in section IV.C.4 of this final rule. In response to the May 2022 CWH ECS NOPR, Bock indicated support for DOE to set the reduction in standby loss to a level inherent with the proposed thermal efficiency. (Bock, No. 20 at p. 1) Rheem also commented in support of DOE’s use of one standby loss level for each efficiency level, but stated that DOE did not clarify which technologies were used at the baseline and how these would be scaled across the various equipment sizes for any of the four equipment classes analyzed. (Rheem, No. 24 at p. 2) Bradford White requested that DOE reevaluate their assumptions that only changes in thermal efficiency will impact the standby loss level achieved. Bradford White stated that the relationship between standby loss and thermal efficiency can be impacted by the difference between the ambient and average tank temperatures during the test and by the time or total duration of the test, which is a function of the water heater’s differential (i.e., the temperature below the setpoint where the control will call for heat). (Bradford White, No. 23 at p. 9) Additionally, Bradford White raised concerns with the limited number of units tested to develop the standby loss reduction factors for commercial gas storage water heaters. Bradford White also noted that DOE did not elaborate on what type of heat exchangers were in the products that were evaluated, which would impact the observed results. For example, the commenter explained that a multi-pass heat exchanger is more likely to have greater standby loss as compared to a coiled heat exchanger that is only a single pass. Bradford White recommended that DOE analyze a greater number of units, as well as account for the types of heat exchangers when further refining the standby loss reduction factors. (Bradford White, No. 23 at p. 3) As discussed in Chapter 5 of the TSD accompanying this final rule, DOE notes that it conducted testing prior to the withdrawn May 2016 CWH ECS NOPR 69719 to estimate the fraction of standby loss that can be attributed to fuel consumption or electric power consumption, and this fraction does not necessarily depend on the overall level of standby loss associated with each unit. Further, the units tested incorporated both multi-pass and coiled heat exchangers. Additionally, DOE’s research regarding rated standby loss values showed that the majority of models at a given thermal efficiency level already meet the standby loss level associated with the standby loss reduction factor being applied for that level. In addition, because the majority of models on the market that meet each thermal efficiency level being analyzed also meet the corresponding standby loss level, further validating the standby loss levels by testing models on the market or by building water heater prototypes is not necessary and was not done for this final rule. Table IV.9 presents the examined standby loss levels in this final rule for commercial gas-fired storage water heaters and storage-type instantaneous water heaters (other than residentialduty gas-fired storage water heaters, which are addressed in the next section). As discussed, these levels reflect only the reduction in standby loss that is achieved by increasing thermal efficiency. TABLE IV.9—STANDBY LOSS LEVELS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS, 100 GALLON RATED STORAGE VOLUME, 199,000 BTU/H INPUT CAPACITY Thermal efficiency (%) Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... lotter on DSK11XQN23PROD with RULES2 c. Uniform Energy Efficiency Levels DOE conducted all analyses of potential amended standards for residential-duty commercial water heaters in this document in terms of UEF to reflect the current test procedure and metric. UEF standards are draw patternspecific (i.e., there are separate standards for very small, low, medium, and high draw patterns) and are expressed by an equation as a function of the stored water volume. DOE analyzed increased standards in terms of increases to the constant term of the UEF equations and did not consider changes to the slopes of the volume- VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 dependent term. Based on a review of the rated UEF and storage volume for products currently on the market, DOE determined that the existing slopes of the equations are representative of the relationship between UEF and stored volume across the range of efficiency levels, and thus, DOE did not find justification to consider varying the slope. Additionally, because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, the analysis was done for the high draw pattern and the same step increase are applied to all other residential-duty gas-fired storage water heater draw patterns. For residential- PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 Standby loss (Btu/h) (%) 80 82 90 92 95 99 1349 1316 1223 1197 1160 1115 duty gas-fired storage water heaters, DOE chose four UEF levels between the baseline and max-tech levels for analysis. To determine the max-tech level, DOE analyzed the difference between UEF ratings of residential-duty gas-fired storage water heaters in its database (see section IV.A.3 of this document) and the minimum UEF allowed for each model based on their rated volumes. The maximum step increase (rounded to the nearest hundredth) was 0.35. However, this level was only achieved at a single storage volume and has not been demonstrated as being achievable across a range of storage volumes. As a result, E:\FR\FM\06OCR2.SGM 06OCR2 69720 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations DOE considered the max-tech step increase to be 0.34, a level that has been demonstrated achievable by residentialduty gas-fired storage water heaters at a range of volumes. In response to the May 2022 CWH ECS NOPR, A.O. Smith stated that DOE’s proposed condensing levels (including near max-tech (EL5) for the high draw pattern) for residential-duty gas-fired storage water heaters are disconnected from the current marketplace for this product category and may have the unintended consequence of severely restricting product availability, which will increase costs to consumers for this product type. A.O. Smith stated that manufacturers of residential-duty water heaters made capital investments and design improvements to this product class to meet the current ENERGY STAR 4.0 specification (e.g., UEF ≥ 0.80) and will need to potentially make additional investments in this product class given the ENERGY STAR program’s recent publication of its final residential water heater version 5.0 specification, which sets a minimum of 0.86 UEF value for gas fired RDC products effective April 28, 2023. A.O. Smith recommended that the appropriateness of setting a minimum energy conservation standard at the condensing EL4 level for gas-fired residential-duty commercial water heaters be reconsidered, and suggested that the UEF standard for this equipment in the high draw pattern be calculated as 0.9297¥(0.0016 × Vr). (A.O. Smith, No. 22 at pp. 4–5) However, as noted previously, DOE has found that the existing slopes of the equations are representative of the relationship between UEF and stored volume across the range of efficiency levels. A.O. Smith did not provide an explanation of why a slope of 0.0016 is more appropriate than 0.0009, and thus, DOE did not find justification to consider varying the slope. Additionally, the impacts of each EL are considered in DOE’s subsequent analyses and discussed in detail in section V of this final rule. However, DOE notes that, for each affected equipment class, existing equipment across a broad range of storage volumes and input capacities meets or exceeds the minimum efficiency levels adopted in this final rule. DOE does not agree that consumer choice will be restricted as a result of the revised energy conservation standards. Additionally, as discussed in section V.C, DOE has concluded that the energy conservation standards adopted in this final rule are economically justified. The four intermediate UEF levels are representative of common efficiency levels and those that represent significant technological changes in the design of CWH equipment. Table IV.10 shows the examined UEF levels in this final rule for residential-duty gas-fired storage water heaters in terms of the incremental step increase and the resulting equation for high draw pattern models. TABLE IV.1—BASELINE, INTERMEDIATE, AND MAX-TECH UEF LEVELS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS Incremental step increase UEF level EL0—Baseline ....................................................................................................................... EL1 ........................................................................................................................................ EL2 ........................................................................................................................................ EL3 ........................................................................................................................................ EL4 ........................................................................................................................................ EL5 ........................................................................................................................................ 0 0.02 0.09 0.18 0.27 0.34 UEF (high draw pattern) * 0.6597¥(0.0009 0.6797¥(0.0009 0.7497¥(0.0009 0.8397¥(0.0009 0.9297¥(0.0009 0.9997¥(0.0009 × × × × × × Vr). Vr). Vr). Vr). Vr). Vr). * UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. 5. Standby Loss Reduction Factors As part of the engineering analysis for commercial gas-fired storage water heaters, DOE reviewed the maximum standby loss equations that define the existing Federal energy conservation standards for gas-fired storage water heaters. The equations allow DOE to expand the analysis on the representative rated input capacity and storage volume to the full range of values covered under the existing Federal energy conservation standards. DOE uses equations to characterize the relationship between rated input capacity, rated storage volume, and standby loss. The equations allow DOE to account for the increases in standby loss as input capacity and tank volume increase. As the tank storage volume increases, the tank surface area increases, resulting in higher jacket losses. As the input capacity increases, the surface area of flue tubes may increase, thereby providing additional area for standby heat loss through the flue tubes. The current equations show that for gas-fired storage water heaters, the allowable standby loss increases as the rated storage volume and input rating increase. The current form of the standby loss standard (in Btu/h) for commercial gas-fired and oil-fired water heaters is shown in the multivariable equation below, depending upon both rated input (Q, Btu/h) and rated storage volume (Vr, gal). Eq.1 In order to consider amended standby loss standards for commercial gas-fired storage water heaters, DOE needed to revise the current standby loss standard VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 equation to correspond to the decreased standby loss value, in Btu/h, determined for the representative capacity. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 DOE analyzed more-stringent standby loss standards by multiplying the current maximum standby loss equation by reduction factors. The use of E:\FR\FM\06OCR2.SGM 06OCR2 ER06OC23.059</GPH> lotter on DSK11XQN23PROD with RULES2 Q SL= BOO+ 110.jv; Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations reduction factors maintains the structure of the current maximum standby loss equation and does not change the dependence of maximum standby loss on rated input and rated storage volume, but still allows DOE to consider increased stringency for standby loss standards. The standby loss reduction factor is calculated by dividing each standby loss level (in Btu/ h) by the current standby loss standard (in Btu/h) for the representative input capacity and storage volume. Table IV.11 shows the standby loss reduction factors determined in this final rule for commercial gas-fired storage water heaters for each thermal efficiency level. As discussed in section 69721 IV.C.4.b of this final rule, the standby loss reductions associated with commercial gas-fired storage water heaters result from increased thermal efficiency. Chapter 5 of the final rule TSD includes more detail on the calculation of the standby loss reduction factor. TABLE IV.11—STANDBY LOSS REDUCTION FACTORS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS Thermal efficiency (%) Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 .............................................................................................................................................................. .............................................................................................................................................................. .............................................................................................................................................................. .............................................................................................................................................................. .............................................................................................................................................................. .............................................................................................................................................................. lotter on DSK11XQN23PROD with RULES2 6. Teardown Analysis After selecting a representative input capacity and representative storage volume (for storage water heaters) for each equipment category, DOE selected equipment near both the representative values and the selected efficiency levels for its teardown analysis. DOE gathered information from these teardowns to create detailed BOMs that included all components and processes used to manufacture the equipment. For the analysis of residential-duty gas-fired storage water heaters DOE identified the UEF ratings of previously torn-down models, wherever possible, and used information from those existing teardowns to inform its analyses. To assemble the BOMs and to calculate the MPCs of CWH equipment, DOE disassembled multiple units into their base components and estimated the materials, processes, and labor required for the manufacture of each individual component, a process known as a ‘‘physical teardown.’’ Using the data gathered from the physical teardowns, DOE characterized each component according to its weight, dimensions, material, quantity, and the manufacturing processes used to fabricate and assemble it. DOE also used a supplementary method called a ‘‘catalog teardown,’’ which examines published manufacturer catalogs and supplementary component data to allow DOE to estimate the major differences between equipment that was physically disassembled and similar equipment that was not. For catalog teardowns, DOE gathered product data such as dimensions, weight, and design features from publicly-available information (e.g., manufacturer catalogs and VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 manufacturer websites). DOE also obtained information and data not typically found in catalogs, such as fan motor details or assembly details, from physical teardowns of similar equipment or through estimates based on industry knowledge. The teardown analysis performed for the withdrawn May 2016 CWH ECS NOPR used data from 11 physical teardowns and 22 catalog teardowns to inform development of cost estimates for CWH equipment. In the current final rule analysis, DOE included results from 11 additional physical teardowns of water heaters and hot water supply boilers. These additional physical teardowns replaced several of the virtual and physical teardowns conducted for the 2016 NOPR analysis to ensure that the MPC estimates better reflect designs of models on the market by including physical teardowns of models from additional manufacturers at numerous efficiency levels. Chapter 5 of the final rule TSD provides further detail on the CWH equipment units that were torn down. The teardown analysis allowed DOE to identify the technologies that manufacturers typically incorporate into their equipment, along with the efficiency levels associated with each technology or combination of technologies. As noted previously, the end result of each teardown is a structured BOM, which DOE developed for each of the physical and catalog teardowns. The BOMs incorporate all materials, components, and fasteners (classified as either raw materials or purchased parts and assemblies) and characterize the materials and components by weight, manufacturing processes used, dimensions, material, PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 Standby loss reduction factor 80 82 90 92 95 99 1.00 0.98 0.91 0.89 0.86 0.83 and quantity. The BOMs from the teardown analysis were then used to calculate the MPCs for each type of equipment that was torn down. The MPCs resulting from the teardowns were then used to develop an industry average MPC for each efficiency level and equipment category analyzed. Chapter 5 of the final rule TSD provides more details on BOMs and how they were used in determining the manufacturing cost estimates. During the manufacturer interviews conducted prior to the withdrawn May 2016 CWH ECS NOPR as well as in advance of this final rule, DOE requested feedback on its engineering analysis. DOE used the information it gathered from those interviews, along with the information obtained through the teardown analysis, to refine the assumptions and data used to develop MPCs. Chapter 5 of the final rule TSD provides additional details on the teardown process. During the teardown process, DOE gained insight into the typical technology options manufacturers use to reach specific efficiency levels. DOE also determined the efficiency levels at which manufacturers tend to make major technological design changes. Table IV.12 through Table IV.15 show the major technology options DOE observed and analyzed for each efficiency level and equipment category. DOE notes that in equipment above the baseline, and sometimes even at the baseline efficiency, additional features and functionalities that do not impact efficiency are often used to address nonefficiency-related consumer demands (e.g., related to comfort or noise when operating). DOE did not include the additional costs for options such as advanced building communication and E:\FR\FM\06OCR2.SGM 06OCR2 69722 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations control systems that are included in many of the high-efficiency models currently on the market, as they do not improve efficiency but do add cost to the model. In other words, DOE assumed the same level of nonefficiency related features and functionality at all efficiency levels. Chapter 5 of the final rule TSD includes further detail on the exclusion of costs for non-efficiency-related features from DOE’s MPC estimates. TABLE IV.12—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 Thermal efficiency(%) ............... ............... ............... ............... ............... ............... Design changes * 80 82 90 92 95 99 Increased heat exchanger area. Condensing heat exchanger, forced Condensing heat exchanger, forced Condensing heat exchanger, forced Condensing heat exchanger, forced draft draft draft draft blower, blower, blower, blower, premix premix premix premix burner. burner, increased heat exchanger surface area. burner, increased heat exchanger surface area. burner, increased heat exchanger surface area. * The condensing heat exchanger surface area incrementally increases at each EL from Et EL2 to Et EL5. TABLE IV.13—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS UEF level UEF (high draw pattern) * Design changes ** EL0—Baseline .. EL1 .................... EL2 .................... 0.6597 ¥ (0.0009 × Vr). 0.6797 ¥ (0.0009 × Vr) ............................................................ 0.7497 ¥ (0.0009 × Vr) ............................................................ EL3 .................... 0.8397 ¥ (0.0009 × Vr) ............................................................ EL4 .................... 0.9297 ¥ (0.0009 × Vr) ............................................................ EL5 .................... 0.9997 ¥ (0.0009 × Vr) ............................................................ Increased heat exchanger area. Electronic ignition, electromechanical flue damper or power venting; increased heat exchanger area. Electronic ignition; condensing heat exchanger; power venting. Electronic ignition; condensing heat exchanger; power venting; premix burner; increased heat exchanger area. Electronic ignition; condensing heat exchanger; power venting; premix burner; increased heat exchanger area. * UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. ** The condensing heat exchanger surface area incrementally increases at each EL from EL3 to EL5. TABLE IV.14—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 Thermal efficiency (%) .......... .......... .......... .......... .......... .......... Design changes * 80 82 84 92 94 96 Increased heat exchanger area. Increased heat exchanger area. Secondary condensing heat exchanger. Secondary condensing heat exchanger, increased heat exchanger surface area. Secondary condensing heat exchanger, increased heat exchanger surface area. * The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. TABLE IV.15—TECHNOLOGIES IDENTIFIED AT EACH THERMAL EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS lotter on DSK11XQN23PROD with RULES2 Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 Thermal efficiency (%) ............... ............... ............... ............... ............... ............... Design changes * 80 82 84 92 94 96 Increased heat exchanger area. Increased heat exchanger area, induced draft blower. Condensing heat exchanger, forced draft blower, premix burner. Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. Condensing heat exchanger, forced draft blower, premix burner, increased heat exchanger surface area. * The heat exchanger surface area incrementally increases at each EL from Et EL0 to Et EL2 and from Et EL3 to Et EL5. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations Rheem expressed doubt as to whether achieving 82 percent thermal efficiency is possible across the entire range of input rates and storage volumes without the addition of power venting technology. Rheem suggested that power venting technology should be included in the analysis at baseline and 82 percent thermal efficiency levels to reflect the regions requiring ultra-low NOX CWHs. (Rheem, No. 24 at p. 2) However, DOE has identified multiple non-condensing ultra-low NOX units that do not include power venting, which span a range of volumes and capacities. Therefore, contrary to Rheem’s assertion, DOE does not expect that power venting would be necessary to achieve ultra-low NOX operation and did not include a power vent for those levels. Additionally, in response to the May 2022 CWH ECS NOPR, Bradford White commented that they disagree with DOE’s assumption that unsophisticated controls can be used in condensing systems, stating that the controls need to be able to drive a blower, typically at different fan speeds, and provide diagnostics capability in order to provide the same reliability as noncondensing systems. Additionally, Bradford White stated that they disagree with the assumption that an increase in thermal efficiency would not affect heat loss because, they said, an increase in heat exchanger surface area will necessitate an increase in overall tank size to make up for lost storage volume and would likely lead to an increase in penetrations to the tank. (Bradford White, No. 23 at p. 2) Bradford White also noted that more sophisticated controls, a blower, different combustion components, and additional anodes are required to achieve condensing levels, and ensure a similar lifetime as noncondensing systems. (Bradford White, No. 23 at p. 5) Bradford White stated that there are some features in condensing water heaters that should have been included in DOE’s cost analysis because these are necessary features to ensure that the product has comparable reliability to noncondensing water heaters, especially if condensing water heaters are assumed to have the same lifetime as noncondensing water heaters. Id. As noted in the May 2022 CWH ECS NOPR, many condensing gas-fired storage water heaters currently on the market are often marketed as premium products and include non-efficiencyrelated features. Some of these features, such as built-in diagnostics and run history information, may require user interfaces, but a user interface is not necessary for operation of a condensing VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 gas-fired storage water heater. DOE research suggests that condensing appliances may feature as little as a push button and several light-emitting diodes on the control board to communicate the status of the unit, error codes, and so on. Some condensing models on the market also include modulating burners and gas valves, which do require more sophisticated controls. However, modulation is not required to achieve condensing operation for gas-fired storage water heaters and does not affect efficiency as measured by DOE’s test procedure. Many condensing gas-fired storage water heaters currently on the market do not include modulating combustion systems or the corresponding more sophisticated controls. While a condensing combustion assembly (comprising a gas valve, blower, and premix burner) may require calibration by the manufacturer (the costs for which DOE accounts in its development of cost estimates), DOE does not believe that a technician would need a user interface included within the water heater in order to be able to successfully diagnose and service a gasfired storage water heater with a nonmodulating combustion assembly. In order to accurately assess the costs of adopting a more-stringent standard, DOE only considers costs of components that are necessary for models to achieve each efficiency level as measured by DOE’s test procedure. 87 FR 30610, 30647. In response to Bradford White’s assertion that increased thermal efficiency levels would necessitate increased storage volumes, DOE notes that its analysis was conducted for a fixed storage volume and DOE did account for slight adjustments to tank dimensions in its analysis of different efficiency levels. Therefore, DOE continued to not include the costs of features such as modulation and more sophisticated controls in its costs for high-efficiency products. However, for the final rule analysis, DOE included powered anode rods in its cost models for some condensing gas-fired storage water heaters, in response to manufacturer feedback during interviews that these components may be necessary due to space constraints. In the May 2022 CWH ECS NOPR, DOE stated that the welds inside a storage water heater are typically the primary source of concern for corrosion inside a storage water heater. Further, DOE noted that a condensing gas-fired storage water heater with a multi-pass heat exchanger PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 69723 design 37 will typically have more flue pipes and, therefore, more welds (joining the flue pipe and tank top or bottom) than would a non-condensing gas-fired storage water heater. To account for the fact that condensing gasfired storage water heaters may require an additional anode rod to compensate for the additional welds, for the May 2022 CWH ECS NOPR analysis, DOE included the costs of an additional anode rod for residential-duty and commercial gas-fired storage water heaters with a multi-pass condensing heat exchanger design. 87 FR 30610, 30647. Manufacturer feedback during interviews conducted after the May 2022 CWH ECS NOPR suggested that in some cases adding additional (unpowered) anode rods is impractical due to internal geometry and therefore powered anode rods are required. DOE therefore included the additional costs for powered anode rods and associated controls for a subset of condensing gasfired storage water heaters. Chapter 5 of the final rule TSD includes further detail on the exclusion of costs for nonefficiency-related features from DOE’s MPC estimates and on the assumptions relating to anode rods. In addition, Bradford White disagreed with DOE’s assumption that a blower on top of a heat exchanger prevents hot air from escaping out of the flue like a flue damper. They stated that based on their testing and experience, a blower reduces standby loss but does not altogether prevent it as a damper would. (Bradford White, No. 23 at p. 2) In response, DOE notes that there are several residentialduty gas storage water heaters on the market that meet or exceed the efficiency of EL2 and include a blower but do not include a flue damper. Therefore, based on its review of the market, DOE expects that either technology option can be used to meet that efficiency level. Additionally, for the May 2022 CWH ECS NOPR, DOE estimated that 20 percent of commercial gas-fired storage water heater shipments are manufactured with ASME construction, based on feedback from manufacturer interviews. For this share of the market, DOE applied a multiplier of 1.2 to the MPC to account for the various costs associated with ASME construction (e.g., materials, labor, testing). 87 FR 30610, 30648. Bradford White commented in support of DOE’s adjustment of its MPC estimates for 37 In a multi-pass condensing heat exchanger design, the flue gases are forced through flue tubes that span the length of the tank multiple times. Typically, the flue gases are re-directed back through the tank via return plenums located above and below the tank. E:\FR\FM\06OCR2.SGM 06OCR2 69724 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 commercial gas-fired storage water heaters for this final rule to account for the costs of American Society of Mechanical Engineers (‘‘ASME’’) construction. (Bradford White, No. 23 at p. 5) Chapter 5 of the final rule TSD includes additional details on DOE’s analysis of ASME construction for commercial gas-fired storage water heaters. 7. Manufacturing Production Costs After calculating the cost estimates for all the components in each torn-down unit, DOE totaled the cost of materials, labor, depreciation, and direct overhead used to manufacture each type of equipment in order to calculate the MPC. DOE used the results of the teardowns on a market-share weighted average basis to determine the industry average cost increase to move from one efficiency level to the next. DOE reports the MPCs in aggregated form to maintain confidentiality of sensitive component data. DOE obtained input from manufacturers during the manufacturer interview process on the MPC estimates and assumptions. DOE estimated the MPC at each efficiency level considered for representative equipment of each equipment category. DOE also calculated the percentages attributable to each element of total production costs (i.e., materials, labor, depreciation, and overhead). These percentages are used to validate the assumptions by comparing them to manufacturers’ actual financial data published in annual reports, along with feedback obtained from manufacturers during interviews. Chapter 5 of the final rule TSD contains additional details on how DOE developed the MPCs and related results. In response to the May 2022 CWH ECS NOPR, DOE received multiple comments regarding its MPC estimates. Rheem commented that the MPC estimates scaled from the May 2016 CWH ECS NOPR do not accurately reflect material supply chain issues and inflationary cost increases. (Rheem, No. 24 at p. 2) Rheem asserted that the MPCs presented in Table 5.12.2 of the May 2022 CWH ECS NOPR TSD are significantly underestimated and similarly stated that the MPCs in Table 5.12.4 of the May 2022 CWH ECS NOPR TSD are also significantly underestimated across all efficiency levels.38 Specifically, they stated that in 38 Table 5.12.2 presents DOE’s estimated MPC, MSP, and shipping costs for residential-duty gasfired storage water heaters at the representative rated storage volume of 75 gallons and representative input capacity of 76,000 Btu/h. Table 5.12.4 presents DOE’s estimated MPC, MSP, and VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Table 5.12.2 of the May 2022 CWH ECS NOPR TSD, the incremental cost to shift from non-condensing to condensing, EL2 to EL3, is especially significant, though the non-condensing MPC estimates are more reasonable. (Rheem, No. 24 at p. 4) Rheem added that the incremental cost from non-condensing to condensing in Table 5.12.4 of the May 2022 CWH ECS NOPR TSD, while low, is a reasonably accurate incremental increase. Id. Along the same lines, Rheem stated that the MPCs for all efficiency levels of commercial gas-fired storage water heaters are also significantly understated, and that the incremental cost between EL1 and EL2 should be much greater than $106. Rheem commented that DOE is not fully accounting for the differences between consumer (residential-duty) and commercial water heaters. Id. at p. 4. (Rheem, No. 24 at p. 4) Bradford White also stated that the increase in cost between EL1 and EL2 should be greater than $106 and cited the number of construction changes and components required to achieve condensing levels as rationale to support their assertion. (Bradford White, No. 23 at p. 5) Bock Water Heaters stated that in Table IV.16 of the May 2022 CWH ECS NOPR,39 the difference in cost between EL0 and condensing levels, specifically EL4, for commercial gas-fired storage water heaters is substantially understated. Bock Water Heaters also stated that the magnitude of the MPC estimates in Table IV.16 in the May 2022 CWH ECS NOPR were not representative of actual costs incurred by small manufacturers such as themselves. The commenter noted that although economies of scale will drive differences in MPC by manufacturer, the values presented in Table IV.16 of the May 2022 CWH ECS NOPR should be closer to an average representation of all manufacturers. (Bock Water Heaters, No. 20 at pp. 1–2) A.O. Smith stated that there is a meaningful delta (e.g., about 40 percent) in DOE’s estimated MPCs for the referenced 75 gallon product category versus what manufacturers submitted to the Department’s contractor during confidential interviews. (A.O. Smith, No. 22 at p. 4) PHCC commented that DOE’s analysis has undervalued product costs at higher efficiency levels by omitting costs for additional features. They feel that the shipping costs for gas-fired circulating water heaters and hot water supply boilers at the representative input capacity of 399,000 Btu/h. 39 Table IV.16 presents the MPC for commercial gas fires storage water heaters at the representative rated storage volume of 100 gallons and representative input capacity of 199,000 Btu/h. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 net effect is a significant cost increase relative to the NOPR projections even if market pressures and streamlining of inventories leads to savings and lowers prices. (PHCC, No. 28 at p. 9) PHCC generally noted that they believe there are gaps in the economic analysis. (PHCC, No. 28 at p. 2) PHCC stated that according to a nationally known online plumbing wholesaler, one model of noncondensing 100-gallon 199,000 Btu water heater would sell for about $8,100 (for product costs only) and the condensing version of that capacity would sell for about $10,000. (PHCC, No. 28 at p. 10) A.O. Smith expressed concern about the impacts of these inaccurate MPCs on the downstream analysis. (A.O. Smith, No. 22 at p. 4) Bock Water Heaters and Rheem expressed similar concern, and specifically noted that the understated MPC values may have affected the accuracy of the LCC analysis and PBP analysis. (Bock Water Heaters, No. 20 at pp. 1–2; Rheem, No. 24 at p. 1) Bock Water Heaters, AHRI, Rheem, and PHCC also encouraged DOE to reengage with manufacturers to verify its product cost information. (Bock Water Heaters, No. 20 at p. 2; AHRI, No. 31 at p. 5; Rheem, No. 24 at p. 1; PHCC, No. 28 at p. 10) Specifically, AHRI requested that additional manufacturer interviews be conducted relating to manufacturing processes, costs, and capacity constraints as well as impacts on small manufacturers and shipping costs. (AHRI, No. 31 at p. 5) Bradford White requested that DOE explain how it determined that improved economies of scale will offset other costs, noting that these other costs must be accounted for, will ideally be recovered, and will result from a more stringent standard (e.g., capital conversion costs). (Bradford White, No. 23 at p. 6) In response to these comments, DOE notes that it developed its MPC estimates based on teardowns of CWH equipment from a variety of manufacturers. DOE conducted several rounds of manufacturer interviews and follow-up interviews with all CWH equipment manufacturers that responded to DOE’s requests for interviews, including additional interviews conducted after the publication of the May 2022 CWH ECS NOPR. As part of the manufacturer interview process, DOE sought feedback on its MPC estimates, as well as feedback on specific component, material, labor, and assembly costs. DOE’s methodology for developing MPC estimates involves estimating the material, labor, depreciation, and overhead costs for every part and assembly within a unit. DOE agrees that E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations prices for many parts have increased in recent years. Component costs were also updated for this final rule analysis, to reflect recent fluctuations and trends in cost values. Conducting the analysis to this level of detail allows DOE to estimate the cost of units that were not physically torn down, or to estimate the costs of making slight design changes such as adding an inch of insulation or increasing heat exchanger size. In the interviews conducted prior to the withdrawn May 2016 CWH ECS NOPR, DOE presented manufacturers with MPC estimates broken down by each assembly (e.g., burner and gas valve, heat exchanger, controls) of the water heater, or even a BOM of a torn-down unit from that manufacturer for specific feedback on the estimated costs for every single part within the torn-down unit. Regarding the incremental costs between non-condensing and condensing levels, DOE first notes that the incremental MPC estimate reflects the additional components needed to build a condensing product while subtracting components that are either replaced or obviated. For example, condensing gas-fired storage water heaters require a mechanical draft combustion system, while baseline noncondensing models do not. Conversely, baseline non-condensing commercial water heaters typically include an electromechanical flue damper, while condensing models do not because they have a mechanical-draft combustion system that obviates the need for a flue damper. Additionally, as discussed in section IV.C.6 of this final rule, DOE standardized non-efficiency-related features across all efficiency levels. This may cause DOE’s incremental MPC estimates to seem lower than that of equipment currently on the market, because in many cases condensing equipment is currently marketed as a premium product and includes features (e.g., advanced controls or modulating gas valves) that are not necessary for condensing operation and do not affect efficiency as measured by DOE’s test procedure. However, as discussed in section IV.C.6, based on feedback received during manufacturer interviews, DOE did update its cost models for a subset of condensing gasfired storage water heaters to include powered anode rods. The updates to part prices as well as the other changes that DOE implemented increased the cost delta between noncondensing and condensing gas-fired storage water heaters from $106.41 to $120.65. Chapter 5 of the final rule TSD includes further detail on the exclusion of costs for non-efficiency-related features from DOE’s MPC estimates. The MPC estimates presented in this final rule and chapter 5 of the final rule TSD are market-shared weighted average MPCs, which will not necessarily be representative for every design pathway used by every manufacturer (i.e., they reflect the industry average cost). DOE research suggests that the absolute and incremental MPCs between baseline and condensing levels are higher for some manufacturers than others. Therefore, DOE included multiple design pathways that are used by a range of manufacturers and that represent the vast majority of models on the market in the market-share weighted average cost estimates, both in absolute as well as incremental terms. Similarly, in response to comments about its production volumes, DOE notes that its model incorporates different production volumes (which are also informed by manufacturer feedback) when developing the production cost estimates from different manufacturers. DOE then combined the resulting production cost estimates from different 69725 manufacturers into its market-share weighted average cost estimates. Finally, in response to PHCC’s comment suggesting that publiclyavailable costs are much higher than DOE’s MPCs, DOE notes that these MPCs do not account for any subsequent markups, such as from manufacturers, wholesalers, or mechanical contractors, that will increase the price for end consumers. Manufacturer markups are discussed in more detail in section IV.C.8 and other markups are discussed in section IV.D. For the reasons summarized previously, DOE has concluded that its methodology for developing MPC estimates presented in the May 2022 CWH ECS NOPR is sound and has maintained a similar methodology for this final rule. Additionally, as discussed, DOE understands that many component prices have been increasing recently and DOE revised inputs to the development of MPC estimates based on updated information (including pricing for raw materials and purchased parts) received from manufacturers after the May 2022 CWH ECS NOPR. These changes resulted in increased MPCs. Depending on the specific product categories and efficiency levels, these changes increased MPCs by between 9 percent and 27 percent as compared to the May 2022 CWH ECS NOPR. Because prices continue to fluctuate, and the analyses for this final rule are in 2022$ (thus reflecting average values in 2022), there may continue to be discrepancies between the MPCs and the current prices at the time of publication. Using 5-year averages for raw metals (as discussed in chapter 5 of this final rule TSD) is also expected to smooth out spikes in raw metal costs. Table IV.16, Table IV.17, and Table IV.18 of this document show the MPC for each combination of thermal efficiency and standby loss levels for each equipment category. TABLE IV.16—MANUFACTURER PRODUCTION COSTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS, 100GALLON RATED STORAGE VOLUME, 199,000 BTU/H INPUT CAPACITY Thermal efficiency lotter on DSK11XQN23PROD with RULES2 Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... ...................................................................................................................................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 MPC 2022$ 80 82 90 92 95 99 $1,453.78 1,489.43 1,610.08 1,629.39 1,666.24 1,733.86 69726 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.17—MANUFACTURER PRODUCTION COSTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS, 75GALLON RATED STORAGE VOLUME, 76,000 BTU/H INPUT CAPACITY UEF (high draw pattern) * Efficiency level EL0 EL1 EL2 EL3 EL4 EL5 ............................................................................................. ............................................................................................. ............................................................................................. ............................................................................................. ............................................................................................. ............................................................................................. 0.6597¥(0.0009 0.6797¥(0.0009 0.7497¥(0.0009 0.8397¥(0.0009 0.9297¥(0.0009 0.9997¥(0.0009 × × × × × × Vr) Vr) Vr) Vr) Vr) Vr) MPC 2022$ ................................................................ ................................................................ ................................................................ ................................................................ ................................................................ ................................................................ $403.91 410.90 512.22 581.66 770.60 801.30 * UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw pattern, only the high draw pattern efficiency levels are shown. TABLE IV.18—MANUFACTURER PRODUCTION COSTS FOR GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS MPC 2022$ Thermal efficiency (%) Thermal efficiency level Et Et Et Et Et Et EL0 EL1 EL2 EL3 EL4 EL5 .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... lotter on DSK11XQN23PROD with RULES2 8. Manufacturing Markups and Manufacturer Selling Price To account for manufacturers’ nonproduction costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the full MPC. The resulting MSP is the price at which the manufacturer can recover all production and non-production costs and earn a profit. To calculate the manufacturer markups, DOE used data from 10–K reports 40 submitted to the U.S. Securities and Exchange Commission (‘‘SEC’’) by the three publicly-owned companies that manufacture CWH equipment. DOE averaged the financial figures spanning the years 2008 to 2013 in order to calculate the initial estimate of markups for CWH equipment for this rulemaking. During interviews conducted ahead of the withdrawn May 2016 CWH ECS NOPR, DOE discussed the manufacturer markup with manufacturers and used the feedback to modify the manufacturer markup calculated through review of SEC 10–K reports. DOE considers the manufacturer markup published in the May 2016 CWH ECS NOPR to be the best publicly available information. In 40 U.S. Securities and Exchange Commission, Annual 10–K Reports (Various Years) (Available at sec.gov). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 this final rule, DOE is maintaining the manufacturer markups used previously in the May 2016 CWH ECS NOPR, as DOE has not received any additional information or data to indicate that a change would be warranted. To calculate the MSP for CWH equipment, DOE multiplied the calculated MPC at each efficiency level by the manufacturer markup. See chapter 12 of the final rule TSD for more details about the manufacturer markup calculation and the MSP calculations. 9. Shipping Costs Manufacturers of CWH equipment typically pay for shipping to the first step in the distribution chain. Freight is not a manufacturing cost, but it is a substantial cost incurred by the manufacturer that is passed through to consumers. Therefore, DOE accounted for shipping costs of CWH equipment separately from other non-production costs. DOE research suggests that trailers either cube-out (i.e., run out of floor space or storage volume) or weigh-out (i.e., reach their allowed weight limits). Because storage water heaters are filled with air during shipping and instantaneous water heaters and hot water supply boilers are typically lighter than commercial storage water heaters, PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 80 82 84 92 94 96 Gas-fired tankless water heaters Gas-fired circulating water heaters and hot water supply boilers 250,000 Btu/h 399,000 Btu/h $566.87 575.83 584.62 686.29 709.22 741.13 $1,259.70 1,270.95 1,355.79 3,146.59 3,329.25 3,511.91 DOE research suggests that trailers filled with CWH equipment will typically cube-out before they weigh-out. Additionally, because the space above and around the CWH equipment can be filled with smaller and/or lighter products, DOE understands that trailers are typically filled in a way that maximizes the available storage space. As a result, changes to the cubic volume of the product are just as critical as changes to the footprint in determining the change to the shipping cost as unit size increases. DOE’s shipping cost analysis only includes estimates of the shipping costs for CWH equipment, not for other products that may be included in the same truckload, although CWH equipment is likely to be shipped alongside other products, presumably to make efficient use of the space in shipping trailers. Therefore, in this rulemaking, shipping costs for all classes of CWH equipment were determined based on the cubic volume occupied by the representative units. DOE first calculated the cost per usable unit volume of a trailer, using the standard dimensions of a volume of a 53-foot trailer and an estimated 5-year average cost per shipping load that approximates the cost of shipping the equipment from the middle of the E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations country to either coast. Based on its experience with other rulemakings, DOE recognizes that trailers are rarely shipped completely full and, in calculating the cost per cubic foot, assumed that shipping loads would be optimized such that on average 80 percent of the volume of a shipping container would be filled with cargo. The calculated cost to ship each unit was the ratio of the unit’s total volume (including packaging) divided by the volume of the shipping container expected to be filled with cargo and multiplied by the total cost of shipping the trailer. DOE recognizes that its shipping costs do not necessarily reflect how every unit of CWH equipment is shipped, that it is possible that units are shipped differently, and that the corresponding shipping costs may differ from DOE’s estimates based on a variety of factors such as composition of the units in a given shipping load and the actual manufacturing location and shipment destination. However, DOE’s analysis is intended to provide an estimate of the shipping cost that is representative of the cost to ship the majority of CWH equipment shipments and cannot feasibly account for the shipping costs of every individual unit shipped. Chapter 5 of the final rule TSD contains additional details about DOE’s shipping cost assumptions and DOE’s shipping cost estimates. Rheem expressed support for DOE’s method of calculating a representative shipping cost, and notes that a trailer volume of 80 percent is reasonably conservative. (Rheem, No. 24 at p. 8) However, Bradford White suggested that DOE’s use of a 5-year average in shipping costs is not accurate due to dramatic increases in shipping costs in the past 2 to 3 years. (Bradford White, No. 23 at p. 6). In response, for this final rule DOE used the most current shipping costs available at the time of the analysis to determine the per unit shipping cost, rather than a 5-year average. DOE agrees with Bradford White that this more accurately reflects current costs. lotter on DSK11XQN23PROD with RULES2 D. Markups Analysis The markups analysis develops appropriate markups in the distribution chain (e.g., retailer markups, distributer markups, contractor markups, and sales taxes) to convert the estimates of manufacturer selling price derived in the engineering analysis to consumer prices, which are then used in the LCC and PBP analysis and in the manufacturer impact analysis. At each step in the distribution channel, companies mark up the price of the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 product to cover business costs and profit margin. DOE developed baseline and incremental markups for each actor in the distribution chain. DOE developed supply chain markups in the form of multipliers that represent increases above equipment purchase costs for key market participants, including CWH equipment wholesalers/distributors, retailers, and mechanical contractors and general contractors working on behalf of consumers. Baseline markups are applied to the price of products with baseline efficiency, while incremental markups are applied to the difference in price between baseline and higherefficiency models (the incremental cost increase). The incremental markup is typically less than the baseline markup and is designed to maintain similar perunit operating profit before and after new or amended standards.41 1. Distribution Channels Four different markets exist for CWH equipment: (1) new construction in the residential buildings sector, (2) new construction in the commercial buildings sector, (3) replacements in the residential buildings sector, and (4) replacements in the commercial buildings sector. DOE developed eight distribution channels to address these four markets. For the residential and commercial buildings sectors, DOE characterizes the replacement distribution channels as follows: • Manufacturer → Wholesaler → Mechanical Contractor → Consumer • Manufacturer → Manufacturer Representative → Mechanical Contractor → Consumer • Manufacturer → Retailer → Mechanical Contractor → Consumer DOE characterizes the new construction distribution channels for the residential and commercial buildings sectors as follows: • Manufacturer → Wholesaler → Mechanical Contractor → General Contractor → Consumer • Manufacturer → Manufacturer Representative → Mechanical Contractor → General Contractor → Consumer • Manufacturer → Retailer → General Contractor → Consumer 41 Because the projected price of standardscompliant products is typically higher than the price of baseline products, using the same markup for the incremental cost and the baseline cost would result in higher per-unit operating profit. While such an outcome is possible, DOE maintains that in markets that are reasonably competitive it is unlikely that standards would lead to a sustainable increase in profitability in the long run. PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 69727 In addition to these distribution channels, there are scenarios in which manufacturers sell CWH equipment directly to a consumer through a national account, or a consumer purchases the equipment directly from a retailer. These scenarios occur in both new construction and replacements markets and in both the residential and commercial sectors. In these instances, installation is typically accomplished by site personnel. These distribution channels are depicted as follows: • Manufacturer → Consumer • Manufacturer → Retailer → Consumer. 2. Comments on the May 2022 CWH ECS NOPR Joint Gas Commenters note that while markups vary between new and replacement, there is very little difference between the values. (Joint Gas Commenters, No. 34 at p. 19) DOE relies on U.S. Census and other sources of data, some of which cannot be separated accurately into new and replacement segments, or when it can be separated the differences are small. When component pieces are combined to form markups, the new and replacement markup factors incorporate either the same inputs or inputs with small variations. 3. Markups Used in This Final Rule Consistent with the May 2022 CWH ECS NOPR, to develop markups for this final rule, DOE utilized several sources, including the following: (1) The Heating, Air-Conditioning & Refrigeration Distributors International (‘‘HARDI’’) 2013 Profit Report 42 to develop wholesaler markups; (2) the 2020 ACCA Cool Insights document containing financial analysis for the heating, ventilation, air-conditioning, and refrigeration (‘‘HVACR’’) contracting industry 43 to develop mechanical contractor markups; (3) the U.S. Census Bureau’s 2017 Economic Census data 44 for the commercial and institutional building construction industry to develop mechanical and general contractor markups; and (4) the U.S. Census Bureau’s 2017 Annual 42 Heating Air-conditioning & Refrigeration Distributors International. Heating, AirConditioning & Refrigeration Distributors International 2013 Profit Report. 43 Air Conditioning Contractors of America (ACCA). Cool Insights 2020: ACCA’s Contractor Financial & Operating Performance Report (Based on 2018 Operations). 2020. 44 U.S. Census Bureau. 2017 Economic Census Data. 2020. Available at www.census.gov/programssurveys/economic-census.html. The 2017 Economic Census is the most recent census available. The next census, the 2022 Economic Census, is scheduled to begin releasing results in 2024. E:\FR\FM\06OCR2.SGM 06OCR2 69728 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 Retail Trade Survey 45 data to develop retail markups. In addition to markups of distribution channel costs, DOE derived State and local taxes from data provided by the Sales Tax Clearinghouse.46 Because both distribution channel costs and sales tax vary by State, DOE developed its markups to vary by State. Chapter 6 of the final rule TSD provides additional detail on markups. E. Energy Use Analysis The purpose of the energy use analysis is to assess the energy requirements (i.e., annual energy consumption) of CWH equipment described in the engineering analysis for a representative sample of building types that utilize the equipment, and to assess the energy-savings potential of increased equipment efficiencies. The energy use analysis estimates the range of energy use of CWH equipment in the field (i.e., as the equipment is actually used by consumers). The energy use analysis provides the basis for other analyses DOE performed, particularly assessments of the energy savings and the savings in consumer operating costs that could result from adoption of amended or new standards. The energy use for commercial water heaters varies by type of commercial or residential building, by region, and by type and size of CWH equipment. As explained in more detail below, and in the NOPR, for this rulemaking, the energy use for water heaters is estimated by identifying the various commercial buildings or residential buildings in EIA’s 2020 CBECS or 2009 RECS that utilize natural gas for water heating and, for these buildings, estimating the hot water used in gallons per day, taking into account the building type and the presence of specific building activities. At the same time, DOE identified from the same sample those buildings with estimated peak hot water loads large enough to need commercial water heaters of the type examined in this rulemaking. DOE’s assessment of peak hot water loads considered characteristics of the individual building including occupancy, building type, floorspace, and other specific sampled data that are used in sizing water heating systems, e.g. number of rooms in hotel or dormitory, beds in a health care facility, seats in a restaurant, etc. When considering multifamily residential, only buildings that indicate the use of central hot water systems 45 U.S. Census Bureau. 2017 Annual Retail Trade Survey. 2019. Available at www.census.gov/retail/. 46 The Sales Tax Clearing House. 2022. Available at www.thestc.com/STrates.stm. Last accessed December 4, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 serving multiple apartments are considered candidates for commercial water heaters. For those buildings with large enough peak hot water demand, DOE used the estimated annual hot water usage (gallons/day) for each of the buildings within the sample, the incoming water temperatures, by month, derived for the location, and the expected hot water delivery temperature to calculate the annual hot water load (Btu/yr) for the building, including additional piping circulation energy losses where appropriate. DOE converts this to an average hot water load in (Btu/day). For each type of commercial water heater, DOE calculates the output capacity of the representative size water heater at design conditions and at the baseline efficiency level, taking into account the usable storage volume, where applicable, and the length of the peak sizing period in hours based upon industry sizing guidance. Then for each of the above buildings, DOE divides the daily hot water load requirements by the hourly capacity of the water heater over the sizing period to get the daily average burner operating hours necessary to meet the above hot water load for the baseline unit at full output. Then for the remaining hours in the day, DOE uses the water heater hourly standby energy loss rate to calculate daily average standby loss energy consumption. The daily energy consumption at baseline efficiency is calculated as the operating hours to meet the building hot water load times the full load input of the water heater plus the daily energy consumed to meet the water heater standby loss. The average daily energy for the equipment is then multiplied by the number of days in a year to get annual energy consumption. For the rulemaking, DOE is assessing the effect efficiency improvements have on energy consumption. For the representative equipment in each class, the burner operating hours to meet the building load requirements decreases with improved efficiency. DOE uses the decreased operating hours to calculate the annual energy consumption for the water heater at each higher efficiency level considered. Chapter 7, appendix 7A, and appendix 7B present further detail regarding the water sizing methodology and estimation of building hot water loads and corresponding energy consumption by efficiency level. DOE estimated the annual energy consumption of CWH equipment at specified energy efficiency levels across a range of commercial and multifamily residential buildings in different climate zones, with different building characteristics, and including different PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 water heating applications. The annual energy consumption includes use of natural gas (or liquefied petroleum gas (‘‘LPG’’)) as well as use of electricity for auxiliary components. DOE developed representative hot water volumetric loads and water heating energy usage for the selected representative products for each equipment category and building type combination and efficiency level analyzed. This approach used by DOE captures the variability in CWH equipment use due to factors such as building activity, schedule, occupancy, tank losses, and distribution system piping losses. CWH equipment analyzed in this rulemaking is used in commercial building applications and certain residential applications, particularly multifamily buildings. For commercial sector buildings, DOE used the daily load schedules and normalized peaks from the 2013 DOE Commercial Prototype Building Models 47 to develop gallons-per-day hot water loads for the analyzed commercial building types.48 For this final rule, DOE assigned the corresponding hot water loads on a square-foot basis to associated commercial building records in the EIA’s 2018 CBECS 49 in accordance with their detailed principal building activity subcategories. For residential building types, DOE used the hot water loads model developed by Lawrence Berkeley National Laboratory (‘‘LBNL’’) for the 2010 rulemaking for ‘‘Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters.’’ 50 For this final rule, DOE applied this model to the residential building records in the EIA’s 2009 Residential Energy Consumption Survey (‘‘RECS’’).51 For 47 U.S. Department of Energy—Office of Energy Efficiency and Renewable Energy. Commercial Prototype Building Models. 2013. Available at www.energycodes.gov/prototype-building-models. 48 Such commercial building types included the following: small office, medium office, large office, stand-alone retail, strip mall, primary school, secondary school, outpatient healthcare, hospital, small hotel, large hotel, warehouse, quick service restaurant, and full-service restaurant. 49 U.S. Energy Information Administration (EIA). 2018 Commercial Building Energy Consumption Survey (CBECS) Data. 2018. Available at www.eia.gov/consumption/commercial/data/2018/. 50 U.S. Department of Energy—Office of Energy Efficiency and Renewable Energy. Final Rule Technical Support Document: Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters. April 8, 2010. EERE–2006–STD–0129–0149. Available at www.regulations.gov/#!documentDetail;D=EERE2006-STD-0129-0149. 51 U.S. Energy Information Administration (EIA). 2009 Residential Energy Consumption Survey (RECS) Data. 2009. Available at www.eia.gov/ consumption/residential/data/2009/. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations the May 2022 CWH ECS NOPR DOE decided not to use the 2015 RECS because it lacked information including the number of apartments and the number of floors in the building of apartment observations, and other information such as householder age distributions was less robust than in the 2009 RECS dataset. Because of the data issues with the 2015 RECS and because the 2020 RECS was not yet final at the time the final rule analysis was completed, DOE maintained use of the 2009 RECS. For RECS housing records in multi-family buildings, DOE focused only on apartment units that share water heaters with other units in the building. Since the LBNL model was developed in part to analyze individual apartment hot water loads, DOE had to modify it for the analysis of shared water heater/ whole building loads. DOE established statistical average occupancy of RECS apartment unit records when determining the individual apartment unit’s load. DOE also developed individual apartment loads as if each were equipped with a storage water heater in accordance with LBNL’s methodology. Then, DOE multiplied the apartment unit’s load by the number of representative units in the building to determine the building’s total hot water load. DOE converted daily volumetric hot water loads into daily Btu energy loads by using an equation that multiplies a building’s gallons-per-day consumption of hot water by the density of water,52 specific heat of water,53 and the hot water temperature rise. To calculate temperature rise, DOE developed monthly dry bulb temperature estimates for each U.S. State using typical mean year (‘‘TMY’’) temperature data as captured in location files provided for use with the DOE EnergyPlus Energy Simulation Software.54 Then, these dry bulb temperatures were used to develop inlet water temperatures using an equation and methodology developed by the National Renewable Energy Laboratory (‘‘NREL’’).55 DOE took the difference between the building’s water heater set point temperature used in its energy analysis and the inlet temperature to determine temperature rise (see chapter 7 of the final rule TSD 52 DOE used 8.29 gallons per pound. used 1.000743 Btu per pound per degree Fahrenheit. 54 U.S. Department of Energy—Office of Energy Efficiency and Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data. 55 Hendron, R. Building America Research Benchmark Definition, Updated December 15, 2006. January 2007. National Renewable Energy Laboratory: Golden, CO. Report No. TP–550–40968. Available at www.nrel.gov/docs/fy07osti/40968.pdf. lotter on DSK11XQN23PROD with RULES2 53 DOE VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 for more details). In addition, DOE developed building-specific Btu load adders to account for the heat losses of building types that typically use recirculation loops to distribute hot water to end uses. DOE converted daily average hot water building loads (calculated for each month using monthly inlet water temperatures) to annual water heater loads for use in determining annual energy use for the representative water heaters at each efficiency level analyzed. DOE developed a maximum hot water loads methodology for buildings for determining the number of representative equipment needed using the data and calculations from a major water heater manufacturer’s sizing calculator.56 DOE notes that the sizing calculator used was generally more comprehensive and transparent in its maximum hot water load calculations than other publicly available sizing calculators identified. For the final rule this methodology was applied to selected commercial building records in 2018 CBECS and residential building records in 2009 RECS to determine peak gallons-per-hour requirements, assuming a temperature rise specific to the building, for sizing of the water heater system. For buildings with sizing based greater than one hour sizing periods, the average gallons per hour requirement during the peak was developed. DOE divided these peak hourly hot water loads by the average hourly hot water delivery capability of the baseline representative model of each equipment category over the sizing period, including in the case of circulating water heaters and boilers the usable hot water storage of external storage tanks over that period, to determine the number of representative water heater units required to service the maximum load. For each representative unit of the CWH equipment analyzed for the final rule, DOE examined the individual CBECS and RECS building peak hot water loads to find those building observations whose loads indicated a need of at least 0.9 water heaters, based on the representative model analyzed, to fulfill their maximum load requirements. Due to the maximum input capacity and storage specifications of residential-duty commercial gas-fired storage water heaters, DOE limited the buildings sample of this equipment class to building records requiring four or fewer representative water heaters to fulfill maximum load since larger maximum 56 A.O. Smith. Pro-Size Water Heater Sizing Program. Available at www.hotwatersizing.com/. Last accessed in December 20, 2022. PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 69729 load requirements are more likely served by larger capacity equipment. For gas-fired tankless water heaters, a similar limit of four units per building was set. For the commercial gas-fired storage and the instantaneous water heaters and hot water supply boiler equipment classes, DOE set an upper limit at 40 units. DOE recognizes that these two equipment classes cover a wide range of capacities, and 40 units is equivalent to a much smaller of very large units in the same equipment classes. This limit had the effect of eliminating a small number of exceptionally large loads from consideration. In addition, for gas-fired tankless water heaters, an adjustment factor was applied to the first-hour capability to account for the shorter time duration for sizing this equipment, given its minimal stored water volume. DOE used the Modified Hunter’s Curve method,57 which estimates a maximum water demand of a building accounting for statistical probabilities for simultaneous fixture use for sizing of instantaneous water heaters to develop the adjustment factors for commercial gas-fired tankless water heaters. The applied adjustment factor modifies the first hour delivery capability calculations of commercial gas-fired tankless water heaters to account for the shorter time duration used to size for a very short ‘‘instantaneous’’ peak for this equipment, given the minimal volume of stored water to buffer meeting short duration peaks during the 1-hour maximum load period used for the first hour rating. Gas-fired circulating water heaters and hot water supply boilers as a class were teamed with unfired storage tanks to determine their first-hour capabilities since this is the predominant installation approach for this equipment. (See appendix 7B of the final rule TSD). For each equipment type being examined, DOE sampled all RECS and CBECS buildings that were deemed suitable for the development of the representative loads for that equipment type using a Monte Carlo analysis in the LCC model; the Monte Carlo analysis randomly generates values for uncertain variables from expected distributions of these variables to simulate input variability in a model (see appendix 8B of the final rule TSD for a more detailed description). For each building sampled, DOE divided the buildings daily average hot water demand, in Btu, including pipe circulating losses, by the product 57 PVI Industries Inc. ‘‘Water Heater Sizing Guide for Engineers,’’ Section X, pp. 18–19. Available at oldsizing.pvi.com/ pv592%20sizing%20guide%2011-2011.pdf. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69730 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations of the output hot water heating capability of the representative water heater unit examined and the total number of representative units required for the sampled building to provide estimate the average daily hours of full load operation to serve the building hot water needs for that representative unit. The remainder of the hours in the day represent hours of standby mode. For DOE’s analysis, the number of water heaters allocated to a specific building was held constant at the baseline efficiency level, but as the heating output of each representative unit increases with thermal efficiency, a water heater’s hours of operation decreased as its thermal efficiency improved. This decrease in operating hours, in combination with changes in standby hours and standby loss performance at each efficiency level, results in changes in energy consumption at each efficiency level above the baseline. In the case of residential-duty gas-fired storage water heaters, DOE estimated the thermal efficiency and standby loss levels for each UEF level developed in the Engineering Analysis using the same methodology as for the NOPR. This conversion is discussed in Chapter 7 of the final rule TSD. Section IV.C.4 of this final rule and chapter 5 of the final rule TSD include additional details on the thermal efficiency, standby loss, and UEF levels identified in the engineering analysis. DOE received multiple comments on the use of CBECS and RECS data in its energy use analysis presented in the May 2022 CWH ECS NOPR. For the NOPR, DOE’s analysis used the 2012 CBECS and 2009 RECS in developing building samples. Multiple stakeholders stated that DOE should use newer data, pointing specifically to the availability of CBECS 2018 and RECS 2020 data. (AHRI, No. 31 at p. 2; Joint Gas Commenters, No. 34 at p. 33; Rheem, No. 24 at p. 2) Patterson-Kelley stated that they reviewed the most current versions of RECS and CBECS with the understanding that these would be used in the final rule. (Patterson-Kelley, No. 26 at p. 4) CA IOUs indicated support for DOE’s proposed minimum efficiency standards if DOE updated the analyses with newer data including specifically the more recent CBECS. (CA IOUs, No. 33 at p. 1) Similarly, the Joint Gas Commenters urged DOE to use the most current available data and stated DOE should halt the rulemaking until this data was appropriately evaluated. (Joint Gas Commenters, No. 34 at p. 33) In response to comments that DOE should use the latest CBECS and RECS, for the final rule, DOE used the 2018 VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 CBECS, but maintained use of the 2009 RECS data. The CBECS 2018 data is the most current CBECS dataset for which the commercial building characteristics data used by DOE is available. DOE considered using the RECS 2015 and 2020 datasets. Both datasets lack the number of floors and the number of apartments in apartment buildings, as well as some disaggregated data concerning the ages of building occupants, all of which are needed for the analysis and which were included in the 2009 RECS. Additionally, the 2020 RECS was not finalized when the final rule analysis was being completed, meaning that data could change after the final rule analysis was completed which could complicate third-party review of DOE’s models and data after the final rule is published. Because both the 2015 RECS and 2020 RECS lack key data fields, and additionally because the 2020 RECS dataset was not yet finalized, DOE used 2009 RECS data for this final rule. It should be noted that the update to CBECS 2018 did not represent a change in the methodology or tools used to generate results. Rather, using the more recent CBECS data set is functionally little different than updating other data sets such as using 2022 RSMeans labor rates rather than 2021 RSMeans labor rates. DOE replaced the CBECS data in the LCC model with little difficulty given that all relevant data fields existed in the new CBECS data. Patterson-Kelley questioned the use of RECS and CBECS given concerns about the appropriateness of the data. (Patterson-Kelley, No. 26 at p. 4) WM Technologies expressed certain concerns with the appropriateness of DOE’s use of RECS and CBECS data sets in its analysis and provided several comments, particularly examining the 2015 RECS and 2018 CBECS data, which was the most recent available at that time. In particular they commented that (1) the RECS process normalized data toward the median values through a process referred to as minimum variance estimation and therefore the variation in the data was minimized, (2) RECS data do not agree with other surveys on energy use due to how questions were asked and data edited, and (3) that more than one half of the 2015 RECS square footage data were estimated using an imputation method, and the overall imputation rate of these data was 65.6 percent. WM Technologies further states that the documented variation in the published RECS data was not included in the LCC analysis, which is expected to become significant when the department PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 reviews subgroups and must be corrected to assure an accurate analysis. With respect to CBECS, WM Technologies stated that the primary sampling unit for major cities focused on areas with significant commercial activity while other primary sampling units were selected at random and that this biased building selection toward high revenue generating areas. The noted sampling rates for large buildings were higher than small buildings and thus overstates energy consumption for the LCC, that subgroups within CBECS with highly variable energy consumption were sampled at a higher rate than subgroups with less variable energy consumption, and finally the energy consumption from CBECS is an estimate at best and includes a category of end use as other, resulting in significant uncertainty in results. (WM Technologies, No. 25 at pp. 3–4) DOE considered the comments from WM Technologies on the use of RECS and CBECS data sets; however, DOE disagrees with the WM Technologies conclusions with regard to DOE’s analysis. Regarding the discussion of the RECS use of minimum variance estimation, this is discussed in EIA’s 2015 Consumption and Expenditures Technical Documentation Summary 58 when calibrating the end use estimates from modeling end uses for each household to the measured annual energy use totals that are collected by EIA in the development of RECS. It is not clear from the WM Technologies comment exactly what is the concern with EIA’s use of this in calibration; however, DOE’s use of RECS for this rulemaking is as a source for household characteristics data used for the generation of hot water loads. DOE is not using the 2015 RECS and does not use energy end use estimates from the 2015 RECS. Thus, DOE does not believe this discussion of minimum variance estimation is relevant to this rulemaking. WM Technologies also notes that 2015 RECS data do not agree with other surveys on energy use due to how questions were asked and data edited, and cites EIA’s web page for the discussion of this, although generally not providing detail on why this variation was considered problematic except expressing the concern with the high ratio of imputed data for household square footage. In response to these points, DOE notes that the 2015 RECS 58 U.S. Energy Information Administration (EIA). 2015 Consumption and Expenditures Technical Documentation Summary. May 2018. Available at www.eia.gov/consumption/residential/reports/ 2015/methodology/pdf/2015C&EMethodology.pdf. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations was not used in this final rule and to this extent the comments are not applicable to the final rule analysis. In reviewing the cited discussion from EIA, DOE notes that much of the discussion is focusing on end use estimation. In fact, in the discussion from EIA comparing against previous RECS analysis, EIA specifically notes that it believes the updated modeling and calibration method are an improvement over previous RECs estimation methods. However, other differences noted by EIA were that it was a smaller sample than the 2009 RECS and that it relied extensively on self-administered web and paper questionnaires to supplement the traditional, computer-assisted personal interview and indicated that where household data relied exclusively on web and paper inputs, all square footage estimates for homes were imputed. There is discussion provided by EIA comparing or contrasting RECS with other Federal studies that may provide insight into residential energy demand. In this discussion, EIA provides a very clear note that these studies are optimized to serve a different purpose from the RECS and so their results for similar items may vary from the RECS. The RECS study is designed specifically for the analysis of current U.S. household energy consumption, unlike the other studies it is contrasted with. With regard to the WM Technologies concern that CBECS and the building sampling are biased toward large buildings in commercial areas, resulting in overstating consumption in the LCC—there are several reasons why this is incorrect. First, CBECS samples are assigned weights where the assignment process uses data from other larger building data ‘‘frames’’ and sources so that the weight represents the building itself and other similar buildings within the U.S. population. As the samples are in fact weighted and DOE uses these weights when sampling within the LCC, the oversampling of large buildings does not translate to a bias in the final CBECS weighted sample. Second, DOE’s use of CBECS for this rulemaking is for the development of building characteristics data and not based on the end use energy estimates. In its review, DOE does not feel that the concerns expressed by WM technologies regarding RECS or CBECS are important or relevant to the use of these data sets in the final rule analysis. DOE notes that the analysis accounts for recirculation loop losses in average daily hot water loads. In its final rule analysis, DOE assigned insulated supply, return, and riser recirculation VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 loop piping to sampled buildings with a year of construction of 1970 or later. For buildings constructed prior to 1970, DOE assigned uninsulated supply piping to 25 percent of sampled buildings and uninsulated return piping to 25 percent of sampled buildings. DOE acknowledges that its energy use analysis may not account for the extent of all possible heat losses such as from poor control of circulating system flow, uninsulated or poorly insulated piping, leaks or other higher than expected tap flows, and poor water heater performance due to aging. These issues may result in higher hot water energy use than predicted by DOE’s models. Due to the lack of field data on the magnitude of these energy losses across building applications, vintage, and location, DOE did not further attempt to include them into its analysis. DOE develops daily hot water loads for each building analyzed and normalizes building hot water loads to the hot water service capacity of the representative products using industry sizing tools and methodologies. DOE acknowledges that its approach for a given building loads treats multiple units for CWH equipment as equally sharing the hot water load. To the extent that commenters may be concerned whether the analysis fairly represents individual water heater operation for water heaters in buildings in which multiple representative model units operate to meet the building’s load, DOE notes that this would be system and building specific and its analysis may not capture the extremes of hot water loading on an individual water heater in all applications but would capture the average hot water loads on the equipment in those building. DOE notes that its analysis examines maximum sizing hot water loads and average daily hot water loads of 17 commercial building applications and 4 residential building applications, with additional variability in terms of specific end uses where identified in the CBECS or RECS data including variability based on inputs such as occupants, water fixtures, clothes washers, dishwashers, and food service as well as water main inlet and outlet temperatures for estimating hot water loads. It also includes estimates of piping losses in circulating systems. Chapter 7 and appendix 7B in the final rule TSD describe the calculation of hot water loads in the building. Appendix 7B also provides a table of building types that DOE assumed to use recirculation loops, as well as the operation hours of the recirculation loops. PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 69731 All of this variability is accounted for in the weighted results of the Monte Carlo analysis. While there may be further variability in hot water loads between multiple, individual water heaters operating in unison to meet a building’s hot water load, DOE’s analysis focuses on equipment operation over longer timeframes and developing representative loads for the equipment in the building. Equipment operated in unison in a building will experience, on average and over large populations represented, energy use reflecting the per-unit averaged building hot water load. As such, DOE did not directly account for the variability in operation of individual equipment when multiple units are installed and operated in tandem. DOE notes that with condensing equipment in particular, operation in parallel under part-load conditions can result in higher thermal efficiencies than those obtained under rated conditions, which reflect peak load thermal efficiencies. However, due to lack of detail of actual multiple water heaters installations exist the sampled buildings, DOE did not take this potential increase in fieldefficiency into account. DOE notes that its sizing methodology was based on industry sizing tools and guidelines and was used to establish peak water heat loads that would reflect the anticipated peak in the buildings based on those guidelines and known or estimated building characteristics. These peaks were then used to establish the number of representative units (by CWH type) that would be installed to meet the anticipated peak loads, with the hot water load apportioned across the estimated number of representative units needed. DOE notes that its sizing methodology was customized to the building application, size, and accounted for building size, occupancy, and specific end uses. For the hot water delivery capability of each equipment category, DOE uses representative equipment designs. The representative design of each equipment category has a specific input capacity and volume as shown in Table IV.5 of this document. These representative specifications are used in a calculation of hot water delivery capability. For each equipment category, DOE sampled CBECS and RECS building loads in need of at least 0.9 water heaters of the representative capacity, based on the representative model analyzed, to fulfill their maximum load requirements, and allows multiple representative units to serve the building load. As a result, DOE does not adjust input capacity and E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69732 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations volume of equipment for a given building application. In addition, DOE assumed the circulating water heater equipment class is equipped with a storage tank since this is the predominant installation configuration for this equipment. For this equipment class and representative input capacity, the analysis used a variable storage tank size of 250 to 350 gallons in volume, based on a triangle distribution consistent with manufacturer literature guidance as to typical storage tanks for the representative equipment input rating. However, DOE recognizes that for this equipment class as well, further variation in the storage tank sized with the equipment might also occur based on each individual building owner’s preferences. DOE retained this use of representative installation practices for the final rule analysis. Chapter 7 of the final rule TSD provides more information on the hot water delivery calculations for circulating water heaters. DOE’s energy use analysis used the A.O. Smith Pro Size Water Heating Sizing Program as a primary resource in determining the type, size, and number of water heaters needed to meet the hot water demand load applications. DOE did not identify a universal industry sizing methodology and reviewed a number of online sizing tools prior to its decision to use A.O. Smith’s online sizing tool as the basis for its water heater sizing methodology. Based on DOE’s initial review, the chosen sizing tool was most appropriate because of its transparency allowing it to be evaluated for fixture flow assumptions and other industry-accepted sizing methodologies. This tool provided peak-hour delivery in its sizing output, whereas several others manufacturing sizing tools reviewed provided equipment recommendations and/or equipment sizes only in their outputs. DOE reviewed the relationships between input data and outputs for this tool in detail for use in establishing the basis for its sizing calculations and made certain adjustments to improve the accuracy of its maximum load determinations, as shown in detail in appendix 7B. DOE utilized the Modified Hunter’s Curve approach for developing hot water delivery adjustment factors, or divisors, to adapt the sizing methodology for water heaters with storage to a methodology suitable for sizing water heaters without storage. DOE used the PVI Industries ‘‘Water Heater Sizing Guide for Engineers’’ which implements the Modified Hunter’s Curve approach to develop the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 adjustment factors for sizing tankless water heaters. DOE’s research indicates that mechanical contractors and design engineers commonly rely on this general sizing methodology for determining appropriately-sized equipment to install in commercial and residential buildings, and the PVI tool captures the need and general industry methodology required to size tankless water heating equipment to address short-duration loads peaks. In addition, DOE consulted the ASHRAE Handbook of HVAC Applications,59 which provides guidance for sizing tankless and instantaneous water heaters. While the ASHRAE guidance also illustrates the Modified Hunter’s Curve methodology, it was not as clear in application as the guidance provided by PVI tool. In this area of CWH equipment selection, DOE research indicates that manufacturer sizing tools are more commonly used than ASHRAE handbooks. Because of the lack of storage and the need to meet instantaneous building loads at subhour intervals, the sizing strategy for instantaneous water heaters results in a lower hot water service and lower energy consumption per unit of input capacity than is the case for either storage water heaters, or equipment like circulating water heaters and hot water boilers where separate storage tanks are typically used. To clarify how DOE developed the inlet water temperature, DOE conducted its energy use analysis using a Monte Carlo approach, selecting commercial building records from CBECS and residential building records from RECS in the development of maximum and daily hot water loads. Daily hot water loads were converted to energy use based on the equipment operation necessary to meet the load. Each building record’s location is associated with geographic regions composed of one or multiple U.S. States in the case of RECS (referred to herein as ‘‘reportable domains’’), and a Census Division in the case of CBECS. Using this location, DOE assigned an average monthly inlet temperature for the location the building resided in using monthly dry bulb temperature estimates for each location based on the TMY temperature data as captured in location files provided for use with the DOE EnergyPlus energy simulation software,60 along with an equation and 59 American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc. (ASHRAE). ASHRAE Handbook of HVAC Applications: Chapter 51 (Service Water Heating). 2019. pp. 51.1– 51.37. Available at www.ashrae.org/resources-publications/handbook. 60 U.S. Department of Energy—Office of Energy Efficiency and Renewable Energy. EnergyPlus PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 methodology developed by NREL.61 Where CBECS data are used, DOE used weighted average data across the states within the division, with data being weighted by State population. Where RECS data are used, DOE used weighted average data across the states within the reportable domain, with data being weighted by State population. DOE then summed the daily hot water loads of each month to determine the monthly hot water loads. DOE then summed the monthly hot water loads to determine annual hot water loads. For a given hot water usage, as inlet temperature is colder, energy use increases, since the water heater must impart more heat to bring the inlet temperature to the set point temperature. Chapter 7 of the final rule TSD provides detailed information on how energy use was calculated using inlet water temperature. As stated, DOE developed daily hot water loads for building applications using the building service water heating schedules in the 2013 DOE commercial prototype building models. While there may be greater variation of individual usage schedules in the general population even within a building type, DOE’s use of these typical schedules and weighting by the relative frequency of the buildings in the general population is appropriate for the energy use analysis. DOE notes that there is limited actual data on commercial hot water usage in the field. To the extent that stakeholders feel that DOE’s analysis may under or overstate hot water usage, DOE notes that the analysis reflects both variation in direct hot water loads, inlet and outlet temperatures and piping/ recirculation losses with a referenced estimating procedure. While DOE recognizes that additional energy losses can occur in the field, to the extent that these losses occur, it suggests that the results of DOE’s energy use analysis are conservative. In this final rule, DOE used schedules and loads from ASHRAE prototype models with augmented data reflecting recent standards affecting water heater used by commercial appliances and equipment. The commercial building hot water loads based on the daily schedules and square footage from the scorecards of the 2013 DOE commercial prototype building Energy Simulation Software. TMY3 data. Available at apps1.eere.energy.gov/buildings/energyplus/cfm/ weather_data3.cfm/region=4_north_and_central_ america_wmo_region_4/country=1_usa/ cname=USA. Last accessed October 2014. 61 Hendron, R. Building America Research Benchmark Definition, Updated December 15, 2006. January 2007. National Renewable Energy Laboratory: Golden, CO. Report No. TP–550–40968. Available at www.nrel.gov/docs/fy07osti/40968.pdf. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 models and corresponding normalized peak water heater loads from the DOE EnergyPlus energy simulation input decks for these prototypes were vetted by the ASHRAE 90.1 Committee. DOE developed residential building hot water loads using the hot water loads model created by the LBNL for the 2010 final rule for Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters. 75 FR 20112 (April 16, 2010). These data sources reflect expected hot water use at the time of their publication, including reductions of typical hot water use for certain appliances and commercial equipment based upon amended Federal standards and certain voluntary programs where those appliances are identified as part of the end use. DOE notes that its analysis and any eventual CWH standards are dominated by existing buildings and influenced by a lesser extent by shipments to new construction. Furthermore, DOE notes that to the extent that regulatory standards have or will reduce water loads, manufacturer sizing tools (as used in DOE’s analysis for sizing water heaters in different applications) should also reflect the reduction in water usage for sizing purposes, thereby minimizing the impact of reduced hot water loads resulting from DOE regulation on the overall economic evaluation of higher standards. With regards to the use of CWH equipment in residential buildings, DOE clarifies here that the only residential building type specifically excluded from the analysis of CWH equipment was manufactured housing,62 since DOE determined that manufactured housing is not suitable for any CWH equipment installation or use. A manufactured home would have hot water loads which require a commercial water heater. Otherwise, for all other residential and commercial building types, if the estimated maximum sizing load of a sampled building was not at least 90 percent of the hot water delivery capability of the baseline representative model for any analyzed equipment category, then the building 62 A manufactured home is defined as ‘‘a structure, transportable in one or more sections, which in the traveling mode is 8 body feet or more in width or 40 body feet or more in length or which when erected on-site is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure. . . .’’ 24 CFR Subtitle B Chapter XX Part 3280. Available at www.ecfr.gov/ current/title-24/subtitle-B/chapter-XX/part-3280 (last accessed April 21, 2023). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 was not sampled since the building’s maximum load is deemed not large enough to warrant the installation of the specific CWH equipment to service the load. Chapter 7 of the final rule TSD provides details of DOE’s energy use analysis and sizing. In response to the May 2022 CWH ECS NOPR, Bradford White noted that certain CWH equipment is designed to work within a limited delta T range (i.e., temperature difference between the inlet and outlet of the water heater) in order to hit the rated efficiency and meet the needs of the application. Therefore, a 160 °F setpoint temperature will, in fact, decrease efficiency, as a limited delta T (e.g., 20 °F) will keep the inlet to the water heater high enough that condensing will not occur. (Bradford White, No. 23 at p. 9) PHCC commented that to achieve condensing in practice, water temperatures must be below 140 °F and while this is easier to obtain in furnaces, with water products the storage temperature may be close to or exceed that temperature. Manufacturers of boilers will typically show an efficiency curve with return water temperature and show a transition between when a unit is condensing or not condensing. They further state that either way, if a consumer elects to have water temperatures of 140 °F or higher, the performance of the heater will not hit the 95 percent efficiency level. Perhaps the test method sets parameters that make 95 percent achievable but in the real world, that will not be the case. Furthermore, they note that a 140 °F consideration is very likely for kitchens and laundries. In addition, due to biofilm and legionella concerns, many facilities are moving toward higher storage temperatures to combat contaminants. (PHCC, No. 28 at p. 3) In response to the comment by Bradford White, DOE is aware that certain instantaneous water heaters are designed as commercial booster water heaters and that some of these units may in fact be operated with high inlet water temperatures that would not allow condensing. While many booster water heaters are electric resistance units, DOE is aware that certain gas water heater products are on the market and examined several of these products. The units examined however appear to be capable of a wide range of temperature rise operation and not designed solely for low temperature rise applications. This appears to be more application specific choice on the part of the commercial user than a limitation of the water heater itself. Several of these units examined were rated as condensing water heaters. DOE understands that it is possible that in certain applications a PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 69733 unit like this may not condense, but it does not appear that this is a limitation of the water heater. Further, DOE believes that such products represent a niche market in the general class of gas instantaneous water heaters. DOE is unaware of equipment rated as instantaneous water heaters that are capable of operation only under low temperature rise (e.g., 20 °F temperature rise) application. In general, hot water supply boilers, circulators, and volume water heaters designed to work with separate storage tanks also appear to be both tested according to the DOE test procedure and the available literature reviewed by DOE indicated were capable of operating at higher (e.g., 70 °F) temperature differentials between inlet and outlet. As discussed previously, that such equipment could be placed in an application in which it would not condense is possible, however it also appears that in many cases piping arrangements in such an application could be designed such that when cold inlet water enters the system (occurring whenever hot water is removed from the system), mixing valves or mixing stations can ensure that water going to the water heater is low enough to provide for condensing to occur. Many volume water heaters already provide for condensing efficiencies. DOE further notes that water heaters are generally different than hydronic, space heating boilers in that where hot water is removed from the circulating system, cold water at the water main temperature is introduced into the system. While PHCC has suggested that at 140 °F storage temperature or higher, the performance of the heater will not hit 95 percent efficiency, DOE notes that the DOE test procedure for commercial water heaters presumes a 140 °F leaving water temperature already (and therefore, a similar storage temperature) and models are tested at that temperature and at full rated input capacity and many achieve thermal efficiencies higher than 95 percent. While there may be some degradation in performance at higher leaving water temperatures, DOE believes that with modern water heater designs, entering water temperature is the primary limitation on whether condensation occurs, not leaving water temperature. Further DOE notes that many commercial water heaters are designed with modulating burners, which further lower the burner heat output and increase the equipment efficiency beyond what may be envisioned at full rated output as per the DOE test procedure. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69734 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations DOE is aware of a variety of opinions on the handling of legionella, but again notes that cool water will need to be heated in any water heating system and notes that the heating of such water is the majority of the hot water load on the water heaters in DOE’s analysis. PHCC expressed concern that the estimated annual unit energy for commercial water heaters is understated. To perform a simple check on the estimates, PHCC divided unit energy by the input rating and the number of days per year, a calculation that yields the daily average hours of operation. PHCC notes that when these products are installed, restaurants, hotels, dormitories, hospitals, and such, it is hard to believe that these water heaters only operate for a few hours a day. PHCC believes that the basis for the energy use is understated for all categories of CWH products. (PHCC, No. 28 at p. 3) In response, DOE notes that the primary inputs affecting the operating hours per day are the hot water load, including any circulation energy losses and the sizing of the water heater to meet the peak building needs. Standby losses from the water heater itself are also important but generally would result in only approximately 15–20 minutes of operation on a given day for a commercial gas storage or residentialduty water heater respectively even if the unit was in standby for the entire day. In addition, while restaurants, hotels, hospitals and dormitories would be expected to be high utilization end uses, commercial water heaters can also serve office and retail applications which might have comparatively small hot water loads per unit of water heater capacity. DOE’s analysis has tried to incorporate both industry sizing tools (which potentially could be conservative) and estimates of hot water load across a wide variety of building applications, and represents relative frequency of use in these application through the use of CBECS and RECS sampling of buildings that could use the various classes of CWH equipment as described previously and in detail in the final rule TSD. DOE recognizes that in the end, however, operating hours, which provide a normalized representation of the energy consumption for a given size of purchased equipment, are a principle driver in the economics of DOE’s lifecycle cost and other downstream analysis and to the extent that any class of commercial water heater operates on average more hours in a day than estimated by DOE, it would generally result in larger energy use and all else VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 the same, correspondingly larger energy savings than estimated by DOE. PHCC noted that at the 2022 Emerging Water Technology Symposium, Dr. Janet Stout, a noted infectious disease microbiologist from the University of Pittsburgh, answered a question related to the setting of water heaters by saying 140 °F should be the minimum temperature. They state that if that is the case, the assumed 95 percent water heater may in reality be no better than 87 to 88 percent most of the time. It is unclear if the proposed rule makes any allowance for this situation, but it will have a large impact on the projected energy savings. (PHCC, No. 28 at p. 3) NYSERDA supports DOE’s analytical approaches for temperature settings and DOE’s acknowledgement that in the real world multiple setpoints are used. (NYSERDA, No. 30 at p. 2) Bradford White noted that in the analysis for circulating water heaters, DOE assumed a storage tank size of 250 to 350 gallons. While this overall size can be used, Bradford White noted that this is highly dependent on the application that the product is installed in. Also, if too much storage is used in the wrong application, it can lead to condensing where you do not want it. (Bradford White, No. 23 at p. 9). CA IOUs noted a water heating system is often composed of multiple hot water sources and separate hot water storage tanks. Separate hot water systems are usually needed to meet the primary make-up load, hot water load, and the secondary recirculating hot water loop load. Therefore, in future analysis, the CA IOUs recommend that DOE consider the interplay of these components when assessing heat pump water heaters. (CA IOUs, No. 33 at pp. 2–3) In response to PHCC, DOE recognizes that there is debate over water heater set points and concern with legionella growth in hot water systems, and there have been different approaches in practice regarding set points and controls for CWH systems. DOE agrees with comments by NYSERDA that, in practice, there will be some range of set points used. DOE also reiterates that that the Federal test procedure for commercial gas storage water heaters and commercial gas instantaneous water heaters rates the thermal efficiency of these products at a flow rate that provides for essentially a 140 °F outlet temperature and to provide for that in practice, the setpoint is set approximately at that temperature. While DOE is cognizant of the concerns raised by PHCC, DOE does not believe that a recommendation to use setpoints near but above 140 °F will result in the dramatic change in thermal efficiency PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 indicated by PHCC. As previously stated, DOE believes that, for current condensing water heater designs, it is inlet temperature that will have a bigger effect on efficiency and more attention may need to be paid to modulating heat capability and how inlet water is introduced to systems with recirculation. Regarding the Bradford White observation on storage tank sizing, DOE reviewed equipment manuals to try to establish a reasonable range of storage tank sizes that would be typical selections for the representative circulating water heaters and hot water supply boilers units input rate developed unit from the engineering analysis. The range of storage tank sizes was the same as was used in the withdrawn May 2016 CWH ECS NOPR and DOE did not receive comment on how it could improve this selection. DOE appreciates the comment that there may be engineering aspects to the use of larger storage tanks but believes that its selection of this size range was prudent for the representative equipment input rate based on manufacturer literature reviewed. In a similar vein, DOE appreciates the comment from CA IOUs in terms of their understanding of the use of multiple and types of CWH equipment in developing commercial hot water systems and their comment that DOE should consider the interplay among these components when assessing heat pump water heaters. DOE did not consider energy conservation standards for commercial heat pump water heaters in this final rule because of the limited number of units on the market. However, DOE may analyze standards for commercial heat pump water heaters in a future rulemaking, at which time DOE will consider how to address the interplay among these different components in evaluating standards including commercial heat pump water heaters. F. Life-Cycle Cost and Payback Period Analysis DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of potential energy conservation standards for CWH equipment. The effect of new or amended energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts: • The LCC is the total consumer expense of equipment over the life of that equipment, consisting of total installed cost (manufacturer selling price, distribution chain markups, sales E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations tax, and installation costs) plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the equipment. • The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a moreefficient type of equipment through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost at higher efficiency levels by the change in annual operating cost for the year that amended or new standards are assumed to take effect. For any given efficiency level, DOE measures the change in LCC relative to the LCC in the no-new-standards case, which reflects the estimated efficiency distribution of CWH equipment in the absence of new or amended energy conservation standards. In contrast, the PBP for a given efficiency level is measured relative to the baseline equipment. DOE conducted the LCC and PBP analyses using a commercially available spreadsheet tool and a purpose-built spreadsheet model, available on DOE’s website.63 This spreadsheet model developed by DOE accounts for variability in energy use and prices, installation costs, repair and maintenance costs, and energy costs. As a result, the LCC results are also displayed as distributions of impacts compared to the no-new-standards-case (without amended standards) conditions. The results of DOE’s LCC and PBP analysis are summarized in section V.B.1.a of this final rule and described in detail in chapter 8 of the final rule TSD. As previously noted, DOE’s LCC and PBP analyses generate values that calculate the PBP for consumers of potential energy conservation standards, which includes, but is not limited to, the 3-year PBP contemplated under the rebuttable presumption test. However, DOE routinely conducts a full economic analysis that considers the full range of impacts, including those to the consumer, manufacturer, Nation, and environment, as required under 42 U.S.C. 6313(a)(6)(ii). The results of this analysis serve as the basis for DOE to evaluate the economic justification for a potential standard level (thereby supporting or rebutting the results of 63 DOE’s web page for CWH equipment is available at www1.eere.energy.gov/buildings/ appliance_standards/standards.aspx?productid=36. Last accessed on December 15, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 any preliminary determination of economic justification). DOE expressed the LCC and PBP results for CWH equipment on a single, per-unit basis, and developed these results for each thermal efficiency and standby loss level, or UEF level, as appropriate. In addition, DOE reported the LCC results by the percentage of CWH equipment consumers experiencing negative economic impacts (i.e., LCC savings of less than 0, indicating net cost). DOE modeled uncertainty for specific inputs to the LCC and PBP analysis by using Monte Carlo simulation coupled with the corresponding probability distributions, including distributions describing efficiency of units shipped in the no-new-standards case. The Monte Carlo simulations randomly sample input values from the probability distributions and CWH equipment user samples. For this rulemaking, the Monte Carlo approach is implemented in MS Excel together with the Crystal BallTM add-on.64 Then, the model calculated the LCC and PBP for equipment at each efficiency level for the 10,000 simulations using the sampled inputs. More details on the incorporation of uncertainty and variability in the LCC are available in appendix 8B of the final rule TSD. For the May 2022 CWH ECS NOPR, DOE analyzed the potential for variability by performing the LCC and PBP calculations on a nationally representative sample of individual commercial and residential buildings. This same general process was used for this final rule analysis, however, with updates to the data set. One update was switching to CBECS 2018 consistent with DOE’s general practice of relying on updated data sources to the extent practicable and appropriate.65 The CBECS 2018 microdata needed for its analysis were not available when DOE conducted the May 2022 CWH ECS NOPR analysis; hence, DOE used CBECS 2012 (the most recent available version at the time) for the 2022 CWH ECS NOPR analysis. In this final rule, DOE updated its LCC model to use EIA’s CBECS 2018 microdata. Following is a discussion of the development and validation of DOE’s LCC model. Across its energy 64 Crystal BallTM is commercially-available software tool to facilitate the creation of these types of models by generating probability distributions and summarizing results within Excel, available at www.oracle.com/middleware/technologies/ crystalball/ (last accessed December 15, 2022). 65 More information on the types of buildings considered is discussed later in this section. CBECS: www.eia.gov/consumption/commercial/ data/2018/. Link last accessed on December 15, 2022. PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 69735 conservation standards rulemakings, DOE incorporates tools that enable stakeholders to reproduce DOE’s published rulemaking results. DOE routinely utilizes Monte Carlo simulations using Crystal Ball for LCC model simulation purposes. More specifically, utilizing a spreadsheet program with Crystal Ball enables DOE to test the combined variability in different input parameters on the final life-cycle performance of the equipment. The CWH LCC model specifically includes macros to run the standards analysis with default settings that enable stakeholders to download the LCC model, run it on their own computers, and reproduce results published in this final rule.66 To validate models, DOE develops models with contractors familiar with Crystal Ball and Monte Carlo tools and other models generally, and regularly tests the models during development, both at average and atypical (extreme) conditions. DOE further notes that the LCC model using the Crystal Ball software can output the assumed values and results of each assumption and provide forecasted results for each iteration in the Monte Carlo simulation, if desired by stakeholders to review or trace the output. In addition, it is possible to directly modify the assumption cells in the model to examine impacts of changes to assumptions on the LCC, and, in fact, DOE relies on both of these techniques for model testing.67 DOE additionally seeks expert validation by going through a comprehensive stakeholder review of the assumptions and making its models and TSD publicly available during the comment period during each phase of its regulatory proceedings. DOE uses the Monte Carlo models for predicting the impact of future standards, a use different than many other uses that are envisioned generally for Monte Carlo tools (like industrial process examination), so direct validation against data demonstrating the impact of future standards is not possible. With regard to specifying correlations between inputs as part of modeling practices, DOE notes that while one can specify correlation parameters between two variables where such correlation 66 To reiterate, DOE’s web page for CWH equipment is available at www1.eere.energy.gov/ buildings/appliance_standards/ standards.aspx?productid=36. 67 The model being discussed in this section, the LCC, has no known locked cells and it is unprotected, meaning all cells are available for editing by users as stated in the text. DOE does in some cases lock cells and worksheets in order to protect proprietary data. Such is not the case with the LCC model used in this rulemaking, so users should be able to edit assumptions in this model. E:\FR\FM\06OCR2.SGM 06OCR2 69736 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations and the data to provide for the level of correlation are known, specifying such correlations is not necessary to maintain the general integrity and accuracy of the analytical framework. Variable values may be selected based on other coding decisions unique to each iteration (e.g., correlation with building type or location or vintage) without specific reference to correlation variables, and DOE does this routinely. For instance, entering water temperature and fuel costs are effectively correlated based on data and the use of the geographic region, which impacts both through the available data or models. The use of explicit correlations between Crystal Ball variables, where data are available to determine or represent a degree of correlation, absent other influences, would be useful, but often, DOE’s experience is that the data to express the degree of correlation are not available and are influenced by other factors already dealt with explicitly in the model framework. DOE calculated the LCC and PBP for all consumers as if each would purchase a new CWH unit in the year that compliance with amended standards is required. As previously discussed, DOE is conducting this rulemaking pursuant to its 6-year-lookback authority under 42 U.S.C. 6313(a)(6)(C). At the time of preparation of the final rule analyses, the anticipated final rule publication date was 2023. Thus, for the purposes of the LCC modeling DOE relied on 2023 as the expected publication date of a final rule. EPCA states that amended standards prescribed under this subsection shall apply to equipment manufactured after a date that is the later of (I) the date that is 3 years after publication of the final rule establishing a new standard or (II) the date that is 6 years after the effective date of the current standard for a covered equipment. (42 U.S.C. 6313(a)(6)(C)(iv)) Therefore, for the purposes of its LCC analysis for this final rule, DOE used January 1, 2026 as the beginning of compliance with potential amended standards for CWH equipment. Recognizing that each consumer that uses CWH equipment is unique, DOE analyzed variability and uncertainty by performing the LCC and PBP calculations on a nationally representative stock of commercial and residential buildings. Commercial buildings can be categorized based on their specific activity, and DOE considered commercial buildings such as offices (small, medium, and large), stand-alone retail and strip-malls, schools (primary and secondary), hospitals and outpatient healthcare facilities, hotels (small and large), warehouses, restaurants (quick service and full service), assemblies, nursing homes, and dormitories. These encompass 93 percent of the total sample of commercial building stock in the United States. The residential buildings can be categorized based on the type of housing unit, and DOE considered single-family (attached and detached) and multi-family (with 2–4 units and 5+ units) buildings in its analysis. This encompassed 95.5 percent of the total sample of residential building stock in the United States, though not all of this sample would use CWH equipment. DOE developed financial data appropriate for the consumers in each business and building type. Each type of building has typical consumers who have different costs of financing because of the nature of the business. DOE derived the financing costs based on data from the Damodaran Online website.68 For residential applications, the entire household population was categorized into six income bins, and DOE developed the probability distribution of real interest rates for each income bin by using data from the Federal Reserve Board’s Survey of Consumer Finances.69 The LCC analysis used the estimated annual energy use for each CWH equipment category described in section IV.C of this final rule. Aside from energy use, other important factors influencing the LCC and PBP analyses are energy prices, installation costs, and equipment distribution markups. At the national level, the LCC spreadsheets explicitly model both the uncertainty and the variability in the model’s inputs, using probability distribution functions. As mentioned earlier, DOE generated LCC and PBP results for individual CWH consumers, using business type data aligned with building type and by geographic location, and DOE developed weighting factors to generate national average LCC savings and PBPs for each efficiency level. As there is a unique LCC and PBP for each calculated combination of building type and geographic location, the outcomes of the analysis can also be expressed as probability distributions with a range of LCC and PBP results. A distinct advantage of this type of approach is that DOE can identify the percentage of consumers achieving LCC savings or attaining certain PBP values due to an increased efficiency level, in addition to the average LCC savings or average PBP for that efficiency level. DOE calculates energy savings for the LCC and PBP analysis using only onsite electricity and natural gas usage. For determination of consumer cost savings, the onsite electricity and natural gas usage are estimated separately with appropriate electricity and natural gas prices, or marginal prices, applied to each. Primary and FFC energy savings are not used in the LCC analysis. For each efficiency level that DOE analyzed, the LCC analysis required input data for the total installed cost of the equipment, its operating cost, and the discount rate. Table IV.19 summarizes the inputs and key assumptions DOE used to calculate the consumer economic impacts of all energy efficiency levels analyzed in this rulemaking. A more detailed discussion of the inputs follows. TABLE IV.19—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PBP ANALYSES Inputs Description Affecting Installed Costs Product Cost ........................ lotter on DSK11XQN23PROD with RULES2 Installation Cost .................... Derived by multiplying manufacturer sales price or MSP (calculated in the engineering analysis) by distribution channel markups, as needed, plus sales tax from the markups analysis. Installation cost includes installation labor, installer overhead, and any miscellaneous materials and parts, derived principally from RSMeans 2018 through 2022 data booksA B C and converted to 2022$. 68 Damodaran Online. Commercial Applications. Available at pages.stern.nyu.edu/∼adamodar/New_ Home_Page/home.htm. Last accessed on December 16, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 69 The real interest rates data for the six income groups (residential sector) were estimated using data from the Federal Reserve Board’s Survey of Consumer Finances (1989, 1992, 1995, 1998, 2001, PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 2004, 2007, 2010, 2013, 2016, and 2019). Available at www.federalreserve.gov/pubs/oss/oss2/ scfindex.html. Last accessed on December 16, 2022. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69737 TABLE IV.19—SUMMARY OF INPUTS AND KEY ASSUMPTIONS USED IN THE LCC AND PBP ANALYSES—Continued Inputs Description Affecting Operating Costs Annual Energy Use .............. Electricity Prices, Natural Gas Prices. Maintenance Cost ................ Repair Cost .......................... Annual unit energy consumption for each class of equipment at each efficiency and standby loss level estimated at different locations and by building type using building-specific load models and a population-based mapping of climate locations. The geographic scale used for commercial and residential applications are Census Divisions and reportable domains respectively. DOE developed average residential and commercial electricity prices based on EIA Form 861M, using data for 2022.D Future electricity prices are projected based on AEO2023. DOE developed residential and commercial natural gas prices based on EIA State-level prices in EIA Natural Gas Navigator, using data for 2022.E Future natural gas prices are projected based on AEO2023. Annual maintenance cost did not vary as a function of efficiency. DOE determined that the materials portion of the repair costs for gas-fired equipment changes with the efficiency level for products. The different combustion systems varied among different efficiency levels, which eventually led to different repair costs. Affecting Present Value of Annual Operating Cost Savings Product Lifetime ................... Discount Rate ....................... Analysis Start Year .............. Table IV.21 provides lifetime estimates by equipment category. DOE estimated that the average CWH equipment lifetimes range between 10 and 25 years, with the average lifespan dependent on equipment category based on estimates cited in available literature.F Mean real discount rates (weighted) for all buildings range from 3.2% to 5.0%, for the six income bins relevant to residential applications. For commercial applications, DOE considered mean real discount rates (weighted) from 10 different commercial sectors, and the rates ranged between 3.2% and 7.2%. Start year for LCC is 2026, which would be the anticipated compliance year for adopted standards. Analyzed Efficiency Levels Analyzed Efficiency Levels .. DOE analyzed baseline efficiency levels and up to five higher thermal efficiency levels for commercial gas-fired storage water heaters, commercial gas-fired tankless water heaters, and commercial gas-fired instantaneous circulating water heaters and hot water supply boilers. For residential-duty gas-fired storage, DOE analyzed baseline and up to five higher UEF levels which combine thermal efficiency and standby loss improvements. See the engineering analysis for additional details on selections of efficiency levels and costs. lotter on DSK11XQN23PROD with RULES2 A RSMeans. 2017 through 2022 Plumbing Costs with RSMeans Data. RSMeans data available at www.rsmeans.com/products/books, though when last accessed, the 2022 books no longer appeared to be available. B RSMeans. 2022 Facilities Maintenance & Repair Costs with RSMeans Data. RSMeans data available at www.rsmeans.com/products/books. C RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, Mechanical Costs for 2021 and 2022, and 2018 through 2020 Mechanical Cost with RSMeans Data. Available www.rsmeans.com/2022-mechanical-cost-data-cd. RSMeans links last accessed on April 19, 2023. D U.S. Energy Information Administration (EIA). Average Retail Price of Electricity (Form EIA–861M). Available at www.eia.gov/electricity/ data.php. Last accessed on March 31, 2023. E U.S. Energy Information Administration (EIA). Average Price of Natural Gas Sold to Commercial Consumers—by State. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Prices for Residential Consumers are available at the same site using the Data Series menu. EIA data last updated March 31, 2023, and accessed on March 31, 2023. F American Society of Heating, Refrigerating, and Air-Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and Air-Conditioning Applications. 2011. Available at www.ashrae.org/resources—publications. Last accessed on October 16, 2016. In response to the May 2022 CWH ECS NOPR, DOE received numerous general comments related to the LCC and PBP analysis. Atmos Energy and Joint Gas Commenters state that DOE should break storage and instantaneous water heaters out separately for purposes of LCC and PBP analysis. (Atmos Energy, No. 36 at pp. 4–5; Joint Gas Commenters, No. 34 at p. 33) In section III.B.6, DOE discusses the determination that commercial gas-fired storage water heaters and storage-type gas-fired instantaneous water heaters would be treated jointly for purposes of the final rule. Because they are being treated jointly, modeling them separately in the LCC and PBP analysis was seen as confusing and unnecessary. As noted in section IV.E, many commenters said DOE should update to more recent RECS and CBECS data. CA IOUs indicated support for DOE’s proposed minimum efficiency standards VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 if DOE updated the analyses with newer data including specifically the more recent CBECS and RSMeans data. AHRI stated their concern about DOE is using older CBECS and RECS data which they termed ‘‘outdated data,’’ and that this could cause DOE to underestimate the true impacts to consumers. AHRI recommended that DOE conduct updated analysis where existing data sources are out of date. (CA IOUs, No. 33 at p. 1; AHRI, No. 31 at p. 2) DOE acknowledges the CA IOUs and AHRI comments and notes that the LCC and PBP analysis has been updated to include the 2018 CBECS, but as discussed in section IV.E, DOE maintained use of the 2009 RECS. PHCC believes that the economic analysis has several deficient factors and as a result it would be difficult to rely on the projected energy savings, cost of materials, labor costs and times presented by DOE to do certain aspects PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 of the work. PHCC encourages DOE to update the basic information in the LCC model to reflect current 2022 conditions in the marketplace. (PHCC, No. 28 at pp. 10–11) As discussed in the subsections below, DOE has updated a large number of the inputs used in the LCC and PBP analyses. Some inputs such as the U.S. Economic Census underlying the Markups Analysis cannot be updated because the 2017 census remains the most recent census. Patterson-Kelley stated concerns that the methodology to generate the RECS and CBECS data sets marginalizes large portions of the country. (PattersonKelley, No. 26 at p. 2) WM Technologies expressed a similar concern adding the data exhibit a bias toward larger revenue generating areas and larger buildings. By doing so they believe CBECS exhibits an unrecognized bias against underserved communities and populations. Buildings and homes in rural and lower E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69738 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations revenue areas typically have less insulation while larger cities typically have more exacting building codes and enforcement. Therefore, the current CBECS approach also erroneously minimizes actual variation in the LCC results, with the largest errors in the impact to disadvantaged and underserved communities and small businesses. WM Technologies also called on DOE to provide the impact to the results from using different sources of information than RECS and CBECS and provide realistic modeling by accounting for documented uncertainties and variation to the inputs used in the analysis. (WM Technologies, No. 25, at pp. 4–5) Patterson-Kelley and WM Technologies stated that any LCC modeling must include the variation in the CBECS and RECS data sets, consistently relating to all references to the location-specific information of the home or building modeled as this will better utilize the variation and energy usage on average, identified in the national energy surveys noted in the 2015 RECS comparison with other studies. (Patterson-Kelly, No. 26, at pp. 2, 4; WM Technologies, No. 25 at p. 4– 5) DOE disagrees with the conclusions reached in WM Technologies’ and Patterson-Kelley’s comments, as was pointed out in section III.E in which DOE addressed the majority of WM Technologies and Patterson-Kelley’s comment. CBECS and RECS datasets are nationally representative datasets available for public use. Since the commenters did not suggest specific different sources of information when calling on DOE to provide the impacts from using different sources of information, this suggestion seems to not be feasible to DOE. DOE agrees that the EIA sampled major cities with certainty as stated by WM Technologies and Patterson-Kelly, but questions whether electing to not take the chance that a major commercial hub like Chicago would be excluded from CBECS samples due to pure random chance in the sampling selection represents bias as alleged in these comments. Regardless, at the end of the process EIA assigns weights to buildings. So, a large building in downtown New York City receives a low building weight because there are very few such buildings, while smaller buildings characteristic of rural areas get much higher weights because there are large numbers of them across the country. The Joint Gas Commenters offered several reactions to DOE’s discussion of LCC and claimed that they overall believe the standards are not economically justified nor supported by VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 clear and convincing evidence. Firstly, they stated that DOE’s LCC results shows that consumers barely break even with LCC savings ranging from 0.58 to 1.25 percent of total LCC. They further offered their opinion that because DOE has addressed some variability of inputs in the model but has not addressed all uncertainties about the ranges and distributions of inputs to the model, the proposed standards could impose net costs, and that this does not provide the clear and convincing evidence needed to amend the standards. (Joint Gas Commenters, No. 34 at pp. 14–15) Additionally, they noted that DOE performed the analysis by building up to the price that consumers pay for products and their installation and related costs, rather than collecting ‘‘actual’’ data. They pointed to assumptions made and offered their opinion that DOE must locate suitable data, and lacking such, must resolve against amending the standards. (Joint Gas Commenters, No. 34 at pp. 16–17) In response, DOE addresses similar ‘‘clear and convincing evidence’’ comments in section III.A of this document. DOE notes that the LCC savings presented in the 2022 CWH ECS NOPR represent an overall average, reflecting the fractions of consumers that are better off and that are worse off due to the proposed standard, as well as a significant percentage of consumers for whom the standard has no effect because they already purchase equipment that meet the standard. In this final rule, the LCC savings represent an average of the affected consumers only, excluding those for whom the standard has no effect. The LCC savings in the final rule also reflect changes DOE has made to address comments received on the NOPR. For example, given stakeholder comments on the withdrawn 2016 CWH ECS NOPR that there may be consumer with extraordinary installation costs, the 2022 CWH ECS NOPR introduced an extraordinary cost factor which resulted in increased installation costs by a factor from 200 to 300 percent for a small percentage of customers. For the 2022 CWH ECS NOPR that percentage of consumers was 2 percent, a figure that DOE retained in the final rule analysis. In the final rule analysis, DOE has increased the fraction of consumers that install condensate pumps and increased the fractions of consumers installing condensate neutralizers. In addition, DOE updated the installation costs and venting materials costs based on the most current available data. These PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 changes and other are discussed in IV.F.2 of this document. DOE notes that while Joint Gas Commenters are correct that the relative LCC savings may be small, DOE considers other factors when assessing whether there is clear and convincing evidence that a standard is economically justified, such as PBP and the NIA. For example, a major reason for the small LCC savings is the cost of associated venting (discussed more in section IV.F.2 of this document). However, DOE believes it reasonable to assume that once the venting has been installed, it will also be usable in the future when the CWH equipment is replaced. This benefit is captured in the longer-term NIA, which includes replacement of water heaters as they reach the end of their useful life. However, DOE did not capture the residual value of the venting system in the LCC analysis as the LCC analysis ends at the end of the useful life of the CWH unit. Moreover, DOE notes that, for each equipment type, the simple payback period is shorter than the equipment life, particularly for the instantaneous products where the payback period is approximately half of the expected equipment lifetime. So, while Joint Gas Commenters are correct that the relative LCC savings may be small due to the standard, that fact alone is not the end of DOE’s economic justification analysis. Further discussion of the results of all of DOE’s economic analyses and DOE’s conclusions may be found in section V of this document. DOE disagrees that there are unresolved uncertainties, and has determined the issues raised in comments on the May 2022 CWH ECS NOPR have been sufficiently addressed to resolve any alleged uncertainties. As for whether ‘‘building up costs’’ is a reasonable approach, DOE relied primarily on data from RSMeans and other nationally recognized sources to develop its cost analyses. These resources provided itemized data at each step of the process and in particular to the LCC discussions, on the installation and removal costs of both equipment and venting systems, as well as the installation costs of condensate drainage systems, electrical outlets, and chimney relining. The itemization of these costs was at the component level for both labor and material, and in both the commercial and residential sectors, which allowed DOE to develop an appropriate set of installation scenarios to factor into the lifecycle cost analysis. The use of these resources also provided DOE with a consistent evaluation of costs with a consistent set of location adjustments for each residential and E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 commercial region included in the analysis. For these reasons, DOE believes the sources relied upon were valid and appropriate for the development of installed equipment costs. Moreover, DOE notes that surveys of existing contractor quotes may not adequately separate equipment costs from installation costs since installing contractors would commonly be selling and marking up equipment as well as installation labor. DOE has observed that contractor quotes are often lump sum prices and getting contractors to disaggregate such prices has historically been difficult. Thus, use of surveys would not provide the level of detailed information needed to assess installation costs. 1. Equipment Cost To calculate consumer equipment costs, DOE multiplied the MSCs developed in the engineering analysis by the markups described previously (along with sales taxes) in section IV.D of this document. DOE used different markups for baseline equipment and higher-efficiency equipment because DOE applies an incremental markup to the increase in MSP associated with higher-efficiency products. For each equipment category, the engineering analysis provided equipment costs for the baseline equipment and up to five higher equipment efficiencies. For the withdrawn 2016 CWH ECS NOPR, DOE examined whether available data suggested that equipment costs for CWH equipment would change over time in constant real dollar terms, indicating the potential for a ‘‘learning’’ or ‘‘experience’’ curve in equipment prices that might indicate further reductions in equipment price might be expected. In the data reviewed, DOE did not identify a clear long term historical price trend for CWH equipment.. As DOE has seen no direct evidence to overturn that earlier decision, DOE used costs established in the engineering analysis directly for determining 2026 equipment costs and future equipment costs (equipment is purchased by the consumer during the first year in 2026 at the estimated equipment price, after which the equipment price remains constant in real dollars). See chapter 10 of the final rule TSD for more details. The markup is the percentage increase in cost as the CWH equipment passes through distribution channels. As explained in section IV.D of this final rule, CWH equipment is assumed to be delivered by the manufacturer through a variety of distribution channels. There are several distribution pathways that involve different combinations of the costs and markups of CWH equipment. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 The overall resulting markups in the LCC analysis are weighted averages of all of the relevant distribution channel markups. 2. Installation Cost Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the CWH equipment. Total installed cost includes the retail cost of the CWH equipment and its corresponding installation costs. Installation costs vary by efficiency level, primarily due to venting costs. For new construction installations, the installation cost is added to the equipment cost to arrive at a total installed cost. For replacement installations, the costs to remove the previous equipment (including venting when necessary) and the installation costs for new equipment, including venting and additional expenses, are added to the product cost to arrive at the total replacement installation cost. DOE derived national average installation costs for commercial equipment from data provided in RSMeans data books.70 RSMeans provides estimates for installation costs for CWH units by equipment capacity, as well as cost indices that reflect the variation in installation costs for 295 cities in the United States. The RSMeans data identify several cities in each of the 50 States, as well as the District of Columbia. DOE incorporated location-based cost indices into the analysis to capture variation in installation costs, depending on the location of the consumer. Based upon the RSMeans data, relationships were developed for each product subcategory to relate the amount of labor to the size of the product—either the storage volume or the input rate. Generally, the RSMeans data were in agreement with other national sources, such as the Whitestone Facility Maintenance and Repair Cost Reference.71 DOE calculated venting costs for each building in the CBECS and RECS. A variety of installation parameters impact venting costs; among these, DOE simulated the type of installation (new construction or retrofit), water heater type, draft type (atmospheric venting or power venting), building vintage, number of stories, and presence of a chimney. A combination of Crystal Ball variable distributions and Microsoft 70 DOE notes that RSMeans publishes data books in November or December for use the following year; hence, the 2022 data book has a 2021 copyright date. 71 Whitestone Research. The Whitestone Facility Maintenance and Repair Cost Reference 2012–2013 (17th Annual edition). 2012. Whitestone Research: Santa Barbara, CA. PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 69739 Excel macros and spreadsheet calculations are used to address the identified variables to determine the venting costs for each instance of equipment for each building within the Monte Carlo analysis. With regard to the venting material for condensing equipment, the primary assumptions used in this logic are listed as follows: • 25 percent of commercial buildings built prior to 1980 were assumed to have a masonry chimney, and 25 percent of masonry chimneys required relining. • Condensing equipment with vent diameters smaller than 5 inches were modeled using PVC (polyvinyl chloride) as the vent material. • Condensing equipment with vent diameters of 8 inches or greater were assigned AL29–4C (superferritic stainless steel) as the vent material. • Condensing equipment with vent diameters of 5 inches and up to 8 inches were assigned vent material based on a random selection process in which, on average, 50 percent of installations received PVC as the vent material and the remaining received AL29–4C. • 5 percent of all condensing CWH equipment installations were modeled as direct vent installations. The intake air pipe material for condensing products was modeled as PVC. Additional details of the venting logic sequence are found in chapter 8 and appendix 8D of the final rule TSD. a. Data Sources For this final rule analysis, DOE used the most recent datasets available at the time the analysis was conducted. DOE routinely updates data to the most recent datasets available at its various rulemaking stages and has updated the CWH equipment LCC model with the most recent data estimates available for this final rule, including use of the 2018 CBECs and 2022 RSMeans data (including 2022 RSMeans Plumbing Costs Data, 2022 RSMeans Mechanical Cost Data, and 2022 RSMeans Facility Maintenance and Repair Costs). In reviewing the 2022 RSMeans cost books, DOE noted a rapid escalation of prices from 2021 to 2022 for installation materials including PVC pipes and related connectors and hangers, Type B venting and associated materials, and stainless steel. The 2022 escalation in these prices relative to 2021 exceeded the escalation seen in previous years’ prices. DOE believes the 2022 escalation is related to the Covid-19 pandemic and the supply chain bottleneck arising during the pandemic. Because these input materials are generally undifferentiated between manufacturers and subject to supply and demand E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69740 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations forces much like other construction materials like lumber or commodities such as steel, DOE believes that prices will eventually revert to something akin to historical trends. To capture prices more consistent with long-term escalation trends, DOE used a 5-year average of prices for PVC and Type B venting and related components, and for Series 300 stainless steel venting materials derived from RSMeans 2018 through 2022 data books. For AL29–4C stainless steel, DOE had access to 4 years of data from the source that DOE has used in this rulemaking, for the years 2018 and 2020 through 2022. For AL29–4C, DOE used an average of these 4 years. For the RSMeans data and the AL29–4C data, all prices not originally denominated in 2022$ were inflated to 2022$ using the GDP Implicit Price Deflator. Bradford White disagreed that installation or removal cost does not vary with thermal efficiency as more efficient products are typically heavier than their less efficient counterparts. They stated this translates into more people and/or equipment being required to position the new water heater, which will drive up installation costs. Bradford White also noted that condensate removal must be accounted for at condensing levels. Bradford White also suggested that equipment costs will influence installation costs, although that may not be detailed as such on the invoice. (Bradford White, No. 23 at p. 8) DOE, in response to Bradford White’s comments, notes that it did not explore relative weights between noncondensing and condensing equipment of the same capacity but notes that the data sources used by DOE indicated installation labor was a function of the input rating of the equipment which will in turn determine the size (dimensions) of the equipment. DOE based the labor assumption on the input rates of the representative models, and because the input rate does not change by EL, DOE’s estimated labor also does not change by EL. Commercial water heaters are generally large and already require multiple persons during the installation, and DOE believes the size differences between ELs would generally be small enough to be unlikely to impact the number of people needed to install or remove equipment. DOE agrees that condensate disposal is a factor leading to differing installation costs, and addresses the cost of condensate removal in IV.F.2.b of this document. To the extent that a contractor bases the installation cost on equipment costs, the contractor is likely applying a markup to the equipment to recover their own costs. DOE does VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 include contractor markups in the determination of retail price as well as markups embedded in other inputs to the process such as the labor costs. Beyond that, DOE was not provided with sufficiently specific data for DOE to assess whether there is basis on which to account for such markups. Bradford White stated the labor rate DOE used for the commercial sector used, at $89 per hour, is in their opinion more representative of the top end of the residential sector labor rates, and commercial sector rates are in excess of $125 per hour. They also stated DOE is correct that regional adjustments need to be made to this value, but the low end for North and South Carolina is too low at 0.59. (Bradford White, No. 23 at p. 8) PHCC also believes that the labor rates used by DOE are significantly understated. PHCC notes that the U.S. Department of Labor (‘‘DOL’’) publishes information about prevailing wage rates for localities across the country, and the Biden Administration through DOL has made efforts to expand the use of such information in hopes of promoting fair and equitable employment opportunities. It would seem that using this information would align with the goals of the Biden Administration through DOE as well, PHCC stated. PHCC does express concern that the labor assumptions made by DOE are outdated, that the labor market has changed post COVID–19 with worker shortages driving up pay and benefits and that DOE should evaluate its assumptions. PHCC provided to DOE a sample table of commercial building plumber rates, with employer costs and markups for each State as an example to DOE, with a resulting average cost of $106/hr. While the sample table PHCC provided used a random county in each State, PHCC notes that a weighted scheme should be incorporated to accurately gauge State averages as plumber rates in high population areas would apply to a greater fraction of the population or sales. (PHCC, No. 28 at p. 10) DOE acknowledges the information provided by Bradford White and PHCC, and notes that the data source used by DOE for labor rates and for the regional indexes is a nationally recognized source for labor rates. Using the regional adjustment factors for individual states, four states meet or exceed Bradford White’s $125 value. The State factors developed by DOE are a weighted average of individual city rates. Thus, depending on where Bradford White observed the rates they are citing, they are well within the range used by DOE. Additionally, DOE’s regional multipliers for North and South Carolina are PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 consistent with other southern states. With respect to PHCC’s suggestion about the prevailing wage, DOE uses the RSMeans values because they are from a nationally recognized source, collected by surveys. With this in mind, DOE elected to continue to use RSMeans data with the only change being to update to the current RSMeans values available when the analysis was performed. Joint Gas Commenters stated that labor costs for CWH replacements are typically not standard rates but are premium rates due to overnight hours. Joint Gas Commenters also stated DOE inadequately accounted for uncertainty about labor costs. (Joint Gas Commenters, No. 23, at pp. 14 and 18) In response, while Joint Gas Commenters suggested that labor costs for CWH replacements are typically not standard rates, they did not provide data to support this. DOE is aware that some businesses that rely on water heaters for production (e.g., food service) might opt for a night replacement. However, many other building types (offices, retail, schools) can and do readily make changes such as replacing water heaters during the day as the outage, while inconvenient, does not limit operations. Two other large users are hotels and health care facilities. All hotels and many health care facilities (e.g., hospitals) are already 24/7 facilities, and it is unclear that an over-night water heater replacement is an improvement over a day-time replacement from the viewpoint of providing for hot water. Many of these facilities rely on multiple water heater plants so hot water can be available at some level if problems arise with a given unit (as is pointed out later by the Joint Gas Commenters in their comments). DOE believes many larger food service business may do the same and where they do not use multiple water heaters, both non-condensing and condensing units may be replaced at night (i.e., efficiency of the units is not particularly relevant to timing of installation). Further, most food service buildings are relatively small low rise one or two-story buildings commonly with the water heater associated with the kitchen space and typically on a separate, outside portion from the dining space and with floor drains already in close proximity. This minimizes or eliminates factors potentially leading to difficult installations, namely, most food service buildings will not be many-storied buildings with difficult vertical venting installations and in fact many may be able to use less costly and simpler horizontal venting. In addition, where E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations water heaters are installed in commercial kitchen areas, floor drains will typically exist already for code and safety reasons. DOE believes that installation of condensing water heater venting may in fact be less difficult for food service buildings than in other buildings, meaning that the installation time will be more manageable. To the extent the replacement needs to take place at night, such would occur regardless of the efficiency of the equipment. Accordingly, for the final rule, DOE did not apply any factor to increase the labor costs above what was available in RSMeans. lotter on DSK11XQN23PROD with RULES2 b. Condensate Removal and Disposal In the May 2022 CWH ECS NOPR, DOE based assumptions concerning the need for condensate removal and disposal in part on DOE’s understanding of the International Plumbing Code.72 The International Plumbing Code calls for temperature and pressure relief valves to be piped to drain, which means that non-condensing CWH equipment should already have an existing drainage system. An additional factor underlying DOE’s assumptions is the fact that a condensate neutralizer is not required in certain jurisdictions, though it is good design practice. In response to these underlying factors the May 2022 CWH ECS NOPR analysis assumed a condensate neutralizer was assigned to 12.5 percent of replacement installations (which was unchanged from the assumption used in the withdrawn May 2016 CWH ECS NOPR). The cost of heat tape was assigned to 10 percent of replacement installations, and the cost of an electrical outlet specifically for heat tape was added for 10 percent of instances in which heat tape was installed. JJM Alkaline stated that DOE’s assumption of 12.5 percent of water heater installations needing condensate neutralizers for condensing equipment is too low, noting that the U.S. Environmental Protection Agency (‘‘EPA’’) and many municipalities have codes regarding acidic condensate discharge into public works and the acidic condensate from heating appliances is generally 2.9 to 4.0 pH, which is below the threshold of 5.0 pH. (JJM Alkaline, No. 10 at p. 1) Bradford White recommended increasing the percentage of installations that utilize a condensate neutralizer, stating that for installations that are over 200,000 Btu/ 72 See www.iccsafe.org/content/internationalplumbing-code-ipc-home-page/. The model International Plumbing Code has been adopted 35 States for State or local plumbing codes. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 hr, the percentage is closer to 75 percent (because those installations are more likely to be inspected due to pressure vessel requirements) while for installations under 200,000 Btu/hr, the percentage is above the estimated 12.5 percent and growing. (Bradford White, No. 23 at p. 8) Regarding the comments on the use of condensate neutralizers from JJM Alkaline and Bradford White, DOE reviewed the applicable IPC 73 and Uniform Plumbing Code (‘‘UPC’’) 74 as the two most widely used model plumbing codes in the United States. Both documents have relevant sections. The IPC requirement (IPC 2019 section 803.2) is titled ‘‘Neutralizing device required for corrosive wastes’’ and is a more general requirement for ‘‘Corrosive liquids, spent acids or other harmful chemicals that destroy or injure drain, sewer, soil or waste piping, or create noxious or toxic fumes or interfere with sewage treatment processes.’’ Where such harmful chemicals exist (as determined by the authority having jurisdiction), the IPC requires such corrosive wastes to be diluted or neutralized using an ‘‘approved’’ dilution or a neutralizing device. The UPC (UPC 2021 803.2) by contrast refers specifically to condensate from fuel burning condensing appliances, and where such condensate is discharged into a drain, the material in the drainage system must be cast-iron, galvanized iron, plastic, or other material approved for this use. DOE examination of these suggests that the IPC and similar local code requirements would be more likely to result in the use of condensate neutralizers, particularly in new construction. DOE evaluated the population weighting of States subject to the IPC or UPC and determined that approximately 73 percent of the U.S. population would be in States or jurisdictions that fall under the IPC or similar code requirements. DOE also reviewed available data on States that require ASME stamps and ASMErelated inspections for water heating equipment and what thresholds are used but recognizes that such inspections are safety inspections of the equipment and would not generally address condensate disposal issues. Based on its analysis of the language of these requirements and discussions with others in the industry, DOE revised the estimate of equipment using condensate neutralizer upwards, using 73 International Code Council. 2018 International Plumbing Code (IPC). Available from www.iccsafe.org. 74 International Association of Plumbing & Mechanical Officials (IAMPO). 2021 Uniform Plumbing Code. Available from iapmo.org. PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 69741 an average for new construction of 60 percent and separately 30 percent for replacement equipment in the LCC analysis. Both the assumed prevalence of condensate neutralization equipment and the expected cost of such equipment are discussed in chapter 8 of the final rule TSD. PHCC stated its members are concerned with the need for condensate disposal with higher efficiency equipment, noting DOE reduced the instances where additional work would be required assuming that the International Plumbing Code requires a floor drain. PHCC disagrees, stating section 502 of the code does not require a drain; instead, it requires the relief valve to discharge to a suitable location such as a floor, water heater drain pan, waste receptor, or outdoors. In addition, it requires that relief valves, as emergency devices, are allowed to discharge to the floor and in most cases that is what they do. Service personnel are directed to solve the problem. Condensate however is an ongoing discharge, and a method of disposal is required per section 314.1 of the International Plumbing Code (‘‘IPC’’). Further they note that while in some instances existing installation floor drains may be present, additional piping may be required to get to the drain location, and if that presents a trip hazard, owners may elect to have a pump installed regardless. They comment that this situation will impact more than 10 percent of installations and likely more than 50 percent. PHCC also noted that in a new installation without new standards, consumers currently do not have to purchase condensing products. (PHCC, No. 28 at pp. 6–7) PHCC agrees that many new installations opt for high efficiency products already, but perhaps 25 percent to 30 percent would not. As such, some allowance should be included in new installations for additional condensate disposal expenses. (PHCC, No. 28 at pp. 6–7) Joint Gas Commenters noted many commercial buildings with noncondensing equipment were not designed with plumbing systems to dispose of condensate. (Joint Gas Commenters, No. 34 at p. 4) DOE interprets the comment from Joint Gas Commenters regarding existing buildings not designed with plumbing systems to dispose of condensate to refer to both condensate neutralization, which DOE addressed previously, and condensate disposal which is discussed here. With regard to the point raised by PHCC, DOE reviewed the language in the IPC and agrees with PHCC that the code does not require a floor drain be E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69742 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations present in spaces where a water heater exists and allows for other means of dealing with discharge. In locations where drainage from the T&P valve could cause damage, it requires a pan and some method of disposal (either to the exterior of the building, a sump, or a floor drain). In a situation where discharge would not cause damage, water release could be handled as a maintenance call as noted by PHCC. DOE examined the UPC requirements for floor drains as well and notes the UPC does not appear to require floor drains for water heater temperature and pressure discharge valves explicitly. The UPC does have requirements for floor drains in certain areas, including what would be most commercial restrooms (see definition, commercial kitchens, commercial laundry spaces, and boiler rooms). The International Mechanical Code, part of the ICC series of building codes also requires floor drains. DOE examined other codes adoptions that occur at the municipal or State level, and requirements for drains in non-boiler mechanical rooms seem to occur through amendments in certain codes. For example, the New York City code 501.16 seems to require drains at the base of all chimneys and gas vents.75 In addition, DOE notes that mechanical rooms that must deal with condensate from air handlers will typically require some method of condensate disposal. However not all such rooms will also be used for water heaters. In rooms that have pumps, it appears that some form of drain will be common for convenience to deal with replacement or leakage. DOE believes that in many locations where commercial water heaters are installed, it appears that drainage in the form of floor drains, trench drains, etc., will be provided for or will be close by in existing buildings and expects this to be more common in the case of new construction, in part due to the prevalence of condensing equipment. However, DOE does agree that the ability to gravity drain condensate may be limited in existing construction and in the NOPR included the 10 percent factor. While DOE agrees with PHCC that there may be factors at work such as avoiding a tripping hazard, it is speculative to DOE how this leads to a fraction as high as 50 percent as stated by PHCC. PHCC is speculating that there in as many as half or more cases there may be a floor drain present that building owners would choose not to use and instead pump 75 See www.nyc.gov/assets/buildings/apps/pdf_ viewer/viewer.html?file=2022FGC_Chapter5_ ChimneysVentsWB.pdf&section=conscode_2022, p. 7. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 condensate to some other location. DOE believes this is a highly speculative statement that implies that even where a floor drain exists, in a majority of cases there is an alternative location in which to dispose of condensate and owners would choose to incur additional installation costs to reach that alternative drainage location. That said, because the tripping hazard is a possible concern not embodied in DOE’s original 10 percent factor, DOE modified the LCC to increase the fraction of installations with condensate pumps to 15 percent. For this final rule, DOE also conducted research on the appropriate condensate pump size and associated cost for each equipment category, which resulted in an update to the condensate pump assignment for residential-duty and commercial gas-fired storage water heaters. For the withdrawn May 2016 CWH ECS NOPR, DOE used one condensate pump for all equipment types while for the May 2022 CWH ECS NOPR and this final rule DOE used two sizes of condensate pumps to reflect difference in input rates between classes. Chapter 8 of the TSD contains more information on the methodology, raw costs, and sources for the installation cost for condensate removal. c. Vent Replacement In both the withdrawn May 2016 and the May 2022 CWH ECS NOPRs and in this final rule, DOE conducted its analysis under the assumption that condensing CWH equipment would commonly use the same, typically vertical, chase for the venting system as the non-condensing CWH equipment that it replaces. DOE recognizes that each venting situation may be unique and will depend on the location where the water heater is installed within the building, whether new construction or replacement, the height of the building and or distance to the outside wall. In new construction the latter two variables will in fact be influenced, in part, on the water heater and water heater efficiency levels selected. In an existing building that uses noncondensing water heaters, the most common path for exhaust is expected to be a vertical chase and flue or chimney, which formed the basis of DOE’s analysis, although DOE recognizes that other existing building flue scenarios may exist including horizontal power venting of non-condensing equipment, vertical power venting of noncondensing equipment, and exterior. For this final rule, DOE maintained its venting methodology and associated venting costs for scenarios in which non-condensing CWH equipment is PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 replaced by condensing CWH equipment. DOE incorporated the sleeving of existing vent systems in its May 2022 CWH ECS NOPR analysis. For existing buildings with natural draft (Type B) venting systems that have no elbows and possess vent lengths less than or equal to 30 feet, DOE assigned sleeving of the existing vent with PVC venting to 50 percent of replacement scenarios. DOE’s NOPR and final rule analysis provides for using an existing vent as a sleeve only for those installations meeting the criteria defined previously. For this final rule DOE’s analysis accounts for installation costs in the commercial and residential sectors for both replacement and new construction markets, along with an appropriate set of installation scenarios within each market and sector combination. Equipment installation and removal costs are separate from venting system installation and removal costs. The equipment installation labor hours for representative CWH models ranged from 4 to 22.4 hours, depending on the equipment category. The labor hours to remove CWH equipment in replacement situations were determined to be an additional 37.5 percent of the installation labor hours on average, meaning they ranged from an additional 1.5 to 8.4 hours depending on the equipment category. These labor hour calculations were based on a linear regression formula using data from the RSMeans Facilities Construction Cost Data, ENR Mechanical Cost book, and Whitestone Facility Maintenance and Repair Cost Reference. This formula escalated equipment installation labor hours based on the input capacity and/ or volume of the CWH equipment, as expressed in the sources that DOE relied upon. DOE has found no information that suggests basic CWH equipment installation or removal cost varies based on thermal efficiency rather than input capacity and/or volume. DOE accepts the methodologies of its sources that the activities required to install minimumefficiency and high-efficiency equipment are inherently similar. This approach to developing costs for CWH equipment installation or removal was not changed from the withdrawn May 2016 CWH ECS NOPR. In addition to equipment installation and removal, DOE accounted for the labor hours to install and remove venting, scaled to the vent length in linear feet and/or the number of components (e.g., elbows) in the venting system. These hours differed based on the vent material and vent size involved in the installation and were developed E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations using data from RSMeans.76 The labor rates in DOE’s analysis depended on the crew type conducting the installation, region in which the installation occurred, and whether venting was installed in residential or commercial buildings. For the installation of TypeB venting for non-condensing CWH equipment, average labor rates (including overhead and profit) ranged from $65 per hour in the residential sector to $89 per hour in the commercial sector.77 For the installation of PVC venting for condensing CWH equipment, average labor rates used by DOE (including overhead and profit) ranged from $66 per hour in the residential sector to $89 per hour in the commercial sector.78 Regional adjustments to these labor rates called for multipliers ranging from 0.51 (Arkansas) to 1.64 (New York).79 For this final rule, DOE did not further adjust labor rates for venting except to use the most up-to-date source data. In addition to accounting for equipment installation and removal, and venting installation and removal, DOE also incorporated an appropriate set of installation cost additions and subtractions, which included labor and material, arising from unique circumstances in replacement scenarios. These installation costs included reusing existing vent systems (when replacing non-condensing CWH equipment with similar non-condensing CWH equipment), relining of chimneys, installing condensate drainage, and sleeving of existing vent systems with certain replacement venting systems, introduced in this final rule analysis. DOE did not incorporate the costs of sealing off chases and roof vents or moving mechanical rooms because it is logical that condensing CWH equipment would reside in the same location and use the same chase as the noncondensing CWH equipment it replaced. In response to the May 2022 CWH ECS NOPR, Joint Advocates suggested that DOE thoroughly analyzed the cost of installing new venting systems, and that the analysis is comprehensive and reasonable. (Joint Advocates, No. 29 at pp. 2–3) The Joint Gas Commenters stated that EIA data show that ‘‘more than half of all commercial buildings were constructed before condensing commercial water heaters were introduced to the market’’ and stated 76 RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, Mechanical Costs 2022. 77 RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, Mechanical Costs 2022. 78 Id. 79 Id. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 that condensing products are incompatible with millions of these existing commercial buildings. They further added that the modifications required to alter these existing buildings to accommodate the use of condensing products are far more complicated, extensive, and burdensome than DOE’s analysis assumes. (Joint Gas Commenters, No. 34 at p. 3) DOE agrees that many commercial buildings were constructed before condensing water heaters were introduced to the market, but does not agree that millions of commercial buildings are thus by definition incompatible with condensing water heaters. This statement implies that such water heaters cannot be used in older buildings. Evidence strongly suggests otherwise. Since the mid1990s, the condensing water heater market has grown rapidly. That growth has been substantially faster than the growth of commercial building stock. The implication is that condensing water heaters have been installed in preexisting commercial buildings, which supports the conclusion that older buildings are not incompatible with condensing water heater installations. DOE acknowledges and addressed that in many existing buildings the venting systems would need to be replaced and, as discussed in Appendix 8D, DOE included costs for items such as vent removal, whether a condensing vent can be sleeved into an existing non-condensing vent, and whether an existing chimney needs to be relined. The percentage of water heaters that potentially require vent modifications is identified in Table IV.29. DOE’s analysis considers the cost of these building vent modifications, but the need to modify the building vent system does not make the building incompatible. However, this could mean that there are additional installation costs to be considered. DOE’s analysis has accounted for the possibility that certain installations—including some, for example, in certain older commercial buildings—may incur exceptional costs. To the extent that unusually high costs may be incurred, DOE has included significant exceptional cost adders in 2 percent of buildings in its analysis of venting costs. This is discussed in section IV.F.2.d of this document and in TSD chapter 8. The Joint Gas Commenters also noted that condensing water heaters are generally either power vent or direct vent products. They note that power vented water heaters are typically vented horizontally and require positive pressure venting—generally through a horizontal conduit, powered by a fan or PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 69743 other additional electronic device—to generate sufficient pressure and flow to vent the combustion gases. Further, they stated such installations require plumbing drains to dispose of the condensate developed in the operation of the appliance. They also stated that direct vent water heaters use special coaxial venting with separate chambers for intake and exhaust in a single vent pipe. Joint Gas Commenters stated that these are vented through the side wall and noted several additional factors about power vented equipment including the cost of interior renovations, the need to have electricity available to operate fans and condensate pumps, restrictions on sidewall venting in some urban areas, the need for on lower floors for terminations to be located 7 feet or more over public sidewalks or above the snow level, and other factors. (Joint Gas Commenters, No. 34 at pp. 4–5, 7–9) Joint Gas Commenters further stated multi-story buildings in urban centers cannot use horizontal venting because it is impossible to install and service vent terminations. In addition, they stated that wall penetrations could compromise the structural integrity of buildings in many cases. (Joint Gas Commenters, No. 34 at p. 5) Bradford White noted limitations to vertical venting may exist as a water heater in a basement/ground floor mechanical room may not be certified with a long enough vent length to vent vertically through a building’s roof. Additionally, it may not be able to vent horizontally due to jurisdictions prohibiting side wall venting in these applications. (Bradford White, No. 23 at p. 4) DOE disagrees with the Joint Gas Commenters that direct vent water heaters necessarily use coaxial venting. This is an option for direct vent systems and will have some advantages in certain situations, though is not a necessary part of direct vent design as coaxial vent solutions are relatively new. Two pipe direct vent solutions, such as mentioned by PHCC, have been around longer. Further, coaxial venting is used for both horizontal and vertical vents based on manufacturers’ literature. Regarding the availability of electrical power, DOE believes that it is generally available in most commercial situations where a commercial water heater is situated, and provides for costs to bring electricity close to the water heater location in cases where it may not be nearby. A review of the market shows that non-condensing storage commercial water heaters commonly utilize technology including electronic ignition, electronic flue dampers, and E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69744 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations commonly electronic controls. In addition, many are power vented. While the baseline efficiency model developed for this rulemaking were simplified in this respect, the actual market is quite varied. Further, even in equipment that does not use electric power, much of the equipment may be installed in spaces like mechanical rooms where electric power is readily available. For instances where this is not the case, DOE has provided for electric power to be included in the installation costs. DOE received no comment that the estimated cost to bring electric power in these instances was inadequate. As noted previously, DOE modified its assessment of the need for condensate pumps in the final rule analysis to reflect higher anticipated usage needs, particularly in existing buildings. Regarding interior renovations, it is not clear what interior renovations may be envisioned outside of those associated with flue replacement costs. DOE agrees that in some dense urban areas there may be restrictions on how sidewall venting is achieved, including the appropriate considerations for sidewalks immediately adjacent to buildings, and more generally those vents need to exhaust above the snow level. However, these are requirements so that sidewall venting, when used, is implemented in a safe manner. Other safety requirements are that exhaust vents are not located near operable windows or air intakes and these latter requirements are also found when exhausts are used for non-condensing equipment. These restrictions also apply to sidewall venting of non-condensing equipment, but do not imply that noncondensing equipment cannot be used. DOE’s analysis did not assume sidewall venting and DOE and other commenters (see e.g., PHCC, No. 28 at p. 7) note sidewall venting may in fact be less expensive than vertical venting. DOE is not clear what is being implied regarding structural integrity. DOE believes that the structural integrity of a building is an engineering consideration to ensure that the building is operable and structurally safe for its occupants. Competent contractor assistance may be required to select the appropriate areas of a wall to drill, to perform the drilling safely, and to ensure that the resulting vent does not allow water to enter the wall, but there is nothing in this process that inherently damages building integrity. Joint Gas Commenters have provided no evidence that the structural strength of building will be compromised by the addition of a horizontal exhaust vent. PHCC stated that they took issue with the phrase that ‘‘Condensing CWH VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 equipment is not required to sidewall vent exclusively and presents no special limitations restricting vertical vent scenarios,’’ noting that all manufacturers have vent length limits, and that the ‘‘effective vent length’’ needs to consider fittings, usually elbows, and that in tall buildings, the vent length of the equipment can be exceeded and the installation cannot be made in that location, and perhaps this becomes an impossible location. (PHCC, No. 28 at p. 7) Joint Gas Commenters noted in discussing vertical venting, manufacturers place limits on the length of vertical vents. (Joint Gas Commenters, No. 34 at p. 12) Regarding the PHCC comment about no special considerations for vertical venting, DOE’s language did not mean to imply that vent length is not an issue; rather, that in the context of whether the vent is vertical or horizontal, the distance that a power vented condensing water heater can vent is generally the same as a non-condensing product. DOE notes that the distance a power vented product will vent is largely a function of fan size and vent diameter used. DOE understands that consideration of pipe elbows and bends must be considered due to pressure losses through these components but notes that the market is already moving to make longer vent length products more available in condensing equipment. Condensing commercial water heaters with maximum vent length of over 200 ft are available on the market today as standard products without significant increases in vent diameter for a given combustion air throughput. DOE also notes that natural draft vent tables in the National Fuel Gas Code only go to 100 ft vent height and that where the actual height of a vent exceeds these tables, recognized engineering methods must be used to establish vent capacities for such systems. DOE statements here do not imply that such very long natural draft vents do not exist, but that they are already in the realm of professionally engineered systems. DOE also notes that draft inducers for combustion equipment already exist on the market and that these might be used to address combustion air from condensing equipment in very long vent lengths. PHCC commented that DOE asserts there would be sufficient space in an existing chase to install plastic vents and stated that it depends, and every installation is unique. Typically chase sizes are built to a minimum dimension to maximize building floor space. If the existing vent is large, the new vent may fit. PHCC stated that most high efficiency systems (particularly 95 PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 percent or better) will use two pipes to achieve maximum efficiency. Depending on the vent length, whether upsizing is required, and if using two pipes, the existing chase may well be too small. PHCC added that in the real world this may not matter because there will be significant work to open the chase, install and support the piping, firestop the floor and ceiling penetrations, and close the chase such that making it somewhat larger will be trivial. PHCC questioned whether DOE accurately accounts for this additional work because the May 2022 CWH ECS NOPR suggests this will be an easy solution. When it is suggested that existing chases be used, PHCC assumed that existing venting materials would be removed, and the piping placed in the same vertical building compartment. The chases would need to be opened throughout the path of the vent, existing piping removed, new piping and supports installed and the chases closed up. Typically, chases are fire rated construction, and particular care must be used to ensure the integrity of these spaces. (PHCC, No. 28 at p. 8) Joint Gas Commenters asserted that based on interviews with installers, condensing water heaters are not installed using the existing chase. Impediments include that the venting for the new water heater cannot be suspended in a vertical chase; it requires support at frequent intervals and that requires sufficient space in the chase for vent hangers and often requires physical access to the chase for installation. (Joint Gas Commenters, No. 34 at p. 12) PHCC noted that in the discussion of sleeving and using the same chase when changing vent systems, both of these options also present problems. Although the systems may tend to be of plastic material, those materials have weight that must be accounted for. Systems must be supported to hold the weight and prevent seismic movement, two issues that could cause failures in the vent system. Typical manufacturer instructions direct installers to support the pipe every 5 feet vertically and every 5 feet horizontally. It is unclear how this support spacing would be affected in a sleeved scenario. Some contractors have made efforts to install plastic vent piping in existing large masonry chimneys, and complicated hangar arrangements must be devised for this. Pipe joints must be made prior to placement in the chimney and the vent installed as a unit, which PHCC noted is cumbersome and costly. (PHCC, No. 28 at p. 7) In response to PHCC concern regarding sufficient space in existing chases, DOE notes that in cases where E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations an existing chase is used with Category I venting, the cross-sectional area of the existing Category I or Type B vents, designed as they are to vent flue gasses through natural draft, will generally be substantially larger than that required for venting condensing products. This is true for two main reasons. First, the flue path in a Category I vent operates only on the natural draft pressure. The flue path is therefore typically larger in diameter than that of a typical Category IV where combustion products are pushed through the vent with a fan. For example, per ANSI Z223.1–2015 (National Fuel Gas Code), when considering a vent stack height of 30 feet, a lateral distance of 10 feet, and a 199,000 Btu/h input rate requires a 6inch inside diameter vent flue path. A strictly vertical vent with no lateral flow in the system could use a 5-inch vent. By contrast, a similar input rated condensing water heater venting over the same distances would commonly be vented with a 3-inch flue diameter vent. When considering longer vent height (50 feet), a 5-inch Category I vent could be used with up to 5-foot lateral distance, but otherwise a 6-inch Type B vent would be required. However, for the Category IV, condensing water heater of the same input a 4-inch vent pipe could be used. Characteristically, the vent pipe diameter for a condensing water heater will typically be smaller, sometimes considerably smaller, than for a natural draft water heater. Therefore, DOE does not believe this issue is as significant as PHCC states. In addition, because it is venting higher temperature flue gases, the Type B vent must have at minimum an additional clearance of at least 1 inch from any combustibles in the flue path. Because of the need for larger diameter vent pipe and the additional need for clearance, the cross-sectional area that would be required for a single flue chase for a Category I vent is typically much larger than for the exhaust vent for the same input rating for a Category IV vent such as would be used for a condensing water heater product. In addition, because of the higher efficiency for the condensing product and the greater hot water output for a given input rating, it may be possible to downsize the water heater input rating with possible further reductions in vent size in some situations. DOE acknowledges that in the case where direct vent products (using a separate inlet and exhaust pipe or twopipe as referred to by PHCC) are selected for the condensing equipment, adding a direct vent inlet pipe to an existing chase may not always be possible. A direct vent is generally a VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 separate optional feature that becomes prevalent with the use of non-natural draft water heaters, but not a requirement in such an equipment replacement. Inspection of CWH product literature shows most condensing equipment allows for direct vent as an alternative to the standard ‘‘power exhaust’’ vent configuration. Both direct vent and standard, ‘‘power exhaust’’ water heater designs require ventilation air for proper and safe operation. In a replacement situation, the space where a similar sized Category I water heater is already located should have this sufficient air supply for safe operation. A direct vent water heater allows the intake air to be taken from another location, typically outside of the building envelope. Where a direct piped vent is used to bring air in from outside, it will typically reduce overall building infiltration and provide for additional efficiency benefits to the building not accounted for in DOE’s analysis, providing for an overall building efficiency improvement. A direct vent configuration is not a requirement for a 95 percent thermal efficiency rating per the DOE test procedure. Further, even where used, the inlet air may not have to follow the same path as the exhaust flue. In some cases, a coaxial-two pipe vent may also be an option with an overall pipe diameter not significantly different from the original Type B vent and without the additional clearance-tocombustibles requirement. The Joint Gas Commenters state that a direct vent water heater uses special coaxial venting that has separate chambers for intake air and exhaust in a single assembled vent piece. (Joint Gas Commenters, No. 34 at p. 4) DOE disagrees with the implication by the Joint Gas Comments that a direct vent implies or necessarily (or even commonly) requires use of a coaxial vent in most applications. DOE acknowledges that in some cases coaxial vent systems can be an option during installation of condensing equipment and may reduce installation costs or provides other benefit, but they are not required in all applications. With regards to supporting vents installed vertically, multiple options may be available. Where PVC plastic vents pipes are used, they are solvent glued together forming a permanent bond where the PVC at the bond becomes continuous and joints are of similar strength as the pipe itself, which allows for longer sections of vent piping without supports. This is unlike Type B vent sections that lock together upon twisting and must be supported section by section. Horizontal PVC flue sections PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 69745 can be supported similar to water piping, where the pipe supports are installed periodically along the flue length as noted by PHCC; however, the weight of PVC/CPVC is much less as a flue than as a water pipe and piping supports can be of lighter construction. However, it is important in a condensing product application that flues are sloped properly for condensate drainage, and horizontal flues need to have enough supports to prevent sagging. Vertical flue sections will also require support, but unlike Type B vents that may require support at each section, the continuous nature of the joined PVC pipe can allow longer spans of vertical flue sections where required as long as the weight is adequately supported. Further, when polypropylene vent connections are considered, these are typically much lighter (manufacturer literature notes up to one third of the weight of PVC). The individual polypropylene vent sections are clamp connected. Not only can rigid polypropylene vents be supported using greater spacing between supports, flexible polypropylene vent products are available that can be readily used to allow for the lining of a chimney, Type B vents, and other existing chases, and that is supported primarily from the top where simple spacers may be used to provide some lateral centering. Note that thermal expansion in length may need to be accommodated for with PVC/ CPVC flue systems; however, based on manufacturer literature, the expansion of ridged polypropylene vent systems is accommodated for at the joints between pipe sections. Regarding support in a sleeved vent, DOE’s analysis uses only a restricted set of sleeved vent scenarios as outlined previously. Further, while cognizant that using straight PVC pipe may be cumbersome for the reasons indicated by PHCC, DOE recognizes that with different venting systems, particularly polypropylene or stainless flexible venting, additional sleeving options are possible. DOE notes that manufacturers of polypropylene vent products make components that are designed specifically to allow the use of sleeving in existing Type B vents. Regardless DOE’s NOPR and final rule analysis provides for using an existing vent as a sleeve only for those installations meeting the criteria defined previously and does not believe that it has overstated the possible use of this technique. In response to DOE’s discussion of the selection of vertical venting in the May 2022 NOPR analysis, PHCC agreed that there may be sidewall venting issues for E:\FR\FM\06OCR2.SGM 06OCR2 69746 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 some buildings but noted that should sidewall venting be possible; in some cases, it could be more cost effective than vertical venting. (PHCC, No. 28 at p. 7). Atmos Energy stated that DOE should collect actual product and installation costs rather than relying on assumptions and inadequate data. (Atmos Energy, No. 36 at pp. 2, 4) DOE does not agree with Atmos Energy that the collection of contracted or retail costs for equipment today provides a more accurate representation of future equipment costs under a standards scenario than what can be provided for in DOE’s engineering and markup analyses. In DOE’s experience reviewing such information, cost estimates provided by contractors vary widely in terms of information provided, from a total single price inclusive of everything including the equipment, to considerably detailed estimates. Even if detailed installation costs from a large enough statistically valid sample were made available from individual contactors, collecting and using such information would be highly impractical and could potentially require making as many or more assumptions as DOE’ current analysis to which Atmos Energy is objecting. As to the installation costs, particularly in replacement situations, DOE’s is not aware of an extensive source of national data on new or replacement installation of higher efficiency, condensing, CWH equipment installation. DOE has estimated costs considering publicly available sources, considered variation in vent length and diameter in its venting model and provided for variation in venting and material and labor costs using a national construction data source. DOE agrees with PHCC that in many cases horizontal venting may often be less expensive than a vertical vent solution. A good example of this is where the mechanical room, commercial kitchen, or other space where a water heater is located has an exterior wall on one or more sides. DOE believes this is a common, but not ubiquitous, occurrence. Because of the complexity of many larger commercial buildings, the location of the water heater within the building is not always assured, but when replacing a Category I type water heater, there will generally be a vertical vent path. d. Extraordinary Venting Cost Adder In response to the withdrawn May 2016 CWH ECS NOPR, some stakeholders argued that some venting installations can be physically impossible and/or prohibitively expensive to install condensing vents. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 In the May 2022 CWH ECS NOPR, DOE acknowledged the possibility that its analysis of installation costs may not capture outlier installation scenarios that involve uncommon building conditions that may further reduce or increase installation costs. DOE expects that these situations would be small in number and that it has captured an appropriate set of installation scenarios that are typical of residential and commercial buildings. For the May 2022 CWH ECS NOPR and this final rule, DOE researched the question of the prevalence and cost of extraordinarily costly installations. The one source identified that could be used to quantify extraordinary vent costs was the report submitted by NEEA in DOE Docket EERE–2018–BT–STD–0018.80 Using this as a reference, DOE implemented an extraordinary venting cost adder, which was included in the May 2022 CWH ECS NOPR LCC model as a feature of the main case. DOE used data from the NEEA report for both the May 2022 CWH ECS NOPR and this final rule to capture extraordinary venting costs. In the NEEA report it was stated that due to vent configurations, between 1 and 2 percent of replacements might experience extraordinary costs between 100 and 200 percent above the average installation cost. Because there is no clear linkage between specific situations and extraordinary costs, DOE implemented this by adding for each equipment category two additional variables. One is a probability of occurrence and the second is the multiplier. For 2 percent of cases, DOE assumes a multiplier between 200 percent and 300 percent. In all cases, the LCC model estimates the total installation cost, and multiplies it by the multiplier. In 98 percent of cases, the multiplier is equal to 1.00, or 100 percent. When the LCC model selects the extraordinary installation cost case, it also selects a multiplier between 200 and 300 percent to multiply the estimated installation cost. In the May 2022 CWH ECS NOPR, DOE asked for comments on this adder. AHRI estimated that a small business or property owner could have $1k to $10k in additional installation costs to convert from a non-condensing unit to a condensing unit. AHRI noted that several factors (including region, size of 80 NEEA, Northeast Energy Efficiency Partnerships, Pacific Gas & Electric, and National Grid. Joint comment response to the Notice of Petition for Rulemaking; request for comment (report attached—Memo: Investigation of Installation Barriers and Costs for Condensing Gas Appliances). Docket EERE–2018–BT–STD–0018, document number 62. www.regulations.gov/ comment/EERE-2018-BT-STD-0018-0062. Last accessed July 8, 2021. PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 load, municipal restrictions, historic building designation/protections, available materials and labor costs) can all factor into affixing a level of extraordinary venting costs. Rheem agreed with the AHRI comments. (AHRI, No. 31 at p. 4; Rheem, No. 24 at p. 5) A.O. Smith made a similar comment noting that venting costs in retrofit or replacement cases might be significant or cost-prohibitive due to a combination of tight mechanical rooms, insufficient clearance between buildings for sidewall venting, and common venting. A.O. Smith does not have an estimate of the number of installations that may face extraordinary installation costs but recommends that DOE evaluate the number and type of buildings in metropolitan areas. As an example of extraordinary installation costs, A.O. Smith estimated that installing stainless steel venting materials in a typical NYC 5-story building for a commercial water heater or boiler in the basement could cost $32,500. (A.O. Smith, No. 22 at pp. 6–7) In reviewing the A.O. Smith comment, DOE is unclear which product classes or vent sizes were being considered in their estimation because the comment did not specify labor beyond an estimate of 1.5 times material costs, and presumed material costs of $200/lineal foot, which are higher than the costs identified by DOE for stainless AL29/4C vent in diameters needed for the representative condensing equipment sizes analyzed. With respect to AHRI’s and A.O. Smith’s list of factors, DOE agrees with these as potential issues that may impact real world costs. AHRI also pointed to the venting analysis used in commercial packaged boilers that appears to be more exacting, and AHRI stated it provides a better representation and encouraged its use in the CWH analysis. (AHRI, No. 31 at p. 4) APGA noted that it appears that DOE is treating venting in commercial water heaters differently than for other gas fired appliances. (APGA, Public Meeting Transcript, No. 13 at p. 57) Joint Gas Commenters criticize the use of one representative model which results in one vent size and contrasted this to the 2016 Commercial Packaged Boiler (CPB) TSD that provided an equation for the relationship between product input rate and vent diameter. (Joint Gas Commenters, No. 34 at p. 18) The venting logic used in DOE’s boiler analysis was essentially the same as used in the CWH analysis. The general methodology and assumptions for determining the size and type of venting material based on input rate was essentially the same as well as the decision methodology for when a vent E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations could be reused or would need to be replaced. A difference in approach was largely the result of the CWH engineering analysis approach which looked at one representative unit size for each category of equipment analyzed whereas, in the CPB engineering analysis approach, two size classes (commercial packaged boiler with rated input between ≥300,000 and ≤2,500,000 Btu/h and commercial packaged boilers with rated input >2,500,000 Btu/h) were already defined as DOE classes for each output type of CPB equipment (i.e., hot water or steam) and for each fuel (i.e., gas or oil) and one representative equipment size was selected to be representative of each size class in that engineering analysis. Because of the way cost data was collected for the CPB engineering analysis, curves representing the cost variation by size within the equipment classes were developed and it was possible to use these data, along with additional data on sizing equipment to peak building loads for the CBECS and RECS buildings and assumptions on the typical number of boilers in buildings by peak building load, to provide greater variability in boiler sizes analyzed in the CPB LCC. The lack of data on variation in cost with equipment size from the CWH engineering analysis, the greater complexity in sizing to building water heater loads, and the lack of data on characterizing the number of water heaters within a size class that would be installed in buildings made such an approach practically impossible for the CWH LCC model. Further, while there is variation in equipment size in water heaters, DOE believes that the variation in size for the CPB is significantly greater than for the CWH equipment in this rule, at least for the vast majority of shipments. DOE does recognize that for all but residential duty water heaters, larger equipment than represented in the engineering analysis are sold into the market, but DOE believes its equipment selections are representative of the majority of units shipped. See section IV.C.3 for further discussion about DOE’s decision to use representative equipment sizes in this analysis. Joint Gas Commenters and Bradford White criticized the use of the NEEA report on extreme installation costs. Bradford White was concerned that the report was based on interviewing 15 different parties in 10 states, which they believe is too small of a sample size. Bradford White continued to add that all but one of the states are not a fair representation of where extraordinary venting cost adders will occur. These VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 cost adders are likely to occur in larger, older cities (e.g., Chicago, New York, Philadelphia). Bradford White recommends that a larger sample size is taken to understand these venting installation costs. (Bradford White, No. 23 at p. 4) The Joint Gas Commenters stated that DOE’s economic analysis underestimated the costs imposed by condensing-only standards and suggested that the problems associated with condensing standards are common rather than uncommon scenarios. Joint Gas Commenters noted that DOE was basing the adder on one of the four identified categories of venting issues. Joint Gas Commenters further stated that through their own interviews of individuals with substantial experience replacing CWH equipment, they determined that DOE underestimates the percentage of difficult installations and the cost of such installations. (Joint Gas Commenters, No. 34 at pp. 12–14) Joint Gas Commenters point also to the distribution DOE applied to the extraordinary vent cost adder, calling it arbitrary, and stating that a lognormal distribution changes small net LCC savings to small net LCC costs, and the Joint Gas Commenters use this as evidence to support their position that DOE should collect data through field work. (Joint Gas Commenters, No. 34 at pp. 19–22). In response, DOE notes that DOE researched the issue of extraordinary vent installation costs for CWH and was only able to identify the NEEA survey. Neither Bradford White nor the Joint Gas Commenters provided any data to support their comments, nor did they point to any alternative data or studies for DOE to examine for the purposes of reviewing extraordinary venting costs. Regarding the Joint Gas Commenters comment on the choice of a uniform distribution in DOE’s analysis, DOE notes that the data that it used from the NEEA survey specifically defined the range of extraordinary costs as adding 100 percent to 200 percent to the typical cost and, lacking further details, DOE used a uniform distribution in this range. While DOE recognizes that a different distribution and range could exist, DOE received no data to characterize this from stakeholders. Specifically, with respect to the Joint Gas Commenters comment about using a lognormal rather than a normal (or uniform) distribution DOE notes that the data received from NEEA was cost adjustment data stated as a range, and DOE implemented the adder in such a way as to make use of this range in a manner that seemed most consistent with what was presented by NEEA. DOE PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 69747 notes that Joint Gas Commenters provided their example of the lognormal distribution as illustrative of what a lognormal distribution could look like but did not link this back to actual data, nor did they say their presented distribution was in fact the correct distribution for use in this analysis. For these reasons, DOE maintained the use of a uniform distribution for the final rule. WM Technologies and PattersonKelley stated they understand that the CWH analysis uses a low probability multiplier that models difficult venting considerations and would prefer DOE make a more exacting representation of this detail. They maintained that local requirements will prohibit some locations from installing condensing gas fired products based on building structure, orientation, or location and that this percentage will vary significantly across the nation, noting that 1940s multifamily units in certain densely populated regions (e.g., New York, Chicago and Boston) would find all condensing efficiency regulation cost prohibitive. WM Technologies noted that this is why the Northeast continues to have a majority of atmospherically vented products while the West Coast typically has a higher rate of adapting to condensing products. (WM Technologies, No. 25 at p. 7; PattersonKelley, No. 26 at p. 5) Patterson-Kelley believes the percentage of the population incurring excessive costs when replacing a non-condensing appliance with a condensing product is more than five percent. (PattersonKelley, No. 26 at p. 5) PHCC had concerns related to installations with venting installation issues and noted the recognition of this by DOE in the May 2022 CWH ECS NOPR. Although PHCC cannot provide lists of locations where these issues may occur, PHCC disagreed with DOE, stating that more than 1 percent to 2 percent of installations will be affected. PHCC asserts that problem installations would likely be tall buildings, perhaps 10 stories or more, in metropolitan areas. PHCC stated that the extraordinary cost adder lacks a foundational basis, that it is unclear how the adjustment is applied, and that in many cases it is understated. PHCC maintains that there are significant venting issues awaiting the implementation of this rule. (PHCC, No. 28 at pp. 7–8) Conversely, NEEA supports DOE’s conclusions on flue gas venting and its analysis method thereof, which aligns with the findings of independent research previously submitted to DOE. NEEA stated that condensing gas-fired E:\FR\FM\06OCR2.SGM 06OCR2 69748 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 water heaters can be installed in all commercial building applications and said that DOE’s analysis appropriately accounts for the rare cases in which the solution bears increased cost. (NEEA, No. 35 at p. 1) DOE acknowledges NEEA’s input. For the final rule, DOE has considered both the data provided from NEEA and the comments received from the various stakeholders regarding the fraction of consumers who would be characterized in the extraordinary venting cost grouping. Numerous stakeholders suggested that 2 percent was not representative. As noted by Joint Gas Commenters, DOE based the 2 percent adder on the frequency of vent installation issues noted in the NEEA report. DOE acknowledges that there were other potential installation cost issues noted by NEEA, and the high level summary statement was that fewer than 5 percent of installations were encumbered by any of the significant installation challenges identified. The other challenges noted by NEEA were, however, less costly than the 100 to 200 percent cost adder, and/or were already being addressed in the LCC model estimation of installation costs (masonry chimneys). While recognizing the range of comment on this issue, DOE believes that the data provided by NEEA through the survey of contractors provides an appropriate estimate for the fraction of the installations that might be considered to have extraordinary costs, and has continued to include this figure in its final rule analysis, along with the range of extraordinary cost multipliers established in the NEEA survey. e. Common Venting Certain CWH equipment installations can feasibly be commonly vented in certain building applications, where multiple individual equipment units are connected to a single, non-pressurized, combustion air vent, suitable for use with Category I equipment. However, as described more in the ensuing paragraphs, in these instances, DOE believes that CWH equipment typically is not commonly vented with other, disparate gas-fired equipment (like furnaces). Commonly venting disparate gas-fired equipment with significantly different capacities (such as a water heater and a boiler in a building) complicates the design and sizing of the common vent, since it needs to accommodate exhaust of a wide range of flue gas volume due to the different operating profiles and flue capacities required for disparate equipment as well as the seasonal variation of load. However, DOE understands that multiple, similar units of CWH VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 equipment may be more frequently commonly vented together since the CWH equipment typically operates in unison, calling for a specific vent size. When multiple units of CWH equipment are commonly vented, building engineers design the common-vent system to suit a total input rating of all gas-fired equipment collectively as well as the input ratings of individual units. In the May 2022 CWH ECS NOPR, DOE stated its understanding that the installation of these units typically occurs all at one time. As a result, each unit should have the similar expected lifetime and replacement cycle. Therefore, when one unit fails and requires replacement, the other units sharing the common vent should also be nearing the end of their lifetimes. Thus, the stranded cost of any naturallydrafted, non-condensing CWH equipment due to amended standards would have limited residual value, which may have been relinquished regardless of amended standards if a consumer opts to replace the older, but still functioning unit at the same time. As discussed more in this section, based on stakeholder feedback, DOE performed a sensitivity analysis regarding these assumptions and determined residual values from replaced equipment, which DOE has incorporated into its LCC analysis. AHRI disagreed with DOE’s characterization of their statement related to the withdrawn 2016 CWH ECS NOPR relating to customers handling common-vented equipment by replacing all equipment at the same time. (AHRI, No. 31 at p. 1) PHCC commented that it believes DOE misinterpreted other stakeholder statements regarding replacement of individual devices in common venting situation. (PHCC, No. 28 at pp. 8–9) While DOE captured the AHRI comment as stated in the withdrawn 2016 CWH ECS NOPR public meeting, AHRI clarifies that what they intended to illustrate was a misalignment of timing leading to the premature retirement of functioning equipment. While DOE did not receive data on the frequency of common venting of equipment, for the final rule DOE examined through sensitivity analysis a potential cost impact on the LCC that could occur due to premature replacement of equipment, as discussed later in this section. Joint Gas Commenters assert that common venting of CWH equipment and space heating equipment was common practice for over 100 years, and is still very common. Joint Gas Commenters stated that non-condensing appliances have the ability to share a common vent with other non- PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 condensing appliances, and removing one or more units would disrupt the venting system of the other locations. (Joint Gas Commenters, No. 34 at pp. 4– 5, 12–13) WM Technologies and Patterson-Kelley expressed concern with the prevalence of common venting disparate gas-fired equipment, stating it is so common that both the International Fuel Gas Code and National Fuel Gas Code have appendices devoted to the sizing of such venting systems. (WM Technologies, No. 25 at p. 5; PattersonKelley, No. 26 at pp. 1–2) In response to the comments on common venting disparate equipment, DOE notes that for the 2016 commercial packaged boiler rule, DOE asked for input on common venting of disparate gas heating equipment. Comments on the frequency of common venting were inconsistent; however, in response to the commercial packaged boiler NOPR, AHRI stated that they believed that common venting of commercial boilers and commercial water heaters may in fact be relatively rare given the size mismatch between commercial boilers and commercial water heaters, such that common venting would be more than problematic because the common vent size would be so large that when the boiler wasn’t firing there would be venting problems on the water heater. (See EERE–2013–BT–STD–0030; 81 FR 15870) Based on this input from AHRI, DOE determined that common venting with water heaters would be negligible for large CPB equipment and would be uncommon for small CPB equipment. See 85 FR 1630. Based on this input DOE believes that to the extent common venting exists in a commercial setting it is most likely to be multiple water heaters as opposed to a water heater and another type of equipment. With respect to the comment about the International Fuel Gas Code and National Fuel Gas Code, the codes provide for installations in residential setting as well as in commercial settings. In a residence, typically there are 2 major gas-fired appliances to be vented, a space heating appliance, e.g., furnace or boiler, and a water heater. Thus, common venting when it does occur almost always is indicative of disparate gas-fired equipment. In addition, this equipment will typically be of sufficiently similar input rates to be common vented even where their usage profiles may be disparate. This is a situation which would not necessarily be the case in many commercial settings where there may be greater variation in the input ratings of the equipment serving the space heating and water heating needs of the building as well as E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations more commonly the use of multiple individual equipment to satisfy either the space heat or the water heating needs. Thus, while these fuel gas safety codes provide for requirements for when common venting of disparate equipment is used, these codes do not tell anything about the frequency of these types of common venting applications, particularly in commercial settings. DOE also notes that while most residential gas-fired heating equipment is installed indoors, a substantial fraction of the commercial floorspace is heated using packaged rooftop equipment, a fact that further reduces the possibility of venting of disparate equipment. Joint Gas Commenters state DOE does not include costs for redesign necessary to address common venting. (Joint Gas Commenters, No. 34 at p. 18) However, Joint Gas Commenters provided no evidence of what such redesign might cost. Because consumers have multiple paths they could take to deal with upgrading common-vented equipment, without detailed knowledge of individual installations it would be extremely difficult to estimate the incremental cost of redesign of replacements of individual components of the common-vented system. DOE did not receive input on the frequency of common vented systems. Further, DOE did not receive input on the frequency with which redesign of a commonvented system would be significant and not already a part of the expected installation cost. DOE notes that when considering the consumers incurring extraordinary vent costs, the cost of redesign is part of what results in extraordinary costs, and as such it is subsumed in the doubling or tripling of the venting costs for such installations. AHRI, Bradford White and Joint Gas Commenters stated that DOE recognizes that product lifetimes vary and used a probability distribution to describe lifetime here and in other DOE rulemakings. They noted that modeling common vented equipment as if it is all replaced at the same time can lead to consumers forgoing useful equipment lifetime and modeling it if the other equipment is retained can lead to increased venting cost as consumers have to vent condensing and orphaned non-condensing equipment separately. (AHRI, No. 31 at p. 2; Bradford White, No. 23 at p. 3; Joint Gas Commenters, No. 34 at p. 13) Joint Gas Commenters add that one reason for having multiple units is to have a primary and a backup so there will be no loss of service when a water heater needs to be replaced, and that purpose would be defeated if both VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 units are replaced at the same time (Joint Gas Commenters, No. 34 at p. 13) Bradford White, WM Technologies, Patterson-Kelley, and Joint Gas Commenters noted that DOE assumes that all commonly vented appliances will be replaced at the same time if only one water heater fails and found the approach to product lifetime for common vented equipment concerning as DOE recognizes that products lifetimes vary and uses a probability distribution in numerous other standards’ rulemaking as in the CWH LCC workbook. (Bradford White, No. 23 at p. 3; WM Technologies, No. 25 at p. 5; Patterson-Kelley, No. 26 at pp. 1–2) PHCC and Bradford White noted that while it is possible that multiple units that are commonly vented are replaced at the same time, they rarely see this occur, nor do they commonly see proactive replacement. As referenced previously, equipment lifetimes will vary unit to unit, even of the same model. If one unit happens to fail earlier in its life (e.g., in year 3), it is highly unlikely that a building owner would replace multiple other units at the same time. (Bradford White, No. 23 at p. 4; PHCC, No. 28 at pp. 8–9) WM Technologies and PattersonKelley both state that stranded water heaters are a fact in the industry and the impact on such installations should be taken into account in the LCC analysis. (WM Technologies, No. 25 at p. 5; Patterson-Kelley, No. 26 at p. 2) In response to the comments, DOE elected to perform a sensitivity analysis related to common venting. To the extent that the loss of value of a second water heater on a common vent takes place, the cost is an up-front cost and can be treated as such. To analyze the issue DOE used the lifetime distributions by equipment class referenced in several comments to model what happens when you have two independent pieces of equipment operating at the same time. DOE modeled multiple permutations to address two key questions: (1) What happens if they are installed at the same time?; and (2) Is the answer different after one equipment lifetime than it is after multiple (e.g., 3) equipment lifetimes? With respect to the second question, certain issues make the answer less than useful, namely, equipment today is different than it was 20 or more years ago and venting systems may have changed. While Joint Gas Commenters may be correct that equipment has been commonly vented for 100 years, consumers likely cannot vent today’s hot water supply boilers with a boiler from 50 years ago because of changes in the technology. The result PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 69749 of this modeling showed that on average in commercial gas storage equipment a second water heater on a common vent would lose approximately 3 years of useful life; a second hot water supply boiler about 4 years; and residential duty gas-fired storage about 3 years. DOE did not analyze tankless units because they represent a newer technology and most of the equipment available today is forced air combustion and not suitable for venting with category I equipment. See chapter 3 of the final rule TSD for discussion of forced combustion in tankless CWH equipment. Next DOE translated lost equipment life into an estimate of monetary value. Commenters have not provided data on the frequency of common venting, other than that it exists. For its sensitivity analysis, DOE modeled a scenario of 20% of non-condensing replacement water heaters might be common vented for each of the above categories where common venting was considered. The average value of the lost life of the second water heater assumed to be common vented was taken as a loss against the average equipment class LCC savings as calculated in this final rule for the pair of new water heaters that were installed in their place in the common venting replacement scenario. Based on this sensitivity analysis, DOE determined that the overall impact of the residual values was approximately $39 for commercial gas-fired storage; $22 for residential duty gas-fired storage; and $5 for instantaneous water heaters and hot water supply boilers. The LCC savings as calculated for the final rule could potentially be lowered via account for an analysis of this nature. However, the lack of information on the fraction of installations in which common venting has been utilized and the complexity of dealing with these historical installations and how remaining life may be correlated between CWH units are issues that did not support its incorporation in the base analysis. DOE presents it as illustrative of the fact that including this would reduce but not eliminate the economic benefits of the rule to consumers. DOE’s sensitivity case is discussed in TSD chapter 8. Bradford White disagreed with DOE’s assertion that water heaters will be able to vent vertically in the case of common venting with other Category I water heaters as it will not be able to use the existing chimney as a chase as combustion products from existing water heaters will compromise nonmetallic venting used by the new water heater. They further seek clarification on how polypropylene common vent E:\FR\FM\06OCR2.SGM 06OCR2 69750 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 kits can be used to vent both noncondensing, existing water heaters with a newly installed condensing water heater. They also commented that regarding horizontal vent replacement, that DOE noted ‘‘to the extent that horizontal natural draft venting is used at a job site, it is indicative that horizontal venting is allowed by the jurisdiction.’’ and acknowledged that while that may be true, [and that there are] power venter kits that are used to horizontally vent natural draft water heaters, it is our experience that this is rarely done in the field. Therefore, this cannot be used as a good indicator of what local jurisdictions’ codes permit. (Bradford White, No. 23 at p. 4) DOE believes Bradford White has misunderstood DOE’s point. DOE meant with the discussion in the May 2022 CWH ECS NOPR that there may be other options to both water heaters using the vertical chase when replacing the water heaters on the common vent. To the extent that a separate flue path may exist such as a horizontal venting from a mechanical room with an exterior wall, installers could very likely choose a simple horizontal vent option for the replacement water heater, and leave a functional non-condensing water heater in place, taking into account the relative size of the remaining Category I vent and the remaining water heater(s) input rate. Another option which may be present is the use of specified common venting procedures using multiple condensing water heaters (in a case where all units are replaced). In addition, DOE is aware of the Duravent FNS 80/90 vent solution, which allows for the use of an existing category I flue in conjunction with a condensing flue system which may be used in certain applications where replacement of the non-condensing water heater would be far out in time. However, in the case where an alternate path does not exist, DOE notes that multiple water heaters may have to be replaced. f. Vent Sizing/Material Cost Bradford White stated DOE’s analysis of installation costs does not appropriately account for State level restrictions on the application of PVC venting. In New Hampshire, PVC venting is not permitted for exhausting combustion gases. In Massachusetts, only CPVC, polypropylene, and other piping approved by the Plumbing Board are acceptable. These codes do not disallow PVC based on size, as other commenters stated. (Bradford White, No. 23 at p. 3) Bradford White also asked DOE to elaborate on why they believe polypropylene venting will become a more viable, cost-competitive VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 alternative by 2026. (Bradford White, No. 23 at p. 4) After reviewing the comments from Bradford White and the requirements with regard to venting materials in New Hampshire and Massachusetts, DOE determined that in the case of New Hampshire, NFPA 54 was amended to require that a venting material would only be allowed to be used if the maximum set point temperature of the water heater does not exceed the safe operating temperature of the venting material selected. In the case of PVC vent material, the maximum storage temperature for use with PVC venting would be around 149 °F (based on the use of listed PVC vent products available that are rated to UL 1738). DOE agrees that this effectively does not allow PVC venting for the vast majority of products regulated under this rule. DOE also reviewed the requirements surrounding plastic venting materials for Massachusetts. Massachusetts requires that all venting products must be approved by the Plumbing Board. After consultation with a manufacturer of venting materials and review of the Massachusetts Consumer Affairs and Business Regulation website,81 DOE confirmed that at least one manufacturers’ product line of PVC vent piping that is currently listed to UL 1738 is allowed as a venting material according to the Massachusetts Plumbing Board. Based on this review, and the relative population of New Hampshire to the US total, DOE determined that the effect of restrictions imposed on PVC venting in New Hampshire would be de minimis for DOE’s venting cost analysis. With response to possible growth in the use of polypropylene vent materials, DOE does not have data on the relative use of different plastic venting materials and historic changes over time. DOE’s intent in the May 2022 CWH ECS NOPR was only to note polypropylene venting as a relatively new option compared to other venting materials on the U.S. market that appears to have growth potential. Importantly, DOE did not modify its analysis for the May 2022 CWH ECS NOPR or this final rule to explicitly include polypropylene venting. g. Masonry Chimney/Chimney Relining In the May 2022 CWH ECS NOPR, DOE assumed that 25 percent of pre1980 buildings have masonry chimneys and that 25 percent need relining. DOE 81 Accepted Plumbing Products Online System of the Massachusetts Board of Registration of Plumbers and Gas Fitters. licensing.reg.state.ma.us/ public/pl_products/pb_pre_form.asp (Last accessed Dec 20, 2022). PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 also used these assumptions in the withdrawn May 2016 CWH ECS NOPR and asked for input. DOE did not receive further information or data on the percentage of buildings built prior to 1980 with a masonry chimney or the percentage of those chimneys that require relining in response. For this final rule DOE maintained these same assumptions to characterize masonry chimneys; which DOE used in the logic underlying the calculation of venting costs. PHCC noted that with regard to the fraction of existing buildings with masonry chimneys, it cannot provide data, but suggests that the Department may want to break its pre-1980 assumption down into more discrete year bins and also encouraged DOE to review possible data from the General Services Administration (‘‘GSA’’), the largest occupier of offices in the country. It encouraged DOE to make further examination of available information and to refrain from making random assumptions regarding building stock. (PHCC, No. 28 at p. 8) DOE appreciates PHCC’s input on this topic. DOE reviewed GSA data and found it did not include information that provided insight into the fraction of existing buildings with masonry chimney venting or to develop more detailed estimates of this variable by finer year bins. Consequently, DOE did not update its methodology in this area for the final rule. h. Downtime During Replacement Joint Gas Commenters state that many CWH replacements occur on an emergency basis or ‘‘on an unplanned basis.’’ For this reason, Joint Gas Commenters criticize DOE’s statement that some businesses are able to plan ahead for CWH replacements. They further state that DOE failed to take into account additional down-time required for condensing CWH installations in buildings previously served by noncondensing equipment and the potential for lost business during the downtime. (Joint Gas Commenters, No. 12 at p. 14) Similarly, Joint Gas Commenters pointed out that DOE did not take into account lost business operations during replacement of heat exchangers. (Joint Gas Commenters, No. 34 at p. 19) DOE has no mechanism for determining what if any impact there would be on a consumer’s business. As noted above, consumers have several avenues to avoid downtime, whether due to a replacement or due to a repair. DOE agrees with Joint Gas Commenters that a water heater failure can happen at any time. However, DOE assumes that many consumers would have contingency E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations plans to cope with such emergencies and limit business losses, including potentially having insurance policies which include coverage of business loss due equipment failures or similar business impacting events. Because avenues exist for consumers to minimize or eliminate lost business, DOE continues to assume there is no need to add in costs for lost business. DOE acknowledges that currently a wide range of industries are experiencing supply chain bottlenecks, and that could, in today’s climate, add to the time required to replace water heaters. The standard established by this final rule however would not take effect for three years and DOE believes that these supply chain bottlenecks should be resolved by that time. 3. Annual Energy Consumption For each sampled building, DOE determined the energy consumption for CWH equipment at different efficiency levels using the approach described previously in section IV.C.4 of this document. 4. Energy Prices lotter on DSK11XQN23PROD with RULES2 Electricity and natural gas prices are used to convert changes in the energy consumption from higher-efficiency equipment into energy cost savings. It is important to consider regional differences in electricity and natural gas prices because the variation in those prices can impact electricity and natural gas consumption savings and equipment costs across the country. In the May 2022 CWH ECS NOPR, DOE determined average effective commercial electricity prices 82 and commercial natural gas prices 83 at the State level from EIA data for calendar year 2019. In response to the May 2022 CWH ECS NOPR, Joint Gas Commenters were critical of DOE’s use of 2019 historical energy price data despite newer data being available ‘‘before the last update on March 25, 2022,’’ and questioned why DOE did not update historical price data and marginal prices to match other base year costs. (Joint Gas Commenters, No. 34 at p. 23) In response, DOE chose 2019 as the base year in the May 2022 CWH ECS NOPR because it was the last calendar year for which complete natural gas and electricity data were available (i.e., there were no missing 82 U.S. Energy Information Administration (EIA). Form EIA–861M monthly electric utility Sales and Revenue Data (aggregated: 1990–current). Available at www.eia.gov/electricity/data/eia861m/. Last accessed on March 31, 2023. 83 U.S. Energy Information Administration (EIA). Natural Gas Prices. Available at www.eia.gov/dnav/ ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Last accessed on March 31, 2023. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 data in the Natural Gas Navigator dataset), and at the time the United States had not begun to recognize that the Nation was in a period of rapid price inflation. For the final rule, DOE agrees with the Joint Gas Commenters that it is important to have fuel prices that are fully contemporaneous with the other base-year prices used in the analysis, such as the prices for stainless steel venting. For the final rule, DOE is using a 12-month period ending with December 2022. For the final rule DOE again used data from EIA’s Form 861 84 to calculate commercial and residential sector electricity prices, and EIA’s Natural Gas Navigator to calculate commercial and residential sector natural gas prices.85 Future energy prices were projected using trends from the EIA’s AEO2023.86 This approach captured a wide range of commercial electricity and natural gas prices across the United States. CBECS and RECS report data based on different geographic scales. The various States in the United States are aggregated into different geographic scales such as Census Divisions (for CBECS) and Reportable Domains (for RECS). For both the commercial and residential sectors, DOE continued to use population in each State and the cumulative population in the States that comprise each Census Division and Reportable Domain for developing natural gas prices. See appendix 8C of the final rule TSD for further details. The electricity and natural gas price trends provide the relative change in electricity and natural gas costs for future years. DOE used the AEO2023 Reference case to provide the default electricity and natural gas price forecast scenarios. This is an update from the May 2022 CWH ECS NOPR that relied on the AEO2021. DOE extrapolated the trend in values at the Census Division level to establish prices beyond 2050. Joint Gas Commenters criticized the use of AEO forecasts, claiming they have systematically overstated future energy costs, and presented a comparison of historical residential and commercial gas prices to AEO forecasts going back to 2010 to support their claim. (Joint Gas Commenters, No. 34 at 84 U.S. Energy Information Administration (EIA). Uses prices presented in the Sales and Revenue report, by sector by State. The EIA–861M detailed data was the March 27, 2023 updated historical data containing data from 2010 through January 2023. 85 U.S. Energy Information Administration (EIA). Natural Gas Navigator. Available at www.eia.gov/ dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm. Last accessed March 31, 2023. 86 U.S. Energy Information Administration (EIA). Annual Energy Outlook 2023 with Projections to 2050: Narrative. March 2023. Available at www.eia.gov/outlooks/aeo/. PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 69751 pp. 19–23) DOE uses the AEO forecast because it is the most widely available, widely reviewed and robust forecasting process available to DOE. As Joint Gas Commenters did not propose any alternative, let alone one as widely reviewed and robust as the AEO, DOE determined that the appropriate alternative at this point is to continue to use the AEO for future energy price trends, consistent with its practice in energy conservation standards rulemakings, with the only change made from the May 2022 CWH ECS NOPR being to update from the AEO2021 to the AEO2023. DOE developed the LCC analysis using a marginal fuel price approach to convert fuel savings into corresponding financial benefits for the different equipment categories. This approach was based on the development of marginal price factors for gas and electric fuels based on historical data relating monthly expenditures and consumption. For details of DOE’s marginal fuel price approach, see chapter 8 of the final rule TSD. Regarding the usage of EIA data for development of marginal energy costs and comparisons to tariff data, DOE emphasizes that the EIA data provide complete coverage of all utilities and all customers, including larger commercial and industrial utility customers that may have discounted energy prices. The actual rates paid by individual customers are captured and reflected in the EIA data and are averaged over all customers in a State. DOE has previously compared these two approaches for determining marginal energy price factors in the residential sector. In a September 2016 SNOPR for residential furnaces, DOE compared its marginal natural gas price approach using EIA data with marginal natural gas price factors determined from residential tariffs submitted by stakeholders. 81 FR 65719, 65784 (Sept. 23, 2016). The submitted tariffs represented only a small subset of utilities and States and were not nationally representative, but DOE found that its marginal price factors were generally comparable to those computed from the tariff data (averaging across rate tiers).87 DOE noted that a full tariff-based analysis would require information on each household’s total baseline gas consumption (to establish which rate tier is applicable) and how many customers are served by a utility 87 See appendix 8E of the TSD for the 2016 supplemental notice of proposed rulemaking for residential furnaces for a direct comparison, available at: www.regulations.gov/document/EERE2014-BT-STD-0031-0217 (Last accessed January 25, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69752 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations on a given tariff. These data were not available in the public domain. By relying on EIA data, DOE noted, its marginal price factors represented all utilities and all States, averaging over all customers, and was therefore ‘‘more representative of a large group of consumers with diverse baseline gas usage levels than an approach that uses only tariffs.’’ 81 FR 65719, 65784. While the above comparative analysis was conducted for residential consumers, the general conclusions regarding the accuracy of EIA data relative to tariff data remain the same for commercial consumers. DOE uses EIA data for determining both residential and commercial electricity prices and the nature of the data is the same for both sectors. DOE further notes that not all operators of CWH equipment are larger load utility customers. As reflected in the building sample derived from CBECS 2018 and RECS 2009 data, there is a range of buildings with varying characteristics, including multi-family residential buildings, that operate CWH equipment. The buildings in the LCC sample have varying hot water heating load, square footage, and water heater capacity. Operators of CWH equipment are varied, some large and some smaller, and thus the determination of the applicable marginal energy price should reflect the average CWH equipment operator. DOE’s approach is based on the largest, most comprehensive, most granular national data sets on commercial energy prices that are publicly available from EIA. The data from EIA are the highest quality energy price data available to DOE. The resulting estimated marginal energy prices represent an average across all commercial customers in a given region (reportable domain for RECS, census division for CBECS). Some customers may have a lower marginal energy price, while others may have a higher marginal energy price. With respect to large customers who may pay a lower energy price, no tariffs were submitted to DOE during the rulemaking for analysis. Tariffs for individual nonresidential customers can be very complex and generally depend on both total energy use and peak demand (especially for electricity). These tariffs vary significantly from one utility to another. While DOE was unable to identify data to provide a basis for determining a potentially lower price for larger commercial and industrial utility customers, either on a state-bystate basis or in a nationally representative manner, the historic data on which DOE did rely include such discounts. The EIA data include both large non-residential customers with a potentially lower rate as well as more typical non-residential customers with a potentially higher rate. Thus, to the extent larger consumers of energy pay lower marginal rates, those lower rates are already incorporated into the EIA data, which would drive down EIA’s marginal rates for all consumers. If DOE were to adjust downward the marginal energy price for a small subset of individual customers in the LCC Monte Carlo, it would also have to adjust upward the marginal energy price for all other customers in the sample to maintain the same marginal energy price averaged over all customers. Even assuming DOE could accomplish those adjustments in a reliable or accurate way, this upward adjustment in marginal energy price would affect the majority of buildings in the LCC sample. Operational cost savings would therefore both decrease and increase for different buildings in the LCC sample, yielding substantially the same overall average LCC savings result as DOE’s current estimate. In summary, DOE’s current approach utilizes an estimate of marginal energy prices and captures the impact of actual utility rates paid by all customers in a State, including those that enjoy lower marginal rates for whatever reason, in an aggregated fashion. Adjustments to this methodology are unlikely to change the average LCC results. DOE uses EIA’s forecasted energy prices to compute future energy prices indices (for this final rule, DOE updated forecasts from data published in the AEO2023 Reference case), and combines those indices with monthly historical energy prices and seasonal marginal price factors in calculating future energy costs in the LCC analysis. For this final rule, DOE used 2022 EIA energy price data as a starting point. EIA historical price trends and calculated indices are developed in a reasonable manner using the best available data and models, and DOE uses these trends consistently across its regulatory analyses. DOE points out that this final rule analyzes potential new standards for gas-fired 88 Whitestone Research. The Whitestone Facility Maintenance and Repair Cost Reference 2012–2013 (17th Annual edition). 2012. Whitestone Research: Santa Barbara, CA. 89 The Whitestone Research report is the most recent available from this source. The report was used in the determination of labor hours for maintenance, and DOE has found no evidence VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 equipment, and that electricity usage for such commercial equipment occurs both during standby and during firing periods (depending on equipment design) and can occur during periods of utility peak usage. While electricity usage and resultant expenditures are significantly lower than fuel (gas)related expenditures, they do impact the LCC analysis and have been included, using the calculated marginal electricity costs. DOE’s use of marginal cost factors for electricity in this analysis, which is based on overall electric expenditures, including those associated with electricity demand, may result in somewhat higher electricity costs than cost figures that omit the impact of demand costs; however, this is appropriate for the current analysis, barring other information on commercial load profiles and demandpeak windows. After careful consideration during the preparation of this final rule, DOE concluded that it is appropriate to use its existing approach to the development of electric and fuel costs for the LCC and PBP analysis that (1) considers marginal electric and natural gas costs in its economic analysis, (2) reflects seasonal variation in marginal costs, and (3) uses EIArecommended future energy price escalation rates. DOE maintained this approach for this final rule. 5. Maintenance and Repair Costs Maintenance costs are the routine costs to the consumer of maintaining the operation of equipment. Repair costs are the cost to the consumer of replacing or repairing components that have failed in the CWH equipment. a. Maintenance Costs DOE utilized The Whitestone Facility Maintenance and Repair Cost Reference 2012–2013 88 89 to determine the amount of labor and material costs required for maintenance of each of the relevant CWH equipment subcategories. Maintenance costs include services such as cleaning the burner and flue and changing anode rods. DOE estimated average annual routine maintenance costs for each class of CWH equipment based on equipment groupings. Table IV.20 presents various maintenance services identified and the amount of labor required to service the equipment covered in the final rule analysis. indicating that maintenance tasks and labor hours have changed except as addressed in subsequent sections of this final rule. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69753 TABLE IV.20—SUMMARY OF MAINTENANCE LABOR HOURS AND SCHEDULE USED IN THE LCC AND PBP ANALYSES Equipment Description Commercial gas-fired storage water heaters; Residential-duty gas-fired storage water heaters. Clean (Volume ≤ 275 gallons) ........ Clean (Volume > 275 gallons) ........ Overhaul .......................................... Service ............................................. Service ............................................. Gas-fired instantaneous tankless water heaters ....................................... Gas-fired instantaneous circulating water heaters and hot water supply boilers. lotter on DSK11XQN23PROD with RULES2 Because data were not available to indicate how maintenance costs vary with equipment efficiency, DOE used preventive maintenance costs that remain constant as equipment efficiency increases. Additional information relating to maintenance of CWH equipment can be found in chapter 8 of the final rule TSD. For the May 2022 CWH ECS NOPR, DOE did make revisions to some of the original Whitestone schedule of labor hour in response to comments on the withdrawn ECS NOPR. DOE added an additional 0.0833 labor hours per year 90 for checking condensate neutralizers during annual maintenance work, and $10 per year 91 for replacing the material within the neutralizers. In addition, DOE increased the labor hours for annual tankless water heater maintenance from 0.33 hours to 0.75 hours. DOE also conducted research on the maintenance labor activities and associated hours needed to maintain commercial gas-fired instantaneous circulating water heaters and hot water supply boilers. This research involved reviewing guidance in manufacturer product manuals in combination with the estimates in the Whitestone Facility Maintenance and Repair Cost Reference and the RSMeans Facilities 90 U.S. Department of Energy, Technical Support Document: Energy Efficiency Program for Consumer Products and Commercial and Industrial Equipment: Commercial Warm Air Furnaces. 2015. Docket No. EERE–2013–BT–STD–0021. The Commercial Warm Air Furnaces NOPR TSD assumed 0.078 hours for replacing neutralizer filler every 3 years. For this final rule, DOE used 5 minutes per year for checking and/or refilling neutralizers. 91 A condensate neutralizer is used to buffer or neutralize the acidic content of flue gas condensate before disposal. The condensate neutralizer DOE included in DOE’s installation costs weighs approximately 5 pounds. It is essentially a plastic tube with water inlet and outlet, and filled with calcium carbonate pellets (neutralizer media), and DOE estimates the pellets comprise 3.5 to 4 pounds of the total. DOE found prices ranging from $0.25 per pound (phoenixphysique.com/ism-root-pvlsc/ 91da02-marble-chips-for-condensate-neutralizer) up to $3 per pound in smaller purpose products. DOE estimates $10 per year would be sufficient to cover replacement of the pellets. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Labor hours Frequency (years) 2.67 8 1.84 0.75 7.12 1 2 5 1 1 analysis resulted in increased costs overall, but more specifically made overall condensate management costs a function of each representative equipment type in DOE’s analysis. Labor cost was doubled from 5 minutes to 10 minutes per year, and is assumed to take place at the time of a normal maintenance cycle. Both the assumed prevalence of condensate neutralization equipment and the expected cost of such equipment are discussed in chapter 7 of the final rule TSD. Maintenance and Repair Cost Data.92 Using these references, DOE updated the maintenance labor hours from 0.33 to 7.12 for this equipment category. Appendix 8E of the final rule TSD provides more detail on maintenance labor hours assigned to each equipment category of commercial water heaters. In response to the May 2022 CWH ECS NOPR, Bradford White stated that DOE assumed that annual maintenance costs do not vary as a function of efficiency and recommended that this assumption be updated as burner maintenance costs increase as a function of efficiency. (Bradford White, No. 23 at p. 8) In response to this comment, DOE downloaded Bradford White and Lochinvar installation and operation manuals for commercial gas-fired condensing and non-condensing water heaters. DOE compared the language for maintenance for burners. While clearly the burners appeared different in the pictures in the manuals, the language for this step was identical. Because DOE could not discern where additional steps needed to be taken involving additional time, and because Bradford White did not volunteer this information in their comment, DOE did not add additional labor hours in response to this comment. In another comment on the May 2022 CWH ECS NOPR, JJM Alkaline noted the costs to replace neutralizers ($10/ year) is below prevailing market costs. (JJM Alkaline, No. 10 at p. 1) DOE reviewed the cost assumptions and inputs used in the modeling of condensate management solutions. DOE reviewed costs for condensate neutralizer material (based on retail prices available for different purchase quantities), condensate neutralizers, as well as considerations for labor. DOE also considered how consumption of neutralizer media would change between different water heating equipment by input capacity, full load operating hours as evidenced in its LCC analysis and subsequent overall condensate production. DOE’s revised b. Repair Costs DOE calculated CWH repair costs based on an assumed typical failure rate for key CWH subsystems. DOE assumed a failure rate of 0.5 percent per year for combustion systems, 1 percent per year for controls, and 2 percent per year for high efficiency controls applied with condensing equipment. This probability of repair is assumed to extend through the life of the equipment, but only one major repair in the life of the equipment was considered. The labor required to repair a subsystem was estimated as 2 hours for combustion systems and 1 hour for combustion controls. Labor costs are based upon servicing by one plumber with overhead and profit included and are based on RSMeans data.93 Because a repair may not require the complete subsystem replacement, but rather separate components, DOE estimated a typical repair would have material costs of one-half the subsystem total cost, but would require the equivalent labor hours for total subsystem replacement. DOE calculated a cost for repair over the life of a CWH unit with these assumptions, and used that cost or repair in the analysis. A repair year was selected at random over the life for each unit selected in the LCC and the repair cost occurring in that year was discounted to present value for the LCC analysis. Heat exchanger failure is a unique repair scenario for certain commercial gas-fired instantaneous circulating water 92 RSMeans Company. Facilities Maintenance and Repair Cost Data 2022. 29th Annual Edition. Available at www.rsmeans.com/products/books/. 93 RSMeans. RSMeans Mechanical Costs Book 2022. Available at www.rsmeans.com/products/ books. PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69754 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 heaters and hot water supply boilers and was included in DOE’s repair cost analysis. The use of condensing or noncondensing technology determines the rate and timing of heat exchanger failure as well as the cost of repair with an approximately three times greater probability of repair for condensing equipment. DOE’s assumptions for the frequency of failure and the mean year of heat exchanger failure were based on a report from the Gas Research Institute (‘‘GRI’’) for boilers.94 The cost of heat exchanger replacement is assumed to be a third of the total water heater replacement cost. In the October 2014 RFI, DOE asked if repair costs vary as a function of equipment efficiency. 79 FR 62899, 62908 (Oct. 21, 2014). Four stakeholders commented on the relationship between equipment efficiency and repair costs, with emphasis that higher-efficiency equipment incorporates additional components and more complex controls. (Bradford White, No. 3 at p. 3; A.O. Smith, No. 2 at p.4; AHRI, No. 5 at p. 5; Rheem, No. 10 at p.7) DOE considered the feedback from the stakeholders and undertook further research to identify components and subsystems commonly replaced in order to evaluate differences in repair costs relative to efficiency levels. As a result of its research, DOE learned that the combustion systems and controls used in gas-fired CWH equipment have different costs related to the efficiency levels of these products, a finding in agreement with comments provided on the RFI. For the combustion systems, these differences relate predominately to atmospheric combustion, powered atmospheric combustion, and pre-mixed modulating combustion systems used on baselineefficiency, moderate-efficiency, and high-efficiency products respectively. The control systems employed on atmospheric combustion systems were found to be significantly less expensive than the controller used on powered combustion systems, which was observed to include a microprocessor in some products. Where similar component parts and costs were identified that reflected the equipment category and efficiency, DOE’s component cost was estimated as the average cost of those replacement 94 Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. Fischer, D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. Murray, W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher. Assessment of Technology for Improving the Efficiency of Residential Gas Furnaces and Boilers. Volume I and II—Appendices. September 1994, 1994. Gas Research Institute. AGA Laboratories: Chicago, IL. Report No. GRI–94/0175. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 components identified. This cost was applied at the frequency identified earlier in this section. DOE understands that this approach may conservatively estimate the total cost of repair for purposes of DOE’s analysis, but the percentage of total repair cost remains small compared to the consumer cost and the total installation cost. Additionally, DOE prefers to use this component-level approach to understand the incremental repair cost difference between efficiency levels of equipment. Additional details of this analysis and source references for the subsystem and component costs are found in chapter 8 of the final rule TSD and appendix 8E of the final rule TSD. DOE’s incorporation and approach to repair costs in the LCC did not change from the NOPR implementation. Bradford White recommended DOE investigate other sources of more recent data on heat exchanger failure, noting that DOE bases its assumptions on heat exchanger failure based on a Gas Research Institute report on boilers, not water heaters, and it is from 1994. (Bradford White, No. 23 at p. 8) DOE understands Bradford White’s concerns about this source document, and DOE invested a considerable amount of time investigating whether alternative information sources existed, and none could be identified. Thus for this final rule, DOE continues to rely upon this as the best available information. Joint Gas Commenters note DOE, without reference or logic, assumes the cost of heat exchanger replacement, where possible, is one third of the total water heater replacement cost. They also state it is just as likely that heat exchanger failure will cause a need for complete replacement of the water heating equipment, but the added negative economic impact of more frequent equipment outages on the business’s operation is not considered. (Joint Gas Commenter, No. 34 at p. 19) DOE notes that appendix 8E in both the May 2022 CWH ECS NOPR and the final rule TSDs outlines heat exchanger replacement assumptions. The estimated cost equivalent to one-third of the hot water supply boiler cost was based on manufacturer literature. Based on the aforementioned Gas Research Institute report, DOE assumes that as many as 50 percent of condensing heat exchangers will need to be replaced with an average year of failure of 15 years. Note that for hot water supply boilers and other instantaneous water heaters, DOE assumes a 25 year lifetime. DOE also assumes 17 percent of noncondensing heat exchangers in those units will need to be replaced with a mean year of failure of 20 years, again PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 for equipment with an expected 25 year lifetime. Thus, on average, a noncondensing heat exchanger failure could lead to more premature circulating water heaters and hot water supply boiler replacements because, on average, the heat exchanger replacement would occur closer to the expected end of life of the hot water supply boiler and consumers’ repair professionals would make them aware of how much expected life would be available after the repair. DOE also notes that economically rational consumers are not going to replace a serviceable and repairable condensing hot water supply boiler that costs in excess of $7,100 if the heat exchanger fails at year 15. They would only do such if the water heater is otherwise compromised. As for the impact on a consumer’s business, DOE has no mechanism for determining what if any impact there would be on a consumer’s business. As discussed in IV.F.2.h, consumers have many alternatives for minimizing or mitigating downtime. While DOE is basing the assumptions of heat exchanger replacement on the best available data, Bradford White is correct in noting the Gas Research Institute report is from 1994, and DOE would assume that in normal situations, manufacturers would have made progress in reducing the failure rate since that date. When viewed in this light, the inclusion of this higher failure rate might be a conservative assumption. 6. Product Lifetime For CWH equipment, DOE used lifetime estimates derived through a review of numerous sources. Product lifetime is the age when a unit of CWH equipment is retired from service. For the May 2022 CWH ECS NOPR and for this final rule, DOE used a distribution of lifetimes, with the weighted averages ranging between 10 years and 25 years as shown in Table IV.21, which are based on a review of CWH equipment lifetime estimates found in published studies and online documents. These sources used by DOE in the review of lifetime include documents from prior DOE efficiency standards rulemaking processes, LBNL, NREL, the EIA, Federal Energy Management Program, Building Owner and Managers Association, Gas Foodservice Equipment Network, San Francisco Apartment Association, and National Grid.95 Specific document titles and references are provided in appendix 8F of the final rule TSD. DOE applied a 95 DOE attempted to only include only unique sources, as opposed to documents citing other sources already included in DOE’s reference list. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations distribution to all classes of CWH equipment analyzed. Chapter 8 of the 69755 final rule TSD contains a detailed discussion of CWH equipment lifetimes. TABLE IV.21—AVERAGE CWH LIFETIME USED IN FINAL RULE ANALYSES Average lifetime (years) CWH equipment lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage water heaters and storage-type instantaneous .............................................................................. Residential-duty gas-fired storage water heaters ............................................................................................................................ Gas-fired instantaneous water heaters and hot water supply boilers Tankless water heaters ............................................................................................................................................................ Circulating water heaters and hot water supply boilers ........................................................................................................... DOE notes that the average lifetime of all equipment covered by this rulemaking is the same for baseline and max-tech thermal efficiency levels. The lifetime selected for each simulation run varies, but the weighted-average lifetime is the same across all thermal efficiency levels. In response to the May 2022 CWH ECS NOPR, DOE received several comments concerning the estimated lifetime of equipment. AHRI stated that 10 years for commercial gas storage and 25 years for Instantaneous Water Heaters and Hot Water Supply Boilers seem more characteristic of residential applications than commercial. Higher water temperatures and faster duty cycles decrease expected lifetimes. (AHRI, No. 31 at p. 1) Rheem supported this AHRI comment. (Rheem, No. 24 at p. 2) Similarly, Bradford White stated that DOE’s assumed 10-year life for commercial gas-fired storage and 25year life for gas-fired instantaneous and hot water supply boilers are almost the same (in the case of gas-fired storage), or more than, their consumer (i.e., residential) counterparts. Bradford White also reiterated the point AHRI made about temperatures and duty cycles. Bradford White further noted that in appendix 8F, DOE cited experts stating commercial water heaters are expected to have shorter lives than residential water heaters. They expressed concern that DOE referenced several sources more than 10 years old. (Bradford White, No. 23 at pp. 2 and 5) PHCC also stated DOE’s lifetimes are too long, and DOE’s listed lifetimes would be the maximum age for products, not the average age. PHCC notes that their members do not have a complied database for these products to verify life and that DOE should reengage with the product manufacturers and other stakeholders to see if additional data can be developed. (PHCC, No. 28 at p. 6) Joint Gas Commenters noted DOE assumes that the lifetime distribution for a class of CWH unit is the same within an equipment category, across all efficiency levels, then points to the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 replacement of boiler heat exchangers implying that lower reliability of heat exchangers in condensing units compared to non-condensing units should imply shorter life. (Joint Gas Commenters, No. 34 at page 19) In response, DOE notes that the residential (i.e., consumer) gas water heaters are estimated to have a 14.5 year life, which exceeds both the commercial gas storage water heaters lifetime (10 years) and residential-duty gas-fired storage water heater lifetime (12 years).96 Consumer boilers are estimated to have a 26.6 year lifetime, or 1.6 years longer than the lifetime for hot water supply boilers and circulating water heaters assumed by DOE.97 Thus, DOE’s estimated equipment lifetimes for commercial water heaters are shorter than the residential counter-parts. DOE notes that the commercial gas-fired storage water heater lifetime is approximately 30 percent shorter than its residential counterpart while the commercial hot water supply boiler lifetime is 6 percent shorter than its residential boiler counterpart. Bradford White, AHRI and Rheem did not provide DOE with sufficient numerical data concerning CWH equipment lifetimes to justify a significantly greater disparity in the lifetimes between these CWH and residential equipment. In response to the age of the documents cited in DOE’s review of research on CWH equipment lifetimes, DOE undertook an additional literature search to determine if newer information was available. The search turned up newer documents with information about CWH equipment lifetime, but virtually all such documents refer to the sources cited in the NOPR for the lifetimes that they state. Thus, while the NOPR list of citations includes many older 96 Based on the average lifetime included in DOE’s ongoing consumer water heater rulemaking EERE–2017–BT–STD–0019. 97 Based on the average lifetime included in DOE’s ongoing consumer boiler rulemaking, Preliminary Technical Support Document, from www.regulations.gov/document/EERE-2019-BTSTD-0036-0021. PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 10 12 17 25 documents, updating this literature review did not provide evidence leading DOE to conclude that a change was needed in any of the estimated lifetimes. In response to the Joint Gas Commenters, DOE does not have data to suggest that the lifetime of condensing CWH equipment is lower than that of non-condensing equipment; rather, all available data suggests that the lifetime of condensing CWH equipment is substantially the same as noncondensing CWH equipment. DOE does have and has incorporated data regarding increased repair costs for individual component failures that may occur in higher-efficiency equipment, as discussed in section IV.F.5.b of this document. However, the increased repair costs are largely related to the increased component cost and even in the case of heat exchangers where DOE cites a higher failure rate, such does not translate directly to decreased product life. While Joint Gas Commenters remark about heat exchanger failure leading to early replacement of the entire water heater, DOE would note that CWH equipment has a rather high total installed cost and it would not be in consumers economic best interest to replace an otherwise serviceable and repairable water heater. As noted in both the May 2022 CWH ECS NOPR and the Final Rule TSD appendix 8E, DOE assumes a mean failure year of 15 years for condensing heat exchangers which, when combined with the original warranty period, means there is no reason to expect the heat exchanger repair work to automatically result in a shorter lifetime. 7. Discount Rates In the calculation of LCC, DOE applies appropriate discount rates to estimate the present value of future operating costs. DOE determined the discount rate by estimating the cost of capital for purchasers of CWH equipment. Most purchasers use both debt and equity capital to fund investments. Therefore, for most purchasers, the discount rate is the E:\FR\FM\06OCR2.SGM 06OCR2 69756 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 weighted-average cost of debt and equity financing, or the weightedaverage cost of capital (‘‘WACC’’), less the expected inflation. For residential consumer purchase of CWH equipment, DOE applies weighted average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.98 DOE notes that the LCC does not analyze the equipment purchase decision, so the implicit discount rate is not relevant in this model. The LCC estimates net present value over the lifetime of the equipment, so the appropriate discount rate will reflect the general opportunity cost of household funds, taking this time scale into account. Given the long time horizon modeled in the LCC, the application of a marginal interest rate associated with an initial source of funds is inaccurate. Regardless of the method of purchase, consumers are expected to continue to rebalance their debt and asset holdings over the LCC analysis period, based on the restrictions consumers face in their debt payment requirements and the relative size of the interest rates available on debts and assets. DOE estimates the aggregate impact of this rebalancing using the historical distribution of debts and assets. For commercial purchasers, to estimate the WACC DOE used a sample of detailed business sub-sector statistics, drawn from the database of U.S. companies presented on the Damodaran Online website.99 This database includes most of the publicly-traded companies in the United States. Using this database, Damodaran developed a historical series of sub-sector-level annual statistics for 100+ business subsectors. Using data for 1998–2021, inclusive, DOE developed sub-sector average WACC estimates, which were then assigned to aggregate categories. For commercial water heaters, the applicable aggregate categories include retail and service, property/real-estate investment trust (‘‘REIT’’), medical facilities, industrial, hotel, food service, office, education, and other. The WACC approach for determining discount rates accounts for the applicable tax rates for 98 The implicit discount rate is inferred from a consumer purchase decision between two otherwise identical goods with different first cost and operating cost. It is the interest rate that equates the increment of first cost to the difference in net present value of lifetime operating cost, incorporating the influence of several factors: transaction costs; risk premiums and response to uncertainty; time preferences; interest rates at which a consumer is able to borrow or lend. 99 Damodaran Online. Damodaran financial data used for determining cost of capital. Available at pages.stern.nyu.edu/∼adamodar/. Last accessed on December 20, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 each category. DOE did not evaluate the marginal effects of increased costs, and, thus, depreciation due to more expensive equipment, on the overall tax status. DOE used the sample of business subsectors to represent purchasers of CWH equipment. For each observation in the sample, DOE derived the cost of debt, percentage of debt financing, and cost of equity from industry-level data on the Damodaran Online website, from longterm nominal S&P 500 returns also developed by Damodaran, and risk-free interest rates based on nominal longterm Federal government bond rates. DOE then determined the weightedaverage values for the cost of capital, and the range and distribution of values of WACC for each of the sample business sectors. Deducting expected inflation from the cost of capital provided estimates of the real discount rate by ownership category. For most educational buildings and a portion of the office buildings occupied by public schools, universities, and State and local government agencies, DOE estimated the cost of capital based on a 40-year geometric mean of an index of long-term tax-exempt municipal bonds (>20 years).100 101 Federal office space was assumed to use the Federal bond rate, derived as the 40-year geometric average of long-term (>10 years) U.S. government securities.102 Based on this database, DOE calculated the weighted-average, aftertax discount rate for CWH equipment purchases, adjusted for inflation, made by commercial users of the equipment. To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumer’s opportunity cost of funds related to appliance energy cost savings. It estimated the average percentage shares of the various types of debt and equity by household income group using data from the Federal Reserve Board’s Survey of Consumer Finances (‘‘SCF’’) 103 for 100 Federal Reserve Bank of St. Louis. State and Local Bonds—Bond Buyer Go 20-Bond Municipal Bond Index. Data available through 2015 at research.stlouisfed.org/fred2/series/MSLB20/ downloaddata?cid=32995. Last accessed April 3, 2020. 101 Bartel Associates, LLC. Ba 2019–12–31 20 Year AA Municipal Bond Rates. Averaged quarterly municipal bond rates to develop annual averages for 2016–2020. bartel-associates.com/resources/ select-gasb-67-68-discount-rate-indices. Last accessed on June 23, 2022. 102 Rate calculated with rolling 40-year data series for the years 1992–2021. Data source: U.S. Federal Reserve. Available at www.federalreserve.gov/ releases/h15/data.htm. Last accessed on July 12, 2022. 103 Board of Governors of the Federal Reserve System. Survey of Consumer Finances. Available at PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. Using the SCF and other sources, DOE developed a distribution of rates for each type of debt and asset by income group to represent the rates that may apply in the year in which amended standards would take effect. In the Crystal BallTM analyses, when an LCC model selects a residential observation, the model selects an income group and then selects a discount rate from the distribution for that group. Chapter 8 of the final rule TSD contains the detailed calculations related to discount rates. Use of discount rates in each section of the analysis is specific to the affected parties and the impacts being examined (e.g., LCC: consumers, MIA: manufacturers; NIA: national impacts using OMB-specified discount rates), consistent with the general need to examine these impacts independently. In addition, where factors indicate that a range or variability in discount rates is an important consideration and can be or is provided, DOE uses a range of discount rates in its various analyses. For this final rule, DOE examined its established process for development and use of discount rates and has concluded that it sufficiently characterizes the discount rate facing consumers. Patterson-Kelley suggested that both State and local consumers and small businesses need to be better included in the analysis. (Patterson-Kelley, No. 26 at p. 2) DOE notes that CBECS is a nationally representative sample of activity in buildings used for commercial activities, and for activities of State and local governments and government enterprises such as local school districts or State colleges or universities. In the CBECS 2018 database, 1,407 of 6,436 buildings are coded as either State government ownership or local government owned buildings. Because there is no data field in CBECS that indicates ‘‘small business,’’ there is no reliable way to identify a specific building as being small business. However, the CBECS dataset includes representative numbers of buildings in business sectors commonly thought of as small businesses, such as ‘‘mom and pop’’ restaurants, retail establishments or motels, and other buildings that could be considered small business according to the U.S. Small Business Administration. Accordingly, DOE believes its analysis sufficiently includes State and local consumers and small businesses. www.federalreserve.gov/PUBS/oss/oss2/ scfindex.html. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 8. Energy Efficiency Distribution in the No-New-Standards Case To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE’s LCC analysis considered the projected distribution (market shares) of product efficiencies under the no-new-standards case (i.e., the case without amended or new energy conservation standards). To estimate the energy efficiency distribution of CWH equipment for 2026, DOE developed the no-newstandards distribution of equipment using data from DOE’s Compliance Certification database and data submitted by AHRI regarding condensing versus non-condensing equipment. Each building in the sample was then assigned a water heater efficiency sampled from the no-new-standardscase efficiency distribution for the appropriate equipment class, shown at the end of this section. DOE was not able to assign a CWH efficiency to a building in the no-new-standards case based on building characteristics, since CBECS 2018 and RECS 2009 did not provide enough information to distinguish installed water heaters disaggregated by efficiency. The efficiency of a CWH was assigned based on the forecasted efficiency distribution (which is constrained by the shipment and model data collected by DOE and submitted by AHRI) and accounts for consumers that are already purchasing efficient CWHs. Joint Advocates stated DOE’s use of the assignment of efficiency levels in the no-new-standards case is sufficiently representative of consumer behavior. Joint Advocates noted the examples of market failures such as misaligned incentives in landownerrenter situations, and these market failures result in under-investment in energy efficiency and consumers not making decisions that result in the highest net present value in their specific situations. Joint Advocates stated that DOE’s assignment of efficiency levels in the no-newstandards case reasonably reflects actual consumer behavior. Joint Advocates disagreed with Barton Day Law’s comment during the Public Meeting regarding random assignment (discussed later in this section). Joint Advocates stated that market failures in commercial and industrial sectors add complexity to the decision-making process and result in an underinvestment in energy efficiency. (Joint Advocates, No. 29 at p.3) CA IOUs supported DOE’s robust analysis of the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 no-new-standards case and the consumer choice model. Like many utilities across the country, the CA IOUs implement a statewide energy efficiency program for commercial water heating to manage these [market] barriers directly. The CA IOUs stated DOE’s review of failures in the commercial market presented in the May 2022 CWH ECS NOPR is consistent with their understanding. They stated DOE’s analysis is thoughtful, robust, and well within its regulatory discretion. (CA IOUs, No. 33 at p. 5) NYSERDA supported DOE’s estimates of efficiency levels in the no-new-standards case and stated that DOE’s estimates are wellreasoned and based on the most relevant data. In particular, NYSERDA stated that DOE’s use of Compliance Certification Database and AHRI data is a thorough analysis that provides a wellfounded estimate. NYSERDA indicated that market data do not reflect the assumption that purchasers of CWH equipment are only basing their decisions on economics. NYSERDA stated they implement a wide variety of programs to help spur market transformation, and these efforts seek to address the specific types of market failures that DOE addresses in its analysis. (NYSERDA, No. 30 at pp. 2–3) DOE acknowledges these comments and the references to market failures being addressed by market transformation programs. As a reminder the list of market failures discussed in the May 2022 CWH ECS NOPR is included in this section after the comments are addressed. Joint Gas Commenters criticized DOE’s use of random assignments of baseline efficiency, stating that consumers who find condensing to be cost effective have already installed it and for those who have not installed it, it is likely not cost effective. Joint Gas Commenters went on to state that the random assignment of efficiencies assumes that purchasers of commercial water heaters never consider the economics of their purchases. Joint Gas Commenters went on to state that DOE’s use of random assignment is most unreasonable when it results in large LCC savings. (Joint Gas Commenters, No. 34 at pp. 21–22 and 23–25) Barton Day Law asked about the distribution of extreme outcomes resulting from random assignment, stating that extreme outcomes have a disproportionate impact on the average LCC results. Barton Day Law offered the opinion that DOE should look at the impact of the extreme outcomes, and random assignment of outcomes where the more efficient product is the low-cost option PO 00000 Frm 00073 Fmt 4701 Sfmt 4700 69757 should be in the base case for the analysis. (Barton Day Law, Public Meeting Transcript, No. 13 at pp. 51–55) Joint Gas Commenters pointed to the National Academy of Sciences 2021 review of DOE’s standards process and to the D.C. Circuit’s opinion in APGA v. DOE (22 F.4th 1018 to 1027) to support their comments. They further referred to the literature cited in the May 2022 CWH ECS NOPR discussing market failure and offer their opinion that such information provides no basis to conclude that purchasers are not acting in their economic interest when they make a decision to purchase or not purchase condensing equipment. (Joint Gas Commenters, No. 34 at p. 30) Similarly, Atmos Energy stated DOE’s analysis does not consider key consumer decision-making aspects such as hot water demand, building design impacts on installation costs, and ‘‘realistic’’ maintenance and repair costs, as well as rebate costs. They noted that DOE does not use a ‘‘discrete choice model’’ or rely on ‘‘sufficient collected data on consumer behavior.’’ (Atmos Energy, No. 36 at p. 4) DOE first notes that, with respect to the National Academy of Sciences report, the recommendations will be evaluated in a separate proceeding. With respect to the D.C. Circuit’s opinion in APGA v. DOE, 22 F.4th 1018 (APGA I), DOE notes that the random assignment issue raised in that litigation was further addressed by DOE through the final rule for the commercial packaged boiler (‘‘CPB’’) ECS rulemaking (EERE–2013–BT–STD– 0030),104 and while the court in APGA v. DOE, No. 22–1107, 2023 WL 4377914 (D.C. Cir. July 7, 2023) (APGA II) vacated the rule on other grounds, it did not address the merits of arguments on random assignment raised by petitioner. In developing the May 2022 CWH ECS NOPR and ultimately this final rule, DOE took into account all of the available data concerning the market implementation of condensing natural gas-fired CWH equipment. As shown in the table at the end of this section (Table IV.22), using actual data from AHRI for a period ending 2015, S-curves developed from the AHRI data, CCMS and other data, DOE projected CWH shipments by efficiency level over the analysis period. DOE then determined that, based on the presence of wellunderstood market failures and a 104 See Energy Conservation Program: Energy Conservation Standards for Commercial Packaged Boilers; Response to United States Court of Appeals for the District of Columbia Circuit Remand in American Public Gas Association v. United States Department of Energy, www.govinfo.gov/content/ pkg/FR-2022-04-20/pdf/2022-08427.pdf. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69758 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations corresponding lack of data showing a correlation between CWH efficiency and building hot water load, a random assignment of efficiencies best accounts for consumer behavior in the CWH market. Further, DOE strongly disagrees with the statement from Joint Gas Commenters that this methodology assumes that purchasers of CWHs never consider the economics of their investments. Rather, as explained in the remainder of this section, DOE is aware of multiple market failures that prevent the purely economic decision making hypothesized by the Joint Gas Commenters. That being said, DOE uses a random assignment because it does reflect the full range of consumer behaviors, including those consumers who make purely economic decisions, found in the CWH market. As reflected in the LCC analysis, a significant portion (63 to 69 percent depending on product class) of buildings with large hot water loads were assigned more efficient CWHs. DOE also finds Joint Gas Commenters and Barton Day Law’s focus on trial cases with large LCC savings to be misguided. Commenters cite these cases as evidence that random assignment results in unreasonable results that disproportionately affect DOE’s analysis. But as mentioned previously and discussed in more detail below, DOE used a random assignment because of well-understood market failures. Commenters seem to be suggesting that these market failures should not apply to situations where purchasing decisions have larger economic impacts. DOE does not agree. For example, one well-understood market failure is where a building owner purchases the CWH, but the tenant pays the utility bills. DOE sees no reason to assume that this market failure does not occur, or is less likely to occur, when the building has a larger hot water load, i.e., the economic impacts are larger. As stated previously, DOE believes that, based on the presence of wellunderstood market failures and a corresponding lack of data showing a correlation between CWH efficiency and building hot water load, a random assignment of efficiencies best accounts for consumer behavior in the CWH For these reasons, DOE rejects the approach recommended by Barton Day Law, Joint Gas Commenters, and Atmos Energy, and DOE continues to use the approach for selecting the baseline efficiency level that was used for the May 2022 CWH ECS NOPR. While DOE acknowledges that economic factors play a role when building owners or builders decide on VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 what type of CWH to install, assignment of CWH efficiency for a given installation, based solely on economic measures such as LCC or simple PBP, most likely would not fully and accurately reflect actual real-world installations. There are a number of commercial sector market failures discussed in the economics literature, including a number of case studies, that illustrate how purchasing decisions with respect to energy efficiency are likely to not be completely correlated with energy use, as described next. There are several market failures or barriers that affect energy decisions generally. Some of those that affect the commercial sector specifically are detailed below. However, more generally, there are several behavioral factors that can influence the purchasing decisions of complicated multi-attribute products, such as water heaters. For example, consumers (or decision makers in an organization) are highly influenced by choice architecture, defined as the framing of the decision, the surrounding circumstances of the purchase, the alternatives available, and how these are presented for any given choice scenario.105 The same consumer or decision maker may make different choices depending on the characteristics of the decision context (e.g., the timing of the purchase, competing demands for funds), which have nothing to do with the characteristics of the alternatives themselves or their prices. Consumers or decision makers also face a variety of other behavioral phenomena including loss aversion, sensitivity to information salience, and other forms of bounded rationality.106 Thaler, who won the Nobel Prize in Economics in 2017 for his contributions to behavioral economics, and Sunstein point out that these behavioral factors are strongest when the decisions are complex and infrequent, when feedback on the decision is muted and slow, and when there is a high degree of information asymmetry.107 These characteristics describe almost all purchasing situations of appliances and equipment, 105 Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). ‘‘Choice Architecture’’ in The Behavioral Foundations of Public Policy, Eldar Shafir (ed). 106 Thaler, R.H., and Bernartzi, S. (2004). ‘‘Save More Tomorrow: Using Behavioral Economics in Increase Employee Savings,’’ Journal of Political Economy 112(1), S164–S187. See also Klemick, H., et al. (2015) ‘‘Heavy-Duty Trucking and the Energy Efficiency Paradox: Evidence from Focus Groups and Interviews,’’ Transportation Research Part A: Policy & Practice, 77, 154–166 (providing evidence that loss aversion and other market failures can affect otherwise profit-maximizing firms). 107 Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale University Press. PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 including commercial water heaters. The installation of a new or replacement CWH in a commercial building is a complex, technical decision involving many actors and is done very infrequently, as evidenced by the CWH mean lifetime of up to 25 years.108 Additionally, it would take multiple billing cycles for any impacts on operating costs to be fully apparent. Further, if the purchaser of the commercial water heater is not the entity paying the energy costs (e.g., a building owner and tenant), there may be little to no feedback on the purchase. These behavioral factors are in addition to the more specific market failures described as follows. It is often assumed that because commercial and industrial customers are businesses that have trained or experienced individuals making decisions regarding investments in costsaving measures, some of the commonly observed market failures present in the general population of residential customers should not be as prevalent in a commercial setting. However, there are many characteristics of organizational structure and historic circumstance in commercial settings that can lead to underinvestment in energy efficiency. First, a recognized problem in commercial settings is the principalagent problem, where the building owner (or building developer) selects the equipment and the tenant (or subsequent building owner) pays for energy costs.109 110 Indeed, a substantial fraction of commercial buildings with a commercial water heater in the CBECS 2018 sample are occupied at least in part by a tenant, not the building owner (indicating that, in DOE’s experience, the building owner likely is not responsible for paying energy costs). Additionally, some commercial buildings have multiple tenants. There are other similar misaligned incentives embedded in the organizational structure within a given firm or business that can impact the choice of a 108 American Society of Heating, Refrigerating, and Air-Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and AirConditioning Applications. 2011. Available at www.ashrae.org/resources—publications. Last accessed on October 16, 2016. 109 Vernon, D., and Meier, A. (2012). ‘‘Identification and quantification of principal– agent problems affecting energy efficiency investments and use decisions in the trucking industry,’’ Energy Policy, 49, 266–273. 110 Blum, H. and Sathaye, J. (2010). ‘‘Quantitative Analysis of the Principal-Agent Problem in Commercial Buildings in the U.S.: Focus on Central Space Heating and Cooling,’’ Lawrence Berkeley National Laboratory, LBNL–3557E. (Available at: escholarship.org/uc/item/6p1525mg) (Last accessed January 20, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 commercial water heater. For example, if one department or individual within an organization is responsible for capital expenditures (and therefore equipment selection) while a separate department or individual is responsible for paying the energy bills, a market failure similar to the principal-agent problem can result.111 Additionally, managers may have other responsibilities and often have other incentives besides operating cost minimization, such as satisfying shareholder expectations, which can sometimes be focused on short-term returns.112 Decision-making related to commercial buildings is highly complex and involves gathering information from and for a variety of different market actors. It is common to see conflicting goals across various actors within the same organization as well as information asymmetries between market actors in the energy efficiency context in commercial building construction.113 Second, the nature of the organizational structure and design can influence priorities for capital budgeting, resulting in choices that do not necessarily maximize profitability.114 Even factors as simple as unmotivated staff or lack of prioritysetting and/or a lack of a long-term energy strategy can have a sizable effect on the likelihood that an energy efficient investment will be undertaken.115 U.S. tax rules for 111 Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., Watt, G., Hughes, J., and de Visser, E. (2007). ‘‘Quantifying the effects of market failures in the end-use of energy,’’ Final Draft Report Prepared for International Energy Agency. (Available from International Energy Agency, Head of Publications Service, 9 rue de la Federation, 75739 Paris, Cedex 15 France). 112 Bushee, B.J. (1998). ‘‘The influence of institutional investors on myopic R&D investment behavior,’’ Accounting Review, 305–333. DeCanio, S.J. (1993). ‘‘Barriers Within Firms to Energy Efficient Investments,’’ Energy Policy, 21(9), 906– 914. (explaining the connection between shorttermism and underinvestment in energy efficiency). 113 International Energy Agency (IEA). (2007). Mind the Gap: Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. (Available at: www.iea.org/reports/mind-the-gap) (Last accessed January 20, 2022). 114 DeCanio, S.J. (1994). ‘‘Agency and control problems in US corporations: the case of energyefficient investment projects,’’ Journal of the Economics of Business, 1(1), 105–124. Stole, L.A., and Zwiebel, J. (1996). ‘‘Organizational design and technology choice under intrafirm bargaining,’’ The American Economic Review, 195–222. 115 Rohdin, P., and Thollander, P. (2006). ‘‘Barriers to and driving forces for energy efficiency in the non-energy intensive manufacturing industry in Sweden,’’ Energy, 31(12), 1836–1844. Takahashi, M. and Asano, H. (2007). ‘‘Energy Use Affected by Principal-Agent Problem in Japanese Commercial Office Space Leasing,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 commercial buildings may incentivize lower capital expenditures, since capital costs must be depreciated over many years, whereas operating costs can be fully deducted from taxable income or passed through directly to building tenants.116 Third, there are asymmetric information and other potential market failures in financial markets in general, which can affect decisions by firms with regard to their choice among alternative investment options, with energy efficiency being one such option.117 Asymmetric information in financial markets is particularly pronounced with regard to energy efficiency investments.118 There is a dearth of information about risk and volatility Visser, E. and Harmelink, M. (2007). ‘‘The Case of Energy Use in Commercial Offices in the Netherlands,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. Bjorndalen, J. and Bugge, J. (2007). ‘‘Market Barriers Related to Commercial Office Space Leasing in Norway,’’ In Quantifying the Effects of Market Failures in the End-Use of Energy. American Council for an Energy-Efficient Economy. February 2007. Schleich, J. (2009). ‘‘Barriers to energy efficiency: A comparison across the German commercial and services sector,’’ Ecological Economics, 68(7), 2150– 2159. Muthulingam, S., et al. (2013). ‘‘Energy Efficiency in Small and Medium-Sized Manufacturing Firms,’’ Manufacturing & Service Operations Management, 15(4), 596–612. (Finding that manager inattention contributed to the non-adoption of energy efficiency initiatives). Boyd, G.A., Curtis, E.M. (2014). ‘‘Evidence of an ‘energy management gap’ in US manufacturing: Spillovers from firm management practices to energy efficiency,’’ Journal of Environmental Economics and Management, 68(3), 463–479. 116 Lovins, A. (1992). Energy-Efficient Buildings: Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildingsinstitutional-barriers-and-opportunities/) (Last accessed December 19, 2022). 117 Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, A.S., and Poterba, J.M. (1988). ‘‘Financing constraints and corporate investment,’’ Brookings Papers on Economic Activity, 1988(1), 141–206. Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and Caballero, R. J. (1994). ‘‘A reconsideration of investment behavior using tax reforms as natural experiments,’’ Brookings Papers on Economic Activity, 1994(2), 1–74. DeCanio, S.J., and Watkins, W.E. (1998). ‘‘Investment in energy efficiency: do the characteristics of firms matter?’’ Review of Economics and Statistics, 80(1), 95–107. Hubbard R.G. and Kashyap A. (1992). ‘‘Internal Net Worth and the Investment Process: An Application to U.S. Agriculture,’’ Journal of Political Economy, 100, 506–534. 118 Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). ‘‘From volatility to value: analyzing and managing financial and performance risk in energy savings projects,’’ Energy Policy, 34(2), 188– 199. Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., Tanaka, K., and Meier, A. (2010). ‘‘The 25 IEA energy efficiency policy recommendations to the G8 Gleneagles Plan of Action,’’ Energy Policy, 38(11), 6409–6418. PO 00000 Frm 00075 Fmt 4701 Sfmt 4700 69759 related to energy efficiency investments, and energy efficiency investment metrics may not be as visible to investment managers,119 which can bias firms toward more certain or familiar options. This market failure results not because the returns from energy efficiency as an investment are inherently riskier, but because information about the risk itself tends not to be available in the same way it is for other types of investment, like stocks or bonds. In some cases energy efficiency is not a formal investment category used by financial managers, and if there is a formal category for energy efficiency within the investment portfolio options assessed by financial managers, they are seen as weakly strategic and not seen as likely to increase competitive advantage.120 This information asymmetry extends to commercial investors, lenders, and realestate financing, which is biased against new and perhaps unfamiliar technology (even though it may be economically beneficial).121 Another market failure known as the first-mover disadvantage can exacerbate this bias against adopting new technologies, as the successful integration of new technology in a particular context by one actor generates information about cost-savings, and other actors in the market can then benefit from that information by following suit; yet because the first to adopt a new technology bears the risk but cannot keep to themselves all the informational benefits, firms may inefficiently underinvest in new technologies.122 In sum, the commercial and industrial sectors face many market failures that can result in an under-investment in energy efficiency. This means that discount rates implied by hurdle 119 Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004). ‘‘Who plays and who decides: The structure and operation of the commercial building market,’’ U.S. Department of Energy Office of Building Technology, State and Community Programs. (Available at: www1.eere.energy.gov/ buildings/publications/pdfs/commercial_initiative/ who_plays_who_decides.pdf) (Last accessed December 19, 2022). 120 Cooremans, C. (2012). ‘‘Investment in energy efficiency: do the characteristics of investments matter?’’ Energy Efficiency, 5(4), 497–518. 121 Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money on the table: Why investors miss out on the energy efficiency market. (Available at: taf.ca/publications/money-table-investors-energyefficiency-market/) (Last accessed December 19, 2022). 122 Blumstein, C. and Taylor, M. (2013). Rethinking the Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. Energy Institute at Haas Working Paper 243. (Available at: haas.berkeley.edu/wp-content/uploads/WP243.pdf) (Last accessed December 19, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 69760 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 rates 123 and required PBPs of many firms are higher than the appropriate cost of capital for the investment.124 The preceding arguments for the existence of market failures in the commercial and industrial sectors are corroborated by empirical evidence. One study in particular showed evidence of substantial gains in energy efficiency that could have been achieved without negative repercussions on profitability, but the investments had not been undertaken by firms.125 The study found that multiple organizational and institutional factors caused firms to require shorter PBPs and higher returns than the cost of capital for alternative investments of similar risk. Another study demonstrated similar results with firms requiring very short PBPs of 1–2 years in order to adopt energy-saving projects, implying hurdle rates of 50 to 100 percent, despite the potential economic benefits.126 A number of other case studies similarly demonstrate the existence of market failures preventing the adoption of energy-efficient technologies in a variety of commercial sectors around the world, including office buildings,127 supermarkets,128 and the electric motor market.129 The existence of market failures in the commercial and industrial sectors is well supported by the economics literature and by a number of case studies. If DOE developed an efficiency distribution that assigned commercial water efficiency in the no-newstandards case solely according to energy use or economic considerations such as LCC or PBP, the resulting 123 A hurdle rate is the minimum rate of return on a project or investment required by an organization or investor. It is determined by assessing capital costs, operating costs, and an estimate of risks and opportunities. 124 DeCanio 1994, op. cit. 125 DeCanio, S.J. (1998). ‘‘The Efficiency Paradox: Bureaucratic and Organizational Barriers to Profitable Energy-Saving Investments,’’ Energy Policy, 26(5), 441–454. 126 Andersen, S.T., and Newell, R.G. (2004). ‘‘Information programs for technology adoption: the case of energy-efficiency audits,’’ Resource and Energy Economics, 26, 27–50. 127 Prindle 2007, op. cit. Howarth, R.B., Haddad, B.M., and Paton, B. (2000). ‘‘The economics of energy efficiency: insights from voluntary participation programs,’’ Energy Policy, 28, 477– 486. 128 Klemick, H., Kopits, E., Wolverton, A. (2017). ‘‘Potential Barriers to Improving Energy Efficiency in Commercial Buildings: The Case of Supermarket Refrigeration,’’ Journal of Benefit-Cost Analysis, 8(1), 115–145. 129 de Almeida, E.L.F. (1998). ‘‘Energy efficiency and the limits of market forces: The example of the electric motor market in France’’, Energy Policy, 26(8), 643–653. Xenergy, Inc. (1998). United States Industrial Electric Motor Systems Market Opportunity Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/ mtrmkt.pdf) (Last accessed January 20, 2022). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 distribution of efficiencies within the building sample would not reflect any of the market failures or behavioral factors above. DOE thus concludes such a distribution would not be representative of the CWH market. Further, even if a specific building/ organization is not subject to the market failures above, the purchasing decision of CWH efficiency can be highly complex and influenced by a number of factors not captured by the building characteristics available in the CBECS or RECS samples. These factors can lead to building owners choosing a CWH efficiency that deviates from the efficiency predicted using only energy use or economic considerations such as LCC or PBP (as calculated using the information from CBECS 2018 or RECS 2009). DOE notes that EIA’s 130 AEO is another energy use model that implicitly includes market failures in the commercial sector. In particular, the commercial demand module 131 includes behavioral rules regarding capital purchases such that in replacement and retrofit decisions, there is a strong bias in favor of equipment of the same technology (e.g., water heater efficiency) despite the potential economic benefit of choosing other technology options. Additionally, the module assumes a distribution of time preferences regarding current versus future expenditures. Approximately half of the total commercial floorspace is assigned one of the two highest time preference premiums. This translates into very high discount rates (and hurdle rates) and represents floorspace for which equipment with the lowest capital cost will almost always be purchased without consideration of operating costs. DOE’s assumptions regarding market failures are therefore consistent with other prominent energy consumption models. Joint Gas Commenters also criticized DOE for failing to respond to the comments provided in the withdrawn 2016 CWH ECS NOPR on random assignment, referring to such as a violation of DOE’s Basic Notice and Comment Obligations. (Joint Gas Commenters, No. 34 at p. 28) Joint Gas Commenters stated that DOE cannot release a final rule without addressing the random assignment issues and cannot address them without giving stakeholders an opportunity to refute DOE’s response during the rulemaking 130 EIA, Annual Energy Outlook, www.eia.gov/ outlooks/aeo/ (Last accessed December 19, 2022). 131 For further details, see: www.eia.gov/outlooks/ aeo/assumptions/pdf/commercial.pdf. (Last accessed December 19, 2022). PO 00000 Frm 00076 Fmt 4701 Sfmt 4700 process—citing Owner-Operator Indep. Drivers Ass’n v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007). (Joint Gas Commenters, No. 34 at p. 31) As a threshold matter, DOE notes that nothing in EPCA or the Administrative Procedure Act (5 U.S.C. 551 et seq.) requires an agency to provide additional notice and comment on a withdrawn NOPR, or additional notice and comment before a final rule to allow commenters to refute the Department’s responses to comments on a NOPR. As noted previously, DOE withdrew the 2016 CWH ECS NOPR and reissued a proposed rule for commercial water heaters in the May 2022 CWH ECS NOPR. In the May 2022 CWH ECS NOPR, DOE did address comments on the May 2016 CWH ECS NOPR, which caused DOE to materially change the analyses (beyond simply updating inputs) from the analyses performed for the withdrawn 2016 CWH ECS NOPR. In the May 2022 CWH ECS NOPR, DOE also addressed the fact that a considerable number of market failures could occur causing the strict economic decision making hypothesized by the Joint Gas Commenters to not be the sole guiding determinant of efficiency choices. DOE further addressed the Joint Gas Commenters comments about random assignments by explaining how DOE modeled the efficiency distributions and the data sources used in the NOPR. Additionally, in doing so, DOE provided stakeholders with a track record that could be followed to understand the differences in the 2016 and the 2022 LCC models. Notably, the model used for efficiency distribution in the no-new standards case in the May 2022 CWH ECS NOPR was substantially the same as the model used for the withdrawn May 2016 CWH ECS NOPR, and is substantially the same in this final rule. Stakeholders have been provided with adequate notice and opportunity to comment on DOE’s proposed rule. That DOE did not make the changes recommended by the commenter does not negate the adequacy of notice and comment. Stakeholders have been provided the same notice and opportunity to comment as they would have had DOE issued a final rule subsequent to the May 2016 CWH ECS NOPR. Nothing in EPCA or the Administrative Procedure Act (5 U.S.C. 551 et seq.) requires DOE to provide additional notice and comment before the final rule for its responses to comments on a NOPR.132 132 Joint Gas Commenters cite Owner-Operator Indep. Drivers Ass’n v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007) for the proposition that DOE must E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations Accordingly, for the reasons stated in this section, DOE has maintained the approach used in the May 2022 CWH ECS NOPR for analyzing energy efficiency distribution in the no-newstandards case. The estimated market shares for the no-new-standards case for CWH equipment are shown in Table 69761 IV.22. See chapter 8 of the final rule TSD for further information on the derivation of the efficiency distributions. TABLE IV.22—MARKET SHARES FOR THE NO-NEW-STANDARDS CASE BY EFFICIENCY LEVEL FOR CWH EQUIPMENT Commercial gas-fired storage water heaters (%) EL 0 1 2 3 4 5 ....................................................................... ....................................................................... ....................................................................... ....................................................................... ....................................................................... ....................................................................... 9. Payback Period Analysis lotter on DSK11XQN23PROD with RULES2 The PBP is the amount of time (expressed in years) it takes the consumer to recover the additional installed cost of more-efficient products, compared to baseline products, through energy cost savings. PBPs that exceed the life of the product mean that the increased total installed cost is not recovered in reduced operating expenses. The inputs to the PBP calculation for each efficiency level are the change in total installed cost of the product and the change in the first-year annual operating expenditures relative to the baseline. DOE refers to this as a ‘‘simple PBP’’ because it does not consider changes over time in operating cost savings. The PBP calculation uses the same inputs as the LCC analysis when deriving first-year operating costs. As noted previously, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the first year’s energy savings resulting from the standard, as calculated under the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) For each considered efficiency level, DOE determined the value of the first year’s energy savings 133 by calculating the energy savings in accordance with the applicable DOE test procedure, and multiplying those savings by the average energy price projection for the year in provide stakeholders an opportunity to refute DOE’s responses during the rulemaking process. However, the court in that case did not state that an agency must allow stakeholders to refute its responses to comments on a NOPR as Joint Gas Commenters suggest. Rather, in that case, the D.C. Circuit held that the agency violated the notice-and-comment requirement of the Administrative Procedure Act VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Residential-duty gas-fired storage water heaters (%) 34.3 2.7 0.0 15.3 46.7 1.0 Gas-fired instantaneous tankless water heaters (%) 53.7 20.9 14.9 3.0 6.0 1.5 17.0 0.0 0.0 4.2 20.8 58.1 Gas-fired circulating water heaters and hot water supply boilers (%) 5.3 13.3 12.9 2.1 11.4 55.1 10. Embodied Emissions and Recycling Costs WM Technologies and PattersonKelley stated that if the Department utilizes emissions, or reference to carbon in the analysis, then the Department should also acknowledge the cost of embodied carbon in the analysis. Both stakeholders have been working with an ASHRAE group with the intention of improving the general understanding of embodied carbon, LCC, and operational carbon and identifying ways to accurately account for these metrics in HVAC products, among other things. (WM Technologies, No. 25 at pp. 1–2; Patterson-Kelley, No. 26 at pp. 2–3) EPCA requires DOE to consider the total projected energy saving resulting from a standard. DOE considers FFC energy savings, including the energy consumed in electricity production, in distribution and transmission, and in extracting, processing, and transporting primary fuels. DOE does not analyze energy savings (or air pollutant emissions) related to manufacturing, transporting, recycling, or disposing of products, as such impacts would not be considered a direct result of the standard on the energy use of the covered product. As such, embodied emission in this process is outside of DOE’s CWH ECS rulemaking scope. Patterson-Kelley and WM Technologies both stated that because the schedule and cost of recycling is different based upon the materials used in the water heater, these differences must be captured in the analysis. The World Green Building Council has recognized that carbon emissions from manufacturing of components, assembly of components into finished goods, their transportation, installation, and the end of life stage must be accounted for as well. (WM Technologies, No. 25 at p. 2; Patterson-Kelley, No. 26 at p. 3) Patterson-Kelley noted that in examining embodied carbon the following must be considered—a higher rate of recycling due to shorter life cycle of condensing products and other changes noted previously. (PattersonKelley, No. 26 at p. 3) DOE would note that it has yet to find evidence that condensing equipment has a shorter lifetime than non-condensing equipment, so there would be no change relative to lifetime. DOE takes into account the cost to remove a water heater at the time of replacement. Stakeholders did not provide information concerning the difference in the cost of materials recycling—whether the materials in a condensing water heater have more or less recycling value than a non-condensing water heater. Given that the first replacement of a condensing water heater installed under this standard would be 10 years in the future, DOE believes the discounted present value of any difference would likely be small enough to ultimately be immaterial. DOE has based the installation cost calculations including removal of old water heaters on when it promulgated a final rule with an update to a model used in the proposed rule that presented an entirely new methodology relative to the proposed rule. Id. at 200–201. As noted previously, DOE is using substantially the same model for the energy efficiency distribution in the no new standards case and Joint Gas Commenters had adequate ability to comment on, and refute, DOE’s analyses in the May 2022 CWH ECS NOPR. 133 The DOE test procedure for CWH equipment at 10 CFR 431.106 does not specify a calculation method for determining energy use. For the rebuttable presumption PBP calculation, DOE used average energy use estimates. which compliance with the amended standards would be required. Chapter 8 of the final rule TSD provides additional details about the PBP. PO 00000 Frm 00077 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69762 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 nationally recognized sources. As a result of these considerations, DOE has not elected to change the analysis to reflect these comments. 11. LCC Model Error Messages and Other Barton Day Law stated that the LCC spreadsheet model looks almost more like a draft than a final product, and that there are apparently ‘‘loads of errors’’ showing up, including computational errors. (Barton Day Law, Public Meeting Transcript, No. 13 at pp. 32–33) Joint Gas Commenter pointed to error messages in the LCC model, stating there were 11 million cell errors, #N/A, and #DIV/0 errors throughout model; some are labeled blank; others not; some tables and ranges are poorly labeled; and Excel calculations and Visual Basic for Applications, and the large number of worksheets make it more difficult to use and to trace formulas. Joint Gas Commenters stated DOE should correct the errors and give stakeholders sufficient time to review. (Joint Gas Commenters, No. 34 at pp. 36–37) In response, DOE notes that additional fields were included throughout the LCC model to accommodate additional equipment classes. In the high-level summary sheets where results reported in the NOPR are tabulated, fields related to the additional equipment classes were either removed or contents were erased and labeled as ‘‘blank.’’ In some other worksheets, the calculations related to additional product classes were not erased. However, numerous inputs related to potential additional equipment classes were not populated and this fact led to many calculations that attempted division using unpopulated input fields, or in other words, which led to #DIV/0 messages. DOE has removed all of the potential additional product class input fields. In response to the ‘‘11 million cell errors,’’ DOE assumes this referred to the fact that the May 2022 CWH ECS NOPR LCC model used a user-defined function, the output of which would turn to an error code and needed to be refreshed when the model was left idle. Refreshing the function required the user to recalculate the model by pressing the F9 key, and once the model was recalculated the error codes would disappear and be replaced by values. To eliminate this source of error messages, DOE eliminated the user defined function by introducing an Excel code in the venting costs worksheet in the block of cells between Q22 and CA82. The new Excel code was written to exactly reproduce the output from the old user defined function, so this modeling change does VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 not affect results but rather it merely removes the irritation of the user defined function timing out and needing to be refreshed. Additionally, in response to the comment that some portions of the model were poorly labeled, DOE added labels to a small number of columns of calculations that DOE considered on review to be inadequately labeled, such as columns at the extreme right edges of the RECS.WH and CBECS.WH worksheets. A further response to the error messages referred to in the Joint Gas Commenter and Barton Day Law comments—the error messages were cosmetic in the sense that eliminating them did not change any results in the analysis; therefore, there are no new data for Joint Gas Commenters to review strictly in terms of the elimination of these message codes. Based on comments documented in this section of the final rule, DOE believes that Joint Gas Commenters were able to review the LCC model in detailed ways even with the distractions caused by the message codes. Thus, DOE declines to provide additional review time related to the elimination of the extra product class fields.134 Barton Day Law stated DOE should be more transparent about disclosing how the outcomes are allocated in its analysis and what the justification is. (Barton Day Law, Public Meeting Transcript, No. 13 at p. 55) Joint Gas Commenters presented graphs of the cumulative LCC savings of gas-fired tankless consumers from the LCC model, pointing out that the net LCC savings (average) were being generated by a small number of consumers with the largest LCC saving and if such customers were ‘‘reassigned’’ to different baseline efficiencies the result would have been different. (Joint Gas Commenters, No. 34 at p. 27) DOE would note that LCC savings are averages and as such include the results from those with large LCC savings and those with large LCC costs. Because of the way the model works, selecting consumers from the RECS and CBECS datasets for which each equipment type would apply, the number of consumers in the extreme cost and benefit tails will be small. With respect to the Joint Gas Commenter graphic about tankless product LCC results, DOE notes that given the existing distribution, the overwhelming majority of LCC customers modeled experience no impact because they already purchased 134 In response to requests, DOE reopened the comment period on the May 2022 CWH ECS NOPR to provide an additional two weeks for stakeholders to review and provide comments on the NOPR. 87 FR 43226. PO 00000 Frm 00078 Fmt 4701 Sfmt 4700 equipment of the efficiency level selected for the standard. As discussed in section IV.F.8 there are numerous reasons for customers to be either unaware of potential energy savings when they make efficiency decisions or to deliberately ignore such information. Barton Day Law stated residentialduty gas-fired storage equipment has four different draw patterns and four separate standards but only one LCC analysis. (Barton Day Law, Public Meeting Transcript, No. 13 at pp. 30, 32) Joint Gas Commenters also stated that DOE analyzed four product classes but only provided one LCC analysis and asked that DOE perform an analysis for each class separately, and although the comment was unclear to DOE, it is presumed to refer to the same point Barton Day Law made. (Joint Gas Commenters, No. 34 at pp. 32–33) As noted in IV.C.4.c of this document, all residential-duty gas-fired equipment is within the high draw pattern, so only one analysis was performed of this equipment. Joint Gas Commenters stated that the rule could have disproportionate impacts on small rural businesses that use propane fired equipment due to their more limited income and therefore a more limited opportunity to fund venting upgrades. They also stated that the problem is made worse by the fact that propane suppliers cannot provide incentives to consumers, as gas utilities can. They also stated that the May 2022 CWH ECS NOPR failed to address impacts on businesses that qualify for the Administration’s Justice40 Initiative. They further offered their opinion that DOE’s analysis must conform to the National Academy of Science’s peer review report and recommendations regarding welfare analysis. Joint Gas Commenters urged DOE to delay the rulemaking while investigating whether the rule would undermine the Justice40 Initiative. (Joint Gas Commenters, No. 34 at pp. 31–32) With respect to the impact on small rural businesses, DOE respects the Joint Gas Commenters note about the more limited income of small rural businesses, but also believes the overall cost structure of small rural businesses includes components that are likely lower than their urban counterparts, such as building lease or ownership costs. DOE also notes that, according to the EIA’s AEO used in this final rule, propane is, at a national level, twice as expensive as natural gas on a $/Million Btu basis, meaning that the value of energy savings to these customers would be higher than the value to natural gas customers. Additionally, DOE expects that commercial buildings in rural areas are E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations less likely to reach the 10-story level that is cited by various commenters as problematic in vent installations. DOE also expects that commercial buildings in rural areas are less likely to share common brick walls with other neighboring businesses or have issues venting over sidewalks or busy alleys. This means rural businesses may find it easier to use horizontal venting than their metropolitan counterparts. While this advantage could be offset at least partially by a greater chance of having to deal with snow levels when siting a horizontal vent, DOE disagrees with the bottom line conclusion of this comment. With respect to the National Academy of Sciences report, the recommendations in the report, which pertain to the processes by which DOE analyzes energy conservation standards, are being considered in a separate rulemaking considering all product categories and DOE does not believe that this final rule should be delayed while the National Academy of Sciences report is considered. WM Technologies stated they received an error trying to run the LCC model. They noted a macro returned an error message stating ‘‘Compile Error: Can’t find project or library’’ with the ‘‘VBA Code Subroutine cmdRun_Click( ) references [ControlPanel.IncomeBins]’’ highlighted. (WM Technologies, No. 25 at p. 10) DOE tested the LCC model to attempt to reproduce this error code, and the only way DOE could generate this code was to load the LCC model onto a computer that did not have Crystal Ball installed on it. Without Crystal Ball being installed, the macro is searching for software package references that do not exist. DOE has added language in appendix 8A of the final rule TSD describing how/why having Crystal Ball installed on the computer is necessary for reviewing this LCC model. WM Technologies recommended the Department move the instructions for operating LCC models to the beginning of the TSD or provide a note there referencing the instruction location. (WM Technologies, No. 25 at p. 10) They additionally request a frequently asked questions website is made available to support industry review of the LCCs along with a question and answer portion where industry could post questions. (WM Technologies, No. 25 at p. 10) DOE notes that the May 2022 CWH ECS NOPR TSD chapter 1 included an outline of the document, and pointed to appendix 8A, which provides instructions. DOE additionally encourages stakeholders to utilize the public meetings to ask questions related to operation of the LCC and other VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 models, and will consider whether more general resources are warranted. WM Technologies commented that after running the analysis on a local computer and using the Forecast Report writer in Crystal Ball, several cells identified cell errors and yet the analysis continued and provided results. WM Technologies noted some values of forecasts cells were empty. WM Technologies requested the Department provide further commentary on why empty values are present in forecast reports, particularly when the all product categories are subject to 10,000 iterations. (WM Technologies, No. 25 at p. 10) In response, DOE notes that the LCC model at each iteration selects a baseline efficiency for use in the iteration for all four equipment classes. For any possible efficiency level other than the lowest level, this leads to a situation where, by definition, there will be no LCC savings if a standard is set at that level. For example, if the model selects EL3 as the baseline, there would be no LCC savings and no PBP results for a standard set at lower efficiency levels. Because the number 0 is a valid result, setting those to 0 introduces possible issues. Rather, the model sets them equal to a blank, or a character field set to ’’ ‘‘. Thus if you print the forecast report, you will find blanks. Because introducing characters into downstream calculations causes math errors, the Crystal Ball routines are instructed by the VBA code to ignore these errors. DOE has used this method in LCC models for years to distinguish between ‘‘no impact cases’’ and cases with a valid result of 0. WM Technologies requested the Department comment upon how different geographic areas are referenced in the same iteration. (WM Technologies, No. 25 at p. 10) At each iteration, the LCC model pulls eight samples, a RECS and CBECS sample for each of the four equipment classes, and then selects either residential or commercial to choose whether to use the RECS or CBECS sample. Those eight samples will all have their own geographic location linked to either the RECS or the CBECS samples selected, and would only purely by chance have the same geographic location. WM Technologies stated their review of chapter 8 and appendix 8G did not clearly identify how the subgroup analysis is completed. They said further review of the LCC workbook indicates that the low-income subgroup is comprised of the first six bins in cells O3 to P28, and shown in B6 to B11. However, the assumption cell (B40) makes a probabilistic selection from range B6 to B36. Specifically, they PO 00000 Frm 00079 Fmt 4701 Sfmt 4700 69763 stated it would be beneficial to only run the sub-group analysis by hard coding the selection of income bins. They asked DOE to please verify that the correct values to hard code are in the range of B15 to AS16 on the ‘‘Bldg.Sample’’ tab. Additionally, they asked DOE to please provide insight into and how cells FG4 to FG12086 in tab ‘‘RECS.WH’’ relate the analysis and how the range D30 to E 54 on the ‘‘Control.Panel’’ tab interact with the analysis. (WM Technologies, No. 25 at p. 10) In response, DOE notes that the entire column of B6 to B36 comprises the probability distribution for the lowest 20 percent of residential households, or, in other words, the households that would be included in the low-income subgroup. The six bins that are referred to in cells O3 through P28 refer to the effort to remap the RECS income bins to the discount rate bins. The discount rates break the entire residential sector out by percentage of households while RECS breaks households out into discrete income bins. The model codes individual RECS samples as either eligible for the subgroup using the look-up table referenced above on the Control Panel tab and column CC on the Sampling Distributions. Column CC is either 0 or 1. If the model is not running a subgroup, all RECS income bins are coded as 1. If the model is running a subgroup, only those RECS income bins in the subgroup are coded 1, and the rest are coded 0. On the Sampling Distribution tab, the sampling weight assigned to each RECS observation is multiplied by the corresponding row of column CC. Thus, in a regular run, all households could be chosen. In a subgroup model run, only those households in the 0–20 percent of household income could be chosen. G. Shipments Analysis DOE uses projections of annual equipment shipments to calculate the national impacts of potential amended or new energy conservation standards on energy use, NPV, and future manufacturer cash flows.135 The shipments model, discussed in section IV.G.6 of this final rule, takes an accounting approach, tracking market shares of each equipment category and the vintage of units in the stock. Stock accounting uses equipment shipments as inputs to estimate the age distribution of in-service equipment stocks for all years. The age distribution of in-service equipment stocks is a key input to 135 DOE uses data on manufacturer shipments as a proxy for national sales, as aggregate data on sales are lacking. In general, one would expect a close correspondence between shipments and sales. E:\FR\FM\06OCR2.SGM 06OCR2 69764 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations calculations of both the NES and NPV because operating costs for any year depend on the age distribution of the stock. lotter on DSK11XQN23PROD with RULES2 1. Commercial Gas Fired and Electric Storage Water Heaters To develop the shipments model, DOE started with known information on shipments of commercial electric and gas-fired storage water heaters collected for the years 1994–2022 from the AHRI website,136 and extended back to 1989 with data contained in a DOE rulemaking document published in 2000.137 The historical shipments of commercial electric and gas-fired storage water heaters are summarized in Table IV.23 of this final rule. Given that the estimated average useful lifetimes of these two types of equipment are 12 and 10 years, respectively, the historical shipments provided a basis for the development of a multi-year series of stock values. Using the stock values, a saturation rate was determined by dividing equipment stock by building stock, and this saturation rate was combined with annual building stock additions to estimate the shipments to new construction. With these data elements, a yearly accounting model was developed for the historical period to identify shipments deriving from new construction and from replacements of existing equipment. The accounting model also identified consumer migration into or out of the storage water heater equipment classes by calculating the difference between new plus replacement shipments and the actual historical shipments. TABLE IV.23—HISTORICAL SHIPMENTS OF COMMERCIAL GAS-FIRED AND ELECTRIC STORAGE WATER HEATERS—Continued Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Commercial gas-fired storage Commercial electric storage 99,317 93,969 96,582 90,292 96,481 82,521 84,653 90,345 88,265 75,487 78,614 84,705 80,490 88,539 94,247 98,095 97,026 93,677 94,473 88,548 80,070 90,192 83,487 44,162 46,508 45,819 48,137 57,944 56,178 63,170 67,985 68,686 55,625 58,349 60,257 67,265 69,160 73,458 88,251 127,344 152,330 137,937 150,667 140,666 154,330 120,152 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. For the May 2022 CWH ECS NOPR, DOE utilized regression techniques to develop the shipments forecast based on the assumption that shipments of gasfired storage water heaters are a function of relative prices of natural gas and electricity, building stocks (i.e., the replacement market), and building stock additions (the new market); the regression inputs were updated with 2022 data for this final rule. The result was a model yielding a forecast of TABLE IV.23—HISTORICAL SHIPMENTS shipments that increases 0.03 percent per year from 2023–2055, reaching just OF COMMERCIAL GAS-FIRED AND over 90,100 units by 2055. See chapter ELECTRIC STORAGE WATER HEAT- 9 of the final rule TSD for further ERS details. The resulting growth rate for shipments is less than the underlying Commercial Commercial growth in building stocks (0.9 percent Year gas-fired electric between 2023–2055). storage storage For the May 2022 CWH ECS NOPR 1994 .................. 91,027 22,288 and for this final rule, no historical 1995 .................. 96,913 23,905 information was available that 1996 .................. 127,978 26,954 specifically identified shipments of gas1997 .................. 96,501 30,339 fired storage-type instantaneous water 1998 .................. 94,577 35,586 1999 .................. 100,701 39,845 heaters. The AHRI online historical shipments data explicitly states residentially marketed equipment is 136 Air Conditioning, Heating, and Refrigeration excluded but does not explicitly state Institute. Commercial Storage Water Heaters Historical Data and Monthly Shipments. Available whether instantaneous storage at www.ahrinet.org/analytics/research/historicalequipment is included or excluded. data/commercial-storage-water-heaters-historicalBecause of the similarities between the dataand www.ahrinet.org/analytics/statistics/ commercial storage gas water heaters monthly-shipments.Last accessed March 10, 2023. 137 U.S. Department of Energy. Screening and the gas-fired storage-type Analysis for EPACT-Covered Commercial HVAC instantaneous water heaters, DOE has and Water-Heating Equipment. Volume 1—Main included both in downstream analyses Report. 2000. EERE–2006–STD–0098–0015. in this final rule. However, DOE Available at www.regulations.gov/ recognizes that some or all of the #!documentDetail;D=EERE-2006-STD-0098-0015. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00080 Fmt 4701 Sfmt 4700 storage-type instantaneous shipments may not be captured in the historical AHRI shipments data. The DOE shipments analysis is derived from AHRI historical shipments data and thus may underrepresent future shipments of gas-fired storage-type instantaneous water heaters. 2. Residential-Duty-Gas-Fired Storage and Instantaneous Water Heaters For the May 2022 CWH ECS NOPR, DOE developed an econometric model similar to that described for commercial gas-fired storage water heater shipments. Following publication of the withdrawn May 2016 CWH ECS NOPR, AHRI provided data from manufacturers on instantaneous water heater shipments to DOE’s contractors under a confidentiality agreement and indicated that the data include shipments of gasfired instantaneous tankless and circulating water heating equipment. DOE used these data to estimate an equation relating commercial instantaneous shipments to building stock additions and commercial electricity prices.138 Because the historical data did not provide sufficient detail to identify the percentages represented by tankless and circulating water heater shipments, DOE estimated that 50 percent of the shipments are instantaneous tankless shipments and the remainder are circulating water heaters. Because the actual information provided by AHRI is confidential and cannot be disclosed, the only information being made available in this final rule is the econometric forecast made for use in the analysis. Since the equipment that DOE has been calling hot water supply boilers includes what AHRI calls circulators as well as a second type of equipment AHRI calls boilers, DOE clarifies that the new DOE forecast for hot water supply boilers includes both circulating water heating equipment and hot water supply boilers. The circulating water heater shipments were developed as described earlier. In the May 2022 CWH ECS NOPR, DOE requested additional historical shipment information for commercial gas-fired instantaneous tankless water heaters to supplement the data provided in response to the 138 While the instantaneous units are gas-fired, natural gas variables consistently exhibited incorrect signs on the estimated coefficients. For example, the ratio of commercial electric price divided by commercial gas had a negative sign, meaning that higher ratios would lead to lower shipments. This is the opposite of what was expected. Higher electric prices relative to gas prices should lead to higher, not lower, shipments of the natural gas products. Thus, commercial natural gas price variables were omitted from the model. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 withdrawn May 2016 CWH ECS NOPR, and also sought actual historical shipments for gas-fired storage-type instantaneous water heaters and hot water supply boilers, but did not receive any data, and DOE was not able to identify additional information sources for the instantaneous equipment class shipments. In the May 2022 CWH ECS NOPR, DOE requested actual historical shipment data for residential-duty gasfired storage water heaters, but did not receive any data, and DOE was not able to identify additional information sources for residential-duty gas-fired shipments. DOE clarifies that residential-duty gas-fired storage water heaters are not residential water heaters. Instead, they are a type of CWH equipment and DOE draws no conclusions about residential-duty gasfired storage shipments replacing or being replaced by commercial gas-fired storage water heater shipments. Rather, the linkage used in the DOE model would essentially have shipments of both types of storage equipment going up or down in parallel. DOE retained the forecasting method used for the May 2022 CWH ECS NOPR, using the same 20 percent factor. In other words, DOE assumes residential-duty gas-fired storage water heater shipments track with commercial gas-fired storage water heaters, and shipments of the former are assumed to be 20 percent of the shipments of the latter. 3. Available Products Database and Equipment Efficiency Trends For the May 2022 CWH ECS NOPR, DOE revised the shipments and other analyses to reflect efficiency distribution data for commercial gasfired storage water heaters and instantaneous gas-fired water heaters provided by AHRI, reconciling the analyses to account for the AHRI data rather than relying heavily on the number of available models to produce equipment efficiency trends. For this final rule analysis, DOE used the same adjustment method to account for underlying growth in high-efficiency products. In the May 2022 CWH ECS NOPR, DOE requested historical shipments data dividing shipments between condensing and non-condensing efficiencies for all equipment types that comprise the subject of this proposed rulemaking. In comments filed in response to the May 2022 CWH ECS NOPR, A.O. Smith stated that the percentage of commercial gas-fired instantaneous circulating water heaters and hot water supply boilers shipments that are condensing is lower than the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 percentage for gas storage products. (A.O. Smith, No. 22 at p. 3) As discussed in section IV.H.1, DOE used the AHRI-provided historical data received following the withdrawn May 2016 CWH ECS NOPR to fit a Bass Diffusion curve for each of the equipment categories analyzed for this final rule. With respect to the concern raised by A.O. Smith regarding condensing shares of circulating water heaters and hot water supply boilers in comparison to commercial gas storage water heaters, the data received from AHRI regarding the fraction of the units of the instantaneous equipment class that were condensing at 90 percent and over was higher than it was for the commercial gas storage category, and DOE did not receive any additional data nor identify additional sources of shipments by efficiency level for the instantaneous equipment categories on which DOE could base an adjustment to the diffusion curve. Further, DOE reviewed the underlying model counts and notes that the unadjusted model counts for condensing level commercial gas-fired storage and condensing level instantaneous circulating water heaters and hot water supply boilers are the same percentage of total models (45 percent). While DOE appreciates A.O. Smith’s comment, the most recent industry data supplied by AHRI does not indicate that the condensing share of instantaneous circulating water heaters and hot water supply boilers are less than those for the commercial gasfired storage equipment class. In comments filed in response to the May 2022 CWH ECS NOPR, Rheem noted that the same colors were used for ‘‘Com/Res-Duty Gas Storage’’ and ‘‘Gas Instant HWSB’’ in Figure 10.2.1 of the NOPR TSD making it difficult to comment; however, Rheem commented it appeared that DOE was estimating between 55 and 60 percent of gas-fired storage water heaters are condensing, and that the breakdown between noncondensing and condensing levels needs review; Rheem also noted that they were willing to discuss the breakdown in a confidential meeting. (Rheem, No. 24 at p. 3, 6) DOE thanks Rheem for pointing out that the colors used in Figure 10.2.1 of the May 2022 CWH ECS NOPR TSD were difficult to differentiate, and DOE has made adjustments to that figure within the final rule TSD to better distinguish the data illustrated there. Regarding Rheem’s concern about condensing versus non-condensing shares of commercial gas-fired storage water heaters, DOE notes that the most recent ENERGY STAR data for commercial gas-fired water heaters PO 00000 Frm 00081 Fmt 4701 Sfmt 4700 69765 reports an estimated market penetration of 49 percent of total commercial gasfired water heaters were ENERGY STAR qualified in 2021, with a thermal efficiency greater than or equal to 0.94.139 DOE notes that there are additional condensing models currently on the market that do not meet ENERGY STAR requirements, so the total estimated condensing percentage is likely higher than ENERGY STAR levels. As discussed in response to the A.O. Smith comment earlier, AHRI supplied industry-level data on condensing shares of commercial gasfired storage water heaters that has been fit to a Bass Diffusion curve, and the additional information received during supplemental manufacturer interviews did not include additional data on which to base changes to these percentages. In comments filed in response to the May 2022 CWH ECS NOPR, A.O. Smith also stated that an analysis of their own shipments shows that 5 percent of residential-duty gas-fired storage units are condensing. (A.O. Smith, No. 22 at p. 4) In the May 2022 CWH ECS NOPR, DOE had used the same condensing market share curve calculated for commercial gas-fired storage water heaters, projected to be greater than 60 percent by 2026. In response, DOE considered the A.O. Smith data point, recognizing that it is a single data point that may not be representative of the entire industry, and also reviewed both ENERGY STAR data and the model counts database. Residential-duty gasfired storage water heaters are included under the residential ENERGY STAR water heater program, rather than the commercial gas water heater program. Based on ENERGY STAR data, shipments of ENERGY STAR-rated residential gas-fired water heaters as a share of total shipments was 8 percent in 2021.140 DOE notes that historically, not all ENERGY STAR-rated residential gas-fired water heaters have been condensing models,141 and also that the 139 U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/ default/files/asset/document/2021%20Unit %20Shipment%20Data%20Summary%20Report_ 0.pdf. Last accessed December 17, 2022. 140 U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/ default/files/asset/document/ 2021%20Unit%20Shipment%20Data%20Summary %20Report_0.pdf. Last accessed December 17, 2022. 141 ENERGY STAR updated its residential gas water heater criteria, including its criteria for gasfired storage residential-duty commercial water heaters, effective on April 18, 2023. Under the updated specification requirements, residential- E:\FR\FM\06OCR2.SGM Continued 06OCR2 lotter on DSK11XQN23PROD with RULES2 69766 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations estimated number of residential-duty gas-fired water heaters are a small fraction of total residential gas-fired water heater shipments, so DOE was not able to definitively determine what share of the residential-duty market is comprised of condensing equipment. DOE calculated that the percentage of residential-duty gas-fired water heaters that are condensing according to model counts is 32 percent, which is significantly less than the 45 percent of model counts identified as condensing for commercial gas-fired storage water heaters. For this final rule, DOE has revised the condensing market share for residential-duty gas-fired storage water heaters based on this information, using the historical ENERGY STAR residential water heater shipments to fit the Bass Diffusion curve. As conveyed in section IV.H.1, the overall resulting condensing share diffusion curve for the residentialduty equipment class is now lower than that modeled for commercial gas-fired storage water heaters. A.O. Smith raised concerns that setting new minimum energy conservation standards for commercial gas-fired products at 95 percent and 96 percent thermal efficiency will have a dilutive effect on the ENERGY STAR program. For ENERGY STAR to remain a relevant catalyst for market adoption of commercial gas-fired water heaters, A.O. Smith said ENERGY STAR would need to set a new specification level significantly above the Department’s proposed new minimums, which de facto would render the program obsolete for gas-fired CWH. A.O. Smith believes such an outcome would create significant marketplace competition implications considering technology feasibility, manufacturer product costs (MPCs) as well as limit product options for commercial businesses. (A.O. Smith, No. 22 at p. 3) Similarly, Atmos Energy stated that the proposed standards would negatively impact existing rebate programs. Atmos Energy stated that incentive programs provide a costeffective means for improving residential building energy efficiency without requiring a market transition through which the water heating options consumers need are no longer available. (Atmos Energy, No. 36 at p. 3) As discussed in section IV.C.4.a, DOE reviewed the efficiency level distributions of products on the market and found that the market distributions show the greatest number of unique basic models within the condensing range at 96 percent for gas-fired storage duty gas-fired storage water heaters would likely need to be condensing to be ENERGY STAR compliant. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 water heaters and storage typeinstantaneous water heaters, gas-fired tankless water heaters, and gas-fired circulating water heaters and hot water supply boilers. DOE anticipates that there is still room for product differentiation, particularly for gas-fired storage water heaters which account for most of the shipments in this final rule, where products above 95 percent efficiency currently exist at 96, 97, 98, and 99 percent, and DOE also notes that products exist at 97 percent efficiency for tankless water heaters, and that there are products at 97, 98, and 99 percent efficiency products for circulating water heaters and hot water supply boilers. Thus, ENERGY STAR specifications could be updated, allowing for the continuation of utility rebate and other incentive programs. 4. Electrification Trends In comments submitted in response to the May 2022 CWH ECS NOPR, several stakeholders expressed concerns about the impact of legislation and codes requiring electrification. Bradford White believes that local policies and codes that restrict the use of gas-fired commercial water heaters need to be taken into account, and both WM Technologies and Patterson-Kelley noted that local building codes are limiting installation of new gas-fired products, which are a risk of decreased future annual shipments across the market, and that changes in building codes related to discarding appliances prior to the end of their normal operational life could also impact shipments. (Bradford White, No. 23 at p. 6; WM Technologies, No. 25 at p. 3; Patterson-Kelley, No. 26 at p. 3) WM Technologies also commented that changes in building codes relating to electrification are impacting fuel switching differently at different efficiency levels in some localities. (WM Technologies, No. 25 at p. 3) AHRI also noted building code changes in states like Washington that are requiring heat pump water heating. (AHRI, No. 31 at p. 6) In response, DOE has conducted an internet search of State and municipal level legislation and building codes to identify locations where electrification requirements have been put into place, and where building codes have been changed with respect to discarding appliances prior to the end of their normal life. DOE identified a total of 81 municipalities and 1 State with an electrification requirement, either for new buildings, or upon equipment replacement.142 DOE also identified a 142 Building Decarbonization Coalition, Zero Emission Building Ordinances, State and Local PO 00000 Frm 00082 Fmt 4701 Sfmt 4700 total of 20 States that have prohibited building gas restrictions and electrification mandates.143 DOE was not able to identify any building codes that had been changed with respect to discarding appliances prior to the end of their normal life. DOE further notes that States and municipalities are actively proposing plans or legislation addressing electrification, or prohibiting electrification. Until these are adopted or passed, they are subject to change. As such, DOE attempted to account only for those jurisdictions that have passed or adopted electrification requirements. For example, both California and New York have released plans that incorporate end-use electrification for buildings, but neither State has finalized those plans.144 145 Thus only municipalities within these States that have passed or adopted electricity requirements were included in DOE’s analysis. DOE conducted a sensitivity analysis of potential electrification trends to consider the impact of additional electrification if both California and New York were to adopt electrification requirements state-wide (see appendix 10B of the final rule TSD). Additionally, DOE notes that in December of 2022, DOE published the Clean Energy for New Federal Buildings and Major Renovations of Federal Buildings SNOPR (‘‘Clean Energy Rule’’) as required by section 433 of the Energy Independence and Security Act of 2007 (‘‘EISA 2007’’), which requires that fossil fuel generated energy consumption be reduced to zero (as compared to a 2003 baseline) by 2030 for new construction and major renovations of Federal buildings.146 Federal buildings are also subject to E.O. 14057, which requires that all new construction and major modernization Government Decarbonization Efforts. Available at buildingdecarb.org/zeb-ordinances.html, Last accessed November 28, 2022. 143 Gas Ban Monitor: East Coast policies advance; Pa. gas ban prohibition fails, August 2, 2022. Available at www.spglobal.com/marketintelligence/ en/news-insights/latest-news-headlines/gas-banmonitor-east-coast-policies-advance-pa-gas-banprohibition-fails-71439034. Last Accessed November 28, 2022. 144 California Air Resources Board, November 16, 2022. 2022 Scoping Plan for Achieving Carbon Neutrality. Available at ww2.arb.ca.gov/sites/ default/files/2022-11/2022-sp.pdf. Last accessed December 19, 2022. 145 New York State Climate Action Council. 2022. ‘‘New York State Climate Action Council Scoping Plan.’’ Available at climate.ny.gov/-/media/project/ climate/files/2022-12-15-Draft-Final-ScopingPlan.pdf. Last accessed December 20, 2022. 146 Available at www.federalregister.gov/ documents/2022/12/21/2022-27098/clean-energyfor-new-federal-buildings-and-major-renovationsof-federal-buildings. Last accessed February 13, 2023. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations projects greater than 25,000 gross square feet be designed, constructed, and operated to be net-zero emissions by 2030, and that the Federal sector will have a net-zero emissions building portfolio by 2045, including a 50 percent emissions reduction (over 2008 levels) by 2032.147 DOE used this information to develop an adjustment to account for reduced shipments due to electrification requirements. In total, based on policies and codes that have been adopted as of November 28, 2022, approximately 8 percent of the United States by population will be subject to electrification requirements for new buildings by 2026, with approximately 0.3 percent subject to electrification upon equipment replacement. Additionally, based on the proposed Clean Energy Rule and E.O. 14057, the potential percentage of floorspace impacted by Federal rules and requirements would range from 0.6 percent to 0.9 percent of new construction, and of 0.6 percent to 2.3 percent of replacements. The resulting adjustments are shown in Table IV.24. TABLE IV.24—ELECTRIFICATION REDUCTIONS Year 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. New shipment reductions Replacement shipment reductions (%) 8.6 8.6 8.6 8.5 8.5 8.5 8.6 8.6 8.6 8.7 8.7 8.7 8.8 8.8 8.8 8.8 8.9 8.9 0.9 1.0 1.1 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.9 2.0 2.1 2.2 2.3 2.3 2.4 2.5 69767 wishes to clarify that the only residential applications considered in both the May 2022 CWH ECS NOPR and this final rule analysis are those in Replacement shipment multi-family buildings; single family reductions and manufactured home applications (%) were excluded from the analysis, as 2.6 previously suggested by commenters in 2.6 response to the withdrawn May 2016 2.6 CWH ECS NOPR. TABLE IV.24—ELECTRIFICATION REDUCTIONS—Continued Year 2044 2045 2046 2047 2048 2049 2050 2051 2052 2053 2054 2055 New shipment reductions .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. .............. 8.9 8.9 8.9 8.9 8.9 8.8 8.8 8.8 8.8 8.8 8.8 8.8 2.6 2.6 2.5 2.5 2.5 2.5 2.5 2.5 2.4 A more detailed discussion of this adjustment and the underlying calculations is contained in chapter 9 of this TSD. 5. Shipments to Residential Consumers DOE determined the fractions of commercial and residential applications for each equipment category based on the number of samples (in both CBECS and RECS) selected as relevant to be served by each equipment category considered in this rulemaking. Based on comments received in response to the withdrawn May 2016 CWH ECS NOPR, DOE included only residential multifamily stocks and building additions when considering the potential noncommercial consumer component in the development of the shipments forecast in the May 2022 CWH ECS NOPR. In comments received on the May 2022 CWH ECS NOPR, Bradford White noted DOE has overstated the amount of commercial gas-fired storage and storage-type instantaneous water heaters that are installed in residential applications, as in their experience, there are very few residential installations where this occurs (e.g., typically high end, large homes), and that they do not see gas-fired circulating water heaters and hot water supply boilers used in residential applications. (Bradford White, No. 23 at p. 6) DOE 6. Final Rule Shipment Model To project shipments and equipment stocks for 2023 through the end of the 30-year analysis period (2055), DOE used the shipments forecasting models (described in sections IV.G.1 and IV.G.2 of this final rule), a stock accounting model, and adjustments for electrification. The stock accounting model keeps track of shipments and calculates replacement shipments based on the historical shipments, the expected useful lifetime of each equipment class, and a Weibull distribution that identifies a percentage of units still in existence from a prior year that will fail and need to be replaced in the current year. In each year, DOE assumed a fraction of the replacement market will be retired rather than replaced due to the demolition of buildings in which this CWH equipment resides. This retirement fraction was derived from building stock data from the AEO2023.148 To project shipments of CWH equipment for new construction, DOE relied on building stock data obtained from AEO2023. For this final rule, DOE assumes CWH equipment is used in both commercial buildings and residential multi-family buildings. DOE estimated a saturation rate for each equipment type using building and equipment stock values. The saturation rate was applied to new building additions in each year, yielding shipments to new buildings. The building stock and additions projections from AEO2023 are shown in Table IV.25. TABLE IV.25—BUILDING STOCK PROJECTIONS Total commercial building stock (million sq. ft.) lotter on DSK11XQN23PROD with RULES2 Year 2022 2025 2026 2030 ......................................................................................... ......................................................................................... ......................................................................................... ......................................................................................... 147 E.O. 14057: Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, December 8, 2021. Available at www.fedcenter.gov/ VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Commercial building stock additions (million sq. ft.) 93,444 96,234 97,373 101,747 Frm 00083 Fmt 4701 Sfmt 4700 Multi-family residential building additions (millions of units) 32.84 33.86 34.18 35.47 0.61 0.49 0.49 0.49 2,027 2,272 2,197 2,473 programs/eo14057/. Last accessed December 16, 2022. PO 00000 Multi-family residential building stock (millions of units) 148 U.S. Energy Information Administration (EIA). 2023 Annual Energy Outlook. March 2023. Available at www.eia.gov/outlooks/aeo/. E:\FR\FM\06OCR2.SGM 06OCR2 69768 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.25—BUILDING STOCK PROJECTIONS—Continued Total commercial building stock (million sq. ft.) Year 2035 ......................................................................................... 2040 ......................................................................................... 2045 ......................................................................................... 2050 ......................................................................................... 2055 * ....................................................................................... Commercial building stock additions (million sq. ft.) 108,065 112,879 116,845 121,045 123,348 Multi-family residential building stock (millions of units) Multi-family residential building additions (millions of units) 36.93 38.37 39.78 41.14 42.61 0.46 0.48 0.47 0.48 0.51 2,336 2,127 2,152 2,293 2,381 Source: EIA AEO2023 Reference case. * Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050. The next component in the stock accounting model is the calculation of shifts to or away from particular equipment classes. For this final rule, shipments were an input to the stock model. For both the historical and forecasted period, shifts to or away from a particular equipment class were calculated as a remainder. Using a saturation rate derived from historical equipment and building stocks, the model estimates shipments to new buildings. Using historical stock and retirement rates based on equipment life, the model estimates shipments for stock replacement. Shifts to or away from a particular equipment class equal the total shipments less shipments for new buildings and shipments for replacements. While DOE refers to the remainders as ‘‘shifts to or away from the equipment class,’’ the remainders could be a result of numerous factors: equipment lasting longer, which reduces the number of replacements; increased or decreased need for hot water generally due to greater efficiency in water usage; changing patterns of commercial activity; outside influences, such as ENERGY STAR and utility conservation or marketing programs; actual shifts between equipment classes caused by relative fuel prices, relative equipment costs and efficiencies, installation costs, repair and maintenance costs, and consumer preferences; and other factors. Based on the historic data, there is an apparent shift toward electric storage water heating equipment. The historical shipments summarized in Table IV.23 of this document show a steady growth in commercial electric storage water heaters, with shipments growing from 22,288 in 1994 to 154,330 in 2021, but declining in 2022 to 120,152, the lowest since 2016. Over the same time period, commercial gas-fired storage water heaters have seen a decline in shipments from 91,027 in 1994 to a low of 75,487 in 2009. After 2009, gas-fired storage water heater shipments rebounded, reaching a shipment level of 90,192 in 2021 (and a peak of 98,095 in 2015), although they declined again in 2022, to 83,487, the second lowest year since 2013. During the period 2009 through 2015, there was a reduction in the apparent shift away from commercial gas-fired storage units compared to the earlier period; however, there appeared to be an increase in 2016–2017 before returning to a reduction in the shift in commercial gas-fired storage units. Because the forecasted shipments of residential-duty gas-fired storage water heaters are linked to commercial gas-fired storage units, there is a similar shift away from the residential-duty gas-fired storage equipment class in the shipment forecast. Gas-fired instantaneous equipment appears to have a positive shift pattern. Because the commercial gas-fired storage and gas-fired instantaneous CWH shipments forecasts were developed using econometric models based on historical data, these apparent shifts are captured in DOE’s shipments model and embedded in the total forecast. For purposes of assigning equipment costs and energy usage in the NIA, DOE needs to know if the increased/decreased shipments are new or replacement shipments. For all equipment classes, DOE assumed that the apparent shift is most likely to occur in new installations rather than in the replacement installations. As described in chapter 9 of the final rule TSD, DOE assumed that a shift is twice as likely to take place in a new installation as in a replacement installation. For example, if DOE estimated that in 2023, 20 percent of shipments for an equipment class went to new installations and 80 percent went for replacements in the absence of switching, DOE multiplied the 20 percent by 2 (40 percent) and added the 80 percent (which equals 120 percent). Both the 40 percent for new and the 80 percent for replacement were then divided by 120 percent to normalize to 100 percent, yielding revised shipment allocations of 33 percent for new and 67 percent for replacement. Finally, an adjustment is made to account for units projected to switch out of the equipment class due to electrification requirements. The estimated percent reduction shown in Table IV.24 is applied to the new and replacement shipments calculated for each year as described previously. These modified shipments are then accounted for in future stock retirements so that once a unit has ‘‘exited’’ the stock, it does not re-enter when it would be due for replacement. The resulting shipment projection is shown in Table IV.26. lotter on DSK11XQN23PROD with RULES2 TABLE IV.26—SHIPMENTS OF COMMERCIAL WATER HEATING EQUIPMENT Commercial gasfired storage water heaters and gasfired storage-type instantaneous water heaters (units *) Year 2023 ..................................................................................... 2025 ..................................................................................... 2026 ..................................................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00084 87,890 89,827 90,483 Fmt 4701 Sfmt 4700 Residential-duty gas-fired storage water heaters (units) Gas-fired tankless water heaters (units) Gas-fired circulating water heaters and hot water supply boilers (units) 9,612 10,123 10,312 11,141 11,658 11,931 17,548 17,919 18,051 E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69769 TABLE IV.26—SHIPMENTS OF COMMERCIAL WATER HEATING EQUIPMENT—Continued Commercial gasfired storage water heaters and gasfired storage-type instantaneous water heaters (units *) Year 2030 2035 2040 2045 2050 2055 ..................................................................................... ..................................................................................... ..................................................................................... ..................................................................................... ..................................................................................... ..................................................................................... Residential-duty gas-fired storage water heaters (units) 90,838 89,229 88,121 87,733 87,422 86,917 Gas-fired tankless water heaters (units) Gas-fired circulating water heaters and hot water supply boilers (units) 13,212 14,970 16,700 18,822 21,013 23,259 15,123 17,076 18,615 20,726 22,992 25,366 18,189 17,839 17,617 17,545 17,484 17,380 * The projected shipments are based on historical data for commercial gas-fired storage water heaters which may or may not include storagetype instantaneous shipments. For analysis purposes, DOE has grouped these categories but recognizes that future shipments for storage-type instantaneous may not be captured in the projection. Because the estimated energy usage of CWH equipment differs by commercial and residential settings, the NIA employs the same fractions of shipments (or sales) to commercial and to residential consumers used by the LCC analysis. The fractions of shipments by type of consumer are shown in Table IV.27. TABLE IV.27—SHIPMENT SHARES BY TYPE OF CONSUMER Commercial (%) Equipment lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters ................ Residential-duty gas-fired storage water heaters .................................................................................................... Gas-fired instantaneous water heaters and hot water supply boilers: Gas-fired tankless water heaters ..................................................................................................................... Gas-fired circulating water heaters and hot water supply boilers .................................................................... For the NIA model, shipments must be disaggregated by efficiency levels that correspond to the levels analyzed in the engineering and LCC analyses. To identify the percentage of shipments corresponding to each efficiency level, DOE combined the efficiency trends based on AHRI and manufacturer shipments data and information derived from a database of equipment currently produced and sold by manufacturers. The sources of information for this database included the DOE Compliance Certification and manufacturer catalogs and websites. DOE used the AHRI shipments data provided in response to the withdrawn May 2016 CWH ECS NOPR to project the percentage of shipments that are condensing and noncondensing, for the period from 2015 through the end of the analysis period. Starting with the last year of historical data from AHRI, shipments within the non-condensing and condensing efficiency ranges were distributed based on the available models database. Because the efficiency bins used in the AHRI shipments data did not exactly match the thermal efficiency bins studied by DOE, available models were used to re-distribute the historical shipment period within the noncondensing and condensing efficiency ranges to match the DOE thermal VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 efficiency levels. For each subsequent year in the final rule analysis period, as the percentage of shipments that are in the condensing efficiency range increases, the shipments are distributed across the condensing thermal efficiency levels by increasing proportionally the percentage of shipments by efficiency level in the previous year. Similarly, as the percentage of non-condensing shipments decrease, DOE distributed shipments across thermal efficiency levels by proportionately decreasing the percentage of shipments in the prior year. H. National Impact Analysis The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings that would be expected to result from new or amended standards at specific efficiency levels.149 (‘‘Consumer’’ in this context refers to consumers of the equipment being regulated.) DOE calculates the NES and NPV for the potential standard levels considered based on projections of annual equipment shipments, along with the annual energy consumption and total installed cost data from the energy use and LCC analyses. For the 149 The NIA accounts for impacts in the 50 states and U.S. territories. PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 Residential (%) 84 60 16 40 60 85 40 15 present analysis, DOE projected the energy savings, operating cost savings, equipment costs, and NPV of consumer benefits for equipment shipped from 2026 through 2055, the year in which the last standards-compliant equipment would be shipped during the 30-year analysis period. DOE evaluates the impacts of new or amended standards by comparing a case without such standards with standardscase projections. The no-new-standards case characterizes energy use and consumer costs for each equipment class in the absence of new or amended energy conservation standards. For this projection, DOE considers historical trends in efficiency and various forces that are likely to affect the mix of efficiencies over time. DOE compares the no-new-standards case with projections characterizing the market for each equipment class if DOE adopted new or amended standards at specific energy efficiency levels (i.e., the TSLs or standards cases) for that class. For the standards cases, DOE considers how a given standard would likely affect the market shares of equipment with efficiencies greater than the standard. DOE uses a spreadsheet model to calculate the energy savings and the national consumer costs and savings from each TSL. Chapter 10 and E:\FR\FM\06OCR2.SGM 06OCR2 69770 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations appendix 10A of the final rule TSD explain the model and how to use it. The model and documentation are available on DOE’s website.150 Interested parties can review DOE’s analyses by changing various input quantities within the spreadsheet. The NIA spreadsheet model uses typical values (as opposed to probability distributions) as inputs. Unlike the LCC analysis, the NIA does not use distributions for inputs or outputs, but relies on inputs based on national average equipment costs and energy costs. DOE used the NIA spreadsheet to perform calculations of NES and NPV using the annual energy consumption, maintenance and repair costs, and total installed cost data from the LCC analysis. The NIA also uses energy prices and building stock and additions consistent with the projections from the AEO2023. NIA results are presented in chapter 10 of the final rule TSD. Table IV.28 summarizes the inputs and methods DOE used for the NIA analysis for this final rule. Discussion of these inputs and methods follows the table. See chapter 10 of the final rule TSD for further details. TABLE IV.28—SUMMARY OF INPUTS AND METHODS FOR THE NATIONAL IMPACT ANALYSIS Inputs Method Shipments ........................................................... Compliance Date of Standard ............................ Efficiency Trends ................................................ Annual Energy Consumption per Unit ................ Total Installed Cost per Unit ............................... Annual Energy Cost per Unit .............................. Annual shipments from shipments model. 2026. No-new-standards case, standards cases. Annual weighted-average values are a function of energy use at each TSL. Annual weighted-average values are a function of cost at each TSL. Annual weighted-average values as a function of the annual energy consumption per unit and energy prices. Annual values do not change with efficiency level. AEO2023 projections (to 2050) and extrapolation thereafter. A time-series conversion factor based on AEO2023. 3 percent and 7 percent. 2023. lotter on DSK11XQN23PROD with RULES2 Repair and Maintenance Cost per Unit .............. Energy Price Trends ........................................... Energy Site-to-Primary and FFC Conversion ..... Discount Rate ..................................................... Present Year ....................................................... 1. Product Efficiency Trends A key component of the NIA is the trend in energy efficiency projected for the no-new-standards case and each of the standards cases. DOE uses a no-newstandards-case distribution of efficiency levels to project what the CWH equipment market would look like in the absence of potential standards. For the withdrawn May 2016 CWH ECS NOPR, DOE developed the no-newstandards-case distribution of equipment by thermal efficiency levels, and by standby loss efficiency levels, for CWH equipment by analyzing a database 151 of equipment currently available. For the standards cases, DOE used a ‘‘roll-up’’ scenario to establish the shipment-weighted efficiency for the year that standards are assumed to become effective (2026). In this scenario, the market shares of equipment in the no-new-standards case that do not meet the standard under consideration would ‘‘roll up’’ to meet the new standard level, and the market share of equipment above the standard would remain unchanged. The approach is further described in chapter 10 of the final rule TSD. For this final rule, DOE developed the no-new-standards distribution of equipment by thermal efficiency levels for CWH equipment using data from DOE’s Compliance Certification database, data submitted by AHRI regarding condensing versus noncondensing equipment, and ENERGY STAR shipments for residential gasfired water heaters. Using the data provided by AHRI for commercial gasfired storage water heaters and instantaneous gas-fired water heaters and hot water supply boilers, DOE has modeled a no-new-standards efficiency trend in which 75 to 85 percent of consumers purchase condensing equipment by 2055 by using the historical AHRI data to develop a future trend, but the Department points out that at present, the adoption of equipment equivalent to the standards proposed herein is currently about half of total shipments.152 Thus, this final rule analysis assigns substantial credit to market-driven efficiency accomplishments. DOE further notes that new and replacement markets were modeled using the same efficiency distributions. For this final rule, DOE used the AHRI efficiency data to fit a Bass Diffusion curve, which shows continued market-driven efficiency improvements over the forecast period up to a point where 75 percent of commercial gasfired storage and circulating water heaters and hot water supply boiler shipments are condensing in the nonew-standards case. For instantaneous tankless shipments, DOE modeled up to 85 percent of shipments in the condensing efficiency levels because it appears that presently, the percentage is much higher than for the other equipment types. Similarly, DOE used ENERGY STAR shipments of residential gas water heaters to fit a Bass Diffusion curve for the residential-duty equipment category, which shows continued market-driven efficiency improvement over the forecast period up to a point where 23 percent of residential-duty gas-fired storage water heater shipment are condensing in the no-new-standards case. DOE notes that the specification for the Bass Diffusion curve used a maximum of 75 percent; however, that maximum was not reached during the forecast period. Thus, an increasing efficiency trend is modeled over the 30year analysis period in the NIA model for all equipment categories. Table IV.29 shows the starting distribution of equipment by efficiency level. In the no-new-standards case, the distributions represent the starting point for analyzing potential energy savings and cumulative consumer impacts of potential standards for each equipment category. 150 DOE’s web page on CWH equipment is available at www1.eere.energy.gov/buildings/ appliance_standards/standards.aspx?productid=36. 151 This database was developed using model data from DOE’s Compliance Certification database (available at www.regulations.doe.gov/certificationdata/) and manufacturer websites and catalogs. 152 U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/ default/files/asset/document/2021%20Unit %20Shipment%20Data%20Summary%20Report_ 0.pdf. Last accessed December 17, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69771 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.29—MARKET SHARES BY EFFICIENCY LEVEL IN 2026 * EL 0 ** (%) Equipment Commercial gas-fired storage water heaters and gas-fired storage-type instantaneous water heaters ...................................................................................... Residential-duty gas-fired storage water heaters ................................................ Gas-fired instantaneous water heaters and hot water supply boilers: Gas-fired tankless water heaters .................................................................. Gas-fired circulating water heaters and hot water supply boilers ................ EL1 (%) EL2 (%) EL3 (%) EL4 (%) EL5 (%) 34 54 3 21 0 15 15 3 47 6 1 1 17 5 0 13 0 13 4 2 22 11 57 55 * Due to rounding, shares for each row might not add to 100 percent. ** For the Residential-duty equipment class, efficiency is in terms of UEF. Because minimum UEF under the existing efficiency standard varies by storage tank size, equipment is categorized not by absolute value of UEF but by percentage point increases over the minimum efficiency required on the basis of the equipment’s tank size. 2. Fuel and Technology Switching For this final rule, DOE analyzed whether amended standards would potentially create economic incentives for shifting between fuels, and specifically from natural gas to electricity, beyond any switching inherent in historical trends or due to electrification requirements, as discussed in section IV.G.4 of this document. In comments filed in response to the May 2022 CWH ECS NOPR, Bradford White disagreed with DOE’s assertion that moving to condensing levels would not lead to fuel switching in existing applications, noting that if products are unable to be vented for a variety of reasons, the commercial consumer will be forced to switch to one or more electric water heaters to meet their hot water needs. (Bradford White, No. 23 at p. 4) The Joint Gas Commenters stated that the proposed standards would cause entities to switch to electric products and raised concerns that EPCA does not permit DOE to establish standards that would drive consumers to switch fuel types. (Joint Gas Commenters, No. 34 at p. 39) DOE acknowledges these concerns; however, DOE has determined (based upon the analyses described in this section) that the amended standard will not introduce additional economic incentives that would cause a noticeable increase in fuel switching from gas-fired CWH (and residential-duty) equipment to their electric counterparts. Accordingly, DOE did not explicitly include fuel or technology switching in this final rule beyond the continuation of historical trends and electrification requirements discussed in section IV.G.4 of this document. Additionally, DOE has previously received comments that condensing water heaters can be installed in lieu of noncondensing CWH equipment. For example, in comments received on the withdrawn May 2016 CWH ECS NOPR, HTP opined that given the various venting solutions available in the market, condensing water heater installation would be neither physically impossible nor prohibitively expensive, meaning these buildings would not end up ‘‘stranded.’’ (DOE Docket EERE– 2014–BT–STD–0042, HTP Inc., No. 44 at pp. 1–2) As another example, in comments received by NEEA,153 they noted that ‘‘Even in cases that present significant challenges, interviewees reported that technical solutions were always possible’’ and that ‘‘Interviewees expressed that there is always a technical way to solve each of the retrofit problems that were identified, although sometimes the solutions may be expensive or out of line with what the building owner wants.’’ (DOE Docket EERE–2018–BT–STD–0018, NEEA, No. 62 attached report at pp. 3, 6). DOE is cognizant that there may be higher cost installations that an individual building owner must weigh, and DOE has incorporated an extraordinary venting cost adder to account for these potential installations (see section IV.F.2.d). For fuel and technology switching, DOE focused on whether the adopted standard would cause fuel switching based on economic factors, and did not consider additional fuel switching beyond the continuation of historical trends and electrification requirements discussed in section IV.G.4 of this document. DOE considered the effects of fuel switching by comparing total installed costs and operating costs of competing CWH equipment types. DOE conducted a high-level analysis by using average NIA inputs and equipment operating hour data from the energy analysis to examine consumer PBPs in situations where they might switch from gas-fired to electric water heaters in both new and replacement construction at the proposed standard level. As previously noted, DOE is not analyzing thermal efficiency standards for electric storage water heaters since the thermal efficiency of these units already approaches 100 percent; as such, the underlying technology has most likely not changed, so for comparison purposes in this final rule, the installation, equipment, and maintenance and repair costs from the withdrawn May 2016 CWH ECS NOPR have been adjusted to account for inflation.154 To make the costs comparable across equipment categories, DOE adjusted the average costs using ratios based on the first-hour ratings shown in Table IV.30. 153 NEEA, Northeast Energy Efficiency Partnerships, Pacific Gas & Electric, and National Grid. Joint comment response to the Notice of Petition for Rulemaking; request for comment (report attached—Memo: Investigation of Installation Barriers and Costs for Condensing Gas Appliances). Docket EERE–2018–BT–STD–0018, document number 62. www.regulations.gov/ comment/EERE-2018-BT-STD-0018-0062. Last accessed July 8, 2021. 154 Electric storage water heater costs were escalated from 2014$ to 2022$ using gross domestic product price deflators. First year electricity costs were recalculated using the AEO2023 prices for 2026, weighted by the percent of shipments to the commercial and residential markets for the comparison equipment class (commercial gas-fired or residential-duty). lotter on DSK11XQN23PROD with RULES2 For each efficiency level analyzed, DOE used a ‘‘roll-up’’ scenario to establish the market shares by efficiency level for the year that compliance would be required with potential standards. The analysis starts with the no-newstandards-case distributions wherein shipments are assumed to be distributed across efficiency levels as shown in Table IV.29. When potential standard levels above the base level are analyzed, as the name implies, the shipments in the no-new-standards case that did not meet the efficiency standard level being considered would roll up to meet the next higher standard level. The ‘‘rollup’’ scenario also suggests that equipment efficiencies in the no-newstandards case that were above the standard level under consideration would not be affected. The no-newstandards-case efficiency distributions for each equipment class are discussed more fully in chapter 10 of the final rule TSD. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69772 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.30—FIRST-HOUR EQUIPMENT RATINGS USED IN THE FUEL SWITCHING ANALYSIS Commercial gas-fired storage water heaters Year First-hour rating (gal) ................................................................. Ratio to Commercial Gas-fired Storage .................................... Residentialduty gas-fired storage water heaters 283 1.00 Gas-fired tankless water heaters 134 0.47 Gas-fired circulating water heaters and hot water supply boilers 268 * 0.32 Electric storage water heaters 664 2.34 165 0.58 * The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired tankless water heaters is not directly comparable using only first-hour ratings, here based on a 90 °F temperature rise. The ratio shown reflects in-use delivery capability of the representative gas-fired tankless water heater model relative to the delivery capability of the representative commercial gas-fired storage water heater, and includes an estimated 3-to-1 delivery capability tradeoff for a tankless unit without storage compared to the representative gas storage water heater with the same first-hour rating. DOE reviewed the installed cost of commercial electric and gas-fired storage water heaters, both at the nonew-standards-case efficiency level and with the standard level proposed herein for commercial gas-fired water heaters. The analysis uses costs for the year 2026 (in 2022$), the first year that an amended standard would be in effect. In new installations, the analysis assumes that the inflation-adjusted commercial electric storage water heater installed cost is $4,705 and the first year maintenance and repair cost is $54.155 In replacement installations, the analysis assumes that the inflationadjusted commercial electric storage water heater installed cost is $4,419 and the first year maintenance and repair cost is $54. In further investigating the potential for fuel-switching, DOE first scaled the first costs and the maintenance and repair costs of the electric storage water in new and replacement installations linearly with first-hour rating assuming that the consumer needs to meet the first hour capacity of the representative commercial gas-fired storage water heater. To better compare the electric energy use in a fuel switching scenario, DOE examined the average burner operating hours for the commercial gas water heater to meet the hot water load, as detailed in appendix 7B of the final rule TSD. By multiplying the input rating of the gas storage water heater by the baseline thermal efficiency and the average 3.23 hours of operation to meet the water load including piping losses (and not included standby burner operation), the average daily hot water provided by the unit was estimated at 513,718 Btu/day. Assuming a 100 percent conversion efficiency for the electric energy to provide this load would be would 150.56 kWh/day or 54,955 kWh/yr with an energy cost of $5,785 in the first year. DOE notes that this value does not account for additional energy for electric water heater standby losses. With the electric water heater costs thus scaled and corresponding energy cost calculated, within new construction installations the commercial gas-fired storage water heater was estimated to be more expensive to purchase and install than the electric storage unit in both the nonew-standards and standards cases, but significantly less costly to operate (see Table IV.31). In these cases, the up-front cost premium of the commercial gasfired storage unit at the amended standard level (TSL 3) relative to the scaled electric storage unit costs, divided by the annual operating savings for choosing the gas water heater, yields a PBP of 0.33 years, compared to a PBP of 0.22 years in the no-new-standards case. In replacement markets, the total installed cost of a commercial gas-fired storage unit was compared to the firsthour-rating scaled cost estimate for the commercial electric water heater as a replacement unit from the withdrawn May 2016 CWH ECS NOPR. The estimated total installed cost of the comparable electric storage unit exceeds the cost of the commercial gas-fired storage unit. As with new construction, the replacement electric storage unit is substantially more costly to operate. TABLE IV.31—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (COMMERCIAL GAS-FIRED STORAGE = 1.0)— ELECTRIC STORAGE VERSUS COMMERCIAL GAS-FIRED STORAGE [2022$] No-newstandards case new construction Equipment Cost Electric Storage ............................................... Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Commercial Gas-fired Storage ........................ No-newstandards case replacement * Standards case new construction Standards case replacement * $8,070 5,878 $7,580 5,878 $8,070 5,955 $7,580 5,955 8,945 1,880 5,642 1,962 9,505 1,668 7,298 1,735 lotter on DSK11XQN23PROD with RULES2 * Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). DOE further notes that, depending on the specifics of the commercial building, significant additional costs could be incurred in switching to electric storage water heaters if the existing building lacks the electrical wire capacity to where equivalent electrical water heater would be installed or related infrastructure (existing electrical panels, which may require the addition or upsizing of breakers, and electrical switchgear) to handle the input rating of a commercial electric storage water heater(s) that would meet the existing natural gas 155 Since the electric storage water heater was dropped from this final rule, for this analysis the MPC from the withdrawn 2016 ECS NOPR standby loss level 0 was used to represent no-newstandards-case electric storage water heaters. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00088 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations water heater capacity/load. Thus, DOE concludes that the amended standard will not cause a noticeable increase in fuel switching from commercial gasfired to electric storage water heaters. A similar analysis to that of the commercial gas-fired storage water heater and electric equivalent was repeated separately for residential-duty water heaters. The first costs and maintenance and repair costs were scaled by first hour rating to that equivalent to the representative residential-duty water heater. The hot water load for the electric equivalent unit was estimated based on the burner operating hours from appendix 7B of the TSD and the electric water heater energy costs were estimated assuming 100 percent conversion efficiency of the electric input to hot water load. For an electric water heater equivalent to a residential-duty gas water heater, the estimated energy consumption was 25,618 kWh/yr, equating to an energy cost of $2,853 in the first year. This value does not account for additional energy for electric water heater standby losses. The appropriately scaled first costs and operating cost estimates are shown in Table IV.32. In all but the nonew-standards replacement case, the residential-duty water heater is more expensive to install than the electric storage water heater; however, it was less costly to operate in all cases. For the cases in which the electric storage water heater was less expensive to 69773 install, the up-front cost premium of the gas-fired residential-duty unit relative to the electric storage unit, divided by the annual operating savings from using the gas water heater, yields a PBP of 0.11 years in the no-new-standards new installation case, of 0.21 years at the amended standard level (TSL 3) replacement case, and of 0.59 years at the amended standard level new installation case. Based on the comparison of costs for equivalent electric water heating, DOE concludes that amended standards would not introduce additional economic incentives for fuel switching from residential-duty to electric storage water heaters. TABLE IV.32—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (RESIDENTIAL-DUTY = 1.0)—ELECTRIC STORAGE VERSUS RESIDENTIAL-DUTY [2022$] No-newstandards case new construction Equipment Cost Electric Storage ............................................... Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Residential-duty Storage ................................. No-newstandards case replacement * Standards case new construction Standards case replacement * $3,821 2,896 $3,589 2,897 $3,821 2,876 $3,589 2,876 4,014 1,180 2,247 1,179 4,922 997 3,979 997 lotter on DSK11XQN23PROD with RULES2 * Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). In the May 2022 CWH ECS NOPR, DOE did not consider instantaneous gasfired equipment and electric storage water heaters to be likely objects of gasto-electric fuel switching, largely due to the disparity in hot water delivery capacity between the instantaneous gasfired equipment and commercial electric storage equipment. In the May 2022 CWH ECS NOPR, DOE requested comment on the availability of systems that can be built by plumbing multiple individual water heaters together to achieve the same level of hot water delivery capacity. In response, AHRI, Rheem, and A.O. Smith all noted that CWH manufacturers currently offer product solutions that utilize one or more individual water heaters plumbed or racked together for hot water delivery. (AHRI, No. 31 at p. 4, Rheem, No. 24 at p. 6, A.O. Smith, No. 22 at p. 7) A.O. Smith described that many of these systems are highly customized; however, many manufacturers also offer systems that are preconfigured at the point of manufacture in ranges of total system capacity and are then sold as a single stock keeping unit (‘‘SKU’’). (A.O. Smith, No. 22 at p. 7) Rheem also suggested that these scalable hot water solutions in which multiple gas-fired VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 instantaneous water heaters are combined may use water heaters that are individually rated, and the rack systems are distributed on an engineered-to-order basis with the additional rack system components (such as controllers and shut-off valves) sold separately alongside the water heaters. (Rheem, No. 24 at p. 6) Additionally, CA IOUs noted research that suggested commercial hot water systems that include multiple water heaters are common practice. (CA IOUs, No. 33 at p. 2) WM Technologies and Patterson-Kelley stated their understanding that several products are available like rack-type hot water heaters. In addition, the commenters stated the situation is limited by the first cost of installation and occurs predominantly in smaller commercial installations which employ multiple residential products to meet the hot water demand. WM Technologies and Patterson-Kelley stated these should be accounted for in the LCC model and that the deciding factor on use is cost with driving factors like venting, floor space, local code requirements, and possibly other causes. (WM Technologies, No. 25 at p. 8; Patterson-Kelley, No. 26 at p. 6) DOE appreciates the input from all PO 00000 Frm 00089 Fmt 4701 Sfmt 4700 commenters on the question about multiple individual water heaters being plumbed together. After reviewing the input from stakeholders on this issue, DOE believes that its analysis of gasfired tankless water heating equipment, which already provides for multiple tankless water heaters to be used in a commercial building, sufficiently characterizes the LCC for this equipment and there is no need to consider these types of systems separately in the LCC analysis because operating costs and savings are similar, and additional costs associated with the racks and preconfiguration costs would likely be the same regardless of efficiency. In its analysis of fuel switching DOE included tankless units, and as noted above, DOE believes the rack systems would have similar economic eventualities in the analysis of fuel switching, scaled up or down representing their use of multiple tankless units. As discussed, this analysis is similar to that of the commercial and residential-duty gas storage water heaters for the instantaneous water heater equipment categories as compared to an electric equivalent. E:\FR\FM\06OCR2.SGM 06OCR2 69774 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations As with the commercial gas-fired and residential-duty storage water heaters, the first costs and maintenance and repair costs were scaled by first hour rating to the electric equivalent for the representative instantaneous tankless water heater. The hot water load for the electric equivalent unit was estimated based on the burner operating hours from appendix 7B of the TSD and the electric water heater energy costs were estimated assuming 100 percent conversion efficiency of the electric input to hot water load. For an electric water heater equivalent to an instantaneous tankless water heater, the estimated energy consumption was 15,338 kWh/yr, equating to an energy cost of $1,769 in the first year. This value does not account for additional energy for electric water heater standby losses. The appropriately scaled first costs and operating cost estimates are shown in Table IV.33. In all but the nonew-standards replacement case, the instantaneous water heater is more expensive to install than the electric storage water heater; however, it was less costly to operate in all cases. For the cases in which the electric storage water heater was less expensive to install, the up-front cost premium of the gas-fired instantaneous tankless unit relative to the electric storage unit, divided by the annual operating savings from using the gas water heater, yields a PBP of 2.00 years in the no-newstandards new installation case, of 1.26 years at the amended standard level (TSL 3) replacement case, and of 1.05 years at the amended standard level new installation case. Based on the comparison of costs for equivalent electric water heating, DOE concludes that amended standards would not introduce additional economic incentives for fuel switching from instantaneous tankless to electric storage water heaters. TABLE IV.33—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (INSTANTANEOUS TANKLESS = 1.0)—ELECTRIC STORAGE VERSUS INSTANTANEOUS TANKLESS [2022$] No-newstandards case new construction Equipment Cost Electric Storage ............................................... Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Instantaneous Tankless .................................. No-newstandards case replacement * Standards case new construction Standards case replacement * $2,582 1,799 $2,426 1,799 $2,582 1,798 $2,426 1,798 4,790 694 2,414 666 3,834 610 3,956 585 * Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). Similarly, the first costs and maintenance and repair costs were scaled by first hour rating to that equivalent to the representative circulating water heater and hot water supply boiler. The hot water load for the electric equivalent unit was estimated based on the burner operating hours from appendix 7B of the TSD, and the electric water heater energy costs were estimated to assume 100 percent conversion efficiency of the electric input to hot water load. For an electric water heater equivalent to a circulating water heater and hot water supply boiler, the estimated energy consumption was 119,041 kWh/yr, equating to an energy cost of $12,405 in the first year. This value does not account for additional energy for electric water heater standby losses. The appropriately scaled first costs and operating cost estimates are shown in Table IV.34. In all cases, the circulating water heater and hot water supply boiler is less expensive to install and less costly to operate than the electric storage water. Based on the comparison of costs for equivalent electric water heating, DOE concludes that amended standards would not introduce additional economic incentives for fuel switching from circulating water heaters and hot water supply boilers to electric storage water heaters. TABLE IV.34—TYPICAL UNIT COSTS, SCALED FOR FIRST-HOUR RATING (CIRCULATING WATER HEATER AND HOT WATER SUPPLY BOILER = 1.0)—ELECTRIC STORAGE VERSUS CIRCULATING WATER HEATER AND HOT WATER SUPPLY BOILER [2022$] No-newstandards case new construction No-newstandards case replacement * Standards case new construction Standards case replacement * Equipment Cost Electric Storage ............................................... Installed Cost .................................................. Energy, Maintenance, and Repair Cost (First Year). Installed Cost .................................................. $18,934 12,623 $17,785 12,623 $18,934 13,084 $17,785 13,084 10,660 6,455 15,359 13,301 Energy, Maintenance, and Repair Cost (First Year). 4,206 4,377 3,735 3,861 Circulating Water Heater and Hot Water Supply Boiler. lotter on DSK11XQN23PROD with RULES2 * Installed costs for electric storage water heaters shown for the replacement case do not include cost of infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure). DOE recognizes that commercial tankless gas-fired water heaters could in theory be replaced with one or more electric tankless units. DOE notes that VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 without hot water storage in such a system the instantaneous electric heating load could disproportionally impact a commercial buildings electric PO 00000 Frm 00090 Fmt 4701 Sfmt 4700 demand in many applications relative to the equivalent electric storage water heater, requiring greater electrical infrastructure upgrades as well as E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 potentially higher and less predictable ongoing electric demand costs. DOE concludes that amended standards would not introduce additional economic incentives for fuel switching from gas-fired instantaneous tankless to electric storage or electric tankless water heaters. Similarly, replacement of gas fired circulating water heaters or boilers with an electric equivalent would be expected to require substantial electric capacity upgrades as well as much higher operating cost of the electric equipment. The representative 399 kBtu/h baseline gas-fired hot water boiler represents an approximately 94 kW electric instantaneous equivalent, anticipated to be a significant load increase to most commercial buildings that might otherwise use the gas-fired hot water boiler. In summary, based upon the reasoning above, DOE did not explicitly include fuel or technology switching in this final rule beyond the continuation of historical trends and electrification requirements discussed in section IV.G.4 of this document. 3. National Energy Savings The NES analysis involves a comparison of national energy consumption of the considered products between each potential standards case (‘‘TSL’’) and the case with no new or amended energy conservation standards. DOE calculated the national energy consumption by multiplying the number of units (stock) of each product (by vintage or age) by the unit energy consumption (also by vintage). DOE calculated annual NES based on the difference in national energy consumption for the no-new-standards case and for each higher efficiency standard case. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption and savings to primary energy (i.e., the energy consumed by power plants to generate site electricity) using annual conversion factors derived from AEO2023. Cumulative energy savings are the sum of the NES for each year over the timeframe of the analysis. In 2011, in response to the recommendations of a committee on ‘‘Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards’’ appointed by the National Academy of Sciences, DOE announced its intention to use FFC measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed in the August 18, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 2011 notice, DOE published a statement of amended policy in which DOE explained its determination that EIA’s NEMS is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector 156 that EIA uses to prepare its AEO. The FFC factors incorporate losses in production and delivery in the case of natural gas (including fugitive emissions) and additional energy used to produce and deliver the various fuels used by power plants. The approach used for deriving FFC measures of energy use and emissions is described in appendix 10D of the final rule TSD. DOE calculated the NES associated with the difference between the per-unit energy use under a standards-case scenario and the per-unit energy use in the no-new-standards case. The average energy per unit used by the CWH equipment stock gradually decreases in the standards case relative to the nonew-standards case as more-efficient CWH units gradually replaces lessefficient units. Unit energy consumption values for each equipment category are taken from the LCC spreadsheet for each efficiency level and weighted based on market efficiency distributions. To estimate the total energy savings for each efficiency level, DOE first calculated the per-unit energy reduction (i.e., the difference between the energy directly consumed by a unit of equipment in operation in the no-new-standards case and the standards case) for each category of CWH equipment for each year of the analysis period. The electricity and natural gas savings or increases (in the case of electricity used for condensing natural gas-fired water heaters) are accounted separately. Second, DOE determined the annual site energy savings by multiplying the stock of each equipment category by vintage (i.e., year of shipment) by the per-unit energy reduction for each vintage (from step one). This second step adds to the electricity impacts an amount of energy savings/increase to account for the losses and inefficiencies in the generation, transmission, and distribution systems. The result of the second step yields primary electricity impacts at the generation source. The second step applies only to electricity; there is no analogous adjustment made to natural gas savings. Third, DOE 156 For more information on NEMS, refer to The National Energy Modeling System: An Overview 2018, April 2019. Available at www.eia.gov/ forecasts/aeo/index.cfm (last accessed December 13, 2022). PO 00000 Frm 00091 Fmt 4701 Sfmt 4700 69775 converted the annual site electricity savings into the annual amount of energy saved at the source of electricity generation (the source or primary energy), using a time-series of conversion factors derived from the latest version of EIA’s NEMS. This third step accounts for the energy used to extract and transport fuel from mines or wells to the electric generation facilities, and accounts for the natural gas NES for drilling and pipeline energy usage. The third step yields the total FFC impacts. DOE accounts for the natural gas savings separately from the electricity impacts, so the factors used at each step are appropriate for the specific fuel. The coefficients developed for the analysis are mutually exclusive, so there should be no double-counting of impacts. Finally, DOE summed the annual primary energy savings for the lifetime of units shipped over a 30-year period to calculate the total NES. DOE performed these calculations for each efficiency level considered for CWH equipment in this rulemaking. DOE notes that for the LCC and PBP analyses, only site energy impacts are used. The only steps in the analysis wherein FFC savings are used are the calculation of NES. DOE notes that the development of data for site-to-source and other factors is accomplished by running the EIA’s model used to generate the AEO. DOE has included with this final rule TSD the previously mentioned chapter 10 and appendix 10D, which reference the development of the FFC factors and provide some of the underlying data. Regarding the fossil fuel site-to-source values used in the final rule analysis, DOE used the AEO2023 Reference case, which reflects the most up-to-date information on resource and fuel costs, but excludes Clean Power Plan (‘‘CPP’’) 157 impacts. Use of the AEO2023 also incorporates all Federal legislation and regulations in place when EIA prepared the analyses. The growing penetration of renewable electricity generation would have little effect on the trend in site-to-source energy factors because EIA uses an average fossil fuel heat to characterize the primary energy associated with renewable generation. At this time, DOE is continuing to use the ‘‘fossil fuel equivalency’’ accounting convention used by EIA. DOE notes the AEO projections stop in 2050. Because the trends were relatively flat, DOE 157 The CPP was repealed in June 2019 as part of EPA’s final Affordable Clean Energy (‘‘ACE’’) Rule, but the ACE Rule was vacated in January 2021 by the United States Court of Appeals for the District of Columbia Circuit, who also remanded EPA to consider a new regulatory framework to replace the ACE Rule. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69776 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations maintained the 2050 value for the remainder of the forecast period. When DOE develops the site-to-source and FFC-factors, it models resource mixes representative of the load profile of the equipment covered in the rulemaking that vary by end-use. For this final rule, DOE has used an average of resources compatible with the general load profile of CWH equipment, and the data used are the most current available. DOE also considered whether a rebound effect is applicable in its NES analysis for CWH equipment. A rebound effect occurs when an increase in equipment efficiency leads to increased demand for its service. For example, when a consumer realizes that a moreefficient water heating device will lower the energy bill, that person may opt to increase his or her amenity level by taking longer showers and thereby consuming more hot water. In this way, the consumer gives up a portion of the energy cost savings in favor of the increased amenity. For the CWH equipment market, there are two ways that a rebound effect could occur: (1) increased use of hot water within the buildings in which such units are installed and (2) additional hot water outlets that were not previously installed. Because the CWH equipment addressed in this final rule is commercial equipment, the person owning the equipment (i.e., the apartment or commercial building owner) is usually not the person operating the equipment (e.g., the apartment renter, or the restaurant employee using hot water to wash dishes). Because the operator usually does not own the equipment, that person will not have the operating cost information necessary to influence his or her operation of the equipment. Therefore, the first type of rebound is unlikely to occur at levels that could be considered significant. Similarly, the second type of rebound is unlikely because a small change in efficiency is insignificant among the factors that determine whether a company will invest the money required to pipe hot water to additional outlets. In response to the May 2022 CWH ECS NOPR, Atmos Energy stated that DOE should reconsider its conclusion that the proposed rule is unlikely to result in rebound effects on water usage and noted that some parts of the country are experiencing drought conditions. (Atmos Energy, No. 36 at p. 5) DOE recognizes that drought conditions may impact water usage within regions; however, the CWH equipment that is the subject of this rulemaking addresses only the heating of the water, and not VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 the water usage itself, as water usage is based on demand and not the efficiency of the water heater. DOE had previously sought comments and data on any rebound effect that may be associated with more efficient commercial water heaters in the October 2014 RFI. 79 FR 62908 (Oct. 21, 2014) DOE received two comments. Both A.O. Smith and Joint Advocates did not believe a rebound effect would be significant. A.O. Smith commented that water usage is based on demand and more efficient water heaters would not change the demand. (DOE Docket EERE–2014–BT–STD– 0042, A.O. Smith, No. 2 at p. 4) Joint Advocates commented that with the marginal change in energy bill for small business owners, they would expect little increased hot water usage, and that for tenant-occupied buildings, it would be ‘‘difficult to infer that more tenants will wash their hands longer because the hot water costs the building owner less.’’ Thus, Joint Advocates thought the likelihood of a strong rebound effect is very low. (DOE Docket EERE–2014–BT– STD–0042, Joint Advocates, No. 7 at p. 5) DOE has therefore retained its position that a rebound effect is unlikely to occur for the CWH that are the subject of this final rule. PHCC commented that the Department advanced this rule based on the significant energy savings of 0.7 quads. (PHCC, No. 28 at pp. 1) PHCC noted that totaling the energy use columns on the base case (no-newstandards) section of the NIA model spreadsheet for new units and replacement and switch units shows an approximate 6.5 quads, but if the total stock of units is extended, using even just the replacement energy yields 8.2 quads. PHCC stated it is important to make transparent comparisons; for example, using one way the 0.7 quads is an approximate 10 percent savings, and using the other is closer to 8.5 percent. (PHCC, No. 28 at pp. 1–2) PHCC further noted that commercial gas-fired storage water heaters and instantaneous circulating water heaters and hot water supply boilers are the major contributors and that the residential-duty gas-fired water heaters and instantaneous tankless water heaters are substantially less significant, and if evaluated individually, the significant energy savings argument would be even harder to make. (PHCC, No. 28 at p. 2) As stated in section III.E.2, the significance of energy savings offered by an amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking. DOE evaluates the significance of energy PO 00000 Frm 00092 Fmt 4701 Sfmt 4700 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. Accordingly, taking these factors, among others into account, DOE has determined the energy savings for the TSL proposed in this rulemaking are ‘‘significant’’ within the meaning of EPCA.158 PHCC additionally questioned the NES calculations, noting that the energy savings appear to be based on the savings of equipment sold across the 30year life cycle in the rule, but that it was not apparent what the total energy of the installed equipment or CWH equipment installed and currently in use might be. (PHCC, No. 28 at pp. 1) PHCC further stated that using the Department’s spreadsheets, it appears that the total energy used is for the newly installed equipment. (PHCC, No. 28 at pp. 1) PHCC stated that it is unclear how the 0.7 quads savings was derived. PHCC calculated a separate estimate of savings at 0.37 quads out of total energy consumed to be 8.2 quads. PHCC also noted that it has additional issues with assumptions made by the Department that would further erode the potential savings, but are difficult to quantify. (PHCC, No. 28 at p. 2) PHCC stated that based on its own review and understanding, PHCC questions the energy use and savings calculation that form the basis of the significant energy savings assertion. (PHCC, No. 28 at p. 6) PHCC also sought clarification as to the low energy use (site) in the early years of the Department’s analysis and noted that it appeared that there is no consideration of the energy usage of all existing covered products. (PHCC, No. 28 at p. 6) In response, DOE would clarify that for its analysis, DOE considers only the impact of the proposed standard levels on equipment shipments that occur within the 2026 through 2055 analysis period. As a result, the estimated energy 158 To the extent PHCC’s comments refer to a numeric savings threshold previously used to determine significance of energy savings, DOE notes that the numeric threshold for determining the significance of energy savings established in a final rule, Energy Conservation Program for Appliance Standards: Procedures for Use in New or Revised Energy Conservation Standards and Test Procedures for Consumer Products and Commercial/Industrial Equipment, published on February 14, 2020 (85 FR 8626, 8670), was subsequently eliminated in a final rule, Energy Conservation Program for Appliance Standards: Procedures, Interpretations, and Policies for Consideration in New or Revised Energy Conservation Standards and Test Procedures for Consumer Products and Commercial/Industrial Equipment, published on December 13, 2021 (86 FR 70892). E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations use in the early years of the analysis includes only equipment shipped for new and replacement applications beginning in 2026, and does not include the energy use of the existing equipment installed prior to 2026, the year in which the standard would go into effect. However, the NES does include the stream of energy savings that occurs over the life of the equipment installed during the analysis period, meaning that energy savings for a commercial gasfired storage water heater installed in 2055 would be accrued throughout its life, beyond 2055 (see section IV.F.6 for a discussion of equipment lifetimes). DOE further appreciates the effort that PHCC undertook to develop their calculations of energy use and energy savings, and notes that the PHCC calculations are similar to the DOE calculations within the NIA model. However, the DOE NIA model incorporates some additional calculations and factors to capture the energy accounting more fully. For each year beginning with 2026 (the first year that the standard would go into effect), energy use for both the no-newstandards case (labeled base case within the NIA spreadsheet’s product tabs) and the selected efficiency level (labeled standards case) are calculated by multiplying the estimated number of installed units still surviving (which is equal to the installed units multiplied by a survival function) by the estimated unit energy use for the year in which they were installed. This calculation accounts for changes to the weighted average efficiencies installed in a given year, as the no-new-standards case has an increasing efficiency trend built into it. The NES is then calculated as the sum of the differences between the energy use calculated in the no-newstandards case and the energy use calculated in the standards case. DOE observed that the screen captures of the PHCC calculations (PHCC, No. 28 at pp. 4–5) appear to contain only numbers for the commercial sector and do not seem to account for additional energy use and savings calculations for the residential sector (which can be viewed by selecting ‘‘Residential’’ in any of the application sector drop-down menus located throughout the model, as described in appendix 10A of the final rule TSD). Additionally, the PHCC calculations did not appear to account for the energy savings that accrue after 2055 from equipment installed through 2055 that had not yet reached their end of life. By summing the calculated site energy savings in the May 2022 CWH ECS NOPR NIA model (column CN within each of the product tabs of the NOPR NIA model), DOE calculated VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 commercial site natural gas savings of 0.35 quads for the years 2026–2055, an additional 0.13 quads of commercial site natural gas savings beyond 2055 that accrue to equipment installed during the analysis period, and an additional 0.17 quads of residential sector site natural gas savings, yielding a total of 0.65 quads of site natural gas NES. DOE notes that the NES for the selected subset of years and commercial sector (0.35 quads) were similar to what PHCC calculated (0.37 quads). DOE also clarifies that the 0.70 quads referenced by PHCC are FFC NES, which explains the remaining difference between the site natural gas savings and the FFC savings; PHCC did not include the impact of changes in electricity due to proposed standards, which DOE also excluded here so as to produce a comparable set of numbers. With regard to PHCC’s additional unnamed issues with assumptions made by DOE, DOE notes that the underlying assumptions are made based on best available data and are meant to be representative of the equipment category while also allowing for a feasible analysis. 4. Net Present Value Analysis The inputs for determining the NPV of the total costs and benefits experienced by consumers are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings. DOE calculates net savings each year as the difference between the no-newstandards case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculates operating cost savings over the lifetime of each product shipped during the projection period. DOE determined the difference between the equipment costs under the standard case and the no-new-standards case in order to obtain the net equipment cost increase resulting from the higher standard level. As noted in section IV.F.1 of this document, DOE used a constant real price assumption as the default price projection; the cost to manufacture a given unit of higher efficiency neither increases nor decreases over time. The analysis of the price trends is described in chapter 10 of the final rule TSD. The energy cost savings are calculated using the estimated energy savings in each year and the projected price of the appropriate form of energy. To estimate energy prices in future years, DOE multiplied the average regional energy prices by the projection of annual national-average commercial energy PO 00000 Frm 00093 Fmt 4701 Sfmt 4700 69777 price changes in the Reference case from AEO2023, which has an end year of 2050. To estimate price trends after 2050, the 2040–2050 average was used for all years. As part of the NIA, DOE also analyzed scenarios that used inputs from variants of the AEO2023 Reference case that have lower and higher economic growth. Those cases have lower and higher energy price trends compared to the Reference case. NIA results based on these cases are presented in appendix 10B of the final rule TSD. DOE then determined the difference between the net operating cost savings and the net equipment cost increase in order to obtain the net savings (or expense) for each year. DOE then discounted the annual net savings (or expenses) to 2023 for CWH equipment bought on or after 2026 and summed the discounted values to provide the NPV for an efficiency level. In calculating the NPV, DOE multiplies the net savings in future years by a discount factor to determine their present value. For this final rule, DOE estimated the NPV of consumer benefits using both a 3-percent and a 7percent real discount rate. DOE uses these discount rates in accordance with guidance provided by the OMB to Federal agencies on the development of regulatory analysis.159 The discount rates for the determination of NPV are in contrast to the discount rates used in the LCC analysis, which are designed to reflect a consumer’s perspective. The 7percent real value is an estimate of the average before-tax rate of return to private capital in the U.S. economy. The 3-percent real value represents the ‘‘social rate of time preference,’’ which is the rate at which society discounts future consumption flows to their present value. DOE considered the possibility that consumers make purchase decisions based on first cost instead of LCC. DOE projects that new installations meeting a potential standard would not cause the commercial gas-fired storage water heaters to be significantly more expensive than electric storage water heaters of comparable first-hour capacity, as detailed in section IV.H.2 of this document. DOE further notes that only the relative costs of purchasing, installing, and operating equipment were considered in its analysis, and did not consider unrelated issues such as additional electrification of customer 159 United States Office of Management and Budget. Circular A–4: Regulatory Analysis. September 17, 2003. Section E. Available at www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 69778 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 loads beyond those that have been adopted, as DOE cannot speculate about consumer electrification or other policies or issues (see sections IV.G and section IV.H.2 of this document). DOE notes that governmental and corporate purchasing policies are increasingly resulting in purchases of more-efficient equipment. However, DOE does not infer anything with respect to the remaining market for efficient water heaters simply because of a purchase by one consumer or even by one segment of the consumer base, such as purchases by government consumers. In other words, if all Federal government agencies purchase ENERGY STAR-compliant water heaters, that tells us nothing about the installation costs experienced by any other consumers. DOE assumes the purchases reveal more about the underlying consumer discount rate premiums than about a distribution of installation costs. It is possible that corporate commitment to green purchasing policies might result in situations where, in their rational decision-making process, the consumer gives green purchase alternatives an explicit advantage. As an example, a purchasing policy may specify that that a ‘‘non-green’’ alternative must have a PBP of 3 years or less while a ‘‘green’’ alternative can have a PBP up to 5 years. This type of corporate decision making would have the outward appearance of providing an apparent discount rate advantage to the ‘‘green’’ alternative, or perhaps, an appearance of assessing a lower discount rate premium on the ‘‘green’’ alternative than is assessed on all other alternatives. Thus, while significant numbers of purchases are taking place in the market, DOE contends that such purchases reveal an underlying distribution of discount rate premiums rather than an underlying distribution of installation costs. Green policies and programs such as FEMPdesignated equipment and ENERGY STAR will continue to effectively reduce even more consumers’ discount rate premiums, leading to more green purchases. This assumption underlies DOE’s decision to take the efficiency trends data provided by manufacturers and extend the trends into the future rather than holding efficiency constant at current rates. I. Consumer Subgroup Analysis In analyzing the potential impact of new or amended standards on consumers, DOE evaluates the impact on identifiable subgroups of consumers that may be disproportionately affected by a new or revised national energy conservation standard level. The purpose of a subgroup analysis is to VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 determine the extent of any such disproportionate impacts. DOE evaluates impacts on particular subgroups of consumers by analyzing the LCC impacts and PBP for those particular consumers from alternative standard levels. For this final rule, DOE identified consumers at the lowest income bracket in the residential sector and only included them for a residential sector subgroup analysis. The following provides further detail regarding DOE’s consumer subgroup analysis. Chapter 11 in the final rule TSD describes the consumer subgroup analysis. 1. Residential Sector Subgroup Analysis The RECS database divides the residential samples into 16 income bins. The income bins represent total gross annual household income. As far as discount rates are concerned, the survey of consumer finances divides the residential population into six different income bins: income bin 1 (0–20 percent income percentile), income bin 2 (20–40 percent income percentile), income bin 3 (40–60 percent income percentile), income bin 4 (60–80 percent income percentile), income bin 5 (80–90 percent income percentile), and income bin 6 (90–100 percent income percentile). In general, consumers in the lower income groups tend to discount future streams of benefits at a higher rate when compared to consumers in the higher income groups. Hence, to analyze the influence of a national standard on the low-income group population, DOE conducted a (residential) subgroup analysis where only the 0–20 percent income percentile samples were included for the entire simulation run. Subsequently, the results of the subgroup analysis are compared to the results from all consumers. The results of DOE’s LCC subgroup analysis are summarized in section V.B.1.b of this final rule and described in detail in chapter 11 of the final rule TSD. J. Manufacturer Impact Analysis 1. Overview DOE performed an MIA to estimate the financial impacts of amended energy conservation standards on manufacturers of CWH equipment and to estimate the potential impacts of such standards on employment and manufacturing capacity. The MIA has both quantitative and qualitative aspects and includes analyses of projected industry cash flows, the INPV, investments in research and development (‘‘R&D’’) and manufacturing capital, and domestic PO 00000 Frm 00094 Fmt 4701 Sfmt 4700 manufacturing employment. Additionally, the MIA seeks to determine how amended energy conservation standards might affect manufacturing employment, capacity, and competition, as well as how standards contribute to overall regulatory burden. Finally, the MIA serves to identify any disproportionate impacts on manufacturer subgroups, including small business manufacturers. The quantitative part of the MIA primarily relies on GRIM, an industry cash flow model with inputs specific to this rulemaking. The key GRIM inputs include data on the industry cost structure, unit production costs, equipment shipments, manufacturer markups, and investments in R&D and manufacturing capital required to produce compliant equipment. The key GRIM outputs are the INPV, which is the sum of industry annual cash flows over the analysis period, discounted using the industry-weighted average cost of capital, and the impact to domestic manufacturing employment. The model uses standard accounting principles to estimate the impacts of more-stringent energy conservation standards on a given industry by comparing changes in INPV and domestic manufacturing employment between a no-new-standards case and the various standards cases (‘‘TSLs’’). To capture the uncertainty relating to manufacturer pricing strategies following amended standards, the GRIM estimates a range of possible impacts under different markup scenarios. The qualitative part of the MIA addresses manufacturer characteristics and market trends. Specifically, the MIA considers such factors as a potential standard’s impact on manufacturing capacity, competition within the industry, the cumulative impact of other DOE and non-DOE regulations, and impacts on manufacturer subgroups. The complete MIA is outlined in chapter 12 of the final rule TSD. DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the CWH equipment manufacturing industry based on the market and technology assessment, preliminary manufacturer interviews, and publiclyavailable information. This included a top-down analysis of CWH equipment manufacturers that DOE used to derive preliminary financial inputs for the GRIM (e.g., revenues; materials, labor, overhead, and depreciation expenses; selling, general, and administrative expenses (‘‘SG&A’’); and R&D expenses). DOE also used public sources of information to further calibrate its initial characterization of the CWH E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 equipment manufacturing industry, including company filings of form 10– K from the SEC,160 corporate annual reports, the U.S. Census Bureau’s Economic Census,161 and reports from Dunn & Bradstreet.162 In Phase 2 of the MIA, DOE prepared a framework industry cash-flow analysis to quantify the potential impacts of amended energy conservation standards. The GRIM uses several factors to determine a series of annual cash flows starting with the announcement of the standard and extending over a 30-year period following the compliance date of the standard. These factors include annual expected revenues, costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. In general, energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) creating a need for increased investment, (2) raising production costs per unit, and (3) altering revenue due to higher per-unit prices and changes in sales volumes. In addition, during Phase 2, DOE developed interview guides to distribute to manufacturers of CWH equipment in order to develop other key GRIM inputs, including product and capital conversion costs, and to gather additional information on the anticipated effects of energy conservation standards on revenues, direct employment, capital assets, industry competitiveness, and subgroup impacts. In Phase 3 of the MIA, DOE conducted structured, detailed interviews with representative manufacturers. During these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM and to identify key issues or concerns. As part of Phase 3, DOE also evaluated subgroups of manufacturers that may be disproportionately impacted by amended standards or that may not be accurately represented by the average cost assumptions used to develop the industry cash flow analysis. Such manufacturer subgroups may include small business manufacturers, lowvolume manufacturers (‘‘LVMs’’), niche players, and/or manufacturers 160 U.S. Securities and Exchange Commission, Annual 10–K Reports (Various Years) (Available at www.sec.gov/edgar/searchedgar/ companysearch.html). 161 U.S. Census Bureau, Annual Survey of Manufacturers: General Statistics: Statistics for Industry Groups and Industries (2021). Available at www.census.gov/data/tables/time-series/econ/asm/ 2018-2021-asm.html. 162 Dunn & Bradstreet Company Profiles, Various Companies. Available at app.dnbhoovers.com. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 exhibiting a cost structure that largely differs from the industry average. DOE identified one subgroup for a separate impact analysis: small business manufacturers. The small business subgroup is discussed in section VI.B, ‘‘Review under the Regulatory Flexibility Act’’ and in chapter 12 of the final rule TSD. 2. Government Regulatory Impact Model and Key Inputs DOE uses the GRIM to quantify the changes in cash flow due to amended standards that result in a higher or lower industry value. The GRIM uses a standard, annual discounted cash-flow analysis that incorporates manufacturer costs, markups, shipments, and industry financial information as inputs. The GRIM models changes in costs, distribution of shipments, investments, and manufacturer margins that could result from an amended energy conservation standard. The GRIM spreadsheet uses the inputs to arrive at a series of annual cash flows, beginning in 2023 (the base year of the analysis) and continuing to 2055. DOE calculated INPVs by summing the stream of annual discounted cash flows during this period. For manufacturers of residential central air conditioners and heat pumps, DOE used a real discount rate of 9.1 percent, which was derived from industry financials and then modified according to feedback received during manufacturer interviews. The GRIM calculates cash flows using standard accounting principles and compares changes in INPV between the no-new-standards case and each standards case. The difference in INPV between the no-new-standards case and a standards case represents the financial impact of the amended energy conservation standard on manufacturers. As discussed previously, DOE developed critical GRIM inputs using a number of sources, including publicly available data, results of the engineering analysis, and information gathered from industry stakeholders during the course of manufacturer interviews and through written comments. The GRIM results are presented in section V.B.2. Additional details about the GRIM, the discount rate, and other financial parameters can be found in chapter 12 of the final rule TSD. a. Manufacturer Production Costs Manufacturing more efficient equipment is typically more expensive than manufacturing baseline equipment due to the use of more complex components, which are typically more costly than baseline components. The PO 00000 Frm 00095 Fmt 4701 Sfmt 4700 69779 changes in the MPCs of covered equipment can affect the revenues, gross margins, and cash flow of the industry. MPCs were derived in the engineering analysis, using methods discussed in section IV.C. For a complete description of the MPCs, see chapter 5 of the final rule TSD. b. Shipments Projections The GRIM estimates manufacturer revenues based on total unit shipment projections and the distribution of those shipments by efficiency level. Changes in sales volumes and efficiency mix over time can significantly affect manufacturer finances. For this analysis, the GRIM uses the NIA’s annual shipment projections derived from the shipments analysis from 2023 (the base year) to 2055 (the end year of the analysis period). See chapter 9 of the final rule TSD for additional details. c. Conversion Costs and Stranded Assets Amended energy conservation standards could cause manufacturers to incur conversion costs to bring their production facilities and equipment designs into compliance. DOE evaluated the level of conversion-related expenditures that would be needed to comply with each considered efficiency level in each product class. For the MIA, DOE classified these conversion costs into two major groups: (1) product conversion costs; and (2) capital conversion costs. Product conversion costs are investments in research, development, testing, marketing, and other noncapitalized costs necessary to make product designs comply with amended energy conservation standards. Capital conversion costs are investments in property, plant, and equipment necessary to adapt or change existing production facilities such that new compliant product designs can be fabricated and assembled. To evaluate potential product conversion costs, DOE estimated the number of platforms manufacturers would have to modify to move their equipment lines to each incremental efficiency level. DOE developed the product conversion costs by estimating the amount of labor per platform manufacturers would need for research and development to raise the efficiency of models to each incremental efficiency level. DOE also assumed manufacturers would incur safety certification costs (including costs for updating safety certification records and for safety testing) associated with modifying their current product offerings to comply with amended standards. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69780 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations To evaluate the level of capital conversion expenditures manufacturers would likely incur to comply with amended standards, DOE used information derived from the engineering analysis, equipment teardowns, and manufacturer interviews. DOE used the information to estimate the additional investments in property, plant, and equipment that are necessary to meet amended energy conservation standards. In the engineering analysis evaluation of higher efficiency equipment from leading manufacturers of commercial water heaters (both commercial duty and residential duty), DOE found a range of designs and manufacturing approaches. DOE attempted to account for both the range of manufacturing pathways and the current efficiency distribution of shipments in the modeling of industry capital conversion costs. The capital conversion cost estimates for gas-fired storage water heaters are driven by the cost for industry to double production capacity at condensing efficiency levels. Those costs included, but were not limited to, capital investments in tube bending, press dies, machining, enameling, metal inert gas (‘‘MIG’’) welding, leak testing, quality assurance stations, conveyer, and additional space requirements. For gas-fired instantaneous water heaters capital conversion costs, DOE understands that manufacturers produce commercial models on the same production lines as residential models, which have much higher shipment volumes. As such, DOE modeled the scenario in which gas-fired instantaneous water heater manufacturers make incremental investments to increase production capacity, but do not need to setup entirely new production lines or new facilities to accommodate an amended standard requiring condensing technology for gas-fired instantaneous water heaters. For gas-fired instantaneous circulating water heaters and hot water supply boilers, the design changes to reach condensing efficiency levels were driven by purchased parts (i.e., condensing heat exchanger, burner tube, blower, gas valve). The capital conversion costs for this equipment class are based on incremental warehouse space needed to house additional purchased parts. Rheem commented the conversion costs should reflect larger VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 manufacturing space and more manufacturing time to produce a condensing unit, and the costs should reflect the expansion of existing facilities, expansion of assembly lines, and added shifts. (Rheem, No. 24 at p. 7) After the 2022 CWH ECS NOPR publication, DOE conducted additional manufacturer interviews at the request of industry. (AHRI, No. 31 at p. 5; Rheem, No. 24 at p.1; Bock, No. 20 at p. 2) Where manufacturers provided estimates and analysis supporting updates to conversion costs, DOE incorporated the interview feedback into its estimation of investment levels. The interview feedback that DOE received was primarily focused on the gas-fired storage water heaters product class. Bradford White commented that volume water heaters are not produced on the same production lines as residential products, and that volume water heaters are built in lower volumes and have different installation configurations than consumer water heaters. (Bradford White, No. 23 at p. 9) DOE’s conversion costs reflect Bradford White’s statements. DOE understands that volume water heaters are produced on lines dedicated to low-volume, commercial equipment. In addition to capital and product conversion costs, amended energy conservation standards could create stranded assets, i.e., tooling and equipment that were not yet fully depreciated and could have been used longer if energy conservation standards had not made them obsolete. In the compliance year, manufacturers write down the remaining undepreciated book value of existing tooling and equipment rendered obsolete by amended energy conservation standards. To evaluate conversion costs manufacturers would likely incur to comply with amended standards, DOE used information derived from the engineering analysis, equipment teardowns, and manufacturer interviews. In conjunction with the evaluation of capital conversion costs, DOE estimated the portion of existing equipment, tooling, and conveyor that would be retired. In general, DOE assumes all conversion-related investments occur between the year of publication of the final rule and the year by which manufacturers must comply with the new standard. The conversion cost figures used in the GRIM can be found in section V.B.2 of this document. For PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 additional information on the estimated capital conversion costs, product conversion costs, and stranded assets, see chapter 12 of the final rule TSD. d. Manufacturer Markup Scenarios MSPs include manufacturing production costs (i.e., labor, materials, and overhead estimated in DOE’s MPCs) and all non-production costs (i.e., SG&A, R&D, and interest), along with profit. To calculate the MSPs in the GRIM, DOE applied non-production cost markups to the MPCs estimated in the engineering analysis for each product class and efficiency level. Modifying these manufacturer markups in the standards case yields different sets of impacts on manufacturers. For the MIA, DOE modeled two standardscase markup scenarios to represent uncertainty regarding the potential impacts on prices and profitability for manufacturers following the implementation of amended energy conservation standards: (1) a preservation of gross margin percentage markup scenario; and (2) a preservation of per-unit operating profit markup scenario. These scenarios lead to different markup values that, when applied to the MPCs, result in varying revenue and cash flow impacts. Under the preservation of gross margin percentage scenario, DOE applied a single uniform ‘‘gross margin percentage’’ markup across all efficiency levels, which assumes that manufacturers would be able to maintain the same amount of profit as a percentage of revenues at all efficiency levels within an equipment category. As manufacturer production costs increase with efficiency, this scenario implies that the absolute dollar markup will increase. To estimate the average manufacturer markup used in the preservation of gross margin percentage markup scenario, DOE analyzed publiclyavailable financial information for manufacturers of CWH equipment. DOE then requested feedback on its initial markup estimates during manufacturer interviews. The revised markups, which are used in DOE’s quantitative analysis of industry financial impacts, are presented in Table IV.35 of this final rule. These markups capture all nonproduction costs, including SG&A expenses, R&D expenses, interest expenses, and profit. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69781 TABLE IV.35—MANUFACTURER MARKUPS FOR PRESERVATION OF GROSS MARGIN PERCENTAGE MARKUP SCENARIO Equipment Markup Commercial gas-fired storage and gas-fired storage-type instantaneous water heaters ................................................................... Residential-duty gas-fired storage water heaters ................................................................................................................................ Gas-fired instantaneous water heaters and hot water supply boilers: Tankless water heaters ................................................................................................................................................................ Circulating water heaters and hot water supply boilers ............................................................................................................... lotter on DSK11XQN23PROD with RULES2 DOE also models the preservation of per-unit operating profit scenario because manufacturers stated that they do not expect to be able to mark up the full cost of production in the standards case, given the highly competitive nature of the CWH market. In this scenario, manufacturer markups are set so that operating profit 1 year after the compliance date of amended energy conservation standards is the same as in the no-new-standards case on a per-unit basis. In other words, manufacturers are not able to garner additional operating profit from the higher production costs and the investments that are required to comply with the amended standards; however, they are able to maintain the same per-unit operating profit in the standards case that was earned in the no-new-standards case. Therefore, operating margin in percentage terms is reduced between the no-new-standards case and standards case. DOE adjusted the manufacturer markups in the GRIM at each TSL to yield approximately the same per-unit earnings before interest and taxes in the standards case as in the no-newstandards case. The preservation of perunit operating profit markup scenario represents the lower bound of industry profitability in the standards case. This is because manufacturers are not able to fully pass through to commercial consumers the additional costs necessitated by amended standards for CWH equipment. A comparison of industry financial impacts under the two markup scenarios is presented in section V.B.1.b of this document. K. Emissions Analysis The emissions analysis consists of two components. The first component estimates the effect of potential energy conservation standards on power sector and site combustion emissions of CO2, NOX, SO2, and Hg. The second component estimates the impacts of potential standards on emissions of two additional greenhouse gases, CH4 and N2O, as well as the reductions in emissions of other gases due to ‘‘upstream’’ activities in the fuel production chain. These upstream activities comprise extraction, VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 processing, and transporting fuels to the site of combustion. The analysis of electric power sector emissions of CO2, NOX, SO2, and Hg uses emissions factors intended to represent the marginal impacts of the change in electricity consumption associated with amended or new standards. The methodology is based on results published for the AEO, including a set of side cases that implement a variety of efficiency-related policies. The methodology is described in appendix 13A in the final rule TSD. The analysis presented in this notice uses projections from AEO2023. Power sector emissions of CH4 and N2O from fuel combustion are estimated using ‘‘Emission Factors for Greenhouse Gas Inventories’’ published by the Environmental Protection Agency (‘‘EPA’’).163 The onsite operation of CWH equipment involves combustion of fossil fuels and results in emissions of CO2, NOX, SO2, CH4, and N2O where this equipment is used. Site emissions of these gases were estimated using ‘‘Emission Factors for Greenhouse Gas Inventories’’ and, for NOX and SO2, emissions intensity factors from an EPA publication.164 FFC upstream emissions, which include emissions from fuel combustion during extraction, processing, and transportation of fuels, and ‘‘fugitive’’ emissions (direct leakage to the atmosphere) of CH4 and CO2, are estimated based on the methodology described in chapter 15 of the final rule TSD. The emissions intensity factors are expressed in terms of physical units per MWh or MMBtu of site energy savings. For power sector emissions, specific emissions intensity factors are calculated by sector and end use. Total emissions reductions are estimated 163 Available at www.epa.gov/sites/production/ files/2021–04/documents/emission-factors_ apr2021.pdf (last accessed December 22, 2022). 164 U.S. Environmental Protection Agency. External Combustion Sources. In Compilation of Air Pollutant Emission Factors. AP–42. Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 1. Available at www.epa.gov/air-emissionsfactors-and-quantification/ap-42-compilation-airemissions-factors#Proposed/ (last accessed December 22, 2022). PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 1.45 1.45 1.43 1.43 using the energy savings calculated in the NIA. 1. Air Quality Regulations Incorporated in DOE’s Analysis DOE’s no-new-standards case for the electric power sector reflects the AEO2023, which incorporates the projected impacts of existing air quality regulations on emissions. AEO2023 generally represents current legislation and environmental regulations, including recent government actions, that were in place at the time of preparation of AEO2023, including the emissions control programs discussed in the following paragraphs.165 SO2 emissions from affected electric generating units (‘‘EGUs’’) are subject to nationwide and regional emissions capand-trade programs. Title IV of the Clean Air Act sets an annual emissions cap on SO2 for affected EGUs in the 48 contiguous States and the District of Columbia (‘‘DC’’). (42 U.S.C. 7651 et seq.) SO2 emissions from numerous States in the eastern half of the United States are also limited under the CrossState Air Pollution Rule (‘‘CSAPR’’). 76 FR 48208 (Aug. 8, 2011). CSAPR requires these States to reduce certain emissions, including annual SO2 emissions, and went into effect as of January 1, 2015.166 AEO2023 incorporates implementation of CSAPR, including the update to the CSAPR ozone season program emission budgets and target dates issued in 2016. 81 FR 165 For further information, see the Assumptions to AEO2023 report that sets forth the major assumptions used to generate the projections in the Annual Energy Outlook. Available at www.eia.gov/ outlooks/aeo/assumptions/ (last accessed April 13, 2023). 166 CSAPR requires states to address annual emissions of SO2 and NOX, precursors to the formation of fine particulate matter (‘‘PM2.5’’) pollution, in order to address the interstate transport of pollution with respect to the 1997 and 2006 PM2.5 National Ambient Air Quality Standards (‘‘NAAQS’’). CSAPR also requires certain states to address the ozone season (May–September) emissions of NOX, a precursor to the formation of ozone pollution, in order to address the interstate transport of ozone pollution with respect to the 1997 ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). EPA subsequently issued a supplemental rule that included an additional five states in the CSAPR ozone season program; 76 FR 80760 (Dec. 27, 2011) (Supplemental Rule), and EPA issued the CSAPR Update for the 2008 ozone NAAQS. 81 FR 74504 (Oct. 26, 2016). E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69782 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 74504 (Oct. 26, 2016). Compliance with CSAPR is flexible among EGUs and is enforced through the use of tradable emissions allowances. Under existing EPA regulations, for States subject to SO2 emissions limits under CSAPR, any excess SO2 emissions allowances resulting from the lower electricity demand caused by the adoption of an efficiency standard could be used to permit offsetting increases in SO2 emissions by another regulated EGU. However, beginning in 2016, SO2 emissions began to fall as a result of the Mercury and Air Toxics Standards (‘‘MATS’’) for power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final rule, EPA established a standard for hydrogen chloride as a surrogate for acid gas hazardous air pollutants (‘‘HAP’’) and also established a standard for SO2 (a non-HAP acid gas) as an alternative equivalent surrogate standard for acid gas HAP. The same controls are used to reduce HAP and non-HAP acid gas; thus, SO2 emissions are being reduced as a result of the control technologies installed on coal-fired power plants to comply with the MATS requirements for acid gas. In order to continue operating, coal plants must have either flue gas desulfurization or dry sorbent injection systems installed. Both technologies, which are used to reduce acid gas emissions, also reduce SO2 emissions. Because of the emissions reductions under the MATS, it is unlikely that excess SO2 emissions allowances resulting from the lower electricity demand would be needed or used to permit offsetting increases in SO2 emissions by another regulated EGU. Therefore, energy conservation standards that decrease electricity generation will generally reduce SO2 emissions. DOE estimated SO2 emissions reduction using emissions factors based on AEO2023. CSAPR also established limits on NOX emissions for numerous States in the eastern half of the United States. Energy conservation standards would have little effect on NOX emissions in those States covered by CSAPR emissions limits if excess NOX emissions allowances resulting from the lower electricity demand could be used to permit offsetting increases in NOX emissions from other EGUs. In such case, NOx emissions would remain near the limit even if electricity generation goes down. Depending on the configuration of the power sector in the different regions and the need for allowances, however, NOX emissions might not remain at the limit in the case of lower electricity demand. That would mean that energy conservation standards might reduce NOx emissions VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 in covered States. Despite this possibility, DOE has chosen to be conservative in its analysis and has maintained the assumption that standards will not reduce NOX emissions in States covered by CSAPR. Standards would be expected to reduce NOX emissions in the States not covered by CSAPR. DOE used AEO2023 data to derive NOX emissions factors for the group of States not covered by CSAPR. The MATS limit mercury emissions from power plants, but they do not include emissions caps and, as such, DOE’s energy conservation standards would be expected to slightly impact Hg emissions. DOE estimated mercury emissions reduction using emissions factors based on AEO2023, which incorporates the MATS. In comments, Rheem stated some consumers will elect to switch from gasfired to electric water heaters in response to difficult installations to switch from non-condensing to condensing, and that DOE should consider how the electricity grid produces energy in DOE’s climate analysis. Rheem stated that in some regions, the use of electricity generated from coal to power electric water heaters will increase emissions compared to a gas water heater. (Rheem, No. 24 at p. 8). Similarly, Suburban Propane expressed concern that the proposed standards would produce more, rather than less, greenhouse gas emissions in most of the country due to lack of consideration of lower-carbon and carbon-negative energy sources such as traditional and renewable propane. (Suburban Propane, No. 16 at pp. 2–3) Suburban Propane stated that the proposed standards would effectively mandate that only electric energy be used for future water heating needs, causing additional strain to the electric infrastructure and leading to increased carbon emissions. Id. Suburban Propane added that traditional propane is an abundant, domestically produced energy source and is defined as a clean alternative fuel under the 1990 Clean Air Act. Id. Suburban Propane encouraged DOE to focus on a technology-neutral approach that requires low carbon and carbon negative fuel sources, such as a clean fuel standard for building emissions. Id. Because DOE has no authority over questions such as whether a company might electrify loads or future State policies about electrification, DOE is limiting the response to these comments to the matters arising because of this final rule. As noted throughout this final rule, under EPCA DOE can only set standards for CWH equipment if such does not result in the elimination of PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 products or product features from the market, and if clear and convincing evidence exists to support the standard. DOE believe both of these conditions exist, and that the outcome described in the Suburban Propane comment where the standard effectively becomes an electric-only mandate will not come to pass as a result of this final rule. As discussed in section IV.H.2 of this document, DOE believes that generally the final rule will not induce fuel switching. Rheem’s comment addresses a more specific case, that of the difficult installation. DOE notes that consumers facing difficult installations using vertical venting may have cost-effective alternatives such as horizontal venting. DOE notes based on the NEEA report the number of difficult installations is expected to be small. Add to this the fact that bringing multiple tens of kW or more of electric power to the existing commercial water heater(s) location including wiring, switching, breaker panels and other internal building changes to effect fuel switching in existing buildings, may be costly itself making the economics of fuel switching, particularly to a more expensive water heating fuel not an attractive option for existing buildings. DOE believes the number of installations that would fuel switch is small enough to not materially change the results posted in this final rule. Bradford White recommended that DOE take into account other regulatory actions, including those at the State level (i.e., California) that will reduce NOX emissions regardless of the outcome of this rulemaking to avoid potentially double counting reduced emissions. (Bradford White, No. 23 at pp. 6–7) Bradford White recommended that DOE take into account other regulatory actions, including those at the State level (i.e., California) that will reduce NOX emissions regardless of the outcome of this rulemaking to avoid potentially double counting reduced emissions. (Bradford White, No. 23 at pp. 6–7) In response, DOE has found that pre-mix burners are the primary technology used to produce low, and ultra-low NOX emitting equipment. (Docket No. EERE–2017–BT–STD–0019, chapter 5) As Bradford White notes, DOE does not explicitly model the quantity of these low- and ultra-low NOX units to NOX regulated states in its baseline consumer sample. In a standard that results in consumers migrating from atmospheric burners to the types of premix burners used to achieve condensing-level efficiencies, as required in this rule, NOX reductions would occur from reduction of energy E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations used at the site (as well as upstream from the site). In DOE’s emissions quantification, the emissions benefit from the reduction of energy use is considered directly. However, the additional reduction from the type of combustion system used has not been quantified. While Bradford White is correct that DOE did not explicitly address the extent of NOX emissions benefits in NOX-regulated geographic areas, DOE does account for the large fraction of consumers already purchasing condensing equipment, with powered burners, in its base case (see section IV.F.8 of this document). To the extent that consumers in NOX regulated geographic areas preferentially purchase high-efficiency equipment with pre-mix burners to meet these NOX regulations, this mitigates potential double counting. Further, the analysis conducted by DOE examines the emissions benefits from reduction of natural gas consumption due to efficiency improvements. However, because of the burner technology shift necessary to achieve the higher efficiency levels and the correlated reduction in NOX emissions in the shift in burner technology, DOE believes there will be additional NOX emission reductions across the United States and these are not captured in DOE’s analysis. DOE believes that these additional benefits will offset any remaining double counting in NOXregulated geographies. Bradford White recommend DOE also analyze additional emissions generated to comply with an amended standard. (Bradford White, No. 23 at p. 6) With an amended standard, more components, including more complex components and more of certain existing components will be required to comply. Bradford White suggested that this begged the question whether more emissions would be generated to produce components to comply with an amended standard versus what emissions will be saved by requiring higher efficiency equipment. (Bradford White, No. 23 p. 6) In section IV.F.10 of this document, DOE addressed the comments related to embodied emissions posted by WM Technologies and Patterson-Kelley. EPCA authorizes DOE to promulgate rules regulating the energy efficiency of CWH equipment, but this authority does not extend to regulating or considering the means by which manufacturers produce CWH equipment. DOE quantifies the emissions reductions generated by the estimated energy savings as part of the analysis relevant to its implementation of its authority to regulate energy efficiency. Given DOE’s lack of VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 authority over manufacturers’ processes, DOE also has no mechanism for effecting change. Therefore, DOE declines at present to quantify these embodied emissions as they are outside the scope of DOE’s authority and analysis of energy efficiency of covered equipment. L. Monetizing Emissions Impacts As part of the development of this final rule, for the purpose of complying with the requirements of E.O. 12866, DOE considered the estimated monetary benefits from the reduced emissions of CO2, CH4, N2O, NOX, and SO2 that are expected to result from each of the TSLs considered. In order to make this calculation analogous to the calculation of the NPV of consumer benefit, DOE considered the reduced emissions expected to result over the lifetime of products shipped in the projection period for each TSL. This section summarizes the basis for the values used for monetizing the emissions benefits and presents the values considered in this final rule. 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. 1. Monetization of Greenhouse Gas Emissions For the purpose of complying with the requirements of E.O. 12866, DOE estimates the monetized benefits of the reductions in emissions of CO2, CH4, and N2O by using a measure of the social cost (‘‘SC’’) of each pollutant (e.g., SC–CO2). These estimates represent the monetary value of the net harm to society associated with a marginal increase in emissions of these pollutants in a given year, or the benefit of avoiding that increase. These estimates are intended to include (but are not limited to) climate-change-related changes in net agricultural productivity, human health, property damages from increased flood risk, disruption of energy systems, risk of conflict, environmental migration, and the value of ecosystem services. DOE exercises its own judgment in presenting monetized climate benefits as recommended by applicable Executive Orders, and DOE would reach the same conclusion presented in this rule in the absence of the SC–GHG, including the February 2021 Interim Estimates presented by the IWG. The social costs of greenhouse gases, whether measured using the February PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 69783 2021 interim estimates presented by the IWG or by another means, did not affect the rule ultimately proposed by DOE. DOE estimated the global social benefits of CO2, CH4, and N2O reductions (i.e., SC–GHGs) using the estimates presented in the ‘‘Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive Order 13990,’’ published in February 2021 by the IWG. The SC–GHGs is the monetary value of the net harm to society associated with a marginal increase in emissions in a given year, or the benefit of avoiding that increase. In principle, SC–GHG includes the value of all climate change impacts, including (but not limited to) changes in net agricultural productivity, human health effects, property damage from increased flood risk and natural disasters, disruption of energy systems, risk of conflict, environmental migration, and the value of ecosystem services. The SC–GHG therefore, reflects the societal value of reducing emissions of the gas in question by one metric ton. The SC– GHG is the theoretically appropriate value to use in conducting benefit-cost analyses of policies that affect CO2, N2O and CH4 emissions. As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees that the interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. The SC–GHG estimates presented here were developed over many years, using transparent process, peerreviewed methodologies, the best science available at the time of that process, and input from the public. Specifically, in 2009, the IWG, that included the DOE and other executive branch agencies and offices was established to ensure that agencies were using the best available science and to promote consistency in the SC–CO2 values used across agencies. The IWG published SC–CO2 estimates in 2010 that were developed from an ensemble of three widely cited integrated assessment models (‘‘IAMs’’) that estimate global climate damages using highly aggregated representations of climate processes and the global economy combined into a single modeling framework. The three IAMs were run using a common set of input assumptions in each model for future population, economic, and CO2 emissions growth, as well as equilibrium climate sensitivity (‘‘ECS’’)—a measure of the globally averaged temperature response to E:\FR\FM\06OCR2.SGM 06OCR2 69784 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 increased atmospheric CO2 concentrations. These estimates were updated in 2013 based on new versions of each IAM. In August 2016 the IWG published estimates of the SC–CH4 and SC–N2O using methodologies that are consistent with the methodology underlying the SC–CO2 estimates. The modeling approach that extends the IWG SC–CO2 methodology to non-CO2 GHGs has undergone multiple stages of peer review. The SC–CH4 and SC–N2O estimates were developed by Marten et al.167 and underwent a standard doubleblind peer review process prior to journal publication. In 2015, as part of the response to public comments received to a 2013 solicitation for comments on the SC– CO2 estimates, the IWG announced a National Academies of Sciences, Engineering, and Medicine review of the SC–CO2 estimates to offer advice on how to approach future updates to ensure that the estimates continue to reflect the best available science and methodologies. In January 2017, the National Academies released their final report, Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide, and recommended specific criteria for future updates to the SC–CO2 estimates, a modeling framework to satisfy the specified criteria, and both near-term updates and longer-term research needs pertaining to various components of the estimation process.168 Shortly thereafter, in March 2017, President Trump issued E.O. 13783, which disbanded the IWG, withdrew the previous TSDs, and directed agencies to ensure SC–CO2 estimates used in regulatory analyses are consistent with the guidance contained in OMB’s Circular A–4, ‘‘including with respect to the consideration of domestic versus international impacts and the consideration of appropriate discount rates’’ (E.O. 13783, Section 5(c)). Benefit-cost analyses following E.O. 13783 used SC–GHG estimates that attempted to focus on the U.S.-specific share of climate change damages as estimated by the models and were calculated using two discount rates recommended by Circular A–4, 3 percent and 7 percent. All other methodological decisions and model 167 Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold, and A. Wolverton. Incremental CH4 and N2O mitigation benefits consistent with the US Government’s SC–CO2 estimates. Climate Policy. 2015. 15(2): pp. 272–298. 168 National Academies of Sciences, Engineering, and Medicine. Valuing Climate Damages: Updating Estimation of the Social Cost of Carbon Dioxide. 2017. The National Academies Press: Washington, DC. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 versions used in SC–GHG calculations remained the same as those used by the IWG in 2010 and 2013, respectively. On January 20, 2021, President Biden issued E.O. 13990, which re-established the IWG and directed it to ensure that the U.S. Government’s estimates of the SC–CO2 and SC–GHG reflect the best available science and the recommendations of the National Academies. The IWG was tasked with first reviewing the SC–GHG estimates currently used in Federal analyses and publishing interim estimates within 30 days of the Executive Order that reflect the full impact of GHG emissions, including by taking global damages into account. The interim SC–GHG estimates published in February 2021 are used here to estimate the climate benefits for this rule. The Executive Order instructs the IWG to undertake a fuller update of the SC–GHG estimates by January 2022 that takes into consideration the advice of the National Academies and other recent scientific literature. The February 2021 SC–GHG TSD provides a complete discussion of the IWG’s initial review conducted under E.O. 13990. In particular, the IWG found that the SC–GHG estimates used under E.O. 13783 fail to reflect the full impact of GHG emissions in multiple ways. First, the IWG found that the SC–GHG estimates used under E.O. 13783 fail to fully capture many climate impacts that affect the welfare of U.S. citizens and residents, and those impacts are better reflected by global measures of the SC– GHG. Examples of omitted effects from the E.O. 13783 estimates include direct effects on U.S. citizens, assets, and investments located abroad, supply chains, U.S. military assets and interests abroad, tourism, spillover pathways such as economic and political destabilization, and global migration that can lead to adverse impacts on U.S. national security, public health, and humanitarian concerns. In addition, assessing the benefits of U.S. GHG mitigation activities requires consideration of how those actions may affect mitigation activities by other countries, as those international mitigation actions will provide a benefit to U.S. citizens and residents by mitigating climate impacts that affect U.S. citizens and residents. A wide range of scientific and economic experts have emphasized the issue of reciprocity as support for considering global damages of GHG emissions. If the United States does not consider impacts on other countries, it is difficult to convince other countries to consider the impacts of their emissions on the United States. The only way to achieve an efficient allocation of resources for PO 00000 Frm 00100 Fmt 4701 Sfmt 4700 emissions reduction on a global basis— and so benefit the United States and its citizens—is for all countries to base their policies on global estimates of damages. As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees with this assessment and, therefore, in this rule DOE centers attention on a global measure of SC– GHG. This approach is the same as that taken in DOE regulatory analyses from 2012 through 2016. A robust estimate of climate damages that accrue only to U.S. citizens and residents does not currently exist in the literature. As explained in the February 2021 TSD, existing estimates are both incomplete and an underestimate of total damages that accrue to the citizens and residents of the United States because they do not fully capture the regional interactions and spillovers discussed above, nor do they include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature. As noted in the February 2021 SC–GHG TSD, the IWG will continue to review developments in the literature, including more robust methodologies for estimating a U.S.-specific SC–GHG value, and explore ways to better inform the public of the full range of carbon impacts. As a member of the IWG, DOE will continue to follow developments in the literature pertaining to this issue. Second, the IWG found that the use of the social rate of return on capital (7 percent under current OMB Circular A– 4 guidance) to discount the future benefits of reducing GHG emissions inappropriately underestimates the impacts of climate change for the purposes of estimating the SC–GHG. Consistent with the findings of the National Academies and the economic literature, the IWG continued to conclude that the consumption rate of interest is the theoretically appropriate discount rate in an intergenerational context,169 and recommended that 169 Interagency Working Group on Social Cost of Carbon. Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866. 2010. United States Government. (Last accessed April 15, 2022.) www.epa.gov/sites/default/files/2016-12/ documents/scc_tsd_2010.pdf; Interagency Working Group on Social Cost of Carbon. Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866. 2013. (Last accessed April 15, 2022.) www.federalregister.gov/ documents/2013/11/26/2013-28242/technicalsupport-document-technical-update-of-the-socialcost-of-carbon-for-regulatory-impact; Interagency Working Group on Social Cost of Greenhouse Gases, United States Government. Technical Support Document: Technical Update on the Social Cost of Carbon for Regulatory Impact Analysis-Under Executive Order 12866. August 2016. (Last accessed January 18, 2022.) www.epa.gov/sites/default/files/ E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations lotter on DSK11XQN23PROD with RULES2 discount rate uncertainty and relevant aspects of intergenerational ethical considerations be accounted for in selecting future discount rates. Furthermore, the damage estimates developed for use in the SC–GHG are estimated in consumption-equivalent terms, and so an application of OMB Circular A–4’s guidance for regulatory analysis would then use the consumption discount rate to calculate the SC–GHG. DOE agrees with this assessment and will continue to follow developments in the literature pertaining to this issue. DOE also notes that while OMB Circular A–4, as published in 2003, recommends using 3 percent and 7 percent discount rates as ‘‘default’’ values, Circular A–4 also reminds agencies that ‘‘different regulations may call for different emphases in the analysis, depending on the nature and complexity of the regulatory issues and the sensitivity of the benefit and cost estimates to the key assumptions.’’ On discounting, Circular A–4 recognizes that ‘‘special ethical considerations arise when comparing benefits and costs across generations,’’ and Circular A–4 acknowledges that analyses may appropriately ‘‘discount future costs and consumption benefits . . . at a lower rate than for intragenerational analysis.’’ In the 2015 Response to Comments on the Social Cost of Carbon for Regulatory Impact Analysis, OMB, DOE, and the other IWG members recognized that ‘‘Circular A–4 is a living document’’ and ‘‘the use of 7 percent is not considered appropriate for intergenerational discounting. There is wide support for this view in the academic literature, and it is recognized in Circular A–4 itself.’’ Thus, DOE concludes that a 7 percent discount rate is not appropriate to apply to value the SC–GHG in the analysis presented in this analysis. To calculate the present and annualized values of climate benefits, DOE uses the same discount rate as the rate used to discount the value of damages from future GHG emissions, for internal consistency. That approach to discounting follows the same approach that the February 2021 TSD recommends ‘‘to ensure internal consistency—i.e., future damages from 2016-12/documents/sc_co2_tsd_august_2016.pdf; Interagency Working Group on Social Cost of Greenhouse Gases, United States Government. Addendum to Technical Support Document on Social Cost of Carbon for Regulatory Impact Analysis under Executive Order 12866: Application of the Methodology to Estimate the Social Cost of Methane and the Social Cost of Nitrous Oxide. August 2016. (Last accessed January 18, 2022.) www.epa.gov/sites/default/files/2016-12/ documents/addendum_to_sc-ghg_tsd_august_ 2016.pdf. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 climate change using the SC–GHG at 2.5 percent should be discounted to the base year of the analysis using the same 2.5 percent rate.’’ DOE has also consulted the National Academies’ 2017 recommendations on how SC–GHG estimates can ‘‘be combined in RIAs with other cost and benefits estimates that may use different discount rates.’’ The National Academies reviewed several options, including ‘‘presenting all discount rate combinations of other costs and benefits with [SC–GHG] estimates.’’ As a member of the IWG involved in the development of the February 2021 SC–GHG TSD, DOE agrees with the above assessment and will continue to follow developments in the literature pertaining to this issue. While the IWG works to assess how best to incorporate the latest, peer reviewed science to develop an updated set of SC–GHG estimates, it set the interim estimates to be the most recent estimates developed by the IWG prior to the group being disbanded in 2017. The estimates rely on the same models and harmonized inputs and are calculated using a range of discount rates. As explained in the February 2021 SC–GHG TSD, the IWG has recommended that agencies revert to the same set of four values drawn from the SC–GHG distributions based on three discount rates as were used in regulatory analyses between 2010 and 2016 and were subject to public comment. For each discount rate, the IWG combined the distributions across models and socioeconomic emissions scenarios (applying equal weight to each) and then selected a set of four values recommended for use in benefitcost analyses: an average value resulting from the model runs for each of three discount rates (2.5 percent, 3 percent, and 5 percent), plus a fourth value, selected as the 95th percentile of estimates based on a 3 percent discount rate. The fourth value was included to provide information on potentially higher-than-expected economic impacts from climate change. As explained in the February 2021 SC–GHG TSD, and DOE agrees, this update reflects the immediate need to have an operational SC–GHG for use in regulatory benefitcost analyses and other applications that was developed using a transparent process, peer-reviewed methodologies, and the science available at the time of that process. Those estimates were subject to public comment in the context of dozens of proposed rulemakings as well as in a dedicated public comment period in 2013. There are a number of limitations and uncertainties associated with the SC– GHG estimates. First, the current PO 00000 Frm 00101 Fmt 4701 Sfmt 4700 69785 scientific and economic understanding of discounting approaches suggests discount rates appropriate for intergenerational analysis in the context of climate change are likely to be less than 3 percent, near 2 percent or lower.170 Second, the IAMs used to produce these interim estimates do not include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature and the science underlying their ‘‘damage functions’’—i.e., the core parts of the IAMs that map global mean temperature changes and other physical impacts of climate change into economic (both market and nonmarket) damages—lags behind the most recent research. For example, limitations include the incomplete treatment of catastrophic and non-catastrophic impacts in the integrated assessment models, their incomplete treatment of adaptation and technological change, the incomplete way in which inter-regional and intersectoral linkages are modeled, uncertainty in the extrapolation of damages to high temperatures, and inadequate representation of the relationship between the discount rate and uncertainty in economic growth over long time horizons. Likewise, the socioeconomic and emissions scenarios used as inputs to the models do not reflect new information from the last decade of scenario generation or the full range of projections. The modeling limitations do not all work in the same direction in terms of their influence on the SC–CO2 estimates. However, as discussed in the February 2021 TSD, the IWG has recommended that, taken together, the limitations suggest that the interim SC–GHG estimates used in this final rule likely underestimate the damages from GHG emissions. DOE concurs with this assessment. In comments filed in response to the May 2022 CWH ECS NOPR, Joint Climate Commenters stated that DOE appropriately applies the social cost estimates developed by the IWG for CO2, CH4, and N2O, to its analysis of emission reduction benefits. The Joint Climate Commenters added that those values are widely agreed to underestimate the full SC–GHG emissions but are appropriate to use as conservative estimates, have been used 170 Interagency Working Group on Social Cost of Greenhouse Gases (IWG). 2021. Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive Order 13990. February. United States Government. Available at: www.whitehouse.gov/briefing-room/ blog/2021/02/26/a-return-to-science-evidencebased-estimates-of-the-benefits-of-reducing-climatepollution/. E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69786 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations in dozens of previous rulemakings, and were upheld in Federal court. (Joint Climate Commenters, No. 19 at pp. 1– 2). The Joint Climate Commenters suggested that DOE should expand upon its rationale for adopting a global damages valuation and for the range of discount rates it applies to climate effects, and should also strongly consider conducting supplemental sensitivity analyses to assess the proposed rule’s climate benefits at lower discount rates, as recommended by the IWG. (Joint Climate Commenters, No. 20 at p. 2). The Joint Climate Commenters also stated that DOE should provide additional support for adopting a global framework for valuing climate impacts, including providing legal justifications based on applicable requirements placed on DOE. In particular, the Joint Climate Commenters suggested that DOE could strengthen is economic and policy justifications by explicitly concluding that the theory and evidence for international reciprocity justify a focus on the full global values. However, they stated that DOE should also consider including a discussion of domestic-only estimates and should consider conducting sensitivity analysis using a sounder domestic-only estimate as a backstop, and should explicitly conclude that the rule is cost-benefit justified even using a domestic-only valuation that may still undercount climate benefits. (Joint Commenters, No. 21 at p. 2) The Joint Climate Commenters also stated that DOE should consider including additional justification for adopting the range of discount rates endorsed by the IWG and for appropriately deciding not to apply a 7 percent capital-based discount rate to climate impacts. In particular, they suggested that DOE should provide additional justification for combining climate effects discounted at an appropriate consumption-based rate with other costs and benefits discounted at a capital-based rate. The Joint Climate Commenters suggested that it is appropriate generally to focus its analysis of this rule on consumptionbased rates given that most costs and benefits are projected to fall to consumption rather than to capital investments. (Joint Commenters, No. 22 at pp. 2–3) The Joint Climate Commenters also suggested that DOE should also consider providing additional sensitivity analysis using discount rates of 2 percent or lower for climate impacts, as recently suggested by the Working Group. (Joint Climate Commenters, No. 23 at p. 3) The Joint Climate Commenters stated that DOE should consider adding further VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 justification for relying on the Working Group’s other methodological choices, including the fact that the Working Group applied a transparent and rigorous process that relied upon the best-available and most widely cited models for monetizing climate damages. In support of this, they included several attachments which they said provide detailed rebuttals to common criticisms of the Working Group’s methodology. (Joint Climate Commenters, No. 24 at p. 3) DOE acknowledges that interim estimates were developed over many years, using transparent process, peerreviewed methodologies, the best science available at the time of that process, and with input from the public. The interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. The IWG February 2021 TSD provides further justification for use of global SC–GHG estimates. The Joint Climate Commenters encouraged DOE to clearly state that any criticisms of the social cost of greenhouse gases are moot in this rulemaking because the Proposed Rule is easily cost-justified without any climate benefits. (Joint Climate Commenters, No. 25 at p. 3) DOE acknowledges that this rule is economically justified without SC–GHG and health benefits, but notes that consideration of those benefits and costs is important when determining the impact to the nation. The Associations state that DOE should not rely on the SC–GHG for any decision-making until the procedural shortcomings in the SC–GHG development have been addressed, alleging that the development of SC– GHG needs to be developed through a process consistent with the Administrative Procedure Act and that the current SC–GHG was not. (The Associations, No. 32 at pp. 2–3) The Associations stated that the SC–GHG was issued in 2021 without prior notice and no public comment period. The Associations alleged this process lacked transparency, and by extension the DOE NOPR process lacked transparency insofar as it does not provide a full IWG process record for the public to comment on. The Associations commented that without such a record, the public’s ability to comment meaningfully is impaired. They further stated that a future comment period in the IWG process does not provide remedy. (The Associations, No. 32 at p. 3) The Associations stated additionally that the original social cost of carbon comment period in 2013 did not reflect PO 00000 Frm 00102 Fmt 4701 Sfmt 4700 a meaningful opportunity to comment, lacked a peer review process, and did not provide the public access to information underlying the estimates. This period predated the SC–CH4 and SC–N2O, which the Associations alleged were also not subject to public input. (The Associations, No. 32 at p. 4) The Associations stated that DOE should further not use the SC–GHG because the IWG has yet to fully consider recommendations for improvement made by the National Academy of Sciences. (The Associations, No. 32 at p. 4) DOE notes as stated above that interim estimates were developed over many years, using transparent process, peer-reviewed methodologies, the best science available at the time of that process, and with input from the public. The interim SC–GHG estimates represent the most appropriate estimate of the SC–GHG until revised estimates have been developed reflecting the latest, peer-reviewed science. The Associations stated that the SC– GHG estimates do not comply with OMB guidance on information quality because the IWG failed to follow OMB’s guidance for peer review, and therefore use by DOE could be considered arbitrary and capricious. They noted further that the IWG also failed to meet OMB’s requirements for a formal uncertainty analysis. (The Associations, No. 32 at pp. 4–5) The Associations also pointed out that the discount rates used do not comport with OMB’s Circular A– 4, which requires use of 3 and 7 percent discount rates, and note that A–4 remains the governing guidance for regulatory cost-benefit analyses. They urged DOE to comply with Circular A– 4 in all relevant aspects. (The Associations, No. 32 at p. 5) DOE notes in response that DOE uses discount rates consistent with findings of the National Academies, economic literature, and the IWG. Circular A–4 recognizes that ‘‘special ethical considerations arise when comparing the benefits and costs across generations.’’ Circular A–4 acknowledges that analyses may appropriately ‘‘discount future costs and consumption benefits . . . at a lower rate than for intragenerational analysis.’’ See Circular A–4 at 36. DOE will continue to follow developments in the literature pertaining to this issue. The Associations recommended DOE state clearly the statutory authority for applying SC–GHG estimates in the rulemaking and that DOE ‘‘articulate the principles that will allow private parties to predict future applications of such estimates in domains governed by the particular statutory provisions.’’ (The Associations, No. 32 at pp. 2 and 7) The E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations Associations urged DOE to consider whether the ‘‘major questions doctrine’’ applies to DOE’s use of the SC–GHG estimates ‘‘because the SC–GHG estimates are of such major economic and political significance’’. Id. at 7. The Associations liken the use of SC–GHG to effectively serving as a fee for GHG emissions and note that Congress has not established GHG taxes or fees. Thus, the Associations state their opinion that SC–GHG usage falls under the major questions doctrine and urge DOE to therefore not use the SC–GHG estimates. (The Associations, No. 32 at pp. 2–3 and 8) The Associations note the change in levels of SC–GHG between Administrations and use such as evidence that choices might involve policy judgements requiring an express delegation from Congress. (The Associations, No. 32 at p. 8) DOE notes first that, under EPCA, the Department regulates only the energy efficiency or use of CWHs. DOE does not regulate the emissions of CWHs or the emissions of energy sources used to generate energy for those water heaters. While DOE does not regulate emissions under EPCA, DOE is required to determine the benefits and burdens of an energy conservation standard. (See 42 U.S.C. 6313(a)(6)(B)(ii)) Emissions reductions are one of the benefits that DOE considers when weighing the possibility of more-stringent energy conservation standards. And in compliance with E.O. 12866 and E.O. 13990, and for the reasons described above, DOE is using the SC–GHG estimates to quantify the value of those emissions reductions.171 Patterson-Kelley and WM Technologies commented regarding the Supreme Court ruling in West Virginia v. EPA. Patterson-Kelley is concerned over the emissions impact analysis in the commercial water heater rulemaking, as it is likely to require rollback of any efficiency rulemaking. (Patterson-Kelley, No. 26 at pp. 1–2, 7; WM Technologies, No. 25 at pp. 1 and 9) DOE notes this final rule is economically justified without including net benefits related to emissions. Thus, if the Supreme Court or any other court acted to curtail the consideration of the benefits arising from emissions reductions, this rule is not dependent on the value of such benefits and should not be affected. In comments, PHCC stated that while DOE presented much information on the social costs of climate emissions as well as related health costs of emission, it is unclear how the Department intends to use this information, noting that on occasion it is stated that the proposal pays for itself without these factors, while at the same time stressing these factors’ importance. PHCC asked why DOE would engage in the debate if the rule is economically justified without these factors. (PHCC, No. 28 at p. 11) DOE acknowledges the rule is economically justified without SC–GHG and health impacts. However, understanding SC–GHG and health benefits and costs is part of describing clearly the total impact of energy efficiency standards, and they are relevant considerations for the public and stakeholders. PHCC also questioned the Department’s authority to regulate emissions and notes the language of the statute directs DOE to deal with energy, not emissions, and that this topic is a matter of current litigation, which the Department acknowledges. PHCC would like clarification as to the status of this rule should this question ultimately be ruled contrary to the opinion of DOE. (PHCC, No. 28 at p. 11) In response, DOE notes again that it does not regulate emissions for covered products and equipment. Instead, EPCA grants DOE clear authority to establish energy 69787 conservation standards for covered products and equipment. PHCC asks for clarification as to why emissions information is presented at the 3 percent discount rate and not at 7 percent, stating that DOE should plainly state its rational for this practice other than not having a ‘‘single central SC– GHG point estimate’’ and that DOE should acknowledge that the projected social benefits and health benefits are not simple benefits to a purchase of CWH products but rather are benefits for the world population. (PHCC, No. 28 at p. 11) DOE discusses the global nature of social emissions benefits in sections I.C, IV.L.1.a, V.B.8, 0, and V.C.2. DOE uses all four sets of SC–GHG estimates to capture the uncertainties involved in regulatory impact analysis as recommended by the IWG. The rationale for the choice of discount rates is described in the IWG’s February 2021 TSD. DOE’s derivations of the SC–CO2, SC– N2O, and SC–CH4 values used for this final rule are discussed in the following sections, and the results of DOE’s analyses estimating the benefits of the reductions in emissions of these GHGs are presented in section V.B.8 of this document. a. Social Cost of Carbon The SC–CO2 values used for this final rule were generated using the values presented in the 2021 update from the IWG’s February 2021 TSD. Table IV.36 shows the updated sets of SC–CO2 estimates from the IWG’s TSD in 5-year increments from 2020 to 2050. The full set of annual values that DOE used is presented in appendix 14A of the final rule TSD. For purposes of capturing the uncertainties involved in regulatory impact analysis, DOE has determined it is appropriate to include all four sets of SC–CO2 values, as recommended by the IWG.172 TABLE IV.36—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 [2020$ per metric ton CO2] Discount rate and statistic 5% 3% 2.5% 3% Average Average Average 95th percentile lotter on DSK11XQN23PROD with RULES2 Year 2020 2025 2030 2035 2040 ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. 171 For more information, see the ‘‘Technical Support Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim Estimates under VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 14 17 19 22 25 Executive Order 13990,’’ published in February 2021 by the IWG. 172 For example, the February 2021 TSD discusses how the understanding of discounting approaches PO 00000 Frm 00103 Fmt 4701 Sfmt 4700 51 56 62 67 73 76 83 89 96 103 152 169 187 206 225 suggests that discount rates appropriate for intergenerational analysis in the context of climate change may be lower than 3 percent. E:\FR\FM\06OCR2.SGM 06OCR2 69788 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE IV.36—ANNUAL SC–CO2 VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050—Continued [2020$ per metric ton CO2] Discount rate and statistic 5% 3% 2.5% 3% Average Average Average 95th percentile Year 2045 ................................................................................................................. 2050 ................................................................................................................. In calculating the potential global benefits resulting from reduced CO2 emissions, DOE used the values from the 2021 interagency report, adjusted to 2022$ using the implicit price deflator for gross domestic product (‘‘GDP’’) from the Bureau of Economic Analysis. For each of the four sets of SC–CO2 cases specified, the values for emissions in 2020 were $14, $51, $76, and $152 per metric ton avoided (values expressed in 2020$). For 2051 to 2070, DOE used SC–CO2 estimates published by EPA, adjusted to 2022$.173 These estimates are based on methods, assumptions, and parameters identical to the 2020–2050 estimates published by the IWG (which were based on EPA modeling). DOE expects additional 28 32 79 85 climate benefits to accrue for any longer-life furnaces after 2070, but a lack of available SC–CO2 estimates for emissions years beyond 2070 prevents DOE from monetizing these potential benefits in this analysis. DOE multiplied the CO2 emissions reduction estimated for each year by the SC–CO2 value for that year in each of the four cases. DOE adjusted the values to 2022$ using the implicit price deflator for GDP from the Bureau of Economic Analysis. To calculate a present value of the stream of monetary values, DOE discounted the values in each of the four cases using the specific discount rate that had been used to obtain the SC–CO2 values in each case. See appendix 14A for the annual SC– CO2 values. 110 116 242 260 b. Social Cost of Methane and Nitrous Oxide The SC–CH4 and SC–N2O values used for this final rule were based on the values developed for the February 2021 TSD. Table IV.37 shows the updated sets of SC–CH4 and SC- N2O estimates from the latest interagency update in 5year increments from 2020 to 2050. The full set of annual values used is presented in appendix 14A of the final rule TSD. To capture the uncertainties involved in regulatory impact analysis, DOE has determined it is appropriate to include all four sets of SC–CH4 and SC– N2O values, as recommended by the IWG. DOE derived values after 2050 using the approach described above for the SC–CO2. TABLE IV.37—ANNUAL SC–CH4 AND SC–N2O VALUES FROM 2021 INTERAGENCY UPDATE, 2020–2050 [2020$ per metric ton] SC–CH4 SC–N2O Discount rate and statistic Discount rate and statistic Year 5% 3% Average lotter on DSK11XQN23PROD with RULES2 2020 2025 2030 2035 2040 2045 2050 .................................. .................................. .................................. .................................. .................................. .................................. .................................. Average 670 800 940 1,100 1,300 1,500 1,700 173 See EPA, Revised 2023 and Later Model Year Light-Duty Vehicle GHG Emissions Standards: Regulatory Impact Analysis, Washington, DC, December 2021. Available at: nepis.epa.gov/Exe/ 17:52 Oct 05, 2023 Jkt 259001 3% Average 95th percentile 1,500 1,700 2,000 2,200 2,500 2,800 3,100 DOE multiplied the CH4 and N2O emissions reduction estimated for each year by the SC–CH4 and SC–N2O estimates for that year in each of the cases. DOE adjusted the values to 2022$ using the implicit price deflator for GDP from the Bureau of Economic Analysis. To calculate a present value of the stream of monetary values, DOE discounted the values in each of the cases using the specific discount rate that had been used to obtain the SC–CH4 and SC–N2O estimates in each case. See VerDate Sep<11>2014 2.5% 2,000 2,200 2,500 2,800 3,100 3,500 3,800 5% Average 3,900 4,500 5,200 6,000 6,700 7,500 8,200 2. Monetization of Other Emissions Impacts For the final rule, DOE estimated the monetized value of NOX and SO2 emissions reductions from electricity generation using benefit per ton estimates for that sector from the EPA’s Benefits Mapping and Analysis Program.174 DOE used EPA’s values for ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed January 13, 2023). 174 Estimating the Benefit per Ton of Reducing PM2.5 Precursors from 21 Sectors. www.epa.gov/ Frm 00104 Fmt 4701 Sfmt 4700 Average 5,800 6,800 7,800 9,000 10,000 12,000 13,000 chapter 13 for the annual emissions reduction. See appendix 14A for the annual SC–CH4 and SC–N2O values. PO 00000 3% 18,000 21,000 23,000 25,000 28,000 30,000 33,000 2.5% 3% Average 95th percentile 27,000 30,000 33,000 36,000 39,000 42,000 45,000 48,000 54,000 60,000 67,000 74,000 81,000 88,000 PM2.5-related benefits associated with NOX and SO2 and for ozone-related benefits associated with NOX for 2025 and 2030, and 2040, calculated with discount rates of 3 percent and 7 percent. DOE used linear interpolation to define values for the years not given in the 2025 to 2040 period; for years beyond 2040 the values are held constant. DOE combined the EPA benefit per ton estimates with regional information on electricity consumption and emissions to define weightedbenmap/estimating-benefit-ton-reducing-pm25precursors-21-sectors. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations average national values for NOX and SO2 as a function of sector (see appendix 14B of the NOPR TSD). DOE multiplied the site emissions reduction (in tons) in each year by the associated $/ton values, and then discounted each series using discount rates of 3 percent and 7 percent as appropriate. lotter on DSK11XQN23PROD with RULES2 M. Utility Impact Analysis The utility impact analysis estimates the changes in installed electrical capacity and generation projected to result for each considered TSL. The analysis is based on published output from the NEMS associated with AEO2023. NEMS produces the AEO Reference case, as well as a number of side cases that estimate the economywide impacts of changes to energy supply and demand. For the current analysis, impacts are quantified by comparing the levels of electricity sector generation, installed capacity, fuel consumption and emissions in the AEO2023 Reference case and various side cases. Details of the methodology are provided in the appendices to chapters 13 and 15 of the final rule TSD. The output of this analysis is a set of time-dependent coefficients that capture the change in electricity generation, primary fuel consumption, installed capacity and power sector emissions due to a unit reduction in demand for a given end use. These coefficients are multiplied by the stream of electricity savings calculated in the NIA to provide estimates of selected utility impacts of potential new or amended energy conservation standards. N. Employment Impact Analysis DOE considers employment impacts in the domestic economy as one factor in selecting a standard. Employment impacts from new or amended energy conservation standards include both direct and indirect impacts. Direct employment impacts are any changes in the number of employees of manufacturers of the products subject to standards, their suppliers, and related service firms. The MIA addresses those impacts. Indirect employment impacts are changes in national employment that occur due to the shift in expenditures and capital investment caused by the purchase and operation of more-efficient appliances. Indirect employment impacts from standards consist of the net jobs created or eliminated in the national economy, other than in the manufacturing sector being regulated, caused by (1) reduced spending by consumers on energy, (2) reduced spending on new energy supply by the utility industry, (3) increased VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 consumer spending on the products to which the new standards apply and other goods and services, and (4) the effects of those three factors throughout the economy. One method for assessing the possible effects on the demand for labor of such shifts in economic activity is to compare sector employment statistics developed by the Labor Department’s Bureau of Labor Statistics (‘‘BLS’’). BLS regularly publishes its estimates of the number of jobs per million dollars of economic activity in different sectors of the economy, as well as the jobs created elsewhere in the economy by this same economic activity. Data from BLS indicate that expenditures in the utility sector generally create fewer jobs (both directly and indirectly) than expenditures in other sectors of the economy.175 There are many reasons for these differences, including wage differences and the fact that the utility sector is more capital-intensive and less labor-intensive than other sectors. Energy conservation standards have the effect of reducing consumer utility bills. Because reduced consumer expenditures for energy likely lead to increased expenditures in other sectors of the economy, the general effect of efficiency standards is to shift economic activity from a less labor-intensive sector (i.e., the utility sector) to more labor-intensive sectors (e.g., the retail and service sectors). Thus, the BLS data suggest that net national employment may increase due to shifts in economic activity resulting from energy conservation standards. DOE estimated indirect national employment impacts for the standard levels considered in this final rule using an input/output model of the U.S. economy called Impact of Sector Energy Technologies (‘‘ImSET’’).176 ImSET is a special-purpose version of the ‘‘U.S. Benchmark National Input-Output’’ (‘‘I– O’’) model, which was designed to estimate the national employment and income effects of energy-saving technologies. The ImSET software includes a computer-based I–O model having structural coefficients that characterize economic flows among 187 sectors most relevant to industrial, 175 See U.S. Department of Commerce-Bureau of Economic Analysis. Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (‘‘RIMS II ’’). 1997. U.S. Government Printing Office: Washington, DC. Available at www.bea.gov/scb/pdf/regional/perinc/meth/ rims2.pdf (last accessed July 1, 2021). 176 Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model Description and User’s Guide. 2015. Pacific Northwest National Laboratory: Richland, WA. PNNL–24563. PO 00000 Frm 00105 Fmt 4701 Sfmt 4700 69789 commercial, and residential building energy use. DOE notes that ImSET is not a general equilibrium forecasting model, and understands the uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. Because ImSET does not incorporate price changes, the employment effects predicted by ImSET may over-estimate actual job impacts over the long run for this rule. Therefore, DOE used ImSET only to generate results for near-term timeframes (2026–2030), where these uncertainties are reduced. For more details on the employment impact analysis, see chapter 16 of the final rule TSD. V. Analytical Results and Conclusions The following section addresses the results from DOE’s analyses with respect to the considered energy conservation standards for CWH equipment. It addresses the TSLs examined by DOE, the projected impacts of each of these levels if adopted as energy conservation standards for CWH equipment, and the standards levels that DOE is adopting in this final rule. Additional details regarding DOE’s analyses are contained in the final rule TSD supporting this document. A. Trial Standard Levels In general, DOE typically evaluates potential amended standards for products and equipment by grouping individual efficiency levels for each class into TSLs. Use of TSLs allows DOE to identify and consider manufacturer cost interactions between the equipment classes, to the extent that there are such interactions, and market cross elasticity from consumer purchasing decisions that may change when different standard levels are set. In the analysis conducted for this final rule, for commercial gas-fired storage water heaters, DOE included efficiency levels for both thermal efficiency and standby loss in each TSL because standby loss is dependent upon thermal efficiency. This dependence of standby loss on thermal efficiency is discussed in detail in section IIIIV.C.4.b of this final rule and chapter 5 of the final rule TSD. However, as discussed in section IV.C.4.b of this final rule, for all thermal efficiency levels for commercial gas-fired storage water heaters, DOE only analyzed one standby loss level corresponding to each thermal efficiency level. The thermal efficiency levels for commercial gas-fired storage water heaters and commercial gas-fired E:\FR\FM\06OCR2.SGM 06OCR2 69790 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations instantaneous water heaters and hot water supply boilers, the standby loss levels for commercial gas-fired storage water heaters, and the UEF levels for residential-duty gas-fired storage water heaters that are included in each TSL are described in the following paragraphs and presented in Table V.1 of this final rule. TSL 4 consists of the max-tech efficiency levels for each equipment category, which correspond to the highest condensing efficiency levels. TSL 3 consists of intermediate condensing efficiency levels for commercial gas-fired storage water heaters and residential-duty gas-fired storage water heaters, and max-tech efficiency levels for commercial gasfired instantaneous water heaters and hot water supply boilers. TSL 2 consists of the minimum condensing efficiency levels analyzed for commercial gas-fired storage water heaters and residentialduty gas-fired storage water heaters, and intermediate condensing efficiency levels for commercial gas-fired instantaneous water heaters and hot water supply boilers. These TSLs require similar technologies to achieve the efficiency levels and have roughly comparable equipment availability across each equipment category in terms of the share of models available that meet the efficiency level and having multiple manufacturers that produce those models. TSL 1 consists of the maximum non-condensing thermal efficiency or UEF (as applicable) levels analyzed for each equipment category. Table V.1 presents the efficiency levels for each equipment category (i.e., commercial gas-fired storage water heaters and storage-type instantaneous water heaters, residential-duty gas-fired storage water heaters, gas-fired tankless water heaters, and gas-fired circulating water heaters and hot water supply boilers) in each TSL. Table V.2 presents the thermal efficiency value and standby loss reduction factor for each equipment category in each TSL that DOE considered, with the exception of residential-duty gas-fired storage water heaters (for which TSLs are shown separately in Table V.3). The standby loss reduction factor is a multiplier representing the reduction in allowed standby loss relative to the current standby loss standard and which corresponds to the associated increase in thermal efficiency. Table V.3 presents the UEF equations for residential-duty gas-fired storage water heaters corresponding to each TSL that DOE considered. TABLE V.1—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY EFFICIENCY LEVEL Trial standard level * ** 1 Equipment Et or UEF EL Commercial gas-fired storage water heaters and storage-type instantaneous water heaters .................................................................. Residential-duty gas-fired storage water heaters .................................................................. Gas-fired instantaneous water heaters and hot water supply boilers: Tankless water heaters .............................. Circulating water heaters and hot water supply boilers ......................................... 2 Et or UEF EL SL EL 3 Et or UEF EL SL EL 4 Et or UEF EL SL EL SL EL 1 0 2 0 4 0 5 0 2 .................... 3 .................... 4 .................... 5 .................... 2 .................... 4 .................... 5 .................... 5 .................... 2 .................... 4 .................... 5 .................... 5 .................... * Et stands for thermal efficiency, SL stands for standby loss, UEF stands for uniform energy factor, and EL stands for efficiency level. Et applies to commercial gasfired storage water heaters and storage-type instantaneous water heaters, and to gas-fired instantaneous water heaters and hot water supply boilers. SL applies to commercial gas-fired storage water heaters and storage-type instantaneous water heaters. UEF applies to residential-duty gas-fired storage water heaters. ** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water supply boilers. In addition, standby loss standards are not applicable for residential-duty commercial gas-fired storage water heaters. Lastly, for commercial gas-fired storage water heaters and storage-type instantaneous water heaters DOE only analyzed the reduction that is inherent to increasing Et and did not analyze SL efficiency levels above EL0. TABLE V.2—TRIAL STANDARD LEVELS FOR CWH EQUIPMENT BY THERMAL EFFICIENCY AND STANDBY LOSS REDUCTION FACTOR [Except residential-duty gas-fired storage water heaters] Trial standard level * ** 1 Equipment Et (%) lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage water heaters and storage-type instantaneous water heaters .................................................................. Gas-fired instantaneous water heaters and hot water supply boilers: Tankless water heaters .............................. Circulating water heaters and hot water supply boilers ......................................... 2 SL factor † Et (%) 3 SL factor † Et (%) 4 SL factor † Et (%) SL factor † 82 0.98 90 0.91 95 0.86 99 0.83 84 .................... 94 .................... 96 .................... 96 .................... 84 .................... 94 .................... 96 .................... 96 .................... * Et stands for thermal efficiency, and SL stands for standby loss. ** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters and hot water supply boilers. † Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby loss equations are discussed in section IV.C.4.b of this final rule. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00106 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69791 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.3—TRIAL STANDARD LEVELS BY UEF FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS Trial standard level ** Draw pattern * High .................................................................................. Medium ............................................................................ Low .................................................................................. Very Small ....................................................................... 1 2 3 4 UEF UEF UEF UEF 0.7497¥0.0009*Vr 0.6902¥0.0011*Vr 0.6262¥0.0012*Vr 0.3574¥0.0009*Vr 0.8397¥0.0009*Vr 0.7802¥0.0011*Vr 0.7162¥0.0012*Vr 0.4474¥0.0009*Vr 0.9297¥0.0009*Vr 0.8702¥0.0011*Vr 0.8062¥0.0012*Vr 0.5374¥0.0009*Vr 0.9997¥0.0009*Vr 0.9402¥0.0011*Vr 0.8762¥0.0012*Vr 0.6074¥0.0009*Vr * Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the firsthour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR part 430. ** Vr is rated volume in gallons. DOE constructed the TSLs for this final rule to include efficiency levels representative of efficiency levels with similar characteristics (i.e., using similar technologies and/or efficiencies, and having roughly comparable equipment availability). The use of representative efficiency levels provided for greater distinction between the TSLs. While representative efficiency levels were included in the TSLs, DOE considered all efficiency levels as part of its analysis.177 B. Economic Justification and Energy Savings 1. Economic Impacts on Individual Consumers DOE analyzed the economic impacts on CWH equipment consumers by looking at the effects that potential amended standards at each TSL would have on the LCC and PBP. DOE also examined the impacts of potential standards on selected consumer subgroups. These analyses are discussed in the following sections. a. Life-Cycle Cost and Payback Period In general, higher-efficiency products affect consumers in two ways: (1) purchase price increases and (2) annual operating costs decrease. Inputs used for calculating the LCC and PBP include total installed costs (i.e., product price plus installation costs) and operating costs (i.e., annual energy use, energy prices, energy price trends, repair costs, and maintenance costs). The LCC calculation also uses product lifetime and a discount rate. Chapter 8 of the final rule TSD provides detailed information on the LCC and PBP analyses. Table V.4 through Table V.13 of this final rule show the LCC and PBP results for the TSLs considered in this final rule. In the first of each pair of tables, the simple payback is measured relative to the baseline product. In the second table, impacts are measured relative to the efficiency distribution in the nonew-standards case in the compliance year (see section IV.F.8 of this document). Because some consumers purchase products with higher efficiency in the no-new-standards case, the average savings are less than the difference between the average LCC of the baseline product and the average LCC at each TSL. The savings refer only to consumers who are affected by a standard at a given TSL. As was noted in IV.H.1 of this document, DOE assumes a large percentage of consumers will already be purchasing higher efficiency condensing equipment by 2026. Those who already purchase a product with efficiency at or above a given TSL are not affected. Consumers for whom the LCC increases at a given TSL experience a net cost. TABLE V.4—AVERAGE LCC AND PBP RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGETYPE INSTANTANEOUS WATER HEATERS Thermal efficiency (Et) (%) TSL * 0 1 2 3 4 ................................... ................................... ................................... ................................... ................................... Standby loss (SL) factor 80 82 90 95 99 1.00 0.98 0.91 0.86 0.83 Average costs (2022$) Installed cost First year’s operating cost Lifetime operating cost 2,419 2,374 2,243 2,157 2,094 18,589 18,252 17,266 16,681 16,206 6,083 6,158 7,477 7,593 7,733 LCC 24,672 24,410 24,743 24,274 23,939 Simple payback period (years) 0 1.7 7.9 5.8 5.1 lotter on DSK11XQN23PROD with RULES2 * The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the baseline equipment. Note: TSL 0 represents the baseline. 177 Efficiency levels that were analyzed for this final rule are discussed in section IV.C.4 of this VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 document. Results by efficiency level are presented in TSD chapters 8, 10, and 12. PO 00000 Frm 00107 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69792 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.5—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS Life-cycle cost savings Thermal efficiency (Et) level (%) TSL 0 1 2 3 4 ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Standby loss (SL) factor 80 82 90 95 99 Percentage of commercial consumers that experience a net cost (%) Percentage of commercial consumers that experience a net benefit (%) 0 3 19 17 23 0 32 18 35 76 1.00 0.98 0.91 0.86 0.83 Average life-cycle cost savings * (2022$) 0 267 (85) 367 528 * The calculation includes affected consumers only. A value in parenthesis is a negative number. Note: TSL 0 represents the baseline. TABLE V.6—AVERAGE LCC AND PBP RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS Average costs (2022$) TSL * First year’s operating cost Installed cost 0 1 2 3 4 Simple payback period (years) UEF ** ........................................................... ........................................................... ........................................................... ........................................................... ........................................................... 0.59 0.68 0.77 0.86 0.93 2,539 2,791 3,746 4,135 4,199 Lifetime operating cost 1,519 1,427 1,365 1,298 1,261 LCC 13,470 12,671 12,220 11,634 11,311 16,009 15,462 15,966 15,769 15,510 ........................ 2.7 7.8 7.2 6.4 * The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the baseline equipment. Note: TSL 0 represents the baseline. ** The UEF shown is for the representative capacity of 75 gallons. TABLE V.7—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS CASE FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS Life-cycle cost savings TSL 0 1 2 3 4 UEF * ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... Percentage of commercial consumers that experience a net cost (%) Percentage of commercial consumers that experience a net benefit (%) Average life-cycle cost savings ** 2022$ 0 6 43 42 37 0 69 47 50 62 0 509 (80) 119 370 0.59 0.68 0.77 0.86 0.93 * The UEF shown is for the representative capacity of 75 gallons. ** The calculation includes affected consumers only. A value in parentheses is a negative number. Note: TSL 0 represents the baseline. TABLE V.8—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS Thermal efficiency (Et) (%) lotter on DSK11XQN23PROD with RULES2 TSL * 0 1 2 3 ............................................................................................... ............................................................................................... ............................................................................................... ............................................................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00108 Average costs 2022$ Installed cost 80 84 94 96 Fmt 4701 Sfmt 4700 3,007 3,046 3,858 3,925 First year’s operating cost Lifetime operating cost 821 789 729 717 E:\FR\FM\06OCR2.SGM 9,535 9,201 8,612 8,480 06OCR2 LCC 12,543 12,247 12,471 12,405 Simple payback period years ................ 1.3 9.3 8.9 69793 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.8—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED TANKLESS WATER HEATERS— Continued Thermal efficiency (Et) (%) TSL * 4 ............................................................................................... Average costs 2022$ First year’s operating cost Installed cost 96 3,925 Lifetime operating cost 717 Simple payback period years LCC 8,480 12,405 8.9 * The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the baseline equipment. Note: TSL 0 represents the baseline. TABLE V.9—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED TANKLESS WATER HEATERS Life-cycle cost savings Thermal efficiency (Et) (%) TSL 0 1 2 3 4 ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... Percentage of commercial consumers that experience a net cost (%) Percentage of commercial consumers that experience a net benefit (%) 0 0 10 15 15 0 17 11 27 27 80 84 94 96 96 Average life-cycle cost savings * 2022$ 0 295 105 120 120 * The calculation includes affected consumers only. Note: TSL 0 represents the baseline. TABLE V.10—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS Thermal efficiency (Et) (%) TSL * 0 1 2 3 4 ............................................................... ............................................................... ............................................................... ............................................................... ............................................................... Average costs 2022$ Installed cost 80 84 94 96 96 First year’s operating cost Lifetime operating cost 5,273 5,114 4,731 4,661 4,661 80,367 77,996 72,358 71,307 71,307 8,622 8,830 13,973 14,362 14,362 Simple payback period years LCC 88,989 86,826 86,331 85,668 85,668 ........................ 1.3 9.9 9.4 9.4 * The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the baseline equipment. Note: TSL 0 represents the baseline. TABLE V.11—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS Life-cycle cost savings Thermal efficiency (Et) (%) lotter on DSK11XQN23PROD with RULES2 TSL 0 1 2 3 4 ....................................................................................................................... ....................................................................................................................... ....................................................................................................................... ....................................................................................................................... ....................................................................................................................... Percentage of commercial consumers that experience a net cost (%) Percentage of commercial consumers that experience a net benefit (%) 0 2 17 18 18 0 17 16 26 26 80 84 94 96 96 * The calculation includes affected consumers only. Note: TSL 0 represents the baseline. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00109 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 Average life-cycle cost savings * 2022$ 0 1,153 1,204 1,570 1,570 69794 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.12—AVERAGE LCC AND PBP RESULTS BY EFFICIENCY LEVEL FOR GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * TSL ** 0 1 2 3 4 Average costs 2022$ Thermal efficiency (Et) (%) ............................................................... ............................................................... ............................................................... ............................................................... ............................................................... Installed cost 80 84 94 96 96 First year’s operating cost Lifetime operating cost 3,211 3,111 2,877 2,834 2,834 47,561 46,132 42,834 42,208 42,208 6,021 6,151 9,288 9,528 9,528 Simple payback period years LCC 53,582 52,284 52,122 51,736 51,736 ........................ 1.3 9.8 9.3 9.3 * This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10 of this final rule. ** The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the baseline equipment. Note: TSL 0 represents the baseline. TABLE V.13—AVERAGE LCC SAVINGS RELATIVE TO THE NO-NEW-STANDARDS-CASE EFFICIENCY DISTRIBUTION FOR GASFIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * Life-cycle cost savings Thermal efficiency (Et) (%) TSL 0 1 2 3 4 ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... Percentage of commercial consumers that experience a net cost (%) Percentage of commercial consumers that experience a net benefit (%) 0 1 14 17 17 0 17 14 27 27 80 84 94 96 96 Average life-cycle cost savings ** 2022$ 0 756 695 898 898 * This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result of Tables V.9 and V.11 of this final rule. ** The calculation includes affected consumers only. Note: TSL 0 represents the baseline. b. Consumer Subgroup Analysis In the consumer subgroup analysis, DOE estimated the impact of the considered TSLs on a low-income residential population (0–20 percentile gross annual household income) subgroup. Table V.14 through Table V.23 of this final rule compare the average LCC savings and PBP at each efficiency level for the consumer subgroup, along with the average LCC savings for the entire consumer sample. In most cases, the average LCC savings and PBP for low-income residential consumers at the considered efficiency levels are either similar to or more favorable than the average for all consumers, due in part to greater levels of equipment usage in RECS apartment building sample identified as lowincome observations when compared to the average consumer of CWH equipment. Chapter 11 of the final rule TSD presents the complete LCC and PBP results for the subgroup analysis. TABLE V.14—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS Thermal efficiency (Et) (%) TSL lotter on DSK11XQN23PROD with RULES2 1 2 3 4 ............................................................... ............................................................... ............................................................... ............................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Standby loss (SL) factor (%) 82 90 95 99 PO 00000 Frm 00110 LCC savings (2022$) Residential low-income 98 91 86 83 Fmt 4701 Sfmt 4700 Simple payback period (years) Residential low-income All 524 994 1,578 1,542 E:\FR\FM\06OCR2.SGM 267 (85) 367 528 06OCR2 1.0 4.3 3.2 2.8 All 1.7 7.9 5.8 5.1 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69795 TABLE V.15—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS Thermal efficiency (Et) (%) TSL 1 2 3 4 ............................................................... ............................................................... ............................................................... ............................................................... Standby loss (SL) factor (%) 82 90 95 99 Percent of consumers that experience a net cost Residential low-income 98 91 86 83 Percent of consumers that experience a net benefit Residential low-income All 0 10 6 4 3 19 17 23 All 34 27 46 95 32 18 35 76 TABLE V.16—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, RESIDENTIAL-DUTY GASFIRED STORAGE WATER HEATERS LCC savings (2022$) TSL UEF Residential low-income 1 2 3 4 Simple payback period (years) ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... 0.68 0.77 0.86 0.93 Residential low-income All 716 368 729 1,033 509 (80) 119 370 All 2.2 5.6 5.3 4.7 2.7 7.8 7.2 6.4 * Parentheses indicate negative values. TABLE V.17—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, RESIDENTIALDUTY GAS-FIRED STORAGE WATER HEATERS Percent of consumers that experience a net cost TSL 1 2 3 4 UEF ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Residential low-income (%) 0.68 0.77 0.86 0.93 Percent of consumers that experience a net benefit Residential low-income (%) All 1 28 24 19 6 43 42 37 All 73 61 68 79 69 47 50 62 TABLE V.18—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED TANKLESS WATER HEATERS TSL 1 2 3 4 LCC savings 2022$ Thermal efficiency (Et) (%) ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Residential low-income 84 94 96 96 Simple payback period (years) Residential low-income All 217 26 49 49 295 105 120 120 All 1.7 10.2 9.9 9.9 1.3 9.3 8.9 8.9 TABLE V.19—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED TANKLESS WATER HEATERS lotter on DSK11XQN23PROD with RULES2 TSL 1 2 3 4 ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Percent of consumers that experience a net cost Thermal efficiency (Et) (%) Jkt 259001 PO 00000 Frm 00111 Residential low-income 84 94 96 96 Fmt 4701 Sfmt 4700 Percent of consumers that experience a net benefit Residential low-income All 0 11 17 17 E:\FR\FM\06OCR2.SGM 0 10 15 15 06OCR2 17 10 26 26 All 17 11 27 27 69796 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.20—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS TSL 1 2 3 4 LCC savings 2022$ Thermal efficiency (Et) (%) ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Residential low-income 84 94 96 96 Simple payback period (years) Residential low-income All 2,289 7,552 7,425 7,425 1,153 1,204 1,570 1,570 All 0.7 5.6 5.3 5.3 1.3 9.9 9.4 9.4 TABLE V.21—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS Thermal efficiency (Et) (%) TSL 1 2 3 4 ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Percent of consumers that experience a net cost Residential low-income 84 94 96 96 Percent of consumers that experience a net benefit Residential low-income All 0 5 5 5 2 17 18 18 All 19 28 40 40 17 16 26 26 TABLE V.22—COMPARISON OF IMPACTS FOR CONSUMER SUBGROUP WITH ALL CONSUMERS, GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * TSL 1 2 3 4 LCC savings (2022$) Thermal efficiency (Et) (%) ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Residential low-income 84 94 96 96 Simple payback period (years) Residential low-income All 1,329 4,066 4,009 4,009 756 695 898 898 All 0.8 5.8 5.5 5.5 1.3 9.8 9.3 9.3 * This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result of Tables V.18 and V.20 of this final rule. TABLE V.23—COMPARISON OF IMPACTED CONSUMERS FOR CONSUMER SUBGROUP AND ALL CONSUMERS, GAS-FIRED INSTANTANEOUS WATER HEATERS AND HOT WATER SUPPLY BOILERS * TSL 1 2 3 4 Percent of consumers that experience a net cost Thermal efficiency (Et) (%) ........................................................................................... ........................................................................................... ........................................................................................... ........................................................................................... Residential low-income 84 94 96 96 Percent of consumers that experience a net benefit Residential low-Income All 0 8 10 10 1 14 17 17 18 20 33 33 All 17 14 27 27 * This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result of Tables V.19 and V.21 of this final rule. lotter on DSK11XQN23PROD with RULES2 c. Rebuttable Presumption Payback As discussed in section II.A, EPCA establishes a rebuttable presumption that an energy conservation standard is economically justified if the increased purchase cost for a product that meets the standard is less than three times the value of the first-year energy savings resulting from the standard. In VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 calculating a rebuttable presumption PBP for each of the considered TSLs, DOE used discrete values, and, as required by EPCA, based the energy use calculation on the DOE test procedures for CWH equipment. In contrast, the PBPs presented in section V.B.1.a of this document were calculated using distributions that reflect the range of energy use in the field. PO 00000 Frm 00112 Fmt 4701 Sfmt 4700 Table V.24 presents the rebuttable presumption PBPs for the considered TSLs for CWH equipment. TSL 1 is the only level at which the rebuttable presumption PBPs are less than or equal to three. See chapter 8 of the final rule TSD for more information on the rebuttable presumption PBP analysis. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69797 TABLE V.24—REBUTTABLE PRESUMPTION PAYBACK PERIODS Trial standard level (years) Equipment 1 Commercial Gas-Fired Storage and Storage-Type Instantaneous Water Heaters ......................................................................................................... Residential-Duty Gas-Fired Storage ................................................................ Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers * ...... Instantaneous, Gas-Fired Tankless ................................................................. Instantaneous Water Heaters and Hot Water Supply Boilers ......................... 2 1.7 2.7 1.3 1.3 1.3 3 7.5 7.6 9.5 8.7 9.6 4 5.6 7.1 9.1 8.4 9.1 5.0 6.3 9.1 8.4 9.1 * This row shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result. 2. Economic Impacts on Manufacturers DOE performed an MIA to estimate the impact of amended energy conservation standards on manufacturers of CWH equipment. The next section describes the expected impacts on manufacturers at each considered TSL. Chapter 12 of the final rule TSD explains the analysis in further detail. a. Industry Cash Flow Analysis Results In this section, DOE provides GRIM results from the analysis, which examines changes in the industry that would result from a standard. Table V.25 through Table V.28 of this final rule summarize the estimated financial impacts of potential amended energy conservation standards on manufacturers of CWH equipment, as well as the conversion costs that DOE estimates manufacturers of CWH equipment would incur at each TSL. The impact of potential amended energy conservation standards was analyzed under two markup scenarios: (1) the preservation of gross margin percentage markup scenario and (2) the preservation of per-unit operating profit markup scenario, as discussed in section IV.J.2.d of this document. The preservation of gross margin percentage scenario provides the upper bound while the preservation of operating profits scenario results in the lower (or more severe) bound to impacts of potential amended standards on industry. Each of the modeled scenarios results in a unique set of cash flows and corresponding INPV for each TSL. INPV is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2023–2055). The ‘‘change in INPV’’ results refer to the difference in industry value between the no-new-standards case and standards case at each TSL. To provide perspective on the short-run cash flow impact, DOE includes a comparison of free cash flow between the no-new-standards case and the standards case at each TSL in the year before amended standards would take effect. This free cash flow comparison provides an understanding of the magnitude of the required conversion costs relative to the cash flow generated by the industry in the no-new-standards case. Conversion costs are one-time investments for manufacturers to bring their manufacturing facilities and product designs into compliance with potential amended standards. As described in section IV.J.2.c of this document, conversion cost investments occur between the year of publication of the final rule and the year by which manufacturers must comply with the new standard. The conversion costs can have a significant impact on the shortterm cash flow on the industry and generally result in lower free cash flow in the period between the publication of the final rule and the compliance date of potential amended standards. Conversion costs are independent of the manufacturer markup scenarios and are not presented as a range in this analysis. The results in Table V.25 through Table V.28 of this final rule show potential INPV impacts for CWH equipment manufacturers by equipment class. The tables present the range of potential impacts reflecting both the less severe set of potential impacts (preservation of gross margin) and the more severe set of potential impacts (preservation of per-unit operating profit). In the following discussion, the INPV results refer to the difference in industry value between the no-newstandards case and each standards case that results from the sum of discounted cash flows from 2023 (the base year) through 2055 (the end of the analysis period). Industry Cash Flow for Commercial GasFired Storage Water Heaters and Storage-Type Instantaneous Equipment The results in Table V.25 of this final rule shows the estimated impacts for commercial gas-fired storage water heaters. Commercial gas-fired storage water heaters represent approximately 69 percent of shipments covered by this rulemaking. TABLE V.25—MANUFACTURING IMPACT ANALYSIS RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS No-newstandards case Units lotter on DSK11XQN23PROD with RULES2 INPV ................................................ Change in INPV ............................... Free Cash Flow (2025) ................... Change in Free Cash Flow ............. Product Conversion Costs ............... Capital Conversion Costs ................ VerDate Sep<11>2014 17:52 Oct 05, 2023 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ Jkt 259001 PO 00000 Trial standard level 1 154.2 ........................ ........................ 12.6 ........................ ........................ ........................ ........................ Frm 00113 Fmt 4701 153.3–154.0 (0.9)–(0.1) (0.6)–(0.1) 12.2 (0.4) (3.1) 1.0 0.1 Sfmt 4700 2 3 139.1–142.7 (15.0)–(11.4) (9.7)–(7.4) 5.1 (7.5) (59.3) 4.9 12.8 E:\FR\FM\06OCR2.SGM 06OCR2 130.4–136.5 (23.7)–(17.6) (15.4)–(11.4) 1.2 (11.5) (90.6) 10.9 16.9 4 62.0–73.1 (92.1)–(81.0) (59.8)–(52.6) (34.4) (47.1) (372.3) 84.1 28.1 69798 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.25—MANUFACTURING IMPACT ANALYSIS RESULTS FOR COMMERCIAL GAS-FIRED STORAGE WATER HEATERS AND STORAGE-TYPE INSTANTANEOUS WATER HEATERS—Continued No-newstandards case Units lotter on DSK11XQN23PROD with RULES2 Total Conversion Costs ............ 2022$ millions ........ At TSL 1, DOE estimates impacts on INPV for commercial gas-fired storage and storage-type instantaneous water heater equipment manufacturers to range from¥0.6 percent to ¥0.1 percent, or a change of ¥$0.9 million to ¥$0.1 million. At this level, DOE estimates that industry free cash flow would decrease by approximately 3.1 percent to $12.2 million, compared to the no-new-standards-case value of $12.6 million in the year before compliance (2025). DOE estimates 67.3 percent of commercial gas-fired storage water heater and storage-type instantaneous water heater basic models meet or exceed the thermal efficiency and standby loss standards at TSL 1. DOE does not expect the modest increases in thermal efficiency and standby loss requirements at this TSL to require major equipment redesigns or large capital investments. Overall, DOE estimates that manufacturers would incur $1.0 million in product conversion costs and $0.1 million in capital conversion costs to bring their equipment portfolios into compliance with a standard set to TSL 1. At TSL 1, conversion costs are a key driver of results. These upfront investments result in a slightly lower INPV in both manufacturer markup scenarios. At TSL 2, DOE estimates impacts on INPV for manufacturers of this equipment class to range from ¥9.7 percent to ¥7.4 percent, or a change in INPV of ¥$15.0 million to ¥$11.4 million. At this potential standard level, industry free cash flow would decrease by approximately 59.3 percent to $5.1 million, compared to the no-newstandards case value of $12.6 million in the year before compliance (2025). DOE estimates 41 percent of commercial gas-fired storage water heater and storage-type instantaneous water heater basic models meet or exceed the thermal efficiency and standby loss standards at TSL 2. Product and capital conversion costs would increase at this TSL as manufacturers update designs, production equipment, and floor space to meet a thermal efficiency standard that necessitates condensing technology. DOE notes that capital investment would vary by manufacturer due to differences in VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Trial standard level 1 ........................ 2 1.1 condensing heat exchanger designs and differences in existing production capacity. These capital conversion costs include, but are not limited to, investments in tube bending, press dies, machining, enameling, MIG welding, leak testing, quality assurance stations, and conveyer. DOE estimates that industry would incur $4.9 million in product conversion costs and $12.8 million in capital conversion costs to bring their offered commercial gas-fired storage water heaters and storage-type instantaneous water heaters into compliance with a standard set to TSL 2. At TSL 2, conversion costs are a key driver of results. These upfront investments result in a lower INPV in both manufacturer markup scenarios. At TSL 3, DOE estimates impacts on INPV for commercial gas-fired storage water heater and storage-type instantaneous water heater manufacturers to range from ¥15.4 percent to ¥11.4 percent, or a change in INPV of ¥$23.7 million to ¥$17.6 million. At this potential standard level, DOE estimates industry free cash flow would decrease by approximately 90.6 percent to $1.2 million, compared to the no-new-standards-case value of $12.6 million in the year before compliance (2025). DOE estimates that 34 percent of currently offered commercial gas-fired storage water heater and storage-type instantaneous water heater basic models meet or exceed the thermal efficiency and standby loss standards at TSL 3. At this level, DOE estimates that product conversion costs would increase, as manufacturers would have to redesign a larger percentage of their offerings to meet the higher thermal efficiency levels. Additionally, capital conversion costs would increase, as manufacturers upgrade their laboratories and test facilities to increase capacity for product development and safety testing for their commercial gas-fired storage water heater and storage-type instantaneous water heater offerings. Overall, DOE estimates that manufacturers would incur $10.9 million in product conversion costs and $16.9 million in capital conversion costs to bring their commercial gas-fired storage water heater and storage-type PO 00000 Frm 00114 Fmt 4701 Sfmt 4700 3 17.7 4 27.8 112.2 instantaneous water heater portfolio into compliance with a standard set to TSL 3. At TSL 3, conversion costs are a key driver of results. These upfront investments result in lower INPV in both manufacturer markup scenarios. TSL 4 represents the max-tech thermal efficiency and standby loss levels. At TSL 4, DOE estimates impacts on INPV for commercial gas-fired storage water heater and storage-type instantaneous water heater manufacturers to range from ¥59.8 percent to ¥52.6 percent, or a change in INPV of ¥$92.1 million to ¥$81.0 million. At this TSL, DOE estimates industry free cash flow in the year before compliance (2025) would decrease by approximately 372.3 percent to ¥$34.4 million compared to the no-new-standards case value of $12.6 million. The impacts on INPV at TSL 4 are significant. DOE estimates less than 1 percent of currently offered basic models meet or exceed the efficiency levels prescribed at TSL 4. DOE expects product conversion costs to be significant at TSL 4, as almost all equipment on the market would have to be redesigned. Furthermore, the redesign process would be more resource intensive and costly at TSL 4 than at other TSLs. Traditionally, manufacturers design their equipment platforms to support a range of models with varying input capacities and storage volumes, and the efficiency typically will vary slightly between models within a given platform. However, at TSL 4, manufacturers would be limited in their ability to maintain a platform approach to designing commercial gas-fired storage and storage-type instantaneous water heaters, because the 99 percent thermal efficiency level represents the maximum achievable efficiency and there would be no allowance for slight variations in efficiency between individual models. At TSL 4, manufacturers would be required to separately redesign each individual model to optimize performance for each specific input capacity and storage volume combination. In manufacturer interviews, some manufacturers raised concerns that they would not have sufficient engineering capacity to E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations complete necessary redesigns within the 3-year conversion period. If manufacturers require more than 3 years to redesign all models, they would likely prioritize redesigns based on sales volume. Due to the increase in number of redesigns and engineering effort, DOE estimates that product conversion costs would increase to $84.1 million. DOE estimates that manufacturers would also incur $28.1 million in capital conversion costs. In addition to upgrading production lines, DOE expects manufacturers would need to add laboratory space to develop and test products to meet amended standards at TSL 4 standards. These large upfront investments result in a substantially lower INPV in both manufacturer markup scenarios. At TSL 4, the large conversion costs result in a free cash flow dropping below zero in the years before the standard year. The negative free cash flow calculation indicates manufacturers may need to access cash 69799 reserves or outside capital to finance conversion efforts. Industry Cash Flow for Residential-Duty Gas-Fired Storage Water Heaters The results in Table V.26 of this final rule shows the estimated impacts for residential-duty gas-fired storage water heaters. Residential-duty gas-fired storage water heaters represent approximately 13.5 percent of shipments covered by this rulemaking. TABLE V.26—MANUFACTURING IMPACT ANALYSIS RESULTS FOR RESIDENTIAL-DUTY GAS-FIRED STORAGE WATER HEATERS No-newstandards case Units INPV ................................................ Change in INPV ............................... Trial standard level 1 2 3 4 Product Conversion Costs ............... Capital Conversion Costs ................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ 9.0 ........................ ........................ 0.7 ........................ ........................ ........................ ........................ 8.4–9.6 (0.5)–0.6 (5.8)–6.8 0.5 (0.2) (26.9) 0.5 0.1 7.6–9.6 (1.4)–0.7 (15.3)–7.4 0.2 (0.6) (78.8) 0.8 0.7 6.5–11.2 (2.5)–2.2 (27.3)–25.0 (0.2) (0.9) (125.6) 1.2 1.0 2.3–7.4 (6.7)–(1.5) (74.7)–(16.9) (2.4) (3.1) (429.9) 4.8 2.5 Total Conversion Costs * .......... 2022$ millions ........ ........................ 0.5 1.4 2.3 7.3 Free Cash Flow (2025) ................... Change in Free Cash Flow ............. lotter on DSK11XQN23PROD with RULES2 * Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding. At TSL 1, DOE estimates impacts on INPV for residential-duty gas-fired storage equipment manufacturers to range from ¥5.8 percent to 6.8 percent, or a change of ¥$0.5 million to $0.6 million. At this level, DOE estimates that industry free cash flow would decrease by approximately 26.9 percent to $0.5 million, compared to the nonew-standards-case value of $0.7 million in the year before compliance (2025). DOE estimates that 50 percent of currently offered residential-duty gasfired storage water heater basic models already meet or exceed the UEF standards at TSL 1. DOE does not expect the modest increases in UEF requirements at this TSL to require major equipment redesigns or large capital investments. Overall, DOE estimates that industry would incur $0.5 million in product conversion costs and $0.1 million in capital conversion costs to bring their residential-duty commercial gas-fired storage equipment portfolios into compliance with a standard set to TSL 1. At TSL 1, conversion costs are the primary driver of results. These upfront investments result in a moderately lower INPV for the preservation of operating profit scenario and a moderately higher INPV for the preservation of gross margin scenario. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 At TSL 2, DOE estimates impacts on INPV for manufacturers of this equipment class to range from ¥15.3 percent to 7.4 percent, or a change in INPV of ¥$1.4 million to $0.7 million. At this potential standard level, industry free cash flow would decrease by approximately 78.8 percent to $0.2 million, compared to the no-newstandards case value of $0.7 million in the year before compliance (2025). DOE estimates that 32 percent of currently offered residential-duty gasfired storage water heater basic models would already meet or exceed the UEF standards at TSL 2. Product and capital conversion costs would increase at this TSL. Manufacturers would meet the UEF levels for residential-duty commercial gas-fired storage equipment by shifting to condensing technology. DOE notes that the capital investment would vary by manufacturer due to differences in condensing heat exchanger designs and differences in existing production capacity. DOE estimates that industry would incur $0.8 million in product conversion costs and $0.7 million in capital conversion costs to bring their residential-duty gas-fired storage water heaters into compliance with a standard set to TSL 2. At TSL 2, conversion costs continue to be the primary driver of results. These upfront investments PO 00000 Frm 00115 Fmt 4701 Sfmt 4700 result in a lower INPV in both manufacturer markup scenarios. At TSL 3, DOE estimates impacts on INPV for residential-duty gas-fired manufacturers to range from –27.3 percent to 25.0 percent, or a change in INPV of ¥$2.5 million to $2.2 million. At this potential standard level, DOE estimates industry free cash flow would decrease by approximately 125.6 percent to ¥$0.2 million compared to the no-new-standards-case value of $0.7 million in the year before compliance (2025). DOE estimates that 27 percent of currently offered residential-duty commercial gas-fired storage water heater basic models would meet or exceed the UEF standards at TSL 3. At this level, DOE estimates that product conversion costs would increase, as manufacturers would have to redesign a larger percentage of their offerings to meet the higher UEF levels and transition to a complete portfolio of condensing offerings. Additionally, capital conversion costs would increase, as manufacturers increase production capacity for condensing equipment. Overall, DOE estimates that manufacturers would incur $1.2 million in product conversion costs and $1.0 million in capital conversion costs to bring their residential-duty commercial gas-fired storage water heater portfolio into compliance with a standard set to E:\FR\FM\06OCR2.SGM 06OCR2 69800 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations efficiency levels prescribed at TSL 4. DOE expects conversion costs to be significant at TSL 4, as most equipment currently on the market would have to be redesigned and new products would have to be developed to meet a wider range of storage volumes. DOE estimates that product conversion costs would increase to $4.8 million, as manufacturers would have to redesign a much larger percentage of their offerings to meet max-tech. DOE estimates that manufacturers would also incur $2.5 million in capital conversion costs. In addition to upgrading production lines, DOE accounted for the costs to add laboratory space to develop and safety test products that meet max-tech efficiency levels. At TSL 4, conversion costs are high. These upfront investments result TSL 3. At TSL 3, conversion costs are a key driver of results. TSL 4 represents the max-tech UEF levels. At TSL 4, DOE estimates impacts on INPV for residential-duty commercial gas-fired storage water heater manufacturers to range from ¥74.7 percent to ¥16.9 percent, or a change in INPV of ¥$6.7 million to ¥$1.5 million. At this TSL, DOE estimates industry free cash flow in the year before compliance (2025) would decrease by approximately 429.9 percent to ¥$2.4 million compared to the no-new-standards case value of $0.7 million. The impacts on INPV at TSL 4 are significant. DOE estimates that approximately 2 percent of currently offered residential-duty gas-fired water heater equipment meet or exceed the in a lower INPV in both manufacturer markup scenarios. At TSL 4, the large conversion costs result in a free cash flow dropping below zero in the years before the standard year. The negative free cash flow calculation indicates manufacturers may need to access cash reserves or outside capital to finance conversion efforts. Industry Cash Flow for Gas-Fired Instantaneous Tankless Water Heaters The results in Table V.27 of this final rule shows the estimated impacts for gas-fired instantaneous tankless water heaters. Gas-fired instantaneous tankless water heaters represent approximately 8 percent of shipments covered by this rulemaking. TABLE V.27—MANUFACTURING IMPACT ANALYSIS RESULTS FOR GAS-FIRED INSTANTANEOUS TANKLESS WATER HEATERS No-newstandards case Units INPV ................................................ Change in INPV ............................... Trial standard level 1 2 3 4 Product Conversion Costs ............... Capital Conversion Costs ................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ 8.9 ........................ ........................ 0.6 ........................ ........................ ........................ ........................ 8.3–8.4 (0.5)–(0.5) (6.0)–(5.6) 0.3 (0.3) (46.7) 0.7 0.0 7.2–7.5 (1.7)–(1.4) (18.6)–(15.6) (0.3) (0.8) (145.6) 1.5 0.7 7.2–7.6 (1.7)–(1.3) (19.0)–(14.2) (0.3) (0.8) (146.0) 1.5 0.7 7.2–7.6 (1.7)–(1.3) (19.0)–(14.2) (0.3) (0.8) (146.0) 1.5 0.7 Total Conversion Costs * .......... 2022$ millions ........ ........................ 0.7 2.1 2.1 2.1 Free Cash Flow (2025) ................... Change in Free Cash Flow ............. lotter on DSK11XQN23PROD with RULES2 * Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding. At TSL 1, DOE estimates impacts on INPV for gas-fired instantaneous tankless water heaters manufacturers to range from ¥6.0 percent to ¥5.6 percent, or a change of approximately ¥$0.53 million to ¥$0.50 million. At this level, DOE estimates that industry free cash flow would decrease by approximately –46.7 percent to $0.3 million, compared to the no-newstandards-case value of $0.6 million in the year before compliance (2025). DOE estimates that 91 percent of basic models of gas-fired instantaneous tankless water heaters already meet or exceed the thermal efficiency standards at TSL 1. At this level, DOE expects manufacturers of this equipment class to incur product conversion costs to redesign their equipment. DOE does not expect the modest increases in thermal efficiency requirements at this TSL to require capital investments. Overall, DOE estimates that manufacturers would incur $0.7 million in product conversion costs and no capital conversion costs to bring this equipment portfolio into compliance with a standard set to TSL 1. At TSL 1, product VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 conversion costs are the key driver of results. These upfront investments result in a lower INPV in both manufacturer markup scenarios. At TSL 2, DOE estimates impacts on INPV ranges from ¥18.6 percent to ¥15.6 percent, or a change in INPV of ¥$1.7 million to ¥$1.4 million. At this potential standard level, DOE estimates industry free cash flow to decrease by approximately 145.6 percent to ¥$0.3 million compared to the no-newstandards-case value of $0.6 million in the year before compliance (2025). DOE estimates that 86 percent of basic models of gas-fired instantaneous tankless water heaters already meet or exceed the thermal efficiency standards at TSL 2. DOE estimates that product and capital conversion costs would increase at this TSL. Manufacturers would meet the thermal efficiency levels by using condensing technology. DOE understands that tankless water heater manufacturers produce far more consumer products in significantly higher volumes than commercial offerings, and that these products are manufactured in the same facilities with PO 00000 Frm 00116 Fmt 4701 Sfmt 4700 shared production lines. DOE expects manufacturers would need to make incremental investments rather than set up new production lines. Overall, DOE estimates that manufacturers would incur $1.5 million in product conversion costs and $0.7 million in capital conversion costs to bring their instantaneous gas-fired tankless water heater portfolio into compliance with a standard set to TSL 2. As discussed in section V.A, TSL 3 and TSL 4 represent max-tech thermal efficiency levels for gas-fired instantaneous tankless water heaters. Therefore, DOE modeled identical impacts to manufacturers of this equipment for both TSL 3 and TSL 4. At these levels, DOE estimates impacts on INPV to range from ¥19.0 percent to ¥14.2 percent, or a change in INPV of ¥$1.7 million to ¥$1.3 million. At these levels, DOE estimates industry free cash flow in the year before compliance (2025) would decrease by approximately 146.0 percent to ¥$0.3 million compared to the no-newstandards case value of $0.6 million. DOE estimates that 64 percent of basic E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations manufacturers would incur $1.5 million in product conversion costs and $0.7 million in capital conversion costs to bring their gas-fired instantaneous tankless portfolio into compliance with a standard set to TSL 3 and TSL 4. models of gas-fired instantaneous tankless water heaters already meet or exceed the thermal efficiency standards at TSL 3 and TSL 4. DOE anticipates modest product conversion costs as manufacturers continue to increase their max-tech offerings at greater input capacities. Overall, DOE estimates that 69801 Industry Cash Flow for Instantaneous Circulating Water Heaters and Hot Water Supply Boilers The results in Table V.28 show the estimated impacts for circulating water heaters and hot water supply boilers. This equipment represents approximately 9 percent of shipments covered by this rulemaking. TABLE V.28—MANUFACTURING IMPACT ANALYSIS RESULTS FOR CIRCULATING WATER HEATERS AND HOT WATER SUPPLY BOILERS No-newstandards case Units INPV ................................................ Change in INPV ............................... 1 2 3 4 Product Conversion Costs ............... Capital Conversion Costs ................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ % ............................ 2022$ millions ........ 2022$ millions ........ 40.8 ........................ ........................ 2.5 ........................ ........................ ........................ ........................ 40.6–40.7 (0.2)–(0.0) (0.5)–(0.1) 2.4 (0.1) (3.5) 0.3 0.0 36.3–43.6 (4.4)–2.8 (10.9)–7.0 0.9 (1.6) (63.0) 1.9 2.0 30.9–39.7 (9.9)–(1.1) (24.3)–(2.7) (1.5) (4.1) (161.3) 8.5 2.0 30.9–39.7 (9.9)–(1.1) (24.3)–(2.7) (1.5) (4.1) (161.3) 8.5 2.0 Total Conversion Costs ............ 2022$ millions ........ ........................ 0.3 3.9 10.5 10.5 Free Cash Flow (2025) ................... Change in Free Cash Flow ............. lotter on DSK11XQN23PROD with RULES2 Trial standard level At TSL 1, DOE estimates impacts on INPV for instantaneous circulating water heater and hot water supply boiler manufacturers to range from ¥0.2 percent to 0.1 percent, or a change of ¥$0.2 million to less than 0.1 million. At this level, DOE estimates that industry free cash flow would decrease by approximately 3.5 percent to $2.4 million, compared to the no-newstandards-case value of $2.5 million in the year before compliance (2025). DOE estimates that 58 percent of basic models of this equipment class already meet or exceed the thermal efficiency standards at TSL 1. At this level, DOE expects manufacturers of this equipment class to incur product conversion costs to redesign their equipment. DOE does not expect the modest increases in thermal efficiency requirements at this TSL to require capital investments. Overall, DOE estimates that manufacturers would incur $0.3 million in product conversion costs and no capital conversion costs to bring this equipment portfolio into compliance with a standard set to TSL 1. At TSL 1, product conversion costs are the key driver of results. These upfront investments result in a slightly lower INPV for the preservation of operating profit scenario and an almost unchanged INPV for the preservation of gross margin scenario. At TSL 2, DOE estimates impacts on INPV ranges from ¥10.9 percent to 7.0 percent, or a change in INPV of ¥$4.4 million to $2.8 million. At this potential standard level, DOE estimates industry VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 free cash flow to decrease by approximately 63.0 percent to $0.9 million compared to the no-newstandards-case value of $2.5 million in the year before compliance (2025). DOE estimates that 39 percent of basic models of this equipment class already meet or exceed the thermal efficiency standards at TSL 2. DOE estimates that product and capital conversion costs would increase at this TSL. Manufacturers would meet the thermal efficiency levels by using condensing technology. DOE anticipates that manufacturers will begin to incur some product conversion costs associated with design changes to reach condensing levels. Additionally, DOE anticipates manufacturers achieving condensing levels with additional purchased parts (i.e., condensing heat exchanger, burner tube, blower, gas valve). DOE’s capital conversion costs reflect the incremental warehouse space required to store these additional purchased parts. Overall, DOE estimates that industry would incur $1.9 million in product conversion costs and $2.0 million in capital conversion costs to bring their instantaneous circulating water heater and hot water supply boiler portfolio into compliance with a standard set to TSL 2. As discussed in section V.A, TSL 3 and TSL 4 represent max-tech thermal efficiency levels for circulating water heater and hot water supply boiler equipment. Therefore, DOE modeled identical impacts to manufacturers of PO 00000 Frm 00117 Fmt 4701 Sfmt 4700 this equipment for both TSL 3 and TSL 4. At these levels, DOE estimates impacts on INPV to range from ¥24.3 percent to ¥2.7 percent, or a change in INPV of ¥$9.9 million to ¥$1.1 million. DOE estimates industry free cash flow in the year before compliance (2025) would decrease by approximately 161.3 percent to ¥$1.5 million compared to the no-new-standards case value of $2.5 million. DOE estimates that 29 percent of basic models of this equipment class already meet or exceed the max-tech thermal efficiency standards at these TSLs. b. Direct Impacts on Employment To quantitatively assess the potential impacts of amended energy conservation standards on direct employment in the CWH equipment industry, DOE used the GRIM to estimate the domestic labor expenditures and number of direct employees in the no-new-standards case and in each of the standards cases during the analysis period. This analysis includes both production and nonproduction employees employed by CWH equipment manufacturers. DOE used statistical data from the U.S. Census Bureau 2021 Annual Survey of Manufacturers (‘‘ASM’’),178 the results of the engineering analysis, and interviews with manufacturers to 178 U.S. Census Bureau, 2018–2021 Annual Survey of Manufacturers: Statistics for Industry Groups and Industries (2021) Available at www.census.gov/programs-surveys/asm/data/ tables.html (Last accessed December 16, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 69802 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations determine the inputs necessary to calculate industry-wide labor expenditures and domestic employment levels. Labor expenditures related to manufacturing of the product are a function of the labor intensity of the product, the sales volume, and an assumption that wages remain fixed in real terms over time. The total labor expenditures in the GRIM are converted to domestic production worker employment levels by dividing production labor expenditures by the average fully burdened wage per production worker. DOE calculated the fully burdened wage by multiplying the industry production worker hourly blended wage (provided by the ASM) by the fully burdened wage ratio. The fully burdened wage ratio factors in paid leave, supplemental pay, insurance, retirement and savings, and legally required benefits. DOE determined the fully burdened ratio from the Bureau of Labor Statistic’s employee compensation data.179 The estimates of production workers in this section cover workers, including linesupervisors who are directly involved in fabricating and assembling a product within the manufacturing facility. Workers performing services that are closely associated with production operations, such as materials handling tasks using forklifts, are also included as production labor. Non-production worker employment levels were determined by multiplying the industry ratio of production worker employment to non-production employment against the estimated production worker employment explained previously. Estimates of nonproduction workers in this section cover the line supervisors, sales, sales delivery, installation, office functions, legal, and technical employees. The total direct employment impacts calculated in the GRIM are the sum of the changes in the number of domestic production and non-production workers resulting from the amended energy conservation standards for CWH equipment, as compared to the no-newstandards case. Typically, more efficient equipment is more complex and labor intensive to produce. Per-unit labor requirements and production time requirements trend higher with more stringent energy conservation standards. DOE estimates that 92 percent of CWH equipment sold in the United States is currently manufactured domestically. In the absence of amended energy conservation standards, DOE estimates that there would be 168 domestic production workers in the CWH industry in 2026, the year of compliance. DOE notes that Congress authorized $250 million to Accelerate Electric Heat Pump Manufacturing in America utilizing the Defense Production Act. This program, funded by the Inflation Reduction Act (IRA), will increase use of electric heat pumps, which provide both heating and cooling for buildings and homes, will help lower energy costs for more American families and businesses, and create healthier indoor spaces through American-made clean energy technologies. DOE’s analysis forecasts that the industry will employ 296 production and non-production workers in the CWH industry in 2026 in the absence of amended energy conservation standards. Table V.29 presents the potential impacts of amended energy conservation standards on U.S. production workers of CWH equipment. TABLE V.29—DOMESTIC DIRECT EMPLOYMENT IMPACTS FOR CWH MANUFACTURERS IN 2026 No-new standards case Direct Employment in 2026 (Production Workers + Non-Production Workers ................................. Changes in Direct Employment ......................................................................................................... 296 .................. I 1 I 300 4 2 I 291 (5) 3 I 300 4 4 I 307 11 lotter on DSK11XQN23PROD with RULES2 * Numbers in parentheses indicate negative numbers. ** This field presents impacts on domestic direct employment, which aggregates production and non-production workers. Based on ASM census data, DOE assumed the ratio of production to non-production employees stays consistent across all analyzed TSLs, which is 43 percent non-production workers. In NOPR interviews conducted ahead of the 2016 NOPR notice, several manufacturers that produce highefficiency CWH equipment stated that a standard that went to condensing levels could require them to hire more employees to increase their production capacity. Others stated that a condensing standard would require additional engineers to redesign CWH equipment and production processes. Due to different variations in manufacturing labor practices, actual direct employment could vary depending on manufacturers’ preference for high capital or high labor practices in response to amended standards. DOE notes that the employment impacts discussed here are independent of the indirect employment impacts to the broader U.S. economy, which are documented in chapter 15 of the accompanying TSD. 179 U.S. Bureau of Labor Statistics. Employer Costs for Employee Compensation. December 15, 2022. Available at www.bls.gov/news.release/pdf/ ecec.pdf (Last accessed December 16, 2022). VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 c. Impacts on Manufacturing Capacity As discussed in further detail in section IV.J.2.c of this document, DOE anticipates manufacturers would incur significant product conversion costs at TSL 4 (max-tech) for all gas-fired storage water heaters, gas-fired circulating water heaters, and hot water supply boilers. Because of the high conversion costs as this level, some manufacturers may not have the capacity to redesign the full range of equipment offerings in the 3year conversion period. Instead, manufacturers would likely choose to offer a reduced selection of models to limit upfront investments. Furthermore, none of the three largest manufacturers of commercial gas storage PO 00000 Frm 00118 Fmt 4701 Sfmt 4700 water heaters produces equipment that can meet the thermal efficiency standard at TSL 4. Currently, only two models from a single manufacturer can meet the thermal efficiency standard at TSL 4. This manufacturer is a small business and does not have the production capacity to meet the demand for the entire industry’s shipments. Similarly, for residential-duty gas-fired storage water heaters, only one manufacturer offers models that can meet the UEF standard at TSL 4. In written comments regarding TSL 3, two manufacturers with significant market share raised concerns about the ability to adapt products and update production capacity if standards for multiple equipment classes are set to max-tech. A.O. Smith raised concerns about the concurrent challenges of E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations commercial gas-fired instantaneous, circulating product, and hot water supply boilers all having a new minimum standard of 96 percent thermal efficiency. A.O. Smith stated manufacturers will need to quickly shift resources and make significant capital investments to redesign and build these product types to ‘‘max-tech’’ technology within 3 years ahead of compliance with a final rule. (A.O. Smith, No.22 at p.3) Rheem stated increasing the energy conservation standards for commercial water heaters to the proposed near maxtech condensing levels, could significantly reduce equipment offerings from various manufacturers and lessen competition. Rheem attributed the reduction on offerings to a combination of limited compliance period of three years, the magnitude of the equipment and manufacturing changes that would be required, and the number of other rulemakings similarly affecting the water heating industry—specifically the anticipated changes in the energy conservation standards for consumer water heaters, consumer boilers, and pool heaters. (Rheem, No. 24 at p.2) d. Impacts on Subgroups of Manufacturers Small manufacturers, niche equipment manufacturers, and manufacturers exhibiting a cost structure substantially different from the industry average could be affected disproportionately. Using average cost assumptions developed for an industry cash-flow estimate is inadequate to assess differential impacts among manufacturer subgroups. For the CWH equipment industry, DOE identified and evaluated the impact of amended energy conservation standards on one subgroup—small manufacturers. The SBA defines a ‘‘small business’’ as having 1,000 employees or fewer for NAICS code 333310, ‘‘Other Commercial and Service Industry Machinery Manufacturing.’’ Based on this definition, DOE identified three small, domestic manufacturers of the covered equipment that would be subject to amended standards. For a discussion of the impacts on the small manufacturer subgroup, see the regulatory flexibility analysis in section VI.B of this document and chapter 12 of the final rule TSD. e. Cumulative Regulatory Burden One aspect of assessing manufacturer burden involves looking at the cumulative impact of multiple DOE standards and the regulatory actions of other Federal agencies and States that affect the manufacturers of a covered 69803 product or equipment. While any one regulation may not impose a significant burden on manufacturers, the combined effects of several existing or impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. In addition to energy conservation standards, other regulations can significantly affect manufacturers’ financial operations. Multiple regulations affecting the same manufacturer can strain profits and lead companies to abandon product lines or markets with lower expected future returns than competing products. For these reasons, DOE conducts an analysis of cumulative regulatory burden as part of its rulemakings pertaining to appliance efficiency. Rheem noted that the company faces cumulative regulatory burden from space conditioning and refrigeration rulemakings. (Rheem, No. 24 at p. 7) DOE identified DOE rulemakings affecting Rheem and other CWH manufacturer that are Federal, are product-specific, and that will take effect three years before or after the estimated 2026 compliance date (see Table V.30). TABLE V.30—COMPLIANCE DATES AND EXPECTED CONVERSION EXPENSES OF FEDERAL ENERGY CONSERVATION STANDARDS AFFECTING COMMERCIAL WATER HEATER MANUFACTURERS Number of manufacturers * Federal energy conservation standard Commercial Warm Air Furnaces 81 FR 2420 (January 15, 2016) ............ Residential Central Air Conditioners and Heat Pumps 82 FR 1786 (January 6, 2017) ............................................................................................. Room Air Conditioners ‡ 87 FR 20608 (April 7, 2022) ............................... Consumer Pool Heaters ‡ 87 FR 22640 (April 15, 2022) ........................... Consumer Furnaces ‡ 87 FR 40590 (July 7, 2022) ................................... Number of manufacturers affected from today’s rule ** Approx. standards year 14 2 2023 30 30 21 15 3 1 3 1 2023 2023 2028 2029 Industry conversion costs (millions $) 7.5–22.2 (2014$) 342.6 22.8 33.8 150.6 (2015$) (2020$) (2020$) (2020$) Industry conversion costs/ product revenue † (%) 1.7–5.1 †† 0.5 0.5 1.9 1.4 lotter on DSK11XQN23PROD with RULES2 * This column presents the total number of manufacturers identified in the energy conservation standard rule contributing to cumulative regulatory burden. ** This column presents the number of manufacturers producing CWH equipment that are also listed as manufacturers in the listed energy conservation standard contributing to cumulative regulatory burden. † This column presents industry conversion costs as a percentage of product revenue during the conversion period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant products/equipment. The revenue used for this calculation is the revenue from just the covered product/equipment associated with each row. The conversion period is the time frame over which conversion costs are made and lasts from the announcement year of the final rule to the standards year of the final rule. The conversion period typically ranges from 3 to 5 years, depending on the energy conservation standard. †† Low and high conversion cost scenarios were analyzed as part of this direct final rule. The range of estimated conversion expenses presented here reflects those two scenarios. ‡ These rulemakings are in the proposed rule stage and all values are subject to change until finalized. In written comments, AHRI and Bradford White listed several rulemakings that do not appear in Table V.31. (AHRI, No. 13 at pp. 5–6; Bradford White, No. 23 at p.7) DOE published a March 2022 ECS preliminary analysis for consumer water heaters, a May 2022 ECS preliminary analysis for consumer boilers, and an August 2022 NODA for commercial and industrial pumps. (87 FR 11327; 87 FR 26304; 87 FR 49537) VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 These rulemakings do not have final rules, nor do they have proposed standard levels or proposed compliance dates. Any estimation of cost or timing at this time would be speculative. DOE does not list test procedures in Table V.32. When applicable, test procedure costs are incorporated into the associated energy conservation standard rulemakings. PO 00000 Frm 00119 Fmt 4701 Sfmt 4700 AHRI also identified the proposed rule for small electric motors as potential cumulative regulatory burden. DOE notes that those energy conservation standards for small electric motors do not apply to small electric motors that are components of other DOE-regulated products. (42 U.S.C. 6317(b)(3)) Additionally, the analysis for small electric motors takes into consideration important attributes of E:\FR\FM\06OCR2.SGM 06OCR2 69804 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations motors that affect selection in end use applications.180 DOE has not included the small electric motor rulemaking in its analysis of cumulative regulatory burden. AHRI also noted that the DOE rulemakings for Federal Commercial and Multi-family High-rise Residential Buildings and Federal Low-rise Residential Buildings Design and Construction may ‘‘indirectly affect’’ CWH manufacturers. The rulemakings do not directly regulate manufacturers of commercial water heaters and are not directly considered in the CRB analysis. However, DOE did account for these rules in its shipments analysis as described in section IV.G.4 of this document. A.O. Smith noted that manufacturers will potentially make additional investments in response to the ENERGY STAR® program’s recent publication of its final residential water heater version 5.0 specification, which sets a ≥0.86 UEF value for gas-fired residential-duty commercial water heaters effective April 28, 2023. (A.O. Smith, No. 22 at p. 4) DOE does not consider voluntary programs, such as ENERGY STAR®, in its analysis of cumulative regulatory burden. WM Technologies and PattersonKelley both noted that industry has limited resources to monitor and prepare for possible changes in standards, and that the current regulatory push by the DOE and other Federal agencies is placing tremendous stress upon all industries, especially the heating industry. (WM Technologies, No. 25 at pp. 8–9; Patterson-Kelley, No. 26 at p. 6) DOE acknowledges the commenters concerns and has considered the impacts of this final rule on manufacturers as described throughout this section. Additionally, as noted in section II.A of this document, pursuant to EPCA, DOE is obligated by law to consider amending the energy efficiency standards for certain types of commercial and industrial equipment, including CWH equipment, whenever ASHRAE amends the standard levels or design requirements prescribed in ASHRAE/IES Standard 90.1, and at a minimum, every 6 years. (42 U.S.C. 6313(a)(6)(A)–(C)) DOE also notes that between March 2016 and January 2021, DOE missed legal deadlines for a range of rulemakings. In October 2020, a coalition of non-governmental organizations filed suit under EPCA alleging that DOE has failed to meet rulemaking deadlines for 25 different consumer products and commercial equipment. In September 2022, DOE settled the lawsuit over the missed rulemaking deadlines to review and update energy efficiency standards. As part of the court-approved settlement, DOE has agreed to a schedule to review these regulations and, as appropriate, update them to improve efficiency requirements. DOE continues to evaluate the impact of rulemakings on manufacturers and welcomes input of the direct cost of monitoring possible changes in standards for incorporation into analyses. 3. National Impact Analysis This section presents DOE’s estimates of the NES and the NPV of consumer benefits that would result from each of the TSLs considered as potential amended standards. a. Significance of Energy Savings To estimate the energy savings attributable to potential amended standards for CWH equipment, DOE compared their energy consumption under the no-new-standards case to their anticipated energy consumption under each TSL. The savings are measured over the entire lifetime of products purchased in the 30-year period that begins in the year of anticipated compliance with amended standards (2026–2055). Table V.33 presents DOE’s projections of the NES for each TSL considered for CWH equipment. The savings were calculated using the approach described in section IV.H of this document. TABLE V.33—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 30 YEARS OF SHIPMENTS [2026–2055] Trial standard level 1 I 2 I 3 I 4 (Quads) Primary Energy Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.03 0.04 0.00 0.02 0.16 0.08 0.01 0.19 0.25 0.12 0.02 0.23 0.43 0.14 0.02 0.23 Total Primary Energy ................................................................................................................ 0.10 0.44 0.62 0.82 Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.04 0.05 0.00 0.03 0.18 0.09 0.02 0.21 0.28 0.13 0.02 0.26 0.48 0.16 0.02 0.26 Total FFC Energy ..................................................................................................................... 0.12 0.49 0.70 0.92 lotter on DSK11XQN23PROD with RULES2 FFC Energy 180 DOE notes that on February 6, 2023, DOE issued a notice of proposed determination in which it initially determined that amended energy VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 conservation standards for small electric motors would not be cost-effective, and therefore proposed PO 00000 Frm 00120 Fmt 4701 Sfmt 4700 not to amend its energy conservation standards for small electric motors. 88 FR 7629. E:\FR\FM\06OCR2.SGM 06OCR2 69805 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations OMB Circular A–4 181 requires agencies to present analytical results, including separate schedules of the monetized benefits and costs that show the type and timing of benefits and costs. Circular A–4 also directs agencies to consider the variability of key elements underlying the estimates of benefits and costs. For this rulemaking, DOE undertook a sensitivity analysis using 9 years, rather than 30 years, of product shipments. The choice of a 9year period is a proxy for the timeline in EPCA for the review of certain energy conservation standards and potential revision of and compliance with such revised standards.182 The review timeframe established in EPCA is generally not synchronized with the product lifetime, product manufacturing cycles, or other factors specific to commercial water heaters. Thus, such results are presented for informational purposes only and are not indicative of any change in DOE’s analytical methodology. The NES sensitivity analysis results based on a 9-year analytical period are presented in Table V.34. The impacts are counted over the lifetime of commercial water heaters purchased in 2026–2034. TABLE V.34—CUMULATIVE NATIONAL ENERGY SAVINGS FOR CWH EQUIPMENT; 9 YEARS OF SHIPMENTS [2026–2034] Trial standard level 1 2 I I 3 I 4 (Quads) Primary Energy Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.01 0.01 0.00 0.01 0.06 0.03 0.00 0.05 0.09 0.04 0.00 0.06 0.14 0.05 0.00 0.06 Total Primary Energy ................................................................................................................ 0.03 0.13 0.19 0.25 Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.01 0.01 0.00 0.01 0.06 0.03 0.00 0.05 0.10 0.04 0.00 0.06 0.16 0.05 0.00 0.06 Total FFC Energy ..................................................................................................................... 0.04 0.15 0.21 0.28 FFC Energy b. Net Present Value of Consumer Costs and Benefits DOE estimated the cumulative NPV of the total costs and savings for consumers that would result from the TSLs considered for CWH equipment. In accordance with OMB’s guidelines on regulatory analysis,183 DOE calculated NPV using both a 7-percent and a 3- percent real discount rate. Table V.35 shows the consumer NPV results with impacts counted over the lifetime of equipment purchased in 2026–2055. TABLE V.35—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CWH EQUIPMENT; 30 YEARS OF SHIPMENTS [2026–2055] Trial standard level * Discount rate I 1 I 2 I 3 4 (billion 2022$) 3 percent lotter on DSK11XQN23PROD with RULES2 Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 181 United States Office of Management and Budget. Circular A–4: Regulatory Analysis. September 17, 2003. Available at www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 2022). 182 Section 325(m) of EPCA requires DOE to review its standards at least once every 6 years, and requires, for certain products, a 3-year period after VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 any new standard is promulgated before compliance is required, except that in no case may any new standards be required within 6 years of the compliance date of the previous standards. While adding a 6-year review to the 3-year compliance period adds up to 9 years, DOE notes that it may undertake reviews at any time within the 6 year period and that the 3-year compliance date may yield to the 6-year backstop. A 9-year analysis period may not be appropriate given the variability PO 00000 Frm 00121 Fmt 4701 Sfmt 4700 0.15 0.16 0.02 0.08 0.41 0.17 0.03 0.18 0.81 0.27 0.04 0.30 1.51 0.38 0.04 0.30 that occurs in the timing of standards reviews and the fact that for some products, the compliance period is 5 years rather than 3 years. 183 United States Office of Management and Budget. Circular A–4: Regulatory Analysis. September 17, 2003. Available at www.whitehouse.gov/omb/information-foragencies/circulars/ (last accessed December 13, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 69806 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.35—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS FOR CWH EQUIPMENT; 30 YEARS OF SHIPMENTS—Continued [2026–2055] Trial standard level * Discount rate I 1 I 2 I 3 4 (billion 2022$) Total NPV at 3 percent ............................................................................................................. 0.41 I 0.79 I 1.43 I 2.25 7 percent Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.07 0.07 0.01 0.03 0.13 0.04 0.01 (0.02) 0.32 0.08 0.01 0.02 0.65 0.13 0.01 0.02 Total NPV at 7 percent ............................................................................................................. 0.18 0.15 0.43 0.81 * A value in parentheses is a negative number. The NPV results based on the aforementioned 9-year analytical period are presented in Table V.36. The impacts are counted over the lifetime of equipment purchased in 2026–2034. As mentioned previously, such results are presented for informational purposes only and are not indicative of any change in DOE’s analytical methodology or decision criteria. TABLE V.36—CUMULATIVE NET PRESENT VALUE OF CONSUMER BENEFITS CWH EQUIPMENT; 9 YEARS OF SHIPMENTS [2026–2034] Trial standard level * Discount rate I 1 I 2 I 3 4 (billion 2022$) 3 percent Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.07 0.06 0.01 0.03 0.04 0.02 0.00 0.04 0.20 0.06 0.01 0.08 0.47 0.10 0.01 0.08 Total NPV at 3 percent ............................................................................................................. 0.16 0.10 0.35 0.66 Commercial gas-fired storage and storage-type instantaneous ..................................................... Residential-duty gas-fired storage ................................................................................................... Instantaneous gas-fired tankless ..................................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................................... 0.04 0.04 0.00 0.01 (0.01) (0.01) 0.00 (0.02) 0.09 0.01 0.00 0.00 0.26 0.04 0.00 0.00 Total NPV at 7 percent ............................................................................................................. 0.10 (0.04) 0.11 0.30 7 percent lotter on DSK11XQN23PROD with RULES2 * A value in parentheses is a negative number. c. Indirect Impacts on Employment DOE estimates that amended energy conservation standards for CWH equipment will reduce energy expenditures for consumers of this equipment, with the resulting net savings being redirected to other forms of economic activity. These expected shifts in spending and economic activity could affect the demand for labor. As described in section IV.N of this document, DOE used an input/output model of the U.S. economy to estimate indirect employment impacts of the TSLs that DOE considered. There are VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. Therefore, DOE generated results for near-term timeframes (2026– 2030), in which these uncertainties are reduced. The results suggest that the adopted standards are likely to have a negligible impact on the net demand for labor in the economy. The net change in jobs is so small that it would be imperceptible in national labor statistics and might be offset by other, unanticipated effects on employment. Chapter 16 of the final PO 00000 Frm 00122 Fmt 4701 Sfmt 4700 rule TSD presents detailed results regarding anticipated indirect employment impacts. 4. Impact on Utility or Performance of Products As discussed in section III.F.1.d of this document, DOE has concluded that the standards adopted in this final rule will not lessen the utility or performance of the CWH equipment under consideration in this rulemaking. Manufacturers of these products currently offer units that meet or exceed the adopted standards. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 5. Impact of Any Lessening of Competition DOE considered any lessening of competition that would be likely to result from new or amended standards. As discussed in section III.F.1.e of this document, EPCA directs the Attorney General of the United States (‘‘Attorney General’’) to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination in writing 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. To assist the Attorney General in making this determination, DOE provided the Department of Justice (‘‘DOJ’’) with copies of the proposed rule and the TSD for review. In its assessment letter responding to DOE, DOJ concluded that the proposed energy conservation standards for CWH equipment are unlikely to have a significant adverse impact on competition. DOE is publishing the Attorney General’s assessment at the end of this final rule. 6. Need of the Nation To Conserve Energy Enhanced energy efficiency, where economically justified, improves the Nation’s energy security, strengthens the economy, and reduces the environmental impacts (costs) of energy production. Chapter 15 in the final rule TSD presents the estimated impacts on electricity generating capacity, relative 69807 to the no-new-standards case, for the TSLs that DOE considered in this rulemaking. Energy conservation resulting from potential energy conservation standards for CWH equipment is expected to yield environmental benefits in the form of reduced emissions of certain air pollutants and greenhouse gases. Table V.37 provides DOE’s estimate of cumulative emissions reductions expected to result from the TSLs considered in this rulemaking. The emissions were calculated using the multipliers discussed in section IV.K of this document. DOE reports annual emissions reductions for each TSL in chapter 13 of the final rule TSD. Table V.38 presents cumulative FFC emissions by equipment class. TABLE V.37—CUMULATIVE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 Trial standard level 1 2 3 4 5.7 (0.00) 5.07 (0.000) 0.11 0.011 23.9 0.02 21.16 (0.001) 0.48 0.047 33.5 0.08 29.54 (0.001) 0.68 0.067 44.0 0.15 38.71 (0.001) 0.90 0.089 0.8 0.00 13 (0.000) 82 0.001 3.3 0.01 53 (0.000) 342 0.006 4.7 0.02 74 (0.000) 478 0.008 6.1 0.03 97 (0.000) 627 0.011 6.5 0.00 18 (0.000) 82 0.012 27.3 0.03 74 (0.001) 343 0.053 38.2 0.10 103 (0.001) 479 0.075 50.1 0.17 135 (0.001) 628 0.100 Power Sector Emissions CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ Upstream Emissions CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ Total FFC Emissions CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ Negative values refer to an increase in emissions. TABLE V.38—CUMULATIVE FFC EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055, BY EQUIPMENT CLASS Trial standard level 1 2 3 4 lotter on DSK11XQN23PROD with RULES2 Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00123 Fmt 4701 Sfmt 4700 2.0 0.01 5.5 0.0000 25.5 0.004 E:\FR\FM\06OCR2.SGM 9.8 (0.00) 26.7 (0.0004) 123.8 0.019 06OCR2 15.5 0.03 42.0 (0.0003) 194.8 0.030 26.0 0.10 70.3 (0.0003) 326.0 0.052 69808 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.38—CUMULATIVE FFC EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055, BY EQUIPMENT CLASS—Continued Trial standard level 1 2 3 4 Total FFC Emissions, Residential-Duty Gas-Fired Storage CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ 2.5 0.00 6.8 (0.0001) 31.6 0.00 5.1 (0.01) 13.9 (0.0003) 64.5 0.01 7.4 0.00 20.1 (0.0003) 93.2 0.01 8.8 0.01 23.9 (0.0003) 110.8 0.02 0.9 0.01 2.30 0.0000 10.63 0.00 1.1 0.01 3.05 0.0000 14.11 0.00 1.1 0.01 3.05 0.0000 14.11 0.00 14.1 0.06 38.3 (0.0001) 176.7 0.03 14.1 0.06 38.3 (0.0001) 176.7 0.03 Total FFC Emissions, Instantaneous Gas-Fired Tankless CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ 0.3 0.00 0.71 0.0000 3.29 0.00 Total FFC Emissions, Instantaneous Circulating Water Heaters and Hot Water Supply Boilers CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ 1.7 (0.02) 4.7 (0.0002) 21.7 0.00 11.5 0.04 31.2 (0.0001) 143.9 0.02 Negative values refer to an increase in emissions. As part of the analysis for this rule, DOE estimated monetary benefits likely to result from the reduced emissions of CO2 that DOE estimated for each of the considered TSLs for CWH equipment. Section IV.L of this document discusses the estimated SC–CO2 values that DOE used. Table V.39 presents the value of CO2 emissions reduction at each TSL. TABLE V.39—PRESENT VALUE OF CO2 EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 SC–CO2 Case Discount rate and statistics TSL 5% Average 3% Average 2.5% Average 3% 95th percentile (million 2022$) 1 2 3 4 ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. As discussed in section IV.L, DOE estimated the climate benefits likely to result from the reduced emissions of CH4 and N2O that DOE estimated for 67 272 386 517 285 1,163 1,642 2,189 each of the considered TSLs for CWH equipment. Table V.40 presents the value of the CH4 emissions reduction at each TSL, and Table V.41 presents the 445 1,817 2,563 3,411 867 3,531 4,986 6,650 value of the N2O emissions reduction at each TSL. The time-series of annual values is presented for the selected TSL in chapter 14 of the final rule TSD. TABLE V.40—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 SC–CH4 Case Discount rate and statistics lotter on DSK11XQN23PROD with RULES2 TSL 5% Average I 3% Average I 2.5% Average I 3% 95th percentile (million 2022$) 1 ................................................................................................................. 2 ................................................................................................................. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00124 Fmt 4701 39 159 Sfmt 4700 I 114 469 E:\FR\FM\06OCR2.SGM I 06OCR2 159 653 I 303 1,241 69809 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.40—PRESENT VALUE OF METHANE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055— Continued SC–CH4 Case Discount rate and statistics TSL 5% Average I 3% Average I 2.5% Average I 3% 95th percentile (million 2022$) 3 ................................................................................................................. 4 ................................................................................................................. 224 300 659 874 I 917 1,214 I 1,745 2,315 I TABLE V.41—PRESENT VALUE OF NITROUS OXIDE EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 SC–N2O Case Discount rate and statistics TSL 5% Average 3% Average 2.5% Average 3% 95th percentile (million 2022$) 1 2 3 4 ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. DOE is well aware that scientific and economic knowledge about the contribution of CO2 and other GHG emissions to changes in the future global climate and the potential resulting damages to the global and U.S. economy continues to evolve rapidly. DOE, together with other Federal agencies, will continue to review methodologies for estimating the monetary value of reductions in CO2 and other GHG emissions. This ongoing review will consider the comments on 0.05 0.20 0.28 0.39 this subject that are part of the public record for this and other rulemakings, as well as other methodological assumptions and issues. DOE notes, however, that the adopted standards would be economically justified, even without inclusion of monetized benefits of reduced GHG emissions. DOE also estimated the monetary value of the economic benefits associated with NOX and SO2 emissions reductions anticipated to result from the considered TSLs for CWH equipment. The dollar-per-ton values that DOE used 0.19 0.79 1.13 1.53 0.30 1.22 1.76 2.36 0.51 2.10 3.02 4.07 are discussed in section IV.L of this document. Table V.42 presents the present value for NOX emissions reduction for each TSL calculated using 7-percent and 3-percent discount rates, and Table V.43 presents similar results for SO2 emissions reductions. The results in these tables reflect application of the low dollar-per-ton values, which DOE used to be conservative. Results that reflect high dollar-per-ton values are presented in chapter 14 of the final rule TSD. TABLE V.42—PRESENT VALUE OF NOX EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 TSL 3% Discount rate 7% Discount rate (million 2022$) 1 2 3 4 ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... 573 2,330 3,290 4,390 240 949 1,356 1,840 TABLE V.43—PRESENT VALUE OF SO2 EMISSIONS REDUCTION FOR CWH EQUIPMENT SHIPPED IN 2026–2055 TSL 3% Discount rate 7% Discount rate lotter on DSK11XQN23PROD with RULES2 (million 2022$) 1 2 3 4 ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... ............................................................................................................................................................... DOE has not considered the monetary benefits of the reduction of Hg for this VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 final rule. Not all the public health and environmental benefits from the PO 00000 Frm 00125 Fmt 4701 Sfmt 4700 (0.40) (1.19) 1.87 5.38 (0.11) (0.82) 0.51 2.10 reduction of greenhouse gases, NOX, and SO2 are captured in the values E:\FR\FM\06OCR2.SGM 06OCR2 69810 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations above, and additional unquantified benefits from the reductions of those pollutants as well as from the reduction of Hg, direct particulate matter (‘‘PM’’), and other co-pollutants may be significant. The benefits of reduced CO2, CH4, and N2O emissions are collectively referred to as climate benefits. The benefits of reduced SO2 and NOX emissions are collectively referred to as health benefits. For the time-series of estimated monetary values of reduced emissions, see chapter 14 of the final rule TSD. 7. Other Factors The Secretary of Energy, in determining whether a standard is economically justified, may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) No other factors were considered in this analysis. the lifetime of products shipped in 2026–2055. The climate benefits associated with reduced GHG emissions resulting from the adopted standards are global benefits, which are also calculated based on the lifetime of commercial water heaters shipped in 2026–2055. The climate benefits associated with four SC–GHG estimates are shown. DOE does not have a single central SC–GHG point estimate and it emphasizes the importance and value of considering the benefits calculated using all four SC–GHG estimates. 8. Summary of Economic Impacts Table V.44 presents the NPV values that result from adding the estimates of the economic benefits resulting from reduced GHG and NOX and SO2 emissions to the NPV of consumer benefits calculated for each TSL considered in this rulemaking. The consumer benefits are domestic U.S. monetary savings that occur as a result of purchasing the covered commercial water heaters, and they are measured for TABLE V.44—NPV OF CONSUMER BENEFITS COMBINED WITH CLIMATE AND HEALTH BENEFITS FROM EMISSIONS REDUCTIONS Category TSL 1 TSL 2 TSL 3 TSL 4 3% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 5% d.r., Average SC–GHG case ..................................................................................... 3% d.r., Average SC–GHG case ..................................................................................... 2.5% d.r., Average SC–GHG case .................................................................................. 3% d.r., 95th percentile SC–GHG case .......................................................................... 1.09 1.38 1.59 2.15 3.55 4.75 5.59 7.89 5.33 7.02 8.20 11.46 7.46 9.71 11.27 15.61 2.40 4.09 5.27 8.52 3.47 5.72 7.28 11.62 7% discount rate for NPV of Consumer and Health Benefits (billion 2022$) 5% d.r., Average SC–GHG case ..................................................................................... 3% d.r., Average SC–GHG case ..................................................................................... 2.5% d.r., Average SC–GHG case .................................................................................. 3% d.r., 95th percentile SC–GHG case .......................................................................... The national operating cost savings are domestic U.S. monetary savings that occur as a result of purchasing CWH equipment, and are measured for the lifetime of products shipped in 2026– 2055. The benefits associated with reduced GHG emissions achieved as a result of the adopted standards are also calculated based on the lifetime of CWH equipment shipped in 2026–2055. lotter on DSK11XQN23PROD with RULES2 C. Conclusion As noted previously, EPCA specifies that, for any commercial and industrial equipment addressed under 42 U.S.C. 6313(a)(6)(A)(i), DOE may prescribe an energy conservation standard more stringent than the level for such equipment in ASHRAE Standard 90.1, as amended, only if ‘‘clear and convincing evidence’’ shows that a more-stringent standard would result in significant additional conservation of energy and is technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II)) In determining whether a standard is economically justified, the Secretary must determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 seven statutory factors discussed previously. (42 U.S.C. 6313(a)(6)(B)(ii)(I)–(VII) and 42 U.S.C. 6313(a)(6)(C)(i)) For this final rule, DOE considered the impacts of amended standards for CWH equipment at each TSL, beginning with the max-tech level, to determine whether that level was economically justified. Where the max-tech level was not justified, DOE then considered the next most efficient level and undertook the same evaluation until it reached the highest efficiency level that is both technologically feasible and economically justified and saves a significant amount of energy. To aid the reader as DOE discusses the benefits and/or burdens of each TSL, tables in this section present a summary of the results of DOE’s quantitative analysis for each TSL. In addition to the quantitative results presented in the tables, DOE also considers other burdens and benefits that affect economic justification. These include the impacts on identifiable subgroups of consumers who may be disproportionately affected by a national standard and impacts on employment. PO 00000 Frm 00126 Fmt 4701 Sfmt 4700 0.53 0.82 1.03 1.59 1.54 2.74 3.57 5.88 DOE also notes that the economics literature provides a wide-ranging discussion of how consumers trade off upfront costs and energy savings in the absence of government intervention. Much of this literature attempts to explain why consumers appear to undervalue energy efficiency improvements. There is evidence that consumers undervalue future energy savings as a result of (1) a lack of information, (2) a lack of sufficient salience of the long-term or aggregate benefits, (3) a lack of sufficient savings to warrant delaying or altering purchases, (4) excessive focus on the short term, in the form of inconsistent weighting of future energy cost savings relative to available returns on other investments, (5) computational or other difficulties associated with the evaluation of relevant tradeoffs, and (6) a divergence in incentives (for example, between renters and owners, or builders and purchasers). Having less than perfect foresight and a high degree of uncertainty about the future, consumers may trade off these types of investments at a higher than expected rate between current consumption and uncertain future energy cost savings. E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 1. Benefits and Burdens of TSLs Considered for CWH Equipment Standards Table V.45 and Table V.46 summarize the quantitative impacts estimated for each TSL for CWH equipment. The national impacts are measured over the lifetime of each class of CWH equipment purchased in the 30-year period that begins in the anticipated year of compliance with amended standards (2026–2055). The energy savings, emissions reductions, and value of emissions reductions refer to full-fuel-cycle results. DOE is presenting monetized benefits in accordance with 69811 the applicable Executive Orders and DOE would reach the same conclusion presented in this notice in the absence of the SC–GHG, including the Interim Estimates presented by the Interagency Working Group. The efficiency levels contained in each TSL are described in section V.A of this document. TABLE V.45—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS—NATIONAL IMPACTS Category TSL 1 TSL 2 TSL 3 TSL 4 Cumulative FFC National Energy Savings (quads) Commercial gas-fired storage and storage-type instantaneous ..................................... Residential-duty gas-fired storage ................................................................................... Instantaneous gas-fired tankless ..................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................... 0.04 0.05 0.00 0.03 0.18 0.09 0.02 0.21 0.28 0.13 0.02 0.26 0.48 0.16 0.02 0.26 Total Quads .............................................................................................................. 0.12 0.49 0.70 0.92 NPV of Consumer Costs and Benefits (billion 2022$) NPV at 3% discount rate Commercial gas-fired storage and storage-type instantaneous ..................................... Residential-duty gas-fired storage ................................................................................... Instantaneous gas-fired tankless ..................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................... 0.15 0.16 0.02 0.08 0.41 0.17 0.03 0.18 0.81 0.27 0.04 0.30 1.51 0.38 0.04 0.30 Total NPV at 3% (billion 2022$) ............................................................................... 0.41 0.79 1.43 2.25 Commercial gas-fired storage and storage-type instantaneous ..................................... Residential-duty gas-fired storage ................................................................................... Instantaneous gas-fired tankless ..................................................................................... Instantaneous circulating water heaters and hot water supply boilers ........................... 0.07 0.07 0.01 0.03 0.13 0.04 0.01 (0.02) 0.32 0.08 0.01 0.02 0.65 0.13 0.01 0.02 Total NPV at 7% (billion 2022$) ............................................................................... 0.18 0.15 0.43 0.81 27 0.03 74 (0.001) 343 0.05 38 0.10 103 (0.001) 479 0.08 50 0.17 135 (0.001) 628 0.10 NPV at 7% discount rate Cumulative FFC Emissions Reduction (Total FFC Emissions) CO2 (million metric tons) ................................................................................................. SO2 (thousand tons) ........................................................................................................ NOX (thousand tons) ....................................................................................................... Hg (tons) .......................................................................................................................... CH4 (thousand tons) ........................................................................................................ N2O (thousand tons) ........................................................................................................ 7 0.00 18 (0.000) 82 0.01 Present Value of Benefits and Costs (3% discount rate, billion 2022$) Consumer Operating Cost Savings ................................................................................. Climate Benefits * ............................................................................................................. Health Benefits ** ............................................................................................................. Total Benefits † ................................................................................................................ Consumer Incremental Product Costs ‡ .......................................................................... Consumer Net Benefits ................................................................................................... 0.51 0.40 0.57 1.49 0.10 0.41 1.87 1.63 2.33 5.83 1.08 0.79 2.76 2.30 3.29 8.35 1.33 1.43 3.83 3.06 4.40 11.29 1.58 2.25 Total Net Benefits ..................................................................................................... 1.38 4.75 7.02 9.71 0.86 1.63 0.95 3.44 0.70 0.15 2.74 1.28 2.30 1.36 4.94 0.85 0.43 4.09 1.81 3.06 1.84 6.71 1.00 0.81 5.72 lotter on DSK11XQN23PROD with RULES2 Present Value of Benefits and Costs (7% discount rate, billion 2022$) Consumer Operating Cost Savings ................................................................................. Climate Benefits * ............................................................................................................. Health Benefits ** ............................................................................................................. Total Benefits † ................................................................................................................ Consumer Incremental Product Costs ‡ .......................................................................... Consumer Net Benefits ................................................................................................... Total Net Benefits ..................................................................................................... 0.24 0.40 0.24 0.88 0.06 0.18 0.82 Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026¥2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026¥2055. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00127 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69812 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations * Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate), as shown in Table V.39 through Table V.41. Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. † Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. TABLE V.46—SUMMARY OF ANALYTICAL RESULTS FOR CWH EQUIPMENT TSLS—MANUFACTURER AND CONSUMER IMPACTS Category TSL 1 * TSL 2 * TSL 3 * TSL 4 * 139.1–142.7 7.6–9.6 7.2–7.5 130.4–136.5 6.5–011.2 7.2–7.6 Manufacturer Impacts: INPV (million 2022$) Commercial gas-fired storage and storage-type instantaneous (No-new-standards case INPV = 154.2) ........................................................................................................................ Residential-duty gas-fired storage (No-new-standards case INPV = 9.0) ............................... Instantaneous gas-fired tankless (No-new-standards case INPV = 8.9) ................................. Instantaneous circulating water heaters and hot water supply boilers (No-new-standards case INPV = 40.8) ................................................................................................................. Total INPV ($) (No-new-standards case INPV = 212.8) ................................................... 153.3–154.0 8.4–9.6 8.3–8.4 62.0–73.1 2.3–7.4 7.2–7.6 40.6–40.7 36.3–43.6 30.9–39.7 30.9–39.7 210.7–212.7 190.3–203.5 175.1–195.1 102.7–128.1 Manufacturer Impacts: Industry NPV (% Change) Commercial gas-fired storage and storage-type instantaneous ............................................... Residential-duty gas-fired storage ............................................................................................ Instantaneous gas-fired tankless .............................................................................................. Instantaneous circulating water heaters and hot water supply boilers .................................... (0.6)–(0.1) (5.8)–6.8 (6.0)–(5.6) (0.5)–(0.1) (9.7)–(7.4) (15.3)–7.4 (18.6)–(15.6) (10.9)–7.0 (15.4)–(11.4) (27.3)–25.0 (19.0)–(14.2) (24.3)–(2.7) (59.8)–(52.6) (74.7)–(16.9) (19.0)–(14.2) (24.3)–(2.7) Total INPV (% change) ............................................................................................................. (1.0)–(0.0) (10.6)–(4.4) (17.7)–(8.3) (51.8)–(39.8) 267 509 756 295 1,153 384 (85) (80) 695 105 1,204 49 367 119 898 120 1,570 423 528 370 898 120 1,570 569 2 3 1 1 1 2 8 8 10 9 10 8 6 7 9 9 9 7 5 6 9 9 9 6 19 43 14 10 17 21 17 42 17 15 18 21 23 37 17 15 18 24 Consumer Average LCC Savings (2022$) Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... Residential-Duty Gas-Fired Storage ......................................................................................... Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. —Instantaneous, Gas-Fired Tankless ............................................................................... —Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... Shipment-Weighted Average * .................................................................................................. Consumer Simple PBP (years) Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... Residential-Duty Gas-Fired Storage ......................................................................................... Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. —Instantaneous, Gas-Fired Tankless ............................................................................... —Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... Shipment-Weighted Average * .................................................................................................. Percent of Consumers that Experience a Net Cost Commercial Gas-Fired Storage and Storage-type Instantaneous Water Heaters ................... Residential-Duty Gas-Fired Storage ......................................................................................... Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers ................................. —Instantaneous, Gas-Fired Tankless ............................................................................... —Instantaneous Water Heaters and Hot Water Supply Boilers ....................................... Shipment-Weighted Average * .................................................................................................. 3 6 1 0 2 3 lotter on DSK11XQN23PROD with RULES2 Parentheses indicate negative (¥) values. * Weighted by shares of each equipment class in total projected shipments in 2026. DOE first considered TSL 4, which represents the max-tech efficiency levels. At this TSL, the Secretary has determined that the benefits are outweighed by the burdens, as discussed in detail in the following paragraphs. TSL 4 would save an estimated 0.92 quads of energy, an amount DOE considers significant. Commercial gasfired storage water heaters and storagetype instantaneous water heaters save VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 an estimated 0.48 quads while residential-duty gas-fired storage equipment saves 0.16 quads of energy. Instantaneous gas-fired tankless water heaters are estimated to save 0.02 quads of energy, while instantaneous circulating water heaters and hot water supply boilers save an estimated 0.26 quads. Under TSL 4, the NPV of consumer benefit would be $0.81 billion using a discount rate of 7 percent, and $2.25 PO 00000 Frm 00128 Fmt 4701 Sfmt 4700 billion using a discount rate of 3 percent. Much of the consumer benefit is provided by the commercial gas-fired storage water heaters and storage-type instantaneous water heaters, totaling an estimated $0.65 billion using a 7percent discount rate, and $1.51 billion using a 3-percent discount rate. The consumer benefit for residential-duty gas-fired storage water heaters is estimated to be $0.13 billion at a 7percent discount rate and $0.38 billion E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations at a 3-percent discount rate. The consumer benefit for instantaneous gasfired tankless water heaters is estimated to be $0.01 billion at a 7-percent discount rate and $0.04 at a 3-percent discount rate, and the consumer benefit for instantaneous circulating water heaters and hot water supply boilers is estimated to be $0.02 billion at a 7percent discount rate and $0.30 billion at a 3-percent discount rate. The cumulative emissions reductions at TSL 4 are 50 million metric tons of CO2, 0.17 thousand tons of SO2, 135 thousand tons of NOX, ¥0.001 ton of Hg, 628 thousand tons of CH4, and 0.10 thousand tons of N2O. The estimated monetary value of the climate benefits from reduced GHG emissions (associated with the average SC-GHG at a 3-percent discount rate) at TSL 4 is $3.06 billion. The estimated monetary value of the health benefits from reduced NOX and SO2 emissions at TSL 4 is $1.84 billion using a 7-percent discount rate and $4.40 billion using a 3-percent discount rate. Using a 7-percent discount rate for consumer benefits and costs, health benefits from reduced SO2 and NOX emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated total NPV at TSL 4 is $5.72 billion. Using a 3-percent discount rate for all benefits and costs, the estimated total NPV at TSL 4 is $9.71 billion. The estimated total NPV is provided for additional information; however, DOE primarily relies upon the NPV of consumer benefits when determining whether a proposed standard level is economically justified. At TSL 4, the average LCC impact is a savings of $528 for commercial gasfired storage and storage-type instantaneous water heaters, $370 for residential-duty gas-fired storage water heaters, $120 for instantaneous gas-fired instantaneous water heaters, and $1,570 for instantaneous circulating water heaters and hot water supply boilers. The simple PBP is 5 years for commercial gas-fired storage water heaters, 6 years for residential-duty gasfired storage water heaters, 9 years for instantaneous gas-fired tankless water heaters, and 9 years for instantaneous circulating water heaters and hot water supply boilers. The fraction of consumers experiencing a net LCC cost is 23 percent for commercial gas-fired storage water heaters and storage-type instantaneous water heaters, 37 percent for residential-duty gas-fired storage water heaters, 15 percent for instantaneous gas-fired tankless water heaters, and 18 percent for VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 instantaneous circulating water heaters and hot water supply boilers. At TSL 4, the projected change in manufacturer INPV ranges from a decrease of $110.1 million to a decrease of $84.6 million, which corresponds to decreases of 51.8 percent and 39.8 percent, respectively. Conversion costs total $132.2 million. Commercial gas-fired storage water heaters and storage-type instantaneous equipment currently account for approximately 68 percent of current unit shipments in the CWH industry. The projected change in manufacturer INPV for commercial gas-fired storage water heaters and storage-type instantaneous equipment ranges from a decrease of $92.1 million to a decrease of $81.0 million, which corresponds to decreases of 59.8 percent and 52.6 percent, respectively. The potentially large negative impacts on INPV are largely driven by industry conversion costs. In particular, there are substantial increases in product conversion costs at TSL 4 for commercial gas-fired storage water heaters and storage-type instantaneous equipment manufacturers. There are several factors that lead to high product conversion costs for this equipment. Currently, only two models of this equipment type from a single manufacturer can meet a 99 percent thermal efficiency standard, which represents less than 1 percent of the commercial gas-fired storage water heaters and storage-type instantaneous equipment models currently offered on the market. The two models both have an input capacity of 300,000 Btu/h and share a similar design. The manufacturer of these models is a small business with less than 1 percent market share in the commercial gas storage water heater market. The company’s ability to ramp-up production capacity at 99 percent thermal efficiency to serve a significantly larger portion of the market is unclear. Nearly all existing models would need to be redesigned to meet a 99 percent thermal efficiency standard. Traditionally, manufacturers design their equipment platforms to support a range of models with varying input capacities and storage volumes, and the efficiency typically will vary slightly between models within a given platform. However, at TSL 4, manufacturers would not be able to maintain a platform approach to designing commercial gas-fired storage water heaters because the 99 percent thermal efficiency level represents the maximum achievable efficiency and there would be no allowance for slight variations in efficiency between PO 00000 Frm 00129 Fmt 4701 Sfmt 4700 69813 individual models. At TSL 4, manufacturers would be required to individually redesign each model to optimize performance for one specific input capacity and storage volume combination. As a result, the industry’s level of engineering effort and investment would grow significantly. In manufacturer interviews, some manufacturers raised concerns that they would not have sufficient engineering capacity to complete necessary redesigns within the 3-year conversion period. If manufacturers require more than 3 years to redesign all models, they would likely prioritize redesigns based on sales volume. There is risk that some models become unavailable, either temporarily or permanently. Product conversion costs for commercial gas-fired storage water heaters and storage-type instantaneous equipment are expected to reach $84.1 million over the 3-year conversion period. These investment levels are six times greater than typical R&D spending on this equipment class over a threeyear period. Compliance with DOE standards could limit other engineering and innovation efforts, such as developing heat pump water heaters for the commercial market, during the conversion period beyond compliance with amended energy conservation standards. Residential-duty gas-fired storage water heaters account for approximately 14 percent of current unit shipments in the CWH industry. At TSL 4, the projected change in INPV for residential-duty gas-fired storage water heaters ranges from a decrease of $6.7 million to a decrease of $1.5 million, which corresponds to decreases of 74.7 percent and 16.9 percent, respectively. Conversion costs total $7.3 million. The drivers of negative impacts on INPV for residential-duty gas-fired storage water heaters are largely identical to those identified for the commercial gas-fired storage water heaters. At TSL 4, there is only one manufacturer with a compliant model at this standard level. This represents less than 2 percent of models currently offered in the market. Product conversion costs are expected to reach $4.8 million over the conversion period as manufacturers have to optimize designs for each specific input capacity and storage volume combination. Instantaneous gas-fired tankless water heaters account for approximately 9 percent of current unit shipments in the CWH industry. At TSL 4, the projected change in manufacturer INPV for instantaneous gas-fired tankless water heaters ranges from a decrease of $1.7 million to a decrease of $1.3 million, E:\FR\FM\06OCR2.SGM 06OCR2 lotter on DSK11XQN23PROD with RULES2 69814 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations which corresponds to decreases of 19.0 percent and 14.2 percent, respectively. Conversion costs total $2.1 million. At TSL 4, approximately 64 precent of currently offered instantaneous gas-fired tankless water heaters models would meet TSL 4 today. While most manufacturers have some compliant models, manufacturers would likely develop cost-optimized models to compete in a market where energy efficiency provides less product differentiation. Product conversion cost are expected to reach $1.5 million. Instantaneous circulating water heaters and hot water supply boilers account for approximately 10 percent of current unit shipments in the CWH industry. At TSL 4, the projected change in manufacturer INPV for instantaneous circulating water heaters and hot water supply boilers ranges from a decrease of $9.9 million to a decrease of $1.1 million, which corresponds to decreases of 24.3 percent and 2.7 percent, respectively. Conversion cost total $10.5 million. At TSL 4, approximately 29 percent of instantaneous circulating water heaters and hot water supply boilers models would meet TSL 4 today. DOE notes that industry offers a large number of models to fit a wide range of installation requirements despite relatively low shipment volumes. Product conversion cost are expected to reach $8.5 million. The Secretary concludes that at TSL 4 for CWH equipment, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions would be outweighed by the economic burden on some consumers and the impacts on manufacturers, including the potentials for large conversion costs, reduced equipment availability, delayed technology innovation, and substantial reductions in INPV. As previously noted, only one small manufacturer currently produces commercial gas-fired storage water heaters at TSL 4. Similarly, only one manufacturer currently produces residential-duty gasfired water heaters at that level. In light of substantial conversion costs, it is unclear whether a sufficient quantity of other manufacturers would undertake the conversions necessary to offer a competitive range of products across the range of sizes and applications required for gas-fired storage water heaters. Consequently, the Secretary has concluded that the current record does not provide a clear and convincing basis to conclude that TSL 4 is economically justified. DOE then considered TSL 3, which would save an estimated 0.70 quads of VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 energy, an amount DOE also considers significant. Commercial gas-fired storage and storage-type instantaneous water heaters are estimated to save 0.28 quads while residential-duty gas-fired storage water heaters are estimated to save 0.13 quads of energy. Instantaneous gas-fired tankless water heaters are estimated to save 0.02 quads. Instantaneous circulating gas-fired water heaters and hot water supply boilers are estimated to save 0.26 quads of energy. Under TSL 3, the NPV of consumer benefit would be $0.43 billion using a discount rate of 7 percent, and $1.43 billion using a discount rate of 3 percent. Benefits to consumers of commercial gas-fired storage and storage-type instantaneous equipment are estimated to be $0.32 billion using a discount rate of 7 percent, and $0.81 billion using a discount rate of 3 percent. Consumer benefits for residential-duty gas-fired storage equipment are estimated to be $0.08 billion dollars at a 7-percent discount rate and $0.27 billion at a 3-percent discount rate. Benefits to consumers of instantaneous gas-fired tankless water heaters are estimated to be $0.01 billion at a 7-percent discount rate and $0.04 billion at a 3-percent discount rate, and consumer benefits for instantaneous circulating gas-fired water heaters and hot water supply boilers are estimated to be $0.02 billion at a 7-percent discount rate and 0.30 billion at a 3percent discount rate. The cumulative emissions reductions at TSL 3 are 38 million metric tons of CO2, 0.10 thousand tons of SO2, 103 thousand tons of NOX, ¥0.001 tons of Hg, 479 thousand tons of CH4, and 0.08 thousand tons of N2O. The estimated monetary value of the climate benefits from reduced GHG emissions reduction (associated with the average SC–GHG at a 3-percent discount rate) at TSL 3 is $2.30 billion. The estimated monetary value of the health benefits from reduced NOX and SO2 emissions at TSL 3 is $1.36 billion using a 7-percent discount rate and $3.29 billion using a 3-percent discount rate. Using a 7-percent discount rate for consumer benefits and costs, health benefits from reduced SO2 and NOX emissions, and the 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated total NPV at TSL 3 is $4.09 billion. Using a 3-percent discount rate for all benefits and costs, the estimated total NPV at TSL 3 is $7.02 billion. The estimated total NPV is provided for additional information; however, DOE primarily relies upon the NPV of consumer benefits when determining PO 00000 Frm 00130 Fmt 4701 Sfmt 4700 whether a proposed standard level is economically justified. At TSL 3, the average LCC impact is a savings of $367 for commercial gasfired storage and storage-type instantaneous water heaters, $119 for residential-duty gas-fired storage water heaters, $120 for instantaneous gas-fired tankless water heaters, and $1,570 for instantaneous circulating water heaters and hot water supply boilers. The simple PBP is 6 years for commercial gas-fired storage water heaters, 7 years for residential-duty gas-fired storage water heaters, 9 years for instantaneous gas-fired tankless water heaters, and 9 years for instantaneous circulating water heaters and hot water supply boilers. The fraction of consumers experiencing a net LCC cost is 17 percent for commercial gas-fired storage water heaters, 42 percent for residential-duty gas-fired storage water heaters, 15 percent for instantaneous gas-fired tankless water heaters, and 18 percent for instantaneous circulating water heaters and hot water supply boilers. At TSL 3, the projected change in manufacturer INPV ranges from a decrease of $37.6 million to a decrease of $17.7 million, which corresponds to decreases of 17.7 percent and 8.3 percent, respectively. Conversion costs total $42.7 million. At TSL 3, nearly all commercial gasfired storage water heaters and storagetype instantaneous equipment manufacturers have models at a range of input capacities and storage volumes that can meet 95 percent thermal efficiency. Approximately 34 percent of commercial gas-fired storage water heaters and storage-type instantaneous models currently offered would meet TSL 3 today. Additionally, an amended standard at TSL 3 would allow manufacturers to design equipment platforms that support a range of models with varying input capacities and storage volumes, rather than having to optimize designs for each individual input capacity and storage volume combinations. The change in INPV for commercial gas-fired storage water heaters and storage-type instantaneous equipment ranges from a decrease of $23.7 million to a decrease of $17.6 million, which corresponds to decreases of 15.4 percent and 11.4 percent, respectively. Product conversion costs are $10.9 million and capital conversion costs are $16.9 million, for a total of approximately $27.8 million. At this level, product conversion costs are typical of R&D spending over the conversion period. At TSL 3, multiple residential-duty gas-fired storage water heater manufacturers offer models at a range of E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations input capacities and storage volumes that can meet a UEF standard at this level today. Approximately 34 percent of current residential-duty gas-fired storage water heater models would meet TSL 3. An amended standard at TSL 3 would allow manufacturers to design equipment platforms that support a range of models with varying input capacities and storage volumes, rather than having to optimize designs for each individual input capacity and storage volume combination. The projected change in INPV for residential-duty gas-fired storage water heaters ranges from a decrease of $2.5 million to an increase of $2.2 million, which corresponds to a decrease of 27.3 percent and an increase of 25.0 percent, respectively. DOE expects conversion costs for this equipment class to reach $2.3 million. At TSL 3, approximately 64 percent of instantaneous gas-fired tankless water heaters models would meet TSL 3 today. The projected change in manufacturer INPV for instantaneous gas-fired tankless water heaters ranges from a decrease of $1.7 million to a decrease of $1.3 million, which corresponds to decreases of 19.0 percent and 14.2 percent, respectively. Conversion costs total $2.1 million. At TSL 3, approximately 39 percent of instantaneous circulating water heaters and hot water supply boilers models would meet TSL 3 today. The projected change in manufacturer INPV for instantaneous circulating water heaters and hot water supply boilers ranges from a decrease of $9.9 million to a decrease of $1.1 million, which corresponds to decreases of 24.3 percent and 2.7 percent, respectively. Conversion cost total $10.5 million. After considering the analysis and weighing the benefits and burdens, the Secretary concludes that a standard set at TSL 3 for CWH equipment would be economically justified. Notably, the benefits to consumers vastly outweigh the cost to manufacturers. At TSL 3, the NPV of consumer benefits, even measured at the more conservative discount rate of 7 percent, is 1,000 percent higher than the maximum of manufacturers’ loss in INPV. The positive average LCC savings—a different way of quantifying consumer benefits—reinforces this conclusion. The economic justification for TSL 3 is clear and convincing even without weighing the estimated monetary value of emissions reductions. When those emissions reductions are included— representing $2.3 billion in climate benefits (associated with the average SC–GHG at a 3-percent discount rate), and $3.3 billion (using a 3-percent discount rate) or $1.4 billion (using a 7percent discount rate) in health benefits—the rationale becomes stronger still. DOE notes, however, that it would reach the same conclusion presented in this rule in the absence of the estimated SC–GHG benefits, based on the February 2021 Interim Estimates presented by the IWG. As stated, DOE conducts the walkdown analysis to determine the TSL that represents the maximum improvement in energy efficiency that is technologically feasible and economically justified as required under EPCA. Although DOE has not conducted a comparative analysis to select the amended energy conservation standards, DOE notes at TSL 3 the conversion cost impacts for commercial gas storage and residential-duty gasfired storage water heaters are less severe than TSL 4. For commercial gas storage water heaters, nearly all manufacturers have equipment that can meet TSL 3 across a range of input capacities and storage volumes. Similarly, for residential-duty commercial gas water heaters, multiple manufacturers currently produce equipment meeting TSL 3. The concerns of manufacturers being unable to offer a competitive range of equipment across the range of input capacities and storage volumes currently offered would be mitigated at TSL 3. Although DOE considered proposed amended standard levels for CWH equipment by grouping the efficiency 69815 levels for each equipment category into TSLs, DOE evaluates all analyzed efficiency levels in its analysis. For commercial gas instantaneous water heaters (including tankless and circulating/hot water supply boilers), TSL 3 (i.e., the proposed TSL) includes the max-tech efficiency levels, which is the maximum level determined to be technologically feasible. For commercial gas-fired storage water heaters and residential-duty gas-fired storage water heaters, TSL 3 includes efficiency levels that are one level below the max-tech efficiency level. As discussed previously, at the max-tech efficiency levels for gas-fired storage water heaters and residential-duty gas-fired storage water heaters there is a substantial risk of manufacturers being unable to offer a competitive range of equipment across the range of input capacities and storage volumes currently available. Setting standards at max-tech for these classes could limit other engineering and innovation efforts, such as developing heat pump water heaters for the commercial market, during the conversion period beyond compliance with amended energy conservation standards. The benefits of max-tech efficiency levels for commercial gasfired storage water heaters and residential-duty gas-fired storage water heaters do not outweigh the negative impacts to consumers and manufacturers. Therefore, DOE concludes that the max-tech efficiency levels are not justified. Therefore, based on the previous considerations, DOE adopts the energy conservation standards for CWH equipment at TSL 3. The amended energy conservation standards for CWH equipment, which are expressed as thermal efficiency and standby loss for commercial gas-fired storage and commercial gas-fired instantaneous water heaters and hot water supply boilers, and as UEF for residential-duty gas storage water heaters, are shown in Table V.47 and Table V.48. TABLE V.47—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS Energy conservation standards * lotter on DSK11XQN23PROD with RULES2 Equipment Size Gas-fired storage water heaters and storage-type instantaneous water heaters. Electric instantaneous water heaters ‡ ...................................................... VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00131 Fmt 4701 Minimum thermal efficiency (%) Maximum standby loss † All ................... 95 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h). <10 gal ........... ≥10 gal ........... 80 77 N/A. 2.30 + 67/Vm (%/h). Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 69816 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations TABLE V.47—PROPOSED AMENDED ENERGY CONSERVATION STANDARDS FOR COMMERCIAL WATER HEATING EQUIPMENT EXCEPT FOR RESIDENTIAL-DUTY COMMERCIAL WATER HEATERS—Continued Energy conservation standards * Equipment Minimum thermal efficiency (%) Size Gas-fired instantaneous water heaters and hot water supply boilers ...... <10 gal ........... ≥10 gal ........... Maximum standby loss † 96 96 N/A. Q/800 + 110(Vr)1⁄2 (Btu/h). * Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate in Btu/h. † Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R–12.5 or more, (2) a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire damper or fan-assisted combustion. ‡ Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C. 6313(a)(5)(D)–(E)) The compliance date for these energy conservation standards is January 1, 1994. In this final rule, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in section III.B.3 of this final rule. TABLE V.48—AMENDED ENERGY CONSERVATION STANDARDS FOR RESIDENTIAL-DUTY GAS-FIRED COMMERCIAL WATER HEATERS Equipment Specification * Draw pattern ** Uniform energy factor Gas-fired Storage .......................... >75 kBtu/h and ............................. ≤105 kBtu/h and ≤120 gal and ≤180 °F Very Small .................................... Low Medium High 0.5374¥(0.0009 0.8062¥(0.0012 0.8702¥(0.0011 0.9297¥(0.0009 × × × × Vr). Vr). Vr). Vr). * Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water heater must not be designed to heat water at temperatures greater than 180 °F. ** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430. 2. Annualized Benefits and Costs of the Adopted Standards The benefits and costs of the proposed standards can also be expressed in terms of annualized values. The annualized net benefit is (1) the annualized national economic value (expressed in 2022$) of the benefits from operating products that meet the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in product purchase costs, and (2) the annualized monetary value of the benefits of GHG and NOX emission reductions. Table V.49 shows the annualized values for CWH equipment under TSL 3, expressed in 2022$. 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 NOX and SO2 emissions, and a 3-percent discount rate case for climate benefits from reduced GHG emissions, the estimated cost of the proposed standards for CWH equipment is $78 million per year in increased equipment costs, while the estimated annual benefits are $118 million in reduced equipment operating costs, $125 million in climate benefits, and $125 million in health benefits. In this case, the net benefit amounts to $289 million per year. Using a 3-percent discount rate for all benefits and costs, the estimated cost of the proposed standards for CWH equipment is $72 million per year in increased equipment costs, while the estimated annual benefits are $149 million in reduced operating costs, $125 million in climate benefits, and $178 million in health benefits. In this case, the net benefit would amount to $380 million per year. TABLE V.49—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT [TSL 3] Million 2022$/year Category Primary estimate Low-net-benefits estimate High-net-benefits estimate lotter on DSK11XQN23PROD with RULES2 3% discount rate Consumer Operating Cost Savings ........................................................................... Climate Benefits * ....................................................................................................... Health Benefits ** ....................................................................................................... 149 125 178 144 124 177 154 128 197 Total Benefits † ................................................................................................... Consumer Incremental Product Costs ‡ .................................................................... 452 72 445 72 479 74 VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00132 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69817 TABLE V.49—ANNUALIZED BENEFITS AND COSTS OF PROPOSED ENERGY CONSERVATION STANDARDS FOR CWH EQUIPMENT—Continued [TSL 3] Million 2022$/year Category Primary estimate Low-net-benefits estimate High-net-benefits estimate Net Benefits ........................................................................................................ 380 373 405 Change in Producer Cashflow (INPV ‡‡) .................................................................. (4)–(2) (4)–(2) (4)–(2) Consumer Operating Cost Savings ........................................................................... Climate Benefits * (3% discount rate) ........................................................................ Health Benefits ** ....................................................................................................... 118 125 125 115 124 124.4 122 128 138.1 Total Benefits† .................................................................................................... Consumer Incremental Product Costs ‡ .................................................................... 368 78 364 78.2 388 80.0 Net Benefits ............................................................................................................... 289 285 308 Change in Producer Cashflow (INPV ‡‡) .................................................................. (4)–(2) (4)–(2) (4)–(2) 7% discount rate Note: This table presents the costs and benefits associated with consumer pool heaters shipped in 2026–2055. These results include benefits to consumers which accrue after 2055 from the products shipped in 2026–2055. Numbers may not add due to rounding. * Climate benefits are calculated using four different estimates of the social cost of carbon (SC–CO2), methane (SC–CH4), and nitrous oxide (SC–N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates; 95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse gases (SC–GHG). For presentational purposes of this table, the climate benefits associated with the average SC–GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering the benefits calculated using all four sets of SC–GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021 by the IWG. ** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented at real discount rates of 3 and 7 percent. See section IV.L of this document for more details. † Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total and net benefits for both the 3-percent and 7-percent cases are presented using the average SC–GHG with 3-percent discount rate. ‡ Costs include incremental equipment costs as well as installation costs. ‡‡ Operating Cost Savings are calculated based on the life cycle costs analysis and national impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE’s NIA includes all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer. DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J of this document. In the detailed MIA, DOE models manufacturers’ pricing decisions based on assumptions regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is the rule’s expected impact on the INPV. The change in INPV is the present value of all changes in industry cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete description of the industry weighted average cost of capital). For commercial water heaters, those values are ¥$4 million and ¥$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit operating profit in proportion to increases in manufacturer production costs. DOE includes the range of estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J of this document, to provide additional context for assessing the estimated impacts of this rule to society, including potential changes in production and consumption, which is consistent with OMB’s Circular A–4 and E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule, the annualized net benefits would range from $376 million to $378 million at 3-percent discount rate and would range from $285 million to $287 million at 7-percent discount rate. Parentheses () indicate negative values. lotter on DSK11XQN23PROD with RULES2 VI. Procedural Issues and Regulatory Review A. Review Under Executive Orders 12866, 13563, and 14094 E.O. 12866, ‘‘Regulatory Planning and Review,’’ as supplemented and reaffirmed by E.O. 13563, ‘‘Improving Regulation and Regulatory Review, 76 FR 3821 (Jan. 21, 2011) and E.O. 14094, ‘‘Modernizing Regulatory Review,’’ 88 FR 21879 (April 11, 2023), requires agencies, to the extent permitted by law, to (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of PO 00000 Frm 00133 Fmt 4701 Sfmt 4700 compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. DOE emphasizes as well that E.O. 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible. In its guidance, the Office of Information and Regulatory Affairs (‘‘OIRA’’) in the Office of Management E:\FR\FM\06OCR2.SGM 06OCR2 69818 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations and Budget (‘‘OMB’’) has emphasized that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in the preamble, this final regulatory action is consistent with these principles. Section 6(a) of E.O. 12866 also requires agencies to submit ‘‘significant regulatory actions’’ to OIRA for review. OIRA has determined that this final regulatory action constitutes a ‘‘significant regulatory action’’ within the scope of section 3(f)(1) of E.O. 12866, as amended by E.O. 14094. Accordingly, pursuant to section 6(a)(3)(C) of E.O. 12866, DOE has provided to OIRA an assessment, including the underlying analysis, of benefits and costs anticipated from the final regulatory action, together with, to the extent feasible, a quantification of those costs; and an assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, and an explanation why the planned regulatory action is preferable to the identified potential alternatives. These assessments are summarized in this preamble and further detail can be found in the TSD for this rulemaking. lotter on DSK11XQN23PROD with RULES2 B. Review Under the Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires preparation of an initial regulatory flexibility analysis (‘‘IRFA’’) and a final regulatory flexibility analysis (‘‘FRFA’’) for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by E.O. 13272, ‘‘Proper Consideration of Small Entities in Agency Rulemaking,’’ 67 FR 53461 (Aug. 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process. 68 FR 7990. DOE has made its procedures and policies available on the Office of the General Counsel’s website (www.energy.gov/gc/ office-general-counsel). As part of the May 2022 CWH ECS NOPR, DOE prepared an IRFA. 87 FR 30722. DOE has prepared the following FRFA for the products that are the subject of this rulemaking. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 1. Need for, and Objectives of, the Rule EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and industrial equipment. Title III, Part C of EPCA, added by Public Law 95–619, Title IV, section 441(a) (42 U.S.C. 6311–6317, as codified), established the Energy Conservation Program for Certain Industrial Equipment, which sets forth a variety of provisions designed to improve energy efficiency. This equipment includes the classes of CWH equipment that are the subject of this final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation standards for CWH equipment. (42 U.S.C. 6313(a)(5)) Pursuant to EPCA, DOE is to consider amending the energy efficiency standards for certain types of commercial and industrial equipment, including the equipment at issue in this document, whenever ASHRAE amends the standard levels or design requirements prescribed in ASHRAE Standard 90.1, ‘‘Energy Standard for Buildings Except Low-Rise Residential Buildings,’’ (‘‘ASHRAE Standard 90.1’’), and at a minimum, every 6 years. DOE must adopt the new ASHRAE efficiency level, unless DOE determines, supported by clear and convincing evidence, that adoption of a more stringent level would produce significant additional conservation of energy would be technologically feasible and economically justified. (42 U.S.C. 6313(a)(6)(A)–(C)) Not later than 2 years after a NOPR is issued, DOE must publish a final rule amending the standard. (42 U.S.C. 6313(a)(6)(C)(iii)) 2. Significant Issues Raised in Response to the IRFA DOE did not receive any comments directly commenting on the Regulatory Flexibility Analysis in response to the IRFA. 3. Description and Estimate of the Number of Small Entities Affected For manufacturers of CWH equipment, the Small Business Administration (‘‘SBA’’) has set a size threshold, which defines those entities classified as ‘‘small businesses’’ for the purposes of the statute. DOE used the SBA’s small business size standards to determine whether any small entities would be subject to the requirements of the rule. See 13 CFR part 121. The equipment covered by this rule are classified under North American Industry Classification System (‘‘NAICS’’) code 333310,184 184 The business size standards are listed by NAICS code and industry description and are PO 00000 Frm 00134 Fmt 4701 Sfmt 4700 ‘‘Commercial and Service Industry Machinery Manufacturing.’’ In 13 CFR 121.201, the SBA sets a threshold of 1,000 employees or fewer for an entity to be considered as a small business for this category. DOE’s analysis relied on publicly available databases to identify potential small businesses that manufacture equipment covered in this rulemaking. DOE utilized the CEC Modernized Appliance Efficiency Database System (‘‘MAEDbS’’),185 the DOE Energy Star Database,186 and the DOE Certification Compliance Database (‘‘CCD’’) 187 in identifying manufacturers. For the purpose of this final rule, two analyses are being performed regarding impacts to small businesses: (1) impact of the amended standards and (2) impact of the codification of requirements for electric instantaneous water heater manufacturers. Regarding manufacturers impacted by the amended standards, DOE identified 15 original equipment manufacturers (‘‘OEM’’). DOE screened out companies that do not meet the definition of a ‘‘small business’’ or are foreign-owned and operated. DOE used subscriptionbased business information tools to determine headcount and revenue of the small businesses. Of these 15 OEMs, DOE identified three companies that are small, domestic OEMs. Regarding models impacted by the codification of requirements for electric instantaneous water heaters, DOE’s research identified nine OEMs of commercial electric instantaneous water heaters being sold in the U.S. market. Of these nine companies, DOE has identified three as domestic, small businesses. The small businesses do not currently certify any other CWH equipment to DOE’s CCD. 4. Description and Estimate of Compliance Requirements This final rule proposes to adopt amended standards for gas-fired storage water heaters, gas-fired instantaneous water heaters and hot water supply boilers, and residential-duty gas-fired storage water heaters. Additionally, this available at www.sba.gov/document/support--tablesize-standards (Last accessed April 21, 2023). 185 MAEDbS can be accessed at www.cacertappliances.energy.ca.gov/Pages/Search/ AdvancedSearch.aspx (Last accessed December 19, 2022). 186 Energy Star certified product can be found in the Energy Star database accessed at www.energystar.gov/productfinder/product/ certified-commercial-water-heaters/results (Last accessed December 19, 2022). 187 Certified equipment in the CCD are listed by product class and can be accessed at www.regulations.doe.gov/certification-data/ #q=Product_Group_s%3A* (Last accessed December 19, 2022). E:\FR\FM\06OCR2.SGM 06OCR2 69819 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations final rule seeks to codify energy conservation standards for electric instantaneous water heaters from EPCA into the CFR. To determine the impact on the small OEMs, product conversion costs and capital conversion costs were estimated. Product conversion costs are investments in research, development, testing, marketing, and other noncapitalized costs necessary to make product designs comply with amended energy conservation standards. Capital conversion costs are one-time investments in plant, property, and equipment made in response to new and/or amended standards. DOE’s estimates of conversion costs increased between the NOPR and the final rule. As noted in section IV.J.2.c of this final rule, DOE updated its conversion cost analysis for the final rule to reflect written comments submitted in response to the NOPR and feedback received from additional manufacturer interviews conducted at the request of industry. Additionally, DOE updated its analysis to reflect changes to industry model availability that occurred between the NOPR analysis and final rule analysis. These changes result in different costs to small manufacturers between the IRFA and FRFA. In reviewing all commercially available models in DOE’s Compliance Certification Database, the three small manufacturers account for approximately 4 percent of industry model offerings. Of the three small manufacturers, the first manufacturer exclusively manufactures gas-fired instantaneous tankless water heaters and will remain unimpacted by the proposed standards as 100 percent of models meet TSL 3 or higher. There are no anticipated capital conversion costs or production conversion costs required to meet the adopted standards. The second manufacturer exclusively manufacturers hot water supply boilers and 76 percent of its models are unimpacted by the proposed standards. DOE estimates that this manufacturer will incur approximately $50,000 in capital conversion costs and $210,000 in product conversion costs to meet proposed standards. The combined conversion costs represent less than 1 percent of the firm’s estimated revenue during the conversion period. The third manufacturer primarily manufactures gas-fired storage water heaters and residential-duty gas fired storage water heaters. For this manufacturer, 33 percent of their models are unimpacted by the proposed standards. DOE estimates that this manufacturer will incur approximately $0.6 million in capital conversion costs and $0.9 million in product conversion costs to meet proposed standards. The combined conversion costs represent approximately 4.8 percent of the firm’s estimated revenue during the conversion period. TABLE VI.1—SUMMARY OF SMALL MANUFACTURER IMPACTS Conversion costs ($ millions) Manufacturer A ...................................................................... Manufacturer B ...................................................................... Manufacturer C ...................................................................... lotter on DSK11XQN23PROD with RULES2 In addition to amending standards, in this rulemaking, DOE is codifying standards for electric instantaneous CWH equipment from EPCA into the CFR. EPCA prescribes energy conservation standards for several classes of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 6313(a)(5)) DOE codified these standards in its regulations for CWH equipment at 10 CFR 431.110. However, when previously codifying these standards from EPCA, DOE inadvertently omitted the standards put in place by EPCA for electric instantaneous water heaters. In the final rule, DOE is codifying these standards in its regulations at 10 CFR 431.110. This final rule does not propose certification requirements for electric instantaneous water heaters. Thus, DOE estimates no additional paperwork costs on manufacturers of electric instantaneous water heater equipment as a result of the final rule. 5. Significant Alternatives to the Rule The discussion in the previous section analyzes impacts on small businesses that would result from the adopted standards, represented by TSL 3. In reviewing alternatives to the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Annual revenue ($ millions) 0 0.2 1.6 27 219 10.9 adopted standards, DOE examined energy conservation standards set at lower efficiency levels. While TSL 1 and TSL 2 would reduce the impacts on small business manufacturers, it would come at the expense of a reduction in energy savings. TSL 2 would save 0.49 quads of energy with the projected change in manufacturer INPV ranging from ¥10.6 percent to ¥4.4 percent. TSL 2 has energy savings that are 30 percent lower than TSL 3. TSL 1 would save 0.12 quads of energy with the projected change in manufacturer INPV ranging from ¥1.0 percent to less than 0.1 percent. TSL 1 has energy savings that are 83 percent lower than TSL 3. Establishing standards at TSL 3 balances the benefits of the energy savings at TSL 3 with the potential burdens placed on CWH equipment manufacturers, including small business manufacturers. Accordingly, DOE is not adopting one of the other TSLs considered in the analysis, or the other policy alternatives examined as part of the regulatory impact analysis and included in chapter 17 of the final rule TSD. Additional compliance flexibilities may be available through other means. PO 00000 Frm 00135 Fmt 4701 Sfmt 4700 Conversion period revenue ($ millions) Conversion costs/conversion period revenue 81 657 32.7 0.0 0.0 4.8 Manufacturers subject to DOE’s energy efficiency standards may apply to DOE’s Office of Hearings and Appeals for exception relief under certain circumstances. Manufacturers should refer to 10 CFR part 1003 for additional details. C. Review Under the Paperwork Reduction Act Manufacturers of CWH equipment must certify to DOE that their products comply with any applicable energy conservation standards. In certifying compliance, manufacturers must test their products according to the DOE test procedures for CWH equipment, including any amendments adopted for those test procedures. DOE has established regulations for the certification and recordkeeping requirements for all covered consumer products and commercial equipment, including CWH equipment. (See generally 10 CFR part 429). The collection-of-information requirement for the certification and recordkeeping is subject to review and approval by OMB under the Paperwork Reduction Act (‘‘PRA’’). This requirement has been approved by OMB under OMB control number 1910–1400. The public E:\FR\FM\06OCR2.SGM 06OCR2 69820 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations reporting burden for the certification is estimated to average 35 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number. lotter on DSK11XQN23PROD with RULES2 D. Review Under the National Environmental Policy Act of 1969 Pursuant to the National Environmental Policy Act of 1969 (‘‘NEPA’’), DOE has analyzed this final rule in accordance with NEPA and DOE’s NEPA implementing regulations. 10 CFR part 1021. DOE has determined that this rule qualifies for categorical exclusion under 10 CFR part 1021, subpart D, appendix B5.1 because it is a rulemaking that establishes energy conservation standards for consumer products or industrial equipment, none of the exceptions identified in B5.1(b) apply, no extraordinary circumstances exist that require further environmental analysis, and it meets the requirements for application of a categorical exclusion. See 10 CFR 1021.410. Therefore, DOE has determined that promulgation of this rule is not a major Federal action significantly affecting the quality of the human environment within the meaning of NEPA and does not require an environmental assessment or an environmental impact statement. E. Review Under Executive Order 13132 E.O. 13132, ‘‘Federalism,’’ 64 FR 43255 (Aug. 10, 1999), imposes certain requirements on Federal agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. The Executive order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the states and to carefully assess the necessity for such actions. The Executive order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 13735. DOE has examined this rule and has determined that it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. EPCA governs and prescribes Federal preemption of State regulations as to energy conservation for the equipment that is the subject of this final rule. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA. (See 42 U.S.C. 6316(a) and (b); 42 U.S.C. 6297.) Therefore, no further action is required by E.O. 13132. F. Review Under Executive Order 12988 With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of E.O. 12988, ‘‘Civil Justice Reform,’’ imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity, (2) write regulations to minimize litigation, (3) provide a clear legal standard for affected conduct rather than a general standard, and (4) promote simplification and burden reduction. 61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 3(a), section 3(b) of E.O. 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation (1) clearly specifies the preemptive effect, if any, (2) clearly specifies any effect on existing Federal law or regulation, (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction, (4) specifies the retroactive effect, if any, (5) adequately defines key terms, and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of E.O. 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or if it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this final rule meets the relevant standards of E.O. 12988. G. Review Under the Unfunded Mandates Reform Act of 1995 Title II of the Unfunded Mandates Reform Act of 1995 (‘‘UMRA’’) requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and Tribal governments and the private sector. Public Law 104–4, sec. 201 (codified at 2 U.S.C. 1531). For a PO 00000 Frm 00136 Fmt 4701 Sfmt 4700 regulatory action likely to result in a rule that may cause the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any 1 year (adjusted annually for inflation), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to develop an effective process to permit timely input by elected officers of State, local, and Tribal governments on a ‘‘significant intergovernmental mandate,’’ and requires an agency plan for giving notice and opportunity for timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect them. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA. 62 FR 12820. DOE’s policy statement is also available at www.energy.gov/sites/prod/files/gcprod/ documents/umra_97.pdf. This rule does not contain a Federal intergovernmental mandate, nor is it expected to require expenditures of $100 million or more in any 1 year by the private sector. As a result, the analytical requirements of UMRA do not apply. H. Review Under the Treasury and General Government Appropriations Act, 1999 Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105–277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment. I. Review Under Executive Order 12630 Pursuant to E.O. 12630, ‘‘Governmental Actions and Interference with Constitutionally Protected Property Rights,’’ 53 FR 8859 (March 18, 1988), DOE has determined that this rule would not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution. J. Review Under the Treasury and General Government Appropriations Act, 2001 Section 515 of the Treasury and General Government Appropriations E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to review most disseminations of information to the public under information quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB’s guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE’s guidelines were published at 67 FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M–19–15, Improving Implementation of the Information Quality Act (April 24, 2019), DOE published updated guidelines, which are available at www.energy.gov/sites/prod/files/2019/ 12/f70/DOE%20Final%20Updated %20IQA%20Guidelines%20Dec% 202019.pdf. DOE has reviewed this final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines. lotter on DSK11XQN23PROD with RULES2 K. Review Under Executive Order 13211 E.O. 13211, ‘‘Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,’’ 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any significant energy action. A ‘‘significant energy action’’ is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that (1) is a significant regulatory action under E.O. 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. DOE has concluded that this regulatory action, which sets forth amended energy conservation standards for CWH equipment, is not a significant energy action because the standards are not likely to have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects on this final rule. L. Information Quality On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy (‘‘OSTP’’), issued its Final Information Quality Bulletin for Peer Review (‘‘the VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 Bulletin’’). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal government, including influential scientific information related to agency regulatory actions. The purpose of the Bulletin is to enhance the quality and credibility of the Federal government’s scientific information. Under the Bulletin, the energy conservation standards rulemaking analyses are ‘‘influential scientific information,’’ which the Bulletin defines as ‘‘scientific information the agency reasonably can determine will have, or does have, a clear and substantial impact on important public policies or private sector decisions.’’ 70 FR 2664, 2667. In response to OMB’s Bulletin, DOE conducted formal peer reviews of the energy conservation standards development process and the analyses that are typically used and prepared a report describing that peer review.188 Generation of this report involved a rigorous, formal, and documented evaluation using objective criteria and qualified and independent reviewers to make a judgment as to the technical/ scientific/business merit, the actual or anticipated results, and the productivity and management effectiveness of programs and/or projects. Because available data, models, and technological understanding have changed since 2007, DOE has engaged with the National Academy of Sciences to review DOE’s analytical methodologies to ascertain whether modifications are needed to improve DOE’s analyses. DOE is in the process of evaluating the resulting report.189 69821 List of Subjects in 10 CFR Part 431 Administrative practice and procedure, Confidential business information, Energy conservation test procedures, Incorporation by reference, and Reporting and recordkeeping requirements. Signing Authority This document of the Department of Energy was signed on July 27, 2023, by Francisco Alejandro Moreno, Acting Assistant Secretary for Energy Efficiency and Renewable Energy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register. Signed in Washington, DC, on September 15, 2023. Treena V. Garrett, Federal Register Liaison Officer, U.S. Department of Energy. For the reasons set forth in the preamble, DOE amends part 431 of chapter II, subchapter D, of title 10 of the Code of Federal Regulations, to read as set forth below: PART 431—ENERGY EFFICIENCY PROGRAM FOR COMMERCIAL AND INDUSTRIAL EQUIPMENT 1. The authority citation for part 431 continues to read as follows: M. Congressional Notification ■ As required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of this rule prior to its effective date. The report will state that it has been determined that the rule is a ‘‘major rule’’ as defined by 5 U.S.C. 804(2). Authority: 42 U.S.C. 6291–6317; 28 U.S.C. 2461 note. VII. Approval of the Office of the Secretary The Secretary of Energy has approved publication of this final rule. 188 The 2007 ‘‘Energy Conservation Standards Rulemaking Peer Review Report’’ is available at the following website: energy.gov/eere/buildings/ downloads/energy-conservation-standardsrulemaking-peer-review-report-0 (last accessed December 14, 2022). 189 The report is available at www.nationalacademies.org/our-work/review-ofmethods-for-setting-building-and-equipmentperformance-standards. PO 00000 Frm 00137 Fmt 4701 Sfmt 4700 2. Amend § 431.102 by revising the definition of ‘‘Storage-type instantaneous water heater’’ to read as follows: ■ § 431.102 Definitions concerning commercial water heaters, hot water supply boilers, unfired hot water storage tanks, and commercial heat pump water heaters. * * * * * Storage-type instantaneous water heater means an instantaneous water heater that includes a storage tank with a rated storage volume greater than or equal to 10 gallons. * * * * * 3. Amend § 431.105 by revising paragraph (a) to read as follows: ■ E:\FR\FM\06OCR2.SGM 06OCR2 69822 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations § 431.105 Materials incorporated by reference. (a) Certain material is incorporated by reference into this subpart with the approval of the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that specified in this section, the DOE must publish a document in the Federal Register and the material must be available to the public. All approved incorporation by reference (IBR) material is available for inspection at DOE and at the National Archives and Records Administration (NARA). Contact DOE at: the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Program, 1000 Independence Avenue SW, EE–5B, Washington, DC 20024, (202) 586–9127, Buildings@ee.doe.gov, www.energy.gov/ eere/buildings/building-technologiesoffice. For information on the availability of this material at NARA, visit www.archives.gov/federal-register/ cfr/ibr-locations.html or email: fr.inspection@nara.gov. The material may be obtained from the sources in the following paragraphs of this section. * * * * * ■ 4. Revise § 431.110 to read as follows: § 431.110 Energy conservation standards and their effective dates. (a) Each commercial storage water heater, instantaneous water heater, and hot water supply boiler (excluding residential-duty commercial water heaters) must meet the applicable energy conservation standard level(s) as specified in the table to this paragraph. Any packaged boiler that provides service water that meets the definition of ‘‘commercial packaged boiler’’ in subpart E of this part, but does not meet the definition of ‘‘hot water supply boiler’’ in subpart G of this part, must meet the requirements that apply to it under subpart E of this part. TABLE 1 TO § 431.110(a)—COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS Energy conservation standards a Minimum thermal efficiency (equipment manufactured on and after October 9, 2015) (%) Equipment Size Electric storage water heaters .............. Gas-fired storage water heaters and storage-type instantaneous water heaters. Oil-fired storage water heaters ............. Electric instantaneous water heaters c .. All ............ All ............ N/A 80 All ............ <10 gal .... ≥10 gal .... <10 gal .... ≥10 gal .... <10 gal .... ≥10 gal .... 80 80 77 80 80 80 78 Gas-fired instantaneous water heaters and hot water supply boilers. Oil-fired instantaneous water heater and hot water supply boilers. Minimum thermal efficiency (equipment manufactured on and after October 6, 2026) (%) Maximum standby loss (equipment manufactured on and after October 29, 2003) b Maximum standby loss (equipment manufactured on and after October 6, 2026) b N/A 95 0.30 + 27/Vm (%/h) ............... Q/800 + 110(Vr)1⁄2 (Btu/h) .... 0.30 + 27/Vm (%/h) 0.86 × [Q/800 + 110(Vr)1⁄2] (Btu/h) 80 80 77 96 96 80 78 Q/800 + 110(Vr)1⁄2 (Btu/h) .... N/A ........................................ 2.30 + 67/Vm (%/h) ............... N/A ........................................ Q/800 + 110(Vr)1⁄2 (Btu/h) .... N/A ........................................ Q/800 + 110(Vr)1⁄2 (Btu/h) .... Q/800 + 110(Vr)1⁄2 (Btu/h) N/A 2.30 + 67/Vm (%/h) N/A Q/800 + 110(Vr)1⁄2 (Btu/h) N/A Q/800 + 110(Vr)1⁄2 (Btu/h) aV m is the measured storage volume, and Vr is the b Water heaters and hot water supply boilers with a rated storage volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10 CFR 429.44. rated storage volume greater than 140 gallons need not meet the standby loss requirement if: (1) The tank surface area is thermally insulated to R–12.5 or more, with the R-value as defined in § 431.102 (2) A standing pilot light is not used; and (3) For gas-fired or oil-fired storage water heaters, they have a flue damper or fan-assisted combustion. c The compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994. (b) Each unfired hot water storage tank manufactured on and after October 29, 2003, must have a minimum thermal insulation of R–12.5. (c) Each residential-duty commercial water heater must meet the applicable energy conservation standard level(s) as follows: TABLE 2 TO § 431.110(c)—RESIDENTIAL-DUTY COMMERCIAL WATER HEATER ENERGY CONSERVATION STANDARDS lotter on DSK11XQN23PROD with RULES2 Uniform energy factor b Equipment Specifications a Draw pattern Equipment manufactured before October 6, 2026 Gas-fired storage ................ >75 kBtu/hr and ≤105 kBtu/hr and ≤120 gal .... Oil-fired storage .................. >105 kBtu/hr and ≤140 kBtu/hr and ≤120 gal .. Electric instantaneous ......... >12 kW and ≤58.6 kW and ≤2 gal ................... Very Small .......................... Low ..................................... Medium ............................... High .................................... Very Small .......................... Low ..................................... Medium ............................... High .................................... Very Small .......................... Low ..................................... Medium ............................... High .................................... 0.2674¥(0.0009 × Vr) ...... 0.5362¥(0.0012 × Vr) ...... 0.6002¥(0.0011 × Vr) ...... 0.6597¥(0.0009 × Vr) ...... 0.2932¥(0.0015 × Vr) ...... 0.5596¥(0.0018 × Vr) ...... 0.6194¥(0.0016 × Vr) ...... 0.6470¥(0.0013 × Vr) ...... 0.80 ................................... 0.80 ................................... 0.80 ................................... 0.80 ................................... Equipment manufactured after October 6, 2026 0.5374¥(0.0009 0.8062¥(0.0012 0.8702¥(0.0011 0.9297¥(0.0009 0.2932¥(0.0015 0.5596¥(0.0018 0.6194¥(0.0016 0.6470¥(0.0013 0.80 0.80 0.80 0.80 × × × × × × × × Vr) Vr) Vr) Vr) Vr) Vr) Vr) Vr) a Additionally, to be classified as a residential-duty commercial water heater, a commercial water heater must meet the following conditions: (1) If the water heater requires electricity, it must use a single-phase external power supply; and (2) The water heater must not be designed to heat water to temperatures greater than 180 °F. b V is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44. r VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00138 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations 69823 Note: The following letter will not appear in the Code of Federal Regulations. BILLING CODE 6450–01–P U.S. Department of Justice Antitrust Division RFK Main Justice Building 950 Pennsylvania Avenue, NW Washington, DC 20530-0001 July 18, 2022 Ami Grace-Tardy Assistant General Counsel for Legislation, Regulation and Energy Efficiency U.S. Department of Energy Washington, DC 20585 Ami.Grace-Tardy@hg.doe.gov Dear Assistant General Counsel Grace-Tardy: I am responding to your June 1, 2022, letters seeking the views of the Attorney General about the potential impact on competition of proposed energy conservation standards for commercial water heating equipment. In conducting its analysis, the Antitrust Division examines whether a proposed standard may lessen competition, for example, by substantially limiting consumer choice or increasing industry concentration. A lessening of competition could result in higher prices to manufacturers and consumers. We have reviewed the proposed standards contained in the Notice of Proposed Rulemaking (87 Fed. Reg. 30610, May 19, 2022). We have also reviewed public comments and information provided by industry participants and have listened to the Webinar of the Public Meeting held on June 23, 2022. VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00139 Fmt 4701 Sfmt 4725 E:\FR\FM\06OCR2.SGM 06OCR2 ER06OC23.060</GPH> lotter on DSK11XQN23PROD with RULES2 Your request was submitted under Section 325(o)(2)(B)(i)(V) of the Energy Policy and Conservation Act, as amended (EPCA), 42 U.S.C. 6295(o)(2)(B)(i)(V) and 42 U.S.C. 6316(a), which requires the Attorney General to make a determination of the impact of any lessening of competition that is likely to result from the imposition of proposed energy conservation standards. The Attorney General's responsibility for responding to requests from other departments about the effect of a program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CPR § 0.40(g). The Assistant Attorney General for the Antitrust Division has authorized me, as the Policy Director for the Antitrust Division, to provide the Antitrust Division's views regarding the potential impact on competition of proposed energy conservation standards on his behalf. 69824 Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules and Regulations Based on the information currently available, we do not believe that the proposed energy conservation standards for commercial water heating equipment are likely to have a significant adverse impact on competition. Sincerely, Isl David G.B. Lawrence Director of Policy [FR Doc. 2023–20392 Filed 10–5–23; 8:45 am] VerDate Sep<11>2014 17:52 Oct 05, 2023 Jkt 259001 PO 00000 Frm 00140 Fmt 4701 Sfmt 9990 E:\FR\FM\06OCR2.SGM 06OCR2 ER06OC23.061</GPH> lotter on DSK11XQN23PROD with RULES2 BILLING CODE 6450–01–C

Agencies

DEPARTMENT OF ENERGY

[Federal Register Volume 88, Number 193 (Friday, October 6, 2023)]
[Rules and Regulations]
[Pages 69686-69824]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-20392]



[[Page 69685]]

Vol. 88

Friday,

No. 193

October 6, 2023

Part II





Department of Energy





-----------------------------------------------------------------------





10 CFR Part 431





Energy Conservation Program: Energy Conservation Standards for 
Commercial Water Heating Equipment; Final Rule

Federal Register / Vol. 88, No. 193 / Friday, October 6, 2023 / Rules 
and Regulations

[[Page 69686]]



DEPARTMENT OF ENERGY

10 CFR Part 431

[EERE-2021-BT-STD-0027]
RIN 1904-AD34


Energy Conservation Program: Energy Conservation Standards for 
Commercial Water Heating Equipment

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 Commercial 
Water Heating (``CWH'') equipment. EPCA also requires the U.S. 
Department of Energy (``DOE'') to periodically review standards. In 
this final rule, DOE is adopting amended energy conservation standards 
for CWH equipment.

DATES: The effective date of this rule is December 5, 2023. Compliance 
with the amended standards established for CWH equipment in this final 
rule is required on and after October 6, 2026.

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-2021-BT-STD-0027. The docket web page contains instructions on how 
to access all documents, including public comments, in the docket.
    For further information on how to review the docket, contact the 
Appliance and Equipment Standards Program staff at (202) 287-1445 or by 
email: [email protected].

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. Telephone: 
(240) 597-6737. Email: [email protected].
    Mr. Matthew Ring, U.S. Department of Energy, Office of the General 
Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. 
Telephone: (202) 586-2555. Email: [email protected].

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 CWH Equipment
    C. Deviation From Appendix A
III. General Discussion
    A. General Comments
    1. Clear and Convincing Threshold
    2. Analytical Structure and Inputs
    3. Final Selection of Standards Levels
    B. Scope of Coverage
    1. Oil-Fired Commercial Water Heating Equipment
    2. Unfired Hot Water Storage Tanks
    3. Electric Instantaneous Water Heaters
    4. Commercial Heat Pump Water Heaters
    5. Electric Storage Water Heaters
    6. Instantaneous Water Heaters and Hot Water Supply Boilers
    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
    G. Revisions to Notes in Regulatory Text
    H. Certification, Compliance, and Enforcement Issues
IV. Methodology and Discussion of Related Comments
    A. Market and Technology Assessment
    1. Definitions
    2. Equipment Classes
    a. Storage-Type Instantaneous Water Heaters
    b. Venting for Gas-Fired Water Heating Equipment
    c. Tankless Water Heaters and Hot Water Supply Boilers
    d. Gas-Fired and Oil-Fired Storage Water Heaters
    e. Grid-Enabled Water Heaters
    3. Review of the Current Market for CWH Equipment
    4. Technology Options
    B. Screening Analysis
    1. Screened-Out Technologies
    2. Remaining Technologies
    C. Engineering Analysis
    1. Efficiency Analysis
    2. Cost Analysis
    3. Representative Equipment for Analysis
    4. Efficiency Levels for Analysis
    a. Thermal Efficiency Levels
    b. Standby Loss Levels
    c. Uniform Energy Efficiency Levels
    5. Standby Loss Reduction Factors
    6. Teardown Analysis
    7. Manufacturing Production Costs
    8. Manufacturing Markups and Manufacturer Selling Price
    9. Shipping Costs
    D. Markups Analysis
    1. Distribution Channels
    2. Comments on the May 2022 CWH ECS NOPR
    3. Markups Used in This Final Rule
    E. Energy Use Analysis
    F. Life-Cycle Cost and Payback Period Analysis
    1. Equipment Cost
    2. Installation Cost
    a. Data Sources
    b. Condensate Removal and Disposal
    c. Vent Replacement
    d. Extraordinary Venting Cost Adder
    e. Common Venting
    f. Vent Sizing/Material Cost
    g. Masonry Chimney/Chimney Relining
    h. Downtime During Replacement
    3. Annual Energy Consumption
    4. Energy Prices
    5. Maintenance and Repair Costs
    a. Maintenance Costs
    b. Repair Costs
    6. Product Lifetime
    7. Discount Rates
    8. Energy Efficiency Distribution in the No-New-Standards Case
    9. Payback Period Analysis
    10. Embodied Emissions and Recycling Costs
    11. LCC Model Error Messages and Other
    G. Shipments Analysis
    1. Commercial Gas Fired and Electric Storage Water Heaters
    2. Residential-Duty-Gas-Fired Storage and Instantaneous Water 
Heaters
    3. Available Products Database and Equipment Efficiency Trends
    4. Electrification Trends
    5. Shipments to Residential Consumers
    6. Final Rule Shipment Model
    H. National Impact Analysis
    1. Product Efficiency Trends
    2. Fuel and Technology Switching
    3. National Energy Savings
    4. Net Present Value Analysis
    I. Consumer Subgroup Analysis
    1. Residential Sector Subgroup Analysis
    J. Manufacturer Impact Analysis
    1. Overview
    2. Government Regulatory Impact Model and Key Inputs
    a. Manufacturer Production Costs
    b. Shipments Projections
    c. Conversion Costs and Stranded Assets
    d. Manufacturer Markup Scenarios
    K. Emissions Analysis
    1. Air Quality Regulations Incorporated in DOE's Analysis

[[Page 69687]]

    L. Monetizing Emissions Impacts
    1. Monetization of Greenhouse Gas Emissions
    a. Social Cost of Carbon
    b. Social Cost of Methane and Nitrous Oxide
    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. Significance of Energy Savings
    b. Net Present Value of Consumer Costs and Benefits
    c. Indirect Impacts on Employment
    4. Impact on Utility or Performance of Products
    5. Impact of Any Lessening of Competition
    6. Need of the Nation To Conserve Energy
    7. Other Factors
    8. Summary of Economic Impacts
    C. Conclusion
    1. Benefits and Burdens of TSLs Considered for CWH Equipment 
Standards
    2. Annualized Benefits and Costs of the Adopted Standards
VI. Procedural Issues and Regulatory Review
    A. Review Under Executive Orders 12866 and 13563
    B. Review Under the Regulatory Flexibility Act
    1. Need For, and Objectives of, the Rule
    2. Significant Issues Raised in Response to the IRFA
    3. Description and Estimate of the Number of Small Entities 
Affected
    4. Description and Estimate of Compliance Requirements
    5. Significant Alternatives to the Rule
    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''),\1\ 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 C of EPCA,\2\ established the Energy 
Conservation Program for Certain Industrial Equipment. (42 U.S.C. 6311-
6317) Such equipment includes CWH equipment, the subject of this 
rulemaking.
---------------------------------------------------------------------------

    \1\ 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.
    \2\ For editorial reasons, upon codification in the U.S. Code, 
Part C was re-designated Part A-1.
---------------------------------------------------------------------------

    Pursuant to EPCA, DOE is to consider amending the energy efficiency 
standards for certain types of commercial and industrial equipment, 
including the equipment at issue in this document, whenever the 
American Society of Heating, Refrigerating, and Air-Conditioning 
Engineers (``ASHRAE'') amends the standard levels or design 
requirements prescribed in ASHRAE Standard 90.1, ``Energy Standard for 
Buildings Except Low-Rise Residential Buildings,'' (``ASHRAE Standard 
90.1''), and at a minimum, every 6 years. (42 U.S.C. 6313(a)(6)(A)-(C))
    In accordance with these and other statutory provisions discussed 
in this document, DOE analyzed the benefits and burdens of trial 
standard levels (TSLs) for CWH equipment. The TSLs and their associated 
benefits and burdens are discussed in detail in sections V.A-C of this 
section. As discussed in section V.C of this section, DOE has 
determined that TSL 3 represents the maximum improvement in energy 
efficiency that is technologically feasible and economically justified. 
DOE is adopting amended energy conservation standards for certain 
classes of CWH equipment. The adopted standards, which are expressed in 
terms of thermal efficiency, standby loss, and uniform energy factor 
(``UEF''), are shown in Table I.1 and Table I.2. These adopted 
standards apply to all CWH equipment listed in Table I.1 and Table I.2, 
manufactured in, or imported into the United States starting on the 
date 3 years after the publication of the final rule for this 
rulemaking. DOE is also codifying standards for electric instantaneous 
CWH equipment from EPCA into the Code of Federal Regulations (``CFR''). 
Finally, DOE is amending the footnotes to tables of energy conservation 
standards at 10 CFR 431.110 to clarify existing regulations for CWH 
equipment. The adopted standards for electric instantaneous CWH 
equipment and changes to the footnotes are also shown in Table I.1.

 Table I.1--Adopted Energy Conservation Standards for Commercial Water Heating Equipment Except for Residential-
                                          Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                          Energy conservation standards (%) \a\
                                                                       -----------------------------------------
                                                                          Minimum
                Equipment                              Size               thermal
                                                                         efficiency    Maximum  standby loss **
                                                                          \b\ (%)
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water heaters and        All........................           95  0.86 x [Q/800 + 110(Vr)\1/
 storage-type instantaneous water heaters.                                            2\] (Btu/h).
Electric instantaneous water heaters \c\.  <10 gal....................           80  N/A.
                                           >=10 gal...................           77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters and  <10 gal....................           96  N/A.
 hot water supply boilers except storage-  >=10 gal...................           96  Q/800 + 110(Vr)\1/2\ (Btu/
 type instantaneous water heaters.                                                    h).
----------------------------------------------------------------------------------------------------------------
\a\ Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the rated input in Btu/
  h, as determined pursuant to 10 CFR 429.44.
\b\ Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not meet
  the standby loss requirement if: (1) the tank surface area is thermally insulated to R-12.5 or more, (2) a
  standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a flue damper
  or fan-assisted combustion.
\c\ The compliance date for these energy conservation standards is January 1, 1994.


[[Page 69688]]


    Table I.2--Adopted Energy Conservation Standards for Gas-Fired Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                                          Uniform energy factor
              Equipment                    Specification *          Draw pattern **              [dagger]
----------------------------------------------------------------------------------------------------------------
Gas-fired Residential-Duty Storage...  >75 kBtu/h and <=105     Very Small.............  0.5374 - (0.0009 x Vr).
                                        kBtu/h and <=120 gal    Low....................  0.8062 - (0.0012 x Vr).
                                        and <=180 [deg]F.       Medium.................  0.8702 - (0.0011 x Vr).
                                                                High...................  0.9297 - (0.0009 x Vr).
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.
[dagger] Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44.

A. Benefits and Costs to Consumers

    Table I.3 summarizes DOE's evaluation of the economic impacts of 
the adopted standards on consumers of CWH equipment, as measured by the 
average life-cycle cost (``LCC'') savings and the simple payback period 
(``PBP'').\3\ The analysis inputs are described in section IV of this 
document. The average LCC savings are positive for all equipment 
classes, and the PBP is less than the average lifetime of CWH 
equipment, which is estimated to range from 10 years for commercial 
gas-fired storage water heaters to 25 years for instantaneous water 
heaters and hot water supply boilers (see section IV.F.6 of this 
document).
---------------------------------------------------------------------------

    \3\ 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.8 of this document). The simple PBP, which is 
designed to compare specific efficiency levels, is measured relative 
to the baseline product (see section IV.F.9 of this document).

Table I.3--Impacts of Adopted Energy Conservation Standards on Consumers
                            of CWH Equipment
------------------------------------------------------------------------
                                            Average LCC
                Equipment                     savings     Simple payback
                                              (2022$)     period (years)
------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-            367             5.8
 Type Instantaneous.....................
Residential-Duty Gas-Fired Storage......             119             7.2
Gas-Fired Instantaneous Water Heaters                898             9.3
 and Hot Water Supply Boilers...........
--Instantaneous, Gas-Fired Tankless.....             120             8.9
--Instantaneous Water Heaters and Hot              1,570             9.4
 Water Supply Boilers...................
------------------------------------------------------------------------

    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 (2023-2055). Using a real discount rate of 
9.1 percent, DOE estimates that the INPV for manufacturers of CWH 
equipment in the case without amended standards is $212.8 million in 
2022$. Under the adopted standards, the change in INPV is estimated to 
range from -17.7 percent to -8.3 percent, which is approximately 
equivalent to a decrease of $37.6 million to a decrease of $17.7 
million, respectively. In order to bring products into compliance with 
amended standards, it is estimated that the industry would incur total 
conversion costs of $42.7 million.
    DOE's analysis of the impacts of the adopted standards on 
manufacturers is described in section IV.J of this document. The 
analytic results of the manufacturer impact analysis (``MIA'') are 
presented in section V.B.2 of this document.

C. National Benefits and Costs ⁴
---------------------------------------------------------------------------

    \4\ All monetary values in this document are expressed in 2022 
dollars, and, where appropriate, are discounted to 2023 unless 
explicitly stated otherwise.
---------------------------------------------------------------------------

    DOE's analyses indicate that the adopted energy conservation 
standards for CWH equipment would save a significant amount of energy. 
Relative to the case without amended standards, the lifetime energy 
savings for CWH equipment purchased in the 30-year period that begins 
in the anticipated year of compliance with the amended standards (2026-
2055) amount to 0.70 quadrillion British thermal units (``Btu''), or 
quads.\5\ This represents a savings of 5.6 percent relative to the 
energy use of these products in the case without amended standards 
(referred to as the ``no-new-standards case'').
---------------------------------------------------------------------------

    \5\ The quantity refers to full-fuel-cycle (``FFC'') energy 
savings. FFC energy savings include 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.2 of this document.
---------------------------------------------------------------------------

    The cumulative net present value (``NPV'') of total consumer 
benefits of the standards for CWH equipment ranges from $0.43 billion 
(at a 7-percent discount rate) to $1.43 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 CWH equipment purchased in 2026-2055.
    In addition, the adopted standards for CWH equipment are projected 
to yield significant environmental benefits. DOE estimates that the 
standards would result in cumulative emission reductions (over the same 
period as for energy savings) of 38 million metric

[[Page 69689]]

tons (``Mt'') \6\ of carbon dioxide (``CO2''), 0.10 thousand 
tons of sulfur dioxide (``SO2''), 103 thousand tons of 
nitrogen oxides (``NOX''), 479 thousand tons of methane 
(``CH4''), 0.08 thousand tons of nitrous oxide 
(``N2O''), and -0.001 tons of mercury (``Hg'').\7\ The 
estimated cumulative reduction in CO2 emissions through 2030 
amounts to 1.5 million metric tons, which is equivalent to the 
emissions resulting from the annual electricity use of more than 
295,000 homes.
---------------------------------------------------------------------------

    \6\ A metric ton is equivalent to 1.1 short tons. Results for 
emissions other than CO2 are presented in short tons.
    \7\ DOE calculated emissions reductions relative to the no-new-
standards case, which reflects key assumptions in the Annual Energy 
Outlook 2023 (``AEO2023''). AEO2023 represents current Federal and 
State legislation and final implementation of regulations as of the 
time of its preparation. See section IV.K for further discussion of 
AEO2023 assumptions that effect air pollutant emissions.
---------------------------------------------------------------------------

    DOE estimates the value of climate benefits from a reduction in 
greenhouse gases using four different estimates of the ``social cost of 
carbon'' (``SC-CO2''), the social cost of methane (``SC-
CH4''), and the social cost of nitrous oxide (``SC-
N2O''). Together these represent the social cost of 
greenhouse gases (``SC-GHG'').\8\ DOE used interim SC-GHG values 
developed by an Interagency Working Group on the Social Cost of 
Greenhouse Gases (``IWG'').\9\ The derivation of these values is 
discussed in section IV.L.1 of this document. For presentational 
purposes, the climate benefits associated with the average SC-GHG at a 
3-percent discount rate over the 30-year analysis period is $2.30 
billion. DOE does not have a single central SC-GHG point estimate, and 
it emphasizes the importance and value of considering the benefits 
calculated using all four SC-GHG estimates.
---------------------------------------------------------------------------

    \8\ 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 
Interim Estimates Under Executive Order 13990 published in February 
2021 by the Interagency Working Group on the Social Cost of 
Greenhouse Gases (IWG).
    \9\ See Interagency Working Group on Social Cost of Greenhouse 
Gases, Technical Support Document: Social Cost of Carbon, Methane, 
and Nitrous Oxide. Interim Estimates Under Executive Order 13990, 
Washington, DC February 2021. www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf?
---------------------------------------------------------------------------

    DOE estimated the monetary health benefits from SO2 and 
NOX emissions reduction, using benefit per ton estimates 
from EPA's Benefits Mapping and Analysis Program, as discussed in 
section IV.L of this document.\10\ DOE estimates the present value of 
the health benefits would be $1.36 billion using a 7-percent discount 
rate, and $3.29 billion using a 3-percent discount. DOE is currently 
only monetizing health benefits from changes in fine particulate matter 
(``PM2.5'') and (for NOX) ozone precursors, but 
will continue to assess the ability to monetize other effects such as 
health benefits from reductions in direct PM2.5 emissions.
---------------------------------------------------------------------------

    \10\ Estimating the Benefit per Ton of Reducing PM2.5 
Precursors from 21 Sectors. www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
---------------------------------------------------------------------------

    Table I.4 summarizes the monetized benefits and costs expected to 
result from the standards for CWH equipment. 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. In the table, total benefits 
for both the 3-percent and 7-percent cases are presented using the 
average GHG social costs with 3-percent discount rate. DOE does not 
have a single central SC-GHG point estimate and it emphasizes the 
importance and value of considering the benefits calculated using all 
four SC-GHG estimates. The estimated total net benefits using each of 
the four SC-GHG estimates are presented in section V.B.6 of this 
document.

   Table I.4--Present Value of Monetized Benefits and Costs of Adopted
             Energy Conservation Standards for CWH Equipment
                                 [TSL 3]
------------------------------------------------------------------------
                        Benefits                           Billion 2022$
------------------------------------------------------------------------
                            3% Discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................            2.76
Climate Benefits *......................................            2.30
Health Benefits **......................................            3.29
Total Monetized Benefits [dagger].......................            8.35
Consumer Incremental Product Costs [Dagger].............            1.33
Net Monetized Benefits..................................            7.02
Change in Producer Cashflow (INPV [Dagger][Dagger]).....   (0.04)-(0.02)
------------------------------------------------------------------------
                            7% Discount rate
------------------------------------------------------------------------
Consumer Operating Cost Savings.........................            1.28
Climate Benefits * (3% discount rate)...................            2.30
Health Benefits **......................................            1.36
Total Monetized Benefits [dagger].......................            4.94
Consumer Incremental Product Costs [Dagger].............            0.85
Net Monetized Benefits..................................            4.09
Change in Producer Cashflow (INPV [Dagger][Dagger]).....   (0.04)-(0.02)
------------------------------------------------------------------------
Note: This table presents the present value of costs and benefits
  associated with commercial water heaters shipped in 2026-2055. These
  results include benefits (including climate and health benefits) to
  consumers which accrue after 2055 from the products shipped in 2026-
  2055. Numbers may not add due to rounding.
* Climate benefits are calculated using four different estimates of the
  SC-CO2, SC-CH4, and SC-N2O (model average at 2.5 percent, 3 percent,
  and 5 percent discount rates; 95th percentile at 3 percent discount
  rate) (see section IV.L of this final rule). Together these represent
  the global SC-GHG. For presentational purposes of this table, the
  climate benefits associated with the average SC-GHG at a 3 percent
  discount rate are shown; however, DOE emphasizes the importance and
  value of considering the benefits calculated using all four sets of SC-
  GHG estimates. 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
  Interim Estimates Under Executive Order 13990 published in February
  2021 by the IWG.

[[Page 69690]]

 
** Health benefits are calculated using benefit-per-ton values for NOX
  and SO2. DOE is currently only monetizing PM2.5 and (for NOX) ozone
  precursor health benefits, but will continue to assess the ability to
  monetize other effects such as health benefits from reductions in
  direct PM2.5 emissions. The health benefits are presented at real
  discount rates of 3 and 7 percent. See section IV.L of this document
  for more details.
[dagger] Total and net benefits include consumer, climate, and health
  benefits. For presentation purposes, total and net benefits for both
  the 3-percent and 7-percent cases are presented using the average SC-
  GHG with 3-percent discount rate.
[Dagger] Costs include incremental equipment costs as well as
  installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life
  cycle costs analysis and national impact analysis as discussed in
  detail below. See sections IV.F and IV.H of this document. DOE's NIA
  includes all impacts (both costs and benefits) along the distribution
  chain beginning with the increased costs to the manufacturer to
  manufacture the equipment and ending with the increase in price
  experienced by the consumer. DOE also separately conducts a detailed
  analysis on the impacts on manufacturers (the MIA). See section IV.J
  of this document. In the detailed MIA, DOE models manufacturers'
  pricing decisions based on assumptions regarding investments,
  conversion costs, cashflow, and margins. The MIA produces a range of
  impacts, which is the rule's expected impact on the INPV. The change
  in INPV is the present value of all changes in industry cash flow,
  including changes in production costs, capital expenditures, and
  manufacturer profit margins. Change in INPV is calculated using the
  industry weighted average cost of capital value of 9.1% that is
  estimated in the manufacturer impact analysis (see chapter 12 of the
  final rule TSD for a complete description of the industry weighted
  average cost of capital). For commercial water heaters, those values
  are -$38 million and -$18 million. DOE accounts for that range of
  likely impacts in analyzing whether a TSL is economically justified.
  See section V.C of this document. DOE is presenting the range of
  impacts to the INPV under two markup scenarios: the Preservation of
  Gross Margin scenario, which is the manufacturer markup scenario used
  in the calculation of Consumer Operating Cost Savings in this table,
  and the Preservation of Operating Profit Markup scenario, where DOE
  assumed manufacturers would not be able to increase per-unit operating
  profit in proportion to increases in manufacturer production costs.
  DOE includes the range of estimated INPV in the above table, drawing
  on the MIA explained further in section IV.J, of this document to
  provide additional context for assessing the estimated impacts of this
  rule to society, including potential changes in production and
  consumption, which is consistent with OMB's Circular A-4 and E.O.
  12866. If DOE were to include the INPV into the net benefit
  calculation for this final rule, the net benefits would range from
  $6.98 billion to $7.0 billion at 3-percent discount rate and would
  range from $4.05 billion to $4.07 billion at 7-percent discount rate.
  Parentheses ( ) indicate negative values.

    The benefits and costs of the adopted 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 monetized value of the benefits of 
GHG, NOX, and SO2 emission reductions, all 
annualized.\11\
---------------------------------------------------------------------------

    \11\ To convert the time-series of costs and benefits into 
annualized values, DOE calculated a present value in 2023, 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., 2030), and then discounted the present value from each year 
to 2023. The calculation uses discount rates of 3 and 7 percent for 
all costs and benefits except for the value of CO2 
reductions, for which DOE used case-specific discount rates, as 
shown in Table I.3. 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 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 CWH equipment shipped in 
2026-2055. The climate benefits associated with reduced GHG emissions 
achieved as a result of the adopted standards are also calculated based 
on the lifetime of CWH equipment shipped in 2026-2055. 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 SC-
GHG values are presented for all four discount rates in section V.B.6. 
DOE considered any lessening of competition that would be likely to 
result from new or amended standards. As discussed in section III.F.1.e 
of this document, EPCA directs the Attorney General of the United 
States (``Attorney General'') to determine the impact, if any, of any 
lessening of competition likely to result from a proposed standard and 
to transmit such determination in writing 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. To assist the Attorney General 
in making this determination, DOE provided the Department of Justice 
(``DOJ'') with copies of the proposed rule and the TSD for review. In 
its assessment letter responding to DOE, DOJ concluded that the 
proposed energy conservation standards for CWH equipment are unlikely 
to have a significant adverse impact on competition. DOE is publishing 
the Attorney General's assessment at the end of this final rule.
    Table I.5 presents the total estimated monetized benefits and costs 
associated with the adopted standard, expressed in terms of annualized 
values.
    Using a 7-percent discount rate for consumer benefits and costs and 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated monetized cost of the 
standards adopted in this rule is $78 million per year in increased 
equipment costs, while the estimated annual benefits are $118 million 
in reduced equipment operating costs, $125 million in monetized climate 
benefits, and $125 million in monetized health benefits. In this case, 
the net monetized benefit would amount to $289 million per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated monetized cost of the standards is $72 million per year in 
increased equipment costs, while the estimated annual monetized 
benefits are $149 million in reduced operating costs, $125 million in 
monetized climate benefits, and $178 million in monetized air pollutant 
health benefits. In this case, the net benefit would amount to $380 
million per year.

  Table I.5--Annualized Monetized Benefits and Costs of Adopted Energy Conservation Standards for CWH Equipment
                                                     [TSL 3]
----------------------------------------------------------------------------------------------------------------
                                                                                Million 2022$/year
                                                                 -----------------------------------------------
                            Category                                                 Low-net-        High-net-
                                                                      Primary        benefits        benefits
                                                                     estimate        estimate        estimate
----------------------------------------------------------------------------------------------------------------
                                                3% Discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             149             144             154

[[Page 69691]]

 
Climate Benefits *..............................................             125             124             128
Health Benefits **..............................................             178             177             197
Total Monetized Benefits [dagger]...............................             452             445             479
Consumer Incremental Product Costs [Dagger].....................              72              72              74
Net Monetized Benefits..........................................             380             373             405
Change in Producer Cashflow (INPV [Dagger][Dagger]).............         (4)-(2)         (4)-(2)         (4)-(2)
----------------------------------------------------------------------------------------------------------------
                                                7% Discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.................................             118             115             122
Climate Benefits * (3% discount rate)...........................             125             124             128
Health Benefits **..............................................             125           124.4           138.1
Total Monetized Benefits [dagger]...............................             368             364             388
Consumer Incremental Product Costs [Dagger].....................              78            78.2            80.0
Net Monetized Benefits..........................................             289             285             308
Change in Producer Cashflow (INPV [Dagger][Dagger]).............         (4)-(2)         (4)-(2)         (4)-(2)
----------------------------------------------------------------------------------------------------------------
Note: This table presents the annualized costs and benefits associated with CWH equipment shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products purchased in 2026-2055.
  The primary, low net benefits, and high net benefits estimates utilize projections of energy prices from the
  AEO2023 Reference case, low economic growth case, and high economic growth case, respectively. Note that the
  benefits and costs may not sum to the net benefits due to rounding.
* Climate benefits are calculated using four different estimates of the global SC-GHG (see section IV.L of this
  final rule). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering
  the benefits calculated using all four sets of SC-GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021
  by the IWG.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life cycle costs analysis and national
  impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's NIA includes
  all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the
  manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer.
  DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J
  of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions
  regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is
  the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry
  cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The
  annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that
  is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete
  description of the industry weighted average cost of capital). For commercial water heaters, those values are
  $4 million and -$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is
  economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV
  under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup
  scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of
  Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit
  operating profit in proportion to increases in manufacturer production costs. DOE includes the range of
  estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J,
  to provide additional context for assessing the estimated impacts of this rule to society, including potential
  changes in production and consumption, which is consistent with OMB's Circular A-4 and E.O. 12866. If DOE were
  to include the INPV into the annualized net benefit calculation for this final rule, the annualized net
  benefits would range from $376 million to $378 million at 3-percent discount rate and would range from $285
  million to $287 million at 7-percent discount rate. Parentheses ( ) indicate negative values.

    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, based on clear and convincing evidence as presented 
in the following sections, that the standards adopted in this final 
rule are technologically feasible and economically justified, and would 
result in significant additional conservation of energy. Specifically, 
with regards to technological feasibility, CWH equipment achieving the 
adopted standard levels are already commercially available for all 
equipment classes covered by this final rule. As for economic 
justification, DOE's analysis shows that the benefits of the proposed 
standard exceed, to a great extent, the burdens of the adopted 
standards. Using a 7-percent discount rate for consumer benefits and 
costs and NOX and SO2 reduction benefits, and a 
3-percent discount rate case for GHG social costs, the estimated 
monetized cost of the proposed standards for CWH equipment is $78 
million per year in increased equipment costs, while the estimated 
annual monetized benefits are $118 million in reduced equipment 
operating costs, $125 million in monetized climate benefits from GHG 
reductions, and $125 million in monetized air pollutant health 
benefits. In this case, the net monetized benefit would amount to $289 
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.\12\ For 
example, some

[[Page 69692]]

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. As 
previously mentioned, the standards are projected to result in 
estimated full-fuel cycle (``FFC'') national energy savings of 0.70 
quad for equipment purchased in the 30-year period that begins in the 
anticipated year of compliance with the amended standards (2026-2055), 
the equivalent of the electricity use of approximately 28 million homes 
in 1 year. In addition, they are projected to reduce CO2 
emissions by 38 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. 6313(a)(6)(A)(ii)(II). 
A more detailed discussion of the basis for these conclusions is 
contained in the remainder of this document and the accompanying TSD.
---------------------------------------------------------------------------

    \12\ 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).
---------------------------------------------------------------------------

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 CWH equipment. 
CWH equipment includes storage water heaters, instantaneous water 
heaters, and unfired hot water storage tanks. Such equipment (besides 
unfired hot water storage tanks, which only store hot water) may use 
gas, oil, or electricity to heat potable water. CWH equipment generally 
have higher input ratings than residential water heaters and are used 
in a wide variety of applications (including restaurants, hotels, 
multi-family housing, schools, convention centers, etc.). Some CWH 
equipment (in particular, residential-duty CWH) may also be used in 
certain residential applications.

A. Authority

    EPCA authorizes DOE to regulate the energy efficiency of a number 
of consumer products and industrial equipment. Title III, Part C of 
EPCA, added by Public Law 95-619, Title IV, section 441(a) (42 U.S.C. 
6311-6317, as codified), established the Energy Conservation Program 
for Certain Industrial Equipment, which sets forth a variety of 
provisions designed to improve energy efficiency. This equipment 
includes the classes of CWH equipment that are the subject of this 
final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation 
standards for CWH equipment. (42 U.S.C. 6313(a)(5)) Pursuant to EPCA, 
DOE is to consider amending the energy efficiency standards for certain 
types of commercial and industrial equipment, including CWH equipment, 
whenever ASHRAE amends the standard levels or design requirements 
prescribed in ASHRAE/IES Standard 90.1, and at a minimum, every 6 
years. (42 U.S.C. 6313(a)(6)(A)-(C))
    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 EPCA specifically include 
definitions (42 U.S.C. 6311), energy conservation standards (42 U.S.C. 
6313), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 
6315), and the authority to require information and reports from 
manufacturers (42 U.S.C. 6316).
    Federal energy efficiency requirements for covered equipment 
established under EPCA generally supersede State laws and regulations 
concerning energy conservation testing, labeling, and standards. (42 
U.S.C. 6316(a) and (b); 42 U.S.C. 6297) DOE may, however, grant waivers 
of Federal preemption for particular State laws or regulations, in 
accordance with the procedures and other provisions set forth under 
EPCA. (See 42 U.S.C. 6316(b)(2)(D))
    Subject to certain criteria and conditions, DOE is required to 
develop test procedures to measure the energy efficiency, energy use, 
or estimated annual operating cost of covered equipment. Manufacturers 
of covered equipment must use the Federal test procedures as the basis 
for (1) certifying to DOE that their equipment complies with the 
applicable energy conservation standards adopted pursuant to EPCA (42 
U.S.C. 6316(b); 42 U.S.C. 6296), and (2) making representations about 
the efficiency of that equipment (42 U.S.C. 6314(d)). Similarly, DOE 
uses these test procedures to determine whether the equipment complies 
with relevant standards promulgated under EPCA. The DOE test procedures 
for CWH equipment appear at part 431, subpart G.
    ASHRAE Standard 90.1 sets industry energy efficiency levels for 
small, large, and very large commercial package air-conditioning and 
heating equipment, packaged terminal air conditioners, packaged 
terminal heat pumps, warm air furnaces, packaged boilers, storage water 
heaters, instantaneous water heaters, and unfired hot water storage 
tanks (collectively ``ASHRAE equipment''). For each type of listed 
equipment, EPCA directs that if ASHRAE amends Standard 90.1, DOE must 
adopt amended standards at the new ASHRAE efficiency level, unless DOE 
determines, supported by clear and convincing evidence,\13\ that 
adoption of a more stringent level would produce significant additional 
conservation of energy and would be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)) Under EPCA, DOE 
must also review energy efficiency standards for CWH equipment every 6 
years and either: (1) issue a notice of determination that the 
standards do not need to be amended as adoption of a more stringent 
level is not supported by clear and convincing evidence; or (2) issue a 
notice of proposed rulemaking including new proposed standards based on 
certain criteria and procedures in subparagraph (B) of 42 U.S.C. 
6313(a)(6).\14\ (42 U.S.C. 6313(a)(6)(C))
---------------------------------------------------------------------------

    \13\ The clear and convincing threshold is a heightened 
standard, and would only be met where the Secretary has an abiding 
conviction, based on available facts, data, and DOE's own analyses, 
that it is highly probable an amended standard would result in a 
significant additional amount of energy savings, and is 
technologically feasible and economically justified. American Public 
Gas Association v. U.S. Dep't of Energy, 22 F.4th 1018, 1025 (D.C. 
Cir. January 18, 2022) (citing Colorado v. New Mexico, 467 U.S. 310, 
316, 104 S. Ct. 2433, 81 L. Ed. 2d 247 (1984)).
    \14\ In relevant part, subparagraph (B) specifies that: (1) in 
making a determination of economic justification, DOE must consider, 
to the maximum extent practicable, the benefits and burdens of an 
amended standard based on the seven criteria described in EPCA; (2) 
DOE may not prescribe any standard that increases the energy use or 
decreases the energy efficiency of a covered product; and (3) DOE 
may not prescribe any standard that interested persons have 
established by a preponderance of evidence is likely to result in 
the unavailability in the United States of any product type (or 
class) of performance characteristics (including reliability, 
features, sizes, capacities, and volumes) that are substantially the 
same as those generally available in the United States. (42 U.S.C. 
6313(a)(6)(B)(ii)-(iii))
---------------------------------------------------------------------------

    In deciding whether a more-stringent standard is economically 
justified, under either the provisions of 42 U.S.C. 6313(a)(6)(A) or 42 
U.S.C. 6313(a)(6)(C), DOE must determine whether the benefits of the 
standard exceed its burdens. DOE must make this determination after 
receiving comments on the proposed standard, and by considering, to the 
greatest extent practicable, the following seven statutory factors:

[[Page 69693]]

    (1) The economic impact of the standard on manufacturers and 
consumers of products subject to the standard;
    (2) The savings in operating costs throughout the estimated average 
life of the covered products in the type (or class) compared to any 
increase in the price, initial charges, or maintenance expenses for the 
covered equipment that are likely to result from the standard;
    (3) The total projected amount of energy savings likely to result 
directly from the standard;
    (4) Any lessening of the utility or the performance of the covered 
product likely to result from the standard;
    (5) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
standard;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary of Energy considers relevant.

(42 U.S.C. 6313(a)(6)(B)(ii)(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 the standard will be less than three times the value of the energy 
(and, as applicable, water) savings during the first year that the 
consumer will receive as a result of the standard, as calculated under 
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii)) However, 
while this rebuttable presumption analysis applies to most commercial 
and industrial equipment (42 U.S.C. 6316(a)), it is not a required 
analysis for ASHRAE equipment (42 U.S.C. 6316(b)(1)). Nonetheless, DOE 
included the analysis of rebuttable presumption in its economic 
analysis and presents the results in section V.B.1.c of this document.
    EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing 
any amended standard that either increases the maximum allowable energy 
use or decreases the minimum required energy efficiency of a covered 
product. (42 U.S.C. 6313(a)(6)(B)(iii)(I)) Also, the Secretary may not 
prescribe an amended or new standard if interested persons have 
established by a preponderance of the evidence that the standard is 
likely to result in the unavailability in the United States 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. 6313(a)(6)(B)(iii)(II)(aa))

B. Background

1. Current Standards
    The current standards for all CWH equipment classes are set forth 
in DOE's regulations at 10 CFR 431.110, except for electric 
instantaneous water heaters that are not residential duty, which are 
included in EPCA (the history of the standards for electric 
instantaneous water heaters is discussed in section III.B.3 of this 
document). (42 U.S.C. 6313(a)(5)(D)-(E)) Table II.1 shows the current 
standards for all CWH equipment classes, except residential-duty 
commercial water heaters, which are shown in Table II.2 of this 
document.

     Table II.1--Current Federal Energy Conservation Standards for CWH Equipment Except for Residential-Duty
                                            Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                           Energy conservation standards *
                                                                   ---------------------------------------------
                                                                     Minimum thermal
                                                                        efficiency
                Product                             Size                (equipment        Maximum standby loss
                                                                     manufactured on    (equipment manufactured
                                                                    and after October   on and after October 29,
                                                                     9, 2015) ** ***       2003) ** [dagger]
                                                                           (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.........  All......................                N/A  0.30 + 27/Vm (%/h).
Gas-fired storage water heaters........  <=155,000 Btu/h..........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                         >155,000 Btu/h...........                 80   h).
                                                                                       Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired storage water heaters........  <=155,000 Btu/h..........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                         >155,000 Btu/h...........             *** 80   h).
                                                                                       Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Electric instantaneous water heaters     <10 gal..................                 80  N/A.
 [Dagger].                               >=10 gal.................                 77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters    <10 gal..................                 80  N/A.
 and hot water supply boilers.           >=10 gal.................                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired instantaneous water heater     <10 gal..................                 80  N/A.
 and hot water supply boilers.           >=10 gal.................                 78  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
----------------------------------------------------------------------------------------------------------------
                                                  Minimum thermal insulation
----------------------------------------------------------------------------------------------------------------
Unfired hot water storage tank.........  All......................                     R-12.5
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.
** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for
  products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on
  or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
  subpart E of this part for a ``commercial packaged boiler.''
*** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after
  October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level
  of 78 percent.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C.
  6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1, 1994. In this
  final rule, DOE codifies these standards for electric instantaneous water heaters in its regulations at 10 CFR
  431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.3 of this final rule.


[[Page 69694]]


         Table II.2--Current Energy Conservation Standards for Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                     Uniform energy
          Equipment             Specification *   Draw pattern **        factor            Compliance date
----------------------------------------------------------------------------------------------------------------
Gas-fired storage............  >75 kBtu/h and    Very Small.......  0.2674 -         December 29, 2016.
                                <=105 kBtu/h     Low..............   (0.0009 x Vr).
                                and <=120 gal.   Medium...........  0.5362 -
                                                 High.............   (0.0012 x Vr).
                                                                    0.6002 -
                                                                     (0.0011 x Vr).
                                                                    0.6597 -
                                                                     (0.0009 x Vr).
Oil-fired storage............  >105 kBtu/h and   Very Small.......  0.2932 -
                                <=140 kBtu/h     Low..............   (0.0015 x Vr)
                                and <=120 gal.   Medium...........  0.5596 -
                                                 High.............   (0.0018 x Vr).
                                                                    0.6194 -
                                                                     (0.0016 x Vr).
                                                                    0.6740 -
                                                                     (0.0013 x Vr).
Electric instantaneous.......  >12 kW and        Very Small.......  0.80
                                <=58.6 kW and    Low..............  0.80...........
                                <=2 gal.         Medium...........  0.80...........
                                                 High.............  0.80...........
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.

2. History of Standards Rulemaking for CWH Equipment
    As previously noted, EPCA established initial Federal energy 
conservation standards for CWH equipment that generally corresponded to 
the levels in ASHRAE Standard 90.1-1989. On October 29, 1999, ASHRAE 
released Standard 90.1-1999, which included new efficiency levels for 
numerous categories of CWH equipment. DOE evaluated these new standards 
and subsequently amended energy conservation standards for CWH 
equipment in a final rule published in the Federal Register on January 
12, 2001. 66 FR 3336 (``January 2001 final rule''). DOE adopted the 
levels in ASHRAE Standard 90.1-1999 for all classes of CWH equipment, 
except for electric storage water heaters. For electric storage water 
heaters, the standard in ASHRAE Standard 90.1-1999 was less stringent 
than the standard prescribed in EPCA and, consequently, would have 
increased energy consumption.
    Under those circumstances, DOE could not adopt the new efficiency 
level for electric storage water heaters in ASHRAE Standard 90.1-1999. 
66 FR 3336, 3350. In the January 2001 final rule, DOE also adopted the 
efficiency levels contained in the Addendum to ASHRAE Standard 90.1-
1989 for hot water supply boilers, which were identical to the 
efficiency levels for instantaneous water heaters. 66 FR 3336, 3356.
    On October 21, 2004, DOE published a direct final rule in the 
Federal Register (``October 2004 direct final rule'') that recodified 
the existing energy conservation standards, so that they are located 
contiguous with the test procedures that were promulgated in the same 
notice. 69 FR 61974. The October 2004 final rule also updated 
definitions for CWH equipment at 10 CFR 431.102.
    The American Energy Manufacturing Technical Corrections Act 
(``AEMTCA''), Public Law 112-210 (Dec. 18, 2012), amended EPCA to 
require that DOE publish a final rule establishing a uniform efficiency 
descriptor and accompanying test methods for covered consumer water 
heaters and some CWH equipment. (42 U.S.C. 6295(e)(5)(B)) EPCA further 
required that the final rule must replace the energy factor (for 
consumer water heaters) and thermal efficiency and standby loss (for 
some commercial water heaters) metrics with a uniform efficiency 
descriptor. (42 U.S.C. 6295(e)(5)(C)) Pursuant to 42 U.S.C. 6295(e), on 
July 11, 2014, DOE published a final rule for test procedures for 
residential and certain commercial water heaters (``July 2014 final 
rule'') that, among other things, established UEF, a revised version of 
the current residential energy factor metric, as the uniform efficiency 
descriptor required by AEMTCA. 79 FR 40542, 40578. In addition, the 
July 2014 final rule defined the term ``residential-duty commercial 
water heater,'' an equipment category that is subject to the new UEF 
metric and the corresponding UEF test procedures. 79 FR 40542, 40586-
40588 (July 11, 2014). Conversely, CWH equipment that does not meet the 
definition of a residential-duty commercial water heater is not subject 
to the UEF metric or corresponding UEF test procedures. Id. Further 
details on the UEF metric and residential-duty commercial water heaters 
are discussed in section III.C of this document.
    In a notice of proposed rulemaking (``NOPR'') published on April 
14, 2015 (``April 2015 NOPR''), DOE proposed, among other things, 
conversion factors from thermal efficiency and standby loss to UEF for 
residential-duty commercial water heaters. 80 FR 20116, 20143. 
Subsequently, in a final rule published on December 29, 2016 (the 
``December 2016 conversion factor final rule''), DOE specified 
standards for residential-duty commercial water heaters in terms of 
UEF. However, while the metric was changed from thermal efficiency and/
or standby loss, the stringency was not changed. 81 FR 96204, 96239 
(Dec. 29, 2016).
    In ASHRAE Standard 90.1-2013, ASHRAE increased the thermal 
efficiency level for commercial oil-fired storage water heaters, 
thereby triggering DOE's statutory obligation to promulgate an amended 
uniform national standard at those levels, unless DOE were to determine 
that there is clear and convincing evidence supporting the adoption of 
more-stringent energy conservation standards than the ASHRAE 
levels.\15\ In a final

[[Page 69695]]

rule published on July 17, 2015 (``July 2015 ASHRAE equipment final 
rule''), among other things, DOE adopted the standard for commercial 
oil-fired storage water heaters at the level set forth in ASHRAE 
Standard 90.1-2013, which increased the standard from 78 to 80 percent 
thermal efficiency with compliance required starting on October 9, 
2015. 80 FR 42614 (July 17, 2015). Since that time ASHRAE has issued 2 
updated versions of Standard 90.1, 90.1-2016 and 90.1-2019. However, 
DOE was not triggered to review amended standards for commercial water 
heaters by any updates in ASHRAE Standard 90.1-2016 or ASHRAE Standard 
90.1-2019. Overall, DOE has not been triggered to review the standards 
for the equipment subject to this rulemaking (i.e., commercial water 
heating equipment other than commercial oil-fired storage water 
heaters) based on an update to the efficiency levels in ASHRAE Standard 
90.1 since the 1999 edition because ASHRAE has not updated the 
efficiency levels for such equipment since 1999.
---------------------------------------------------------------------------

    \15\ ASHRAE Standard 90.1-2013 also appeared to change the 
standby loss levels for four equipment classes (gas-fired storage 
water heaters, oil-fired storage water heaters, gas-fired 
instantaneous water heaters, and oil-fired instantaneous water 
heaters) to efficiency levels that surpassed the Federal energy 
conservation standard levels. However, upon reviewing the changes 
DOE concluded that all changes to standby loss levels for these 
equipment classes were editorial errors because they were identical 
to SI (International System of Units; metric system) formulas rather 
than I-P (Inch-Pound; English system) formulas. As a result, DOE did 
not conduct an analysis of the potential energy savings from amended 
standby loss standards for this equipment in response to the ASHRAE 
updates. DOE did not receive any comments on this issue. 80 FR 1171, 
1185 (January 8, 2015). The standby loss levels for these equipment 
classes were reverted to the previous levels in ASHRAE Standard 
90.1-2016 and have not been updated since then.
---------------------------------------------------------------------------

    On October 21, 2014, DOE published a request for information 
(``RFI'') as an initial step for reviewing the energy conservation 
standards for CWH equipment. 79 FR 62899 (``October 2014 RFI''). The 
October 2014 RFI solicited information from the public to help DOE 
determine whether more-stringent energy conservation standards for CWH 
equipment would result in a significant amount of additional energy 
savings, and whether those standards would be technologically feasible 
and economically justified. 79 FR 62899, 62899-62900. DOE received a 
number of comments from interested parties in response to the October 
2014 RFI.
    On May 31, 2016, DOE published a NOPR and notice of public meeting 
in the Federal Register (``May 2016 CWH ECS NOPR'') that addressed all 
of the comments received in response to the RFI and proposed amended 
energy conservation standards for CWH equipment. 81 FR 34440. The May 
2016 CWH ECS NOPR and the technical support document (``TSD'') for that 
NOPR are available at www.regulations.gov/docket?D=EERE-2014-BT-STD-0042.
    On June 6, 2016, DOE held a public meeting at which it presented 
and discussed the analyses conducted as part of this rulemaking (e.g., 
engineering analysis, LCC, PBP, and MIA). In the public meeting, DOE 
presented the results of the analysis and requested comments from 
stakeholders on various issues related to the rulemaking in response to 
the May 2016 CWH ECS NOPR.
    On December 23, 2016, DOE published a notice of data availability 
(``NODA'') for energy conservation standards for CWH equipment 
(``December 2016 CWH ECS NODA''). 81 FR 94234. The December 2016 CWH 
ECS NODA presented the thermal efficiency and standby loss levels 
analyzed in the May 2016 CWH ECS NOPR for residential-duty gas-fired 
storage water heaters in terms of UEF, using the updated conversion 
factors for gas-fired and oil-fired storage water heaters adopted in 
the December 2016 conversion factor final rule (81 FR 94234, 94237).
    On January 15, 2021, in response to a petition for rulemaking 
submitted by the American Public Gas Association, Spire, Inc., the 
Natural Gas Supply Association, the American Gas Association, and the 
National Propane Gas Association (83 FR 54883; Nov. 1, 2018) DOE 
published a final interpretive rule (``the January 2021 final 
interpretive rule'') determining that, in the context of residential 
furnaces, commercial water heaters, and similarly-situated products/
equipment, use of non-condensing technology (and associated venting) 
constitute a performance-related ``feature'' under EPCA that cannot be 
eliminated through adoption of an energy conservation standard. 86 FR 
4776. Correspondingly, DOE withdrew the May 2016 CWH ECS NOPR.\16\ 86 
FR 3873 (Jan. 15, 2021). However, DOE has subsequently published a 
final interpretive rule that returns to the previous and long-standing 
interpretation (in effect prior to the January 15, 2021 final 
interpretive rule), under which the technology used to supply heated 
air or hot water is not a performance-related ``feature'' that provides 
a distinct consumer utility under EPCA. 86 FR 73947 (Dec. 29, 2021). In 
conducting the analysis for this final rule, DOE evaluates condensing 
technologies and associated venting systems (i.e., trial standard 
levels (``TSLs'') 2, 3, and 4) in its analysis of potential energy 
conservation standards. Any adverse impacts on utility and availability 
of non-condensing technology options are considered in DOE's analyses 
of these TSLs.
---------------------------------------------------------------------------

    \16\ The rulemaking for CWH equipment has been subject to 
multiple rounds of public comment, including public meetings, and 
extensive records have been developed in the relevant dockets. (See 
Docket Number EERE-2014-BT-STD-0042). Consequently, although the May 
2016 CWH ECS NOPR was withdrawn, the information obtained through 
those earlier rounds of public comment, information exchange, and 
data gathering have been considered in this rulemaking.
---------------------------------------------------------------------------

    On May 19, 2022, DOE published a NOPR (``May 2022 CWH ECS NOPR'') 
for CWH equipment, in which DOE proposed amended energy conservation 
standards for certain classes of CWH equipment and proposed to codify 
existing standards from EPCA for commercial electric instantaneous 
water heaters (except for residential-duty commercial electric 
instantaneous water heaters).\17\ 87 FR 30610. DOE received 28 comments 
in response to the May 2022 CWH ECS NOPR from the interested parties 
listed in Table II.3.
---------------------------------------------------------------------------

    \17\ On July 20, 2022, DOE published a notice that re-opened the 
comment period for the May 2022 CWH ECS NOPR to allow comments to be 
submitted until August 1, 2022. 87 FR 43226.

                               Table II.3--May 2022 CWH ECS NOPR Written Comments
----------------------------------------------------------------------------------------------------------------
                                                                               Comment No. in
               Commenter(s)                           Abbreviation               the docket     Commenter type *
----------------------------------------------------------------------------------------------------------------
Sean Erwin................................  Sean Erwin......................  6...............  I
The American Gas Association (``AGA''),     Joint Gas Commenters............  7, 14, 34.......  UA
 American Public Gas Association
 (``AGPA''), National Propane Gas
 Association (``NPGA''), Spire Inc., and
 ONE Gas, Inc.
JJM Alkaline Technologies.................  JJM Alkaline....................  10..............  M
Atmos Energy Corporation..................  Atmos Energy....................  11, 36..........  U
American Public Gas Association...........  APGA............................  13 **...........  UA
Bradford White Corporation................  Bradford White..................  12, 23..........  M
Law Offices of Barton Day, PLLC             Barton Day Law..................  13 **...........  U
 (representing Spire).
American Society for Testing and Materials  ASTM............................  15..............  EA

[[Page 69696]]

 
Suburban Propane Partners, L.P............  Suburban Propane................  16..............  U
Center for Climate and Energy Solutions,    Joint Climate Commenters........  19..............  EA
 Institute for Policy Integrity at New
 York University School of Law, Montana
 Environmental Information Center, Natural
 Resources Defense Council, Sierra Club,
 Union of Concerned Scientists.
Bock Water Heaters, Inc...................  Bock Water Heaters..............  20..............  M
Northwest Power and Conservation Council..  NWPCC...........................  21..............  EA
A.O. Smith Corporation....................  A.O. Smith......................  22..............  M
Rheem Manufacturing Company...............  Rheem...........................  24..............  M
WM Technologies, LLC......................  WM Technologies.................  25..............  M
Patterson-Kelley, LLC.....................  Patterson-Kelley................  26..............  M
California Energy Commission..............  CEC.............................  27..............  EA
Plumbing-Heating-Cooling Contractors        PHCC............................  28..............  TA
 National Association.
Appliance Standards Awareness Project       Joint Advocates.................  29..............  EA
 (ASAP), American Council for an Energy-
 Efficient Economy (ACEEE), Natural
 Resources Defense Council (NRDC), and
 Rocky Mountain Institute (RMI).
New York State Energy Research and          NYSERDA.........................  30..............  EA
 Development Authority.
Air-Conditioning, Heating, and              AHRI............................  31..............  TA
 Refrigeration Institute.
The Aluminum Association; American Coke     The Associations................  32..............  TA
 and Coal Chemicals Institute; American
 Farm Bureau Federation; American Gas
 Association; American Public Gas
 Association; Council of Industrial Boiler
 Owners; Independent Petroleum Association
 of America; National Mining Association;
 U.S. Chamber of Commerce.
California Investor-Owned Utilities         CA IOUs.........................  33, 37..........  UA
 (Pacific Gas and Electric Company (PG&E),
 San Diego Gas and Electric (SDG&E), and
 the Southern California Edison (SCE)).
Northwest Energy Efficiency Alliance......  NEEA............................  35..............  EA
----------------------------------------------------------------------------------------------------------------
* TA: trade association, EA: efficiency/environmental advocate, IR: industry representative, M: manufacturer,
  OS: other stakeholder, U: utility, utilities filing jointly, or utility representative, UA: utility
  association, and I: individual.
** Comments raised during the June 23, 2022 public meeting. Docket No. 13 refers to the public meeting
  transcript.

    A parenthetical reference at the end of a comment quotation or 
paraphrase provides the location of the item in the public record.\18\ 
To the extent that interested parties have provided written comments 
that are substantively consistent with any oral comments provided 
during the June 23, 2022 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.
---------------------------------------------------------------------------

    \18\ The parenthetical reference provides a reference for 
information located in the docket of DOE's rulemaking to develop 
energy conservation standards for CWH equipment. (Docket No. EERE-
2021-BT-STD-0027, which is maintained at www.regulations.gov). The 
references are arranged as follows: (commenter name, comment docket 
ID number, page of that document).
---------------------------------------------------------------------------

C. Deviation From Appendix A

    On June 21, 2023, DOE published a test procedure final rule for 
consumer water heaters and residential-duty commercial water heaters. 
88 FR 40406. In accordance with section 3(a) of 10 CFR part 430, 
subpart C, appendix A (``appendix A''), DOE notes that it is deviating 
from the provision in appendix A specifying that test procedures be 
finalized at least 180 days before new or amended standards are 
proposed for the same equipment. 10 CFR part 430, subpart C, appendix 
A, section 8(d)(2). DOE is opting to deviate from this step because the 
DOE has determined that the test procedure amendments for residential-
duty commercial water heaters will not impact the current efficiency 
ratings. 88 FR 40406, 40412. See section III.C of this document for 
additional information on the test procedures for CWH equipment.

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. Clear and Convincing Threshold
    In response to the May 2022 CWH ECS NOPR in which DOE concluded 
that it had clear and convincing evidence to propose a standard more 
stringent than ASHRAE Standard 90.1, the Joint Gas Commenters stated 
that since CWH are included in ASHRAE Standard 90.1, DOE must presume 
that standards more stringent than the ASHRAE standards would not be 
desirable in the absence of clear and convincing evidence that they are 
justified. Therefore, the commenters argued that DOE must resolve 
doubts against the need for more stringent standards, but in developing 
the NOPR, the Joint Gas Commenters stated that DOE has done the 
opposite. (Joint Gas Commenters, No. 34 at pp. 15-16) The Joint Gas 
Commenters stated that DOE should follow the rulings of ASHRAE 90.1, 
and noted that to date, the ASHRAE committee has not considered an 
increase in the energy efficiency of these commercial water heaters in 
order to lower overall energy consumption. (Joint Gas Commenters, No. 
34 at p. 34)
    Contrary to the Joint Gas Commenters' suggestion, EPCA does not 
require DOE to presume that standards more stringent than the ASHRAE 
standards would not be desirable in the absence of clear and convincing 
evidence that they are justified. As noted by the Joint Gas Commenters 
and as discussed in section II.A of this final rule, pursuant to EPCA, 
DOE must determine, supported by clear and convincing evidence, that 
amended standards for CWH equipment would result in significant 
additional conservation of energy and be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)(ii)(II); 42 U.S.C. 
6313(a)(6)(C)(i)) In making the

[[Page 69697]]

determination of economic justification of an amended standard, DOE 
must determine whether the benefits of the proposed standard exceed the 
burdens of the proposed standard by considering, to the maximum extent 
practicable, the seven criteria described in EPCA (see 42 U.S.C. 
6313(a)(6)(B)(ii)(I)-(VII)). The clear and convincing threshold is a 
heightened standard, and would only be met where the Secretary has an 
abiding conviction, based on available facts, data, and DOE's own 
analyses, that it is highly probable an amended standard would result 
in a significant additional amount of energy savings, and is 
technologically feasible and economically justified. See American 
Public Gas Association v. U.S. Dept of Energy, 22 F. 4th at 1025 (D.C. 
Cir. January 18, 2022) (citing Colorado v. New Mexico, 467 U.S. 310, 
316, 104 S.Ct. 2433, 81 L.Ed.2d 247 (1984)). However, this standard 
does not require a presumption of desirability for the efficiency 
levels in ASHRAE 90.1. As noted previously, DOE has determined that 
there is clear and convincing evidence for standards for CWH equipment 
more stringent than those found in ASHARE 90.1. A discussion of DOE's 
consideration of the statutory factors is contained in section V of 
this final rule.
2. Analytical Structure and Inputs
    In response to both the withdrawn May 2016 CWH ECS NOPR and the May 
2022 CWH ECS NOPR, DOE received comments and information regarding the 
assumptions that it used for inputs in the rulemaking analyses. DOE 
considered these comments in appropriate analyses conducted in this 
final rule and modified its assumptions and inputs as necessary to 
account for the information or feedback provided by industry 
representatives. Section IV of this final rule provides details on 
DOE's updates to its various analyses.
    Addressing the specific analysis that supports this rulemaking, 
Bradford White highlighted that some sources are as many as 14 years 
old and urged DOE to conduct updated surveys and studies in order to 
inform these major regulatory policy decisions. (Bradford White, No. 23 
at p. 7) Additionally, the Joint Gas Commenters stated that in several 
cases, DOE lacks the data required to provide or support critical 
inputs to its analysis. (The Joint Gas Commenters, No. 34 at p. 16) In 
response, DOE uses the most recent data sources available at the time 
of the analysis whenever possible, as discussed further throughout 
section IV of this document.
    The Joint Gas Commenters urged DOE to implement recommendations 
from the recent National Academies of Sciences, Engineering, and 
Medicine (``NASEM'') report into all its appliance rulemakings, 
highlighting recommendations 2-2, 3-5, 4-1, 4-13, and 4-14 as the most 
pertinent. (Joint Gas Commenters, No. 34 at pp. 38-39) In response, the 
Department notes that the rulemaking process for standards of covered 
products and equipment are outlined at appendix A to subpart C of 10 
CFR part 430 (``appendix A''), and DOE periodically examines and 
revises these provisions in separate rulemaking proceedings. The 
recommendations in the NASEM report, which pertain to the processes by 
which DOE analyzes energy conservation standards, will be considered in 
a separate rulemaking considering all product categories.
    PHCC noted that this rule impacts the resources of PHCC; therefore, 
PHCC feels it is necessary to present the contractors' perspective on 
these issues. PHCC stated that certain customers would bear 
extraordinary costs as a result of this rule, and claimed that PHCC's 
members will ultimately be the ones to shoulder the effects to those 
consumers by finding economical solutions for their clients. (PHCC, No. 
28 at p. 11) In response, DOE recognizes that contractors play an 
important role in helping consumers purchase and install CWH equipment. 
DOE appreciates the perspective of all interested parties, including 
contractors and realizes that contractors will likely be responsible 
for characterizing the costs for new and replacement equipment 
installations to their customers as well as assisting in identifying 
and implementing economical solutions. DOE's evaluation of the cost and 
benefits of this final rule is discussed in section V of this document, 
including impacts on certain consumers.
3. Final Selection of Standards Levels
    DOE received several comments expressing general approval or 
disapproval for the proposed standards.
    The Joint Advocates, NYSERDA, the CA IOUs, and CEC supported the 
proposed standards. (Joint Advocates, No. 29 at p. 1; NYSERDA No. 30 at 
p. 2; CEC, No. 27 at p. 1; CA IOUs, No. 33 at p. 1) NYSERDA stated that 
DOE should act swiftly to finalize the proposed standards and noted 
that these standards will play an important role in meeting their State 
climate goals through decarbonization of the water heater market. 
(NYSERDA, No. 30 at pp. 1-2)
    The CA IOUs expressed general support for DOE's proposal to 
increase the efficiency requirements of commercial gas water heaters to 
condensing levels and suggested that market data show that the market 
is ready for this increase. (CA IOUs, No. 33 at p. 1) NEEA also stated 
support for DOE's proposal to increase the efficiency levels of CWH 
equipment to reflect condensing performance, and asserted that they 
find the DOE analysis to be sound. They similarly commented in support 
of DOE's proposal to increase the efficiency requirements of gas-fired 
residential-duty commercial storage products. They explained that doing 
so will realize the energy efficiency goals that were intended with the 
residential standard, and would harmonize commercial and residential 
requirements. (NEEA, No. 35 at p. 1)
    The Joint Advocates echoed similar support for the proposed 
standards and mentioned that updated standards for commercial gas-fired 
water heaters are long overdue as they have not been amended since 
2001. (The Joint Advocates, No. 29 at p. 1)
    The CEC stated that based on data from its Modernized Appliance 
Efficiency Database System (``MAEDbS''), CWH products meeting the 
proposed standard are already certified for sale in California; 50 
percent (969 out of 1936) meet the proposed requirement of 95 percent 
thermal efficiency and 24 percent (299 out of 1259) of the 
instantaneous models meet the proposed 96 percent thermal efficiency. 
The CEC argues that these data indicate no market barrier to the 
proposed standards. (CEC, No. 27 at p. 4) The CEC also encouraged DOE 
to finalize its proposal to phase out non-condensing technology, thus 
closing what they consider a significant loophole for standards of 
residential-duty CWHs. Id. at p. 3. Further, according to CEC, MAEDbS 
includes 324 residential-duty commercial gas water heaters, and none 
have storage above 55 gallons. Therefore, CEC claims that residential 
water heaters in California's market are exploiting this ``loophole'' 
since consumer gas ratings with input ratings above 75,000 Btu/hour 
would only be subject to a condensing standard if the storage volume is 
greater than 55 gallons. Id. The CA IOUs supported DOE's proposed 
standards, and raised the same concern as CEC, stating that the energy 
efficiency standards for residential gas storage water heaters with a 
capacity greater than 55 gallons are currently higher than the 
requirements for commercial residential-duty gas storage heaters of 
similar capacity. As a result,

[[Page 69698]]

they claim that the greater-than-55-gallon-capacity segment of the 
residential gas storage water heater market is exclusively served by 
commercial residential-duty products. (CA IOUs, No. 33 at p. 2) Rheem 
also suggested that DOE evaluate the proposed efficiency levels for 
residential-duty commercial gas-fired storage water heaters to ensure 
more equitable treatment for these products and consumer water heaters 
with a rated storage volume greater than 55 gallons because, they said, 
these categories can be used for the same applications. (Rheem, No. 24 
at pp. 3-4)
    Sean Erwin commented that DOE's proposal is agreeable, but also 
explained various types of solar water heating systems that could be a 
cost-effective means of generating hot water. (Erwin, No. 6 at p. 1)
    A.O. Smith also commented noting support for DOE's proposal to move 
the minimum energy conservation standards for CWH to a standard that 
will require the utilization of condensing technology for gas-fired 
equipment, inclusive of both the proposed thermal efficiency and 
standby loss levels, with some modifications. (A.O. Smith, No. 22 at 
pp. 2, 7) A.O. Smith commented that that the adoption of this equipment 
will not only assist in reducing greenhouse gas emissions, but will 
also help property and business owners save money on their monthly 
energy bills, as well as preserve flexibility for businesses to install 
water heating equipment that is the most economical to meet the 
intended utility. A.O. Smith also recommended that high-efficiency gas-
fired water heating equipment remain available for commercial 
customers. Id. at pp. 2-3. A.O. Smith suggested several modifications 
to the standards proposed in the May 2022 CWH ECS NOPR, which are 
discussed in the appropriate sections on this final rule. Id. at pp. 2-
5. Additionally, Rheem raised concerns that many equipment sizes are 
not available at the proposed thermal efficiency levels and that, in 
some cases, the proposed levels are at the maximum technologically 
feasible (``max-tech'') levels evaluated. Rheem also stated that the 
DOE's analysis has not shown that the proposed TSL is economically 
viable for the entire range of equipment sizes. (Rheem, No. 24 at p. 2)
    Several commenters suggested that DOE should analyze a 94 percent 
thermal efficiency level for gas-fired water heaters (A.O. Smith, No. 
22 at pp. 2-4; AHRI, No. 31 at p. 2; Rheem, No. 24 at p. 3). These 
comments, and DOE's response, are discussed in more detail in section 
IV.C.4.a of this document. A.O. Smith also proposed an adjustment to 
the proposed efficiency level for gas-fired residential-duty commercial 
water heaters, as discussed in section IV.C.4.c of this document.
    AHRI raised concerns that, because gas-fired storage and gas-fired 
instantaneous equipment are used in similar settings, setting higher 
efficiency standards for one class (i.e., gas-fired instantaneous water 
heaters and hot water supply boilers) inappropriately disadvantages 
that class in the marketplace compared to the other class(es). 
Therefore, AHRI requested the Department align the efficiency standards 
for all gas-fired water heaters. (AHRI, No. 31 at p. 2). Bock Water 
Heaters asserted their agreement with comments submitted by AHRI. (Bock 
Water Heaters, No. 20 at p. 2) DOE received a similar comment from 
Bradford White expressing concern that DOE has proposed more stringent 
requirements for gas-fired instantaneous water heaters, including hot 
water supply boilers, for greater than 10 gallons. Bradford White 
recommended that the thermal efficiency requirements for gas-fired 
instantaneous and hot water supply boilers be harmonized with that for 
gas-fired storage water heaters. They further noted that this approach 
would allow DOE to avoid unfairly biasing the marketplace towards one 
technology over another. (Bradford White, No. 23 at p. 3)
    The Joint Gas Commenters argued that a condensing standard would 
have numerous adverse impacts on building owners, including required 
building modifications, impacts on other equipment, impacts on occupied 
spaces or building aesthetics, inconvenience or loss to business as a 
result of additional time spent replacing equipment, additional 
installation services, or overall impracticality. (Joint Gas 
Commenters, No. 34 at pp. 9-10) They added that the proposed standards 
would violate the ``unavailability'' provision of EPCA and would leave 
many purchasers without gas products suitable for their needs. (Joint 
Gas Commenters, No. 34 at p. 39) WM Technologies called on DOE to 
rigorously review the inputs and the calculations in the LCC analysis 
because, they suggest, under the anti-backsliding provision of EPCA, 
the damage to the end user would be irreparable should the Department 
promulgate condensing requirements for commercial water heaters. WM 
Technologies asserted that such requirements would exceed the existing 
infrastructures' ability to adapt to condensing products and appliances 
in many places across the country, resulting in the unavailability of 
the product due to an increase in the minimum efficiency, violating the 
unavailability clause of EPCA (EPACT). As an example, WM Technologies 
stated that row houses in many urban East Coast regions do not have the 
ability to vent through an outside wall, which is a requirement for 
many condensing products. (WM Technologies, No. 25 at pp. 5-6) Atmos 
Energy stated that DOE should allow the continued manufacture and 
availability of water heaters that meet consumer needs (including 
businesses) and suggested that the elimination of affordable products 
would undermine the goals of the energy efficiency program overall. 
(Atmos Energy, No. 36 at pp. 1-2) DOE has provided more specific 
responses to these comments throughout this document, but specifically, 
DOE addresses comments regarding the downtime during replacement in 
section IV.F.2.h of this document, comments regarding the 
unavailability of noncondensing commercial water heaters in section 
IV.A.2.b of this document and comments regarding the unavailability of 
certain equipment sizes in IV.C.4.a of this document. Because there are 
comments relating to regional differences, DOE would note that the 
analysis accounts for the impact of entering water temperature on loads 
by type of building, both of which are linked to region by the location 
variables included in the source databases (see section IV.E of this 
document). However, DOE would specifically note that row houses tend to 
be comprised of single family dwellings that DOE believes are far more 
likely to use consumer water heaters or potentially a consumer boiler 
with unfired storage tanks rather than the CWH equipment that is the 
subject of this final rule.
    Atmos Energy stated that where insufficient data exist, DOE should 
conclude it lacks evidence to support its proposed rule. It further 
offered its opinion that more data are needed to assess the proposed 
rule, including distributions of equipment by storage volume and input 
capacities, frequencies of installations that are infeasible or costly, 
installed costs, and customers' annual fuel use. Atmos Energy stated 
that real-world data exist for this information and stated that DOE 
should collect actual data rather than relying on estimates, though 
Atmos Energy does not provide any such data or suggested sources. To 
ensure standards are economically justified, Atmos Energy stated DOE 
must fully

[[Page 69699]]

assess LCC, potential for fuel switching, economic benefits of 
efficiency improvements, and actual installation costs. (Atmos Energy, 
No. 36 at pp. 2, 4)
    As already noted, DOE uses the most current data available when 
performing rulemaking analyses, such as this CWH analysis. Atmos Energy 
is correct in the assertion that considerable data exist, but overlooks 
the fact that much of these data exists in forms not in the public 
domain. For example, consumers receive quotes for installing new or 
replacement water heaters, but such information is proprietary to the 
parties involved, and even if not proprietary, DOE is unaware of any 
existing service or process that aggregates such information. Contrary 
to the position Atmos Energy takes the fact that this information may 
exist in some form does not make this information necessarily available 
or usable to the general public or to DOE. Some of the data that Atmos 
Energy claims DOE should collect and use are not reasonably available 
to DOE. DOE uses publicly available and referenceable cost data, along 
with information collected during manufacturer interviews, to develop 
models to estimate such information in a fashion reasonably consistent 
with installation practice. For example, DOE uses U.S. Census data for 
developing contractor markup for installation costs; manufacturer 
shipment, DOE's Compliance Certification Management System, and Energy 
Star data to develop equipment efficiency distributions; and price data 
from RSMeans and/or from available and referenceable public sources. In 
short, DOE's method is to collect and use the best current data that 
are available to DOE and to develop analyses to estimate in a 
reasonable fashion the costs and benefits of proposed energy 
conservation standards. The specific analyses listed by Atmos Energy 
are addressed within this final rule document.
    As a general response to the comments in this section, DOE notes 
that it may prescribe an energy conservation standard more stringent 
than the level for such equipment in ASHRAE Standard 90.1, as amended, 
only if ``clear and convincing evidence'' shows that a more-stringent 
standard would result in significant additional conservation of energy 
and is technologically feasible and economically justified. (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) In determining whether a standard is 
economically justified, the Secretary must determine whether the 
benefits of the standard exceed its burdens by, to the greatest extent 
practicable, considering the seven statutory factors discussed 
previously. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII) and 42 U.S.C. 
6313(a)(6)(C)(i)) As described in section V.A of this document, DOE 
typically evaluates potential amended standards for products and 
equipment by grouping individual efficiency levels for each class into 
TSLs. The use of TSLs allows DOE to identify and consider, among other 
things, market cross elasticity from consumer purchasing decisions that 
may change when different standard levels are set. DOE typically 
evaluates potential amended standards for products and equipment by 
grouping individual efficiency levels for each class into TSLs. 
Furthermore, as described in section V.C of this document, DOE 
considered the impacts of amended standards for CWH equipment at each 
TSL, with respect to the aforementioned criteria, and determined that 
there is clear and convincing evidence that the adopted standards are 
both technologically feasible and economically justified and save a 
significant amount of energy. The benefits and costs of the standard 
levels adopted in this final rule are discussed in section V.C.2 of 
this document.

B. Scope of Coverage

1. Oil-Fired Commercial Water Heating Equipment
    As discussed in the May 2022 CWH ECS NOPR, DOE has determined that 
amended efficiency standards (in terms of both thermal efficiency and 
standby loss) for commercial oil-fired storage water heaters (including 
residential-duty oil-fired storage water heaters) would not be 
warranted and did not analyze amended efficiency standards for this 
equipment in this final rule. 87 FR 30610, 30622.
    Similarly, DOE did not analyze amended standards for commercial 
oil-fired instantaneous water heaters and hot water supply boilers in 
the May 2022 CWH ECS NOPR because the energy savings possible from 
amended standards for such equipment is expected to be negligible. Id. 
Based on this rationale and because DOE has not received information 
suggesting otherwise, DOE has continued to exclude commercial oil-fired 
water heating equipment from the analysis conducted for this final 
rule.
2. Unfired Hot Water Storage Tanks
    Unfired hot water storage tanks are a class of CWH equipment. In 
response to the May 2022 CWH ECS NOPR, the CA IOUs stated that the 
efficiency requirements for unfired hot water storage tanks have been 
unrevised since 2001 and recommended that DOE develop performance 
requirements for unfired hot water storage tanks, which they said are 
often incorporated into heat pump water heating systems. (The CA IOUs, 
No. 33 at pp. 3-4) The CA IOUs requested that DOE develop performance-
based testing and standards for unfired hot water storage tanks, 
stating that a performance-based metric would allow for innovation and 
would reward manufacturers who insulate well. Id.
    On May 24, 2022, DOE published a notice of final determination not 
to amend energy conservation standards for unfired hot water storage 
tanks. 87 FR 31359. Because amended energy conservation standards for 
unfired hot water storage tanks were considered as part of that 
proceeding, they were not considered further for this final rule. 
Similarly, amended test procedures for unfired hot water storage tanks 
and other CWH equipment will be considered in a separate rulemaking.
3. Electric Instantaneous Water Heaters
    EPCA prescribes energy conservation standards for several classes 
of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 
6313(a)(5)) DOE codified these standards in its regulations for CWH 
equipment at 10 CFR 431.110. However, when codifying these standards 
from EPCA, DOE inadvertently omitted the standards put in place by EPCA 
for electric instantaneous water heaters. Specifically, for 
instantaneous water heaters with a storage volume of less than 10 
gallons, EPCA prescribes a minimum thermal efficiency of 80 percent. 
For instantaneous water heaters with a storage volume of 10 gallons or 
more, EPCA prescribes a minimum thermal efficiency of 77 percent and a 
maximum standby loss, in percent/hour, of 2.30 + (67/measured volume 
(in gallons)). (42 U.S.C. 6313(a)(5)(D) and (E)) Although, DOE's 
regulations at 10 CFR 431.110 do not currently include energy 
conservation standards for electric instantaneous water heaters, these 
standards prescribed in EPCA are applicable. Therefore, in this final 
rule, DOE is codifying these standards in its regulations at 10 CFR 
431.110.
    In the May 2022 CWH ECS NOPR, DOE also discussed allowing the use 
of a calculation-based method for determining storage volume of 
electric instantaneous water heaters that is the same as the method for 
gas-fired and oil-fired instantaneous water heaters and hot water 
supply boilers found at 10 CFR 429.72(e) (added at 81 FR 79261, 79320 
(Nov. 10, 2016)). DOE initially

[[Page 69700]]

concluded that the same rationale for including these provisions for 
gas-fired and oil-fired instantaneous water heaters and hot water 
supply boilers also applies to electric instantaneous water heaters 
(i.e., it may be difficult to completely empty the instantaneous water 
heater in order to obtain a dry weight measurement, which is needed in 
a weight-based test for an accurate representation of the storage 
volume). Therefore, DOE tentatively concluded that including electric 
instantaneous water heaters in these provisions would provide 
manufacturers with flexibility as to how the storage volume is 
determined. 87 FR 30622. However, DOE is considering these 
certification changes in a separate rulemaking. Therefore, DOE is not 
enacting any changes at 10 CFR 429.72(e) to allow the use of a 
calculation-based method for determining the storage volume of electric 
instantaneous water heaters in this final rule.
    Additionally, as discussed in the May 2022 CWH ECS NOPR, DOE notes 
that because electric instantaneous water heaters typically use 
electric resistance heating, which is highly efficient, the thermal 
efficiency of these units already approaches 100 percent. DOE has also 
determined that there are no options for substantially increasing the 
rated thermal efficiency of this equipment, and the impact of setting 
thermal efficiency energy conservation standards for these products 
would be negligible. Similarly, the stored water volume is typically 
low, resulting in limited potential for reducing standby losses for 
most electric instantaneous water heaters. As a result, amending the 
standards for electric instantaneous water heaters established in EPCA 
would result in minimal energy savings. Even if DOE were to account for 
the energy savings potential of amended standards for electric 
instantaneous water heaters, the contribution of any potential energy 
savings from amended standards for these units would be negligible and 
not appreciably impact the energy savings analysis for CWH equipment. 
Therefore, DOE did not analyze amended energy conservation standards 
for electric instantaneous water heaters in this final rule.\19\
---------------------------------------------------------------------------

    \19\ In the May 2022 CWH ECS NOPR, DOE noted that it did not 
analyze amended energy conservation standards for residential-duty 
electric instantaneous water heaters (87 FR 30631), which are a 
separate equipment class within DOE's regulations for CWH equipment. 
See 79 FR 40541, 40588 (Jul. 11, 2014). Consistent with the May 2022 
CWH ECS NOPR, DOE did not analyze amended standards for residential-
duty electric instantaneous water heaters in this final rule for 
similar reasons as those stated for not analyzing standards for 
electric instantaneous water heaters.
---------------------------------------------------------------------------

4. Commercial Heat Pump Water Heaters
    In response to the May 2022 CWH ECS NOPR, DOE received multiple 
comments regarding DOE's proposal not to consider energy conservation 
standards for commercial heat pump water heaters. Rheem supported DOE's 
decision not to consider heat pump technology in the current analysis 
but encouraged DOE to review and amend the equipment class structure to 
include heat pump water heaters as a technology option for specific 
applications in a future rulemaking. (Rheem, No. 24 at p. 5) In 
contrast, NEEA and the CA IOUs requested that DOE include heat pump 
water heaters in its analysis. Both NEEA and the CA IOUs mentioned that 
these technologies represent the current max-tech efficiency levels for 
CWH. (NEEA, No. 35 at p. 2; the CA IOUs, No. 33 at p. 3) NEEA also 
stated that an analysis of current commercial water heating is 
incomplete without this consideration. (NEEA, No. 35 at p. 2) Further, 
NEEA, the CA IOUs, and the Joint Advocates noted that many commercial-
duty heat pump products from several different manufacturers are 
available on the market already, and NEEA and the CA IOUs provided 
numerous citations to specific models. (NEEA, No. 35 at p. 2; the CA 
IOUs, No. 33 at p. 3; Joint Advocates, No. 29 at p. 14) The CA IOUs 
further commented that commercial electric heat pump water heaters have 
already been successfully and efficiently providing hot water to 
commercial buildings across the country and can include electric 
resistance elements that allow them to deliver comparable peak demand 
performance to commercial electric-resistance-only storage water 
heaters. (CA IOUs, No. 33 at p. 3)
    WM Technologies and Patterson-Kelley argued that they are not aware 
of compressor-based water heating products which can operate at the 
water temperatures required to achieve commercial hot water flow rate 
at adequate temperatures, let alone sanitizing conditions, and added 
that if such products become available, the sizing of various internal 
components would be significantly different than heat pumps utilized 
for other applications. (WM Technologies, No. 25 at p. 7; Patterson-
Kelley, No. 26 at p. 5) WM Technologies and Patterson-Kelley also 
stated that if available, those products should be required to meet the 
efficiencies at operating conditions of adequate hot water flow rate at 
the required temperature. Id. Furthermore, WM Technologies said, if any 
part of the heat pump system is located in unconditioned spaces, that 
portion of the heat pump should be maintained at the worst-case 
national temperature at which the product may experience during 
efficiency testing. (WM Technologies, No. 25 at p. 7)
    Rheem, AHRI, and Bradford White additionally suggested that it may 
be difficult to meet the same hot water loads with an integrated heat 
pump as with a commercial electric storage water heater. (AHRI, No. 31 
at pp. 3-4; Rheem, No. 24 at p. 5; Bradford White, No. 23 at pp. 7-8) 
The commenters further noted that heat pump water heaters typically 
have a slower recovery time than commercial electric storage water 
heaters and may also have difficulty reaching the same temperatures as 
commercial electric storage water heaters without backup resistance 
elements. Id. Further, Rheem and AHRI noted in particular that 
integrated heat pump water heaters may have difficulty reaching 
sanitizing temperatures. (AHRI, No. 31 at pp. 3-4; Rheem, No. 24 at p. 
5) Rheem also noted that the larger footprint may limit replacement 
opportunities and may result in a decrease in workspace (such as 
kitchen space) as opposed to a decrease in mechanical room space. 
(Rheem, No. 24 at p. 5) Furthermore, Bradford White stated that given 
that most heat pump water heaters recover at a much slower rate, 
additional storage capacity must be added to the hot water system, 
which likely means that a split system heat pump water heater would be 
used instead of an integrated heat pump water heater. (Bradford White, 
No. 23 at p. 7)
    DOE did not consider commercial integrated heat pump water heaters 
in this final rule. DOE found only one such model on the market, at a 
single storage volume and heating capacity. Given the wide range of 
capacities and stored water volumes in products currently on the 
market, which are required to meet hot water loads in commercial 
buildings, it is unclear based on this single model whether heat pump 
water heater technology would be suitable to meet the range of load 
demands on the market. Similarly, based on the information currently 
available and comments regarding the performance of heat pump water 
heaters as compared to electric resistance water heaters in commercial 
settings, it is uncertain if split-system heat pump water heaters can 
serve all the applications currently filled by electric instantaneous 
water heaters. Therefore, DOE is not analyzing this equipment in the 
current analysis. However, DOE may analyze commercial heat pump water 
heaters in a future rulemaking, at which time DOE will

[[Page 69701]]

consider the appropriate equipment class structure for commercial 
electric water heaters, including commercial heat pump water heaters.
5. Electric Storage Water Heaters
    In this rulemaking, DOE did not analyze thermal efficiency 
standards for electric storage water heaters. Electric storage water 
heaters are not currently subject to a thermal efficiency standard 
under 10 CFR 431.110. Electric storage water heaters typically use 
electric resistance heating elements, which are highly efficient. The 
thermal efficiency of these units already approaches 100 percent. As 
discussed in section III.B.4 of this document, DOE did not consider 
commercial integrated heat pump water heaters as the max-tech for 
electric storage water heaters at this time.
    In the May 2022 CWH ECS NOPR, DOE concluded that the only 
technology option that DOE analyzed in the engineering analysis as 
providing standby loss reduction for electric storage water heaters 
(i.e., increasing tank foam insulation thickness to 3 inches) is 
already currently included in some models rated at or near the current 
standby loss standard. Consequently, DOE did not analyze any technology 
options for reducing standby loss below (i.e., more stringent than) the 
current standard. In response to the May 2022 CWH ECS NOPR, Bock Water 
Heaters indicated support for not amending the standby loss standard 
for electric storage water heaters. (Bock Water Heaters, No. 20 at p. 
1) Bradford White similarly supported DOE's decision not to change 
standards for commercial electric storage, as there is no electric 
resistance or insulation technology that would allow them to comply 
with more stringent standards. (Bradford White, No. 23 at p. 3) DOE 
maintains its conclusion originally stated in the May 2022 CWH ECS NOPR 
and therefore, in this final rule, DOE did not further analyze and is 
not adopting amended standby loss standards for electric storage water 
heaters.
6. Instantaneous Water Heaters and Hot Water Supply Boilers
    Other than storage-type instantaneous water heaters, DOE did not 
include instantaneous water heaters and hot water supply boilers in its 
analysis of potential amended standby loss standards.\20\ Instantaneous 
water heaters and hot water supply boilers (other than storage-type 
instantaneous water heaters) with greater than 10 gallons of water 
stored have a standby loss requirement under 10 CFR 431.110. However, 
DOE did not analyze more stringent standby loss standards for these 
units because it has determined that such amended standards would 
result in minimal energy savings. Even if DOE were to account for the 
energy savings potential of amended standby loss standards for 
instantaneous water heaters and hot water supply boilers (other than 
storage-type instantaneous water heaters) with greater than 10 gallons 
of water stored CWH equipment, the contribution of any potential energy 
savings from amended standards for these units would be negligible and 
not appreciably impact the energy savings analysis for CWH equipment.
---------------------------------------------------------------------------

    \20\ On November 10, 2016, DOE published a final rule amending 
the test procedures for certain CWH equipment (``November 2016 CWH 
TP final rule''). 81 FR 79261. DOE adopted a definition for 
``storage-type instantaneous water heater'' in the November 2016 CWH 
TP final rule. Id. at 79289-79290. Storage-type instantaneous water 
heaters are discussed in section IV.A.2.a of this final rule.
---------------------------------------------------------------------------

    DOE has determined that instantaneous water heaters (other than 
storage-type instantaneous water heaters) and hot water supply boilers 
with less than 10 gallons of water stored would not have significantly 
different costs and benefits as compared to instantaneous water heaters 
(other than storage-type instantaneous water heaters) and hot water 
supply boilers with greater than or equal to 10 gallons of water 
stored. (See section IV.C.7 of this document for further discussion of 
the costs for instantaneous water heaters and hot water supply 
boilers.) Therefore, DOE analyzed both equipment classes of 
instantaneous water heaters and hot water supply boilers (less than 10 
gallons and greater than or equal to 10 gallons stored volume) together 
for thermal efficiency standard levels in this final rule, which is 
discussed further in section IV.C.3 of this document.
    DOE also determined that establishing standby loss standards for 
instantaneous water heaters and hot water supply boilers with less than 
or equal to 10 gallons water stored would result in minimal energy 
savings. Even if DOE were to account for the energy savings potential 
of amended standby loss standards for instantaneous water heaters and 
hot waters supply boilers with less than or equal to 10 gallons of 
water stored, the contribution any potential energy savings from 
amended standards for these units would be negligible and not 
appreciably impact the energy savings analysis for CWH equipment. 
Bradford White commented in support of DOE's determination not to 
establish standby loss standards for gas-fired instantaneous and hot 
water supply boilers less than 10 gallons. (Bradford White, No. 23 at 
p. 3) For instantaneous water heaters and hot water supply boilers 
(other than storage-type instantaneous water heaters), DOE has not 
found and did not receive any information or data suggesting that DOE 
should analyze amended standby loss standards.
    Bradford White commented that there is confusion in how different 
types of products are characterized by DOE and stated that there 
appears to be overlap in the structure of the proposed standards. 
(Bradford White, No. 23 at p. 1) In particular, Bradford White stated 
that gas-fired storage-type instantaneous water heaters and gas-fired 
instantaneous water heaters are handled differently and that certain 
products appear to fall into the two different categories with two 
different sets of energy conservation standards. Id. AHRI stated that 
it understands that the Department's intent is for the equipment class 
of ``instantaneous water heaters and hot water supply boilers greater 
than 10 gallons'' to refer specifically to hot water supply boilers 
with storage tanks and circulating water heaters with an external 
storage tank. AHRI stated that including separate standards for ``gas-
fired storage water heaters and storage-type instantaneous water 
heaters'' and ``gas-fired instantaneous water heaters with a storage 
capacity greater than or equal to 10 gallons'' in Table 1 to 10 CFR 
431.110(a) of the May 2022 CWH ECS NOPR could cause market confusion by 
creating unintentional overlap between these product types. (AHRI, No. 
31 at pp. 2-3)
    In response, DOE clarifies that in this final rule, it is adopting 
a minimum thermal efficiency of 95 percent for gas-fired storage-
instantaneous water heaters and a minimum thermal efficiency of 96 
percent for tankless water heaters and circulating water heaters and 
hot water supply boilers. As discussed in section IV.A.2.a of this 
document, gas-fired storage-type instantaneous water heaters were 
analyzed together with gas-fired storage water heaters because of the 
similarity of these types of equipment. Additionally, as discussed in 
section IV.A.2.c of this document, DOE analyzed tankless water heaters 
and circulating water heaters and hot water supply boilers as two 
separate kinds of representative equipment for this rulemaking 
analysis, to reflect the differences between these types of equipment, 
but they are part of the same equipment class (gas-fired instantaneous 
water heaters and hot water supply boilers), and DOE is adopting the 
same

[[Page 69702]]

minimum efficiency requirements for these equipment in this final rule. 
Similarly, DOE notes that storage-type instantaneous water heaters are 
instantaneous water heaters that include a storage tank with a storage 
volume greater than or equal to 10 gallons. Other instantaneous water 
heaters may also have greater than or equal to 10 gallons but if that 
storage volume is included within the heat exchanger itself rather than 
a storage tank, they are not considered storage-type instantaneous 
water heaters.

C. Test Procedure

    EPCA sets forth generally applicable criteria and procedures for 
DOE's adoption and amendment of test procedures. (42 U.S.C. 6314(a)) 
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 test procedures for CWH equipment are specified at 10 
CFR 431.106 and provide mandatory methods for determining the thermal 
efficiency, standby loss, and UEF, as applicable, of CWH equipment.\21\ 
As discussed in the May 2022 CWH ECS NOPR, DOE analyzed standards for 
residential-duty gas-fired storage water heaters in terms of UEF. 
However, on January 11, 2022, DOE published a test procedure NOPR for 
consumer water heaters and residential-duty commercial water heaters. 
87 FR 1554. Subsequently, on July 14, 2022, DOE published a 
supplemental NOPR (``SNOPR'') (``the July 2022 SNOPR'') proposing to 
amend the test procedure for consumer water heaters and residential-
duty commercial water heaters. 87 FR 42270. Finally, on June 21, 2023, 
DOE published the final rule (``the June 2023 TP Final Rule'') amending 
the test procedure for consumer water heaters and residential-duty 
commercial water heaters. 88 FR 40406.
---------------------------------------------------------------------------

    \21\ ``Thermal efficiency'' for an instantaneous water heater, a 
storage water heater or a hot water supply boiler means the ratio of 
the heat transferred to the water flowing through the water heater 
to the amount of energy consumed by the water heater as measured 
during the thermal efficiency test procedure prescribed in this 
subpart. ``Standby loss'' means: (1) For electric commercial water 
heating equipment (not including commercial heat pump water 
heaters), the average hourly energy required to maintain the stored 
water temperature expressed as a percent per hour (%/h) of the heat 
content of the stored water above room temperature and determined in 
accordance with appendix B or D to subpart G of part 431 (as 
applicable), denoted by the term ``S''; or (2) For gas-fired and 
oil-fired commercial water heating equipment, the average hourly 
energy required to maintain the stored water temperature expressed 
in British thermal units per hour (Btu/h) based on a 70 [deg]F 
temperature differential between stored water and ambient room 
temperature and determined in accordance with appendix A or C to 
subpart G of part 431 (as applicable), denoted by the term ``SL.'' 
10 CFR 431.102.
---------------------------------------------------------------------------

    In response to the May 2022 CWH ECS NOPR, DOE received several 
comments relating to the proposed test procedure amendments. A.O. Smith 
stated that they do not anticipate any meaningful impact on future 
energy efficiency ratings for residential-duty commercial water heaters 
resulting from the proposed changes. (A.O. Smith, No. 22 at p. 5) 
However, DOE also received several comments stating that the proposed 
changes could cause impacts to the efficiency ratings of residential-
duty commercial water heaters. In particular, AHRI expressed concern 
about changes to how effective storage volume is calculated, how 
internal tank temperature is determined, the ramifications of 
overheating on ratings, and the definition of demand response. (AHRI, 
No. 31 at p. 3) Bradford White commented that they were still assessing 
the potential impacts of the proposed test procedure amendments but 
noted that a few of the proposed changes could possibly greatly impact 
the efficiency ratings. (Bradford White, No. 23 at p. 7). Rheem 
similarly raised concerns that the test procedure amendments proposed 
in the July 2022 SNOPR could impact efficiency ratings for residential-
duty water heaters, and encouraged DOE to issue the final rule of the 
consumer water heater test procedure at least 180 days prior to the 
issuance of a CWH energy conservation standards rule, as recommended by 
the Process Rule provisions in section (8)(d)(10) of appendix A to 
subpart C of part 430. (Rheem, No. 24 at p. 4) The Joint Gas Commenters 
stated that completing the residential-duty gas storage water heater 
test procedure rulemaking before completing the CWH standards 
rulemaking may be required by the Process Rule. (Joint Gas Commenters, 
No. 34 at p. 37)
    In response, as discussed in the June 2023 TP Final Rule, DOE has 
concluded that the test procedure changes that were adopted in the June 
2023 Final Rule will not alter the UEF ratings of residential-duty 
water heaters. 88 FR 40406, 40412. In addition, DOE notes that it has 
discretion to deviate from the procedures in appendix A in certain 
cases. DOE's rationale for deviating from the 180day requirement in 
appendix A is discussed in section II.C of this document.

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. See generally 10 CFR 431.4; sections 
6(b)(3)(i) and 7(b)(1) of appendix A to 10 CFR part 430 subpart C 
(``Process Rule'').
    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. See 
generally 10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, 
sections 6(c)(3)(ii)-(v) and 7(b)(2)-(5). Section IV.B of this document 
discusses the results of the screening analysis for CWH equipment, 
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 an amended standard for a type or class 
of covered equipment, it determines the maximum improvement in energy 
efficiency or maximum reduction in energy use that is technologically 
feasible for such equipment. Accordingly, in the engineering analysis, 
DOE determined the max-tech improvements in energy efficiency for CWH 
equipment, 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.4 
of this final rule and in chapter 5 of the final rule TSD.

[[Page 69703]]

E. Energy Savings

1. Determination of Savings
    For each TSL, DOE projected energy savings from application of the 
TSL to CWH equipment purchased in the 30-year period that begins in the 
year of compliance with the amended standards (2026-2055 for gas-fired 
CWH equipment).\22\ The savings are measured over the entire lifetime 
of CWH equipment 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.
---------------------------------------------------------------------------

    \22\ DOE also presents a sensitivity analysis that considers 
impacts for equipment 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 CWH equipment. 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 NES 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 because they are supplied to the user without 
transformation from another form of energy.
    DOE also calculates NES in terms of 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.\23\ DOE's approach is based on the calculation 
of an FFC multiplier for each of the energy types used by covered 
equipment.\24\ For more information on FFC energy savings, see section 
IV.H.3 of this document.
---------------------------------------------------------------------------

    \23\ 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).
    \24\ Natural gas and electricity were the energy types analyzed 
in the FFC calculations.
---------------------------------------------------------------------------

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. (See 42 U.S.C. 6313(a)(6)(C)(i); 42 U.S.C. 
6313(a)(6)(A)(ii)(II)) \25\
---------------------------------------------------------------------------

    \25\ In setting a more stringent standard for ASHRAE equipment, 
DOE must have ``clear and convincing evidence'' that doing so 
``would result in significant additional conservation of energy'' in 
addition to being technologically feasible and economically 
justified. 42 U.S.C. 6313(a)(6)(A)(ii)(II). This language indicates 
that Congress had intended for DOE to ensure that, in addition to 
the savings from the ASHRAE standards, DOE's standards would yield 
additional energy savings that are significant. In DOE's view, this 
statutory provision shares the requirement with the statutory 
provision applicable to covered products and non-ASHRAE equipment 
that ``significant conservation of energy'' must be present (42 
U.S.C. 6295(o)(3)(B))--and supported with ``clear and convincing 
evidence''--to permit DOE to set a more stringent requirement than 
ASHRAE.
---------------------------------------------------------------------------

    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.\26\ For 
example, some covered products and equipment have most of their energy 
consumption occur during periods of peak energy demand. The impacts of 
this equipment on the energy infrastructure can be more pronounced than 
equipment 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.
---------------------------------------------------------------------------

    \26\ The numeric threshold for determining the significance of 
energy savings established in a final rule published on February 14, 
2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule 
published on December 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------

    As stated, the standard levels adopted in this final rule are 
projected to result in national energy savings of 0.70 quads. Based on 
the amount of FFC savings, the corresponding reduction in emissions, 
and need to confront the global climate crisis, DOE has determined 
(based on the methodology described in section IV.E of this document 
and the analytical results presented in section V.B.3.a of this 
document) that there is clear and convincing evidence that the energy 
savings from the standard levels adopted in this final rule are 
``significant'' within the meaning of 42 U.S.C. 6313(a)(6)(A)(ii)(II).

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. 6313(a)(6)(B)(ii)(I)-(VII) and 
(C)(i)) The following sections discuss how DOE has addressed each of 
those seven factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
    EPCA requires DOE to consider the economic impact of a standard on 
manufacturers and the consumers of the products subject to the 
standard. (42 U.S.C. 6313(a)(6)(B)(I) and (C)(i)) In determining the 
impacts of potential amended standards on manufacturers, DOE conducts 
an MIA, as discussed in section IV.J of this document. For the MIA, 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 (manufacturer subgroups), 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 NPV of the economic 
impacts applicable to a particular rulemaking. DOE also evaluates the 
impacts of potential standards on identifiable subgroups of consumers 
that may be affected disproportionately by a national 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 CWH equipment 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

[[Page 69704]]

standard. (42 U.S.C. 6313(a)(6)(B)(ii)(II); 42 U.S.C. 6313(a)(6)(C)(i)) 
DOE conducts this comparison in its LCC and PBP analysis.
    The LCC is the sum of the purchase price of a piece of equipment 
(including its installation and sales tax) and the operating expense 
(including energy, maintenance, and repair expenditures) discounted 
over the lifetime of the equipment. 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 equipment lifetime and discount 
rate, DOE uses a distribution of values, with probabilities attached to 
each value. For its analysis, DOE assumes that consumers will purchase 
the covered equipment in the first full year of compliance with amended 
standards.
    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.
    The LCC savings for the considered efficiency levels are calculated 
relative to the no-new-standards case that reflects projected market 
trends in the absence of new or amended standards. DOE identifies the 
percentage of consumers estimated to receive LCC savings or experience 
an LCC increase, in addition to the average LCC savings associated with 
a particular standard level. DOE's LCC and PBP analysis is discussed in 
further detail in section IV.F 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. 6313(a)(6)(B)(ii)(III)) As 
discussed in section IV.H of this document and chapter 10 of the final 
rule TSD, DOE uses the NIA spreadsheet models to project national 
energy savings.
d. Lessening of Utility or Performance of Products
    In establishing classes of equipment, and in evaluating design 
options and the impact of potential standard levels, DOE must consider 
any lessening of the utility or performance of the considered equipment 
likely to result from the standard. (42 U.S.C. 6313(a)(6)(B)(ii)(IV)) 
Based on data available to DOE, the standards in this document would 
not reduce the utility or performance of the products under 
consideration in this rulemaking. As discussed in section IV.A.2.b of 
this document, DOE considered whether different venting technologies 
should be considered a necessary feature.
    Although the standards in this final rule would effectively 
eliminate non-condensing technology (and associated venting), DOE has 
recently published a final interpretive rule that returns to the 
previous and long-standing interpretation (in effect prior to the 
January 15, 2021 final interpretive rule), under which the technology 
used to supply heated air or hot water is not a performance-related 
``feature'' that provides a distinct utility under EPCA. 86 FR 73947 
(Dec. 29, 2021). Therefore, for the purpose of the analysis conducted 
for this rulemaking, DOE has determined that it is not prohibited from 
setting energy conservation standards that preclude non-condensing 
technology and did not analyze separate equipment classes for non-
condensing and condensing CWH equipment in this final rule. A more 
detailed explanation of DOE's determination may be found in section 
IV.A.2 of this document.
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. (See 42 U.S.C. 6313(a)(6)(B)(ii)(V)) 
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 CWH equipment are unlikely to have a significant adverse 
impact on competition. DOE is publishing the Attorney General's 
assessment at the end of this final rule.
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. 6313(a)(6)(B)(ii)(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. As part of the analysis of the need for national 
energy and water conservation, 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.\27\ DOE also 
estimates the economic value of emissions reductions resulting from the 
considered TSLs, as discussed in section IV.L of this document. DOE 
emphasizes that the SC-GHG analysis presented in this final rule and 
TSD was performed in support of the cost-benefit analyses required by 
Executive Order (``E.O.'') 12866, and is provided to inform the public 
of the impacts of emissions reductions resulting from this rule. The 
SC-GHG estimates were not factored into DOE's EPCA analysis of the need 
for national energy and water conservation.
---------------------------------------------------------------------------

    \27\ As discussed in section IV.L of this document, for the 
purpose of complying with the requirements of E.O. 12866, DOE also 
estimates the economic value of emissions reductions resulting from 
the considered TSLs. DOE calculates this estimate using a measure of 
the social cost (``SC'') of each pollutant (e.g., SC-
CO2). Although this estimate is calculated for the 
purpose of complying with E.O. 12866, the Seventh Circuit Court of 
Appeals confirmed in 2016 that DOE's consideration of the social 
cost of carbon in energy conservation standards rulemakings is 
permissible under EPCA. Zero Zone v. Dept of Energy, 832 F.3d 654, 
678 (7th Cir. 2016).

---------------------------------------------------------------------------

[[Page 69705]]

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. 6313(a)(6)(B)(ii)(VII) and 
(C)(i)) DOE did not consider other factors for this document.
2. Rebuttable Presumption
    EPCA creates a rebuttable presumption that an energy conservation 
standard is economically justified if the additional cost to the 
consumer of a product that meets the standard is less than three times 
the value of the first year's energy savings resulting from the 
standard, as calculated under the applicable DOE test procedure. DOE's 
LCC and PBP analyses generate values used to calculate the effects that 
potential amended energy conservation standards would have on the PBP 
for consumers. These analyses include, but are not limited to, the 3-
year PBP 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. 
6313(a)(6)(B)(ii) and 42 U.S.C. 6313(a)(6)(C)(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 V.B.1.c of this document.

G. Revisions to Notes in Regulatory Text

    In the May 2022 CWH ECS NOPR, DOE proposed to modify the three 
notes to the table of energy conservation standards in 10 CFR 431.110. 
87 FR 30610, 30626-30627. First, DOE proposed to modify the note to the 
table of energy conservation standards denoted by subscript ``a'' to 
replace the term ``nameplate input rate'' with the term ``rated 
input.'' DOE noted that this change ensures consistency in nomenclature 
throughout DOE's regulations for CWH equipment. Id.
    DOE also proposed in the May 2022 CWH ECS NOPR to remove the note 
to the table of energy conservation standards denoted by subscript 
``b.'' This note clarifies the compliance date for energy conservation 
standards for hot water supply boilers with capacity less than 10 
gallons. However, the note is no longer needed because the specific 
compliance date for hot water supply boilers with less than 10 gallons 
of storage is well in the past, with all such equipment being required 
to meet the standards in the table in 10 CFR 431.110 since October 21, 
2005. Id.
    In the May 2022 CWH ECS NOPR, DOE also proposed to modify the note 
to the table of energy conservation standards denoted by subscript 
``c,'' which establishes design requirements for water heaters and hot 
water supply boilers having more than 140 gallons of storage capacity 
that do not meet the standby loss standard. DOE proposed to replace the 
phrase ``fire damper'' with the phrase ``flue damper,'' because ``flue 
damper'' was more consistent with commonly used terminology and likely 
the intended meaning, and that ``fire damper'' was a typographical 
error. 87 FR 30610, 30626-30627. This revised footnote, new footnote b 
on Table 1 to 10 CFR 431.110(a), was inadvertently omitted in the May 
2022 CWH ECS NOPR. DOE did not intend to remove this footnote and is 
retaining that footnote in this final rule.
    Finally, in the May 2022 CWH ECS NOPR, DOE proposed to add a 
footnote to Table 1 at 10 CFR 431.110(a) (new footnote c) to clarify 
that the compliance date for energy conservation standards for electric 
instantaneous water heaters is January 1, 1994. 87 FR 30610, 306728. As 
discussed in section III.B.3 of this document, DOE is codifying 
standards for electric instantaneous water heaters that were originally 
set by EPCA but were inadvertently omitted in DOE's regulations at 10 
CFR 431.110.
    In response to the May 2022 CWH ECS NOPR, Bradford White stated 
that they support DOE's decision not to change the requirements for a 
model's rated input. (Bradford White, No. 23 at p. 8) WM Technologies 
and Patterson-Kelley also indicated support for using the term ``rated 
input'', as long as the method to determine this value is unchanged. 
They also encouraged DOE to maintain the ``b'' and ``c'' subscripts for 
posterity to maintain chronological information. (WM Technologies, No. 
25 at p. 7; Patterson-Kelley No. 26 at p. 5) In response, DOE notes 
that the Electronic Code of Federal Regulations (eCFR) \28\ allows 
users to access historical versions of the CFR by using the 
``Timeline'' or ``Go to Date'' functions when viewing a page of the 
CFR. Therefore, because chronological information about changes to the 
CFR remain available to the public, DOE does not consider it necessary 
to retain these notes in the current version of the CFR.
---------------------------------------------------------------------------

    \28\ The eCFR is available at ecfr.gov.
---------------------------------------------------------------------------

    In footnote b(1), DOE is amending the text to refer to the existing 
definition of R-value in Sec.  431.102, rather than refer directly to 
industry standards in this note. This does not change the standards 
regarding standby loss, or the thermal insulation requirement as 
detailed in this note, but improves consistency and prevents future 
discrepancies between Sec.  431.102 and Sec.  431.110. DOE is adopting 
the changes to notes ``b'' and ``c'' as proposed in the May 2022 CWH 
ECS NOPR, with this editorial revision.

H. Certification, Compliance, and Enforcement Issues

    In the withdrawn May 2016 CWH ECS NOPR, DOE proposed to add 
requirements to its certification, compliance, and enforcement 
regulations at 10 CFR 429.44 that the rated value of storage volume 
must equal the mean of the measured storage volume of the units in the 
sample. 81 FR 34440, 34458 (May 31, 2016). Additionally, in the 
withdrawn May 2016 CWH ECS NOPR, DOE proposed changes to the equations 
for maximum standby losses that would be consistent with the proposed 
changes to DOE's certification, compliance, and enforcement 
regulations. 81 FR 34440, 34458-34459. In the May 2022 CWH ECS NOPR, 
DOE explained that after considering comments from stakeholders related 
to this topic, it decided not to propose changes to the requirements 
regarding certification of storage volume or the related changes to the 
equations for maximum standby loss. 87 FR 30610, 30628.
    Bock and Bradford White indicated support for DOE's proposal not to 
change the requirements regarding certification of storage volume for 
storage-type water heaters. (Bock, No. 20 at p. 1; Bradford White, No. 
23 at p. 8) After considering the comments, DOE is not adopting any 
changes to the requirements regarding certification of storage volume 
in this final rule.
    Additionally, in response to the May 2022 CWH ECS NOPR, Rheem 
recommended that the certification criteria at 10 CFR 429.44(c)(2) be 
amended to require manufacturers to state whether a basic model is a 
``storage-type instantaneous water heater.'' Rheem also recommended 
that DOE should publish an example certification template. (Rheem, No. 
24 at p. 3) In response, DOE notes that manufacturers of commercial 
gas-fired and oil-fired instantaneous water heaters and hot water 
supply boilers with storage capacity greater than or equal to 10 
gallons are already required to certify whether the water heater

[[Page 69706]]

includes a storage tank with a storage volume greater than or equal to 
10 gallons. 10 CFR 429.44(c)(2)(iv). Such units that include a storage 
tank with a storage volume greater than or equal to 10 gallons would 
meet DOE's definition of storage-type water heaters as set out at 10 
CFR 431.102.
    Lastly, in the May 2022 CWH ECS NOPR, DOE stated that it was not 
proposing to establish equipment-specific certification requirements 
for electric instantaneous water heaters, but may propose to establish 
certification requirements for electric instantaneous water heaters in 
future rulemakings. 87 FR 30610, 30628. DOE did not receive any 
comments related to this topic and is not establishing certification 
requirements specific to electric instantaneous water heaters in this 
final rule.

IV. Methodology and Discussion of Related Comments

    This section addresses the analyses DOE has performed for this 
rulemaking with regard to CWH equipment. Separate subsections address 
each component of DOE's analyses.
    In overview, 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 NIA uses a second 
spreadsheet set that provides shipments forecasts and calculates NES 
and NPV resulting from potential new or amended energy conservation 
standards.\29\ These spreadsheet tools are available on the DOE website 
for this rulemaking: www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. 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.
---------------------------------------------------------------------------

    \29\ DOE uses a third spreadsheet tool, the Government 
Regulatory Impact Model (``GRIM''), to assess the financial impacts 
of potential new or amended standards on manufacturers.
---------------------------------------------------------------------------

A. Market and Technology Assessment

    For the market and technology assessment for CWH equipment, DOE 
gathered information in the market and technology assessment that 
provides an overall picture of the market for the equipment concerned, 
including the purpose of the equipment, the industry structure, 
manufacturers, market characteristics, and technologies used in the 
equipment. 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 the following: (1) a determination of the scope of 
the rulemaking and equipment classes, (2) manufacturers and industry 
structure, (3) types and quantities of CWH equipment sold, (4) existing 
efficiency programs, and (5) technologies that could improve the energy 
efficiency of CWH equipment. 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. Definitions
    EPCA includes the following categories of CWH equipment as covered 
industrial equipment: storage water heaters, instantaneous water 
heaters, and unfired hot water storage tanks. EPCA defines a ``storage 
water heater'' as a water heater that heats and stores water internally 
at a thermostatically-controlled temperature for use on demand. This 
term does not include units that heat with an input rating of 4,000 Btu 
per hour or more per gallon of stored water. EPCA defines an 
``instantaneous water heater'' as a water heater that heats with an 
input rating of at least 4,000 Btu per hour per gallon of stored water. 
Lastly, EPCA defines an ``unfired hot water storage tank'' as a tank 
that is used to store water that is heated external to the tank. (42 
U.S.C. 6311(12)(A)-(C))
    DOE first codified the following more specific definitions for CWH 
equipment at 10 CFR 431.102 in the October 2004 direct final rule. 69 
FR 61974, 61983. Several of these definitions were subsequently amended 
in the November 2016 CWH TP final rule. 81 FR 79261, 79287-79288 (Nov. 
10, 2016).
    Specifically, DOE now defines ``hot water supply boiler'' in 10 CFR 
431.102 as a packaged boiler that is industrial equipment and that (1) 
has an input rating from 300,000 Btu/h to 12,500,000 Btu/h and of at 
least 4,000 Btu/h per gallon of stored water; (2) is suitable for 
heating potable water; and (3) meets either or both of the following 
conditions: (i) it has the temperature and pressure controls necessary 
for heating potable water for purposes other than space heating; or 
(ii) the manufacturer's product literature, product markings, product 
marketing, or product installation and operation instructions indicate 
that the boiler's intended uses include heating potable water for 
purposes other than space heating.
    DOE also defines an ``instantaneous water heater'' in 10 CFR 
431.102 as a water heater that uses gas, oil, or electricity, 
including: (1) gas-fired instantaneous water heaters with a rated input 
both greater than 200,000 Btu/h and not less than 4,000 Btu/h per 
gallon of stored water; (2) oil-fired instantaneous water heaters with 
a rated input both greater than 210,000 Btu/h and not less than 4,000 
Btu/h per gallon of stored water; and (3) electric instantaneous water 
heaters with a rated input both greater than 12 kW and not less than 
4,000 Btu/h per gallon of stored water.
    DOE defines a ``storage water heater'' in 10 CFR 431.102 as a water 
heater that uses gas, oil, or electricity to heat and store water 
within the appliance at a thermostatically-controlled temperature for 
delivery on demand including: (1) gas-fired storage water heaters with 
a rated input both greater than 75,000 Btu/h and less than 4,000 Btu/h 
per gallon of stored water; (2) oil-fired storage water heaters with a 
rated input both greater than 105,000 Btu/h and less than 4,000 Btu/h 
per gallon of stored water; and (3) electric storage water heaters with 
a rated input both greater than 12 kW and less than 4,000 Btu/h per 
gallon of stored water.
    Lastly, DOE defines an ``unfired hot water storage tank'' in 10 CFR 
431.102 as a tank used to store water that is heated externally, and 
that is industrial equipment.
    Relating to these definitions, Rheem recommended that the 
definition of ``storage-type instantaneous water heater'' at 10 CFR 
431.102 should be based on ``rated storage volume'' and that the 
certification criteria at 10 CFR 429.44 be amended to be based on 
``measured storage volume.'' (Rheem, No. 24 at p. 3) DOE agrees that 
basing the categorizations of storage-type instantaneous water heaters 
based on the rated storage volume is consistent with the criteria DOE 
uses to identify such equipment. Therefore, DOE is amending the 
definition of ``storage-type instantaneous water heater'' at 10 CFR 
431.102 to clarify that the storage volume refers to the rated storage 
volume. However, as discussed in section III.H of this document, DOE 
has decided not to amend its requirements regarding certification of 
storage volume of commercial water heaters (including storage-type 
instantaneous water heaters) in this final rule. Rheem also suggested 
that DOE's requirements for non-storage-type commercial gas-fired 
instantaneous water heaters at 10 CFR 429.44(C)(2)(iv) be changed so 
that manufacturers are required to state whether a calculation-based 
method

[[Page 69707]]

was used to determine the ``rated storage volume'' instead of the 
``measured storage volume.'' (Rheem, No. 24 at p. 3) Consistent with 
its decision not to address certification requirements in this final 
rule, DOE is not making such clarification in this final rule. However, 
DOE may consider a clarification to this certification language in a 
separate rulemaking.
2. Equipment Classes
    When evaluating and establishing energy conservation standards, DOE 
divides covered equipment into equipment classes by the type of energy 
used. DOE will also establish separate equipment classes if a group of 
equipment has a capacity or other performance-related feature that 
other equipment within such type do not have and such feature justifies 
a different standard. (42 U.S.C. 6295(q); 42 U.S.C. 6316(a)) In 
determining whether a performance-related feature justifies a different 
standard, DOE considers such factors as the utility to the consumers of 
the feature and other factors DOE determines are appropriate.
    CWH equipment classes are divided based on the energy source, 
equipment category (i.e., storage vs. instantaneous and hot water 
supply boilers), and size (i.e., input capacity and rated storage 
volume). Unfired hot water storage tanks are also included as a 
separate equipment class, but as discussed in section III.B.2 of this 
rulemaking, were considered as part of a separate proceeding and 
therefore were not analyzed for this final rule. Table IV.1 shows the 
current equipment classes and energy conservation standards for CWH 
equipment other than residential-duty commercial water heaters, and 
Table IV.2 shows DOE's current equipment classes and energy 
conservation standards for residential-duty commercial water 
heaters.\30\
---------------------------------------------------------------------------

    \30\ Consumer water heaters are separately covered products that 
are distributed in commerce for personal use or consumption by 
individuals, as opposed to commercial applications. These products 
generally have lower input ratings than commercial water heaters. 
Energy conservation standards for consumer water heaters can be 
found at 10 CFR 430.32(d), and the test procedure for these products 
can be found at appendix E to subpart B of 10 CFR part 430. 
Residential-duty commercial water heaters are commercial water 
heater that meet additional criteria, including using only single-
phase electrical power (if they use electricity) and not being 
designed to heat water at temperatures greater than 180 [deg]F, as 
discussed in the footnotes to Table IV.2 of this document.

Table IV.1--Current Equipment Classes and Energy Conservation Standards for CWH Equipment Except for Residential-
                                          Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                           Energy conservation standards *
                                                                   ---------------------------------------------
                                                                     Minimum thermal
                                                                        efficiency
            Equipment class                         Size                (equipment        Maximum standby loss
                                                                     manufactured on    (equipment manufactured
                                                                    and after October   on and after October 29,
                                                                      9, 2015)** ***        2003)** [Dagger]
                                                                           (%)
----------------------------------------------------------------------------------------------------------------
Electric storage water heaters.........  All......................                N/A  0.30 + 27/Vm (%/h).
Gas-fired storage water heaters........  <=155,000 Btu/h..........                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                         >155,000 Btu/h...........                 80   h).
                                                                                       Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired storage water heaters........  <=155,000 Btu/h..........             *** 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                         >155,000 Btu/h...........             *** 80   h).
                                                                                       Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Electric instantaneous water heaters     <10 gal..................                 80  N/A.
 [Dagger].                               >=10 gal.................                 77  2.30 + 67/Vm (%/h).
Gas-fired instantaneous water heaters    <10 gal..................                 80  N/A.
 and hot water supply boilers.           >=10 gal.................                 80  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
Oil-fired instantaneous water heater     <10 gal..................                 80  N/A.
 and hot water supply boilers.           >=10 gal.................                 78  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
----------------------------------------------------------------------------------------------------------------
                                                  Minimum thermal insulation.
----------------------------------------------------------------------------------------------------------------
Unfired hot water storage tank.........  All......................                     R-12.5.
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.
** For hot water supply boilers with a capacity of less than 10 gallons: (1) the standards are mandatory for
  products manufactured on and after October 21, 2005 and (2) products manufactured prior to that date, and on
  or after October 23, 2003, must meet either the standards listed in this table or the applicable standards in
  subpart E of part 431 for a ``commercial packaged boiler.''
*** For oil-fired storage water heaters: (1) the standards are mandatory for equipment manufactured on and after
  October 9, 2015 and (2) equipment manufactured prior to that date must meet a minimum thermal efficiency level
  of 78 percent.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. In this
  rule, DOE codifies these standards for electric instantaneous water heaters in its regulations at 10 CFR
  431.110. Further discussion of standards for electric instantaneous water heaters is included in section
  III.B.3 of this document.


[[Page 69708]]


  Table IV.2--Current Equipment Classes and Energy Conservation Standards for Residential-Duty Commercial Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
              Equipment                    Specification *          Draw pattern **       Uniform energy factor
----------------------------------------------------------------------------------------------------------------
Gas-fired storage....................  >75 kBtu/h and.........  Very Small.............  0.2674 - (0.0009 x Vr).
                                       <=105 kBtu/h and.......  Low....................  0.5362 - (0.0012 x Vr).
                                       <=120 gal and..........  Medium.................  0.6002 - (0.0011 x Vr).
                                       <=180 [deg]F...........  High...................  0.6597 - (0.0009 x Vr).
Oil-fired storage....................  >105 kBtu/h and........  Very Small.............  0.2932 - (0.0015 x Vr).
                                       <=140 kBtu/h and.......  Low....................  0.5596 - (0.0018 x Vr).
                                       <=120 gal and..........  Medium.................  0.6194 - (0.0016 x Vr).
                                       <=180 [deg]F...........  High...................  0.6740 - (0.0013 x Vr).
Electric instantaneous...............  >12 kW and.............  Very Small.............  0.80
                                       <=58.6 kW and..........  Low....................  0.80
                                       <=2 gal and............  Medium.................  0.80
                                       <=180 [deg]F...........  High...................  0.80.
----------------------------------------------------------------------------------------------------------------
* To be classified as a residential-duty water heater, a commercial water heater must, if requiring electricity,
  use single-phase external power supply; and not be designed to heat water at temperatures greater than 180
  [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.

    The following subsections include further discussion of comments 
received on equipment classes and DOE's approach to equipment classes 
for this final rule.
a. Storage-Type Instantaneous Water Heaters
    Based on a review of equipment on the market, DOE has found that 
gas-fired storage-type instantaneous water heaters are very similar to 
gas-fired storage water heaters, but with a higher ratio of input 
rating to tank volume. This higher input-volume ratio is achieved with 
a relatively larger heat exchanger paired with a relatively smaller 
tank. Increasing either the input capacity or storage volume increases 
the hot water delivery capacity of the water heater. However, through a 
review of product literature, DOE did not identify any significant 
design differences that would warrant different energy conservation 
standard levels (for either thermal efficiency or standby loss) between 
models in these two equipment classes. Therefore, DOE grouped the two 
equipment classes together in the May 2022 CWH ECS NOPR analyses and 
proposed the same standard levels for each equipment class. 87 FR 
30610, 30631-30632.
    Barton Day Law questioned whether gas-fired storage water heaters 
and storage-type instantaneous water heaters can be categorized as the 
same product within the analysis, and whether the same numbers can be 
used to represent both product types. (Barton Day Law, Public Meeting 
Transcript No. 13 at p. 23) However, Barton Day Law did not provide any 
specific reasons that these products are functionally different. In 
contrast, the Joint Advocates agreed with DOE's methodology for 
analyzing equipment types and stated that it was appropriate to analyze 
commercial gas-fired storage and storage-type instantaneous water 
heaters together due to the commonalities in design and shared 
features. (The Joint Advocates, No. 29 at pp. 1, 2)
    As noted, DOE has found that gas-fired storage-type instantaneous 
water heaters have a higher ratio of input rating to tank volume than 
gas-fired storage water heaters (i.e., the ratio exceeds the 4,000 Btu/
h per gallon of stored water threshold included in the definition of 
instantaneous water heaters at 10 CFR 431.102). However, through a 
review of product literature, neither DOE nor any commenters identified 
any significant design differences that would warrant different energy 
conservation standard levels (for either thermal efficiency or standby 
loss) between models in these two equipment classes. Therefore, DOE 
continued to group the two equipment classes together in this final 
rule.
    The standard levels considered in this document reflect the 
similarity of these types of equipment, with the same standard levels 
considered for both storage water heaters and storage-type 
instantaneous water heaters.
b. Venting for Gas-Fired Water Heating Equipment
    In response to the May 2022 CWH ECS NOPR, Patterson-Kelley and WM 
Technologies stated that increasing efficiencies beyond the 
capabilities of Category I Venting as defined in the National Fuel Gas 
Code NFPA 54 will result in the unavailability of products that use 
category I venting. (Patterson-Kelley, No. 26 at pp. 1-2; WM 
Technologies, No. 25 at p. 2) Patterson-Kelley explained that 
converting to Category I appliances may be costly and application 
prohibitive in establishments in densely populated areas. (Patterson-
Kelley, No. 26 at p. 2) The Joint Gas Commenters stated that DOE's 
treatment of venting issues raised by condensing-level standards is 
unreasonable and contrary to law. Specifically, the Joint Gas 
Commenters described that the imposition of standards that non-
condensing products cannot achieve would raise significant practical, 
economic, and legal issues. Cumulatively, they said, inaccurate 
assumptions undermine the May 2022 CWH ECS NOPR's economic evaluation 
and its estimate of the market impacts of the proposed standards. (The 
Joint Gas Commenters, No. 34 at p. 3)
    Similarly, the Joint Gas Commenters argued that venting type is 
indeed a performance feature and pointed to the January 2021 Final Rule 
for Residential Furnaces and Commercial Water Heaters that agreed with 
this logic but has since been withdrawn. (Joint Gas Commenters, No. 34 
at p. 10) Patterson-Kelley and WM Technologies agreed and commented 
that they maintain the same justification per 42 U.S.C. 6295(q)(l) 
documented in the Final Interpretive Rule provided in 86 FR 4776 
applies to fuel-fired commercial water heaters. As such, Patterson-
Kelley and WM Technologies also continue to support DOE's January 2021 
acceptance of the Gas Industry Petition to recognize non-condensing as 
a product feature per EPCA. (WM Technologies, No. 25 at p. 2; 
Patterson-Kelly, No. 26 at pp. 1-2) WM Technologies believes that 42 
U.S.C. 6313(a)(6)(B)(II)(aa) prohibits the elimination of non-
condensing water heaters. (WM Technologies, No. 25 at p.

[[Page 69709]]

1) The Joint Gas Commenters further claimed that DOE should recognize 
the compatibility of a product with the existing atmospheric venting 
systems is a performance-related feature that would require separate 
standards for condensing and non-condensing products if standards 
specific to condensing products are justified. (The Joint Gas 
Commenters, No. 34 at p. 11) They explained that DOE is precluded by 
EPCA from amending standards in such a way that renders existing 
venting systems unusable by eliminating products consistent with the 
venting type. (Joint Gas Commenters, No. 34 at p. 10) The Joint Gas 
Commenters stated that Congress understood that buildings are designed 
to accommodate standard installations and sought to ensure that 
standards would not deprive consumers of the utility and convenience of 
products that can be installed without the need to modify the existing 
buildings to accommodate them. Id. The Joint Gas Commenters drew 
parallels between the question of vent-type consistency and other 
instances in which DOE avoided setting standards that would make it 
impossible for consumers to install a space constrained product. Id. 
The Joint Gas Commenters requested that any final rule in this 
proceeding include a written finding that interested persons have 
established by a preponderance of the evidence that the proposed 
standards are likely to result in the unavailability in the United 
States of commercial water heaters with ``performance characteristics 
(including reliability, features, sizes, capacities, and volumes) that 
are substantially the same as those generally available in the United 
States'' on the date any such rule issues. (Joint Gas Commenters, No. 
34 at p. 11)
    PHCC similarly noted that they have on prior occasion expressed 
concern for the elimination of non-condensing technology for commercial 
gas fire water heaters. They believe that there are numerous parts of 
the May 2022 CWH ECS NOPR that are overly optimistic, do not reflect 
current market conditions, make inaccurate assumptions, and minimize 
installation issues for condensing type products. (PHCC, No. 28 at p. 
1)
    Patterson-Kelley stated that hybridization of standard efficiency 
and high efficiency products would be a low-cost migration to the 
efficiencies the DOE is looking for, while mitigating the cost of full 
conversions of the system. They noted that this would also allow for 
proper analysis of the correctly sized equipment for the space 
commercially and would further increase the system level efficiency, 
which is the ultimate goal. (Patterson-Kelley, No. 26 at p. 2) 
Addressing many of the same concepts as the Joint Gas Commenters, the 
CA IOUs instead expressed support for DOE's arguments; they agreed with 
analyzing both venting and condensing gas water heaters together, and 
with DOE's withdrawal of the Condensing Products Interpretive Rule. The 
commenters added that their commissioned research with other utility 
partners shows it is always possible to retrofit a non-condensing gas 
water heater with a condensing product. (CA IOUs, No. 33 at p. 5) The 
CEC also indicated support for DOE's analysis, noting that DOE's 
application of its rule interpreting EPCA's ``features provision'' is 
lawful. (CEC, No. 27 at p. 3)
    Under EPCA, DOE may not prescribe an amended standard if interested 
persons have established by a preponderance of the evidence that a 
standard is likely to result in the unavailability in the United States 
in any product type (or class) of performance characteristics 
(including reliability, features, sizes, capacities, and volumes) that 
are substantially the same as those generally available in the United 
States. (42 U.S.C. 6313(a)(6)(B)(iii)(II)). Commenters have not 
provided, and DOE has not found, any evidence that eliminating CHWs 
that use category I venting would result in the unavailability of CWH 
models of substantially the same reliability, sizes, capacities, or 
volumes as those generally available in the current market. As 
demonstrated in chapter 3 of the TSD accompanying this final rule, 
condensing-level CWH equipment is generally available in the same 
capacities and volumes as noncondensing CWH equipment. With respect to 
reliability, all available data that DOE has reviewed suggest that the 
lifetimes of condensing CWH equipment are substantially the same as 
noncondensing CWH equipment. DOE notes that it does have, and has 
incorporated, data regarding increased repair costs for individual 
component failures that may occur in higher-efficiency condensing 
equipment, as discussed in section IV.F.5.b of this document.\31\ 
However, the increased repair costs are largely related to the 
increased component cost and even in the case of heat exchangers where 
DOE cites a higher failure rate, such does not translate directly to 
decreased product life. Moreover, DOE has not found a decrease in 
product performance over the life of condensing models dissimilar from 
what would be expected in noncondensing CWH equipment. As discussed in 
IV.F.6 of this document, DOE has found that, within each equipment 
class, the average lifetime of all equipment covered by this rulemaking 
is the same for all thermal efficiency levels, from baseline through 
max-tech. Thus, DOE believes the reliability of condensing and 
noncondensing CWH equipment, in terms of equipment performance and 
ability to serve the hot water loads and in terms of overall lifetime, 
is substantially the same, and that there are no known reliability 
concerns endemic to condensing technology.
---------------------------------------------------------------------------

    \31\ Repair costs are based on annual failure rates of 
combustion systems and controls. Increased repair costs reflect 
increased costs for combustion systems and controls found in high 
efficiency CWH equipment, as well as increased frequency of repair 
for high efficiency controls. Heat exchanger replacement was also 
considered for commercial gas-fired instantaneous circulating water 
heaters and hot water supply boilers.
---------------------------------------------------------------------------

    With respect to commenters' statements that category I venting 
itself is a performance characteristic that DOE's standards cannot make 
unavailable, DOE first notes that venting, like a gas burner or heat 
exchanger, is one of the basic components found in every gas-fired 
water heater (condensing or noncondensing). As such, assuming venting 
is a performance characteristic, a standard would have to eliminate all 
vented gas-fired water heaters on the market--i.e., both condensing and 
non-condensing models--to run afoul of the unavailability provision in 
EPCA. Thus, in order to meet the unavailability requirements in 42 
U.S.C. 6313(a)(6)(B)(iii)(II), Joint Gas Commenters and others are 
requesting DOE determine that a specific type of venting is a 
performance characteristic.
    In response, DOE first notes that almost every component of a 
covered product or equipment could be broken down further by any of a 
number of factors. For example, heat exchangers, which are used in a 
variety of covered equipment and products, could be divided further by 
geometry or material; refrigerator compressors could be further divided 
by single-speed or variable-speed, and air-conditioning refrigerants 
could be further divided by global warming potential. As a general 
matter, energy conservation standards save energy by removing the 
least-efficient technologies and designs from the market. For example, 
DOE set energy conservation standards for furnace fans at a level that 
effectively eliminated permanent split capacitor (PSC) motors from 
several product classes, but which could be met by brushless permanent 
magnet (BPM) motors, which are more efficient. 79 FR

[[Page 69710]]

38130 (July 3, 2014). As another example, DOE set energy conservation 
standards for microwave oven standby mode and off mode at a level that 
effectively eliminated the use of linear power supplies, but which 
could be met by switch-mode power supplies, which exhibit significantly 
lower standby mode and off mode power consumption. 78 FR 36316 (June 
17, 2013). The energy-saving purposes of EPCA would be completely 
frustrated if DOE were required to set standards that maintain less-
efficient covered products and equipment in the market based simply on 
the fact that they use a specific type of (less efficient) heat 
exchanger, motor, power supply, etc.
    As discussed in the December 2021 final interpretive rule, DOE 
believes that a consumer would be aware of performance-related features 
of a covered product or equipment and would recognize such features as 
providing additional benefits during operation of the covered product 
or equipment. 86 FR 73955. Using the previous example of furnace fan 
motors, if an interested person had wanted to preserve furnace fans 
with PSC motors in the market, they would have had to show that furnace 
fans with PSC motors offered some additional benefit during operation 
as compared to furnace fans with BPM motors. Refrigerator-freezers, on 
the other hand, are an example of where DOE determined that a specific 
type of performance-related feature offered additional benefit during 
operation. Some refrigerator-freezers have automatic icemakers. 
Additionally, some automatic icemakers offer through-the-door ice 
service, which provides consumers with an additional benefit during 
operation. As such, DOE further divided refrigerator-freezers into 
product classes based on the specific type of automatic icemaker (i.e., 
whether the automatic icemaker offers through-the-door ice service). 
See 10 CFR 430.32(a).
    Joint Gas Commenters and others have not pointed to any additional 
benefits during operation offered by CWHs that use Category I venting 
as compared to CWHs that use other types of venting. Instead, these 
commenters cite the January 2021 final interpretive rule and economic 
considerations as reasons why Category I venting should be considered a 
performance characteristic for the purposes of EPCA's unavailability 
provision. With regards to the January 2021 final rule, DOE cited the 
potential for increased fuel switching and the potential need for 
significant modifications during installation as support for revising 
the Department's long-standing interpretation that Category 1 venting 
is not a performance-related feature. 86 FR 4816. DOE's response to 
these issues remains largely the same from the December 2021 final 
interpretive rule. First, as explained in the December 2021 final 
interpretive rule, the potential for increased fuel switching is simply 
not a performance characteristic that could serve as the basis for an 
unavailability finding under EPCA.
    Second, with regards to the potential need for significant 
modifications during installation, this argument overlaps with other 
comments focused on the economic impacts of installation scenarios 
where existing Category I venting systems need to be replaced with a 
venting system suitable for a condensing CWH. DOE acknowledges that a 
condensing water heater may not be operated if installed with a non-
condensing venting system, and that potentially complex replacement or 
modification of these venting systems will typically be required at a 
cost (as discussed in more detail in sections IV.F.2.c and IV.F.2.d. of 
this document). However, while using existing venting can reduce 
installation costs, it does not provide the consumer with any 
additional benefits during operation. Further, EPCA specifically 
directs DOE to consider installation and operating costs as part of the 
Department's determination of economic justification (see 42 U.S.C. 
6313(a)(6)(B)(ii)(II)). As a result, there is a clear distinction in 
EPCA between the purposes of the unavailability provision in 42 U.S.C. 
6313(a)(6)(B)(iii)(II)--to preserve performance-related features in the 
market--and the economic justification requirement in 42 U.S.C. 
6313(a)(6)(B)(ii)--to determine whether the benefits (e.g., reduced 
fuel costs for an appliance) of a proposed standard exceed the burdens 
(e.g., increased installed cost). Thus, the appropriate analysis to 
determine whether less-efficient, non-condensing CWHs that use Category 
I venting should remain in the market is the economic justification 
analysis under 42 U.S.C. 6313(a)(6)(B)(ii). Accordingly, DOE has 
conducted such an analysis as part of the standards amendment process 
for this rulemaking. DOE analyzed ventilation installation and cost 
issues in the May 2022 CWH ECS NOPR, and does so again in this final 
rule. DOE's consideration of these issues and responses to associated 
comments may be found in section IV.F.2 of this document.
    For these reasons, DOE disagrees with commenters that eliminating 
noncondensing CWHs that use Category I venting from the market would 
violate EPCA's ``unavailability'' provision as that technology does not 
provide unique utility to consumers that is not substantially the same 
as that provided by condensing CWH equipment. Accordingly, for the 
purpose of the analysis conducted for this rulemaking, DOE did not 
analyze separate equipment classes for non-condensing and condensing 
CWH equipment in this final rule.
c. Tankless Water Heaters and Hot Water Supply Boilers
    In the May 2022 CWH ECS NOPR, DOE analyzed ``tankless water 
heaters'' and ``circulating water heaters and hot water supply 
boilers'' as two separate kinds of representative equipment in the gas-
fired instantaneous water heaters equipment class, in order to reflect 
the differences in design and application between these kinds of 
equipment. DOE also presented analytical results separately for the two 
types of representative equipment. 87 FR 30610, 30632. In the June 23, 
2022 public meeting, Barton Day Law questioned whether commercial 
instantaneous water heaters and hot water supply boilers can be 
appropriately categorized as the same product within DOE's analysis. 
(Barton Day Law, Public Meeting Transcript No. 13 at pp. 18-22)
    In response, DOE notes that its analysis does account for the 
differences between these product types by including different 
installation costs for each. Tankless water heaters are typically flow-
activated, wall-mounted, used without a storage tank, and capable of 
higher temperature rises. Circulating water heaters and hot water 
supply boilers, conversely, are typically used with a storage tank and 
recirculation loop, thermostatically-activated, and typically floor-
mounted. However, despite these differences, tankless water heaters and 
hot water supply boilers are grouped in the same equipment category 
because they share basic fundamental similarities: both kinds of 
equipment supply hot water in commercial applications with an input 
rate of at least 4,000 Btu/h per gallon of stored water, and both 
include heat exchangers through which incoming water flows and is 
heated by combustion flue gases that flow around the heat exchanger 
tubes.
    Therefore, for this final rule, DOE maintained its approach of 
analyzing ``tankless water heaters'' and ``circulating water heaters 
and hot water supply boilers'' as two separate kinds of representative 
equipment in the gas-fired instantaneous water heaters equipment class, 
and presents analytical results separately for the two types of

[[Page 69711]]

representative equipment in section V of this final rule, although DOE 
is not proposing to restructure the equipment classes.\32\
---------------------------------------------------------------------------

    \32\ In the May 2022 CWH ECS NOPR, DOE responded to comments on 
the May 2016 CWH ECS NOPR. DOE received comments suggesting that DOE 
should split up the equipment class for gas-fired instantaneous 
water heaters and hot water supply boilers by input capacity, 
similar to DOE's current energy conservation standards for 
commercial packaged boilers. 87 FR 30633. As noted in the May 2022 
CWH ECS NOPR, ASHRAE 90.1 does not divide the equipment classes for 
commercial gas-fired instantaneous water heaters and hot water 
supply boilers by input capacity. Therefore, DOE did not, in the 
NOPR, and has not in this final rule, analyzed separate classes for 
gas-fired instantaneous water heaters and hot water supply boilers 
equipment class by input capacity.
---------------------------------------------------------------------------

d. Gas-Fired and Oil-Fired Storage Water Heaters
    In the May 2022 CWH ECS NOPR, DOE proposed to consolidate 
commercial gas-fired and oil-fired storage water heater equipment 
classes that are currently divided by input rates of 155,000 Btu/h into 
two equipment classes without an input rate distinction: (1) gas-fired 
storage water heaters and (2) oil-fired storage water heaters. DOE 
noted that this class structure would be consistent with the equipment 
class structure in the latest version of ASHRAE Standard 90.1. 87 FR 
30610, 30633. In response Bradford White agreed with combining the 
classes for gas-fired storage water heaters above and below 155,000 
Btu/h and noted that the historical reasons for the requirements being 
separated are no longer applicable. (Bradford White, No. 23 at p. 1) 
Bock Water Heaters and Rheem similarly indicated support for DOE 
removing the 155,000 Btu sizing categories from the energy conservation 
standards tables. (Bock Water Heaters, No. 20 at p. 1; Rheem, No. 24 at 
p. 2) AHRI also expressed support for the proposal and noted that these 
categories had no efficiency differences and separating them adds 
unnecessary complexity. (AHRI, No. 31 at p. 3) DOE is adopting this 
proposal in this final rule and is removing the input rate size 
distinctions for commercial gas-fired and oil-fired storage water 
heaters.
e. Grid-Enabled Water Heaters
    In the May 2022 CWH ECS NOPR, DOE explained that it was not 
proposing to establish a separate equipment class for grid-enabled 
electric storage water heaters (i.e., electric storage water heaters 
that can receive and react to commands sent from local utilities and 
which could at a minimum reduce their instantaneous power consumption 
in response) because DOE did not propose to amend the standard for 
commercial electric storage water heaters, and because a grid-enabled 
water heater would not be differentially impacted by a standby loss 
standard. 87 FR 30610, 30633. Bradford White agreed with DOE's decision 
not to establish a separate class for grid-enabled water heaters. 
(Bradford White, No. 23 at p. 1) DOE maintains its position from the 
May 2022 CWH ECS NOPR and is not establishing a separate class for 
grid-enabled water heaters.
3. Review of the Current Market for CWH Equipment
    In order to gather information needed for the market assessment for 
CWH equipment, DOE consulted a variety of sources, including 
manufacturer literature, manufacturer websites, the AHRI Directory of 
Certified Product Performance,\33\ the CEC Appliance Efficiency 
Database,\34\ and DOE's Compliance Certification Database.\35\ DOE used 
these sources to compile a database of CWH equipment that served as 
resource material throughout the analyses conducted for this 
rulemaking. This database contained the following counts of unique 
models for which DOE analyzed for amended thermal efficiency standards: 
431 commercial gas-fired storage water heaters, 44 residential-duty 
commercial gas-fired storage water heaters, 111 commercial gas-fired 
storage-type instantaneous water heaters (tank-type water heaters with 
greater than 4,000 Btu/h per gallon of stored water), 22 gas-fired 
tankless water heaters, and 280 gas-fired circulating water heaters and 
hot water supply boilers. Chapter 3 of the final rule TSD provides more 
information on the CWH equipment currently available on the market, 
including a full breakdown of these units into their equipment classes 
and graphs showing performance data.
---------------------------------------------------------------------------

    \33\ Last accessed on March 4, 2021 and available at 
www.ahridirectory.org.
    \34\ Last accessed on March 4, 2021 and available at 
cacertappliances.energy.ca.gov/Pages/ApplianceSearch.aspx.
    \35\ Last accessed on February 26, 2021 and available at 
www.regulations.doe.gov/certification-data/.
---------------------------------------------------------------------------

4. Technology Options
    As part of the market and technology assessment, DOE uses 
information about commercially-available technology options and 
prototype designs to help identify technologies that manufacturers 
could use to improve energy efficiency for CWH equipment. This effort 
produces an initial list of all the technologies that are 
technologically feasible. This assessment provides the technical 
background and structure on which DOE bases its screening and 
engineering analyses.
    In response to the May 2022 CWH ECS NOPR, the Joint Advocates 
encouraged DOE to evaluate heat pump technology as a technology option 
for electric storage water heaters. (The Joint Advocates, No. 29 at p. 
4) The Joint Advocates and the CA IOUs both noted that commercial 
integrated heat pump water heaters on the market have electric 
resistance elements that allow them to meet required hot water demand 
when heat-pump-only operation would not suffice, and the CA IOUs cited 
such products. (The Joint Advocates, No. 29 at p. 4; CA IOUs, No. 33 at 
pp. 4-5) The Joint Advocates further cited that when both backup 
elements and the heat pump compressor are operating together in hybrid 
mode, this unit can achieve almost twice the heating capacity of a 12 
kW commercial electric resistance water heater. (The Joint Advocates, 
No. 29 at p. 4) The Joint Advocates stated that they are not aware of 
any reason why commercial heat pump water heaters could not meet the 
same hot water loads as commercial electric storage water heaters. Id.
    NYSERDA similarly urged DOE to include commercial heat pump water 
heaters in the analysis. They cited a recent New York Commercial 
Baseline Study that found that between 1 and 4 percent of commercial 
water heaters were classified as heat pumps across a variety of 
applications. Therefore, NYSERDA recommended that DOE acknowledge heat 
pumps in subsequent rulemakings, both as a max-tech option and as a 
technology across the board. (NYSERDA, No. 30, pp. 1-2)
    NWPCC also commented in support of DOE including commercial heat 
pump water heaters as the max-tech in the analysis. NWPCC stated that 
the analysis is incomplete without this consideration as there are 
already many commercial-duty heat pump products available on the market 
from several manufacturers. (NWPCC, No. 21 at p. 1) They explained that 
heat pump water heaters are of interest to the Northwest region, as the 
Regional Technical Forum estimates between 20 and 30 average megawatts 
of energy saving potential for unitary commercial heat pump water 
heaters and an additional 15 megawatts of potential for consumer heat 
pump water heaters in commercial applications. Id. In contrast, A.O. 
Smith added that inlet water temperature will vary across regions of 
the country and climate zones for air-source heat pump water heaters 
and noted that heat-pump water heaters may require backup heating in 
certain scenarios. A.O. Smith also stated that an integrated heat pump

[[Page 69712]]

water heater may not be the correct technology option for applications 
that require very large loads. (A.O. Smith, No. 22 at p. 6)
    In response to these comments, DOE notes that, as discussed in 
section III.B.4 of this document, it did not consider commercial heat 
pump water heaters in this final rule because of the limited number of 
units on the market, but may analyze commercial heat pump water heaters 
in a future rulemaking.
    Because thermal efficiency, standby loss, and UEF are the relevant 
performance metrics in this rulemaking, DOE did not consider 
technologies that have no significant effect on these metrics. However, 
DOE does not discourage manufacturers from using these other 
technologies because they might reduce annual energy consumption in the 
field. The following list includes the technologies that DOE did not 
consider because they would not significantly affect efficiency as 
measured by the DOE test procedure. Chapter 3 of the final rule TSD 
provides details and reasoning for the exclusion from further 
consideration of each technology option, as listed here:

 Plastic tank
 Direct vent
 Timer controls
 Intelligent and wireless controls
 Modulating combustion
 Self-cleaning.

    DOE also did not consider technologies as options for increasing 
efficiency if they are included in baseline equipment, as determined 
from an assessment of units on the market. DOE's research suggests that 
electromechanical flue dampers and electronic ignition are technologies 
included in baseline equipment for commercial gas-fired storage water 
heaters; therefore, they were not included as technology options for 
that equipment class. However, electromechanical flue dampers and 
electronic ignition were not identified on baseline units for 
residential-duty gas-fired storage water heaters, and these options 
were, therefore, considered for increasing efficiency of residential-
duty gas-fired storage water heaters. DOE also considered insulation of 
fittings around pipes and ports in the tank to be included in baseline 
equipment; therefore, such insulation was not considered as a 
technology option for the analysis.
    The technology options that were considered for improving the 
energy efficiency of CWH equipment for this final rule are as follows:

 Improved insulation (including increasing jacket insulation, 
insulating tank bottom, advanced insulation types, and foam insulation)
 Mechanical draft (including induced draft (also known as power 
vent) and forced draft)
 Condensing heat exchanger (for all gas-fired equipment classes 
and including optimized flue geometry)
 Condensing pulse combustion
 Improved heat exchanger design (including increased surface 
area and increased baffling)
 Sidearm heating and two-phase thermosiphon technology
 Electronic ignition systems
 Improved heat pump water heaters (including gas absorption 
heat pump water heaters)
 Premix burner (including submerged combustion chamber for gas-
fired storage water heaters and storage-type instantaneous water 
heaters)
 Electromechanical flue damper
 Modulating combustion.

    Chapter 3 of the final rule TSD includes descriptions of all 
technology options identified for this equipment.

B. Screening Analysis

    DOE uses the following screening criteria to determine which 
technology options are suitable for further consideration in an energy 
conservation standards rulemaking:
    (1) Technological feasibility. Technologies that are not 
incorporated in commercial products or in commercially viable, existing 
prototypes will not be considered further.
    (2) Practicability to manufacture, install, and service. If it is 
determined that mass production of a technology in commercial products 
and reliable installation and servicing of the technology could not be 
achieved on the scale necessary to serve the relevant market at the 
time of the projected compliance date of the standard, then that 
technology will not be considered further.
    (3) Impacts on product utility. If a technology is determined to 
have a significant adverse impact on the utility of the product to 
subgroups of consumers, or result in the unavailability of any covered 
product type with performance characteristics (including reliability), 
features, sizes, capacities, and volumes that are substantially the 
same as products generally available in the United States at the time, 
it will not be considered further.
    (4) Safety of technologies. If it is determined that a technology 
would have significant adverse impacts on health or safety, it will not 
be considered further.
    (5) Unique-pathway proprietary technologies. If a technology has 
proprietary protection and represents a unique pathway to achieving a 
given efficiency level, it will not be considered further, due to the 
potential for monopolistic concerns.

10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, sections 6(c)(3) 
and 7(b).
    In sum, if DOE determines that a technology, or a combination of 
technologies, fails to meet one or more of the listed five criteria, it 
will be excluded from further consideration in the engineering 
analysis.
1. Screened-Out Technologies
    Technologies that pass through the screening analysis are 
subsequently examined in the engineering analysis for consideration in 
DOE's downstream cost-benefit analysis. In the May 2022 CWH ECS NOPR, 
DOE screened out gas absorption heat pump water heaters due to concerns 
about their practicability to manufacture, install, and service. In 
response, the Joint Advocates encouraged DOE to evaluate this 
technology as a potential max-tech efficiency level for commercial gas 
storage water heaters. The Joint Advocates explained that there appear 
to be gas-fired heat pump models on the market that can provide both 
space and water heating capabilities, and cited one such example. (The 
Joint Advocates, No. 29 at p. 2) The CA IOUs and NEEA also stated that 
DOE should evaluate gas heat pump water heaters as a max-tech level, 
and cited several examples. (CA IOUs, No. 33 at p. 3; NEEA, No. 35, pp. 
2-3)
    DOE notes that the examples cited by the Joint Advocates and the CA 
IOUs do not meet the input rating requirements to be considered CWH 
equipment by the definitions in 10 CFR 431.102. However, other examples 
provided by commenters do appear to meet the requirements to be 
considered CWH equipment, but have low maximum output water 
temperatures and may not be suitable for all applications. Therefore, 
DOE does not have adequate information at this time to determine if 
these products would result in adverse impacts on consumer utility. 
Additionally, DOE is not aware of any demonstration of this technology 
as being suitable for commercial applications or as being practicable 
to manufacture, install, and service on the scale necessary to serve 
the CWH equipment market at the time of the effective date of this 
adopted standard. Accordingly, that technology remains screened out.
    Based upon a review under the above factors, DOE screened out the 
design options listed in Table IV.3 for the

[[Page 69713]]

reasons provided. Chapter 4 of the final rule TSD contains additional 
details on the screening analysis, including a discussion of why each 
technology option was screened out.

                                                 Table IV.3--Summary of Screened-Out Technology Options
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Reasons for exclusion
                                                                       ---------------------------------------------------------------------------------
                                               Applicable equipment                       Practicability      Adverse         Adverse         Unique-
        Excluded technology option                  classes *            Technological   to manufacture,    impacts on      impacts on        pathway
                                                                          feasibility      install, and       product        health or      proprietary
                                                                                             service          utility         safety        technology
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced insulation types................  All storage water heaters..               X                X   ..............  ..............  ..............
Condensing pulse combustion..............  All gas-fired equipment      ...............               X   ..............  ..............  ..............
                                            classes.
Sidearm heating..........................  All gas-fired storage......  ...............               X   ..............  ..............  ..............
Two-phase thermosiphon technology........  All gas-fired storage......  ...............               X   ..............  ..............  ..............
Gas absorption heat pump water heaters...  Gas-fired instantaneous      ...............               X   ..............  ..............  ..............
                                            water heaters.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* All mentions of storage water heaters in this column refer to both storage water heaters and storage-type instantaneous water heaters.

    In this final rule, DOE concludes that none of the identified 
technology options are proprietary. However, in the engineering 
analysis, DOE included the manufacturer production costs associated 
with multiple designs of condensing heat exchangers used by a range of 
manufacturers, which represent the vast majority of the condensing gas-
fired storage water heater market, to account for intellectual property 
rights surrounding specific designs of condensing heat exchangers.
2. Remaining Technologies
    After screening out or otherwise removing from consideration 
certain technologies, the remaining technologies are passed through for 
consideration in the engineering analysis. Table IV.4 presents 
identified technologies for consideration in the engineering analysis. 
Chapter 3 of the final rule TSD contains additional details on the 
technology assessment and the technologies analyzed.

                                           Table IV.4--Technology Options Considered for Engineering Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Increased heat                                        Electro-
                     Equipment                         Mechanical    Condensing heat  exchanger area,     Electronic     Premix burner   mechanical flue
                                                         draft          exchanger         baffling         ignition                           damper
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and                   X                X                X   ...............               X   ...............
 storage-type instantaneous water heaters.........
Residential-duty gas-fired storage water heaters..               X                X                X                X                X                X
Gas-fired instantaneous water heaters and hot                    X                X                X   ...............               X   ...............
 water supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE determined that these technology options are technologically 
feasible because they are being used or have previously been used in 
commercially-available products or working prototypes. DOE also finds 
that all of the remaining technology options meet the other screening 
criteria (i.e., practicable to manufacture, install, and service and do 
not result in adverse impacts on consumer utility, product 
availability, health, or safety). For additional details, see chapter 4 
of the final rule TSD.

C. Engineering Analysis

    The purpose of the engineering analysis is to establish the 
relationship between the efficiency and cost of CWH equipment. There 
are two elements to consider in the engineering analysis; the selection 
of efficiency levels to analyze (i.e., the ``efficiency analysis'') and 
the determination of product cost at each efficiency level (i.e., the 
``cost analysis''). In determining the performance of higher-efficiency 
equipment, DOE considers technologies and design option combinations 
not eliminated by the screening analysis. For each equipment category, 
DOE estimates the baseline cost, as well as the incremental cost for 
the equipment at efficiency levels above the baseline. The output of 
the engineering analysis is a set of cost-efficiency ``curves'' that 
are used in downstream analyses (i.e., the LCC and PBP analyses and the 
NIA).
1. Efficiency Analysis
    DOE typically uses one of two approaches to develop energy 
efficiency levels for the engineering analysis: (1) relying on observed 
efficiency levels in the market (i.e., the efficiency-level approach), 
or (2) determining the incremental efficiency improvements associated 
with incorporating specific design options to a baseline model (i.e., 
the design-option approach). Using the efficiency-level approach, the 
efficiency levels established for the analysis are determined based on 
the market distribution of existing products (in other words, based on 
the range of efficiencies and efficiency level ``clusters'' that 
already exist on the market). Using the design option approach, the 
efficiency levels established for the analysis are determined through 
detailed engineering calculations and/or computer simulations of the 
efficiency

[[Page 69714]]

improvements from implementing specific design options that have been 
identified in the technology assessment. DOE may also rely on a 
combination of these two approaches. For example, the efficiency-level 
approach (based on actual products on the market) may be extended using 
the design option approach to interpolate to define ``gap fill'' levels 
(to bridge large gaps between other identified efficiency levels) and/
or to extrapolate to the max-tech level (particularly in cases where 
the max-tech level exceeds the maximum efficiency level currently 
available on the market).
    For the analysis of thermal efficiency and UEF levels, DOE 
identified the efficiency levels for the analysis based on market data 
(i.e., the efficiency level approach). For the analysis of standby loss 
levels, DOE identified efficiency levels for analysis based on market 
data, commonly used technology options (e.g., electronic ignition), and 
testing data (i.e., a combination of the efficiency level approach and 
the design option approach). DOE's selection of efficiency levels for 
this final rule is discussed in additional detail in section IV.C.4 of 
this document.
2. Cost Analysis
    The cost analysis portion of the engineering analysis is conducted 
using one or a combination of cost approaches. The selection of cost 
approach depends on a suite of factors, including the availability and 
reliability of public information, characteristics of the regulated 
product, the availability and timeliness of purchasing the equipment on 
the market. The cost approaches are summarized as follows:
     Physical teardowns: Under this approach, DOE 
physically dismantles a commercially available product, component-by-
component, to develop a detailed bill of materials (``BOM'') for the 
product.
     Catalog teardowns: In lieu of physically 
deconstructing a product, DOE identifies each component using parts 
diagrams (available from manufacturer websites or appliance repair 
websites, for example) to develop the BOM for the product.
     Price surveys: If neither a physical nor catalog 
teardown is feasible (for example, for tightly integrated products such 
as fluorescent lamps, which are infeasible to disassemble and for which 
parts diagrams are unavailable) or cost-prohibitive and otherwise 
impractical (e.g., large commercial boilers), DOE conducts price 
surveys using publicly available pricing data published on major online 
retailer websites and/or by soliciting prices from distributors and 
other commercial channels.
    For this final rule, DOE conducted the cost analysis using a 
combination of physical teardowns and catalog teardowns. The resulting 
BOMs from physical and catalog teardowns provide the basis for the 
manufacturer production cost (``MPC'') estimates.
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the MPC. The resulting manufacturer selling price (``MSP'') 
is the price at which the manufacturer distributes a unit into 
commerce. DOE developed an average manufacturer markup by examining the 
annual Securities and Exchange Commission (``SEC'') 10-K reports filed 
by companies that manufacturer CWH equipment, and information gathered 
from manufacturers as part of the analytic process for the May 2016 CWH 
ECS NOPR. Chapter 5 of the final rule TSD includes further detail on 
the engineering analysis.
    In the May 2022 CWH ECS NOPR, DOE chose the physical and catalog 
teardown approach over the price survey approach, based upon several 
factors. 87 FR 30635-30636. In response to the May 2022 CWH ECS NOPR, 
Bradford White suggested that DOE conduct additional interviews given 
that previous interviews were conducted over 6 years ago, meaning the 
data would not have taken into account the national and international 
impacts of the global pandemic. (Bradford White, No. 23 at p. 8) 
Bradford White and Rheem both indicated interest in participating in 
confidential interviews to provide further feedback. (Bradford White, 
No. 23 at p. 8, Rheem, No. 24 at p. 1) PHCC also encouraged the DOE to 
revise its production cost information due to recent market conditions, 
stating that projections based on the value of the U.S. dollar in 2020 
do not accurately capture the effects of supply chain issues and the 
increase in steel prices. (PHCC, No. 28 at p. 9) PHCC stated that 
inflationary pressures have tremendously changed prices recently. 
However, PHCC acknowledged that as an association, anti-trust 
regulations limit their ability to gather or distribute pricing 
information; therefore, their analysis is based on available sources 
such as online retailers in order to gauge current market realities. 
Id.
    In response to this feedback, DOE conducted additional interviews 
after the publication of the May 2022 CWH ECS NOPR to better understand 
manufacturer's concerns regarding the proposals of the May 2022 CWH ECS 
NOPR and gathered additional feedback to inform its updated MPC 
estimates. Additionally, DOE updated all its part prices to reflect 
more recent data, as discussed in section IV.C.7 of this document.
    The MPCs presented in this final rule take into account the 
feedback received from manufacturers, which DOE has found to be a 
valuable tool for ensuring the accuracy of its cost estimates. Without 
adequate safeguards, manufacturers would likely be unwilling to share 
information relevant to the rulemaking, which would have 
correspondingly negative impacts on the rulemaking process. In the 
present case, as is generally the case in appliance standards 
rulemakings, manufacturer and equipment specific data are presented in 
aggregate. Additionally, as discussed in more detail in section IV.C.7 
of this document, prices for raw materials and purchased parts have 
been updated to the most recent market estimates to create the current 
MPCs, resulting in increased MPCs as compared to the results presented 
in the May 2022 CWH ECS NOPR.
3. Representative Equipment for Analysis
    For the engineering analysis, DOE reviewed all CWH equipment 
categories analyzed in this rulemaking (see section III.B of this 
document for discussion of rulemaking scope) and examined each one 
separately. Within each equipment category, DOE analyzed the 
distributions of input rating and storage volume of models available on 
the market and held discussions with manufacturers to determine 
appropriate representative equipment. DOE notes that representative 
equipment was selected which reflects the most common capacity and/or 
storage volume for a given equipment category. While a single 
representative equipment capacity can never perfectly represent a wide 
range of input capacities or storage volumes, DOE reasons that 
analyzing a representative capacity and storage volume that was 
selected using manufacturer feedback is sufficiently representative of 
the equipment category while also allowing for a feasible analysis.
    For storage water heaters, the volume of the tank is a significant 
factor for costs and efficiency. Water heaters with larger volumes have 
higher materials, labor, and shipping costs. A larger tank volume is 
likely to lead to a larger tank surface area, thereby increasing the 
standby loss of the tank (assuming other factors are held constant, 
e.g., same insulation thickness and materials). The current standby 
loss standards for storage water heaters are, in part, a

[[Page 69715]]

function of volume to account for this variation with tank size. The 
incremental cost of increasing insulation thickness varies as the tank 
volume increases, and there may be additional installation concerns for 
increasing the insulation thickness on larger tanks. Installation 
concerns are discussed in more detail in section IV.F.2.b of this final 
rule. DOE examined specific storage volumes for storage water heaters 
and storage-type instantaneous water heaters (referred to as 
representative storage volumes). Because DOE lacked specific 
information on shipments, DOE used its CWH equipment database 
(discussed in section IV.A.3 of this final rule) to examine the number 
of models at each rated storage volume to determine the representative 
storage volume, and also solicited feedback from manufacturers during 
manufacturer interviews as to which storage volumes corresponded to the 
most shipments. Table IV.5 shows the representative storage volumes 
that DOE determined best characterize each equipment category.
    For all CWH equipment categories, the input capacity is also a 
significant factor for cost and efficiency. Water heaters with higher 
input capacities typically have higher materials costs and may also 
have higher labor and shipping costs. Gas-fired storage water heaters 
with higher input capacities may have additional heat exchanger length 
to transfer more heat. This leads to higher material costs and may 
require the tank to expand to compensate for the displaced volume. Gas-
fired tankless water heaters, circulating water heaters, and hot water 
supply boilers require larger heat exchangers to transfer more heat 
with a higher input capacity. In the May 2022 CWH ECS NOPR, DOE 
examined input capacities for models in all gas-fired CWH equipment 
categories to determine representative input capacities. Because the 
gas-fired instantaneous water heaters and hot water supply boilers 
equipment class includes several types of equipment that is 
technologically disparate, DOE selected representative input capacities 
that would represent both tankless water heaters and circulating water 
heaters and hot water supply boilers within this broader equipment 
class. DOE did not receive any shipments data for specific input 
capacities, and, therefore, DOE considered the number of models at each 
input capacity in the database of models it compiled (based on DOE's 
Compliance Certification Database, the AHRI Directory, the CEC 
Appliance Database, and manufacturer literature), as well as feedback 
from manufacturer interviews in determining the appropriate 
representative input capacities for this final rule.
    In response to the May 2022 CWH ECS NOPR, the Joint Advocates 
agreed that DOE's approach of using a representative capacity chosen 
based on discussions with manufacturers allows the analysis to be both 
feasible and sufficiently representative. (The Joint Advocates, No. 29 
at p. 2) A.O. Smith commented that based on their analysis, the most 
popular size of residential-duty commercial water heater units is 75 
and 100 gallon non-condensing models. (A.O. Smith, No. 22 at p. 4) DOE 
agrees with A.O. Smith that the most popular size of residential-duty 
CWH units is 75 and 100 gallons but notes that 75 gallon size is the 
most common size in its database. Therefore, DOE continued to use 75 
gallons as the representative storage volume for residential-duty 
commercial water heaters in this final rule.
    Bradford White questioned how DOE found similar costs for 
instantaneous and hot water supply boilers with storage volumes greater 
than or equal to 10 gallons and those with storage volumes less than 10 
gallons. Bradford White stated that DOE assumed heat exchanger costs 
will increase as input and surface area increase; however, Bradford 
White suggested that this relationship changes at larger inputs where 
manufacturers cannot necessarily justify automating the manufacturing 
of heat exchangers or some part of them. They also added that 
combustion systems and other non-heat-exchanger costs will increase 
stepwise at a certain point. (Bradford White, No. 23 at p. 5)
    DOE agrees that MPCs related to the combustion and heat exchange 
subsystems for condensing circulating water heaters and hot water 
supply boilers typically follows a step-like pattern as input 
capacities increase. DOE's research suggests that within a set input 
capacity range, circulating water heaters and hot water supply boilers 
feature many of the same components. For example, a larger-capacity 
condensing circulating water heater or hot water supply boiler may 
feature one or more heat exchangers, each of which features a separate 
premix burner, gas valve, and blower system. Thus, within a given range 
of input capacities, the MPC of the combustion and heat exchange system 
will not change materially until an input/efficiency limit is reached; 
at that point, manufacturers typically add another parallel combustion 
path to the system (requiring a burner, heat exchanger, blower, and 
associated controls) or turn to a wholly new combustion system. As 
previously noted, DOE conducted this engineering analysis using a 
representative capacity and storage volume for each equipment category 
that was determined to be sufficiently representative of the category 
as a whole while also allowing for a feasible analysis. However, no 
representative storage volume was chosen for the instantaneous water 
heaters and hot water supply boilers equipment class because only gas-
fired instantaneous water heaters and hot water supply boilers with 
greater than or equal to 10 gallons of storage volume have standby loss 
standards but amended standby loss standards for this equipment were 
not analyzed in this final rule (as discussed in section III.B.6 of 
this document). Given the similarities in thermal efficiency 
performance and the technologies that could be used to improve thermal 
efficiency of circulating water heaters and hot water supply boilers 
with storage volumes greater than or equal to 10 gallons and those with 
storage volumes less than 10 gallons, DOE concluded that a single 
representative input capacity would sufficiently represent this entire 
equipment category for the analysis of amended thermal efficiency 
levels.
    Additionally, Barton Day Law argued that DOE's categorization of 
products is inappropriate in the context of the LCC analysis, claiming 
that some LCC inputs would be different for products within the same 
category. In particular, Barton Day Law noted that there is only one 
LCC analysis for four separate standards for residential-duty water 
heaters with different draw patterns. (Barton Day Law, Public Meeting 
Transcript, No. 13 at pp. 29-30) In response to the comments from 
Barton Day Law, as described in section V.A of this final rule, DOE 
groups various efficiency levels for each equipment class into TSLs in 
order to examine the combined impact that amended standards for all 
analyzed equipment classes would have on an industry. This approach 
also allows DOE to capture the effects on manufacturers of amended 
standards for all classes, better reflecting the burdens for 
manufacturers that produce equipment across several equipment classes. 
Additionally, DOE is only aware of residential-duty water heaters in 
the high draw pattern group at the time of the current analysis. 
Therefore, DOE's analysis used representative storage volumes and input 
capacities that reflect this draw pattern group but DOE then applied 
its findings to other draw patterns.
    The representative input capacities used in the analyses for this 
final rule are shown in Table IV.5. The

[[Page 69716]]

representative volume and input capacities shown in Table IV.5 are the 
same as those used for May 2022 CWH ECS NOPR.

                         Table IV.5--Representative Storage Volumes and Input Capacities
----------------------------------------------------------------------------------------------------------------
                                                                               Representative    Representative
                  Equipment                           Specifications            rated storage    input capacity
                                                                                volume (gal)        (kBtu/h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters    >105 kBtu/h or >120 gal.......               100               199
 and gas-fired storage-type instantaneous
 water heaters *.
Residential-duty gas-fired storage water      <=105 and <=120 gal...........                75                76
 heaters **.
Gas-fired instantaneous water heaters and
 hot water supply boilers:
    Tankless water heaters..................  <10 gal.......................  ................               250
    Circulating water heaters and hot water   All ***.......................  ................               399
     supply boilers.
----------------------------------------------------------------------------------------------------------------
* Any commercial gas storage water heater that does not meet the definition of a residential-duty storage water
  heater is a commercial gas-fired storage water heater regardless of whether it meets the specifications
  listed.
** To be classified as a residential-duty water heater, a commercial water heater must, if requiring
  electricity, use single-phase external power supply, and not be designed to heat water at temperatures greater
  than 180 [deg]F. 79 FR 40542, 40586 (July 11, 2014).
*** For the engineering analysis, circulating water heaters and hot water supply boilers with storage volume <10
  gallons and >=10 gallons were analyzed in the same equipment class. Amended standby loss standards for
  circulating water heaters and hot water supply boilers with storage volume >=10 gallons were not analyzed in
  this final rule, as discussed in section III.B.6 of this final rule. Therefore, no representative storage
  volume was chosen for the instantaneous water heaters and hot water supply boilers equipment class.

    In the May 2022 CWH ECS NOPR, in response to commenters' concerns 
about the use of a representative input capacity in its analysis of 
circulating water heaters and hot water boilers, DOE stated that the 
increase in price of a purchased part used in the construction of an 
especially high-capacity circulating water heater or hot water supply 
boiler and purchased at low volumes would be offset by the many 
instances in which the production costs remain fixed regardless of 
input capacity. 87 FR 30610, 30638. Bradford White requested that DOE 
clarify how fixed costs would offset an increase in the cost of other 
purchased parts. (Bradford White, No. 23 at p. 5) In response, DOE 
notes that the statement was not intended to suggest that fixed costs 
could lead to negative cost impacts that offset higher purchased part 
costs. However, the increase in cost due to those specialized 
components that must be purchased at lower volumes is expected to be a 
relatively small fraction of the overall cost of the unit, and would 
not significantly impact the overall product cost (but would result in 
a small increase).
4. Efficiency Levels for Analysis
    For each equipment category, DOE analyzed multiple efficiency 
levels and estimated manufacturer production costs at each efficiency 
level. The following subsections provide a description of the full 
efficiency level range that DOE analyzed from the baseline efficiency 
level to the max-tech efficiency level for each equipment category.
    Baseline equipment is used as a reference point for each equipment 
category in the engineering analysis and the LCC and PBP analyses, 
which provides a starting point for analyzing potential technologies 
that provide energy efficiency improvements. Generally, DOE considers 
``baseline'' equipment to refer to a model or models having features 
and technologies that just meet, but do not exceed, the Federal energy 
conservation standard and provide basic consumer utility.
    DOE conducted a survey of its CWH equipment database and 
manufacturers' websites to determine the highest thermal efficiency or 
UEF levels on the market for each equipment category.
a. Thermal Efficiency Levels
    In establishing the baseline thermal efficiency levels for this 
analysis, DOE used the current energy conservation standards for CWH 
equipment to identify baseline units. The baseline thermal efficiency 
levels used for the analysis in this final rule are presented in Table 
IV.6.

    Table IV.6--Baseline Thermal Efficiency Levels for CWH Equipment
------------------------------------------------------------------------
                                                              Thermal
                        Equipment                          feiciency (%)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-               80
 type instantaneous water heaters.......................
Gas-fired instantaneous water heaters and hot water                   80
 supply boilers.........................................
------------------------------------------------------------------------

    For both the commercial gas-fired storage water heaters and gas-
fired instantaneous water heaters and hot water supply boilers 
equipment categories, DOE analyzed several thermal efficiency levels 
and determined the manufacturing cost at each of these levels. For this 
final rule, DOE developed thermal efficiency levels based on a review 
of equipment currently available on the market. As noted previously, 
DOE compiled a database of CWH equipment to determine what types of 
equipment are currently available to consumers. For each equipment 
class, DOE surveyed various manufacturers' equipment offerings to 
identify the commonly available thermal efficiency levels. By 
identifying the most prevalent thermal efficiency levels in the range 
of available equipment and examining models at these levels, DOE 
established a technology path that manufacturers

[[Page 69717]]

typically use to increase the thermal efficiency of CWH equipment.
    Consistent with the approach in the May 2022 CWH ECS NOPR, in this 
final rule, DOE established intermediate thermal efficiency levels for 
each gas-fired equipment category (aside from residential-duty gas-
fired storage water heaters, which as noted previously were analyzed 
using UEF). The intermediate thermal efficiency levels are 
representative of the most common efficiency levels and those that 
represent significant technological changes in the design of CWH 
equipment. For commercial gas-fired storage water heaters and for 
commercial gas-fired instantaneous water heaters and hot water supply 
boilers, DOE chose four thermal efficiency levels between the baseline 
and max-tech levels for analysis. DOE selected the highest thermal 
efficiency level identified on the market (99 percent) as the ``max-
tech'' level for commercial gas-fired storage water heaters and 
storage-type instantaneous water heaters. For gas-fired instantaneous 
water heaters and hot water supply boilers, DOE identified hot water 
supply boilers with thermal efficiency levels of up to 99 percent and 
tankless instantaneous water heaters with thermal efficiency levels of 
up to 97 percent available on the market.\36\ However, the tankless 
water heaters with thermal efficiencies of 97 percent were at a single 
input capacity and it is unclear whether this thermal efficiency is 
achievable at other input capacities. As discussed in section IV.A.2.c 
of this document, DOE analyzed tankless water heaters and circulating 
water heaters and hot water supply boilers as two separate kinds of 
representative equipment for this rulemaking analysis, but they are 
part of the same equipment class (gas-fired instantaneous water heaters 
and hot water supply boilers). Therefore, because DOE did not find 
evidence that 97 percent would be an appropriate max-tech level for 
tankless instantaneous water heaters that is achievable across the 
range of product inputs currently available, DOE analyzed 96 percent 
thermal efficiency as the max-tech level for the gas-fired 
instantaneous water heaters and hot water supply boilers equipment 
class. The selected thermal efficiency levels used in the current final 
rule analysis are shown in Table IV.7 of this document.
---------------------------------------------------------------------------

    \36\ DOE identified two models in CCMS with thermal efficiency 
levels of 98 percent but could not find any manufacturer literature 
for those models that would indicate whether they are tankless water 
heaters or hot water supply boilers. Because DOE was unable to 
confirm the type of construction for these water heaters and because 
they were not among the models listed as being available on the 
manufacturer's website, 98 percent was not considered the max-tech 
level.
---------------------------------------------------------------------------

    In response to the May 2022 CWH ECS NOPR, DOE received several 
comments from stakeholders about the thermal efficiency levels it 
analyzed. Rheem stated concerns with the inconsistent levels proposed 
for the different equipment classes, which can be used in the same 
applications. Rheem recommended that a lower condensing thermal 
efficiency level that does not exceed ENERGY STAR levels be applied 
uniformly across the four equipment classes. (Rheem, No. 24 at p. 2) 
Similarly, A.O. Smith stated that DOE should reconsider setting new 
minimum energy conservation standards for all commercial gas-fired 
water heaters (excepting residential-duty commercial water heaters) at 
94 percent thermal efficiency or, in the alternative setting, a 95 
percent thermal efficiency level across all product types, and added 
that either outcome will result in significant energy savings. However, 
A.O. Smith stated that a 94 percent thermal efficiency level would 
afford a broader set of product options for CWH consumers, while at the 
same time provide a more level playing field upon which manufacturers 
can compete, foster innovation, and allow for continued incentivizing 
of the market adoption of high-efficiency gas-fired CWH equipment. 
(A.O. Smith, No. 22 at pp. 2-4) AHRI requested that a 94 percent 
thermal efficiency be adopted if a condensing-only standard is set 
based on its review of market data, and noted that this efficiency 
aligns with the current ENERGY STAR levels and captures the main 
distribution of condensing models by market share. AHRI stated that its 
research indicates there is a misalignment between the market data and 
the available product data in terms of the market shares. (AHRI, No. 31 
at p. 2) Rheem also argued that all commercial gas-fired storage-type 
instantaneous water heaters with a rated storage volume less than 100 
gallons, as listed in the Compliance Certification Management System 
(``CCMS''), will not meet the proposed energy conservation standard of 
95 percent thermal efficiency. Rheem further stated that it is unproven 
if the proposed efficiency level can be achieved, given the design 
constraints for this product size, and recommended that DOE reevaluate 
EL3 for gas-fired storage-type instantaneous water heaters and add a 94 
percent thermal efficiency level, consistent with ENERGY STAR. (Rheem, 
No. 24 at p. 3) Similarly, Rheem stated that all but two hot water 
supply boilers with input rates above 500 kBtu/h and 200 Btu/h per 
gallon of storage volume will not meet the proposed energy conservation 
standard of 96 percent thermal efficiency, and added that given the 
design constraints, it is unproven that the proposed efficiency level 
can be achieved for these product sizes as well. Id. Rheem recommended 
that DOE reevaluate EL3 and EL4 for gas-fired hot water supply boilers 
with input rates above 500 kBtu/h and 200 kBtu/h per gallon of storage 
volume, which is consistent with Version 2.0 of the Energy Star Program 
Requirements Product Specification for Commercial Water Heaters. Id.
    A.O. Smith stated that the ENERGY STAR program has been a 
significant driver of the CWH market's adoption of high efficiency 
equipment. They added that the ENERGY STAR market penetration stood at 
51 percent in 2020, according to a report by ENERGY STAR. (A.O. Smith, 
No. 22 at p. 2, 3) Similarly, A.O. Smith added that while CWH customers 
continue to adopt high efficiency (e.g., condensing) commercial gas-
fired water heaters, the ENERGY STAR 94 percent thermal efficiency 
level for commercial gas-fired water heaters continues to be a 
catalyst. They explain that this standard still affords consumers a 
large range of high efficiency product options for the intended 
utility, which is especially important for small business owners who 
operate their enterprises on very small margins. In contrast, this 
range of options at or above 94 percent would become smaller if, as 
proposed, the Department sets new minimum energy conservation standards 
above the ENERGY STAR level. Id.
    In response to these comments, DOE reviewed the distributions of 
products on the market. As initially shown in chapter 3 of the May 2022 
CWH ECS NOPR TSD and updated in chapter 3 of the current final rule 
TSD, the market distributions show the greatest number of unique basic 
models within the condensing range at 96 percent for gas-fired storage 
water heaters and storage type-instantaneous water heaters, gas-fired 
tankless water heaters, and gas-fired circulating water heaters and hot 
water supply boilers. There are more models at this level than at 
either 95 or 94 percent for each product category. Although setting the 
standard at 94 percent would increase the potential for product 
differentiation at efficiency levels above the standard level, DOE 
anticipates that there is still room for product differentiation for 
both gas-fired storage water heaters (for which products above 95 
percent efficiency

[[Page 69718]]

currently exist at 96, 97, 98, and 99 percent), tankless water heaters 
(for which products exist at 97 percent efficiency), and circulating 
water heaters and hot water supply boilers (for which products exist at 
97, 98, and 99 percent). Furthermore, because most condensing gas water 
heaters are already at or above 95 percent (for gas storage water 
heaters) and 96 percent (for gas-fired instantaneous water heaters) and 
the equipment designs are similar at 94 percent but would result in 
less energy savings, DOE did not find a strong justification for 
analyzing a 94 percent efficiency level in this final rule. 
Additionally, because storage water heaters and storage-type 
instantaneous water heaters provide different consumer utility than 
instantaneous water heaters other than storage-type instantaneous water 
heaters (i.e., tankless water heaters and circulating water heaters and 
hot water supply boilers can provide a continuous supply of hot water 
on demand, while storage water heaters are often better suited to 
handle large initial demands for hot water, and are also more likely to 
have energy losses associated with hot water storage), DOE does not 
agree that inconsistent efficiency levels across these equipment 
categories will disadvantage certain markets. Therefore, DOE continued 
to use the same efficiency levels in this final rule as were analyzed 
in the May 2022 CWH ECS NOPR.

   Table IV.7--Baseline, Intermediate, and Max-Tech Thermal Efficiency Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
                                                                     Thermal efficiency levels
                                                 ---------------------------------------------------------------
                    Equipment                                                                           Et EL5 *
                                                  Baseline--Et   Et EL1    Et EL2    Et EL3    Et EL4      (%)
                                                       EL0         (%)       (%)       (%)       (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and              80        82        90        92        95        99
 storage-type instantaneous water heaters.......
Gas-fired instantaneous water heaters and hot               80        82        84        92        94        96
 water supply boilers...........................
----------------------------------------------------------------------------------------------------------------
* Et EL5 is the max-tech efficiency level for commercial gas-fired storage water heaters and storage-type
  instantaneous water heaters, as well as for gas-fired instantaneous water heaters and hot water supply
  boilers.

b. Standby Loss Levels
    DOE used the current energy conservation standards for standby loss 
to set the baseline standby loss levels. Table IV.8 shows these 
baseline standby loss levels for representative commercial gas-fired 
storage water heaters and storage-type instantaneous water heaters.

                    Table IV.8--Baseline Standby Loss Levels for Representative CWH Equipment
----------------------------------------------------------------------------------------------------------------
                                                             Representative    Representative   Baseline standby
                         Equipment                            rated storage    input capacity   loss level  (Btu/
                                                              volume (gal)        (kBtu/h)             h)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-                 100               199              1349
 type instantaneous water heaters.........................
----------------------------------------------------------------------------------------------------------------

    Standby loss is a function of storage volume and input capacity for 
gas-fired and oil-fired storage water heaters, and is affected by many 
aspects of the design of a water heater. Additionally, standby loss is 
not widely reported in manufacturer literature so DOE relied on current 
and past data obtained from DOE's Compliance Certification Database and 
the AHRI Directory. There is significant variation in reported standby 
loss values in these databases (e.g., standby loss values for 
commercial gas storage water heaters range from 33 percent to 100 
percent of the maximum allowable standby loss standard for those 
units). However, most manufacturers do not disclose the presence of 
technology options that affect standby loss, including insulation 
thickness and type, and baffle design, in their publicly-available 
literature. Because most manufacturers do not disclose the presence of 
such options, DOE was unable to determine the standby loss reduction 
from standby-loss-reducing technology options using market-rated 
standby loss data.
    As discussed in the May 2022 CWH ECS NOPR, for all commercial gas-
fired storage water heater levels, the only standby loss reduction 
analyzed corresponds to the inherent standby loss reduction from 
increasing thermal efficiency. (DOE notes that for non-condensing 
residential-duty gas-fired storage water heaters, an electromechanical 
flue damper and electronic ignition were considered which would improve 
UEF by reducing standby losses. This is discussed further in section 
IV.C.4.c of this document.) DOE did not analyze improved tank 
insulation as a technology option for reducing standby loss in this 
final rule because such insulation improvements would not be a viable 
standby loss reducing option for all models on the market.
    Standby loss is measured in the test procedure predominantly as a 
function of the fuel used to heat the stored water during the standby 
loss test, with a small contribution of electric power consumption (if 
the unit requires a power supply). Because standby loss is calculated 
using the fuel consumed during the test to maintain the water 
temperature, the standby loss is dependent on the thermal efficiency of 
the water heater. DOE used data from independent testing of CWH 
equipment at a third-party laboratory to estimate the fraction of 
standby loss that can be attributed to fuel consumption or electric 
power consumption. DOE then scaled down (i.e., made more stringent) the 
portion of the standby loss attributable to fuel consumption as thermal 
efficiency increased to estimate the inherent improvement in standby 
loss associated with increasing thermal efficiency. Chapter 5 of the 
final rule TSD explains these calculations, and the

[[Page 69719]]

interdependence of thermal efficiency and standby loss are explained in 
more detail.
    Standby loss levels for each equipment category are shown in the 
following sections in terms of Btu/h for the representative equipment. 
However, to analyze potential amendments to the current Federal 
standard, factors (``standby loss reduction factors'') were developed 
to multiply by the current maximum standby loss equation for each 
equipment class, based on the ratio of standby loss at each efficiency 
level to the current standby loss standard. The translation from 
standby loss values to maximum standby loss equations is described in 
further detail in section IV.C.4 of this final rule.
    In response to the May 2022 CWH ECS NOPR, Bock indicated support 
for DOE to set the reduction in standby loss to a level inherent with 
the proposed thermal efficiency. (Bock, No. 20 at p. 1) Rheem also 
commented in support of DOE's use of one standby loss level for each 
efficiency level, but stated that DOE did not clarify which 
technologies were used at the baseline and how these would be scaled 
across the various equipment sizes for any of the four equipment 
classes analyzed. (Rheem, No. 24 at p. 2)
    Bradford White requested that DOE reevaluate their assumptions that 
only changes in thermal efficiency will impact the standby loss level 
achieved. Bradford White stated that the relationship between standby 
loss and thermal efficiency can be impacted by the difference between 
the ambient and average tank temperatures during the test and by the 
time or total duration of the test, which is a function of the water 
heater's differential (i.e., the temperature below the setpoint where 
the control will call for heat). (Bradford White, No. 23 at p. 9) 
Additionally, Bradford White raised concerns with the limited number of 
units tested to develop the standby loss reduction factors for 
commercial gas storage water heaters. Bradford White also noted that 
DOE did not elaborate on what type of heat exchangers were in the 
products that were evaluated, which would impact the observed results. 
For example, the commenter explained that a multi-pass heat exchanger 
is more likely to have greater standby loss as compared to a coiled 
heat exchanger that is only a single pass. Bradford White recommended 
that DOE analyze a greater number of units, as well as account for the 
types of heat exchangers when further refining the standby loss 
reduction factors. (Bradford White, No. 23 at p. 3)
    As discussed in Chapter 5 of the TSD accompanying this final rule, 
DOE notes that it conducted testing prior to the withdrawn May 2016 CWH 
ECS NOPR to estimate the fraction of standby loss that can be 
attributed to fuel consumption or electric power consumption, and this 
fraction does not necessarily depend on the overall level of standby 
loss associated with each unit. Further, the units tested incorporated 
both multi-pass and coiled heat exchangers. Additionally, DOE's 
research regarding rated standby loss values showed that the majority 
of models at a given thermal efficiency level already meet the standby 
loss level associated with the standby loss reduction factor being 
applied for that level. In addition, because the majority of models on 
the market that meet each thermal efficiency level being analyzed also 
meet the corresponding standby loss level, further validating the 
standby loss levels by testing models on the market or by building 
water heater prototypes is not necessary and was not done for this 
final rule.
    Table IV.9 presents the examined standby loss levels in this final 
rule for commercial gas-fired storage water heaters and storage-type 
instantaneous water heaters (other than residential-duty gas-fired 
storage water heaters, which are addressed in the next section). As 
discussed, these levels reflect only the reduction in standby loss that 
is achieved by increasing thermal efficiency.

 Table IV.9--Standby Loss Levels for Commercial Gas-Fired Storage Water
 Heaters and Storage-Type Instantaneous Water Heaters, 100 Gallon Rated
              Storage Volume, 199,000 Btu/h Input Capacity
------------------------------------------------------------------------
                                              Thermal      Standby loss
        Thermal efficiency level          efficiency (%)    (Btu/h) (%)
------------------------------------------------------------------------
Et EL0..................................              80            1349
Et EL1..................................              82            1316
Et EL2..................................              90            1223
Et EL3..................................              92            1197
Et EL4..................................              95            1160
Et EL5..................................              99            1115
------------------------------------------------------------------------

c. Uniform Energy Efficiency Levels
    DOE conducted all analyses of potential amended standards for 
residential-duty commercial water heaters in this document in terms of 
UEF to reflect the current test procedure and metric.
    UEF standards are draw pattern-specific (i.e., there are separate 
standards for very small, low, medium, and high draw patterns) and are 
expressed by an equation as a function of the stored water volume. DOE 
analyzed increased standards in terms of increases to the constant term 
of the UEF equations and did not consider changes to the slopes of the 
volume-dependent term. Based on a review of the rated UEF and storage 
volume for products currently on the market, DOE determined that the 
existing slopes of the equations are representative of the relationship 
between UEF and stored volume across the range of efficiency levels, 
and thus, DOE did not find justification to consider varying the slope. 
Additionally, because all residential-duty gas-fired storage water 
heaters on the market are in the high draw pattern, the analysis was 
done for the high draw pattern and the same step increase are applied 
to all other residential-duty gas-fired storage water heater draw 
patterns. For residential-duty gas-fired storage water heaters, DOE 
chose four UEF levels between the baseline and max-tech levels for 
analysis.
    To determine the max-tech level, DOE analyzed the difference 
between UEF ratings of residential-duty gas-fired storage water heaters 
in its database (see section IV.A.3 of this document) and the minimum 
UEF allowed for each model based on their rated volumes. The maximum 
step increase (rounded to the nearest hundredth) was 0.35. However, 
this level was only achieved at a single storage volume and has not 
been demonstrated as being achievable across a range of storage 
volumes. As a result,

[[Page 69720]]

DOE considered the max-tech step increase to be 0.34, a level that has 
been demonstrated achievable by residential-duty gas-fired storage 
water heaters at a range of volumes.
    In response to the May 2022 CWH ECS NOPR, A.O. Smith stated that 
DOE's proposed condensing levels (including near max-tech (EL5) for the 
high draw pattern) for residential-duty gas-fired storage water heaters 
are disconnected from the current marketplace for this product category 
and may have the unintended consequence of severely restricting product 
availability, which will increase costs to consumers for this product 
type. A.O. Smith stated that manufacturers of residential-duty water 
heaters made capital investments and design improvements to this 
product class to meet the current ENERGY STAR 4.0 specification (e.g., 
UEF >= 0.80) and will need to potentially make additional investments 
in this product class given the ENERGY STAR program's recent 
publication of its final residential water heater version 5.0 
specification, which sets a minimum of 0.86 UEF value for gas fired RDC 
products effective April 28, 2023. A.O. Smith recommended that the 
appropriateness of setting a minimum energy conservation standard at 
the condensing EL4 level for gas-fired residential-duty commercial 
water heaters be reconsidered, and suggested that the UEF standard for 
this equipment in the high draw pattern be calculated as 0.9297-(0.0016 
x Vr). (A.O. Smith, No. 22 at pp. 4-5)
    However, as noted previously, DOE has found that the existing 
slopes of the equations are representative of the relationship between 
UEF and stored volume across the range of efficiency levels. A.O. Smith 
did not provide an explanation of why a slope of 0.0016 is more 
appropriate than 0.0009, and thus, DOE did not find justification to 
consider varying the slope. Additionally, the impacts of each EL are 
considered in DOE's subsequent analyses and discussed in detail in 
section V of this final rule. However, DOE notes that, for each 
affected equipment class, existing equipment across a broad range of 
storage volumes and input capacities meets or exceeds the minimum 
efficiency levels adopted in this final rule. DOE does not agree that 
consumer choice will be restricted as a result of the revised energy 
conservation standards. Additionally, as discussed in section V.C, DOE 
has concluded that the energy conservation standards adopted in this 
final rule are economically justified.
    The four intermediate UEF levels are representative of common 
efficiency levels and those that represent significant technological 
changes in the design of CWH equipment. Table IV.10 shows the examined 
UEF levels in this final rule for residential-duty gas-fired storage 
water heaters in terms of the incremental step increase and the 
resulting equation for high draw pattern models.

Table IV.1--Baseline, Intermediate, and Max-Tech UEF Levels for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
                                            Incremental
                UEF level                  step increase                 UEF (high draw pattern) *
----------------------------------------------------------------------------------------------------------------
EL0--Baseline...........................                0  0.6597-(0.0009 x Vr).
EL1.....................................             0.02  0.6797-(0.0009 x Vr).
EL2.....................................             0.09  0.7497-(0.0009 x Vr).
EL3.....................................             0.18  0.8397-(0.0009 x Vr).
EL4.....................................             0.27  0.9297-(0.0009 x Vr).
EL5.....................................             0.34  0.9997-(0.0009 x Vr).
----------------------------------------------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is used to determine the UEF rating. For
  simplicity and because all residential-duty gas-fired storage water heaters on the market are in the high draw
  pattern, only the high draw pattern efficiency levels are shown.

5. Standby Loss Reduction Factors
    As part of the engineering analysis for commercial gas-fired 
storage water heaters, DOE reviewed the maximum standby loss equations 
that define the existing Federal energy conservation standards for gas-
fired storage water heaters. The equations allow DOE to expand the 
analysis on the representative rated input capacity and storage volume 
to the full range of values covered under the existing Federal energy 
conservation standards.
    DOE uses equations to characterize the relationship between rated 
input capacity, rated storage volume, and standby loss. The equations 
allow DOE to account for the increases in standby loss as input 
capacity and tank volume increase. As the tank storage volume 
increases, the tank surface area increases, resulting in higher jacket 
losses. As the input capacity increases, the surface area of flue tubes 
may increase, thereby providing additional area for standby heat loss 
through the flue tubes. The current equations show that for gas-fired 
storage water heaters, the allowable standby loss increases as the 
rated storage volume and input rating increase. The current form of the 
standby loss standard (in Btu/h) for commercial gas-fired and oil-fired 
water heaters is shown in the multivariable equation below, depending 
upon both rated input (Q, Btu/h) and rated storage volume 
(Vr, gal).
[GRAPHIC] [TIFF OMITTED] TR06OC23.059

    In order to consider amended standby loss standards for commercial 
gas-fired storage water heaters, DOE needed to revise the current 
standby loss standard equation to correspond to the decreased standby 
loss value, in Btu/h, determined for the representative capacity.
    DOE analyzed more-stringent standby loss standards by multiplying 
the current maximum standby loss equation by reduction factors. The use 
of

[[Page 69721]]

reduction factors maintains the structure of the current maximum 
standby loss equation and does not change the dependence of maximum 
standby loss on rated input and rated storage volume, but still allows 
DOE to consider increased stringency for standby loss standards. The 
standby loss reduction factor is calculated by dividing each standby 
loss level (in Btu/h) by the current standby loss standard (in Btu/h) 
for the representative input capacity and storage volume.
    Table IV.11 shows the standby loss reduction factors determined in 
this final rule for commercial gas-fired storage water heaters for each 
thermal efficiency level. As discussed in section IV.C.4.b of this 
final rule, the standby loss reductions associated with commercial gas-
fired storage water heaters result from increased thermal efficiency. 
Chapter 5 of the final rule TSD includes more detail on the calculation 
of the standby loss reduction factor.

  Table IV.11--Standby Loss Reduction Factors for Commercial Gas-Fired
                          Storage Water Heaters
------------------------------------------------------------------------
                                          Thermal        Standby loss
      Thermal efficiency level        efficiency (%)   reduction factor
------------------------------------------------------------------------
Et EL0..............................              80                1.00
Et EL1..............................              82                0.98
Et EL2..............................              90                0.91
Et EL3..............................              92                0.89
Et EL4..............................              95                0.86
Et EL5..............................              99                0.83
------------------------------------------------------------------------

6. Teardown Analysis
    After selecting a representative input capacity and representative 
storage volume (for storage water heaters) for each equipment category, 
DOE selected equipment near both the representative values and the 
selected efficiency levels for its teardown analysis. DOE gathered 
information from these teardowns to create detailed BOMs that included 
all components and processes used to manufacture the equipment. For the 
analysis of residential-duty gas-fired storage water heaters DOE 
identified the UEF ratings of previously torn-down models, wherever 
possible, and used information from those existing teardowns to inform 
its analyses. To assemble the BOMs and to calculate the MPCs of CWH 
equipment, DOE disassembled multiple units into their base components 
and estimated the materials, processes, and labor required for the 
manufacture of each individual component, a process known as a 
``physical teardown.'' Using the data gathered from the physical 
teardowns, DOE characterized each component according to its weight, 
dimensions, material, quantity, and the manufacturing processes used to 
fabricate and assemble it.
    DOE also used a supplementary method called a ``catalog teardown,'' 
which examines published manufacturer catalogs and supplementary 
component data to allow DOE to estimate the major differences between 
equipment that was physically disassembled and similar equipment that 
was not. For catalog teardowns, DOE gathered product data such as 
dimensions, weight, and design features from publicly-available 
information (e.g., manufacturer catalogs and manufacturer websites). 
DOE also obtained information and data not typically found in catalogs, 
such as fan motor details or assembly details, from physical teardowns 
of similar equipment or through estimates based on industry knowledge. 
The teardown analysis performed for the withdrawn May 2016 CWH ECS NOPR 
used data from 11 physical teardowns and 22 catalog teardowns to inform 
development of cost estimates for CWH equipment. In the current final 
rule analysis, DOE included results from 11 additional physical 
teardowns of water heaters and hot water supply boilers. These 
additional physical teardowns replaced several of the virtual and 
physical teardowns conducted for the 2016 NOPR analysis to ensure that 
the MPC estimates better reflect designs of models on the market by 
including physical teardowns of models from additional manufacturers at 
numerous efficiency levels. Chapter 5 of the final rule TSD provides 
further detail on the CWH equipment units that were torn down.
    The teardown analysis allowed DOE to identify the technologies that 
manufacturers typically incorporate into their equipment, along with 
the efficiency levels associated with each technology or combination of 
technologies. As noted previously, the end result of each teardown is a 
structured BOM, which DOE developed for each of the physical and 
catalog teardowns. The BOMs incorporate all materials, components, and 
fasteners (classified as either raw materials or purchased parts and 
assemblies) and characterize the materials and components by weight, 
manufacturing processes used, dimensions, material, and quantity. The 
BOMs from the teardown analysis were then used to calculate the MPCs 
for each type of equipment that was torn down. The MPCs resulting from 
the teardowns were then used to develop an industry average MPC for 
each efficiency level and equipment category analyzed. Chapter 5 of the 
final rule TSD provides more details on BOMs and how they were used in 
determining the manufacturing cost estimates.
    During the manufacturer interviews conducted prior to the withdrawn 
May 2016 CWH ECS NOPR as well as in advance of this final rule, DOE 
requested feedback on its engineering analysis. DOE used the 
information it gathered from those interviews, along with the 
information obtained through the teardown analysis, to refine the 
assumptions and data used to develop MPCs. Chapter 5 of the final rule 
TSD provides additional details on the teardown process.
    During the teardown process, DOE gained insight into the typical 
technology options manufacturers use to reach specific efficiency 
levels. DOE also determined the efficiency levels at which 
manufacturers tend to make major technological design changes. Table 
IV.12 through Table IV.15 show the major technology options DOE 
observed and analyzed for each efficiency level and equipment category. 
DOE notes that in equipment above the baseline, and sometimes even at 
the baseline efficiency, additional features and functionalities that 
do not impact efficiency are often used to address non-efficiency-
related consumer demands (e.g., related to comfort or noise when 
operating). DOE did not include the additional costs for options such 
as advanced building communication and

[[Page 69722]]

control systems that are included in many of the high-efficiency models 
currently on the market, as they do not improve efficiency but do add 
cost to the model. In other words, DOE assumed the same level of non-
efficiency related features and functionality at all efficiency levels. 
Chapter 5 of the final rule TSD includes further detail on the 
exclusion of costs for non-efficiency-related features from DOE's MPC 
estimates.

  Table IV.12--Technologies Identified at Each Thermal Efficiency Level
             for Commercial Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
                                    Thermal
   Thermal efficiency level      efficiency(%)      Design changes *
------------------------------------------------------------------------
Et EL0........................              80
Et EL1........................              82  Increased heat exchanger
                                                 area.
Et EL2........................              90  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner.
Et EL3........................              92  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL4........................              95  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL5........................              99  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
------------------------------------------------------------------------
* The condensing heat exchanger surface area incrementally increases at
  each EL from Et EL2 to Et EL5.


  Table IV.13--Technologies Identified at Each Thermal Efficiency Level
          for Residential-Duty Gas-Fired Storage Water Heaters
------------------------------------------------------------------------
                                UEF (high draw
         UEF level                pattern) *         Design changes **
------------------------------------------------------------------------
EL0--Baseline.............  0.6597 - (0.0009 x
                             Vr).
EL1.......................  0.6797 - (0.0009 x     Increased heat
                             Vr).                   exchanger area.
EL2.......................  0.7497 - (0.0009 x     Electronic ignition,
                             Vr).                   electromechanical
                                                    flue damper or power
                                                    venting; increased
                                                    heat exchanger area.
EL3.......................  0.8397 - (0.0009 x     Electronic ignition;
                             Vr).                   condensing heat
                                                    exchanger; power
                                                    venting.
EL4.......................  0.9297 - (0.0009 x     Electronic ignition;
                             Vr).                   condensing heat
                                                    exchanger; power
                                                    venting; premix
                                                    burner; increased
                                                    heat exchanger area.
EL5.......................  0.9997 - (0.0009 x     Electronic ignition;
                             Vr).                   condensing heat
                                                    exchanger; power
                                                    venting; premix
                                                    burner; increased
                                                    heat exchanger area.
------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is
  used to determine the UEF rating. For simplicity and because all
  residential-duty gas-fired storage water heaters on the market are in
  the high draw pattern, only the high draw pattern efficiency levels
  are shown.
** The condensing heat exchanger surface area incrementally increases at
  each EL from EL3 to EL5.


  Table IV.14--Technologies Identified at Each Thermal Efficiency Level
                  for Gas-Fired Tankless Water Heaters
------------------------------------------------------------------------
                                  Thermal
  Thermal efficiency level    efficiency (%)       Design changes *
------------------------------------------------------------------------
Et EL0......................              80
Et EL1......................              82  Increased heat exchanger
                                               area.
Et EL2......................              84  Increased heat exchanger
                                               area.
Et EL3......................              92  Secondary condensing heat
                                               exchanger.
Et EL4......................              94  Secondary condensing heat
                                               exchanger, increased heat
                                               exchanger surface area.
Et EL5......................              96  Secondary condensing heat
                                               exchanger, increased heat
                                               exchanger surface area.
------------------------------------------------------------------------
* The heat exchanger surface area incrementally increases at each EL
  from Et EL0 to Et EL2 and from Et EL3 to Et EL5.


  Table IV.15--Technologies Identified at Each Thermal Efficiency Level
  for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
------------------------------------------------------------------------
                                    Thermal
   Thermal efficiency level     efficiency (%)      Design changes *
------------------------------------------------------------------------
Et EL0........................              80  ........................
Et EL1........................              82  Increased heat exchanger
                                                 area.
Et EL2........................              84  Increased heat exchanger
                                                 area, induced draft
                                                 blower.
Et EL3........................              92  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner.
Et EL4........................              94  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
Et EL5........................              96  Condensing heat
                                                 exchanger, forced draft
                                                 blower, premix burner,
                                                 increased heat
                                                 exchanger surface area.
------------------------------------------------------------------------
* The heat exchanger surface area incrementally increases at each EL
  from Et EL0 to Et EL2 and from Et EL3 to Et EL5.


[[Page 69723]]

    Rheem expressed doubt as to whether achieving 82 percent thermal 
efficiency is possible across the entire range of input rates and 
storage volumes without the addition of power venting technology. Rheem 
suggested that power venting technology should be included in the 
analysis at baseline and 82 percent thermal efficiency levels to 
reflect the regions requiring ultra-low NOX CWHs. (Rheem, 
No. 24 at p. 2) However, DOE has identified multiple non-condensing 
ultra-low NOX units that do not include power venting, which 
span a range of volumes and capacities. Therefore, contrary to Rheem's 
assertion, DOE does not expect that power venting would be necessary to 
achieve ultra-low NOX operation and did not include a power 
vent for those levels.
    Additionally, in response to the May 2022 CWH ECS NOPR, Bradford 
White commented that they disagree with DOE's assumption that 
unsophisticated controls can be used in condensing systems, stating 
that the controls need to be able to drive a blower, typically at 
different fan speeds, and provide diagnostics capability in order to 
provide the same reliability as non-condensing systems. Additionally, 
Bradford White stated that they disagree with the assumption that an 
increase in thermal efficiency would not affect heat loss because, they 
said, an increase in heat exchanger surface area will necessitate an 
increase in overall tank size to make up for lost storage volume and 
would likely lead to an increase in penetrations to the tank. (Bradford 
White, No. 23 at p. 2) Bradford White also noted that more 
sophisticated controls, a blower, different combustion components, and 
additional anodes are required to achieve condensing levels, and ensure 
a similar lifetime as non-condensing systems. (Bradford White, No. 23 
at p. 5) Bradford White stated that there are some features in 
condensing water heaters that should have been included in DOE's cost 
analysis because these are necessary features to ensure that the 
product has comparable reliability to non-condensing water heaters, 
especially if condensing water heaters are assumed to have the same 
lifetime as non-condensing water heaters. Id.
    As noted in the May 2022 CWH ECS NOPR, many condensing gas-fired 
storage water heaters currently on the market are often marketed as 
premium products and include non-efficiency-related features. Some of 
these features, such as built-in diagnostics and run history 
information, may require user interfaces, but a user interface is not 
necessary for operation of a condensing gas-fired storage water heater. 
DOE research suggests that condensing appliances may feature as little 
as a push button and several light-emitting diodes on the control board 
to communicate the status of the unit, error codes, and so on. Some 
condensing models on the market also include modulating burners and gas 
valves, which do require more sophisticated controls. However, 
modulation is not required to achieve condensing operation for gas-
fired storage water heaters and does not affect efficiency as measured 
by DOE's test procedure. Many condensing gas-fired storage water 
heaters currently on the market do not include modulating combustion 
systems or the corresponding more sophisticated controls. While a 
condensing combustion assembly (comprising a gas valve, blower, and 
premix burner) may require calibration by the manufacturer (the costs 
for which DOE accounts in its development of cost estimates), DOE does 
not believe that a technician would need a user interface included 
within the water heater in order to be able to successfully diagnose 
and service a gas-fired storage water heater with a non-modulating 
combustion assembly. In order to accurately assess the costs of 
adopting a more-stringent standard, DOE only considers costs of 
components that are necessary for models to achieve each efficiency 
level as measured by DOE's test procedure. 87 FR 30610, 30647. In 
response to Bradford White's assertion that increased thermal 
efficiency levels would necessitate increased storage volumes, DOE 
notes that its analysis was conducted for a fixed storage volume and 
DOE did account for slight adjustments to tank dimensions in its 
analysis of different efficiency levels.
    Therefore, DOE continued to not include the costs of features such 
as modulation and more sophisticated controls in its costs for high-
efficiency products. However, for the final rule analysis, DOE included 
powered anode rods in its cost models for some condensing gas-fired 
storage water heaters, in response to manufacturer feedback during 
interviews that these components may be necessary due to space 
constraints. In the May 2022 CWH ECS NOPR, DOE stated that the welds 
inside a storage water heater are typically the primary source of 
concern for corrosion inside a storage water heater. Further, DOE noted 
that a condensing gas-fired storage water heater with a multi-pass heat 
exchanger design \37\ will typically have more flue pipes and, 
therefore, more welds (joining the flue pipe and tank top or bottom) 
than would a non-condensing gas-fired storage water heater. To account 
for the fact that condensing gas-fired storage water heaters may 
require an additional anode rod to compensate for the additional welds, 
for the May 2022 CWH ECS NOPR analysis, DOE included the costs of an 
additional anode rod for residential-duty and commercial gas-fired 
storage water heaters with a multi-pass condensing heat exchanger 
design. 87 FR 30610, 30647. Manufacturer feedback during interviews 
conducted after the May 2022 CWH ECS NOPR suggested that in some cases 
adding additional (unpowered) anode rods is impractical due to internal 
geometry and therefore powered anode rods are required. DOE therefore 
included the additional costs for powered anode rods and associated 
controls for a subset of condensing gas-fired storage water heaters. 
Chapter 5 of the final rule TSD includes further detail on the 
exclusion of costs for non-efficiency-related features from DOE's MPC 
estimates and on the assumptions relating to anode rods.
---------------------------------------------------------------------------

    \37\ In a multi-pass condensing heat exchanger design, the flue 
gases are forced through flue tubes that span the length of the tank 
multiple times. Typically, the flue gases are re-directed back 
through the tank via return plenums located above and below the 
tank.
---------------------------------------------------------------------------

    In addition, Bradford White disagreed with DOE's assumption that a 
blower on top of a heat exchanger prevents hot air from escaping out of 
the flue like a flue damper. They stated that based on their testing 
and experience, a blower reduces standby loss but does not altogether 
prevent it as a damper would. (Bradford White, No. 23 at p. 2) In 
response, DOE notes that there are several residential-duty gas storage 
water heaters on the market that meet or exceed the efficiency of EL2 
and include a blower but do not include a flue damper. Therefore, based 
on its review of the market, DOE expects that either technology option 
can be used to meet that efficiency level.
    Additionally, for the May 2022 CWH ECS NOPR, DOE estimated that 20 
percent of commercial gas-fired storage water heater shipments are 
manufactured with ASME construction, based on feedback from 
manufacturer interviews. For this share of the market, DOE applied a 
multiplier of 1.2 to the MPC to account for the various costs 
associated with ASME construction (e.g., materials, labor, testing). 87 
FR 30610, 30648. Bradford White commented in support of DOE's 
adjustment of its MPC estimates for

[[Page 69724]]

commercial gas-fired storage water heaters for this final rule to 
account for the costs of American Society of Mechanical Engineers 
(``ASME'') construction. (Bradford White, No. 23 at p. 5) Chapter 5 of 
the final rule TSD includes additional details on DOE's analysis of 
ASME construction for commercial gas-fired storage water heaters.
7. Manufacturing Production Costs
    After calculating the cost estimates for all the components in each 
torn-down unit, DOE totaled the cost of materials, labor, depreciation, 
and direct overhead used to manufacture each type of equipment in order 
to calculate the MPC. DOE used the results of the teardowns on a 
market-share weighted average basis to determine the industry average 
cost increase to move from one efficiency level to the next. DOE 
reports the MPCs in aggregated form to maintain confidentiality of 
sensitive component data. DOE obtained input from manufacturers during 
the manufacturer interview process on the MPC estimates and 
assumptions.
    DOE estimated the MPC at each efficiency level considered for 
representative equipment of each equipment category. DOE also 
calculated the percentages attributable to each element of total 
production costs (i.e., materials, labor, depreciation, and overhead). 
These percentages are used to validate the assumptions by comparing 
them to manufacturers' actual financial data published in annual 
reports, along with feedback obtained from manufacturers during 
interviews. Chapter 5 of the final rule TSD contains additional details 
on how DOE developed the MPCs and related results.
    In response to the May 2022 CWH ECS NOPR, DOE received multiple 
comments regarding its MPC estimates. Rheem commented that the MPC 
estimates scaled from the May 2016 CWH ECS NOPR do not accurately 
reflect material supply chain issues and inflationary cost increases. 
(Rheem, No. 24 at p. 2) Rheem asserted that the MPCs presented in Table 
5.12.2 of the May 2022 CWH ECS NOPR TSD are significantly 
underestimated and similarly stated that the MPCs in Table 5.12.4 of 
the May 2022 CWH ECS NOPR TSD are also significantly underestimated 
across all efficiency levels.\38\ Specifically, they stated that in 
Table 5.12.2 of the May 2022 CWH ECS NOPR TSD, the incremental cost to 
shift from non-condensing to condensing, EL2 to EL3, is especially 
significant, though the non-condensing MPC estimates are more 
reasonable. (Rheem, No. 24 at p. 4) Rheem added that the incremental 
cost from non-condensing to condensing in Table 5.12.4 of the May 2022 
CWH ECS NOPR TSD, while low, is a reasonably accurate incremental 
increase. Id. Along the same lines, Rheem stated that the MPCs for all 
efficiency levels of commercial gas-fired storage water heaters are 
also significantly understated, and that the incremental cost between 
EL1 and EL2 should be much greater than $106. Rheem commented that DOE 
is not fully accounting for the differences between consumer 
(residential-duty) and commercial water heaters. Id. at p. 4. (Rheem, 
No. 24 at p. 4) Bradford White also stated that the increase in cost 
between EL1 and EL2 should be greater than $106 and cited the number of 
construction changes and components required to achieve condensing 
levels as rationale to support their assertion. (Bradford White, No. 23 
at p. 5)
---------------------------------------------------------------------------

    \38\ Table 5.12.2 presents DOE's estimated MPC, MSP, and 
shipping costs for residential-duty gas-fired storage water heaters 
at the representative rated storage volume of 75 gallons and 
representative input capacity of 76,000 Btu/h. Table 5.12.4 presents 
DOE's estimated MPC, MSP, and shipping costs for gas-fired 
circulating water heaters and hot water supply boilers at the 
representative input capacity of 399,000 Btu/h.
---------------------------------------------------------------------------

    Bock Water Heaters stated that in Table IV.16 of the May 2022 CWH 
ECS NOPR,\39\ the difference in cost between EL0 and condensing levels, 
specifically EL4, for commercial gas-fired storage water heaters is 
substantially understated. Bock Water Heaters also stated that the 
magnitude of the MPC estimates in Table IV.16 in the May 2022 CWH ECS 
NOPR were not representative of actual costs incurred by small 
manufacturers such as themselves. The commenter noted that although 
economies of scale will drive differences in MPC by manufacturer, the 
values presented in Table IV.16 of the May 2022 CWH ECS NOPR should be 
closer to an average representation of all manufacturers. (Bock Water 
Heaters, No. 20 at pp. 1-2)
---------------------------------------------------------------------------

    \39\ Table IV.16 presents the MPC for commercial gas fires 
storage water heaters at the representative rated storage volume of 
100 gallons and representative input capacity of 199,000 Btu/h.
---------------------------------------------------------------------------

    A.O. Smith stated that there is a meaningful delta (e.g., about 40 
percent) in DOE's estimated MPCs for the referenced 75 gallon product 
category versus what manufacturers submitted to the Department's 
contractor during confidential interviews. (A.O. Smith, No. 22 at p. 4)
    PHCC commented that DOE's analysis has undervalued product costs at 
higher efficiency levels by omitting costs for additional features. 
They feel that the net effect is a significant cost increase relative 
to the NOPR projections even if market pressures and streamlining of 
inventories leads to savings and lowers prices. (PHCC, No. 28 at p. 9) 
PHCC generally noted that they believe there are gaps in the economic 
analysis. (PHCC, No. 28 at p. 2) PHCC stated that according to a 
nationally known online plumbing wholesaler, one model of non-
condensing 100-gallon 199,000 Btu water heater would sell for about 
$8,100 (for product costs only) and the condensing version of that 
capacity would sell for about $10,000. (PHCC, No. 28 at p. 10)
    A.O. Smith expressed concern about the impacts of these inaccurate 
MPCs on the downstream analysis. (A.O. Smith, No. 22 at p. 4) Bock 
Water Heaters and Rheem expressed similar concern, and specifically 
noted that the understated MPC values may have affected the accuracy of 
the LCC analysis and PBP analysis. (Bock Water Heaters, No. 20 at pp. 
1-2; Rheem, No. 24 at p. 1)
    Bock Water Heaters, AHRI, Rheem, and PHCC also encouraged DOE to 
re-engage with manufacturers to verify its product cost information. 
(Bock Water Heaters, No. 20 at p. 2; AHRI, No. 31 at p. 5; Rheem, No. 
24 at p. 1; PHCC, No. 28 at p. 10) Specifically, AHRI requested that 
additional manufacturer interviews be conducted relating to 
manufacturing processes, costs, and capacity constraints as well as 
impacts on small manufacturers and shipping costs. (AHRI, No. 31 at p. 
5) Bradford White requested that DOE explain how it determined that 
improved economies of scale will offset other costs, noting that these 
other costs must be accounted for, will ideally be recovered, and will 
result from a more stringent standard (e.g., capital conversion costs). 
(Bradford White, No. 23 at p. 6)
    In response to these comments, DOE notes that it developed its MPC 
estimates based on teardowns of CWH equipment from a variety of 
manufacturers. DOE conducted several rounds of manufacturer interviews 
and follow-up interviews with all CWH equipment manufacturers that 
responded to DOE's requests for interviews, including additional 
interviews conducted after the publication of the May 2022 CWH ECS 
NOPR. As part of the manufacturer interview process, DOE sought 
feedback on its MPC estimates, as well as feedback on specific 
component, material, labor, and assembly costs. DOE's methodology for 
developing MPC estimates involves estimating the material, labor, 
depreciation, and overhead costs for every part and assembly within a 
unit. DOE agrees that

[[Page 69725]]

prices for many parts have increased in recent years. Component costs 
were also updated for this final rule analysis, to reflect recent 
fluctuations and trends in cost values.
    Conducting the analysis to this level of detail allows DOE to 
estimate the cost of units that were not physically torn down, or to 
estimate the costs of making slight design changes such as adding an 
inch of insulation or increasing heat exchanger size. In the interviews 
conducted prior to the withdrawn May 2016 CWH ECS NOPR, DOE presented 
manufacturers with MPC estimates broken down by each assembly (e.g., 
burner and gas valve, heat exchanger, controls) of the water heater, or 
even a BOM of a torn-down unit from that manufacturer for specific 
feedback on the estimated costs for every single part within the torn-
down unit.
    Regarding the incremental costs between non-condensing and 
condensing levels, DOE first notes that the incremental MPC estimate 
reflects the additional components needed to build a condensing product 
while subtracting components that are either replaced or obviated. For 
example, condensing gas-fired storage water heaters require a 
mechanical draft combustion system, while baseline non-condensing 
models do not. Conversely, baseline non-condensing commercial water 
heaters typically include an electromechanical flue damper, while 
condensing models do not because they have a mechanical-draft 
combustion system that obviates the need for a flue damper.
    Additionally, as discussed in section IV.C.6 of this final rule, 
DOE standardized non-efficiency-related features across all efficiency 
levels. This may cause DOE's incremental MPC estimates to seem lower 
than that of equipment currently on the market, because in many cases 
condensing equipment is currently marketed as a premium product and 
includes features (e.g., advanced controls or modulating gas valves) 
that are not necessary for condensing operation and do not affect 
efficiency as measured by DOE's test procedure. However, as discussed 
in section IV.C.6, based on feedback received during manufacturer 
interviews, DOE did update its cost models for a subset of condensing 
gas-fired storage water heaters to include powered anode rods. The 
updates to part prices as well as the other changes that DOE 
implemented increased the cost delta between noncondensing and 
condensing gas-fired storage water heaters from $106.41 to $120.65. 
Chapter 5 of the final rule TSD includes further detail on the 
exclusion of costs for non-efficiency-related features from DOE's MPC 
estimates.
    The MPC estimates presented in this final rule and chapter 5 of the 
final rule TSD are market-shared weighted average MPCs, which will not 
necessarily be representative for every design pathway used by every 
manufacturer (i.e., they reflect the industry average cost). DOE 
research suggests that the absolute and incremental MPCs between 
baseline and condensing levels are higher for some manufacturers than 
others. Therefore, DOE included multiple design pathways that are used 
by a range of manufacturers and that represent the vast majority of 
models on the market in the market-share weighted average cost 
estimates, both in absolute as well as incremental terms. Similarly, in 
response to comments about its production volumes, DOE notes that its 
model incorporates different production volumes (which are also 
informed by manufacturer feedback) when developing the production cost 
estimates from different manufacturers. DOE then combined the resulting 
production cost estimates from different manufacturers into its market-
share weighted average cost estimates.
    Finally, in response to PHCC's comment suggesting that publicly-
available costs are much higher than DOE's MPCs, DOE notes that these 
MPCs do not account for any subsequent markups, such as from 
manufacturers, wholesalers, or mechanical contractors, that will 
increase the price for end consumers. Manufacturer markups are 
discussed in more detail in section IV.C.8 and other markups are 
discussed in section IV.D.
    For the reasons summarized previously, DOE has concluded that its 
methodology for developing MPC estimates presented in the May 2022 CWH 
ECS NOPR is sound and has maintained a similar methodology for this 
final rule. Additionally, as discussed, DOE understands that many 
component prices have been increasing recently and DOE revised inputs 
to the development of MPC estimates based on updated information 
(including pricing for raw materials and purchased parts) received from 
manufacturers after the May 2022 CWH ECS NOPR. These changes resulted 
in increased MPCs. Depending on the specific product categories and 
efficiency levels, these changes increased MPCs by between 9 percent 
and 27 percent as compared to the May 2022 CWH ECS NOPR. Because prices 
continue to fluctuate, and the analyses for this final rule are in 
2022$ (thus reflecting average values in 2022), there may continue to 
be discrepancies between the MPCs and the current prices at the time of 
publication. Using 5-year averages for raw metals (as discussed in 
chapter 5 of this final rule TSD) is also expected to smooth out spikes 
in raw metal costs. Table IV.16, Table IV.17, and Table IV.18 of this 
document show the MPC for each combination of thermal efficiency and 
standby loss levels for each equipment category.

   Table IV.16--Manufacturer Production Costs for Commercial Gas-Fired
  Storage Water Heaters, 100-Gallon Rated Storage Volume, 199,000 Btu/h
                             Input Capacity
------------------------------------------------------------------------
                                              Thermal
        Thermal efficiency level            efficiency       MPC 2022$
------------------------------------------------------------------------
Et EL0..................................              80       $1,453.78
Et EL1..................................              82        1,489.43
Et EL2..................................              90        1,610.08
Et EL3..................................              92        1,629.39
Et EL4..................................              95        1,666.24
Et EL5..................................              99        1,733.86
------------------------------------------------------------------------


[[Page 69726]]


  Table IV.17--Manufacturer Production Costs for Residential-Duty Gas-
Fired Storage Water Heaters, 75-Gallon Rated Storage Volume, 76,000 Btu/
                            h Input Capacity
------------------------------------------------------------------------
                                       UEF (high draw
         Efficiency level                pattern) *          MPC 2022$
------------------------------------------------------------------------
EL0...............................  0.6597-(0.0009 x Vr)         $403.91
EL1...............................  0.6797-(0.0009 x Vr)          410.90
EL2...............................  0.7497-(0.0009 x Vr)          512.22
EL3...............................  0.8397-(0.0009 x Vr)          581.66
EL4...............................  0.9297-(0.0009 x Vr)          770.60
EL5...............................  0.9997-(0.0009 x Vr)          801.30
------------------------------------------------------------------------
* UEF standards vary based on the test procedure draw pattern that is
  used to determine the UEF rating. For simplicity and because all
  residential-duty gas-fired storage water heaters on the market are in
  the high draw pattern, only the high draw pattern efficiency levels
  are shown.


    Table IV.18--Manufacturer Production Costs for Gas-Fired Instantaneous Water Heaters and Hot Water Supply
                                                     Boilers
----------------------------------------------------------------------------------------------------------------
                                                                                             MPC 2022$
                                                                                 -------------------------------
                                                                                     Gas-fired       Gas-fired
                                                                                  tankless water    circulating
                    Thermal efficiency level                          Thermal         heaters      water heaters
                                                                  efficiency (%) ----------------  and hot water
                                                                                                  supply boilers
                                                                                   250,000 Btu/h ---------------
                                                                                                   399,000 Btu/h
----------------------------------------------------------------------------------------------------------------
Et EL0..........................................................              80         $566.87       $1,259.70
Et EL1..........................................................              82          575.83        1,270.95
Et EL2..........................................................              84          584.62        1,355.79
Et EL3..........................................................              92          686.29        3,146.59
Et EL4..........................................................              94          709.22        3,329.25
Et EL5..........................................................              96          741.13        3,511.91
----------------------------------------------------------------------------------------------------------------

8. Manufacturing Markups and Manufacturer Selling Price
    To account for manufacturers' non-production costs and profit 
margin, DOE applies a non-production cost multiplier (the manufacturer 
markup) to the full MPC. The resulting MSP is the price at which the 
manufacturer can recover all production and non-production costs and 
earn a profit. To calculate the manufacturer markups, DOE used data 
from 10-K reports \40\ submitted to the U.S. Securities and Exchange 
Commission (``SEC'') by the three publicly-owned companies that 
manufacture CWH equipment. DOE averaged the financial figures spanning 
the years 2008 to 2013 in order to calculate the initial estimate of 
markups for CWH equipment for this rulemaking. During interviews 
conducted ahead of the withdrawn May 2016 CWH ECS NOPR, DOE discussed 
the manufacturer markup with manufacturers and used the feedback to 
modify the manufacturer markup calculated through review of SEC 10-K 
reports. DOE considers the manufacturer markup published in the May 
2016 CWH ECS NOPR to be the best publicly available information. In 
this final rule, DOE is maintaining the manufacturer markups used 
previously in the May 2016 CWH ECS NOPR, as DOE has not received any 
additional information or data to indicate that a change would be 
warranted.
---------------------------------------------------------------------------

    \40\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at sec.gov).
---------------------------------------------------------------------------

    To calculate the MSP for CWH equipment, DOE multiplied the 
calculated MPC at each efficiency level by the manufacturer markup. See 
chapter 12 of the final rule TSD for more details about the 
manufacturer markup calculation and the MSP calculations.
9. Shipping Costs
    Manufacturers of CWH equipment typically pay for shipping to the 
first step in the distribution chain. Freight is not a manufacturing 
cost, but it is a substantial cost incurred by the manufacturer that is 
passed through to consumers. Therefore, DOE accounted for shipping 
costs of CWH equipment separately from other non-production costs.
    DOE research suggests that trailers either cube-out (i.e., run out 
of floor space or storage volume) or weigh-out (i.e., reach their 
allowed weight limits). Because storage water heaters are filled with 
air during shipping and instantaneous water heaters and hot water 
supply boilers are typically lighter than commercial storage water 
heaters, DOE research suggests that trailers filled with CWH equipment 
will typically cube-out before they weigh-out. Additionally, because 
the space above and around the CWH equipment can be filled with smaller 
and/or lighter products, DOE understands that trailers are typically 
filled in a way that maximizes the available storage space. As a 
result, changes to the cubic volume of the product are just as critical 
as changes to the footprint in determining the change to the shipping 
cost as unit size increases. DOE's shipping cost analysis only includes 
estimates of the shipping costs for CWH equipment, not for other 
products that may be included in the same truckload, although CWH 
equipment is likely to be shipped alongside other products, presumably 
to make efficient use of the space in shipping trailers.
    Therefore, in this rulemaking, shipping costs for all classes of 
CWH equipment were determined based on the cubic volume occupied by the 
representative units. DOE first calculated the cost per usable unit 
volume of a trailer, using the standard dimensions of a volume of a 53-
foot trailer and an estimated 5-year average cost per shipping load 
that approximates the cost of shipping the equipment from the middle of 
the

[[Page 69727]]

country to either coast. Based on its experience with other 
rulemakings, DOE recognizes that trailers are rarely shipped completely 
full and, in calculating the cost per cubic foot, assumed that shipping 
loads would be optimized such that on average 80 percent of the volume 
of a shipping container would be filled with cargo. The calculated cost 
to ship each unit was the ratio of the unit's total volume (including 
packaging) divided by the volume of the shipping container expected to 
be filled with cargo and multiplied by the total cost of shipping the 
trailer. DOE recognizes that its shipping costs do not necessarily 
reflect how every unit of CWH equipment is shipped, that it is possible 
that units are shipped differently, and that the corresponding shipping 
costs may differ from DOE's estimates based on a variety of factors 
such as composition of the units in a given shipping load and the 
actual manufacturing location and shipment destination. However, DOE's 
analysis is intended to provide an estimate of the shipping cost that 
is representative of the cost to ship the majority of CWH equipment 
shipments and cannot feasibly account for the shipping costs of every 
individual unit shipped. Chapter 5 of the final rule TSD contains 
additional details about DOE's shipping cost assumptions and DOE's 
shipping cost estimates.
    Rheem expressed support for DOE's method of calculating a 
representative shipping cost, and notes that a trailer volume of 80 
percent is reasonably conservative. (Rheem, No. 24 at p. 8) However, 
Bradford White suggested that DOE's use of a 5-year average in shipping 
costs is not accurate due to dramatic increases in shipping costs in 
the past 2 to 3 years. (Bradford White, No. 23 at p. 6).
    In response, for this final rule DOE used the most current shipping 
costs available at the time of the analysis to determine the per unit 
shipping cost, rather than a 5-year average. DOE agrees with Bradford 
White that this more accurately reflects current costs.

D. Markups Analysis

    The markups analysis develops appropriate markups in the 
distribution chain (e.g., retailer markups, distributer markups, 
contractor markups, and sales taxes) to convert the estimates of 
manufacturer selling price derived in the engineering analysis to 
consumer prices, which are then used in the LCC and PBP analysis and in 
the manufacturer impact analysis. At each step in the distribution 
channel, companies mark up the price of the product to cover business 
costs and profit margin.
    DOE developed baseline and incremental markups for each actor in 
the distribution chain. DOE developed supply chain markups in the form 
of multipliers that represent increases above equipment purchase costs 
for key market participants, including CWH equipment wholesalers/
distributors, retailers, and mechanical contractors and general 
contractors working on behalf of consumers. Baseline markups are 
applied to the price of products with baseline efficiency, while 
incremental markups are applied to the difference in price between 
baseline and higher-efficiency models (the incremental cost increase). 
The incremental markup is typically less than the baseline markup and 
is designed to maintain similar per-unit operating profit before and 
after new or amended standards.\41\
---------------------------------------------------------------------------

    \41\ Because the projected price of standards-compliant products 
is typically higher than the price of baseline products, using the 
same markup for the incremental cost and the baseline cost would 
result in higher per-unit operating profit. While such an outcome is 
possible, DOE maintains that in markets that are reasonably 
competitive it is unlikely that standards would lead to a 
sustainable increase in profitability in the long run.
---------------------------------------------------------------------------

1. Distribution Channels
    Four different markets exist for CWH equipment: (1) new 
construction in the residential buildings sector, (2) new construction 
in the commercial buildings sector, (3) replacements in the residential 
buildings sector, and (4) replacements in the commercial buildings 
sector. DOE developed eight distribution channels to address these four 
markets.
    For the residential and commercial buildings sectors, DOE 
characterizes the replacement distribution channels as follows:

 Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor 
[rarr] Consumer
 Manufacturer [rarr] Manufacturer Representative [rarr] 
Mechanical Contractor [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] Mechanical Contractor 
[rarr] Consumer

    DOE characterizes the new construction distribution channels for 
the residential and commercial buildings sectors as follows:

 Manufacturer [rarr] Wholesaler [rarr] Mechanical Contractor 
[rarr] General Contractor [rarr] Consumer
 Manufacturer [rarr] Manufacturer Representative [rarr] 
Mechanical Contractor [rarr] General Contractor [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] General Contractor [rarr] 
Consumer

    In addition to these distribution channels, there are scenarios in 
which manufacturers sell CWH equipment directly to a consumer through a 
national account, or a consumer purchases the equipment directly from a 
retailer. These scenarios occur in both new construction and 
replacements markets and in both the residential and commercial 
sectors. In these instances, installation is typically accomplished by 
site personnel. These distribution channels are depicted as follows:

 Manufacturer [rarr] Consumer
 Manufacturer [rarr] Retailer [rarr] Consumer.
2. Comments on the May 2022 CWH ECS NOPR
    Joint Gas Commenters note that while markups vary between new and 
replacement, there is very little difference between the values. (Joint 
Gas Commenters, No. 34 at p. 19) DOE relies on U.S. Census and other 
sources of data, some of which cannot be separated accurately into new 
and replacement segments, or when it can be separated the differences 
are small. When component pieces are combined to form markups, the new 
and replacement markup factors incorporate either the same inputs or 
inputs with small variations.
3. Markups Used in This Final Rule
    Consistent with the May 2022 CWH ECS NOPR, to develop markups for 
this final rule, DOE utilized several sources, including the following: 
(1) The Heating, Air-Conditioning & Refrigeration Distributors 
International (``HARDI'') 2013 Profit Report \42\ to develop wholesaler 
markups; (2) the 2020 ACCA Cool Insights document containing financial 
analysis for the heating, ventilation, air-conditioning, and 
refrigeration (``HVACR'') contracting industry \43\ to develop 
mechanical contractor markups; (3) the U.S. Census Bureau's 2017 
Economic Census data \44\ for the commercial and institutional building 
construction industry to develop mechanical and general contractor 
markups; and (4) the U.S. Census Bureau's 2017 Annual

[[Page 69728]]

Retail Trade Survey \45\ data to develop retail markups.
---------------------------------------------------------------------------

    \42\ Heating Air-conditioning & Refrigeration Distributors 
International. Heating, Air-Conditioning & Refrigeration 
Distributors International 2013 Profit Report.
    \43\ Air Conditioning Contractors of America (ACCA). Cool 
Insights 2020: ACCA's Contractor Financial & Operating Performance 
Report (Based on 2018 Operations). 2020.
    \44\ U.S. Census Bureau. 2017 Economic Census Data. 2020. 
Available at www.census.gov/programs-surveys/economic-census.html. 
The 2017 Economic Census is the most recent census available. The 
next census, the 2022 Economic Census, is scheduled to begin 
releasing results in 2024.
    \45\ U.S. Census Bureau. 2017 Annual Retail Trade Survey. 2019. 
Available at www.census.gov/retail/.
---------------------------------------------------------------------------

    In addition to markups of distribution channel costs, DOE derived 
State and local taxes from data provided by the Sales Tax 
Clearinghouse.\46\ Because both distribution channel costs and sales 
tax vary by State, DOE developed its markups to vary by State. Chapter 
6 of the final rule TSD provides additional detail on markups.
---------------------------------------------------------------------------

    \46\ The Sales Tax Clearing House. 2022. Available at 
www.thestc.com/STrates.stm. Last accessed December 4, 2022.
---------------------------------------------------------------------------

E. Energy Use Analysis

    The purpose of the energy use analysis is to assess the energy 
requirements (i.e., annual energy consumption) of CWH equipment 
described in the engineering analysis for a representative sample of 
building types that utilize the equipment, and to assess the energy-
savings potential of increased equipment efficiencies. The energy use 
analysis estimates the range of energy use of CWH equipment in the 
field (i.e., as the equipment is actually used by consumers). The 
energy use analysis provides the basis for other analyses DOE 
performed, particularly assessments of the energy savings and the 
savings in consumer operating costs that could result from adoption of 
amended or new standards.
    The energy use for commercial water heaters varies by type of 
commercial or residential building, by region, and by type and size of 
CWH equipment. As explained in more detail below, and in the NOPR, for 
this rulemaking, the energy use for water heaters is estimated by 
identifying the various commercial buildings or residential buildings 
in EIA's 2020 CBECS or 2009 RECS that utilize natural gas for water 
heating and, for these buildings, estimating the hot water used in 
gallons per day, taking into account the building type and the presence 
of specific building activities. At the same time, DOE identified from 
the same sample those buildings with estimated peak hot water loads 
large enough to need commercial water heaters of the type examined in 
this rulemaking. DOE's assessment of peak hot water loads considered 
characteristics of the individual building including occupancy, 
building type, floorspace, and other specific sampled data that are 
used in sizing water heating systems, e.g. number of rooms in hotel or 
dormitory, beds in a health care facility, seats in a restaurant, etc. 
When considering multifamily residential, only buildings that indicate 
the use of central hot water systems serving multiple apartments are 
considered candidates for commercial water heaters. For those buildings 
with large enough peak hot water demand, DOE used the estimated annual 
hot water usage (gallons/day) for each of the buildings within the 
sample, the incoming water temperatures, by month, derived for the 
location, and the expected hot water delivery temperature to calculate 
the annual hot water load (Btu/yr) for the building, including 
additional piping circulation energy losses where appropriate. DOE 
converts this to an average hot water load in (Btu/day).
    For each type of commercial water heater, DOE calculates the output 
capacity of the representative size water heater at design conditions 
and at the baseline efficiency level, taking into account the usable 
storage volume, where applicable, and the length of the peak sizing 
period in hours based upon industry sizing guidance. Then for each of 
the above buildings, DOE divides the daily hot water load requirements 
by the hourly capacity of the water heater over the sizing period to 
get the daily average burner operating hours necessary to meet the 
above hot water load for the baseline unit at full output. Then for the 
remaining hours in the day, DOE uses the water heater hourly standby 
energy loss rate to calculate daily average standby loss energy 
consumption. The daily energy consumption at baseline efficiency is 
calculated as the operating hours to meet the building hot water load 
times the full load input of the water heater plus the daily energy 
consumed to meet the water heater standby loss. The average daily 
energy for the equipment is then multiplied by the number of days in a 
year to get annual energy consumption.
    For the rulemaking, DOE is assessing the effect efficiency 
improvements have on energy consumption. For the representative 
equipment in each class, the burner operating hours to meet the 
building load requirements decreases with improved efficiency. DOE uses 
the decreased operating hours to calculate the annual energy 
consumption for the water heater at each higher efficiency level 
considered. Chapter 7, appendix 7A, and appendix 7B present further 
detail regarding the water sizing methodology and estimation of 
building hot water loads and corresponding energy consumption by 
efficiency level.
    DOE estimated the annual energy consumption of CWH equipment at 
specified energy efficiency levels across a range of commercial and 
multifamily residential buildings in different climate zones, with 
different building characteristics, and including different water 
heating applications. The annual energy consumption includes use of 
natural gas (or liquefied petroleum gas (``LPG'')) as well as use of 
electricity for auxiliary components.
    DOE developed representative hot water volumetric loads and water 
heating energy usage for the selected representative products for each 
equipment category and building type combination and efficiency level 
analyzed. This approach used by DOE captures the variability in CWH 
equipment use due to factors such as building activity, schedule, 
occupancy, tank losses, and distribution system piping losses.
    CWH equipment analyzed in this rulemaking is used in commercial 
building applications and certain residential applications, 
particularly multifamily buildings. For commercial sector buildings, 
DOE used the daily load schedules and normalized peaks from the 2013 
DOE Commercial Prototype Building Models \47\ to develop gallons-per-
day hot water loads for the analyzed commercial building types.\48\ For 
this final rule, DOE assigned the corresponding hot water loads on a 
square-foot basis to associated commercial building records in the 
EIA's 2018 CBECS \49\ in accordance with their detailed principal 
building activity subcategories. For residential building types, DOE 
used the hot water loads model developed by Lawrence Berkeley National 
Laboratory (``LBNL'') for the 2010 rulemaking for ``Energy Conservation 
Standards for Residential Water Heaters, Direct Heating Equipment, and 
Pool Heaters.'' \50\ For this final rule, DOE applied this model to the 
residential building records in the EIA's 2009 Residential Energy 
Consumption Survey (``RECS'').\51\ For

[[Page 69729]]

the May 2022 CWH ECS NOPR DOE decided not to use the 2015 RECS because 
it lacked information including the number of apartments and the number 
of floors in the building of apartment observations, and other 
information such as householder age distributions was less robust than 
in the 2009 RECS dataset. Because of the data issues with the 2015 RECS 
and because the 2020 RECS was not yet final at the time the final rule 
analysis was completed, DOE maintained use of the 2009 RECS. For RECS 
housing records in multi-family buildings, DOE focused only on 
apartment units that share water heaters with other units in the 
building. Since the LBNL model was developed in part to analyze 
individual apartment hot water loads, DOE had to modify it for the 
analysis of shared water heater/whole building loads. DOE established 
statistical average occupancy of RECS apartment unit records when 
determining the individual apartment unit's load. DOE also developed 
individual apartment loads as if each were equipped with a storage 
water heater in accordance with LBNL's methodology. Then, DOE 
multiplied the apartment unit's load by the number of representative 
units in the building to determine the building's total hot water load.
---------------------------------------------------------------------------

    \47\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. Commercial Prototype Building Models. 2013. 
Available at www.energycodes.gov/prototype-building-models.
    \48\ Such commercial building types included the following: 
small office, medium office, large office, stand-alone retail, strip 
mall, primary school, secondary school, outpatient healthcare, 
hospital, small hotel, large hotel, warehouse, quick service 
restaurant, and full-service restaurant.
    \49\ U.S. Energy Information Administration (EIA). 2018 
Commercial Building Energy Consumption Survey (CBECS) Data. 2018. 
Available at www.eia.gov/consumption/commercial/data/2018/.
    \50\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. Final Rule Technical Support Document: Energy 
Conservation Standards for Residential Water Heaters, Direct Heating 
Equipment, and Pool Heaters. April 8, 2010. EERE-2006-STD-0129-0149. 
Available at www.regulations.gov/#!documentDetail;D=EERE-2006-STD-
0129-0149.
    \51\ U.S. Energy Information Administration (EIA). 2009 
Residential Energy Consumption Survey (RECS) Data. 2009. Available 
at www.eia.gov/consumption/residential/data/2009/.
---------------------------------------------------------------------------

    DOE converted daily volumetric hot water loads into daily Btu 
energy loads by using an equation that multiplies a building's gallons-
per-day consumption of hot water by the density of water,\52\ specific 
heat of water,\53\ and the hot water temperature rise. To calculate 
temperature rise, DOE developed monthly dry bulb temperature estimates 
for each U.S. State using typical mean year (``TMY'') temperature data 
as captured in location files provided for use with the DOE EnergyPlus 
Energy Simulation Software.\54\ Then, these dry bulb temperatures were 
used to develop inlet water temperatures using an equation and 
methodology developed by the National Renewable Energy Laboratory 
(``NREL'').\55\ DOE took the difference between the building's water 
heater set point temperature used in its energy analysis and the inlet 
temperature to determine temperature rise (see chapter 7 of the final 
rule TSD for more details). In addition, DOE developed building-
specific Btu load adders to account for the heat losses of building 
types that typically use recirculation loops to distribute hot water to 
end uses. DOE converted daily average hot water building loads 
(calculated for each month using monthly inlet water temperatures) to 
annual water heater loads for use in determining annual energy use for 
the representative water heaters at each efficiency level analyzed.
---------------------------------------------------------------------------

    \52\ DOE used 8.29 gallons per pound.
    \53\ DOE used 1.000743 Btu per pound per degree Fahrenheit.
    \54\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data.
    \55\ Hendron, R. Building America Research Benchmark Definition, 
Updated December 15, 2006. January 2007. National Renewable Energy 
Laboratory: Golden, CO. Report No. TP-550-40968. Available at 
www.nrel.gov/docs/fy07osti/40968.pdf.
---------------------------------------------------------------------------

    DOE developed a maximum hot water loads methodology for buildings 
for determining the number of representative equipment needed using the 
data and calculations from a major water heater manufacturer's sizing 
calculator.\56\ DOE notes that the sizing calculator used was generally 
more comprehensive and transparent in its maximum hot water load 
calculations than other publicly available sizing calculators 
identified. For the final rule this methodology was applied to selected 
commercial building records in 2018 CBECS and residential building 
records in 2009 RECS to determine peak gallons-per-hour requirements, 
assuming a temperature rise specific to the building, for sizing of the 
water heater system. For buildings with sizing based greater than one 
hour sizing periods, the average gallons per hour requirement during 
the peak was developed. DOE divided these peak hourly hot water loads 
by the average hourly hot water delivery capability of the baseline 
representative model of each equipment category over the sizing period, 
including in the case of circulating water heaters and boilers the 
usable hot water storage of external storage tanks over that period, to 
determine the number of representative water heater units required to 
service the maximum load. For each representative unit of the CWH 
equipment analyzed for the final rule, DOE examined the individual 
CBECS and RECS building peak hot water loads to find those building 
observations whose loads indicated a need of at least 0.9 water 
heaters, based on the representative model analyzed, to fulfill their 
maximum load requirements. Due to the maximum input capacity and 
storage specifications of residential-duty commercial gas-fired storage 
water heaters, DOE limited the buildings sample of this equipment class 
to building records requiring four or fewer representative water 
heaters to fulfill maximum load since larger maximum load requirements 
are more likely served by larger capacity equipment. For gas-fired 
tankless water heaters, a similar limit of four units per building was 
set. For the commercial gas-fired storage and the instantaneous water 
heaters and hot water supply boiler equipment classes, DOE set an upper 
limit at 40 units. DOE recognizes that these two equipment classes 
cover a wide range of capacities, and 40 units is equivalent to a much 
smaller of very large units in the same equipment classes. This limit 
had the effect of eliminating a small number of exceptionally large 
loads from consideration. In addition, for gas-fired tankless water 
heaters, an adjustment factor was applied to the first-hour capability 
to account for the shorter time duration for sizing this equipment, 
given its minimal stored water volume. DOE used the Modified Hunter's 
Curve method,\57\ which estimates a maximum water demand of a building 
accounting for statistical probabilities for simultaneous fixture use 
for sizing of instantaneous water heaters to develop the adjustment 
factors for commercial gas-fired tankless water heaters. The applied 
adjustment factor modifies the first hour delivery capability 
calculations of commercial gas-fired tankless water heaters to account 
for the shorter time duration used to size for a very short 
``instantaneous'' peak for this equipment, given the minimal volume of 
stored water to buffer meeting short duration peaks during the 1-hour 
maximum load period used for the first hour rating. Gas-fired 
circulating water heaters and hot water supply boilers as a class were 
teamed with unfired storage tanks to determine their first-hour 
capabilities since this is the predominant installation approach for 
this equipment. (See appendix 7B of the final rule TSD).
---------------------------------------------------------------------------

    \56\ A.O. Smith. Pro-Size Water Heater Sizing Program. Available 
at www.hotwatersizing.com/. Last accessed in December 20, 2022.
    \57\ PVI Industries Inc. ``Water Heater Sizing Guide for 
Engineers,'' Section X, pp. 18-19. Available at oldsizing.pvi.com/pv592%20sizing%20guide%2011-2011.pdf.
---------------------------------------------------------------------------

    For each equipment type being examined, DOE sampled all RECS and 
CBECS buildings that were deemed suitable for the development of the 
representative loads for that equipment type using a Monte Carlo 
analysis in the LCC model; the Monte Carlo analysis randomly generates 
values for uncertain variables from expected distributions of these 
variables to simulate input variability in a model (see appendix 8B of 
the final rule TSD for a more detailed description). For each building 
sampled, DOE divided the buildings daily average hot water demand, in 
Btu, including pipe circulating losses, by the product

[[Page 69730]]

of the output hot water heating capability of the representative water 
heater unit examined and the total number of representative units 
required for the sampled building to provide estimate the average daily 
hours of full load operation to serve the building hot water needs for 
that representative unit. The remainder of the hours in the day 
represent hours of standby mode. For DOE's analysis, the number of 
water heaters allocated to a specific building was held constant at the 
baseline efficiency level, but as the heating output of each 
representative unit increases with thermal efficiency, a water heater's 
hours of operation decreased as its thermal efficiency improved. This 
decrease in operating hours, in combination with changes in standby 
hours and standby loss performance at each efficiency level, results in 
changes in energy consumption at each efficiency level above the 
baseline. In the case of residential-duty gas-fired storage water 
heaters, DOE estimated the thermal efficiency and standby loss levels 
for each UEF level developed in the Engineering Analysis using the same 
methodology as for the NOPR. This conversion is discussed in Chapter 7 
of the final rule TSD. Section IV.C.4 of this final rule and chapter 5 
of the final rule TSD include additional details on the thermal 
efficiency, standby loss, and UEF levels identified in the engineering 
analysis.
    DOE received multiple comments on the use of CBECS and RECS data in 
its energy use analysis presented in the May 2022 CWH ECS NOPR. For the 
NOPR, DOE's analysis used the 2012 CBECS and 2009 RECS in developing 
building samples. Multiple stakeholders stated that DOE should use 
newer data, pointing specifically to the availability of CBECS 2018 and 
RECS 2020 data. (AHRI, No. 31 at p. 2; Joint Gas Commenters, No. 34 at 
p. 33; Rheem, No. 24 at p. 2) Patterson-Kelley stated that they 
reviewed the most current versions of RECS and CBECS with the 
understanding that these would be used in the final rule. (Patterson-
Kelley, No. 26 at p. 4) CA IOUs indicated support for DOE's proposed 
minimum efficiency standards if DOE updated the analyses with newer 
data including specifically the more recent CBECS. (CA IOUs, No. 33 at 
p. 1) Similarly, the Joint Gas Commenters urged DOE to use the most 
current available data and stated DOE should halt the rulemaking until 
this data was appropriately evaluated. (Joint Gas Commenters, No. 34 at 
p. 33)
    In response to comments that DOE should use the latest CBECS and 
RECS, for the final rule, DOE used the 2018 CBECS, but maintained use 
of the 2009 RECS data. The CBECS 2018 data is the most current CBECS 
dataset for which the commercial building characteristics data used by 
DOE is available. DOE considered using the RECS 2015 and 2020 datasets. 
Both datasets lack the number of floors and the number of apartments in 
apartment buildings, as well as some disaggregated data concerning the 
ages of building occupants, all of which are needed for the analysis 
and which were included in the 2009 RECS. Additionally, the 2020 RECS 
was not finalized when the final rule analysis was being completed, 
meaning that data could change after the final rule analysis was 
completed which could complicate third-party review of DOE's models and 
data after the final rule is published. Because both the 2015 RECS and 
2020 RECS lack key data fields, and additionally because the 2020 RECS 
dataset was not yet finalized, DOE used 2009 RECS data for this final 
rule. It should be noted that the update to CBECS 2018 did not 
represent a change in the methodology or tools used to generate 
results. Rather, using the more recent CBECS data set is functionally 
little different than updating other data sets such as using 2022 
RSMeans labor rates rather than 2021 RSMeans labor rates. DOE replaced 
the CBECS data in the LCC model with little difficulty given that all 
relevant data fields existed in the new CBECS data.
    Patterson-Kelley questioned the use of RECS and CBECS given 
concerns about the appropriateness of the data. (Patterson-Kelley, No. 
26 at p. 4) WM Technologies expressed certain concerns with the 
appropriateness of DOE's use of RECS and CBECS data sets in its 
analysis and provided several comments, particularly examining the 2015 
RECS and 2018 CBECS data, which was the most recent available at that 
time. In particular they commented that (1) the RECS process normalized 
data toward the median values through a process referred to as minimum 
variance estimation and therefore the variation in the data was 
minimized, (2) RECS data do not agree with other surveys on energy use 
due to how questions were asked and data edited, and (3) that more than 
one half of the 2015 RECS square footage data were estimated using an 
imputation method, and the overall imputation rate of these data was 
65.6 percent. WM Technologies further states that the documented 
variation in the published RECS data was not included in the LCC 
analysis, which is expected to become significant when the department 
reviews subgroups and must be corrected to assure an accurate analysis. 
With respect to CBECS, WM Technologies stated that the primary sampling 
unit for major cities focused on areas with significant commercial 
activity while other primary sampling units were selected at random and 
that this biased building selection toward high revenue generating 
areas. The noted sampling rates for large buildings were higher than 
small buildings and thus overstates energy consumption for the LCC, 
that subgroups within CBECS with highly variable energy consumption 
were sampled at a higher rate than subgroups with less variable energy 
consumption, and finally the energy consumption from CBECS is an 
estimate at best and includes a category of end use as other, resulting 
in significant uncertainty in results. (WM Technologies, No. 25 at pp. 
3-4)
    DOE considered the comments from WM Technologies on the use of RECS 
and CBECS data sets; however, DOE disagrees with the WM Technologies 
conclusions with regard to DOE's analysis.
    Regarding the discussion of the RECS use of minimum variance 
estimation, this is discussed in EIA's 2015 Consumption and 
Expenditures Technical Documentation Summary \58\ when calibrating the 
end use estimates from modeling end uses for each household to the 
measured annual energy use totals that are collected by EIA in the 
development of RECS. It is not clear from the WM Technologies comment 
exactly what is the concern with EIA's use of this in calibration; 
however, DOE's use of RECS for this rulemaking is as a source for 
household characteristics data used for the generation of hot water 
loads. DOE is not using the 2015 RECS and does not use energy end use 
estimates from the 2015 RECS. Thus, DOE does not believe this 
discussion of minimum variance estimation is relevant to this 
rulemaking.
---------------------------------------------------------------------------

    \58\ U.S. Energy Information Administration (EIA). 2015 
Consumption and Expenditures Technical Documentation Summary. May 
2018. Available at www.eia.gov/consumption/residential/reports/2015/methodology/pdf/2015C&EMethodology.pdf.
---------------------------------------------------------------------------

    WM Technologies also notes that 2015 RECS data do not agree with 
other surveys on energy use due to how questions were asked and data 
edited, and cites EIA's web page for the discussion of this, although 
generally not providing detail on why this variation was considered 
problematic except expressing the concern with the high ratio of 
imputed data for household square footage. In response to these points, 
DOE notes that the 2015 RECS

[[Page 69731]]

was not used in this final rule and to this extent the comments are not 
applicable to the final rule analysis. In reviewing the cited 
discussion from EIA, DOE notes that much of the discussion is focusing 
on end use estimation. In fact, in the discussion from EIA comparing 
against previous RECS analysis, EIA specifically notes that it believes 
the updated modeling and calibration method are an improvement over 
previous RECs estimation methods. However, other differences noted by 
EIA were that it was a smaller sample than the 2009 RECS and that it 
relied extensively on self-administered web and paper questionnaires to 
supplement the traditional, computer-assisted personal interview and 
indicated that where household data relied exclusively on web and paper 
inputs, all square footage estimates for homes were imputed. There is 
discussion provided by EIA comparing or contrasting RECS with other 
Federal studies that may provide insight into residential energy 
demand. In this discussion, EIA provides a very clear note that these 
studies are optimized to serve a different purpose from the RECS and so 
their results for similar items may vary from the RECS. The RECS study 
is designed specifically for the analysis of current U.S. household 
energy consumption, unlike the other studies it is contrasted with. 
With regard to the WM Technologies concern that CBECS and the building 
sampling are biased toward large buildings in commercial areas, 
resulting in overstating consumption in the LCC--there are several 
reasons why this is incorrect. First, CBECS samples are assigned 
weights where the assignment process uses data from other larger 
building data ``frames'' and sources so that the weight represents the 
building itself and other similar buildings within the U.S. population. 
As the samples are in fact weighted and DOE uses these weights when 
sampling within the LCC, the oversampling of large buildings does not 
translate to a bias in the final CBECS weighted sample. Second, DOE's 
use of CBECS for this rulemaking is for the development of building 
characteristics data and not based on the end use energy estimates. In 
its review, DOE does not feel that the concerns expressed by WM 
technologies regarding RECS or CBECS are important or relevant to the 
use of these data sets in the final rule analysis.
    DOE notes that the analysis accounts for recirculation loop losses 
in average daily hot water loads. In its final rule analysis, DOE 
assigned insulated supply, return, and riser recirculation loop piping 
to sampled buildings with a year of construction of 1970 or later. For 
buildings constructed prior to 1970, DOE assigned uninsulated supply 
piping to 25 percent of sampled buildings and uninsulated return piping 
to 25 percent of sampled buildings. DOE acknowledges that its energy 
use analysis may not account for the extent of all possible heat losses 
such as from poor control of circulating system flow, uninsulated or 
poorly insulated piping, leaks or other higher than expected tap flows, 
and poor water heater performance due to aging. These issues may result 
in higher hot water energy use than predicted by DOE's models. Due to 
the lack of field data on the magnitude of these energy losses across 
building applications, vintage, and location, DOE did not further 
attempt to include them into its analysis. DOE develops daily hot water 
loads for each building analyzed and normalizes building hot water 
loads to the hot water service capacity of the representative products 
using industry sizing tools and methodologies. DOE acknowledges that 
its approach for a given building loads treats multiple units for CWH 
equipment as equally sharing the hot water load.
    To the extent that commenters may be concerned whether the analysis 
fairly represents individual water heater operation for water heaters 
in buildings in which multiple representative model units operate to 
meet the building's load, DOE notes that this would be system and 
building specific and its analysis may not capture the extremes of hot 
water loading on an individual water heater in all applications but 
would capture the average hot water loads on the equipment in those 
building. DOE notes that its analysis examines maximum sizing hot water 
loads and average daily hot water loads of 17 commercial building 
applications and 4 residential building applications, with additional 
variability in terms of specific end uses where identified in the CBECS 
or RECS data including variability based on inputs such as occupants, 
water fixtures, clothes washers, dishwashers, and food service as well 
as water main inlet and outlet temperatures for estimating hot water 
loads. It also includes estimates of piping losses in circulating 
systems. Chapter 7 and appendix 7B in the final rule TSD describe the 
calculation of hot water loads in the building. Appendix 7B also 
provides a table of building types that DOE assumed to use 
recirculation loops, as well as the operation hours of the 
recirculation loops.
    All of this variability is accounted for in the weighted results of 
the Monte Carlo analysis. While there may be further variability in hot 
water loads between multiple, individual water heaters operating in 
unison to meet a building's hot water load, DOE's analysis focuses on 
equipment operation over longer timeframes and developing 
representative loads for the equipment in the building. Equipment 
operated in unison in a building will experience, on average and over 
large populations represented, energy use reflecting the per-unit 
averaged building hot water load. As such, DOE did not directly account 
for the variability in operation of individual equipment when multiple 
units are installed and operated in tandem. DOE notes that with 
condensing equipment in particular, operation in parallel under part-
load conditions can result in higher thermal efficiencies than those 
obtained under rated conditions, which reflect peak load thermal 
efficiencies. However, due to lack of detail of actual multiple water 
heaters installations exist the sampled buildings, DOE did not take 
this potential increase in field-efficiency into account.
    DOE notes that its sizing methodology was based on industry sizing 
tools and guidelines and was used to establish peak water heat loads 
that would reflect the anticipated peak in the buildings based on those 
guidelines and known or estimated building characteristics. These peaks 
were then used to establish the number of representative units (by CWH 
type) that would be installed to meet the anticipated peak loads, with 
the hot water load apportioned across the estimated number of 
representative units needed. DOE notes that its sizing methodology was 
customized to the building application, size, and accounted for 
building size, occupancy, and specific end uses. For the hot water 
delivery capability of each equipment category, DOE uses representative 
equipment designs. The representative design of each equipment category 
has a specific input capacity and volume as shown in Table IV.5 of this 
document. These representative specifications are used in a calculation 
of hot water delivery capability. For each equipment category, DOE 
sampled CBECS and RECS building loads in need of at least 0.9 water 
heaters of the representative capacity, based on the representative 
model analyzed, to fulfill their maximum load requirements, and allows 
multiple representative units to serve the building load. As a result, 
DOE does not adjust input capacity and

[[Page 69732]]

volume of equipment for a given building application.
    In addition, DOE assumed the circulating water heater equipment 
class is equipped with a storage tank since this is the predominant 
installation configuration for this equipment. For this equipment class 
and representative input capacity, the analysis used a variable storage 
tank size of 250 to 350 gallons in volume, based on a triangle 
distribution consistent with manufacturer literature guidance as to 
typical storage tanks for the representative equipment input rating. 
However, DOE recognizes that for this equipment class as well, further 
variation in the storage tank sized with the equipment might also occur 
based on each individual building owner's preferences. DOE retained 
this use of representative installation practices for the final rule 
analysis. Chapter 7 of the final rule TSD provides more information on 
the hot water delivery calculations for circulating water heaters.
    DOE's energy use analysis used the A.O. Smith Pro Size Water 
Heating Sizing Program as a primary resource in determining the type, 
size, and number of water heaters needed to meet the hot water demand 
load applications. DOE did not identify a universal industry sizing 
methodology and reviewed a number of online sizing tools prior to its 
decision to use A.O. Smith's online sizing tool as the basis for its 
water heater sizing methodology. Based on DOE's initial review, the 
chosen sizing tool was most appropriate because of its transparency 
allowing it to be evaluated for fixture flow assumptions and other 
industry-accepted sizing methodologies. This tool provided peak-hour 
delivery in its sizing output, whereas several others manufacturing 
sizing tools reviewed provided equipment recommendations and/or 
equipment sizes only in their outputs. DOE reviewed the relationships 
between input data and outputs for this tool in detail for use in 
establishing the basis for its sizing calculations and made certain 
adjustments to improve the accuracy of its maximum load determinations, 
as shown in detail in appendix 7B.
    DOE utilized the Modified Hunter's Curve approach for developing 
hot water delivery adjustment factors, or divisors, to adapt the sizing 
methodology for water heaters with storage to a methodology suitable 
for sizing water heaters without storage. DOE used the PVI Industries 
``Water Heater Sizing Guide for Engineers'' which implements the 
Modified Hunter's Curve approach to develop the adjustment factors for 
sizing tankless water heaters. DOE's research indicates that mechanical 
contractors and design engineers commonly rely on this general sizing 
methodology for determining appropriately-sized equipment to install in 
commercial and residential buildings, and the PVI tool captures the 
need and general industry methodology required to size tankless water 
heating equipment to address short-duration loads peaks. In addition, 
DOE consulted the ASHRAE Handbook of HVAC Applications,\59\ which 
provides guidance for sizing tankless and instantaneous water heaters. 
While the ASHRAE guidance also illustrates the Modified Hunter's Curve 
methodology, it was not as clear in application as the guidance 
provided by PVI tool. In this area of CWH equipment selection, DOE 
research indicates that manufacturer sizing tools are more commonly 
used than ASHRAE handbooks. Because of the lack of storage and the need 
to meet instantaneous building loads at sub-hour intervals, the sizing 
strategy for instantaneous water heaters results in a lower hot water 
service and lower energy consumption per unit of input capacity than is 
the case for either storage water heaters, or equipment like 
circulating water heaters and hot water boilers where separate storage 
tanks are typically used.
---------------------------------------------------------------------------

    \59\ American Society of Heating, Refrigerating and Air-
Conditioning Engineers, Inc. (ASHRAE). ASHRAE Handbook of HVAC 
Applications: Chapter 51 (Service Water Heating). 2019. pp. 51.1-
51.37. Available at www.ashrae.org/resources--publications/handbook.
---------------------------------------------------------------------------

    To clarify how DOE developed the inlet water temperature, DOE 
conducted its energy use analysis using a Monte Carlo approach, 
selecting commercial building records from CBECS and residential 
building records from RECS in the development of maximum and daily hot 
water loads. Daily hot water loads were converted to energy use based 
on the equipment operation necessary to meet the load. Each building 
record's location is associated with geographic regions composed of one 
or multiple U.S. States in the case of RECS (referred to herein as 
``reportable domains''), and a Census Division in the case of CBECS. 
Using this location, DOE assigned an average monthly inlet temperature 
for the location the building resided in using monthly dry bulb 
temperature estimates for each location based on the TMY temperature 
data as captured in location files provided for use with the DOE 
EnergyPlus energy simulation software,\60\ along with an equation and 
methodology developed by NREL.\61\ Where CBECS data are used, DOE used 
weighted average data across the states within the division, with data 
being weighted by State population. Where RECS data are used, DOE used 
weighted average data across the states within the reportable domain, 
with data being weighted by State population. DOE then summed the daily 
hot water loads of each month to determine the monthly hot water loads. 
DOE then summed the monthly hot water loads to determine annual hot 
water loads. For a given hot water usage, as inlet temperature is 
colder, energy use increases, since the water heater must impart more 
heat to bring the inlet temperature to the set point temperature. 
Chapter 7 of the final rule TSD provides detailed information on how 
energy use was calculated using inlet water temperature.
---------------------------------------------------------------------------

    \60\ U.S. Department of Energy--Office of Energy Efficiency and 
Renewable Energy. EnergyPlus Energy Simulation Software. TMY3 data. 
Available at apps1.eere.energy.gov/buildings/energyplus/cfm/weather_data3.cfm/region=4_north_and_central_america_wmo_region_4/country=1_usa/cname=USA. Last accessed October 2014.
    \61\ Hendron, R. Building America Research Benchmark Definition, 
Updated December 15, 2006. January 2007. National Renewable Energy 
Laboratory: Golden, CO. Report No. TP-550-40968. Available at 
www.nrel.gov/docs/fy07osti/40968.pdf.
---------------------------------------------------------------------------

    As stated, DOE developed daily hot water loads for building 
applications using the building service water heating schedules in the 
2013 DOE commercial prototype building models. While there may be 
greater variation of individual usage schedules in the general 
population even within a building type, DOE's use of these typical 
schedules and weighting by the relative frequency of the buildings in 
the general population is appropriate for the energy use analysis.
    DOE notes that there is limited actual data on commercial hot water 
usage in the field. To the extent that stakeholders feel that DOE's 
analysis may under or overstate hot water usage, DOE notes that the 
analysis reflects both variation in direct hot water loads, inlet and 
outlet temperatures and piping/recirculation losses with a referenced 
estimating procedure. While DOE recognizes that additional energy 
losses can occur in the field, to the extent that these losses occur, 
it suggests that the results of DOE's energy use analysis are 
conservative. In this final rule, DOE used schedules and loads from 
ASHRAE prototype models with augmented data reflecting recent standards 
affecting water heater used by commercial appliances and equipment. The 
commercial building hot water loads based on the daily schedules and 
square footage from the scorecards of the 2013 DOE commercial prototype 
building

[[Page 69733]]

models and corresponding normalized peak water heater loads from the 
DOE EnergyPlus energy simulation input decks for these prototypes were 
vetted by the ASHRAE 90.1 Committee. DOE developed residential building 
hot water loads using the hot water loads model created by the LBNL for 
the 2010 final rule for Energy Conservation Standards for Residential 
Water Heaters, Direct Heating Equipment, and Pool Heaters. 75 FR 20112 
(April 16, 2010). These data sources reflect expected hot water use at 
the time of their publication, including reductions of typical hot 
water use for certain appliances and commercial equipment based upon 
amended Federal standards and certain voluntary programs where those 
appliances are identified as part of the end use. DOE notes that its 
analysis and any eventual CWH standards are dominated by existing 
buildings and influenced by a lesser extent by shipments to new 
construction. Furthermore, DOE notes that to the extent that regulatory 
standards have or will reduce water loads, manufacturer sizing tools 
(as used in DOE's analysis for sizing water heaters in different 
applications) should also reflect the reduction in water usage for 
sizing purposes, thereby minimizing the impact of reduced hot water 
loads resulting from DOE regulation on the overall economic evaluation 
of higher standards.
    With regards to the use of CWH equipment in residential buildings, 
DOE clarifies here that the only residential building type specifically 
excluded from the analysis of CWH equipment was manufactured 
housing,\62\ since DOE determined that manufactured housing is not 
suitable for any CWH equipment installation or use. A manufactured home 
would have hot water loads which require a commercial water heater. 
Otherwise, for all other residential and commercial building types, if 
the estimated maximum sizing load of a sampled building was not at 
least 90 percent of the hot water delivery capability of the baseline 
representative model for any analyzed equipment category, then the 
building was not sampled since the building's maximum load is deemed 
not large enough to warrant the installation of the specific CWH 
equipment to service the load. Chapter 7 of the final rule TSD provides 
details of DOE's energy use analysis and sizing.
---------------------------------------------------------------------------

    \62\ A manufactured home is defined as ``a structure, 
transportable in one or more sections, which in the traveling mode 
is 8 body feet or more in width or 40 body feet or more in length or 
which when erected on-site is 320 or more square feet, and which is 
built on a permanent chassis and designed to be used as a dwelling 
with or without a permanent foundation when connected to the 
required utilities, and includes the plumbing, heating, air-
conditioning, and electrical systems contained in the structure. . . 
.'' 24 CFR Subtitle B Chapter XX Part 3280. Available at 
www.ecfr.gov/current/title-24/subtitle-B/chapter-XX/part-3280 (last 
accessed April 21, 2023).
---------------------------------------------------------------------------

    In response to the May 2022 CWH ECS NOPR, Bradford White noted that 
certain CWH equipment is designed to work within a limited delta T 
range (i.e., temperature difference between the inlet and outlet of the 
water heater) in order to hit the rated efficiency and meet the needs 
of the application. Therefore, a 160 [deg]F setpoint temperature will, 
in fact, decrease efficiency, as a limited delta T (e.g., 20 [deg]F) 
will keep the inlet to the water heater high enough that condensing 
will not occur. (Bradford White, No. 23 at p. 9) PHCC commented that to 
achieve condensing in practice, water temperatures must be below 140 
[deg]F and while this is easier to obtain in furnaces, with water 
products the storage temperature may be close to or exceed that 
temperature. Manufacturers of boilers will typically show an efficiency 
curve with return water temperature and show a transition between when 
a unit is condensing or not condensing. They further state that either 
way, if a consumer elects to have water temperatures of 140 [deg]F or 
higher, the performance of the heater will not hit the 95 percent 
efficiency level. Perhaps the test method sets parameters that make 95 
percent achievable but in the real world, that will not be the case. 
Furthermore, they note that a 140 [deg]F consideration is very likely 
for kitchens and laundries. In addition, due to biofilm and legionella 
concerns, many facilities are moving toward higher storage temperatures 
to combat contaminants. (PHCC, No. 28 at p. 3)
    In response to the comment by Bradford White, DOE is aware that 
certain instantaneous water heaters are designed as commercial booster 
water heaters and that some of these units may in fact be operated with 
high inlet water temperatures that would not allow condensing. While 
many booster water heaters are electric resistance units, DOE is aware 
that certain gas water heater products are on the market and examined 
several of these products. The units examined however appear to be 
capable of a wide range of temperature rise operation and not designed 
solely for low temperature rise applications. This appears to be more 
application specific choice on the part of the commercial user than a 
limitation of the water heater itself. Several of these units examined 
were rated as condensing water heaters. DOE understands that it is 
possible that in certain applications a unit like this may not 
condense, but it does not appear that this is a limitation of the water 
heater. Further, DOE believes that such products represent a niche 
market in the general class of gas instantaneous water heaters.
    DOE is unaware of equipment rated as instantaneous water heaters 
that are capable of operation only under low temperature rise (e.g., 20 
[deg]F temperature rise) application. In general, hot water supply 
boilers, circulators, and volume water heaters designed to work with 
separate storage tanks also appear to be both tested according to the 
DOE test procedure and the available literature reviewed by DOE 
indicated were capable of operating at higher (e.g., 70 [deg]F) 
temperature differentials between inlet and outlet. As discussed 
previously, that such equipment could be placed in an application in 
which it would not condense is possible, however it also appears that 
in many cases piping arrangements in such an application could be 
designed such that when cold inlet water enters the system (occurring 
whenever hot water is removed from the system), mixing valves or mixing 
stations can ensure that water going to the water heater is low enough 
to provide for condensing to occur. Many volume water heaters already 
provide for condensing efficiencies.
    DOE further notes that water heaters are generally different than 
hydronic, space heating boilers in that where hot water is removed from 
the circulating system, cold water at the water main temperature is 
introduced into the system. While PHCC has suggested that at 140 [deg]F 
storage temperature or higher, the performance of the heater will not 
hit 95 percent efficiency, DOE notes that the DOE test procedure for 
commercial water heaters presumes a 140 [deg]F leaving water 
temperature already (and therefore, a similar storage temperature) and 
models are tested at that temperature and at full rated input capacity 
and many achieve thermal efficiencies higher than 95 percent. While 
there may be some degradation in performance at higher leaving water 
temperatures, DOE believes that with modern water heater designs, 
entering water temperature is the primary limitation on whether 
condensation occurs, not leaving water temperature. Further DOE notes 
that many commercial water heaters are designed with modulating 
burners, which further lower the burner heat output and increase the 
equipment efficiency beyond what may be envisioned at full rated output 
as per the DOE test procedure.

[[Page 69734]]

    DOE is aware of a variety of opinions on the handling of 
legionella, but again notes that cool water will need to be heated in 
any water heating system and notes that the heating of such water is 
the majority of the hot water load on the water heaters in DOE's 
analysis.
    PHCC expressed concern that the estimated annual unit energy for 
commercial water heaters is understated. To perform a simple check on 
the estimates, PHCC divided unit energy by the input rating and the 
number of days per year, a calculation that yields the daily average 
hours of operation. PHCC notes that when these products are installed, 
restaurants, hotels, dormitories, hospitals, and such, it is hard to 
believe that these water heaters only operate for a few hours a day. 
PHCC believes that the basis for the energy use is understated for all 
categories of CWH products. (PHCC, No. 28 at p. 3)
    In response, DOE notes that the primary inputs affecting the 
operating hours per day are the hot water load, including any 
circulation energy losses and the sizing of the water heater to meet 
the peak building needs. Standby losses from the water heater itself 
are also important but generally would result in only approximately 15-
20 minutes of operation on a given day for a commercial gas storage or 
residential-duty water heater respectively even if the unit was in 
standby for the entire day. In addition, while restaurants, hotels, 
hospitals and dormitories would be expected to be high utilization end 
uses, commercial water heaters can also serve office and retail 
applications which might have comparatively small hot water loads per 
unit of water heater capacity. DOE's analysis has tried to incorporate 
both industry sizing tools (which potentially could be conservative) 
and estimates of hot water load across a wide variety of building 
applications, and represents relative frequency of use in these 
application through the use of CBECS and RECS sampling of buildings 
that could use the various classes of CWH equipment as described 
previously and in detail in the final rule TSD. DOE recognizes that in 
the end, however, operating hours, which provide a normalized 
representation of the energy consumption for a given size of purchased 
equipment, are a principle driver in the economics of DOE's life-cycle 
cost and other downstream analysis and to the extent that any class of 
commercial water heater operates on average more hours in a day than 
estimated by DOE, it would generally result in larger energy use and 
all else the same, correspondingly larger energy savings than estimated 
by DOE.
    PHCC noted that at the 2022 Emerging Water Technology Symposium, 
Dr. Janet Stout, a noted infectious disease microbiologist from the 
University of Pittsburgh, answered a question related to the setting of 
water heaters by saying 140 [deg]F should be the minimum temperature. 
They state that if that is the case, the assumed 95 percent water 
heater may in reality be no better than 87 to 88 percent most of the 
time. It is unclear if the proposed rule makes any allowance for this 
situation, but it will have a large impact on the projected energy 
savings. (PHCC, No. 28 at p. 3)
    NYSERDA supports DOE's analytical approaches for temperature 
settings and DOE's acknowledgement that in the real world multiple 
setpoints are used. (NYSERDA, No. 30 at p. 2)
    Bradford White noted that in the analysis for circulating water 
heaters, DOE assumed a storage tank size of 250 to 350 gallons. While 
this overall size can be used, Bradford White noted that this is highly 
dependent on the application that the product is installed in. Also, if 
too much storage is used in the wrong application, it can lead to 
condensing where you do not want it. (Bradford White, No. 23 at p. 9). 
CA IOUs noted a water heating system is often composed of multiple hot 
water sources and separate hot water storage tanks. Separate hot water 
systems are usually needed to meet the primary make-up load, hot water 
load, and the secondary recirculating hot water loop load. Therefore, 
in future analysis, the CA IOUs recommend that DOE consider the 
interplay of these components when assessing heat pump water heaters. 
(CA IOUs, No. 33 at pp. 2-3)
    In response to PHCC, DOE recognizes that there is debate over water 
heater set points and concern with legionella growth in hot water 
systems, and there have been different approaches in practice regarding 
set points and controls for CWH systems. DOE agrees with comments by 
NYSERDA that, in practice, there will be some range of set points used. 
DOE also reiterates that that the Federal test procedure for commercial 
gas storage water heaters and commercial gas instantaneous water 
heaters rates the thermal efficiency of these products at a flow rate 
that provides for essentially a 140 [deg]F outlet temperature and to 
provide for that in practice, the setpoint is set approximately at that 
temperature. While DOE is cognizant of the concerns raised by PHCC, DOE 
does not believe that a recommendation to use setpoints near but above 
140 [deg]F will result in the dramatic change in thermal efficiency 
indicated by PHCC. As previously stated, DOE believes that, for current 
condensing water heater designs, it is inlet temperature that will have 
a bigger effect on efficiency and more attention may need to be paid to 
modulating heat capability and how inlet water is introduced to systems 
with recirculation. Regarding the Bradford White observation on storage 
tank sizing, DOE reviewed equipment manuals to try to establish a 
reasonable range of storage tank sizes that would be typical selections 
for the representative circulating water heaters and hot water supply 
boilers units input rate developed unit from the engineering analysis. 
The range of storage tank sizes was the same as was used in the 
withdrawn May 2016 CWH ECS NOPR and DOE did not receive comment on how 
it could improve this selection. DOE appreciates the comment that there 
may be engineering aspects to the use of larger storage tanks but 
believes that its selection of this size range was prudent for the 
representative equipment input rate based on manufacturer literature 
reviewed. In a similar vein, DOE appreciates the comment from CA IOUs 
in terms of their understanding of the use of multiple and types of CWH 
equipment in developing commercial hot water systems and their comment 
that DOE should consider the interplay among these components when 
assessing heat pump water heaters. DOE did not consider energy 
conservation standards for commercial heat pump water heaters in this 
final rule because of the limited number of units on the market. 
However, DOE may analyze standards for commercial heat pump water 
heaters in a future rulemaking, at which time DOE will consider how to 
address the interplay among these different components in evaluating 
standards including commercial heat pump water heaters.

F. Life-Cycle Cost and Payback Period Analysis

    DOE conducted LCC and PBP analyses to evaluate the economic impacts 
on individual consumers of potential energy conservation standards for 
CWH equipment. The effect of new or amended energy conservation 
standards on individual consumers usually involves a reduction in 
operating cost and an increase in purchase cost. DOE used the following 
two metrics to measure consumer impacts:
     The LCC is the total consumer expense of equipment over 
the life of that equipment, consisting of total installed cost 
(manufacturer selling price, distribution chain markups, sales

[[Page 69735]]

tax, and installation costs) plus operating costs (expenses for energy 
use, maintenance, and repair). To compute the operating costs, DOE 
discounts future operating costs to the time of purchase and sums them 
over the lifetime of the equipment.
     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 type of equipment through lower 
operating costs. DOE calculates the PBP by dividing the change in 
purchase cost at higher efficiency levels by the change in annual 
operating cost for the year that amended or new standards are assumed 
to take effect.
    For any given efficiency level, DOE measures the change in LCC 
relative to the LCC in the no-new-standards case, which reflects the 
estimated efficiency distribution of CWH equipment in the absence of 
new or amended energy conservation standards. In contrast, the PBP for 
a given efficiency level is measured relative to the baseline 
equipment.
    DOE conducted the LCC and PBP analyses using a commercially 
available spreadsheet tool and a purpose-built spreadsheet model, 
available on DOE's website.\63\ This spreadsheet model developed by DOE 
accounts for variability in energy use and prices, installation costs, 
repair and maintenance costs, and energy costs. As a result, the LCC 
results are also displayed as distributions of impacts compared to the 
no-new-standards-case (without amended standards) conditions. The 
results of DOE's LCC and PBP analysis are summarized in section V.B.1.a 
of this final rule and described in detail in chapter 8 of the final 
rule TSD.
---------------------------------------------------------------------------

    \63\ DOE's web page for CWH equipment is available at 
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36. Last accessed on December 15, 2022.
---------------------------------------------------------------------------

    As previously noted, DOE's LCC and PBP analyses generate values 
that calculate the PBP for consumers of potential energy conservation 
standards, which includes, but is not limited to, the 3-year PBP 
contemplated under the rebuttable presumption test. However, DOE 
routinely conducts a full economic analysis that considers the full 
range of impacts, including those to the consumer, manufacturer, 
Nation, and environment, as required under 42 U.S.C. 6313(a)(6)(ii). 
The results of this analysis serve as the basis for DOE to evaluate the 
economic justification for a potential standard level (thereby 
supporting or rebutting the results of any preliminary determination of 
economic justification).
    DOE expressed the LCC and PBP results for CWH equipment on a 
single, per-unit basis, and developed these results for each thermal 
efficiency and standby loss level, or UEF level, as appropriate. In 
addition, DOE reported the LCC results by the percentage of CWH 
equipment consumers experiencing negative economic impacts (i.e., LCC 
savings of less than 0, indicating net cost).
    DOE modeled uncertainty for specific inputs to the LCC and PBP 
analysis by using Monte Carlo simulation coupled with the corresponding 
probability distributions, including distributions describing 
efficiency of units shipped in the no-new-standards case. The Monte 
Carlo simulations randomly sample input values from the probability 
distributions and CWH equipment user samples. For this rulemaking, the 
Monte Carlo approach is implemented in MS Excel together with the 
Crystal Ball\TM\ add-on.\64\ Then, the model calculated the LCC and PBP 
for equipment at each efficiency level for the 10,000 simulations using 
the sampled inputs. More details on the incorporation of uncertainty 
and variability in the LCC are available in appendix 8B of the final 
rule TSD.
---------------------------------------------------------------------------

    \64\ Crystal Ball\TM\ is commercially-available software tool to 
facilitate the creation of these types of models by generating 
probability distributions and summarizing results within Excel, 
available at www.oracle.com/middleware/technologies/crystalball/ 
(last accessed December 15, 2022).
---------------------------------------------------------------------------

    For the May 2022 CWH ECS NOPR, DOE analyzed the potential for 
variability by performing the LCC and PBP calculations on a nationally 
representative sample of individual commercial and residential 
buildings. This same general process was used for this final rule 
analysis, however, with updates to the data set. One update was 
switching to CBECS 2018 consistent with DOE's general practice of 
relying on updated data sources to the extent practicable and 
appropriate.\65\ The CBECS 2018 microdata needed for its analysis were 
not available when DOE conducted the May 2022 CWH ECS NOPR analysis; 
hence, DOE used CBECS 2012 (the most recent available version at the 
time) for the 2022 CWH ECS NOPR analysis. In this final rule, DOE 
updated its LCC model to use EIA's CBECS 2018 microdata.
---------------------------------------------------------------------------

    \65\ More information on the types of buildings considered is 
discussed later in this section. CBECS: www.eia.gov/consumption/commercial/data/2018/. Link last accessed on December 15, 2022.
---------------------------------------------------------------------------

    Following is a discussion of the development and validation of 
DOE's LCC model. Across its energy conservation standards rulemakings, 
DOE incorporates tools that enable stakeholders to reproduce DOE's 
published rulemaking results. DOE routinely utilizes Monte Carlo 
simulations using Crystal Ball for LCC model simulation purposes. More 
specifically, utilizing a spreadsheet program with Crystal Ball enables 
DOE to test the combined variability in different input parameters on 
the final life-cycle performance of the equipment. The CWH LCC model 
specifically includes macros to run the standards analysis with default 
settings that enable stakeholders to download the LCC model, run it on 
their own computers, and reproduce results published in this final 
rule.\66\ To validate models, DOE develops models with contractors 
familiar with Crystal Ball and Monte Carlo tools and other models 
generally, and regularly tests the models during development, both at 
average and atypical (extreme) conditions. DOE further notes that the 
LCC model using the Crystal Ball software can output the assumed values 
and results of each assumption and provide forecasted results for each 
iteration in the Monte Carlo simulation, if desired by stakeholders to 
review or trace the output. In addition, it is possible to directly 
modify the assumption cells in the model to examine impacts of changes 
to assumptions on the LCC, and, in fact, DOE relies on both of these 
techniques for model testing.\67\ DOE additionally seeks expert 
validation by going through a comprehensive stakeholder review of the 
assumptions and making its models and TSD publicly available during the 
comment period during each phase of its regulatory proceedings. DOE 
uses the Monte Carlo models for predicting the impact of future 
standards, a use different than many other uses that are envisioned 
generally for Monte Carlo tools (like industrial process examination), 
so direct validation against data demonstrating the impact of future 
standards is not possible. With regard to specifying correlations 
between inputs as part of modeling practices, DOE notes that while one 
can specify correlation parameters between two variables where such 
correlation

[[Page 69736]]

and the data to provide for the level of correlation are known, 
specifying such correlations is not necessary to maintain the general 
integrity and accuracy of the analytical framework. Variable values may 
be selected based on other coding decisions unique to each iteration 
(e.g., correlation with building type or location or vintage) without 
specific reference to correlation variables, and DOE does this 
routinely. For instance, entering water temperature and fuel costs are 
effectively correlated based on data and the use of the geographic 
region, which impacts both through the available data or models. The 
use of explicit correlations between Crystal Ball variables, where data 
are available to determine or represent a degree of correlation, absent 
other influences, would be useful, but often, DOE's experience is that 
the data to express the degree of correlation are not available and are 
influenced by other factors already dealt with explicitly in the model 
framework.
---------------------------------------------------------------------------

    \66\ To reiterate, DOE's web page for CWH equipment is available 
at www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
    \67\ The model being discussed in this section, the LCC, has no 
known locked cells and it is unprotected, meaning all cells are 
available for editing by users as stated in the text. DOE does in 
some cases lock cells and worksheets in order to protect proprietary 
data. Such is not the case with the LCC model used in this 
rulemaking, so users should be able to edit assumptions in this 
model.
---------------------------------------------------------------------------

    DOE calculated the LCC and PBP for all consumers as if each would 
purchase a new CWH unit in the year that compliance with amended 
standards is required. As previously discussed, DOE is conducting this 
rulemaking pursuant to its 6-year-lookback authority under 42 U.S.C. 
6313(a)(6)(C). At the time of preparation of the final rule analyses, 
the anticipated final rule publication date was 2023. Thus, for the 
purposes of the LCC modeling DOE relied on 2023 as the expected 
publication date of a final rule. EPCA states that amended standards 
prescribed under this subsection shall apply to equipment manufactured 
after a date that is the later of (I) the date that is 3 years after 
publication of the final rule establishing a new standard or (II) the 
date that is 6 years after the effective date of the current standard 
for a covered equipment. (42 U.S.C. 6313(a)(6)(C)(iv)) Therefore, for 
the purposes of its LCC analysis for this final rule, DOE used January 
1, 2026 as the beginning of compliance with potential amended standards 
for CWH equipment.
    Recognizing that each consumer that uses CWH equipment is unique, 
DOE analyzed variability and uncertainty by performing the LCC and PBP 
calculations on a nationally representative stock of commercial and 
residential buildings. Commercial buildings can be categorized based on 
their specific activity, and DOE considered commercial buildings such 
as offices (small, medium, and large), stand-alone retail and strip-
malls, schools (primary and secondary), hospitals and outpatient 
healthcare facilities, hotels (small and large), warehouses, 
restaurants (quick service and full service), assemblies, nursing 
homes, and dormitories. These encompass 93 percent of the total sample 
of commercial building stock in the United States. The residential 
buildings can be categorized based on the type of housing unit, and DOE 
considered single-family (attached and detached) and multi-family (with 
2-4 units and 5+ units) buildings in its analysis. This encompassed 
95.5 percent of the total sample of residential building stock in the 
United States, though not all of this sample would use CWH equipment. 
DOE developed financial data appropriate for the consumers in each 
business and building type. Each type of building has typical consumers 
who have different costs of financing because of the nature of the 
business. DOE derived the financing costs based on data from the 
Damodaran Online website.\68\ For residential applications, the entire 
household population was categorized into six income bins, and DOE 
developed the probability distribution of real interest rates for each 
income bin by using data from the Federal Reserve Board's Survey of 
Consumer Finances.\69\
---------------------------------------------------------------------------

    \68\ Damodaran Online. Commercial Applications. Available at 
pages.stern.nyu.edu/~adamodar/New_Home_Page/home.htm. Last accessed 
on December 16, 2022.
    \69\ The real interest rates data for the six income groups 
(residential sector) were estimated using data from the Federal 
Reserve Board's Survey of Consumer Finances (1989, 1992, 1995, 1998, 
2001, 2004, 2007, 2010, 2013, 2016, and 2019). Available at 
www.federalreserve.gov/pubs/oss/oss2/scfindex.html. Last accessed on 
December 16, 2022.
---------------------------------------------------------------------------

    The LCC analysis used the estimated annual energy use for each CWH 
equipment category described in section IV.C of this final rule. Aside 
from energy use, other important factors influencing the LCC and PBP 
analyses are energy prices, installation costs, and equipment 
distribution markups. At the national level, the LCC spreadsheets 
explicitly model both the uncertainty and the variability in the 
model's inputs, using probability distribution functions.
    As mentioned earlier, DOE generated LCC and PBP results for 
individual CWH consumers, using business type data aligned with 
building type and by geographic location, and DOE developed weighting 
factors to generate national average LCC savings and PBPs for each 
efficiency level. As there is a unique LCC and PBP for each calculated 
combination of building type and geographic location, the outcomes of 
the analysis can also be expressed as probability distributions with a 
range of LCC and PBP results. A distinct advantage of this type of 
approach is that DOE can identify the percentage of consumers achieving 
LCC savings or attaining certain PBP values due to an increased 
efficiency level, in addition to the average LCC savings or average PBP 
for that efficiency level.
    DOE calculates energy savings for the LCC and PBP analysis using 
only onsite electricity and natural gas usage. For determination of 
consumer cost savings, the onsite electricity and natural gas usage are 
estimated separately with appropriate electricity and natural gas 
prices, or marginal prices, applied to each. Primary and FFC energy 
savings are not used in the LCC analysis.
    For each efficiency level that DOE analyzed, the LCC analysis 
required input data for the total installed cost of the equipment, its 
operating cost, and the discount rate. Table IV.19 summarizes the 
inputs and key assumptions DOE used to calculate the consumer economic 
impacts of all energy efficiency levels analyzed in this rulemaking. A 
more detailed discussion of the inputs follows.

 Table IV.19--Summary of Inputs and Key Assumptions Used in the LCC and
                              PBP Analyses
------------------------------------------------------------------------
            Inputs                            Description
------------------------------------------------------------------------
                        Affecting Installed Costs
------------------------------------------------------------------------
Product Cost.................  Derived by multiplying manufacturer sales
                                price or MSP (calculated in the
                                engineering analysis) by distribution
                                channel markups, as needed, plus sales
                                tax from the markups analysis.
Installation Cost............  Installation cost includes installation
                                labor, installer overhead, and any
                                miscellaneous materials and parts,
                                derived principally from RSMeans 2018
                                through 2022 data books\A\ \B\ \C\ and
                                converted to 2022$.
------------------------------------------------------------------------

[[Page 69737]]

 
                        Affecting Operating Costs
------------------------------------------------------------------------
Annual Energy Use............  Annual unit energy consumption for each
                                class of equipment at each efficiency
                                and standby loss level estimated at
                                different locations and by building type
                                using building-specific load models and
                                a population-based mapping of climate
                                locations. The geographic scale used for
                                commercial and residential applications
                                are Census Divisions and reportable
                                domains respectively.
Electricity Prices, Natural    DOE developed average residential and
 Gas Prices.                    commercial electricity prices based on
                                EIA Form 861M, using data for 2022.\D\
                                Future electricity prices are projected
                                based on AEO2023. DOE developed
                                residential and commercial natural gas
                                prices based on EIA State-level prices
                                in EIA Natural Gas Navigator, using data
                                for 2022.\E\ Future natural gas prices
                                are projected based on AEO2023.
Maintenance Cost.............  Annual maintenance cost did not vary as a
                                function of efficiency.
Repair Cost..................  DOE determined that the materials portion
                                of the repair costs for gas-fired
                                equipment changes with the efficiency
                                level for products. The different
                                combustion systems varied among
                                different efficiency levels, which
                                eventually led to different repair
                                costs.
------------------------------------------------------------------------
        Affecting Present Value of Annual Operating Cost Savings
------------------------------------------------------------------------
Product Lifetime.............  Table IV.21 provides lifetime estimates
                                by equipment category. DOE estimated
                                that the average CWH equipment lifetimes
                                range between 10 and 25 years, with the
                                average lifespan dependent on equipment
                                category based on estimates cited in
                                available literature.\F\
Discount Rate................  Mean real discount rates (weighted) for
                                all buildings range from 3.2% to 5.0%,
                                for the six income bins relevant to
                                residential applications. For commercial
                                applications, DOE considered mean real
                                discount rates (weighted) from 10
                                different commercial sectors, and the
                                rates ranged between 3.2% and 7.2%.
Analysis Start Year..........  Start year for LCC is 2026, which would
                                be the anticipated compliance year for
                                adopted standards.
------------------------------------------------------------------------
                       Analyzed Efficiency Levels
------------------------------------------------------------------------
Analyzed Efficiency Levels...  DOE analyzed baseline efficiency levels
                                and up to five higher thermal efficiency
                                levels for commercial gas-fired storage
                                water heaters, commercial gas-fired
                                tankless water heaters, and commercial
                                gas-fired instantaneous circulating
                                water heaters and hot water supply
                                boilers. For residential-duty gas-fired
                                storage, DOE analyzed baseline and up to
                                five higher UEF levels which combine
                                thermal efficiency and standby loss
                                improvements. See the engineering
                                analysis for additional details on
                                selections of efficiency levels and
                                costs.
------------------------------------------------------------------------
\A\ RSMeans. 2017 through 2022 Plumbing Costs with RSMeans Data. RSMeans
  data available at www.rsmeans.com/products/books, though when last
  accessed, the 2022 books no longer appeared to be available.
\B\ RSMeans. 2022 Facilities Maintenance & Repair Costs with RSMeans
  Data. RSMeans data available at www.rsmeans.com/products/books.
\C\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD,
  Mechanical Costs for 2021 and 2022, and 2018 through 2020 Mechanical
  Cost with RSMeans Data. Available www.rsmeans.com/2022-mechanical-cost-data-cd. RSMeans links last accessed on April 19, 2023.
\D\ U.S. Energy Information Administration (EIA). Average Retail Price
  of Electricity (Form EIA-861M). Available at www.eia.gov/electricity/data.php. Last accessed on March 31, 2023.
\E\ U.S. Energy Information Administration (EIA). Average Price of
  Natural Gas Sold to Commercial Consumers--by State. Available at
  www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Prices for
  Residential Consumers are available at the same site using the Data
  Series menu. EIA data last updated March 31, 2023, and accessed on
  March 31, 2023.
\F\ American Society of Heating, Refrigerating, and Air-Conditioning
  Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, and Air-
  Conditioning Applications. 2011. Available at www.ashrae.org/
  resources--publications. Last accessed on October 16, 2016.

    In response to the May 2022 CWH ECS NOPR, DOE received numerous 
general comments related to the LCC and PBP analysis. Atmos Energy and 
Joint Gas Commenters state that DOE should break storage and 
instantaneous water heaters out separately for purposes of LCC and PBP 
analysis. (Atmos Energy, No. 36 at pp. 4-5; Joint Gas Commenters, No. 
34 at p. 33) In section III.B.6, DOE discusses the determination that 
commercial gas-fired storage water heaters and storage-type gas-fired 
instantaneous water heaters would be treated jointly for purposes of 
the final rule. Because they are being treated jointly, modeling them 
separately in the LCC and PBP analysis was seen as confusing and 
unnecessary.
    As noted in section IV.E, many commenters said DOE should update to 
more recent RECS and CBECS data. CA IOUs indicated support for DOE's 
proposed minimum efficiency standards if DOE updated the analyses with 
newer data including specifically the more recent CBECS and RSMeans 
data. AHRI stated their concern about DOE is using older CBECS and RECS 
data which they termed ``outdated data,'' and that this could cause DOE 
to underestimate the true impacts to consumers. AHRI recommended that 
DOE conduct updated analysis where existing data sources are out of 
date. (CA IOUs, No. 33 at p. 1; AHRI, No. 31 at p. 2) DOE acknowledges 
the CA IOUs and AHRI comments and notes that the LCC and PBP analysis 
has been updated to include the 2018 CBECS, but as discussed in section 
IV.E, DOE maintained use of the 2009 RECS.
    PHCC believes that the economic analysis has several deficient 
factors and as a result it would be difficult to rely on the projected 
energy savings, cost of materials, labor costs and times presented by 
DOE to do certain aspects of the work. PHCC encourages DOE to update 
the basic information in the LCC model to reflect current 2022 
conditions in the marketplace. (PHCC, No. 28 at pp. 10-11) As discussed 
in the subsections below, DOE has updated a large number of the inputs 
used in the LCC and PBP analyses. Some inputs such as the U.S. Economic 
Census underlying the Markups Analysis cannot be updated because the 
2017 census remains the most recent census.
    Patterson-Kelley stated concerns that the methodology to generate 
the RECS and CBECS data sets marginalizes large portions of the 
country. (Patterson-Kelley, No. 26 at p. 2) WM Technologies expressed a 
similar concern adding the data exhibit a bias toward larger revenue 
generating areas and larger buildings. By doing so they believe CBECS 
exhibits an unrecognized bias against underserved communities and 
populations. Buildings and homes in rural and lower

[[Page 69738]]

revenue areas typically have less insulation while larger cities 
typically have more exacting building codes and enforcement. Therefore, 
the current CBECS approach also erroneously minimizes actual variation 
in the LCC results, with the largest errors in the impact to 
disadvantaged and underserved communities and small businesses. WM 
Technologies also called on DOE to provide the impact to the results 
from using different sources of information than RECS and CBECS and 
provide realistic modeling by accounting for documented uncertainties 
and variation to the inputs used in the analysis. (WM Technologies, No. 
25, at pp. 4-5) Patterson-Kelley and WM Technologies stated that any 
LCC modeling must include the variation in the CBECS and RECS data 
sets, consistently relating to all references to the location-specific 
information of the home or building modeled as this will better utilize 
the variation and energy usage on average, identified in the national 
energy surveys noted in the 2015 RECS comparison with other studies. 
(Patterson-Kelly, No. 26, at pp. 2, 4; WM Technologies, No. 25 at p. 4-
5) DOE disagrees with the conclusions reached in WM Technologies' and 
Patterson-Kelley's comments, as was pointed out in section III.E in 
which DOE addressed the majority of WM Technologies and Patterson-
Kelley's comment. CBECS and RECS datasets are nationally representative 
datasets available for public use. Since the commenters did not suggest 
specific different sources of information when calling on DOE to 
provide the impacts from using different sources of information, this 
suggestion seems to not be feasible to DOE. DOE agrees that the EIA 
sampled major cities with certainty as stated by WM Technologies and 
Patterson-Kelly, but questions whether electing to not take the chance 
that a major commercial hub like Chicago would be excluded from CBECS 
samples due to pure random chance in the sampling selection represents 
bias as alleged in these comments. Regardless, at the end of the 
process EIA assigns weights to buildings. So, a large building in 
downtown New York City receives a low building weight because there are 
very few such buildings, while smaller buildings characteristic of 
rural areas get much higher weights because there are large numbers of 
them across the country.
    The Joint Gas Commenters offered several reactions to DOE's 
discussion of LCC and claimed that they overall believe the standards 
are not economically justified nor supported by clear and convincing 
evidence. Firstly, they stated that DOE's LCC results shows that 
consumers barely break even with LCC savings ranging from 0.58 to 1.25 
percent of total LCC. They further offered their opinion that because 
DOE has addressed some variability of inputs in the model but has not 
addressed all uncertainties about the ranges and distributions of 
inputs to the model, the proposed standards could impose net costs, and 
that this does not provide the clear and convincing evidence needed to 
amend the standards. (Joint Gas Commenters, No. 34 at pp. 14-15) 
Additionally, they noted that DOE performed the analysis by building up 
to the price that consumers pay for products and their installation and 
related costs, rather than collecting ``actual'' data. They pointed to 
assumptions made and offered their opinion that DOE must locate 
suitable data, and lacking such, must resolve against amending the 
standards. (Joint Gas Commenters, No. 34 at pp. 16-17) In response, DOE 
addresses similar ``clear and convincing evidence'' comments in section 
III.A of this document.
    DOE notes that the LCC savings presented in the 2022 CWH ECS NOPR 
represent an overall average, reflecting the fractions of consumers 
that are better off and that are worse off due to the proposed 
standard, as well as a significant percentage of consumers for whom the 
standard has no effect because they already purchase equipment that 
meet the standard. In this final rule, the LCC savings represent an 
average of the affected consumers only, excluding those for whom the 
standard has no effect. The LCC savings in the final rule also reflect 
changes DOE has made to address comments received on the NOPR. For 
example, given stakeholder comments on the withdrawn 2016 CWH ECS NOPR 
that there may be consumer with extraordinary installation costs, the 
2022 CWH ECS NOPR introduced an extraordinary cost factor which 
resulted in increased installation costs by a factor from 200 to 300 
percent for a small percentage of customers. For the 2022 CWH ECS NOPR 
that percentage of consumers was 2 percent, a figure that DOE retained 
in the final rule analysis. In the final rule analysis, DOE has 
increased the fraction of consumers that install condensate pumps and 
increased the fractions of consumers installing condensate 
neutralizers. In addition, DOE updated the installation costs and 
venting materials costs based on the most current available data. These 
changes and other are discussed in IV.F.2 of this document.
    DOE notes that while Joint Gas Commenters are correct that the 
relative LCC savings may be small, DOE considers other factors when 
assessing whether there is clear and convincing evidence that a 
standard is economically justified, such as PBP and the NIA. For 
example, a major reason for the small LCC savings is the cost of 
associated venting (discussed more in section IV.F.2 of this document). 
However, DOE believes it reasonable to assume that once the venting has 
been installed, it will also be usable in the future when the CWH 
equipment is replaced. This benefit is captured in the longer-term NIA, 
which includes replacement of water heaters as they reach the end of 
their useful life. However, DOE did not capture the residual value of 
the venting system in the LCC analysis as the LCC analysis ends at the 
end of the useful life of the CWH unit. Moreover, DOE notes that, for 
each equipment type, the simple payback period is shorter than the 
equipment life, particularly for the instantaneous products where the 
payback period is approximately half of the expected equipment 
lifetime. So, while Joint Gas Commenters are correct that the relative 
LCC savings may be small due to the standard, that fact alone is not 
the end of DOE's economic justification analysis. Further discussion of 
the results of all of DOE's economic analyses and DOE's conclusions may 
be found in section V of this document.
    DOE disagrees that there are unresolved uncertainties, and has 
determined the issues raised in comments on the May 2022 CWH ECS NOPR 
have been sufficiently addressed to resolve any alleged uncertainties. 
As for whether ``building up costs'' is a reasonable approach, DOE 
relied primarily on data from RSMeans and other nationally recognized 
sources to develop its cost analyses. These resources provided itemized 
data at each step of the process and in particular to the LCC 
discussions, on the installation and removal costs of both equipment 
and venting systems, as well as the installation costs of condensate 
drainage systems, electrical outlets, and chimney relining. The 
itemization of these costs was at the component level for both labor 
and material, and in both the commercial and residential sectors, which 
allowed DOE to develop an appropriate set of installation scenarios to 
factor into the lifecycle cost analysis. The use of these resources 
also provided DOE with a consistent evaluation of costs with a 
consistent set of location adjustments for each residential and

[[Page 69739]]

commercial region included in the analysis. For these reasons, DOE 
believes the sources relied upon were valid and appropriate for the 
development of installed equipment costs. Moreover, DOE notes that 
surveys of existing contractor quotes may not adequately separate 
equipment costs from installation costs since installing contractors 
would commonly be selling and marking up equipment as well as 
installation labor. DOE has observed that contractor quotes are often 
lump sum prices and getting contractors to disaggregate such prices has 
historically been difficult. Thus, use of surveys would not provide the 
level of detailed information needed to assess installation costs.
1. Equipment Cost
    To calculate consumer equipment costs, DOE multiplied the MSCs 
developed in the engineering analysis by the markups described 
previously (along with sales taxes) in section IV.D of this document. 
DOE used different markups for baseline equipment and higher-efficiency 
equipment because DOE applies an incremental markup to the increase in 
MSP associated with higher-efficiency products. For each equipment 
category, the engineering analysis provided equipment costs for the 
baseline equipment and up to five higher equipment efficiencies. For 
the withdrawn 2016 CWH ECS NOPR, DOE examined whether available data 
suggested that equipment costs for CWH equipment would change over time 
in constant real dollar terms, indicating the potential for a 
``learning'' or ``experience'' curve in equipment prices that might 
indicate further reductions in equipment price might be expected. In 
the data reviewed, DOE did not identify a clear long term historical 
price trend for CWH equipment.. As DOE has seen no direct evidence to 
overturn that earlier decision, DOE used costs established in the 
engineering analysis directly for determining 2026 equipment costs and 
future equipment costs (equipment is purchased by the consumer during 
the first year in 2026 at the estimated equipment price, after which 
the equipment price remains constant in real dollars). See chapter 10 
of the final rule TSD for more details.
    The markup is the percentage increase in cost as the CWH equipment 
passes through distribution channels. As explained in section IV.D of 
this final rule, CWH equipment is assumed to be delivered by the 
manufacturer through a variety of distribution channels. There are 
several distribution pathways that involve different combinations of 
the costs and markups of CWH equipment. The overall resulting markups 
in the LCC analysis are weighted averages of all of the relevant 
distribution channel markups.
2. Installation Cost
    Installation cost includes labor, overhead, and any miscellaneous 
materials and parts needed to install the CWH equipment. Total 
installed cost includes the retail cost of the CWH equipment and its 
corresponding installation costs. Installation costs vary by efficiency 
level, primarily due to venting costs. For new construction 
installations, the installation cost is added to the equipment cost to 
arrive at a total installed cost. For replacement installations, the 
costs to remove the previous equipment (including venting when 
necessary) and the installation costs for new equipment, including 
venting and additional expenses, are added to the product cost to 
arrive at the total replacement installation cost.
    DOE derived national average installation costs for commercial 
equipment from data provided in RSMeans data books.\70\ RSMeans 
provides estimates for installation costs for CWH units by equipment 
capacity, as well as cost indices that reflect the variation in 
installation costs for 295 cities in the United States. The RSMeans 
data identify several cities in each of the 50 States, as well as the 
District of Columbia. DOE incorporated location-based cost indices into 
the analysis to capture variation in installation costs, depending on 
the location of the consumer. Based upon the RSMeans data, 
relationships were developed for each product subcategory to relate the 
amount of labor to the size of the product--either the storage volume 
or the input rate. Generally, the RSMeans data were in agreement with 
other national sources, such as the Whitestone Facility Maintenance and 
Repair Cost Reference.\71\
---------------------------------------------------------------------------

    \70\ DOE notes that RSMeans publishes data books in November or 
December for use the following year; hence, the 2022 data book has a 
2021 copyright date.
    \71\ Whitestone Research. The Whitestone Facility Maintenance 
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012. 
Whitestone Research: Santa Barbara, CA.
---------------------------------------------------------------------------

    DOE calculated venting costs for each building in the CBECS and 
RECS. A variety of installation parameters impact venting costs; among 
these, DOE simulated the type of installation (new construction or 
retrofit), water heater type, draft type (atmospheric venting or power 
venting), building vintage, number of stories, and presence of a 
chimney. A combination of Crystal Ball variable distributions and 
Microsoft Excel macros and spreadsheet calculations are used to address 
the identified variables to determine the venting costs for each 
instance of equipment for each building within the Monte Carlo 
analysis. With regard to the venting material for condensing equipment, 
the primary assumptions used in this logic are listed as follows:
     25 percent of commercial buildings built prior to 1980 
were assumed to have a masonry chimney, and 25 percent of masonry 
chimneys required relining.
     Condensing equipment with vent diameters smaller than 5 
inches were modeled using PVC (polyvinyl chloride) as the vent 
material.
     Condensing equipment with vent diameters of 8 inches or 
greater were assigned AL29-4C (superferritic stainless steel) as the 
vent material.
     Condensing equipment with vent diameters of 5 inches and 
up to 8 inches were assigned vent material based on a random selection 
process in which, on average, 50 percent of installations received PVC 
as the vent material and the remaining received AL29-4C.
     5 percent of all condensing CWH equipment installations 
were modeled as direct vent installations. The intake air pipe material 
for condensing products was modeled as PVC.
    Additional details of the venting logic sequence are found in 
chapter 8 and appendix 8D of the final rule TSD.
a. Data Sources
    For this final rule analysis, DOE used the most recent datasets 
available at the time the analysis was conducted. DOE routinely updates 
data to the most recent datasets available at its various rulemaking 
stages and has updated the CWH equipment LCC model with the most recent 
data estimates available for this final rule, including use of the 2018 
CBECs and 2022 RSMeans data (including 2022 RSMeans Plumbing Costs 
Data, 2022 RSMeans Mechanical Cost Data, and 2022 RSMeans Facility 
Maintenance and Repair Costs). In reviewing the 2022 RSMeans cost 
books, DOE noted a rapid escalation of prices from 2021 to 2022 for 
installation materials including PVC pipes and related connectors and 
hangers, Type B venting and associated materials, and stainless steel. 
The 2022 escalation in these prices relative to 2021 exceeded the 
escalation seen in previous years' prices. DOE believes the 2022 
escalation is related to the Covid-19 pandemic and the supply chain 
bottleneck arising during the pandemic. Because these input materials 
are generally undifferentiated between manufacturers and subject to 
supply and demand

[[Page 69740]]

forces much like other construction materials like lumber or 
commodities such as steel, DOE believes that prices will eventually 
revert to something akin to historical trends. To capture prices more 
consistent with long-term escalation trends, DOE used a 5-year average 
of prices for PVC and Type B venting and related components, and for 
Series 300 stainless steel venting materials derived from RSMeans 2018 
through 2022 data books. For AL29-4C stainless steel, DOE had access to 
4 years of data from the source that DOE has used in this rulemaking, 
for the years 2018 and 2020 through 2022. For AL29-4C, DOE used an 
average of these 4 years. For the RSMeans data and the AL29-4C data, 
all prices not originally denominated in 2022$ were inflated to 2022$ 
using the GDP Implicit Price Deflator.
    Bradford White disagreed that installation or removal cost does not 
vary with thermal efficiency as more efficient products are typically 
heavier than their less efficient counterparts. They stated this 
translates into more people and/or equipment being required to position 
the new water heater, which will drive up installation costs. Bradford 
White also noted that condensate removal must be accounted for at 
condensing levels. Bradford White also suggested that equipment costs 
will influence installation costs, although that may not be detailed as 
such on the invoice. (Bradford White, No. 23 at p. 8)
    DOE, in response to Bradford White's comments, notes that it did 
not explore relative weights between non-condensing and condensing 
equipment of the same capacity but notes that the data sources used by 
DOE indicated installation labor was a function of the input rating of 
the equipment which will in turn determine the size (dimensions) of the 
equipment. DOE based the labor assumption on the input rates of the 
representative models, and because the input rate does not change by 
EL, DOE's estimated labor also does not change by EL. Commercial water 
heaters are generally large and already require multiple persons during 
the installation, and DOE believes the size differences between ELs 
would generally be small enough to be unlikely to impact the number of 
people needed to install or remove equipment. DOE agrees that 
condensate disposal is a factor leading to differing installation 
costs, and addresses the cost of condensate removal in IV.F.2.b of this 
document. To the extent that a contractor bases the installation cost 
on equipment costs, the contractor is likely applying a markup to the 
equipment to recover their own costs. DOE does include contractor 
markups in the determination of retail price as well as markups 
embedded in other inputs to the process such as the labor costs. Beyond 
that, DOE was not provided with sufficiently specific data for DOE to 
assess whether there is basis on which to account for such markups.
    Bradford White stated the labor rate DOE used for the commercial 
sector used, at $89 per hour, is in their opinion more representative 
of the top end of the residential sector labor rates, and commercial 
sector rates are in excess of $125 per hour. They also stated DOE is 
correct that regional adjustments need to be made to this value, but 
the low end for North and South Carolina is too low at 0.59. (Bradford 
White, No. 23 at p. 8) PHCC also believes that the labor rates used by 
DOE are significantly understated. PHCC notes that the U.S. Department 
of Labor (``DOL'') publishes information about prevailing wage rates 
for localities across the country, and the Biden Administration through 
DOL has made efforts to expand the use of such information in hopes of 
promoting fair and equitable employment opportunities. It would seem 
that using this information would align with the goals of the Biden 
Administration through DOE as well, PHCC stated. PHCC does express 
concern that the labor assumptions made by DOE are outdated, that the 
labor market has changed post COVID-19 with worker shortages driving up 
pay and benefits and that DOE should evaluate its assumptions. PHCC 
provided to DOE a sample table of commercial building plumber rates, 
with employer costs and markups for each State as an example to DOE, 
with a resulting average cost of $106/hr. While the sample table PHCC 
provided used a random county in each State, PHCC notes that a weighted 
scheme should be incorporated to accurately gauge State averages as 
plumber rates in high population areas would apply to a greater 
fraction of the population or sales. (PHCC, No. 28 at p. 10) DOE 
acknowledges the information provided by Bradford White and PHCC, and 
notes that the data source used by DOE for labor rates and for the 
regional indexes is a nationally recognized source for labor rates. 
Using the regional adjustment factors for individual states, four 
states meet or exceed Bradford White's $125 value. The State factors 
developed by DOE are a weighted average of individual city rates. Thus, 
depending on where Bradford White observed the rates they are citing, 
they are well within the range used by DOE. Additionally, DOE's 
regional multipliers for North and South Carolina are consistent with 
other southern states. With respect to PHCC's suggestion about the 
prevailing wage, DOE uses the RSMeans values because they are from a 
nationally recognized source, collected by surveys. With this in mind, 
DOE elected to continue to use RSMeans data with the only change being 
to update to the current RSMeans values available when the analysis was 
performed.
    Joint Gas Commenters stated that labor costs for CWH replacements 
are typically not standard rates but are premium rates due to overnight 
hours. Joint Gas Commenters also stated DOE inadequately accounted for 
uncertainty about labor costs. (Joint Gas Commenters, No. 23, at pp. 14 
and 18) In response, while Joint Gas Commenters suggested that labor 
costs for CWH replacements are typically not standard rates, they did 
not provide data to support this. DOE is aware that some businesses 
that rely on water heaters for production (e.g., food service) might 
opt for a night replacement. However, many other building types 
(offices, retail, schools) can and do readily make changes such as 
replacing water heaters during the day as the outage, while 
inconvenient, does not limit operations. Two other large users are 
hotels and health care facilities. All hotels and many health care 
facilities (e.g., hospitals) are already 24/7 facilities, and it is 
unclear that an over-night water heater replacement is an improvement 
over a day-time replacement from the viewpoint of providing for hot 
water. Many of these facilities rely on multiple water heater plants so 
hot water can be available at some level if problems arise with a given 
unit (as is pointed out later by the Joint Gas Commenters in their 
comments). DOE believes many larger food service business may do the 
same and where they do not use multiple water heaters, both non-
condensing and condensing units may be replaced at night (i.e., 
efficiency of the units is not particularly relevant to timing of 
installation). Further, most food service buildings are relatively 
small low rise one or two-story buildings commonly with the water 
heater associated with the kitchen space and typically on a separate, 
outside portion from the dining space and with floor drains already in 
close proximity. This minimizes or eliminates factors potentially 
leading to difficult installations, namely, most food service buildings 
will not be many-storied buildings with difficult vertical venting 
installations and in fact many may be able to use less costly and 
simpler horizontal venting. In addition, where

[[Page 69741]]

water heaters are installed in commercial kitchen areas, floor drains 
will typically exist already for code and safety reasons. DOE believes 
that installation of condensing water heater venting may in fact be 
less difficult for food service buildings than in other buildings, 
meaning that the installation time will be more manageable. To the 
extent the replacement needs to take place at night, such would occur 
regardless of the efficiency of the equipment. Accordingly, for the 
final rule, DOE did not apply any factor to increase the labor costs 
above what was available in RSMeans.
b. Condensate Removal and Disposal
    In the May 2022 CWH ECS NOPR, DOE based assumptions concerning the 
need for condensate removal and disposal in part on DOE's understanding 
of the International Plumbing Code.\72\ The International Plumbing Code 
calls for temperature and pressure relief valves to be piped to drain, 
which means that non-condensing CWH equipment should already have an 
existing drainage system. An additional factor underlying DOE's 
assumptions is the fact that a condensate neutralizer is not required 
in certain jurisdictions, though it is good design practice.
---------------------------------------------------------------------------

    \72\ See www.iccsafe.org/content/international-plumbing-code-ipc-home-page/. The model International Plumbing Code has been 
adopted 35 States for State or local plumbing codes.
---------------------------------------------------------------------------

    In response to these underlying factors the May 2022 CWH ECS NOPR 
analysis assumed a condensate neutralizer was assigned to 12.5 percent 
of replacement installations (which was unchanged from the assumption 
used in the withdrawn May 2016 CWH ECS NOPR). The cost of heat tape was 
assigned to 10 percent of replacement installations, and the cost of an 
electrical outlet specifically for heat tape was added for 10 percent 
of instances in which heat tape was installed.
    JJM Alkaline stated that DOE's assumption of 12.5 percent of water 
heater installations needing condensate neutralizers for condensing 
equipment is too low, noting that the U.S. Environmental Protection 
Agency (``EPA'') and many municipalities have codes regarding acidic 
condensate discharge into public works and the acidic condensate from 
heating appliances is generally 2.9 to 4.0 pH, which is below the 
threshold of 5.0 pH. (JJM Alkaline, No. 10 at p. 1) Bradford White 
recommended increasing the percentage of installations that utilize a 
condensate neutralizer, stating that for installations that are over 
200,000 Btu/hr, the percentage is closer to 75 percent (because those 
installations are more likely to be inspected due to pressure vessel 
requirements) while for installations under 200,000 Btu/hr, the 
percentage is above the estimated 12.5 percent and growing. (Bradford 
White, No. 23 at p. 8)
    Regarding the comments on the use of condensate neutralizers from 
JJM Alkaline and Bradford White, DOE reviewed the applicable IPC \73\ 
and Uniform Plumbing Code (``UPC'') \74\ as the two most widely used 
model plumbing codes in the United States. Both documents have relevant 
sections. The IPC requirement (IPC 2019 section 803.2) is titled 
``Neutralizing device required for corrosive wastes'' and is a more 
general requirement for ``Corrosive liquids, spent acids or other 
harmful chemicals that destroy or injure drain, sewer, soil or waste 
piping, or create noxious or toxic fumes or interfere with sewage 
treatment processes.'' Where such harmful chemicals exist (as 
determined by the authority having jurisdiction), the IPC requires such 
corrosive wastes to be diluted or neutralized using an ``approved'' 
dilution or a neutralizing device. The UPC (UPC 2021 803.2) by contrast 
refers specifically to condensate from fuel burning condensing 
appliances, and where such condensate is discharged into a drain, the 
material in the drainage system must be cast-iron, galvanized iron, 
plastic, or other material approved for this use. DOE examination of 
these suggests that the IPC and similar local code requirements would 
be more likely to result in the use of condensate neutralizers, 
particularly in new construction. DOE evaluated the population 
weighting of States subject to the IPC or UPC and determined that 
approximately 73 percent of the U.S. population would be in States or 
jurisdictions that fall under the IPC or similar code requirements. DOE 
also reviewed available data on States that require ASME stamps and 
ASME-related inspections for water heating equipment and what 
thresholds are used but recognizes that such inspections are safety 
inspections of the equipment and would not generally address condensate 
disposal issues. Based on its analysis of the language of these 
requirements and discussions with others in the industry, DOE revised 
the estimate of equipment using condensate neutralizer upwards, using 
an average for new construction of 60 percent and separately 30 percent 
for replacement equipment in the LCC analysis. Both the assumed 
prevalence of condensate neutralization equipment and the expected cost 
of such equipment are discussed in chapter 8 of the final rule TSD.
---------------------------------------------------------------------------

    \73\ International Code Council. 2018 International Plumbing 
Code (IPC). Available from www.iccsafe.org.
    \74\ International Association of Plumbing & Mechanical 
Officials (IAMPO). 2021 Uniform Plumbing Code. Available from 
iapmo.org.
---------------------------------------------------------------------------

    PHCC stated its members are concerned with the need for condensate 
disposal with higher efficiency equipment, noting DOE reduced the 
instances where additional work would be required assuming that the 
International Plumbing Code requires a floor drain. PHCC disagrees, 
stating section 502 of the code does not require a drain; instead, it 
requires the relief valve to discharge to a suitable location such as a 
floor, water heater drain pan, waste receptor, or outdoors. In 
addition, it requires that relief valves, as emergency devices, are 
allowed to discharge to the floor and in most cases that is what they 
do. Service personnel are directed to solve the problem. Condensate 
however is an ongoing discharge, and a method of disposal is required 
per section 314.1 of the International Plumbing Code (``IPC''). Further 
they note that while in some instances existing installation floor 
drains may be present, additional piping may be required to get to the 
drain location, and if that presents a trip hazard, owners may elect to 
have a pump installed regardless. They comment that this situation will 
impact more than 10 percent of installations and likely more than 50 
percent. PHCC also noted that in a new installation without new 
standards, consumers currently do not have to purchase condensing 
products. (PHCC, No. 28 at pp. 6-7) PHCC agrees that many new 
installations opt for high efficiency products already, but perhaps 25 
percent to 30 percent would not. As such, some allowance should be 
included in new installations for additional condensate disposal 
expenses. (PHCC, No. 28 at pp. 6-7) Joint Gas Commenters noted many 
commercial buildings with non-condensing equipment were not designed 
with plumbing systems to dispose of condensate. (Joint Gas Commenters, 
No. 34 at p. 4)
    DOE interprets the comment from Joint Gas Commenters regarding 
existing buildings not designed with plumbing systems to dispose of 
condensate to refer to both condensate neutralization, which DOE 
addressed previously, and condensate disposal which is discussed here. 
With regard to the point raised by PHCC, DOE reviewed the language in 
the IPC and agrees with PHCC that the code does not require a floor 
drain be

[[Page 69742]]

present in spaces where a water heater exists and allows for other 
means of dealing with discharge. In locations where drainage from the 
T&P valve could cause damage, it requires a pan and some method of 
disposal (either to the exterior of the building, a sump, or a floor 
drain). In a situation where discharge would not cause damage, water 
release could be handled as a maintenance call as noted by PHCC. DOE 
examined the UPC requirements for floor drains as well and notes the 
UPC does not appear to require floor drains for water heater 
temperature and pressure discharge valves explicitly. The UPC does have 
requirements for floor drains in certain areas, including what would be 
most commercial restrooms (see definition, commercial kitchens, 
commercial laundry spaces, and boiler rooms). The International 
Mechanical Code, part of the ICC series of building codes also requires 
floor drains. DOE examined other codes adoptions that occur at the 
municipal or State level, and requirements for drains in non-boiler 
mechanical rooms seem to occur through amendments in certain codes. For 
example, the New York City code 501.16 seems to require drains at the 
base of all chimneys and gas vents.\75\ In addition, DOE notes that 
mechanical rooms that must deal with condensate from air handlers will 
typically require some method of condensate disposal. However not all 
such rooms will also be used for water heaters. In rooms that have 
pumps, it appears that some form of drain will be common for 
convenience to deal with replacement or leakage. DOE believes that in 
many locations where commercial water heaters are installed, it appears 
that drainage in the form of floor drains, trench drains, etc., will be 
provided for or will be close by in existing buildings and expects this 
to be more common in the case of new construction, in part due to the 
prevalence of condensing equipment. However, DOE does agree that the 
ability to gravity drain condensate may be limited in existing 
construction and in the NOPR included the 10 percent factor. While DOE 
agrees with PHCC that there may be factors at work such as avoiding a 
tripping hazard, it is speculative to DOE how this leads to a fraction 
as high as 50 percent as stated by PHCC. PHCC is speculating that there 
in as many as half or more cases there may be a floor drain present 
that building owners would choose not to use and instead pump 
condensate to some other location. DOE believes this is a highly 
speculative statement that implies that even where a floor drain 
exists, in a majority of cases there is an alternative location in 
which to dispose of condensate and owners would choose to incur 
additional installation costs to reach that alternative drainage 
location. That said, because the tripping hazard is a possible concern 
not embodied in DOE's original 10 percent factor, DOE modified the LCC 
to increase the fraction of installations with condensate pumps to 15 
percent.
---------------------------------------------------------------------------

    \75\ See www.nyc.gov/assets/buildings/apps/pdf_viewer/viewer.html?file=2022FGC_Chapter5_ChimneysVentsWB.pdf§ion=conscode_2022, p. 7.
---------------------------------------------------------------------------

    For this final rule, DOE also conducted research on the appropriate 
condensate pump size and associated cost for each equipment category, 
which resulted in an update to the condensate pump assignment for 
residential-duty and commercial gas-fired storage water heaters. For 
the withdrawn May 2016 CWH ECS NOPR, DOE used one condensate pump for 
all equipment types while for the May 2022 CWH ECS NOPR and this final 
rule DOE used two sizes of condensate pumps to reflect difference in 
input rates between classes. Chapter 8 of the TSD contains more 
information on the methodology, raw costs, and sources for the 
installation cost for condensate removal.
c. Vent Replacement
    In both the withdrawn May 2016 and the May 2022 CWH ECS NOPRs and 
in this final rule, DOE conducted its analysis under the assumption 
that condensing CWH equipment would commonly use the same, typically 
vertical, chase for the venting system as the non-condensing CWH 
equipment that it replaces. DOE recognizes that each venting situation 
may be unique and will depend on the location where the water heater is 
installed within the building, whether new construction or replacement, 
the height of the building and or distance to the outside wall. In new 
construction the latter two variables will in fact be influenced, in 
part, on the water heater and water heater efficiency levels selected. 
In an existing building that uses non-condensing water heaters, the 
most common path for exhaust is expected to be a vertical chase and 
flue or chimney, which formed the basis of DOE's analysis, although DOE 
recognizes that other existing building flue scenarios may exist 
including horizontal power venting of non-condensing equipment, 
vertical power venting of non-condensing equipment, and exterior. For 
this final rule, DOE maintained its venting methodology and associated 
venting costs for scenarios in which non-condensing CWH equipment is 
replaced by condensing CWH equipment.
    DOE incorporated the sleeving of existing vent systems in its May 
2022 CWH ECS NOPR analysis. For existing buildings with natural draft 
(Type B) venting systems that have no elbows and possess vent lengths 
less than or equal to 30 feet, DOE assigned sleeving of the existing 
vent with PVC venting to 50 percent of replacement scenarios. DOE's 
NOPR and final rule analysis provides for using an existing vent as a 
sleeve only for those installations meeting the criteria defined 
previously.
    For this final rule DOE's analysis accounts for installation costs 
in the commercial and residential sectors for both replacement and new 
construction markets, along with an appropriate set of installation 
scenarios within each market and sector combination. Equipment 
installation and removal costs are separate from venting system 
installation and removal costs. The equipment installation labor hours 
for representative CWH models ranged from 4 to 22.4 hours, depending on 
the equipment category. The labor hours to remove CWH equipment in 
replacement situations were determined to be an additional 37.5 percent 
of the installation labor hours on average, meaning they ranged from an 
additional 1.5 to 8.4 hours depending on the equipment category. These 
labor hour calculations were based on a linear regression formula using 
data from the RSMeans Facilities Construction Cost Data, ENR Mechanical 
Cost book, and Whitestone Facility Maintenance and Repair Cost 
Reference. This formula escalated equipment installation labor hours 
based on the input capacity and/or volume of the CWH equipment, as 
expressed in the sources that DOE relied upon. DOE has found no 
information that suggests basic CWH equipment installation or removal 
cost varies based on thermal efficiency rather than input capacity and/
or volume. DOE accepts the methodologies of its sources that the 
activities required to install minimum-efficiency and high-efficiency 
equipment are inherently similar. This approach to developing costs for 
CWH equipment installation or removal was not changed from the 
withdrawn May 2016 CWH ECS NOPR.
    In addition to equipment installation and removal, DOE accounted 
for the labor hours to install and remove venting, scaled to the vent 
length in linear feet and/or the number of components (e.g., elbows) in 
the venting system. These hours differed based on the vent material and 
vent size involved in the installation and were developed

[[Page 69743]]

using data from RSMeans.\76\ The labor rates in DOE's analysis depended 
on the crew type conducting the installation, region in which the 
installation occurred, and whether venting was installed in residential 
or commercial buildings. For the installation of Type-B venting for 
non-condensing CWH equipment, average labor rates (including overhead 
and profit) ranged from $65 per hour in the residential sector to $89 
per hour in the commercial sector.\77\ For the installation of PVC 
venting for condensing CWH equipment, average labor rates used by DOE 
(including overhead and profit) ranged from $66 per hour in the 
residential sector to $89 per hour in the commercial sector.\78\ 
Regional adjustments to these labor rates called for multipliers 
ranging from 0.51 (Arkansas) to 1.64 (New York).\79\ For this final 
rule, DOE did not further adjust labor rates for venting except to use 
the most up-to-date source data.
---------------------------------------------------------------------------

    \76\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, 
Mechanical Costs 2022.
    \77\ RSMeans. Estimating Costs with RSMeans Data, CostWorks CD, 
Mechanical Costs 2022.
    \78\ Id.
    \79\ Id.
---------------------------------------------------------------------------

    In addition to accounting for equipment installation and removal, 
and venting installation and removal, DOE also incorporated an 
appropriate set of installation cost additions and subtractions, which 
included labor and material, arising from unique circumstances in 
replacement scenarios. These installation costs included reusing 
existing vent systems (when replacing non-condensing CWH equipment with 
similar non-condensing CWH equipment), relining of chimneys, installing 
condensate drainage, and sleeving of existing vent systems with certain 
replacement venting systems, introduced in this final rule analysis. 
DOE did not incorporate the costs of sealing off chases and roof vents 
or moving mechanical rooms because it is logical that condensing CWH 
equipment would reside in the same location and use the same chase as 
the non-condensing CWH equipment it replaced.
    In response to the May 2022 CWH ECS NOPR, Joint Advocates suggested 
that DOE thoroughly analyzed the cost of installing new venting 
systems, and that the analysis is comprehensive and reasonable. (Joint 
Advocates, No. 29 at pp. 2-3)
    The Joint Gas Commenters stated that EIA data show that ``more than 
half of all commercial buildings were constructed before condensing 
commercial water heaters were introduced to the market'' and stated 
that condensing products are incompatible with millions of these 
existing commercial buildings. They further added that the 
modifications required to alter these existing buildings to accommodate 
the use of condensing products are far more complicated, extensive, and 
burdensome than DOE's analysis assumes. (Joint Gas Commenters, No. 34 
at p. 3)
    DOE agrees that many commercial buildings were constructed before 
condensing water heaters were introduced to the market, but does not 
agree that millions of commercial buildings are thus by definition 
incompatible with condensing water heaters. This statement implies that 
such water heaters cannot be used in older buildings. Evidence strongly 
suggests otherwise. Since the mid-1990s, the condensing water heater 
market has grown rapidly. That growth has been substantially faster 
than the growth of commercial building stock. The implication is that 
condensing water heaters have been installed in preexisting commercial 
buildings, which supports the conclusion that older buildings are not 
incompatible with condensing water heater installations. DOE 
acknowledges and addressed that in many existing buildings the venting 
systems would need to be replaced and, as discussed in Appendix 8D, DOE 
included costs for items such as vent removal, whether a condensing 
vent can be sleeved into an existing non-condensing vent, and whether 
an existing chimney needs to be relined. The percentage of water 
heaters that potentially require vent modifications is identified in 
Table IV.29. DOE's analysis considers the cost of these building vent 
modifications, but the need to modify the building vent system does not 
make the building incompatible. However, this could mean that there are 
additional installation costs to be considered. DOE's analysis has 
accounted for the possibility that certain installations--including 
some, for example, in certain older commercial buildings--may incur 
exceptional costs. To the extent that unusually high costs may be 
incurred, DOE has included significant exceptional cost adders in 2 
percent of buildings in its analysis of venting costs. This is 
discussed in section IV.F.2.d of this document and in TSD chapter 8.
    The Joint Gas Commenters also noted that condensing water heaters 
are generally either power vent or direct vent products. They note that 
power vented water heaters are typically vented horizontally and 
require positive pressure venting--generally through a horizontal 
conduit, powered by a fan or other additional electronic device--to 
generate sufficient pressure and flow to vent the combustion gases. 
Further, they stated such installations require plumbing drains to 
dispose of the condensate developed in the operation of the appliance. 
They also stated that direct vent water heaters use special coaxial 
venting with separate chambers for intake and exhaust in a single vent 
pipe. Joint Gas Commenters stated that these are vented through the 
side wall and noted several additional factors about power vented 
equipment including the cost of interior renovations, the need to have 
electricity available to operate fans and condensate pumps, 
restrictions on sidewall venting in some urban areas, the need for on 
lower floors for terminations to be located 7 feet or more over public 
sidewalks or above the snow level, and other factors. (Joint Gas 
Commenters, No. 34 at pp. 4-5, 7-9) Joint Gas Commenters further stated 
multi-story buildings in urban centers cannot use horizontal venting 
because it is impossible to install and service vent terminations. In 
addition, they stated that wall penetrations could compromise the 
structural integrity of buildings in many cases. (Joint Gas Commenters, 
No. 34 at p. 5) Bradford White noted limitations to vertical venting 
may exist as a water heater in a basement/ground floor mechanical room 
may not be certified with a long enough vent length to vent vertically 
through a building's roof. Additionally, it may not be able to vent 
horizontally due to jurisdictions prohibiting side wall venting in 
these applications. (Bradford White, No. 23 at p. 4)
    DOE disagrees with the Joint Gas Commenters that direct vent water 
heaters necessarily use coaxial venting. This is an option for direct 
vent systems and will have some advantages in certain situations, 
though is not a necessary part of direct vent design as coaxial vent 
solutions are relatively new. Two pipe direct vent solutions, such as 
mentioned by PHCC, have been around longer. Further, coaxial venting is 
used for both horizontal and vertical vents based on manufacturers' 
literature.
    Regarding the availability of electrical power, DOE believes that 
it is generally available in most commercial situations where a 
commercial water heater is situated, and provides for costs to bring 
electricity close to the water heater location in cases where it may 
not be nearby. A review of the market shows that non-condensing storage 
commercial water heaters commonly utilize technology including 
electronic ignition, electronic flue dampers, and

[[Page 69744]]

commonly electronic controls. In addition, many are power vented. While 
the baseline efficiency model developed for this rulemaking were 
simplified in this respect, the actual market is quite varied. Further, 
even in equipment that does not use electric power, much of the 
equipment may be installed in spaces like mechanical rooms where 
electric power is readily available. For instances where this is not 
the case, DOE has provided for electric power to be included in the 
installation costs. DOE received no comment that the estimated cost to 
bring electric power in these instances was inadequate. As noted 
previously, DOE modified its assessment of the need for condensate 
pumps in the final rule analysis to reflect higher anticipated usage 
needs, particularly in existing buildings.
    Regarding interior renovations, it is not clear what interior 
renovations may be envisioned outside of those associated with flue 
replacement costs. DOE agrees that in some dense urban areas there may 
be restrictions on how sidewall venting is achieved, including the 
appropriate considerations for sidewalks immediately adjacent to 
buildings, and more generally those vents need to exhaust above the 
snow level. However, these are requirements so that sidewall venting, 
when used, is implemented in a safe manner. Other safety requirements 
are that exhaust vents are not located near operable windows or air 
intakes and these latter requirements are also found when exhausts are 
used for non-condensing equipment. These restrictions also apply to 
sidewall venting of non-condensing equipment, but do not imply that 
non-condensing equipment cannot be used. DOE's analysis did not assume 
sidewall venting and DOE and other commenters (see e.g., PHCC, No. 28 
at p. 7) note sidewall venting may in fact be less expensive than 
vertical venting.
    DOE is not clear what is being implied regarding structural 
integrity. DOE believes that the structural integrity of a building is 
an engineering consideration to ensure that the building is operable 
and structurally safe for its occupants. Competent contractor 
assistance may be required to select the appropriate areas of a wall to 
drill, to perform the drilling safely, and to ensure that the resulting 
vent does not allow water to enter the wall, but there is nothing in 
this process that inherently damages building integrity. Joint Gas 
Commenters have provided no evidence that the structural strength of 
building will be compromised by the addition of a horizontal exhaust 
vent.
    PHCC stated that they took issue with the phrase that ``Condensing 
CWH equipment is not required to sidewall vent exclusively and presents 
no special limitations restricting vertical vent scenarios,'' noting 
that all manufacturers have vent length limits, and that the 
``effective vent length'' needs to consider fittings, usually elbows, 
and that in tall buildings, the vent length of the equipment can be 
exceeded and the installation cannot be made in that location, and 
perhaps this becomes an impossible location. (PHCC, No. 28 at p. 7) 
Joint Gas Commenters noted in discussing vertical venting, 
manufacturers place limits on the length of vertical vents. (Joint Gas 
Commenters, No. 34 at p. 12)
    Regarding the PHCC comment about no special considerations for 
vertical venting, DOE's language did not mean to imply that vent length 
is not an issue; rather, that in the context of whether the vent is 
vertical or horizontal, the distance that a power vented condensing 
water heater can vent is generally the same as a non-condensing 
product. DOE notes that the distance a power vented product will vent 
is largely a function of fan size and vent diameter used. DOE 
understands that consideration of pipe elbows and bends must be 
considered due to pressure losses through these components but notes 
that the market is already moving to make longer vent length products 
more available in condensing equipment. Condensing commercial water 
heaters with maximum vent length of over 200 ft are available on the 
market today as standard products without significant increases in vent 
diameter for a given combustion air throughput. DOE also notes that 
natural draft vent tables in the National Fuel Gas Code only go to 100 
ft vent height and that where the actual height of a vent exceeds these 
tables, recognized engineering methods must be used to establish vent 
capacities for such systems. DOE statements here do not imply that such 
very long natural draft vents do not exist, but that they are already 
in the realm of professionally engineered systems. DOE also notes that 
draft inducers for combustion equipment already exist on the market and 
that these might be used to address combustion air from condensing 
equipment in very long vent lengths.
    PHCC commented that DOE asserts there would be sufficient space in 
an existing chase to install plastic vents and stated that it depends, 
and every installation is unique. Typically chase sizes are built to a 
minimum dimension to maximize building floor space. If the existing 
vent is large, the new vent may fit. PHCC stated that most high 
efficiency systems (particularly 95 percent or better) will use two 
pipes to achieve maximum efficiency. Depending on the vent length, 
whether upsizing is required, and if using two pipes, the existing 
chase may well be too small. PHCC added that in the real world this may 
not matter because there will be significant work to open the chase, 
install and support the piping, firestop the floor and ceiling 
penetrations, and close the chase such that making it somewhat larger 
will be trivial. PHCC questioned whether DOE accurately accounts for 
this additional work because the May 2022 CWH ECS NOPR suggests this 
will be an easy solution. When it is suggested that existing chases be 
used, PHCC assumed that existing venting materials would be removed, 
and the piping placed in the same vertical building compartment. The 
chases would need to be opened throughout the path of the vent, 
existing piping removed, new piping and supports installed and the 
chases closed up. Typically, chases are fire rated construction, and 
particular care must be used to ensure the integrity of these spaces. 
(PHCC, No. 28 at p. 8) Joint Gas Commenters asserted that based on 
interviews with installers, condensing water heaters are not installed 
using the existing chase. Impediments include that the venting for the 
new water heater cannot be suspended in a vertical chase; it requires 
support at frequent intervals and that requires sufficient space in the 
chase for vent hangers and often requires physical access to the chase 
for installation. (Joint Gas Commenters, No. 34 at p. 12)
    PHCC noted that in the discussion of sleeving and using the same 
chase when changing vent systems, both of these options also present 
problems. Although the systems may tend to be of plastic material, 
those materials have weight that must be accounted for. Systems must be 
supported to hold the weight and prevent seismic movement, two issues 
that could cause failures in the vent system. Typical manufacturer 
instructions direct installers to support the pipe every 5 feet 
vertically and every 5 feet horizontally. It is unclear how this 
support spacing would be affected in a sleeved scenario. Some 
contractors have made efforts to install plastic vent piping in 
existing large masonry chimneys, and complicated hangar arrangements 
must be devised for this. Pipe joints must be made prior to placement 
in the chimney and the vent installed as a unit, which PHCC noted is 
cumbersome and costly. (PHCC, No. 28 at p. 7)
    In response to PHCC concern regarding sufficient space in existing 
chases, DOE notes that in cases where

[[Page 69745]]

an existing chase is used with Category I venting, the cross-sectional 
area of the existing Category I or Type B vents, designed as they are 
to vent flue gasses through natural draft, will generally be 
substantially larger than that required for venting condensing 
products. This is true for two main reasons. First, the flue path in a 
Category I vent operates only on the natural draft pressure. The flue 
path is therefore typically larger in diameter than that of a typical 
Category IV where combustion products are pushed through the vent with 
a fan. For example, per ANSI Z223.1-2015 (National Fuel Gas Code), when 
considering a vent stack height of 30 feet, a lateral distance of 10 
feet, and a 199,000 Btu/h input rate requires a 6-inch inside diameter 
vent flue path. A strictly vertical vent with no lateral flow in the 
system could use a 5-inch vent. By contrast, a similar input rated 
condensing water heater venting over the same distances would commonly 
be vented with a 3-inch flue diameter vent. When considering longer 
vent height (50 feet), a 5-inch Category I vent could be used with up 
to 5-foot lateral distance, but otherwise a 6-inch Type B vent would be 
required. However, for the Category IV, condensing water heater of the 
same input a 4-inch vent pipe could be used. Characteristically, the 
vent pipe diameter for a condensing water heater will typically be 
smaller, sometimes considerably smaller, than for a natural draft water 
heater. Therefore, DOE does not believe this issue is as significant as 
PHCC states.
    In addition, because it is venting higher temperature flue gases, 
the Type B vent must have at minimum an additional clearance of at 
least 1 inch from any combustibles in the flue path. Because of the 
need for larger diameter vent pipe and the additional need for 
clearance, the cross-sectional area that would be required for a single 
flue chase for a Category I vent is typically much larger than for the 
exhaust vent for the same input rating for a Category IV vent such as 
would be used for a condensing water heater product. In addition, 
because of the higher efficiency for the condensing product and the 
greater hot water output for a given input rating, it may be possible 
to downsize the water heater input rating with possible further 
reductions in vent size in some situations.
    DOE acknowledges that in the case where direct vent products (using 
a separate inlet and exhaust pipe or two-pipe as referred to by PHCC) 
are selected for the condensing equipment, adding a direct vent inlet 
pipe to an existing chase may not always be possible. A direct vent is 
generally a separate optional feature that becomes prevalent with the 
use of non-natural draft water heaters, but not a requirement in such 
an equipment replacement. Inspection of CWH product literature shows 
most condensing equipment allows for direct vent as an alternative to 
the standard ``power exhaust'' vent configuration. Both direct vent and 
standard, ``power exhaust'' water heater designs require ventilation 
air for proper and safe operation. In a replacement situation, the 
space where a similar sized Category I water heater is already located 
should have this sufficient air supply for safe operation. A direct 
vent water heater allows the intake air to be taken from another 
location, typically outside of the building envelope. Where a direct 
piped vent is used to bring air in from outside, it will typically 
reduce overall building infiltration and provide for additional 
efficiency benefits to the building not accounted for in DOE's 
analysis, providing for an overall building efficiency improvement. A 
direct vent configuration is not a requirement for a 95 percent thermal 
efficiency rating per the DOE test procedure. Further, even where used, 
the inlet air may not have to follow the same path as the exhaust flue. 
In some cases, a coaxial-two pipe vent may also be an option with an 
overall pipe diameter not significantly different from the original 
Type B vent and without the additional clearance-to-combustibles 
requirement. The Joint Gas Commenters state that a direct vent water 
heater uses special coaxial venting that has separate chambers for 
intake air and exhaust in a single assembled vent piece. (Joint Gas 
Commenters, No. 34 at p. 4) DOE disagrees with the implication by the 
Joint Gas Comments that a direct vent implies or necessarily (or even 
commonly) requires use of a coaxial vent in most applications. DOE 
acknowledges that in some cases coaxial vent systems can be an option 
during installation of condensing equipment and may reduce installation 
costs or provides other benefit, but they are not required in all 
applications.
    With regards to supporting vents installed vertically, multiple 
options may be available. Where PVC plastic vents pipes are used, they 
are solvent glued together forming a permanent bond where the PVC at 
the bond becomes continuous and joints are of similar strength as the 
pipe itself, which allows for longer sections of vent piping without 
supports. This is unlike Type B vent sections that lock together upon 
twisting and must be supported section by section. Horizontal PVC flue 
sections can be supported similar to water piping, where the pipe 
supports are installed periodically along the flue length as noted by 
PHCC; however, the weight of PVC/CPVC is much less as a flue than as a 
water pipe and piping supports can be of lighter construction. However, 
it is important in a condensing product application that flues are 
sloped properly for condensate drainage, and horizontal flues need to 
have enough supports to prevent sagging. Vertical flue sections will 
also require support, but unlike Type B vents that may require support 
at each section, the continuous nature of the joined PVC pipe can allow 
longer spans of vertical flue sections where required as long as the 
weight is adequately supported.
    Further, when polypropylene vent connections are considered, these 
are typically much lighter (manufacturer literature notes up to one 
third of the weight of PVC). The individual polypropylene vent sections 
are clamp connected. Not only can rigid polypropylene vents be 
supported using greater spacing between supports, flexible 
polypropylene vent products are available that can be readily used to 
allow for the lining of a chimney, Type B vents, and other existing 
chases, and that is supported primarily from the top where simple 
spacers may be used to provide some lateral centering. Note that 
thermal expansion in length may need to be accommodated for with PVC/
CPVC flue systems; however, based on manufacturer literature, the 
expansion of ridged polypropylene vent systems is accommodated for at 
the joints between pipe sections.
    Regarding support in a sleeved vent, DOE's analysis uses only a 
restricted set of sleeved vent scenarios as outlined previously. 
Further, while cognizant that using straight PVC pipe may be cumbersome 
for the reasons indicated by PHCC, DOE recognizes that with different 
venting systems, particularly polypropylene or stainless flexible 
venting, additional sleeving options are possible. DOE notes that 
manufacturers of polypropylene vent products make components that are 
designed specifically to allow the use of sleeving in existing Type B 
vents. Regardless DOE's NOPR and final rule analysis provides for using 
an existing vent as a sleeve only for those installations meeting the 
criteria defined previously and does not believe that it has overstated 
the possible use of this technique.
    In response to DOE's discussion of the selection of vertical 
venting in the May 2022 NOPR analysis, PHCC agreed that there may be 
sidewall venting issues for

[[Page 69746]]

some buildings but noted that should sidewall venting be possible; in 
some cases, it could be more cost effective than vertical venting. 
(PHCC, No. 28 at p. 7).
    Atmos Energy stated that DOE should collect actual product and 
installation costs rather than relying on assumptions and inadequate 
data. (Atmos Energy, No. 36 at pp. 2, 4)
    DOE does not agree with Atmos Energy that the collection of 
contracted or retail costs for equipment today provides a more accurate 
representation of future equipment costs under a standards scenario 
than what can be provided for in DOE's engineering and markup analyses. 
In DOE's experience reviewing such information, cost estimates provided 
by contractors vary widely in terms of information provided, from a 
total single price inclusive of everything including the equipment, to 
considerably detailed estimates. Even if detailed installation costs 
from a large enough statistically valid sample were made available from 
individual contactors, collecting and using such information would be 
highly impractical and could potentially require making as many or more 
assumptions as DOE' current analysis to which Atmos Energy is 
objecting. As to the installation costs, particularly in replacement 
situations, DOE's is not aware of an extensive source of national data 
on new or replacement installation of higher efficiency, condensing, 
CWH equipment installation. DOE has estimated costs considering 
publicly available sources, considered variation in vent length and 
diameter in its venting model and provided for variation in venting and 
material and labor costs using a national construction data source. DOE 
agrees with PHCC that in many cases horizontal venting may often be 
less expensive than a vertical vent solution. A good example of this is 
where the mechanical room, commercial kitchen, or other space where a 
water heater is located has an exterior wall on one or more sides. DOE 
believes this is a common, but not ubiquitous, occurrence. Because of 
the complexity of many larger commercial buildings, the location of the 
water heater within the building is not always assured, but when 
replacing a Category I type water heater, there will generally be a 
vertical vent path.
d. Extraordinary Venting Cost Adder
    In response to the withdrawn May 2016 CWH ECS NOPR, some 
stakeholders argued that some venting installations can be physically 
impossible and/or prohibitively expensive to install condensing vents. 
In the May 2022 CWH ECS NOPR, DOE acknowledged the possibility that its 
analysis of installation costs may not capture outlier installation 
scenarios that involve uncommon building conditions that may further 
reduce or increase installation costs. DOE expects that these 
situations would be small in number and that it has captured an 
appropriate set of installation scenarios that are typical of 
residential and commercial buildings. For the May 2022 CWH ECS NOPR and 
this final rule, DOE researched the question of the prevalence and cost 
of extraordinarily costly installations. The one source identified that 
could be used to quantify extraordinary vent costs was the report 
submitted by NEEA in DOE Docket EERE-2018-BT-STD-0018.\80\ Using this 
as a reference, DOE implemented an extraordinary venting cost adder, 
which was included in the May 2022 CWH ECS NOPR LCC model as a feature 
of the main case. DOE used data from the NEEA report for both the May 
2022 CWH ECS NOPR and this final rule to capture extraordinary venting 
costs.
---------------------------------------------------------------------------

    \80\ NEEA, Northeast Energy Efficiency Partnerships, Pacific Gas 
& Electric, and National Grid. Joint comment response to the Notice 
of Petition for Rulemaking; request for comment (report attached--
Memo: Investigation of Installation Barriers and Costs for 
Condensing Gas Appliances). Docket EERE-2018-BT-STD-0018, document 
number 62. www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062. 
Last accessed July 8, 2021.
---------------------------------------------------------------------------

    In the NEEA report it was stated that due to vent configurations, 
between 1 and 2 percent of replacements might experience extraordinary 
costs between 100 and 200 percent above the average installation cost. 
Because there is no clear linkage between specific situations and 
extraordinary costs, DOE implemented this by adding for each equipment 
category two additional variables. One is a probability of occurrence 
and the second is the multiplier. For 2 percent of cases, DOE assumes a 
multiplier between 200 percent and 300 percent. In all cases, the LCC 
model estimates the total installation cost, and multiplies it by the 
multiplier. In 98 percent of cases, the multiplier is equal to 1.00, or 
100 percent. When the LCC model selects the extraordinary installation 
cost case, it also selects a multiplier between 200 and 300 percent to 
multiply the estimated installation cost. In the May 2022 CWH ECS NOPR, 
DOE asked for comments on this adder.
    AHRI estimated that a small business or property owner could have 
$1k to $10k in additional installation costs to convert from a non-
condensing unit to a condensing unit. AHRI noted that several factors 
(including region, size of load, municipal restrictions, historic 
building designation/protections, available materials and labor costs) 
can all factor into affixing a level of extraordinary venting costs. 
Rheem agreed with the AHRI comments. (AHRI, No. 31 at p. 4; Rheem, No. 
24 at p. 5) A.O. Smith made a similar comment noting that venting costs 
in retrofit or replacement cases might be significant or cost-
prohibitive due to a combination of tight mechanical rooms, 
insufficient clearance between buildings for sidewall venting, and 
common venting. A.O. Smith does not have an estimate of the number of 
installations that may face extraordinary installation costs but 
recommends that DOE evaluate the number and type of buildings in 
metropolitan areas. As an example of extraordinary installation costs, 
A.O. Smith estimated that installing stainless steel venting materials 
in a typical NYC 5-story building for a commercial water heater or 
boiler in the basement could cost $32,500. (A.O. Smith, No. 22 at pp. 
6-7) In reviewing the A.O. Smith comment, DOE is unclear which product 
classes or vent sizes were being considered in their estimation because 
the comment did not specify labor beyond an estimate of 1.5 times 
material costs, and presumed material costs of $200/lineal foot, which 
are higher than the costs identified by DOE for stainless AL29/4C vent 
in diameters needed for the representative condensing equipment sizes 
analyzed. With respect to AHRI's and A.O. Smith's list of factors, DOE 
agrees with these as potential issues that may impact real world costs.
    AHRI also pointed to the venting analysis used in commercial 
packaged boilers that appears to be more exacting, and AHRI stated it 
provides a better representation and encouraged its use in the CWH 
analysis. (AHRI, No. 31 at p. 4) APGA noted that it appears that DOE is 
treating venting in commercial water heaters differently than for other 
gas fired appliances. (APGA, Public Meeting Transcript, No. 13 at p. 
57) Joint Gas Commenters criticize the use of one representative model 
which results in one vent size and contrasted this to the 2016 
Commercial Packaged Boiler (CPB) TSD that provided an equation for the 
relationship between product input rate and vent diameter. (Joint Gas 
Commenters, No. 34 at p. 18)
    The venting logic used in DOE's boiler analysis was essentially the 
same as used in the CWH analysis. The general methodology and 
assumptions for determining the size and type of venting material based 
on input rate was essentially the same as well as the decision 
methodology for when a vent

[[Page 69747]]

could be reused or would need to be replaced. A difference in approach 
was largely the result of the CWH engineering analysis approach which 
looked at one representative unit size for each category of equipment 
analyzed whereas, in the CPB engineering analysis approach, two size 
classes (commercial packaged boiler with rated input between >=300,000 
and <=2,500,000 Btu/h and commercial packaged boilers with rated input 
>2,500,000 Btu/h) were already defined as DOE classes for each output 
type of CPB equipment (i.e., hot water or steam) and for each fuel 
(i.e., gas or oil) and one representative equipment size was selected 
to be representative of each size class in that engineering analysis. 
Because of the way cost data was collected for the CPB engineering 
analysis, curves representing the cost variation by size within the 
equipment classes were developed and it was possible to use these data, 
along with additional data on sizing equipment to peak building loads 
for the CBECS and RECS buildings and assumptions on the typical number 
of boilers in buildings by peak building load, to provide greater 
variability in boiler sizes analyzed in the CPB LCC. The lack of data 
on variation in cost with equipment size from the CWH engineering 
analysis, the greater complexity in sizing to building water heater 
loads, and the lack of data on characterizing the number of water 
heaters within a size class that would be installed in buildings made 
such an approach practically impossible for the CWH LCC model. Further, 
while there is variation in equipment size in water heaters, DOE 
believes that the variation in size for the CPB is significantly 
greater than for the CWH equipment in this rule, at least for the vast 
majority of shipments. DOE does recognize that for all but residential 
duty water heaters, larger equipment than represented in the 
engineering analysis are sold into the market, but DOE believes its 
equipment selections are representative of the majority of units 
shipped. See section IV.C.3 for further discussion about DOE's decision 
to use representative equipment sizes in this analysis.
    Joint Gas Commenters and Bradford White criticized the use of the 
NEEA report on extreme installation costs. Bradford White was concerned 
that the report was based on interviewing 15 different parties in 10 
states, which they believe is too small of a sample size. Bradford 
White continued to add that all but one of the states are not a fair 
representation of where extraordinary venting cost adders will occur. 
These cost adders are likely to occur in larger, older cities (e.g., 
Chicago, New York, Philadelphia). Bradford White recommends that a 
larger sample size is taken to understand these venting installation 
costs. (Bradford White, No. 23 at p. 4) The Joint Gas Commenters stated 
that DOE's economic analysis underestimated the costs imposed by 
condensing-only standards and suggested that the problems associated 
with condensing standards are common rather than uncommon scenarios. 
Joint Gas Commenters noted that DOE was basing the adder on one of the 
four identified categories of venting issues. Joint Gas Commenters 
further stated that through their own interviews of individuals with 
substantial experience replacing CWH equipment, they determined that 
DOE underestimates the percentage of difficult installations and the 
cost of such installations. (Joint Gas Commenters, No. 34 at pp. 12-14) 
Joint Gas Commenters point also to the distribution DOE applied to the 
extraordinary vent cost adder, calling it arbitrary, and stating that a 
lognormal distribution changes small net LCC savings to small net LCC 
costs, and the Joint Gas Commenters use this as evidence to support 
their position that DOE should collect data through field work. (Joint 
Gas Commenters, No. 34 at pp. 19-22).
    In response, DOE notes that DOE researched the issue of 
extraordinary vent installation costs for CWH and was only able to 
identify the NEEA survey. Neither Bradford White nor the Joint Gas 
Commenters provided any data to support their comments, nor did they 
point to any alternative data or studies for DOE to examine for the 
purposes of reviewing extraordinary venting costs. Regarding the Joint 
Gas Commenters comment on the choice of a uniform distribution in DOE's 
analysis, DOE notes that the data that it used from the NEEA survey 
specifically defined the range of extraordinary costs as adding 100 
percent to 200 percent to the typical cost and, lacking further 
details, DOE used a uniform distribution in this range. While DOE 
recognizes that a different distribution and range could exist, DOE 
received no data to characterize this from stakeholders. Specifically, 
with respect to the Joint Gas Commenters comment about using a 
lognormal rather than a normal (or uniform) distribution DOE notes that 
the data received from NEEA was cost adjustment data stated as a range, 
and DOE implemented the adder in such a way as to make use of this 
range in a manner that seemed most consistent with what was presented 
by NEEA. DOE notes that Joint Gas Commenters provided their example of 
the lognormal distribution as illustrative of what a lognormal 
distribution could look like but did not link this back to actual data, 
nor did they say their presented distribution was in fact the correct 
distribution for use in this analysis. For these reasons, DOE 
maintained the use of a uniform distribution for the final rule.
    WM Technologies and Patterson-Kelley stated they understand that 
the CWH analysis uses a low probability multiplier that models 
difficult venting considerations and would prefer DOE make a more 
exacting representation of this detail. They maintained that local 
requirements will prohibit some locations from installing condensing 
gas fired products based on building structure, orientation, or 
location and that this percentage will vary significantly across the 
nation, noting that 1940s multifamily units in certain densely 
populated regions (e.g., New York, Chicago and Boston) would find all 
condensing efficiency regulation cost prohibitive. WM Technologies 
noted that this is why the Northeast continues to have a majority of 
atmospherically vented products while the West Coast typically has a 
higher rate of adapting to condensing products. (WM Technologies, No. 
25 at p. 7; Patterson-Kelley, No. 26 at p. 5) Patterson-Kelley believes 
the percentage of the population incurring excessive costs when 
replacing a non-condensing appliance with a condensing product is more 
than five percent. (Patterson-Kelley, No. 26 at p. 5)
    PHCC had concerns related to installations with venting 
installation issues and noted the recognition of this by DOE in the May 
2022 CWH ECS NOPR. Although PHCC cannot provide lists of locations 
where these issues may occur, PHCC disagreed with DOE, stating that 
more than 1 percent to 2 percent of installations will be affected. 
PHCC asserts that problem installations would likely be tall buildings, 
perhaps 10 stories or more, in metropolitan areas. PHCC stated that the 
extraordinary cost adder lacks a foundational basis, that it is unclear 
how the adjustment is applied, and that in many cases it is 
understated. PHCC maintains that there are significant venting issues 
awaiting the implementation of this rule. (PHCC, No. 28 at pp. 7-8)
    Conversely, NEEA supports DOE's conclusions on flue gas venting and 
its analysis method thereof, which aligns with the findings of 
independent research previously submitted to DOE. NEEA stated that 
condensing gas-fired

[[Page 69748]]

water heaters can be installed in all commercial building applications 
and said that DOE's analysis appropriately accounts for the rare cases 
in which the solution bears increased cost. (NEEA, No. 35 at p. 1) DOE 
acknowledges NEEA's input.
    For the final rule, DOE has considered both the data provided from 
NEEA and the comments received from the various stakeholders regarding 
the fraction of consumers who would be characterized in the 
extraordinary venting cost grouping. Numerous stakeholders suggested 
that 2 percent was not representative. As noted by Joint Gas 
Commenters, DOE based the 2 percent adder on the frequency of vent 
installation issues noted in the NEEA report. DOE acknowledges that 
there were other potential installation cost issues noted by NEEA, and 
the high level summary statement was that fewer than 5 percent of 
installations were encumbered by any of the significant installation 
challenges identified. The other challenges noted by NEEA were, 
however, less costly than the 100 to 200 percent cost adder, and/or 
were already being addressed in the LCC model estimation of 
installation costs (masonry chimneys). While recognizing the range of 
comment on this issue, DOE believes that the data provided by NEEA 
through the survey of contractors provides an appropriate estimate for 
the fraction of the installations that might be considered to have 
extraordinary costs, and has continued to include this figure in its 
final rule analysis, along with the range of extraordinary cost 
multipliers established in the NEEA survey.
e. Common Venting
    Certain CWH equipment installations can feasibly be commonly vented 
in certain building applications, where multiple individual equipment 
units are connected to a single, non-pressurized, combustion air vent, 
suitable for use with Category I equipment. However, as described more 
in the ensuing paragraphs, in these instances, DOE believes that CWH 
equipment typically is not commonly vented with other, disparate gas-
fired equipment (like furnaces). Commonly venting disparate gas-fired 
equipment with significantly different capacities (such as a water 
heater and a boiler in a building) complicates the design and sizing of 
the common vent, since it needs to accommodate exhaust of a wide range 
of flue gas volume due to the different operating profiles and flue 
capacities required for disparate equipment as well as the seasonal 
variation of load. However, DOE understands that multiple, similar 
units of CWH equipment may be more frequently commonly vented together 
since the CWH equipment typically operates in unison, calling for a 
specific vent size. When multiple units of CWH equipment are commonly 
vented, building engineers design the common-vent system to suit a 
total input rating of all gas-fired equipment collectively as well as 
the input ratings of individual units. In the May 2022 CWH ECS NOPR, 
DOE stated its understanding that the installation of these units 
typically occurs all at one time. As a result, each unit should have 
the similar expected lifetime and replacement cycle. Therefore, when 
one unit fails and requires replacement, the other units sharing the 
common vent should also be nearing the end of their lifetimes. Thus, 
the stranded cost of any naturally-drafted, non-condensing CWH 
equipment due to amended standards would have limited residual value, 
which may have been relinquished regardless of amended standards if a 
consumer opts to replace the older, but still functioning unit at the 
same time. As discussed more in this section, based on stakeholder 
feedback, DOE performed a sensitivity analysis regarding these 
assumptions and determined residual values from replaced equipment, 
which DOE has incorporated into its LCC analysis.
    AHRI disagreed with DOE's characterization of their statement 
related to the withdrawn 2016 CWH ECS NOPR relating to customers 
handling common-vented equipment by replacing all equipment at the same 
time. (AHRI, No. 31 at p. 1) PHCC commented that it believes DOE 
misinterpreted other stakeholder statements regarding replacement of 
individual devices in common venting situation. (PHCC, No. 28 at pp. 8-
9) While DOE captured the AHRI comment as stated in the withdrawn 2016 
CWH ECS NOPR public meeting, AHRI clarifies that what they intended to 
illustrate was a misalignment of timing leading to the premature 
retirement of functioning equipment. While DOE did not receive data on 
the frequency of common venting of equipment, for the final rule DOE 
examined through sensitivity analysis a potential cost impact on the 
LCC that could occur due to premature replacement of equipment, as 
discussed later in this section.
    Joint Gas Commenters assert that common venting of CWH equipment 
and space heating equipment was common practice for over 100 years, and 
is still very common. Joint Gas Commenters stated that non-condensing 
appliances have the ability to share a common vent with other non-
condensing appliances, and removing one or more units would disrupt the 
venting system of the other locations. (Joint Gas Commenters, No. 34 at 
pp. 4-5, 12-13) WM Technologies and Patterson-Kelley expressed concern 
with the prevalence of common venting disparate gas-fired equipment, 
stating it is so common that both the International Fuel Gas Code and 
National Fuel Gas Code have appendices devoted to the sizing of such 
venting systems. (WM Technologies, No. 25 at p. 5; Patterson-Kelley, 
No. 26 at pp. 1-2)
    In response to the comments on common venting disparate equipment, 
DOE notes that for the 2016 commercial packaged boiler rule, DOE asked 
for input on common venting of disparate gas heating equipment. 
Comments on the frequency of common venting were inconsistent; however, 
in response to the commercial packaged boiler NOPR, AHRI stated that 
they believed that common venting of commercial boilers and commercial 
water heaters may in fact be relatively rare given the size mismatch 
between commercial boilers and commercial water heaters, such that 
common venting would be more than problematic because the common vent 
size would be so large that when the boiler wasn't firing there would 
be venting problems on the water heater. (See EERE-2013-BT-STD-0030; 81 
FR 15870)
    Based on this input from AHRI, DOE determined that common venting 
with water heaters would be negligible for large CPB equipment and 
would be uncommon for small CPB equipment. See 85 FR 1630. Based on 
this input DOE believes that to the extent common venting exists in a 
commercial setting it is most likely to be multiple water heaters as 
opposed to a water heater and another type of equipment.
    With respect to the comment about the International Fuel Gas Code 
and National Fuel Gas Code, the codes provide for installations in 
residential setting as well as in commercial settings. In a residence, 
typically there are 2 major gas-fired appliances to be vented, a space 
heating appliance, e.g., furnace or boiler, and a water heater. Thus, 
common venting when it does occur almost always is indicative of 
disparate gas-fired equipment. In addition, this equipment will 
typically be of sufficiently similar input rates to be common vented 
even where their usage profiles may be disparate. This is a situation 
which would not necessarily be the case in many commercial settings 
where there may be greater variation in the input ratings of the 
equipment serving the space heating and water heating needs of the 
building as well as

[[Page 69749]]

more commonly the use of multiple individual equipment to satisfy 
either the space heat or the water heating needs. Thus, while these 
fuel gas safety codes provide for requirements for when common venting 
of disparate equipment is used, these codes do not tell anything about 
the frequency of these types of common venting applications, 
particularly in commercial settings. DOE also notes that while most 
residential gas-fired heating equipment is installed indoors, a 
substantial fraction of the commercial floorspace is heated using 
packaged rooftop equipment, a fact that further reduces the possibility 
of venting of disparate equipment.
    Joint Gas Commenters state DOE does not include costs for redesign 
necessary to address common venting. (Joint Gas Commenters, No. 34 at 
p. 18) However, Joint Gas Commenters provided no evidence of what such 
redesign might cost. Because consumers have multiple paths they could 
take to deal with upgrading common-vented equipment, without detailed 
knowledge of individual installations it would be extremely difficult 
to estimate the incremental cost of redesign of replacements of 
individual components of the common-vented system. DOE did not receive 
input on the frequency of common vented systems. Further, DOE did not 
receive input on the frequency with which redesign of a common-vented 
system would be significant and not already a part of the expected 
installation cost. DOE notes that when considering the consumers 
incurring extraordinary vent costs, the cost of redesign is part of 
what results in extraordinary costs, and as such it is subsumed in the 
doubling or tripling of the venting costs for such installations.
    AHRI, Bradford White and Joint Gas Commenters stated that DOE 
recognizes that product lifetimes vary and used a probability 
distribution to describe lifetime here and in other DOE rulemakings. 
They noted that modeling common vented equipment as if it is all 
replaced at the same time can lead to consumers forgoing useful 
equipment lifetime and modeling it if the other equipment is retained 
can lead to increased venting cost as consumers have to vent condensing 
and orphaned non-condensing equipment separately. (AHRI, No. 31 at p. 
2; Bradford White, No. 23 at p. 3; Joint Gas Commenters, No. 34 at p. 
13) Joint Gas Commenters add that one reason for having multiple units 
is to have a primary and a backup so there will be no loss of service 
when a water heater needs to be replaced, and that purpose would be 
defeated if both units are replaced at the same time (Joint Gas 
Commenters, No. 34 at p. 13)
    Bradford White, WM Technologies, Patterson-Kelley, and Joint Gas 
Commenters noted that DOE assumes that all commonly vented appliances 
will be replaced at the same time if only one water heater fails and 
found the approach to product lifetime for common vented equipment 
concerning as DOE recognizes that products lifetimes vary and uses a 
probability distribution in numerous other standards' rulemaking as in 
the CWH LCC workbook. (Bradford White, No. 23 at p. 3; WM Technologies, 
No. 25 at p. 5; Patterson-Kelley, No. 26 at pp. 1-2) PHCC and Bradford 
White noted that while it is possible that multiple units that are 
commonly vented are replaced at the same time, they rarely see this 
occur, nor do they commonly see proactive replacement. As referenced 
previously, equipment lifetimes will vary unit to unit, even of the 
same model. If one unit happens to fail earlier in its life (e.g., in 
year 3), it is highly unlikely that a building owner would replace 
multiple other units at the same time. (Bradford White, No. 23 at p. 4; 
PHCC, No. 28 at pp. 8-9)
    WM Technologies and Patterson-Kelley both state that stranded water 
heaters are a fact in the industry and the impact on such installations 
should be taken into account in the LCC analysis. (WM Technologies, No. 
25 at p. 5; Patterson-Kelley, No. 26 at p. 2)
    In response to the comments, DOE elected to perform a sensitivity 
analysis related to common venting. To the extent that the loss of 
value of a second water heater on a common vent takes place, the cost 
is an up-front cost and can be treated as such. To analyze the issue 
DOE used the lifetime distributions by equipment class referenced in 
several comments to model what happens when you have two independent 
pieces of equipment operating at the same time. DOE modeled multiple 
permutations to address two key questions: (1) What happens if they are 
installed at the same time?; and (2) Is the answer different after one 
equipment lifetime than it is after multiple (e.g., 3) equipment 
lifetimes? With respect to the second question, certain issues make the 
answer less than useful, namely, equipment today is different than it 
was 20 or more years ago and venting systems may have changed. While 
Joint Gas Commenters may be correct that equipment has been commonly 
vented for 100 years, consumers likely cannot vent today's hot water 
supply boilers with a boiler from 50 years ago because of changes in 
the technology. The result of this modeling showed that on average in 
commercial gas storage equipment a second water heater on a common vent 
would lose approximately 3 years of useful life; a second hot water 
supply boiler about 4 years; and residential duty gas-fired storage 
about 3 years. DOE did not analyze tankless units because they 
represent a newer technology and most of the equipment available today 
is forced air combustion and not suitable for venting with category I 
equipment. See chapter 3 of the final rule TSD for discussion of forced 
combustion in tankless CWH equipment.
    Next DOE translated lost equipment life into an estimate of 
monetary value. Commenters have not provided data on the frequency of 
common venting, other than that it exists. For its sensitivity 
analysis, DOE modeled a scenario of 20% of non-condensing replacement 
water heaters might be common vented for each of the above categories 
where common venting was considered. The average value of the lost life 
of the second water heater assumed to be common vented was taken as a 
loss against the average equipment class LCC savings as calculated in 
this final rule for the pair of new water heaters that were installed 
in their place in the common venting replacement scenario. Based on 
this sensitivity analysis, DOE determined that the overall impact of 
the residual values was approximately $39 for commercial gas-fired 
storage; $22 for residential duty gas-fired storage; and $5 for 
instantaneous water heaters and hot water supply boilers. The LCC 
savings as calculated for the final rule could potentially be lowered 
via account for an analysis of this nature. However, the lack of 
information on the fraction of installations in which common venting 
has been utilized and the complexity of dealing with these historical 
installations and how remaining life may be correlated between CWH 
units are issues that did not support its incorporation in the base 
analysis. DOE presents it as illustrative of the fact that including 
this would reduce but not eliminate the economic benefits of the rule 
to consumers. DOE's sensitivity case is discussed in TSD chapter 8.
    Bradford White disagreed with DOE's assertion that water heaters 
will be able to vent vertically in the case of common venting with 
other Category I water heaters as it will not be able to use the 
existing chimney as a chase as combustion products from existing water 
heaters will compromise non-metallic venting used by the new water 
heater. They further seek clarification on how polypropylene common 
vent

[[Page 69750]]

kits can be used to vent both non-condensing, existing water heaters 
with a newly installed condensing water heater. They also commented 
that regarding horizontal vent replacement, that DOE noted ``to the 
extent that horizontal natural draft venting is used at a job site, it 
is indicative that horizontal venting is allowed by the jurisdiction.'' 
and acknowledged that while that may be true, [and that there are] 
power venter kits that are used to horizontally vent natural draft 
water heaters, it is our experience that this is rarely done in the 
field. Therefore, this cannot be used as a good indicator of what local 
jurisdictions' codes permit. (Bradford White, No. 23 at p. 4)
    DOE believes Bradford White has misunderstood DOE's point. DOE 
meant with the discussion in the May 2022 CWH ECS NOPR that there may 
be other options to both water heaters using the vertical chase when 
replacing the water heaters on the common vent. To the extent that a 
separate flue path may exist such as a horizontal venting from a 
mechanical room with an exterior wall, installers could very likely 
choose a simple horizontal vent option for the replacement water 
heater, and leave a functional non-condensing water heater in place, 
taking into account the relative size of the remaining Category I vent 
and the remaining water heater(s) input rate. Another option which may 
be present is the use of specified common venting procedures using 
multiple condensing water heaters (in a case where all units are 
replaced). In addition, DOE is aware of the Duravent FNS 80/90 vent 
solution, which allows for the use of an existing category I flue in 
conjunction with a condensing flue system which may be used in certain 
applications where replacement of the non-condensing water heater would 
be far out in time. However, in the case where an alternate path does 
not exist, DOE notes that multiple water heaters may have to be 
replaced.
f. Vent Sizing/Material Cost
    Bradford White stated DOE's analysis of installation costs does not 
appropriately account for State level restrictions on the application 
of PVC venting. In New Hampshire, PVC venting is not permitted for 
exhausting combustion gases. In Massachusetts, only CPVC, 
polypropylene, and other piping approved by the Plumbing Board are 
acceptable. These codes do not disallow PVC based on size, as other 
commenters stated. (Bradford White, No. 23 at p. 3) Bradford White also 
asked DOE to elaborate on why they believe polypropylene venting will 
become a more viable, cost-competitive alternative by 2026. (Bradford 
White, No. 23 at p. 4)
    After reviewing the comments from Bradford White and the 
requirements with regard to venting materials in New Hampshire and 
Massachusetts, DOE determined that in the case of New Hampshire, NFPA 
54 was amended to require that a venting material would only be allowed 
to be used if the maximum set point temperature of the water heater 
does not exceed the safe operating temperature of the venting material 
selected. In the case of PVC vent material, the maximum storage 
temperature for use with PVC venting would be around 149 [deg]F (based 
on the use of listed PVC vent products available that are rated to UL 
1738). DOE agrees that this effectively does not allow PVC venting for 
the vast majority of products regulated under this rule. DOE also 
reviewed the requirements surrounding plastic venting materials for 
Massachusetts. Massachusetts requires that all venting products must be 
approved by the Plumbing Board. After consultation with a manufacturer 
of venting materials and review of the Massachusetts Consumer Affairs 
and Business Regulation website,\81\ DOE confirmed that at least one 
manufacturers' product line of PVC vent piping that is currently listed 
to UL 1738 is allowed as a venting material according to the 
Massachusetts Plumbing Board. Based on this review, and the relative 
population of New Hampshire to the US total, DOE determined that the 
effect of restrictions imposed on PVC venting in New Hampshire would be 
de minimis for DOE's venting cost analysis.
---------------------------------------------------------------------------

    \81\ Accepted Plumbing Products Online System of the 
Massachusetts Board of Registration of Plumbers and Gas Fitters. 
licensing.reg.state.ma.us/public/pl_products/pb_pre_form.asp (Last 
accessed Dec 20, 2022).
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    With response to possible growth in the use of polypropylene vent 
materials, DOE does not have data on the relative use of different 
plastic venting materials and historic changes over time. DOE's intent 
in the May 2022 CWH ECS NOPR was only to note polypropylene venting as 
a relatively new option compared to other venting materials on the U.S. 
market that appears to have growth potential. Importantly, DOE did not 
modify its analysis for the May 2022 CWH ECS NOPR or this final rule to 
explicitly include polypropylene venting.
g. Masonry Chimney/Chimney Relining
    In the May 2022 CWH ECS NOPR, DOE assumed that 25 percent of pre-
1980 buildings have masonry chimneys and that 25 percent need relining. 
DOE also used these assumptions in the withdrawn May 2016 CWH ECS NOPR 
and asked for input. DOE did not receive further information or data on 
the percentage of buildings built prior to 1980 with a masonry chimney 
or the percentage of those chimneys that require relining in response. 
For this final rule DOE maintained these same assumptions to 
characterize masonry chimneys; which DOE used in the logic underlying 
the calculation of venting costs.
    PHCC noted that with regard to the fraction of existing buildings 
with masonry chimneys, it cannot provide data, but suggests that the 
Department may want to break its pre-1980 assumption down into more 
discrete year bins and also encouraged DOE to review possible data from 
the General Services Administration (``GSA''), the largest occupier of 
offices in the country. It encouraged DOE to make further examination 
of available information and to refrain from making random assumptions 
regarding building stock. (PHCC, No. 28 at p. 8)
    DOE appreciates PHCC's input on this topic. DOE reviewed GSA data 
and found it did not include information that provided insight into the 
fraction of existing buildings with masonry chimney venting or to 
develop more detailed estimates of this variable by finer year bins. 
Consequently, DOE did not update its methodology in this area for the 
final rule.
h. Downtime During Replacement
    Joint Gas Commenters state that many CWH replacements occur on an 
emergency basis or ``on an unplanned basis.'' For this reason, Joint 
Gas Commenters criticize DOE's statement that some businesses are able 
to plan ahead for CWH replacements. They further state that DOE failed 
to take into account additional down-time required for condensing CWH 
installations in buildings previously served by non-condensing 
equipment and the potential for lost business during the downtime. 
(Joint Gas Commenters, No. 12 at p. 14) Similarly, Joint Gas Commenters 
pointed out that DOE did not take into account lost business operations 
during replacement of heat exchangers. (Joint Gas Commenters, No. 34 at 
p. 19) DOE has no mechanism for determining what if any impact there 
would be on a consumer's business. As noted above, consumers have 
several avenues to avoid downtime, whether due to a replacement or due 
to a repair. DOE agrees with Joint Gas Commenters that a water heater 
failure can happen at any time. However, DOE assumes that many 
consumers would have contingency

[[Page 69751]]

plans to cope with such emergencies and limit business losses, 
including potentially having insurance policies which include coverage 
of business loss due equipment failures or similar business impacting 
events. Because avenues exist for consumers to minimize or eliminate 
lost business, DOE continues to assume there is no need to add in costs 
for lost business.
    DOE acknowledges that currently a wide range of industries are 
experiencing supply chain bottlenecks, and that could, in today's 
climate, add to the time required to replace water heaters. The 
standard established by this final rule however would not take effect 
for three years and DOE believes that these supply chain bottlenecks 
should be resolved by that time.
3. Annual Energy Consumption
    For each sampled building, DOE determined the energy consumption 
for CWH equipment at different efficiency levels using the approach 
described previously in section IV.C.4 of this document.
4. Energy Prices
    Electricity and natural gas prices are used to convert changes in 
the energy consumption from higher-efficiency equipment into energy 
cost savings. It is important to consider regional differences in 
electricity and natural gas prices because the variation in those 
prices can impact electricity and natural gas consumption savings and 
equipment costs across the country. In the May 2022 CWH ECS NOPR, DOE 
determined average effective commercial electricity prices \82\ and 
commercial natural gas prices \83\ at the State level from EIA data for 
calendar year 2019.
---------------------------------------------------------------------------

    \82\ U.S. Energy Information Administration (EIA). Form EIA-861M 
monthly electric utility Sales and Revenue Data (aggregated: 1990-
current). Available at www.eia.gov/electricity/data/eia861m/. Last 
accessed on March 31, 2023.
    \83\ U.S. Energy Information Administration (EIA). Natural Gas 
Prices. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PCS_DMcf_a.htm. Last accessed on March 31, 2023.
---------------------------------------------------------------------------

    In response to the May 2022 CWH ECS NOPR, Joint Gas Commenters were 
critical of DOE's use of 2019 historical energy price data despite 
newer data being available ``before the last update on March 25, 
2022,'' and questioned why DOE did not update historical price data and 
marginal prices to match other base year costs. (Joint Gas Commenters, 
No. 34 at p. 23) In response, DOE chose 2019 as the base year in the 
May 2022 CWH ECS NOPR because it was the last calendar year for which 
complete natural gas and electricity data were available (i.e., there 
were no missing data in the Natural Gas Navigator dataset), and at the 
time the United States had not begun to recognize that the Nation was 
in a period of rapid price inflation. For the final rule, DOE agrees 
with the Joint Gas Commenters that it is important to have fuel prices 
that are fully contemporaneous with the other base-year prices used in 
the analysis, such as the prices for stainless steel venting. For the 
final rule, DOE is using a 12-month period ending with December 2022.
    For the final rule DOE again used data from EIA's Form 861 \84\ to 
calculate commercial and residential sector electricity prices, and 
EIA's Natural Gas Navigator to calculate commercial and residential 
sector natural gas prices.\85\ Future energy prices were projected 
using trends from the EIA's AEO2023.\86\ This approach captured a wide 
range of commercial electricity and natural gas prices across the 
United States.
---------------------------------------------------------------------------

    \84\ U.S. Energy Information Administration (EIA). Uses prices 
presented in the Sales and Revenue report, by sector by State. The 
EIA-861M detailed data was the March 27, 2023 updated historical 
data containing data from 2010 through January 2023.
    \85\ U.S. Energy Information Administration (EIA). Natural Gas 
Navigator. Available at www.eia.gov/dnav/ng/ng_pri_sum_a_EPG0_PRS_DMcf_a.htm. Last accessed March 31, 2023.
    \86\ U.S. Energy Information Administration (EIA). Annual Energy 
Outlook 2023 with Projections to 2050: Narrative. March 2023. 
Available at www.eia.gov/outlooks/aeo/.
---------------------------------------------------------------------------

    CBECS and RECS report data based on different geographic scales. 
The various States in the United States are aggregated into different 
geographic scales such as Census Divisions (for CBECS) and Reportable 
Domains (for RECS). For both the commercial and residential sectors, 
DOE continued to use population in each State and the cumulative 
population in the States that comprise each Census Division and 
Reportable Domain for developing natural gas prices. See appendix 8C of 
the final rule TSD for further details.
    The electricity and natural gas price trends provide the relative 
change in electricity and natural gas costs for future years. DOE used 
the AEO2023 Reference case to provide the default electricity and 
natural gas price forecast scenarios. This is an update from the May 
2022 CWH ECS NOPR that relied on the AEO2021. DOE extrapolated the 
trend in values at the Census Division level to establish prices beyond 
2050.
    Joint Gas Commenters criticized the use of AEO forecasts, claiming 
they have systematically overstated future energy costs, and presented 
a comparison of historical residential and commercial gas prices to AEO 
forecasts going back to 2010 to support their claim. (Joint Gas 
Commenters, No. 34 at pp. 19-23) DOE uses the AEO forecast because it 
is the most widely available, widely reviewed and robust forecasting 
process available to DOE. As Joint Gas Commenters did not propose any 
alternative, let alone one as widely reviewed and robust as the AEO, 
DOE determined that the appropriate alternative at this point is to 
continue to use the AEO for future energy price trends, consistent with 
its practice in energy conservation standards rulemakings, with the 
only change made from the May 2022 CWH ECS NOPR being to update from 
the AEO2021 to the AEO2023.
    DOE developed the LCC analysis using a marginal fuel price approach 
to convert fuel savings into corresponding financial benefits for the 
different equipment categories. This approach was based on the 
development of marginal price factors for gas and electric fuels based 
on historical data relating monthly expenditures and consumption. For 
details of DOE's marginal fuel price approach, see chapter 8 of the 
final rule TSD.
    Regarding the usage of EIA data for development of marginal energy 
costs and comparisons to tariff data, DOE emphasizes that the EIA data 
provide complete coverage of all utilities and all customers, including 
larger commercial and industrial utility customers that may have 
discounted energy prices. The actual rates paid by individual customers 
are captured and reflected in the EIA data and are averaged over all 
customers in a State. DOE has previously compared these two approaches 
for determining marginal energy price factors in the residential 
sector. In a September 2016 SNOPR for residential furnaces, DOE 
compared its marginal natural gas price approach using EIA data with 
marginal natural gas price factors determined from residential tariffs 
submitted by stakeholders. 81 FR 65719, 65784 (Sept. 23, 2016). The 
submitted tariffs represented only a small subset of utilities and 
States and were not nationally representative, but DOE found that its 
marginal price factors were generally comparable to those computed from 
the tariff data (averaging across rate tiers).\87\ DOE noted that a 
full tariff-based analysis would require information on each 
household's total baseline gas consumption (to establish which rate 
tier is applicable) and how many customers are served by a utility

[[Page 69752]]

on a given tariff. These data were not available in the public domain. 
By relying on EIA data, DOE noted, its marginal price factors 
represented all utilities and all States, averaging over all customers, 
and was therefore ``more representative of a large group of consumers 
with diverse baseline gas usage levels than an approach that uses only 
tariffs.'' 81 FR 65719, 65784. While the above comparative analysis was 
conducted for residential consumers, the general conclusions regarding 
the accuracy of EIA data relative to tariff data remain the same for 
commercial consumers. DOE uses EIA data for determining both 
residential and commercial electricity prices and the nature of the 
data is the same for both sectors. DOE further notes that not all 
operators of CWH equipment are larger load utility customers. As 
reflected in the building sample derived from CBECS 2018 and RECS 2009 
data, there is a range of buildings with varying characteristics, 
including multi-family residential buildings, that operate CWH 
equipment. The buildings in the LCC sample have varying hot water 
heating load, square footage, and water heater capacity. Operators of 
CWH equipment are varied, some large and some smaller, and thus the 
determination of the applicable marginal energy price should reflect 
the average CWH equipment operator.
---------------------------------------------------------------------------

    \87\ See appendix 8E of the TSD for the 2016 supplemental notice 
of proposed rulemaking for residential furnaces for a direct 
comparison, available at: www.regulations.gov/document/EERE-2014-BT-STD-0031-0217 (Last accessed January 25, 2022).
---------------------------------------------------------------------------

    DOE's approach is based on the largest, most comprehensive, most 
granular national data sets on commercial energy prices that are 
publicly available from EIA. The data from EIA are the highest quality 
energy price data available to DOE. The resulting estimated marginal 
energy prices represent an average across all commercial customers in a 
given region (reportable domain for RECS, census division for CBECS). 
Some customers may have a lower marginal energy price, while others may 
have a higher marginal energy price. With respect to large customers 
who may pay a lower energy price, no tariffs were submitted to DOE 
during the rulemaking for analysis. Tariffs for individual non-
residential customers can be very complex and generally depend on both 
total energy use and peak demand (especially for electricity). These 
tariffs vary significantly from one utility to another. While DOE was 
unable to identify data to provide a basis for determining a 
potentially lower price for larger commercial and industrial utility 
customers, either on a state-by-state basis or in a nationally 
representative manner, the historic data on which DOE did rely include 
such discounts. The EIA data include both large non-residential 
customers with a potentially lower rate as well as more typical non-
residential customers with a potentially higher rate. Thus, to the 
extent larger consumers of energy pay lower marginal rates, those lower 
rates are already incorporated into the EIA data, which would drive 
down EIA's marginal rates for all consumers. If DOE were to adjust 
downward the marginal energy price for a small subset of individual 
customers in the LCC Monte Carlo, it would also have to adjust upward 
the marginal energy price for all other customers in the sample to 
maintain the same marginal energy price averaged over all customers. 
Even assuming DOE could accomplish those adjustments in a reliable or 
accurate way, this upward adjustment in marginal energy price would 
affect the majority of buildings in the LCC sample. Operational cost 
savings would therefore both decrease and increase for different 
buildings in the LCC sample, yielding substantially the same overall 
average LCC savings result as DOE's current estimate.
    In summary, DOE's current approach utilizes an estimate of marginal 
energy prices and captures the impact of actual utility rates paid by 
all customers in a State, including those that enjoy lower marginal 
rates for whatever reason, in an aggregated fashion. Adjustments to 
this methodology are unlikely to change the average LCC results.
    DOE uses EIA's forecasted energy prices to compute future energy 
prices indices (for this final rule, DOE updated forecasts from data 
published in the AEO2023 Reference case), and combines those indices 
with monthly historical energy prices and seasonal marginal price 
factors in calculating future energy costs in the LCC analysis. For 
this final rule, DOE used 2022 EIA energy price data as a starting 
point. EIA historical price trends and calculated indices are developed 
in a reasonable manner using the best available data and models, and 
DOE uses these trends consistently across its regulatory analyses. DOE 
points out that this final rule analyzes potential new standards for 
gas-fired equipment, and that electricity usage for such commercial 
equipment occurs both during standby and during firing periods 
(depending on equipment design) and can occur during periods of utility 
peak usage. While electricity usage and resultant expenditures are 
significantly lower than fuel (gas)-related expenditures, they do 
impact the LCC analysis and have been included, using the calculated 
marginal electricity costs. DOE's use of marginal cost factors for 
electricity in this analysis, which is based on overall electric 
expenditures, including those associated with electricity demand, may 
result in somewhat higher electricity costs than cost figures that omit 
the impact of demand costs; however, this is appropriate for the 
current analysis, barring other information on commercial load profiles 
and demand-peak windows. After careful consideration during the 
preparation of this final rule, DOE concluded that it is appropriate to 
use its existing approach to the development of electric and fuel costs 
for the LCC and PBP analysis that (1) considers marginal electric and 
natural gas costs in its economic analysis, (2) reflects seasonal 
variation in marginal costs, and (3) uses EIA-recommended future energy 
price escalation rates. DOE maintained this approach for this final 
rule.
5. Maintenance and Repair Costs
    Maintenance costs are the routine costs to the consumer of 
maintaining the operation of equipment. Repair costs are the cost to 
the consumer of replacing or repairing components that have failed in 
the CWH equipment.
a. Maintenance Costs
    DOE utilized The Whitestone Facility Maintenance and Repair Cost 
Reference 2012-2013 ^{88 89} to determine the amount of labor 
and material costs required for maintenance of each of the relevant CWH 
equipment subcategories. Maintenance costs include services such as 
cleaning the burner and flue and changing anode rods. DOE estimated 
average annual routine maintenance costs for each class of CWH 
equipment based on equipment groupings. Table IV.20 presents various 
maintenance services identified and the amount of labor required to 
service the equipment covered in the final rule analysis.
---------------------------------------------------------------------------

    \88\ Whitestone Research. The Whitestone Facility Maintenance 
and Repair Cost Reference 2012-2013 (17th Annual edition). 2012. 
Whitestone Research: Santa Barbara, CA.
    \89\ The Whitestone Research report is the most recent available 
from this source. The report was used in the determination of labor 
hours for maintenance, and DOE has found no evidence indicating that 
maintenance tasks and labor hours have changed except as addressed 
in subsequent sections of this final rule.

[[Page 69753]]



          Table IV.20--Summary of Maintenance Labor Hours and Schedule Used in the LCC and PBP Analyses
----------------------------------------------------------------------------------------------------------------
                                                                                                     Frequency
                   Equipment                               Description              Labor hours       (years)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters;     Clean (Volume <= 275 gallons)...            2.67               1
 Residential-duty gas-fired storage water       Clean (Volume > 275 gallons)....               8               2
 heaters.                                       Overhaul........................            1.84               5
Gas-fired instantaneous tankless water heaters  Service.........................            0.75               1
Gas-fired instantaneous circulating water       Service.........................            7.12               1
 heaters and hot water supply boilers.
----------------------------------------------------------------------------------------------------------------

    Because data were not available to indicate how maintenance costs 
vary with equipment efficiency, DOE used preventive maintenance costs 
that remain constant as equipment efficiency increases. Additional 
information relating to maintenance of CWH equipment can be found in 
chapter 8 of the final rule TSD.
    For the May 2022 CWH ECS NOPR, DOE did make revisions to some of 
the original Whitestone schedule of labor hour in response to comments 
on the withdrawn ECS NOPR. DOE added an additional 0.0833 labor hours 
per year \90\ for checking condensate neutralizers during annual 
maintenance work, and $10 per year \91\ for replacing the material 
within the neutralizers. In addition, DOE increased the labor hours for 
annual tankless water heater maintenance from 0.33 hours to 0.75 hours. 
DOE also conducted research on the maintenance labor activities and 
associated hours needed to maintain commercial gas-fired instantaneous 
circulating water heaters and hot water supply boilers. This research 
involved reviewing guidance in manufacturer product manuals in 
combination with the estimates in the Whitestone Facility Maintenance 
and Repair Cost Reference and the RSMeans Facilities Maintenance and 
Repair Cost Data.\92\ Using these references, DOE updated the 
maintenance labor hours from 0.33 to 7.12 for this equipment category. 
Appendix 8E of the final rule TSD provides more detail on maintenance 
labor hours assigned to each equipment category of commercial water 
heaters.
---------------------------------------------------------------------------

    \90\ U.S. Department of Energy, Technical Support Document: 
Energy Efficiency Program for Consumer Products and Commercial and 
Industrial Equipment: Commercial Warm Air Furnaces. 2015. Docket No. 
EERE-2013-BT-STD-0021. The Commercial Warm Air Furnaces NOPR TSD 
assumed 0.078 hours for replacing neutralizer filler every 3 years. 
For this final rule, DOE used 5 minutes per year for checking and/or 
refilling neutralizers.
    \91\ A condensate neutralizer is used to buffer or neutralize 
the acidic content of flue gas condensate before disposal. The 
condensate neutralizer DOE included in DOE's installation costs 
weighs approximately 5 pounds. It is essentially a plastic tube with 
water inlet and outlet, and filled with calcium carbonate pellets 
(neutralizer media), and DOE estimates the pellets comprise 3.5 to 4 
pounds of the total. DOE found prices ranging from $0.25 per pound 
(phoenixphysique.com/ism-root-pvlsc/91da02-marble-chips-for-condensate-neutralizer) up to $3 per pound in smaller purpose 
products. DOE estimates $10 per year would be sufficient to cover 
replacement of the pellets.
    \92\ RSMeans Company. Facilities Maintenance and Repair Cost 
Data 2022. 29th Annual Edition. Available at www.rsmeans.com/products/books/.
---------------------------------------------------------------------------

    In response to the May 2022 CWH ECS NOPR, Bradford White stated 
that DOE assumed that annual maintenance costs do not vary as a 
function of efficiency and recommended that this assumption be updated 
as burner maintenance costs increase as a function of efficiency. 
(Bradford White, No. 23 at p. 8) In response to this comment, DOE 
downloaded Bradford White and Lochinvar installation and operation 
manuals for commercial gas-fired condensing and non-condensing water 
heaters. DOE compared the language for maintenance for burners. While 
clearly the burners appeared different in the pictures in the manuals, 
the language for this step was identical. Because DOE could not discern 
where additional steps needed to be taken involving additional time, 
and because Bradford White did not volunteer this information in their 
comment, DOE did not add additional labor hours in response to this 
comment.
    In another comment on the May 2022 CWH ECS NOPR, JJM Alkaline noted 
the costs to replace neutralizers ($10/year) is below prevailing market 
costs. (JJM Alkaline, No. 10 at p. 1) DOE reviewed the cost assumptions 
and inputs used in the modeling of condensate management solutions. DOE 
reviewed costs for condensate neutralizer material (based on retail 
prices available for different purchase quantities), condensate 
neutralizers, as well as considerations for labor. DOE also considered 
how consumption of neutralizer media would change between different 
water heating equipment by input capacity, full load operating hours as 
evidenced in its LCC analysis and subsequent overall condensate 
production. DOE's revised analysis resulted in increased costs overall, 
but more specifically made overall condensate management costs a 
function of each representative equipment type in DOE's analysis. Labor 
cost was doubled from 5 minutes to 10 minutes per year, and is assumed 
to take place at the time of a normal maintenance cycle. Both the 
assumed prevalence of condensate neutralization equipment and the 
expected cost of such equipment are discussed in chapter 7 of the final 
rule TSD.
b. Repair Costs
    DOE calculated CWH repair costs based on an assumed typical failure 
rate for key CWH subsystems. DOE assumed a failure rate of 0.5 percent 
per year for combustion systems, 1 percent per year for controls, and 2 
percent per year for high efficiency controls applied with condensing 
equipment. This probability of repair is assumed to extend through the 
life of the equipment, but only one major repair in the life of the 
equipment was considered.
    The labor required to repair a subsystem was estimated as 2 hours 
for combustion systems and 1 hour for combustion controls. Labor costs 
are based upon servicing by one plumber with overhead and profit 
included and are based on RSMeans data.\93\ Because a repair may not 
require the complete subsystem replacement, but rather separate 
components, DOE estimated a typical repair would have material costs of 
one-half the subsystem total cost, but would require the equivalent 
labor hours for total subsystem replacement. DOE calculated a cost for 
repair over the life of a CWH unit with these assumptions, and used 
that cost or repair in the analysis. A repair year was selected at 
random over the life for each unit selected in the LCC and the repair 
cost occurring in that year was discounted to present value for the LCC 
analysis.
---------------------------------------------------------------------------

    \93\ RSMeans. RSMeans Mechanical Costs Book 2022. Available at 
www.rsmeans.com/products/books.
---------------------------------------------------------------------------

    Heat exchanger failure is a unique repair scenario for certain 
commercial gas-fired instantaneous circulating water

[[Page 69754]]

heaters and hot water supply boilers and was included in DOE's repair 
cost analysis. The use of condensing or non-condensing technology 
determines the rate and timing of heat exchanger failure as well as the 
cost of repair with an approximately three times greater probability of 
repair for condensing equipment. DOE's assumptions for the frequency of 
failure and the mean year of heat exchanger failure were based on a 
report from the Gas Research Institute (``GRI'') for boilers.\94\ The 
cost of heat exchanger replacement is assumed to be a third of the 
total water heater replacement cost.
---------------------------------------------------------------------------

    \94\ Jakob, F.E., J.J. Crisafulli, J.R. Menkedick, R.D. Fischer, 
D.B. Philips, R.L. Osbone, J.C. Cross, G.R. Whitacre, J.G. Murray, 
W.J. Sheppard, D.W. DeWirth, and W.H. Thrasher. Assessment of 
Technology for Improving the Efficiency of Residential Gas Furnaces 
and Boilers. Volume I and II--Appendices. September 1994, 1994. Gas 
Research Institute. AGA Laboratories: Chicago, IL. Report No. GRI-
94/0175.
---------------------------------------------------------------------------

    In the October 2014 RFI, DOE asked if repair costs vary as a 
function of equipment efficiency. 79 FR 62899, 62908 (Oct. 21, 2014). 
Four stakeholders commented on the relationship between equipment 
efficiency and repair costs, with emphasis that higher-efficiency 
equipment incorporates additional components and more complex controls. 
(Bradford White, No. 3 at p. 3; A.O. Smith, No. 2 at p.4; AHRI, No. 5 
at p. 5; Rheem, No. 10 at p.7) DOE considered the feedback from the 
stakeholders and undertook further research to identify components and 
subsystems commonly replaced in order to evaluate differences in repair 
costs relative to efficiency levels.
    As a result of its research, DOE learned that the combustion 
systems and controls used in gas-fired CWH equipment have different 
costs related to the efficiency levels of these products, a finding in 
agreement with comments provided on the RFI. For the combustion 
systems, these differences relate predominately to atmospheric 
combustion, powered atmospheric combustion, and pre-mixed modulating 
combustion systems used on baseline-efficiency, moderate-efficiency, 
and high-efficiency products respectively. The control systems employed 
on atmospheric combustion systems were found to be significantly less 
expensive than the controller used on powered combustion systems, which 
was observed to include a microprocessor in some products.
    Where similar component parts and costs were identified that 
reflected the equipment category and efficiency, DOE's component cost 
was estimated as the average cost of those replacement components 
identified. This cost was applied at the frequency identified earlier 
in this section. DOE understands that this approach may conservatively 
estimate the total cost of repair for purposes of DOE's analysis, but 
the percentage of total repair cost remains small compared to the 
consumer cost and the total installation cost. Additionally, DOE 
prefers to use this component-level approach to understand the 
incremental repair cost difference between efficiency levels of 
equipment. Additional details of this analysis and source references 
for the subsystem and component costs are found in chapter 8 of the 
final rule TSD and appendix 8E of the final rule TSD. DOE's 
incorporation and approach to repair costs in the LCC did not change 
from the NOPR implementation.
    Bradford White recommended DOE investigate other sources of more 
recent data on heat exchanger failure, noting that DOE bases its 
assumptions on heat exchanger failure based on a Gas Research Institute 
report on boilers, not water heaters, and it is from 1994. (Bradford 
White, No. 23 at p. 8) DOE understands Bradford White's concerns about 
this source document, and DOE invested a considerable amount of time 
investigating whether alternative information sources existed, and none 
could be identified. Thus for this final rule, DOE continues to rely 
upon this as the best available information.
    Joint Gas Commenters note DOE, without reference or logic, assumes 
the cost of heat exchanger replacement, where possible, is one third of 
the total water heater replacement cost. They also state it is just as 
likely that heat exchanger failure will cause a need for complete 
replacement of the water heating equipment, but the added negative 
economic impact of more frequent equipment outages on the business's 
operation is not considered. (Joint Gas Commenter, No. 34 at p. 19) DOE 
notes that appendix 8E in both the May 2022 CWH ECS NOPR and the final 
rule TSDs outlines heat exchanger replacement assumptions. The 
estimated cost equivalent to one-third of the hot water supply boiler 
cost was based on manufacturer literature. Based on the aforementioned 
Gas Research Institute report, DOE assumes that as many as 50 percent 
of condensing heat exchangers will need to be replaced with an average 
year of failure of 15 years. Note that for hot water supply boilers and 
other instantaneous water heaters, DOE assumes a 25 year lifetime. DOE 
also assumes 17 percent of non-condensing heat exchangers in those 
units will need to be replaced with a mean year of failure of 20 years, 
again for equipment with an expected 25 year lifetime. Thus, on 
average, a non-condensing heat exchanger failure could lead to more 
premature circulating water heaters and hot water supply boiler 
replacements because, on average, the heat exchanger replacement would 
occur closer to the expected end of life of the hot water supply boiler 
and consumers' repair professionals would make them aware of how much 
expected life would be available after the repair. DOE also notes that 
economically rational consumers are not going to replace a serviceable 
and repairable condensing hot water supply boiler that costs in excess 
of $7,100 if the heat exchanger fails at year 15. They would only do 
such if the water heater is otherwise compromised. As for the impact on 
a consumer's business, DOE has no mechanism for determining what if any 
impact there would be on a consumer's business. As discussed in 
IV.F.2.h, consumers have many alternatives for minimizing or mitigating 
downtime. While DOE is basing the assumptions of heat exchanger 
replacement on the best available data, Bradford White is correct in 
noting the Gas Research Institute report is from 1994, and DOE would 
assume that in normal situations, manufacturers would have made 
progress in reducing the failure rate since that date. When viewed in 
this light, the inclusion of this higher failure rate might be a 
conservative assumption.
6. Product Lifetime
    For CWH equipment, DOE used lifetime estimates derived through a 
review of numerous sources. Product lifetime is the age when a unit of 
CWH equipment is retired from service. For the May 2022 CWH ECS NOPR 
and for this final rule, DOE used a distribution of lifetimes, with the 
weighted averages ranging between 10 years and 25 years as shown in 
Table IV.21, which are based on a review of CWH equipment lifetime 
estimates found in published studies and online documents. These 
sources used by DOE in the review of lifetime include documents from 
prior DOE efficiency standards rulemaking processes, LBNL, NREL, the 
EIA, Federal Energy Management Program, Building Owner and Managers 
Association, Gas Foodservice Equipment Network, San Francisco Apartment 
Association, and National Grid.\95\ Specific document titles and 
references are provided in appendix 8F of the final rule TSD. DOE 
applied a

[[Page 69755]]

distribution to all classes of CWH equipment analyzed. Chapter 8 of the 
final rule TSD contains a detailed discussion of CWH equipment 
lifetimes.
---------------------------------------------------------------------------

    \95\ DOE attempted to only include only unique sources, as 
opposed to documents citing other sources already included in DOE's 
reference list.

      Table IV.21--Average CWH Lifetime Used in Final Rule Analyses
------------------------------------------------------------------------
                                                        Average lifetime
                     CWH equipment                           (years)
------------------------------------------------------------------------
Commercial gas-fired storage water heaters and storage-               10
 type instantaneous...................................
Residential-duty gas-fired storage water heaters......                12
Gas-fired instantaneous water heaters and hot water
 supply boilers
    Tankless water heaters............................                17
    Circulating water heaters and hot water supply                    25
     boilers..........................................
------------------------------------------------------------------------

    DOE notes that the average lifetime of all equipment covered by 
this rulemaking is the same for baseline and max-tech thermal 
efficiency levels. The lifetime selected for each simulation run 
varies, but the weighted-average lifetime is the same across all 
thermal efficiency levels.
    In response to the May 2022 CWH ECS NOPR, DOE received several 
comments concerning the estimated lifetime of equipment. AHRI stated 
that 10 years for commercial gas storage and 25 years for Instantaneous 
Water Heaters and Hot Water Supply Boilers seem more characteristic of 
residential applications than commercial. Higher water temperatures and 
faster duty cycles decrease expected lifetimes. (AHRI, No. 31 at p. 1) 
Rheem supported this AHRI comment. (Rheem, No. 24 at p. 2) Similarly, 
Bradford White stated that DOE's assumed 10-year life for commercial 
gas-fired storage and 25-year life for gas-fired instantaneous and hot 
water supply boilers are almost the same (in the case of gas-fired 
storage), or more than, their consumer (i.e., residential) 
counterparts. Bradford White also reiterated the point AHRI made about 
temperatures and duty cycles. Bradford White further noted that in 
appendix 8F, DOE cited experts stating commercial water heaters are 
expected to have shorter lives than residential water heaters. They 
expressed concern that DOE referenced several sources more than 10 
years old. (Bradford White, No. 23 at pp. 2 and 5) PHCC also stated 
DOE's lifetimes are too long, and DOE's listed lifetimes would be the 
maximum age for products, not the average age. PHCC notes that their 
members do not have a complied database for these products to verify 
life and that DOE should reengage with the product manufacturers and 
other stakeholders to see if additional data can be developed. (PHCC, 
No. 28 at p. 6) Joint Gas Commenters noted DOE assumes that the 
lifetime distribution for a class of CWH unit is the same within an 
equipment category, across all efficiency levels, then points to the 
replacement of boiler heat exchangers implying that lower reliability 
of heat exchangers in condensing units compared to 
non[hyphen]condensing units should imply shorter life. (Joint Gas 
Commenters, No. 34 at page 19)
    In response, DOE notes that the residential (i.e., consumer) gas 
water heaters are estimated to have a 14.5 year life, which exceeds 
both the commercial gas storage water heaters lifetime (10 years) and 
residential-duty gas-fired storage water heater lifetime (12 
years).\96\ Consumer boilers are estimated to have a 26.6 year 
lifetime, or 1.6 years longer than the lifetime for hot water supply 
boilers and circulating water heaters assumed by DOE.\97\ Thus, DOE's 
estimated equipment lifetimes for commercial water heaters are shorter 
than the residential counter-parts. DOE notes that the commercial gas-
fired storage water heater lifetime is approximately 30 percent shorter 
than its residential counterpart while the commercial hot water supply 
boiler lifetime is 6 percent shorter than its residential boiler 
counterpart. Bradford White, AHRI and Rheem did not provide DOE with 
sufficient numerical data concerning CWH equipment lifetimes to justify 
a significantly greater disparity in the lifetimes between these CWH 
and residential equipment. In response to the age of the documents 
cited in DOE's review of research on CWH equipment lifetimes, DOE 
undertook an additional literature search to determine if newer 
information was available. The search turned up newer documents with 
information about CWH equipment lifetime, but virtually all such 
documents refer to the sources cited in the NOPR for the lifetimes that 
they state. Thus, while the NOPR list of citations includes many older 
documents, updating this literature review did not provide evidence 
leading DOE to conclude that a change was needed in any of the 
estimated lifetimes.
---------------------------------------------------------------------------

    \96\ Based on the average lifetime included in DOE's ongoing 
consumer water heater rulemaking EERE-2017-BT-STD-0019.
    \97\ Based on the average lifetime included in DOE's ongoing 
consumer boiler rulemaking, Preliminary Technical Support Document, 
from www.regulations.gov/document/EERE-2019-BT-STD-0036-0021.
---------------------------------------------------------------------------

    In response to the Joint Gas Commenters, DOE does not have data to 
suggest that the lifetime of condensing CWH equipment is lower than 
that of non-condensing equipment; rather, all available data suggests 
that the lifetime of condensing CWH equipment is substantially the same 
as noncondensing CWH equipment. DOE does have and has incorporated data 
regarding increased repair costs for individual component failures that 
may occur in higher-efficiency equipment, as discussed in section 
IV.F.5.b of this document. However, the increased repair costs are 
largely related to the increased component cost and even in the case of 
heat exchangers where DOE cites a higher failure rate, such does not 
translate directly to decreased product life. While Joint Gas 
Commenters remark about heat exchanger failure leading to early 
replacement of the entire water heater, DOE would note that CWH 
equipment has a rather high total installed cost and it would not be in 
consumers economic best interest to replace an otherwise serviceable 
and repairable water heater. As noted in both the May 2022 CWH ECS NOPR 
and the Final Rule TSD appendix 8E, DOE assumes a mean failure year of 
15 years for condensing heat exchangers which, when combined with the 
original warranty period, means there is no reason to expect the heat 
exchanger repair work to automatically result in a shorter lifetime.
7. Discount Rates
    In the calculation of LCC, DOE applies appropriate discount rates 
to estimate the present value of future operating costs. DOE determined 
the discount rate by estimating the cost of capital for purchasers of 
CWH equipment. Most purchasers use both debt and equity capital to fund 
investments. Therefore, for most purchasers, the discount rate is the

[[Page 69756]]

weighted-average cost of debt and equity financing, or the weighted-
average cost of capital (``WACC''), less the expected inflation.
    For residential consumer purchase of CWH equipment, DOE applies 
weighted average discount rates calculated from consumer debt and asset 
data, rather than marginal or implicit discount rates.\98\ DOE notes 
that the LCC does not analyze the equipment purchase decision, so the 
implicit discount rate is not relevant in this model. The LCC estimates 
net present value over the lifetime of the equipment, so the 
appropriate discount rate will reflect the general opportunity cost of 
household funds, taking this time scale into account. Given the long 
time horizon modeled in the LCC, the application of a marginal interest 
rate associated with an initial source of funds is inaccurate. 
Regardless of the method of purchase, consumers are expected to 
continue to rebalance their debt and asset holdings over the LCC 
analysis period, based on the restrictions consumers face in their debt 
payment requirements and the relative size of the interest rates 
available on debts and assets. DOE estimates the aggregate impact of 
this rebalancing using the historical distribution of debts and assets.
---------------------------------------------------------------------------

    \98\ The implicit discount rate is inferred from a consumer 
purchase decision between two otherwise identical goods with 
different first cost and operating cost. It is the interest rate 
that equates the increment of first cost to the difference in net 
present value of lifetime operating cost, incorporating the 
influence of several factors: transaction costs; risk premiums and 
response to uncertainty; time preferences; interest rates at which a 
consumer is able to borrow or lend.
---------------------------------------------------------------------------

    For commercial purchasers, to estimate the WACC DOE used a sample 
of detailed business sub-sector statistics, drawn from the database of 
U.S. companies presented on the Damodaran Online website.\99\ This 
database includes most of the publicly-traded companies in the United 
States. Using this database, Damodaran developed a historical series of 
sub-sector-level annual statistics for 100+ business sub-sectors. Using 
data for 1998-2021, inclusive, DOE developed sub-sector average WACC 
estimates, which were then assigned to aggregate categories. For 
commercial water heaters, the applicable aggregate categories include 
retail and service, property/real-estate investment trust (``REIT''), 
medical facilities, industrial, hotel, food service, office, education, 
and other. The WACC approach for determining discount rates accounts 
for the applicable tax rates for each category. DOE did not evaluate 
the marginal effects of increased costs, and, thus, depreciation due to 
more expensive equipment, on the overall tax status.
---------------------------------------------------------------------------

    \99\ Damodaran Online. Damodaran financial data used for 
determining cost of capital. Available at pages.stern.nyu.edu/
~adamodar/. Last accessed on December 20, 2022.
---------------------------------------------------------------------------

    DOE used the sample of business sub-sectors to represent purchasers 
of CWH equipment. For each observation in the sample, DOE derived the 
cost of debt, percentage of debt financing, and cost of equity from 
industry-level data on the Damodaran Online website, from long-term 
nominal S&P 500 returns also developed by Damodaran, and risk-free 
interest rates based on nominal long-term Federal government bond 
rates. DOE then determined the weighted-average values for the cost of 
capital, and the range and distribution of values of WACC for each of 
the sample business sectors. Deducting expected inflation from the cost 
of capital provided estimates of the real discount rate by ownership 
category.
    For most educational buildings and a portion of the office 
buildings occupied by public schools, universities, and State and local 
government agencies, DOE estimated the cost of capital based on a 40-
year geometric mean of an index of long-term tax-exempt municipal bonds 
(>20 years).^{100 101} Federal office space was assumed to use 
the Federal bond rate, derived as the 40-year geometric average of 
long-term (>10 years) U.S. government securities.\102\
---------------------------------------------------------------------------

    \100\ Federal Reserve Bank of St. Louis. State and Local Bonds--
Bond Buyer Go 20-Bond Municipal Bond Index. Data available through 
2015 at research.stlouisfed.org/fred2/series/MSLB20/downloaddata?cid=32995. Last accessed April 3, 2020.
    \101\ Bartel Associates, LLC. Ba 2019-12-31 20 Year AA Municipal 
Bond Rates. Averaged quarterly municipal bond rates to develop 
annual averages for 2016-2020. bartel-associates.com/resources/select-gasb-67-68-discount-rate-indices. Last accessed on June 23, 
2022.
    \102\ Rate calculated with rolling 40-year data series for the 
years 1992-2021. Data source: U.S. Federal Reserve. Available at 
www.federalreserve.gov/releases/h15/data.htm. Last accessed on July 
12, 2022.
---------------------------------------------------------------------------

    Based on this database, DOE calculated the weighted-average, after-
tax discount rate for CWH equipment purchases, adjusted for inflation, 
made by commercial users of the equipment.
    To establish residential discount rates for the LCC analysis, DOE 
identified all relevant household debt or asset classes in order to 
approximate a consumer's opportunity cost of funds related to appliance 
energy cost savings. It estimated the average percentage shares of the 
various types of debt and equity by household income group using data 
from the Federal Reserve Board's Survey of Consumer Finances (``SCF'') 
\103\ for 1995, 1998, 2001, 2004, 2007, 2010, 2013, 2016, and 2019. 
Using the SCF and other sources, DOE developed a distribution of rates 
for each type of debt and asset by income group to represent the rates 
that may apply in the year in which amended standards would take 
effect. In the Crystal Ball\TM\ analyses, when an LCC model selects a 
residential observation, the model selects an income group and then 
selects a discount rate from the distribution for that group. Chapter 8 
of the final rule TSD contains the detailed calculations related to 
discount rates.
---------------------------------------------------------------------------

    \103\ Board of Governors of the Federal Reserve System. Survey 
of Consumer Finances. Available at www.federalreserve.gov/PUBS/oss/
oss2/scfindex.html.
---------------------------------------------------------------------------

    Use of discount rates in each section of the analysis is specific 
to the affected parties and the impacts being examined (e.g., LCC: 
consumers, MIA: manufacturers; NIA: national impacts using OMB-
specified discount rates), consistent with the general need to examine 
these impacts independently. In addition, where factors indicate that a 
range or variability in discount rates is an important consideration 
and can be or is provided, DOE uses a range of discount rates in its 
various analyses.
    For this final rule, DOE examined its established process for 
development and use of discount rates and has concluded that it 
sufficiently characterizes the discount rate facing consumers.
    Patterson-Kelley suggested that both State and local consumers and 
small businesses need to be better included in the analysis. 
(Patterson-Kelley, No. 26 at p. 2) DOE notes that CBECS is a nationally 
representative sample of activity in buildings used for commercial 
activities, and for activities of State and local governments and 
government enterprises such as local school districts or State colleges 
or universities. In the CBECS 2018 database, 1,407 of 6,436 buildings 
are coded as either State government ownership or local government 
owned buildings. Because there is no data field in CBECS that indicates 
``small business,'' there is no reliable way to identify a specific 
building as being small business. However, the CBECS dataset includes 
representative numbers of buildings in business sectors commonly 
thought of as small businesses, such as ``mom and pop'' restaurants, 
retail establishments or motels, and other buildings that could be 
considered small business according to the U.S. Small Business 
Administration. Accordingly, DOE believes its analysis sufficiently 
includes State and local consumers and small businesses.

[[Page 69757]]

8. Energy Efficiency Distribution in the No-New-Standards Case
    To accurately estimate the share of consumers that would be 
affected by a potential energy conservation standard at a particular 
efficiency level, DOE's LCC analysis considered the projected 
distribution (market shares) of product efficiencies under the no-new-
standards case (i.e., the case without amended or new energy 
conservation standards).
    To estimate the energy efficiency distribution of CWH equipment for 
2026, DOE developed the no-new-standards distribution of equipment 
using data from DOE's Compliance Certification database and data 
submitted by AHRI regarding condensing versus non-condensing equipment.
    Each building in the sample was then assigned a water heater 
efficiency sampled from the no-new-standards-case efficiency 
distribution for the appropriate equipment class, shown at the end of 
this section. DOE was not able to assign a CWH efficiency to a building 
in the no-new-standards case based on building characteristics, since 
CBECS 2018 and RECS 2009 did not provide enough information to 
distinguish installed water heaters disaggregated by efficiency. The 
efficiency of a CWH was assigned based on the forecasted efficiency 
distribution (which is constrained by the shipment and model data 
collected by DOE and submitted by AHRI) and accounts for consumers that 
are already purchasing efficient CWHs.
    Joint Advocates stated DOE's use of the assignment of efficiency 
levels in the no-new-standards case is sufficiently representative of 
consumer behavior. Joint Advocates noted the examples of market 
failures such as misaligned incentives in landowner-renter situations, 
and these market failures result in under-investment in energy 
efficiency and consumers not making decisions that result in the 
highest net present value in their specific situations. Joint Advocates 
stated that DOE's assignment of efficiency levels in the no-new-
standards case reasonably reflects actual consumer behavior. Joint 
Advocates disagreed with Barton Day Law's comment during the Public 
Meeting regarding random assignment (discussed later in this section). 
Joint Advocates stated that market failures in commercial and 
industrial sectors add complexity to the decision-making process and 
result in an under-investment in energy efficiency. (Joint Advocates, 
No. 29 at p.3) CA IOUs supported DOE's robust analysis of the no-new-
standards case and the consumer choice model. Like many utilities 
across the country, the CA IOUs implement a statewide energy efficiency 
program for commercial water heating to manage these [market] barriers 
directly. The CA IOUs stated DOE's review of failures in the commercial 
market presented in the May 2022 CWH ECS NOPR is consistent with their 
understanding. They stated DOE's analysis is thoughtful, robust, and 
well within its regulatory discretion. (CA IOUs, No. 33 at p. 5) 
NYSERDA supported DOE's estimates of efficiency levels in the no-new-
standards case and stated that DOE's estimates are well-reasoned and 
based on the most relevant data. In particular, NYSERDA stated that 
DOE's use of Compliance Certification Database and AHRI data is a 
thorough analysis that provides a well-founded estimate. NYSERDA 
indicated that market data do not reflect the assumption that 
purchasers of CWH equipment are only basing their decisions on 
economics. NYSERDA stated they implement a wide variety of programs to 
help spur market transformation, and these efforts seek to address the 
specific types of market failures that DOE addresses in its analysis. 
(NYSERDA, No. 30 at pp. 2-3) DOE acknowledges these comments and the 
references to market failures being addressed by market transformation 
programs. As a reminder the list of market failures discussed in the 
May 2022 CWH ECS NOPR is included in this section after the comments 
are addressed.
    Joint Gas Commenters criticized DOE's use of random assignments of 
baseline efficiency, stating that consumers who find condensing to be 
cost effective have already installed it and for those who have not 
installed it, it is likely not cost effective. Joint Gas Commenters 
went on to state that the random assignment of efficiencies assumes 
that purchasers of commercial water heaters never consider the 
economics of their purchases. Joint Gas Commenters went on to state 
that DOE's use of random assignment is most unreasonable when it 
results in large LCC savings. (Joint Gas Commenters, No. 34 at pp. 21-
22 and 23-25) Barton Day Law asked about the distribution of extreme 
outcomes resulting from random assignment, stating that extreme 
outcomes have a disproportionate impact on the average LCC results. 
Barton Day Law offered the opinion that DOE should look at the impact 
of the extreme outcomes, and random assignment of outcomes where the 
more efficient product is the low-cost option should be in the base 
case for the analysis. (Barton Day Law, Public Meeting Transcript, No. 
13 at pp. 51-55) Joint Gas Commenters pointed to the National Academy 
of Sciences 2021 review of DOE's standards process and to the D.C. 
Circuit's opinion in APGA v. DOE (22 F.4th 1018 to 1027) to support 
their comments. They further referred to the literature cited in the 
May 2022 CWH ECS NOPR discussing market failure and offer their opinion 
that such information provides no basis to conclude that purchasers are 
not acting in their economic interest when they make a decision to 
purchase or not purchase condensing equipment. (Joint Gas Commenters, 
No. 34 at p. 30) Similarly, Atmos Energy stated DOE's analysis does not 
consider key consumer decision-making aspects such as hot water demand, 
building design impacts on installation costs, and ``realistic'' 
maintenance and repair costs, as well as rebate costs. They noted that 
DOE does not use a ``discrete choice model'' or rely on ``sufficient 
collected data on consumer behavior.'' (Atmos Energy, No. 36 at p. 4)
    DOE first notes that, with respect to the National Academy of 
Sciences report, the recommendations will be evaluated in a separate 
proceeding. With respect to the D.C. Circuit's opinion in APGA v. DOE, 
22 F.4th 1018 (APGA I), DOE notes that the random assignment issue 
raised in that litigation was further addressed by DOE through the 
final rule for the commercial packaged boiler (``CPB'') ECS rulemaking 
(EERE-2013-BT-STD-0030),\104\ and while the court in APGA v. DOE, No. 
22-1107, 2023 WL 4377914 (D.C. Cir. July 7, 2023) (APGA II) vacated the 
rule on other grounds, it did not address the merits of arguments on 
random assignment raised by petitioner. In developing the May 2022 CWH 
ECS NOPR and ultimately this final rule, DOE took into account all of 
the available data concerning the market implementation of condensing 
natural gas-fired CWH equipment. As shown in the table at the end of 
this section (Table IV.22), using actual data from AHRI for a period 
ending 2015, S-curves developed from the AHRI data, CCMS and other 
data, DOE projected CWH shipments by efficiency level over the analysis 
period. DOE then determined that, based on the presence of well-
understood market failures and a

[[Page 69758]]

corresponding lack of data showing a correlation between CWH efficiency 
and building hot water load, a random assignment of efficiencies best 
accounts for consumer behavior in the CWH market.
---------------------------------------------------------------------------

    \104\ See Energy Conservation Program: Energy Conservation 
Standards for Commercial Packaged Boilers; Response to United States 
Court of Appeals for the District of Columbia Circuit Remand in 
American Public Gas Association v. United States Department of 
Energy, www.govinfo.gov/content/pkg/FR-2022-04-20/pdf/2022-08427.pdf.
---------------------------------------------------------------------------

    Further, DOE strongly disagrees with the statement from Joint Gas 
Commenters that this methodology assumes that purchasers of CWHs never 
consider the economics of their investments. Rather, as explained in 
the remainder of this section, DOE is aware of multiple market failures 
that prevent the purely economic decision making hypothesized by the 
Joint Gas Commenters. That being said, DOE uses a random assignment 
because it does reflect the full range of consumer behaviors, including 
those consumers who make purely economic decisions, found in the CWH 
market. As reflected in the LCC analysis, a significant portion (63 to 
69 percent depending on product class) of buildings with large hot 
water loads were assigned more efficient CWHs.
    DOE also finds Joint Gas Commenters and Barton Day Law's focus on 
trial cases with large LCC savings to be misguided. Commenters cite 
these cases as evidence that random assignment results in unreasonable 
results that disproportionately affect DOE's analysis. But as mentioned 
previously and discussed in more detail below, DOE used a random 
assignment because of well-understood market failures. Commenters seem 
to be suggesting that these market failures should not apply to 
situations where purchasing decisions have larger economic impacts. DOE 
does not agree. For example, one well-understood market failure is 
where a building owner purchases the CWH, but the tenant pays the 
utility bills. DOE sees no reason to assume that this market failure 
does not occur, or is less likely to occur, when the building has a 
larger hot water load, i.e., the economic impacts are larger.
    As stated previously, DOE believes that, based on the presence of 
well-understood market failures and a corresponding lack of data 
showing a correlation between CWH efficiency and building hot water 
load, a random assignment of efficiencies best accounts for consumer 
behavior in the CWH For these reasons, DOE rejects the approach 
recommended by Barton Day Law, Joint Gas Commenters, and Atmos Energy, 
and DOE continues to use the approach for selecting the baseline 
efficiency level that was used for the May 2022 CWH ECS NOPR.
    While DOE acknowledges that economic factors play a role when 
building owners or builders decide on what type of CWH to install, 
assignment of CWH efficiency for a given installation, based solely on 
economic measures such as LCC or simple PBP, most likely would not 
fully and accurately reflect actual real-world installations. There are 
a number of commercial sector market failures discussed in the 
economics literature, including a number of case studies, that 
illustrate how purchasing decisions with respect to energy efficiency 
are likely to not be completely correlated with energy use, as 
described next.
    There are several market failures or barriers that affect energy 
decisions generally. Some of those that affect the commercial sector 
specifically are detailed below. However, more generally, there are 
several behavioral factors that can influence the purchasing decisions 
of complicated multi-attribute products, such as water heaters. For 
example, consumers (or decision makers in an organization) are highly 
influenced by choice architecture, defined as the framing of the 
decision, the surrounding circumstances of the purchase, the 
alternatives available, and how these are presented for any given 
choice scenario.\105\ The same consumer or decision maker may make 
different choices depending on the characteristics of the decision 
context (e.g., the timing of the purchase, competing demands for 
funds), which have nothing to do with the characteristics of the 
alternatives themselves or their prices. Consumers or decision makers 
also face a variety of other behavioral phenomena including loss 
aversion, sensitivity to information salience, and other forms of 
bounded rationality.\106\ Thaler, who won the Nobel Prize in Economics 
in 2017 for his contributions to behavioral economics, and Sunstein 
point out that these behavioral factors are strongest when the 
decisions are complex and infrequent, when feedback on the decision is 
muted and slow, and when there is a high degree of information 
asymmetry.\107\ These characteristics describe almost all purchasing 
situations of appliances and equipment, including commercial water 
heaters. The installation of a new or replacement CWH in a commercial 
building is a complex, technical decision involving many actors and is 
done very infrequently, as evidenced by the CWH mean lifetime of up to 
25 years.\108\ Additionally, it would take multiple billing cycles for 
any impacts on operating costs to be fully apparent. Further, if the 
purchaser of the commercial water heater is not the entity paying the 
energy costs (e.g., a building owner and tenant), there may be little 
to no feedback on the purchase. These behavioral factors are in 
addition to the more specific market failures described as follows.
---------------------------------------------------------------------------

    \105\ Thaler, R.H., Sunstein, C.R., and Balz, J.P. (2014). 
``Choice Architecture'' in The Behavioral Foundations of Public 
Policy, Eldar Shafir (ed).
    \106\ Thaler, R.H., and Bernartzi, S. (2004). ``Save More 
Tomorrow: Using Behavioral Economics in Increase Employee Savings,'' 
Journal of Political Economy 112(1), S164-S187. See also Klemick, 
H., et al. (2015) ``Heavy-Duty Trucking and the Energy Efficiency 
Paradox: Evidence from Focus Groups and Interviews,'' Transportation 
Research Part A: Policy & Practice, 77, 154-166 (providing evidence 
that loss aversion and other market failures can affect otherwise 
profit-maximizing firms).
    \107\ Thaler, R.H., and Sunstein, C.R. (2008). Nudge: Improving 
Decisions on Health, Wealth, and Happiness. New Haven, CT: Yale 
University Press.
    \108\ American Society of Heating, Refrigerating, and Air-
Conditioning Engineers. 2011 ASHRAE Handbook: Heating, Ventilating, 
and Air-Conditioning Applications. 2011. Available at 
www.ashrae.org/resources--publications. Last accessed on October 16, 
2016.
---------------------------------------------------------------------------

    It is often assumed that because commercial and industrial 
customers are businesses that have trained or experienced individuals 
making decisions regarding investments in cost-saving measures, some of 
the commonly observed market failures present in the general population 
of residential customers should not be as prevalent in a commercial 
setting. However, there are many characteristics of organizational 
structure and historic circumstance in commercial settings that can 
lead to underinvestment in energy efficiency.
    First, a recognized problem in commercial settings is the 
principal-agent problem, where the building owner (or building 
developer) selects the equipment and the tenant (or subsequent building 
owner) pays for energy costs.^{109 110} Indeed, a substantial 
fraction of commercial buildings with a commercial water heater in the 
CBECS 2018 sample are occupied at least in part by a tenant, not the 
building owner (indicating that, in DOE's experience, the building 
owner likely is not responsible for paying energy costs). Additionally, 
some commercial buildings have multiple tenants. There are other 
similar misaligned incentives embedded in the organizational structure 
within a given firm or business that can impact the choice of a

[[Page 69759]]

commercial water heater. For example, if one department or individual 
within an organization is responsible for capital expenditures (and 
therefore equipment selection) while a separate department or 
individual is responsible for paying the energy bills, a market failure 
similar to the principal-agent problem can result.\111\ Additionally, 
managers may have other responsibilities and often have other 
incentives besides operating cost minimization, such as satisfying 
shareholder expectations, which can sometimes be focused on short-term 
returns.\112\ Decision-making related to commercial buildings is highly 
complex and involves gathering information from and for a variety of 
different market actors. It is common to see conflicting goals across 
various actors within the same organization as well as information 
asymmetries between market actors in the energy efficiency context in 
commercial building construction.\113\
---------------------------------------------------------------------------

    \109\ Vernon, D., and Meier, A. (2012). ``Identification and 
quantification of principal-agent problems affecting energy 
efficiency investments and use decisions in the trucking industry,'' 
Energy Policy, 49, 266-273.
    \110\ Blum, H. and Sathaye, J. (2010). ``Quantitative Analysis 
of the Principal-Agent Problem in Commercial Buildings in the U.S.: 
Focus on Central Space Heating and Cooling,'' Lawrence Berkeley 
National Laboratory, LBNL-3557E. (Available at: escholarship.org/uc/item/6p1525mg) (Last accessed January 20, 2022).
    \111\ Prindle, B., Sathaye, J., Murtishaw, S., Crossley, D., 
Watt, G., Hughes, J., and de Visser, E. (2007). ``Quantifying the 
effects of market failures in the end-use of energy,'' Final Draft 
Report Prepared for International Energy Agency. (Available from 
International Energy Agency, Head of Publications Service, 9 rue de 
la Federation, 75739 Paris, Cedex 15 France).
    \112\ Bushee, B.J. (1998). ``The influence of institutional 
investors on myopic R&D investment behavior,'' Accounting Review, 
305-333. DeCanio, S.J. (1993). ``Barriers Within Firms to Energy 
Efficient Investments,'' Energy Policy, 21(9), 906-914. (explaining 
the connection between short-termism and underinvestment in energy 
efficiency).
    \113\ International Energy Agency (IEA). (2007). Mind the Gap: 
Quantifying Principal-Agent Problems in Energy Efficiency. OECD Pub. 
(Available at: www.iea.org/reports/mind-the-gap) (Last accessed 
January 20, 2022).
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    Second, the nature of the organizational structure and design can 
influence priorities for capital budgeting, resulting in choices that 
do not necessarily maximize profitability.\114\ Even factors as simple 
as unmotivated staff or lack of priority-setting and/or a lack of a 
long-term energy strategy can have a sizable effect on the likelihood 
that an energy efficient investment will be undertaken.\115\ U.S. tax 
rules for commercial buildings may incentivize lower capital 
expenditures, since capital costs must be depreciated over many years, 
whereas operating costs can be fully deducted from taxable income or 
passed through directly to building tenants.\116\
---------------------------------------------------------------------------

    \114\ DeCanio, S.J. (1994). ``Agency and control problems in US 
corporations: the case of energy-efficient investment projects,'' 
Journal of the Economics of Business, 1(1), 105-124. Stole, L.A., 
and Zwiebel, J. (1996). ``Organizational design and technology 
choice under intrafirm bargaining,'' The American Economic Review, 
195-222.
    \115\ Rohdin, P., and Thollander, P. (2006). ``Barriers to and 
driving forces for energy efficiency in the non-energy intensive 
manufacturing industry in Sweden,'' Energy, 31(12), 1836-1844.
    Takahashi, M. and Asano, H. (2007). ``Energy Use Affected by 
Principal-Agent Problem in Japanese Commercial Office Space 
Leasing,'' In Quantifying the Effects of Market Failures in the End-
Use of Energy. American Council for an Energy-Efficient Economy. 
February 2007.
    Visser, E. and Harmelink, M. (2007). ``The Case of Energy Use in 
Commercial Offices in the Netherlands,'' In Quantifying the Effects 
of Market Failures in the End-Use of Energy. American Council for an 
Energy-Efficient Economy. February 2007.
    Bjorndalen, J. and Bugge, J. (2007). ``Market Barriers Related 
to Commercial Office Space Leasing in Norway,'' In Quantifying the 
Effects of Market Failures in the End-Use of Energy. American 
Council for an Energy-Efficient Economy. February 2007.
    Schleich, J. (2009). ``Barriers to energy efficiency: A 
comparison across the German commercial and services sector,'' 
Ecological Economics, 68(7), 2150-2159.
    Muthulingam, S., et al. (2013). ``Energy Efficiency in Small and 
Medium-Sized Manufacturing Firms,'' Manufacturing & Service 
Operations Management, 15(4), 596-612. (Finding that manager 
inattention contributed to the non-adoption of energy efficiency 
initiatives).
    Boyd, G.A., Curtis, E.M. (2014). ``Evidence of an `energy 
management gap' in US manufacturing: Spillovers from firm management 
practices to energy efficiency,'' Journal of Environmental Economics 
and Management, 68(3), 463-479.
    \116\ Lovins, A. (1992). Energy-Efficient Buildings: 
Institutional Barriers and Opportunities. (Available at: rmi.org/insight/energy-efficient-buildings-institutional-barriers-and-opportunities/) (Last accessed December 19, 2022).
---------------------------------------------------------------------------

    Third, there are asymmetric information and other potential market 
failures in financial markets in general, which can affect decisions by 
firms with regard to their choice among alternative investment options, 
with energy efficiency being one such option.\117\ Asymmetric 
information in financial markets is particularly pronounced with regard 
to energy efficiency investments.\118\ There is a dearth of information 
about risk and volatility related to energy efficiency investments, and 
energy efficiency investment metrics may not be as visible to 
investment managers,\119\ which can bias firms toward more certain or 
familiar options. This market failure results not because the returns 
from energy efficiency as an investment are inherently riskier, but 
because information about the risk itself tends not to be available in 
the same way it is for other types of investment, like stocks or bonds. 
In some cases energy efficiency is not a formal investment category 
used by financial managers, and if there is a formal category for 
energy efficiency within the investment portfolio options assessed by 
financial managers, they are seen as weakly strategic and not seen as 
likely to increase competitive advantage.\120\ This information 
asymmetry extends to commercial investors, lenders, and real-estate 
financing, which is biased against new and perhaps unfamiliar 
technology (even though it may be economically beneficial).\121\ 
Another market failure known as the first-mover disadvantage can 
exacerbate this bias against adopting new technologies, as the 
successful integration of new technology in a particular context by one 
actor generates information about cost-savings, and other actors in the 
market can then benefit from that information by following suit; yet 
because the first to adopt a new technology bears the risk but cannot 
keep to themselves all the informational benefits, firms may 
inefficiently underinvest in new technologies.\122\
---------------------------------------------------------------------------

    \117\ Fazzari, S.M., Hubbard, R.G., Petersen, B.C., Blinder, 
A.S., and Poterba, J.M. (1988). ``Financing constraints and 
corporate investment,'' Brookings Papers on Economic Activity, 
1988(1), 141-206.
    Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and 
Caballero, R. J. (1994). ``A reconsideration of investment behavior 
using tax reforms as natural experiments,'' Brookings Papers on 
Economic Activity, 1994(2), 1-74.
    DeCanio, S.J., and Watkins, W.E. (1998). ``Investment in energy 
efficiency: do the characteristics of firms matter?'' Review of 
Economics and Statistics, 80(1), 95-107.
    Hubbard R.G. and Kashyap A. (1992). ``Internal Net Worth and the 
Investment Process: An Application to U.S. Agriculture,'' Journal of 
Political Economy, 100, 506-534.
    \118\ Mills, E., Kromer, S., Weiss, G., and Mathew, P.A. (2006). 
``From volatility to value: analyzing and managing financial and 
performance risk in energy savings projects,'' Energy Policy, 34(2), 
188-199.
    Jollands, N., Waide, P., Ellis, M., Onoda, T., Laustsen, J., 
Tanaka, K., and Meier, A. (2010). ``The 25 IEA energy efficiency 
policy recommendations to the G8 Gleneagles Plan of Action,'' Energy 
Policy, 38(11), 6409-6418.
    \119\ Reed, J.H., Johnson, K., Riggert, J., and Oh, A.D. (2004). 
``Who plays and who decides: The structure and operation of the 
commercial building market,'' U.S. Department of Energy Office of 
Building Technology, State and Community Programs. (Available at: 
www1.eere.energy.gov/buildings/publications/pdfs/commercial_initiative/who_plays_who_decides.pdf) (Last accessed 
December 19, 2022).
    \120\ Cooremans, C. (2012). ``Investment in energy efficiency: 
do the characteristics of investments matter?'' Energy Efficiency, 
5(4), 497-518.
    \121\ Lovins 1992, op. cit. The Atmospheric Fund. (2017). Money 
on the table: Why investors miss out on the energy efficiency 
market. (Available at: taf.ca/publications/money-table-investors-
energy-efficiency-market/) (Last accessed December 19, 2022).
    \122\ Blumstein, C. and Taylor, M. (2013). Rethinking the 
Energy-Efficiency Gap: Producers, Intermediaries, and Innovation. 
Energy Institute at Haas Working Paper 243. (Available at: 
haas.berkeley.edu/wp-content/uploads/WP243.pdf) (Last accessed 
December 19, 2022).
---------------------------------------------------------------------------

    In sum, the commercial and industrial sectors face many market 
failures that can result in an under-investment in energy efficiency. 
This means that discount rates implied by hurdle

[[Page 69760]]

rates \123\ and required PBPs of many firms are higher than the 
appropriate cost of capital for the investment.\124\ The preceding 
arguments for the existence of market failures in the commercial and 
industrial sectors are corroborated by empirical evidence. One study in 
particular showed evidence of substantial gains in energy efficiency 
that could have been achieved without negative repercussions on 
profitability, but the investments had not been undertaken by 
firms.\125\ The study found that multiple organizational and 
institutional factors caused firms to require shorter PBPs and higher 
returns than the cost of capital for alternative investments of similar 
risk. Another study demonstrated similar results with firms requiring 
very short PBPs of 1-2 years in order to adopt energy-saving projects, 
implying hurdle rates of 50 to 100 percent, despite the potential 
economic benefits.\126\ A number of other case studies similarly 
demonstrate the existence of market failures preventing the adoption of 
energy-efficient technologies in a variety of commercial sectors around 
the world, including office buildings,\127\ supermarkets,\128\ and the 
electric motor market.\129\
---------------------------------------------------------------------------

    \123\ A hurdle rate is the minimum rate of return on a project 
or investment required by an organization or investor. It is 
determined by assessing capital costs, operating costs, and an 
estimate of risks and opportunities.
    \124\ DeCanio 1994, op. cit.
    \125\ DeCanio, S.J. (1998). ``The Efficiency Paradox: 
Bureaucratic and Organizational Barriers to Profitable Energy-Saving 
Investments,'' Energy Policy, 26(5), 441-454.
    \126\ Andersen, S.T., and Newell, R.G. (2004). ``Information 
programs for technology adoption: the case of energy-efficiency 
audits,'' Resource and Energy Economics, 26, 27-50.
    \127\ Prindle 2007, op. cit. Howarth, R.B., Haddad, B.M., and 
Paton, B. (2000). ``The economics of energy efficiency: insights 
from voluntary participation programs,'' Energy Policy, 28, 477-486.
    \128\ Klemick, H., Kopits, E., Wolverton, A. (2017). ``Potential 
Barriers to Improving Energy Efficiency in Commercial Buildings: The 
Case of Supermarket Refrigeration,'' Journal of Benefit-Cost 
Analysis, 8(1), 115-145.
    \129\ de Almeida, E.L.F. (1998). ``Energy efficiency and the 
limits of market forces: The example of the electric motor market in 
France'', Energy Policy, 26(8), 643-653. Xenergy, Inc. (1998). 
United States Industrial Electric Motor Systems Market Opportunity 
Assessment. (Available at: www.energy.gov/sites/default/files/2014/04/f15/mtrmkt.pdf) (Last accessed January 20, 2022).
---------------------------------------------------------------------------

    The existence of market failures in the commercial and industrial 
sectors is well supported by the economics literature and by a number 
of case studies. If DOE developed an efficiency distribution that 
assigned commercial water efficiency in the no-new-standards case 
solely according to energy use or economic considerations such as LCC 
or PBP, the resulting distribution of efficiencies within the building 
sample would not reflect any of the market failures or behavioral 
factors above. DOE thus concludes such a distribution would not be 
representative of the CWH market. Further, even if a specific building/
organization is not subject to the market failures above, the 
purchasing decision of CWH efficiency can be highly complex and 
influenced by a number of factors not captured by the building 
characteristics available in the CBECS or RECS samples. These factors 
can lead to building owners choosing a CWH efficiency that deviates 
from the efficiency predicted using only energy use or economic 
considerations such as LCC or PBP (as calculated using the information 
from CBECS 2018 or RECS 2009).
    DOE notes that EIA's \130\ AEO is another energy use model that 
implicitly includes market failures in the commercial sector. In 
particular, the commercial demand module \131\ includes behavioral 
rules regarding capital purchases such that in replacement and retrofit 
decisions, there is a strong bias in favor of equipment of the same 
technology (e.g., water heater efficiency) despite the potential 
economic benefit of choosing other technology options. Additionally, 
the module assumes a distribution of time preferences regarding current 
versus future expenditures. Approximately half of the total commercial 
floorspace is assigned one of the two highest time preference premiums. 
This translates into very high discount rates (and hurdle rates) and 
represents floorspace for which equipment with the lowest capital cost 
will almost always be purchased without consideration of operating 
costs. DOE's assumptions regarding market failures are therefore 
consistent with other prominent energy consumption models.
---------------------------------------------------------------------------

    \130\ EIA, Annual Energy Outlook, www.eia.gov/outlooks/aeo/ 
(Last accessed December 19, 2022).
    \131\ For further details, see: www.eia.gov/outlooks/aeo/assumptions/pdf/commercial.pdf. (Last accessed December 19, 2022).
---------------------------------------------------------------------------

    Joint Gas Commenters also criticized DOE for failing to respond to 
the comments provided in the withdrawn 2016 CWH ECS NOPR on random 
assignment, referring to such as a violation of DOE's Basic Notice and 
Comment Obligations. (Joint Gas Commenters, No. 34 at p. 28) Joint Gas 
Commenters stated that DOE cannot release a final rule without 
addressing the random assignment issues and cannot address them without 
giving stakeholders an opportunity to refute DOE's response during the 
rulemaking process--citing Owner[hyphen]Operator Indep. Drivers Ass'n 
v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007). (Joint Gas Commenters, 
No. 34 at p. 31) As a threshold matter, DOE notes that nothing in EPCA 
or the Administrative Procedure Act (5 U.S.C. 551 et seq.) requires an 
agency to provide additional notice and comment on a withdrawn NOPR, or 
additional notice and comment before a final rule to allow commenters 
to refute the Department's responses to comments on a NOPR. As noted 
previously, DOE withdrew the 2016 CWH ECS NOPR and reissued a proposed 
rule for commercial water heaters in the May 2022 CWH ECS NOPR. In the 
May 2022 CWH ECS NOPR, DOE did address comments on the May 2016 CWH ECS 
NOPR, which caused DOE to materially change the analyses (beyond simply 
updating inputs) from the analyses performed for the withdrawn 2016 CWH 
ECS NOPR. In the May 2022 CWH ECS NOPR, DOE also addressed the fact 
that a considerable number of market failures could occur causing the 
strict economic decision making hypothesized by the Joint Gas 
Commenters to not be the sole guiding determinant of efficiency 
choices. DOE further addressed the Joint Gas Commenters comments about 
random assignments by explaining how DOE modeled the efficiency 
distributions and the data sources used in the NOPR. Additionally, in 
doing so, DOE provided stakeholders with a track record that could be 
followed to understand the differences in the 2016 and the 2022 LCC 
models. Notably, the model used for efficiency distribution in the no-
new standards case in the May 2022 CWH ECS NOPR was substantially the 
same as the model used for the withdrawn May 2016 CWH ECS NOPR, and is 
substantially the same in this final rule.
    Stakeholders have been provided with adequate notice and 
opportunity to comment on DOE's proposed rule. That DOE did not make 
the changes recommended by the commenter does not negate the adequacy 
of notice and comment. Stakeholders have been provided the same notice 
and opportunity to comment as they would have had DOE issued a final 
rule subsequent to the May 2016 CWH ECS NOPR. Nothing in EPCA or the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) requires DOE to 
provide additional notice and comment before the final rule for its 
responses to comments on a NOPR.\132\
---------------------------------------------------------------------------

    \132\ Joint Gas Commenters cite Owner[hyphen]Operator Indep. 
Drivers Ass'n v. FMCSA, 494 F.3d 188, 202 (D.C. Cir. 2007) for the 
proposition that DOE must provide stakeholders an opportunity to 
refute DOE's responses during the rulemaking process. However, the 
court in that case did not state that an agency must allow 
stakeholders to refute its responses to comments on a NOPR as Joint 
Gas Commenters suggest. Rather, in that case, the D.C. Circuit held 
that the agency violated the notice-and-comment requirement of the 
Administrative Procedure Act when it promulgated a final rule with 
an update to a model used in the proposed rule that presented an 
entirely new methodology relative to the proposed rule. Id. at 200-
201. As noted previously, DOE is using substantially the same model 
for the energy efficiency distribution in the no new standards case 
and Joint Gas Commenters had adequate ability to comment on, and 
refute, DOE's analyses in the May 2022 CWH ECS NOPR.

---------------------------------------------------------------------------

[[Page 69761]]

    Accordingly, for the reasons stated in this section, DOE has 
maintained the approach used in the May 2022 CWH ECS NOPR for analyzing 
energy efficiency distribution in the no-new-standards case. The 
estimated market shares for the no-new-standards case for CWH equipment 
are shown in Table IV.22. See chapter 8 of the final rule TSD for 
further information on the derivation of the efficiency distributions.

                             Table IV.22--Market Shares for the No-New-Standards Case by Efficiency Level for CWH Equipment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Gas-fired
                                                                  Commercial gas-fired  Residential-duty gas-       Gas-fired         circulating water
                               EL                                     storage water      fired storage water      instantaneous        heaters and hot
                                                                       heaters (%)           heaters (%)         tankless water     water supply boilers
                                                                                                                   heaters (%)               (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0...............................................................                  34.3                  53.7                  17.0                   5.3
1...............................................................                   2.7                  20.9                   0.0                  13.3
2...............................................................                   0.0                  14.9                   0.0                  12.9
3...............................................................                  15.3                   3.0                   4.2                   2.1
4...............................................................                  46.7                   6.0                  20.8                  11.4
5...............................................................                   1.0                   1.5                  58.1                  55.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

9. Payback Period Analysis
    The PBP is the amount of time (expressed in years) it takes the 
consumer to recover the additional installed cost of more-efficient 
products, compared to baseline products, through energy cost savings. 
PBPs that exceed the life of the product mean that the increased total 
installed cost is not recovered in reduced operating expenses.
    The inputs to the PBP calculation for each efficiency level are the 
change in total installed cost of the product and the change in the 
first-year annual operating expenditures relative to the baseline. DOE 
refers to this as a ``simple PBP'' because it does not consider changes 
over time in operating cost savings. The PBP calculation uses the same 
inputs as the LCC analysis when deriving first-year operating costs.
    As noted previously, EPCA establishes a rebuttable presumption that 
a standard is economically justified if the Secretary finds that the 
additional cost to the consumer of purchasing a product complying with 
an energy conservation standard level will be less than three times the 
value of the first year's energy savings resulting from the standard, 
as calculated under the applicable test procedure. (42 U.S.C. 
6295(o)(2)(B)(iii)) For each considered efficiency level, DOE 
determined the value of the first year's energy savings \133\ by 
calculating the energy savings in accordance with the applicable DOE 
test procedure, and multiplying those savings by the average energy 
price projection for the year in which compliance with the amended 
standards would be required. Chapter 8 of the final rule TSD provides 
additional details about the PBP.
---------------------------------------------------------------------------

    \133\ The DOE test procedure for CWH equipment at 10 CFR 431.106 
does not specify a calculation method for determining energy use. 
For the rebuttable presumption PBP calculation, DOE used average 
energy use estimates.
---------------------------------------------------------------------------

10. Embodied Emissions and Recycling Costs
    WM Technologies and Patterson-Kelley stated that if the Department 
utilizes emissions, or reference to carbon in the analysis, then the 
Department should also acknowledge the cost of embodied carbon in the 
analysis. Both stakeholders have been working with an ASHRAE group with 
the intention of improving the general understanding of embodied 
carbon, LCC, and operational carbon and identifying ways to accurately 
account for these metrics in HVAC products, among other things. (WM 
Technologies, No. 25 at pp. 1-2; Patterson-Kelley, No. 26 at pp. 2-3) 
EPCA requires DOE to consider the total projected energy saving 
resulting from a standard. DOE considers FFC energy savings, including 
the energy consumed in electricity production, in distribution and 
transmission, and in extracting, processing, and transporting primary 
fuels. DOE does not analyze energy savings (or air pollutant emissions) 
related to manufacturing, transporting, recycling, or disposing of 
products, as such impacts would not be considered a direct result of 
the standard on the energy use of the covered product. As such, 
embodied emission in this process is outside of DOE's CWH ECS 
rulemaking scope.
    Patterson-Kelley and WM Technologies both stated that because the 
schedule and cost of recycling is different based upon the materials 
used in the water heater, these differences must be captured in the 
analysis. The World Green Building Council has recognized that carbon 
emissions from manufacturing of components, assembly of components into 
finished goods, their transportation, installation, and the end of life 
stage must be accounted for as well. (WM Technologies, No. 25 at p. 2; 
Patterson-Kelley, No. 26 at p. 3) Patterson-Kelley noted that in 
examining embodied carbon the following must be considered--a higher 
rate of recycling due to shorter life cycle of condensing products and 
other changes noted previously. (Patterson-Kelley, No. 26 at p. 3) DOE 
would note that it has yet to find evidence that condensing equipment 
has a shorter lifetime than non-condensing equipment, so there would be 
no change relative to lifetime. DOE takes into account the cost to 
remove a water heater at the time of replacement. Stakeholders did not 
provide information concerning the difference in the cost of materials 
recycling--whether the materials in a condensing water heater have more 
or less recycling value than a non-condensing water heater. Given that 
the first replacement of a condensing water heater installed under this 
standard would be 10 years in the future, DOE believes the discounted 
present value of any difference would likely be small enough to 
ultimately be immaterial. DOE has based the installation cost 
calculations including removal of old water heaters on

[[Page 69762]]

nationally recognized sources. As a result of these considerations, DOE 
has not elected to change the analysis to reflect these comments.
11. LCC Model Error Messages and Other
    Barton Day Law stated that the LCC spreadsheet model looks almost 
more like a draft than a final product, and that there are apparently 
``loads of errors'' showing up, including computational errors. (Barton 
Day Law, Public Meeting Transcript, No. 13 at pp. 32-33) Joint Gas 
Commenter pointed to error messages in the LCC model, stating there 
were 11 million cell errors, #N/A, and #DIV/0 errors throughout model; 
some are labeled blank; others not; some tables and ranges are poorly 
labeled; and Excel calculations and Visual Basic for Applications, and 
the large number of worksheets make it more difficult to use and to 
trace formulas. Joint Gas Commenters stated DOE should correct the 
errors and give stakeholders sufficient time to review. (Joint Gas 
Commenters, No. 34 at pp. 36-37)
    In response, DOE notes that additional fields were included 
throughout the LCC model to accommodate additional equipment classes. 
In the high-level summary sheets where results reported in the NOPR are 
tabulated, fields related to the additional equipment classes were 
either removed or contents were erased and labeled as ``blank.'' In 
some other worksheets, the calculations related to additional product 
classes were not erased. However, numerous inputs related to potential 
additional equipment classes were not populated and this fact led to 
many calculations that attempted division using unpopulated input 
fields, or in other words, which led to #DIV/0 messages. DOE has 
removed all of the potential additional product class input fields. In 
response to the ``11 million cell errors,'' DOE assumes this referred 
to the fact that the May 2022 CWH ECS NOPR LCC model used a user-
defined function, the output of which would turn to an error code and 
needed to be refreshed when the model was left idle. Refreshing the 
function required the user to recalculate the model by pressing the F9 
key, and once the model was recalculated the error codes would 
disappear and be replaced by values. To eliminate this source of error 
messages, DOE eliminated the user defined function by introducing an 
Excel code in the venting costs worksheet in the block of cells between 
Q22 and CA82. The new Excel code was written to exactly reproduce the 
output from the old user defined function, so this modeling change does 
not affect results but rather it merely removes the irritation of the 
user defined function timing out and needing to be refreshed. 
Additionally, in response to the comment that some portions of the 
model were poorly labeled, DOE added labels to a small number of 
columns of calculations that DOE considered on review to be 
inadequately labeled, such as columns at the extreme right edges of the 
RECS.WH and CBECS.WH worksheets.
    A further response to the error messages referred to in the Joint 
Gas Commenter and Barton Day Law comments--the error messages were 
cosmetic in the sense that eliminating them did not change any results 
in the analysis; therefore, there are no new data for Joint Gas 
Commenters to review strictly in terms of the elimination of these 
message codes. Based on comments documented in this section of the 
final rule, DOE believes that Joint Gas Commenters were able to review 
the LCC model in detailed ways even with the distractions caused by the 
message codes. Thus, DOE declines to provide additional review time 
related to the elimination of the extra product class fields.\134\
---------------------------------------------------------------------------

    \134\ In response to requests, DOE reopened the comment period 
on the May 2022 CWH ECS NOPR to provide an additional two weeks for 
stakeholders to review and provide comments on the NOPR. 87 FR 
43226.
---------------------------------------------------------------------------

    Barton Day Law stated DOE should be more transparent about 
disclosing how the outcomes are allocated in its analysis and what the 
justification is. (Barton Day Law, Public Meeting Transcript, No. 13 at 
p. 55) Joint Gas Commenters presented graphs of the cumulative LCC 
savings of gas-fired tankless consumers from the LCC model, pointing 
out that the net LCC savings (average) were being generated by a small 
number of consumers with the largest LCC saving and if such customers 
were ``reassigned'' to different baseline efficiencies the result would 
have been different. (Joint Gas Commenters, No. 34 at p. 27) DOE would 
note that LCC savings are averages and as such include the results from 
those with large LCC savings and those with large LCC costs. Because of 
the way the model works, selecting consumers from the RECS and CBECS 
datasets for which each equipment type would apply, the number of 
consumers in the extreme cost and benefit tails will be small. With 
respect to the Joint Gas Commenter graphic about tankless product LCC 
results, DOE notes that given the existing distribution, the 
overwhelming majority of LCC customers modeled experience no impact 
because they already purchased equipment of the efficiency level 
selected for the standard. As discussed in section IV.F.8 there are 
numerous reasons for customers to be either unaware of potential energy 
savings when they make efficiency decisions or to deliberately ignore 
such information.
    Barton Day Law stated residential-duty gas-fired storage equipment 
has four different draw patterns and four separate standards but only 
one LCC analysis. (Barton Day Law, Public Meeting Transcript, No. 13 at 
pp. 30, 32) Joint Gas Commenters also stated that DOE analyzed four 
product classes but only provided one LCC analysis and asked that DOE 
perform an analysis for each class separately, and although the comment 
was unclear to DOE, it is presumed to refer to the same point Barton 
Day Law made. (Joint Gas Commenters, No. 34 at pp. 32-33) As noted in 
IV.C.4.c of this document, all residential-duty gas-fired equipment is 
within the high draw pattern, so only one analysis was performed of 
this equipment.
    Joint Gas Commenters stated that the rule could have 
disproportionate impacts on small rural businesses that use propane 
fired equipment due to their more limited income and therefore a more 
limited opportunity to fund venting upgrades. They also stated that the 
problem is made worse by the fact that propane suppliers cannot provide 
incentives to consumers, as gas utilities can. They also stated that 
the May 2022 CWH ECS NOPR failed to address impacts on businesses that 
qualify for the Administration's Justice40 Initiative. They further 
offered their opinion that DOE's analysis must conform to the National 
Academy of Science's peer review report and recommendations regarding 
welfare analysis. Joint Gas Commenters urged DOE to delay the 
rulemaking while investigating whether the rule would undermine the 
Justice40 Initiative. (Joint Gas Commenters, No. 34 at pp. 31-32) With 
respect to the impact on small rural businesses, DOE respects the Joint 
Gas Commenters note about the more limited income of small rural 
businesses, but also believes the overall cost structure of small rural 
businesses includes components that are likely lower than their urban 
counterparts, such as building lease or ownership costs. DOE also notes 
that, according to the EIA's AEO used in this final rule, propane is, 
at a national level, twice as expensive as natural gas on a $/Million 
Btu basis, meaning that the value of energy savings to these customers 
would be higher than the value to natural gas customers. Additionally, 
DOE expects that commercial buildings in rural areas are

[[Page 69763]]

less likely to reach the 10-story level that is cited by various 
commenters as problematic in vent installations. DOE also expects that 
commercial buildings in rural areas are less likely to share common 
brick walls with other neighboring businesses or have issues venting 
over sidewalks or busy alleys. This means rural businesses may find it 
easier to use horizontal venting than their metropolitan counterparts. 
While this advantage could be offset at least partially by a greater 
chance of having to deal with snow levels when siting a horizontal 
vent, DOE disagrees with the bottom line conclusion of this comment. 
With respect to the National Academy of Sciences report, the 
recommendations in the report, which pertain to the processes by which 
DOE analyzes energy conservation standards, are being considered in a 
separate rulemaking considering all product categories and DOE does not 
believe that this final rule should be delayed while the National 
Academy of Sciences report is considered.
    WM Technologies stated they received an error trying to run the LCC 
model. They noted a macro returned an error message stating ``Compile 
Error: Can't find project or library'' with the ``VBA Code Subroutine 
cmdRun_Click( ) references [ControlPanel.IncomeBins]'' highlighted. (WM 
Technologies, No. 25 at p. 10) DOE tested the LCC model to attempt to 
reproduce this error code, and the only way DOE could generate this 
code was to load the LCC model onto a computer that did not have 
Crystal Ball installed on it. Without Crystal Ball being installed, the 
macro is searching for software package references that do not exist. 
DOE has added language in appendix 8A of the final rule TSD describing 
how/why having Crystal Ball installed on the computer is necessary for 
reviewing this LCC model.
    WM Technologies recommended the Department move the instructions 
for operating LCC models to the beginning of the TSD or provide a note 
there referencing the instruction location. (WM Technologies, No. 25 at 
p. 10) They additionally request a frequently asked questions website 
is made available to support industry review of the LCCs along with a 
question and answer portion where industry could post questions. (WM 
Technologies, No. 25 at p. 10) DOE notes that the May 2022 CWH ECS NOPR 
TSD chapter 1 included an outline of the document, and pointed to 
appendix 8A, which provides instructions. DOE additionally encourages 
stakeholders to utilize the public meetings to ask questions related to 
operation of the LCC and other models, and will consider whether more 
general resources are warranted.
    WM Technologies commented that after running the analysis on a 
local computer and using the Forecast Report writer in Crystal Ball, 
several cells identified cell errors and yet the analysis continued and 
provided results. WM Technologies noted some values of forecasts cells 
were empty. WM Technologies requested the Department provide further 
commentary on why empty values are present in forecast reports, 
particularly when the all product categories are subject to 10,000 
iterations. (WM Technologies, No. 25 at p. 10) In response, DOE notes 
that the LCC model at each iteration selects a baseline efficiency for 
use in the iteration for all four equipment classes. For any possible 
efficiency level other than the lowest level, this leads to a situation 
where, by definition, there will be no LCC savings if a standard is set 
at that level. For example, if the model selects EL3 as the baseline, 
there would be no LCC savings and no PBP results for a standard set at 
lower efficiency levels. Because the number 0 is a valid result, 
setting those to 0 introduces possible issues. Rather, the model sets 
them equal to a blank, or a character field set to '' ``. Thus if you 
print the forecast report, you will find blanks. Because introducing 
characters into downstream calculations causes math errors, the Crystal 
Ball routines are instructed by the VBA code to ignore these errors. 
DOE has used this method in LCC models for years to distinguish between 
``no impact cases'' and cases with a valid result of 0.
    WM Technologies requested the Department comment upon how different 
geographic areas are referenced in the same iteration. (WM 
Technologies, No. 25 at p. 10) At each iteration, the LCC model pulls 
eight samples, a RECS and CBECS sample for each of the four equipment 
classes, and then selects either residential or commercial to choose 
whether to use the RECS or CBECS sample. Those eight samples will all 
have their own geographic location linked to either the RECS or the 
CBECS samples selected, and would only purely by chance have the same 
geographic location.
    WM Technologies stated their review of chapter 8 and appendix 8G 
did not clearly identify how the subgroup analysis is completed. They 
said further review of the LCC workbook indicates that the low-income 
subgroup is comprised of the first six bins in cells O3 to P28, and 
shown in B6 to B11. However, the assumption cell (B40) makes a 
probabilistic selection from range B6 to B36. Specifically, they stated 
it would be beneficial to only run the sub-group analysis by hard 
coding the selection of income bins. They asked DOE to please verify 
that the correct values to hard code are in the range of B15 to AS16 on 
the ``Bldg.Sample'' tab. Additionally, they asked DOE to please provide 
insight into and how cells FG4 to FG12086 in tab ``RECS.WH'' relate the 
analysis and how the range D30 to E 54 on the ``Control.Panel'' tab 
interact with the analysis. (WM Technologies, No. 25 at p. 10) In 
response, DOE notes that the entire column of B6 to B36 comprises the 
probability distribution for the lowest 20 percent of residential 
households, or, in other words, the households that would be included 
in the low-income subgroup. The six bins that are referred to in cells 
O3 through P28 refer to the effort to remap the RECS income bins to the 
discount rate bins. The discount rates break the entire residential 
sector out by percentage of households while RECS breaks households out 
into discrete income bins. The model codes individual RECS samples as 
either eligible for the sub-group using the look-up table referenced 
above on the Control Panel tab and column CC on the Sampling 
Distributions. Column CC is either 0 or 1. If the model is not running 
a subgroup, all RECS income bins are coded as 1. If the model is 
running a subgroup, only those RECS income bins in the subgroup are 
coded 1, and the rest are coded 0. On the Sampling Distribution tab, 
the sampling weight assigned to each RECS observation is multiplied by 
the corresponding row of column CC. Thus, in a regular run, all 
households could be chosen. In a subgroup model run, only those 
households in the 0-20 percent of household income could be chosen.

G. Shipments Analysis

    DOE uses projections of annual equipment shipments to calculate the 
national impacts of potential amended or new energy conservation 
standards on energy use, NPV, and future manufacturer cash flows.\135\ 
The shipments model, discussed in section IV.G.6 of this final rule, 
takes an accounting approach, tracking market shares of each equipment 
category and the vintage of units in the stock. Stock accounting uses 
equipment shipments as inputs to estimate the age distribution of in-
service equipment stocks for all years. The age distribution of in-
service equipment stocks is a key input to

[[Page 69764]]

calculations of both the NES and NPV because operating costs for any 
year depend on the age distribution of the stock.
---------------------------------------------------------------------------

    \135\ DOE uses data on manufacturer shipments as a proxy for 
national sales, as aggregate data on sales are lacking. In general, 
one would expect a close correspondence between shipments and sales.
---------------------------------------------------------------------------

1. Commercial Gas Fired and Electric Storage Water Heaters
    To develop the shipments model, DOE started with known information 
on shipments of commercial electric and gas-fired storage water heaters 
collected for the years 1994-2022 from the AHRI website,\136\ and 
extended back to 1989 with data contained in a DOE rulemaking document 
published in 2000.\137\ The historical shipments of commercial electric 
and gas-fired storage water heaters are summarized in Table IV.23 of 
this final rule. Given that the estimated average useful lifetimes of 
these two types of equipment are 12 and 10 years, respectively, the 
historical shipments provided a basis for the development of a multi-
year series of stock values. Using the stock values, a saturation rate 
was determined by dividing equipment stock by building stock, and this 
saturation rate was combined with annual building stock additions to 
estimate the shipments to new construction. With these data elements, a 
yearly accounting model was developed for the historical period to 
identify shipments deriving from new construction and from replacements 
of existing equipment. The accounting model also identified consumer 
migration into or out of the storage water heater equipment classes by 
calculating the difference between new plus replacement shipments and 
the actual historical shipments.
---------------------------------------------------------------------------

    \136\ Air Conditioning, Heating, and Refrigeration Institute. 
Commercial Storage Water Heaters Historical Data and Monthly 
Shipments. Available at www.ahrinet.org/analytics/research/historical-data/commercial-storage-water-heaters-historical-dataand 
www.ahrinet.org/analytics/statistics/monthly-shipments.Last accessed 
March 10, 2023.
    \137\ U.S. Department of Energy. Screening Analysis for EPACT-
Covered Commercial HVAC and Water-Heating Equipment. Volume 1--Main 
Report. 2000. EERE-2006-STD-0098-0015. Available at 
www.regulations.gov/#!documentDetail;D=EERE-2006-STD-0098-0015.

 Table IV.23--Historical Shipments of Commercial Gas-Fired and Electric
                          Storage Water Heaters
------------------------------------------------------------------------
                                                 Commercial   Commercial
                     Year                        gas-fired     electric
                                                  storage      storage
------------------------------------------------------------------------
1994..........................................       91,027       22,288
1995..........................................       96,913       23,905
1996..........................................      127,978       26,954
1997..........................................       96,501       30,339
1998..........................................       94,577       35,586
1999..........................................      100,701       39,845
2000..........................................       99,317       44,162
2001..........................................       93,969       46,508
2002..........................................       96,582       45,819
2003..........................................       90,292       48,137
2004..........................................       96,481       57,944
2005..........................................       82,521       56,178
2006..........................................       84,653       63,170
2007..........................................       90,345       67,985
2008..........................................       88,265       68,686
2009..........................................       75,487       55,625
2010..........................................       78,614       58,349
2011..........................................       84,705       60,257
2012..........................................       80,490       67,265
2013..........................................       88,539       69,160
2014..........................................       94,247       73,458
2015..........................................       98,095       88,251
2016..........................................       97,026      127,344
2017..........................................       93,677      152,330
2018..........................................       94,473      137,937
2019..........................................       88,548      150,667
2020..........................................       80,070      140,666
2021..........................................       90,192      154,330
2022..........................................       83,487      120,152
------------------------------------------------------------------------

    For the May 2022 CWH ECS NOPR, DOE utilized regression techniques 
to develop the shipments forecast based on the assumption that 
shipments of gas-fired storage water heaters are a function of relative 
prices of natural gas and electricity, building stocks (i.e., the 
replacement market), and building stock additions (the new market); the 
regression inputs were updated with 2022 data for this final rule. The 
result was a model yielding a forecast of shipments that increases 0.03 
percent per year from 2023-2055, reaching just over 90,100 units by 
2055. See chapter 9 of the final rule TSD for further details. The 
resulting growth rate for shipments is less than the underlying growth 
in building stocks (0.9 percent between 2023-2055).
    For the May 2022 CWH ECS NOPR and for this final rule, no 
historical information was available that specifically identified 
shipments of gas-fired storage-type instantaneous water heaters. The 
AHRI online historical shipments data explicitly states residentially 
marketed equipment is excluded but does not explicitly state whether 
instantaneous storage equipment is included or excluded. Because of the 
similarities between the commercial storage gas water heaters and the 
gas-fired storage-type instantaneous water heaters, DOE has included 
both in downstream analyses in this final rule. However, DOE recognizes 
that some or all of the storage-type instantaneous shipments may not be 
captured in the historical AHRI shipments data. The DOE shipments 
analysis is derived from AHRI historical shipments data and thus may 
underrepresent future shipments of gas-fired storage-type instantaneous 
water heaters.
2. Residential-Duty-Gas-Fired Storage and Instantaneous Water Heaters
    For the May 2022 CWH ECS NOPR, DOE developed an econometric model 
similar to that described for commercial gas-fired storage water heater 
shipments. Following publication of the withdrawn May 2016 CWH ECS 
NOPR, AHRI provided data from manufacturers on instantaneous water 
heater shipments to DOE's contractors under a confidentiality agreement 
and indicated that the data include shipments of gas-fired 
instantaneous tankless and circulating water heating equipment. DOE 
used these data to estimate an equation relating commercial 
instantaneous shipments to building stock additions and commercial 
electricity prices.\138\ Because the historical data did not provide 
sufficient detail to identify the percentages represented by tankless 
and circulating water heater shipments, DOE estimated that 50 percent 
of the shipments are instantaneous tankless shipments and the remainder 
are circulating water heaters. Because the actual information provided 
by AHRI is confidential and cannot be disclosed, the only information 
being made available in this final rule is the econometric forecast 
made for use in the analysis.
---------------------------------------------------------------------------

    \138\ While the instantaneous units are gas-fired, natural gas 
variables consistently exhibited incorrect signs on the estimated 
coefficients. For example, the ratio of commercial electric price 
divided by commercial gas had a negative sign, meaning that higher 
ratios would lead to lower shipments. This is the opposite of what 
was expected. Higher electric prices relative to gas prices should 
lead to higher, not lower, shipments of the natural gas products. 
Thus, commercial natural gas price variables were omitted from the 
model.
---------------------------------------------------------------------------

    Since the equipment that DOE has been calling hot water supply 
boilers includes what AHRI calls circulators as well as a second type 
of equipment AHRI calls boilers, DOE clarifies that the new DOE 
forecast for hot water supply boilers includes both circulating water 
heating equipment and hot water supply boilers. The circulating water 
heater shipments were developed as described earlier. In the May 2022 
CWH ECS NOPR, DOE requested additional historical shipment information 
for commercial gas-fired instantaneous tankless water heaters to 
supplement the data provided in response to the

[[Page 69765]]

withdrawn May 2016 CWH ECS NOPR, and also sought actual historical 
shipments for gas-fired storage-type instantaneous water heaters and 
hot water supply boilers, but did not receive any data, and DOE was not 
able to identify additional information sources for the instantaneous 
equipment class shipments.
    In the May 2022 CWH ECS NOPR, DOE requested actual historical 
shipment data for residential-duty gas-fired storage water heaters, but 
did not receive any data, and DOE was not able to identify additional 
information sources for residential-duty gas-fired shipments. DOE 
clarifies that residential-duty gas-fired storage water heaters are not 
residential water heaters. Instead, they are a type of CWH equipment 
and DOE draws no conclusions about residential-duty gas-fired storage 
shipments replacing or being replaced by commercial gas-fired storage 
water heater shipments. Rather, the linkage used in the DOE model would 
essentially have shipments of both types of storage equipment going up 
or down in parallel. DOE retained the forecasting method used for the 
May 2022 CWH ECS NOPR, using the same 20 percent factor. In other 
words, DOE assumes residential-duty gas-fired storage water heater 
shipments track with commercial gas-fired storage water heaters, and 
shipments of the former are assumed to be 20 percent of the shipments 
of the latter.
3. Available Products Database and Equipment Efficiency Trends
    For the May 2022 CWH ECS NOPR, DOE revised the shipments and other 
analyses to reflect efficiency distribution data for commercial gas-
fired storage water heaters and instantaneous gas-fired water heaters 
provided by AHRI, reconciling the analyses to account for the AHRI data 
rather than relying heavily on the number of available models to 
produce equipment efficiency trends. For this final rule analysis, DOE 
used the same adjustment method to account for underlying growth in 
high-efficiency products.
    In the May 2022 CWH ECS NOPR, DOE requested historical shipments 
data dividing shipments between condensing and non-condensing 
efficiencies for all equipment types that comprise the subject of this 
proposed rulemaking. In comments filed in response to the May 2022 CWH 
ECS NOPR, A.O. Smith stated that the percentage of commercial gas-fired 
instantaneous circulating water heaters and hot water supply boilers 
shipments that are condensing is lower than the percentage for gas 
storage products. (A.O. Smith, No. 22 at p. 3) As discussed in section 
IV.H.1, DOE used the AHRI-provided historical data received following 
the withdrawn May 2016 CWH ECS NOPR to fit a Bass Diffusion curve for 
each of the equipment categories analyzed for this final rule. With 
respect to the concern raised by A.O. Smith regarding condensing shares 
of circulating water heaters and hot water supply boilers in comparison 
to commercial gas storage water heaters, the data received from AHRI 
regarding the fraction of the units of the instantaneous equipment 
class that were condensing at 90 percent and over was higher than it 
was for the commercial gas storage category, and DOE did not receive 
any additional data nor identify additional sources of shipments by 
efficiency level for the instantaneous equipment categories on which 
DOE could base an adjustment to the diffusion curve. Further, DOE 
reviewed the underlying model counts and notes that the unadjusted 
model counts for condensing level commercial gas-fired storage and 
condensing level instantaneous circulating water heaters and hot water 
supply boilers are the same percentage of total models (45 percent). 
While DOE appreciates A.O. Smith's comment, the most recent industry 
data supplied by AHRI does not indicate that the condensing share of 
instantaneous circulating water heaters and hot water supply boilers 
are less than those for the commercial gas-fired storage equipment 
class.
    In comments filed in response to the May 2022 CWH ECS NOPR, Rheem 
noted that the same colors were used for ``Com/Res-Duty Gas Storage'' 
and ``Gas Instant HWSB'' in Figure 10.2.1 of the NOPR TSD making it 
difficult to comment; however, Rheem commented it appeared that DOE was 
estimating between 55 and 60 percent of gas-fired storage water heaters 
are condensing, and that the breakdown between non-condensing and 
condensing levels needs review; Rheem also noted that they were willing 
to discuss the breakdown in a confidential meeting. (Rheem, No. 24 at 
p. 3, 6)
    DOE thanks Rheem for pointing out that the colors used in Figure 
10.2.1 of the May 2022 CWH ECS NOPR TSD were difficult to 
differentiate, and DOE has made adjustments to that figure within the 
final rule TSD to better distinguish the data illustrated there. 
Regarding Rheem's concern about condensing versus non-condensing shares 
of commercial gas-fired storage water heaters, DOE notes that the most 
recent ENERGY STAR data for commercial gas-fired water heaters reports 
an estimated market penetration of 49 percent of total commercial gas-
fired water heaters were ENERGY STAR qualified in 2021, with a thermal 
efficiency greater than or equal to 0.94.\139\ DOE notes that there are 
additional condensing models currently on the market that do not meet 
ENERGY STAR requirements, so the total estimated condensing percentage 
is likely higher than ENERGY STAR levels. As discussed in response to 
the A.O. Smith comment earlier, AHRI supplied industry-level data on 
condensing shares of commercial gas-fired storage water heaters that 
has been fit to a Bass Diffusion curve, and the additional information 
received during supplemental manufacturer interviews did not include 
additional data on which to base changes to these percentages.
---------------------------------------------------------------------------

    \139\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration 
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last 
accessed December 17, 2022.
---------------------------------------------------------------------------

    In comments filed in response to the May 2022 CWH ECS NOPR, A.O. 
Smith also stated that an analysis of their own shipments shows that 5 
percent of residential-duty gas-fired storage units are condensing. 
(A.O. Smith, No. 22 at p. 4) In the May 2022 CWH ECS NOPR, DOE had used 
the same condensing market share curve calculated for commercial gas-
fired storage water heaters, projected to be greater than 60 percent by 
2026. In response, DOE considered the A.O. Smith data point, 
recognizing that it is a single data point that may not be 
representative of the entire industry, and also reviewed both ENERGY 
STAR data and the model counts database. Residential-duty gas-fired 
storage water heaters are included under the residential ENERGY STAR 
water heater program, rather than the commercial gas water heater 
program. Based on ENERGY STAR data, shipments of ENERGY STAR-rated 
residential gas-fired water heaters as a share of total shipments was 8 
percent in 2021.\140\ DOE notes that historically, not all ENERGY STAR-
rated residential gas-fired water heaters have been condensing 
models,\141\ and also that the

[[Page 69766]]

estimated number of residential-duty gas-fired water heaters are a 
small fraction of total residential gas-fired water heater shipments, 
so DOE was not able to definitively determine what share of the 
residential-duty market is comprised of condensing equipment. DOE 
calculated that the percentage of residential-duty gas-fired water 
heaters that are condensing according to model counts is 32 percent, 
which is significantly less than the 45 percent of model counts 
identified as condensing for commercial gas-fired storage water 
heaters. For this final rule, DOE has revised the condensing market 
share for residential-duty gas-fired storage water heaters based on 
this information, using the historical ENERGY STAR residential water 
heater shipments to fit the Bass Diffusion curve. As conveyed in 
section IV.H.1, the overall resulting condensing share diffusion curve 
for the residential-duty equipment class is now lower than that modeled 
for commercial gas-fired storage water heaters.
---------------------------------------------------------------------------

    \140\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration 
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last 
accessed December 17, 2022.
    \141\ ENERGY STAR updated its residential gas water heater 
criteria, including its criteria for gas-fired storage residential-
duty commercial water heaters, effective on April 18, 2023. Under 
the updated specification requirements, residential-duty gas-fired 
storage water heaters would likely need to be condensing to be 
ENERGY STAR compliant.
---------------------------------------------------------------------------

    A.O. Smith raised concerns that setting new minimum energy 
conservation standards for commercial gas-fired products at 95 percent 
and 96 percent thermal efficiency will have a dilutive effect on the 
ENERGY STAR program. For ENERGY STAR to remain a relevant catalyst for 
market adoption of commercial gas-fired water heaters, A.O. Smith said 
ENERGY STAR would need to set a new specification level significantly 
above the Department's proposed new minimums, which de facto would 
render the program obsolete for gas-fired CWH. A.O. Smith believes such 
an outcome would create significant marketplace competition 
implications considering technology feasibility, manufacturer product 
costs (MPCs) as well as limit product options for commercial 
businesses. (A.O. Smith, No. 22 at p. 3) Similarly, Atmos Energy stated 
that the proposed standards would negatively impact existing rebate 
programs. Atmos Energy stated that incentive programs provide a cost-
effective means for improving residential building energy efficiency 
without requiring a market transition through which the water heating 
options consumers need are no longer available. (Atmos Energy, No. 36 
at p. 3)
    As discussed in section IV.C.4.a, DOE reviewed the efficiency level 
distributions of products on the market and found that the market 
distributions show the greatest number of unique basic models within 
the condensing range at 96 percent for gas-fired storage water heaters 
and storage type-instantaneous water heaters, gas-fired tankless water 
heaters, and gas-fired circulating water heaters and hot water supply 
boilers. DOE anticipates that there is still room for product 
differentiation, particularly for gas-fired storage water heaters which 
account for most of the shipments in this final rule, where products 
above 95 percent efficiency currently exist at 96, 97, 98, and 99 
percent, and DOE also notes that products exist at 97 percent 
efficiency for tankless water heaters, and that there are products at 
97, 98, and 99 percent efficiency products for circulating water 
heaters and hot water supply boilers. Thus, ENERGY STAR specifications 
could be updated, allowing for the continuation of utility rebate and 
other incentive programs.
4. Electrification Trends
    In comments submitted in response to the May 2022 CWH ECS NOPR, 
several stakeholders expressed concerns about the impact of legislation 
and codes requiring electrification. Bradford White believes that local 
policies and codes that restrict the use of gas-fired commercial water 
heaters need to be taken into account, and both WM Technologies and 
Patterson-Kelley noted that local building codes are limiting 
installation of new gas-fired products, which are a risk of decreased 
future annual shipments across the market, and that changes in building 
codes related to discarding appliances prior to the end of their normal 
operational life could also impact shipments. (Bradford White, No. 23 
at p. 6; WM Technologies, No. 25 at p. 3; Patterson-Kelley, No. 26 at 
p. 3) WM Technologies also commented that changes in building codes 
relating to electrification are impacting fuel switching differently at 
different efficiency levels in some localities. (WM Technologies, No. 
25 at p. 3) AHRI also noted building code changes in states like 
Washington that are requiring heat pump water heating. (AHRI, No. 31 at 
p. 6) In response, DOE has conducted an internet search of State and 
municipal level legislation and building codes to identify locations 
where electrification requirements have been put into place, and where 
building codes have been changed with respect to discarding appliances 
prior to the end of their normal life. DOE identified a total of 81 
municipalities and 1 State with an electrification requirement, either 
for new buildings, or upon equipment replacement.\142\ DOE also 
identified a total of 20 States that have prohibited building gas 
restrictions and electrification mandates.\143\ DOE was not able to 
identify any building codes that had been changed with respect to 
discarding appliances prior to the end of their normal life. DOE 
further notes that States and municipalities are actively proposing 
plans or legislation addressing electrification, or prohibiting 
electrification. Until these are adopted or passed, they are subject to 
change. As such, DOE attempted to account only for those jurisdictions 
that have passed or adopted electrification requirements. For example, 
both California and New York have released plans that incorporate end-
use electrification for buildings, but neither State has finalized 
those plans.^{144 145} Thus only municipalities within these 
States that have passed or adopted electricity requirements were 
included in DOE's analysis. DOE conducted a sensitivity analysis of 
potential electrification trends to consider the impact of additional 
electrification if both California and New York were to adopt 
electrification requirements state-wide (see appendix 10B of the final 
rule TSD).
---------------------------------------------------------------------------

    \142\ Building Decarbonization Coalition, Zero Emission Building 
Ordinances, State and Local Government Decarbonization Efforts. 
Available at buildingdecarb.org/zeb-ordinances.html, Last accessed 
November 28, 2022.
    \143\ Gas Ban Monitor: East Coast policies advance; Pa. gas ban 
prohibition fails, August 2, 2022. Available at www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/gas-ban-monitor-east-coast-policies-advance-pa-gas-ban-prohibition-fails-71439034. Last Accessed November 28, 2022.
    \144\ California Air Resources Board, November 16, 2022. 2022 
Scoping Plan for Achieving Carbon Neutrality. Available at 
ww2.arb.ca.gov/sites/default/files/2022-11/2022-sp.pdf. Last 
accessed December 19, 2022.
    \145\ New York State Climate Action Council. 2022. ``New York 
State Climate Action Council Scoping Plan.'' Available at 
climate.ny.gov/-/media/project/climate/files/2022-12-15-Draft-Final-Scoping-Plan.pdf. Last accessed December 20, 2022.
---------------------------------------------------------------------------

    Additionally, DOE notes that in December of 2022, DOE published the 
Clean Energy for New Federal Buildings and Major Renovations of Federal 
Buildings SNOPR (``Clean Energy Rule'') as required by section 433 of 
the Energy Independence and Security Act of 2007 (``EISA 2007''), which 
requires that fossil fuel generated energy consumption be reduced to 
zero (as compared to a 2003 baseline) by 2030 for new construction and 
major renovations of Federal buildings.\146\ Federal buildings are also 
subject to E.O. 14057, which requires that all new construction and 
major modernization

[[Page 69767]]

projects greater than 25,000 gross square feet be designed, 
constructed, and operated to be net-zero emissions by 2030, and that 
the Federal sector will have a net-zero emissions building portfolio by 
2045, including a 50 percent emissions reduction (over 2008 levels) by 
2032.\147\
---------------------------------------------------------------------------

    \146\ Available at www.federalregister.gov/documents/2022/12/21/2022-27098/clean-energy-for-new-federal-buildings-and-major-renovations-of-federal-buildings. Last accessed February 13, 2023.
    \147\ E.O. 14057: Catalyzing Clean Energy Industries and Jobs 
Through Federal Sustainability, December 8, 2021. Available at 
www.fedcenter.gov/programs/eo14057/. Last accessed December 16, 
2022.
---------------------------------------------------------------------------

    DOE used this information to develop an adjustment to account for 
reduced shipments due to electrification requirements. In total, based 
on policies and codes that have been adopted as of November 28, 2022, 
approximately 8 percent of the United States by population will be 
subject to electrification requirements for new buildings by 2026, with 
approximately 0.3 percent subject to electrification upon equipment 
replacement. Additionally, based on the proposed Clean Energy Rule and 
E.O. 14057, the potential percentage of floorspace impacted by Federal 
rules and requirements would range from 0.6 percent to 0.9 percent of 
new construction, and of 0.6 percent to 2.3 percent of replacements. 
The resulting adjustments are shown in Table IV.24.

                 Table IV.24--Electrification Reductions
------------------------------------------------------------------------
                                                 New        Replacement
                    Year                       shipment      shipment
                                              reductions  reductions (%)
------------------------------------------------------------------------
2026.......................................          8.6             0.9
2027.......................................          8.6             1.0
2028.......................................          8.6             1.1
2029.......................................          8.5             1.3
2030.......................................          8.5             1.4
2031.......................................          8.5             1.5
2032.......................................          8.6             1.6
2033.......................................          8.6             1.7
2034.......................................          8.6             1.8
2035.......................................          8.7             1.9
2036.......................................          8.7             1.9
2037.......................................          8.7             2.0
2038.......................................          8.8             2.1
2039.......................................          8.8             2.2
2040.......................................          8.8             2.3
2041.......................................          8.8             2.3
2042.......................................          8.9             2.4
2043.......................................          8.9             2.5
2044.......................................          8.9             2.6
2045.......................................          8.9             2.6
2046.......................................          8.9             2.6
2047.......................................          8.9             2.6
2048.......................................          8.9             2.6
2049.......................................          8.8             2.5
2050.......................................          8.8             2.5
2051.......................................          8.8             2.5
2052.......................................          8.8             2.5
2053.......................................          8.8             2.5
2054.......................................          8.8             2.5
2055.......................................          8.8             2.4
------------------------------------------------------------------------

    A more detailed discussion of this adjustment and the underlying 
calculations is contained in chapter 9 of this TSD.
5. Shipments to Residential Consumers
    DOE determined the fractions of commercial and residential 
applications for each equipment category based on the number of samples 
(in both CBECS and RECS) selected as relevant to be served by each 
equipment category considered in this rulemaking. Based on comments 
received in response to the withdrawn May 2016 CWH ECS NOPR, DOE 
included only residential multi-family stocks and building additions 
when considering the potential non-commercial consumer component in the 
development of the shipments forecast in the May 2022 CWH ECS NOPR. In 
comments received on the May 2022 CWH ECS NOPR, Bradford White noted 
DOE has overstated the amount of commercial gas-fired storage and 
storage-type instantaneous water heaters that are installed in 
residential applications, as in their experience, there are very few 
residential installations where this occurs (e.g., typically high end, 
large homes), and that they do not see gas-fired circulating water 
heaters and hot water supply boilers used in residential applications. 
(Bradford White, No. 23 at p. 6) DOE wishes to clarify that the only 
residential applications considered in both the May 2022 CWH ECS NOPR 
and this final rule analysis are those in multi-family buildings; 
single family and manufactured home applications were excluded from the 
analysis, as previously suggested by commenters in response to the 
withdrawn May 2016 CWH ECS NOPR.
6. Final Rule Shipment Model
    To project shipments and equipment stocks for 2023 through the end 
of the 30-year analysis period (2055), DOE used the shipments 
forecasting models (described in sections IV.G.1 and IV.G.2 of this 
final rule), a stock accounting model, and adjustments for 
electrification. The stock accounting model keeps track of shipments 
and calculates replacement shipments based on the historical shipments, 
the expected useful lifetime of each equipment class, and a Weibull 
distribution that identifies a percentage of units still in existence 
from a prior year that will fail and need to be replaced in the current 
year. In each year, DOE assumed a fraction of the replacement market 
will be retired rather than replaced due to the demolition of buildings 
in which this CWH equipment resides. This retirement fraction was 
derived from building stock data from the AEO2023.\148\
---------------------------------------------------------------------------

    \148\ U.S. Energy Information Administration (EIA). 2023 Annual 
Energy Outlook. March 2023. Available at www.eia.gov/outlooks/aeo/.
---------------------------------------------------------------------------

    To project shipments of CWH equipment for new construction, DOE 
relied on building stock data obtained from AEO2023. For this final 
rule, DOE assumes CWH equipment is used in both commercial buildings 
and residential multi-family buildings. DOE estimated a saturation rate 
for each equipment type using building and equipment stock values. The 
saturation rate was applied to new building additions in each year, 
yielding shipments to new buildings. The building stock and additions 
projections from AEO2023 are shown in Table IV.25.

                                     Table IV.25--Building Stock Projections
----------------------------------------------------------------------------------------------------------------
                                                                                                  Multi-family
                                                             Commercial        Multi-family       residential
                                       Total commercial    building stock      residential          building
                Year                    building stock       additions        building stock       additions
                                      (million sq. ft.)  (million sq. ft.)     (millions of       (millions of
                                                                                  units)             units)
----------------------------------------------------------------------------------------------------------------
2022................................             93,444              2,027              32.84               0.61
2025................................             96,234              2,272              33.86               0.49
2026................................             97,373              2,197              34.18               0.49
2030................................            101,747              2,473              35.47               0.49

[[Page 69768]]

 
2035................................            108,065              2,336              36.93               0.46
2040................................            112,879              2,127              38.37               0.48
2045................................            116,845              2,152              39.78               0.47
2050................................            121,045              2,293              41.14               0.48
2055 *..............................            123,348              2,381              42.61               0.51
----------------------------------------------------------------------------------------------------------------
Source: EIA AEO2023 Reference case.
* Post-2050, the projections were extended using the average annual growth rate from 2040 to 2050.

    The next component in the stock accounting model is the calculation 
of shifts to or away from particular equipment classes. For this final 
rule, shipments were an input to the stock model. For both the 
historical and forecasted period, shifts to or away from a particular 
equipment class were calculated as a remainder. Using a saturation rate 
derived from historical equipment and building stocks, the model 
estimates shipments to new buildings. Using historical stock and 
retirement rates based on equipment life, the model estimates shipments 
for stock replacement. Shifts to or away from a particular equipment 
class equal the total shipments less shipments for new buildings and 
shipments for replacements. While DOE refers to the remainders as 
``shifts to or away from the equipment class,'' the remainders could be 
a result of numerous factors: equipment lasting longer, which reduces 
the number of replacements; increased or decreased need for hot water 
generally due to greater efficiency in water usage; changing patterns 
of commercial activity; outside influences, such as ENERGY STAR and 
utility conservation or marketing programs; actual shifts between 
equipment classes caused by relative fuel prices, relative equipment 
costs and efficiencies, installation costs, repair and maintenance 
costs, and consumer preferences; and other factors.
    Based on the historic data, there is an apparent shift toward 
electric storage water heating equipment. The historical shipments 
summarized in Table IV.23 of this document show a steady growth in 
commercial electric storage water heaters, with shipments growing from 
22,288 in 1994 to 154,330 in 2021, but declining in 2022 to 120,152, 
the lowest since 2016. Over the same time period, commercial gas-fired 
storage water heaters have seen a decline in shipments from 91,027 in 
1994 to a low of 75,487 in 2009. After 2009, gas-fired storage water 
heater shipments rebounded, reaching a shipment level of 90,192 in 2021 
(and a peak of 98,095 in 2015), although they declined again in 2022, 
to 83,487, the second lowest year since 2013. During the period 2009 
through 2015, there was a reduction in the apparent shift away from 
commercial gas-fired storage units compared to the earlier period; 
however, there appeared to be an increase in 2016-2017 before returning 
to a reduction in the shift in commercial gas-fired storage units. 
Because the forecasted shipments of residential-duty gas-fired storage 
water heaters are linked to commercial gas-fired storage units, there 
is a similar shift away from the residential-duty gas-fired storage 
equipment class in the shipment forecast. Gas-fired instantaneous 
equipment appears to have a positive shift pattern.
    Because the commercial gas-fired storage and gas-fired 
instantaneous CWH shipments forecasts were developed using econometric 
models based on historical data, these apparent shifts are captured in 
DOE's shipments model and embedded in the total forecast. For purposes 
of assigning equipment costs and energy usage in the NIA, DOE needs to 
know if the increased/decreased shipments are new or replacement 
shipments. For all equipment classes, DOE assumed that the apparent 
shift is most likely to occur in new installations rather than in the 
replacement installations. As described in chapter 9 of the final rule 
TSD, DOE assumed that a shift is twice as likely to take place in a new 
installation as in a replacement installation. For example, if DOE 
estimated that in 2023, 20 percent of shipments for an equipment class 
went to new installations and 80 percent went for replacements in the 
absence of switching, DOE multiplied the 20 percent by 2 (40 percent) 
and added the 80 percent (which equals 120 percent). Both the 40 
percent for new and the 80 percent for replacement were then divided by 
120 percent to normalize to 100 percent, yielding revised shipment 
allocations of 33 percent for new and 67 percent for replacement.
    Finally, an adjustment is made to account for units projected to 
switch out of the equipment class due to electrification requirements. 
The estimated percent reduction shown in Table IV.24 is applied to the 
new and replacement shipments calculated for each year as described 
previously. These modified shipments are then accounted for in future 
stock retirements so that once a unit has ``exited'' the stock, it does 
not re-enter when it would be due for replacement.
    The resulting shipment projection is shown in Table IV.26.

                          Table IV.26--Shipments of Commercial Water Heating Equipment
----------------------------------------------------------------------------------------------------------------
                                      Commercial gas-
                                       fired storage                                               Gas-fired
                                     water heaters and   Residential-duty      Gas-fired       circulating water
               Year                 gas-fired storage-  gas-fired storage    tankless water     heaters and hot
                                    type instantaneous    water heaters     heaters (units)      water supply
                                       water heaters         (units)                            boilers (units)
                                         (units *)
----------------------------------------------------------------------------------------------------------------
2023..............................              87,890             17,548              9,612              11,141
2025..............................              89,827             17,919             10,123              11,658
2026..............................              90,483             18,051             10,312              11,931

[[Page 69769]]

 
2030..............................              90,838             18,189             13,212              15,123
2035..............................              89,229             17,839             14,970              17,076
2040..............................              88,121             17,617             16,700              18,615
2045..............................              87,733             17,545             18,822              20,726
2050..............................              87,422             17,484             21,013              22,992
2055..............................              86,917             17,380             23,259              25,366
----------------------------------------------------------------------------------------------------------------
* The projected shipments are based on historical data for commercial gas-fired storage water heaters which may
  or may not include storage-type instantaneous shipments. For analysis purposes, DOE has grouped these
  categories but recognizes that future shipments for storage-type instantaneous may not be captured in the
  projection.

    Because the estimated energy usage of CWH equipment differs by 
commercial and residential settings, the NIA employs the same fractions 
of shipments (or sales) to commercial and to residential consumers used 
by the LCC analysis. The fractions of shipments by type of consumer are 
shown in Table IV.27.

            Table IV.27--Shipment Shares by Type of Consumer
------------------------------------------------------------------------
                                                            Residential
                Equipment                 Commercial (%)        (%)
------------------------------------------------------------------------
Commercial gas-fired storage water                    84              16
 heaters and gas-fired storage-type
 instantaneous water heaters............
Residential-duty gas-fired storage water              60              40
 heaters................................
Gas-fired instantaneous water heaters
 and hot water supply boilers:
    Gas-fired tankless water heaters....              60              40
    Gas-fired circulating water heaters               85              15
     and hot water supply boilers.......
------------------------------------------------------------------------

    For the NIA model, shipments must be disaggregated by efficiency 
levels that correspond to the levels analyzed in the engineering and 
LCC analyses. To identify the percentage of shipments corresponding to 
each efficiency level, DOE combined the efficiency trends based on AHRI 
and manufacturer shipments data and information derived from a database 
of equipment currently produced and sold by manufacturers. The sources 
of information for this database included the DOE Compliance 
Certification and manufacturer catalogs and websites. DOE used the AHRI 
shipments data provided in response to the withdrawn May 2016 CWH ECS 
NOPR to project the percentage of shipments that are condensing and 
non-condensing, for the period from 2015 through the end of the 
analysis period. Starting with the last year of historical data from 
AHRI, shipments within the non-condensing and condensing efficiency 
ranges were distributed based on the available models database. Because 
the efficiency bins used in the AHRI shipments data did not exactly 
match the thermal efficiency bins studied by DOE, available models were 
used to re-distribute the historical shipment period within the non-
condensing and condensing efficiency ranges to match the DOE thermal 
efficiency levels. For each subsequent year in the final rule analysis 
period, as the percentage of shipments that are in the condensing 
efficiency range increases, the shipments are distributed across the 
condensing thermal efficiency levels by increasing proportionally the 
percentage of shipments by efficiency level in the previous year. 
Similarly, as the percentage of non-condensing shipments decrease, DOE 
distributed shipments across thermal efficiency levels by 
proportionately decreasing the percentage of shipments in the prior 
year.

H. National Impact Analysis

    The NIA assesses the NES and the NPV from a national perspective of 
total consumer costs and savings that would be expected to result from 
new or amended standards at specific efficiency levels.\149\ 
(``Consumer'' in this context refers to consumers of the equipment 
being regulated.) DOE calculates the NES and NPV for the potential 
standard levels considered based on projections of annual equipment 
shipments, along with the annual energy consumption and total installed 
cost data from the energy use and LCC analyses. For the present 
analysis, DOE projected the energy savings, operating cost savings, 
equipment costs, and NPV of consumer benefits for equipment shipped 
from 2026 through 2055, the year in which the last standards-compliant 
equipment would be shipped during the 30-year analysis period.
---------------------------------------------------------------------------

    \149\ The NIA accounts for impacts in the 50 states and U.S. 
territories.
---------------------------------------------------------------------------

    DOE evaluates the impacts of new or amended standards by comparing 
a case without such standards with standards-case projections. The no-
new-standards case characterizes energy use and consumer costs for each 
equipment class in the absence of new or amended energy conservation 
standards. For this projection, DOE considers historical trends in 
efficiency and various forces that are likely to affect the mix of 
efficiencies over time. DOE compares the no-new-standards case with 
projections characterizing the market for each equipment class if DOE 
adopted new or amended standards at specific energy efficiency levels 
(i.e., the TSLs or standards cases) for that class. For the standards 
cases, DOE considers how a given standard would likely affect the 
market shares of equipment with efficiencies greater than the standard.
    DOE uses a spreadsheet model to calculate the energy savings and 
the national consumer costs and savings from each TSL. Chapter 10 and

[[Page 69770]]

appendix 10A of the final rule TSD explain the model and how to use it. 
The model and documentation are available on DOE's website.\150\ 
Interested parties can review DOE's analyses by changing various input 
quantities within the spreadsheet. The NIA spreadsheet model uses 
typical values (as opposed to probability distributions) as inputs.
---------------------------------------------------------------------------

    \150\ DOE's web page on CWH equipment is available at 
www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36.
---------------------------------------------------------------------------

    Unlike the LCC analysis, the NIA does not use distributions for 
inputs or outputs, but relies on inputs based on national average 
equipment costs and energy costs. DOE used the NIA spreadsheet to 
perform calculations of NES and NPV using the annual energy 
consumption, maintenance and repair costs, and total installed cost 
data from the LCC analysis. The NIA also uses energy prices and 
building stock and additions consistent with the projections from the 
AEO2023. NIA results are presented in chapter 10 of the final rule TSD.
    Table IV.28 summarizes the inputs and methods DOE used for the NIA 
analysis for this final rule. Discussion of these inputs and methods 
follows the table. See chapter 10 of the final rule TSD for further 
details.

   Table IV.28--Summary of Inputs and Methods for the National Impact
                                Analysis
------------------------------------------------------------------------
            Inputs                               Method
------------------------------------------------------------------------
Shipments....................  Annual shipments from shipments model.
Compliance Date of Standard..  2026.
Efficiency Trends............  No-new-standards case, standards cases.
Annual Energy Consumption per  Annual weighted-average values are a
 Unit.                          function of energy use at each TSL.
Total Installed Cost per Unit  Annual weighted-average values are a
                                function of cost at each TSL.
Annual Energy Cost per Unit..  Annual weighted-average values as a
                                function of the annual energy
                                consumption per unit and energy prices.
Repair and Maintenance Cost    Annual values do not change with
 per Unit.                      efficiency level.
Energy Price Trends..........  AEO2023 projections (to 2050) and
                                extrapolation thereafter.
Energy Site-to-Primary and     A time-series conversion factor based on
 FFC Conversion.                AEO2023.
Discount Rate................  3 percent and 7 percent.
Present Year.................  2023.
------------------------------------------------------------------------

1. Product Efficiency Trends
    A key component of the NIA is the trend in energy efficiency 
projected for the no-new-standards case and each of the standards 
cases. DOE uses a no-new-standards-case distribution of efficiency 
levels to project what the CWH equipment market would look like in the 
absence of potential standards. For the withdrawn May 2016 CWH ECS 
NOPR, DOE developed the no-new-standards-case distribution of equipment 
by thermal efficiency levels, and by standby loss efficiency levels, 
for CWH equipment by analyzing a database \151\ of equipment currently 
available. For the standards cases, DOE used a ``roll-up'' scenario to 
establish the shipment-weighted efficiency for the year that standards 
are assumed to become effective (2026). In this scenario, the market 
shares of equipment in the no-new-standards case that do not meet the 
standard under consideration would ``roll up'' to meet the new standard 
level, and the market share of equipment above the standard would 
remain unchanged. The approach is further described in chapter 10 of 
the final rule TSD.
---------------------------------------------------------------------------

    \151\ This database was developed using model data from DOE's 
Compliance Certification database (available at 
www.regulations.doe.gov/certification-data/) and manufacturer 
websites and catalogs.
---------------------------------------------------------------------------

    For this final rule, DOE developed the no-new-standards 
distribution of equipment by thermal efficiency levels for CWH 
equipment using data from DOE's Compliance Certification database, data 
submitted by AHRI regarding condensing versus non-condensing equipment, 
and ENERGY STAR shipments for residential gas-fired water heaters. 
Using the data provided by AHRI for commercial gas-fired storage water 
heaters and instantaneous gas-fired water heaters and hot water supply 
boilers, DOE has modeled a no-new-standards efficiency trend in which 
75 to 85 percent of consumers purchase condensing equipment by 2055 by 
using the historical AHRI data to develop a future trend, but the 
Department points out that at present, the adoption of equipment 
equivalent to the standards proposed herein is currently about half of 
total shipments.\152\ Thus, this final rule analysis assigns 
substantial credit to market-driven efficiency accomplishments. DOE 
further notes that new and replacement markets were modeled using the 
same efficiency distributions.
---------------------------------------------------------------------------

    \152\ U.S. EPA. ENERGY STAR Unit Shipment and Market Penetration 
Report Calendar Year 2021 Summary. Available at www.energystar.gov/sites/default/files/asset/document/2021%20Unit%20Shipment%20Data%20Summary%20Report_0.pdf. Last 
accessed December 17, 2022.
---------------------------------------------------------------------------

    For this final rule, DOE used the AHRI efficiency data to fit a 
Bass Diffusion curve, which shows continued market-driven efficiency 
improvements over the forecast period up to a point where 75 percent of 
commercial gas-fired storage and circulating water heaters and hot 
water supply boiler shipments are condensing in the no-new-standards 
case. For instantaneous tankless shipments, DOE modeled up to 85 
percent of shipments in the condensing efficiency levels because it 
appears that presently, the percentage is much higher than for the 
other equipment types. Similarly, DOE used ENERGY STAR shipments of 
residential gas water heaters to fit a Bass Diffusion curve for the 
residential-duty equipment category, which shows continued market-
driven efficiency improvement over the forecast period up to a point 
where 23 percent of residential-duty gas-fired storage water heater 
shipment are condensing in the no-new-standards case. DOE notes that 
the specification for the Bass Diffusion curve used a maximum of 75 
percent; however, that maximum was not reached during the forecast 
period. Thus, an increasing efficiency trend is modeled over the 30-
year analysis period in the NIA model for all equipment categories.
    Table IV.29 shows the starting distribution of equipment by 
efficiency level. In the no-new-standards case, the distributions 
represent the starting point for analyzing potential energy savings and 
cumulative consumer impacts of potential standards for each equipment 
category.

[[Page 69771]]



                            Table IV.29--Market Shares by Efficiency Level in 2026 *
----------------------------------------------------------------------------------------------------------------
                                                       EL 0 **
                      Equipment                          (%)     EL1 (%)   EL2 (%)   EL3 (%)   EL4 (%)   EL5 (%)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and gas-         34         3         0        15        47         1
 fired storage-type instantaneous water heaters.....
Residential-duty gas-fired storage water heaters....        54        21        15         3         6         1
Gas-fired instantaneous water heaters and hot water
 supply boilers:
    Gas-fired tankless water heaters................        17         0         0         4        22        57
    Gas-fired circulating water heaters and hot              5        13        13         2        11        55
     water supply boilers...........................
----------------------------------------------------------------------------------------------------------------
* Due to rounding, shares for each row might not add to 100 percent.
** For the Residential-duty equipment class, efficiency is in terms of UEF. Because minimum UEF under the
  existing efficiency standard varies by storage tank size, equipment is categorized not by absolute value of
  UEF but by percentage point increases over the minimum efficiency required on the basis of the equipment's
  tank size.

    For each efficiency level analyzed, DOE used a ``roll-up'' scenario 
to establish the market shares by efficiency level for the year that 
compliance would be required with potential standards. The analysis 
starts with the no-new-standards-case distributions wherein shipments 
are assumed to be distributed across efficiency levels as shown in 
Table IV.29. When potential standard levels above the base level are 
analyzed, as the name implies, the shipments in the no-new-standards 
case that did not meet the efficiency standard level being considered 
would roll up to meet the next higher standard level. The ``roll-up'' 
scenario also suggests that equipment efficiencies in the no-new-
standards case that were above the standard level under consideration 
would not be affected. The no-new-standards-case efficiency 
distributions for each equipment class are discussed more fully in 
chapter 10 of the final rule TSD.
2. Fuel and Technology Switching
    For this final rule, DOE analyzed whether amended standards would 
potentially create economic incentives for shifting between fuels, and 
specifically from natural gas to electricity, beyond any switching 
inherent in historical trends or due to electrification requirements, 
as discussed in section IV.G.4 of this document.
    In comments filed in response to the May 2022 CWH ECS NOPR, 
Bradford White disagreed with DOE's assertion that moving to condensing 
levels would not lead to fuel switching in existing applications, 
noting that if products are unable to be vented for a variety of 
reasons, the commercial consumer will be forced to switch to one or 
more electric water heaters to meet their hot water needs. (Bradford 
White, No. 23 at p. 4) The Joint Gas Commenters stated that the 
proposed standards would cause entities to switch to electric products 
and raised concerns that EPCA does not permit DOE to establish 
standards that would drive consumers to switch fuel types. (Joint Gas 
Commenters, No. 34 at p. 39)
    DOE acknowledges these concerns; however, DOE has determined (based 
upon the analyses described in this section) that the amended standard 
will not introduce additional economic incentives that would cause a 
noticeable increase in fuel switching from gas-fired CWH (and 
residential-duty) equipment to their electric counterparts. 
Accordingly, DOE did not explicitly include fuel or technology 
switching in this final rule beyond the continuation of historical 
trends and electrification requirements discussed in section IV.G.4 of 
this document. Additionally, DOE has previously received comments that 
condensing water heaters can be installed in lieu of noncondensing CWH 
equipment. For example, in comments received on the withdrawn May 2016 
CWH ECS NOPR, HTP opined that given the various venting solutions 
available in the market, condensing water heater installation would be 
neither physically impossible nor prohibitively expensive, meaning 
these buildings would not end up ``stranded.'' (DOE Docket EERE-2014-
BT-STD-0042, HTP Inc., No. 44 at pp. 1-2) As another example, in 
comments received by NEEA,\153\ they noted that ``Even in cases that 
present significant challenges, interviewees reported that technical 
solutions were always possible'' and that ``Interviewees expressed that 
there is always a technical way to solve each of the retrofit problems 
that were identified, although sometimes the solutions may be expensive 
or out of line with what the building owner wants.'' (DOE Docket EERE-
2018-BT-STD-0018, NEEA, No. 62 attached report at pp. 3, 6). DOE is 
cognizant that there may be higher cost installations that an 
individual building owner must weigh, and DOE has incorporated an 
extraordinary venting cost adder to account for these potential 
installations (see section IV.F.2.d).
---------------------------------------------------------------------------

    \153\ NEEA, Northeast Energy Efficiency Partnerships, Pacific 
Gas & Electric, and National Grid. Joint comment response to the 
Notice of Petition for Rulemaking; request for comment (report 
attached--Memo: Investigation of Installation Barriers and Costs for 
Condensing Gas Appliances). Docket EERE-2018-BT-STD-0018, document 
number 62. www.regulations.gov/comment/EERE-2018-BT-STD-0018-0062. 
Last accessed July 8, 2021.
---------------------------------------------------------------------------

    For fuel and technology switching, DOE focused on whether the 
adopted standard would cause fuel switching based on economic factors, 
and did not consider additional fuel switching beyond the continuation 
of historical trends and electrification requirements discussed in 
section IV.G.4 of this document. DOE considered the effects of fuel 
switching by comparing total installed costs and operating costs of 
competing CWH equipment types. DOE conducted a high-level analysis by 
using average NIA inputs and equipment operating hour data from the 
energy analysis to examine consumer PBPs in situations where they might 
switch from gas-fired to electric water heaters in both new and 
replacement construction at the proposed standard level. As previously 
noted, DOE is not analyzing thermal efficiency standards for electric 
storage water heaters since the thermal efficiency of these units 
already approaches 100 percent; as such, the underlying technology has 
most likely not changed, so for comparison purposes in this final rule, 
the installation, equipment, and maintenance and repair costs from the 
withdrawn May 2016 CWH ECS NOPR have been adjusted to account for 
inflation.\154\ To make the costs comparable across equipment 
categories, DOE adjusted the average costs using ratios based on the 
first-hour ratings shown in Table IV.30.
---------------------------------------------------------------------------

    \154\ Electric storage water heater costs were escalated from 
2014$ to 2022$ using gross domestic product price deflators. First 
year electricity costs were recalculated using the AEO2023 prices 
for 2026, weighted by the percent of shipments to the commercial and 
residential markets for the comparison equipment class (commercial 
gas-fired or residential-duty).

[[Page 69772]]



                  Table IV.30--First-Hour Equipment Ratings Used in the Fuel Switching Analysis
----------------------------------------------------------------------------------------------------------------
                                                                                         Gas-fired
                                       Commercial gas-    Residential-     Gas-fired    circulating     Electric
                 Year                   fired storage    duty gas-fired    tankless    water heaters    storage
                                        water heaters     storage water      water     and hot water     water
                                                             heaters        heaters    supply boilers   heaters
----------------------------------------------------------------------------------------------------------------
First-hour rating (gal)..............              283               134         268              664        165
Ratio to Commercial Gas-fired Storage             1.00              0.47      * 0.32             2.34       0.58
----------------------------------------------------------------------------------------------------------------
* The ratio of the number of installed commercial gas-fired storage water heaters to installed gas-fired
  tankless water heaters is not directly comparable using only first-hour ratings, here based on a 90 [deg]F
  temperature rise. The ratio shown reflects in-use delivery capability of the representative gas-fired tankless
  water heater model relative to the delivery capability of the representative commercial gas-fired storage
  water heater, and includes an estimated 3-to-1 delivery capability tradeoff for a tankless unit without
  storage compared to the representative gas storage water heater with the same first-hour rating.

    DOE reviewed the installed cost of commercial electric and gas-
fired storage water heaters, both at the no-new-standards-case 
efficiency level and with the standard level proposed herein for 
commercial gas-fired water heaters. The analysis uses costs for the 
year 2026 (in 2022$), the first year that an amended standard would be 
in effect. In new installations, the analysis assumes that the 
inflation-adjusted commercial electric storage water heater installed 
cost is $4,705 and the first year maintenance and repair cost is 
$54.\155\ In replacement installations, the analysis assumes that the 
inflation-adjusted commercial electric storage water heater installed 
cost is $4,419 and the first year maintenance and repair cost is $54. 
In further investigating the potential for fuel-switching, DOE first 
scaled the first costs and the maintenance and repair costs of the 
electric storage water in new and replacement installations linearly 
with first-hour rating assuming that the consumer needs to meet the 
first hour capacity of the representative commercial gas-fired storage 
water heater. To better compare the electric energy use in a fuel 
switching scenario, DOE examined the average burner operating hours for 
the commercial gas water heater to meet the hot water load, as detailed 
in appendix 7B of the final rule TSD. By multiplying the input rating 
of the gas storage water heater by the baseline thermal efficiency and 
the average 3.23 hours of operation to meet the water load including 
piping losses (and not included standby burner operation), the average 
daily hot water provided by the unit was estimated at 513,718 Btu/day. 
Assuming a 100 percent conversion efficiency for the electric energy to 
provide this load would be would 150.56 kWh/day or 54,955 kWh/yr with 
an energy cost of $5,785 in the first year. DOE notes that this value 
does not account for additional energy for electric water heater 
standby losses.
---------------------------------------------------------------------------

    \155\ Since the electric storage water heater was dropped from 
this final rule, for this analysis the MPC from the withdrawn 2016 
ECS NOPR standby loss level 0 was used to represent no-new-
standards-case electric storage water heaters.
---------------------------------------------------------------------------

    With the electric water heater costs thus scaled and corresponding 
energy cost calculated, within new construction installations the 
commercial gas-fired storage water heater was estimated to be more 
expensive to purchase and install than the electric storage unit in 
both the no-new-standards and standards cases, but significantly less 
costly to operate (see Table IV.31). In these cases, the up-front cost 
premium of the commercial gas-fired storage unit at the amended 
standard level (TSL 3) relative to the scaled electric storage unit 
costs, divided by the annual operating savings for choosing the gas 
water heater, yields a PBP of 0.33 years, compared to a PBP of 0.22 
years in the no-new-standards case. In replacement markets, the total 
installed cost of a commercial gas-fired storage unit was compared to 
the first-hour-rating scaled cost estimate for the commercial electric 
water heater as a replacement unit from the withdrawn May 2016 CWH ECS 
NOPR. The estimated total installed cost of the comparable electric 
storage unit exceeds the cost of the commercial gas-fired storage unit. 
As with new construction, the replacement electric storage unit is 
substantially more costly to operate.

  Table IV.31--Typical Unit Costs, Scaled for First-Hour Rating (Commercial Gas-fired Storage = 1.0)--Electric
                                   Storage Versus Commercial Gas-fired Storage
                                                     [2022$]
----------------------------------------------------------------------------------------------------------------
                                                    No-new-
                                                standards case      No-new-      Standards case   Standards case
          Equipment                  Cost             new        standards case        new        replacement *
                                                 construction    replacement *    construction
----------------------------------------------------------------------------------------------------------------
Electric Storage.............  Installed Cost.          $8,070           $7,580          $8,070           $7,580
                               Energy,                   5,878            5,878           5,955            5,955
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
Commercial Gas-fired Storage.  Installed Cost.           8,945            5,642           9,505            7,298
                               Energy,                   1,880            1,962           1,668            1,735
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    DOE further notes that, depending on the specifics of the 
commercial building, significant additional costs could be incurred in 
switching to electric storage water heaters if the existing building 
lacks the electrical wire capacity to where equivalent electrical water 
heater would be installed or related infrastructure (existing 
electrical panels, which may require the addition or upsizing of 
breakers, and electrical switchgear) to handle the input rating of a 
commercial electric storage water heater(s) that would meet the 
existing natural gas

[[Page 69773]]

water heater capacity/load. Thus, DOE concludes that the amended 
standard will not cause a noticeable increase in fuel switching from 
commercial gas-fired to electric storage water heaters.
    A similar analysis to that of the commercial gas-fired storage 
water heater and electric equivalent was repeated separately for 
residential-duty water heaters. The first costs and maintenance and 
repair costs were scaled by first hour rating to that equivalent to the 
representative residential-duty water heater. The hot water load for 
the electric equivalent unit was estimated based on the burner 
operating hours from appendix 7B of the TSD and the electric water 
heater energy costs were estimated assuming 100 percent conversion 
efficiency of the electric input to hot water load. For an electric 
water heater equivalent to a residential-duty gas water heater, the 
estimated energy consumption was 25,618 kWh/yr, equating to an energy 
cost of $2,853 in the first year. This value does not account for 
additional energy for electric water heater standby losses. The 
appropriately scaled first costs and operating cost estimates are shown 
in Table IV.32. In all but the no-new-standards replacement case, the 
residential-duty water heater is more expensive to install than the 
electric storage water heater; however, it was less costly to operate 
in all cases. For the cases in which the electric storage water heater 
was less expensive to install, the up-front cost premium of the gas-
fired residential-duty unit relative to the electric storage unit, 
divided by the annual operating savings from using the gas water 
heater, yields a PBP of 0.11 years in the no-new-standards new 
installation case, of 0.21 years at the amended standard level (TSL 3) 
replacement case, and of 0.59 years at the amended standard level new 
installation case. Based on the comparison of costs for equivalent 
electric water heating, DOE concludes that amended standards would not 
introduce additional economic incentives for fuel switching from 
residential-duty to electric storage water heaters.

 Table IV.32--Typical Unit Costs, Scaled for First-Hour Rating (Residential-Duty = 1.0)--Electric Storage Versus
                                                Residential-Duty
                                                     [2022$]
----------------------------------------------------------------------------------------------------------------
                                                    No-new-
                                                standards case      No-new-      Standards case   Standards case
          Equipment                  Cost             new        standards case        new        replacement *
                                                 construction    replacement *    construction
----------------------------------------------------------------------------------------------------------------
Electric Storage.............  Installed Cost.          $3,821           $3,589          $3,821           $3,589
                               Energy,                   2,896            2,897           2,876            2,876
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
Residential-duty Storage.....  Installed Cost.           4,014            2,247           4,922            3,979
                               Energy,                   1,180            1,179             997              997
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    In the May 2022 CWH ECS NOPR, DOE did not consider instantaneous 
gas-fired equipment and electric storage water heaters to be likely 
objects of gas-to-electric fuel switching, largely due to the disparity 
in hot water delivery capacity between the instantaneous gas-fired 
equipment and commercial electric storage equipment. In the May 2022 
CWH ECS NOPR, DOE requested comment on the availability of systems that 
can be built by plumbing multiple individual water heaters together to 
achieve the same level of hot water delivery capacity. In response, 
AHRI, Rheem, and A.O. Smith all noted that CWH manufacturers currently 
offer product solutions that utilize one or more individual water 
heaters plumbed or racked together for hot water delivery. (AHRI, No. 
31 at p. 4, Rheem, No. 24 at p. 6, A.O. Smith, No. 22 at p. 7) A.O. 
Smith described that many of these systems are highly customized; 
however, many manufacturers also offer systems that are preconfigured 
at the point of manufacture in ranges of total system capacity and are 
then sold as a single stock keeping unit (``SKU''). (A.O. Smith, No. 22 
at p. 7) Rheem also suggested that these scalable hot water solutions 
in which multiple gas-fired instantaneous water heaters are combined 
may use water heaters that are individually rated, and the rack systems 
are distributed on an engineered-to-order basis with the additional 
rack system components (such as controllers and shut-off valves) sold 
separately alongside the water heaters. (Rheem, No. 24 at p. 6) 
Additionally, CA IOUs noted research that suggested commercial hot 
water systems that include multiple water heaters are common practice. 
(CA IOUs, No. 33 at p. 2) WM Technologies and Patterson-Kelley stated 
their understanding that several products are available like rack-type 
hot water heaters. In addition, the commenters stated the situation is 
limited by the first cost of installation and occurs predominantly in 
smaller commercial installations which employ multiple residential 
products to meet the hot water demand. WM Technologies and Patterson-
Kelley stated these should be accounted for in the LCC model and that 
the deciding factor on use is cost with driving factors like venting, 
floor space, local code requirements, and possibly other causes. (WM 
Technologies, No. 25 at p. 8; Patterson-Kelley, No. 26 at p. 6) DOE 
appreciates the input from all commenters on the question about 
multiple individual water heaters being plumbed together. After 
reviewing the input from stakeholders on this issue, DOE believes that 
its analysis of gas-fired tankless water heating equipment, which 
already provides for multiple tankless water heaters to be used in a 
commercial building, sufficiently characterizes the LCC for this 
equipment and there is no need to consider these types of systems 
separately in the LCC analysis because operating costs and savings are 
similar, and additional costs associated with the racks and 
preconfiguration costs would likely be the same regardless of 
efficiency.
    In its analysis of fuel switching DOE included tankless units, and 
as noted above, DOE believes the rack systems would have similar 
economic eventualities in the analysis of fuel switching, scaled up or 
down representing their use of multiple tankless units. As discussed, 
this analysis is similar to that of the commercial and residential-duty 
gas storage water heaters for the instantaneous water heater equipment 
categories as compared to an electric equivalent.

[[Page 69774]]

    As with the commercial gas-fired and residential-duty storage water 
heaters, the first costs and maintenance and repair costs were scaled 
by first hour rating to the electric equivalent for the representative 
instantaneous tankless water heater. The hot water load for the 
electric equivalent unit was estimated based on the burner operating 
hours from appendix 7B of the TSD and the electric water heater energy 
costs were estimated assuming 100 percent conversion efficiency of the 
electric input to hot water load. For an electric water heater 
equivalent to an instantaneous tankless water heater, the estimated 
energy consumption was 15,338 kWh/yr, equating to an energy cost of 
$1,769 in the first year. This value does not account for additional 
energy for electric water heater standby losses. The appropriately 
scaled first costs and operating cost estimates are shown in Table 
IV.33. In all but the no-new-standards replacement case, the 
instantaneous water heater is more expensive to install than the 
electric storage water heater; however, it was less costly to operate 
in all cases. For the cases in which the electric storage water heater 
was less expensive to install, the up-front cost premium of the gas-
fired instantaneous tankless unit relative to the electric storage 
unit, divided by the annual operating savings from using the gas water 
heater, yields a PBP of 2.00 years in the no-new-standards new 
installation case, of 1.26 years at the amended standard level (TSL 3) 
replacement case, and of 1.05 years at the amended standard level new 
installation case. Based on the comparison of costs for equivalent 
electric water heating, DOE concludes that amended standards would not 
introduce additional economic incentives for fuel switching from 
instantaneous tankless to electric storage water heaters.

 Table IV.33--Typical Unit Costs, Scaled for First-Hour Rating (Instantaneous Tankless = 1.0)--Electric Storage
                                          versus Instantaneous Tankless
                                                     [2022$]
----------------------------------------------------------------------------------------------------------------
                                                    No-new-
                                                standards case      No-new-      Standards case   Standards case
          Equipment                  Cost             new        standards case        new        replacement *
                                                 construction    replacement *    construction
----------------------------------------------------------------------------------------------------------------
Electric Storage.............  Installed Cost.          $2,582           $2,426          $2,582           $2,426
                               Energy,                   1,799            1,799           1,798            1,798
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
Instantaneous Tankless.......  Installed Cost.           4,790            2,414           3,834            3,956
                               Energy,                     694              666             610              585
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    Similarly, the first costs and maintenance and repair costs were 
scaled by first hour rating to that equivalent to the representative 
circulating water heater and hot water supply boiler. The hot water 
load for the electric equivalent unit was estimated based on the burner 
operating hours from appendix 7B of the TSD, and the electric water 
heater energy costs were estimated to assume 100 percent conversion 
efficiency of the electric input to hot water load. For an electric 
water heater equivalent to a circulating water heater and hot water 
supply boiler, the estimated energy consumption was 119,041 kWh/yr, 
equating to an energy cost of $12,405 in the first year. This value 
does not account for additional energy for electric water heater 
standby losses. The appropriately scaled first costs and operating cost 
estimates are shown in Table IV.34. In all cases, the circulating water 
heater and hot water supply boiler is less expensive to install and 
less costly to operate than the electric storage water. Based on the 
comparison of costs for equivalent electric water heating, DOE 
concludes that amended standards would not introduce additional 
economic incentives for fuel switching from circulating water heaters 
and hot water supply boilers to electric storage water heaters.

  Table IV.34--Typical Unit Costs, Scaled for First-Hour Rating (Circulating Water Heater and Hot Water Supply
           Boiler = 1.0)--Electric Storage Versus Circulating Water Heater and Hot Water Supply Boiler
                                                     [2022$]
----------------------------------------------------------------------------------------------------------------
                                                    No-new-
                                                standards case      No-new-      Standards case   Standards case
          Equipment                  Cost             new        standards case        new        replacement *
                                                 construction    replacement *    construction
----------------------------------------------------------------------------------------------------------------
Electric Storage.............  Installed Cost.         $18,934          $17,785         $18,934          $17,785
                               Energy,                  12,623           12,623          13,084           13,084
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
Circulating Water Heater and   Installed Cost.          10,660            6,455          15,359           13,301
 Hot Water Supply Boiler.
                               Energy,                   4,206            4,377           3,735            3,861
                                Maintenance,
                                and Repair
                                Cost (First
                                Year).
----------------------------------------------------------------------------------------------------------------
* Installed costs for electric storage water heaters shown for the replacement case do not include cost of
  infrastructure alterations (e.g., upgraded wiring, removal or modification of gas infrastructure).

    DOE recognizes that commercial tankless gas-fired water heaters 
could in theory be replaced with one or more electric tankless units. 
DOE notes that without hot water storage in such a system the 
instantaneous electric heating load could disproportionally impact a 
commercial buildings electric demand in many applications relative to 
the equivalent electric storage water heater, requiring greater 
electrical infrastructure upgrades as well as

[[Page 69775]]

potentially higher and less predictable ongoing electric demand costs. 
DOE concludes that amended standards would not introduce additional 
economic incentives for fuel switching from gas-fired instantaneous 
tankless to electric storage or electric tankless water heaters. 
Similarly, replacement of gas fired circulating water heaters or 
boilers with an electric equivalent would be expected to require 
substantial electric capacity upgrades as well as much higher operating 
cost of the electric equipment. The representative 399 kBtu/h baseline 
gas-fired hot water boiler represents an approximately 94 kW electric 
instantaneous equivalent, anticipated to be a significant load increase 
to most commercial buildings that might otherwise use the gas-fired hot 
water boiler.
    In summary, based upon the reasoning above, DOE did not explicitly 
include fuel or technology switching in this final rule beyond the 
continuation of historical trends and electrification requirements 
discussed in section IV.G.4 of this document.
3. National Energy Savings
    The NES analysis involves a comparison of national energy 
consumption of the considered products between each potential standards 
case (``TSL'') and the case with no new or amended energy conservation 
standards. DOE calculated the national energy consumption by 
multiplying the number of units (stock) of each product (by vintage or 
age) by the unit energy consumption (also by vintage). DOE calculated 
annual NES based on the difference in national energy consumption for 
the no-new-standards case and for each higher efficiency standard case. 
DOE estimated energy consumption and savings based on site energy and 
converted the electricity consumption and savings to primary energy 
(i.e., the energy consumed by power plants to generate site 
electricity) using annual conversion factors derived from AEO2023. 
Cumulative energy savings are the sum of the NES for each year over the 
timeframe of the analysis.
    In 2011, in response to the recommendations of a committee on 
``Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy 
Efficiency Standards'' appointed by the National Academy of Sciences, 
DOE announced its intention to use FFC measures of energy use and 
greenhouse gas and other emissions in the national impact analyses and 
emissions analyses included in future energy conservation standards 
rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the 
approaches discussed in the August 18, 2011 notice, DOE published a 
statement of amended policy in which DOE explained its determination 
that EIA's NEMS is the most appropriate tool for its FFC analysis and 
its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 
2012). NEMS is a public domain, multi-sector, partial equilibrium model 
of the U.S. energy sector \156\ that EIA uses to prepare its AEO. The 
FFC factors incorporate losses in production and delivery in the case 
of natural gas (including fugitive emissions) and additional energy 
used to produce and deliver the various fuels used by power plants. The 
approach used for deriving FFC measures of energy use and emissions is 
described in appendix 10D of the final rule TSD.
---------------------------------------------------------------------------

    \156\ For more information on NEMS, refer to The National Energy 
Modeling System: An Overview 2018, April 2019. Available at 
www.eia.gov/forecasts/aeo/index.cfm (last accessed December 13, 
2022).
---------------------------------------------------------------------------

    DOE calculated the NES associated with the difference between the 
per-unit energy use under a standards-case scenario and the per-unit 
energy use in the no-new-standards case. The average energy per unit 
used by the CWH equipment stock gradually decreases in the standards 
case relative to the no-new-standards case as more-efficient CWH units 
gradually replaces less-efficient units.
    Unit energy consumption values for each equipment category are 
taken from the LCC spreadsheet for each efficiency level and weighted 
based on market efficiency distributions. To estimate the total energy 
savings for each efficiency level, DOE first calculated the per-unit 
energy reduction (i.e., the difference between the energy directly 
consumed by a unit of equipment in operation in the no-new-standards 
case and the standards case) for each category of CWH equipment for 
each year of the analysis period. The electricity and natural gas 
savings or increases (in the case of electricity used for condensing 
natural gas-fired water heaters) are accounted separately. Second, DOE 
determined the annual site energy savings by multiplying the stock of 
each equipment category by vintage (i.e., year of shipment) by the per-
unit energy reduction for each vintage (from step one). This second 
step adds to the electricity impacts an amount of energy savings/
increase to account for the losses and inefficiencies in the 
generation, transmission, and distribution systems. The result of the 
second step yields primary electricity impacts at the generation 
source. The second step applies only to electricity; there is no 
analogous adjustment made to natural gas savings. Third, DOE converted 
the annual site electricity savings into the annual amount of energy 
saved at the source of electricity generation (the source or primary 
energy), using a time-series of conversion factors derived from the 
latest version of EIA's NEMS. This third step accounts for the energy 
used to extract and transport fuel from mines or wells to the electric 
generation facilities, and accounts for the natural gas NES for 
drilling and pipeline energy usage. The third step yields the total FFC 
impacts. DOE accounts for the natural gas savings separately from the 
electricity impacts, so the factors used at each step are appropriate 
for the specific fuel. The coefficients developed for the analysis are 
mutually exclusive, so there should be no double-counting of impacts. 
Finally, DOE summed the annual primary energy savings for the lifetime 
of units shipped over a 30-year period to calculate the total NES. DOE 
performed these calculations for each efficiency level considered for 
CWH equipment in this rulemaking. DOE notes that for the LCC and PBP 
analyses, only site energy impacts are used. The only steps in the 
analysis wherein FFC savings are used are the calculation of NES. DOE 
notes that the development of data for site-to-source and other factors 
is accomplished by running the EIA's model used to generate the AEO. 
DOE has included with this final rule TSD the previously mentioned 
chapter 10 and appendix 10D, which reference the development of the FFC 
factors and provide some of the underlying data.
    Regarding the fossil fuel site-to-source values used in the final 
rule analysis, DOE used the AEO2023 Reference case, which reflects the 
most up-to-date information on resource and fuel costs, but excludes 
Clean Power Plan (``CPP'') \157\ impacts. Use of the AEO2023 also 
incorporates all Federal legislation and regulations in place when EIA 
prepared the analyses. The growing penetration of renewable electricity 
generation would have little effect on the trend in site-to-source 
energy factors because EIA uses an average fossil fuel heat to 
characterize the primary energy associated with renewable generation. 
At this time, DOE is continuing to use the ``fossil fuel equivalency'' 
accounting convention used by EIA. DOE notes the AEO projections stop 
in 2050. Because the trends were relatively flat, DOE

[[Page 69776]]

maintained the 2050 value for the remainder of the forecast period. 
When DOE develops the site-to-source and FFC-factors, it models 
resource mixes representative of the load profile of the equipment 
covered in the rulemaking that vary by end-use. For this final rule, 
DOE has used an average of resources compatible with the general load 
profile of CWH equipment, and the data used are the most current 
available.
---------------------------------------------------------------------------

    \157\ The CPP was repealed in June 2019 as part of EPA's final 
Affordable Clean Energy (``ACE'') Rule, but the ACE Rule was vacated 
in January 2021 by the United States Court of Appeals for the 
District of Columbia Circuit, who also remanded EPA to consider a 
new regulatory framework to replace the ACE Rule.
---------------------------------------------------------------------------

    DOE also considered whether a rebound effect is applicable in its 
NES analysis for CWH equipment. A rebound effect occurs when an 
increase in equipment efficiency leads to increased demand for its 
service. For example, when a consumer realizes that a more-efficient 
water heating device will lower the energy bill, that person may opt to 
increase his or her amenity level by taking longer showers and thereby 
consuming more hot water. In this way, the consumer gives up a portion 
of the energy cost savings in favor of the increased amenity. For the 
CWH equipment market, there are two ways that a rebound effect could 
occur: (1) increased use of hot water within the buildings in which 
such units are installed and (2) additional hot water outlets that were 
not previously installed. Because the CWH equipment addressed in this 
final rule is commercial equipment, the person owning the equipment 
(i.e., the apartment or commercial building owner) is usually not the 
person operating the equipment (e.g., the apartment renter, or the 
restaurant employee using hot water to wash dishes). Because the 
operator usually does not own the equipment, that person will not have 
the operating cost information necessary to influence his or her 
operation of the equipment. Therefore, the first type of rebound is 
unlikely to occur at levels that could be considered significant. 
Similarly, the second type of rebound is unlikely because a small 
change in efficiency is insignificant among the factors that determine 
whether a company will invest the money required to pipe hot water to 
additional outlets. In response to the May 2022 CWH ECS NOPR, Atmos 
Energy stated that DOE should reconsider its conclusion that the 
proposed rule is unlikely to result in rebound effects on water usage 
and noted that some parts of the country are experiencing drought 
conditions. (Atmos Energy, No. 36 at p. 5) DOE recognizes that drought 
conditions may impact water usage within regions; however, the CWH 
equipment that is the subject of this rulemaking addresses only the 
heating of the water, and not the water usage itself, as water usage is 
based on demand and not the efficiency of the water heater. DOE had 
previously sought comments and data on any rebound effect that may be 
associated with more efficient commercial water heaters in the October 
2014 RFI. 79 FR 62908 (Oct. 21, 2014) DOE received two comments. Both 
A.O. Smith and Joint Advocates did not believe a rebound effect would 
be significant. A.O. Smith commented that water usage is based on 
demand and more efficient water heaters would not change the demand. 
(DOE Docket EERE-2014-BT-STD-0042, A.O. Smith, No. 2 at p. 4) Joint 
Advocates commented that with the marginal change in energy bill for 
small business owners, they would expect little increased hot water 
usage, and that for tenant-occupied buildings, it would be ``difficult 
to infer that more tenants will wash their hands longer because the hot 
water costs the building owner less.'' Thus, Joint Advocates thought 
the likelihood of a strong rebound effect is very low. (DOE Docket 
EERE-2014-BT-STD-0042, Joint Advocates, No. 7 at p. 5) DOE has 
therefore retained its position that a rebound effect is unlikely to 
occur for the CWH that are the subject of this final rule.
    PHCC commented that the Department advanced this rule based on the 
significant energy savings of 0.7 quads. (PHCC, No. 28 at pp. 1) PHCC 
noted that totaling the energy use columns on the base case (no-new-
standards) section of the NIA model spreadsheet for new units and 
replacement and switch units shows an approximate 6.5 quads, but if the 
total stock of units is extended, using even just the replacement 
energy yields 8.2 quads. PHCC stated it is important to make 
transparent comparisons; for example, using one way the 0.7 quads is an 
approximate 10 percent savings, and using the other is closer to 8.5 
percent. (PHCC, No. 28 at pp. 1-2) PHCC further noted that commercial 
gas-fired storage water heaters and instantaneous circulating water 
heaters and hot water supply boilers are the major contributors and 
that the residential-duty gas-fired water heaters and instantaneous 
tankless water heaters are substantially less significant, and if 
evaluated individually, the significant energy savings argument would 
be even harder to make. (PHCC, No. 28 at p. 2)
    As stated in section III.E.2, the significance of energy savings 
offered by an amended energy conservation standard cannot be determined 
without knowledge of the specific circumstances surrounding a given 
rulemaking. 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. 
Accordingly, taking these factors, among others into account, DOE has 
determined the energy savings for the TSL proposed in this rulemaking 
are ``significant'' within the meaning of EPCA.\158\
---------------------------------------------------------------------------

    \158\ To the extent PHCC's comments refer to a numeric savings 
threshold previously used to determine significance of energy 
savings, DOE notes that the numeric threshold for determining the 
significance of energy savings established in a final rule, Energy 
Conservation Program for Appliance Standards: Procedures for Use in 
New or Revised Energy Conservation Standards and Test Procedures for 
Consumer Products and Commercial/Industrial Equipment, published on 
February 14, 2020 (85 FR 8626, 8670), was subsequently eliminated in 
a final rule, Energy Conservation Program for Appliance Standards: 
Procedures, Interpretations, and Policies for Consideration in New 
or Revised Energy Conservation Standards and Test Procedures for 
Consumer Products and Commercial/Industrial Equipment, published on 
December 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------

    PHCC additionally questioned the NES calculations, noting that the 
energy savings appear to be based on the savings of equipment sold 
across the 30-year life cycle in the rule, but that it was not apparent 
what the total energy of the installed equipment or CWH equipment 
installed and currently in use might be. (PHCC, No. 28 at pp. 1) PHCC 
further stated that using the Department's spreadsheets, it appears 
that the total energy used is for the newly installed equipment. (PHCC, 
No. 28 at pp. 1) PHCC stated that it is unclear how the 0.7 quads 
savings was derived. PHCC calculated a separate estimate of savings at 
0.37 quads out of total energy consumed to be 8.2 quads. PHCC also 
noted that it has additional issues with assumptions made by the 
Department that would further erode the potential savings, but are 
difficult to quantify. (PHCC, No. 28 at p. 2) PHCC stated that based on 
its own review and understanding, PHCC questions the energy use and 
savings calculation that form the basis of the significant energy 
savings assertion. (PHCC, No. 28 at p. 6) PHCC also sought 
clarification as to the low energy use (site) in the early years of the 
Department's analysis and noted that it appeared that there is no 
consideration of the energy usage of all existing covered products. 
(PHCC, No. 28 at p. 6)
    In response, DOE would clarify that for its analysis, DOE considers 
only the impact of the proposed standard levels on equipment shipments 
that occur within the 2026 through 2055 analysis period. As a result, 
the estimated energy

[[Page 69777]]

use in the early years of the analysis includes only equipment shipped 
for new and replacement applications beginning in 2026, and does not 
include the energy use of the existing equipment installed prior to 
2026, the year in which the standard would go into effect. However, the 
NES does include the stream of energy savings that occurs over the life 
of the equipment installed during the analysis period, meaning that 
energy savings for a commercial gas-fired storage water heater 
installed in 2055 would be accrued throughout its life, beyond 2055 
(see section IV.F.6 for a discussion of equipment lifetimes).
    DOE further appreciates the effort that PHCC undertook to develop 
their calculations of energy use and energy savings, and notes that the 
PHCC calculations are similar to the DOE calculations within the NIA 
model. However, the DOE NIA model incorporates some additional 
calculations and factors to capture the energy accounting more fully. 
For each year beginning with 2026 (the first year that the standard 
would go into effect), energy use for both the no-new-standards case 
(labeled base case within the NIA spreadsheet's product tabs) and the 
selected efficiency level (labeled standards case) are calculated by 
multiplying the estimated number of installed units still surviving 
(which is equal to the installed units multiplied by a survival 
function) by the estimated unit energy use for the year in which they 
were installed. This calculation accounts for changes to the weighted 
average efficiencies installed in a given year, as the no-new-standards 
case has an increasing efficiency trend built into it. The NES is then 
calculated as the sum of the differences between the energy use 
calculated in the no-new-standards case and the energy use calculated 
in the standards case.
    DOE observed that the screen captures of the PHCC calculations 
(PHCC, No. 28 at pp. 4-5) appear to contain only numbers for the 
commercial sector and do not seem to account for additional energy use 
and savings calculations for the residential sector (which can be 
viewed by selecting ``Residential'' in any of the application sector 
drop-down menus located throughout the model, as described in appendix 
10A of the final rule TSD). Additionally, the PHCC calculations did not 
appear to account for the energy savings that accrue after 2055 from 
equipment installed through 2055 that had not yet reached their end of 
life. By summing the calculated site energy savings in the May 2022 CWH 
ECS NOPR NIA model (column CN within each of the product tabs of the 
NOPR NIA model), DOE calculated commercial site natural gas savings of 
0.35 quads for the years 2026-2055, an additional 0.13 quads of 
commercial site natural gas savings beyond 2055 that accrue to 
equipment installed during the analysis period, and an additional 0.17 
quads of residential sector site natural gas savings, yielding a total 
of 0.65 quads of site natural gas NES. DOE notes that the NES for the 
selected subset of years and commercial sector (0.35 quads) were 
similar to what PHCC calculated (0.37 quads). DOE also clarifies that 
the 0.70 quads referenced by PHCC are FFC NES, which explains the 
remaining difference between the site natural gas savings and the FFC 
savings; PHCC did not include the impact of changes in electricity due 
to proposed standards, which DOE also excluded here so as to produce a 
comparable set of numbers. With regard to PHCC's additional unnamed 
issues with assumptions made by DOE, DOE notes that the underlying 
assumptions are made based on best available data and are meant to be 
representative of the equipment category while also allowing for a 
feasible analysis.
4. Net Present Value Analysis
    The inputs for determining the NPV of the total costs and benefits 
experienced by consumers are (1) total annual installed cost, (2) total 
annual operating costs (energy costs and repair and maintenance costs), 
and (3) a discount factor to calculate the present value of costs and 
savings. DOE calculates net savings each year as the difference between 
the no-new-standards case and each standards case in terms of total 
savings in operating costs versus total increases in installed costs. 
DOE calculates operating cost savings over the lifetime of each product 
shipped during the projection period. DOE determined the difference 
between the equipment costs under the standard case and the no-new-
standards case in order to obtain the net equipment cost increase 
resulting from the higher standard level. As noted in section IV.F.1 of 
this document, DOE used a constant real price assumption as the default 
price projection; the cost to manufacture a given unit of higher 
efficiency neither increases nor decreases over time. The analysis of 
the price trends is described in chapter 10 of the final rule TSD.
    The energy cost savings are calculated using the estimated energy 
savings in each year and the projected price of the appropriate form of 
energy. To estimate energy prices in future years, DOE multiplied the 
average regional energy prices by the projection of annual national-
average commercial energy price changes in the Reference case from 
AEO2023, which has an end year of 2050. To estimate price trends after 
2050, the 2040-2050 average was used for all years. As part of the NIA, 
DOE also analyzed scenarios that used inputs from variants of the 
AEO2023 Reference case that have lower and higher economic growth. 
Those cases have lower and higher energy price trends compared to the 
Reference case. NIA results based on these cases are presented in 
appendix 10B of the final rule TSD.
    DOE then determined the difference between the net operating cost 
savings and the net equipment cost increase in order to obtain the net 
savings (or expense) for each year. DOE then discounted the annual net 
savings (or expenses) to 2023 for CWH equipment bought on or after 2026 
and summed the discounted values to provide the NPV for an efficiency 
level.
    In calculating the NPV, DOE multiplies the net savings in future 
years by a discount factor to determine their present value. For this 
final rule, DOE estimated the NPV of consumer benefits using both a 3-
percent and a 7-percent real discount rate. DOE uses these discount 
rates in accordance with guidance provided by the OMB to Federal 
agencies on the development of regulatory analysis.\159\ The discount 
rates for the determination of NPV are in contrast to the discount 
rates used in the LCC analysis, which are designed to reflect a 
consumer's perspective. The 7-percent real value is an estimate of the 
average before-tax rate of return to private capital in the U.S. 
economy. The 3-percent real value represents the ``social rate of time 
preference,'' which is the rate at which society discounts future 
consumption flows to their present value.
---------------------------------------------------------------------------

    \159\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Section E. Available at 
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last 
accessed December 13, 2022).
---------------------------------------------------------------------------

    DOE considered the possibility that consumers make purchase 
decisions based on first cost instead of LCC. DOE projects that new 
installations meeting a potential standard would not cause the 
commercial gas-fired storage water heaters to be significantly more 
expensive than electric storage water heaters of comparable first-hour 
capacity, as detailed in section IV.H.2 of this document. DOE further 
notes that only the relative costs of purchasing, installing, and 
operating equipment were considered in its analysis, and did not 
consider unrelated issues such as additional electrification of 
customer

[[Page 69778]]

loads beyond those that have been adopted, as DOE cannot speculate 
about consumer electrification or other policies or issues (see 
sections IV.G and section IV.H.2 of this document).
    DOE notes that governmental and corporate purchasing policies are 
increasingly resulting in purchases of more-efficient equipment. 
However, DOE does not infer anything with respect to the remaining 
market for efficient water heaters simply because of a purchase by one 
consumer or even by one segment of the consumer base, such as purchases 
by government consumers. In other words, if all Federal government 
agencies purchase ENERGY STAR-compliant water heaters, that tells us 
nothing about the installation costs experienced by any other 
consumers. DOE assumes the purchases reveal more about the underlying 
consumer discount rate premiums than about a distribution of 
installation costs. It is possible that corporate commitment to green 
purchasing policies might result in situations where, in their rational 
decision-making process, the consumer gives green purchase alternatives 
an explicit advantage. As an example, a purchasing policy may specify 
that that a ``non-green'' alternative must have a PBP of 3 years or 
less while a ``green'' alternative can have a PBP up to 5 years. This 
type of corporate decision making would have the outward appearance of 
providing an apparent discount rate advantage to the ``green'' 
alternative, or perhaps, an appearance of assessing a lower discount 
rate premium on the ``green'' alternative than is assessed on all other 
alternatives. Thus, while significant numbers of purchases are taking 
place in the market, DOE contends that such purchases reveal an 
underlying distribution of discount rate premiums rather than an 
underlying distribution of installation costs. Green policies and 
programs such as FEMP-designated equipment and ENERGY STAR will 
continue to effectively reduce even more consumers' discount rate 
premiums, leading to more green purchases. This assumption underlies 
DOE's decision to take the efficiency trends data provided by 
manufacturers and extend the trends into the future rather than holding 
efficiency constant at current rates.

I. Consumer Subgroup Analysis

    In analyzing the potential impact of new or amended standards on 
consumers, DOE evaluates the impact on identifiable subgroups of 
consumers that may be disproportionately affected by a new or revised 
national energy conservation standard level. The purpose of a subgroup 
analysis is to determine the extent of any such disproportionate 
impacts. DOE evaluates impacts on particular subgroups of consumers by 
analyzing the LCC impacts and PBP for those particular consumers from 
alternative standard levels. For this final rule, DOE identified 
consumers at the lowest income bracket in the residential sector and 
only included them for a residential sector subgroup analysis. The 
following provides further detail regarding DOE's consumer subgroup 
analysis. Chapter 11 in the final rule TSD describes the consumer 
subgroup analysis.
1. Residential Sector Subgroup Analysis
    The RECS database divides the residential samples into 16 income 
bins. The income bins represent total gross annual household income. As 
far as discount rates are concerned, the survey of consumer finances 
divides the residential population into six different income bins: 
income bin 1 (0-20 percent income percentile), income bin 2 (20-40 
percent income percentile), income bin 3 (40-60 percent income 
percentile), income bin 4 (60-80 percent income percentile), income bin 
5 (80-90 percent income percentile), and income bin 6 (90-100 percent 
income percentile). In general, consumers in the lower income groups 
tend to discount future streams of benefits at a higher rate when 
compared to consumers in the higher income groups.
    Hence, to analyze the influence of a national standard on the low-
income group population, DOE conducted a (residential) subgroup 
analysis where only the 0-20 percent income percentile samples were 
included for the entire simulation run. Subsequently, the results of 
the subgroup analysis are compared to the results from all consumers.
    The results of DOE's LCC subgroup analysis are summarized in 
section V.B.1.b of this final rule and described in detail in chapter 
11 of the final rule TSD.

J. Manufacturer Impact Analysis

1. Overview
    DOE performed an MIA to estimate the financial impacts of amended 
energy conservation standards on manufacturers of CWH equipment and to 
estimate the potential impacts of such standards on employment and 
manufacturing capacity. The MIA has both quantitative and qualitative 
aspects and includes analyses of projected industry cash flows, the 
INPV, investments in research and development (``R&D'') and 
manufacturing capital, and domestic manufacturing employment. 
Additionally, the MIA seeks to determine how amended energy 
conservation standards might affect manufacturing employment, capacity, 
and competition, as well as how standards contribute to overall 
regulatory burden. Finally, the MIA serves to identify any 
disproportionate impacts on manufacturer subgroups, including small 
business manufacturers.
    The quantitative part of the MIA primarily relies on GRIM, an 
industry cash flow model with inputs specific to this rulemaking. The 
key GRIM inputs include data on the industry cost structure, unit 
production costs, equipment shipments, manufacturer markups, and 
investments in R&D and manufacturing capital required to produce 
compliant equipment. The key GRIM outputs are the INPV, which is the 
sum of industry annual cash flows over the analysis period, discounted 
using the industry-weighted average cost of capital, and the impact to 
domestic manufacturing employment. The model uses standard accounting 
principles to estimate the impacts of more-stringent energy 
conservation standards on a given industry by comparing changes in INPV 
and domestic manufacturing employment between a no-new-standards case 
and the various standards cases (``TSLs''). To capture the uncertainty 
relating to manufacturer pricing strategies following amended 
standards, the GRIM estimates a range of possible impacts under 
different markup scenarios.
    The qualitative part of the MIA addresses manufacturer 
characteristics and market trends. Specifically, the MIA considers such 
factors as a potential standard's impact on manufacturing capacity, 
competition within the industry, the cumulative impact of other DOE and 
non-DOE regulations, and impacts on manufacturer subgroups. The 
complete MIA is outlined in chapter 12 of the final rule TSD.
    DOE conducted the MIA for this rulemaking in three phases. In Phase 
1 of the MIA, DOE prepared a profile of the CWH equipment manufacturing 
industry based on the market and technology assessment, preliminary 
manufacturer interviews, and publicly-available information. This 
included a top-down analysis of CWH equipment manufacturers that DOE 
used to derive preliminary financial inputs for the GRIM (e.g., 
revenues; materials, labor, overhead, and depreciation expenses; 
selling, general, and administrative expenses (``SG&A''); and R&D 
expenses). DOE also used public sources of information to further 
calibrate its initial characterization of the CWH

[[Page 69779]]

equipment manufacturing industry, including company filings of form 10-
K from the SEC,\160\ corporate annual reports, the U.S. Census Bureau's 
Economic Census,\161\ and reports from Dunn & Bradstreet.\162\
---------------------------------------------------------------------------

    \160\ U.S. Securities and Exchange Commission, Annual 10-K 
Reports (Various Years) (Available at www.sec.gov/edgar/searchedgar/companysearch.html).
    \161\ U.S. Census Bureau, Annual Survey of Manufacturers: 
General Statistics: Statistics for Industry Groups and Industries 
(2021). Available at www.census.gov/data/tables/time-series/econ/asm/2018-2021-asm.html.
    \162\ Dunn & Bradstreet Company Profiles, Various Companies. 
Available at app.dnbhoovers.com.
---------------------------------------------------------------------------

    In Phase 2 of the MIA, DOE prepared a framework industry cash-flow 
analysis to quantify the potential impacts of amended energy 
conservation standards. The GRIM uses several factors to determine a 
series of annual cash flows starting with the announcement of the 
standard and extending over a 30-year period following the compliance 
date of the standard. These factors include annual expected revenues, 
costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. 
In general, energy conservation standards can affect manufacturer cash 
flow in three distinct ways: (1) creating a need for increased 
investment, (2) raising production costs per unit, and (3) altering 
revenue due to higher per-unit prices and changes in sales volumes.
    In addition, during Phase 2, DOE developed interview guides to 
distribute to manufacturers of CWH equipment in order to develop other 
key GRIM inputs, including product and capital conversion costs, and to 
gather additional information on the anticipated effects of energy 
conservation standards on revenues, direct employment, capital assets, 
industry competitiveness, and subgroup impacts.
    In Phase 3 of the MIA, DOE conducted structured, detailed 
interviews with representative manufacturers. During these interviews, 
DOE discussed engineering, manufacturing, procurement, and financial 
topics to validate assumptions used in the GRIM and to identify key 
issues or concerns. As part of Phase 3, DOE also evaluated subgroups of 
manufacturers that may be disproportionately impacted by amended 
standards or that may not be accurately represented by the average cost 
assumptions used to develop the industry cash flow analysis. Such 
manufacturer subgroups may include small business manufacturers, low-
volume manufacturers (``LVMs''), niche players, and/or manufacturers 
exhibiting a cost structure that largely differs from the industry 
average. DOE identified one subgroup for a separate impact analysis: 
small business manufacturers. The small business subgroup is discussed 
in section VI.B, ``Review under the Regulatory Flexibility Act'' and in 
chapter 12 of the final rule TSD.
2. Government Regulatory Impact Model and Key Inputs
    DOE uses the GRIM to quantify the changes in cash flow due to 
amended standards that result in a higher or lower industry value. The 
GRIM uses a standard, annual discounted cash-flow analysis that 
incorporates manufacturer costs, markups, shipments, and industry 
financial information as inputs. The GRIM models changes in costs, 
distribution of shipments, investments, and manufacturer margins that 
could result from an amended energy conservation standard. The GRIM 
spreadsheet uses the inputs to arrive at a series of annual cash flows, 
beginning in 2023 (the base year of the analysis) and continuing to 
2055. DOE calculated INPVs by summing the stream of annual discounted 
cash flows during this period. For manufacturers of residential central 
air conditioners and heat pumps, DOE used a real discount rate of 9.1 
percent, which was derived from industry financials and then modified 
according to feedback received during manufacturer interviews.
    The GRIM calculates cash flows using standard accounting principles 
and compares changes in INPV between the no-new-standards case and each 
standards case. The difference in INPV between the no-new-standards 
case and a standards case represents the financial impact of the 
amended energy conservation standard on manufacturers. As discussed 
previously, DOE developed critical GRIM inputs using a number of 
sources, including publicly available data, results of the engineering 
analysis, and information gathered from industry stakeholders during 
the course of manufacturer interviews and through written comments. The 
GRIM results are presented in section V.B.2. Additional details about 
the GRIM, the discount rate, and other financial parameters can be 
found in chapter 12 of the final rule TSD.
a. Manufacturer Production Costs
    Manufacturing more efficient equipment is typically more expensive 
than manufacturing baseline equipment due to the use of more complex 
components, which are typically more costly than baseline components. 
The changes in the MPCs of covered equipment can affect the revenues, 
gross margins, and cash flow of the industry. MPCs were derived in the 
engineering analysis, using methods discussed in section IV.C. For a 
complete description of the MPCs, see chapter 5 of the final rule TSD.
b. Shipments Projections
    The GRIM estimates manufacturer revenues based on total unit 
shipment projections and the distribution of those shipments by 
efficiency level. Changes in sales volumes and efficiency mix over time 
can significantly affect manufacturer finances. For this analysis, the 
GRIM uses the NIA's annual shipment projections derived from the 
shipments analysis from 2023 (the base year) to 2055 (the end year of 
the analysis period). See chapter 9 of the final rule TSD for 
additional details.
c. Conversion Costs and Stranded Assets
    Amended energy conservation standards could cause manufacturers to 
incur conversion costs to bring their production facilities and 
equipment designs into compliance. DOE evaluated the level of 
conversion-related expenditures that would be needed to comply with 
each considered efficiency level in each product class. For the MIA, 
DOE classified these conversion costs into two major groups: (1) 
product conversion costs; and (2) capital conversion costs.
    Product conversion costs are investments in research, development, 
testing, marketing, and other non-capitalized costs necessary to make 
product designs comply with amended energy conservation standards. 
Capital conversion costs are investments in property, plant, and 
equipment necessary to adapt or change existing production facilities 
such that new compliant product designs can be fabricated and 
assembled.
    To evaluate potential product conversion costs, DOE estimated the 
number of platforms manufacturers would have to modify to move their 
equipment lines to each incremental efficiency level. DOE developed the 
product conversion costs by estimating the amount of labor per platform 
manufacturers would need for research and development to raise the 
efficiency of models to each incremental efficiency level. DOE also 
assumed manufacturers would incur safety certification costs (including 
costs for updating safety certification records and for safety testing) 
associated with modifying their current product offerings to comply 
with amended standards.

[[Page 69780]]

    To evaluate the level of capital conversion expenditures 
manufacturers would likely incur to comply with amended standards, DOE 
used information derived from the engineering analysis, equipment 
teardowns, and manufacturer interviews. DOE used the information to 
estimate the additional investments in property, plant, and equipment 
that are necessary to meet amended energy conservation standards. In 
the engineering analysis evaluation of higher efficiency equipment from 
leading manufacturers of commercial water heaters (both commercial duty 
and residential duty), DOE found a range of designs and manufacturing 
approaches. DOE attempted to account for both the range of 
manufacturing pathways and the current efficiency distribution of 
shipments in the modeling of industry capital conversion costs.
    The capital conversion cost estimates for gas-fired storage water 
heaters are driven by the cost for industry to double production 
capacity at condensing efficiency levels. Those costs included, but 
were not limited to, capital investments in tube bending, press dies, 
machining, enameling, metal inert gas (``MIG'') welding, leak testing, 
quality assurance stations, conveyer, and additional space 
requirements.
    For gas-fired instantaneous water heaters capital conversion costs, 
DOE understands that manufacturers produce commercial models on the 
same production lines as residential models, which have much higher 
shipment volumes. As such, DOE modeled the scenario in which gas-fired 
instantaneous water heater manufacturers make incremental investments 
to increase production capacity, but do not need to setup entirely new 
production lines or new facilities to accommodate an amended standard 
requiring condensing technology for gas-fired instantaneous water 
heaters.
    For gas-fired instantaneous circulating water heaters and hot water 
supply boilers, the design changes to reach condensing efficiency 
levels were driven by purchased parts (i.e., condensing heat exchanger, 
burner tube, blower, gas valve). The capital conversion costs for this 
equipment class are based on incremental warehouse space needed to 
house additional purchased parts.
    Rheem commented the conversion costs should reflect larger 
manufacturing space and more manufacturing time to produce a condensing 
unit, and the costs should reflect the expansion of existing 
facilities, expansion of assembly lines, and added shifts. (Rheem, No. 
24 at p. 7) After the 2022 CWH ECS NOPR publication, DOE conducted 
additional manufacturer interviews at the request of industry. (AHRI, 
No. 31 at p. 5; Rheem, No. 24 at p.1; Bock, No. 20 at p. 2) Where 
manufacturers provided estimates and analysis supporting updates to 
conversion costs, DOE incorporated the interview feedback into its 
estimation of investment levels. The interview feedback that DOE 
received was primarily focused on the gas-fired storage water heaters 
product class.
    Bradford White commented that volume water heaters are not produced 
on the same production lines as residential products, and that volume 
water heaters are built in lower volumes and have different 
installation configurations than consumer water heaters. (Bradford 
White, No. 23 at p. 9) DOE's conversion costs reflect Bradford White's 
statements. DOE understands that volume water heaters are produced on 
lines dedicated to low-volume, commercial equipment.
    In addition to capital and product conversion costs, amended energy 
conservation standards could create stranded assets, i.e., tooling and 
equipment that were not yet fully depreciated and could have been used 
longer if energy conservation standards had not made them obsolete. In 
the compliance year, manufacturers write down the remaining 
undepreciated book value of existing tooling and equipment rendered 
obsolete by amended energy conservation standards.
    To evaluate conversion costs manufacturers would likely incur to 
comply with amended standards, DOE used information derived from the 
engineering analysis, equipment teardowns, and manufacturer interviews. 
In conjunction with the evaluation of capital conversion costs, DOE 
estimated the portion of existing equipment, tooling, and conveyor that 
would be retired.
    In general, DOE assumes all conversion-related investments occur 
between the year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion cost 
figures used in the GRIM can be found in section V.B.2 of this 
document. For additional information on the estimated capital 
conversion costs, product conversion costs, and stranded assets, see 
chapter 12 of the final rule TSD.
d. Manufacturer Markup Scenarios
    MSPs include manufacturing production costs (i.e., labor, 
materials, and overhead estimated in DOE's MPCs) and all non-production 
costs (i.e., SG&A, R&D, and interest), along with profit. To calculate 
the MSPs in the GRIM, DOE applied non-production cost markups to the 
MPCs estimated in the engineering analysis for each product class and 
efficiency level. Modifying these manufacturer markups in the standards 
case yields different sets of impacts on manufacturers. For the MIA, 
DOE modeled two standards-case markup scenarios to represent 
uncertainty regarding the potential impacts on prices and profitability 
for manufacturers following the implementation of amended energy 
conservation standards: (1) a preservation of gross margin percentage 
markup scenario; and (2) a preservation of per-unit operating profit 
markup scenario. These scenarios lead to different markup values that, 
when applied to the MPCs, result in varying revenue and cash flow 
impacts.
    Under the preservation of gross margin percentage scenario, DOE 
applied a single uniform ``gross margin percentage'' markup across all 
efficiency levels, which assumes that manufacturers would be able to 
maintain the same amount of profit as a percentage of revenues at all 
efficiency levels within an equipment category. As manufacturer 
production costs increase with efficiency, this scenario implies that 
the absolute dollar markup will increase.
    To estimate the average manufacturer markup used in the 
preservation of gross margin percentage markup scenario, DOE analyzed 
publicly-available financial information for manufacturers of CWH 
equipment. DOE then requested feedback on its initial markup estimates 
during manufacturer interviews. The revised markups, which are used in 
DOE's quantitative analysis of industry financial impacts, are 
presented in Table IV.35 of this final rule. These markups capture all 
non-production costs, including SG&A expenses, R&D expenses, interest 
expenses, and profit.

[[Page 69781]]



   Table IV.35--Manufacturer Markups for Preservation of Gross Margin
                       Percentage Markup Scenario
------------------------------------------------------------------------
                        Equipment                             Markup
------------------------------------------------------------------------
Commercial gas-fired storage and gas-fired storage-type             1.45
 instantaneous water heaters............................
Residential-duty gas-fired storage water heaters........            1.45
Gas-fired instantaneous water heaters and hot water
 supply boilers:
    Tankless water heaters..............................            1.43
    Circulating water heaters and hot water supply                  1.43
     boilers............................................
------------------------------------------------------------------------

    DOE also models the preservation of per-unit operating profit 
scenario because manufacturers stated that they do not expect to be 
able to mark up the full cost of production in the standards case, 
given the highly competitive nature of the CWH market. In this 
scenario, manufacturer markups are set so that operating profit 1 year 
after the compliance date of amended energy conservation standards is 
the same as in the no-new-standards case on a per-unit basis. In other 
words, manufacturers are not able to garner additional operating profit 
from the higher production costs and the investments that are required 
to comply with the amended standards; however, they are able to 
maintain the same per-unit operating profit in the standards case that 
was earned in the no-new-standards case. Therefore, operating margin in 
percentage terms is reduced between the no-new-standards case and 
standards case.
    DOE adjusted the manufacturer markups in the GRIM at each TSL to 
yield approximately the same per-unit earnings before interest and 
taxes in the standards case as in the no-new-standards case. The 
preservation of per-unit operating profit markup scenario represents 
the lower bound of industry profitability in the standards case. This 
is because manufacturers are not able to fully pass through to 
commercial consumers the additional costs necessitated by amended 
standards for CWH equipment.
    A comparison of industry financial impacts under the two markup 
scenarios is presented in section V.B.1.b of this document.

K. Emissions Analysis

    The emissions analysis consists of two components. The first 
component estimates the effect of potential energy conservation 
standards on power sector and site combustion emissions of 
CO2, NOX, SO2, and Hg. The second 
component estimates the impacts of potential standards on emissions of 
two additional greenhouse gases, CH4 and N2O, as 
well as the reductions in emissions of other gases due to ``upstream'' 
activities in the fuel production chain. These upstream activities 
comprise extraction, processing, and transporting fuels to the site of 
combustion.
    The analysis of electric power sector emissions of CO2, 
NOX, SO2, and Hg uses emissions factors intended 
to represent the marginal impacts of the change in electricity 
consumption associated with amended or new standards. The methodology 
is based on results published for the AEO, including a set of side 
cases that implement a variety of efficiency-related policies. The 
methodology is described in appendix 13A in the final rule TSD. The 
analysis presented in this notice uses projections from AEO2023. Power 
sector emissions of CH4 and N2O from fuel 
combustion are estimated using ``Emission Factors for Greenhouse Gas 
Inventories'' published by the Environmental Protection Agency 
(``EPA'').\163\
---------------------------------------------------------------------------

    \163\ Available at www.epa.gov/sites/production/files/2021-04/documents/emission-factors_apr2021.pdf (last accessed December 22, 
2022).
---------------------------------------------------------------------------

    The onsite operation of CWH equipment involves combustion of fossil 
fuels and results in emissions of CO2, NOX, 
SO2, CH4, and N2O where this equipment 
is used. Site emissions of these gases were estimated using ``Emission 
Factors for Greenhouse Gas Inventories'' and, for NOX and 
SO2, emissions intensity factors from an EPA 
publication.\164\
---------------------------------------------------------------------------

    \164\ U.S. Environmental Protection Agency. External Combustion 
Sources. In Compilation of Air Pollutant Emission Factors. AP-42. 
Fifth Edition. Volume I: Stationary Point and Area Sources. Chapter 
1. Available at www.epa.gov/air-emissions-factors-and-quantification/ap-42-compilation-air-emissions-factors#Proposed/ 
(last accessed December 22, 2022).
---------------------------------------------------------------------------

    FFC upstream emissions, which include emissions from fuel 
combustion during extraction, processing, and transportation of fuels, 
and ``fugitive'' emissions (direct leakage to the atmosphere) of 
CH4 and CO2, are estimated based on the 
methodology described in chapter 15 of the final rule TSD.
    The emissions intensity factors are expressed in terms of physical 
units per MWh or MMBtu of site energy savings. For power sector 
emissions, specific emissions intensity factors are calculated by 
sector and end use. Total emissions reductions are estimated using the 
energy savings calculated in the NIA.
1. Air Quality Regulations Incorporated in DOE's Analysis
    DOE's no-new-standards case for the electric power sector reflects 
the AEO2023, which incorporates the projected impacts of existing air 
quality regulations on emissions. AEO2023 generally represents current 
legislation and environmental regulations, including recent government 
actions, that were in place at the time of preparation of AEO2023, 
including the emissions control programs discussed in the following 
paragraphs.\165\
---------------------------------------------------------------------------

    \165\ For further information, see the Assumptions to AEO2023 
report that sets forth the major assumptions used to generate the 
projections in the Annual Energy Outlook. Available at www.eia.gov/outlooks/aeo/assumptions/ (last accessed April 13, 2023).
---------------------------------------------------------------------------

    SO2 emissions from affected electric generating units 
(``EGUs'') are subject to nationwide and regional emissions cap-and-
trade programs. Title IV of the Clean Air Act sets an annual emissions 
cap on SO2 for affected EGUs in the 48 contiguous States and 
the District of Columbia (``DC''). (42 U.S.C. 7651 et seq.) 
SO2 emissions from numerous States in the eastern half of 
the United States are also limited under the Cross-State Air Pollution 
Rule (``CSAPR''). 76 FR 48208 (Aug. 8, 2011). CSAPR requires these 
States to reduce certain emissions, including annual SO2 
emissions, and went into effect as of January 1, 2015.\166\ AEO2023 
incorporates implementation of CSAPR, including the update to the CSAPR 
ozone season program emission budgets and target dates issued in 2016. 
81 FR

[[Page 69782]]

74504 (Oct. 26, 2016). Compliance with CSAPR is flexible among EGUs and 
is enforced through the use of tradable emissions allowances. Under 
existing EPA regulations, for States subject to SO2 
emissions limits under CSAPR, any excess SO2 emissions 
allowances resulting from the lower electricity demand caused by the 
adoption of an efficiency standard could be used to permit offsetting 
increases in SO2 emissions by another regulated EGU.
---------------------------------------------------------------------------

    \166\ CSAPR requires states to address annual emissions of 
SO2 and NOX, precursors to the formation of 
fine particulate matter (``PM2.5'') pollution, in order 
to address the interstate transport of pollution with respect to the 
1997 and 2006 PM2.5 National Ambient Air Quality 
Standards (``NAAQS''). CSAPR also requires certain states to address 
the ozone season (May-September) emissions of NOX, a 
precursor to the formation of ozone pollution, in order to address 
the interstate transport of ozone pollution with respect to the 1997 
ozone NAAQS. 76 FR 48208 (Aug. 8, 2011). EPA subsequently issued a 
supplemental rule that included an additional five states in the 
CSAPR ozone season program; 76 FR 80760 (Dec. 27, 2011) 
(Supplemental Rule), and EPA issued the CSAPR Update for the 2008 
ozone NAAQS. 81 FR 74504 (Oct. 26, 2016).
---------------------------------------------------------------------------

    However, beginning in 2016, SO2 emissions began to fall 
as a result of the Mercury and Air Toxics Standards (``MATS'') for 
power plants. 77 FR 9304 (Feb. 16, 2012). In the MATS final rule, EPA 
established a standard for hydrogen chloride as a surrogate for acid 
gas hazardous air pollutants (``HAP'') and also established a standard 
for SO2 (a non-HAP acid gas) as an alternative equivalent 
surrogate standard for acid gas HAP. The same controls are used to 
reduce HAP and non-HAP acid gas; thus, SO2 emissions are 
being reduced as a result of the control technologies installed on 
coal-fired power plants to comply with the MATS requirements for acid 
gas. In order to continue operating, coal plants must have either flue 
gas desulfurization or dry sorbent injection systems installed. Both 
technologies, which are used to reduce acid gas emissions, also reduce 
SO2 emissions. Because of the emissions reductions under the 
MATS, it is unlikely that excess SO2 emissions allowances 
resulting from the lower electricity demand would be needed or used to 
permit offsetting increases in SO2 emissions by another 
regulated EGU. Therefore, energy conservation standards that decrease 
electricity generation will generally reduce SO2 emissions. 
DOE estimated SO2 emissions reduction using emissions 
factors based on AEO2023.
    CSAPR also established limits on NOX emissions for 
numerous States in the eastern half of the United States. Energy 
conservation standards would have little effect on NOX 
emissions in those States covered by CSAPR emissions limits if excess 
NOX emissions allowances resulting from the lower 
electricity demand could be used to permit offsetting increases in 
NOX emissions from other EGUs. In such case, NOx emissions 
would remain near the limit even if electricity generation goes down. 
Depending on the configuration of the power sector in the different 
regions and the need for allowances, however, NOX emissions 
might not remain at the limit in the case of lower electricity demand. 
That would mean that energy conservation standards might reduce NOx 
emissions in covered States. Despite this possibility, DOE has chosen 
to be conservative in its analysis and has maintained the assumption 
that standards will not reduce NOX emissions in States 
covered by CSAPR. Standards would be expected to reduce NOX 
emissions in the States not covered by CSAPR. DOE used AEO2023 data to 
derive NOX emissions factors for the group of States not 
covered by CSAPR.
    The MATS limit mercury emissions from power plants, but they do not 
include emissions caps and, as such, DOE's energy conservation 
standards would be expected to slightly impact Hg emissions. DOE 
estimated mercury emissions reduction using emissions factors based on 
AEO2023, which incorporates the MATS.
    In comments, Rheem stated some consumers will elect to switch from 
gas-fired to electric water heaters in response to difficult 
installations to switch from non-condensing to condensing, and that DOE 
should consider how the electricity grid produces energy in DOE's 
climate analysis. Rheem stated that in some regions, the use of 
electricity generated from coal to power electric water heaters will 
increase emissions compared to a gas water heater. (Rheem, No. 24 at p. 
8). Similarly, Suburban Propane expressed concern that the proposed 
standards would produce more, rather than less, greenhouse gas 
emissions in most of the country due to lack of consideration of lower-
carbon and carbon-negative energy sources such as traditional and 
renewable propane. (Suburban Propane, No. 16 at pp. 2-3) Suburban 
Propane stated that the proposed standards would effectively mandate 
that only electric energy be used for future water heating needs, 
causing additional strain to the electric infrastructure and leading to 
increased carbon emissions. Id. Suburban Propane added that traditional 
propane is an abundant, domestically produced energy source and is 
defined as a clean alternative fuel under the 1990 Clean Air Act. Id. 
Suburban Propane encouraged DOE to focus on a technology-neutral 
approach that requires low carbon and carbon negative fuel sources, 
such as a clean fuel standard for building emissions. Id.
    Because DOE has no authority over questions such as whether a 
company might electrify loads or future State policies about 
electrification, DOE is limiting the response to these comments to the 
matters arising because of this final rule. As noted throughout this 
final rule, under EPCA DOE can only set standards for CWH equipment if 
such does not result in the elimination of products or product features 
from the market, and if clear and convincing evidence exists to support 
the standard. DOE believe both of these conditions exist, and that the 
outcome described in the Suburban Propane comment where the standard 
effectively becomes an electric-only mandate will not come to pass as a 
result of this final rule. As discussed in section IV.H.2 of this 
document, DOE believes that generally the final rule will not induce 
fuel switching. Rheem's comment addresses a more specific case, that of 
the difficult installation. DOE notes that consumers facing difficult 
installations using vertical venting may have cost-effective 
alternatives such as horizontal venting. DOE notes based on the NEEA 
report the number of difficult installations is expected to be small. 
Add to this the fact that bringing multiple tens of kW or more of 
electric power to the existing commercial water heater(s) location 
including wiring, switching, breaker panels and other internal building 
changes to effect fuel switching in existing buildings, may be costly 
itself making the economics of fuel switching, particularly to a more 
expensive water heating fuel not an attractive option for existing 
buildings. DOE believes the number of installations that would fuel 
switch is small enough to not materially change the results posted in 
this final rule.
    Bradford White recommended that DOE take into account other 
regulatory actions, including those at the State level (i.e., 
California) that will reduce NOX emissions regardless of the 
outcome of this rulemaking to avoid potentially double counting reduced 
emissions. (Bradford White, No. 23 at pp. 6-7) Bradford White 
recommended that DOE take into account other regulatory actions, 
including those at the State level (i.e., California) that will reduce 
NOX emissions regardless of the outcome of this rulemaking 
to avoid potentially double counting reduced emissions. (Bradford 
White, No. 23 at pp. 6-7) In response, DOE has found that pre-mix 
burners are the primary technology used to produce low, and ultra-low 
NOX emitting equipment. (Docket No. EERE-2017-BT-STD-0019, 
chapter 5) As Bradford White notes, DOE does not explicitly model the 
quantity of these low- and ultra-low NOX units to 
NOX regulated states in its baseline consumer sample. In a 
standard that results in consumers migrating from atmospheric burners 
to the types of pre-mix burners used to achieve condensing-level 
efficiencies, as required in this rule, NOX reductions would 
occur from reduction of energy

[[Page 69783]]

used at the site (as well as upstream from the site). In DOE's 
emissions quantification, the emissions benefit from the reduction of 
energy use is considered directly. However, the additional reduction 
from the type of combustion system used has not been quantified. While 
Bradford White is correct that DOE did not explicitly address the 
extent of NOX emissions benefits in NOX-regulated 
geographic areas, DOE does account for the large fraction of consumers 
already purchasing condensing equipment, with powered burners, in its 
base case (see section IV.F.8 of this document). To the extent that 
consumers in NOX regulated geographic areas preferentially 
purchase high-efficiency equipment with pre-mix burners to meet these 
NOX regulations, this mitigates potential double counting. 
Further, the analysis conducted by DOE examines the emissions benefits 
from reduction of natural gas consumption due to efficiency 
improvements. However, because of the burner technology shift necessary 
to achieve the higher efficiency levels and the correlated reduction in 
NOX emissions in the shift in burner technology, DOE 
believes there will be additional NOX emission reductions 
across the United States and these are not captured in DOE's analysis. 
DOE believes that these additional benefits will offset any remaining 
double counting in NOX-regulated geographies.
    Bradford White recommend DOE also analyze additional emissions 
generated to comply with an amended standard. (Bradford White, No. 23 
at p. 6) With an amended standard, more components, including more 
complex components and more of certain existing components will be 
required to comply. Bradford White suggested that this begged the 
question whether more emissions would be generated to produce 
components to comply with an amended standard versus what emissions 
will be saved by requiring higher efficiency equipment. (Bradford 
White, No. 23 p. 6) In section IV.F.10 of this document, DOE addressed 
the comments related to embodied emissions posted by WM Technologies 
and Patterson-Kelley. EPCA authorizes DOE to promulgate rules 
regulating the energy efficiency of CWH equipment, but this authority 
does not extend to regulating or considering the means by which 
manufacturers produce CWH equipment. DOE quantifies the emissions 
reductions generated by the estimated energy savings as part of the 
analysis relevant to its implementation of its authority to regulate 
energy efficiency. Given DOE's lack of authority over manufacturers' 
processes, DOE also has no mechanism for effecting change. Therefore, 
DOE declines at present to quantify these embodied emissions as they 
are outside the scope of DOE's authority and analysis of energy 
efficiency of covered equipment.

L. Monetizing Emissions Impacts

    As part of the development of this final rule, for the purpose of 
complying with the requirements of E.O. 12866, DOE considered the 
estimated monetary benefits from the reduced emissions of 
CO2, CH4, N2O, NOX, and 
SO2 that are expected to result from each of the TSLs 
considered. In order to make this calculation analogous to the 
calculation of the NPV of consumer benefit, DOE considered the reduced 
emissions expected to result over the lifetime of products shipped in 
the projection period for each TSL. This section summarizes the basis 
for the values used for monetizing the emissions benefits and presents 
the values considered in this final rule.
    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 Interim Estimates 
Under Executive Order 13990 published in February 2021 by the IWG.
1. Monetization of Greenhouse Gas Emissions
    For the purpose of complying with the requirements of E.O. 12866, 
DOE estimates the monetized benefits of the reductions in emissions of 
CO2, CH4, and N2O by using a measure 
of the social cost (``SC'') of each pollutant (e.g., SC-
CO2). These estimates represent the monetary value of the 
net harm to society associated with a marginal increase in emissions of 
these pollutants in a given year, or the benefit of avoiding that 
increase. These estimates are intended to include (but are not limited 
to) climate-change-related changes in net agricultural productivity, 
human health, property damages from increased flood risk, disruption of 
energy systems, risk of conflict, environmental migration, and the 
value of ecosystem services.
    DOE exercises its own judgment in presenting monetized climate 
benefits as recommended by applicable Executive Orders, and DOE would 
reach the same conclusion presented in this rule in the absence of the 
SC-GHG, including the February 2021 Interim Estimates presented by the 
IWG. The social costs of greenhouse gases, whether measured using the 
February 2021 interim estimates presented by the IWG or by another 
means, did not affect the rule ultimately proposed by DOE.
    DOE estimated the global social benefits of CO2, 
CH4, and N2O reductions (i.e., SC-GHGs) using the 
estimates presented in the ``Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990,'' published in February 2021 by the IWG. The SC-GHGs is 
the monetary value of the net harm to society associated with a 
marginal increase in emissions in a given year, or the benefit of 
avoiding that increase. In principle, SC-GHG includes the value of all 
climate change impacts, including (but not limited to) changes in net 
agricultural productivity, human health effects, property damage from 
increased flood risk and natural disasters, disruption of energy 
systems, risk of conflict, environmental migration, and the value of 
ecosystem services. The SC-GHG therefore, reflects the societal value 
of reducing emissions of the gas in question by one metric ton. The SC-
GHG is the theoretically appropriate value to use in conducting 
benefit-cost analyses of policies that affect CO2, 
N2O and CH4 emissions. As a member of the IWG involved in 
the development of the February 2021 SC-GHG TSD, DOE agrees that the 
interim SC-GHG estimates represent the most appropriate estimate of the 
SC-GHG until revised estimates have been developed reflecting the 
latest, peer-reviewed science.
    The SC-GHG estimates presented here were developed over many years, 
using transparent process, peer-reviewed methodologies, the best 
science available at the time of that process, and input from the 
public. Specifically, in 2009, the IWG, that included the DOE and other 
executive branch agencies and offices was established to ensure that 
agencies were using the best available science and to promote 
consistency in the SC-CO2 values used across agencies. The 
IWG published SC-CO2 estimates in 2010 that were developed 
from an ensemble of three widely cited integrated assessment models 
(``IAMs'') that estimate global climate damages using highly aggregated 
representations of climate processes and the global economy combined 
into a single modeling framework. The three IAMs were run using a 
common set of input assumptions in each model for future population, 
economic, and CO2 emissions growth, as well as equilibrium 
climate sensitivity (``ECS'')--a measure of the globally averaged 
temperature response to

[[Page 69784]]

increased atmospheric CO2 concentrations. These estimates 
were updated in 2013 based on new versions of each IAM. In August 2016 
the IWG published estimates of the SC-CH4 and SC-
N2O using methodologies that are consistent with the 
methodology underlying the SC-CO2 estimates. The modeling 
approach that extends the IWG SC-CO2 methodology to non-
CO2 GHGs has undergone multiple stages of peer review. The 
SC-CH4 and SC-N2O estimates were developed by 
Marten et al.\167\ and underwent a standard double-blind peer review 
process prior to journal publication.
---------------------------------------------------------------------------

    \167\ Marten, A.L., E.A. Kopits, C.W. Griffiths, S.C. Newbold, 
and A. Wolverton. Incremental CH4 and N2O mitigation benefits 
consistent with the US Government's SC-CO2 estimates. 
Climate Policy. 2015. 15(2): pp. 272-298.
---------------------------------------------------------------------------

    In 2015, as part of the response to public comments received to a 
2013 solicitation for comments on the SC-CO2 estimates, the 
IWG announced a National Academies of Sciences, Engineering, and 
Medicine review of the SC-CO2 estimates to offer advice on 
how to approach future updates to ensure that the estimates continue to 
reflect the best available science and methodologies. In January 2017, 
the National Academies released their final report, Valuing Climate 
Damages: Updating Estimation of the Social Cost of Carbon Dioxide, and 
recommended specific criteria for future updates to the SC-
CO2 estimates, a modeling framework to satisfy the specified 
criteria, and both near-term updates and longer-term research needs 
pertaining to various components of the estimation process.\168\ 
Shortly thereafter, in March 2017, President Trump issued E.O. 13783, 
which disbanded the IWG, withdrew the previous TSDs, and directed 
agencies to ensure SC-CO2 estimates used in regulatory 
analyses are consistent with the guidance contained in OMB's Circular 
A-4, ``including with respect to the consideration of domestic versus 
international impacts and the consideration of appropriate discount 
rates'' (E.O. 13783, Section 5(c)). Benefit-cost analyses following 
E.O. 13783 used SC-GHG estimates that attempted to focus on the U.S.-
specific share of climate change damages as estimated by the models and 
were calculated using two discount rates recommended by Circular A-4, 3 
percent and 7 percent. All other methodological decisions and model 
versions used in SC-GHG calculations remained the same as those used by 
the IWG in 2010 and 2013, respectively.
---------------------------------------------------------------------------

    \168\ National Academies of Sciences, Engineering, and Medicine. 
Valuing Climate Damages: Updating Estimation of the Social Cost of 
Carbon Dioxide. 2017. The National Academies Press: Washington, DC.
---------------------------------------------------------------------------

    On January 20, 2021, President Biden issued E.O. 13990, which re-
established the IWG and directed it to ensure that the U.S. 
Government's estimates of the SC-CO2 and SC-GHG reflect the 
best available science and the recommendations of the National 
Academies. The IWG was tasked with first reviewing the SC-GHG estimates 
currently used in Federal analyses and publishing interim estimates 
within 30 days of the Executive Order that reflect the full impact of 
GHG emissions, including by taking global damages into account. The 
interim SC-GHG estimates published in February 2021 are used here to 
estimate the climate benefits for this rule. The Executive Order 
instructs the IWG to undertake a fuller update of the SC-GHG estimates 
by January 2022 that takes into consideration the advice of the 
National Academies and other recent scientific literature.
    The February 2021 SC-GHG TSD provides a complete discussion of the 
IWG's initial review conducted under E.O. 13990. In particular, the IWG 
found that the SC-GHG estimates used under E.O. 13783 fail to reflect 
the full impact of GHG emissions in multiple ways. First, the IWG found 
that the SC-GHG estimates used under E.O. 13783 fail to fully capture 
many climate impacts that affect the welfare of U.S. citizens and 
residents, and those impacts are better reflected by global measures of 
the SC-GHG. Examples of omitted effects from the E.O. 13783 estimates 
include direct effects on U.S. citizens, assets, and investments 
located abroad, supply chains, U.S. military assets and interests 
abroad, tourism, spillover pathways such as economic and political 
destabilization, and global migration that can lead to adverse impacts 
on U.S. national security, public health, and humanitarian concerns. In 
addition, assessing the benefits of U.S. GHG mitigation activities 
requires consideration of how those actions may affect mitigation 
activities by other countries, as those international mitigation 
actions will provide a benefit to U.S. citizens and residents by 
mitigating climate impacts that affect U.S. citizens and residents. A 
wide range of scientific and economic experts have emphasized the issue 
of reciprocity as support for considering global damages of GHG 
emissions. If the United States does not consider impacts on other 
countries, it is difficult to convince other countries to consider the 
impacts of their emissions on the United States. The only way to 
achieve an efficient allocation of resources for emissions reduction on 
a global basis--and so benefit the United States and its citizens--is 
for all countries to base their policies on global estimates of 
damages. As a member of the IWG involved in the development of the 
February 2021 SC-GHG TSD, DOE agrees with this assessment and, 
therefore, in this rule DOE centers attention on a global measure of 
SC-GHG. This approach is the same as that taken in DOE regulatory 
analyses from 2012 through 2016. A robust estimate of climate damages 
that accrue only to U.S. citizens and residents does not currently 
exist in the literature. As explained in the February 2021 TSD, 
existing estimates are both incomplete and an underestimate of total 
damages that accrue to the citizens and residents of the United States 
because they do not fully capture the regional interactions and 
spillovers discussed above, nor do they include all of the important 
physical, ecological, and economic impacts of climate change recognized 
in the climate change literature. As noted in the February 2021 SC-GHG 
TSD, the IWG will continue to review developments in the literature, 
including more robust methodologies for estimating a U.S.-specific SC-
GHG value, and explore ways to better inform the public of the full 
range of carbon impacts. As a member of the IWG, DOE will continue to 
follow developments in the literature pertaining to this issue.
    Second, the IWG found that the use of the social rate of return on 
capital (7 percent under current OMB Circular A-4 guidance) to discount 
the future benefits of reducing GHG emissions inappropriately 
underestimates the impacts of climate change for the purposes of 
estimating the SC-GHG. Consistent with the findings of the National 
Academies and the economic literature, the IWG continued to conclude 
that the consumption rate of interest is the theoretically appropriate 
discount rate in an intergenerational context,\169\ and recommended 
that

[[Page 69785]]

discount rate uncertainty and relevant aspects of intergenerational 
ethical considerations be accounted for in selecting future discount 
rates.
---------------------------------------------------------------------------

    \169\ Interagency Working Group on Social Cost of Carbon. Social 
Cost of Carbon for Regulatory Impact Analysis under Executive Order 
12866. 2010. United States Government. (Last accessed April 15, 
2022.) www.epa.gov/sites/default/files/2016-12/documents/scc_tsd_2010.pdf; Interagency Working Group on Social Cost of 
Carbon. Technical Update of the Social Cost of Carbon for Regulatory 
Impact Analysis Under Executive Order 12866. 2013. (Last accessed 
April 15, 2022.) www.federalregister.gov/documents/2013/11/26/2013-28242/technical-support-document-technical-update-of-the-social-cost-of-carbon-for-regulatory-impact; Interagency Working Group on 
Social Cost of Greenhouse Gases, United States Government. Technical 
Support Document: Technical Update on the Social Cost of Carbon for 
Regulatory Impact Analysis-Under Executive Order 12866. August 2016. 
(Last accessed January 18, 2022.) www.epa.gov/sites/default/files/2016-12/documents/sc_co2_tsd_august_2016.pdf; Interagency Working 
Group on Social Cost of Greenhouse Gases, United States Government. 
Addendum to Technical Support Document on Social Cost of Carbon for 
Regulatory Impact Analysis under Executive Order 12866: Application 
of the Methodology to Estimate the Social Cost of Methane and the 
Social Cost of Nitrous Oxide. August 2016. (Last accessed January 
18, 2022.) www.epa.gov/sites/default/files/2016-12/documents/addendum_to_sc-ghg_tsd_august_2016.pdf.
---------------------------------------------------------------------------

    Furthermore, the damage estimates developed for use in the SC-GHG 
are estimated in consumption-equivalent terms, and so an application of 
OMB Circular A-4's guidance for regulatory analysis would then use the 
consumption discount rate to calculate the SC-GHG. DOE agrees with this 
assessment and will continue to follow developments in the literature 
pertaining to this issue. DOE also notes that while OMB Circular A-4, 
as published in 2003, recommends using 3 percent and 7 percent discount 
rates as ``default'' values, Circular A-4 also reminds agencies that 
``different regulations may call for different emphases in the 
analysis, depending on the nature and complexity of the regulatory 
issues and the sensitivity of the benefit and cost estimates to the key 
assumptions.'' On discounting, Circular A-4 recognizes that ``special 
ethical considerations arise when comparing benefits and costs across 
generations,'' and Circular A-4 acknowledges that analyses may 
appropriately ``discount future costs and consumption benefits . . . at 
a lower rate than for intragenerational analysis.'' In the 2015 
Response to Comments on the Social Cost of Carbon for Regulatory Impact 
Analysis, OMB, DOE, and the other IWG members recognized that 
``Circular A-4 is a living document'' and ``the use of 7 percent is not 
considered appropriate for intergenerational discounting. There is wide 
support for this view in the academic literature, and it is recognized 
in Circular A-4 itself.'' Thus, DOE concludes that a 7 percent discount 
rate is not appropriate to apply to value the SC-GHG in the analysis 
presented in this analysis.
    To calculate the present and annualized values of climate benefits, 
DOE uses the same discount rate as the rate used to discount the value 
of damages from future GHG emissions, for internal consistency. That 
approach to discounting follows the same approach that the February 
2021 TSD recommends ``to ensure internal consistency--i.e., future 
damages from climate change using the SC-GHG at 2.5 percent should be 
discounted to the base year of the analysis using the same 2.5 percent 
rate.'' DOE has also consulted the National Academies' 2017 
recommendations on how SC-GHG estimates can ``be combined in RIAs with 
other cost and benefits estimates that may use different discount 
rates.'' The National Academies reviewed several options, including 
``presenting all discount rate combinations of other costs and benefits 
with [SC-GHG] estimates.''
    As a member of the IWG involved in the development of the February 
2021 SC-GHG TSD, DOE agrees with the above assessment and will continue 
to follow developments in the literature pertaining to this issue. 
While the IWG works to assess how best to incorporate the latest, peer 
reviewed science to develop an updated set of SC-GHG estimates, it set 
the interim estimates to be the most recent estimates developed by the 
IWG prior to the group being disbanded in 2017. The estimates rely on 
the same models and harmonized inputs and are calculated using a range 
of discount rates. As explained in the February 2021 SC-GHG TSD, the 
IWG has recommended that agencies revert to the same set of four values 
drawn from the SC-GHG distributions based on three discount rates as 
were used in regulatory analyses between 2010 and 2016 and were subject 
to public comment. For each discount rate, the IWG combined the 
distributions across models and socioeconomic emissions scenarios 
(applying equal weight to each) and then selected a set of four values 
recommended for use in benefit-cost analyses: an average value 
resulting from the model runs for each of three discount rates (2.5 
percent, 3 percent, and 5 percent), plus a fourth value, selected as 
the 95th percentile of estimates based on a 3 percent discount rate. 
The fourth value was included to provide information on potentially 
higher-than-expected economic impacts from climate change. As explained 
in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects 
the immediate need to have an operational SC-GHG for use in regulatory 
benefit-cost analyses and other applications that was developed using a 
transparent process, peer-reviewed methodologies, and the science 
available at the time of that process. Those estimates were subject to 
public comment in the context of dozens of proposed rulemakings as well 
as in a dedicated public comment period in 2013.
    There are a number of limitations and uncertainties associated with 
the SC-GHG estimates. First, the current scientific and economic 
understanding of discounting approaches suggests discount rates 
appropriate for intergenerational analysis in the context of climate 
change are likely to be less than 3 percent, near 2 percent or 
lower.\170\ Second, the IAMs used to produce these interim estimates do 
not include all of the important physical, ecological, and economic 
impacts of climate change recognized in the climate change literature 
and the science underlying their ``damage functions''--i.e., the core 
parts of the IAMs that map global mean temperature changes and other 
physical impacts of climate change into economic (both market and 
nonmarket) damages--lags behind the most recent research. For example, 
limitations include the incomplete treatment of catastrophic and non-
catastrophic impacts in the integrated assessment models, their 
incomplete treatment of adaptation and technological change, the 
incomplete way in which inter-regional and intersectoral linkages are 
modeled, uncertainty in the extrapolation of damages to high 
temperatures, and inadequate representation of the relationship between 
the discount rate and uncertainty in economic growth over long time 
horizons. Likewise, the socioeconomic and emissions scenarios used as 
inputs to the models do not reflect new information from the last 
decade of scenario generation or the full range of projections. The 
modeling limitations do not all work in the same direction in terms of 
their influence on the SC-CO2 estimates. However, as 
discussed in the February 2021 TSD, the IWG has recommended that, taken 
together, the limitations suggest that the interim SC-GHG estimates 
used in this final rule likely underestimate the damages from GHG 
emissions. DOE concurs with this assessment.
---------------------------------------------------------------------------

    \170\ Interagency Working Group on Social Cost of Greenhouse 
Gases (IWG). 2021. Technical Support Document: Social Cost of 
Carbon, Methane, and Nitrous Oxide Interim Estimates under Executive 
Order 13990. February. United States Government. Available at: 
www.whitehouse.gov/briefing-room/blog/2021/02/26/a-return-to-science-evidence-based-estimates-of-the-benefits-of-reducing-climate-pollution/.
---------------------------------------------------------------------------

    In comments filed in response to the May 2022 CWH ECS NOPR, Joint 
Climate Commenters stated that DOE appropriately applies the social 
cost estimates developed by the IWG for CO2, CH4, 
and N2O, to its analysis of emission reduction benefits. The 
Joint Climate Commenters added that those values are widely agreed to 
underestimate the full SC-GHG emissions but are appropriate to use as 
conservative estimates, have been used

[[Page 69786]]

in dozens of previous rulemakings, and were upheld in Federal court. 
(Joint Climate Commenters, No. 19 at pp. 1-2). The Joint Climate 
Commenters suggested that DOE should expand upon its rationale for 
adopting a global damages valuation and for the range of discount rates 
it applies to climate effects, and should also strongly consider 
conducting supplemental sensitivity analyses to assess the proposed 
rule's climate benefits at lower discount rates, as recommended by the 
IWG. (Joint Climate Commenters, No. 20 at p. 2). The Joint Climate 
Commenters also stated that DOE should provide additional support for 
adopting a global framework for valuing climate impacts, including 
providing legal justifications based on applicable requirements placed 
on DOE. In particular, the Joint Climate Commenters suggested that DOE 
could strengthen is economic and policy justifications by explicitly 
concluding that the theory and evidence for international reciprocity 
justify a focus on the full global values. However, they stated that 
DOE should also consider including a discussion of domestic-only 
estimates and should consider conducting sensitivity analysis using a 
sounder domestic-only estimate as a backstop, and should explicitly 
conclude that the rule is cost-benefit justified even using a domestic-
only valuation that may still undercount climate benefits. (Joint 
Commenters, No. 21 at p. 2) The Joint Climate Commenters also stated 
that DOE should consider including additional justification for 
adopting the range of discount rates endorsed by the IWG and for 
appropriately deciding not to apply a 7 percent capital-based discount 
rate to climate impacts. In particular, they suggested that DOE should 
provide additional justification for combining climate effects 
discounted at an appropriate consumption-based rate with other costs 
and benefits discounted at a capital-based rate. The Joint Climate 
Commenters suggested that it is appropriate generally to focus its 
analysis of this rule on consumption-based rates given that most costs 
and benefits are projected to fall to consumption rather than to 
capital investments. (Joint Commenters, No. 22 at pp. 2-3) The Joint 
Climate Commenters also suggested that DOE should also consider 
providing additional sensitivity analysis using discount rates of 2 
percent or lower for climate impacts, as recently suggested by the 
Working Group. (Joint Climate Commenters, No. 23 at p. 3) The Joint 
Climate Commenters stated that DOE should consider adding further 
justification for relying on the Working Group's other methodological 
choices, including the fact that the Working Group applied a 
transparent and rigorous process that relied upon the best-available 
and most widely cited models for monetizing climate damages. In support 
of this, they included several attachments which they said provide 
detailed rebuttals to common criticisms of the Working Group's 
methodology. (Joint Climate Commenters, No. 24 at p. 3) DOE 
acknowledges that interim estimates were developed over many years, 
using transparent process, peer-reviewed methodologies, the best 
science available at the time of that process, and with input from the 
public. The interim SC-GHG estimates represent the most appropriate 
estimate of the SC-GHG until revised estimates have been developed 
reflecting the latest, peer-reviewed science. The IWG February 2021 TSD 
provides further justification for use of global SC-GHG estimates.
    The Joint Climate Commenters encouraged DOE to clearly state that 
any criticisms of the social cost of greenhouse gases are moot in this 
rulemaking because the Proposed Rule is easily cost-justified without 
any climate benefits. (Joint Climate Commenters, No. 25 at p. 3) DOE 
acknowledges that this rule is economically justified without SC-GHG 
and health benefits, but notes that consideration of those benefits and 
costs is important when determining the impact to the nation.
    The Associations state that DOE should not rely on the SC-GHG for 
any decision-making until the procedural shortcomings in the SC-GHG 
development have been addressed, alleging that the development of SC-
GHG needs to be developed through a process consistent with the 
Administrative Procedure Act and that the current SC-GHG was not. (The 
Associations, No. 32 at pp. 2-3) The Associations stated that the SC-
GHG was issued in 2021 without prior notice and no public comment 
period. The Associations alleged this process lacked transparency, and 
by extension the DOE NOPR process lacked transparency insofar as it 
does not provide a full IWG process record for the public to comment 
on. The Associations commented that without such a record, the public's 
ability to comment meaningfully is impaired. They further stated that a 
future comment period in the IWG process does not provide remedy. (The 
Associations, No. 32 at p. 3) The Associations stated additionally that 
the original social cost of carbon comment period in 2013 did not 
reflect a meaningful opportunity to comment, lacked a peer review 
process, and did not provide the public access to information 
underlying the estimates. This period predated the SC-CH4 
and SC-N2O, which the Associations alleged were also not 
subject to public input. (The Associations, No. 32 at p. 4) The 
Associations stated that DOE should further not use the SC-GHG because 
the IWG has yet to fully consider recommendations for improvement made 
by the National Academy of Sciences. (The Associations, No. 32 at p. 4) 
DOE notes as stated above that interim estimates were developed over 
many years, using transparent process, peer-reviewed methodologies, the 
best science available at the time of that process, and with input from 
the public. The interim SC-GHG estimates represent the most appropriate 
estimate of the SC-GHG until revised estimates have been developed 
reflecting the latest, peer-reviewed science.
    The Associations stated that the SC-GHG estimates do not comply 
with OMB guidance on information quality because the IWG failed to 
follow OMB's guidance for peer review, and therefore use by DOE could 
be considered arbitrary and capricious. They noted further that the IWG 
also failed to meet OMB's requirements for a formal uncertainty 
analysis. (The Associations, No. 32 at pp. 4-5) The Associations also 
pointed out that the discount rates used do not comport with OMB's 
Circular A-4, which requires use of 3 and 7 percent discount rates, and 
note that A-4 remains the governing guidance for regulatory cost-
benefit analyses. They urged DOE to comply with Circular A-4 in all 
relevant aspects. (The Associations, No. 32 at p. 5) DOE notes in 
response that DOE uses discount rates consistent with findings of the 
National Academies, economic literature, and the IWG. Circular A-4 
recognizes that ``special ethical considerations arise when comparing 
the benefits and costs across generations.'' Circular A-4 acknowledges 
that analyses may appropriately ``discount future costs and consumption 
benefits . . . at a lower rate than for intragenerational analysis.'' 
See Circular A-4 at 36. DOE will continue to follow developments in the 
literature pertaining to this issue.
    The Associations recommended DOE state clearly the statutory 
authority for applying SC-GHG estimates in the rulemaking and that DOE 
``articulate the principles that will allow private parties to predict 
future applications of such estimates in domains governed by the 
particular statutory provisions.'' (The Associations, No. 32 at pp. 2 
and 7) The

[[Page 69787]]

Associations urged DOE to consider whether the ``major questions 
doctrine'' applies to DOE's use of the SC-GHG estimates ``because the 
SC-GHG estimates are of such major economic and political 
significance''. Id. at 7. The Associations liken the use of SC-GHG to 
effectively serving as a fee for GHG emissions and note that Congress 
has not established GHG taxes or fees. Thus, the Associations state 
their opinion that SC-GHG usage falls under the major questions 
doctrine and urge DOE to therefore not use the SC-GHG estimates. (The 
Associations, No. 32 at pp. 2-3 and 8) The Associations note the change 
in levels of SC-GHG between Administrations and use such as evidence 
that choices might involve policy judgements requiring an express 
delegation from Congress. (The Associations, No. 32 at p. 8)
    DOE notes first that, under EPCA, the Department regulates only the 
energy efficiency or use of CWHs. DOE does not regulate the emissions 
of CWHs or the emissions of energy sources used to generate energy for 
those water heaters. While DOE does not regulate emissions under EPCA, 
DOE is required to determine the benefits and burdens of an energy 
conservation standard. (See 42 U.S.C. 6313(a)(6)(B)(ii)) Emissions 
reductions are one of the benefits that DOE considers when weighing the 
possibility of more-stringent energy conservation standards. And in 
compliance with E.O. 12866 and E.O. 13990, and for the reasons 
described above, DOE is using the SC-GHG estimates to quantify the 
value of those emissions reductions.\171\
---------------------------------------------------------------------------

    \171\ For more information, see the ``Technical Support 
Document: Social Cost of Carbon, Methane, and Nitrous Oxide Interim 
Estimates under Executive Order 13990,'' published in February 2021 
by the IWG.
---------------------------------------------------------------------------

    Patterson-Kelley and WM Technologies commented regarding the 
Supreme Court ruling in West Virginia v. EPA. Patterson-Kelley is 
concerned over the emissions impact analysis in the commercial water 
heater rulemaking, as it is likely to require rollback of any 
efficiency rulemaking. (Patterson-Kelley, No. 26 at pp. 1-2, 7; WM 
Technologies, No. 25 at pp. 1 and 9) DOE notes this final rule is 
economically justified without including net benefits related to 
emissions. Thus, if the Supreme Court or any other court acted to 
curtail the consideration of the benefits arising from emissions 
reductions, this rule is not dependent on the value of such benefits 
and should not be affected.
    In comments, PHCC stated that while DOE presented much information 
on the social costs of climate emissions as well as related health 
costs of emission, it is unclear how the Department intends to use this 
information, noting that on occasion it is stated that the proposal 
pays for itself without these factors, while at the same time stressing 
these factors' importance. PHCC asked why DOE would engage in the 
debate if the rule is economically justified without these factors. 
(PHCC, No. 28 at p. 11) DOE acknowledges the rule is economically 
justified without SC-GHG and health impacts. However, understanding SC-
GHG and health benefits and costs is part of describing clearly the 
total impact of energy efficiency standards, and they are relevant 
considerations for the public and stakeholders.
    PHCC also questioned the Department's authority to regulate 
emissions and notes the language of the statute directs DOE to deal 
with energy, not emissions, and that this topic is a matter of current 
litigation, which the Department acknowledges. PHCC would like 
clarification as to the status of this rule should this question 
ultimately be ruled contrary to the opinion of DOE. (PHCC, No. 28 at p. 
11) In response, DOE notes again that it does not regulate emissions 
for covered products and equipment. Instead, EPCA grants DOE clear 
authority to establish energy conservation standards for covered 
products and equipment.
    PHCC asks for clarification as to why emissions information is 
presented at the 3 percent discount rate and not at 7 percent, stating 
that DOE should plainly state its rational for this practice other than 
not having a ``single central SC-GHG point estimate'' and that DOE 
should acknowledge that the projected social benefits and health 
benefits are not simple benefits to a purchase of CWH products but 
rather are benefits for the world population. (PHCC, No. 28 at p. 11) 
DOE discusses the global nature of social emissions benefits in 
sections I.C, IV.L.1.a, V.B.8, 0, and V.C.2. DOE uses all four sets of 
SC-GHG estimates to capture the uncertainties involved in regulatory 
impact analysis as recommended by the IWG. The rationale for the choice 
of discount rates is described in the IWG's February 2021 TSD.
    DOE's derivations of the SC-CO2, SC-N2O, and 
SC-CH4 values used for this final rule are discussed in the 
following sections, and the results of DOE's analyses estimating the 
benefits of the reductions in emissions of these GHGs are presented in 
section V.B.8 of this document.
a. Social Cost of Carbon
    The SC-CO2 values used for this final rule were 
generated using the values presented in the 2021 update from the IWG's 
February 2021 TSD. Table IV.36 shows the updated sets of SC-
CO2 estimates from the IWG's TSD in 5-year increments from 
2020 to 2050. The full set of annual values that DOE used is presented 
in appendix 14A of the final rule TSD. For purposes of capturing the 
uncertainties involved in regulatory impact analysis, DOE has 
determined it is appropriate to include all four sets of SC-
CO2 values, as recommended by the IWG.\172\
---------------------------------------------------------------------------

    \172\ For example, the February 2021 TSD discusses how the 
understanding of discounting approaches suggests that discount rates 
appropriate for intergenerational analysis in the context of climate 
change may be lower than 3 percent.

                    Table IV.36--Annual SC-CO2 Values From 2021 Interagency Update, 2020-2050
                                           [2020$ per metric ton CO2]
----------------------------------------------------------------------------------------------------------------
                                                                    Discount rate and statistic
                                                 ---------------------------------------------------------------
                                                        5%              3%             2.5%             3%
                      Year                       ---------------------------------------------------------------
                                                                                                       95th
                                                      Average         Average         Average       percentile
----------------------------------------------------------------------------------------------------------------
2020............................................              14              51              76             152
2025............................................              17              56              83             169
2030............................................              19              62              89             187
2035............................................              22              67              96             206
2040............................................              25              73             103             225

[[Page 69788]]

 
2045............................................              28              79             110             242
2050............................................              32              85             116             260
----------------------------------------------------------------------------------------------------------------

    In calculating the potential global benefits resulting from reduced 
CO2 emissions, DOE used the values from the 2021 interagency 
report, adjusted to 2022$ using the implicit price deflator for gross 
domestic product (``GDP'') from the Bureau of Economic Analysis. For 
each of the four sets of SC-CO2 cases specified, the values 
for emissions in 2020 were $14, $51, $76, and $152 per metric ton 
avoided (values expressed in 2020$). For 2051 to 2070, DOE used SC-
CO2 estimates published by EPA, adjusted to 2022$.\173\ 
These estimates are based on methods, assumptions, and parameters 
identical to the 2020-2050 estimates published by the IWG (which were 
based on EPA modeling). DOE expects additional climate benefits to 
accrue for any longer-life furnaces after 2070, but a lack of available 
SC-CO2 estimates for emissions years beyond 2070 prevents 
DOE from monetizing these potential benefits in this analysis.
---------------------------------------------------------------------------

    \173\ See EPA, Revised 2023 and Later Model Year Light-Duty 
Vehicle GHG Emissions Standards: Regulatory Impact Analysis, 
Washington, DC, December 2021. Available at: nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P1013ORN.pdf (last accessed January 13, 2023).
---------------------------------------------------------------------------

    DOE multiplied the CO2 emissions reduction estimated for 
each year by the SC-CO2 value for that year in each of the 
four cases. DOE adjusted the values to 2022$ using the implicit price 
deflator for GDP from the Bureau of Economic Analysis. To calculate a 
present value of the stream of monetary values, DOE discounted the 
values in each of the four cases using the specific discount rate that 
had been used to obtain the SC-CO2 values in each case. See 
appendix 14A for the annual SC-CO2 values.
b. Social Cost of Methane and Nitrous Oxide
    The SC-CH4 and SC-N2O values used for this 
final rule were based on the values developed for the February 2021 
TSD. Table IV.37 shows the updated sets of SC-CH4 and SC- 
N2O estimates from the latest interagency update in 5-year 
increments from 2020 to 2050. The full set of annual values used is 
presented in appendix 14A of the final rule TSD. To capture the 
uncertainties involved in regulatory impact analysis, DOE has 
determined it is appropriate to include all four sets of SC-
CH4 and SC-N2O values, as recommended by the IWG. 
DOE derived values after 2050 using the approach described above for 
the SC-CO2.

                                                      Table IV.37--Annual SC-CH4 and SC-N2O Values From 2021 Interagency Update, 2020-2050
                                                                                     [2020$ per metric ton]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              SC-CH4                                                          SC-N2O
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                                                                                    Discount rate and statistic                                     Discount rate and statistic
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                              Year                                      5%              3%             2.5%             3%              5%              3%             2.5%             3%
                                                                 -------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       95th                                                            95th
                                                                      Average         Average         Average       percentile        Average         Average         Average       percentile
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2020............................................................             670           1,500           2,000           3,900           5,800          18,000          27,000          48,000
2025............................................................             800           1,700           2,200           4,500           6,800          21,000          30,000          54,000
2030............................................................             940           2,000           2,500           5,200           7,800          23,000          33,000          60,000
2035............................................................           1,100           2,200           2,800           6,000           9,000          25,000          36,000          67,000
2040............................................................           1,300           2,500           3,100           6,700          10,000          28,000          39,000          74,000
2045............................................................           1,500           2,800           3,500           7,500          12,000          30,000          42,000          81,000
2050............................................................           1,700           3,100           3,800           8,200          13,000          33,000          45,000          88,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    DOE multiplied the CH4 and N2O emissions 
reduction estimated for each year by the SC-CH4 and SC-
N2O estimates for that year in each of the cases. DOE 
adjusted the values to 2022$ using the implicit price deflator for GDP 
from the Bureau of Economic Analysis. To calculate a present value of 
the stream of monetary values, DOE discounted the values in each of the 
cases using the specific discount rate that had been used to obtain the 
SC-CH4 and SC-N2O estimates in each case. See 
chapter 13 for the annual emissions reduction. See appendix 14A for the 
annual SC-CH4 and SC-N2O values.
2. Monetization of Other Emissions Impacts
    For the final rule, DOE estimated the monetized value of 
NOX and SO2 emissions reductions from electricity 
generation using benefit per ton estimates for that sector from the 
EPA's Benefits Mapping and Analysis Program.\174\ DOE used EPA's values 
for PM2.5-related benefits associated with NOX 
and SO2 and for ozone-related benefits associated with 
NOX for 2025 and 2030, and 2040, calculated with discount 
rates of 3 percent and 7 percent. DOE used linear interpolation to 
define values for the years not given in the 2025 to 2040 period; for 
years beyond 2040 the values are held constant. DOE combined the EPA 
benefit per ton estimates with regional information on electricity 
consumption and emissions to define weighted-

[[Page 69789]]

average national values for NOX and SO2 as a 
function of sector (see appendix 14B of the NOPR TSD).
---------------------------------------------------------------------------

    \174\ Estimating the Benefit per Ton of Reducing 
PM2.5 Precursors from 21 Sectors. www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors.
---------------------------------------------------------------------------

    DOE multiplied the site emissions reduction (in tons) in each year 
by the associated $/ton values, and then discounted each series using 
discount rates of 3 percent and 7 percent as appropriate.

M. Utility Impact Analysis

    The utility impact analysis estimates the changes in installed 
electrical capacity and generation projected to result for each 
considered TSL. The analysis is based on published output from the NEMS 
associated with AEO2023. NEMS produces the AEO Reference case, as well 
as a number of side cases that estimate the economy-wide impacts of 
changes to energy supply and demand. For the current analysis, impacts 
are quantified by comparing the levels of electricity sector 
generation, installed capacity, fuel consumption and emissions in the 
AEO2023 Reference case and various side cases. Details of the 
methodology are provided in the appendices to chapters 13 and 15 of the 
final rule TSD.
    The output of this analysis is a set of time-dependent coefficients 
that capture the change in electricity generation, primary fuel 
consumption, installed capacity and power sector emissions due to a 
unit reduction in demand for a given end use. These coefficients are 
multiplied by the stream of electricity savings calculated in the NIA 
to provide estimates of selected utility impacts of potential new or 
amended energy conservation standards.

N. Employment Impact Analysis

    DOE considers employment impacts in the domestic economy as one 
factor in selecting a standard. Employment impacts from new or amended 
energy conservation standards include both direct and indirect impacts. 
Direct employment impacts are any changes in the number of employees of 
manufacturers of the products subject to standards, their suppliers, 
and related service firms. The MIA addresses those impacts. Indirect 
employment impacts are changes in national employment that occur due to 
the shift in expenditures and capital investment caused by the purchase 
and operation of more-efficient appliances. Indirect employment impacts 
from standards consist of the net jobs created or eliminated in the 
national economy, other than in the manufacturing sector being 
regulated, caused by (1) reduced spending by consumers on energy, (2) 
reduced spending on new energy supply by the utility industry, (3) 
increased consumer spending on the products to which the new standards 
apply and other goods and services, and (4) the effects of those three 
factors throughout the economy.
    One method for assessing the possible effects on the demand for 
labor of such shifts in economic activity is to compare sector 
employment statistics developed by the Labor Department's Bureau of 
Labor Statistics (``BLS''). BLS regularly publishes its estimates of 
the number of jobs per million dollars of economic activity in 
different sectors of the economy, as well as the jobs created elsewhere 
in the economy by this same economic activity. Data from BLS indicate 
that expenditures in the utility sector generally create fewer jobs 
(both directly and indirectly) than expenditures in other sectors of 
the economy.\175\ There are many reasons for these differences, 
including wage differences and the fact that the utility sector is more 
capital-intensive and less labor-intensive than other sectors. Energy 
conservation standards have the effect of reducing consumer utility 
bills. Because reduced consumer expenditures for energy likely lead to 
increased expenditures in other sectors of the economy, the general 
effect of efficiency standards is to shift economic activity from a 
less labor-intensive sector (i.e., the utility sector) to more labor-
intensive sectors (e.g., the retail and service sectors). Thus, the BLS 
data suggest that net national employment may increase due to shifts in 
economic activity resulting from energy conservation standards.
---------------------------------------------------------------------------

    \175\ See U.S. Department of Commerce-Bureau of Economic 
Analysis. Regional Multipliers: A User Handbook for the Regional 
Input-Output Modeling System (``RIMS II ''). 1997. U.S. Government 
Printing Office: Washington, DC. Available at www.bea.gov/scb/pdf/regional/perinc/meth/rims2.pdf (last accessed July 1, 2021).
---------------------------------------------------------------------------

    DOE estimated indirect national employment impacts for the standard 
levels considered in this final rule using an input/output model of the 
U.S. economy called Impact of Sector Energy Technologies 
(``ImSET'').\176\ ImSET is a special-purpose version of the ``U.S. 
Benchmark National Input-Output'' (``I-O'') model, which was designed 
to estimate the national employment and income effects of energy-saving 
technologies. The ImSET software includes a computer-based I-O model 
having structural coefficients that characterize economic flows among 
187 sectors most relevant to industrial, commercial, and residential 
building energy use.
---------------------------------------------------------------------------

    \176\ Livingston, O.V., S.R. Bender, M.J. Scott, and R.W. 
Schultz. ImSET 4.0: Impact of Sector Energy Technologies Model 
Description and User's Guide. 2015. Pacific Northwest National 
Laboratory: Richland, WA. PNNL-24563.
---------------------------------------------------------------------------

    DOE notes that ImSET is not a general equilibrium forecasting 
model, and understands the uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Because ImSET does not incorporate price changes, the 
employment effects predicted by ImSET may over-estimate actual job 
impacts over the long run for this rule. Therefore, DOE used ImSET only 
to generate results for near-term timeframes (2026-2030), where these 
uncertainties are reduced. For more details on the employment impact 
analysis, see chapter 16 of the final rule TSD.

V. Analytical Results and Conclusions

    The following section addresses the results from DOE's analyses 
with respect to the considered energy conservation standards for CWH 
equipment. It addresses the TSLs examined by DOE, the projected impacts 
of each of these levels if adopted as energy conservation standards for 
CWH equipment, and the standards levels that DOE is adopting in this 
final rule. Additional details regarding DOE's analyses are contained 
in the final rule TSD supporting this document.

A. Trial Standard Levels

    In general, DOE typically evaluates potential amended standards for 
products and equipment by grouping individual efficiency levels for 
each class into TSLs. Use of TSLs allows DOE to identify and consider 
manufacturer cost interactions between the equipment classes, to the 
extent that there are such interactions, and market cross elasticity 
from consumer purchasing decisions that may change when different 
standard levels are set.
    In the analysis conducted for this final rule, for commercial gas-
fired storage water heaters, DOE included efficiency levels for both 
thermal efficiency and standby loss in each TSL because standby loss is 
dependent upon thermal efficiency. This dependence of standby loss on 
thermal efficiency is discussed in detail in section IIIIV.C.4.b of 
this final rule and chapter 5 of the final rule TSD. However, as 
discussed in section IV.C.4.b of this final rule, for all thermal 
efficiency levels for commercial gas-fired storage water heaters, DOE 
only analyzed one standby loss level corresponding to each thermal 
efficiency level.
    The thermal efficiency levels for commercial gas-fired storage 
water heaters and commercial gas-fired

[[Page 69790]]

instantaneous water heaters and hot water supply boilers, the standby 
loss levels for commercial gas-fired storage water heaters, and the UEF 
levels for residential-duty gas-fired storage water heaters that are 
included in each TSL are described in the following paragraphs and 
presented in Table V.1 of this final rule.
    TSL 4 consists of the max-tech efficiency levels for each equipment 
category, which correspond to the highest condensing efficiency levels. 
TSL 3 consists of intermediate condensing efficiency levels for 
commercial gas-fired storage water heaters and residential-duty gas-
fired storage water heaters, and max-tech efficiency levels for 
commercial gas-fired instantaneous water heaters and hot water supply 
boilers. TSL 2 consists of the minimum condensing efficiency levels 
analyzed for commercial gas-fired storage water heaters and 
residential-duty gas-fired storage water heaters, and intermediate 
condensing efficiency levels for commercial gas-fired instantaneous 
water heaters and hot water supply boilers. These TSLs require similar 
technologies to achieve the efficiency levels and have roughly 
comparable equipment availability across each equipment category in 
terms of the share of models available that meet the efficiency level 
and having multiple manufacturers that produce those models. TSL 1 
consists of the maximum non-condensing thermal efficiency or UEF (as 
applicable) levels analyzed for each equipment category.
    Table V.1 presents the efficiency levels for each equipment 
category (i.e., commercial gas-fired storage water heaters and storage-
type instantaneous water heaters, residential-duty gas-fired storage 
water heaters, gas-fired tankless water heaters, and gas-fired 
circulating water heaters and hot water supply boilers) in each TSL. 
Table V.2 presents the thermal efficiency value and standby loss 
reduction factor for each equipment category in each TSL that DOE 
considered, with the exception of residential-duty gas-fired storage 
water heaters (for which TSLs are shown separately in Table V.3). The 
standby loss reduction factor is a multiplier representing the 
reduction in allowed standby loss relative to the current standby loss 
standard and which corresponds to the associated increase in thermal 
efficiency. Table V.3 presents the UEF equations for residential-duty 
gas-fired storage water heaters corresponding to each TSL that DOE 
considered.

                                         Table V.1--Trial Standard Levels for CWH Equipment by Efficiency Level
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level * **
                                                 -------------------------------------------------------------------------------------------------------
                                                              1                         2                         3                         4
                    Equipment                    -------------------------------------------------------------------------------------------------------
                                                   Et or UEF                 Et or UEF                 Et or UEF                 Et or UEF
                                                       EL         SL EL          EL         SL EL          EL         SL EL          EL         SL EL
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and              1            0            2            0            4            0            5            0
 storage-type instantaneous water heaters.......
Residential-duty gas-fired storage water heaters            2  ...........            3  ...........            4  ...........            5  ...........
Gas-fired instantaneous water heaters and hot
 water supply boilers:
    Tankless water heaters......................            2  ...........            4  ...........            5  ...........            5  ...........
    Circulating water heaters and hot water                 2  ...........            4  ...........            5  ...........            5  ...........
     supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, SL stands for standby loss, UEF stands for uniform energy factor, and EL stands for efficiency level. Et applies to
  commercial gas-fired storage water heaters and storage-type instantaneous water heaters, and to gas-fired instantaneous water heaters and hot water
  supply boilers. SL applies to commercial gas-fired storage water heaters and storage-type instantaneous water heaters. UEF applies to residential-duty
  gas-fired storage water heaters.
** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters
  and hot water supply boilers. In addition, standby loss standards are not applicable for residential-duty commercial gas-fired storage water heaters.
  Lastly, for commercial gas-fired storage water heaters and storage-type instantaneous water heaters DOE only analyzed the reduction that is inherent
  to increasing Et and did not analyze SL efficiency levels above EL0.


                       Table V.2--Trial Standard Levels for CWH Equipment by Thermal Efficiency and Standby Loss Reduction Factor
                                                [Except residential-duty gas-fired storage water heaters]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Trial standard level * **
                                                 -------------------------------------------------------------------------------------------------------
                                                              1                         2                         3                         4
                    Equipment                    -------------------------------------------------------------------------------------------------------
                                                                SL factor                 SL factor                 SL factor                 SL factor
                                                     Et (%)      [dagger]      Et (%)      [dagger]      Et (%)      [dagger]      Et (%)      [dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage water heaters and             82         0.98           90         0.91           95         0.86           99         0.83
 storage-type instantaneous water heaters.......
Gas-fired instantaneous water heaters and hot
 water supply boilers:
    Tankless water heaters......................           84  ...........           94  ...........           96  ...........           96  ...........
    Circulating water heaters and hot water                84  ...........           94  ...........           96  ...........           96  ...........
     supply boilers.............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Et stands for thermal efficiency, and SL stands for standby loss.
** As discussed in sections III.B.5 and III.B.6 of this final rule, DOE did not analyze amended standby loss standards for instantaneous water heaters
  and hot water supply boilers.
[dagger] Standby loss reduction factor is a factor that is multiplied by the current maximum standby loss equations for each equipment class, as
  applicable. DOE used reduction factors to develop the amended maximum standby loss equation for each TSL. These reduction factors and maximum standby
  loss equations are discussed in section IV.C.4.b of this final rule.


[[Page 69791]]


          Table V.3--Trial Standard Levels by UEF for Residential-Duty Gas-Fired Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                              Trial standard level **
                                 -------------------------------------------------------------------------------
         Draw pattern *                    1                   2                   3                   4
                                 -------------------------------------------------------------------------------
                                          UEF                 UEF                 UEF                 UEF
----------------------------------------------------------------------------------------------------------------
High............................    0.7497-0.0009*Vr    0.8397-0.0009*Vr    0.9297-0.0009*Vr    0.9997-0.0009*Vr
Medium..........................    0.6902-0.0011*Vr    0.7802-0.0011*Vr    0.8702-0.0011*Vr    0.9402-0.0011*Vr
Low.............................    0.6262-0.0012*Vr    0.7162-0.0012*Vr    0.8062-0.0012*Vr    0.8762-0.0012*Vr
Very Small......................    0.3574-0.0009*Vr    0.4474-0.0009*Vr    0.5374-0.0009*Vr    0.6074-0.0009*Vr
----------------------------------------------------------------------------------------------------------------
* Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in in appendix E to subpart B of 10 CFR part 430.
** Vr is rated volume in gallons.

    DOE constructed the TSLs for this final rule to include efficiency 
levels representative of efficiency levels with similar characteristics 
(i.e., using similar technologies and/or efficiencies, and having 
roughly comparable equipment availability). The use of representative 
efficiency levels provided for greater distinction between the TSLs. 
While representative efficiency levels were included in the TSLs, DOE 
considered all efficiency levels as part of its analysis.\177\
---------------------------------------------------------------------------

    \177\ Efficiency levels that were analyzed for this final rule 
are discussed in section IV.C.4 of this document. Results by 
efficiency level are presented in TSD chapters 8, 10, and 12.
---------------------------------------------------------------------------

B. Economic Justification and Energy Savings

1. Economic Impacts on Individual Consumers
    DOE analyzed the economic impacts on CWH equipment consumers by 
looking at the effects that potential amended standards at each TSL 
would have on the LCC and PBP. DOE also examined the impacts of 
potential standards on selected consumer subgroups. These analyses are 
discussed in the following sections.
a. Life-Cycle Cost and Payback Period
    In general, higher-efficiency products affect consumers in two 
ways: (1) purchase price increases and (2) annual operating costs 
decrease. Inputs used for calculating the LCC and PBP include total 
installed costs (i.e., product price plus installation costs) and 
operating costs (i.e., annual energy use, energy prices, energy price 
trends, repair costs, and maintenance costs). The LCC calculation also 
uses product lifetime and a discount rate. Chapter 8 of the final rule 
TSD provides detailed information on the LCC and PBP analyses.
    Table V.4 through Table V.13 of this final rule show the LCC and 
PBP results for the TSLs considered in this final rule. In the first of 
each pair of tables, the simple payback is measured relative to the 
baseline product. In the second table, impacts are measured relative to 
the efficiency distribution in the no-new-standards case in the 
compliance year (see section IV.F.8 of this document). Because some 
consumers purchase products with higher efficiency in the no-new-
standards case, the average savings are less than the difference 
between the average LCC of the baseline product and the average LCC at 
each TSL. The savings refer only to consumers who are affected by a 
standard at a given TSL. As was noted in IV.H.1 of this document, DOE 
assumes a large percentage of consumers will already be purchasing 
higher efficiency condensing equipment by 2026. Those who already 
purchase a product with efficiency at or above a given TSL are not 
affected. Consumers for whom the LCC increases at a given TSL 
experience a net cost.

           Table V.4--Average LCC and PBP Results for Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Average costs (2022$)
                                              Thermal      Standby loss  ---------------------------------------------------------------- Simple payback
                  TSL *                     efficiency      (SL) factor                    First year's      Lifetime                     period (years)
                                             (Et) (%)                     Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................              80            1.00           6,083           2,419          18,589          24,672               0
1.......................................              82            0.98           6,158           2,374          18,252          24,410             1.7
2.......................................              90            0.91           7,477           2,243          17,266          24,743             7.9
3.......................................              95            0.86           7,593           2,157          16,681          24,274             5.8
4.......................................              99            0.83           7,733           2,094          16,206          23,939             5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


[[Page 69792]]


   Table V.5--Average LCC Savings Relative to the No-New-Standards Case for Commercial Gas-Fired Storage Water
                              Heaters and Storage-Type Instantaneous Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                              Life-cycle cost savings
                                                                 -----------------------------------------------
                                      Thermal                                      Percentage of
                                    efficiency     Standby loss    Percentage of    commercial     Average life-
               TSL                (Et) level (%)    (SL) factor     commercial    consumers that    cycle cost
                                                                  consumers that   experience a      savings *
                                                                   experience a     net benefit       (2022$)
                                                                   net cost (%)         (%)
----------------------------------------------------------------------------------------------------------------
0...............................              80            1.00               0               0               0
1...............................              82            0.98               3              32             267
2...............................              90            0.91              19              18            (85)
3...............................              95            0.86              17              35             367
4...............................              99            0.83              23              76             528
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only. A value in parenthesis is a negative number.
Note: TSL 0 represents the baseline.


                               Table V.6--Average LCC and PBP Results for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Average costs (2022$)
                                                                       ------------------------------------------------------------------ Simple payback
                         TSL *                              UEF **                        First year's       Lifetime                     period (years)
                                                                        Installed cost   operating cost   operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.....................................................            0.59           2,539            1,519           13,470          16,009  ..............
1.....................................................            0.68           2,791            1,427           12,671          15,462             2.7
2.....................................................            0.77           3,746            1,365           12,220          15,966             7.8
3.....................................................            0.86           4,135            1,298           11,634          15,769             7.2
4.....................................................            0.93           4,199            1,261           11,311          15,510             6.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.
** The UEF shown is for the representative capacity of 75 gallons.


   Table V.7--Average LCC Savings Relative to the No-New-Standards Case for Residential-Duty Gas-Fired Storage
                                                  Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                                 Percentage of    Percentage of
                      TSL                            UEF *         commercial       commercial     Average life-
                                                                 consumers that   consumers that    cycle cost
                                                                  experience a     experience a     savings **
                                                                  net cost (%)   net benefit (%)       2022$
----------------------------------------------------------------------------------------------------------------
0.............................................            0.59                0                0               0
1.............................................            0.68                6               69             509
2.............................................            0.77               43               47            (80)
3.............................................            0.86               42               50             119
4.............................................            0.93               37               62             370
----------------------------------------------------------------------------------------------------------------
* The UEF shown is for the representative capacity of 75 gallons.
** The calculation includes affected consumers only. A value in parentheses is a negative number.
Note: TSL 0 represents the baseline.


         Table V.8--Average LCC and PBP Results by Efficiency Level for Gas-Fired Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                    Average costs 2022$
                                                    --------------------------------------------------   Simple
                                          Thermal                    First                              payback
                 TSL *                   efficiency   Installed      year's      Lifetime                period
                                          (Et) (%)       cost      operating    operating      LCC       years
                                                                      cost         cost
----------------------------------------------------------------------------------------------------------------
0.....................................           80        3,007          821        9,535     12,543  .........
1.....................................           84        3,046          789        9,201     12,247        1.3
2.....................................           94        3,858          729        8,612     12,471        9.3
3.....................................           96        3,925          717        8,480     12,405        8.9

[[Page 69793]]

 
4.....................................           96        3,925          717        8,480     12,405        8.9
----------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level.
  The PBP is measured relative to the baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.9--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                                             Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                    Thermal      Percentage of    Percentage of
                      TSL                         efficiency       commercial       commercial     Average life-
                                                   (Et) (%)      consumers that   consumers that    cycle cost
                                                                  experience a     experience a      savings *
                                                                  net cost (%)   net benefit (%)       2022$
----------------------------------------------------------------------------------------------------------------
0.............................................              80                0                0               0
1.............................................              84                0               17             295
2.............................................              94               10               11             105
3.............................................              96               15               27             120
4.............................................              96               15               27             120
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.


            Table V.10--Average LCC and PBP Results by Efficiency Level for Gas-Fired Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Average costs 2022$
                                                              Thermal    ---------------------------------------------------------------- Simple payback
                          TSL *                             efficiency                     First year's      Lifetime                      period years
                                                             (Et) (%)     Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................              80           8,622           5,273          80,367          88,989  ..............
1.......................................................              84           8,830           5,114          77,996          86,826             1.3
2.......................................................              94          13,973           4,731          72,358          86,331             9.9
3.......................................................              96          14,362           4,661          71,307          85,668             9.4
4.......................................................              96          14,362           4,661          71,307          85,668             9.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.11--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                             Circulating Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                                              Life-cycle cost savings
                                                                 -----------------------------------------------
                                                                                   Percentage of
                                                      Thermal      Percentage of    commercial     Average life-
                       TSL                          efficiency      commercial    consumers that    cycle cost
                                                     (Et) (%)     consumers that   experience a      savings *
                                                                   experience a     net benefit        2022$
                                                                   net cost (%)         (%)
----------------------------------------------------------------------------------------------------------------
0...............................................              80               0               0               0
1...............................................              84               2              17           1,153
2...............................................              94              17              16           1,204
3...............................................              96              18              26           1,570
4...............................................              96              18              26           1,570
----------------------------------------------------------------------------------------------------------------
* The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.


[[Page 69794]]


          Table V.12--Average LCC and PBP Results by Efficiency Level for Gas-Fired Instantaneous Water Heaters and Hot Water Supply Boilers *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Average costs 2022$
                                                              Thermal    ---------------------------------------------------------------- Simple payback
                         TSL **                             efficiency                     First year's      Lifetime                      period years
                                                             (Et) (%)     Installed cost  operating cost  operating cost        LCC
--------------------------------------------------------------------------------------------------------------------------------------------------------
0.......................................................              80           6,021           3,211          47,561          53,582  ..............
1.......................................................              84           6,151           3,111          46,132          52,284             1.3
2.......................................................              94           9,288           2,877          42,834          52,122             9.8
3.......................................................              96           9,528           2,834          42,208          51,736             9.3
4.......................................................              96           9,528           2,834          42,208          51,736             9.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment class (i.e., both tankless water heaters
  and hot water supply boilers), and reflects a weighted average result of Tables V.8 and V.10 of this final rule.
** The results for each TSL are calculated assuming that all consumers use equipment with that efficiency level. The PBP is measured relative to the
  baseline equipment.
Note: TSL 0 represents the baseline.


   Table V.13--Average LCC Savings Relative to the No-New-Standards-Case Efficiency Distribution for Gas-Fired
                           Instantaneous Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
                                                                             Life-cycle cost savings
                                                               -------------------------------------------------
                                                    Thermal      Percentage of    Percentage of
                      TSL                         efficiency       commercial       commercial     Average life-
                                                   (Et) (%)      consumers that   consumers that    cycle cost
                                                                  experience a     experience a     savings **
                                                                  net cost (%)   net benefit (%)       2022$
----------------------------------------------------------------------------------------------------------------
0.............................................              80                0                0               0
1.............................................              84                1               17             756
2.............................................              94               14               14             695
3.............................................              96               17               27             898
4.............................................              96               17               27             898
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.9 and V.11 of this final rule.
** The calculation includes affected consumers only.
Note: TSL 0 represents the baseline.

b. Consumer Subgroup Analysis
    In the consumer subgroup analysis, DOE estimated the impact of the 
considered TSLs on a low-income residential population (0-20 percentile 
gross annual household income) subgroup. Table V.14 through Table V.23 
of this final rule compare the average LCC savings and PBP at each 
efficiency level for the consumer subgroup, along with the average LCC 
savings for the entire consumer sample. In most cases, the average LCC 
savings and PBP for low-income residential consumers at the considered 
efficiency levels are either similar to or more favorable than the 
average for all consumers, due in part to greater levels of equipment 
usage in RECS apartment building sample identified as low-income 
observations when compared to the average consumer of CWH equipment. 
Chapter 11 of the final rule TSD presents the complete LCC and PBP 
results for the subgroup analysis.

  Table V.14--Comparison of Impacts for Consumer Subgroup With All Consumers, Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous
                                                                      Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                LCC savings (2022$)        Simple payback period (years)
                                                              Thermal      Standby loss  ---------------------------------------------------------------
                           TSL                              efficiency      (SL) factor     Residential                     Residential
                                                             (Et) (%)           (%)         low-income          All         low-income          All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................              82              98             524             267             1.0             1.7
2.......................................................              90              91             994            (85)             4.3             7.9
3.......................................................              95              86           1,578             367             3.2             5.8
4.......................................................              99              83           1,542             528             2.8             5.1
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 69795]]


    Table V.15--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Commercial Gas-Fired Storage Water Heaters and Storage-Type
                                                               Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Percent of consumers that       Percent of consumers that
                                                              Thermal      Standby loss        experience a net cost         experience a net benefit
                           TSL                              efficiency      (SL) factor  ---------------------------------------------------------------
                                                             (Et) (%)           (%)         Residential                     Residential
                                                                                            low-income          All         low-income          All
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................              82              98               0               3              34              32
2.......................................................              90              91              10              19              27              18
3.......................................................              95              86               6              17              46              35
4.......................................................              99              83               4              23              95              76
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table V.16--Comparison of Impacts for Consumer Subgroup With All Consumers, Residential-Duty Gas-Fired Storage
                                                  Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                        LCC savings (2022$)        Simple payback period (years)
                                                 ---------------------------------------------------------------
               TSL                      UEF         Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................            0.68             716             509             2.2             2.7
2...............................            0.77             368            (80)             5.6             7.8
3...............................            0.86             729             119             5.3             7.2
4...............................            0.93           1,033             370             4.7             6.4
----------------------------------------------------------------------------------------------------------------
* Parentheses indicate negative values.


Table V.17--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Residential-Duty Gas-Fired
                                              Storage Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                                       experience a net cost         experience a net benefit
               TSL                      UEF      ---------------------------------------------------------------
                                                    Residential                     Residential
                                                  low-income (%)        All       low-income (%)        All
----------------------------------------------------------------------------------------------------------------
1...............................            0.68               1               6              73              69
2...............................            0.77              28              43              61              47
3...............................            0.86              24              42              68              50
4...............................            0.93              19              37              79              62
----------------------------------------------------------------------------------------------------------------


  Table V.18--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Tankless Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                         LCC savings 2022$         Simple payback period (years)
                                      Thermal    ---------------------------------------------------------------
               TSL                  efficiency      Residential                     Residential
                                     (Et) (%)       low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84             217             295             1.7             1.3
2...............................              94              26             105            10.2             9.3
3...............................              96              49             120             9.9             8.9
4...............................              96              49             120             9.9             8.9
----------------------------------------------------------------------------------------------------------------


 Table V.19--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Tankless Water
                                                     Heaters
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                     (Et) (%)       Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               0               0              17              17
2...............................              94              11              10              10              11
3...............................              96              17              15              26              27
4...............................              96              17              15              26              27
----------------------------------------------------------------------------------------------------------------


[[Page 69796]]


 Table V.20--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Circulating Water Heaters
                                          and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                         LCC savings 2022$         Simple payback period (years)
                                      Thermal    ---------------------------------------------------------------
               TSL                  efficiency      Residential                     Residential
                                     (Et) (%)       low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84           2,289           1,153             0.7             1.3
2...............................              94           7,552           1,204             5.6             9.9
3...............................              96           7,425           1,570             5.3             9.4
4...............................              96           7,425           1,570             5.3             9.4
----------------------------------------------------------------------------------------------------------------


   Table V.21--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Circulating
                                   Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                     (Et) (%)       Residential                     Residential
                                                    low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               0               2              19              17
2...............................              94               5              17              28              16
3...............................              96               5              18              40              26
4...............................              96               5              18              40              26
----------------------------------------------------------------------------------------------------------------


    Table V.22--Comparison of Impacts for Consumer Subgroup With All Consumers, Gas-Fired Instantaneous Water
                                     Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
                                                        LCC savings (2022$)        Simple payback period (years)
                                      Thermal    ---------------------------------------------------------------
               TSL                  efficiency      Residential                     Residential
                                     (Et) (%)       low-income          All         low-income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84           1,329             756             0.8             1.3
2...............................              94           4,066             695             5.8             9.8
3...............................              96           4,009             898             5.5             9.3
4...............................              96           4,009             898             5.5             9.3
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.18 and V.20 of this final rule.


  Table V.23--Comparison of Impacted Consumers for Consumer Subgroup and All Consumers, Gas-Fired Instantaneous
                                  Water Heaters and Hot Water Supply Boilers *
----------------------------------------------------------------------------------------------------------------
                                                     Percent of consumers that       Percent of consumers that
                                      Thermal          experience a net cost         experience a net benefit
               TSL                  efficiency   ---------------------------------------------------------------
                                     (Et) (%)       Residential                     Residential
                                                    low-income          All         low-Income          All
----------------------------------------------------------------------------------------------------------------
1...............................              84               0               1              18              17
2...............................              94               8              14              20              14
3...............................              96              10              17              33              27
4...............................              96              10              17              33              27
----------------------------------------------------------------------------------------------------------------
* This table shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average result
  of Tables V.19 and V.21 of this final rule.

c. Rebuttable Presumption Payback
    As discussed in section II.A, EPCA establishes a rebuttable 
presumption that an energy conservation standard is economically 
justified if the increased purchase cost for a product that meets the 
standard is less than three times the value of the first-year energy 
savings resulting from the standard. In calculating a rebuttable 
presumption PBP for each of the considered TSLs, DOE used discrete 
values, and, as required by EPCA, based the energy use calculation on 
the DOE test procedures for CWH equipment. In contrast, the PBPs 
presented in section V.B.1.a of this document were calculated using 
distributions that reflect the range of energy use in the field.
    Table V.24 presents the rebuttable presumption PBPs for the 
considered TSLs for CWH equipment. TSL 1 is the only level at which the 
rebuttable presumption PBPs are less than or equal to three. See 
chapter 8 of the final rule TSD for more information on the rebuttable 
presumption PBP analysis.

[[Page 69797]]



                               Table V.24--Rebuttable Presumption Payback Periods
----------------------------------------------------------------------------------------------------------------
                                                                   Trial standard level (years)
                    Equipment                    ---------------------------------------------------------------
                                                         1               2               3               4
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-Type                1.7             7.5             5.6             5.0
 Instantaneous Water Heaters....................
Residential-Duty Gas-Fired Storage..............             2.7             7.6             7.1             6.3
Gas-Fired Instantaneous Water Heaters and Hot                1.3             9.5             9.1             9.1
 Water Supply Boilers *.........................
Instantaneous, Gas-Fired Tankless...............             1.3             8.7             8.4             8.4
Instantaneous Water Heaters and Hot Water Supply             1.3             9.6             9.1             9.1
 Boilers........................................
----------------------------------------------------------------------------------------------------------------
* This row shows results for the gas-fired instantaneous water heaters and hot water supply boilers equipment
  class (i.e., both tankless water heaters and hot water supply boilers), and reflects a weighted average
  result.

2. Economic Impacts on Manufacturers
    DOE performed an MIA to estimate the impact of amended energy 
conservation standards on manufacturers of CWH equipment. The next 
section describes the expected impacts on manufacturers at each 
considered TSL. Chapter 12 of the final rule TSD explains the analysis 
in further detail.
a. Industry Cash Flow Analysis Results
    In this section, DOE provides GRIM results from the analysis, which 
examines changes in the industry that would result from a standard. 
Table V.25 through Table V.28 of this final rule summarize the 
estimated financial impacts of potential amended energy conservation 
standards on manufacturers of CWH equipment, as well as the conversion 
costs that DOE estimates manufacturers of CWH equipment would incur at 
each TSL.
    The impact of potential amended energy conservation standards was 
analyzed under two markup scenarios: (1) the preservation of gross 
margin percentage markup scenario and (2) the preservation of per-unit 
operating profit markup scenario, as discussed in section IV.J.2.d of 
this document. The preservation of gross margin percentage scenario 
provides the upper bound while the preservation of operating profits 
scenario results in the lower (or more severe) bound to impacts of 
potential amended standards on industry.
    Each of the modeled scenarios results in a unique set of cash flows 
and corresponding INPV for each TSL. INPV is the sum of the discounted 
cash flows to the industry from the base year through the end of the 
analysis period (2023-2055). The ``change in INPV'' results refer to 
the difference in industry value between the no-new-standards case and 
standards case at each TSL. To provide perspective on the short-run 
cash flow impact, DOE includes a comparison of free cash flow between 
the no-new-standards case and the standards case at each TSL in the 
year before amended standards would take effect. This free cash flow 
comparison provides an understanding of the magnitude of the required 
conversion costs relative to the cash flow generated by the industry in 
the no-new-standards case.
    Conversion costs are one-time investments for manufacturers to 
bring their manufacturing facilities and product designs into 
compliance with potential amended standards. As described in section 
IV.J.2.c of this document, conversion cost investments occur between 
the year of publication of the final rule and the year by which 
manufacturers must comply with the new standard. The conversion costs 
can have a significant impact on the short-term cash flow on the 
industry and generally result in lower free cash flow in the period 
between the publication of the final rule and the compliance date of 
potential amended standards. Conversion costs are independent of the 
manufacturer markup scenarios and are not presented as a range in this 
analysis.
    The results in Table V.25 through Table V.28 of this final rule 
show potential INPV impacts for CWH equipment manufacturers by 
equipment class. The tables present the range of potential impacts 
reflecting both the less severe set of potential impacts (preservation 
of gross margin) and the more severe set of potential impacts 
(preservation of per-unit operating profit). In the following 
discussion, the INPV results refer to the difference in industry value 
between the no-new-standards case and each standards case that results 
from the sum of discounted cash flows from 2023 (the base year) through 
2055 (the end of the analysis period).
Industry Cash Flow for Commercial Gas-Fired Storage Water Heaters and 
Storage-Type Instantaneous Equipment
    The results in Table V.25 of this final rule shows the estimated 
impacts for commercial gas-fired storage water heaters. Commercial gas-
fired storage water heaters represent approximately 69 percent of 
shipments covered by this rulemaking.

      Table V.25--Manufacturing Impact Analysis Results for Commercial Gas-Fired Storage Water Heaters and Storage-Type Instantaneous Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2022$ millions...................           154.2     153.3-154.0     139.1-142.7     130.4-136.5       62.0-73.1
Change in INPV.......................  2022$ millions...................  ..............     (0.9)-(0.1)   (15.0)-(11.4)   (23.7)-(17.6)   (92.1)-(81.0)
                                       %................................  ..............     (0.6)-(0.1)     (9.7)-(7.4)   (15.4)-(11.4)   (59.8)-(52.6)
Free Cash Flow (2025)................  2022$ millions...................            12.6            12.2             5.1             1.2          (34.4)
Change in Free Cash Flow.............  2022$ millions...................  ..............           (0.4)           (7.5)          (11.5)          (47.1)
                                       %................................  ..............           (3.1)          (59.3)          (90.6)         (372.3)
Product Conversion Costs.............  2022$ millions...................  ..............             1.0             4.9            10.9            84.1
Capital Conversion Costs.............  2022$ millions...................  ..............             0.1            12.8            16.9            28.1
                                                                         -------------------------------------------------------------------------------

[[Page 69798]]

 
    Total Conversion Costs...........  2022$ millions...................  ..............             1.1            17.7            27.8           112.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for commercial gas-fired 
storage and storage-type instantaneous water heater equipment 
manufacturers to range from-0.6 percent to -0.1 percent, or a change of 
-$0.9 million to -$0.1 million. At this level, DOE estimates that 
industry free cash flow would decrease by approximately 3.1 percent to 
$12.2 million, compared to the no-new-standards-case value of $12.6 
million in the year before compliance (2025).
    DOE estimates 67.3 percent of commercial gas-fired storage water 
heater and storage-type instantaneous water heater basic models meet or 
exceed the thermal efficiency and standby loss standards at TSL 1. DOE 
does not expect the modest increases in thermal efficiency and standby 
loss requirements at this TSL to require major equipment redesigns or 
large capital investments. Overall, DOE estimates that manufacturers 
would incur $1.0 million in product conversion costs and $0.1 million 
in capital conversion costs to bring their equipment portfolios into 
compliance with a standard set to TSL 1. At TSL 1, conversion costs are 
a key driver of results. These upfront investments result in a slightly 
lower INPV in both manufacturer markup scenarios.
    At TSL 2, DOE estimates impacts on INPV for manufacturers of this 
equipment class to range from -9.7 percent to -7.4 percent, or a change 
in INPV of -$15.0 million to -$11.4 million. At this potential standard 
level, industry free cash flow would decrease by approximately 59.3 
percent to $5.1 million, compared to the no-new-standards case value of 
$12.6 million in the year before compliance (2025).
    DOE estimates 41 percent of commercial gas-fired storage water 
heater and storage-type instantaneous water heater basic models meet or 
exceed the thermal efficiency and standby loss standards at TSL 2. 
Product and capital conversion costs would increase at this TSL as 
manufacturers update designs, production equipment, and floor space to 
meet a thermal efficiency standard that necessitates condensing 
technology. DOE notes that capital investment would vary by 
manufacturer due to differences in condensing heat exchanger designs 
and differences in existing production capacity. These capital 
conversion costs include, but are not limited to, investments in tube 
bending, press dies, machining, enameling, MIG welding, leak testing, 
quality assurance stations, and conveyer.
    DOE estimates that industry would incur $4.9 million in product 
conversion costs and $12.8 million in capital conversion costs to bring 
their offered commercial gas-fired storage water heaters and storage-
type instantaneous water heaters into compliance with a standard set to 
TSL 2. At TSL 2, conversion costs are a key driver of results. These 
upfront investments result in a lower INPV in both manufacturer markup 
scenarios.
    At TSL 3, DOE estimates impacts on INPV for commercial gas-fired 
storage water heater and storage-type instantaneous water heater 
manufacturers to range from -15.4 percent to -11.4 percent, or a change 
in INPV of -$23.7 million to -$17.6 million. At this potential standard 
level, DOE estimates industry free cash flow would decrease by 
approximately 90.6 percent to $1.2 million, compared to the no-new-
standards-case value of $12.6 million in the year before compliance 
(2025).
    DOE estimates that 34 percent of currently offered commercial gas-
fired storage water heater and storage-type instantaneous water heater 
basic models meet or exceed the thermal efficiency and standby loss 
standards at TSL 3. At this level, DOE estimates that product 
conversion costs would increase, as manufacturers would have to 
redesign a larger percentage of their offerings to meet the higher 
thermal efficiency levels. Additionally, capital conversion costs would 
increase, as manufacturers upgrade their laboratories and test 
facilities to increase capacity for product development and safety 
testing for their commercial gas-fired storage water heater and 
storage-type instantaneous water heater offerings. Overall, DOE 
estimates that manufacturers would incur $10.9 million in product 
conversion costs and $16.9 million in capital conversion costs to bring 
their commercial gas-fired storage water heater and storage-type 
instantaneous water heater portfolio into compliance with a standard 
set to TSL 3. At TSL 3, conversion costs are a key driver of results. 
These upfront investments result in lower INPV in both manufacturer 
markup scenarios.
    TSL 4 represents the max-tech thermal efficiency and standby loss 
levels. At TSL 4, DOE estimates impacts on INPV for commercial gas-
fired storage water heater and storage-type instantaneous water heater 
manufacturers to range from -59.8 percent to -52.6 percent, or a change 
in INPV of -$92.1 million to -$81.0 million. At this TSL, DOE estimates 
industry free cash flow in the year before compliance (2025) would 
decrease by approximately 372.3 percent to -$34.4 million compared to 
the no-new-standards case value of $12.6 million.
    The impacts on INPV at TSL 4 are significant. DOE estimates less 
than 1 percent of currently offered basic models meet or exceed the 
efficiency levels prescribed at TSL 4. DOE expects product conversion 
costs to be significant at TSL 4, as almost all equipment on the market 
would have to be redesigned. Furthermore, the redesign process would be 
more resource intensive and costly at TSL 4 than at other TSLs. 
Traditionally, manufacturers design their equipment platforms to 
support a range of models with varying input capacities and storage 
volumes, and the efficiency typically will vary slightly between models 
within a given platform. However, at TSL 4, manufacturers would be 
limited in their ability to maintain a platform approach to designing 
commercial gas-fired storage and storage-type instantaneous water 
heaters, because the 99 percent thermal efficiency level represents the 
maximum achievable efficiency and there would be no allowance for 
slight variations in efficiency between individual models. At TSL 4, 
manufacturers would be required to separately redesign each individual 
model to optimize performance for each specific input capacity and 
storage volume combination. In manufacturer interviews, some 
manufacturers raised concerns that they would not have sufficient 
engineering capacity to

[[Page 69799]]

complete necessary redesigns within the 3-year conversion period. If 
manufacturers require more than 3 years to redesign all models, they 
would likely prioritize redesigns based on sales volume. Due to the 
increase in number of redesigns and engineering effort, DOE estimates 
that product conversion costs would increase to $84.1 million.
    DOE estimates that manufacturers would also incur $28.1 million in 
capital conversion costs. In addition to upgrading production lines, 
DOE expects manufacturers would need to add laboratory space to develop 
and test products to meet amended standards at TSL 4 standards. These 
large upfront investments result in a substantially lower INPV in both 
manufacturer markup scenarios.
    At TSL 4, the large conversion costs result in a free cash flow 
dropping below zero in the years before the standard year. The negative 
free cash flow calculation indicates manufacturers may need to access 
cash reserves or outside capital to finance conversion efforts.
Industry Cash Flow for Residential-Duty Gas-Fired Storage Water Heaters
    The results in Table V.26 of this final rule shows the estimated 
impacts for residential-duty gas-fired storage water heaters. 
Residential-duty gas-fired storage water heaters represent 
approximately 13.5 percent of shipments covered by this rulemaking.

                         Table V.26--Manufacturing Impact Analysis Results for Residential-Duty Gas-Fired Storage Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2022$ millions...................             9.0         8.4-9.6         7.6-9.6        6.5-11.2         2.3-7.4
Change in INPV.......................  2022$ millions...................  ..............       (0.5)-0.6       (1.4)-0.7       (2.5)-2.2     (6.7)-(1.5)
                                       %................................  ..............       (5.8)-6.8      (15.3)-7.4     (27.3)-25.0   (74.7)-(16.9)
Free Cash Flow (2025)................  2022$ millions...................             0.7             0.5             0.2           (0.2)           (2.4)
Change in Free Cash Flow.............  2022$ millions...................  ..............           (0.2)           (0.6)           (0.9)           (3.1)
                                       %................................  ..............          (26.9)          (78.8)         (125.6)         (429.9)
Product Conversion Costs.............  2022$ millions...................  ..............             0.5             0.8             1.2             4.8
Capital Conversion Costs.............  2022$ millions...................  ..............             0.1             0.7             1.0             2.5
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs *.........  2022$ millions...................  ..............             0.5             1.4             2.3             7.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding.

    At TSL 1, DOE estimates impacts on INPV for residential-duty gas-
fired storage equipment manufacturers to range from -5.8 percent to 6.8 
percent, or a change of -$0.5 million to $0.6 million. At this level, 
DOE estimates that industry free cash flow would decrease by 
approximately 26.9 percent to $0.5 million, compared to the no-new-
standards-case value of $0.7 million in the year before compliance 
(2025).
    DOE estimates that 50 percent of currently offered residential-duty 
gas-fired storage water heater basic models already meet or exceed the 
UEF standards at TSL 1. DOE does not expect the modest increases in UEF 
requirements at this TSL to require major equipment redesigns or large 
capital investments. Overall, DOE estimates that industry would incur 
$0.5 million in product conversion costs and $0.1 million in capital 
conversion costs to bring their residential-duty commercial gas-fired 
storage equipment portfolios into compliance with a standard set to TSL 
1. At TSL 1, conversion costs are the primary driver of results. These 
upfront investments result in a moderately lower INPV for the 
preservation of operating profit scenario and a moderately higher INPV 
for the preservation of gross margin scenario.
    At TSL 2, DOE estimates impacts on INPV for manufacturers of this 
equipment class to range from -15.3 percent to 7.4 percent, or a change 
in INPV of -$1.4 million to $0.7 million. At this potential standard 
level, industry free cash flow would decrease by approximately 78.8 
percent to $0.2 million, compared to the no-new-standards case value of 
$0.7 million in the year before compliance (2025).
    DOE estimates that 32 percent of currently offered residential-duty 
gas-fired storage water heater basic models would already meet or 
exceed the UEF standards at TSL 2. Product and capital conversion costs 
would increase at this TSL. Manufacturers would meet the UEF levels for 
residential-duty commercial gas-fired storage equipment by shifting to 
condensing technology. DOE notes that the capital investment would vary 
by manufacturer due to differences in condensing heat exchanger designs 
and differences in existing production capacity.
    DOE estimates that industry would incur $0.8 million in product 
conversion costs and $0.7 million in capital conversion costs to bring 
their residential-duty gas-fired storage water heaters into compliance 
with a standard set to TSL 2. At TSL 2, conversion costs continue to be 
the primary driver of results. These upfront investments result in a 
lower INPV in both manufacturer markup scenarios.
    At TSL 3, DOE estimates impacts on INPV for residential-duty gas-
fired manufacturers to range from -27.3 percent to 25.0 percent, or a 
change in INPV of -$2.5 million to $2.2 million. At this potential 
standard level, DOE estimates industry free cash flow would decrease by 
approximately 125.6 percent to -$0.2 million compared to the no-new-
standards-case value of $0.7 million in the year before compliance 
(2025).
    DOE estimates that 27 percent of currently offered residential-duty 
commercial gas-fired storage water heater basic models would meet or 
exceed the UEF standards at TSL 3. At this level, DOE estimates that 
product conversion costs would increase, as manufacturers would have to 
redesign a larger percentage of their offerings to meet the higher UEF 
levels and transition to a complete portfolio of condensing offerings. 
Additionally, capital conversion costs would increase, as manufacturers 
increase production capacity for condensing equipment. Overall, DOE 
estimates that manufacturers would incur $1.2 million in product 
conversion costs and $1.0 million in capital conversion costs to bring 
their residential-duty commercial gas-fired storage water heater 
portfolio into compliance with a standard set to

[[Page 69800]]

TSL 3. At TSL 3, conversion costs are a key driver of results.
    TSL 4 represents the max-tech UEF levels. At TSL 4, DOE estimates 
impacts on INPV for residential-duty commercial gas-fired storage water 
heater manufacturers to range from -74.7 percent to -16.9 percent, or a 
change in INPV of -$6.7 million to -$1.5 million. At this TSL, DOE 
estimates industry free cash flow in the year before compliance (2025) 
would decrease by approximately 429.9 percent to -$2.4 million compared 
to the no-new-standards case value of $0.7 million.
    The impacts on INPV at TSL 4 are significant. DOE estimates that 
approximately 2 percent of currently offered residential-duty gas-fired 
water heater equipment meet or exceed the efficiency levels prescribed 
at TSL 4. DOE expects conversion costs to be significant at TSL 4, as 
most equipment currently on the market would have to be redesigned and 
new products would have to be developed to meet a wider range of 
storage volumes. DOE estimates that product conversion costs would 
increase to $4.8 million, as manufacturers would have to redesign a 
much larger percentage of their offerings to meet max-tech.
    DOE estimates that manufacturers would also incur $2.5 million in 
capital conversion costs. In addition to upgrading production lines, 
DOE accounted for the costs to add laboratory space to develop and 
safety test products that meet max-tech efficiency levels. At TSL 4, 
conversion costs are high. These upfront investments result in a lower 
INPV in both manufacturer markup scenarios.
    At TSL 4, the large conversion costs result in a free cash flow 
dropping below zero in the years before the standard year. The negative 
free cash flow calculation indicates manufacturers may need to access 
cash reserves or outside capital to finance conversion efforts.
Industry Cash Flow for Gas-Fired Instantaneous Tankless Water Heaters
    The results in Table V.27 of this final rule shows the estimated 
impacts for gas-fired instantaneous tankless water heaters. Gas-fired 
instantaneous tankless water heaters represent approximately 8 percent 
of shipments covered by this rulemaking.

                          Table V.27--Manufacturing Impact Analysis Results for Gas-Fired Instantaneous Tankless Water Heaters
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2022$ millions...................             8.9         8.3-8.4         7.2-7.5         7.2-7.6         7.2-7.6
Change in INPV.......................  2022$ millions...................  ..............     (0.5)-(0.5)     (1.7)-(1.4)     (1.7)-(1.3)     (1.7)-(1.3)
                                       %................................  ..............     (6.0)-(5.6)   (18.6)-(15.6)   (19.0)-(14.2)   (19.0)-(14.2)
Free Cash Flow (2025)................  2022$ millions...................             0.6             0.3           (0.3)           (0.3)           (0.3)
Change in Free Cash Flow.............  2022$ millions...................  ..............           (0.3)           (0.8)           (0.8)           (0.8)
                                       %................................  ..............          (46.7)         (145.6)         (146.0)         (146.0)
Product Conversion Costs.............  2022$ millions...................  ..............             0.7             1.5             1.5             1.5
Capital Conversion Costs.............  2022$ millions...................  ..............             0.0             0.7             0.7             0.7
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs *.........  2022$ millions...................  ..............             0.7             2.1             2.1             2.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Product conversion costs + capital conversion costs = total conversion costs. Numbers may not add up exactly due to rounding.

    At TSL 1, DOE estimates impacts on INPV for gas-fired instantaneous 
tankless water heaters manufacturers to range from -6.0 percent to -5.6 
percent, or a change of approximately -$0.53 million to -$0.50 million. 
At this level, DOE estimates that industry free cash flow would 
decrease by approximately -46.7 percent to $0.3 million, compared to 
the no-new-standards-case value of $0.6 million in the year before 
compliance (2025).
    DOE estimates that 91 percent of basic models of gas-fired 
instantaneous tankless water heaters already meet or exceed the thermal 
efficiency standards at TSL 1. At this level, DOE expects manufacturers 
of this equipment class to incur product conversion costs to redesign 
their equipment. DOE does not expect the modest increases in thermal 
efficiency requirements at this TSL to require capital investments. 
Overall, DOE estimates that manufacturers would incur $0.7 million in 
product conversion costs and no capital conversion costs to bring this 
equipment portfolio into compliance with a standard set to TSL 1. At 
TSL 1, product conversion costs are the key driver of results. These 
upfront investments result in a lower INPV in both manufacturer markup 
scenarios.
    At TSL 2, DOE estimates impacts on INPV ranges from -18.6 percent 
to -15.6 percent, or a change in INPV of -$1.7 million to -$1.4 
million. At this potential standard level, DOE estimates industry free 
cash flow to decrease by approximately 145.6 percent to -$0.3 million 
compared to the no-new-standards-case value of $0.6 million in the year 
before compliance (2025).
    DOE estimates that 86 percent of basic models of gas-fired 
instantaneous tankless water heaters already meet or exceed the thermal 
efficiency standards at TSL 2. DOE estimates that product and capital 
conversion costs would increase at this TSL. Manufacturers would meet 
the thermal efficiency levels by using condensing technology. DOE 
understands that tankless water heater manufacturers produce far more 
consumer products in significantly higher volumes than commercial 
offerings, and that these products are manufactured in the same 
facilities with shared production lines. DOE expects manufacturers 
would need to make incremental investments rather than set up new 
production lines. Overall, DOE estimates that manufacturers would incur 
$1.5 million in product conversion costs and $0.7 million in capital 
conversion costs to bring their instantaneous gas-fired tankless water 
heater portfolio into compliance with a standard set to TSL 2.
    As discussed in section V.A, TSL 3 and TSL 4 represent max-tech 
thermal efficiency levels for gas-fired instantaneous tankless water 
heaters. Therefore, DOE modeled identical impacts to manufacturers of 
this equipment for both TSL 3 and TSL 4. At these levels, DOE estimates 
impacts on INPV to range from -19.0 percent to -14.2 percent, or a 
change in INPV of -$1.7 million to -$1.3 million. At these levels, DOE 
estimates industry free cash flow in the year before compliance (2025) 
would decrease by approximately 146.0 percent to -$0.3 million compared 
to the no-new-standards case value of $0.6 million. DOE estimates that 
64 percent of basic

[[Page 69801]]

models of gas-fired instantaneous tankless water heaters already meet 
or exceed the thermal efficiency standards at TSL 3 and TSL 4.
    DOE anticipates modest product conversion costs as manufacturers 
continue to increase their max-tech offerings at greater input 
capacities. Overall, DOE estimates that manufacturers would incur $1.5 
million in product conversion costs and $0.7 million in capital 
conversion costs to bring their gas-fired instantaneous tankless 
portfolio into compliance with a standard set to TSL 3 and TSL 4.
Industry Cash Flow for Instantaneous Circulating Water Heaters and Hot 
Water Supply Boilers
    The results in Table V.28 show the estimated impacts for 
circulating water heaters and hot water supply boilers. This equipment 
represents approximately 9 percent of shipments covered by this 
rulemaking.

                      Table V.28--Manufacturing Impact Analysis Results for Circulating Water Heaters and Hot Water Supply Boilers
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Trial standard level
                                                     Units                    No-new-    ---------------------------------------------------------------
                                                                          standards case         1               2               3               4
--------------------------------------------------------------------------------------------------------------------------------------------------------
INPV.................................  2022$ millions...................            40.8       40.6-40.7       36.3-43.6       30.9-39.7       30.9-39.7
Change in INPV.......................  2022$ millions...................  ..............     (0.2)-(0.0)       (4.4)-2.8     (9.9)-(1.1)     (9.9)-(1.1)
                                       %................................  ..............     (0.5)-(0.1)      (10.9)-7.0    (24.3)-(2.7)    (24.3)-(2.7)
Free Cash Flow (2025)................  2022$ millions...................             2.5             2.4             0.9           (1.5)           (1.5)
Change in Free Cash Flow.............  2022$ millions...................  ..............           (0.1)           (1.6)           (4.1)           (4.1)
                                       %................................  ..............           (3.5)          (63.0)         (161.3)         (161.3)
Product Conversion Costs.............  2022$ millions...................  ..............             0.3             1.9             8.5             8.5
Capital Conversion Costs.............  2022$ millions...................  ..............             0.0             2.0             2.0             2.0
                                                                         -------------------------------------------------------------------------------
    Total Conversion Costs...........  2022$ millions...................  ..............             0.3             3.9            10.5            10.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

    At TSL 1, DOE estimates impacts on INPV for instantaneous 
circulating water heater and hot water supply boiler manufacturers to 
range from -0.2 percent to 0.1 percent, or a change of -$0.2 million to 
less than 0.1 million. At this level, DOE estimates that industry free 
cash flow would decrease by approximately 3.5 percent to $2.4 million, 
compared to the no-new-standards-case value of $2.5 million in the year 
before compliance (2025).
    DOE estimates that 58 percent of basic models of this equipment 
class already meet or exceed the thermal efficiency standards at TSL 1. 
At this level, DOE expects manufacturers of this equipment class to 
incur product conversion costs to redesign their equipment. DOE does 
not expect the modest increases in thermal efficiency requirements at 
this TSL to require capital investments. Overall, DOE estimates that 
manufacturers would incur $0.3 million in product conversion costs and 
no capital conversion costs to bring this equipment portfolio into 
compliance with a standard set to TSL 1. At TSL 1, product conversion 
costs are the key driver of results. These upfront investments result 
in a slightly lower INPV for the preservation of operating profit 
scenario and an almost unchanged INPV for the preservation of gross 
margin scenario.
    At TSL 2, DOE estimates impacts on INPV ranges from -10.9 percent 
to 7.0 percent, or a change in INPV of -$4.4 million to $2.8 million. 
At this potential standard level, DOE estimates industry free cash flow 
to decrease by approximately 63.0 percent to $0.9 million compared to 
the no-new-standards-case value of $2.5 million in the year before 
compliance (2025).
    DOE estimates that 39 percent of basic models of this equipment 
class already meet or exceed the thermal efficiency standards at TSL 2. 
DOE estimates that product and capital conversion costs would increase 
at this TSL. Manufacturers would meet the thermal efficiency levels by 
using condensing technology. DOE anticipates that manufacturers will 
begin to incur some product conversion costs associated with design 
changes to reach condensing levels. Additionally, DOE anticipates 
manufacturers achieving condensing levels with additional purchased 
parts (i.e., condensing heat exchanger, burner tube, blower, gas 
valve). DOE's capital conversion costs reflect the incremental 
warehouse space required to store these additional purchased parts.
    Overall, DOE estimates that industry would incur $1.9 million in 
product conversion costs and $2.0 million in capital conversion costs 
to bring their instantaneous circulating water heater and hot water 
supply boiler portfolio into compliance with a standard set to TSL 2.
    As discussed in section V.A, TSL 3 and TSL 4 represent max-tech 
thermal efficiency levels for circulating water heater and hot water 
supply boiler equipment. Therefore, DOE modeled identical impacts to 
manufacturers of this equipment for both TSL 3 and TSL 4. At these 
levels, DOE estimates impacts on INPV to range from -24.3 percent to -
2.7 percent, or a change in INPV of -$9.9 million to -$1.1 million. DOE 
estimates industry free cash flow in the year before compliance (2025) 
would decrease by approximately 161.3 percent to -$1.5 million compared 
to the no-new-standards case value of $2.5 million. DOE estimates that 
29 percent of basic models of this equipment class already meet or 
exceed the max-tech thermal efficiency standards at these TSLs.
b. Direct Impacts on Employment
    To quantitatively assess the potential impacts of amended energy 
conservation standards on direct employment in the CWH equipment 
industry, DOE used the GRIM to estimate the domestic labor expenditures 
and number of direct employees in the no-new-standards case and in each 
of the standards cases during the analysis period. This analysis 
includes both production and non-production employees employed by CWH 
equipment manufacturers. DOE used statistical data from the U.S. Census 
Bureau 2021 Annual Survey of Manufacturers (``ASM''),\178\ the results 
of the engineering analysis, and interviews with manufacturers to

[[Page 69802]]

determine the inputs necessary to calculate industry-wide labor 
expenditures and domestic employment levels. Labor expenditures related 
to manufacturing of the product are a function of the labor intensity 
of the product, the sales volume, and an assumption that wages remain 
fixed in real terms over time.
---------------------------------------------------------------------------

    \178\ U.S. Census Bureau, 2018-2021 Annual Survey of 
Manufacturers: Statistics for Industry Groups and Industries (2021) 
Available at www.census.gov/programs-surveys/asm/data/tables.html 
(Last accessed December 16, 2022).
---------------------------------------------------------------------------

    The total labor expenditures in the GRIM are converted to domestic 
production worker employment levels by dividing production labor 
expenditures by the average fully burdened wage per production worker. 
DOE calculated the fully burdened wage by multiplying the industry 
production worker hourly blended wage (provided by the ASM) by the 
fully burdened wage ratio. The fully burdened wage ratio factors in 
paid leave, supplemental pay, insurance, retirement and savings, and 
legally required benefits. DOE determined the fully burdened ratio from 
the Bureau of Labor Statistic's employee compensation data.\179\ The 
estimates of production workers in this section cover workers, 
including line-supervisors who are directly involved in fabricating and 
assembling a product within the manufacturing facility. Workers 
performing services that are closely associated with production 
operations, such as materials handling tasks using forklifts, are also 
included as production labor.
---------------------------------------------------------------------------

    \179\ U.S. Bureau of Labor Statistics. Employer Costs for 
Employee Compensation. December 15, 2022. Available at www.bls.gov/news.release/pdf/ecec.pdf (Last accessed December 16, 2022).
---------------------------------------------------------------------------

    Non-production worker employment levels were determined by 
multiplying the industry ratio of production worker employment to non-
production employment against the estimated production worker 
employment explained previously. Estimates of non-production workers in 
this section cover the line supervisors, sales, sales delivery, 
installation, office functions, legal, and technical employees.
    The total direct employment impacts calculated in the GRIM are the 
sum of the changes in the number of domestic production and non-
production workers resulting from the amended energy conservation 
standards for CWH equipment, as compared to the no-new-standards case. 
Typically, more efficient equipment is more complex and labor intensive 
to produce. Per-unit labor requirements and production time 
requirements trend higher with more stringent energy conservation 
standards.
    DOE estimates that 92 percent of CWH equipment sold in the United 
States is currently manufactured domestically. In the absence of 
amended energy conservation standards, DOE estimates that there would 
be 168 domestic production workers in the CWH industry in 2026, the 
year of compliance. DOE notes that Congress authorized $250 million to 
Accelerate Electric Heat Pump Manufacturing in America utilizing the 
Defense Production Act. This program, funded by the Inflation Reduction 
Act (IRA), will increase use of electric heat pumps, which provide both 
heating and cooling for buildings and homes, will help lower energy 
costs for more American families and businesses, and create healthier 
indoor spaces through American-made clean energy technologies.
    DOE's analysis forecasts that the industry will employ 296 
production and non-production workers in the CWH industry in 2026 in 
the absence of amended energy conservation standards. Table V.29 
presents the potential impacts of amended energy conservation standards 
on U.S. production workers of CWH equipment.

                  Table V.29--Domestic Direct Employment Impacts for CWH Manufacturers in 2026
----------------------------------------------------------------------------------------------------------------
                                                                        No-new
                                                                       standards     1       2       3       4
                                                                         case
----------------------------------------------------------------------------------------------------------------
Direct Employment in 2026 (Production Workers + Non-Production               296     300     291     300     307
 Workers............................................................
Changes in Direct Employment........................................  ..........       4     (5)       4      11
----------------------------------------------------------------------------------------------------------------
* Numbers in parentheses indicate negative numbers.
** This field presents impacts on domestic direct employment, which aggregates production and non-production
  workers. Based on ASM census data, DOE assumed the ratio of production to non-production employees stays
  consistent across all analyzed TSLs, which is 43 percent non-production workers.

    In NOPR interviews conducted ahead of the 2016 NOPR notice, several 
manufacturers that produce high-efficiency CWH equipment stated that a 
standard that went to condensing levels could require them to hire more 
employees to increase their production capacity. Others stated that a 
condensing standard would require additional engineers to redesign CWH 
equipment and production processes. Due to different variations in 
manufacturing labor practices, actual direct employment could vary 
depending on manufacturers' preference for high capital or high labor 
practices in response to amended standards. DOE notes that the 
employment impacts discussed here are independent of the indirect 
employment impacts to the broader U.S. economy, which are documented in 
chapter 15 of the accompanying TSD.
c. Impacts on Manufacturing Capacity
    As discussed in further detail in section IV.J.2.c of this 
document, DOE anticipates manufacturers would incur significant product 
conversion costs at TSL 4 (max-tech) for all gas-fired storage water 
heaters, gas-fired circulating water heaters, and hot water supply 
boilers. Because of the high conversion costs as this level, some 
manufacturers may not have the capacity to redesign the full range of 
equipment offerings in the 3-year conversion period. Instead, 
manufacturers would likely choose to offer a reduced selection of 
models to limit upfront investments.
    Furthermore, none of the three largest manufacturers of commercial 
gas storage water heaters produces equipment that can meet the thermal 
efficiency standard at TSL 4. Currently, only two models from a single 
manufacturer can meet the thermal efficiency standard at TSL 4. This 
manufacturer is a small business and does not have the production 
capacity to meet the demand for the entire industry's shipments. 
Similarly, for residential-duty gas-fired storage water heaters, only 
one manufacturer offers models that can meet the UEF standard at TSL 4.
    In written comments regarding TSL 3, two manufacturers with 
significant market share raised concerns about the ability to adapt 
products and update production capacity if standards for multiple 
equipment classes are set to max-tech. A.O. Smith raised concerns about 
the concurrent challenges of

[[Page 69803]]

commercial gas-fired instantaneous, circulating product, and hot water 
supply boilers all having a new minimum standard of 96 percent thermal 
efficiency. A.O. Smith stated manufacturers will need to quickly shift 
resources and make significant capital investments to redesign and 
build these product types to ``max-tech'' technology within 3 years 
ahead of compliance with a final rule. (A.O. Smith, No.22 at p.3) Rheem 
stated increasing the energy conservation standards for commercial 
water heaters to the proposed near max-tech condensing levels, could 
significantly reduce equipment offerings from various manufacturers and 
lessen competition. Rheem attributed the reduction on offerings to a 
combination of limited compliance period of three years, the magnitude 
of the equipment and manufacturing changes that would be required, and 
the number of other rulemakings similarly affecting the water heating 
industry--specifically the anticipated changes in the energy 
conservation standards for consumer water heaters, consumer boilers, 
and pool heaters. (Rheem, No. 24 at p.2)
d. Impacts on Subgroups of Manufacturers
    Small manufacturers, niche equipment manufacturers, and 
manufacturers exhibiting a cost structure substantially different from 
the industry average could be affected disproportionately. Using 
average cost assumptions developed for an industry cash-flow estimate 
is inadequate to assess differential impacts among manufacturer 
subgroups.
    For the CWH equipment industry, DOE identified and evaluated the 
impact of amended energy conservation standards on one subgroup--small 
manufacturers. The SBA defines a ``small business'' as having 1,000 
employees or fewer for NAICS code 333310, ``Other Commercial and 
Service Industry Machinery Manufacturing.'' Based on this definition, 
DOE identified three small, domestic manufacturers of the covered 
equipment that would be subject to amended standards.
    For a discussion of the impacts on the small manufacturer subgroup, 
see the regulatory flexibility analysis in section VI.B of this 
document and chapter 12 of the final rule TSD.
e. Cumulative Regulatory Burden
    One aspect of assessing manufacturer burden involves looking at the 
cumulative impact of multiple DOE standards and the regulatory actions 
of other Federal agencies and States that affect the manufacturers of a 
covered product or equipment. While any one regulation may not impose a 
significant burden on manufacturers, the combined effects of several 
existing or impending regulations may have serious consequences for 
some manufacturers, groups of manufacturers, or an entire industry. 
Assessing the impact of a single regulation may overlook this 
cumulative regulatory burden. In addition to energy conservation 
standards, other regulations can significantly affect manufacturers' 
financial operations. Multiple regulations affecting the same 
manufacturer can strain profits and lead companies to abandon product 
lines or markets with lower expected future returns than competing 
products. For these reasons, DOE conducts an analysis of cumulative 
regulatory burden as part of its rulemakings pertaining to appliance 
efficiency.
    Rheem noted that the company faces cumulative regulatory burden 
from space conditioning and refrigeration rulemakings. (Rheem, No. 24 
at p. 7) DOE identified DOE rulemakings affecting Rheem and other CWH 
manufacturer that are Federal, are product-specific, and that will take 
effect three years before or after the estimated 2026 compliance date 
(see Table V.30).

Table V.30--Compliance Dates and Expected Conversion Expenses of Federal Energy Conservation Standards Affecting
                                      Commercial Water Heater Manufacturers
----------------------------------------------------------------------------------------------------------------
                                                                                                       Industry
                                                                                                      conversion
                                                      Number of        Approx.        Industry          costs/
 Federal energy conservation       Number of        manufacturers     standards   conversion costs     product
           standard             manufacturers *     affected from       year        (millions $)       revenue
                                                   today's rule **                                     [dagger]
                                                                                                         (%)
----------------------------------------------------------------------------------------------------------------
Commercial Warm Air Furnaces                  14                  2        2023    7.5-22.2 (2014$)      1.7-5.1
 81 FR 2420 (January 15,                                                                             [dagger][da
 2016).......................                                                                              gger]
Residential Central Air                       30                  3        2023       342.6 (2015$)          0.5
 Conditioners and Heat Pumps
 82 FR 1786 (January 6, 2017)
Room Air Conditioners                         30                  1        2023        22.8 (2020$)          0.5
 [Dagger] 87 FR 20608 (April
 7, 2022)....................
Consumer Pool Heaters                         21                  3        2028        33.8 (2020$)          1.9
 [Dagger] 87 FR 22640 (April
 15, 2022)...................
Consumer Furnaces [Dagger] 87                 15                  1        2029       150.6 (2020$)          1.4
 FR 40590 (July 7, 2022).....
----------------------------------------------------------------------------------------------------------------
* This column presents the total number of manufacturers identified in the energy conservation standard rule
  contributing to cumulative regulatory burden.
** This column presents the number of manufacturers producing CWH equipment that are also listed as
  manufacturers in the listed energy conservation standard contributing to cumulative regulatory burden.
[dagger] This column presents industry conversion costs as a percentage of product revenue during the conversion
  period. Industry conversion costs are the upfront investments manufacturers must make to sell compliant
  products/equipment. The revenue used for this calculation is the revenue from just the covered product/
  equipment associated with each row. The conversion period is the time frame over which conversion costs are
  made and lasts from the announcement year of the final rule to the standards year of the final rule. The
  conversion period typically ranges from 3 to 5 years, depending on the energy conservation standard.
[dagger][dagger] Low and high conversion cost scenarios were analyzed as part of this direct final rule. The
  range of estimated conversion expenses presented here reflects those two scenarios.
[Dagger] These rulemakings are in the proposed rule stage and all values are subject to change until finalized.

    In written comments, AHRI and Bradford White listed several 
rulemakings that do not appear in Table V.31. (AHRI, No. 13 at pp. 5-6; 
Bradford White, No. 23 at p.7) DOE published a March 2022 ECS 
preliminary analysis for consumer water heaters, a May 2022 ECS 
preliminary analysis for consumer boilers, and an August 2022 NODA for 
commercial and industrial pumps. (87 FR 11327; 87 FR 26304; 87 FR 
49537) These rulemakings do not have final rules, nor do they have 
proposed standard levels or proposed compliance dates. Any estimation 
of cost or timing at this time would be speculative. DOE does not list 
test procedures in Table V.32. When applicable, test procedure costs 
are incorporated into the associated energy conservation standard 
rulemakings.
    AHRI also identified the proposed rule for small electric motors as 
potential cumulative regulatory burden. DOE notes that those energy 
conservation standards for small electric motors do not apply to small 
electric motors that are components of other DOE-regulated products. 
(42 U.S.C. 6317(b)(3)) Additionally, the analysis for small electric 
motors takes into consideration important attributes of

[[Page 69804]]

motors that affect selection in end use applications.\180\ DOE has not 
included the small electric motor rulemaking in its analysis of 
cumulative regulatory burden. AHRI also noted that the DOE rulemakings 
for Federal Commercial and Multi-family High-rise Residential Buildings 
and Federal Low-rise Residential Buildings Design and Construction may 
``indirectly affect'' CWH manufacturers. The rulemakings do not 
directly regulate manufacturers of commercial water heaters and are not 
directly considered in the CRB analysis. However, DOE did account for 
these rules in its shipments analysis as described in section IV.G.4 of 
this document.
---------------------------------------------------------------------------

    \180\ DOE notes that on February 6, 2023, DOE issued a notice of 
proposed determination in which it initially determined that amended 
energy conservation standards for small electric motors would not be 
cost-effective, and therefore proposed not to amend its energy 
conservation standards for small electric motors. 88 FR 7629.
---------------------------------------------------------------------------

    A.O. Smith noted that manufacturers will potentially make 
additional investments in response to the ENERGY STAR[supreg] program's 
recent publication of its final residential water heater version 5.0 
specification, which sets a >=0.86 UEF value for gas-fired residential-
duty commercial water heaters effective April 28, 2023. (A.O. Smith, 
No. 22 at p. 4) DOE does not consider voluntary programs, such as 
ENERGY STAR[supreg], in its analysis of cumulative regulatory burden.
    WM Technologies and Patterson-Kelley both noted that industry has 
limited resources to monitor and prepare for possible changes in 
standards, and that the current regulatory push by the DOE and other 
Federal agencies is placing tremendous stress upon all industries, 
especially the heating industry. (WM Technologies, No. 25 at pp. 8-9; 
Patterson-Kelley, No. 26 at p. 6) DOE acknowledges the commenters 
concerns and has considered the impacts of this final rule on 
manufacturers as described throughout this section. Additionally, as 
noted in section II.A of this document, pursuant to EPCA, DOE is 
obligated by law to consider amending the energy efficiency standards 
for certain types of commercial and industrial equipment, including CWH 
equipment, whenever ASHRAE amends the standard levels or design 
requirements prescribed in ASHRAE/IES Standard 90.1, and at a minimum, 
every 6 years. (42 U.S.C. 6313(a)(6)(A)-(C)) DOE also notes that 
between March 2016 and January 2021, DOE missed legal deadlines for a 
range of rulemakings. In October 2020, a coalition of non-governmental 
organizations filed suit under EPCA alleging that DOE has failed to 
meet rulemaking deadlines for 25 different consumer products and 
commercial equipment. In September 2022, DOE settled the lawsuit over 
the missed rulemaking deadlines to review and update energy efficiency 
standards. As part of the court-approved settlement, DOE has agreed to 
a schedule to review these regulations and, as appropriate, update them 
to improve efficiency requirements. DOE continues to evaluate the 
impact of rulemakings on manufacturers and welcomes input of the direct 
cost of monitoring possible changes in standards for incorporation into 
analyses.
3. National Impact Analysis
    This section presents DOE's estimates of the NES and the NPV of 
consumer benefits that would result from each of the TSLs considered as 
potential amended standards.
a. Significance of Energy Savings
    To estimate the energy savings attributable to potential amended 
standards for CWH equipment, DOE compared their energy consumption 
under the no-new-standards case to their anticipated energy consumption 
under each TSL. The savings are measured over the entire lifetime of 
products purchased in the 30-year period that begins in the year of 
anticipated compliance with amended standards (2026-2055). Table V.33 
presents DOE's projections of the NES for each TSL considered for CWH 
equipment. The savings were calculated using the approach described in 
section IV.H of this document.

  Table V.33--Cumulative National Energy Savings for CWH Equipment; 30
                           Years of Shipments
                               [2026-2055]
------------------------------------------------------------------------
                                         Trial standard level
                             -------------------------------------------
                                  1          2          3          4
------------------------------------------------------------------------
                                                (Quads)
------------------------------------------------------------------------
                             Primary Energy
------------------------------------------------------------------------
Commercial gas-fired storage       0.03       0.16       0.25       0.43
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.04       0.08       0.12       0.14
 storage....................
Instantaneous gas-fired            0.00       0.01       0.02       0.02
 tankless...................
Instantaneous circulating          0.02       0.19       0.23       0.23
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total Primary Energy....       0.10       0.44       0.62       0.82
------------------------------------------------------------------------
                               FFC Energy
------------------------------------------------------------------------
Commercial gas-fired storage       0.04       0.18       0.28       0.48
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.05       0.09       0.13       0.16
 storage....................
Instantaneous gas-fired            0.00       0.02       0.02       0.02
 tankless...................
Instantaneous circulating          0.03       0.21       0.26       0.26
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total FFC Energy........       0.12       0.49       0.70       0.92
------------------------------------------------------------------------


[[Page 69805]]

    OMB Circular A-4 \181\ requires agencies to present analytical 
results, including separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs. Circular A-4 
also directs agencies to consider the variability of key elements 
underlying the estimates of benefits and costs. For this rulemaking, 
DOE undertook a sensitivity analysis using 9 years, rather than 30 
years, of product shipments. The choice of a 9-year period is a proxy 
for the timeline in EPCA for the review of certain energy conservation 
standards and potential revision of and compliance with such revised 
standards.\182\ The review timeframe established in EPCA is generally 
not synchronized with the product lifetime, product manufacturing 
cycles, or other factors specific to commercial water heaters. Thus, 
such results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology. The NES 
sensitivity analysis results based on a 9-year analytical period are 
presented in Table V.34. The impacts are counted over the lifetime of 
commercial water heaters purchased in 2026-2034.
---------------------------------------------------------------------------

    \181\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Available at 
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last 
accessed December 13, 2022).
    \182\ Section 325(m) of EPCA requires DOE to review its 
standards at least once every 6 years, and requires, for certain 
products, a 3-year period after any new standard is promulgated 
before compliance is required, except that in no case may any new 
standards be required within 6 years of the compliance date of the 
previous standards. While adding a 6-year review to the 3-year 
compliance period adds up to 9 years, DOE notes that it may 
undertake reviews at any time within the 6 year period and that the 
3-year compliance date may yield to the 6-year backstop. A 9-year 
analysis period may not be appropriate given the variability that 
occurs in the timing of standards reviews and the fact that for some 
products, the compliance period is 5 years rather than 3 years.

   Table V.34--Cumulative National Energy Savings for CWH Equipment; 9
                           Years of Shipments
                               [2026-2034]
------------------------------------------------------------------------
                                         Trial standard level
                             -------------------------------------------
                                  1          2          3          4
------------------------------------------------------------------------
                                                (Quads)
------------------------------------------------------------------------
                             Primary Energy
------------------------------------------------------------------------
Commercial gas-fired storage       0.01       0.06       0.09       0.14
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.01       0.03       0.04       0.05
 storage....................
Instantaneous gas-fired            0.00       0.00       0.00       0.00
 tankless...................
Instantaneous circulating          0.01       0.05       0.06       0.06
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total Primary Energy....       0.03       0.13       0.19       0.25
------------------------------------------------------------------------
                               FFC Energy
------------------------------------------------------------------------
Commercial gas-fired storage       0.01       0.06       0.10       0.16
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.01       0.03       0.04       0.05
 storage....................
Instantaneous gas-fired            0.00       0.00       0.00       0.00
 tankless...................
Instantaneous circulating          0.01       0.05       0.06       0.06
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total FFC Energy........       0.04       0.15       0.21       0.28
------------------------------------------------------------------------

b. Net Present Value of Consumer Costs and Benefits
    DOE estimated the cumulative NPV of the total costs and savings for 
consumers that would result from the TSLs considered for CWH equipment. 
In accordance with OMB's guidelines on regulatory analysis,\183\ DOE 
calculated NPV using both a 7-percent and a 3-percent real discount 
rate. Table V.35 shows the consumer NPV results with impacts counted 
over the lifetime of equipment purchased in 2026-2055.
---------------------------------------------------------------------------

    \183\ United States Office of Management and Budget. Circular A-
4: Regulatory Analysis. September 17, 2003. Available at 
www.whitehouse.gov/omb/information-for-agencies/circulars/ (last 
accessed December 13, 2022).

  Table V.35--Cumulative Net Present Value of Consumer Benefits for CWH
                    Equipment; 30 Years of Shipments
                               [2026-2055]
------------------------------------------------------------------------
                                        Trial standard level *
        Discount rate        -------------------------------------------
                                  1          2          3          4
------------------------------------------------------------------------
                                            (billion 2022$)
------------------------------------------------------------------------
                                3 percent
------------------------------------------------------------------------
Commercial gas-fired storage       0.15       0.41       0.81       1.51
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.16       0.17       0.27       0.38
 storage....................
Instantaneous gas-fired            0.02       0.03       0.04       0.04
 tankless...................
Instantaneous circulating          0.08       0.18       0.30       0.30
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------

[[Page 69806]]

 
    Total NPV at 3 percent..       0.41       0.79       1.43       2.25
------------------------------------------------------------------------
                                7 percent
------------------------------------------------------------------------
Commercial gas-fired storage       0.07       0.13       0.32       0.65
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.07       0.04       0.08       0.13
 storage....................
Instantaneous gas-fired            0.01       0.01       0.01       0.01
 tankless...................
Instantaneous circulating          0.03     (0.02)       0.02       0.02
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total NPV at 7 percent..       0.18       0.15       0.43       0.81
------------------------------------------------------------------------
* A value in parentheses is a negative number.

    The NPV results based on the aforementioned 9-year analytical 
period are presented in Table V.36. The impacts are counted over the 
lifetime of equipment purchased in 2026-2034. As mentioned previously, 
such results are presented for informational purposes only and are not 
indicative of any change in DOE's analytical methodology or decision 
criteria.

    Table V.36--Cumulative Net Present Value of Consumer Benefits CWH
                     Equipment; 9 Years of Shipments
                               [2026-2034]
------------------------------------------------------------------------
                                        Trial standard level *
        Discount rate        -------------------------------------------
                                  1          2          3          4
------------------------------------------------------------------------
                                            (billion 2022$)
------------------------------------------------------------------------
                                3 percent
------------------------------------------------------------------------
Commercial gas-fired storage       0.07       0.04       0.20       0.47
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.06       0.02       0.06       0.10
 storage....................
Instantaneous gas-fired            0.01       0.00       0.01       0.01
 tankless...................
Instantaneous circulating          0.03       0.04       0.08       0.08
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total NPV at 3 percent..       0.16       0.10       0.35       0.66
------------------------------------------------------------------------
                                7 percent
------------------------------------------------------------------------
Commercial gas-fired storage       0.04     (0.01)       0.09       0.26
 and storage-type
 instantaneous..............
Residential-duty gas-fired         0.04     (0.01)       0.01       0.04
 storage....................
Instantaneous gas-fired            0.00       0.00       0.00       0.00
 tankless...................
Instantaneous circulating          0.01     (0.02)       0.00       0.00
 water heaters and hot water
 supply boilers.............
                             -------------------------------------------
    Total NPV at 7 percent..       0.10     (0.04)       0.11       0.30
------------------------------------------------------------------------
* A value in parentheses is a negative number.

c. Indirect Impacts on Employment
    DOE estimates that amended energy conservation standards for CWH 
equipment will reduce energy expenditures for consumers of this 
equipment, with the resulting net savings being redirected to other 
forms of economic activity. These expected shifts in spending and 
economic activity could affect the demand for labor. As described in 
section IV.N of this document, DOE used an input/output model of the 
U.S. economy to estimate indirect employment impacts of the TSLs that 
DOE considered. There are uncertainties involved in projecting 
employment impacts, especially changes in the later years of the 
analysis. Therefore, DOE generated results for near-term timeframes 
(2026-2030), in which these uncertainties are reduced.
    The results suggest that the adopted standards are likely to have a 
negligible impact on the net demand for labor in the economy. The net 
change in jobs is so small that it would be imperceptible in national 
labor statistics and might be offset by other, unanticipated effects on 
employment. Chapter 16 of the final rule TSD presents detailed results 
regarding anticipated indirect employment impacts.
4. Impact on Utility or Performance of Products
    As discussed in section III.F.1.d of this document, DOE has 
concluded that the standards adopted in this final rule will not lessen 
the utility or performance of the CWH equipment under consideration in 
this rulemaking. Manufacturers of these products currently offer units 
that meet or exceed the adopted standards.

[[Page 69807]]

5. Impact of Any Lessening of Competition
    DOE considered any lessening of competition that would be likely to 
result from new or amended standards. As discussed in section III.F.1.e 
of this document, EPCA directs the Attorney General of the United 
States (``Attorney General'') to determine the impact, if any, of any 
lessening of competition likely to result from a proposed standard and 
to transmit such determination in writing 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. To assist the Attorney General 
in making this determination, DOE provided the Department of Justice 
(``DOJ'') with copies of the proposed rule and the TSD for review. In 
its assessment letter responding to DOE, DOJ concluded that the 
proposed energy conservation standards for CWH equipment are unlikely 
to have a significant adverse impact on competition. DOE is publishing 
the Attorney General's assessment at the end of this final rule.
6. Need of the Nation To Conserve Energy
    Enhanced energy efficiency, where economically justified, improves 
the Nation's energy security, strengthens the economy, and reduces the 
environmental impacts (costs) of energy production. Chapter 15 in the 
final rule TSD presents the estimated impacts on electricity generating 
capacity, relative to the no-new-standards case, for the TSLs that DOE 
considered in this rulemaking.
    Energy conservation resulting from potential energy conservation 
standards for CWH equipment is expected to yield environmental benefits 
in the form of reduced emissions of certain air pollutants and 
greenhouse gases. Table V.37 provides DOE's estimate of cumulative 
emissions reductions expected to result from the TSLs considered in 
this rulemaking. The emissions were calculated using the multipliers 
discussed in section IV.K of this document. DOE reports annual 
emissions reductions for each TSL in chapter 13 of the final rule TSD. 
Table V.38 presents cumulative FFC emissions by equipment class.

                Table V.37--Cumulative Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                             Trial standard level
                                                             ---------------------------------------------------
                                                                   1            2            3            4
----------------------------------------------------------------------------------------------------------------
                                             Power Sector Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          5.7         23.9         33.5         44.0
SO2 (thousand tons).........................................       (0.00)         0.02         0.08         0.15
NOX (thousand tons).........................................         5.07        21.16        29.54        38.71
Hg (tons)...................................................      (0.000)      (0.001)      (0.001)      (0.001)
CH4 (thousand tons).........................................         0.11         0.48         0.68         0.90
N2O (thousand tons).........................................        0.011        0.047        0.067        0.089
----------------------------------------------------------------------------------------------------------------
                                               Upstream Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          0.8          3.3          4.7          6.1
SO2 (thousand tons).........................................         0.00         0.01         0.02         0.03
NOX (thousand tons).........................................           13           53           74           97
Hg (tons)...................................................      (0.000)      (0.000)      (0.000)      (0.000)
CH4 (thousand tons).........................................           82          342          478          627
N2O (thousand tons).........................................        0.001        0.006        0.008        0.011
----------------------------------------------------------------------------------------------------------------
                                               Total FFC Emissions
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          6.5         27.3         38.2         50.1
SO2 (thousand tons).........................................         0.00         0.03         0.10         0.17
NOX (thousand tons).........................................           18           74          103          135
Hg (tons)...................................................      (0.000)      (0.001)      (0.001)      (0.001)
CH4 (thousand tons).........................................           82          343          479          628
N2O (thousand tons).........................................        0.012        0.053        0.075        0.100
----------------------------------------------------------------------------------------------------------------
Negative values refer to an increase in emissions.


    Table V.38--Cumulative FFC Emissions Reduction for CWH Equipment Shipped in 2026-2055, by Equipment Class
----------------------------------------------------------------------------------------------------------------
                                                                             Trial standard level
                                                             ---------------------------------------------------
                                                                   1            2            3            4
----------------------------------------------------------------------------------------------------------------
                   Total FFC Emissions, Commercial Gas Storage and Storage-Type Instantaneous
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          2.0          9.8         15.5         26.0
SO2 (thousand tons).........................................         0.01       (0.00)         0.03         0.10
NOX (thousand tons).........................................          5.5         26.7         42.0         70.3
Hg (tons)...................................................       0.0000     (0.0004)     (0.0003)     (0.0003)
CH4 (thousand tons).........................................         25.5        123.8        194.8        326.0
N2O (thousand tons).........................................        0.004        0.019        0.030        0.052
----------------------------------------------------------------------------------------------------------------

[[Page 69808]]

 
                             Total FFC Emissions, Residential-Duty Gas-Fired Storage
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          2.5          5.1          7.4          8.8
SO2 (thousand tons).........................................         0.00       (0.01)         0.00         0.01
NOX (thousand tons).........................................          6.8         13.9         20.1         23.9
Hg (tons)...................................................     (0.0001)     (0.0003)     (0.0003)     (0.0003)
CH4 (thousand tons).........................................         31.6         64.5         93.2        110.8
N2O (thousand tons).........................................         0.00         0.01         0.01         0.02
----------------------------------------------------------------------------------------------------------------
                              Total FFC Emissions, Instantaneous Gas-Fired Tankless
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          0.3          0.9          1.1          1.1
SO2 (thousand tons).........................................         0.00         0.01         0.01         0.01
NOX (thousand tons).........................................         0.71         2.30         3.05         3.05
Hg (tons)...................................................       0.0000       0.0000       0.0000       0.0000
CH4 (thousand tons).........................................         3.29        10.63        14.11        14.11
N2O (thousand tons).........................................         0.00         0.00         0.00         0.00
----------------------------------------------------------------------------------------------------------------
            Total FFC Emissions, Instantaneous Circulating Water Heaters and Hot Water Supply Boilers
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................          1.7         11.5         14.1         14.1
SO2 (thousand tons).........................................       (0.02)         0.04         0.06         0.06
NOX (thousand tons).........................................          4.7         31.2         38.3         38.3
Hg (tons)...................................................     (0.0002)     (0.0001)     (0.0001)     (0.0001)
CH4 (thousand tons).........................................         21.7        143.9        176.7        176.7
N2O (thousand tons).........................................         0.00         0.02         0.03         0.03
----------------------------------------------------------------------------------------------------------------
Negative values refer to an increase in emissions.

    As part of the analysis for this rule, DOE estimated monetary 
benefits likely to result from the reduced emissions of CO2 
that DOE estimated for each of the considered TSLs for CWH equipment. 
Section IV.L of this document discusses the estimated SC-CO2 
values that DOE used. Table V.39 presents the value of CO2 
emissions reduction at each TSL.

           Table V.39--Present Value of CO2 Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                          SC-CO2 Case
                                              ------------------------------------------------------------------
                                                                  Discount rate and statistics
                     TSL                      ------------------------------------------------------------------
                                                                                                    3%  95th
                                                 5%  Average     3%  Average    2.5%  Average      percentile
----------------------------------------------------------------------------------------------------------------
                                                                        (million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................              67             285             445                867
2............................................             272           1,163           1,817              3,531
3............................................             386           1,642           2,563              4,986
4............................................             517           2,189           3,411              6,650
----------------------------------------------------------------------------------------------------------------

    As discussed in section IV.L, DOE estimated the climate benefits 
likely to result from the reduced emissions of CH4 and 
N2O that DOE estimated for each of the considered TSLs for 
CWH equipment. Table V.40 presents the value of the CH4 
emissions reduction at each TSL, and Table V.41 presents the value of 
the N2O emissions reduction at each TSL. The time-series of 
annual values is presented for the selected TSL in chapter 14 of the 
final rule TSD.

         Table V.40--Present Value of Methane Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                          SC-CH4 Case
                                              ------------------------------------------------------------------
                                                                  Discount rate and statistics
                     TSL                      ------------------------------------------------------------------
                                                                                                    3%  95th
                                                 5%  Average     3%  Average    2.5%  Average      percentile
----------------------------------------------------------------------------------------------------------------
                                                                        (million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................              39             114             159                303
2............................................             159             469             653              1,241

[[Page 69809]]

 
3............................................             224             659             917              1,745
4............................................             300             874           1,214              2,315
----------------------------------------------------------------------------------------------------------------


      Table V.41--Present Value of Nitrous Oxide Emissions Reduction for CWH Equipment Shipped in 2026-2055
----------------------------------------------------------------------------------------------------------------
                                                                          SC-N2O Case
                                              ------------------------------------------------------------------
                                                                  Discount rate and statistics
                     TSL                      ------------------------------------------------------------------
                                                                                                    3%  95th
                                                 5%  Average     3%  Average    2.5%  Average      percentile
----------------------------------------------------------------------------------------------------------------
                                                                        (million 2022$)
----------------------------------------------------------------------------------------------------------------
1............................................            0.05            0.19            0.30               0.51
2............................................            0.20            0.79            1.22               2.10
3............................................            0.28            1.13            1.76               3.02
4............................................            0.39            1.53            2.36               4.07
----------------------------------------------------------------------------------------------------------------

    DOE is well aware that scientific and economic knowledge about the 
contribution of CO2 and other GHG emissions to changes in 
the future global climate and the potential resulting damages to the 
global and U.S. economy continues to evolve rapidly. DOE, together with 
other Federal agencies, will continue to review methodologies for 
estimating the monetary value of reductions in CO2 and other 
GHG emissions. This ongoing review will consider the comments on this 
subject that are part of the public record for this and other 
rulemakings, as well as other methodological assumptions and issues. 
DOE notes, however, that the adopted standards would be economically 
justified, even without inclusion of monetized benefits of reduced GHG 
emissions.
    DOE also estimated the monetary value of the economic benefits 
associated with NOX and SO2 emissions reductions 
anticipated to result from the considered TSLs for CWH equipment. The 
dollar-per-ton values that DOE used are discussed in section IV.L of 
this document. Table V.42 presents the present value for NOX 
emissions reduction for each TSL calculated using 7-percent and 3-
percent discount rates, and Table V.43 presents similar results for 
SO2 emissions reductions. The results in these tables 
reflect application of the low dollar-per-ton values, which DOE used to 
be conservative. Results that reflect high dollar-per-ton values are 
presented in chapter 14 of the final rule TSD.

 Table V.42--Present Value of NOX Emissions Reduction for CWH Equipment
                          Shipped in 2026-2055
------------------------------------------------------------------------
               TSL                 3% Discount rate    7% Discount rate
------------------------------------------------------------------------
                                              (million 2022$)
------------------------------------------------------------------------
1...............................                 573                 240
2...............................               2,330                 949
3...............................               3,290               1,356
4...............................               4,390               1,840
------------------------------------------------------------------------


 Table V.43--Present Value of SO2 Emissions Reduction for CWH Equipment
                          Shipped in 2026-2055
------------------------------------------------------------------------
               TSL                 3% Discount rate    7% Discount rate
------------------------------------------------------------------------
                                              (million 2022$)
------------------------------------------------------------------------
1...............................              (0.40)              (0.11)
2...............................              (1.19)              (0.82)
3...............................                1.87                0.51
4...............................                5.38                2.10
------------------------------------------------------------------------

    DOE has not considered the monetary benefits of the reduction of Hg 
for this final rule. Not all the public health and environmental 
benefits from the reduction of greenhouse gases, NOX, and 
SO2 are captured in the values

[[Page 69810]]

above, and additional unquantified benefits from the reductions of 
those pollutants as well as from the reduction of Hg, direct 
particulate matter (``PM''), and other co-pollutants may be 
significant.
    The benefits of reduced CO2, CH4, and 
N2O emissions are collectively referred to as climate 
benefits. The benefits of reduced SO2 and NOX 
emissions are collectively referred to as health benefits. For the 
time-series of estimated monetary values of reduced emissions, see 
chapter 14 of the final rule TSD.
7. Other Factors
    The Secretary of Energy, in determining whether a standard is 
economically justified, may consider any other factors that the 
Secretary deems to be relevant. (42 U.S.C. 6313(a)(6)(B)(ii)(VII)) No 
other factors were considered in this analysis.
8. Summary of Economic Impacts
    Table V.44 presents the NPV values that result from adding the 
estimates of the economic benefits resulting from reduced GHG and 
NOX and SO2 emissions to the NPV of consumer 
benefits calculated for each TSL considered in this rulemaking. The 
consumer benefits are domestic U.S. monetary savings that occur as a 
result of purchasing the covered commercial water heaters, and they are 
measured for the lifetime of products shipped in 2026-2055. The climate 
benefits associated with reduced GHG emissions resulting from the 
adopted standards are global benefits, which are also calculated based 
on the lifetime of commercial water heaters shipped in 2026-2055. The 
climate benefits associated with four SC-GHG estimates are shown. DOE 
does not have a single central SC-GHG point estimate and it emphasizes 
the importance and value of considering the benefits calculated using 
all four SC-GHG estimates.

    Table V.44--NPV of Consumer Benefits Combined With Climate and Health Benefits From Emissions Reductions
----------------------------------------------------------------------------------------------------------------
                          Category                               TSL 1        TSL 2        TSL 3        TSL 4
----------------------------------------------------------------------------------------------------------------
                    3% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case................................         1.09         3.55         5.33         7.46
3% d.r., Average SC-GHG case................................         1.38         4.75         7.02         9.71
2.5% d.r., Average SC-GHG case..............................         1.59         5.59         8.20        11.27
3% d.r., 95th percentile SC-GHG case........................         2.15         7.89        11.46        15.61
----------------------------------------------------------------------------------------------------------------
                    7% discount rate for NPV of Consumer and Health Benefits (billion 2022$)
----------------------------------------------------------------------------------------------------------------
5% d.r., Average SC-GHG case................................         0.53         1.54         2.40         3.47
3% d.r., Average SC-GHG case................................         0.82         2.74         4.09         5.72
2.5% d.r., Average SC-GHG case..............................         1.03         3.57         5.27         7.28
3% d.r., 95th percentile SC-GHG case........................         1.59         5.88         8.52        11.62
----------------------------------------------------------------------------------------------------------------

    The national operating cost savings are domestic U.S. monetary 
savings that occur as a result of purchasing CWH equipment, and are 
measured for the lifetime of products shipped in 2026-2055. The 
benefits associated with reduced GHG emissions achieved as a result of 
the adopted standards are also calculated based on the lifetime of CWH 
equipment shipped in 2026-2055.

C. Conclusion

    As noted previously, EPCA specifies that, for any commercial and 
industrial equipment addressed under 42 U.S.C. 6313(a)(6)(A)(i), DOE 
may prescribe an energy conservation standard more stringent than the 
level for such equipment in ASHRAE Standard 90.1, as amended, only if 
``clear and convincing evidence'' shows that a more-stringent standard 
would result in significant additional conservation of energy and is 
technologically feasible and economically justified. (42 U.S.C. 
6313(a)(6)(A)(ii)(II)) In determining whether a standard is 
economically justified, the Secretary must determine whether the 
benefits of the standard exceed its burdens by, to the greatest extent 
practicable, considering the seven statutory factors discussed 
previously. (42 U.S.C. 6313(a)(6)(B)(ii)(I)-(VII) and 42 U.S.C. 
6313(a)(6)(C)(i))
    For this final rule, DOE considered the impacts of amended 
standards for CWH equipment at each TSL, beginning with the max-tech 
level, to determine whether that level was economically justified. 
Where the max-tech level was not justified, DOE then considered the 
next most efficient level and undertook the same evaluation until it 
reached the highest efficiency level that is both technologically 
feasible and economically justified and saves a significant amount of 
energy.
    To aid the reader as DOE discusses the benefits and/or burdens of 
each TSL, tables in this section present a summary of the results of 
DOE's quantitative analysis for each TSL. In addition to the 
quantitative results presented in the tables, DOE also considers other 
burdens and benefits that affect economic justification. These include 
the impacts on identifiable subgroups of consumers who may be 
disproportionately affected by a national standard and impacts on 
employment.
    DOE also notes that the economics literature provides a wide-
ranging discussion of how consumers trade off upfront costs and energy 
savings in the absence of government intervention. Much of this 
literature attempts to explain why consumers appear to undervalue 
energy efficiency improvements. There is evidence that consumers 
undervalue future energy savings as a result of (1) a lack of 
information, (2) a lack of sufficient salience of the long-term or 
aggregate benefits, (3) a lack of sufficient savings to warrant 
delaying or altering purchases, (4) excessive focus on the short term, 
in the form of inconsistent weighting of future energy cost savings 
relative to available returns on other investments, (5) computational 
or other difficulties associated with the evaluation of relevant 
tradeoffs, and (6) a divergence in incentives (for example, between 
renters and owners, or builders and purchasers). Having less than 
perfect foresight and a high degree of uncertainty about the future, 
consumers may trade off these types of investments at a higher than 
expected rate between current consumption and uncertain future energy 
cost savings.

[[Page 69811]]

1. Benefits and Burdens of TSLs Considered for CWH Equipment Standards
    Table V.45 and Table V.46 summarize the quantitative impacts 
estimated for each TSL for CWH equipment. The national impacts are 
measured over the lifetime of each class of CWH equipment purchased in 
the 30-year period that begins in the anticipated year of compliance 
with amended standards (2026-2055). The energy savings, emissions 
reductions, and value of emissions reductions refer to full-fuel-cycle 
results. DOE is presenting monetized benefits in accordance with the 
applicable Executive Orders and DOE would reach the same conclusion 
presented in this notice in the absence of the SC-GHG, including the 
Interim Estimates presented by the Interagency Working Group. The 
efficiency levels contained in each TSL are described in section V.A of 
this document.

               Table V.45--Summary of Analytical Results for CWH Equipment TSLs--National Impacts
----------------------------------------------------------------------------------------------------------------
                          Category                               TSL 1        TSL 2        TSL 3        TSL 4
----------------------------------------------------------------------------------------------------------------
                                 Cumulative FFC National Energy Savings (quads)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type instantaneous.         0.04         0.18         0.28         0.48
Residential-duty gas-fired storage..........................         0.05         0.09         0.13         0.16
Instantaneous gas-fired tankless............................         0.00         0.02         0.02         0.02
Instantaneous circulating water heaters and hot water supply         0.03         0.21         0.26         0.26
 boilers....................................................
                                                             ---------------------------------------------------
    Total Quads.............................................         0.12         0.49         0.70         0.92
----------------------------------------------------------------------------------------------------------------
                               NPV of Consumer Costs and Benefits (billion 2022$)
                                             NPV at 3% discount rate
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type instantaneous.         0.15         0.41         0.81         1.51
Residential-duty gas-fired storage..........................         0.16         0.17         0.27         0.38
Instantaneous gas-fired tankless............................         0.02         0.03         0.04         0.04
Instantaneous circulating water heaters and hot water supply         0.08         0.18         0.30         0.30
 boilers....................................................
                                                             ---------------------------------------------------
    Total NPV at 3% (billion 2022$).........................         0.41         0.79         1.43         2.25
----------------------------------------------------------------------------------------------------------------
                                             NPV at 7% discount rate
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-type instantaneous.         0.07         0.13         0.32         0.65
Residential-duty gas-fired storage..........................         0.07         0.04         0.08         0.13
Instantaneous gas-fired tankless............................         0.01         0.01         0.01         0.01
Instantaneous circulating water heaters and hot water supply         0.03       (0.02)         0.02         0.02
 boilers....................................................
                                                             ---------------------------------------------------
    Total NPV at 7% (billion 2022$).........................         0.18         0.15         0.43         0.81
----------------------------------------------------------------------------------------------------------------
                            Cumulative FFC Emissions Reduction (Total FFC Emissions)
----------------------------------------------------------------------------------------------------------------
CO2 (million metric tons)...................................            7           27           38           50
SO2 (thousand tons).........................................         0.00         0.03         0.10         0.17
NOX (thousand tons).........................................           18           74          103          135
Hg (tons)...................................................      (0.000)      (0.001)      (0.001)      (0.001)
CH4 (thousand tons).........................................           82          343          479          628
N2O (thousand tons).........................................         0.01         0.05         0.08         0.10
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (3% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.............................         0.51         1.87         2.76         3.83
Climate Benefits *..........................................         0.40         1.63         2.30         3.06
Health Benefits **..........................................         0.57         2.33         3.29         4.40
Total Benefits [dagger].....................................         1.49         5.83         8.35        11.29
Consumer Incremental Product Costs [Dagger].................         0.10         1.08         1.33         1.58
Consumer Net Benefits.......................................         0.41         0.79         1.43         2.25
                                                             ---------------------------------------------------
    Total Net Benefits......................................         1.38         4.75         7.02         9.71
----------------------------------------------------------------------------------------------------------------
                      Present Value of Benefits and Costs (7% discount rate, billion 2022$)
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings.............................         0.24         0.86         1.28         1.81
Climate Benefits *..........................................         0.40         1.63         2.30         3.06
Health Benefits **..........................................         0.24         0.95         1.36         1.84
Total Benefits [dagger].....................................         0.88         3.44         4.94         6.71
Consumer Incremental Product Costs [Dagger].................         0.06         0.70         0.85         1.00
Consumer Net Benefits.......................................         0.18         0.15         0.43         0.81
    Total Net Benefits......................................         0.82         2.74         4.09         5.72
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with commercial water heaters shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products shipped in 2026-2055.

[[Page 69812]]

 
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate), as shown in Table V.39 through Table V.41. Together these
  represent the global social cost of greenhouse gases (SC-GHG). For presentational purposes of this table, the
  climate benefits associated with the average SC-GHG at a 3 percent discount rate are shown; however, DOE
  emphasizes the importance and value of considering the benefits calculated using all four sets of SC-GHG
  estimates. 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 Interim
  Estimates Under Executive Order 13990 published in February 2021 by the IWG.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
  and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.


       Table V.46--Summary of Analytical Results for CWH Equipment TSLs--Manufacturer and Consumer Impacts
----------------------------------------------------------------------------------------------------------------
                  Category                        TSL 1 *          TSL 2 *          TSL 3 *          TSL 4 *
----------------------------------------------------------------------------------------------------------------
                                   Manufacturer Impacts: INPV (million 2022$)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-         153.3-154.0      139.1-142.7      130.4-136.5        62.0-73.1
 type instantaneous (No-new-standards case
 INPV = 154.2)..............................
Residential-duty gas-fired storage (No-new-           8.4-9.6          7.6-9.6        6.5-011.2          2.3-7.4
 standards case INPV = 9.0).................
Instantaneous gas-fired tankless (No-new-             8.3-8.4          7.2-7.5          7.2-7.6          7.2-7.6
 standards case INPV = 8.9).................
Instantaneous circulating water heaters and         40.6-40.7        36.3-43.6        30.9-39.7        30.9-39.7
 hot water supply boilers (No-new-standards
 case INPV = 40.8)..........................
                                             -------------------------------------------------------------------
    Total INPV ($) (No-new-standards case         210.7-212.7      190.3-203.5      175.1-195.1      102.7-128.1
     INPV = 212.8)..........................
----------------------------------------------------------------------------------------------------------------
                                  Manufacturer Impacts: Industry NPV (% Change)
----------------------------------------------------------------------------------------------------------------
Commercial gas-fired storage and storage-         (0.6)-(0.1)      (9.7)-(7.4)    (15.4)-(11.4)    (59.8)-(52.6)
 type instantaneous.........................
Residential-duty gas-fired storage..........        (5.8)-6.8       (15.3)-7.4      (27.3)-25.0    (74.7)-(16.9)
Instantaneous gas-fired tankless............      (6.0)-(5.6)    (18.6)-(15.6)    (19.0)-(14.2)    (19.0)-(14.2)
Instantaneous circulating water heaters and       (0.5)-(0.1)       (10.9)-7.0     (24.3)-(2.7)     (24.3)-(2.7)
 hot water supply boilers...................
                                             -------------------------------------------------------------------
Total INPV (% change).......................      (1.0)-(0.0)     (10.6)-(4.4)     (17.7)-(8.3)    (51.8)-(39.8)
----------------------------------------------------------------------------------------------------------------
                                      Consumer Average LCC Savings (2022$)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-                 267             (85)              367              528
 type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage..........              509             (80)              119              370
Gas-Fired Instantaneous Water Heaters and                 756              695              898              898
 Hot Water Supply Boilers...................
    --Instantaneous, Gas-Fired Tankless.....              295              105              120              120
    --Instantaneous Water Heaters and Hot               1,153            1,204            1,570            1,570
     Water Supply Boilers...................
Shipment-Weighted Average *.................              384               49              423              569
----------------------------------------------------------------------------------------------------------------
                                           Consumer Simple PBP (years)
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-                   2                8                6                5
 type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage..........                3                8                7                6
Gas-Fired Instantaneous Water Heaters and                   1               10                9                9
 Hot Water Supply Boilers...................
    --Instantaneous, Gas-Fired Tankless.....                1                9                9                9
    --Instantaneous Water Heaters and Hot                   1               10                9                9
     Water Supply Boilers...................
Shipment-Weighted Average *.................                2                8                7                6
----------------------------------------------------------------------------------------------------------------
                                 Percent of Consumers that Experience a Net Cost
----------------------------------------------------------------------------------------------------------------
Commercial Gas-Fired Storage and Storage-                   3               19               17               23
 type Instantaneous Water Heaters...........
Residential-Duty Gas-Fired Storage..........                6               43               42               37
Gas-Fired Instantaneous Water Heaters and                   1               14               17               17
 Hot Water Supply Boilers...................
    --Instantaneous, Gas-Fired Tankless.....                0               10               15               15
    --Instantaneous Water Heaters and Hot                   2               17               18               18
     Water Supply Boilers...................
Shipment-Weighted Average *.................                3               21               21               24
----------------------------------------------------------------------------------------------------------------
Parentheses indicate negative (-) values.
* Weighted by shares of each equipment class in total projected shipments in 2026.

    DOE first considered TSL 4, which represents the max-tech 
efficiency levels. At this TSL, the Secretary has determined that the 
benefits are outweighed by the burdens, as discussed in detail in the 
following paragraphs.
    TSL 4 would save an estimated 0.92 quads of energy, an amount DOE 
considers significant. Commercial gas-fired storage water heaters and 
storage-type instantaneous water heaters save an estimated 0.48 quads 
while residential-duty gas-fired storage equipment saves 0.16 quads of 
energy. Instantaneous gas-fired tankless water heaters are estimated to 
save 0.02 quads of energy, while instantaneous circulating water 
heaters and hot water supply boilers save an estimated 0.26 quads.
    Under TSL 4, the NPV of consumer benefit would be $0.81 billion 
using a discount rate of 7 percent, and $2.25 billion using a discount 
rate of 3 percent. Much of the consumer benefit is provided by the 
commercial gas-fired storage water heaters and storage-type 
instantaneous water heaters, totaling an estimated $0.65 billion using 
a 7-percent discount rate, and $1.51 billion using a 3-percent discount 
rate. The consumer benefit for residential-duty gas-fired storage water 
heaters is estimated to be $0.13 billion at a 7-percent discount rate 
and $0.38 billion

[[Page 69813]]

at a 3-percent discount rate. The consumer benefit for instantaneous 
gas-fired tankless water heaters is estimated to be $0.01 billion at a 
7-percent discount rate and $0.04 at a 3-percent discount rate, and the 
consumer benefit for instantaneous circulating water heaters and hot 
water supply boilers is estimated to be $0.02 billion at a 7-percent 
discount rate and $0.30 billion at a 3-percent discount rate.
    The cumulative emissions reductions at TSL 4 are 50 million metric 
tons of CO2, 0.17 thousand tons of SO2, 135 
thousand tons of NOX, -0.001 ton of Hg, 628 thousand tons of 
CH4, and 0.10 thousand tons of N2O. The estimated 
monetary value of the climate benefits from reduced GHG emissions 
(associated with the average SC-GHG at a 3-percent discount rate) at 
TSL 4 is $3.06 billion. The estimated monetary value of the health 
benefits from reduced NOX and SO2 emissions at 
TSL 4 is $1.84 billion using a 7-percent discount rate and $4.40 
billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated total NPV at TSL 4 is $5.72 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 4 is $9.71 billion. The estimated total 
NPV is provided for additional information; however, DOE primarily 
relies upon the NPV of consumer benefits when determining whether a 
proposed standard level is economically justified.
    At TSL 4, the average LCC impact is a savings of $528 for 
commercial gas-fired storage and storage-type instantaneous water 
heaters, $370 for residential-duty gas-fired storage water heaters, 
$120 for instantaneous gas-fired instantaneous water heaters, and 
$1,570 for instantaneous circulating water heaters and hot water supply 
boilers. The simple PBP is 5 years for commercial gas-fired storage 
water heaters, 6 years for residential-duty gas-fired storage water 
heaters, 9 years for instantaneous gas-fired tankless water heaters, 
and 9 years for instantaneous circulating water heaters and hot water 
supply boilers. The fraction of consumers experiencing a net LCC cost 
is 23 percent for commercial gas-fired storage water heaters and 
storage-type instantaneous water heaters, 37 percent for residential-
duty gas-fired storage water heaters, 15 percent for instantaneous gas-
fired tankless water heaters, and 18 percent for instantaneous 
circulating water heaters and hot water supply boilers.
    At TSL 4, the projected change in manufacturer INPV ranges from a 
decrease of $110.1 million to a decrease of $84.6 million, which 
corresponds to decreases of 51.8 percent and 39.8 percent, 
respectively. Conversion costs total $132.2 million.
    Commercial gas-fired storage water heaters and storage-type 
instantaneous equipment currently account for approximately 68 percent 
of current unit shipments in the CWH industry. The projected change in 
manufacturer INPV for commercial gas-fired storage water heaters and 
storage-type instantaneous equipment ranges from a decrease of $92.1 
million to a decrease of $81.0 million, which corresponds to decreases 
of 59.8 percent and 52.6 percent, respectively. The potentially large 
negative impacts on INPV are largely driven by industry conversion 
costs. In particular, there are substantial increases in product 
conversion costs at TSL 4 for commercial gas-fired storage water 
heaters and storage-type instantaneous equipment manufacturers. There 
are several factors that lead to high product conversion costs for this 
equipment.
    Currently, only two models of this equipment type from a single 
manufacturer can meet a 99 percent thermal efficiency standard, which 
represents less than 1 percent of the commercial gas-fired storage 
water heaters and storage-type instantaneous equipment models currently 
offered on the market. The two models both have an input capacity of 
300,000 Btu/h and share a similar design. The manufacturer of these 
models is a small business with less than 1 percent market share in the 
commercial gas storage water heater market. The company's ability to 
ramp-up production capacity at 99 percent thermal efficiency to serve a 
significantly larger portion of the market is unclear.
    Nearly all existing models would need to be redesigned to meet a 99 
percent thermal efficiency standard. Traditionally, manufacturers 
design their equipment platforms to support a range of models with 
varying input capacities and storage volumes, and the efficiency 
typically will vary slightly between models within a given platform. 
However, at TSL 4, manufacturers would not be able to maintain a 
platform approach to designing commercial gas-fired storage water 
heaters because the 99 percent thermal efficiency level represents the 
maximum achievable efficiency and there would be no allowance for 
slight variations in efficiency between individual models. At TSL 4, 
manufacturers would be required to individually redesign each model to 
optimize performance for one specific input capacity and storage volume 
combination. As a result, the industry's level of engineering effort 
and investment would grow significantly. In manufacturer interviews, 
some manufacturers raised concerns that they would not have sufficient 
engineering capacity to complete necessary redesigns within the 3-year 
conversion period. If manufacturers require more than 3 years to 
redesign all models, they would likely prioritize redesigns based on 
sales volume. There is risk that some models become unavailable, either 
temporarily or permanently.
    Product conversion costs for commercial gas-fired storage water 
heaters and storage-type instantaneous equipment are expected to reach 
$84.1 million over the 3-year conversion period. These investment 
levels are six times greater than typical R&D spending on this 
equipment class over a three-year period. Compliance with DOE standards 
could limit other engineering and innovation efforts, such as 
developing heat pump water heaters for the commercial market, during 
the conversion period beyond compliance with amended energy 
conservation standards.
    Residential-duty gas-fired storage water heaters account for 
approximately 14 percent of current unit shipments in the CWH industry. 
At TSL 4, the projected change in INPV for residential-duty gas-fired 
storage water heaters ranges from a decrease of $6.7 million to a 
decrease of $1.5 million, which corresponds to decreases of 74.7 
percent and 16.9 percent, respectively. Conversion costs total $7.3 
million.
    The drivers of negative impacts on INPV for residential-duty gas-
fired storage water heaters are largely identical to those identified 
for the commercial gas-fired storage water heaters. At TSL 4, there is 
only one manufacturer with a compliant model at this standard level. 
This represents less than 2 percent of models currently offered in the 
market. Product conversion costs are expected to reach $4.8 million 
over the conversion period as manufacturers have to optimize designs 
for each specific input capacity and storage volume combination.
    Instantaneous gas-fired tankless water heaters account for 
approximately 9 percent of current unit shipments in the CWH industry. 
At TSL 4, the projected change in manufacturer INPV for instantaneous 
gas-fired tankless water heaters ranges from a decrease of $1.7 million 
to a decrease of $1.3 million,

[[Page 69814]]

which corresponds to decreases of 19.0 percent and 14.2 percent, 
respectively. Conversion costs total $2.1 million.
    At TSL 4, approximately 64 precent of currently offered 
instantaneous gas-fired tankless water heaters models would meet TSL 4 
today. While most manufacturers have some compliant models, 
manufacturers would likely develop cost-optimized models to compete in 
a market where energy efficiency provides less product differentiation. 
Product conversion cost are expected to reach $1.5 million.
    Instantaneous circulating water heaters and hot water supply 
boilers account for approximately 10 percent of current unit shipments 
in the CWH industry. At TSL 4, the projected change in manufacturer 
INPV for instantaneous circulating water heaters and hot water supply 
boilers ranges from a decrease of $9.9 million to a decrease of $1.1 
million, which corresponds to decreases of 24.3 percent and 2.7 
percent, respectively. Conversion cost total $10.5 million.
    At TSL 4, approximately 29 percent of instantaneous circulating 
water heaters and hot water supply boilers models would meet TSL 4 
today. DOE notes that industry offers a large number of models to fit a 
wide range of installation requirements despite relatively low shipment 
volumes. Product conversion cost are expected to reach $8.5 million.
    The Secretary concludes that at TSL 4 for CWH equipment, the 
benefits of energy savings, positive NPV of consumer benefits, emission 
reductions, and the estimated monetary value of the emissions 
reductions would be outweighed by the economic burden on some consumers 
and the impacts on manufacturers, including the potentials for large 
conversion costs, reduced equipment availability, delayed technology 
innovation, and substantial reductions in INPV. As previously noted, 
only one small manufacturer currently produces commercial gas-fired 
storage water heaters at TSL 4. Similarly, only one manufacturer 
currently produces residential-duty gas-fired water heaters at that 
level. In light of substantial conversion costs, it is unclear whether 
a sufficient quantity of other manufacturers would undertake the 
conversions necessary to offer a competitive range of products across 
the range of sizes and applications required for gas-fired storage 
water heaters. Consequently, the Secretary has concluded that the 
current record does not provide a clear and convincing basis to 
conclude that TSL 4 is economically justified.
    DOE then considered TSL 3, which would save an estimated 0.70 quads 
of energy, an amount DOE also considers significant. Commercial gas-
fired storage and storage-type instantaneous water heaters are 
estimated to save 0.28 quads while residential-duty gas-fired storage 
water heaters are estimated to save 0.13 quads of energy. Instantaneous 
gas-fired tankless water heaters are estimated to save 0.02 quads. 
Instantaneous circulating gas-fired water heaters and hot water supply 
boilers are estimated to save 0.26 quads of energy.
    Under TSL 3, the NPV of consumer benefit would be $0.43 billion 
using a discount rate of 7 percent, and $1.43 billion using a discount 
rate of 3 percent. Benefits to consumers of commercial gas-fired 
storage and storage-type instantaneous equipment are estimated to be 
$0.32 billion using a discount rate of 7 percent, and $0.81 billion 
using a discount rate of 3 percent. Consumer benefits for residential-
duty gas-fired storage equipment are estimated to be $0.08 billion 
dollars at a 7-percent discount rate and $0.27 billion at a 3-percent 
discount rate. Benefits to consumers of instantaneous gas-fired 
tankless water heaters are estimated to be $0.01 billion at a 7-percent 
discount rate and $0.04 billion at a 3-percent discount rate, and 
consumer benefits for instantaneous circulating gas-fired water heaters 
and hot water supply boilers are estimated to be $0.02 billion at a 7-
percent discount rate and 0.30 billion at a 3-percent discount rate.
    The cumulative emissions reductions at TSL 3 are 38 million metric 
tons of CO2, 0.10 thousand tons of SO2, 103 
thousand tons of NOX, -0.001 tons of Hg, 479 thousand tons 
of CH4, and 0.08 thousand tons of N2O. The 
estimated monetary value of the climate benefits from reduced GHG 
emissions reduction (associated with the average SC-GHG at a 3-percent 
discount rate) at TSL 3 is $2.30 billion. The estimated monetary value 
of the health benefits from reduced NOX and SO2 
emissions at TSL 3 is $1.36 billion using a 7-percent discount rate and 
$3.29 billion using a 3-percent discount rate.
    Using a 7-percent discount rate for consumer benefits and costs, 
health benefits from reduced SO2 and NOX 
emissions, and the 3-percent discount rate case for climate benefits 
from reduced GHG emissions, the estimated total NPV at TSL 3 is $4.09 
billion. Using a 3-percent discount rate for all benefits and costs, 
the estimated total NPV at TSL 3 is $7.02 billion. The estimated total 
NPV is provided for additional information; however, DOE primarily 
relies upon the NPV of consumer benefits when determining whether a 
proposed standard level is economically justified.
    At TSL 3, the average LCC impact is a savings of $367 for 
commercial gas-fired storage and storage-type instantaneous water 
heaters, $119 for residential-duty gas-fired storage water heaters, 
$120 for instantaneous gas-fired tankless water heaters, and $1,570 for 
instantaneous circulating water heaters and hot water supply boilers. 
The simple PBP is 6 years for commercial gas-fired storage water 
heaters, 7 years for residential-duty gas-fired storage water heaters, 
9 years for instantaneous gas-fired tankless water heaters, and 9 years 
for instantaneous circulating water heaters and hot water supply 
boilers. The fraction of consumers experiencing a net LCC cost is 17 
percent for commercial gas-fired storage water heaters, 42 percent for 
residential-duty gas-fired storage water heaters, 15 percent for 
instantaneous gas-fired tankless water heaters, and 18 percent for 
instantaneous circulating water heaters and hot water supply boilers.
    At TSL 3, the projected change in manufacturer INPV ranges from a 
decrease of $37.6 million to a decrease of $17.7 million, which 
corresponds to decreases of 17.7 percent and 8.3 percent, respectively. 
Conversion costs total $42.7 million.
    At TSL 3, nearly all commercial gas-fired storage water heaters and 
storage-type instantaneous equipment manufacturers have models at a 
range of input capacities and storage volumes that can meet 95 percent 
thermal efficiency. Approximately 34 percent of commercial gas-fired 
storage water heaters and storage-type instantaneous models currently 
offered would meet TSL 3 today. Additionally, an amended standard at 
TSL 3 would allow manufacturers to design equipment platforms that 
support a range of models with varying input capacities and storage 
volumes, rather than having to optimize designs for each individual 
input capacity and storage volume combinations.
    The change in INPV for commercial gas-fired storage water heaters 
and storage-type instantaneous equipment ranges from a decrease of 
$23.7 million to a decrease of $17.6 million, which corresponds to 
decreases of 15.4 percent and 11.4 percent, respectively. Product 
conversion costs are $10.9 million and capital conversion costs are 
$16.9 million, for a total of approximately $27.8 million. At this 
level, product conversion costs are typical of R&D spending over the 
conversion period.
    At TSL 3, multiple residential-duty gas-fired storage water heater 
manufacturers offer models at a range of

[[Page 69815]]

input capacities and storage volumes that can meet a UEF standard at 
this level today. Approximately 34 percent of current residential-duty 
gas-fired storage water heater models would meet TSL 3. An amended 
standard at TSL 3 would allow manufacturers to design equipment 
platforms that support a range of models with varying input capacities 
and storage volumes, rather than having to optimize designs for each 
individual input capacity and storage volume combination.
    The projected change in INPV for residential-duty gas-fired storage 
water heaters ranges from a decrease of $2.5 million to an increase of 
$2.2 million, which corresponds to a decrease of 27.3 percent and an 
increase of 25.0 percent, respectively. DOE expects conversion costs 
for this equipment class to reach $2.3 million.
    At TSL 3, approximately 64 percent of instantaneous gas-fired 
tankless water heaters models would meet TSL 3 today. The projected 
change in manufacturer INPV for instantaneous gas-fired tankless water 
heaters ranges from a decrease of $1.7 million to a decrease of $1.3 
million, which corresponds to decreases of 19.0 percent and 14.2 
percent, respectively. Conversion costs total $2.1 million.
    At TSL 3, approximately 39 percent of instantaneous circulating 
water heaters and hot water supply boilers models would meet TSL 3 
today. The projected change in manufacturer INPV for instantaneous 
circulating water heaters and hot water supply boilers ranges from a 
decrease of $9.9 million to a decrease of $1.1 million, which 
corresponds to decreases of 24.3 percent and 2.7 percent, respectively. 
Conversion cost total $10.5 million.
    After considering the analysis and weighing the benefits and 
burdens, the Secretary concludes that a standard set at TSL 3 for CWH 
equipment would be economically justified. Notably, the benefits to 
consumers vastly outweigh the cost to manufacturers. At TSL 3, the NPV 
of consumer benefits, even measured at the more conservative discount 
rate of 7 percent, is 1,000 percent higher than the maximum of 
manufacturers' loss in INPV. The positive average LCC savings--a 
different way of quantifying consumer benefits--reinforces this 
conclusion. The economic justification for TSL 3 is clear and 
convincing even without weighing the estimated monetary value of 
emissions reductions. When those emissions reductions are included--
representing $2.3 billion in climate benefits (associated with the 
average SC-GHG at a 3-percent discount rate), and $3.3 billion (using a 
3-percent discount rate) or $1.4 billion (using a 7-percent discount 
rate) in health benefits--the rationale becomes stronger still. DOE 
notes, however, that it would reach the same conclusion presented in 
this rule in the absence of the estimated SC-GHG benefits, based on the 
February 2021 Interim Estimates presented by the IWG.
    As stated, DOE conducts the walk-down analysis to determine the TSL 
that represents the maximum improvement in energy efficiency that is 
technologically feasible and economically justified as required under 
EPCA. Although DOE has not conducted a comparative analysis to select 
the amended energy conservation standards, DOE notes at TSL 3 the 
conversion cost impacts for commercial gas storage and residential-duty 
gas-fired storage water heaters are less severe than TSL 4. For 
commercial gas storage water heaters, nearly all manufacturers have 
equipment that can meet TSL 3 across a range of input capacities and 
storage volumes. Similarly, for residential-duty commercial gas water 
heaters, multiple manufacturers currently produce equipment meeting TSL 
3. The concerns of manufacturers being unable to offer a competitive 
range of equipment across the range of input capacities and storage 
volumes currently offered would be mitigated at TSL 3.
    Although DOE considered proposed amended standard levels for CWH 
equipment by grouping the efficiency levels for each equipment category 
into TSLs, DOE evaluates all analyzed efficiency levels in its 
analysis. For commercial gas instantaneous water heaters (including 
tankless and circulating/hot water supply boilers), TSL 3 (i.e., the 
proposed TSL) includes the max-tech efficiency levels, which is the 
maximum level determined to be technologically feasible. For commercial 
gas-fired storage water heaters and residential-duty gas-fired storage 
water heaters, TSL 3 includes efficiency levels that are one level 
below the max-tech efficiency level. As discussed previously, at the 
max-tech efficiency levels for gas-fired storage water heaters and 
residential-duty gas-fired storage water heaters there is a substantial 
risk of manufacturers being unable to offer a competitive range of 
equipment across the range of input capacities and storage volumes 
currently available. Setting standards at max-tech for these classes 
could limit other engineering and innovation efforts, such as 
developing heat pump water heaters for the commercial market, during 
the conversion period beyond compliance with amended energy 
conservation standards. The benefits of max-tech efficiency levels for 
commercial gas-fired storage water heaters and residential-duty gas-
fired storage water heaters do not outweigh the negative impacts to 
consumers and manufacturers. Therefore, DOE concludes that the max-tech 
efficiency levels are not justified.
    Therefore, based on the previous considerations, DOE adopts the 
energy conservation standards for CWH equipment at TSL 3. The amended 
energy conservation standards for CWH equipment, which are expressed as 
thermal efficiency and standby loss for commercial gas-fired storage 
and commercial gas-fired instantaneous water heaters and hot water 
supply boilers, and as UEF for residential-duty gas storage water 
heaters, are shown in Table V.47 and Table V.48.

  Table V.47--Proposed Amended Energy Conservation Standards for Commercial Water Heating Equipment Except for
                                    Residential-Duty Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
                                                                            Energy conservation standards *
                                                                      ------------------------------------------
               Equipment                             Size                  Minimum
                                                                           thermal        Maximum standby loss
                                                                       efficiency (%)           [dagger]
----------------------------------------------------------------------------------------------------------------
Gas-fired storage water heaters and      All.........................              95  0.86 x [Q/800 + 110(Vr)\1/
 storage-type instantaneous water                                                       2\] (Btu/h).
 heaters.
Electric instantaneous water heaters     <10 gal.....................              80  N/A.
 [Dagger].                               >=10 gal....................              77  2.30 + 67/Vm (%/h).

[[Page 69816]]

 
Gas-fired instantaneous water heaters    <10 gal.....................              96  N/A.
 and hot water supply boilers.           >=10 gal....................              96  Q/800 + 110(Vr)\1/2\ (Btu/
                                                                                        h).
----------------------------------------------------------------------------------------------------------------
* Vm is the measured storage volume, and Vr is the rated volume, both in gallons. Q is the nameplate input rate
  in Btu/h.
[dagger] Water heaters and hot water supply boilers having more than 140 gallons of storage capacity need not
  meet the standby loss requirement if: (1) the tank surface area is thermally insulated to R-12.5 or more, (2)
  a standing pilot light is not used, and (3) for gas or oil-fired storage water heaters, they have a fire
  damper or fan-assisted combustion.
[Dagger] Energy conservation standards for electric instantaneous water heaters are included in EPCA. (42 U.S.C.
  6313(a)(5)(D)-(E)) The compliance date for these energy conservation standards is January 1, 1994. In this
  final rule, DOE proposes to codify these standards for electric instantaneous water heaters in its regulations
  at 10 CFR 431.110. Further discussion of standards for electric instantaneous water heaters is included in
  section III.B.3 of this final rule.


    Table V.48--Amended Energy Conservation Standards for Residential-Duty Gas-Fired Commercial Water Heaters
----------------------------------------------------------------------------------------------------------------
              Equipment                    Specification *          Draw pattern **       Uniform energy factor
----------------------------------------------------------------------------------------------------------------
Gas-fired Storage....................  >75 kBtu/h and.........  Very Small.............  0.5374-(0.0009 x Vr).
                                       <=105 kBtu/h and.......  Low....................  0.8062-(0.0012 x Vr).
                                       <=120 gal and..........  Medium.................  0.8702-(0.0011 x Vr).
                                       <=180 [deg]F...........  High...................  0.9297-(0.0009 x Vr).
----------------------------------------------------------------------------------------------------------------
* Additionally, to be classified as a residential-duty water heater, a commercial water heater must meet the
  following conditions: (1) if requiring electricity, use single-phase external power supply; and (2) the water
  heater must not be designed to heat water at temperatures greater than 180 [deg]F.
** Draw pattern is a classification of hot water use of a consumer water heater or residential-duty commercial
  water heater, based upon the first-hour rating. The draw pattern is determined using the Uniform Test Method
  for Measuring the Energy Consumption of Water Heaters in appendix E to subpart B of 10 CFR part 430.

2. Annualized Benefits and Costs of the Adopted Standards
    The benefits and costs of the proposed standards can also be 
expressed in terms of annualized values. The annualized net benefit is 
(1) the annualized national economic value (expressed in 2022$) of the 
benefits from operating products that meet the proposed standards 
(consisting primarily of operating cost savings from using less energy, 
minus increases in product purchase costs, and (2) the annualized 
monetary value of the benefits of GHG and NOX emission 
reductions.
    Table V.49 shows the annualized values for CWH equipment under TSL 
3, expressed in 2022$. 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 NOX and SO2 emissions, and a 3-
percent discount rate case for climate benefits from reduced GHG 
emissions, the estimated cost of the proposed standards for CWH 
equipment is $78 million per year in increased equipment costs, while 
the estimated annual benefits are $118 million in reduced equipment 
operating costs, $125 million in climate benefits, and $125 million in 
health benefits. In this case, the net benefit amounts to $289 million 
per year.
    Using a 3-percent discount rate for all benefits and costs, the 
estimated cost of the proposed standards for CWH equipment is $72 
million per year in increased equipment costs, while the estimated 
annual benefits are $149 million in reduced operating costs, $125 
million in climate benefits, and $178 million in health benefits. In 
this case, the net benefit would amount to $380 million per year.

      Table V.49--Annualized Benefits and Costs of Proposed Energy Conservation Standards for CWH Equipment
                                                     [TSL 3]
----------------------------------------------------------------------------------------------------------------
                                                                            Million 2022$/year
                                                        --------------------------------------------------------
                        Category                                             Low-net-benefits  High-net-benefits
                                                          Primary estimate       estimate           estimate
----------------------------------------------------------------------------------------------------------------
                                                3% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................                149                144                154
Climate Benefits *.....................................                125                124                128
Health Benefits **.....................................                178                177                197
                                                        --------------------------------------------------------
    Total Benefits [dagger]............................                452                445                479
Consumer Incremental Product Costs [Dagger]............                 72                 72                 74
                                                        --------------------------------------------------------

[[Page 69817]]

 
    Net Benefits.......................................                380                373                405
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger])....            (4)-(2)            (4)-(2)            (4)-(2)
----------------------------------------------------------------------------------------------------------------
                                                7% discount rate
----------------------------------------------------------------------------------------------------------------
Consumer Operating Cost Savings........................                118                115                122
Climate Benefits * (3% discount rate)..................                125                124                128
Health Benefits **.....................................                125              124.4              138.1
                                                        --------------------------------------------------------
    Total Benefits[dagger].............................                368                364                388
Consumer Incremental Product Costs [Dagger]............                 78               78.2               80.0
                                                        --------------------------------------------------------
Net Benefits...........................................                289                285                308
----------------------------------------------------------------------------------------------------------------
Change in Producer Cashflow (INPV [Dagger][Dagger])....            (4)-(2)            (4)-(2)            (4)-(2)
----------------------------------------------------------------------------------------------------------------
Note: This table presents the costs and benefits associated with consumer pool heaters shipped in 2026-2055.
  These results include benefits to consumers which accrue after 2055 from the products shipped in 2026-2055.
  Numbers may not add due to rounding.
* Climate benefits are calculated using four different estimates of the social cost of carbon (SC-CO2), methane
  (SC-CH4), and nitrous oxide (SC-N2O) (model average at 2.5 percent, 3 percent, and 5 percent discount rates;
  95th percentile at 3 percent discount rate). Together these represent the global social cost of greenhouse
  gases (SC-GHG). For presentational purposes of this table, the climate benefits associated with the average SC-
  GHG at a 3 percent discount rate are shown; however, DOE emphasizes the importance and value of considering
  the benefits calculated using all four sets of SC-GHG estimates. 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 Interim Estimates Under Executive Order 13990 published in February 2021
  by the IWG.
** Health benefits are calculated using benefit-per-ton values for NOX and SO2. DOE is currently only monetizing
  PM2.5 and (for NOX) ozone precursor health benefits, but will continue to assess the ability to monetize other
  effects such as health benefits from reductions in direct PM2.5 emissions. The health benefits are presented
  at real discount rates of 3 and 7 percent. See section IV.L of this document for more details.
[dagger] Total and net benefits include consumer, climate, and health benefits. For presentation purposes, total
  and net benefits for both the 3-percent and 7-percent cases are presented using the average SC-GHG with 3-
  percent discount rate.
[Dagger] Costs include incremental equipment costs as well as installation costs.
[Dagger][Dagger] Operating Cost Savings are calculated based on the life cycle costs analysis and national
  impact analysis as discussed in detail below. See sections IV.F and IV.H of this document. DOE's NIA includes
  all impacts (both costs and benefits) along the distribution chain beginning with the increased costs to the
  manufacturer to manufacture the equipment and ending with the increase in price experienced by the consumer.
  DOE also separately conducts a detailed analysis on the impacts on manufacturers (the MIA). See section IV.J
  of this document. In the detailed MIA, DOE models manufacturers' pricing decisions based on assumptions
  regarding investments, conversion costs, cashflow, and margins. The MIA produces a range of impacts, which is
  the rule's expected impact on the INPV. The change in INPV is the present value of all changes in industry
  cash flow, including changes in production costs, capital expenditures, and manufacturer profit margins. The
  annualized change in INPV is calculated using the industry weighted average cost of capital value of 9.1% that
  is estimated in the manufacturer impact analysis (see chapter 12 of the final rule TSD for a complete
  description of the industry weighted average cost of capital). For commercial water heaters, those values are
  $4 million and -$2 million. DOE accounts for that range of likely impacts in analyzing whether a TSL is
  economically justified. See section V.C of this document. DOE is presenting the range of impacts to the INPV
  under two markup scenarios: the Preservation of Gross Margin scenario, which is the manufacturer markup
  scenario used in the calculation of Consumer Operating Cost Savings in this table, and the Preservation of
  Operating Profit Markup scenario, where DOE assumed manufacturers would not be able to increase per-unit
  operating profit in proportion to increases in manufacturer production costs. DOE includes the range of
  estimated annualized change in INPV in the above table, drawing on the MIA explained further in Section IV.J
  of this document, to provide additional context for assessing the estimated impacts of this rule to society,
  including potential changes in production and consumption, which is consistent with OMB's Circular A-4 and
  E.O. 12866. If DOE were to include the INPV into the annualized net benefit calculation for this final rule,
  the annualized net benefits would range from $376 million to $378 million at 3-percent discount rate and would
  range from $285 million to $287 million at 7-percent discount rate. Parentheses () indicate negative values.

VI. Procedural Issues and Regulatory Review

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

    E.O. 12866, ``Regulatory Planning and Review,'' as supplemented and 
reaffirmed by E.O. 13563, ``Improving Regulation and Regulatory Review, 
76 FR 3821 (Jan. 21, 2011) and E.O. 14094, ``Modernizing Regulatory 
Review,'' 88 FR 21879 (April 11, 2023), requires agencies, to the 
extent permitted by law, to (1) propose or adopt a regulation only upon 
a reasoned determination that its benefits justify its costs 
(recognizing that some benefits and costs are difficult to quantify); 
(2) tailor regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives, taking into account, 
among other things, and to the extent practicable, the costs of 
cumulative regulations; (3) select, in choosing among alternative 
regulatory approaches, those approaches that maximize net benefits 
(including potential economic, environmental, public health and safety, 
and other advantages; distributive impacts; and equity); (4) to the 
extent feasible, specify performance objectives, rather than specifying 
the behavior or manner of compliance that regulated entities must 
adopt; and (5) identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public. DOE 
emphasizes as well that E.O. 13563 requires agencies to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible. In its guidance, the 
Office of Information and Regulatory Affairs (``OIRA'') in the Office 
of Management

[[Page 69818]]

and Budget (``OMB'') has emphasized that such techniques may include 
identifying changing future compliance costs that might result from 
technological innovation or anticipated behavioral changes. For the 
reasons stated in the preamble, this final regulatory action is 
consistent with these principles.
    Section 6(a) of E.O. 12866 also requires agencies to submit 
``significant regulatory actions'' to OIRA for review. OIRA has 
determined that this final regulatory action constitutes a 
``significant regulatory action'' within the scope of section 3(f)(1) 
of E.O. 12866, as amended by E.O. 14094. Accordingly, pursuant to 
section 6(a)(3)(C) of E.O. 12866, DOE has provided to OIRA an 
assessment, including the underlying analysis, of benefits and costs 
anticipated from the final regulatory action, together with, to the 
extent feasible, a quantification of those costs; and an assessment, 
including the underlying analysis, of costs and benefits of potentially 
effective and reasonably feasible alternatives to the planned 
regulation, and an explanation why the planned regulatory action is 
preferable to the identified potential alternatives. These assessments 
are summarized in this preamble and further detail can be found in the 
TSD for this rulemaking.

B. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
preparation of an initial regulatory flexibility analysis (``IRFA'') 
and a final regulatory flexibility analysis (``FRFA'') for any rule 
that by law must be proposed for public comment, unless the agency 
certifies that the rule, if promulgated, will not have a significant 
economic impact on a substantial number of small entities. As required 
by E.O. 13272, ``Proper Consideration of Small Entities in Agency 
Rulemaking,'' 67 FR 53461 (Aug. 16, 2002), DOE published procedures and 
policies on February 19, 2003, to ensure that the potential impacts of 
its rules on small entities are properly considered during the 
rulemaking process. 68 FR 7990. DOE has made its procedures and 
policies available on the Office of the General Counsel's website 
(www.energy.gov/gc/office-general-counsel). As part of the May 2022 CWH 
ECS NOPR, DOE prepared an IRFA. 87 FR 30722. DOE has prepared the 
following FRFA for the products that are the subject of this 
rulemaking.
1. Need for, and Objectives of, the Rule
    EPCA authorizes DOE to regulate the energy efficiency of a number 
of consumer products and industrial equipment. Title III, Part C of 
EPCA, added by Public Law 95-619, Title IV, section 441(a) (42 U.S.C. 
6311-6317, as codified), established the Energy Conservation Program 
for Certain Industrial Equipment, which sets forth a variety of 
provisions designed to improve energy efficiency. This equipment 
includes the classes of CWH equipment that are the subject of this 
final rule. (42 U.S.C. 6311(1)(K)) EPCA prescribed energy conservation 
standards for CWH equipment. (42 U.S.C. 6313(a)(5))
    Pursuant to EPCA, DOE is to consider amending the energy efficiency 
standards for certain types of commercial and industrial equipment, 
including the equipment at issue in this document, whenever ASHRAE 
amends the standard levels or design requirements prescribed in ASHRAE 
Standard 90.1, ``Energy Standard for Buildings Except Low-Rise 
Residential Buildings,'' (``ASHRAE Standard 90.1''), and at a minimum, 
every 6 years. DOE must adopt the new ASHRAE efficiency level, unless 
DOE determines, supported by clear and convincing evidence, that 
adoption of a more stringent level would produce significant additional 
conservation of energy would be technologically feasible and 
economically justified. (42 U.S.C. 6313(a)(6)(A)-(C)) Not later than 2 
years after a NOPR is issued, DOE must publish a final rule amending 
the standard. (42 U.S.C. 6313(a)(6)(C)(iii))
2. Significant Issues Raised in Response to the IRFA
    DOE did not receive any comments directly commenting on the 
Regulatory Flexibility Analysis in response to the IRFA.
3. Description and Estimate of the Number of Small Entities Affected
    For manufacturers of CWH equipment, the Small Business 
Administration (``SBA'') has set a size threshold, which defines those 
entities classified as ``small businesses'' for the purposes of the 
statute. DOE used the SBA's small business size standards to determine 
whether any small entities would be subject to the requirements of the 
rule. See 13 CFR part 121. The equipment covered by this rule are 
classified under North American Industry Classification System 
(``NAICS'') code 333310,\184\ ``Commercial and Service Industry 
Machinery Manufacturing.'' In 13 CFR 121.201, the SBA sets a threshold 
of 1,000 employees or fewer for an entity to be considered as a small 
business for this category. DOE's analysis relied on publicly available 
databases to identify potential small businesses that manufacture 
equipment covered in this rulemaking. DOE utilized the CEC Modernized 
Appliance Efficiency Database System (``MAEDbS''),\185\ the DOE Energy 
Star Database,\186\ and the DOE Certification Compliance Database 
(``CCD'') \187\ in identifying manufacturers. For the purpose of this 
final rule, two analyses are being performed regarding impacts to small 
businesses: (1) impact of the amended standards and (2) impact of the 
codification of requirements for electric instantaneous water heater 
manufacturers.
---------------------------------------------------------------------------

    \184\ The business size standards are listed by NAICS code and 
industry description and are available at www.sba.gov/document/support--table-size-standards (Last accessed April 21, 2023).
    \185\ MAEDbS can be accessed at 
www.cacertappliances.energy.ca.gov/Pages/Search/AdvancedSearch.aspx 
(Last accessed December 19, 2022).
    \186\ Energy Star certified product can be found in the Energy 
Star database accessed at www.energystar.gov/productfinder/product/certified-commercial-water-heaters/results (Last accessed December 
19, 2022).
    \187\ Certified equipment in the CCD are listed by product class 
and can be accessed at www.regulations.doe.gov/certification-data/#q=Product_Group_s%3A* (Last accessed December 19, 2022).
---------------------------------------------------------------------------

    Regarding manufacturers impacted by the amended standards, DOE 
identified 15 original equipment manufacturers (``OEM''). DOE screened 
out companies that do not meet the definition of a ``small business'' 
or are foreign-owned and operated. DOE used subscription-based business 
information tools to determine headcount and revenue of the small 
businesses. Of these 15 OEMs, DOE identified three companies that are 
small, domestic OEMs.
    Regarding models impacted by the codification of requirements for 
electric instantaneous water heaters, DOE's research identified nine 
OEMs of commercial electric instantaneous water heaters being sold in 
the U.S. market. Of these nine companies, DOE has identified three as 
domestic, small businesses. The small businesses do not currently 
certify any other CWH equipment to DOE's CCD.
4. Description and Estimate of Compliance Requirements
    This final rule proposes to adopt amended standards for gas-fired 
storage water heaters, gas-fired instantaneous water heaters and hot 
water supply boilers, and residential-duty gas-fired storage water 
heaters. Additionally, this

[[Page 69819]]

final rule seeks to codify energy conservation standards for electric 
instantaneous water heaters from EPCA into the CFR.
    To determine the impact on the small OEMs, product conversion costs 
and capital conversion costs were estimated. Product conversion costs 
are investments in research, development, testing, marketing, and other 
non-capitalized costs necessary to make product designs comply with 
amended energy conservation standards. Capital conversion costs are 
one-time investments in plant, property, and equipment made in response 
to new and/or amended standards. DOE's estimates of conversion costs 
increased between the NOPR and the final rule. As noted in section 
IV.J.2.c of this final rule, DOE updated its conversion cost analysis 
for the final rule to reflect written comments submitted in response to 
the NOPR and feedback received from additional manufacturer interviews 
conducted at the request of industry. Additionally, DOE updated its 
analysis to reflect changes to industry model availability that 
occurred between the NOPR analysis and final rule analysis. These 
changes result in different costs to small manufacturers between the 
IRFA and FRFA.
    In reviewing all commercially available models in DOE's Compliance 
Certification Database, the three small manufacturers account for 
approximately 4 percent of industry model offerings. Of the three small 
manufacturers, the first manufacturer exclusively manufactures gas-
fired instantaneous tankless water heaters and will remain unimpacted 
by the proposed standards as 100 percent of models meet TSL 3 or 
higher. There are no anticipated capital conversion costs or production 
conversion costs required to meet the adopted standards.
    The second manufacturer exclusively manufacturers hot water supply 
boilers and 76 percent of its models are unimpacted by the proposed 
standards. DOE estimates that this manufacturer will incur 
approximately $50,000 in capital conversion costs and $210,000 in 
product conversion costs to meet proposed standards. The combined 
conversion costs represent less than 1 percent of the firm's estimated 
revenue during the conversion period.
    The third manufacturer primarily manufactures gas-fired storage 
water heaters and residential-duty gas fired storage water heaters. For 
this manufacturer, 33 percent of their models are unimpacted by the 
proposed standards. DOE estimates that this manufacturer will incur 
approximately $0.6 million in capital conversion costs and $0.9 million 
in product conversion costs to meet proposed standards. The combined 
conversion costs represent approximately 4.8 percent of the firm's 
estimated revenue during the conversion period.

                                Table VI.1--Summary of Small Manufacturer Impacts
----------------------------------------------------------------------------------------------------------------
                                                                            Conversion period  Conversion costs/
                                      Conversion costs  Annual revenue ($      revenue ($      conversion period
                                        ($ millions)        millions)           millions)           revenue
----------------------------------------------------------------------------------------------------------------
Manufacturer A.....................                  0                 27                  81                0.0
Manufacturer B.....................                0.2                219                 657                0.0
Manufacturer C.....................                1.6               10.9                32.7                4.8
----------------------------------------------------------------------------------------------------------------

    In addition to amending standards, in this rulemaking, DOE is 
codifying standards for electric instantaneous CWH equipment from EPCA 
into the CFR.
    EPCA prescribes energy conservation standards for several classes 
of CWH equipment manufactured on or after January 1, 1994. (42 U.S.C. 
6313(a)(5)) DOE codified these standards in its regulations for CWH 
equipment at 10 CFR 431.110. However, when previously codifying these 
standards from EPCA, DOE inadvertently omitted the standards put in 
place by EPCA for electric instantaneous water heaters. In the final 
rule, DOE is codifying these standards in its regulations at 10 CFR 
431.110. This final rule does not propose certification requirements 
for electric instantaneous water heaters. Thus, DOE estimates no 
additional paperwork costs on manufacturers of electric instantaneous 
water heater equipment as a result of the final rule.
5. Significant Alternatives to the Rule
    The discussion in the previous section analyzes impacts on small 
businesses that would result from the adopted standards, represented by 
TSL 3. In reviewing alternatives to the adopted standards, DOE examined 
energy conservation standards set at lower efficiency levels. While TSL 
1 and TSL 2 would reduce the impacts on small business manufacturers, 
it would come at the expense of a reduction in energy savings.
    TSL 2 would save 0.49 quads of energy with the projected change in 
manufacturer INPV ranging from -10.6 percent to -4.4 percent. TSL 2 has 
energy savings that are 30 percent lower than TSL 3. TSL 1 would save 
0.12 quads of energy with the projected change in manufacturer INPV 
ranging from -1.0 percent to less than 0.1 percent. TSL 1 has energy 
savings that are 83 percent lower than TSL 3.
    Establishing standards at TSL 3 balances the benefits of the energy 
savings at TSL 3 with the potential burdens placed on CWH equipment 
manufacturers, including small business manufacturers. Accordingly, DOE 
is not adopting one of the other TSLs considered in the analysis, or 
the other policy alternatives examined as part of the regulatory impact 
analysis and included in chapter 17 of the final rule TSD.
    Additional compliance flexibilities may be available through other 
means. Manufacturers subject to DOE's energy efficiency standards may 
apply to DOE's Office of Hearings and Appeals for exception relief 
under certain circumstances. Manufacturers should refer to 10 CFR part 
1003 for additional details.

C. Review Under the Paperwork Reduction Act

    Manufacturers of CWH equipment must certify to DOE that their 
products comply with any applicable energy conservation standards. In 
certifying compliance, manufacturers must test their products according 
to the DOE test procedures for CWH equipment, including any amendments 
adopted for those test procedures. DOE has established regulations for 
the certification and recordkeeping requirements for all covered 
consumer products and commercial equipment, including CWH equipment. 
(See generally 10 CFR part 429). The collection-of-information 
requirement for the certification and recordkeeping is subject to 
review and approval by OMB under the Paperwork Reduction Act (``PRA''). 
This requirement has been approved by OMB under OMB control number 
1910-1400. The public

[[Page 69820]]

reporting burden for the certification is estimated to average 35 hours 
per response, including the time for reviewing instructions, searching 
existing data sources, gathering and maintaining the data needed, and 
completing and reviewing the collection of information.
    Notwithstanding any other provision of the law, no person is 
required to respond to, nor shall any person be subject to a penalty 
for failure to comply with, a collection of information subject to the 
requirements of the PRA, unless that collection of information displays 
a currently valid OMB Control Number.

D. Review Under the National Environmental Policy Act of 1969

    Pursuant to the National Environmental Policy Act of 1969 
(``NEPA''), DOE has analyzed this final rule in accordance with NEPA 
and DOE's NEPA implementing regulations. 10 CFR part 1021. DOE has 
determined that this rule qualifies for categorical exclusion under 10 
CFR part 1021, subpart D, appendix B5.1 because it is a rulemaking that 
establishes energy conservation standards for consumer products or 
industrial equipment, none of the exceptions identified in B5.1(b) 
apply, no extraordinary circumstances exist that require further 
environmental analysis, and it meets the requirements for application 
of a categorical exclusion. See 10 CFR 1021.410. Therefore, DOE has 
determined that promulgation of this rule is not a major Federal action 
significantly affecting the quality of the human environment within the 
meaning of NEPA and does not require an environmental assessment or an 
environmental impact statement.

E. Review Under Executive Order 13132

    E.O. 13132, ``Federalism,'' 64 FR 43255 (Aug. 10, 1999), imposes 
certain requirements on Federal agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. The Executive order requires agencies to examine the 
constitutional and statutory authority supporting any action that would 
limit the policymaking discretion of the states and to carefully assess 
the necessity for such actions. The Executive order also requires 
agencies to have an accountable process to ensure meaningful and timely 
input by State and local officials in the development of regulatory 
policies that have federalism implications. On March 14, 2000, DOE 
published a statement of policy describing the intergovernmental 
consultation process it will follow in the development of such 
regulations. 65 FR 13735. DOE has examined this rule and has determined 
that it would not have a substantial direct effect on the States, on 
the relationship between the national government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. EPCA governs and prescribes Federal preemption of State 
regulations as to energy conservation for the equipment that is the 
subject of this final rule. States can petition DOE for exemption from 
such preemption to the extent, and based on criteria, set forth in 
EPCA. (See 42 U.S.C. 6316(a) and (b); 42 U.S.C. 6297.) Therefore, no 
further action is required by E.O. 13132.

F. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, section 3(a) of E.O. 12988, ``Civil 
Justice Reform,'' imposes on Federal agencies the general duty to 
adhere to the following requirements: (1) eliminate drafting errors and 
ambiguity, (2) write regulations to minimize litigation, (3) provide a 
clear legal standard for affected conduct rather than a general 
standard, and (4) promote simplification and burden reduction. 61 FR 
4729 (Feb. 7, 1996). Regarding the review required by section 3(a), 
section 3(b) of E.O. 12988 specifically requires that Executive 
agencies make every reasonable effort to ensure that the regulation (1) 
clearly specifies the preemptive effect, if any, (2) clearly specifies 
any effect on existing Federal law or regulation, (3) provides a clear 
legal standard for affected conduct while promoting simplification and 
burden reduction, (4) specifies the retroactive effect, if any, (5) 
adequately defines key terms, and (6) addresses other important issues 
affecting clarity and general draftsmanship under any guidelines issued 
by the Attorney General. Section 3(c) of E.O. 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or if 
it is unreasonable to meet one or more of them. DOE has completed the 
required review and determined that, to the extent permitted by law, 
this final rule meets the relevant standards of E.O. 12988.

G. Review Under the Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (``UMRA'') 
requires each Federal agency to assess the effects of Federal 
regulatory actions on State, local, and Tribal governments and the 
private sector. Public Law 104-4, sec. 201 (codified at 2 U.S.C. 1531). 
For a regulatory action likely to result in a rule that may cause the 
expenditure by State, local, and Tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any 1 year 
(adjusted annually for inflation), section 202 of UMRA requires a 
Federal agency to publish a written statement that estimates the 
resulting costs, benefits, and other effects on the national economy. 
(2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to 
develop an effective process to permit timely input by elected officers 
of State, local, and Tribal governments on a ``significant 
intergovernmental mandate,'' and requires an agency plan for giving 
notice and opportunity for timely input to potentially affected small 
governments before establishing any requirements that might 
significantly or uniquely affect them. On March 18, 1997, DOE published 
a statement of policy on its process for intergovernmental consultation 
under UMRA. 62 FR 12820. DOE's policy statement is also available at 
www.energy.gov/sites/prod/files/gcprod/documents/umra_97.pdf.
    This rule does not contain a Federal intergovernmental mandate, nor 
is it expected to require expenditures of $100 million or more in any 1 
year by the private sector. As a result, the analytical requirements of 
UMRA do not apply.

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

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any rule that may affect family well-being. 
This rule would not have any impact on the autonomy or integrity of the 
family as an institution. Accordingly, DOE has concluded that it is not 
necessary to prepare a Family Policymaking Assessment.

I. Review Under Executive Order 12630

    Pursuant to E.O. 12630, ``Governmental Actions and Interference 
with Constitutionally Protected Property Rights,'' 53 FR 8859 (March 
18, 1988), DOE has determined that this rule would not result in any 
takings that might require compensation under the Fifth Amendment to 
the U.S. Constitution.

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

    Section 515 of the Treasury and General Government Appropriations

[[Page 69821]]

Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to 
review most disseminations of information to the public under 
information quality guidelines established by each agency pursuant to 
general guidelines issued by OMB. OMB's guidelines were published at 67 
FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 
62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15, Improving 
Implementation of the Information Quality Act (April 24, 2019), DOE 
published updated guidelines, which are available at www.energy.gov/sites/prod/files/2019/12/f70/DOE%20Final%20Updated%20IQA%20Guidelines%20Dec%202019.pdf. DOE has 
reviewed this final rule under the OMB and DOE guidelines and has 
concluded that it is consistent with applicable policies in those 
guidelines.

K. Review Under Executive Order 13211

    E.O. 13211, ``Actions Concerning Regulations That Significantly 
Affect Energy Supply, Distribution, or Use,'' 66 FR 28355 (May 22, 
2001), requires Federal agencies to prepare and submit to OIRA at OMB, 
a Statement of Energy Effects for any significant energy action. A 
``significant energy action'' is defined as any action by an agency 
that promulgates or is expected to lead to promulgation of a final 
rule, and that (1) is a significant regulatory action under E.O. 12866, 
or any successor order; and (2) is likely to have a significant adverse 
effect on the supply, distribution, or use of energy, or (3) is 
designated by the Administrator of OIRA as a significant energy action. 
For any significant energy action, the agency must give a detailed 
statement of any adverse effects on energy supply, distribution, or use 
should the proposal be implemented, and of reasonable alternatives to 
the action and their expected benefits on energy supply, distribution, 
and use.
    DOE has concluded that this regulatory action, which sets forth 
amended energy conservation standards for CWH equipment, is not a 
significant energy action because the standards are not likely to have 
a significant adverse effect on the supply, distribution, or use of 
energy, nor has it been designated as such by the Administrator at 
OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects 
on this final rule.

L. Information Quality

    On December 16, 2004, OMB, in consultation with the Office of 
Science and Technology Policy (``OSTP''), issued its Final Information 
Quality Bulletin for Peer Review (``the Bulletin''). 70 FR 2664 (Jan. 
14, 2005). The Bulletin establishes that certain scientific information 
shall be peer reviewed by qualified specialists before it is 
disseminated by the Federal government, including influential 
scientific information related to agency regulatory actions. The 
purpose of the Bulletin is to enhance the quality and credibility of 
the Federal government's scientific information. Under the Bulletin, 
the energy conservation standards rulemaking analyses are ``influential 
scientific information,'' which the Bulletin defines as ``scientific 
information the agency reasonably can determine will have, or does 
have, a clear and substantial impact on important public policies or 
private sector decisions.'' 70 FR 2664, 2667.
    In response to OMB's Bulletin, DOE conducted formal peer reviews of 
the energy conservation standards development process and the analyses 
that are typically used and prepared a report describing that peer 
review.\188\ Generation of this report involved a rigorous, formal, and 
documented evaluation using objective criteria and qualified and 
independent reviewers to make a judgment as to the technical/
scientific/business merit, the actual or anticipated results, and the 
productivity and management effectiveness of programs and/or projects. 
Because available data, models, and technological understanding have 
changed since 2007, DOE has engaged with the National Academy of 
Sciences to review DOE's analytical methodologies to ascertain whether 
modifications are needed to improve DOE's analyses. DOE is in the 
process of evaluating the resulting report.\189\
---------------------------------------------------------------------------

    \188\ The 2007 ``Energy Conservation Standards Rulemaking Peer 
Review Report'' is available at the following website: energy.gov/eere/buildings/downloads/energy-conservation-standards-rulemaking-peer-review-report-0 (last accessed December 14, 2022).
    \189\ The report is available at www.nationalacademies.org/our-work/review-of-methods-for-setting-building-and-equipment-performance-standards.
---------------------------------------------------------------------------

M. Congressional Notification

    As required by 5 U.S.C. 801, DOE will report to Congress on the 
promulgation of this rule prior to its effective date. The report will 
state that it has been determined that the rule is a ``major rule'' as 
defined by 5 U.S.C. 804(2).

VII. Approval of the Office of the Secretary

    The Secretary of Energy has approved publication of this final 
rule.

List of Subjects in 10 CFR Part 431

    Administrative practice and procedure, Confidential business 
information, Energy conservation test procedures, Incorporation by 
reference, and Reporting and recordkeeping requirements.

Signing Authority

    This document of the Department of Energy was signed on July 27, 
2023, by Francisco Alejandro Moreno, Acting Assistant Secretary for 
Energy Efficiency and Renewable Energy, pursuant to delegated authority 
from the Secretary of Energy. That document with the original signature 
and date is maintained by DOE. For administrative purposes only, and in 
compliance with requirements of the Office of the Federal Register, the 
undersigned DOE Federal Register Liaison Officer has been authorized to 
sign and submit the document in electronic format for publication, as 
an official document of the Department of Energy. This administrative 
process in no way alters the legal effect of this document upon 
publication in the Federal Register.

    Signed in Washington, DC, on September 15, 2023.
Treena V. Garrett,
Federal Register Liaison Officer, U.S. Department of Energy.

    For the reasons set forth in the preamble, DOE amends part 431 of 
chapter II, subchapter D, of title 10 of the Code of Federal 
Regulations, to read as set forth below:

PART 431--ENERGY EFFICIENCY PROGRAM FOR COMMERCIAL AND INDUSTRIAL 
EQUIPMENT

0
1. The authority citation for part 431 continues to read as follows:

    Authority: 42 U.S.C. 6291-6317; 28 U.S.C. 2461 note.

0
2. Amend Sec.  431.102 by revising the definition of ``Storage-type 
instantaneous water heater'' to read as follows:


Sec.  431.102  Definitions concerning commercial water heaters, hot 
water supply boilers, unfired hot water storage tanks, and commercial 
heat pump water heaters.

* * * * *
    Storage-type instantaneous water heater means an instantaneous 
water heater that includes a storage tank with a rated storage volume 
greater than or equal to 10 gallons.
* * * * *

0
3. Amend Sec.  431.105 by revising paragraph (a) to read as follows:

[[Page 69822]]

Sec.  431.105  Materials incorporated by reference.

    (a) Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register in accordance 
with 5 U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other 
than that specified in this section, the DOE must publish a document in 
the Federal Register and the material must be available to the public. 
All approved incorporation by reference (IBR) material is available for 
inspection at DOE and at the National Archives and Records 
Administration (NARA). Contact DOE at: the U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy, Building Technologies 
Program, 1000 Independence Avenue SW, EE-5B, Washington, DC 20024, 
(202) 586-9127, [email protected], www.energy.gov/eere/buildings/building-technologies-office. For information on the availability of 
this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations.html or email: [email protected]. The material may be 
obtained from the sources in the following paragraphs of this section.
* * * * *

0
4. Revise Sec.  431.110 to read as follows:


Sec.  431.110  Energy conservation standards and their effective dates.

    (a) Each commercial storage water heater, instantaneous water 
heater, and hot water supply boiler (excluding residential-duty 
commercial water heaters) must meet the applicable energy conservation 
standard level(s) as specified in the table to this paragraph. Any 
packaged boiler that provides service water that meets the definition 
of ``commercial packaged boiler'' in subpart E of this part, but does 
not meet the definition of ``hot water supply boiler'' in subpart G of 
this part, must meet the requirements that apply to it under subpart E 
of this part.

                                   Table 1 to Sec.   431.110(a)--Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Energy conservation standards \a\
                                                             -------------------------------------------------------------------------------------------
                                                                 Minimum thermal       Minimum thermal
                                                                   efficiency            efficiency        Maximum standby loss    Maximum standby loss
              Equipment                        Size                (equipment            (equipment             (equipment              (equipment
                                                               manufactured on and   manufactured on and    manufactured on and     manufactured on and
                                                                after October 9,      after October 6,       after October 29,    after October 6, 2026)
                                                                    2015) (%)             2026) (%)              2003) \b\                  \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric storage water heaters......  All...................                   N/A                   N/A  0.30 + 27/Vm (%/h)....  0.30 + 27/Vm (%/h)
Gas-fired storage water heaters and   All...................                    80                    95  Q/800 + 110(Vr)\1/2\    0.86 x [Q/800 +
 storage-type instantaneous water                                                                          (Btu/h).                110(Vr)\1/2\] (Btu/h)
 heaters.
Oil-fired storage water heaters.....  All...................                    80                    80  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
                                                                                                           (Btu/h).                (Btu/h)
Electric instantaneous water heaters  <10 gal...............                    80                    80  N/A...................  N/A
 \c\.                                 >=10 gal..............                    77                    77  2.30 + 67/Vm (%/h)....  2.30 + 67/Vm (%/h)
Gas-fired instantaneous water         <10 gal...............                    80                    96  N/A...................  N/A
 heaters and hot water supply         >=10 gal..............                    80                    96  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
 boilers.                                                                                                  (Btu/h).                (Btu/h)
Oil-fired instantaneous water heater  <10 gal...............                    80                    80  N/A...................  N/A
 and hot water supply boilers.        >=10 gal..............                    78                    78  Q/800 + 110(Vr)\1/2\    Q/800 + 110(Vr)\1/2\
                                                                                                           (Btu/h).                (Btu/h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Vm is the measured storage volume, and Vr is the rated storage volume, both in gallons. Q is the rated input in Btu/h, as determined pursuant to 10
  CFR 429.44.
\b\ Water heaters and hot water supply boilers with a rated storage volume greater than 140 gallons need not meet the standby loss requirement if:
(1) The tank surface area is thermally insulated to R-12.5 or more, with the R-value as defined in Sec.   431.102
(2) A standing pilot light is not used; and
(3) For gas-fired or oil-fired storage water heaters, they have a flue damper or fan-assisted combustion.
\c\ The compliance date for energy conservation standards for electric instantaneous water heaters is January 1, 1994.

    (b) Each unfired hot water storage tank manufactured on and after 
October 29, 2003, must have a minimum thermal insulation of R-12.5.
    (c) Each residential-duty commercial water heater must meet the 
applicable energy conservation standard level(s) as follows:

                          Table 2 to Sec.   431.110(c)--Residential-Duty Commercial Water Heater Energy Conservation Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Uniform energy factor \b\
                                                                                 -----------------------------------------------------------------------
             Equipment                Specifications \a\        Draw pattern         Equipment manufactured before       Equipment manufactured after
                                                                                            October 6, 2026                     October 6, 2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
Gas-fired storage.................  >75 kBtu/hr and <=105  Very Small...........  0.2674-(0.0009 x Vr)..............  0.5374-(0.0009 x Vr)
                                     kBtu/hr and <=120     Low..................  0.5362-(0.0012 x Vr)..............  0.8062-(0.0012 x Vr)
                                     gal.                  Medium...............  0.6002-(0.0011 x Vr)..............  0.8702-(0.0011 x Vr)
                                                           High.................  0.6597-(0.0009 x Vr)..............  0.9297-(0.0009 x Vr)
Oil-fired storage.................  >105 kBtu/hr and       Very Small...........  0.2932-(0.0015 x Vr)..............  0.2932-(0.0015 x Vr)
                                     <=140 kBtu/hr and     Low..................  0.5596-(0.0018 x Vr)..............  0.5596-(0.0018 x Vr)
                                     <=120 gal.            Medium...............  0.6194-(0.0016 x Vr)..............  0.6194-(0.0016 x Vr)
                                                           High.................  0.6470-(0.0013 x Vr)..............  0.6470-(0.0013 x Vr)
Electric instantaneous............  >12 kW and <=58.6 kW   Very Small...........  0.80..............................  0.80
                                     and <=2 gal.          Low..................  0.80..............................  0.80
                                                           Medium...............  0.80..............................  0.80
                                                           High.................  0.80..............................  0.80
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ Additionally, to be classified as a residential-duty commercial water heater, a commercial water heater must meet the following conditions: (1) If
  the water heater requires electricity, it must use a single-phase external power supply; and (2) The water heater must not be designed to heat water
  to temperatures greater than 180 [deg]F.
\b\ Vr is the rated storage volume (in gallons), as determined pursuant to 10 CFR 429.44.



[[Page 69823]]

    Note: The following letter will not appear in the Code of 
Federal Regulations.

BILLING CODE 6450-01-P
[GRAPHIC] [TIFF OMITTED] TR06OC23.060


[[Page 69824]]


[GRAPHIC] [TIFF OMITTED] TR06OC23.061

[FR Doc. 2023-20392 Filed 10-5-23; 8:45 am]
BILLING CODE 6450-01-C

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