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Rule2023-20392

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

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Published

October 6, 2023

Effective

December 5, 2023

Issuing agencies

Energy Department

Abstract

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.

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<title>Federal Register, Volume 88 Issue 193 (Friday, October 6, 2023)</title>
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-20392]

[[Page 69685]]

Vol. 88

Friday,

No. 193

October 6, 2023

Part II

Department of Energy

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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.

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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 <a href="http://www.regulations.gov">www.regulations.gov</a>. All documents in the docket are listed
in the <a href="http://www.regulations.gov">www.regulations.gov</a> 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 <a href="http://www.regulations.gov/docket/EERE-2021-BT-STD-0027">www.regulations.gov/docket/EERE-2021-BT-STD-0027</a>. 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: <a href="/cdn-cgi/l/email-protection#602110100c09010e03053314010e04011204133115051314090f0e132005054e040f054e070f16">[email&#160;protected]</a>.

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: <a href="/cdn-cgi/l/email-protection#0e4f7e7e62676f606d6b5d7a6f606a6f7c6a7d5f7b6b7d7a6761607d4e6b6b206a616b20696178">[email&#160;protected]</a>.
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: <a href="/cdn-cgi/l/email-protection#eaa78b9e9e828f9dc4b883848daa829bc48e858fc48d859c">[email&#160;protected]</a>.

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.
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\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.
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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).
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\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
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\4\ All monetary values in this document are expressed in 2022
dollars, and, where appropriate, are discounted to 2023 unless
explicitly stated otherwise.
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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'').
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\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.
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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 (``CO<INF>2</INF>''), 0.10 thousand
tons of sulfur dioxide (``SO<INF>2</INF>''), 103 thousand tons of
nitrogen oxides (``NO<INF>X</INF>''), 479 thousand tons of methane
(``CH<INF>4</INF>''), 0.08 thousand tons of nitrous oxide
(``N<INF>2</INF>O''), and -0.001 tons of mercury (``Hg'').\7\ The
estimated cumulative reduction in CO<INF>2</INF> 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.
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\6\ A metric ton is equivalent to 1.1 short tons. Results for
emissions other than CO<INF>2</INF> 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.
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DOE estimates the value of climate benefits from a reduction in
greenhouse gases using four different estimates of the ``social cost of
carbon'' (``SC-CO<INF>2</INF>''), the social cost of methane (``SC-
CH<INF>4</INF>''), and the social cost of nitrous oxide (``SC-
N<INF>2</INF>O''). 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. <a href="http://www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf">www.whitehouse.gov/wp-content/uploads/2021/02/TechnicalSupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf</a>?
---------------------------------------------------------------------------

DOE estimated the monetary health benefits from SO<INF>2</INF> and
NO<INF>X</INF> 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
(``PM<INF>2.5</INF>'') and (for NO<INF>X</INF>) ozone precursors, but
will continue to assess the ability to monetize other effects such as
health benefits from reductions in direct PM<INF>2.5</INF> emissions.
---------------------------------------------------------------------------

\10\ Estimating the Benefit per Ton of Reducing PM<INF>2.5</INF>
Precursors from 21 Sectors. <a href="http://www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors">www.epa.gov/benmap/estimating-benefit-ton-reducing-pm25-precursors-21-sectors</a>.
---------------------------------------------------------------------------

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, NO<INF>X</INF>, and SO<INF>2</INF> 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 CO<INF>2</INF>
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 SO<INF>2</INF> and NO<INF>X</INF>
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 NO<INF>X</INF> and SO<INF>2</INF> 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 CO<INF>2</INF>
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 <a href="http://www.regulations.gov/docket?D=EERE-2014-BT-STD-0042">www.regulations.gov/docket?D=EERE-2014-BT-STD-0042</a>.
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 <a href="http://www.regulations.gov">www.regulations.gov</a>). 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-
CO<INF>2</INF>). 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 <a href="http://ecfr.gov">ecfr.gov</a>.
---------------------------------------------------------------------------

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: <a href="http://www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36">www1.eere.energy.gov/buildings/appliance_standards/standards.aspx?productid=36</a>. 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.
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\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,

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