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Rule2024-09209

Energy Conservation Program: Energy Conservation Standards for Consumer Water Heaters

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Published

May 6, 2024

Effective

July 5, 2024

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 consumer water heaters. EPCA also requires the U.S. Department of Energy ("DOE" or "the Department") to periodically determine whether more stringent standards would be technologically feasible and economically justified, and would result in significant energy savings. In this final rule, DOE is adopting amended energy conservation standards for consumer water heaters. It has determined that the new and amended energy conservation standards for these products would result in significant conservation of energy, and are technologically feasible and economically justified.

Full Text

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[Federal Register Volume 89, Number 88 (Monday, May 6, 2024)]
[Rules and Regulations]
[Pages 37778-37946]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-09209]

[[Page 37777]]

Vol. 89

Monday,

No. 88

May 6, 2024

Part VI

Department of Energy

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10 CFR Parts 429 and 430

Energy Conservation Program: Energy Conservation Standards for Consumer
Water Heaters; Final Rule

Federal Register / Vol. 89 , No. 88 / Monday, May 6, 2024 / Rules and
Regulations

[[Page 37778]]

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DEPARTMENT OF ENERGY

10 CFR Parts 429 and 430

[EERE 2017-BT-STD-0019]
RIN 1904-AD91

Energy Conservation Program: Energy Conservation Standards for
Consumer Water Heaters

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

ACTION: Final rule.

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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 consumer
water heaters. EPCA also requires the U.S. Department of Energy
(``DOE'' or ``the Department'') to periodically determine whether more
stringent standards would be technologically feasible and economically
justified, and would result in significant energy savings. In this
final rule, DOE is adopting amended energy conservation standards for
consumer water heaters. It has determined that the new and amended
energy conservation standards for these products would result in
significant conservation of energy, and are technologically feasible
and economically justified.

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

ADDRESSES: The docket for this rulemaking, which includes Federal
Register notices, public meeting attendee lists and transcripts,
comments, and other supporting documents/materials, is available for
review at <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-2017-BT-STD-0019">www.regulations.gov/docket/EERE-2017-BT-STD-0019</a>. The docket web page contains instructions on how
to access all documents, including public comments, in the docket.

FOR FURTHER INFORMATION CONTACT:
Ms. Julia Hegarty, U.S. Department of Energy, Office of Energy
Efficiency and Renewable Energy, Building Technologies Office, EE-5B,
1000 Independence Avenue SW, Washington, DC 20585-0121. Email:
<a href="/cdn-cgi/l/email-protection#afeedfdfc3c6cec1cccafcdbcec1cbceddcbdcfedacadcdbc6c0c1dcefcaca81cbc0ca81c8c0d9">[email&#160;protected]</a>.
Ms. Melanie Lampton, U.S. Department of Energy, Office of the
General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC
20585-0121. Telephone: (240) 751-5157. Email:
<a href="/cdn-cgi/l/email-protection#5b163e373a35323e75173a362b2f34351b332a753f343e753c342d">[email&#160;protected]</a>.
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#2c6d5c5c40454d424f497f584d42484d5e485f7d59495f584543425f6c494902484349024b435a">[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 Consumer Water Heaters
3. Scope of This Final Rule
III. General Discussion
A. General Comments
1. General Support
2. General Opposition
3. Selection of Standards Levels
B. Scope of Coverage and Definitions
C. Test Procedure
D. Technological Feasibility
1. General
2. Maximum Technologically Feasible Levels
E. Energy Savings
1. Determination of Savings
2. Significance of Savings
F. Economic Justification
1. Specific Criteria
a. Economic Impact on Manufacturers and Consumers
b. Savings in Operating Costs Compared To Increase in Price (LCC
and PBP)
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Any Lessening of Competition
f. Need for National Energy Conservation
g. Other Factors
2. Rebuttable Presumption
IV. Methodology and Discussion of Related Comments
A. Market and Technology Assessment
1. Product Classes
a. Circulating Water Heaters
b. Low-Temperature Water Heaters
c. Storage-Type and Instantaneous-Type Product Classes
d. Gas-Fired Water Heaters
e. Very Large Gas-Fired Storage Water Heaters
f. Electric Storage Water Heaters
2. Technology Options
B. Screening Analysis
1. Screened-Out Technologies
2. Remaining Technologies
C. Engineering Analysis
1. Product Classes With Current UEF-Based Standards
a. Efficiency Levels
b. Design Options
c. Cost Analysis
d. Shipping Costs
e. Cost-Efficiency Results
2. Product Classes Without Current UEF-Based Standards
a. Crosswalk to Equivalent-Stringency UEF-Based Standards
b. Consideration of More Stringent Standards
c. Circulating Water Heaters
3. Manufacturer Selling Price
D. Markups Analysis
E. Energy Use Analysis
1. Building Sample
2. Hot Water Use Determination
3. Energy Use Determination
F. Life-Cycle Cost and Payback Period Analysis
1. Product Cost
2. Installation Cost
a. Basic Installation Costs and Inputs
b. Gas-Fired and Oil-Fired Storage Water Heater Installation
Costs
c. Heat Pump Water Heater Installation Costs
3. Annual Energy Consumption
4. Energy Prices
5. Maintenance and Repair Costs
6. Product Lifetime
7. Discount Rates
8. Energy Efficiency Distribution in the No-New-Standards Case
9. Payback Period Analysis
10. Accounting for Product Switching
11. Analytical Results
G. Shipments Analysis
1. Impact of Potential Standards on Shipments
a. Impact of Consumer Choice for Electric Storage Water Heaters
b. Impact of Repair vs. Replace
H. National Impact Analysis
1. Product Efficiency Trends
2. National Energy Savings
3. Net Present Value Analysis
I. Consumer Subgroup Analysis
1. Low-Income Households
2. Senior-Only Households
3. Small Business Subgroup
J. Manufacturer Impact Analysis
1. Overview
2. Government Regulatory Impact Model and Key Inputs
a. Manufacturer Production Costs
b. Shipments Projections
c. Product and Capital Conversion Costs
d. Manufacturer Markup Scenarios
3. Discussion of MIA Comments
a. Conversion Costs
b. Cumulative Regulatory Burden
c. Manufacturing Capacity
K. Emissions Analysis
1. Air Quality Regulations Incorporated in DOE's Analysis
L. Monetizing Emissions Impacts
1. Monetization of Greenhouse Gas Emissions
a. Social Cost of Carbon
b. Social Cost of Methane and Nitrous Oxide
c. Sensitivity Analysis Using Updated SC-GHG Estimates

[[Page 37779]]

2. Monetization of Other Emissions Impacts
M. Utility Impact Analysis
N. Employment Impact Analysis
V. Analytical Results and Conclusions
A. Trial Standard Levels
B. Economic Justification and Energy Savings
1. Economic Impacts on Individual Consumers
a. Life-Cycle Cost and Payback Period
b. Consumer Subgroup Analysis
c. Rebuttable Presumption Payback
2. Economic Impacts on Manufacturers
a. Industry Cash Flow Analysis Results
b. Direct Impacts on Employment
c. Impacts on Manufacturing Capacity
d. Impacts on Subgroups of Manufacturers
e. Cumulative Regulatory Burden
3. National Impact Analysis
a. National Energy Savings
b. Net Present Value of Consumer Costs and Benefits
c. Indirect Impacts on Employment
4. Impact on Utility or Performance of Products
5. Impact of Any Lessening of Competition
6. Need of the Nation To Conserve Energy
7. Other Factors
8. Summary of Economic Impacts
C. Conclusion
1. Benefits and Burdens of TSLs Considered for Consumer Water
Heater Standards
2. Annualized Benefits and Costs of the Adopted Standards
3. Conversion Factor Final Rule Enforcement Policy
4. Severability
D. Test Procedure Applicability
1. High-Temperature Testing
a. Maximum Tank Temperature
b. Verification of Maximum Tank Temperature
c. Very Small and Large Electric Storage Water Heaters
d. Optional Representations for Heat Pump Water Heaters
e. Temporary Mode
f. Demand-Response Water Heaters
g. Summary of the High-Temperature Test Method Applicability
2. Circulating Water Heaters
a. Separate Storage Tank Requirements
b. Product-Specific Enforcement Provisions
3. Water Heaters Less Than 2 Gallons
4. Other Topics
VI. Procedural Issues and Regulatory Review
A. Review Under Executive Orders 12866, 13563, and 14094
B. Review Under the Regulatory Flexibility Act
1. Need for, and Objectives of, Rule
2. Significant Issues Raised by Public Comments in Response to
the IRFA
3. Description and Estimated Number of Small Entities Affected
4. Description of Reporting, Recordkeeping, and Other Compliance
Requirements
5. Significant Alternatives Considered and Steps Taken To
Minimize Significant Economic Impacts on Small Entities
C. Review Under the Paperwork Reduction Act
D. Review Under the National Environmental Policy Act of 1969
E. Review Under Executive Order 13132
F. Review Under Executive Order 12988
G. Review Under the Unfunded Mandates Reform Act of 1995
H. Review Under the Treasury and General Government
Appropriations Act, 1999
I. Review Under Executive Order 12630
J. Review Under the Treasury and General Government
Appropriations Act, 2001
K. Review Under Executive Order 13211
L. Information Quality
M. Congressional Notification
VII. Approval of the Office of the Secretary

I. Synopsis of the Final Rule

The Energy Policy and Conservation Act, Public Law 94-163, as
amended (``EPCA''),\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 B of EPCA \2\ established the Energy
Conservation Program for Consumer Products Other Than Automobiles. (42
U.S.C. 6291-6309) These products include consumer water heaters, the
subject of this rulemaking. As discussed in section II.B.3 of this
document, DOE is finalizing standards for all consumer water heaters,
with the exception of gas-fired instantaneous water heaters, in this
Final Rule.
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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 B was redesignated Part A.
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Pursuant to EPCA, any new or amended energy conservation standard
must be designed to achieve the maximum improvement in energy
efficiency that DOE determines is technologically feasible and
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, the new
or amended standard must result in significant conservation of energy.
(42 U.S.C. 6295(o)(3)(B)) EPCA also provides that not later than 6
years after issuance of any final rule establishing or amending a
standard, DOE must publish either a notice of determination that
standards for the product do not need to be amended, or a notice of
proposed rulemaking including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (42 U.S.C.
6295(m))
In accordance with these and other statutory provisions discussed
in this document, DOE analyzed the benefits and burdens of six trial
standard levels (``TSLs'') for consumer water heaters. The TSLs and
their associated benefits and burdens are discussed in detail in
sections V.A through V.C of this document. As discussed in section V.C
of this document, DOE has determined that TSL 2 represents the maximum
improvement in energy efficiency that is technologically feasible and
economically justified. The adopted standards, which are expressed in
terms of uniform energy factor (``UEF''), are shown in Table I.1. These
standards apply to all products listed in Table I.1 and manufactured
in, or imported into, the United States starting on May 6, 2029.
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BILLING CODE 6450-01-C

A. Benefits and Costs to Consumers

Table I.2 summarizes DOE's evaluation of the economic impacts of
the adopted standards on consumers of consumer water heaters, as
measured by the average life-cycle cost (``LCC'') savings and the
simple payback period (``PBP'').\3\ The average LCC savings are
positive for all product classes, and the PBP is less than the average
lifetime of consumer water heaters, which is estimated to be about 15
years for storage water heaters (see section IV.F of this document).
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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.9 of this document). The simple PBP, which is
designed to compare specific efficiency levels, is measured relative
to the baseline product (see section IV.C of this document).
[GRAPHIC] [TIFF OMITTED] TR06MY24.002

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

B. Impact on Manufacturers

The industry net present value (``INPV'') is the sum of the
discounted cash flows to the industry from the base year through the
end of the analysis period (2023-2059). Using a real discount rate of
9.6 percent, DOE estimates that the INPV for manufacturers of consumer
water heaters in the case without amended standards is $1,478.8 million
in 2022$. Under the adopted standards, DOE estimates the change in INPV
to range

[[Page 37782]]

from -18.6 percent to 1.9 percent, which is a loss of $275.3 million to
a gain of $28.2 million. In order to bring products into compliance
with amended standards, it is estimated that industry will incur total
conversion costs of $239.8 million.
DOE's analysis of the impacts of the adopted standards on
manufacturers is described in sections IV.J and V.B.2 of this document.

C. National Benefits and Costs 4
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\4\ All monetary values in this document are expressed in 2022
dollars.
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DOE's analyses indicate that the adopted energy conservation
standards for consumer water heaters would save a significant amount of
energy. Relative to the case without amended standards, the lifetime
energy savings for consumer water heaters purchased in the 30-year
period that begins in the anticipated year of compliance with the
amended standards (2030-2059), amount to 17.6 quadrillion British
thermal units (``Btu''), or quads.\5\ This represents a savings of 10
percent relative to the energy use of these products in the case
without amended standards (referred to as the ``no-new-standards
case'').
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\5\ The quantity refers to full-fuel-cycle (FFC) energy savings.
FFC energy savings includes the energy consumed in extracting,
processing, and transporting primary fuels (i.e., coal, natural gas,
petroleum fuels), and, thus, presents a more complete picture of the
impacts of energy efficiency standards. For more information on the
FFC metric, see section IV.H.1 of this document.
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The cumulative net present value (``NPV'') of total consumer
benefits of the standards for consumer water heaters ranges from $25
billion (at a 7-percent discount rate) to $82 billion (at a 3-percent
discount rate). This NPV expresses the estimated total value of future
operating-cost savings minus the estimated increased product and
installation costs for consumer water heaters purchased during the
period 2030-2059.
In addition, the adopted standards for consumer water heaters are
projected to yield significant environmental benefits. DOE estimates
that the standards will result in cumulative emission reductions (over
the same period as for energy savings) of 332 million metric tons
(``Mt'') \6\ of carbon dioxide (``CO<INF>2</INF>''), 90 thousand tons
of sulfur dioxide (``SO<INF>2</INF>''), 665 thousand tons of nitrogen
oxides (``NO<INF>X</INF>''), 3,058 thousand tons of methane
(``CH<INF>4</INF>''), 2.9 thousand tons of nitrous oxide
(``N<INF>2</INF>O''), and 0.6 tons of mercury (``Hg'').\7\
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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 reflects, to the extent
possible, laws and regulations adopted through mid-November 2022,
including the Inflation Reduction Act. See section IV.K of this
document for further discussion of AEO2023 assumptions that affect
air pollutant emissions.
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DOE estimates the value of climate benefits from a reduction in
greenhouse gases (``GHG'') using four different estimates of the social
cost of CO<INF>2</INF> (``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
GHG (``SC-GHG''). DOE used interim SC-GHG values (in terms of benefit
per ton of GHG avoided) developed by an Interagency Working Group on
the Social Cost of Greenhouse Gases (``IWG'').\8\ The derivation of
these values is discussed in section IV.L of this document. For
presentational purposes, the climate benefits associated with the
average SC-GHG at a 3-percent discount rate are estimated to be $17
billion. DOE does not have a single central SC-GHG point estimate and
it emphasizes the value of considering the benefits calculated using
all four sets of SC-GHG estimates. DOE notes, however, that the adopted
standards would be economically justified even without inclusion of
monetized benefits of reduced GHG emissions.
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\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
Intereim Estimates Under Executive Order 13990 published in February
2021 by the IWG. (``February 2021 SC-GHG TSD''). <a href="http://www.whitehouse.gov/wp-content/uploads/2021/02/Technical/SupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf">www.whitehouse.gov/wp-content/uploads/2021/02/Technical/SupportDocument_SocialCostofCarbonMethaneNitrousOxide.pdf</a>.
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DOE estimated the monetary health benefits of SO<INF>2</INF> and
NO<INF>X</INF> emissions reductions, using benefit per ton estimates
from the Environmental Protection Agency,\9\ as discussed in section
IV.L of this document. DOE estimated the present value of the health
benefits would be $12 billion using a 7-percent discount rate, and $33
billion using a 3-percent discount rate.\10\ DOE is currently only
monetizing health benefits from changes in ambient fine particulate
matter (PM<INF>2.5</INF>) concentrations from two precursors
(SO<INF>2</INF> and NO<INF>X</INF>), and from changes in ambient ozone
from one precursor (for NO<INF>X</INF>), 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.
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\9\ U.S. EPA. Estimating the Benefit per Ton of Reducing
Directly Emitted PM<INF>2.5</INF>, PM<INF>2.5</INF> Precursors and
Ozone Precursors from 21 Sectors. Available at <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>.
\10\ DOE estimates the economic value of these emissions
reductions resulting from the considered TSLs for the purpose of
complying with the requirements of Executive Order 12866.
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Table I.3 summarizes the monetized benefits and costs expected to
result from the amended standards for consumer water heaters. There are
other important unquantified effects, including certain unquantified
climate benefits, unquantified public health benefits from the
reduction of toxic air pollutants and other emissions, unquantified
energy security benefits, and distributional effects, among others.
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BILLING CODE 6450-01-C
The benefits and costs of the proposed standards can also be
expressed in terms of annualized values. The monetary values for the
total annualized net benefits are (1) the reduced consumer operating
costs, minus (2) the increase in product purchase prices and
installation costs, plus (3) the value of climate and health benefits
of emission reductions, all annualized.\11\
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\11\ To convert the time-series of costs and benefits into
annualized values, DOE calculated a present value in 2022, the year
used for discounting the NPV of total consumer costs and savings.
For the benefits, DOE calculated a present value associated with
each year's shipments in the year in which the shipments occur
(e.g., 2020 or 2030), and then discounted the present value from
each year to 2022. Using the present value, DOE then calculated the
fixed annual payment over a 30-year period, starting in the
compliance year, that yields the same present value.
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The national operating cost savings are domestic private U.S.
consumer monetary savings that occur as a result of purchasing the
covered products and are measured for the lifetime of consumer water
heaters shipped during the period 2030-2059. The benefits associated
with reduced emissions achieved as a result of the adopted standards
are also calculated based on the lifetime of consumer water heaters
shipped during the period 2030-2059. Total benefits for both the 3-
percent and 7-percent cases are presented using the average GHG social
costs with 3-percent discount rate. Estimates of total benefits are
presented for all four SC-GHG value discount rates in section IV.L.1 of
this document.
Table I.4 presents the total estimated monetized benefits and costs
associated with the proposed standard, expressed in terms of annualized
values. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and
health benefits from reduced NO<INF>X</INF> and SO<INF>2</INF>
emissions, and the 3-percent discount rate case for climate benefits
from reduced GHG emissions, the estimated cost of the standards adopted
in this rule is $2,623 million per year in increased equipment costs,
while the estimated annual benefits are $5,655 million in reduced
equipment operating costs, $1,051 in monetized climate benefits, and
1,416 in monetized health benefits. In this case, the net benefit would
amount to $5,499 per year.
Using a 3-percent discount rate for all benefits and costs, the
estimated cost of the standards is $2,586 million per year in increased
equipment costs, while the estimated annual benefits are $7,566 million
in reduced operating costs, $1,051 million in monetized climate
benefits, and $2,033 million in monetized health benefits. In this
case, the net benefit would amount to $8,065 million per year.
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BILLING CODE 6450-01-C
DOE's analysis of the national impacts of the adopted standards is
described in sections IV.H, IV.K, and IV.L of this document.

D. Conclusion

DOE concludes that the standards adopted in this final rule
represent the maximum improvement in energy efficiency that is
technologically feasible and economically justified, and would result
in the significant conservation of energy. Specifically with regards to
technological feasibility, products achieving these standard levels are
already commercially available for all product classes covered by this
rule. As for economic justification, DOE's analysis shows that the
estimated benefits of the standards exceed, to a great extent, the
estimated burdens of the standards.
Using a 7-percent discount rate for consumer benefits and costs and
NO<INF>X</INF> and SO<INF>2</INF> reduction benefits, and a 3-percent
discount rate case for GHG social costs, the estimated cost of the
standards for consumer water heaters is $2,623 million per year in
increased product costs, while the estimated annual benefits are $5,655
million in reduced product operating costs, $1,051 million in climate
benefits, and $1,416 million in health benefits. The net benefit
amounts to $5,499 million per year.
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\12\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
products with relatively constant demand. Accordingly, DOE evaluates
the significance of energy savings on a case-by-case basis.
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\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).
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As previously mentioned, the standards are projected to result in
estimated cumulative national energy savings of 17.6 quads (full-fuel
cycle (``FFC'')), the equivalent of the primary annual energy use of
116 million homes. In addition, they are projected to reduce
CO<INF>2</INF> emissions by 332 Mt. Based on these findings, DOE has
determined the energy savings from the standard levels adopted in this
final rule are ``significant'' within the meaning of 42 U.S.C.
6295(o)(3)(B). A more detailed discussion of the basis for these
conclusions is contained in the remainder of this document and the
accompanying TSD.

II. Introduction

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

A. Authority

EPCA authorizes DOE to regulate the energy efficiency of a number
of consumer products and certain industrial equipment. Title III, Part
B of EPCA established the Energy Conservation Program for Consumer
Products Other Than Automobiles. These products include consumer water
heaters, the subject of this document. (42 U.S.C. 6292(a)(4)) EPCA
prescribed energy conservation standards for these products (42 U.S.C.
6295(e)(1)), and directs DOE to conduct future rulemakings to determine
whether to amend these standards. (42 U.S.C. 6295(e)(4)) EPCA further
provides that, not later than 6 years after the issuance of any final
rule establishing or amending a standard, DOE must publish either a
notice of determination that standards for the product do not need to
be amended, or a NOPR including new proposed energy conservation
standards (proceeding to a final rule, as appropriate). (42 U.S.C.
6295(m)(1))
The energy conservation program under EPCA, consists essentially of
four parts: (1) testing, (2) labeling, (3) the establishment of Federal
energy conservation standards, and (4)

[[Page 37787]]

certification and enforcement procedures. Relevant provisions of the
EPCA specifically include definitions (42 U.S.C. 6291), test procedures
(42 U.S.C. 6293), labeling provisions (42 U.S.C. 6294), energy
conservation standards (42 U.S.C. 6295), and the authority to require
information and reports from manufacturers (42 U.S.C. 6296).
Federal energy efficiency requirements for covered products
established under EPCA generally supersede State laws and regulations
concerning energy conservation testing, labeling, and standards. (42
U.S.C. 6297(a)-(c)) DOE may, however, grant waivers of Federal
preemption in limited instances for particular State laws or
regulations, in accordance with the procedures and other provisions set
forth under EPCA. (See 42 U.S.C. 6297(d))
Subject to certain statutory criteria and conditions, DOE is
required to develop test procedures to measure the energy efficiency,
energy use, or estimated annual operating cost of each covered product.
(42 U.S.C. 6295(o)(3)(A) and 42 U.S.C. 6295(r)) Manufacturers of
covered products must use the prescribed DOE test procedure as the
basis for certifying to DOE that their products comply with the
applicable energy conservation standards adopted under EPCA and when
making representations to the public regarding the energy use or
efficiency of those products. (42 U.S.C. 6293(c) and 6295(s))
Similarly, DOE must use these test procedures to determine whether the
products comply with standards adopted pursuant to EPCA. (42 U.S.C.
6295(s)) The DOE test procedures for consumer water heaters appear at
title 10 of the Code of Federal Regulations (``CFR'') part 430, subpart
B, appendix E (``appendix E'').
DOE must follow specific statutory criteria for prescribing new or
amended standards for covered products, including consumer water
heaters. Any new or amended standard for a covered product must be
designed to achieve the maximum improvement in energy efficiency that
the Secretary of Energy determines is technologically feasible and
economically justified. (42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may
not adopt any standard that would not result in the significant
conservation of energy. (42 U.S.C. 6295(o)(3))
Moreover, DOE may not prescribe a standard (1) for certain
products, including consumer water heaters, if no test procedure has
been established for the product, or (2) if DOE determines by rule that
the standard is not technologically feasible or economically justified.
(42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard
is economically justified, DOE must determine whether the benefits of
the standard exceed its burdens. (42 U.S.C. 6295(o)(2)(B)(i)) DOE must
make this determination after receiving comments on the proposed
standard, and by considering, to the greatest extent practicable, the
following seven statutory factors:

(1) The economic impact of the standard on manufacturers and
consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated
average life of the covered products in the type (or class) compared
to any increase in the price, initial charges, or maintenance
expenses for the covered products that are likely to result from the
standard;
(3) The total projected amount of energy (or as applicable,
water) savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the
covered products likely to result from the standard;
(5) The impact of any lessening of competition, as determined in
writing by the Attorney General, that is likely to result from the
standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary of Energy (``Secretary'')
considers relevant.
(42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII))

Further, EPCA, as codified, establishes a rebuttable presumption
that a standard is economically justified if the Secretary finds that
the additional cost to the consumer of purchasing a product complying
with an energy conservation standard level will be less than three
times the value of the energy savings during the first year that the
consumer will receive as a result of the standard, as calculated under
the applicable test procedure. (42 U.S.C. 6295(o)(2)(B)(iii))
EPCA, as codified, also contains what is known as an ``anti-
backsliding'' provision, which prevents the Secretary from prescribing
any amended standard that either increases the maximum allowable energy
use or decreases the minimum required energy efficiency of a covered
product. (42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe
an amended or new standard if interested persons have established by a
preponderance of the evidence that the standard is likely to result in
the unavailability in the United States in any covered product type (or
class) of performance characteristics (including reliability),
features, sizes, capacities, and volumes that are substantially the
same as those generally available in the United States. (42 U.S.C.
6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an
energy conservation standard for a covered product that has two or more
subcategories. DOE must specify a different standard level for a type
or class of products that has the same function or intended use if DOE
determines that products within such group (A) consume a different kind
of energy from that consumed by other covered products within such type
(or class); or (B) have a capacity or other performance-related feature
which other products within such type (or class) do not have and such
feature justifies a higher or lower standard. (42 U.S.C. 6295(q)(1)) In
determining whether a performance-related feature justifies a different
standard for a group of products, DOE must consider such factors as the
utility to the consumer of such a feature and other factors DOE deems
appropriate. Id. Any rule prescribing such a standard must include an
explanation of the basis on which such higher or lower level was
established. (42 U.S.C. 6295(q)(2))
Finally, pursuant to the amendments contained in the Energy
Independence and Security Act of 2007 (EISA 2007), Public Law 110-140,
any final rule for new or amended energy conservation standards
promulgated after July 1, 2010, is required to address standby mode and
off mode energy use. (42 U.S.C. 6295(gg)(3)) Specifically, when DOE
adopts a standard for a covered product after that date, it must, if
justified by the criteria for adoption of standards under EPCA (42
U.S.C. 6295(o)), incorporate standby mode and off mode energy use into
a single standard, or, if that is not feasible, adopt a separate
standard for such energy use for that product. (42 U.S.C.
6295(gg)(3)(A)-(B)) In this rulemaking, DOE is applying the UEF metric
(which addresses standby mode and off mode energy use) to all product
classes of consumer water heaters, including those product classes for
which there are no currently applicable UEF-based standards.

B. Background

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

[[Page 37788]]

EPCA directed DOE to establish a uniform efficiency metric for consumer
water heaters (see 42 U.S.C. 6295(e)(5)(B)).\13\ The Federal test
procedure was revised to use a new metric, UEF, in a final rule
published on July 11, 2014 (the ``July 2014 UEF TP Final Rule''). 79 FR
40542. In a final rule published in the Federal Register on December
29, 2016, the existing EF-based energy conservation standards were then
translated from EF to UEF using a ``conversion factor'' method for
water heater basic models that were in existence at the time. 81 FR
96204 (``December 2016 Conversion Factor Final Rule'').
---------------------------------------------------------------------------

\13\ The requirement for a consumer water heater test procedure
using uniform energy factor as a metric, as well as the requirement
for DOE to undertake a conversion factor rulemaking to translate
existing consumer water heater standards denominated in terms of EF
to ones denominated in terms of UEF, were part of the amendments to
EPCA contained in the American Energy Manufacturing Technical
Corrections Act (AEMTCA), Public Law 112-210 (Dec. 18, 2012).
---------------------------------------------------------------------------

These standards are set forth in DOE's regulations at 10 CFR
430.32(d) and are repeated in Table II.1.
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[[Page 37789]]

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BILLING CODE 6450-01-C
In the December 2016 Conversion Factor Final Rule, DOE declined to
develop conversion factors and UEF-based standards for consumer water
heaters of certain sizes (by rated storage volume or input rating) and
of certain types (i.e., oil-fired instantaneous water heaters) where
models did not exist on the market at the time to inform the analysis
of the standards conversion. 81 FR 96204, 96210-96211. For consumer
water heaters that did not receive converted UEF-based standards, DOE
provided its interpretation that the original statutory standards--
found at 42 U.S.C. 6295(e)(1) and expressed in terms of the EF metric--
still applied; however, DOE would not enforce those statutorily-
prescribed standards until such a time conversion factors are developed
for these products and they can be converted to UEF. Id. Thus, the EF-
based standards specified by EPCA apply to any consumer water heaters
which do not have UEF-based standards found at 10 CFR 430.32(d). These
EF-based standards are set forth at 42 U.S.C. 6295(e)(1) and are
repeated in Table II.2.

[[Page 37790]]

[GRAPHIC] [TIFF OMITTED] TR06MY24.008

2. History of Standards Rulemaking for Consumer Water Heaters
On May 21, 2020, DOE initiated the current rulemaking by publishing
in the Federal Register a request for information (``May 2020 RFI''),
soliciting public comment on various aspects of DOE's planned analyses
to help DOE determine whether to amend energy conservation standards
for consumer water heaters. 85 FR 30853 (May 21, 2020). DOE
subsequently published a notice requesting feedback on its preliminary
analysis and technical support document (``preliminary TSD'') on March
1, 2022 (the ``March 2022 Preliminary Analysis'') with a 60-day comment
period. 87 FR 11327 (Mar. 1, 2022). The comment period was extended by
14 days in a notice published on May 4, 2022. 87 FR 26303.
On October 21, 2022, DOE received a set of recommendations on
amended energy conservation standards for consumer water heaters from a
coalition of seven public- and private-sector organizations, including
two water heater manufacturers, three energy efficiency organizations,
one environmental group, and one consumer organization--collectively
the Joint Stakeholders \14\--which addressed standards for electric
storage water heaters, gas-fired storage water heaters, and gas-fired
instantaneous water heaters. This coalition's submission is herein
referred to as the ``Joint Stakeholder Recommendation.''
---------------------------------------------------------------------------

\14\ In this final rule, ``Joint Stakeholders'' refers to the
group of stakeholders who submitted and continued to support the
October 21, 2022, comment even though the makeup of this group has
changed since the July 2023 NOPR. Specifically, BWC removed itself
as a signatory after the July 2023 NOPR.
---------------------------------------------------------------------------

On July 28, 2023, DOE published in the Federal Register a notice of
proposed rulemaking (``July 2023 NOPR'') and technical support document
(``NOPR TSD'') with a 60-day comment period. 88 FR 49058 (Jul. 28,
2023). In the July 2023 NOPR, DOE proposed new and amended standards
for consumer water heaters and addressed stakeholder feedback on the
March 2022 Preliminary Analysis, including the Joint Stakeholder
Recommendation. On September 13, 2023, DOE presented the proposed
standards and accompanying analysis at a public meeting.
DOE received 2,950 comments in response to the July 2023 NOPR from
interested parties, some of which were docketed together as multiple
comments or commenters, resulting in a total of 1,140 docketed items.
Note that of these total comments, 2,800 comments were ``form letter''
email submissions. In total, four distinct form letters were received.
Additionally, several commenters submitted more than one comment to the
docket. DOE directly references 54 of these written submissions in this
final rule, which contain substantive comments regarding product
classes within the scope of this final rule and are shown in Table
II.3. The remainder of the comments were from individual commenters
either expressing general opposition or support for the rulemaking.
Total counts of both supportive and non-supportive comments received
are included in section III.A of this document.
BILLING CODE 6450-01-P

[[Page 37791]]

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[[Page 37792]]

[GRAPHIC] [TIFF OMITTED] TR06MY24.010

[[Page 37793]]

[GRAPHIC] [TIFF OMITTED] TR06MY24.011

A parenthetical reference at the end of a comment quotation or
paraphrase provides the location of the item in the public record.\15\
To the extent that interested parties have provided written comments
that are substantively consistent with any oral comments provided
during the September 13, 2023, public meeting, DOE cites the written
comments throughout this final rule. Any oral comments provided during
the webinar that are not substantively addressed by written comments
are summarized and cited separately throughout this final rule.
---------------------------------------------------------------------------

\15\ The parenthetical reference provides a reference for
information located in the docket of DOE's rulemaking to develop
energy conservation standards for consumer water heaters. (Docket
No. EERE-2017-BT-STD-0019, which is maintained at
<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).
---------------------------------------------------------------------------

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

[[Page 37794]]

Rule. DOE subsequently published a supplemental notice of proposed
rulemaking on December 27, 2023 (``December 2023 SNOPR''), that
discussed the comments received on this topic and proposed to amend the
definition for ``circulating water heater'' to reclassify these
products as storage-type water heaters. 88 FR 89330. DOE received 195
comments in response to the December 2023 SNOPR from interested
parties. DOE directly references 14 of these written submissions which
provided remarks about the rulemaking analysis pertinent to standards
for circulating water heaters or comments relevant to the issues
discussed in the December 2023 SNOPR, and these submissions are shown
in Table II.4.
[GRAPHIC] [TIFF OMITTED] TR06MY24.012

BILLING CODE 6450-01-C
3. Scope of This Final Rule
Following review of comments on the July 2023 NOPR and December
2023 SNOPR, DOE has decided to finalize at this time standards for all
consumer water heaters with the exception of gas-fired instantaneous
water heaters, as defined in 10 CFR 430.2 and replicated in section
III.B of this final rule. DOE is not summarizing or responding to any
comments specific to gas-fired instantaneous water heaters in this
document, nor discussing any analytical methodologies or results for
this product class as DOE continues to consider the comments submitted
in response to the July 2023 NOPR and December 2023 SNOPR in informing
DOE's decision on amended energy conservation standards for GIWHs.

III. General Discussion

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

A. General Comments

This section summarizes general comments received from interested
parties regarding rulemaking timing and process.
1. General Support
In response to the July 2023 NOPR, DOE received 966 \16\ general
comments (those which provided general remarks on the impact of the
rulemaking) \17\ related to product classes within the scope of this
final rule, with 931, or 96 percent of, these comments expressing
support of the proposed standards and a majority acknowledging the
significant energy savings that would result from the adoption of the
proposed standards.\18\
---------------------------------------------------------------------------

\16\ The number of comments reflects the number of individual
party submissions. Specifically, form letters with multiple
submissions count each submission individually.
\17\ Commenters who are directly referenced in this final rule
and appear in Table II.3 are not counted in these statistics because
these submitters typically expressed detailed views that could not
be generalized as either clear support or clear opposition for all
aspects of the proposal.
\18\ One comment in support of the proposed standards had 8,357
signatories.
---------------------------------------------------------------------------

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

[[Page 37795]]

Advocates, Joint Architects, PSR, NEEA and State Agencies all stated
their support of the standards proposed in the July 2023 NOPR. These
commenters highlighted the associated benefits of the proposal
including utility bill savings, reduced GHG emissions, protection of
human health, reduced energy consumption, and the ability to design
more energy efficient buildings. (NYSERDA, No. 1192 at p. 1; GreenTECH,
No. 71 at p. 1; CA IOUs, No. 1175 at pp. 1-2; NCEL, No. 1144 at p. 1;
Joint Regional Advocacy Groups, No. 1154 at p. 1; Joint Stakeholders,
No. 1156 at p. 1; Joint Utilities, No. 1158 at p. 1; Joint Commenters,
No. 1159 at p. 1-2; Joint Advocacy Groups, No. 1165 at p. 1; NYSPSC,
No. 1169 at p. 1; Consumer Advocates, No. 1172 at p. 1; Health
Advocates, No. 1179 at p. 1; Joint Architects, No. 1188 at p. 1; PSR,
No. 1196 at p. 1-2; NEEA, No. 1199 at p. 2; State Agencies, No. 1213 at
p. 1-2)
NCEL noted that, according to a report by the Appliance Standards
Awareness Project, water heaters represent the largest potential for
emissions reductions among regulated consumer products, and the
proposed standards would reduce CO<INF>2</INF> emissions by more than
500 Mt over 30 years of sales, helping the United States meet its
climate goals. (NCEL, No. 1144 at p. 1) The Joint Regional Advocacy
Groups supported, specifically, the proposed standards for electric
storage water heaters at heat pump efficiency levels. (Joint Regional
Advocacy Groups, No. 1154 at p. 1) The Joint State Attorneys General
also commented in support of the proposed standards for consumer water
heaters and recommended that DOE finalize the proposed rule as soon as
possible. The Joint State Attorneys General further emphasized that the
proposed standards would significantly improve the energy efficiency of
both electric and gas water heaters while providing economic benefits
to consumers. The Joint State Attorneys General stated that the
proposed standards for consumer water heaters are projected to yield
significant environmental benefits, climate benefits, and monetized
health benefits. The Joint State Attorneys General also commented that
the transition to more efficient consumer water heating will be
increasingly cost effective and affordable as time progresses,
particularly considering the Federal investment in weatherization,
energy efficiency, and beneficial electrification programs that would
help address cost concerns related to installing new or replacement
products. (Joint State Attorneys General, No. 1035 at pp. 1-3) State
Agencies claimed that while State regulations have the potential to
reduce GHG emissions, individual States cannot adopt standards for
products for which the Federal government has promulgated an existing
standard (such as consumer water heaters) and that collaboration is
required for impactful climate action. (State Agencies, No. 1213 at p.
1) DOE understands the commenter to be referring to provisions at 42
U.S.C. 6297, by which Federal energy standards supersede State
regulations with exceptions for certain products that do not include
consumer water heaters. State Agencies also indicated that the proposed
standards would reduce the energy burden for low-income households,
which spend larger portions of their income on energy bills. (State
Agencies, No. 1213 at p. 2)
Rheem generally supported DOE's proposed amended standards and the
analysis behind them but expressed concern regarding potential
unintended consequences of the proposed standards for certain product
classes caused in part by the application of the high-temperature test
method and effective storage volume metric. Rheem suggested possible
solutions to resolve these issues, which are discussed further in
section V.D of this document. (Rheem, No. 1177 at p. 1) Rheem stated
that, for electric storage water heaters between 20 and 120 gallons
(except for small electric storage water heaters), heat pump-level
standards are appropriate. Rheem recommended that DOE act to prevent a
market shift away from heat pump technologies if standards are amended
to require this for a larger fraction of the electric storage water
heater market because not only would it result in reduction of energy
savings, but it also would pose a risk to manufacturers' return on
investment in heat pump water heater development in a timely manner.
Rheem noted that there would be significant changes to product design
and manufacturing facilities as a result of a heat pump standard in
this rulemaking. (Id. at p. 7)
The Joint Stakeholders stated that the proposed standards for gas-
fired water heaters are consistent with their recommendations and noted
that the proposal follows the established rationale that separate
standards be maintained for gas-fired storage water heaters and their
instantaneous counterparts. (Joint Stakeholders, No. 1156 at p. 2)
NEEA, the Joint Regional Advocacy Groups (citing the estimated FFC and
monetary savings), and Bosch supported the proposed standards for gas-
fired storage water heaters. (NEEA, No. 1199 at p. 9; Joint Regional
Advocacy Groups, No. 1154 at p. 1; Bosch, No. 1204 at p. 2)
The CA IOUs encouraged DOE to set more stringent standards for gas-
fired storage water heaters. According to the CA IOUs, more stringent
standards for all gas-fired consumer water heater sub-classes,
specifically at condensing efficiencies, would result in significant
savings of natural gas in California and across the United States. (CA
IOUs, No. 1175 at p. 2) AWHI also encouraged DOE to set more stringent
standards for gas-fired storage water heaters. (AWHI, No. 1036 at pp.
3-4)
NYSERDA stated that the proposals in the July 2023 NOPR
substantially aligned with the Joint Stakeholder Recommendation, which
was supported by NYSERDA. The commenter noted that, by allowing less
stringent standards for small electric storage water heaters, DOE would
ensure that there are replacement units available for lowboy water
heaters, while still allowing innovation and expansion for heat pump
water heaters. (NYSERDA, No. 1192 at p. 2)
Additionally, some commenters offered general support in response
to the December 2023 SNOPR.
NYSERDA commented that the proposals in the December 2023 SNOPR
fully address their concerns raised at the NOPR stage regarding the
potential use of electric resistance circulating water heaters in place
of heat pump electric storage water heaters. (NYSERDA, No. 1406 at p.
2) NEEA expressed support for the changes proposed in the December 2023
SNOPR and urged DOE to move forward with these proposals, as well as
those made in the July 2023 NOPR. (NEEA, No. 1414 at p. 1) NEEA
reiterated its support for effective storage volume-based standards and
high temperature test methods to prevent small, overheated products
from being used in place of products that meet the proposed standards.
(NEEA, No. 1414 at p. 2) CEC reiterated its appreciation for DOE's
efforts to address potential loopholes in the proposed regulatory
language for circulating water heaters and high temperature test
methods. (CEC, No. 1412 at p. 2)
2. General Opposition
Of the 966 general comments DOE received in response to the July
2023 NOPR related to product classes within the scope of this final
rule, 29, or 3 percent, were in opposition of new standards, with the
majority of opposition comments focused on the concerns of government
overreach and interference with a free market, impacts on product cost,
and overestimation of energy savings. Commenters also

[[Page 37796]]

expressed concerns about potential outsourcing to foreign companies due
to the proposed standards, installation costs for gas-fired and heat
pump water heaters, and the performance of heat pump water heaters.
These topics are discussed in this section through section III.A.3 of
this document.
Ravnitzky supported DOE's efforts to improve the energy efficiency
of consumer water heaters and reduce greenhouse gas emissions but
expressed concern for the impact of the proposed standards on consumers
and manufacturers. Ravnitzky urged DOE to reconsider the proposed
standards and account for the efficiency potential and resiliency
benefits of non-heat pump water heaters. (Ravnitzky, No. 73 at p. 1)
Ravnitzky stated that the proposed standards do not account for the
resiliency benefits of non-heat pump water heaters, which can operate
without electricity. Ravnitzky stated that heat pump water heaters
cannot function during a power outage, which could inconvenience
consumers and result in health risks. Ravnitzky also stated that gas-
fired water heaters are beneficial to consumers prone to natural
disasters and extreme weather events that disrupt the power grid
because they do not require electricity to operate. (Ravnitzky, No. 73
at p. 1)
Throughout this rulemaking, DOE has assessed the impacts of
potential amended standards on consumers and manufacturers,
specifically quantifying these impacts as national benefits and costs
(see section I of this document). In response to the concerns raised by
Ravnitzky, DOE notes that gas-fired water heaters will still be
available as an option to consumers at the levels adopted in this final
rule. Further, DOE notes that, while for certain classes of electric
storage water heaters the adopted standards are currently only met
through use of heat pump technology, electric storage water heaters
that rely on electric resistance technology also require a continuous
supply of electricity to operate. Therefore, without a backup supply of
electricity a power outage would render both types of electric storage
water heaters inoperable. DOE also notes that some gas-fired water
heaters do require electricity to operate. However, as discussed in the
July 2023 NOPR, DOE maintains its interpretation of EPCA at 42 U.S.C.
6295(q)(1) that gas-fired water heaters that do not require electricity
should not be treated differently (i.e., constitute a separate product
class) from gas-fired water heaters that do. 88 FR 49058, 49079.
AEI stated its belief that the rule is based on the need to
confront the global climate crisis, and therefore it is fatally flawed
and should not be finalized due to the lack of evidence of a climate
``threat'' or ``crisis.'' (AEI, No. 817 at p. 2)
DOE is finalizing amendments to the test procedure and energy
conservation standards for consumer water heaters based on its
authority described in section II.A of this document, which requires
the Department to consider seven (7) factors prior to finalizing such
amendments. This final rule outlines DOE's analysis of all seven
factors, with additional details provided in the TSD.
The Attorney General of TN commented that the proposed standards
have significant federalism implications within the meaning of
Executive Order 13132 for the following reasons: (1) DOE's standards
have a preemptive effect on States' procurement standards; and (2)
States own and purchase water heaters, and therefore the proposed
standards' effect on water heater costs directly affect States as
purchasers. (Attorney General of TN, No. 1149 at pp. 2-3) The Attorney
General of TN commented that DOE must show that the intrastate activity
covered by the proposed standards substantially affects the interstate
market for water heaters and there is no such analysis in the July 2023
NOPR. The Attorney General of TN commented that the proposed standards
will dominate the regulation of consumer goods--authority traditionally
belonging to the States. (Attorney General of TN, No. 1149 at p. 3)
DOE responds that it believes the scope of both the standard
proposed in the July 2023 NOPR and the amended standard adopted in this
final rule properly includes all consumer water heaters distributed in
commerce for personal use or consumption because intrastate state
activity regulated by 42 U.S.C. 6291(17) and 6302 is inseparable from
and substantially affects interstate commerce. DOE has clear authority
under EPCA to regulate the energy use of a variety of consumer products
and certain commercial and industrial equipment, including the subject
consumer water heaters. See 42 U.S.C. 6295. Based on this statutory
authority, DOE has a long-standing practice of issuing energy
conservation standards with the same scope as the standard in this
final rule. For example, DOE has maintained a similar scope of products
in the April 2010 Final Rule and in the December 2016 Conversion Factor
Final Rule. DOE disagrees with the Attorney General of TN's contention
that the Commerce Clause, the Tenth Amendment, the Major Questions
Doctrine, or any canons of statutory construction limit DOE's clear and
long-standing authority under EPCA to adopt the standard, including its
scope, in this final rule. A further discussion regarding the Attorney
General of TN's Federalism concerns can be found at section VI.E of
this document.
BWC, a former signatory to the Joint Stakeholder Recommendation,
urged DOE to reconsider re-aligning certain aspects of its proposal to
what was originally recommended by the Joint Stakeholder
Recommendation. (BWC, No. 1164 at p. 1)
The July 2023 NOPR proposed product classes and efficiency levels
incorporating the feedback from the Joint Stakeholder Recommendation;
however, the Department did not align entirely with the Joint
Stakeholder Recommendation. DOE provided its rationale for product
class definitions, efficiency level selection, and effective storage
volume throughout the July 2023 NOPR (see section IV of the July 2023
NOPR). These topics are discussed further in this final rule in
sections IV.A.1.f, IV.C.1.a, and V.D.1 of this document, respectively.
BWC noted that the July 2023 NOPR was published only shortly after
the June 2023 TP Final Rule, and that this period of time was too short
for manufacturers to provide adequate feedback on new aspects of the
test procedure, such as effective storage volume and high temperature
testing. BWC expressed its concern over this and the 60-day comment
period provided for the July 2023 NOPR, noting that these were both
deviations from appendix A. The Gas Association Commenters and Rinnai
also commented on this deviation, with ASA and the Gas Association
Commenters stating that the 60-day comment period was insufficient to
develop responses to the July 2023 NOPR and Rinnai stating that DOE did
not have an adequate basis to depart from the standard 75-day comment
period. ASA recommended extending the comment period to provide
commenters additional time for research and feedback and the Gas
Association Commenters stated this deviation placed undue burden on
commenters to review and evaluate a proposal that could have
significant ramifications on the water heater industry and consumers.
Rinnai claimed that DOE has rushed the rulemaking process by relying on
a preliminary TSD from 2022 and not producing a final TSD with the July
2023 NOPR and believed the compressed schedule between the September
2023 Webinar and the end of the comment period was

[[Page 37797]]

unjustified (BWC, No. 1164 at pp. 6-7; Gas Association Commenters, No.
1181, pp. 37-38; Rinnai, No. 1186 at p. 35; ASA, No. 1160 at p. 1) JEA,
WMU, and Southeast Gas commented that as members of APGA, they
supported APGA's submitted comments that offer more details on their
concerns. (JEA, No. 865 at p. 2; WMU, No. 872 at p. 2; Southeast Gas,
No. 887 at p. 1)
DOE has determined that the length of the comment period was
appropriate and provided a meaningful opportunity to comment on the
NOPR. In the July 2023 NOPR, DOE explained its deviation from section
6(f)(2) of 10 CFR part 430, subpart C, appendix A,\19\ which specifies
that the length of the public comment period for a NOPR be not less
than 75 calendar days. However, with respect to NOPRs, EPCA requires at
least a 60-day comment period. (42 U.S.C. 6295(p)(2)), and similarly,
Executive Order (``E.O.'') 12866, ``Regulatory Planning and Review,''
58 FR 51735 (Oct. 4, 1993) states that in most cases a comment period
should not be less than 60 days. On April 8, 2024, DOE published in the
Federal Register a final rule amending section 6 of appendix A to
specify that comment periods for standards rulemaking documents will be
determined on a case-by-case basis with a minimum 60-day comment period
for NOPRs based on the requirements of EPCA and recommendations in E.O.
12866. 89 FR 24360 (April 8, 2024). As discussed in the July 2023 NOPR,
DOE determined that a 60-day comment period provided sufficient time
because the NOPR relied on many of the same analytical assumptions and
approaches as used in the preliminary assessment, on which the public
had an opportunity to comment. 88 FR 49058. In particular, a 60-day
comment period (followed by 14-day extension) was provided for the
March 2022 Preliminary Analysis, and a 45-day period for the May 2020
RFI. 87 FR 11327; 85 FR 30853.
---------------------------------------------------------------------------

\19\ In reference to appendix A as it appeared at the time of
the publication of the July 2023 NOPR.
---------------------------------------------------------------------------

In response to the December 2023 SNOPR, DOE received 176 comments,
or 90 percent of comments, in opposition of new standards along similar
concerns as those expressed in response to the July 2023 NOPR.
DOE also received feedback from some stakeholders that the comment
period provided for the December 2023 SNOPR was too short. AHRI
requested that DOE extend the comment period to provide stakeholders
adequate time to properly respond. (AHRI, No. 1389 at p. 1) BWC stated
that the opportunity to comment on the December 2023 SNOPR was severely
limited due to its seasonal timing and comment period duration. (BWC,
No. 1413 at p. 3) Rinnai stated that there was little meaningful time
for a detailed assessment of the December 2023 SNOPR due to the timing
of the comment period and that only a limited number of inputs were
collected. (Rinnai, No. 1415 at p. 1)
The scope of the December 2023 SNOPR was limited to a definitional
change for circulating water heaters, with only two requests for
comment, and therefore DOE believes the comment period was sufficient.
The CA IOUs, NEEA, CEC, and NYSERDA expressed support for the December
2023 SNOPR comment period being limited to 14 days because its scope is
limited to circulating water heaters. (CA IOUs, No. 1409 at p. 1; NEEA,
No. 1414 at p. 2; CEC, No. 1412 at p. 3; NYSERDA, No. 1406 at p. 1)
Additionally, DOE's proposal in the SNOPR was mainly responsive to
more substantive stakeholder feedback received in response to the July
2023 NOPR, as discussed throughout that notice (see 88 FR 89330).
Many individual commenters also expressed concerns regarding the
implementation of heat pump water heaters due to efficiency concerns in
colder areas and weather, lack of expertise in maintaining a more
complex product, reliability, potential for mold, and potentially high
purchase and installation costs and requirements for a product with the
same expected lifetime as a standard electric water heater. Individual
commenters also stated that the proposed standards are
counterproductive because heat pump water heaters eject cold air into
the house which then has to be heated up by the household HVAC system.
Individual commenters stated that consumers may face high costs and
long wait times associated with retrofitting due to the proposed
standards, and due to increased insulation, which results in larger
products. These high costs will increase the cost of home ownership and
may prevent first-time buyers from obtaining a home.
DOE accounts for differences between rated efficiency and on-site
efficiency in its energy use analysis, which considers factors like
climate and heating load. Heat pump water heaters can help with cooling
demand in the summer but can work against the home heating system in
the winter if they are not ducted separately. DOE's energy use analysis
includes these impacts (see appendix 7B to the TSD). DOE quantifies
these impacts in the energy use analysis to include them in the
expected operating expenses for the LCC analysis.
One individual commenter requested that equipment and repair costs
be factored into savings and that consumers should decide the return in
savings when investing in new equipment. (Johnson, No. 1271 at p. 1)
Great Plains Resource supported the proposed standard and stated that
if a redesign of water heaters helps to control pollution, it should be
passed. Great Plains Resource stated, however, that DOE should plan to
mitigate costs for consumers associated with manufacturers increasing
costs of water heaters. Other commenters suggested that DOE subsidize
new water heater technologies or introduce a tax incentive rather than
seeking energy efficiency through regulations. Great Plains Resource
suggested that DOE should consider extending the time frame to help
manufacturers create new equipment and create competition to control
cost of equipment to consumers. (Great Plains Resource, No. 1267 at p.
1) An individual commented that condensing gas-fired water heaters use
expensive vent pipes due to the corrosiveness of condensation. (Harley,
No. 1341 at p. 1)
DOE notes that its analysis incorporates installation and equipment
costs into its analysis, including the necessary venting, as well as
repair and maintenance costs. Pickering expressed concern that the
definitions proposed in the December 2023 SNOPR for circulating water
heaters may not be compatible with solar photovoltaic direct water
heating systems, which the commenter described as a low-cost system
where DC electric output from the solar photovoltaic panel is wired
(without grid connection) directly to the heating elements of an
electric resistance storage water heater. (Pickering, No. 1399, at pp.
1-3)
DOE understands this comment to be opposing the proposed heat pump-
level standards for most electric storage water heaters due to the fact
that the direct solar photovoltaic water heating systems described by
the commenter is dependent upon a DC-compatible electric storage water
heater. DOE notes that electric resistance storage water heaters will
still be available within the small electric storage water heater (and
grid-enabled water heater product classes for cases where the home is
still connected to a utility grid), however.
According to NPGA, APGA, AGA, and Rinnai, DOE is seeking to promote
the market for electric heat pumps at the expense of gas-fired water
heaters, diminishing competition and profoundly affecting consumer
choice. They also stated that the proposed rule fails to meet EPCA's 3-
year rebuttable

[[Page 37798]]

presumption of economic justification under pure economic terms and
would be an enormous burden on manufacturing and on competition between
gas and electric water heaters. (NPGA, APGA, AGA, and Rinnai, No. 441
at pp. 3-4) EEI noted that while the proposed standards for electric
storage water heaters increase by 21 to 140 percent in efficiency, the
July 2023 NOPR only proposed an increase of 0 to 9.7 percent for gas-
fired and oil-fired storage water heaters, and this disparity would
cause fuel-fired storage water heaters to gain a competitive advantage
because buyers' decisions are strongly motivated by cost
considerations. (EEI, No. 1198 at pp. 3-4) Sunrise Pittsburgh stated
that the proposed standard would require electric and gas-fired water
heaters to meet vastly different standards, which could potentially
result in consumers switching to gas-fired water heaters given the
lower upfront cost associated with gas-fired water heaters compared to
heat pump water heaters. In turn, Sunrise Pittsburgh stated this may
result in more carbon emissions. According to Sunrise Pittsburgh,
revising the proposed standard to apply the same standard across all
water heaters regardless of the technology or fuel source used would
benefit consumers, especially it removes gas-fired water heaters from
the market, as this would save consumers from asthma and carcinogens as
well as dangerous gas-fired water heater explosions associated with gas
fueled products. (Sunrise Pittsburgh, No. 905 at pp. 1-2)
In this rulemaking DOE has provided its analytical approach and
results which have led to the selection of more stringent standards for
some product classes compared to others. When determining whether the
benefits of amended standards outweigh the burdens, DOE considers the
trial standards levels, which are comprised of different efficiency
levels for each product class. The construction of trial standards
levels is discussed in section V.A of this document. In the shipments
analysis, which is detailed in section IV.G of this document, DOE
considers the impacts of product life-cycle costs on consumer
purchasing decisions, which ultimately is used to assess the total
energy savings, economic impacts to consumers, and impacts to health
(summarized in section I.C of this document).
With respect to Sunrise Pittsburgh's suggestion to apply the same
standard across all water heaters regardless of the technology or fuel
source, DOE establishes separate standards for different product
classes of consumer water heaters based on statutory requirements from
EPCA, which includes a consideration for products that consume
different types of energy (e.g., electricity, oil, or gas). (42 U.S.C.
6295(q)(1)-(2)) The product classes established by this final rule are
discussed in section IV.A.1 of this document.
3. Selection of Standards Levels
DOE received several comments regarding the selection of proposed
efficiency levels.
CEC agreed with DOE's analysis recognizing that the majority of
electric storage water heaters can meet heat pump-level standards but
encouraged DOE to consider improving the minimum standard for electric
storage water heaters >20 and <=55 gal to a level closer to EL 2. CEC
noted that while a UEF of 2.3 (as proposed) is sufficient to drive the
core shift in technology, the least efficient heat pump water heaters
on the market today have a UEF of 2.8 or greater. (CEC, No. 1173 at pp.
3-4)
As stated in the July 2023 NOPR, split-system and 120-volt heat
pump water heaters may not be able to achieve the same efficiency
levels as conventional 240-volt products, as suggested by less
stringent ENERGY STAR Residential Water Heaters Specification Version
5.0 (``ENERGY STAR v5.0'') criteria at 2.20 UEF. DOE has observed
products certified to both the ENERGY STAR database and DOE's
Compliance Certification Database (``CCD'') capable of meeting these
criteria and determined EL 2 such that novel 120-volt products would
not be prevented from entering the market. 88 FR 49058, 49090. DOE
continued to consider these factors when evaluating the standard levels
for this final rule.
DOE received comments from BWC regarding the potential manufacturer
impacts and capacity constraints related to transitioning all electric
storage water heater products to heat pump designs. BWC stated
appreciation that DOE recognized that a 5-year compliance window may be
challenging for many manufacturers to redesign 100 percent of electric
storage water heater products to incorporate heat pump designs. BWC
noted that change of this scale would indeed require a commitment of
significant time, resources, and capital to ensure these units can be
produced at a rate that would satisfy sharply increased demand while
meeting and exceeding consumers' needs and expectations. (BWC, No. 1164
at pp. 14-15)
NRECA recommended that DOE delay implementation of the proposed
electric storage water heater standard for 40-gallon model sizes to
allow more time for manufacturers to innovate and design heat pump
water heaters that are more adaptable to a variety of installation
scenarios. NRECA also recommended that DOE allow electric resistance
options for storage tank sizes up to 50 gallons for space constrained
installations, and that DOE apply the proposed standard for electric
storage water heaters to new construction only, since new homes can be
designed to accommodate heat pump water heaters. (NRECA, No. 1127 at p.
13)
In response, DOE notes that the timing of amended standards for
consumer water heaters is mandated by EPCA. Furthermore, DOE finds that
a 5-year lead time is sufficient for manufacturers to prepare given
that heat pump water heaters available today can be installed in a
variety of installation scenarios. For consumer water heaters DOE does
not have the authority to regulate water heaters in new construction
only. As discussed in section V.C of this document, DOE has fully
weighed the burdens of its proposed standards for electric storage
water heaters against its benefits in determining the appropriate
standards level.
DOE acknowledges that requiring all electric storage water heater
products to utilize heat pump designs would require notably higher
levels of investment and development effort compared to only requiring
a portion of the electric storage water heater market to transition to
heat pump designs. In this final rule, DOE is adopting TSL 2, which,
for electric storage water heaters, includes standards for larger
products that are met through the use of heat pump technology while
leaving standards for smaller products that can be met through the use
of electric resistance heating. See section V.C.1 of this document for
the benefits and burdens of the TSLs considered in this rulemaking.
In this rulemaking, DOE did not analyze more stringent standards
for product classes for which there are currently no UEF-based
standards. Several commenters raised the concern that establishing such
standards for certain product classes and then raising standards for
other product classes would create a market condition where
manufacturers can shift their models to meet the requirements of the
new product classes with less stringent standards, hence undermining
the energy savings potential of this rulemaking. This issue is
discussed in detail throughout this document. The creation of separate
product classes for the models that do not have current

[[Page 37799]]

UEF-based standards is detailed in section IV.A.1 of this document. The
selection of standards for these products is explained in section
IV.C.1 of this document. Finally, the impact of market transition
(i.e., product class switching) is addressed in the shipments analysis
in section IV.G of this document.
DOE received comments from some stakeholders regarding the impact
of the proposed standards for electric storage water heaters (which
correspond to efficiencies attainable by heat pump water heaters) on
electric grids.
Armada claimed that the proposed standards would cause serious
business harm to companies that provide technologies to convert
traditional electric storage water heaters into demand-response
products. (Armada, No. 1193 at p. 3) Armada emphasized the importance
of American-made technologies for grid-reliability as critical to
tackling the climate crisis and advancing environmental justice
initiatives, but these technologies are at risk of being regulated out
of existence by the proposed standards. (Armada, No. 1193 at p. 7)
Armada commented that due to the long recovery cycle of heat pump water
heaters, these products are limited in their demand response
capabilities. Armada stated that while they can be used for scheduled
time-of-use programs, they do not work well responding to grid
congestion or to the intermittent availability of renewable energy
sources (e.g., wind or solar) because water heater energy use times do
not line up with when renewable energy resources are available during
the day. (Armada, No. 1193 at p. 3)
NRECA stated that heat pump water heaters may be beneficial to
electrical grid demand peaks because they draw lower demand than
electric resistance storage water heaters, however they expressed
concern that heat pump water heaters may not yield enough savings for
demand response programs to be cost-effective. NRECA also stated that
most electric cooperatives use load control switches to manage electric
water heater demand, but have found that this strategy is generally
incompatible with heat pump water heaters, which take more time to
reboot after a cut in power than an electric resistance storage water
heater. NRECA added that heat pump water heater can be managed using
more sophisticated strategies such as CTA 2045, AHRI 1430, or the
manufacturer's API; however, NRECA commented that electric cooperatives
are concerned about the time, expense, and security risks associated
with implementing a new control strategy. (NRECA, No. 1127 at p. 11)
NRECA stated many of their member electric cooperatives mitigate demand
peaks by running demand response programs, using both grid-enabled
water heaters and 50-gallon electric storage water heaters and added
that few of the cooperatives they interviewed include or plan to
include heat pump water heaters, due to incompatible load control
strategies or reduced grid management benefits. (NRECA, No. 1127 at p.
11)
ECSC urged DOE to retain electric resistance options for electric
storage water heater installations where heat pump water heaters impose
a time-consuming, costly burden, and to consider restrictions on
tankless electric water heaters instead. ECSC stated that if consumers
cannot afford or install heat pump water heaters, the remaining options
of a small electric storage water heater (``ESWH'') or a tankless
electric water heater pose a significant threat to existing electric
grid demand management programs, which rely on electric storage water
heaters as a thermal resource. ECSC added that the proposed standards
for electric storage water heaters will likely disproportionately harm
low-to-moderate income consumers. (ECSC, No. 1185 at p. 2)
NEEA, however, noted that heat pump water heaters have been
successfully deployed in demand response programs in the Pacific
Northwest, and added that, similar to electric resistance storage water
heaters, heat pump water heaters are capable of shifting load from on-
peak to off-peak hours, and are also capable of handling load-up events
since they have both electric resistance backup elements and a
compressor. NEEA cited a pilot program conducted by Bonneville Power
Administration and Portland General Electric which enrolled 175 heat
pump water heaters and 90 electric resistance water heaters in a demand
response program and controlled them through 600 events over the course
of 220 days. NEEA noted the pilot found that electric resistance and
heat pump water heaters alike were able to reduce load substantially.
(NEEA, No. 1199 at pp. 8-9)
NRECA's comment indicates that utilities may employ more strategies
for water heater load management than CTA-2045 or OpenADR communication
protocols. DOE reviewed load control switch technology in more
detail.\20\ These load control switches appear to be capable of
implementing schedule-based control. However, if utilities need to cut
power to water heaters at unplanned times to manage electricity demand,
heat pump water heaters are expected to still be able to return to
operation in a reasonable amount of time. DOE's teardown analyses of
heat pump water heaters on the market show that nearly all heat pump
water heater designs today have backup electric resistance elements
should the household require a faster recovery rate. DOE does not
expect heat pump water heaters to remove these backup elements as a
result of amended standards. Additionally, DOE finds that the studies
conducted by NEEA provide evidence towards the compatibility of heat
pump water heaters with present-day load control strategies.
---------------------------------------------------------------------------

\20\ See, for example, the Generac ARA Load Control Switch.
Product literature can be found online at: <a href="http://www.generacgs.com/wp-content/uploads/2023/04/ARA_LoadControlSwitch_SpecSheet_B-1.pdf">www.generacgs.com/wp-content/uploads/2023/04/ARA_LoadControlSwitch_SpecSheet_B-1.pdf</a>
(Last accessed Oct. 11, 2023).
---------------------------------------------------------------------------

In response to ECSC, there is an increasing number of heat pump
water heaters available with demand-response capabilities. The ENERGY
STAR v5.0 specification incentivizes the manufacture of heat pump water
heaters that meet a list of criteria for connected product design,
including the use of the standardized CTA-2045 or OpenADR
communications protocols for utilities to send signals to enrolled
water heaters. Load management strategies are expected to still be
compatible with heat pump water heater designs. Additionally, DOE
reiterates that electric resistance storage water heaters which elevate
the storage tank temperature beyond 135 [deg]F when responding to
utility load management signals are exempt from having to test to the
high temperature test method and will likely remain on the market.
Beyond small electric storage water heaters and heat pump water
heaters, grid-enabled water heaters (which are larger than 75 gallons
of rated storage volume) are designed for this explicit purpose. DOE
does not expect the availability of grid-enabled water heaters to
decline as a result of this final rule (because no substantial
amendments to the standards for these products are being adopted in
this rulemaking), so there will remain electric resistance products
available to consumers to connect to utility grid programs.
NPGA, APGA, AGA, and Rinnai stated that DOE should consider the
effects the additional demand for electricity for water heaters may
have on the energy grid as it has presently failed to consider such an
impact its proposed standards may have on grid reliability. According
to NPGA, APGA, AGA, and Rinnai, DOE should heed the guidance of the
Government Accountability Office and analyze options for grid
resilience to avoid enhanced strain

[[Page 37800]]

without a demand management or supply plan and would benefit by
reviewing analysis of grid strain during extreme weather events. (NPGA,
APGA, AGA, and Rinnai, No. 441 at p. 4) NMHC and NAA also advised that
such an increase in electric product usage should be coupled with
efforts to ensure the electric grid is prepared and suggested that DOE
consider the costs and barriers in this rulemaking. (NMHC and NAA, No.
996 at p. 5)
DOE does not expect a significant fraction of consumers to switch
from gas-fired or oil-fired water heaters to electric water heaters as
a result of this rulemaking. See section IV.F.10 of this document. DOE
does expect a significant fraction of consumers to switch from electric
resistance storage water heaters to heat pump water heaters as a result
of the more stringent standards for electric storage water heaters,
however. Heat pump water heaters are significantly more efficient than
electric resistance storage water heaters, and, as a result, consume
significantly less electricity than electric resistance storage water
heaters, which actually reduces strain on electrical grids.
The Attorney General of TN commented that the proposed rulemaking
does not address the additional strain these standards would place on
the national energy infrastructure and power grid. The Attorney General
of TN stated that, by encouraging a 5 percent to 63 percent shift among
consumers from gas-fired water heaters to those powered by electric
pumps, the demand for additional electricity will place further stress
on an already overworked energy grid. (Attorney General of TN, No. 1149
at p. 3)
DOE has carefully considered the potential impact of proposed
standards on the national energy infrastructure and power grid. With
reduced energy consumption and appropriate configuration, the proposed
standards would actually benefit national energy infrastructure and
power grid.

B. Scope of Coverage and Definitions

As discussed in section II.B.3 of this document, this final rule
covers those consumer products that meet the definition of ``water
heater,'' as codified at 10 CFR 430.2 and as described by EPCA at 42
U.S.C. 6291(27), with the exception of ``Gas-fired instantaneous water
heater,'' as codified at 10 CFR 430.2.
Generally, DOE defines a ``water heater,'' consistent with EPCA's
definition, as a product which utilizes oil, gas, or electricity to
heat potable water for use outside the heater upon demand, including:
(a) Storage type units which heat and store water at a
thermostatically controlled temperature, including gas storage water
heaters with an input of 75,000 Btu per hour or less, oil storage water
heaters with an input of 105,000 Btu per hour or less, and electric
storage water heaters with an input of 12 kilowatts (kW) or less;
(b) Instantaneous type units which heat water but contain no more
than one gallon of water per 4,000 Btu per hour of input, including gas
instantaneous water heaters with an input of 200,000 Btu per hour or
less, oil instantaneous water heaters with an input of 210,000 Btu per
hour or less, and electric instantaneous water heaters with an input of
12 kilowatts or less; and
(c) Heat pump type units, with a maximum current rating of 24
amperes at a voltage no greater than 250 volts,\21\ which are products
designed to transfer thermal energy from one temperature level to a
higher temperature level for the purpose of heating water, including
all ancillary equipment such as fans, storage tanks, pumps, or controls
necessary for the device to perform its function.
---------------------------------------------------------------------------

\21\ In the June 2023 TP Final Rule, DOE amended the definition
of ``commercial heat pump water heater'' at 10 CFR 431.102 to align
with the amperage and voltage requirements for consumer heat pump
type units as specified in EPCA.
---------------------------------------------------------------------------

10 CFR 430.2; (42 U.S.C. 6291(27))
In addition, at 10 CFR 430.2, DOE further defines several specific
categories of consumer water heaters as follows:
<bullet> ``Electric instantaneous water heater'' means a water
heater that uses electricity as the energy source, has a nameplate
input rating of 12 kW or less, and contains no more than one gallon of
water per 4,000 Btu per hour of input.
<bullet> ``Electric storage water heater'' means a water heater
that uses electricity as the energy source, has a nameplate input
rating of 12 kW or less, and contains more than one gallon of water per
4,000 Btu per hour of input.
<bullet> ``Gas-fired instantaneous water heater'' means a water
heater that uses gas as the main energy source, has a nameplate input
rating less than 200,000 Btu per hour, and contains no more than one
gallon of water per 4,000 Btu per hour of input.
<bullet> ``Gas-fired storage water heater'' means a water heater
that uses gas as the main energy source, has a nameplate input rating
of 75,000 Btu per hour or less, and contains more than one gallon of
water per 4,000 Btu per hour of input.
<bullet> ``Grid-enabled water heater'' means an electric resistance
water heater that--
[cir] Has a rated storage tank volume of more than 75 gallons;
[cir] Is manufactured on or after April 16, 2015;
[cir] Is equipped at the point of manufacture with an activation
lock; and
[cir] Bears a permanent label applied by the manufacturer that--
[ssquf] Is made of material not adversely affected by water;
[ssquf] Is attached by means of non-water-soluble adhesive; and
[ssquf] Advises purchasers and end-users of the intended and
appropriate use of the product with the following notice printed in
16.5 point Arial Narrow Bold font: ``IMPORTANT INFORMATION: This water
heater is intended only for use as part of an electric thermal storage
or demand response program. It will not provide adequate hot water
unless enrolled in such a program and activated by your utility company
or another program operator. Confirm the availability of a program in
your local area before purchasing or installing this product.''
<bullet> ``Oil-fired instantaneous water heater'' means a water
heater that uses oil as the main energy source, has a nameplate input
rating of 210,000 Btu/h or less, and contains no more than one gallon
of water per 4,000 Btu per hour of input.
<bullet> ``Oil-fired storage water heater'' means a water heater
that uses oil as the main energy source, has a nameplate input rating
of 105,000 Btu/h or less, and contains more than one gallon of water
per 4,000 Btu per hour of input.
In the June 2023 Test Procedure Final Rule, DOE amended 10 CFR
430.2 (effective on July 21, 2023), adding the following definitions
for circulating, low-temperature, and tabletop water heaters:
<bullet> ``Circulating water heater'' means an instantaneous or
heat pump-type water heater that does not have an operational scheme in
which the burner, heating element, or compressor initiates and/or
terminates heating based on sensing flow; has a water temperature
sensor located at the inlet or the outlet of the water heater or in a
separate storage tank that is the primary means of initiating and
terminating heating; and must be used in combination with a
recirculating pump and either a separate storage tank or water
circulation loop in order to achieve the water flow and temperature
conditions recommended in the manufacturer's installation and operation
instructions.
<bullet> ``Low-temperature water heater'' means an electric
instantaneous water heater that is not a circulating water heater and
cannot deliver water at a

[[Page 37801]]

temperature greater than or equal to the set point temperature
specified in section 2.5 of appendix E to subpart B of this part when
supplied with water at the supply water temperature specified in
section 2.3 of appendix E to subpart B of part 430 and the flow rate
specified in section 5.2.2.1 of appendix E to subpart B of part 430.
<bullet> ``Tabletop water heater'' means a water heater in a
rectangular box enclosure designed to slide into a kitchen countertop
space with typical dimensions of 36 inches high, 25 inches deep, and 24
inches wide.
As stated in section I of this document, EPCA prescribed energy
conservation standards for all consumer water heaters (i.e., those that
meet the definition of ``water heater'' above). For the purposes of
this final rule, DOE is considering all consumer water heaters, as
defined by EPCA, with the exception of ``gas-fired instantaneous water
heaters.'' This rulemaking does include consumer water heaters for
which there are no current UEF-based standards codified at 10 CFR
430.32(d).
In the July 2023 NOPR, DOE responded to inquiries concerning
coverage of hot water dispensing products (not to be confused with low-
temperature electric instantaneous water heaters or point-of-use
electric storage water heaters), which operate at less than 2 kW of
power and generally provide water at temperatures between 160 [deg]F
and 210 [deg]F for food preparation purposes. DOE stated that while it
has the authority to set standards for products that meet the
definition of a consumer water heater (42 U.S.C. 6292(a)(4)), this
rulemaking is not currently considering standards for hot water
dispensing products. 88 FR 49058, 49070.
Additionally, DOE received comments from stakeholders in response
to the July 2023 NOPR regarding the scope and classification of
circulating water heater as defined at 10 CFR 430.2 by the June 2023 TP
Final Rule. DOE subsequently published an SNOPR on December 27, 2023
(``December 2023 SNOPR''), that discussed the comments received on this
topic and proposed to amend the definition for ``circulating water
heater'' to reclassify these products as storage-type water heaters. 88
FR 89330. In the December 2023 SNOPR, DOE proposed amending the
definition of ``circulating water heaters'' to re-classify these
products as storage-type water heaters. Id. After considering the
comments on the December 2023 SNOPR, DOE is adopting its proposal to
amend the definition for ``circulating water heater'' as it appears at
10 CFR 430.2 to reclassify these products as storage-type water
heaters. The SNOPR comments received from stakeholders and DOE's
responses, along with the definition of a ``circulating water heater,''
are discussed in detail in section IV.A.1.a of this document. As a
result of this reclassification, the scope of coverage for circulating
water heaters is limited to those products which meet the statutory
input rate limits for storage-type water heaters. Specifically,
electric circulating water heaters must have a nameplate input rating
of 12 kW or less, gas-fired circulating water heaters must have a
nameplate input rating of 75,000 Btu/h or less, oil-fired circulating
water heaters must have a nameplate input rating of 105,000 Btu/h or
less, and heat pump circulating water heaters must have a maximum
current rating of 24 amperes (``A'') at a voltage no greater than 250
volts (``V''). Circulating water heaters that have input rates greater
than these specifications would be considered commercial water heaters.
In response to the December 2023 SNOPR, BWC indicated that
commercial circulating water heaters are not separately defined at 10
CFR 431.102 and the recent final rule regarding energy conservation
standards for commercial water heaters \22\ did not establish separate
standards for circulating water heaters. BWC requested that DOE clarify
how the provisions in the December 2023 SNOPR will impact commercial
circulating water heaters if adopted. (BWC, No. 1413 at p. 2) A.O.
Smith agreed with DOE's determination that circulating water heaters
with input rates surpassing those defined for consumer storage water
heaters as outlined in 10 CFR 430.2, should be classified as commercial
water heaters. A.O. Smith suggested that DOE formalize this
categorization by establishing definitions for commercial gas-fired
circulating water heaters with input rates between 75,000 Btu/h and
200,000 Btu/h at 10 CFR 431.102. (A.O. Smith, No. 1411 at p. 2)
---------------------------------------------------------------------------

\22\ On October 6, 2023 the Department published a final rule
amending standards for commercial water heating equipment, including
commercial circulating water heaters. 88 FR 69686.
---------------------------------------------------------------------------

Rheem concluded that gas-fired circulating water heaters with input
rates greater than 75,000 but less than or equal to 105,000 Btu/h could
be categorized as residential-duty commercial water heating
equipment,\23\ and therefore could be subject to the energy
conservation standards recently established in the commercial water
heater equipment final rule. Rheem requested DOE confirm its
understanding that the proposed definitions circulating water heaters
would extend to residential-duty commercial water heaters. (Rheem, No.
1408 at p. 3)
---------------------------------------------------------------------------

\23\ DOE defines residential-duty commercial gas-fired storage
water heaters as commercial gas-fired storage water heaters that are
not designed to provide outlet hot water at temperatures greater
than 180 [deg]F, do not have a rated input greater than 105,000 Btu/
h, and do not have a rated storage volume greater than 120 gallons.
(10 CFR 431.102)
---------------------------------------------------------------------------

The scope of this rulemaking pertains specifically to consumer
water heaters, and the amended standards and definitions addressed
herein do not apply to residential-duty commercial water heaters (which
are commercial water heating equipment defined at 10 CFR 431.102). The
definition of circulating water heater DOE is establishing at 10 CFR
430.2 will be supplemented by additional definitions for electric, gas-
fired, and oil-fired circulating water heaters that specify input rate
limits consistent with consumer water heaters. Circulating water
heaters that exceed these input rates will be commercial water heaters
and therefore are outside the scope of standards established in this
rulemaking. DOE may consider addressing standards and test procedures
for commercial circulating water heaters in a future rulemaking for
commercial water heaters.
In response to the July 2023 NOPR, the Joint Advocacy Groups urged
DOE to clarify that electric water heaters that can operate at inputs
both above and below 12 kW must meet both the relevant consumer and
commercial water heater standards. (Joint Advocacy Groups, No. 1165 at
p. 8)
DOE is aware of certain ``field-convertible'' electric storage
water heaters which can be sold with elements rated above 12 kW (e.g.,
12.1 kW), but the product is designed in a way that allows the user to
change the elements to a lower input rate (e.g., 6 kW). Field-
convertible electric storage water heaters are, therefore, sold as
commercial water heaters but can be converted into consumer water
heaters.\24\
---------------------------------------------------------------------------

\24\ For example, Rheem offers a commercial electric water
heater that is marketed for light-duty commercial applications. In
certain storage volumes (i.e., 66, 80, and 119.9 gallon models) the
input rating as shipped from the manufacturer is only available at
12.1 kW which qualifies the product as a commercial water heater.
However, the product literature states that this product is factory
shipped with two 6.05 kW elements that operate simultaneously, but
can be easily converted in field for non-simultaneous element
operation. When converted, the input rating would be effectively
6.05 kW. This causes the product to meet the definition of a
consumer water heater. For more information see: <a href="https://s3.amazonaws.com/WebPartners/ProductDocuments/9A53AD9F-75C2-4E66-8967-1BAE91B17CAC.pdf">https://s3.amazonaws.com/WebPartners/ProductDocuments/9A53AD9F-75C2-4E66-8967-1BAE91B17CAC.pdf</a> (Last accessed on Dec. 20, 2023)

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

[[Page 37802]]

Consistent with its determinations in other rulemakings, DOE has
concluded that if a product can be configured to meet either the
commercial water heater definition or the consumer water heater
definition, then it must comply with the standards applicable to all
types of product/equipment in which it can be configured. For example,
in a recent final rule addressing convertible consumer refrigeration
products, DOE specified that if a product is capable of operating with
compartment temperatures as specified in multiple product category
definitions (i.e., a ``convertible product''), the model must be tested
and certified to each applicable product category. 88 FR 7840, 7843
(Feb. 7, 2023). Also, in a recent final rule addressing the test
procedure for consumer boilers (which are a space-heating appliance
that can often also be configured to provide domestic water heating),
DOE determined that if a combination appliance meets the definition of
a consumer boiler, the product must be tested per the boiler test
procedure and demonstrate compliance with those standards. 88 FR 15510,
15515 (Mar. 13, 2023). Similarly, field-convertible electric storage
water heaters are subject to the appendix E test procedure and the
standards adopted by this final rule to the extent that they can be
configured to meet the consumer water heater definition.
Uponor stated that other countries have generated domestic hot
water via a heat exchanger connected to a hydronic mechanical system to
improve water quality and energy efficiencies for decades. Uponor
provided product literature from its technology offerings and requested
clarification about how such products would be covered under DOE's
standards. (Uponor, No. 606 at p. 1)
DOE reviewed the product literature cited by the commenter and
found that the technology being referenced is an unfired heat exchange
device which can couple hydronic piping to domestic hot water piping
far downstream of the point of heat generation so that the heat
exchange can occur in commercial high-rise buildings to produce
domestic hot water using heat from the building's hydronic heating
system. While DOE does not disagree that these technologies could
improve high-rise building system efficiencies, the heat exchangers
referenced by Uponor may be better characterized as heat recovery
devices that function based on diverting excess heat to the domestic
hot water supply and work in conjunction with the appliance providing
the heat.
In response to the July 2023 NOPR, DOE received questions from BWC
asking whether space-heating products that are capable of heating
domestic hot water by means of an indirect water heater tank would be
considered circulating water heaters. In response to the December 2023
SNOPR, Pickering provided comments raising concerns about the potential
for evaluating efficiency gains if there is overlap between these types
of systems and circulating water heaters.
Pickering commented that definitions that do not account for the
array of equipment that is on the market or coming on the market, and
that do not recognize the efficiency gains to be had with multiple
pieces of equipment operating as a system, may limit choice and stifle
innovation. Specifically, Pickering commented that the proposed
definitions for circulating water heaters may be incompatible with or
otherwise create regulatory impediments to air-to-water heat pumps that
provide domestic hot water as an ancillary function to space
conditioning. Pickering added that these combined systems can increase
overall system efficiency over a more typical separated system, but
that the proposed definitions mean that it may be difficult to quantity
the efficiency of the domestic hot water function of a combined system
specifically, and that they may not account for or accommodate the
combinations of equipment (assembled on site) that produce domestic hot
water in such a combined system. (Pickering, No. 1399 at pp. 1-3)
Pickering recommended DOE consider removing indirect tanks from the
definition of conventional electric storage water heaters, refrain from
setting water heater efficiency standards for heat pumps that produce
domestic hot water as an ancillary function, clarify that gas-fueled
heat pumps are not considered to be electric storage water heaters, and
take a systems approach to energy efficiency for domestic hot water.
(Pickering, No. 1399 at p. 3)
BWC requested that DOE provide answers to the following questions:
(1) Are split-system heat pump products that provide space heating, as
well as domestic hot water through an indirect unfired hot water
storage tank (``UFHWST'') classified as a circulating heat pump water
heater, or instead as an air-to-water heat pump? (2) Would such a
product need to be tested under the residential water heater test
procedure, the air-to-water heat pump test procedure once such a
procedure is created, or both? (3) Will such a product need to
represent its efficiency using UEF or annualized fuel utilization
efficiency, or both? (BWC, No. 1164 at pp. 11-12) While these questions
pertain specifically to air-to-water heat pump appliances, DOE
understands the need for general clarification regardless of the fuel
type or technology.
Circulating water heaters circulate potable water through a heat
exchanger: warm water from the stored volume of water enters the
circulating water heater and exits after being heated to the setpoint
temperature. By contrast, an indirect water heater uses the main
furnace or boiler of a home to heat a fluid that is circulated through
a heat exchanger in the storage tank.\25\ An indirect water heater does
not circulate the potable domestic hot water supply to and from the
boiler (it is a separate heating fluid which circulates through the
tank and boiler), therefore, DOE has determined that a boiler paired
with an indirect water heater is not a circulating water heater.
---------------------------------------------------------------------------

\25\ A diagram of an indirect water heater and further
description of this design configuration is provided on DOE's
website at: <a href="http://www.energy.gov/energysaver/tankless-coil-and-indirect-water-heaters">www.energy.gov/energysaver/tankless-coil-and-indirect-water-heaters</a> (Last accessed: Oct. 30, 2023).
---------------------------------------------------------------------------

Pickering also commented that the proposed definitions for
circulating water heaters may be incompatible with or otherwise create
regulatory impediments to solar thermal water heating systems.
(Pickering, No. 1399 at p. 2)
DOE understands the commenter to be referring to solar water
heating systems that circulate a hot heat transfer fluid between a
solar heat collector and a heat exchanger inside a domestic hot water
storage tank. Such a setup is parallel to an indirect-fired water
heater: it is not the potable hot water that circulates between the
heat source and the tank, it is an intermediate heat transfer fluid
instead. As such, solar thermal water heating systems designed in this
way do not constitute circulating water heaters.
This is in contrast to a boiler with a tankless coil (or a
combination boiler-water heater). A tankless coil water heater provides
hot water on demand without a tank, much like an instantaneous water
heater. When a hot water faucet is turned on, water is heated as it
flows through a heating coil or heat exchanger installed in a main
furnace or boiler. In the tankless coil configuration, the domestic hot
water supply does circulate through the boiler. However, these systems
are typically flow-activated, and thus most do not meet the definition
of a ``circulating water heater,'' either.

[[Page 37803]]

BWC requested clarification on whether air-to-water heat pumps
would be covered as both circulating water heaters and as hydronic
heating system boilers, which are being discussed by the U.S.
Environmental Protection Agency (``EPA'') with regards to amendments to
the consumer boiler specification. Specifically, BWC called attention
to the potential overlap between the definition of circulating water
heater and what the EPA is considering regulating as air-to-water
(hydronic) heat pumps for space-heating in a potential revision or new
specification for consumer boilers. BWC stated that both heat pump
circulating water heaters and hydronic heat pumps are air-to-water heat
pumps, and there would be an issue if multiple product definitions
overlapped, thereby encompassing the same covered product within scope
and subjecting it to two separate test procedures and efficiency
standards. (BWC, No. 1164 at pp. 11-12)
There is currently no codified definition for an air-to-water
hydronic heat pump used for space heating purposes. However, in a March
2023 final rule amending the test procedure for consumer boilers (the
``March 2023 Boilers TP Final Rule''), DOE determined that hydronic
heat pump appliances which meet the consumer boiler definition would be
classified as consumer boilers. 88 FR 15510, 15516 (Mar. 13, 2023).
However, the March 2023 Boilers TP Final Rule did not establish a test
method for these hydronic heat pump boilers. Id. At this time, there is
no Federal test procedure to determine the Annual Fuel Utilization
Efficiency (``AFUE'') of such a product, hence, there are also no AFUE
requirements for these heat pumps. In the March 2023 Boilers TP Final
Rule, DOE also stated that, to the extent that a combination space and
water heating product meets the definition of electric boiler or low
pressure steam or hot water boiler, it is subject to the boilers test
procedure and energy conservation standards for consumer boilers at 10
CFR 430.32(e)(2), and must be tested and rated accordingly. Id. at
15515. Therefore, per DOE's test procedure requirements, if an air-to-
water heat pump meets both the definition of a consumer boiler and a
consumer water heater, then it must be tested to both test procedures,
should the boilers test procedure be amended at a future date to
include an applicable method of test. On June 5, 2023, EPA released a
Discussion Guide \26\ requesting information from stakeholders about a
method of test for hydronic heat pump boiler systems. DOE will monitor
the development of this method of test but notes that it is a draft
specification that has not been released as of this final rule.
---------------------------------------------------------------------------

\26\ The Boilers Discussion Guide can be found online at:
<a href="http://www.energystar.gov/products/residential_boilers_specification">www.energystar.gov/products/residential_boilers_specification</a> (Last
accessed: Nov. 3, 2023).
---------------------------------------------------------------------------

RVIA commented that based on the plain language of the consumer
product statute, appliances designed specifically for use in a
recreational vehicle (``RV'') are exempted from new standards. RVIA
urged DOE to continue to recognize the uniqueness of RVs and the
importance of excluding specific component parts designed for RVs from
new appliance standards. (RVIA, No. 1168 at p. 4)
The scope of this rulemaking excludes water heaters designed
exclusively for RV applications because the definition of ``consumer
product'' in EPCA excludes consumer products designed solely for use in
recreational vehicles and other mobile equipment. (See 42 U.S.C.
6292(a)) In the market and technology assessment, DOE evaluated
certification data to ensure that the model information used throughout
this rulemaking analysis aligned with the scope of coverage.
Section IV.A.1 of this document contains detailed discussion of the
product classes analyzed in this final rule.

C. Test Procedure

EPCA sets forth generally applicable criteria and procedures for
DOE's adoption and amendment of test procedures. (42 U.S.C. 6293)
Manufacturers of covered products must use these test procedures to
certify to DOE that their product complies with energy conservation
standards and to quantify the efficiency of their product. DOE's
current energy conservation standards for consumer water heaters are
expressed in terms of UEF. (See 10 CFR 430.32(d).)
DOE most recently amended the test procedure for these products at
appendix E in the consumer and residential-duty commercial water heater
test procedure final rule published on June 21, 2023 (``June 2023 TP
Final Rule'') pursuant to the 7-year review requirement as specified by
EPCA. (42 U.S.C. 6293(b)(1)(A) and 42 U.S.C. 6314(a)(1)(A)) In the June
2023 TP Final Rule, DOE added definitions and, where necessary,
additional test procedure provisions for circulating water heaters,
low-temperature water heaters, and tabletop water heaters, as well as
provisions for high-temperature testing. However, DOE deferred the
implementation of high-temperature testing provisions to this energy
conservation standards rulemaking. 88 FR 40406, 40448. DOE also
established effective storage volume as a metric and provided
additional optional ambient test conditions for heat pump water
heaters. Id. The test procedure for consumer water heaters incorporates
by reference current versions of industry standards ASHRAE 41.1, ASHRAE
41.6, ASHRAE 118.2, ASTM D2156, and ASTM E97 and harmonizes various
aspects of the test procedure with industry test procedures ASHRAE
118.2-2022 and NEEA Advanced Water Heating Specification v8.0. The
amended test procedure established by the June 2023 TP Final Rule is
mandatory for consumer water heater testing starting December 18, 2023,
180 days after publication, with the exception of certain provisions
(i.e., the new high temperature test method and the circulating water
heater test method). For these specific provisions, compliance is
mandatory on and after the compliance date of this final rule. (See
Note at the beginning of appendix E).

D. Technological Feasibility

1. General
In each energy conservation standards rulemaking, DOE conducts a
screening analysis based on information gathered on all current
technology options and prototype designs that could improve the
efficiency of the products or equipment that are the subject of the
rulemaking. As the first step in such an analysis, DOE develops a list
of technology options for consideration in consultation with
manufacturers, design engineers, and other interested parties. DOE then
determines which of those means for improving efficiency are
technologically feasible. DOE considers technologies incorporated in
commercially available products or in working prototypes to be
technologically feasible. Sections 6(b)(3)(i) and 7(b)(1) of appendix A
to 10 CFR part 430 subpart C (``appendix A'').
After DOE has determined that particular technology options are
technologically feasible, it further evaluates each technology option
in light of the following additional screening criteria: (1)
practicability to manufacture, install, and service; (2) adverse
impacts on product utility or availability; (3) adverse impacts on
health or safety and (4) unique-pathway proprietary technologies.
Section 7(b)(2)-(5) of the Appendix A. Section IV.B of this document
discusses the results of the screening analysis for consumer water
heaters, particularly the designs DOE considered, those it screened
out, and those that are the

[[Page 37804]]

basis for the standards considered in this rulemaking. For further
details on the screening analysis for this rulemaking, see chapter 4 of
the final rule TSD.
2. Maximum Technologically Feasible Levels
When DOE proposes to adopt a new or amended standard for a type or
class of covered product, it must determine the maximum improvement in
energy efficiency or maximum reduction in energy use that is
technologically feasible for such product. (42 U.S.C. 6295(p)(1))
Accordingly, in the engineering analysis, DOE determined the maximum
technologically feasible (``max-tech'') improvements in energy
efficiency for consumer water heaters, using the design parameters for
the most efficient products available on the market or in working
prototypes. The max-tech levels that DOE determined for this rulemaking
are described in section IV.C of this final rule and in chapter 5 of
the final rule TSD.

E. Energy Savings

1. Determination of Savings
For each trial standard level (``TSL''), DOE projected energy
savings from application of the TSL to consumer water heaters purchased
in the 30-year period that begins in the first full year of compliance
with the amended standards (2030-2059).\27\ The savings are measured
over the entire lifetime of consumer water heaters purchased in the 30-
year analysis period. DOE quantified the energy savings attributable to
each TSL as the difference in energy consumption between each standards
case and the no-new-standards case. The no-new-standards case
represents a projection of energy consumption that reflects how the
market for a product would likely evolve in the absence of amended
energy conservation standards.
---------------------------------------------------------------------------

\27\ DOE also presents a sensitivity analysis that considers
impacts for products shipped in a 9-year period.
---------------------------------------------------------------------------

DOE used its national impact analysis (``NIA'') spreadsheet models
to estimate national energy savings (``NES'') from potential amended
standards for consumer water heaters. The NIA spreadsheet model
(described in section IV.H of this document) calculates energy savings
in terms of site energy, which is the energy directly consumed by
products at the locations where they are used. For electricity, DOE
reports national energy savings in terms of primary energy savings,
which is the savings in the energy that is used to generate and
transmit the site electricity. For natural gas, the primary energy
savings are considered to be equal to the site energy savings. DOE also
calculates NES in terms of full-fuel-cycle (``FFC'') energy savings.
The FFC metric includes the energy consumed in extracting, processing,
and transporting primary fuels (i.e., coal, natural gas, petroleum
fuels), and thus presents a more complete picture of the impacts of
energy conservation standards.\28\ DOE's approach is based on the
calculation of an FFC multiplier for each of the energy types used by
covered products or equipment. For more information on FFC energy
savings, see section IV.H.2 of this document.
---------------------------------------------------------------------------

\28\ The FFC metric is discussed in DOE's statement of policy
and notice of policy amendment. 76 FR 51282 (Aug. 18, 2011), as
amended at 77 FR 49701 (Aug. 17, 2012).
---------------------------------------------------------------------------

2. Significance of Savings
To adopt any new or amended standards for a covered product, DOE
must determine that such action would result in significant energy
savings. (42 U.S.C. 6295(o)(3)(B))
The significance of energy savings offered by a new or amended
energy conservation standard cannot be determined without knowledge of
the specific circumstances surrounding a given rulemaking.\29\ For
example, some covered products and equipment have most of their energy
consumption occur during periods of peak energy demand. The impacts of
these products on the energy infrastructure can be more pronounced than
products with relatively constant demand. Accordingly, DOE evaluates
the significance of energy savings on a case-by-case basis, taking into
account the significance of cumulative FFC national energy savings, the
cumulative FFC emissions reductions, and the need to confront the
global climate crisis, among other factors.
---------------------------------------------------------------------------

\29\ The numeric threshold for determining the significance of
energy savings established in a final rule published on Feb. 14,
2020 (85 FR 8626, 8670) was subsequently eliminated in a final rule
published on Dec. 13, 2021 (86 FR 70892).
---------------------------------------------------------------------------

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

F. Economic Justification

1. Specific Criteria
As noted previously, EPCA provides seven factors to be evaluated in
determining whether a potential energy conservation standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(I)(VII)) The
following sections discuss how DOE has addressed each of those seven
factors in this rulemaking.
a. Economic Impact on Manufacturers and Consumers
In determining the impacts of potential new or amended standards on
manufacturers, DOE conducts an MIA, as discussed in section IV.J of
this document. DOE first uses an annual cash-flow approach to determine
the quantitative impacts. This step includes both a short-term
assessment--based on the cost and capital requirements during the
period between when a regulation is issued and when entities must
comply with the regulation--and a long-term assessment over a 30-year
period. The industry-wide impacts analyzed include (1) INPV, which
values the industry on the basis of expected future cash flows; (2)
cash flows by year; (3) changes in revenue and income; and (4) other
measures of impact, as appropriate. Second, DOE analyzes and reports
the impacts on different types of manufacturers, including impacts on
small manufacturers. Third, DOE considers the impact of standards on
domestic manufacturer employment and manufacturing capacity, as well as
the potential for standards to result in plant closures and loss of
capital investment. Finally, DOE takes into account cumulative impacts
of various DOE regulations and other regulatory requirements on
manufacturers.
For individual consumers, measures of economic impact include the
changes in LCC and PBP associated with new or amended standards. These
measures are discussed further in the following section. For consumers
in the aggregate, DOE also calculates the national net present value of
the consumer costs and benefits expected to result from particular
standards. DOE also evaluates the impacts of potential standards on
identifiable subgroups of consumers that may be affected
disproportionately by a standard.
b. Savings in Operating Costs Compared To Increase in Price (LCC and
PBP)
EPCA requires DOE to consider the savings in operating costs
throughout the estimated average life of the covered product in the
type (or class) compared to any increase in the price of, or in the

[[Page 37805]]

initial charges for, or maintenance expenses of, the covered product
that are likely to result from a standard. (42 U.S.C.
6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP
analysis.
The LCC is the sum of the purchase price of a product (including
its installation) and the operating cost (including energy,
maintenance, and repair expenditures) discounted over the lifetime of
the product. The LCC analysis requires a variety of inputs, such as
product prices, product energy consumption, energy prices, maintenance
and repair costs, product lifetime, and discount rates appropriate for
consumers. To account for uncertainty and variability in specific
inputs, such as product lifetime and discount rate, DOE uses a
distribution of values, with probabilities attached to each value.
The PBP is the estimated amount of time (in years) it takes
consumers to recover the increased purchase cost (including
installation) of a more-efficient product through lower operating
costs. DOE calculates the PBP by dividing the change in purchase cost
due to a more stringent standard by the change in annual operating cost
for the year that standards are assumed to take effect.
For its LCC and PBP analysis, DOE assumes that consumers will
purchase the covered products in the first year of compliance with new
or amended standards. The LCC savings for the considered efficiency
levels are calculated relative to the case that reflects projected
market trends in the absence of new or amended standards. DOE's LCC and
PBP analysis is discussed in further detail in section IV.F of this
document.
c. Energy Savings
Although significant conservation of energy is a separate statutory
requirement for adopting an energy conservation standard, EPCA requires
DOE, in determining the economic justification of a standard, to
consider the total projected energy savings that are expected to result
directly from the standard. (42 U.S.C. 6295(o)(2)(B)(i)(III)) As
discussed in section IV.H of this document, DOE uses the NIA
spreadsheet models to project national energy savings.
d. Lessening of Utility or Performance of Products
In establishing product classes, and in evaluating design options
and the impact of potential standard levels, DOE evaluates potential
standards that would not lessen the utility or performance of the
considered products. (42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data
available to DOE, the standards adopted in this document would not
reduce the utility or performance of the products under consideration
in this rulemaking.
e. Impact of Any Lessening of Competition
EPCA directs DOE to consider the impact of any lessening of
competition, as determined in writing by the Attorney General, that is
likely to result from a standard. (42 U.S.C. 6295(o)(2)(B)(i)(V)) It
also directs the Attorney General to determine the impact, if any, of
any lessening of competition likely to result from a standard and to
transmit such determination to the Secretary within 60 days of the
publication of a proposed rule, together with an analysis of the nature
and extent of the impact. (42 U.S.C. 6295(o)(2)(B)(ii)) To assist the
Department of Justice (``DOJ'') in making such a determination, DOE
transmitted copies of its proposed rule and the NOPR TSD to the
Attorney General for review, with a request that the DOJ provide its
determination on this issue. In its assessment letter responding to
DOE, DOJ concluded that the proposed energy conservation standards for
consumer water heaters are unlikely to substantially lessen
competition. DOE is publishing the Attorney General's assessment at the
end of this final rule.
In response to the July 2023 NOPR, NPGA, APGA, AGA, and Rinnai
asserted that the standards proposed in the July 2023 NOPR would have a
significant market effect, with manufacturers likely choosing to leave
the market rather than expend the millions of dollars it would take to
redesign their products and production especially in requiring
condensing technology in order to be in compliance with the standards
proposed. (NPGA, APGA, AGA, and Rinnai, No. 441 at p. 3)
Although commenters focus primarily on condensing technologies as
it relates to GIWHs, which are not amended in this final rule, DOE
continued to look at the impact of competition as it relates to the
other product classes for which DOE is adopting standards in this final
rule. DOE does not expect that the adopted standard would significantly
alter the level of concentration in the consumer water heater market.
Additionally, DOJ stated, in a letter to DOE written in response to the
July 2023 NOPR, that ``we do not have an evidentiary basis to conclude
that the proposed energy conservation standards for consumer water
heaters are likely to substantially lessen competition.'' (See Attorney
General's assessment at the end of this final rule). For this final
rule, DOE reviewed up-to-date information on the consumer water heater
models available on the U.S. market to ensure a comprehensive analysis
of the current manufacturer landscape. In response to stakeholders'
comments, DOE carefully reviewed product offerings of original
equipment manufacturers (``OEMs'') of gas-fired storage water heaters.
DOE identified five OEMs of gas-fired storage water heaters that would
be subject to more stringent standards under this rulemaking. Of the
five OEMs identified, four OEMs currently manufacture gas-fired storage
water heaters that meet the adopted TSL (EL 2 for gas-fired storage
water heaters). Collectively, the four OEMs that already offer gas-
fired storage water heaters that meet EL 2 account for approximately 95
percent of gas-fired storage water heater shipments.
f. Need for National Energy Conservation
DOE also considers the need for national energy and water
conservation in determining whether a new or amended standard is
economically justified. (42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy
savings from the adopted standards are likely to provide improvements
to the security and reliability of the Nation's energy system.
Reductions in the demand for electricity also may result in reduced
costs for maintaining the reliability of the Nation's electricity
system. DOE conducts a utility impact analysis to estimate how
standards may affect the Nation's needed power generation capacity, as
discussed in section IV.M of this document.
DOE maintains that environmental and public health benefits
associated with the more efficient use of energy are important to take
into account when considering the need for national energy
conservation. The adopted standards are likely to result in
environmental benefits in the form of reduced emissions of air
pollutants and greenhouse gases (``GHGs'') associated with energy
production and use. DOE conducts an emissions analysis to estimate how
potential standards may affect these emissions, as discussed in section
IV.K of this document; the estimated emissions impacts are reported in
section V.B.6 of this document. DOE also estimates the economic value
of emissions reductions resulting from the considered TSLs, as
discussed in section IV.L of this document.

[[Page 37806]]

g. Other Factors
In determining whether an energy conservation standard is
economically justified, DOE may consider any other factors that the
Secretary deems to be relevant. (42 U.S.C. 6295(o)(2)(B)(i)(VII)) To
the extent DOE identifies any relevant information regarding economic
justification that does not fit into the other categories described
previously, DOE could consider such information under ``other
factors.''
2. Rebuttable Presumption
As set forth in 42 U.S.C. 6295(o)(2)(B)(iii), EPCA creates a
rebuttable presumption that an energy conservation standard is
economically justified if the additional cost to the consumer of a
product that meets the standard is less than three times the value of
the first year's energy savings resulting from the standard, as
calculated under the applicable DOE test procedure. DOE's LCC and PBP
analyses generate values used to calculate the effect potential amended
energy conservation standards would have on the payback period for
consumers. These analyses include, but are not limited to, the 3-year
payback period contemplated under the rebuttable-presumption test. In
addition, DOE routinely conducts an economic analysis that considers
the full range of impacts to consumers, manufacturers, the Nation, and
the environment, as required under 42 U.S.C. 6295(o)(2)(B)(i). The
results of this analysis serve as the basis for DOE's evaluation of the
economic justification for a potential standard level (thereby
supporting or rebutting the results of any preliminary determination of
economic justification). The rebuttable presumption payback calculation
is discussed in section IV.F of this document.

IV. Methodology and Discussion of Related Comments

This section addresses the analyses DOE has performed for this
rulemaking with regard to consumer water heaters. Separate subsections
address each component of DOE's analyses.
DOE used several analytical tools to estimate the impact of the
standards considered in this document. The first tool is a spreadsheet
that calculates the LCC savings and PBP of potential amended or new
energy conservation standards. The national impacts analysis uses a
second spreadsheet set that provides shipments projections and
calculates national energy savings and net present value of total
consumer costs and savings expected to result from potential energy
conservation standards. DOE uses the third spreadsheet tool, the
Government Regulatory Impact Model (``GRIM''), to assess manufacturer
impacts of potential standards. These three spreadsheet tools are
available on the DOE website for this rulemaking: <a href="http://www.regulations.gov/docket/EERE-2017-BT-STD-0019">www.regulations.gov/docket/EERE-2017-BT-STD-0019</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.

A. Market and Technology Assessment

DOE develops information in the market and technology assessment
that provides an overall picture of the market for the products
concerned, including the purpose of the products, the industry
structure, manufacturers, market characteristics, and technologies used
in the products. This activity includes both quantitative and
qualitative assessments, based primarily on publicly available
information. The subjects addressed in the market and technology
assessment for this rulemaking include (1) a determination of the scope
of the rulemaking and product classes, (2) manufacturers and industry
structure, (3) existing efficiency programs, (4) shipments information,
(5) market and industry trends, and (6) technologies or design options
that could improve the energy efficiency of consumer water heaters. The
key findings of DOE's market assessment are summarized in the following
sections. See chapter 3 of the final rule TSD for further discussion of
the market and technology assessment.
1. Product Classes
When evaluating and establishing energy conservation standards for
a type (or class) of covered products, DOE divides covered products
into product classes by the type of energy used, or by capacity or
other performance-related features which other products within such
type (or class) do not have and that justify differing standards. (42
U.S.C. 6295(q)) In making a determination whether a performance-related
feature justifies a different standard, DOE must consider such factors
as the utility of the feature to the consumer and other factors DOE
determines are appropriate. Id.
EPCA, as amended by the National Appliance Energy Act (NAECA; Pub.
L. 100-12), established initial energy conservation standards,
expressed as EF, that were based on three product classes
differentiated by fuel type: (1) gas-fired, (2) oil-fired, and (3)
electric. (42 U.S.C. 6295(e)(1)) These standards applied to consumer
water heaters manufactured on or after January 1, 1990.
DOE subsequently amended these EF standards twice, most recently in
the April 2010 Final Rule, with which compliance was required starting
on April 16, 2015. 75 FR 20112. In the April 2010 Final Rule, DOE
further divided consumer water heaters into product classes based on
fuel type (gas-fired, oil-fired, or electric), product type (storage,
instantaneous, tabletop), storage volume, and input rate.
The Energy Efficiency Improvement Act of 2015 (``EEIA 2015'') (Pub.
L. 114-11), enacted on April 30, 2015, added a definition of ``grid-
enabled water heater'' and a standard in terms of EF for such products
to EPCA's energy conservation standards. (42 U.S.C. 6295(e)(6)(A)(ii))
DOE codified the definition for grid-enabled water heater and the
associated energy conservation standards in a final rule published and
effective on August 11, 2015. 80 FR 48004.
Most recently, the December 2016 Conversion Factor Final Rule,
published and effective on December 29, 2016, translated the EF-based
standards to UEF-based standards for certain classes of consumer water
heaters, which are shown in Table IV.1. Although the classes of
consumer water heaters with UEF-based standards have limitations on the
stored volume, as discussed in that final rule, the standards
established in EPCA do not place any limitation on the storage volume
of consumer water heaters. Therefore, the original standards
established by EPCA in terms of EF remain applicable to all products
without UEF-based standards. 81 FR 96204, 96209-96211.
The 32 product classes covered in this final rule for which DOE has
currently established UEF-based standards are summarized in Table IV.1.
The product classes without UEF-based standards, for which EF-based
standards from EPCA apply, are shown in Table IV.2.
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[[Page 37807]]

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

[[Page 37808]]

UEF standard should result in a new product class. The commenter urged
DOE to immediately initiate a new rulemaking to address appropriate
standards levels or the new product classes, if established. (CA IOUs,
No. 1175 at p. 5)
In response to the CA IOUs, DOE originally established these
product classes in the 2016 Conversion Factor Final Rule. 81 FR 96204,
96210. At this time, DOE does not have sufficient data to perform an
analysis of costs versus benefits of subjecting these products to
standards of the same stringency as the amended standards proposed in
the July 2023 NOPR. While these products may not have performance-
related ``features'' distinguishing them from currently covered
products, these models come in different capacities than the products
for which DOE has already established UEF-based standards. As has been
observed in DOE's teardown analyses and has been indicated by comments
from manufacturers, the applicability of efficiency-improving design
options is often predicated upon the size or capacity of the water
heater; therefore, at this time, the capacities of these products do
appear to justify separate standards. However, should future product
designs demonstrate that the same efficiency-improving design options
are equally as applicable for these capacities, DOE would consider the
need for distinguishing these product classes by evaluating whether
separate standards are justified for these capacities in a future
standards rulemaking (see 42 U.S.C. 6295(q)(1)(B)).
a. Circulating Water Heaters
In the June 2023 TP Final Rule, DOE established a definition for
``circulating water heater'' in 10 CFR 430.2, and also established test
procedures to determine the UEF of these types of water heaters. 88 FR
40406. In the July 2023 NOPR, DOE identified three potential classes of
circulating water heater based on fuel type and input ratings derived
from instantaneous water heater definitions in EPCA at 42 U.S.C.
6291(27), which are shown in 88 FR 49058, 49077.
Table IV.3, and proposed their addition to the definitions found at
10 CFR 430.2. 88 FR 49058, 49077.
[GRAPHIC] [TIFF OMITTED] TR06MY24.015

BILLING CODE 6450-01-C
As discussed in the June 2023 TP Final Rule, DOE had at that time
determined that circulating water heaters with input ratings below
200,000 Btu/h (for gas-fired), 210,000 Btu/h (for oil-fired), or 12 kW
(for electric) met the definitional criteria for instantaneous consumer
water heaters. As such, these products were to be subject to the
applicable energy conservation standards; however, DOE previously
provided an enforcement policy for circulating water heaters.\30\
Because an amended test procedure that includes new provisions for
testing circulating water heaters was recently finalized in the June
2023 TP Final Rule, DOE proposed in the July 2023 NOPR to establish
updated UEF standards that reflect the new test method and requested
feedback on the proposed standards. In response to the July 2023 NOPR,
DOE received comments that largely suggested that circulating water
heaters are storage-type water heaters. As noted in section III.B, on
December 27, 2023, therefore, DOE published the December 2023 SNOPR
that proposed to reclassify these products as configurations of
storage-type water heaters, thus proposed that separate product classes
for circulating water heaters are not required. 88 FR 89330.
---------------------------------------------------------------------------

\30\ Prior to the June 2023 TP Final Rule, DOE became aware of
gas-fired instantaneous water heaters meeting the definition of
consumer water heaters which operated differently than those DOE had
previously considered in test procedure rulemakings. On September 5,
2019, DOE issued an enforcement policy for consumer water heaters
meeting the definition of gas-fired ``circulating water heater'' as
described in said enforcement policy in which DOE stated that it
would not seek civil penalties for failing to certify these
products, or if these products failed to comply with applicable
standards, on or before December 31, 2021. The June 2023 TP Final
Rule has since addressed this issue by establishing test procedures
to determine UEF ratings for circulating water heaters.
---------------------------------------------------------------------------

A ``circulating water heater'' is currently defined at 10 CFR 430.2
as an ``instantaneous or heat pump-type water heater that does not have
an operational scheme in which the burner, heating element, or
compressor initiates and/or terminates heating based on sensing flow;
has a water temperature sensor located at the inlet or the outlet of
the water heater or in a separate storage tank that is the primary
means of initiating and terminating heating; and must be used in
combination with a recirculating pump and either a separate storage
tank or water circulation loop in order to achieve the water flow and
temperature conditions recommended in the manufacturer's installation
and operation instructions.''
As described in the December 2023 SNOPR, circulating water heaters
contain very little to no water on their own (i.e., are ``tankless''),
but, as was determined in the June 2023 TP Final Rule, require a
separate volume of water in order to function properly when installed
in the field. In that rulemaking, circulating water heaters were
designated as instantaneous-type water heaters because of the minimal
storage volume contained within the product. However, comments received
in response to the July 2023 NOPR led DOE to reevaluate circulating
water heaters and propose in the December 2023 SNOPR to classify them
as storage-type water heaters because they necessarily operate in
tandem with a stored volume of water; hence, the circulating water
heater and its separate tank or recirculation loop must be

[[Page 37809]]

treated as one system. When considering the entire system--the
circulating water heater plus the stored water volume required for its
operation in the field--these water heaters are operationally very
similar to storage-type water heaters and, as a result, DOE had
tentatively determined that it is appropriate to classify them as such
under its regulations. 88 FR 89330, 89333. The December 2023 SNOPR
proposed the following revised definition for circulating water
heaters:
``Circulating water heater means a water heater that does not have
an operational scheme in which the burner, heating element, or
compressor initiates and/or terminates heating based on sensing flow;
has a water temperature sensor located at the inlet or the outlet of
the water heater or in a separate storage tank that is the primary
means of initiating and terminating heating; and must be used in
combination with a recirculating pump to circulate water and either a
separate storage tank or water circulation loop in order to achieve the
water flow and temperature conditions recommended in the manufacturer's
installation and operation instructions. Paired with a separate storage
tank, a circulating water heater constitutes a storage-type water
heater.''
88 FR 89330, 89339.
CEC, BWC, NEEA, NYSERDA, ASAP et al., and A.O. Smith expressed
support for DOE's tentative determination that circulating water
heaters be considered storage-type water heaters and subject to the
appropriate standards. (CEC, No. 1412 at pp. 1-2; BWC, No. 1413 at p.
1; NEEA, No. 1414 at p. 2; NYSERDA, No. 1406 at p. 2; ASAP et al., No.
1407 at pp. 1-2; A.O. Smith, No. 1411 at p. 2) NEEA and ASAP et al.
noted that, compared to other storage-type water heaters, circulating
water heaters do not provide any additional utility or performance-
related features that would warrant a separate product class. (NEEA,
No. 1414 at p. 2; ASAP et al., No. 1407 at pp. 1-2) NEEA and A.O. Smith
commented that defining circulating water heaters as storage-type will
address concerns regarding these products potentially being used as a
circumvention pathway for more stringent storage-type standards. (NEEA,
No. 1414 at p. 2; A.O. Smith, No. 1411 at p. 2) A.O. Smith added that
this will provide more business certainty. (A.O. Smith, No. 1411 at p.
2)
DOE specifically requested comment and information on whether gas-
fired circulating water heaters could offer the same utility as gas-
fired instantaneous water heaters. 88 FR 89330, 89334. DOE sought to
understand whether gas-fired circulating water heaters could be a
potential loophole to gas-fired instantaneous water heater standards
enforcement after receiving comments in response to the NOPR
identifying such a possibility.
BWC agreed with DOE that gas-fired circulating water heaters would
not be direct substitutes for gas-fired instantaneous water heaters,
indicating that gas-fired circulating water heaters as defined in the
December 2023 SNOPR are better suited towards providing large volumes
of hot water in short periods of time and gas-fired instantaneous water
heaters for lengthier periods of time. (BWC, No. 1413 at p. 3) Rheem
supported DOE's tentative determination that circulating water heaters
do not provide the same consumer utility as gas-fired instantaneous
water heaters. Rheem added that though they do not currently exist on
the market, the combination of the non-flow-activated operational
scheme, storage tank or recirculation loop requirement, and input rate
limits consistent with other storage-type water heaters present in
DOE's definition ensures that any future gas-fired circulating water
heaters would not serve as direct replacements for gas-fired
instantaneous water heaters. (Rheem, No. 1408 at p. 2) A.O. Smith
agreed with DOE's tentative determination that gas-fired circulating
water heaters do not provide the same consumer utility as gas-fired
instantaneous water heaters. (A.O. Smith, No. 1411 at p. 6) CEC noted
that circulating water heaters provide different utilities from
instantaneous water heaters and experience thermal standby losses more
than a typical non-circulating storage water heater due to plumbing
acting as a storage volume for a significant volume of hot water. (CEC,
No. 1412 at p. 3) ASAP et al. agreed with DOE's tentative determination
that gas-fired circulating water heaters do not provide the same
consumer utility as gas-fired instantaneous water heaters due to the
fact that gas-fired instantaneous water heaters utilize flow-activated
control schemes and larger burners (compared to gas-fired circulating
water heaters) in order to meet demand on a continuous basis, whereas
gas-fired circulating water heaters must operate with a separate stored
volume of hot water. (ASAP et al., No. 1407 at p. 2)
Rinnai agreed with DOE that gas-fired circulating water heaters do
not provide the same utility as gas-fired instantaneous water heaters.
Rinnai also stated that gas-fired circulating water heaters do not
provide consumers with the same features, energy efficiency and reduced
emissions benefits as gas-fired instantaneous water heaters at the
proposed UEF levels. Rinnai reiterated its comments made in response to
the July 2023 NOPR that UEFs of 0.80 to 0.81 result in increased energy
savings and reduction of CO<INF>2</INF> emissions in comparison with
the levels gas-fired circulating water heaters would be subject to as
gas-fired storage water heaters. Thus, Rinnai arrived at a different
conclusion from DOE and claimed that there is not a sufficient basis
for allowing gas-fired circulating water heaters to be held to a lower
UEF standard than other consumer products and requested that DOE
instead establish the more stringent standards proposed in the July
2023 NOPR. (Rinnai, No. 1415 at pp. 1-2)
As discussed in section IV.A.1.c of this document, DOE has found
sufficient justification in accordance with the provisions of EPCA to
establish separate standards for storage-type and instantaneous-type
water heaters.
Rheem, however, noted an additional concern that circulating water
heaters can be paired with any size storage tank in the field, and that
there is still a concern that circulating water heaters certified to a
lower capacity energy conservation standard would be installed with
higher capacity storage tanks where higher energy conservation
standards would be required. Because of this, Rheem recommended DOE
establish separate energy conservation standards for circulating water
heaters, but at levels consistent with the higher capacity energy
conservation standards. In its recommendation, Rheem showed that the
standards equations for larger storage-type product classes (i.e., gas-
fired storage water heaters 55-100 gallons, and electric storage water
heaters 55-120 gallons) would apply to both circulating water heaters
and their analogous traditional storage-type water heaters. (Rheem, No.
1408 at pp. 2-3)
DOE understands Rheem to be suggesting that, in the case that a
circulating water heater is designed and marketed to be paired with
multiple volumes of storage tanks in the field, it is useful for the
rating to reflect larger storage volumes. However, DOE notes that the
size of the separate storage tank that the product is tested with (in
accordance with section 4.10 of the test procedure) results in the
effective storage volume of the circulating water heater, which, for
most types of circulating water heaters will be 80 to 120 gallons. This
already results in circulating water heaters being held to the same
standards as larger storage water heaters. The only exception to this
is electric heat pump circulating

[[Page 37810]]

water heaters, which are paired with smaller tanks. Separate storage
tank pairings are discussed further in section V.D.2 of this document.
Additionally, the commenter does not provide evidence as to how
different standards for circulating water heaters would be justified
under the provisions of EPCA.
After reviewing these comments DOE has concluded that circulating
water heaters do not have any characteristics which justify separate
standards under the provisions of EPCA at 42 U.S.C. 6295(q)(1). DOE has
determined not to create separate product classes for circulating water
heaters.
To accomplish this, in the December 2023 SNOPR DOE had proposed an
addition to the definition that stated, ``Paired with a separate
storage tank, a circulating water heater constitutes a storage-type
water heater.'' 88 FR 89330, 89335.
Multiple stakeholders raised concern that DOE's proposed revised
definition for ``circulating water heater'' seemingly implies that
circulating water heaters are only storage-type water heaters if they
are paired with a separate storage tank. These commenters--NEEA, ASAP
et al., the CA IOUs, CEC, A.O. Smith and NYSERDA--all indicated that
circulating water heaters paired with a circulating loop also
constitute storage-type water heaters. (NEEA, No. 1414 at p. 3; ASAP et
al., No. 1407 at p. 2; CA IOUs, No. 1409 at pp. 1-2; CEC, No. 1412 at
p. 2; A.O. Smith, No. 1411 at pp. 4-5; NYSERDA, No. 1406 at p. 2)
NEEA requested that DOE define circulating water heaters as
constituting storage-type water heaters regardless of the configuration
in which they are sold or installed. (NEEA, No. 1414 at p. 3) ASAP et
al. encouraged DOE to clarify the proposed definition for circulating
water heaters so that it is clear all circulating water heaters,
whether paired with a separate storage tank or recirculation loop,
would be considered storage-type water heaters. (ASAP et al., No. 1407
at p. 2)
The CA IOUs also stated that excluding mention of circulation loops
would be inconsistent with the earlier definitional requirements
indicating that they must be paired with either a separate storage tank
or a water circulation loop and recommend that DOE modify the
definition as ``Paired with a separate storage tank or circulation
loop, a circulating water heater constitutes a storage-type water
heater.'' (CA IOUs, No. 1409 at pp. 1-2)
CEC provided similar statements, adding that the exclusion of
pairings with water circulation loops may become a loophole exploited
by manufacturers. CEC recommended that DOE modify the definition to
simply state that ``a circulating water heater constitutes a storage-
type water heater'' to avoid potential misreading. (CEC, No. 1412 at p.
2)
A.O. Smith recommended DOE remove the phrase ``paired with'' from
the statement ``paired with a separate storage tank a circulating water
heater constitutes a storage-type water heater'' in the definition for
circulating water heater to avoid implying that only circulating water
heaters that come with a manufacturer-specified or supplied tank would
be considered circulating water heaters. In place of this phrasing,
A.O. Smith suggested DOE incorporate the definition for a ``water
heater requiring a storage tank'' currently outlined in section 1.9 of
appendix E to subpart B into Sec. 430.2 and reference this definition
in the circulating water heater definition to ensure clarity. A.O.
Smith commented that, given the input capacity limits placed on
circulating water heaters in their respective definitions, a
recirculation loop without the use of a storage tank is unlikely to be
an applicable configuration in the residential context. Therefore, A.O.
Smith recommended DOE remove the term ``either'' and the phrase ``or
water recirculation loop'' from the circulating water heater definition
proposed in the December 2023 SNOPR. (A.O. Smith, No. 1411 at pp. 4-5)
NYSERDA recommended that DOE update the definition for circulating
water heater to read as follows: ``When paired with a separate storage
tank or as part of a water circulation loop, a circulating water heater
constitutes a storage-type water heater''. (NYSERDA, No. 1406 at p. 2)
In response to these requests for further clarification, DOE agrees
with most commenters that circulating water heaters would constitute
storage water heaters whether they are paired with a tank or a
recirculation loop. The loop serves to store hot water in pipes instead
of in a tank. In both cases, the product does not function properly
unless the hot water can be maintained outside of the water heater
prior to delivery at a fixture.
While A.O. Smith suggested that a circulating water heater be
defined as a ``water heater requiring a storage tank,'' this is not
necessarily reflective of field usage to the extent that it can be used
to define the product at 10 CFR 430.2. Numerous other comments indicate
that a circulating water heater can also function with a recirculation
loop. DOE has found examples of gas-fired instantaneous water heaters
with input rates that modulate as low as 15,000 Btu/h and can be
outfitted with recirculation loops in residential homes. While these
specific products are not circulating water heaters because they have
flow-activated control schemes and do not explicitly require a separate
volume of stored hot water to function, they do demonstrate that it is
possible for gas-fired products with input rates lower than 75,000 Btu/
h to be used in conjunction with a recirculation loop and no tank.
Circulating water heaters are treated as ``water heaters requiring
a storage tank'' in appendix E for the purpose of conducting the test
procedure because they are not sold with a tank. The appendix E test
procedure refers to ``water heaters requiring a storage tank'' in
section 1.19 order to provide instruction on how to set up such a water
heater with a representative volume of stored water. Therefore, DOE is
not amending 10 CFR 430.2 to define a ``water heater requiring a
storage tank'' because this terminology has limited application to the
test setup instructions in appendix E only. DOE is also not
incorporating this terminology in the definition of ``circulating water
heater'' so as not to contradict how these products can be designed,
marketed, and used in the field.
After considering the suggestions provided by interested parties,
DOE is amending the definition of ``circulating water heater'' at 10
CFR 430.2 to read as:
Circulating water heater means a water heater that does not have an
operational scheme in which the burner, heating element, or compressor
initiates and/or terminates heating based on sensing flow; has a water
temperature sensor located at the inlet or the outlet of the water
heater or in a separate storage tank that is the primary means of
initiating and terminating heating; and must be used in combination
with a recirculating pump to circulate water and either a separate
storage tank or water circulation loop in order to achieve the water
flow and temperature conditions recommended in the manufacturer's
installation and operation instructions. A circulating water heater
constitutes a storage-type water heater.
The December 2023 SNOPR had also proposed to amend the definitions
of the three different fuel types of circulating water heater to align
with the re-classification of these products as storage water heaters.
88 FR 89330, 89339.
CA IOUs stated that specifying the volume of stored water per 4,000
Btu/h of input in these definitions is unnecessary because circulating
water

[[Page 37811]]

heaters are already defined as storage-type water heaters and
recommended that DOE remove this requirement from the definitions of
electric, gas-fired and oil-fired circulating water heaters as proposed
in the December 2023 SNOPR. (CA IOUs, No. 1409 at p. 2)
DOE also agrees with the CA IOUs' suggestion to revise the
definitions for the different types of circulating water heaters. As
discussed in section III.B, these additional definitions serve mainly
to clarify the input rate cutoffs to distinguish these products from
commercial water heaters. DOE is amending these definitions to read as:
Electric circulating water heater means a circulating water heater
with an input of 12 kW or less (including heat pump-only units with
power inputs of no more than 24 A at 250 V).
Gas-fired circulating water heater means a circulating water heater
with a nominal input of 75,000 Btu/h or less.
Oil-fired circulating water heater means a circulating water heater
with a nominal input of 105,000 Btu/h or less.
In the December 2023 SNOPR DOE requested comment on what the
implications to industry might be if circulating water heaters were to
be treated as storage water heaters. 88 FR 89330, 89335. In response,
several commenters agreed that DOE's analysis for amended standards of
storage-type water heaters is still representative if circulating water
heaters are included in these product classes.
CEC agreed with DOE that the definition of circulating water heater
as proposed in the December 2023 SNOPR would not change the results of
the life-cycle cost, national impact, and other downstream analyses,
stating that the proposed changes would not cause DOE's analysis to
become unrepresentative and agreeing that no additional analysis is
necessary. (CEC, No. 1412 at p. 2) The CA IOUs stated that there are
few to no shipments of consumer water heaters meeting the definition of
``circulating water heater'' as proposed in the December 2023 SNOPR. CA
IOUs stated that DOE may therefore maintain its July 2023 NOPR analyses
with respect to storage-type water heaters and apply the associated
proposed standards to circulating water heaters. (CA IOUs, No. 1409 at
p. 1) NYSERDA and ASAP et al. stated their agreement with DOE's
assessment that, because DOE has not identified consumer water heaters
on the U.S. market that qualify as circulating water heaters,
analytical results from the July 2023 NOPR remain representative and do
not need to be updated due to changes proposed in the December 2023
SNOPR. (NYSERDA, No. 1406 at p. 2; ASAP et al., No. 1407 at p. 3) ASAP
et al. added that, if introduced, circulating water heaters would
likely have similar cost and usage characteristics to existing storage-
type consumer water heaters. (ASAP et al., No. 1407 at p. 3)
Rinnai, however, requested that DOE clarify the justification for
amending the definition of products that do not currently exist on the
market. (Rinnai, No. 1415 at p. 1) BWC agreed with DOE that circulating
water heaters as defined in the June 2023 TP Final Rule are not
deployed in residential applications. (BWC, No. 1413 at p. 1) BWC
agreed with DOE that there are no consumer products that meet the
definition of ``circulating water heater'' as proposed in the December
2023 SNOPR and requested that DOE clarify how it determined that these
products would have similar cost and use profiles as storage-type water
heaters. (BWC, No. 1413 at p. 2)
In the December 2023 SNOPR the Department had erroneously stated
that there are no longer heat pump circulating water heaters available
on the market (see 88 FR 89330, 89333) due to changes in a
manufacturer's website. Product literature for these models exists and
has been added to the docket for this rulemaking. In addition to
stakeholder comments, this literature demonstrates the use of these
products in a manner similar to storage-type water heaters. Shipments
of these products, though they are fewer than those of traditional
storage-type water heaters, are not zero. These products are included
in historical data on heat pump water heater shipments as they would
meet efficiency level 1 for small electric storage water heaters. Hence
DOE's analysis does include circulating heat pump water heaters as
storage-type water heaters.
b. Low-Temperature Water Heaters
As stated previously in section III.B of this document, in the June
2023 TP Final Rule, DOE established the following definition for ``low-
temperature water heater'' in 10 CFR 430.2:
``Low-temperature water heater'' means an electric instantaneous
water heater that is not a circulating water heater and cannot deliver
water at a temperature greater than or equal to the set point
temperature specified in section 2.5 of appendix E to subpart B of this
part when supplied with water at the supply water temperature specified
in section 2.3 of appendix E to subpart B of part 430 and the flow rate
specified in section 5.2.2.1 of appendix E to subpart B of part 430.
DOE also established test procedures to determine the UEF of these
types of water heaters. 88 FR 40406. Regarding low-temperature water
heaters, DOE notes that they are covered as electric instantaneous
water heaters. As discussed in section IV.C of this document, DOE is
not considering updated standards for electric instantaneous water
heaters in this rulemaking because it was unable to determine
technologies associated with increased efficiencies in these products.
Therefore, although low-temperature water heaters are tested in a
slightly different manner from other electric instantaneous water
heaters, DOE is maintaining low-temperature water heaters within the
broader electric instantaneous water heater product class as proposed
in the July 2023 NOPR and is not establishing a separate class for
them.
c. Storage-Type and Instantaneous-Type Product Classes
In the March 2022 Preliminary Analysis, DOE addressed comments
received in response to the May 2020 RFI that suggested that DOE should
consider eliminating the separate product classes for instantaneous
water heaters. For the preliminary analysis, DOE analyzed separate
classes for instantaneous water heaters, but sought feedback from
stakeholders on whether storage-type and instantaneous-type water
heater product classes should be combined. (See section 2.3 of the
preliminary TSD.)
In response to the March 2022 Preliminary Analysis, DOE received
comments indicating that storage and instantaneous product classes
should not be combined because each type of product provides unique
utility to consumers and combining their product classes would lead to
UEF standards that are not technologically feasible. DOE tentatively
agreed with these comments, which were addressed in the July 2023 NOPR,
and maintained separate product classes for storage and instantaneous
water heaters for its analyses and proposed standards. 88 FR 49058,
49078.
In response to the July 2023 NOPR, BWC agreed with DOE's tentative
determination to maintain separate product classes for instantaneous-
type and storage-type water heaters because they offer distinct
utilities to consumers in both their designs and capabilities. (BWC,
No. 1164 at p. 14) Rheem also agreed with DOE's tentative determination
to maintain separate product classes for storage-type and
instantaneous-type water heaters given that these water heaters have
different

[[Page 37812]]

utilities and operational characteristics which necessitate separate
consideration. (Rheem, No. 1177 at p. 11) However, Rheem noted that the
proposed standards for electric instantaneous water heaters with 2 or
more gallons of rated storage volume are significantly higher than the
standards proposed for very small electric storage water heaters
despite these products all having similar under-sink or commercial
applications. (Rheem, No. 1177 at pp. 13-14) Rheem also requested
clarification on whether rated or effective storage volume should be
used when determining the storage-type and instantaneous-type water
heater classification. (Rheem, No. 1177 at p. 2)
NEEA stated that, while it does not disagree with DOE's conclusion
to create separate standards for gas-fired storage and gas-fired
instantaneous water heaters, standby energy losses should not be
considered in a determination of product class as they do not
constitute a performance-related feature. NEEA noted that in DOE's
decision to set separate product classes for storage and tankless water
heaters, DOE stated that ``storage water heaters have associated
standby energy losses that instantaneous water heaters do not.'' (NEEA,
No. 1199 at p. 10)
AWHI, however, urged DOE to investigate combining gas-fired
instantaneous and gas-fired storage water heater categories in a future
rulemaking such that the same minimum UEF requirements would apply to
both product classes. (AWHI, No. 1036 at pp. 3-4)
After reviewing the comments received on the July 2023 NOPR, DOE
has determined that different product classes and standards for storage
and instantaneous water heaters remain necessary at this time, and DOE
is not combining them in this rulemaking. As stated in the July 2023
NOPR, storage and instantaneous water heaters offer distinct utilities
to a consumer. For example, instantaneous water heaters provide a
continuous supply of hot water, up to the maximum flow rate, while
storage water heaters are often better suited to handle large initial
demands for hot water as opposed to continuous draws. 88 FR 49058,
49078. These products are, therefore, designed differently to suit
these different needs. As a result of the design differences (i.e., the
storage of hot water in storage-type water heaters), storage-type water
heaters incur standby losses to the surrounding ambient air.
In response to Rheem, DOE notes that although electric
instantaneous water heaters with 2 or more gallons of rated storage
volume and very small electric storage water heaters may be used for
many of the same under-sink-type applications, each still offers
distinct utility to the consumer. Per their definitions at 10 CFR
430.2, electric instantaneous water heaters will necessarily have a
higher input rate to volume ratio, and thus will be capable of
operating on a more continuous basis than very small electric storage
water heaters within the flow rate expectations of these applications.
DOE expects these products to have design differences because the scope
of coverage is limited to products with electric input rates no greater
than 12 kW (see section III.B of this document); therefore, electric
instantaneous water heaters cannot contain more than approximately 10
gallons of hot water,\31\ whereas very small electric storage water
heaters can contain up to 20 gallons.
---------------------------------------------------------------------------

\31\ 12 kW is approximately 41,000 Btu/h. Instantaneous-type
water heaters contain no more than one gallon of water per 4,000
Btu/h of input, resulting in a maximum of about 10 gallons for an
electric instantaneous water heater with 12 kW of input.
---------------------------------------------------------------------------

In response to NEEA, DOE does not consider standby losses to be a
performance-related feature; rather, the performance-related features
are as previously described and the standby losses create the
difference in energy consumption between storage-type and
instantaneous-type water heaters that justifies different standard
levels for the two types of products. In accordance with 42 U.S.C.
6295(q), DOE has concluded that separate standards for storage-type and
instantaneous-type water heaters are justified not only because these
types offer distinct utilities to the consumer, but also because the
design necessary to provide this utility (i.e., a stored volume of
water for storage-type water heaters) affects the UEF rating.
EPCA defines instantaneous-type water heaters as units which heat
water but contain no more than one gallon of water per 4,000 Btu per
hour of input. (42 U.S.C. 6291(27)(B)) Based on the specific use of the
term ``contain,'' the rated storage volume, which reflects the amount
of water that can be contained, should be used when determining the
storage-type and instantaneous-type water heater classification. For
circulating water heaters, which operate in a system that contains a
stored volume of hot water, this is the rated storage volume of the
separate storage tank (see section IV.A.1.a of this document).
d. Gas-Fired Water Heaters
Gas-fired water heaters operate by burning fuel to generate heat,
which is then transferred from the products of combustion (i.e., flue
gases) to the water using a heat exchanger before the flue gases are
expelled through venting to the outside. Regardless of efficiency, gas-
fired water heaters operate in the same manner, by transferring heat to
potable water for use within residences. Any combustion heat not
transferred to the water is lost to the environment as waste heat,
primarily through the exhaust venting. The difference between high-
efficiency water heaters and low-efficiency water heaters is the amount
of heat that is lost to the environment. Condensing gas-fired water
heaters are able to transfer more heat from the flue gases to the
water, which results in less heat being lost to the environment. As a
result, flue gases exhausted from a condensing gas-fired water heater
are typically less than 130 [deg]F, while flue gases exhausted to the
environment from a non-condensing gas-fired storage water heater may be
in the 300-400 [deg]F range or even higher. Condensing gas-fired water
heaters are able to extract more heat due to improved heat exchanger
designs.
For example, A.O. Smith notes that their high-efficiency condensing
gas storage water heaters ``are built similarly to standard [non-
condensing] gas tank water heaters with some modifications for higher
efficiency and performance.'' \32\ More specifically, A.O. Smith notes
that their condensing models ``are built with [a] helical internal heat
exchanger that keeps combustion gasses in the tank longer to transfer
more heat into the water, increasing efficiency and reducing operating
cost.'' \33\
---------------------------------------------------------------------------

\32\ See A.O. Smith's Info Center on Gas Tank High Efficiency
Water Heaters, available at <a href="http://www.hotwater.com/info-center/gas-water-heaters/gas-tank-high-efficiency.html">www.hotwater.com/info-center/gas-water-heaters/gas-tank-high-efficiency.html</a> (last accessed Apr. 3, 2024).
\33\ Id.
---------------------------------------------------------------------------

On December 29, 2021, DOE published a final interpretive rule
(``December 2021 Venting Interpretive Final Rule'') reinstating its
long-standing interpretation that the heat exchanger technology and
associated venting 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. Throughout this rulemaking, some
commenters have urged DOE to reconsider the conclusions reached in the
December 2021 Venting Interpretive Final Rule, and in the July 2023
NOPR, DOE considered these comments but

[[Page 37813]]

again concluded that heat exchanger technology and venting do not
constitute any of the characteristics upon which DOE has the authority
to establish separate product classes under EPCA. 88 FR 49058, 49079.
i. General Comments
Earthjustice supported DOE's tentative determination in the NOPR
that separate product classes for condensing and non-condensing
products are not warranted, and stated that this is consistent with
DOE's determinations in the December 2021 Venting Interpretive Rule.
(Earthjustice, No. 1189 at pp. 2-3)
In response to comments that DOE should establish separate product
classes for condensing and non-condensing gas-fired water heaters, DOE
notes that when evaluating and establishing energy conservation
standards, DOE is required to establish product classes based on: (1)
the type of energy used; and (2) capacity or other performance-related
feature which other products within such type (or class) do not have
and that DOE determines justify a different standard. In making a
determination of whether a performance-related feature justifies a
different standard, DOE must consider factors such as the utility to
the consumer of the feature and other factors DOE determines are
appropriate. (42 U.S.C. 6295(q))
ii. Performance-Related Feature Under 42 U.S.C. 6295(q)(1)(B)
DOE received several comments on whether non-condensing technology
should be considered a performance-related feature for the purpose of
establishing a separate product class under 42 U.S.C. 6295(q). For
example, Rinnai stated that, pursuant to section 6295(q) of EPCA, DOE
is required to issue higher or lower energy conservation standards for
non-condensing and condensing gas-fired instantaneous water heaters
because the products have distinct capacities and performance-related
features that provide consumer utility and justify separate standards.
(Rinnai, No. 1186 at p. 15) Rinnai asserted that DOE's finding in the
July 2023 NOPR that non-condensing technology does not constitute a
performance-related feature as prescribed by EPCA at 42 U.S.C.
6295(q)(1) exceeds DOE's authority because it errs in limiting the
analysis to non-condensing technology, ignoring features associated
with non-condensing technology such as ease of installation and reduced
installation cost, and because it interprets ``utility'' too narrowly
by only considering the impact the technology has on consumer's
operation of or interaction with the appliance. (Rinnai, No. 1186 at
pp. 12-14) Similarly, TPPF commented that DOE should set a separate
standard for condensing water heaters because, according to TPPF, a
non-condensing water heater serves a separate consumer utility because
it is more compact, easier to install, and requires less maintenance.
TPPF asserted that the consumer utility of a design is not limited to
that which is accessible to the layperson or based upon the consumer's
operation of or interaction with the product, even the ease of
installation of a non-condensing gas-fired instantaneous water heater
should be considered a consumer utility. (TPPF, No. 1153 at pp. 3-4)
ONE Gas asserted that minimizing installed cost is a distinct
product utility. (ONE Gas, No. 1200 at p. 5) ONE Gas asserted that the
availability of products that can serve as a ``drop-in'' replacement
for consumers who already have non-condensing products without
modifications to the installation space is a consumer utility. ONE Gas
also asserted that the ability of ``drop-in'' replacements to restore
water heating ability without delays associated with switching to other
products is a consumer utility. (ONE Gas, No. 1200 at p. 5) ONE Gas
stated that the December 2021 Venting Interpretive Final Rule did not
consider the technical and economic burdens of installation when it
concluded that product classes based on combustion system types (i.e.,
non-condensing and condensing) did not provide distinct customer
utility among combustion appliances. (ONE Gas, No. 1200 at p. 6) ONE
Gas reiterated its comments that DOE's determination that condensing/
non-condensing combustion and power/atmospheric venting do not provide
unique customer utility is unreasonable and that DOE is required to
separately consider minimum energy standards for ``covered products
that [have] two or more subcategories'' under EPCA at 42 U.S.C.
6295(q)(1). (ONE Gas, No. 1200 at p. 8)
With respect to commenters' statements that venting associated with
non-condensing technology itself is a performance-related feature that
justifies a separate product class, 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 (whether condensing or noncondensing). As
such, assuming venting is a performance-related feature, it is a
feature that all gas-fired water heaters possess. As a result, it
cannot be the basis for a product class. See 42 U.S.C. 6295(q)(1)(B).
Thus, in order to meet the product class requirements in 42 U.S.C.
6295(q)(1)(B), these commenters are requesting DOE determine that a
specific type of venting is a capacity or other performance-related
feature.
A specific venting technology--including non-condensing venting--is
not a ``capacity or other performance related feature'' under 42 U.S.C.
6295(q)((1)(B). As discussed in the December 2021 final interpretive
rule, DOE has concluded that performance-related features are those
that a consumer would be aware of and would recognize as providing
additional benefits during operation of the covered product or
equipment. 86 FR 73947, 73955.
DOE also notes that almost every component of a covered product
could be broken down further by any of a number of factors. For
example, heat exchangers, which are used in a variety of covered
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 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-energy-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.
In this rule and many others, DOE has considered whether the
purported ``feature'' provides additional performance benefits to the
consumer during operation. 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

[[Page 37814]]

show that furnace fans with PSC motors offered some additional
performance 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 performance 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).
After reviewing comments from stakeholders provided in this
rulemaking, DOE has concluded that commenters have not pointed to any
additional performance benefits during operation offered by non-
condensing water heaters that use non-condensing venting as compared to
water heaters that use other types of venting. Instead, these
commenters generally cite compatibility with existing venting (i.e.,
convenience of installation) and other economic considerations as
reasons why non-condensing venting should be considered a performance-
related feature for the purposes of EPCA's unavailability provision. To
be sure, DOE considers installation costs in determining whether a
standard is economically justified. The costs of installing condensing
venting may, in certain installations, be substantial, and DOE accounts
for such costs in its analysis. See section IV.F.2 of this document.
But such installation costs are not a ``capacity or other performance-
related feature'' for purposes of section 6295(q).
DOE has determined, based on its own research as well as
information presented in stakeholder comments, that differences in cost
or complexity of installation between different methods of venting
(e.g., a condensing water heater versus a non-condensing water heater)
do not make specific methods of venting a performance-related feature
under 42 U.S.C. 6295(o)(4), so as to justify separating the products/
equipment into different product/equipment classes under 42 U.S.C.
6295(q)(1). 86 FR 73947, 73951 (Dec. 29, 2021).
iii. Whether Stakeholders Have Shown by a Preponderance of Evidence
That Standards Would Result in Unavailability
DOE received public comments in reference to the ``unavailability
provision'' found in EPCA, 42 U.S.C. 6295(o)(4), contending that if the
proposed amended standard for GIWH were adopted, it would eliminate
non-condensing GIWH from the market. DOE is not summarizing or
responding to these comments in this notice, as DOE continues to
consider these comments in informing DOE's decision on amended energy
conservation standards for GIWH.
iv. Proper Treatment of Economic Considerations
According to NPGA, APGA, AGA, and Rinnai, the proposed UEF
requirements for gas-fired storage water heaters would require new
venting requirements and other additional equipment even if the adopted
standards did not require condensing gas-fired storage water heaters.
Based on these proposed UEF requirements, NPGA, APGA, AGA, and Rinnai
asserted that DOE failed to understand the market for water heaters and
what differentiates consumer decisions, apparent in its discussion of
product classes in the July 2023 NOPR. NPGA, APGA, AGA, and Rinnai
further asserted that DOE's failure to separate product classes based
on relevant features preferred by consumers shows a fundamental market
misunderstanding, questioning DOE's capacity to regulate the market.
According to NPGA, APGA, and Rinnai, DOE continues to strain to show
that the consumer gains no utility from features associated with
condensing and non-condensing products, insisting that the design and
operation of the unit ``does not provide any utility to the consumer
that is accessible to the layperson, which is based upon the consumer's
operation of or interaction with the appliance;'' however, these
commenters stated, these design and installation issues are certainly
accessible to the consumer when choosing the appliance. (NPGA, APGA,
AGA, and Rinnai, No. 441 at pp. 2-3)
NPGA, APGA, AGA, Rinnai, and TPPF commented that DOE does not
capture what differentiates consumer decisions to purchase non-
condensing over condensing water heaters. DOE recognizes, however, that
purchase price, installation cost, and maintenance cost--factors which
some commenters suggested could be ``features'' of non-condensing
models that lead some consumer to pick these models over condensing
models--are relevant to consumer decision-making. Accordingly, DOE has
treated those variables as inputs to evaluate the costs and benefits to
consumers of standards requiring differing technologies. But as stated
previously, those factors, while relevant to consumer decision-making
and DOE's standard setting, are not ``features'' for purpose of
sections 6295(o)(4) or (q)(1)(B). As stated in the December 2021
Venting Interpretive Final Rule, the ``features'' DOE considers
separately pertain to those aspects of the appliance with which the
consumer interacts during the operation of the product (i.e., when the
product is providing its ``useful output'') and the utility derived
from those features during normal operation. 86 FR 73947, 73955. The
installation and purchase decision factors mentioned by commenters do
not affect the performance of the water heater and how a consumer uses
it, but instead impact the cost of owning and operating one.
Because DOE views the issues discussed here to be matters of cost,
the Department finds it appropriate under the statute to address these
issues through the rulemaking's economic analysis. 86 FR 73947, 73951
(Dec. 29, 2021). This interpretation is consistent with EPCA's
requirement for a separate analysis of economic justification for the
adoption of any new or amended energy conservation standard (see 42
U.S.C. 6295(o)(2)-(3); 42 U.S.C. 6313(a)(6)(A)-(C); 42 U.S.C. 6316(a)).
These costs are addressed in the LCC in section IV.F of this document.
v. Comparison to Ventless Clothes Dryers
Rinnai noted that, in the case of ventless clothes dryers, DOE
recognized consumer costs associated with venting as a basis for
establishing separate product classes. (Rinnai, No. 1186 at p. 11)
In response to Rinnai's discussion of ventless clothes dryers, DOE
notes that venting in the case of clothes dryers is different from
venting of gas-fired appliances, where combustion gases must be
exhausted outside of the home, and these differences are outlined in
the December 2021 Venting Interpretative Final Rule.
Venting for clothes dryers refers to the method of removal of
evaporated moisture from the cabinet space. Vented clothes dryers
exhaust this evaporated moisture from the cabinet outside of the home
whereas ventless clothes dryers instead use a closed-loop system with
an internal condenser to remove the evaporated moisture from the heated
air.

[[Page 37815]]

In the TSD accompanying a 2011 direct final rule pertaining to
residential clothes dryers, DOE explained that ventless clothes dryers
can be installed where vented dryers would be precluded due to
restrictions preventing any sort of vent from being installed, and thus
the Department noted that how a clothes dryer is vented is not simply
an issue of initial costs or a consumer choosing one product over
another.\34\ As discussed in the December 2021 Venting Interpretive
Final Rule, unlike consumers of ventless dryers, consumers facing the
prospect of replacing a non-condensing water heater with a condensing
water heater do have options available to either modify existing
venting or install a new venting system to accommodate a condensing
product, or to install a feasible alternative to have heated air or
water provided (i.e., an electric appliance); but in all cases, the
consumer would not be precluded from having access to heated water, a
result which is distinctly different from the one at issue in the
ventless clothes dryers example. 86 FR 73947, 73957. Condensing gas-
fired water heaters can still be installed in buildings where non-
condensing gas-fired water heaters currently are. This is because,
unlike the case of clothes dryers, both non-condensing and condensing
gas-fired water heaters use a vent--the difference in installation is
in the type of venting material and its cost.
---------------------------------------------------------------------------

\34\ Technical Support Document: Energy Efficiency Program for
Consumer Products and Commercial and Industrial Equipment:
Residential Clothes Dryers and Room Air Conditioners, pp. 3-6
(Available at: <a href="http://www.regulations.gov/document?D=EERE-2007-BT-STD-0010-0053">www.regulations.gov/document?D=EERE-2007-BT-STD-0010-0053</a>).
---------------------------------------------------------------------------

vi. Conclusion
For the reasons discussed in this section and in the December 2021
Final Interpretive Rule, DOE continues to find that there is no basis
for altering the Department's approach regarding the establishment of
product classes for gas-fired water heaters for this rulemaking.
e. Very Large Gas-Fired Storage Water Heaters
A.O. Smith identified that a product class for > 100 gallon gas-
fired storage water heaters with a non-condensing efficiency level is
likely to incentivize the circumvention of current condensing standards
for 55-100 gallon gas-fired storage water heaters and residential-duty
commercial gas-fired storage water heaters. (A.O. Smith, No. 1182 at p.
14) NYSERDA commented that a non-condensing-level standard for gas-
fired storage water heaters > 100 gallons would result in market
confusion and the possibility of circumventing residential-duty
commercial water heater standards, because residential-duty commercial
gas-fired storage water heaters may typically only be just over the
75,000 Btu/h input rate limit and could easily be converted to consumer
water heaters. (NYSERDA, No. 1192 at p. 6)
DOE notes that the non-condensing level for >100 gallon gas-fired
storage water heaters is simply a crosswalk of existing standards, and,
as discussed in section IV.C.2 of this document, DOE did not evaluate
more stringent standards for this product class in this rulemaking.
However, DOE understands the concerns from these stakeholders and
may consider evaluating amended standards for these product classes in
a future rulemaking.
f. Electric Storage Water Heaters
In response to the March 2022 Preliminary Analysis, DOE received
comments requesting that DOE establish separate product classes for
heat pump electric storage water heaters and electric resistance
storage water heaters, citing concern with expanding heat pump-level
standards for electric storage water heaters. DOE responded to these
comments in the July 2023 NOPR, tentatively determining that the
conclusions reached in the April 2010 Final Rule that separate classes
are not justified (see 75 FR 20112, 20135) remain valid and that heat
pump electric storage water heaters and electric resistance storage
water heaters do not warrant separate product classes as they do not
exhibit any unique performance-related features. 88 FR 49058, 49079-
49080.
In response to the July 2023 NOPR, DOE received additional comments
regarding the creation of separate product classes for heat pump
electric storage water heaters and electric resistance storage water
heaters. EEI asserted that DOE should create separate product classes
or require lower efficiency levels for electric resistance storage
water heaters rather than maintaining these technologies in the same
classes with heat pump water heaters, as this would allow newer
technologies at more economic price points a chance to meaningfully
compete in the marketplace and would, in turn, support the
Administration's climate and clean energy goals. EEI stated that the
proposed standards would cause a significant increase in efficiency for
existing electric resistance storage water heaters. (EEI, No. 1198 at
pp. 2-3) Earthjustice, however, stated that separate product classes
for heat pump and electric resistance storage water heaters are not
warranted, as the NOPR correctly determines. Earthjustice added,
specifically, that separate product classes would not be justifiable
under EPCA because heat pump and electric resistance water heaters
provide equivalent service to the end-user. (Earthjustice, No. 1189 at
pp. 1-2)
DOE agrees with EarthJustice and maintains its longstanding
position, outlined most recently in the July 2023 NOPR, that separate
product classes for heat pump and electric resistance water heaters are
not warranted under EPCA. DOE establishes separate product classes
based on two criteria: (1) fuel source; and (2) whether a type of
product offers a unique capacity or other performance-related feature
that justifies a different standard. (See 42 U.S.C. 6295(q)(1))
Heat pump electr

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