DOE Revisits Forced Electrification (Decarbonization) Rules re Non-condensing Furnaces, Water Heaters

By Mark Krebs -- August 1, 2019

“From time to time a statute gets written with a really good intention but reality does not follow that intention. That’s why we’re looking at these rules and regulations from a common-sense approach, we’re looking to get the best result we can.”

– DOE Secretary Rick Perry, quoted in Politico, July 16, 2019.

“According to Consumer Reports, the highest-ranked was an electric heat pump water with an average price of $1,200 (twice that of the runner-up gas water heater) and an average annual operating cost of $240. Second place was an apparently ordinary gas water heater with an average price of $600 and an average annual operating cost of $245.” (below)

On July 11, the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy (EERE) published a Notice of Proposed Rulemaking (NOPR) and request for comments on a petition by the natural gas industry (a.k.a. “Gas Industry Petitioners”) for safeguarding consumer access to non-condensing furnaces and water heaters.

This NOPR, signed by EERE’s top appointee (and IER alumnus) Daniel Simmons, signaled agreement with an interpretative rule recognizing the unique “features” of non-condensing appliances that would harm consumers if regulated out of existence.

Exactly how this factors in to the setting of future minimum efficiency standards is still to be determined. What is expected is separate rulemakings for non-condensing versus condensing appliances in separate dockets, eliminating a previous bias that all gas heat is the same.

The gas-industry petition sought to prevent the finalization of efficiency standards that would effectively ban the only kind of gas replacement appliances that most residential and commercial consumers can reasonably use: gas appliances that are compatible with the existing venting systems built into most existing buildings in which replacement products would need to be installed.

The issue raised by the petition does not really address appliance efficiency per se; nor the misuse of efficiency standards to force consumers to replace their existing gas appliances with electric alternatives via arbitrary “determinations” and analyses that are too difficult to lift let alone read. 

The petition was an attempt to make it as “simple as possible; but no simpler” to keep non-condensing equipment alternatives available in the market. That simple basis was the statutory illegality of banning an important consumer feature of allowing future furnace replacements to “perform” with existing (non-condensing) exhaust systems.

This primary strategy in no way minimizes the analytical travesties within DOE’s economic methodologies for forcing more stringent appliance minimum efficiency standards; it’s just that these much more complicated issues are secondary to the relatively simple statutory illegality of banning “features” for the purposes of this petition.

Technical/Historical Background

The Obama Administration’s DOE proposed and attempted to finalize several standards for gas appliances (furnaces, water heaters and boilers) that could only be achieved using what is called condensing combustion technology. Several of these are documented within Master Resources under Category Archives: Krebs, Mark. 

Contrary to boiler-plate “energy efficiency” rhetoric, standards like this weren’t designed to promote the sale of more efficient gas products. They’re designed to move the market to higher levels of electrification based upon a belief that electricity will soon be dominated by “clean” renewables.

Condensing appliances are basically incompatible with venting systems designed for non-condensing appliances utilized in most existing buildings.  Consequently, a minimum efficiency standard limiting the market to condensing appliances would leave many consumers without drop-in replacements for their existing non-condensing gas appliances when they eventually wear-out. 

In some cases, condensing products could be retrofitted into existing structures requiring new condensing venting systems (at significant expense). But in many cases, replacing a non-condensing furnace or water heater with a more efficient condensing version is not nearly as economically viable as the “energy efficiency” advocates portray. 

In a significant number of cases, the economic difficulties are simply insurmountable. It should also be noted that non-condensing furnaces and water heaters typically “share” a common venting system in existing buildings. Consequently, replacing one may “orphan” or “strand” the other; thus, imposing additional installation complications and expense.

On October 18, 2018, EERE was petitioned by Gas Industry Petitioner to provide an “interpretative rule” for safeguarding consumer access to non-condensing furnaces and water heaters. DOE/EERE’s first Notice of Proposed Rulemaking (NOPR) and request for public comments regarding this petition was published on November 1, 2018. 

It was subsequently met with an unexpected howl of protests by a cabal of self-described low-income consumer advocates, “energy efficiency” trade association, environmentalists, “Blue State” Attorney Generals (of NY, DC, IL, ME, MA, MN, NJ, OR, VT, and WA), etc. Interestingly, six of these AG’s are among the eight identified as having embedded “Special Assistant Attorneys General’s” funded by Michael Bloomberg’s State Energy & Environmental Impact Center (SEEIC).

Second NOPR

On July 11^h, 2019, DOE published a second NOPR and request for public comments to its proposed ruling regarding the petition. It too was met with vociferous opposition by the “usual suspects.”  For example:

• DOE releases rule that critics call ‘alarming’ [E&E News (subscription required)]
• DOE Gas Furnace & Water Heater Proposal Wastes Fossil Fuels (Natural Resources Defense Council)
• DOE gas furnace, water heater efficiency proposal will cost consumers billions, NGOs warn (Utility Dive)
• Latest DOE Actions on Appliance Standards Will Cost Consumers and Increase Carbon Emissions (American Council for an Energy-Efficient Economy)

According to the petition, DOE’s proposals for eliminating non-condensing gas appliances fundamentally violates the Energy Policy and Conservation Act of 1975 (EPCA at Section 325(o)(4)) because it eliminates an important “feature” of non-condensing equipment; the ability to easily and economically replace old, worn-out non-condensing equipment with new non-condensing equipment.

The reoccurring theme of the charges made by the “energy efficiency” advocates was that if DOE grants this petition, it will basically stop future minimum efficiency standards and consequently, deprive consumers of “the potential to save consumers and businesses over $100 billion on their utility bills by 2050.”[1] 

Additionally, virtually all these advocates cited a DOE Supplemental Notice of Proposed Rulemaking (SNOPR) from September 2016 that stated:

Tying the concept of ’feature‘ to a specific technology would effectively lock-in the current existing technology as the ceiling for product efficiency and eliminate DOE’s ability to address technological advances that could yield significant consumer benefits in the form of lower energy costs while providing the same functionality for the consumer.

The Gas Industry Petitioners also cited the same DOE September 2016 statement but with a different interpretation:

If we give non-condensing gas appliances a separate product class, we will never be able to get rid of them.

Yet this is exactly what happened for electric furnaces when it was decreed decades ago that there are only three types of furnaces; 1) gas, 2) oil and 3) electric resistance (per 42 U.S. Code § 6291 (23)). In making electric resistance furnaces a separate product class, EERE ensured (inadvertently or not) they could never be banned.

The fact is that DOE can always call for more stringent minimum efficiency standards for any type (or class) of gas or electric appliance (if done so objectively, transparently); if cost-effective..  Accordingly, the “energy efficiency” advocates’ opposition is incorrect that applying a separate product class would stop gas appliance energy efficiency “improvements.”

What these “energy efficiency” advocates really want is to wean consumers off the direct use of fossil fuels and on to electricity.  Why?  Because, someday, they rationalize, electricity generation will be dominated by “clean:” renewables. 

This was evidenced by their request for a thirty-day extension of the comment period to complete a study they commissioned. It was titled: Investigation of Installation Barriers and Costs for Condensing Gas Appliances.  This study was conducted by 2050 Partners; a California-based consultant whose specialty appears to be making the case for “deep decarbonization” through “beneficial electrification.”

Furthermore, the “energy efficiency” advocates fully recognize that granting the Gas Industry Petitioners a separate product class for non-condensing gas appliances would present a major roadblock for achieving its all-electric “clean energy” nirvana; at least though the route of minimum appliance efficiency regulations. 

And they’re essentially right. Therefore, they collectively came down on this petition like the proverbial “ton of bricks.”  However, such a ruling does not impact their remaining strategies for achieving the same objectives.  These include:

1. Building efficiency “model” codes & standards
2. Fossil fuel divestment and “keep it in the ground” campaigns
3.  Moratoriums on natural gas hook-ups for new buildings

Hook-Up Moratoriums

Regarding gas hook-up moratoriums, there were national moratoriums during the Ford Administration. (See Robert Bradley, October 2016.)  More recently, moratoriums have occurred in the Northeast U.S. As explained at MasterResource:

Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont now pursue decarbonization targets to reduce emissions 75-85 percent by 2050. These states’ “strategic electrification” policy calls for eliminating natural gas and propane from home and water heating applications by substituting electric appliances and heat pumps that can use wind and solar systems.

More moratoriums are presently in the works.  In California for example: Disasters Turn California Cities’ Attention to All-Electric Laws. On July 1, the Berkeley City Council voted unanimously to enact a moratorium banning gas connections in new construction effective January 1^t, 2020.  The local utility, Pacific Gas & Electric supported the ban, stating: “PG&E supports local government policies that promote all-electric new construction.” And no wonder; it massively increases their rate base while simultaneously providing regulatory cover. The adage “follow the money” applies here: Solar Company Sungevity Raises $1.5 Million For Nonprofit Partners.

All-Electric Water Heaters: Consumer Concern

To get an idea of what all-electric appliance mandates portends for average consumers, consider the November 2018 print edition of Consumer Reports that “rated” water heaters:

According to Consumer Reports, the highest-ranked was an electric heat pump water with an average price of $1,200 (twice that of the runner-up gas water heater) and an average annual operating cost of $240. Second place was an apparently ordinary gas water heater with an average price of $600 and an average annual operating cost of $245. 

According to my calculations, the simple payback for the electric heat pump relative to the gas water heater (per prices shown) would be 120 years ($600 divided by $5/year). Now consider similar economic fates for other household gas appliances via electrification.

Conclusions

DOE listened closely to all stakeholders and proceeding diligently on the behalf of consumers best interests by stating its intent to grant the Gas Industry Petitioners a separate product class for non-condensing gas appliances. These petitioners also asked DOE to withdraw its previous NOPR’s that would have effectively banned non-condensing appliances, but a willingness to proceed with that portion of the petition was not granted at that time. 

The reason given was that DOE would be revisiting these NOPR’s in the new light of separate product classes for non-condensing appliances. While DOE could theoretically have simply “cut to the chase” by issuing a Final Rule rather than a NOPR, granting both parts of the petition, this would have almost certainly engendered litigation that would further delay a conclusion of this petition.

While the “gas industry” expects that DOE will ultimately follow through with NOPR’s that address non-condensing appliances separately from condensing appliances, we should not count on it. Besides, more work is needed to debunk claims such as “the potential [for condensing appliances] to save consumers and businesses over $100 billion on their utility bills by 2050.”

Considering the increased cost for the added complexity of condensing technologies, plus the maintenance thereof, such technologies do not generally lead to investments with attractive paybacks; thus, the ostensible need for regulatory intervention to force the “correction” of ostensible market failures.” Unfortunately, such heavy-handed tactics usually result in “regulatory failures” along with determined attempts to deny the mere possibility of such failures.

However, it looks at last like this is changing; at least regarding Federal appliance efficiency standards. Further evidence of this occurred on July 17 via the Politico Morning Energy Newsletter in an article titled Perry calls efficiency moves ‘common sense’.  Excerpt:

From time to time a statute gets written with a really good intention but reality does not follow that intention. That’s why we’re looking at these rules and regulations from a common-sense approach, we’re looking to get the best result we can.

Comments are due by September 9^h.  Consider that a hint to submit comments.

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[1] Report by the Appliance Standards Awareness Project titled Next Generation Standards: How the National Energy Efficiency Standards Program Can Continue to Drive Energy, Economic, and Environmental Benefits cited by the ACEEE press release: Latest DOE Actions on Appliance Standards Will Cost Consumers and Increase Carbon Emissions

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Mark Krebs, an engineer by training, has been involved with energy efficiency design and program evaluation for more than thirty years. He has served as an expert witness in dozens of energy-efficiency filings, which he summarized in a Public Utilities Fortnightly article, “It’s a War Out There: A Gas Man Questions Electric Efficiency” (December 1996). For more about Mark, please see his “category.”