For more than a year, the HVAC industry has been awaiting the final word from the U.S. Department of Energy (DOE) regarding its proposed 92 percent AFUE national furnace standard. This standard, announced to the industry in March 2015, proposed raising minimum-efficiency levels for residential, nonweatherized natural gas furnaces from the current 80 percent AFUE to 92 percent AFUE, which would effectively eliminate noncondensing furnaces in the U.S.

As expected, the industry argued against this proposed standard, contending it will result in significant cost increases to consumers (especially low-income homeowners), complicate installations, and provide little actual energy savings.

The DOE remained silent on the industry’s concerns until late September, when it released a supplemental notice of proposed rulemaking (SNOPR) pertaining to residential furnaces.

To the dismay of many in the industry, the SNOPR indicated the DOE is keeping its proposed 92 percent AFUE national furnace standard but is adding a small furnace exemption for furnaces of 55,000 Btu or less. Equipment under the small furnace exemption could still be noncondensing, but all furnaces above that level would have to be condensing. This standard would become the law of the land five years after the rule is finalized.


In response to the proposed furnace rule, the American Public Gas Association (APGA) published a statement noting the DOE “has once again proposed a new energy conservation standard for natural gas furnaces that will harm consumers and ultimately undermine energy efficiency” (see sidebar on Page 16). The APGA added, “The proposed rule will cause uneconomic fuel switching as many consumers — especially in Southern states — will be compelled to change their natural gas furnaces to electric heat pumps.”

While the SNOPR does provide an alternative option for some customers, Stephen Yurek, president and CEO, Air-Conditioning, Heating, and Refrigeration Institute (AHRI), noted the alternative will be of little value to those it is intended to help. “The market for furnaces that have input rates of 55,000 Btu per hour or lower is quite small for the simple reason that most U.S. dwellings require greater heating capacity.”

As a result of this rule, many customers in Southern states will be forced to pay more for a larger, ultra-efficient furnace, even though their monthly heating bill savings will not justify the higher purchase and installation costs, noted Yurek. “And, for many of our customers in the North, Midwest, and mid-Atlantic, the installation costs associated with an ultra-efficient condensing furnace make them either prohibitively expensive or a practical impossibility.”

Heating, Air-conditioning, and Refrigeration Distributors International (HARDI) also appreciated that the DOE was considering a dual standard, said Jon Melchi, vice president of government affairs and business development, HARDI. “But the breakpoint at which a high-efficiency condensing furnace would be mandated falls woefully short of what is necessary to strike a balance between saving energy and forcing consumers to incur additional costs.”

There is no question the new furnace rule will have a significant financial impact on consumers, especially low-income homeowners and those living in warmer climates. “Consumers in Southern states who own noncondensing units would have to replace/upgrade to a condensing furnace once this rule is in place. That could be costly,” said Kenny Bui, product manager, unitary products group, Johnson Controls Inc. “If a consumer living in an apartment is currently using the chimney as a method of venting, that will no longer be possible under the new rule. That is a major burden for low- or fixed-income consumers.”

The manufactured housing market is also going to be adversely affected by the new rule, said Bui, because furnaces for manufactured houses are typically designed to fit in tighter spaces, such as alcoves or closets.

“In a retrofit application, a condensing furnace would just not fit the old footprint,” said Bui. “This will add significant cost to convert the application, not to mention how much it will impact manufacturers in the manufactured housing market.”

In addition to concerns regarding the economic feasibility of the proposal, HARDI believes there are real-life safety issues that could result from this proposal, said Melchi. “For example, there are concerns that this proposal will restrict consumer choice in a way that leads to the continued repair of aging equipment, increased utilization of space heaters, or the installation of condensing furnaces without proper venting. We are hopeful the DOE will take those factors into consideration when finalizing this rule.”


As part of the rulemaking process, DOE reps met with stakeholders in October and attempted to explain how they arrived at their conclusions. Manufacturers, industry groups, utilities, and others in the meeting pushed back, arguing the DOE had made assumptions that were not accurate, including what the true installed cost of a condensing furnace is; the number of homeowners who would switch to other heating methods (i.e., heat pumps or electric furnaces) as a result of the rule; the number of homeowners who could take advantage of a smaller, right-sized, noncondensing furnace; and the true economic impact the rule would have on low-income homeowners.

Barton James, senior vice president of government relations, ACCA, noted the meeting was a “box-checking exercise” for the DOE, and that it probably would not slow down the final passage of the rule. “What’s really frustrating is that the DOE, and its hired experts working on the rule, continues to make incorrect assumptions about contractors and consumer behavior and overlook the opportunity right in front of them to address installation efficiencies without forcing another unneeded product on consumers that will once again not accompany any energy or financial savings. The good thing is that this meeting clarified the lack of need for this rule. The DOE insists it is going to pass the rule and that it will be good for consumers, but the organization’s not focusing on the real cost of the rule.”

Bui is similarly concerned that the DOE did not listen to the industry from a benefit and cost perspective. “Our concerns with the DOE’s analysis are that a large percentage of homeowners will see no benefit from this rule. And for consumers living in the South who currently own standard noncondensing furnaces, they will see a huge impact. In addition, this rule forces contractors to sell and install the condensing furnaces in warmer climates, which is going to result in a huge learning curve. These contractors will have to learn the new codes, standards, and installations and also learn how to sell high-efficiency furnaces to consumers,” said Bui.

Even though it looks likely that the DOE will move ahead and raise minimum-efficiency standards for residential furnaces later this year, the fight is far from over. Industry groups and manufacturers will likely sue to stop the rule from taking effect, as they did when the DOE previously tried to implement regional-efficiency standards for furnaces in 2014. In the meantime, many are hoping that Congress will pass the Energy Policy Modernization Act of 2015 before the end of the year, which could give the industry more time to develop a negotiated furnace-efficiency standard.

“That’s what we’re focused on,” said James. “That would at least slow down the implementation of the furnace rule. We are also trying to get the DOE to start focusing on installed efficiencies rather than efficiencies that can only be achieved in a lab. Manufacturers make some great equipment, but if it’s not installed to their minimum installation standards, then homeowners are once again sold a bill of goods and will never realize promised energy savings. Focusing on installed efficiencies would better help the DOE accomplish what it’s trying to do, because the sticker on the furnace is from a lab and not based on how it was actually installed.”


According to the American Public Gas Association (APGA), the effects of the U.S. Department of Energy’s (DOE’s) new minimum-efficiency standard for furnaces will result in the following consequences for consumers:

Increased Costs Due to Venting — Extensive and expensive venting modifications must be made to accommodate a condensing furnace. The DOE estimates customers nationwide would carry a burden of at least $6 billion to $12 billion in new costs associated with condensing furnaces. On average, a condensing furnace typically costs $350 more than a noncondensing furnace along with additional installation costs.

Building Code Restrictions for Apartments and Condominiums — In row houses, town houses, and multifamily dwellings, a condensing furnace may not even be an option because physical limitations, building code issues, and/or prohibitively high costs related to side venting requirements are impossible to meet.

Burdens on Landlords — Heating costs are borne by the tenant, whereas the landlord bears the burden of the upfront cost for the furnace. Landlords will not see a return on their costs for the more expensive but more efficient furnaces through lower heating bills. When faced with higher priced furnaces plus additional costs for special venting, landlords will likely turn to inefficient electric heating, which may result in increased monthly utility bills for tenants.

Undue Burden on Low-income Consumers — Consumers, especially those in lower-income brackets, often do not have the luxury of worrying about operating costs over an extended period of time. Rather, their primary concern is whether they can afford the new appliance at all, even without the cost hurdle of new venting. For these residents, the higher costs for a condensing gas furnace will mean they switch to a less efficient electric appliance, which may result in higher monthly utility bills.

Publication date: 11/28/2016

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