Monday,

January 22, 2001

Part XII

Department of

Energy

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 430

Energy Conservation Program for

Consumer Products: Central Air

Conditioners and Heat Pumps Energy

Conservation Standards; Final Rule

Finding of No Significant Impact Energy

Conservation Program for Consumer

Products; Notice


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7170 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

DEPARTMENT OF ENERGY

Office of Energy Efficiency and

Renewable Energy

10 CFR Part 430

[Docket Number EE–RM–98–440]

RIN 1904–AA77

Energy Conservation Program for

Consumer Products: Central Air

Conditioners and Heat Pumps Energy

Conservation Standards

AGENCY: Office of Energy Efficiency and

Renewable Energy, Energy.

ACTION: Final rule.

SUMMARY: The Department of Energy

(DOE or Department) has determined

that revised energy conservation

standards for central air conditioners

and heat pumps will result in

significant conservation of energy, are

technologically feasible, and are

economically justified. On this basis,

the Department is today amending the

existing energy conservation standards

for central air conditioners and heat

pumps.

EFFECTIVE DATE: The effective date of

this rule is February 21, 2001.

ADDRESSES: A copy of the Technical

Support Document (TSD) may be read at

the DOE Freedom of Information

Reading Room, U.S. Department of

Energy, Forrestal Building, Room 1E–

190, 1000 Independence Avenue, SW.,

Washington, DC 20585, (202) 586–3142,

between the hours of 9:00 a.m. and 4:00

p.m., Monday through Friday, except

Federal holidays. Copies of the TSD

may be obtained from: the Codes and

Standards Internet site at: http://

www.eren.doe.gov/buildings/

codes_standards/applbrf/

central_air_conditioner.html or from the

U.S. Department of Energy, Office of

Energy Efficiency and Renewable

Energy, Forrestal Building, Mail Station

EE–41, 1000 Independence Avenue,

SW., Washington, DC 20585–0121. (202)

586–9127.

FOR FURTHER INFORMATION CONTACT: Dr.

Michael E. McCabe, U.S. Department of

Energy, Office of Energy Efficiency and

Renewable Energy, EE–41, 1000

Independence Avenue, SW.,

Washington, DC 20585–0121, (202) 586–

0854, e-mail:

michael.e.mccabe@ee.doe.gov, or

Eugene Margolis, Esq., U.S. Department

of Energy, Office of General Counsel,

GC–72, 1000 Independence Avenue,

SW., Washington, DC 20585, (202) 586–

9507, e-mail:

eugene.margolis@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Consumer Overview

1. Background

2. Central Air Conditioner and Heat Pump

Features

3. Consumer Benefits

4. National Benefits

B. Authority

C. Background

II. General Discussion

A. Technological Feasibility

1. General

2. Maximum Technologically Feasible

Levels

B. Energy Savings

1. Determination of Savings

2. Significance of Savings

C. Rebuttable Presumption

D. Economic Justification

1. Economic Impact on Manufacturers and

Consumers

2. Life-cycle-costs

3. Energy Savings

4. Lessening of Utility or Performance of

Products

5. Impact of Lessening of Competition

6. Need of The Nation to Conserve Energy

7. Other Factors

III. Methodology

IV. Discussion of Comments

A. Burdens and Benefits

1. Economic Impacts

a. Economic Impacts on Manufacturers

b. Economic Impacts on Consumers

2. Life-Cycle Costs

3. Energy Savings

4. Lessening of Utility or Performance of

Products

5. Impact of Lessening of Competition

6. Need of the Nation to Conserve Energy

7. Other Factors

B. Analysis and Assumptions

1. Engineering Analysis

a. Reliance on ARI and Reverse

Engineering Cost Estimates

b. Consideration of Emerging Technologies

2. Life Cycle Cost (LCC) analysis

a. Probability-based analysis

b. Energy Use

c. Electricity Prices

d. Product Life

e. Installation Cost

f. Mark-ups

3. Shipments/National Energy Savings

a. Adjustments to NAECA Shipment

Scenario

b. Fuel Switching

c. Drop in Shipments in New Construction

Market

4. Manufacturer Impact Analysis

5. Utility Impacts

a. Peak Demand Impacts

6. Projection of Trends

C. Other Comments

1. HCFC Phaseout

2. Ozone Reduction Catalyst Requirement

D. Additional Standard Requirements

1. EER Standard

2. TXV Requirement

3. HSPF Levels

V. Analytical Results and Conclusions

A. Trial Standard Levels

B. Significance of Energy Savings

C. Payback Period

D. Economic Justification

1. Economic Impact on Manufacturers and

Consumers

2. Life-cycle-cost (LCC)

3. Net Present Value and Net National

Employment

4. Impact on Utility or Performance of

Products

5. Impact of Any Lessening of Competition

6. Need of the Nation to Save Energy

7. Other Factors

E. Conclusion

VI. Procedural Issues and Regulatory Review

A. Review Under the National

Environmental Policy Act

B. Review Under Executive Order 12866,

‘‘Regulatory Planning and Review’

C. Review under the Regulatory Flexibility

Act

D. Review Under the Paperwork Reduction

Act

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’

F. ‘‘Takings’’ Assessment Review

G. Review under Executive Order 13132

H. Review Under the Unfunded Mandates

Reform Act

I. Review Under the Treasury and General

Government Appropriations Act of 1999

J. Review Under the Plain Language

Directives

K. Congressional Notification

I. Introduction

A. Consumer Overview

1. Background

The Department of Energy (DOE or

the Department) is directed by the

Energy Policy and Conservation Act to

consider establishing minimum

efficiency standards for various

consumer products, including central

air conditioners and heat pumps.

Today’s final rule adopts standards that

are consistent with these requirements

of the law. The Department is amending

the almost ten year old minimum

efficiency standards for new central air

conditioners and heat pumps. These

amended standards take into account a

decade of technological advancements

and will save consumers and the nation

money, significant amounts of energy,

and have substantial environmental and

economic benefits.

When today’s adopted standards go

into effect, they will essentially raise the

energy efficiency standards to 13 SEER

for new central air conditioners and to

13 SEER/7.7 HSPF for new central air

conditioning heat pumps (heat pumps).

SEER, Seasonal Energy Efficiency Ratio,

is the Department’s measure of energy

efficiency for the seasonal cooling

performance of central air conditioners

and heat pumps. HSPF, Heating

Seasonal Performance Factor, is the

Department’s measure of energy

efficiency for the seasonal heating

performance of heat pumps. The

standards will apply to products

manufactured for sale in the United


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States, as of January 23, 2006. The

standard for split-system air

conditioners, the most common type of

residential air conditioning equipment,

represents a 30 percent improvement in

energy efficiency. For split-system heat

pumps, the new standard would

represent a 30 percent improvement in

cooling efficiency and a 13 percent

improvement in heating efficiency. The

standard will also increase the cooling

efficiency of single-package air

conditioners and single-package heat

pumps by 34 percent and the heating

efficiency of single-package heat pumps

by 17 percent. Finally, the Department

is not yet adopting new standards for

some products to ensure that more

efficient versions remain available for

niche applications. The Department has

determined that the new standards are

the highest efficiency levels that are

technically feasible and economically

justified as required by law. Therefore,

the Department is amending the energy

conservation standards for residential

central air conditioners and heat pumps.

2. Central Air Conditioner and Heat

Pump Features

The amended efficiency levels can be

met by central air conditioner and heat

pump designs that are already available

in the market. We fully expect

variations of these models to exist under

the new standards, offering all the

features and utility that are found in

currently available products.

3. Consumer Benefits

Table I.1 summarizes the

‘‘characteristics’’ of today’s typical

central air conditioners and heat pumps.

Table I.2 presents the implications for

the average consumer of the standards

becoming effective in 2006.

TABLE I.1.—CHARACTERISTICS OF TODAY’S TYPICAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS 1

Split system

air conditioner

Split system

heat pump

Single

package air

conditioner

Single

package heat

pump

Average Installed Price .................................................................................... $2,236 $3,668 $2,607 $3,599

Annual Utility Bill 2 ............................................................................................ $189 $453 $189 $453

Life Expectancy (years) ................................................................................... 18.4 18.4 18.4 18.4

Energy Consumption per year (kWh) .............................................................. 2,305 6,549 2,305 6,549

1 ‘‘Typical’’ equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively.

2 Utility bill pertains to the energy cost of operating the air conditioner or heat pump.

TABLE I.2.—IMPLICATIONS OF NEW STANDARDS FOR THE AVERAGE CONSUMER

Split system

air conditioner

Split system

heat pump

Single

package air

conditioner

Single

package heat

pump

Year Standard Comes into Effect .................................................................... 2006 2006 2006 2006

New Average Installed Price ........................................................................... $2,571 $4,000 $3,032 $4,034

Estimated Price Increase ................................................................................. $335 $332 $425 $435

Annual Utility Bill Savings ................................................................................ $42 $70 $42 $70

Average Net Saving over Equipment Life ....................................................... $113 $372 $29 $353

Energy Savings per Year (kWh) ...................................................................... 532 1081 532 1081

The most typical air conditioner (i.e.,

split system air conditioners which

comprise approximately 65 percent of

today’s central air conditioning and heat

pump market) has an installed price of

$2,236 and an annual utility cost of

$189. In order to meet the 2006

standard, the Department estimates that

the installed price of a typical air

conditioner will be $2,571, an increase

of $335. This price increase will be

offset by an annual energy savings of

about $42 on the utility bills. The most

typical heat pump (i.e., split system heat

pump) currently has an installed price

of $3,668 and an annual utility cost of

$453. In order to meet the 2006

standard, the Department estimates that

the installed price of a typical heat

pump will be $4,000, an increase of

$332. This price increase will be offset

by an annual energy savings of about

$70 on the utility bills.

The Department recognizes that most

consumers pay energy prices that are

higher or lower than the ‘‘typical’’

consumer and operate their equipment

more or less often. Consequently, the

Department has investigated the effects

of the different energy prices across the

nation and different air-conditioning

usage patterns. The Department

estimates that 61 percent of all

consumers purchasing a new typical air

conditioner will either save money or

will be negligibly impacted as a result

of the 2006 standard. In the case of a

new typical heat pump, 94 percent of all

consumers either save money or will be

negligibly impacted.

The Department also investigated how

these standards might affect low income

consumers. On average, the Department

estimates that it is likely that low

income air conditioner and heat pump

consumers will also save money as a

result of the standard.

4. National Benefits

The standards will provide benefits to

the nation. DOE estimates the standards

will save approximately 4.2 quads of

energy over 25 years (2006 through

2030). This is equivalent to all the

energy consumed by nearly 26 million

American households in a single year.

We also estimate this standard will have

a net benefit to the nation’s consumers

of $1 billion over the same period. In

2020, the standards will avoid the

construction of five 400 megawatt coalfired plants and thirty-four 400

megawatt gas-fired plants. These energy

savings will result in cumulative

greenhouse gas emission reductions of

approximately 33 million metric tons

(Mt) of carbon, or an amount equal to

that produced by approximately 3

million cars every year. Additionally,

air pollution will be reduced by the

elimination of approximately 94

thousand metric tons of nitrous oxides

( NOX) from 2006 through 2020.

B. Authority

Part B of Title III of the Energy Policy

and Conservation Act (EPCA), Pub. L.

94–163, as amended by the National


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1Part B of Title III of the Energy Policy and

Conservation Act, as amended by the National

Energy Conservation Policy Act, the National

Appliance Energy Conservation Act, the National

Appliance Energy Conservation Amendments of

1988, and the Energy Policy Act of 1992, is referred

to in this notice as EPCA, or the ‘‘Act.’’ Part B of

Title III is codified at 42 U.S.C. 6291 et seq. Part

B of Title III of the Energy Policy and Conservation

Act, as amended by the National Energy

Conservation Policy Act only, is referred to in this

notice as the National Energy Conservation Policy

Act.

2EER, Energy Efficiency Ratio, is a steady-state

measure of energy efficiency which measures

efficiency at a prescribed outdoor temperature (95

°F), and is one of the test conditions in the

Department’s test procedure used to develop the

SEER.

Energy Conservation Policy Act, Pub. L.

95–619, by the National Appliance

Energy Conservation Act, Pub. L. 100–

12, by the National Appliance Energy

Conservation Amendments of 1988,

Pub. L. 100–357, and by the Energy

Policy Act of 1992, Pub. L. 102–486 1

created the Energy Conservation

Program for Consumer Products other

than Automobiles. The consumer

products subject to this program (often

referred to hereafter as ‘‘covered

products’’) include central air

conditioners and heat pumps.

Under the Act, the program consists

essentially of three parts: testing,

labeling, and Federal energy

conservation standards.

The National Appliance Energy

Conservation Act of 1987 (NAECA)

prescribed initial Federal energy

conservation standards for central air

conditioners and heat pumps. EPCA

Section 325(d), 42 U.S.C. 6295(d). The

Act specifies that the Department is to

review the standards January 1, 1994.

EPCA Section 325(d)(3)(A), 42 U.S.C.

6295(d)(3)(A).

Any new or amended standard must

be designed so as to achieve the

maximum improvement in energy

efficiency that is technologically

feasible and economically justified.

EPCA Section 325(o)(2)(A), 42 U.S.C.

6295(o)(2)(A).

Section 325(o)(2)(B)(i) provides that

before DOE determines whether a

standard is economically justified, it

must first solicit comments on a

proposed standard. After reviewing

comments on the proposal, and before it

adopts a standard, DOE must then

determine whether the benefits of the

standard exceed its burdens, based, to

the greatest extent practicable, on a

weighing of the following seven factors:

‘‘(i) The economic impact of the standard

on the manufacturers and on the consumers

of the products subject to such standard;

(ii) 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 initial charges for, or maintenance

expenses of, the covered products which are

likely to result from the imposition of the

standard;

(iii) The total projected amount of energy

savings likely to result directly from the

imposition of the standard;

(iv) Any lessening of the utility or the

performance of the covered products likely to

result from the imposition of the standard;

(v) The impact of any lessening of

competition, as determined in writing by the

Attorney General, that is likely to result from

the imposition of the standard;

(vi) The need for national energy

conservation; and

(vii) Other factors the Secretary considers

relevant.’’

In addition, section 325(o)(2)(B)(iii)

establishes a rebuttable presumption of

economic justification in instances

where the Secretary determines 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

* * *.’’ The rebuttable presumption test

is an alternative path to establishing

economic justification.

C. Background

The existing standards for residential

central air conditioners and heat pumps

have been in effect since 1992. As

described above, the descriptor for air

conditioner and heat pump cooling

efficiency is SEER and the descriptor for

heat pump heating efficiency is HSPF.

The current central air conditioner and

heat pump efficiency standards are as

follows:

—Split system air conditioners and heat

pumps—10 SEER/6.8 HSPF

—Single package air conditioners and

heat pumps—9.7 SEER/6.6 HSPF

On September 8, 1993, DOE

published an Advance Notice of

Proposed Rulemaking (ANOPR)

announcing the Department’s intention

to revise the existing central air

conditioner and heat pump efficiency

standard. 58 FR 47326. During a

workshop on June 30, 1998, we

presented for comment an analytical

framework for the central air

conditioner and heat pump standards

rulemaking. The analytical framework

described the different analyses to be

conducted, the method for conducting

them, the use of new spreadsheets, and

the relationship of the various analyses.

On November 24, 1999, DOE published

a Supplemental ANOPR. 64 FR 66306.

On October 5, 2000, DOE published a

Notice of Proposed Rulemaking (NOPR

or proposed rule). 65 FR 59590. The

energy efficiency standards proposed for

residential central air conditioners and

central air conditioning heat pumps

(heat pumps) were as follows:

—Split system and single-package air

conditioners—12 SEER

—Split system and single package heat

pumps—13 SEER/7.7 HSPF

—Through-the-Wall air conditioners

and heat pumps—11 SEER/7.1 HSPF.

In addition to the increase proposed

in SEER and HSPF, the Department

requested comments on a proposal to

adopt a standard for steady-state cooling

efficiency, EER.2 The proposal on EER

was designed to ensure more efficient

operation at high outdoor temperature,

during periods when electricity use by

air conditioners is at its peak.

The proposed rule provided

additional background information on

the current standards, the history of

previous rulemakings and the

procedures, interpretations and policies

which guide the Department in

developing new efficiency standards,

which are set forth as the Process

Improvement Rule. 61 FR 36974. A

public hearing was held in Washington,

DC on November 16, 2000, to hear oral

views, data and arguments on the

proposed rule.

II. General Discussion

A. Technological Feasibility

1. General

There are central air conditioners and

heat pumps in the market at all of the

efficiency levels prescribed in today’s

final rule. The Department, therefore,

believes all of the efficiency levels

adopted by today’s final rule are

technologically feasible.

2. Maximum Technologically Feasible

Levels

Pursuant to section 325(p)(2) of the

Act, and as discussed in the proposed

rule, the Department determined that 18

SEER is the maximum technologically

feasible (Max Tech) level for cooling

efficiency for all product classes and

capacities covered by this rulemaking.

65 FR 59593. The Max Tech level for

heating efficiency, is 9.4 HSPF which is

the highest HSPF rating currently

available in residential heat pumps.

B. Energy Savings

1. Determination of Savings

The Department forecasted energy

savings through the use of a national

energy savings (NES) spreadsheet as

discussed in the proposed rule. 65 FR

59590, 59593 (October 5, 2000). The


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3 ‘‘Report of the U.S. Department of Energy’s

Power Outage Study Team: Findings and

Recommendations to Enhance Reliability from the

Summer of 1999’’, March 2000.

spreadsheets and assumptions upon

which the results of today’s final rule is

based are unchanged.

2. Significance of Savings

As discussed in the proposed rule,

section 325(o)(3)(B) of the Act prohibits

the Department from adopting a

standard for a product if that standard

would not result in ‘‘significant’’ energy

savings. The energy savings for the

standard levels we are adopting today

are non-trivial—indeed they are

substantial—and therefore we consider

them ‘‘significant’’ within the meaning

of section 325 of the Act.

C. Rebuttable Presumption

The National Appliance Energy

Conservation Act established new

criteria for determining whether a

standard level is economically justified.

Section 325(o)(2)(B)(iii) of the Act

states:

‘‘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, there

shall be a rebuttable presumption that such

standard level is economically justified. A

determination by the Secretary that such

criterion is not met shall not be taken into

consideration in the Secretary’s

determination of whether a standard is

economically justified.’’

If, according to the test procedure, the

increase in initial price of an appliance

due to a conservation standard would

repay itself to the consumer in energy

savings in less than three years, then we

presume that such standard is

economically justified. This

presumption of economic justification

can be rebutted upon a proper showing.

The standard levels we are adopting

today do not satisfy the criteria set forth

above. Therefore, we cannot presume

them to be economically justified and

have performed additional analysis to

support the Secretary’s determination

that they are indeed economically

justified.

D. Economic Justification

As noted earlier, Section

325(o)(2)(B)(i) of the Act provides seven

factors to be evaluated in determining

whether a conservation standard is

economically justified.

1. Economic Impact on Manufacturers

and Consumers

We considered the economic impact

on manufacturers and consumers as

discussed in the proposed rule. 65 FR

59590, 59593 (October 5, 2000).

2. Life-cycle-costs

We considered life-cycle-costs as

discussed in the proposed rule. 65 FR

59590, 59594 (October 5, 2000). The

installed price and operation and

maintenance costs were calculated for a

range of consumers around the nation to

estimate the range in life cycle cost

benefits that consumers would expect to

achieve due to new standards.

3. Energy Savings

While significant conservation of

energy is a separate statutory

requirement for establishing an energy

conservation standard, the Act requires

DOE, in determining the economic

justification of a standard, to consider

the total projected energy savings that

are expected to result directly from

revised standards.

4. Lessening of Utility or Performance of

Products

This factor cannot be quantified. In

establishing classes of products, the

Department has attempted to eliminate

any degradation of utility or

performance in the products covered by

today’s final rule. Attributes that affect

utility include the product’s ability to

cool and dehumidify. In some

applications, noise levels may also be an

aspect of utility. Product size or

configuration can also be considered

utility if a change in size would cause

the consumer to install the product in

a location or in a manner inconsistent

with the consumer’s preferences.

5. Impact of Lessening of Competition

It is important to note that this factor

has two parts; on the one hand, it

assumes that there could be some

lessening of competition as a result of

standards; and on the other hand, it

directs the Attorney General to gauge

the impact, if any, of that effect.

In order to assist the Attorney General

in making such a determination, the

Department provided the Attorney

General with copies of the proposed

rule and the Technical Support

Document for review. The Attorney

General’s response is discussed in

section V.D.5 below, and is reprinted at

the end of the rule.

6. Need of the Nation To Conserve

Energy

The Secretary recognizes that energy

conservation benefits the Nation in

several important ways. Enhanced

energy efficiency improves the Nation’s

energy security, strengthens the

economy, and reduces the

environmental impacts of energy

production.

7. Other Factors

This provision allows the Secretary of

Energy, in determining whether a

standard is economically justified, to

consider any other factors that the

Secretary deems to be relevant. EPCA

Section 325(o)(2)(B)(i)(VI), 42 U.S.C.

6295(o)(2)(B)(i)(VI).

Under this factor, we considered the

potential improvement to the reliability

of the electrical system. Recent

summertime electric power outages in

various regions of our country resulted

in disruption of many peoples’ lives and

businesses. The schedule contained in

the Act called for the Department to

revise the standards for central air

conditioners and heat pumps by 1994,

to be effective in 1999. For reasons

explained in the proposed rule and

ANOPR, promulgation of many

standards including those for central air

conditioners and heat pumps was

delayed.

While central air conditioning

accounts for about 10 percent of

residential electricity consumption, it

can account for several times this

amount during peak hours on hot

summer days, when electricity

reliability is most strained. A 30 percent

improvement in air conditioner

efficiency would reduce the nation’s

total annual electricity use by

approximately 2 percent after it was

fully phased in. However, the same

efficiency improvement would provide

a greater percentage reduction in peak

loads, reducing the prospect of

brownouts and price spikes. These peak

load reductions are critical given that

the conditions leading to grid instability

can occur well before peak demand

even equals supply.

The Final Report 3 by the team of

experts convened by the Secretary to

investigate the electric power problem

included the recommendation to

increase the energy efficiency of central

air conditioners as one means for

enhancing reliability. This

recommendation led the Secretary to

put this rulemaking on the fast track and

to advance the publication of today’s

final rule for central air conditioners

and heat pumps. Thus, the Department

has considered effects of the rule on

electric power system reliability.

III. Methodology

As discussed in the proposed rule, the

Department developed new analytical

tools for this and other recent

rulemakings. The first tool was a


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4The Roll-up scenario assumes that the

proportion of equipment with efficiency ratings

above the new standard level will not increase

compared to their proportion today.

spreadsheet that calculates life-cyclecost (LCC) and payback period. The

second calculates national energy

savings and national net present value

(NPV). The Department also completely

revised the methodology used in

assessing manufacturer impacts

including the adoption of the

Government Regulatory Impact Model

(GRIM). Additionally, DOE developed a

new approach using the National Energy

Modeling System (NEMS) to estimate

impacts of air conditioner energy

efficiency standards on electric utilities

and the environment.

In order to estimate production costs

for this rulemaking, we used an

efficiency level approach, with cost data

provided by the Air Conditioning and

Refrigeration Institute (ARI) and through

our own reverse engineering methods.

The ARI cost data presented the

minimum, mean, and maximum cost

estimates for the sample of ARI

members who participated. The data

covered each product class at each

efficiency level through 15 SEER, and

was expressed relative to the base cost

for each manufacturer. The reverse

engineering methodology, conceived as

a way to validate the ARI data, analyzed

seventy-one samples, mostly selected by

manufacturers, using design data

provided by manufacturers. We

physically examined three of these

models. In refining our results, we

reviewed our detailed cost estimates for

split air conditioners with a major

manufacturer.

The benefits of reverse engineering

include the transparency of the

methods, data, and assumptions used to

produce the estimates, and the insights

gained into the design options used to

achieve the different efficiency levels.

The ARI data provides none of these

benefits, but does draw on the

considerable expertise of the

manufacturers involved in producing

the underlying estimates describing all

of the products on the market. One

benefit of the reverse engineering

analysis is that results are expressed in

absolute costs instead of relative costs.

Absolute costs are needed to represent

production costs at the minimum

efficiency level and are helpful in

representing the production costs at

higher efficiency levels.

Regarding the analytical methodology,

the Department continues to use the

spreadsheets and approaches explained

in the proposed rule. 65 FR at 59594–

59597. We have applied them to

develop the analysis further in this final

rule. We added new analysis based on

the manufacturing cost estimates that

we had derived through reverse

engineering techniques. Also, because

its results were similar to those derived

using our 18.4-year equipment life

assumption, we are no longer

considering the 14-year equipment

lifetime scenarios in the economic

analysis. Finally, the emissions

reductions analysis now also estimates

the discounted value of cumulative

emission reductions.

IV. Discussion of Comments

Since we opened the docket for this

rulemaking, we have received over 800

comments from a diverse set of

interested parties, including

manufacturers and their representatives,

states, energy conservation advocates,

heating and air-conditioning

contractors, consumers, electric utilities

and others. The comments addressed

the burdens and benefits associated

with more stringent standards, aspects

of our analysis, the merits of the

different trial standard levels and

standard options we considered, and the

DOE rulemaking process. Many

comments raised issues that we

substantially addressed in the proposed

rule and Supplementary ANOPR.

Comments received during the most

recent comment period are addressed

below, and some previous comments are

revisited.

A. Burdens and Benefits

This section discusses comments we

received on the burdens and benefits

associated with more stringent

minimum efficiency standards,

organized into the seven factors that the

Secretary considers as a basis for

deciding whether a standard level is

economically justified.

1. Economic Impacts

a. Economic Impacts on

Manufacturers. According to our

manufacturer impact analysis, more

stringent efficiency standards burden

most manufacturers by causing them to

make new investments in capacity,

research and development, and testing.

We also expect most manufacturers to

experience lower profitability and sales

volumes for several years after the

adopted standards become effective.

Some manufacturers in our analysis

benefit under more stringent standards.

ARI characterizes the financial

burdens on the industry overall as

severe. They also assert that the

hydrochloroflourocarbons (HCFC)

phaseout results in cumulative burdens.

(ARI, No. 100 at pp. 6 and 13). Some

manufacturers noted that EER and

thermal expansion valve (TXV)

requirements would add to the burden.

(York, No. 90, at pp. 4–5). The Natural

Resources Defense Council (NRDC)

questions whether we considered that

reverse engineering-based prices reduce

impacts through price elasticity effects,

but noted that industry impacts did not

seem to change across trial standard

levels, and the Oregon Office of Energy

(OOE) believes that we have overstated

manufacturer impacts since they are

already making investments in new

technologies to help them improve

product efficiency. (NRDC, No. 88 at p.

15; and OOE, No. 84 at p.5).

The reduction in industry net present

value does increase with increasing

standard levels, particularly since we

consider it more likely that the Roll-up 4

scenario will occur under higher

standard levels. Individual

manufacturers themselves discussed

their situations with us at length, and

we have incorporated the information

they presented to us into our

manufacturer impact analysis. In

adopting this rule, we have assumed

that the Roll-up scenario is the most

likely outcome resulting from a new 13

SEER standard for all product classes.

We did consider the change in sales

volumes driven by changes in the

underlying cost assumptions.

Many comments described what they

consider disproportionate impacts on

manufacturers of niche products. Those

comments are discussed in Section IV.4

below.

The Department has considered the

manufacturer burdens as described in

the manufacturer impact analysis of the

TSD in adopting the new standard.

These include cumulative burdens. It

also considers the extent to which the

differences among efficiency scenarios

change the implications of more

stringent standards.

b. Economic Impacts on Consumers.

Many comments mention the economic

burdens that more stringent efficiency

standards can place on consumers who

are sensitive to increases in first cost.

Many noted that our decision should

consider burdens on consumers caused

by long median payback periods. Some

comments emphasized that

disproportionate impacts on low income

consumers due to an expected increase

in installed price would reduce the

number of consumers who would be

able to afford new air conditioners.

Some comments suggested that this

effect could increase health problems

and deaths. The Mercatus Center stated

that the Department believed consumers

pass up energy efficient equipment

because they are misinformed about


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operating costs, therefore the

Department should construct a program

to correct this deficiency. (ARI, No. 100

at pp. 2 and 5; American Public Power

Association (APPA), No. 113 at p. 2;

Manufactured Home Institute (MHI),

No. 99 at p. 1; Lennox, No. 91 at p. 3;

Consumer Federation of America (CFA),

No. 110 at p. 1; Nebraska Public Power

District (NPPD), No. 109 at p. 2;

National Association of Home Builders

(NAHB), No. 94 at p. 1; Nordyne, No.

101 at p. 2; Trane, No. 93 at p. 4; York,

No. 90 at pp. 4–5; and Mercatus Center,

No. 115 at pp. 18–19).

CFA considers lower energy bills a

benefit and would support regional

standards and public assistance

programs to mitigate long payback

periods and disproportionate impacts

on consumers. (CFA, No. 110 at p. 2).

Many comments express the belief

that, for various reasons, we either

underestimated or overestimated

economic impacts on consumers. Those

comments are addressed in Section

IV.B. below.

We recognize that increases in first

cost and long payback periods are

generally considered burdens on

consumers. Based on the reverse

engineering derived manufacturing cost

estimates, however, our analysis shows

that, at the adopted standard levels, the

payback period is shorter than the life

of the equipment. This means that over

the life of the product, any increase in

price will be paid back to the average

consumer. Thus, the new efficiency

standards should provide the average

consumer with a long term economic

benefit. Also, we have examined

impacts on low income consumers, and

found them to benefit overall.

Consumers concerned about potential

health effects should note that

assistance programs are already

available to assist them with their air

conditioning purchases, and that room

air conditioners will continue to be

available when cooling in individual

rooms could mitigate their health

concerns.

2. Life-Cycle Costs

ARI, The Trane Company (Trane),

American Electric Power (AEP),

Mercatus Center, Southern Company,

Dominion Virginia Power (Dominion),

and Edison Electric Institute (EEI)

asserted that the percent of consumers

realizing life-cycle-cost savings at the

standard levels issued in the proposed

rule were too low and did not warrant

an increase in the minimum efficiency

standard. (ARI, No. 100 at p. 2; Trane,

No. 93 at p. 4; AEP, No. 83 at p. 1;

Mercatus Center, No. 115; Southern

Company, No. 96 at p. 2; Dominion, No.

103 at p. 3 and Transcript No. 73 at pp.

50–51; and EEI, Transcript No. 73 at pp.

176–178). Carrier Corp. asserted that

there were too many consumers

incurring life-cycle-cost increases at 12

SEER. (Carrier, No. 92 at p. 5). In

contrast, the American Council for an

Energy-Efficient Economy (ACEEE), the

Alliance to Save Energy (ASE), the

Pacific Gas and Electric Company

(PG&E), and NRDC argued that the

percent of consumers realizing lifecycle-cost savings from a particular

standard level is not the appropriate

measure for establishing an updated

efficiency standard. Because airconditioning use is highly dependent on

climatic conditions and because these

are national standards, it is to be

expected that some consumers in the

Northern part of the U.S. will realize net

costs from an increased standard but

will be offset by consumers in the

Southern part of the U.S. who will

realize life-cycle cost savings from more

efficient air-conditioning equipment.

Due to this disparity, they argue it is

better to base the standard on national

average life-cycle-cost results. (ACEEE,

No. 104 at p. 13; ASE, No. 81 at p.9;

PG&E, No. 104 at p. 5; and NRDC, No.

88 at pp. 19–21).

EPCA requires the Department to

consider life-cycle-cost as one of the

seven factors in determining economic

justification. In determining economic

justification, the Secretary must

determine whether the benefits of a

standard exceed the burdens. Life-cyclecost is just one of the factors to be

considered and there is no mathematical

formula for weighing the benefits and

burdens of the various factors. There are

also no mathematical thresholds for lifecycle-cost as implied by EEI and

ACEEE. (EEI, Transcript No. 73 at p.

177; and ACEEE, Transcript No. 73 at p.

182). The Department notes that under

the standards in today’s rule, consumers

on average will have lower life-cycle

costs. Furthermore, it appears that

EPCA, in requiring DOE to set national

standards that maximize energy savings

for appliances where there will

obviously be regional differences in

usage and energy costs, contemplated

that the level of life cycle cost savings

would vary among consumers.

We have quantified the distribution of

life cycle costs among consumers and

have considered it, along with other

information, in the weighing of the

benefits and burdens of each standard

level we assessed.

3. Energy Savings

ARI states that the Department

overestimated the energy savings

realized from efficiency standards by

basing the savings on source energy

consumption at the power plant, rather

than site energy consumption at the

household or commercial building.

(ARI, No. 100 at p. 11). While neither

stating that the energy savings estimated

by the Department were too great or too

low, ASE claims that 70 billion kWh

would be saved from a 13 SEER

standard coupled with a minimum EER

requirement of 11.6 and mandatory use

of TXVs. (ASE, No. 81 at p. 12). ACEEE

also claims that significant national

energy savings will be realized from a

13 SEER standard, an 11.6 minimum

EER requirement, mandatory use of

TXVs, and an HSPF standard of 7.9.

NAECA prescribes that consumer

energy savings be evaluated based on

site rather than source energy

consumption. However, the Department

believes national energy savings

evaluated at the source reflects a more

accurate representation of the energy

consumption being avoided from a

standard. Evaluating energy at the

source takes into account the efficiency

of the generation source as well as the

transmission and distribution of the

electricity. The Department accounts for

site energy consumption in its analysis

of consumer life-cycle-cost impacts.

With regard to the magnitude of the

energy being saved from a standard, the

Department is confident in its National

Energy Savings (NES) spreadsheet

model to forecast the source energy

savings realized from all standard

levels, including a 13 SEER standard.

Discussions with regard to minimum

EER standards and TXV requirements

are presented later in this Chapter.

4. Lessening of Utility or Performance of

Products

Comments regarding lessening of

utility related mainly to the impacts that

more stringent standards may have on

the availability of niche products and

some products that are not typically

considered ‘‘niche’’. Most comments

stated that those products face size

constraints that they will find difficult,

if not impossible, to conform to under

more stringent standards. That result

could lead to the removal of the

products from the market, or to

equipment prices that are higher than

the market would be able to sustain.

(Friedrich, No. 116 at p. 1; Unico, No.

117 at pp. 1–2; Carrier, No. 92 at p. 8;

Lennox, No. 91 at p. 7; Trane, No. 93 at

p. 18; Mitsubishi, No. 87 at p. 1;

Armstrong, No. 86 at pp. 1–3; and

Fujitsu, No. 85 at p. 1).

We recognize that contractors and

consumers do take product size into

account when making a purchase, and

that size constraints can make it more


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5EIA approves use of the name NEMS to describe

only an AEO version of the model without any

modification to code or data. Because our analysis

entails some minor code modifications and the

model is run under various policy scenarios that

deviate from AEO assumptions, the name NEMS–

BRS refers to the model as used here. For more

information on NEMS, please refer to the National

Energy Modelling System: An Overview 1998. DOE/

EIA–0581 (98), February, 1998. BRS is DOE’s Office

of Building Research and Standards.

difficult for manufacturers to offer

equipment meeting performance needs.

This is true for niche products, which

we discuss elsewhere, as well as for

conventional products. The same was

the case when the 10 SEER minimum

standards were agreed upon and

established in 1987. Manufacturers can

attempt to prevent size constraints from

degrading performance or utility by

offering smaller 13 SEER equipment

than they typically offer today. The

technical options for achieving that

objective include existing and emerging

technologies. Therefore, we do not

consider it likely that products will be

unavailable that meet the new 13 SEER

standard, and have substantially the

same capacities, performance and range

of sizes as today’s products.

If the size of 13 SEER equipment does

not generally decrease under new

standards, some consumers may be

required to incur additional installation

expense to accommodate the larger

equipment. We discuss this in more

depth in Section IV.B.2.e. The

Department did consider that possibility

when adopting today’s standards.

Along a separate line, Southern

Company is concerned that higher

efficiency equipment will reduce

dehumidification, which is an

important attribute in moderate, humid,

climates. (Southern Company, No. 96 at

pp. 4–5). The equipment’s ability to

dehumidify is a function of its design

and not necessarily its efficiency. As we

stated in the proposed rule, evidence

indicates that sensible heat ratios in

high efficiency equipment are similar to

those at the baseline. We trust that

under a more stringent standard,

manufacturers will seek to serve the

needs of the market with products that

dehumidify properly.

5. Impact of Lessening of Competition

The Department of Justice (DOJ) and

others commented that the more

stringent standards contained in the

proposed rule could lessen competition.

(DOJ, No. 112; Trane, No. 93 at p. 12;

and EEI, No. 80 at p. 8). Aspects of our

manufacturer impact analysis support

that conclusion. We discuss the DOJ

concerns in more depth in Section

V.D.5. The letter from the Department of

Justice is attached in the Appendix of

this rulemaking. We recognize that the

standard levels we are adopting could

accelerate the consolidation trend

among major manufacturers. However,

as discussed in the manufacturer impact

analysis, we do not expect that any

manufacturer or group of manufacturers

will be able to use the standards as an

opportunity to consolidate their market

power. (See TSD, Chapter 8). Therefore,

we believe that competition will remain

vigorous under the adopted standard,

and any lessening of competition that

does occur will not result in price

increases or loss of choice and utility for

consumers.

Other comments note that a large

fraction of today’s models would not be

able to meet more stringent standards.

(AEP, No. 83 at p. 1; Dominion, No. 68

at p. 2; ARI, No. 100 at p. 11; and EEI,

No. 80 at p. 8). In the manufacturer

impact analysis, we considered that

manufacturers will have to design new

products to meet any increased standard

level. Furthermore, products are

technologically feasible through 18

SEER. So, while many of today’s models

may not be available under more

stringent standards, we fully expect

variations of those models to be

available, offering all the features and

utility of currently available products.

6. Need of the Nation To Conserve

Energy

Of the approximately 800 comments

we have received, the vast majority were

from individuals and organizations who

made similar claims regarding the

benefits that would be associated with

a 13 SEER standard and an EER

standard for air conditioners and heat

pumps. These benefits included savings

for consumers, avoided emissions and

electrical capacity, and the reduced

occurrence of brownouts and blackouts.

Although our analysis is not able to

substantiate many of these claims, all of

these issues relate to the need of our

nation to conserve energy. We recognize

that a broad cross-section of citizens and

organizations are concerned about these

issues and in the potential for more

stringent standards to address them.

We discuss more specific comments

related to economic benefits and electric

system capacity in other sections of this

chapter. In this section, we discuss the

comments we received regarding

environmental benefits.

ASE claims that a 13 SEER standard

coupled with an 11.6 EER minimum

standard and a mandatory TXV

requirement would yield environmental

benefits in the form of the following airborne emission reductions: 15 million

metric tons of carbon, 40,000 tons of

nitrous oxides, and 200,000 tons of

sulfur dioxide in 2020. Northeast Energy

Efficiency Partnership (NEEP) also

states that significant carbon dioxide

emission reductions could be achieved

with a 13 SEER standard relative to a 12

SEER standard. (ASE, No. 81 at p. 12;

and NEEP, No. 118 at p. 2). The

Northwest Power Planning Council

(NWPPC) states that the Department

used the average heat rate of avoided

plants rather than the heat rate of

operating plants displaced by the

efficiency standards when determining

emission reductions. As a result,

NWPPC claims that the emissions

mitigated by the standards were

underestimated (NWPPC, No. 76 at p.

6).

National energy savings realized from

central air conditioner and heat pump

efficiency standards are directly

translated into reduced air-borne

emissions at electric power plants. The

magnitude of the emission reductions

are determined through the use of

NEMS–BRS 5, a version of NEMS used

for appliance standards analyses.

NEMS–BRS is based on the AEO2000

version with minor modifications.

NEMS offers a sophisticated picture of

the effect of standards since its scope

allows it to measure the interactions

between the various energy supply and

demand sectors and the economy as a

whole. Thus, although the Department

agrees with ASE that emissions will be

avoided from new air conditioner and

heat pump efficiency standards, the

Department believes that the magnitude

of those emission reductions are best

estimated with NEMS–BRS. In the case

of SO2, the Clean Air Act Amendments

of 1990 set an emissions cap on all

power generation. The attainment of

this target, however, is flexible among

generators and is enforced by applying

market forces, through the use of

emissions allowances and tradable

permits. As a result, accurate simulation

of SO2 trading tends to imply that

physical emissions effects will be zero

because emissions will always be at, or

near, the ceiling. This fact has caused

considerable confusion in the past. We

do not believe there is a potential

benefit in reductions in SO2 emissions

from electricity savings as long as

emissions of SO2 are at or near the

emission ceilings. With regard to the

issue of heat rates, contrary to NWPPC’s

assertion, the Department did use the

heat rates of displaced power plants in

determining the emission reductions

resulting from efficiency standards.

7. Other Factors

With regard to other factors, the issue

of electric system reliability attracted

numerous comments. EEI, AEP, and


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6 ‘‘Hirst, E., ‘‘Expanding U.S. Transmission

Capacity.’’ Paper prepared for Edison Electric

Institute, Washington D.C., July 2000: p. 8–9.

Dominion Virginia Power stated many

changes are occurring in the electric

utility industry at the same time electric

load is continuing to grow. As a result,

the overall effect of any end-use

efficiency measure, such as an air

conditioner and heat pump standard, is

likely small. (EEI, Transcript, No. 73 at

p. 224; AEP, No. 83 at p. 4; and

Dominion, No. 103 at p. 4). Southern

Company argued that once a standard is

established, new load growth forecasts

incorporating its effects will likely be

made and investment decisions will be

accordingly adjusted. In other words,

since the effects of this rule do not

become noticeable until five or more

years after its 2006 effective date,

utilities will have ample time to plan

and construct capacity in response to

expectations of load growth, reserve

margin, and, where competition has

become normal practice, to prices.

(Southern Company, Transcript No. 73

at p. 241). Synapse Energy Economics

(Synapse), along with ACEEE, NWPPC,

NRDC, ASE, and PG&E noted that there

is a real issue in meeting increased

demand, due in large part to increased

air conditioner usage. Synapse also

notes that conventional assumptions

about the ability of the power system to

meet growing load are increasingly

coming into question as the barriers to

system expansion are not inadequate

price incentives or unwillingness to

invest, but rather siting (of generation,

transmission, and distribution

capability), environmental, and other

constraints. (Synapse, Transcript No. 73

at p. 243; ACEEE, No. 104 at pp. 13–15;

NWPPC, Transcript No. 73 at p. 253;

NRDC, No. 88 at pp. 4 and 6; ASE, No.

81 at pp. 7 and, 10; and PG&E,

Transcript No. 73 at p. 251).

In a March 2000 final report, the DOE

Power Outage Study Team described

several power outages that occurred in

the summer of 1999. During early July,

a heat storm affected much of the East

from New England down past the MidAtlantic causing many problems. From

July 3 through 8, service was

interrupted to a total of 110,000 Long

Island Power Authority (LIPA)

customers for varying periods. During

that period, two new system peak loads

were set and LIPA activated its

Commercial Peak Reduction Program,

appealed to its other large customers to

voluntarily curtail their use of

electricity and reduced system-wide

voltage by five percent. Many

organizations and government offices

responded by closing early or cutting

back on their electricity use. On July 6,

the eastern half of the Pennsylvania,

New Jersey, Maryland Interconnection

grid experienced sudden and steep

voltage declines as an all-time-high peak

load was recorded. The integrity of the

system was maintained by reducing

voltage, curtailing contractually

interruptible customers and appealing

for voluntary load reductions. On that

same day, Delmarva Power and Light

had a capacity shortfall that resulted in

rotating outages from 10:30 a.m. until

7:30 p.m. affecting 138,000 customers.

In the Chicago area on July 30,

Commonwealth Edison set all-time-peak

demand during a period of intense heat

and humidity. Resulting system failures

caused more than 100,000 customers

temporary losses of power for up to

several hours. The summer of 2000 has

seen similar types of problems in the

state of California.

Outages such as these can cost

millions of dollars per hour depending

on which and how many customers are

affected. Although we recognize that

system adequacy may only play a small

part in ensuring system reliability, the

Department is convinced, especially due

to recent expansion shortfalls in the

Western part of the U.S., that system

reliability is an important issue which

can be addressed, to some degree, by

increased air conditioner and heat

pump standards. The impacts of

standards could be potentially

beneficial in lowering overall system

stress and postponing necessary

investment. This is especially important

since annual investment in transmission

has roughly halved since the levels of

the 1970’s 6. The potential benefit of air

conditioner and heat pump efficiency

improvements is a factor in establishing

the standards being issued today. In

addition, the Department is continuing

to establish national equipment

standards in the form of the current

efficiency descriptors (i.e., SEER and

HSPF), as discussed below, it will

examine ways to provide additional

credit in the test procedure for EER

rather than using such additional

measures as minimum EER standards

and mandatory TXV requirements.

B. Analysis and Assumptions

1. Engineering Analysis

a. Reliance on ARI and Reverse

Engineering Cost Estimates. The

Department considered primarily two

sets of data for relating the

manufacturing costs of current baseline

(minimum SEER) equipment to the

manufacturing costs of higher efficiency

equipment which would become

baseline equipment under new

standards: one source provided by the

industry through ARI and the other

source determined from the

Department’s reverse engineering

analysis. In the proposed rule, our

analyses and conclusions relied heavily

on the ARI manufacturing cost

estimates, and less on the reverse

engineering cost estimates.

However, several comments

questioned the validity of the ARI

results and recommended we rely more

heavily, if not exclusively, on the

reverse engineering estimates. They

cited various reasons, including retail

price information that matched the ARI

Mean, the greater transparency of the

reverse engineering process and results,

and the natural tendencies of

manufacturers to overestimate the costs

of complying with more stringent

standards. The same comments even

suggest that the reverse engineering cost

estimates may themselves be

overestimates. (OOE, No. 84 at p. 3;

NRDC, No. 88 at pp. 3–15; ASE, No. 81

at p. 11; and NEEP, No. 188 at p. 3).

Other comments supported the use of

the ARI data, citing the experience of

the manufacturers and apparent flaws in

the assumptions and methodology used

in the reverse engineering analysis,

which was designed as a validation tool.

These perceived flaws included the

small number of tear-downs performed.

However, ARI and some of its members

recognize that the reverse engineering

results fall within their range and seem

to validate their data to some extent.

(ARI, Transcript No. 14 at p. 42, No. 48

at p. 2 and No. 100 at p. 9; Carrier, No.

92; Trane, No. 93; and Lennox, No. 91

at p. 4).

While we recognize the expertise of

ARI’s members related to projecting the

cost of producing central air

conditioning equipment, we have

several concerns with the ARI data.

First, ARI has not satisfactorily

explained why their cost data at 12

SEER and higher levels display such a

large range between the minimum and

maximum values. We are convinced

that, in order to remain competitive,

manufacturers will have to adopt

relatively similar paths to increase the

efficiency of their baseline products to

meet the new minimum standards. This

will tend to result in actual costs that

are closer to the ARI Minimum values

than to the ARI Mean values.

We are also concerned with how

closely the data on recent Wisconsin

retail prices, submitted by ACEEE,

agrees with the ARI Mean cost

estimates. Once we adopt a higher

minimum efficiency level, we believe

that the retail prices of baseline

equipment that must meet that level


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will decline below the price of

equipment currently at that level. York

International Corporation (York) and

ARI confirmed, for example, that their

markups generally increase on higher

efficiency equipment, and Star Supply

Company seemed to imply that

distributor markups increase with

increasing efficiency. (Star Supply Co.,

No. 95 at p. 2; York, Transcript No. 73

at p. 117; and ARI, No. 100 at p. 3).

Those markups are reflected in the

current retail prices of those products.

Due to competitive pressures at the

baseline level, today’s markups would

not be sustainable for baseline

equipment that meets, but does not

exceed, a new standard. In addition, as

noted by John Compton of Home

Excellence, Inc. (HEI), a heating and airconditioning contractor, the new, more

efficient, baseline equipment would

likely possess fewer of the premium

features found in today’s high efficiency

equipment. (HEI, Transcript No. 73 at p.

123). For those reasons, current retail

price data would overestimate the

relative cost of high efficiency products

under new standards. The agreement

between ARI’s mean cost data and the

Wisconsin retail price data suggests that

the ARI cost data correspond to today’s

costs of producing high efficiency

equipment rather than to the lower

production costs we would expect

under new standards.

The reverse engineering analysis, on

the other hand, is transparent and the

results fall within the ARI range and

nearer to the ARI Minimum where we

expect competitive pressure to drive

manufacturing costs. Seventy-one

samples were analyzed using bills-ofmaterials provided manufacturers,

supplemented with three physical

teardowns, and detailed estimates for

split air conditioners were reviewed

with a major manufacturer. Our reverse

engineering methodology, though

originally conceived as a validation

exercise, is itself a valid method of

estimating equipment production costs,

and is well suited for use in this

rulemaking as an indicator of the most

likely production costs under new

standards.

Based on a consideration of the above,

we conclude that the reverse

engineering cost estimates are more

representative of what actual production

costs will be under new standards and

that the ARI Mean cost data very likely

overestimate those costs. For that

reason, we are weighing the reverse

engineering cost estimates heavily in

our decision-making. We continue to

provide the results based on the ARI

Mean data cost to illustrate an upper

bound, which we believe will be quite

an unlikely outcome.

b. Consideration of Emerging

Technologies. ACEEE and others

commented we should have included

the savings that could result from the

use of emerging technologies rather than

presenting them separately. The Oregon

Energy Office and Thermalex, Inc. also

expressed more optimism regarding the

applicability and probability of

adoption for microchannel heat

exchangers than we had expressed in

the TSD. (ACEEE, Transcript No. 73 at

p. 88; ASE, No. 81 at pp. 8, 9 and 12;

OOE, No. 84 at p. 5; and Thermalex, No.

89 at pp. 1–2).

Trane and York dispute some of the

claims regarding the potential of

emerging technologies. (Trane, No. 93 at

p. 7; and York, No. 90 at p.4).

According to our engineering analysis

described in Section 4.5 of the TSD, on

a system basis, emerging technologies

cannot make a significant cost impact

below 14 SEER. That explains why they

are not in widespread use today. At 14

SEER and above, some emerging

technologies could compete quite

favorably with the technologies that

currently dominate in some

applications. We did not analyze

standard levels at 14 SEER, instead we

examined 13 SEER and 18 SEER, the

Max Tech level. ACEEE contends that,

had we evaluated life-cycle-costs using

reverse engineering analysis combined

with emerging technology impacts, a

standard level as high as 14 SEER may

have been justified after all, and should

have been considered. (ACEEE,

Transcript No. 73 at p. 171, and No. 101

at p. 7).

From our ANOPR analysis based on

ARI mean costs, we concluded that

standard levels between 13 SEER and 18

SEER did not warrant further

consideration. York had stated that

ARI’s cost data already included the

benefits of emerging technologies

although we could not verify the

methods they used to incorporate them.

(York, Transcript No. 14 at p. 116; and

ARI, Transcript No. 14 at p. 115).

Economic impact results based on

reverse engineering were more

favorable, but still were far from

compelling. For example, the impact on

national net present value was negative

$8.4 billion for 14 SEER split air

conditioners. We believe that

incorporating the modest reduction in

cost due to the most likely impact of

emerging technologies (about 10 percent

for split air conditioners) would not

have resulted in a 14 SEER level being

economically justified.

Overall, we considered the potential

of emerging technologies to penetrate

the market in 13 SEER products under

a 13 SEER standard to be higher than

under lower standard levels. Partially

for that reason, we believe that the

burdens that could accrue from

increases in the size of baseline

equipment under a 13 SEER standard

can be somewhat mitigated by the use

of emerging technologies.

2. Life Cycle Cost (LCC) Analysis

a. Probability-based analysis. Trane

questioned the use of a Monte Carlo

probability-based analysis because they

claim that several of the distributions

used to characterize the inputs to the

analysis are erroneous. (Trane, No. 93 at

pp. 4–5).

As part of the process to improve the

energy efficiency standards analysis, the

Department uses a probability-based

analysis to determine a distribution of

life-cycle cost impacts for consumers

utilizing central air conditioners and

heat pumps. Most of the inputs to the

analysis are characterized with

distributions. While some of the input

distributions are based on limited data,

no other data have been offered to

recharacterize the distributions.

Therefore, the Department sees no

compelling reason to alter its

assumptions regarding the input

distributions.

b. Energy Use. Trane claimed that the

1997 Residential Energy Consumption

Survey (RECS) sample is too small and

may not accurately represent the

population of central air conditioner

and heat pump consumers. In addition,

they claimed that the Department is not

accurately representing the saturation of

air-conditioned households. Trane

stated that the saturation reported by the

Department (37.6 percent) is

inconsistent with the saturation

reported by RECS (47 percent). (Trane,

No. 93 at pp. 4–5).

As part of the process to improve the

energy efficiency standards analysis, the

Department is committed to use

sensitivity analysis tools to evaluate the

potential distribution of impacts among

different subgroups of consumers. The

Department believes that RECS provides

a nationally representative household

data set which is suited for conducting

the type of sensitivity analyses

suggested by the Process Rule. Limiting

the RECS households to those equipped

with either central air conditioners or

heat pumps, the LCC analysis performs

a household-by-household analysis that

predicts the percentage of households

that will incur net life-cycle cost savings

or costs from an increased efficiency

standard. With regard to apparent

discrepancies between air-conditioned

household saturations, the 37.6 percent


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7179

7Marginal prices exclude fixed charges, average

prices include fixed charges. 8Residential Energy Consumption Survey.

9 ‘‘Bucher, M.E., Grastataro, C.M., and Coleman,

W.R., ‘‘Heat Pump Life and Compressor Longevity

in ’Diverse Climates.’’ ASHRAE Transacitons, 1990,

96(1): p. 1567–1571.

saturation value cited by Trane

represents only those households with

central air conditioners. When

including homes with central airconditioning heat pumps, the household

saturation used by the Department in its

LCC analysis matches the 47 percent

saturation level reported by RECS.

c. Electricity Prices. Wholesale

electricity cost data for the period of

1998 through October, 2000, presented

by experts on behalf of the Appliance

Standards Awareness Project (ASAP),

demonstrated dramatic variations in

seasonal wholesale electricity costs for

regions of the country (i.e., California,

New England, New York, and the

Pennsylvania-New Jersey-Maryland

region) that have recently deregulated

their electric utility industry. In

particular, wholesale costs during

summer months and especially certain

summer day hours were significantly

greater than annual average wholesale

costs. Wholesale electricity cost data for

the period spanning 1998 through 1999

for six regulated North American

Electric Reliability Council (NERC)

regions were also presented showing

that summer costs were also

significantly greater than average annual

costs. (Synapse, Transcript, No. 73 at

pp.127–137 and No. 108 at p. 5).

Asserting that DOE’s marginal prices

based on 1996 and 1997 data are

regulated and do not reflect the

marginal cost of electricity under a

deregulated market, ASAP, ACEEE,

NWPPC, and Synapse argued that based

on recent wholesale electricity cost data,

marginal costs will significantly exceed

average costs during periods when air

conditioners are operating.7 Future

marginal electricity prices are also likely

to increase as electricity markets

through out the U.S. are deregulated.

(ASAP, No. 108 at p. 1; ACEEE,

Transcript No. 73 at pp. 154–158;

NWPPC, No. 76 at pp. 3–4; and

Synapse, Transcript No. 73 at pp. 152–

153).

Dominion Virginia Power (Dominion),

The Southern Company (Southern), and

EEI all disagree with the assertion that

higher marginal costs will result from

higher wholesale electricity costs.

Dominion stated that recent

deregulation pilot programs in Virginia

revealed that residential consumers are

not being offered rates that reflect the

costs of generation (e.g., time of use

rates). Southern warned that it is

premature to draw conclusions from

wholesale electricity costs this early

into the deregulation process. Extremely

high wholesale prices now may not be

an indicator as what will happen to

retail prices in the future. Southern also

warned that the specific problems facing

California with regard to wholesale

electricity costs are not representative of

the current situation in the Southeast

where peak prices were considerably

lower in the summer of 2000 on pooled

prices than they were the previous

summer because of greater supply

availability. EEI argued that flat rate

retail pricing will likely continue into

the future even under a deregulated

market. Electricity suppliers will hedge

against any probable summer price

spikes by offering high enough flat rates

so that financial losses incurred during

times of high summer wholesale costs

will be more than offset by the profits

earned during times when wholesale

costs are low (e.g., off peak summer

hours or the winter season). (EEI,

Transcript No. 73 at pp. 148–150;

Dominion, Transcript No. 73 at pp. 158–

160; and Southern Company, No. 96 at

pp. 6–7).

As was stated in the proposed rule,

the method for establishing marginal

electricity prices only allows for

defining marginal prices for those years

in which data are available. In the case

of residential pricing, the data for

establishing marginal prices (the 1997

RECS 8) was taken from the years 1996

and 1997. For commercial buildings,

utility tariffs used to establish marginal

prices were collected in the year 1997.

On average, residential marginal prices

for households with central air

conditioners are 3 percent lower than

average rates while for households with

heat pumps marginal prices are 7

percent lower. Space-cooling marginal

prices in commercial buildings are on

average 2 percent greater than average

commercial rates. Our method for

determining marginal prices provides a

snapshot of recent retail rates and may

or may not accurately reflect what

marginal prices will be like in the

future. Although wholesale electricity

costs for four deregulated electricity

markets demonstrate higher wholesale

electricity costs during times when air

conditioners are likely to be used, we

cannot speculate as to how wholesale

electricity prices will be translated into

retail prices to residential consumers.

Thus, rather than speculating as to how

electricity deregulation may impact

marginal electricity prices, we are

retaining our existing method for

establishing marginal prices.

With the above said, the Department

investigated the sensitivity of consumer

life-cycle costs (aggregated to a national

level in the form of a net present value

(NPV)) to increases in the marginal

electricity price. As will be reported in

Chapter V, Analytical Results, the NPV

of a 13 SEER standard based on Reverse

Engineering manufacturing costs is a

savings to the nation of $1 billion. An

increase in the marginal electricity price

of 3 cents/kWh yields a further increase

in the operating cost savings so that the

NPV equals $5 billion. Although the

Department will continue to rely on its

existing method for establishing

marginal electricity prices, we recognize

that future changes in the electric utility

industry due to deregulation could

significantly change future electricity

prices and, as a result, improve the

economic benefits of the standards

being issued today.

d. Product Life. ARI, Carrier Corp.,

and The Trane Company all asserted

that the 18.4-year average equipment

lifetime assumed by the Department is

not representative of actual central air

conditioner and heat pump life. Both

Carrier and Trane believed the lifetime

is 15 years while ARI stated that the

lifetime is even lower at 13 years. (ARI,

No. 100 at p. 4; Carrier, No. 92 at p. 5;

and Trane, No. 93 at p. 8).

The basis of the 18.4-year equipment

lifetime was a survey conducted on

more than 2,100 heat pumps in a seven

state region of the U.S.9. The survey

determined not only the lifetime of a

complete heat pump system, but the life

of the original compressor as well.

Although the system lifetime is on

average over 18 years, the survey also

showed that the original compressor

lifetime was, on average, 14 years. Thus,

the survey indicated that essentially all

heat pump owners replaced their

original compressor once in the lifetime

of system. Since the heat pump survey

clearly indicates that the original

compressor is replaced once in a

system’s life, DOE’s analysis was based

on the inclusion of a repair cost for the

compressor. Conducting the analysis in

this manner retains the average system

lifetime of 18.4 years but explicitly

addresses the replacement cost of the

compressor, which is the most

expensive component of a system. As

indicated by the survey data, the

compressor was assumed to be replaced

in the 14th year of the system’s life.

Although a shorter equipment lifetime

is possible, the Department has not been

provided with more substantive data to

support discontinuing its use of the

above mentioned survey data. The

Department believes that the survey


 EE-RM-STD-98-440 COMMENT 311
7180 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

data provides an accurate representation

of central air conditioner and heat pump

life. In addition, an average lifetime of

14 years was run as a scenario for the

analyses conducted for the proposed

rulemaking showing that the resulting

consumer economics were very close to

the results generated with the 18.4-year

average life coupled with compressor

replacement costs.

e. Installation Cost. International

Comfort Products (ICP) and HEI stated

that the consumer’s installation costs,

e.g, labor and materials costs, exclusive

of equipment cost, for installing a

central air conditioner or heat pump

will increase with product efficiency.

(ICP, Transcript No. 73 at pp. 126–127;

and HEI, Transcript No. 73 at pp. 92–

93). ICP specifically voiced concerns

over the installation cost differences

between baseline (10 SEER) and 14

SEER equipment stating that the more

efficient equipment, due its increased

physical size, would incur higher labor

expenses as a result of needing extra

personnel to install the equipment.

Other comments claimed that

installation costs would be impacted by

larger and more efficient units for those

installations with size constraints such

as equipment closets in manufactured

homes and certain replacement

installations in single-family homes.

(MHI, No. 99 at p. 4; York, No. 90 at p.

5; and Lennox, No. 91 at p. 7).

Throughout the analysis we have

assumed that installation costs would

remain constant as efficiency increased.

We remain unconvinced based on the

comments we have received that our

assumption is necessarily incorrect.

Even if installation costs do generally

rise as the size and weight of equipment

increases, manufacturers will have the

incentive under new standards to

reduce the size of 13 SEER equipment

using various approaches at their

disposal. These include existing design

options that we have mentioned, such

as adopting variable speed and

modulating capacity technologies,

converting to microchannel heat

exchangers, increasing the size of the

unconstrained outdoor unit or indoor

unit only, or changing the footprint or

elevation of the unit. These possible

solutions are applicable to

manufactured homes as well as sitebuilt homes.

For those reasons, we are retaining

our assumption that installation costs

remain constant as efficiency levels rise.

f. Markups. ARI, York, Carrier and

Trane commented that we had

apparently assumed that markups

decreased as efficiency levels increased,

and provided evidence to the contrary.

(ARI, No. 100 at p. 3; York, No. 90 at

p. 4; Carrier, No. 92 at p. 5; and Trane,

No. 93 at p. 12).

In fact, we did assume for the

Manufacturer Impact Analysis that

markups increase with increasing

efficiency under a given standard level.

This agrees with the comments.

However, for the consumer economic

analyses, as the minimum standard

level increases, we assumed that some

of the markups on the baseline product

do decrease. Comments did not address

that issue, and we believe our

assumption is correct. Appendix D of

the TSD provides more information on

this issue.

3. Shipments/National Energy Savings

a. Adjustments to NAECA Shipment

Scenario. ACEEE and the NEEP assert

that the NAECA efficiency scenario we

developed is not at all representative of

the effect of the NAECA standard as we

claim. (ACEEE; Transcript No. 73 at p.

213 and No. 118 at p. 4). They point out

that the distribution of equipment

higher than 10 SEER in 1993 was 18

percent, and that our NAECA scenarios

apply much smaller fractions of

shipments than 18 percent.

As we mentioned in the TSD for the

proposed rule (section 8.3.5), the

NAECA scenario represents the effect

that NAECA had on equipment

efficiency in the market. A further

explanation is warranted. While sales of

equipment rated higher than 10 SEER

was indeed 18 percent in 1993, it was

10 percent in 1992, 7 percent in 1991,

5 percent in 1990 and 3 percent in 1989.

A trend of improving efficiency had

already been in place since the late

1970’s. NAECA, which became effective

in 1992, clearly did not cause all the

high efficiency shipments that existed

in 1993. However, NAECA did seem to

stimulate more high efficiency

shipments than could have been

explained by the ongoing trend. It is that

enhancement to the status quo that our

NAECA scenario attempts to reproduce.

Thus, under our NAECA scenario,

shipments above the 13 SEER level

increase from 1 percent under the base

case to 7 percent with a 13 SEER

standard. Expecting them to increase

from 1 percent to 18 percent as ACEEE

and NEEP seem to assert is not at all

representative of the NAECA experience

and is more in line with the Shift

scenario that we developed.

b. Fuel Switching. Several comments

noted the potential for fuel- or

equipment-switching from heat pumps

to either gas-fired or electric resistance

heating equipment due to the disparity

in the standards proposed for central air

conditioners (12 SEER) and heat pumps

(13 SEER). The comments stated that the

incremental purchase price of a 13 SEER

heat pump relative to a 12 SEER air

conditioner with either a gas-fired or

electric resistance heating system is

great enough to drive heat pump

consumers to an alternative spaceconditioning system. (ARI, No. 100 at p.

10; Southern Company, No. 96 at p. 3;

AEP, No. 83 at p. 2; Carrier, No. 92 at

p. 4; EEI, No. 80 at p. 8; York, No. 90

at p. 7; and Lennox, No. 91 at pp. 4–6).

Acknowledging the potential for fuelor equipment-switching, both ASE and

ACEEE recommended setting both air

conditioner and heat pump standards to

13 SEER. (ASE, Transcript No. 73 at p.

197; and ACEEE, Transcript No. 73 at

pp. 202–203).

From the perspective of saving the

maximum amount of energy that is

economically justifiable, the biggest

‘‘fuel’’ switching concern is from heat

pumps to a combination of central air

conditioners and electric resistance

heating. This may occur in households

that have only electric service and

where the incremental purchase price of

heat pumps is too great. Such a price

increase might occur if the standard on

heat pumps is significantly higher than

the standard for central air conditioners.

Based on data from the 1997 RECS, a

little over 14 percent of households

have either baseboard or forced air

electric resistance heating with room or

central air conditioning compared to

almost 10 percent of households which

have heat pumps. Because there are

already such a large percentage of

households that utilize a combination of

central or room air-conditioning with

resistance heat to meet their spaceconditioning needs, this supports the

possibility that some purchasers would

choose to switch to resistance heat from

heat pumps.

Compared to heat pumps meeting the

standards issued in the proposed rule

(i.e., 13 SEER and 7.7 HSPF), electric

resistance heating uses over 225 percent

of the energy for the same amount of

heating. Therefore, if a standard of 13

SEER and 7.7 HSPF is issued for heat

pumps while a 12 SEER standard is set

for central air conditioners, a mere 4

percent of heat pump households would

need to switch to central air

conditioners and electric resistance

heating to negate the energy savings

achieved from increasing the heat pump

standard from 12 SEER/7.4 HSPF to 13

SEER/7.7 HSPF.

If heat pump and air conditioner

standards were set at different levels,

the price differential between the two

would increase on the order of $200.

Under those conditions, we consider it

likely that at least 4 percent of

prospective heat pump owners would


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7181

10Staying cool: How Energy-Efficient Air

Conditioners Can Prevent Blackouts, Cut Pollution

and Save Money, Appliance Standards Awareness

Project, July 2000, Authors: J. Thone, T. Kubo, and

S. Nadel.

11Conservation Screening Curves to Compare

Efficiency Investments to Power Plants:

Applications to Commercial Sector Conservation

Programs, Lawrence Berkeley National Laboratory,

Berkeley, CA, August 1990, published in the

Proceedings of the 1990 ACEEE Summer Study on

Energy Efficiency in Buildings, Authors: J. Koomey,

A. Rosenfeld, and A. Gadgil.

12Personal communication with Steve Nadel,

ACEEE, October, 2000.

switch to lower-priced resistance heat.

Therefore, we have weighed this

concern in adopting today’s standard

levels, which require air conditioners

and heat pumps to meet the same

minimum efficiency standard so as to

reduce the likelihood of switching to

resistance heating.

A larger price differential between

heat pumps and air conditioners will

also tend to encourage switching to gas

or oil fired furnaces. It is not our

objective to encourage or discourage

that type of fuel switching. Therefore,

we also considered this potential effect

in our decision to establish air

conditioner and heat pump efficiency

standards at the same SEER level.

c. Drop in Shipments in New

Construction Market. ACEEE argued

that DOE’s forecasts for more efficient

air-conditioning equipment estimated

too large of a drop in shipments to the

new construction market. They state

that because the new construction

market already has an 80 percent

saturation rate it is unlikely that this

market will forego the installation of

more efficient air-conditioning

equipment due to its associated

increased purchase price. (ACEEE,

Transcript No. 73 at pp. 219–221). This

is effectively an argument that the price

elasticity of air conditioners and heat

pumps in the new construction market

should be much lower than we have

assumed.

Historical saturation data, however,

seems to confirm that the price elasticity

in the new construction market is closer

to what was derived for the Shipments

Analysis, which is already much lower

than the elasticity we assumed in the

replacement market, for example. As the

price of air conditioners and heat

pumps has dropped over time relative to

household income, the saturation of airconditioning and heat pump equipment

has increased in the new housing

market to its current value of 80 percent.

Because of the high saturation in the

new construction market, the purchase

price elasticity for the new housing

market is small relative to the

replacement market. But although the

price elasticity is small, a decrease in

shipments to the new construction

market will still be likely when

equipment prices increase (as we expect

to occur under a new efficiency

standard). As a result, for the case of a

13 SEER standard for split system air

conditioners for example, shipments to

the new construction market drop by

approximately 3 percent based on

reverse engineering manufacturing cost

data. For comparison purposes,

shipments to the early replacement

market drop much more significantly

(approximately 15 percent) as this

market is far less saturated and the

resulting purchase price elasticity is

much more elastic. For those reasons,

we retained our assumed price elasticity

in the analysis.

4. Manufacturer Impact Analysis

A few comments addressed the

manufacturer impact analysis. Trane

disputes our assumed manufacturer

markups. ARI commented that a survey

of their members revealed that our

markup assumptions are grossly

underestimated, but the TSD (Table 8.7)

reveals that, in fact, their survey data

agrees with the markups we used in the

GRIM analysis to estimate manufacturer

impacts. (Trane, No. 93 at pp. 12 and 22;

and ARI, No. 100 at p. 3).

Trane also pointed out several

oversights and simplifications relating

to our characterization of manufacturers

and our apparent failure to present cash

flow results and other important

indicators of financial strength. (Trane,

No. 93 at pp. 6, 11–13 and 23). We

believe that Chapter 8 of the TSD

addresses most of Trane’s concerns. No

evidence cited in the comments suggest

that our assumptions contain errors that

would warrant significant change in our

conclusions regarding manufacturing

impacts.

5. Utility Impacts

a. Peak Demand Impacts. ACEEE

asserts that the peak power impacts

presented in the proposed rule

underestimate the true peak generation

impacts due to central air conditioner

and heat pump standards. ACEEE’s

assertion is based on what they consider

as more accurate and significantly

greater peak impacts as estimated by the

Appliance Standards Awareness Project

(ASAP).10 (ACEEE, No. 104 at pp. 5–6).

APPA warned that excessively high

SEER standards could increase peak

demand. (APPA, No. 113 at p. 1).

For purposes of comparing the

estimated peak impacts from the

Department’s analysis based on the use

of NEMS–BRS and those from ASAP, it

is helpful to consider the concept of a

conservation load factor (CLF). The CLF

was first introduced by researchers at

Lawrence Berkeley National Laboratory

to allow for the straightforward

calculation of the peak demand avoided

from a given amount of energy

savings.11 The CLF is defined as:

CLF

Peak Load = ⋅

Annual Site Energy Savings (kWh)

Savings (kW) 8760 hours

Thus, a conservation technology that

saves a constant amount of power on a

continuous basis has a CLF of 1.0.

Because air conditioning use occurs

most often during times of peak

demand, the CLF is significantly lower.

The lower the CLF, the greater the

amount of peak load savings achieved

for a given amount of annual energy

savings.

For a 13 SEER central air conditioner

and heat pump standard, NEMS–BRS

forecasts peak demand savings which

result in a nationally representative CLF

of 0.22. In contrast, for the same 13

SEER standard, ASAP forecasts energy

and peak demand savings which result

in CLFs ranging from 0.08 to 0.14. Based

on the above discrepancy in the CLF,

ACEEE asserts that the peak demand

savings forecasted by NEMS–BRS are

too low. The Department disagrees with

ACEEE’s position for two reasons: (1)

ASAP’s peak savings estimates rely on

suspect air conditioner demand data,

and (2) metered end-use data from airconditioned households in California

and Florida indicate that the NEMS–

BRS-based CLF value of 0.22 is

reasonable.

With regard to ASAP’s peak demand

estimates, regional calculations are

based on peak demand data from a

single 1988 study by the Narragansett

Electric Co. (an electric utility in the

Northeast).12 Although ASAP increased


 EE-RM-STD-98-440 COMMENT 311
7182 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

13Residential Appliance End-Use Survey;

Collection of Residential Appliance Time-of-Use

Energy Load Profiles; 1991 Results, prepared by

Quantum Consulting Inc., Berkeley, CA for

Southern California Edison Co., San Dimas, CA,

November, 1992.

14Monitored Energy Use Patterns in Low-Income

Housing (FSEC-PF–300), Florida Solar Energy

Center, Cocoa, FL, 1996, Authors: D. S. Parker, M.

D. Mazzara, and J. R. Sherwin.

the Northeast peak demand data by 25

percent for the two Southern divisions

and decreased it by 25 percent for the

Pacific division, no basis for these

adjustments are provided. Because of

ASAP’s reliance on peak demand data

from only one region of the country, we

do not place much confidence in the

peak generation savings provided by

ASAP.

As opposed to the ASAP results,

metered end-use data from Southern

California and Florida indicate that

climate has a much larger affect on the

CLF than reported by ASAP. In

Southern California, a metered end-use

study conducted on 132 air-conditioned

households in Southern California

Edison’s service area revealed that the

CLF for this region is likely 0.08.13 In

Homestead, Florida, a metered end-use

study conducted on ten air-conditioned

homes indicated that the CLF is likely

0.42.14 Although strong conclusions

cannot be drawn from only two studies,

the metered end-use results do provide

the Department with some confidence

that the NEMS–BRS CLF estimate of

0.22 is reasonable since it falls between

the CLF range provided by the two

metered end-use studies. Therefore, we

have reason to believe that our

assumption is more valid than ASAP’s.

Obviously more research needs to be

conducted in the area of peak demand

impacts due to increased air conditioner

efficiency. But until such extensive

research is conducted, the Department

sees no reason to discontinue its use of

NEMS-BRS to estimate peak demand

savings.

6. Projection of Trends

Several comments suggested or

asserted that we should project

historical trends that they believe exist.

These include price reductions or

productivity improvements in

manufacturing. (ACEEE, Transcript No.

73 at pp. 64 and 88–90; and NRDC,

Transcript No. 73 at pp. 105 and 115),

post-standard product efficiencies

(ACEEE, Transcript No. 73 at p. 210),

and electricity prices. (ASAP, No. 108 at

p. 1; ACEEE, Transcript No. 73 at pp.

154–158; NWPPC, No. 76 at pp. 3–4;

and Synapse, Transcript No. 73 at pp.

152–153).

Other comments responded to some

of these suggestions. With regard to the

issue of price reductions or productivity

improvements, some contend that

reductions are due to declining

commodity metals prices rather than

any increases in production efficiency.

(Lennox, No. 91 at pp. 4–5). On the

issue of efficiency trends, EEI claims

that rather than post-standard efficiency

increases, the Department neglected to

account for pre-standard efficiency

increases. (EEI, Transcript No. 73 at pp.

206–208). Counter to claims that

electricity prices will increase in the

future due to the deregulation of the

electric utility industry, others state that

the future path of deregulation is so

uncertain that it is unknown as to

whether prices will decline or increase.

(EEI, Transcript No. 73 at pp. 148–150;

Dominion, Transcript No. 73 at pp. 158–

160; and Southern Company, No. 96 at

pp. 6–7).

In these instances where we have

conflicting opinions about what is

responsible for creating a trend, we have

no basis for changing our initial

assumption. Usually, we rely on the

most recent set of data we have

available to us to make projections into

the future. In the case of efficiency

trends, we rely on existing trends that

seem to indicate that efficiency will

remain static after a new standard

becomes effective. In the case of

electricity prices, we rely on the

projections provided in the Annual

Energy Outlook, which is publicly and

readily available, and which we assume

is unbiased with respect to parties

interested in the outcome of this

rulemaking. Since this is the case for all

the supposed trends listed above, we

have not changed any of our projections.

C. Other Comments

1. HCFC Phaseout

Comments noted that as efficiency

increases, refrigerant charge may

increase also. This could cause the

United States to reach its cap on HCFC–

22 use earlier, resulting in higher prices

for HCFC–22 than we have considered.

(Carrier, No. 92 at p. 4). We would point

out that occurrence would likely

accelerate the transition to HCFC-free

refrigerants. There are also other options

available for manufacturers to improve

equipment efficiency without increasing

equipment size or charge. Both of these

factors will have the effect of

suppressing increases in refrigerant

prices over the long term.

2. Ozone Reduction Catalyst

Requirement

ARI and its members remind us to

consider the potential impact on the

industry of Texas’ proposed

requirement to mandate the application

of ozone reduction technology in its

most severe non-attainment areas. (ARI,

No. 100 at p. 13; and Carrier, No. 92 at

p. 4).

We understand that Texas has since

withdrawn its proposal. However, the

TSD does include a preliminary

estimate of the burden of this

requirement on the industry and, to the

extent that other states may pursue the

same course of action, included that in

our consideration of cumulative burden.

We consider that widespread

requirements for this technology will

not be likely, due to its apparently high

cost, questionable efficacy, and possible

reduction in energy efficiency.

D. Additional Standard Requirements

1. EER Standard

In the proposed rule, we discussed

including a requirement for a new

standard based on a system’s energy

efficiency ratio (EER) in addition to its

seasonal energy efficiency ratio (SEER).

That new standard was to be established

at the median of available EER ratings

at a particular SEER level. Our objective

was to ensure that any increase in the

SEER standard also resulted in an

increase in equipment efficiency under

the warmer conditions best measured by

EER. That resulting drop in peak power

demand would then help avoid the need

for new power plants and, in the view

of many stakeholders, improve power

system reliability. We asked whether an

EER standard would impose a

significant burden on manufacturers,

would significantly affect the cost of

equipment considered in our analysis,

would negatively impact the sale of

modulating equipment, or would

significantly improve power system

reliability.

Several comments, including those of

environmental advocacy groups and

some utilities, supported adding an EER

standard and urged us to adopt the

median EER standards we proposed.

They cited potential benefits that would

accrue from avoidance of new power

plant capacity and a reduction in the

occurrence of blackouts. NRDC believes

that the Act requires us to adopt an EERbased standard. Underlying these

comments is a belief that SEER

standards alone cannot guarantee those

benefits. Carrier supports an EER-based

standard only in lieu of a SEER-based

standard because it would harmonize

with International Standards

Organization testing requirements.

(ACEEE, Transcript No. 73 at p. 62;

NWPPC, Transcript No. 73 at p. 161;

ASE, No. 81 at p. 1; NPPD, No. 109 at

p. 1; OOE, No. 84 at p. 2; NRDC, No. 88


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at p. 3; Omaha Public Power District

(OPPD), No. 111 at p. 2; and Carrier, No.

92 at p. 8).

Other comments took an opposing

position on the grounds that including

an EER standard would impede the

application of modulating components;

that we are not permitted to adopt a

standard other than SEER and have not

sufficiently analyzed the validity of an

EER-based standard; that an EER

standard would eliminate products from

the market; that an EER standard will

not improve electric system reliability,

particularly nationwide; and that there

are burdens associated with testing and

certifying EER. (National Comfort

Products (NCP), No. 77 at p. 3; EEI,

Transcript No. 73 at p. 327 and No. 80

at pp. 3 and 9; Dominion, Transcript No.

73 at p. 264 and No. 68 at p. 2; Trane,

No. 93 at p. 14; York, No. 90 at pp. 1–

4; ARI, Transcript No. 73 at p. 320 and

No. 100 at p. 16; Goodman, Transcript

No. 73 at p. 302; and Southern,

Transcript No. 73 at p. 243).

It is true that under the efficiency

level approach, we assume that all

equipment at the same SEER level costs

the same to produce regardless of the

combination of design options chosen to

achieve that SEER level. These options

include those that raise EER, including

compressor and heat exchanger

upgrades, as well as those that do not

raise EER, such as thermostatic

expansion valves. For any given SEER

and HSPF levels, the efficiency level

approach cannot differentiate

equipment cost based on different EER

choices.

Underlying the efficiency level

approach, however, is the assumption

that manufacturers make cost-optimal

choices based on their own unique

situations. Therefore, a manufacturer

who was required to raise the EER of its

equipment from the 10th percentile to

the 50th percentile (median) would

indeed incur added costs since its

design choices would no longer be costoptimal for its own circumstances.

Since efficiency levels are expressed in

terms of SEER and HSPF only, we

would have to depart from the

efficiency level approach in order to

quantify those costs.

We are still convinced that the

stringent physical relationship between

EER and SEER in equipment rated

through 12 SEER, which is comprised

exclusively of non-modulating

equipment, would remain intact under

new standards and for the foreseeable

future. Under the adopted 13 SEER

standard, we have less certainty since

there are counteracting incentives. On

the one hand, to reduce warranty

claims, manufacturers have a strong

incentive to simplify the design of

baseline equipment. This suggests they

will favor heat exchanger or compressor

improvements that improve EER.

On the other hand, manufacturers will

have a strong incentive to reduce the

size of 13 SEER baseline equipment.

Although microchannel heat exchangers

could reduce size and improve EER,

manufacturers could also choose to

introduce variable speed or capacity

modulation technologies that can

induce them to lower EER at a given

SEER level. As the cost of power

electronics and control technologies

come down, this possibility becomes

more likely.

However, even if variable speed or

modulating technologies eventually

predominate, and thereby reduce EERs

in typical equipment, they would still

reduce peak demand compared to

today’s 10 SEER baseline equipment.

Furthermore, because variable speed

and modulating equipment mitigate the

cyclic losses that are due to widespread

over sizing, the aggregated peak demand

of a group of modulating air

conditioners with lower EERs will likely

be lower than that of a similar group of

non-modulating air conditioners with

higher EERs at the same SEER level.

Also, utilities have the opportunity with

modulating equipment to offer

customers the option to allow the utility

to ‘‘lock’’ the equipment into lowcapacity operation in return for a lower

electricity price.

Finally, although the Department is

interested in reducing peak demand, the

primary purpose of appliance efficiency

standards is to save energy. An EER

standard could be counterproductive by

discouraging variable speed and

modulation, which can save substantial

amounts of energy over the cooling

season while providing consumers with

additional benefits not found in single

speed and non-modulating equipment.

Although the Department believes

that EPCA permits adoption of an EER

standard, for the foregoing reasons, we

do not believe that the Act requires or

suggests that we establish such a

standard under the circumstances here.

Given the adopted standard levels, a

national EER standard is both

unnecessary and undesirable. Most

benefits accruing from an EER standard

will likely accrue from the SEER

standards alone, without the associated

burdens on manufacturers and the

disincentives to apply energy-saving

modulating technologies. Therefore, we

have not adopted an EER standard in

this rule.

2. TXV Requirement

In the proposed rule, we discussed

the issues associated with mandating

thermostatic expansion valves, or TXVs.

We did not propose such a requirement,

but we recognized that such a

requirement may be capable of saving a

great deal of energy. We discussed our

options for encouraging their use.

Many comments continue to express

strong support for a TXV requirement.

Many cite a report submitted by Proctor

Engineering (Proctor) that describes the

results of a field study covering 4,000

units in California. The study concluded

that 62 percent of equipment is

mischarged by more than 5 percent, and

that TXVs, which perform better than

fixed orifices in undercharged

conditions, could save 11 percent of the

energy used by that equipment. (Proctor

No. 105; OOE, No. 84 at p. 2; NRDC, No.

88; California Energy Commission

(CEC), No. 98 at p. 1; ACEEE, No. 101

at p. 8; PG&E No. 104 at p. 1; and ASAP,

Transcript No. 73 at p. 4).

Other comments expressed some

resistance to a TXV requirement,

particularly regarding our authority to

establish one. Some also express

concerns about problems associated

with TXVs. (NCP, No. 77 at p. 4; Trane,

No. 93 at p. 19; York, No. 90 at pp. 4–

5; Lennox, No. 91 at p. 3; EEI No. 80 at

p. 3; and Carrier, No. 92 at p. 10).

In response to our concern that

mandating TXVs would stifle the

development of other, perhaps

preferable, technologies, Proctor and

ACEEE suggested performance tests that

could be applied in lieu of a TXV

requirement. They would reward

equipment that possessed a TXV or

performed as well while undercharged

or when airflow is restricted. This

approach is at least partially endorsed

by others. (NRDC No. 88 at p. 17; CEC

No. 199 at p. 1; and OOE, No. 84 at p.

8). Some of the commenters preferred

that we initially specify TXVs but then

phase out that requirement in favor of

a performance-based approach.

As we alluded to in the proposed rule,

a performance-based approach is also

our preference and is certainly in the

spirit of EPCA. As such, the SEER test

procedure, not a TXV requirement,

appears to be the most appropriate

vehicle for assuring that an equipment’s

efficiency rating is based on its

performance characteristics. In fact,

TXVs already receive credit in the test

procedure because of their superior

cyclic performance. We are not eager to

circumvent the test procedure,

particularly when the key data either are

not available or have not been

thoroughly reviewed by all interested


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parties. That said, we favor a SEER test

procedure that fairly evaluates

equipment performance under

conditions that represent those

encountered in the field. We would

prefer to encourage correct charging or

proper airflow, but we recognize that

practical barriers exist, and we will take

steps to evaluate whether the SEER test

procedure can and should be amended

to better reflect equipment performance

under improper charge or airflow.

In sum, we are not adopting a TXV

requirement in this rulemaking. Any

alterations in the SEER test procedure to

further encourage the use of TXVs will

be undertaken in a separate process. In

addition to pursuing modifications to

the test procedure, we encourage parties

interested in encouraging the broader

application of TXVs to pursue other

avenues. These include voluntary

programs like Energy Star, tax

incentives, and other state and local

initiatives, which can all be tied to the

presence of a device like a TXV. States

also have the opportunity to apply to us

for an exemption from preemption that

would allow them to implement their

own requirements based on their own

unique circumstances.

3. HSPF Levels

Some comments urged us to

reconsider our proposed HSPF levels,

particularly to reflect differences among

the HSPF-SEER relationships across

capacity ratings. Trane commented that

HSPF-SEER factors for heat pumps are

lower with 410A refrigerant than with

HCFC–22, and that the current proposal

for HSPF is too high for 410A by as

much as 3 to 5 percent. (ARI, No. 100

at p. 11; Carrier, No. 92 at p. 7; and

Trane, No. 93 at p. 8). Others urged us

to adopt HSPF levels at the median for

each SEER level we considered. (OOE,

No. 84 at p. 11; and ACEEE, No. 104 at

p. 12).

As we explained in the proposed rule,

we established the HSPF levels

corresponding to SEER levels in an

attempt to maintain the existing offset

between the minimum HSPF and the

minimum SEER. Heating energy is a

large fraction of total heat pump energy

consumption, so we prefer not to relax

that relationship without sound

evidence regarding the burdens that

would be mitigated. We are reluctant to

adopt a more stringent level since we

are aware that heat pump design is

difficult and costly, and that

improvements in HSPF typically are

associated with a reduction in SEER.

Too stringent a standard would impose

considerable design and testing burdens

on manufacturers, could result in the

permanent loss of heat pump market

share to electric resistance heat, and

could encourage fuel switching.

For those reasons, we are retaining

our proposed minimum HSPF levels in

the standards adopted today.

V. Analytical Results and Conclusions

A. Trial Standard Levels

We examined five standard levels.

Table V.1 presents the trial standards

levels analyzed for today’s final rule and

the corresponding efficiency level for

each class of product. Trial standard

level 5 is the max tech level for each

class of product.

TABLE V.1.—TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)

Trial standard level Split air conditioners

Packaged air

conditioners

Split heat

pumps

Packaged heat

pumps

1 ....................................................................................................................... 11 11 11 11

2 ....................................................................................................................... 12 12 12 12

3 ....................................................................................................................... 12 12 13 13

4 ....................................................................................................................... 13 13 13 13

5 ....................................................................................................................... 18 18 18 18

For each trial standard level

examined, several different scenarios

were analyzed consisting of variations

on: (1) Electricity price and housing

projections; (2) equipment efficiency

distributions; (3) manufacturer cost

estimates; and (4) societal discount rate.

Electricity price and housing projections

were based on three different AEO 2000

forecasts: (1) Reference Case, (2) High

Growth Case, and (3) Low Growth Case.

We analyzed three efficiency scenarios,

each of which assumed a different

efficiency distribution after new

standards would take effect: (1) NAECA

scenario, (2) Roll-up scenario, and (3)

Shift scenario. Under the standard

levels we are adopting, we believe that

the Roll-up scenario most closely

represents the most likely impact of the

new standards, as explained in Chapter

8 of the TSD. We analyzed two

manufacturer cost scenarios: (1) Based

on reverse engineering data, and (2)

based on ARI-provided mean cost data.

For the reasons expressed in Parts III

and IV of this document, we believe that

the reverse engineering data most

closely represents the costs as they will

actually be under the new standards.

We assumed a societal discount rate of

7 percent for calculating net present

value (NPV). However, a 3 percent value

was investigated as an alternative

scenario in accordance with the Office

of Management and Budget’s (OMB)

Guidelines to Standardize Measures of

Costs and Benefits and the Format of

Accounting Statements.

Our decision on today’s final rule was

arrived at by placing more emphasis on

some scenarios rather than others. Our

estimates of electricity price and

housing projections relied primarily on

the AEO2000 reference case. We

considered primarily the NAECA and

Roll-up efficiency scenarios with an

increasing expectation of the Roll-up

scenario occurring for more stringent

trial standard levels. Finally, we expect

manufacturer costs to lie closer to the

reverse engineering estimates (which lie

between the ARI minimum and ARI

mean values).

The results presented in this chapter

include only those that are needed to

supplement or replace the results we

presented in the proposed rule, which

still form a basis for our decision with

the exception that we are no longer

considering the 14-year life scenarios.

We believe that the 18.4-year life with

a compressor replacement in the 14th

year addresses the concerns of those

who believe that actual equipment life

is closer to 14 years and achieves

substantially the same analytical results.

Therefore, all analyses below assume an

18.4-year average equipment lifetime

with a compressor replacement in the

14th year.

B. Significance of Energy Savings

To estimate the energy savings

through 2030 due to revised standards,

we compared the energy consumption

of central air conditioners and heat

pumps under the base case to energy

consumption of central air conditioners

and heat pumps under the revised

standard.


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Table V.2 shows the range of

cumulative energy savings based on the

AEO 2000 Reference, High Growth, and

Low Growth cases for each trial

standard level. The parameters shown

are the two manufacturing costs and the

three equipment shipment efficiency

scenarios.

TABLE V.2.—RANGE OF NATIONAL ENERGY SAVINGS WITH AEO PRICE FORECAST

Range of national energy savings for units sold from 2006 to 2030 (quads)

Trial standard level

Reverse engineering costs ARI mean costs

NAECA Roll-up Shift NAECA Roll-up Shift

1 ............................................. 1.7 to 1.8 .......... 1.5 to 1.6 .......... 1.9 to 2.0 .......... 1.7 to 1.8 .......... 1.5 to 1.6 .......... 1.9 to 20

2 ............................................. 2.9 to 3.2 .......... 2.8 to 3.0 .......... 3.4 to 3.6 .......... 2.9 to 3.2 .......... 2.8 to 3.0 .......... 3.4 to 3.6

3 ............................................. 3.4 to 3.7 .......... 3.3 to 3.5 .......... 3.8 to 4.1 .......... 3.4 to 3.6 .......... 3.3 to 3.5 .......... 3.8 to 4.1

4 ............................................. 4.3 to 4.6 .......... 4.1 to 4.4 .......... 4.7 to 5.0 .......... 4.2 to 4.5 .......... 4.1 to 4.4 .......... 4.6 to 4.9

5 ............................................. 8.4 to 9.0 .......... 8.4 to 9.0 .......... 8.4 to 9.0 .......... 8.1 to 8.7 .......... 8.1 to 8.7 .......... 8.1 to 8.7

C. Payback Period

As discussed above, the Act requires

the Department to examine payback

periods to determine if the three-year

rebuttable presumption of economic

justification applies. As prescribed by

the Act, the rebuttable payback period is

‘‘calculated under the applicable test

procedure * * *’’.

The annual space-cooling and spaceheating energy consumption calculated

based on the hours of use in the test

procedure are on the order of 50 percent

greater than the weighted-average

energy consumption data used in the

life-cycle-cost (LCC) analysis. The LCC

data are based on the 1997 RECS for

residential buildings and hourly

simulations for commercial buildings.

Since the test procedure assumes higher

annual operating hours than the RECS

data implied, the use of test procedure

energy consumption results in

rebuttable payback periods which are

shorter than median payback periods

calculated from the LCC analysis.

In Table V.3, we list the rebuttable

payback periods versus SEER efficiency

level for the four product classes, using

the 1997 RECS energy consumption

data. This information shows that both

classes of heat pumps are presumed to

be economically justified up to a 12

SEER efficiency level, using the reverse

engineering cost estimates.

TABLE V.3.—SUMMARY OF REBUTTABLE PAYBACK PERIOD (YEARS)

Product class/efficiency level Reverse engineering costs

ARI mean

costs

Split System Central Air Conditioner:

11 ...................................................................................................................................................................... 3.5 4.7

12 ...................................................................................................................................................................... 4.5 5.8

13 ...................................................................................................................................................................... 5.2 7.6

18 ...................................................................................................................................................................... 7.3 11.3

Split System Heat Pump:

11 ...................................................................................................................................................................... 1.3 2.5

12 ...................................................................................................................................................................... 1.8 3.3

13 ...................................................................................................................................................................... 3.2 4.5

18 ...................................................................................................................................................................... 5.8 6.8

Single Package Air Conditioner:

11 ...................................................................................................................................................................... 3.5 7.3

12 ...................................................................................................................................................................... 3.3 6.2

13 ...................................................................................................................................................................... 6.8 9.8

18 ...................................................................................................................................................................... 8.6 13.3

Single Package Heat Pump:

11 ...................................................................................................................................................................... 2.1 3.7

12 ...................................................................................................................................................................... 1.8 4.0

13 ...................................................................................................................................................................... 4.3 6.5

18 ...................................................................................................................................................................... 5.4 7.2

D. Economic Justification

1. Economic Impact on Manufacturers

and Consumers

Estimated economic impacts of

standards on manufacturers are based

on the methodology described in the

proposed rule; however, in today’s final

rule the manufacturer impact analysis

has been expanded to include impacts

based on reverse engineering cost

estimates as well as ARI manufacturing

cost data. The economic impacts on

manufacturers are presented in terms of

industry net present value (INPV) as

well as change in INPV. INPV is

calculated by summing the stream of

annual discounted cash flows beginning

from the base year of the analysis (2000)

and continuing explicitly for ten years

after the implementation of the standard

and adding the discounted value of the

industry at the end of the ten-year

period (see TSD Section 8.4.4 and

Appendix G). The discount rate is based

on the industry’s weighted average cost

of capital. This method of calculating

INPV provides one measure of the fair

value of the industry in today’s dollars.

The impact of new standards on INPV

is then the difference between the INPV

in the base case (no new standards) and

the INPV is the standards case (with

new standards).

Data are presented for the base case

and for trial standard levels 1 through

4, in Tables V.4 through V.9. As can be

observed, manufacturer impacts are

relatively insensitive between the


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manufacturing cost estimates, but

sensitive to the shipment scenarios. The

proposed rule provides additional

information on the methodology,

assumptions and results.

TABLE V.4.—CHANGES IN INDUSTRY NET PRESENT VALUE—REVERSE ENGINEERING RELATIVE COST, NAECA

EFFICIENCY MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,539

1 ................................................................................................................................................... 1,509 (30) ¥2

2 ................................................................................................................................................... 1,380 (159) ¥10

3 ................................................................................................................................................... 1,368 (171) ¥11

4 ................................................................................................................................................... 1,370 (169) ¥11

TABLE V.5.—CHANGES IN INDUSTRY NET PRESENT VALUE—REVERSE ENGINEERING RELATIVE COST, ROLL-UP

EFFICIENCY MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,539 ........................ ........................

1 ................................................................................................................................................... 1,379 (160) ¥10

2 ................................................................................................................................................... 1,226 (313) ¥20

3 ................................................................................................................................................... 1,220 (319) ¥21

4 ................................................................................................................................................... 1,236 (303) ¥20

TABLE V.6.—CHANGES IN INDUSTRY NET PRESENT VALUE—REVERSE ENGINEERING RELATIVE COST, SHIFT EFFICIENCY

MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,539 ........................ ........................

1 ................................................................................................................................................... 1,658 119 8

2 ................................................................................................................................................... 1,772 233 15

3 ................................................................................................................................................... 1,776 237 15

4 ................................................................................................................................................... 1,824 285 19

TABLE V.7.—CHANGES IN INDUSTRY NET PRESENT VALUE—ARI MEAN MANUFACTURING COST, NAECA EFFICIENCY MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,603 ........................ ........................

1 ................................................................................................................................................... 1,566 (37) ¥2

2 ................................................................................................................................................... 1,417 (186) ¥12

3 ................................................................................................................................................... 1,406 (197) ¥12

4 ................................................................................................................................................... 1,420 (183) ¥11

TABLE V.8.—CHANGES IN INDUSTRY NET PRESENT VALUE—ARI MEAN MANUFACTURING COST, ROLL-UP EFFICIENCY MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,603 ........................ ........................

1 ................................................................................................................................................... 1,422 (181) ¥11

2 ................................................................................................................................................... 1,241 (362) ¥23

3 ................................................................................................................................................... 1,236 (367) ¥23

4 ................................................................................................................................................... 1,268 (335) ¥21


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TABLE V.9.—CHANGES IN INDUSTRY NET PRESENT VALUE—ARI MEAN MANUFACTURING COST, SHIFT EFFICIENCY MIX

Standard level

Industry net

present value

($ million)

Change in INPV from base

case

$ million Percent

Base ............................................................................................................................................. 1,603 ........................ ........................

1 ................................................................................................................................................... 1,740 137 9

2 ................................................................................................................................................... 1,825 222 14

3 ................................................................................................................................................... 1,854 251 16

4 ................................................................................................................................................... 1,914 311 19

Table V.10 provides the change in INPV relative to the base case (with no change in standards) for trial standard

levels 1 through 4. Data are presented for two industry segments (lower cost manufacturers and higher cost manufacturers),

and for the three shipment efficiency scenarios.

TABLE V.10.—CHANGE IN INDUSTRY NET PRESENT VALUE (PERCENT) RELATIVE TO BASE—COMPARISON BETWEEN

LOWER (L) AND HIGHER (H) COST MANUFACTURERS

Standard

level

Reverse engineering relative cost (in percent) ARI mean manufacturing cost (in percent)

NAECA Roll-up Shift NAECA Roll-up Shift

LHLHLHLHLHLH

1 ............... 5 ¥4 3 ¥15 6 8 5 ¥5 3 ¥16 7 9

2 ............... 7 ¥16 5 ¥28 13 16 7 ¥17 5 ¥31 12 14

3 ............... 8 ¥17 6 ¥29 14 16 9 ¥19 6 ¥32 14 16

4 ............... 12 ¥18 10 ¥29 19 18 15 ¥19 13 ¥31 21 19

For the group most negatively impacted, i.e., the higher cost group, Table V.11 presents the Return on Invested

Capital (ROIC) in year 2011 associated with the base case, and with each new standard level for the NAECA and

Roll-up shipment efficiency scenarios.

TABLE V.11.—RETURN ON INVESTED CAPITAL (ROIC) IN 2011 FOR HIGHER COST MANUFACTURERS

Standard level

Reverse engineering

(in percent)

ARI manufacturing costs

(in percent)

NAECA Roll-up NAECA Roll-up

Base ................................................................................................................. 13.0 13.0 13.3 13.3

1 ....................................................................................................................... 12.2 10.7 12.3 10.7

2 ....................................................................................................................... 10.2 8.5 0.2 8.4

3 ....................................................................................................................... 10.0 8.4 10.0 8.3

4 ....................................................................................................................... 9.7 8.4 9.6 8.3

Consumers will also be affected by

increased efficiency standards in that

they will experience higher purchase

prices and lower operating costs. These

impacts are best captured by changes in

life cycle costs which are discussed

below.

2. Life-Cycle-Cost (LCC)

We analyzed the net effect by

calculating the LCC. Inputs required for

calculating LCC include total installed

costs (i.e., equipment price plus

installation costs), annual energy

savings, average and marginal electricity

prices, electricity price trends, repair

costs, maintenance costs, equipment

lifetime, and discount rates.

The output of the LCC model is the

mean LCC savings for each product

class as well as a probability

distribution or likelihood of LCC

reduction or increase. The LCC analysis

for today’s final rule employs a concept

described in the proposed rule with

regard to the percentage of consumers

(both residential and commercial) that

are impacted to a substantial degree by

an increase in the minimum efficiency

standard.

Table V.12 summarizes the LCCs for

baseline split systems and single

package central air conditioners and

heat pumps and also shows a 2 percent

threshold which helped us identify

those consumers who are impacted to a

more substantial degree.

TABLE V.12.—BASELINE LIFE-CYCLE-COSTS

Product Class Baseline LCC 2% of Baseline

LCC

Split Air Conditioners ................................................................................................................................... $5,170 $103

Split Heat Pumps ......................................................................................................................................... 9,679 194

Single Package Air Conditioners ................................................................................................................. 5,629 113

Single Package Heat Pumps ....................................................................................................................... 9,626 193


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Tables V.13 and V.14 depict the LCC

results for split system and single

package central air conditioners and

heat pumps. The tables show the

average LCC values for the baseline and

each trial standard level. Since

manufacturer cost data were not

available for the 18 SEER efficiency

levels, 15 SEER cost data were used for

all 18 SEER calculations resulting in 18

SEER LCC results which underestimate

their true cost level. The data in Tables

V.13 and V.14 also present the

difference in LCC at each efficiency

level relative to the baseline. The

differences represent either an LCC

savings or an LCC cost increase. In

addition, the tables show the subset of

consumers (both residential and

commercial) at each efficiency level

who are impacted in one of three ways:

consumers who achieve net LCC savings

in excess of 2 percent of the baseline

LCC, consumers whose change in LCC

is within ±2 percent of the baseline LCC,

and consumers who achieve a net LCC

increase exceeding 2 percent of the

baseline LCC.

TABLE V.13.—SUMMARY OF LCC RESULTS BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

Product Class/Efficiency Level Average LCC

Average LCC

Savings

(Costs)

Percent of consumers with

Net Savings

(>2 %)

Net Savings or

Costs

(±2%)

Net Costs

(>2 %)

Split System Central Air Conditioner:

10 .................................................................................. $5,170 ........................ ........................ ........................ ........................

11 .................................................................................. 5,095 $75 28 70 2%

12 .................................................................................. 5,057 113 35 40 25%

13 .................................................................................. 5,057 113 34 27 39%

18 .................................................................................. 5,307 (137) 25 7 68%

Split System Heat Pump:

10 .................................................................................. 9,679 ........................ ........................ ........................ ........................

11 .................................................................................. 9,470 209 40 60 0%

12 .................................................................................. 9,314 365 58 42 0%

13 .................................................................................. 9,307 372 52 42 6%

18 .................................................................................. 9,720 (41) 28 15 57%

Single Package Air Conditioner:

10 .................................................................................. 5,629 ........................ ........................ ........................ ........................

11 .................................................................................. 5,551 78 27 72 1%

12 .................................................................................. 5,466 163 40 51 9%

13 .................................................................................. 5,600 29 28 20 52%

18 .................................................................................. 5,905 (276) 21 6 73%

Single Package Heat Pump:

10 .................................................................................. 9,626 ........................ ........................ ........................ ........................

11 .................................................................................. 9,419 207 39 61 0

12 .................................................................................. 9,205 421 66 34 0

13 .................................................................................. 9,273 353 50 38 12

18 .................................................................................. 9,460 166 37 15 48

TABLE V.14.—SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COSTS

Product class/efficiency level Average LCC

Average LCC

savings

(costs)

Percent of consumers with

Net savings

(> 2%)

Net savings or

(costs)

(± 2%)

Net costs

(> 2%)

Split System Central Air Conditioner:

10 .................................................................................. $5,170 ........................ ........................ ........................ ........................

11 .................................................................................. 5,126 $44 23 68 9

12 .................................................................................. 5,125 45 27 34 39

13 .................................................................................. 5,199 (29) 25 17 58

18 .................................................................................. 5,725 (555) 15 4 81

Split System Heat Pump:

10 .................................................................................. 9,679 ........................ ........................ ........................ ........................

11 .................................................................................. 9,529 150 30 70 0

12 .................................................................................. 9,437 242 42 55 3

13 .................................................................................. 9,464 215 39 39 22

18 .................................................................................. 9,955 (276) 23 11 66

Single Package Air Conditioner:

10 .................................................................................. 5,629 ........................ ........................ ........................ ........................

11 .................................................................................. 5,649 (20) 16 47 37

12 .................................................................................. 5,600 29 26 30 44

13 .................................................................................. 5,804 (175) 18 11 71

18 .................................................................................. 6,370 (741) 12 4 84

Single Package Heat Pump:

10 .................................................................................. 9,626 ........................ ........................ ........................ ........................

11 .................................................................................. 9,492 134 28 72 0

12 .................................................................................. 9,372 254 44 49 7

13 .................................................................................. 9,514 112 33 31 36


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7189

15Approximately 7 percent of the RECS 97

households with central air conditioners and 9

percent of the households with heat pumps met this

criteria.

TABLE V.14.—SUMMARY OF LCC RESULTS BASED ON ARI MEAN MANUFACTURING COSTS—Continued

Product class/efficiency level Average LCC

Average LCC

savings

(costs)

Percent of consumers with

Net savings

(> 2%)

Net savings or

(costs)

(± 2%)

Net costs

(> 2%)

18 .................................................................................. 9,922 (296) 24 10 66

Consumer subgroup impacts have been estimated by determining the LCC impacts of the trial standard levels on

those consumers who are below the poverty line (e.g., for a family of four, this constitutes a household income of

less than $16,036). To perform this calculation, we used the subset of RECS 97 data for households that are considered

low-income.15 Table V.15 and V.16 summarize the impacts on low-income consumers who utilize central air conditioners

and heat pumps.

TABLE V.15.—SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON REVERSE ENGINEERING

MANUFACTURING COSTS

Product class/efficiency level Average LCC

Average LCC

savings

(costs)

Percent of consumers with

Net savings

(> 2%)

Net Savings or

(costs)

(± 2%)

Net costs

(> 2%)

Split System Central Air Conditioner:

10 .................................................................................. $4,906 ........................ ........................ ........................ ........................

11 .................................................................................. 4,855 $51 21 74 5

12 .................................................................................. 4,841 65 28 38 34

13 .................................................................................. 4,863 43 26 24 50

18 .................................................................................. 5,176 (270) 17 6 77

Split System Heat Pump:

10 .................................................................................. 8,965 ........................ ........................ ........................ ........................

11 .................................................................................. 8,836 129 26 74 0

12 .................................................................................. 8,742 223 44 56 0

13 .................................................................................. 8,780 185 39 49 12

18 .................................................................................. 9,389 (424) 15 10 75

Single Package Air Conditioner:

10 .................................................................................. 5,327 ........................ ........................ ........................ ........................

11 .................................................................................. 5,272 55 21 77 2

12 .................................................................................. 5,202 125 34 52 14

13 .................................................................................. 5,364 (37) 21 18 61

18 .................................................................................. 5,704 (377) 15 5 80

Single Package Heat Pump:

10 .................................................................................. 9,149 ........................ ........................ ........................ ........................

11 .................................................................................. 9,057 118 24 76 0

12 .................................................................................. 8,973 265 53 47 0

13 .................................................................................. 9,145 148 36 44 20

18 .................................................................................. 9,619 (284) 20 14 66

TABLE V.16.—SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING COSTS

Product class/efficiency level Average LCC

Average LCC

savings

(costs)

Percent of consumers with

Net savings

(> 2%)

Savings/costs

(± 2%)

Net costs

(> 2%)

Split System Central Air Conditioner:

10 .................................................................................. $4,906 ........................ ........................ ........................ ........................

11 .................................................................................. 4,887 $19 17 66 17

12 .................................................................................. 4,903 3 20 29 51

13 .................................................................................. 5,007 (101) 17 14 69

18 .................................................................................. 5,598 (692) 10 2 88

Split System Heat Pump:

10 .................................................................................. 8,965 ........................ ........................ ........................ ........................

11 .................................................................................. 8,890 75 16 84 0

12 .................................................................................. 8,862 103 27 64 9

13 .................................................................................. 8,948 17 25 40 35

18 .................................................................................. 9,610 (645) 11 8 81

Single Package Air Conditioner:

10 .................................................................................. 5,327 ........................ ........................ ........................ ........................


 EE-RM-STD-98-440 COMMENT 311
7190 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

TABLE V.16.—SUMMARY OF LCC RESULTS ON LOW-INCOME CONSUMERS BASED ON ARI MEAN MANUFACTURING

COSTS—Continued

Product class/efficiency level Average LCC

Average LCC

savings

(costs)

Percent of consumers with

Net savings

(> 2%)

Savings/costs

(± 2%)

Net costs

(> 2%)

11 .................................................................................. 5,283 44 11 42 47

12 .................................................................................. 5,313 14 20 27 53

13 .................................................................................. 5,568 (241) 12 9 79

18 .................................................................................. 6,158 (831) 10 2 88

Single Package Heat Pump:

10 .................................................................................. 9,149 ........................ ........................ ........................ ........................

11 .................................................................................. 9,057 92 21 78 1

12 .................................................................................. 8,973 176 35 53 12

13 .................................................................................. 9,145 4 25 27 48

18 .................................................................................. 9,619 (470) 18 8 74

In comparing the LCC results on the subgroup of consumers who are low-income (Tables V.15 and V.16) versus

all central air conditioner and heat pump consumers (Tables V.13 and V.14), it appears that low-income consumers

have lower savings at the different trial standard levels than the general population of central air conditioner and

heat pump consumers. Table V.17 directly compares the LCC impacts of the final rule on both the low-income subgroup

and all consumers.

TABLE V.17.—COMPARISON OF LCC IMPACTS OF THE FINAL RULE ON ALL CONSUMERS VS. LOW-INCOME CONSUMERS

Product class SEER

Reverse engineering costs ARI mean costs

Average LCC savings

(costs)

Percent of consumers

with net costs (>2% of

baseline LCC)

Average LCC savings

(costs)

Percent of consumers with net

costs (>2% of baseline LCC)

All consumersLow-incomeAll consumersLow-income All consumers

Low-incomeAll consumersLow-income

Split System A/C ................................ 13 $113 $43 39 50 ($29) ($101) 58 69

Split System HP ................................. 13 372 185 6 12 215 17 22 35

Single Package A/C ........................... 13 29 (37) 52 61 (175) (241) 71 79

Single Package HP ............................ 13 353 148 12 20 112 4 36 48

3. Net Present Value and Net National

Employment

The net present value analysis is a

measure of the cumulative benefit or

cost to the Nation that would result

from more stringent standards. As with

the determination of national energy

savings, four different scenarios were

analyzed for each trial standard level

consisting of variations on: (1)

Electricity price and housing

projections; (2) shipment efficiency

distributions; (3) manufacturer cost

estimates; and (4) societal discount rate.

Electricity price and housing projections

were based on three different AEO 2000

forecasts: (1) Reference Case, (2) High

Growth Case, and (3) Low Growth Case.

Three efficiency scenarios were

analyzed which forecast the shipment

efficiency distribution after new

standards: (1) NAECA scenario, (2) Rollup scenario, and (3) Shift scenario. For

these results the equipment lifetime was

assumed to be 18.4 years, coupled with

the inclusion of compressor

replacement costs and an assumed

societal discount rate of 7 percent. The

range of NPVs are reported in Table

V.18.

TABLE V.18: RANGE OF NET PRESENT VALUE WITH ELECTRICITY PRICE AND HOUSING PROJECTIONS

Trial standard level

Net present value for unites sold from 2006 to 2030 (billion 98$)

Reverse engineering costs ARI mean costs

NAECA Rool-up Shift NAECA Roll-up Shift

1 ........................................................................ 1 to 2 ............ 2 ................... 1 to 2 ............ 0 ................... 1 ................... 0 to ¥1

2 ........................................................................ 2 ................... 2 to 3 ............ 0 to ¥1 ........ ¥1 ............... 0 to 1 ............ ¥3 to ¥4

3 ........................................................................ 1 to 2 ............ 2 to 3 ............ ¥1 to ¥2 .... ¥1 to ¥2 .... 0 to ¥1 ........ ¥5

4 ........................................................................ 0 to 1 ............ 1 to 2 ............ ¥3 to ¥4 .... ¥5 to ¥6 .... ¥4 ............... ¥10

5 ........................................................................ ¥10 to ¥11 ¥10 to ¥11 ¥10 to ¥11 ¥22 ............. ¥22 ............. ¥22

In order to show the sensitivity of the

NPVs in Table V.18 to the various input

assumptions, Tables V.19 through V.22

report the range of NPV results for a

range of assumptions and scenarios

relative to the base case national

equipment and operating costs for all

central air-conditioning and heat pump

equipment. By the ‘‘base case’’ we mean

the case of no new efficiency standards.

The results in Table V.19 and V.20 are

the AEO 2000 Reference Case forecast of


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7191

16A societal discount rate of 3 percent value was

investigated as a scenario in accordance with the

Office of Management and Budget’s (OMB) Guidelines to Standardize Measures of Costs and

Benefits and the Format of Accounting Statements.

electricity prices and housing. The total

costs are presented for the base case and

each trial standard level. The discount

rate is 7 percent. In addition, the NPV

(the difference in total costs between the

base case and trial standard level), as

well as the NPV as a percentage of the

‘‘Base Case Total Costs,’’ are calculated

for each trial standard level.

TABLE V.19.—NET PRESENT VALUES RESULTS RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS

BASED ON REVERSE ENGINEERING MANUFACTURING COSTS

TSL

Base

case total

costs

billion

98$

Efficiency scenario

NAECA Roll-up Shift

Total

costs

billion

98$

NPV

Total

costs

billion

98$

NPV

Total

costs

billion

98$

NPV

Billion

98$

As percent of

base

case total

Billion

98$

As percent of

base

case total

Billion

98$

As percent of

base

case total

1 ............................... 379 378 2 0.4 377 2 0.5 378 1 0.4

2 ............................... 379 377 2 0.5 377 3 0.7 380 (1) 0.2

3 ............................... 379 378 1 0.4 377 2 0.6 381 (2) 0.5

4 ............................... 379 379 0 0.0 378 1 0.3 383 (4) 0.9

5 ............................... 379 390 (10) ¥2.7 390 (10) ¥2.7 390 (10) ¥2.7

TABLE V.20.—NET PRESENT VALUES RELATIVE TO BASE CASE TOTAL EQUIPMENT AND OPERATING COSTS BASED ON

ARI MEAN MANUFACTURING COSTS

TSL

Base

case total

costs

billion

98$

Efficiency scenario

NAECA Roll-up Shift

Total

costs

billion

98$

NPV

Total

costs

billion

98$

NPV

Total

costs

billion

98$

NPV

Billion

98$

As percent of

base

case total

Billion

98$

As percent of

base

case total

billion

98$

as percent of

base

case total

1 ............................... 381 381 0 0.0 381 1 0.2 385 0 ¥0.1

2 ............................... 381 382 (1) ¥0.3 381 0 0.0 388 (3) ¥0.9

3 ............................... 381 383 (2) ¥0.5 382 (1) ¥0.2 390 (5) ¥1.4

4 ............................... 381 387 (5) ¥1.4 386 (4) ¥1.1 395 (10) ¥2.5

5 ............................... 381 403 (22) ¥5.8 403 (22) ¥5.8 407 (22) ¥5.8

Table V.21 shows how a 3 percent

discount rate16 impacts the net present

value. Only the Roll-up efficiency

scenario and the AEO Reference Case

electricity price and housing projection

were considered in analyzing the

impacts from a 3 percent discount rate.

TABLE V.21: NET PRESENT VALUES RESULTS BASED ON 3-PERCENT DISCOUNT RATE

TSL

Reverse engineering costs ARI mean costs

Base case

total costs

billion 98$

Trial standard level

Base case

total costs

billion 98$

Trial standard level

Total cost

billion 98$

Net

present

value 98$

As percent

of base

case total

costs

Total cost

billion 98$

Net

present

value billion 98$

As percent

of base

cast total

costs

1 ....................................................... 708 701 7 0.9 712 707 4 0.6

2 ....................................................... 708 697 11 1.6 712 705 6 0.9

3 ....................................................... 708 697 11 1.6 712 706 6 0.8

4 ....................................................... 708 697 11 1.5 712 711 0 0.0

5 ....................................................... 708 716 (8) ¥1.2 712 746 (35) ¥4.9

The proposed rule also estimated the

national employment impacts due to

each of the five trial standard levels. As

discussed in the proposed rule, the

energy efficiency standards for central

air conditioners and heat pumps are

expected to reduce electricity bills for

residential and commercial consumers

and the resulting net savings are

expected to be redirected to other forms

of economic activity. These shifts in


 EE-RM-STD-98-440 COMMENT 311
7192 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

17Bureau of Economic Analysis, Regional

Multipliers: A User Handbook for the Regional

Input-Output Modeling System (RIMS II)

18 DOJ also wrote about our request for comments

on a proposal to adopt a standard for steady-state

cooling efficiency (EER). The regulation language in

the proposed rule did not include a provision

regarding an EER standard, and DOJ limited its

views to the standards set forth in the proposed

regulation language, indicating that if the

Department proposes rule language in the future

incorporating an EER standard, DOJ would address

the competitive impact of that standard.

spending and economic activity are

expected to affect the demand for labor.

As we did for the proposed rule, the

Department estimated the impacts of the

new standards on national labor

demand using an input/output model of

the U.S. economy. The model

characterizes the interconnections

among 35 economic sectors using data

from the Bureau of Labor Statistics. For

some years after the new standards go

into effect, new consumer expenditure

on air conditioners and heat pumps

each year outpaces their annual energy

savings. This activity redirects

expenditures into the manufacturing

sector, which is less labor intensive than

other sectors of the economy,17

producing a loss of jobs in those sectors

that is larger than the gain of jobs in

manufacturing. Also, a loss of jobs

results in the utility sector due to its

loss of revenues. As annual consumer

energy savings begin to exceed annual

new expenditures on air conditioners,

eventually the new standards will

produce a net gain in national

employment.

The increases or decreases in the net

demand for labor in the economy

estimated by the input/output model

due to air conditioner and heat pumps

standards are likely to be very small

relative to total national employment.

For the following reasons any modest

changes in employment are in doubt:

• Unemployment is now at the lowest

rate in 30 years. If unemployment

remains very low during the period

when the standards are put into effect,

it is unlikely that the standards alone

could result in any change in national

employment levels;

• Neither the BLS data nor the inputoutput model used by DOE include the

quality or wage level of the jobs. The

losses or gains from any potential

employment change may be offset if job

quality and pay also change; and

• The net benefits or losses from

potential employment changes are a

result of the estimated net present value

of benefits or losses likely to result from

air conditioner and heat pump

standards. It may not be appropriate to

separately identify and consider any

employment impacts beyond the

calculation of net present value.

Taking into consideration these

legitimate concerns regarding the

interpretation and use of the

employment impacts analysis, the

Department concludes only that the

proposed central air conditioner and

heat pump standards are likely to result

in no appreciable job losses to the

nation.

4. Impact on Utility or Performance of

Products

As detailed in Section V of the

proposed rule, in establishing classes of

products we believe the adopted

standards will not result in any

degradation of utility or performance in

the covered products.

5. Impact of Any Lessening of

Competition

The Act directs the Department to

consider any lessening of competition

that is likely to result from standards. It

further directs the Attorney General to

determine the impact, if any, of any

lessening of competition likely to result

from a proposed standard and transmit

such determination to the Secretary, not

later than 60 days after the publication

of a proposed rule, together with an

analysis of the nature and extent of such

impact. EPCA Section 325(o)(2)(B)(i)(V)

and (B)(ii), 42 U.S.C. 6295(o)(2)(B)(i)(V)

and (B)(ii).

In order to assist the Attorney General

in making such a determination, the

Department provided the Department of

Justice (DOJ) with copies of the

proposed rule and the TSD for review.

At DOE’s request, the DOJ reviewed the

manufacturer impact analysis interview

questionnaire to ensure that it would

provide insight concerning any

lessening of competition due to any

proposed trial standard levels.

As previously discussed in section

II.D.4 above, the Department of Justice

concluded that the residential central

air conditioner and heat pump

standards contained in the proposed

rule could have an adverse impact on

competition. The proposed standards

would have changed the current central

air conditioner and heat pump

efficiency standards of 10 SEER/6.8

HSPF for split system air conditioners

and heat pumps and 9.7 SEER/6.6 HSPF

for single package air conditioners and

heat pumps to 12 SEER for air

conditioners and 13 SEER/7.7 HSPF for

heat pumps. Through-the-wall

equipment was the only exception. We

proposed an 11 SEER standard for that

class.

DOJ identified three possible

competitive problems presented by the

proposed standards. First, DOJ stated

that the proposed 13 SEER heat pump

standard would have a disproportionate

impact on smaller manufacturers. They

stated that currently less than 20

percent of the total current product lines

meet the proposed standards, but for

some small manufacturers, 100 percent

of their product lines fail to satisfy the

proposed standard.

Second, DOJ stated that the proposed

standard for heat pumps, and in some

instances for air conditioners, would

have an adverse impact on some

manufacturers of products (including

those products referred to in the

proposed rule as ‘‘niche products’’) used

to retrofit existing housing and used in

manufactured housing. These

manufacturers could not, according to

DOJ, make units that comply with the

rule and fit into the available space.

Third, DOJ expressed concern that the

proposed heat pump standard of 13

SEER could make heat pumps less

competitive with alternative heating and

cooling systems. Because the standard

would result in increases in the size and

cost of heat pumps, it is possible that

purchasers would shift away from heat

pumps to other systems that inc1ude

electric resistance heat, reducing the

competition that presently exists

between heat pumps and those other

systems.18

The Department of Justice urged the

Department of Energy to take into

account these possible impacts on

competition in determining its final

energy efficiency standard for air

conditioners and heat pumps. DOJ

wrote that the Department of Energy

should consider setting a lower SEER

standard for heat pumps, such as the

standard included in Trial Standard

Level 2, and a lower SEER standard for

air conditioners for retrofit markets

where there are space constraints (such

as markets served by niche products)

and for manufactured housing.

As we noted in the Supplementary

ANOPR and proposed rule, nearly all

small manufacturers produce only niche

products. DOJ’s first concern relates to

disproportionate impacts on small

manufacturers, which are substantially

the same group as the niche product

manufacturers. Furthermore, niche

products almost exclusively serve

applications with severe space

constraints. Today’s final rule prescribes

standards only for those products that

are not severely space-constrained, and

therefore substantially eliminates their

first concern regarding the impact of

more stringent standards on small

manufacturers.


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7193

19Million metric tons (Mt). 20Thousand metric tons (kt).

DOJ’s second concern about products

intended for space constrained markets

are more difficult to address since the

standards apply to products at the point

of manufacture and not the point of

installation. We have removed one

element of this concern by not

specifying new standards for niche

products, primarily due to our concern

over their continued viability in

replacement applications. However, we

recognize that larger conventional

equipment also poses problems in

replacement applications and that these

problems may be more complex in

manufactured homes. Nevertheless, air

conditioner and heat pump

manufacturers do have options for

increasing the efficiency of equipment

without increasing the size of both the

indoor and outdoor units, and we

expect products utilizing those options

to be available to consumers during the

time when the standards we are

adopting today are in effect.

As to DOJ’s third concern regarding

possible shifting in the market from heat

pumps to resistance heaters, we have

adopted the same minimum SEER

requirement for heat pumps as we have

for air conditioners. That action

substantially reduces the incentive for

consumers to switch, thereby addressing

that concern.

In summary, the standards we are

adopting should effectively eliminate

most of DOJ’s concerns regarding the

lessening of competition, even under

TSL 4. To the extent that we have not

fully eliminated all their concerns,

however, we have considered the

remaining possibility for lessening of

competition as we weighed the burdens

of today’s adopted standards.

6. Need of the Nation To Save Energy

The Secretary recognizes the need of

the Nation to save energy. Enhanced

energy efficiency improves the nation’s

energy security, and reduces the

environmental impacts of energy

production. Improved efficiency of

central air conditioners and heat pumps

is also likely to improve the reliability

of the nation’s electric system. The

energy savings from central air

conditioner and heat pump standards

result in reduced emissions of carbon

and NOX. Cumulative emissions savings

over the 15-year period modeled are

shown in Table V.22. The results

presented in Table V.22 are based only

on the AEO 2000 Reference Case for

electricity price and housing projections

and the NAECA efficiency scenario.

TABLE V.22.—CUMULATIVE EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA EFFICIENCY

SCENARIO (2006–2020)

Trial standard level

Reverse engineering costs ARI mean costs

Carbon (Mt) NOX (kt) Carbon (Mt) NOX (kt)

1 ....................................................................................................................... 13.2 36.7 13.4 37.2

2 ....................................................................................................................... 23.8 72.7 23.7 67.9

3 ....................................................................................................................... 27.7 84.4 27.4 78.8

4 ....................................................................................................................... 32.6 85.8 33.6 102.5

5 ....................................................................................................................... 63.0 184.2 63.7 193.7

The impact of varying electricity price and housing projections (i.e., different AEO cases) as well as different efficiency

scenarios were considered for the Trial Standard Level 4. Table V.23 shows how carbon and NOX emissions are impacted

by the different projections and scenarios.

TABLE V.23.—CUMULATIVE EMISSIONS REDUCTIONS FOR FINAL STANDARD (2006–2020) AND THE IMPACT OF DIFFERENT

ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Electricity price and housing projection Efficiency scenario

Reverse engineering costs ARI mean costs

Carbon (Mt) NOX (kt) Carbon (Mt) NOX (kt)

AEO reference case ............................................. NAECA ......................... 32.6 85.8 33.6 102.5

AEO reference case ............................................. Roll-up .......................... 32.7 93.8 31.3 87.5

AEO reference case ............................................. Shift .............................. 36.0 107.1 34.9 97.9

AEO low growth case ........................................... NAECA ......................... 28.5 97.2 27.5 95.8

AEO high growth case .......................................... NAECA ......................... 42.2 92.4 42.8 103.1

The annual carbon emission

reductions range up to 6.8 Mt in 2020

and the NOX emissions reductions up to

27.0 kt in 2015.19 20 Total carbon and

NOX emissions for each trial standard

level are reported in the Environmental

Assessment, in the TSD.

The Department makes no effort to

monetize the benefits of the actual

emission reductions, but there may be

time related differences in the perceived

value of the emissions depending on

when they occur, as with monetized

benefits that accumulate over time.

Emission reductions that occur sooner

are often more desirable than equivalent

reductions that occur later. Like

monetary benefits, the health,

recreational and ecosystem benefits that

result from emission reductions are

often perceived to have a greater value

if they occur sooner, rather than later.

To the extent that the different trial

standard levels have slightly different

shipment distributions over time, some

trial standard levels might have a

slightly higher proportion of earlier

emission reductions than another trial

standard level. To show the possible

effect of the different timing patterns of

the emissions, the Department is also

presenting discounted emissions. These

calculations were done using the same

seven percent discount rate as was used

for discounting monetized benefits. We

show discounted cumulative emission

savings from 2006 through 2030 in

Table V.24.


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TABLE V.24.—CUMULATIVE DISCOUNTED EMISSIONS REDUCTIONS BASED ON AEO 2000 REFERENCE CASE AND NAECA

EFFICIENCY SCENARIO (2006–2020)

Trial standard level

Reverse engineering costs ARI mean costs

Carbon (Mt) NOX (kt) Carbon (Mt) NOX (kt)

1 ....................................................................................................................... 4.7 15.7 4.8 15.7

2 ....................................................................................................................... 8.5 30.3 8.5 29.2

3 ....................................................................................................................... 9.8 35.2 9.8 33.8

4 ....................................................................................................................... 11.6 36.7 12.0 43.3

5 ....................................................................................................................... 22.3 77.1 22.7 81.1

7. Other Factors

This provision allows the Secretary of

Energy, in determining whether a

standard is economically justified, to

consider any other factors that the

Secretary deems to be relevant. EPCA

Section 325(o)(2)(B)(i)(VI), 42 U.S.C.

6295(o)(2)(B)(i)(VI). The Secretary has

decided to consider the impact on peak

power requirements and electric utility

system reliability.

Peak power impacts on electric

utilities from increases in the central air

conditioner and heat pump standard are

calculated using the NEMS–BRS model.

NEMS–BRS is used to estimate peak

power impacts by calculating the

reduction in planned generation

capacity due to an increase in the

minimum efficiency standard. Table

V.25 shows the estimated reductions in

installed generation capacity, in gigawatts (GW), in the year 2020, due to

each of the trial standard levels. Of the

installed generating capacity avoided,

13 percent would have been provided

by coal power plants. The remaining

percentage (87 percent) would have

been supplied by either gas-fired, oilfired, or dual-fired power plants. The

results presented in Table V.25 are

based only on the AEO 2000 Reference

Case for electricity price and housing

projections and the NAECA efficiency

scenario.

TABLE V.25.—INSTALLED GENERATION CAPACITY REDUCTIONS IN THE YEAR 2020 BASED ON AEO 2000 REFERENCE

CASE AND NAECA EFFICIENCY SCENARIO

Trial standard level

Reverse engineering costsARI mean

costs

Installed

generating

capacity

reduction

(GW)

Installed

generating

capacity

reduction

(GW)

1 ............................................................................................................................................................................... 6.5 6.4

2 ............................................................................................................................................................................... 10.6 10.6

3 ............................................................................................................................................................................... 12.4 12.3

4 ............................................................................................................................................................................... 15.5 15.4

5 ............................................................................................................................................................................... 28.8 28.6

The impact of varying electricity price

and housing projections (i.e., different

AEO cases) as well as different

efficiency scenarios were considered

only for the final standard (trial

standard level 4). Table V.26 shows how

installed generation capacity is

impacted by the different projections

and scenarios.

TABLE V.26.—INSTALLED GENERATION CAPACITY REDUCTIONS IN THE YEAR 2020 FOR FINAL STANDARD AND THE IMPACT

OF DIFFERENT ELECTRICITY PRICE/HOUSING PROJECTIONS AND EFFICIENCY SCENARIOS

Electricity price and housing projection Efficiency scenario

Reverse engineering costsARI mean

costs

Installed

generating

capacity

reduction

(GW)

Installed

generating

capacity

reduction

(GW)

AEO reference case ............................................................................................... NAECA ............................... 15.5 15.4

AEO reference case ............................................................................................... Roll-up ................................ 15.5 15.0

AEO reference case ............................................................................................... Shift .................................... 16.6 16.4

AEO low growth case ............................................................................................. NAECA ............................... 14.5 13.9

AEO high growth case ............................................................................................ NAECA ............................... 16.0 15.6

E. Conclusion

Section 325(o)(2)(A) of the Act, 42

U.S.C. 6295(o)(2)(A), specifies that any

new or amended energy conservation

standard for any type (or class) of

covered product shall be designed to

achieve the maximum improvement in

energy efficiency which the Secretary

determines is technologically feasible


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21All cumulative effects that are not monetary are

not discounted. Monetary effects are discounted to

1998 dollars.

22For instance, if capacity-related blackouts cost

a region $1 billion, society would be willing to pay

up to $1 billion to prevent them. If those blackouts

can be prevented through either a capacity

expansion or a reduction in peak demand, and the

new capacity would cost $100 million, the value of

the reduction in peak demand can be no more than

$100 million, If the region is short on capacity and

cannot add new capacity quickly, however, the

same reduction in peak demand then can equal the

value of the avoided blackout ($1 billion) since

there is no feasible alternative.

23 DOE estimates 9 coal-fired power plants and 66

gas-fired power plants can be avoided. See TSD,

Chapter 11 and Appendix H.

and economically justified. In

determining whether a standard is

economically justified, the Secretary

must determine whether the benefits of

the standard exceed its burdens. EPCA

Section 325(o)(2)(B)(i), 42 U.S.C.

6295(o)(2)(B)(i). The amended standard

must ‘‘result in significant conservation

of energy.’’ EPCA Section 325(o)(3)(B),

42 U.S.C. 6295(o)(3)(B).

We consider the impacts of standards

beginning with the max tech level, i.e.,

Trial Standard Level 5. We then

consider less efficient levels until we

reach the level which is technologically

feasible and economically justified.

To aid the reader as we discuss the

benefits or burdens of the trial levels,

we have included a summary of the

analysis results in Table V.27.21 Table

V.27 presents a summary of quantitative

analysis results for each Trial Standard

Level based on the assumptions we

consider most plausible. These include

manufacturing cost estimates from the

reverse engineering, an 18.4-year

equipment lifetime with one compressor

replacement at 14 years, and electricity

prices based on the AEO2000 Reference

Case.

TABLE V.27.—SUMMARY OF QUANTITATIVE RESULTS 1

Trial std 1 Trial std 2 Trial std 3 Trial std 4 Trial std 5

Primary energy saved (quads)2 ........................................... 1.5 2.9 3.4 4.2 8.6

Generation capacity offset (GW)3 ........................................ 6.5 10.6 12.4 15.5 28.8

NPV ($billion):.

7% Discount rate, roll-up .............................................. 2 3 2 1 (10)

7% Discount rate, NAECA ............................................ 2 2 1 0 (10)

3% Discount rate, roll-up .............................................. 7 11 11 11 (8)

Cumulative emissions reductions through 2020:

Carbon equivalent (Mt)3 ............................................... 13.2 23.8 27.7 32.7 63.0

NOX (kt)3 ....................................................................... 36.7 72.7 84.4 93.8 184.2

Cumulative change in INPV ($ million)4:

Roll-up ........................................................................... (160) (313) (319) (303) ........................

NAECA .......................................................................... (30) (159) (171) (169) ........................

Life cycle cost savings ($)5:

Split AC ......................................................................... 75 113 113 113 (137)

Packaged AC ................................................................ 78 163 163 29 (276)

Split HP ......................................................................... 209 365 372 372 (41)

Packaged HP ................................................................ 207 421 353 353 166

Payback (years)6:

Split AC ......................................................................... 7.8 9.8 9.8 11.3 19.6

Packaged AC ................................................................ 7.7 7.5 7.5 14.5 25.1

Split HP ......................................................................... 2.7 3.9 6.4 6.4 14.0

Packaged heat pump .................................................... 4.6 4.0 8.4 8.4 12.8

1Parentheses indicate negative (¥) values. 2Energy savings based on Roll-up efficiency scenario.

3Values based on NAECA efficiency scenario with the exception of TSL 4 which is based on the Roll-up scenario.

4 Not calculated at Trial Standard Level 5.

5 Negative values indicate LCC increases.

6Payback periods are median values.

In addition to the quantitative results,

we also consider other burdens and

benefits that affect economic

justification. The potential to improve

the reliability of the electricity system is

the major benefit we have not quantified

explicitly. In areas where the occurrence

of blackouts (and brownouts) can be

reduced through expansion of system

capacity, the economic value of avoided

blackouts associated with reductions in

peak load cannot exceed the value of the

avoided capacity expansion. That value

is already captured in our analysis as

savings in consumer utility bills.

However, in areas that do not expect to

be able to maintain adequate capacity

reserves, the value of avoided blackouts

associated with reductions in peak

demand can far exceed the normal costs

of capacity expansion.22

We also recognize that the adopted

standards could result in additional

burdens. These include a possible

increase in health problems caused by

consumers forgoing air conditioner

purchases, a possible reduction in the

ability of the product to dehumidify, a

possible lessening of competition, and

possible difficulty in installing the new

baseline products into replacement

applications. However, we generally

believe that these burdens are capable of

being mitigated at any standard level,

except possibly Trial Standard Level 5.

Section IV discusses our response to

comments regarding benefits and

burdens and explains our viewpoints on

those issues.

First we considered Trial Standard

Level 5, the maximum technologically

achievable efficiency level for each of

four classes, representing uniform 18

SEER requirements. The manufacturing

cost we assume for Trial Standard Level

5 is equal to 15 SEER equipment,

although we would expect that

assumption to understate the cost and

price of the product. Trial Standard

Level 5 will likely save 8.6 quads of

energy which the Department considers

significant. These savings will result in

the avoidance of approximately 29 GW

of installed generation capacity. For

comparison, the generating capacity is

equivalent to roughly 75 large, 400

megawatt, power plants,23

approximately 3.7 percent of current

installed generating capacity nationwide


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and more than 13 percent of the

anticipated growth in capacity needed

by 2020. The emissions reductions are

63.0 Mt of carbon equivalent and 184.2

kt of NOX.

At Trial Standard Level 5, the average

consumer would experience an increase

in LCC. Purchasers of split central airconditioners, the predominant class of

central air conditioner with 65 percent

of the sales of central air conditioners

and heat pumps, would lose on average

$137 over the life of the appliance.

Purchasers of split heat pumps, the

predominant class of heat pump, would

lose on average $41. Again, these results

do not include the additional price the

consumer would pay over the price of

a 15 SEER product, which would

increase the life cycle cost considerably.

Furthermore, for the nation as a whole,

Trial Standard Level 5 would result in

a net cost of $10 billion in NPV. We did

not calculate manufacturer impacts at

this trial standard level, determining

based on preliminary evaluation that

they would be severe and unacceptable.

The Secretary concludes that at Trial

Standard Level 5, the benefits of energy

savings, generating capacity reductions

and emission reductions would be

outweighed by the burdens of negative

economic impacts to the nation, to the

vast majority of consumers and to the

manufacturers. Consequently, the

Secretary has concluded that Trial

Standard Level 5, the Max Tech Level,

is not economically justified.

Next, we considered Trial Standard

Level 4. This level specifies 13 SEER

equipment for all product classes. In

considering Trial Standard Level 4 the

Roll-up efficiency scenario and reverse

engineering cost data are the

assumptions we consider to be the most

probable as discussed in Part V.A, Trial

Standard Levels. Primary energy savings

would likely be 4.2 quads which the

Department considers significant. The

estimated reduction in installed

generating capacity is approximately 15

GW, and reduced emissions would

range up to 32.7 Mt of carbon equivalent

and up to 93.8 kt of NOX.

The average air conditioner owner

would save $113 over the life of a split

air conditioner and $29 over the life of

a packaged air conditioner. These

equate to median payback periods of

11.3 years and 14.5 years, respectively.

Low income consumers of split air

conditioners and split heat pumps also

incur LCC savings ($43 for split air

conditioner owners and $185 savings for

split heat pump owners). In addition,

the average heat pump owner would

benefit, saving $372 over the life of a

split heat pump and $353 over the life

of a packaged heat pump. These equate

to median payback periods between 6.4

and 8.4 years, respectively. Trial

Standard Level 4 will lower peak

electricity demand compared to the base

case. That will allow utility service

areas to either avoid new capacity or, to

the extent that peak loads contribute to

reliability problems, improve system

reliability. The increase in national net

present value is expected to be $1

billion. The decrease in the net present

value of the air conditioning and heat

pump manufacturing industry is

expected to be $300 million.

After carefully considering the

analysis, comments, and benefits versus

burdens, the Department is amending

the energy conservation standards for

central air conditioners and central air

conditioning heat pumps at Trial

Standard Level 4. The Department

concludes this standard saves a

significant amount of energy and is

technologically feasible and

economically justified. In determining

economic justification, the Department

finds that the benefits of energy savings,

the projected amount of avoided power

plant capacity or improvement in

system reliability that accompanies

expected reduction in peak demand,

consumer life cycle cost savings,

national net present value increase and

emission reductions resulting from the

standards outweigh the burdens. The

burdens include the loss of

manufacturer net present value,

increases in consumer life cycle cost for

some users of products covered by

today’s final rule, any possible increase

in health problems caused by

consumers forgoing air conditioner

purchases, any possible reduction in the

ability of the product to dehumidify,

any possible lessening of competition,

and any possible difficulty in installing

the new baseline products into

replacement applications.

In the proposed rule, we proposed to

adopt Trial Standard Level 3. The

Department’s decision to instead adopt

the more stringent standards

represented by Trial Standard Level 4

was influenced by comments we

received during the intervening

comment period. First, comments we

received regarding the prices and

markups applied to today’s equipment

persuaded us that the reverse

engineering cost data are much more

likely than the ARI Mean cost data to

represent the actual costs of producing

equipment under more stringent

standards. Placing more weight on the

costs represented by the reverse

engineering data substantially improved

the economic benefits to air conditioner

owners, demonstrating that the benefits

of Trial Standard Level 4 outweigh the

burdens. Second, many comments

expressed concern that adopting heat

pump standards that were more

stringent than air conditioner standards

would encourage more consumers to

purchase electric resistance furnaces

and air conditioners instead of heat

pumps. In response to those comments,

we verified that the energy savings from

the more efficient heat pumps would be

eliminated if only a small fraction of

heat pump owners (4 percent) switched

to resistance heating. That possibility

provided added justification for

adopting the same minimum standards

for heat pumps as for air conditioners.

Given our decision to adopt a 13

SEER standard for both central air

conditioners and central air

conditioning heat pumps, we believe

further evaluation is needed before we

can issue final standards for air

conditioners or heat pumps that

currently are intended to serve

applications with severe space

constraints, exemplified by what we

have referred to as ‘‘niche’’ products.

Based on our preliminary assessment of

‘‘highest viable efficiency levels’’ we

identified for these products in the TSD

(Table 4.23), the comments stating that

these products would have difficulty in

meeting the standards proposed in the

proposed rule, and the concerns

expressed by the Department of Justice,

we have serious concerns about whether

13 SEER is an appropriate standard for

most such products. On the other hand,

we are uncertain whether it would be

prudent for us to apply the standards

contained in the proposed rule to niche

products in light of the 13 SEER

standard we are adopting today for other

products. Doing so may create a strong

tendency for niche products, with lower

minimum efficiency standards than

conventional products, to be applied in

conventional applications.

Therefore, today’s final rule provides

efficiency standards for all residential

central air conditioners and heat pumps,

except the niche products. We are

referring to these products more

generally as ‘‘space-constrained

products’’, since they are specifically

intended for severely space-constrained

applications. We define them as having

the following characteristics:

(1) Rated cooling capacities no greater

than 30,000 BTU/hr

(2) An outdoor or indoor unit having

at least two overall exterior dimensions

or an overall displacement that:

(a) are (is) substantially smaller than

those of other units that are (i) currently

usually installed in site-built single

family homes, and (ii) of a similar

cooling, and, if a heat pump, heating,

capacity, and


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(b) if increased, would certainly result

in a considerable increase in the cost of

installation or would certainly result in

a significant loss in the utility of the

product to the consumer.

(3) Of a product type that was

available for purchase in the United

States as of December 1, 2000.

Based on the information we have

gathered thus far in this rulemaking, we

believe space-constrained products

would include equipment described as:

• through-the-wall packaged and split

• ductless split

• single package and non-weatherized

Small duct, high velocity equipment

is covered by today’s standards. As

discussed in the proposed rule (65 FR

at 59609–10), DOE addressed the

concerns for that equipment by

modifying the test procedure to allow

those products to be tested as coil-only

equipment. Also, the standards in

today’s rule will clearly apply to the

types of central air conditioners and

heat pumps normally installed in sitebuilt single family homes.

The Department will re-open the

comment period in this rulemaking to

address standards for space-constrained

products, and plans to publish a final

rule in the Federal Register no later

than eighteen (18) months from the date

of publication of today’s rule. The rule

covering space-constrained products

will establish new product classes, to

the extent necessary, and minimum

efficiency standards for these products.

It will also contain an assessment of

technical feasibility and economic

justification in accordance with the

requirements of the Act. The

Department intends to make the rule for

space-constrained products effective on

January 23, 2006.

Before reopening the comment period,

we will initially identify those product

types we believe should be treated as

space-constrained products, and will

begin to assess the impact of a

rulemaking for these products on small

businesses. To aid in this process, we

will seek shortly the following

information from each manufacturer of

those products that we believe may

meet the definition of space-constrained

products:

(1) the number of employees

employed by the company as of

December 31, 2000 (to assist us in

determining whether we should

consider the company to be a small

business entity);

(2) a list of proposed spaceconstrained products, providing for

each type of product:

(a) a description of its intended

applications

(b) a description based on physical

characteristics, manufacturing

characteristics, capacity, and

performance attributes that would

distinguish it from other types of

products, and which would be

enforceable at the point of manufacture

(c) a list of models produced of that

product type by the manufacturer,

containing for each model: Physical

dimensions, rated capacities, and range

of efficiency ratings available;

(3) a statement of whether the number

of units produced by the manufacturer

was less than or greater than 100,000

units in the year 2000; and

(4) an estimate of the percentage of

units produced by the manufacturer that

the manufacturer estimates are installed

as replacements for similar units.

The Department encourages

companies that believe they

manufacture space-constrained products

to immediately submit this information,

without awaiting a request from DOE, to

Ms. Geraldine Paige at the address

indicated at the beginning of this notice.

We will make the information we

obtain publicly available (excluding

confidential information) through a

Federal Register notice. A comment

period will follow during which time

the public will have an opportunity to

review the published information and

respond to the Department. Following

the close of the comment period, we

will issue in the Federal Register our

determination of which of the published

products we believe are spaceconstrained products and which we

believe are not. We expect these steps to

proceed simultaneously with the other

activities to set standards for such

products.

VI. Procedural Issues and Regulatory

Review

A. Review Under the National

Environmental Policy Act

The Department prepared an

Environmental Assessment (EA) (DOE/

EA–1352) available from: U.S.

Department of Energy, Office of Energy

Efficiency and Renewable Energy,

Forrestal Building, Mail Station EE–41,

1000 Independence Avenue, SW,

Washington, DC 20585–0121, (202) 586–

0854. We found the environmental

effects associated with various standard

efficiency levels for central air

conditioners and heat pumps to be not

significant, and therefore we are

publishing, elsewhere in this issue of

the Federal Register, a Finding of No

Significant Impact (FONSI) pursuant to

the National Environmental Policy Act

of 1969 (NEPA), 42 U.S.C. 4321 et seq.,

the regulations of the Council of

Environmental Quality (40 CFR Parts

1500–1508), and the Department’s

regulations for compliance with NEPA

(10 CFR Part 1021).

B. Review Under Executive Order 12866,

‘‘Regulatory Planning and Review’’

Today’s regulatory action has been

determined to be an ‘‘economically

significant regulatory action’’ under

Executive Order 12866, ‘‘Regulatory

Planning and Review.’’ 58 FR 51735

(October 4, 1993). Accordingly, today’s

action was subject to review under the

Executive Order by the Office of

Information and Regulatory Affairs

(OIRA) of the Office of Management and

Budget.

The draft submitted to OIRA and

other documents submitted to OIRA for

review have been made a part of the

rulemaking record and are available for

public review in the Department’s

Freedom of Information Reading Room,

1000 Independence Avenue, SW,

Washington, DC 20585, between the

hours of 9:00 a.m. and 4:00 p.m.,

Monday through Friday, telephone (202)

586–3142.

The proposed rule contained a

summary of the Regulatory Analysis

which focused on the major alternatives

considered in arriving at the approach

to improving the energy efficiency of

consumer products. The reader is

referred to the complete draft

‘‘Regulatory Impact Analysis,’’ which is

contained in the TSD, available as

indicated at the beginning of this notice.

It consists of: (1) A statement of the

problem addressed by this regulation,

and the mandate for government action;

(2) a description and analysis of the

feasible policy alternatives to this

regulation; (3) a quantitative comparison

of the impacts of the alternatives; and

(4) the national economic impacts of the

proposed standard.

C. Review Under the Regulatory

Flexibility Act

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq., requires an

assessment of the impact of regulations

on small businesses. To be categorized

as a ‘‘small’’ air conditioning and warm

air heating equipment manufacturer, a

firm must employ no more than 750

employees.

The Department prepared a

manufacturing impact analysis which

was made public and available to all

residential central air conditioner and

heat pump manufacturers. Other

impacts on small businesses were

previously discussed in the proposed

rule. 65 FR 59590, 59629–30 (October 5,

2000). The Department reaffirms its

certification in the proposed rule.


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Today’s rule will not have a significant

impact on a substantial number of small

entities, and preparation of a regulatory

flexibility analysis is unnecessary.

Most small businesses engaged in the

manufacture of central air conditioners

and heat pumps produce products that

we have called ‘‘niche’’ products. To

address the concerns of the Department

of Justice and many commenters

regarding the impacts of more stringent

standards on small manufacturers, we

are continuing our evaluation of

standards for those products and have

not issued new standards for them as

part of this rule.

D. Review Under the Paperwork

Reduction Act

No new information or record keeping

requirements are imposed by this

rulemaking. Accordingly, no Office of

Management and Budget clearance is

required under the Paperwork

Reduction Act. 44 U.S.C. 3501 et seq.

E. Review Under Executive Order 12988,

‘‘Civil Justice Reform’’

With respect to the review of existing

regulations and the promulgation of

new regulations, Section 3(a) of

Executive Order 12988, ‘‘Civil Justice

Reform,’’ 61 FR 4729 (February 7, 1996),

imposes on Executive agencies the

general duty to adhere to the following

requirements: (1) Eliminate drafting

errors and ambiguity; (2) write

regulations to minimize litigation; and

(3) provide a clear legal standard for

affected conduct rather than a general

standard and promote simplification

and burden reduction. With regard to

the review required by section 3(a),

section 3(b) of Executive Order 12988

specifically requires that Executive

agencies make every reasonable effort to

ensure that the regulation: (1) clearly

specifies the preemptive effect, if any;

(2) clearly specifies any effect on

existing Federal law or regulation; (3)

provides a clear legal standard for

affected conduct while promoting

simplification and burden reduction; (4)

specifies the retroactive effect, if any; (5)

adequately defines key terms; and (6)

addresses other important issues

affecting clarity and general

draftsmanship under any guidelines

issued by the Attorney General. Section

3(c) of Executive Order 12988 requires

Executive agencies to review regulations

in light of applicable standards in

section 3(a) and section 3(b) to

determine whether they are met or it is

unreasonable to meet one or more of

them. DOE reviewed today’s final rule

under the standards of section 3 of the

Executive Order and determined that, to

the extent permitted by law, the final

regulations meet the relevant standards.

F. ‘‘Takings’’ Assessment Review

DOE has determined pursuant to

Executive Order 12630, ‘‘Governmental

Actions and Interference with

Constitutionally Protected Property

Rights,’’ 52 FR 8859 (March 18, 1988),

that this regulation would not result in

any takings that might require

compensation under the Fifth

Amendment to the United States

Constitution.

G. Review Under Executive Order 13132

Executive Order 13132 (64 FR 43255,

August 4, 1999) imposes certain

requirements on agencies formulating

and implementing policies or

regulations that preempt State law or

that have federalism implications.

Agencies are required to examine the

constitutional and statutory authority

supporting any action that would limit

the policymaking discretion of the

States and carefully assess the necessity

for such actions. Agencies also must

have an accountable process to ensure

meaningful and timely input by State

and local officials in the development of

regulatory policies that have federalism

implications. DOE published its

intergovernmental consultation policy

on March 14, 2000. 65 FR 13735. DOE

has examined today’s final rule and has

determined that it would not have a

substantial direct effect on the States, on

the relationship between the national

government and the States, or on the

distribution of power and

responsibilities among the various

levels of government. State regulations

that may have existed on the products

that are the subject of today’s final rule

were preempted by the Federal

standards established in NAECA. States

can petition the Department for

exemption from such preemption to the

extent, and based on criteria, set forth in

EPCA.

H. Review Under the Unfunded

Mandates Reform Act

With respect to a proposed regulatory

action that may result in the

expenditure by State, local and tribal

governments, in the aggregate, or by the

private sector of $100 million or more

(adjusted annually for inflation), section

202 of the Unfunded Mandates Reform

Act of 1995 (UMRA) requires a Federal

agency to publish estimates of the

resulting costs, benefits and other effects

on the national economy. 2 U.S.C.

1532(a), (b). UMRA also requires each

Federal agency to develop an effective

process to permit timely input by state,

local, and tribal governments on a

proposed significant intergovernmental

mandate. The Department’s consultation

process is described in a notice

published in the Federal Register on

March 18, 1997 (62 FR 12820). Today’s

final rule may impose expenditures of

$100 million or more on the private

sector. It does not contain a Federal

intergovernmental mandate.

Section 202 of UMRA authorizes an

agency to respond to the content

requirements of UMRA in any other

statement or analysis that accompanies

the proposed rule. 2 U.S.C. 1532(c). The

content requirements of section 202(b)

of UMRA relevant to a private sector

mandate substantially overlap the

economic analysis requirements that

apply under section 325(o) of EPCA and

Executive Order 12866. The

Supplementary Information section of

the Notice of Final Rulemaking and

‘‘Regulatory Impact Analysis’’ section of

the TSD for this Final Rule responds to

those requirements.

Under section 205 of UMRA, the

Department is obligated to identify and

consider a reasonable number of

regulatory alternatives before

promulgating a rule for which a written

statement under section 202 is required.

DOE is required to select from those

alternatives the most cost-effective and

least burdensome alternative that

achieves the objectives of the rule

unless DOE publishes an explanation

for doing otherwise or the selection of

such an alternative is inconsistent with

law. As required by section 325(o) of the

Energy Policy and Conservation Act (42

U.S.C. 6295(o)), today’s final rule

establishes energy conservation

standards for central air conditioners

and heat pumps that are designed to

achieve the maximum improvement in

energy efficiency that DOE has

determined to be both technologically

feasible and economically justified. A

full discussion of the alternatives

considered by DOE is presented in the

‘‘Regulatory Impact Analysis’’ section of

the TSD for today’s final rule.

I. Review Under the Treasury and

General Government Appropriations

Act of 1999

Section 654 of the Treasury and

General Government Appropriations

Act, 1999 (Pub. L. No. 105–277) requires

Federal agencies to issue a Family

Policymaking Assessment for any

proposed rule or policy that may affect

family well-being. Today’s final rule

would not have any impact on the

autonomy or integrity of the family as

an institution. Accordingly, DOE has

concluded that it is not necessary to

prepare a Family Policymaking

Assessment.


 EE-RM-STD-98-440 COMMENT 311
Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations 7199

J. Review Under the Plain Language

Directives

Section 1(b)(12) of Executive Order

12866 requires that each agency draft its

regulations to be simple and easy to

understand, with the goal of minimizing

the potential for uncertainty and

litigation arising from such uncertainty.

Similarly, the Presidential

memorandum of June 1, 1998 (63 FR

31883) directs the heads of executive

departments and agencies to use plain

language in all proposed and final

rulemaking documents published in the

Federal Register.

Today’s rule uses the following

general techniques to abide by Section

1(b)(12) of Executive Order 12866 and

the Presidential memorandum of June 1,

1998:

• Organization of the material to

serve the needs of the readers

(stakeholders);

• Use of common, everyday words in

short sentences; and

• Shorter sentences and sections.

K. Congressional Notification

As required by 5 U.S.C. 801, DOE will

submit to Congress a report regarding

the issuance of today’s final rule prior

to the effective date set forth at the

outset of this notice. DOE also will

submit the supporting analyses to the

Comptroller General (GAO) and make

them available to each House of

Congress. The report will state that it

has been determined that the rule is a

‘‘major rule’’ as defined by 5 U.S.C.

804(2).

List of Subjects in 10 CFR Part 430

Administrative practice and

procedure, Energy conservation,

Household appliances.

Issued in Washington, DC, on January 16,

2001.

Dan W. Reicher,

Assistant Secretary, Energy Efficiency and

Renewable Energy.

For the reasons set forth in the

preamble, Part 430 of Chapter II of Title

10, Code of Federal Regulations is

amended, as set forth below.

PART 430—ENERGY CONSERVATION

PROGRAM FOR CONSUMER

PRODUCTS

1. The authority citation for Part 430

continues to read as follows:

Authority: 42 U.S.C. 6291–6309; 28 U.S.C.

2461 note.

2. Section 430.2 is amended by

adding a definition for ‘‘spaceconstrained products’’ in alphabetical

order to read as follows:

§ 430.2 Definitions.

* * * * *

Space constrained product means a

central air conditioner or heat pump:

(1) That has rated cooling capacities

no greater than 30,000 BTU/hr;

(2) That has an outdoor or indoor unit

having at least two overall exterior

dimensions or an overall displacement

that:

(i) Are (is) substantially smaller than

those of other units that are (i) currently

usually installed in site-built single

family homes, and (ii) of a similar

cooling, and, if a heat pump, heating,

capacity, and

(ii) If increased, would certainly result

in a considerable increase in the usual

cost of installation or would certainly

result in a significant loss in the utility

of the product to the consumer; and

(3) Of a product type that was

available for purchase in the United

States as of December 1, 2000.

* * * * *

3. Section 430.32 of Subpart C is

amended by revising paragraph (c) to

read as follows:

§ 430.32 Energy and water conservation

standards and effective dates.

* * * * *

(c) Central air conditioners and

central air conditioning heat pumps. (1)

Split system central air conditioners and

central air conditioning heat pumps

manufactured after January 1, 1992, and

before January 23, 2006, and single

package central air conditioners and

central air conditioning heat pumps

manufactured after January 1, 1993, and

before January 23, 2006, shall have

Seasonal Energy Efficiency Ratio and

Heating Seasonal Performance Factor no

less than:

Product class

Seasonal

energy

efficiency

ratio

Heating

seasonal

performance factor

(i) Split systems ........ 10.0 6.8

(ii) Single package

systems ................. 9.7 6.6

(2) Central air conditioners and

central air conditioning heat pumps

manufactured on or after January 23,

2006, shall have Seasonal Energy

Efficiency Ratio and Heating Seasonal

Performance Factor no less than:

Product class

Seasonal

energy

efficiency

ratio

(SEER)

Heating

seasonal

performance factor

(HSPF)

(i) Split system air

conditioners ........... 13 ................

Product class

Seasonal

energy

efficiency

ratio

(SEER)

Heating

seasonal

performance factor

(HSPF)

(ii) Split system heat

pumps ................... 13 7.7

(iii) Single package

air conditioners ...... 13 ................

(iv) Single package

heat pumps ........... 13 7.7

(v) Space constrained

products ................ [reserved] [reserved]

* * * * *

Appendix

[The following letter from the Department

of Justice will not appear in the Code of

Federal Regulations.]

DEPARTMENT OF JUSTICE,

Antitrust Division, Main Justice Building,

950 Pennsylvania Avenue NW.,

Washington, DC 20530–0001, (202) 514–

2401/(202) 616–2645 (f),

antitrust@justice.usdoj.gov (internet),

http://www.usdoj.gov (World Wide Web).

December 4, 2000.

Mary Anne Sullivan, General Counsel,

Department of Energy, Washington, DC

20585.

Dear General Counsel Sullivan:

I am responding to your October 16, 2000

letter seeking the views of the Attorney

General about the potential impact on

competition of two proposed energy

efficiency standards: one for clothes washers

and the other for residential central air

conditioners and heat pumps. Your request

was submitted pursuant to Section

325(o)(2)(B)(i) of the Energy Policy and

Conservation Act, 42 U.S.C. § 6291, 6295

(‘‘EPCA’’), which requires the Attorney

General to make a determination of the

impact of any lessening of competition that

is likely to result from the imposition of

proposed energy efficiency standards. The

Attorney General’s responsibility for

responding to requests from other

departments about the effect of a program on

competition has been delegated to the

Assistant Attorney General for the Antitrust

Division in 28 CFR § 0.40(g).

We have reviewed the proposed standards

and the supplementary information

published in the Federal Register notices and

submitted to the Attorney General, which

include information provided to the

Department of Energy by manufacturers. We

have additionally conducted interviews with

members of the industries.

We have concluded that the proposed

clothes washer standard would not adversely

affect competition. In reaching this

conclusion, we note that the proposed

standard is based on a joint recommendation

submitted to the Department of Energy by

manufacturers and energy conservation

advocates. That recommendation states that

virtually all manufacturers of clothes washers

who sell in the United States participated in

arriving at the recommendation through their

trade association, that the recommendation


 EE-RM-STD-98-440 COMMENT 311
7200 Federal Register / Vol. 66, No. 14 / Monday, January 22, 2001 / Rules and Regulations

1The Federal Register notice also requested

comments on a proposal to adopt a standard for

steady-state cooling efficiency (EER) and discussed

several options the Department of Energy is

considering. The proposed rule set forth in the

notice does not, however, include a provision

regarding an EER standard, and the views of the

Department of Justice expressed in this letter are

limited to the impact of any lessening of

competition * * * that is likely to result from the

imposition of the [proposed] standard,’’ as required

by EPCA. If the Department of Energy proposes a

rule in the future incorporating an EER standard,

the Department will then evaluate that proposed

rule and express its views about the competitive

impact of that standard.

was developed in consultation with small

manufacturers, and that the manufacturers

believe the new standard would not likely

reduce competition. We note further that, as

the industry recommended, the proposed

standard will be phased in over six years,

which will allow companies that do not

already have products that meet the proposed

standard sufficient time to redesign their

product lines.

With respect to the proposed residential

central air conditioner and heat pump

standard, we have concluded that there could

be an adverse impact on competition. The

proposed standard, Trial Standard Level 3, is

expressed in terms of two industry

measurements: SEER (Seasonal Energy

Efficiency Ratio) and HSPF (Heating Seasonal

Performance Factor).1 These standards would

change from the current central air

conditioner and heat pump efficiency

standards of 10 SEER/6.8 HSPF for split

system air conditioners and heat pumps and

9.7 SEER/6.6 HPSF for single package air

conditioners and heat pumps to 12 SEER for

air conditioners and 13 SEER/7.7 HPSF for

heat pumps.

We have identified three possible

competitive problems presented by the

proposed standards. First, the proposed 13

SEER heat pump standard would have a

disproportionate impact on smaller

manufacturers. Currently less than 20% of

the total current product lines meet the

proposed standards, but for some small

manufacturers, 100% of their product lines

fail to satisfy the proposed standard.

Second, the proposed standard for heat

pumps, and in some instances for air

conditioners, would have an adverse impact

on some manufacturers of these products

(including those products referred to in the

Federal Register notice as ‘‘niche products’’)

used to retrofit existing housing and used in

manufactured housing. These manufacturers

could not make units that comply with the

rule and fit into the available space.

Third, the proposed heat pump standard of

13 SEER could make heat pumps less

competitive with alternative heating and

cooling systems. Because the standard will

result in increases in the size and cost of heat

pumps, it is possible that purchasers will

shift away from heat pumps to other systems

that include electric resistance heat, reducing

the competition that presently exists between

heat pumps and those other systems.

The Department of Justice urges the

Department of Energy to take into account

these possible impacts on competition in

determining its final energy efficiency

standard for air conditioners and heat

pumps. The Department of Energy should

consider setting a lower SEER standard for

heat pumps, such as the standard included

in Trial Standard Level 2, and a lower SEER

standard for air conditioners for retrofit

markets where there are space constraints

(such as markets served by niche products)

and for manufactured housing.

Sincerely,

A. Douglas Melamed,

Acting Assistant Attorney General.

[FR Doc. 01–1790 Filed 1–18–01; 11:30 am]

BILLING CODE 6450–01–P


 EE-RM-STD-98-440 COMMENT 311