CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

TABLE OF CONTENTS 

8.1 INTRODUCTION .............................................................................................................. 8-1

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses ............... 8-1

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs ................... 8-2

8.2 LIFE-CYCLE COST ANALYSIS INPUTS ....................................................................... 8-6

8.2.1 Definition ............................................................................................................. 8-6

8.2.2 Total Installed Cost Inputs ................................................................................... 8-6

8.2.2.1 Baseline Manufacturer Selling Price ................................................... 8-7

8.2.2.2 Standard-Compliant Manufacturer Selling Price Increases ................ 8-8

8.2.2.3 Overall Markup ................................................................................... 8-8

8.2.2.4 Installation Cost ................................................................................... 8-9

8.2.2.5 Weighted-Average Total Installed Cost ............................................ 8-11

8.2.3 Operating Cost Inputs ........................................................................................ 8-13

8.2.3.1 Electricity Price Analysis .................................................................. 8-14

8.2.3.2 Electricity Price Trend ....................................................................... 8-16

8.2.3.3 Repair Cost ........................................................................................ 8-18

8.2.3.4 Maintenance Cost .............................................................................. 8-18

8.2.3.5 Equipment Lifetime ........................................................................... 8-19

8.2.3.6 Discount Rate .................................................................................... 8-19

8.2.3.7 Effective Date of Amended Energy Conservation Standard ............. 8-24

8.3 PAYBACK PERIOD INPUTS ......................................................................................... 8-24

8.3.1 Definition ........................................................................................................... 8-24

8.3.2 Inputs.................................................................................................................. 8-25

8.4 RESULTS USING AVERAGE ELECTRICITY PRICES............................................... 8-25

8.4.1 Life-Cycle Cost Results ..................................................................................... 8-25

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values .......... 8-26

8.4.1.2

 ......................................................................................... 8-27

Differences in LCC between Baseline and Standard-compliant 

Equipment

8.4.2 Payback Period Results ...................................................................................... 8-29

8.5 LCC SENSITIVY STUDIES ............................................................................................ 8-32

8.5.1 Sensitivity to Electricity Price Escalation Rate ................................................. 8-32

8.6 DETAILED RESULTS .................................................................................................... 8-35

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 EERE-2007-BT-STD-0012 COMMENT 32
LIST OF TABLES 

Table 8.1.1

 ............................................................................................................... 8-5

Summary of Inputs and Key Assumptions used in the LCC and PBP 

Analyses

Table 8.2.1

 ................................................................................. 8-7

Representative PTAC and PTHP Equipment Evaluated for the Life-Cycle 

Cost and Payback Analyses

Table 8.2.2 Baseline Manufacturer Selling Prices per Unit .................................................... 8-8

Table 8.2.3

 .................... 8-8

Standard-compliant Manufacturer Selling Price Increases per Unit (Price 

Increases Relative to the Price of Baseline Efficiency Equipment)

Table 8.2.4 Overall Baseline Markups by Equipment Type ................................................... 8-9

Table 8.2.5 Overall Incremental Markups by Equipment Type ............................................. 8-9

Table 8.2.6 Installation Costs for Baseline PTAC and PTHP Equipment ............................ 8-10

Table 8.2.7 Installation Cost Indices (National Average Value = 100.0) ............................. 8-10

Table 8.2.8

 .......................................................................... 8-11

Costs and Markups for Determination of Weighted-Average Total 

Installed Costs (PTAC 9,000)*

Table 8.2.9

 .................... 8-13

Manufacturer Price, Equipment Price, Installation Cost, and Total 

Installed Costs for PTAC 9000, at U.S. Average Prices (2007$)*

Table 8.2.10 Estimated Commercial Electricity Prices by State (2007 cents/kWh) ............... 8-14

Table 8.2.11 Derived Average Commercial Electricity Price Ratios by Business Type ........ 8-15

Table 8.2.12 Real Discount Rates by Company and Ownership Category ............................ 8-22

Table 8.4.1

 ................................................................................... 8-28

Distribution of Life-Cycle Cost Savings from Baseline Level for PTAC 

9000 by Efficiency Level

Table 8.4.2

 ............................................................................... 8-29

Average Life-Cycle Cost Savings from a Baseline Level by Efficiency 

Level and Equipment Class

Table 8.4.3

 .......................................................................................................... 8-31

Summary of Payback Periods Results for Standard Size PTAC 9000 

Equipment

Table 8.4.4

 ................................................................................................................... 8-32

National Average Payback Periods by Efficiency Level and Equipment 

Class

Table 8.5.1

 ................................ 8-33

Average Life-Cycle Cost Savings from a Baseline Level by Efficiency 

Level and Equipment Class – EIA Low Growth Scenario

Table 8.5.2

 ................................ 8-33

Average Life-Cycle Cost Savings from a Baseline Level by Efficiency 

Level and Equipment Class – EIA High Growth Scenario

Table 8.5.3

 ........................................................................................ 8-34

Average Payback Period by Efficiency Level and Equipment Class – EIA 

Low Growth Scenario

Table 8.5.4

 ....................................................................................... 8-34

Average Payback Period by Efficiency Level and Equipment Class – EIA 

High Growth Scenario

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 EERE-2007-BT-STD-0012 COMMENT 32
8-iii

LIST OF FIGURES

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP ....................... 8-4

Figure 8.2.1

 ........................................ 8-16

Cumulative Probability Distribution Showing the Estimated Electricity 

Prices Paid by PTAC and PTHP Customers (2007$)

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042 .................................... 8-17

Figure 8.4.1

.................................................................................... 8-26

Effect of the Change in Efficiency Level on Life-Cycle Cost for Standard 

Size PTAC with a Cooling Capacity of 9,000 Btu/h in Large Chain Hotels 

(2007$) at Average U.S. Conditions (Level 0 is the Baseline Efficiency 

Level) REVISE CHART

Figure 8.4.2

 ................................................. 8-28

Cumulative Chart of LCC Savings for Standard Size PTAC, Cooling 

Capacity of 9,000 Btu/h, at Efficiency Level 4

Figure 8.4.3

 ......................................................................... 8-30

Effect of the Change in Efficiency Level on Payback Period for Standard 

Size PTAC 9000 in Large Chain Hotels at Average U.S. Conditions 

(Level 0 is the Baseline Level).

Figure 8.4.4 Cumulative Chart of Payback Period of PTAC 9000 at Efficiency Level 4 ..... 8-31

 EERE-2007-BT-STD-0012 COMMENT 32
CHAPTER 8. LIFE-CYCLE COST AND PAYBACK PERIOD ANALYSES 

8.1 INTRODUCTION

This chapter describes the methodology for analyzing the economic impacts of possible 

energy conservation standards being developed for packaged terminal air conditioners (PTACs) 

and packaged terminal heat pumps (PTHPs) equipment on individual customers. The effect of 

amended standards on individual customers usually includes a reduction in operating cost and an 

increase in purchase cost. This chapter describes two metrics used in the analysis to determine 

the economic impact of standards on individual commercial customers: 

Life-cycle cost (LCC) is the total customer cost over the life of an appliance or equipment, 

including purchase costs and operating costs (which in turn include maintenance, repair, and 

energy costs). Future operating costs are discounted to the time of purchase, and summed 

over the lifetime of the appliance or equipment. 

Payback period (PBP) measures the amount of time it takes customers to recover the 

assumed higher purchase price of more energy-efficient equipment through reduced 

operating costs. 

DOE conducted the LCC and PBP analysis using a spreadsheet model developed in 

Microsoft Excel. When combined with Crystal Ball (a commercially available software 

program), the LCC and PBP model generates a Monte Carlo simulation to perform the analysis 

by incorporating uncertainty and variability considerations in certain of the key parameters as 

discussed below. 

Inputs to the LCC and PBP analyses of PTAC and PTHP equipment are discussed in 

sections 8.2 and 8.3, respectively. Results for each metric are presented in sections 8.4 and 8.5, 

respectively. Key variables and calculations are presented for each metric. The calculations 

discussed here were performed with a series of Microsoft Excelspreadsheets which are 

accessible over the Internet 

(http://www.eere.energy.gov/buildings/appliance_standards/commercial/packaged_ac_hp.html). 

Details of and instructions for using the spreadsheets are discussed in appendix D. A 

more complete set of results of the analyses are presented in appendix E. 

8.1.1 General Approach for Life-Cycle Cost and Payback Period Analyses 

Recognizing that each business that uses PTAC and PTHP equipment is unique, DOE 

analyzed variability and uncertainty by performing the LCC and PBP calculations detailed here 

for four types of commercial businesses, each of which tends to have different costs of financing 

because of the nature of the business. DOE identified these four types of businesses, which 

represent over 95 percent of the end user sectors of PTAC and PTHP equipment. The first type 

of business is a “large chain” hotel or motel, which, DOE believes, has access to a wide range of 

financing options and thus a relative low financing costs. The second type is an “independent” 

hotel or motel, which is not affiliated with a national chain, which has fewer financing options 

and thus a relative high financing costs. A third type of business is called “health care” and 

includes nursing homes, as well as assisted living and long-term care facilities, which, similar to 

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 EERE-2007-BT-STD-0012 COMMENT 32
the large chain hotel, has a relative low financing costs. The fourth type is called “office” and 

applies to small office buildings that are occupied by offices of non-hospital medical 

professionals such as physicians and dentists which, DOE believes, has the fewest financing 

options, and as a result, the highest costs. DOE derived the financing costs based on data from 

the Damodaran Online site.1

The LCC analysis used the estimated energy use for each PTAC or PTHP unit as 

described in the energy use characterization analysis in Chapter 7 of the TSD. Energy use of 

PTACs and PTHPs is sensitive to climate, so it varies by State within the United States. Aside 

from energy use, other important factors influencing the LCC and PBP analyses include energy 

prices, installation costs, equipment distribution markups, and sales tax. At the National level, 

the LCC spreadsheets explicitly modeled both the uncertainty and the variability in the model’s 

inputs, using probability distributions based on the shipment of PTAC and PTHP equipment to 

different States and business types. 

As mentioned above, DOE generated LCC and PBP results as probability distributions 

using a simulation based on Monte Carlo analysis methods, in which certain key inputs to the 

analysis consist of probability distributions rather than single-point values. Therefore, the 

outcomes of the Monte Carlo analysis can also be expressed as probability distributions. As a 

result, the Monte Carlo analysis produces a range of LCC and PBP results. A distinct advantage 

of this type of approach is that DOE can identify the percentage of customers achieving LCC 

savings or attaining certain PBP values due to an increased efficiency level, in addition to the 

average LCC savings or average PBP for that efficiency level. 

The LCC and PBP results are displayed as distributions of impacts compared to the 

baseline conditions. As described in Chapter 7, the baseline efficiency level is defined as the 

PTAC and PTHP efficiency level specified by the American Society of Heating, Refrigerating, 

and Air-Conditioning Engineers, Inc. (ASHRAE) and the Illuminating Engineering Society of 

North America (IESNA) Standard 90.1-1999, “Energy Standard for Buildings Except Low-Rise 

Residential Buildings” (ASHRAE/IESNA Standard 90.1-1999). Results are presented at the end 

of this chapter. A variety of graphic displays can be created to illustrate the implications of the 

analysis. Examples of graphic displays are (1) a cumulative probability distribution showing the 

percentage of PTAC and PTHP equipment in U.S. commercial buildings that would experience a 

net LCC savings, and (2) a cumulative frequency chart depicting variation in PBP for each 

PTAC and PTHP efficiency level considered. 

All analyses were performed under the assumption that the current R-22 refrigerant 

would have been displaced by an alternative refrigerant in 2010 due to the Clean Air Act. The 

analysis methodology and results presented in this chapter assume that all equipment 

manufactured after 2010 will use R-410A. . 

8.1.2 Overview of Life-Cycle Cost and Payback Period Analyses Inputs 

The LCC is the total customer cost over the life of the equipment, including purchase cost 

and operating cost (including energy cost). Future operating costs are discounted to the time of 

purchase and summed over the lifetime of the equipment. The PBP is the increase in purchase 

cost of higher efficiency equipment divided by the change in annual operating cost (as a result of 

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 EERE-2007-BT-STD-0012 COMMENT 32
lower energy consumption) of the equipment. It represents the number of years it will take the 

customer to recover the increased purchase cost through decreased operating costs. In the 

calculation of PBP, future costs are not discounted. 

Inputs to the LCC and PBP analyses are categorized as follows: (1) inputs for 

establishing the purchase cost, otherwise known as the total installed cost, and (2) inputs for 

calculating the operating cost (i.e., energy, maintenance, and repair costs). 

The primary inputs for establishing the total installed cost are: 

Baseline manufacturer selling price: The baseline manufacturer selling price (MSP) is 

the price charged by the manufacturer to either a wholesaler or customer for equipment 

meeting existing minimum efficiency (or baseline) standards. The manufacturer selling 

price includes a markup that converts the cost of production (i.e., the manufacturer cost) 

to a manufacturer selling price. 

Standard-level manufacturer selling price increase: The standard-level MSP is the 

incremental change in MSP associated with producing equipment at each of the higher 

standard levels. 

Markups and sales tax: Markups and sales tax are the markups and sales tax associated 

with converting the MSP to a customer price. The markups and sales tax are described in 

detail in Chapter 6, Markups for Equipment Price Determination. 

Installation price: Installation price is the cost to the customer of installing the 

equipment. The installation price represents all costs required to install the equipment 

but does not include the marked-up customer equipment price. The installation price 

includes labor, overhead, and any miscellaneous materials and parts. Thus, the total 

installed cost equals the customer equipment price plus the installation price. 

The primary inputs for calculating the operating cost are: 

Equipment energy consumption: The equipment energy consumption is the site energy 

use associated with the use of the PTAC and PTHP equipment to provide spaceconditioning to the building. Chapter 7, Building Energy Use Characterization, provides 

complete details on the PTAC and PTHP equipment energy use simulations and their 

results. 

Electricity prices: Electricity prices used in the analysis are the price per kilowatt-hour in 

cents or dollars ($/kWh) paid by each customer for electricity. Electricity prices are 

determined using average commercial electricity prices in each State, as determined from 

Energy Information Administration (EIA) data for 20072

. The 2007 average commercial 

prices were then modified to reflect the fact that the four types of businesses that use the 

PTAC and PTHP equipment pay prices that, on average, are either slightly higher or 

lower than the 2007 average commercial prices, based on the 2003 Commercial Building 

Energy Consumption Survey (CBECS) data.3

Electricity price trends: The EIA’s Annual Energy Outlook 2008 (AEO 2008) is used to 

forecast electricity prices into the future4

. For the results presented in this chapter, DOE 

used the AEO 2008 reference case to forecast future electricity prices. 

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8-4

Maintenance costs: The labor and material costs associated with preventative 

maintenance of the equipment (e.g., cleaning heat exchanger coils and drain pans, 

changing air filters, etc.). 

Repair costs: The labor and material costs associated with repairing or replacing 

components that have failed. 

Lifetime: The age at which the PTAC or PTHP equipment is retired from service. 

Discount rate: The rate at which future costs are discounted to establish their present 

value. 

Figure 8.1.1 graphically depicts the relationships between the installed cost and operating 

cost inputs for the calculation of the LCC and PBP. Table 8.1.1 summarizes the values for the 

various inputs to the calculation of the LCC and PBP. As noted earlier, most of the inputs are 

characterized by probability distributions that capture variability in the input variables. Also 

listed in Table 8.1.1 are chapters in the TSD, where more detailed information on the input 

variables can be found. 

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Installation Costs Installation Costs

Repair Costs Repair Costs Lifetimes Lifetimes

Annual Maintenance

Electricity 

Consumption Electricity 

Consumption

Manufacturer Base 

Price

Total Installed Cost 

(Std i –Base)

Manufacturer Base 

Price

Contractor Markups

Markups

Wholesaler/ 

Distributor Markup

Electricity Prices

National Account 

Markup

Equipment Prices

Sales Tax

Manufacturer Base 

Price

Installation Costs

Manufacturer Std 1 

Base Price

Manufacturer Std 1 

Base Price

Manufacturer Price

Standard i= 1...n

Electricity 

Consumption Annual Energy Costs

Annual Maintenance

Repair Costs

Annual Operating 

Cost (Std i - Base)

Payback 

Period

Discount Rate

Lifetimes

Lifetime 

Operating 

Cost (Std 

i – Base)

Lifecycle 

Cost

Annual Maintenance 

Costs

Figure 8.1.1 Flow Diagram of Inputs for the Determination of LCC and PBP 

 EERE-2007-BT-STD-0012 COMMENT 32
Table 8.1.1 Summary of Inputs and Key Assumptions used in the LCC and PBP 

Analyses

Inputs Description 

Affecting Installed Costs 

Derived by multiplying MSP (from the engineering analysis) by 

wholesaler markups and contractor markups plus sales tax (from 

markups analysis). Used the probability distribution for the different 

markups to describe their variability. 

Equipment Price 

Includes installation labor, installer overhead, and any miscellaneous 

materials and parts, derived from RS Means Costworks 2008. Installation Cost 

Affecting Operating Costs 

Derived from whole-building hourly energy use simulation for 

PTACs or PTHPs in a representative hotel/motel building in various 

climate locations (from energy use characterization analysis). Used 

annual electricity use per unit. Used the probability distribution to 

account for which State a unit will be shipped to, which in turn 

affects the annual energy use. 

Annual Energy Use 

Calculated average commercial electricity price in each State, as 

determined from EIA data for 2007. Used the AEO2008 forecasts to 

estimate the future electricity prices. Used the state probability 

distribution for the electricity price. 

Electricity Price 

Maintenance Cost Annual maintenance cost did not vary as a function of efficiency. 

Estimated the annualized repair cost for baseline efficiency PTAC 

and PTHP equipment as $15, based on costs of extended warranty 

contracts for PTACs and PTHPs. Assumed that repair costs would 

vary in direct proportion with the MSP at higher efficiency levels 

because it generally costs more to replace components that are more 

efficient. 

Repair Cost 

Affecting Present Value of Annual Operating Cost Savings 

Used Weibull probability distribution of lifetimes, with mean 

lifetime for each of four equipment classes assumed to be 10 years 

and maximum lifetime of 20 years, based on literature reviews and 

consultation with industry experts. 

Equipment Lifetime 

Mean real discount rates ranging from 5.53 percent for large hotel 

chains to 8.14 percent for small office owners. Used the probability 

distribution for the discount rate. 

Discount Rate 

September 30, 2012 (four years after the publication of the final 

rule) Date Standards Become Effective 

Analyzed Efficiency Levels 

Baseline efficiency levels (ASHRAE/IESNA Standard 90.1-1999) 

and five higher efficiency levels for six equipment classes (DOE 

also considered levels that were combinations of efficiency levels 

for PTACs and PTHPs). 

Analyzed Efficiency Levels 

All of the inputs depicted in Figure 8.1.1 and summarized in Table 8.1.1 are discussed in 

sections 8.2 and 8.3. 

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8.2 LIFE-CYCLE COST ANALYSIS INPUTS 

8.2.1 Definition

Life-cycle cost is the total customer cost over the life of a piece of equipment, including 

purchase cost and operating costs (which are comprised of energy costs, maintenance costs, and 

repair costs). Future operating costs are discounted to the time of purchase and summed over the 

lifetime of the equipment. Life-cycle cost is defined by the following equation: 

 Eq. 8.1 

 

N

t

t

t rOCICLCC

1

)1/(

where: 

LCC = life-cycle cost ($), 

IC = total installed cost ($), 

= sum over the lifetime, from year 1 to year N, 

where N = lifetime of equipment (years), 

OC = operating cost ($), 

r = discount rate, and 

t = year for which operating cost is being determined. 

Because DOE gathered most of its data for the LCC analysis in 2007, DOE expresses all 

the costs in 2007$. Total installed cost, operating cost, lifetime, and discount rate are discussed 

in the following sections. In the LCC analysis, the year of equipment purchase is assumed to be 

2012, the effective date of the amended energy conservation standards for PTACs and PTHPs. 

8.2.2 Total Installed Cost Inputs 

The total installed cost to the customer is defined by the following equation: 

EQPIC  INST Eq. 8.2

where: 

EQP = equipment price ($) (i.e., customer price for the equipment only), 

INST = installation cost or the customer price to install equipment ($) (i.e., the cost for 

labor and materials). 

The equipment price is based on the distribution channel through which the customer 

purchases the equipment. As discussed in Chapter 6, Markups for Equipment Price 

Determination, DOE defined four types of distribution channels to describe how the equipment 

passes from the manufacturer to the customer: (1) the manufacturer sells directly to the customer 

through a national account, (2) the manufacturer sells the equipment to a wholesaler, who in turn, 

sells it directly to the customer; (3) the manufacturer sells the equipment to a wholesaler, who 

sells to a mechanical contractor, who makes the purchase on behalf of the customer, (4) the 

manufacturer sells the equipment to a wholesaler, who sells to a mechanical contractor hired by a 

general contractor. The general contractor purchases and install the equipment on behalf of the 

customer and adds its markup to the mechanical contractor’s price. 

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 The remainder of this section provides information about the variables DOE used to 

calculate the total installed cost for PTAC and PTHP. Inputs to determine total installed cost are 

shown below: 

Baseline manufacturer selling prices ($) (section 8.2.2.1) 

Standard-level manufacturer selling price increases ($) (section 8.2.2.2) 

Overall markups (section 8.2.2.3) 

Installation costs ($) (section 8.2.2.4) 

Weighted-average total installed costs ($) (section 8.2.2.5) 

8.2.2.1 Baseline Manufacturer Selling Price 

The baseline MSP is the price charged by manufacturers to either a wholesaler or very 

large customer for equipment meeting existing minimum efficiency (or baseline) standards. The 

MSP includes a markup that converts the cost to manufacture (i.e., the manufacturing cost) to a 

MSP. DOE developed the baseline MSP through an efficiency level analysis supplemented by 

certain design-option considerations. Refer to Chapter 5, Engineering Analysis, for details. 

DOE developed MSP for six representative equipment categories within the four equipment 

classes identified in market and technology assessment analysis, Chapter 3 of the TSD. The 

LCC and PBP were calculated based on the same set of six representative equipment categories 

as given in Table 8.2.1. 

Table 8.2.1 Representative PTAC and PTHP Equipment Evaluated for the Life-Cycle 

Cost and Payback Analyses 

Equipment

Class 

Representative Description 

Equipment

Category 

PTAC PTAC 9000 Packaged Terminal Air Conditioner, Standard Size, 

(Standard Size) 9,000 Btu/h Cooling Capacity 

PTAC PTAC 12000 Packaged Terminal Air Conditioner, Standard Size, 

(Standard Size) 12,000 Btu/h Cooling Capacity 

PTHP PTHP 9000 Packaged Terminal Heat Pump, Standard Size, 

(Standard Size) 9,000 Btu/h Cooling Capacity 

PTHP PTHP 12000 Packaged Terminal Heat Pump, Standard Size , 

(Standard Size) 12,000 Btu/h Cooling Capacity 

PTAC PTAC 11000 Packaged Terminal Air Conditioner, Non-Standard 

(Non-Standard Size, 11,000 Btu/h Cooling Capacity 

Size) 

PTHP PTHP 11000 Packaged Terminal Heat Pump, Non-Standard Size, 

(Non-Standard 11,000 Btu/h Cooling Capacity 

Size) 

DOE determined the minimum efficiency levels listed in ASHRAE/IESNA Standard 

90.1-1999 as the baseline efficiency levels for PTACs and PTHPs. The minimum efficiency 

levels specified by ASHRAE/IESNA Standard 90.1-1999 are detailed in Chapter 5, Engineering 

Analysis. DOE developed the MSP for the baseline efficiency equipment as a part of the 

engineering analysis (see Chapter 5 of the TSD), which are shown in Table 8.2.2. 

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Table 8.2.2 Baseline Manufacturer Selling Prices per Unit 

ASHRAE/ IESNA Baseline

Manufacturer

Selling Price* 

(2007$) 

5 Standard 90.1-1999

Representative 

Equipment

(Baseline Efficiency) 

PTAC 9000 EER 10.6 $509.76

PTAC 12000 EER 9.9 $608.99

PTHP 9000 EER 10.4, COP 3.0 $568.00

PTHP 12000 EER 9.7, COP 2.9 $665.80

PTAC 11000 EER 8.6 $679.06

PTHP 11000 EER 8.5, COP 2.6 $742.06

* Baseline MSP is based upon the PTAC and PTHP equipping using R-410A refrigerant. 

8.2.2.2 Standard-Compliant Manufacturer Selling Price Increases 

The standard-compliant MSP increase is the change in MSP associated with producing 

equipment at higher efficiency levels. DOE developed MSP increases associated with increases 

in equipment efficiency levels through a combination of efficiency level and design-option 

analyses in the engineering analysis (see Chapter 5 of the TSD). MSP increases as a function of 

equipment efficiency were developed for each of the six representative equipment categories in 

the engineering analysis as well. Table 8.2.3 summarizes the estimated MSP increases for PTAC 

and PTHP efficiency levels considered in the LCC and PBP analyses. 

Table 8.2.3 Standard-compliant Manufacturer Selling Price Increases per Unit (Price 

Increases Relative to the Price of Baseline Efficiency Equipment) 

Standard-Compliant MSP 

Representative (2007$) 

Equipment Efficiency

Level 1 

Efficiency

Level 2

Efficiency

Level 3

Efficiency

Level 4

PTAC 9000 $10.10 $17.29 $24.86 $32.80 

PTAC 12000 $12.71 $21.95 $31.81 $42.30 

PTHP 9000 $16.36 $23.55 $31.12 $39.06 

PTHP 12000 $20.40 $29.64 $39.50 $49.99 

PTAC 11000 $18.03 $27.54 $38.55 #N/A

PTHP 11000 $19.53 $29.04 $40.05 #N/A

8.2.2.3 Overall Markup 

For a given distribution channel, the overall markup is the value determined by 

multiplying all the associated markups and the applicable sales tax together to arrive at a single 

overall distribution chain markup value. The overall markup is multiplied by the baseline or 

standard-compliant manufacturing selling price to arrive at the price paid by the customer. 

Because there are baseline and incremental markups associated with the wholesaler and 

mechanical contractor, the overall markup is also divided into a baseline markup (i.e., a markup 

used to convert the baseline manufacturer price into a customer price) and an incremental 

markup (i.e., a markup used to convert a standard-compliant MSP increase due to an efficiency 

increase into an incremental customer price). Further, the overall markups are based on 

8-8

 EERE-2007-BT-STD-0012 COMMENT 32
distribution channels, as well as whether the equipment is being purchased for a new 

construction installation or for an existing equipment replacement. As a result, DOE developed 

the overall baseline markups and incremental markups for both the new construction and 

replacement applications as a part of the markups analysis (Chapter 6 of the TSD). 

Based on the percentages of the market attributed to each of the four distribution channels 

and whether the equipment goes into replacement applications or new construction applications, 

the weighted-average overall markups and their associated components are presented in Table 

8.2.4 and Table 8.2.5 for the baseline and incremental markups, respectively. The differences 

between national average incremental markups for standard size and non-standard size units are 

small enough that the last columns in Table 8.2.5 are identical. 

Table 8.2.4 Overall Baseline Markups by Equipment Type 

New 

Construction 

Application

Overall 

Replacement 

Application

Weighted 

Equipment Type Average

PTACs and PTHPS 1.86 2.01 1.89 (Standard Size) 

PTACs and PTHPS 1.86 2.01 1.93 (Non-Standard Size) 

Table 8.2.5 Overall Incremental Markups by Equipment Type 

New 

Construction 

Application

Overall 

Replacement 

Application

Weighted 

Equipment Type Average

PTACs and PTHPS 1.28 1.29 1.28 (Standard Size) 

PTACs and PTHPS 1.28 1.29 1.28 (Non-Standard Size) 

8.2.2.4 Installation Cost 

The installation cost is the price to the customer of labor and materials (other than the 

actual equipment) needed to install the PTAC and PTHP equipment. DOE derived installation 

cost for PTAC and PTHP equipment from data in the RS Means: Cost Works 2008. RS Means

provides estimates on the person-hours required to install PTAC and PTHP equipment and the 

labor rates associated with the type of crew required to install the equipment6

. Generally 

speaking, installation involves movement into the building, installation or setting of equipment 

(including sleeve), connecting to power supply, filling/flushing/cleaning/touchup, startup and 

running adjustments, training the owner’s representative, and warranty and call-back service. 

The installation cost was calculated by multiplying the number of person-hours by the 

corresponding labor rate. RS Means provides specific person-hour and labor rate data for the 

installation of PTAC and PTHP equipment (equipment category 238113). Labor rates vary 

significantly from region to region of the country and the RS Means data provide the necessary 

information to capture this regional variability. RS Means provides cost indices that reflect the 

labor rates for 295 cities in the United States. Several cities in all 50 States and the District of 

Columbia are identified in the RS Means data. DOE incorporated these cost indices into the 

analysis to capture variation in installation cost, depending on the location of the customer. 

8-9

 EERE-2007-BT-STD-0012 COMMENT 32
Table 8.2.6 summarizes the nationally representative person-hours and labor rates 

associated with the installation of PTAC and PTHP equipment as presented in RS Means. In 

Table 8.2.6, both bare installation costs (i.e., costs before overhead and profit [O&P]) and 

installation costs including O&P are provided. DOE assumed that the installation costs that 

include O&P represent the installation costs for baseline equipment. These installation costs are 

assumed to remain fixed regardless of efficiency level (a “flat” installation cost scenario). 

However, the LCC spreadsheet allows for an alternative scenario - that the installation cost 

increases with higher efficiency levels - and this alternative was implemented in the LCC 

spreadsheet by providing for an installation price that varies in proportion to increased 

manufacturer cost above the baseline efficiency level. DOE did not, however, find a basis for 

the latter assumption. 

Table 8.2.6 Installation Costs for Baseline PTAC and PTHP Equipment 

Labor Plus O&P (2007$) 

Equipment Type Person-Hours Rate Cost 

PTAC and PTHP 

9000 3.2 $63.76 $204.03

PTAC and PTHP 

11000 and 12000 4.0 $63.76 $255.04

Table 8.2.7 summarizes the cost indices for installations in each of the 50 states, plus the 

District of Columbia, used to vary the nationally representative installation costs in Table 8.2.6. 

To arrive at an average index for each state, DOE weighted the city indices in each state by their 

population within the state. DOE used population weights for the year 2007 from the U.S. 

Census Bureau to calculate a weighted-average index for each state from the R.S. Means data. 

Table 8.2.7 Installation Cost Indices (National Average Value = 100.0) 

State Index State Index State Index 

Alabama 63.1 Kentucky 84.2 North Dakota 64.2 

Alaska 107.2 Louisiana 62.7 Ohio 101.4 

Arizona 79.1 Maine 75.3 Oklahoma 61.5 

Arkansas 62.0 Maryland 93.9 Oregon 114.0 

California 126.5 Massachusetts 123.5 Pennsylvania 122.9 

Colorado 86.0 Michigan 107.0 Rhode Island 118.2 

Connecticut 126.6 Minnesota 122.4 South Carolina 45.2 

Delaware 125.3 Mississippi 60.0 South Dakota 39.9 

Dist. of Columbia 99.6 Missouri 105.6 Tennessee 71.2 

Florida 67.9 Montana 77.4 Texas 63.6 

Georgia 73.9 Nebraska 88.1 Utah 144.6 

Hawaii 119.5 Nevada 142.5 Vermont 70.0 

Idaho 76.8 New Hampshire 91.9 Virginia 74.4 

Illinois 137.6 New Jersey 132.7 Washington 108.0 

Indiana 88.9 New Mexico 74.9 West Virginia 91.3 

Iowa 81.3 New York 171.9 Wisconsin 103.9 

Kansas 72.4 North Carolina 45.3 Wyoming 64.4 

8-10

 EERE-2007-BT-STD-0012 COMMENT 32
8-11

8.2.2.5 Weighted-Average Total Installed Cost 

As presented in Eq.8.2, the total installed cost is the sum of the equipment price and the 

installation cost. DOE derived the customer equipment price for any given efficiency level by 

multiplying the baseline MSP by the baseline markup and adding to it the product of the 

incremental MSP and the incremental markup. Because MSPs, markups, and the sales tax all 

can take on a variety of values, depending on location, the resulting total installed cost for a 

particular efficiency level will not be a single-point value, but rather a distribution of values. 

The baseline MSP and the standard-compliant MSP increases are the starting points for 

determining the total installed cost (values are taken directly from Table 8.2.2 and Table 8.2.3). 

DOE used the baseline and incremental markups and installation costs to convert the MSPs into 

total installed costs for a case where the incremental installation costs are held flat. As an 

example, the weighted average costs for the PTAC 9,000 equipment category are presented for 

the baseline level. Table 8.2.8 summarizes the weighted-average costs and markups necessary 

for determining the weighted-average baseline and standard-compliant total installed costs. 

Table 8.2.8 Costs and Markups for Determination of Weighted-Average Total Installed 

Costs (PTAC 9,000)* 

Variable Weighted Average or Mean Value 

Baseline Manufacturer selling price $509.76 

Standard-compliant Manufacturer selling price Increase 

(Efficiency Level 4) 

$32.80 

Overall Baseline Markup - Standard Size 1.886 

Overall Incremental Markup – Standard Size 1.281 

Installation Cost–Baseline $204.00 

Installation Cost Factor –Incremental 1.00** 

* Incremental installation costs held flat

** National incremental cost index on a population-weighted national basis is equal to 1.00.

To illustrate the derivation of the weighted-average total installed cost shown in 

Table 8.2.8, DOE presents the calculation below for the baseline efficiency and a higher 

efficiency (efficiency level 4) standard size PTAC with cooling capacity of 9,000 Btu/h unit 

(PTAC 9000). For baseline equipment, the calculation of the total installed cost at national 

average conditions is as follows: 

 ICBASE PTAC 9000 = EQPBASE- PTAC 9000 +INSTBASE- PTAC 9000 X INSTNDEX Eq. 8.3 

 = MSPBASE- PTAC 9000 X MU BASE- PTAC 9000 + INST BASE-PTAC 9000 X INSTNDEX

= $509.76 x 1.886 + $204 x 1.00 

= $963.45 + $204.00 

= $1165 

 EERE-2007-BT-STD-0012 COMMENT 32
where 

IC = total installed cost ($), 

EQP = equipment price ($), 

MSP = manufacturer selling price ($), 

MU = overall baseline markup, 

INST = installation cost or the customer price to install equipment ($), 

INSTINDEX = location dependent installation cost index, approximately 1.0 at a 

national average. 

In this specific example, MSP is the national average baseline MSP for the PTAC 9000

equipment class and MU is the overall baseline markup factor. The calculation of the higher 

efficiency (efficiency level 4) total installed cost includes the use of a MSP adder. In addition, 

DOE derived an incremental markup. 

Based on incremental equipment price changes, the derivation of the efficiency level 4 

total installed cost is based on determining the change in equipment price over the baseline 

equipment price. The manufacturer price increment for higher efficiency equipment is 

multiplied by the incremental markup. 

DOE calculated the efficiency level 4 total installed cost (IC PTAC 9000 TSL4) as follows: 

 IC PTAC 9000 TSL4 = (EQP BASE-PTAC 9000 + EQP PTAC 9000 TSL4)+ INSTPTAC 9000 TSL4 

 X INSTINDEX Eq. 8.4

 

 = ( MSP BASE-PTAC 9000 X MU BASE PTAC 9000)+( MSP PTAC 9000 TSL4

X MU PTAC 9000 TSL4)+ INST PTAC 9000 TSL4 X ISTINDEX 

 = $509.76 X 1.886 + $32.80 X 1.281 + $204 X 1.00 

 = $1207 

where 

EQP = increase in equipment price ($), 

MFG = increase in manufacturer price ($), 

MU = markup factor (base or incremental, as shown in Table 8.2.4 and 

Table 8.2.5, respectively) 

Table 8.2.9 presents the average equipment price, installation costs, and total installed 

costs for the representative equipment PTAC 9000 at the baseline level and each efficiency level 

examined. 

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 EERE-2007-BT-STD-0012 COMMENT 32
Table 8.2.9 Manufacturer Price, Equipment Price, Installation Cost, and Total Installed 

Costs for PTAC 9000, at U.S. Average Prices (2007$)* 

Manufacturer

Selling

Equipment

Price (Including 

Markups)

Installation Total Installed

Efficiency Level Price Cost Cost

Baseline 

(ASHRAE 90.1-

1999) 

$510 $961 $204 $1,165 

Level 1 $520 $974 $204 $1,178 

Level 2 $527 $984 $204 $1,188 

Level 3 $535 $993 $1,197 $204 

Level 4 $543 $1,003 $1,208 $204 

* Details may not add to total due to rounding. 

8.2.3 Operating Cost Inputs 

DOE based the operating cost for the LCC analysis on energy consumption data 

developed from whole-building simulations on a representative hotel and model building 

prototype. After the LCC analysis was performed, DOE generated a distribution of LCC 

differences (i.e., the LCC difference between the baseline equipment and equipment with a 

higher efficiency level) to determine the mean LCC difference, as well as the percentage of 

customers analyzed that had LCC savings associated with more energy-efficient equipment. 

DOE defined the operating cost by the following equation: 

OC = EC+ RC+ MC Eq. 8.5

where 

OC = operating cost ($), 

EC = energy cost associated with operating the equipment ($), 

RC = repair cost associated with component failure ($), 

MC = annual maintenance cost for maintaining equipment operation ($). 

The remainder of this section provides information about the variables that DOE used to 

calculate the operating cost for PTAC and PTHP equipment. Equipment lifetime, discount rate, 

and effective date of the amended energy conservation standard are required for determining the 

operating cost and for establishing the operating cost present value. The energy consumption per 

unit for the baseline efficiency and standard-compliant cases (efficiency level 1, 2, etc.), 

combined with the electricity prices, are used to determine the annual energy costs of the 

equipment. Chapter 7, Building Energy Use Characterization Analysis, provides complete 

details on the PTAC and PTHP equipment energy consumption results for all 50 states and the 

District of Columbia. The key inputs for the determination of operating costs are shown below: 

Baseline and standard-compliant annual energy consumption (kWh) (Chapter 7) 

Electricity price (cents/kWh) (section 8.2.3.1) 

Electricity price trend (section 8.2.3.2) 

Repair cost ($) (section 8.1.1.1) 

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 EERE-2007-BT-STD-0012 COMMENT 32
Maintenance cost ($) (section 8.2.3.4) 

Equipment lifetime (years) (section 8.2.3.5) 

Discount rate (percentage) (section 8.2.3.6) 

Effective date of amended energy conservation standard (section 8.2.3.7) 

8.2.3.1 Electricity Price Analysis 

Introduction to the analysis of electricity prices. This section describes the electricity 

price (cents/kWh) analysis used to develop the energy portion of the annual operating costs (i.e., 

electricity price times electricity consumption) for PTACs and PTHPs in the four types of 

businesses analyzed. 

Subdivision of the Country. Because of the wide variation in electricity consumption 

patterns, wholesale costs, and retail rates across the country, it is important to consider regional 

differences in electricity prices. For this reason, DOE divided the continental U.S. into the 

50 states and the District of Columbia. DOE used reported average effective commercial 

electricity prices at the state level from Energy Information Administration (EIA) data for 2007.1

 

The latest available prices from this source were for the calendar year 2007. Table 8.2.10 

provides data on the adjusted electricity prices. 

Table 8.2.10 Estimated Commercial Electricity Prices by State (2007 cents/kWh) 

Commercial 

Electricity

Price

Commercial 

Electricity

Price

Commercial 

Electricity

Price

State State State 

Alabama Kentucky North 8.70 6.65 Dakota 6.53 

Alaska Louisiana Ohio 11.93 9.17 8.63 

Arizona Maine Oklahoma 8.25 13.12 7.30 

Arkansas Maryland Oregon 6.88 11.51 7.23 

California Massachusetts Pennsylvania 12.76 15.12 9.18 

Colorado Michigan Rhode Island 7.60 8.95 12.78 

Connecticut Minnesota South 15.26 7.39 Carolina 7.73 

Delaware Mississippi South 11.22 8.95 Dakota 6.54 

Dist. of Col. 12.32 6.25 Missouri Tennessee 7.99 

Florida Montana Texas 9.69 7.95 10.00 

Georgia Nebraska Utah 8.04 6.28 6.54 

Hawaii Nevada Vermont 21.92 10.10 12.25 

Idaho New 5.13 13.83 Hampshire Virginia 6.40 

Illinois New 9.14 13.26 Jersey Washington 6.55 

Indiana New 7.20 7.64 Mexico West Virginia 5.78 

Iowa New 7.06 15.44 York Wisconsin 8.61 

Kansas North 6.90 7.41 Carolina Wyoming 6.20 

Furthermore, DOE recognized that different kinds of businesses typically use electricity 

in different amounts at different times of the day, week, and year, and therefore face different 

effective prices. To make this adjustment, DOE used EIA’s 2003 CBECS data set to identify the 

average prices paid by the four kinds of businesses in this analysis compared with the average 

prices paid by all commercial customers2

. Equation 8.7 shows the ratio of prices paid by the four 

8-14

 EERE-2007-BT-STD-0012 COMMENT 32
types of businesses used to increase or decrease the average electricity prices for commercial 

buildings. 

EPRICECOM BLD I STATE 2007 = EPRICE COM STATE 2007 x (EPRICE BLDG I US 2003/EPRICE COM US 2003) Eq. 8.7

 

where 

EPRICECOM BLD I STATE 2007 = average commercial sector electricity price in building type I 

(large chain hotel/motel) in a specific state in 2007, 

EPRICE COM STATE 2007 = average commercial sector electricity price in a specific state in 

2007, 

EPRICE BLDG I US 2003 = national average commercial sector electricity price in building 

type I in 2003 CBECS, 

EPRICE COM US 2003 = national average commercial sector electricity price in 2003 CBECS. 

Table 8.2.11 shows the derivation of the EPRICE ratios from 2003 CBECS data set. 

Table 8.2.11 Derived Average Commercial Electricity Price Ratios by Business Type 

Health Care 

(Assisted Living 

and Nursing 

Homes) 

All

Commercial 

Buildings 

Large Chain 

Hotel/Motel 

Independent 

Business Type Hotel Office

Electricity Price (cents/kWh) 8.4 8.4 Insufficient data 9.9 7.8 

Ratio of Electricity Price to 

Average Price for all 

Commercial Buildings 

1.083 1.083 1.00 1.276 1.00 

Source: CBECS 2003 

Once the electricity prices for the four types of building businesses were adjusted, DOE 

used the resulting prices in the analysis to represent 2007 electricity prices. To obtain a 

weighted-average national price, DOE weighted the prices paid by each business in each state by 

the estimated sales of PTAC and PTHP units in each state to each type of business. The 

state/building type weights are the probabilities that a given PTAC or PTHP unit shipped will be 

operated with a given price. For evaluation purposes, the prices and weights can be depicted as a 

cumulative probability distribution. The effective prices (2007$) range from approximately 5.1 

cents per kWh to approximately 28.0 cents per kWh. Figure 8.2.1 illustrates the results for 

PTACs and PTHPs in all four business types and all states. (The display range on the chart 

reaches only to 23.7 cents/kWh although the true maximum is 28.0 cents.) 

 

8-15

 EERE-2007-BT-STD-0012 COMMENT 32
Figure 8.2.1 Cumulative Probability Distribution Showing the Estimated Electricity 

Prices Paid by PTAC and PTHP Customers (2007$)

8.2.3.2 Electricity Price Trend 

The electricity price trend provides the relative change in electricity prices for future 

years out to the year 2042. Estimating future electricity prices is difficult, especially considering 

that there are efforts in many states throughout the country to restructure the electricity supply 

industry. 

DOE applies a projected trend in national average electricity prices to each customer’s 

energy prices. The discussion in this chapter uses the AEO 2008 reference price scenario. In the 

LCC analysis, the following four scenarios can be analyzed: 

1. Constant energy prices at 2007 values (Constant index of 1.0 in Figure 8.2.2) 

2. AEO 2008, High Economic Growth (“High” in Figure 8.2.2) 

3. AEO 2008, Reference Case (“AEO 2008” in Figure 8.2.2) 

4. AEO 2008, Low Economic Growth (“Low” in Figure 8.2.2) 

Figure 8.2.2 shows the trends for the three AEO 2008 price projections where prices are 

assumed to change. DOE extrapolated the values in later years (i.e., after 2030) from their 

relative sources because AEO 2008 does not forecast beyond 2030. To arrive at values for these 

later years, DOE used the price trend from 2020 to 2030 of the forecast to establish prices in the 

years 2030 to 2042. This method of extrapolation is in line with methods currently used by the 

EIA to forecast fuel prices for the Federal Energy Management Program. 

8-16

 EERE-2007-BT-STD-0012 COMMENT 32
8-17

Electricity Price Projections

0.80

0.85

0.90

0.95

1.00

1.05

1.10

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

Year

Index (2007=1.00)

High Growth

AEO 2007

Low Growth

Figure 8.2.2 Electricity Price Trends for Commercial Rates to 2042

The default electricity price trend scenario used in the LCC analysis is the trend from the 

AEO 2008 Reference Case, which is the middle line in Figure 8.2.2. Spreadsheets used in 

calculating the LCC have the capability to analyze the other electricity price trend scenarios, 

namely, the AEO 2008 High Growth and the AEO 2008 Low Growth price trends and constant 

energy prices.a

 

a

 EIA did not publish its high- and low-growth forecasts in time for incorporation into this final rule, DOE 

developed high- and low-growth electricity forecasts corresponding to the AEO 2008 forecasts. DOE calculated the 

ratio of the AEO 2007 high- or low-growth forecasted electricity price to the AEO 2007 reference case forecast for 

each year. DOE then applied those ratios, respectively, to the AEO 2008 reference case prices. Subsequent 

examination of the actual AEO 2008 high and low price indices shows them to be 0%-3% higher in the short run and 

4%-7% lower in the long run than the calculated values used in the analysis. 

 EERE-2007-BT-STD-0012 COMMENT 32
8.2.3.3 Repair Cost 

The repair cost is the cost to the customer for replacing or repairing components in the 

PTAC and PTHP equipment that have failed. DOE based the annualized repair cost for baseline 

efficiency equipment (i.e., the cost the customer pays annually for repairing the equipment) on 

the following expression: 

RC = W X ANNFAC Eq. 8.8

where 

RC = repair cost ($), 

W = purchase cost for a warranty contract ($), 

ANNFAC = annualization factor. 

DOE estimated annualized maintenance costs for PTACs and PTHPs from data in a 

Carrier corporate website, which provides costs to purchase an extended warranty agreement.7

 

The warranty covers for either 5 years ($55) or 7 years ($99). The equivalent annualized cost of 

these contracts varied slightly, depending on the discount rate used in the annualization factor, 

but the average cost was $12.89 for the 5-year contact and $17.44 for the 7-year contract at the 

discount rate of 5.53 percent, the average discount rate for the dominant group of purchasers. 

The average of these two values is $15.17, the value used in the analysis. 

Because data were not available to indicate how repair costs vary with equipment 

efficiency level, DOE considered two scenarios: (1) repair costs vary in direct proportion with 

the MSP of the equipment and (2) repair costs remain constant (i.e., did not increase due to a 

higher efficiency). 

DOE used repair costs that increase with MSP (the first scenario above) as the default 

annualized repair cost scenario in the LCC and PBP analysis. Spreadsheets used to calculate the 

LCC and PBP are able to calculate LCC and PBP based on the second scenario as well. 

8.2.3.4 Maintenance Cost 

The maintenance cost is the cost to the customer of maintaining equipment operation. 

The maintenance cost is not the cost associated with the replacement or repair of components 

that have failed (as discussed above). Rather, it is the cost associated with general maintenance 

(e.g., cleaning coils and drain pan, changing air filters, etc.). 

Virtually no data are available on annual maintenance cost per unit. DOE estimated 

annual routine maintenance costs for PTAC and PTHP equipment at $117 per year per unit from 

data in RS Means Costworks on annual preventative maintenance of air source heat pumps up to 

5 tons in capacity. 

8-18

 EERE-2007-BT-STD-0012 COMMENT 32
Because data were not available to indicate how maintenance costs vary with equipment 

efficiency, DOE decided to use preventative maintenance costs that remain constant as 

equipment efficiency is increased. 

8.2.3.5 Equipment Lifetime 

DOE defines equipment lifetime as the age when a PTAC or PTHP unit is retired from 

service. DOE reviewed available literature and consulted with manufacturers in order to 

establish typical equipment lifetimes. The literature and experts consulted offered a wide range 

of typical equipment lifetimes. Individuals with previous experience in manufacturing or 

distribution of PTACs and PTHPs suggested a typical lifetime of 5 to 15 years. Some experts 

suggested that the lifetime could be even lower because of the daily or continuous use of the 

equipment and neglect of maintenance such as cleaning the heat exchangers or replacing the air 

filters. Previously, DOE used a 15-year lifetime for PTACs and PTHPs in the 2000 Screening 

Analysisa

 based on data from ASHRAE’s 1995 Handbook of HVAC Applications. Stakeholders 

commented on the 2000 Screening Analysis and suggested DOE use the 10-year lifetime 

assumption rather than 15-year lifetime to more accurately reflect the life and usage 

characteristics of this equipment. Therefore, based on the information it gathered, DOE 

concluded that a typical lifetime of 10 years is appropriate for PTAC and PTHP equipment. 

Furthermore, DOE modeled the lifetime of PTAC and PTHP equipment as a Weibull statistical 

distribution with an average lifetime of 10 years and a maximum lifetime of 20 years. Chapter 3 

of the TSD contains a discussion of equipment lifetime, 

8.2.3.6 Discount Rate 

The discount rate is the rate at which future expenditures are discounted to establish their 

present value. DOE derived the discount rates for the LCC analysis by estimating the cost of 

capital for companies that purchase PTAC and PTHP equipment. The cost of capital is 

commonly used to estimate the present value of cash flows to be derived from a typical company 

project or investment. Most companies use both debt and equity capital to fund investments, so 

their cost of capital is the weighted average of the cost to the company of equity and debt 

financing. 

DOE estimated the cost of equity financing by using the Capital Asset Pricing Model 

(CAPM).8

 The CAPM, among the most widely used models to estimate the cost of equity 

financing, assumes that the cost of equity is proportional to the amount of systematic risk 

associated with a company. The cost of equity financing tends to be high when a company faces 

a large degree of systematic risk and it tends to be low when the company faces a small degree of 

systematic risk. 

DOE determined the cost of equity financing by using several variables, including the 

risk coefficient of a company, (beta), the expected return on “risk free” assets (Rf), and the 

additional return expected on assets facing average market risk, also known as the equity risk 

premium or ERP. The risk coefficient of a company, , indicates the degree of risk associated 

 

a

 U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy. “Energy Conservation Program 

for Consumer Products: Screening Analysis for EPACT-Covered Commercial HVAC and Water-Heating 

Equipment Screening Analysis.” April 2000. 

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 EERE-2007-BT-STD-0012 COMMENT 32
with a given firm relative to the level of risk (or price variability) in the overall stock market. 

Risk coefficients usually vary between 0.5 and 2.0. A company with a risk coefficient of 

0.5 faces half the risk of other stocks in the market; a company with a risk coefficient of 2.0 

faces twice the overall stock market risk. 

The following equation gives the cost of equity financing for a particular company: 

ke = Rf + ( • ERP) Eq. 8.9

where 

ke = the cost of equity for a company (%), 

Rf = the expected return of the risk free asset (%), 

 =the risk coefficient, 

ERP = the expected equity risk premium (%). 

DOE defined the risk free rate (Rf ) as the yield in January 2008 on long-term government 

bonds. DOE used a rate (ke ) that varies with the ERP, based on data from the Damodaran 

Online site.1

 

The cost of debt financing is the yield or interest rate paid on money borrowed by a 

company (for example, by selling bonds). As defined here, the cost of debt includes 

compensation for default risk (the risk that a firm will go bankrupt) and excludes deductions for 

taxes. DOE estimated the cost of debt for companies by adding a risk adjustment factor to the 

current yield on long term corporate bonds (the risk free rate). It used this procedure to estimate 

current (and future) company costs to obtain debt financing. It based the adjustment factor on 

indicators of company risk, such as credit rating or variability of stock returns. 

The weighted-average cost of capital (WACC) of a company is the weighted-average cost 

of debt and equity financing: 

 kr = (ke• we+ kd• wd)/(1+r) Eq. 8.10

where 

kr = the (real) weighted-average cost of capital (%), 

ke = the expected rate of return on equity (%), 

kd = the expected rate of return on debt (%), 

we = the proportion of equity financing in total annual financing, 

wd = the proportion of debt financing in total annual financing, 

r = the expected inflation rate (%). 

The weighted-average cost of capital is a real rate, because it excludes anticipated future 

inflation in the expected returns from stocks and bonds. DOE calculated expected inflation (2.0 

percent) from the average of the projected change in gross domestic product (GDP) prices in the 

Economic Report of the President (February 2008).9

To estimate the WACC of PTAC and PTHP equipment purchasers, DOE used a sample 

of companies involved in large hotel/motel chains drawn from a database of 7,369 U.S. 

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 EERE-2007-BT-STD-0012 COMMENT 32
8-21

companies given on the Damodaran Online website. This database includes most of the 

publicly-traded companies in the United States. 

DOE divided the companies into the four ownership categories shown in Table 8.2.12 

according to their type of activity. DOE sought financial information for all of the firms in the 

full sample involved in the two lines of business, i.e., the large hotel chain and health care. In 

cases where one or more of the variables needed to estimate the discount rate was missing or 

could not be obtained, or where in the hotel/gaming business a firm was clearly engaged only in 

gaming, DOE discarded the firm from the analysis. This resulted in a sample of 34 firms, 28 in 

the hotel/gaming business and six in the assisted living business. 

Table 8.2.12 describes the economic sectors represented in each of the ownership 

categories as well as the number of companies used for determining discount rates. 

 EERE-2007-BT-STD-0012 COMMENT 32
8-22

Table 8.2.12 Real Discount Rates by Company and Ownership Category 

Company 

Company 

Value 

(million $) 

Value 

Line Beta 

Cost of 

Equity (E) E/(D+E) 

Std Dev 

in

Stock 

Cost of 

Debt (D) 

Effective 

Tax Rate 

After

Tax Cost 

of Debt 

Market 

Debt to 

Capital 

(D/(D+E) 

Cost of 

Capital 

A $2,280.80 0.85 8.39% 92.44% 31.94% 5.28% 27.42% 3.83% 7.56% 8.05% 

B $165.20 1.2 10.09% 56.05% 71.48% 6.28% 0.00% 6.28% 43.95% 8.41% 

C $2,462.10 1.1 9.60% 69.31% 28.83% 5.03% 0.00% 5.03% 30.69% 8.20% 

D $14,736.20 1.1 9.60% 60.11% 20.34% 4.78% 1.59% 4.70% 39.89% 7.65% 

E $47.40 0.15 5.01% 21.31% 38.09% 5.28% 0.00% 5.28% 78.69% 5.22% 

F $744.70 1.15 9.85% 65.50% 35.96% 5.28% 22.01% 4.12% 34.50% 7.87% 

G $14,237.60 1 9.12% 87.13% 18.71% 4.53% 28.69% 3.23% 12.87% 8.36% 

H $3,154.40 1.2 10.09% 77.29% 31.59% 5.28% 18.90% 4.28% 22.71% 8.77% 

I $305.50 0.65 7.43% 62.00% 30.17% 5.28% 0.00% 5.28% 38.00% 6.61% 

J $21.90 0.25 5.49% 81.74% 48.53% 5.53% 0.00% 5.53% 18.26% 5.50% 

K $446.00 1.2 10.09% 35.87% 93.65% 6.28% 38.50% 3.86% 64.13% 6.10% 

L $162.80 0.85 8.39% 79.05% 

127.59

% 6.28% 0.00% 6.28% 20.95% 7.95% 

M $11,348.30 1.25 10.33% 76.81% 22.30% 4.78% 36.21% 3.05% 23.19% 8.64% 

N $2,553.10 0.9 8.64% 79.19% 24.51% 4.78% 39.00% 2.92% 20.81% 7.45% 

O $14,992.20 1.15 9.85% 84.08% 46.25% 5.53% 0.00% 5.53% 15.92% 9.16% 

P $2,461.80 0.95 8.88% 64.13% 34.25% 5.28% 39.46% 3.20% 35.87% 6.84% 

Q $225.80 0.65 7.43% 66.03% 35.10% 5.28% 0.00% 5.28% 33.97% 6.70% 

R $92.50 0.85 8.39% 100.00% 55.79% 5.78% 0.00% 5.78% 0.00% 8.39% 

S $5.90 0.5 6.70% 66.10% 42.71% 5.53% 0.00% 5.53% 33.90% 6.30% 

T $28,716.40 0.95 8.88% 57.90% 21.75% 4.78% 37.51% 2.99% 42.10% 6.40% 

U $1,848.80 1.35 10.81% 23.30% 35.59% 5.28% 0.00% 5.28% 76.70% 6.57% 

V $37,059.80 1.1 9.60% 64.94% 34.41% 5.28% 39.05% 3.22% 35.06% 7.36% 

W $462.00 1.15 9.85% 100.00% 40.83% 5.53% 34.79% 3.61% 0.00% 9.85% 

X $468.80 1.2 10.09% 40.68% 43.81% 5.53% 54.39% 2.52% 59.32% 5.60% 

Y $2,176.00 1.4 11.06% 64.42% 32.11% 5.28% 39.96% 3.17% 35.58% 8.25% 

Z $3.90 1.25 10.33% 87.18% 

194.07

% 6.28% 0.00% 6.28% 12.82% 9.81% 

AA $1.40 0.25 5.49% 100.00% 

297.18

% 6.28% 0.00% 6.28% 0.00% 5.49% 

AB $606.90 0.85 8.39% 64.11% 56.92% 5.78% 0.00% 5.78% 35.89% 7.46% 

Table 8.2.12 (cont’d) 

 EERE-2007-BT-STD-0012 COMMENT 32
8-23

Company 

Company 

Value 

Value Line 

Beta

Cost of 

Equity (E) E/(D+E) 

Std Dev 

in

Stock 

Cost of 

Debt (D) 

Effective 

Tax Rate 

After

Tax Cost 

of Debt 

Market 

Debt to 

Capital 

(D/(D+E) 

Cost of 

Capital 

Large Hotel Chain 

Average $5,063.86 1.07 9.48% 68.65% 29.20% 5.03% 27.14% 3.68% 31.35% 7.64% 

Inflation-Adjusted 5.53% 

AC $112.10 1.2 10.09% 57.63% 54.88% 5.78% 0.00% 5.78% 42.37% 8.26% 

AD $1,680.60 0.45 6.46% 57.09% 41.24% 5.53% 0.00% 5.53% 42.91% 6.06% 

AE $1,107.20 1.05 9.36% 88.24% 38.53% 5.28% 39.53% 3.19% 11.76% 8.64% 

AF $343.10 1.3 10.57% 100.00% 26.21% 5.03% 35.40% 3.25% 0.00% 10.57% 

AG $1,533.80 0.95 8.88% 86.78% 24.67% 4.78% 37.13% 3.01% 13.22% 8.10% 

AH $129.40 1.2 10.09% 100.00% 42.19% 5.53% 0.00% 5.53% 0.00% 10.09% 

Health Care 

(Nursing Homes and 

Assisted Living) 

Weighted Average $4,906.20 0.84 8.34% $0.78 34.73% $0.05 23.00% 4.06% 22.46% 7.75% 

Inflation-Adjusted 5.64% 

Independent Hotels, Inflation Adjusted 8.03% 

Office, Inflation Adjusted 8.14% 

E=equity; D=debt 

Source: Pacific Northwest National Laboratory (PNNL) calculations applied to firms sampled from the Damodaran Online website.

 EERE-2007-BT-STD-0012 COMMENT 32
Ultimately, DOE used a sample of 34 companies to represent the purchasers of PTAC 

and PTHP equipment in the large chain component of the hotel industry and the nursing 

home/assisted living industry. For each company in the sample, DOE derived the cost of debt, 

percent debt financing, and systematic company risk from information provided at the 

Damodaran Online website. It estimated the cost of debt financing from the long-term 

government bond rate (4.39 percent) and the standard deviation of the stock price. Table 8.2.12 

shows the weighted-average values for the cost of debt, percent debt financing and systematic 

firm risk for each category of the sample companies. The cost of capital for independent 

hoteliers, and small office companies with more limited access to capital is more difficult to 

determine. Individual credit-worthiness varies considerably, and some franchisees have access 

to the financial resources of the franchising corporation. However, personal contacts with a 

sample of commercial bankers yielded an estimate for the small operator weighted cost of capital 

of about 200 to 300 basis points (2 percent to 3 percent) above the rates for larger hotel chains. 

A central value equal to the weighted average of large hotel chains (7.64 percent), plus 2.5 

percent, was used for independent hotel/motels and the same multiplier was applied to large 

nursing home/assisted care companies (7.75 percent) to derive an estimate for small health care 

practitioners occupying small office buildings. 

Deducting expected inflation from the cost of capital provides the estimates of the real 

discount rate by ownership category shown in Table 8.2.12. DOE modeled the cost of capital as 

statistical distributions. Large chain hotels and independent hotels were modeled as normal 

distributions. Health care facilities and offices costs of capital were modeled as triangular 

distributions due to small sample size. The average after-tax discount rate, weighted by the 

percentage shares of total PTAC and PTHP purchases, is 5.53 percent for large hotel chains, 

8..03 percent for independent hotels, 5.64 percent for health care (nursing homes and assisted 

care facilities) and 8.14 percent for offices (medical and dental offices). 

8.2.3.7 Effective Date of Amended Energy Conservation Standard 

The effective date is the future date when a new or an amended energy conservation 

standard becomes operative. Under 42 U.S.C. 6313(a)(6)(c), the effective date of any amended 

energy conservation standard for PTACs and PTHPs will be four years after the final rule is 

published. DOE calculated the LCC for all customers as if they each would purchase a new 

PTAC or PTHP unit in the year the amended standard takes effect. Consistent with its published 

regulatory agenda, DOE assumed that the final rule would be issued in September 2008 and that, 

therefore, the amended standards would take effect in 2012 and used these dates in the Notice of 

Proposed Rule (NOPR) analyses. It based the cost of the equipment in 2012; however, all dollar 

values are expressed in 2007$. DOE considered annual energy prices for the life of the PTAC 

and PTHP equipment. 

8.3 PAYBACK PERIOD INPUTS 

8.3.1 Definition

The payback period (PBP) is the amount of time it takes the customer to recover the 

assumed higher purchase cost of more energy-efficient equipment as a result of lower operating 

costs. Numerically, the PBP is the ratio of the increase in purchase cost (i.e., from a less 

8-24

 EERE-2007-BT-STD-0012 COMMENT 32
efficient design to a more efficient design) to the decrease in annual operating expenditures. 

This type of calculation is known as a “simple” payback period, because is does not take into 

account changes in operating cost over time or the time value of money—that is, the calculation 

is done at an effective discount rate of zero percent. 

The equation for PBP is: 

PBP =IC/OC Eq. 8.11

Where 

PBP = payback period (years), 

IC = difference in the total installed cost between each efficiency level and the 

baseline efficiency level ($), 

OC = difference in annual operating costs between each efficiency level and the 

baseline efficiency level ($). 

Payback periods are expressed in years. Payback periods greater than the life of the 

equipment mean that the increased total installed cost of the more efficient equipment is not 

recovered in reduced operating costs over the life of the equipment. 

8.3.2 Inputs

The data inputs to PBP are the total installed cost of the equipment to the customer for 

each efficiency level and the annual (first year) operating costs for each efficiency level. The 

inputs to the total installed cost are the equipment price and the installation cost. The inputs to 

the operating costs are the annual energy cost, the annual repair cost, and the annual maintenance 

cost. The PBP uses the same inputs as the LCC analysis described in section 8.2, except that 

electricity price trends and discount rates are not required. Since the PBP is a “simple” 

(undiscounted) payback, the required electricity cost is only for the year in which a new or an 

amended energy conservation standard is to take effect—in this case, the year 2012. The 

electricity price used in the PBP calculation was the price projected for 2012. The electricity 

price used in the PBP calculation of energy cost was the price projected for 2012, expressed in 

2007 dollars, but not discounted to 2007. Discount rates are not used in the PBP calculation. 

8.4 RESULTS USING AVERAGE ELECTRICITY PRICES 

8.4.1 Life-Cycle Cost Results 

This section presents LCC results for the higher efficiency levels and also presented in 

section 8.2.2.2, Standard-Compliant Manufacturer Selling Price Increases. The results presented 

here are based on annual operating costs calculated from average annual electricity prices 

developed for each business type. Section 8.2 presents the electricity price inputs as well as all 

other LCC inputs. 

Because the values of most inputs are variable in this analysis, DOE represents them as a 

distribution of values rather than a single point-value. Thus, DOE represents the LCC results as 

a distribution of values. Before proceeding with the presentation of the distribution of LCC 

results, DOE presents average values for total installed costs, annual operating costs, and LCC to 

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 EERE-2007-BT-STD-0012 COMMENT 32
show how these costs vary with efficiency level for each of the PTAC and PTHP equipment 

classes. 

8.4.1.1 Life-Cycle Cost Breakdown Based on Average Input Values 

Figure 8.4.1 shows how, on an average basis, the total installed costs, annual operating 

costs, and LCC vary with efficiency level for the standard size PTAC with a cooling capacity of 

9,000 Btu/h for large chain hotels. Level 0 in Figure 8.4.1 refers to the baseline efficiency level. 

Similar figures for other equipment classes are provided in appendix E. 

Efficiency Level-LCC Tradeoff

$3,067 

$3,071 

$3,083 

$3,078 

$3,074 

$3,066 

$3,068 

$3,070 

$3,072 

$3,074 

$3,076 

$3,078 

$3,080 

$3,082 

$3,084 

$3,086 

01234

Efficiency Level 

Life Cycle Cost

LCC-Efficiency Level Tradeoff

 Equipment= PTAC Standard Size - 9,000 Btu/h, Fuel Price=AEO 2008 - Reference Case, Start Year= 2012

Figure 8.4.1 Effect of the Change in Efficiency Level on Life-Cycle Cost for Standard Size 

PTAC with a Cooling Capacity of 9,000 Btu/h in Large Chain Hotels (2007$) 

at Average U.S. Conditions (Level 0 is the Baseline Efficiency Level) REVISE 

CHART

Annual energy cost is the largest contributor to the overall operating cost at any 

efficiency level. As efficiency level is increased, annual energy cost decreases. 

The LCC results reveal that as efficiency is increased, the lifetime operating cost has less 

of an impact on the LCC than the total installed cost. In other words, the increase in total 

installed cost offsets the decrease in lifetime operating costs that occurs with an increase in 

equipment efficiency. As a result, the LCC at all trial standard levels is higher than that for the 

baseline level (Level 0). 

Again, the results shown in Figure 8.4.1 are based on average input values rather than 

input distributions and are depicted for only one building type. Thus, one can observe how the 

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 EERE-2007-BT-STD-0012 COMMENT 32
various inputs impact LCC and, in turn, how the resulting LCC changes with an increase in 

efficiency level in this example. Conclusions, however, should also take into account the 

distribution of LCC results presented in section 8.4.1.2. 

8.4.1.2 Differences in LCC between Baseline and Standard-compliant Equipment 

DOE’s first step in developing LCC results was to establish the baseline LCC for each of 

the PTAC and PTHP equipment classes. As discussed in section 8.2.2.1, the baseline efficiency 

level for the NOPR analysis is the minimum efficiency level specified by ASHRAE/IESNA 

Standard 90.1-1999 for a given equipment class of PTAC and PTHP equipment. 

This section presents the differences in the LCC of standard-compliant equipment 

relative to the baseline efficiency equipment. The LCC differences are depicted as a distribution 

of values. DOE presents the results in a chart showing the cumulative distribution of LCC 

differences along with the corresponding probability of occurrence for each efficiency level. In 

each chart, DOE provides the mean LCC difference along with the percent of the installations for 

which the LCC will decrease (the percent of the population installing a given PTAC or PTHP 

unit which would experience life-cycle cost savings). In this analysis, the population is the 

number of PTAC and PTHP units in commercial building that utilize PTACs or PTHPs, 

including hotels and motels, assisted living and nursing homes, and small offices (mainly 

medical and dental). 

Figure 8.4.2 presents the LCC results for the case of efficiency level 4 for the standard 

size PTAC with a cooling capacity of 9,000 Btu/h using R-410A refrigerant. Similar figures for 

other efficiency levels are found in appendix E for all equipment classes. In Figure 8.4.2, the 

50-percent line shows the median change in LCC (a loss of $15.86 in this example). Half of the 

purchasers of this PTAC unit would lose more than $15.86 while half would lose less than 

$15.86. The “0” horizontal line is the minimum savings value, which in this example is a loss of 

$46.34 due to the increased efficiency at efficiency level 4 costing more than the baseline 

efficiency. The maximum LCC savings is $311.90, which is not displayed in Figure 8.4.2. 

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 EERE-2007-BT-STD-0012 COMMENT 32
Figure 8.4.2 Cumulative Chart of LCC Savings for Standard Size PTAC, Cooling 

Capacity of 9,000 Btu/h, at Efficiency Level 4

Appendix E contains the cumulative charts for all the efficiency levels considered for all 

PTAC and PTHP equipment classes. These charts provide more complete information, but DOE 

provides a summary of the change in LCC for standard size PTAC 9000 R-410A from the 

baseline by percentile groupings (i.e., of the distribution of results) for each of the equipment 

classes in Table 8.4.1. Table 8.4.1 also shows the mean LCC savings and the percent of 

equipment with LCC savings from baseline for each efficiency level. 

Table 8.4.1 Distribution of Life-Cycle Cost Savings from Baseline Level for PTAC 9000 

by Efficiency Level 

Percent

of 

Units 

with 

LCC

Savings

Decrease in LCC from Baseline Efficiency (Level 0) Shown by Percentiles of 

the Distribution of Results (2007$)* 

Mean 

Savings

Efficiency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 

Level 1 -$14 -$10 -$8 -$7 -$5 -$3 -$2 $1 $3 $8 $111 -$1 33% 

Level 2 -$24 -$17 -$15 -$12 -$10 -$7 -$4 $0 $5 $13 $182 -$3 31% 

Level 3 -$35 -$25 -$22 -$18 -$15 -$11 -$7 -$2 $5 $15 $249 -$6 27% 

Level 4 -$46 -$34 -$30 -$25 -$21 -$16 -$11 -$4 $4 $17 $312 -$10 25% 

* Negative values refer to LCC increases compared to the baseline efficiency levels. 

An example of standard size PTAC 9,000 Btu/h cooling capacity at efficiency level 4 can 

provide an interpretation of the data in Table 8.4.1. Level 4 efficiency in Table 8.4.1 shows that 

at the zero-percentile (second column), the LCC savings is -$46. This means that at the zeropercentile point, the LCC for a PTAC unit at efficiency level 4 is higher than for a PTAC unit at 

the baseline efficiency level, thus LCC savings are negative. This also means that the remainder 

of the market (the effectively 100 percent of the market above the zero-percentile point) are 

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 EERE-2007-BT-STD-0012 COMMENT 32
estimated to either have an LCC loss of less than -$46, or show a positive LCC savings. For 

90 percent of the cases studied (all columns between the zero-percentile and the 90th percentile 

column), the change in LCC at efficiency level 4 is a LCC savings of $17 or less compared with 

the base case (i.e., a savings of $17 or less shown in the table). The largest positive LCC savings 

is $312 occurring for the 100th percentile of the distribution. The mean change in LCC is a loss 

of $10 compared with the baseline. The rightmost column shows that 25 percent of the 

customers show LCC savings compared with the baseline. 

Table 8.4.2 provides the national average life-cycle cost savings calculated for each 

efficiency level when compared to the baseline (Level 0) for all equipment classes. Review of 

Table 8.4.2 shows that every efficiency level analyzed generated both positive and negative 

national average life cycle cost savings compared with the baseline. 

Table 8.4.2 Average Life-Cycle Cost Savings from a Baseline Level by Efficiency Level 

and Equipment Class 

Equipment National Average LCC Savings (2007$)* 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 -$1 -$3 -$6 -$10 

PTAC 12000 -$2 -$5 -$10 -$15 

PTHP 9000 $11 $20 $28 $24 

PTHP 12000 $13 $24 $20 $14 

PTAC 11000 $26 $30 $31 NA 

PTHP 11000 $62 $66 $80 NA 

Percent of Units with Positive LCC Savings from 

Baseline 

 Level 1 Level 2 Level 3 Level 4 

PTAC 9000 33% 31% 27% 25% 

PTAC 12000 31% 29% 25% 21% 

PTHP 9000 71% 77% 79% 71% 

PTHP 12000 71% 77% 67% 57% 

PTAC 11000 79% 73% 67% NA 

PTHP 11000 97% 95% 93% NA 

* Negative values refer to LCC increases compared to the baseline efficiency levels. NA means that this efficiency 

level was not evaluated (PTAC 11000 and PTHP 11000 only were evaluated up to Level 3). 

Appendix E contains similar tables for all the efficiency levels considered for all PTAC 

and PTHP equipment classes using R-410A refrigerants that correspond to the groups of figures 

contained in the same appendix. 

8.4.2 Payback Period Results 

This section presents PBP results for each efficiency level defined in section 8.3. The 

results presented here are based on annual operating costs calculated from state average 

commercial electricity prices. Section 8.2 describes the electricity price inputs as well as all 

other PBP inputs. 

Similar to LCC, the PBP analysis provides an estimate of the simple payback period at 

different ranges of energy prices, sales taxes, and installation costs that prevail across the country 

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 EERE-2007-BT-STD-0012 COMMENT 32
for each efficiency level and each building (building) type. Figure 8.4.3 shows the effect on 

payback period as the level of efficiency changes from Level 0 (the baseline), for PTAC 9000 

R-410A equipment class in large chain hotels at U.S. national average energy prices, sales taxes, 

and installation costs. 

Payback Period -Efficiency Level Tradeoff

8.8

9.2

9.8

8.3

8.2

8.4

8.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

01234

Efficiency Level

Payback Period (Years)

Payback Period-Efficiency Level Tradeoff

 Equipment= PTAC Standard Size - 9,000 Btu/h, Fuel Price=AEO 2008 - Reference Case, Start Year= 2012

Figure 8.4.3 Effect of the Change in Efficiency Level on Payback Period for Standard Size 

PTAC 9000 in Large Chain Hotels at Average U.S. Conditions (Level 0 is the 

Baseline Level). 

Similar to the LCC differences, DOE depicted PBP results as a distribution of values 

(Appendix E). Thus, it presents the results as a cumulative probability chart showing the 

distribution of PBPs with the corresponding cumulative probability of occurrence. Each chart 

provides the mean PBP. Figure 8.4.4 is an example of a cumulative probability chart showing 

the distribution of payback periods at efficiency level 4 for the standard size PTAC 9000 R-410A 

equipment class. Appendix E contains the frequency charts for all the efficiency levels 

considered for all PTACs and PTHPs equipment in this analysis. In Figure 8.4.4, the y-axis 

shows cumulative percent of all PTAC 9000 units (“Probability” at left y-axis). The x-axis is the 

PBP of a higher efficiency level (in this example, Level 4) relative to the baseline efficiency 

level (Level 0). In Figure 8.4.4, an efficiency level 4 provides standard size PTAC 9000 

equipment with a median PBP of about 9.6 years, a mean payback period of 15.2 years, and a 

payback period range from about 1.3 years to over 100 years. (Note that these cannot be read 

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 EERE-2007-BT-STD-0012 COMMENT 32
with precision from the chart; rather, the analysis output data provides these values in a statistical 

summary.) 

Figure 8.4.4 Cumulative Chart of Payback Period of PTAC 9000 at Efficiency Level 4

Table 8.4.3 summarizes the PBP results for the standard size PTAC 9000 R-410A 

equipment class. The results are summarized for PBP by percentile groupings (i.e., percentile of 

the distribution of results). The table also shows the mean PBP for each efficiency level. 

Table 8.4.3 Summary of Payback Periods Results for Standard Size PTAC 9000 

Equipment

Efficiency Payback Period in Years Shown by Percentiles of the Distribution of Results Mean

Level 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 

Level 1 1.1 3.9 5.6 6.9 7.5 8.2 9.5 12.2 14.9 22.7 100.0 13.0 

Level 2 1.2 4.1 5.9 7.2 7.8 8.6 10.1 12.9 15.5 24.5 100.0 13.7 

Level 3 1.2 4.3 6.2 7.7 8.3 9.1 10.6 13.7 16.6 26.3 100.0 14.5 

Level 4 1.3 4.5 6.5 8.1 8.7 9.6 11.2 14.5 17.6 28.2 100.0 15.2 

Table 8.4.4 provides the national average payback calculated for each efficiency level 

when compared with the baseline efficiency level for each of six equipment classes analyzed. 

Table 8.4.4 also shows the percentage of units reporting payback periods of less than 3 years. 

The results of the analysis shown that payback period for purchases of higher efficiency levels 

(with respect to purchase of baseline units) was rarely less than 3 years for any of the efficiency 

levels considered for any equipment class. Table 8.4.4 shows that only non-standard size PTHPs 

contains certain efficiency levels (i.e., efficiency level 1, 2 and 3) that provides a payback of less 

than 3 years to at least 50 percent of units shipped. 

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 EERE-2007-BT-STD-0012 COMMENT 32
Table 8.4.4 National Average Payback Periods by Efficiency Level and Equipment Class 

Equipment National Average Payback Period (Years) 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 13.0 13.7 14.5 15.2 

PTAC 12000 13.1 14.0 14.9 15.9 

PTHP 9000 5.1 4.5 4.4 5.1 

PTHP 12000 5.1 4.6 5.5 6.4 

PTAC 11000 4.4 5.1 5.9 NA 

PTHP 11000 2.2 2.8 3.0 NA 

 Percent of Units with Payback Period less than 3 Years 

 Level 1 Level 2 Level 3 Level 4 

PTAC 9000 1% 1% 1% 1% 

PTAC 12000 1% 1% 1% 1% 

PTHP 9000 11% 19% 19% 9% 

PTHP 12000 9% 17% 3% 1% 

PTAC 11000 35% 21% 19% NA 

PTHP 11000 87% 67% 55% NA 

* NA means that this efficiency level was not evaluated (PTAC 11000 and PTHP 11000 only were evaluated up to 

Level 3).

8.5 LCC SENSITIVY STUDIES 

Sensitivity analyses were conducted to evaluate how the LCC and PBP results change 

with changes in electricity price escalation rates. The results of these are discussed in section 

8.5.1. 

8.5.1 Sensitivity to Electricity Price Escalation Rate 

Sensitivity to electricity price escalation rate was examined using the escalation rates 

provided in the AEO 2008 high growth and low growth scenarios. Table 8.5.1 and Table 8.5.2 

examine the national average LCC savings for the AEO 2008 low growth scenario and AEO 

2008high growth scenarios respectively. For the low growth scenario, while the average LCC 

savings is reduced for all efficiency levels above the baseline when compared with the reference 

case, there are no changes in the level showing the highest LCC savings when compared with the 

results using AEO 2008 reference case (see Table 8.4.2). For the high growth scenario the 

average LCC savings is increased for all efficiency levels above the baseline when compared 

with the reference case. 

8-32

 EERE-2007-BT-STD-0012 COMMENT 32
Table 8.5.1 Average Life-Cycle Cost Savings from a Baseline Level by Efficiency Level 

and Equipment Class – EIA Low Growth Scenario 

Equipment National Average LCC Savings (2007$)* 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 -$2 -$5 -$8 -$12 

PTAC 12000 -$3 -$7 -$12 -$18 

PTHP 9000 $9 $17 $24 $20 

PTHP 12000 $11 $20 $15 $9 

PTAC 11000 $23 $26 $26 NAPTHP 11000 $57 $60 $72 NA 

Percent of Units with Positive LCC Savings 

from Baseline 

 

Level 1 Level 2 Level 3 Level 4 

PTAC 9000 29% 27% 23% 21% 

PTAC 12000 27% 23% 21% 17% 

PTHP 9000 67% 73% 75% 67% 

PTHP 12000 67% 73% 61% 51% 

PTAC 11000 77% 69% 63% NA 

PTHP 11000 97% 93% 93% NA 

* Negative values refer to LCC increases compared to the baseline efficiency levels. NA means that this efficiency 

level was not evaluated (PTAC 11000 and PTHP 11000 only were evaluated up to Level 3).

Table 8.5.2 Average Life-Cycle Cost Savings from a Baseline Level by Efficiency Level 

and Equipment Class – EIA High Growth Scenario 

Equipment National Average LCC Savings (2007$)* 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 -$1 -$2 -$5 -$8 

PTAC 12000 -$1 -$4 -$8 -$13 

PTHP 9000 $13 $23 $31 $28 

PTHP 12000 $15 $27 $24 $18 

PTAC 11000 $29 $34 $35 NA 

PTHP 11000 $66 $71 $87 NA 

Percent of Units with Positive LCC Savings 

from Baseline 

 

Level 1 Level 2 Level 3 Level 4 

PTAC 9000 37% 33% 31% 27% 

PTAC 12000 35% 31% 27% 23% 

PTHP 9000 73% 81% 81% 75% 

PTHP 12000 73% 79% 69% 59% 

PTAC 11000 81% 75% 69% NA 

PTHP 11000 97% 95% 95% NA 

* Negative values refer to LCC increases compared to the baseline efficiency levels. NA means that this efficiency 

level was not evaluated (PTAC 11000 and PTHP 11000 only were evaluated up to Level 3).

Payback period is calculated based on first year energy savings and thus is insensitive to 

fuel escalation rate scenarios after the first year of operations. However, since the first year of 

operations is 2012, fuel price forecasts for 2012 do affect the payback forecast. As shown in 

Table 8.5.3 and Table 8.5.4, the payback periods are longer by approximately a year than in the 

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 EERE-2007-BT-STD-0012 COMMENT 32
reference case for the EIA Low Growth Forecast and shorter by approximately a year than in the 

reference case for the EIA High Growth Forecast, respectively. 

Table 8.5.3 Average Payback Period by Efficiency Level and Equipment Class – EIA 

Low Growth Scenario 

Equipment National Average Payback Period (Years) 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 13.9 14.6 15.4 16.3 

PTAC 12000 14.0 14.9 15.8 17.0 

PTHP 9000 5.4 4.8 4.7 5.4 

PTHP 12000 5.4 4.9 5.8 6.7 

PTAC 11000 4.7 5.4 6.3 NA 

PTHP 11000 2.3 2.9 3.1 NA 

 Percent of Units with Payback Period less than 3 Years 

 Level 1 Level 2 Level 3 Level 4 

PTAC 9000 1% 1% 1% 1% 

PTAC 12000 1% 1% 1% 1% 

PTHP 9000 5% 15% 15% 5% 

PTHP 12000 5% 11% 1% 1% 

PTAC 11000 27% 21% 17% NA 

PTHP 11000 85% 61% 47% NA 

Table 8.5.4 Average Payback Period by Efficiency Level and Equipment Class – EIA 

High Growth Scenario 

Equipment National Average Payback Period (Years) 

Class Level 1 Level 2 Level 3 Level 4 

PTAC 9000 12.1 12.9 13.6 14.3 

PTAC 12000 12.2 13.2 14.0 15.0 

PTHP 9000 4.8 4.3 4.2 4.8 

PTHP 12000 4.8 4.4 5.2 6.0 

PTAC 11000 4.2 4.8 5.6 NA 

PTHP 11000 2.1 2.6 2.8 NA 

 Percent of Units with Payback Period less than 3 Years 

 Level 1 Level 2 Level 3 Level 4 

PTAC 9000 3% 1% 1% 1% 

PTAC 12000 1% 1% 1% 1% 

PTHP 9000 17% 25% 25% 13% 

PTHP 12000 17% 23% 7% 1% 

PTAC 11000 43% 25% 19% NA 

PTHP 11000 91% 73% 65% NA 

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 EERE-2007-BT-STD-0012 COMMENT 32
8.6 DETAILED RESULTS 

DOE presents more detailed results and supporting data for the LCC analysis in appendix 

E. 

8-35

 EERE-2007-BT-STD-0012 COMMENT 32
8-36

REFERENCES 

1

 Damodaran Online. Leonard N. Stern School of Business, New York University: 

http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html. January, 2008.

2

 Energy Information Administration. 2008b. Form EIA-826 Database Monthly Electric Utility 

Sales and Revenue Data ("EIA-826 Sales and Revenue Spreadsheets"). 

http://www.eia.doe.gov/cneaf/electricity/page/eia826.html. Accessed May 8, 2008.. 

3

 EIA (Energy Information Administration). 2003. 2003 Commercial Building Energy 

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